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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, 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 February 6, 1998, the Registrant had outstanding 21,061,053 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, 1997
and March 31, 1997 ................................................... 3
Condensed Consolidated Statements of Operations for the three- and nine-
month periods ended December 31, 1997 and 1996 ....................... 4
Condensed Consolidated Statements of Cash Flows for the nine-
month periods ended December 31, 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 ....................................... 13
SIGNATURES ...................................................................... 14
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PART I. FINANCIAL INFORMATION
CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, March 31,
1997 1997
--------- ---------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,449 $ 2,734
Short-term investments 8,928 3,054
Receivables and other current assets 304 197
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Total current assets 10,681 5,985
Property and equipment, net 7,388 8,423
Intangible and other assets, net 2,615 2,548
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$ 20,684 $ 16,956
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 404 $ 486
Accrued compensation and other accrued liabilities 950 894
Short-term debt and lease obligations 50 328
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Total current liabilities 1,404 1,708
Deferred rent 927 1,038
Stockholders' equity:
Preferred stock -- --
Common stock 211 153
Additional paid-in capital 131,550 118,152
Accumulated deficit (113,408) (104,095)
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Total stockholders' equity 18,353 14,210
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$ 20,684 $ 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 Nine Months Ended
December 31, December 31,
------------------------ ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenues:
Product sales $ 16 $ 10 $ 49 $ 20
Other revenues 20 19 66 88
-------- -------- -------- --------
36 29 115 108
Costs and expenses:
Cost of sales -- 2 1 4
Research and development 3,248 3,084 9,313 8,988
General and administrative 468 422 1,415 1,308
-------- -------- -------- --------
3,716 3,508 10,729 10,300
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Operating loss (3,680) (3,479) (10,614) (10,192)
Interest income, net 148 101 564 399
Gain on sale of investment in
Prograft Medical, Inc. -- -- 737 --
-------- -------- -------- --------
Net loss $ (3,532) $ (3,378) $ (9,313) $ (9,793)
======== ======== ======== ========
Net loss per share $ (0.17) $ (0.22) $ (0.44) $ (0.64)
======== ======== ======== ========
Shares used in per share computation 20,986 15,235 20,986 15,230
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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)
Nine Months Ended
December 31,
------------------------
1997 1996
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Cash flows from operating activities:
Net loss $ (9,313) $ (9,793)
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 1,270 1,491
Other adjustments related to changes in operating
accounts (133) (146)
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Net cash used in operating activities (8,913) (8,448)
Cash flows from investing activities:
(Increase) decrease in available-for-sale securities (5,137) 2,843
Capital expenditures (154) (285)
Increase in intangible and other assets (259) (377)
-------- --------
Net cash provided by (used in) investing activities (5,550) 2,181
Cash flows from financing activities:
Proceeds from issuance of common stock, net 13,456 101
Principal payments under lease obligations (278) (419)
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Net cash provided by (used in) financing activities 13,178 (318)
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Net decrease in cash and cash equivalents (1,285) (6,585)
Cash and cash equivalents at beginning of period 2,734 10,183
-------- --------
Cash and cash equivalents at end of period $ 1,449 $ 3,598
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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 December 31, 1997, the
condensed consolidated statements of operations for the three- and nine-month
periods ended December 31, 1997 and 1996, and the condensed consolidated
statements of cash flows for the nine-month periods ended December 31, 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, resulting in
net proceeds to the Company of $13.3 million. 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 exercisable only if the shares
of stock are held for at least one year.
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 this fiscal quarter. Although SFAS 128 simplified the current earnings
per share ("EPS") calculation by excluding common stock equivalents from the
computation of basic EPS, adoption of SFAS 128 has no impact on the Company's
computation of net loss per share in the periods ended December 31, 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
1997; these shares were held by the Company since 1993.
5. License Agreements
In December 1997, the Company entered into a new license agreement with
Genzyme Corporation ("Genzyme") granting Genzyme a worldwide exclusive
royalty-bearing license to TGF-beta antibodies, and license and sublicense
rights to TGF-beta receptor. Under the terms of the agreement, Genzyme will
assume the licensing and royalty obligations of Celtrix related to TGF-beta
receptor.
Additionally, under amended terms to a prior TGF-beta-2 license and
development agreement, Genzyme's territorial rights to develop and commercialize
TGF-beta-2 have been expanded to include Japan, China, Korea and Taiwan. In
exchange, Genzyme released Celtrix from certain service and royalty obligations
under the original agreement.
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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. Ongoing product
development programs target acute traumatic injury, such as hip fracture surgery
in the elderly, and severe burns. Other potential indications include severe
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 earlier Phase I studies provided
evidence that administration of SomatoKine safely delivers IGF-I at
substantially higher dosage levels than had been feasible before with free
IGF-I, and the elevated levels of SomatoKine also appeared to stimulate bone and
connective tissue metabolism.
Currently Phase II clinical feasibility studies are progressing in the
use of SomatoKine for 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
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functional independence following hip fracture surgery. In the area of severe
burns, studies have shown that patients 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 both the hip fracture
surgery and severe burns studies will guide the design of future clinical
trials, including a potential severe osteoporosis feasibility trial with a
corporate partner. Celtrix manufactures 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. In December 1997, under amended terms, the Company granted
Genzyme expanded territory rights to TGF-beta-2 to include Japan, China, Korea
and Taiwan. Additionally, under a separate license agreement, Genzyme was
granted a worldwide royalty- bearing license to TGF-beta antibodies and receptor
technology. The Company is not currently pursuing an in-house TGF-beta-2
program.
Celtrix has not earned substantial revenues from product sales and at
December 31, 1997 has an accumulated deficit of $113.4 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 $3.5 million and $9.3 million for the
three- and nine-months ended December 31, 1997, compared to $3.4 million and
$9.8 million for the same periods in 1996. Net loss per share decreased to $0.17
and $0.44 for the three- and nine-months ended December 31, 1997, from $0.22 and
$0.64 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 $36,000 and $115,000 for the three- and
nine-months ended December 31, 1997 from $29,000 and $108,000 for the same
periods in 1996 due mainly to the sale of material for research purposes.
Operating expenses increased 6% to $3.7 million for the three-months
ended December 31, 1997 from $3.5 million for the same period in 1996, and
increased 4% to $10.7 million for the nine-months ended December 31, 1997 from
$10.3 million for the same period in 1996. The increases were due primarily to
increased human clinical testing and the manufacture of SomatoKine.
Interest income, net of interest expense, increased 47% to $148,000 for
the three-months ended December 31, 1997 from $101,000 for the same period in
1996, and increased 41% to $564,000 for the nine-months ended December 31, 1997
from $399,000 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 $7,000 and
$24,000 for the three- and nine-months ended December 31, 1997, respectively,
and $19,000 and $74,000 for the same periods in 1996, respectively.
The $737,000 gain on investment reported under nine-months ended
December 31, 1997 was the result of the sale of 43,750 shares of Prograft
preferred stock in June 1997.
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 December 31, 1997, Celtrix's cash, cash equivalents and short-term
investments were $10.4 million compared to $5.8 million at March 31, 1997. The
net increase of $4.6 million was due primarily to net proceeds of $13.5 million
received from the issuance of common stock, $737,000 in realized gain from the
sale of Celtrix's investment in Prograft, partly offset by cash outlays
consisting of $8.9 million in net cash and investments used in operating
activities and $691,000 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, 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, 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.53 License Agreement dated December 18, 1997, between the Registrant
and Genzyme Corporation.(1)
10.54 Amendment dated December 31, 1997 to License and Development
Agreement dated June 24, 1994, betweeen the Registrant and Genzyme
Corporation.(1)
27.1 Financial Data Schedule
(b) The Company filed the following reports on Form 8-K during the
quarter ended December 31, 1997:
Report Date: October 23, 1997
Item 5. Other Events
The Registrant announced its second quarter financial results.
- --------------
Report Date: November 5, 1997
Item 5. Other Events
The Registrant announced the appointment of Donald D. Huffman as Vice
President and Chief Financial Officer.
- --------------
Report Date: November 12, 1997
Item 5. Other Events
The Registrant announced it has received a key patent from the U.S.
Patent and Trademark Office for the treatment of osteoporosis and tissue
repair.
- --------------
Report Date: December 2, 1997
Item 5. Other Events
The Registrant announced the appointment of Dr. Barry M. Sherman to the
Celtrix Board of Directors.
- --------------
(1) Confidential treatment has been requested with respect to portions of these
exhibits.
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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 12, 1998 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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CELTRIX PHARMACEUTICALS, INC.
INDEX TO EXHIBITS
10.53 (1) License Agreement dated December 18, 1997, between the Registrant
and Genzyme Corporation.
10.54 (1) Amendment dated December 31, 1997 to License and Development
Agreement dated June 24, 1994, betweeen the Registrant and Genzyme
Corporation.
(1) Confidential treatment has been requested with respect to portions of these
exhibits.
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