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Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
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 June 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 0-19171
 
 
ICOS CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
  
91-1463450
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
22021 - 20th Avenue S.E., Bothell, WA
  
98021
(Address of principal executive offices)
  
(Zip code)
 
(425) 485-1900
(Registrant’s telephone number, including area code)
 
Not Applicable
(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  ¨             
 
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
 
Class
  
Outstanding at July 31, 2002
Common Stock, $0.01 par value
  
61,976,304

Table of Contents
ICOS CORPORATION
FORM 10-Q
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
 
TABLE OF CONTENTS
 
      
PAGE NO.
      
      
    
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Table of Contents
PART I: Financial Information
 
ITEM 1: Financial Statements
 
ICOS CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
    
Three Months Ended
June 30,
     
Six Months Ended
June 30,
  
    
2002
     
2001
     
2002
     
2001
  
    
(in thousands, except per share data)
  
Revenue:
                                    
Collaboration revenue from related parties
   
$
17,909
 
   
$
12,399
 
   
$
37,265
 
   
$
24,125
 
Licenses of technology, primarily to related parties
   
 
634
 
   
 
20,301
 
   
 
2,014
 
   
 
26,915
 
Contract manufacturing
   
 
3,432
 
   
 
1,014
 
   
 
5,232
 
   
 
1,574
 
    
  
  
  
Total revenue
   
 
21,975
 
   
 
33,714
 
   
 
44,511
 
   
 
52,614
 
    
  
  
  
Operating expenses:
                                    
Research and development
   
 
35,248
 
   
 
26,718
 
   
 
70,646
 
   
 
49,743
 
Selling, general and administrative
   
 
4,867
 
   
 
1,973
 
   
 
9,834
 
   
 
3,460
 
    
  
  
  
Total operating expenses
   
 
40,115
 
   
 
28,691
 
   
 
80,480
 
   
 
53,203
 
    
  
  
  
Operating income (loss)
   
 
(18,140
)
   
 
5,023
 
   
 
(35,969
)
   
 
(589
)
    
  
  
  
Other income (expense):
                                    
Equity in losses of affiliates
   
 
(25,277
)
   
 
(13,455
)
   
 
(50,001
)
   
 
(26,448
)
Interest and other income
   
 
3,012
 
   
 
3,165
 
   
 
6,345
 
   
 
6,617
 
    
  
  
  
Total other income (expense)
   
 
(22,265
)
   
 
(10,290
)
   
 
(43,656
)
   
 
(19,831
)
    
  
  
  
Net loss
   
$
(40,405
)
   
$
(5,267
)
   
$
(79,625
)
   
$
(20,420
)
    
  
  
  
Net loss per common share—basic and diluted
   
$
(0.66
)
   
$
(0.10
)
   
$
(1.31
)
   
$
(0.39
)
    
  
  
  
Weighted average common shares outstanding—basic and diluted
   
 
61,148
 
   
 
53,075
 
   
 
60,586
 
   
 
52,803
 
    
  
  
  
 
See accompanying notes to condensed consolidated financial statements.

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Table of Contents
 
ICOS CORPORATION
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
    
June 30,
2002
     
December 31,
2001
  
    
(unaudited)
         
ASSETS
Current assets:
                  
Cash and cash equivalents
   
$
134,976
 
   
$
260,905
 
Investment securities, at market value
   
 
58,717
 
   
 
143,435
 
Interest receivable
   
 
4,459
 
   
 
3,834
 
Receivables from affiliates
   
 
27,025
 
   
 
11,405
 
Other
   
 
5,181
 
   
 
5,326
 
    
  
Total current assets
   
 
230,358
 
   
 
424,905
 
Investment securities, at market value
   
 
214,095
 
   
 
62,533
 
Property and equipment, net
   
 
21,428
 
   
 
19,754
 
Other assets
   
 
790
 
   
 
395
 
    
  
    
$
466,671
 
   
$
507,587
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
                  
Payables and accruals
   
$
22,463
 
   
$
21,079
 
Note payable
   
 
3,441
 
   
 
—  
 
Due to affiliates
   
 
31,183
 
   
 
18,132
 
Deferred revenue
   
 
3,713
 
   
 
4,329
 
    
  
Total current liabilities
   
 
60,800
 
   
 
43,540
 
    
  
Deferred revenue
   
 
10,048
 
   
 
10,297
 
Stockholders’ equity:
                  
Common stock
   
 
619
 
   
 
597
 
Additional paid-in capital
   
 
776,051
 
   
 
754,674
 
Accumulated other comprehensive income
   
 
1,127
 
   
 
828
 
Accumulated deficit
   
 
(381,974
)
   
 
(302,349
)
    
  
Total stockholders’ equity
   
 
395,823
 
   
 
453,750
 
    
  
    
$
466,671
 
   
$
507,587
 
    
  
 
See accompanying notes to condensed consolidated financial statements.

2

Table of Contents
 
ICOS CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
    
Six Months Ended June 30,
  
    
2002
     
2001
  
    
(in thousands)
  
Cash flows from operating activities:
                  
Net loss
   
$
(79,625
)
   
$
(20,420
)
Adjustments to reconcile net loss to net cash used in operating activities:
                  
Depreciation and amortization
   
 
5,055
 
   
 
2,959
 
Equity in losses of affiliates
   
 
50,001
 
   
 
26,448
 
Deferred revenue
   
 
(865
)
   
 
(11,690
)
Change in operating assets and liabilities:
                  
Receivables
   
 
(13,948
)
   
 
35
 
Other assets
   
 
(72
)
   
 
(1,761
)
Payables and accruals
   
 
(669
)
   
 
1,835
 
Other
   
 
(552
)
   
 
—  
 
    
  
Net cash used in operating activities
   
 
(40,675
)
   
 
(2,594
)
    
  
Cash flows from investing activities:
                  
Purchases of investment securities
   
 
(195,378
)
   
 
(133,063
)
Maturities of investment securities
   
 
64,495
 
   
 
15,090
 
Sales of investment securities
   
 
62,001
 
   
 
12,919
 
Acquisitions of property and equipment
   
 
(4,392
)
   
 
(1,756
)
Investments in affiliates
   
 
(36,706
)
   
 
(34,755
)
    
  
Net cash used in investing activities
   
 
(109,980
)
   
 
(141,565
)
    
  
Cash flows from financing activities:
                  
Proceeds from stock options and warrants
   
 
21,285
 
   
 
14,518
 
Proceeds under line of credit
   
 
3,441
 
   
 
—  
 
    
  
Net cash provided by financing activities
   
 
24,726
 
   
 
14,518
 
    
  
Decrease in cash and cash equivalents
   
 
(125,929
)
   
 
(129,641
)
Cash and cash equivalents, beginning of period
   
 
260,905
 
   
 
194,708
 
    
  
Cash and cash equivalents, end of period
   
$
134,976
 
   
$
65,067
 
    
  
 
See accompanying notes to condensed consolidated financial statements.

3

Table of Contents
ICOS CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, unless otherwise noted)
(unaudited)
 
1. Summary of Significant Accounting Policies
 
The accompanying condensed consolidated financial statements present the results of operations, financial position and cash flows of ICOS Corporation and its wholly owned subsidiaries, herein collectively referred to as “ICOS”.
 
These condensed consolidated financial statements have not been audited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States. We believe the disclosures made are adequate to make the information presented not misleading. However, you should read these condensed consolidated financial statements in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2001.
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates.
 
In our opinion, the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of June 30, 2002 and December 31, 2001, our results of operations for the three and six month periods ended June 30, 2002 and 2001, and cash flows for the six months ended June 30, 2002 and 2001. Interim results are not necessarily indicative of results for a full year. All material intercompany transactions and balances between entities consolidated in these financial statements have been eliminated.

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Table of Contents

ICOS CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
2. Revenue from Collaborations and Licenses of Technology, and Equity in Losses of Affiliates
 
The following tables summarize our revenue from collaboration with related parties and licenses of technology, and equity in losses of affiliates for the three and six months ended June 30, 2002 and 2001.