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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, 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 October 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 September 30, 1997
and March 31, 1997 .................................................. 3
Condensed Consolidated Statements of Operations for the three- and six-
month periods ended September 30, 1997 and 1996 ..................... 4
Condensed Consolidated Statements of Cash Flows for the six-
month periods ended September 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 4: Submission of Matters to a Vote of Security Holders ................... 13
Item 6: Exhibits and Reports on Form 8-K ...................................... 14
SIGNATURES ..................................................................... 15
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PART I. FINANCIAL INFORMATION
CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, March 31,
1997 1997
------------- -------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 2,743 $ 2,734
Short-term investments 10,631 3,054
Receivables and other current assets 364 197
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Total current assets 13,738 5,985
Property and equipment, net 7,688 8,423
Intangible and other assets, net 2,645 2,548
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$ 24,071 $ 16,956
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 346 $ 486
Accrued compensation and other accrued liabilities 896 894
Short-term debt and lease obligations 97 328
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Total current liabilities 1,339 1,708
Deferred rent 964 1,038
Stockholders' equity:
Preferred stock -- --
Common stock 210 153
Additional paid-in capital 131,434 118,152
Accumulated deficit (109,876) (104,095)
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Total stockholders' equity 21,768 14,210
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$ 24,071 $ 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 Six Months Ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenues:
Product sales $ 33 $ 10 $ 33 $ 10
Other revenues 22 27 46 69
-------- -------- -------- --------
55 37 79 79
Costs and expenses:
Cost of sales 1 2 1 2
Research and development 3,060 3,201 6,065 5,904
General and administrative 399 441 947 886
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3,460 3,644 7,013 6,792
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Operating loss (3,405) (3,607) (6,934) (6,713)
Interest income, net 192 135 416 298
Gain on sale of investment in
Prograft Medical, Inc. -- -- 737 --
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Net loss $ (3,213) $ (3,472) $ (5,781) $ (6,415)
======== ======== ======== ========
Net loss per share $ (0.15) $ (0.23) $ (0.28) $ (0.42)
======== ======== ======== ========
Shares used in per share computation 20,985 15,234 20,985 15,234
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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)
Six Months Ended
September 30,
-----------------------
1997 1996
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Cash flows from operating activities:
Net loss $ (5,781) $ (6,415)
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 868 1,039
Other adjustments related to changes in operating
accounts (305) (121)
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Net cash used in operating activities (5,955) (5,497)
Cash flows from investing activities:
Increase in available-for-sale securities (6,840) (2,193)
Capital expenditures (80) (228)
Increase in intangible and other assets (224) (333)
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Net cash used in investing activities (7,144) (2,754)
Cash flows from financing activities:
Proceeds from issuance of common stock, net 13,339 51
Principal payments under lease obligations (231) (294)
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Net cash provided by (used in) financing activities 13,108 (243)
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Net increase (decrease) in cash and cash equivalents 9 (8,494)
Cash and cash equivalents at beginning of period 2,734 10,183
-------- --------
Cash and cash equivalents at end of period $ 2,743 $ 1,689
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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 September 30, 1997, the
condensed consolidated statements of operations for the three- and six-month
periods ended September 30, 1997 and 1996, and the condensed consolidated
statements of cash flows for the six-month periods ended September 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.
In September 1997, stockholders approved an additional 1.5 million
shares for issuance under the 1991 Stock Option Plan.
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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 September
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 was the result of the sale of
43,750 shares of Prograft Medical, Inc. ("Prograft") preferred stock in June;
these shares were 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. Results from Phase I studies completed in
January 1997 had demonstrated that administration of SomatoKine safely delivers
IGF-I at substantially higher dosage levels than have ever been feasible before
with free IGF-I, and the elevated levels of SomatoKine also substantially
stimulated bone and connective tissue metabolism.
Phase II clinical feasibility studies are currently progressing in the
use of SomatoKine for two treatment indications, hip fracture surgery in the
elderly and severe burns. Studies have shown that following hip fracture
surgery, blood levels of IGF-I drop significantly and patients begin losing lean
body and bone mass rapidly. The hip fracture study will investigate the ability
of short-term treatment with SomatoKine to build muscle and bone mass, restore
mobility, and increase the patient's functional independence. The Company will
use the results
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from this feasibility study to expand into a full Phase II clinical study
planned for early 1998. Additionally, 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) which causes severe nutritional inefficiency and retards
healing. SomatoKine offers potential short-term treatment by stimulating healthy
metabolic processes (anabolism) that may speed tissue repair. The severe burns
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 burns
clinical studies. Both the hip fracture surgery and severe burns studies will
contain measurements that 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 that recently merged 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
September 30, 1997 has an accumulated deficit of $109.9 million. The Company
expects to incur additional operating losses, which may fluctuate from 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 $3.2 million and $5.8 million for the
three- and six-months ended September 30, 1997, compared to $3.5 million and
$6.4 million for the same periods in 1996. Net loss per share decreased to $0.15
and $0.28 for the three- and six-months ended September 30, 1997, from $0.23 and
$0.42 for the same periods in 1996, due primarily to an increase in shares
outstanding as a result of the April 1997 private placement.
Revenues increased to $55,000 for the three-months ended September 30,
1997 from $37,000 for the same period in 1996 due mainly to the sale of material
for research purposes. Revenues were $79,000 for both six-month periods ended
September 30, 1997 and 1996.
Operating expenses decreased 5% to $3.5 million for the three-months
ended September 30, 1997 from $3.6 million for the same period in 1996 due
primarily to timing of expenditures in the clinical area. Operating expenses
increased 3% to $7.0 million for the six-months ended September 30, 1997 from
$6.8 million for the same period in 1996 due primarily to additional staffing as
the Company scales up its drug production for Phase II clinical trial
requirements.
Interest income increased 42% to $192,000 for the three-months ended
September 30, 1997 from $135,000 for the same period in 1996, and increased 40%
to $416,000 for the six-months ended September 30, 1997 from $298,000 for the
same period in 1996. These increases were due primarily to the higher average
cash, cash equivalent and short-term investment balances as a result of the
April 1997 private placement. Interest expense was $6,000 and $16,000 for the
three- and six-months ended September 30, 1997, respectively, and $24,000 and
$54,000 for the same periods in 1996, respectively.
The $737,000 gain on investment reported under six-months ended
September 30, 1997 was the result of the sale of 43,750 shares of Prograft
preferred stock in June.
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.
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At September 30, 1997, Celtrix's cash, cash equivalents and short-term
investments were $13.4 million compared to $5.8 million at March 31, 1997. The
net increase of $7.6 million was due primarily to net proceeds of $13.3 million
received through the April 1997 financing, $737,000 in realized gain from the
sale of Celtrix's investment in Prograft, partly offset by cash outlays
consisting of $5.9 million in net cash used in operating activities and $535,000
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 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.
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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 clinical feasibility studies, as well as future company
research, clinical study results, the regulatory approval process, and
competitive products, and other risk factors which are described in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
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PART II. OTHER INFORMATION
CELTRIX PHARMACEUTICALS, INC.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On September 9, 1997, 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 17,447,863 576,506
Andreas Sommer, Ph.D. 17,410,255 614,114
James E. Thomas 17,399,216 625,153
There were no broker non-votes as the election was uncontested.
(c) The stockholders approved an amendment to the Company's 1991 Stock
Option Plan, to increase the number of shares of Common Stock reserved
for issuance by 1,500,000 shares and to permit nonemployee members of
the Company's Board of Directors to be eligible to receive stock option
grants under this Plan, with 12,224,263 shares voting in favor,
1,101,682 voting against, and 121,807 shares abstaining. There were
4,576,617 broker non-votes.
(d) The stockholders also approved the selection of Ernst & Young LLP as
independent auditors of the Company for fiscal year ending March 31,
1998, with 17,914,325 shares voting in favor, 67,226 shares voting
against, and 42,818 shares abstaining. There were no broker non-votes.
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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 September 30, 1997:
Report Date: July 1, 1997
Item 5. Other Events
The Registrant announced the initiation of a Phase II clinical
feasibility study for the systemic treatment of severe burns.
- ----------
Report Date: July 22, 1997
Item 5. Other Events
The Registrant announced its first quarter financial results.
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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 10, 1997 By: /s/ DONALD D. HUFFMAN
-----------------------------------------------
Donald D. Huffman
Vice President, Finance and Administration and
Chief Financial Officer (Duly authorized
principal financial and accounting officer)
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INDEX TO EXHIBITS
Exhibit
Number Exhibits
- -------- --------
27.1 Financial Data Schedule