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UNITED STATES
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 March 31, 2001
[_] 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
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NPS PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 87-0439579
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
420 Chipeta Way, Salt Lake City, Utah 84108-1256
(Address of principal executive offices) (Zip Code)
(801) 583-4939
(Registrant's telephone number, including area code)
N/A
(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 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 at least 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 May 10, 2001
---------------------------- ---------------------------
Common Stock $.001 par value 29,820,259*
* Includes 911,898 shares of exchangeable stock which are exchangeable at
any time into common stock on a one-for-one basis. Holders of shares of
exchangeable stock are entitled to dividends and other rights economically
equivalent to those of the common stock, and, through a voting trust, holders
are entitled to vote at all meetings of stockholders of the Registrant, also on
a one-for-one basis.
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page No.
--------
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets............................................... 3
Consolidated Statements of Operations..................................... 4
Consolidated Statements of Cash Flows..................................... 5
Notes to Consolidated Financial Statements................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk................... 14
SIGNATURES........................................................................... 14
2
Item 1. Consolidated Financial Statements.
MPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Develpment Stage Enterprise)
Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 31, 2001 December 31, 2000
-------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 87,460 $ 131,083
Marketable investment securities 153,803 115,853
Accounts receivable 799 523
Other current assets 2,713 1,129
-------------- -----------------
Total current assets 244,775 248,588
Restricted marketable investment securities 190 754
Plant and equipment:
Land 413 434
Building 1,108 1,164
Equipment 7,733 7,532
Leasehold improvements 2,868 2,767
-------------- -----------------
12,122 11,897
Less accumulated depreciation and amortization 7,291 6,922
-------------- -----------------
Net plant and equipment 4,831 4,975
Goodwill, net of accumulated amortization 8,197 9,072
Purchased intangible assets, net of accumulated amortization 5,172 5,867
Other assets 2 14
-------------- -----------------
$ 263,167 $ 269,270
============== =================
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of obligations under capital leases $ 149 $ 305
Accounts payable 1,488 813
Accrued expenses 340 2,604
Accrued severance 560 154
-------------- -----------------
Total current liabilities 2,537 3,876
Obligations under capital leases, excluding current installments 27 54
-------------- -----------------
Total liabilities 2,564 3,930
Stockholders' equity:
Common stock 30 30
Additional paid-in capital 378,899 377,802
Deferred compensation (233) (800)
Accumulated other comprehensive loss (990) (657)
Deficit accumulated during development stage (117,103) (111,035)
-------------- -----------------
Net stockholders' equity 260,603 265,340
-------------- -----------------
$ 263,167 $ 269,270
============== =================
See accompanying notes to consolidated financial statements.
3
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three Months Ended October 22, 1986,
March 31, (inception) through
2001 2000 March 31, 2001
---------- ---------- -------------------
Revenues from research and license agreements $ 491 $ 2,196 $ 63,601
Operating expenses:
Research and development 7,267 7,701 126,723
General and administrative 3,679 3,798 50,732
Amortization of goodwill and acquired intangibles 866 910 4,426
In-process research and development acquired - - 17,760
---------- ----------- -------------------
Total operating expenses 11,812 12,409 199,641
---------- ---------- -------------------
Operating loss (11,321) (10,213) (136,040)
Other income (expense):
Interest income 3,805 477 20,347
Interest expense (5) (25) (807)
Gain on sale of marketable investment securities 453 - 651
Gain (loss) on disposition of equipment, leasehold
improvements and leases 11 (837) (1,186)
Foreign currency transaction gain 3 - 140
Other 986 13 1,310
---------- ---------- -------------------
Total other income (expense) 5,253 (372) 20,455
---------- ---------- -------------------
Loss before tax expense (6,068) (10,585) (115,585)
Income tax expense - - 1,018
---------- ---------- -------------------
Loss before cummulative effect of change
in accounting principle (6,068) (10,585) (116,603)
Cummulative effect on prior years
(to December 31, 1999) of changing to a
different revenue recognition method - (500) (500)
---------- ---------- -------------------
Net loss $ (6,068) $ (11,085) $ (117,103)
========== ========== ===================
Basic and diluted loss per common and common
equivalent share:
Loss before cummulative effect of change
in accounting principle $ (0.20) $ (0.53)
Cummulative effect on prior years
(to December 31, 1999) of changing to a
different revenue recognition method $ - $ (0.03)
---------- ----------
Net loss $ (0.20) $ (0.56)
========== ==========
Weighted average common and common-equivalent
shares outstanding - basic and diluted 29,734 19,938
========== ==========
See accompanying notes to consolidated financial statements.
4
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended March 31, October 22, 1986
---------------------------------- (inception) through
2001 2000 March 31, 2001
------------ ------------ -------------------
Cash flows from operating activities:
Net loss $ (6,068) $ (11,085) $ (117,103)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,263 1,428 13,401
Loss (gain) on disposition of equipment,
leasehold improvements and leases (11) 837 1,186
Realized gain on sale of marketable
investment securities (453) - (651)
Issuance of common and preferred stock in lieu
of cash for services 378 204 1,653
Compensation expense on stock options 882 1,155 3,503
Write off of in-process research and development - - 17,760
Decrease (increase) in operating assets:
Accounts receivable (310) (135) (466)
Other current assets and other assets (1,750) 46 (2,249)
Increase (decrease) in operating liabilities:
Accounts payable, accrued expenses
and accrued severance (1,069) 2,064 289
Deferred income - 94 (486)
Due to related parties - 20 -
------------ ------------ -------------------
Net cash used in operating activities (7,138) (5,372) (83,163)
Cash flows from investing activities:
Net sale (purchase) of marketable investment securities (36,301) 7,806 (141,890)
Acquisition of equipment and leasehold improvements (366) (12) (10,567)
Proceeds from sale of equipment 9 3 1,284
Cash paid for acquisition, net of cash received - - (676)
------------ ------------ -------------------
Net cash provided by (used in)
investing activities (36,658) 7,797 (151,849)
Cash flows from financing activities:
Proceeds from note payable to bank - - 124
Proceeds from issuance of preferred stock - - 17,581
Proceeds from issuance of common stock 574 4,260 308,983
Proceeds from long-term debt - - 1,166
Principal payments on note payable to bank - - (124)
Principal payments under capital lease obligations (171) (115) (1,984)
Principal payments on long-term debt - (4) (2,854)
Repurchase of preferred stock - - (300)
------------ ------------ -------------------
Net cash provided by financing activities 403 4,141 322,592
Effect of exchange rate changes on cash (230) - (120)
------------ ------------ -------------------
Net increase (decrease) in cash and cash equivalents (43,623) 6,566 87,460
Cash and cash equivalents at beginning of period 131,083 13,116 -
------------ ------------ -------------------
Cash and cash equivalents at end of period $ 87,460 $ 19,682 $ 87,460
============ ============ ===================
See accompanying notes to consolidated financial statements.
5
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
October 22, 1986
Three Months Ended March 31, (inception) through
----------------------------------
2001 2000 March 31, 2001
-------------- -------------- -------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 5 $ 25 $ 807
Cash paid for taxes -- -- 1,018
Supplemental Schedule of Noncash Investing and
Financing Activities:
Acquisition of equipment through incurrence of
capital lease obligations -- -- 1,478
Acquisition of leasehold improvements through
incurrence of debt -- -- 197
Issuance of stock for stock subscription receivable 23 -- 4,023
Accrual of deferred offering costs -- -- 150
Change in unrealized gain/loss on marketable
investment securities 768 28 959
Issuance of common stock in exchange for
minority interest -- -- 2,500
See accompanying notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements included
herein have been prepared by NPS Pharmaceuticals, Inc. (NPS) pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). The
consolidated financial statements include the financial statements of NPS and
its Canadian operating subsidiary NPS Allelix Corp. (NPS Allelix), formerly
Allelix Biopharmaceuticals Inc., collectively referred to as the Company.
Investments in a limited liability partnership and in non-public corporations in
which the Company has the ability to exercise significant influence, but not
control, are accounted for by the equity method. The Company carries all other
investments in non-public corporations at cost. In management's opinion, the
interim financial data presented includes all adjustments (consisting solely of
normal recurring items) necessary for fair presentation. All intercompany
accounts and transactions have been eliminated. All monetary amounts are
reported in U.S. dollars unless specified otherwise. Certain information
required by generally accepted accounting principles has been condensed or
omitted pursuant to rules and regulations of the SEC. Operating results for the
three months ended March 31, 2001, are not necessarily indicative of the results
that may be expected for any future period or the year ending December 31, 2001.
This report should be read in conjunction with the Company's audited
consolidated financial statements and the notes thereto for the year ended
December 31, 2000, included in the Company's Annual Report on Form 10-K filed
with the SEC.
The preparation of the consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
(2) Loss Per Common Share
Basic loss per common share is the amount of loss for the period
available to each common and exchangeable share outstanding during the reporting
period. Diluted loss per common share is the amount of loss for the period
available to each common and exchangeable share outstanding during the reporting
period and to each share that would have been outstanding assuming the issuance
of common shares for all dilutive potential common shares outstanding during the
period.
Loss per common share was the same for both the basic and diluted
calculations. Common stock equivalents (stock options and warrants outstanding)
of approximately 2.4 million and 2.5 million shares for the three months ended
March 31, 2001 and 2000, respectively, that could potentially dilute basic
earnings per share in the future were not included in the computation of diluted
loss per share because to do so would have been anti-dilutive for the periods
presented.
(3) Operating Segment
The Company is engaged in the discovery, development, and
commercialization of small molecule drugs and recombinant proteins and in its
current state of development, considers its operations to be a single reportable
segment. Financial results of this reportable segment are presented in the
accompanying consolidated financial statements.
7
(4) Comprehensive Loss
The components of the Company's comprehensive loss are as follows, in
thousands:
Three months ended Three months ended
March 31, 2001 March 31, 2000
------------------ ------------------
Other comprehensive loss:
Gross unrealized gain on marketable
investment securities $(1,221) $ (28)
Reclassifications for realized gain on
marketable investment securities 453 --
------- -------
Net realized gain on marketable
investment securities (768) (28)
Foreign currency translation loss 1,101 --
Net loss 6,068 11,085
------- -------
Comprehensive loss $ 6,401 $11,057
======= =======
(5) Plan of Termination
As of December 31, 2000, the Company had a balance of approximately
$154,000 for accrued severance for salaries and benefits payable to former
employees under formal plans of termination. Approximately $110,000 was paid in
severance benefits during the first three months of 2001.
Effective February 6, 2001, the Company terminated the employment of five
administrative employees. The Company recorded $516,000 for severance benefits
for these employees, which is included in general and administrative expense
during the three months ended March 31, 2001. This amount is included as a
liability at March 31, 2001.
(6) Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement on
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, in 1998. SFAS No. 133, as amended by SFAS
Nos. 137 and 138, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. For a derivative not designated as a hedging instrument, changes
in the fair value of the derivative are recognized in earnings in the period of
change. Because the Company does not currently hold any derivative instruments
and does not engage in hedging activities, the Company's adoption of SFAS No.
133, on January 1, 2001, did not have an impact on its consolidated financial
position, results of operations, or cash flows.
In December 1999, the Securities and Exchange Commission staff issued
Staff Accounting Bulletin No. 101, Revenue Recognition (SAB No. 101) to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. SAB No. 101 explains the SEC's general framework for revenue
recognition. The Company adopted SAB No. 101 in the fourth quarter of 2000 and
in accordance with Accounting Principles Board (APB) Opinion No. 20, Accounting
Changes, and Statement of Financial Accounting Standards (SFAS) No. 3, Reporting
Accounting Changes in Interim Financial Statement, results of operations for the
quarterly information for March 31, 2000 have been restated to reflect the new
revenue recognition policy. The effect of the adoption of SAB No. 101 on deficit
accumulated during development stage as of January 1, 2000 has been reflected as
a cumulative effect of change in accounting principle in the net loss for the
three months ended March 31, 2000. Based on the criteria included in SAB No.
101, the Company concluded that
8
nonrefundable license fees should be recognized over the period wherein the
Company has continuing involvement. The cumulative effect includes the reversal
of $500,000 related to revenue recognized in prior periods, $250,000 of which
was then recognized in the three months ended March 31, 2000.
(7) Legal Proceedings
The Company is involved in various legal actions that arose in the
normal course of business. Although the final outcome of such matters cannot be
predicted, the Company believes the ultimate disposition of these matters will
not have a material adverse effect on the Company's consolidated financial
position, results of operations, or liquidity.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING THE FINANCIAL STATEMENTS
AND NOTES THERETO, CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES ARE DISCUSSED IN THIS DOCUMENT, AS WELL AS IN OUR ANNUAL REPORT ON
SEC-FILED FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000, UNDER THE HEADING
"RISK FACTORS."
Overview
We discover, develop and intend to commercialize small molecule drugs
and recombinant proteins, primarily for bone and mineral disorders and central
nervous system disorders. We have five drugs in clinical development and several
preclinical product candidates. Our two most advanced product candidates focus
on bone and mineral disorders. They are AMG 073, which has completed a series of
Phase II clinical trials for treatment of hyperparathyroidism, and ALX1-11,
which is in a pivotal Phase III clinical trial for treatment of post-menopausal
osteoporosis.
Substantially all of our resources are devoted to our research and
development programs. To date, we have not completed the development of any
pharmaceutical product for sale. We have incurred cumulative losses through
March 31, 2001 of approximately $117.1 million, net of cumulative revenues from
research and license agreements of approximately $63.6 million. We expect to
incur significant operating losses over at least the next several years as we
continue current clinical trial activities, expand our clinical trials for other
product candidates, and research activities. In particular, we are conducting a
1,800 to 2,000 patient Phase III clinical trial for ALX1-11, and expect to
expend significant resources on the development of this product.
9
Results of Operations
Revenues
Substantially all our revenues have come from license fees, milestone
payments, and research and development support payments from our licensees and
collaborators. These revenues fluctuate from quarter to quarter. Our revenues
were $491,000 for the quarter ended March 31, 2001, compared to $2.2 million for
the quarter ended March 31, 2000. The decrease in revenues for the three months
ended March 31, 2001 was primarily due to the expiration during 2000 of research
and development support payments under existing license or collaborative
agreements. See "Liquidity and Capital Resources" below for further discussion
of payments that we may earn in the future under these agreements.
Operating Expenses
Research and Development
Our research and development expenses arise primarily from compensation
and other related costs of our personnel who are dedicated to research and
development activities and from the fees paid to outside professionals to
conduct sponsored research, clinical studies, and trials. Our research and
development expenses of $7.3 million for the quarter ended March 31, 2001, were
consistent with $7.7 million for the comparable period of 2000. We continue to
incur research and development expenses relating to a pivotal Phase III clinical
trial for ALX1-11 and a pilot Phase II clinical trial for ALX-0600. We have the
right to be reimbursed under our agreement with Technology Partnerships Canada,
or TCP, for a portion of our research and development expenses for ALX-0600. We
expect research and development expenses to continue at this level or higher as
these clinical trials progress. We may incur additional research and development
expenses if we start other clinical trials, or if we acquire new technologies,
product candidates or companies.
General and Administrative
Our general and administrative expenses consist primarily of the costs
of our executive management, finance and administrative staff, business
insurance, taxes and professional fees. Our general and administrative expenses
were $3.7 million for the quarter ended March 31, 2001, compared to $3.8 million
for the quarter ended March 31, 2000. We expect that general and administrative
expenses in future quarters will equal or exceed the amount recognized in the
first quarter of 2001 in order to support operations in Canada and the U.S. and
pre-launch commercialization costs for product candidates.
Amortization of Goodwill and Acquired Intangibles
We are required to amortize goodwill and other acquired intangibles as
a result of our December 1999 acquisition of Allelix. The remaining intangible
assets at March 31, 2001 total approximately $13.4 million. We are amortizing
these assets over their expected lives, which range from two to six years. We
recorded amortization expense of $866,000 for the three months ended March 31,
2001 as compared to $910,000 for three months ended March 31, 2000.
10
In-Process Research and Development Acquired
We recorded an expense of $17.8 million in 1999 for in-process research
and development that we acquired as part of our purchase of NPS Allelix. The
acquired in-process research and development consisted of five drug development
programs. The two most advanced product candidates, ALX1-11, for osteoporosis,
and ALX-0600, for gastrointestinal disorders, accounted for 83% of the total
value of the acquired in-process research and development.
Since the date of the acquisition, we revised our plans for the next
series of clinical trials for ALX1-11 and ALX-0600. We started a pivotal Phase
III clinical trial with ALX1-11, which includes an 18-month course of treatment
in 1,800 to 2,000 patients with osteoporosis. We also started enrolling a small
number of patients with short bowel syndrome in a pilot Phase II clinical trial
with ALX-0600. Since the date of acquisition and through March 31, 2001, we have
incurred development costs of approximately $16.0 million for ALX1-11 and $2.1
million for ALX-0600. Total development costs and time-to-completion for each of
these product candidates will depend on the costs we incur to conduct current
clinical trials and to perform any additional work we find necessary to obtain
FDA approval.
We believe the assumptions we used in the valuation of the in-process
research and development we acquired from NPS Allelix were reasonable at the
time of the acquisition. However, we have modified our development plans as new
data have become available regarding each product candidate. Accordingly, actual
results may vary from the projected results in the valuation.
Total Other Income, Net
Our total other income (loss), net, increased from a loss of $372,000
to income of $5.3 million for the three months ended March 31, 2001, as compared
with the same period in the prior year. The increase for the three months ended
March 31, 2001 is mainly the result of increased interest income of $3.3 million
and an increased gain on sale of marketable investment securities of $453,000,
both resulting from higher cash, cash equivalent, and marketable investment
security balances. These balances increased primarily due to cash received from
a private placement offering of 3.9 million common shares of the Company which
was completed in February 2000 and closed in April 2000, and from a follow-on
offering of 4.6 million common shares of the Company which was completed in
November 2000. We expect that interest income will continue to be higher in 2001
due to higher average cash, cash equivalent, and marketable investment security
balances for the year resulting from these offerings in 2000. However, we
anticipate that interest income will decrease in the future as cash is utilized
for operations. Additionally, we recorded a non-cash loss of approximately
$840,000 during the three months ended March 31, 2000 associated with closing a
facility in New Jersey that we acquired as part of the Allelix transaction. A
similar loss was not recorded during the three months ended March 31, 2001.
Finally, we recorded income from an equity investment of $964,000 during the
three months ended March 31, 2001. Our equity investee, for which we had an
investment balance of zero, distributed proceeds from the sale of substantially
all of its assets to a third party.
11
Cumulative Effect on Prior Years (to December 31, 1999) of Changing to a
Different Revenue Recognition Method
In December 1999, the Securities and Exchange Commission staff issued
Staff Accounting Bulletin No. 101, Revenue Recognition (SAB No. 101) to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. SAB No. 101 explains the SEC's general framework for revenue
recognition. We adopted SAB No. 101 in the fourth quarter of 2000 and in
accordance with Accounting Principles Board (APB) Opinion No. 20, Accounting
Changes, and Statement of Financial Accounting Standards (SFAS) No. 3, Reporting
Accounting Changes in Interim Financial Statement, results of operations for the
quarterly information for March 31, 2000 have been restated to reflect the new
revenue recognition policy. The effect of the adoption of SAB No. 101 on deficit
accumulated during development stage as of January 1, 2000 has been reflected as
a cumulative effect of change in accounting principle in the net loss for the
three months ended March 31, 2000. Based on the criteria included in SAB No.
101, we concluded that nonrefundable license fees should be recognized over the
period wherein we have continuing involvement. The cumulative effect includes
the reversal of $500,000 related to revenue recognized in prior periods,
$250,000 of which was then recognized in the three months ended March 31, 2000.
Liquidity and Capital Resources
We have financed operations since inception primarily through
collaborative research and license agreements and the private and public
placement of equity securities. As of March 31, 2001, we had recognized $63.6
million of cumulative revenues from payments for research support and license
fees and $326.3 million from the sale of equity securities for cash. The sale of
equity securities includes $424,000 received from the exercise of options during
the first three months of 2001 and $150,000 from the sale of common stock under
the terms of our Employee Stock Purchase Plan. Our principal sources of
liquidity are cash, cash equivalents, and marketable investment securities,
which totaled $241.3 million at March 31, 2001.
Net cash used in operating activities was $7.1 million for the three
months ended March 31, 2001 compared to $5.4 million for the three months ended
March 31, 2000. The increase in cash used in operating activities was due
primarily to increases in cash used for other current assets and other assets of
$1.8 million and to increases in cash used for accounts payable, accrued
expenses, and accrued severance of $3.1 million, offset by a decrease in the net
loss of $3.2 million, excluding all non-cash expense/income, for the three
months ended March 31, 2001 as compared with the same period in the prior year.
Net cash used in investing activities was $36.7 million for the three months
ended March 31, 2001 compared to net cash provided by investing activities of
$7.8 million for the three months ended March 31, 2000. Net cash used in
investing activities in 2001 was almost entirely the result of continuing to
invest the proceeds from our offerings in 2000 in marketable investment
securities. Net cash provided by financing activities was $403,000 for the three
months ended March 31, 2001 compared to $4.1 million for the three months ended
March 31, 2000. Net cash provided by financing activities in 2000 resulted
primarily from the proceeds from the exercise of outstanding options and
warrants. The activity of employees exercising options decreased in 2001 as
compared to the same quarter in the prior year.
12
During the past, we have received quarterly research and/or development
support payments under our agreements with Amgen, Kirin, and GlaxoSmithKline,
and under NPS Allelix's agreements with Janssen and Eli Lilly Canada. With the
exception of GlaxoSmithKline, all of the research and development support
payments under these agreements expired in 2000. Funded research with
GlaxoSmithKline continues on a month-to-month basis. We do not receive any
research and development support payments under our agreements with Abbott
Laboratories, Forrest Laboratories, or AstraZeneca. However, we could receive
future payments of up to $142.5 million in the aggregate if these parties
accomplish specified research and/or development milestones under our agreements
with all of those parties. Some of the late-stage development milestone payments
will not be due from AstraZeneca if we elect a co-promotion option. All of the
agreements also require the licensees to make royalty payments to us if they
sell products derived from the license rights. However, we do not control the
subject matter, timing or resources applied by our licensees to their
development programs. Thus, potential receipt of milestone payments from these
licensees is largely beyond our control. Each of these agreements may be
terminated before its scheduled expiration date by the respective licensee under
certain conditions.
We have an agreement with TPC, a Canadian government program, under
which TPC will reimburse us for our research expenses for treatments for various
intestinal disorders using our ALX-0600 product. TPC will reimburse us for 30%
of the qualified costs we incur through December 2002, to a maximum of Cdn. $8.4
million. We will pay a 10% royalty to TPC on revenues received from the sale or
license of any product we develop from the funded research. These payments
terminate in December 2008 if we have paid TPC a total of at least Cdn. $23.9
million through that date, or if we have paid TPC less than that amount through
that date, the payments continue until the earlier of when we have paid TPC a
total of Cdn $23.9 million or December 2017. As of March 31, 2001, we have
invoiced TPC for a total of Cdn $3.3 million for reimbursement.
We have entered into service agreements and sponsored research and
license agreements that obligate us to purchase services and to make research
support payments to academic and/or commercial research institutions. We may be
required to make additional payments if the research institutions reach
milestones, or for license fees or royalties to maintain the licenses. We expect
to enter into additional sponsored research and license agreements in the
future.
We expect that our existing capital resources, including interest
earned thereon, will be sufficient to allow us to maintain our current and
planned operations for at least the next 24 months. However, our actual needs
will depend on numerous factors, especially with regard to the clinical trial
and pre-launch marketing and production costs for ALX1-11. Furthermore, if we
advance current propriety programs or if we in-license or otherwise acquire
other technologies, product candidates or companies, we may need to make
substantial additional expenditures.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement on
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities in 1998. SFAS No. 133, as amended by SFAS
Nos. 137 and 138, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. For a derivative not designated as a hedging instrument, changes
in the fair value of the derivative are recognized in earnings in the period of
change. Because we do not currently hold any derivative instruments, and do not
engage in hedging activities, our adoption of SFAS No. 133 on January 1, 2001
did not have an impact on our consolidated financial position, results of
operations, or cash flows.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Our primary objectives in managing our investment portfolio are to
preserve principal, maintain proper liquidity to meet operating needs and
maximize yields. The securities we hold in our investment portfolio are subject
to interest rate risk. We have established policies and procedures to manage
exposure to fluctuations in interest rates. We place our investments with high
quality issuers and limit the amount of credit exposure to any one issuer and do
not use derivative financial instruments in our investment portfolio. We
maintain an investment portfolio of various issuers, types and maturities, which
consist mainly of fixed-rate financial instruments. These securities are
classified as available-for-sale and, consequently, are recorded on the balance
sheet at fair value with unrealized gains or losses reported as accumulated
other comprehensive income as a separate component in stockholders' equity. At
any time, sharp changes in interest rates can affect the fair value of the
investment portfolio and its interest earnings. Currently, we do not hedge these
interest rate exposures. After a review of our marketable securities, we believe
that in the event of a hypothetical 10% increase in interest rates, the
resulting decrease in fair market value of our marketable investment securities
would be insignificant to the financial statements.
Foreign Currency Risk
Some of our research and development operations are in Canada. As a
result, our financial results could be affected by factors such as a change in
the foreign currency exchange rate between the U.S. dollar and the Canadian
dollar, or by weak economic conditions in Canada. When the U.S. dollar
strengthens against the Canadian dollar, the cost of expenses in Canada
decreases. When the U.S. dollar weakens against the Canadian dollar, the cost of
expenses in Canada increases. The monetary assets and liabilities in our foreign
subsidiary which are impacted by the foreign currency fluctuations are cash,
marketable investment securities, accounts receivable, accounts payable, and
certain accrued liabilities. A hypothetical 10% increase or decrease in the
exchange rate between the U.S. dollar and the Canadian dollar from the March 31,
2001, rate would cause the fair value of such monetary assets and liabilities in
Canada to change by an insignificant amount. We are not currently engaged in any
foreign currency hedging activities, although we may engage in those types of
activities in the future.
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.
NPS Pharmaceuticals, Inc.
Date: May 15, 2001 By: /s/ James U. Jensen
---------------------------------------------
James U. Jensen, Vice President
Corporate Development and Legal Affairs
(Executive Officer)
Date: May 15, 2001 By: /s/ Robert K. Merrell
---------------------------------------------
Robert K. Merrell, Vice President, Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
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