UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| [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
OR
| [ ] | 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: 0-19825
SCICLONE PHARMACEUTICALS,
INC.
| Delaware | 94-3116852 | |
|
|
||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. employer Identification no.) | |
| 901 Mariner’s Island Blvd., Suite 205, San Mateo, California | 94404 | |
|
|
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| (Address of principal executive offices) | (Zip code) |
(650) 358-3456
(Registrant’s telephone number, including area code)
Not Applicable
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 | [ ] |
As of September 30, 2003, 44,362,567 shares of the registrant’s Common Stock, $0.001 par value, were issued and outstanding.
SCICLONE PHARMACEUTICALS, INC.
INDEX
| PAGE NO. | ||||
| PART I. | FINANCIAL INFORMATION | |||
| Item 1. |
Condensed Consolidated Financial Statements (Unaudited) |
|||
Condensed Consolidated Balance Sheets as of September 30,
2003 and December 31, 2002
|
3 | |||
Condensed Consolidated Statements of Operations for the
Three-month and Nine-month periods ended September 30,
2003 and 2002
|
4 | |||
Condensed Consolidated Statements of Cash Flows for the
Nine-month periods 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 | 10 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 24 | ||
| Item 4. | Controls and Procedures | 24 | ||
| PART II. | OTHER INFORMATION | |||
| Item 6. | Exhibits and Reports on Form 8-K | 25 | ||
| Signatures | 27 | |||
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
SCICLONE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| (unaudited) | (Note 1) | |||||||||
ASSETS |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 65,269,000 | $ | 20,233,000 | ||||||
Restricted short-term investments |
685,000 | 685,000 | ||||||||
Other short-term investments |
302,000 | 232,000 | ||||||||
Accounts receivable, net of allowance of $638,000 in 2003 and 2002 |
11,776,000 | 9,276,000 | ||||||||
Inventories |
4,156,000 | 3,431,000 | ||||||||
Prepaid expenses and other current assets |
2,771,000 | 2,297,000 | ||||||||
Total current assets |
84,959,000 | 36,154,000 | ||||||||
Property and equipment, net |
95,000 | 111,000 | ||||||||
Intangible assets, net |
630,000 | 682,000 | ||||||||
Other assets |
138,000 | 164,000 | ||||||||
Total assets |
$ | 85,822,000 | $ | 37,111,000 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Current liabilities: |
||||||||||
Accounts payable |
$ | 3,670,000 | $ | 3,150,000 | ||||||
Accrued compensation and employee benefits |
1,008,000 | 1,089,000 | ||||||||
Accrued clinical trials expense |
680,000 | 966,000 | ||||||||
Accrued professional fees |
553,000 | 679,000 | ||||||||
Deferred revenue |
895,000 | 895,000 | ||||||||
Other accrued expenses |
283,000 | 259,000 | ||||||||
Total current liabilities |
7,089,000 | 7,038,000 | ||||||||
Deferred revenue |
448,000 | 1,119,000 | ||||||||
Convertible notes payable |
5,600,000 | 5,600,000 | ||||||||
Commitments and contingencies
|
||||||||||
Stockholders’ equity: |
||||||||||
Preferred stock; $0.001 par value;
10,000,000 shares authorized; no shares
outstanding in 2003 and 2002,
respectively |
— | — | ||||||||
Common stock; $0.001 par value (no par
value in 2002); 75,000,000 shares
authorized; 44,362,567 and 36,904,916
shares issued and outstanding in 2003 and
2002, respectively |
44,000 | 156,290,000 | ||||||||
Additional paid-in capital |
206,106,000 | — | ||||||||
Accumulated other comprehensive income |
138,000 | 79,000 | ||||||||
Accumulated deficit |
(133,603,000 | ) | (133,015,000 | ) | ||||||
Total stockholders’ equity |
72,685,000 | 23,354,000 | ||||||||
Total liabilities and stockholders’ equity |
$ | 85,822,000 | $ | 37,111,000 | ||||||
See notes to condensed consolidated financial statements
3
SCICLONE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three months ended | Nine months ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Product sales |
$ | 5,421,000 | $ | 4,298,000 | $ | 26,628,000 | $ | 12,294,000 | ||||||||||
Contract revenue |
224,000 | 224,000 | 672,000 | 448,000 | ||||||||||||||
Total revenue |
5,645,000 | 4,522,000 | 27,300,000 | 12,742,000 | ||||||||||||||
Cost of product sales |
935,000 | 918,000 | 4,882,000 | 2,525,000 | ||||||||||||||
Gross margin |
4,710,000 | 3,604,000 | 22,418,000 | 10,217,000 | ||||||||||||||
Operating expenses: |
||||||||||||||||||
Research and development |
4,585,000 | 2,110,000 | 12,676,000 | 8,407,000 | ||||||||||||||
Sales and marketing |
1,892,000 | 2,217,000 | 7,146,000 | 6,291,000 | ||||||||||||||
General and administrative |
998,000 | 960,000 | 3,045,000 | 2,907,000 | ||||||||||||||
Total operating expenses |
7,475,000 | 5,287,000 | 22,867,000 | 17,605,000 | ||||||||||||||
Loss from operations |
(2,765,000 | ) | (1,683,000 | ) | (449,000 | ) | (7,388,000 | ) | ||||||||||
Interest and investment income |
47,000 | 100,000 | 143,000 | 252,000 | ||||||||||||||
Interest and investment expense |
(90,000 | ) | (91,000 | ) | (271,000 | ) | (271,000 | ) | ||||||||||
Other income (expense), net |
(42,000 | ) | 2,000 | (11,000 | ) | (13,000 | ) | |||||||||||
Net loss |
$ | (2,850,000 | ) | $ | (1,672,000 | ) | $ | (588,000 | ) | $ | (7,420,000 | ) | ||||||
Basic and diluted net loss per share |
$ | (0.07 | ) | $ | (0.05 | ) | $ | (0.02 | ) | $ | (0.22 | ) | ||||||
Weighted average shares used in computing
basic and diluted net loss per share |
38,768,350 | 36,869,133 | 37,925,757 | 34,365,118 | ||||||||||||||
See notes to condensed consolidated financial statements
4
SCICLONE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine months ended | ||||||||||
| September 30, | ||||||||||
| 2003 | 2002 | |||||||||
Operating activities: |
||||||||||
Net loss |
$ | (588,000 | ) | $ | (7,420,000 | ) | ||||
Adjustments to reconcile net loss to net cash used in
operating activities: |
||||||||||
Depreciation and amortization |
134,000 | 421,000 | ||||||||
Changes in operating assets and liabilities: |
||||||||||
Accounts receivable |
(2,500,000 | ) | (217,000 | ) | ||||||
Inventories |
(725,000 | ) | 733,000 | |||||||
Prepaid expenses and other current assets |
(468,000 | ) | 436,000 | |||||||
Accounts payable and other accrued expenses |
544,000 | 998,000 | ||||||||
Accrued compensation and employee benefits |
(81,000 | ) | (119,000 | ) | ||||||
Accrued clinical trials expense |
(286,000 | ) | 475,000 | |||||||
Accrued professional fees |
(126,000 | ) | 12,000 | |||||||
Deferred revenue |
(671,000 | ) | 2,237,000 | |||||||
Net cash used in operating activities |
(4,767,000 | ) | (2,444,000 | ) | ||||||
Investing activities: |
||||||||||
Purchase of property and equipment |
(46,000 | ) | (49,000 | ) | ||||||
Payment on purchase of marketable securities |
(11,000 | ) | (23,000 | ) | ||||||
Net cash used in investing activities |
(57,000 | ) | (72,000 | ) | ||||||
Financing activities: |
||||||||||
Proceeds from issuances of common stock, net of
financing costs |
49,860,000 | 10,526,000 | ||||||||
Net cash provided by financing activities |
49,860,000 | 10,526,000 | ||||||||
Net increase in cash and cash equivalents |
45,036,000 | 8,010,000 | ||||||||
Cash and cash equivalents, beginning of period |
20,233,000 | 15,518,000 | ||||||||
Cash and cash equivalents, end of period |
$ | 65,269,000 | $ | 23,528,000 | ||||||
See notes to condensed consolidated financial statements
5
SCICLONE PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
| 1. | Basis of Presentation | |
| SciClone was reincorporated in the State of Delaware on July 18, 2003. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles consistent with those applied in, and should be read in conjunction with, the audited financial statements for the year ended December 31, 2002 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission. The interim financial information reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. The condensed consolidated balance sheet data at December 31, 2002 is derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. | ||
| 2. | Significant Accounting Policies | |
| Revenue Recognition | ||
| The Company recognizes revenue from product sales at the time of shipment. There are no significant customer acceptance requirements or post shipment obligations on the part of the Company. Sales to importing agents or distributors are recognized at time of shipment when title to the product is transferred to them, and they do not have contractual rights of return except under limited terms regarding product quality. However, the Company will replace products that have expired or are deemed to be damaged or defective when delivered. Payments by the importing agents and distributors are not contingent upon sale to the end user by the importing agents or distributors. | ||
| Contract revenue for research and development is recorded as earned based on the performance requirements of the contract. Nonrefundable contract fees for which no further performance obligations exist, and there is no continuing involvement by the Company, are recognized on the earlier of when the payments are received or when collection is assured. | ||
| Revenue associated with substantive performance milestones is recognized based on the achievement of the milestones, as defined in the respective agreements and provided that (i) the milestone event is substantive and its achievement is not reasonably assured at the inception of the agreement, and (ii) there are no future performance obligations associated with the milestone payment. | ||
| Net Loss Per Share | ||
| Net loss per share is computed using the weighted average number of shares of common stock outstanding. Potentially dilutive common shares from convertible debt, stock options and warrants are excluded, as their effect is antidilutive. | ||
| Accounting For Stock-Based Compensation | ||
| The Company accounts for its stock option and employee stock purchase plans under the provisions of Accounting Principles Board Opinion 25 (“APB 25”) and related Interpretations. Accordingly, the |
6
| Company does not recognize compensation expense in accounting for its stock option and employee stock purchase plans for awards to employees and directors granted with exercise prices at fair market value. | ||
| Pro forma information regarding net loss and net loss per share is required by Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”) as amended by Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS 148”) and has been determined as if the Company had accounted for its stock awards under the fair value method of that Statement. The fair value for the options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the three month and nine month periods ended September 30, 2003 and the corresponding periods in 2002: risk-free interest rates of 2.00%; dividend yield of 0%; volatility factors of the expected market price of the Company’s common stock of 0.95 and 0.96, respectively, and a weighted average expected life of the option of 4.00 years. | ||
| The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock awards have characteristics significantly different from those of traded options, and because changes in subjective input assumptions can materially affect the fair value estimate, in the Company’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and stock purchases. | ||
| The following table illustrates the Company’s pro forma net loss and net loss per share, had compensation expense for the Company’s option and employee purchase plans been determined based on the fair value at the grant date consistent with the provisions of SFAS 123, as amended by SFAS 148: |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net loss — as reported |
$ | (2,850,000 | ) | $ | (1,672,000 | ) | $ | (588,000 | ) | $ | (7,420,000 | ) | ||||
Total stock-based employee compensation expense
determined under the fair value based method for
all awards |
(844,000 | ) | (595,000 | ) | (2,164,000 | ) | (1,711,000 | ) | ||||||||
Net loss — pro forma |
$ | (3,694,000 | ) | $ | (2,267,000 | ) | $ | (2,752,000 | ) | $ | (9,131,000 | ) | ||||
Basic and diluted net loss per share — as reported |
$ | (0.07 | ) | $ | (0.05 | ) | $ | (0.02 | ) | $ | (0.22 | ) | ||||
Basic and diluted net loss per share — pro forma |
$ | (0.10 | ) | $ | (0.06 | ) | $ | (0.07 | ) | $ | (0.27 | ) | ||||
| The effects of applying SFAS 123 for pro forma disclosures are not likely to be representative of the effects on reported net loss for future years due to the different number of options granted each year. | ||
| 3. | Comprehensive Loss | |
| For the three-month periods ended September 30, 2003 and 2002, the Company’s total comprehensive loss amounted to $(2,879,000) and $(1,690,000), respectively. For the nine-month periods ended September 30, 2003 and 2002, the Company’s total comprehensive loss amounted to $(529,000) and $(7,414,000), respectively. |
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| 4. | Available-For-Sale Securities | |
| The following is a summary of available-for-sale securities at September 30, 2003 and December 31, 2002: |
| Gross | Estimated | ||||||||||||
| Amortized | Unrealized | Fair | |||||||||||
| Cost | Gains | Value | |||||||||||
September 30, 2003: |
|||||||||||||
Certificate of deposit |
$ | 798,000 | $ | — | $ | 798,000 | |||||||
U.S. government obligations |
53,194,000 | — | 53,194,000 | ||||||||||
Corporate equity securities |
51,000 | 138,000 | 189,000 | ||||||||||
| $ | 54,042,000 | $ | 138,000 | $ | 54,181,000 | ||||||||
December 31, 2002: |
|||||||||||||
Certificate of deposit |
$ | 787,000 | $ | — | $ | 787,000 | |||||||
U.S. government obligations |
13,723,000 | — | 13,723,000 | ||||||||||
Corporate equity securities |
51,000 | 79,000 | 130,000 | ||||||||||
| $ | 14,561,000 | $ | 79,000 | $ | 14,640,000 | ||||||||
| As of September 30, 2003, the available-for-sale securities are included as follows: $53,194,000 in cash and cash equivalents; $685,000 in restricted short-term investments and $302,000 in other short-term investments. As of December 31, 2002, the available-for-sale securities are included as follows: $13,723,000 in cash and cash equivalents; $685,000 in restricted short-term investments and $232,000 in other short-term investments. | ||
| 5. | Inventories | |
| The following is a summary of inventories at September 30, 2003 and December 31, 2002: |
| September 30, | December 31, | |||||||
| 2003 | 2002 | |||||||
Raw materials |
$ | 2,255,000 | $ | 2,190,000 | ||||
Work in progress |
101,000 | 159,000 | ||||||
Finished goods |
1,800,000 | 1,082,000 | ||||||
| $ | 4,156,000 | $ | 3,431,000 | |||||
| 6. | Intangible Assets | |
| The following is a summary of intangible assets: |
| September 30, | December 31, | |||||||
| 2003 | 2002 | |||||||
Product rights |
$ | 2,456,000 | $ | 2,456,000 | ||||
Accumulated amortization |
(1,826,000 | ) | (1,774,000 | ) | ||||
| $ | ||||||||