1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File No.
March 31, 1995 0-18231
ATRIX LABORATORIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1043826
- - --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
2579 Midpoint Drive
Fort Collins, Colorado 80525
- - --------------------------------------------------------------------------------
(Address of principal (Zip Code)
executive offices)
(970) 482-5868
---------------------------------------------------
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or 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
--- ---
As of May 8, 1995, there were outstanding 7,876,578 shares of the
Registrant's $.001 par value common stock.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATRIX LABORATORIES, INC.
BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
ASSETS
March 31, December 31,
1995 1994
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 64,514 $ 1,880,275
Marketable securities, at cost 7,896,827 7,896,827
Marketable securities, available-for-sale 3,477,111 3,300,894
Accounts receivable 9,911 93,469
Interest receivable 233,167 140,848
Prepaid expenses and deposits 552,211 119,102
----------- -----------
Total current assets 12,233,741 13,431,415
----------- -----------
MARKETABLE SECURITIES, AT COST 7,154,852 7,172,095
----------- -----------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures 1,334,648 1,276,895
Leasehold improvements 386,428 368,851
----------- -----------
Total 1,721,076 1,645,746
Accumulated depreciation and amortization (851,774) (771,274)
----------- -----------
Property and equipment, net 869,302 874,472
----------- -----------
OTHER ASSETS:
Intangible assets, net of accumulated
amortization of $40,369 and $37,065 540,609 527,640
----------- -----------
TOTAL $20,798,504 $22,005,622
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 718,336 $ 481,267
Accrued salaries and payroll taxes 63,366 63,000
Other accrued liabilities 186,579 195,815
Deferred revenue 93,750 75,000
----------- -----------
Total current liabilities 1,062,031 815,082
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock $.001 par value; authorized 5,000,000
shares, none issued or outstanding
Common stock $.001 par value; authorized 25,000,000
shares; 7,871,778 and 7,743,078 shares
issued and outstanding 7,872 7,743
Unrealized holding loss on securities
available-for-sale (274,663) (396,965)
Additional paid-in capital 40,335,901 39,977,455
Accumulated deficit (20,332,637) (18,397,693)
----------- -----------
Total shareholders' equity 19,736,473 21,190,540
----------- -----------
TOTAL $20,798,504 $22,005,622
=========== ===========
See notes to financial statements
2
3
ATRIX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
1995 1994
------------ ------------
REVENUE:
Contract revenue $ 59,250 $ 93,719
Contract revenue from related party 3,000 3,000
Interest income 262,808 355,975
Loss on sale of marketable securities --- (21,088)
------------ ------------
Total revenue 325,058 431,606
------------ ------------
EXPENSES:
Research expenses-Perio Product 1,118,675 619,005
Research and development 862,789 997,693
Administrative 278,538 240,702
------------ ------------
Total expenses 2,260,002 1,857,400
------------ ------------
NET LOSS $ (1,934,944) $ (1,425,794)
============ ============
NET LOSS PER COMMON SHARE $ (.25) $ (.18)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 7,812,430 7,736,100
============ ============
See notes to financial statements
3
4
ATRIX LABORATORIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(Unaudited)
Common Stock Additional Unrealized Total
-------------- Paid-in Holding Accumulated Shareholders'
Shares Amount Capital Gain (Loss) Deficit Equity
--------- ------- ----------- ---------- ------------ -----------
BALANCE,
December 31, 1994 7,743,078 $7,743 $39,977,455 $ (396,965) $(18,397,693) $21,190,540
Exercise of
stock options 129,700 129 358,446 358,575
Unrealized holding
gain 122,302 122,302
Net loss for
the period --- --- --- --- (1,934,944) (1,934,944)
--------- ------- ----------- ---------- ------------ -----------
BALANCE,
March 31, 1995 7,871,778 $ 7,872 $40,335,901 $(274,663) $(20,332,637) $19,736,473
========= ======= =========== ========== ============ ===========
See notes to financial statements
4
5
ATRIX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,934,944) $ (1,425,794)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 80,500 62,679
Amortization of patents 3,304 2,354
Amortization of bond premiums 17,243 16,205
Loss on sale of marketable securities --- 21,088
Write-off of obsolete patents --- 26,850
Net changes in current assets and liabilities:
Accounts receivable 83,558 13,535
Prepaid expenses and deposits (433,109) (89,142)
Interest receivable (92,319) (148,787)
Accounts payable - trade 237,069 3,363
Accrued salaries and payroll taxes 366 7,844
Other accrued liabilities (9,236) (6,335)
Deferred revenue 18,750 51,534
------------ ------------
Net cash used in operating activities (2,028,818) (1,464,606)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment, furniture and fixtures (57,753) (41,162)
Acquisition of leasehold improvements (17,577) (18,278)
Investments in intangible assets (16,273) (62,504)
Proceeds from sale of marketable securities available-for-sale --- 1,500,000
Investment in marketable securities (53,915) (107,912)
------------ ------------
Net cash provided by (used in) investing activities (145,518) 1,270,144
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and exercise of
stock options 358,575 75,229
------------ ------------
Net cash provided by financing activities 358,575 75,229
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,815,761) (119,233)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,880,275 589,317
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 64,514 $ 470,084
============ ============
See notes to financial statements
5
6
ATRIX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements of Atrix Laboratories,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial statements and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of
management, all adjustments considered necessary (which consist only of normal
occurring accruals) for a fair presentation have been included. These
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the year ended December 31, 1994, filed with
the Securities and Exchange Commission in the Company's Annual Report Form
10-K.
NOTE 2. RELATED PARTY
The Company is the General Partner of Vipont Royalty Income Fund, Ltd.
(the "Partnership"). The Partnership has ongoing expenses related to its
status as a publicly traded partnership, including the cost of preparing and
filing reports required by the Securities Exchange Act of 1934, and the
Internal Revenue Service, and providing certain communications to the limited
partners. It is estimated that the cost of preparing, filing and mailing the
various reports, including an annual audit is approximately $30,000. The
Partnership has exhausted all cash funds. The Company has agreed to advance
additional funds to the Partnership to pay these expenses for the Partnership's
calendar year ending December 31, 1995. All such advances will be due and
payable, if ever, from the Partnership's share of royalties and/or proceeds
from the sale of the rights to the Perio Product.
As of March 31, 1995, the Partnership had approximately $138,000 in
accounts payable, consisting of management fees owed to the Company, as General
Partner, and trade payables. The Company expensed the amounts advanced to the
Partnership to pay general and administrative expenses in accordance with
generally accepted accounting principles for advances to a research and
development limited partnership.
6
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1994
Contract revenue represented revenue the Company received from grants
and from unaffiliated third parties for performing contract research and
development activities for the ATRIGEL(TM) system, and was approximately
$59,000 for the three months ended March 31, 1995, compared to approximately
$94,000 for the three months ended March 31, 1994. The decrease in contract
revenue was a result of the Company completing joint development contracts that
were in progress in the prior year.
Contract revenue from related party represented revenue the Company
earned for the management of the Partnership, and was approximately $3,000 for
the three months ended March 31, 1995 compared to the same amount for the three
months ended March 31, 1994.
Interest income for the three months ended March 31, 1995, was
approximately $263,000 compared to approximately $356,000 for the three months
ended March 31, 1994. Interest income decreased due to a reduction in
principal investments as a result of the funds being used in general
operations. The majority of the funds were invested in mutual funds, long-term
U.S. government and government agency investments.
A loss on sale of marketable securities of approximately $21,000 was
recognized in the three month period ended March 31, 1994. There was no loss
recognized in the current quarter because certain bonds matured and provided
adequate funds for current operations. The prior period loss resulted from the
sale of securities, available-for-sale at a time when the bond market had
substantially declined compared to the period when the securities were
purchased. The proceeds from the sale of marketable securities in the prior
year were used to fund normal operations.
Research expenses-Perio Product for the three months ended March 31,
1995, were approximately $1,119,000 compared to approximately $619,000 for the
three months ended March 31, 1994. The increase was due to the commencement of
the pivotal Phase III clinical studies in the current quarter. Research
expenses are anticipated to increase in subsequent quarters as additional
expenses for the clinical studies are incurred.
Research and development expenses included activities for the
development of the ATRISORB(TM) Barrier product and other activities for the
Company's own benefit. Research and development expenses decreased to
approximately $863,000 during the three months ended
7
8
March 31, 1995, from approximately $998,000 for the three months ended March
31, 1994. The decrease was primarily a result of a reduction of activity in
the drug delivery research area related to the ATRIGEL(TM) system due to the
Company's focus on completing clinical studies during the current year.
Administrative expenses increased to approximately $279,000 during the
three months ended March 31, 1995, from approximately $241,000 for the three
months ended March 31, 1994. The primary reason for this increase was the
timing of the expenses for the annual reports and proxy materials distribution,
which were recognized earlier in 1995 than in the prior year.
The Company recorded a net loss of approximately $1,935,000 for the
three months ended March 31, 1995, compared to a net loss of approximately
$1,426,000 for the three months ended March 31, 1994. The current period loss
was higher due to decreased revenues and increased expenses associated with the
commencement of the pivotal Phase III clinical studies on the Perio Product,
additional research on the ATRISORB(TM) Barrier product and the ATRIGEL(TM)
drug delivery system.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1995, the Company had cash and cash equivalents of
approximately $65,000, marketable securities at cost of approximately
$7,897,000, marketable securities available-for-sale of approximately
$3,477,000, and other current assets of approximately $795,000, for total
current assets of approximately $12,234,000. Current liabilities totaled
approximately $1,062,000, which resulted in working capital of approximately
$11,172,000.
The Company had funds available of approximately $18,594,000 to fund
working capital requirements and capital expenditures. This included
approximately $65,000 in cash and cash equivalents, approximately $7,897,000 in
marketable securities with a maturity date of less than twelve months from the
current period end, approximately $3,477,000 of marketable securities
available-for-sale and approximately $7,155,000 in marketable securities with a
maturity date greater than twelve months from the current period end.
During the three months ended March 31, 1995, the Company used net
cash from operating activities of approximately $2,029,000. This was primarily
a result of a net loss of approximately $1,935,000, which was increased by
prepaid expenses and interest receivable. This total was partially offset by
changes in other operating assets, depreciation, amortization and accounts
payable. Changes in other operating assets and liabilities included a decrease
in cash for prepaids of approximately $433,000 due to the initial payments for
clinical studies, an increase in cash for accounts payable of approximately
$237,000 and a decrease in cash for interest receivable of approximately
$92,000.
8
9
The Company used net cash from investing activities of approximately
$146,000 during the three months ended March 31, 1995 mainly for the
acquisition of capital equipment and leasehold improvements to the corporate
facility and to the pilot manufacturing facility.
Net cash provided from financing activities was approximately
$359,000. The increase was a result of the exercise of stock options by
certain directors and employees.
The Company's long-term capital expenditure requirements will depend
on numerous factors, including the progress of the Company's research and
development programs, the time required to file and process regulatory approval
applications, the development of the Company's commercial manufacturing
facilities, the ability of the Company to obtain additional licensing
arrangements, and the demand for the Company's products, if and when approved.
The Company expended approximately $75,000 for property, equipment and
leasehold improvements, and approximately $16,000 for patent development in the
three month period ending March 31, 1995.
The Partnership has ongoing expenses related to its status as a
publicly traded partnership, including the cost of preparing and filing reports
required by the Securities Exchange Act of 1934, and the Internal Revenue Code,
and providing certain communications to the limited partners. It is estimated
that the cost of preparing, filing and mailing the various reports, including
an annual audit will be approximately $30,000. The Partnership has exhausted
all cash funds. The Company has agreed to advance additional funds to the
Partnership to pay these expenses for the Partnership's calendar year ending
December 31, 1995. All such advances will be due and payable, if ever, from
the Partnership's share of royalties and/or proceeds from the sale of the
rights to the Perio Product.
As of March 31, 1995, the Partnership had approximately $138,000 in
accounts payable, consisting of management fees owed to the Company, as General
Partner, and trade payables. The Company expensed the amounts owed to the
Partnership to pay general and administrative expenses in accordance with
generally accepted accounting principles for advances to a research and
development limited partnership.
The Company expects to incur substantial expenditures over the next
two years for research and development, testing and regulatory compliance and
for hiring additional management, scientific, manufacturing and administrative
personnel. The Company will use substantial funds to undertake any clinical
testing. The Company expects to incur substantial operating losses for the
foreseeable future. Depending on the results of the Company's research and
development activities, the Company may determine to accelerate or expand its
efforts in one or more of its proposed areas and may therefore require
additional funds earlier than presently anticipated. Further, the Company will
require significant additional funds or arrangements with third parties to
commercialize any of its products. The Company will also require substantial
additional funds if it proceeds to manufacture and market any products on a
9
10
commercial scale. Such funds will be needed to construct additional facilities
and to hire manufacturing and marketing personnel. There can be no assurance
that additional financing will be available when needed on terms favorable to
the Company.
The Company believes that under the current operating plan its
existing capital resources will be sufficient to meet its operating expenses
and capital expenditure requirements through at least 1996. However, as the
Company's goal is to maintain a cash and investment balance sufficient to fund
its operating expenses for at least two years, the Company expects to seek
additional capital through debt and/or equity financings in the next twelve to
eighteen months. There can be no assurance that such funds will be available
to the Company on favorable terms, if at all. In addition, the availability of
such funds may be adversely affected by increasing governmental pressures on
the pharmaceutical industry. The Company currently has no commitments or
arrangements for raising additional capital. The Company cannot predict the
effect that health care reforms may have on the Company. The Company's
long-term success depends on sales of products that must undergo an extensive
regulatory approval process. There can be no assurance that regulatory agency
approvals will be obtained for any products or drugs developed or discovered by
the Company, or that the Company will be successful in developing any products
or drugs.
10
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated January 23, 1995, was filed with
the Securities and Exchange Commission under Item 5 regarding the
commencement of Phase III trials for the Company's Perio Product
containing doxycycline. No other reports on Form 8-K were filed
during the period ended March 31, 1995.
11
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.
ATRIX LABORATORIES, INC.
(Registrant)
May 9, 1995 By:/s/ John E. Urheim
-----------------------------------------------------------------------
John E. Urheim
Vice Chairman of the Board of Directors and Chief Executive Officer
May 9, 1995 By:/s/ Kimberly A. Marks
-----------------------------------------------------------------------
Kimberly A. Marks
Corporate Controller, Assistant Secretary, and Assistant Treasurer
13
EXHIBIT INDEX
Exhibit No. Exhibit Description Page
- - ----------- ------------------- ----
27 Financial Data Schedule