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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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, 1997
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 0-19125
ISIS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
33-0336973
(I.R.S Employer Identification No.)
2292 Faraday Avenue, Carlsbad, CA 92008
(Address of principal executive offices, including zip code)
760-931-9200
(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 of 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.
(1) YES X (2) YES X
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
Common stock $.001 par value 26,353,117 shares
(Class) (Outstanding at April 30, 1997)
EXHIBIT INDEX: NO. 27 : FINANCIAL DATA SCHEDULE
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ISIS PHARMACEUTICALS, INC.
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
Condensed Balance Sheets as of March 31, 1997 and
December 31, 1996 3
Condensed Statements of Operations for three months
ended March 31, 1997 and 1996 4
Condensed Statements of Cash Flows for the the three
months ended March 31, 1997 and 1996 5
Notes to Financial Statements 6
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations 7
Liquidity and Capital Resources 8 - 9
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings 10
ITEM 2: Changes in Securities 10
ITEM 3: Default upon Senior Securities 10
ITEM 4: Submission of Matters to a Vote of Security Holders 10
ITEM 5: Other Information 10
ITEM 6: Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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ISIS PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
ASSETS
March 31, December 31,
1997 1996
(Unaudited) (Note)
---------- ------------
Current assets:
Cash and cash equivalents $ 26,249 $ 37,082
Short-term investments 45,146 40,542
Prepaid expenses and other current assets 1,791 1,732
------ ------
Total current assets 73,186 79,356
Property, plant and equipment, net 17,791 15,334
Patent cost, net 6,393 6,157
Deposits and other assets 468 458
------ ------
$ 97,838 $ 101,305
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,434 $ 2,362
Accrued payroll and related expenses 892 1,489
Accrued liabilities 3,908 2,763
Deferred contract revenues 13,837 10,204
Current portion of long-term debt and
capital lease obligations 5,963 6,238
------ ------
Total current liabilities 27,034 23,056
Long-term debt and capital lease obligations,
less current portion 19,817 19,864
Stockholders' equity:
Common stock, $.001 par value;
50,000,000 shares authorized,
26,336,000 shares and 26,201,000 shares
issued and outstanding at March 31, 1997 and
December 31, 1996, respectively 26 26
Additional paid-in capital 182,384 181,248
Unrealized gain on investments 198 178
Accumulated deficit (131,621) (123,067)
--------- ---------
Total stockholders' equity 50,987 58,385
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$ 97,838 $ 101,305
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Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
See accompanying notes.
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ISIS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
(Unaudited)
Three months ended
March 31,
1997 1996
------ -------
Revenue:
Research and development revenue under
collaborative agreements: $ 4,626 $ 5,359
Interest Income 947 1,050
------ ------
5,573 6,409
Expenses:
Research and development 11,786 9,816
General and administrative 1,707 1,398
Interest expense 634 248
------ ------
14,127 11,462
------ ------
Net Loss $ (8,554) $ (5,053)
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Net Loss per share $ (.33) $ (.20)
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Weighted average common shares 26,278 25,348
======= ========
See accompanying notes
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ISIS PHARMACEUTICALS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
Three months ended
March 31,
1997 1996
----- -----
Cash used in operations: $ (3,711) $ (1,375)
Investing activities:
Short-term investments (4,604) (21,994)
Property and equipment (2,678) (441)
Other assets (268) (242)
-------- --------
Net cash used in
investing activities (7,550) (22,677)
-------- --------
Financing activities:
Net proceeds from issuance of common stock 1,136 746
Principal payments on debt and
capital lease obligations (708) (573)
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Net cash provided from financing
activities 428 173
-------- --------
Net decrease in cash and cash equivalents (10,833) (23,879)
Cash and cash equivalents at beginning
of the period 37,082 46,463
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Cash and cash equivalents at end of period $ 26,249 $ 22,584
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 240 $ 249
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Additions to capital lease obligations
for acquisitions of property, plant
and equipment $ 386 $ 1,238
See accompanying notes
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ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of presentation
The unaudited interim financial statements for the three months ended
March 31, 1997 and 1996 have been prepared on the same basis as the Company's
audited financial statements for the year ended December 31, 1996.
The financial statements include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
presentation of the financial position at such dates and the operating results
and cash flows for those periods. Results for the interim periods are not
necessarily indicative of the results of the entire year. For more complete
financial information, these financial statements, and notes thereto, should
be read in conjunction with the audited financial statements for the year
ended December 31, 1996 icluded in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
2. Accounting standard on earnings per share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculation of earnings per share is not expected to be
material.
3. Subsequent event
In April 1997, the Company entered into an agreement with a bank to borrow
$9.7 million. The proceeds of this loan were used to refinance the Company's
existing real estate loans, which had an aggregate balance of $6.6 million as
of March 31, 1997, and provide funding for tenant improvements in a new
46,000 square foot building the Company began to occupy in the first quarter
of 1997. The new loan bears interest at the prime rate plus 0.5 percent,
will mature in March 2002 and requires payments of $62,433 per month plus
interest. The loan is secured by the real estate financed under this
arrangement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition to historical information contained in this Report, this
Report contains forward-looking statements regarding the Company's business
and products and their projected prospects and qualities as well as the
Company's relationship with its corporate partners. Such statements are
subject to certain risks and uncertainties, particularly those inherent in
the process of discovering, developing and commercializing drugs that can be
proven to be safe and effective for use as human therapeutics, and the
endeavor of building a business around such potential products. Actual results
could differ materially from those projected in this Form 10-Q. As a result,
the reader is cautioned not to place undue reliance on these forward-looking
statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in Isis' Annual Report
on Form 10-K for the year ended December 31, 1996 which is on file with
the U.S. Securities and Exchange Commission, a copy of which is available
from the Company.
Since its inception in January 1989, the Company has devoted
substantially all of its resources to its research, drug discovery and
development programs. The Company has been unprofitable since its inception
and expects to incur additional operating losses for the next several years.
The Company has entered into collaborative research and development agreements
with pharmaceutical companies that generate revenue to augment the level of
research and development activity and to offset portions of its research and
development costs. To date, the Company has not received any significant
revenue from the sale of products.
RESULTS OF OPERATIONS
The Company had contract revenue of $4.6 million for the first quarter
ended March 31, 1997, compared with $5.4 million for the same period in 1996.
The revenue decrease was primarily due to the fact that in the quarter ended
March 31, 1996, concurrent with the execution of an expanded collaborative
agreement with Novartis Limited, the Company recognized contract revenue
totaling approximately $1.9 million for work performed in 1995 under the
terms of the expanded agreement. This decrease was partially offset by an
increase in revenue from a collaborative agreement with Boehringer Ingelheim
GmbH. The Company also had an interest income totaling $0.9 million for the
quarter compared with $1.1 million for the same period in 1996. This decrease
in interest income was primarily due to lower investment balances in the
quarter ended March 31, 1997.
Research and development expenses increased 20 percent to $11.8 million
for the three months ended March 31, 1997 from $9.8 million for the same
period in 1996. This increase was attributable to an increase in preclinical
and clinical development activities including the progression of compounds
into more advanced and more expensive stages of clinical development.
The Company expects that its development expenses will continue to increase
as its current preclinical and clinical activities advance and additional
preclinial and clinical studies are undertaken.
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General and administrative expenses increased to $1.7 million for the
quarter ended March 31, 1997, from $1.4 million for the same period in 1996.
The Company expects that its general and administrative expenses will
increase in the future in support of its expanding operations.
During the quarter ended March 31, 1997, the Company recorded a
net loss of $8.6 million, or $.33 per share, compared with $5.1 million,
or $.20 per share, for the same period in 1996. The Company expects that
its operating losses will increase for the remainder of the fiscal year
and beyond as its activities grow, and may fluctuate from quarter to quarter
as a result of differences in the timing and composition of revenue earned
and expenses incurred.
The Company believes that inflation and changing prices have not
had a material effect on its ongoing operations to date.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations
primarily through the sale of equity securities, raising net proceeds
aggregating approximately $180 million, as of March 31, 1997, from the
private and public sale of such securities. The Company has also financed
a portion of its operations through contract research revenue, portions of
which are paid in advance of work being performed, offsetting the Company's
cash usage for operations.
As of March 31, 1997, the Company had cash, cash equivalents and
short-term investments totaling $71.4 million and working capital of
$46.2 million. In comparison, the Company had cash, cash equivalents and
short-term investments of $77.6 million and working capital of $56.3 million
as of December 31, 1996. The decreases in cash and working capital during
the quarter resulted from the funding of operating losses, investments in
capital equipment and principal payments on debt and capital lease
obligations.
The Company had long-term debt and capital lease obligations at
March 31, 1997 totaling $25.8 million, versus $26.1 million at
December 31, 1996. The decrease was due to principal repayments on existing
obligations, partially offset by additional capital lease financing. The
Company expects that its capital lease obligations will increase over time to
fund capital equipment acquisitions required for its expanding business.
Lease lines will continue to be used by the Company to the extent that the
terms thereof remain commercially attractive.
The Company expects to incur substantial additional research and
development costs, including costs related to clinical trials, manufacturing
costs, and marketing and distribution expenses, and expects losses to
continue to increase as the Company's preclinical testing and clinical trial
efforts expand. It is the Company's intention to seek additional collaborative
research and development relationships with suitable potential corporate
partners. There can be no assurance that any agreements resulting from these
discussions will successfully reduce the Company's funding requirements, and
arrangements with collaborative partners or others may require the Company to
relinquish rights to certain of its technologies, product candidates or
products. Additional equity or debt financings will be required, and there can
be no assurance that these funds will be available on favorable terms,
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if at all. If additional funds are raised by issuing equity securities,
further dilution to then existing stockholders may result.
The Company anticipates that its existing available cash,
cash equivalents and short-term investments, combined with anticipated
interest income and contract revenues, will be adequate to satisfy its
anticipated capital requirements for approximately two years. The Company's
future capital requirements will depend on many factors, including continued
scientific progress in its research, drug discovery and development programs;
the magnitude of these programs and progress with preclinical and clinical
trials; the time and costs involved in obtaining regulatory approvals; the
cost involved in filing, prosecuting and enforcing patent claims; competing
technological and market developments; changes in the existing collaborative
research and development relationships and the ability of the Company to
establish additional research and development arrangements; and the cost of
manufacturing scale-up and effective commercialization activities and
arrangements. If adequate funds are not available, the Company may be required
to significantly curtail one or more of its research, drug discovery or
development programs.
Uncertainties associated with the length and expense of preclinical
and clinical testing of any of the Company's products could greatly
increase the cost of development of such product and affect the timing
of anticipated revenue from product sales, and failure by the Company to
obtain regulatory approval for any product will preclude its
commercialization. In addition, the failure by the Company to obtain
patent protection for its products may make certain of its products
commercially unattractive.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not party to any legal proceedings.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
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None.
b. Reports on Form 8-K
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The Company filed no reports on Form 8-K during the
quarter ended March 31, 1997.
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ISIS PHARMACEUTICALS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ISIS PHARMACEUTICALS, INC.
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(Registrant)
Date: May 7, 1997 By: /S/ STANLEY T. CROOKE
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Stanley T. Crooke, M.D., Ph.D.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: May 7, 1997 By: /S/ B. LYNNE PARSHALL
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B. Lynne Parshall
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit No. Description
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27 Financial Data Schedule
5
1000
3-MOS
DEC-31-1996
JAN-01-1997
MAR-31-1997
26,249
45,146
0
0
0
73,186
17,791
0
97,838
27,034
19,817
0
0
26
50,961
97,838
0
5,573
0
0
13,493
0
634
(8,554)
0
(8,554)
0
0
0
(8,554)
(.33)
(.33)
