1
UNITED STATES
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 MARCH 31, 1996
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: (619) 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 March 31, 1996 was 14,072,732.
This Form 10-Q contains 13 sequentially numbered pages. The exhibit index
appears at sequentially numbered page 12.
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LA JOLLA PHARMACEUTICAL COMPANY
FORM 10-Q
QUARTERLY REPORT
INDEX
COVER PAGE ......................................................................................... 1
INDEX .............................................................................................. 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Balance Sheets as of March 31, 1996 and December 31, 1995 ................................... 3
Statements of Operations for the three months ended March 31, 1996
and 1995, and May 2, 1989 (inception) to March 31, 1996 ..................................... 4
Statements of Cash Flows for the three months ended March 31, 1996
and 1995, and May 2, 1989 (inception) to March 31, 1996 ..................................... 5
Notes to Financial Statements ............................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................................. 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings .................................................................. *
ITEM 2. Changes in Securities .............................................................. *
ITEM 3. Defaults upon Senior Securities .................................................... *
ITEM 4. Submission of Matters to a Vote of Security Holders ................................ *
ITEM 5. Other information .................................................................. *
ITEM 6. Exhibits and Reports on Form 8-K ................................................... 10
SIGNATURE .......................................................................................... 11
* No information provided due to inapplicability of item.
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LA JOLLA PHARMACEUTICAL COMPANY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(dollars in thousands)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
March 31, December 31,
1996 1995
-------------- ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,262 $ 19,804
Short-term investments - available-for-sale 13,098 3,847
Other current assets 372 213
-------- --------
Total current assets 20,732 23,864
Equipment, furniture and fixtures, net 1,750 1,925
Patent costs and other assets, net 600 586
-------- --------
Total Assets $ 23,082 $ 26,375
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 670 $ 738
Accrued payroll and related expenses 206 398
Current portion of obligations under capital leases 826 779
-------- --------
Total current liabilities 1,702 1,915
Obligations under capital leases 641 892
Commitments
Stockholders' equity:
Common stock 141 140
Additional paid-in capital 62,626 62,647
Note receivable from stockholder (14) (14)
Deficit accumulated during the development stage (41,696) (38,777)
Deferred compensation (318) (428)
-------- --------
Total stockholders' equity 20,739 23,568
-------- --------
Total Liabilities and Stockholders' Equity $ 23,082 $ 26,375
======== ========
See accompanying notes.
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LA JOLLA PHARMACEUTICAL COMPANY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share amounts)
May 2, 1989
Three Months Ended (inception) to
March 31, March 31,
1996 1995 1996
----------- ---------- --------
Revenue $ -- $ -- $ 3,000
Expenses:
Research and development 2,560 2,105 38,455
General and administrative 588 429 9,577
----------- ---------- --------
Loss from operations (3,148) (2,534) (45,032)
Interest income 286 190 4,203
Interest expense (57) (86) (867)
----------- ---------- --------
Net loss $ (2,919) $ (2,430) $(41,696)
=========== ========== ========
Net loss per share $ (.21) $ (.28)
=========== ==========
Shares used in computing
net loss per share 14,060,127 8,617,531
=========== ==========
See accompanying notes.
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LA JOLLA PHARMACEUTICAL COMPANY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
May 2, 1989
Three Months Ended (inception) to
March 31, March 31,
1996 1995 1996
-------------------------- --------
OPERATING ACTIVITIES
Net loss $(2,919) $(2,430) $(41,696)
Adjustments to reconcile net loss to net cash used for operating
activities:
Write off of patent costs -- -- 209
Depreciation and amortization 193 191 2,729
Deferred compensation amortization 110 65 595
Common stock issued for interest -- -- 11
Change in operating assets and liabilities:
Other current assets (159) 55 (372)
Accounts payable and accrued expenses (68) (201) 536
Accrued payroll and related expenses (192) (108) 186
------- ------- --------
Net cash used for operating activities (3,035) (2,428) (37,802)
INVESTING ACTIVITIES
Increase in short-term investments (9,251) (527) (13,098)
Additions to equipment, furniture and fixtures (12) (2) (2,673)
Proceeds from sale-leaseback of equipment -- -- 1,747
Increase in patent costs and other assets (20) (15) (598)
------- ------- --------
Net cash used for investing activities (9,283) (544) (14,622)
FINANCING ACTIVITIES
Payment on note receivable from stockholder -- -- 47
Net proceeds from issuance of preferred stock -- -- 26,373
Net proceeds from issuance of common stock (20) -- 30,865
Proceeds from bridge notes -- -- 4,156
Payments on obligations under capital leases (204) (177) (1,755)
------- ------- --------
Net cash (used for) provided by financing activities (224) (177) 59,686
Net (decrease) increase in cash and cash equivalents (12,542) (3,149) 7,262
Cash and cash equivalents at beginning of period 19,804 11,417 --
------- ------- --------
Cash and cash equivalents at end of period $ 7,262 $ 8,268 $ 7,262
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 57 $ 86 $ 856
======= ======= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations incurred for property and equipment $ -- $ 132 $ 3,222
======= ======= ========
See accompanying notes.
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LA JOLLA PHARMACEUTICAL COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of La Jolla Pharmaceutical
Company (the "Company") 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 months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996. 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, 1995 included in the Company's Form
10-K filed with the Securities and Exchange Commission.
2. ACCOUNTING POLICIES
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standard No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (SFAS 121). The adoption of the new
standard had no effect on the financial statements
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standard No. 123 "Accounting and Disclosure of Stock-Based Compensation" (SFAS
123). As allowed under SFAS 123, the Company has elected to continue to account
for stock option grants in accordance with Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations. The Company grants stock options for a fixed number of shares
to employees with an exercise price equal to the fair value of the shares at the
date of grant and, under APB 25, recognizes no compensation expense for the
stock option grants. The adoption of SFAS 123 had no effect on the financial
statements.
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LA JOLLA PHARMACEUTICAL COMPANY
(A DEVELOPMENT STAGE COMPANY)
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion below includes forward-looking statements that involve a number
of risks and uncertainties. A number of factors, both foreseen and unforeseen,
could cause actual results to differ from the current expectations of La
Jolla Pharmaceutical Company (the "Company" or "LJP"). Included among these
factors are the uncertainties associated with clinical trials of LJP 394, the
Company's drug candidate for the treatment of lupus, including the possibility
that LJP 394 will not prove effective in producing a sustained reduction of
dsDNA antibodies in large patient populations or provide a meaningful clinical
benefit. The Company's other potential drug candidates are at earlier stages of
development and involve comparable risks. Additional risk factors include the
uncertainty of future revenue from product sales or other sources such as
collaborative relationships, the uncertainty of future profitability, the
Company's dependence on patents and other proprietary rights, the Company's
limited manufacturing capabilities and the Company's 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 the
Company undertakes 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 detailed from time to time in the
Company's annual reports on Form 10-K and the Company's registration statements
on file with the SEC.
OVERVIEW
The Company has devoted substantially all of its resources to the development
of technology and potential drugs to treat antibody-mediated diseases. The
Company has never generated any revenue from product sales and has relied upon
private and public investors, equipment lease financings, a payment from its
sole collaborative partner and interest income on invested cash balances for
its working capital. The Company has been unprofitable since inception and
expects to incur substantial additional operating losses for at least the next
several years as it increases expenditures on research and development and
allocates significant and increasing resources to its clinical testing,
manufacturing, and marketing activities. The Company's activities to date are
not as broad in depth or scope as the activities it must undertake in the
future, and the Company's historical operations and the financial information
included in this report are not indicative of its future operating results or
financial condition or its ability to operate profitably as a commercial
enterprise when and if it succeeds in bringing any product to market.
The Company entered into its first collaborative agreement with Leo
Pharmaceutical Products, Ltd. ("Leo") of Denmark in September 1995. Under this
Agreement, the Company granted to Leo the exclusive right to distribute LJP 394
in Europe and the Middle East, and Leo made an initial $3 million payment to the
Company and is obligated to make further payments upon attainment of certain
milestones. In addition, Leo is responsible for European clinical studies and is
obligated to share certain non-clinical development costs. Since the
announcement of Phase II clinical trials results, the Company and Leo have been
evaluating their respective goals and discussing the allocation of resources and
timing associated with future clinical trials of LJP 394. Commencement of
further studies and related expenditures and payments are pending completion of
these discussions. Both Leo and the Company have the right to terminate their
collaborative arrangement for any reason, and there can be no assurance that
the Company's relationship with Leo will continue.
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LA JOLLA PHARMACEUTICAL COMPANY
(A DEVELOPMENT STAGE COMPANY)
In addition, the Company has been conducting discussions with other
pharmaceutical companies that could lead to collaborative relationships in
various geographic markets for the Company's potential drug candidates,
including LJP 394. However, there can be no assurance that the Company will be
able to negotiate future collaborative arrangements on acceptable terms, if at
all, or that any such collaborations will be successful.
The Company expects that losses will 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 March 31, 1996, the Company's accumulated deficit was $41.7 million.
RESULTS OF OPERATIONS
The Company had no revenues in the first quarter of 1996 or 1995. In September
1995, the Company received a one-time payment upon the execution of its
agreement with Leo as described above. There can be no assurance that the
Company will realize any further revenue from this arrangement or any other
collaborative arrangement.
For the three months ended March 31, 1996, research and development expenses
increased to $2.6 million from $2.1 million for the same period in 1995. The
increase was due primarily to manufacturing scale-up activities for the
Company's continuing clinical trials of LJP 394, additions to research and
development personnel, expansion of the Company's research and development
programs, and increased facilities expenditures. The Company's research and
development expenses are expected to increase significantly in the future as the
Company progresses in its development efforts on various drug candidates.
General and administrative expenses increased to $588,000 for the three months
ended March 31, 1996, from $429,000 for the same period in 1995. The increase
was primarily attributable to increased administrative staffing to support
increased clinical and research and development activities, and increased
facilities expenditures.
Interest income increased to $286,000 for the three months ended March 31, 1996
from $190,000 for the same period in 1995. The increase was due to higher
investment balances following receipt of the net proceeds of the Company's
public offering in June 1995, its sale of stock to a private investor in October
1995, and the initial payment from Leo in September 1995. For the three months
ended March 31, 1996, interest expense decreased to $57,000 from $86,000 for the
same period in 1995. The decrease was the result of decreases in the Company's
capital lease obligations as compared to the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations through private and
public offerings of its securities, capital and operating lease transactions,
the initial payment from Leo, and interest income on its invested cash balances.
As of March 31, 1996, the Company had raised $61.8 million since inception from
public and private sales of equity securities, net of issuance costs.
At March 31, 1996, the Company had $20.4 million in cash, cash equivalents and
short-term investments, as compared to $23.7 million at December 31, 1995. The
Company's working capital decreased to $19.0 million at March 31, 1996, from
$21.9 million at December 31, 1995. The decrease in working capital resulted
from the use of the Company's cash toward expenses of ongoing clinical and
research and development programs, and related general and administrative
expenses. The Company invests its cash in highly rated liquid debt instruments.
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LA JOLLA PHARMACEUTICAL COMPANY
(A DEVELOPMENT STAGE COMPANY)
As of March 31, 1996, the Company had acquired an aggregate of $4.4 million in
equipment, furniture and fixtures, of which approximately $3.2 million had been
acquired through capital lease obligations. In addition, the Company leases its
office and laboratory facilities as well as certain scientific equipment under
operating leases. The Company has no material commitments for the acquisition of
property and equipment.
The Company intends to use its financial resources to fund clinical trials,
research and development and manufacturing scale-up, and for working capital and
other general corporate purposes. In the near-term, anticipated expenses include
costs of additional clinical trials for LJP 394, the production of LJP 394 for
toxicology studies and clinical trials, and the expansion of research
activities. The Company anticipates that its existing capital and interest
earned thereon will be sufficient to fund the Company's operations as currently
planned through 1997. However, the amounts expended by the Company for various
purposes may vary significantly, and it is possible that the Company's cash
requirements will exceed current projections and that the Company will therefore
need additional financing sooner than currently expected. The Company's future
capital requirements will depend on many factors, including continued scientific
progress in its research and development programs, the magnitude of these
programs, the scope and results of preclinical testing and clinical trials, the
time and costs involved in obtaining regulatory approvals, the costs involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims,
competing technological and market developments, the ability of the Company to
establish development and/or collaborative research arrangements, and the cost
of manufacturing scale-up and effective commercialization activities and
arrangements. The Company expects to incur significant and increasing losses
each year for at least the next several years as it expands its current research
and development programs and invests increasing amounts of capital in clinical
trials, manufacturing scale-up, possible establishment of marketing and sales
capabilities, and administration of a more complex organization.
The Company has no current means of generating cash flow from operations, and
its 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. The Company's other drug candidates are much less
developed than LJP 394 and the Company has no other products that are expected
to become marketable in the next several years. Accordingly, the Company must
continue to rely upon outside sources of financing to meet its capital needs for
the foreseeable future.
The Company will continue to seek capital through any appropriate means,
including issuances of its securities, collaborative arrangements, and business
combinations. However, there can be no assurance that additional financing will
be available on acceptable terms, and the Company's negotiating position in its
capital-raising efforts may worsen as it continues to use its existing
resources. Financing through the Company's existing collaborative arrangement is
uncertain as described above, and there can be no assurance that the Company
will be able to enter into any other collaborative relationships.
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LA JOLLA PHARMACEUTICAL COMPANY
(A DEVELOPMENT STAGE COMPANY)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
- - ------ ------- ----
10.19 La Jolla Pharmaceutical Company 1994 Stock Incentive Plan (as
amended through the April 24, 1996 annual meeting of stockholders') *
27 Financial Data Schedule 13
(b) REPORTS ON FORM 8-K
Form 8-K dated January 1, 1996 regarding the retirement of
Joseph Stemler as an employee of the Company.
Form 8-K dated February 15, 1996 regarding the results from
the Company's dose-ranging study conducted as part of its
Phase II clinical trials of LJP 394, its drug candidate for
the treatment of lupus.
* Previously filed with the Registrant's Proxy Statement for its 1996
annual meeting of stockholders' and incorporated herein by reference.
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A JOLLA PHARMACEUTICAL COMPANY
(A DEVELOPMENT STAGE COMPANY)
SIGNATURE
MARCH 31, 1996
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: May 13, 1996 By: /s/ Wood C. Erwin
-----------------------------------------------
Wood C. Erwin
Vice President Finance
Chief Financial Officer
Signed both on behalf of the Registrant and
as Principal Accounting Officer.
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A JOLLA PHARMACEUTICAL COMPANY
(A Development Stage Company)
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
- - ------- ------- ------------
10.19: La Jolla Pharmaceutical Company 1994 Stock Incentive Plan (as amended
through the April 24, 1996 annual meeting of stockholders) *
27 Financial Data Schedule 13
* Previously filed with the Registrant's Proxy Statement for its 1996 annual meeting of
stockholders and incorporated herein by reference.