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 September 30, 1996
Commission File Number 0-23252
IGEN, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2852543
------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16020 INDUSTRIAL DRIVE, GAITHERSBURG, MD 20877
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(301) 984-8000
----------------------------------------------------
(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
----- -----
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 October 22, 1996
Common Stock, $0.001 par value 14,967,519
------------------------------ ----------
IGEN, INC.
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
Balance Sheets - September 30, 1996, and March 31, 1996 3
Statements of Operations - For the three and six months ended
September 30, 1996 and 1995 4
Statements of Cash Flows - For the six months ended
September 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 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
Item 6: EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
2
IGEN, INC.
BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, MARCH 31,
1996 1996
------------- ---------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,914 $ 4,001
Short term investments 10,597 16,216
Accounts receivable 1,871 1,892
Inventory 1,808 1,648
Prepaid expenses 651 1,035
Other current assets 271 420
--------- ---------
Total current assets 17,112 25,212
--------- ---------
EQUIPMENT, FURNITURE, AND IMPROVEMENTS 6,395 6,172
Accumulated depreciation and amortization (3,228) (2,590)
--------- ---------
Equipment, furniture, and improvements, net 3,167 3,582
--------- ---------
OTHER ASSETS 467 482
--------- ---------
TOTAL $ 20,746 $ 29,276
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,637 $ 3,793
Deferred revenue 2,412 7,532
Obligations under Capital Leases 187 187
--------- --------
Total current liabilities 6,236 11,512
--------- --------
OBLIGATIONS UNDER CAPITAL LEASES -
NONCURRENT 91 329
STOCKHOLDERS' EQUITY:
Common stock: $.001 par value, 50,000,000 shares
authorized; shares issued and outstanding:
September 30, 1996--14,964,419 March 31, 1996--
14,908,530 15 15
Additional paid-in capital 64,821 64,676
Accumulated deficit (50,052) (46,818)
Deferred compensation (36) (91)
Notes receivable from sale of common stock (329) (347)
--------- ---------
Total stockholders' equity 14,419 17,435
--------- ---------
TOTAL $ 20,746 $ 29,276
--------- ---------
--------- ---------
See notes to financial statements.
3
IGEN, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
REVENUES:
License and royalty income $ 2,378 $ 2,382 $ 4,752 $ 4,735
Contract revenue 522 428 1,246 945
Product sales 1,450 1,246 3,333 1,919
-------- -------- -------- --------
Total 4,350 4,056 9,331 7,599
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Product costs 613 604 1,237 894
Research and development 3,079 3,592 6,634 6,764
Marketing, general and administrative 2,543 2,036 5,103 4,317
-------- -------- -------- --------
Total 6,235 6,232 12,974 11,975
-------- -------- -------- --------
LOSS FROM OPERATIONS (1,885) (2,176) (3,643) (4,376)
INTEREST INCOME - net 175 228 409 587
-------- -------- -------- --------
NET LOSS $(1,710) $(1,948) $(3,234) $(3,789)
-------- -------- -------- --------
-------- -------- -------- --------
NET LOSS PER SHARE $(.11) $(.13) $(.22) $(.26)
-------- -------- -------- --------
-------- -------- -------- --------
SHARES USED IN COMPUTING
NET LOSS PER SHARE 14,958 14,733 14,941 14,739
-------- -------- -------- --------
-------- -------- -------- --------
See notes to financial statements.
4
IGEN, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,234) $(3,789)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Interest on notes receivable from sale of common stock (3) (15)
Amortization of deferred compensation 55 54
Depreciation and amortization 653 548
Deferred revenue (5,120) (5,527)
Add (deduct) items not affecting cash:
Accounts receivable 21 (140)
Inventory (160) (492)
Prepaid expenses 384 (462)
Other assets 149 (22)
Accounts payable and accrued expenses (156) (853)
------- -------
Net cash used in operating activities (7,411) (10,698)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for equipment, furniture and improvements (223) (849)
Sale (Purchase) of short-term investments 5,619 (10,656)
------- -------
Net cash provided by (used in) investing activities 5,396 (11,505)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes receivable from sale of
common stock, net 21 55
Issuance (purchase) of common stock - net 145 (370)
Principal payments under capital lease obligations (238) (85)
------- ------
Net cash used in financing activities (72) (400)
------- ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,087) (22,603)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,001 30,226
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,914 $ 7,623
------- -------
------- -------
See notes to financial statements.
5
IGEN, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Accounting Policies
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
September 30, 1996 and the Company's results of operations for the three and six
month periods ended September 30, 1996 and 1995 respectively. 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.
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 investment 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):
SEPTEMBER 30, MARCH 31,
1996 1996
------------ ---------
Finished goods $1,104 $1,270
Work in process 105 244
Raw materials 599 134
------ ------
Total $1,808 $1,648
------ ------
------ ------
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.
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 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. Actual results might differ materially from these due to risks
and uncertainties, including the impact of competitive products and pricing, the
timely development and acceptance of new products and market conditions. A more
detailed description of these risks and other risks applicable to IGEN appears
in IGEN's Annual Report on Form 10-K for the year ended March 31, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 VS. SEPTEMBER 30, 1995
The Company had revenues of $4.4 million for the three months ended
September 30, 1996, compared to revenues of $4.1 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 $1.5
million and $1.2 million in 1996 and 1995, respectively. Such product sales
reflect higher placements of the ORIGEN Detection System. Contract revenue and
other license fees increased to $2.9 million in 1996 as compared to $2.8 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 $613,000 for the quarter ended September 30, 1996 (42%
of product sales) and $604,000 for the same quarter in 1995 (48% of product
sales). The decreased percentage of product costs in 1996 represents a change
in the product sales mix.
Research and development expenses decreased to $3.1 million for the three
months ended September 30, 1996, from $3.6 million for the corresponding period
in 1995. The decrease in costs in 1996 results from changes in external
technical collaborations. Marketing, general and administrative expenses were
$2.5 million and $2.0 million for the three months ended September 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.
8
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.
SIX MONTHS ENDED SEPTEMBER 30, 1996 VS. SEPTEMBER 30, 1995
The Company had revenues of $9.3 million for the six months ended September
30, 1996, compared to revenues of $7.6 million for the corresponding period in
1995. The increase is attributable to higher product sales of the Company's
ORIGEN Detection System and reagents and cell culture products which were $3.3
million and $1.9 million in 1996 and 1995 respectively. Contract revenue and
license fees increased to $6.0 million during 1996, reflecting the timing of
milestones and revenue received under IGEN's supplemental Assay Development
Contract with Boehringer Mannheim, GmbH.
Product costs were $1.2 million (37% of product sales) and $894,000 (47% of
product sales) for the six months ended September 30, 1996 and 1995
respectively. The decreased percentage during 1996 represents a change in the
product sales mix.
Research and development expenses decreased to $6.6 million for the six
months ended September 30, 1996, from $6.8 million for the corresponding period
in 1995, representing decreased costs of external technical collaborations.
Marketing, general and administrative expenses were $5.1 million and $4.3
million in 1996 and 1995, respectively. The higher level of costs during 1996
is primarily a result of increased sales costs associated with the ORIGEN
Detection System.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through the sale of Preferred and
Common Stock, aggregating approximately $60 million through September 30, 1996,
collaborative research and licensing agreements and sales of its ORIGEN line of
products. As of September 30, 1996, the Company had $12.5 million in cash,
cash equivalents and short term investments. Working capital excluding current
deferred revenue which is classified as a current liability was $13.3 million at
September 30, 1996. Including current deferred revenue, working capital was
$10.9 million.
Net cash used in operating activities was $7.4 million for the six months
ended September 30, 1996, as compared to $10.7 million for the corresponding
period in 1995. The lower amount of net cash used in 1996 was primarily due to
a decreased net loss and changes in accounts payable balances.
The Company used $223,000 and $849,000 of net cash for investing
activities, substantially related to the acquisition of laboratory equipment,
furniture and leasehold improvements, during the six months ended September 30,
1996 and 1995, respectively. During the six months ended September 30, 1995,
the Company used approximately $400,000 to repurchase shares of its stock under
a Stock Repurchase Plan.
9
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.
10
IGEN, INC.
PART II OTHER INFORMATION
Item 4: Submission of Matters to a vote of Security Holders.
(a) The Annual Meeting of Shareholders of IGEN, Inc. was held on September
10, 1996.
(b) The matters voted upon at the meeting and the voting of shareholders
with respect thereto are as follows:
The election of Edward B. Lurier, Richard Massey, William J. O'Neill,
Robert Salsman, Hubert Rehkaemper, and Samuel J. Wohlstadter to the Board
of Directors to hold office until the next annual meeting of shareholders
and until his successor is elected and has qualified, or until such
director's earlier death, resignation or removal. The voting results, with
approximately 77% of the shares voting, was as follows:
Lurier: For: 11,616,116
Against: 54,852
Massey: For: 11,602,002
Against: 68,966
O'Neill: For: 11,615,916
Against: 55,052
Salsmans: For: 11,462,627
Against: 208,341
Rehkaemper: For: 11,624,207
Against: 46,761
Wohlstadter: For: 11,608,757
Against: 62,211
The voting results of the proposal to approve a change in the Company's
state of incorporation from California to Delaware, is as follows:
For: 8,568,602
Against: 373,506
Abstain: 12,876
No-Vote: 2,715,984
11
The voting results to approve the selection of Deloitte & Touche LLP as
the Company's Auditors is as follows:
For: 11,644,428
Against: 2,900
Abstain: 23,640
No-Vote: -0-
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
11.1 Statements regarding computation of per share
earnings for the three months and six months ended September 30,
1996 and 1995.
(b) Reports on Form 8-K
None
12
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: November 8, 1996
---------------- ---------------------------------------------------
George V. Migausky
Vice President of Finance and Chief Financial Officer
(On behalf of the Registrant and as Principal
Financial Officer)
13
EXHIBIT INDEX
Exhibit Number Description Page
- -------------- ----------- ----
11.1 Computation of per share data 15
14