FORM 10-Q/A
UNITED STATES
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 June 30, 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
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(State or other jurisdiction of (I.R.S. employer
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
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As of July 31, 1996, 17,593,742 shares of the registrant's Common
Stock, no par value, were issued and outstanding.
The undersigned Registrant hereby amends the following exhibit to the
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996, as
set forth below:
At the Commission's request, the Registrant is refiling Exhibit 10.1 in
accordance with the Commission's granting of an order for confidential treatment
of certain portions of Exhibit 10.1.
SCICLONE PHARMACEUTICALS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
Three and six months ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1996 1995
------------- -------------
(unaudited)
Current assets:
Cash and cash equivalents $ 6,090,453 $ 3,986,307
Short-term investments 9,196,281 15,467,685
Accounts receivable, net 85,800 108,410
Inventory 2,485,450 2,360,479
Prepaid expenses and other current assets 2,193,177 1,955,930
------------- -------------
Total current assets 20,051,161 23,878,811
Property and equipment, net 313,254 313,703
Other assets 66,722 58,381
Long-term investments 27,077,875 27,935,835
Notes receivable from officers 1,658,741 1,964,065
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Total assets $ 49,167,753 $ 54,150,795
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 564,106 $ 472,477
Accrued compensation and benefits 823,150 1,086,904
Accrued clinical trial expense 1,441,811 2,054,741
Accrued professional fees 1,761,500 765,000
Other accrued expenses 363,273 216,411
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Total current liabilities 4,953,840 4,595,533
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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; 17,470,198 and 16,807,257 shares
issued and outstanding 108,694,269 105,915,548
Net unrealized (loss) gain on available-for-sale
securities (405,878) 450,086
Accumulated deficit (64,074,478) (56,605,519)
Deferred compensation -- (204,853)
------------- -------------
Total shareholders' equity 44,213,913 49,555,262
------------- -------------
Total liabilities and shareholders' equity $ 49,167,753 $ 54,150,795
============= =============
<FN>
See notes to consolidated financial statements
</FN>
3
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Product sales $ 122,037 $ 45,198 $ 248,345 $ 45,198
Cost of product sales 203,660 203,293 403,460 203,293
------------ ------------ ------------ ------------
Gross profit (81,623) (158,095) (155,115) (158,095)
Operating expenses:
Research and development 2,542,473 2,641,347 5,077,074 4,960,531
Marketing 1,030,296 893,512 2,101,113 2,039,901
General and administrative 787,636 707,939 1,563,334 1,497,903
------------ ------------ ------------ ------------
Total operating expenses 4,360,405 4,242,798 8,741,521 8,498,335
------------ ------------ ------------ ------------
Loss from operations (4,442,028) (4,400,893) (8,896,636) (8,656,430)
Interest and investment income, net 711,571 718,277 1,427,677 1,404,424
------------ ------------ ------------ ------------
Net loss $ (3,730,457) $ (3,682,616) $ (7,468,959) $ (7,252,006)
============ ============ ============ ============
Net loss per share $ (0.21) $ (0.22) $ (0.43) $ (0.43)
============ ============ ============ ============
Weighted average shares used in
computing per share amounts 17,441,228 16,876,593 17,246,676 16,981,106
============ ============ ============ ============
<FN>
See notes to consolidated financial statements
</FN>
4
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended
June 30,
1996 1995
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Operating activities:
Net loss $ (7,468,959) $ (7,252,006)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 288,434 253,251
Changes in operating assets and liabilities:
Accounts receivable 22,610 (40,727)
Inventory (124,971) (1,028,312)
Prepaid expenses and other assets 59,736 (1,502,062)
Accounts payable and other accrued expenses 238,491 (206,744)
Accrued clinical trial expense (612,930) 208,815
Accrued professional fees 996,500 213,750
Accrued compensation and benefits (263,754) (516,972)
------------ ------------
Net cash used in operating activities (6,864,843) (9,871,007)
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Investing activities:
Purchase of property and equipment (83,132) (95,698)
Sale of short and long term investments, net 6,273,400 10,607,701
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Net cash provided by investing activities 6,190,268 10,512,003
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Financing activities:
Proceeds from issuance of common stock, net 2,778,721 63,338
Repurchase of common stock -- (1,924,897)
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Net cash provided by (used in) financing activities 2,778,721 (1,861,559)
------------ ------------
Net increase (decrease) in cash and cash equivalents 2,104,146 (1,220,563)
Cash and cash equivalents, beginning of period 3,986,307 8,292,888
------------ ------------
Cash and cash equivalents, end of period $ 6,090,453 $ 7,072,325
============ ============
Supplemental disclosures of noncash financing activities:
Net unrealized (loss) gain on available-for-sale securities (855,964) 2,045,461
<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 and commencement to
date periods 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
of including them is antidilutive.
3. The following is a summary of available-for sale securities at June 30,
1996:
Available-for-Sale Securities
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Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
U.S. Government &
Agency obligations $ 24,995,308 $ 2,581 $ (347,534) $ 24,650,355
Corporate obligations 11,484,726 10,255 (79,682) 11,415,299
Corporate securities 200,000 24,102 (15,600) 208,502
------------ ------------ ------------ ------------
$ 36,680,034 $ 36,938 $ (442,816) $ 36,274,156
============ ============ ============ ============
The amortized cost and estimated fair value of debt and marketable
securities at June 30, 1996 by contractual maturity are shown below.
Estimated
Fair
Cost Value
----------- -----------
Due in one year or less $ 9,016,529 $ 8,987,779
Due after one year through three years 21,122,138 20,855,060
Due after three years 6,341,367 6,222,815
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36,480,034 36,065,654
Corporate securities 200,000 208,502
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$36,680,034 $36,274,156
=========== ===========
4. The following is a summary of inventories at June 30, 1996:
Raw materials $2,445,038
Finished goods 40,412
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$2,485,450
==========
6
5. In April 1996, the Company acquired an exclusive license for CPX, a
synthetic compound developed by the National Institutes of Health,
("NIH") as a potential treatment for cystic fibrosis. NIH will receive
certain milestone payments upon successful research and development
results in addition to royalties on net sales revenue.
7
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 current
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 prospects for regulatory approvals based on existing clinical data,
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 June 30, 1996, the Company
incurred a cumulative net loss of approximately $64.1 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 securing regulatory approvals for
ZADAXIN in additional countries, successfully launching ZADAXIN once approved,
acquiring rights to additional drugs, and entering into and extending agreements
for product development and commercialization, where appropriate. 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,
have in the past had and could in the future 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 $122,000 and $248,000 for the three
and six month periods ended June 30, 1996, respectively, as compared to
approximately $45,000 for each of the corresponding periods 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 the remainder of 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.
8
Cost of product sales was approximately $204,000 and $403,000 for the
three and six month periods ended June 30, 1996, respectively, as compared to
approximately $203,000 for each of the corresponding periods in 1995. This
increase relates to the Company's increase in product sales and the fixed costs
associated with acquiring and warehousing product inventory. The Company expects
cost of product sales to vary from quarter to quarter, dependent upon the level
of product sales and the absorption of fixed product-related costs.
Research and development expenses were approximately $2,542,000 and
$5,077,000 for the three and six month periods ended June 30, 1996,
respectively, as compared to approximately $2,641,000 and $4,961,000 for the
corresponding periods in 1995. The decrease in the three month period is
primarily attributable to decreased clinical trials expenses offset by increased
professional fees. The change in the six month period is primarily attributable
to increased payroll costs and professional fees offset by decreased clinical
trials expenses. In April, 1996, the Company acquired an exclusive license for
CPX, a synthetic compound developed by the National Institutes of Health as a
potential treatment for cystic fibrosis. The Company has incurred additional
professional consulting service fees to initiate the development of this
compound. The decrease in clinical trial expenses was primarily a result of
completion of enrollment in the ZADAXIN U.S. Phase III Hepatitis C trial. 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
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 $1,030,000 and $2,101,000 for the
three and six month periods ended June 30, 1996, respectively, as compared to
$894,000 and $2,040,000 for the corresponding periods in the prior year. This
increase is primarily attributable to increased professional services expenses
offset by decreased payroll costs related to an executive officer who left the
Company in 1995. 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 $788,000 and
$1,563,000 for the three and six month periods ended June 30, 1996,
respectively, as compared to approximately $708,000 and $1,498,000 for the
corresponding periods in the prior year. The increase is primarily attributable
to increased payroll costs offset by decreased expenses for professional
services, primarily legal services and consulting fees. In the near term, the
Company expects general and administrative expenses to vary quarter to quarter
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 $712,000 and
$1,428,000 for the three and six month periods ended June 30, 1996,
respectively, as compared to approximately $718,000 and $1,404,000 in the same
periods in 1995. The changes in the three and six month periods primarily
resulted from decreased interest and investment income due to lower average
invested cash balances offset by overall increased rates and gains from the sale
of certain short-term investments.
9
Liquidity and Capital Resources
At June 30, 1996, the Company had approximately $42,365,000 in cash,
cash equivalents and highly liquid short and long term investments.
Net cash used by the Company in operating activities amounted to
approximately $6,865,000 for the six month period ended June 30, 1996. Net cash
used in operating activities in the 1996 period is less than the Company's net
loss for such period primarily due to noncash charges associated with
depreciation and amortization, decreases in and prepayments of certain future
period expenses and increases in amounts owed for accounts payable and accrued
professional fees. These were offset by cash used for inventory purchases and
decreases in amounts owed to third parties for goods and services related to
clinical trial expenses and compensation and benefits. Net cash used in
operating activities amounted to approximately $9,871,000 for the six month
period ended June 30, 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
inventory purchases, the prepayment of certain future period expenses and
payments for accrued compensation and benefits and accounts payable. These uses
were offset by increases in amounts owed to third parties for clinical trial
expenses and professional fees, in addition to noncash charges associated with
depreciation and amortization.
Net cash provided by investing activities for the six month period
ended June 30, 1996 related to the net sale of approximately $6,273,000 of
marketable securities offset by the purchase of $83,000 in equipment and
furniture. Net cash provided in investing activities for the comparable 1995
period primarily resulted from the net sale of $10,608,000 of marketable
securities offset by the purchase of $96,000 of equipment and furniture.
Net cash provided by financing activities for the six month period
ending June 30, 1996 primarily consisted of approximately $2,779,000 in proceeds
received for the issuance of common stock under the Company's stock option plan.
Net cash used in financing activities for the six month period ending June 30,
1995 related to repurchases of the Company's common stock of approximately
$1,925,000 offset by approximately $63,000 in proceeds received from issuance of
common stock under the Company's stock option plan.
Management believes its existing capital resources and interest on
funds available are adequate to maintain its current and planned operations 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.
10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
-------- -----------
10.1 License Agreement effective April 19, 1996 between
the Registrant and the National Institutes of Health
Office of Technology Transfer*
27 Financial Data Schedule
(b) Reports on Form 8-K
None
* Confidential treatment requested.
11
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: August 14, 1996 Donald R. Sellers
--------------------------------------------
Donald R. Sellers
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1996 Mark A. Culhane
-------------------------------------------
Mark A. Culhane
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial & Accounting Officer)
12
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.1 License Agreement effective April 19, 1996 between the Registrant and
the National Institutes of Health Office of Technology Transfer*
27 Financial Data Schedule**
- ---------------
* Confidential treatment requested.
** 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.