SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
For the Quarterly Period Ended March 31, 2003
Commission File Number 000-23736
GUILFORD PHARMACEUTICALS INC.
| Delaware | 52-1841960 | |
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(State or other jurisdiction of
incorporation or organization) |
(IRS Employer Identification No.) |
|
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6611 Tributary Street
Baltimore, Maryland |
21224 (Zip Code) |
|
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(Address of principal executive
offices)
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410-631-6300
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 þ No o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.
| Class | Outstanding May 15, 2003 | |
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Common Stock, $.01 par value
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29,922,214 |
Guilford Pharmaceuticals Inc.
| Page | ||||||
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Part I Financial Information
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Item 1. Financial Statements
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3 | |||||
| Consolidated Balance Sheets | 4 | |||||
| Consolidated Statements of Operations | 5 | |||||
| Consolidated Statement of Changes in Stockholders’ Equity | 6 | |||||
| Consolidated Statements of Cash Flows | 7 | |||||
| Notes to Consolidated Financial Statements | 8 | |||||
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Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
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11 | |||||
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Item 3. Quantitative and Qualitative
Disclosures About Market Risk
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18 | |||||
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Item 4. Controls and Procedures
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19 | |||||
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Part II Other Information
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Item 1. Legal Proceedings
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20 | |||||
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Item 2. Changes in Securities and Use of
Proceeds
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20 | |||||
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Item 3. Defaults Upon Senior Securities
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20 | |||||
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Item 4. Submission of Matters to a Vote of
Security Holders
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20 | |||||
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Item 5. Other Information
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20 | |||||
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Item 6. Exhibits and Reports on Form 8-K
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20 | |||||
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Signatures
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21 | |||||
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Certifications
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22 | |||||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements included in this report have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and the related notes included in our annual report on Form 10-K for the year ended December 31, 2002.
In the opinion of our management, any adjustments contained in the accompanying unaudited consolidated financial statements are of a normal recurring nature, necessary to present fairly its financial position, results of operations, changes in stockholders’ equity and cash flows as of and for the three-month period ended March 31, 2003 as set forth in the Index. Interim results are not necessarily indicative of results for the full fiscal year.
3
GUILFORD PHARMACEUTICALS INC.
| March 31, 2003 | December 31, 2002 | |||||||||
| (unaudited) | ||||||||||
| ASSETS | ||||||||||
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Current assets:
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Cash and cash equivalents
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$ | 16,290 | $ | 14,777 | ||||||
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Investments, net
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49,824 | 68,454 | ||||||||
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Accounts receivable, net
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2,317 | 768 | ||||||||
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Inventories, net
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2,663 | 2,993 | ||||||||
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Prepaid expenses and other current assets
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1,520 | 907 | ||||||||
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Total current assets
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72,614 | 87,899 | ||||||||
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Investments – restricted
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18,174 | 18,572 | ||||||||
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Property and equipment, net
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6,549 | 6,534 | ||||||||
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Intangible asset, net
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6,379 | 6,589 | ||||||||
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Other assets
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1,449 | 1,492 | ||||||||
| $ | 105,165 | $ | 121,086 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
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Current liabilities:
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Accounts payable
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$ | 3,675 | $ | 6,279 | ||||||
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Current portion of long-term debt
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2,872 | 3,200 | ||||||||
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Accrued payroll related costs
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1,543 | 1,700 | ||||||||
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Accrued contracted services
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1,679 | 3,308 | ||||||||
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Accrued expenses and other current liabilities
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2,108 | 2,096 | ||||||||
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Total current liabilities
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11,877 | 16,583 | ||||||||
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Long-term debt, net of current portion
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3,789 | 3,720 | ||||||||
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Other liabilities
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1,455 | 1,525 | ||||||||
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Total liabilities
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17,121 | 21,828 | ||||||||
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Stockholders’ equity:
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||||||||||
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Preferred stock, par value $.01 per share;
authorized 4,700,000 shares, none issued
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— | — | ||||||||
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Series A junior participating preferred
stock, par value $.01 per share; authorized 300,000 shares, none
issued
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— | — | ||||||||
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Common stock, par value $.01 per share;
authorized 75,000,000 shares, 29,980,063 issued at
March 31, 2003 and December 31, 2002, respectively
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300 | 300 | ||||||||
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Additional paid-in capital
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350,162 | 350,352 | ||||||||
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Accumulated deficit
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(260,784 | ) | (249,591 | ) | ||||||
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Accumulated other comprehensive loss
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(797 | ) | (691 | ) | ||||||
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Note receivable from officer
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(85 | ) | (85 | ) | ||||||
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Treasury stock, at cost: 57,849 and 79,030 shares
at March 31, 2003 and December 31, 2002, respectively
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(752 | ) | (1,027 | ) | ||||||
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Total stockholders’ equity
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88,044 | 99,258 | ||||||||
| $ | 105,165 | $ | 121,086 | |||||||
See accompanying notes to consolidated financial statements.
4
GUILFORD PHARMACEUTICALS INC.
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| 2003 | 2002 | |||||||||
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Revenues:
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Net product sales
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$ | 3,404 | $ | 6,149 | ||||||
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License fees and royalties
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59 | 10 | ||||||||
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Revenues under collaborative agreements
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— | 25 | ||||||||
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Total revenues
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3,463 | 6,184 | ||||||||
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Costs and Expenses:
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Cost of sales
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893 | 934 | ||||||||
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Research and development
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7,787 | 11,902 | ||||||||
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Selling, general and administrative
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6,721 | 8,133 | ||||||||
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Total costs and expenses
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15,401 | 20,969 | ||||||||
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Operating loss
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(11,938 | ) | (14,785 | ) | ||||||
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Other income (expense):
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Investment income
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864 | 1,381 | ||||||||
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Interest expense
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(119 | ) | (120 | ) | ||||||
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Net loss
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$ | (11,193 | ) | $ | (13,524 | ) | ||||
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Basic and diluted loss per common share:
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$ | (0.37 | ) | $ | (0.45 | ) | ||||
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Weighted-average shares outstanding to compute
basic and diluted loss per share
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29,916 | 29,728 | ||||||||
See accompanying notes to consolidated financial statements.
5
GUILFORD PHARMACEUTICALS INC.
| Accumulated | |||||||||||||||||||||||||||||||||||
| Common Stock | Other | Note | |||||||||||||||||||||||||||||||||
| Additional | Comprehensive | Receivable | Total | ||||||||||||||||||||||||||||||||
| Number of | Paid-in | Accumulated | Income | From | Treasury | Stockholders’ | |||||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | (Loss) | Officer | Stock, at Cost | Equity | ||||||||||||||||||||||||||||
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Balance, January 1, 2003
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29,980,063 | $ | 300 | $ | 350,352 | $ | (249,591 | ) | $ | (691 | ) | $ | (85 | ) | $ | (1,027 | ) | $ | 99,258 | ||||||||||||||||
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Comprehensive loss:
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Net loss
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(11,193 | ) | (11,193 | ) | |||||||||||||||||||||||||||||||
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Other comprehensive loss:
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Unrealized gain on interest rate swap agreements
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95 | 95 | |||||||||||||||||||||||||||||||||
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Unrealized loss on available-for-sale securities
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(201 | ) | (201 | ) | |||||||||||||||||||||||||||||||
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Total other comprehensive loss
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(106 | ) | |||||||||||||||||||||||||||||||||
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Total comprehensive loss
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$ | (11,299 | ) | ||||||||||||||||||||||||||||||||
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Distribution of 16,576 shares of treasury stock
to 401(k) plan
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(145 | ) | 215 | 70 | |||||||||||||||||||||||||||||||
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Distribution of 4,605 shares of treasury stock to
consultant
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(45 | ) | 60 | 15 | |||||||||||||||||||||||||||||||
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Balance, March 31, 2003
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29,980,063 | $ | 300 | $ | 350,162 | $ | (260,784 | ) | $ | (797 | ) | $ | (85 | ) | $ | (752 | ) | $ | 88,044 | ||||||||||||||||
See accompanying notes to consolidated financial statements.
6
GUILFORD PHARMACEUTICALS INC.
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2003 | 2002 | ||||||||||
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Cash Flows From Operating
Activities:
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Net loss
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$ | (11,193 | ) | $ | (13,524 | ) | |||||
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Adjustments to reconcile net loss to net cash
used in operating activities:
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Realized gains on sale of available-for-sale
securities
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(90 | ) | (152 | ) | |||||||
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Depreciation and amortization
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1,039 | 1,109 | |||||||||
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Non-cash compensation expense
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85 | 133 | |||||||||
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Changes in assets and liabilities:
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|||||||||||
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Accounts receivable, prepaid expenses and other
assets
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(2,119 | ) | (3,002 | ) | |||||||
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Inventories
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330 | 156 | |||||||||
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Accounts payable and other liabilities
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(4,307 | ) | (2,980 | ) | |||||||
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Net cash used in operating activities
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(16,255 | ) | (18,260 | ) | |||||||
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Cash Flows From Investing
Activities:
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Purchases of property and equipment
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(201 | ) | (15 | ) | |||||||
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Maturities and sales of available-for-sale
securities
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24,778 | 22,976 | |||||||||
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Purchases of available-for-sale securities
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(5,826 | ) | (14,220 | ) | |||||||
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Net cash provided by investing activities
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18,751 | 8,741 | |||||||||
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Cash Flows From Financing
Activities:
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Net proceeds from issuances of common stock
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— | 1 | |||||||||
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Principal payments on debt
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(983 | ) | (1,209 | ) | |||||||
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Net cash used in financing activities
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(983 | ) | (1,208 | ) | |||||||
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Net increase (decrease) in cash and cash
equivalents
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1,513 | (10,727 | ) | ||||||||
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Cash and cash equivalents at the beginning of
year
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14,777 | 56,784 | |||||||||
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Cash and cash equivalents at the end of
year
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$ | 16,290 | $ | 46,057 | |||||||
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Supplemental disclosures of cash flow
information:
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Net Interest paid
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$ | 87 | $ | 120 | |||||||
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Non-cash investing and financing activities:
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Capital lease obligations pursuant to leases for
certain equipment
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$ | 678 | $ | 57 | |||||||
See accompanying notes to consolidated financial statements.
7
GUILFORD PHARMACEUTICALS INC.
1. Organization and Description of Business
Guilford Pharmaceuticals Inc. (together with its subsidiaries, “Guilford” or the “Company”) is a fully integrated pharmaceutical company located in Baltimore, Maryland, engaged in the research, development and commercialization of products that target the hospital and neurology markets.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the financial statements of Guilford and its subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in consolidation.
Earnings (Loss) Per Common Share
Basic earnings (loss) per share are computed by dividing net earnings (loss) by the weighted-average number of shares outstanding for the period. The computation of diluted earnings (loss) per share is similar to basic earnings (loss) per share except that the weighted-average number of shares outstanding for the period is increased to include the number of additional shares that would have been outstanding if the dilutive potential common shares had been issued. Potential common shares are excluded if the effect on earnings (loss) per share is antidilutive.
The following table presents the computations of basic and diluted loss per share (in thousands, except per share data):
| March 31, | ||||||||
| 2003 | 2002 | |||||||
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Net loss
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$ | (11,193 | ) | $ | (13,524 | ) | ||
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Weighted-average shares outstanding
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29,916 | 29,728 | ||||||
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Basic and diluted loss per common share
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$ | (0.37 | ) | $ | (0.45 | ) | ||
Revenue Recognition/ Net Product Sales
During the three-month periods ended March 31, 2003 and 2002, we sold GLIADEL® Wafer (i) to a specialty distributor, who stocks our product and provides us with additional marketing and distribution capabilities, (ii) directly to hospitals, and (iii) by drop shipment to hospitals pursuant to purchase orders from wholesalers. It is our policy to recognize net product sales revenue only after (i) we have persuasive evidence that an arrangement exists, (ii) the price is fixed and determinable, (iii) title has passed, and (iv) collection is reasonably assured. Normal payment terms include discounts for early payment with full payment being due in 91 days. Our credit and exchange policy includes provisions for exchange of our product that (i) has expired, or (ii) was damaged in shipment.
Net product sales are determined based on gross product sales reduced for estimated product returns and estimated sales discounts, rebates, chargebacks and allowances. The estimate of product returns is calculated as a percentage of current sales and is based on historical experience rates.
Approximately 79% and 74% of GLIADEL® Wafer treatments sold during the three-month period ended March 31, 2003 and 2002 respectively, were sold to a specialty distributor to capitalize on its marketing and distribution strengths and to reduce our cost of distributing products directly to hospitals. Our normal payment terms applied to these sales.
8
New Accounting Standards
In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities with the objective of improving financial reporting by companies involved with variable interest entities. A variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not