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
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 000 – 50564
RENOVIS, INC.
(Exact Name of Registrant as Specified in its Charter)
| DELAWARE | 94-3353740 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| TWO CORPORATE DRIVE SOUTH SAN FRANCISCO, CALIFORNIA |
94080 | |
| (Address of principal executive offices) | (Zip Code) | |
(650) 266-1400
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 ¨ No x
As of November 10, 2004, 24,570,830 shares of our Common Stock, $.001 par value, were outstanding.
INDEX
| Part I. |
Financial Information | |||
| Item 1. Financial Statements (Unaudited) | ||||
| Condensed Balance Sheets – September 30, 2004 and December 31, 2003 | 3 | |||
| Condensed Statements of Operations – Three and Nine Months Ended September 30, 2004 and 2003 | 4 | |||
| Condensed Statements of Cash Flows – Nine Months Ended September 30, 2004 and 2003 | 5 | |||
| Notes to Condensed Financial Statements | 6 | |||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 | |||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 27 | |||
| Item 4. Controls and Procedures | 27 | |||
| Part II. |
Other Information | |||
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 28 | |||
| Item 6 Exhibits | 28 | |||
| 29 | ||||
2
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
| September 30, 2004 |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 5,050 | $ | 1,752 | ||||
| Short-term investments |
89,294 | 39,685 | ||||||
| Prepaids and other current assets |
2,375 | 2,314 | ||||||
| Total current assets |
96,719 | 43,751 | ||||||
| Property and equipment, net |
5,956 | 5,619 | ||||||
| Intangible assets, net |
1,338 | 2,199 | ||||||
| Other assets |
309 | 982 | ||||||
| $ | 104,322 | $ | 52,551 | |||||
| Liabilities and stockholders’ equity (net capital deficiency) |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 81 | $ | 685 | ||||
| Accrued compensation |
1,117 | 729 | ||||||
| License fees payable, current portion |
132 | 414 | ||||||
| Loans payable, current portion |
1,332 | 1,577 | ||||||
| Deferred revenue |
2,626 | — | ||||||
| Other accrued liabilities |
3,965 | 2,760 | ||||||
| Total current liabilities |
9,253 | 6,165 | ||||||
| Loans payable, noncurrent portion |
2,154 | 684 | ||||||
| Deferred revenue, noncurrent portion |
655 | — | ||||||
| Other long-term liabilities |
835 | 988 | ||||||
| Commitments |
||||||||
| Convertible preferred stock, $0.001 par value; 0 and 69,282,358 shares authorized at September 30, 2004 and December 31, 2003, respectively; issuable in series; 0 and 15,344,817 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively; aggregate liquidation preference of $0 and $130,062 at September 30, 2004 and December 31, 2003, respectively. |
— | 123,266 | ||||||
| Stockholders’ equity (net capital deficiency): |
||||||||
| Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued and outstanding |
— | — | ||||||
| Common stock, $0.001 par value; 100,000,000 and 87,000,000 shares authorized at September 30, 2004 and December 31, 2003, respectively; 24,314,987 and 1,348,128 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively. |
24 | 1 | ||||||
| Additional paid-in capital |
214,095 | 18,982 | ||||||
| Notes receivable from stockholders |
(1 | ) | (43 | ) | ||||
| Deferred stock compensation |
(10,985 | ) | (15,451 | ) | ||||
| Accumulated other comprehensive loss |
(308 | ) | — | |||||
| Accumulated deficit |
(111,400 | ) | (82,041 | ) | ||||
| Total stockholders’ equity (net capital deficiency) |
91,425 | (78,552 | ) | |||||
| $ | 104,322 | $ | 52,551 | |||||
See accompanying notes.
3
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Contract revenues |
$ | 656 | $ | — | $ | 1,969 | $ | 4,500 | ||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
8,577 | 5,249 | 22,192 | 12,587 | ||||||||||||
| General and administrative |
2,092 | 1,373 | 6,276 | 4,594 | ||||||||||||
| Amortization of employee stock-based compensation |
1,177 | 310 | 3,610 | 644 | ||||||||||||
| Acquired in-process research and development |
— | — | — | 17,305 | ||||||||||||
| Total operating expenses |
11,846 | 6,932 | 32,078 | 35,130 | ||||||||||||
| Loss from operations |
(11,190 | ) | (6,932 | ) | (30,109 | ) | (30,630 | ) | ||||||||
| Interest income |
410 | 114 | 1,025 | 238 | ||||||||||||
| Interest expense |
(71 | ) | (120 | ) | (276 | ) | (389 | ) | ||||||||
| Net loss |
(10,851 | ) | (6,938 | ) | (29,360 | ) | (30,781 | ) | ||||||||
| Deemed dividend upon issuance of Series E convertible preferred stock |
— | (43,393 | ) | — | (43,393 | ) | ||||||||||
| Net loss attributable to common stockholders |
$ | (10,851 | ) | $ | (50,331 | ) | $ | (29,360 | ) | $ | (74,174 | ) | ||||
| Basic and diluted net loss per share attributable to common stockholders |
$ | (0.45 | ) | $ | (50.34 | ) | $ | (1.41 | ) | $ | (82.57 | ) | ||||
| Shares used to compute basic and diluted net loss per share |
24,265,528 | 999,846 | 20,763,786 | 898,267 | ||||||||||||
See accompanying notes.
4
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ | (29,360 | ) | $ | (30,781 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
2,011 | 1,810 | ||||||
| Amortization of deferred stock compensation |
3,610 | 644 | ||||||
| Loss on disposal of fixed assets |
— | 24 | ||||||
| Acquired in-process research and development |
— | 17,305 | ||||||
| Noncash interest and issuances of equity |
1,094 | 852 | ||||||
| Change in operating assets and liabilities: |
||||||||
| Prepaids and other current assets |
(60 | ) | (556 | ) | ||||
| Other assets |
673 | (213 | ) | |||||
| Accounts payable |
(604 | ) | 419 | |||||
| Accrued compensation |
388 | 64 | ||||||
| License fees payable |
(282 | ) | (467 | ) | ||||
| Deferred revenue |
3,281 | — | ||||||
| Other accrued liabilities |
1,287 | 1,183 | ||||||
| Net cash used in operating activities |
(17,962 | ) | (9,716 | ) | ||||
| Cash flows from investing activities |
||||||||
| Capital expenditures |
(1,488 | ) | (1,196 | ) | ||||
| Purchases of short-term investments |
(198,768 | ) | (59,406 | ) | ||||
| Sales of short-term investments |
102,350 | 17,988 | ||||||
| Maturities of short-term investments |
46,500 | 9,000 | ||||||
| Cash paid relating to asset acquisition |
— | (138 | ) | |||||
| Net cash used in investing activities |
(51,406 | ) | (33,752 | ) | ||||
| Cash flows from financing activities |
||||||||
| Principal payments on loans payable |
(1,761 | ) | (1,519 | ) | ||||
| Proceeds from loans payable |
2,910 | 391 | ||||||
| Proceeds from issuance of common stock, net of repurchases |
71,475 | 708 | ||||||
| Proceeds from repayment of stockholder notes payable |
42 | — | ||||||
| Proceeds from issuance of convertible preferred stock |
— | 44,678 | ||||||
| Net cash provided by financing activities |
72,666 | 44,258 | ||||||
| Net increase in cash and cash equivalents |
3,298 | 790 | ||||||
| Cash and cash equivalents at beginning of period |
1,752 | 4,669 | ||||||
| Cash and cash equivalents at end of period |
$ | 5,050 | $ | 5,459 | ||||
| Supplemental schedule of noncash financing activities |
||||||||
| Conversion of preferred stock into common stock |
$ | 123,266 | $ | — | ||||
| Deemed dividend to preferred stockholders |
— | 43,393 | ||||||
See accompanying notes
5
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
The Company and Nature of Operations
Renovis, Inc. (the Company or Renovis) was incorporated in the state of Delaware on January 5, 2000. Renovis is a biopharmaceutical company developing drugs to treat neurological diseases and disorders. Its facilities are located in South San Francisco, CA.
From inception through December 31, 2003, Renovis was a development stage enterprise and its financial statements during that period were prepared in conformity with accounting principles generally accepted in the United States of America governing development stage enterprises. Beginning January 1, 2004, the Company exited the development stage after entering into a collaborative research, development and license agreement with Genentech, Inc. (see note 5).
The Company has sustained operating losses since inception and expects such losses to continue over the next several years. Management plans to continue to finance the operations with a combination of equity issuances, debt arrangements, and revenues from corporate alliances with pharmaceutical companies. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its research or development programs.
Basis of Preparation
The Company has prepared the condensed financial statements following the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles can be condensed or omitted. In the opinion of management, the financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. The information included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2003.
The condensed balance sheet amounts at December 31, 2003, have been derived from audited financial statements.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period presentation.
Restricted Cash
As of September 30, 2004 and December 31, 2003, prepaids and other current assets included restricted cash of $673,000 related to bank certificates of deposit to collateralize the rent deposit on the Company’s facility in South San Francisco, California.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company operates in one business segment.
Revenue Recognition
Revenue under collaborative agreements is recognized based on the performance requirements of the agreement. Amounts received under such arrangements consist of up-front license fees and include periodic milestone payments upon the achievement of certain events. Up-front payments which are subject to future performance requirements are recorded as deferred revenue and are amortized over the performance period. The performance period is estimated at the inception of the arrangement and is periodically reevaluated. The reevaluation of the performance period may shorten or lengthen the period during which the deferred revenue is recognized which would result in an acceleration or delay of expected revenue recognition. Payments received related to substantive, at-risk milestones are recognized upon achievement of the scientific or regulatory event specified in the underlying agreement.
Reverse Stock Split
In January 2004, the Board of Directors approved a 1-for-4.5 reverse stock split of its convertible preferred stock and common stock. The split was effective shortly before the completion of the initial public offering on February 10, 2004. An amended and restated certificate of incorporation was filed immediately prior to the closing of the initial public offering setting the authorized common stock and authorized preferred stock to 100,000,000 and 5,000,000 shares, respectively. All common share, preferred share and per share amounts contained in the financial statements have been retroactively adjusted to reflect the reverse stock split for all periods presented.
2. Stock-Based Compensation
The Company accounts for employee stock options using the intrinsic-value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB Opinion No. 25”), Financial Accounting Standards Board Interpretation (“FIN”) No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB No. 25, and related interpretations and has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”).
The option valuation models used to value the options under SFAS No. 123 were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected price volatility. Because the employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input can materially affect the fair value estimate, in the Company’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s employee stock options.
The Company has elected to continue to follow the intrinsic value method of accounting as prescribed by APB Opinion No. 25. The information regarding net loss as required by SFAS No. 123 has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The resulting effect on net loss pursuant to SFAS No. 123 is not likely to be representative of the effects on net loss pursuant to SFAS No. 123 in future years, since future years are likely to include additional grants and the irregular impact of future years’ vesting.
6
RENOVIS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS—(Continued)
The following table illustrates the weighted average assumptions for the Black-Scholes model used in determining the fair value of options granted to employees: