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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2001
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 1-10615
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EMISPHERE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3306985
(State or jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
765 Old Saw Mill River Road
Tarrytown, New York 10591
(Address of principal executive offices) (Zip Code)
(914) 347-2220
(Registrant's telephone number, including area code)
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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 Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for at least the past 90 days. Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the Registrant's common stock, $.01 par value,
outstanding as of May 2, 2001 was 17,748,448.
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EMISPHERE TECHNOLOGIES, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements:
Condensed Balance Sheets as of March 31, 2001 and December 31,
2000.......................................................... 3
Condensed Statements of Operations for the three months ended
March 31, 2001 and 2000....................................... 4
Condensed Statements of Cash Flows for the three months ended
March 31, 2001 and 2000....................................... 5
Notes to Condensed Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote for Security Holders........... 9
Item 5. Other Information.............................................. 9
Item 6. Exhibits and Reports on Form 8-K............................... 9
SIGNATURES.............................................................. 10
All other schedules and compliance information called for by the
instructions to Form 10-Q have been omitted because the required information is
not applicable or not present in amounts sufficient to require submission.
2
Item 1. FINANCIAL STATEMENTS
EMISPHERE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
March 31, 2001 and December 31, 2000
(in thousands, except share data)
March 31, December 31,
2001 2000
--------- ------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents.............................. $ 27,837 $ 21,626
Investments............................................ 99,761 67,277
Receivables and other current assets................... 5,487 5,302
--------- ---------
Total current assets............................... 133,085 94,205
Equipment and leasehold improvements, net.............. 19,417 15,194
Purchased technology, net.............................. 7,457 7,598
Investments............................................ 60,321 107,906
Other assets........................................... 60 60
--------- ---------
Total assets....................................... $ 220,340 $ 224,963
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses.................. $ 5,448 $ 3,474
Deferred revenue....................................... 1,076 1,363
--------- ---------
Total current liabilities.......................... 6,524 4,837
Note payable........................................... 25,773 24,846
Deferred lease liability............................... 2,127 2,140
--------- ---------
Total liabilities.................................. 34,424 31,823
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; authorized 1,000,000
shares; none issued and outstanding.................
Common stock, $.01 par value; authorized 40,000,000
shares; issued 17,770,000 shares (17,726,000
outstanding) as of March 31, 2001, and issued
17,703,000 shares (17,660,000 outstanding) as of
December 31, 2000................................... 178 177
Additional paid-in capital........................... 316,363 315,591
Note receivable from officer and director............ (804) (804)
Accumulated deficit.................................. (130,553) (122,288)
Accumulated other comprehensive income............... 925 657
--------- ---------
186,109 193,333
Less, common stock held in treasury, at cost; 44,000
shares.............................................. (193) (193)
--------- ---------
Total stockholders' equity......................... 185,916 193,140
--------- ---------
Total liabilities and stockholders' equity......... $ 220,340 $ 244,963
========= =========
The accompanying notes are an integral part of the financial statements
3
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2001 and 2000
(in thousands, except share and per share data)
For the Three Months
Ended March 31,
----------------------
2001 2000
---------- ----------
(Unaudited)
Contract research revenues............................ $ 1,559 $ --
----------
Costs and expenses:
Research and development............................ 9,393 5,797
General and administrative expenses................. 1,926 1,659
Depreciation and amortization....................... 754 604
---------- ----------
12,073 8,060
---------- ----------
Operating loss.................................... (10,514) (8,060)
---------- ----------
Investment income and expense:
Investment income................................... 3,177 840
Interest expense.................................... (928) (808)
---------- ----------
2,249 32
---------- ----------
Net loss.............................................. $ (8,265) $ (8,028)
========== ==========
Net loss per share, basic and diluted................. $ (0.47) $ (0.53)
========== ==========
Weighted average shares outstanding, basic and
diluted.............................................. 17,692,000 15,102,000
========== ==========
The accompanying notes are an integral part of the financial statements
4
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2001 and 2000
(in thousands)
For the Three
Months Ended
March 31,
------------------
2001 2000
-------- --------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (8,265) $ (8,028)
-------- --------
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash interest expense............................... 928 808
Depreciation and amortization........................... 614 463
Amortization of purchased technology.................... 141 141
(Decrease) increase in deferred lease liability......... (14) 28
(Decrease) increase in deferred revenue................. (287) 2,500
Amortization of discount on investments................. 265 --
Increase in receivables and other current assets........ (185) (260)
Increase in accounts payable and accrued expenses....... 1,974 645
-------- --------
Total adjustments..................................... 3,436 4,325
-------- --------
Net cash used in operating activities................... (4,829) (3,703)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of investments................... 63,524 --
Purchases of investments................................ (48,419) --
Capital expenditures.................................... (4,837) (134)
-------- --------
Net cash provided by (used in) investing
activities......................................... 10,268 (134)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options....................... 772 1,600
Proceeds from public stock offering..................... -- 188,143
-------- --------
Net cash provided by financing activities........... 772 189,743
-------- --------
Net increase in cash and cash equivalents........... 6,211 185,906
Cash and cash equivalents, beginning of period............ 21,626 26,821
-------- --------
Cash and cash equivalents, end of period.................. $ 27,837 $212,727
======== ========
The accompanying notes are an integral part of the financial statements
5
EMISPHERE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Interim Financial Statements
The accompanying unaudited condensed financial statements of Emisphere
Technologies, Inc. have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all information and disclosures necessary for a presentation of Emisphere's
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles.
In the opinion of management, the accompanying Condensed Statements of
Operations for the three months ended March 31, 2001 and 2000, Condensed
Statements of Cash Flows for the three months ended March 31, 2001 and 2000,
and the Condensed Balance Sheets as of March 31, 2001 and December 31, 2000
reflect all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of Emisphere's financial position, results of
operations, and cash flows for such periods and as of such dates. These
financial statements should be read in conjunction with the financial
statements and notes thereto contained in Emisphere's Annual Report on Form 10-
K for the fiscal year ended July 31, 2000 and Transition Report on Form 10-Q
for the transition period from August 1, 2000 to December 31, 2000. The
December 31, 2000 Condensed Balance Sheet data were derived from audited
financial statements, but do not include all disclosures required by generally
accepted accounting principles.
The results of operations for any interim period are not necessarily
indicative of the results for the full year.
Emisphere expects to continue to incur a substantial increase in heparin
solution clinical development expenses during the remainder of 2001, as the
product candidate continues through its Phase III clinical trials. In addition,
we expect to expand development of our proprietary products, including oral
insulin and sodium cromolyn and continue our ongoing first in-human study with
our heparin tablet formulation. As a result, we expect to continue to incur
increasing operating losses in 2001 over those incurred in 2000.
2. Net Loss Per Share
Net loss per share, basic and diluted, is computed using the weighted
average number of shares of Emisphere's common stock outstanding during the
period. Had Emisphere been in a net income position, diluted earnings per share
would have included the shares used in the computation of basic net loss per
share, as well as an additional 4,978,724 and 4,809,906 shares for the three
months ended March 31, 2001 and 2000, respectively, relating to outstanding
options (after application of the Treasury Stock Method).
3. Comprehensive Loss
Emisphere's comprehensive loss was comprised of net loss adjusted for the
change in net unrealized gain or loss on investments. Comprehensive loss
amounted to approximately $8.0 million for both the three months ended March
31, 2001 and 2000.
4. Subsequent Event: Research and Development Facility Purchase
In April 2001, Emisphere acquired a 90,000 square foot research facility,
with equipment, on approximately 30 acres of land in Farmington, CT. for $3.3
million in cash.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this quarterly
report that do not relate to present or historical conditions are "forward
looking statements" within the meaning of that term in Section 21E of the
Securities Exchange Act of 1934, as amended. Additional oral or written
statements may be made from time to time, and such statements may be included
in documents filed with the Securities and Exchange Commission. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors, which may cause the actual results, performance or achievements of
Emisphere to be materially different from those expressed or implied by such
forward-looking statements. Such factors include, but are not limited to, those
factors referenced in Item 5 to this quarterly report. Emisphere encourages you
to read all statements in this quarterly report in conjunction with Item 5.
General
Emisphere is a biopharmaceutical company specializing in the oral delivery
of therapeutic macromolecules and other compounds that are not currently
deliverable by oral means. Since our inception in 1986, Emisphere has devoted
substantially all of its efforts and resources to research and development
conducted on its own behalf and through collaborations with corporate partners
and academic research institutions. We have no product sales to date. Our major
sources of working capital have been proceeds from various public and private
equity and debt financings, reimbursement of expenses and other payments from
corporate partners, and income earned on the investment of available funds.
Neither inflation nor seasonality significantly affects our operations.
Results of Operations
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31,
2000
Contract research revenues were $1.6 million in the first quarter of 2001.
Revenues for the quarter ended March 31, 2001 related to research and
development expense reimbursement primarily under our collaborative agreements
with Eli Lilly and Company. No revenue was recorded in the first quarter of
2000. Costs of contract research revenues are included in research and
development expenses.
Total operating expenses were $12.0 million in the quarter ended March 31,
2001 an increase of $4.0 million, or 50%, compared to the same period last
year. The details of this increase are as follows:
Research and development costs were $9.4 million in the quarter ended March
31, 2001, an increase of $3.6 million or 62%, compared to the same period last
year. This increase is primarily comprised of salaries, PROTECT Trial expenses,
drug acquisition, manufacturing expenses and outside laboratory fees associated
with increased activities under collaborative and proprietary development
programs and increased scientific staff to support these programs.
General and administrative expenses were $1.9 million in the quarter ended
March 31, 2001, an increase of $0.3 million, or 16%, compared to the same
period last year. This increase is primarily the result of additional staff
needed to support our expanded levels of research and development efforts.
Depreciation and amortization costs were $0.8 million in the quarter ended
March 31, 2001, an increase of $0.2 million, or 25%, compared to the same
period of 2000. This increase is mainly the result of amortization expense for
leasehold improvements related to additional laboratory and office space made
during 2000.
As a result of the above, our operating loss was $10.5 million in the
quarter ended March 31, 2001, an increase of $2.4 million as compared to $8.1
million for the quarter ended March 31, 2000.
Other income and expense increased to approximately $2.2 million of income,
compared to $0.03 million of income in the comparative period in 2000. The
change is primarily the result of an increase in investment income of $2.3
million, offset by an increase in interest expense of $0.1 million. This
increase resulted from higher cash and investment balances from the sale of
common stock in the follow-on public offering completed in March 2000.
Based on the above, we sustained a net loss of $8.3 million in the quarter
ended March 31, 2001 as compared to a net loss of $8.0 million in the same
period of 2000.
7
Liquidity and Capital Resources
As of March 31, 2001, total cash, cash equivalents and investments was
$187.9 million, a decrease of $8.9 million as compared to December 31, 2000.
Net cash used in operations was $4.8 million in the quarter ended March 31,
2001, as compared to $3.7 million in the quarter ended March 31, 2000. This
increase is primarily the result of our expanded research efforts for both
proprietary and partnered product candidates.
Cash provided by investing activities was $10.3 million in the quarter ended
March 31, 2001, as compared to $0.1 million of cash used in the comparable
quarter of 2000, an increase of $10.4 million. This increase is the result of
investment maturities totaling $63.5 million offset by reinvestment of $48.4 in
securities and reclassification of the remainder of our portfolio as cash
equivalents. Capital expenditures were approximately $4.8 million in the
quarter ended March 31, 2001, as compared to $0.1 million for the same period
in 2000. The increase in capital expenditures is due to the build-out of
additional laboratory space at our Tarrytown, New York leased facilities.
Capital expenditures are expected to total approximately $20.0 million during
calendar year 2001. Of this amount approximately $3.3 million relates to the
purchase of a research facility in April 2001.
Cash provided by financing activities decreased by $189.0 million due to a
secondary follow-on stock offering that was completed in the first quarter of
the previous year and not repeated in the current year.
We expect to incur a substantial increase in heparin solution clinical
development expenses, as the product candidate continues through its Phase III
clinical development. In addition, we also expect to continue expanding
development of our other proprietary products, including, but not limited to,
oral insulin and sodium cromolyn and continue our ongoing first in-human
studies with our heparin tablet formulation. As a result, we expect to continue
to incur increasing operating losses and that our cash requirements to fund
these losses will increase accordingly. These cash requirements include, but
are not limited to, increases in personnel and personnel related costs,
purchases of capital equipment, further facilities expansion and outside
laboratory fees.
We expect that cash, cash equivalents, investments and the related projected
interest income, along with committed funding from our corporate partners, will
be adequate to meet our liquidity requirements for at least the next two years.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our primary investment objective is to preserve principal while maximizing
yield without significantly increasing our risk. Our investments consist of
U.S. Treasuries, commercial paper and corporate notes. Our investments totaled
$187.9 million at March 31, 2001. Approximately $90.0 million of these
investments had fixed interest rates, and $97.9 million had interest rates that
were variable.
Due to the conservative nature of our short-term fixed interest rate
investments, we do not believe that we have a material exposure to interest
rate risk. Our fixed interest rate long-term investments are sensitive to
changes in interest rates. Interest rate changes would result in a change in
the fair value of these investments due to differences between the market
interest rate and the rate at the date of purchase of the investment.
A 100 basis point increase in the March 31, 2001 market interest rates would
result in a decrease of approximately $0.2 million in the market values of
these investments.
8
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" (Item 2) and the notes to
Emisphere's unaudited financial statements (Item 1) as well as certain oral
statements made from time to time by representatives of the Company constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward looking statements include (but
are not limited to) statements regarding: planned or expected studies and
trials of oral formulations that utilize Emisphere's technology; the timing of
the development and commercialization of Emisphere's products; potential
products that may be developed using Emisphere's technology; the potential
market size, advantages or therapeutic uses of Emisphere's products; and the
sufficiency of Emisphere's available capital resources to meet its funding
needs. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause Emisphere's actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These factors include, among others, the following: the success of
Emisphere's oral heparin product and Emisphere's ability to find a marketing
partner to help us commercialize it; prospects for Emisphere's salmon
calcitonin product candidate in development with a partner; the viability of
Emisphere's product candidates, most of which, other than liquid oral heparin,
are in the early stages of development; the need to obtain regulatory approval
for Emisphere's liquid oral heparin and other product candidates; Emisphere's
dependence on collaborative partners to develop and commercialize products;
Emisphere's ability to fund such efforts with or without partners and
uncertainty as to the timing and outcome commercialization decisions made by
Emisphere's collaborative partners; Emisphere's absence of profitable
operations and need for additional capital; Emisphere's dependence on patents
and proprietary rights; and other factors described in this Report and
Emisphere's Annual Report on Form 10-K for the fiscal year ending July 31, 2000
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Risk Factors."
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The following Current Report on Form 8-K was filed during the quarter
ended March 31, 2001:
Current Report on Form 8-K, dated January 30, 2001 reporting of
Emisphere's determination to change its fiscal year-end from July 31 to
December 31. The report covering the five month transition period
beginning August 1, 2000 and ending December 31, 2000 was filed with
the Securities and Exchange Commission on March 15, 2001 on a
transition report Form 10-Q.
9
SIGNATURES
Pursuant to the requirement 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.
Date: May 11, 2001
Emisphere Technologies, Inc.
/s/ Charles H. Abdalian, Jr.
_____________________________________
Charles H. Abdalian, Jr.
Chief Financial Officer
(Principal Financial Officer)
/s/ Friedrich K. Pfetsch
_____________________________________
Friedrich K. Pfetsch
Controller and Chief Accounting
Officer
(Principal Accounting Officer)
10