UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | |
þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2006
OR
| | |
o | | 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. 0-12716
CLINICAL DATA, INC.
(Exact Name of Registrant as Specified in its Charter)
| | |
Delaware | | 04-2573920 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
|
One Gateway Center, Newton, Massachusetts | | 02458 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (617) 527-9933
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. YESþ NOo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filero Accelerated filero Non-accelerated filerþ
Indicate by check mark whether the registrant is a shell company (as defined n Rule 12b-2 of the Act). YESo NOþ
The number of shares outstanding of the registrant’s common stock as of August 4, 2006 was 9,584,063.
CLINICAL DATA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share amounts)
| | | | | | | | |
| | June 30, | | | March 31, | |
| | 2006 | | | 2006 | |
ASSETS | | | | | | | | |
| | | | | | | | |
CURRENT ASSETS: | | | | | | | | |
Cash and cash equivalents | | $ | 18,966 | | | $ | 7,225 | |
Accounts receivable, net | | | 17,099 | | | | 17,291 | |
Inventories, net | | | 14,299 | | | | 14,090 | |
Prepaid expenses and other current assets | | | 6,217 | | | | 5,189 | |
| | | | | | |
Total current assets | | | 56,581 | | | | 43,795 | |
| | | | | | | | |
PROPERTY, PLANT AND EQUIPMENT, Net | | | 11,302 | | | | 10,904 | |
GOODWILL | | | 26,338 | | | | 27,547 | |
INTANGIBLE ASSETS, Net | | | 21,539 | | | | 24,268 | |
OTHER ASSETS, Net | | | 1,073 | | | | 1,713 | |
| | | | | | |
TOTAL ASSETS | | $ | 116,833 | | | $ | 108,227 | |
| | | | | | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
Revolving credit facility | | $ | 3,859 | | | $ | 3,980 | |
Current portion of capital leases and long-term debt | | | 3,950 | | | | 3,929 | |
Accounts payable | | | 9,887 | | | | 10,838 | |
Accrued expenses | | | 13,339 | | | | 14,678 | |
Customer advances and deferred revenue | | | 3,572 | | | | 3,813 | |
Other current liabilities | | | 1,084 | | | | 1,708 | |
| | | | | | |
Total current liabilities | | | 35,691 | | | | 38,946 | |
| | | | | | |
| | | | | | | | |
CAPITAL LEASES AND LONG-TERM DEBT, NET OF CURRENT PORTION | | | 5,391 | | | | 7,063 | |
OTHER LONG-TERM LIABILITIES | | | 3,385 | | | | 2,314 | |
MINORITY INTEREST | | | 121 | | | | 115 | |
| | | | | | | | |
STOCKHOLDERS’ EQUITY: | | | | | | | | |
Preferred Stock, $.01 par value, 1,500,000 shares authorized Series A voting, convertible preferred stock, 234,000 shares issued and outstanding at June 30, 2006 and March 31, 2006, liquidation preference of $3,820,000 at June 30, 2006 | | | 2 | | | | 2 | |
Common stock, $.01 par value, 14,000,000 shares authorized; 9,594,000 and 8,520,000 shares issued at June 30, 2006 and March 31, 2006, respectively; 9,584,000 shares and 8,510,000 shares outstanding at June 30, 2006 and March 31, 2006, respectively | | | 96 | | | | 85 | |
Additional paid-in capital | | | 123,215 | | | | 105,145 | |
Accumulated deficit | | | (52,019 | ) | | | (45,810 | ) |
Treasury stock, 10,000 shares at cost | | | (47 | ) | | | (47 | ) |
Deferred compensation | | | — | | | | (318 | ) |
Accumulated other comprehensive income | | | 998 | | | | 732 | |
| | | | | | |
Total stockholders’ equity | | | 72,245 | | | | 59,789 | |
| | | | | | |
| | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 116,833 | | | $ | 108,227 | |
| | | | | | |
See notes to unaudited condensed consolidated financial statements.
- 3 -
CLINICAL DATA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
| | | | | | | | |
| | Three Months Ended | |
| | June 30, | |
| | 2006 | | | 2005 | |
REVENUES | | | | | | | | |
Products | | $ | 14,203 | | | $ | 11,278 | |
Services | | | 10,613 | | | | 1,495 | |
| | | | | | |
Total | | | 24,816 | | | | 12,773 | |
| | | | | | | | |
COST OF REVENUES | | | | | | | | |
| | | | | | | | |
Products | | | 9,012 | | | | 7,806 | |
Services | | | 6,704 | | | | 373 | |
| | | | | | |
Total | | | 15,716 | | | | 8,179 | |
| | | | | | |
| | | | | | | | |
Gross profit | | | 9,100 | | | | 4,594 | |
| | | | | | | | |
OPERATING EXPENSES | | | | | | | | |
Sales and marketing | | | 2,770 | | | | 1,559 | |
Research and development | | | 3,228 | | | | 707 | |
General and administrative | | | 8,676 | | | | 1,668 | |
| | | | | | |
Total operating expenses | | | 14,674 | | | | 3,934 | |
| | | | | | |
| | | | | | | | |
(Loss) income from operations | | | (5,574 | ) | | | 660 | |
| | | | | | | | |
Interest expense | | | (248 | ) | | | (80 | ) |
Interest income | | | 102 | | | | 28 | |
Other income (expense), net | | | 33 | | | | 3 | |
| | | | | | |
(Loss) income before provision for taxes and minority interest | | | (5,687 | ) | | | 611 | |
Provision for income taxes | | | (492 | ) | | | (200 | ) |
Minority interest | | | (6 | ) | | | (4 | ) |
| | | | | | |
Net (loss) income | | | (6,185 | ) | | | 407 | |
Preferred stock dividend | | | (24 | ) | | | — | |
| | | | | | |
Net (loss) income applicable to common stockholders | | $ | (6,209 | ) | | $ | 407 | |
| | | | | | |
| | | | | | | | |
Basic net (loss) income per share | | $ | (0.71 | ) | | $ | 0.09 | |
| | | | | | |
Diluted net (loss) income per share | | $ | (0.71 | ) | | $ | 0.09 | |
| | | | | | |
| | | | | | | | |
Weighted average shares: | | | | | | | | |
Basic | | | 8,709 | | | | 4,395 | |
Diluted | | | 8,709 | | | | 4,519 | |
See notes to unaudited condensed consolidated financial statements.
- 4 -
CLINICAL DATA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
| | | | | | | | |
�� | | Three Months Ended | |
| | June 30, | |
| | 2006 | | | 2005 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
| | | | | | | | |
Net (loss) income | | $ | (6,185 | ) | | $ | 407 | |
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 3,088 | | | | 436 | |
Allowance for bad debts | | | 684 | | | | — | |
Stock-based compensation | | | 1,235 | | | | — | |
Gain on sales of equipment | | | (161 | ) | | | — | |
Minority interest | | | 6 | | | | 4 | |
Changes in current assets and liabilities: | | | | | | | | |
Accounts receivable | | | (162 | ) | | | (363 | ) |
Inventories | | | 166 | | | | (442 | ) |
Prepaid expenses and other current assets | | | (1,160 | ) | | | (509 | ) |
Other assets | | | 1,038 | | | | (331 | ) |
Accounts payable and accrued liabilities | | | (1,978 | ) | | | 570 | |
Customer advances and deferred revenue | | | (297 | ) | | | 1,071 | |
Other current liabilities | | | (525 | ) | | | 22 | |
| | | | | | |
Net cash (used in) provided by operating activities | | | (4,251 | ) | | | 865 | |
| | | | | | |
| | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| | | | | | | | |
Purchase of equipment | | | (711 | ) | | | (230 | ) |
Proceeds from sales of equipment | | | 192 | | | | — | |
| | | | | | |
Net cash used in investing activities | | | (519 | ) | | | (230 | ) |
| | | | | | |
| | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| | | | | | | | |
Net (payments on) proceeds from revolving credit facility | | | (121 | ) | | | 900 | |
Borrowings under other debt arrangements | | | 43 | | | | 121 | |
Payment on debt and capital leases | | | (714 | ) | | | (79 | ) |
Proceeds from the sale of common stock and warrants, net of transaction costs | | | 16,894 | | | | — | |
Exercise of stock options | | | 271 | | | | — | |
Stockholder dividends | | | — | | | | (176 | ) |
| | | | | | |
Net cash provided by financing activities | | | 16,373 | | | | 766 | |
| | | | | | |
| | | | | | | | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | | | 138 | | | | (391 | ) |
| | | | | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | | | 11,741 | | | | 1,010 | |
| | | | | | | | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | | 7,225 | | | | 4,171 | |
| | | | | | | | |
| | | | | | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 18,966 | | | $ | 5,181 | |
| | | | | | |
See notes to unaudited condensed consolidated financial statements.
- 5 -
CLINICAL DATA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005
(1) Operations and Basis of Presentation
Clinical Data, Inc. (the “Company”) is a Delaware corporation headquartered in Newton, Massachusetts. Traditionally, the Company’s primary business activities were focused on serving the needs of physician’s office laboratories (“POLs”) and scientific instrumentation used in clinical and analytical laboratories. Substantially all traditional operations are conducted through four operating subsidiaries located in the United States, Netherlands, Italy and Australia. The Company’s United States subsidiary, Clinical Data Sales & Service, Inc. (“CDSS”), supplies a range of products and services, from equipment and reagents to lab management and consulting services to POLs and small and medium sized medical laboratories in the United States. The Company’s Dutch subsidiary, Vital Scientific NV (“Vital Scientific”), and Italian subsidiary, Electa Lab s.r.l. (“Electa Lab”), design and manufacture scientific instrumentation. The Company’s Australian subsidiary, Vital Diagnostics Pty. Ltd. (“Vital Diagnostics”), distributes diagnostic instruments and assays in the South Pacific.
The Company established its molecular and pharmacogenomics services business in fiscal 2006 by acquiring Genaissance Pharmaceuticals, Inc. (“Genaissance”), Icoria, Inc. (“Icoria”) and Genome Express S.A. (“Genome Express”). A comprehensive range of molecular and pharmacogenomic services are marketed and provided to pharmaceutical, biotech, academia, agricultural and government clients under the CogenicsTM brand name. Genetic tests and biomarker development and validation activities relating to genetic tests aimed at improving the use of drugs and the identification of specific diseases in individuals are provided and marketed under the PGxHealthTM brand name. The Company is seeking to develop and commercialize vilazodone, a novel dual serotonergic antidepressant compound being studied for treatment of depression, along with a potential companion biomarker test that will be developed and marketed by the PGxHealth division.
The acquired businesses had a significant impact on the reported results of operations and financial position for fiscal 2006 and will have a significant impact on future operations and cash flows. Prior to the acquisitions, Genaissance, Icoria and Genome Express reported significant operating losses and used significant cash in operations. These operating losses may continue for the next twelve months or longer depending upon the business developments and research and development efforts, particularly those related to vilazodone and PGxHealthTM.
The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
The Company’s sources of cash as of June 30, 2006, include cash balances, existing lines of credit, cash flows from operations of certain divisions, and possible future equity and/or debt financings. The Company’s projected uses of cash include cash used in operations of certain operating divisions, capital expenditures, existing debt service costs and continued development of potential products through internal research, collaborations and, possibly through strategic acquisitions. The Company has undertaken several steps to improve liquidity and reduce its projected uses of cash, including completion of a private placement of common stock on June 13, 2006 for net proceeds of approximately $16.9 million and the restructuring of certain long-term debt and lease obligations. At currently projected rates of expenditure, management believes that additional funding will be required to operate the Company through the end of the third quarter of fiscal 2007, including the funding of Phase III clinical trials for vilazodone, which was acquired in the Genaissance transaction. During the three months ended June 30, 2006, research and development expense included approximately $1.3 million of expense related to the Phase III clinical trials of vilazodone. To reduce its cash utilization, the Company is working to accelerate the integration of the businesses acquired during fiscal 2006 into the Company’s operations. The Company will seek such financing from public or private issuances of equity or debt securities, or from collaborations with third parties or government grants. If the Company is unable to obtain any required additional financing, it may be required to reduce the scope of its planned research, development and commercialization activities, including those efforts related to vilazodone, which would reduce the use of cash but could harm the Company’s long-term financial condition and operating results.
- 6 -
(2) Summary of Significant Accounting Policies
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
| | | | | | | | |
| | June 30, | | | March 31, | |
(in thousands) | | 2006 | | | 2006 | |
Raw materials | | $ | 5,788 | | | $ | 6,425 | |
Work-in-process | | | 2,508 | | | | 1,643 | |
Finished goods | | | 6,003 | | | | 6,022 | |
| | | | | | |
| | $ | 14,299 | | | $ | 14,090 | |
| | | | | | |
Net (Loss) Income per Share
Basic net (loss) income per share is determined by dividing net (loss) income applicable to common stockholders by the weighted average shares of common stock outstanding during the period. Diluted earnings per share is determined by dividing net (loss) income applicable to common stockholders by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as common stock options, warrants, convertible loans, restricted common stock convertible preferred stock calculated using the treasury stock method and convertible preferred stock using the “if-converted” method.
The number of basic and diluted weighted average shares outstanding is as follows:
| | | | | | | | |
| | Three Months Ended June 30, | |
(in thousands) | | 2006 | | | 2005 | |
Basic weighted average common shares outstanding | | | 8,907 | | | | 4,395 | |
Dilutive effect of common stock options | | | — | | | | 124 | |
| | | | | | |
Diluted weighted average common shares outstanding | | | 8,907 | | | | 4,519 | |
| | | | | | |
The following dilutive securities were not included in the diluted earnings per share calculations as at June 30, 2006 because the inclusion of these amounts would have been anti-dilutive because the Company has a net loss.
| | | | |
(in thousands) | | | | |
Common stock options | | | 873 | |
Common stock warrants | | | 972 | |
Convertible loan | | | 43 | |
Voting convertible series A preferred stock | | | 234 | |
| | | |
Potentially dilutive securities outstanding | | | 2,122 | |
| | | |
Comprehensive (Loss) Income
The components of other comprehensive (loss) income for the three months ended June 30, 2006 and 2005 are as follows:
- 7 -
(2) Summary of Significant Accounting Policies(continued)
| | | | | | | | |
| | Three Months Ended June 30, | |
(in thousands) | | 2006 | | | 2005 | |
Net (loss) income | | $ | (6,185 | ) | | $ | 407 | |
Translation adjustment | | | 266 | | | | (663 | ) |
| | | | | | |
Total comprehensive loss | | $ | (5,919 | ) | | $ | (256 | ) |
| | | | | | |
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109, which will be effective for the Company beginning April 1, 2007. The interpretation provides that a tax position is recognized if the enterprise determines that it is more likely than not that a tax position will be sustained based on the technical merits of the position, on the presumption that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods and transition. The Company is in the process of evaluating the impact that adoption of the interpretation will have on its financial statements.
(3) Goodwill and Intangible Assets
Goodwill balances, by segment, are as follows:
| | | | | | | | |
| | June 30, | | | March 31, | |
(in thousands) | | 2006 | | | 2006 | |
Clinics and small hospitals | | $ | 1,153 | | | $ | 1,153 | |
Physician’s office laboratories | | | 6,350 | | | | 6,350 | |
Molecular services | | | 18,835 | | | | 20,044 | |
| | | | | | |
| | $ | 26,338 | | | $ | 27,547 | |
| | | | | | |
During the three months ended June 30, 2006, reduction in goodwill in the Molecular Services segment was primarily related to a $1.2 million reduction in accrued expenses recorded for the favorable resolution of a pre-acquisition contingency.
- 8 -
(3) Goodwill and Intangible Assets(continued)
The intangible asset balances are as follows:
| | | | | | | | |
| | June 30, | | | March 31, | |
(in thousands) | | 2006 | | | 2006 | |
Purchased intangibles | | | | | | | | |
Completed technology | | $ | 12,400 | | | $ | 12,400 | |
Customer relationships | | | 12,245 | | | | 12,245 | |
Other | | | 803 | | | | 803 | |
| | | | | | |
| | | 25,448 | | | | 25,448 | |
Less: accumulated amortization | | | (5,917 | ) | | | (4,123 | ) |
| | | | | | |
Purchased intangibles, net | | | 19,531 | | | | 21,325 | |
| | | | | | |
| | | | | | | | |
Capitalized software | | | 1,697 | | | | 1,609 | |
Less: accumulated amortization | | | (556 | ) | | | (443 | ) |
| | | | | | |
Capitalized software, net | | | 1,141 | | | | 1,166 | |
| | | | | | |
| | | | | | | | |
ERP implementation and software | | | 867 | | | | 1,777 | |
| | | | | | |
| | | | | | | | |
Intangible assets, net | | $ | 21,539 | | | $ | 24,268 | |
| | | | | | |
(4) Restructuring and Integration Reserves
In connection with the acquisitions of Genaissance, Icoria and Genome Express, the Company recorded restructuring and integration reserves totaling approximately $4.6 million, representing severance of $3.1 million and lease termination of $1.5 million. A summary of the severance and lease termination activity as of June 30, 2006 is as follows:
| | | | | | | | | | | | | | | | |
| | Balance | | | | | | | | | | | Balance | |
| | March 31, | | | Fiscal 2007 | | | June 30, | |
| | 2006 | | | Accrual | | | Payments | | | 2006 | |
Severance | | $ | 2,350 | | | $ | — | | | $ | (848 | ) | | $ | 1,502 | |
Lease termination costs | | | 1,090 | | | | 14 | | | | (422 | ) | | | 682 | |
| | | | | | | | | | | | |
| | $ | 3,440 | | | $ | 14 | | | $ | (1,270 | ) | | $ | 2,184 | |
| | | | | | | | | | | | |
The Company expects the severance costs will be fully paid during the third quarter of fiscal 2007 and the lease termination fee will be fully paid during fiscal 2010.
(5) Equity-Based Compensation
The Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R),Share-Based Payment(“SFAS 123R”), using the modified prospective application method effective April 1, 2006. SFAS 123R establishes accounting for stock-based awards exchanged for employee services and other stock-based transactions. Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as compensation cost over the requisite service period. The Company previously applied Accounting Principles Board, or APB, Opinion No. 25,Accounting for Stock Issued to Employees,and its interpretations and provided the required pro forma disclosures of SFAS No. 123,Accounting for Stock-Based Compensation(“SFAS 123”). The effects of adoption of SFAS 123R were $294,000 (or $(0.03) per share), reflecting the compensation expense of stock options at fair value.
- 9 -
(5) Equity-Based Compensation (continued)
Stock-based compensation expense totaled approximately $1.2 million and $0 during the three months ended June 30, 2006 and 2005, respectively. In the three months ended June 30, 2006, the Company granted 70,000 options to Kevin Rakin, a member of the Company’s Board of Directors, in connection with the settlement of an employment agreement. The options were exercisable immediately and had a fair value of approximately $896,000, which was expensed on the date of grant.
The following table presents the stock-based compensation expense in the three months ended June 30, 2006:
| | | | |
(in thousands, except per share amouts) | | | | |
Cost of revenues | | $ | 7 | |
Research and development | | | 84 | |
General and administrative | | | 1,144 | |
| | | |
Pre-tax stock-based compensation expense | | | 1,235 | |
Income tax benefits | | | — | |
| | | |
|
Stock-based compensation expense, net | | $ | 1,235 | |
| | | |
| | | | |
Basic and diluted net loss per share | | $ | (0.14 | ) |
| | | |
Since the Company realized no tax benefits related to the stock-based compensation expense, the adoption of SFAS 123R had no impact on the reported net cash flows provided from operating or financing activities during the three months ended June 30, 2006.
The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee awards for the three months ended June 30, 2005:
| | | | |
Net income, as reported | | $ | 407 | |
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects | | | — | |
Deduct: Total stock-based compensation expense determined under the fair value method, net of related tax effects | | | (20 | ) |
| | | |
|
Pro forma net income | | $ | 387 | |
| | | |
|
Basic and diluted net income per share, as reported | | $ | 0.09 | |
| | | |
|
|
Basic and diluted net income per share, pro forma | | $ | 0.09 | |
| | | |
The fair value of options on the date of grant was estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected stock price volatility was calculated based on the historical volatility of our common stock over the expected life of the option. The average expected life in 2006 was based on an average of the vesting period and the contractual term of the option in accordance with SEC Staff Accounting Bulletin No. 107. The risk-free interest rate is based on zero-coupon U.S. Treasury securities with a maturity term approximating the expected life of the option at the date of grant. Pre-vested forfeitures have historically been minimal and are estimated to be 0% per annum based on an analysis of historical option forfeitures.
- 10 -
(5) Equity-Based Compensation(continued)
The assumptions used to calculate the grant-date fair value of the options for the three months ended June 30, 2006 were as follows:
| | | | |
Risk-free interest rate | | | 4.95 — 5.18 | % |
Expected life of the options | | 5—6 years |
Expected volatility | | | 83 | % |
Expected dividend yield | | | 0.0 | % |
Fair value of awards | | $ | 12.00 | |
There were no options granted during the three months ended June 30, 2005.
Incentive Plans— The Company established a 1991 Stock Option Plan (the “1991 Plan”) and a 1991 Directors’ Stock Option Plan (the “Directors’ Plan”) under which an aggregate of 150,000 shares and 75,000 shares of common stock were reserved, respectively, for the purpose of granting incentive and nonstatutory stock options. In September 2002, the stockholders approved the establishment of the 2002 Incentive and Stock Option Plan (the “2002 Plan”) under which an aggregate of 250,000 shares of common stock were reserved. In October 2005, the stockholders approved the establishment of the 2005 Equity Incentive Plan (the “2005 Plan”) under which an aggregate of 1.0 million shares of common stock were reserved. At its Annual Meeting of Stockholders to be held on September 21, 2006, the Company plans to seek shareholder approval to amend the 2005 Plan by (a) increasing the aggregate number of shares issuable from 1.0 million to 2.0 million and (b) increasing the maximum number of shares that may be awarded to any participant in any tax year from 150,000 to 500,000 shares. All options are granted at not less than the fair market value of the stock on the date of grant.
Under the terms of the 1991 Plan and the Directors’ Plan, options are exercisable over various periods not exceeding four years. The options under the 1991 Plan expire no later than seven years after the date of grant whereas the options granted under the Directors’ Plan expire no later than ten years after the date of grant.
Under the terms of the 2002 Plan and 2005 Plan, options are exercisable at various periods and expire as set forth in the grant document. In the case where an incentive stock option is granted, the maximum expiration date is not later than 10 years from the date of grant unless made to a more than 10% stockholder, in which case, such incentive stock options expire no later than 5 years from the date of grant.
A summary of option activity during the quarter ended June 30, 2006 was as follows:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | Average | | Aggregate |
| | Number of | | Weighted | | Remaining | | Intrinsic |
| | Options | | Average | | Contractual | | Value |
| | (in thousands) | | Price | | Term (in years) | | (in thousands) |
Outstanding at April 1, 2006 | | | 612 | | | $ | 30.17 | | | | | | | | | |
Granted | | | 323 | | | | 18.48 | | | | | | | | | |
Exercised | | | (34 | ) | | | 7.94 | | | | | | | | | |
Forfeited | | | (28 | ) | | | 18.94 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at June 30, 2006 | | | 873 | | | $ | 26.31 | | | | 7.35 | | | | 1,403 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Exercisable at June 30, 2006 | | | 467 | | | $ | 32.70 | | | | 5.43 | | | | 1,311 | |
The intrinsic value of the options exercised in the quarter ended June 30, 2006, was $390,000. The options granted in 2006 include 150,000 options awarded to the Company’s CEO in connection with his employment agreement. An additional 150,000 options are due to be granted to the CEO should the stockholders approve the proposed amendments to the 2005 Plan in September 2006, as described above.
- 11 -
(5) Equity-Based Compensation(continued)
As of June 30, 2006, there was $4,608,000 of total unrecognized compensation cost related to unvested stock-based compensation arrangements granted under our stock plans. That cost is expected to be recognized over a weighted average period of 7.3 years.
(6) Equity
On June 13, 2006, the Company closed a private placement of common stock in which it sold 1,039,783 shares of common stock and warrants to purchase an additional 519,889 shares of common stock for net proceeds of approximately $16.9 million, after transaction expenses of approximately $26,000, to certain institutional and other qualified investors, including certain members of the Company’s board of directors. The unit price was $16.27, which equaled the closing bid price of its common stock on NASDAQ on the closing date, plus $0.06. The exercise price of the warrants is $19.45. The warrants are exercisable beginning December 14, 2006 and expire on June 13, 2011.
(7) Related Party Transaction
On June 9, 2006, the Company issued $2.0 million of convertible promissory notes to two affiliates of Randal J. Kirk, the Chairman of the Board of the Company. The notes, which were payable at thirty days from the date of issuance, accrued interest at a rate of 12% per annum and were convertible at the option of the holders into the same type of security sold by the Company to investors in the first financing following issuance. On June 14, 2006, the notes plus accrued interest of approximately $4,000 were converted as part of the private placement of common stock discussed in Note 6 above.
(8) Segment Information
The Company manages its business as four operating segments: sales of instruments and consumables to Clinics and Small Hospitals; sales of instruments, consumables and services to Physician’s Office Laboratories, Molecular Services and All Other. “All Other” includes corporate related items, results of insignificant operations and, as it relates to segment profit (loss), income and expense not allocated to reportable segments.
Segment information for the three months ended June 30, 2006 and 2005 is as follows:
- 12 -
(8) Segment Information(continued)
| | | | | | | | | | | | | | | | | | | | |
| | Clinics and | | Physician’s | | | | | | |
| | Small | | Office | | Molecular | | All | | |
(in thousands) | | Hospitals | | Laboratories | | Services | | Other | | Total |
Revenues | | | | | | | | | | | | | | | | | | | | |
2006 | | $ | 10,211 | | | $ | 5,404 | | | $ | 9,201 | | | $ | — | | | $ | 24,816 | |
2005 | | | 5,878 | | | | 6,890 | | | | — | | | | 5 | | | | 12,773 | |
| | | | | | | | | | | | | | | | | | | | |
Cost of revenues and operating expenses | | | | | | | | | | | | | | | | | | | | |
2006 | | | 8,215 | | | | 5,963 | | | | 14,796 | | | | 1,416 | | | | 30,390 | |
2005 | | | 5,385 | | | | 6,490 | | | | — | | | | 238 | | | | 12,113 | |
| | | | | | | | | | | | | | | | | | | | |
Interest income | | | | | | | | | | | | | | | | | | | | |
2006 | | | 17 | | | | — | | | | 42 | | | | 43 | | | | 102 | |
2005 | | | 27 | | | | 1 | | | | — | | | | — | | | | 28 | |
| | | | | | | | | | | | | | | | | | | | |
Interest expense | | | | | | | | | | | | | | | | | | | | |
2006 | | | — | | | | 133 | | | | 112 | | | | 3 | | | | 248 | |
2005 | | | 11 | | | | 59 | | | | — | | | | 10 | | | | 80 | |
| | | | | | | | | | | | | | | | | | | | |
Income tax provision (benefit) | | | | | | | | | | | | | | | | | | | | |
2006 | | | 501 | | | | — | | | | (24 | ) | | | 15 | | | | 492 | |
2005 | | | 176 | | | | 36 | | | | — | | | | (12 | ) | | | 200 | |
| | | | | | | | | | | | | | | | | | | | |
Net (loss) income | | | | | | | | | | | | | | | | | | | | |
2006 | | | 887 | | | | (645 | ) | | | (5,567 | ) | | | (860 | ) | | | (6,185 | ) |
2005 | | | 346 | | | | 296 | | | | — | | | | (235 | ) | | | 407 | |
Geographic information for the three months ended June 30, 2006 and 2005 is as follows:
| | | | | | | | | | | | | | | | |
| | North | | | | | | |
(in thousands) | | America | | Europe | | All Other | | Total |
Revenues | | | | | | | | | | | | | | | | |
2006 | | $ | 12,918 | | | $ | 6,336 | | | $ | 5,562 | | | $ | 24,816 | |
2005 | | | 6,539 | | | | 3,105 | | | | 3,129 | | | | 12,773 | |
| | |
ITEM 2. | | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward — Looking Statements and Risk Factors
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements reflect our plans, estimates and beliefs. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not transpire. We discuss many of these risks in Item 1A under the
- 13 -
heading “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2006 and in Item 1A, Part II, of this report.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.
Overview
Our business activities are reported in four operating segments: (i) molecular services, which is comprised of the recently acquired operations of Genaissance, Icoria and Genome Express (molecular services segment); (ii) sales of diagnostic equipment, consumables and services to POLs (POL segment); (iii) sales of diagnostic equipment, consumables and services to small-to-medium-sized clinics, hospitals and laboratories (clinics and small hospitals segment); and (iv) all other activities, which includes corporate-related items, results of insignificant operations and income and expense not allocated to reportable segments. The molecular services segment, at the present, is the principal segment contributing to our reported loss.
We believe we are a leading provider of molecular services, pharmacogenomics, genetic testing and clinical diagnostics to improve patient care. Our molecular services segment is among the largest independent providers of pharmacogenomics and metabolomics services globally. Our genomic services are marketed to the pharmaceutical, biotech, clinical, academic, government and agricultural marketplaces. We are utilizing pharmacogenomics to develop genetic based tests and diagnostics and more efficacious therapeutics by finding genetic markers to guide drug development and utilization. Our therapeutic product, vilazodone, for depression is in Phase III clinical development.
Our future success in molecular services will depend in large part on maintaining a competitive position in the genomics field, a field that has undergone, and is expected to continue to undergo, rapid and significant change. In addition, the competition in the pharmacogenomic and molecular services market is intense and includes pharmaceutical, biotechnology and diagnostic companies, academic and research institutions and government and other publicly funded agencies, both in the U.S. and abroad. Our future success in this highly competitive market depends on our ability to demonstrate that our recently acquired technology platforms, know how, and informatics technologies and capabilities are superior to those of such competitors and our ability to advance technologies and genetic testing franchises. The Company must continue to advance its intellectual property and that which it in licenses in order to develop and commercialize a new generation of genetic tests. In addition, we must continue to contain costs and move toward profitability while growing revenues wherever possible.
Funding the continued development of vilazodone is another challenge that we face in our molecular services business. We currently do not have the cash reserves or the revenue and related cash flows from other sources to fund such development. In order to successfully commercialize this drug candidate, we will be required to either partner with a third party that has sufficient resources or raise capital through the sale of our debt or equity securities. Establishing a partnership with another company could have an impact on the future revenues we can expect to receive from vilazodone if we have to share some portion of such revenues with a development partner. Additionally, fund raising could serve to dilute our existing stockholders’ ownership.
We also face challenges with respect to our recent acquisitions. Integrating the operations and personnel of Genaissance and Icoria will require significant efforts from each company, including the coordination of product development, sales and marketing efforts and administrative operations and will be a time-consuming and complex process. Given that both Genaissance and Icoria have a history of incurring significant net losses, we face the challenge of successfully integrating Genaissance and Icoria into businesses that will generate sufficient revenue to become profitable and will sustain profitability if they do become profitable and alleviating the need for ongoing capital raises. The Company has added seasoned management to assist in this transition and these efforts.
- 14 -
With respect to our diagnostic instrumentation operations, revenues from clinical laboratory testing are anticipated to grow as a result of the aging of the population, increased healthcare awareness and expanding insurance coverage. The present focus, however, on greater efficiency in disease management and on reducing health care costs exposes our customers to a constant pressure to contain costs. Consequently, in order to remain competitive and gain market share in these growing markets, it is essential for us to continue to provide cost-effective technologies and services.
Competition in the medical products industry, which includes our diagnostic instrumentation, reagent and consulting services businesses, is intense and expected to increase as new products, technologies and services become available and new competitors enter the market. Our competitors in the United States, Europe and Asia-Pacific are numerous and include, among others, large, multi-national diagnostic testing and medical products companies. Our future success depends upon maintaining a competitive position in the development and distribution of products, technologies and services in its areas of focus in POLs and smaller clinical laboratories. In order to grow, gain market share and remain competitive, we must continue to introduce new products, technologies and services, and invest in research and development.
Financial Operations Overview
Revenues.Our product revenues are generated primarily from the sale of diagnostic equipment, reagents and other consumables to POLs and small-to-medium sized clinics, hospitals and laboratories.
Our service revenues are generated primarily from (i) service fees, milestone achievements and deliveries of molecular services data and assays; (ii) maintenance services provided on diagnostic equipment sold by us; and (iii) laboratory management fees and consulting services provided to POLs and to small-to-medium size clinics, hospitals and laboratories.
Cost of Revenues.Cost of product revenues primarily represent costs to purchase or manufacture the diagnostic equipment, reagents and consumables, including equipment, parts and other materials, salaries and related expenses for personnel, including stock-based compensation expenses, and manufacturing overhead costs, such as depreciation, rent, utilities and other facilities costs.
Cost of service revenues consist primarily of salaries and related expenses for personnel, including stock-based compensation expenses, laboratory expenses, depreciation, travel and facilities expenses, including rent, utilities and other facilities costs.
Sales and Marketing Expense.Sales and marketing expense consists primarily of salaries, commissions and other related personnel costs, including stock-based compensation expenses, in our sales and marketing functions. Other costs primarily include advertising and promotion expenses, direct mailings, trade shows, facility costs and travel and related expenses. In the POL segment, sales and marketing expenses include the general sales and marketing expenses as discussed above, as well as costs for technical support and customer service.
Research and Development Expense.Research and development expense consists primarily of expenses incurred in developing and testing products and product candidates, including salaries and related expenses for personnel, including stock-based compensation expenses, costs of materials, depreciation, rent, utilities and other facilities costs, fees paid to professional service providers in conjunction with independently monitoring our clinical trials and acquiring and evaluating data in conjunction with our clinical trials and costs of contract manufacturing services. We expense research and development costs as incurred.
General and Administrative Expense.General and administrative expense consists primarily of salaries and other related costs for personnel, including stock-based compensation expenses, in our executive, finance, accounting, information technology and human resource functions. Other costs primarily include facility costs and professional fees for accounting, consulting and legal services, including patent-related expenses.
- 15 -
Interest and Other Income (Expense), Net.Interest expense consists of interest incurred under the revolving credit facility, notes payable and other debt financings and capital lease obligations. Interest income consists of interest earned on our cash and cash equivalents and short-term investments. Other income (expense), net consists primarily of foreign currency gains (losses).
Preferred Stock Dividend.Preferred stock dividends consists of dividends accrued at a rate of 2% per year on the outstanding shares of Series A Voting Convertible Preferred Stock (the “Series A Preferred Stock”) issued in connection with the acquisition of Genaissance on October 6, 2005. Dividends on outstanding shares are payable on January 5th and July 5th of each year, when and if declared by the Board of Directors. As of June 30, 2006, the cumulative dividends accrued on the Series A Preferred Stock totaled $65,000. The dividends are not payable until each dividend payment date.
Changes in Foreign Currency Rates
A portion of our balance sheet is denominated in Euros, the functional currency of our Dutch, French and Italian operations, and a minor portion of our balance sheet is denominated in Australian dollars and British pounds. The effect of translation of these local currencies into U.S. dollars for reporting purposes is reflected as a separate component of stockholders’ equity. The gains or losses from foreign currency transactions are included in other income (expense) and have not been material to the financial statements. The Euro strengthened against the U.S. dollar by 5% during the first quarter of fiscal 2007 and 5.9% during fiscal 2006 from the respective prior fiscal year’s closing rates. The results of our European operations can be significantly impacted by changes in these foreign exchange rates.
Periodically we enter into foreign exchange forward contracts to reduce the exposure to currency fluctuations on customer accounts receivable denominated in foreign currency. The objective of these contracts is to minimize the impact of foreign currency exchange rate fluctuations on operating results. Derivative financial instruments are not used for speculative or trading purposes. There were foreign exchange forward contracts with a notional value of $900,000 outstanding at June 30, 2006. The fair value of these instruments at June 30, 2006 was de minimis. Gains and losses related to these derivative instruments during the first quarter of fiscal 2007 and fiscal 2006 were not significant. We do not anticipate any material adverse effect on our consolidated financial position, results of operations, or cash flows resulting from the use of these instruments. However, there can be no assurance that these strategies will be effective or that transaction losses can be minimized or forecasted accurately.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements and notes, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue, allowances for doubtful accounts, inventory, intangibles, goodwill, accrued expenses and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
A summary of our significant accounting policies is contained in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition —The Company’s revenues from the sale of diagnostic equipment and consumables are recognized at the time when persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or determinable and collectibility is reasonably assured. Revenue from maintenance services on equipment is recognized ratably over the term of the maintenance agreement. Revenue from maintenance services performed for customers who do not have a maintenance agreement is recognized using the completed contract method. Revenues from consulting services provided to POLs are generally fixed fee arrangements and such
- 16 -
revenues are recognized ratably over the term of the consulting contract as services are delivered. Along with the sale of products, training and installation services are provided to the end-user customer, and such revenues are recognized as the products are delivered or as service are provided, with all revenue measured using objective fair value.
Revenues from the molecular services segment are derived from licenses of intellectual property, commercial partnerships and government contracts and grants. Payments from commercial contracts are generally related to service fees, milestone achievements and deliveries of molecular services data or assays. Payments for service fees and milestone achievements are recognized as revenues on a progress-to-completion basis over the term of the respective contract, except with respect to refundable fees for which revenue recognition does not commence until the refund right expires. Revenues recognized under the progress-to-completion method are calculated based on applicable output measures, such as a comparison of the number of genes analyzed to the total number of genes to be analyzed, assessed on a contract-by-contract basis. To the extent payments received exceed revenue recognized for each contract or grant, the excess portion of such payments is recorded as deferred revenues. To the extent revenues recognized exceed payments received for each contract or grant, the excess revenues are recorded as accounts receivable.
Revenue related to molecular services deliveries are recognized upon the later of delivery or, if applicable, customer acceptance. Payments received under the Company’s commercial contracts and government contracts and grants are generally non-refundable regardless of the outcome of the future research and development activities to be performed by the Company. Payments from government contracts and grants, which are typically cost plus arrangements, are recognized as revenues as related expenses are incurred over the term of each contract or grant.
Allowance for Doubtful Accounts —Allowances for doubtful accounts are maintained for estimated losses resulting from the inability of our customers to make required payments. These estimated allowances are periodically reviewed, analyzing the customers’ payment history and information known to us regarding customers’ credit worthiness. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Inventory Valuation —Inventories are stated at the lower of cost (first-in, first-out) or market. Inventory quantities are periodically reviewed and, when necessary, provisions for excess and obsolete inventories are provided. On an ongoing basis, we review the carrying value of the inventory and record an inventory impairment charge at such time as it is believed that the carrying value exceeds the inventory’s net realizable value. Such assessments are based upon historical sales, forecasted sales, market conditions and information derived from our sales and marketing professionals.
In addition, certain of our products are perishable, and in the event that the product is not sold before the expiration date, a full valuation reserve against such inventory is provided as soon as it is determined that the product is no longer marketable due to the expiration date. The product is then disposed and written off.
Valuation of Intangibles —As discussed in Note 3 to the consolidated financial statements in our Annual Report on Form 10K, we completed four business combinations during fiscal 2006. We also completed three business combinations during fiscal 2004. In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 141,Business Combinations, the transactions have been accounted for based on the fair value of the assets purchased. As a result of the purchase price allocations, we recorded purchased intangibles of $63.6 million and goodwill totaling $18.8 million in the molecular services segment, goodwill of $1.2 million in clinics and small hospitals segment and purchased intangibles of $1.5 million and goodwill totaling $6.3 million in the POL segment relating to these acquisitions.
In accordance with the requirements of SFAS No. 142,Goodwill and Intangible Assets, we perform an annual impairment test of the carrying value of goodwill using December 31 as our selected annual evaluation date. The fair value of our recorded intangibles can be impacted by economic conditions, market risks, and the volatility in the markets in which we and our customers operate. Changes in fair value could result in future impairment charges if the fair value of the reporting units or asset groups to which these long-lived assets are associated are determined to be less than the carrying value of such assets. As of December 31, 2005, the most recent evaluation date, there was no impairment of such goodwill.
- 17 -
In accordance with the requirements of SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, when facts and circumstances suggest that there may be an impairment, we will assess the carrying value of amortizing intangibles, including purchased intangibles and capitalized software. When a potential impairment has been identified, forecasted undiscounted net cash flows of the operations to which the asset relates are compared to the current carrying value of the assets present in that operations. If such cash flows are less than such carrying amounts, such intangibles are written down to their respective fair values. The results of these periodic impairment tests can be impacted by our future expected operating results and cash flows, economic conditions, market risks, and the volatility in the markets in which Clinical Data and its customers operate. No impairment charges have been recognized for the periods presented in this report.
Accrued Expenses —As part of the process of preparing consolidated financial statements we are required to estimate accrued expenses. This process involves identifying services which have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service as of each balance sheet date in our consolidated financial statements. Examples of estimated expenses for which we accrue include contract service fees, such as amounts paid to clinical monitors, data management organizations, clinical sites and investigators in conjunction with clinical trials, and fees paid to contract manufacturers in conjunction with the production of materials for clinical and non-clinical trials, and professional service fees. In connection with these service fees, our estimates are most affected by our understanding of the status and timing of services provided relative to the actual levels of services incurred by such service providers. In the event that we do not identify costs which have begun to be incurred or we under- or over-estimate the level of services performed or the costs of such services, our reported expenses for such period would be too low or too high, and revenue may be overstated or understated to the extent such expenses relate to collaborations accounted for using the progress-to-completion method. The date on which specified services commence, the level of services performed on or before a given date and the cost of such services is often judgmental. We attempt to mitigate the risk of inaccurate estimates, in part, by communicating with our service providers when other evidence of costs incurred is unavailable.
Income Taxes —As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. As of March 31, 2006, we had federal tax net operating loss carryforwards, after limitation for the change in ownership, of $74.5 million, which expire starting in 2011, federal research and development credit carryforwards of $6.5 million and total net deferred tax assets of $140.8 million. We have recorded a valuation allowance of $141.1 million as an offset against these otherwise recognizable net deferred tax assets due to the uncertainty surrounding the timing of the realization of the tax benefit. In the event that we determine in the future that we will be able to realize all or a portion of our net deferred tax asset, an adjustment to the deferred tax valuation allowance would increase net income in the period in which such a determination is made. The Tax Reform Act of 1986 contains provisions that may limit the utilization of net operating loss carryforwards and credits available to be used in any given year in the event of a change in ownership; this occurred when we purchased Genaissance and Icoria.
- 18 -
Results of Operations
Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
Revenues.Consolidated revenues increased $12.0 million, or 94%, to $24.8 million in the three months ended June 30, 2006 from $12.8 million in the three months ended June 30, 2005.
Product revenues increased $2.9 million, or 26%, to $14.2 million in the three months ended June 30, 2006 from $11.3 million in the three months ended June 30, 2005 due primarily to increased sales in Clinics and Small Hospitals.
Services revenue increased $9.1 million, or 610%, to $10.6 million in the three months ended June 30, 2006 from $1.5 million in the three months ended June 30, 2005. The increase was due to approximately $9.2 million of services revenue, including approximately $1.0 million received from a customer in settlement of a prior year’s collaboration, generated by the molecular services operations acquired in the second half of fiscal 2006. Service revenues in the POL segment approximated the prior year.
Gross Profit.Gross profit on product sales was 37% in the three months ended June 30, 2006 as compared to 31% in the three months ended June 30, 2005. The increase was due to improved pricing and cost control.
Gross profit from services revenues decreased to 37% in the three months ended June 30, 2006 from 75% in the three months ended June 30, 2005. The decrease was primarily due to the inclusion of the molecular services operations acquired in the second half of fiscal 2006 which generate lower gross margins than those in the POL segment.
Sales and Marketing Expense.Sales and marketing expenses increased $1.2 million, or 78%, to $2.8 million in the three months ended June 30, 2006 from $1.6 million in the three months ended June 30, 2005. The increase was due to the inclusion of approximately $1.3 million of sales and marketing expenses incurred by the molecular services operations acquired in the second half of fiscal 2006. Sales and marketing expenses in the POL and Clinics and Small Hospitals segments were approximately $84,000 lower due to a reorganization of sales staff and reduced marketing activities.
Research and Development Expense.Research and development expenses increased $2.5 million, or 357%, to $3.2 million in the three months ended June 30, 2006 from $707,000 in the three months ended June 30, 2005. The increase was due to the inclusion of the molecular services operations acquired in the second half of fiscal 2006, which includes approximately $1.3 million of expenses related to the Phase III clinical trials of vilazodone. Research and development expenses in the POL and Clinics and Small Hospitals segments in the three months ended June 30, 2006 approximated the prior year. We expect our research and development expenses for molecular services to decrease significantly in future periods if the possible spin off of our vilazodone development and commercialization activities to our shareholders is completed.
General and Administrative Expense.General and administrative expenses increased $7.0 million, or 420%, to $8.7 million in the three months ended June 30, 2006 from $1.7 million in the three months ended June 30, 2005. The increase was due primarily to (i) the inclusion of approximately $5.9 million of general and administrative expenses, including an increase in allowance for uncollectible accounts of $0.7 million, incurred by the molecular services operations acquired in the second half of fiscal 2006 and (ii) approximately $1.1 million in stock-based compensation expenses. We expect our stock-based compensation expenses to increase in future periods as new options are granted and recently granted options become vested.
Interest and Other Income (Expense), Net.Interest expense increased to $248,000 in the three months ended June 30, 2006 from $80,000 in the three months ended June 30, 2005 due primarily to increased average borrowings under our revolving credit facility, debt assumed in the acquisition of Genaissance and Icoria and to higher average interest rates.
- 19 -
Interest income increased to $102,000 in the three months ended June 30, 2006 from $28,000 in the three months ended June 30, 2005 due primarily to higher average cash balances as a result of the private placement completed on June 13, 2006 and to higher average interest rates.
Other income (expense), net of $33,000 and $3,000 in the three months ended June 30, 2006 and 2005, respectively, primarily represents foreign currency (losses) and gains.
Provision For Income TaxesThe effective tax rate was (9%) in the three months ended June 30, 2006 compared to 33% in the three months ended June 30, fiscal 2005. Although we incurred a loss in the three months ended June 30, 2006, no tax benefit was recorded on the operating losses in the United States as the deferred tax asset may not be realized. In addition, we recorded a tax provision for the income from our foreign operations. We expect that for the foreseeable future that we will not be able to provide a tax benefit from our losses in the U.S.
Liquidity and Capital Resources
We had cash and cash equivalents of approximately $19.0 million at June 30, 2006. We generated net cash flow of $11.7 million in the three months ended June 30, 2006 as compared to $1.0 million in the same period last year. The increased net cash flow in 2006 was due to the issuance of common stock and other equity instruments partially offset by our operating losses, debt repayments and purchases of equipment.
At currently projected rates of expenditure, we believe that additional funding will be required to operate the Company through the end of the third quarter of fiscal 2007, including the funding of Phase III clinical trials for vilazodone. To reduce our cash utilization, we continue to identify areas to rationalize our cost base and streamline our organization as we integrate Genaissance and Icoria into our operations. We are considering several options for raising additional funds such as public or private offerings of equity or debt, or other financing arrangements. The sale of any equity or debt securities may result in additional dilution to our stockholders, and we cannot be certain that additional financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain any required additional financing, we may be required to reduce the scope of our planned research, development and commercialization activities, including our efforts related to vilazodone, HAP and other new technologies, which would reduce our use of cash but could harm our long-term financial condition and operating results. Additional equity financing may be dilutive to the holders of our common stock and debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate our business.
On June 13, 2006, we closed a private placement of common stock in which we sold 1,039,783 shares of common stock and warrants to purchase an additional 519,889 shares of common stock for net proceeds of approximately $16.9 million, after transaction expenses of approximately $26,000, to certain institutional and other qualified investors, including certain members of our board of directors. The unit price was $16.27, which equaled the closing bid price of our common stock on NASDAQ on the Closing Date, plus $0.06. The exercise price of the warrants is $19.45. The warrants are exercisable beginning December 14, 2006 and expire on June 13, 2011.
- 20 -
Our long-term debt obligations at June 30, 2006 and March 31, 2006 were as follows:
| | | | | | | | |
| | June 30, | | | March 31, | |
(in thousands) | | 2006 | | | 2006 | |
Note payable, bearing interest at 4.0%-10.4%, with maturities between April 2008 and December 2009 and secured by related equipment | | $ | 335 | | | $ | 301 | |
Note payable, bearing interest at 4.0%, with maturity on January 2010 and monthly payments of $17 and secured by related software | | | 680 | | | | 724 | |
Euro note payable, bearing interest at 5.5%, with maturity on September 2007 and quarterly payments of $76 and secured by a bank guarantee | | | 398 | | | | 452 | |
Capital lease obligations with final maturity on January 2010 | | | 1,147 | | | | 1,294 | |
| | | | | | | | |
Icoria Acquired Debt | | | | | | | | |
Convertible note payable, bearing interest at 10.75% with maturity on October 2007 and secured by certain of Icoria’s fixed assets | | | 2,901 | | | | 3,227 | |
| | | | | | | | |
Genaissance Acquired Debt | | | | | | | | |
Note payable, bearing interest at 6.5%, with maturities between February 2009 and May 2011 and secured by Genaissance’s leasehold improvements | | | 3,403 | | | | 3,520 | |
| | | | | | | | |
Genome Express Acquired Debt | | | | | | | | |
Interest-free advance from lending institution with respect to research tax credits, with maturity in May 2006 | | | — | | | | 340 | |
Interest-free advance from French government under a program to stimulate national innovation, with maturities between September 2007 and September 2008 | | | 477 | | | | 1,134 | |
| | | | | | |
| | | 9,341 | | | | 10,992 | |
Less: current portion | | | (3,950 | ) | | | (3,929 | ) |
| | | | | | |
| | $ | 5,391 | | | $ | 7,063 | |
| | | | | | |
Line of Credit Agreements
In June 2006, CDSS reduced its line of credit from $10.0 million to $7.5 million in order to lower the fees paid to the lender on the unused portion of the line. Since CDSS’ borrowing capacity is based on certain of its receivables and inventories, which have allowed maximum outstanding borrowing levels of approximately $5.5 million to date, the reduction in the line of credit does not impact our expected liquidity. The line of credit bears interest at the rate of either 0.25% in excess of prime or 300 basis points above the LIBOR rate (8.25% at June 30, 2006). Approximately $3.9 million of principal was outstanding at June 30, 2006. The borrowings under the credit facility are secured by certain trade receivables and inventories. Approximately $1.1 million of additional borrowing capacity was available to us as of June 30, 2006. On December 2, 2005, we amended the terms of the credit facility to permit the use of up to $1.5 million of available credit under the revolver for business operations other than those engaged in by that subsidiary. The credit facility requires us to comply with certain financial covenants, including tangible net worth, capital expenditure limitations, and fixed charge coverage. As of March 31, 2006, we did not meet the fixed charge coverage covenant and were granted a waiver of the non-compliance. As of June 30, 2006, we were in compliance with the financial covenants. The revolving credit facility was automatically renewed for one year in March 2006.
We maintain a line of credit agreement with a financial institution which provides for €1.8 million (approximately $2.3 million) of available credit. The line of credit bears interest at 1.25% above the base rate as reported by the Netherlands Central Bank with a minimum base rate of 3.25% (3.75% at June 30, 2006). The line of credit is collateralized by certain trade receivables and inventories, and contains certain financial covenants relating to solvency, which are not considered restrictive to our operations. As of June 30, 2006, no amounts were outstanding under the agreement.
We maintain a line of credit agreement with a financial institution which provides for A$300,000 (approximately $224,000) of available credit. The line of credit bears interest at 2.98% above the base rate as reported by the
- 21 -
Australian bank’s Business Mortgage Index (8.9% at June 30, 2006). Borrowings under the line are secured by the assets of our Australian subsidiary. The line of credit requires us to comply with certain financial covenants. There are no amounts outstanding on this line of credit.
The following table summarizes our contractual obligations at June 30, 2006 and the effects such obligations are expected to have on our liquidity and cash flows in future periods:
Payments Due by Period
| | | | | | | | | | | | | | | | | | | | |
| | | | | | July 1, 2006 | | | Fiscal 2008 | | | Fiscal 2010 | | | | |
| | | | | | to March 31, | | | Through | | | Through | | | After | |
(In thousands) | | Total | | | 2007 | | | Fiscal 2009 | | | Fiscal 2011 | | | Fiscal 2011 | |
Contractual Obligations: | | | | | | | | | | | | | | | | | | | | |
Short and long-term debt (1) | | $ | 10,969 | | | $ | 3,420 | | | $ | 4,733 | | | $ | 2,777 | | | $ | 39 | |
Capital lease obligations (1) | | | 1,393 | | | | 455 | | | | 739 | | | | 199 | | | | — | |
Operating lease obligations | | | 13,864 | | | | 3,136 | | | | 5,671 | | | | 2,881 | | | | 2,176 | |
Government funded development credits | | | 236 | | | | 62 | | | | 174 | | | | — | | | | — | |
| | | | | | | | | | | | | | | |
Total contractual cash obligations | | $ | 26,462 | | | $ | 7,073 | | | $ | 11,317 | | | $ | 5,857 | | | $ | 2,215 | |
| | | | | | | | | | | | | | | |
| | |
(1) | | Includes interest expense |
We entered into a financing arrangement with a Netherlands governmental agency in connection with the development of a new product. The grant is to be repaid as a percentage (13.6%) of the product’s gross revenues as long as the product is a commercial success. We began to ship this product during fiscal year 1998, evidencing its commercial success. We have deferred all funding received and reported those amounts as development credits included in accrued expenses ($236,000 at June 30, 2006). When we make a payment to the Netherlands government, the recorded liability is reduced. There is no obligation to repay any remaining amounts after 2008.
In connection with the acquisitions of Genaissance, Icoria and Genome Express we recorded restructuring and integration reserves totaling approximately $4.6 million, representing severance of $3.1 million and lease termination of $1.5 million. A summary of the severance and lease termination activity as of June 30, 2006 is as follows:
| | | | | | | | | | | | | | | | |
| | Balance | | | | | | | | | | | Balance | |
| | March 31, | | | Fiscal 2007 | | | June 30, | |
| | 2006 | | | Accrual | | | Payments | | | 2006 | |
Severance | | $ | 2,350 | | | $ | — | | | $ | (848 | ) | | $ | 1,502 | |
Lease termination costs | | | 1,090 | | | | 14 | | | | (422 | ) | | | 682 | |
| | | | | | | | | | | | |
| | $ | 3,440 | | | $ | 14 | | | $ | (1,270 | ) | | $ | 2,184 | |
| | | | | | | | | | | | |
We expect the severance costs will be fully paid during the third quarter of fiscal 2007 and the lease termination fee will be fully paid during fiscal 2010.
Capital expenditures totaled $519,000 and $159,000 in the three months ended June 30, 2006 and 2005, respectively and were primarily related to the Enterprise Resource Planning System. During fiscal 2007, we expect to make capital expenditures of approximately $1.5 million primarily to introduce new products, and improve production of existing products. We expect to use our available cash, credit lines and capital leases to fund these expenditures.
Our sources of cash as of June 30, 2006 include our cash and cash equivalents balance of approximately $19.0 million, existing lines of credit, cash flows from certain operations of certain divisions, and possible future equity and/or debt financings. Our projected uses of cash include cash used in operations of certain operating divisions, capital expenditures, existing debt service costs and continued development of potential products through internal research, collaborations and, possibly through strategic acquisitions. As described in Note 3 to the consolidated
- 22 -
financial statements in our Annual Report on Form 10K for the year ended March 31, 2006, we have completed four business combinations since October 6, 2005. As part of our strategy, we continually evaluate possible mergers, acquisitions and investments. The financing of such activities is evaluated as part of our review of any opportunity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks, which include changes in interest rates, as well as changes in foreign currency exchange rates as measured against the U.S. dollar and each other. We attempt to minimize some of these risks by using foreign currency forward and swap contracts. These hedging activities provide only limited protection against interest rate and currency exchange risks. Factors that could influence the effectiveness of our programs include volatility of the interest rate and currency markets and availability of hedging instruments. Any contracts that we enter into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated interest rate and currency exposure, not for speculation.
Interest Rate Risk
We use a combination of fixed rate term loans, variable rate lines of credit and fixed rate leases to finance our activities. Our term loans and leases are all at fixed rates over their lives and carry no interest rate risk. As a result of our existing variable rate credit lines and loan agreements, we are exposed to risk from changes in interest rates. As of June 30, 2006, we had $3.9 million outstanding on our domestic line of credit carrying an interest rate of 0.25% over Prime (8.50%) and a convertible note with an outstanding balance of $2.9 million carrying an interest rate of 2.5% over Prime (10.75%). A hypothetical 10% change in interest rates would not materially impact our annual interest expense.
Foreign Exchange
The value of certain foreign currencies as compared to the U.S. dollar may affect our financial results. Fluctuations in exchange rates may positively or negatively affect our revenues, gross margins, operating expenses, assets, liabilities and retained earnings, all of which are expressed in U.S. dollars. Where we deem it prudent, we engage in hedging programs, using primarily foreign currency forward and swap contracts, aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings. We purchase short-term foreign currency forward and swap contracts to protect against currency exchange risks associated with long-term intercompany loans due to our international subsidiaries and the payment of merchandise purchases to foreign vendors. We do not hedge the translation of foreign currency profits into U.S. dollars, as we regard this as an accounting and not an economic exposure.
As of June 30, 2006, we had outstanding foreign currency forward contracts with a notional amount aggregating $900,000, all of which related to intercompany debt. The fair value of the forward contracts and the related gains and losses were not material as of and for the three months ended June 30, 2006.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(b) under the Securities and Exchange Act) as of June 30, 2006. Based on its evaluation, our CEO and CFO concluded that, as of June 30, 2006, our disclosure controls and procedures were (1) designed to ensure that material information relating to us is made known to our CEO and CFO by others within the Company, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities and Exchange Act is recorded, processed, summarized, and reported with in the time periods specified in the Securities and Exchange Commission’s rules and forms.
On August 7, 2006, C. Evan Ballantyne was appointed Senior Vice President and Chief Financial Officer. Mr. Ballantyne is our principal financial and accounting officer for purposes of evaluating our disclosure controls and procedures, as described above, and for signing the Section 302 and 906 certifications included in this Quarterly Report on Form 10-Q.
- 23 -
Changes in Internal Controls
No change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act) occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are, from time to time, subject to disputes arising in the normal course of our business. While the ultimate results of any such disputes cannot be predicted with certainty, at June 30, 2006, there were no asserted claims against us which, in the opinion of management, if adversely decided, would have a material adverse effect on our financial position and cash flows.
ITEM 1A. RISK FACTORS
Investment in our securities involves a high degree of risk. Our Annual Report on Form 10-K for the year ended March 31, 2006, which was filed with the SEC on June 29, 2006, contains numerous risk factors relating to our business and operations and ownership of common stock We have updated our Risk Factors since June 29, 2006 to include the following matters. Investors should carefully consider the Risk Factors discussed in our Annual Report on Form 10-K for the year ended March 31, 2006 as well as the following two matters, among others, relating to Clinical Data.
Risk factors relating to our business and operations
We have received a going concern opinion from our independent registered public accounting firm.
Our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2006 have been prepared with the assumption that we will continue as a going concern. Deloitte & Touche LLP issued a report dated June 27, 2006 that includes an explanatory paragraph stating that our accumulated deficit, negative cash flows from operations and the expectation that we will continue to incur losses in the foreseeable future, raise substantial doubt about our ability to continue as a going concern. If we cannot secure adequate financing in the near term, we will be unable to continue to pursue the commercialization of our existing products, which could have a material adverse effect on our business and results of operations.
We do not have sufficient cash resources available to fund our current level of activities through the end of the third quarter of fiscal 2007 and beyond, including our Phase III clinical trial program for vilazodone. Over the near-term, we will need to satisfy substantial capital requirements to pursue our development and commercialization strategies and to further optimize operations.
Our sources of cash at June 30, 2006 include $19.0 million of cash and cash equivalents, existing lines of credit and cash flows from operations of certain divisions. At currently projected rates of expenditure, we believe that additional funding will be required to operate the Company through the end of the third quarter of fiscal 2007, including the funding of Phase III clinical trials for vilazodone. Although we completed a private placement of our common stock of approximately $16.9 million on June 13, 2006, there can be no assurance that any future equity or other fundraising would be successful. A general lack of market interest in providing further financing to life sciences companies could have a material adverse effect on our ability to raise funds. If we do secure additional capital through a public or private equity offering, dilution to our then existing shareholders may result.
If we are unable to secure additional funds when we need them, we may be required to delay, reduce or eliminate some or all of our programs. We may also be forced to license compounds or technology to others that we would prefer to develop internally until a later, and potentially more lucrative, stage. If we are required to raise additional
- 24 -
funds through collaborations and other licensing arrangements, we may have to relinquish our rights to some of our technologies or grant licenses on unfavorable terms.
Over the near-term, our future capital requirements to continue the development and enhancement of our technologies, capture market share, in license and develop genetic tests and to seek to complete the commercialization of our drug candidates will be substantial and will be influenced by many factors. Such factors include the amount of milestone payments which we may receive under collaboration, licensing or other agreements, the progress and cost of research and development projects, especially the Phase III program for vilazodone, our lead product candidate, and expenses which may be required for the filing, defense and enforcement of patent rights. If we are unable to secure adequate financing over the near-term, we will not be able to pursue our product development and commercialization strategies as currently planned.
ITEM 5. OTHER INFORMATION
In May 2006, CDSS requested a reduction in its revolving credit facility from $10.0 million to $7.5 million from the lender in order to lower the fees paid to the lender on the unused portion of the line. Since CDSS’ borrowing capacity is based on certain of its receivables and inventories, which have allowed maximum outstanding borrowing levels of up to approximately $5.5 million to date, the reduction in the line of credit does not impact our expected liquidity. In mid-June 2006, the lender began reflecting the total credit facility as $7.5 million in its borrowing base calculations and, accordingly, reduced the fees payable by us under the facility. However, the written amendment to the credit facility to reflect the reduction in capacity has not yet been executed, but is expected to be signed shortly.
We filed a Current Report on Form 8-K on May 18, 2006 to report the entry into employment arrangements with Andrew J. Fromkin and Caesar J. Belbel, two of our executive officers. As of the filing of this Quarterly Report, the written agreements reflecting these arrangements have not been finalized. All material terms of the arrangements were reported on the previous Form 8-K filing and, upon execution of the written agreements, we will file such agreements with our periodic reports.
ITEM 6. EXHIBITS
See Exhibit Index on the page immediately following the signature page for a list of the exhibits filed as part of this quarterly report, which Exhibit Index is incorporated by reference.
- 25 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on August 14, 2006.
| | | | | | |
| | | | | | |
| | | | CLINICAL DATA, INC. | | |
| | | | | | |
| | | | /s/ Andrew J. Fromkin | | |
| | | | | | |
Dated: August 14, 2006 | | | | Andrew J. Fromkin | | |
| | | | President and Chief Executive Officer | | |
| | | | Principal Executive Officer | | |
| | | | | | |
| | | | /s/ C. Evan Ballantyne | | |
| | | | | | |
Dated: August 14, 2006 | | | | C. Evan Ballantyne | | |
| | | | Senior Vice President and Chief Financial Officer | | |
| | | | Principal Financial and Accounting Officer | | |
- 26 -
EXHIBIT INDEX
| | |
Exhibit | | |
Number | | Description |
2.1 | | Amended and Restated Agreement and Plan of Merger, dated as of April 29, 2003, among Clinical Data, Landmark and Spectran. Previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on May 12, 2003, and incorporated herein by reference. |
| | |
2.2 | | Agreement and Plan of Merger, dated as of April 29, 2003, among CDSS, GPSI and Clinical Data. Previously filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K, as filed with the Commission on May 12, 2003, and incorporated herein by reference. |
| | |
2.3 | | Asset Purchase Agreement, dated as of December 9, 2002, among Elan Pharmaceuticals, Inc., Elan, CDSS and Clinical Data. Previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on December 9, 2002, and incorporated herein by reference. |
| | |
2.4 | | Amendment No. 1 to Original Asset Purchase Agreement, dated as of February 10, 2003, among Elan Pharmaceuticals, Inc., Elan, CDSS and Clinical Data. Previously filed as Exhibit 2.4 to the Company’s Current Report on Form 8-K, as filed with the Commission on May 12, 2003, and incorporated herein by reference. |
| | |
2.5 | | Amendment No. 2 to Original Asset Purchase Agreement, dated as of March 18, 2003, among Elan Pharmaceuticals, Inc., Elan, CDSS and Clinical Data. Previously filed as Exhibit 2.5 to the Company’s Current Report on Form 8-K, as filed with the Commission on May 12, 2003, and incorporated herein by reference. |
| | |
2.6 | | Amendment No. 3 to Original Asset Purchase Agreement, dated as of March 31, 2003, among Elan Pharmaceuticals, Inc., Elan, CDSS and Clinical Data. Previously filed as Exhibit 2.6 to the Company’s Current Report on Form 8-K, as filed with the Commission on May 12, 2003, and incorporated herein by reference. |
| | |
2.7 | | Amendment No. 4 to Original Asset Purchase Agreement, dated as of April 29, 2003, among Elan Pharmaceuticals, Inc., Elan, CDSS and Clinical Data. Previously filed as Exhibit 2.7 to the Company’s Current Report on Form 8-K, as filed with the Commission on May 12, 2003, and incorporated herein by reference. |
| | |
2.8 | | Agreement and Plan of Merger, dated as of June 20, 2005, among Clinical Data, Safari Acquisition Corporation and Genaissance Pharmaceuticals, Inc. Previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on June 28, 2005, and incorporated herein by reference. |
| | |
2.9 | | First Amendment to Agreement and Plan of Merger, dated as of July 28, 2005, among Clinical Data, Safari Acquisition Corporation and Genaissance Pharmaceuticals, Inc. Previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on August 2, 2005, and incorporated herein by reference. |
| | |
2.10 | | Agreement and Plan of Merger, dated as of September 19, 2005, among Clinical Data, Inc., Irides Acquisition Corporation and Icoria, Inc. Previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on September 22, 2005, and incorporated herein by reference. |
| | |
3.1 | | Certificate of Incorporation. Filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 2-82494), as filed with the Commission on March 17, 1983, and incorporated herein by reference. |
| | |
3.2 | | Certificate of Amendment of Certificate of Incorporation filed with the Secretary of State of the State of Delaware on October 1, 2003. Filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, as filed with the Commission on February 17, 2004, and incorporated herein by reference. |
| | |
3.3 | | Certificate of Elimination of the Series A Nonvoting Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on July 7, 2005. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on July 11, 2005, |
- 27 -
| | |
Exhibit | | |
Number | | Description |
| | and incorporated herein by reference. |
| | |
3.4 | | Certificate of Designation of the Series A Preferred Stock filed with the Secretary of State of the State of Delaware on October 4, 2005. Filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the Commission on October 11, 2005, and incorporated herein by reference. |
| | |
3.5 | | Certificate of Amendment of Certificate of Incorporation filed with the Secretary of State of the State of Delaware on October 6, 2005. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on October 11, 2005, and incorporated herein by reference. |
| | |
3.6 | | Amended and Restated By-laws of the Company, as of June 20, 2005. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on June 24, 2005, and incorporated herein by reference. |
| | |
4.1 | | Specimen Common Stock Certificate. Filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No. 2-82494), as filed with the Commission on March 17, 1983, and incorporated herein by reference. |
| | |
4.2 | | Specimen Series A Preferred Stock Certificate. Filed as Exhibit 4.2 to the Company’s Annual Report on Form 10-K, as filed with the Commission on June 29, 2006, and incorporated herein by reference. |
| | |
31.1 | | Certification of Chief Executive Officer Pursuant to §240.13a-14 or §240.15d-14 of the Securities Exchange Act of 1934, as amended. Filed herewith. |
| | |
31.2 | | Certification of Chief Financial Officer Pursuant to §240.13a-14 or §240.15d-14 of the Securities Exchange Act of 1934, as amended. Filed herewith. |
| | |
32.1 | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350. Filed herewith. |
- 28 -