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 September 30, 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 000-31615
DURECT CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 94-3297098 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
10240 Bubb Road
Cupertino, California 95014
(Address of principal executive offices, including zip code)
(408) 777-1417
(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 Act). YES x NO ¨
As of October 29, 2004, there were 51,802,765 shares of the registrant’s Common Stock outstanding.
2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three months ended September 30, |
Nine months ended September 30, |
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| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Product revenue, net |
$ | 1,776 | $ | 1,723 | $ | 4,901 | $ | 4,945 | ||||||||
| Collaborative research and development and other revenue |
1,589 | 1,227 | 4,929 | 3,786 | ||||||||||||
| Total revenues |
3,365 | 2,950 | 9,830 | 8,731 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Cost of revenues |
685 | 711 | 2,117 | 1,840 | ||||||||||||
| Research and development |
6,571 | 5,366 | 18,020 | 16,220 | ||||||||||||
| Selling, general and administrative |
2,262 | 2,141 | 6,825 | 6,603 | ||||||||||||
| Amortization of intangible assets |
303 | 339 | 946 | 1,009 | ||||||||||||
| Stock-based compensation(1) |
8 | (122 | ) | 178 | (141 | ) | ||||||||||
| Total operating expenses |
9,829 | 8,435 | 28,086 | 25,531 | ||||||||||||
| Loss from operations |
(6,464 | ) | (5,485 | ) | (18,256 | ) | (16,800 | ) | ||||||||
| Other income (expense): |
||||||||||||||||
| Interest income |
326 | 123 | 919 | 732 | ||||||||||||
| Interest expense |
(1,122 | ) | (1,068 | ) | (3,346 | ) | (1,371 | ) | ||||||||
| Net other expense |
(796 | ) | (945 | ) | (2,427 | ) | (639 | ) | ||||||||
| Net loss |
$ | (7,260 | ) | $ | (6,430 | ) | $ | (20,683 | ) | $ | (17,439 | ) | ||||
| Net loss per common share, basic and diluted |
$ | (0.14 | ) | $ | (0.13 | ) | $ | (0.40 | ) | $ | (0.35 | ) | ||||
| Shares used in computing basic and diluted net loss per share |
51,670 | 50,624 | 51,397 | 50,347 | ||||||||||||
(1) Stock-based compensation related to the following: |
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| Cost of revenues |
$ | — | $ | 3 | $ | 1 | $ | 14 | ||||||||
| Research and development |
3 | 34 | 156 | (225 | ) | |||||||||||
| Selling, general and administrative |
5 | (159 | ) | 21 | 70 | |||||||||||
| $ | 8 | $ | (122 | ) | $ | 178 | $ | (141 | ) | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
| September 30, 2004 |
December 31, 2003 |
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| (unaudited) | (Note 1) | |||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 18,245 | $ | 21,203 | ||||
| Short-term investments |
31,043 | 39,511 | ||||||
| Accounts receivable, net of allowance of $95 and $141, respectively |
2,512 | 1,968 | ||||||
| Inventories |
1,841 | 1,902 | ||||||
| Prepaid expenses and other current assets |
1,280 | 1,480 | ||||||
| Total current assets |
54,921 | 66,064 | ||||||
| Property and equipment, net |
7,189 | 9,316 | ||||||
| Goodwill |
6,399 | 6,399 | ||||||
| Intangible assets, net |
2,048 | 2,994 | ||||||
| Long-term investments |
17,268 | 21,334 | ||||||
| Restricted investments |
2,788 | 3,119 | ||||||
| Other long-term assets |
2,779 | 3,181 | ||||||
| Total assets |
$ | 93,392 | $ | 112,407 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 1,052 | $ | 616 | ||||
| Accrued liabilities |
2,380 | 2,618 | ||||||
| Contract research liability |
657 | 987 | ||||||
| Accrued liabilities to related party |
— | 17 | ||||||
| Interest payable on convertible notes |
1,104 | 167 | ||||||
| Deferred revenue |
548 | 146 | ||||||
| Term loan and lease obligation, current portion |
293 | 283 | ||||||
| Bonds payable, current portion |
180 | 180 | ||||||
| Total current liabilities |
6,214 | 5,014 | ||||||
| Term loan and lease obligation, noncurrent portion |
133 | 307 | ||||||
| Bonds payable, noncurrent portion |
1,065 | 1,065 | ||||||
| Convertible subordinated notes |
60,000 | 60,000 | ||||||
| Other long-term liabilities |
660 | 906 | ||||||
| Commitments |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock, $0.0001 par value: 110,000 shares authorized at September 30, 2004 and December 31, 2003, respectively; 51,803 and 51,163 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively |
5 | 5 | ||||||
| Additional paid-in capital |
195,923 | 194,968 | ||||||
| Notes receivable from stockholders |
— | (50 | ) | |||||
| Deferred compensation |
(7 | ) | (59 | ) | ||||
| Deferred royalties and commercial rights |
(13,480 | ) | (13,480 | ) | ||||
| Accumulated other comprehensive loss |
(184 | ) | (15 | ) | ||||
| Accumulated deficit |
(156,937 | ) | (136,254 | ) | ||||
| Total stockholders’ equity |
25,320 | 45,115 | ||||||
| Total liabilities and stockholders’ equity |
$ | 93,392 | $ | 112,407 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine months ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ | (20,683 | ) | $ | (17,439 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation |
2,789 | 2,562 | ||||||
| Amortization |
946 | 1,199 | ||||||
| Non-cash charges related to stock-based compensation |
178 | (141 | ) | |||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(544 | ) | (572 | ) | ||||
| Inventories |
61 | 114 | ||||||
| Prepaid expenses and other assets |
602 | 272 | ||||||
| Accounts payable |
436 | (33 | ) | |||||
| Accrued liabilities and other long-term liabilities |
(251 | ) | 544 | |||||
| Contract research liability |
(330 | ) | (90 | ) | ||||
| Interest payable on convertible notes |
937 | 1,073 | ||||||
| Deferred revenue |
402 | (617 | ) | |||||
| Total adjustments |
5,226 | 4,311 | ||||||
| Net cash and cash equivalents used in operating activities |
(15,457 | ) | (13,128 | ) | ||||
| Cash flows from investing activities |
||||||||
| Purchases of equipment |
(613 | ) | (439 | ) | ||||
| Purchases of available-for-sale securities |
(42,051 | ) | (90,334 | ) | ||||
| Proceeds from maturities of available-for-sale securities |
54,747 | 58,443 | ||||||
| Net cash and cash equivalents provided by (used in) investing activities |
12,083 | (32,330 | ) | |||||
| Cash flows from financing activities |
||||||||
| Payments on equipment financing obligations |
(1 | ) | (613 | ) | ||||
| Payment of notes payable |
— | |||||||