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, 2004
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 000-31719
POZEN Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 62-1657552 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1414 Raleigh Road
Suite 400
Chapel Hill, North Carolina 27517
(Address of principal executive offices, including zip code)
(919) 913-1030
(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. x Yes ¨ No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). x Yes ¨ No
The number of shares outstanding of the registrant’s common stock as of April 20, 2004 was 28,783,737.
(A Development Stage Company)
FORM 10-Q
For the Three Months Ended March 31, 2004
INDEX
| Page | ||||
| PART I. |
||||
| Item 1. |
||||
| 1 | ||||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
5 | ||
| Item 3. |
19 | |||
| Item 4. |
19 | |||
| PART II. |
||||
| Item 6. |
20 | |||
| 21 | ||||
| 22 | ||||
i
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 56,574,373 | $ | 60,480,690 | ||||
| Prepaid expenses and other current assets |
664,150 | 698,209 | ||||||
| Total current assets |
57,238,523 | 61,178,899 | ||||||
| Equipment, net of accumulated depreciation |
310,505 | 334,096 | ||||||
| Total assets |
$ | 57,549,028 | $ | 61,512,995 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 590,879 | $ | 579,903 | ||||
| Accrued expenses |
1,180,258 | 1,519,675 | ||||||
| Total current liabilities |
1,771,137 | 2,099,578 | ||||||
| Long-term liabilities: |
||||||||
| Deferred revenue |
21,893,478 | 23,782,978 | ||||||
| Total liabilities |
23,664,615 | 25,882,556 | ||||||
| Common stock, $0.001 par value, 90,000,000 shares authorized; 28,707,737 and 28,492,201 shares issued and outstanding at March 31, 2003 and December 31, 2002, respectively |
28,708 | 28,492 | ||||||
| Additional paid-in capital |
145,429,354 | 144,821,230 | ||||||
| Deficit accumulated during the development stage |
(111,573,649 | ) | (109,219,283 | ) | ||||
| Total stockholders’ equity |
33,884,413 | 35,630,439 | ||||||
| Total liabilities and stockholders’ equity |
$ | 57,549,028 | $ | 61,512,995 | ||||
See accompanying Notes to Financial Statements.
1
(A Development Stage Company)
Statements of Operations
(Unaudited)
| Three Months Ended March 31, |
Period From Inception (September 26, 1996) Through March 31, |
|||||||||||
| 2004 |
2003 |
2004 |
||||||||||
| Revenue: |
||||||||||||
| Licensing revenue |
$ | 1,889,500 | — | $ | 5,606,500 | |||||||
| Operating expenses: |
||||||||||||
| General and administrative |
1,998,049 | 1,863,151 | 34,224,917 | |||||||||
| Research and development |
2,371,967 | 3,112,864 | 89,213,196 | |||||||||
| Total operating expenses |
4,370,016 | 4,976,015 | 123,438,113 | |||||||||
| Interest income |
126,150 | 143,269 | 7,192,442 | |||||||||
| Net loss |
(2,354,366 | ) | (4,832,746 | ) | (110,639,171 | ) | ||||||
| Non-cash preferred stock charge |
— | — | 27,617,105 | |||||||||
| Preferred stock dividends |
— | — | 934,478 | |||||||||
| Net loss attributable to common stockholders |
$ | (2,354,366 | ) | $ | (4,832,746 | ) | $ | (139,190,754 | ) | |||
| Basic and diluted net loss per common share |
$ | (0.08 | ) | $ | (0.17 | ) | ||||||
| Shares used in computing basic and diluted net loss per common share |
28,555,654 | 28,150,319 | ||||||||||
See accompanying Notes to Financial Statements.
2
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, |
Period from Inception (September 26, 1996) Through March 31, |
|||||||||||
| 2004 |
2003 |
2004 |
||||||||||
| Operating activities |
||||||||||||
| Net loss |
$ | (2,354,366 | ) | $ | (4,832,746 | ) | $ | (110,639,171 | ) | |||
| Adjustments to reconcile net loss to net cash (used in) operating activities: |
||||||||||||
| Depreciation |
25,643 | 32,616 | 550,972 | |||||||||
| Loss on disposal of equipment |
— | — | 27,495 | |||||||||
| Amortization of deferred compensation |
— | 279,089 | 10,875,281 | |||||||||
| Noncash financing charge |
— | — | 450,000 | |||||||||
| Changes in operating assets and liabilities: |
||||||||||||
| Prepaid expenses, and other current assets |
34,058 | 53,987 | (664,151 | ) | ||||||||
| Accounts payable and accrued expenses |
(328,441 | ) | 384,642 | 1,771,137 | ||||||||
| Deferred revenue |
(1,889,500 | ) | — | 21,893,478 | ||||||||
| Net cash provided by (used in) operating activities |
(4,512,606 | ) | (4,082,412 | ) | (75,734,959 | ) | ||||||
| Investment activities |
||||||||||||
| Purchase of equipment |
(2,051 | ) | (3,901 | ) | (888,971 | ) | ||||||
| Net cash used in investing activities |
(2,051 | ) | (3,901 | ) | (888,971 | ) | ||||||
| Financing activities |
||||||||||||
| Proceeds from issuance of preferred stock |
— | — | 48,651,850 | |||||||||
| Proceeds from issuance of common stock |
608,340 | 3,681 | 80,704,438 | |||||||||
| Proceeds from notes payable |
— | — | 3,000,000 | |||||||||
| Proceeds from stockholders’ receivables |
— | — | 1,004,310 | |||||||||
| Payment of dividends |
— | — | (162,295 | ) | ||||||||
| Net cash provided by financing activities |
608,340 | 3,681 | 133,198,303 | |||||||||
| Net (decrease) increase in cash and cash equivalents |
(3,906,317 | ) | (4,082,632 | ) | 56,574,373 | |||||||
| Cash and cash equivalents at beginning of period |
60,480,690 | 50,056,251 | — | |||||||||
| Cash and cash equivalents at end of period |
$ | 56,574,373 | $ | 45,973,619 | $ | 56,574,373 | ||||||
| Supplemental schedule of cash flow information |
||||||||||||
| Cash paid for interest |
$ | — | $ | — | $ | 191,328 | ||||||
| Supplemental schedule of noncash investing and financing activities |
||||||||||||
| Conversion of notes payable to preferred stock |
$ | — | $ | — | $ | 3,000,000 | ||||||
| Preferred stock dividend |
$ | — | $ | — | $ | 772,183 | ||||||
| Forfeiture of common stock options and warrants |
$ | — | $ | — | $ | 314,379 | ||||||
| Conversion of preferred stock warrants to common stock |
$ | — | $ | — | $ | 1,080,001 | ||||||
See accompanying Notes to Financial Statements.
3
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Development Stage Company
We are a pharmaceutical company seeking to develop therapeutic advancements in as cost effective a manner as possible. Our product development efforts are focused on diseases with unmet medical needs where we can improve efficacy, safety and/or patient convenience. Since our inception in 1996, our business activities have been associated primarily with the development of pharmaceutical product candidates for the treatment of migraine. We have developed what we believe to be one of the largest and most advanced product pipelines in the field of migraine. We are also exploring the development of product candidates in other pain-related therapeutic areas.
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Statements—The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States and applicable Securities and Exchange Commission (“SEC”) regulations for interim financial information. These financial statements are unaudited and, in the opinion of management, include all adjustments necessary to present fairly the balance sheets, statements of operations and statements of cash flows for the periods presented in accordance with accounting principles generally accepted in the United States. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to SEC rules and regulations. It is presumed that users of this interim financial information have read or have access to the audited financial statements and footnote disclosure for the preceding fiscal year contained in the Company’s Annual Report on Form 10-K. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.
Revenue Recognition—Our licensing and other collaborative agreements have terms that include up-front payments upon contract signing, additional payments if and when certain milestones in the product’s development or commercialization are reached, and royalty payments based on future product sales. These agreements are accounted for in accordance with SEC Staff Accounting Bulletin 101, “Revenue Recognition”, as amended by SAB 104, (“SAB 101”), and Emerging Issues Task Force 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables.”
Revenue from non-refundable up-front payments is deferred by the Company upon receipt and recognized over the period ending on the anticipated date of regulatory approvals, as specified in the agreements relating to the product candidates.
Milestone payments are recognized as revenue upon the achievement of specified milestones if (i) the milestone is substantive in nature and the achievement of the milestone was not reasonably assured at the inception of the agreement and (ii) the fees are non-refundable. Any milestone payments received prior to satisfying these revenue recognition criteria are recorded as deferred revenue.
Royalty revenue will be recognized with respect to the manufacture, sale or use of the Company’s products or technology. For those arrangements where royalties are reasonably estimable, the Company will recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties in the following period. For those arrangements where royalties are not reasonably estimable, the Company will recognize revenue up receipt of royalty statements from the licensee.
Stock-based Compensation—The Company accounts for non-cash stock-based compensation in accordance with the provisions of Accounting Principles Board Opinion No. (“APB”) 25, “Accounting for Stock Issued to Employees,” which states that no compensation expense is recognized for stock options or other stock-based awards that are granted to employees with an exercise price equal to or above the estimated fair value of the Company’s common stock on the grant date. In the event that stock options are granted with an exercise price below the estimated fair market value of the Company’s common stock at the grant date, the difference between the fair market value of the Company’s common stock and the exercise price of the stock option is recorded as deferred compensation.
4
In connection with the grant of stock options to employees, the Company recorded no deferred compensation in the three months ended March 31, 2004. Deferred compensation recognized in prior periods was recorded as a component of stockholders’ equity and was being amortized as charges to operations over the vesting period of the options using the straight-line method. The vesting period of the options is generally three or four years. The Company recorded no deferred compensation for the period ended March 31, 2004 and amortized $279,089 for the three-month period ended March 31, 2003.
The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.
| Three Months Ended March 31, |
Year Ended December 31, |
|||||||||||
| 2004 |
2003 |
2003 |
||||||||||
| Net loss attributed to common stockholders as reported |
$ | (2,354,366 | ) | $ | (4,832,746 | ) | $ | (14,863,318 | ) | |||
| Add: Stock-based employee compensation expense included in reported net income, net of related tax effects |
— | 279,089 | 510,130 | |||||||||
| Deduct: Total stock-based employee compensation expense determined under the fair value-based method for all awards, net of related tax effects |
(780,434 | ) | (1,097,252 | ) | (3,338,823 | ) | ||||||
| Pro forma net loss attributed to common stockholders |
$ | (3,134,800 | ) | $ | (5,650,909 | ) | $ | (17,692,011 | ) | |||