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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 December 31, 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
of incorporation or organization) Identification No.)
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 February 11, 1997, the Registrant had outstanding 15,263,429 shares of
Common Stock.
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CELTRIX PHARMACEUTICALS, INC.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of December 31, 1996
and March 31, 1996................................................. 3
Condensed Consolidated Statements of Operations for the three-and
nine-month periods ended December 31, 1996 and 1995................. 4
Condensed Consolidated Statements of Cash Flows for the nine-month
periods ended December 31, 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................................... 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)
December 31, March 31,
1996 1996
------------ ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 3,598 $ 10,183
Short-term investments 4,634 7,460
Receivables and other current assets 248 195
------------ ------------
Total current assets 8,480 17,838
Property and equipment, net 8,838 10,013
Intangible and other assets, net 2,529 2,294
------------ ------------
$ 19,847 $ 30,145
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 504 $ 488
Accrued compensation and other accrued liabilities 704 813
Current portion of long-term obligations 452 633
------------ ------------
Total current liabilities 1,660 1,934
Deferred rent 1,076 1,187
Long-term obligations -- 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; 15,263,429 and 15,213,992 shares issued
and outstanding at December 31, 1996 and
March 31, 1996, respectively 153 152
Additional paid-in capital 118,152 118,052
Accumulated deficit (101,194) (91,418)
------------ ------------
Total stockholders' equity 17,111 26,786
------------ ------------
$ 19,847 $ 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 Nine Months Ended
December 31, December 31,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
Revenues:
Product sales $ 10 $ 28 $ 20 $ 88
Related party revenue -- -- -- 420
Other revenue 19 281 88 508
------------ ------------ ------------ ------------
29 309 108 1,016
Costs and expenses:
Cost of sales 2 11 4 29
Research and development 3,084 2,727 8,988 8,055
General and administrative 422 520 1,308 1,607
------------ ------------ ------------ ------------
3,508 3,258 10,300 9,691
------------ ------------ ------------ ------------
Operating loss (3,479) (2,949) (10,192) (8,675)
Interest income, net 101 122 399 448
Gain on investment -- 2,318 -- 2,318
------------ ------------ ------------ ------------
Net loss $ (3,378) $ (509) $ (9,793) $ (5,909)
============ ============ ============ ============
Net loss per share $ (0.22) $ (0.04) $ (0.64) $ (0.43)
============ ============ ============ ============
Shares used in per share computation 15,235 13,991 15,230 13,810
============ ============ ============ ============
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)
Nine Months Ended
December 31,
----------------------------
1996 1995
------------ ------------
Cash flows from operating activities:
Net loss $ (9,793) $ (5,909)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on investment -- (2,318)
Depreciation and amortization 1,491 1,711
Other adjustments related to changes in operating
accounts (146) (1,917)
------------ ------------
Net cash used in operating activities (8,448) (8,433)
Cash flows from investing activities:
Decrease in available-for-sale securities 2,843 7,038
Capital expenditures (285) --
(Increase) decrease in intangible and other assets (377) 332
------------ ------------
Net cash provided by investing activities 2,181 7,370
Cash flows from financing activities:
Proceeds from issuance of common stock, net 101 4,401
Principal payments under long-term obligations (419) (483)
------------ ------------
Net cash provided by (used in) financing activities (318) 3,918
------------ ------------
Net increase (decrease) in cash and cash equivalents (6,585) 2,855
Cash and cash equivalents at beginning of period 10,183 6,778
------------ ------------
Cash and cash equivalents at end of period $ 3,598 $ 9,633
============ ============
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 December 31, 1996, the
condensed consolidated statements of operations for the three- and nine-month
periods ended December 31, 1996 and 1995, and the condensed consolidated
statements of cash flows for the nine-month periods ended December 31, 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 and traumatic injury. Potential chronic
indications could include osteoporosis 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. IGF-I, a key anabolic hormone, is
known to play a major role in diverse biological processes, including muscle and
bone formation, and tissue repair. 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 completed its Phase I human clinical studies. Data from
three Phase I studies have shown that repeated or continuous administration of
SomatoKine safely delivers 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. In addition, elevated levels of SomatoKine were
observed to substantially stimulate markers of bone and connective tissue
metabolism. Based on these findings, the Company initiated its Phase II clinical
feasibility
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studies in January 1997. Initial treatment targets are elderly patients with
reduced bone and muscle mass who have undergone hip fracture surgery. It is
known that blood levels of IGF-I drop significantly following hip fracture
surgery and patients begin losing lean body and bone mass. Accordingly, the goal
in the Phase II hip fracture feasibility study is to provide SomatoKine as a
short-term therapeutic treatment to build muscle mass, restore mobility, and
increase the patient's functional independence. The study is a multi-center
European study, and involves up to 30 elderly patients who have undergone hip
fracture surgery. The results from this feasibility study will be used to expand
into a full Phase II clinical study by late 1997. Celtrix is currently
manufacturing SomatoKine, according to current Good Manufacturing Practices
(GMP), at its Santa Clara facility.
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
December 31, 1996 has an accumulated deficit of $101.2 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 $3.4 million and $9.8 million for the
three- and nine-month periods ended December 31, 1996, respectively, compared to
$509,000 and $5.9 million for the same periods in 1995 which included a $2.3
million gain on investment. Net loss per share were $0.22 and $0.64 for the
three- and nine-month periods ended December 31, 1996, respectively, compared to
$0.04 and $0.43 for the same periods in 1995.
Revenues, consisting of product sales, related party and other revenues,
decreased 91% to $29,000 for the three-month period ended December 31, 1996 from
$309,000 for the same period in 1995 due primarily to Orphan Drug Grant receipts
in 1995. Revenues decreased 89% to $108,000 from $1.0 million for the nine-month
period ended December 31, 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") and Orphan Drug Grant revenues in 1995.
Operating expenses increased 6% to $3.5 million for the three-month period
ended December 31, 1996 from $3.3 million for the same period in 1995, and
increased 6% to $10.3 million for the nine-month period ended December 31, 1996
from $9.7 million for the same period in 1995. These increases are due primarily
to costs associated with Phase I human clinical studies and increased
manufacturing of SomatoKine for clinical studies.
Interest income, net of interest expense, decreased 17% to $101,000 for
the three-month period ended December 31, 1996 from $122,000 for the same period
in 1995, and decreased 11% to $399,000 for the nine-month period December 31,
1996 from $448,000 for the same period in 1995. The decreases are due to the
lower interest income resulting from lower average cash, cash equivalent and
short-term investment balances, partly offset by lower interest expense.
Interest expense was $19,000 and $74,000 for the three- and nine-month periods
ended December 31, 1996, respectively, and $40,000 and $140,000 for the same
periods in 1995, respectively.
The $2.3 million gain on investment reported in the quarter ended
December 31, 1995 is a result of the sale of 150,000 shares of Metra Biosystems,
Inc. common stock, held by Celtrix since 1990.
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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 December 31, 1996, Celtrix's cash, cash equivalents and short-term
investments were $8.2 million compared to $17.6 million at March 31, 1996. The
net decrease of $9.4 million was due to cash outlays consisting of $8.4 million
in net cash used in operating activities and $1.0 million used for investing and
financing activities. As of December 31, 1996, the Company was not in compliance
with certain financial covenants under its equipment leases due to a lower than
required cash and short term investment balance. Consequently, the Company has
recently secured a Standby Letter of Credit for $470,000 and is in the process
of securing a lien against certain equipment not to exceed $160,000 in value.
The Company is currently attempting to raise additional capital by means
of a private equity placement or public equity offering. The Company also
continues to evaluate raising capital by means of selling debt securities, to
pursue the possibility of securing corporate partner arrangements that are
consistent with the Company's product development and commercialization
strategies, and to evaluate other options including mergers and acquisitions.
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'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
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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.
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 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: February 14, 1997 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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EXHIBIT INDEX
Exhibit Description
- ------- -----------
27.1 Financial Data Schedule