SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/x/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 1997 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 0-23272
NPS PHARMACEUTICALS, INC.
(Exact name of Registrant as Specified in Its Charter)
Delaware 87-0439579
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
420 Chipeta Way, Salt Lake City, Utah 84108-1256
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(Address of principal executive offices) (Zip Code)
(801) 583-4939
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 June 30, 1997
----- ----------------------------
Common Stock $.001 par value 11,928,574
Preferred Stock $.001 par value -0-
NPS PHARMACEUTICALS, INC.
TABLE OF CONTENTS
Page No.
PART I FINANCIAL INFORMATION --------
Item 1 Financial Statements
Balance Sheets 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II OTHER INFORMATION
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT NO.
10.32* Research and Development
Agreement between Systems
Integration Drug Discovery
Company, Inc. (doing business
as SIDDCO Inc.) and NPS
Pharmaceuticals, Inc.
____________________________
* Confidential treatment has been requested with
respect to this exhibit.
(b) Reports on Form 8-K - None
SIGNATURES 12
NPS Pharmaceuticals, Inc.
-2-
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Balance Sheets
June 30, December 31,
Assets 1997 1996
----------- ------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 62,811,774 $ 68,961,764
Accounts receivable 106,350 415,208
Prepaid expenses 343,750 -
------------- -------------
Total current assets 63,261,874 69,376,972
Plant and equipment:
Equipment 3,997,884 3,259,376
Leasehold improvements 2,427,974 1,997,994
------------- -------------
6,425,858 5,257,370
Less accumulated depreciation and
amortization 2,987,665 2,477,665
------------- -------------
Net plant and equipment 3,438,193 2,779,705
Other assets 5,461 3,267
------------- -------------
$ 66,705,528 $ 72,159,944
------------- -------------
------------- -------------
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of obligations
under capital leases $ 43,377 $ 53,339
Current installments of long-term debt 392,517 369,467
Accounts payable 565,000 619,120
Accrued expenses 294,592 271,677
Deferred income 250,000 500,000
Income tax payable 20,000 150,000
------------- -------------
Total current liabilities 1,565,486 1,963,603
Obligations under capital leases, excluding
current installments 35,690 27,295
Long-term debt, excluding current installments 97,905 299,534
------------- -------------
Total liabilities 1,699,081 2,290,432
Stockholders' equity:
Common stock 11,929 11,807
Additional paid-in capital 84,618,270 84,270,283
Deficit accumulated during development
stage (19,623,752) (14,412,578)
------------- -------------
Net stockholders' equity 65,006,447 69,869,512
------------- -------------
$ 66,705,528 $ 72,159,944
------------- -------------
------------- -------------
See accompanying note to financial statements.
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NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
October 22,
1986
(inception)
Three Months Ended June 30, Six Months Ended June 30, through
--------------------------- -------------------------- June 30,
1997 1996 1997 1996 1997
------------ ----------- ----------- ----------- -----------
Revenues from research
and license agreements $ 1,075,000 $ 1,410,625 $ 2,150,000 $15,865,937 $44,808,179
Operating expenses:
Research and development 3,143,548 2,642,285 6,544,461 5,818,186 47,863,535
General and administrative 1,314,918 1,331,062 2,533,775 2,677,972 20,801,031
------------ ----------- ----------- ----------- -----------
Total operating expenses 4,458,466 3,973,347 9,078,236 8,496,158 68,664,566
------------ ----------- ----------- ----------- -----------
Operating income (loss) (3,383,466) (2,562,722) (6,928,236) 7,369,779 (23,856,387)
Other income (expense):
Interest income 903,787 654,910 1,758,072 797,251 5,705,484
Interest expense (19,140) (32,421) (41,010) (78,432) (658,428)
Other - - 35,579
------------ ----------- ----------- ----------- -----------
Total other income 884,647 622,489 1,717,062 718,819 5,082,635
------------ ----------- ----------- ----------- -----------
Income (loss) before taxes (2,498,819) (1,940,233) (5,211,174) 8,088,598 (18,773,752)
Income tax expense - - - 200,000 850,000
Net income (loss) $(2,498,819) $(1,940,233) $(5,211,174) $7,888,598 $(19,623,752)
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
Net income (loss) per
common share $ (0.21) $ (0.19) $ (0.44) $ 0.79
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Weighted average shares
outstanding 11,901,000 10,447,000 11,883,000 9,964,400
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
See accompanying note to financial statements.
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NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, October 22, 1986
----------------------------- (inception) through
1997 1996 June 30, 1997
------------- ------------ --------------------
Cash flows from operating activities:
Net income (loss) $ (5,211,174) $ 7,888,598 $ (19,623,752)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 510,000 370,000 3,696,241
Gain on sale of equipment - - (29,909)
Issuance of stock in lieu of cash for services 119,600 319,400 798,054
Amortization of deferred compensation - 127,750 766,500
Decrease (increase) in receivables 308,858 (390,410) (106,350)
Decrease (increase) in other assets (345,944) - (352,811)
Increase (decrease) in accounts payable and
accrued expenses (31,205) (373,479) 859,592
Increase (decrease) in taxes payable (130,000) 200,000 20,000
Increase (decrease) in deferred income (250,000) (78,750) 250,000
------------- ------------ -------------
Net cash provided by (used in) operating
activities (5,029,865) 8,063,109 (13,722,435)
Cash flows from investing activities:
Net purchase of marketable investment securities - (8,620,078) -
Acquisition of equipment and leasehold improvements (1,134,453) (411,006) (6,544,553)
Proceeds from sale of equipment - - 1,075,621
------------- ------------ -------------
Net cash used in investing activities (1,134,453) (9,031,084) (5,468,932)
Cash flows from financing activities:
Proceeds from note payable to bank - - 123,855
Proceeds from issuance of preferred stock - - 17,581,416
Proceeds from issuance of common stock 228,509 55,700,535 65,784,229
Proceeds from long-term debt - - 1,166,434
Principal payments on note payable to bank - - (123,855)
Principal payments under capital lease obligations (35,602) (306,322) (1,355,622)
Principal payments on long-term debt (178,579) (159,385) (873,316)
Repurchase of preferred stock - - (300,000)
------------- ------------ -------------
Net cash provided by financing activities 14,328 55,234,828 82,003,141
------------- ------------ -------------
Net increase (decrease) in cash and cash equivalents (6,149,990) 54,266,853 62,811,774
Cash and cash equivalents at beginning of period 68,961,764 8,039,625 -
------------- ------------ -------------
Cash and cash equivalents at end of period $ 62,811,774 $ 62,306,478 $ 62,811,774
------------- ------------ -------------
------------- ------------ -------------
See accompanying note to financial statements.
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NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, October 22, 1986
-------------------------- (inception) through
1997 1996 June 30, 1997
------------ ----------- -------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 41,010 $ 78,432 $ 658,428
Cash paid for taxes 130,000 - 830,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of equipment through incurrence of
capital lease obligations 34,035 32,500 1,434,689
Acquisition of leasehold improvements through
incurrence of debt - - 197,304
Issuance of preferred stock for stock subscription
receivable - - 4,000,000
Accrual of deferred offering costs - - 150,000
See accompanying note to financial statements.
-6-
(A Development Stage Company)
Note to Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying financial statements of NPS Pharmaceuticals, Inc. ("NPS"
or the "Company") are unaudited, except as specifically noted. The financial
statements reflect all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary to present
fairly the financial position and results of operations for the interim periods
presented. The results of operations for the three month period ended March
31,1997, are not necessarily indicative of the results to be expected for the
full year. The financial information included herein should be read in
conjunction with the Company's Form 10-K for 1996 which includes the audited
financial statements and the notes thereto for the year ended December 31, 1996.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE THOSE DISCUSSED HEREIN AS WELL AS THOSE DISCUSSED IN
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
UNDER THE HEADING "RISK FACTORS."
Since its inception in 1986, NPS has devoted substantially all of its
resources to its research and development programs. To date, the Company has not
completed development of any pharmaceutical products for sale and has incurred
substantial losses. NPS has incurred cumulative losses through June 30, 1997, of
$19.6 million net of cumulative revenues from research and license agreements of
$44.8 million. The Company expects to incur significant operating losses over at
least the next several years as the Company continues and expands its research
and development and preclinical and clinical testing activities. Substantially
all of the Company's revenues are derived from license fees, milestone payments
and research and development support payments from its licensees and these
revenues fluctuate from quarter to quarter. Accordingly, the Company expects
that income or loss will fluctuate from quarter to quarter, that such
fluctuations may be substantial, and that results from prior quarters may not be
indicative of future operating results. The Company's ability to achieve
profitability depends in part on its ability, alone and/or with others and the
efforts of its licensees, to complete development of its products, to obtain
required regulatory approvals and to manufacture and market such products, as to
which matters there can be no assurance.
RESULTS OF OPERATIONS
Revenues were $1.1 million for the three-month period ended June 30, 1997
compared to $1.4 million for the three-month period ended June 30, 1996 and
$2.2 million for the six-month period ended June 30, 1997 compared to $15.9
million for the same six-month period in 1996. The decrease in revenues for
the six-month period was primarily due to the receipt by NPS in 1996 of a $10
million license fee from Amgen Inc. ("Amgen") and a $3 million milestone
payment from SmithKline Beecham Corporation ("SmithKline Beecham"); these
payments reflected one time events under agreements with these parties and
are non-recurring. See "Liquidity and Capital Resources" below for further
discussion of payments that may be received by the Company in the future
under the separate agreements with these parties.
Research and development expenses increased to $3.1 million for the
three-month period ended June 30, 1997 from $2.6 million in the comparable
period of 1996, and to $6.5 million for the six-month period ended June 30,
1997 from $5.8 million in the comparable period of 1996. Research and
development expenses are expected to increase significantly in the future as
NPS conducts discovery, preclinical development and clinical trials for
non-licensed product candidates, sponsors research or obtains licenses for
technology from academia or research institutions and hires more research and
development personnel.
General and administrative expenses were $1.3 million in both three-month
periods ended September 30, 1997 and 1996, and $2.5 million compared to $2.7
million for the six-month periods ended September 30, 1997 and 1996,
respectively. The Company expects that general and administrative expenses
will increase in the future as more personnel and facilities are needed to
support research and development activities.
Interest income increased to $904,000 and $1.8 million for the
three-month and six-month periods ended June 30, 1997 respectively, from
$655,000 and $798,000 for the same periods of 1996. The increases were
primarily due to a higher average cash balance resulting from the net
proceeds of the follow-on offering of stock completed in May 1996. The
Company anticipates that interest income will decrease in the future as the
Company's cash is utilized for operations.
-8-
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
collaborative research and license agreements and the private and public
placement of equity securities. As of June 30,1997, the Company had recognized
$44.8 million of cumulative revenues from research and license agreements and
$84.6 million in consideration for the sale of equity securities for cash and
services. The Company's principal sources of liquidity are its cash, cash
equivalents, and marketable investment securities which totaled $62.8 million at
June 30, 1997.
The Company receives quarterly payments under its agreements with the
pharmaceutical division of Kirin Brewery Company, Limited ("Kirin") and
SmithKline Beecham to support the Company's research efforts in
hyperparathyroidism ("HPT") and osteoporosis, respectively. The Kirin
payments are scheduled to be $500,000 per quarter through June 30, 1997 and
$250,000 per quarter thereafter through the remaining three years of the
research term of the Kirin agreement. The scheduled expiration date of the
SmithKline Beecham agreement is October 31, 1997 and NPS expects to receive
$475,000 per quarter through that date from SmithKline Beecham. Amgen will
reimburse the Company up to $400,000 per year for a period not to exceed five
years for costs incurred by the Company for designation of NPS personnel to
be able to participate in the development of a compound for primary HPT in
the Amgen territory, with such participation occurring under the direction of
Amgen.
The Company could receive future payments of up to $51.0 million in the
aggregate from Amgen, Kirin, and SmithKline Beecham upon the accomplishment
of specified research and/or development milestones under the respective
agreements. NPS does not control the subject matter, timing or resources
applied by its licensees under their respective development programs. Thus,
the Company's potential receipt of milestone payments from these licensees is
largely beyond the control of NPS. Progress under these agreements is subject
to risk and each of these agreements may be terminated before the scheduled
expiration date by the respective licensee. No assurance can be given that
any future milestone or research or development support payments will be
received from any of them or under any other licensing agreement then in
effect.
The Company has entered into certain sponsored research and license
agreements which obligate the Company to make research support payments to
academic and/or commercial research institutions. Additional payments may be
required upon the accomplishment of research milestones by the institutions
or as license fees or royalties to maintain the licenses. As of June 30,
1997, the Company had a total commitment of approximately $1.0 million for
future research support payments. These commitments have been increased by
$3.6 million due to the Research and Development Agreement with SIDDCO Inc.
entered into on July 16, 1997. The Company expects to enter into additional
sponsored research and license agreements in the future.
As of June 30, 1997, the Company's net investment in leasehold
improvements, equipment and furnishings was $3.4 million. The Company has
financed a portion of such expenditures through capital leases and long-term
debt with a total principal obligation of $569,000 as of June 30, 1997.
Additional equipment and facilities will be needed as the Company increases its
research and development activities, a portion of which may be financed with
debt. Equipment and leasehold improvements subject to the capital leases and the
long-term debt have been pledged in support of such obligations.
The Company anticipates that its existing capital resources, including
interest earned thereon and expected research and development support payments
from its licensees will be sufficient to enable it to maintain its current and
planned operations through at least 1999. However, actual needs are dependent on
numerous factors, including the progress of the Company's research and
development programs, the magnitude and scope of these activities, progress with
preclinical and clinical trials, the cost of preparing, filing, prosecuting,
maintaining and enforcing patent claims and other intellectual property rights,
competing technological and market developments, changes in or terminations of
existing research and license arrangements, the establishment of additional
license arrangements and the cost of manufacturing scale-up and development of
marketing activities, if undertaken by the Company. Substantial expenditures
will be required to conduct preclinical studies and clinical trials, manufacture
or have manufactured and market any proprietary products of NPS which may be
derived from current research and development efforts and perform research and
development activities in additional areas. In addition, if Amgen terminates its
agreement, the Company may not have sufficient capital to complete the
development and commercialization of a drug for HPT in the Amgen territory.
NPS may need to raise additional funds to support its long-term product
development and commercialization programs. The Company also intends to seek
additional funding through corporate collaborations
-9-
and licensing agreements and the Company may seek additional funding through
public or private financing. There can be no assurance that additional
financing will be available on acceptable terms, if at all. If adequate funds
are not available, the Company may be required to delay, reduce the scope of
or eliminate one or more of its research and development programs or to
obtain funds through arrangements with licensees or others that may require
the Company to relinquish rights to certain of its technologies, product
candidates or products that the Company may otherwise seek to develop or
commercialize on its own.
CERTAIN BUSINESS RISKS
The Company is currently in the early stage of product development. NPS
R-568 and NPS 1506 are the only product candidates under development by the
Company or its licensees that are in human clinical trials. There is no
guarantee that NPS R-568 or NPS 1506 will prove to be safe or efficacious or
that back-up or later generation compounds will be identified. All of the
Company's remaining technologies are new and will require significant
additional research and development efforts prior to any commercial use.
Because the Company has granted exclusive development, commercialization and
marketing rights in the fields of HPT and osteoporosis, the success of its
existing HPT and osteoporosis programs is entirely dependent upon the efforts
of Amgen, Kirin and SmithKline Beecham.
Other risks include the Company's lack of product sales, a history of
operating losses, the uncertainty of regulatory approvals, rapid technological
change and competition, the uncertainty of protection of the Company's patents
and proprietary technology, the Company's dependence on third parties for
manufacturing, the Company's future capital needs and the uncertainty of
additional funding, the Company's's lack of marketing capabilities, the
uncertainty of third-party reimbursement, the Company's dependence on key
personnel and the Company's ability to manage growth. A more detailed discussion
of factors that could cause actual results to differ materially from those in
forward-looking statements is contained in the Company's SEC filings, including
the Risk Factors in the Company's Annual Report on Form 10-K.
-10-
PART II
ITEM 5. OTHER INFORMATION
NEUROPROTECTION PROGRAM
On July 25, 1997, the Company commenced Phase I clinical trials for the
Company's lead compound, NPS 1506, selected by NPS from a class of
proprietary compounds being developed for neuroprotection in stroke. The
trial is being conducted with healthy volunteers to evaluate the safety and
pharmacokinetics of various intravenous doses of the compound. The Company is
seeking to establish a collaboration with another company for the development
and commercialization of NPS 1506 and/or back-up or second generation
compounds. There can be no assurance that NPS will be successful in finding a
partner to collaborate with in the development and commercialization of NPS
1506 or that NPS 1506 or any other of the lead compounds will prove safe and
effective, meet applicable regulatory standards or be successfully marketed.
SIDDCO AGREEMENT
On July 16, 1997, the Company and Systems Integration Drug Discovery
Company, Inc. ("SIDDCO") entered into a Research and Development Agreement
(the "SIDDCO Agreement"). Under the SIDDCO Agreement, the companies will work
together to develop combinatorial chemistry databases, identify novel
compounds, develop automated chemical synthesis systems, and generate
computational and analytical methods. The Company is obligated to pay to
SIDDCO the sum of $1.2 million per year (on a quarterly basis) for a period
of three years. The Company has the right to extend the SIDDCO Agreement for
an additional two years at an adjusted rated based on SIDDCO costs at that
time.
FINANCIAL ADVISOR AGREEMENT
The Company entered into an exclusive financial advisor agreement with
Vector Securities International, Inc. ("Vector") for a period of six months,
with a possible extension of an additional six months, effective July 11,
1997. Under the terms of the agreement, Vector will assist the Company in
evaluating and seeking potential acquisition, merger and/or joint venture
candidates. The Company has not sought an evaluation or assistance for a sale
of the Company nor does the agreement provide for such. Vector will also
provide financial advisory services to the Company in the event the Company
undertakes negotiations leading to an acquisition, merger and/or joint
venture during the term of the agreement.
-11-
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.
Date: August 6, 1997 NPS PHARMACEUTICALS, INC.
By: /s/ JAMES U. JENSEN
-----------------------------
James U. Jensen
Vice President, Corporate
Development and Legal
Affairs (Executive Officer)
By: /s/ ROBERT K. MERRELL
-----------------------------
Robert K. Merrell
Vice President, Finance,
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
-12-
INDEX TO EXHIBITS
Exhibit Number Description of Document
- -------------- -----------------------
10.32* Research and Development Agreement between Systems
Integration Drug Discovery Company, Inc. (doing business as
SIDDCO Inc.) and NPS Pharmaceuticals, Inc.
____________________
* Confidential treatment has been requested with respect to this
exhibit.