1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 2000.
[ ] 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: 0-19290
[COR THERAPEUTICS, INC. LOGO]
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
94-3060271
(I.R.S. employer identification no.)
(650) 244-6800
(Registrant's telephone number, including area code)
256EAST GRAND AVENUE, SOUTH SAN FRANCISCO, CALIFORNIA 94080
(Address of principal executive offices and zip 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 [ ]
As of June 30, 2000, the number of outstanding shares of the
Registrant's Common Stock was 26,794,970.
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COR THERAPEUTICS, INC.
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INDEX
Page
Section Contents No.
- ------- -------- ---
PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements and Notes
Condensed Balance Sheets - June 30, 2000 and December 31, 1999 3
Condensed Statements of Operations - for the three and six
months ended June 30, 2000 and 1999 4
Condensed Statements of Cash Flows - for the six months ended
June 30, 2000 and 1999 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Financial Market Risks 18
PART II OTHER INFORMATION
Item 2. Changes in Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
INTEGRILIN(R) (eptifibatide) Injection, COR Therapeutics(R), and COR(R) are
registered trademarks of COR Therapeutics, Inc.
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COR THERAPEUTICS, INC.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS AND NOTES
CONDENSED BALANCE SHEETS
(in thousands)
June 30, December 31,
2000 1999
--------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 65,634 $ 12,780
Short-term investments 277,244 32,973
Contract receivables 8,485 5,751
Prepaid copromotion expenses 32,754 30,747
Other current assets 682 791
--------- ---------
Total current assets 384,799 83,042
Property and equipment, net 4,255 4,855
Other assets 10,239 --
--------- ---------
$ 399,293 $ 87,897
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,966 $ 11,020
Accrued interest payable 5,215 --
Accrued compensation 6,249 4,525
Accrued development costs 2,994 1,768
Accrued copromotion costs 758 1,291
Deferred revenue 30,697 27,480
Other accrued liabilities 509 511
Capital lease obligations--current portion 1,395 1,621
--------- ---------
Total current liabilities 58,783 48,216
Capital lease obligations--noncurrent portion 2,274 2,925
Convertible subordinated notes 300,000 --
Stockholders' equity 269,908 251,990
Accumulated deficit (231,672) (215,234)
--------- ---------
Total stockholders' equity 38,236 36,756
--------- ---------
$ 399,293 $ 87,897
========= =========
See accompanying notes.
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COR THERAPEUTICS, INC.
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CONDENSED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Contract revenues:
Copromotion revenue $ 22,981 $ 7,444 $ 39,885 $ 13,112
Development and other contract revenue 2,101 1,563 3,093 3,416
-------- -------- -------- --------
Total contract revenues 25,082 9,007 42,978 16,528
-------- -------- -------- --------
Expenses:
Cost of copromotion revenue 12,321 3,279 23,268 7,196
Research and development 12,330 9,874 22,744 19,858
Marketing, general and administrative 8,228 6,110 15,408 12,306
-------- -------- -------- --------
Total expenses 32,879 19,263 61,420 39,360
-------- -------- -------- --------
Loss from operations (7,797) (10,256) (18,442) (22,832)
Interest income 5,527 739 7,919 1,596
Interest expense (4,227) (151) (5,915) (268)
-------- -------- -------- --------
Net loss $ (6,497) $ (9,668) $(16,438) $(21,504)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.24) $ (0.39) $ (0.63) $ (0.88)
======== ======== ======== ========
Shares used in computing basic and diluted net loss per share 26,615 24,635 26,251 24,553
======== ======== ======== ========
See accompanying notes.
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COR THERAPEUTICS, INC.
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CONDENSED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(unaudited, in thousands)
Six Months Ended
June 30,
-------------------------
2000 1999
--------- ---------
Cash flows provided by (used in) operating activities:
Net loss $ (16,438) $ (21,504)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,759 1,732
Changes in assets and liabilities:
Contract receivables (2,734) (261)
Prepaid copromotion expenses (2,007) (8,877)
Other current assets 109 (88)
Accounts payable (54) 3,643
Accrued interest payable 5,215 --
Accrued compensation 1,724 (502)
Accrued development costs 1,226 (917)
Accrued copromotion costs (533) 430
Deferred revenue 3,217 6,031
Other accrued liabilities (2) (398)
--------- ---------
Total adjustments 7,920 793
--------- ---------
Net cash used in operating activities (8,518) (20,711)
--------- ---------
Cash flows provided by (used in) investing activities:
Purchases of short-term investments (297,876) (13,424)
Sales of short-term investments 39,464 37,911
Maturities of short-term investments 14,047 6,497
Additions to property and equipment (552) (1,171)
--------- ---------
Net cash provided by (used in) investing activities (244,917) 29,813
--------- ---------
Cash flows provided by (used in) financing activities:
Proceeds from capital lease obligations -- 979
Repayment of capital lease obligations (877) (1,151)
Proceeds from convertible subordinated notes, net of issuance costs 289,249 --
Issuance of common stock 17,917 1,059
--------- ---------
Net cash provided by financing activities 306,289 887
--------- ---------
Net increase in cash and cash equivalents 52,854 9,989
Cash and cash equivalents at the beginning of the period 12,780 10,532
--------- ---------
Cash and cash equivalents at the end of the period $ 65,634 $ 20,521
========= =========
See accompanying notes.
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COR THERAPEUTICS, INC.
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NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COR Therapeutics, Inc. was incorporated in Delaware on February 4, 1988. COR
develops and commercializes pharmaceutical products to treat and prevent severe
cardiovascular diseases. INTEGRILIN(R) (eptifibatide) Injection is our first
product taken from discovery to commercialization.
Interim financial information
We prepared the accompanying unaudited condensed financial statements in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Article 10 of Regulation
S-X. In our opinion, these condensed financial statements include all
adjustments, consisting only of normal recurring adjustments, which we consider
necessary to fairly state the company's financial position and the results of
its operations and its cash flows. We derived the condensed balance sheet at
December 31, 1999 from the audited financial statements at that date. The
condensed balance sheet at December 31, 1999 does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The accompanying condensed financial
statements should be read in conjunction with the financial statements and notes
included in our annual report on Form 10-K for the year ended December 31, 1999.
The results of operations for any interim period are not necessarily indicative
of the results of operations for any other interim period or for a full fiscal
year.
Contract revenues
Contract revenues include copromotion revenue, milestone revenue, and
development and other contract revenue. We record milestone revenue and
development and other contract revenue as earned based on the performance
requirements of the contract, and expense related costs as they are incurred.
Other contract revenue includes recognition of reimbursement to us by
Schering-Plough Ltd. and Schering Corporation, which we refer to together as
"Schering", of certain manufacturing-related expenses for materials used outside
copromotion territories at the time the reimbursement is realizable and earned.
We generally recognize copromotion revenue when Schering ships related product
to wholesalers and record it net of allowances, if any, which we believe are
necessary. We did not record milestone revenue for the three or six months ended
June 30, 2000 or for the three or six months ended June 30, 1999 as no
milestones were achieved during these periods.
Copromotion revenue includes our share of profits from the sale of INTEGRILIN by
Schering, as well as the reimbursement by Schering of our costs of copromotion
revenue, which we record when the reimbursement is realizable and earned. Our
costs of copromotion revenue consist of certain manufacturing-related and
marketing expenses used within copromotion territories. We defer certain
manufacturing-related expenses until the time Schering ships related product to
its customers inside and outside copromotion territories. Deferred revenue
includes payments from Schering received prior to the period in which the
related contract revenues are earned.
Prepaid copromotion expense
Prepaid copromotion expenses represent materials on-hand, valued at cost, and
prepayments to third-party suppliers associated with manufacturing-related
copromotion expenses. Prepaid copromotion expenses consist of the following (in
thousands):
June 30, December 31,
2000 1999
-------- ------------
Deposits and prepayments $ 3,035 $ 5,626
Bulk materials 15,617 13,169
Finished goods 14,102 11,952
-------- --------
$ 32,754 $ 30,747
======== ========
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Other assets
Other assets represent issuance costs, net of related amortization, associated
with our sale of $300,000,000 aggregate principal amount of 5.0% convertible
subordinated notes in February 2000. These issuance costs are being amortized to
interest expense over the seven-year life of the notes.
Information concerning market and source of supply concentration
COR and Schering co-promote INTEGRILIN(R) (eptifibatide) Injection in the United
States and share any profits or losses. We have exclusively licensed Schering to
market INTEGRILIN in Europe, and Schering pays us royalties based on sales of
INTEGRILIN in Europe. INTEGRILIN has also received regulatory approval in a
number of countries outside the European Union and the United States. We have
long-term supply arrangements with two suppliers for the bulk product and with
another two suppliers for the filling and final packaging of INTEGRILIN.
Advertising and promotion costs
Advertising and promotion costs are expensed in the period they are incurred.
Advertising and promotion costs totaled $3,605,000 and $6,892,000 for the three
and six months ended June 30, 2000 compared to $2,474,000 and $5,511,000 for the
corresponding periods in 1999.
Reclassification
We have reclassified certain prior year balances to conform to the current year
presentation.
Comprehensive income (loss)
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" requires unrealized gains and losses on available-for-sale securities to
be included in other comprehensive income (loss). Unrealized gains or losses
were not material during the three and six months ended June 30, 2000 and 1999,
and total comprehensive loss closely approximated net loss in each period.
Segment information
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131") establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. SFAS No. 131 also establishes standards for related disclosures about
products and services, geographic areas and major customers.
Our business activities include the discovery, development and commercialization
of novel cardiovascular pharmaceutical products and have been organized into one
operating segment. All of our operating assets are located in the United States.
All of our revenues are derived from within the United States, except for
royalty revenue earned on sales of INTEGRILIN by Schering outside of the United
States.
Recent accounting pronouncements
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). The
Commission has subsequently amended SAB 101 twice to postpone the effective date
of implementation to the fourth fiscal quarter of 2000. SAB 101 summarizes
certain areas of the Staff's views in applying generally accepted accounting
principles to revenue in financial statements and specifically addresses revenue
recognition for non-refundable up-front fees received in connection with
collaboration agreements. We are currently evaluating the impact of SAB 101 on
our revenue recognition policy related to milestone and license fees received
from Schering.
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COR THERAPEUTICS, INC.
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In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation" ("FIN 44"), an interpretation of APB Opinion No. 25. FIN 44
clarifies the application of APB Opinion 25 for:
- the definition of employee for purposes of applying APB Opinion 25,
- the criteria for determining whether a plan qualifies as a
noncompensatory plan,
- the accounting consequence of various modifications to the terms of a
previously fixed stock option or award and,
- the accounting for an exchange of stock compensation awards in a
business combination.
FIN 44 is effective July 1, 2000 but certain conclusions cover specific events
that occur after December 15, 1998 or January 12, 2000. We believe that the
impact of FIN 44 will not have a material effect on our financial position or
results of operations.
2. FINANCIAL INSTRUMENTS
We used the following methods and assumptions in estimating the fair value
disclosures for financial instruments:
Cash and cash equivalents: The carrying amount of cash and cash equivalents
reported on the balance sheet approximates its fair value.
Short-term investments: Short-term investments consist of marketable government
and other debt securities and are classified as available-for-sale. These
investments are carried at fair value and any unrealized gains and losses are
reported in a separate component of stockholders' equity. The fair values are
based upon quoted market prices.
At June 30, 2000, the amortized cost and estimated fair value of short-term
investments, classified by contractual maturity, are (in thousands):
Amortized Estimated
Cost Fair Value
--------- ----------
Due in one year or less $157,823 $157,683
Due after one year and in less than three years 119,617 119,561
-------- --------
$277,440 $277,244
======== ========
During the three and six months ended June 30, 2000, we sold short-term
investments with a fair value of $37,802,000 and $39,464,000 resulting in gross
realized gains of $81,000 and $83,000 and gross realized losses of $20,000 and
$21,000, respectively.
Long and short-term debt: The carrying amounts of borrowings under secured debt
agreements approximate their fair values. The fair values are estimated using a
discounted cash flow analysis based on current incremental borrowing rates for
similar types of borrowing arrangements.
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COR THERAPEUTICS, INC.
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3. NET LOSS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" we have computed basic and diluted net loss per share using
the weighted average number of shares of common stock outstanding during the
period. If we had been profitable in the following periods, diluted earnings per
share would have included the shares used in the computation of basic net income
per share as well as the impact of the following weighted average potential
dilutive common shares (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
Potential dilutive common shares:
Stock options 2,919 721 3,088 556
Convertible subordinated notes 4,440 -- 3,102 --
------ ------ ------ ------
7,359 721 6,190 556
====== ====== ====== ======
We excluded the impact of these potential dilutive common shares from the
computation of diluted earnings per share because the impact is anti-dilutive
for all periods presented.
4. CONVERTIBLE SUBORDINATED NOTES
In February 2000 we completed a private placement of $300,000,000 aggregate
principal amount of 5.0% convertible subordinated notes due March 1, 2007. The
notes are unsecured and subordinated in right of payment to all existing and
future senior debt as defined in the indenture governing the notes. We pay
interest on the notes semi-annually on March 1 and September 1 of each year,
commencing September 1, 2000. The conversion rate is 14.8028 shares of common
stock per $1,000 principal amount of notes. This is equivalent to a conversion
price of $67.56 per share. The conversion rate is subject to adjustment in
certain events. We have reserved 4,440,000 shares of authorized common stock for
issuance upon conversion of the notes. We may redeem the notes on or after March
1, 2003 and prior to maturity, at a premium. We incurred issuance costs related
to this offering of approximately $10,800,000, including aggregate underwriting
discounts and commissions. These issuance costs are recorded as other assets and
are being amortized to interest expense over the seven-year life of the notes.
5. CONTINGENCIES
In October 1997 a patent opposition was filed in Europe by another company
against the claims of a patent granted to us in Europe covering broad, generic
claims for INTEGRILIN(R) (eptifibatide) Injection, as well as numerous related
compounds that are not part of our core technology. The opposition asserts that
all claims of the patent are unpatentable. In July 2000 the Opposition Division
of the European Patent Office confirmed the validity of our patent claims
without requiring us to limit or otherwise amend our claims. The opposition has
not yet exhausted its ability to appeal this decision.
6. SUBSEQUENT EVENT
On July 19, 2000 we announced that our board of directors approved a two-for-one
split of the outstanding shares of our common stock. The stock split will be
effected August 15, 2000 in the form of a stock dividend and will entitle each
stockholder of record at the close of business on July 31, 2000 to receive one
share of common stock for each share of common stock held.
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COR THERAPEUTICS, INC.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to the historical information contained herein, this document
includes forward-looking statements that involve risks and uncertainties. Actual
results may differ significantly from the potential results discussed in such
forward-looking statements. These forward-looking statements are based on
current expectations, and we assume no obligation to update this information.
Risk factors that might cause such differences include, but are not limited to,
those factors identified below and in the sections titled "Business" and
"Business-Additional Risk Factors" in the Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
OVERVIEW
COR develops and commercializes pharmaceutical products to treat and prevent
severe cardiovascular diseases. INTEGRILIN(R) (eptifibatide) Injection is our
first product taken from discovery to commercialization. In May 1998 the United
States Food and Drug Administration approved INTEGRILIN to treat patients who
undergo a procedure known as angioplasty to open blood vessels. The FDA has also
approved INTEGRILIN to treat patients with intermittent chest pains known as
unstable angina and patients suffering from a kind of heart attack known as
non-Q-wave myocardial infarction, whether the doctor intends to treat these
patients with medicines alone or with a subsequent angioplasty. INTEGRILIN is
the only drug in its class that the FDA has approved for use in all these
indications.
COR and Schering co-promote the drug in the United States and share any profits
or losses. We have exclusively licensed Schering to market INTEGRILIN in Europe,
and Schering pays us royalties based on sales of INTEGRILIN in Europe.
INTEGRILIN has also received regulatory approval in a number of countries
outside the European Union and the United States.
COR and Schering are conducting or have conducted clinical trials of INTEGRILIN
with different drugs that dissolve blood clots in patients suffering heart
attacks. COR and Schering also sponsor additional clinical trials of INTEGRILIN
in a variety of clinical settings.
In March 2000 at the 49th Scientific Session of the American College of
Cardiology in Anaheim, California, COR and Schering announced results of the
ESPRIT study. These results indicated that INTEGRILIN significantly reduced the
combined incidence of death, heart attack, need for urgent repeat intervention,
or the need for thrombotic bail-out therapy from 10.5 percent with placebo to
6.6 percent (P = 0.0015) over the 48 hours following non-emergency balloon
angioplasty combined with intracoronary stenting. This was the primary endpoint
of the ESPRIT study. The 30-day follow-up results of the ESPRIT study were
presented in May 2000 at the Society for Coronary Angiography and Intervention
in Charleston, South Carolina. These results indicated that INTEGRILIN
significantly reduced the combined incidence of death, heart attack, need for
urgent repeat intervention, or the need for thrombotic bail-out therapy from
11.7 percent with placebo to 7.5 percent (P = 0.0011) over the 30 days following
non-emergency balloon angioplasty combined with intracoronary stenting.
In addition to our commercial activities we continue to pursue a wide array of
research and development programs. We are developing an oral drug, called
cromafiban, to prevent blood clotting. We have shown in clinical trials that
cromafiban remains active in the body long enough to allow patients to take the
drug only once a day. We also observed in these trials that the level of
activity of the drug in the body does not vary greatly throughout a twenty-four
hour period, and that the drug can be taken with or without food. The most
common complication we observed during these trials was minor bleeding. We also
are conducting preclinical research and development in several other
cardiovascular programs.
Total sales of INTEGRILIN, as reported to us by Schering, were $41,872,000 and
$69,488,000 for the three and six months ended June 30, 2000, compared to
$15,400,000 and $26,700,000 for the corresponding periods in 1999. Product sales
reported by Schering for any period are not necessarily indicative of product
sales for any future period.
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COR THERAPEUTICS, INC.
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RESULTS OF OPERATIONS
Three and six months ended June 30, 2000 and 1999
Total contract revenues, which include copromotion and development and other
contract revenue, were $25,082,000 and $42,978,000 for the three and six months
ended June 30, 2000 compared to $9,007,000 and $16,528,000 for the corresponding
periods in 1999. Copromotion revenue related to the sales of INTEGRILIN(R)
(eptifibatide) Injection by Schering was $22,981,000 and $39,885,000 for the
three and six months ended June 30, 2000 compared to $7,444,000 and $13,112,000
for the corresponding periods in 1999. Development and other contract revenue
was $2,101,000 and $3,093,000 for the three and six months ended June 30, 2000
compared to $1,563,000 and $3,416,000 for the corresponding periods in 1999.
Development and other contract revenue varies due to fluctuations in clinical
trial and other development activities. We expect total contract revenues to
continue to fluctuate in the future.
Cost of copromotion revenue was $12,321,000 and $23,268,000 for the three and
six months ended June 30, 2000 compared to $3,279,000 and $7,196,000 for the
corresponding periods in 1999, consistent with increased sales of INTEGRILIN in
2000. Cost of copromotion revenue includes certain manufacturing-related and
marketing expenses incurred in connection with our collaboration with Schering.
Research and development expenses were $12,330,000 and $22,744,000 for the three
and six months ended June 30, 2000 compared to $9,874,000 and $19,858,000 for
the corresponding periods in 1999. The increase in 2000 compared to 1999 was due
to the timing of clinical trial activities and to increases in headcount and
other research, development and clinical activities associated with product
candidates. Research and development expenses are expected to increase over the
next several years, although the timing of certain of these expenses may depend
on the timing and phase of, and indications pursued in, additional clinical
trials of INTEGRILIN and other product candidates in development.
Marketing, general and administrative expenses were $8,228,000 and $15,408,000
for the three and six months ended June 30, 2000 compared to $6,110,000 and
$12,306,000 for the corresponding periods in 1999. The increase in 2000 compared
to 1999 was primarily due to the addition of marketing and sales personnel for
the commercialization of INTEGRILIN, as well as increased staffing and
administrative expenses associated with general corporate activities. We expect
marketing, general and administrative costs to continue to increase over the
next several years.
Interest income (net) was $1,300,000 and $2,004,000 for the three and six months
ended June 30, 2000 compared to $588,000 and $1,328,000 for the corresponding
periods in 1999. The increase in 2000 compared to 1999 was primarily due to
changes in average cash and investment balances and average outstanding debt
obligations, including the issuance of $300,000,000 aggregate principal amount
of 5.0% convertible subordinated notes in February 2000. See "Note 4 of Notes to
Condensed Financial Statements".
LIQUIDITY AND CAPITAL RESOURCES
We had available cash, cash equivalents and short-term investments of
$342,878,000 at June 30, 2000. Cash in excess of immediate requirements is
invested with the primary objective of preserving principal while at the same
time maximizing yields without significantly increasing risk. We have funded our
operations primarily through public and private debt and equity financings and
proceeds from research and development and commercialization collaboration
agreements. Additional funding has come from grant revenues, interest income and
property and equipment financings.
Net cash used in operating activities and additions to property and equipment
was $9,070,000 for the six months ended June 30, 2000, compared to $21,882,000
for the six months ended June 30, 1999. The decrease in 2000 compared to 1999
was primarily due to the timing of activities related to our agreement with
Schering and to the effect of reduced losses from operations. Cash requirements
for operating activities and additions to property and equipment may increase in
future periods. The timing of these cash requirements may vary from period to
period depending on the timing and phase of, and indications pursued in,
additional clinical trials of INTEGRILIN and
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COR THERAPEUTICS, INC.
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other product candidates in development and depending on the semi-annual
interest payments related to our convertible subordinated notes.
Cash provided by financing activities was $306,289,000 for the six months ended
June 30, 2000 compared to $887,000 for the six months ended June 30, 1999. The
increase in 2000 compared to 1999 is the result of the issuance of $300,000,000
aggregate principal amount of 5.0% convertible subordinated notes in February
2000. See "Note 4 of Notes to Condensed Financial Statements".
We expect cash requirements will increase in future periods due to costs related
to continuation and expansion of research and development, including clinical
trials, increased marketing, sales, and general and administrative activities
and to interest expense on our convertible subordinated notes. Existing capital
resources and interest earned are expected to meet these increased cash
requirements for the next several years. However, cash requirements may change
depending on numerous factors, including the progress of anticipated research
and development programs, the scope and results of preclinical and clinical
studies and the number and nature of the indications pursued in clinical
studies. Cash requirements may also change due to the timing of regulatory
approvals, technological advances, determinations as to the commercial potential
of future products and the status of competitive products. Finally, the
establishment and maintenance of collaboration relationships with other
companies, the availability of financing and other unexpected factors may
require additional funds that may not be available on favorable terms, if at
all.
RISK FACTORS
Stockholders and potential investors in our securities should carefully consider
the following risk factors, in addition to other information in this report. We
are identifying these risk factors as important factors that could cause our
actual results to differ materially from those contained in any written or oral
forward-looking statements made by or on behalf of us. These risks may not be
the only risks we face. Additional risks that we do not yet know of or that we
currently think are immaterial also may impair our business. We are relying upon
the safe-harbor for forward-looking statements and any such statements made by
or on behalf of COR are qualified by reference to the following cautionary
statements, as well as to those set forth elsewhere in this report.
RISKS RELATED TO OUR DRUG DEVELOPMENT AND COMMERCIALIZATION ACTIVITIES
If INTEGRILIN(R) (eptifibatide) Injection does not achieve commercial success,
we will not be able to generate the revenues necessary to support our business.
Our business depends on the commercial success of INTEGRILIN, which has been on
the market in the United States only two years and currently is our only
marketed product. Marketing outside the United States commenced only within the
last year, and we do not know whether or, if so, when the product will be
accepted in foreign markets. Although sales of INTEGRILIN have increased since
its launch, if they fail to continue to increase over current levels, our
business will not become profitable and we will be forced to scale back our
operations and research and development programs.
We may not be able to compete effectively in the cardiovascular disease market.
Due to the incidence and severity of cardiovascular diseases, the market for
therapeutic products that address these diseases is large, and competition is
intense and expected to increase. Our most significant competitors are major
pharmaceutical companies and more established biotechnology companies. The two
products that compete with INTEGRILIN are ReoPro(R), which is produced by
Johnson & Johnson and sold by Johnson & Johnson and Eli Lilly & Co., and
Aggrastat(R), which is produced and sold by Merck & Co., Inc. In addition, F.
Hoffman-La Roche, Ltd. is currently developing a product, lamifiban, to treat
patients with symptoms of unstable angina. If the FDA approves lamifiban, it may
also directly compete with INTEGRILIN. Our competitors operate large,
well-funded cardiovascular research and development programs and have
significant expertise in manufacturing, testing, regulatory matters and
marketing. We also must compete with academic institutions, governmental
agencies, and
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other public and private research organizations that conduct research in the
cardiovascular field, seek patent protection for their discoveries and establish
collaborative arrangements for product and clinical development and marketing.
We may not be able to obtain the regulatory approvals necessary to market new
products and market INTEGRILIN(R) (eptifibatide) Injection for additional
therapeutic uses.
A wide range of authorities stringently regulates the pharmaceutical industry.
We cannot predict whether any product we develop will receive regulatory
clearance. INTEGRILIN is the only product we have submitted to the FDA for
approval for commercial sale, and it has been approved for a specific set of
therapeutic uses. To grow our business, we will need to obtain regulatory
approval to be able to promote INTEGRILIN for additional therapeutic uses and to
commercialize new product candidates. A company cannot market a pharmaceutical
product in the United States until it has completed rigorous pre-clinical
testing and clinical trials of the product and an extensive regulatory clearance
process that the FDA implements. It typically takes many years to satisfy
regulatory requirements, depending upon the type, complexity and novelty of the
product. The process is very expensive. Of particular significance are the
requirements covering research and development, testing, manufacturing, quality
control, labeling and promotion of drugs for human use.
Before commencing clinical trials in humans, we must submit and receive approval
from the FDA of an Investigational New Drug application. Institutional review
boards and the FDA oversee clinical trials. Clinical trials:
- - must be conducted in conformance with the FDA's good laboratory practice
regulations;
- - must meet requirements for institutional review board oversight;
- - must meet requirements for informed consent;
- - must meet requirements for good clinical practices;
- - are subject to continuing FDA oversight;
- - may require large numbers of test subjects; and
- - may be suspended by us or the FDA at any time if it is believed that the
subjects participating in these trials are being exposed to unacceptable
health risks or if the FDA finds deficiencies in the Investigational New
Drug application or the conduct of these trials.
Before we can receive FDA clearance to market a product, we must demonstrate
that the product is safe and effective for the patient population that will be
treated. Data obtained from pre-clinical and clinical studies are susceptible to
varying interpretations that could delay, limit or prevent regulatory
clearances. In addition, we may encounter delays or rejections from additional
government regulation, from future legislation or administrative action or
changes in FDA policy during the period of product development, clinical trials
and FDA regulatory review. Failure to comply with applicable FDA or other
applicable regulatory requirements may result in criminal prosecution, civil
penalties, recall or seizure of products, total or partial suspension of
production or injunction, as well as other regulatory action against our
potential products or us. If a product receives regulatory clearance, its
marketing will be limited to those disease states and conditions for which
clinical trials demonstrate that the product is safe and effective. We cannot
ensure that any compound we develop, alone or with others, will prove to be safe
and effective in clinical trials and will meet all of the regulatory
requirements needed to receive marketing clearance.
Outside the United States, our ability to market a product depends on our
receiving a marketing authorization from the appropriate regulatory authorities.
This foreign regulatory approval process includes all of the risks associated
with FDA clearance described above.
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We depend on our collaborative relationship with Schering to market and sell
INTEGRILIN(R) (eptifibatide) Injection, and our business will suffer if Schering
fails to perform under the collaboration.
Our strategy is to work with collaborative partners to develop product
candidates and commercialize products. Generally, collaborations with
established pharmaceutical companies provide funding for product development and
the benefit of an established sales and marketing organization. In particular,
our ability to successfully commercialize INTEGRILIN depends on our
collaboration with Schering. Under this collaboration, Schering has agreed to:
- co-market INTEGRILIN with us in the United States and market the
product as our exclusive licensee in certain other markets, including
Europe;
- share the profits and pay royalties to us on sales of INTEGRILIN;
- design and conduct advanced clinical trials;
- fund promotional activities with us; and
- pay us fees upon achievement of certain milestones.
Schering's performance under the collaboration is outside our control. If
Schering fails to perform its obligations diligently and in a timely manner,
commercialization of INTEGRILIN will be impaired and our business will not
become profitable.
The Schering collaboration agreement remains in effect on a country-by-country
basis until 15 years from the first commercial sale of INTEGRILIN in a
particular country or until all of our patents covering INTEGRILIN have expired,
whichever is later. We may terminate Schering's rights, and Schering may limit
our rights to co-market INTEGRILIN under the collaboration agreement if the
other party materially breaches the agreement and fails to cure the breach
within 90 days following notice of the breach. If the breach consists of the
failure of a party to use required efforts to promote INTEGRILIN in a specific
country, the effect of the termination is limited to that country.
If we do not establish additional collaborative relationships, our ability to
develop and commercialize new products will be impaired.
In addition to INTEGRILIN, we have three product candidates in preclinical and
clinical trials and other product candidates in various stages of research and
development. We are a party to numerous research agreements related to these
product candidates, most of which do not contemplate taking a product candidate
through development and commercialization. We will need to enter into additional
collaborations to develop and commercialize these and additional product
candidates. We face significant competition in seeking appropriate collaborative
partners. Negotiating these arrangements is complex and time consuming, and we
may not be successful in our efforts to establish collaborations on favorable
terms or at all. Even if we are successful in establishing a collaboration, the
collaboration may not be successful. If we fail to establish collaborative
partnerships for our product candidates, we may have to terminate, delay or cut
back development programs.
The progress and results of preclinical and clinical testing are uncertain.
We must provide the FDA and foreign regulatory authorities with preclinical and
clinical data that demonstrate that our products are safe and effective before
they can be approved for commercial sale. Clinical development, including
preclinical testing, is a long, expensive and uncertain process. It may take us
several years to complete our testing, and failure can occur at any stage of
testing. We cannot rely on interim results of preclinical or clinical studies to
necessarily predict their final results, and acceptable results in early studies
might not be seen in later studies. Any preclinical or clinical test may fail to
produce results satisfactory to the FDA. Preclinical and clinical data can be
interpreted in different ways, which could delay, limit or prevent regulatory
approval. Negative or inconclusive results from a preclinical study or clinical
trial or adverse medical events during a clinical trial could
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cause a preclinical study or clinical trial to be repeated or a program to be
terminated, even if other studies or trials relating to the program are
successful.
We cannot assure you that planned trials will begin on time or that any of our
preclinical or clinical testing will be completed on schedule or at all. In
addition, due to the substantial demand for clinical trial sites in the
cardiovascular area, we may have difficulty obtaining sufficient patients or
clinician support to conduct our clinical trials as planned. If so, we may have
to expend substantial additional funds to obtain access to resources or delay or
modify our plans significantly. We cannot assure you that any trials will result
in marketable products or that any products will be commercially successful even
if approved for marketing. Our product development costs will increase if we
have delays in testing or approvals. Significant clinical trial delays could
allow our competitors to bring products to market before we do and impair our
ability to commercialize our product.
If our third party manufacturers fail to deliver sufficient quantities of
INTEGRILIN(R) (eptifibatide) Injection or product candidates on schedule, we may
be unable to meet demand for INTEGRILIN and may experience delays in product
development.
We have no manufacturing facilities and, accordingly, rely on third parties for
clinical and commercial production of INTEGRILIN and for clinical production of
product candidates. We have only two manufacturers producing bulk product, and
two manufacturers performing packaging, of INTEGRILIN. We have four
manufacturers producing product candidates for clinical trials. If the
third-party manufacturers or suppliers were to cease production or otherwise
fail to supply us, or if we were unable to renew our manufacturing contracts or
contract for additional manufacturing services on acceptable terms, our ability
to produce INTEGRILIN and to conduct preclinical testing and clinical trials of
product candidates would be impaired. We cannot assure you that we will continue
to have adequate supplies of INTEGRILIN to meet market demand, or to conduct
additional clinical trials of INTEGRILIN. Product shortages may cause a
reduction in sales of INTEGRILIN, and usually a loss of potential revenues, and
the use of competing products by the health care community. We cannot assure you
that we will be able to obtain adequate supplies of product candidates for
preclinical and clinical trials. Any supply and distribution shortages may delay
regulatory approval and development of product candidates.
Our ability to generate revenues will be diminished if we fail to obtain
acceptable prices or an adequate level of reimbursement from third party payors.
Health care insurers, including the United States Health Care Financing
Administration, managed care providers, private health insurers and other
organizations set aggregate dollar amounts that they will reimburse to hospitals
for the medicines and care the hospitals administer to treat particular
conditions. These insurers adjust the amounts periodically, and could lower the
amount that they will reimburse hospitals to treat the conditions for which the
FDA has approved INTEGRILIN. If they do, we may not be able to maintain current
pricing levels or sales volume of INTEGRILIN. In foreign markets a number of
different governmental and private entities determine the level at which
hospitals will be reimbursed for administering INTEGRILIN to insured patients.
If these levels are set, or reset, too low, it may not be possible to sell
INTEGRILIN at a profit in these markets. Each of our product candidates, if
approved for marketing, will face the same risk.
If we are unable to protect our patents and proprietary rights, we may not be
able to compete successfully.
We rely on patent and trade secret protection for significant new technologies,
products and processes because of the long development time, uncertainty and
high cost associated with bringing a new product to the marketplace. The
enforceability of patents issued to companies in this industry can be highly
uncertain and involve complex legal and technical questions for which the legal
principles are largely unresolved. Our success will depend in part on our
ability to obtain and enforce patent protection for our technology both in the
United States and other countries. While we are seeking and/or maintaining
patents for INTEGRILIN and our product candidates, patents may not issue and
issued patents may afford limited or no protection. Additionally, we may not be
successful in enforcing our patents and avoiding infringement of patents granted
to others.
We may be required to obtain licenses to patents or other proprietary rights
from third parties. Licenses required under any patents or proprietary rights
may not be made available on terms acceptable to us, if at all. If we do not
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obtain required licenses, we may encounter delays in product development while
attempting to redesign products or methods or we could find the development,
manufacture or sale of such products requiring licenses to be foreclosed.
Further, we could incur substantial costs in defending any patent litigation
brought against us or in asserting our patent rights, including those rights
licensed to us by others.
In October 1997, a patent opposition was filed in Europe by another company
against the claims of a patent granted to us in Europe covering broad, generic
claims for INTEGRILIN(R) (eptifibatide) Injection, as well as numerous related
compounds that are not part of our core technology. The opposition asserts that
all claims of the patent are unpatentable. In July 2000, the Opposition Division
of the European Patent Office confirmed the validity of our patent claims
without requiring us to limit or otherwise amend our claims. The opposition has
not yet exhausted its ability to appeal this decision. If the opposition appeals
the decision and the appeal is successful, it could adversely affect the
marketing of INTEGRILIN in Europe.
If product liability lawsuits are successfully brought against us, we may incur
substantial liabilities.
The testing, marketing and sale of human pharmaceutical products expose us to
significant and unpredictable risks of product liability claims in the event
that the use of our technology or products is alleged to have resulted in
adverse effects. These risks will exist even with respect to products that
receive regulatory approval for commercial sale. While we have obtained
liability insurance for our products, it may not be sufficient to satisfy any
liability that may arise. We do not know whether adequate insurance coverage
will be available in the future at acceptable cost or at all. A successful
product liability suit against us could impair our financial condition and force
us to limit commercialization of products.
If we do not attract and retain key employees and consultants, our business
could be impaired.
We are highly dependent on the principal members of our scientific and
management staff. In addition, we rely on consultants to assist us in
formulating our research and development strategy. Attracting and retaining
qualified personnel is critical to our success. Competition for scientific and
managerial personnel is particularly intense in the San Francisco Bay Area where
we, together with numerous other life sciences companies, universities and
research institutions, maintain our operations. Failure to continue to attract
these individuals, or the loss of key personnel, could impair the progress of
our programs.
RISKS RELATED TO OUR FINANCES
We have a history of operating losses and are uncertain of future profitability.
Historically, our expenses have exceeded our revenues. As of June 30, 2000, we
had an accumulated deficit of approximately $231.7 million. The extent of future
losses and timing of future profitability are uncertain, even taking into
account our share of revenues from sales of INTEGRILIN. We continue to incur
significant expenses for research and development and to develop, train,
maintain and manage our sales force, and these expenses continue to exceed our
share of INTEGRILIN product revenues. We do not know whether we will achieve
profitable operations.
If we fail to obtain needed funds, we will be unable to successfully develop and
commercialize products.
We will require significant funds to market INTEGRILIN and conduct the costly
and time-consuming research, preclinical testing and clinical trials necessary
to develop and optimize our technology and potential products, to establish
manufacturing, marketing and sales capabilities for product candidates and to
bring any such products to market. We may raise these funds through public or
private equity offerings, debt financings or additional corporate collaborations
and licensing arrangements, or we may find that additional funding may not be
available to us when we need it, on acceptable terms or at all.
If we raise capital by issuing equity securities, our stockholders may
experience dilution. To the extent we raise additional funds through
collaborative arrangements, we may be required to relinquish some rights to our
technologies or product candidates or grant licenses on terms that are not
favorable to us. If we are unable to obtain
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adequate funding when needed, commercialization of INTEGRILIN(R) (eptifibatide)
Injection may be impaired and we may be required to curtail one or more
development programs.
Our indebtedness and debt service obligations may adversely affect our cash
flow.
We have significant outstanding debt, including primarily our convertible
subordinated notes. During each of the last five years and the six months ended
June 30, 2000, our earnings were insufficient to cover our fixed charges and are
likely to continue to be insufficient to cover fixed charges for at least twelve
months. During each of the next three years, our debt service obligations on the
notes will be approximately $15 million. We may be unable to generate cash
sufficient to pay the principal or interest on our debt when due. If we are
unable to generate sufficient cash to meet these obligations and have to use
other cash reserves, we may have to delay or curtail research and development
programs. On March 1, 2007, we will be required to either pay off or refinance
any notes that have not been converted into shares of our common stock. To date,
no notes have been converted. We do not know if we will be able to refinance the
notes on favorable terms or at all. If a significant amount of the notes remain
unconverted at maturity and we are unable to refinance the notes, the repayment
would deplete our cash reserves significantly.
We intend to fulfill our debt service obligations both from cash generated by
our operations and from our general fund. We may add additional lease lines to
finance capital expenditures and may obtain additional long-term debt and lines
of credit. We cannot assure you that any of these financing arrangements will
become available. Our indebtedness could have significant additional negative
consequences, including:
- - increasing our vulnerability to general adverse economic and industry
conditions;
- - limiting our ability to obtain additional financing;
- - requiring the dedication of a substantial portion of our expected cash flow
from operations to service our indebtedness, thereby reducing the amount of
our expected cash flow available for other purposes, including capital
expenditures;
- - limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
- - placing us at a possible competitive disadvantage to less leveraged
competitors and competitors that have better access to capital resources.
RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES
Our common stock price is volatile, and an investment in our securities could
suffer a decline in value.
Our stock price has been highly volatile and may continue to be highly volatile
in the future. Our stock price depends on a number of factors, some of which are
beyond our control, which could cause the market price of our common stock to
fluctuate substantially. These factors include:
- - fluctuations in our financial and operating results;
- - whether our financial results are consistent with securities analysts'
expectations;
- - the results of preclinical and clinical trials;
- - announcements of technological innovations or new commercial products by us
or our competitors;
- - developments concerning proprietary rights; and
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- - publicity regarding actual or potential performance of products under
development by us or our competitors.
In the past, stockholders have filed securities class action lawsuits against
companies after the market price of the company's stock has fallen
precipitously. Such a lawsuit could cause us to incur significant defense costs
and divert management's attention and other resources. Any adverse determination
could subject us to significant liabilities.
In addition, the stock market in general has from time to time experienced
extreme price and volume fluctuations. These broad market fluctuations may lower
the market price of our common stock. Moreover, during periods of stock market
price volatility, share prices of many biotechnology companies have often
fluctuated in a manner not necessarily related to the companies' operating
performance. Accordingly, our common stock may be subject to greater price
volatility than the stock market as a whole.
Because our convertible subordinated notes are convertible into shares of our
common stock, their value may be affected by these factors as well.
Anti-takeover provisions in our charter documents and under Delaware law may
make it more difficult to acquire us, even though an acquisition may be
beneficial to our stockholders.
Provisions of our certificate of incorporation and bylaws could make it more
difficult for a third party to acquire us, even if doing so would benefit our
stockholders. These provisions:
- - establish that members of the board of directors may be removed only for
cause upon the affirmative vote of stockholders owning at least two-thirds
of our capital stock;
- - authorize the issuance of "blank check" preferred stock that could be issued
by our board of directors to increase the number of outstanding shares and
thwart a takeover attempt;
- - limit who may call a special meeting of stockholders;
- - prohibit stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
- - establish advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be acted upon at
stockholder meetings.
In January 1995, our board of directors adopted a preferred share purchase
rights plan, commonly known as a "poison pill." The provisions described above,
our poison pill and provisions of the Delaware General Corporation Law relating
to business combinations with interested stockholders may discourage, delay or
prevent a third party from acquiring us, even if our stockholders might receive
a premium for their shares in the acquisition over then current market prices.
ITEM 3. FINANCIAL MARKET RISKS
We are exposed to interest rate risk on our investments of excess cash. The
primary objective of our investment activities is to preserve principal while at
the same time maximizing yields without significantly increasing risk. To
achieve this objective, we invest in highly liquid and high quality government
and other debt securities. To minimize the exposure due to adverse shifts in
interest rates, we invest in short-term securities with maturities of less than
three years. If a 10% change in interest rates were to have occurred on June 30,
2000, such a change would not have had a material effect on the fair value of
the investment portfolio as of that date. Due to the short holding period of
short-term investments, we have concluded that we do not have a material
financial market risk exposure.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On June 9, 2000, we filed a Certificate of Amendment of Restated Certificate of
Incorporation increasing our authorized common stock from 40,000,000 to
120,000,000 shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held our annual meeting of stockholders on May 23, 2000.
The stockholders elected the board of director nominees for director by the
votes indicated:
Nominee Votes in Favor Votes Withheld
- ------- -------------- --------------
Vaughn M. Kailian 24,256,841 364,058
Shaun R. Coughlin 24,213,008 407,891
James T. Doluisio 24,257,646 363,253
Charles J. Homcy 24,224,296 396,603
Jerry T. Jackson 24,257,640 363,259
Ernest Mario 24,257,746 363,153
The proposal to amend our 1991 Equity Incentive Plan to increase the aggregate
number of shares of common stock authorized for issuance under such plan by
900,000 shares was approved with 16,083,958 affirmative votes, 8,088,048
negative votes, 448,893 abstentions and 1,788,193 broker non-votes.
The proposal to amend our Restated Certificate of Incorporation to increase the
aggregate number of shares of common stock authorized for issuance from
40,000,000 to 120,000,000 shares was approved with 17,495,948 affirmative votes,
6,698,205 negative votes, 426,746 abstentions and 1,788,193 broker non-votes.
The proposal to ratify the selection of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 2000 was approved with
24,494,039 affirmative votes, 105,855 negative votes, 21,005 abstentions and
1,788,193 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Number Exhibit
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3.1 Certificate of Amendment of Restated Certificate of
Incorporation as filed with the State of Delaware on June 9,
2000.
10.1 Amendment dated June 29, 2000 to Second Amendment to
Collaboration Agreement, dated November 5, 1999, between
Schering-Plough Ltd. and Schering Corporation and the
Registrant.
27.1 Financial Data Schedule.
REPORTS ON FORM 8-K
There were no reports on Form 8-K filed for the three months ended June 30,
2000.
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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.
Date: August 10, 2000
COR THERAPEUTICS, INC.
Signature Title
- ---------------------------------- ----------------------------------------------------------
/s/ VAUGHN M. KAILIAN President, Chief Executive Officer and Director
- ---------------------------------- (Principal Executive Officer)
Vaughn M. Kailian
/s/ PETER S. RODDY Senior Vice President, Finance and Chief Financial Officer
- ---------------------------------- (Principal Financial Officer)
Peter S. Roddy
/s/ JOHN M. SCHEMBRI Director, Finance and Controller
- ---------------------------------- (Principal Accounting Officer)
John M. Schembri
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EXHIBIT INDEX
Number Exhibit
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3.1 Certificate of Amendment of Restated Certificate of
Incorporation as filed with the State of Delaware on June 9,
2000.
10.1 Amendment dated June 29, 2000 to Second Amendment to
Collaboration Agreement, dated November 5, 1999, between
Schering-Plough Ltd. and Schering Corporation and the
Registrant.
27.1 Financial Data Schedule.