UNITED STATES
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 March 31, 2003
OR
¨ TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number: 0-27488
INCYTE CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware |
94-3136539 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
3160 Porter Drive
Palo Alto, California 94304
(Address of principal executive offices)
(650) 855-0555
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required 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.
x Yes ¨ No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
x Yes ¨ No
The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 71,671,441 as of March 31, 2003.
INDEX
| PART I: FINANCIAL INFORMATION | ||||
| Page | ||||
| Item 1. |
Financial Statements—Unaudited |
|||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| 7 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | ||
| Item 3. |
31 | |||
| Item 4. |
31 | |||
| PART II: OTHER INFORMATION | ||||
| Item 2. |
32 | |||
| Item 6. |
32 | |||
| 33 | ||||
| 34 | ||||
| 36 | ||||
2
Item 1. Financial Statements
Incyte Corporation
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
| March 31, 2003 |
December 31, 2002* |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
10,637 |
|
$ |
22,928 |
| ||
| Marketable securities—available-for-sale |
|
365,547 |
|
|
406,090 |
| ||
| Accounts receivable, net (1) |
|
8,024 |
|
|
8,485 |
| ||
| Prepaid expenses and other current assets (2) |
|
17,698 |
|
|
21,268 |
| ||
| Total current assets |
|
401,906 |
|
|
458,771 |
| ||
| Property and equipment, net |
|
33,789 |
|
|
31,787 |
| ||
| Long-term investments (3) |
|
33,749 |
|
|
35,515 |
| ||
| Intangible and other assets, net (4) |
|
27,434 |
|
|
26,066 |
| ||
| Total assets |
$ |
496,878 |
|
$ |
552,139 |
| ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ |
7,466 |
|
$ |
9,073 |
| ||
| Accrued compensation |
|
9,338 |
|
|
14,319 |
| ||
| Interest payable |
|
1,561 |
|
|
3,903 |
| ||
| Accrued and other current liabilities (5) |
|
6,216 |
|
|
7,140 |
| ||
| Deferred revenue |
|
13,048 |
|
|
11,662 |
| ||
| Accrued restructuring charges |
|
19,793 |
|
|
31,596 |
| ||
| Accrued acquisition costs |
|
3,517 |
|
|
— |
| ||
| Total current liabilities |
|
60,939 |
|
|
77,693 |
| ||
| Convertible subordinated notes |
|
171,930 |
|
|
172,036 |
| ||
| Total liabilities |
|
232,869 |
|
|
249,729 |
| ||
| Stockholders’ equity: |
||||||||
| Common stock |
|
72 |
|
|
67 |
| ||
| Additional paid-in capital |
|
725,563 |
|
|
708,163 |
| ||
| Deferred stock-based compensation |
|
(2,749 |
) |
|
(3,250 |
) | ||
| Accumulated other comprehensive income |
|
1,931 |
|
|
2,454 |
| ||
| Accumulated deficit |
|
(460,808 |
) |
|
(405,024 |
) | ||
| Total stockholders’ equity |
|
264,009 |
|
|
302,410 |
| ||
| Total liabilities and stockholders’ equity |
$ |
496,878 |
|
$ |
552,139 |
| ||
| * | The condensed consolidated balance sheet at December 31, 2002 has been derived from the audited financial statements at that date. |
| (1) | Includes receivables from companies considered related parties under SFAS 57 of $0.3 million and $0.6 million at March 31, 2003 and December 31, 2002, respectively. |
| (2) | Includes loan receivable from Maxia Pharmaceuticals, Inc. (see Note 11), a company considered a related party under SFAS 57, of $0 million and $1.5 million at March 31, 2003 and December 31, 2002, respectively, and prepaid expenses to companies considered related parties under SFAS 57 of $1.9 million and $2.1 million at March 31, 2003 and December 31, 2002, respectively. |
| (3) | Includes investments in companies considered related parties under SFAS 57 of $26.1 million and $26.1 million at March 31, 2003 and December 31, 2002, respectively. |
| (4) | Includes loans to executive officers of $0.7 million and $0.8 million at March 31, 2003 and December 31, 2002 respectively. |
| (5) | Includes accruals of payments to companies considered related parties under SFAS 57 of $1.5 million and $1.5 million at March 31, 2003 and December 31, 2002, respectively. |
See accompanying notes
3
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Revenues (1) |
$ |
12,509 |
|
$ |
29,014 |
| ||
| Costs and expenses: |
||||||||
| Research and development (2) |
|
30,186 |
|
|
33,743 |
| ||
| Selling, general and administrative (3) |
|
7,377 |
|
|
14,168 |
| ||
| Purchased in-process research and development |
|
28,116 |
|
|
— |
| ||
| Other expenses |
|
1,103 |
|
|
— |
| ||
| Total costs and expenses |
|
66,782 |
|
|
47,911 |
| ||
| Loss from operations |
|
(54,273 |
) |
|
(18,897 |
) | ||
| Interest and other income, net (4) |
|
1,233 |
|
|
8,157 |
| ||
| Interest expense |
|
(2,439 |
) |
|
(2,538 |
) | ||
| Gain/(loss) on certain derivative financial instruments |
|
(45 |
) |
|
140 |
| ||
| Loss before income taxes |
|
(55,524 |
) |
|
(13,138 |
) | ||
| Provision for income taxes |
|
260 |
|
|
303 |
| ||
| Net loss |
$ |
(55,784 |
) |
$ |
(13,441 |
) | ||
| Basic and diluted net loss per share |
$ |
(0.81 |
) |
$ |
(0.20 |
) | ||
| Shares used in computing basic and diluted net loss per share |
|
68,986 |
|
|
66,864 |
| ||
| (1) | Includes revenues from transactions with companies considered related parties under SFAS 57 of $0.2 million and $0.7 million for the three months ended March 31, 2003 and 2002, respectively. |
| (2) | Includes expenses from transactions with companies considered related parties under SFAS 57 of $0.1 million and $2.8 million for the three months ended March 31, 2003 and 2002, respectively. |
| (3) | Includes compensation expense related to loans to executive officers of $0.1 million and $0 million for the three months ended March 31, 2003 and 2002, respectively. |
| (4) | Includes gains on investments in companies considered related parties under SFAS 57 of $0 million and $0.8 million for the three months ended March 31, 2003 and 2002, respectively. |
See accompanying notes
4
Condensed Consolidated Statements Of Comprehensive Loss
(in thousands)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Net loss |
$ |
(55,784 |
) |
$ |
(13,441 |
) | ||
| Other comprehensive loss: |
||||||||
| Unrealized losses on marketable securities |
|
(490 |
) |
|
(9,559 |
) | ||
| Foreign currency translation adjustments |
|
(33 |
) |
|
(179 |
) | ||
| Other comprehensive loss |
|
(523 |
) |
|
(9,738 |
) | ||
| Comprehensive loss |
$ |
(56,307 |
) |
$ |
(23,179 |
) | ||
See accompanying notes
5
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ |
(55,784 |
) |
$ |
(13,441 |
) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
|
4,457 |
|
|
5,369 |
| ||
| Purchased in-process research and development |
|
28,116 |
|
|
— |
| ||
| Non-cash other expenses |
|
393 |
|
|
— |
| ||
| Stock compensation |
|
501 |
|
|
1,461 |
| ||
| Compensation expense on executive loans |
|
98 |
|
|
— |
| ||
| (Gain)/loss on derivative financial instruments |
|
45 |
|
|
(140 |
) | ||
| Impairment of long-term investments |
|
1,900 |
|
|
— |
| ||
| Realized gain on long-term investments, net |
|
(22 |
) |
|
(981 |
) | ||
| Equity received in exchange for goods or services provided |
|
— |
|
|
(2,688 |
) | ||
| Changes in certain assets and liabilities: |
||||||||
| Accounts receivable |
|
652 |
|
|
26,347 |
|||