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 June 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 000-31615
DURECT CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 94-3297098 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
10240 Bubb Road
Cupertino, California 95014
(Address of principal executive offices, including zip code)
(408) 777-1417
(Registrant’s telephone number, including area code)
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 Act). YES x NO ¨
As of July 31, 2003, there were 50,547,385 shares of the registrant’s Common Stock outstanding.
| Page | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1. |
Financial Statements | 3 | ||
| Condensed Consolidated Statements of Operations For the three and six months ended June 30, 2003 and 2002 (unaudited) |
3 | |||
| Condensed Consolidated Balance Sheets As of June 30, 2003 (unaudited) and December 31, 2002 |
4 | |||
| Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2003 and 2002 (unaudited) |
5 | |||
| Notes to Condensed Consolidated Financial Statements (unaudited) | 6 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 34 | ||
| Item 4. |
Controls and Procedures | 35 | ||
| PART II. OTHER INFORMATION | ||||
| Item 1. |
Legal Proceedings | 35 | ||
| Item 2. |
Changes in Securities and Use of Proceeds | 35 | ||
| Item 3. |
Defaults Upon Senior Securities | 36 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 36 | ||
| Item 5. |
Other Information | 36 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 36 | ||
| (a) Exhibits | 36 | |||
| (b) Reports on Form 8-K | 37 | |||
| 38 | ||||
2
PART I. FINANCIAL INFORMATION
DURECT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| Product revenue, net |
$ | 1,715 | $ | 1,677 | $ | 3,222 | $ | 3,290 | ||||||||
| Collaborative research and development and other revenue |
1,485 | 95 | 2,559 | 106 | ||||||||||||
| Total revenues |
3,200 | 1,772 | 5,781 | 3,396 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Cost of revenue |
534 | 768 | 1,129 | 1,518 | ||||||||||||
| Research and development |
5,282 | 8,178 | 10,854 | 16,173 | ||||||||||||
| Selling, general and administrative |
2,219 | 2,441 | 4,462 | 4,764 | ||||||||||||
| Amortization of intangible assets |
335 | 335 | 670 | 670 | ||||||||||||
| Stock-based compensation(1) |
135 | 485 | (19 | ) | 1,083 | |||||||||||
| Total operating expenses |
8,505 | 12,207 | 17,096 | 24,208 | ||||||||||||
| Loss from operations |
(5,305 | ) | (10,435 | ) | (11,315 | ) | (20,812 | ) | ||||||||
| Other income (expense): |
||||||||||||||||
| Interest income |
368 | 598 | 609 | 1,309 | ||||||||||||
| Interest expense |
(179 | ) | (78 | ) | (303 | ) | (161 | ) | ||||||||
| Net other income |
189 | 520 | 306 | 1,148 | ||||||||||||
| Net loss |
$ | (5,116 | ) | $ | (9,915 | ) | $ | (11,009 | ) | $ | (19,664 | ) | ||||
| Net loss per share, basic and diluted |
$ | (0.10 | ) | $ | (0.21 | ) | $ | (0.22 | ) | $ | (0.41 | ) | ||||
| Shares used in computing basic and diluted net loss per share |
50,294 | 48,076 | 50,209 | 47,929 | ||||||||||||
| (1) Stock-based compensation related to the following: |
||||||||||||||||
| Cost of revenues |
$ | 3 | $ | 17 | $ | 11 | $ | 46 | ||||||||
| Research and development |
(23 | ) | 330 | (259 | ) | 724 | ||||||||||
| Selling, general and administrative |
155 | 138 | 229 | 313 | ||||||||||||
| $ | 135 | $ | 485 | $ | (19 | ) | $ | 1,083 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
DURECT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
| June 30, 2003 |
December 31, 2002 |
|||||||
| (unaudited) | (Note 1) | |||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 36,840 | $ | 14,089 | ||||
| Short-term investments |
40,223 | 28,711 | ||||||
| Accounts receivable, net of allowance of $199 and $207, respectively |
1,549 | 944 | ||||||
| Inventories |
1,698 | 1,707 | ||||||
| Prepaid expenses and other current assets |
1,360 | 1,590 | ||||||
| Total current assets |
81,670 | 47,041 | ||||||
| Property and equipment, net |
10,259 | 11,625 | ||||||
| Goodwill |
4,716 | 4,716 | ||||||
| Intangible assets, net |
3,451 | 4,121 | ||||||
| Long-term investments |
6,311 | 2,578 | ||||||
| Restricted investments |
3,305 | 2,890 | ||||||
| Other long-term assets |
2,826 | — | ||||||
| Total assets |
$ | 112,538 | $ | 72,971 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 574 | $ | 352 | ||||
| Accrued liabilities |
2,603 | 2,140 | ||||||
| Contract research liability |
1,004 | 1,128 | ||||||
| Deferred revenue |
456 | 948 | ||||||
| Equipment financing obligations, current portion |
283 | 447 | ||||||
| Bonds payable, current portion |
170 | 170 | ||||||
| Total current liabilities |
5,090 | 5,185 | ||||||
| Equipment financing obligations, noncurrent portion |
449 | 134 | ||||||
| Bonds payable, noncurrent portion |
1,245 | 1,245 | ||||||
| Convertible subordinated notes |
50,000 | — | ||||||
| Other long-term liabilities |
247 | 225 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock, $0.0001 par value: 110,000 shares authorized at June 30, 2003 and December 31, 2002 respectively; 50,547 and 50,443 shares issued and outstanding at June 30, 2003 and December 31, 2002, respectively |
5 | 5 | ||||||
| Additional paid-in capital |
194,083 | 194,312 | ||||||
| Notes receivable from stockholders |
(280 | ) | (469 | ) | ||||
| Deferred compensation |
(267 | ) | (732 | ) | ||||
| Deferred royalties and commercial rights |
(13,480 | ) | (13,480 | ) | ||||
| Accumulated other comprehensive income |
11 | 102 | ||||||
| Accumulated deficit |
(124,565 | ) | (113,556 | ) | ||||
| Total stockholders’ equity |
55,507 | 66,182 | ||||||
| Total liabilities and stockholders’ equity |
$ | 112,538 | $ | 72,971 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
DURECT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Six months ended June 30, |
||||||||
| 2003 |
2002 |
|||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ | (11,009 | ) | $ | (19,664 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
2,496 | 1,955 | ||||||
| Non-cash charges related to stock-based compensation |
(19 | ) | 1,083 | |||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(605 | ) | (75 | ) | ||||
| Inventories |
9 | 313 | ||||||
| Prepaid expenses and other assets |
184 | 380 | ||||||
| Accounts payable |
222 | (1,244 | ) | |||||
| Accrued liabilities and other long-term liabilities |
485 | (273 | ) | |||||
| Contract research liability |
(124 | ) | 639 | |||||
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