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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, 1997
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, 1997, the Registrant had outstanding 20,985,305 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 June 30, 1997
and March 31, 1997.................................................................. 3
Condensed Consolidated Statements of Operations for the three-
month periods ended June 30, 1997 and 1996.......................................... 4
Condensed Consolidated Statements of Cash Flows for the three-
month periods ended June 30, 1997 and 1996.......................................... 5
Notes to Condensed Consolidated Financial Statements.................................. 6
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 8
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)
June 30, March 31,
1997 1997
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(unaudited)
Assets
Current assets:
Cash and cash equivalents $3,298 $2,734
Short-term investments 13,426 3,054
Receivables and other current assets 184 197
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Total current assets 16,908 5,985
Property and equipment, net 8,023 8,423
Intangible and other assets, net 2,603 2,548
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$27,534 $16,956
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $532 $486
Accrued compensation and other accrued liabilities 798 894
Short-term debt and lease obligations 209 328
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Total current liabilities 1,539 1,708
Deferred rent 1,001 1,038
Stockholders' equity:
Preferred stock -- --
Common stock 210 153
Additional paid-in capital 131,447 118,152
Accumulated deficit (106,663) (104,095)
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Total stockholders' equity 24,994 14,210
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$27,534 $16,956
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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,
------------------------
1997 1996
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Revenues $ 24 $ 42
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24 42
Costs and expenses:
Research and development 3,005 2,703
General and administrative 548 445
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3,553 3,148
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Operating loss (3,529) (3,106)
Interest income, net 224 163
Gain on sale of investment in
Prograft Medical, Inc. 737 --
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Net loss $ (2,568) $ (2,943)
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Net loss per share $ (0.12) $ (0.19)
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Shares used in per share computation 20,985 15,220
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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,
1997 1996
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Cash flows from operating activities:
Net loss $ (2,568) $ (2,943)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of investment in Prograft Medical, Inc. (737) --
Depreciation and amortization 444 534
Other adjustments related to changes in operating
accounts (37) (27)
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Net cash used in operating activities (2,898) (2,436)
Cash flows from investing activities:
Increase in available-for-sale securities (9,635) (2,547)
Capital expenditures (19) (217)
Increase in intangible and other assets (117) (182)
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Net cash used in investing activities (9,771) (2,946)
Cash flows from financing activities:
Proceeds from issuance of common stock, net 13,352 35
Principal payments under lease obligations (119) (153)
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Net cash provided by (used in) financing activities 13,233 (118)
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Net increase (decrease) in cash and cash equivalents 564 (5,500)
Cash and cash equivalents at beginning of period 2,734 10,183
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Cash and cash equivalents at end of period $ 3,298 $ 4,683
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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, 1997 and the
condensed consolidated statements of operations and cash flows for the
three-month periods ended June 30, 1997 and 1996, 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, 1997 in the
Company's 1997 Annual Report to Stockholders.
Certain reclassifications have been made to prior year financial
statements to conform with the current year presentation.
2. Stockholders' Equity
In April 1997, the Company completed a private placement of 5,721,876
shares of newly issued shares of common stock at $2.438 per share. For every two
shares of stock issued, the Company also issued a three-year warrant to purchase
an additional share of Celtrix common stock at $2.682 per share. These warrants
are exercisable only if the shares of stock are held for at least one year, and
Celtrix has the right to call the warrants under certain conditions. The net
proceeds to the Company, after fees and expenses, were $13.3 million.
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3. Net Loss Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("SFAS 128"), which is required to be
adopted on December 31, 1997. Although SFAS 128 will simplify the current
earnings per share ("EPS") calculation by excluding common stock equivalents
from the computation of basic EPS, adoption of SFAS 128 will have no impact on
the Company's computation of net loss per share in the periods ended June 30,
1997 and 1996, or in previously disclosed periods as common stock equivalents
have been excluded due to their antidilutive effect.
4. Gain on Sale of Investment in Prograft Medical, Inc.
The $737,000 gain on investment reported in the quarter ended June 30,
1997 was the result of the sale of 43,750 shares of Prograft Medical, Inc.
preferred stock, held by the Company since 1993.
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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 1997 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.
The Company's focus is on regenerating lost muscle, bone and other tissues
essential for the patient's health and quality of life. Initial product
development programs target acute traumatic injury, such as hip fracture surgery
in the elderly, and severe burns. Other potential indications include
osteoporosis and protein wasting diseases associated with cancer, AIDS and other
life-threatening conditions.
The Company's development focus is on SomatoKine, a naturally occurring
complex formed by the anabolic hormone insulin-like growth factor-I (IGF-I) and
its major binding protein, BP3, which shows therapeutic potential 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, such as acute insulin effects (e.g. hypoglycemia,
hypophosphatemia). When IGF-I is bound to BP3, as it is in nature, it does not
display these acute limitations.
In January 1997, the Company initiated a Phase II clinical feasibility
study, using SomatoKine to treat patients recovering from hip fracture surgery.
Studies have shown that blood levels of IGF-I drop significantly following hip
fracture surgery and patients begin losing lean body and bone mass rapidly. This
study will investigate the ability of short-term treatment with SomatoKine to
prevent muscle loss, build muscle and bone mass, restore mobility, and increase
the patient's functional independence. The Company plans to use the
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results from this feasibility study to expand into a full Phase II clinical
study planned for early 1998. Additionally, in July 1997, the Company initiated
a Phase II feasibility study for the systemic treatment of severe burns. Studies
have shown that patients with severe burns typically suffer from destructive
metabolic processes (catabolism). SomatoKine offers potential short-term
treatment by stimulating healthy metabolic processes (anabolism) that may speed
tissue repair. This study will evaluate patients through two graft cycles with
the primary endpoint being faster healing of the donor graft site which could
shorten the length of hospitalization. Results from this study will guide the
design of future burn studies. Both the hip fracture surgery and severe burns
studies will contain measurements of bone and connective tissue metabolism which
will be used to support a potential severe osteoporosis Phase II feasibility
trial in calendar 1998/99. Celtrix is currently manufacturing SomatoKine
according to current Good Manufacturing Practices (GMP) at its Santa Clara,
California facility.
The Company has a license agreement with The Green Cross Corporation, a
Japanese pharmaceutical company currently in the process of merging with
Yoshitomi Pharmaceutical Industries Ltd., 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. The Company is not currently pursuing an
in-house TGF-beta-2 program.
Celtrix has not earned substantial revenues from product sales and at
June 30, 1997 has an accumulated deficit of $106.7 million. 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 $2.6 million or $0.12 per share for the
quarter ended June 30, 1997, compared to $2.9 million or $0.19 per share for the
same period in 1996.
Revenues decreased to $24,000 for the three-month period ended June 30,
1997 from $42,000 for the same period in 1996 due primarily to Orphan Drug Grant
receipts in 1996.
Operating expenses increased 16% to $3.6 million for the three-month
period ended June 30, 1997 from $3.1 million for the same period in 1996, due
primarily to additional costs associated with human clinical studies and
increased SomatoKine production.
Interest income, net of $10,000 and $30,000 of interest expense, for
the three-month periods ended June 30, 1997 and 1996, respectively, increased
37% to $224,000 for the three-month period ended June 30, 1997 from $163,000 for
the same period in 1996. This increase was due primarily to the increase in
average cash, cash equivalent and short-term investment balances as a result of
a private financing in April 1997.
The $737,000 gain on investment reported in the quarter ended June 30,
1997 was the result of the sale of 43,750 shares of Prograft Medical, Inc.
("Prograft") preferred stock, held by the Company since 1993.
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 investments and, to a lesser extent, other revenues and
product sales.
At June 30, 1997, Celtrix's cash, cash equivalents and short-term
investments were $16.7 million compared to $5.8 million at March 31, 1997. The
net increase of $10.9 million was due primarily to a $13.3 million (net of fees
and expenses) private placement in April 1997, a $737,000 realized gain related
to the sale of Celtrix's investment in Prograft, partly offset by cash outlays
consisting of $2.9 million in net cash used in operating activities and $255,000
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 1998. 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 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.
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 the ability to obtain
financing for the Company's working capital, the ability to enroll a sufficient
number of patients in feasibility studies as well as future company research,
clinical study results, the regulatory approval process, and competitive
products and other factors which are 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, 1997:
Report Date: May 14, 1997
Item 5. Other Events
The Registrant announced its fiscal year-end financial results.
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Report Date: May 22, 1997
Item 5. Other Events
The Registrant announced it has received two new patents from
the U.S. Patent and Trademark Office.
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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, 1997 By: /s/ANDREAS SOMMER
-----------------------------------------
Andreas Sommer, Ph.D.
President and Chief Executive Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBITS
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27.1 Financial Data Schedule