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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 0-20111
ARONEX PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 76-0196535
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3400 Research Forest Drive, The Woodlands, Texas 77381-4223
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (281) 367-1666
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.
Class Outstanding at September 30, 1997
Common Stock, $.001 par value 15,421,809 shares
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ARONEX PHARMACEUTICALS, INC.
Quarterly Period September 30, 1997
INDEX
Page
FACTORS AFFECTING FORWARD LOOKING STATEMENTS.................................. 3
PART I. Financial Information
Item 1 Financial Statements................................................... 3
Balance Sheets - December 31, 1996 and September 30, 1997 (unaudited).. 4
Statements of Operations:
Nine months Ended September 30, 1996 and September 30, 1997
(unaudited) and for the Period from Inception (June 13, 1986)
through September 30, 1997 (unaudited)............................ 5
Statements of Cash Flows:
Nine months Ended September 30, 1996 and September 30, 1997
(unaudited) and for the Period from Inception (June 13, 1986)
through September 30, 1997 (unaudited)........................... 6
Notes to Financial Statements - September 30, 1997.................... 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 10
PART II. Other Information
Item 6 Exhibits and Reports on Form 8-K...................................... 13
SIGNATURES ........................................................... 14
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ARONEX PHARMACEUTICALS, INC.
(A development stage company)
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
words "anticipate," "believe," "expect," "estimate," "project" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
believed, expected, estimated or projected. For additional discussion of such
risks, uncertainties and assumptions, see "Item 1. Business - Manufacturing," "-
Sales and Marketing," "Patents, Proprietary Rights and Licenses," "- Government
Regulation," "- Competition" and "- Additional Business Risks" included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, and
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "- Liquidity and Capital Resources" included elsewhere in
this report.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following unaudited financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made herein are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the financial statements for the year ended December 31,
1996 included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
The information presented in the accompanying financial statements is
unaudited, but in the opinion of management, reflects all adjustments (which
include only normal recurring adjustments) necessary to present fairly such
information.
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ARONEX PHARMACEUTICALS, INC.
(A development stage company)
BALANCE SHEETS
(All amounts in thousands, except share data)
ASSETS
September 30,
December 31, 1997
1996 (Unaudited)
Current Assets:
Cash and cash equivalents............................................... $ 4,179 $ 1,921
Short-term investments.................................................. 30,414 29,080
Accounts receivable..................................................... 162 250
Prepaid expenses and other assets....................................... 579 625
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Total current assets............................................... 35,334 31,876
Long-term investments..................................................... 6,795 1,737
Furniture, equipment and leasehold improvements........................... 2,152 1,639
Other assets.............................................................. -- 336
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Total assets....................................................... $ 44,281 $ 35,588
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................... $ 1,191 $ 1,368
Accrued payroll......................................................... 126 160
Advance from Genzyme.................................................... 2,000 2,000
Current portion of notes payable........................................ 325 221
Current portion of obligations under capital leases..................... 16 16
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Total current liabilities.......................................... 3,658 3,765
Long-term obligations:
Notes payable, net of current portion................................... 121 --
Obligations under capital leases, net of current portion................ 25 13
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Total long-term obligations........................................ 146 13
Commitments and contingencies
Stockholder's equity
Preferred stock $.001 par value, 5,000,000 shares authorized,
none issued and outstanding........................................ -- --
Common stock $.001 par value, 30,000,000 shares
authorized, 14,597,247 and 15,421,809 shares
issued and outstanding, respectively............................... 15 15
Additional paid-in capital.............................................. 93,742 96,456
Common stock warrants................................................... 968 968
Treasury stock.......................................................... (11) (11)
Deferred compensation................................................... (1,949) (1,021)
Unrealized loss on investments.......................................... (75) (106)
Deficit accumulated during development stage ........................... (52,213) (64,491)
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Total stockholders' equity......................................... 40,477 31,810
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Total liabilities and stockholders' equity................................ $ 44,281 $ 35,588
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The accompanying notes are an integral part of these financial statements.
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ARONEX PHARMACEUTICALS, INC.
(A development stage company)
STATEMENTS OF OPERATIONS
(All amounts in thousands, except loss per share data)
(Unaudited)
Period
from
Inception
(June 13,
1986)
Nine Months Ended Three Months Ended through
September 30, September 30, Sept. 30,
1996 1997 1996 1997 1997
--------- ---------- --------- --------- -----------
Revenues:
Interest Income....................... $ 1,065 $ 1,632 $ 595 $ 510 $ 5,155
Research and development
Grants and contracts............. 1,811 591 803 275 4,800
--------- ---------- --------- --------- -----------
Total revenues........................... 2,876 2,223 1,398 785 9,955
--------- ---------- --------- --------- -----------
Expenses:
Research and development.............. 7,814 9,864 2,969 3,213 49,007
Purchase of in-process
research and development......... 191 3,000 -- 3,000 11,625
General and administrative............ 1,197 1,477 426 546 12,640
Interest expense and other............ 96 160 25 10 1,174
--------- ---------- --------- --------- -----------
Total expenses............... 9,298 14,501 3,420 6,769 74,446
--------- ---------- --------- --------- -----------
Net loss ............................. $ (6,422) $ (12,278) $ (2,022) $ (5,984) $ (64,491)
========== =========== ========== ========== ============
Loss per share........................... $ (0.51) $ (0.83) $ (0.14) $ (0.40)
Weighted average shares used in
Computing loss per share.............. 12,539 14,714 14,542 14,848
The accompanying notes are an integral part of these financial statements.
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ARONEX PHARMACEUTICALS, INC.
(A development stage company)
STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Period from
Inception
(June 13, 1986)
Nine Months Ended through
September 30, September 30,
1996 1997 1997
-------- -------- --------
Cash flows from operating activities:
Net loss ................................................ $ (6,422) $(12,278) $(64,491)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities-
Depreciation and amortization .................... 729 652 3,539
Loss on disposal of assets ....................... -- 107 107
Compensation expense related to stock and
stock options ................................. 476 400 3,042
Charge for purchase of in-process research
and development .............................. 191 3,000 11,547
Unrealized gain (loss) on investment ............. 8 (31) (106)
Acquisition costs, net of cash received .......... (26) -- (270)
Loss in affiliate ................................ 50 -- 500
Accrued interest payable converted to stock ...... -- -- 97
Changes in assets and liabilities:
Increase in prepaid expenses and other assets . (322) (45) (439)
Decrease (increase) in accounts receivable .... 86 (88) (250)
Increase (decrease) in accounts payable
and accrued expenses ....................... (307) 211 1,455
Increase (decrease) in deferred revenue ....... (578) -- (353)
-------- -------- --------
Net cash used in operating activities ............... (6,115) (8,072) (45,622)
Cash flows from investing activities:
Net sales (purchases) of investments .................... (32,931) 6,392 (25,082)
Purchase of furniture, equipment and leasehold
improvements ........................................ (217) (280) (4,049)
Proceeds from sale of assets ............................ -- 34 34
Increase in other assets ................................ -- (336) (336)
Investment in affiliate ................................. -- -- (500)
-------- -------- --------
Net cash provided by (used in) financing activities . (33,148) 5,810 (29,933)
Cash flows from financing activities:
Proceeds from notes payable and capital leases .......... 2,000 -- 4,672
Repayment of notes payable and principal payments
under capital lease obligations ..................... (471) (237) (2,423)
Purchase of treasury stock .............................. -- -- (11)
Proceeds from issuance of stock ......................... 35,492 241 75,238
-------- -------- --------
Net cash provided by (used in) financing activities . 37,021 4 77,476
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .... (2,242) (2,258) 1,921
Cash and cash equivalents at beginning of period ........ 7,781 4,179 --
-------- -------- --------
Cash and cash equivalents at end of period .............. $ 5,539 $ 1,921 $ 1,921
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ............ $ 96 $ 52 $ 900
Supplemental schedule of noncash financing activities
Conversion of notes payable and accrued interest to
common stock ..................................... $ -- $ -- $ 3,043
The accompanying notes are an integral part of these financial statements.
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ARONEX PHARMACEUTICALS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. Organization and Basis of Presentation
Aronex Pharmaceuticals, Inc. ("Aronex" or the "Company") was incorporated
in Delaware on June 13, 1986 and merged with Triplex Pharmaceutical Corporation
("Triplex") and Oncologix, Inc. ("Oncologix") effective September 11, 1995.
Aronex is a development stage company which has devoted substantially all of its
efforts to research and product development and has not yet generated any
significant revenues, nor is there any assurance of significant future revenues.
In addition, the Company expects to continue to incur losses for the foreseeable
future and there can be no assurance that the Company will complete the
transition from a development stage company to successful operations. The
research and development activities engaged in by the Company involve a high
degree of risk and uncertainty. The ability of the Company to successfully
develop, manufacture and market its proprietary products is dependent upon many
factors. These factors include, but are not limited to, the need for additional
financing, attracting and retaining key personnel and consultants, and
successfully developing manufacturing, sales and marketing operations. The
Company's ability to develop these operations may be impacted by uncertainties
related to patents and proprietary technologies, technological change and
obsolescence, product development, competition, government regulations and
approvals, health care reform and product liability exposure. Additionally, the
Company is reliant upon collaborative arrangements for research, contractual
agreements with corporate partners, and its exclusive license agreements with
M.D. Anderson Cancer Center ("MD Anderson") and an affiliate of Baylor College
of Medicine ("Baylor"). Further, during the period required to develop these
products, the Company will require additional funds which may not be available
to it. The Company expects that its existing cash resources will be sufficient
to fund its cash requirements through early 1999. Accordingly, there can be no
assurance of the Company's future success.
The balance sheet at September 30, 1997 and the related statements of
operations and cash flows for the nine month period ending September 30, 1997
and 1996 and the period from inception (June 13, 1986) through September 30,
1997 are unaudited. These interim financial statements should be read in
conjunction with the December 31, 1996 financial statements and related notes.
The unaudited interim financial statements reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of results for the
interim periods presented and all such adjustments are of a normal recurring
nature. Interim results are not necessarily indicative of results for a full
year.
2. Accounting Policies
In January 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per share" ("SFAS 128").
Management believes that this statement will have no material effect on its
financial statements.
Certain reclassifications have been made to December 31,1996 balances to
conform to current year presentation.
3. Cash, Cash Equivalents and Investments
Cash and cash equivalents include money market accounts and investments
with an original maturity of less than three months. At September 30, 1997, all
short-term investments are held to maturity securities consisting of high-grade
commercial paper and U. S. Government backed securities with a carrying value of
$29,080,000, which approximates fair market value and cost. At September 30,
1997 all long-term investments are available for sale securities which are U.S.
mortgage backed securities with various maturity dates over the next several
years that have an amortized cost of $1,843,000, a fair market value of
$1,737,000 and a gross unrealized loss of $106,000 at September 30, 1997. The
Company currently has no trading securities.
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ARONEX PHARMACEUTICALS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. Federal Income Taxes
At December 31, 1996, the Company had net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $66.9 million.
The Tax Reform Act of 1986 provided a limitation on the use of NOL and tax
credit carryforwards following certain ownership changes that could limit the
Company's ability to utilize these NOLs and tax credits. Accordingly, the
Company's ability to utilize its NOLs and tax credit carryforwards to reduce
future taxable income and tax liabilities may be limited. As a result of the
1995 mergers with Triplex and Oncologix a change in control as defined by
federal income tax law occurred, causing the use of these carryforwards to be
limited and possibly eliminated. Additionally because U.S. tax laws limit the
time during which NOLs and the tax credit carryforwards may be applied against
future taxable income and tax liabilities, the Company may not be able to take
full advantage of its NOLs and tax credit carryforwards for federal income tax
purposes. The carryforwards will begin to expire in 2001 if not otherwise used.
A valuation allowance has been established to offset the Company's deferred tax
assets as the Company has had losses since inception. The Company has not made
any income tax payments since inception.
5. Reverse Stock Split
At a special Meeting of Stockholders held on May 24,1996, the stockholders
of the Company approved a one-for- two reverse split of the Common Stock (the
"Reverse Split"). The Reverse Split became effective with the filing of an
amendment to the Company's Certificate of Incorporation on July 1, 1996. The
accompanying financial statements have been restated to give effect to the
Reverse Split.
6. Building Lease
In April 1997, the Company signed a lease for a new building with its
current landlord, under which, the Company has committed to lease 30,000 square
feet for ten years at approximately $2.00 per square foot per month and to pay
certain construction costs. The Company expects to occupy this lease space late
in 1997 or early in 1998.
7. Contingent Stock Rights
In connection with the Triplex merger agreement, the Company issued
contingent rights (the "Triplex Contingent Stock Rights") to the former Triplex
stock and options holders entitling them to receive additional shares of Common
Stock upon the occurrence of certain events. The Triplex Contingent Stock Rights
entitle the former Triplex stock and option holders to receive shares of Common
Stock with an aggregate fair market value at the time of issuance of $5.0
million (subject to certain adjustments) if the Company either (i) enters into
an agreement on or before September 11, 1997 with respect to the licensing of
ZintevirTM whereby the Company receives at least $5.0 million in cash or an
unconditional binding commitment for at least $5.0 million or (ii) obtains data
from clinical trials of ZintevirTM on or before September 11, 2000 that the
Company's Board of Directors determines to be sufficient to file an NDA. In
addition, the Triplex Contingent Stock Rights entitled the former Triplex stock
and option holders to receive shares of Common Stock with an aggregate fair
market value at the time of issuance of $3.0 million if the Company did not
receive a minimum of $5.0 million in equity milestone payments from Genzyme on
or before September 11, 1997 with respect to the development of AtragenTM. In no
event, however, shall more than 3,500,097 shares of Common Stock (subject to
adjustments in the event of stock splits, stock dividends or reclassification of
the Common Stock) be issued pursuant to the Triplex Contingent Stock Rights. The
Company did not receive the minimum equity milestone payments from Genzyme
contemplated by the Triplex Contingent Stock Rights. Accordingly, on September
11, 1997, the Company issued 686,472 shares of Common Stock under such
Contingent Stock Rights with an aggregate fair market value at the time of
issuance of $3,000,000 and recorded a corresponding non-cash research and
development expense of $3,000,000 in the third quarter of 1997.
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ARONEX PHARMACEUTICALS, INC.
(A development stage company)
8. Employment Agreement
In September 1997 the Company entered into a non-binding letter of intent
with Geoffrey Cox, Ph.D. under which Dr. Cox has agreed to become the Company's
Chairman of the Board and Chief Executive Officer. The Company intends to enter
into an employment agreement with Dr. Cox under which it expects to incur
certain obligations relating to his hiring and retention.
- 9-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Overview
Since its inception in 1986, Aronex Pharmaceuticals, Inc. ("Aronex" or the
"Company") has primarily devoted its resources to fund research, drug discovery
and development. The Company has been unprofitable to date and expects to incur
substantial operating losses for the next several years as it expends its
resources for product research and development, preclinical and clinical testing
and regulatory compliance. The Company has sustained losses of approximately
$64.5 million through September 30, 1997. The Company has financed its research
and development activities and operations primarily through public and private
offerings of securities. The Company's operating results have fluctuated
significantly during each quarter, and the Company anticipates that such
fluctuations, largely attributable to varying commitments and expenditures for
clinical trials and research and development, will continue for the next several
years.
Three and Nine Month Periods Ended September 30, 1997 and 1996
Revenues from research and development grants and contracts were $275,000
and $803,000 for the three months ended September 30, 1997 and 1996,
respectively, a decrease of $528,000. Research and development grants and
contracts were $591,000 and $1,811,000 for the nine months ended September 30,
1997 and 1996, respectively, a decrease of $1,220,000. These decreases were due
to the following: (i) no revenues from Hoechst Marion Roussel, Inc. ("Hoechst")
in 1997 compared to $900,000 for the nine months ended September 30, 1996, as
the agreement terminated at the end of 1996; (ii) no Small Business Innovative
Research ("SBIR") grant revenue in 1997 compared to $73,000 for the nine months
ended September 30, 1997 and (iii) a decrease in the development revenue from
Targeted Genetics Incorporated ("Targeted") to $166,000 for the nine months
ended September 30, 1997 from $460,000 for the corresponding period in 1996.
This three year agreement with Targeted ended in the second quarter of 1997. The
decreases in research and development revenues were partially offset by $150,000
in revenue in the first quarter of 1997 from the Company's license agreement
with Boehringer Mannheim GmbH and $250,000 in the third quarter of 1997 from a
new licensing agreement with Genzyme Corporation ("Genzyme") relating to gene
therapy.
Interest income was $510,000 and $595,000 for the three months ended
September 30, 1997 and 1996, respectively, a decrease of $85,000. This decrease
was due to the decrease in funds available for investment in 1997 when compared
to the same period in 1996. Interest income was $1,632,000 and $1,065,000 for
the nine months ended September 30, 1997 and 1996, respectively, an increase of
$567,000. This increase was primarily due to an increase of funds available for
investment during the first half of 1997 resulting from cash received from the
completion of a stock offering in May 1996.
Research and development expenses were $3,213,000 and $2,969,000 for the
three months ended September 30, 1997 and 1996, respectively, an increase of
$244,000. Research and development expenses were $9,864,000 and $7,814,000 for
the nine months ended September 30, 1997 and 1996, respectively, an increase of
$2,050,000. These increases were primarily due to an increase of $1,040,000 in
medical affairs and pharmaceutical development salaries and payroll costs,
including costs relating to the hiring of a Vice President of Pharmaceutical
Development and Operations and a Senior Vice President of Medical Affairs and
Chief Medical Officer, an increase of $752,000 in drug manufacturing costs
relating mainly to NyotranTM and ZintevirTM and an increase of $825,000 in
outside pharmacology studies relating mainly to NyotranTM and AtragenTM. The
increases were partially offset by a decrease of $828,000 in research expenses
as the majority of the Company's internal research efforts were eliminated in
the second quarter of 1997. The Company's decision to eliminate such research
efforts was related in part to the termination of research funding from Hoechst.
In-process research and development represents costs incurred during the
nine month period ended September 30, 1996 related to the 1995 mergers of
Triplex Pharmaceutical Corporation ("Triplex") and Oncologix,
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Inc.("Oncologix") with subsidiaries of the Company, and consists of the
settlement of a lawsuit that had been filed by certain common stockholders of
Oncologix.
In-process research and development costs of $3,000,000 incurred in the
third quarter of 1997 relates to the issuance of Common Stock under the
contingent rights issued in the Triplex merger to the former holders of Triplex
stock and options. The Company issued 686,472 shares of Common Stock under the
contingent rights with an aggregate fair market value at the time of issuance of
$3,000,000 and recorded a corresponding non-cash research and development
expense of $3,000,000 in the third quarter of 1997. The issuance of such shares
under the contingent rights was required because equity milestone payments of
$5,000,000 were not received from Genzyme relating to AtragenTM on or before
September 11, 1997. See Note 7 of Notes to Financial Statements.
General and administrative expenses were $546,000 and $426,000 for the
three months ended September 30, 1997 and 1996, respectively, an increase of
$120,000. General and administrative expenses were $1,477,000 and $1,197,000 for
the nine months ended September 30, 1997 and 1996, respectively, an increase of
$280,000. These increases were primarily due to an increase of $246,000 in
salaries, deferred stock option compensation and payroll costs, which includes
several new positions and a related increase in operating costs.
Interest expense and other was $10,000 and $25,000 for the three months
ended September 30, 1997 and 1996, respectively, a decrease of $15,000. This
decrease was due to the reduction in the amount of capital lease obligations and
indebtedness related to the acquisition of laboratory equipment. Interest
expense and other was $160,000 and $96,000 for the nine months ended September
30, 1997 and 1996, respectively, an increase of $64,000. This increase in
interest expense and other resulted primarily from a loss on disposal of assets
of $107,000 in the quarter ended June 30, 1997 that related to the disposition
of equipment and leasehold improvements that had been used in research
activities which were eliminated. This increase was partially offset by a
decrease in interest expense resulting from a reduction in the amount of capital
lease obligations and indebtedness relating to the acquisition of laboratory
equipment.
Net loss was $5,984,000 and $2,022,000 for the three months ended September
30, 1997 and 1996, respectively, an increase of $3,962,000. Net loss for the
nine months ended September 30, 1997 and 1996, respectively, was $12,278,000 and
$6,422,000, an increase of $5,856,000. These increases were primarily due to
$3,000,000 of purchase of in-process research and development expense in the
third quarter which resulted from the issuance of Common Stock under the Triplex
contingent stock rights and an increase in research and development expenses.
Liquidity and Capital Resources
Since its inception, the Company's primary source of cash has been from
financing activities, which have consisted primarily of sales of equity
securities. The Company has raised an aggregate of approximately $75.2 million
from the sale of equity securities from its inception through September 30,
1997. In July 1992, the Company raised net proceeds of approximately $10.7
million in the initial public offering of its Common Stock. In September 1993,
the Company entered into a collaborative agreement with Genzyme relating to the
development and commercialization of AtrogenTM, in connection with which the
Company received net proceeds of approximately $4.5 million from the sale of
Common Stock to Genzyme. In November 1993 and May 1996, the Company raised net
proceeds of approximately $11.5 and $32.1 million, respectively, in public
offerings of Common Stock. From October 1995 through September 30, 1997, the
Company received aggregate net proceeds of approximately $6.5 million from the
exercise of certain warrants issued in its 1995 merger with Oncologix, Inc. From
its inception until September 30, 1997, the Company also received an aggregate
of $4.5 million cash from collaborative arrangements and SBIR grants. In
September 1995, the Company's cash and securities held to maturity increased by
approximately $6.7 million as a result of its 1995 merger with Triplex
Pharmaceutical Corporation.
- 11-
The Company's primary use of cash to date has been in operating activities
to fund research and development, including preclinical studies and clinical
trials, and general and administrative expenses. Cash of $8.1 million and $6.1
million was used in operating activities during the first nine months of 1997
and 1996, respectively. The Company had cash, cash-equivalents and short-term
and long-term investments of $32.7 million as of September 30, 1997, consisting
primarily of cash and money market accounts, United States government securities
and investment grade commercial paper.
The Company has experienced negative cash flows from operations since its
inception and has funded its activities to date primarily from equity
financings. The Company has expended, and will continue to require, substantial
funds to continue research and development, including preclinical studies and
clinical trials of its products, and to commence sales and marketing efforts if
FDA and other regulatory approvals are obtained. The Company expects that its
existing capital resources will be sufficient to fund its capital requirements
through early 1999. Thereafter, the Company will need to raise substantial
additional capital to fund its operations. The Company's capital requirements
will depend on many factors, including the problems, delays, expenses and
complications frequently encountered by development stage companies; the
progress of the Company's research, development and clinical trial programs; the
extent and terms of any future collaborative research, manufacturing, marketing
or other funding arrangements; the costs and timing of seeking regulatory
approvals of the Company's products; the Company's ability to obtain regulatory
approvals; the success of the Company's sales and marketing programs; costs of
filing, prosecuting and defending and enforcing any patent claims and other
intellectual property rights; and changes in economic, regulatory or competitive
conditions of the Company's planned business. Estimates about the adequacy of
funding for the Company's activities are based on certain assumptions, including
the assumption that testing and regulatory procedures relating to the Company's
products can be conducted at projected costs. There can be no assurance that
changes in the Company's research and development plans, acquisitions, or other
events will not result in accelerated or unexpected expenditures. To satisfy its
capital requirements, the Company may seek to raise additional funds in the
public or private capital markets. The Company's ability to raise additional
funds in the public or private markets will be adversely affected if the results
of its current or future clinical trials are not favorable. The Company may seek
additional funding through corporate collaborations and other financing
vehicles. There can be no assurance that any such funding will be available to
the Company on favorable terms or at all. If adequate funds are not available,
the Company may be required to curtail significantly one or more of its research
or development programs, or it may be required to obtain funds through
arrangements with future collaborative partners or others that may require the
Company to relinquish rights to some or all of its technologies or products. If
the Company is successful in obtaining additional financing, the terms of such
financing may have the effect of diluting or adversely affecting the holdings or
the rights of the holders of the Company's Common Stock.
- 12-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment Agreement between the Company and Janet Walter.
11.1 Statement regarding computation of per share earnings.
27.1 Financial data schedule.
(b) Reports on Form 8-K
None
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SIGNATURES
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.
ARONEX PHARMACEUTICALS, INC.
Dated: October 28, 1997 By:/S/JAMES M. CHUBB
James M. Chubb, Ph.D.
President and Chief Executive Officer
Dated: October 28, 1997 By:/S/TERANCE A. MURNANE
Terance A. Murnane
Controller
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