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, 1997
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 000-28844
ALGOS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-3142274
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Collingwood Plaza, 4900 Route 33, Neptune, New Jersey, 07753-6804
(Address of principal executive offices)
908-938-5959
(Registrant's telephone number, including area code)
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 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 aggregate number of shares of the Registrant's common stock outstanding on
May 9, 1997 was 15,814,351.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
December 31 March 31
1996 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 48,575,719 $ 31,358,089
Marketable securities 6,873,705
Prepaid expenses 330,083 214,466
------------ ------------
Total current assets 48,905,802 38,446,260
Marketable securities, noncurrent 7,877,229
Property and equipment, net 86,682 76,634
Other assets 209,257 179,591
------------ ------------
Total assets $ 49,201,741 $ 46,579,714
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 456,684 $ 781,061
Other current liabilities 516,786 694,593
------------ ------------
Total current liabilities 973,470 1,475,654
------------ ------------
Commitments
Stockholders' equity:
Preferred stock, $100,000 aggregate liquidation preference 1,000 1,000
Common stock, $.01 par value, 50,000,000 shares authorized,
15,669,101 and 15,814,351 shares issued and outstanding, respectively 156,691 158,144
Additional paid-in-capital 55,902,403 55,931,950
Unearned compensation expense (856,150) (786,583)
Deficit accumulated during the development stage (6,975,673) (10,200,451)
------------ ------------
Total stockholders' equity 48,228,271 45,104,060
------------ ------------
Total liabilities and stockholders' equity $ 49,201,741 $ 46,579,714
============ ============
The accompanying notes are an integral part of these financial statements.
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ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
For the three months ended Cumulative
March 31, from inception
--------------------------- to March 31,
1996 1997 1997
---- ---- ----
Revenues $ - $ - $ 2,311,000
----------- ------------ -------------
Operating expenses:
Research and development 399,712 3,165,360 8,942,633
General and administrative 210,840 616,736 5,271,575
----------- ------------ -------------
Total operating expenses 610,552 3,782,096 14,214,208
----------- ------------ -------------
Loss from operations (610,552) (3,782,096) (11,903,208)
Interest income 42,587 557,318 1,702,757
----------- ------------ -------------
Net loss $ (567,965) $ (3,224,778) $(10,200,451)
=========== ============ =============
Pro forma net loss per common share $ (0.05) $ (0.20)
=========== ============
Pro forma weighted average common
shares outstanding 12,210,769 15,780,288
=========== ============
The accompanying notes are an integral part of these financial statements
2
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
From the three months ended Cumulative
March 31, from inception
----------------------------- to March 31,
1996 1997 1997
---- ---- ----
Cash flows from operating activities $ (623,825) $ (2,507,672) $ (7,448,228)
Cash flows from investing activities:
Investment in marketable securities (14,739,426) (14,739,426)
Purchases of property and equipment (3,356) (1,532) (199,511)
------------ ------------ ------------
Net cash used in investing activities (3,356) (14,740,958) (14,938,937)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 6,659,015
Proceeds from issuance of common stock 15,500 31,000 47,086,239
------------ ------------ ------------
Net cash provided by financing activities 15,500 31,000 53,745,254
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (611,681) (17,217,630) 31,358,089
Cash and cash equivalents, beginning of period 3,707,100 48,575,719 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 3,095,419 $ 31,358,089 $ 31,358,089
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
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ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed financial statements presented herein 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 and are unaudited. In the opinion of management, the financial
statements reflect all adjustments (which consist of normal recurring accruals
and adjustments) necessary for a fair statement of the results of the interim
periods presented.
2. EARNINGS PER SHARE
The pro forma net loss per share is based on the weighted average number
of shares of Common Stock outstanding during the period, after giving effect to
the conversion of Series A Preferred Stock into Common Stock as of January 1,
1995. In addition, pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, all shares of Common Stock issuable upon the
conversion of Series B Preferred Stock and the exercise of common stock options
issued during the twelve months prior to the Company's initial public offering
have been included in the calculation of weighted average number of shares of
common stock outstanding for all periods prior to the offering.
The historical net loss per common share based on the actual weighted
average number of common shares outstanding is as follows:
Three months ended March 31,
----------------------------
1996 1997
---- ----
Net loss per common share $(0.09) $(0.20)
Weighted average common shares outstanding 6,121,333 15,780,288
3. MARKETABLE SECURITIES
Marketable securities at March 31, 1997 consist of the following:
Amortized Estimated Fair Unrealized
Cost Market Value Gains (Losses)
--------- --------------- --------------
U.S. treasury and federal agency debt securities $10,877,277 $10,818,800 ($58,477)
Corporate debt securities $ 3,836,356 $ 3,844,176 7,820
The marketable securities are classified as held-to-maturity securities
and are stated at their amortized cost. Noncurrent marketable securities have
maturities in excess of one year and less than two years.
4. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
December 31 March 31
1996 1997
----------- ---------
Accrued research expenses $302,036 $621,593
Accrued compensation 214,750 73,000
========= =========
$516,786 $694,593
========= =========
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ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
5. LEASE AGREEMENT
The Company has entered into a ten-year operating lease agreement for an
office building to be constructed. Effective upon completion of the building,
minimum annual lease payments under the lease will amount to approximately
$269,000 per year for the first five years and aggregate approximately $1.6
million in the second five-year period. The agreement provides the Company with
an option to purchase the building.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
General
Algos, a development stage company, is engaged primarily in the
development and commercialization of proprietary pharmaceutical products. Since
its formation in January 1992, the Company has devoted a substantial amount of
its efforts to licensing technology, recruiting key management and staff,
developing products, filing patents and other regulatory applications and
raising capital. To date the Company has earned $2,000,000 of revenue from
license agreements.
The Company has incurred losses since its inception and expects to incur
operating losses in the future. The Company expects that its product development
expenses will increase significantly in 1997 and in future years as the drugs
that the Company currently has under development move into advanced clinical
trials and as additional drugs are developed.
Results of Operations
Three months ended March 31, 1996 and 1997
Research and development:
In the three months ended March 31, 1997, research and development
expenses increased $2,765,648 from $399,712 in the 1996 period to $3,165,360.
The increase is primarily attributable to increased costs associated with
additional clinical trials for MorphiDex'tm', the Company's most developmentally
advanced product, including bioavailability studies and Phase III clinical
studies in cancer patients and in post-operative pain. In addition, the
Company incurred the costs of manufacturing small-scale regulatory test
batches of MorphiDex'tm'.
General and administrative:
In the three months ended March 31, 1997, general and administrative
expenses increased $405,896 from $210,840 in the 1996 period to $616,736. The
Company incurred increased legal and other professional fees as a result of its
increased business activities and the completion of its initial public offering
("IPO") in October 1996. Additional insurance costs and the amortization of
unearned compensation expense associated with 1996 stock option grants also
contributed to the increase.
Interest income:
Interest income increased in the three months ended March 31, 1997 due
to the investment of the proceeds of the Company's IPO.
Liquidity and Capital Resources
As a result of its drug development efforts, the Company has experienced
net cash outflows from operations since its inception in 1992. In the three
months ended March 31, 1997, cash outflows from operations were $2,507,672 as
compared to $623,825 in the prior year period, primarily as a result of the
Company's increased development spending on MorphiDex'tm'.
The Company expects that its expenses will increase as its development
programs expand and additional preclinical studies and clinical trials of its
products are initiated. The Company has entered into several research and
development agreements pursuant to which the Company expects to incur
additional expenses, primarily related to its development of MorphiDex'tm'. The
Company's funding requirements will depend on a number of factors including the
results of its development efforts, the timing and costs of obtaining required
regulatory approvals, the
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development of competing technologies, the amount of resources required for the
establishment of marketing and distribution capabilities, the execution of
licensing or other collaborative research agreements on terms acceptable to the
Company, and the cost of prosecuting and defending patents. The Company
currently expects that its cash and equivalents and marketable securities at
March 31, 1997 will be sufficient to fund its operations for the development of
products currently in clinical trials, based upon the Company's currently
anticipated schedule of clinical trials. If, however, additional trials are
deemed to be necessary or advisable or if additional products are developed, the
Company may require additional funds to complete such trials and, in the event
that revenue and income from successful product introductions or other
internally generated funds are insufficient for such efforts, the Company will
need to raise additional funds by incurring debt, issuing additional equity or
through collaborative or license arrangements.
Certain information set forth in the prior paragraphs contains
forward-looking statements as such term is defined in Section 27A of the
Securities Act of 1933 and Section 21E of the Exchange Act. All statements
concerning the expected use of funds, the Company's development schedule, and
the ability to fund operations for a specified period are forward-looking
statements. Certain factors discussed herein could cause actual results to
differ materially from those in the forward-looking statements. See "Risk
Factors" in the Company's Report on Form 10-K.
7
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits:
Exhibit
No. Title
- -------- ---------------------------------------------------------------------------------
3.1 Form of Amended and Restated Certificate of Incorporation of Algos Pharmaceutical
Corporation(1)
3.2 Form of Amended and Restated By-laws of Algos Pharmaceutical Corporation(1)
4.1 Form of Stock Certificate of Common Stock(1)
10.1.1 Employment Agreement with Respect to John W. Lyle(1)
10.1.2 Employment Agreement with Respect to Gastone Bello(1)
10.1.3 Employment Agreement with Respect to Frank S. Caruso(1)
10.2.1 1994 Stock Option Plan(1)
10.2.2 Form of 1996 Stock Option Plan(1)
10.2.3 Form of 1996 Non-Employee Director Stock Option Plan(2)
10.3.1 Algos Pharmaceutical Corporation Stockholders' Agreement(1)
10.4.1 License Agreement with The Medical College of Virginia(1) 'D''D'
10.4.2 License Agreement with McNeil(1) 'D''D'
10.4.3 Registration Rights Agreement with The Medical College of Virginia(1)
10.5 Lease Agreement
11 Statement Regarding Computation of Per Share Earnings
21 Subsidiaries of the Registrant(1)
27 Financial Data Schedule 'D'
99 Risk Factors(2)
(1) Incorporated by reference to the Registrant's registration statement on
Form S-1 declared effective on September 25, 1996.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996.
'D' Included in EDGAR filing only.
'D''D' Portions of this Exhibit have received confidential treatment pursuant
to Rule 406(b) under the Securities Act.
(b). Reports on Form 8-K
None
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.
ALGOS PHARMACEUTICAL CORPORATION
Date: 5/15/97 /s/ John W. Lyle
-------------------------------------
John W. Lyle
President and Chief Executive Officer
Date: 5/15/97 /s/ Gary R. Anthony
-------------------------------------
Gary R. Anthony
Chief Financial Officer (Principal
Accounting Officer)
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STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as.................... 'tm'
The dagger symbol shall be expressed as....................... 'D'