U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1998
or
[_] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
For the transition period from to
_____________
Commission file number 0-27914
RIBOZYME PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
_____________
Delaware 34-1697351
- -------- ----------
(State of incorporation) (I.R.S.Employer
Identification No.)
2950 Wilderness Place
Boulder, Colorado 80301
(Address of principal executive offices)
Registrant's telephone number: (303) 449-6500
_____________
Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
----- -----
The number of shares of the registrant's common stock, par value $0.01 per
share, outstanding as of August 5, 1998 was 9,110,031.
RIBOZYME PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
PART 1 - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997.............................................. 3
Condensed Statements of Operations - Three and Six Months Ended
June 30, 1998 and 1997 (unaudited)............................. 4
Condensed Statements of Cash Flows - Six Months Ended
June 30, 1998 and 1997 (unaudited)............................. 5
Notes to Condensed Financial Statements (unaudited)............ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 10
PART II - OTHER INFORMATION
Item 2. Changes in Securities.......................................... 11
Item 4. Submission of Matters to a Vote of Security Holders............ 11
Item 6. Exhibits and Reports on Form 8-K............................... 12
SIGNATURES.............................................................. 13
Exhibit Index........................................................... 14
2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
RIBOZYME PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
ASSETS
------
June 30, December 31,
1998 1997
----------- ------------
(unaudited)
Current assets
- --------------
Cash and cash equivalents $ 9,431,041 $15,302,775
Securities available-for-sale 1,799,624 799,616
Prepaid expenses and other current assets 508,229 363,603
----------- -----------
Total current assets 11,738,894 16,465,994
Equipment and leasehold improvements at cost,
net of accumulated depreciation and amortization 4,708,708 4,957,165
Notes receivable-related parties 164,466 231,932
Patent costs, net 2,711,932 2,510,705
Other assets, net 608,854 684,245
Total assets $19,932,854 $24,850,041
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
- -------------------
Accounts payable-trade $ 1,070,495 $ 904,681
Accrued expenses 78,608 245,956
Current portion of long-term debt 1,645,847 2,077,771
----------- -----------
Total current liabilities 2,794,950 3,228,408
Long-term debt 502,794 698,633
Convertible debt 4,179,607 2,052,889
Stockholders' equity
- --------------------
Common stock 91,078 86,070
Additional paid-in capital 84,076,632 81,424,341
Deferred compensation and other (130,688) (135,376)
Accumulated deficit (71,581,519) (62,504,924)
----------- -----------
Total stockholders' equity 12,455,503 18,870,111
Total liabilities and stockholders' equity $19,932,854 $24,850,041
=========== ===========
See notes to condensed financial statements
3
RIBOZYME PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
Revenue
Collaborative agreements $ 752,175 $ 500,000 $ 1,492,175 $ 894,000
Other income - 1,485 25,045 2,971
Interest income 167,666 176,125 379,995 381,620
----------- ----------- ----------- -----------
Total revenues 919,841 677,610 1,897,215 1,278,591
Expenses
Research and development 4,580,880 3,172,137 9,581,750 6,154,454
General and administrative 514,632 432,518 981,837 822,109
Interest expense 240,586 191,919 410,223 436,704
----------- ----------- ----------- -----------
Total expenses 5,336,098 3,796,574 10,973,810 7,413,267
Net loss $(4,416,257) $(3,118,964) $(9,076,595) $(6,134,676)
=========== =========== =========== ===========
Net loss per share $ (0.49) $ (0.44) $ (1.03) $ (0.87)
Shares used in computing
net loss per share 9,049,656 7,118,054 8,830,197 7,038,128
========= ========= ========= =========
See notes to condensed financial statements
4
RIBOZYME PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
---------------------------
1998 1997
---- ----
OPERATING ACTIVITIES
Net loss $(9,076,595) $(6,134,676)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 914,509 839,782
Compensation for forgiveness of notes
receivable-related parties 92,466 92,466
Compensation related to sales of stock 19,178 63,118
Gain on sale of investment in corporate partner (25,045)
Changes in operating assets and liabilities:
Accounts receivable (226,631) 74,022
Prepaid expenses and other 19,985 (13,816)
Other assets (166,427) (17,802)
Accounts payable 165,814 (4,630)
Accrued expenses (40,630) (120,208)
Deferred gain - (2,971)
----------- -----------
Net cash used in operating activities (8,323,376) (5,224,715)
INVESTING ACTIVITIES
Additions to property, plant and equipment (640,055) (879,970)
Additions to deferred patent costs (235,405) (364,255)
Net sales (purchases) of securities available-for-sale (995,320) 3,749,153
Sale of investment in corporate partner 275,045 -
Transfer of restricted cash 45,145 145,273
Loan repayments-related parties 1,875 1,500
Loan advances-related parties (10,000) (75,000)
----------- -----------
Net cash provided by (used in) investing activities (1,558,715) 2,576,701
FINANCING ACTIVITIES
Net proceeds from sale of common stock 2,638,121 2,656,802
Payments under loan facilities (627,764) (839,999)
Borrowings under loan facilities 2,000,000 254,460
----------- -----------
Net cash provided by financing activities 4,010,357 2,071,263
Net (decrease) in cash and cash equivalents (5,871,734) (576,751)
Cash and cash equivalents at beginning of period 15,302,775 13,050,678
----------- -----------
Cash and cash equivalents at end of period $ 9,431,041 $12,473,927
=========== ===========
See notes to condensed financial statements.
5
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
Note 1: Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six-month period ending June
30, 1998 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1998. For further information, refer to the
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1997.
Note 2: Net loss per share
In 1997, the Financial Accounting Standards Board (FASB) issued Statement No.
128, Earnings per Share (SFAS 128). SFAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
potentially dilutive securities. Diluted earnings per share is very similar to
the previously reported fully diluted earnings per share. No restatement of
prior periods is necessary as the potentially dilutive securities have been
excluded from the computation as their effect is antidilutive.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Ribozyme Pharmaceuticals, Inc. ("RPI" or the "Company") was founded to
capitalize on the broad potential of ribozymes for use in the development of
human therapeutics and therapeutic target validation services. The Company's
technology is based on Professor Thomas R. Cech's discovery of "ribozymes," for
which he shared a Nobel Prize in 1989. Ribozymes are a form of ribonucleic acid
("RNA") that have the ability to selectively inhibit protein production.
Because many disease states are the result of abnormal protein production,
ribozymes are potentially applicable to a wide range of human diseases. RPI
believes that its ribozyme technology may provide a new paradigm for drug design
and disease treatment and may be a significant tool for the identification of
gene function and target validation. The Company has entered into a
collaboration with Chiron Corporation ("Chiron") to develop ribozyme products
for specific therapeutic targets in human health, a second collaboration with
Chiron in the target validation area, and collaborations with Schering AG,
Germany ("Schering AG"), with the Parke-Davis division of Warner-Lambert
Corporation ("Parke-Davis"), with Roche Bioscience and with Glaxo Research and
Development Ltd. ("Glaxo Wellcome") to validate new therapeutic targets from
gene sequence data using the Company's functional genomics technology. The
Company has also licensed its technology to DowElanco for certain agricultural
applications and IntelliGene, Ltd. ("IntelliGene") for certain diagnostic
applications.
In June 1998, the Company announced the formation of a new company, Atugen
Biotechnology GmbH ("Atugen"), in Berlin, Germany that will utilize RPI's
proprietary ribozyme and related technologies as a continuation of Company's
target validation and discovery business. The formation of Atugen is taking
place through private sector investments and funding commitments from the German
Government as part of its initiative to encourage new biotechnology investments
in Germany. The Company plans to retain a majority ownership position in
Atugen, receive license fees and have other on-going business relationships with
Atugen.
The Company currently has no sales revenue from any of its drug candidates,
has incurred losses since inception and, as of June 30,1998 has accumulated a
deficit of $71.6 million. The Company anticipates incurring additional losses
over at least the next several years as it expands its research and development
programs, including pre-clinical studies and clinical trials. Such expansion
will result in increases in research and development, and general and
administrative expenses. The Company's results of operations may vary
significantly from period to period depending on several factors, such as timing
of certain expenses, the progress of the Company's research and development
efforts and fluctuations in collaborative payments.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1998 and 1997
Collaborative revenues increased to $752,000 and $1.5 million for the three
and six months ended June 30, 1998, from $500,000 and $894,000 for the
corresponding periods in 1997. The increase is primarily due to $500,000
quarterly research payments made by Schering AG in both the first and second
quarters of 1998. The Schering AG collaboration began in April 1997; therefore,
Schering AG made only one such payment for the corresponding periods in 1997.
In addition, certain payments to the Company were made in connection to
agreements with Parke-Davis, IntelliGene and ALZA Corporation.
7
Generally, collaborative agreement and contract revenue fluctuations are the
result of changes in the number of funded research projects as well as the
timing and completion of contract milestones.
During the first quarter of 1998, the Company recorded as other income a
gain of $25,000 from the sale of stock in a corporate partner. The privately
held stock, which was purchased by the Company in the first quarter of 1996 for
$250,000, was sold back to the corporate partner in January 1998.
Interest income has decreased slightly to $168,000 and $380,000 for the
three and six months ended June 30, 1998 compared to $176,000 and $382,000 for
the corresponding periods in 1997. The slight decrease is due to lower average
balances in the Company's cash and cash equivalents and securities available-
for-sale during the second quarter of 1998, as compared to the same quarter in
1997. Interest income generally fluctuates as a result of the average amount of
cash available for investment and prevailing interest rates.
Research and development expenses increased 44% to $4.5 million for the
three months ended June 30, 1998, compared to $3.2 million for the corresponding
period in 1997. In addition, research and development expenses increased 57% to
$9.6 million for the six months ended June 30, 1998, compared to $6.2 million
for the corresponding period in 1997. The increase is due to increased staffing
and raw material purchases in order to scale-up clinical development and
research efforts. The Company expects research and development expenses to
increase as it expands its research and development programs, including pre-
clinical studies and clinical trials.
General and administrative expenses increased 19% to $515,000 and $982,000,
for the three and six months ended June 30, 1998, compared to $433,000 and
$822,000, respectively, for the corresponding periods in 1997. The increase is
primarily the result of increased staffing and associated expenses necessary to
manage and support the Company's expanding operations and business development
efforts. The Company expects general and administrative expenses to continue to
increase as a result of hiring additional management and administrative
personnel and the incurring of legal and other professional fees in connection
with the overall scale-up of the Company's operations and business development
efforts.
Interest expense increased 25% to $241,000 for the three months ended June
30, 1998, compared to $192,000 for the corresponding period in 1997. The
increase is attributable to accruing interest on $2.0 million borrowed during
the first half of 1998 pursuant to an agreement with Schering AG. According to
the terms of the agreement, principle and interest payments are deferred until
maturity of the loans which is in April 2004. Interest expense is expected to
increase as the Company arranges for additional financing for future operation
of its business.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception through public
offerings in April 1996 and October 1997, private placements of preferred stock,
loans from financial institutions and funds received under the Company's
collaborative agreements with a number of corporate partners including Schering
AG, Chiron, Parke-Davis and DowElanco. From inception through June 30, 1998, the
Company has received approximately $29.0 million in net proceeds from private
placements, $31.1 million in net proceeds from public offerings, $9.8 million in
loans and $28.7 million from its collaborations.
The Company's cash, cash equivalents and securities available-for-sale were
$11.2 million at June 30, 1998, compared to $16.1 million on December 31, 1997.
The $4.9 million decrease in cash,
8
cash equivalents and securities available-for-sale is primarily the result of
$10.1 million used for operations, $875,000 for investments in equipment and
patents, and $628,000 in payments under loan facilities, offset by collaborative
funding and interest income of $1.9 million, loan proceeds of $2.0 million,
proceeds of $275,000 from the sale of a corporate partner's stock, and proceeds
of $2.5 million from the sale of the Company's stock to a corporate partner.
The Company invests its cash, cash equivalents and securities
available-for-sale in interest-bearing investment grade securities.
As of June 30, 1998, up to $2.0 million in loans are available to the
Company in each calendar year through the year 2001, from Schering AG. The
Company received the first loan of $2.0 million in September 1997 and additional
loans of $1.0 million each in January 1998 and May 1998. The loans are related
to the Schering AG research collaboration entered into in April 1997. Amounts
not used in any calendar year may be carried forward to future years. According
to the terms of the Company's agreement with Schering AG, 50% of any borrowings
on the line of credit must be collateralized by equipment purchases. The loans,
which carry an interest rate of 8% per annum, are convertible into equity at the
option of Schering AG under certain circumstances. At June 30, 1998, the
outstanding borrowings of $4.2 million were convertible into approximately
825,600 shares of the Company's common stock. Principle and interest payments
are deferred until maturity of the loans which is in April 2004. In addition to
the line of credit, Schering AG agreed to provide $2.0 million in annual
research funding for each year through April 2001, as well as $2.5 million per
year in equity investments in each of years 1997 and 1998. In 1997, Schering AG
made an equity investment of $2.5 million in exchange for 212,766 shares of the
Company's common stock and in April 1998, Schering AG provided an additional
equity investment of $2.5 million in exchange for 465,117 shares of the
Company's common stock. Future loan and research funding payments may be
subject to certain restrictions, including receipt of certain third party
consents, and may be subject to the termination of the research collaboration at
Schering AG's option at any time after April 8, 1998.
Total additions for property, plant and equipment for the three months
ended June 30, 1998, were $640,100, all of which were financed through the
Company's existing loan facility from Schering AG.
The Company anticipates that its existing available cash, cash
equivalents and securities available-for-sale, combined with anticipated
interest income and collaboration revenues will be adequate to satisfy its
anticipated capital requirements until mid 1999. The Company expects to incur
substantial additional research and development costs, including: costs related
to the Company's research, drug discovery and development programs; Company
acquisition of interests in products or services currently held by third
parties; preclinical and clinical trials of the Company's products, if
developed; manufacturing and marketing of products, if any; as well as expenses
such as prosecuting and enforcing patent claims and general administrative and
legal expenses. The Company will consider raising cash whenever market
conditions are favorable. Such capital may be raised through additional public
or private financing, as well as collaborative relationships, borrowings and
other available sources. There can be no assurance that such funds will be
available on favorable terms, if at all. If additional funds are raised by
issuing equity securities, further dilution to then existing stockholders may
result. There can be no assurance that any collaborative relationships will
successfully reduce the Company's funding requirements, and arrangements with
collaborative partners or others may require the Company to relinquish or reduce
rights to certain of its technologies, product candidates or products.
In 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 Reporting Comprehensive Income, and Statement of Financial Accounting
Standards No. 131, Disclosures about
9
Segments of an Enterprise and Related Information, both of which are required to
be adopted by the Company in 1998. The Company is not required to adopt the
Standards for interim periods, but will adopt the standards for the year ended
December 31, 1998. The Company does not expect any significant changes in its
financial reporting or related disclosures as a result of adoption of these
Statements.
Until recently most computer programs were written to store only two
digits of date-related information in order to more efficiently handle and store
data. Thus the programs were unable to properly distinguish between the year
1900 and the year 2000. This is referred to as the "Year 2000 Issue." During
1997, the Company reviewed all internal, external and third-party computer
applications and determined that there is no significant exposure to the Year
2000 Issue. Management does not believe the Company will have to modify or
replace any significant portions of its computer applications in order for the
computer systems to function properly with respect to the dates in the year 2000
and thereafter.
Statements in this Form 10-Q which are not strictly historical are
"forward-looking" statements which should be considered as subject to the many
uncertainties that exist in the Company's operations and business environment.
These uncertainties, which include, among other things, the following: general
economic and business conditions; competition; technological advances; ability
to obtain rights to technology; ability to obtain and enforce patents; ability
to commercialize and manufacture products; ability to obtain collaborators;
ability to manufacture ribozymes in adequate amounts for its collaborations and
clinical trials; results of clinical studies; results of research and
development activities; business abilities and judgment of personnel;
availability of qualified personnel; changes in, or failure to comply with,
governmental regulations; ability to obtain adequate financing in the future;
and the like, are set forth in the Company's 10-KSB for the year ended December
31, 1997 which is on file with the U.S. Securities and Exchange Commission, a
copy of which is available from the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to information required regarding
quantitative and qualitative disclosures about market risk from the end of the
preceding fiscal year to the date of the most recent interim balance sheet.
10
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Pursuant to a Purchase Agreement dated April 9, 1997 between the Company
and Schering Berlin Venture Corporation and Schering Aktiengesellschaft, the
Company issued 465,117 shares of its common stock in exchange for $2.5 million
on April 9, 1998. These securities were issued in reliance upon Section 4(2) of
the Securities Act of 1933, as amended.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 22, 1998, the Company held its Annual Meeting of Shareholders.
Matters voted on and the results of such voting are as follows:
1. The election of six directors to hold office until the next Annual Meeting
of Shareholders or until their respective successors shall be elected and
qualified. The following persons were elected as directors of the Company
and received the number of votes set forth below:
Director For Against
-------- --- -------
David T. Morgenthaler 6,190,853 29,645
Jeremy Curnock Cook 6,190,853 29,645
Anders P. Wiklund 6,190,853 29,645
Ralph E. Christoffersen 6,190,441 30,057
Anthony B. Evnin 6,190,853 29,645
David Ichikawa 6,190,853 29,645
2. To ratify the selection of Ernst & Young, LLP as the Company's independent
auditors for 1998.
For: 6,203,090
Against: 6,700
Abstain: 10,708
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i) Amended and Restated Certificate of Incorporation (1)
3(ii) Restated Bylaws (2)
10.1 Research Collaboration and License Agreement dated May 19,
1998 between the Company and Roche Bioscience, a division of
Syntex (U.S.A) Inc.(3)
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
for which this report on Form 10-Q is filed.
______
(1) Incorporated by reference from the Company's Registration Statement on Form
SB-2, file no. 333-34981, dated September 5, 1997.
(2) Incorporated by reference from the Company's Registration Statement on Form
SB-2, file no. 333-1908-D, dated April 11, 1996.
(3) To be filed by amendment. The Company will apply for confidential treatment
with respect to portions of this exhibit.
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.
RIBOZYME PHARMACEUTICALS, INC.
Dated: August 13, 1998 By: /s/ RALPH E. CHRISTOFFERSEN
--------------- ----------------------------
Ralph E. Christoffersen
President and Chief
Executive Officer
Dated: August 13, 1998 By: /s/ LAWRENCE E. BULLOCK
--------------- -----------------------
Lawrence E. Bullock
Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
13
Exhibit Index
Exhibit Exhibit
No. Description
--- -----------
3(i) Amended and Restated Certificate of Incorporation (1)
3(ii) Restated Bylaws (2)
10.1 Research Collaboration and License Agreement dated May 19, 1998
between the Company and Roche Bioscience, a division of Syntex
(U.S.A) Inc.(3)
27 Financial Data Schedule
_____
(1) Incorporated by reference from the Company's Registration Statement on Form
SB-2, file no. 333-34981, dated September 5, 1997.
(2) Incorporated by reference from the Company's Registration Statement on Form
SB-2, file no. 333-1908D, dated April 11, 1996.
(3) To be filed by amendment. The Company will apply for confidential treatment
with respect to portions of this exhibit.
14