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 March 31, 2005
or
| ¨ | TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-27488
INCYTE CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 94-3136539 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
Experimental Station, Route 141 & Henry Clay Road,
Building E336, Wilmington, DE 19880
(Address of principal executive offices)
(302) 498-6700
(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. x Yes ¨ No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). x Yes ¨ No
The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 83,122,146 as of April 29, 2005.
INDEX
2
Condensed Consolidated Balance Sheets
(in thousands)
| March 31, 2005 |
December 31, 2004* |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 104,836 | $ | 132,180 | ||||
| Marketable securities—available-for-sale (1) |
343,858 | 337,584 | ||||||
| Accounts receivable, net |
2,547 | 2,143 | ||||||
| Prepaid expenses and other current assets |
6,251 | 7,142 | ||||||
| Assets of discontinued operation |
— | 2,264 | ||||||
| Total current assets |
457,492 | 481,313 | ||||||
| Property and equipment, net |
9,011 | 9,959 | ||||||
| Long-term investments (2) |
7,348 | 11,427 | ||||||
| Intangible and other assets, net |
13,607 | 14,220 | ||||||
| Total assets |
$ | 487,458 | $ | 516,919 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 2,322 | $ | 2,321 | ||||
| Accrued compensation |
4,635 | 7,876 | ||||||
| Interest payable |
2,268 | 6,217 | ||||||
| Accrued and other current liabilities |
4,701 | 4,838 | ||||||
| Deferred revenue |
2,225 | 1,807 | ||||||
| Accrued restructuring and acquisition costs |
5,489 | 5,873 | ||||||
| Liabilities of discontinued operation |
— | 2,549 | ||||||
| Total current liabilities |
21,640 | 31,481 | ||||||
| Convertible subordinated notes |
378,686 | 378,766 | ||||||
| Other liabilities |
27,264 | 28,155 | ||||||
| Total liabilities |
427,590 | 438,402 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock |
— | — | ||||||
| Common stock, $0.001 par value; 200,000,000 shares authorized; 83,114,133 and 83,022,414 shares issued and outstanding as of March 31, 2005 and December 31, 2004, respectively |
83 | 83 | ||||||
| Additional paid-in capital |
817,062 | 817,150 | ||||||
| Deferred stock-based compensation |
(135 | ) | (186 | ) | ||||
| Accumulated other comprehensive loss |
(707 | ) | (2,226 | ) | ||||
| Accumulated deficit |
(756,435 | ) | (736,304 | ) | ||||
| Total stockholders’ equity |
59,868 | 78,517 | ||||||
| Total liabilities and stockholders’ equity |
$ | 487,458 | $ | 516,919 | ||||
| * | The condensed consolidated balance sheet at December 31, 2004 has been derived from the audited financial statements at that date. |
| (1) | Includes investments in companies considered related parties under SFAS 57 of $5.7 million and $0.0 million at March 31, 2005 and December 31, 2004, respectively. |
| (2) | Includes investments in companies considered related parties under SFAS 57 of $7.3 million and $11.3 million at March 31, 2005 and December 31, 2004, respectively. |
See accompanying notes.
3
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Revenues |
$ | 2,915 | $ | 5,483 | ||||
| Costs and expenses: |
||||||||
| Research and development |
17,764 | 25,112 | ||||||
| Selling, general and administrative |
2,801 | 5,938 | ||||||
| Other expenses |
343 | 7,642 | ||||||
| Total costs and expenses |
20,908 | 38,692 | ||||||
| Loss from operations |
(17,993 | ) | (33,209 | ) | ||||
| Interest and other income (expense), net (1) |
2,152 | (413 | ) | |||||
| Interest expense |
(4,317 | ) | (3,520 | ) | ||||
| Loss on certain derivative financial instruments |
(126 | ) | (177 | ) | ||||
| Loss from continuing operations before income taxes |
(20,284 | ) | (37,319 | ) | ||||
| Provision for income taxes |
— | 108 | ||||||
| Loss from continuing operations |
(20,284 | ) | (37,427 | ) | ||||
| Income (loss) from discontinued operation, net of tax |
153 | (288 | ) | |||||
| Net loss |
$ | (20,131 | ) | $ | (37,715 | ) | ||
| Basic and diluted net loss per share: |
||||||||
| Continuing operations |
$ | (0.24 | ) | $ | (0.52 | ) | ||
| Discontinued operation |
— | — | ||||||
| $ | (0.24 | ) | $ | (0.52 | ) | |||
| Shares used in computing basic and diluted net loss per share |
83,049 | 72,643 | ||||||
| (1) | Includes losses on long-term investments in companies considered related parties under SFAS 57 of $0.0 million and $1.9 million for the three months ended March 31, 2005 and 2004, respectively. |
See accompanying notes.
4
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Net loss |
$ | (20,131 | ) | $ | (37,715 | ) | ||
| Other comprehensive income: |
||||||||
| Unrealized gain on marketable securities |
1,521 | 205 | ||||||
| Foreign currency translation adjustments |
(2 | ) | 61 | |||||
| Other comprehensive income |
1,519 | 266 | ||||||
| Comprehensive loss |
$ | (18,612 | ) | $ | (37,449 | ) | ||
See accompanying notes.
5
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (20,131 | ) | $ | (37,715 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| (Income) loss from discontinued operations |
(153 | ) | 288 | |||||
| Non-cash restructuring charges and impairment of long-lived assets |
342 | 2,626 | ||||||
| Depreciation and amortization |
1,853 | 3,062 | ||||||
| Compensation expense on executive loans |
18 | 19 | ||||||
| Stock-based compensation |
51 | 125 | ||||||
| Loss on derivative financial instruments, net |
126 | 177 | ||||||
| Impairment of long-term investments |
— | 2,747 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(404 | ) | 1,600 | |||||
| Prepaid expenses and other assets |
877 | 898 | ||||||
| Accounts payable |
1 | (1,046 | ) | |||||
| Accrued and other current liabilities |
(9,080 | ) | (6,903 | ) | ||||
| Deferred revenue |
418 | (2,205 | ) | |||||
| Net cash used in continuing operating activities |
(26,082 | ) | (36,327 | ) | ||||
| Net cash used in discontinued activities |
(191 | ) | (182 | ) | ||||
| Net cash used in operating activities |
(26,273 | ) | (36,509 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(95 | ) | (97 | ) | ||||
| Net proceeds from sale of Proteome facility |
59 | — | ||||||
| Purchases of marketable securities |
(86,155 | ) | (423,614 | ) | ||||
| Sales and maturities of marketable securities |
85,074 | 323,068 | ||||||
| Investing activities of discontinued operation |
— | (21 | ) | |||||
| Net cash used in investing activities |
(1,117 | ) | (100,664 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock under stock plans |
48 | 761 | ||||||
| Net proceeds from issuance of convertible subordinated notes |
— | 242,500 | ||||||
| Net cash provided by financing activities |
48 | 243,261 | ||||||
| Effect of exchange rate on cash and cash equivalents |
(2 | ) | 61 | |||||
| Net increase (decrease) in cash and cash equivalents |
(27,344 | ) | 106,149 | |||||
| Cash and cash equivalents at beginning of period |
132,180 | 29,698 | ||||||
| Cash and cash equivalents at end of period |
$ | 104,836 | $ | 135,847 | ||||
See accompanying notes.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
1. Organization and business
Incyte Corporation (“Incyte,” “we,” “us,” or “our”) is focused on the discovery and development of novel, small molecule drugs to treat major medical conditions, including infection with human immunodeficiency virus, or HIV, inflammatory disorders, cancer and diabetes. We have assembled a team of scientists with core competencies in the area of medicinal chemistry, and molecular, cellular and in vivo biology.
In January 2005, we sold certain assets and liabilities related to our Proteome facility based in Beverly, Massachusetts (“Proteome”). The condensed consolidated financial statements for the three months ended March 31, 2004 have been restated to present the operations of our Proteome facility as a discontinued operation.
2. Summary of significant accounting policies
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The condensed consolidated balance sheet as of March 31, 2005, condensed consolidated statements of operations, condensed consolidated statements of comprehensive loss and the condensed consolidated statements of cash flows for the three months ended March 31, 2005 and 2004 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The condensed consolidated balance sheet at December 31, 2004 has been derived from audited financial statements.
Although we believe that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.
Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2004.
Stock-based compensation
In accordance with the provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), we have elected to continue applying the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), as amended by FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation (“FIN 44”), in accounting for our stock-based compensation plans. Accordingly, we do not recognize compensation expense for stock options granted to employees and directors when the stock option price at the grant date is equal to or greater than the fair market value of the stock at that date. We also record, and amortize over the related vesting periods, deferred compensation representing the difference between the price per share of stock issued or the exercise price of stock options granted and the fair value of our common stock at the time of issuance or grant.
The fair value of each option and employee purchase right was estimated at the date of grant using a Black-Scholes option-pricing model, assuming no expected dividends and the following weighted average assumptions:
| Employee Stock Options |
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