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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 2001 Commission File Number 0-22962
HUMAN GENOME SCIENCES, INC.
(Exact name of registrant)
Delaware 22-3178468
(State of organization) (I.R.S. Employer Identification Number)
9410 Key West Avenue, Rockville, Maryland 20850-3331
(Address of principal executive offices and zip code)
(301) 309-8504
(Registrant's telephone Number)
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
-------- -------
The number of shares of the registrant's common stock outstanding on June 30,
2001 was 127,547,006.
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TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the three and six months
ended June 30, 2001 and 2000.................................................. 3
Consolidated Balance Sheets at June 30, 2001 and December 31, 2000.................. 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and 2000.................................................. 5
Notes to Consolidated Financial Statements.......................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................. 14
Item 6. Exhibits and Reports on Form 8-K.................................................... 14
Signatures.......................................................................... 15
Exhibit Index....................................................................... Exhibit Volume
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PART I. FINANCIAL INFORMATION
HUMAN GENOME SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
(dollars in thousands, except (dollars in thousands, except
share and per share amounts) share and per share amounts)
Revenue - research and development collaborative contracts:
Third parties .......................................... $ 4,625 $ 4,625 $ 9,250 $ 9,250
Related parties ........................................ 642 642 1,284 1,284
------------- ------------- ------------- -------------
Total revenue ................................... 5,267 5,267 10,534 10,534
------------- ------------- ------------- -------------
Costs and expenses:
Research and development ............................... 36,460 21,723 68,556 41,237
General and administrative ............................. 9,703 6,504 17,986 12,520
------------- ------------- ------------- -------------
Total costs and expenses ....................... 46,163 28,227 86,542 53,757
------------- ------------- ------------- -------------
Income (loss) from operations ............................. (40,896) (22,960) (76,008) (43,223)
Interest income ........................................... 27,000 13,241 55,626 23,015
Interest expense .......................................... (6,253) (6,424) (12,774) (9,390)
Debt conversion expenses .................................. (3,875) -0- (3,875) (50,818)
------------- ------------- ------------- -------------
Income (loss) before taxes and cumulative effect of
change in accounting principle ......................... (24,024) (16,143) (37,031) (80,416)
Provision for income taxes ................................ -0- 225 -0- 225
------------- ------------- ------------- -------------
Income (loss) before cumulative effect of change in
accounting principle .................................. (24,024) (16,368) (37,031) (80,641)
Cumulative effect of change in accounting principle ....... -0- -0- -0- (8,250)
------------- ------------- ------------- -------------
Net income (loss) ......................................... $ (24,024) $ (16,368) $ (37,031) $ (88,891)
============= ============= ============= =============
Net income (loss) per share, basic and diluted:
Net income (loss) per share, before cumulative effect of
change in accounting principle ........................ $ (0.19) $ (0.15) $ (0.29) $ (0.76)
Cumulative effect of change in accounting principle ....... -0- -0- -0- (0.08)
------------- ------------- ------------- -------------
Net income (loss) per share, basic and diluted ............ $ (0.19) $ (0.15) $ (0.29) $ (0.84)
============= ============= ============= =============
Weighted average shares outstanding,
basic and diluted ..................................... 126,674,042 109,261,084 126,095,629 106,150,628
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
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HUMAN GENOME SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
----------- -----------
ASSETS (dollars in thousands)
- ------
Current assets:
Cash and cash equivalents ............................... $ 73,960 $ 493,867
Short-term investments .................................. 1,613,838 1,268,441
Prepaid expenses and other current assets ............... 9,586 9,290
----------- -----------
Total current assets ............................... 1,697,384 1,771,598
Long-term investments ......................................... 46,613 93,337
Property, plant and equipment (net of accumulated depreciation) 55,457 38,567
Restricted investments ........................................ 68,521 12,332
Other assets .................................................. 29,130 32,691
----------- -----------
TOTAL ASSETS ....................................... $ 1,897,105 $ 1,948,525
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current portion of long-term debt ....................... $ 444 $ 729
Accounts payable and accrued expenses ................... 27,844 18,317
Accrued payroll and related taxes ....................... 5,779 3,820
Deferred revenues ....................................... 2,568 11,818
----------- -----------
Total current liabilities .......................... 36,635 34,684
Long-term debt, net of current portion ........................ 504,312 533,146
Deferred revenues ............................................. 14,123 15,407
Other liabilities ............................................. 2,167 2,333
----------- -----------
Total liabilities .................................. 557,237 585,570
----------- -----------
Stockholders' Equity:
Preferred stock ......................................... -0- -0-
Common stock ............................................ 1,275 1,252
Additional paid-in capital .............................. 1,745,607 1,698,384
Unearned portion of compensatory stock options .......... (60) (192)
Accumulated other comprehensive income (deficit) ........ (5,244) 28,190
Retained earnings (deficit) ............................. (401,710) (364,679)
----------- -----------
Total stockholders' equity ......................... 1,339,868 1,362,955
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,897,105 $ 1,948,525
=========== ===========
See accompanying notes to consolidated financial statements.
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HUMAN GENOME SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
June 30,
2001 2000
--------- ---------
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................................... $ (37,031) $ (88,891)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Accrued interest on short-term investments ....................................... (3,002) (5,912)
Depreciation and amortization .................................................... 6,347 5,026
Inducement costs paid in the form of common stock ................................ 3,875 19,433
Cumulative effect of change in accounting principle .............................. -0- 8,250
Loss (gain) on disposal of fixed assets .......................................... 44 8
Compensation expense related to stock options .................................... 132 96
Changes in operating assets and liabilities:
Prepaid expenses and other current assets .................................... (1,148) (14,833)
Other assets ................................................................. 1,616 (17,627)
Accounts payable and accrued expenses ........................................ 9,906 8,963
Accrued payroll and related taxes ............................................ 1,959 8,790
Deferred revenues ............................................................ (10,534) 1,466
Other liabilities ............................................................ (166) 39
--------- ---------
Net cash provided by (used in) operating activities .............................. (28,002) (75,192)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - property, plant and equipment ................................. (22,008) (8,961)
Purchase of short-term investments and marketable securities ......................... (965,652) (389,756)
Purchase of long-term investment ..................................................... -0- (54,744)
Proceeds from sales and maturities of investments and marketable securities .......... 637,399 86,999
--------- ---------
Net cash provided by (used in) investing activities .............................. (350,261) (366,462)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt .......................................................... (924) -0-
Restricted investments ............................................................... (56,189) (323)
Proceeds from issuance of long term debt (net of expenses) ........................... -0- 508,620
Proceeds from issuance of common stock (net of expenses) ............................. 15,469 11,485
--------- ---------
Net cash provided by (used in) financing activities .............................. (41,644) 519,782
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................................... (419,907) 78,128
Cash and cash equivalents - beginning of period ........................................... 493,867 180,839
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD ................................................. $ 73,960 $ 258,967
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ......................................................................... $ 11,570 $ 30,084
Income taxes ..................................................................... 75 -0-
See accompanying notes to consolidated financial statements.
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SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES (DOLLARS IN THOUSANDS):
In June 2001, the Company converted $25,000 of 5% Convertible Subordinated Notes
Due 2007 to common stock. The Company incurred $3,875 in inducement costs paid
in the form of common stock as an inducement to convert these notes and paid
$458 in accrued interest in the form of common stock. In connection with this
conversion, the Company reclassified $673 of unamortized debt financing costs
associated with these notes to stockholders' equity as part of the conversion.
In May 2001, the Company converted $500 of 5 1/2% Convertible Subordinated Notes
Due 2006 to common stock. In connection with this conversion, the Company
reclassified $4 of unamortized debt financing costs associated with these notes
to stockholders' equity as part of the conversion.
In February 2001, the Company converted $2,694 of 5 1/2% Convertible
Subordinated Notes Due 2006 to common stock. In connection with this conversion,
the Company reclassified $65 of unamortized debt financing costs associated with
these notes to stockholders' equity as part of the conversion.
In March 2000, the Company converted $200,000 of 5% Convertible Subordinated
Notes Due 2006 to common stock. In connection with this conversion, the Company
made a $30.0 million cash "make-whole" payment. In addition, the Company
reclassified $6,000 of unamortized debt financing costs associated with these
notes to stockholders' equity as part of the conversion.
In January 2000, the Company converted $118,285 of 5 1/2% Convertible
Subordinated Notes Due 2006 to common stock and incurred $19,433 in inducement
costs paid in the form of common stock as an inducement to convert. In addition,
the Company reclassified $3,470 of unamortized debt financing costs associated
with these notes to stockholders' equity as part of the conversion.
See accompanying notes to consolidated financial statements
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HUMAN GENOME SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 2001
(In thousands, except share and per share data)
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Human
Genome Sciences, Inc. (the "Company") have been prepared in accordance
with accounting principles generally accepted in the United States for
interim financial information. In the opinion of the Company's management,
the consolidated financial statements reflect all adjustments necessary to
present fairly the results of operations for the three and six month
periods ended June 30, 2001 and 2000, the Company's financial position at
June 30, 2001, and the cash flows for the six month periods ended June 30,
2001 and 2000. These adjustments are of a normal recurring nature.
The results of operations, cash flows and comprehensive income for the
three and six month periods ended June 30, 2000 have been restated to
reflect the implementation of SEC Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101") in 2000,
retroactive to January 1, 2000. In addition, share and per share amounts
have been restated to reflect a two-for-one stock split paid in the form
of a stock dividend on October 5, 2000.
Certain notes and other information have been condensed or omitted from
the interim consolidated financial statements presented in this Quarterly
Report on Form 10-Q. Therefore, these financial statements should be read
in conjunction with the Company's 2000 Annual Report on Form 10-K and the
Company's March 31, 2001 Quarterly Report on Form 10-Q.
The results of operations for the three and six month period ended June
30, 2001 are not necessarily indicative of future financial results.
NOTE 2. ACQUISITION OF PRINCIPIA PHARMACEUTICAL CORPORATION
On September 8, 2000, the Company acquired all of the outstanding shares
of capital stock of Principia Pharmaceutical Corporation ("Principia")
from its shareholders. The cost of the acquisition was $135,071, including
fees and expenses. The purchase price was paid with 1,582,204 shares of
the Company's Common Stock. The consolidated financial statements include
the results of operations of Principia since the date of acquisition.
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been allocated as follows:
Net assets and liabilities acquired at their
estimated fair value as of the date of acquisition $ 521
Assembled Workforce 500
Purchased In-Process Research and Development 134,050
--------------
Total $ 135,071
==============
The Company's unaudited pro forma consolidated condensed statements of
operations information for the six months ended June 30, 2001 and 2000,
assuming the acquisition of Principia was effected at the beginning of
each period, and including the one-time write-off of the Purchased
In-Process Research and Development and amortization of Assembled
Workforce, are summarized as follows:
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HUMAN GENOME SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 2001
(In thousands, except share and per share data)
NOTE 2. ACQUISITION OF PRINCIPIA PHARMACEUTICAL CORPORATION, CONTINUED
(Unaudited)
June 30,
--------------------------------
2001 2000
---------------- ---------------
Revenue .............................................. $ 10,534 $ 10,534
Net loss ............................................. $ (37,031) $ (225,036)
Weighted average shares outstanding, basic and diluted 126,674,042 127,677,833
Net income (loss) per share, basic and diluted ....... $ (0.29) $ (1.76)
This pro forma information does not purport to be indicative of the
results which may have been obtained had the acquisition been consummated
at the date assumed.
During the first quarter of 2001, the Company announced its decision to
relocate Principia's operations from Norristown, Pennsylvania to the
Company's Rockville, Maryland location. As a result, the Company recorded
a one-time charge in the first quarter of 2001 of approximately $1,900,
representing unit relocation costs and the write off of the remaining book
value of Principia's Assembled Workforce.
The balance of the unit relocation reserve was approximately $1,500 as of
June 30, 2001. In addition, the Company expects to incur approximately
$530 in personnel relocation costs and stay bonuses in the second half of
2001.
NOTE 3. COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", requires unrealized gains or losses on the
Company's available-for-sale securities and on the Company's investments
in Transgene S.A., Cambridge Antibody Technology and Ciphergen Biosystems
to be included in other comprehensive income.
During the three and six month periods ended June 30, 2001 and 2000, total
comprehensive income (loss) amounted to:
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net income (loss) ............... $(24,024) $(16,368) $(37,031) $(88,891)
Net unrealized gains (losses):
Short-term investments ........ (1,499) (64) 13,290 183
Long-term investments ......... 320 18,363 (46,724) 34,744
-------- -------- -------- --------
Total comprehensive income (loss) $(25,203) $ 1,931 $(70,465) $(53,964)
======== ======== ======== ========
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HUMAN GENOME SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 2001
(In thousands, except share and per share data)
NOTE 3. COMPREHENSIVE INCOME (LOSS), CONTINUED
Realized gains and losses, which are included in the Company's net income
(loss) for the three and six months ended June 30, 2001, and their
respective net proceeds were as follows:
Three months ended Six months ended
June 30, 2001 June 30, 2001
--------------- ---------------
Realized gains $1,327 $2,459
Realized losses (4) (146)
Net proceeds 190,657 420,756
Realized gains and losses on investments and their respective net proceeds
were immaterial for the three and six months ended June 30, 2000.
NOTE 4. RECENT SEC INTERPRETATIONS
During the fourth quarter of 2000, the Company implemented SAB 101. SAB
101 provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101 requires
revenues to be recognized ratably over the life of a contract period
whereas, previously, the Company generally recognized revenue as
non-refundable cash payments were made assuming no significant obligations
remained. SAB 101 requires companies to report any changes in revenue
recognition as a cumulative effect of a change in accounting principle at
the time of implementation in accordance with Accounting Principles Board
Opinion No. 20, "Accounting Changes".
Historically, the Company has recognized non-refundable license fees,
research payments, additional payments and milestone payments in
connection with collaboration agreements when the revenue is earned in
accordance with the applicable performance requirements and/or contractual
terms. This revenue recognition policy was applicable to certain
multi-year agreements the Company entered into with Schering-Plough,
Sanofi-Synthelabo and Merck KgaA during 1996 (the "1996 Agreements"). The
Company recognized revenue under these agreements when it had performed
all significant obligations and the customer was obligated to pay. The
Company generally considered any remaining performance obligation, such as
maintaining access to its genomic databases, as insignificant. However,
SAB 101 provides guidance that indicates revenue recognition over the
collaboration term is generally the required treatment for all fees,
regardless of the significance of remaining performance obligations.
As a result of the implementation of SAB 101, the Company recorded a
charge to earnings in 2000 in the form of a cumulative effect of a change
in accounting principle and additional deferred revenue in the amount of
$8,250. The Company has recognized this deferred amount as revenue during
both the first and second quarters of 2001 in the amount of $4,125 per
quarter.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000
RESULTS OF OPERATIONS
Revenues. We recognized revenues of $5.3 million for the three months ended
June 30, 2001 and June 30, 2000. Revenues for the three months ended June 30,
2001 represented the recognition of $1.9 million in revenue from Schering
Corporation and Schering Plough Ltd., $1.7 million in revenue recognized from
Merck KGaA, $1.1 million in revenue recognized from Synthelabo, and $0.6 million
recognized in revenue from Transgene, S.A. As a result of our implementation of
SAB 101 last year, our second quarter revenues for 2000 have been restated.
Revenues for the three months ended June 30, 2000 represented the recognition of
$1.9 million in revenue from Schering Corporation and Schering Plough Ltd., $1.7
million in revenue recognized from Merck KGaA, $1.1 million in revenue
recognized from Synthelabo, and $0.6 million recognized in revenue from
Transgene, S.A.
Revenues for the six months ended June 30, 2001 were $10.5 million
including the recognition of $3.8 million in revenue from Schering Corporation
and Schering Plough Ltd., $3.2 million in revenue recognized from Merck KGaA,
$2.2 million in revenue recognized from Synthelabo, and $1.3 million recognized
in revenue from Transgene, S.A. As a result of our implementation of SAB 101
last year, revenues for the six months ended June 30, 2000 have been restated.
Revenues for the six months ended June 30, 2000 were $10.5 including the
recognition of $3.8 million in revenue from Schering Corporation and Schering
Plough Ltd., $3.2 million in revenue recognized from Merck KGaA, $2.2 million in
revenue recognized from Synthelabo, and $1.3 million recognized in revenue from
Transgene, S.A.
Related party revenues include revenues from Transgene in which we hold a
minority interest.
We expect that our revenues may be limited to interest income, payments
under existing collaboration agreements which are contingent on meeting certain
product milestones, license fees, proceeds from the sale of rights and other
payments from other collaborators and licensees under existing or future
arrangements, to the extent that we enter into any such further arrangements.
Revenues from Schering, Synthelabo and Merck have substantially concluded for
fiscal year 2001. On June 30, 2001, the exclusivity period, or initial research
term, relating to our consortium with these collaborators concluded. While none
of the consortium members chose to renew the initial research term, work already
initiated by the members can continue if evidence of continued diligence is
provided. If any program results in drugs that are commercialized, we will be
entitled to certain milestone and royalty payments. In addition, for drugs
developed by GlaxoSmithKline, we will be entitled to certain co-promotion
rights. We can provide no assurance that any of these drugs can be successfully
commercialized.
Expenses. Research and development expenses were $36.5 million for the
three months ended June 30, 2001 compared to $21.7 million for the three months
ended June 30, 2000. The increase is due primarily to increased operations costs
related to our leased manufacturing and process development facility as well as
increased expenditures in preclinical research and clinical trial research.
Research and development expenses were $68.6 million for the six months ended
June 30, 2001 compared to $41.2 million for the six months ended June 30, 2000.
The increase is due primarily to increased operations costs related to our
leased manufacturing and process development facility as well as increased
expenditures in preclinical research and clinical trial research. In addition,
research and development expenses for the six months ended June 30, 2001 include
$1.9 million in unit relocation costs and asset write-downs relating to the
relocation of Principia's operations to our Rockville, Maryland location as
discussed in Note 2 to the Consolidated Financial Statements.
General and administrative expenses increased to $9.7 million for the three
months ended June 30, 2001 from $6.5 million for the three months ended June 30,
2000. General and administrative expenses increased to $18.0 million for the six
months ended June 30, 2001 from $12.5 million for the six months ended June 30,
2000. The increase for both the three and six month periods ended June 30, 2001
resulted primarily from
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RESULTS OF OPERATIONS, CONTINUED
higher legal expenses associated with filing and prosecuting a larger number of
patent applications relating to genes and proteins we discovered, along with
increased business and product development expenses in support of our expanding
activities.
Interest income increased for both the three and six month periods ended
June 30, 2001 compared to the three and six month periods ended June 30, 2000
due to higher cash balances arising primarily from our public offering of common
stock during the fourth quarter of 2000 that raised net proceeds of
approximately $912.7 million. Interest expense decreased for the three month
period due primarily to a reduction in the average debt balance for 2001
compared to 2000 as a result of the conversion to equity of $318.3 million of
convertible subordinated debt during the first quarter of 2000. Interest expense
increased for the six month period ended June 30, 2001 compared to the six month
period ended June 30, 2000 due primarily to an increase of $525.0 million in
convertible subordinated debt during the first quarter of fiscal 2000, partially
offset by the convertible subordinated note conversions discussed herein.
Debt conversion expenses of $3.9 million for the three and six months
ended June 30, 2001 relate to the second quarter of 2001 conversion of $25.5
million aggregate principal amount of convertible subordinated notes into
equity. We converted $25.0 million of our outstanding $224.9 million aggregate
principal amount of 5% Notes Due 2007 into common stock at a cost of $3.9
million, substantially all of which was paid in the form of common stock. We
also converted $0.5 million of our 5 1/2% Notes Due 2006 into common stock. Debt
conversion expenses of $50.8 million for the six months ended June 30, 2000
relate to the first quarter of fiscal 2000 conversion costs of $318.3 million
aggregate principal amount of convertible subordinated notes into equity. We
converted $118.3 million of our 5 1/2% Notes Due 2006 into common stock at a
cost of $20.8 million, substantially all of which was paid in the form of common
stock. In addition, we converted all of our $200.0 million aggregate principal
amount of 5% Notes Due 2006 into common stock at a cost of $30.0 million, all of
which was paid in cash.
Cumulative effect of a change in accounting principle of $8.3 million for
the six months ended June 30, 2000 relates to our implementation of Securities
and Exchange Commission ("SEC") Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). As a result of the
implementation of SAB 101, we recorded a charge of $8.3 million as a cumulative
effect of a change in accounting principle, retroactive to January 1, 2000.
Net Income. We recorded a net loss of $24.0 million, or $0.19 per share,
for the three months ended June 30, 2001 compared to a net loss of $16.4
million, or $0.15 per share, for the three months ended June 30, 2000. The
increased loss for the three month period of 2001 reflects the increase in
operations at our leased manufacturing and process development facility,
increased investment in the development of preclinical and clinical drug
candidates, increased general and administrative activities, as well as debt
conversion expenses, partially offset by the increase in net interest income.
Excluding the charge for debt conversion expenses incurred in 2001, our net loss
for the three months ended June 30, 2001 would have been $20.1 million, or
$0.16 per share, compared to $16.4 million, or $0.15 per share for the three
months ended June 30, 2000. We recorded a net loss of $37.0 million, or $0.29
per share, for the six months ended June 30, 2001 compared to a net loss of
$88.9 million, or $0.84 per share, for the six months ended June 30, 2000. The
decreased loss for the six month period reflects the reduction of debt
conversion expenses and the absence of the cumulative effect of a change in
accounting principle in 2001, the increase in net interest income in 2001,
partially offset by the increase in operations at our leased manufacturing and
process development facility, increased investment in the development of
preclinical and clinical drug candidates, and increased general and
administrative activities. Excluding the charges for debt conversion expenses
for both fiscal year 2001 and 2000 and the cumulative effect of a change in
accounting principle incurred in the six months ended June 30, 2000, our net
loss for the six months ended June 30, 2001 would have been $33.2 million, or
$0.26 per share, compared to $29.8 million, or $0.28 per share for the six
months ended June 30, 2000.
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LIQUIDITY AND CAPITAL RESOURCES
We had working capital of $1.7 billion at June 30, 2001 and December
31, 2000. No significant transactions have occurred in the six months ended June
30, 2001 that have affected our working capital. Our restricted investments
increased during the second quarter of 2001 primarily due to a transfer of $55
million of investments into a restricted account as part of a long-term facility
lease we entered into during the quarter.
We expect to continue to incur substantial expenses relating to our
research and development efforts, which are expected to increase relative to
historical levels as we focus on preclinical and clinical trials required for
the development of therapeutic protein and antibody product candidates.
We expect that our existing funds and interest income will be
sufficient to fund our operations for the foreseeable future. Our future capital
requirements and the adequacy of our available funds will depend on many
factors, including scientific progress in our research and development programs,
the magnitude of those programs, the success of the consortium members
developing and commercializing drugs from existing programs, our ability to
establish additional collaborative and licensing arrangements, the cost involved
in preparing, filing, prosecuting, maintaining and enforcing patent claims and
competing technological and market developments.
Our funds may be invested in U.S. Treasury and government agency
obligations, high grade corporate debt securities and commercial paper. Such
investments reflect our policy regarding the investment of liquid assets, which
is to seek a reasonable rate of return consistent with an emphasis on safety,
liquidity and preservation of capital.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The
forward-looking statements are based on our current intent, belief and
expectations. These statements are not guarantees of future performance and are
subject to certain risks and uncertainties that are difficult to predict. Actual
results may differ materially from these forward-looking statements because of
our unproven business model, dependence on new technologies, uncertainty and
timing of clinical trials, ability to develop and commercialize products,
dependence on collaborators for services and revenue, substantial indebtedness,
intense competition, uncertainty of patent and intellectual property protection,
dependence on key management, uncertainty of regulation of products, dependence
on key suppliers, the impact of future alliances or transactions and other risks
that may be described in our filings with the Securities and Exchange
Commission. Existing and prospective investors are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of today's
date. We undertake no obligation to update or revise the information contained
in this announcement whether as a result of new information, future events or
circumstances or otherwise.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not have operations subject to risks of foreign currency
fluctuations, nor do we use derivative financial instruments in our operations
or investment portfolio. Our investment portfolio can be comprised of low-risk
U.S. Treasury securities or corporate debt having a rating of at least A1\P1.
The short-term nature of these securities, which have an average term of
approximately one year, significantly decreases the risk of a material loss
caused by a market change. We believe that a hypothetical 100 basis point
adverse move (increase) in interest rates along the entire interest rate yield
curve would adversely affect the net fair value of our cash, cash equivalents
and short-term investments by approximately $25.2 million, or approximately
1.5% of the aggregate fair value of $1.68 billion, at June 30, 2001. For these
reasons, and because these securities are almost always held to maturity, we
believe we do not have significant exposure to market risks associated with
changes in interest rates related to our corporate debt securities held as of
June 30, 2001. We believe that any market change related to our U.S. securities
held as of June 30, 2001 is not material to our consolidated financial
statements. However, given the short-term nature of these securities, a general
decline in interest rates would adversely affect the interest income from our
portfolio as securities mature and are replaced with securities having a lower
interest rate.
As of June 30, 2001, the carrying values of our equity investments in
Transgene, Cambridge Antibody Technology (CAT) and Ciphergen Biosystems were
approximately $4.7 million, $40.5 million and $1.4 million, respectively. Our
investments in Transgene and Ciphergen Biosystems are subject to equity market
risk. Our investment in CAT is denominated in pounds sterling and is subject to
both foreign currency risk as well as equity market risk.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our Annual Meeting of Shareholders, held on May 23, 2001, the following
members were re-elected to the Board of Directors:
Affirmative Votes
Votes Withheld
------------------------ -----------------------
TERMS EXPIRING IN 2004
Jurgen Drews, M.D. 101,999,504 10,435,534
James B. Wyngaarden, M.D. 111,637,197 797,841
The following proposals were approved at our Annual Meeting of Shareholders:
Affirmative Negative
Votes Votes Abstentions
--------------------- ------------------ ---------------
1. Amendment to the Company's Restated
Certificate of Incorporation (Fifth) to
increase the Company's authorized common
stock from 250,000,000 to 400,000,000
shares 110,654,968 1,654,693 125,377
2. Amendment of the 2000 Stock Incentive
Plan. 63,646,004 26,338,481 130,138
3. Ratification of the selection of Ernst &
Young, LLP as independent auditors for
the fiscal year ending December 31, 2001. 112,248,096 131,299 55,642
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Amendment to Restated Certificate
of Incorporation (Fifth) of the Registrant.
-----------------------
(b) Reports on Form 8-K
We filed a Current Report on Form 8-K, on July
6, 2001, announcing the exclusivity period for our human
gene therapeutic consortium expired on June 30, 2001, a
period described as the initial research term. None of
the consortium members chose to extend the initial
research term.
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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.
HUMAN GENOME SCIENCES, INC.
BY: /s/ William A. Haseltine, Ph.D.
--------------------------------------------
William A. Haseltine, Ph.D.
Chairman and Chief Executive Officer
BY: /s/ Steven C. Mayer
--------------------------------------------
Steven C. Mayer
Senior Vice President and
Chief Financial Officer
Dated: July 31, 2001
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EXHIBIT INDEX
Exhibit
Page Number
3.1 Certificate of Amendment of Restated Certificate of
Incorporation (Fifth) of the Registrant