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 Ended September 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 0-19171
ICOS CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 91-1463450 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 22021 20th Avenue S.E., Bothell, WA | 98021 | |
| (Address of principal executive offices) | (Zip code) |
(425) 485-1900
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 issuer’s classes of Common Stock, as of the latest practicable date.
| Class |
Outstanding at September 30, 2004 | |
| Common Stock, $0.01 par value | 63,531,157 |
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenue: |
||||||||||||||||
| Collaboration revenue from related parties |
$ | 13,958 | $ | 5,339 | $ | 42,722 | $ | 13,329 | ||||||||
| Licenses of technology |
— | — | — | 21,976 | ||||||||||||
| Contract manufacturing |
5,786 | 6,764 | 11,471 | 10,586 | ||||||||||||
| Total revenue |
19,744 | 12,103 | 54,193 | 45,891 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
17,933 | 18,613 | 52,723 | 66,870 | ||||||||||||
| Marketing and selling |
9,827 | 8,212 | 29,730 | 10,366 | ||||||||||||
| Cost of contract manufacturing |
3,617 | 4,630 | 9,121 | 7,646 | ||||||||||||
| General and administrative |
4,179 | 3,404 | 12,380 | 10,879 | ||||||||||||
| Total operating expenses |
35,556 | 34,859 | 103,954 | 95,761 | ||||||||||||
| Operating loss |
(15,812 | ) | (22,756 | ) | (49,761 | ) | (49,870 | ) | ||||||||
| Other income (expense): |
||||||||||||||||
| Equity in losses of Lilly ICOS |
(10,528 | ) | (16,941 | ) | (114,855 | ) | (58,533 | ) | ||||||||
| Gain on sale of partnership interests |
— | — | — | 10,000 | ||||||||||||
| Interest expense |
(1,704 | ) | (1,868 | ) | (5,120 | ) | (1,866 | ) | ||||||||
| Interest and other income |
1,444 | 2,256 | 4,935 | 8,308 | ||||||||||||
| Loss before income taxes |
(26,600 | ) | (39,309 | ) | (164,801 | ) | (91,961 | ) | ||||||||
| Income tax recovery |
— | — | — | 612 | ||||||||||||
| Net loss |
$ | (26,600 | ) | $ | (39,309 | ) | $ | (164,801 | ) | $ | (91,349 | ) | ||||
| Net loss per common share – basic and diluted |
$ | (0.42 | ) | $ | (0.63 | ) | $ | (2.60 | ) | $ | (1.46 | ) | ||||
| Weighted average common shares outstanding – basic and diluted |
63,498 | 62,717 | 63,388 | 62,433 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
| September 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 155,023 | $ | 332,039 | ||||
| Investment securities, at market value |
86,090 | 83,049 | ||||||
| Interest receivable |
1,756 | 2,668 | ||||||
| Receivables from affiliates |
20,868 | 17,681 | ||||||
| Note receivable |
— | 6,000 | ||||||
| Other |
6,556 | 3,819 | ||||||
| Total current assets |
270,293 | 445,256 | ||||||
| Investment securities, at market value |
53,995 | 51,769 | ||||||
| Property and equipment, net |
18,964 | 18,970 | ||||||
| Deferred financing costs and other |
7,929 | 8,859 | ||||||
| $ | 351,181 | $ | 524,854 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Payables and accruals |
$ | 19,223 | $ | 17,476 | ||||
| Accrued interest |
1,356 | 2,957 | ||||||
| Due to affiliates |
11,115 | 25,842 | ||||||
| Deferred revenue |
1,574 | 1,000 | ||||||
| Total current liabilities |
33,268 | 47,275 | ||||||
| Convertible subordinated debt |
278,650 | 278,650 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock |
635 | 630 | ||||||
| Additional paid-in capital |
793,270 | 787,019 | ||||||
| Accumulated other comprehensive income (loss) |
(368 | ) | 753 | |||||
| Accumulated deficit |
(754,274 | ) | (589,473 | ) | ||||
| Total stockholders’ equity |
39,263 | 198,929 | ||||||
| $ | 351,181 | $ | 524,854 | |||||
See accompanying notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (164,801 | ) | $ | (91,349 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
8,108 | 9,028 | ||||||
| (Gain) loss on sale of investment securities, net |
22 | (1,290 | ) | |||||
| Gain on sale of partnership interests |
— | (10,000 | ) | |||||
| Equity in losses of Lilly ICOS |
114,855 | 58,533 | ||||||
| Technology license fees collected greater (less) than revenue recognized |
— | (21,976 | ) | |||||
| Change in operating assets and liabilities: |
||||||||
| Receivables |
(5,035 | ) | (7,925 | ) | ||||
| Payables and accruals |
717 | (3,271 | ) | |||||
| Other assets |
(1,577 | ) | 620 | |||||
| Other |
242 | 474 | ||||||
| Net cash used in operating activities |
(47,469 | ) | (67,156 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchases of investment securities |
(118,800 | ) | (42,633 | ) | ||||
| Maturities of investment securities |
59,160 | 117,188 | ||||||
| Sales of investment securities |
50,103 | 72,808 | ||||||
| Acquisitions of property and equipment |
(4,042 | ) | (2,699 | ) | ||||
| Proceeds from sale of partnership interests |
6,000 | 4,000 | ||||||
| Investments in affiliates |
(127,914 | ) | (64,751 | ) | ||||
| Net cash provided by (used in) investing activities |
(135,493 | ) | 83,913 | |||||
| Cash flows from financing activities: |
||||||||
| Proceeds from stock options |
5,946 | 7,453 | ||||||
| Borrowings under line of credit |
— | 4,308 | ||||||
| Net proceeds from issuance of convertible subordinated debt |
— | 269,940 | ||||||
| Net cash provided by financing activities |
5,946 | 281,701 | ||||||
| Net increase (decrease) in cash and cash equivalents |
(177,016 | ) | 298,458 | |||||
| Cash and cash equivalents, beginning of period |
332,039 | 40,450 | ||||||
| Cash and cash equivalents, end of period |
$ | 155,023 | $ | 338,908 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Interest payments on convertible subordinated debt |
$ | 5,744 | $ | — | ||||
| Supplemental schedule of noncash investing and financing activities: |
||||||||
| Debt forgiven upon achievement of clinical milestone |
$ | — | $ | 5,294 | ||||
| Note receivable from sale of partnership interests |
$ | — | $ | 6,000 | ||||
| Offset receivable from/due to Suncos Corporation |
$ | 1,668 | $ | |||||