SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_________ TO _______
Commission File Number: 0-24274
LA JOLLA PHARMACEUTICAL COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 33-0361285
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6455 NANCY RIDGE DRIVE 92121
SAN DIEGO, CA (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (858) 452-6600
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 the past 90 days. YES [X] NO [ ]
The number of shares of the Registrant's common stock, $.01 par value,
outstanding at October 31, 2001 was 35,248,561.
LA JOLLA PHARMACEUTICAL COMPANY
FORM 10-Q
QUARTERLY REPORT
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets as of September 30, 2001 (Unaudited) and December 31, 2000... 1
Statements of Operations (Unaudited) for the three months and nine months
ended September 30, 2001 and 2000.......................................... 2
Statements of Cash Flows (Unaudited) for the nine months ended
September 30, 2001 and 2000................................................ 3
Notes to Financial Statements (Unaudited)................................... 4
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 5
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk......... 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K................................... 7
SIGNATURES........................................................................ 9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LA JOLLA PHARMACEUTICAL COMPANY
BALANCE SHEETS
(in thousands)
September 30, December 31,
2001 2000
------------ ------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 12,911 $ 8,061
Short-term investments 39,942 31,838
Other current assets 1,368 590
------------ ------------
Total current assets 54,221 40,489
Property and equipment, net 1,823 780
Patent costs and other assets, net 2,024 1,747
------------ ------------
Total assets $ 58,068 $ 43,016
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 594 $ 468
Accrued clinical expenses 950 1,914
Accrued expenses 484 560
Accrued payroll and related expenses 552 288
Obligations under capital leases 259 44
------------ ------------
Total current liabilities 2,839 3,274
Commitments
Stockholders' equity:
Common stock 352 294
Additional paid-in capital 158,207 124,909
Other comprehensive income 237 105
Accumulated deficit (103,567) (85,566)
------------ ------------
Total stockholders' equity 55,229 39,742
------------ ------------
Total liabilities and stockholders' equity $ 58,068 $ 43,016
============ ============
Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements as of that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete balance sheets.
See accompanying notes.
1
LA JOLLA PHARMACEUTICAL COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Revenue $ -- $ -- $ -- $ --
Expenses:
Research and development 4,939 4,184 17,353 9,327
General and administrative 1,042 617 2,950 1,922
---------- ---------- ---------- ----------
Total expenses 5,981 4,801 20,303 11,249
---------- ---------- ---------- ----------
Loss from operations (5,981) (4,801) (20,303) (11,249)
Interest expense (10) (1) (23) (6)
Interest income 645 580 2,325 1,161
---------- ---------- ---------- ----------
Net loss $ (5,346) $ (4,222) $ (18,001) $ (10,094)
========== ========== ========== ==========
Basic and diluted net loss per share $ (.15) $ (.15) $ (.52) $ (.41)
========== ========== ========== ==========
Shares used in computing basic and
diluted net loss per share 35,224 28,037 34,384 24,921
========== ========== ========== ==========
See accompanying notes.
2
LA JOLLA PHARMACEUTICAL COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
------------------------------
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net loss $ (18,001) $ (10,094)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 450 287
Accretion of interest income 155 --
Change in operating assets and liabilities:
Other current assets (778) (600)
Accounts payable and accrued expenses 50 (264)
Accrued clinical expenses (964) 1,698
Accrued payroll and related expenses 264 120
------------ ------------
Net cash used for operating activities (18,824) (8,853)
INVESTING ACTIVITIES
Increase in short-term investments (8,127) (28,384)
Additions to property and equipment (964) (216)
Increase in patent costs and other assets (323) (199)
------------ ------------
Net cash used for investing activities (9,414) (28,799)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 33,356 40,527
Payments on obligations under capital leases (268) (156)
------------ ------------
Net cash provided by financing activities 33,088 40,371
Net increase in cash and cash equivalents 4,850 2,719
Cash and cash equivalents at beginning of period 8,061 4,409
------------ ------------
Cash and cash equivalents at end of period $ 12,911 $ 7,128
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 10 $ 6
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations incurred for property and
equipment $ 483 $ --
============ ============
Net unrealized gains on available-for-sale investments $ 132 $ --
============ ============
See accompanying notes.
3
LA JOLLA PHARMACEUTICAL COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2001
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of La Jolla Pharmaceutical
Company (the "Company") have been prepared in accordance with accounting
principles generally accepted in the United States of America 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 accounting principles generally accepted in the United
States of America 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 nine months ended September 30, 2001 are not necessarily indicative of
the results that may be expected for other quarters or the year ended December
31, 2001. For more complete financial information, these financial statements,
and the notes thereto, should be read in conjunction with the audited financial
statements for the year ended December 31, 2000, included in the Company's Form
10-K filed with the Securities and Exchange Commission.
2. ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and disclosures made in the accompanying notes to the financial
statements. Actual results could differ from those estimates.
RECLASSIFICATION
Certain amounts in the prior year financial statements have been reclassified to
conform with the current year presentation.
NET LOSS PER SHARE
Basic and diluted net loss per share is computed using the weighted-average
number of common shares outstanding during the periods in accordance with
Statement of Financial Accounting Standard No. 128, "Earnings per Share." As the
Company has incurred a net loss for both periods presented, stock options and
warrants are not included in the computation of diluted net loss per share since
their effect is anti-dilutive.
COMPREHENSIVE LOSS
In accordance with Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income (Loss)," unrealized gains and losses on
available-for-sale securities are included in other comprehensive income (loss).
The Company's comprehensive loss totaled $5,270,000 and $4,222,000 for the
three-month periods and $17,869,000 and $10,094,000 for the nine-month periods
ended September 30, 2001 and 2000, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement Nos. 141
and 142 ("FAS 141" and "FAS 142"), "Business Combinations" and "Goodwill and
Other Intangible Assets," respectively. FAS 141 replaces APB 16 and eliminates
pooling-of-interests accounting prospectively. It also provides guidance on
purchase accounting related to the recognition of intangible assets and
accounting for negative goodwill. FAS 142 changes the accounting for goodwill
from an amortization method to an impairment-only approach. FAS 141 and FAS 142
are effective for all business combinations completed after June 30, 2001.
Companies are required to adopt FAS 142 for fiscal years beginning after
December
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15, 2001, but early adoption is permitted under certain circumstances. The
adoption of these standards will not have a material impact on the Company's
financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Statements regarding our drug development plans, clinical trials and
other matters described in terms of our plans and expectations are
forward-looking statements involving risks and uncertainties, and a number of
factors, both foreseen and unforeseen, could cause actual results to differ
materially from our current expectations. Our analysis of clinical results of
LJP 394, our drug candidate for the treatment of systemic lupus erythematosus,
is ongoing and future analyses could result in a finding that LJP 394 is not
effective in large patient populations or does not provide a meaningful clinical
benefit. Our blood test to measure binding affinity for LJP 394 is experimental
and has not been validated by independent laboratories. Tolerance, or the
specific inactivation of pathogenic B cells, is a new technology that has not
been proven. Future clinical trials of our drug candidates may have negative or
inconclusive results. Future clinical trials of our drug candidates may not
support results of pre-clinical or other prior trials and clinical trials of LJP
394 for treating lupus or LJP 1082 for treating antibody-mediated thrombosis may
reveal a potential safety issue requiring the development of a new candidate.
Even if results are promising, the Food and Drug Administration may require
additional clinical trials. The development of drug candidates involves many
risks and uncertainties, including, without limitation, whether the drug can
provide a meaningful clinical benefit, and any positive results observed to date
may not be indicative of future results. Our other potential drug candidates are
at earlier stages of development and involve comparable risks. Additional risk
factors include the uncertainty of: obtaining required regulatory approvals;
successfully marketing products; receiving future revenue from product sales or
other sources such as collaborative relationships; future profitability; the
need for additional financing; our dependence on patents and other proprietary
rights; our limited manufacturing capabilities and our lack of marketing
experience. Readers are cautioned not to place undue reliance upon
forward-looking statements, which speak only as of the date hereof, and we
undertake no obligation to update forward-looking statements to reflect events
or circumstances occurring after the date hereof. Interested parties are urged
to review the risks described below and in other reports and registration
statements of La Jolla Pharmaceutical Company filed with the Securities and
Exchange Commission from time to time.
OVERVIEW
Since our inception in May 1989, we have devoted substantially all of
our resources to the research and development of technology and potential drugs
to treat antibody-mediated diseases. We have never generated any revenue from
product sales and have relied upon private and public investors, revenue from
collaborative agreements, equipment lease financings and interest income on
invested cash balances for our working capital. We have been unprofitable since
inception and expect to incur substantial additional expenses and net operating
losses for at least the next several years as we: increase our clinical trial
and manufacturing scale-up activities including the production of LJP 394 and
LJP 1082 for clinical trials, increase our research and development expenditures
on additional drug candidates, incur general and administrative expenditures to
support increased clinical trial activity, and incur expenditures to support
increased research and development and manufacturing scale-up activities. Our
activities to date are not as broad in depth or scope as the activities we must
undertake in the future and our historical operations and the financial
information reported below may not be indicative of our future operating results
or financial condition.
We expect that losses are likely to fluctuate from quarter to quarter as
a result of differences in the timing of expenses incurred and potential
revenues from collaborative arrangements. Some of these fluctuations may be
significant. As of September 30, 2001, our accumulated deficit was approximately
$103.6 million.
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RESULTS OF OPERATIONS
For the three and nine months ended September 30, 2001, research and
development expenses increased to $4.9 million and $17.4 million, respectively,
from $4.2 million and $9.3 million for the same periods in 2000. The increase
was due to an increase in expenses associated with the ongoing Phase III
clinical trial of our lupus drug candidate, LJP 394, which was initiated in
September 2000. Our research and development expenses are expected to increase
significantly in the future as clinical trial and manufacturing scale-up
activities, including the production of LJP 394 and LJP 1082 for clinical
trials, are increased, efforts to develop additional drug candidates are
intensified and other potential products progress into and through clinical
trials.
General and administrative expenses increased to $1.0 and $3.0 million
for the three and nine months ended September 30, 2001, respectively, from
$617,000 and $1.9 million for the same periods in 2000. The increase was due to
additional administrative expenditures to support the increased clinical and
research and development activities. We expect general and administrative
expenses to increase in the future in order to support increased clinical trial,
manufacturing scale-up and research and development activities.
Interest income increased to $645,000 and $2.3 million for the three and
nine months ended September 30, 2001, respectively, from $580,000 and $1.2
million for the same periods in 2000. The increase in interest income was due to
higher investment balances as a result of the sale of 5,700,000 shares of our
common stock in February 2001 to private investors for net proceeds of $33.1
million. For the three and nine months ended September 30, 2001, interest
expense was $10,000 and $23,000, respectively, compared to $1,000 and $6,000 for
the same periods in 2000. The increase in interest expense was the result of
increases in our capital lease obligations.
LIQUIDITY AND CAPITAL RESOURCES
From inception through September 30, 2001, we have incurred a cumulative
net loss of approximately $103.6 million and have financed our operations
through private and public offerings of our securities, revenues from
collaborative agreements, capital and operating lease transactions, and interest
income on our invested cash balances. From inception through September 30, 2001,
we have raised approximately $157.7 million in net proceeds from sales of our
equity securities.
At September 30, 2001, we had $52.9 million in cash, cash equivalents
and short-term investments, as compared to $39.9 million at December 31, 2000.
Our working capital at September 30, 2001 was $51.4 million, as compared to
$37.2 million at December 31, 2000. The increase in cash, cash equivalents and
short-term investments as well as working capital resulted from the sale of
5,700,000 shares of our common stock to private investors for net proceeds of
$33.1 million in February 2001 offset by the continued use of our cash towards
operating activities, patent expenditures and the purchase of property and
equipment. We invest our cash in corporate and United States government-backed
debt instruments.
As of September 30, 2001, we had acquired an aggregate of $6.1 million
in property and equipment, of which approximately $483,000 of equipment was
financed under capital lease obligations during the nine month period ended
September 30, 2001. In addition, we lease our office and laboratory facilities
and certain equipment under operating leases. We have no material commitments
for the acquisition of property and equipment. However, we anticipate increasing
our investment in property and equipment in connection with the enhancement of
our research and development and manufacturing facilities and capabilities.
We intend to use our financial resources to fund clinical trials and
manufacturing scale-up activities including the production of LJP 394 and LJP
1082 for clinical trials, research and development efforts, and for working
capital and other general corporate purposes. The amounts actually expended for
each purpose may vary significantly depending upon numerous factors, including
the results of clinical trials, the timing of regulatory applications and
approvals, and technological developments. Expenditures will also depend upon
the establishment and progression of collaborative arrangements and contract
research as well as
6
the availability of other financings. There can be no assurance that these funds
will be available on acceptable terms, if at all.
We anticipate that our existing capital and interest earned thereon
will be sufficient to fund our operations as currently planned through 2002. Our
future capital requirements will depend on many factors, including the continued
scientific progress of our research and development programs, the size and
complexity of these programs, the scope and results of clinical trials, the
analysis of data from clinical trials, the time and costs involved in applying
for any regulatory approvals, the costs involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims, competing technological
and market developments, our ability to establish and maintain collaborative
relationships, and the cost of manufacturing scale-up and effective
commercialization activities and arrangements. We expect to incur significant
net operating losses each year for at least the next several years as we expand
our current research and development programs, including clinical trials and
manufacturing scale-up activities, and increase our general and administrative
expenses to support a larger, more complex organization. It is possible that our
cash requirements will exceed current projections and that we will therefore
need additional financing sooner than currently expected.
We have no current means of generating cash flow from operations. Our
lead drug candidate, LJP 394, will not generate revenues, if at all, until it
has been proven safe and effective, has received regulatory approval and has
been successfully commercialized, a process that is expected to take at least
the next several years. Our other drug candidates, including LJP 1082, are at
earlier stages of development than LJP 394. There can be no assurance that our
product development efforts with respect to LJP 394, LJP 1082 or any other drug
candidate will be successfully completed, that required regulatory approvals
will be obtained, or that any product, if introduced, will be successfully
marketed or achieve commercial acceptance. Accordingly, we must continue to rely
upon outside sources of financing to meet our capital needs for the foreseeable
future.
We will continue to seek capital through any appropriate means,
including issuance of our securities and establishment of additional
collaborative arrangements. However, there can be no assurance that additional
financing will be available on acceptable terms and our negotiating position in
our capital-raising efforts may worsen as we continue to use our existing
resources. There is no assurance that we will be able to enter into further
collaborative relationships.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest our excess cash in interest-bearing investment-grade
securities that we hold for the duration of the term of the respective
instrument. We do not utilize derivative financial instruments, derivative
commodity instruments or other market-risk-sensitive instruments, positions or
transactions in any material fashion. Accordingly, we believe that, while the
investment-grade securities we hold are subject to changes in the financial
standing of the issuer of such securities, we are not subject to any material
risks arising from changes in interest rates, foreign currency exchange rates,
commodity prices or other market changes that affect market-risk-sensitive
instruments.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) EXHIBITS
7
Exhibit
Number Description
- ------- -----------
3.1 Intentionally omitted
3.2 Amended and Restated Bylaws of the Company (1)
3.3 Amended and Restated Certificate of Incorporation of the Company (2)
4.0 Rights Agreement, dated as of December 3, 1998, between the Company
and American Stock Transfer & Trust Company (3)
4.1 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock of the Company (4)
4.2 Amendment to Rights Agreement, effective as of July 21, 2000,
between the Company and American Stock Transfer & Trust Company (5)
- ------------
(1) Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000 and incorporated by reference herein.
(2) Previously filed with the Company's Quarterly Report Form 10-Q for the
quarter ended September 30, 1999 and incorporated by reference herein.
(3) Previously filed with the Company's Registration Statement on Form 8-A (No.
000-24274) as filed with the Securities and Exchange Commission on December
4, 1998.
(4) Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 and incorporated by reference herein.
(5) Previously filed with the Company's Current Report on Form 8-K filed on
January 26, 2001 and incorporated by reference herein. The changes effected
by the Amendment are also reflected in the Amendment to Application for
Registration on Form 8-A/A filed in January 26, 2001.
(b) REPORTS ON FORM 8-K
None.
8
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
La Jolla Pharmaceutical Company
Date: November 13, 2001 By: /s/ Steven B. Engle
----------------------------------------
Steven B. Engle
Chairman and
Chief Executive Officer
Signed on behalf of the Registrant
By: /s/ Gail A. Sloan
----------------------------------------
Gail A. Sloan
Signed as Principal Accounting Officer
9