SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934
For Quarter Ended June 30, 1996
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Commission File Number 0-23252
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IGEN, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2852543
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16020 INDUSTRIAL DRIVE, GAITHERSBURG, MD 20877
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(Address of principal executive offices) (Zip Code)
301-984-8000
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(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 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
Common Stock, $0.001 par value 14,954,193
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IGEN, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
Balance Sheets - June 30, 1996, and March 31, 1996 . . . . . . 3
Statements of Operations - For the three months ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows - For the three months ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . 5
Notes to 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 . . . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2
IGEN, INC.
BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, MARCH 31,
1996 1996
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ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 1,637 $ 4,001
Short term investments 13,741 16,216
Accounts receivable 1,906 1,892
Inventory 1,770 1,648
Prepaid expenses 762 1,035
Other assets 1,424 420
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Total current assets 21,240 25,212
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EQUIPMENT, FURNITURE, AND IMPROVEMENTS 6,290 6,172
Accumulated depreciation and amortization (2,934) (2,590)
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Equipment, furniture, and improvements, net 3,356 3,582
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OTHER ASSETS 474 482
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TOTAL $ 25,070 $ 29,276
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,855 $ 3,793
Deferred revenue 4,765 7,532
Obligations under Capital Leases 187 187
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Total current liabilities 8,807 11,512
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OBLIGATIONS UNDER CAPITAL LEASES -
NONCURRENT 210 329
STOCKHOLDERS' EQUITY:
Common stock: $.001 par value, 50,000,000 shares
authorized; shares issued and outstanding:
June 30, 1996--14,945,689 March 31, 1996-14,908,530: 15 15
Additional paid-in capital 64,783 64,676
Accumulated deficit (48,342) (46,818)
Deferred compensation (64) (91)
Notes receivable from sale of common stock (339) (347)
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Total stockholders' equity 16,053 17,435
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TOTAL $ 25,070 $ 29,276
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See notes to financial statements.
3
IGEN, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
JUNE 30,
1996 1995
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(UNAUDITED)
REVENUES:
License and royalty income $ 2,374 $ 2,353
Contract revenue 724 517
Product sales 1,883 673
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Total 4,981 3,543
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OPERATING COSTS AND EXPENSES:
Product costs 624 290
Research and development 3,555 3,172
Marketing, general and administrative 2,560 2,281
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Total 6,739 5,743
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LOSS FROM OPERATIONS (1,758) (2,200)
INTEREST INCOME - net 234 359
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NET LOSS $ (1,524) $ (1,841)
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NET LOSS PER SHARE $ (.10) $ (.12)
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SHARES USED IN COMPUTING
NET LOSS PER SHARE 14,924 14,731
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See notes to financial statements.
4
IGEN, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
JUNE 30,
1996 1995
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(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,524) $ (1,841)
Adjustments to reconcile net loss to net cash
used in operating activities:
Interest on notes receivable from sale of common stock (2) (7)
Amortization of deferred compensation 27 26
Depreciation and amortization 352 265
Deferred revenue (2,767) (2,776)
Add (deduct) items not affecting cash:
Accounts receivable (14) 201
Inventory (122) (226)
Prepaid expenses 273 107
Other assets (1,004) 70
Accounts payable and accrued expenses 62 (1,958)
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Net cash used in operating activities (4,719) (6,139)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for equipment, furniture and improvements (118) (631)
Sale (Purchase) of short-term investments 2,475 (7,042)
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Net cash provided by (used in) investing activities 2,357 (7,673)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes receivable from sale of
common stock, net 10 30
Issuance (Purchase) of common stock - net 107 (397)
Principal payments under capital lease obligations (119) (11)
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Net cash used in provided by financing activities (2) (378)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (2,364) (14,190)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,001 30,226
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,637 $ 16,036
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See notes to financial statements.
5
IGEN, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The financial statements of IGEN, Inc. (the "Company") reflect, in the
opinion of management, all adjustments, consisting only of normal and
recurring adjustments, necessary to present fairly the Company's financial
position at June 30, 1996 and the Company's results of operations for the
three month periods ended June 30, 1996 and 1995. Interim period results are
unaudited and are not necessarily indicative of results of operations or cash
flows for a full year period. The balance sheet at March 31, 1996 was
derived from audited financial statements at such date.
Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
financial statements and these notes do not include all disclosures required
by generally accepted accounting principles for complete financial
statements. Accordingly, these statements should be read in conjunction with
the Company's most recent annual financial statements included in the
Company's Annual Report for the fiscal year ended March 31, 1996.
2. Summary of Significant Accounting Policies
Cash Equivalents and Short-Term Investments - Cash equivalents include
cash in banks, money market funds, securities of the U.S. Treasury and
certificates of deposit with original maturities of three months or less.
Concentration of Credit Risks - The Company has invested its excess cash
generally in securities of the U.S. Treasury, money market funds,
certificates of deposit and corporate bonds. The Company invests its excess
cash in accordance with a policy objective that seeks to ensure both
liquidity and safety of principal. The policy limits investments to certain
types of instruments issued by institutions with strong investments grade
credit ratings and places restrictions on their terms and concentrations by
type and issuer.
Inventory is recorded at the lower of cost or market using the first-in,
first-out method and consists of the following (in thousands):
June 30, March 31,
1996 1996
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Finished goods $ 1,102 $ 1,270
Work in process 114 244
Raw materials 554 134
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Total $ 1,770 $ 1,648
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6
Equipment, Furniture, and Improvements are carried at cost.
Depreciation is computed over the estimated useful lives of the assets,
generally five years, using accelerated methods.
Purchased Product Technology - The Company amortizes the cost of
purchase patent rights on a straight-line basis over the estimated economic
lives of such assets. The Company has acquired certain product and patent
rights from a noncontrolled affiliated company that are being amortized over
the remaining lives of the underlying patents.
Revenue Recognition - Nonrefundable license fees, option fees, and
milestone payments in connection with research and development contracts or
commercialization agreements with corporate partners are recognized when they
are earned in accordance with the applicable performance requirements and
contractual terms. Amounts received in advance of performance under
contracts or commercialization agreements are recorded as deferred revenue
until earned. Product sales revenue is recorded as products are shipped.
Income (Loss) Per Share has been computed based on the weighted average
number of common shares and common equivalent shares outstanding during each
period including common equivalent shares calculated for the stock options
and warrants under the treasury stock method for all periods presented.
Accounting for Stock Compensation - In 1995, the FASB issued SFAS 123
"Accounting for Stock-Based Compensation" which will be effective for the
Company's 1997 fiscal year. SFAS 123 allows for companies to adopt a new
fair-value basis of accounting for stock options and other equity
instruments, or the disclosure - only alternative for stock based
compensation. The Company has not yet determined whether it will elect the
expense recognition or disclosure -only alternative permitted under SFAS 123
and therefore has not yet determined the impact of such adoption on its
financial position, results of operations, and cash flows.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company devotes substantially all of its resources to the research
and development of its proprietary technologies, primarily the
ORIGEN-Registered Trademark- technology for clinical diagnostic and life
science research products. The Company's sources of revenue have consisted
primarily of license or research payments pursuant to licensing or
collaborative research agreements and from product sales. The Company has
entered into collaborative arrangements with corporate collaborators that
provide for the development and marketing of certain ORIGEN systems. These
agreements provide fees and royalties payable to the Company in exchange for
licenses to produce and sell the resulting products. In the near term, the
Company may selectively pursue additional strategic alliances although, over
time, it expects an increasing amount of its revenues to be derived from
sales of its products and royalties from corporate collaborations.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section.
RESULTS OF OPERATIONS
The Company had revenues of $5.0 million for the three months ended
June 30, 1996, compared to revenues of $3.5 million for the corresponding
period in 1995. This increase is attributable to sales of the Company's
ORIGEN research instruments and reagents and cell culture products which were
$1.9 million and $673,000 in 1996 and 1995, respectively. Such product sales
reflect higher placements of the ORIGEN Detection System and reagents.
Contract revenue and other license fees increased to $3.1 million in 1996 as
compared to $2.9 million for the same quarter in 1995, reflecting the timing
of milestones and revenues received under IGEN's supplemental Assay
Development Contract with Boehringer Mannheim GmbH.
Product costs were $624,000 for the quarter ended June 30, 1996 (33% of
product sales) and $290,000 for the same quarter in 1995 (43% of product
sales). The decreased percentage of product costs in 1996 represents a change
in the product sales mix.
Research and development expenses increased to $3.6 million in the three
months ended June 30, 1996, from $3.2 million in the corresponding period in
1995. The higher level of costs in 1996 results from higher staffing levels
for internal research and development programs and expanded external
technical collaborations. Marketing, general and administrative expenses
were $2.6 million and $2.3 million in the three months ended June 30, 1996,
and 1995, respectively. The higher level of costs during the 1996 period is
primarily a result of increased sales costs associated with the ORIGEN
Detection System.
Income (loss) from operations over the next several years is likely to
fluctuate substantially from quarter to quarter as a result of differences in
the timing of revenues earned under license and product development
agreements, and associated product development expenses.
As of March 31, 1996, the Company had federal net operating loss and
general business credit tax carry forwards of approximately $31.0 million and
$2.1 million, respectively. The Company's ability to utilize its net
operating loss and general business credit tax carry forwards may be subject
to an annual limitation in future periods pursuant to the "change in
ownership rules" under Section 382 of the Internal Revenue Service Code of
1986, as amended.
8
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through the sale of Preferred
and Common Stock, aggregating approximately $60 million through June 30,
1996, collaborative research and licensing agreements and sales of its ORIGEN
line of products. As of June 30, 1996, the Company had $15.4 million in
cash, cash equivalents and short term investments. Working capital excluding
current deferred revenue which is classified as a current liability was $17.2
million at June 30, 1996. Including current deferred revenue, working
capital was $12.4 million.
Net cash used in operating activities was $4.7 million for the three
months ended June 30, 1996, as compared to $6.1 million for the corresponding
period in 1995. The lower amount of net cash used in 1996 was due to a
decreased net loss and changes in accounts payable balances.
The Company used $118,000 and $631,000 of net cash for investing
activities, substantially related to the acquisition of laboratory equipment,
furniture and leasehold improvements, during the three months ended June 30,
1996 and 1995, respectively. Additionally, during the quarter ended June 30,
1995, the Company used approximately $400,000 to repurchase shares of its
stock under a Stock Repurchase Plan.
The Company expects to incur substantial additional research and
development expenses, manufacturing costs and marketing and distribution
expenses. It is the Company's intention to selectively seek additional
collaborative or license agreements with suitable corporate collaborators
although there can be no assurance the Company will be able to enter into
such agreements or that amounts received under such agreements will reduce
substantially the Company's funding requirements. Additional equity or debt
financing may be required, and there can be no assurance that these funds may
be available on favorable terms, if at all.
The Company's future capital requirements depend on many factors,
including continued scientific progress in its diagnostics programs, the
magnitude of these programs, the time and costs involved in obtaining
regulatory approvals, the costs involved in filing, prosecuting and enforcing
patent claims, competing technological and market developments, changes in
its existing license and other agreements, the ability of the Company to
establish development arrangements, the cost of manufacturing scale-up, and
effective commercialization activities and arrangements.
9
IGEN, INC.
PART II OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
11.1 Statements regarding computation of net earnings per share
for the three months ended June 30, 1996 and 1995.
(b) Reports on Form 8-K
None
10
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.
IGEN, Inc.
Date: August 12, 1996 /s/ George V. Migausky
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George V. Migausky
Vice President and
Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial Officer)
11
EXHIBIT INDEX
Exhibit Number Description Page
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11.1 Computation of net earnings per share 12
27 Financial Data Schedule 14
12