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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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: 000-23265
SALIX PHARMACEUTICALS, LTD.
(Exact name of Registrant as specified in its charter)
| Delaware (State or other
jurisdiction of incorporation or organization) |
|
94-3267443 (I.R.S.
Employer Identification No.) |
8540 Colonnade Center Drive, Suite 501
Raleigh, North Carolina 27615
(Address of principal executive offices, including
zip code)
(919) 862-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
The
number of shares of the Registrant’s Common Stock outstanding as of August 9, 2002 was 21,350,639.
SALIX PHARMACEUTICALS, LTD.
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Page No.
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| PART I. |
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FINANCIAL INFORMATION |
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| Item 1. |
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Condensed Consolidated Financial Statements |
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1 |
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2 |
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3 |
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4 |
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| Item 2. |
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6 |
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| Item 3. |
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9 |
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| PART II. |
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OTHER INFORMATION |
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| Item 4. |
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10 |
| Item 6. |
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10 |
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12 |
PART I. FINANCIAL INFORMATION.
Item 1. Condensed Consolidated Financial Statements
SALIX PHARMACEUTICALS, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (U.S. Dollars, in Thousands, Except Share Amounts)
| |
|
June 30, 2002
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December 31, 2001
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(unaudited) |
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(audited) |
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| ASSETS |
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|
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| Current assets: |
|
|
|
|
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|
|
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| Cash and cash equivalents |
|
$ |
50,670 |
|
|
$ |
27,868 |
|
| Short term investments |
|
|
11,510 |
|
|
|
— |
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| Accounts receivable, net |
|
|
4,317 |
|
|
|
2,378 |
|
| Inventory |
|
|
9,511 |
|
|
|
6,274 |
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| Prepaid and other current assets |
|
|
885 |
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|
784 |
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|
|
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|
|
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| Total current assets |
|
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76,893 |
|
|
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37,304 |
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| Property and equipment, net |
|
|
1,206 |
|
|
|
1,067 |
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| Long term investments |
|
|
7,187 |
|
|
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— |
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| Other assets |
|
|
110 |
|
|
|
219 |
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| |
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|
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| Total assets |
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$ |
85,396 |
|
|
$ |
38,590 |
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| LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| Current liabilities: |
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| Accounts payable and accrued liabilities |
|
$ |
7,179 |
|
|
$ |
8,094 |
|
| Deferred revenue |
|
|
3,066 |
|
|
|
2,902 |
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|
|
|
|
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| Total current liabilities |
|
|
10,245 |
|
|
|
10,996 |
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| Commitments |
|
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— |
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— |
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| Stockholders’ equity: |
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| Preferred stock, $0.001 par value; 5,000,000 shares authorized, issuable in series, none outstanding |
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— |
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— |
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| Common stock, $0.001 par value; 80,000,000 shares authorized, 21,345,640 shares issued and outstanding at June 30, 2002
and 16,708,681 shares issued and outstanding at December 31, 2001 |
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|
21 |
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|
|
17 |
|
| Additional paid-in capital |
|
|
131,115 |
|
|
|
73,461 |
|
| Accumulated other comprehensive loss |
|
|
(164 |
) |
|
|
— |
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| Accumulated deficit |
|
|
(55,821 |
) |
|
|
(45,884 |
) |
| |
|
|
|
|
|
|
|
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| Total stockholders’ equity |
|
|
75,151 |
|
|
|
27,594 |
|
| |
|
|
|
|
|
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|
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| Total liabilities and stockholders’ equity |
|
$ |
85,396 |
|
|
$ |
38,590 |
|
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|
|
|
|
|
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The accompanying notes are an
integral part of these financial statements.
1
SALIX PHARMACEUTICALS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, Except per Share Data)
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|
Three months ended June
30,
|
|
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Six months ended June
30,
|
|
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|
2002
|
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|
2001
|
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|
2002
|
|
|
2001
|
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| Revenues: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
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| Product revenue |
|
$ |
7,337 |
|
|
$ |
4,163 |
|
|
$ |
13,548 |
|
|
$ |
7,453 |
|
| Revenue from collaborative agreements |
|
|
— |
|
|
|
1,376 |
|
|
|
— |
|
|
|
2,751 |
|
| |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| Total revenues |
|
|
7,337 |
|
|
|
5,539 |
|
|
|
13,548 |
|
|
|
10,204 |
|
| Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| Cost of products sold |
|
$ |
1,797 |
|
|
$ |
1,080 |
|
|
$ |
3,363 |
|
|
$ |
1,866 |
|
| License fees and costs related to collaborative agreements |
|
|
31 |
|
|
|
808 |
|
|
|
63 |
|
|
|
1,500 |
|
| Research and development |
|
|
3,532 |
|
|
|
1,456 |
|
|
|
6,016 |
|
|
|
2,891 |
|
| Selling, general and administrative |
|
|
7,458 |
|
|
|
5,604 |
|
|
|
14,436 |
|
|
|
11,162 |
|
| |
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|
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| Total cost and expenses |
|
|
12,818 |
|
|
|
8,948 |
|
|
|
23,878 |
|
|
|
17,419 |
|
| Loss from operations |
|
|
(5,481 |
) |
|
|
(3,409 |
) |
|
|
(10,330 |
) |
|
|
(7,215 |
) |
| Interest, and other income (expense), net |
|
|
267 |
|
|
|
100 |
|
|
|
392 |
|
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|
9 |
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| Net loss before tax |
|
$ |
(5,214 |
) |
|
$ |
(3,309 |
) |
|
$ |
(9,938 |
) |
|
$ |
(7,206 |
) |
| Income tax |
|
|
— |
|
|
|
— |
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|
|
— |
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— |
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| |
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|
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| Net loss |
|
$ |
(5,214 |
) |
|
$ |
(3,309 |
) |
|
$ |
(9,938 |
) |
|
$ |
(7,206 |
) |
| |
|
|
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|
|
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|
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|
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| Net loss per share, basic and diluted |
|
$ |
(0.24 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.51 |
) |
|
$ |
(0.51 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| Shares used in computing net loss per share, basic and diluted |
|
|
21,334 |
|
|
|
14,766 |
|
|
|
19,624 |
|
|
|
14,242 |
|
| |
|
|
|
|
|
|
|
|
|
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The accompanying notes are an integral part of these financial statements.
2
SALIX PHARMACEUTICALS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(U.S. Dollars, in Thousands)
| |
|
Six months ended June
30,
|
|
| |
|
2002
|
|
|
2001
|
|
| Cash flows from operating activities |
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(9,938 |
) |
|
$ |
(7,206 |
) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
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| Depreciation and amortization |
|
|
190 |
|
|
|
77 |
|
| Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts receivable, inventory and other current assets |
|
|
(5,168 |
) |
|
|
(2,082 |
) |
| Accounts payable and other current liabilities |
|
|
(915 |
) |
|
|
2,276 |
|
| Deferred revenue |
|
|
164 |
|
|
|
(2,907 |
) |
| |
|
|
|
|
|
|
|
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| Net cash used in operating activities |
|
|
(15,667 |
) |
|
|
(9,842 |
) |
| Cash flows from investing activities |
|
|
|
|
|
|
|
|
| Purchases of property and equipment |
|
|
(329 |
) |
|
|
(746 |
) |
| Purchases of investments |
|
|
(18,697 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
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| Net cash used in investing activities |
|
|
(19,026 |
) |
|
|
(746 |
) |
| Cash flows from financing activities |
|
|
|
|
|
|
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| Proceeds from other comprehensive loss |
|
|
(164 |
) |
|
|
— |
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| Proceeds from issuance of common stock |
|
|
57,659 |
|
|
|
31,777 |
|
| |
|
|
|
|
|
|
|
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| Net cash provided by financing activities |
|
|
57,495 |
|
|
|
31,777 |
|
| Net increase in cash and cash equivalents |
|
|
22,802 |
|
|
|
21,189 |
|
| Cash and cash equivalents at beginning of period |
|
|
27,868 |
|
|
|
13,244 |
|
| |
|
|
|
|
|
|
|
|
| Cash and cash equivalents at end of period |
|
$ |
50,670 |
|
|
$ |
34,433 |
|
| |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
3
SALIX PHARMACEUTICALS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2002
(Unaudited)
1. Organization and Basis of Presentation
The Company became a Delaware corporation on December 31, 2001 pursuant to a reorganization and continuation
of the Company as a domestic entity.
These statements are stated in United States dollars and are prepared under
accounting principles generally accepted in the United States. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only
of normal recurring items), which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. These financial statements should be read in conjunction with Management’s
Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Report and with the audited consolidated financial statements for the fiscal year ended December 31, 2001 included in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2001 filed with the Securities and Exchange Commission. The results of operations for interim periods are not necessarily indicative of results to be expected for a full year or any future
period.
2. Commitments
At June 30, 2002, the Company had binding purchase order commitments for inventory purchases aggregating approximately $8.1 million.
3. Inventory
Inventory at June 30, 2002 consisted of $6.9 million of raw materials and $2.6 million of finished goods. Inventory at December 31, 2001 consisted of $3.6 million of raw materials and $2.7 million of finished goods.
4. Revenue Recognition
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”, which among
other guidance clarifies certain conditions to be met in order to recognize revenue. SAB 101 requires companies to recognize certain up-front non-refundable fees over the term of the related agreement unless the fee is in exchange for products
delivered or services performed that represent the culmination of a separate earnings process. In the fourth quarter of 2000, the Company implemented SAB 101. As a result of the adoption of SAB 101, $8.7 million of the $11.7 million initial payment
received and recognized in full during the second quarter of 2000 from Shire Pharmaceuticals Group plc was deferred and recognized as revenue ratably through the end of 2001.
4
SALIX PHARMACEUTICALS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Due to the uniqueness of each of its licensing arrangements, the
Company analyzes each element of each contract, including milestone payments, to determine the appropriate revenue recognition. In accordance with SAB 101, the Company recognizes revenue upon achievement of contractual milestones only when and to
the extent the Company concludes that a separate earnings process has been culminated or the milestone is representative of the level of effort and progress toward completion of a long-term contract.
5. Research and Development
Research and development costs, both internal and externally contracted, are expensed as incurred. These costs include direct expenditures for goods and services, as well as indirect expenditures such
as salaries, administrative expenses and various allocated costs.
6. Equity Offering
On March 15, 2002, the Company completed a public offering of its common stock. The Company raised approximately $57.4 million,
net of offering costs, through the issuance of 4,600,000 shares of common stock.
7. Recent Accounting
Pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business
Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill’s impairment and that intangible assets other than goodwill be amortized over
their useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions
of SFAS No. 142 became effective for the Company on January 1, 2002. The adoption of SFAS No. 141 and SFAS No. 142 did not have a material impact on the Company’s results of operations or financial position.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 143, “Accounting for Asset Retirement Obligations.”
SFAS No. 143 requires an entity to record a liability for an obligation associated with the retirement of an asset at the time that the liability is incurred by capitalizing the cost as part of the carrying value of the related asset and
depreciating it over the remaining useful life of that asset. The standard is effective for the Company beginning January 1, 2003. The Company does not expect the adoption of SFAS No. 143 to have a material impact on the Company’s results of
operations or financial position.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” SFAS No. 144 addresses how and when to measure impairment on long-lived assets and how to account for long-lived assets that an entity plans
to dispose of either through sale, abandonment, exchange or distribution to owners. The new provisions supersede SFAS No. 121, which addressed asset impairment and certain provisions of APB Opinion 30 related to reporting the effects of the disposal
of a business segment and requires expected future operating losses from discontinued operations to be recorded in the period in which the losses are incurred rather than the measurement date. Under SFAS No. 144, more dispositions may qualify for
discontinued operations treatment in the income statement. The provisions of SFAS No. 144 became effective for the Company on January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the Company’s results of operations or
financial position.
8. Comprehensive Loss
Comprehensive loss is comprised of net loss and other comprehensive loss. Other comprehensive loss includes certain changes in the shareholders’ equity of the Company
that are excluded from net loss. Specifically, other comprehensive loss includes foreign currency translation adjustments.
5
SALIX PHARMACEUTICALS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Comprehensive loss for the three and six months ended June 30, 2002
and 2001 was as follows:
| |
|
Three months ended June 30,
|
|
| |
|
2002
|
|
|
2001
|
|
| Net loss |
|
$ |
(5,214 |
) |
|
$ |
(3,309 |
) |
| Cumulative foreign currency translation adjustments |
|
|
(164 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
| Comprehensive loss |
|
$ |
(5,378 |
) |
|
$ |
(3,309 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
Six months ended June 30,
|
|
| |
|
2002
|
|
|
2001
|
|
| Net loss |
|
$ |
(9,938 |
) |
|
$ |
(7,206 |
) |
| Cumulative foreign currency translation adjustments |
|
|
(164 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
| Comprehensive loss |
|
$ |
(10,102 |
) |
|
$ |
(7,206 |
) |
| |
|
|
|
|
|
|
|
|
9. Subsequent Events
In July 2002, the Company in-licensed rights to a pellet formulation of mesalamine under an agreement with Dr. Falk Pharma GmbH. The
agreement gives the Company the exclusive rights to develop and market the product in the United States. In return, the Company must make upfront, milestone, and royalty payments to Falk. The agreement also provides the Company the right of first
negotiation with respect to rights to develop and market certain additional Falk products in the United States.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those set forth under “Cautionary Statement” under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and
notes thereto included elsewhere in this report.
Overview
We are a specialty pharmaceutical company dedicated to acquiring, developing and commercializing prescription drugs used in the treatment of a variety of gastrointestinal
diseases, which are those affecting the digestive tract. Our strategy is to identify and acquire rights to products that we believe have potential for near-term regulatory approval or are already approved; apply our regulatory, product development,
and sales and marketing expertise to commercialize these products; and use our 60-person sales force focused on high-prescribing U.S. gastroenterologists to sell our products. We rely on distribution relationships with third parties to sell our
products outside the United States.
6
We in-licensed rights to balsalazide disodium from Biorex Laboratories Limited in
1992. In May 2000, we signed an agreement with Shire Pharmaceuticals Group plc under which Shire purchased from us the exclusive rights to balsalazide disodium for Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Republic of Ireland,
Luxembourg, Norway, The Netherlands, Switzerland, Sweden and the United Kingdom. Under the agreement, Shire agreed to pay us up to a total of approximately $24 million in cash and Shire stock, including approximately $12.1 million in up-front fees
and up to $12 million upon the achievement of milestones. In accordance with our license agreement with Biorex, we shared and will continue to share a portion of the cash payments with Biorex. In addition, we delivered all of the Shire stock we
received to Biorex. In May 2000, Shire paid us $9.6 million of cash and $2.5 million by way of the issuance of 160,546 Shire shares. In August 2000, Shire paid us $4.4 million in connection with the transfer to Shire of the United Kingdom product
license for balsalazide.
In July 2000, the FDA approved Colazal for marketing in the United States for the
treatment of mildly to moderately active ulcerative colitis. In December 2000, we established our own 30-member, direct sales force to market Colazal in the United States. This sales force was increased to approximately 60 members as of December 31,
2001. Although the creation of an independent sales organization involved substantial costs, we believe that the financial returns from balsalazide and rifaximin and other future products, if acquired and approved, will be more favorable to us than
those from the indirect sale of product through marketing partners.
In 1996, we in-licensed rights to our second
drug, rifaximin, in the United States and Canada from Alfa Wassermann. In December 2001, we submitted an NDA to the FDA for rifaximin, as a treatment for travelers’ diarrhea. We believe there are opportunities to develop rifaximin for other
indications, including bacterial overgrowth in the small intestine, antibiotic-associated and other forms of colitis, pouchitis, Crohn’s disease, diverticular disease and hepatic encephalopathy, and we intend to pursue these opportunities as we
deem appropriate. If FDA approval is obtained, we intend to market rifaximin in the United States through our own direct sales force.
We have sustained continuing operating losses and had an accumulated deficit of $55.8 million as of June 30, 2002. We expect to incur operating losses until product revenues reach a sufficient level to support ongoing
operations.
Results of Operations
Three-Month and Six-Month Periods Ended June 30, 2002 and 2001
Product sales for the three-month and six-month periods ended June 30, 2002 were $7.3 million and $13.5 million, respectively. During the three-month and six-month periods ended June 30, 2001, we recorded product revenue of $4.2
million and $7.5 million, respectively. Higher product revenues for the three-month and six-month periods ended June 30, 2002 are the result of increased volume of U.S. sales of Colazal®.
We had
no revenues from collaborative agreements for the three-month and six-month periods ended June 30, 2002 compared to $1.4 million and $2.8 million in the corresponding three-month and six-month periods in 2001. This was primarily the result of the
recognition in 2001 of revenue under our agreement with Shire under which Shire purchased from us the intellectual property related to balsalazide for Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Republic of Ireland, Luxembourg,
Norway, the Netherlands, Switzerland and the United Kingdom. Under the agreement, Shire paid us a first payment of $11.7 million in the second quarter of 2000. As a result of the adoption of SAB 101, $8.7 million of the $11.7 million initial payment
received and recognized in full during the second quarter of 2000 from Shire was deferred and recognized as revenue ratably through the end of 2001.
Cost and expenses for the three-month and six-month periods ended June 30, 2002 was $12.8 million and $23.9, respectively, compared to $8.9 million and $17.4 million for the corresponding three-month
and six-month periods in 2001. Higher operating expenses were due primarily to increased expenditures associated with the expansion of our commercialization infrastructure, increased clinical trial activity, and the marketing campaign for Colazal.
Cost of products sold for the three-month and six-month periods ended June 30, 2002 was $1.8 million and $3.4
million, respectively, compared with $1.1 million and $1.9 million for the corresponding three-month and six-month periods in 2001. Gross margins for the three-month and six-month periods ended June 30, 2002 were $5.5 million and $10.2 million,
respectively, compared to $3.1 million and $5.6 million for the corresponding three-month
7
and six-month periods of 2001. Gross margins were 75.5 % and 75.2% for the three-month and six-month
periods ended June 30, 2002, respectively.
License fees and costs related to collaborative agreements for the
three-month and six-month periods ended June 30, 2002 were $31,000 and $63,000, respectively, compared with $0.8 million and $1.5 million in the corresponding three-month and six-month periods ended June 30, 2002.
Research and development expenses were $3.5 million and $6.0 million for the three-month and six-month periods ended June 30, 2002,
compared to $1.5 million and $2.9 million for the comparable periods in 2001. Our current major research and development project is rifaximin. The increase in research and development expenses for the three-month and six-month periods ended June 30,
2002 was due primarily to costs associated with maintaining the NDA and initiating a study to support the NDA for rifaximin as a treatment for travelers diarrhea, as well as the ongoing multi-center study for rifaximin as a treatment for hepatic
encephalopathy and several single/multi-center studies for rifaximin as a treatment for Crohn’s disease, pouchitis and bacterial overgrowth in the small intestine. Through June 30, 2002, we had incurred research and development expenditures of
approximately $12.6 million for balsalazide and $11.7 million for rifaximin. Due to the risks and uncertainties of the drug development and regulatory approval process, research and development expenditures are difficult to forecast and subject to
unexpected increases. We expect research and development costs to increase as we pursue additional indications for balsalazide, as we develop rifaximin and the recently acquired pellet formulation of mesalamine and, if and when, we acquire new
products.
Selling, general and administrative expenses were $7.5 million and $14.4 million for the three-month
and six-month periods ended June 30, 2002, compared to $5.6 million and $11.2 million in the corresponding three-month and six-month periods in 2001. This increase was primarily due to the expansion of our commercialization infrastructure and the
marketing campaign for Colazal.
Interest income was $0.3 million and $0.5 million for the three-month and
six-month periods ended June 30, 2002, compared to $0.1 million and $0.3 in the corresponding three-month and six-month periods in 2001. Increased interest income for the three-month and six-month periods ended June 30, 2002, compared to the same
prior year periods, was mainly attributable to larger average cash balances resulting from the completion of a private placement in May 2001 and a public offering in March 2002.
We experienced net losses of $5.2 million and $9.9 million for the three-month and six-month periods ended June 30, 2002, compared with net losses of $3.3 million and $7.2
million in the corresponding three-month and six-month periods in the prior year.
Liquidity and Capital Resources
Since inception, we have financed product development, operations and capital expenditures primarily from funding arrangements
with collaborative partners and from public and private sales of equity securities. Cash used in our operations was $15.7 million for the six-month period ended June 30, 2002, compared with $9.8 million in the corresponding six-month period in 2001.
Negative operating cash flows during these periods were caused primarily by operating losses. Our capital expenditures were $0.3 million for the six-month period ended June 30, 2002, compared with $0.7 million in the corresponding six-month period
in 2001, with the expenditures primarily attributable to the purchase of office furniture and equipment.
As of
June 30, 2002, we had approximately $69.4 million in cash and cash equivalents and total investments. As of December 31, 2001, we had approximately $27.9 million in cash and cash equivalents. The increase of $41.5 million was due primarily to the
completion of a public offering in March 2002 with net proceeds of approximately $57.0 million, offset by operating losses.
To date, we have not experienced any material accounts receivable collection issues. However, based on a review of specific customer balances, industry experience and the current economic environment, we currently reserve 1% of the
outstanding accounts receivable balance as an allowance for uncollectable accounts.
8
During the first quarter of 2001, we entered into a $7.0 million revolving
working capital line of credit, with borrowing capacity of up to 85% of our eligible accounts receivable under 90 days old from the date of invoice. We had no outstanding balance under this line as of June 30, 2002. As of June 30, 2002, we had no
long-term debt outstanding.
As of June 2002, we had non-cancelable purchase order commitments for inventory
purchases of approximately $8.1 million. We anticipate significant expenditures in 2002 related to our continued sales, marketing, product launch and development efforts associated with Colazal, rifaximin and the pellet form of mesalamine. To the
extent we acquire rights to additional products, we will incur additional expenditures.
We have sustained
continuing operating losses and had an accumulated deficit of $55.8 million as of June 30, 2002. We expect to incur operating losses until product revenues reach a sufficient level to support ongoing operations. We believe our cash and cash
equivalent balances at June 30, 2002 should be sufficient to satisfy our cash requirements for the foreseeable future. However, our actual cash needs might vary materially from those now planned because of a number of factors, including our success
in selling products, the results of research and development activities, FDA and foreign regulatory processes, establishment of and change in relationships with strategic partners, technological advances by us and other pharmaceutical companies, the
terms of our collaborative arrangements with strategic corporate partners, the status of competitive products and whether we acquire rights to additional products. We might seek additional debt or equity financing or both to fund our operations. If
we increase our debt levels, we might be restricted in our ability to raise additional capital and might be subject to financial and restrictive covenants. If we issue additional equity, our stockholders could suffer dilution. We might also enter
into additional collaborative arrangements with corporate partners that could provide us with additional funding in the form of equity, debt, licensing, milestone and/or royalty payments. We might not be able to enter into such arrangements or raise
any additional funds on terms favorable to us or at all.
Cautionary Statement
Factors that could cause actual results to differ materially from our expectations expressed in the report include, among others: the high
cost and uncertainty of the research, clinical trials and other development activities involving pharmaceutical products; the unpredictability of the duration and results of regulatory review of New Drug Applications and Investigational New Drug
Applications; our dependence on our limited number of pharmaceutical products, balsalazide and rifaximin, and the uncertainty of market acceptance of those products; our ability to fund our activities internally or through additional financing, if
necessary; the possible impairment of, or inability to obtain, intellectual property rights and the costs of obtaining such rights from third parties; intense competition; our limited sales and marketing experience; the uncertainty of obtaining, and
our dependence on, third parties to manufacture and sell our products; and results of future litigation and other risk factors detailed from time to time in our other SEC filings. We do not undertake any obligation to release publicly any revisions
to these statements to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Our purchases of raw materials and product sales to European distribution partners are denominated in Pounds Sterling and Euros. Translation into our reporting currency, the United States dollar, has not historically had a
material impact on our financial position. Additionally, our net assets denominated in currencies other than the functional currency have not exposed us to material risk associated with fluctuations in currency rates. Given these facts, we have not
considered it necessary to use foreign currency contracts or other derivative instruments to manage changes in currency rates.
Due to the nature and maturity of our investments, we do not believe those investments present significant market risk.
9
PART II. OTHER INFORMATION
Item 4.
Submission of Matters to a Vote of Security Holders
Our 2002 Annual Meeting
of Shareholders was held on June 12, 2002. The following is a brief description of each matter voted upon at the meeting and a statement of the number of votes cast for, against or withheld and the number of abstentions with respect to each matter.
(a) The shareholders elected the following directors to serve for the ensuing year and until their
successors are elected:
| |
|
For
|
|
Withheld
|
| John F. Chappell |
|
18,084,361 |
|
64,552 |
| Thomas A. D’Alonzo |
|
18,084,586 |
|
64,327 |
| Richard A. Franco, R.Ph. |
|
18,084,586 |
|
64,327 |
| Randy W. Hamilton |
|
17,912,825 |
|
236,088 |
| Robert P. Ruscher |
|
18,084,326 |
|
64,587 |
(b) The shareholders approved an amendment of our
Certificate of Incorporation to increase the numbers of shares of common stock authorized for issuance thereunder from 40,000,000 to 80,000,000.
| For
|
|
Against
|
|
Abstain
|
| 15,186,309 |
|
2,951,684 |
|
10,920 |
(c) The shareholders approved an amendment of our 1996
Stock Option Plan to increase the number of shares of common stock reserved for issuance thereunder from 4,500,000 to 5,500,00.
| For
|
|
Against
|
|
Abstain
|
| 13,419,360 |
|
4,709,833 |
|
19,720 |
(d) The shareholders ratified the appointment of Ernst
& Young LLP as our independent auditors for the fiscal year ending December 31, 2002.
| For
|
|
Against
|
|
Abstain
|
| 18,122,342 |
|
17,311 |
|
9,260 |
Item 6.
Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
We
filed a Form 8-K with the United States Securities and Exchange Commission on April 9, 2002 to file a press release announcing that we would present at the SunTrust Robinson Humphrey Institutional Conference in Atlanta, Georgia on Tuesday, April 16,
2002.
We filed a Form 8-K with the United States Securities and Exchange Commission on April 22,
2002 to announce that we would participate in a panel discussion entitled “The Future of Specialty Pharmaceuticals” at the Thomas Weisel Partners Healthcare Tailwinds 2002 Conference in Boston, MA on Monday, April 29, 2002.
10
We filed a Form 8-K with the United States Securities and
Exchange Commission on April 30, 2002 announcing that we would report first quarter 2002 financial results before the market opening on Wednesday, May 15, 2002
We filed a Form 8-K with the United States Securities and Exchange Commission on May 16, 2002 to announce our operating results for the quarter ended March
31, 2002.
We filed a Form 8-K with the United States Securities and Exchange Commission on May
29, 2002 to announce that we would present at the UBS Warburg Global Specialty Pharmaceuticals Conference in New York, NY on Wednesday, June 5, 2002.
We filed a Form 8-K with the United States Securities and Exchange Commission on June 19, 2002 to announce that we would present at the Wachovia
Securities’ Twelfth Annual Nantucket Conference on Wednesday, June 26.
11
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, who certify that to their knowledge this report fully complies with the requirements of Section 13(a) or 15(d) of that Act and the
information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Registrant as of and for the periods ended June 30, 2002.
| SALIX PHARMACEUTICALS, LTD. |
| |
| By: |
|
/s/ CAROLYN J.
LOGAN
|
| |
|
Carolyn J. Logan President and
Chief Executive Officer |
Date: August 14, 2002
| |
| By: |
|
/s/ ADAM C. DERBYSHIRE
|
| |
|
Adam C. Derbyshire Vice
President, Finance & Administration and Chief Financial Officer |
Date: August 14, 2002
12