1
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 December 31, 1995
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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 0-15190
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ONCOGENE SCIENCE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3159796
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 Charles Lindbergh Blvd., Uniondale, New York 11553
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(Address of principal executive offices) (Zip Code)
516-222-0023
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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. Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
At January 31, 1996 the registrant had outstanding 17,541,034 shares of common
stock .$01 par value.
Total Pages: 10
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ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
INDEX
Page No.
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PART I - FINANCIAL INFORMATION - UNAUDITED
Consolidated Balance Sheets - December 31, 1995
and September 30, 1995 3
Consolidated Statements of Operations
- Three months ended December 31, 1995 and 1994 4
Consolidated Statements of Cash Flows
- Three months ended December 31, 1995 and 1994 5
Note to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II - OTHER INFORMATION 9
SIGNATURES 10
* * * *
3
ITEM 1. FINANCIAL STATEMENTS
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
Assets 1995 1995
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Current assets:
Cash and cash equivalents $ 1,787,990 $17,919,609
Short-term investments 22,296,727 8,866,957
Receivables, including
trade receivables of $88,371 and
$163,132 at December 31 and
September 30, 1995, respectively 2,253,533 1,320,015
Interest receivable 67,769 45,263
Grants receivable 209,748 433,530
Prepaid expenses and other 652,024 518,150
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Total current assets 27,267,791 29,103,524
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Property, equipment and leasehold
improvements - net 5,445,005 5,709,515
Other receivable 408,659 262,703
Loans to officers and employees 25,464 25,516
Other assets 324,500 325,582
Intangible assets - net 8,267,392 8,630,581
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$41,738,811 $44,057,421
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Liabilities and Stockholders' Equity
Current liabilities:
Account payable and accrued expenses $ 1,806,902 $ 2,825,702
Current portion of unearned revenue 193,166 150,041
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Total current liabilities 2,000,068 2,975,743
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Other Liabilities:
Long-term portion of unearned revenue 151,509 165,839
Accrued postretirement benefits cost 399,329 366,203
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Total liabilities 2,550,906 3,507,785
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Stockholders' equity:
Common stock, $.01 par value;
50,000,000 shares authorized,
17,750,310 and 17,683,047
issued at December 31 and
September 30, 1995, respectively 177,503 176,830
Additional paid-in capital 66,998,116 66,735,375
Accumulated deficit (27,899,935) (26,129,341)
Cumulative foreign currency
translation adjustment (40,220) (55,669)
Unrealized holding gain (loss) on
short-term investments 95,000 (35,000)
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39,330,454 40,692,195
Less: treasury stock, at cost
222,521 shares at December 31
and September 30, 1995 (142,559) (142,559)
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Total stockholders' equity 39,187,905 40,549,636
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Commitments and contingencies
$41,738,811 $44,057,421
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See accompanying notes to consolidated financial statements.
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ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31,
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1995 1994
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Revenues:
Collaborative program revenues,
principally from related parties $ 1,987,458 $ 2,318,374
Sales 29,042 1,313,689
Other research revenue 259,748 575,918
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2,276,248 4,207,981
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Expenses:
Research and development 2,683,262 3,076,965
Production 21,863 405,278
Selling, general and administrative 1,331,539 1,874,429
Amortization of intangibles 363,189 436,334
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4,399,853 5,793,006
Loss from operations (2,123,605) (1,585,025)
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Other income (expense):
Net investment income 364,524 220,672
Other expense (11,513) (26,634)
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Net loss (1,770,594) (1,390,987)
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Weighted average number of shares
of common stock outstanding 17,476,343 16,342,604
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Net loss per weighted average share of
common stock outstanding $ (.10) $ (.09)
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See accompanying notes to consolidated financial statements.
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ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31,
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1995 1994
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Cash flow from operating activities:
Net loss $(1,770,594) $(1,390,987)
Adjustments to reconcile net
loss to net cash used
by operating activities:
Gain on sale of investments (27,608) -
Depreciation and amortization 341,240 323,233
Amortization of intangibles 363,189 436,334
Foreign exchange loss 15,449 11,474
Changes in assets and liabilities:
Receivables (933,518) 460,588
Inventory - 111,282
Interest receivable (22,506) (117,109)
Grants receivable 223,782 134,997
Prepaid expenses and other (133,874) 46,322
Other receivable (145,956) (279,584)
Other assets 1,082 4,392
Accounts payable
and accrued expenses (1,018,800) (375,977)
Unearned revenue 28,795 459,676
Accrued postretirement
benefit cost 33,126 34,689
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Net cash used by
operating activities $(3,046,193) $(140,670)
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Continued
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ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three Months Ended December 31,
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1995 1994
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Cash flows from investing activities:
Additions to short-term
investments (15,772,162) (499,687)
Maturities and sales of short-term
investments 2,500,000 1,756,725
Additions to property,
equipment and leasehold
improvements (76,730) (428,460)
Net change in loans to officers
and employees 52 -
Other - (7,900)
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Net cash provided by (used in)
investing activities (13,348,840) 820,678
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Cash flows from financing activities:
Proceeds from exercise
of stock options, employee
stock purchase plan and other 263,414 1,956
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Net cash provided by
financing activities 263,414 1,956
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Net increase (decrease) in cash
and cash equivalents (16,131,619) 681,964
Cash and cash equivalents at
beginning of year 17,919,609 322,308
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Cash and cash equivalents
at end of year $ 1,787,990 $ 1,004,272
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See accompanying notes to consolidated financial statements.
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ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Opinion of Management
In the opinion of Management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the Company's financial position as of
December 31, 1995 and September 30, 1995, its results of operations and its cash
flows for the three months ended December 31, 1995 and 1994. Certain
reclassifications have been made to the prior financial statements to conform
them to the current presentation.
It is recommended that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto in the
Company's 1995 Annual Report on Form 10-K.
Results for interim periods are not necessarily indicative of results for the
entire year.
Net loss per share of common stock outstanding is based on the weighted average
number of shares outstanding. Common share equivalents (stock options) are not
included in the computation for the three months ended December 31, 1995 and
1994 since their inclusion would be anti-dilutive.
(2) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relative to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(3) Dependence on Collaborative Relationships
The Company does not intend to conduct late-stage clinical trials,
manufacturing or marketing activities with respect to any of its product
candidates in the foreseeable future. The Company has collaborations with
Ciba-Geigy, Ltd., Pfizer Inc., Hoechst Marion Roussel, Inc. and Wyeth-Ayerst
Laboratories for the development of potential drug candidates, and with Becton
Dickinson and Co. for the development of cancer diagnostics. The Company is
dependent on the companies with which it collaborates for the preclinical
testing, clinical development, regulatory approval, manufacturing and marketing
of potential products developed under its collaborative research programs. The
Company's collaborative agreements allow its collaborative partners significant
discretion in electing to pursue or not to pursue any of these activities. The
Company cannot control the amount and timing of resources its collaborative
partners devote to the Company's programs or potential products. If any of the
Company's collaborative partners were to breach or terminate its agreements with
the Company or otherwise fail to conduct its collaborative activities
successfully in a timely manner, the preclinical or clinical development or
commercialization of product candidates or research programs could be delayed or
terminated. Any such delay or termination could have a material adverse effect
on the Company's business, financial condition and results of operations.
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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 1994.
Revenues
Revenues for the quarter ended December 31, 1995 were approximately $2.3
million, a decrease of $1.9 million, or 46% when compared to revenues of $4.2
million reported for the quarter ended December 31, 1994. The decrease was due
to lower sales of research products which accounted for approximately $1.3
million of the decrease in revenues. The Company sold its Research Products
Business for $6.0 million in cash plus other considerations on August 2, 1995,
and accordingly there were no significant sales of research products recorded
after this date. In the purchase agreement, the Company agreed to indemnify the
purchaser for a period of two years for certain breaches of the agreement.
Collaborative program revenue decreased approximately $331,000 or 14%. This was
largely due to a reduction in collaborative revenue under the collaborative
arrangement with Hoechst Marion Roussel, Inc. ("HMRI") as compared to the total
revenue in the prior year's quarter from Marion Merrell Dow Inc. ("MMDI"),
Hoechst Roussel Pharmaceuticals, Inc. and Hoechst AG. Other research revenues
representing primarily government grants have decreased approximately $316,000
in the quarter ended December 31, 1995 compared to the quarter ended December
31, 1994 due in part to the expiration of a U.S. government grant. The balance
of the decrease represents changes in the timing and amount of grant awards. The
Company expects that grant revenue will be somewhat lower in the current fiscal
year.
Expenses
The Company's operating expenses decreased by approximately $1.4 million or 24%
for the quarter ended December 31, 1995 compared to the quarter ended December
31, 1994. Research and development expenses decreased approximately $394,000, or
13% due to reductions in expenses in the HMRI and Becton Dickinson and Co.
("Becton") collaborations commensurate with the reduced funding in these
programs. This was offset in part by increased expenditures in the Company's
proprietary research programs. Production expenses and selling, general and
administrative expenses decreased approximately $926,000. These reductions were
directly related to expenses which were associated with the Company's Research
Products Business in the quarter ended December 31, 1994. The reduction of
approximately $73,000 of amortization of intangibles is due to a portion of
goodwill relating to the Research Products Business which was expensed when the
business was sold in August 1995.
Other Income and Expense
Investment income increased approximately $144,000, or 65% for the quarter ended
December 31, 1995 as compared to the quarter ended December 31, 1994. This
increase was largely due to the increase in funds invested as a result of the
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THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 1994.
proceeds from the sale of the Research Products Business and the sale of stock
to Ciba-Geigy, Ltd. ("Ciba") in April 1995.
New Accounting Pronouncements
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" was issued which establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain intangibles to be disposed of. SFAS No. 121 requires that long-lived
assets and certain intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. SFAS No. 121 must be
implemented no later than fiscal 1997. The adoption of SFAS No. 121 is not
expected to have material impact on the Company's consolidated financial
position or operating results.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation", was
issued which establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, SFAS No. 123 would permit the
Company to continue to measure compensation costs for its stock option plans
using the intrinsic value based method of accounting prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees". If the Company elected to
remain with its current accounting, the Company must make pro forma disclosures
of net income and earnings (loss) per share as if the fair value based method of
accounting had been applied. SFAS No. 123 must be implemented no later than
fiscal 1997. The Company has not yet determined the valuation method it will
employ or the effect on operating results of implementing SFAS No. 123.
Liquidity and Capital Resources
At December 31, 1995, working capital (representing primarily cash, cash
equivalents and short-term investments) aggregated approximately $25.3 million.
The Company has been, and will continue to be, dependent upon collaborative
research revenues, government research grants, interest income and cash balances
until products developed from its technology are commercially marketed. On April
19, 1995, Ciba purchased 909,091 shares of the Company's common stock for an
aggregate purchase price of $5.0 million.
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THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 1994.
During 1995, MMDI was acquired by HMRI as part of a transaction in which the
pharmaceutical operations of Hoechst AG, Hoechst Roussel Pharmaceuticals,
Inc. and MMDI were consolidated. The Company is aware that HMRI is conducting
a review of all its research and development programs. Based on discussions
with HMRI, the Company expects its programs with HMRI to continue under one
overall agreement in the future, although there can be no assurance that the
Company and HMRI will enter into such an overall agreement, or if such an
agreement is entered into, that it will not be on terms less favorable than
the existing agreements. The Company anticipates that the total funding
under the consolidated agreement will be somewhat lower than the aggregate
level of funding under the three previously separate agreements.
Since its commencement in 1991 and until the second quarter of fiscal 1995, the
cancer diagnostics collaborative program with Becton has focused on both
serum-based and histochemical immunoassays. During the second quarter of fiscal
1995, Becton decided to focus exclusively on cellular cancer diagnostics
including histochemical immunoassays. Becton has reduced its funding under this
program in fiscal 1996, and the Company is uncertain as to Becton's ongoing
support for this program thereafter. The Company is continuing the development
of serum-based cancer diagnostic products and is in discussions with possible
new collaborative partners in this area. However, there can be no assurance that
the development of these tests will not be terminated.
The Company believes that with the funding from its collaborative research
programs, government research grants, interest income, and cash balances, the
Company's financial resources are adequate for its operations through fiscal
1999. However, the Company's capital requirements may vary as a result of a
number of factors, including, competitive and technological developments, funds
required for expansion of the Company's technology platform, including possible
joint ventures, collaborations, and acquisitions, the time and expense required
to obtain governmental approval of products, and any potential indemnification
payments to the purchaser of the Research Products Business, some of which
factors are beyond the Company's control. The Company intends to increase
substantially its expenditures and capital investment over the next several
years in enhancing its drug discovery technologies and pursuing proprietary drug
discovery programs. There can be no assurance that scheduled payments will be
made by third parties, that current agreements will not be cancelled, that
government research grants will continue to be received at current levels or
that unanticipated events requiring the expenditure of funds will not occur.
Further, there can be no assurance that the Company will be able to obtain any
additional required funds, or, if such funds are available, that such funds will
be available on favorable terms. Failure to obtain additional funds when
required would have a material adverse effect on the Company's business,
financial condition and results of operations.
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ITEM 6. EXHIBITS
The following is a list of exhibits filed as part of this Report:
10.1* Amendatory Agreement dated as of December 31, 1993
between the Company and American Home Products Corporation
10.2* Collaborative Research Agreement dated as of December 31, 1991
between the Company and American Home Products Corporation
10.3* Collaborative Research Agreement dated as of January 4, 1993
between the Company and Hoechst AG
10.4* Collaborative Research Agreement dated as of October 1, 1993
between the Company and Hoechst Roussel Pharmaceuticals, Inc.
27 Financial Data Schedule
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* Portions of this exhibit have been redacted and are the subject of a
confidential treatment request filed with the Secretary of the Securities
and Exchange Commission pursuant to rule 24b-2 under the Securities Exchange
Act of 1934, as amended.
12
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.
ONCOGENE SCIENCE, INC.
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(Registrant)
Date 2 / 14 / 96 /s/ Gary E. Frashier
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Gary E.Frashier
Chief Executive Officer
Date 2 / 14 / 96 /s/ Robert L. Van Nostrand
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Robert L. Van Nostrand
Vice President
Finance & Administration
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INDEX TO EXHIBITS
Exhibits Page No.
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10.1* Amendatory Agreement dated as
of December 31, 1993 between
the Company and American
Home Products Corporation
10.2* Collaborative Research Agreement
dated as of December 31,
1991 between the Company and
American Home Products Corporation
10.3* Collaborative Research Agreement
dated as of January 4, 1993
between the Company and
Hoechst AG
10.4* Collaborative Research Agreement
dated as of October 1, 1993
between the Company and
Hoechst Roussel Pharmaceuticals,
Inc.
27 Financial Data Schedule
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* Portions of this exhibit have been redacted and are the subject of a
confidential treatment request filed with the Secretary of the Securities and
Exchange Commission pursuant to rule 24b-2 under the Securities Exchange Act
of 1934, as amended.