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 March 31, 1996
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 10,627,000
shares of the Company's Common Stock, no par value, were outstanding as of
April 19, 1996.
AGOURON PHARMACEUTICALS, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheet - 3
March 31, 1996 and June 30, 1995
Statement of Operations - Three and Nine 4
Months Ended March 31, 1996 and 1995
Statement of Cash Flows - 5
Nine Months Ended March 31, 1996 and 1995
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)
March 31, June 30,
1996 1995
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 14,547 $ 4,358
Short-term investments 90,109 15,886
Accounts receivable 350 344
Other current assets 2,242 871
_________ _________
Total current assets 107,248 21,459
Property and equipment, net of accumulated
depreciation and amortization of
$13,035 and $11,344 5,943 5,638
_________ _________
$ 113,191 $ 27,097
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,752 $ 5,426
Accrued liabilities 1,075 683
Deferred revenue 24,763 5,745
Current portion of long-term debt 542 768
_________ _________
Total current liabilities 35,132 12,622
_________ _________
Long-term liabilities:
Long-term debt, less current portion 606 580
Accrued rent 1,257 1,304
_________ _________
Total long-term liabilities 1,863 1,884
_________ _________
Stockholders' equity:
Common stock, no par value, 75,000,000
shares authorized, 10,622,800 and
7,359,282 shares issued and outstanding 157,379 76,113
Accumulated deficit (81,183) (63,522)
_________ _________
Total stockholders' equity 76,196 12,591
_________ _________
$ 113,191 $ 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 Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
Revenues:
Contract $ 6,910 $ 6,949 $ 27,465 $ 19,285
Interest 1,526 336 3,520 978
_________ _________ _________ _________
8,436 7,285 30,985 20,263
_________ _________ _________ _________
Costs and expenses:
Research and development 17,064 9,330 43,780 24,352
General and administrative 2,338 1,162 4,679 3,027
Interest 40 63 187 169
_________ _________ _________ _________
19,442 10,555 48,646 27,548
_________ _________ _________ _________
Net loss $ (11,006) $ (3,270) $ (17,661) $ (7,285)
========== ========= ========= =========
Net loss per common share $ (1.04) $ (.45) $ (1.84) $ (1.00)
========== ========= ========= =========
Shares used in computing net
loss per common share 10,571,000 7,300,000 9,574,000 7,286,000
========== ========= ========= =========
See accompanying notes to financial statements.
AGOURON PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
March 31,
1996 1995
Cash flows from operating activities:
Cash received from contracts $ 46,477 $ 21,018
Cash paid to suppliers, employees
and service providers (44,419) (22,405)
Interest received 3,520 978
Interest paid (187) (169)
_________ _________
Net cash provided (used) by operating
activities 5,391 (578)
_________ _________
Cash flows from investing activities:
Net (increase) decrease in short-term
investments (74,223) 7,561
Expenditures for property and equipment (1,588) (1,749)
_________ _________
Net cash provided (used) by investing
activities (75,811) 5,812
_________ _________
Cash flows from financing activities:
Net proceeds from issuance of common stock 81,266 245
Principal payments under equipment leases (304) (460)
Increase (decrease) in long-term debt, net (353) (68)
_________ _________
Net cash provided (used) by financing
activities 80,609 (283)
_________ _________
Net increase (decrease) in cash and cash
equivalents 10,189 4,951
Cash and cash equivalents at beginning of period 4,358 2,104
_________ _________
Cash and cash equivalents at end of period $ 14,547 $ 7,055
========= =========
Reconciliation of net loss to net cash
provided(used) by operating activities:
Net loss $ (17,661) $ (7,285)
Depreciation and amortization 1,740 1,858
Net (increase) decrease in accounts
receivable and other current assets (1,377) (53)
Net increase (decrease) in accounts
payable, accrued liabilities,
deferred revenue and accrued rent 22,689 4,902
_________ _________
Net cash provided (used) by operating
activities $ 5,391 $ (578)
========= =========
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 March 31, 1996 and the statements of operations and
cash flows for the three-month and nine-month periods ended March 31, 1996
and 1995 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 March 31, 1996, it has been assumed that the existing collaborations with
Japan Tobacco Inc. ("JT") will continue in accordance with their agreement
terms. As such, approximately $24,216,000 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 March 31, 1996 and June 30, 1995 is
$1,544,000 and $172,000 of accrued interest receivable. Included in short-
term investments at March 31, 1996 is $400,000 which has been pledged as
collateral for certain long-term debt obligations. At March 31, 1996, the
Company's short-term investments are generally available for sale, are
carried at amortized cost which approximates market, consist principally of
United States government securities (70%) and corporate obligations (14%),
and have average maturities of less than one year.
4. Statement of Cash Flows
Non-cash financing activities were comprised of capital lease obligations of
$457,000 and $17,000, respectively, in the nine-month periods ended March 31,
1996 and 1995.
5. 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 as Exhibit 99 to the
Company's quarterly report on Form 10-Q for the period ended December 31,
1995 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 March 31,
1996, due principally to the receipt of a $24,000,000 milestone payment from
Japan Tobacco, Inc. ("JT") in August 1995, and the net proceeds of
approximately $78,589,000 from a public offering of common stock in September
1995, the Company had cash, cash equivalents and short-term investments of
approximately $104,656,000. 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 1996. The Company will require additional long-term financing to
meet the operating needs of 1997 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 nine months ended March 31,
1996 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 only partially offset by increased
revenues.
Contract revenues in the current nine-month period have increased compared to
the year earlier period due mainly to an anti-HIV collaboration with JT
initiated in December 1994. Interest income has increased significantly from
the prior-year three- and nine-month periods due to a higher average
investment portfolio balance resulting from the previously described public
offering and milestone payment.
Research and development costs and expenses increased from the prior-year
three- and nine-month periods due generally to increasing average research
and development staff levels (approximately 22% and 20%, respectively) 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 36% and 25%, 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 lease obligations declines. These declines are
partially or wholly offsetting 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: None.
Item 5. Other Information: None.
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibits:
10.59 First Amendment to Agreement Three effective
February 29, 1996 between Japan Tobacco, Inc.
and the Company.
10.60 Amendment effective January 1, 1996 to the
Agouron Pharmaceuticals, Inc. 401(k) Plan.
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.)
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: April 26, 1996 /s/ Steven S. Cowell
------------------------------------------
Steven S. Cowell
Vice President, Finance and Chief Financial
Officer and Chief Accounting Officer