SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
COMMISSION FILE NO. 1-12210
HOUSTON BIOTECHNOLOGY INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0102032
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3608 RESEARCH FOREST DRIVE
THE WOODLANDS, TEXAS 77381 77381
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (713) 363-0999
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 [ ]
The number of shares outstanding of the Registrant's Common Stock as of June 30,
1996, was 5,638,707 shares.
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HOUSTON BIOTECHNOLOGY INCORPORATED
INDEX
PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements............................... 3
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 9
PART II OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K................... 11
SIGNATURE .............................................................. 12
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The following unaudited condensed 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 are
adequate to make the information presented not misleading. These condensed
financial statements should be read in conjunction with the annual report on
Form 10-K of the Company for its fiscal year ended December 31, 1995.
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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HOUSTON BIOTECHNOLOGY INCORPORATED
BALANCE SHEETS
(Unaudited)
June 30, December 31,
1996 1995
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................................... $ 347,356 $ 572,058
Prepaid and other assets ....................................................... 44,000 67,492
------------ ------------
Total current assets ........................................................ 391,356 639,550
FIXED ASSETS, net of accumulated depreciation of
$2,256,789 and $2,165,254, respectively ........................................ 365,988 457,523
OTHER ASSETS, net of accumulated amortization of
$63,073 and $62,146, respectively ............................................. 12,562 13,489
------------ ------------
Total assets ................................................................ $ 769,906 $ 1,110,562
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ....................................... $ 665,580 $ 843,717
Deferred license and development revenue ....................................... 375,000 --
Current portion of long-term debt
and capital lease obligations ............................................... 94,303 255,538
------------ ------------
Total current liabilities ................................................... 1,134,883 1,099,255
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS ......................................... 231,382 140,423
STOCKHOLDERS' INVESTMENT (DEFICIT):
Common stock, $0.01 par, 40,000,000 shares authorized,
5,638,707 shares issued and outstanding ..................................... 56,387 56,387
Warrants to purchase 4,521,558 shares of common stock .......................... 3,795,725 3,795,725
Additional paid-in capital ..................................................... 21,847,646 21,847,646
Accumulated deficit ............................................................ (26,296,117) (25,828,874)
------------ ------------
Total stockholders' investment (deficit) .................................... (596,359) (129,116)
------------ ------------
Total liabilities and stockholders' investment .............................. $ 769,906 $ 1,110,562
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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HOUSTON BIOTECHNOLOGY INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30
------------------------------ -------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
REVENUES:
License and development revenue .................... $ 300,000 $ -- $ 600,000 $ --
Grant and other revenue ............................ 19,785 16,909 46,881 43,352
Investment income .................................. 6,390 6,601 12,698 17,940
----------- ----------- ----------- -----------
Total revenues ................................. 326,175 23,510 659,579 61,292
EXPENSES:
Research and development ........................... 402,695 495,659 779,540 1,128,052
General, administrative, and other ................. 173,243 201,516 347,282 452,599
----------- ----------- ----------- -----------
Total costs and expenses ........................ 575,938 697,175 1,126,822 1,580,651
----------- ----------- ----------- -----------
Net loss ............................................... $ (249,763) $ (673,665) $ (467,243) $(1,519,359)
=========== =========== =========== ===========
Net loss per common share .............................. $ (0.04) $ (0.12) $ (0.08) $ (0.27)
=========== =========== =========== ===========
Weighted average shares used in
computing net loss per share ....................... 5,638,707 5,638,707 5,638,707 5,638,707
=========== =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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HOUSTON BIOTECHNOLOGY INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
---------------------------------
1996 1995
--------- -----------
Cash flows provided (used) by operating activities:
Net loss ....................................................................... $(467,243) $(1,519,359)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization ............................................. 92,462 130,758
Writedown of capitalized construction costs ............................... -- 34,865
Other ..................................................................... -- 7,247
(Increase) decrease in operating assets:
Other current assets ...................................................... 23,491 13,782
Other assets .............................................................. -- 500
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities .................................. (178,136) 42,246
Deferred license and development revenue .................................. 375,000 --
--------- -----------
Cash provided (used) by operating activities ........................ (154,426) (1,289,961)
Cash flows provided (used) by investing activities:
Purchases of fixed assets ...................................................... -- (3,500)
Cash flows provided (used) by financing activities:
Payments on debt and capital lease obligations ................................. (70,276) (31,147)
--------- -----------
Increase (decrease) in cash and cash equivalents ..................................... (224,702) (1,324,608)
Cash and cash equivalents at beginning of period ..................................... 572,058 2,238,272
--------- -----------
Cash and cash equivalents at end of period ........................................... $ 347,356 $ 913,664
========= ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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HOUSTON BIOTECHNOLOGY INCORPORATED
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(1) ORGANIZATION
The accompanying financial statements and related notes should be read
in conjunction with the annual report on Form 10-K for the year ended December
31, 1995 of Houston Biotechnology Incorporated ("HBI" or the "Company"). 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. In the
opinion of management of the Company, the accompanying financial statements
reflect all adjustments (which include only normal recurring adjustments)
necessary to present fairly such information. The results of operations for the
period ended June 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
Houston Biotechnology Incorporated, a Delaware corporation, was founded
in February 1984 and commenced substantial operations in May 1986. HBI is a
biotechnology company engaged in the development of biopharmaceutical products
to treat or prevent certain common ophthalmic diseases and disorders. The
principal objective of the Company is to develop products to treat conditions
for which no effective pharmaceutical treatment is currently available or for
which such products may provide advantages over existing treatments. The
Company's most advanced product is an immunotoxin for the prevention of
secondary cataract (the "4197X-RA Immunotoxin"), the most common complication
following primary cataract surgery.
(2) FINANCIAL CONDITION
The Company is engaged in research and development activities in
biotechnology, which involve a high degree of uncertainty and risk. Risks
include, but are not limited to, the following: the need for additional funding,
the early stage of development of the Company's products, the possibility of
competition and technological changes, uncertainties in the regulatory process,
uncertainties regarding product pricing and reimbursement, reliance on corporate
partners for funding, dependence on licenses, patents and know-how, possible
product liability and reliance on key personnel. The Company has not generated
any revenues from product sales and there is no assurance of any such revenues
in the future. HBI has experienced significant negative cash flow and incurred
accumulated losses of $26,296,117 through June 30, 1996, and must access
additional sources of financing.
Payments from Santen Pharmaceutical Co., Ltd. ("Santen") (see Note 3)
are currently funding the Company's activities, but HBI will need to secure
additional funding by the end of the third quarter 1996 to continue operations.
The Company recently has engaged an investment banker and is currently working
on a best efforts offering of equity securities. There can be no assurance
however that the Company will be able to raise funds in a timely manner.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements have been prepared
assuming the Company will continue as a going concern, and do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
The Company's Common Stock and Warrants are listed on the American Stock
Exchange ("AMEX"). At this time, the Company fails to meet certain of the
financial guidelines for continued listing. Accordingly, there can be no
assurance that the Company will be able to maintain the listing of its
securities on the AMEX. Delisting of the Common Stock and Warrants could have an
adverse effect on their liquidity and could increase the difficulty encountered
by the Company in obtaining future financing.
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(3) RESEARCH AND LICENSE AGREEMENTS
Effective December 29, 1995, HBI and Santen entered into a Codevelopment
and License Agreement (the "Santen License") covering the marketing in Japan of
the 4197X-RA Immunotoxin. To maintain exclusive marketing rights, Santen is
required to provide $7,750,000 over six years to support HBI's development of
the Immunotoxin. HBI received $250,000 in November 1995 from Santen under an
Option Agreement related to the Santen License, and the payment schedule for the
$7,750,000 is as follows: $750,000 in five installments through April 1996;
$250,000 quarterly for 1996 through 2001, and $1 million within 60 days of
delivery of an interim report on the Refined Product Safety Study or within 30
days of enrollment of the first patient in U.S. Phase III trials. At Santen's
option, Santen may elect not to make any payment, but in such event, the license
may be made non-exclusive or terminated by HBI. Santen is obligated to seek
regulatory approval for the product in Japan and is responsible for the
development cost associated with these efforts. Upon the commencement of
commercial sales by Santen in Japan, Santen will pay HBI earned royalties based
on net sales. Commencing six months after approval of the Immunotoxin by
Japanese regulatory authorities, Santen is required to pay minimum royalties.
HBI retains all manufacturing rights and Santen is required to purchase the
Immunotoxin from HBI. Amounts paid by Santen to HBI, except those amounts
related to the purchase of the Immunotoxin, are subject to a 10% withholding tax
imposed by the Japanese government. HBI receives U.S. income tax credits equal
to the amounts withheld, but HBI is not currently able to utilize such credits.
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HOUSTON BIOTECHNOLOGY INCORPORATED
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
HBI commenced substantial operations in 1986 and, since inception, has been
primarily engaged in research and product development of its lead product, the
4197X-RA Immunotoxin, an immunotoxin being developed for the prevention of
secondary cataract. In addition, the Company is researching drug-conjugate
products to enhance the success of glaucoma filtering surgery.
PRODUCT DEVELOPMENT
Development of biopharmaceutical products involves a high degree of risk
and uncertainty and requires a large investment of cash and technical resources
before commercialization. The Company's realization of its investment in its
research and development efforts will not occur unless and until regulatory
approval to market is obtained and profits are generated at a future date. The
FDA requires compliance with strict regulatory procedures before it will grant
approval for a pharmaceutical product to be marketed in the United States. These
regulatory procedures require, among other things: (i) preclinical development
and filing an IND with the FDA, (ii) Phase I human clinical trials to test
safety, which normally take from one to three years, (iii) Phase II and III
human clinical trials to confirm the results of Phase I safety studies, prove
efficacy and observe any low-incidence adverse effects, which normally take from
two to three years each, and (iv) filing a PLA with the FDA containing the
results of the human clinical trials for review and approval by the FDA, a
process which normally takes approximately one to two years. The time required
to comply with the regulatory procedures normally is longer for treatments
addressing slowly developing diseases, such as secondary cataract. There is no
assurance that FDA approval of the 4197X-RA Immunotoxin or any product candidate
can be obtained within these time frames, if at all.
With respect to the 4197X-RA Immunotoxin, the Company filed the IND in
August 1990, filed a Phase I report with the FDA in January 1992 and commenced a
Phase I/II human clinical study in March 1993. Patient enrollment in this study
was completed in July 1994. Interim analyses of the data from the Phase I/II
clinical trial have revealed statistically significant differences in rates of
lens capsule opacification between the 50-unit dose and placebo at six, twelve
and eighteen months post cataract surgery. Patient enrollment in a Phase II
human clinical study of patients requiring cataract surgery in both eyes was
completed in January 1996.
The Company currently estimates that it will cost approximately an
additional $25 million to complete the product development, manufacturing
requirements and clinical trials necessary to allow commercial sale of the
4197X-RA Immunotoxin, based on current estimates of the size of the Phase III
clinical trials. Additional capital will be required to market the 4197X-RA
Immunotoxin once the product is approved for sale in the United States. In
addition, other funds will be required to defray general and administrative
expenses and to support the Company's other projects. Since research and
development projects such as the 4197X-RA Immunotoxin involve a number of
uncertainties, there can be no assurance that the project costs will not exceed
the current estimates. In any event, additional funds will be necessary to
successfully complete development and commercialization of the 4197X-RA
Immunotoxin as well as any other products.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $347,356 as of June 30,
1996, a decrease of $224,702 from $572,058 as of December 31, 1995. The
principal factors affecting the change in cash for the six months ended June 30,
1996 were the operating expenses (net of depreciation and amortization) of
$1,034,360, the reduction in accounts payable and accrued liabilities of
$178,136 and the net payments by Santen of $975,000. All of the Company's cash
equivalents and short-term investments are invested in United States government
securities, high-grade corporate investments, commercial paper and bankers
acceptances.
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Payments from Santen are currently funding the Company's activities, but
HBI will need to secure additional funding by the end of the third quarter 1996
to continue operations. The Company recently has engaged an investment banker
and is currently working on a best efforts offering of equity securities. There
can be no assurance however that the Company will be able to raise funds in a
timely manner.
These factors raise substantial doubt about the Company's ability to
continue as going concern. As a result of the foregoing, the Company's
independent accountants have included an explanatory paragraph in their report
on the Company's financial statements at December 31, 1995, that describes the
uncertainty regarding the Company's ability to continue as a going concern.
The Company's Common Stock and Warrants are listed on the American Stock
Exchange ("AMEX"). At this time, the Company fails to meet certain of the
financial guidelines for continued listing. Accordingly, there can be no
assurance that the Company will be able to maintain the listing of its
securities on the AMEX. Delisting of the Common Stock and Warrants could have an
adverse effect on their liquidity and could increase the difficulty encountered
by the Company in obtaining future financing.
RESULTS OF OPERATIONS
HBI had a net loss of $467,243 for the six months ended June 30, 1996
compared to a net loss of $1,519,359 for the same period in 1995. Revenues from
operations for the six months ended June 30, 1996 were $659,579 compared to
$61,292 generated in the same period in 1995. Santen made net payments of
$975,000 during the six months ended June 30, 1996, of which $600,000 was
recognized as revenue and $375,000 was deferred. Expenses from operations for
the six months ended June 30, 1996 were $1,126,822 as compared to $1,580,651
incurred in the same period in 1995, a decrease of 29%. In general, the decrease
in expenses was due to ongoing cost containment efforts. More specifically, the
decrease in research and development expenses was due primarily to reduced
employment and reduced utilization of consultants and contractors in connection
with clinical studies. The decrease in general and administrative expenses was
due primarily to reduced utilization of legal and professional services.
ITEM 3 - NOT APPLICABLE.
ITEM 4 - NOT APPLICABLE.
ITEM 5 - NOT APPLICABLE.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are filed with this report.
(b) No reports on Form 8-K were filed during the three months ended June 30,
1996.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person on behalf of the
Registrant in the capacity and on the date indicated.
HOUSTON BIOTECHNOLOGY INCORPORATED
Dated: August 13 , 1996 By: /s/ J. RUSSELL DENSON
J. Russell Denson
President and Chief Executive Officer
(Principal executive and financial officer)