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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934: For the quarterly period ended April 30, 2000
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: 0-27756
ALEXION PHARMACEUTICALS, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3648318
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
25 SCIENCE PARK, SUITE 360, NEW HAVEN, CONNECTICUT 06511
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
203-776-1790
------------
(Registrant's telephone number, including area code)
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
--- ---
Common Stock, $0.0001 par value 15,095,810 shares
- ------------------------------- -------------------------------------
CLASS OUTSTANDING AT JUNE 12, 2000
ALEXION PHARMACEUTICALS, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION 3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS 3
Consolidated Balance Sheets as of April 30, 2000 (unaudited)
and July 31, 1999 3
Unaudited Consolidated Statements of Operations for the three months
and nine months ended April 30, 2000 and 1999 4
Unaudited Consolidated Statements of Cash Flows for the nine months
ended April 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
PART II. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
SIGNATURES 18
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ALEXION PHARMACEUTICALS, INC.
Consolidated Balance Sheets
(amounts in thousands)
April 30, 2000 July 31, 1999
============== =============
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 168,764 $ 24,238
Marketable securities 6,766 4,090
Reimbursable contract costs: billed 4,687 4,577
unbilled 961 2,285
Prepaid expenses 573 472
--------- --------
Total current assets 181,751 35,662
--------- --------
Fixed Assets, net of accumulated
depreciation and amortization 8,494 7,413
--------- --------
Deferred financing costs, net 3,787 --
--------- --------
Security deposits and other assets 907 1,299
--------- --------
TOTAL ASSETS $ 194,939 $ 44,374
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 368 $ 368
Accounts payable 1,672 3,544
Accrued expenses 2,103 2,328
Deferred revenue 750 450
--------- --------
Total current liabilities 4,893 6,690
--------- --------
Notes payable - noncurrent 4,106 4,383
--------- --------
Convertible subordinated notes 120,000 --
--------- --------
Stockholders' Equity:
Common stock $.0001 par value; 25,000 shares
authorized; 15,087 and 11,304 shares issued
at April 30, 2000 and July 31, 1999, respectively 2 1
Additional paid-in capital 128,060 80,287
Accumulated deficit (62,122) (46,987)
Treasury stock, at cost; 12 shares -- --
--------- --------
Total stockholders' equity 65,940 33,301
--------- --------
TOTAL LIABILITIES AND NET STOCKHOLDERS' EQUITY $ 194,939 $ 44,374
========= ========
The accompanying notes are an integral part
of these consolidated financial statements.
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ALEXION PHARMACEUTICALS, INC.
Consolidated Statement of Operations
(UNAUDITED)
(amounts in thousands, except per share amounts)
Three months ended April 30, Nine months ended April 30,
---------------------------- ---------------------------
2000 1999 2000 1999
-------- -------- -------- --------
CONTRACT RESEARCH REVENUES $ 4,483 $ 12,374 $ 17,450 $ 12,799
-------- -------- -------- --------
OPERATING EXPENSES:
Research and Development 10,438 5,669 31,418 14,134
General and Administrative 1,196 717 2,961 2,135
-------- -------- -------- --------
Total Operating Expenses 11,634 6,386 34,379 16,269
-------- -------- -------- --------
OPERATING INCOME (LOSS) (7,151) 5,988 (16,929) (3,470)
-------- -------- -------- --------
Interest Income 1,937 468 3,045 1,426
Interest Expense (1,013) (76) (1,159) (198)
Other Expense (92) (82) (92) --
-------- -------- -------- --------
OTHER INCOME, net 832 310 1,794 1,228
-------- -------- -------- --------
NET INCOME (LOSS) ($ 6,319) $ 6,298 ($15,135) ($ 2,242)
======== ======== ======== ========
BASIC NET INCOME (LOSS) PER COMMON
SHARE (Note 3) ($ 0.42) $ 0.56 ($ 1.11) ($ 0.20)
======== ======== ======== ========
SHARES USED IN COMPUTING BASIC NET
INCOME (LOSS) PER COMMON SHARE 15,020 11,283 13,657 11,258
======== ======== ======== ========
DILUTED NET INCOME PER COMMON SHARE
(Note 3) $0.53
========
SHARES USED IN COMPUTING DILUTED NET
INCOME PER COMMON SHARE 11,890
========
The accompanying notes are an integral part
of these consolidated financial statements.
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ALEXION PHARMACEUTICALS, INC.
Consolidated Statements of Cash Flows
(UNAUDITED)
(amounts in thousands)
Nine months ended April 30,
---------------------------
2000 1999
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 15,135) ($ 2,242)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,093 591
Compensation expense related to grant of stock options 148 82
Change in assets and liabilities:
Reimbursable contract cost 1,214 (4,471)
Prepaid expenses (101) (56)
Accounts payable (1,872) 2,100
Accrued expenses (133) 68
Deferred revenue 300 383
--------- --------
Net cash used in operating activities (14,486) (3,545)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) sale of marketable securities, net (2,676) 459
Purchases of fixed assets (2,174) (885)
Licensed technology costs -- (75)
Patent application costs -- (5)
--------- --------
Net cash used in investing activities (4,850) (506)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 47,626 364
Issuance of convertible subordinated note, net of expenses 116,121 --
Repayments of notes payable (277) (277)
Security deposits and other assets 392 414
--------- --------
Net cash provided by financing activities 163,862 501
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 144,526 (3,550)
CASH and CASH EQUIVALENTS, beginning of period 24,238 31,509
--------- --------
CASH AND CASH EQUIVALENTS, end of period $ 168,764 $ 27,959
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expense $ 305 $ 57
========= ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
Fixed assets acquired pursuant to seller financing $ -- $ 3,920
========= ========
The accompanying notes are an integral part
of these consolidated financial statements.
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ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. OPERATIONS AND BASIS OF PRESENTATION -
Alexion Pharmaceuticals, Inc. ("Alexion" or the "Company") was organized in 1992
and is engaged in the development of proprietary products for the treatment of
cardiovascular, autoimmune and neurologic disorders. The Company is currently
conducting Phase II clinical trials for its two lead C5 Inhibitor product
candidates, 5G1.1-SC and 5G1.1. The Company is also developing Apogen
immunotherapeutic products to treat T-cell related disorders and is developing
therapies employing the transplantation of cells from other species into humans
known as xenotransplantation.
On March 8, 2000, the Company completed a $120 million private placement of
5.75% Convertible Subordinated Notes due March 15, 2007. The offering was made
through initial purchasers to qualified institutional buyers under Rule 144A of
the Securities Act of 1933. The notes will be convertible into shares of the
Company's common stock at a price equal to $106.425 per share (See Note 7).
The Company has incurred consolidated losses since inception and has made no
product sales to date.
The Company may need additional financing to obtain regulatory approvals for its
product candidates, fund operating losses, and if deemed appropriate, establish
manufacturing, sales, marketing and distribution capabilities.
The Company expects to incur substantial expenditures in the foreseeable future
for the research and development and commercialization of its products. The
Company will seek to raise necessary funds through public or private equity or
debt financings, bank loans, collaborative or other arrangements with corporate
sources, or through other sources of financing.
The accompanying consolidated financial statements include Alexion
Pharmaceuticals, Inc. and its wholly-owned subsidiary Columbus Farming
Corporation ("Columbus"). Columbus was formed on February 9, 1999 to acquire
certain manufacturing assets from United States Surgical Corporation ("US
Surgical") (See Note 6). All significant inter-company balances and transactions
have been eliminated in consolidation.
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC") and include, in the opinion of management, all
adjustments, consisting of normal, recurring adjustments, necessary for a fair
presentation of interim period results. Certain information and footnote
disclosures normally included in financial statements prepared in
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ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The results for the interim
periods presented are not necessarily indicative of results to be expected for
any future period. These consolidated condensed financial statements should be
read in conjunction with the audited financial statements and notes thereto
included in the Company's Form 10-K Annual Report for the fiscal year ended July
31, 1999, as amended.
2. CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES -
Cash and cash equivalents are stated at cost, which approximates market, and
include short-term highly liquid investments with original maturities of less
than three months.
The Company invests in marketable securities of highly rated financial
institutions and investment-grade debt instruments and limits the amount of
credit exposure with any one entity. The Company has classified its marketable
securities as "available for sale" and, accordingly, carries such securities at
aggregate fair value. Unrealized gains or losses are included in stockholders'
equity as a component of additional paid-in capital.
3. NET INCOME (LOSS) PER SHARE -
The Company computes and presents net loss per common share in accordance with
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share".
Basic income (loss) per common share are based on the average number of common
shares outstanding during the year. Diluted income per common share assumes in
addition to the above, a dilutive effect of common share equivalents during the
year. Common share equivalents represent dilutive stock options, warrants, and
convertible subordinated debt. There is no difference in basic and diluted net
loss per common share for the nine months ended April 30, 2000 and 1999 and the
three months ended April 30, 2000 as the effect of common share equivalents is
anti-dilutive.
4. REVENUES -
Contract research revenues recorded by the Company consist of research and
development support payments, license fees, and milestone payments under
collaboration with third parties and amounts received from various government
grants.
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ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Research and development support revenues are recognized as the related work and
expenses are incurred under the terms of the contracts for development
activities. Revenues derived from the achievement of milestones are recognized
when the milestone is achieved. Non-refundable license fees received in exchange
for specific rights to the Company's technologies, research, potential products
and markets are recognized as revenues as earned in accordance with the terms of
the contracts (See Note 5).
Unbilled reimbursable contract costs as shown on the accompanying consolidated
balance sheets represent reimbursable costs incurred in connection with research
contracts which have not yet been billed. The Company bills these costs and
recognizes the costs and related revenues in accordance with the terms of the
contracts.
Deferred revenue results from cash received in advance of revenue recognition
under research and development contracts.
Revenues recorded during the three and nine months ended April 30, 2000 and 1999
consist of license fees, research and development support, reimbursement of
costs related to clinical development and manufacturing of clinical supplies
under the collaboration agreement with Procter & Gamble Pharmaceuticals Inc.
("P&G"). Revenues also include funding from the Commerce Department's National
Institute of Standards and Technology ("NIST") through grants from the Advanced
Technology Program.
In November 1997, the Company and US Surgical were awarded a three-year, $2
million cooperative agreement from NIST to fund a joint xenotransplantation
project. This agreement was modified into a single entity (Alexion only)
agreement in February 1999. In October 1998, the Company was awarded another
three-year $2 million agreement from NIST to fund a xenotransplantation project.
In November 1999, the Company was awarded a three-year $2 million agreement from
NIST to fund another xenotransplantation project.
In January 1999, the Company entered into an exclusive collaboration with P&G to
develop and commercialize 5G1.1-SC. Under this collaboration, the Company will
initially pursue the development of 5G1.1-SC for the treatment of inflammation
caused by cardiopulmonary bypass surgery, myocardial infarction and angioplasty.
The Company has granted P&G an exclusive license to the Company's intellectual
property related to 5G1.1-SC, with the right to sublicense. P&G has agreed to
fund all clinical development and manufacturing costs relating to 5G1.1-SC for
these indications. In addition, under this agreement, P&G has agreed to pay the
Company up to $95 million in payments, which include a non-refundable upfront
license fee (See Note 5), as well as milestone and research and development
support payments. In addition, the Company will receive royalties on worldwide
sales of 5G1.1-SC for all indications. The Company has a
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ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
preferred position relative to third-party manufacturers to manufacture 5G1.1-SC
worldwide. The Company shares co-promotion rights with P&G to sell, market and
distribute 5G1.1-SC in the United States, and has granted P&G the exclusive
rights to sell, market and distribute 5G1.1-SC outside of the United States.
A summary of revenues generated from contract research collaboration and grant
awards is as follows for the three and nine months ended April 30, (dollars in
thousands):
Three months ended Nine months ended
------------------ -----------------
Collaboration/Grant Awards 2000 1999 2000 1999
-------------------------- ---- ---- ---- ----
P&G........................... $4,142 $12,145 $16,211 $12,145
NIST and NIH.................. 341 229 1,239 487
Other......................... - - - 167
------ ------- ------- -------
$4,483 $12,374 $17,450 $12,799
====== ======= ======= =======
5. RECENTLY ISSUED ACCOUNTING STANDARDS -
Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, was issued in
December 1999. SAB 101 will require companies to recognize certain up-front
non-refundable fees over the life of the related collaboration agreement when
such fees are received in conjunction with collaboration agreements which have
multiple elements. The Company is required to adopt this new accounting
principle through a cummulative charge to retained earnings through the
statement of operations, in accordance with the provisions of APB Opinion No.
20, no later than the first quarter of fiscal 2001. The Company believes that
the adoption of SAB 101 will have a material impact on its future operating
results as it applies to the $10.0 million up-front non-refundable payment
received by it in connection with its collaboration with Procter & Gamble. The
Company's historical financial statements reflect this payment as revenue in the
year ended July 31, 1999 and the quarter ended April 30, 1999. Based on guidance
currently available, the Company will be required to record the $10.0 million
fee as revenue over the future life, as defined, of the collaboration agreement.
As of April 30, 2000, the Company had not yet adopted this new accounting
principle.
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ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. NOTES PAYABLE -
In November 1998, a term loan was used to finance the purchase of capital
equipment. The term loan requires quarterly principal payments of $92,000
commencing August 3, 1998 and payable through August 2001. The balance on the
note was $554,000 at April 30, 2000. The term loan agreement requires the
Company to maintain a restricted cash balance equal to 115% of the outstanding
loan balance plus accrued interest in an interest bearing account as collateral
for the note. This restricted cash balance is included in other assets in the
accompanying consolidated balance sheets.
In February 1999, the Company acquired manufacturing assets for the
xenotransplantation program developed by US Surgical, a subsidiary of Tyco
International Ltd., and financed the purchase with a note payable bearing
interest at 6% per annum, in the amount of approximately $3.9 million due in May
2005. The note is secured by certain manufacturing assets of Columbus. Interest
on the note is payable quarterly.
7. CONVERTIBLE SUBORDINATED NOTES -
In March 2000, the Company completed a $120 million private placement of 5.75%
Convertible Subordinated Notes due March 15, 2007. The notes bear interest
payable semi-annually on September 15 and March 15 of each year, beginning
September 15, 2000. The holders may convert all or a portion of the notes into
common stock at any time on or before March 15, 2007 at a conversion price of
$106.425 per share.
The notes are subordinated to all of the Company's existing and future senior
indebtedness and are effectively subordinated to all of the indebtedness and
other liabilities (including trade and other payables) of the Company and its
subsidiaries. The indenture governing the notes does not limit the amount of
indebtedness, including senior indebtedness, which the Company and its
subsidiaries may incur.
Noteholders may require the Company to repurchase their notes upon a repurchase
event (as described in the offering) in cash, or, at the option of the Company,
in common stock, at 105% of the principal amount of the notes, plus accrued and
unpaid interest.
The notes are not entitled to any sinking fund. At any time or from time to time
on or after March 20, 2003 and ending on March 14, 2007, the Company may redeem
some or all the notes on at least 30 days' notice as a whole or, from time to
time, in part at certain premiums over the principal amount plus accrued
interest.
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ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In May 2000, pursuant to a registration rights agreement, the Company filed a
registration statement under the Securities Act of 1933 with the SEC to register
resales of the notes and the shares of common stock into which the notes are
convertible. The registration statement has not yet been declared effective by
the SEC.
The Company incurred deferred financing costs related to this offering of
approximately $4.0 million which are recorded in the consolidated balance
sheet and are being amortized into interest expense over the seven-year term
of the notes. Amortization expense associated with the financing costs was
$92,000 for the three months ended April 30, 2000.
8. EQUITY -
In November 1999, the Company sold 3.415 million shares of common stock at a
price of $14.00 per share in a follow-on public offering resulting in net
proceeds of approximately $44.4 million to the Company.
9. COMPREHENSIVE INCOME (LOSS) -
SFAS No. 130 "Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income (loss) and its components in a
full set of general purpose financial statements. The objective of SFAS No. 130
is to report a measure of all changes in equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners. There was no significant difference in comprehensive
loss and net loss for the three and nine month periods ended April 30, 2000 and
1999.
10. SUBSEQUENT EVENT -
In May 2000, the Company entered into a new lease for its headquarters and
research and development facility in Cheshire, Connecticut. The lease is
expected to commence in August 2000 and has a term of ten years and six months.
The monthly fixed rent is expected to start at approximately $80,000. The
Company's occupancy of this lease, however, is contingent upon the timely
departure of the current tenant and subsequent additional work to be completed
by the landlord.
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ALEXION PHARMACEUTICALS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. SUCH STATEMENTS ARE SUBJECT TO CERTAIN FACTORS WHICH MAY CAUSE
OUR PLANS AND RESULTS TO DIFFER SIGNIFICANTLY FROM PLANS AND RESULTS DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO THOSE DISCUSSED IN EXHIBIT 99.1
TO OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JULY 31, 1999, AS
AMENDED.
OVERVIEW
We are engaged in the development of products for the treatment of
cardiovascular, autoimmune and neurologic diseases caused by undesired effects
of the human immune system. Since our inception in January 1992, we have devoted
substantially all of our resources to drug discovery, research and product
development. In 1998, we began to focus more of our resources in clinical
testing and trials. Our two lead product candidates are currently in seven
clinical development programs. 5G1.1-SC, in collaboration with Procter & Gamble,
is in a Phase IIb cardiopulmonary bypass efficacy trial and in two 1000 patient
Phase II myocardial infarction (heart attack) efficacy trials. 5G1.1 is in a
Phase II efficacy trial for the chronic treatment of rheumatoid arthritis and a
Phase II efficacy trial for the treatment of membranous nephritis. In addition,
we are commencing three separate Phase Ib pilot studies for treatment of
psoriasis, dermatomyositis and pemphigoid all using 5G1.1. To date, we have not
received any revenues from the sale of products. We have incurred operating
losses since we began our operations. As of April 30, 2000, we had an
accumulated deficit of $62.1 million. We expect to incur substantial and
increasing operating losses for the next several years due to expenses
associated with product research and development, pre-clinical studies and
clinical testing, regulatory activities, manufacturing development and scale-up
and developing a sales and marketing force.
We plan to develop and commercialize on our own those product candidates for
which the clinical trials and marketing requirements can be funded by our own
resources. For those products for which greater resources will be required, our
strategy is to form corporate partnerships with major pharmaceutical companies
for product development and commercialization. In January 1999, we entered into
a collaboration agreement with Procter & Gamble Pharmaceuticals to develop and
commercialize one of our C5 Inhibitor products, 5G1.1-SC, for various acute
cardiovascular indications such as cardiopulmonary bypass, heart attack, and
angioplasty. We are enrolling up to 1000 patients in a Phase IIb efficacy trial
with 5G1.1-SC in patients undergoing cardiopulmonary bypass during coronary
artery bypass graft surgery and we have commenced enrolling up to 1000 patients
each in two Phase IIb efficacy studies in
Page 12 of 18
ALEXION PHARMACEUTICALS, INC.
myocardial infarction (heart attack) patients receiving thrombolytic therapy and
myocardial infarction (heart attack) patients receiving angioplasty. As of April
30, 2000 we have completed enrolling up to 200 rheumatoid arthritis patients in
a Phase IIb efficacy study with 5G1.1 and 150 patients in a Phase IIb efficacy
trial in membraneous nephritis.
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2000
COMPARED WITH THREE MONTHS ENDED APRIL 30, 1999
We earned contract research revenues of $4.5 million for the three months ended
April 30, 2000 and $12.4 million for the same period ended April 30, 1999. This
decrease was primarily due to the one-time license fee of $10.0 million we
received in February 1999 from the start of our collaborative agreement with
Procter & Gamble.
We incurred research and development expenses of $10.4 million for the three
months ended April 30, 2000 and $5.7 million for the three months ended April
30, 1999. The increase resulted principally from costs associated with our
expanded clinical trial programs which include several Phase II efficacy studies
for our lead C5 Inhibitors, 5G1.1-SC and 5G1.1, and the cost of manufacturing
development and manufacturing of our C5 Inhibitors for our clinical trials.
Our general and administrative expenses were $1.2 million for the three months
ended April 30, 2000 and $717,000 for the three months ended April 30, 1999.
This increase resulted principally from higher payroll-related costs, as well as
higher facilities expenses and other professional fees primarily public
relations and patent/legal costs.
Other income, net, was $832,000 for the three months ended April 30, 2000 and
$310,000 for the three months ended April 30, 1999. The increase in interest
income of $1.5 million resulted from higher cash balances which were obtained
from the net proceeds relating to the 5.75% Subordinated Convertible Notes of
$120 million private placement and follow-on public offering. This was offset by
interest expense of $946,000 from the 5.75% Subordinated Convertible Notes and
amortization expense of $92,000 associated with the financing costs of the
notes.
As a result of the above factors, we incurred a net loss of $6.3 million for the
three months ended April 30, 2000 and net income of $6.3 million for the three
months ended April 30, 1999.
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ALEXION PHARMACEUTICALS, INC.
NINE MONTHS ENDED APRIL 30, 2000
COMPARED WITH NINE MONTHS ENDED APRIL 30, 1999
We earned contract research revenues of $17.5 million for the nine months ended
April 30, 2000 and $12.8 million for the same period ended April 30, 1999. This
increase was due primarily to contract revenues from our collaborative agreement
with Procter & Gamble for research and development support and clinical
development and manufacturing related expense reimbursements.
We incurred research and development expenses of $31.4 million for the nine
months ended April 30, 2000 and $14.1 million for the nine months ended April
30, 1999. The increase resulted principally from costs associated with our
expanded clinical trial programs for our lead C5 Inhibitors, 5G1.1-SC and 5G1.1,
and the cost of manufacturing development and manufacturing of our C5 Inhibitors
for our clinical trials.
Our general and administrative expenses were $3.0 million for the nine months
ended April 30, 2000 and $2.1 million for the nine months ended April 30, 1999.
This increase resulted principally from higher payroll related costs, as well as
higher facilities expenses and other professional fees primarily public
relations and patent/legal costs.
Other income, net, was $1.8 million for the nine months ended April 30, 2000 and
$1.2 million for the nine months ended April 30, 1999. The increase in interest
income of $1.6 million resulted from higher cash balances which were obtained
from the net proceeds relating to the 5.75% Subordinated Convertible Notes of
$120 million private placement and follow-on public offering. This was offset by
interest expense of $946,000 from the 5.75% Subordinated Convertible Notes and
amortization expense of $92,000 associated with the financing costs of the
notes.
As a result of the above factors, we incurred net losses of $15.1 million for
the nine months ended April 30, 2000 and net losses of $2.2 million for the nine
months ended April 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2000, we had working capital of $176.8 million, including $175.5
million of cash, cash equivalents and marketable securities. This compares with
working capital at April 30, 1999 of $33.8 million, including $33.5 million of
cash, cash equivalents and marketable securities. This increase in working
capital was due to the increase in available cash from our sale of 5.75%
Convertible Subordinated Notes and the follow-on public offering in November
1999.
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ALEXION PHARMACEUTICALS, INC.
In March 2000, we completed a $120 million private placement of our 5.75%
Convertible Subordinated Notes due March 15, 2007. The notes bear interest
semi-annually on September 15 and March 15 of each year, beginning September 15,
2000. The holders may convert all or a portion of the notes into common stock at
any time on or before March 15, 2007 at a conversion price of $106.425 per
share. We incurred issuance costs related to this offering of approximately $4.0
million which are being amortized into interest expense over the seven-year term
of the notes.
In November 1999, we sold 3.415 million shares of common stock at a price of
$14.00 per share in a follow-on public offering, resulting in net proceeds of
approximately $44.4 million to the Company.
We anticipate that our existing available capital resources with the proceeds of
our sale of $120 million of 5.75% Convertible Subordinated Notes, together with
the anticipated funding from the collaboration agreement with Procter and
Gamble, will provide us adequate funding for the clinical testing of our C5
inhibitor product, 5G1.1-SC in cardiopulmonary bypass and acute coronary
syndromes. We believe that our available capital resources, funding from
existing grants and interest earned on available cash and marketable securities
should be sufficient to fund our operating expenses and capital requirements as
currently planned for at least the next thirty-six months. While we currently
have no material commitments for capital expenditures, our future capital
requirements will depend on many factors, including the progress of our research
and development programs, progress and results of clinical trials, the time and
costs involved in obtaining regulatory approvals, the costs involved in
obtaining and enforcing patents and any necessary licenses, our ability to
establish development and commercialization relationships, and the costs of
manufacturing scale-up.
We expect to incur substantial additional costs, including costs associated with
research, pre-clinical and clinical testing, manufacturing process development,
and additional capital expenditures related to personnel and facilities
expansion and manufacturing requirements in order to commercialize our products
currently under development. In addition to funds we may receive from our
collaboration with Procter & Gamble, we may need to raise or generate
substantial additional funding in order to complete the development and
commercialization of our product candidates. Our additional financing may
include public or private equity offerings, bank loans and/or collaborative
research and development arrangements with corporate partners. There can be no
assurance that funds will be available on terms acceptable to us, if at all, or
that discussions with potential collaborative partners will result in any
agreements on a timely basis, if at all. The unavailability of additional
financing could require us to delay, scale back or eliminate certain research
and product development programs or to license third parties to commercialize
products or technologies that we would otherwise undertake itself, any of which
could have a material adverse effect.
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ALEXION PHARMACEUTICALS, INC.
In May 2000, we entered into a new lease for our headquarters and research and
development facility in Cheshire, Connecticut. The lease is expected to commence
in August 2000 and has a term of ten years and six months. Our occupancy of this
lease, however, is contingent upon the timely departure of the current tenant
and subsequent additional work to be completed by the landlord. We cannot be
certain that either event will be completed in a timely manner. At this site, we
will lease and occupy a total of 82,000 square feet of space, which includes
approximately 35,000 square feet of research laboratories. We expect to incur
initial leasehold improvements and relocation costs aggregating approximately
$2.5 million. In addition, we will be required to pay a pro rata percentage of
real estate taxes and operating expenses. Our monthly fixed rent is expected to
start at approximately $80,000. Our pilot manufacturing plant, which is used for
producing compounds for our current clinical trials, will remain in our current
facility encompassing approximately 24,000 square feet of labs and offices at 25
Science Park, New Haven, Connecticut. Our current administrative and research
and development facilities in New Haven are under one operating lease on a
month-to-month basis. We are currently negotiating a longer-term arrangement of
our facilities in New Haven. We believe the new space and our pilot
manufacturing facility will be adequate for our activities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS.
Interest income on the Company's marketable securities is carried in "Other
income (expense)". The Company accounts for its marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115"). All of the
cash equivalents and marketable securities are treated as available-for-sale
under SFAS 115.
Investments in fixed rate interest earning instruments carry a degree of
interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. Due in part to these
factors, the Company's future investment income may fall short of expectations
due to changes in interest rates or the Company may suffer losses in principal
if forced to sell securities which have seen a decline in market value due to
changes in interest rates. The Company's marketable securities are held for
purposes other than trading. The marketable securities as of April 30, 2000, had
a weighted-average maturity of less than twelve months. The weighted-average
interest rate on marketable securities at April 30, 2000 was 6.17%. The fair
value of marketable securities held at April 30, 2000 was $6.8 million.
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ALEXION PHARMACEUTICALS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports
(a) Exhibits
Exhibit 10.1 Form of Agreement of Lease, between WE
Knotter, L.L.C. and Alexion Pharmaceuticals, Inc.*
Exhibit 10.2 Employment Agreement, dated April 1,
2000, between the Company and Dr. Leonard Bell.
Exhibit 27 - Financial Data Schedule
*Incorporated by reference to the Company's
Registration Statement filed on May 10, 2000 with
the Securities and Exchange Commission.
(b) Form 8-K
Current Report on Form 8-K dated February 25, 2000,
relating to the Company's announcement of intention
to Offer Approximately $120 million Convertible Notes
due 2007.
Page 17 of 18
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.
ALEXION PHARMACEUTICALS, INC.
Date: June 12, 2000 By: /s/ Leonard Bell, M.D.
---------------------------------------
Leonard Bell, M.D.
President and Chief Executive Officer,
Secretary and Treasurer (principal
executive officer)
Date: June 12, 2000 By: /s/ David W. Keiser
---------------------------------------
David W. Keiser
Executive Vice President and Chief
Operating Officer (principal
financial officer)
Date: June 12, 2000 By: /s/ Barry P. Luke
---------------------------------------
Barry P. Luke
Vice President of Finance and
Administration (principal accounting
officer)
Page 18 of 18