MGI PHARMA INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-10736

MGI PHARMA, INC.

(Exact name of registrant as specified in its charter)

Minnesota

41-1364647

(State or other jurisdiction

of incorporation or organization)

(I.R.S. employer

identification number)

5775 West Old Shakopee Road

Suite 100

Bloomington, Minnesota 55437

(952) 346-4700

(Address of principal executive offices and zip code)

(Registrant’s telephone number, including area code)

Indicate by check mark, whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value		25,700,405 shares
(Class)		(Outstanding at July 25, 2003)

MGI PHARMA, INC.

FORM 10-Q INDEX

		Page Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Balance Sheets – December 31, 2002 and June 30, 2003		3

Statements of Operations – Three and Six Months Ended June 30, 2002 and 2003		5

Statements of Cash Flows – Six Months Ended June 30, 2002 and 2003		6

Notes to Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13

Item 3. Quantitative and Qualitative Disclosures About Market Risk		18

Item 4. Controls and Procedures		18

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders		19

Item 5. Other Information		19

Item 6. Exhibits and Reports on Form 8-K		20

SIGNATURES		21

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

MGI PHARMA, INC.

BALANCE SHEETS

(unaudited)

	December 31, 2002		June 30, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	52,933,393	$	42,325,445
Short-term marketable investments		7,539,508		6,437,513
Receivables, less allowances of
$109,276 and $111,645		3,042,698		4,139,896
Inventories		1,779,413		1,646,683
Prepaid expenses		448,559		1,075,831

Total current assets		65,743,571		55,625,368
Equipment, furniture and leasehold improvements, at cost less accumulated depreciation of $2,121,915 and $2,553,714		3,110,938		3,129,496
Long-term equity investment		6,800,000		6,800,000
Intangible assets, at cost less accumulated amortization of $2,462,455 and $3,053,444		4,629,415		4,038,426
Other assets		490,329		487,986

Total assets	$	80,774,253	$	70,081,276

(Continued)

BALANCE SHEETS

(Unaudited)

Page 2

	December 31, 2002			June 30, 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,904,297		$	1,943,254
Accrued expenses		8,725,323			8,366,103
Deposit payable		4,300,000			4,300,000
Deferred revenue		794,383			794,383
Other current liabilities		20,138			14,882

Total current liabilities		15,744,141			15,418,622

Noncurrent liabilities:
Convertible debt, face value of $21,000,000 net of unamortized warrant and issuance costs of $1,708,851 and $1,535,069		19,291,149			19,464,931
Deferred revenue		9,033,839			8,636,647
Other noncurrent liabilities		101,589			119,332

Total noncurrent liabilities		28,426,577			28,220,910

Total liabilities		44,170,718			43,639,532

Stockholders' equity:
Preferred stock, 10,000,000 authorized and unissued shares		—			—
Common stock, $.01 par value, 70,000,000 authorized shares, 25,236,906 and 25,644,203 issued and outstanding shares		252,369			256,442
Additional paid-in capital		195,919,707			199,275,242
Unearned compensation—restricted stock		(128,756	)		(50,016	)
Accumulated deficit		(159,439,785	)		(173,039,924	)

Total stockholders' equity		36,603,535			26,441,744

Total liabilities and stockholders' equity	$	80,774,253		$	70,081,276

See accompanying notes to financial statements.

MGI PHARMA, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2003			2002			2003
Revenues:
Sales	$	4,648,717		$	8,529,200		$	9,951,490		$	14,671,987
Licensing		1,038,511			1,340,634			1,537,610			1,956,595

		5,687,228			9,869,834			11,489,100			16,628,582

Costs and Expenses:
Cost of sales		756,500			953,408			1,442,329			1,724,289
Selling, general and administrative		7,340,354			11,383,651			14,510,680			20,201,631
Research and development		9,791,732			4,172,686			14,054,394			7,632,255
Amortization		295,494			295,495			590,989			590,989

		18,184,080			16,805,240			30,598,392			30,149,164

Loss from operations		(12,496,852	)		(6,935,406	)		(19,109,292	)		(13,520,582	)
Interest income		242,804			212,596			562,674			419,224
Interest expense		—			(249,390	)		—			(498,781	)

Net loss	$	(12,254,048	)	$	(6,972,200	)	$	(18,546,618	)	$	(13,600,139	)

Net loss per common share:
Basic	$	(0.49	)	$	(0.27	)	$	(0.74	)	$	(0.54	)
Assuming dilution	$	(0.49	)	$	(0.27	)	$	(0.74	)	$	(0.54	)
Weighted average number of common shares outstanding:
Basic		25,063,258			25,420,416			25,048,686			25,370,554
Assuming dilution		25,063,258			25,420,416			25,048,686			25,370,554

See accompanying notes to financial statements.

MGI PHARMA, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2002			2003
OPERATING ACTIVITIES:
Net loss	$	(18,546,618	)	$	(13,600,139	)
Adjustments for non-cash items:
Depreciation and intangible amortization		1,021,572			1,022,788
Benefit plan contribution		230,783			266,364
Amortization of non-cash financing charges		—			183,782
Amortization of restricted stock expense		3,826			71,770
Deferred rent		27,558			17,743
Noncash consulting payments		5,000			10,000
Stock option term modification		214,744			—
Other		791			—
Change in operating assets and liabilities:
Receivables		(2,046,015	)		(1,188,593	)
Inventories		(214,396	)		132,730
Prepaid expenses		(342,637	)		(627,272	)
Accounts payable and accrued expenses		(2,757,031	)		184,232
Deferred revenue		(397,192	)		(397,192	)
Other current liabilities		(15,117	)		(5,256	)

Net cash used in operating activities		(22,814,732	)		(13,929,043	)

INVESTING ACTIVITIES:
Purchase of investments		(4,923,608	)		(2,000,000	)
Maturity of investments		11,993,807			3,101,995
Acquisition of Hexalen^® capsules		(1,200,000	)		—
Purchase of equipment, furniture and leasehold improvements		(296,669	)		(450,357	)
Other		(19,071	)		2,343

Net cash provided by investing activities		5,554,459			653,981

FINANCING ACTIVITIES:
Restricted cash		4,000,000			—
Receipt of deposit payable		550,000			—
Issuance of shares under stock plans		375,040			2,667,114

Net cash provided by financing activities

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