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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 quarterly period ended March 31, 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 Number: 0-23930
TARGETED GENETICS CORPORATION
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(Exact name of registrant as specified in its charter)
WASHINGTON 91-1549568
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 OLIVE WAY, SUITE 100, SEATTLE, WASHINGTON 98101
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(Address of principal executive offices) (Zip Code)
(206) 623-7612
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(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.
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.
Common Stock, $.01 par value 20,205,434
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(Class) (Outstanding at April 28, 1997)
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TARGETED GENETICS CORPORATION
Quarterly Report on Form 10-Q
For the quarter ended March 31, 1997
TABLE OF CONTENTS
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Balance Sheets - March 31, 1997 and
December 31, 1996 3
b) Condensed Statements of Operations - for the three months
ended March 31, 1997 and 1996 4
c) Condensed Statements of Cash Flows - for the three months
ended March 31, 1997 and 1996 5
d) Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosure About Market Risk *
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 *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
* No information is provided due to inapplicability of the item.
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
March 31, December 31,
1997 1996
------------ ------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 892,618 $ 3,532,568
Securities available for sale 14,661,159 15,518,502
Prepaid expenses and other 238,550 468,671
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Total current assets 15,792,327 19,519,741
Property, plant and equipment, net 4,851,738 4,991,017
Other assets 587,918 628,294
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$ 21,231,983 $ 25,139,052
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,371,395 $ 1,887,880
Accrued payroll and other liabilities 269,363 364,964
Current portion of long-term obligations 1,327,649 1,250,263
------------ ------------
Total current liabilities 2,968,407 3,503,107
Long-term obligations 1,995,338 2,128,157
Shareholders' equity:
Preferred stock -- --
Common stock (20,205,434 and 20,136,468 shares
outstanding at March 31, 1997 and December 31,
1996, respectively) 73,397,577 73,115,362
Deficit accumulated during development stage (57,129,339) (53,607,574)
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Total shareholders' equity 16,268,238 19,507,788
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$ 21,231,983 $ 25,139,052
============ ============
See accompanying notes.
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 9, 1989
March 31, (date of inception)
------------------------------- through
1997 1996 March 31, 1997
------------ ------------ -------------------
Revenues:
Collaborative agreements $ 77,382 $ -- $ 1,355,347
Investment income 230,336 183,536 3,231,338
Other 98,255 -- 325,373
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Total revenues 405,973 183,536 4,912,058
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Expenses:
Research and development 3,051,538 2,366,032 37,325,242
In-process research and development -- -- 13,517,911
General and administrative 742,570 616,862 10,191,606
Interest 86,893 92,381 979,288
------------ ------------ ------------
Total expenses 3,881,001 3,075,275 62,014,047
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Net loss $ (3,475,028) $ (2,891,739) $(57,101,989)
============ ============ ============
Net loss per share $ (0.17) $ (0.23)
============ ============
Shares used in computation of net loss
per share 20,162,043 12,342,748
============ ============
See accompanying notes.
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 9, 1989
March 31, (date of inception)
----------------------------- through
1997 1996 March 31, 1997
----------- ----------- --------------
Net cash used in operating activities $(3,182,796) $(2,602,558) $(37,521,977)
Investing activities:
Purchases of property, plant and equipment (396,692) (519,482) (9,109,883)
Purchases of securities available for sale -- (1,513,869) (78,664,645)
Sales of securities available for sale 712,878 3,366,703 64,033,905
Net cash acquired in RGene acquisition -- -- 1,594,386
Increase in other assets -- -- (719,179)
----------- ----------- ------------
Net cash used in investing activities 316,186 1,333,352 (22,865,416)
Financing activities:
Advances from Immunex -- -- 2,807,316
Net proceeds from sale of capital stock 282,215 297,289 55,657,215
Proceeds from equipment financing 259,972 554,063 5,203,854
Payments under capital leases and installment loans (315,527) (210,887) (2,388,374)
----------- ----------- ------------
Net cash provided by financing activities 226,660 640,465 61,280,011
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Net increase (decrease) in cash and cash equivalents (2,639,950) (628,741) 892,618
Cash and cash equivalents, beginning of period 3,532,568 2,154,814 --
----------- ----------- ------------
Cash and cash equivalents, end of period $ 892,618 $ 1,526,073 $ 892,618
=========== =========== ============
See accompanying notes.
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed financial statements included herein have been prepared
by Targeted Genetics Corporation (the "Company"), without audit, according to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The financial statements
reflect, in the opinion of management, all adjustments (which consist solely of
normal recurring adjustments) necessary to present fairly the financial position
and results of operations as of and for the periods indicated. The results of
operations for the three months ended March 31, 1997, are not necessarily
indicative of the results to be expected for the full year.
Note 2. Loss Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share ("Statement 128"), which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods presented. The impact of Statement 128 on the calculation of
net loss per share for all current and prior periods is not expected to be
material.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Risks and Uncertainties
This discussion contains forward-looking statements that are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those projected. The Company's future cash requirements and
expense levels will depend on many factors, including continued scientific
progress in its research and development programs; the results of research and
development, preclinical studies and clinical trials; acquisition of products or
technology, if any; relationships with corporate collaborators; competing
technological and market developments; the time and costs involved in filing,
prosecuting and enforcing patent claims; the time and costs of manufacturing
scale-up and commercialization activities; and other factors. Reference is made
to the Company's Annual Report on Form 10-K for more detailed description of
such factors. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report. 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 of this report or to reflect the occurrence of
unanticipated events.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Financial Condition
The Company had $15.6 million in cash, cash equivalents and
securities available for sale as of March 31, 1997, compared to $19.1 million at
December 31, 1996. The change was primarily attributable to the use of $3.2
million to fund operations and $397,000 to purchase property, plant and
equipment, offset by the receipt of $277,000 for the exercise of warrants by
existing shareholders.
The Company is a development stage company conducting gene and cell
therapy research and development. Income earned from investments and, to a
lesser degree, revenues under collaborative agreements have been its only
sources of revenue, covering less than ten percent of expenses. Gene and cell
therapy products are subject to the risks of failure inherent in the development
of products based on innovative technologies. Although the Company's technology
appears promising, it is unknown whether any commercially viable products will
result from the research and development. It is not anticipated that the Company
will have any product-related revenues for a number of years. Accordingly, the
Company expects to incur substantial additional losses over the next several
years and to use its capital resources to fund preclinical and clinical research
programs, development of manufacturing capabilities and the preparation for
commercialization of its products under development.
The Company currently estimates that, at its planned rate of
spending, its existing cash, cash equivalents and securities available for sale
will be sufficient to meet its capital requirements until at least early 1998.
Such estimates include the impact of future milestone payments potentially
receivable under existing collaborative agreements. There can be no assurance
that such milestone payments will be received or that the underlying assumed
levels of revenue and expense will prove to be accurate. In any event,
substantial additional funds will be needed to continue the development and
commercialization of the Company's products. Accordingly, the Company is seeking
to establish additional collaborative agreements with corporate partners that
would provide research and development funding and equity investment. The
Company also may seek to raise additional equity capital whenever conditions in
the financial markets allow it to do so. There can be no assurance, however,
that adequate funds will be available when needed or will be available on terms
favorable to the Company, if at all.
Results of Operations
The Company's net loss has grown from year-to-year, consistent with
the growth in the Company's scope and size of operations. In the near term, the
Company does not expect additional growth in employee headcount or facilities;
however, the Company estimates that operating expenses will continue to increase
moderately as a result of continuing with its current operating plan, which
includes growth in the level of clinical trial activity. At least until such
time as the Company enters into a collaborative arrangement providing a
significant amount of research and development funding, the net loss is expected
to continue to increase as well.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Results of Operations (continued)
For the three months ended March 31, 1997, revenue under
collaborative agreements was $77,000. The revenue primarily consists of amounts
recoverable from Laboratoires Fournier S.C.A. related to tgDCC-E1A process
development activities.
For the three months ended March 31, 1997, investment income
increased to $230,000 compared to $184,000 during the three months ended March
31, 1996. The increase was largely attributable to higher average cash balances
for investment in 1997 compared to the same period in 1996.
Other revenue was $98,000 for the three months ended March 31, 1997.
The revenue represents proceeds from Small Business Innovation Research grants
awarded by the National Institutes of Health.
Research and development expenses were $3.1 million for the three
months ended March 31, 1997, and $2.4 million for the three months ended March
31, 1996. Expenses that resulted directly from the acquisition of RGene
Therapeutics Inc., specifically costs related to the continuation of the
acquired research, development and clinical programs, were largely responsible
for the increase in 1997. Additional factors that contributed to the increase
were a moderate increase in the level of preclinical research activities and
continued progression of the Company's clinical trial programs.
General and administrative expenses were $743,000 for the three
months ended March 31, 1997, and $617,000 for the three months ended March 31,
1996. The increase was primarily attributable to an increased level of corporate
development activities focused on the completion of additional corporate
collaborations.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed as a part of this report.
Exhibit No. Description
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4.1 Warrant to purchase 50,000 shares of the Common Stock of
Targeted Genetics Corporation, issued to The Burnham
Institute on March 15, 1997.
27.1 Financial Data Schedule
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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.
TARGETED GENETICS CORPORATION
(Registrant)
Date May 9, 1997 /s/ H. STEWART PARKER
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H. Stewart Parker, Chief Executive
Officer (Principal Executive Officer)
Date May 9, 1997 /s/ JAMES A. JOHNSON
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James A. Johnson, Vice President,
Finance (Principal Financial and
Accounting Officer)
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Exhibit Index
4.1 Warrant to purchase 50,000 shares of the Common Stock of Targeted
Genetics Corporation, issued to The Burnham Institute on March 15,
1997.
27.1 Financial Data Schedule