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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1996
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19125
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ISIS PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 33-0336973
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
2292 Faraday Avenue, Carlsbad, CA 92008
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(Address of principal executive offices, including zip code)
(619) 931-9200
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(Registrant's telephone number, including area code)
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(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 the past 90 days.
(1) Yes /X/ No / / (2) 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 25,703,602 shares
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(Class) (Outstanding at October 24, 1996)
EXHIBIT INDEX: Located at page number 11.
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ISIS PHARMACEUTICALS, INC.
FORM 10-Q
INDEX
PAGE
PART I FINANCIAL INFORMATION
ITEM 1: Financial Statements
Condensed Balance Sheets as of September 30, 1996 and December 31, 1995 3
Condensed Statements of Operations for the three months
and nine months ended September 30, 1996 and 1995 4
Condensed Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995 5
Notes to Financial Statements 6
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations 7
Liquidity and Capital Resources 8
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings 9
ITEM 2: Changes in Securities 9
ITEM 3: Default upon Senior Securities 9
ITEM 4: Submission of Matters to a Vote of Security Holders 9
ITEM 5: Other Information 9
ITEM 6: Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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ISIS PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
ASSETS
September 30, December 31,
1996 1995
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(Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 25,784 $ 46,463
Short-term investments 35,749 30,944
Prepaid expenses and other current assets 1,170 1,638
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Total current assets 62,703 79,045
Property, plant and equipment, net 15,698 14,631
Patent costs, net 5,664 4,773
Deposits and other assets 796 1,120
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$ 84,861 $ 99,569
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 940 $ 997
Accrued payroll and related expenses 1,380 1,249
Accrued liabilities 3,648 2,838
Deferred contract revenues 8,877 8,913
Current portion of long term debt and capital lease obligations 5,061 5,008
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Total current liabilities 19,906 19,005
Long-term debt and capital lease obligations, less current portion 4,951 4,714
Stockholders' equity:
Common stock, $.001 par value; 50,000,000 shares authorized,
25,687,000 shares and 25,249,000 shares issued
and outstanding at September 30, 1996 and December 31,
1995, respectively 26 25
Additional paid-in capital 174,780 172,253
Unrealized gain on investments 102 118
Accumulated deficit (114,904) (96,546)
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Total stockholders' equity 60,004 75,850
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$ 84,861 $ 99,569
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Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date.
See accompanying notes.
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ISIS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
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Revenues:
Research and development
revenue under collaborative
agreements $ 5,142 $ 3,710 $ 15,220 $ 9,578
Interest income 944 778 3,005 1,780
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6,086 4,488 18,225 11,358
Expenses:
Research and development 10,219 9,841 31,247 25,200
General and administrative 1,572 1,270 4,571 3,964
Interest expense 280 266 766 843
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12,071 11,377 36,584 30,007
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Net loss $ (5,985) $ (6,889) $ (18,359) $(18,649)
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Net loss per share $ (.23) $ (.32) $ (.72) $ (.91)
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Weighted average common
shares 25,671 21,728 25,494 20,447
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See accompanying notes.
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ISIS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
Nine months ended
September 30,
1996 1995
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Cash used in operations: $(15,110) $ (8,152)
Investing activities:
Short-term investments (4,805) (2,740)
Property and equipment (853) (352)
Other assets (691) (326)
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Net cash used in investing activities (6,349) (3,418)
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Financing activities:
Net proceeds from issuance of common stock 2,528 25,456
Principal payments on debt and capital lease obligations (1,748) (1,981)
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Net cash provided from financing activities 780 23,475
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Net increase (decrease) in cash and cash equivalents (20,679) 11,905
Cash and cash equivalents at beginning of period 46,463 12,926
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Cash and cash equivalents at end of period $ 25,784 $ 24,831
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 760 $ 803
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Additions to capital lease obligations for acquisitions of property,
plant and equipment $ 2,038 $ 143
See accompanying notes.
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ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited interim financial statements for the three and nine month
periods ended September 30, 1996 and 1995 have been prepared on the same basis
as the Company's audited financial statements for the year ended December 31,
1995. The financial statements include all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a fair
presentation of the financial position at such dates and the operating results
and cash flows for those periods. Results for the interim periods are not
necessarily indicative of the results for the entire year. For more complete
financial information, these financial statements, and notes thereto, should be
read in conjunction with the audited financial statements for the year ended
December 31, 1995 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
2. SUBSEQUENT EVENT
In October 1996, the Company borrowed $8.3 million under a
line of credit made available under the terms of its collaborative agreement
with Boehringer Ingelheim. The funds will be used to support Isis' share of the
collaboration expenses. Borrowings under the line of credit bear interest at the
seven year U.S. interbanking rate plus 2.0%. Interest payments are due twice per
year with principal repayment due in seven years. The principal may be repaid in
cash or stock, at the Company's option.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to historical information contained in this Report, this
Report contains forward-looking statements regarding the Company's business and
products. Such statements are subject to certain risks and uncertainties,
particularly those inherent in the process of discovering, developing and
commercializing drugs that can be proven to be safe and effective for use as
human therapeutics, and the endeavor of building a business around such
potential products. Actual results could differ materially from those projected
in this Form 10-Q. As a result, the reader is cautioned not to rely on these
forward-looking statements. These and other risks are described in additional
detail in Isis' Annual Report on Form 10-K for the year ended December 31, 1995
filed with the Securities and Exchange Commission, and available from the
Company.
Since its inception in January 1989, the Company has devoted
substantially all of its resources to its research, drug discovery and
development programs. The Company has been unprofitable since its inception and
expects to incur additional operating losses for the next several years. The
Company has entered into collaborative research and development agreements with
pharmaceutical companies that generate cash and revenue to augment the level of
research and development activity and to offset portions of its research and
development costs. To date, the Company has not received any significant revenue
from the sale of products.
RESULTS OF OPERATIONS
The Company had contract revenue of $5.1 million for the third quarter
and $15.2 million for the nine-month period ended September 30, 1996, compared
with $3.7 million and $9.6 million, respectively, for the same periods in 1995.
The revenue increase was primarily due to revenue received under an expanded
collaborative agreement with Ciba-Geigy Limited for the development of two drug
candidates identified through the collaborative research program between Ciba
and Isis. Additional revenue from a collaborative agreement with Boehringer
Ingelheim International GmbH also contributed to the increase. The Company also
had interest income totaling $0.9 million for the quarter and $3.0 million for
the nine month period, compared with $0.8 million and $1.8 million for the same
periods in 1995. The increase in interest income was primarily due to higher
investment balances in 1996.
Research and development expenses increased to $10.2 million for the
three months and $31.2 million for the nine months ended September 30, 1996 from
$9.8 million and $25.2 million during the same periods in 1995. These increases
are primarily attributable to an increase in clinical development activities.
The Company expects that its research and development expenses will continue to
increase as its current preclinical and clinical activities continue and
additional preclinical and clinical studies are undertaken.
General and administrative expenses increased to $1.6 million for the
quarter and $4.6 million for the nine months ended September 30, 1996 from $1.3
million and $4.0 million for the same periods in 1995. The Company expects that
its general and administrative expenses will increase in the future in support
of its expanding operations.
During the quarter ended September 30, 1996, the Company recorded a net
loss of $6.0 million, or $0.23 per share, compared with $6.9 million, or $0.32
per share, for the same period in 1995. During the nine-month period ended
September 30, 1996, the Company's net loss amounted to $18.4 million, or $0.72
per share, compared to $18.6 million, or $0.91 per share for the same period in
1995. The changes in net loss per share from 1995 to 1996 include the effect of
increases in the weighted average number of shares outstanding due to the
issuance of stock in the second half of 1995 in conjunction with an equity
offering and corporate collaborations. The Company expects its operating losses
will increase for the remainder of the fiscal year and beyond as its activities
grow, and may fluctuate from quarter to quarter as a result of differences in
the timing and composition of revenue earned and expenses incurred.
The Company believes that inflation and changing prices have not had a
material effect on its ongoing operations to date.
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LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through the sale of equity securities, raising to date a net aggregate of $169
million, as of September 30, 1996, from the private and public sale of such
securities. The Company has also financed a portion of its operations through
contract research revenue, portions of which were paid in advance of work being
performed, offsetting the Company's cash usage for operations.
As of September 30, 1996, the Company had cash, cash equivalents and
short-term investments totaling $61.5 million and working capital of $42.8
million, compared with $77.4 million and $60.0 million, respectively, as of
December 31, 1995. The decreases in cash and working capital resulted from
funding operating losses and making principal repayments on debt and capital
lease obligations.
The Company had long-term debt and capital lease obligations at
September 30, 1996 totaling $10.0 million, versus $9.7 million at December 31,
1995. This increase, which was partially offset by principal repayments on
existing obligations, was due to additional capital lease financing. The Company
expects that its capital lease obligations will increase over time to fund
capital equipment acquisitions required for its expanding business. Lease lines
will continue to be used by the Company to the extent that the terms thereof
remain commercially attractive. Subsequent to the end of the quarter, the
Company borrowed $8.3 million under a line of credit from Boehringer Ingelheim
(see Note 2 to the financial statements). The funds will be used to support
Isis' share of the collaboration expenses.
The Company expects to incur substantial additional research and
development costs, related primarily to preclinical testing, clinical trials and
manufacturing process development and expects losses to continue to increase as
the Company's preclinical testing and clinical trial efforts expand. It is the
Company's intention to seek additional collaborative research and development
relationships with suitable potential corporate partners. There can be no
assurance that any agreements resulting from these discussions will successfully
reduce the Company's funding requirements, and arrangements with collaborative
partners or others may require the Company to relinquish rights to certain of
its technologies, product candidates or products. Additional equity or debt
financings may be required, and there can be no assurance that these funds will
be available on favorable terms, if at all. If additional funds are raised by
issuing equity securities, further dilution to then existing stockholders may
result.
The Company believes that its existing available cash, cash equivalents
and short-term investments, combined with anticipated interest income, contract
revenue and funds available under the line of credit from Boehringer Ingelheim,
will be sufficient to meet its anticipated requirements for approximately two
years. The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research, drug discovery and
development programs, the magnitude of these programs and progress with
preclinical and clinical trials; the time and costs involved in obtaining
regulatory approvals; the costs involved in filing, prosecuting and enforcing
patent claims; competing technological and market developments; changes in the
existing collaborative research and development relationships; the ability of
the Company to establish additional research and development arrangements; and
the cost of manufacturing scale-up and effective commercialization activities
and arrangements. If adequate funds are not available, the Company may be
required to significantly curtail one or more of its research, drug discovery or
development programs.
Uncertainties associated with the length and expense of preclinical and
clinical testing of any of the Company's products could greatly increase the
cost of development of such product and affect the timing of anticipated revenue
from product sales, and failure by the Company to obtain regulatory approval for
any product will preclude its commercialization. In addition, the failure by the
Company to obtain patent protection for its products may make certain of its
products commercially unattractive.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not party to any legal proceedings.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The following are exhibits to this Form 10-Q:
10.2 Registrant's 1989 Stock Option Plan, as amended.
10.3 Revised form of Incentive Stock Option Agreement
under the Plan.
10.4 Revised form of Supplemental Stock Option Agreement
under the Plan.
10.7 Registrant's 1992 Non-Employee Directors' Stock
Option Plan, as amended.
27.1 Financial Data Schedule
b. Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter
ended September 30, 1996.
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ISIS PHARMACEUTICALS, INC.
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.
ISIS PHARMACEUTICALS, INC.
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(Registrant)
Date: November 11, 1996 By: /S/ STANLEY T. CROOKE
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Stanley T. Crooke, M.D., Ph.D.
Chairman of the Board and Chief Executive
Officer
(Principal Executive Officer)
Date:November 11, 1996 By: /S/ B. LYNNE PARSHALL
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B. Lynne Parshall
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
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ISIS PHARMACEUTICALS, INC.
FORM 10-Q
INDEX TO EXHIBITS
Exhibit
Number Description Page
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10.2 Registrant's 1989 Stock Option Plan, as amended. 12
10.3 Revised form of Incentive Stock Option Agreement under the Plan. 23
10.4 Revised form of Supplemental Stock Option Agreement under
the Plan. 28
10.7 Registrant's 1992 Non-Employee Directors' Stock Option Plan,
as amended. 33
27.1 Financial Data Schedule 44
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