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 MARCH 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-21022
SHAMAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3095806
(State or other jurisdiction of incorporation of organization) (I.R.S. Employer
Identification Number)
213 East Grand Avenue, South San Francisco, California 94080
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: 415-952-7070
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
Number of shares of Common Stock, $.001 par value, outstanding as of April 30,
1997: 17,526,310
SHAMAN PHARMACEUTICALS, INC.
INDEX FOR FORM 10-Q
March 31, 1997
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
Condensed Balance Sheets as of March 31, 1997 and 3
December 31, 1996
Condensed Statements of Operations for the 4
three months ended March 31, 1997 and March
31, 1996
Condensed Statements of Cash Flows for the 5
three months ended March 31, 1997 and March
31, 1996
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults in Senior Securities 13
Item 4. Submission of Matters to a Vote of Security 13
Holders
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
SHAMAN PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
March 31, December 31,
1997 1996
----------- ------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 16,012,857 $ 16,051,251
Short-term investments 1,480,015 481,677
Prepaid expenses and other current assets 819,242 938,872
------------ ------------
Total current assets 18,312,114 17,471,800
----------- ------------
Property and equipment, net 4,511,667 4,776,925
Other assets 128,080 128,080
------------ ------------
Total assets $ 22,951,861 $ 22,376,805
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and othe accrued expenses $ 1,490,843 $ 1,445,616
Accrued clinical trial costs 1,046,625 1,233,014
Accrued professional fees 654,740 689,216
Accrued compensation 316,435 332,738
Advances - contract research 1,008,605 1,883,605
Current installments of long-term obligations 2,210,109 2,246,795
------------ ------------
Total current liabilities 6,727,357 7,830,984
Long-term obligations, excluding 2,060,923 2,568,931
current installments
Stockholders' equity:
Series A preferred stock 400 400
Common stock 15,921 13,921
Additional paid-in capital 103,117,239 94,604,455
Deferred compensation and other adjustments (366,594) (20,250)
Accumulated deficit (88,603,385) (82,621,636)
------------ ------------
Total stockholders' equity 14,163,581 11,976,890
------------ ------------
Total liabilities and stockholders'equity $ 22,951,861 $ 22,376,805
============ ============
NOTE: The balance sheet at December 31, 1996 has been derived from the
audited 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.
See Notes to condensed financial statements.
3.
SHAMAN PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
-------------------------------
1997 1996
------------ ------------
Revenue from collaborative agreements $ 875,000 $ 500,000
Operating expenses:
Research and development 6,015,368 4,798,371
General and administrative 991,099 868,203
---------- ----------
Total operating expenses 7,006,467 5,666,574
---------- ----------
Loss from operation (6,131,467) (5,166,574)
Other income (expense):
Interest income 251,112 318,104
Interest expense (101,394) (162,265)
---------- ----------
Net loss $ (5,981,749) $ (5,010,735)
=========== ===========
Net loss per share (0.39) (0.38)
============ ============
Shares used in calculation of 15,455,000 13,334,000
net loss per shar ============ ============
See Notes to condensed financial statements.
4.
SHAMAN PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Three Months Ended March 31,
--------------------------------
1997 1996
------------- -------------
Operating activities:
Net loss $ (5,981,749) $ (5,010,735)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 557,663 656,589
Changes in operating assets and liabilities:
Prepaid expenses, other current assets
and other assets 119,630 115,687
Accounts payable, accrued expenses and
contract research advances (1,066,941) (652,303)
------------ ------------
Net cash used in operating activities (6,371,397) (4,890,762)
------------ ------------
Investing activities:
Purchases of short-term investments (1,024,373) (6,388,869)
Maturities of available-for-sale investments -- 10,333,314
Capital expenditures (210,057) (408,793)
------------ ------------
Net cash provided by investing activities (1,234,430) 3,535,652
------------ ------------
Financing activities:
Proceeds from issuance of common stock 8,112,127 109,544
Proceeds from long-term obligations -- 600,000
Principal payments on long-term obligations (544,694) (185,985)
------------ ------------
Net cash provided by financing activities 7,567,433 523,559
------------ ------------
Net decrease in cash and cash equivalents (38,394) (831,551)
Cash and cash equivalents at beginning of period 16,051,251 9,210,123
------------ ------------
Cash and cash equivalents at end of period $ 16,012,857 $ 8,378,572
============ ============
See Notes to condensed financial statements.
5.
SHAMAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
1. Basis of Presentation
Shaman is a leader in the identification and development of novel
pharmaceutical products for the treatment of human diseases through the
isolation and optimization of active compounds found in tropical plants. The
Company has three compounds in clinical development: Provir, an oral product for
the treatment of watery diarrhea; Virend, a topical antiviral for the treatment
of herpes; and nikkomycin Z, an oral antifungal for the treatment of endemic
mycoses. Shaman has collaborations for the development of its diabetes drugs
with Lipha s.a., a wholly-owned subsidiary of Merck KGaA, Darmstadt, Germany
("Lipha/Merck"), and with Ono Pharmaceutical Co., Ltd. ("Ono") of Osaka, Japan.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included. The results of operations for the interim
periods shown herein are not necessarily indicative of operating results for the
entire year.
This unaudited financial data should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K/A, for the fiscal year ended December 31, 1996, filed with
the Securities and Exchange Commission on March 13, 1997.
2. Common Stock Equity Financing
In January 1997, the Company sold 2,000,000 shares of Common Stock at
$4.50 per share in a registered direct public offering for gross proceeds of
$9.0 million. The net proceeds of approximately $8.11 million from this offering
will be used for continued research and clinical development of the Company's
existing product candidates.
3. Loss per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The Company does not
anticipate any material
6.
impact on the calculated loss per share because stock options and warrants are
currently excluded from the computation as their effect is antidilutive.
4. Subsequent Event
Equity Financing
In April 1997, the Company sold 1,600,000 shares of Common Stock at $4.97
per share in a registered direct public offering, marketed solely by the
Company, which yielded gross proceeds of $7.95 million. The offering price was
based on a 20-day volume weighted average closing sale price of Shaman's Common
Stock. The net proceeds of approximately $7.75 million from this offering will
be used for the continued research and clinical development of the Company's
existing product candidates. Proceeds from this offering are not reflected in
the March 31, 1997 cash balance.
7.
SHAMAN PHARMACEUTICALS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Shaman is a leader in the identification and development of novel
pharmaceutical products for the treatment of human diseases through the
isolation and optimization of active compounds found in tropical plants. The
Company has three compounds in clinical development: Provir, an oral product for
the treatment of watery diarrhea; Virend, a topical antiviral for the treatment
of herpes; and nikkomycin Z, an oral antifungal for the treatment of endemic
mycoses. Shaman has collaborations for the development of its diabetes drugs
with Lipha s.a., a wholly-owned subsidiary of Merck KGaA, Darmstadt, Germany
("Lipha/Merck"), and with Ono Pharmaceutical Co., Ltd. ("Ono") of Osaka, Japan.
The Company began operations in March 1990. To date, Shaman has not sold
any products and does not anticipate receiving product revenue in the near
future. The Company's accumulated deficit at March 31, 1997, was approximately
$88.6 million. Shaman expects to continue to incur substantial and increasing
losses over the next several years, due primarily to the expense of preclinical
studies, clinical trials and its ongoing research program. The Company expects
that losses will fluctuate from quarter to quarter and that such fluctuations
could be substantial. Shaman has financed its research, development and
administrative activities through various private placements of its equity
securities, an initial public offering of Common Stock in January 1993, a
follow-on offering in December 1993, a registered direct public offering in
January 1997, a registered direct public offering in April 1997, collaborative
agreements with pharmaceutical companies and, to a lesser extent, through loans
and equipment and leasehold improvement financings.
Results of Operations for the Quarters Ended March 31, 1997 and 1996
The Company recorded collaborative revenues of $875,000 and $500,000 for
the quarters ended March 31, 1997 and 1996, respectively. Revenues for the
three-month period ended March 31, 1997 resulted from the Company's ongoing
research funding from Ono and research funding from Shaman's collaboration with
Lipha/Merck. Revenues for the three-month period ended March 31, 1996 resulted
solely from the Company's ongoing research funding from Ono. The Company
expects that revenues from collaborative agreements will continue to fluctuate
in the future as development of its various compounds proceeds and new products
are partnered for development and commercialization.
The Company incurred research and development expenses of $6.0 million and
$4.8 million for the quarters ended March 31, 1997 and 1996, respectively. This
increase is primarily attributable to the Company's increased spending on
Provir, partially offset by decreased funding of the development of nikkomycin
Z. Research and development expenses are likely to increase in 1997 as products
continue through development while the Company maintains an active diabetes
research program.
8.
General and administrative expenses were $991,000 and $868,000 for the
quarters ended March 31, 1997 and 1996, respectively. This increase is primarily
attributable to costs associated with adjustment in compensation as well as
increased legal fees due to the Company's financing activities. The Company's
expanded research and clinical activities are not expected to require
commensurate increases in general and administrative support and expense.
Interest income was $251,000 and $318,000 for the quarters ended March 31,
1997 and 1996, respectively. Interest income decreased for the period ended
March 31, 1997, compared with the period ended March 31, 1996, due to lower
average cash and investment balances as the Company continues to fund its
operations. Interest expense decreased for the period ended March 31, 1997,
compared with the period ended March 31, 1996 due to lower average debt balance.
Liquidity and Capital Resources
In April 1997, the Company sold 1,600,000 shares of Common Stock at $4.97
per share in a registered direct public offering, marketed solely by the
Company, which yielded gross proceeds of $7.95 million, the proceeds of which
are not reflected in the March 31, 1997 cash balance. The offering price was
based on a 20-day volume weighted average closing sale price of Shaman's Common
Stock. The net proceeds of approximately $7.75 million from this offering will
be used for the continued research and clinical development of the Company's
existing product candidates.
In January 1997, the Company sold 2,000,000 shares of Common Stock in a
registered direct public offering for gross proceeds of $9.0 million. The net
proceeds of approximately $8.11 million from this offering will be used for the
continued research and clinical development of the Company's existing product
candidates.
As of March 31, 1997, the Company's cash, cash equivalents, and short-term
investments totaled $17.5 million, compared with $16.5 million at December 31,
1996, with an average investment maturity of five months at both dates. The
Company invests excess cash according to its investment policy that provides
guidelines with regard to liquidity, type of investment, credit rating and
concentration limits.
In September 1996, the Company entered into a five-year collaborative
agreement with Lipha/Merck to jointly develop Shaman's antihyperglycemic drugs.
In exchange for development and marketing rights in all countries except Japan,
South Korea, and Taiwan (which are covered under an earlier agreement between
Shaman and Ono), Lipha/Merck will provide up to $9.0 million in research
payments and up to $10.5 million in equity investments priced at a 20% premium
to a multi-day volume weighted average price of the Company's Common Stock at
the time of purchase. Complete research funding under the collaboration is
dependent upon the initiation of human clinical trials of at least one compound
by September 23, 1998. The agreement also provides for additional preclinical
and clinical milestone payments to the Company in excess of $10.0 million per
compound for each antihyperglycemic drug developed and commercialized.
Lipha/Merck will bear all preclinical, clinical, regulatory and other
development expenses associated with the compounds selected under the agreement.
In addition, as products are commercialized, Shaman will
9.
receive royalties on all product sales outside the United States and up to 50%
of the profits (if the Company exercises its co-promotion rights) or royalties
on all product sales in the United States. Certain milestone payments will be
credited against future royalty payments, if any, due to the Company from sales
of products developed pursuant to the agreement.
In July 1996, the Company closed a private placement (the "1996 Private
Placement") pursuant to Regulation S under the Securities Exchange Act of 1933,
as amended, in which it received gross proceeds of $3.3 million for the sale of
400,000 shares of Series A Convertible Preferred Stock and for the issuance of a
six-year warrant to purchase 550,000 shares of the Company's Common Stock at an
exercise price of $10.184 per share. In addition to the sale of Preferred Stock
and warrant, the Company has the right, from time to time during the period
beginning January 1997 and ending July 2000, to sell up to 1,200,000 additional
shares of Common Stock to the investor at a formula price of 100% or 101% of a
multi-day average of the Company's Common Stock price at the time of sale. If
the Company exercises this right, the investor has the option to increase the
shares purchased by up to an aggregate of 527,500 shares.
The Company expects to incur substantial additional costs relating to the
continued preclinical and clinical testing of its products, regulatory
activities and research and development programs. The Company believes that its
cash, cash equivalents and investment balances of approximately $17.5 million at
March 31, 1997, the collaborative revenue committed by Lipha/Merck and Ono,
Lipha/Merck's commitment to purchase additional equity, Shaman's additional
rights to sell Common Stock under the 1996 Private Placement, and proceeds from
its April 1997 registered direct public offering (see Note 4 to Notes to
Condensed Financial Statements -- Subsequent Event) will be adequate to fund
operations, including payments due under long-term obligations, through the
third quarter of 1998. Milestone payments which may be received by the Company
from Ono and Lipha/Merck would extend the Company's capacity to finance its
operations beyond that time. However, there can be no assurances that these
milestones will be achieved, nor that additional funding, if needed, will be
available on reasonable terms, or at all.
Future Outlook
In addition to historical information, this report contains predictions,
estimates, and other forward-looking statements within the meaning of Section
27A of the Securities Exchange Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from any future performance suggested in this report as a result of
the risk factors set forth below under the caption "Risk Factors" and elsewhere
in this report and in the Company's Annual Report on Form 10-K/A, for the fiscal
year ended December 31, 1996, filed with the Securities and Exchange Commission
on March 13, 1997.
Risk Factors
History of Operating Losses; Products Still in Development; Future
Profitability Uncertain. Shaman's potential products are in research and
development. In order to generate revenues or profits, the Company, alone or
with others, must successfully
10.
develop, test, obtain regulatory approval and market its potential products. No
assurance can be given that these product development efforts will be
successful, that required regulatory approvals will be obtained, or that the
products, if developed and introduced, will be successfully marketed or achieve
market acceptance.
Additional Financing Requirements and Uncertain Access to Capital Markets.
The Company has significant long-term capital requirements and, in the event
Shaman receives regulatory approval for any of its products, it will incur
substantial expenditures to develop manufacturing, sales and marketing
capabilities. The Company will need to raise additional funds for these purposes
through additional equity or debt financings, collaborative arrangements with
corporate partners or from other sources. No assurance can be given that such
additional funds will be available to the Company to finance its development on
acceptable terms, if at all.
No Assurance of FDA Approval for Marketing; Government Regulation. The
Company's activities with respect to research, preclinical development, clinical
trials, manufacturing and marketing in the United States and other countries are
subject to extensive regulation by numerous governmental authorities including,
but not limited to, the Food and Drug Administration ("FDA"). The process of
obtaining FDA and other required regulatory approvals is lengthy and requires
the expenditure of substantial resources. Success cannot be assured. In order to
obtain FDA approval, the Company must perform clinical tests to demonstrate to
the FDA's satisfaction that a product is safe and effective for its intended
uses. The Company may encounter problems in clinical trials which could cause
the FDA or the Company to delay or suspend clinical trials. Further, the Company
must demonstrate that it is capable of manufacturing bulk product to the
relevant standards. There can be no assurance that any of the Company's future
studies will demonstrate their intended result, that the Company's products will
not have undesirable side effects that may prevent or limit their commercial
use, or that the FDA will otherwise approve any of the Company's products.
Dependence on Sources of Supply. The Company currently imports all of the
plant materials from which its products are derived from countries in South and
Latin America, Africa and Southeast Asia. To the extent that its products cannot
be economically synthesized or otherwise produced, the Company will continue to
be dependent upon a supply of raw plant material. While Shaman believes it has
good relationships with the local governments and suppliers of these plant
materials, the Company does not have formal agreements in place with all of its
suppliers.
Limited Manufacturing and Marketing Experience and Capacity. The Company
currently produces products only in quantities necessary for clinical trials and
partner requirements, and does not currently have the staff or facilities
necessary to manufacture products in commercial quantities. As a result, the
Company may rely on collaborative partners or third-party manufacturing
facilities, which may not be available on commercially acceptable terms adequate
for Shaman's long-term needs. The Company currently has no marketing or sales
staff. To the extent that the Company does not or is unable to enter into
co-promotion agreements or to arrange for third party distribution of its
products, significant additional resources will be required to develop a
marketing and sales force.
11.
Rapid Technological Change and Substantial Competition. The pharmaceutical
industry is subject to rapid and substantial technological change. Technological
competition from pharmaceutical companies, biotechnology companies and
universities is intense. Many of these entities have significantly greater
research and development capabilities, as well as substantial marketing,
manufacturing, financial and managerial resources, and represent significant
competition for the Company. There can be no assurance that developments by
others will not render the Company's products or technologies noncompetitive or
that the Company will be able to keep pace with technological developments.
Uncertainty Regarding Patents and Proprietary Rights. The Company's
success depends in part on its ability to obtain patent protection for its
products and to preserve its trade secrets. No assurance can be given that the
Company's patent applications will be approved, that any patents will provide
the Company with competitive advantages for its products or that they will not
be successfully challenged or circumvented by the Company's competitors. In
addition, patents do not necessarily prevent others from developing competitive
products. The Company has not conducted an exhaustive patent search and no
assurance can be given that patents do not exist or could not be filed which
would have an adverse effect on the Company's ability to market its products.
Uncertainty of Health Care Reimbursement and Reform. Shaman's ability to
successfully commercialize its products may depend in part on the extent to
which reimbursement for the cost of such products and related treatments will be
available from government health administration authorities, private health
insurers and other organizations. Significant uncertainty exists as to the
pricing, availability of distribution channels and reimbursement status of newly
approved healthcare products.
Possible Volatility of Stock Price. The market price of the Company's
common stock, like the stock prices of many publicly traded biotechnology and
smaller pharmaceutical companies, has been and may continue to be highly
volatile.
Environmental Regulation. In connection with its research and development
activities and its periodic manufacturing of clinical trial materials, the
Company is subject to federal, state and local laws, rules, regulations and
policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of certain materials and wastes.
Although the Company believes that it has complied with these laws and
regulations in all material respects and has not been required to take any
action to correct any noncompliance, there can be no assurance that the Company
will not be required to incur significant costs to comply with environmental and
health and safety regulations in the future.
12.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other information
The Company accepted the resignation of Ms. Barbara J. Goodrich, Vice
President and Chief Financial Officer, effective February 28, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) No current reports on Form 8-K were filed during the quarter ended
March 31, 1997.
13.
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.
Dated: May 7, 1997
Shaman Pharmaceuticals, Inc.
(Registrant)
/s/ Lisa A. Conte
Lisa A. Conte
President, Chief Executive Officer and Chief
Financial Officer
(principal executive officer & principal
financial and accounting officer)
14.