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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, 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 0-15190
ONCOGENE SCIENCE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3159796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 Charles Lindbergh Blvd., Uniondale, New York 11553
(Address of principal executive offices) (Zip Code)
516-222-0023
(Registrant's telephone number, including area code)
(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 ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
At January 31, 1997 the registrant had outstanding 22,188,630 shares of common
stock .$01 par value.
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ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets - December 31, 1996
and September 30, 1996 3
Consolidated Statements of Operations
- Three months ended December 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
- Three months ended December 31, 1996 and 1995 5,6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial 8-11
Condition and Results of Operations
PART II - OTHER INFORMATION 12,13
EXHIBIT INDEX 14
SIGNATURES 15
* * * *
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PART 1. FINANCIAL INFORMATION
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
Assets 1996 1996
- ------ ------------- -------------
Current assets: (unaudited)
Cash and cash equivalents $ 13,293,263 $ 13,409,866
Short-term investments 30,730,857 34,132,879
Receivables, including
trade receivables of $363,944 and
$215,201 at December 31 and
September 30, 1996, respectively 2,633,941 2,031,950
Interest receivable 485,920 480,050
Grants receivable 535,911 331,014
Prepaid expenses and other 661,134 623,827
------------- -------------
Total current assets 48,341,026 51,009,586
------------- -------------
Property, equipment and leasehold
improvements - net 6,566,721 6,495,112
Fungi cultures - net 4,773,206 5,048,584
Loans to officers and employees 37,342 37,342
Other assets 526,009 300,949
Intangible assets - net 10,280,296 10,645,481
------------- -------------
$ 70,524,600 $ 73,537,054
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 3,021,958 $ 3,686,638
Current portion of unearned revenue 106,645 141,541
------------- -------------
Total current liabilities 3,128,603 3,828,179
------------- -------------
Other liabilities:
Long-term portion of unearned revenue 90,166 104,497
Loan payable 232,143 83,244
Deferred acquisition costs 590,675 590,675
Accrued postretirement benefits cost 654,396 643,500
------------- -------------
Total liabilities 4,695,983 5,250,095
------------- -------------
Stockholders' equity:
Common stock, $.01 par value;
50,000,000 shares authorized,
22,184,394 and 22,175,214
issued and outstanding at
December 31 and
September 30, 1996, respectively 221,844 221,752
Additional paid-in capital 104,397,349 104,347,231
Accumulated deficit (38,767,930) (36,071,476)
Cumulative translation adjustments 8,954 (5,355)
Unrealized holding loss on
short-term investments (31,600) (205,193)
------------- -------------
Total stockholders' equity 65,828,617 68,286,959
------------- -------------
Commitments and contingencies $ 70,524,600 $ 73,537,054
============= =============
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,
---------------------------------
Revenues: 1996 1995
------------ ------------
Collaborative program revenues,
principally from related parties $ 1,833,182 $ 1,987,458
Other research revenue 481,607 288,790
------------ ------------
2,314,789 2,276,248
------------ ------------
Expenses:
Research and development 3,474,333 2,683,262
Selling, general and administrative 1,768,856 1,353,402
Amortization of intangibles 365,185 363,189
------------ ------------
5,608,374 4,399,853
------------ ------------
Loss from operations (3,293,585) (2,123,605)
------------ ------------
Other income (expense):
Net investment income 603,458 364,524
Other expense - net (6,327) (11,513)
------------ ------------
Net loss (2,696,454) (1,770,594)
============ ============
Weighted average number of shares
of common stock outstanding 22,176,112 17,476,132
============ ============
Net loss per weighted average share of
common stock outstanding $ (.12) $ (.10)
============ ============
See accompanying notes to consolidated financial statements.
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ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended December 31,
-------------------------------
1996 1995
----------- -----------
Cash flow from operating activities:
Net loss $(2,696,454) $(1,770,594)
Adjustments to reconcile net
loss to net cash used
by operating activities:
Gain on sale of investments (6,411) (27,608)
Depreciation and amortization 680,180 341,240
Amortization of intangibles 365,185 363,189
Foreign exchange loss 14,309 15,449
Changes in assets and liabilities:
Receivables (601,991) (933,518)
Interest receivable (5,870) (22,506)
Grants receivable (204,897) 223,782
Prepaid expenses and other (37,307) (133,874)
Other receivable -- (145,956)
Other assets (225,060) 1,082
Accounts payable
and accrued expenses (664,679) (1,018,793)
Unearned revenue (49,227) 28,795
Accrued postretirement
benefit cost 10,896 33,126
----------- -----------
Net cash used by
operating activities $(3,421,326) $(3,046,186)
----------- -----------
Continued
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ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Three Months Ended December 31,
---------------------------------
1996 1995
------------ ------------
Cash flows from investing activities:
Additions to short-term
investments (2,269,650) (15,772,162)
Maturities and sales of short-term
investments 5,851,675 2,500,000
Additions to property,
equipment and leasehold
improvements (476,411) (76,730)
Net change in loans to officers
and employees -- 52
------------ ------------
Net cash provided by (used in)
investing activities 3,105,614 (13,348,840)
------------ ------------
Cash flows from financing activities:
Net change in loan payable 148,899 --
Proceeds from exercise
of stock options and
employee stock purchase plan 50,210 263,407
------------ ------------
Net cash provided by
financing activities 199,109 263,407
------------ ------------
Net decrease in cash
and cash equivalents (116,603) (16,131,619)
Cash and cash equivalents at
beginning of period 13,409,866 17,919,609
------------ ------------
Cash and cash equivalents
at end of period $ 13,293,263 $ 1,787,990
============ ============
See accompanying notes to consolidated financial statements.
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ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
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, 1996 and September 30, 1996, its results of operations and its cash
flows for the three months ended December 31, 1996 and 1995. 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 1996 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 and
warrants) are not included in the computation for the three months ended
December 31, 1996 and 1995 since their inclusion would be anti-dilutive.
(2) Subsequent Events -- Bayer Collaboration
In December 1996, the Company and Bayer Corporation's Business Group Diagnostics
Division announced a collaborative research and development agreement in which
the two companies will jointly develop novel products for use in diagnostic
oncology. Under the agreement, which became effective on January 1, 1997, Bayer
will provide the Company with funding for research and development of potential
diagnostic products, as well as the clinical development of the Company's
existing clinical research products.
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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE THREE MONTHS
ENDED DECEMBER 31, 1995.
REVENUES
Revenues for the quarter ended December 31, 1996 were approximately
$2,315,000, an increase of $39,000, or 2% compared to revenues of $2,276,000
reported for the quarter ended December 31, 1995. Collaborative program revenue
decreased approximately $154,000 or 8%. This was due to the completion of the
Company's collaborative program in cancer diagnostic with Becton, Dickinson and
Company ("Becton"). The Company is continuing the development of serum-based
cancer diagnostics under a new research collaboration with Bayer Corporation.
Other research revenues, consisting primarily of government grants and service
revenue from the pharmaceutical division of the Company's Aston Molecules Ltd.
("Aston") subsidiary, have increased approximately $193,000 or 67%. The Company
acquired Aston in September 1996. The increase is due primarily to the
inclusion of the subsidiary's service revenues in the current quarter only and
is supplemental to the Company's medicinal chemistry operations.
EXPENSES
The Company's operating expenses increased by approximately $1,209,000
or 27% for the quarter ended December 31, 1996 compared to the same quarter for
the previous fiscal year. Research and development expenses increased
approximately $791,000 or 29% as compared to the same period last year. This was
due primarily to an increase in expenditures in the Company's joint venture with
BioChem Pharma (International) Inc., ("BioChem Pharma"), the expansion of the
Company's proprietary programs, expenses associated with operation of the
natural products chemistry facilities of the Company's MYCOsearch, Inc.
("MYCOsearch") subsidiary (which the Company acquired in April 1996), and the
medicinal and pharmaceutical facilities of Aston, as well as amortization
expense on MYCOsearch's library of fungi cultures. Selling, general and
administrative expenses increased approximately $415,000 or 31% for the quarter
ended December 31, 1996 as compared to the same quarter in the previous fiscal
year. These increases were primarily related to the expenses associated with
the Company's recent corporate development activities and the general and
administrative costs associated with the Company's recently acquired
subsidiaries.
OTHER INCOME AND EXPENSES
Investment income increased approximately $239,000, or 66% for the
quarter ended December 31, 1996 as compared to the quarter ended in the same
period for the previous fiscal year. This increase was largely due to the
investment of the proceeds of approximately $30.3 million from the Company's
sale of common stock in April 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, working capital (representing primarily cash,
cash equivalents and short-term investments) aggregated approximately $45.2
million.
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The Company is dependent upon collaborative research revenues,
government research grants, interest income and cash balances, and will remain
so until products developed from its technology are successfully
commercialized. In April 1996, the Company completed a public offering of its
common stock as well as the sale of 500,000 shares of common stock to BioChem
Pharma that provided total net proceeds of approximately $30.3 million.
The Company and Hoechst Marion Roussel, Inc. ("HMRI") have jointly
announced an agreement in principle to continue under one overall agreement
through December 31, 2001 as opposed to the separate collaborative programs
previously formed between the Company and each of Hoechst AG ("Hoechst"),
Hoechst Roussel Pharmaceuticals, Inc. ("HRPI") and Marion Merrell Dow Inc.
("MMDI"). During 1995, the pharmaceutical operations of Hoechst, HRPI and MMDI
were consolidated into HMRI, and HMRI is conducting a review of all its
research and development programs. In accordance with the agreement in
principle, HMRI is expected to provide up to $12.5 million in research funding
through December 31, 2001. HMRI and the Company have not yet executed a new
definitive overall agreement.
The Company's tissue based cancer diagnostics collaboration with
Becton, which commenced in October 1991 (after an earlier collaboration from
1984 to 1989), ended on its scheduled expiration date of September 30, 1996.
The Company is continuing the development of serum-based cancer diagnostic
products, however, and commenced a research collaboration with Bayer
Corporation ("Bayer") in this area in January 1997. Bayer will provide annual
research funding of $1.5 million for the first two years of this five-year
program and $1 million for each subsequent year, subject to Bayer's right to
terminate the program at the end of the second year.
The Company's collaboration with Wyeth-Ayerst Laboratories Division of
American Home Products Corporation ("Wyeth") concluded on December 31, 1996
in accordance with the collaborative research agreement. The Company had
received approximately $1.6 million annually in research and development funding
from Wyeth pursuant to this collaborative agreement.
In April 1996, the Company purchased MYCOsearch, owner of a
collection of fungi and actinomycetes, for approximately $1.75 million in cash
and $3.4 million in common stock and warrants. In September 1996, the Company
acquired Aston, a provider of medicinal and pharmaceutical chemistry expertise,
for $2.4 million in stock and rights valued at approximately $591,000.
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The Company believes that with the funding from its collaborative
research programs, government research grants, interest income, and cash
balances, its financial resources are adequate for its operations for the
foreseeable future. However, the Company's capital requirements may vary as a
result of a number of factors, including competitive and technological
developments, and the time and expense required to obtain governmental approval
of products, some of which factors are beyond the Company's control. The
Company's capital requirements may also vary depending on the funds required
for expansion of the Company's technology platform, including possible joint
ventures, collaborations and acquisitions. Examples of such ventures include
the formation of Anaderm Research Corporation in April 1996 with Pfizer Inc.
and New York University, and the Company's co-venture with BioChem Pharma,
which commenced in May 1996. Generally the Company expects to commit greater
resources to such programs in exchange for greater commercialization rights,
as compared to its traditional collaborative research programs in which the
Company receives research funding and royalty rights with respect to future
sales of commercialized products. In the absence of additional ventures,
collaborations or acquisitions, the Company expects to continue its current
level of expenditures and capital investment over the next several years to
enhance its drug discovery technologies, pursue internal proprietary drug
discovery programs, and to commit resources to co-ventures with pharmaceutical
companies. There can be no assurance that scheduled payments will be made by
third parties, that current agreements will not be canceled, 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 on acceptable terms, if at all. Failure to obtain
additional funds when required would have a material adverse effect on the
Company's business, financial condition and results of operations.
FORWARD LOOKING STATEMENTS
A number of the matters and subject areas discussed in this Item 2 "Management's
Discussion and Analysis of Financial Condition" that are not historical or
factual deal with potential future circumstances and developments. The
discussion of such matters and subject areas is qualified by the inherent risks
and uncertainties surrounding future expectations generally, and such discussion
may materially differ from the Company's actual future experience involving any
one or more of such matters and subject areas. Examples of this are the
discussions in this Item 2 describing the Company's expectations with regard to
the consolidation of its collaborative research programs with HMRI and receipt
of funding from Bayer. Factors that may arise in the future that prevent the
execution of a definitive overall agreement with HMRI include possible
technological developments by competitors that render the compounds being
pursued by HMRI and the Company less commercially viable, shifts in strategic
direction on the part of HMRI that would de-emphasize the therapeutic areas or
technologies in which the Company is involved, and negative results in the
Company's current programs with HMRI.
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The Company's diagnostics collaboration with Bayer is subject to similar risks.
Consequently, the future payments from Bayer are uncertain. The forward looking
statements described above, as well as all other discussions contained herein
that may deal with potential future circumstances and developments, are also
subject generally to other risks and uncertainties that are described from
time to time in the Company's reports and registration statements filed with
the Securities and Exchange Commission.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS 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.
3.1 Certificate of Incorporation, as amended (1)
3.2 By-Laws, as amended (1)
*10.1 Collaborative Research and License Agreement
dated as of January 1, 1997 between the
Company and Bayer Corporation.
*10.2 Collaborative Research, Development and
Commercialization Agreement dated as of
May 1, 1996 between the Company and BioChem
Pharma (International) Inc.
27 Financial Data Schedule
------------------------
* Portions of this exhibit have been
redacted and are subject to 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.
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(1) Included as an exhibit to the
Company's registration statement on
Form S-3 (File No. 333-937)
initially filed on February 14,
1996, and incorporated herein by
reference.
(b) REPORTS ON FORM 8-K.
The Company filed a Current Report on Form 8-K on
November 8, 1996. The earliest event covered by such report occurred on
September 13, 1996. The items included on this report, as amended, consisted of:
Item 5. Other Events
(a) Changes in Personnel at Management
and Board Levels
(b) Acquisition of Aston Molecules
Limited
Item 7. Financial Statements and Exhibits
(a) News Release dated September 13,
1996
(b) News Release dated September 18,
1996
(c) News Release dated September 19,
1996
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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.
(Registrant)
Date February 14, 1997 /s/ Gary E. Frashier
------------------- ---------------------
Gary E. Frashier
Chief Executive Officer
Date February 14, 1997 /s/ Robert L. Van Nostrand
------------------- ---------------------------
Robert L. Van Nostrand
Vice President
Finance & Administration
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation, as amended (1)
3.2 By-Laws, as amended (1)
*10.1 Collaborative Research and License Agreement
dated as of January 1, 1997 between the
Company and Bayer Corporation.
*10.2 Collaborative Research, Development and
Commercialization Agreement dated as of
May 1, 1996 between the Company and BioChem
Pharma (International) Inc.
27 Financial Data Schedule
- -------------------------
* Portions of this exhibit have been redacted and are subject to 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.
(1) Included as an exhibit to the Company's registration statement
on Form S-3 (File No. 333-937) initially filed on February
14, 1996, and incorporated herein by reference.
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