UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
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FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 |
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or |
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Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 |
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For the transition period from to
Commission File Number 0-29993
INTRABIOTICS PHARMACEUTICALS, INC.
| DELAWARE | 94-3200380 | |
| (State or other jurisdiction of | (I.R.S. Employer Identification Number) | |
| incorporation or organization) |
1245 TERRA BELLA AVENUE
MOUNTAIN VIEW, CA 94043
(Address of principal executive offices)
(650) 526-6800
(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 o
There were 37,742,421 shares of the Company’s Common Stock, par value $.001, outstanding as of August 5, 2002.
INTRABIOTICS PHARMACEUTICALS, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
TABLE OF CONTENTS
| PART I. | FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements (unaudited) | |||
| Balance Sheets as of June 30, 2002 and December 31, 2001 | ||||
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Statements of Operations for the Three- and Six-Month Periods Ended June 30, 2002 and June 30, 2001 |
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Statements of Cash Flows for the Six-Month Periods Ended June 30, 2002 and June 30, 2001 |
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| Notes to Financial Statements | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. | Quantitative and Qualitative Disclosure About Market Risk | |||
| PART II. | OTHER INFORMATION | |||
| Item 2. | Changes in Securities and Use of Proceeds | |||
| Item 4. | Submission of Matters to a Vote of Security Holders | |||
| Item 6. | Exhibits and Reports on Form 8-K | |||
| SIGNATURES | ||||
PART I. FINANCIAL INFORMATION
INTRABIOTICS PHARMACEUTICALS, INC.
BALANCE SHEETS
(IN THOUSANDS)
| JUNE 30, | DECEMBER 31, | ||||||||||
| 2002 | 2001 | ||||||||||
| (Unaudited) | (Note 1) | ||||||||||
Assets |
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Current assets: |
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Cash and cash equivalents |
$ | 35,565 | $ | 27,982 | |||||||
Restricted cash deposits |
7,488 | 7,488 | |||||||||
Other current assets, primarily prepayments and |
4,716 | 5,412 | |||||||||
Total current assets |
47,769 | 40,882 | |||||||||
Property and equipment, net |
1,206 | 1,540 | |||||||||
Other assets |
419 | 43 | |||||||||
Acquired workforce |
1,583 | — | |||||||||
Total assets |
$ | 50,977 | $ | 42,465 | |||||||
Liabilities
and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ | 115 | $ | 339 | |||||||
Accrued clinical costs |
3,474 | 1,663 | |||||||||
Accrued employee liabilities |
244 | 579 | |||||||||
Accrued restructuring charges |
1,354 | 2,861 | |||||||||
Deferred rent |
762 | 618 | |||||||||
Other accrued liabilities |
577 | 818 | |||||||||
Current financing obligations |
4,375 | 4,375 | |||||||||
Total current liabilities |
10,901 | 11,253 | |||||||||
Long-term financing |
4,063 | 5,000 | |||||||||
Stockholders’
equity: |
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Common stock |
38 | 30 | |||||||||
Additional paid-in capital |
218,015 | 196,575 | |||||||||
Deferred stock compensation |
(3,372 | ) | (4,577 | ) | |||||||
Accumulated deficit |
(178,668 | ) | (165,816 | ) | |||||||
Total stockholders’ |
36,013 | 26,212 | |||||||||
Total liabilities and stockholders’ |
$ | 50,977 | $ | 42,465 | |||||||
See accompanying notes.
INTRABIOTICS PHARMACEUTICALS, INC
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
| THREE MONTHS ENDED | SIX MONTHS ENDED | |||||||||||||||||
| JUNE 30, | JUNE 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Operating expenses: |
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Research and development |
$ | 6,411 | $ | 9,997 | $ | 13,452 | $ | 25,521 | ||||||||||
Arbitration settlement |
— | — | (3,600 | ) | — | |||||||||||||
General and administrative |
2,447 | 2,836 | 3,907 | 6,944 | ||||||||||||||
Restructuring and other charges |
— | 21,956 | 91 | 21,956 | ||||||||||||||
Total operating expenses |
8,858 | 34,789 | 13,850 | 54,421 | ||||||||||||||
Operating loss |
(8,858 | ) | (34,789 | ) | (13,850 | ) | (54,421 | ) | ||||||||||
Interest income |
215 | 770 | 480 | 1,997 | ||||||||||||||
Interest expense |
(113 | ) | (295 | ) | (266 | ) | (603 | ) | ||||||||||
Other income |
784 | — | 784 | — | ||||||||||||||
Net loss |
$ | (7,972 | ) | $ | (34,314 | ) | $ | (12,852 | ) | $ | (53,027 | ) | ||||||
Basic and diluted net loss per |
$ | (0.22 | ) | $ | (1.17 | ) | $ | (0.36 | ) | $ | (1.81 | ) | ||||||
Shares used to compute basic and diluted net loss per share |
37,145 | 29,344 | 35,464 | 29,302 | ||||||||||||||
See accompanying notes.
INTRABIOTICS PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
| PERIOD ENDED JUNE 30, | |||||||||||
| 2002 | 2001 | ||||||||||
Operating
activities |
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Net loss |
$ | (12,852 | ) | $ | (53,027 | ) | |||||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Amortization of deferred stock compensation |
687 | 1,320 | |||||||||
Depreciation and amortization |
390 | 1,023 | |||||||||
Acquired workforce amortization |
93 | ||||||||||
Write down of fixed assets |
— | 11,746 | |||||||||
Fair value of warrants issued |
— | 560 | |||||||||
Stock compensation expense |
604 | — | |||||||||
Gain on sale of product pre-clinical programs |
(775 | ) | — | ||||||||
Change in assets and liabilities |
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Other current assets |
993 | 2,326 | |||||||||
Other assets |
(1 | ) | — | ||||||||
Accounts payable |
(299 | ) | (1,642 | ) | |||||||
Accrued clinical costs |
1,811 | (2,637 | ) | ||||||||
Accrued employee liabilities |
(335 | ) | 353 | ||||||||
Accrued restructuring charges |
(1,507 | ) | 8,669 | ||||||||
Deferred rent |
144 | 461 | |||||||||
Other accrued liabilities |
(329 | ) | 128 | ||||||||
Net cash used in operating activities |
(11,376 | ) | (30,720 | ) | |||||||
Investing
activities |
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Capital expenditures |
— | (3,589 | ) | ||||||||
Proceeds from sale of product pre-clinical programs |
400 | — | |||||||||
Purchase of short term investments |
— | (5,013 | ) | ||||||||
Maturities of short-term investments |
— | 28,639 | |||||||||
Cash received in acquisition of subsidiary |
58 | — | |||||||||
Net cash provided by investing activities |
458 | 20,037 | |||||||||
Financing
activities |
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Proceeds from issuance of common stock net of issuance |
19,438 | 120 | |||||||||
Proceeds from financing obligations |
— | 1,209 | |||||||||
Payments on financing obligations |
(937 | ) | (1,872 | ) | |||||||
Net cash provided by (used in) financing |
18,501 | (543 | ) | ||||||||
Net increase in cash and cash equivalents |
7,583 | (11,226 | ) | ||||||||
Cash and cash equivalents at beginning of period |
27,982 | 38,983 | |||||||||
Cash and cash equivalents at end of period |
$ | 35,565 | $ | 27,757 | |||||||
Supplemental disclosure of cash flow information |
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Interest paid |
$ | 266 | $ | 603 | |||||||
Supplemental disclosure of non-cash information |
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Deferred compensation (termination) |
$ | (518 | ) | $ | (397 | ) | |||||
Other
assets received from sale of pre-clinical programs |
$ | 375 | $ | — | |||||||
Cash flow for acquisition of subsidiary |
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Acquired workforce |
$ | 1,676 | $ | — | |||||||
Other current assets acquired |
297 | — | |||||||||
Property and equipment acquired |
56 | — | |||||||||
Liabilities assumed |
(75 | ) | — | ||||||||
Acquisition costs incurred |
(88 | ) | — | ||||||||
Common stock issued |
(1,924 | ) | — | ||||||||
Cash received in acquisition |
$ | (58 | ) | $ | — | ||||||
See accompanying notes.
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial information, and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Certain information and footnote disclosures normally included in the Company’s annual audited financial statements (as required by generally accepted accounting principles) have been condensed or omitted. The interim financial statements, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the Company’s financial position as of June 30, 2002 and December 31, 2001, the results of its operations for the three- and six-month periods ended June 30, 2002 and 2001 and cash flows for the six-month periods ended June 30, 2002 and 2001.
The results of operations of the interim periods are not necessarily indicative of the results of operations to be expected for the fiscal year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2001, which are contained in the Company’s Annual Report on Form 10-K, and filed with the Securities and Exchange Commission. The accompanying Balance Sheet as of December 31, 2001 is derived from such audited financial statements.
Comprehensive loss is primarily comprised of net loss and net unrealized gains or losses on available-for-sale securities. There is no material difference between the reported net loss and the comprehensive loss for all periods presented.
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, “Business Combinations”, or SFAS 141, and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, or SFAS 142. SFAS 141 requires the use of the purchase method for all business combinations initiated after June 30, 2001, and provides new criteria for determining whether an acquired intangible asset should be recognized separately from goodwill. SFAS 142 eliminates the amortization of goodwill and replaces it with an impairment only model. Upon adoption, goodwill related to acquisitions completed before the date of adoption would be subject to the new provisions of SFAS 141; amortization of any remaining book value of goodwill would cease and the new impairment-only approach would apply. The impairment-only approach does not apply to the treatment of other intangible assets. The provisions of SFAS 141 and SFAS 142 will be effective for fiscal years beginning after December 15, 2001. The adoption of these statements did not have a material impact on its results of operations, financial position, or cash flows.
In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, or SFAS 144, that is applicable to financial statements issued for fiscal years beginning after December 15, 2001, with transition provisions for certain matters. The FASB’s new rules on asset impairment supersede FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, and provides a single accounting model for long-lived assets to be disposed of. The adoption of this statement did not have a material impact on its results of operations, financial position, or cash flows.
In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, or SFAS 146. SFAS 146 is applicable to financial statements issued for fiscal years beginning after December 31, 2002. As such, the Company has not yet adopted SFAS 146. The Company believes the adoption of this statement will not have a material impact on its results of operations, financial position, or cash flows.
Note 2. Lease Commitments
The Company leases its facilities under operating lease agreements, which expire in October 2002, July 2004 and April 2011. At June 30, 2002 and December 31, 2001, the Company has restricted cash of $2.0 million in connection with these leases.
Note 3. Net Loss Per Common Share
Net loss per share has been computed according to Financial Accounting Standards Board Statement No. 128, “Earnings Per Share”, which requires disclosure of basic and diluted earnings per share. Basic and diluted earnings per share is calculated using the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. Diluted earnings per share include the impact of potentially dilutive securities. As the Company’s potentially dilutive securities (stock options and warrants) were antidilutive for all periods, they were not included in the computation of weighted-average shares used in computing diluted net loss per share.
The following is a reconciliation of the numerator and denominator of basic and diluted net loss per share (in thousands, except per share amounts):
| THREE MONTHS ENDED | SIX MONTHS ENDED | ||||||||||||||||
| JUNE 30, | JUNE 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Basic and diluted |
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Net loss |
$ | (7,972 | ) | $ | (34,314 | ) | $ | (12,852 | ) | $ | (53,027 | ) | |||||
Weighted-average shares used in computing basic and
diluted net loss per share |
37,145 | 29,344 | 35,464 | 29,302 | |||||||||||||
Basic and diluted net loss per |
$ | (0.22 | ) | $ | (1.17 | ) | $ | (0.36 | ) | $ | (1.81 | ) | |||||
Note 4. Restructuring and Other Charges
On May 31, 2001, the Company implemented a restructuring plan intended to conserve capital and help direct financial and human resources to the development of its lead product, iseganan HCl oral solution for the reduction in incidence and severity of oral mucositis in cancer patients. The Company recorded restructuring charges of approximately $10.1 million and asset write down charges of approximately $11.8 million, for a total of approximately $21.9 million in charges associated with its restructuring plan in the second quarter of 2001. The $10.1 million restructuring charge was for costs incurred in work force reduction, the termination of collaboration agreements and facilities consolidation.
The strategic restructuring included a reduction in force of approximately 90 positions in research and administration, or 71% of the Company’s previous workforce of 127 employees. All of the terminated employees have left the Company as of December 31, 2001. During the quarter ended March 31, 2002, the Company received a refund of approximately $75,000 for workman’s compensation related to the terminated employees. No remaining severance amounts are payable as of June 30, 2002.
The restructuring also includes the terminations of certain research and development collaborations and the consolidation of operations into one existing facility in Mountain View, California. The estimated costs associated with terminated collaboration agreements were increased by $166,000 in the quarter ended March 31, 2002. There was a $150,000 payment made during the quarter ended June 30, 2002 for such agreements and costs. No further expenses have been incurred during the quarter ended June 30, 2002, and there are no remaining payables at this time in connection with such agreements.
The Company vacated three facilities in Mountain View, California comprising 142,000 square feet and continues to occupy one facility with 16,000 square feet. One of the vacated facilities has been sub-leased through June 2003, and another was taken back by the landlord, with no continuing obligation to the Company. At June 30, 2002, $1,354,000 remains in accrued restructuring charges related to the third vacated facility, representing six months of rent and expenses associated with the lease on the facility,
based on the Company’s best estimate of the period for which the facility will remain vacant prior to sub-lease. The Company expects to incur the remaining restructuring obligation over the next six months.
The restructuring charges consist of the following (in thousands):
| Terminated | ||||||||||||||||
| Costs for | Collaboration | |||||||||||||||
| Terminated | Facilities | Agreements | ||||||||||||||
| Employees | Consolidations | and Other | Total | |||||||||||||
Accrued
restructuring charges at December 31, 2001 |
$ | — | $ | 2,861 | $ | — | $ | 2,861 | ||||||||
Activity for the quarter ended March 31, 2002: |
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Cash refunds (payments) |
75 | (738 | ) | (16 | ) | (679 | ) | |||||||||
Adjustment to reflect revised estimates |
(75 | ) | — | 166 | 91 | |||||||||||
Accrued
restructuring charges at March 31, 2002 |
— | 2,123 | 150 | 2,273 | ||||||||||||
Activity for the quarter ended June 30, 2002: |
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Cash payments |
— | (769 | ) | (150 | ) | (919 | ) | |||||||||