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 December 31, 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
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 February 5, 2004 | |||
Common Stock, par value $.01 |
89,257,009 | |||
Non-Voting Common Stock, par value $.01 |
382,632 | |||
ALKERMES, INC. AND SUBSIDIARIES
INDEX
| Page No. | |||||
PART I - FINANCIAL INFORMATION |
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Item 1. Consolidated Financial Statements |
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Condensed Consolidated Balance Sheets |
3 | ||||
- December 31, 2003 and March 31, 2003 |
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Condensed Consolidated Statements of Operations |
4 | ||||
- Three months ended December 31, 2003 and 2002 |
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- Nine months ended December 31, 2003 and 2002 |
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Condensed Consolidated Statements of Cash Flows |
5 | ||||
- Nine months ended December 31, 2003 and 2002 |
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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 |
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Item 1. Legal Proceedings |
31 | ||||
Item 6. Exhibits and Reports on Form 8-K |
31 | ||||
SIGNATURES |
32 | ||||
(2)
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| December 31, | March 31, | |||||||||||
| 2003 | 2003 | |||||||||||
ASSETS |
||||||||||||
Current Assets: |
||||||||||||
Cash and cash equivalents |
$ | 11,948,791 | $ | 72,478,675 | ||||||||
Investments - short term |
153,716,271 | 63,615,497 | ||||||||||
Receivables |
9,212,734 | 7,300,923 | ||||||||||
Prepaid expenses and other current assets |
3,196,200 | 2,166,238 | ||||||||||
Inventory |
5,359,577 | 2,576,082 | ||||||||||
Total current assets |
183,433,573 | 148,137,415 | ||||||||||
Property, Plant and Equipment: |
||||||||||||
Land |
235,000 | 235,000 | ||||||||||
Building |
15,627,456 | 5,093,815 | ||||||||||
Furniture, fixtures and equipment |
68,605,331 | 56,005,820 | ||||||||||
Equipment under capital lease |
463,611 | — | ||||||||||
Leasehold improvements |
57,368,915 | 31,603,290 | ||||||||||
Construction in progress |
1,944,381 | 39,500,993 | ||||||||||
| 144,244,694 | 132,438,918 | |||||||||||
Less accumulated depreciation and amortization |
(48,020,165 | ) | (40,964,851 | ) | ||||||||
| 96,224,529 | 91,474,067 | |||||||||||
Investments - long term |
8,001,006 | 8,945,908 | ||||||||||
Other Assets |
9,009,234 | 7,141,780 | ||||||||||
Total Assets |
$ | 296,668,342 | $ | 255,699,170 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
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Current Liabilities: |
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Accounts payable and accrued expenses |
$ | 17,544,671 | $ | 14,252,083 | ||||||||
Accrued interest |
1,138,762 | 2,901,984 | ||||||||||
Accrued restructuring costs |
1,694,144 | 3,537,010 | ||||||||||
Deferred revenue |
20,828,128 | 12,253,338 | ||||||||||
Derivative liability related to convertible subordinated notes |
4,150,000 | 13,300,000 | ||||||||||
Obligation under capital lease - current portion |
79,878 | — | ||||||||||
Long-term obligations - current portion |
— | 7,800,000 | ||||||||||
Total current liabilities |
45,435,583 | 54,044,415 | ||||||||||
Deferred revenue |
— | 10,114,032 | ||||||||||
Obligation under capital lease |
358,583 | — | ||||||||||
2½% Convertible Subordinated Notes |
121,375,470 | — | ||||||||||
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 December 31, 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, 89,074,043 and 64,692,848 shares at December 31, 2003 and March 31, 2003, respectively | 890,741 | 646,929 | ||||||||||
Non-voting common stock, par value $.01 per share: |
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authorized, 450,000 shares; issued, 382,632 at December 31, 2003 and
March 31, 2003 |
3,826 | 3,826 | ||||||||||
Additional paid-in capital |
625,909,296 | 447,103,721 | ||||||||||
Deferred compensation |
(391,957 | ) | (1,864,281 | ) | ||||||||
Accumulated other comprehensive income (loss) |
828,845 | (173,104 | ) | |||||||||
Accumulated deficit |
(528,418,045 | ) | (450,762,797 | ) | ||||||||
Total shareholders’ equity (deficit) |
98,822,706 | (5,045,706 | ) | |||||||||
Total Liabilities and Shareholders’ Equity (Deficit) |
$ | 296,668,342 | $ | 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 | Nine Months | Nine Months | |||||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Revenues: |
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Manufacturing and royalty revenues |
$ | 8,636,344 | $ | — | $ | 15,490,752 | $ | — | ||||||||||
Research and development revenue
under collaborative arrangements |
2,584,882 | 15,194,913 | 7,481,962 | 34,957,409 | ||||||||||||||
Total revenues |
11,221,226 | 15,194,913 | 22,972,714 | 34,957,409 | ||||||||||||||
Expenses: |
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Cost of goods manufactured |
4,069,415 | — | 11,196,771 | — | ||||||||||||||
Research and development |
21,148,198 | 21,165,800 | 66,225,725 | 73,951,635 | ||||||||||||||
General and administrative |
6,537,692 | 5,367,143 | 18,236,343 | 20,579,906 | ||||||||||||||
Restructuring |
— | 2,274,497 | — | 5,956,216 | ||||||||||||||
Total expenses |
31,755,305 | 28,807,440 | 95,658,839 | 100,487,757 | ||||||||||||||
Net operating loss |
(20,534,079 | ) | (13,612,527 | ) | (72,686,125 | ) | (65,530,348 | ) | ||||||||||
Other income (expense): |
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Interest income |
957,042 | 552,592 | 2,600,451 | 2,986,467 | ||||||||||||||
Other (expense) income, net |
(745,589 | ) | — | 1,761,822 | — | |||||||||||||
Gain on exchange of notes |
— | 80,849,437 | — | 80,849,437 | ||||||||||||||
Derivative income (loss) related to convertible notes |
650,000 | — | (4,014,437 | ) | — | |||||||||||||
Interest expense |
(1,190,455 | ) | (2,058,281 | ) | (5,316,959 | ) | (6,206,129 | ) | ||||||||||
Total other income (expense) |
(329,002 | ) | 79,343,748 | (4,969,123 | ) | 77,629,775 | ||||||||||||
Equity in losses of Reliant Pharmaceuticals, LLC |
— | (24,481,555 | ) | — | (83,951,109 | ) | ||||||||||||
Net (loss) income |
($ | 20,863,081 | ) | $ | 41,249,666 | ($ | 77,655,248 | ) | ($ | 71,851,682 | ) | |||||||
Net (loss) income per common share: |
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Basic |
($ | 0.23 | ) | $ | 0.64 | ($ | 0.97 | ) | ($ | 1.12 | ) | |||||||
Diluted |
($ | 0.23 | ) | $ | 0.62 | ($ | 0.97 | ) | ($ | 1.12 | ) | |||||||
Weighted average common shares used to
compute net (loss) income per share: |
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Basic |
89,013,535 | 64,409,132 | 79,719,932 | 64,329,456 | ||||||||||||||
Diluted |
89,013,535 | 67,059,246 | 79,719,932 | 64,329,456 | ||||||||||||||
See notes to condensed consolidated financial statements.
(4)
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months | Nine Months | |||||||||||
| Ended | Ended | |||||||||||
| December 31, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
Cash flows from operating activities: |
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Net loss |
($ | 77,655,248 | ) | ($ | 71,851,682 | ) | ||||||
Adjustments to reconcile net loss to net cash used by
operating activities: |
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Depreciation and amortization |
8,234,907 | 6,902,847 | ||||||||||
Gain on sale of equipment |
(96,187 | ) | — | |||||||||
Other noncash charges |
2,801,979 | 2,213,081 | ||||||||||
Equity in losses of Reliant Pharmaceuticals, LLC |
— | 83,951,109 | ||||||||||
Other noncash income |
(1,761,822 | ) | — | |||||||||
Gain on exchange of notes |
— | (80,849,437 | ) | |||||||||
Derivative loss related to convertible subordinated notes |
4,014,437 | — | ||||||||||
Changes in assets and liabilities: |
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Receivables |
(1,911,811 | ) | 4,363,344 | |||||||||
Prepaid expenses and other current assets |
(3,814,701 | ) | 2,382,754 | |||||||||
Accounts payable, accrued expenses and accrued interest |
(761,644 | ) | (2,061,491 | ) | ||||||||
Accrued restructuring costs |
(1,842,866 | ) | 3,820,119 | |||||||||
Deferred revenue |
(1,553,042 | ) | 18,164,259 | |||||||||
Net cash used by operating activities |
(74,345,998 | ) | (32,965,097 | ) | ||||||||
Cash flows from investing activities: |
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Additions to property, plant and equipment |
(12,703,521 | ) | (40,115,030 | ) | ||||||||
Proceeds from sales of equipment |
784,235 | 6,050,174 | ||||||||||
Purchases of available-for-sale investments |
(194,388,353 | ) | (77,913,906 | ) | ||||||||
Sales of available-for-sale investments |
105,118,723 | 165,331,906 | ||||||||||
(Increase) decrease in other assets |
(98,491 | ) | 12,478 | |||||||||
Net cash (used by) provided by investing activities |
(101,287,407 | ) | 53,365,622 | |||||||||
Cash flows from financing activities: |
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Proceeds from issuance of common stock |
1,954,808 | 913,856 | ||||||||||
Proceeds from issuance of 2½% Subordinated Notes |
125,000,000 | — | ||||||||||
Proceeds from issuance of 6.52% Convertible Senior Subordinated Notes |
— | 60,000,000 | ||||||||||
Proceeds from issuance of convertible preferred stock |
— | 30,000,000 | ||||||||||
Payment of long-term obligations |
(7,825,150 | ) | (3,050,000 | ) | ||||||||
Payment of financing costs in connection with 2½% Subordinated Notes |
(3,961,768 | ) | — | |||||||||
Payment of financing costs in connection with 6.52% Convertible Senior
Subordinated Notes |
— | (4,454,030 | ) | |||||||||
Repayment of loan |
— | (10,000,000 | ) | |||||||||
Net cash provided by financing activities |
115,167,890 | 73,409,826 | ||||||||||
Effect of exchange rate changes on cash |
(64,369 | ) | 78,449 | |||||||||
Net (decrease) increase in cash and cash equivalents |
(60,529,884 | ) | 93,888,800 | |||||||||
Cash and cash equivalents, beginning of period |
72,478,675 | 16,023,074 | ||||||||||
Cash and cash equivalents, end of period |
$ | 11,948,791 | $ | 109,911,874 | ||||||||
Supplementary information: |
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