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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2003
COMMISSION FILE NUMBER 1-10827
PHARMACEUTICAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3122182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE RAM RIDGE ROAD, SPRING VALLEY, NEW YORK 10977
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (845) 425-7100
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes x No___
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes x No___
Number of shares of Common Stock outstanding as of November 7, 2003:
34,021,021
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
(Unaudited)
SEPT. 28, DEC. 31,
ASSETS 2003 2002
------ ---- ----
Current assets:
Cash and cash equivalents $157,529 $65,121
Receivable due from convertible debt, net 177,945 -
Accounts receivable, net of allowances of
$44,828 and $36,257 176,893 55,310
Inventories, net 58,542 51,591
Prepaid expenses and other current assets 8,749 6,089
Deferred income tax assets 38,477 32,873
------- -------
Total current assets 618,135 210,984
Property, plant and equipment, at cost less
accumulated depreciation and amortization 41,426 27,055
Unexpended industrial revenue bond proceeds - 2,000
Intangible assets, net 37,460 35,692
Goodwill 24,662 24,662
Deferred charges and other assets 6,488 1,064
Non-current deferred income tax assets, net 14,277 -
------- -------
Total assets $742,448 $301,457
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $1,807 $596
Accounts payable 15,211 14,637
Payables due to distribution agreement partners 84,269 18,163
Accrued salaries and employee benefits 6,617 5,175
Accrued expenses and other current liabilities 16,619 10,034
Income taxes payable 72,543 26,074
------- -------
Total current liabilities 197,066 74,679
------- -------
Long-term debt, less current portion 200,000 2,426
------- -------
Deferred income tax liabilities, net - 3,562
- -------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $.0001 per share;
authorized 6,000,000 shares; none issued
and outstanding
Common Stock, par value $.01 per share;
authorized 90,000,000 shares;
33,923,803 and 32,804,480 shares issued and
outstanding 339 328
Additional paid-in capital 158,775 118,515
Retained earnings 186,268 101,947
------- -------
Total stockholders' equity 345,382 220,790
------- -------
Total liabilities and stockholders' equity $742,448 $301,457
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
-2-
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS
(In Thousands, Except Per Share Amounts)
(Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPT. 28, SEPT. 30, SEPT. 28, SEPT. 30,
2003 2002 2003 2002
---- ---- ---- ----
Revenues:
Net product sales $424,418 $282,500 $214,933 $100,237
Other revenues 14,490 - 1,702 -
------- ------- ------- -------
Total revenues 438,908 282,500 216,635 100,237
Cost of goods sold 237,709 149,858 131,709 53,285
------- ------- ------- -------
Gross margin 201,199 132,642 84,926 46,952
Operating expenses (income):
Research and development 17,908 10,590 6,788 3,653
Selling, general and administrative 44,246 27,457 14,141 11,094
Settlements - (9,051) - -
Acquisition termination charges - 4,254 - (24)
------- ------- ------- -------
Total operating expenses 62,154 33,250 20,929 14,723
------- ------- ------- -------
Operating income 139,045 99,392 63,997 32,229
Other expense, net (145) (238) (101) (136)
Interest income, net 474 490 141 109
------- ------- ------- -------
Income before provision for income taxes 139,374 99,644 64,037 32,202
Provision for income taxes 55,053 38,861 25,295 12,559
------- ------- ------- -------
Net income 84,321 60,783 38,742 19,643
Retained earnings, beginning of period 101,947 22,493 147,526 63,633
------- ------- ------- -------
Retained earnings, end of period $186,268 $ 83,276 $186,268 $ 83,276
======= ======= ======= =======
Net income per share of common stock:
Basic $2.53 $1.89 $1.15 $.60
==== ==== ==== ===
Diluted $2.45 $1.84 $1.11 $.59
==== ==== ==== ===
Weighted average number of
common shares outstanding:
Basic 33,269 32,194 33,758 32,476
====== ====== ====== ======
Diluted 34,368 32,962 35,004 33,152
====== ====== ====== ======
The accompanying notes are an integral part of these consolidated financial statements.
-3-
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
NINE MONTHS ENDED
SEPT. 28, SEPT. 30,
2003 2002
---- ----
Cash flows from operating activities:
Net income $84,321 $60,783
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes (3,943) (10,972)
Depreciation and amortization 6,681 3,857
Inventory reserves 220 1,280
Allowances against accounts receivable 8,571 (5,813)
Settlements - (9,051)
Stock option activity 3,690 37
Other 6 (23)
Changes in assets and liabilities:
Increase in accounts receivable (130,154) (20,802)
Increase in inventories (7,171) (17,971)
Increase in prepaid expenses and other assets (6,940) (9,343)
Increase in accounts payable 574 4,398
Increase (decrease) in payables due to
distribution agreement partners 66,106 (13,044)
Increase in accrued expenses and other liabilities 8,027 3,916
Increase in income taxes payable 57,233 14,116
------ ------
Net cash provided by operating activities 87,221 1,368
------ -----
Cash flows from investing activities:
Capital expenditures (16,720) (4,736)
Acquisition of FineTech - (32,598)
Proceeds from sale of fixed assets - 28
------ --
Net cash used in investing activities (16,720) (37,306)
------ ------
Cash flows from financing activities:
Proceeds from issuances of Common Stock 23,122 2,148
Principal payments under long-term debt and other
borrowings (1,215) (170)
----- ---
Net cash provided by financing activities 21,907 1,978
------ -----
Net increase (decrease) in cash and cash equivalents 92,408 (33,960)
Cash and cash equivalents at beginning of period 65,121 67,742
------ ------
Cash and cash equivalents at end of period $157,529 $33,782
======= ======
Supplemental disclosure of cash flow information
Cash paid during the nine months for:
Income taxes $1,762 $35,717
===== ======
Interest $104 $102
=== ===
Non-cash transactions:
Receivable due from convertible debt, net $177,945 -
======= =
Tax benefit from exercise of stock options $10,764 $3,028
====== =====
The accompanying notes are an integral part of these consolidated
financial statements.
-4-
PHARMACEUTICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Pharmaceutical Resources, Inc. (the "Company" or "PRX") operates primarily
through its wholly-owned subsidiary, Par Pharmaceutical, Inc. ("Par"), in one
business segment, the manufacture and distribution of generic pharmaceuticals
principally in the United States. In addition, the Company develops and
manufactures, in small quantities, complex synthetic active pharmaceutical
ingredients through its wholly-owned subsidiary, FineTech Laboratories Ltd.
("FineTech"), based in Haifa, Israel, and sells a limited number of mature brand
name drugs through an agreement between Par and Bristol Myers Squibb ("BMS").
Marketed products are principally in the solid oral dosage form (tablet, caplet
and two-piece hard-shell capsule). The Company also distributes one product in
the semi-solid form of a cream and one oral suspension.
As of June 24, 2003, the Company changed its state of incorporation from
New Jersey to Delaware. The reincorporation was approved by the holders of a
majority of the Company's outstanding shares of common stock, voting in person
or by proxy, at its Annual Meeting of Shareholders held on June 19, 2003. The
reincorporation was effected by merging the Company with and into Pharmaceutical
Resources, Inc., a Delaware corporation and then a wholly-owned subsidiary of
the Company, with the Delaware corporation surviving (the "Merger"). The
reincorporation was effected primarily because the Company's board of directors
believed that governance under Delaware law would permit the Company to manage
its corporate affairs more effectively and efficiently than under New Jersey
law. The reincorporation did not result in any change in the Company's business,
management, assets, liabilities, board of directors or locations of its
principal facilities or headquarters.
Pursuant to the Merger, each share of common stock of the New Jersey
corporation was automatically converted into one share of common stock, $.01 par
value, of the Delaware corporation.
As a result of its reincorporation, the Company became the successor issuer
to the New Jersey corporation under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and succeeded to the New Jersey corporation's
reporting obligations thereunder. Pursuant to Rule 12g-3(a) under the Exchange
Act, the Company's common stock is deemed registered under Section 12(b) of the
Exchange Act.
On May 23, 2003, Par also changed its state of incorporation from New
Jersey to Delaware. The Par reincorporation was effected by merging Par with and
into Par Pharmaceutical, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company, with the Delaware corporation surviving. The Par
reincorporation was approved by the Company as the sole shareholder of each of
the merging entities. In connection with and prior to Par's reincorporation, Par
contributed its New Jersey operations to Par, Inc., a newly-formed Delaware
corporation and a wholly-owned subsidiary of Par. Par, Inc. provides certain
managerial and administrative services to Par on a fee basis.
NOTE 1 - BASIS OF PREPARATION:
The accompanying consolidated financial statements at September 28, 2003
and for the nine-month and three-month periods ended September 28, 2003 and
September 30, 2002, respectively, are unaudited; however, in the opinion of the
Company's management, such statements include all adjustments (consisting only
of normal recurring accruals) necessary to provide a fair statement of the
information presented therein. The consolidated balance sheet at December 31,
2002 was derived from the Company's audited consolidated financial statements at
such date.
Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
consolidated financial statements and these notes do not include all disclosures
required by accounting principles generally accepted in the United States for
audited financial statements. Accordingly, these statements should be read in
conjunction with the Company's most recent annual consolidated financial
statements.
Results of operations for interim periods are not necessarily indicative of
those to be achieved for full fiscal years. Certain items in the consolidated
financial statements for the prior period have been reclassified to conform to
the current period's financial statement presentation.
-5-
PHARMACEUTICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 2 - STOCK-BASED COMPENSATION:
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB Opinion 25") and complies
with the disclosure provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Under
APB Opinion 25, compensation expense is based on any difference, as of the date
of a stock option grant, between the fair value of the Company's common stock
and the option's per share exercise price.
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of FASB Statement No. 123" ("SFAS 148") to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Standard amends the disclosure requirements of SFAS 123 to require prominent
disclosure in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effects of the method
used on reported results.
The following table illustrates the effects on net income and net income
per share of common stock if the Company had applied the fair value recognition
provisions of SFAS 123 to its stock-based employee compensation:
NINE MONTHS ENDED THREE MONTHS ENDED
SEPT. 28, SEPT. 30, SEPT. 28, SEPT. 30,
2003 2002 2003 2002
---- ---- ---- ----
Net income as reported $84,321 $60,783 $38,742 $19,643
Add:Total stock-based employee
compensation expense included in
reported net income, net of related
tax effects 1,263 - - -
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (7,884) (5,376) (2,573) (1,936)
----- ----- ----- -----
Pro forma net income $77,700 $55,407 $36,169 $17,707
====== ====== ====== ======
As reported-Basic $2.53 $1.89 $1.15 $.60
==== ==== ==== ===
As reported-Diluted $2.45 $1.84 $1.11 $.59
==== ==== ==== ===
Pro forma-Basic $2.34 $1.72 $1.07 $.55
==== ==== ==== ===
Pro forma-Diluted $2.26 $1.68 $1.03 $.53
==== ==== ==== ===
As permitted under SFAS 123, the Company elected to follow APB Opinion 25
and related interpretations in accounting for stock-based compensation to its
employees. Pro forma information regarding net income is required by SFAS 123,
as amended by SFAS 148. This required information is to be determined as if the
Company had accounted for its stock-based compensation to employees under the
fair value method of that Standard. The fair value of the options granted during
each of the nine- and three-month periods ended September 28, 2003 and September
30, 2002, respectively, has been estimated at the date of grant using the
Black-Scholes stock option pricing model, based on the following assumptions:
NINE MONTHS ENDED THREE MONTHS ENDED
SEPT. 28, SEPT. 30, SEPT. 28, SEPT. 30,
2003 2002 2003 2002
---- ---- ---- ----
Risk free interest rate 4.0% 4.3% 4.0% 4.3%
Expected term 4.8 years 5.5 years 5.0 years 5.0 years
Expected volatility 61.3% 73.3% 61.0% 71.9%
-6-
PHARMACEUTICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
It was also assumed that no dividends will be paid during the entire term
of the options. The weighted average fair values of options granted in the
nine-month periods ended September 28, 2003 and September 30, 2002 were $18.08
and $15.52, respectively. The weighted average fair values of options granted in
the three-month periods ended September 28, 2003 and September 30, 2002 were
$29.55 and $16.25, respectively.
NOTE 3 - ACCOUNTS RECEIVABLE: SEPT. 28, DEC. 31,
2003 2002
---- ----
(IN THOUSANDS)
Trade accounts receivable, net of customer
rebates and chargebacks $220,018 $90,812
Other accounts receivable 1,703 755
----- ---
Allowances:
Doubtful accounts 1,606 1,156
Returns and allowances 16,766 18,868
Price adjustments 26,456 16,233
------ ------
44,828 36,257
------ ------
Accounts receivable,
net of allowances $176,893 $55,310
======= ======
The trade accounts receivable amounts presented above at September 28, 2003
and December 31, 2002 are net of provisions for customer rebates of $26,068 and
$13,610, and for chargebacks of $80,263 and $63,141, respectively. The increases
are primarily due to the Company's introduction of paroxetine, the generic
version of GlaxoSmithKline's ("GSK") Paxil(R), in the United States in September
2003 through a distribution agreement with GSK. Customer rebates are price
reductions generally given to customers as an incentive to increase sales
volume. Rebates are generally based on a customer's volume of purchases made
during an applicable monthly, quarterly or annual period. Chargebacks are price
adjustments provided to wholesale customers for product they resell to specific
healthcare providers on the basis of prices negotiated between the Company and
the providers.
The accounts receivable allowances include provisions for doubtful
accounts, returns and price adjustments. Price adjustments include cash
discounts, sales promotions and shelf-stock adjustments. Cash or terms discounts
are given to customers that pay within a specified period of time. The Company
may conduct sales or trade show promotions where additional discounts may be
given on a new product or certain existing products as an added incentive for
the customer to purchase the Company's products. Shelf-stock adjustments are
typically provided to a customer when the Company lowers its invoice pricing and
provides a credit for the difference between the old and new invoice prices for
the inventory the customer has on hand at the time of the price reduction.
The Company will generally offer price protection for sales of new generic
drugs for which it has a market exclusivity period. Such price protection
accounts for the fact that the prices of such drugs typically will decline,
sometimes substantially, when additional generic manufacturers introduce and
market a comparable generic product following the expiration of an exclusivity
period. Such price protection plans, which are common in the Company's industry,
generally provide for a shelf-stock adjustment to customers with respect to the
customer's remaining inventory at the expiration of the exclusivity period for
the difference between the Company's new price and the price at which the
Company originally sold the product. In addition, the Company may offer price
protection with respect to existing products for which it anticipates
significant price erosion through increases in competition.
The Company's exclusivity period for megestrol acetate oral suspension, the
generic version of BMS's Megace(R) Oral Suspension, expired in mid-January 2002.
Two generic competitors have been granted United States Food and Drug
Administration ("FDA") approval to market generic versions of megestrol acetate
oral suspension, but, as of September 28, 2003, had not captured significant
market share. Under its accounting policies, the Company did not record a price
protection reserve for such product as of September 28, 2003. The Company will
continue to evaluate the effects of competition and will record a price
protection reserve when, if and to the extent it deems necessary.
-7-
PHARMACEUTICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 4 - INVENTORIES, NET:
SEPT. 28, DEC. 31,
2003 2002
---- ----
Raw materials and supplies $18,925 $17,400
Work in process and finished goods 39,617 34,191
------ ------
$58,542 $51,591
====== ======
Included in selling, general and administrative expenses were shipping
costs of $1,990 and $2,144, respectively, for the nine-month periods, and $641
and $807, respectively, for the three-month periods ended September 28, 2003 and
September 30, 2002.
NOTE 5 - INTANGIBLE ASSETS, NET: SEPT. 28, DEC. 31,
2003 2002
---- ----
BMS Asset Purchase Agreement, net of
accumulated amortization of $2,646 and $1,393 $9,054 $10,307
Product License fees, net of accumulated
amortization of $715 and $0 9,590 9,199
Genpharm Distribution Agreement, net of
accumulated amortization of $3,792 and $3,250 7,041 7,583
Intellectual property, net of accumulated
amortization of $1,022 and $451 5,558 6,129
Trademark licensed from BMS 5,000 -
Genpharm Profit Sharing Agreement, net of
accumulated amortization of $1,283 and $26 1,217 2,474
----- -----
$37,460 $35,692
====== ======
The Company recorded amortization expense related to intangible assets of
$4,338 and $1,798, respectively, for the nine-month periods, and $1,881 and
$767, respectively, for the three-month periods, ended September 28, 2003 and
September 30, 2002. Amortization expense related to the intangible assets
currently being amortized is expected to total approximately $5,690 in 2003,
$5,467 in 2004, $3,967 in 2005, $3,115 in 2006, $3,115 in 2007 and $8,445
thereafter. Intangible assets not being amortized were product license fees of
$6,999 and a trademark licensed from BMS of $5,000 at September 28, 2003 and
product license fees of $9,199 at December 31, 2002.
The Company entered into an agreement with BMS and one of its affiliates,
dated August 6, 2003, to license the "brand" name Megace(R) for use in respect
of a potential new product currently in development. The product, if
successfully developed, would be a line extension of the Company's megestrol
oral suspension products. Pursuant to this agreement, the Company paid BMS
$5,000 in August 2003, which was included in intangible assets on the Company's
consolidated balance sheets. As part of this agreement, the Company is also
providing BMS with funding of up to $2,000 to support the active promotion of
the "brand" during the remainder of 2003 and throughout 2004 to help retain
"brand" equity and awareness among physicians. In the third quarter 2003, the
Company expensed $420 related to the sampling program, which has been included
in selling, general and administrative expenses on the consolidated statements
of operations.
In January 1999, the Company and Genpharm, Inc. ("Genpharm"), a Canadian
subsidiary of Merck KGaA, entered into a profit sharing agreement (the "Genpharm
Profit Sharing Agreement") pursuant to which the Company receives a portion of
the profits, as such term is defined in the agreement, generated from sales of
omeprazole, the generic version of Astra Zeneca's ("Astra") Prilosec(R), and 15
other products sold under a separate agreement between Genpharm and an
unaffiliated United States-based pharmaceutical company in exchange for a
non-refundable fee of $2,500, included in intangible assets, net of accumulated
amortization, on the Company's consolidated balance sheets. Pursuant to this
agreement, the Company recorded other revenues of $14,490 and $1,702,
respectively, in the nine- and three-month periods ended September 28, 2003
related to its share of Genpharm's omeprazole gross profits. Through early May
2003, Genpharm had received an initial 15% share of profits, as such term is
defined in their agreement with Kremers Urban Development Co. ("KUDCo"), a
subsidiary of Schwarz Pharma AG of Germany, with a subsequent reduction over
time based on a number of factors. In fiscal year 2002, the Company had agreed
-8-
PHARMACEUTICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
to reduce its share of Genpharm's profit derived from omeprazole pursuant to the
Genpharm Profit Sharing Agreement from 30% to 25%. In December 2002, KUDCo
launched omeprazole following a district court decision in which it prevailed,
but before any decision was reached on appeal. Astra has appealed the district
court's patent infringement decision. In the third quarter 2003, two generic
competitors began selling forms of omeprazole that also compete with the
prescription form of Prilosec(R), significantly reducing the Company's share of
profits from omeprazole. The Company expects that the impact of this competition
will continue to have an adverse effect on its revenues from omeprazole in
future periods.
NOTE 6 - SHORT-TERM DEBT:
In December 1996, Par entered into a Loan and Security Agreement (the "Loan
Agreement") with General Electric Capital Corporation ("GECC"). The Loan
Agreement, as amended in December 2002, provided Par with a revolving line of
credit expiring in March 2005, pursuant to which Par was permitted to borrow up
to the lesser of (i) the borrowing base established under the Loan Agreement or
(ii) $30,000. As of September 28, 2003, no debt was outstanding under the Loan
Agreement. The Company terminated the Loan Agreement in October 2003.
NOTE 7 - LONG-TERM DEBT:
In September 2003, the Company sold an aggregate principal amount of
$200,000 of senior subordinated convertible notes ("convertible notes") in
transactions pursuant to Rule 144A under the Securities Act of 1933, as amended.
The initial offering of $160,000 of convertible notes were sold on September 25,
2003 in a private, unregistered offering to "qualified institutional buyers",
along with the subsequent exercise by the initial purchasers of such offering of
their option to purchase an additional $40,000 of convertible notes. The
transactions closed on September 30, 2003. Proceeds of $177,945 due to the
Company are net of underwriting costs of $5,250 and the net payment for the call
options and warrant transactions described below, and were recorded as a
receivable due from convertible debt on the Company's consolidated balance
sheets as of September 28, 2003. The convertible notes bear interest at an
annual rate of 2.875% payable semi-annually on March 30 and September 30 of each
year, with the first interest payment due on March 30, 2004. The convertible
notes are convertible into the Company's common stock (the "Common Stock") at an
initial conversion price of $88.76 per share, upon the occurrence of certain
events. The convertible notes will mature on September 30, 2010, unless earlier
converted or repurchased. The Company may not redeem the convertible notes prior
to their maturity date.
Concurrently with the sale of the convertible notes, the Company purchased
call options on its Common Stock (the "purchased call options") designed to
mitigate the potential dilution from conversion of the convertible notes. Under
the terms of the purchased call options, the Company has the right to purchase
from an affiliate of one of the initial purchasers (the "counterparty") at a
purchase price of $88.76 per share the aggregate number of shares that the
Company would be obligated to issue upon conversion of the convertible notes,
which is a maximum of 2,253 shares. The Company also has the option to settle
the purchased call options with the counterparty through a net share settlement
or net cash settlement, either of which would be based on the extent to which
the then-current market price of the Common Stock exceeds $88.76 per share. The
cost of the purchased call options of $49,368 was recognized in additional
paid-in-capital on the Company's consolidated balance sheets. The cost of the
purchased call options was partially offset by the sale of warrants (the "sold
warrants") to acquire shares of the Common Stock to the counterparty with whom
the Company entered into the purchased call options. The sold warrants are
exercisable for an aggregate of 2,253 shares at an exercise price of $105.20 per
share. The sold warrants may be settled, at the Company's option, either through
a net share settlement or a net cash settlement, either of which would be based
on the extent to which the then-current market price of the Common Stock exceeds
$105.20 per share. The gross proceeds from the sale of the sold warrants of
$32,563 were recognized in additional paid-in-capital on the Company's
consolidated balance sheets. The net effect of the purchased call options and
the sold warrants is to either reduce the potential dilution from the conversion
of the convertible notes if the Company elects a net share settlement or to
increase the net cash proceeds of the offering, if a net cash settlement is
elected if the convertible notes are converted at a time when the market price
of the Common Stock exceeds $88.76 per share. If the market price of the Common
Stock at the maturity of the sold warrants exceeds $105.20, the dilution
mitigation under the purchased call options will be capped, meaning that there
-9-
PHARMACEUTICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
would be dilution from the conversion of the convertible notes to the extent
that the then market price per share of the Common Stock exceeds $105.20 at the
time of conversion.
The Company intends to use the net proceeds from the offering to support
the expansion of its business, including increasing its research and development
activities, entering into product license arrangements and possibly acquiring
complementary businesses and products, and for general corporate purposes.
NOTE 8 - INCOME TAXES:
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes", which requires the Company to
recognize deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. At September 28,
2003, the Company had net current deferred income tax assets of $38,477 and net
non-current deferred income tax assets of $14,277 compared to net current
deferred income tax assets of $32,873 and net deferred income tax liabilities of
$3,562 at December 31, 2002. Current deferred income tax assets of $36,265 and
$32,873, respectively, at September 28, 2003 and December 31, 2002 consisted
primarily of temporary differences related to accounts receivable reserves. In
addition, the Company recorded current and non-current deferred income tax
assets of $2,212 and $17,288, respectively, at September 28, 2003 for the tax
benefit related to the purchased call options described above. Non-current
deferred income tax liabilities of $3,011 and $3,562, at September 28, 2003 and
December 31, 2002, respectively, were primarily related to a distribution
agreement with Genpharm.
NOTE 9 - CHANGES IN SHAREHOLDERS' EQUITY:
Changes in the Company's Common Stock and Additional Paid-in Capital
accounts during the nine-month period ended September 28, 2003 were as follows:
ADDITIONAL
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL
Balance, December 31, 2002 32,804 $328 $118,515
Exercise of stock options 1,115 11 22,921
Sold warrants - - 32,563
Purchased call options - - (49,368)
Tax benefit from purchased call options - - 19,500
Tax benefit from exercise of stock options - - 10,764
Compensatory arrangements 5 - 3,880
------ --- -------
Balance, September 28, 2003 33,924 $339 $158,775
====== === =======
NOTE 10 - RESEARCH AND DEVELOPMENT AGREEMENTS:
ADVANCIS PHARMACEUTICAL CORPORATION:
Par entered into a licensing agreement (the "Advancis Licensing
Agreement"), dated September 4, 2003, with Advancis Pharmaceutical Corporation
("Advancis"), a pharmaceutical company based in Germantown, Maryland, to market
the antibiotic Clarithromycin XL. Clarithromycin XL is being developed as a
generic equivalent to Abbott Laboratories' ("Abbott") Biaxin XL(R). Pursuant to
the Advancis Licensing Agreement, Advancis will be responsible for the
development and manufacture of the product, while Par will be responsible for
marketing, sales and distribution. Provided certain conditions in the Advancis
Licensing Agreement are met, Par agreed to pay Advancis an aggregate amount of
up to $6,000 based on the achievement of certain milestones contained in the
agreement. An Abbreviated New Drug Application ("ANDA") for the product is
expected to be submitted to the FDA in the near future. Pursuant to the Advancis
Licensing Agreement, the Company has agreed to pay Advancis a certain percentage
of the gross profits, as defined in the agreement, on all sales of the product
if the product is successfully developed and introduced into the market.
-10-
PHARMACEUTICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 11 - DISTRIBUTION AND SUPPLY AGREEMENTS:
SMITHKLINE BEECHAM CORPORATION.
In connection with the legal settlement referred to in Note 14 -
"Commitments, Contingencies and Other Matters-Legal Proceedings", Par and GSK
and certain of its affiliates entered into a license and supply agreement (the
"GSK Supply Agreement"), dated April 16, 2003, pursuant to which Par is
marketing paroxetine, supplied and licensed from GSK, in the United States and
the Commonwealth of Puerto Rico. Under the GSK Supply Agreement, GSK has agreed
to manufacture the product and Par has agreed to pay GSK a percentage of Par's
net sales of the product, as defined in the agreement. Pursuant to the GSK
Supply Agreement, GSK is entitled to suspend Par's right to distribute
paroxetine if at any time another generic version of Paxil(R) is not being
marketed.
PENTECH PHARMACEUTICALS, INC.:
In November 2002, the Company amended its agreement (the "Supply and
Marketing Agreement") with Pentech Pharmaceuticals, Inc. ("Pentech"), dated
November 2001, to market paroxetine hydrochloride capsules. Pursuant to the
Supply and Marketing Agreement, the Company was responsible for all legal
expenses up to $2,000, which were expensed as incurred, to obtain final
regulatory approval. Legal expenses in excess of $2,000 were to be fully
creditable against future profit payments. The Company had agreed to reimburse
Pentech for costs associated with the project of up to $1,300 for fiscal year
2003, which were charged to research and development expenses as they were
incurred. Pursuant to the Supply and Marketing Agreement, the Company agreed to
pay Pentech a percentage of the gross profits, as defined in such agreement, on
all its sales of paroxetine. In October 2003, the Company reached an agreement
in principle with Pentech further amending the Supply and Marketing Agreement
concerning the profit split percentages, reimbursement of research and
development expenses and sharing of legal expenses related to paroxetine.
NOTE 12 - EARNINGS PER SHARE:
The Company had outstanding stock options of 4,166 and 1,877 at the end of
the nine-month periods and 3,860 and 1,991 at the end of the three-month periods
ended September 28, 2003 and September 30, 2002, respectively, that were
included in the computation of its diluted earnings per share because the
exercise prices were lower than the average market price of the Common Stock
during the respective periods. Outstanding options of 40 and 2,108 at the end of
the nine-month periods ended September 28, 2003 and September 30, 2002 and 2,089
at the end of the three-month period ended September 30, 2002, respectively,
were not included in the computation of diluted earnings per share because the
exercise prices were greater than the average market price of the Common Stock
during the respective periods. The following is a reconciliation of the amounts
used to calculate basic and diluted earnings per share:
NINE MONTHS ENDED THREE MONTHS ENDED
SEPT. 28, SEPT. 30, SEPT. 28, SEPT. 30,
2003 2002 2003 2002
---- ---- ---- ----
Net income $84,321 $60,783 $38,742 $19,643
BASIC:
Weighted average number of common
shares outstanding 33,269 32,194 33,758 32,476
Net income per share of common stock $2.53 $1.89 $1.15 $.60
==== ==== ==== ===
ASSUMING DILUTION:
Weighted average number of common
shares outstanding 33,269 32,194 33,758 32,476
Effect of dilutive options 1,099 768 1,246 676
----- --- ----- ---
Weighted average number of common and common
equivalent shares outstanding 34,368 32,962 35,004 33,152
Net income per share of common stock $2.45 $1.84 $1.11 $.59
==== ==== ==== ===
-11-
PHARMACEUTICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 13 - NEW ACCOUNTING PRONOUNCEMENTS:
In June 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS 150"). SFAS 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. This statement requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The Company has completed
its evaluation of the impact of the adoption of this statement and determined it
will not have a material impact on the Company's consolidated financial position
or results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement amends Statement
133 for decisions made (1) as part of the Derivatives Implementation Group
process that effectively required amendments to Statement 133, (2) in connection
with other FASB projects dealing with financial instruments and (3) in
connection with implementation issues raised in relation to the application of
the definition of a derivative, in particular, the meaning of an initial net
investment that is smaller than would be required for other types of contracts
that would be expected to have a similar response to changes in market factors,
the meaning of underlying, and the characteristics of a derivative that contains
financing components. This Statement is effective for contracts entered into or
modified after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of this Statement should be applied prospectively. The
provisions of this Statement that relate to Statement 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. In addition, certain provisions, which relate to forward purchases or
sales of when-issued securities or other securities that do not yet exist,
should be applied to both existing contracts and new contracts entered into
after June 30, 2003. The adoption of this standard is not expected to have a
material impact on the Company's consolidated financial position or results of
operations.
In January 2003, the FASB issued Financial Interpretation Number ("FIN")
No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46
addresses whether certain types of entities, referred to as variable interest
entities ("VIEs"), should be consolidated in a company's financial statements. A
VIE is an entity that either (1) has equity investors that lack certain
essential characteristics of a controlling financial interest (including the
ability to control the entity, the obligation to absorb the entity's expected
losses and the right to receive the entity's expected residual returns), or (2)
lacks sufficient equity to finance its own activities without financial support
provided by other entities, which in turn would be expected to absorb at least
some of the expected losses of the VIE. An entity should consolidate a VIE if it
stands to absorb a majority of the VIE's expected losses or to receive a
majority of the VIE's expected residual returns. The Company has evaluated the
impact of the adoption of FIN 46, and does not believe it will have a material
impact on its consolidated financial position or results of operations.
In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others" ("FIN 45"), an interpretation of FASB Statements No. 5,
57 and 107 and a rescission of FASB Interpretation No. 34. FIN 45 elaborates on
the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
The initial recognition and measurement provisions of FIN 45 are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. The
adoption of this interpretation did not have a material impact on the Company's
consolidated financial position or results of operations.
NOTE 14 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
LEGAL PROCEEDINGS:
On September 25, 2003, the Office of the Attorney General of the
Commonwealth of Massachusetts filed a complaint in federal district court in
Boston against Par and 12 other leading generic pharmaceutical companies
-12-
PHARMACEUTICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
alleging principally that Par and such other companies violated, through their
marketing and sales practices, state and federal laws, including allegations of
common law fraud and violations of Massachusetts false statements statutes, by
inflating generic pharmaceutical product prices paid for by the Massachusetts
Medicaid program. The Company has waived service of process with respect to the
complaint. The complaint seeks injunctive relief, treble damages, disgorgement
of excessive profits, civil penalties, reimbursement of investigative and
litigation costs (including experts' fees) and attorneys' fees. In addition, on
September 25, 2003, the Company and a number of other generic and brand
pharmaceutical companies were sued by a New York county, which has alleged
violations of laws (including the Racketeer Influenced and Corrupt Organizations
("RICO") Act, common law fraud and obtaining funds by false statements), related
to participation in the Medicaid program. The complaint seeks declaratory
relief; actual, statutory and treble damages, with interest; punitive damages;
an accounting; a constructive trust and restitution; attorneys' fees and
experts' fees, and costs. Par intends to defend vigorously the claims asserted
in both complaints. The Company cannot predict with any certainty at this time
the outcome or the effect on the Company of such litigations. Accordingly, no
assurance can be given that such litigations or any other similar litigation by
other states or jurisdictions, if instituted, will not have a material adverse
effect on the Company's financial condition, results of operations or business.
In October 2003, Apotex Inc. filed a complaint against Par in the federal
district court in the Eastern District of Pennsylvania alleging violations of
state and federal antitrust laws as a result of the Company's settlement with
GSK and the GSK Supply Agreement. Par intends to file a motion to dismiss the
action in its entirety in December 2003 and to otherwise defend vigorously this
action, and may assert counterclaims against Apotex and claims against third
parties.
In August 2003, Teva USA filed a lawsuit against the Company and Par in the
United States District Court for the District of Delaware, after having received
approval from the FDA to launch a generic version of BMS's Megace(R), which
generic product will compete with the Company's megestrol acetate oral
suspension product. In the lawsuit, Teva USA seeks a declaration that its
product has not infringed and will not infringe any of Par's four patents
relating to megestrol acetate oral suspension. On August 22, 2003, Par filed a
counterclaim against Teva USA alleging willful infringement of one of its four
patents relating to megestrol acetate oral suspension and moved to dismiss the
action with respect to the other three patents for lack of subject matter
jurisdiction. The Company intends to aggressively pursue its counterclaim
against Teva USA and defend vigorously the lawsuit. A trial date has been
scheduled by the court for April 2005.
On May 28, 2003, Asahi Glass Company ("Asahi Glass") filed a lawsuit
against Par and several other parties in the United States District Court for
the Northern District of Illinois alleging, among other things, violations of
state and federal antitrust laws relating to the settlement of GSK's patent
action against Pentech in respect of paroxetine hydrochloride. Pentech had
granted Par rights under Pentech's ANDA for paroxetine hydrochloride capsules.
Pursuant to the settlement, reached between the parties on April 18, 2003,
Pentech and Par acknowledged that the patent held by GSK is valid and
enforceable and would be infringed by Pentech's proposed capsule product and GSK
agreed to allow Par to distribute in Puerto Rico substitutable generic
paroxetine hydrochloride immediate release tablets supplied and licensed from
GSK for a royalty payable to GSK. In addition, Par was granted the right under
the settlement to distribute the drug in the United States if another generic
version fully substitutable for Paxil(R) became available in the United States.
Par has denied any wrongdoing in connection with the Asahi antitrust action and
filed a motion to dismiss the complaint on August 22, 2003. In October 2003, the
court dismissed all of the state and federal antitrust claims against Par. The
only remaining claim in this action involving Par is a state law contract claim
relating to the payment of certain attorneys' fees to Asahi Glass in connection
with the prior lawsuit. Par intends to defend vigorously this lawsuit and may
assert counterclaims against Asahi Glass and claims against third parties.
In February 2003, Abbott Laboratories, Fornier Industrie et Sante and
Laboratoires Fournier S.A. filed a complaint in the United States District Court
for the District of New Jersey against Par, alleging that Par's generic version
of TriCor(R) (fenofibrate) infringes on one or more claims of their patents. The
Company had filed an ANDA for the product in October 2002. Par intends to defend
-13-
PHARMACEUTICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
vigorously this lawsuit and has filed an answer and a counterclaim, alleging
non-infringement and patent invalidity.
Breath Ltd. of the Arrow Group filed an ANDA (currently pending with the
FDA) for latanoprost (Xalatan(R)), which was developed by Breath Ltd. pursuant
to a joint manufacturing and marketing agreement with the Company, seeking
approval to engage in the commercial manufacture, sale and use of one
latanoprost drug product in the United States. Par subsequently acquired
ownership of the ANDA, which includes a Paragraph IV certification that the
patents in connection with Xalatan(R) identified in "Approved Drug Products with
Therapeutic Equivalence Evaluations" are invalid, unenforceable and/or will not
be infringed by Par's generic product. Par believes that its ANDA is the first
to be filed for this drug with a Paragraph IV certification. As a result of the
filing of the ANDA, Pharmacia Corporation, Pharmacia AB, Pharmacia Enterprises,
S.A., Pharmacia and Upjohn Company, or, collectively, Pharmacia, and the
Trustees of Columbia University in the City of New York, or Columbia, filed a
lawsuit against Par on December 21, 2001 in the United States District Court for
the District of New Jersey, alleging patent infringement. Pharmacia and Columbia
are seeking an injunction enjoining approval of the Company's ANDA and the
marketing of its generic product prior to the expiration of their patents. On
February 8, 2002, Par answered the complaint and filed a counterclaim, which
seeks a declaration that the patents-in-suit are invalid, unenforceable and/or
not infringed by Par's products and that the extension of the term of one of the
patents is invalid. All parties are seeking to recover their respective
attorneys' fees. Discovery in the case has now been completed and a pretrial
conference has been scheduled for November 12, 2003. A trial date has not been
set. Par intends to defend vigorously against the claims and to pursue its
counterclaim. At this time, it is not possible for the Company to predict the
outcome of this litigation with any certainty.
Par, among others, was a defendant in three lawsuits filed in the United
States District Court for the Eastern District of North Carolina (filed on
August 1, 2001, October 30, 2001 and November 16, 2001, respectively) by
aaiPharma Inc., involving patent infringement allegations connected to three
patents related to polymorphic forms of fluoxetine (Prozac(R)). In March 2003,
Par settled its lawsuits with aaiPharma Inc. The settlement has not had a
material adverse effect on the Company's financial position or results of
operation.
The Company and/or Par is a party in certain other litigation matters,
including product liability and patent actions, and the Company believes that
these actions are incidental to the conduct of its business and that their
ultimate resolution thereof will not have a material adverse effect on its
financial condition, results of operations or liquidity. The Company intends to
vigorously defend or, in cases where the Company is plaintiff, prosecute these
actions.
OTHER MATTERS:
In June 2003, the Company received notice from the U.S. Congress that the
Committee on Energy and Commerce (the "Committee") had begun an industry-wide
(brand and generic) investigation into pharmaceutical reimbursements and rebates
under Medicaid, to which the Company has responded. In order to conduct the
investigation, the Committee has requested certain pricing and other
information, which the company delivered in August 2003, relating to certain
drugs produced by these pharmaceutical manufacturers. Because the investigation
has only recently begun, it is premature to speculate what action, if any, the
federal government may take and what impact such action could have on our
business, prospects or financial condition.
On July 15, 2003, the Company announced that two additional patents
relating to megestrol acetate oral suspension have been issued to it by the U.S.
Patent Office. The Patent Office has issued U.S. Patent Nos. 6,593,318 and
6,593,320 to the Company. The Company presently holds four patents relating to
megestrol oral suspension. The first two patents, U.S. Patent No. 6,028,065 and
U.S. Patent No. 6,268,356, were issued on February 22, 2000 and July 31, 2001,
respectively.
The Company's chairman, president and chief executive officer, Kenneth I.
Sawyer, has retired, effective July 2003, and resigned from the board, effective
September 2003. Mr. Sawyer will be available to consult with the Company. The
Company recorded a charge of $3,712, included in selling, general and
administrative expenses on the consolidated statements of operations, in 2003
-14-
PHARMACEUTICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
for Mr. Sawyer's retirement package, consisting of expenses for accelerated
stock options, a severance payment, the remainder of his 2003 salary and
benefits. In September 2003, the Company's board of directors elected Mark
Auerbach to the position of executive chairman of the Company's board of
directors and Scott Tarriff to the positions of president and chief executive
officer of the Company, effective immediately. Mr. Tarriff and Arie L. Gutman,
Ph.D., President and Chief Executive Officer of the Company's FineTech
subsidiary, both report to Mr. Auerbach.
In December 2001, the Company made its first payment of a potential equity
investment of up to $2,438 to be made over a period of time in HighRapids, Inc.
("HighRapids"), a Delaware corporation. High Rapids is a software developer and
the owner of patented rights to an artificial intelligence generator. Pursuant
to an agreement between the Company and HighRapids, effective December 1, 2001,
the Company, subject to its ongoing evaluation of HighRapids' operations, has
agreed to purchase units, consisting of secured debt, evidenced by 7% secured
promissory notes, up to an aggregate principal amount of $2,425 and up to an
aggregate of 1,330 shares of the common stock of HighRapids. HighRapids is the
surviving corporation of a merger with Authorgenics, Inc., a Florida
corporation. HighRapids is to utilize the Company's cash infusion for working
capital and operating expenses. Through September 28, 2003, the Company had
invested $1,199. Due to HighRapids' current operating losses and the Company's
evaluation of its short-term prospects for profitability, the investment is
expensed as incurred and included in other expense on the consolidated
statements of operations. As of September 28, 2003, the Company held
approximately 40% of the outstanding common stock of HighRapids, and it has the
exclusive right to market to the pharmaceutical industry certain regulatory
compliance and laboratory software currently in development. HighRapids has
provided and is currently providing certain software services to the Company.
The Company and Three Rivers Pharmaceuticals, LLC ("Three Rivers") entered
into a license and distribution agreement under which the Company has agreed to
market and distribute ribavirin 200 mg capsules, the generic version of
Schering-Plough's ("Schering's") Rebetol(R), which is indicated for the
treatment of chronic hepatitis, following its approval by the FDA. In February
2003, Three Rivers reached a settlement with Schering in a patent litigation
case involving Rebetol(R) brand ribavirin. Under the terms of the settlement,
Schering provided a non-exclusive license to Three Rivers for all its U.S.
patents relating to this product. In return for this license, Three Rivers has
agreed to pay Schering a reasonable royalty based upon net sales of Three
Rivers' and Par's generic ribavirin product. The parties were in litigation in
the U.S. District Court for the Western District of Pennsylvania.
On July 16, 2003, the Company announced that the United States District
Court for the Central District of California had granted summary judgment of
non-infringement regarding ribavirin to Three Rivers. The district court
determined that the Three Rivers' product does not infringe any of three patents
asserted by ICN Pharmaceuticals Inc. ("ICN") in the litigation. Par has
exclusive marketing rights for the Three Rivers' ribavirin product. Three Rivers
had earlier reached a settlement of its patent litigation with Schering Plough
Pharmaceuticals, so this decision appears to resolve the remaining ongoing
patent barriers to FDA approval of the ANDA filed by Three Rivers. The timing of
Par's launch of this product is uncertain at this time. Three Rivers has not
obtained FDA approval of the ANDA, and the FDA has not made a determination of
whether a generic 180-day exclusivity period will be awarded solely to a generic
competitor involved in the lawsuit or Three Rivers jointly with one or both of
the other two generic competitors involved in the lawsuit. The patent holder,
ICN, has appealed the court decision.
NOTE 15 - SUBSEQUENT EVENTS:
In October 2003, the Company purchased 1,000 shares of common stock of
Advancis in its initial public offering of 6,000 shares on October 16, 2003. The
purchase price was $10 per share and the transaction closed on October 22, 2003.
The Company's investment represents an ownership position of 4.4% of the
outstanding common stock of Advancis. Advancis' focus is on developing and
commercializing pulsatile drug products that fulfill substantial unmet medical
needs in the treatment of infectious disease. Unlike immediate release
antibiotics, Advancis' antibiotics are delivered in three to five sequential
pulses within the first six to eight hours following initial dosing. As referred
to in Note 10 - "Research and Development Agreements", Par and Advancis have a
-15-
PHARMACEUTICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
licensing agreement providing Par the marketing rights to the antibiotic
Clarithromycin XL. Clarithromycin XL is being developed as a generic equivalent
to Abbott's Biaxin XL(R).
In October 2003, the Company terminated its revolving line of credit with
GECC. The Company also paid the remaining outstanding balance on its industrial
revenue bond in October 2003 and, accordingly, reclassified the proceeds from
the unexpended industrial revenue bond to other current assets and the related
long-term portion of the debt to the current portion of the long-term debt on
the Company's consolidated balance sheets at September 28, 2003.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN STATEMENTS IN THIS DOCUMENT MAY CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, INCLUDING THOSE CONCERNING MANAGEMENT'S EXPECTATIONS WITH RESPECT TO
FUTURE FINANCIAL PERFORMANCE AND FUTURE EVENTS, PARTICULARLY RELATING TO SALES
OF CURRENT PRODUCTS AND THE INTRODUCTION OF NEW MANUFACTURED, LICENSED AND
DISTRIBUTED PRODUCTS. SUCH STATEMENTS INVOLVE RISKS, UNCERTAINTIES, TRENDS AND
CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY, WHICH COULD
CAUSE ACTUAL RESULTS AND PERFORMANCE TO DIFFER MATERIALLY FROM THOSE EXPRESSED
HEREIN. THESE STATEMENTS ARE OFTEN, BUT NOT ALWAYS, MADE TYPICALLY BY USE OF
WORDS OR PHRASES SUCH AS "ESTIMATE," "PLANS," "PROJECTS," "ANTICIPATES,"
"CONTINUING," "COULD," "ONGOING," "EXPECTS," "BELIEVES" OR SIMILAR WORDS AND
PHRASES. FACTORS THAT MIGHT AFFECT SUCH FORWARD-LOOKING STATEMENTS SET FORTH IN
THIS DOCUMENT INCLUDE (i) INCREASED COMPETITION FROM NEW AND EXISTING
COMPETITORS AND PRICING PRACTICES FROM SUCH COMPETITORS (ESPECIALLY UPON
COMPLETION OF EXCLUSIVITY PERIODS), (ii) PRICING PRESSURES RESULTING FROM THE
CONTINUED CONSOLIDATION BY THE COMPANY'S DISTRIBUTION CHANNELS, (iii) THE AMOUNT
OF FUNDS AVAILABLE FOR INTERNAL RESEARCH AND DEVELOPMENT AND RESEARCH AND
DEVELOPMENT JOINT VENTURES, (iv) RESEARCH AND DEVELOPMENT PROJECT DELAYS OR
DELAYS AND UNANTICIPATED COSTS IN OBTAINING REGULATORY APPROVALS, (v)
CONTINUATION OF DISTRIBUTION RIGHTS UNDER SIGNIFICANT AGREEMENTS, (vi) THE
CONTINUED ABILITY OF DISTRIBUTED PRODUCT SUPPLIERS TO MEET FUTURE DEMAND, (vii)
THE COSTS AND OUTCOME OF ANY THREATENED OR PENDING LITIGATIONS, INCLUDING PATENT
AND INFRINGEMENT CLAIMS, (viii) UNANTICIPATED COSTS IN ABSORBING ACQUISITIONS,
(ix) OBTAINING OR LOSING 180-DAY MARKETING EXCLUSIVITY ON PRODUCTS AND (x)
GENERAL INDUSTRY AND ECONOMIC CONDITIONS. ANY FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS DOCUMENT ARE MADE ONLY AS OF THE DATE HEREOF, BASED ON
INFORMATION AVAILABLE TO THE COMPANY AS OF THE DATE HEREOF, AND, SUBJECT TO ANY
APPLICABLE LAW TO THE CONTRARY, THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENTS.
THE FINANCIAL DATA CONTAINED IN THIS SECTION IS IN THOUSANDS.
RESULTS OF OPERATIONS
GENERAL
The Company's net income increased $23,538 to $84,321 for the nine-month
period ended September 28, 2003 from $60,783 for the nine-month period ended
September 30, 2002. Total nine-month revenues of $438,908 in 2003 increased
$156,408 from $282,500 in the corresponding period of fiscal year 2002,
primarily due to the September 2003 introduction of paroxetine (Paxil(R)) in the
United States through a distribution agreement with GSK, additional net sales of
new products introduced following the end of the second quarter 2002 and other
revenues from a profit sharing agreement with Genpharm related to omeprazole
(Prilosec(R)). The revenue growth produced higher gross margin, which increased
$68,557 to $201,199 in the most recent nine months, from $132,642 in the
corresponding nine-month period of 2002. In addition, the Company continued to
invest in its research and development activities. Spending on research and
development of $17,908 for the first nine months of 2003 increased 69% from
$10,590 for the corresponding nine-month period of 2002. Selling, general and
administrative costs of $44,246 for the current nine-month period increased
$16,789 from the corresponding period of the prior year, primarily due to a
charge of $3,712 in 2003 related to a retirement package for the Company's
former chairman, president and chief executive officer, higher legal fees,
insurance costs and expenses that the Company believes are required to support
its growth, including expenses related to assessments of information systems,
additional facilities, personnel and strategic analysis. Fiscal year 2002
results included income from settlements of $9,051 related to the Company's
termination of its litigation with BMS and acquisition termination charges of
$4,254 in connection with its termination of negotiations with International
Specialty Products ("ISP") related to the Company's purchase of the combined ISP
FineTech fine chemical business based in Haifa, Israel and Columbus, Ohio.
The Company's net income of $38,742 for the third quarter ended September
28, 2003 increased $19,099 from $19,643 for the third quarter ended September
30, 2002, due principally to the revenue growth from paroxetine and, to a lesser
extent, increased sales of certain existing products. Revenues of $216,635 and
gross margins of $84,926 for the third quarter 2003 increased $116,398 and
$37,974, respectively, from the prior year's third quarter revenues and gross
margins. The Company's research and development spending for the most recent
quarter of $6,788 rose 86% from such expenses incurred in the corresponding
quarter of 2002. Selling, general and administrative costs increased $3,047 to
$14,141 in the third quarter 2003 from $11,094 in the corresponding quarter of
the prior year due primarily to higher costs for insurance, marketing and
additional costs required to support the Company's growth.
-17-
In addition to its own product development program, the Company has
several strategic alliances through which it co-develops and distributes
products. As a result of its internal program and these strategic alliances, the
Company's pipeline of potential products includes 24 ANDAs (four of which have
been tentatively approved), pending with, and awaiting approval from, the FDA.
The Company pays a percentage of net sales or the gross profits on net sales of
products covered by its distribution agreements to its strategic partners.
Generally, products that the Company develops internally, and therefore without
the requirement to share product profits with any strategic partners, contribute
higher gross margins than products covered under its distribution agreements.
In September 2003, the Company began selling paroxetine, the generic
version of GSK's Paxil(R), in the United States. The Company obtained the rights
to this product in connection with a litigation settlement between the Company,
GSK and certain of its affiliates and Pentech. The litigation and the settlement
did not involve Paxil CR(TM). As a result of the settlement, Par and GSK entered
into the GSK Supply Agreement, pursuant to which Par is marketing paroxetine,
supplied and licensed from GSK, in the United States and Commonwealth of Puerto
Rico. Under the GSK Supply Agreement, GSK has agreed to manufacture the product
and Par has agreed to pay GSK a percentage of Par's net sales of the product, as
defined in the agreement. In addition, the Company pays Pentech a percentage of
the gross profits, as defined in their agreement, on Par's net sales of the
product.
In July 2001 and August 2001, the FDA granted approvals for three ANDA
submissions, one each by Par, Dr. Reddy's Laboratories Ltd. ("Reddy") and
Alphapharm Pty Ltd., an Australian subsidiary of Merck KGaA, for megestrol
acetate oral suspension, fluoxetine 40 mg capsules and fluoxetine 10 mg and 20
mg tablets, respectively, which, as first-to-file opportunities, entitled the
Company to 180-day marketing exclusivity periods for the products. The Company
began marketing megestrol acetate oral suspension, which is not subject to any
profit sharing agreement, in July 2001. In August 2001, the Company began
marketing fluoxetine 40 mg capsules under a distribution agreement with Reddy
and fluoxetine 10 mg and 20 mg tablets under a distribution agreement with
Genpharm. Generic competitors of the Company received 180-day marketing
exclusivity periods for the generic version of fluoxetine 10 mg and 20 mg
capsules, which the Company began selling in the first quarter of 2002 following
the expiration of such other parties' exclusivity periods. As the Company
expected, additional generic competitors, with products comparable to all three
strengths of its fluoxetine products, began entering the market in the first
quarter of 2002, eroding the pricing that the Company had received during the
exclusivity periods, particularly on the 10 mg and 20 mg strengths. Despite FDA
approvals for two competing generic megestrol acetate oral suspension products
received in the first quarter of 2002 and the second quarter of 2003, the
Company still maintained a significant share of the market for this product as
of September 28, 2003. Although megestrol oral suspension and fluoxetine 40 mg
capsules are expected to continue to contribute significantly to the Company's
overall performance, the growth of the Company's product line through new
product introductions has somewhat reduced the Company's reliance on these
products.
Critical to the continued growth of the Company is its introduction of new
manufactured and distributed products at selling prices that generate
significant gross margins. The Company, through its internal development program
and strategic alliances and relationships, is committed to developing new
products that have limited competition and longer product life cycles. In
addition to expected new product introductions as part of its various strategic
alliances and relationships, the Company plans to continue to invest
significantly in its internal research and development efforts while, at the
same time, seeking additional products for sale through new and existing
distribution agreements or acquisitions of complementary products and
businesses, additional first-to-file opportunities, vertical integration with
raw material suppliers and unique dosage forms and strengths to differentiate
its products in the marketplace. The Company is engaged in efforts, subject to
FDA approval and other factors, to introduce new products through its research
and development efforts and distribution and development agreements with third
parties. No assurance can be given that the Company will obtain or develop any
additional products for sale or, even if developed, that they will be
commercially viable. In order to secure financing to execute these strategies,
the Company obtained additional funds through the issuance of convertible debt
in September 2003. Execution of these strategies could also require additional
debt and/or equity financing and there can be no assurance that the Company will
be able to obtain any additional required financing when needed and on terms
acceptable or favorable to it.
Sales and gross margins of the Company's products are principally
dependent upon (i) the pricing of and product deletions by competitors, (ii) the
introduction of other generic drug manufacturers' products in direct competition
with the Company's significant products, (iii) the ability of generic
competitors to quickly enter the market after patent or exclusivity period
-18-
expirations, diminishing the amount and duration of significant profits from any
one product, (iv) the continuation of existing distribution agreements, (v) the
introduction of new distributed products, (vi) the consolidation among
distribution outlets through mergers, acquisitions and the formation of buying
groups, (vii) the willingness of generic drug customers, including wholesale and
retail customers, to switch among generic pharmaceutical manufacturers, (viii)
the approval of ANDAs and introduction of new manufactured products, (ix) the
granting of potential marketing exclusivity periods, (x) the extent of market
penetration for the existing product line and (xi) the level of customer
service.
REVENUES
Total revenues of $438,908 for the nine-month period ended September 28,
2003 increased $156,408, or 55%, from $282,500 for the nine-month period ended
September 30, 2002. The revenue growth for the first nine months of the year was
driven largely by the September 2003 introduction of paroxetine in the United
States, sold through the GSK Supply Agreement, which totaled $96,344.
Additionally, net sales of new products, including tizanidine (Zanaflex(R)),
introduced in July 2002 and sold under a distribution agreement with Reddy,
torsemide (Demadex(R)) and minocycline (Minocin(R)), introduced in the second
quarter 2003, and revenues of $14,490 from a profit sharing agreement with
Genpharm related to omeprazole (Prilosec(R)), contributed to the strong revenue
growth in 2003. Net sales of fluoxetine and megestrol acetate oral suspension
were $70,620 and $65,020, respectively, for the most recent nine months compared
to $68,381 and $62,709 for the corresponding period in 2002. Net sales of
distributed products, which consist of products manufactured under contract and
licensed products, were approximately 64% and 59%, respectively, of the
Company's total revenues in the first nine months of 2003 and 2002. The Company
is substantially dependent upon distributed products for its overall sales and,
as the Company continues to introduce new products under its distribution
agreements, it expects that this dependence will continue. Any inability by
suppliers to meet expected demand could adversely affect the Company's future
sales.
Third quarter 2003 revenues of $216,635 increased $116,398, or 116%, from
$100,237 for the corresponding quarter of 2002, primarily due to sales of
paroxetine and, to a lesser extent, increased sales of certain existing
products, including fluoxetine and megestrol acetate oral suspension, and the
introduction of other new products throughout the year. Due primarily to the
paroxetine product launch during the quarter, net sales of distributed products
increased to represent approximately 76% of the Company's total revenues for the
third quarter 2003 compared to approximately 62% of total revenues for the
corresponding quarter of 2002.
While it is not possible to predict with accuracy future sales of
paroxetine, the Company believes that fourth quarter 2003 sales could approach
third quarter 2003 sales levels, subject to certain market uncertainties. The
market uncertainties include the possibility of additional generic competitors
entering the market and the ability of GSK, under the GSK Supply Agreement, to
suspend Par's right to distribute paroxetine if at any time another generic
version of Paxil(R) is not being marketed.
Pursuant to the Genpharm Profit Sharing Agreement, the Company receives a
portion of the profits, as defined in the agreement, generated from KUDCo's sale
of omeprazole. In December 2002, KUDCo launched omeprazole following a district
court decision in which it prevailed, but before any decision had been reached
on appeal. Astra has appealed the district court's patent infringement decision.
In the third quarter 2003, two generic competitors began selling forms of
omeprazole that also compete with the prescription form of Prilosec(R),
significantly reducing the Company's share of profits from omeprazole to $1,702
for such quarter. The Company expects that the impact of this competition will
continue to have an adverse affect on its revenues from omeprazole in future
periods.
The Company's exclusivity period for fluoxetine expired in late-January
2002. As a result of generic competition beginning in the first quarter of 2002,
the sales price for fluoxetine has substantially declined from the price that
the Company had charged during the exclusivity period. Accordingly, the
Company's sales and gross margins generated by fluoxetine following the
expiration of the exclusivity period have been, and will continue to be,
adversely affected.
The Company's exclusivity period for megestrol acetate oral suspension
expired in mid-January 2002. Two generic competitors have been granted FDA
approval to market generic versions of megestrol acetate oral suspension, but,
as of September 28, 2003, had not captured significant market share. At this
time, the Company cannot accurately predict the effect of the generic
competition on future periods; however, the Company believes that megestrol
-19-
acetate oral suspension will be a significant sales and gross margin contributor
for the remainder of fiscal year 2003 and beyond, despite the competition. In
accordance with its accounting policies, the Company did not record a price
protection reserve for megestrol acetate oral suspension as of September 28,
2003. The Company will continue to evaluate the effect of competition and will
record a price protection reserve when, if and to the extent it deems necessary.
GROSS MARGIN
The Company's gross margin of $201,199 (46% of total revenues) for the
first nine months of fiscal year 2003 increased $68,557 from $132,642 (47% of
total revenues) for the corresponding period of fiscal year 2002. The gross
margin increase was achieved primarily as a result of additional contributions
from sales of new products, as described above, and the additional revenues from
omeprazole pursuant to the Genpharm Profit Sharing Agreement.
In the nine-month period ended September 28, 2003, lower gross margin
contributions from fluoxetine 10 mg and 20 mg, which are subject to profit
sharing agreements with Genpharm, were more than offset by a higher margin
contribution from fluoxetine 40 mg due to an increase in the Company's profit
sharing percentage under its agreement with Reddy following the end of the
Company's exclusivity period. As discussed above, additional generic
manufacturers introduced and began marketing comparable fluoxetine products
following the expiration of the Company's exclusivity period in January 2002,
adversely affecting the Company's sales volumes, selling prices and gross
margins for the products, particularly the 10 mg and 20 mg strengths. The
Company's gross margin for megestrol acetate oral suspension could also decline
when, and as, additional manufacturers introduce and market comparable generic
products. Megestrol acetate oral suspension contributed approximately $53,418 in
gross margin for the first nine months of 2003 compared to $51,517 for the
corresponding period of 2002.
The gross margin for the third quarter of 2003 of $84,926 (39% of total
revenues) increased $37,974 compared to $46,952 (47% of total revenues) in the
corresponding quarter of the prior year. Additional gross margin contributions
from paroxetine and certain existing products generated the higher gross margin
dollars in the third quarter of 2003. The lower gross margin percentage
principally reflects the effect of paroxetine, which, after profit splits with
GSK and Pentech, had a lower gross margin percentage than the Company's other
significant products.
Inventory write-offs were $2,022 and $705 for the nine-month and
three-month periods ended September 28, 2003, respectively, compared to $3,085
and $343, respectively, for the corresponding periods of the prior year. The
higher nine-month write-offs in 2002 included the write-off of inventory for a
product whose launch was delayed due to unexpected patent issues and certain raw
material not meeting the Company's quality control standards. The inventory
write-offs, taken in the normal course of business, were related primarily to
work in process inventory not meeting the Company's quality control standards
and the disposal of finished products due to short shelf lives.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT
Research and development expenses of $17,908 for the nine months ended
September 28, 2003 increased $7,318, or 69%, from $10,590 for the nine months
ended September 30, 2002. The higher expenses were primarily attributable to
biostudies, including the Company's share of Genpharm's biostudy costs for
products covered under their distribution agreements. In addition, higher costs
were incurred for raw material, personnel, development work done for the Company
by third parties and work done by SVC Pharma, the Company's joint venture
partnership.
Research and development expenses increased $3,135 for the third quarter
of 2003 to $6,788 from $3,653 for the corresponding quarter of 2002. The
increase was primarily attributable to increased biostudy activity and, to a
lesser extent, the additional expenses of SVC Pharma and higher spending on
development work done by third parties and raw materials.
Although there can be such no assurance, the Company expects its total
annual research and development expenses for fiscal year 2003 to exceed the
total for fiscal year 2002 by approximately 30% to 40%. The increase is expected
as a result of increased internal development activity, projects with third
parties and research and development joint venture activity.
-20-
The Company currently has ten ANDAs for potential products (one
tentatively approved) pending with, and awaiting approval from, the FDA as a
result of its own product development program. The Company has in process or
expects to commence biostudies for at least six additional products prior to the
end of fiscal year 2003. In fiscal year 2004, the Company expects that at least
ten of the products in active development will be the subjects of biostudies
throughout the year.
The Company and Genpharm have entered into a distribution agreement (the
"Genpharm 11 Product Agreement"), dated April 2002, pursuant to which Genpharm
is developing products, submitting the corresponding ANDAs to the FDA and,
subsequently, has agreed to manufacture the potential products covered under the
Agreement. Par will serve as the exclusive U.S. marketer and distributor of the
products, pay a share of the costs, including development and legal expenses
incurred to obtain final regulatory approval, and pay Genpharm a percentage of
the gross profits on all sales of products covered by this Agreement. Currently,
there are three ANDAs for potential products that are covered by the Genpharm 11
Product Agreement pending with, and awaiting approval from, the FDA. The Company
is currently marketing one product and receiving a royalty on another product
covered under the Genpharm 11 Product Agreement.
The Company and Genpharm have also entered into a distribution agreement
(the "Genpharm Distribution Agreement"), dated March 25, 1998. Under the
Genpharm Distribution Agreement, Genpharm pays the research and development
costs associated with the products covered by the Genpharm Distribution
Agreement. Currently, there are six ANDAs for potential products (three
tentatively approved) that are covered by the Genpharm Distribution Agreement
pending with, and awaiting approval from, the FDA. The Company is currently
marketing 19 products under the Genpharm Distribution Agreement.
Genpharm and the Company share the costs of developing products covered
under an agreement (the "Genpharm Additional Product Agreement"), dated November
27, 2000. The Company is currently marketing two products under the Genpharm
Additional Product Agreement.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs of $44,246 (10% of total
revenues) for the nine months ended September 28, 2003 increased $16,789 from
$27,457 (10% of total revenues) for the corresponding period of last year. The
increase in 2003 was primarily attributable to a charge of $3,712 related to a
retirement package for the Company's former chairman, president and chief
executive officer, higher product liability and directors and officers insurance
costs of $3,693 and legal fees associated with potential new product launches of
$1,268. In addition, the Company incurred increased expenses it believes are
necessary to support the Company's growth, including costs for additional
personnel of $2,916, corporate strategic planning of $1,061, additional
warehouse and administrative office facilities of $824, information system
assessments of $678 and accounting fees of $507. Distribution costs include
those related to shipping product to the Company's customers, primarily through
the use of common carriers or an external distribution service. Shipping costs
of $1,990 in the first nine months of 2003 approximated costs of $2,144 in the
corresponding period of the prior year. The Company anticipates that it will
continue to incur a high level of legal expenses related to the costs of
litigation connected with potential new product introductions (see "Notes to
Consolidated Financial Statements-Note 14- Commitments, Contingencies and Other
Matters-Legal Proceedings"). Selling, general and administrative costs are
expected to continue to increase over the remainder of 2003 in absolute dollars
but not as a percentage of sales.
The Company's former chairman, president and chief executive officer,
Kenneth I. Sawyer, retired, effective July 2003, and resigned from the board,
effective September 2003 and will continue to be available to consult with the
Company. A one-time charge of $3,712 associated with Mr. Sawyer's retirement
package was recorded in 2003. The retirement package consists of expenses for
accelerated stock options, a severance payment and the remainder of his 2003
salary and benefits.
Selling, general and administrative costs of $14,141 (7% of total
revenues) for the third quarter of 2003 increased $3,047 from $11,094 (11% of
total revenues) for the corresponding quarter of last year. The increased costs
in the third quarter 2003 consisted of higher costs for product liability
insurance, marketing, personnel and information system assessments. Distribution
costs include those related to shipping product to the Company's customers,
primarily through the use of common carriers or an external distribution
service. Shipping costs were $641 in the third quarter 2003 compared to costs of
$807 in the corresponding quarter of 2002.
-21-
SETTLEMENTS
On March 5, 2002, the Company entered into the BMS Asset Purchase
Agreement and acquired the United States rights to five products from BMS. The
products were the antihypertensives Capoten(R) and Capozide(R), the
cholesterol-lowering medications Questran(R) and Questran Light(R), and
Sumycin(R), an antibiotic. To obtain the rights to these five products, the
Company agreed to terminate its outstanding litigation against BMS involving
megestrol acetate oral suspension and buspirone, and paid approximately $1,024
in March 2002 and $1,025 in April 2003. The Company determined, through an
independent third party appraisal, the fair value of the product rights received
to be $11,700, which exceeded the cash consideration of $2,049 and associated
costs of $600 by $9,051. The $9,051 value was assigned to the litigation
settlements and recorded as settlement income in the first quarter of 2002. The
fair value of the product rights received is being amortized on a straight-line
basis over the seven-year period beginning in March 2002, with the net amount
included in intangible assets on the Company's consolidated balance sheets.
ACQUISITION TERMINATION CHARGES
On March 15, 2002, the Company terminated its negotiations with ISP
related to the Company's purchase of the combined ISP FineTech fine chemical
business, based in Haifa, Israel and Columbus, Ohio. At that time, the Company
discontinued negotiations with ISP as a result of various events and
circumstances that occurred following the announcement of the proposed
transaction. Pursuant to the termination of negotiations, the Company paid ISP a
$3,000 break-up fee in March 2002, which was subject to certain credits and
offsets, and incurred $1,254 in related acquisition costs, both of which were
included in acquisition termination charges on the consolidated statements of
operations.
OTHER EXPENSE
Other expense for the nine- and three-month periods ended September 28,
2003 of $145 and $101, respectively, decreased from $238 and $136, respectively,
for the corresponding periods of 2002. Included in other expense in all covered
periods was the Company's investment in High Rapids, which was partially offset
by net rental income from the Company's Congers facility. Other expenses in the
nine-month period of the prior year also included those related to the
withdrawal of the Company's shelf registration statement that were recorded in
the second quarter of 2002.
INTEREST INCOME
Net interest income of $474 and $141, respectively, for the nine- and
three-month periods ended September 28, 2003 and $490 and $109, respectively,
for the corresponding periods of 2002 was primarily derived from money market
and other short-term investments.
INCOME TAXES
The Company recorded provisions for income taxes of $55,053 and $25,295,
respectively, and $38,861 and $12,559, respectively, for the nine- and
three-month periods ended September 28, 2003 and September 30, 2002 based on the
applicable federal and state tax rates for those periods (see "Notes to
Consolidated Financial Statements-Note 8 - Income Taxes").
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
The Company's critical accounting policies are set forth in its Annual
Report on Form 10-K for the year ended December 31, 2002. There has been no
change, update or revision to the Company's critical accounting policies
subsequent to the filing of the Company's Form 10-K for the year ended December
31, 2002.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of $157,529 at September 28, 2003 increased
$92,408 from $65,121 at December 31, 2002, primarily due to cash provided by
operations and, to a lesser extent, proceeds from the issuance of shares of the
Company's common stock, primarily from the exercise of stock options. The
Company invested $16,720 in capital improvements during the first nine months of
-22-
2003, primarily for the expansion of its laboratories in Spring Valley, New
York, its administrative offices in Woodcliff Lake, New Jersey and its warehouse
facilities in Montebello, New York. In addition, the Company purchased new
production machinery for its packaging lines and made improvements in its
information technology. The Company's cash balances are deposited primarily with
financial institutions in money market funds and overnight investments. Working
capital, which includes cash and cash equivalents, of $421,069 at September 28,
2003 increased $284,764 from $136,305 at December 31, 2002, primarily from a
receivable due from its convertible debt net proceeds and increases in the
Company's cash position and accounts receivable partially offset by higher
payables due to GSK and payments due for income taxes. The working capital ratio
of 3.14x at September 28, 2003 improved from such ratio of 2.83x at December 31,
2002.
In September 2003, the Company sold an aggregate principal amount of
$200,000 of senior subordinated convertible notes pursuant to Rule 144A under
the Securities Act of 1933, as amended. Proceeds of $177,945 due to the Company
in October 2003 are net of underwriting costs of $5,250 and the net payment for
the call option and warrant transactions described earlier, and were recorded as
a receivable due from convertible debt on the consolidated balance sheets at
September 28, 2003. The Company intends to use the proceeds to support the
expansion of its business, including increasing its research and development
activities, entering into product license arrangements and possibly acquiring
complementary businesses and products, and for general corporate purposes
(see "Notes to Consolidated Financial Statements-Note 7-Long-Term Debt").
A summary of the Company's material contractual obligations and commercial
commitments as of September 28, 2003 are as follows:
AMOUNTS DUE BY PERIOD
TOTAL OCT-DEC 2004 TO 2007 TO 2009 AND
OBLIGATION OBLIGATION 2003 2006 2008 THEREAFTER
---------- ---------- ---- ---- ---- ----------
Operating leases $18,985 $745 $7,897 $4,278 $6,065
Industrial revenue bond 1,728 1,728 - -
Other 78 29 49 - -
-- -- -- - --------
Total obligations $20,791 $2,502 $7,946 $4,278 $6,065
====== ===== ===== ===== =====
In addition to its internal research and development costs, the Company,
from time to time, enters into agreements with third parties with respect to the
development of new products and technologies. To date, the Company has entered
into agreements and advanced funds or has commitments with several
non-affiliated companies for products in various stages of development. These
types of payments or commitments are generally dependent on a third party
achieving certain milestones or the timing of third party research and
development or legal expenses. Due to the uncertainty of the timing or
realization of such commitments, these obligations are not included in the table
above; however, agreements that contain such commitments that the Company
believes are material are described below. Payments made pursuant to these
agreements are either capitalized or expensed according to the Company's
accounting policies.
The Company entered into the Advancis Licensing Agreement, dated September
4, 2003, with Advancis to market the antibiotic Clarithromycin XL.
Clarithromycin XL is being developed as a generic equivalent to Abbott's Biaxin
XL(R), which, according to the Company's market research, achieved U.S. sales of
approximately $280 million during the 12 months ended September 2003. Pursuant
to the Advancis Licensing Agreement, Advancis will be responsible for the
development and manufacture of the product, while Par will be responsible for
marketing, sales and distribution. If certain provisions in the Advancis
Licensing Agreement are met, Par has agreed to pay Advancis an aggregate amount
of up to $6,000 based on the achievement of certain milestones contained in the
Agreement. An ANDA for the product is expected to be submitted to the FDA in the
near future. Pursuant to the Advancis Licensing Agreement, the Company agreed to
pay Advancis a certain percentage of the gross profits, as defined in the
Agreement, on all sales of the product if the product is successfully developed
and introduced into the market.
In October 2003, the Company purchased 1,000 shares of common stock of
Advancis in an initial public offering on October 16, 2003. The purchase price
was $10 per share and the transaction closed on October 22, 2003. The Company's
investment represents an ownership position of 4.4 % of the outstanding common
stock of Advancis ( see "Subsequent Events").
The Company entered into an agreement with BMS, dated August 6, 2003, to
license the "brand" name Megace(R) to be used for a potential new product
-23-
currently in development. The product, if successfully developed, would be a
line extension of the Company's megestrol oral suspension products. Pursuant to
this agreement, the Company paid BMS $5,000 in August 2003, which was included
in intangible assets on the Company's consolidated balance sheets. As part of
this agreement, the Company is also providing BMS with funding of up to $2,000
to support the active promotion of the "brand" during the remainder of 2003 and
throughout 2004 to help retain "brand" equity and awareness among physicians. In
the third quarter 2003, the Company expensed $420 related to the sampling
program, which was included in selling, general and administrative expenses on
the consolidated statements of operations.
The Company and Nortec Development Associates, Inc. (a Glatt company)
("Nortec") had entered into a binding agreement in principle, dated March 3,
2003, which was subject to final negotiation and execution of a definitive
agreement in which the two companies agreed to develop additional products that
are not part of the two previous agreements between the Company and Nortec. The
execution of the definitive agreement was completed on October 22, 2003. During
the first two years of the agreement , Par will be obligated to make aggregate
initial research and development payments to Nortec in the amount of $3,000, of
which $500 has already been paid and an additional $500 was paid in October
2003. On or before October 15, 2005, the Company will have the option to either
(i) terminate the arrangement with Nortec, in which case the initial research
and development payments will be credited against any development costs that the
Company shall owe Nortec at that time or (ii) acquire all of the capital stock
of Nortec over the subsequent two years, including the first fifty (50%) percent
of the capital stock of Nortec over the third and fourth years of the agreement
for $4,000, and the remaining capital stock of Nortec from its owners at the end
of the fourth year for an additional $11,000.
In the second quarter of 2002, the Company made non-refundable payments
totaling $1,000 pursuant to other agreements with Nortec, which were charged to
research and development expenses as incurred. Pursuant to the agreements, the
Company agreed to pay a total of $800 in various installments related to the
achievement of certain milestones in the development of two potential products
and $600 for each product on the day of the first commercial sale.
In November 2002, the Company amended its Supply and Marketing Agreement,
dated November 2001, with Pentech to market paroxetine hydrochloride capsules.
Pursuant to the Supply and Marketing Agreement, the Company was responsible for
all legal expenses up to $2,000, which were expensed as incurred, to obtain
final regulatory approval. Legal expenses in excess of $2,000 were fully
creditable against future profit payments. The Company had agreed to reimburse
Pentech for costs associated with the project of up to $1,300 for fiscal year
2003, which were charged to research and development expenses as they were
incurred. In the first nine months of 2003, the Company incurred $896 in
research and development costs pursuant to the Supply and Marketing Agreement.
In October 2003, the Company reached an agreement in principle with Pentech
further amending the Supply and Marketing Agreement concerning profit split
percentages, reimbursement of research and development expenses and sharing of
legal expenses related to paroxetine.
In July 2002, the Company and Three Rivers entered into a distribution
agreement (the "Three Rivers Distribution Agreement"), which was amended in
October 2002, to market and distribute ribavirin 200 mg capsules, the generic
version of Schering-Plough's Rebetol(R). Under the terms of the Three Rivers
Distribution Agreement, Three Rivers will supply the product and be responsible
for managing the regulatory process and ongoing patent litigation. Par will have
the exclusive right to sell the product in non-hospital markets upon FDA
approval and final marketing clearance and pay Three Rivers a percentage of the
gross profits (as defined in the Agreement). The Company paid Three Rivers
$1,000 in November 2002, which was charged to research and development during
the period, and has agreed to pay Three Rivers $500 at such time as Par
commercially launches the product.
As of September 28, 2003, the Company had payables owed to distribution
agreement partners of $84,269, related primarily to amounts due pursuant to
profit sharing agreements, particularly amounts owed to GSK on paroxetine. The
Company expects to pay these amounts out of its working capital during the
fourth quarter of 2003.
In December 2001, the Company made its first payment of a potential equity
investment of up to $2,438 to be made over a period of time in HighRapids.
Pursuant to an agreement between the Company and HighRapids, effective December
1, 2001, the Company, subject to its ongoing evaluation of HighRapids'
operations, has agreed to purchase units, consisting of secured debt, evidenced
by 7% secured promissory notes, up to an aggregate principal amount of $2,425
and up to an aggregate of 1,330 shares of the common stock of HighRapids.
HighRapids is to utilize the Company's cash infusion for working capital and
operating expenses. Through September 28, 2003, the Company had invested $1,199
-24-
of its potential investment. Due to HighRapids' current operating losses and the
Company's evaluation of its short-term prospects for profitability, the
investments were expensed as incurred and included in other expense on the
Company's consolidated statements of operations (see "Notes to Consolidated
Financial Statements-Note 14-Commitments, Contingencies and Other Matters-Other
Matters").
In April 2001, Par entered into a licensing agreement with Elan
Transdermal Technologies, Inc. ("Elan") to market a generic clonidine
transdermal patch (Catapres TTS(R)). Under such agreement, Elan is responsible
for the development and manufacture of the product, while Par is responsible for
marketing, sales and distribution. Pursuant to the agreement, the Company paid
Elan $1,167 in fiscal year 2001 and $833 in 2002, which were charged to research
and development expenses in the respective years. In addition, Par has agreed to
pay Elan $1,000 upon FDA approval of the product and a royalty on all sales of
the product.
The Company expects to continue to fund its operations, including research
and development activities, capital projects, and its obligations under the
existing distribution and development arrangements discussed herein, out of its
working capital, including the proceeds from the issuance of its convertible
debt. The Company expects its capital spending to continue to increase over the
remainder of fiscal year 2003, due to the expansion of its laboratories and
initiatives related to improvements to its information systems. Although there
can be no such assurance, the Company anticipates it will continue to introduce
new products and attempt to increase sales of certain existing products, in an
effort to offset the loss of sales and any erosion of gross margins from
competition on any of its significant products. In addition to expected new
product introductions, the Company plans to continue to invest in its internal
research and development efforts while, at the same time, seeking acquisitions
of complementary products and businesses, additional first-to-file
opportunities, vertical integration with raw material suppliers and unique
dosage forms and strengths to differentiate its products in the marketplace. The
Company also seeks to reduce the overall impact of its top selling products by
adding additional products through new and existing distribution agreements. In
order to secure financing to execute these strategies, the Company obtained
additional funds through the issuance of convertible debt in September 2003.
Execution of these strategies could also require additional debt and/or equity
financing and there can be no assurance that the Company will be able to obtain
any additional required financing when needed and on terms acceptable or
favorable to it.
FINANCING
At September 28, 2003, the Company's total outstanding long-term debt,
including the current portion, amounted to $201,807. The amount consisted
primarily of senior subordinated convertible notes, an industrial revenue bond
and capital leases for computer equipment. In September 2003, the Company sold
an aggregate principal amount of $200,000 of senior subordinated convertible
notes pursuant to Rule 144A under the Securities Act of 1933, as amended. The
notes bear interest at an annual rate of 2.875% payable semi-annually on March
30 and September 30 of each year, with the first payment due on March 30, 2004.
The notes are convertible into the Company's Common Stock at an initial
conversion price of $88.76 per share, upon the occurrence of certain events. The
notes will mature on September 30, 2010, unless earlier converted or
repurchased. The Company may not redeem the notes anytime prior to their
maturity date.
The Company has altered its plans to move a portion of FineTech's
operation, including personnel and technological resources to a laboratory
facility in Rhode Island and, in October 2003, paid the remaining balance on the
industrial revenue bond that was to be used for this operation.
In December 1996, Par entered into the Loan Agreement with GECC. The Loan
Agreement, as amended in December 2002, provided Par with a revolving line of
credit expiring in March 2005, pursuant to which Par was permitted to borrow up
to the lesser of (i) the borrowing base established under the Loan Agreement or
(ii) $30,000. As of September 28, 2003, no debt was outstanding under the Loan
Agreement. The Company terminated the Loan Agreement in October 2003.
SUBSEQUENT EVENTS
In October 2003, the Company purchased 1,000 shares of common stock of
Advancis in its initial public offering on October 16, 2003. The purchase price
was $10 per share and the transaction closed on October 22, 2003. The Company's
investment represents an ownership position of 4.4% of the outstanding common
stock of Advancis. Advancis' focus is on developing and commercializing
pulsatile drug products that fulfill substantial unmet medical needs in the
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treatment of infectious disease. Unlike immediate release antibiotics, Advancis'
antibiotics are delivered in three to five sequential pulses within the first
six to eight hours following initial dosing. The Company and Advancis have a
licensing agreement providing Par the marketing rights to the antibiotic
Clarithromycin XL . Clarithromycin XL is being developed as a generic equivalent
to Abbott's Biaxin XL(R).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Based on the evaluations by the Chief Executive Officer and Chief
Financial Officer of the Company as of the end of the period covered by this
quarterly report, the Company's disclosure controls and procedures (as defined
in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are
effectively designed to ensure that the information required to be included in
this report has been recorded, processed, summarized and reported on a timely
basis. There has not been any change during the three months ended September 28,
2003 in the Company's internal controls over financial reporting that has
materially affected, or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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On September 25, 2003, the Office of the Attorney General of the
Commonwealth of Massachusetts filed a complaint in federal district court in
Boston against Par and 12 other leading generic pharmaceutical companies
alleging principally that Par and such other companies violated, through their
marketing and sales practices, state and federal laws, including allegations of
common law fraud and violations of Massachusetts false statements statutes, by
inflating generic pharmaceutical product prices paid for by the Massachusetts
Medicaid program. The Company has waived service of process with respect to the
complaint. The complaint seeks injunctive relief, treble damages, disgorgement
of excessive profits, civil penalties, reimbursement of investigative and
litigation costs (including experts' fees) and attorney's fees. In addition, on
September 25, 2003, the Company and a number of other generic and brand
pharmaceutical companies were sued by a New York county, which has alleged
violations of laws (including the Racketeer Influenced and Corrupt Organizations
("RICO") Act, common law fraud and obtaining funds by false statements) related
to participation in the Medicaid program. The complaint seeks declaratory
relief; actual, statutory and treble damages, with interest; punitive damages;
an accounting; a constructive trust and restitution; attorneys' fees and
experts' fees, and cost. Par intends to defend vigorously the claims asserted in
both complaints. The Company cannot predict with any certainty at this time the
outcome or the effect on the Company of such litigations. Accordingly, no
assurance can be given that such litigations or any other similar litigation by
other states or jurisdictions, if instituted, will not have a material adverse
effect on the Company's financial condition, results of operations or business.
In October 2003, Apotex Inc. filed a complaint against Par in the federal
district court in the Eastern District of Pennsylvania alleging violations of
state and federal antitrust laws relating as a result of the Company's
settlement with GSK and the GSK Supply Agreement. Par intends to file a motion
to dismiss the action in its entirety in December 2003 and to otherwise defend
vigorously this action, and may assert counterclaims against Apotex and claims
against third parties.
In August 2003, Teva USA filed a lawsuit against the Company and Par in
the United States District Court for the District of Delaware, after having
received approval from the FDA to launch a generic version of BMS's Megace(R),
which generic product will compete with the Company's megestrol acetate oral
suspension product. In the lawsuit, Teva USA seeks a declaration that its
product has not infringed and will not infringe any of Par's four patents
relating to megestrol acetate oral suspension. On August 22, 2003, Par filed a
counterclaim against Teva USA alleging willful infringement of one of its four
patents relating to megestrol acetate oral suspension and moved to dismiss the
action with the respect to the other three patents for lack of subject matter
jurisdiction. The Company intends to aggressively pursue its counterclaim
against Teva USA and defend vigorously the lawsuit. A trial date has been
scheduled by the court for April 2005.
On May 28, 2003, Asahi Glass Company ("Asahi Glass") filed a lawsuit
against Par and several other parties in the United States District Court for
the Northern District of Illinois alleging, among other things, violations of
state and federal antitrust laws relating to the settlement of GSK's patent
action against Pentech in respect of paroxetine hydrochloride, the generic
version of GSK's anti-depressant Paxil(R). Pentech had granted Par rights under
Pentech's ANDA for paroxetine hydrochloride capsules. Pursuant to the
settlement, reached between the parties on April 18, 2003, Pentech and Par
acknowledged that the patent held by GSK is valid and enforceable and would be
infringed by Pentech's proposed capsule product and GSK agreed to allow Par to
distribute in Puerto Rico substitutable generic paroxetine hydrochloride
immediate release tablets supplied and licensed from GSK for a royalty payable
to GSK. Par has also been granted the right under the settlement to distribute
the drug in the United States if another generic version fully substitutable for
Paxil(R) becomes available in the United States. Par has denied any wrongdoing
in connection with the Asahi antitrust action and filed a motion to dismiss the
complaint on August 22, 2003. In October 2003, the court dismissed all of the
state and federal antitrust claims against Par. The only remaining claim in this
action involving Par is a state law contract claim relating to the payment of
certain attorneys' fees to Asahi Glass in connection with the prior lawsuit. Par
intends to defend vigorously this lawsuit and may assert counterclaims against
Asahi Glass and claims against third parties.
In February 2003, Abbott Laboratories, Fornier Industrie et Sante and
Laboratoires Fournier S.A. filed a complaint in the United States District Court
for the District of New Jersey against Par, alleging that Par's generic version
of TriCor(R) (fenofibrate) infringes on one or more claims of their patents. The
Company had filed an ANDA for the product in October 2002. Par intends to defend
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vigorously this lawsuit and has filed an answer and a counterclaim, alleging
non-infringement and patent invalidity.
Breath Ltd. of the Arrow Group filed an ANDA (currently pending with the
FDA) for latanoprost (Xalatan(R)), which was developed by Breath Ltd. pursuant
to a joint manufacturing and marketing agreement with the Company, seeking
approval to engage in the commercial manufacture, sale and use of one
latanoprost drug product in the United States. Par subsequently acquired
ownership of the ANDA, which includes a Paragraph IV certification that the
patents in connection with Xalatan(R) identified in "Approved Drug Products with
Therapeutic Equivalence Evaluations" are invalid, unenforceable and/or will not
be infringed by Par's generic product. Par believes that its ANDA is the first
to be filed for this drug with a Paragraph IV certification. As a result of the
filing of the ANDA, Pharmacia Corporation, Pharmacia AB, Pharmacia Enterprises,
S.A., Pharmacia and Upjohn Company, or, collectively, Pharmacia, and the
Trustees of Columbia University in the City of New York, or Columbia, filed a
lawsuit against Par on December 21, 2001 in the United States District Court for
the District of New Jersey, alleging patent infringement. Pharmacia and Columbia
are seeking an injunction enjoining approval of the Company's ANDA and the
marketing of its generic product prior to the expiration of their patents. On
February 8, 2002, Par answered the complaint and filed a counterclaim, which
seeks a declaration that the patents-in-suit are invalid, unenforceable and/or
not infringed by Par's products and that the extension of the term of one of the
patents is invalid. All parties are seeking to recover their respective
attorneys' fees. Discovery in the case has now been completed and a pretrial
conference has been scheduled for November 12, 2003. A trial date has not been
set. Par intends to defend vigorously against the claims and to pursue its
counterclaim. At this time, it is not possible for the Company to predict the
outcome of this litigation with any certainty.
Par, among others, was a defendant in three lawsuits filed in the United
States District Court for the Eastern District of North Carolina (filed on
August 1, 2001, October 30, 2001 and November 16, 2001, respectively) by
aaiPharma Inc., involving patent infringement allegations connected to three
patents related to polymorphic forms of fluoxetine (Prozac(R)). In March 2003,
Par settled its lawsuits with aaiPharma Inc. The settlement has not had a
material adverse effect on the Company's financial position or results of
operation.
The Company and/or Par is a party in certain other litigation matters,
including product liability and patent actions, and the Company believes that
these actions are incidental to the conduct of its business and that their
ultimate resolution thereof will not have a material adverse effect on its
financial condition, results of operations or liquidity. The Company intends to
vigorously defend or, in cases where the Company is plaintiff, prosecute these
actions.
ITEM 5. OTHER INFORMATION.
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In June 2003, the Company received notice from the U.S. Congress that the
Committee on Energy and Commerce (the "Committee") had begun an industry-wide
(brand and generic) investigation into pharmaceutical reimbursements and rebates
under Medicaid, to which the Company has responded. In order to conduct the
investigation, the Committee has requested certain pricing and other
information, which the company delivered in August 2003, relating to certain
drugs produced by these pharmaceutical manufacturers. Because the investigation
has only recently begun, it is premature to speculate what action, if any, the
federal government may take and what impact such action could have on our
business, prospects or financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
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(a) Exhibits:
10.50 License Agreement, dated as of August 6, 2003, by and between
Mead Johnson & Company, Bristol-Myers Squibb Company and Par
Pharmaceutical, Inc.*
10.51 Supply and Distribution Agreement, dated as of September 4, 2003,
by and between Advancis Pharmaceutical Corporation and Par
Pharmaceutical, Inc.*
31.1 Certification by the President and Chief Executive Officer
pursuant to Rule 13a-14(a) of the Exchange Act.
31.2 Certification by the Chief Financial Officer pursuant to pursuant
to Rule 13a-14(a) of the Exchange Act.
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32.1 Certification by the President and Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*Certain portions of these exhibits have been omitted and have
been filed with the Securities and Exchange Commission pursuant
to a request for confidential treatment thereof.
(b) Reports on Form 8-K:
On September 29, 2003, September 25, 2003 and September 24, 2003, the
Company filed Current Reports on Form 8-K.
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SIGNATURE
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.
PHARMACEUTICAL RESOURCES, INC.
- ------------------------------
(Registrant)
November 12, 2003 /s/ SCOTT L. TARRIFF
---------------------
Scott L. Tarriff
PRESIDENT AND CHIEF EXECUTIVE OFFICER
November 12, 2003 /s/ DENNIS J. O'CONNOR
-----------------------
Dennis J. O'Connor
VICE PRESIDENT; CHIEF FINANCIAL
OFFICER AND SECRETARY
(Principal Accounting and Financial
Officer)
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EXHIBIT INDEX
-------------
Exhibit Number Description
-------------- -----------
10.50 License Agreement, dated as of August 6, 2003, by and between
Mead Johnson & Company, Bristol-Myers Squibb Company and Par
Pharmaceutical, Inc.*
10.51 Supply and Distribution Agreement, dated as of September 4, 2003,
by and between Advancis Pharmaceutical Corporation and Par
Pharmaceutical, Inc.*
31.1 Certification by the President and Chief Executive Officer
pursuant to Rule 13a-14(a) of the Exchange Act.
31.2 Certification by the Chief Financial Officer pursuant to Rule
13a-14(a) of the Exchange Act.
32.1 Certification by the President and Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Certain portions of these exhibits have been omitted and have
been filed with the Securities and Exchange Commission pursuant
to a request for confidential treatment thereof.
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