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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 June 30, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the the
Securities Exchange Act of 1934
For the transition period from _________ to __________
Commission File Number: 0-23930
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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 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 20,206,874
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(Class) (Outstanding at August 1, 1997)
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TARGETED GENETICS CORPORATION
Quarterly Report on Form 10-Q
For the quarter ended June 30, 1997
TABLE OF CONTENTS
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Balance Sheets - June 30, 1997 and
December 31, 1996 3
b) Condensed Statements of Operations - for the three and
six months ended June 30, 1997 and 1996 4
c) Condensed Statements of Cash Flows - for the three and
six months ended June 30, 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 9
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
* 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
June 30, December 31,
1997 1996
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 165,953 $ 3,532,568
Securities available for sale 11,695,920 15,518,502
Prepaid expenses and other 350,634 468,671
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Total current assets 12,212,507 19,519,741
Property, plant and equipment, net 4,488,949 4,991,017
Other assets 567,738 628,294
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$ 17,269,194 $ 25,139,052
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,347,518 $ 1,887,880
Accrued payroll and other liabilities 283,022 364,964
Current portion of long-term obligations 1,134,538 1,250,263
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Total current liabilities 2,765,078 3,503,107
Long-term obligations 1,977,015 2,128,157
Shareholders' equity:
Preferred stock -- --
Common stock (20,206,874 and 20,136,468 shares
outstanding at June 30, 1997 and December 31,
1996, respectively) 73,398,369 73,115,362
Deficit accumulated during development stage (60,871,268) (53,607,574)
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Total shareholders' equity 12,527,101 19,507,788
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$ 17,269,194 $ 25,139,052
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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 Six months ended March 9, 1989
June 30, June 30, (date of inception)
---------------------------- ---------------------------- through
1997 1996 1997 1996 June 30, 1997
------------ ------------ ------------ ------------ ------------
Revenues:
Collaborative agreements $ 3,048 $ 75,000 $ 80,430 $ 75,000 $ 1,358,395
Investment income 180,478 155,277 410,814 338,813 3,411,816
Other 98,254 -- 196,509 -- 423,627
------------ ------------ ------------ ------------ ------------
Total revenues 281,780 230,277 687,753 413,813 5,193,838
------------ ------------ ------------ ------------ ------------
Expenses:
Research and development 3,316,897 2,431,607 6,368,435 4,797,639 40,642,139
In-process research
and development -- 13,517,911 -- 13,517,911 13,517,911
General and administrative 644,762 554,111 1,387,332 1,170,973 10,836,368
Interest 94,627 103,125 181,520 195,506 1,073,915
------------ ------------ ------------ ------------ ------------
Total expenses 4,056,286 16,606,754 7,937,287 19,682,029 66,070,333
------------ ------------ ------------ ------------ ------------
Net loss $ (3,774,506) $(16,376,477) $ (7,249,534) $(19,268,216) $(60,876,495)
============ ============ ============ ============ ============
Net loss per share $ (0.19) (1.26) $ (0.36) $ (1.52)
============ ============ ============ ============
Shares used in computation of
net loss per share 20,205,624 13,031,247 20,183,954 12,690,294
============ ============ ============ ============
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)
Six months ended March 9, 1989
June 30, (date of inception)
---------------------------- through
1997 1996 June 30, 1997
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Net cash used in operating activities $ (6,614,077) $ (5,558,934) $(40,953,258)
Investing activities:
Purchases of property, plant and equipment (528,271) (991,593) (9,241,462)
Purchases of securities available for sale -- (12,504,553) (78,664,645)
Sales of securities available for sale 3,759,715 7,720,112 67,080,742
Net cash acquired in RGene acquisition -- 2,977,185 1,594,386
Increase in other assets -- -- (719,179)
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Net cash provided by (used in) investing activities 3,231,444 (2,798,849) (19,950,158)
Financing activities:
Advances from Immunex -- -- 2,807,316
Net proceeds from sale of capital stock 283,007 13,245,848 55,658,007
Proceeds from equipment financing 326,287 646,996 5,270,169
Payments under capital leases and installment loans (593,276) (451,344) (2,666,123)
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Net cash provided by financing activities 16,018 13,441,500 61,069,369
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Net increase (decrease) in cash and cash equivalents (3,366,615) 5,083,717 165,953
Cash and cash equivalents, beginning of period 3,532,568 2,154,814 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 165,953 $ 7,238,531 $ 165,953
============ ============ ============
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 and six months ended June 30, 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 cash, cash equivalents and securities available for sale
totaling $11.9 million as of June 30, 1997, compared to $19.0 million at
December 31, 1996. The change was primarily attributable to the use of $6.6
million to fund operations and $528,000 to purchase property, plant and
equipment during the first six months of 1997, 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 operating and 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
Over the past several years, the Company's net loss has grown, 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 an arrangement providing research and
development funding, the net loss will 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)
Revenue under collaborative agreements for the three and six months ended
June 30, 1997 primarily consists of amounts earned from Laboratoires Fournier
S.C.A. related to tgDCC-E1A process development activities.
Investment income for the three and six months ended June 30, 1997
increased to $181,000 and $411,000 compared to $155,000 and $339,000, during the
three and six months ended June 30, 1996, respectively. The increase was largely
attributable to higher average cash balances for investment in 1997 compared to
the same periods in 1996.
Other revenue for the three and six months ended June 30, 1997 represents
proceeds from Small Business Innovation Research grants awarded by the National
Institutes of Health.
Research and development expenses were $3,317,000 and $6,368,000 for the
three and six months ended June 30, 1997, respectively, and $2,432,000 and
$4,798,000 for the three and six months ended June 30, 1996, respectively.
Expenses that resulted directly from the acquisition of RGene Therapeutics Inc.
("RGene"), specifically costs related to the continuation of the acquired
research, development and clinical programs, were largely responsible for the
increases in both the three- and six-month period. To a lesser extent, continued
progression of the Company's clinical trial programs and increased activity
related to intellectual property also contributed to the increases.
In-process research and development expense resulted from the acquisition
of RGene in the second quarter of 1996. The RGene purchase price exceeded the
fair value of tangible assets acquired and the excess was allocated to RGene's
existing in-process technology and written off in the second quarter to
in-process research and development.
General and administrative expenses for the three- and six-month periods
experienced moderate increases 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the Company's shareholders ("Shareholders") was held
on May 7, 1997 (the "Annual Meeting"). Of the 20,205,434 shares outstanding as
of the record date, March 7, 1997, 16,610,986 shares, or 82.21% of the total
shares eligible to vote at the Annual Meeting, were represented in person or by
proxy.
Two matters were submitted to a vote of the Shareholders at the Annual
Meeting. First, an amendment to the 1994 Stock Option Plan for Nonemployee
Directors providing for an increase in the number of shares available for grant
from 120,000 to 300,000 was approved by 99.6% of the votes represented at the
meeting. Second, H. Stewart Parker, Mark Richmond, Martin P. Sutter and Jack L.
Bowman were elected as Directors of the Company, each receiving greater than 99%
of the votes cast at the meeting.
No other matters were submitted to a vote of the Shareholders.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report.
Exhibit No. Description
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4.1 Warrant to purchase 25,000 shares of the Common Stock of
Targeted Genetics Corporation, issued to Francis Chisari on May
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
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(Registrant)
Date August 7, 1997 /s/ H. STEWART PARKER
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H. Stewart Parker, Chief Executive Officer
(Principal Executive Officer)
Date August 7, 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
Exhibit No. Description
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4.1 Warrant to purchase 25,000 shares of the Common Stock of
Targeted Genetics Corporation, issued to Francis Chisari on May
15, 1997.
27.1 Financial Data Schedule