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 September 30,
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
0-23160
Anesta Corp.
(Exact name of registrant as specified in its charter)
Delaware 87-0424798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4745 Wiley Post Way
Plaza 6, Suite 650
Salt Lake City, UT 84116
(801) 595-1405
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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.
---- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock $.001 par value 13,298,209
Class Outstanding at November 8, 1999
ANESTA CORP.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Balance Sheets -
September 30, 1999 (unaudited) and December 31, 1998 2
Statements of Operations and Comprehensive Loss -
for the three and nine months ended September 30, 1999 and
1998 (unaudited) and the period from inception (August 1, 1985)
to September 30, 1999 (unaudited) 3
Statements of Cash Flows -
for the nine months ended September 30, 1999 and 1998 (unaudited)
and the period from inception (August 1, 1985) to
September 30, 1999 (unaudited) 4
Notes to Financial Statements (unaudited) 6
Management's Discussion and Analysis of
Financial Condition and Results
of Operations 10
PART II. OTHER INFORMATION 14
SIGNATURES 15
1
ANESTA CORP.
(A Development Stage Company)
BALANCE SHEETS
-----------
September 30, December 31, September 30, December 31,
ASSETS 1999 1998 LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------ ------------ ------------- ------------
(Unaudited) (Unaudited)
Current assets: Current liabilities:
Cash and cash equivalents $ 30,715,656 $ 55,889,226 Accounts payable $ 133,818 $ 1,478,521
Current portion of certificate Accrued liabilities:
of deposit 340,000 255,000 Accrued compensation 580,707 1,117,909
Marketable debt securities, Other 321,502 236,783
available-for-sale 38,593,745 24,661,040 Current portion of notes
Accounts receivable 3,098,475 276,476 payable 333,333 250,000
------------ ------------
Prepaid expenses and other Total current liabilities 1,369,360 3,083,213
current assets 1,545,928 194,802
------------ ------------
Total current assets 74,293,804 81,276,544
------------ ------------
Unearned revenues 1,628,148 526,796
Property and equipment, at cost: Notes payable 1,666,667 1,500,000
--------- ---------
Furniture and equipment 1,025,994 947,598 Total liabilities 4,664,175 5,110,009
--------- ---------
Leasehold improvements 2,786,238 2,330,136
Accumulated depreciation (1,359,336) (1,151,126)
------------ ------------
2,452,896 2,126,608 Stockholders' equity:
------------ ------------ Common stock, par value, $.001
per share; Authorized:
Other assets: 35,000,000 shares; Issued:
Certificate of deposit 1,700,000 1,530,000 13,269,316 in 1999 and 13,054,934
Other assets 226,138 196,202 in 1998 13,269 13,055
------------ ------------
1,926,138 1,726,202 Additional paid-in capital 130,422,462 128,634,691
------------ ------------
Deficit accumulated during the
Total assets $ 78,672,838 $ 85,129,354 development stage (56,281,540) (48,679,075)
============ ============ Accumulated other comprehensive
income (loss) (145,528) 50,674
------------ ------------
Total stockholders' equity 74,008,663 80,019,345
------------ ------------
Total liabilities and
stockholders' equity $ 78,672,838 $ 85,129,354
============ ============
The accompanying notes are an integral
part of the financial statements
2
ANESTA CORP.
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
--------
Three months ended Nine months ended Period from inception
------------------------------ ----------------------------
September 30 September 30 September 30, December 31, (August 1, 1985 to
1999 1998 1999 1998 September 30, 1999
-------------- -------------- -------------- ----------- ---------------------
Revenues:
Product sales $ 524,847 $ 76,797 $ 1,652,910 $ 151,881 $ 2,220,624
Royalty revenue 16,849 2,276 46,658 4,506 163,442
Revenues from contract research/license
agreements 1,550,000 2,171,148 175,000 12,625,783
----------- ----------- ----------- ----------- ------------
Total revenues 2,091,696 79,073 3,870,716 331,387 15,009,849
----------- ----------- ----------- ----------- ------------
Operating costs and expenses:
Cost of goods sold 113,671 21,977 484,678 42,686 658,253
Royalties 19,079 2,372 50,987 4,691 64,314
Research and development 2,301,775 2,175,320 7,014,560 5,768,521 46,376,949
Depreciation and amortization 73,987 70,737 221,504 224,272 1,614,895
Marketing, general and administrative 2,623,919 2,060,412 6,628,243 5,367,371 30,939,587
----------- ----------- ----------- ----------- ------------
Total costs and expenses 5,132,431 4,330,818 14,399,972 11,407,541 79,653,998
----------- ----------- ----------- ----------- ------------
Loss from operations (3,040,735) (4,251,745) (10,529,256) (11,076,154) (64,644,149)
Non operating income (expense):
Interest income 928,483 231,297 3,035,398 978,019 10,706,091
Interest expense (31,597) (35,342) (89,872) (105,642) (725,179)
Other (104) 459 (3,733) (46,916)
----------- ----------- ----------- ----------- ------------
Loss before provision for income
taxes, extraordinary item and cumulative
effect of change in accounting (2,143,953) (4,055,790) (7,583,271) (10,207,510) (54,710,153)
Provision for income taxes (4,394) (485) (19,194) (4,626) (60,751)
----------- ----------- ----------- ----------- ------------
Loss before extraordinary item and
cumulative effect of change in accounting (2,148,347) (4,056,275) (7,602,465) (10,212,136) (54,770,904)
Extraordinary item - reduction of income
taxes arising from carryforward of prior
years' operating losses 22,296
Cumulative effect of change in accounting (1,041,047)
----------- ----------- ----------- ----------- ------------
Net loss (2,148,347) (4,056,275) (7,602,465) (10,212,136) (55,789,655)
Other comprehensive income (loss):
Foreign currency translation adjustment 8,933 17,650 (9,069) 19,460 6,535
Unrealized gain (loss) on marketable debt
securities, available-for-sale 16,375 47,221 (187,133) 36,711 (152,063)
----------- ----------- ----------- ----------- ------------
Total other comprehensive income (loss) 25,308 64,871 (196,202) 56,171 (145,528)
----------- ----------- ----------- ----------- ------------
Comprehensive loss $(2,123,039) $(3,991,404) $(7,798,667) $10,155,965) $(55,935,183)
=========== =========== =========== =========== ============
Basic and diluted loss per common share--
Net loss per common share $ (0.16) $ (0.42) $ (0.58) $ (1.06)
=========== =========== =========== ===========
Weighted average shares outstanding 13,261,574 9,631,302 13,201,154 9,595,081
=========== =========== =========== ===========
The accompanying notes are an integral
part of the financial statements
3
ANESTA CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
-------------
Nine months ended
---------------------------- Period from inception
September 30, September 30, (August 1, 1985) to
1999 1998 September 30, 1999
------------- ------------- ---------------------
Cash flows from operating activities:
Net loss $ (7,602,465) $ (10,212,136) $ (55,789,655)
Adjustments to reconcile net loss to
net cash used in operating activities:
Cumulative effect of change in accounting 1,041,047
Depreciation and amortization 221,504 224,272 1,614,895
Debt conversion expense 101,330
Interest converted to equity 94,104
Compensatory stock options and stock 3,539
(Gain) loss on retirement of assets (332) 3,778 78,114
Increase (decrease) due to changes in:
Accounts receivable (2,821,999) (129,274) (3,098,475)
Prepaid expenses and other current assets (1,351,126) 104,792 (1,545,928)
Other assets (29,936) (6,746) (228,716)
Accounts payable (1,344,703) (78,682) (182,601)
Accrued liabilities (452,483) 204,476 718,459
Unearned revenues 1,101,352 52,500 1,811,898
------------- ------------- ---------------------
Net cash used in operating activities (12,280,188) (9,837,020) (55,381,989)
------------- ------------- ---------------------
Cash flows from investing activities:
Capital expenditures (547,948) (93,126) (3,871,513)
Proceeds from sales of assets 488 50 12,384
Costs associated with license agreements (1,109,533)
Advances to employees (1,650)
Purchase of treasury bills (1,174,419)
Proceeds from maturity of treasury bills 1,174,419
Purchase of marketable debt securities,
available-for-sale (53,181,535) (14,404,574) (134,489,201)
Maturities of marketable debt securities,
available-for-sale 39,061,697 18,775,551 95,724,989
Purchase of certificate of deposit (510,000) (2,346,000)
Proceeds from maturity of certificate of deposit 255,000 255,000 306,000
------------- ------------- ---------------------
Net cash provided by (used in) investing
activities (14,922,298) 4,532,901 (45,774,524)
------------- ------------- ---------------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 500,000 3,587,700
Principal payments on notes payable (250,000) (250,000) (587,500)
Principal payments on obligations under capital
leases (194,488)
Net proceeds from issuance of common stock 1,787,985 496,192 128,730,584
Collections on notes receivable from
issuance of common stock 65,000
Proceeds from issuance of preferred stock 756,222
Dividends paid on preferred stock (491,884)
------------- ------------- ---------------------
Net cash provided by financing activities 2,037,985 246,192 131,865,634
------------- ------------- ---------------------
Effect of exchange rate changes on cash (9,069) 19,460 6,535
------------- ------------- ---------------------
Net increase (decrease) in cash and cash
equivalents (25,173,570) (5,038,467) 30,715,656
Cash and cash equivalents at beginning of period 55,889,226 9,760,765
------------- ------------- ---------------------
Cash and cash equivalents at end of period $ 30,715,656 $ 4,722,298 $ 30,715,656
============= ============= =====================
- Continued -
The accompanying notes are an integral
part of the financial statements
4
ANESTA CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
--------
Nine months ended
--------------------------- Period from inception
September 30, September 30, (August 1, 1985) to
1999 1998 September 30, 1999
------------ ------------ --------------------------
Supplemental schedule of noncash activities:
The Company issued stock and stock options for:
Purchase of additional license agreement $ 5,400
Notes receivable 71,000
The Company purchased leasehold improvements
using accounts payable 251,507
The Company entered into various capital lease
arrangements 204,610
The Company received stock as payment of a
note receivable 4,226
The accompanying notes are an integral
part of the financial statements
5
ANESTA CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
-------------
1. Significant Accounting Policies:
-------------------------------
In the opinion of management, the accompanying financial statements contain
all adjustments (consisting only of normal recurring items) necessary to
present fairly the financial position of Anesta Corp. (a development stage
company) (the Company) as of September 30, 1999, the results of its
operations for the three and nine months ended September 30, 1999 and 1998
and for the period from inception (August 1, 1985) to September 30, 1999,
and its cash flows for the nine months ended September 30, 1999 and 1998
and for the period from inception (August 1, 1985) to September 30, 1999.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year period.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the Company's Annual
Report on Form 10-K for the period ended December 31, 1998 and the
Company's quarterly reports on Form 10-Q for the quarters ended March 31,
1999 and June 30, 1999.
Net Loss Per Share
------------------
Basic and diluted earnings per share are computed in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per
------------
Share (EPS). Basic EPS excludes dilution and is computed by dividing
-----
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution from securities or contracts to issue common stock.
Common equivalent shares are excluded from the computation of diluted EPS
when their effect is antidilutive. As of September 30, 1999, options to
purchase 1,696,120 shares of common stock at prices between $5.25 and
$25.1875 per share were outstanding. As of September 30, 1998, options to
purchase 1,640,610 shares of common stock at prices between $5.00 and
$19.25 were outstanding. None of these options were included in the
computation of diluted loss per share because the effect would have been
antidilutive.
Capital Stock
-------------
On June 29, 1999, stockholders approved an Amendment to the Company's
Certificate of Incorporation increasing the Company's authorized shares
from 15,000,000 to 35,000,000.
2. Cash, Cash Equivalents and Marketable Debt Securities:
-----------------------------------------------------
At September 30, 1999, the Company maintained a majority of its cash, cash
equivalents and marketable debt securities in two banks in San Francisco,
California.
3. Income Taxes:
------------
The provision for income taxes for the three and nine months ended
September 30, 1999 and 1998 is related solely to state income taxes.
6
ANESTA CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
--------------
4. Revolving/Term Promissory Note Agreements:
-----------------------------------------
On January 11, 1995, the Company entered into a revolving/term promissory
note in the amount of $1.5 million. On May 15, 1995, the term of the
revolving promissory note ended and the Company entered into a 10 year term
note in the amount of $1.5 million. On March 20, 1997, the Company entered
into an 8 year term note for an additional $800,000, for a total of $2.3
million. Additionally, on July 15, 1999, the Company entered into an 6 year
term note for an additional $500,000, for a total of $2.8 million. The
agreements provide for a constant interest rate of "160 basis points" above
the financial institution's certificate of deposit rate (5.40% at September
30, 1999). As of September 30, 1999, four payments totaling $800,000 had
been made leaving a balance of $2,000,000. Annual payments in the amount of
$333,333 will be made on approximately July 15 for the next 6 years
beginning on July 15, 2000. As of September 30, 1999, borrowings under the
agreement are collateralized by a certificate of deposit in the amount of
$2,040,000, which is maintained in a bank in Salt Lake City, Utah.
5. Collaborative Relationships:
---------------------------
Effective August 31, 1995, the Company entered into an amendment to a prior
agreement between Abbott International (A.I.) and the Company to provide
the Company the right to terminate or cause to become nonexclusive A.I.'s
license rights to OT-fentanyl products in one or more countries in the
world except the U.S. The amendment also eliminated $100,000 of the
$450,000 unearned advance royalty obligation, which amount was recognized
as royalty revenue during the year ended December 31, 1995. In January
1998, the Company exercised its right to terminate A.I.'s license rights to
OT-fentanyl products in all countries in the A.I. territory. As the Company
receives payments related to international partnering for OT-fentanyl
products, the Company is obligated to make certain payments to A.I. until
the remaining $350,000 has been fully repaid, at which time such payments
to A.I. will cease. As of September 30, 1999, the Company had made payments
of $166,250, leaving a balance of $183,750 owed to A.I. which was paid
subsequent to quarter end.
On January 28, 1998, the Company announced the signing of an exclusive
agreement with Grupo Ferrer for the marketing, sales and distribution of
Anesta's OT-fentanyl product line, including Actiq, in Spain and Portugal.
Under terms of the agreement, Grupo Ferrer made a payment to the Company in
1998, a portion of which will be recognized as revenue in future years over
the term of the agreement. The OT-fentanyl product line will be
manufactured for Grupo Ferrer by Anesta, however, the Company does not
believe commercial manufacturing will begin before December 31, 1999. Grupo
Ferrer is a private Spanish pharmaceutical company.
On June 4, 1998, the Company announced the signing of an exclusive
agreement with Laboratoire L. Lafon (Lafon) for the marketing, sales and
distribution of Anesta's OT-fentanyl product line, including Actiq, in
France. Under terms of the agreement, Lafon made payments to the Company in
1998, a portion of which will be recognized as revenue in future years over
the term of the agreement. The OT-fentanyl product line will be
manufactured for Lafon by Anesta, however, the Company does not believe
commercial manufacturing will begin before December 31, 1999. Lafon is a
private French pharmaceutical company.
7
ANESTA CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
--------------
5. Collaborative Relationships, Continued
---------------------------
On February 23, 1999, the Company announced the signing of an option
agreement with Novartis involving the Company's proprietary Oral
Transmucosal System (OTS(TM)) for drug delivery. Under terms of the
agreement, Novartis made a payment to the Company in 1999, which will be
recognized as revenue over the term of the agreement. Novartis and the
Company will assess the worldwide commercial opportunity of potential
products which combine the OTS with undisclosed compounds, with the goal of
entering into an exclusive licensing agreement.
On May 6, 1999, the Company announced the signing of an exclusive agreement
with Swedish Orphan AB for the marketing, sales and distribution of
Anesta's OT-fentanyl product line, including Actiq, for Scandinavia
(Denmark, Finland, Iceland, Norway, and Sweden). Under terms of the
agreement, Swedish Orphan made a payment to the Company which was
recognized as revenue. The OT-fentanyl product line will be manufactured
for Swedish Orphan by Anesta, however, the Company does not believe
commercial manufacturing will begin before December 31, 1999.
On September 30, 1999, the Company signed an exclusive agreement with Elan
Pharma International (a unit of Elan Corporation, plc) for the marketing,
sales and distribution of Anesta's OT-fentanyl product line, including
Actiq, for Austria, Belgium, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Philippines, Switzerland, Taiwan, and the United Kingdom.
Under terms of the agreement, Elan made a payment to the Company, a portion
of which will be recognized as revenue in future years over the term of the
agreement. The OT-fentanyl product line will be manufactured for Elan by
Anesta, however, the Company does not believe commercial manufacturing will
begin before December 31, 1999.
8
ANESTA CORP.
(A Development Stage Company)
6. Stockholders' Equity:
The table below presents the activity in stockholders' equity from
January 1, 1999 to September 30, 1999:
Deficit
Common Stock Accumulated Accumulated
---------------------------------------------
Additional During the Other
Paid-in Development Comprehensive
Shares Amount Capital Stage Income (loss) Total
------------- ----------- ---------------- -------------- -------------- ----------
Balance at January 1, 1999 $ 13,054,934 $ 13,055 $ 128,634,691 $ (48,679,075) $ 50,674 $80,019,345
Exercise of stock options in
Jan. 1999 for cash
(at $8.00 to $16.50
per share) 41,991 42 511,610 511,652
Exercise of stock options in
Feb. 1999 for cash
(at $5.25 to $14.125
per share) 11,629 12 80,940 80,952
Exercise of stock options in
Mar. 1999 for cash and stock
(at $5.25 to $14.125
per share) 51,479 51 293,430 293,481
Exercise of stock options in
Apr. 1999 for cash
(at $6.75 to $14.125
per share) 38,097 38 308,290 308,328
Exercise of stock options in
May 1999 for cash and stock
(at $5.25 to $14.125
per share) 15,004 15 177,897 177,912
Exercise of stock options in
June 1999 for cash and stock
(at $5.25 to $14.125
per share) 35,757 36 277,364 277,400
Exercise of stock options in
July 1999 for cash
(at $13.00 per share) 3,812 4 49,552 49,556
Exercise of stock options in
August 1999 for cash
(at $7.88 per share) 10,000 10 78,790 78,800
Exercise of stock options in
September 1999 for cash and stock
(at $5.375 to $5.75
per share) 6,613 6 9,898 9,904
Net loss (7,602,465) (7,602,465)
Other comprehensive loss (196,202) (196,202)
----------- --------- -------------- -------------- ----------- ------------
Balance at September 30, 1999 13,269,316 $ 13,269 $ 130,422,462 $ (56,281,540) $ (145,528) $ 74,008,663
=========== ========= ============== ============== =========== ============
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors discussed in this section. Additional risks and uncertainties are
described in the Company's most recently filed Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.
Results of Operations
Revenues.
Total revenues increased by $2,012,600 or 2,544% for the three months ended
September 30, 1999 as compared to the corresponding period in 1998 and by
$3,539,300 or 1,068% for the nine months ended September 30, 1999 as compared to
the corresponding period in 1998. The increase is primarily a result of the U.S.
launch of Actiq, licensing revenue from a new option agreement with Novartis
involving the Company's proprietary OTS for drug delivery, and licensing revenue
from new agreements with Swedish Orphan AB and Elan Pharma International
involving the Company's OT-fentanyl product line (See Notes 5 and 6 to Financial
Statements).
On November 4, 1998, the FDA approved the new drug application for Actiq. Actiq
is indicated only for the management of breakthrough cancer pain in patients
with malignancies who are already receiving and who are tolerant to opioid
therapy. Actiq was launched by Abbott Laboratories (Abbott) on March 31, 1999.
Under the Company's agreements with Abbott, Abbott manufactures Anesta's OT-
fentanyl product line (Fentanyl Oralet and Actiq) and sells these products to
the Company at a price which reflects Abbott's cost of manufacturing. The
Company then sells the products to Abbott at a price related to Abbott's selling
price which results in a gross profit to the Company ranging from approximately
40-70%. In addition, the Company is entitled to receive a royalty on OT-fentanyl
product sales by Abbott.
Operating Expenses.
Research and development expenses increased by $126,500 or 5.8% for the three
months ended September 30, 1999 as compared to the corresponding period in 1998,
and by $1,246,000 or 21.6% for the nine months ended September 30, 1999 as
compared to the corresponding period in 1998. The increase is due to higher
expenditures in 1999 related to additional research and development programs,
increased number of personnel, manufacturing activities and continuing clinical
support for Actiq. The Company expects that its research and development
expenses will increase in the future as a result of increased expenses related
to the hiring of additional personnel, preclinical studies, clinical trials,
product development, manufacturing process development and clinical
manufacturing activities.
Depreciation and amortization expense increased by $3,300 or 4.7% for the three
months ended September 30, 1999 as compared to the corresponding period in 1998,
and decreased by $2,800 or 1.2% for the nine months ended September 30, 1999 as
compared to the corresponding period in 1998. The increase for the three months
ended September 30, 1999 as compared to the corresponding period in 1998, is due
to the completion of additional office space. The decrease for the nine months
ended September 30, 1999 as compared to the corresponding period in 1998, is due
to a larger number of fully depreciated assets.
Marketing, general and administrative expenses increased by $563,500 or 27.3%
for the three months ended September 30, 1999 as compared to the corresponding
period in 1998 and by $1,260,800 or 23.5% for the nine months ended September
30, 1999 as compared to the corresponding period in 1998. The increase in
marketing, general and administrative expenses is due primarily to higher
expenditures for European operations including clinical studies, Actiq market
launch activities, personnel, corporate
10
development activities and marketing research. The Company expects that its
marketing, general and administrative expenses will increase in the future as a
result of the increased support required for European operations, Actiq
marketing activities, corporate development activities and marketing research.
Non Operating Income (Expense).
Interest income increased by $697,200 or 301% for the three months ended
September 30, 1999 as compared to the corresponding period in 1998 and by
$2,057,400 or 210% for the nine months ended September 30, 1999 as compared to
the corresponding period in 1998. The increase is primarily due to invested net
proceeds of $64,478,400 from the Company's public offering in December 1998.
Interest expense decreased by $3,700 or 10.5% for the three months ended
September 30, 1999 as compared to the corresponding period in 1998 and by
$15,700 or 14.9% for the nine months ended September 30, 1999 as compared to the
corresponding period in 1998. The decrease is primarily due to lower borrowings
under the term note as a result of the related payments thereon (See Note 4 to
Financial Statements).
Income Taxes.
The provision for income taxes in 1999 and 1998 relates solely to state income
taxes. The Company recognized no tax benefit from its losses in those years.
Net Loss.
As a result of the increase in total revenues, the increase in research and
development activities, the increase in marketing, general and administrative
expenses, the increase in interest income and other factors discussed above, the
net loss for the three months ended September 30, 1999 was $2,123,039 or $0.16
per share as compared to $3,991,404 or $0.42 per share for the same period in
1998. The net loss for the nine months ended September 30, 1999 was $7,798,666
or $0.58 per share as compared to $10,155,965 or $1.06 per share for the same
period in 1998.
Liquidity and Capital Resources
As of September 30, 1999, the Company had cash and cash equivalents totaling
$30,715,600, $2,040,000 in a certificate of deposit used as collateral for a
revolving/term loan (See Note 4 to Financial Statements) and $38,593,800 in
marketable debt securities which are available for sale. Thus cash, cash
equivalents, a certificate of deposit and marketable debt securities totaled
$71,349,400 as of September 30, 1999. Cash in excess of immediate requirements
is invested according to the Company's investment policy, which provides
guidelines with regard to liquidity and return, and, wherever possible, seeks to
minimize the potential effects of concentration of credit risk.
The Company used cash in operating activities of $12,280,200 for the nine months
ended September 30, 1999 compared to $9,837,000 for the corresponding period in
1998. The increase in cash used in the period is a direct result of higher
working capital requirements in 1999.
During the nine months ended September 30, 1999, the Company made capital
expenditures of approximately $548,000 as compared to capital expenditures of
$93,100 during the corresponding period in 1998. The increase is primarily due
to the completion of additional office space and quality control laboratory.
During the nine months ended September 30, 1999, the Company made net purchases
of marketable debt securities of $14,119,800. This compares to a net decrease in
marketable debt securities of $4,371,000 during the corresponding period in
1998.
11
During the nine months ended September 30, 1999, the Company realized cash
proceeds of $1,788,000 relating to the exercise of stock options. During the
nine months ended September 30, 1998, the Company realized cash proceeds of
$496,200 relating to the exercise of stock options.
The Company's future capital requirements could be substantial and will depend
on, and could increase as a result of, many factors, including progress of the
Company's research and development programs; the results and costs of
preclinical and clinical testing of the Company's products, if developed; the
time and costs involved in obtaining regulatory approvals; the costs involved in
filing patents; the time and costs involved in developing and maintaining
collaborative research relationships; the costs associated with potential
commercialization of its products; and administrative and legal costs. The
Company believes that existing capital resources will be sufficient to meet the
Company's capital needs through at least the end of 2000.
The Company believes that it is prudent to monitor existing cash balances in
order to fund the activities which the Company believes are necessary to
continue its growth. Therefore, the Company periodically evaluates market
conditions and various financing alternatives for obtaining funds to augment
existing cash balances.
Year 2000 Compliance.
Many currently installed computer systems are unable to distinguish between the
year 1900 and the year 2000. This is commonly known as the Year 2000 (Y2K)
issue. As a result, business entities are at risk for possible miscalculations
or systems failures causing disruptions in their business operations.
The Company utilizes management information systems and software technology that
may be affected by Y2K issues throughout its business. The Company considers its
finance and accounting, clinical database, and laboratory data acquisition and
analysis software mission critical. The Company's information systems group is
finishing the remediation and testing phases to ensure those systems, along with
additional internal and external systems, continue to meet its requirements. To
date, one software system was identified which is not Y2K compliant and has been
upgraded. The cost of this upgrade was less than $10,000. The Company
continually upgrades its software in the ordinary course of business, thereby
helping to meet its Y2K requirements. The Company believes that the costs
associated with purchasing or upgrading other specific software systems to meet
the requirements of Y2K will be minimal. The Company's information systems group
continues to review non-information technology systems to determine the extent
of any changes that may be necessary and believes that there will be minimal
changes needed. As a result of the Company's growth, its phone system has been
replaced in order to provide adequate access for the Company's requirements as
well as being Y2K compliant. The Company believes all remaining Y2K testing,
internal reviews and updates can be completed by November 30, 1999.
The Company continues to contact key suppliers and customers regarding their Y2K
compliance to determine any impact on operations. In general, the suppliers and
customers have developed or are in the process of developing plans to address
Y2K issues. The Company will continue to actively monitor and evaluate the
progress of its suppliers and customers on this critical matter. Because of the
availability of alternative suppliers and the diversity of the Company's
customer base, the Company believes that any failure of any management
information systems or software technology at any supplier or customer which has
not responded to the Company's inquiries regarding Y2K compliance will not have
a material adverse effect on the Company.
Based on the progress the Company has made in addressing its Y2K issues and the
Company's plan and timeline to complete its compliance program, the Company does
not foresee significant risks associated with its Y2K compliance at this time.
As of September 30, 1999, the Company has spent less than $10,000 on assessment,
remediation and testing associated with the Y2K issue. However, the Company will
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continue to discuss Y2K compliance issues with its key suppliers and customers
in an effort to minimize any potential Y2K compliance impact.
Although unlikely, the Company might be adversely affected by Y2K disruptions at
its customers and suppliers. To address this possibility, the Company plans to
accumulate sufficient supplies to conduct normal business operations for a
reasonable period of time. If the Company's preparations are insufficient, the
Company's business and financial condition would be materially and adversely
affected.
Other Matters.
The Company has reviewed recently issued, but not yet adopted, accounting
standards in order to determine their effects, if any, on the results of
operations or financial position of the Company. Based on that review, the
Company believes that none of these pronouncements will have a significant
effect on current or future earnings or operations.
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
(27) Financial Data Schedule
b) Reports on Form 8-K.
None.
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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: November 12, 1999 ANESTA CORP.
By: /s/ Thomas B. King
-------------------------------
Thomas B. King, President and
Chief Executive Officer
(Authorized Signatory)
By: /s/ Roger P. Evans
-------------------------------
Roger P. Evans, Vice President-
Finance and Administration
(Principal Accounting Officer)
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