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SECURITIES AND EXCHANGE COMMISSION
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 33-0361285 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
4365 Executive Drive, Suite 300 | ||
San Diego, CA | 92121 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filero | Accelerated filero | Non-accelerated filero | Smaller reporting companyþ |
FORM 10-Q
QUARTERLY REPORT
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 |
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June 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | (See Note) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 8,071 | $ | 4,254 | ||||
Prepaids and other current assets | 150 | 586 | ||||||
Total current assets | 8,221 | 4,840 | ||||||
Total assets | $ | 8,221 | $ | 4,840 | ||||
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 87 | $ | 125 | ||||
Accrued expenses | 328 | 323 | ||||||
Accrued payroll and related expenses | 109 | 173 | ||||||
Derivative liabilities | 8,103 | — | ||||||
Total current liabilities | 8,627 | 621 | ||||||
Series C-1 redeemable convertible preferred stock, $0.01 par value; 11,000 shares authorized, 5,184 and no shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively (redemption value and liquidation preference in the aggregate of $5,258 at June 30, 2010) | 29 | — | ||||||
Commitments | ||||||||
Stockholders’ (deficit) equity: | ||||||||
Common stock, $0.01 par value; 225,000,000 shares authorized, 94,693,083 and 65,722,648 shares issued and outstanding at June 30, 2010 and December 31, 2009 | 947 | 657 | ||||||
Additional paid-in capital | 427,810 | 427,883 | ||||||
Accumulated deficit | (429,192 | ) | (424,321 | ) | ||||
Total stockholders’ (deficit) equity | (435 | ) | 4,219 | |||||
Total liabilities, redeemable convertible preferred stock and stockholders’ (deficit) equity | $ | 8,221 | $ | 4,840 | ||||
Note: | The condensed consolidated balance sheet at December 31, 2009 has been derived from the audited consolidated financial statements as of that date but does not include all of the information and disclosures required by U.S. generally accepted accounting principles. |
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue from collaboration agreement | $ | — | $ | — | $ | — | $ | 8,125 | ||||||||
Expenses: | ||||||||||||||||
Research and development | 9 | (85 | ) | 9 | 9,808 | |||||||||||
General and administrative | 901 | 2,124 | 2,667 | 4,611 | ||||||||||||
Total expenses | 910 | 2,039 | 2,676 | 14,419 | ||||||||||||
Loss from operations | (910 | ) | (2,039 | ) | (2,676 | ) | (6,294 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Fair value of derivative liabilities upon issuance | (5,015 | ) | — | (5,015 | ) | — | ||||||||||
Adjustments to fair value of derivative liabilities | 2,985 | — | 2,985 | — | ||||||||||||
Financing transaction costs | (164 | ) | — | (164 | ) | — | ||||||||||
Interest income and other expense, net | — | (4 | ) | (1 | ) | (1 | ) | |||||||||
Net loss | (3,104 | ) | (2,043 | ) | (4,871 | ) | (6,295 | ) | ||||||||
Preferred stock dividend | (87 | ) | — | (87 | ) | — | ||||||||||
Net loss and comprehensive loss attributable to common stockholders | $ | (3,191 | ) | $ | (2,043 | ) | $ | (4,958 | ) | $ | (6,295 | ) | ||||
Basic and diluted net loss per share | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.07 | ) | $ | (0.10 | ) | ||||
Shares used in computing basic and diluted net loss per share | 77,183 | 65,723 | 71,485 | 60,945 | ||||||||||||
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Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Operating activities: | ||||||||
Net loss | $ | (4,871 | ) | $ | (6,295 | ) | ||
Adjustments to reconcile net loss to net cash used for operating activities: | ||||||||
Depreciation and amortization | — | 110 | ||||||
Gain on write-off/disposal of patents, property and equipment | — | (326 | ) | |||||
Share-based compensation expense | 304 | 2,033 | ||||||
Settlement of accounts payable and accrued liabilities | — | (1,880 | ) | |||||
Issuance of Series C-1 Preferred Stock for services | 12 | — | ||||||
Fair value of derivative liabilities upon issuance | 5,015 | — | ||||||
Gain on adjustments to fair value of derivative liabilities | (2,985 | ) | — | |||||
Change in operating assets and liabilities: | ||||||||
Prepaids and other current assets | 436 | (469 | ) | |||||
Accounts payable and accrued expenses | (33 | ) | (4,045 | ) | ||||
Accrued payroll and related expenses | (64 | ) | (1,421 | ) | ||||
Net cash used for operating activities | (2,186 | ) | (12,293 | ) | ||||
Investing activities: | ||||||||
Sales of short-term investments | — | 10,000 | ||||||
Net proceeds from sale of patents and property and equipment | — | 836 | ||||||
Additions to property and equipment | — | (18 | ) | |||||
Increase in patent costs and other assets | — | (6 | ) | |||||
Net cash provided by investing activities | — | 10,812 | ||||||
Financing activities: | ||||||||
Proceeds from issuance of derivative obligations | 6,003 | — | ||||||
Net proceeds from issuance of Series B Preferred Stock | — | 6,810 | ||||||
Payments on credit facility | — | (5,933 | ) | |||||
Payments on obligations under notes payable | — | (331 | ) | |||||
Payments on obligations under capital leases | — | (3 | ) | |||||
Net cash provided by financing activities | 6,003 | 543 | ||||||
Net increase (decrease) in cash and cash equivalents | 3,817 | (938 | ) | |||||
Cash and cash equivalents at beginning of period | 4,254 | 9,447 | ||||||
Cash and cash equivalents at end of period | $ | 8,071 | $ | 8,509 | ||||
Supplemental schedule of noncash investing and financing activities: | ||||||||
Issuance of common stock at par value, offset by paid-in capital reduction | 290 | — | ||||||
Accrued dividends payable in Series C-1 Preferred Stock | 87 | — | ||||||
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• | Level 1 — Quoted prices in active markets for identical assets or liabilities. | ||
• | Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | ||
• | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Fair Value Measurements at June 30, 2010 | ||||||||||||||||
Balance at | Quoted Prices in | Significant Other | Significant | |||||||||||||
June 30, | Active Markets | Observable Inputs | Unobservable Inputs | |||||||||||||
2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Embedded derivative liabilities | $ | 4,895 | $ | — | $ | — | $ | 4,895 | ||||||||
Warrant derivative liabilities | 3,208 | — | — | 3,208 | ||||||||||||
Total | $ | 8,103 | $ | — | $ | — | $ | 8,103 | ||||||||
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Fair Value Measurements Using Significant | ||||||||||||
Unobservable Inputs (Level 3) | ||||||||||||
Embedded Derivative | Warrant Derivative | |||||||||||
Liabilities | Liabilities | Total | ||||||||||
Beginning balance at December 31, 2009 | $ | — | $ | — | $ | — | ||||||
Issuances | 5,524 | 5,494 | 11,018 | |||||||||
Adjustments to estimated fair value | (699 | ) | (2,286 | ) | (2,985 | ) | ||||||
Accrued dividends payable in Series C-1 Preferred | 70 | — | 70 | |||||||||
Transfers into Level 3 | — | — | — | |||||||||
Ending balance at June 30, 2010 | $ | 4,895 | $ | 3,208 | $ | 8,103 | ||||||
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Fair Value Measurements at | ||||||||
May 26, 2010 | June 30, 2010 | |||||||
Embedded Derivatives of Series C-1 Preferred | $ | 5,524 | $ | 4,825 | ||||
Embedded Derivatives of accrued dividends payable in Series C-1 Preferred | — | 70 | ||||||
Series D-1 Warrants | 815 | 497 | ||||||
Series C-2 Warrants for: | ||||||||
Series C-2 Preferred | 3,049 | 1,717 | ||||||
Series D-2 Warrants | 1,630 | 994 | ||||||
$ | 11,018 | $ | 8,103 | |||||
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May 26, 2010 | June 30, 2010 | |||||||
Closing price per share of common stock | $ | 0.061 | $ | 0.046 | ||||
Estimated fair value per share of common stock (after related discounts) | $ | 0.010 | $ | 0.007 | ||||
Conversion price per share | $ | 0.015 | $ | 0.015 | ||||
Volatility | 109.2 | % | 109.2 | % | ||||
Risk-free interest rate | 2.68 | % | 2.42 | % | ||||
Credit spread | 17.3 | % | 17.6 | % | ||||
Remaining expected lives of underlying securities (years) | 6.9 | 6.8 |
May 26, 2010 | June 30, 2010 | |||||||
Closing price per share of common stock | $ | 0.061 | $ | 0.046 | ||||
Estimated fair value per share of common stock (after related discounts) | $ | 0.010 | $ | 0.007 | ||||
Conversion price per share | $ | 0.015 | $ | 0.015 | ||||
Volatility | 84.4 | % | 84.4 | % | ||||
Risk-free interest rate | 1.28 | % | 1.00 | % | ||||
Remaining expected lives of underlying securities (years) | 3.3 | 3.3 |
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May 26, 2010 | June 30, 2010 | |||||||
Closing price per share of common stock | $ | 0.061 | $ | 0.046 | ||||
Estimated fair value per share of common stock (after related discounts) | $ | 0.010 | $ | 0.007 | ||||
Conversion price per share | $ | 0.015 | $ | 0.015 | ||||
Volatility | 109.2 | % | 109.2 | % | ||||
Risk-free interest rate | 2.68 | % | 2.42 | % | ||||
Credit spread | 17.3 | % | 17.6 | % | ||||
Remaining expected lives of underlying securities (years) | 6.9 | 6.8 |
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Research and development | $ | — | $ | 566 | $ | — | $ | 632 | ||||||||
General and administrative | 81 | 925 | 304 | 1,402 | ||||||||||||
Share-based compensation expense included in operating expenses | $ | 81 | $ | 1,491 | $ | 304 | $ | 2,034 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
Options: | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Risk-free interest rate | 2.6 | % | — | 2.6 | % | 0.6 | % | |||||||||
Dividend yield | 0.0 | % | — | 0.0 | % | 0.0 | % | |||||||||
Volatility | 106.5 | % | — | 106.5 | % | 295.0 | % | |||||||||
Expected life (years) | 5.8 | — | 5.8 | 5.6 |
Three and Six Months | ||||||||
Ended | ||||||||
June 30, | ||||||||
ESPP: | 2010 | 2009 | ||||||
Risk-free interest rate | 0.2 | % | — | |||||
Dividend yield | 0.0 | % | — | |||||
Volatility | 90.5 | % | — | |||||
Expected life (months) | 3 | — |
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Outstanding Options | ||||||||
Weighted- | ||||||||
Average | ||||||||
Number of | Exercise | |||||||
Shares | Price | |||||||
Balance at December 31, 2009 | 3,508,568 | $ | 6.99 | |||||
Granted | 6,700,000 | $ | 0.06 | |||||
Forfeited / Expired | (875,215 | ) | $ | 4.41 | ||||
Balance at June 30, 2010 | 9,333,353 | $ | 2.25 | |||||
Weighted- | ||||||||
Average | ||||||||
Grant Date | ||||||||
Number of | Fair Value | |||||||
Shares | per Share | |||||||
Restricted stock units outstanding at December 31, 2009 | 2,021,024 | $ | 0.17 | |||||
Cancelled | (2,021,024 | ) | $ | 0.17 | ||||
Restricted stock units outstanding at June 30, 2010 | — | $ | — | |||||
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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• | Develop, sell or out-license our Riquent program, although we may not receive any significant value upon such a sale or license; and |
• | Pursue potential other strategic transactions, which could include mergers, license agreements or other collaborations, with third parties where we seek new compounds for development and seek additional capital. |
• | In January 2009 we entered into a development and commercialization agreement (the “Development Agreement”) with BioMarin CF Limited (“BioMarin CF”), a wholly-owned subsidiary of BioMarin Pharmaceutical Inc. (“BioMarin Pharma”) for which we received a non-refundable commencement payment of $7.5 million pursuant to the Development Agreement from BioMarin CF and $7.5 million from BioMarin Pharma in exchange for a newly designated series of our preferred stock pursuant to the securities purchase agreement. Following the futile results of the first interim efficacy analysis of Riquent received in February 2009, the Development Agreement was terminated on March 27, 2009 and all of the Company’s Series B-1 preferred shares purchased by BioMarin Pharma were converted into common shares. Additionally, all rights to Riquent were returned to us. |
• | In February 2009, an Independent Monitoring Board for the Riquent Phase 3 ASPEN study informed us that, per its review of the first interim efficacy analysis of Riquent, continuing the study was futile. We subsequently unblinded the data and found that there was no statistical difference in the primary endpoint, delaying time to renal flare, between the Riquent-treated group and the placebo-treated group, although there was a significant difference in the reduction of antibodies to double-stranded DNA. There were 56 renal flares in 587 patients treated with either 300-mg or 900-mg of Riquent, and 28 renal flares in 283 patients treated with placebo. |
• | In October 2009, we attempted to obtain stockholder approval for a Plan of Complete Liquidation and Dissolution but the majority of our stockholders failed to return their proxy cards or otherwise indicate their votes with respect to this proposal. Accordingly, we were not able to obtain the requisite quorum to conduct business at the special meeting and were therefore unable to proceed with dissolution. |
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• | In December 2009, we entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) by and among the Company, Jewel Merger Sub, Inc. and Adamis Pharmaceuticals Corporation (“Adamis”). The transaction contemplated by the Merger Agreement was structured as a reverse merger, in which Jewel Merger Sub, Inc., a wholly-owned subsidiary of the Company, would merge with and into Adamis, with Adamis surviving (the “Merger”). On March 3, 2010, the Company and Adamis agreed to terminate the Merger Agreement as the majority of our stockholders failed to return their proxy cards or otherwise indicate their votes with respect to the proposals related to the Merger. Accordingly, we were not able to obtain the requisite quorum to conduct business at the special meeting. The solicitation of further votes was cancelled due to the delisting of our common stock from Nasdaq on March 4, 2010. |
Alternative models could have been selected to calculate these fair values, which may have produced significantly different results. If we adopt a different valuation model in the future, this may result in a lack of consistency between periods and materially affect our fair value estimates. It may also result in a lack of comparability with other companies that use different models, methods and assumptions. Additionally, because the estimated fair values are affected by our stock price, fluctuations in our stock price, which can be volatile, may significantly affect our financial results.
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• | our ability to sell, out-license or otherwise develop our Riquent program; and |
• | our ability to consummate a strategic transaction such as a merger, license agreement or other collaboration with a third party where we seek new compounds for development and seek additional capital. |
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• | limited financial resources; | ||
• | announcements regarding financings, mergers or other strategic transactions; | ||
• | future sales of significant amounts of our capital stock by us or our stockholders; | ||
• | developments in patent or other proprietary rights; | ||
• | developments concerning potential agreements with collaborators; and | ||
• | general market conditions and comments by securities analysts. |
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Exhibit | ||||
Number | Description | |||
3.1 | Certificate of Designations, Preferences and Rights of Series C-1 Convertible Preferred Stock, Series C-2 Convertible Preferred Stock, Series D-1 Convertible Preferred Stock and Series D-2 Convertible Preferred Stock (previously filed with the Company’s Current Report on Form 8-K filed May 28, 2010 and incorporated by reference herein) | |||
10.1 | Securities Purchase Agreement, dated as of May 24, 2010 by and among the Company and the Purchasers named therein (previously filed with the Company’s Current Report on Form 8-K filed May 28, 2010 and incorporated by reference herein) | |||
10.2 | Form of Series C-2 Preferred Stock Purchase Warrant (previously filed with the Company’s Current Report on Form 8-K filed May 28, 2010 and incorporated by reference herein) | |||
10.3 | Form of Series D-1 Preferred Stock Purchase Warrant (previously filed with the Company’s Current Report on Form 8-K filed May 28, 2010 and incorporated by reference herein) | |||
10.4 | Form of Series D-2 Preferred Stock Purchase Warrant (previously filed with the Company’s Current Report on Form 8-K filed May 28, 2010 and incorporated by reference herein) | |||
10.5 | Chief Executive Officer Employment Agreement, dated as of May 24, 2010, by and between the Company and Deirdre Y. Gillespie, M.D. (previously filed with the Company’s Current Report on Form 8-K filed May 28, 2010 and incorporated by reference herein) | |||
10.6 | Confidential Retention Agreement, dated as of May 24, 2010, by and between the Company and Deirdre Y. Gillespie, M.D. (previously filed with the Company’s Current Report on Form 8-K filed May 28, 2010 and incorporated by reference herein) | |||
10.7 | Executive Employment Agreement, dated as of May 24, 2010, by and between the Company and Gail A. Sloan (previously filed with the Company’s Current Report on Form 8-K filed May 28, 2010 and incorporated by reference herein) | |||
10.8 | Confidential Retention Agreement, dated as of May 24, 2010, by and between the Company and Gail A. Sloan (previously filed with the Company’s Current Report on Form 8-K filed May 28, 2010 and incorporated by reference herein) | |||
31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
32.1 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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La Jolla Pharmaceutical Company | ||||
Date: August 20, 2010 | /s/ Deirdre Y. Gillespie | |||
Deirdre Y. Gillespie, M.D. | ||||
President and Chief Executive Officer (On behalf of the Registrant) | ||||
/s/ Gail A. Sloan | ||||
Gail A. Sloan | ||||
Chief Financial Officer and Secretary (As Principal Financial and Accounting Officer) |
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