FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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: 0-19825
SCICLONE PHARMACEUTICALS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-3116852
---------- ----------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
901 Mariners Island Blvd., Suite 315, San Mateo, California 94404
- - ----------------------------------------------------------- -----
(Address of principal executive offices) (Zip code)
(415) 358-3456
(Registrant's telephone number, including area code)
Not Applicable
--------------
(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
Yes X No
-------- -------
As of April 30, 1996, 17,436,561 shares of the registrant's Common
Stock, no par value, were issued and outstanding.
SCICLONE PHARMACEUTICALS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations
Three months ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1996 1995
============== =============
(unaudited)
Current assets:
Cash and cash equivalents $ 3,892,265 $ 3,986,307
Short-term investments 12,344,208 15,467,685
Accounts receivable 120,833 108,410
Inventory 2,532,746 2,360,479
Prepaid expenses and other current assets 2,268,999 1,955,930
------------- -------------
Total current assets 21,159,051 23,878,811
Property and equipment, net 318,348 313,703
Long-term investments 28,951,453 27,935,835
Notes receivable from officers 1,761,955 1,964,065
Other assets 58,386 58,381
------------- -------------
Total assets $ 52,249,193 $ 54,150,795
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 394,302 $ 472,477
Accrued compensation and benefits 874,072 1,086,904
Accrued clinical trial expense 1,668,696 2,054,741
Accrued professional fees 1,121,500 765,000
Other accrued expenses 320,184 216,411
------------- -------------
Total current liabilities 4,378,754 4,595,533
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized ; no shares issued and outstanding -- --
Common stock, no par value; 75,000,000 shares
authorized; 17,386,590 and 16,807,257 shares
issued and outstanding 108,267,851 105,915,548
Net unrealized gain on available-for-sale securities 76,612 450,086
Accumulated deficit (60,344,021) (56,605,519)
Deferred compensation (130,003) (204,853)
------------- -------------
Total shareholders' equity 47,870,439 49,555,262
------------- -------------
Total liabilities and shareholders' equity $ 52,249,193 $ 54,150,795
============= =============
<FN>
See notes to consolidated financial statements
</FN>
3
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
March 31,
1996 1995
============= =============
Product sales $ 126,308 $ --
Cost of product sales 199,800 --
------------ ------------
Gross profit (73,492) --
Operating expenses:
Research and development 2,534,601 2,319,184
Marketing 1,070,817 1,146,389
General and administrative 775,698 789,964
------------ ------------
Total operating expenses 4,381,116 4,255,537
------------ ------------
Loss from operations (4,454,608) (4,255,537)
Interest and investment income, net 716,106 686,147
------------ ------------
Net loss $ (3,738,502) $ (3,569,390)
============ ============
Net loss per share $ (0.22) $ (0.21)
============ ============
Weighted average shares used in
computing per share amounts 17,051,546 17,086,780
============ ============
See notes to consolidated financial statements
4
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
March 31,
1996 1995
============= ============
Operating activities:
Net loss $ (3,738,502) $ (3,569,390)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 116,111 127,818
Changes in operating assets and liabilities:
Prepaid expenses and other assets (110,964) (593,189)
Accounts receivable (12,423) --
Inventory (172,267) --
Accounts payable and other accrued expenses 25,598 (45,952)
Accrued clinical trial expense (386,045) 19,051
Accrued professional fees 356,500 305,750
Accrued compensation and benefits (212,832) (660,821)
------------ ------------
Net cash used in operating activities (4,134,824) (4,416,733)
------------ ------------
Investing activities:
Purchase of property and equipment (45,906) (41,107)
Sale of marketable securities, net 1,734,385 6,231,072
------------ ------------
Net cash provided by investing activities 1,688,479 6,189,965
------------ ------------
Financing activities:
Proceeds from issuance of common stock, net 2,352,303 --
------------ ------------
Net cash provided by financing activities 2,352,303 --
------------ ------------
Net (decrease) increase in cash and cash equivalents (94,042) 1,773,232
Cash and cash equivalents, beginning of period 3,986,307 8,292,888
------------ ------------
Cash and cash equivalents, end of period $ 3,892,265 $ 10,066,120
============ ============
Supplemental disclosures of noncash financing activities:
Net unrealized (loss) gain on available-for-sale securities $ (373,474) $ 804,096
<FN>
See notes to consolidated financial statements
</FN>
5
SCICLONE PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
1. The accompanying unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles
consistent with those applied in, and should be read in conjunction
with, the audited financial statements for the year ended December 31,
1995. The interim financial information reflects all normal recurring
adjustments which are, in the opinion of management, necessary for a
fair presentation of the results for the interim period presented. The
interim results are not necessarily indicative of results for the full
year.
2. Net loss per share has been computed using the weighted average number
of common shares outstanding during each period presented. Common
equivalent shares for outstanding options and warrants were not
included in the weighted average shares outstanding because the effect
would be antidilutive.
3. The following is a summary of available-for-sale securities at March
31, 1996:
Available-for-Sale Securities
--------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. government &
agency obligations $26,619,426 $ 20,771 $(231,886) $26,408,311
Corporate obligations 14,059,333 28,777 (99,908) 13,988,202
Corporate equity securities 540,290 358,858 -- 899,148
----------- -------- --------- -----------
$41,219,049 $408,406 $(331,794) $41,295,661
=========== ======== ========= ===========
The amortized cost and estimated fair value of debt and marketable
securities at March 31, 1996 by contractual maturity are shown below.
Estimated
Amortized Fair
Cost Value
---- -----
Due in one year or less $11,513,451 $11,445,060
Due after one year through three years 12,280,755 12,205,216
Due after three years 16,884,553 16,746,237
---------- ----------
40,678,759 40,396,513
Corporate equity securities 540,290 899,148
---------- ----------
$41,219,049 $41,295,661
=========== ===========
4. The following is a summary of inventories at March 31, 1996:
Raw materials $2,478,113
Finished goods 54,633
----------
$2,532,746
==========
6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Except for historical information contained herein, the following
material is a forward-looking statement that is subject to certain risks and
uncertainties. These risks and uncertainties include the Company's reliance on a
single product, ZADAXIN(R) thymosin alpha 1, for its revenues, the absence of
regulatory approval for ZADAXIN in significant markets, uncertainties regarding
ZADAXIN's efficacy and outcome of ongoing clinical trials, risks associated with
the manufacture and supply of ZADAXIN and relationships with collaborative
partners, and competition from competing therapies, as well as other risks and
uncertainties described herein and in the Company's Annual Report on Form 10-K
and its other reports filed with the Securities Exchange Commission.
The Company is an international biopharmaceutical company involved in
the acquisition, development and commercialization of pharmaceuticals worldwide.
The Company's focus is on therapeutics for diseases that are chronic and
life-threatening, including hepatitis B and C, cancer and immune system
disorders. To date, the Company's principal focus has been the development and
commercialization of ZADAXIN.
From commencement of operations through March 31, 1996, the Company
incurred a cumulative net loss of approximately $60.3 million. The Company
expects its operating expenses to increase over the next several years as it
expands its research and development, clinical testing and marketing
capabilities. The Company's ability to achieve a profitable level of operations
currently is dependent in large part on obtaining additional favorable clinical
data on ZADAXIN (particularly from the Phase III trial in Taiwan), securing
regulatory approvals in additional countries, acquiring rights to additional
drugs, entering into and extending agreements for product development and
commercialization, where appropriate, and expanding from development to
marketing. There can be no assurance that the Company will ever achieve a
profitable level of operations.
The Company's operating results may fluctuate from period to period as
a result of, among other things, the timing and costs associated with clinical
trials and the regulatory approval process, and the acquisition of additional
product rights. The Company participates in a highly dynamic industry, which
often results in significant volatility of the Company's common stock price. Any
setbacks in clinical trials, in the regulatory approval process or in
relationships with collaborative partners, and any shortfalls in revenue or
earnings from levels expected by securities analysts, among other developments,
could have an immediate and significant adverse effect on the trading price of
the Company's common stock in any given period.
Results of Operations
Product sales reached approximately $126,000 for the three month period
ended March 31, 1996. There were no product sales for the corresponding period
in 1995. The Company commenced shipment of ZADAXIN in the second quarter of 1995
and has been recording product sales under a named patient registration program.
The Company has filed for approval to market ZADAXIN in several countries and
anticipates additional filings in other countries. As a result, the Company
expects product sales to increase during 1996 and beyond if additional ZADAXIN
marketing approvals are obtained. Although the Company remains optimistic
regarding the prospects of ZADAXIN, there can be no assurance that the Company
will ever achieve significant levels of product sales.
7
Cost of product sales was approximately $200,000 for the three month
period ended March 31, 1996. There was no cost of product sales for the
corresponding period in 1995. Cost of product sales relates to the Company's
commencement of ZADAXIN sales in the second quarter of 1995 and the fixed costs
associated with acquiring and warehousing product inventory. The Company expects
cost of product sales to vary from quarter to quarter, depending upon the level
of product sales and the absorption of fixed product-related costs.
Research and development expenses increased to approximately $2,535,000
for the three month period ended March 31, 1996 from approximately $2,319,000
for the corresponding period in 1995. This increase is primarily attributable to
increased payroll costs. The Company is currently reviewing its U.S. and
European ZADAXIN clinical trial strategy and the results of this review will
have a significant effect on the Company's research and development expenses.
In general, the Company expects this research and development expenses to
increase over the next several years and to vary quarter to quarter as the
Company initiates additional clinical trials and testing acquires product
rights, initiates additional trials, and expands regulatory activities.
Marketing expenses were approximately $1,071,000 for the three month
period ended March 31, 1996 as compared to $1,146,000 for the corresponding
period in the prior year. This decrease is primarily attributable to decreased
payroll costs related to an executive officer who left the Company in 1995
offset by increased professional services and travel expenses. The Company
expects marketing expenses to increase significantly in the next several years
as it expands its commercialization and marketing efforts and pursues other
strategic relationships.
General and administrative expenses were approximately $776,000 for the
three month period ended March 31, 1996 as compared to approximately $790,000
for the corresponding period in the prior year. This decrease is primarily
attributable to decreased expenses for professional services, primarily legal
services associated with a 1994 securities class action lawsuit. In the near
term, the Company expects general and administrative expenses to increase as the
Company augments its general and administrative activities to support increased
expenditures on clinical trials and testing, and regulatory,
pre-commercialization and marketing activities.
Net interest and investment income was approximately $716,000 for the
three month period ended March 31, 1996 as compared to approximately $686,000 in
the same period in 1994. This increase primarily resulted from overall increased
interest rates and gains from the sale of certain short-term investments.
8
Liquidity and Capital Resources
At March 31, 1996, the Company had approximately $45,188,000 in cash,
cash equivalents and highly liquid short and long-term investments.
Net cash used by the Company in operating activities amounted to
approximately $4,135,000 for the three month period ended March 31, 1996. Net
cash used in operating activities in the 1996 period is greater than the
Company's net loss for such period primarily due to cash used for inventory
purchases, the prepayment of certain future period expenses and decreases in
amounts owed to third parties for goods and services related to clinical trial
expenses and compensation and benefits. These uses were offset by increases in
amounts owed for accrued professional fees and noncash charges associated with
depreciation and amortization. Net cash used in operations amounted to
approximately $4,417,000 for the three month period ended March 31, 1995. Net
cash used in operating activities in the 1995 period is greater than the
Company's net loss for such period primarily due to cash used for the prepayment
of certain future period expenses and decreases in amounts owed to employees for
compensation and benefits. These uses of cash were offset by increases in
amounts owed for accrued professional fees and noncash charges associated with
depreciation and amortization.
Net cash provided by investing activities for the three month period
ended March 31, 1996 related to the net sale of approximately $1,735,000 of
marketable securities offset by the purchase of $46,000 in equipment and
furniture. Net cash provided by investing activities for the comparable 1995
period primarily resulted from the net sale of $6,231,000 of marketable
securities offset by the purchase of $41,000 of equipment and furniture.
Net cash provided by financing activities for the three month period
ending March 31, 1996 primarily consisted of approximately $2,352,000 in
proceeds received fro the issuance of common stock under the Company's stock
option plan. There were no financing activities for the three month period
ending March 31, 1995.
Management believes its existing capital resources and interest on
funds available are adequate to maintain its current and planned operations for
at least through 1997. However, the Company's capital requirements may change
depending upon numerous factors, including the availability of complementary
products, technologies and businesses, the results of clinical trials and
testing, the timing of regulatory approvals, developments in relationships with
collaborative partners and the status of competitive products. If the Company
cannot eventually generate sufficient funds from operations, it will need to
raise additional financing. There can be no assurance that such financing will
be available on acceptable terms, or at all.
9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
10.1 Compensation agreement dated January 19, 1996, between the
Registrant and Philip H. Vander Werf*
10.2 Employment agreement, dated February 1, 1996, between the
Registrant and Donald R. Sellers*
10.3 Sublease, dated January 1, 1996, between the Registrant
and Cord Blood Registry, Inc., concerning property located at
901 Mariners Island Boulevard, San Mateo, California
27 Financial Data Schedule
(b) Reports on Form 8-K
None
* Management Compensatory plan or arrangement
10
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.
SCICLONE PHARMACEUTICALS, INC.
(Registrant)
Date: May 14, 1996 Donald R. Sellers
-------------------------------
Donald R. Sellers
Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1996 Mark A. Culhane
-------------------------------
Mark A. Culhane
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial & Accounting Officer)
11
EXHIBIT INDEX
Exhibit
Number Description
- - ------- -----------
10.1 Compensation Agreement dated January 19, 1996 between the
Registrant and Philip H. Vander Werf*
10.2 Employment Agreement dated February 1, 1996 between the
Registrant and Donald R. Sellers
10.3 Sublease dated January 1, 1996, between the Registrant and Cord
Blood Registry, Inc., concerning property located at 901
Mariner's Island Boulevard, San Mateo, California
27 Financial Data Schedule**
- - -----------------
* Management Compensatory plan or arrangement.
** This exhibit shall not be deemed filed for purposes of Section 11 of
the Securities Act, Section 18 of the Exchange Act, and Section 323 of
the Trust Indenture Act, or otherwise be subject to the liabilities of
such sections.