-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FygUVt5TAIcy/PeFMsmWQtP1tegadhu3wsjoCo4gHmFbHmNI8Ya/J5OKFG4LCeGf bH2mYB2yg2wxaFMEBSQpPg== 0000903100-01-500098.txt : 20010815 0000903100-01-500098.hdr.sgml : 20010815 ACCESSION NUMBER: 0000903100-01-500098 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLLAGENEX PHARMACEUTICALS INC CENTRAL INDEX KEY: 0001012270 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 521758016 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28308 FILM NUMBER: 1711758 BUSINESS ADDRESS: STREET 1: 41 UNIVERSITY DRIVE CITY: NEWTON STATE: PA ZIP: 18940 BUSINESS PHONE: 2155797388 MAIL ADDRESS: STREET 1: 41 UNIVERSITY DRIVE CITY: NEWTON STATE: PA ZIP: 18940 10-Q 1 form10-q_63001.txt FORM 10-Q FOR THE PERIOD ENDED 6-30-01 C O L L A G E N E X p h a r m a c e u t i c a l s August 14, 2001 Via EDGAR - --------- Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, D.C. 20549 Re: CollaGenex Pharmaceuticals, Inc. (Commission File No. 0-28308) Form 10-Q for the Quarter Ended June 30, 2001 Dear Sirs: Pursuant to Rule 13a-13(a) under the Securities Exchange Act of 1934, as amended, on behalf of CollaGenex Pharmaceuticals, Inc., a Delaware corporation (the "Corporation"), submitted herewith for filing is the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. If you have any questions or comments concerning this filing, kindly contact the undersigned at (215) 579-7388 ext. 3110. /s/ Frank Ruffo Frank Ruffo Controller CollaGenex Pharmaceuticals, Inc., 41 University Drive, Newtown, PA 18940 USA 215-579-7388 voice 215-579-8577 fax SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 Commission File Number 0-28308 CollaGenex Pharmaceuticals, Inc. -------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 52-1758016 - ------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 41 University Drive, Newtown, PA 18940 - ------------------------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) (215) 579-7388 ------------------------------- (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 the number of shares outstanding of each of the Registrant's classes of common stock as of July 15, 2001: Class Number of Shares - --------------------------- ---------------- Common Stock $.01 par value 10,550,638 COLLAGENEX PHARMACEUTICALS, INC. TABLE OF CONTENTS ----------------- Page ---- PART I. FINANCIAL INFORMATION.......................................... 1 Item 1. Financial Statements......................................... 1 Condensed Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001 (unaudited)........................ 2 Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2000 and 2001 (unaudited)........... 3 Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2000 and 2001 (unaudited)........... 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 2001 (unaudited)........... 5 Notes to Condensed Consolidated Financial Statements (unaudited)............................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 9 Results of Operations........................................ 10 Liquidity and Capital Resources.............................. 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk... 16 PART II. OTHER INFORMATION.............................................. 17 Item 4. Submission of Matters to a Vote of Security Holders ......... 17 Item 5. Other Information............................................ 18 Item 6. Exhibits and Reports on Form 8-K............................. 18 SIGNATURES.............................................................. 20 -i- PART I. FINANCIAL INFORMATION Item 1. Financial Statements. -1-
COLLAGENEX PHARMACEUTICALS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets December 31, 2000 and June 30, 2001 (dollars in thousands, except per share data) DECEMBER 31, JUNE 30, ASSETS 2000 2001 ------------ ---------- (unaudited) Current assets: Cash and cash equivalents........................................... $ 3,709 $ 6,897 Short term investments.............................................. 1,739 296 Accounts receivable, net of allowance of $381 and $352 at December 31, 2000 and June 30, 2001, respectively.......................... 3,038 3,863 Inventories......................................................... 277 1,216 Prepaid expenses and other current assets........................... 989 1,187 --------- --------- Total current assets.......................................... 9,752 13,459 Equipment and leasehold improvements, net.............................. 652 574 Other assets........................................................... 27 26 --------- --------- Total assets.................................................. $ 10,431 $ 14,059 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of note payable..................................... $ 65 $ 65 Accounts payable.................................................... 1,865 3,878 Accrued expenses.................................................... 2,514 2,578 --------- -------- Total current liabilities..................................... 4,444 6,521 --------- -------- Note payable, less current portion..................................... 47 10 Deferred revenue....................................................... 676 645 Commitments Stockholders' equity: Preferred stock, $0.01 par value, 5,000,000 shares authorized; 200,000 shares of Series D cumulative convertible preferred stock issued and outstanding at December 31, 2000 and June 30, 2001 (liquidation value of $20,000 at June 30, 2001)................... 2 2 Common stock, $0.01 par value; 25,000,000 shares authorized, 8,775,176 and 10,550,638 shares issued and outstanding at December 31, 2000 and June 30, 2001, respectively................. 88 106 Common stock to be issued (275,462 shares at December 31, 2000 and 118,379 at June 30, 2001) ........................................ 872 840 Additional paid in capital.......................................... 68,461 76,293 Deferred compensation............................................... (29) (15) Accumulated deficit................................................. (64,130) (70,343) --------- -------- Stockholders' equity.......................................... 5,264 6,883 --------- -------- Total liabilities and stockholders' equity.................... $ 10,431 $ 14,059 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. -2-
COLLAGENEX PHARMACEUTICALS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations For the Three Months Ended June 30, 2000 and 2001 (dollars in thousands, except per share data) (unaudited) THREE MONTHS ENDED JUNE 30, ------------------------------- 2000 2001 ---------- --------- RESTATED (SEE NOTE 3) Revenues: Product sales....................................................... $ 5,723 $ 7,267 Contract revenues................................................... 878 1,024 License revenues.................................................... 11 420 ------------ ------------ Total revenues................................................. 6,612 8,711 ------------ ------------ Operating expenses: Cost of product sales............................................... 1,127 1,516 Research and development............................................ 965 874 Selling, general and administrative................................. 6,669 9,070 ------------ ------------ Total operating expenses...................................... 8,761 11,460 ------------ ------------ Operating loss................................................ (2,149) (2,749) Other income (expense): Interest income..................................................... 165 74 Interest expense.................................................... (4) (2) Other expense....................................................... (2) (4) ------------ ------------ Loss before cumulative effect of change in accounting principle.................................................... (1,990) (2,681) Cumulative effect of change in accounting principle.................... -- -- ------------ ------------ Net loss...................................................... (1,990) (2,681) Preferred stock dividend............................................ 426 420 ------------ ------------ Net loss allocable to common stockholders.............................. $ (2,416) $ (3,101) Basic and diluted net loss per share allocable to common stockholders.. ============ ============ $ (0.28) $ (0.29) Shares used in computing basic and diluted net loss per share allocable ============ ============ to common stockholders.............................................. 8,678,073 10,550,638 ============ ============
See accompanying notes to unaudited condensed consolidated financial statements. -3-
COLLAGENEX PHARMACEUTICALS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations For the Six Months Ended June 30, 2000 and 2001 (dollars in thousands, except per share data) (unaudited) SIX MONTHS ENDED JUNE 30, ------------------------- 2000 2001 ------- -------- RESTATED (SEE NOTE 3) Revenues: Product sales....................................................... $ 11,233 $ 13,381 Contract revenues................................................... 1,528 1,899 License revenues.................................................... 381 456 ------------ ----------- Total revenues................................................. 13,142 15,736 ------------ ----------- Operating expenses: Cost of product sales............................................... 2,297 2,882 Research and development............................................ 1,812 1,818 Selling, general and administrative................................. 13,436 16,547 ------------ ----------- Total operating expenses...................................... 17,545 21,247 ------------ ----------- Operating loss................................................ (4,403) (5,511) Other income (expense): Interest income..................................................... 351 136 Interest expense.................................................... (8) (5) Other Income (expense).............................................. (3) 8 ------------ ----------- Loss before cumulative effect of change in accounting principle (4,063) (5,372) Cumulative effect of change in accounting principle.................... 764 -- ------------ ----------- Net loss...................................................... (4,827) (5,372) Preferred stock dividend............................................ 849 840 ------------ ----------- Net loss allocable to common stockholders.............................. $ (5,676) $ (6,212) Basic and diluted net loss per share allocable to common stockholders ============ =========== before cumulative effect of change in accounting principle.......... $ (0.57) $ (0.62) Cumulative effect of change in accounting principle.................... (0.09) -- ------------ ----------- Basic and diluted net loss per share allocable to common stockholders.. $ (0.66) $ (0.62) Shares used in computing basic and diluted net loss per share allocable ============ =========== to common stockholders............................................... 8,664,835 9,946,992 ============ ===========
See accompanying notes to unaudited condensed consolidated financial statements. -4-
COLLAGENEX PHARMACEUTICALS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2000 and 2001 (dollars in thousands) (unaudited) SIX MONTHS ENDED JUNE 30, ------------------------- 2000 2001 -------- -------- RESTATED (See Note 3) Cash flows from operating activities: Net loss.............................................................. $ (4,827) $ (5,372) Adjustments to reconcile net loss to net cash used in operating activities: Noncash compensation expense...................................... 358 178 Depreciation and amortization expense............................. 113 127 Cumulative effect of change in accounting principle............... 764 -- Change in assets and liabilities: Accounts receivable............................................. (549) (825) Inventories..................................................... 310 (939) Prepaid expenses and other assets............................... (166) (198) Accounts payable................................................ 991 2,013 Accrued expenses................................................ (148) 64 Deferred revenue................................................ (280) (31) ----------- ---------- Net cash used in operating activities.................. (3,434) (4,983) ----------- ---------- Cash flows from investing activities: Capital expenditures.................................................. (144) (49) Proceeds from the sale of short term investments...................... 5,638 1,739 Purchase of short term investments.................................... (1,333) (296) ----------- ---------- Net cash provided by investing activities............. 4,161 1,394 ----------- ---------- Cash flows from financing activities: Net proceeds from issuance of common stock............................ 71 6,814 Repayment of long-term debt........................................... (34) (37) ----------- ---------- Net cash provided by financing activities.............. 37 6,777 Net increase in cash and cash equivalents................................ 764 3,188 Cash and cash equivalents at beginning of period......................... 7,981 3,709 ----------- ---------- Cash and cash equivalents at end of period............................... $ 8,745 $ 6,897 =========== ========== Supplemental schedule of noncash financing activities: Common stock dividends issued or issuable on preferred stock.................................................. $ 849 $ 840 =========== ========== Issuance of common stock to be issued............................... 858 872 =========== ========== Supplemental disclosure of cash flow information: Cash paid during the period for interest............................ $ 8 $ 8 =========== ==========
See accompanying noted to unaudited condensed consolidated financial statements. -5- COLLAGENEX PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 2001 (dollars in thousands) (Unaudited) NOTE 1 -- BASIS OF PRESENTATION: The unaudited condensed consolidated financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's 2000 audited consolidated financial statements and footnotes. The accompanying unaudited condensed consolidated financial statements include the results of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements have been prepared on a basis substantially consistent with the audited consolidated financial statements and contain adjustments, all of which are of a normal recurring nature, necessary to present fairly the Company's consolidated financial position as of June 30, 2001, their results of operations for the three and six months ended June 30, 2000 and 2001, and their cash flows for the six months ended June 30, 2000 and 2001. Interim results are not necessarily indicative of results anticipated for the full fiscal year. NOTE 2 -- INVENTORIES: Inventories at December 31, 2000 and June 30, 2001 consist of the following: 2000 2001 ------ ------ Raw materials $ 60 $ 219 Work-in-process -- 295 Finished goods 217 702 --------- --------- $ 277 $ 1,216 ========= ========= NOTE 3 -- CHANGE IN ACCOUNTING PRINCIPLE: In the fourth quarter of 2000, the Company adopted SAB 101, "Revenue Recognition in Financial Statements", implementing a change in revenue recognition policy for certain upfront payments received in international licensing arrangements for Periostat. Effective January 1, -6- 2000, upfront payments received from licensees, where the Company has continuing involvement, are now being deferred and recognized as license revenue over the estimated performance period of the individual license agreements. In previous years, prior to the Company's adoption of SAB 101, the Company recognized revenue when the upfront payments were received, generally upon the execution of each agreement. During the three and six months ended June 30, 2001, the Company recognized $15 and $30, respectively, in license revenues which were deferred upon the implementation of SAB 101. During the three and six months ended June 30, 2000, the Company recognized $9 and $369, respectively, in license revenues which were deferred upon the implementation of SAB 101. The consolidated statements of operations and cash flows for the three and six months ended June 30, 2000 have been restated in the accompanying financial statements based on this newly adopted revenue recognition policy. The change increased revenue and decreased net loss by $281 during the six months ended June 30, 2000, and decreased revenue and increased net loss by $89 during the three months ended June 30, 2000, excluding the cumulative effect of the change. During the six months ended June 30, 2000, the Company recorded a charge of $764, as a result of the cumulative effect of the change in accounting principle for revenue recognized prior to January 1, 2000. NOTE 4 -- COMMON STOCK AND DEBT FINANCING: On March 12, 2001, the Company consummated a private equity offering of 1,500,000 shares of Common Stock for an aggregate purchase price of $7,500, which generated net proceeds to the Company of approximately $6,900. In addition, the investors in this financing were also issued an aggregate of 400,000 warrants which are exercisable for up to three (3) years into 400,000 shares of the Company's Common Stock at an exercise price per share of $6.00. The consideration received for such warrants is included in the aggregate proceeds received in the financing. The Company also issued to its financial advisor in this financing, warrants to purchase an aggregate of 150,000 shares of the Company's Common Stock, exercisable for up to three (3) years, at an exercise price of $5.70 per share. All such warrants may be deemed automatically exercised in certain circumstances based on the Company's stock price. The Company is obligated to maintain the effectiveness of a shelf registration statement with respect to all such shares of Common Stock issued and shares underlying all such warrants for a continuous twenty-four (24) month period. Should the Company fail to maintain the effectiveness of such registration statement, the investors and the financial advisor shall receive an additional 27,500 shares of the Company's Common Stock, in the aggregate, for no additional consideration. As a result of this financing, the conversion price of the Preferred Stock has been reduced from $11.00 to $9.94 per share. On March 19, 2001, the Company consummated a revolving credit facility (the "Facility") with Silicon Valley Bank (the "Bank"). The Company may borrow up to the lesser of $3,000 or 80% of eligible accounts receivable, as defined. The amount available is also reduced by outstanding letters of credit which may be issued under this agreement in amounts totaling up to $1,500. The Company is not obligated to draw amounts under the Facility and any such borrowings on the Facility bear interest, payable monthly, at the prime rate plus 1.5% per annum and may be used only for working capital purposes. Without the consent of the Bank, the -7- Company, among other things, shall not (i) merge or consolidate with another entity; (ii) acquire assets outside the ordinary course of business; or (iii) pay or declare any cash dividends on the Company's Common Stock. The Company must also maintain a certain tangible net worth and a minimum of $2,000 in cash, net of borrowings under the Facility, at all times during the term of the Facility. In addition, the Company has secured its obligations under the Facility through the granting of a security interest in favor of the Bank with respect to all of the Company's assets, including its intellectual property. As of June 30, 2001, the Company has an outstanding letter of credit issued relating to open purchase commitments in the amount of $1,106 and there are no borrowings outstanding against the Facility. NOTE 5 -- STOCK OPTION PLAN: At the Company's 2001 Annual Meeting of Stockholders held on May 10, 2001, the stockholders of the Company approved a proposal to amend the Company's 1996 Stock Option Plan (the "1996 Stock Option Plan") to increase the maximum number of shares of Common Stock available for issuance under the 1996 Stock Option Plan from 1,500,000 to 2,000,000 shares and to reserve an additional 500,000 shares of Common Stock of the Company for issuance in connection with awards granted under the 1996 Stock Option Plan. -8- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview CollaGenex Pharmaceuticals, Inc. and subsidiaries (the "Company") is a specialty pharmaceutical company focused on providing innovative medical therapies to the dental market. The Company's first product, Periostat(R), is an orally administered, prescription pharmaceutical product that was approved by the United States Food and Drug Administration (the "FDA") in September 1998 and is the first and only pharmaceutical to treat adult periodontitis by inhibiting the enzymes that destroy periodontal support tissues. In December 2000 and February 2001, the United Kingdom Medicines Control Agency and the FDA, respectively, granted marketing approval for a new tablet formulation of Periostat. This new tablet formulation is smaller, easier to swallow and offers manufacturing cost advantages over the Company's currently marketed capsule formulation and will replace the capsule formulation during 2001. Periostat is indicated as an adjunct to scaling and root planing, the most prevalent therapy for adult periodontitis, to promote attachment level gain and to reduce pocket depth in patients with adult periodontitis. The Company is marketing Periostat to the dental community through its own professional dental pharmaceutical sales force of approximately 120 sales representatives and managers. This sales force also co-promotes Vioxx(R), a prescription non-steroidal anti-inflammatory drug developed by Merck & Co., Inc. and, as of June 2001, markets Dentaplex(TM), the Company's professionally-recommended nutritional supplement formulated to help maintain optimal oral health. The Company is actively pursuing other prescription and non-prescription products to market to the professional dental community and directly to the consumer. The Company began operations in January 1992 and functioned primarily as a research and development company until 1998. During this period, the Company operated with a minimal number of employees, and substantially all pharmaceutical development activities were contracted to independent contract research and other organizations. Following FDA approval of Periostat in September 1998, the Company significantly increased its number of employees, primarily in the areas of sales and marketing. The Company continues to contract its research and development activities as well as manufacturing and distribution functions. The Company has incurred losses each year since inception and had an accumulated deficit of $70.3 million at June 30, 2001. The Company expects to continue to incur losses in the foreseeable future from expenditures on drug development, marketing, manufacturing and administrative activities. Statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are not based on historical fact are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may be identified by the use of forward-looking terminology such as "may," "will," "expect," "estimate," "anticipate," "continue," or similar terms, variations of such terms or the negative of those terms. This Form 10-Q contains forward-looking statements that involve risks and -9- uncertainties. The Company's business of selling, marketing and developing pharmaceutical products is subject to a number of significant risks, including risks relating to the implementation of the Company's sales and marketing plans for Periostat, risks inherent in research and development activities, risks associated with conducting business in a highly regulated environment and uncertainty relating to clinical trials of products under development. The success of the Company depends to a large degree upon the market acceptance of Periostat by periodontists, dental practitioners, other health care providers, patients and insurance companies. Other than Periostat, which has been approved by the FDA for marketing in the United States and approved by the Medicines Control Agency for marketing in the United Kingdom, there can be no assurance that any of the Company's other product candidates will be approved by any regulatory authority for marketing in any jurisdiction or, if approved, that any such products or that Vioxx will be successfully commercialized by the Company. As a result of these risks, and others expressed from time to time in Collagenex's filings with the Securities and Exchange Commission, the Company's actual results may differ materially from the results discussed in the forward-looking statements contained herein. RESULTS OF OPERATIONS From its founding through the quarter ended September 30, 1998, the Company had no revenues from sales of its own products. During the fourth quarter of 1998, the Company achieved net product sales of $3.1 million following the commercial launch of Periostat in November 1998. Most of the 1998 sales represented initial wholesale and retail stocking. During the year ended December 31, 1999, the Company achieved net product sales of $15.2 million from sales of Periostat. In addition, in 1999 the Company generated $770,000 in contract revenues from two (2) co-promotion agreements (one (1) of which, the Company's agreement with respect to Denavir(R), a prescription cold sore medication owned by Novartis Pharmaceuticals Corporation, was terminated effective April 13, 2001) and $100,000 in license fees relating to the signing of a distribution agreement for Periostat in Canada. During the year ended December 31, 2000, the Company achieved net product sales of $20.5 million from sales of Periostat. In addition, in 2000 the Company generated $3.2 million in contract revenues from two (2) co-promotion agreements (one (1) of which was for Denavir) and $530,000 in license and milestone fees from various foreign distribution and marketing agreements for Periostat. This amount included $397,000 of license revenues that were deferred upon the implementation of Staff Accounting Bulletin ("SAB 101"), effective January 1, 2000. These amounts were previously recognized as license revenues in prior years under the historical revenue recognition policy prior to the adoption of SAB 101. During the three months ended June 30, 2001, the Company achieved net product sales of $7.3 million from the sale of Periostat. In addition, during the three months ended June 30, 2001, the Company generated $1.0 million in contract revenues from its two (2) co-promotion agreements (one (1) of which was for Denavir) and $420,000 in license and milestone fees from certain of the Company's European partners. The milestone fees were earned when CollaGenex International Limited, the Company's wholly-owned United Kingdom subsidiary, completed the official filings for the registration of Periostat tablets with the European Union. To broaden awareness of and increase Periostat usage, the Company initiated a direct-to- -10- consumer ("DTC") advertising test program in the fall of 2000. DTC is a relatively new but highly effective marketing tool used by pharmaceutical companies to build patient awareness of prescription drugs and to drive prescription and revenue growth. In October 2000, the Company launched a test DTC campaign in Tampa and St. Louis to evaluate the potential effectiveness of this tool for increasing Periostat prescription growth. During the fourth quarter of 2000, new Periostat prescriptions in the test cities were 48% higher than the third quarter of 2000 compared to a 1.4% increase in new Periostat prescriptions in the rest of the United States. Based on these results, in January 2001 the Company expanded its DTC campaign to include Philadelphia, Washington, Houston and Chicago and in April 2001 launched such a campaign in New York City, Denver, Detroit and Boston. The Company realized a net loss during the first six months of 2001, resulting primarily from increased sales and marketing expenses associated with the Company's investment in DTC advertising for Periostat. Total operating expenses consist of the cost of product sales, research and development expenses and selling, general and administrative expenses. Cost of product sales consists primarily of direct manufacturing expenses and royalties. Research and development expenses consist primarily of funds paid to contract research organizations for the provision of services and materials for drug development, ongoing manufacturing and formulation enhancements and clinical trials. Selling, general and administrative expenses consist primarily of personnel salaries and benefits, direct marketing costs, professional and consulting fees, insurance and general office expenses. Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000 Revenues. The Company realized $8.7 million in net revenues during the three months ended June 30, 2001 compared to $6.6 million during the three months ended June 30, 2000. Revenues for the second quarter of 2001 included $7.3 million in net sales of Periostat, $1.0 million in contract revenues which were derived from the Company's co-promotion of Vioxx and Denavir, and $420,000 in foreign license and milestone revenues related to Periostat. Revenues from Denavir accounted for approximately $122,000 of such contract revenues. Revenues for the three months ended June 30, 2000 included $5.7 million in net sales of Periostat, $878,000 in contract revenues, which were derived from the Company's co-promotion of Vioxx and Denavir, and $11,000 in foreign license and milestone revenues for Periostat. Revenues from Denavir accounted for approximately $175,000 of such contract revenues. Novartis, the owner of Denavir, terminated its co-promotion agreement with the Company with respect to Denavir effective April 13, 2001. In accordance with SAB 101, which was adopted on January 1, 2000, the license revenues recorded during the three months ended June 30, 2001 and 2000 were attributable, in part, to the recognition of up-front license fees received for various agreements which are being recognized over the expected term of these agreements. License revenues during the quarters ended June 30, 2001 and 2000 include $15,000 and $11,000 that were recorded in periods prior to the adoption of SAB 101 which were deferred as a result of the cumulative effect of a change in accounting principle as of January 1, 2000. Cost of Product Sales. Cost of product sales for Periostat were $1.5 million, or 20.9% of net product sales, for the three months ended June 30, 2001, compared to $1.1 million, or 19.7% of net product sales, for the three months ended June 30, 2000. This increase in cost of product -11- sales for Periostat, as a percentage of net product sales, resulted primarily from increases in contracted product production cost. Research and Development Expenses. Research and development expenses decreased 9.4% to $874,000 for the three months ended June 30, 2001 from $965,000 for the three months ended June 30, 2000. This decrease resulted primarily from lower deferred compensation expenses recorded in 2001. During the three months ended June 30, 2000, the Company recorded a $302,000 non-cash compensation charge relating to accelerating the vesting schedule on stock options granted to certain non-employees in 1999. During the three months ended June 30, 2001, contracted clinical trial expenses for Metastat increased $150,000 from the prior year offsetting, in part, the decrease from 2000. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 36.0% to $9.1 million for the three months ended June 30, 2001 from $6.7 million for the three months ended June 30, 2000. This increase was due primarily to increased sales and marketing expenses associated with the Company's investment in DTC advertising for Periostat. Other Income/Expenses. Interest income decreased to $74,000 during the three months ended June 30, 2001 from $165,000 during the three months ended June 30, 2000. This decrease was due to lower average balances in cash and short-term investments. Interest expense for the three months ended June 30, 2001 was $2,000 compared to $4,000 for the three months ended June 30, 2000. These expenses were primarily due to interest on the $219,000 note payable executed by the Company in April 1999. Other expense of $4,000 was recognized during the three months ended June 30, 2001 as a result of foreign currency transactions. Preferred Stock Dividends. Preferred stock dividends of $420,000 were recorded during the three months ended June 30, 2001 as a result of the Company's obligations in connection with the issuance of its Series D Stock (as defined below) in May 1999. Similarly, preferred stock dividends of $426,000 were recorded during the three months ended June 30, 2000. Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000 Revenues. The Company realized $15.7 million in net revenues during the six months ended June 30, 2001 compared to $13.1 million during the six months ended June 30, 2000. Revenues for the six months ended June 30, 2001 included $13.4 million in net sales of Periostat, $1.9 million in contract revenues which were derived from the Company's co-promotion of Vioxx and Denavir, and $456,000 in foreign license and milestone revenues for Periostat. Revenues from Denavir accounted for approximately $297,000 of such contract revenues. Revenues for the six months ended June 30, 2000 included $11.2 million in net sales of Periostat, $1.5 million in contract revenues which were derived from the Company's co-promotion of Vioxx and Denavir, and $381,000 in foreign license and milestone revenues for Periostat. Revenues from Denavir accounted for approximately $350,000 of such contract revenues. Novartis, the owner of Denavir, terminated its co-promotion agreement with the Company with respect to Denavir effective April 13, 2001. In accordance with SAB 101, which was adopted on January 1, 2000, the license revenues recorded during the six months ended June 30, 2001 and -12- 2000 were attributable, in part, to the recognition of up-front license fees received for various agreements which are being recognized over the expected term of these agreements. License revenues during the six months ended June 30, 2001 and 2000 include $30,000 and $281,000 that were recorded in periods prior to the adoption of SAB 101 which were deferred as a result of the cumulative effect of a change in accounting principle as of January 1, 2000. Cost of product sales. Cost of product sales for Periostat were $2.9 million, or 21.5% of net product sales, for the six months ended June 30, 2001, compared to $2.3 million, or 20.4% of net product sales, for the six months ended June 30, 2000. This increase in cost of product sales for Periostat, as a percentage of net product sales, resulted primarily from increases in contracted product production cost. Research and Development Expenses. Research and development expenses were $1.8 million for both the six months ended June 30, 2001 and the six months ended June 30, 2000. Expenses incurred during the six months ended June 30, 2001 included approximately $300,000 in Metastat contract clinical trial expenses and $65,000 in development costs for Dentaplex while expenses incurred in the first half of 2000 included a $324,000 non-cash compensation charge primarily relating to accelerating the vesting schedule on certain non-employee stock options granted in 1999, and $180,000 in additional formulation development charges for Periostat tablets initiated in 2000. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 23.2% to $16.5 million for the six months ended June 30, 2001 from $13.4 million for the six months ended June 30, 2000. This increase was due primarily to increased sales and marketing expenses associated with the Company's investment in DTC advertising for Periostat. Other Income/Expenses. Interest income decreased to $136,000 in the six months ended June 30, 2001 from $351,000 in the six months ended June 30, 2000. This decrease was due to lower average balances in cash and short-term investments during 2001. Interest expense for the six months ended June 30, 2000 was $5,000 compared to $8,000 for the three months ended June 30, 2000. These expenses were primarily due to interest on the $219,000 note payable executed by the Company in April 1999. Other income of $8,000 was recognized during the six months ended June 30, 2001 as a result of foreign currency transactions. Preferred Stock Dividends. Preferred stock dividends of $840,000 were recorded during the six months ended June 30, 2001 as a result of the Company's obligations in connection with the issuance of its Series D Stock (as defined below) in May 1999. Preferred stock dividends of $849,000 were recorded during the six months ended June 30, 2000. LIQUIDITY AND CAPITAL RESOURCES Since its origin in January 1992, the Company has financed its operations through private placements of preferred stock and common stock, an initial public offering of 2,000,000 shares of common stock, which generated net proceeds to the Company of approximately $18.0 million after underwriting fees and related expenses, and a subsequent public offering of 1,000,000 -13- shares of common stock, which generated net proceeds to the Company of approximately $11.6 million after underwriting fees and related expenses. On May 12, 1999, the Company consummated a $20.0 million financing (the "1999 Financing") through the issuance of its Series D Cumulative Convertible Preferred Stock (the "Series D Stock"), which generated net proceeds to the Company of $18.5 million. The issuance of the Series D Stock was approved by a majority of the Company's stockholders at the Company's Annual Meeting of Stockholders on May 11, 1999. A portion of the proceeds of the 1999 Financing were used to repay a $10.0 million Senior Secured Convertible Note provided by one of the investors on March 19, 1999 in connection with the 1999 Financing. The remaining proceeds have been and will be used for general working capital purposes. The Series D Stock is convertible at any time into shares of common stock of the Company at a current conversion price of $9.94 per share, which conversion price reflects a decrease from the initial conversion price of $11.00 per share as a result of the 2001 Financing (as defined below). The conversion price is not subject to reset except in the event that the Company should fail to declare and pay dividends when due or the Company should issue new equity securities or convertible securities at a price per share or having a conversion price per share lower than the then applicable conversion price of the Series D Stock. During the first three years following issuance, holders of the Series D Stock will be entitled to receive dividends payable in shares of fully registered common stock at a rate of 8.4% per annum. Thereafter, dividends will be payable in cash at a rate of 8.0% per annum. All or a portion of the shares of Series D Stock shall, at the option of the Company (as determined by the Board of Directors), automatically be converted into fully paid, registered and non-assessable shares of common stock, if the following two conditions are met: (i) the last sale price, or, in case no such sale takes place on such day, the average of the closing bid and asked prices on the Nasdaq is at least 200% of the conversion price then in effect (as of June 30, 2001, $9.94 per share) for forty consecutive trading days; and (ii) a shelf registration is in effect for the shares of common stock to be issued upon conversion of the Series D Stock. Without written approval of a majority of the holders of record of the Series D Stock, the Company, among other things, shall not: (i) declare or pay any dividend or distribution on any shares of capital stock of the Company other than dividends on the Series D Stock; (ii) make any loans, incur any indebtedness or guarantee any indebtedness, advance capital contributions to, or investments in any person, issue or sell any securities or warrants or other rights to acquire debt securities of the Company, except that the Company may incur such indebtedness in any amount not to exceed $10.0 million in the aggregate outstanding at any time for working capital requirements in the ordinary course of business; or (iii) make research and development expenditures in excess of $7.0 million in any continuous twelve month period, unless the Company has reported positive net income for four consecutive quarters immediately prior to such twelve month period. In April 1999, the Company received $219,000 in proceeds from the issuance of a note payable. The proceeds of such note were used to fund the purchase of equipment, fixtures and furniture for the Company's corporate offices in Newtown, Pennsylvania. The term of the note is three years at 9.54% per annum, with monthly minimum payments of principal and interest. On March 12, 2001, the Company consummated a private equity offering of 1,500,000 -14- shares of Common Stock for an aggregate purchase price of $7.5 million, which generated net proceeds to the Company of approximately $6.8 million (the "2001 Financing"). Such proceeds will be used primarily for the Company's DTC advertising campaign and for general working capital purposes. In addition, the investors in such financing were also issued an aggregate of 400,000 warrants which are exercisable for up to three (3) years into 400,000 shares of the Company's Common Stock at an exercise price per share of $6.00. The consideration received for such warrants is included in the aggregate proceeds received in the 2001 Financing. The Company also issued to its financial advisor in such financing warrants to purchase an aggregate of 150,000 shares of the Company's Common Stock exercisable for up to three (3) years at an exercise price of $5.70 per share, as partial consideration for services rendered in connection with the 2001 Financing. These warrants may be deemed automatically exercised in certain circumstances based upon the Company's stock price. In connection with the 2001 Financing, the Company is obligated to maintain the effectiveness of a shelf registration statement with respect to all such shares of Common Stock issued and shares underlying all such warrants for a continuous twenty-four (24) month period, or the Company will be required to issue to the investors and the financial advisor an additional 27,500 shares of the Company's Common Stock, in the aggregate, for no additional consideration. On March 19, 2001, the Company consummated a revolving credit facility (the "Facility") with Silicon Valley Bank (the "Bank"). The Company may borrow up to the lesser of $3.0 million or 80% of eligible accounts receivable, as defined under the Facility. The amount available is also reduced by outstanding letters of credit which may be issued under the Facility in amounts totaling up to $1.5 million. The Company is not obligated to draw amounts under the Facility and any such borrowings on the Facility bear interest, payable monthly, at the prime rate plus 1.5% per annum and may be used only for working capital purposes. The Company intends to secure its purchase order commitments for Periostat from Pharmaceutical Manufacturing Research Services, Inc., a contract manufacturing company, with a letter of credit under the Facility. Without the consent of the Bank, the Company, among other things, shall not (i) merge or consolidate with another entity; (ii) acquire assets outside the ordinary course of business; or (iii) pay or declare any cash dividends on the Company's Common Stock. The Company must also maintain a certain tangible net worth and a minimum of $2.0 million in cash, net of borrowings under the Facility, at all times during the term of the Facility. In addition, the Company has secured its obligations under the Facility through the granting of a security interest in favor of the Bank with respect to all of the Company's assets, including its intellectual property. At June 30, 2001, the Company had cash, cash equivalents and short-term investments of approximately $7.2 million, an increase of $1.8 million from the $5.4 million balance at December 31, 2000. This increase was primarily attributable to the net proceeds of $6.8 million from the 2001 Financing less cash used to fund operating activities for the six months ended June 30, 2001. In accordance with investment guidelines approved by the Company's Board of Directors, cash balances in excess of those required to fund operations have been invested in short-term United States Treasury securities and commercial paper with a credit rating no lower than A1/P1. The Company's working capital at June 30, 2001 was $6.9 million, an increase of $1.6 million from $5.3 million at December 31, 2000. This increase was primarily attributable to the net proceeds of $6.8 million from the 2001 Financing less cash used to fund operations -15- during the six months ended June 30, 2001. The Company anticipates that its existing working capital will be sufficient to fund the Company's operations through at least the middle of 2002. The Company's future capital requirements and the adequacy of its available funds will depend on many factors, including the size and scope of the Company's marketing effort and sales of Periostat, the terms of agreements entered into with corporate partners, if any, and the results of research and development and pre-clinical and clinical studies for other applications of the Company's core technology. Over the long-term, the Company's liquidity is dependent on market acceptance of its products and technology. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company believes that it is not subject to a material impact to its financial position or results of operations relating to market risk. -16- PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Annual Meeting of Stockholders was held on May 10, 2001. There were present at the Annual Meeting in person or by proxy stockholders holding an aggregate of 7,522,654 shares of Common Stock and 200,000 shares of Series D Stock, which shares of Series D Stock account for an additional 2,012,599 shares of Common Stock on an as converted to Common Stock basis. The results of the vote taken at such Annual Meeting with respect to the election of the nominees to be the Common Stock directors were as follows: Common Stock Nominees For Withheld --------------------- --- -------- Brian M. Gallagher, Ph.D. 7,199,754 Shares 322,900 Shares Peter R. Barnett, D.M.D. 7,199,754 Shares 322,900 Shares Robert C. Black 7,199,754 Shares 322,900 Shares James E. Daverman 7,199,754 Shares 322,900 Shares Robert J. Easton 7,199,754 Shares 322,900 Shares W. James O'Shea 7,199,754 Shares 322,900 Shares The results of the vote taken at such Annual Meeting with respect to the election of the nominee to be the Series D Director, Stephen A. Kaplan, were as follows: 2,012,599 shares of Series D Stock (on an as converted to Common Stock basis) were voted FOR the Series D Stock nominee, with no shares voting against. A vote of the stockholders was taken at such Annual Meeting with respect to the proposal to amend the Company's 1996 Stock Option Plan to increase the maximum aggregate number of shares of Common Stock available for issuance thereunder from 1,500,000 to 2,000,000 shares and to reserve an additional 500,000 shares of Common Stock of the Company for issuance in connection with awards granted under the 1996 Stock Option Plan. For the purposes of such vote, the holders of shares of Common Stock and the holders of Series D Stock (on an as converted to Common Stock basis) voted together as a single class. Of such shares 8,841,791 shares voted in favor of such proposal, 596,388 shares were voted against such proposal and 97,074 shares abstained from voting. In addition, a vote of the stockholders was taken at the Annual Meeting on the proposal to ratify the appointment of KPMG LLP as the independent auditors of the Company for the fiscal year ending December 31, 2001. For the purpose of such vote, the holders of shares of Common Stock and the holders of Series D Stock (on an as converted to Common Stock basis) voted together as a single class. Of such shares 9,499,725 shares voted in favor of such proposal, 29,900 shares were voted against such proposal and 5,628 shares abstained from voting. -17- ITEM 5. OTHER INFORMATION. On June 18, 2001, the Company announced that its wholly-owned, United Kingdom subsidiary, CollaGenex International Limited, completed the official filings for the registration of Periostat tablets with the European Union Member States and Norway. Periostat tablets were approved for marketing by the United Kingdom Medicines Control Agency (the "UKMCA") in February 2001 and the UKMCA has acted as Reference Member State in the preparation of the registration filings in fifteen additional European countries. The Company earned milestone payments from certain of its European partners as a result of such filings. On June 19, 2001, the Company announced the availability of Dentaplex(TM), the Company's professionally-recommended nutritional supplement to help maintain optimal oral health. Dentaplex is marketed as a dietary supplement and, as such, subjects the Company to an additional regulatory scheme under the Food, Drug and Cosmetic Act and implementing regulations. The Company and its products otherwise continue to be regulated as set forth in the Company's periodic filings with the Securities and Exchange Commission. On June 25, 2001, the Company announced that Periostat had been awarded the ADA Seal of Acceptance by the American Dental Association. The ADA Seal of Acceptance is awarded to products that have been shown to meet the ADA's criteria for safety and effectiveness. On July 2, 2001, the Company announced the launch of a tablet formulation of Periostat. In December 2000 and February 2001, the UKMCA and the FDA, respectively, granted marketing approval for the tablet formulation of Periostat. On August 9, 2001, the Company announced that its wholly-owned, United Kingdom subsidiary, CollaGenex International Limited, had been advised by the Department of Health in England that Periostat tablets have been placed on the Dental Practitioners Formulary for prescribing under the National Health Service as of September 1, 2001. Prior to inclusion in the Dental Practitioners Formulary, Periostat was only available to periodontitis patients in England by private prescription. Patients in the United Kingdom contribute a co-pay as a prescription charge for drugs that are prescribed by a dental practitioner or doctor, with the cost of the drugs being met by the National Health Service, although many patients are exempt from the co-pay. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 10.1 - Letter Agreement dated as of June 26, 2001 by and between the Company and Pharmaceutical Manufacturing Research Services, Inc. -18- (b) Reports on Form 8-K. On March 16, 2001, the Company filed a current report on Form 8-K with the Securities and Exchange Commission relating to the issuance by the Company of 1,500,000 shares of Common Stock and warrants to purchase shares of the Company's Common Stock for an aggregate purchase price of $7.5 million. The Company amended such Form 8-K by filing a Form 8-K/A on April 3, 2001. On July 20, 2001, the Company filed a current report on Form 8-K with the Securities and Exchange Commission relating to its Dentaplex product and the related governmental regulation with respect to dietary supplements. -19- SIGNATURES 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. CollaGenex Pharmaceuticals, Inc. Date: August 14, 2001 By: /s/ Nancy C. Broadbent ------------------------------------------- Nancy C. Broadbent As Chief Financial Officer, Treasurer and Secretary on behalf of the Registrant and as the Registrant's Principal Financial and Accounting Officer EXHIBIT 10.1 LETTER AGREEMENT DATED AS OF JUNE 26, 2001 BY AND BETWEEN THE COMPANY AND PHARMACEUTICAL MANUFACTURING RESEARCH SERVICES, INC. EX-99 3 exh-form10q_63001.txt EXHIBIT TO FORM 10-Q FOR PERIOD ENDED 6-30-01 CollaGenex pharmaceuticals [GRAPHIC OMITTED] June 26, 2001 Ed Thompson President, PMRS, Inc. 423 Sargon Way Horsham, PA 19044 Dear Mr. Thompson: This letter serves to clarify Exhibits A, B, and C in the PMRS/CollaGenex Services and Supply Agreement, amended December 1, 2000 Section 2.4 (a) shall now read: PMRS shall provide a BULK PRODUCT COA and such other documents as may be requested or required by regulatory bodies, whether domestic or foreign, to COLLAGENEX, prior to shipment as set forth in EXHIBITS B.1 (US TABLETS) AND B.2 (EU TABLETS). Section 2.4 (f), formerly the second 2.4 (e), shall now read: Final Product Testing: PMRS shall provide COLLAGENEX with a FINAL --------------------- PRODUCT COA and such other documents as may be requested or required by regulatory bodies, whether domestic or foreign, to COLLAGENEX, prior to shipment as set forth in EXHIBIT C.1 (100 COUNT BOTTLES) AND C.2 (BLISTERS). If the FINAL PRODUCT does not conform to the Specification, PMRS will immediately notify COLLAGENEX and the parties will consult with each other, regarding the nonconformity with a view towards resolving the nonconformity. Exhibits A, B.1, B.2, C.1, and C.2 are attached. All other terms and conditions remain as per the PMRS/CollaGenex Services and Supply Agreement, amended December 1, 2000. For PMRS, Inc: /s/ Edwin R. Thompson - ---------------------- Mr. Edwin R. Thompson President For CollaGenex Pharmaceuticals, Inc. /s/ John McPartland - -------------------- Mr. John McPartland Director of Manufacturing CollaGenex Pharmaceuticals, Inc., 41 University Drive, Suite 200, Newtown, PA 18940 USA 215-579-7388 voice 215-579-8577 fax EXHIBIT A: BULK PRODUCT DESCRIPTION: White to off-white, round, film-coated tablets engraved on one side with a "PS 20" monogram, containing doxycycline hyclate equivalent to 20 mg doxycycline, and delivered in 300 kg lot sizes (approximately 1.5 million tablets per lot) in polyethylene-lined fiber drums with desiccant pouches. FINAL PRODUCT DESCRIPTION: White to off-white, round, film-coated tablets engraved on one side with a "PS 20" monogram, containing doxycycline hyclate equivalent to 20 mg doxycycline, and delivered in HDPE bottles with desiccant pouches, induction seal liners, and CRC caps as 60 and 100 count packages; or in HDPE bottles with desiccant pouches, induction seal liners, and screw caps as 1000 count packages; or in blisterpacks composed of aluminum foil PVC/ACLAR. BULK TABLET RELEASE AND STABILITY SPECIFICATIONS (US TABLETS): As contained in NDA 50-783, Section 3.2.7.2 (Page 1.5 - 029) Exhibit A, Attachment 1 BULK TABLET RELEASE AND STABILITY SPECIFICATIONS (EU TABLETS): As contained in the MCA "Grant of Marketing Authorisation", PL 17096/0002, Section B., Page 1 Exhibit A, Attachment 2 EXHIBIT A - ATTACHMENT 1 NDA 50-783 Periostat(R)(doxycycline hyclate tablets), 20 mg Section 3 - CMC The following specifications pertain to Periostat(R) (doxycycline hyclate tablets), 20 mg: Test Limit Method - ---- ----- ------ Appearance/ description White to off-white, round, Visual film-coated tablet with "PS 20" monogram Identification (release only) Conforms to standard USP, Doxycycline tablets Odor Practically odorless See PMRS 80061 Hardness Report See PMRS 80061 Friability NMT 1% USP <1216> Assay 90.0% to 120.0% label claim See PMRS 80061 Uniformity of dosage units/ Conforms USP <905> content uniformity (release only) Total impurities/degradant NMT 5.0% See PMRS 80061 (area %) Water NMT 8.5% USP <921> Dissolution Q: 85% in 90 minutes USP <711> 3.2.7.3 Analytical Methods The methods listed above for the uncoated and film-coated tablets are provided in PMRS analytical monographs 80070 and 80061, respectively. Copies of the current versions of these documents, designated by numeric suffixes (.01 and .06, respectively), follow.
EXHIBIT A - ATTACHMENT 2 PL 17096/0002 LICENCE DETAILS Finished Product Specification- TEST DESCRIPTION SPECIFICATION SPECIFICATION (RELEASE) (END OF SHELF LIFE) Description White to off-white, round, White to off-white, round, film-coated tablet with PS-20 monogram film-coated tablet with PS-20 monogram Identification Main peak retention time by HPLC Main peak retention time by HPLC conforms to that of doxycycline conforms to that of doxycycline hyclate standard hyclate standard Odour Practically odourless Practically odourless Content of doxycycline 95-105% label claim 95-105% label claim Identity of colour Positive for Titanium dioxide by Positive for Titanium dioxide by hydrogen peroxide colour test hydrogen peroxide colour test Uniformity of content Of ten tablets, each individual Of ten tablets, each individual content is from 85-115% of mean content is from 85-115% of mean content. If one individual content content. If one individual is outside these limits but within content is outside these limits 75-125% of the mean determine the but within 75-125% of the mean individual content of 20 further determine the individual content tablets. The sample complies if not of 20 further tablets. The sample more than 1 tablet is outside the complies if not more than 1 tablet limits of 85-115% of the mean and is outside the limits of 85-115% none is outside 75-125% of the of the mean and none is outside mean./ (Ph. Eur. 2.9.6) 75-125% of the mean./ (Ph. Eur. 2.9.6) Related substances 6-epidoxycycline NMT 1.6% NMT 1.6% Methacycline NMT 1.0% NMT 1.0% Unidentified related NMT 0.4% NMT 0.4% substances (individual) Total related substances NMT 3.0% NMT 3.0% Light-absorbing impurities <0.2% <0.2% Hardness 13.5-21.5 kp 13.5-21.5 kp Friability NMT 1% NMT 1% Dissolution (Ph. Eur. 2.9.3)1 NLT 70% released in 45 minutes NLT 70% released in 45 minutes Dissolution (in-house test)2 NLT 85% released in 90 minutes NLT 85% released in 90 minutes Disintegration3 NMT 30 mins NMT 30 mins Water content NMT 5% w/w NMT 8.5% w/w Microbial contamination Total aerobic count <=1000 cfu/g <=1000 cfu/g Fungi <=100 cfu/g <=100 cfu/g E. coli absent in 1 g absent in 1 g
1Tested on import into the EC; 2Tested at manufacturing site in USA 3Carried out only as part of in-process control EXHIBIT B.1 BULK PRODUCT COA (US TABLETS):
Page 1 of 1 R15287 PMRS [GRAPHIC OMITTED] PHARMACEUTICAL MANUFACTURING RESEARCH SERVICES, INC. FINISHED PRODUCT CERTIFICATE OF ANALYSIS AND DISPOSITION - ---------------------------------------------------------------------------------------------------------------------------------- ITEM DESCRIPTION: PERIOSTAT DOXYCYCLINE 20 MG FILM COATED TABLET (US MARKET) - ---------------- ITEM CODE: 70206 CONTAINERS: 4 Drum DISPOSITION NUMBER: QAD04978 RECEIVING NUMBER: R15287 QUANTITY: 317.311 Kg EXP. DATE: 10/2001 MANUFACTURER: PMRS DATE TESTED: 05/16/2001 JOB NUMBER: 656 MANUFACTURER LOT NO: B01159 DISPOSITION: APPROVED PMRS BATCH NUMBER: DATE MANUFACTURED: 05/09/2001 DISPO DATE: 05/23/2001 B01159 DISPOSITION BY: pmcnally - ---------------------------------------------------------------------------------------------------------------------------------- Test: Reference: Lower Spec: Upper Spec: Result: Units: Analyst: Report Result Ref: - ---- --------- ---------- ---------- ------ ----- ------- ------ ---------- Description 80061.07 conforms --- Conforms --- RL 05/15/2001 PMRS-258/55 Identification 80061.07 conforms to --- Conforms --- SS 05/16/2001 PMRS-130/185 standard Odor 80061.07 practically --- Odorless --- RL 05/15/2001 PMRS-258/58 odorless Hardness 80061.07 report --- 17.8 kp JCM 05/11/2001 PMRS-260/2 results Friability 80061.07 --- 1 0 % JCM 05/11/2001 PMRS-259/11 Assay 80061.07 90.0 120.0 100.4 %LC RL 05/15/2001 PMRS-258/67 Uniformity of Dosage Units/ 80061.07 85.0 115.0 99.7 %LC RL 05/15/2001 PMRS-258/68 Content Uniformity (Range) (93.6- 101.6) Uniformity of Dosage Units/ 80061.07 --- 6.0 2.3 %RSD RL 05/15/2001 PMRS-258/68 Content Uniformity (% RSD) Total Impurity/Degradant- 80061.07 --- 5.0 1.0 %w/w RL 05/15/2001 PMRS-258/83 Total Total Impurity/Degradant- 80061.07 report --- 0.0 %area RL 05/15/2001 PMRS-258/64 Unknown 1 Total Impurity/Degradant-4- 80061.07 report --- 0.1 %w/w RL 05/15/2001 PMRS-258/83 epidoxycycline Total Impurity/Degradant- 80061.07 report --- 0.1 %w/w RL 05/15/2001 PMRS-258/82 metacycline Total Impurity/Degradant- 80061.07 report --- 0.8 %w/w RL 05/15/2001 PMRS-258/82 6-epidoxycycline Water 80061.07 --- 8.5 4.3 % SCC 05/14/2001 PMRS-262/2 Dissolution (90 minutes) 80061.07 85 --- 99 %LC(Q) SCC 05/11/2001 PMRS-264/4 Identification (HPLC) 80061.07 conforms --- Conforms --- RL 05/15/2001 PMRS-258/68 - ----------------------------------------------------------------------------------------------------------------------------------
SAMPLE NUMBERS: COMMENTS: 1,474,834 Tablets (215.2 mg/tab) PERIOSTAT DOXYCYCLINE 20 MG FILM COATED TABLET (US MARKET), BATCH/LOT: B01159 WAS MANUFACTURED AND ANALYZED ACCORDING TO UNITED STATES CURRENT GOOD MANUFACTURING PRACTICE REQUIREMENTS AND MEETS ALL REQUIREMENTS FOR HUMAN USE. THE ABOVE RESULTS HAVE BEEN CHECKED AGAINST AND ARE CERTIFIED TO BE A TRUE COPY OF THE ACTUAL REPORTED ANALYTICAL RESULTS. /s/ Patrick J. McNally 05/23/2001 - ------------------------------------------- Patrick J. McNally Director, Quality Management 423 Sargon Way Horsham, PA 19044-5201 Phone (215) 957-9400 Fax (215) 957-6161 PMRS [GRAPHIC OMITTED] EXHIBIT B.2 BULK PRODUCT COA (EU TABLETS): While a COA for EU tablets has not been issued as of the date of this document, the COA for EU tablets will contain the test results as required by the MCA "Grant of Marketing Authorisation", PL 17096/0002, Section B., Page 1 and will use a format similar to the COA for US Tablets (Exhibit B.1). EXHIBIT C.1 FINAL PRODUCT COA (100 COUNT BOTTLES):
Page 1 of 1 R15420 PMRS [GRAPHIC OMITTED] PHARMACEUTICAL MANUFACTURING RESEARCH SERVICES, INC. FINISHED PRODUCT CERTIFICATE OF ANALYSIS AND DISPOSITION ITEM DESCRIPTION: PERIOSTAT 20 MG 100 TABLETS / BOTTLE ITEM CODE: 80247 CONTAINERS: 3 Bottle DISPOSITION NUMBER: QAD05105 RECEIVING NUMBER: R15420 QUANTITY: 300 tabs RETEST DATE: 04/2003 PO NUMBER: DATE TESTED: 06/21/2001 JOB NUMBER: 656 SUPPLIER: PCI Services DISPOSITION: APPROVED - ID ONLY PMRS BATCH NUMBER: MANUFACTURER: PMRS DISPO DATE: 6/26/2001 B01163A MANUFACTURER LOT NO: B01163A DISPOSITION BY: pmcnally - --------------------------------------------------------------------------------------------------------------------------------- Test: Reference: Lower Spec: Upper Spec: Result: Units: Analyst: Report Result Ref: - ---- --------- ---------- ---------- ------ ----- ------- Date: ---------- ----- Description 80095.00 conforms --- Conforms --- RL 06/21/2001 PMRS-263/7 Identification 80095.00 conforms --- Conforms --- RL 06/21/2001 PMRS-263/9 (Doxycycline Hyclate)
SAMPLE NUMBERS: S41030 COMMENTS: None Periostat 20mg 100 Tablets / Bottle, Batch/Lot: B01163A was manufactured and analyzed according to United States current Good Manufacturing Practice requirements. Finished product testing is the responsibility of the client. The above results have been checked against and are certified to be a true copy of the actual reported analytical results. /s/ Patrick J. McNally 06/26/2001 - ------------------------------------------- Patrick J. McNally Director, Quality Management 423 Sargon Way Horsham, PA 19044-5201 Phone (215) 957-9400 Fax (215) 957-6161 [GRAPHIC OMITTED] EXHIBIT C.2 FINAL PRODUCT COA (BLISTERS):
R15412 PMRS [GRAPHIC OMITTED] PHARMACEUTICAL MANUFACTURING RESEARCH SERVICES, INC. - ----------------------------------------------------------------------------------------------------------------------------------- Certificate of Analysis and Disposition - ----------------------------------------------------------------------------------------------------------------------------------- ITEM DESCRIPTION: PERIOSTAT 20MG 2 X 2 BLISTER CARD ITEM CODE: 80245 GRADE: no grade RECEIVING NUMBER: R15412 MFG RETEST DATE: 04/03 DISPOSITION: Approved PO NUMBER: CONTAINERS: 1 Carton DISPO DATE: 06/18/2001 SUPPLIER: PCI Services QUANTITY: 72 each DISPO BY: jmeltzer MANUFACTURER: PMRS DATE TESTED: 06/15/2001 DISPO NUMBER: QAD05089 MFG LOT NO: B01159B RETEST DATE: 04/2003 JOB NUMBER: 656 - ---------------------------------------------------------------------------------------------------------------------------------- R15412 SAMPLE NUMBERS: S41020 Test: Reference: Lower Spec: Upper Spec: Result: Units: Analyst: Report Date Result Ref: - ---- --------- ---------- ---------- ------ ----- ------- ----------- ---------- Description 80095.00 conforms --- conforms --- RL 06/15/2001 PMRS 263/4 Identification 80095.00 conforms --- conforms --- RL 06/15/2001 PMRS 263/6 (Doxycyline Hyclate) - -----------------------------------------------------------------------------------------------------------------------------------
Comments: None The above results have been checked against and are certified to be a true copy of the actual reported analytical results. /s/ Jeffrey S. Meltzer 06/18/2001 [GRAPHIC OMITTED] - ------------------------------------------- Jeffrey S. Meltzer Manager, Quality Assurance 423 Sargon Way Horsham, PA 19044-5201 Phone (215) 957-9400 Fax (215) 957-6161 -----END PRIVACY-ENHANCED MESSAGE-----