UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ending June 30, 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: 000-29101
SEQUENOM, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | 77-0365889 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| 3595 John Hopkins Court San Diego, California |
92121 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (858) 202-9000
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 ¨
The number of shares of the Registrant’s Common Stock outstanding as of August 2, 2004 was 39,644,205.
SEQUENOM, INC.
2
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value and share information)
| June 30, 2004 |
December 31, 2003 |
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| (Unaudited) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 15,969 | $ | 17,940 | ||||
| Short-term investments, available-for-sale |
26,191 | 39,792 | ||||||
| Restricted cash and investments |
3,276 | 5,469 | ||||||
| Accounts receivable, net |
3,605 | 4,076 | ||||||
| Inventories, net |
6,615 | 10,569 | ||||||
| Other current assets and prepaid expenses |
971 | 1,142 | ||||||
| Total current assets |
56,627 | 78,988 | ||||||
| Equipment and leasehold improvements, net |
8,150 | 9,838 | ||||||
| Intangible assets, net |
8,137 | 11,338 | ||||||
| Restricted cash and investments |
5,228 | 4,253 | ||||||
| Other assets |
519 | 519 | ||||||
| Total assets |
$ | 78,661 | $ | 104,936 | ||||
| Liabilities and stockholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 4,376 | $ | 5,256 | ||||
| Accrued expenses |
6,797 | 8,223 | ||||||
| Accrued acquisition and integration costs |
593 | 551 | ||||||
| Deferred revenue |
1,898 | 2,542 | ||||||
| Current portion of long-term bank debt |
3,487 | 5,621 | ||||||
| Current portion of capital lease obligations |
257 | 451 | ||||||
| Total current liabilities |
17,408 | 22,644 | ||||||
| Deferred revenue, less current portion |
17 | 34 | ||||||
| Capital lease obligations, less current portion |
— | 57 | ||||||
| Long-term bank debt, less current portion |
5,915 | 5,624 | ||||||
| Long-term accrued acquisition and integration costs, less current portion |
609 | 888 | ||||||
| Long-term deferred tax liability |
2,629 | 3,674 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Convertible preferred stock, par value $0.001; authorized shares - 5,000,000 |
— | — | ||||||
| Common stock, par value $0.001; 75,000,000 shares authorized, 39,644,205 and 39,565,342 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively |
40 | 39 | ||||||
| Additional paid-in capital |
453,216 | 453,096 | ||||||
| Accumulated other comprehensive income |
(22 | ) | 278 | |||||
| Accumulated deficit |
(401,151 | ) | (381,398 | ) | ||||
| Total stockholders’ equity |
52,083 | 72,015 | ||||||
| Total liabilities and stockholders’ equity |
$ | 78,661 | $ | 104,936 | ||||
See accompanying notes.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share information)
| Three months ended June 30, |
Six months ended June 30, |
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| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Revenues: |
||||||||||||||||
| Product related |
$ | 5,833 | $ | 7,372 | $ | 10,652 | $ | 13,967 | ||||||||
| Services |
78 | 239 | 199 | 822 | ||||||||||||
| Research |
64 | 43 | 257 | 308 | ||||||||||||
| Total revenues |
5,975 | 7,654 | 11,108 | 15,097 | ||||||||||||
| Costs and expenses: |
||||||||||||||||
| Cost of product revenue |
3,508 | 4,446 | 6,298 | 7,873 | ||||||||||||
| Cost of service revenue |
28 | 175 | 204 | 714 | ||||||||||||
| Research and development |
6,117 | 6,457 | 12,132 | 12,339 | ||||||||||||
| Selling, general and administrative |
5,821 | 5,848 | 11,446 | 11,797 | ||||||||||||
| Amortization of acquired intangibles |
857 | 859 | 1,713 | 1,718 | ||||||||||||
| Amortization of deferred stock compensation |
— | 49 | — | 107 | ||||||||||||
| Total costs and expenses |
16,331 | 17,834 | 31,793 | 34,548 | ||||||||||||
| Loss from operations |
(10,356 | ) | (10,180 | ) | (20,685 | ) | (19,451 | ) | ||||||||
| Interest income, net |
53 | 258 | 157 | 665 | ||||||||||||
| Other income, net |
144 | 255 | 194 | 247 | ||||||||||||
| Loss before income taxes |
(10,159 | ) | (9,667 | ) | (20,334 | ) | (18,539 | ) | ||||||||
| Deferred income tax benefit |
291 | 327 | 581 | 654 | ||||||||||||
| Net loss |
$ | (9,868 | ) | $ | (9,340 | ) | $ | (19,753 | ) | $ | (17,885 | ) | ||||
| Net loss per share, basic and diluted |
$ | (0.25 | ) | $ | (0.24 | ) | $ | (0.50 | ) | $ | (0.45 | ) | ||||
| Weighted average shares outstanding, basic and diluted |
39,644 | 39,449 | 39,630 | 39,440 | ||||||||||||
See accompanying notes.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| Six months ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
| Operating activities |
||||||||
| Net loss |
$ | (19,753 | ) | $ | (17,885 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Other non-cash items |
5,178 | 5,700 | ||||||
| Deferred income tax benefit |
(581 | ) | (654 | ) | ||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
450 | 3,307 | ||||||
| Inventories |
3,906 | (2,983 | ) | |||||
| Other current assets |
166 | (258 | ) | |||||
| Other assets |
(1 | ) | 284 | |||||
| Accounts payable and accrued expenses |
(2,955 | ) | (4,783 | ) | ||||
| Deferred revenue |
(635 | ) | (852 | ) | ||||
| Other liabilities |
1,230 | 998 | ||||||
| Net cash used in operating activities |
(12,995 | ) | (17,126 | ) | ||||
| Investing activities |
||||||||
| Purchase of equipment, leasehold improvements and intangibles |
(1,625 | ) | (1,887 | ) | ||||
| Net change in restricted cash |
1,209 | 971 | ||||||
| Net change in marketable investment securities |
13,493 | 6,102 | ||||||
| Net cash provided by investing activities |
13,077 | 5,186 | ||||||
| Financing activities |
||||||||
| Net payments on capital lease obligations |
(251 | ) | (404 | ) | ||||
| Net payments of long-term debt |
(1,844 | ) | (392 | ) | ||||
| Proceeds from exercise of stock options and ESPP purchases |
120 | 73 | ||||||
| Net cash used in financing activities |
(1,975 | ) | (723 | ) | ||||
| Net decrease in cash and cash equivalents |
(1,893 | ) | (12,663 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents |
(78 | ) | (129 | ) | ||||
| Cash and cash equivalents at beginning of period |
17,940 | 26,348 | ||||||
| Cash and cash equivalents at end of period |
$ | 15,969 | $ | 13,556 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Interest paid |
$ | 241 | $ | 363 | ||||
See accompanying notes.
5
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of SEQUENOM, Inc. have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for a full year.
The condensed 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 disclosures required by generally accepted accounting principles for complete financial statements. Certain amounts in the December 31, 2003 balance sheet have been reclassified to conform with current year presentation.
These financial statements should be read in conjunction with the audited financial statements and disclosures thereto included in SEQUENOM’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission (“SEC”).
(2) Subsequent event
In July 2004, we announced the termination of internal drug discovery efforts and closure of our Pharmaceutical business segment, reducing our headcount by approximately 50 by the end of 2004. We will continue with our outlicensing program to capitalize on the value of our disease gene discoveries for diagnostic and therapeutic product development. We expect to incur charges of $2 million to $3 million, primarily in the third quarter of 2004, related to the closure of this business. Of the estimated charge, approximately $0.7 million to $1.7 million relates to future cash outflows, primarily staff severance costs and other contractual obligations, and approximately $1.3 million relates to non-cash charges from the write-off of equipment taken out of service and intangible assets of no value to our ongoing business. From July 1, 2004 we will report our results in one business segment.
(3) Segment information
In July 2004, we announced the termination of internal drug discovery efforts and the closure of the SEQUENOM Pharmaceuticals business segment during the third quarter of 2004, which will reduce our costs and expenses and is expected to provide the cash necessary to support our remaining business through 2006. This will be the last quarter that we report our financial results in two business segments, SEQUENOM Genetic Systems and SEQUENOM Pharmaceuticals.
6
Segment information for the three and six months ended June 30, 2004 and 2003 is as follows (dollars in thousands):
| Three months ended June 30, 2004 |
Three months ended June 30, 2003 |
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| SEQUENOM Genetic Systems |
SEQUENOM | |||||||||||||||||||||||