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, 1997
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 13,678,000 shares
of the Company's Common Stock, no par value, were outstanding as of April 4,
1997.
AGOURON PHARMACEUTICALS, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheet - 3
March 31, 1997 and June 30, 1996
Statement of Operations - Three and Nine 4
Months Ended March 31, 1997 and 1996
Statement of Cash Flows- 5
Nine Months Ended March 31, 1997 and 1996
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 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AGOURON PHARMACEUTICALS, INC.
BALANCE SHEET
(Dollars in thousands)
March 31, June 30,
1997 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,595 $ 16,451
Short-term investments 75,332 74,424
Accounts receivable 16,481 2,966
Inventory 42,657 0
Other current assets 1,006 1,800
------------- -------------
Total current assets 143,071 95,641
Property and equipment, net of accumulated
depreciation and amortization of $14,933 and $13,710 11,905 6,936
------------- -------------
$ 154,976 $ 102,577
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,015 $ 6,659
Accrued liabilities 7,501 4,327
Deferred revenue 7,489 13,788
Current portion of long-term debt 427 486
------------- -------------
Total current liabilities 29,432 25,260
------------- -------------
Long-term liabilities:
Long-term debt, less current portion 534 501
Accrued rent 1,158 1,233
------------- -------------
Total long-term liabilities 1,692 1,734
------------- -------------
Stockholders' equity:
Common stock, no par value, 75,000,000 shares authorized,
13,669,169 and 10,731,687 shares issued and outstanding 238,899 158,628
Accumulated deficit (115,047) (83,045)
------------- -------------
Total stockholders' equity 123,852 75,583
------------- -------------
$ 154,976 $ 102,577
============= =============
See accompanying notes to financial statements.
AGOURON PHARMACEUTICALS, INC.
STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
------- ----------- ----------- ---------
Revenues:
Net sales $ 13,401 $ -- $ 13,401 $ --
Contracts 16,212 6,910 48,835 27,465
License fees 9,000 -- 9,000 --
----------- ----------- ----------- ----------
38,613 6,910 71,236 27,465
------ ----------- ----------- ----------
Operating expenses:
Cost of sales 6,023 -- 6,023 --
Research and development 28,431 17,064 81,367 43,780
Selling, general and administrative 10,280 1,968 19,802 4,051
----------- ----------- ----------- ----------
44,734 19,032 107,192 47,831
------ ----------- ----------- ----------
Operating loss (6,121) (12,122) (35,956) (20,366)
----------- ----------- ----------- ----------
Other income and expenses:
Interest, net 1,428 1,486 4,872 3,333
Taxes (306) (370) (918) (628)
----------- ----------- ----------- ----------
1,122 1,116 3,954 2,705
----- ----------- ----------- ----------
Net loss $ (4,999) $ (11,006) $ (32,002) $ (17,661)
=========== =========== =========== ==========
Net loss per common share $ (0.37) $ (1.04) $ (2.42) $ (1.84)
========== =========== =========== ==========
Shares used in computing net loss
per common share 13,615 10,571 13,239 9,574
=========== =========== =========== ==========
See accompanying notes to financial statements.
AGOURON PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
March 31,
1997 1996
Cash flows from operating activities:
Cash received from contracts and licenses $ 51,422 $ 46,477
Cash paid to suppliers, employees and service providers (137,043) (44,419)
Interest received 4,965 3,520
Interest paid (93) (187)
----------- -----------
Net cash provided (used) by operating activities (80,749) 5,391
----------- -----------
Cash flows from investing activities:
Net (increase) decrease in short-term investments (908) (74,223)
Expenditures for property and equipment (7,016) (1,588)
------------ -----------
Net cash provided (used) by investing activities (7,924) (75,811)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 80,271 81,266
Principal payments under equipment leases (179) (304)
Increase (decrease) in long-term debt, net (275) (353)
----------- -----------
Net cash provided (used) by financing activities 79,817 80,609
----------- -----------
Net increase (decrease) in cash and cash equivalents (8,856) 10,189
Cash and cash equivalents at beginning of period 16,451 4,358
----------- -----------
Cash and cash equivalents at end of period $ 7,595 $ 14,547
=========== ===========
Reconciliation of net loss to net cash provided (used) by operating activities:
Net loss $ (32,002) $ (17,661)
Depreciation and amortization 2,475 1,740
Net (increase) decrease in accounts receivable (13,515) (6)
Net (increase) decrease in inventory (42,657) 0
Net (increase) decrease in other current assets 794 (1,371)
Net increase (decrease) in accounts payable, accrued liabilities,
and accrued rent 10,455 3,671
Net increase (decrease) in deferred revenue (6,299) 19,018
----------- -----------
Net cash provided (used) by operating activities $ (80,749) $ 5,391
=========== ===========
See accompanying notes to financial statements.
AGOURON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Nature of operations
Agouron Pharmaceuticals, Inc. is an integrated pharmaceutical company committed
to the discovery, development, manufacturing and marketing of small molecule
drugs engineered to inactivate proteins which play key roles in cancer, AIDS,
and other serious diseases. The Company, through its own sales and marketing
force, is currently marketing VIRACEPT(R)(nelfinavir mesylate), an inhibitor of
the HIV protease, which recently received approval from the United States Food
and Drug Administration ("FDA"). The Company intends to commercialize any
subsequently 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, 1997 and the statements of operations and cash
flows for the three-month and nine-month periods ended March 31, 1997 and 1996
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 March 31, 1996 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 March 31, 1997, 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 $6,075,000 of cash received from JT and Roche has been classified
as deferred contract revenue, is non-refundable and is being recognized as
revenue 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. Revenue recognition
In March 1997, the Company received clearance from the FDA to market its
anti-HIV drug, VIRACEPT. Accordingly, in March, the Company began shipping
VIRACEPT to wholesalers throughout the United States. The Company recognizes
sales revenue upon shipment.
In January 1997, the Company and JT granted Roche certain exclusive rights to
VIRACEPT in Europe and other countries outside North America, Japan and Asia.
For such rights, the Company has received an initial license fee of $9,000,000
and will, upon approval of VIRACEPT in Europe, receive an additional license fee
and subsequent royalties. The license fees are non-refundable and the Company
has no significant ongoing obligation with respect to such fees. The Company
recognizes such fees as revenue when earned.
4. Short-term investments
Included in short-term investments at March 31, 1997 and June 30, 1996 is
$1,107,000 and $1,156,000 of accrued interest receivable. Included in short-term
investments at March 31, 1997 is $3,400,000 which has been pledged as collateral
for certain commercial letters of credit or long-term debt obligations. At March
31, 1997, 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 (62%) and corporate obligations (30%), and
have average maturities of less than one year.
5. Inventory
Inventory is stated at the lower of cost or market and, at March 31, 1997,
consists of approximately $42,213,000 of work-in-process at contract
manufacturers and $444,000 of finished goods. The Company had no inventory at
June 30, 1996.
6. Statement of cash flows
Non-cash financing activities were comprised of capital lease obligations of
$428,000 and $457,000 in the nine-month periods ended March 31, 1997 and 1996.
7. 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.
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 this Form 10-Q. 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. However, on March 14, 1997, the
Company received clearance from the FDA to market its anti-HIV drug, VIRACEPT,
and commercial sales of VIRACEPT for the quarter ending March 31, 1997 resulted
in a gross margin of approximately $7,378,000. The Company anticipates that net
sales of VIRACEPT will steadily increase through at least fiscal 1998 and
provide an increasingly significant contribution toward funding the Company's
operations.
At March 31, 1997, the Company had net working capital of approximately
$113,639,000, an increase of $43,258,000 over June 30, 1996 levels due
principally to the net proceeds of approximately $77,347,000 from a public
offering of common stock in July 1996, partially offset by the cash requirements
associated with the Company's year-to-date net loss of $32,002,000. Individual
working capital components significantly impacted by the commercialization of
VIRACEPT include inventory (an increase of $42,657,000), trade accounts
receivable (an increase of $13,401,000) and accounts payable (an increase of
$7,356,000). It is anticipated that these working capital components and cash
and short-term investments will continue to be significantly impacted as
VIRACEPT sales increase. At March 31, 1997, the Company had cash, cash
equivalents and short-term investments of approximately $82,927,000. The Company
believes that its current capital resources, existing contractual commitments
and anticipated VIRACEPT product sales contribution are sufficient to maintain
its current operations through fiscal 1998. This belief is based on current
research and clinical development plans, anticipated working capital
requirements associated with the expanding commercialization of VIRACEPT, 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 1998 and beyond if significant positive cash
flows are not generated from commercial activities on a timely basis. Such needs
would include the expenditure of substantial funds to continue and expand
research and development activities, conduct existing and planned preclinical
studies and human clinical trials and to support the increasing working capital
requirements of a growing commercial infrastructure including manufacturing,
sales and marketing. 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 defer or restrict certain
commercial activities, 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.
Results of Operations
The Company is committed to the discovery, development, manufacturing and
marketing of human pharmaceuticals targeting cancer, AIDS, and other serious
diseases. Operations to date have 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 substantial investment in clinical and commercial development activities
concentrated on the Company's recently approved first product, VIRACEPT, and its
lead compounds in cancer.
As product sales have only recently commenced and certain programs are expanding
their preclinical, clinical, and commercial development activities, it is
anticipated that quarterly net losses will continue into fiscal 1998. The
Company anticipates that quarterly operating results will be profitable by the
end of fiscal 1998.
The net loss for the current three-month period has decreased compared to the
year-earlier period due primarily to the gross margin contribution from
commercial sales of VIRACEPT, a $9,000,000 license fee and a 135% increase in
contract revenue which were only partially offset by a 103% increase in
operating expenses. The increase in the year-to-date net loss compared to the
year-earlier period is due primarily to a significantly greater increase in
operating expenses compared to the revenue increases described above on a
quarterly basis.
Net sales and related cost of sales reflect the initial sales of VIRACEPT
following its approval by the FDA in March 1997. The Company anticipates that
gross margins on VIRACEPT sales will improve as sales increase.
Contract revenues in the current three and nine-month periods have increased
compared to the year-earlier periods due mainly to increased program activity
and spending on the JT collaborations and the new (June 1996) development
collaborations with Roche.
License fees in the current three and nine-month periods represent the initial
license fee received from Roche in January 1997 in return for exclusive
marketing rights to VIRACEPT in Europe and other countries outside North
America, Japan and Asia.
Research and development expenses increased from the prior-year periods due
generally to increasing average research and development staff levels
(approximately 40% in the three and nine-month periods) and staff-related
expenditures, including occupancy, and significantly increased expenditures in
support of human clinical trials and an expanded access program associated with
VIRACEPT.
The increase in selling, general and administrative expenses in the current
three and nine-month periods is due chiefly to increasing average staff levels
(approximately 275% in the three-month period and 216% in the nine-month period)
and staff related expenditures, certain premarketing and advertising and
promotion costs associated with the launch of VIRACEPT in March 1997 and other
costs associated with a growing sales and marketing infrastructure.
Interest (net) has increased in the current nine-month period due principally to
a higher average investment portfolio balance resulting from the previously
described public offering. Taxes have increased due to certain foreign taxes
paid in conjunction with the JT collaboration.
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 or results of operations.
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)
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: April 14, 1997 /s/ Steven S. Cowell
----------------------
Steven S. Cowell
Vice President, Finance and
Chief Financial Officer and
Chief Accounting Officer