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Table of Contents

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 March 31, 2012

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 1-35144

Sagent Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   98-0536317

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1901 N. Roselle Road, Suite 700

Schaumburg, Illinois

  60195
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (847) 908-1600

(Former name, former address and former fiscal year, if changed since last report)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

At April 30, 2012, there were 27,921,373 shares of the registrant’s common stock outstanding.


Table of Contents

Sagent Pharmaceuticals, Inc.

Table of Contents

 

          Page No.  

PART I –

   FINANCIAL INFORMATION   

Item 1.

  

Financial Statements

  
  

Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011

     1   
  

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011

     2   
  

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2012 and 2011

     3   
  

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011

     4   
  

Notes to Condensed Consolidated Financial Statements

     5   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     11   

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     18   

Item 4.

  

Controls and Procedures

     18   

PART II –

  

OTHER INFORMATION

  

Item 1.

  

Legal Proceedings

     20   

Item 1A.

  

Risk Factors

     20   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     20   

Item 3.

  

Defaults Upon Senior Securities

     20   

Item 4.

  

Mine Safety Disclosures

     20   

Item 5.

  

Other Information

     20   

Item 6.

  

Exhibits

     21   

Signature

     22   

In this report, “Sagent,” “we,” “us” and “our” refers to Sagent Pharmaceuticals, Inc. and subsidiaries, and “Common Stock” refers to Sagent’s common stock.


Table of Contents

 

Sagent Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

 

 
     March 31,      December 31,  
     2012      2011  
     (Unaudited)         

Assets

  

Current assets:

     

Cash and cash equivalents

   $ 22,281         $ 52,203     

Short-term investments

     41,371           73,761     

Accounts receivable, net of chargebacks and other deductions

     24,110           29,028     

Inventories, net

     42,198           41,487     

Due from related party

     1,896           2,379     

Prepaid expenses and other current assets

     3,655           1,988     
  

 

 

    

 

 

 

Total current assets

     135,511           200,846     

Property, plant, and equipment, net

     837           884     

Investment in joint ventures

     22,354           22,762     

Intangible assets, net

     5,954           5,426     

Other assets

     319           590     
  

 

 

    

 

 

 

Total assets

   $ 164,975         $ 230,508     
  

 

 

    

 

 

 

Liabilities and stockholders’ equity

     

Current liabilities:

     

Accounts payable

   $ 16,015         $ 35,403     

Due to related party

     5,768           4,303     

Accrued profit sharing

     2,315           3,753     

Accrued liabilities

     5,775           7,634     

Current portion of long-term debt

     -           8,182     

Notes payable

     -           24,867     
  

 

 

    

 

 

 

Total current liabilities

     29,873           84,142     

Long term liabilities:

     

Long-term debt

     -           4,091     

Other long-term liabilities

     6           606     
  

 

 

    

 

 

 

Total liabilities

     29,879           88,839     

Stockholders’ equity:

     

Common stock—$0.01 par value, 100,000,000 authorized and 27,921,373 and 27,901,174 outstanding at March 31, 2012 and December 31, 2011, respectively

     279           279     

Additional paid-in capital

     267,440           266,062     

Accumulated other comprehensive income

     2,500           2,162     

Accumulated deficit

     (135,123)           (126,834)     
  

 

 

    

 

 

 

Total stockholders’ equity

     135,096           141,669     
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 164,975         $ 230,508     
  

 

 

    

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

1


Table of Contents

Sagent Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)

 

    

Three months ended

March 31,

 
     2012      2011  

Net revenue

   $ 38,280       $ 30,344   

Cost of sales

     32,518         25,755   
  

 

 

    

 

 

 

Gross profit

     5,762         4,589   

Operating expenses:

     

Product development

     4,631         2,357   

Selling, general and administrative

     7,627         4,975   

Equity in net loss of joint ventures

     456         673   
  

 

 

    

 

 

 

Total operating expenses

     12,714         8,005   
  

 

 

    

 

 

 

Loss from operations

     (6,952)         (3,416)   

Interest income and other

     78         19   

Interest expense and other

     (1,415)         (520)   

Change in fair value of preferred stock warrants

             (454)   
  

 

 

    

 

 

 

Loss before income taxes

     (8,289)         (4,371)   

Provision for income taxes

               
  

 

 

    

 

 

 

Net loss

   $ (8,289)       $ (4,371)   
  

 

 

    

 

 

 

Net loss per common share:

     

Basic

   $ (0.30)       $ (2.09)   

Diluted

   $ (0.30)       $ (2.09)   

Weighted-average of shares used to compute net loss per common share:

     

Basic

     27,915         2,088   

Diluted

     27,915         2,088   

See accompanying notes to condensed consolidated financial statements.

 

2


Table of Contents

 

Sagent Pharmaceuticals, Inc.  
Condensed Consolidated Statements of Comprehensive Loss  
(in thousands)  

(Unaudited)

 

 
     Three months ended March 31,  
     2012      2011  

Net loss

   $     (8,289)         $     (4,371)    

Other comprehensive income, net of tax

     

Foreign currency translation adjustments

     225           244     

Unrealized gains on available for sale securities

     113           -     
  

 

 

    

 

 

 

Total other comprehensive income, net of tax

     338           244     
  

 

 

    

 

 

 

Comprehensive loss

   $ (7,951)        $ (4,127)    
  

 

 

    

 

 

 

See accompanying notes to condensed consolidated financial statements

 

3


Table of Contents

 

Sagent Pharmaceuticals, Inc.  
Condensed Consolidated Statements of Cash Flows  
(in thousands)  

(Unaudited)

 

 
     Three months ended March 31,  
     2012      2011  

Cash flows from operating activities

     

Net loss

   $ (8,289)        $ (4,371)    

Adjustments to reconcile net loss to net cash used in operating activities:

     

Depreciation and amortization

     1,633           203     

Stock-based compensation

     1,285           490     

Equity in net loss of joint ventures

     456           673     

Change in fair value of preferred stock warrants

     -           454     

Changes in operating assets and liabilities:

     

Accounts receivable, net

     4,918           (977)    

Inventories

     (711)          (872)    

Prepaid expenses and other current assets

     (1,690)          (1,341)    

Due from related party

     483           461     

Accounts payable and other accrued liabilities

     (21,217)          (10,916)    
  

 

 

    

 

 

 

Net cash used in operating activities

     (23,132)          (16,196)    
  

 

 

    

 

 

 

Cash flows from investing activities

     

Capital expenditures

     (7)          (6)    

Return of principal balance of restricted cash

     23           121     

Investments in unconsolidated joint ventures

     (51)          (17)    

Return of capital from unconsolidated joint venture

     228           670     

Purchases of investments

     (67,401)          -     

Sale of investments

     99,602           -     

Purchase of product rights

     (1,360)          (70)    
  

 

 

    

 

 

 

Net cash provided by (used in) investing activities

     31,034           698     
  

 

 

    

 

 

 

Cash flows from financing activities

     

Reduction in short-term notes payable

     (24,867)          (1,988)    

Proceeds from issuance of long-term debt

     -           15,000     

Repayment of long-term debt

     (12,273)          -     

Proceeds from issuance of common stock, net of issuance costs

     90           561     

Payment of deferred financing costs

     (774)          (35)    
  

 

 

    

 

 

 

Net cash (used in) provided by financing activities

     (37,824)          13,538     
  

 

 

    

 

 

 

Net decrease in cash and cash equivalents

     (29,922)          (1,960)    

Cash and cash equivalents, at beginning of period

     52,203           34,376     
  

 

 

    

 

 

 

Cash and cash equivalents, at end of period

   $ 22,281         $ 32,416     
  

 

 

    

 

 

 

See accompanying notes to condensed consolidated financial statements

 

4


Table of Contents

Sagent Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except for share and per share information)

(Unaudited)

Note 1. Basis of presentation:

Our interim condensed consolidated financial statements are unaudited. We prepared the condensed consolidated financial statements following rules for interim reporting as prescribed by the U.S. Securities and Exchange Commission (“SEC”). As permitted under those rules, we have condensed or omitted a number of footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). It is management’s opinion that these financial statements include all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation of our financial position, operating results and cash flows. Operating results for any interim period are not necessarily indicative of future or annual results.

The condensed consolidated financial statements include Sagent as well as our wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. We account for our investments in Kanghong Sagent (Chengdu) Pharmaceutical Corporation Limited (“KSCP”) and in Sagent Agila LLC (formerly Sagent Strides LLC) using the equity method of accounting, as our interest in each entity provides for joint financial and operational control. Operating results of our KSCP equity method investment are reported on a one-month lag.

You should read these statements in conjunction with our consolidated financial statements and related notes for the year ended December 31, 2011, filed with the SEC on March 29, 2012.

New Accounting Pronouncements:

In May 2011, new guidance was issued on the accounting for fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as a description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. We adopted this guidance on January 1, 2012. Adoption of this guidance did not have a significant impact on our financial results.

Note 2. Investments:

Our investments at March 31, 2012 were comprised of the following:

 

     Cost
basis
     Unrealized
gains
     Unrealized
losses
     Recorded
basis
     Cash and
cash
equivalents
     Short term
investments
 

Assets

                 

Cash

   $ 1,952        $       $       $ 1,952        $ 1,952        $   

Money market funds

     20,329                          20,329          20,329            

Corporate bonds and notes

     38,847          24                  38,871                  38,871    

US government securities

     2,500                          2,500                  2,500    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 63,628        $ 24        $       $ 63,652        $ 22,281        $ 41,371    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

5


Table of Contents

Investments with continuous unrealized losses for less than twelve months and their related fair values were as follows:

 

     Fair
value
     Unrealized
losses
 

Corporate bonds and notes

   $ 14,688       $ (8)   

US government securities

               
  

 

 

    

 

 

 
   $     14,688       $ (8)   
  

 

 

    

 

 

 

Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Because we do not currently intend to sell these investments, and it is not more likely than not that we will be required to sell our investments before recovery of their amortized cost basis, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at March 31, 2012.

The original cost and estimated current fair value of our fixed-income securities are set forth below.

 

     Cost
basis
     Estimated
fair value
 

Due in one year or less

   $ 30,815       $ 30,827   

Due between one and five years

     10,532         10,544   
  

 

 

    

 

 

 
   $     41,347       $ 41,371   
  

 

 

    

 

 

 

Note 3. Inventories:

Inventories at March 31, 2012 and December 31, 2011 were as follows:

 

     March 31, 2012      December 31, 2011  
     Approved      Pending
regulatory
approval
     Inventory      Approved      Pending
regulatory
approval
     Inventory  

Finished goods

   $ 45,394       $       $ 45,394       $ 47,666       $       $ 47,666   

Raw materials

     522                 522                 264         264   

Inventory reserve

     (3,718)                 (3,718)         (6,443)                 (6,443)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 42,198       $       $ 42,198       $ 41,223       $ 264       $ 41,487   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Note 4. Intangible assets, net:

Intangible assets at March 31, 2012 and December 31, 2011 were as follows:

 

     March 31, 2012      December 31, 2011  
     Gross
carrying
amount
     Accumulated
amortization
     Intangible
assets,
net
     Gross
carrying
amount
     Accumulated
amortization
     Intangible
assets,
net
 

Product licensing rights

   $ 2,749       $ (1,184)       $ 1,565       $ 2,528       $ (1,070)       $ 1,458   

Product development rights

     4,389                 4,389         3,968                 3,968   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 7,138       $ (1,184)       $ 5,954       $ 6,496       $ (1,070)       $ 5,426   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

6


Table of Contents

Movements in intangible assets were due to the following:

 

     Product
licensing rights
     Product
development
rights
 

December 31, 2011

   $ 1,458         $ 3,968     

Acquisition of product rights

     220           1,141     

Amortization of product rights

     (113)           (720)     
  

 

 

    

 

 

 

March 31, 2012

   $ 1,565         $ 4,389     
  

 

 

    

 

 

 

The weighted-average period prior to the next extension or renewal for the fourteen products comprising our product licensing rights intangible asset was 37 months at March 31, 2012.

We currently estimate amortization expense over each of the next five years as follows:

 

For the year ending:    Amortization
expense
 

March 31, 2013

   $ 4,459   

March 31, 2014

     671   

March 31, 2015

     266   

March 31, 2016

     228   

March 31, 2017

     91   

Note 5. Investment in KSCP:

Changes in our investment in KSCP during the three months ended March 31, 2012 were as follows:

 

Investment in KSCP at January 1, 2012

   $     20,888     

Equity in net loss of KSCP

     (1,084)     

Currency translation adjustment

     225     

Investments in KSCP

     44     
  

 

 

 

Investment in KSCP at March 31, 2012

   $ 20,073     
  

 

 

 

Condensed statement of operations information of KSCP is presented below.

 

    

Three months

ended March 31,

 
Condensed statement of operations information    2012      2011  

Net revenues

   $ -         $ -     

Gross profit

     -           -     

Net loss

     (1,459)          (2,066)    

Note 6. Accrued liabilities:

Accrued liabilities at March 31, 2012 and December 31, 2011 were as follows:

 

     March 31,
2012
     December 31,
2011
 

Payroll and employee benefits

   $ 1,910       $ 2,222   

Sales and marketing

     3,567         4,604   

Other accrued liabilities

     298         808   
  

 

 

    

 

 

 
   $ 5,775       $ 7,634   
  

 

 

    

 

 

 

 

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Table of Contents

Note 7. Debt:

In February 2012, we entered into a Loan and Security Agreement with Silicon Valley Bank (the “SVB Agreement”). The SVB Agreement provides for a $40,000 asset based revolving loan facility, with availability subject to a borrowing base consisting of eligible accounts receivable and inventory and the satisfaction of conditions precedent specified in the SVB Agreement. The SVB Agreement matures on February 13, 2016, at which time all outstanding amounts will become due and payable. Borrowings under the SVB Agreement may be used for general corporate purposes, including funding working capital. Amounts drawn bear an interest rate equal to, at our option, either a Eurodollar rate plus 2.50% per annum or an alternative base rate plus 1.50% per annum. We also pay a commitment fee on undrawn amounts equal to 0.30% per annum. The SVB Agreement contains various covenants and restrictions requiring us to maintain a minimum adjusted quick ratio, minimum level of free cash flow, restrictions on our ability to incur additional indebtedness, make certain investments, create liens, pay dividends, sell assets or enter into a merger or acquisition. During the continuance of an event of default, at Silicon Valley Bank’s option, all obligations will bear interest at a rate per annum equal to 5.00% per annum above the otherwise applicable rate. At March 31, 2012, we were in default of the free cash flow covenant in the SVB Agreement. On May 10, 2012, Silicon Valley Bank agreed to waive the covenant at March 31, 2012 and revised the covenant for the remainder of 2012. In connection with the waiver and modification, we paid a fee of $100. No borrowings were outstanding as of March 31, 2012.

Concurrent with entering into the SVB Agreement, we repaid in full with cash on hand all outstanding amounts under our existing term loan credit facility and senior secured revolving credit facility, plus certain associated fees, and terminated the agent’s and lender’s commitments to extend further credit under those facilities. Concurrent with the repayment and termination of these agreements, all liens and security interests against our property that secured the obligations under these agreements were released and discharged. Loans under the SVB Agreement are secured by a lien on substantially all of our and our principal operating subsidiary’s assets, other than our equity interests in our joint ventures and certain other limited exceptions.

As part of the termination of these agreements, we were required to pay to the lenders under those facilities $1,500 of early termination fees and a $600 exit fee associated with the term loan credit facility; however, $1,050 of such fees owing to Silicon Valley Bank under these agreements were deferred in connection with the execution of the SVB Agreement and will only be payable upon the occurrence of certain early termination events as set forth in the SVB Agreement. We have accounted for the termination of these agreements as the extinguishment of the term loan credit facility, and the partial extinguishment of the senior secured revolving credit facility. We recorded $1,124 to account for early termination fees and the acceleration of deferred financing costs related to the partial extinguishment of these facilities within interest expense in the condensed consolidated statement of operations.

Note 8. Fair value measurements:

Assets measured at fair value on a recurring basis as of March 31, 2012 consisted of the following:

 

     Total fair
value
     Quoted prices in
active markets
for identical
assets (Level 1)
     Significant
other
observable
inputs
(Level 2)
     Significant
unobservable
inputs

(Level 3)
 

Assets

           

Money market funds

   $ 20,329        $ 20,329        $       $   

Corporate bonds and notes

     38,871                  38,871            

US government securities

     2,500                  2,500            
  

 

 

    

 

 

    

 

 

    

 

 

 

Short-term investments

   $ 41,371        $       $ 41,371        $   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 61,700        $ 20,329        $ 41,371        $   
  

 

 

    

 

 

    

 

 

    

 

 

 

The fair value of our Level 2 investments is based on a combination of quoted market prices of similar securities and matrix pricing provided by third-party pricing services utilizing securities of similar quality and maturity.

 

8


Table of Contents

Assets measured at fair value on a recurring basis as of December 31, 2011 consisted of the following:

 

     Total fair
value
     Quoted prices in
active markets
for identical
assets (Level 1)
     Significant
other
observable
inputs
(Level 2)
     Significant
unobservable

inputs
(Level 3)
 

Assets

           

Money market funds

   $ 25,373        $ 25,373        $       $   

Commercial paper

     28,948                  28,948            

Corporate bonds and notes

     40,313                  40,313            

US government securities

     4,500                  4,500            
  

 

 

    

 

 

    

 

 

    

 

 

 

Short-term investments

   $ 73,761        $       $ 73,761        $   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 99,134        $ 25,373        $ 73,761        $   
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no transfers of assets between Level 1 and Level 2 during the periods presented.

During the three months ended March 31, 2011 changes in the fair value of our preferred stock warrants measured using significant unobservable inputs (Level 3), were comprised of the following:

 

     Three months ended
March 31, 2011
 

Balance at beginning of period

   $ 1,432   

Change in fair value of warrants

     454   
  

 

 

 

Balance at end of period

   $ 1,886   
  

 

 

 

In April 2011, the holder of our preferred stock warrants exercised all of the warrants concurrent with our initial public offering, as such, no preferred stock warrants are outstanding at March 31, 2012 or December 31, 2011.

Note 9. Accumulated other comprehensive income:

Accumulated other comprehensive income at March 31, 2012 and December 31, 2011 is comprised of the following:

 

     March 31,
2012
     December 31,
2011
 

Currency translation adjustment, net of tax

   $ 2,476       $ 2,251   

Unrealized gains (losses) on available for sale securities, net of tax

     24         (89)   
  

 

 

    

 

 

 

Total accumulated other comprehensive income

   $ 2,500       $ 2,162   
  

 

 

    

 

 

 

Note 10. Earnings per share:

Basic earnings per share is calculated by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Because of their anti-dilutive effect, 2,451,290 and 20,897,762 common share equivalents, comprised of preferred shares, restricted stock, preferred stock warrants and unexercised stock options, have been excluded from the calculation of diluted earnings per share for the periods ended March 31, 2012 and 2011, respectively.

 

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The table below presents the computation of basic and diluted earnings per share for the three months ended March 31, 2012 and 2011:

 

     Three months ended
March 31,
 
     2012      2011  

Basic and dilutive numerator:

     

Net loss, as reported

   $ (8,289)       $ (4,371)   
  

 

 

    

 

 

 

Denominator:

     

Weighted-average common shares outstanding—basic (in thousands)

     27,915         2,088   
  

 

 

    

 

 

 

Net effect of dilutive securities:

     

Weighted-average conversion of Class A and Class B preferred stock

               

Stock options and restricted stock

               
  

 

 

    

 

 

 

Weighted-average common shares outstanding—diluted (in thousands)

     27,915         2,088   
  

 

 

    

 

 

 

Net loss per common share (basic)

   $ (0.30)       $ (2.09)   
  

 

 

    

 

 

 

Net loss per common share (diluted)

   $ (0.30)       $ (2.09)   
  

 

 

    

 

 

 

Note 11. Stock-based compensation:

We granted 192,850 stock options, 13,608 restricted stock units and 34,050 restricted stock awards during the three months ended March 31, 2012. We did not grant stock options during the three months ended March 31, 2011. There were 19,391 and 146,103 stock options exercised during the three months ended March 31, 2012 and 2011, with an aggregate intrinsic value of $344 and $1,307, respectively.

Note 12. Net revenue by product:

Net revenue by product line is as follows:

 

    

Three months ended

March 31,

 
Therapeutic class:    2012      2011  

Anti-infective

   $ 17,247       $ 12,593   

Critical care

     17,511         12,187   

Oncology

     3,522         5,564   
  

 

 

    

 

 

 
   $ 38,280       $ 30,344   
  

 

 

    

 

 

 

Note 13. Related party transactions:

As of March 31, 2012 and December 31, 2011, respectively, we had a receivable of $614 and $298 from Sagent Agila LLC, which is expected to offset future profit-sharing payments. As of March 31, 2012 and December 31, 2011, respectively, we also had a deposit of $1,246 and $2,081 with our Sagent Agila LLC joint venture partner, Strides Arcolab International Limited, for future inventory purchases. These amounts are included within due from related party on the condensed consolidated balance sheet. As of March 31, 2012 and December 31, 2011, respectively, we had a payable of $5,768 and $4,303 to Sagent Agila LLC, principally for the acquisition of inventory and amounts due under profit-sharing arrangements. During the three months ended March 31, 2012, Sagent Agila LLC distributed $455 of profit sharing receipts to its joint venture partners. As the Sagent Agila joint venture is in a cumulative loss position, our share of this distribution has been treated as a return of capital in the condensed consolidated statement of cash flows.

Note 14. Commitments and contingencies:

From time to time, we are subject to claims and litigation arising in the normal course of business. At this time, there are no proceedings of which we are aware that we expect will have a material adverse effect on our consolidated financial position or results of operations.

 

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

The following discussion should be read in conjunction with our condensed consolidated financial statements included elsewhere in this report and with our audited financial statements and the notes found in our most recent Annual Report on Form 10-K filed with the SEC on March 29, 2012. Unless otherwise noted, all dollar amounts are in thousands.

Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “could have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. In addition, this report contains forward-looking statements regarding our ability to generate operating profit in the near term; the adequacy of our current cash balances to fund our ongoing operations; our utilization of our net operating loss carryforwards; and our ability to meet our obligations under our new Revolving Credit Facility with Silicon Valley Bank.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, and the cautionary statements set forth below, as well as elsewhere in this Quarterly Report on Form 10-Q, and those contained in Item 1A under the heading “Risk Factors” in our most recent Annual Report on Form 10-K filed with the SEC on March 29, 2012, identify important factors that could cause actual results to differ materially from those indicated by our forward-looking statements. Such factors, include, but are not limited to:

 

   

we rely on our business partners for the manufacture of our products, and if our business partners fail to supply us with high-quality active pharmaceutical ingredient (“API”) or finished products in the quantities we require on a timely basis, sales of our products could be delayed or prevented, our revenues could decline and we may not achieve profitability;

   

if we or any of our business partners are unable to comply with the quality and regulatory standards applicable to pharmaceutical drug manufacturers, we may be unable to meet the demand for our products, may lose potential revenues and may not achieve profitability;

   

any change in the regulations, enforcement procedures or regulatory policies established by the U.S. Food and Drug Administration (“FDA”) and other regulatory agencies could increase the costs or time of development of our products and delay or prevent sales of our products and our revenues could decline and we may not achieve profitability;

   

two of our products, heparin and levofloxacin in pre-mix bags, each of which is supplied to us by a single vendor, represent a significant portion of our net revenues and, if the volume or pricing of either of these products declines, or we are unable to satisfy market demand for either of these products, it could have a material adverse effect on our business, financial position and results of operations;

   

we participate in highly competitive markets, and if we are unable to compete successfully, our revenues could decline and our future profitability could be jeopardized;

   

if we are unable to continue to develop and commercialize new products in a timely and cost-effective manner, we may not achieve our expected revenue growth or profitability or such revenue growth and profitability, if any, could be delayed;

   

if we are unable to maintain our GPO and distributor relationships, our revenues could decline and future profitability would be jeopardized;

   

we rely on a limited number of pharmaceutical wholesalers to distribute our products;

   

we depend to a significant degree upon our key personnel, the loss of whom could adversely affect our operations;

 

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we may be exposed to product liability claims that could cause us to incur significant costs or cease selling some of our products;

   

if reimbursement for our current or future products is reduced or modified, our business could suffer;

   

current and future economic conditions could adversely affect our operations;

   

we are subject to a number of risks associated with managing our international network of collaborations;

   

we may never realize the expected benefits from our investment in our KSCP joint venture in China; and

   

we may seek to engage in strategic transactions, including the acquisition of products or businesses, that could have a variety of negative consequences, and we may not realize the benefits of such transactions.

We derive many of our forward-looking statements from our work in preparing, reviewing and evaluating our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, include, but are not limited to, those disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.

We cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Introduction

We are a specialty pharmaceutical company that develops and sources products that we sell primarily in the United States of America through our highly experienced sales and marketing team.

With a primary focus on generic injectable pharmaceuticals, we offer our customers a broad range of products across anti-infective, oncolytic and critical care indications in a variety of presentations, including single- and multi-dose vials, pre-filled ready-to-use syringes and premix bags. We generally seek to develop injectable products where the form or packaging of the product can be enhanced to improve delivery, product safety or end-user convenience. Our management team includes industry veterans who have previously served critical functions at other injectable pharmaceutical companies and key customer groups and have long-standing relationships with customers, regulatory agencies, and suppliers. We have rapidly established a growing and diverse product portfolio and product pipeline as a result of our innovative business model, which combines an extensive network of international development, sourcing and manufacturing collaborations with our proven and experienced U.S.-based regulatory, quality assurance, business development, project management, and sales and marketing teams.

Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles generally accepted in the United States (“GAAP”).

EBITDA and Adjusted EBITDA

We use the non-GAAP financial measures “EBITDA” and “Adjusted EBITDA” and corresponding growth ratios. We define EBITDA as our net loss less interest expense, provision for income taxes, depreciation and amortization. We define adjusted EBITDA as net loss less interest expense, provision for income taxes, depreciation and amortization, stock-based compensation expense and the equity in net loss of our KSCP joint venture. We believe that EBITDA and Adjusted EBITDA are relevant and useful supplemental information for our investors. Our management believes that the presentation of these non-GAAP financial measures, when considered together with our GAAP financial measures and the reconciliation to the most directly comparable GAAP financial measures, provides a more complete understanding of the factors and trends affecting Sagent than could be obtained absent these disclosures. Management uses EBITDA, Adjusted EBITDA and corresponding ratios to make operating and strategic decisions and evaluate our performance. We have disclosed this measure so that our investors have the same financial data that management uses with the intention of assisting you in making comparisons to our

 

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historical operating results and analyzing our underlying performance. Our management believes that EBITDA and Adjusted EBITDA reflect the underlying operating performance of the company on an ongoing basis. The limitation of these measures are that they exclude items that have an impact on net loss. The best way that these limitations can be addressed is by using EBITDA and Adjusted EBITDA in combination with our GAAP reported net loss. Because EBITDA and Adjusted EBITDA calculations may vary among other companies, the EBITDA and Adjusted EBITDA figures presented below may not be comparable to similarly titled measures used by other companies. Our use of EBITDA and Adjusted EBITDA is not meant to be considered in isolation or as a substitute for, or superior to, any GAAP financial measure. You should carefully evaluate the following tables reconciling EBITDA and Adjusted EBITDA to our GAAP reported net loss.

 

     Three months ended March 31,                
     2012      2011      $ Change      % Change  

Adjusted EBITDA

   $          (3,317)           $          (2,172)           $          (1,145)             (52.7 %) 

Stock-based compensation expense

     1,285             490             795             162.2

Equity in net loss of KSCP joint venture

     1,084             1,032             52             5.0
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ (5,686)           $          (3,694)           $          (1,992)             (53.9 %) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation expense

     54             54             -             (0.0 %) 

Amortization expense1

     1,134             103             1,031             1000.0

Interest expense

     1,415             520             895             172.1

Provision for income taxes

     -             -             -             (0.0 %) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

   $          (8,289)           $          (4,371)           $          (3,918)             (89.6 %) 
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1

Amortization expense excludes $445 and $46 of amortization in the three months ended March 31, 2012 and 2011, respectively, related to deferred financing fees, which is included within interest expense and other in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011.

 

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Discussion and Analysis

Consolidated results of operations

The following compares our consolidated results of operations for the three months ended March 31, 2012 with those of the three months ended March 31, 2011:

 

     Three months ended March 31,                
     2012      2011      $ change      % change  

Net revenue

   $          38,280           $ 30,344           $          7,936             26

Cost of sales

     32,518             25,755             6,763             26
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     5,762             4,589             1,173             26

Gross profit as % of net revenues

     15.1%         15.1%         

Operating expenses:

           

Product development

     4,631             2,357             2,274             96

Selling, general and administrative

     7,627             4,975             2,652             53

Equity in net loss of joint ventures

     456             673             (217)             (32)
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     12,714             8,005             4,709             59
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from operations

     (6,952)             (3,416)             (3,536)             104

Interest income and other

     78             19             59             311

Interest expense

     (1,415)             (520)             (895)             (172)

Change in fair value of preferred stock warrants

     -             (454)             454             (100)
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (8,289)             (4,371)             (3,918)             90

Provision for income taxes

     -             -             -             -     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

   $ (8,289)           $ (4,371)           $ (3,918)             90
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss per common share:

           

Basic

   $ (0.30)           $ (2.09)           $ 1.79             86

Diluted

   $ (0.30)           $ (2.09)           $ 1.79             86

Net revenue: Net revenue for the three months ended March 31, 2012 totaled $38.3 million, an increase of $7.9 million, or 26%, as compared to $30.3 million for the three months ended March 31, 2011. The launch of 34 new codes or presentations of 12 products since March 31, 2011, including levofloxacin, contributed $11.4 million of the net revenue increase in the first quarter of 2012. Net revenue for products launched prior to March 31, 2011 decreased $3.4 million, or 11%, to $26.9 million in the first quarter of 2012 due to lower pricing, especially on our heparin products, partially offset by increased unit volume across our portfolio.

Cost of sales: Cost of goods sold for the three months ended March 31, 2012 totaled $32.5 million, an increase of $6.8 million, or 26%, as compared to $25.8 million for the three months ended March 31, 2011. Gross profit as a percentage of net revenues was 15.1% for each of the three months ended March 31, 2012 and the three months ended March 31, 2011. The impact of the introduction of higher margin products, particularly levofloxacin, was offset by the impact of lower pricing, particularly on our heparin products.

Product development: Product development expense for the three months ended March 31, 2012 totaled $4.6 million, an increase of $2.3 million, or 96%, as compared to $2.4 million for the three months ended March 31, 2011. The increase in product development expense was primarily due to the timing of milestone payments and FDA filing fees related to our development programs and expenses for outside consultants incurred in connection with the evaluation of growth initiatives.

As of March 31, 2012, our new product pipeline included 35 products represented by 63 ANDAs which we had filed, or licensed rights to, that were under review by the FDA and 9 products represented by 16 ANDAs that have been recently approved and were pending commercial launch. We expect to launch most of these remaining new products by the end of 2013. Also, we had an additional 28 products represented by 36 ANDAs under initial development at March 31, 2012.

 

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Selling, general and administrative: Selling, general and administrative expenses for the three months ended March 31, 2012, totaled $7.6 million, an increase of $2.7 million, or 53%, as compared to $5.0 million for the three months ended March 31, 2011. The increase in selling, general and administrative expense was primarily due to increases in stock compensation expense and increases in headcount and corporate infrastructure to support our continued growth and manage the requirements of operating as a public company. Selling, general and administrative expense as a percentage of net revenue was 20% and 16% for the three months ended March 31, 2012 and 2011, respectively.

Equity in net loss of joint ventures: Equity in net loss of joint ventures for the three months ended March 31, 2012 totaled $0.5 million, a decrease of $0.2 million, or 32%, as compared to $0.7 million for the three months ended March 31, 2011. The decrease was primarily due to increased income generated by the Sagent Agila (formerly Sagent Strides LLC) joint venture, partially offset by additional development activities of our KSCP joint venture. Included in this amount is $0.7 million and $0.4 million, respectively, of earnings directly related to the sale of product through our joint venture with Strides.

Interest expense: Interest expense for the three months March 31, 2012 totaled $1.4 million, an increase of $0.9 million, or 172%, as compared to $0.5 million for the three months ended March 31, 2011. The increase was principally due to $0.8 million of fees and the write-off of $0.4 million of deferred financing costs associated with the early termination and partial extinguishment of our senior secured revolving and term loan credit facilities in February 2012. These increases were partially offset by lower borrowings during the quarter as we did not draw against the SVB revolving loan facility following our entry into this agreement in February 2012. Excluding fees associated with the early termination of our credit facilities, interest expense was $0.3 million.

Provision for income taxes: We have generated tax losses since inception and do not believe that it is more likely than not that our net operating loss carryforwards and other deferred tax assets will be utilized. As a result, we have decided that a full valuation allowance is required against our deferred tax assets. Because none of our current net operating loss carryforwards expire before 2027, we expect that we will have a reasonable opportunity to utilize all of these loss carryforwards before they expire, but such loss carryforwards will be usable only to the extent that we generate sufficient taxable income.

Net loss and net loss per common share: The net loss for the three months ended March 31, 2012 of $8.3 million increased by $3.9 million, or 90%, from the $4.4 million net loss for the three months ended March 31, 2011. Net loss per common share decreased by $1.79, or 86%. The decrease in net loss per common share is due to the following factors:

 

Basic and diluted EPS for the three months ended March 31, 2011

   $ (2.09)       

Decrease in operations

     (0.15)       

Increase in common shares outstanding

     1.94       
  

 

 

 

Basic and diluted EPS for the three months ended March 31, 2012

   $ (0.30)       
  

 

 

 

Liquidity and Capital Resources

Funding Requirements

As of March 31, 2012, we have not generated any operating profit and may not in the near term. We expect our continuing operating losses to result in the continued use of cash for operations. Our future capital requirements will depend on a number of factors, including the continued commercial success of our existing products, launching the 44 products that are represented by our 79 ANDAs that have been recently approved and are pending commercial launch or are pending approval by the FDA as of March 31, 2012, successfully identifying and sourcing other new product opportunities, and business acquisition activity.

Based on our existing business plan, we expect cash, cash equivalents and short-term investments of approximately $63.7 million, together with borrowings available under our revolving loan facility, will be sufficient to fund our planned operations, including the continued development of our product pipeline, for at least the next 12 months. However, we may require additional funds in the event we change our business plan, pursue strategic transactions, including the acquisition of businesses or products, or encounter unexpected developments, including unforeseen competitive conditions within our product markets, changes in the regulatory environment or the loss of key relationships with suppliers, group purchasing organizations or end-user customers.

 

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If required, additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities or by selling convertible debt securities, further dilution to our existing stockholders may result. To the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings or debt financings, which may not be available to us on terms we consider acceptable or at all.

If adequate funds are not available, we may be required to terminate, significantly modify or delay the development or commercialization of new products. We may elect to raise additional funds even before we need them if we believe that the conditions for raising capital are favorable.

Cash Flows

Overview

On March 31, 2012, cash and cash equivalents on hand totaled $22.3 million. Short-term investments, generally U.S. government or investment grade corporate debt securities with a remaining term of two years or less, totaled $41.4 million. Working capital totaled $105.6 million and our current ratio (current assets to current liabilities) was approximately 4.5 to 1.0.

Sources and Uses of Cash

Operating activities: Net cash used in operating activities was $23.1 million for the three months ended March 31, 2012, compared with $16.2 million during the three months ended March 31, 2011. The increase in the use of cash was primarily due to an increase in our net loss of $3.9 million and reductions in our accounts payable and other accrued liabilities.

Investing activities: Net cash provided by investing activities was $31.0 million for the three months ended March 31, 2012, compared to $0.7 million net cash used in investing activities during the three months ended March 31, 2011. The change in cash flows from investing activities relates primarily to the net sale of short-term investments of $32.2 million to repay in full all amounts due under our term loan and senior secured revolving credit facilities.

Financing activities: Net cash used in financing activities was $37.8 million for the three months ended March 31, 2012, primarily related to the repayment in full of all outstanding amounts due under our term loan and senior secured revolving credit facilities. Net cash provided by financing activities of $13.5 million for the three months ended March 31, 2011 included $15.0 million in proceeds from borrowings related to the term loan credit facility offset by $2.0 million used in reducing the senior secured revolving credit facility.

Asset based revolving loan facility

In February 2012, we entered into a Loan and Security Agreement with Silicon Valley Bank (the “SVB Agreement”). The SVB Agreement provides for a $40.0 million asset based revolving loan facility, with availability subject to a borrowing base consisting of eligible accounts receivable and inventory and the satisfaction of conditions precedent specified in the SVB Agreement. The SVB Agreement matures on February 13, 2016, at which time all outstanding amounts will become due and payable. Borrowings under the SVB Agreement may be used for general corporate purposes, including funding working capital. Amounts drawn bear an interest rate equal to, at our option, either a Eurodollar rate plus 2.50% per annum or an alternative base rate plus 1.50% per annum. We also pay a commitment fee on undrawn amounts equal to 0.30% per annum. The SVB Agreement contains various covenants and restrictions requiring us to maintain a minimum adjusted quick ratio, minimum level of free cash flow, restrictions on our ability to incur additional indebtedness, make certain investments, create liens, pay dividends, sell assets or enter into a merger or acquisition. During the continuance of an event of default, at Silicon Valley Bank’s option, all obligations will bear interest at a rate per annum equal to 5.00% per annum above the otherwise applicable rate.

As of March 31, 2012, there were no borrowings outstanding under our new Silicon Valley Bank revolving loan facility. At March 31, 2012, we were not in compliance with the free cash flow covenant included in the SVB Agreement, which required that we achieve free cash flow, defined as net loss less interest expense, provision for income taxes, depreciation and amortization, stock-based compensation expense, equity in net loss of our KSCP joint venture, capital expenditures and capitalized product development costs of ($2.0 million) for the three months

 

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ended March 31, 2012. On May 10, 2012, Silicon Valley Bank waived our non-compliance with this covenant, and modified the free cash flow covenant for the remainder of 2012. In connection with the waiver we paid a fee of $0.1 million.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

We have no off-balance sheet arrangements other than the contractual obligations that are discussed below and in our Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2011, included in our Annual Report on Form 10-K, filed with the SEC on March 29, 2012.

Aggregate Contractual Obligations:

The following table summarizes our long-term contractual obligations and commitments as of March 31, 2012. The actual amount that may be required in the future to repay borrowings under the SVB Agreement may be different, as a result of borrowings under the facility.

 

     Payments due by period  

Contractual obligations (1)

   Total      Less than
one year
     1-3 years      3-5 years      More
than five
years
 

Long-term debt obligations (2)

   $ -           $ -           $ -           $ -           $ -       

Operating lease obligations (3)

     1,418             282             591             545             -       

Contingent milestone payments (4)

     23,401             13,710             8,642             926             123       

Joint venture funding requirements (5)

     1,074             964             110             -             -       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 25,893           $ 14,956           $ 9,343           $ 1,471           $ 123       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

 

  (1)

We had no material purchase commitments, individually or in the aggregate, under our manufacturing and supply agreements.

  (2) 

No amounts were drawn under the SVB revolving loan facility as of March 31, 2012.

  (3) 

Includes annual minimum lease payments related to non-cancelable operating leases.

  (4) 

Includes management’s estimate for contingent potential milestone payments and fees pursuant to strategic business agreements for the development and marketing of finished dosage form pharmaceutical products assuming all contingent milestone payments occur. Does not include contingent royalty payments, which are dependent on the introduction of new products.

  (5)

Includes minimum funding requirements in connection with our existing joint ventures.

Critical Accounting Policies

We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. Our significant accounting policies are described in Note 1 to our consolidated financial statements for the year ended December 31, 2011. Our significant accounting estimates are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2011. We have identified the following critical accounting policies:

 

   

Revenue recognition;

   

Inventories;

   

Income taxes;

   

Stock-based compensation;

   

Valuation and impairment of marketable securities;

   

Product development; and

   

Intangible assets.

 

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For a discussion of critical accounting policies affecting us, see the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K filed with the SEC on March 29, 2012.

There have been no other material changes to the Company’s critical accounting policies and estimates since December 31, 2011.

New Accounting Guidance

See Note 1. Summary of Significant Accounting Policies, for a discussion of new accounting guidance.

Contingencies

See Note 14. Commitments and Contingencies, and Part II, Item 1. Legal Proceedings for a discussion of contingencies.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Our market risks relate primarily to changes in interest rates. Our new SVB revolving loan facility bears floating interest rates that are tied to LIBOR and an alternate base rate and, therefore our statements of operations and our cash flows will be exposed to changes in interest rates. As we had no borrowings outstanding at March 31, 2012, there is no impact related to potential changes in the LIBOR rate on our interest expense at March 31, 2012. We historically have not engaged in interest rate hedging activities related to our interest rate risk.

At March 31, 2012, we had cash and cash equivalents and short-term investments of $22.3 million and $41.4 million, respectively. Our cash and cash equivalents are held primarily in cash and money market funds, and our short-term investments are held primarily in corporate and U.S. government debt securities. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.

While we operate primarily in the U.S., we do have foreign currency considerations. We generally incur sales and pay our expenses in U.S. dollars. Our KSCP joint venture and substantially all of our business partners that supply us with API, product development services and finished product manufacturing are located in a number of foreign jurisdictions, and we believe they generally incur their respective operating expenses in local currencies. As a result, these business partners may be exposed to currency rate fluctuations and experience an effective increase in their operating expenses in the event their local currency appreciates against the U.S. dollar. In this event, such business partners may elect to stop providing us with these services or attempt to pass these increased costs back to us through increased prices for product development services, API sourcing or finished products that they supply to us. Historically we have not used derivatives to protect against adverse movements in currency rates.

We do not have any foreign currency or any other material derivative financial instruments.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that the information is accumulated and communicated to our management, including our certifying officers, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

 

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Internal Control over Financial Reporting.

Management, together with our CEO and CFO, evaluated the changes in our internal control over financial reporting during the quarter ended March 31, 2012. We determined that there were no changes in our internal control over financial reporting during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time we are subject to claims and litigation arising in the ordinary course of business. At this time, there are no proceedings of which management is aware that are expected to have a material adverse effect on our consolidated financial position or results of operations.

Item 1A. Risk Factors.

There are no material changes from the risk factors previously disclosed in our most recent Annual Report on Form 10-K filed with the SEC on March 29, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities during the Quarter ended March 31, 2012

There are currently no share repurchase programs authorized by our Board of Directors. The following table provides information with respect to purchases we made of our common stock during the first quarter in 2012.

 

     Total Number
of Shares
Purchased1
     Average Price Paid
Per Share
     Shares Purchased
as Part of Publicly
Announced
Program
     Approximate
Dollar Value
that May Yet
Be Purchased
Under the
Program
 

January 1 – 31, 2012

           $                   

February 1 – 29, 2012

           $                   

March 1 – 31, 2012

           $                   
  

 

 

       

 

 

    

Total

                     

 

1

Represents shares of common stock tendered or withheld to cover the exercise price of stock options and payroll tax withholdings related to the vesting of restricted and deferred stock.

Recent Sales of Unregistered Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

 

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Item 6. Exhibits.

 

Exhibit
Number

 

Description

3.1   Certificate of Incorporation of Sagent Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 3.3 in the Company’s Registration Statement on Form S-1, as amended (File Nos. 333-170979 and 333-173597)).
3.2   Bylaws of Sagent Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 3.4 in the Company’s Registration Statement on Form S-1, as amended (File Nos. 333-170979 and 333-173597)).
10.1   Loan and Security Agreement, dated February 13, 2012, by and among Sagent Pharmaceuticals, Inc., Sagent Pharmaceuticals, and Silicon Valley Bank. (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed February 16, 2012).
10.2*   First Loan Modification Agreement, dated May 9, 2012, by and among Sagent Pharmaceuticals, Inc., Sagent Pharmaceuticals, and Silicon Valley Bank.
31.1*   Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2*   Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1*   Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.1**   The following materials from Sagent’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011, (ii) the Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011, (iii) the Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2012 and 2011, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011, (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text and (vi) document and entity information.

 

* Filed herewith

 

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101.1 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 133, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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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.

 

  SAGENT PHARMACEUTICALS INC.
  /s/    Jonathon M. Singer    
 

Jonathon M. Singer

Executive Vice President and

Chief Financial Officer

 

May 10, 2012

 

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