COLLAGENEX PHARMACEUTICALS INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

Commission File Number 0-28308

CollaGenex Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		52-1758016
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

41 University Drive, Newtown, PA		18940
(Address of Principal Executive Offices)		(Zip Code)

(215) 579-7388

(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 the Registrant’s classes of Common Stock as of July 30, 2004:


Class		Number of Shares
Common Stock $.01 par value		14,368,527

COLLAGENEX PHARMACEUTICALS, INC.

TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION			1

	Item 1.	Financial Statements (unaudited)	1

		Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 (unaudited)	2

		Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2004 and 2003 (unaudited)	3

		Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2004 and 2003 (unaudited)	4

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 (unaudited)	5

		Notes to Condensed Consolidated Financial Statements (unaudited)	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

		Results of Operations	16

		Liquidity and Capital Resources	24

		Additional Risks That May Affect Results	29

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

	Item 4.	Controls and Procedures	36

PART II. OTHER INFORMATION			38

	Item 1.	Legal Proceedings	38

	Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	39

	Item 3.	Defaults Upon Senior Securities	39

	Item 4.	Submission of Matters to a Vote of Security Holders	39

	Item 5.	Other Information	40

	Item 6.	Exhibits and Reports on Form 8-K	42

SIGNATURES			43

- i -

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited).

- 1 -

COLLAGENEX PHARMACEUTICALS, INC.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

June 30, 2004 and December 31, 2003

(dollars in thousands, except share data)


	June 30, 2004			December 31, 2003
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	30,655		$	32,670
Accounts receivable, net of allowances of $361 and $481 at June 30, 2004 and December 31, 2003, respectively		8,335			5,786
Inventories		1,309			1,672
Prepaid expenses and other current assets		2,804			1,732

Total current assets		43,103			41,860

Equipment and leasehold improvements, net		549			496
Deferred license fees		1,458			1,749
Other assets		42			27

Total assets	$	45,152		$	44,132

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,591		$	3,699
Accrued expenses		4,124			5,351
Preferred dividends payable		—			800

Total current liabilities		6,715			9,850

Deferred revenue		310			326

Commitments and Contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; 200,000 shares of Series D cumulative convertible preferred stock issued and outstanding at June 30, 2004 and December 31, 2003 (liquidation value of $20,800); 150,000 shares of Series A participating preferred stock, $0.01 par value, designated and no shares issued and outstanding at June 30, 2004 and December 31, 2003		2			2
Common stock, $0.01 par value; 25,000,000 shares authorized, 14,356,027 and 13,842,200 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively		144			138
Additional paid in capital		105,870			103,670
Accumulated deficit		(67,889	)		(69,854	)

Total stockholders’ equity		38,127			33,956

Total liabilities and stockholders’ equity	$	45,152		$	44,132

See accompanying notes to unaudited condensed consolidated financial statements.

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COLLAGENEX PHARMACEUTICALS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

For the Three Months Ended June 30, 2004 and 2003

(amounts in thousands, except share and per share data)

(unaudited)


	Three Months Ended June 30,
	2004		2003
Revenues:
Net product sales	$	14,372	$	11,750
Contract revenues		60		503
License revenues		13		433

Total revenues		14,445		12,686

Operating expenses:
Cost of product sales		2,052		1,738
Research and development		2,457		1,654
Selling, general and administrative – other		7,530		7,718
Selling, general and administrative – restructuring (note 8)		480		—

Total operating expenses		12,519		11,110

Operating income		1,926		1,576

Other income (expense):
Interest income		69		25
Other income (expense)		3		(4	)

Net income		1,998		1,597
Preferred stock dividend		400		400

Net income allocable to common stockholders	$	1,598	$	1,197

Net income per basic share allocable to common stockholders	$	0.11	$	0.10

Weighted average shares used in computing net income per basic share allocable to common stockholders		14,310,289		11,427,420

Net income per diluted share allocable to common stockholders	$	0.11	$	0.10

Weighted average shares used in computing net income per diluted share allocable to common stockholders		14,741,845		12,369,971

See accompanying notes to unaudited condensed consolidated financial statements.

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COLLAGENEX PHARMACEUTICALS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

For the Six Months Ended June 30, 2004 and 2003

(amounts in thousands, except share and per share data)

(unaudited)


	Six Months Ended June 30,
	2004		2003
Revenues:
Net product sales	$	27,700	$	23,120
Contract revenues		120		1,053
License revenues		31		670

Total revenues		27,851		24,843

Operating expenses:
Cost of product sales		4,053		3,652
Research and development		3,845		2,621
Selling, general and administrative – other		15,648		15,791
Selling, general and administrative – restructuring		480		—
Selling, general and administrative – legal settlement (note 7)		2,000		—

Total operating expenses		26,026		22,064

Operating income		1,825		2,779

Other income (expense):
Interest income		140		56
Other expense		—		(10	)

Net income		1,965		2,825
Preferred stock dividend		800		800

Net income allocable to common stockholders	$	1,165	$	2,025

Net income per basic share allocable to common stockholders	$	0.08	$	0.18

Weighted average shares used in computing net income per basic share allocable to common stockholders		14,140,509		11,410,914

Net income per diluted share allocable to common stockholders	$	0.08	$	0.17

Weighted average shares used in computing net income per diluted share allocable to common stockholders		14,668,578		12,252,893

See accompanying notes to unaudited condensed consolidated financial statements.

- 4 -

COLLAGENEX PHARMACEUTICALS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2004 and 2003

(dollars in thousands)

(unaudited)


	Six Months Ended June 30,
	2004			2003
Cash flows from operating activities:
Net income	$	1,965		$	2,825
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Non-cash compensation expense		—			251
Depreciation and amortization expense		463			445
Accounts receivable provisions		(120	)		344
Changes in operating assets and liabilities:
Accounts receivable		(2,429	)		113
Inventories		363			(274	)
Prepaid expenses and other assets		(1,087	)		(365	)
Accounts payable		(1,108	)		(315	)
Accrued expenses		(1,227	)		(244	)
Deferred revenue		(16	)		(219	)

Net cash (used in) provided by operating activities		(3,196	)		2,561

Cash flows from investing activities:
Capital expenditures		(225	)		(224	)
Payment for Altana License		—			(900	)

Net cash used in investing activities		(225	)		(1,124	)

Cash flows from financing activities:
Net proceeds from issuance of common stock		2,206			706
Payment of preferred dividends		(800	)		(800	)

Net cash provided by (used in) financing activities		1,406			(94	)

Net (decrease) increase in cash and cash equivalents		(2,015	)		1,343
Cash and cash equivalents at beginning of period		32,670			10,112

Cash and cash equivalents at end of period	$	30,655		$	11,455

See accompanying notes to unaudited condensed consolidated financial statements.

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COLLAGENEX PHARMACEUT

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