UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Mark One
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 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: 000-31255
ISTA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | 33-0511729 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
15279 ALTON PARKWAY #100, IRVINE, CA 92618
(Address of principal executive offices)
(949) 788-6000
(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 Exchange Act Rule 12b-2) ¨ Yes x No
The number of shares of the registrant’s common stock, $.001 par value, outstanding as of May 6, 2004 was 17,456,678.
Item 1 Condensed Consolidated Financial Statements
ISTA Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 17,368 | $ | 16,988 | ||||
| Short-term investments |
25,135 | 31,475 | ||||||
| Other current assets |
794 | 1,035 | ||||||
| Total current assets |
43,297 | 49,498 | ||||||
| Property and equipment, net |
746 | 649 | ||||||
| Deposits and other assets |
43 | 35 | ||||||
| Total Assets |
$ | 44,086 | $ | 50,182 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 2,044 | $ | 2,072 | ||||
| Accrued compensation and related expenses |
434 | 699 | ||||||
| Accrued expenses — clinical trials |
342 | 476 | ||||||
| Other accrued expenses |
1,500 | 2,058 | ||||||
| Total current liabilities |
4,320 | 5,305 | ||||||
| Deferred rent |
7 | 9 | ||||||
| Deferred revenue |
4,375 | 4,444 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, $.001 par value; 100,000,000 shares authorized at March 31, 2004 and December 31, 2003; 17,456,678 and 17,375,439 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
17 | 17 | ||||||
| Additional paid in capital |
188,661 | 188,621 | ||||||
| Deferred compensation |
(402 | ) | (547 | ) | ||||
| Accumulated other comprehensive income |
(13 | ) | (28 | ) | ||||
| Deficit accumulated during the development stage |
(152,879 | ) | (147,639 | ) | ||||
| Total stockholders’ equity |
35,384 | 40,424 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 44,086 | $ | 50,182 | ||||
Note: The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
3
ISTA Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
| Three Months Ended March 31, |
For the Period From February 13, 1992 (Inception) Through March 31, |
|||||||||||
| 2004 |
2003 |
2004 |
||||||||||
| Revenue |
$ | 69 | $ | 69 | $ | 625 | ||||||
| Operating expenses: |
||||||||||||
| Research and development |
3,027 | 3,426 | 93,740 | |||||||||
| Selling, general and administrative |
2,429 | 2,064 | 42,817 | |||||||||
| Total operating expenses |
5,456 | 5,490 | 136,557 | |||||||||
| Loss from operations |
(5,387 | ) | (5,421 | ) | (135,932 | ) | ||||||
| Interest income |
149 | 115 | 3,148 | |||||||||
| Interest expense |
(2 | ) | (5 | ) | (805 | ) | ||||||
| Net loss |
(5,240 | ) | (5,311 | ) | (133,589 | ) | ||||||
| Deemed dividend for preferred stockholders |
— | — | (19,245 | ) | ||||||||
| Net loss attributable to common stockholders |
$ | (5,240 | ) | $ | (5,311 | ) | $ | (152,834 | ) | |||
| Net loss per common share, basic and diluted |
$ | (0.30 | ) | $ | (0.40 | ) | ||||||
| Shares used in computing net loss per common share, basic and diluted |
17,448 | 13,290 | ||||||||||
4
ISTA Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
| Three Months Ended March 31, |
For the Period From February 13, 1992 (Inception) Through March 31, |
|||||||||||
| 2004 |
2003 |
2004 |
||||||||||
| Operating Activities |
||||||||||||
| Net loss |
$ | (5,240 | ) | $ | (5,311 | ) | $ | (133,589 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
| Amortization of deferred compensation |
145 | 306 | 9,672 | |||||||||
| Amortization of fair value of warrant discount and related accrued interest |
— | (16 | ) | 467 | ||||||||
| Common stock issued for services |
— | — | 310 | |||||||||
| Forgiveness of note receivable |
— | — | 162 | |||||||||
| Depreciation and amortization |
75 | 88 | 2,084 | |||||||||
| Deferred rent |
(2 | ) | — | 7 | ||||||||
| Deferred income |
(69 | ) | (69 | ) | 4,375 | |||||||
| Changes in operating assets and liabilities: |
||||||||||||
| Advanced payments — clinical trials and other current assets |
241 | (97 | ) | (794 | ) | |||||||
| Note receivable from officer |
— | — | (162 | ) | ||||||||
| Accounts payable |
(28 | ) | 323 | 2,045 | ||||||||
| Accrued compensation and related expenses |
(265 | ) | (542 | ) | 434 | |||||||
| Accrued expenses — clinical trials and other accrued expenses |
(692 | ) | (192 | ) | 1,966 | |||||||
| License fee received from Visionex |
— | — | 5,000 | |||||||||
| Net cash used in operating activities |
(5,835 | ) | (5,510 | ) | (108,023 | ) | ||||||
| Investing Activities |
||||||||||||
| Purchase of short-term investment securities |
(3,435 | ) | (1,523 | ) | (87,142 | ) | ||||||
| Sale of short-term investment securities |
9,790 | 11 | 61,989 | |||||||||
| Purchase of equipment |
(172 | ) | (39 | ) | (2,827 | ) | ||||||
| Deposits and other assets |
(8 | ) | — | (61 | ) | |||||||
| Proceeds from refinancing under capital leases |
— | — | 827 | |||||||||
| Cash acquired from Visionex transaction |
— | — | 4,403 | |||||||||
| Net cash provided by (used in) investing activities |
6,175 | (1,551 | ) | (22,811 | ) | |||||||
| Financing Activities |
||||||||||||
| Payments on obligation under capital lease |
— | — | (827 | ) | ||||||||
| Proceeds from exercise of stock options |
17 | — | 999 | |||||||||
| Proceeds from exercise of warrants |
— | — | 41 | |||||||||
| Proceeds from bridge loans with related parties |
— | — | 5,047 | |||||||||
| Payments on bridge loans with related parties |
— | — | (3,755 | ) | ||||||||
| Proceeds from issuance of preferred stock |
— | — | 34,215 | |||||||||
| Repurchase of preferred stock |
— | — | (56 | ) | ||||||||
| Proceeds from issuance of common stock |
23 | 8 | 112,562 | |||||||||
| Net cash provided by financing activities |
40 | 8 | 148,226 | |||||||||
| Effect of exchange rate changes on cash |
— | 1 | (24 | ) | ||||||||
| Increase (Decrease) in Cash and Cash Equivalents |
380 | (7,052 | ) | 17,368 | ||||||||
| Cash and cash equivalents at beginning of period |
16,988 | 32,257 | — | |||||||||
| Cash and Cash Equivalents At End of Period |
$ | 17,368 | $ | 25,205 | $ | 17,368 | ||||||
5
ISTA Pharmaceuticals, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2004
1. The Company
ISTA Pharmaceuticals, Inc. (“ISTA” or the “Company”) was incorporated in the state of California on February 13, 1992 to discover, develop and market new remedies for diseases and conditions of the eye. The Company reincorporated in Delaware on August 4, 2000.
ISTA is a specialty pharmaceutical company focused on the development and commercialization of unique and uniquely improved products for serious diseases and conditions of the eye. Since the Company’s inception, it has devoted its resources primarily to fund research and development programs and late-stage product acquisitions. In December 2001, ISTA announced its strategic plan to transition from a development-stage organization to a specialty pharmaceutical company with a primary focus on ophthalmology.
In May 2004, ISTA received approval from the U.S. Food and Drug Administration (“FDA”) of ISTA’s New Drug Application (“NDA”) for Vitrase® (hyaluronidase for injection; lyophilized, ovine) for use as a spreading agent to facilitate the dispersion and absorption of other drugs. Even though ISTA has received FDA approval of the Vitrase® NDA for use as a spreading agent, the launch of the product may require FDA approval of a supplemental NDA for a smaller vial size at a dose concentration (150 unit/mL), securing favorable reimbursement for the product and, in certain circumstances, the approval of Allergan, Inc. ISTA also expects to receive approval from the FDA during the first half of 2004 of ISTA’s NDA for Istalol™ (timolol) for the treatment of glaucoma. However, there can be no assurance that Istalol™ will receive FDA approval in the expected time frame, or at all. Nevertheless, ISTA is currently undertaking significant preparations for expansion of its marketing and manufacturing capabilities in anticipation of its launch of Vitrase® and Istalol™. In March 2004, ISTA announced the initial results of its Phase III studies of Xibrom™ (bromfenac) for the treatment of ocular inflammation. ISTA anticipates submitting to the FDA an NDA for Xibrom™ during the second quarter of 2004. ISTA also has an NDA pending with the FDA for Vitrase® for the treatment of vitreous hemorrhage. In April 2003, the FDA issued an approvable letter citing issues primarily related to the sufficiency of the efficacy data submitted with the NDA for Vitrase® for the treatment of vitreous hemorrhage. The FDA requested additional analysis of the existing data and an additional confirmatory clinical study based upon that analysis. ISTA has submitted information to the FDA in response to its non-clinical comments contained in the approvable letter, and has submitted further analysis of the clinical data. In addition, ISTA is continuing to assess and discuss with the agency the clinical issues raised in the approvable letter. Based upon these discussions, ISTA will determine the next appropriate steps in the approval process of Vitrase