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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended: September 30, 2002

or

For the transition period from                              to                             

Commission file number 0-19410

SEPRACOR INC.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (508) 481-6700

        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 ý    No o

        Number of shares outstanding of the registrant's class of Common Stock as of November 8, 2002: 84,166,094 shares.

SEPRACOR INC.
INDEX

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SEPRACOR INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In Thousands)

The accompanying notes are an integral part of the consolidated financial statements

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SEPRACOR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)

The accompanying notes are an integral part of the consolidated financial statements

4

SEPRACOR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)

The accompanying notes are an integral part of the consolidated financial statements

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1.    Basis of Presentation:

        The accompanying consolidated interim financial statements are unaudited and have been prepared on a basis substantially consistent with the audited financial statements. Certain information and footnote disclosures normally included in Sepracor's annual financial statements have been condensed or omitted. The year-end consolidated condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. The consolidated interim financial statements, in the opinion of management, reflect all adjustments (including normal recurring accruals) necessary for a fair presentation of the results for the interim periods ended September 30, 2002 and 2001.

        The consolidated results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the fiscal year. These consolidated interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2001, which are contained in Sepracor's Annual Report on Form 10-K for the year ended December 31, 2001, filed with the Securities and Exchange Commission.

        The consolidated financial statements include the accounts of Sepracor Inc. ("Sepracor" or the "Company") and its majority and wholly-owned subsidiaries, including Sepracor Canada Limited and BioSphere Medical, Inc. ("BioSphere", which was majority owned through July 2, 2001). Sepracor no longer consolidates BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001. The consolidated financial statements also include Sepracor's investments in Point Therapeutics, Inc. (formerly known as HemaSure Inc. and HMSR, Inc.) and Versicor Inc. ("Versicor").

2.    Recent Accounting Pronouncements:

        In June 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that intangible assets be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 are effective for fiscal years beginning after December 15, 2001. However, for goodwill and intangible assets acquired after June 30, 2001, certain provisions of SFAS No. 142 will be effective from the date of acquisition. The Company adopted SFAS No. 142 effective January 1, 2002 and the adoption had no impact on the Company's financial statements and related disclosures.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 further refines the requirements of SFAS No. 121 that companies (1) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable based on its undiscounted future cash flows and (2) measure an impairment loss as the difference between the carrying amount and fair value of the asset. In addition, SFAS No. 144 provides guidance on accounting and disclosure issues surrounding long-lived assets to be disposed of by sale. The Company adopted this new accounting standard effective January 1, 2002 and the adoption had no impact on the Company's financial statements and related disclosures.

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        In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, which required gains or losses on the extinguishment of debt to be classified as an extraordinary item. The Company has elected to early adopt SFAS No. 145 effective July 1, 2002. As a result of the adoption of SFAS No. 145, the Company has recorded its gains on extinguishment of debt in the quarter ending September 30, 2002 as other income. The Company adopted this new accounting standard effective July 1, 2002.

        In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company plans to adopt SFAS No. 146 in 2003.

3.    Basic and Diluted Net Loss Per Common Share:

        Basic earnings (loss) per share ("EPS") excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based upon the weighted average number of common shares outstanding during the period plus the additional weighted average common equivalent shares during the period. Common equivalent shares are not included in the per share calculations where the effect of their inclusion would be anti-dilutive. Common equivalent shares result from the assumed conversion of preferred stock, convertible subordinated debt and the assumed exercises of outstanding stock options, the proceeds of which are then assumed to have been used to repurchase outstanding stock options using the treasury stock method.

        For the three and nine months ended September 30, 2002 and 2001, basic and diluted net loss per common share is computed based on the weighted-average number of common shares outstanding during the period because the effect of common stock equivalents would be anti-dilutive. Certain securities were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2002 and 2001 because they would have an anti-dilutive effect due to net losses for such periods. These securities include the following:

        Options to purchase shares of common stock:

        In July 2002, Sepracor accepted for exchange options to purchase an aggregate of 4,268,542 shares of the Company's common stock held by certain employees of the Company, excluding directors and officers, pursuant to the terms of the option exchange program filed with the Securities and Exchange Commission in June 2002. These shares have been cancelled and are excluded from the number of options in the above table at September 30, 2002. Sepracor expects that on or about January 20, 2003, it will issue to such employees new options to purchase an aggregate of 4,268,542 shares of the Company's common stock at an exercise price equal to the closing price on that date, in exchange for the options surrendered in the option exchange program.

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        Shares of common stock reserved for issuance upon conversion of convertible subordinated debt:

4.    Inventories:

        Inventories consist of the following:

5.    Convertible Subordinated Debt:

        The principal amount of convertible subordinated debt outstanding as of September 30, 2002 and December 31, 2001 was as follows:

        In the third quarter of 2002, Sepracor repurchased, in privately negotiated transactions, an aggregate of $115,374,000 face value of its 7% convertible subordinated debentures due 2005 (the "7% Debentures"), for an aggregate consideration of approximately $74,622,000 in cash, excluding accrued interest. This repurchase resulted in the recording of a gain in other income of approximately $38,950,000 in the three and nine months ended September 30, 2002.

        Sepracor agreed to repurchase an additional $15,716,000 face value of 7% Debentures in September 2002 and the transactions settled in October 2002 for an aggregate consideration of approximately $10,157,000 in cash, excluding accrued interest, and will be recorded, along with a gain to other income of approximately $5,315,000, in the fourth quarter of 2002.

        In March and April 2002, the Company converted a total of $147,000,000 in principal amount of convertible subordinated debt into 5,711,636 shares of Sepracor common stock, 3,415,561 of which were shares issued as an inducement to the holders for the conversion of their convertible subordinated debt. The breakdown of the conversion was as follows:

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        The Company accounts for the conversion of convertible debt into equity securities pursuant to an inducement in accordance with SFAS No. 84, "Induced Conversions of Convertible Debt". The Company recognizes as debt conversion expense, in other expense, an amount equal to the fair value of all securities and other consideration transferred in the transaction in excess of the fair value of securities issuable pursuant to the original conversion terms.

        As a result of these transactions, deferred financing costs of approximately $3,320,000 were written off against additional paid-in capital for the nine months ended September 30, 2002 and inducement costs of $63,258,000 were charged to other expense for the nine months ended September 30, 2002.

6.    Comprehensive Loss:

        Total comprehensive loss is comprised of net loss, cumulative translation adjustments and unrealized gain (loss) on available-for-sale securities. The comprehensive loss is as follows:

7.    Investment in Affiliates:

Investment in Versicor Inc.:

        Sepracor considers its investment in Versicor as an available-for-sale security and as such, has marked-to-market its investment at the September 30, 2002 closing sale price of Versicor common stock on the Nasdaq National Market, which was $8.52 per share. This resulted in the recording of an unrealized loss of approximately $21,221,000 as a separate component of stockholders' equity for the nine months ended September 30, 2002.

Investment in Point Therapeutics, Inc. (formerly known as HemaSure Inc. and HMSR, Inc.):

        Sepracor considers its investment in Point Therapeutics as an available-for-sale security and as such has marked-to-market its investment at the September 30, 2002 closing sale price of Point Therapeutics common stock on the Nasdaq National Market, which was $0.83 per share. This resulted in the recording of an unrealized gain of approximately $360,000 as a separate component of stockholders' equity for the nine months ended September 30, 2002.

        Sepracor changed the accounting method for its investment in Point Therapeutics from the equity method to the cost method in the second quarter of 2002 primarily because Sepracor determined that it no longer had significant influence over the operations of Point Therapeutics, Inc.

Investment in BioSphere Medical Inc.:

        Sepracor no longer consolidates BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001. Sepracor has recorded $304,000 and $1,501,000 as its share of BioSphere losses for the three and nine months ended September 30, 2002, respectively.

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8.    Litigation:

        Currently, Sepracor is not a party to any material legal proceedings.

9.    Subsequent Events:

        In September 2002, Sepracor agreed to repurchase an additional $15,716,000 face value of its 7% Debentures. The transactions settled in October 2002 for an aggregate consideration of approximately $10,157,000 in cash, excluding accrued interest, and will be recorded, along with a gain to other income of approximately $5,315,000, in the fourth quarter of 2002.

        In June 2002, Sepracor exercised its option to purchase the Solomon Pond Corporate Center ("SPCC") from the developer of the site. The SPCC consists of approximately 58 acres and a newly constructed 192,600 square foot research and development and corporate office building, which Sepracor occupied and began leasing in June 2002. On November 5, 2002, Sepracor completed the purchase of the SPCC from the developer at a purchase price of approximately $37,405,000, which includes closing costs. At closing, the developer paid Sepracor approximately $26,197,000 for principal and interest, which had been borrowed by the developer under a construction loan. Sepracor paid approximately $11,208,000 in net cash at closing.

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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        This Quarterly Report on Form 10-Q contains, in addition to historical information, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risk and uncertainties and are not guarantees of future performance. Sepracor's actual results could differ significantly from the results discussed in such forward-looking statements. See "Factors Affecting Future Operating Results" below.

OVERVIEW

        Sepracor Inc. is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of innovative pharmaceutical products that are directed toward serving unmet medical needs. Sepracor's drug development program has yielded an extensive portfolio of drug candidates, including candidates for the treatment of respiratory, urological and central nervous system disorders. Sepracor's corporate headquarters are located in Marlborough, Massachusetts.

        The consolidated financial statements include the accounts of Sepracor Inc. ("Sepracor" or the "Company") and its majority and wholly-owned subsidiaries, including Sepracor Canada Limited and BioSphere Medical, Inc. ("BioSphere", which was majority owned through July 2, 2001). Sepracor no longer consolidates BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001. The consolidated financial statements also include Sepracor's investments in Point Therapeutics, Inc. (formerly known as HemaSure Inc. and HMSR, Inc.) and Versicor Inc. ("Versicor").

        In January 2002, Sepracor and 3M Drug Delivery Systems Division announced initiation of a scale-up and manufacturing collaboration for a XOPENEX® hydrofluoroalkane ("HFA") metered-dose inhaler ("MDI"). The collaboration combines Sepracor's short-acting beta-agonist, XOPENEX, and 3M's expertise in manufacturing MDIs, the device most commonly used by patients for the treatment of asthma and chronic obstructive pulmonary disease, using HFA technology. If the scale-up is successful and Sepracor develops and markets XOPENEX HFA MDI, Sepracor intends to enter into a Supply Agreement with 3M, pursuant to which 3M would supply Sepracor's requirements for XOPENEX HFA MDI, on terms to be negotiated by the parties including volume based unit pricing and royalty provisions.

        In January 2002, Sepracor announced that the United States Food and Drug Administration (the "FDA") had approved XOPENEX brand levalbuterol HCl inhalation solution for the treatment or prevention of bronchospasm in children 6 to 11 years old with reversible obstructive airway disease, such as asthma. In March 2002, Sepracor began marketing XOPENEX for use in a nebulizer at dosage strengths of 0.31 mg and 0.63 mg for pediatric patients.

        In March 2002, the FDA issued a "not approvable" letter for Sepracor's New Drug Application ("NDA") filed for SOLTARA™ brand tecastemizole capsules for the treatment of allergic rhinitis. A "not approvable" letter is issued if the FDA believes that the application contains insufficient information for an approval action. In April 2002, Sepracor met with the FDA to discuss issues outlined by the FDA in the "not approvable" letter for SOLTARA. In October 2002, Sepracor met with the FDA to discuss initiation of additional preclinical and clinical studies of SOLTARA. Contingent upon favorable results of proposed preclinical and clinical studies, Sepracor expects to include approximately 10 additional preclinical and 10 additional clinical studies in addition to re-analyzed existing tecastemizole data as part of an amendment to the SOLTARA NDA. Contingent upon successful completion of additional studies and re-analysis of existing tecastemizole data, Sepracor believes that it will be in a position to amend the SOLTARA NDA to seek marketing approval in the

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first half of 2004. There can be no assurance whether or when SOLTARA will be approved. Sepracor does not expect the SOLTARA NDA to receive FDA approval, if at all, before 2005.

        In March 2002, Sepracor exchanged $97,000,000 of its convertible subordinated debt in privately negotiated transactions for 3,541,479 shares of its common stock. The Company charged to other expense associated inducement costs of approximately $40,956,000 in the first quarter of 2002. The inducement costs in the first quarter include the fair market value of the 2,068,977 shares of Sepracor common stock issued as an inducement to the holders for conversion of their convertible subordinated debt. In April 2002, Sepracor exchanged $50,000,000 of its convertible subordinated debt in privately negotiated transactions for 2,170,157 shares of its common stock. The Company charged to other expense associated inducement costs of approximately $22,302,000 in the second quarter of 2002. The inducement costs in the second quarter include the fair market value of the 1,346,584 shares of Sepracor common stock issued as an inducement to the holders for conversion of their convertible subordinated debt.

        In April 2002, Sepracor announced that, as a result of the delay in the commercialization of SOLTARA following the receipt of the "not approvable" letter from the FDA, it had implemented certain cost reductions, including a reduction in workforce of 95 employees from the total employee headcount of 927.

        In June 2002, the Company adopted a shareholder rights plan designed to safeguard against abusive takeover tactics that would limit the ability of all shareholders to realize the long-term value of their investment in Sepracor. The plan was not adopted in response to any unsolicited offer or takeover attempt. A complete copy of the shareholder rights plan was part of a Current Report on Form 8-K filed with the Securities and Exchange Commission on June 4, 2002.

        In June 2002, Sepracor delivered terms of a stock option exchange program to its employees, excluding members of the board of directors and senior management, and filed with the Securities and Exchange Commission a Schedule TO-I relating to such option exchange program. Pursuant to the terms of this option exchange program, on July 17, 2002, the Company accepted for exchange options to purchase an aggregate of 4,268,542 shares of the Company's common stock held by certain employees of the Company, excluding directors and officers. Sepracor expects that on or about January 20, 2003, it will issue to such employees new options to purchase an aggregate of 4,268,542 shares of the Company's common stock at an exercise price equal to the closing price on that date, in exchange for the options surrendered in the option exchange program.

        In June 2002, Sepracor exercised its option to purchase the Solomon Pond Corporate Center ("SPCC") from the developer of the site. The SPCC consists of approximately 58 acres and a newly constructed 192,600 square foot research and development and corporate office building, which Sepracor occupied and began leasing in June 2002. As of September 30, 2002, Sepracor had loaned approximately $25,116,000 to the developer. On November 5, 2002, Sepracor completed the purchase of the SPCC from the developer at a purchase price of approximately $37,405,000, which includes closing costs. At closing, the developer paid Sepracor approximately $26,197,000 for principal and interest, which had been borrowed by the developer under a construction loan. Sepracor paid approximately $11,208,000 in net cash at closing.

        In July 2002, Sepracor completed the move out of its leased facilities at 33 and 111 Locke Drive, Marlborough, Massachusetts and moved into its newly constructed research and development and corporate office building in the SPCC at 84 Waterford Drive, Marlborough, Massachusetts. Sepracor is seeking to sublease its facilities at 33 and 111 Locke Drive, the leases of which extend through June 2007. In the third quarter of 2002, the Company accrued $1,452,000 for its estimated cumulative future minimum lease obligation under these leases net of estimated future sublease rental income through the term of the leases.

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        In August 2002, Sepracor signed an agreement with MedPointe Inc. for the co-promotion of ASTELIN®(azelastine HCl), a nasal-spray antihistamine. ASTELIN is the only antihistamine that has been approved by the FDA for the treatment of symptoms of both seasonal allergic rhinitis in adults and children 5 years of age and older, and non-allergic vasomotor rhinitis in adults and children 12 years and older. Under terms of the multi-year agreement, Sepracor's sales force will market ASTELIN to pulmonologists, allergists, pediatricians and primary care physicians in U.S. hospitals and clinics. Sepracor will receive a percentage of ASTELIN net sales above an agreed upon annual baseline sales level and Sepracor will be reimbursed for certain promotional and training expenses. Sepracor will record all cash received under this agreement as revenue and all related costs as cost of revenue.

        In the third quarter of 2002, Sepracor repurchased, in privately negotiated transactions, an aggregate of $115,374,000 face value of its 7% convertible su