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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, 1999
[_] 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 March 31, 1999
--------------------------------- -----------------------------
Common Stock $.001 par value 12,662,301
Preferred Stock $.001 par value -0-
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page No.
- ------ --------------------- --------
Item 1. Financial Statements.
Balance Sheets.........................................................................3
Statements of Operations...............................................................4
Statements of Cash Flows...............................................................5
Notes to Financial Statements..........................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................10
SIGNATURES.........................................................................................11
2
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Item 1 Financial Statements
Balance Sheets
March 31, December 31,
1999 1998
Assets ------------ ------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 18,901,963 $ 23,615,225
Marketable investment securities 18,682,853 19,829,253
Accounts receivable 91,005 100,000
Prepaid expenses 125,000 156,250
------------ ------------
Total current assets 37,800,821 43,700,728
Plant and equipment:
Equipment 6,362,732 6,325,455
Leasehold improvements 2,903,802 2,885,400
------------ ------------
9,266,534 9,210,855
Less accumulated depreciation and amortization 5,089,228 4,804,228
------------ ------------
Net plant and equipment 4,177,306 4,406,627
Other assets 3,267 3,267
------------ ------------
$ 41,981,394 $ 48,110,622
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of obligations under capital leases $ 26,021 $ 26,291
Current installments of long-term debt 795 8,567
Accounts payable 1,273,923 1,872,610
Accrued expenses 435,062 350,853
Deferred income 547,500 675,000
------------ ------------
Total current liabilities 2,283,301 2,933,321
Obligations under capital leases, excluding current installments 25,192 31,517
Long-term debt, excluding current installments -- --
------------ ------------
Total liabilities 2,308,493 2,964,838
Stockholders' equity:
Common stock 12,662 12,586
Additional paid-in capital 88,541,925 88,291,872
Accumulated other comprehensive income-
net unrealized gain on marketable investment securities 145,700 110,352
Deficit accumulated during development stage (49,027,386) (43,269,026)
------------ ------------
Net stockholders' equity 39,672,901 45,145,784
------------ ------------
$ 41,981,394 $ 48,110,622
============ ============
See accompanying notes to financial statements.
3
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
Three Months Ended March 31, October 22, 1986,
----------------------------------------- (inception) through
1999 1998 March 31, 1999
------------------ ------------------ ----------------------
Revenues from research
and license agreements $ 915,000 $ 887,500 $ 52,983,179
Operating expenses:
Research and development 5,504,586 4,423,037 80,137,067
General and administrative 1,583,594 1,363,947 30,616,619
------------------ ------------------ ----------------------
Total operating expenses 7,088,180 5,786,984 110,753,686
------------------ ------------------ ----------------------
Operating loss (6,173,180) (4,899,484) (57,770,507)
Other income (expense):
Interest income 411,041 752,058 10,423,344
Interest expense (221) (8,918) (702,037)
Other 4,000 - 39,579
------------------ ------------------ ----------------------
Total other income 414,820 743,140 9,760,886
------------------ ------------------ ----------------------
Loss before tax expense (5,758,360) (4,156,344) (48,009,621)
Income tax expense - - 1,017,765
------------------ ------------------ ----------------------
Net loss $ (5,758,360) $ (4,156,344) $ (49,027,386)
================== ================== ======================
Net loss per common and common-
equivalent share - basic and diluted $ (0.46) $ (0.34)
================== ==================
Weighted average common and
common-equivalent shares
outstanding - basic and diluted 12,630,300 12,247,000
================== ==================
See accompanying notes to financial statements.
4
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
Three Months Ended March 31, October 22, 1986
---------------------------------------- (inception) through
1999 1998 March 31, 1999
------------------ ------------------ ---------------------
Cash flows from operating activities:
Net loss $ (5,758,360) $ (4,156,344) $ (49,027,386)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 285,000 250,000 5,797,804
Gain on sale of equipment (4,000) - (33,909)
Issuance of stock in lieu of cash for services 105,357 70,150 1,033,061
Amortization of deferred compensation - - 766,500
Decrease (increase) in receivables 8,995 296,301 (91,005)
Decrease (increase) in prepaids and other assets 31,250 6,250 (131,867)
Increase (decrease) in accounts payable and
accrued expenses (514,478) 68,737 1,708,985
Increase (decrease) in deferred income (127,500) (100,000) 547,500
------------------ ------------------ ---------------------
Net cash used in operating activities (5,973,736) (3,564,906) (39,430,317)
Cash flows from investing activities:
Net purchase (sale) of marketable investment securities 1,181,748 (3,168,289) (18,537,153)
Acquisition of equipment and leasehold improvements (55,679) (524,596) (9,342,109)
Proceeds from sale of equipment 4,000 - 1,079,621
------------------ ------------------ ---------------------
Net cash used in investing activities 1,130,069 (3,692,885) (26,799,641)
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 144,772 174,518 69,473,610
Proceeds from long-term debt - - 1,166,434
Principal payments on note payable to bank - - (123,855)
Principal payments under capital lease obligations (6,595) (14,475) (1,426,596)
Principal payments on long-term debt (7,772) (99,710) (1,362,943)
Repurchase of preferred stock - - (300,000)
------------------ ------------------ ---------------------
Net cash provided by financing activities 130,405 60,333 85,131,921
------------------ ------------------ ---------------------
Net increase (decrease) in cash and cash equivalents (4,713,262) (7,197,458) 18,901,963
Cash and cash equivalents at beginning of period 23,615,225 36,103,533 -
------------------ ------------------ ---------------------
Cash and cash equivalents at end of period $ 18,901,963 $ 28,906,075 $ 18,901,963
================== ================== =====================
See accompanying notes to financial statements.
5
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
Three Months Ended March 31, October 22, 1986
---------------------------------------- (inception) through
1999 1998 March 31, 1999
------------------ ------------------ ---------------------
Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest $ 221 $ 67,917 $ 702,037
Cash paid for taxes - 317,765 887,765
Supplemental Schedule of Noncash Investing and
Financing Activities:
Acquisition of equipment through incurrence of
capital lease obligations - 81,735 1,477,809
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
Unrealized gain on sale marketable investment
securities 35,348 - 145,700
See accompanying notes to financial statements.
6
NOTES 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,
1999, 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/A for 1998 which includes the audited financial
statements and the notes thereto for the year ended December 31, 1998.
(2) Comprehensive Loss
The components of the company's comprehensive loss are as follows:
Three months Three months
ended ended
March 31, 1999 March 31, 1998
------------------ ------------------
Net loss....................................... $ 5,758,360 $ $4,156,344
Unrealized gain on marketable securities, net.. 35,348 ------
------------------ ------------------
Comprehensive loss............................. $ 5,723,012 $ 4,156,344
================== ==================
(3) Loss Per Common Share
Loss per common share was the same for both the basic and diluted
calculations. Common stock equivalents (stock options outstanding) of
approximately 2.3 million and 2.1 million shares at March 31, 1999 and 1998,
respectively, that could potentially dilute basic earnings per share in the
future were not included in the computation of diluted earnings per share
because to do so would have been anti-dilutive for the periods presented.
(4) Operating Segment
The Company is engaged in the discovery and development of prescription
drugs 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 financial statements.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS 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/A FOR THE YEAR ENDED DECEMBER 31, 1998 UNDER THE HEADING
"RISK FACTORS."
Overview
Substantially all of our resources are devoted to our research and
development programs. To date, we have not completed development of any
pharmaceutical product for sale. We have incurred cumulative losses through
March 31, 1999 of $49.0 million, net of cumulative revenues from research and
license agreements of $53.0 million. We expect to incur significant operating
losses over at least the next several years as we continue to expand our
research and development activities and our preclinical and clinical testing
activities. Substantially all our revenues are derived from license fees,
milestone payments, and research and development support payments from licensees
and these revenues fluctuate from quarter to quarter. Accordingly, we expect
that income or loss will fluctuate from quarter to quarter, that the
fluctuations may be substantial, and that results from prior quarters may not be
indicative of future operating results. Profitability will depend in part on our
ability and the ability of our licensees, to complete product development, to
obtain the required regulatory approvals, and to manufacture and market
products. We cannot assure that these events will occur.
Results of Operations
Revenues were $915,000 for the quarter ended March 31, 1999 compared to
$887,500 for the quarter ended March 31, 1998. Most of our revenues for each of
these quarters were derived from research, development, and license agreements
with SmithKline Beecham Corporation, Kirin Brewery Company, Ltd., and Amgen,
Inc. See "Liquidity and Capital Resources" below for further discussion of
payments that may be received in the future under these agreements.
Research and development expenses increased to $5.5 million for the
quarter ended March 31, 1999, from $4.4 million for the comparable period of
1998. The increase in research and development expenses was principally due to
the ongoing conduct of clinical trials for NPS 1776 which commenced in the third
quarter of 1998. Research and development expenses will continue to increase in
the future if we choose to conduct increasingly expensive later-stage clinical
trials and if we start clinical trials for new product candidates. We may choose
not to start certain clinical trials in order to limit such expenses and
conserve cash for future operations. Such actions could substantially delay the
development and potential commercialization of our product candidates currently
in development.
General and administrative expenses increased to $1.6 million for the
quarter ended March 31, 1999, from $1.4 million for quarter ended March 31,
1998. We expect that general and administrative expenses will increase modestly
in the future as necessary to support research and development activities.
Interest income decreased to $411,000 for the quarter ended March 31,
1999, from $752,000 for the comparable period of 1998. The decrease was
primarily due to a decrease in the average balances of cash, cash equivalents,
and marketable investment securities. We anticipate that interest income will
decrease in the future as cash is utilized for operations.
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, 1999, we had recognized $53.0
million of cumulative revenues from research and license agreements and $88.6
million in consideration for
8
the sale of equity securities for cash and services. Our principal sources of
liquidity are cash, cash equivalents, and marketable investment securities which
totaled $37.6 million at March 31 1999.
We receive quarterly research and/or development support payments under
our agreements with Amgen, Kirin, and SmithKline Beecham. The payments are
scheduled to aggregate $4.7 million from April 1999 through the scheduled
expiration dates of the agreements, respectively, in December, June, and October
2000. In addition, SmithKline Beecham will purchase 249,000 shares of NPS common
stock on November 1, 1999, at a premium to the market price, if the research
agreement is not terminated early.
We could receive future payments of up to $49.0 million in the aggregate
from Amgen, Kirin, and SmithKline Beecham upon the accomplishment of specified
research and/or development milestones under the respective agreements. However,
we do not control the subject matter, timing, or resources applied by our
licensees under their respective development programs. Thus, potential receipt
of milestone payments from these licensees is largely beyond our control.
Progress under these agreements is subject to risk and each of these agreements
may be terminated before its scheduled expiration date by the respective
licensee. We cannot assure that our licensees will make any future payments,
whether as research or development milestone payments or support payments.
We have entered into sponsored research and license agreements that
obligate us 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 March 31, 1999, we had a total
commitment of approximately $1.7 million for future research support payments.
We expect to enter into additional sponsored research and license agreements in
the future.
As of March 31,1999, our investment in leasehold improvements,
equipment, and furnishings was $4.2 million, net of accumulated depreciation and
amortization. Additional equipment and facilities may be needed if we increase
our internal research and development activities, a portion of which may be
financed with debt or leases.
We expect that our existing capital resources, including interest earned
thereon, and expected research and development support payments and equity
purchases from licensees, will be sufficient to enable us to maintain our
current and planned operations for at least 24 months. However, actual needs are
dependent on numerous factors, including our progress toward developing and
commercializing products. Furthermore, in the event we in-license or otherwise
acquire a product candidate, substantial expenditures for developing and
commercializing the product candidate would be required. In addition, if any
licensee terminates its agreement, we might not have sufficient capital to
complete the development and commercialization of a product in such licensee's
respective territory. A reduction in the expected amount of research and
development support payments or equity purchases may shorten the period during
which we could maintain our operations or require us to reduce operations.
It may also become necessary to raise additional funds to support our
development and commercialization programs. We are presently seeking additional
funding for certain current programs through corporate collaborations and
licensing agreements. We may also seek additional funding through public or
private financing which could be dilutive to current shareholders. We cannot
assure that additional funding will be available on acceptable terms, if at all.
If adequate funds are not available, we may modify plans for some of our
research and development programs. Such modifications may include: terminating
programs, delaying the conduct of further clinical trials; reducing research
activities; and/or reduction of personnel. Any of these actions may
substantially delay the development and potential commercialization of our
product candidates.
Year 2000 Assessment
We continue to assess impact of the year 2000 on our operations and
systems. We have developed assessment procedures and a plan to address
identified issues. A Y2K Task Force was assembled in the beginning of 1998 to
evaluate the potential impact of the so called "Year 2000 millennium bug" on our
operations. Since formation, the task force has monitored the evaluation of
financial, accounting, information management, scientific equipment, and
building systems. To date financial, accounting, and information management
systems review has been completed. Those systems which were not compliant have
been replaced. We continue to assess the impact of the year 2000 on our other
systems and equipment. We expect to have identified and replaced or updated all
internal
9
systems and equipment which are not year 2000 compliant before the year
2000 to the extent necessary to enable us to continue operations. We do not
expect the cost of repair or replacement to be material to our operations. We
are also seeking assurance from primary third-party service and goods suppliers,
including financial institutions, suppliers, CROs and other collaborative
parties that they do not expect the year 2000 matter to materially impact their
dealings with us. To date, we are not aware of any critical third-party
suppliers that will not be able to meet our needs in order to maintain
operations. We cannot assure that these third parties are using systems that are
year 2000 compliant or will address any year 2000 issues in a timely fashion.
Any year 2000 compliance problems of our suppliers, clinical research
organizations, or our licensees could have a material adverse effect on our
business, operating results, and financial condition.
Certain Business Risks
We are currently in the early stage of product development. NPS 1506,
NPS 1776, and compounds for the treatment of HPT are the only product candidates
in clinical development by us or our licensees. There is no guarantee that NPS
1506, NPS 1776, or any compound for HPT will prove to be safe or effective or
that back-up or later generation compounds will be identified or taken into
clinical trials or if so identified and so tested, that the compounds will be
found to be safe, effective, or marketable. All of our remaining technologies
are in preclinical stages and will require significant additional research and
development efforts before any commercial use. Because we have granted exclusive
development, commercialization, and marketing rights in the fields of HPT and
osteoporosis, the success of these programs is primarily dependent upon the
efforts of Amgen, Kirin, and SmithKline Beecham.
Other business risks include our lack of product sales, a history of
operating losses, the uncertainty of regulatory approvals, rapid technological
change and competition, the uncertainty of protection of our patents and
proprietary technology, our dependence on third parties for manufacturing,
future capital needs and the uncertainty of additional funding, our lack of
marketing capabilities, the uncertainty of third-party reimbursement, the
uncertainty of in-licensing efforts, our dependence on key personnel and our
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 our annual report on SEC-filed Form 10-K for the year ended
December 31, 1998, under the heading , "Risk Factors."
Item 3. Quantitative and Qualitative Disclosures About Market 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 held in our investment portfolio are subject to
interest rate risk. We employ 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 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 ten
percent increase in interest rates, the resulting decrease in fair market value
of our marketable investment securities would be insignificant to the financial
statements.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NPS Pharmaceuticals, Inc.
Date: May 14, 1999 By:
------------------------------------------------
James U. Jensen, Vice President
Corporate Development and Legal Affairs
(Executive Officer)
Date: May 14, 1999 By:
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Robert K. Merrell, Vice President, Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
11