U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 September 30, 2002 | ||
| o |
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 1-14131
| ALKERMES, INC. | ||
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| (Exact name of registrant as specified in its charter) |
| PENNSYLVANIA | 23-2472830 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| 88 SIDNEY STREET, CAMBRIDGE, MA | 02139-4136 | |
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number including area code: (617) 494-0171
(Former name, former address, and former fiscal year, if changed since last report)
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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes
x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Shares Outstanding as of November 8, 2002 | ||||
Common Stock, par value $.01 |
64,356,696 | ||||
Non-Voting Common Stock, par value $.01 |
382,632 | ||||
ALKERMES, INC. AND SUBSIDIARIES
INDEX
| Page No. | ||||||
| PART I — FINANCIAL INFORMATION | ||||||
| Item 1. | Consolidated Financial Statements | |||||
| Consolidated Balance
Sheets - - September 30, 2002 and March 31, 2002 |
3 | |||||
| Consolidated Statements of Operations
- Three months ended September 30, 2002 and 2001 - Six months ended September 30, 2002 and 2001 |
4 | |||||
| Consolidated Statements of Cash Flows
- Six months ended September 30, 2002 and 2001 |
5 | |||||
| Notes to Consolidated Financial Statements | 6 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 20 | ||||
| Item 4. | Controls and Procedures | 21 | ||||
| PART II — OTHER INFORMATION | ||||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 22 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 23 | ||||
| SIGNATURES | 24 | |||||
| CERTIFICATIONS | 25 | |||||
| EXHIBIT INDEX | 27 | |||||
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, | March 31, | |||||||||||
| 2002 | 2002 | |||||||||||
ASSETS |
||||||||||||
Current Assets: |
||||||||||||
Cash and cash equivalents |
$ | 12,746,397 | $ | 16,023,074 | ||||||||
Short-term investments |
58,946,147 | 136,323,768 | ||||||||||
Receivables from collaborative arrangements |
15,321,019 | 19,039,706 | ||||||||||
Prepaid expenses and other current assets |
2,274,483 | 5,249,797 | ||||||||||
Total current assets |
89,288,046 | 176,636,345 | ||||||||||
Property, Plant and Equipment: |
||||||||||||
Land |
235,000 | 235,000 | ||||||||||
Building |
5,076,961 | 5,058,936 | ||||||||||
Furniture, fixtures and equipment |
58,963,489 | 49,558,745 | ||||||||||
Leasehold improvements |
30,419,474 | 15,016,553 | ||||||||||
Construction in progress |
28,464,587 | 26,497,064 | ||||||||||
| 123,159,511 | 96,366,298 | |||||||||||
Less accumulated depreciation and amortization |
(39,235,129 | ) | (34,530,467 | ) | ||||||||
| 83,924,382 | 61,835,831 | |||||||||||
Investments |
9,240,130 | 9,126,093 | ||||||||||
Investment in Reliant Pharmaceuticals, LLC |
35,126,982 | 94,596,536 | ||||||||||
Other Assets |
6,542,066 | 8,155,472 | ||||||||||
Total Assets |
$ | 224,121,606 | $ | 350,350,277 | ||||||||
LIABILITIES AND SHAREHOLDERS’ (DEFICIENCY) EQUITY |
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Current Liabilities: |
||||||||||||
Accounts payable and accrued expenses |
$ | 17,929,549 | $ | 20,764,375 | ||||||||
Accrued interest |
1,002,597 | 1,013,521 | ||||||||||
Accrued restructuring costs |
2,493,897 | — | ||||||||||
Deferred revenue |
6,519,376 | 7,083,516 | ||||||||||
Long-term obligations — current portion |
3,700,000 | 14,025,000 | ||||||||||
Total current liabilities |
31,645,419 | 42,886,412 | ||||||||||
Long-Term Obligations |
6,050,000 | 7,800,000 | ||||||||||
Convertible Subordinated Notes |
200,000,000 | 200,000,000 | ||||||||||
Shareholders’ (Deficiency) Equity: |
||||||||||||
Capital stock, par value $.01 per share: authorized, 4,550,000 shares;
none issued; includes 3,000,000 shares of preferred stock |
||||||||||||
Common
stock, par value $.01 per share: authorized, 160,000,000 shares; issued, 64,334,418 and 64,225,395 shares at September 30, 2002 and March 31, 2002, respectively |
643,345 | 642,254 | ||||||||||
Non-voting common stock, par value $.01 per share:
authorized, 450,000 shares; issued, 382,632 at September 30, 2002 and March 31, 2002 |
3,826 | 3,826 | ||||||||||
Additional paid-in capital |
444,831,637 | 444,425,742 | ||||||||||
Deferred compensation |
(2,039,123 | ) | (3,162,448 | ) | ||||||||
Accumulated other comprehensive (loss) income |
(47,100 | ) | 1,619,541 | |||||||||
Accumulated deficit |
(456,966,398 | ) | (343,865,050 | ) | ||||||||
Total shareholders’ (deficiency) equity |
(13,573,813 | ) | 99,663,865 | |||||||||
Total Liabilities and Shareholders’ (Deficiency) Equity |
$ | 224,121,606 | $ | 350,350,277 | ||||||||
See notes to consolidated financial statements.
3
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months | Three Months | Six Months | Six Months | ||||||||||||||||
| Ended | Ended | Ended | Ended | ||||||||||||||||
| September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
Revenues: |
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Research and development revenue under
collaborative arrangements |
$ | 9,471,105 | $ | 14,505,003 | $ | 19,762,496 | $ | 30,031,678 | |||||||||||
Expenses: |
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Research and development |
28,186,162 | 22,592,697 | 52,785,835 | 43,302,728 | |||||||||||||||
General and administrative |
9,196,723 | 6,410,854 | 15,212,763 | 11,785,132 | |||||||||||||||
Restructuring costs |
3,681,719 | — | 3,681,719 | — | |||||||||||||||
Total expenses |
41,064,604 | 29,003,551 | 71,680,317 | 55,087,860 | |||||||||||||||
Net operating loss |
(31,593,499 | ) | (14,498,548 | ) | (51,917,821 | ) | (25,056,182 | ) | |||||||||||
Other income (expense): |
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Interest income |
1,067,939 | 4,216,637 | 2,433,875 | 8,741,652 | |||||||||||||||
Interest expense |
(2,066,714 | ) | (2,330,861 | ) | (4,147,848 | ) | (4,640,788 | ) | |||||||||||
Total other (expense) income |
(998,775 | ) | 1,885,776 | (1,713,973 | ) | 4,100,864 | |||||||||||||
Equity in losses of Reliant Pharmaceuticals, LLC |
35,256,654 | — | 59,469,554 | — | |||||||||||||||
Net loss attributable to common shareholders |
$ | (67,848,928 | ) | $ | (12,612,772 | ) | $ | (113,101,348 | ) | $ | (20,955,318 | ) | |||||||
Basic and diluted loss per common share |
$ | (1.05 | ) | $ | (0.20 | ) | $ | (1.76 | ) | $ | (0.33 | ) | |||||||
Weighted average number of common shares
outstanding |
64,317,587 | 63,399,285 | 64,289,400 | 63,318,533 | |||||||||||||||
See notes to consolidated financial statements.
4
ALKERMES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months | Six Months | |||||||||||
| Ended | Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
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Net loss |
$ | (113,101,348 | ) | $ | (20,955,318 | ) | ||||||
Adjustments to reconcile net loss to net cash used by
operating activities: |
||||||||||||
Depreciation, amortization and other noncash expenses |
6,396,505 | 5,262,634 | ||||||||||
Equity in losses of Reliant Pharmaceuticals, LLC |
59,469,554 | — | ||||||||||
Restructuring costs |
2,493,897 | — | ||||||||||
Noncash interest expense |
— | 316,430 | ||||||||||
Adjustments to other assets |
— | 509,232 | ||||||||||
Changes in assets and liabilities: |
||||||||||||
Receivables from collaborative arrangements |
3,718,687 | (9,472,870 | ) | |||||||||
Prepaid expenses and other current assets |
2,971,535 | 733,198 | ||||||||||
Accounts payable and accrued expenses |
(2,824,606 | ) | 1,022,668 | |||||||||
Deferred revenue |
(564,140 | ) | (895,871 | ) | ||||||||
Net cash used by operating activities |
(41,439,916 | ) | (23,479,897 | ) | ||||||||
Cash flows from investing activities: |
||||||||||||
Additions to property, plant and equipment |
(26,945,822 | ) | (7,900,394 | ) | ||||||||
Proceeds from the sale of equipment |
50,000 | — | ||||||||||
Purchases of available-for-sale short-term investments |
(63,012,129 | ) | (94,695,430 | ) | ||||||||
Sales of available-for-sale short-term investments |
139,574,812 | 91,843,792 | ||||||||||
Purchases of held-to-maturity short-term investments, net |
— | (20,499,839 | ) | |||||||||
Maturities of long-term investments, net |
— | 63,719,034 | ||||||||||
Decrease
(increase) in other assets |
12,094 | (300,000 | ) | |||||||||
Net cash provided by investing activities |
49,678,955 | 32,167,163 | ||||||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from issuance of common stock |
512,061 | 2,134,515 | ||||||||||
Repayment of loan |
(10,000,000 | ) | — | |||||||||
Payment of long-term obligations |
(2,075,000 | ) | (2,700,000 | ) | ||||||||
Net cash used by financing activities |
(11,562,939 | ) | (565,485 | ) | ||||||||
Effect of exchange rate changes on cash |
47,223 | 3,099 | ||||||||||
Net (decrease) increase in cash and cash equivalents |
(3,276,677 | ) | 8,124,880 | |||||||||
Cash and cash equivalents, beginning of period |
16,023,074 | 5,923,282 | ||||||||||
Cash and cash equivalents, end of period |
$ | 12,746,397 | $ | 14,048,162 | ||||||||
Supplementary information: |
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Cash paid for interest |
$ | 4,156,971 | $ | 4,256,955 | ||||||||
See notes to consolidated financial statements.
5
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements of Alkermes, Inc. (the “Company”) for the three and six months ended September 30, 2002 and 2001 are unaudited and include all adjustments which, in the opinion of management, are necessary to present fairly the results of operations for the periods then ended. Such adjustments consisted of normal recurring items, approximately $2.7 million in non-recurring expenses in the second quarter related to the termination of the merger with Reliant Pharmaceuticals, LLC (“Reliant”) (See Note 4 below) and approximately $3.7 million in non-recurring restructuring expenses in the second quarter (See Note 6 below). These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended March 31, 2002, 2001 and 2000, which are contained in Amendment No. 1 to the Company's Annual Report for the year ended March 31, 2002 filed on Form 10-K/A. In addition, the financial statements include the accounts of Alkermes Controlled Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II, Advanced Inhalation Research, Inc. (“AIR”), Alkermes Investments, Inc., Alkermes Europe, Ltd. and Alkermes Development Corporation II (“ADC II”), wholly owned subsidiaries of the Company.
The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.
The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
2. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes certain changes in the shareholders’ (deficiency) equity of the Company that are excluded from net income (loss). Specifically, other comprehensive income (loss) includes unrealized holding gains and losses on the Company’s “available-for-sale” securities and changes in cumulative foreign currency translation adjustments.
6
2. Comprehensive Income (Loss) (Continued)
Comprehensive income (loss) for the three and six months ended September 30, 2002 and 2001 is as follows:
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| September 30, 2002 | September 30, 2001 | |||||||
Net loss |
$ | (67,848,928 | ) | $ | (12,612,772 | ) | ||
Foreign currency translation adjustments |
5,352 | 14,813 | ||||||
Unrealized loss on marketable securities |
(744,650 | ) | (1,886,923 | ) | ||||
Comprehensive loss |
$ | (68,618,226 | ) | $ | (14,484,882 | ) | ||
| Six Months | Six Months | |||||||
| Ended | Ended | |||||||
| September 30, 2002 | September 30, 2001 | |||||||
Net loss |
$ | (113,101,348 | ) | $ | (20,955,318 | ) | ||
Foreign currency translation adjustments |
55,260 | 4,238 | ||||||
Unrealized loss on marketable securities |
(1,721,901 | ) | (1,877,741 | ) | ||||
Comprehensive loss |
$ | (114,767,989 | ) | $ | (22,828,821 | ) | ||
3. Net Loss Per Share
Basic and diluted net loss per share are computed using the weighted average number of common shares outstanding during the period. Basic net loss per share excludes any dilutive effect from stock options and the 3 3/4% Convertible Subordinated Notes due 2007 (the “3 3/4% Notes”). The Company continues to be in a net loss position and, therefore, diluted net loss per share is the same amount as basic net loss per share. Certain securities were not included in the computations of diluted net loss per share for the three and six months ended September 30, 2002 and 2001 because they would have an antidilutive effect due to net losses for such periods. These securities include (i) outstanding stock options and awards with respect to 12,334,949 and 9,523,679 shares of common stock in the three and six months ended September 30, 2002 and 2001 and (ii) 2,952,030 shares of common stock issuable upon conversion of the 3 3/4% Notes in the three and six months ended September 30, 2002 and 2001, respectively.
4. Investment in Reliant Pharmaceuticals, LLC
In December 2001, the Company announced a strategic relationship with