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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ____________
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Commission File Number 0-18231
ATRIX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1043826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2579 MIDPOINT DRIVE FORT COLLINS, COLORADO 80525
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (970) 482-5868
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 outstanding of the registrant's common stock as of
April 17, 1998 was 11,310,461.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATRIX LABORATORIES, INC.
BALANCE SHEETS
March 31, December 31,
1998 1997
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ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 17,791,733 $ 15,185,841
Marketable securities, at fair value 45,085,090 50,233,553
Accounts receivable, net of allowance for doubtful accounts
of $11,859 and $111,479 774,701 1,553,427
Interest receivable 658,632 340,346
Inventories 1,777,636 1,309,519
Prepaid expenses and deposits 831,552 196,574
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Total current assets 66,919,344 68,819,260
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PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment 8,577,892 8,332,671
Leasehold improvements 605,107 605,107
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Total 9,182,999 8,937,778
Accumulated depreciation and amortization (2,621,308) (2,381,908)
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Property, plant and equipment, net 6,561,691 6,555,870
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OTHER ASSETS:
Intangible assets, net of accumulated amortization
of $103,779 and $96,355 1,063,525 1,024,953
Deferred finance costs, net of accumulated amortization
of $91,225 and $22,814 1,857,737 1,893,576
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Total other assets 2,921,262 2,918,529
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TOTAL $ 76,402,297 $ 78,293,659
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 1,171,620 $ 1,052,362
Interest payable 1,150,685 287,671
Accrued salaries and payroll taxes 181,269 155,200
Other accrued liabilities 39,008 95,508
Deferred revenue 16,667 --
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Total current liabilities 2,559,249 1,590,741
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CONVERTIBLE SUBORDINATED NOTES PAYABLE 50,000,000 50,000,000
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000 shares
authorized, none issued or outstanding
Common stock, $.001 par value; 25,000,000 shares authorized;
11,309,593 and 11,177,261 shares issued and outstanding 11,310 11,177
Additional paid-in capital 73,365,158 73,224,442
Unrealized holding loss on marketable securities (195,734) (177,867)
Accumulated deficit (49,337,686) (46,354,834)
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Total shareholders' equity 23,843,048 26,702,918
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TOTAL $ 76,402,297 $ 78,293,659
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See notes to financial statements
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ATRIX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
REVENUE: 1998 1997
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Sales $ 861,720 $ 209,739
Contract revenue 71,616 151,485
Sale of marketing rights -- 7,000,000
Interest income 978,966 437,509
Gain (losses) & other income, net 52,737 8,968
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Total revenue 1,965,039 7,807,701
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EXPENSES:
Cost of goods sold 667,130 138,989
Research and development
o ATRIDOX(TM)product 1,032,147 1,468,095
o Other 1,782,540 1,310,166
Administrative and marketing 1,466,074 554,508
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Total expenses 4,947,891 3,471,758
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BASIC NET INCOME (LOSS) $ (2,982,852) $ 4,335,943
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BASIC INCOME (LOSS) PER COMMON SHARE $ (.26) $ 0.39
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WEIGHTED AVERAGE SHARES OUTSTANDING 11,288,929 11,113,865
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See notes to financial statements
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ATRIX LABORATORIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
Common Stock Additional Unrealized Total
Paid-in Holding Accumulated Shareholders'
Shares Amount Capital Loss Deficit Equity
---------- ------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1997 11,177,261 $ 11,177 $ 73,224,442 $ (177,867) $(46,354,834) $ 26,702,918
Exercise of stock options 132,332 133 140,716 -- -- 140,849
Unrealized holding loss -- -- -- (17,867) -- (17,867)
Net loss -- -- -- -- (2,982,852) (2,982,852)
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BALANCE, March 31, 1998 11,309,593 $ 11,310 $ 73,365,158 $ (195,734) $(49,337,686) $ 23,843,048
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See notes to financial statements
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ATRIX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,982,852) $ 4,335,943
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 241,918 163,045
Amortization of intangible assets 7,424 12,262
Amortization of bond premiums 1,032 --
Amortization of deferred finance costs 68,411 --
Gain on sale of marketable securities (23,438) --
Loss on sale of property, plant and equipment 741 --
Net changes in current assets and liabilities:
Restricted cash equivalents -- 7,000,000
Accounts receivable 778,726 36,104
Interest receivable (318,286) 46,005
Inventories (468,117) (233,463)
Prepaid expenses and deposits (634,978) (252,022)
Accounts payable - trade 119,258 (23,190)
Interest payable 863,014 --
Accrued salaries and payroll taxes 26,069 10,189
Other accrued liabilities (56,500) (54,707)
Deferred revenue 16,667 (7,002,192)
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Net cash provided by (used in) operating activities (2,360,911) 4,037,974
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (250,696) (416,403)
Acquisition of leasehold improvements -- (8,710)
Investment in intangible assets (78,568) (56,935)
Proceeds from sale of property, plant and equipment 2,216 --
Proceeds from sale of marketable securities 10,023,438 991,127
Proceeds from maturity of marketable securities 10,000,000 --
Investment in marketable securities (14,870,436) (3,072,368)
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Net cash (used in) provided by investing activities 4,825,954 (2,563,289)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash provided by the issuance of common stock
and exercise of stock options 140,849 7,355
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,605,892 1,482,040
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,185,841 18,368,472
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,791,733 $ 19,850,512
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See notes to financial statements
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ATRIX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
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 recurring
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, 1997, filed with the Securities and
Exchange Commission in the Company's Annual Report Form on 10-K.
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost, determined by the
first-in, first-out (FIFO) method, or market. The components of inventories at
are as follows:
March 31, December 31,
1998 1997
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Raw Materials $ 963,575 $ 563,503
Work in Process 434,677 500,198
Finished Goods 379,384 245,818
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$1,777,636 $1,309,519
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NOTE 3. MILESTONE PAYMENT
Pursuant to its agreement with Block Drug Company ("Block"), the
Company received a $7,000,000 milestone payment on April 17, 1998. The milestone
payment was paid as a result of the receipt of an Approvable Letter for the
ATRIDOX(TM) drug product received on April 8, 1998 from the U.S. Food and Drug
Administration ("FDA").
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains statements that constitute
"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. These statements include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) whether the Company will receive, and the timing of,
regulatory approvals or clearances to market the ATRIDOX(TM) product and any
other potential products, (ii) the results of current and future clinical
trials, and (iii) the time and expenses associated with the regulatory approval
process for products. The success of the Company's business operations is in
turn dependent on factors such as the receipt and timing of regulatory approvals
or clearances for potential products, the effectiveness of the Company's
marketing strategies to market its current and any future products, the
Company's ability to manufacture products on a commercial scale, the appeal of
the Company`s mix of products, the Company's success at entering into and
collaborating with others to conduct effective strategic alliances and joint
ventures, general competitive conditions within the biotechnology and drug
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delivery industry and general economic conditions. Forward-looking statements
are not guarantees of future performance and involve risks and uncertainties and
actual results may differ materially from those projected in the forward-looking
statements as a result of various factors.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1997
Total revenues for the three months ended March 31, 1998 were
approximately $1,965,000 compared to approximately $7,807,000 for the three
months ended March 31, 1997. The decrease was primarily due to the receipt of a
$7,000,000 milestone payment by Block during the first quarter of 1997, which
was not repeated during the first quarter of 1998.
The Company had sales of approximately $862,000 during the three months
ended March 31, 1998 compared to sales of approximately $210,000 for the three
months ended March 31, 1997, representing a 310% increase. The increase is
primarily due to the commencement of sales of the veterinary periodontal
treatment product which the Company manufactures for the Heska Corporation
("Heska").
Contract revenue from grants and revenue from unaffiliated third
parties for performing contract research and development activities utilizing
the ATRIGEL(R) system was approximately $72,000 for the three months ended March
31, 1998, compared to approximately $151,000 for the three months ended March
31, 1997, representing a 52% decrease. The decrease was primarily due to the
completion or winding down of several large grants during 1997.
Interest income for the three months ended March 31, 1998, was
approximately $979,000 compared to approximately $438,000 for the three months
ended March 31, 1997, representing a 124% increase. Interest income increased
due to additions to principal investments as a result of the proceeds from a
$50,000,000 convertible subordinated note offering (the "Note Offering")
completed in the fourth quarter of 1997. The majority of the funds were invested
in U.S. government bond funds, long-term U.S. government and government agency
investments. The remaining cash and cash equivalents were invested in interest
bearing accounts to fund the Company's short-term operations.
Cost of goods sold recorded for the three months ended March 31, 1998
was approximately $667,000 compared to approximately $139,000 for the period
ended March 31, 1997, representing a 380% increase. The increase is primarily
due to the commencement of manufacturing by the Company of the Heska veterinary
periodontal treatment product.
Research and development expenses - ATRIDOX(TM) product for the three
months ended March 31, 1998, were approximately $1,032,000 compared to
approximately $1,468,000 for the three months ended March 31, 1997, representing
a 30% decrease. This decrease is primarily the result of a reallocation of
research efforts to new projects as the ATRIDOX(TM) product approaches the
production stage.
Other research and development expenses, which included activities for
the ATRISORB(R) Barrier and other research activities for the three months ended
March 31, 1998, were approximately $1,783,000 compared to approximately
$1,310,000 for the three months ended March 31, 1997, representing a 36%
increase. The increase was primarily a result of the initiation of several new
research projects during the first quarter of 1998.
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Administrative and marketing expenses increased to approximately
$1,466,000 for the three months ended March 31, 1998, from approximately
$555,000 for the three months ended March 31, 1997, representing a 164%
increase. The primary reason for this increase was interest expense incurred as
a result of the Note Offering.
For the reasons described above, the Company recorded net loss of
approximately $2,983,000 for the three months ended March 31, 1998, compared to
a net income of approximately $4,336,000 for the three months ended March 31,
1997, representing a 169% decrease.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had cash and cash equivalents of
approximately $17,792,000, marketable securities of approximately $45,085,000
and other current assets of approximately $4,042,000, for total current assets
of approximately $66,919,000. Current liabilities totaled approximately
$2,559,000, which resulted in working capital of approximately $64,360,000.
During the three months ended March 31, 1998, net cash used in
operating activities was approximately $2,361,000 compared to net cash provided
by operating activities of approximately $4,038,000 for the three months ended
March 31, 1997. This was primarily a result of the net loss for the period of
approximately $2,983,000 adjusted for certain non-cash expenses, and changes in
other operating assets and liabilities as set forth in the statement of cash
flows.
Net cash provided by investing activities was approximately $4,826,000
during the three months ended March 31, 1998, primarily as a result of the sale
or maturity of several marketable securities during the quarter. This was
reduced by cash used for the acquisition of capital equipment and leasehold
improvements, investments in intangible assets, and investments in marketable
securities.
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 $251,000 for property, equipment and
leasehold improvements, and approximately $46,000 for patent development in the
three month period ending March 31, 1998 compared to approximately $425,000 and
$57,000, respectively for the three months ended March 31, 1997. The Company
expects its capital expenditures to total approximately $1,800,000 for the year
ended December 31, 1998, which will be used primarily to complete the automation
of its manufacturing facility.
On April 8, 1998, the Company received an Approvable Letter from the
FDA for the ATRIDOX(TM) drug product. The Company anticipates FDA approval for
marketing the product following determination of product labeling. The
Approvable Letter also resulted in the Company's receipt of a $7,000,000
milestone payment pursuant to the Company's agreement with Block which was
received on April 17, 1998.
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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
No reports on Form 8-K were filed during the period ended
March 31, 1998.
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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.
ATRIX LABORATORIES, INC.
(Registrant)
April 23, 1998 By: /s/ John E. Urheim
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John E. Urheim
Vice Chairman of the Board of
Directors and Chief Executive Officer
April 23, 1998 By: /s/ Brian G. Richmond
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Brian G. Richmond
Vice President--Finance, Asst.
Secretary, and Asst. Treasurer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27 FINANCIAL DATA SCHEDULE