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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2004

Commission file number 000-23736

GUILFORD PHARMACEUTICALS INC.

(Exact name of Registrant as specified in its charter)
     
Delaware   52-1841960
(State or other jurisdiction of
incorporation or organization)
   (IRS Employer
Identification No.)
 
6611 Tributary Street
Baltimore, Maryland
   21224
(Zip Code)
(Address of principal executive offices)
    

410-631-6300

(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 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 August 5, 2004
Common Stock, $.01 par value
  44,036,380

 

Guilford Pharmaceuticals Inc.

INDEX
             
Page
Part I Financial Information
        
 
Item 1. Financial Statements
    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  
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
    13  
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
    28  
 
Item 4. Controls and Procedures
    28  
 
Part II Other Information
        
 
Item 1. Legal Proceedings
    29  
 
Item 2. Changes in Securities and Use of Proceeds
    29  
 
Item 3. Defaults Upon Senior Securities
    29  
 
Item 4. Submission of Matters to a Vote of Security Holders
    29  
 
Item 5. Other Information
    30  
 
Item 6. Exhibits and Reports on Form 8-K
    48  
 
Signatures
    50  
 
Certifications
    51  

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 (“SEC”). Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles, 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, 2003.

      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 our financial position, results of operations, changes in stockholders’ equity and cash flows as of and for the three- and six-month periods ended June 30, 2004. Interim results are not necessarily indicative of results for the full fiscal year.

3

 

GUILFORD PHARMACEUTICALS INC.

AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share data)
                     
June 30, 2004 December 31, 2003
(Unaudited)
ASSETS
Current assets:
               
 
Cash and cash equivalents
  $ 18,715     $ 29,939  
 
Investments, net
    34,909       50,261  
 
Accounts receivable, net
    4,103       3,460  
 
Inventories, net
    3,541       2,504  
 
Prepaid expenses and other current assets
    1,492       1,787  
     
     
 
   
Total current assets
    62,760       87,951  
Investments – restricted
    20,437       21,743  
Investments – held by Symphony Neuro Development Company
    36,197       —  
Property and equipment, net
    21,353       22,395  
Intangible assets, net
    79,370       82,796  
Other assets
    9,061       6,438  
     
     
 
    $ 229,178     $ 221,323  
     
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
 
Accounts payable
  $ 9,335     $ 8,549  
 
Current portion of long-term debt
    3,030       3,394  
 
Accrued payroll related costs
    2,158       4,538  
 
Accrued contracted services
    1,986       1,909  
 
Accrued expenses and other current liabilities
    5,739       3,590  
     
     
 
   
Total current liabilities
    22,248       21,980  
Long-term debt, excluding current portion
    87,862       88,885  
Revenue interest obligation
    43,707       42,155  
Other liabilities
    4,040       1,103  
     
     
 
   
Total liabilities
    157,857       154,123  
     
     
 
Minority interest
    37,987       —  
Commitments and contingencies
    —       —  
Stockholders’ equity:
               
 
Preferred stock, par value $0.01 per share; authorized 4,700,000 shares, none issued
    —       —  
 
Series A junior participating preferred stock, par value $0.01 per share; authorized 300,000 shares, none issued
    —       —  
 
Common stock, par value $0.01 per share; authorized 125,000,000 shares, 34,963,124 and 34,908,076 issued at June 30, 2004 and December 31, 2003, respectively
    350       349  
 
Additional paid-in capital
    382,652       377,168  
 
Accumulated deficit
    (342,873 )     (303,538 )
 
Accumulated other comprehensive loss
    (1,881 )     (1,485 )
 
Note receivable from officer
    —       (85 )
 
Treasury stock, at cost; 995,882 and 1,055,816 shares at June 30, 2004 and December 31, 2003, respectively
    (4,914 )     (5,209 )
     
     
 
   
Total stockholders’ equity
    33,334       67,200  
     
     
 
    $ 229,178     $ 221,323  
     
     
 

See accompanying notes to consolidated financial statements.

4

 

GUILFORD PHARMACEUTICALS INC.

AND SUBSIDIARIES

Consolidated Statements of Operations (unaudited)

(in thousands, except per share data)
                                     
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
Revenues:
                               
 
Net product sales
  $ 10,747     $ 5,002     $ 19,474     $ 8,406  
 
Revenues from license fees, milestones and other
    402       5,600       603       5,659  
     
     
     
     
 
   
Total revenues
    11,149       10,602       20,077       14,065  
Costs and expenses:
                               
 
Cost of sales
    1,232       1,031       2,223       1,924  
 
Research and development
    8,852       7,410       18,225       15,197  
 
Selling, general and administrative
    14,433       7,877       26,181       14,388  
 
Intangible amortization
    1,705       210       3,426       420  
 
Acquired in-process research and development
    5,238       —       5,238       —  
     
     
     
     
 
   
Total costs and expenses
    31,460       16,528       55,293       31,929  
     
     
     
     
 
Operating loss
    (20,311 )     (5,926 )     (35,216 )     (17,864 )
Other income (expense):
                               
 
Investment and other income
    402       912       880       1,776  
 
Revenue interest expense
    (2,095 )     —       (4,430 )     —  
 
Interest expense
    (1,367 )     (340 )     (2,673 )     (460 )
     
     
     
     
 
Loss before minority interest
  $ (23,371 )   $ (5,354 )   $ (41,439 )   $ (16,548 )
 
Minority interest
    2,104       —       2,104       —  
     
     
     
     
 
Net loss
  $ (21,267 )   $ (5,354 )   $ (39,335 )   $ (16,548 )
     
     
     
     
 
Basic and diluted loss per common share:
  $ (0.63 )   $ (0.18 )   $ (1.16 )   $ (0.55 )
     
     
     
     
 
Weighted-average shares outstanding to compute basic and diluted loss per share
    33,954       29,750       33,938       29,832  
     
     
     
     
 

See accompanying notes to consolidated financial statements.

5

 

GUILFORD PHARMACEUTICALS INC.

AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Equity

Six Months Ended June 30, 2004
(unaudited)
(in thousands, except share data)
                                                                       
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
Balance, January 1, 2004
     34,908,076     $ 349     $ 377,168     $ (303,538 )   $ (1,485 )   $ (85 )   $ (5,209 )   $ 67,200  
Comprehensive loss:
                                                               
 
Net loss
                            (39,335 )                             (39,335 )
 
Other comprehensive loss:
                                                               
   
Unrealized gain on interest rate swap agreements
                                    471                       471  
   
Unrealized loss on available-for-sale securities
                                    (867 )                     (867 )
                                                             
 
     
Total other comprehensive loss
                                                            (396 )
                                                             
 
Total comprehensive loss
                                                          $ (39,731 )
                                                             
 
Forgiveness of officer loan
                                            85               85  
Issuance of common stock
    55,048       1       234                                       235  
Issuance of warrants
                    5,238                                       5,238  
Distribution of 16,775 shares of treasury stock to 401(k) plan
                    51                               82       133  
Distribution of 41,333 shares of treasury stock to ESP plan
                    (45 )                             204       159  
Distribution of 1,826 shares of treasury stock to consultant
                    6                               9       15  
     
     
     
     
     
     
     
     
 
Balance, June 30, 2004
     34,963,124     $ 350     $ 382,652     $ (342,873 )   $ (1,881 )   $ —     $ (4,914 )   $ 33,334  
     
     
     
     
     
     
     
     
 

See accompanying notes to consolidated financial statements.

6

 

GUILFORD PHARMACEUTICALS INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited)
(in thousands)
                       
Six Months Ended
June 30,
2004 2003
Cash Flows From Operating Activities:
                
 
Net loss
  $ (39,335 )   $ (16,548 )
 
Adjustments to reconcile net loss to net cash used in operating activities:
               
   
Minority interest
    (2,104 )     —  
   
Realized (gains)/losses on sale of available-for-sale securities
    144       (180 )
   
Depreciation and amortization
    6,348       2,266  
   
Non-cash compensation expense
    233       219  
   
Non-cash imputed revenue interest expense
    1,476       —