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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 period ended JUNE 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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Commission File No.
0-21905
COULTER PHARMACEUTICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3219075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
550 California Ave, Palo Alto, California 94306
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 415-842-7300
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
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Number of shares outstanding of the issuer's Common Stock, par value
$.001 per share, as of July 31, 1997: 10,350,245.
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COULTER PHARMACEUTICAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements and Notes 3
Consolidated Balance Sheets - June 30, 1997 and
December 31, 1996 3
Consolidated Statements of Operations -- for the three months
and six months ended June 30, 1997 and 1996 and for the
period from inception (February 16, 1995) to June 30, 1997 4
Consolidated Statements of Cash Flows -- for the six
months ended June 30, 1997 and 1996 and for the period
from inception (February 16, 1995) to June 30, 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements and Notes
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETS
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
Current assets: (Unaudited)
Cash and cash equivalents $ 11,368 $ 8,826
Short-term investments 29,670 7,617
Prepaid expenses and other current assets 518 499
Current portion of employee loans receivable 34 35
-------- --------
Total current assets 41,590 16,977
Property and equipment, net 1,515 924
Employee loans receivable 148 271
Other assets 234 149
-------- --------
$ 43,487 $ 18,321
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,528 $ 1,490
Payable to Coulter Corporation 85 111
Accrued liabilities 1,202 4,330
Current portion of equipment financing obligations
and debt facility 576 309
-------- --------
Total current liabilities 4,391 6,240
Noncurrent portion of equipment financing obligations
and debt facility 2,213 1,535
Commitments
Stockholders' equity:
Preferred stock, issuable in series, $.001 par value:
3,000,000 shares authorized; none and 19,797,940 shares
issued and outstanding at June 30, 1997 and
December 31, 1996, respectively - 28,355
Common stock, $.001 par value; 30,000,000 shares
authorized; 10,335,484 shares and 437,612 shares issued
and outstanding at June 30, 1997 and December 31, 1996,
respectively 10 1
Additional paid-in capital 65,354 2,488
Net unrealized gain (loss) on securities available for sale 20 (3)
Deferred compensation (1,370) (1,964)
Deficit accumulated during the development stage (27,131) (18,331)
-------- --------
Total stockholders' equity 36,883 10,546
-------- --------
$ 43,487 $ 18,321
======== ========
See accompanying notes.
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COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED FOR THE PERIOD
JUNE 30, JUNE 30, FROM INCEPTION
------------------- ------------------ (FEBRUARY 16, 1995)
1997 1996 1997 1996 TO JUNE 30, 1997
-------- ------- -------- ------- -------------------
Operating costs and expenses:
Research and development $ 3,547 $ 3,223 $ 6,583 $ 4,940 $ 22,803
General and administrative 1,972 368 3,180 625 6,170
------- ------- ------- ------- --------
Total operating costs and expenses 5,519 3,591 9,763 5,565 28,973
Interest income, net 525 221 963 254 1,842
------- ------- ------- ------- --------
Net loss $(4,994) $(3,370) $(8,800) $(5,311) $(27,131)
======= ======= ======= ======= ========
Net loss per share $ (0.48) $ (0.44) $ (1.01) $ (0.69)
======= ======= ======= =======
Shares used in computing pro forma
net loss per share 10,315 7,736 8,725 7,736
====== ===== ===== =====
See accompanying notes.
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COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(unaudited)
(in thousands)
SIX MONTHS FOR THE PERIOD
ENDED JUNE 30, FROM INCEPTION
-------------------- (FEB. 16, 1995)
1997 1996 TO JUNE 30, 1997
-------- -------- -------------------
Cash flows from operating activities:
Net loss $ (8,800) $ (5,311) $(27,131)
Adjustments used to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 58 19 122
Amortization of deferred compensation 594 - 924
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (18) (163) (517)
Employee loans receivable 37 (321) (269)
Other assets 1 2 (151)
Accounts payable 1,037 819 2,527
Payable to Coulter Corporation (26) 32 85
Accrued liabilities (3,128) 1,711 1,289
-------- ------- --------
Net cash used in operating activities (10,245) (3,212) (23,121)
-------- ------- --------
Cash flows from investing activities:
Purchases of short-term investments (31,035) - (39,644)
Maturities of short-term investments 9,006 - 9,992
Purchases of property and equipment (649) (534) (1,630)
-------- ------- --------
Net cash used in investing activities (22,678) (534) (31,282)
-------- ------- --------
Cash flows from financing activities:
Payments of equipment financing obligations
and debt facility (214) - (258)
Borrowings under equipment lease financing
and debt facility 1,159 - 2,959
Proceeds from issuances of convertible
preferred stock, net - 22,366 28,355
Proceeds from issuance of common stock 34,520 182 34,715
-------- ------- --------
Net cash provided by
financing activities 35,465 22,548 65,771
-------- ------- --------
Net increase (decrease) in cash and cash equivalents 2,542 18,802 11,368
Cash and cash equivalents at beginning of period 8,826 3,438 -
-------- ------- --------
Cash and cash equivalents at end of period $ 11,368 $22,240 $ 11,368
======== ======= ========
See accompanying notes.
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COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The information at June 30, 1997, for the three and six month periods
ended June 30, 1997 and 1996 and for the period from inception (February 16,
1995) to June 30, 1997 is unaudited but includes all adjustments (consisting
only of normal recurring adjustments) which, in the opinion of management, are
necessary to state fairly the financial information set forth therein in
accordance with generally accepted accounting principles. The interim results
are not necessarily indicative of results to be expected for the full fiscal
year. These financial statements should be read in conjunction with the audited
financial statements for the fiscal year ended December 31, 1996 included in the
Company's annual report to security holders furnished to the Securities and
Exchange Commission pursuant to Rule 14a-3(b) in connection with the Company's
1997 Annual Meeting of Stockholders.
The consolidated balance sheet at December 31, 1996 has been derived
from audited consolidated financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
Net Loss Per Share
Net loss per share is computed using the weighted average number of
common shares outstanding during the period. Common stock equivalents relating
to stock options are excluded from the computation as their effect is
antidilutive. For the period prior to the Company's initial public offering, the
calculation includes those shares required by the Securities and Exchange
Commission's staff accounting bulletins and guidelines.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128, "Earnings Per Share" ("Statement 128"). The Statement
is effective for both interim and annual financial statements for periods ending
after December 15, 1997. Under Statement 128, primary EPS computed in accordance
with Accounting Principle Board Opinion No. 25 will be replaced with a new
simpler calculation called "basic EPS" and the Company will be required to
restate comparative EPS amounts for all prior periods. Under the new
requirements, basic EPS for the three and six month periods ended June 30, 1997
and 1996 will be unchanged from primary EPS as currently disclosed. Fully
diluted EPS will not change significantly but has been renamed "diluted EPS".
The Company will implement the Statement in the fourth quarter of 1997.
In June 1997, the FASB issued Statement No. 130 "Reporting
Comprehensive Income". Although the Company has only recently commenced
evaluation of this new pronouncement, its impact is not expected to be
significant. The Company will be required to comply with the revisions of the
Statement in fiscal 1998.
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2. INVESTMENTS
Management determines the appropriate classification of debt securities
at the time of purchase and reevaluates such designation as of each balance
sheet date. The Company's debt securities are classified as available-for-sale
and are carried at estimated fair value in cash equivalents and short-term
investments. Unrealized gains and losses are reported as a separate component of
stockholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income. Realized gains and losses on
available-for-sale securities are included in interest income and expense. The
cost of securities sold is based on the specific identification method. Interest
and dividends on securities classified as available-for-sale are included in
interest income. The Company's cash equivalents and short-term investments as of
June 30, 1997 are as follows (in thousands):
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
Money market funds $ 1,715 $ - $ - $ 1,715
Commercial paper 7,414 - (4) 7,410
Corporate bond 15,431 - (6) 15,425
U.S. Government backed securities 11,268 30 - 11,298
CDs 5,108 - - 5,108
-------- ----- ------- --------
Total 40,936 30 (10) 40,956
Less amounts classified
as cash equivalents (11,286) - - (11,286)
-------- ----- ------- --------
Total short-term investments $ 29,650 $ 30 $ (10) $ 29,670
======== ==== ======= ========
At June 30, 1997, the contractual maturities of short term investments were as
follows (in thousands):
ESTIMATED
AMORTIZED COST FAIR VALUE
-------------- ----------
Due in one year or less $19,859 $19,881
Due after one year through two years 9,791 9,789
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$29,650 $29,670
3. STOCKHOLDERS' EQUITY
On January 28, 1997, the Company completed its initial public offering
of 2,500,000 shares of its common stock at a price to the public of $12.00 per
share, resulting in net proceeds to the Company of approximately $27.9 million.
A one-for-three reverse common stock split became effective prior to the
commencement of the offering. All common share and per share amounts have been
retroactively restated to reflect the reverse stock split.
Also in January 1997, the Company received approximately $3.1 million
from the cash exercise of warrants to purchase 385,315 shares of its common
stock and issued an additional 37,785 shares of its common stock upon the net
exercise of warrants to purchase 113,390 shares of its common stock. In February
1997, the Company received approximately $4.2 million from
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the sale of 375,000 shares of its common stock pursuant to the exercise of the
underwriters' over-allotment option in connection with the initial public
offering.
Upon completion of the initial public offering all of the 19,797,940
shares of Series A, B and C preferred stock outstanding converted to shares of
common stock on a three-for-one basis. Also upon the completion of the offering,
the Company filed an Amended and Restated Certificate of Incorporation
authorizing the Company to issue 33,000,000 shares, 30,000,000 of which is
designated Common Stock and 3,000,000 of which is designated Preferred Stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
Actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
OVERVIEW
Coulter Pharmaceutical, Inc. ("Coulter Pharmaceutical" or the
"Company") is engaged in the development of novel drugs and therapies for the
treatment of people with cancer. The Company's first product candidate,
Bexxar(TM) (previously referred to as the B-1 Therapy), is based upon the
antibody therapeutics program which originated in the late 1970s at Coulter
Corporation. Coulter Corporation conducted research and development on the
potential therapeutic applications of the B-1 Antibody as part of a broader
antibody therapeutics program. To accelerate the pace of development of Bexxar
and to obtain external sources of capital for the program, Coulter Corporation
decided to create a separate Company into which it placed its conjugated
antibody therapeutics assets. Thus, in February 1995, Coulter Pharmaceutical was
incorporated and acquired worldwide rights to Bexxar and related intellectual
property, know-how and other assets from Coulter Corporation.
To date, the Company has devoted substantially all of its resources to
its research and development programs. No revenues have been generated from
product sales, and products resulting from the Company's research and
development efforts, if any, are not expected to be available commercially for
at least the next few years. The Company has a limited history of operations and
has experienced significant operating losses to date. The Company expects to
incur significant additional operating losses over the next several years and
expects cumulative losses to increase substantially due to expanded research and
development efforts, preclinical studies and clinical trials and development of
manufacturing, marketing and sales capabilities. The Company expects that losses
will fluctuate from quarter to quarter and that such fluctuations may be
substantial. There can be no assurance that the Company will successfully
develop, manufacture and commercialize its products or ever achieve or sustain
product revenues or profitability. As of June 30, 1997, the Company's
accumulated deficit during the development stage was approximately $27.1
million.
RESULTS OF OPERATIONS
Operating Costs and Expenses
For the quarter ended June 30, 1997, research and development expenses
increased $0.3 million to $3.5 million from $3.2 million for the same period in
1996. The Company's research and development expenses increased $1.7 million to
$6.6 million for the six month period ended June 30, 1997 from $4.9 million for
the same period in 1996. These increases were due
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primarily to increases in staffing and expenditures associated with the
development of Bexxar, including costs of clinical trials and manufacturing
expenses. Included in manufacturing expenses are certain expenses associated
with scaled-up production of monoclonal antibodies and the establishment of a
centralized radiolabeling capability. The Company expects its research and
development expenses to grow during the remainder of 1997, reflecting
anticipated increased costs related to staffing, preclinical studies, clinical
trials and manufacturing.
General and administrative expenses were $2.0 million and $0.4 million
for the quarters ended June 30, 1997 and 1996, respectively, representing an
increase of $1.6 million. For the six month periods ended June 30, 1997 and
1996, such expenses were $3.2 million and $0.6 million, respectively,
representing an increase of $2.6 million. These increases were incurred to
support the Company's facilities and staffing expansion, increased research and
development efforts, increased corporate development activities and related
legal and patent activities. The Company expects its general and administrative
expenses to continue to increase during the remainder of 1997 in support of its
increased research and development, patent and corporate development activities,
as well as increasing commercialization efforts in anticipation of potential
product sales.
Net Interest Income
Net interest income was $525,000 and $221,000 for the quarters ended
June 30, 1997 and 1996, respectively. Net interest income for the six month
periods ended June 30, 1997 and 1996 was $963,000 and $254,000, respectively.
These increases were due to higher average cash, cash equivalent and short-term
investment balances as a result of the Company's sale of Preferred Stock in
April 1996 and the completion of the Company's initial public offering in
January 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception through June 30, 1997, the Company has financed its
operations primarily through private and public equity financings totaling $63.4
million. In December 1996, the Company entered into a $3.8 million equipment
financing agreement, $0.8 million of which is available at June 30, 1997.
Cash, cash equivalents and short-term investments totaled $41.0 million
at June 30, 1997. In January 1997, the Company completed its initial public
offering of 2,500,000 shares of common stock at a price to the public of $12.00
per share resulting in net proceeds to the Company of approximately $27.9
million. Also in January 1997, the Company received an additional $3.1 million
from the exercise of warrants to purchase 385,315 shares of common stock. In
February 1997, the Company received an additional $4.2 million from the sale of
375,000 shares of its common stock pursuant to the exercise of the underwriters'
over-allotment option in connection with the Company's initial public offering.
The negative cash flows from operations result primarily from the
Company's net operating losses and are expected to continue and to accelerate in
the foreseeable future. The Company expects to incur substantial and increasing
research and development expenses, including expenses related to additions to
personnel, preclinical studies, clinical trials, manufacturing and
commercialization efforts. The Company will need to raise substantial additional
capital to fund its operations. The Company intends to seek such additional
funding through public or private equity or debt financings from time to time,
as market conditions permit. There can be no assurance that additional financing
will be available on acceptable terms, if at all. If adequate funds are not
available, the Company may be required to delay, reduce the scope of, or
eliminate one or more of its research and development programs or obtain funds
through arrangements with collaborative partners or others that may require the
Company
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to relinquish rights to certain of its technologies, product candidates
or products that the Company would otherwise seek to develop or commercialize.
Net cash used in operations was $10.2 million for the six month period
ended June 30, 1997, compared to $3.2 million for the same period in 1996. This
$7.0 million increase is primarily the result of the increased net loss for the
six month period ended June 30, 1997, as well as a $3.1 million decrease in
accrued liabilities resulting from payments primarily related to manufacturing
activities. Net cash used in investing activities increased to $22.7 million for
the six month period ended June 30, 1997 from $534,000 for the same period in
1996 primarily resulting from the purchase of $31.0 million in short-term
investments using a portion of the proceeds of the Company's initial public
offering. Maturities of such investments were $9.0 million during the six month
period ended June 30, 1997. Net cash provided by financing activities increased
to $35.5 million for the six month period ended June 30, 1997 resulting
primarily from the completion of the Company's initial public offering.
The Company expects that its existing capital resources, including the
net proceeds of its initial public offering and interest thereon, will be
adequate to satisfy the requirements of its current and planned operations
through 1998. At June 30, 1997, the Company had no material commitments for
capital expenditures. The Company's future capital requirements will depend on a
number of factors, including: the scope and results of preclinical studies and
clinical trials; continued progress of the Company's research and development of
potential products; the cost, timing and outcome of regulatory approvals; the
adequacy of its facilities; the expenses of establishing a sales and marketing
force; the timing and cost of establishment or procurement of requisite
production, radiolabeling and other capacities; the cost involved in preparing,
filing, prosecuting, maintaining, defending and enforcing patent claims; the
need to acquire licenses to new technology; the status of competitive products,
and the availability of other financing.
BUSINESS RISKS
Except for the historical information contained herein, the matters
discussed in this filing are forward-looking statements that involve risks and
uncertainties, including uncertainties related to product development,
uncertainties related to the need for regulatory and other government approvals,
dependence on proprietary technology, uncertainty of market acceptance of Bexxar
(TM) or the Company's other product candidates and other risks, including those
detailed in the Company's other filings with the Securities and Exchange
Commission. In particular, see "Item 1, Financial Business-Risk Factors," of the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company held on May 30,
1997, the stockholders elected eight directors and ratified the selection of
Ernst & Young LLP as independent auditors of the Company for its fiscal year
ending December 31, 1997 (the "Selection of Auditors").
Of the 10,309,461 shares of Common Stock of the company outstanding as
of the April 7, 1997 record date for the Annual Meeting (the "Outstanding
Shares"), the votes regarding the election of directors were as follows:
Votes
Votes Against or Broker
For Withheld Abstentions Non-votes
--------- ---------- ----------- ---------
Brian G. Atwood 6,278,925 1,100 N/A 4,029,436
Michael F. Bigham 6,277,925 2,100 N/A 4,029,436
Joseph R. Coulter, III 6,278,525 1,500 N/A 4,029,436
Donald L. Lucas 6,277,925 2,100 N/A 4,029,436
Robert R. Momsen 6,278,925 1,100 N/A 4,029,436
Arnold L. Oronsky, Ph.D 6,278,925 1,100 N/A 4,029,436
George Sella, Jr 6,277,925 2,100 N/A 4,029,436
Sue Van 6,278,255 1,800 N/A 4,029,436
Of the Outstanding Shares, 6,273,925 shares were voted for the
ratification of the Selection of Auditors; 2,200 shares were voted against or
were withheld with respect to the ratification of the Selection of Auditors;
3,900 shares abstained; and no shares were broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description of Document
10.12+ Second Amendment to Manufacturing Agreement, dated June 30,
1997, by and between Lonza biologics PLC and the Company.
27 Financial Data Schedule.
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+ Portions omitted pursuant to a request of confidentiality filed
separately with the Commission.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the Quarter ended June 30,
1997.
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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.
COULTER PHARMACEUTICAL, INC.
Date: August 5, 1997 /s/ Michael F. Bigham
-------------------------------------
Michael F. Bigham
President and Chief Executive Officer
Date: August 5, 1997 /s/ William G. Harris
-------------------------------------
William G. Harris
Vice President and
Chief Financial Officer
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Exhibit Exhibit
Footnote Number Description of Document
10.12+ Second Amendment to Manufacturing Agreement,
dated June 30, 1997, by and between Lonza
biologics PLC and the Company.
27 Financial Data Schedule
- ----------
+Portions omitted pursuant to a request of confidentiality filed separately
with the Commission.