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 period ended JUNE 30, 1996
---------------------------------------
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 No.
0-19731
GILEAD SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3047598
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
353 Lakeside Drive, Foster City, California 94404
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 415-574-3000
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 outstanding of the issuer's common stock, par value $.001
per share, as of July 19, 1996: 28,486,798.
GILEAD SCIENCES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Condensed Consolidated Financial Statements and Notes
Condensed Consolidated Balance Sheets - June 30, 1996 and
December 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations - for the three
months and six months ended June 30, 1996 and 1995 . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows - for the six
months ended June 30, 1996 and 1995. . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . .10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements and Notes
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETS
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
Current assets: (unaudited) (Note)
Cash and cash equivalents $ 182,918 $ 27,420
Short-term investments 107,481 128,239
Accounts receivable (less allowances of $220 at June 30, 1996) 1,537 -
Prepaid expenses and other current assets 3,235 1,558
---------- ----------
Total current assets 295,171 157,217
Property and equipment, net 7,774 8,369
Other assets 1,015 1,073
---------- ----------
$ 303,960 $ 166,659
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,142 $ 2,412
Accrued clinical and preclinical expenses 5,276 3,923
Other accrued liabilities 3,480 2,229
Deferred contract revenues 1,750 208
Current portion of equipment financing obligations
and long-term debt 2,943 2,906
---------- ----------
Total current liabilities 14,591 11,678
Noncurrent portion of equipment financing obligations
and long-term debt 2,090 3,482
Commitments
Stockholders' equity:
Common stock, par value $.001 per share; 60,000,000
shares authorized; 28,341,999 shares and
23,769,878 shares issued and outstanding at
June 30, 1996 and December 31, 1995, respectively 28 24
Additional paid-in capital 424,559 265,460
Unrealized gains (losses) on investments, net (654) 167
Accumulated deficit (135,714) (112,754)
Deferred compensation (940) (1,398)
---------- ----------
Total stockholders' equity 287,279 151,499
---------- ----------
$ 303,960 $ 166,659
---------- ----------
---------- ----------
Note: The consolidated balance sheet at December 31, 1995 has been derived
from 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 accompanying notes.
3
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ---------------------
1996 1995 1996 1995
---------- ----------- --------- ---------
Revenues:
Product sales, net $ 1,403 $ - $ 1,403 $ -
Contract sales 803 935 1,582 1,865
--------- -------- -------- ---------
Total revenues 2,206 935 2,985 1,865
--------- -------- -------- ---------
Costs and expenses:
Cost of sales 101 - 101 -
Research and development 10,563 7,500 19,846 15,554
Selling, general and administrative 7,440 2,415 12,305 5,180
--------- -------- -------- ---------
Total costs and expenses 18,104 9,915 32,252 20,734
--------- -------- -------- ---------
Loss from operations (15,898) (8,980) (29,267) (18,869)
Interest income, net 3,740 1,045 6,307 2,061
--------- -------- -------- ---------
Net loss $(12,158) $(7,935) $(22,960) $(16,808)
--------- -------- -------- ---------
--------- -------- -------- ---------
Net loss per share $ (0.43) $ (0.41) $ (0.85) $ (0.88)
--------- -------- -------- ---------
--------- -------- -------- ---------
Common shares used in the
calculation of net loss per share 28,330 19,165 26,999 19,135
--------- -------- -------- ---------
--------- -------- -------- ---------
See accompanying notes.
4
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(unaudited)
(in thousands)
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
---------- ---------
Cash flows from operating activities:
Net loss $ (22,960) $(16,808)
Adjustments used to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 2,883 2,188
Changes in assets and liabilities:
Accounts receivable (1,537) -
Prepaid expenses and other current assets (1,677) (275)
Other assets 58 153
Accounts payable (1,270) (31)
Accrued clinical and preclinical expenses 1,353 563
Other accrued liabilities 1,251 281
Deferred contract revenues 1,542 (1,600)
--------- --------
Total adjustments 2,603 1,279
--------- --------
Net cash used in operating activities (20,357) (15,529)
--------- --------
Cash flows from investing activities:
Purchases of short-term investments (225,523) (70,799)
Sales of short-term investments 128,250 10,455
Maturities of short-term investments 117,210 69,556
Capital expenditures (1,124) (255)
--------- --------
Net cash provided by
investing activities 18,813 8,957
--------- --------
Cash flows from financing activities:
Payments of equipment financing obligations
and long-term debt (1,355) (1,394)
Proceeds from issuance of common stock 158,397 1,201
--------- --------
Net cash provided by (used in)
financing activities 157,042 (193)
--------- --------
Net increase (decrease) in cash and cash equivalents 155,498 (6,765)
Cash and cash equivalents at beginning of period 27,420 15,296
--------- --------
Cash and cash equivalents at end of period $182,918 $ 8,531
--------- --------
--------- --------
See accompanying notes.
5
GILEAD SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The information at June 30, 1996, and for the three and six month periods
ended June 30, 1996 and 1995, is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which, in the opinion of
management, are necessary to state fairly the financial information set forth
therein in accordance with generally accepted accounting principles. The
interim results are not necessarily indicative of results to be expected for
the full fiscal year. These financial statements should be read in
conjunction with the audited financial statements for the nine month period
ended December 31, 1995 included in the Company's annual report to security
holders furnished to the Securities and Exchange Commission pursuant to Rule
14a-3(b) in connection with the Company's 1996 Annual Meeting of Stockholders
and the interim financial statements included in the previously filed
quarterly report (Form 10-Q) for the three months ended March 31, 1996.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common stock equivalents relating to
stock options are excluded from the computation as their effect is antidilutive.
DEFERRED COMPENSATION
The Company records deferred compensation on option grants for the
difference between the grant price and the market value on the date of grant and
amortizes such amounts over the five year vesting period of the options.
2. INVESTMENTS
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. The Company's debt securities, which consist primarily of commercial
paper of major U.S. corporations, U.S. Treasury Securities and Certificates of
Deposit, are classified as available-for-sale and are carried at estimated fair
value in cash equivalents and short-term investments. Unrealized gains and
losses are reported as a separate component of stockholders' equity. The
amortized cost of debt securities in this category is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in interest income. Realized gains and losses on available-for-sale
securities are included in interest income and expense. The cost of securities
sold is based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest income. At
June 30, 1996, the contractual maturities of the debt securities do not exceed
three years.
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3. AUTHORIZED COMMON STOCK
On May 14, 1996, the stockholders approved an amendment to the Company's
certificate of incorporation, increasing the number of shares of common stock
the Company is authorized to issue from 35,000,000 to 60,000,000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Since its inception in June 1987, Gilead has devoted substantially all of
its resources to its research and development programs. The Company has been
unprofitable since its inception and expects to incur substantial losses for the
next several years, due primarily to its research and development programs,
including preclinical studies, clinical trials and manufacturing, as well as
increasing marketing and sales efforts in support of VISTIDE-Registered
Trademark- (cidofovir injection) sales. On June 26, 1996 the U. S. Food and
Drug Administration (FDA) granted marketing clearance of VISTIDE for the
treatment of cytomegalovirus retinitis (CMV) in patients with AIDS. The Company
is independently marketing VISTIDE in the United States with an antiviral
specialty sales force. The Company expects that losses will fluctuate from
quarter to quarter and that such fluctuations may be substantial. There can be
no assurance that the Company will successfully develop, commercialize,
manufacture and market additional products or ever achieve or sustain
profitability. As of June 30, 1996, the Company's accumulated deficit was
approximately $135.7 million.
The successful development and commercialization of the Company's products
will require substantial and ongoing efforts at the forefront of the life
sciences industry. The Company is pursuing preclinical or clinical development
of a number of additional product candidates. Even if these product candidates
appear promising during various stages of development, they may not reach the
market for a number of reasons. Such reasons include the possibilities that the
potential products will be found ineffective or unduly toxic during preclinical
or clinical trials, fail to receive necessary regulatory approvals, be difficult
to manufacture on a large scale, be uneconomical to market or be precluded from
commercialization by proprietary rights of others.
As a company in an industry undergoing rapid change, the Company faces
significant challenges and risks, including the risks inherent in its research
and development programs, uncertainties in obtaining and enforcing patents, the
lengthy and expensive regulatory approval process, intense competition from
pharmaceutical and biotechnology companies, increasing pressure on
pharmaceutical pricing from payors, patients and government agencies,
limitations on the availability of capital and uncertainties associated with the
eventual market acceptance of VISTIDE or any of the Company's products in
development. These risks are discussed in greater detail in the Company's
Annual Report on Form 10-K for the nine month period ended December 31, 1995.
Stockholders and potential investors in the Company should carefully
consider these risks in evaluating the Company and should be aware that the
realization of any of these risks could have a dramatic and negative impact
on the Company's stock price.
This Report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, the risks discussed in the
Company's Annual Report on Form 10-K for the nine month period ended December
31, 1995.
7
RESULTS OF OPERATIONS
REVENUES
The Company had total revenues of $2.2 million and $0.9 million for the
quarters ended June 30, 1996 and 1995, respectively. Total revenues for the six
month periods ended June 30, 1996 and 1995 were $3.0 million and $1.9 million,
respectively. Revenues increased during the three and six month periods ended
June 30, 1996, primarily due to net product sales of $1.4 million derived from
the launch of VISTIDE in June 1996. Other revenue resulted primarily from the
Company's collaborative research and development agreement with Glaxo. In March
1996, the Company and Glaxo entered into a new collaborative research agreement,
extending for five years the existing collaboration between the parties.
COSTS AND EXPENSES
For the quarter ended June 30, 1996, the Company's research and development
expenses increased 41% to $10.6 million from $7.5 million for the same period in
1995. The Company's research and development expenses increased 27% to $19.8
million for the six month period ended June 30, 1996 from $15.6 million for the
same period in 1995. This increase was due primarily to increases in expenses
associated with the Company's ongoing clinical trials for several product
candidates, as well as increases in research and development staffing and
preclinical expenses. The Company expects its research and development expenses
in the remainder of 1996 will grow significantly reflecting anticipated
increased expenses related to clinical trials and manufacturing.
Selling, general and administrative expenses were $7.4 million and $2.4
million for the quarters ended June 30, 1996 and 1995, respectively,
representing an increase of 208%. For the six month periods ended June 30, 1996
and 1995, such expenses were $12.3 million and $5.2 million, respectively, an
increase of 136%. This increase is attributable primarily to the establishment
of marketing and sales capabilities in connection with the launch of VISTIDE, as
well as activities in support of the Company's expanded research and development
efforts. The Company expects its selling, general and administrative expenses
to significantly increase during the remainder of 1996 in connection with on-
going marketing and sales activities, as well as increased corporate development
activities.
NET INTEREST INCOME
The Company had net interest income of $3.7 million and $1.0 million for
the quarters ended June 30, 1996 and 1995, respectively, representing an
increase of 270%. Net interest income for the six month periods ended June 30,
1996 and 1995 was $6.3 million and $2.1 million, respectively. Net interest
income has significantly increased due to the Company's higher average cash and
cash equivalents and short-term investment balances which resulted from the
Company's two public offerings of common stock completed in February 1996 and
August 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments were $290.4 million at
June 30, 1996 compared to $155.7 million at December 31, 1995. This increase is
the result of the Company's public offering of common stock in February 1996
which generated $155.6 million in net proceeds. The Company expects to incur
construction and equipment costs of approximately $3.0 million related to the
build-out of a 37,000 square foot facility leased in August 1996. The costs
will be incurred during the third and fourth quarter of 1996 and the Company
expects to occupy this space by October 1996. During 1996, the Company expects
to incur substantial and
8
increasing research and development and selling, general and administrative
expenses. The Company is actively seeking additional collaborative
agreements with corporate partners. There can be no assurance, however, that
any such agreements will be entered into or that they will reduce the
Company's funding requirements. The Company expects that additional equity
or debt financings may be required to fund its operations. There can be no
assurance that such funds will be available on favorable terms, if at all.
Net cash used in operations was $20.4 million and $15.5 million for each
of the six month periods ended June 30, 1996 and 1995, respectively. The
Company expects its cash requirements to grow in future periods due to higher
expenses. However, the Company believes that its existing capital resources,
including net product revenues, will be adequate to satisfy its capital needs
for the foreseeable future. The Company's future capital requirements will
depend on many factors, including the progress of the Company's research and
development, the scope and results of preclinical studies and clinical trials,
the cost, timing and outcomes of regulatory reviews, the rate of technological
advances, determinations as to the commercial potential of the Company's
products under development, the commercial performance of VISTIDE and any of the
Company's products in development that receive marketing approval,
administrative and legal expenses, the status of competitive products, the
establishment of manufacturing capacity or third-party manufacturing
arrangements, the establishment of sales and marketing capabilities and the
establishment of collaborative relationships with other companies.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders on May 14, 1996, the
stockholders elected six directors to serve until the next annual meeting. They
also approved the amendments to the Company's 1991 Stock Option Plan ("Option
Plan"), approved the adoption of the Company's 1995 Non-Employee Directors'
Stock Option Plan ("Directors' Plan"), ratified an amendment to the Company's
Restated Certificate of Incorporation increasing the Company's authorized shares
of common stock ("Certificate of Incorporation"), and ratified the selection of
Ernst & Young LLP as independent auditors of the Company for its fiscal year
ending December 31, 1996 ("Selection of Auditors").
Of the 28,288,416 shares of Common Stock of the Company outstanding as of
the March 25, 1996 record date for the Annual Meeting (the "Outstanding
Shares"), the votes regarding the election of directors were as follows:
Votes
Votes Against or Broker
For Withheld Abstentions Non-votes
---------- ---------- ----------- ---------
Etienne F. Davignon 24,072,775 248,983 N/A N/A
James M. Denny, Sr. 24,072,675 249,083 N/A N/A
Gordon E. Moore 24,072,674 249,084 N/A N/A
Michael L. Riordan 24,072,763 248,995 N/A N/A
Donald H. Rumsfeld 24,072,575 249,183 N/A N/A
George P. Shultz 24,072,575 249,183 N/A N/A
Of the Outstanding Shares, 13,345,091 shares were voted for the
ratification of the amendments to the Option Plan, increasing the aggregate
number of shares of Common Stock authorized for issuance under such plan by
2,250,000 shares and adding provisions with respect to Section 162(m) of the
Internal Revenue Code of 1986, as amended; 6,299,367 shares were
9
voted against or were withheld; 22,775 shares abstained; and no shares were
broker non-votes.
Of the Outstanding Shares, 16,577,948 shares were voted for the
ratification of the Directors' Plan; 46,874 shares abstained; and no shares
were broker non-votes.
Of the Outstanding Shares, 23,865,650 shares were voted for the
ratification of the amendment to the Certificate of Incorporation; 315,903
shares were voted against or were withheld; 21,935 shares abstained; and no
shares were broker non-votes.
Of the Outstanding Shares, 24,272,401 shares were voted for the
ratification of the Selection of Auditors; 15,564 shares were voted against or
were withheld; 33,493 shares abstained; and no shares were broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.35 Agreement among Registrant and Michael F. Bigham.
10.36 Vintage Park Research and Development Lease by and between
Registrant and WCB Sixteen Limited Partnership dated June 24,
1996 for premises located at 333 Lakeside Drive, Foster City,
California.
10.37 Amendment No. 1 to Vintage Park Research and Development Lease by
and between Registrant and WCB Seventeen Limited Partnership dated
June 24, 1996 for premises located at 335 Lakeside Drive, Foster
City, California.
10.38 Amendment No. 2 to Vintage Park Research and Development Lease by
and between Registrant and WCB Seventeen Limited Partnership dated
June 24, 1996 for premises located at 344B, 346 and 353 Lakeside
Drive, Foster City, California.
10.39 Amendment No. 2 to Vintage Park Research and Development Lease by
and between Registrant and WCB Sixteen Limited Partnership dated
June 24, 1996 for premises located at 342A and 368 Lakeside Drive,
Foster City, California.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the Quarter ended June 30,
1996.
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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.
GILEAD SCIENCES, INC.
---------------------------------------
(Registrant)
Date: July 26, 1996 /s/ John C. Martin
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John C. Martin
President and Chief Executive Officer
Date: July 26, 1996 /s/ Mark L. Perry
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Mark L. Perry
Vice President, Chief Financial Officer
and General Counsel
11