UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-15609
AGOURON PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0061928
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
10350 NORTH TORREY PINES ROAD, LA JOLLA, CALIFORNIA 92037-1020
(Address and zip code of principal executive offices)
(619) 622-3000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days:
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Approximately 10,525,000 shares of the Company's Common Stock, no par
value, were outstanding as of January 26, 1996.
AGOURON PHARMACEUTICALS, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheet - 3
December 31, 1995 and June 30, 1995
Statement of Operations - Three and Six 4
Months Ended December 31, 1995 and 1994
Statement of Cash Flows- 5
Six Months Ended December 31, 1995 and 1994
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signature 10
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AGOURON PHARMACEUTICALS, INC.
BALANCE SHEET
(Dollars in thousands)
December 31, June 30,
1995 1995
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 10,629 $ 4,358
Short-term investments 98,134 15,886
Accounts receivable 214 344
Other current assets 919 871
-------- --------
Total current assets 109,896 21,459
Property and equipment, net of accumulated
depreciation and amortization of $12,512 and $11,344
5,441 5,638
$ 115,337 $ 27,097
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,151 $ 5,426
Accrued liabilities 945 683
Deferred revenue 17,050 5,745
Current portion of long-term debt 506 768
-------- --------
Total current liabilities 27,652 12,622
-------- --------
Long-term liabilities:
Long-term debt, less current portion 363 580
Accrued rent 1,281 1,304
-------- --------
Total long-term liabilities 1,644 1,884
-------- --------
-------- --------
Stockholders' equity:
Common stock, no par value, 75,000,000 shares
authorized, 10,486,662 and 7,359,282 shares
issued and outstanding 156,218 76,113
Accumulated deficit (70,177) (63,522)
-------- --------
Total stockholders' equity 86,041 12,591
-------- --------
$ 115,337 $ 27,097
-------- --------
-------- --------
See accompanying notes to financial statements.
AGOURON PHARMACEUTICALS, INC.
STATEMENT OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
Revenues:
Contracts $ 9,592 $ 6,501 $ 20,555 $ 12,336
Interest 1,597 313 1,994 642
---------- --------- --------- ---------
11,189 6,814 22,549 12,978
---------- --------- --------- ---------
Costs and expenses:
Research and development 14,188 7,037 26,716 15,022
General and administrative 1,092 999 2,341 1,865
Interest 41 54 147 106
---------- --------- --------- ---------
15,321 8,090 29,204 16,993
---------- --------- --------- ---------
Net loss $ (4,132) $ (1,276) $ (6,655) $ (4,015)
---------- --------- --------- ---------
---------- --------- --------- ---------
Net loss per common share $ (.40) $ (.18) $ (.73) $ (.55)
---------- --------- --------- ---------
---------- --------- --------- ---------
Shares used in computing net loss
per common share 10,432,000 7,279,000 9,076,000 7,279,000
---------- --------- --------- ---------
See accompanying notes to financial statements.
AGOURON PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
December 31,
1995 1994
------ ------
Cash flows from operating activities:
Cash received from contracts $ 31,990 $ 14,071
Cash paid to suppliers, employees and
service providers (24,039) (13,901)
Interest received 1,994 642
Interest paid (147) (106)
------- -------
Net cash provided (used) by operating
activities 9,798 706
------- -------
Cash flows from investing activities:
Net (increase) decrease in short-term
investments (82,248) 4,918
Expenditures for property and equipment (905) (1,624)
------- -------
Net cash provided (used) by investing
activities (83,153) 3,294
------- -------
Cash flows from financing activities:
Net proceeds from issuance of common stock 80,105 136
Principal payments under equipment leases (218) (302)
Increase (decrease) in long-term debt, net (261) 101
------- -------
Net cash provided (used) by financing
activities 79,626 (65)
Net increase (decrease) in cash and cash
equivalents 6,271 3,935
Cash and cash equivalents at beginning of
period 4,358 2,104
------- -------
Cash and cash equivalents at end of period $ 10,629 $ 6,039
------- -------
------- -------
Reconciliation of net loss to net cash
provided (used) by operating activities:
Net loss $ (6,655) $ (4,015)
Depreciation and amortization 1,102 1,230
Net (increase) decrease in accounts
receivable and other current assets 82 (7)
Net increase (decrease) in accounts
payable, accrued liabilities, deferred
revenue and accrued rent 15,269 3,498
------- -------
Net cash provided (used) by operating
activities $ 9,798 $ 706
------- -------
------- -------
See accompanying notes to financial statements.
AGOURON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations
Agouron Pharmaceuticals, Inc. is involved in the research and
development of novel synthetic drugs for the treatment of cancer, viral
diseases and immuno-inflammatory disease. The Company intends to
commercialize any successfully developed products through its own
direct sales and marketing activities in certain markets or, when
appropriate, through manufacturing and marketing relationships with
other pharmaceutical companies.
2. Financial Statements and Estimates
The balance sheet as of December 31, 1995 and the statements of
operations and cash flows for the three-month and six-month periods
ended December 31, 1995 and 1994 have been prepared by the Company and
have not been audited. Such financials, in the opinion of management,
include all adjustments (consisting only of normal, recurring accruals)
necessary to present fairly the financial position, results of
operations and cash flows for all periods presented. These financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's June 30, 1995 Annual Report
on Form 10-K. Interim operating results are not necessarily indicative
of operating results for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosures as of the
date of the financial statements. Actual results could differ from
such estimates.
At December 31, 1995, it has been assumed that the existing
collaborations with Japan Tobacco Inc. ("JT") will continue in
accordance with their agreement terms. As such, approximately
$16,502,000 of cash received from JT has been classified as deferred
contract revenue and is being recognized as revenue on a prospective
basis as collaborative program expenses are incurred. Should any of
the underlying collaborations be terminated in advance of their
contract terms, any deferred contract revenues related to such
collaborations would immediately be recognized as revenue by the
Company.
3. Short-term Investments
Included in short-term investments at December 31, 1995 and June 30,
1995 is $1,444,000 and $172,000 of accrued interest receivable.
Included in short-term investments at December 31, 1995 is $400,000
which has been pledged as collateral in conjunction with certain
long-term debt obligations.
At December 31, 1995, the Company's short-term investments are
generally available for sale and are carried at amortized cost which
approximates market. These investments, consisting principally of
United States government securities (78%) and corporate obligations
(19%), have average maturities of less than one year.
4. Certain Concentrations
A significant portion of the Company's research and development
expenditures are related to programs funded in whole or in part by JT.
The termination of such collaborative research and development programs could
result in the absence of any prospective funding for such programs
and the need to evaluate the level of future program spending, if any.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
When used in this discussion, the words "believes", "anticipated" and
similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially
from those projected. See "Important Factors Regarding Forward-Looking
Statements" attached hereto as Exhibit 99 and incorporated herein by
reference. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Financial Condition
The Company relies principally on equity financings and corporate
collaborations to fund its operations and capital expenditures. At
December 31, 1995, due principally to the receipt of a $24,000,000
milestone payment from Japan Tobacco, Inc. ("JT") in August and the net
proceeds of approximately $78,589,000 from a public offering of common
stock in September, the Company had cash, cash equivalents and
short-term investments of approximately $108,763,000. Management
believes that its present capital resources, plus the funding from
certain existing collaborative relationships, will be sufficient to
meet its working capital needs at least through fiscal 1997. The
Company may require additional long-term financing to meet the
operating needs of fiscal 1998 and beyond. The Company will consider
various financing vehicles to meet such needs including collaborative
arrangements and public offerings or private placements of Company
common or preferred stock. If such vehicles are not available, the
Company may be required to delay or eliminate expenditures for certain
of its products or to license third parties to commercialize products
or technologies that the Company would otherwise seek to develop
itself.
Results of Operations
The Company is engaged in the research and development of human
pharmaceuticals utilizing protein structure-based drug design. Such
research and development has been funded from the Company's
equity-derived working capital and through various collaborative
arrangements. The Company's net operating losses reflect primarily the
result of its independent research and continued increasing investment
in clinical development activities concentrated on the Company's lead
compounds in cancer and AIDS. As product sales may not begin prior to
calendar 1997 and certain programs are expanding their preclinical and
clinical development activities, it is anticipated that net operating
losses will continue and possibly increase through fiscal 1997.
The increase in the net losses for the three and six months ended
December 31, 1995 compared to the year-earlier periods is due
principally to the Company's commitment to support expanding clinical
activities and establish a commercial infrastructure associated with
the Company's two leading product candidates. These spending increases
were partially offset by increased contract revenues.
Contract revenues in the current three- and six-month periods have
increased compared to the year earlier periods due mainly to an
anti-HIV collaboration with JT initiated in December 1994. Interest
income has increased significantly from the prior-year periods due to a
higher average investment portfolio balance resulting from the
previously described public offering and milestone payment. Partially
offsetting these revenue increases on a quarter-to-quarter and
year-to-year basis was the absence of funding from JT due to the
cancellation of a collaborative research program with JT in January
1995.
Research and development costs and expenses increased from the
prior-year periods due generally to increasing average research and
development staff levels (approximately 19%) and staff-related
expenditures, including occupancy, and significantly increased
expenditures for human clinical trial activities associated with the
Company's leading product development programs, THYMITAQ (TM) and
VIRACEPT (TM).
The increase in general and administrative costs and expenses in the
current three- and six-month periods is due chiefly to increasing
average staff levels (approximately 19% and 24%, respectively) and
staff related expenditures and certain costs associated with a growing
sales and marketing infrastructure.
Interest expense in the current-year periods is generally decreasing as
the level of debt and capital base obligations decline. Partially or
wholly offsetting these declines are the exercise costs associated with
certain lease buy-out options.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: The Company is involved in certain
legal or administrative proceedings generally incidental to its
normal business activities. While the outcome of any such
proceedings cannot be accurately predicted, the Company does not
believe the ultimate resolution of any such existing matters
should have a material adverse effect on its financial position.
Item 2. Changes in Securities: None.
Item 3. Defaults Upon Senior Securities: None.
Item 4. Submission of Matters to a Vote of Security Holders: The
Company held its Annual Meeting of Shareholders on November 2,
1995 and proxies for such meeting were solicited pursuant to
Regulation 14A. There was no solicitation in opposition to
management's nominees for directors as listed in the proxy
statement and all such nominees were elected. The names of
directors elected at the meeting are: John N. Abelson, Patricia
M. Cloherty, A. E. Cohen, Gary E. Friedman, Michael E. Herman,
Irving S. Johnson, Peter Johnson, Antonie T. Knoppers and Melvin
I. Simon. Each director received 8,503,383 votes in favor of
his or her election.
In addition, the shareholders voted on two other proposals as
listed in the proxy statement. The proposals and the results of
the voting are summarized below.
1. The shareholders approved a proposal to amend the
Company's 1990 Stock Option Plan to increase the number of
shares available for grant by 1,000,000 shares. The vote
was 4,744,448 for, 1,289,330 against, 31,941 abstained and
2,452,219 not voted.
2. The shareholders ratified the selection of Price
Waterhouse as certified public accountants. The vote was
8,499,789 for, 6,315 against and 11,834 abstained.
Item 5. Other Information: None.
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibits:
10.33 1990 Stock Option Plan (restated November 2,
1995).
10.58 First Amendment to Development and License
Agreement effective December 1, 1995 between
Japan Tobacco Inc. and the Company.
(Confidential treatment has been requested for
portion of this agreement pursuant to an
application dated January 31, 1996. The
underlying agreement was filed as Exhibit 10.54
to Form 10-Q for the period ended December 31,
1994, and portions thereof receive confidential
treatment pursuant to an order of the Securities
and Exchange Commission dated June 28, 1995.)
27 Financial Data Schedule. (Exhibit 27 is
submitted as an exhibit only in the electronic
format of this Quarterly Report on Form 10-Q
submitted to the Securities and Exchange
Commission.)
99 Important Factors Regarding Forward-Looking
Statements.
b. Reports on Form 8-K: None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGOURON PHARMACEUTICALS, INC.
Date: January 31, 1996 /s/ Steven S. Cowell
---------------------------------
Steven S. Cowell
Vice President, Finance and Chief Financial
Officer and Chief Accounting Officer