UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-19171
ICOS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 91-1463450
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22021 20th Avenue Southeast, Bothell WA 98021
(Address of principal executive offices) (Zip Code)
(425)485-1900
(Registrant's telephone number, including area code)
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.
/X/Yes / /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 August 13, 1997
----- ------------------------------
Common Stock, $0.01 par value 39,557,399
ICOS CORPORATION
TABLE OF CONTENTS
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
Statements of Operations for the three months ended June 30, 1997
and 1996, the six months ended June 30, 1997 and 1996 and the period
from September 21, 1989 (incorporation) through June 30, 1997........1
Balance Sheets as of June 30, 1997 and December 31,1996..............2
Statements of Stockholders' Equity for the period from September 21,
1989 (incorporation) through June 30, 1997...........................3
Statements of Cash Flows for the six months ended June 30, 1997 and
1996, and the period from September 21, 1989 (incorporation)
through June 30, 1997................................................5
Notes to Financial Statements........................................6
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................8
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings............................................*
ITEM 2: Changes in Securities........................................*
ITEM 3: Defaults Upon Senior Securities..............................*
ITEM 4: Submission of Matters to a Vote of Security Holders.........14
ITEM 5: Other Information............................................*
ITEM 6: Exhibits and Reports on Form 8-K............................15
SIGNATURE...................................................................16
EXHIBITS....................................................................17
*No information provided due to inapplicability of item.
ICOS CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
ITEM 1.
Period from
September 21, 1989
Three months ended Six months ended (incorporation)
June 30, June 30, through June 30,
--------------------------- -------------------------- ------------------
1997 1996 1997 1996 1997
------------- ------------- ------------ ------------- ------------------
Revenue:
Collaborative research & development $ 6,842,984 $ 500,000 $ 9,059,971 $ 1,000,000 $ 14,559,971
License of technology 8,500,000 - 8,500,000 - 8,500,000
Research grants - - - - 1,451,409
------------- ------------- ------------ ------------- --------------
Total revenue 15,342,984 500,000 17,559,971 1,000,000 24,511,380
Operating expenses:
Research and development 9,842,142 7,091,661 18,971,422 13,799,918 134,674,443
General and administrative 548,126 675,251 1,297,950 1,361,138 19,250,811
------------- ------------- ------------ ------------- --------------
Total operating expenses 10,390,268 7,766,912 20,269,372 15,161,056 153,925,254
------------- ------------- ------------ ------------- --------------
Operating income (loss) 4,952,716 (7,266,912) (2,709,401) (14,161,056) (129,413,874)
------------- ------------- ------------ ------------- --------------
Other income (expense):
Investment income 473,292 475,142 999,754 698,759 18,288,231
Interest expense - - - - (887,899)
Other, net (2,051) 245 (7,808) 1,214 (114,153)
------------- ------------- ------------ ------------- --------------
471,241 475,387 991,946 699,973 17,286,179
------------- ------------- ------------ ------------- --------------
Net income (loss) $ 5,423,957 $ (6,791,525) $(1,717,455) $(13,461,083) $(112,127,695)
============= ============= ============ ============= ==============
Net income (loss) per common share $ 0.13 $ (0.19) $ (.04) (0.39)
============= ============= ============ =============
Weighted average common and common
equivalent shares outstanding 40,421,847 36,208,083 39,488,209 34,236,986
============= ============= ============ =============
<FN>
See accompanying notes to financial statements.
Page 1
ICOS CORPORATION
(A Development Stage Company)
BALANCE SHEETS
ASSETS
June 30, December 31,
1997 1996
------------- -------------
(unaudited)
Current assets:
Cash and cash equivalents $ 3,271,934 $ 2,159,008
Investment securities available for sale, at market value 28,678,381 39,511,820
Interest receivable 383,586 149,404
Receivables under collaborative arrangements 6,240,047 -
Other receivables 138,465 92,969
Prepaid expenses 519,235 599,752
------------ ------------
Total current assets 39,231,648 42,512,953
Property and equipment, at cost:
Land 2,309,979 2,309,979
Leasehold improvements 13,657,909 13,659,272
Furniture and equipment 14,285,404 13,631,566
------------ ------------
30,253,292 29,600,817
Less accumulated depreciation and amortization 15,914,384 13,997,511
------------ ------------
14,338,908 15,603,306
------------ ------------
Construction in progress 141,057 23,600
------------ ------------
Net property and equipment 14,479,965 15,626,906
------------ ------------
Loan receivable from related party 5,512,750 -
Other assets 258,607 65,318
------------ ------------
5,771,357 65,318
------------ ------------
$ 59,482,970 $ 58,205,177
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,633,019 $ 1,183,623
Accrued payroll and benefits 824,968 649,562
Other accrued expenses 754,953 1,104,711
------------ ------------
Total current liabilities 3,212,940 2,937,896
------------ ------------
Stockholders' equity:
Preferred Stock, $.01 par value. Authorized 2,000,000 shares; none issued - -
Common Stock, $.01 par value. Authorized 100,000,000 shares; issued and
outstanding, 39,554,734 at June 30, 1997 and 39,417,753 at
December 31, 1996 395,547 394,177
Additional paid-in capital 167,998,935 165,273,054
Net unrealized gain on investment securities available for sale 3,243 10,290
Deficit accumulated during the development stage (112,127,695) (110,410,240)
------------- -------------
Total stockholders' equity 56,270,030 55,267,281
------------- -------------
$ 59,482,970 $ 58,205,177
<FN> ============= =============
See accompanying notes to financial statements.
Page 2
ICOS CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Additional Restricted Unrealized Deficit Total
Stock paid-in Common gain(loss) accumulated stockholders'
capital Stock on during the equity
securities development
available stage
for sale
-------- ------------ ----------- ---------- ------------ -------------
Issuance of 5,515,000 shares of Common Stock at
$.02 per share $ 55,150 $ 55,150 $ - $ - $ - $ 110,300
Net loss for the period from inception through
December 31, 1989 - - - - (359,952) (359,952)
-------- ------------ ----------- --------- ------------- -----------
Balances at December 31, 1989 55,150 55,150 - - (359,952) (249,652)
Issuance of 455,000 shares of Common Stock at
$.02 per share 4,550 4,550 - - - 9,100
Issuance of 10,752,222 shares of Common Stock at
$3.00 per share, net of issuance costs of $2,513,166 107,522 29,635,979 - - - 29,743,501
Issuance of 300,000 shares of Common Stock at $3.00
per share in payment of note to stockholders 3,000 897,000 - - - 900,000
Repurchase 60,000 shares of Common Stock at $.02
per share (600) (600) - - - (1,200)
Net loss for the year ended December 31, 1990 - - - - (2,775,090) (2,775,090)
-------- ------------ ----------- --------- ------------- -----------
Balances at December 31, 1990 169,622 30,592,079 - - (3,135,042) 27,626,659
Issuance of 4,500,000 shares of Common Stock at $8.00
per share, net of issuance costs of $3,230,856 45,000 32,724,144 - - - 32,769,144
Repurchase 74,000 shares of Common Stock at $.02 per
share (740) (740) - - - (1,480)
Issuance of 135,000 shares of Common Stock, of which
75,000 shares are restricted, to Cold Spring Harbor
Laboratories pursuant to a collaboration agreement, at
fair market value of $18.50 per share 1,350 2,496,150 (1,387,500) - - 1,110,000
Vesting of 3,750 shares of restricted Common Stock - - 69,375 - - 69,375
Issuance of 18,885 shares of Common Stock from the
exercise of options at $3.00 per share 189 56,466 - - - 56,655
Issuance of 86,772 shares of Common Stock from the
exercise of warrants at $3.00 per share 868 259,448 - - - 260,316
Compensation related to options granted - 12,599 - - - 12,599
Net loss for the year ended December 31, 1991 - - - - (6,412,786) (6,412,786)
-------- ------------ ----------- --------- ------------- -----------
Balances at December 31, 1991 216,289 66,140,146 (1,318,125) - (9,547,828) 55,490,482
Issuance of 3,000,000 shares of Common Stock at $9.00
per share, net of issuance costs of $1,780,436 30,000 25,189,564 - - - 25,219,564
Retirement of 299,561 shares of Common Stock at $8.00
per share (2,996) (2,394,226) - - - (2,397,222)
Vesting of 15,000 shares of restricted Common Stock - - 277,500 - - 277,500
Issuance of 800,012 shares of Common Stock from the
exercise of options at $3.00 per share 8,000 2,392,035 - - - 2,400,035
Issuance of 106,800 shares of Common Stock from the
exercise of warrants at $3.00 per share 1,068 319,333 - - - 320,401
Compensation related to options granted - 30,235 - - - 30,235
Net loss for the year ended December 31, 1992 - - - - (8,312,128) (8,312,128)
-------- ------------ ----------- --------- ------------- -----------
Balances at December 31, 1992 252,361 91,677,087 (1,040,625) - (17,859,956) 73,028,867
Page 3
Repurchase of 12,500 shares of Common Stock at $.02
per share (125) (215) - - - (340)
Vesting of 15,000 shares of restricted Common Stock - - 277,500 - - 277,500
Issuance of 4,998 shares of Common Stock from the
exercise of options at prices ranging from $3.00 to
$8.00 per share 50 17,765 - - - 17,815
Issuance of 59,650 shares of Common Stock from the
exercise of warrants at $3.00 per share 596 178,354 - - - 178,950
Issuance of 326,838 shares of Common Stock from the
exercise of warrants in exchange for Common Stock at
prices ranging from $5.25 to $6.10 per share 3,269 (3,269) - - - -
Compensation related to options granted - 30,235 - - - 30,235
Net loss for the year ended December 31, 1993 - - - - (17,937,930) (17,937,930)
-------- ------------ ----------- --------- ------------- ------------
Balances at December 31, 1993 256,151 91,899,957 (763,125) - (35,797,886) 55,595,097
Issuance of 6,425,000 shares of Common Stock at $3.625
per share, net of issuance costs of $500,072 64,250 22,726,303 - - - 22,790,553
Vesting of 15,000 shares of restricted Common Stock - - 277,500 - - 277,500
Issuance of 12,998 shares of Common Stock from the
exercise of options at prices ranging from $3.00 to
$8.00 per share 130 43,549 - - - 43,679
Compensation related to options granted - 30,235 - - - 30,235
Net unrealized loss on investment securities available
for sale - - - (968,920) - (968,920)
Net loss for the year ended December 31, 1994 - - - - (22,748,200) (22,748,200)
-------- ------------ ----------- --------- ------------- ------------
Balances at December 31, 1994 320,531 114,700,044 (485,625) (968,920) (58,546,086) 55,019,944
Issuance costs related to sale of Common Stock in 1994 - (56,567) - - - (56,567)
Vesting of 15,000 shares of restricted Common Stock - - 277,500 - - 277,500
Issuance of 166,019 shares of Common Stock from the
exercise of options at prices ranging from $4.00 to
$7.625 per share 1,660 504,145 - - - 508,805
Issuance of 5,250 shares of Common Stock from exercise
of warrants at $3.00 per share 53 15,480 - - - 15,533
Issuance of 9,225 shares of Common Stock from the
exercise of warrants in exchange for Common Stock at
prices ranging from $4.95 to $5.13 per share 92 (92) - - - -
Net unrealized gain on investment securities available
for sale - - - 898,733 - 898,733
Net loss for the year ended December 31, 1995 - - - - (23,368,590) (23,368,590)
-------- ------------ ----------- --------- ------------- ------------
Balances at December 31, 1995 322,336 115,163,010 (208,125) (70,187) (81,914,676) 33,292,358
Issuance of 6,900,000 shares of Common Stock at
$7.625 per share, net of issuance costs of
$3,539,667 69,000 49,003,833 - - - 49,072,833
Vesting of 11,500 shares of restricted Common Stock - - 208,125 - - 208,125
Issuance of 284,145 shares of Common Stock from the
exercise of options at prices ranging from $3.00 to
$8.00 per share 2,841 1,073,029 - - - 1,075,870
Net unrealized gain on investment securities available
for sale - - - 80,477 - 80,477
Net loss for the year ended December 31, 1996 - - - - (28,495,564) (28,495,564)
-------- ------------ ----------- --------- ------------- ------------
Balances at December 31, 1996 394,176 165,273,055 - 10,290 (110,410,240) 55,267,281
Issuance of 136,981 shares of Common Stock from the
exercise of options at prices ranging from $3.00 to
$8.609 per share 1,370 463,713 - - - 465,083
Issuance of warrants - 2,262,168 - - - 2,262,168
Net unrealized loss on investment securities available
for sale - - - (7,047) - (7,047)
Net loss for the three months ended June 30, 1997 - - - - (1,717,455) (1,717,455)
-------- ------------ ---------- ---------- ------------- ------------
Balances at June 30, 1997 $395,546 $167,998,936 $ - $ 3,243 $(112,127,695) $56,270,030
======== ============ ========== ========== ============= ===========
<FN>
See accompanying notes to financial statements.
Page 4
ICOS CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(unaudited)
Period from
September 21,
1989
(incorporation)
Six Months Ended through
June 30, June 30,
--------------------------
1997 1996 1997
------------ ------------- -------------
Cash flows from operating activities:
Net loss $ (1,717,455) $ (13,461,083) $(112,127,695)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,916,873 1,593,353 15,914,384
Amortization of deferred rent - - (475,000)
Amortization of investment premiums/discounts 349,870 48,856 1,032,566
(Gain) loss on sale of investment securities (2,190) 19,359 (1,375,096)
Amortization of restricted stock - 138,750 1,387,500
Compensation related to stock options granted - - 103,304
Common Stock issued in payment of research and development costs - - 1,110,000
Change in operating assets and liabilities:
Deferred research and development revenue - (500,000) -
Interest receivable (234,182) (250,305) (383,586)
Nontrade receivables (45,496) (12,954) (138,465)
Receivables under collaborative arrangements (5,477,879) - (5,477,879)
Prepaid expenses 80,517 168,206 (519,235)
Accounts payable 449,396 (1,289,616) 1,633,019
Accrued payroll, benefits and other accrued expenses (174,352) (65,620) 1,579,921
------------ -------------- -------------
Net cash used in operating activities (4,854,898) (13,611,054) (97,736,262)
------------ -------------- -------------
Cash flows from investing activities:
Purchases of investment securities (26,157,595) (1,986,875) (436,827,185)
Maturities of investment securities 18,311,520 5,000,000 111,219,295
Sales of investment securities 18,324,787 4,967,351 297,275,283
Acquisitions of property and equipment (769,932) (2,452,759) (26,805,148)
Loan receivable from related party (5,512,750) - (5,512,750)
(Increase) decrease in other assets (193,289) 113,647 (258,607)
------------ -------------- -------------
Net cash provided by (used in) investing activities 4,002,741 5,641,364 (60,909,112)
------------ -------------- -------------
Cash flows from financing activities:
Proceeds from issuance of Common Stock - 49,229,532 159,691,609
Proceeds from exercise of options and warrants 465,083 414,049 2,943,010
Issuance of warrants 1,500,000 - 1,500,000
Principal payments on obligations under capital lease - (44,633) (3,589,201)
Proceeds from note payable to stockholders - - 900,000
Deferred rent payment received - - 475,000
Common Stock retired - - (3,110)
------------ -------------- -------------
Net cash provided by financing activities 1,965,083 49,598,948 161,917,308
------------ -------------- -------------
Net increase in cash and cash equivalents 1,112,926 41,629,258 3,271,934
Cash and cash equivalents at beginning of period 2,159,008 4,256,366 -
------------ -------------- -------------
Cash and cash equivalents at end of period $ 3,271,934 $ 45,885,624 $ 3,271,934
============ ============== =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ - $ 364 $ 959,466
Supplemental disclosure of noncash financing and investing
activities:
Assets acquired under capital lease obligations - - 3,589,201
Exercise of stock options funded by retirement of previously
issued Common Stock - - 2,397,132
Receivable for issuance of warrants 762,168 - 762,168
Common Stock issued in payment of note payable to stockholders - - 900,000
============ ============== =============
<FN>
See accompanying notes to financial statements.
Page 5
ICOS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited) and December 31, 1996
1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
The information contained herein has been prepared in accordance with
instructions for Form 10-Q. In the opinion of management of ICOS Corporation
("ICOS" or the "Company"), the information reflects all adjustments necessary
to make the results of operations for the interim period a fair statement of
such operations. All such adjustments are of a normal recurring nature.
Interim results are not necessarily indicative of results for a full year.
For a presentation including all disclosures required by generally accepted
accounting principles, these financial statements should be read in conjunction
with the audited financial statements for the year ended December 31, 1996,
included in the Company's Annual Report on Form 10-K.
Net Income (Loss) Per Common Share
Net income (loss) per weighted average common share is calculated based
on the weighted average of outstanding common shares and dilutive common share
equivalents. Common share equivalents include unexercised stock options.
2. Research and Development Arrangements
-------------------------------------
Suncos
The Company owns a 50% interest in Suncos Corporation, a corporation formed
for the development and commercialization of rPAF-AH. Pursuant to the terms of
agreements entered into with Suncos, the Company conducts certain research and
development activities on behalf of Suncos and is paid for such services at a
negotiated rate. For the three months and six months ended June 30, 1997, the
Company recognized research and development revenue of $3,111,881 and $4,828,868
respectively.
Page 6
ICOS Clinical Partners, L.P.
On June 5, 1997, ICOS Clinical Partners, L.P. (the "Partnership"), an
affiliate of the Company, closed an initial sale of interests to private
investors. The purpose of the offering is to provide funding to the Company
for the continued development, clinical testing and commercialization of
certain therapeutic products currently under development by the Company.
The initial sale resulted in net proceeds to the Partnership of
approximately $58 million, with approximately $14 million payable to the
Partnership on closing and the balance paid in installments over a three-year
period. In connection with the closing, the Company issued warrants to
purchase an aggregate of 5,539,800 shares o the Company's Common Stock. The
warrants are exercisable from October 1998 until May 31, 2002, at an exercise
price of $9.13 per share. In addition, the Company will issue in June 1999,
subject to certain requirements, warrants to purchase an aggregate of
5,539,800 shares of the Company's Common Stock. Such additional warrants, if
issued, will be exercisable over a five-year period commencing in July 1999
at an exercise price to be determined at the time of issuance of such
warrants, which is expected to reflect a 25% premium over the then-prevailing
market price for the Company's Common Stock.
For the three months and six months ended June 30, 1997, the Company
recognized revenue of $11.7 million from the Partnership, including a
one-time payment for an exclusive license to the technology by the
Partnership.
ICOS has agreed to lend the Partnership up to $10 million in aggregate
principal amount (the "Loan") to fund certain initial expenditures of the
Partnership that consist primarily of organizational expenses, selling
commissions and financial advisory and other fees. To date, the Company has
loaned the Partnership $5,512,750. The Loan is full recourse to the
Partnership and bears interest at the prime rate plus one quarter of one
percent (0.25%). Interest is payable on June 1, 1998, June 1, 1999 and at
maturity on June 1, 2000, when the principal balance of the Loan will be
payable in full. It is anticipated that the Loan, including interest thereon,
will be repaid from the proceeds of the installment payments on investor notes.
Page 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Overview
The Company has discovered important mechanisms underlying directed cell
movement, inhibition of proinflammatory mediators, and intracellular signal
transduction that may provide broad opportunities in the treatment of
inflammatory diseases and other serious conditions.
Financial results for the second quarter and first six months of 1997
reflect planned increases in operating expenses necessary for advancing multiple
product candidates through the therapeutic product development process.
Development activities include product development, process development and the
establishment and management of clinical trials. The Company expects to invest
in additional clinical, regulatory, process development and product development
efforts over the remainder of the year and in future periods.
The Company has a deficit accumulated during the development stage from
September 21, 1989 (incorporation) through June 30, 1997 of $112,127,695. The
Company's results of operations may vary significantly from quarter to quarter
and will depend, among other factors, on the timing of certain expenses and
payments received from certain collaborations, joint ventures and other business
relationships, as well as the progress of the Company's own research and
development efforts. The Company expects increased expenditures over the next
several quarters as it continues to expand the size and number of clinical
trials of its product candidates, continues to expand preclinical research and
development activities in support of additional potential products, and
initiates clinical trials of those product candidates deemed most promising.
When used in this discussion, the words "believes," "intends,"
"anticipates," "plans to" and "expects" and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties such as those associated with preclinical and clinical
testing, governmental regulation, third-party reimbursement and manufacturing,
all of which could cause actual results to differ materially from those
projected. These and other factors which could affect the Company's financial
results are described in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, which is filed with the Securities and Exchange
Commission. 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 results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Page 8
Revenue
Revenue for the quarter ended June 30, 1997 totaled $15.3 million and
consisted of (i) $11.7 million from the Partnership, (ii) $3.1 million in cost
reimbursement revenue from Suncos Corporation, the Company's joint venture with
Suntory Limited of Japan ("Suntory"), and (iii) $0.5 million received under the
Company's research and development agreement with Abbott Laboratories. The
revenue recognized from the Partnership consisted of a one-time payment of
$8.5 million for the license of technology being developed by the Partnership
and cost reimbursement for development costs incurred by ICOS on behalf of the
Partnership during the period. Revenue for the second quarter of 1996 totaled
$0.5 million, and consisted entirely of payments received under the Company's
agreement with Abbott Laboratories.
Revenue for the six months ended June 30, 1997 totaled $17.6 million and
consisted of (i) $11.7 million from the Partnership, (ii) $4.9 million in
cost reimbursement revenue from Suncos Corporation, and (iii) $1.0 million
received under the Company's research and development agreement with Abbott
Laboratories. Revenue for the first six months of 1996 totaled $1.0 million,
and consisted entirely of payments received under the Company's agreement with
Abbott Laboratories.
Operating Expenses
Total operating expenses for the quarter ended June 30, 1997 increased 34%
to $10.4 million from $7.8 million for the quarter ended June 30, 1996. Total
operating expenses for the first half of 1997 increased 34% to $20.3 million
from $15.2 million for the first half of 1996. Research and development
expenses for the second quarter of 1997 increased 39% to $9.8 million from $7.1
million for the second quarter of 1996. For the six months ended June 30, 1997,
research and development expenses increased 37% to $19.0 million from
$13.8 million for the six months ended June 30, 1996. The increase in
research and development expenses was due primarily to increased costs
associated with product development, process development, regulatory submissions
and clinical trials. General and administrative expenses for the second quarter
of 1997 totaled $548,126 compared to $675,251 in the second quarter of 1996.
For the first six months of 1997, general and administrative expenses totaled
$1.3 million compared to $1.4 million for the six-month period ended
June 30, 1996
Page 9
Other Income and Expense
Other income primarily represents investment income earned on the Company's
investment securities. Investment income for the second quarter of 1997 was
$473,292 compared to $475,142 for the second quarter of 1996. Investment income
for the six months ended June 30, 1997 increased 43% to $999,754 from $698,759
for the six months ended June 30, 1996 as a result of higher cash and investment
balances in the first half of 1997 compared to the first half of 1996.
Net Loss
For the quarter ended June 30, 1997, the Company reported net income of
$5.4 million or $0.13 per share compared to a net loss of $6.8 million or $0.19
per share for the quarter ended June 30, 1996. The net loss for the six months
ended June 30, 1997 decreased 87% to $1.7 million from $13.5 million for the six
months ended June 30, 1996. These changes are primarily the result of the
revenues from Suncos and the Partnership.
Liquidity and Capital Resources
The Company has financed its operations since inception through private and
public sales of Common Stock, investment income, revenue from research
collaborations, license payments and grants, and a capital lease. Through
June 30, 1997, the Company had raised $107.1 million in net proceeds from three
public offerings of Common Stock, $30.8 million in net proceeds from private
sales of Common Stock, $22.7 million in net proceeds from a Rights Offering of
Common Stock to existing shareholders, and $5.3 million from the exercise of
stock options and warrants. Through June 30, 1997, the Company had earned $18.3
million in investment income and $24.5 million in license, research, and grant
revenue.
On June 5, 1997, ICOS Clinical Partners, L.P. (the "Partnership"), an
affiliate of the Company, closed an initial sale of interests to private
investors. The purpose of the offering is to provide funding to the Company for
the continued development, clinical testing and commercialization of certain
therapeutic products currently under development by the Company.
The initial sale resulted in net proceeds to the Partnership of
approximately $58 million with approximately $14 million payable to the
Partnership on closing and the balance paid in installments over a three-year
period. In connection with the closing, the Company issued warrants to purchase
an aggregate of 5,539,800 shares of the Company's Common Stock. The warrants
are exercisable from October 1998 until May 31, 2002, at an exercise price of
$9.13 per share. In addition, the Company will issue in June 1999, subject to
certain requirements, warrants to purchase an aggregate of 5,539,800 shares of
the Company's Common Stock. Such additional warrants, if issued, will be
exercisable over a five-year period commencing in July 1999 at an exercise price
to be determined at the time of issuance of such warrants, which is expected to
reflect a 25% premium over the then-prevailing market price for the Company's
Common Stock.
Page 10
For the three months and six months ended June 30, 1997, the Company
recognized revenue of $11.7 million from the Partnership, including a one-time
payment for an exclusive license to the technology by the Partnership.
ICOS has agreed to lend the Partnership up to $10 million in aggregate
principal amount (the "Loan") to fund certain initial expenditures of the
Partnership that consist primarily of organizational expenses, selling
commissions and financial advisory and other fees. To date, the Company has
loaned the Partnership $5,512,750. The Loan is full recourse to the Partnership
and bears interest at the prime rate plus one quarter of one percent (0.25%).
Interest is payable on June 1, 1998, June 1, 1999 and at maturity on
June 1, 2000, when the principal balance of the Loan will be payable in full.
It is anticipated that the Loan, including interest thereon, will be
repaid from the proceeds of the installment payments on Investor notes.
At June 30, 1997, the Company had $32.3 million in cash and cash
equivalents, investment securities, and interest receivable, a decrease of $9.5
million from December 31, 1996. This decrease is primarily attributable to
increased costs associated with product development, process development,
regulatory submissions and clinical trials. Through June 30, 1997, the Company
had invested a total of $28.1 million in production, laboratory and
administrative facilities, laboratory and computer equipment, furniture, and
leasehold improvements. In addition, the Company has invested $2.4 million in
land for future facilities expansion. The Company anticipates that its
operating expenses will continue to increase in 1997 and subsequent years as it
adds the personnel and facilities associated with advancing several potential
product candidates through development and clinical trials. Foreseeable
incremental costs may include, but are not limited to, those associated with the
Company's own product development, preclinical studies and clinical trials,
patent filings and administrative activities. The Company may also incur costs
and make capital contributions under its joint venture agreement with Suntory
related to its obligations to develop rPAF-AH. Under provisions of the
development agreement with Suncos Corporation, the entity formed as a joint
venture with Suntory, the Company will be reimbursed for certain of these costs,
however, there can be no assurance that all such costs will be reimbursed. The
Company may incur costs associated with the development of products being
developed pursuant to the Partnership.
Page 11
In June 1997, the Company extended and expanded its collaborative
research and development agreement with Abbott Laboratories.
The Company has been successful in negotiating collaborations and joint
development agreements with other parties where the work and strategies of the
other parties complement those of the Company. In some instances, these
relationships may involve commitments by the Company to fund some or all of
certain development programs. Although corporate collaborations and joint
ventures have provided cost reimbursement revenue to the Company in the past,
there can be no assurance that similar sources of funds will be available to the
Company in the future. The Company intends to expand and hire the additional
personnel deemed necessary to continue development of its current portfolio of
product candidates in clinical trials, as well as continuing discovery and
preclinical research to identify additional potential drug candidates. The
Company anticipates that expansion of these activities will increase operating
expenses in future quarters. Further, incremental expenditures will be required
for additional laboratory, production and office facilities to accommodate
activities and the personnel associated with this increased development
activity. All these activities will require substantial financial resources.
Additional capital resources will be required to fund the Company's operations
through commercialization of its first product. As such, the Company will need
to raise substantial additional funds for its programs. There can be no
assurance that the Company will be able to obtain additional resources on
acceptable terms or in time to fund any necessary or desirable expenditures.
The amounts and timing of operating expenditures will depend on the
progress of ongoing research and development of the Company's potential
products, as well as the activities of corporate collaborators and joint venture
partners related to the collaborative research and development activities, the
Food and Drug Administration regulatory process and other factors, many of which
are beyond the Company's control.
Page 12
New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (Statement 128).
This statement establishes standards for the computation, presentation, and
disclosure of earnings per share (EPS), replacing the presentation of currently
required Primary EPS with a presentation of Basic EPS. It also requires dual
presentation of Basic EPS and Diluted EPS on the face of the income statement
for entities with complex capital structures. Basic EPS, unlike Primary
EPS, excludes all dilution while Diluted EPS, like the current Fully Diluted
EPS, reflects the potential dilution that could occur from the exercise or
conversion of securities into Common Stock or from other contracts to issue
Common Stock. Statement 128 is effective for financial statements for periods
ending after December 15, 1997, including interim periods, and earlier
application is not permitted. When adopted, the Company will be required to
restate its EPS data for all prior periods presented. The Company does not
expect the impact of the adoption of this statement to be material to previously
reported EPS amounts.
Page 13
PART II. OTHER INFORMATION
ITEM 4: Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on May 7, 1997. The
proposals voted upon and the results of the voting are as follows:
1. The following nominees for election as Directors, each to hold
office for a term as defined in the Proxy Statement and until
their successors are duly elected and qualified, received not
less than 36,754,877 votes, which represent 99.3% of the shares of
Common Stock voted. Each Director received the number of votes
set opposite his or her name:
Nominee For Withheld
Frank T. Cary 36,754,877 270,418
James L. Ferguson 36,764,717 260,578
Janice M. LeCocq 36,775,773 249,522
The aforesaid nominees have been elected as Directors for the term
set forth in the Proxy Statement.
The following Directors are currently serving terms that expire at
the 1998 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified:
William H. Gates, III
Robert W. Pangia
George B. Rathmann
The following Directors are currently serving terms that expire at
the 1999 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified:
David V. Milligan
Alexander B. Trowbridge
Gary L. Wilcox
Walter B. Wriston
Page 14
2. The proposal to approve the appointment of KPMG Peat Marwick LLP
as the Company's independent public accountants for fiscal year
1997 received the following votes:
Votes
For 36,864,987
Against 50,876
Withheld 109,432
The foregoing proposal was approved.
ITEM 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) Current Report on Form 8-K Dated June 10, 1997
Page 15
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.
ICOS CORPORATION
Date: August 14, 1997 By:/S/ GEORGE B. RATHMANN
---------------- ----------------------
George B. Rathmann
Chairman of the Board of
Directors, Chief Executive
Officer and President
Date: August 14, 1997 By:/S/ HOWARD S. MENDELSOHN
---------------- ------------------------
Howard S. Mendelsohn
Chief Accounting Officer
Page 16
Index to Exhibits
Page
10.1 First Amendment to R & D Collaboration/License Agreement
dated April 1, 1995 between Abbott Laboratories and ICOS
Corporation #
27.1 Financial Data Schedule
________________
# Confidential portions of this exhibit were filed seperately with the
Securities and Exchange Commission pursuant to an Application for
Confidential Treatment.
Page 17