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UNITED STATES
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, 1996
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: 0-18976
CELTRIX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3121462
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3055 Patrick Henry Drive, Santa Clara, CA 95054-1815
(Address of principal executive offices and zip code)
Registrant's Telephone Number: (408) 988-2500
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.
As of July 31, 1996, the Registrant had outstanding 15,234,241 shares of Common
Stock.
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CELTRIX PHARMACEUTICALS, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 1996
and March 31, 1996............................................ 3
Condensed Consolidated Statements of Operations for the three-
month periods ended June 30, 1996 and 1995.................... 4
Condensed Consolidated Statements of Cash Flows for the three-
month periods ended June 30, 1996 and 1995.................... 5
Notes to Condensed Consolidated Financial Statements............. 6
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 7
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K................................. 11
SIGNATURES ............................................................ 12
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PART I. FINANCIAL INFORMATION
CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
June 30, March 31,
1996 1996
-------------- ---------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $4,683 $10,183
Short-term investments 10,010 7,460
Receivables and other current assets 148 195
-------------- ---------------
Total current assets 14,841 17,838
Property and equipment, net 9,707 10,013
Intangible and other assets, net 2,428 2,294
-------------- ---------------
$26,976 $30,145
============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $398 $488
Accrued compensation and other accrued liabilities 829 813
Current portion of long-term obligations 509 633
-------------- ---------------
Total current liabilities 1,736 1,934
Deferred rent 1,150 1,187
Long-term obligations 209 238
Stockholders' equity:
Preferred Stock, $.01 par value, authorized 2,000,000
shares; none issued and outstanding -- --
Common Stock, $.01 par value, authorized 30,000,000
shares; 15,234,241 and 15,213,992 shares issued
and outstanding at June 30, 1996 and March 31, 1996,
respectively 152 152
Additional paid-in capital 118,087 118,052
Accumulated deficit (94,358) (91,418)
-------------- ---------------
Total stockholders' equity 23,881 26,786
-------------- ---------------
$26,976 $30,145
============== ===============
See accompanying notes.
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CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
June 30,
----------------------------------------
1996 1995
------------------ ------------------
Revenues:
Product sales $ -- $ 44
Related party revenue -- 420
Other revenue 42 104
------------------ ------------------
42 568
Costs and expenses:
Cost of sales -- 15
Research and development 2,703 2,777
General and administrative 445 574
------------------ ------------------
3,148 3,366
------------------ ------------------
Operating loss (3,106) (2,798)
Interest income, net 163 180
------------------ ------------------
Net loss $ (2,943) $ (2,618)
================== ==================
Net loss per share $ (0.19) $ (0.19)
================== ==================
Shares used in per share computation 15,220 13,719
================== ==================
See accompanying notes.
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CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
(Unaudited)
Three Months Ended
June 30,
-------------------------------------
1996 1995
---------------- ----------------
Cash flows from operating activities:
Net loss $ (2,943) $ (2,618)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 534 575
Other adjustments related to changes in operating
accounts (27) (796)
---------------- ----------------
Net cash used in operating activities (2,436) (2,839)
Cash flows from investing activities:
(Increase) decrease in available-for-sale securities (2,547) 564
Capital expenditures (217) --
Increase in intangible and other assets (182) (44)
---------------- ----------------
Net cash provided by (used in) investing activities (2,946) 520
Cash flows from financing activities:
Proceeds from issuance of common stock, net 35 --
Principal payments under long-term obligations (153) (157)
---------------- ----------------
Net cash used in financing activities (118) (157)
---------------- ----------------
Net decrease in cash and cash equivalents (5,500) (2,476)
Cash and cash equivalents at beginning of period 10,183 5,780
---------------- ----------------
Cash and cash equivalents at end of period $ 4,683 $ 3,304
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See accompanying notes.
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CELTRIX PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Interim Financial Statements
The condensed consolidated balance sheet as of June 30, 1996 and the
condensed consolidated statements of operations and cash flows for the
three-month periods ended June 30, 1996 and 1995, have been prepared by the
Company, without audit. In the opinion of management, the accompanying unaudited
interim condensed consolidated financial statements include all adjustments,
which include normal recurring adjustments, necessary to present fairly the
Company's financial position, results of its operations and its cash flows.
Interim results are not necessarily indicative of results to be expected for a
full fiscal year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the fiscal year ended March 31, 1996 in the
Company's 1996 Annual Report to Stockholders.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
condensed consolidated financial statements and notes thereto included in Part I
- -- Item 1 of this Quarterly Report and the financial statements and notes
thereto in the Company's 1996 Annual Report to Stockholders.
OVERVIEW
Celtrix Pharmaceuticals, Inc. is a biopharmaceutical company developing
novel therapeutics for the treatment of seriously debilitating, degenerative
conditions primarily associated with severe trauma, chronic diseases or aging.
Company programs are focused on the use of SomatoKine(R), a novel IGF-BP3
complex, to treat destructive metabolic processes (catabolism) in acute
indications such as major surgery, organ damage/failure, and traumatic injury.
Potential chronic indications could include osteoporosis, chronic renal failure,
and wasting conditions associated with cancer and AIDS.
The Company's development focus is on SomatoKine, the recombinant
equivalent of the naturally occurring complex formed by the anabolic hormone
insulin-like growth factor-I (IGF-I) and its major binding protein, BP3, which
shows potential as a hormone replacement therapy for patients suffering from
severe physical trauma and serious illnesses. The active portion of the complex
is IGF-I, an anabolic hormone known to play a key role in diverse biological
processes, including tissue repair, organ function, and muscle and bone
formation. However, IGF-I does not naturally exist in quantity free of its
binding proteins, and limitations associated with administering free IGF-I
therapeutically have proven significant: acute insulin effects (e.g.
hypoglycemia), suppression of growth hormone secretion, short circulating half
life, and limited and transient efficacy at safe dosage levels. When IGF-I is
bound to BP3, as it is in nature, it does not display these acute limitations.
Furthermore, BP3 appears to be critical in the regulation of the release of
IGF-I to target tissue sites, where the hormone is active only when needed.
The Company has recently completed its first Phase I human clinical
study of SomatoKine. Four escalating dosage levels of the complex were
administered intravenously to 12 healthy volunteers. Final analysis of the
clinical data demonstrated that SomatoKine safely administers IGF-I at
substantially higher dosage levels than have ever been feasible before,
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increasing the peak blood concentration of IGF-I up to 35-times normal levels.
This ability to substantially enhance the circulating reservoir of IGF-I should
allow clinical evaluation of the hormone's anabolic activities and therapeutic
potential beyond what has been possible using either free (unbound) IGF-I or
growth hormone. The Company's multiple-dose Phase I study is now under way and
involves up to 24 healthy men and women. This second study is designed to
evaluate the safety and metabolic effects of a range of dosage levels, and
information from the study will guide Phase II efficacy testing in target
patient populations. The Company is manufacturing the complex, according to
current Good Manufacturing Practices (GMP), for its Phase II clinical trial work
planned for later this fiscal year.
The Company has a license agreement with The Green Cross Corporation, a
Japanese pharmaceutical company, covering the development and commercialization
of SomatoKine for the treatment of osteoporosis in Japan. The Company also has a
product development, license and marketing agreement with Genzyme Corporation
("Genzyme") for TGF-beta-2, a potential pharmaceutical based on a naturally
occurring compound which appears to play an important role in regulating healthy
cell functions. Genzyme is currently developing TGF-beta-2 for tissue repair and
the treatment of systemic indications. The Company is not currently pursuing an
in-house TGF-beta-2 program, other than as related to the Genzyme program.
Celtrix has not earned substantial revenues from product sales and at
June 30, 1996 has an accumulated deficit of $94.4 million, which includes
non-recurring, non-cash charges of $17.3 million for acquired in-process
research and development and licensing fees. The Company expects to incur
additional operating losses, which may fluctuate quarter to quarter, for at
least the next several years as the Company expands its development activities,
including clinical trials and manufacturing.
There can be no assurance that Celtrix will ever achieve either
significant revenues from product sales or profitable operations. To achieve
profitable operations, the Company, alone or with others, must successfully
develop, obtain regulatory approval for and market its potential products. No
assurance can be given that the Company's product development efforts will be
successfully completed, that required regulatory approvals will be obtained, or
that any products, if developed and introduced, will be successfully marketed or
achieve market acceptance.
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RESULTS OF OPERATIONS
Celtrix incurred a net loss of $2.9 million or $0.19 per share for the
quarter ended June 30, 1996, compared to $2.6 million or $0.19 per share in the
same period in 1995.
Revenues, consisting of product sales, related party and other
revenues, decreased to $42,000 for the three-month period ended June 30, 1996
from $568,000 for the same period in 1995, primarily as a result of the sale of
the Vitrogen(R)100 Collagen business to Collagen Corporation ("Collagen") in
1995.
Operating expenses decreased 9% to $3.1 million for the three-month
period ended June 30, 1996 from $3.4 million for the same period in 1995, due
primarily to lower general and administrative costs as a result of tighter
control over administrative expenses. The Company expects operating expenses to
increase as it expands its clinical program and increases its SomatoKine
production activities to support Phase II clinical trials.
Interest income, net of $30,000 and $52,000 of interest expense, for
the three-month periods ended June 30, 1996 and 1995, respectively, decreased 9%
to $163,000 for the three-month period ended June 30, 1996 from $180,000 for the
same period in 1995. This decrease was due primarily to the decrease in average
cash, cash equivalent and short-term investment balances, coupled with lower
average interest rate on investments.
LIQUIDITY AND CAPITAL RESOURCES
Celtrix has funded its activities with proceeds from public and private
offerings, advances from Collagen, research and development revenues from
collaborative arrangements, lease and debt financing arrangements, proceeds from
liquidating its equity investment in Metra Biosystems, Inc. and, to a lesser
extent, other revenues and product sales.
At June 30, 1996, Celtrix's cash, cash equivalents and short-term
investments were $14.7 million compared to $17.6 million at March 31, 1996. The
net decrease of $2.9 million was due to cash outlays consisting of $2.4 million
in net cash used in operating activities and $517,000 used for investing and
financing activities.
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The Company believes that its existing capital resources will be
adequate to satisfy its anticipated requirements through the middle of calendar
year 1997. The Company continues to pursue the possibility of securing corporate
partner arrangements that are consistent with the Company's product development
and commercialization strategies, raising additional capital by means of selling
equity or debt securities and evaluating other options including mergers and
acquisitions. The Company's future success may depend, in part, on its
relationships with third parties, their willingness to collaborate in the
development of any potential products under development, their strategic
interest in such products and, eventually, their success in marketing.
The Company anticipates that it will expend significant capital
resources in product research and development, which is typical in the
biopharmaceutical industry. Capital resources may also be used for the
acquisition of complementary businesses, products or technologies. The Company's
future capital requirements will depend on many factors, including scientific
progress in its research and development programs, the magnitude of these
programs, progress with preclinical and clinical trials, the cost of scaling up
manufacturing and establishing facilities, the time and costs involved in
obtaining regulatory approvals, the time and costs involved in filing,
prosecuting, enforcing and defending patent claims, competition in technological
and market developments, the establishment of and changes in collaborative
relationships and the cost of commercialization activities and arrangements. The
Company anticipates that it will be required to raise substantial additional
capital over a period of several years in order to continue its research and
development programs, including clinical trials, and to prepare for
commercialization by expanding manufacturing and marketing capabilities. No
assurance can be given that such additional capital will be available on
reasonable terms or at all. The unavailability of such financing could delay or
prevent the development and marketing of the Company's potential products.
The Company notes that certain of the foregoing statements are forward
looking within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Actual results may differ materially from the statements made
due to a variety of factors including, but not limited to, (i) the efficacy and
safety of SomatoKine and other of the Company's products, (ii) results of
clinical studies, (iii) significant unforeseen delays in the regulatory approval
process, (iv) complications relating to the use of SomatoKine, (v) competitive
products and technology, and (vi) other risk factors described in the Company's
documents filed with the Securities and Exchange Commission.
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PART II. OTHER INFORMATION
CELTRIX PHARMACEUTICALS, INC.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) The Company filed the following reports on Form 8-K during the quarter
ended June 30, 1996:
Report Date: May 14, 1996
Item 5. Other Events
The Registrant announced its fiscal year-end 1996 financial results.
- -----------------------
Report Date: May 24, 1996
Item 5. Other Events
The Registrant announced the initiation of human clinical testing of
SomatoKine(R), its novel IGF-BP3 complex.
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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.
CELTRIX PHARMACEUTICALS, INC. (Registrant)
Date: August 8, 1996 By: /s/MARY ANNE RIBI
---------------------------------------
Mary Anne Ribi
Vice President, Finance & Administration, Chief Financial
Officer and Assistant Secretary (Duly authorized principal
financial and accounting officer)
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