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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 September 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 November 4, 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 September 30, 1996
and March 31, 1996............................................... 3
Condensed Consolidated Statements of Operations for the three- and
six-month periods ended September 30, 1996 and 1995.............. 4
Condensed Consolidated Statements of Cash Flows for the six-month
periods ended September 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 4: Submission of Matters to a Vote of Security Holders............... 12
Item 6: Exhibits and Reports on Form 8-K.................................. 12
SIGNATURES................................................................ 13
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PART I. FINANCIAL INFORMATION
CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
September 30, March 31,
1996 1996
------------- ---------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,689 $ 10,183
Short-term investments 9,669 7,460
Receivables and other current assets 344 195
--------- ---------
Total current assets 11,702 17,838
Property and equipment, net 9,230 10,013
Intangible and other assets, net 2,525 2,294
--------- ---------
$ 23,457 $ 30,145
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 348 $ 488
Accrued compensation and other accrued liabilities 981 813
Current portion of long-term obligations 486 633
--------- ---------
Total current liabilities 1,815 1,934
Deferred rent 1,113 1,187
Long-term obligations 91 238
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 September 30, 1996 and
March 31, 1996, respectively 152 152
Additional paid-in capital 118,103 118,052
Accumulated deficit (97,817) (91,418)
--------- ---------
Total stockholders' equity 20,438 26,786
--------- ---------
$ 23,457 $ 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 Six Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues:
Product sales $ 10 $ 16 $ 10 $ 60
Related party revenue -- -- -- 420
Other revenue 27 123 69 227
-------- -------- -------- --------
37 139 79 707
Costs and expenses:
Cost of sales 2 3 2 18
Research and development 3,201 2,551 5,904 5,328
General and administrative 441 513 886 1,087
-------- -------- -------- --------
3,644 3,067 6,792 6,433
-------- -------- -------- --------
Operating loss (3,607) (2,928) (6,713) (5,726)
Interest income, net 135 146 298 326
-------- -------- -------- --------
Net loss $ (3,472) $ (2,782) $ (6,415) $ (5,400)
======== ======== ======== ========
Net loss per share $ (0.23) $ (0.20) $ (0.42) $ (0.39)
======== ======== ======== ========
Shares used in per share computation 15,234 13,719 15,234 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)
Six Months Ended
September 30,
--------------------
1996 1995
-------- -------
Cash flows from operating activities:
Net loss $ (6,415) $(5,400)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,039 1,146
Other adjustments related to changes in operating
accounts (121) (1,693)
-------- -------
Net cash used in operating activities (5,497) (5,947)
Cash flows from investing activities:
(Increase) decrease in available-for-sale securities (2,193) 1,297
Capital expenditures (228) --
(Increase) decrease in intangible and other assets (333) 403
-------- -------
Net cash provided by (used in) investing activities (2,754) 1,700
Cash flows from financing activities:
Proceeds from issuance of common stock, net 51 --
Principal payments under long-term obligations (294) (319)
-------- -------
Net cash used in financing activities (243) (319)
-------- -------
Net decrease in cash and cash equivalents (8,494) (4,566)
Cash and cash equivalents at beginning of period 10,183 5,780
-------- -------
Cash and cash equivalents at end of period $ 1,689 $ 1,214
======== =======
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 sheets as of September 30, 1996, the
condensed consolidated statements of operations for the three- and six-month
periods ended September 30, 1996 and 1995, and the condensed consolidated
statements of cash flows for the six-month periods ended September 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 illness. 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 completed a single-dose Phase I human clinical study in July
1996; results from the study have shown that SomatoKine safely administers IGF-I
at substantially higher dosage levels than have ever been feasible before,
increasing the peak blood concentration of IGF-I up to 35-times normal levels.
This ability to substantially enhance the
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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. A second multiple-dose
Phase I study was initiated to evaluate the safety and metabolic effects of a
range of dosage levels administered daily for six days. Preliminary analysis of
the results from this second Phase I study substantiates SomatoKine's safety
profile. The Company plans to begin feasibility studies later this fiscal year;
these studies are designed to identify efficacy trends in the patient
population. Clinical study targets and the design for Phase II will be based on
results from these feasibility studies that support the likelihood of treatment
success, involve short-term treatment that can respond rapidly to SomatoKine
therapy and readily yield efficacy data. The Company is manufacturing
SomatoKine, according to current Good Manufacturing Practices (GMP), at its
Santa Clara facility for the upcoming feasibility studies and future Phase II
clinical trials.
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
September 30, 1996 has an accumulated deficit of $97.8 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 $3.5 million and $6.4 million for the
three- and six-month periods ended September 30, 1996, respectively, compared to
$2.8 million and $5.4 million for the same periods in 1995. Net loss per share
were $0.23 and $0.42 for the three- and six-month periods ended September 30,
1996, respectively, compared to $0.20 and $0.39 for the same periods in 1995.
Revenues, consisting of product sales, related party and other revenues,
decreased 73% to $37,000 for the three-month period ended September 30, 1996
from $139,000 for the same period in 1995 due primarily to Orphan Drug Grant
receipts in 1995. Revenues decreased 89% to $79,000 from $707,000 for the
six-month period ended September 30, 1996 from 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 increased 16% to $3.6 million for the three-month
period ended September 30, 1996 from $3.1 million for the same period in 1995,
due primarily to increased costs associated with Phase I human clinical studies
and increased manufacturing of SomatoKine for upcoming feasibility studies and
Phase II clinical trials. 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 interest expense, decreased 8% to $135,000 for the
three-month period ended September 30, 1996 from $146,000 for the same period in
1995, and decreased 9% to $298,000 for the six-month period September 30, 1996
from $326,000 for the same period in 1995. The decreases are due to the lower
average cash, cash equivalent and short-term investment balances. Interest
expense was $24,000 and $54,000 for the three- and six-month periods ended
September 30, 1996, respectively, and $48,000 and $100,000 for the same periods
in 1995, respectively.
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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 September 30, 1996, Celtrix's cash, cash equivalents and short-term
investments were $11.4 million compared to $17.6 million at March 31, 1996. The
net decrease of $6.2 million was due to cash outlays consisting of $5.5 million
in net cash used in operating activities and approximately $700,000 used for
investing and financing activities.
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 such
products.
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
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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.
FORWARD-LOOKING STATEMENTS
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 4. Submission of Matters to a Vote of Security Holders
(a) On August 27, 1996, the Registrant held its Annual Meeting of
Stockholders.
(b) All of the Management's nominees for directors were elected at the
meeting pursuant to proxies solicited pursuant to Regulation 14 under
the Securities Exchange Act of 1934. The directors were elected as
follows:
For Against
--- -------
Henry E. Blair 13,820,609 224,901
Andreas Sommer, Ph.D. 13,820,947 224,563
James E. Thomas 13,821,174 224,336
Timothy J. Wollaeger 13,818,711 226,799
There were no broker non-votes as the election was uncontested.
(c) The stockholders also approved the selection of Ernst & Young LLP as
independent auditors of the Company for fiscal year ending March 31,
1997, with 13,971,356 shares voting in favor, 38,679 shares voting
against, and 35,475 shares abstaining. There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports: None
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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: November 12, 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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