U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2003
| o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-14131
ALKERMES, INC.
| PENNSYLVANIA | 23-2472830 | |
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| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 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
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 No o
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 7, 2003 | |||
Common Stock, par value $.01 |
89,003,737 | |||
Non-Voting Common Stock, par value $.01 |
382,632 | |||
(1)
INDEX
| Page No. | ||||||
| PART I - FINANCIAL INFORMATION | ||||||
| Item 1. | Consolidated Financial Statements | |||||
| Condensed Consolidated Balance Sheets - - September 30, 2003 and March 31, 2003 |
3 | |||||
| Condensed Consolidated Statements of Operations - - Three months ended September 30, 2003 and 2002 - - Six months ended September 30, 2003 and 2002 |
4 | |||||
| Condensed
Consolidated Statements of Cash Flows - - Six months ended September 30, 2003 and 2002 |
5 | |||||
| Notes to Condensed Consolidated Financial Statements | 6 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 29 | ||||
| Item 4. | Controls and Procedures | 30 | ||||
| PART II - OTHER INFORMATION | ||||||
| Item 1. | Legal Proceedings | 31 | ||||
| Item 2. | Changes in Securities and Use of Proceeds | 31 | ||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 32 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 33 | ||||
| SIGNATURES | 34 | |||||
(2)
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, | March 31, | |||||||||
| 2003 | 2003 | |||||||||
A S S E T S |
||||||||||
Current Assets: |
||||||||||
Cash and cash equivalents |
$ | 24,135,700 | $ | 72,478,675 | ||||||
Short-term investments |
163,645,870 | 63,615,497 | ||||||||
Receivables from collaborative arrangements |
3,887,846 | 7,300,923 | ||||||||
Prepaid expenses and other current assets |
3,021,839 | 2,166,238 | ||||||||
Inventory |
3,355,711 | 2,576,082 | ||||||||
Total current assets |
198,046,966 | 148,137,415 | ||||||||
Property, Plant and Equipment: |
||||||||||
Land |
235,000 | 235,000 | ||||||||
Building |
15,505,909 | 5,093,815 | ||||||||
Furniture, fixtures and equipment |
67,667,932 | 56,005,820 | ||||||||
Equipment under capital lease |
463,611 | — | ||||||||
Leasehold improvements |
56,727,123 | 31,603,290 | ||||||||
Construction in progress |
1,594,859 | 39,500,993 | ||||||||
| 142,194,434 | 132,438,918 | |||||||||
Less accumulated depreciation and amortization |
(45,897,011 | ) | (40,964,851 | ) | ||||||
| 96,297,423 | 91,474,067 | |||||||||
Investments |
8,976,348 | 8,945,908 | ||||||||
Other Assets |
10,495,323 | 7,141,780 | ||||||||
Total Assets |
$ | 313,816,060 | $ | 255,699,170 | ||||||
L I A B I L I T I E S A N D S H A R E H O L D E R S’ E Q U I T Y (D E F I C I T) |
||||||||||
Current Liabilities: |
||||||||||
Accounts payable and accrued expenses |
$ | 17,891,845 | $ | 14,252,083 | ||||||
Accrued interest |
351,175 | 2,901,984 | ||||||||
Accrued restructuring costs |
2,617,227 | 3,537,010 | ||||||||
Deferred revenue |
13,263,772 | 12,253,338 | ||||||||
Derivative liability related to convertible subordinated notes |
4,800,000 | 13,300,000 | ||||||||
Obligation under capital lease - current portion |
78,196 | — | ||||||||
Long-term obligations - current portion |
— | 7,800,000 | ||||||||
Total current liabilities |
39,002,215 | 54,044,415 | ||||||||
Deferred revenue |
3,379,629 | 10,114,032 | ||||||||
Obligation under capital lease |
379,194 | — | ||||||||
2½% Convertible Subordinated Notes |
121,181,298 | — | ||||||||
3.75% Convertible Subordinated Notes |
676,000 | 676,000 | ||||||||
6.52% Convertible Senior Subordinated Notes |
— | 165,910,429 | ||||||||
Convertible Preferred Stock, par value $.01 per share: authorized
and issued, 3,000
shares at September 30, 2003 and March 31, 2003, respectively
(at liquidation
preference) |
30,000,000 | 30,000,000 | ||||||||
Shareholders’ Equity (Deficit): |
||||||||||
Capital stock, par value $.01 per share: authorized, 4,550,000 shares; none issued;
includes 2,997,000 shares of preferred stock |
— | — | ||||||||
Common stock, par value $.01 per share: authorized, 160,000,000 shares; issued, 88,915,880 and
64,692,848 shares at September 30, 2003 and March 31, 2003, respectively |
889,159 | 646,929 | ||||||||
Non-voting common stock, par value $.01 per share: authorized, 450,000 shares; issued, 382,632 at September 30, 2003 and
March 31, 2003 |
3,826 | 3,826 | ||||||||
Additional paid-in capital |
625,337,370 | 447,103,721 | ||||||||
Deferred compensation |
(741,033 | ) | (1,864,281 | ) | ||||||
Accumulated other comprehensive income (loss) |
1,263,366 | (173,104 | ) | |||||||
Accumulated deficit |
(507,554,964 | ) | (450,762,797 | ) | ||||||
Total shareholders’ equity (deficit) |
119,197,724 | (5,045,706 | ) | |||||||
Total Liabilities and Shareholders’ Equity (Deficit) |
$ | 313,816,060 | $ | 255,699,170 | ||||||
See notes to condensed consolidated financial statements.
(3)
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED 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, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Revenues: |
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Manufacturing and royalty revenues |
$ | 5,309,654 | $ | — | $ | 6,854,408 | $ | — | ||||||||||
Research and development revenue
under collaborative arrangements |
2,140,374 | 9,471,105 | 4,897,080 | 19,762,496 | ||||||||||||||
Total revenues |
7,450,028 | 9,471,105 | 11,751,488 | 19,762,496 | ||||||||||||||
Expenses: |
||||||||||||||||||
Cost of goods manufactured |
4,566,686 | — | 7,127,356 | — | ||||||||||||||
Research and development |
23,404,563 | 28,186,162 | 45,077,527 | 52,785,835 | ||||||||||||||
General and administrative |
5,918,053 | 9,196,723 | 11,698,651 | 15,212,763 | ||||||||||||||
Restructuring |
— | 3,681,719 | — | 3,681,719 | ||||||||||||||
Total expenses |
33,889,302 | 41,064,604 | 63,903,534 | 71,680,317 | ||||||||||||||
Net operating loss |
(26,439,274 | ) | (31,593,499 | ) | (52,152,046 | ) | (51,917,821 | ) | ||||||||||
Other income (expense): |
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Interest income |
668,248 | 1,067,939 | 1,643,409 | 2,433,875 | ||||||||||||||
Other income, net |
1,097,933 | — | 2,507,411 | — | ||||||||||||||
Derivative loss related to convertible notes |
(900,000 | ) | — | (4,664,437 | ) | — | ||||||||||||
Interest expense |
(646,703 | ) | (2,066,714 | ) | (4,126,504 | ) | (4,147,848 | ) | ||||||||||
Total other income (expense) |
219,478 | (998,775 | ) | (4,640,121 | ) | (1,713,973 | ) | |||||||||||
Equity in losses of Reliant Pharmaceuticals, LLC |
— | (35,256,654 | ) | — | (59,469,554 | ) | ||||||||||||
Net loss |
($ | 26,219,796 | ) | ($ | 67,848,928 | ) | ($ | 56,792,167 | ) | ($ | 113,101,348 | ) | ||||||
Basic and diluted loss per common share |
($ | 0.31 | ) | ($ | 1.05 | ) | ($ | 0.76 | ) | ($ | 1.76 | ) | ||||||
Weighted average number of common shares outstanding |
84,984,004 | 64,317,587 | 74,915,372 | 64,289,400 | ||||||||||||||
See notes to condensed consolidated financial statements.
(4)
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months | Six Months | ||||||||||
| Ended | Ended | ||||||||||
| September 30, | September 30, | ||||||||||
| 2003 | 2002 | ||||||||||
Cash flows from operating activities: |
|||||||||||
Net loss |
($56,792,167 | ) | ($ | 113,101,348 | ) | ||||||
Adjustments to reconcile net loss to net cash used by
operating activities: |
|||||||||||
Depreciation and amortization |
5,286,290 | 4,909,982 | |||||||||
Other noncash charges |
2,240,859 | 1,486,523 | |||||||||
Equity in losses of Reliant Pharmaceuticals, LLC |
— | 59,469,554 | |||||||||
Other noncash income |
(2,507,411 | ) | — | ||||||||
Derivative loss related to convertible subordinated notes |
4,664,437 | — | |||||||||
Changes in assets and liabilities: |
|||||||||||
Receivables from collaborative arrangements |
3,413,077 | 3,718,687 | |||||||||
Prepaid expenses and other current assets |
(1,635,751 | ) | 2,971,535 | ||||||||
Accounts payable, accrued expenses and accrued interest |
(1,225,549 | ) | (2,824,606 | ) | |||||||
Accrued restructuring costs |
(919,783 | ) | 2,493,897 | ||||||||
Deferred revenue |
(5,737,769 | ) | (564,140 | ) | |||||||
Net cash used by operating activities |
(53,213,767 | ) | (41,439,916 | ) | |||||||
Cash flows from investing activities: |
|||||||||||
Additions to property, plant and equipment |
(9,755,515 | ) | (26,945,822 | ) | |||||||
Proceeds from equipment sale-leaseback |
463,611 | 50,000 | |||||||||
Purchases of available-for-sale short-term investments |
(157,419,972 | ) | (63,012,129 | ) | |||||||
Sales of available-for-sale short-term investments |
57,331,448 | 139,574,812 | |||||||||
(Increase) decrease in other assets |
(248,491 | ) | 12,094 | ||||||||
Net cash (used by) provided by investing activities |
(109,628,919 | ) | 49,678,955 | ||||||||
Cash flows from financing activities: |
|||||||||||
Proceeds from issuance of common stock |
1,199,421 | 512,061 | |||||||||
Proceeds
from issuance of 2½% Subordinated Notes |
125,000,000 | ||||||||||
Payment of long-term obligations |
(7,806,221 | ) | (2,075,000 | ) | |||||||
Payment
of financing costs in connection with 2½% Subordinated Notes |
(3,861,863 | ) | |||||||||
Repayment of loan |
— | (10,000,000 | ) | ||||||||
Net cash provided by (used by) financing activities |
114,531,337 | (11,562,939 | ) | ||||||||
Effect of exchange rate changes on cash |
(31,626 | ) | 47,223 | ||||||||
Net decrease in cash and cash equivalents |
(48,342,975 | ) | (3,276,677 | ) | |||||||
Cash and cash equivalents, beginning of period |
72,478,675 | 16,023,074 | |||||||||
Cash and cash equivalents, end of period |
$ | 24,135,700 | $ | 12,746,397 | |||||||
Supplementary information: |
|||||||||||
Cash paid for interest |
$ | 5,568,783 | $ | 4,156,971 | |||||||
Cash paid for income taxes |
$ | 52,125 | $ | 72,418 | |||||||
Conversion of 6.52% Convertible Senior Subordinated Notes into common stock |
$ | 177,264,308 | $ | — | |||||||
See notes to condensed consolidated financial statements.
(5)
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED 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, 2003 and 2002 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. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended March 31, 2003, 2002 and 2001, which are contained in the Company’s Annual Report for the year ended March 31, 2003 filed on Form 10-K. 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 (“GAAP”) 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 LOSS
Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes certain changes in the shareholders’ equity of the Company that are excluded from net 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 LOSS (Continued)
Comprehensive loss for the three and six months ended September 30, 2003 and 2002 is as follows:
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| September 30, 2003 | September 30, 2002 | |||||||
Net loss |
($ | 26,219,796 | ) | ($ | 67,848,928 | ) | ||
Foreign currency translation adjustments |
(13,341 | ) | 5,352 | |||||
Unrealized gain (loss) on marketable securities |
696,415 | (744,650 | ) | |||||