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 September 30, 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 13,505,000
shares of the Company's Common Stock, no par value, were outstanding as of
October 16, 1996.
AGOURON PHARMACEUTICALS, INC.
INDEX
Page No.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet - 3
September 30, 1996 and June 30, 1996
Statement of Operations - Three Months Ended 4
September 30, 1996 and 1995
Statement of Cash Flows - Three Months Ended 5
September 30, 1996 and 1995
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AGOURON PHARMACEUTICALS, INC.
BALANCE SHEET
(Dollars in thousands)
September 30, June 30,
1996 1996
------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 17,355 $ 16,451
Short-term investments 126,797 74,424
Accounts receivable 6,810 2,966
Other current assets 7,334 1,800
------------- -------------
Total current assets 158,296 95,641
Property and equipment, net of
accumulated depreciation and
amortization of $14,488 and
$13,710 7,455 6,936
------------- -------------
$ 165,751 $ 102,577
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,339 $ 6,659
Accrued liabilities 5,180 4,327
Deferred revenue 14,295 13,788
Current portion of long-term debt 415 486
------------- -------------
Total current liabilities 25,229 25,260
Long term liabilities:
Long-term debt, less current portion 501 501
Accrued rent 1,207 1,233
------------- -------------
Total long-term liabilities 1,708 1,734
------------- -------------
Stockholders' equity:
Common stock, no par value,
75,000,000 shares authorized,
13,502,872 and 10,731,687 shares
issued and outstanding 236,306 158,628
Accumulated deficit (97,492) (83,045)
------------- -------------
Total stockholders' equity 138,814 75,583
------------- -------------
$ 165,751 $ 102,577
============= =============
See accompanying notes to financial statements.
3
AGOURON PHARMACEUTICALS, INC.
STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended September 30,
--------------------------------
1996 1995
------------- ------------
Revenues:
Contracts $ 17,514 $ 10,963
------------- -------------
Operating expenses:
Research and development 29,634 12,528
Selling, general and administrative 3,736 1,106
------------- -------------
33,370 13,634
------------- -------------
Operating loss (15,856) (2,671)
------------- -------------
Other income and expense:
Interest income 1,779 397
Interest expense (64) (106)
Taxes (306) (143)
------------- -------------
1,409 148
------------- -------------
Net loss $ (14,447) $ (2,523)
============= =============
Net loss per common share $ (1.15) $ (0.33)
============= =============
Shares used in computing net loss
per common share 12,576 7,719
============= =============
See accompanying notes to financial statements.
4
AGOURON PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three Months Ended September 30,
--------------------------------
1996 1995
------------- ------------
Cash flows from operating activities:
Cash received from contracts $ 14,177 $ 30,353
Cash paid to suppliers, employees
and service providers (38,925) (12,179)
Interest received 1,779 397
Interest paid (64) (106)
------------- -------------
Net cash provided (used) by
operating activities (23,033) 18,465
------------- -------------
Cash flows from investing activities:
Net (increase) decrease in short-
term investments (52,373) (43,596)
Expenditures for property and equipment (1,233) (289)
------------- -------------
Net cash provided (used) by investing
activities (53,606) (43,885)
------------- -------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 77,677 79,263
Principal payments under equipment leases (42) (122)
Increase (decrease) in long-term debt, net (92) (144)
------------- -------------
Net cash provided (used) by financing
activities 77,543 78,997
------------- -------------
Net increase (decrease) in cash and cash
equivalents 904 53,577
Cash and cash equivalents at beginning of
period 16,451 4,358
------------- -------------
Cash and cash equivalents at end of period $ 17,355 $ 57,935
============= =============
Reconciliation of net loss to net cash
provided (used) by operating
activities:
Net loss $ (14,447) $ (2,523)
Depreciation and amortization 778 599
Net (increase) decrease in accounts
receivable and other current
assets (9,378) 454
Net increase (decrease) in accounts
payable, accrued liabilities,
deferred revenue and other
liabilities 14 19,935
------------- -------------
Net cash provided (used) by operating
activities $ (23,033) $ 18,465
============= =============
See accompanying notes to financial statements.
5
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, AIDS and other serious
diseases. 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 September 30, 1996 and the statements of operations
and cash flows for the three-month periods ended September 30, 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, 1996 Annual
Report on Form 10-K. Certain June 30, 1996 and September 30, 1995 amounts
have been reclassified to conform with the current year presentation.
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 September 30, 1996, it has been assumed that the existing collaborations
with Japan Tobacco Inc. ("JT") and Hoffmann-La Roche Inc. and F. Hoffmann-La
Roche Ltd. ("Roche") will continue in accordance with their agreement terms.
As such, approximately $14,295,000 of cash received from JT and Roche has
been classified as deferred contract revenue, is non-refundable 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.
At September 30, 1996, it has been assumed that during fiscal 1997 the
Company will file a New Drug Application ("NDA") with the United States Food
and Drug Administration ("FDA") for its anti-AIDS drug, VIRACEPT (TM)
(nelfinavir mesylate), and that if such NDA is approved by the FDA, the
Company will be permitted to make VIRACEPT commercially available. As a
result, the Company has begun the commercial manufacture of VIRACEPT and has
accordingly capitalized (in "other current assets" on the September 30, 1996
balance sheet) approximately $5,800,000 of raw material inventory. If the
NDA is not filed or the FDA does not approve the NDA or it becomes likely
that the FDA will not approve the NDA, any capitalized VIRACEPT inventory
will be expensed.
6
3. Short-term investments
Included in short-term investments at September 30, 1996 and June 30, 1996 is
$1,950,000 and $1,156,000 of accrued interest receivable. Included in short-
term investments at September 30, 1996 is $2,400,000 which has been pledged
as collateral for certain commercial letters of credit or long-term debt
obligations. At September 30, 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 (67%) and corporate obligations (29%), 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
$61,000 and $457,000 in the three-month periods ended September 30, 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 and Roche. 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.
7
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 Annual Report on Form 10-K for the year ended June 30, 1996 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 September
30, 1996, due principally to the net proceeds of approximately $77,347,000
from a public offering of common stock in July 1996, the Company had
increased its cash, cash equivalents and short-term investments by 58% over
June 30, 1996 levels to approximately $144,152,000. Also impacting a 65%
increase in current assets is the capitalization of approximately $5,800,000
of raw material inventory for the commercial production of VIRACEPT and
contract revenue receivables from the Company's new (June 1996) development
collaboration with Roche. The Company believes that its current capital
resources and existing contractual commitments are sufficient to maintain its
current and planned operations through fiscal 1998. This belief is based on
current research and clinical development plans, anticipated working capital
requirements associated with the planned commercial launch of VIRACEPT during
fiscal 1997, the current regulatory environment, historical industry
experience in the development of therapeutic drugs and general economic
conditions. The Company believes that additional financing may be required
to meet the planned operating needs of fiscal 1999 if significant positive
cash flows are not generated from commercial activities. Such needs would
include the expenditure of substantial funds to continue research and
development activities, conduct existing and planned preclinical studies and
tests, conduct human clinical trials and to support a growing commercial
infrastructure including certain manufacturing, sales and marketing
capabilities. As a result, the Company anticipates pursuing various
financing alternatives such as collaborative arrangements and additional
public offerings or private placements of Company securities. If such
alternatives are not available, the Company may be required to delay or
eliminate expenditures for certain of its potential products under
development or to license third parties to commercialize products or
technologies that the Company would otherwise seek to develop or
commercialize itself.
8
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 will not begin prior to calendar 1997 and certain programs are
expanding their preclinical and clinical development activities, it is
anticipated that quarterly net losses will continue and possibly increase
through fiscal 1997 and into fiscal 1998.
The increase in the net loss for the three months ended September 30, 1996
compared to the year-earlier period is due principally to the Company's
commitment to support expanding clinical activities and establish a
commercial infrastructure associated with VIRACEPT. These spending increases
were only partially offset by increased revenues from the JT collaboration
and new revenues from the Roche collaboration.
Contract revenues in the current three-month period have increased by
approximately 60% compared to the year-earlier period due mainly to expanding
clinical trial activities on the anti-HIV collaboration with JT and the new
(June 1996) development collaboration with Roche.
Research and development expenses increased from the prior-year three-month
period due generally to increasing average research and development staff
levels (approximately 41%) and staff-related expenditures, including
occupancy, and significantly increased expenditures for human clinical trial
activities associated with the Company's leading product development program,
VIRACEPT.
The increase in selling, general and administrative expenses in the current
three-month period is due chiefly to increasing average staff levels
(approximately 141%) and staff related expenditures and certain costs
associated with a growing sales and marketing infrastructure.
Other income and expense has increased in the current-year period due
principally to a higher average investment portfolio balance resulting from
the previously described public offering. Taxes represent certain foreign
taxes paid in conjunction with the JT collaboration.
9
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:
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: October 25, 1996 /s/ Steven S. Cowell
-------------------------------------------
Steven S. Cowell
Vice President, Finance and Chief Financial
Officer and Chief Accounting Officer
10