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 Quarterly Period Ended March 31, 2004
| ¨ | 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 000-29959
Pain Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 91-1911336 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
416 Browning Way, South San Francisco, CA 94080
(Address of principal executive offices) (Zip Code)
(650) 624-8200
(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 Exchange Act). Yes x No ¨
Indicate the number of shares outstanding of each of issuer’s classes of common stock, as of the latest practicable date.
| Common Stock, $0.001 par value |
35,462,226 Shares | |
| Class | Outstanding at April 20, 2004 |
TABLE OF CONTENTS
| Page No. | ||||
| PART I. |
||||
| Item 1. |
||||
| Condensed Balance Sheets – March 31, 2004 and December 31, 2003 |
3 | |||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
8 | ||
| Item 3. |
24 | |||
| Item 4. |
25 | |||
| PART II. |
||||
| Item 1. |
25 | |||
| Item 2. |
25 | |||
| Item 3. |
25 | |||
| Item 4. |
25 | |||
| Item 5. |
25 | |||
| Item 6. |
26 | |||
| 27 | ||||
2
(A Development Stage Enterprise)
Condensed Balance Sheets
(Unaudited)
(in thousands)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | (1) | |||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 7,181 | $ | 12,027 | ||||
| Marketable securities |
63,004 | 65,402 | ||||||
| Prepaid expenses |
355 | 1,321 | ||||||
| Total current assets |
70,540 | 78,750 | ||||||
| Property and equipment, net |
1,810 | 1,688 | ||||||
| Other assets |
75 | 75 | ||||||
| Total assets |
$ | 72,425 | $ | 80,513 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 5,105 | $ | 3,441 | ||||
| Accrued compensation and benefits |
580 | 369 | ||||||
| Other accrued liabilities |
135 | 141 | ||||||
| Total liabilities |
5,820 | 3,951 | ||||||
| Stockholders’ equity |
||||||||
| Preferred stock |
— | — | ||||||
| Common stock |
35 | 35 | ||||||
| Additional paid-in-capital |
150,824 | 150,732 | ||||||
| Deferred compensation |
— | (7 | ) | |||||
| Accumulated other comprehensive income |
157 | 50 | ||||||
| Deficit accumulated during the development stage |
(84,411 | ) | (74,248 | ) | ||||
| Total stockholders’ equity |
66,605 | 76,562 | ||||||
| Total liabilities and stockholders’ equity |
$ | 72,425 | $ | 80,513 | ||||
| (1) | Derived from the Company’s audited financial statements as of December 31, 2003, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. |
See accompanying notes to condensed financial statements.
3
(A Development Stage Enterprise)
Condensed Statements of Operations
(Unaudited)
(in thousands except per share data)
| Three Months Ended March 31, |
May 4, 1998 through March 31, 2004 |
|||||||||||
| 2004 |
2003 |
|||||||||||
| Operating expenses (1): |
||||||||||||
| Research and development |
$ | 9,496 | $ | 3,788 | $ | 68,336 | ||||||
| General and administrative |
937 | 970 | 23,971 | |||||||||
| Total operating expenses |
10,433 | 4,758 | 92,307 | |||||||||
| Operating loss |
(10,433 | ) | (4,758 | ) | (92,307 | ) | ||||||
| Other income: |
||||||||||||
| Interest income |
270 | 141 | 7,896 | |||||||||
| Net loss |
(10,163 | ) | (4,617 | ) | (84,411 | ) | ||||||
| Return to series C preferred stockholders for beneficial conversion feature |
— | — | (14,231 | ) | ||||||||
| Loss available to common stockholders |
$ | (10,163 | ) | $ | (4,617 | ) | $ | (98,642 | ) | |||
| Basic and diluted loss per common share |
$ | (0.29 | ) | $ | (0.17 | ) | ||||||
| Weighted-average shares used in computing basic and diluted loss per common share |
35,426 | 27,157 | ||||||||||
| (1) | Included in research and development and general and administrative expenses are stock-based compensation expenses of $52 and $103 for the periods ended March 31, 2004 and 2003, respectively, and $11,981 of the period from May 4, 1998 (Inception) through March 31, 2004. |
See accompanying notes to condensed financial statements.
4
(A Development Stage Enterprise)
Condensed Statements of Cash Flows
(Unaudited)
(in thousands)
| Three Months Ended March 31, |
May 4, 1998 (Inception) through March 31, |
|||||||||||
| 2004 |
2003 |
|||||||||||
| Cash flows from operating activities: |
||||||||||||
| Net loss |
$ | (10,163 | ) | $ | (4,617 | ) | $ | (84,411 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
| Depreciation and amortization |
86 | 85 | 1,071 | |||||||||
| Non-cash interest income |
270 | 9 | 198 | |||||||||
| Non-cash stock-based compensation |
52 | 103 | 11,981 | |||||||||
| Non-cash expense for warrants issued |
— | — | 34 | |||||||||
| Loss on disposal of property and equipment |
— | — | 54 | |||||||||
| Changes in operating assets and liabilities: |
||||||||||||
| Prepaid expenses |
966 | 775 | (355 | ) | ||||||||
| Other assets |
— | — | (75 | ) | ||||||||
| Accounts payable |
1,664 | (920 | ) | 5,105 | ||||||||
| Accrued compensation and benefits |
211 | 116 | 580 | |||||||||
| Other accrued liabilities |
(6 | ) | 22 | 135 | ||||||||
| Net cash used in operating activities |
(6,920 | ) | (4,427 | ) | (65,683 | ) | ||||||
| Cash flows used in investing activities: |
||||||||||||
| Purchase of property and equipment |
(208 | ) | — | (2,935 | ) | |||||||
| Purchase of marketable securities |
(22,467 | ) | — | (91,296 | ) | |||||||
| Sales and maturities of marketable securities |
24,702 | — | 28,251 | |||||||||
| Net cash provided by (used in) investment activities |
2,027 | — | (65,980 | ) | ||||||||
| Cash flows from financing activities: |
||||||||||||
| Proceeds from issuance of preferred stock, net |
— | — | 27,539 | |||||||||
| Stock subscription note payments received |
— | — | 236 | |||||||||
| Proceeds from issuance of common stock, net |
47 | — | 111,069 | |||||||||
| Net cash provided by financing activities |
47 | — | 138,844 | |||||||||
| Net increase (decrease) in cash and cash equivalents |
(4,846 | ) | (4,427 | ) | 7,181 | |||||||
| Cash and cash equivalents at beginning of period |
12,027 | 50,091 | — | |||||||||
| Cash and cash equivalents at end of period |
$ | 7,181 | $ | 45,664 | $ | 7,181 | ||||||
See accompanying notes to condensed financial statements.
5
(A Development Stage Enterprise)
Notes to Condensed Financial Statements
(Unaudited)
Note 1. General
We are a biopharmaceutical company that develops novel drugs. Our drugs target severe chronic pain, such as pain associated with advanced osteoarthritis, low-back pain or Irritable Bowel Syndrome, or IBS. We have three proprietary drug candidates in clinical development: Oxytrex™, Remoxy™ and PTI-901. Our two most advanced drugs, Oxytrex and PTI-901, are in Phase III clinical trials. Remoxy is in Phase I clinical trials in the United Kingdom. We believe the target market for our three drug candidates exceeds $3 billion per year. We currently retain all commercial rights to our drug candidates.
In the course of our development activities, we have sustained operating losses and expect such losses to continue through the next several years. We expect our current cash and cash equivalents will be sufficient to meet our planned working capital and capital expenditure requirements for at least the next twelve months. There are no assurances that additional financing will be available on favorable terms, or at all.
Our development activities involve inherent risks. These risks include, among others, dependence on key personnel and determination of patentability and protection of our products and processes. In addition, we have drug candidates that have not yet obtained Food and Drug Administration, or FDA approval. Successful future operations depend on our ability to obtain approval for and commercialize these products.
We have prepared the accompanying unaudited condensed financial statements of Pain Therapeutics, Inc. in accordance with generally accepted accounting principles for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2004. Certain prior year balances have been reclassified for comparative purposes.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that management 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 amount of expenses incurred during the reporting period. Actual results could differ from those estimates.
6
Note 2. Loss per Share
Basic loss per share is computed on the basis of the weighted-average number of common shares outstanding for the reporting period. Diluted loss per share is computed on the basis of the weighted-average number of common shares plus potential dilutive common shares outstanding using the treasury-stock method. Potential dilutive common shares consist of outstanding stock options and outstanding warrants.
In all periods presented we have reported a loss and therefore all potential shares of common stock related to potentially dilutive securities have been excluded from the calculation of diluted loss per share because they are anti-dilutive.
Note 3. Comprehensive Loss
Comprehensive loss is the sum of net loss and other comprehensive income, which is comprised of net unrealized holding gains and losses on available-for-sale securities, as follows (in thousands):
| Three months ended March 31, |
May 4, 1998 (Inception) through March 31, 2004 |
|||||||||||
| 2004 |
2003 |
|||||||||||
| Net loss |
$ | (10,163 | ) | $ | (4,617 | ) | $ | (98,642 | ) | |||
| Other comprehensive income |
107 | — | 157 | |||||||||
| Comprehensive loss |
$ | (10,056 | ) | $ | (4,617 | ) | $ | (98,485 | ) | |||
Note 4. Stock-Based Compensation
We use the intrinsic-value method of accounting for stock-based awards granted to employees in accordance with Accounting Principles Board Opinion No. 25 and its related interpretations. Accordingly, we would recognize compensation expense in our financial statements in connection with stock options granted to employees with exercise prices less than fair value at the time the stock option is granted. We record stock-based compensation expense for non-employees at the fair value of the options granted in accordance with Statement of Financial Accounting Standards No. 123, or SFAS 123 and Emerging Issues Task Force No 96-18, or EITF 96-18. The fair value of options granted to non-employees is estimated using a Black-Scholes option valuation model, or Black-Scholes. The model considers a number of factors, including the market price and volatility of our common stock at the date of measurement. We periodically re-measure the compensation expense for options granted to non-employees as the underlying options vest. The compensation expense related to all grants is being amortized using the graded vesting method, in accordance with SFAS 123, EITF 96-18 and FASB Interpretation No. 28, over the vesting period of each respective stock option, generally four years. The graded vesting method results in expensing approximately 57% of the total award in year one, 26% in year two, 13% in year three and 4% in year four.
7
If we had recorded compensation cost of our stock-based plans in a manner consistent with the fair value approach of SFAS 123, our loss and adjusted loss per share would have been increased as follows (in thousands, except per share data):
| < |