MESSAGE TO SHAREHOLDERS
Dear Shareholders,
This quarter was marked by the completion of two important projects at the
financial and acquisition levels.
First, our recent public offering which proved to be successful, provides us
with the financial latitude to pursue our growth strategy. We also have a
sufficient cash position to carry on with Neovastat's clinical development
program within our anticipated deadlines. Second, the acquisition of the
French company Unipex Finance S.A. enables our subsidiary Atrium
Biotechnologies Inc. to position itself as a significant player in a sector
with high growth potential.
OVERVIEW OF THIRD QUARTER ACTIVITIES
PUBLIC OFFERING OF $15.7 MILLION
We successfully completed a public offering of 1.957 million subordinate voting
shares at a price of $8.00 per share, for gross proceeds of $15.7 million.
ATRIUM ACQUIRES UNIPEX FOR $21 MILLION
Our subsidiary Atrium invested $21 million to acquire Unipex, which specializes
in value-added services of importation, in supporting innovation, and in
distributing raw materials and high-end brand-name additives. The transaction
was financed from Atrium's cash surplus. Atrium now holds 70% of Unipex shares
and senior Unipex management retains control of the remaining 30%.
APPOINTMENT AT ATRIUM
Mr. Luc Dupont, Chief Executive Officer and Vice Chairman of the Board of
Atrium, announced the appointment of Richard Bordeleau as President of Atrium.
Mr. Bordeleau will take on new corporate representation mandates and Mr. Dupont
will continue to assume company management while devoting more time to Atrium's
strategic planning.
INCREASED INTELLECTUAL PROPERTY HOLDINGS
During this quarter, AEterna received a notice of allowance from the United
States Patent and Trademark Office for a patent giving extended coverage to
Neovastat's manufacturing process. AEterna has also submitted a new application
for a patent to cover the composition of matter of a new serine elastase
inhibitor isolated from Neovastat. AEterna's intellectual property portfolio now
contains twelve (12) patents - six (6) issued, one (1) allowed and five (5)
pending.
SCIENTIFIC ARTICLES
Three (3) scientific articles on Neovastat were approved for release in the
following peer review publications: Clinical Experimental Metastasis, Seminar in
Oncology and the Journal of American Academy of Dermatology. These articles will
no doubt give our research and development activities, increased exposure to the
international scientific community.
OUTLOOK
During the upcoming months, our efforts will be focused on the two following
objectives: completion of patient recruitment for our clinical trial in renal
cell carcinoma as well as the conclusion of another strategic alliance with a
pharmaceutical company for the distribution and commercialization of Neovastat
in other markets.
On a longer term basis and according to our growth strategy, we are aiming at
acquiring a company or a new technology in order to diversify our product
portfolio.
Dr. Eric Dupont, PhD
Chairman of the Board, President and Chief Executive Officer
November 15, 2001
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The following analysis explains the variations in the Company's results of
operations, financial condition and cash flow. This discussion should be read in
conjunction with the information contained in AEterna Laboratories Inc.'s
interim consolidated financial statements and related notes for the nine-month
period ended September 30, 2001. All figures are in Canadian dollars.
RESULTS OF OPERATIONS
During the quarter ended September 30, 2001, consolidated sales of Atrium
Biotechnologies Inc. reached $18.1 million in comparison to $2.0 million during
the same quarter last year. For the first nine months of the year, sales totaled
$23.6 million, compared to $6.1 million for the same period in 2000. This
significant increase is attributable to the acquisition in July of a French
company, Unipex, whose sales reached $15.3 million for this quarter as well
as to an internal growth of 32%.
Cost of goods sold during this quarter amounted to $13.7 million compared to
$0.3 million for the same period in 2000. These costs are in direct proportion
to corresponding sales. Furthermore, the percentage of these costs against
products sold varied significantly, as a result of the operations of Unipex,
which revolve mainly around product distribution. For the nine-month period
ended September 30, 2001, the cost of goods sold was $14.6 million compared to
$0.8 million for the same period last year.
Selling and administrative expenses during the quarter amounted to $2.0 million,
compared to $0.6 million in 2000. For the nine-month period ended September 30,
2001, these expenses totaled $3.7 million compared to $1.5 million last year.
Again the acquisition of Unipex explains these variations.
AEterna's Research and Development (R&D) investments amounted to $7.2 million
during this quarter in comparison with $5.2 million last year. The accelerated
progress of the international Phase III clinical trial in kidney cancer and the
Phase II trial in multiple myeloma explains this increase of 38%. For the first
nine months of the year, more than $21 million have been invested in Neovastat's
development program, an increase of $5.5 million or 35% in comparison with last
year.
For this third quarter, AEterna recorded a consolidated net loss of $5.0 million
or $0.16 per share, which compares to a consolidated net loss of $1.7 million or
$0.06 per share for the same quarter last year. For the nine-month period ended
on September 30, 2001, the consolidated net loss is $0.7 million which compares
to a consolidated net loss of $5.5 million for the same period last year. Even
though investments in R&D increased by $5 million, the consolidated net loss is
still lower than that of last year as a result of a $10.2 million gain on
dilution recorded in this year's second quarter.
LIQUIDITY AND CAPITAL RESOURCES
AEterna's financial situation, as at September 30, 2001, remains solid with
$58.3 million in cash and short-term investments, compared to $68.6 million as
of December 31, 2000. An amount of $12.3 million was used in operating
activities, $14.1 million in
investment activities while $16.1 million resulting from the issuance of shares
which contributed in increasing liquidity.
RISK FACTORS
Economic and sector related risks are the same as those identified in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the Company's 2000 Annual Report.
Dennis Turpin, CA
Vice President and Chief Financial Officer
This report contains forward-looking statements, which are made pursuant to the
safe harbor provisions of the U.S. Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which could cause the Company's actual results to differ materially from those
in the forward-looking statements. Such risks and uncertainties include, among
others, the availability of funds and resources to pursue R&D projects, the
successful and timely completion of clinical studies, the ability of the Company
to take advantage of the business opportunities in the pharmaceutical industry,
uncertainties related to the regulatory process and general changes in economic
conditions. Investors should consult the Company's ongoing quarterly and annual
filings with the Canadian and U.S. securities commissions for additional
information on risks and uncertainties relating to the forward-looking
statements. Investors are cautioned not to rely on these forward-looking
statements. The Company does not undertake to update these forward-looking
statements.
AETERNA LABORATORIES INC.
CONSOLIDATED BALANCE SHEETS
(expressed in Canadian dollars)
AS AT AS AT
SEPTEMBER 30, DECEMBER 31,
2001 2000
--------------------------------------------------------------------------------------------------------------
(UNAUDITED) (RESTATED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 26,704,930 $ 7,260,582
Short-term investments 31,548,141 61,388,205
Accounts receivable 22,311,910 4,842,845
Research and development tax credits recoverable 2,274,392 1,092,000
Inventory 5,738,996 2,484,139
Prepaid expenses 1,054,957 588,442
--------------------------------------------------------------------------------------------------------------
89,633,326 77,656,213
CAPITAL ASSETS 15,594,979 14,928,146
OTHER ASSETS 21,673,636 7,347,884
FUTURE INCOME TAX ASSETS 955,347 650,000
--------------------------------------------------------------------------------------------------------------
$127,857,288 $100,582,243
==============================================================================================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 18,963,333 $ 5,860,960
Income taxes 61,335 650,000
Current portion of long-term debt 3,614,140 313,953
--------------------------------------------------------------------------------------------------------------
22,638,808 6,824,913
LONG-TERM DEBT 12,854,759 4,753,500
REDEEMABLE COMMON SHARES OF THE SUBSIDIARY (NOTES 2 AND 3) - 24,609,547
NON-CONTROLLING INTEREST (NOTE 3) 13,007,442 -
--------------------------------------------------------------------------------------------------------------
48,501,009 36,187,960
==============================================================================================================
SHAREHOLDERS' EQUITY
Share capital 95,467,966 80,008,032
Deficit (16,325,986) (15,613,749)
Cumulative translation adjustment 214,299 -
--------------------------------------------------------------------------------------------------------------
79,356,279 64,394,283
--------------------------------------------------------------------------------------------------------------
$127,857,288 $100,582,243
==============================================================================================================
SEE ACCOMPANYING NOTES
AETERNA LABORATORIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
(expressed in Canadian dollars)
QUARTERS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
UNAUDITED 2001 2000 2001 2000
-----------------------------------------------------------------------------------------------------------------------------
(RESTATED) (RESTATED)
REVENUES $18,138,184 $ 2,036,342 $23,573,087 $ 6,074,014
-----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of goods sold 13,744,882 285,626 14,600,148 804,554
Selling and administrative 2,006,643 584,247 3,701,301 1,537,154
Research and development 7,157,309 5,196,106 21,047,208 15,529,338
Research and development tax credits and grants (788,827) (1,604,743) (5,359,387) (4,751,426)
Depreciation and amortization
Capital assets 356,113 290,328 953,826 859,875
Other assets 116,857 39,302 281,225 115,426
-----------------------------------------------------------------------------------------------------------------------------
22,592,977 4,790,866 35,224,321 14,094,921
=============================================================================================================================
OPERATING LOSS (4,454,793) (2,754,524) (11,651,234) (8,020,907)
INTEREST INCOME 640,758 1,113,595 2,696,919 2,583,411
INTEREST EXPENSE (162,051) (11,867) (598,884) (32,504)
-----------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE THE FOLLOWING (3,976,086) (1,652,796) (9,553,199) (5,470,000)
GAIN ON DILUTION (NOTE 3) - - 10,223,567 -
NON-CONTROLLING INTEREST (750,535) - (1,100,768) -
INCOME TAX EXPENSE (281,837) - (281,837) -
-----------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $(5,008,458) $(1,652,796) $ (712,237) $(5,470,000)
=============================================================================================================================
NET LOSS PER SHARE
Basic $ (0.16) $ (0.06) $ (0.02) $ (0.19)
=============================================================================================================================
Fully diluted $ (0.16) $ (0.06) $ (0.02) $ (0.19)
=============================================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 30,454,781
=============================================================================================================================
Fully diluted 31,632,498
=============================================================================================================================
SEE ACCOMPANYING NOTES
AETERNA LABORATORIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
(expressed in Canadian dollars)
QUARTERS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
UNAUDITED 2001 2000 2001 2000
-----------------------------------------------------------------------------------------------------------------------------
(RESTATED) (RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $(5,008,458) $(1,652,796) $ (712,237) $(5,470,000)
Items not affecting cash
Depreciation and amortization 472,970 329,630 1,235,051 975,301
Interest expense - 11,867 436,833 32,504
Gain on dilution - - (10,223,567) -
Non-controlling interest 750,535 - 1,100,768 -
Future income taxes (99,810) - (305,347) -
Change in non-cash operating working capital items
Accounts receivable 2,805,942 215,271 821,896 (1,575,782)
Research and development tax credits recoverable (322,500) 498,474 (1,182,392) (89,932)
Inventory 1,926,211 (268,152) 1,632,738 (588,291)
Prepaid expenses 124,940 27,017 (389,023) (395,333)
Accounts payable and accrued liabilities (4,252,837) (365,784) (4,156,408) 1,256,517
Income taxes 15,462 - (588,665) -
-----------------------------------------------------------------------------------------------------------------------------
(3,587,545) (1,204,473) (12,330,353) (5,855,016)
=============================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of share capital, net of related expenses 14,252,121 2,026,881 15,459,934 19,432,201
Increase (payments) of long-term debt (95,000) - (313,953) 95,186
Redeemable common shares of the subsidiary - 10,000,000 - 20,000,000
Deferred interest expense paid in cash - (88,733) - (324,454)
-----------------------------------------------------------------------------------------------------------------------------
14,157,121 11,938,148 15,145,981 39,202,933
=============================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of shares of subsidiary less cash acquired (13,474,739) - (13,474,739) -
Change in short-term investments 4,209,564 (17,424,888) 29,840,064 (12,668,873)
Purchase of capital assets (88,371) (133,323) (386,599) (534,644)
Additions to other assets (151,480) (94,296) (281,556) (164,611)
-----------------------------------------------------------------------------------------------------------------------------
(9,505,026) (17,652,507) 15,697,170 (13,368,128)
=============================================================================================================================
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,064,550 (6,918,832) 18,512,798 19,979,789
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 931,550 - 931,550 -
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 24,708,830 32,924,354 7,260,582 6,025,733
-----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $26,704,930 $26,005,522 $26,704,930 $26,005,522
=============================================================================================================================
ADDITIONAL INFORMATION
Interest paid $ 86,419 - $ 86,419 -
=============================================================================================================================
Income taxes paid $ 413,794 - $ 1,136,294 -
=============================================================================================================================
SEE ACCOMPANYING NOTES
AETERNA LABORATORIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
(expressed in Canadian dollars)
UNAUDITED
--------------------------------------------------------------------------------
1 BASIS OF PRESENTATION
These unaudited quarterly financial statements have been prepared by the Company
in accordance with Canadian generally accepted accounting principles for
quarterly financial information and reflect, in the opinion of management, all
adjustments necessary to present fairly the financial position, results of
operations and cash flows as at September 30, 2001, and for all periods
presented.
The accounting policies and methods of computation adopted in these financial
statements are the same as those used in the preparation of the Company's most
recent annual consolidated financial statements. All disclosures required for
annual financial statements have not been included in these financial
statements. These consolidated financial statements should be read in
conjunction with the Company's most recent annual consolidated financial
statements. The results of operations for the nine-month period ended September
30, 2001, are not necessarily indicative of the results for the full year.
2 RESTATEMENTS
The Company has restated its financial statements to reflect a change in the
method of accounting for the issuance of redeemable common shares by its
subsidiary, Atrium Biotechnologies Inc. (Atrium), to its minority shareholders.
The financial statements have been restated to eliminate the recognition of a
minority interest and the previously recognized dilution gain recorded on the
issuance of the subsidiary's redeemable common shares. The redeemable common
shares of the subsidiary are classified as a liability in accordance with the
substance of the shareholders' agreement and the definition of a financial
liability.
3 AMENDMENT OF ATRIUM SHAREHOLDERS' AGREEMENT
In May 2001, Atrium and all its shareholders amended certain terms of the
shareholders' agreement. As a result of the amendment, the Company reclassified
the common shares issued by Atrium to the minority shareholders from a liability
to equity. In addition, the Company will no longer have an obligation to deliver
cash or another financial amount to the minority shareholders of Atrium.
Accordingly, in the second quarter ended June 30, 2001, the Company recognized a
dilution gain and a minority interest in Atrium.
4 ACQUISITION OF A COMPANY
On July 2, 2001, Atrium acquired 70% of the issued and outstanding common shares
of Unipex Finance S.A. for a total cash consideration of $21 M. Unipex Finance
S.A. is specialized in value-added services of importation, in supporting
innovation, and in distributing raw materials and high-end brand-name additives
for multinational corporations. The acquisition which has been accounted for
using the purchase method, resulted in goodwill amounting to $18,325,273 based
on the following allocation of the purchase price to the identifiable assets
acquired and liabilities assumed.
$
------------
Current assets 28,215,588
Capital assets 1,102,929
Identifiable intangible assets 304,280
Current liabilities (15,336,635)
Long-term debt (10,475,454)
------------
Net indentifiable assets acquired 3,810,708
Non-controlling interest (1,135,591)
============
2,675,117
Goodwill 18,325,273
------------
Purchase price 21,000,390
Less: cash and cash equivalents acquired (7,525,651)
============
13,474,739
============
AETERNA LABORATORIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
(expressed in Canadian dollars)
UNAUDITED
--------------------------------------------------------------------------------
An independant report was issued on August 22, 2001 which confirms that no
specific identifiable intangible assets have any material value which could be
separated from the general goodwill. The results of the company acquired have
been included in the consolided statement of earnings of the Company from the
date of the acquisition, July 2, 2001.
Amortization of goodwill
Following the new recommendations of the CICA regarding section 3062 "Goodwill
and other intangible assets", goodwill resulting from acquisitions made after
Juny 1, 2001 does not have to be amortized. However, the impairment of goodwill
and any intangible assets identified must be recognized when the fair value of
an operating unit is lower than its carrying value. Consequently, the goodwill
resulting from the acquisition of Unipex is not amortized but will rather be
subject to an impairment test.
5 SEGMENT INFORMATION
QUARTERS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------- -------------------------------
2001 2000 2001 2000
---------------------------- -------------------------------
(RESTATED) (RESTATED)
REVENUES
Cosmetics and nutrition $18,138,184 $ 2,036,342 $23,573,087 $ 6,074,014
Biopharmaceutical - - - -
--------------------------------------------------------------------------------------------------------------
$18,138,184 $ 2,036,342 $23,573,087 $ 6,074,014
==============================================================================================================
NET EARNINGS (LOSS) FOR THE PERIOD
Cosmetics and nutrition $ 919,763 $ 1,309,683 $ 3,471,841 $ 3,890,403
Biopharmaceutical (5,928,221) (2,962,479) (4,184,078) (9,360,403)
--------------------------------------------------------------------------------------------------------------
$(5,008,458) $(1,652,796) $ (712,237) $(5,470,000)
==============================================================================================================
AS AT AS AT
SEPTEMBER 30, DECEMBER 31,
2001 2000
--------------------------------------------------------------------------------------------------------------
(RESTATED)
SEGMENT ASSETS
Cosmetics and nutrition $ 60,831,121 $ 33,274,640
Biopharmaceutical 67,026,167 67,307,603
--------------------------------------------------------------------------------------------------------------
$127,857,288 $100,582,243
==============================================================================================================