Back to GetFilings.com

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission file number 000-50447

Pharmion Corporation

2525 28th Street, Boulder, Colorado 80304

(720) 564-9100

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 o          No þ

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

          As of December 18, 2003, there were 23,948,635 shares of the Registrant’s Common Stock outstanding.

Table of Contents

PHARMION CORPORATION

TABLE OF CONTENTS

1

Table of Contents

PART I

FINANCIAL INFORMATION

PHARMION CORPORATION

The accompanying notes are an integral part of these consolidated financial statements

2

Table of Contents

PHARMION CORPORATION

The accompanying notes are an integral part of these consolidated financial statements

3

Table of Contents

PHARMION CORPORATION

The accompanying notes are an integral part of these consolidated financial statements

4

Table of Contents

PHARMION CORPORATION

1.     Nature of Business

      Pharmion Corporation (the “Company”) was incorporated in Delaware on August 26, 1999 and commenced operations in January 2000. The Company is engaged in the acquisition, development and commercialization of pharmaceutical products for the treatment of oncology and hematology patients. The Company’s product acquisition and licensing efforts are focused on both late-stage development products as well as those approved for marketing. In exchange for distribution and marketing rights, the Company generally grants the seller royalties on future sales and, in some cases, up-front and scheduled cash payments. To date, the Company has acquired the distribution and marketing rights to four products, two of which are approved for marketing and two of which are in late-stage development. The Company has established operations in the United States, Europe and Australia. Through a distributor network, the Company can reach the hematology and oncology community in additional countries in the Middle East and Asia.

      On November 5, 2003, the Company completed an initial public offering (“IPO”) which resulted in net proceeds of approximately $76.2 million from the issuance of 6,000,000 shares of common stock. In connection with the IPO, all of the outstanding shares of the Company’s preferred stock were converted into shares of common stock. Because the IPO closed after September 30, 2003, the results of the IPO are not reflected in the accompanying unaudited consolidated financial statements. A summary of the terms of this offering can be found in our Registration Statement (No. 333-108122) on Form S-1 as filed with the Securities and Exchange Commission (“SEC”).

      On September 25, 2003, the Company effected a one for four reverse stock split of its common stock. All share and per share amounts included in these consolidated financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split.

2.     Summary of Significant Accounting Policies

      The accompanying condensed unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and pursuant to the rules and regulations of the SEC on Form 10-Q. Certain information and footnote disclosures required for complete financial statements are not included herein. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest audited annual financial statements which are included in our Registration Statement on Form S-1, as amended, which has been filed with the SEC.

      In the opinion of management, the unaudited interim financial statements reflect all adjustments, which include only normal, recurring adjustments necessary to present fairly the Company’s financial position and results of operations and cash flows for the three and nine months ended September 30, 2003 and 2002. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2003 or for any other interim period or for any other future year.

      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 and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates or assumptions. The more significant estimates reflected in these financial statements include estimates of chargebacks from distributors, product returns and rebates and valuation of stock-based compensation.

5

Table of Contents

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The accompanying unaudited consolidated financial statements include the Company and all subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

      Cash and cash equivalents consist of money market accounts and overnight deposits. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

      The Company sells its products to wholesale distributors and directly to hospitals, clinics and retail pharmacies. Revenue from product sales is recognized when ownership of the product is transferred to the customer, the sales price is fixed and determinable, and collectibility is reasonably assured.

      Revenue is reported net of allowances for chargebacks from distributors, product returns, rebates and discounts. Significant estimates are required for determining such allowances and are based on historical data, industry information and information from customers. If actual results are different from estimates, the Company will adjust the allowances at the time such differences become apparent.

      Certain governmental health insurance providers as well as hospitals and clinics that are members of group purchasing organizations may be entitled to price discounts and rebates on the Company’s products used by those organizations and their patients. As such, the Company must estimate the likelihood that products sold to wholesale distributors will ultimately be subject to a rebate or price discount. This estimate is based on historical trends and industry data on the utilization of the Company’s products.

      Inventories consist of finished goods and are stated at the lower of cost or market, cost being determined under the first-in, first-out method. The Company periodically reviews inventories and any items considered outdated or obsolete are reduced to their estimated net realizable value. The inventory balance was reduced by approximately $1.8 million due to obsolescence and product expiration during the nine months ended September 30, 2003.

      Financial instruments which potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents and accounts receivable. The Company maintains its cash balances in the form of money market accounts and overnight deposits with financial institutions that management believes are creditworthy. The Company has no financial instruments with off-balance-sheet risk of accounting loss.

      The Company’s products are sold both to wholesale distributors and directly to hospitals and clinics. Ongoing credit evaluations of customers are performed and collateral is generally not required. The Company maintains a reserve for potential credit losses, and such losses have been within management’s expectations. In the nine months ended September 30, 2003 and 2002, revenues generated from three customers in the United States totaled approximately 16% and 17%, respectively, of consolidated net revenues. Revenues generated from international customers were individually less than 5% of consolidated net revenues.

      Immediately prior to the effective date of the IPO (November 12, 2003), all of our shares of redeemable convertible preferred stock outstanding converted into an aggregate of 17,030,956 shares of common stock. Unaudited pro forma net loss per share is computed by dividing net loss before accretion of redeemable

6

Table of Contents

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

convertible preferred stock to redemption value by the weighted average number of common shares outstanding, including the pro forma effects of conversion of all outstanding redeemable convertible preferred stock into shares of the Company’s common stock as of January 1, 2003.

3.     Acquisition of Laphal Développement and Issuance of Convertible Notes

      On March 25, 2003, a subsidiary of the Company acquired all of the outstanding stock of Gophar S.A.S. and its wholly owned subsidiary, Laphal Développement S.A. (collectively, “Laphal”). Laphal is a French pharmaceutical company focused on the sale of orphan drugs primarily in France and Belgium. Under the terms of the related Stock Purchase Agreement (“SPA”), the Company paid €12 million at closing, less the amount of Laphal’s net financial debt (as defined in the SPA). The actual amount of cash paid for Laphal, net of cash received in the acquisition and including transaction costs incurred through September 30, 2003 totaled approximately $12.3 million. Two additional payments of €4 million each will be paid if certain aggregate sales targets are achieved.

      The following assets and liabilities were acquired in the acquisition of Laphal. The purchase price allocation is subject to adjustment up to one year from the acquisition date.

      Product rights relate to thalidomide and are being amortized over the 15 year period in which the Company expects to generate significant revenues from this product. Operating results for Laphal after the date of acquisition are included in our consolidated financial results as of and for the three and nine months ended September 30, 2003.

      The unaudited pro forma results of operations as though the Laphal acquisition had been completed as of January 1, 2002 are as follows (in thousands except per share amounts):