HUMAN GENOME SCIENCES INC - 10-Q Quarterly Report

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

14200 Shady Grove Road, Rockville, Maryland 20850-7464
(Address of principal executive offices and zip 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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

The number of shares of the registrant’s common stock outstanding on September 30, 2003 was 129,239,581.


			Page
			Number
PART I		FINANCIAL INFORMATION
	Item 1	Financial Statements
		Consolidated Statements of Operations for the three and nine months
		ended September 30, 2003 and 2002		3
		Consolidated Balance Sheets at September 30, 2003 and December 31, 2002		4
		Consolidated Statements of Cash Flows for the nine months
		ended September 30, 2003 and 2002		5
		Notes to Consolidated Financial Statements		7
	Item 2	Management's Discussion and Analysis of
		Financial Condition and Results of Operations		12
	Item 3	Quantitative and Qualitative Disclosures About Market Risk		17
	Item 4	Controls and Procedures		18

PART II		OTHER INFORMATION
	Item 6	Exhibits and Reports on Form 8-K		19
		Signatures		20
		Exhibit Index	Exhibit Volume


			Three months ended						Nine months ended
			September 30,						September 30,

			2003			2002			2003			2002

			(dollars in thousands, except share and per share amounts)
Revenue – research and development collaborative contracts			$	1,242		$	1,642		$	3,526		$	2,926

Costs and expenses:
	Research and development			48,352			47,993			142,432			142,283
	General and administrative			10,785			10,449			30,116			34,016

		Total costs and expenses		59,137			58,442			172,548			176,299

Income (loss) from operations				(57,895	)		(56,800	)		(169,022	)		(173,373	)
Interest income				15,812			19,817			50,104			63,478
Interest expense				(5,605	)		(5,932	)		(17,479	)		(17,818	)
Charge for impaired investment				–			(32,158	)		–			(32,158	)

Income (loss) before taxes				(47,688	)		(75,073	)		(136,397	)		(159,871	)
Provision for income taxes				–			–			–			–

Net income (loss)			$	(47,688	)	$	(75,073	)	$	(136,397	)	$	(159,871	)

Net income (loss) per share, basic and diluted			$	(0.37	)	$	(0.58	)	$	(1.06	)	$	(1.24	)

Weighted average shares outstanding, basic and diluted				129,186,271			128,700,714			129,046,364			128,523,971

The accompanying Notes to Consolidated Financial Statements are an integral part hereof.


			September 30,			December 31,
			2003			2002

			(dollars in thousands, except
Assets			share and per share amounts)
Current assets:
	Cash and cash equivalents		$	10,071		$	25,205
	Short-term investments			1,039,327			1,261,183
	Prepaid expenses and other current assets			4,118			10,528

		Total current assets		1,053,516			1,296,916
Long-term investments				27,632			15,071
Property, plant and equipment (net of accumulated depreciation and amortization)				157,483			126,437
Restricted investments				266,140			205,352
Other assets				19,804			18,411

		TOTAL ASSETS	$	1,524,575		$	1,662,187

Liabilities and Stockholders’ Equity
Current liabilities:
	Current portion of long-term debt		$	448		$	448
	Current portion of capital lease obligation			266			241
	Accounts payable and accrued expenses			26,721			34,570
	Accrued payroll and related taxes			10,923			7,911
	Deferred revenues			2,568			2,568

		Total current liabilities		40,926			45,738
Long-term debt, net of current portion				503,020			503,020
Capital lease obligation, net of current portion				46			261
Deferred revenues				8,345			10,271
Other liabilities				8,427			2,344

		Total liabilities		560,764			561,634

Stockholders’ equity:
	Preferred stock			–			–
	Common stock			1,292			1,289
	Additional paid-in capital			1,760,666			1,757,685
	Unearned portion of compensatory stock options			–			(229	)
	Accumulated other comprehensive income (loss)			39,797			43,355
	Retained deficit			(837,944	)		(701,547	)

	Total stockholders’ equity			963,811			1,100,553

		TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,524,575		$	1,662,187

The accompanying Notes to Consolidated Financial Statements are an integral part hereof.


				Nine months ended
				September 30,

				2003			2002

				(dollars in thousands)

Cash flows from operating activities:
	Net income (loss)			$	(136,397	)	$	(159,871	)
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Accrued interest on short-term and restricted investments			7,066			12,050
		Depreciation and amortization			17,413			12,997
		Charge for impaired investment			–			32,158
		Loss (gain) on disposal of fixed assets			435			314
		Compensation expense related to stock options			229			249
		Changes in operating assets and liabilities:
			Prepaid expenses and other current assets		6,410			(261	)
			Other assets		1,149			3,580
			Accounts payable and accrued expenses		(9,413	)		91
			Accrued payroll and related taxes		3,012			2,723
			Deferred revenues		(1,926	)		(1,926	)
			Other liabilities		189			282

		Net cash provided by (used in) operating activities			(111,833	)		(97,614	)

Cash flows from investing activities:
	Capital expenditures – property, plant and equipment				(58,982	)		(44,889	)
	Proceeds from sale of property, plant and equipment				15,000			–
	Purchase of short-term investments and marketable securities				(581,380	)		(495,897	)
	Proceeds from sales and maturities of investments and marketable securities				778,911			616,135


		Net cash provided by (used in) investing activities			153,549			75,349


Cash flows from financing activities:
	Proceeds from sale of restricted investments				22,247			–
	Restricted investments				(81,891	)		(48,652	)
	Payments on capital lease				(190	)		(156	)
	Proceeds from issuance of common stock (net of expenses)				2,984			3,541

		Net cash provided by (used in) financing activities			(56,850	)		(45,267	)

Net increase (decrease) in cash and cash equivalents					(15,134	)		(67,532	)

Cash and cash equivalents – beginning of period					25,205			88,319

Cash and cash equivalents – end of period				$	10,071		$	20,787

Supplemental disclosures of cash flow information:
	Cash paid during the period for:
		Interest		$	21,470		$	21,475
		Income taxes		$	–		$	–

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES (DOLLARS IN THOUSANDS):

In February 2003, the Company tendered its equity interest in Vascular Genetics, Inc. (“VGI”), a privately-held company, in exchange for approximately an 18% equity interest in Corautus Genetics Inc., a publicly-traded company that resulted from the merger of VGI and GenStar Therapeutics Corporation. As of the date of this exchange, the Company had no carrying value in its equity interest in VGI. Immediately following this transaction, the market value of the Company’s investment in Corautus was approximately $5,659.

The accompanying Notes to Consolidated Financial Statements are an integral part hereof.

HUMAN GENOME SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended September 30, 2003

The accompanying unaudited consolidated financial statements of Human Genome Sciences, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. In the opinion of the Company’s management, the consolidated financial statements reflect all adjustments necessary to present fairly the results of operations for the three and nine month periods ended September 30, 2003 and 2002, the Company’s financial position at September 30, 2003, and the cash flows for the nine month periods ended September 30, 2003 and 2002. These adjustments are of a normal recurring nature.

Certain notes and other information have been condensed or omitted from the interim consolidated financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’s 2002 Annual Report on Form 10-K and the Company’s March 31, 2003 and June 30, 2003 Quarterly Reports on Form 10-Q.

The results of operations for the three and nine month periods ended September 30, 2003 are not necessarily indicative of future financial results.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (“SFAS No. 148”), the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”) to stock-based employee compensation is as follows:


		Three months ended						Nine months ended
		September 30,						September 30,

		2003			2002			2003			2002

Net income (loss), as reported		$	(47,688	)	$	(75,073	)	$	(136,397	)	$	(159,871	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(17,024	)		(26,877	)		(71,436	)		(91,304	)
Add: Stock-based non-employee compensation included in included in net income (loss)			–			216			229			249

Pro forma net income (loss)		$	(64,712	)	$	(101,734	)	$	(207,604	)	$	(250,926	)

Net income (loss) per share: Basic and diluted – as reported		$	(0.37	)	$	(0.58	)	$	(1.06	)	$	(1.24	)
	Basic and diluted – pro forma	$	(0.50	)	$	(0.79	)	$	(1.61	)	$	(1.95	)

The effect of applying SFAS No. 123 on the three and nine month periods ended September 30, 2003 and 2002 pro forma net loss and net loss per share as stated above, is not necessarily representative of the effects on reported net loss for future years due to, among other things, (1) the vesting period of the stock options and (2) the fair value of additional stock options in future years.

HUMAN GENOME SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended September 30, 2003


For quarterly period ended September 30, 2003		Commission File Number 0-22962


Delaware (State of organization)		22-3178468 (I.R.S. Employer Identification Number)