UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-10736
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 | 70,920,709 shares | |
| (Class) | (Outstanding at November 2, 2004) |
MGI PHARMA, INC.
| Page Number | ||
| PART I. FINANCIAL INFORMATION |
||
| Item 1. Financial Statements (Unaudited) |
||
| Condensed Consolidated Balance Sheets – September 30, 2004 and December 31, 2003 |
3 | |
| 5 | ||
| 6 | ||
| 7 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
46 | |
| Item 4. Controls and Procedures |
46 | |
| PART II. OTHER INFORMATION |
||
| Item 6. Exhibits |
47 | |
| 49 | ||
2
MGI PHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| September 30, 2004 |
December 31, 2003 | |||||
| ASSETS |
||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ | 211,454,358 | $ | 116,570,518 | ||
| Short-term marketable investments |
37,159,989 | 23,362,898 | ||||
| Restricted marketable investments |
5,907,578 | — | ||||
| Receivables, less contractual and bad debt allowances of $12,289,976 and $3,315,399 |
82,053,150 | 6,223,964 | ||||
| Inventories |
5,183,056 | 7,437,550 | ||||
| Prepaid expenses |
918,471 | 922,070 | ||||
| Total current assets |
342,676,602 | 154,517,000 | ||||
| Equipment, furniture and leasehold improvements, at cost less accumulated depreciation of $3,656,725 and $3,041,360 |
2,673,334 | 2,828,602 | ||||
| Restricted cash |
600,000 | — | ||||
| Long-term marketable investments |
63,312,428 | 37,819,837 | ||||
| Restricted marketable investments, less current portion |
8,387,578 | — | ||||
| Debt issuance costs, less accumulated amortization of $677,956 and $10,799 |
7,457,517 | 39,044 | ||||
| Long-term equity investment |
911,512 | 3,646,052 | ||||
| Intangible assets, at cost less accumulated amortization of $4,697,773 and $3,667,412 |
8,536,097 | 5,653,457 | ||||
| Other assets |
71,250 | 54,206 | ||||
| Total assets |
$ | 434,626,318 | $ | 204,558,198 | ||
(Continued)
3
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
Page 2
| September 30, 2004 |
December 31, 2003 |
|||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 9,660,130 | $ | 4,039,139 | ||||
| Accrued expenses |
34,528,962 | 21,632,345 | ||||||
| Deferred revenue |
245,000 | 245,000 | ||||||
| Current portion of long-term debt |
327,865 | — | ||||||
| Other current liabilities |
15,599,780 | 28,910 | ||||||
| Total current liabilities |
60,361,737 | 25,945,394 | ||||||
| Noncurrent liabilities: |
||||||||
| Senior subordinated convertible notes, face value of $348,000,000 and $21,000,000, net of unamortized discount of $87,828,240 as of September 30, 2004 and unamortized warrant costs of $1,322,244 as of December 31, 2003. |
260,171,760 | 19,677,756 | ||||||
| Long-term debt |
2,376 | — | ||||||
| Deferred revenue |
2,029,009 | 2,196,250 | ||||||
| Other noncurrent liabilities |
1,452,816 | 128,636 | ||||||
| Total noncurrent liabilities |
263,655,961 | 22,002,642 | ||||||
| Total liabilities |
324,017,698 | 47,948,036 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, 10,000,000 authorized and unissued shares |
— | — | ||||||
| Common stock, $.01 par value, 140,000,000 authorized shares, 70,798,764 and 63,393,964 issued and outstanding shares |
707,988 | 633,940 | ||||||
| Additional paid-in capital |
416,233,303 | 377,347,640 | ||||||
| Unearned compensation |
(3,944,688 | ) | (24,129 | ) | ||||
| Accumulated other comprehensive income |
2,838,289 | — | ||||||
| Accumulated deficit |
(305,226,272 | ) | (221,347,289 | ) | ||||
| Total stockholders’ equity |
110,608,620 | 156,610,162 | ||||||
| Total liabilities and stockholders’ equity |
$ | 434,626,318 | $ | 204,558,198 | ||||
See accompanying notes to condensed consolidated financial statements.
4
MGI PHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenues: |
||||||||||||||||
| Sales |
$ | 54,905,028 | $ | 14,092,004 | $ | 127,600,556 | $ | 28,763,991 | ||||||||
| Licensing |
644,650 | 7,109,046 | 2,757,093 | 9,065,641 | ||||||||||||
| 55,549,678 | 21,201,050 | 130,357,649 | 37,829,632 | |||||||||||||
| Costs and expenses: |
||||||||||||||||
| Cost of sales |
18,209,841 | 3,032,146 | 39,976,480 | 5,347,424 | ||||||||||||
| Selling, general and administrative |
20,275,737 | 14,545,515 | 54,423,574 | 34,747,146 | ||||||||||||
| Research and development |
22,952,509 | 15,223,561 | 36,001,009 | 22,855,816 | ||||||||||||
| Acquired in-process research and development |
83,094,066 | — | 83,094,066 | — | ||||||||||||
| 144,532,153 | 32,801,222 | 213,495,129 | 62,950,386 | |||||||||||||
| Loss from operations |
(88,982,475 | ) | (11,600,172 | ) | (83,137,480 | ) | (25,120,754 | ) | ||||||||
| Interest income |
1,761,171 | 429,193 | 3,951,835 | 848,417 | ||||||||||||
| Interest expense |
(1,754,019 | ) | (249,391 | ) | (4,233,338 | ) | (748,172 | ) | ||||||||
| Loss before taxes |
(88,975,323 | ) | (11,420,370 | ) | $ | (83,418,983 | ) | $ | (25,020,509 | ) | ||||||
| Provision for income taxes |
(310,000 | ) | — | (460,000 | ) | — | ||||||||||
| Net loss |
$ | (89,285,323 | ) | $ | (11,420,370 | ) | $ | (83,878,983 | ) | $ | (25,020,509 | ) | ||||
| Net loss per common share: |
||||||||||||||||
| Basic |
$ | (1.26 | ) | $ | (0.20 | ) | $ | (1.20 | ) | $ | (0.47 | ) | ||||
| Assuming dilution |
$ | (1.26 | ) | $ | (0.20 | ) | $ | (1.20 | ) | $ | (0.47 | ) | ||||
| Weighted average number of common shares outstanding: |
||||||||||||||||
| Basic |
70,689,093 | 57,374,528 | 69,722,866 | 52,976,546 | ||||||||||||
| Diluted |
70,689,093 | 57,374,528 | 69,722,866 | 52,976,546 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
MGI PHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (83,878,983 | ) | $ | (25,020,509 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Acquired in-process research and development |
83,094,066 | — | ||||||
| Depreciation and intangible amortization |
1,937,481 | 1,617,550 | ||||||
| Benefit plan contribution |
675,733 | 397,078 | ||||||
| Amortization of non-cash financing charges |
790,406 | 272,340 | ||||||
| Employee stock compensation expense |
729,917 | 83,620 | ||||||
| Deferred rent |
7,202 | 22,395 | ||||||
| Noncash consulting payments |
25,000 | 17,500 | ||||||
| Other |
(2,864 | ) | — | |||||
| Change in operating assets and liabilities (net of acquisitions): |
||||||||
| Receivables |
(74,422,866 | ) | (5,400,055 | ) | ||||
| Inventories |
2,254,494 | (258,080 | ) | |||||
| Prepaid expenses |
173,973 | (807,430 | ) | |||||
| Accounts payable and accrued expenses |
17,278,776 | 4,627,291 | ||||||
| Deferred revenue |
(183,750 | ) | (7,325,722 | ) | ||||
| Other current liabilities |
15,570,870 | 300,756 | ||||||
| Net cash used in operating activities |
(35,950,545 | ) | (31,473,266 | ) | ||||
| INVESTING ACTIVITIES: |
||||||||
| Purchase of held-to-maturity investments |
(78,835,853 | ) | (45,242,384 | ) | ||||
| Maturity of held-to-maturity investments |
69,519,000 | 5,063,407 | ||||||
| Purchase of available for sale equity securities |
(24,400,000 | ) | — | |||||
| Purchases of certain net assets in connection with acquisitions, net of cash acquired |
(86,051,411 | ) | — | |||||
| Purchase of equipment, furniture and leasehold improvements |
(577,996 | ) | (700,003 | ) | ||||
| Other |
— | 2,343 | ||||||
| Net cash used in investing activities |
(120,346,260 | ) | (40,876,637 | ) | ||||
| FINANCING ACTIVITIES: |
||||||||
| Proceeds from issuance of shares, net |
— | 168,581,477 | ||||||
| Payment of deposit payable |
— | (4,300,000 | ) | |||||
| Restricted marketable securities held by trustee for debt service |
(14,295,156 | ) | — | |||||
| Issuance of shares under stock plans |
9,589,514 | 10,055,708 | ||||||
| Proceeds of debt offering |
260,171,760 | — | ||||||
| Issuance costs of debt offering |
(8,135,473 | ) | — | |||||