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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 quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission File Number 0-28494
Millennium Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-3177038
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
640 Memorial Drive, Cambridge, MA 02139
(Address of principal executive offices, including zip code)
617-679-7000
(Registrant's telephone number, including area code)
Common Stock, $.001 par value
(Title of Class)
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 No x
--- ---
Number of shares of Common Stock outstanding as of August 5, 1996 was
23,833,211.
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MILLENNIUM PHARMACEUTICALS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Condensed Balance Sheets
June 30, 1996 and December 31, 1995 3
Condensed Statements of Operations
for the six months ended
June 30, 1996 and 1995 4
Condensed Statements of Cash Flows
for the six months ended
June 30, 1996 and 1995 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION 12
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
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Millennium Pharmaceuticals, Inc.
Condensed Balance Sheets
JUNE 30, DECEMBER 31,
1996 1995
-----------------------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 14,803,701 $ 10,586,260
Short-term investments 53,965,804 7,260,284
Prepaid expenses and other current assets 2,032,987 694,763
-----------------------------
Total current assets 70,802,492 18,541,307
Property and equipment, net 9,648,118 4,905,528
Due from strategic partner 1,603,337 1,463,333
Deposits and other assets 461,998 194,682
-----------------------------
$ 82,515,945 $ 25,104,850
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,583,021 $ 1,122,446
Accrued expenses 711,827 567,611
Deferred revenue 1,708,984 3,110,000
Current portion of long-term debt 1,600,000 1,600,000
Current portion of capital lease obligations 2,002,184 1,643,168
-----------------------------
Total current liabilities 8,606,016 8,043,225
Long-term debt, net 666,667 1,466,667
Capital lease obligations, net 2,749,960 2,499,088
Stockholders' equity:
Series A,B,C and D Convertible Preferred Stock, $0.001 par value:
14,000,000 shares authorized and 11,783,333 shares issued and
outstanding ($22,450,000 in aggregate liquidation preference) -- 11,783
Common Stock, $0.001 par value: 25,000,000 shares authorized;
23,851,320 shares in 1996 and 4,211,926 shares in 1995 issued and
outstanding 23,851 4,212
Additional paid-in capital 87,504,175 22,722,267
Deferred compensation (2,900,241) --
Notes receivable from officers (320,522) (266,681)
Unrealized loss on securities (166,597) --
Accumulated deficit (13,647,364) (9,375,711)
-----------------------------
Total stockholders' equity 70,493,302 13,095,870
-----------------------------
Total liabilities and stockholders' equity $ 82,515,945 $ 25,104,850
=============================
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed financial statements.
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Millennium Pharmaceuticals, Inc.
Condensed Statements of Operations (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------------------------------------------------------------
Revenue under strategic alliances $ 5,100,533 $ 2,500,000 $ 12,658,849 $ 5,000,000
Costs and expenses:
Research and development 8,080,200 4,209,979 14,713,849 8,077,325
General and administrative 1,785,827 944,182 3,051,223 1,716,595
------------------------------------------------------------
9,866,027 5,154,161 17,765,072 9,793,920
------------------------------------------------------------
Loss from operations (4,765,494) (2,654,161) (5,106,223) (4,793,920)
Interest income 829,977 57,947 1,249,896 147,139
Interest expense (193,997) (229,207) (415,326) (479,164)
------------------------------------------------------------
Net loss $ (4,129,514) $ (2,825,421) $ (4,271,653) $ (5,125,945)
============================================================
Net loss per share $ (0.19) $ (0.15) $ (0.21) $ (0.27)
============================================================
Shares used in computing net loss
per share 22,268,382 19,150,695 20,717,782 19,150,695
------------------------------------------------------------
See notes to condensed financial statements.
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Millennium Pharmaceuticals, Inc.
Condensed Statements of Cash Flows (Unaudited)
SIX MONTHS ENDED JUNE 30,
1996 1995
----------------------------
CASH USED IN OPERATIONS $ (4,630,518) $ (4,771,552)
INVESTING ACTIVITIES
Purchase of property and equipment (4,476,350) (856,715)
Sale of short-term investments 20,211,766 --
Purchase of short-term investments (66,917,286) --
----------------------------
Net cash used in investing activities (51,181,870) (856,715)
FINANCING ACTIVITIES
Proceeds from sale of Preferred Stock 3,499,992 2,250,000
Proceeds from sale of Common Stock 58,268,318 2,538
Repurchase of Common Stock (829) --
Payments of long-term debt (800,000) (133,333)
Payments of capital lease obligations (937,652) (820,481)
----------------------------
Net cash provided by financing activities 60,029,829 1,298,724
----------------------------
Increase (decrease) in cash and cash equivalents 4,217,441 (4,329,543)
Cash and cash equivalents at beginning of year 10,586,260 6,105,468
----------------------------
Cash and cash equivalents at end of period $ 14,803,701 $ 1,775,925
============================
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital leases $ 1,547,540 $ 352,245
============================
Deferred compensation $ 3,187,283 --
============================
See notes to condensed financial statements.
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MILLENNIUM PHARMACEUTCALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
1 - BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Interim results for the three- and six-month periods ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the financial statements
and footnotes thereto included in the Company's Form S-1 filed on May 6, 1996.
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets to
be Disposed of." The adoption of the new standard had no effect on the financial
statements.
Effective January 1, 1996, the Company adopted SFAS No. 123 "Accounting and
Disclosure of Stock-Based Compensation." As allowed under the SFAS, the Company
has elected to continue to follow Accounting Principals Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (AFB 25) in accounting for its
employee stock options. The adoption of the standard had no effect on the
financial statements.
2 - NET LOSS PER SHARE
Net loss per share is computed using the weighted-average number of outstanding
shares of Common Stock and Common Stock Equivalents, assuming conversion of
Series A, B, C and D Convertible Preferred Stock into Common Stock (as of their
original date of issuance), which occurred upon completion of the Company's
initial public offering on May 7, 1996 and the exercise of stock options and
warrants (using the treasury stock method). Common Stock equivalents are
excluded from the computation when their effect is anti-dilutive; however,
pursuant to the requirements of the Securities and Exchange Commission, Common
Stock equivalent shares relating to stock options and warrants (using the
treasury stock method and an initial public offering price of $12.00 per share)
and Convertible Preferred Stock issued during the twelve month period prior to
the initial public offering are included for both periods presented whether or
not anti-dilutive.
3 - SHAREHOLDERS' EQUITY
In February, 1996, the Company issued 388,888 shares of Series D Convertible
Preferred Stock to a private institutional investor at $9.00 per share and
received net proceeds of approximately $3,500,000. The rights and privileges of
the Series D stock are substantially consistent with previously issued
convertible preferred stock series.
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In May 1996, the Company completed an initial public offering of 4,500,000
shares of common stock at $12.00 per share. The underwriters exercised their
over allotment option for 675,000 shares. The Company received proceeds, net of
underwriting discounts, of approximately $57,753,000. The proceeds of the
offering are being used for research and development, working capital and
general corporate purposes.
4 - SUBSEQUENT EVENT
In July 1996, the Company entered into a strategic alliance with American Home
Products Corporation (AHP) to discover and develop targets and assays to
identify and develop small molecule drugs and vaccines for treatment and
prevention of disorders of the central nervous system. The alliance becomes
effective on August 1, 1996. Payments by AHP to the Company for up-front fees
and research funding could total up to approximately $90.0 million if the
research program continues for its full seven year period and the Company
achieves specified research objectives. In the event that specified research,
product development and associated regulatory milestones are achieved, AHP will
be obligated to make milestone payments to the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Report on Form 10-Q may contain forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that may cause such a difference include, but are not limited to, the
progress of the Company's research and development programs, the Company's
ability to compete successfully, the Company's ability to attract and retain
qualified personnel, the Company's ability to enter into and maintain
collaborations with third parties, the Company's ability to enter into and
progress in clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in obtaining and enforcing patents, proprietary
rights and any necessary licenses, the ability of the Company to establish
development and commercialization capacities or relationships, the costs of
manufacturing and the Company's ability to obtain additional funds.
Overview
The Company was incorporated in January 1993 and has devoted
substantially all of its resources to the development and application of
genetics, genomics and bioinformatics technology used to identify the genes
responsible for major diseases, as well as comprehensive technologies to
elucidate the role of these genes in disease initiation and progression. To
date, all of the Company's revenue has resulted from payments from strategic
partners and the Company has not received any revenue from the sale of products
or services.
The Company has entered into several strategic alliances: in March 1994
with Hoffmann La-Roche, Inc. ("Roche") in obesity and type II diabetes; in
October 1995 and March 1996 with Eli Lilly and Company ("Lilly") in
atherosclerosis and select areas of oncology, respectively; in December 1995
with Astra AB ("Astra") in inflammatory respiratory diseases; and in July 1996
with American Home Products in certain disorders of the central nervous system.
These agreements have provided the Company with various combinations of equity
investments, up-front and follow-on fees and research funding and may provide
certain additional payments upon the attainment of research and regulatory
milestones and royalty and/or profit sharing payments based on sales of any
products resulting from the collaborations. Revenue recognized under these
collaborations through June 30, 1996 has aggregated approximately $43,502,000.
Although the Company intends to enter into additional strategic
alliances, it also expects to incur increasing expenses and additional losses
for at least the next several years, primarily due to expansion of its research
and development programs. Payments under strategic alliance and licensing
arrangements will be subject to significant fluctuation in both timing and
amounts resulting in periods of profitability and periods of losses; therefore,
the Company's results of operations for any period may not be comparable to the
results of operations for any other period.
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Results of Operations
Quarters Ended June 30, 1996 and June 30, 1995
Revenue under strategic alliances increased to $5,100,533 for the three
months ended June 30, 1996 (the "1996 Period") from $2,500,000 for the three
months ended June 30, 1995 (the "1995 Period"). The increase for the 1996 Period
was due to strategic alliance revenue from three partners - Roche, Lilly, and
Astra - compared with revenue in the 1995 Period from only Roche.
Research and Development expenses increased to $8,080,200 for the three
months ended June 30, 1996 from $4,209,979 for the three months ended June 30,
1995. The increase was primarily attributable to increased payroll and personnel
expenses as the Company hired additional research and development personnel,
increased purchase of laboratory supplies, increased equipment depreciation and
facilities expenses in connection with the expansion of the Company's research
efforts and increased costs associated with the collection of patient
information and DNA samples. The Company expects research and development
expenses to continue to increase as personnel and research and development
facilities are expanded to accommodate the Company's existing strategic
alliances. Such expenses will also increase to the extent that the Company
enters into additional strategic alliances with third parties.
General and administrative expenses increased to $1,785,827 for the
three months ended June 30, 1996 from $944,182 for the three months ended June
30, 1995. The increase was primarily attributable to increased payroll and
personnel expenses as the Company hired additional management and administrative
personnel, and professional fees in connection with the overall scale-up of the
Company's operations and business development efforts. It is anticipated that
general and administrative expenses will continue to increase as the Company
continues to expand its operations.
The Company had net interest income of $635,980 for the three months
ended June 30, 1996 and net interest expense of $171,260 for the three months
ended June 30, 1995. The transition to net interest income was due to increased
interest income earned on higher balances of cash and investment securities.
The Company has recorded a non-cash charge of approximately $3,200,000
relating to compensation expense associated with the grant of options between
January 1, 1996 and May 2, 1996 to purchase 1,174,447 shares of Common Stock.
For the three month period ended June 30, 1996 the Company recognized
approximately $195,000 of such compensation expense. The remaining deferred
compensation will be recognized ratably over the vesting period of the options,
which is generally four years.
Six Months Ended June 30, 1996 and June 30, 1995
Revenue under strategic alliances increased to $12,658,849 for the six
months ended June 30, 1996 (the "1996 Period") from $5,000,000 for the six
months ended June 30, 1995 (the "1995 Period"). The increase for the 1996 Period
was due to strategic alliance revenue from three partners - Roche, Lilly and
Astra compared with revenue in the 1995 Period from only Roche. Effective March
1996, Lilly exercised its option to enter into a strategic alliance in select
areas of
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oncology. In connection with the execution of this agreement, the Company
recognized $2,750,000 of revenue that had been previously deferred.
Research and Development expenses increased to $14,713,849 for the 1996
Period from $8,077,325 for the 1995 Period. The increase was primarily
attributable to increased payroll and personnel expenses as the Company hired
additional research and development personnel, increased purchase of laboratory
supplies, increased equipment depreciation and facilities expenses in connection
with the expansion of the Company's research efforts and increased costs
associated with the collection of patient information and DNA samples. The
Company expects research and development expenses to continue to increase as
personnel and research and development facilities are expanded to accommodate
the Company's existing strategic alliances. Such expenses will also increase to
the extent that the Company enters into additional strategic alliances with
third parties.
General and administrative expenses increased to $3,051,223 for the
1996 Period from $1,716,595 for the 1995 Period. The increase was primarily
attributable to increased payroll and personnel expenses as the Company hired
additional management and administrative personnel, and professional fees in
connection with the overall scale-up of the Company's operations and business
development efforts. It is anticipated that general and administrative expenses
will continue to increase as the Company continues to expand its operations.
The Company had net interest income of $834,570 for the 1996 Period and
net interest expense of $332,025 for the 1995 Period. The transition to net
interest income was due to increased interest income earned on higher balances
of cash and investment securities.
The Company has recorded a non-cash charge of approximately $3,200,000
relating to compensation expense associated with the grant of options between
January 1, 1996 and May 2, 1996 to purchase 1,174,447 shares of Common Stock.
For the six month period ended June 30, 1996 the Company recognized
approximately $286,000 of such compensation expense. The remaining deferred
compensation will be recognized ratably over the vesting period of the options,
which is generally four years.
Liquidity and Capital Resources
The Company has financed its operations since inception primarily
through strategic alliances, private placement of equity securities, issuance of
debt and capital leases. In May 1996, the Company completed an initial public
offering of common stock resulting in proceeds, net of underwriting discounts,
of $57,753,000. Through June 30, 1996, the Company recognized approximately
$43,502,000 of revenue under strategic alliances. The private placement of
equity securities has provided the Company with aggregate gross proceeds of
approximately $25,590,000. The Company has obtained $4,000,000 in long-term
debt, $6,888,000 in capital lease financings, and $1,100,000 to finance the
build-out of an 8,000 square foot in-house animal facility. As of June 30, 1996,
the Company had approximately $68,770,000 in cash, cash equivalents and
short-term investments.
The Company believes that existing cash and investment securities,
anticipated cash flow from its current strategic alliances, and net proceeds
from the initial public offering in May 1996 will be sufficient to support the
Company's
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operations for at least the next 24 months. The Company's actual future cash
requirements, however, will depend on many factors, including progress of its
disease research programs, the number and breadth of these programs, achievement
of milestones under strategic alliance arrangements, the ability of the Company
to establish and maintain additional strategic alliance and licensing
arrangements, and the progress of the development efforts of the Company's
strategic partners. These factors also include the level of the Company's
activities relating to commercialization rights it has retained in its strategic
alliance arrangements, competing technological and market developments, the
costs associated with the collection of patient information and DNA samples, the
costs involved in obtaining and enforcing patent claims and other intellectual
property rights, and the costs and timing of regulatory approvals. The Company
expects that it will require significant additional financing in the future,
which it may seek to raise through public or private equity offerings, debt
financings, or additional strategic alliance and licensing arrangements. No
assurance can be given that additional financing or strategic alliance and
licensing arrangements will be available when needed or that, if available, such
financing will be obtained on terms favorable to the Company or its
stockholders. The Company's forecast of the period of time through which its
financial resources will be adequate to support its operations is
forward-looking information, and, as such, actual results may vary.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The exhibits listed in the Exhibit Index are included in this report.
(b) Reports on form 8-K
None
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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.
MILLENNIUM PHARMACEUTICALS, INC.
(Registrant)
Date: August 12, 1996 By: /s/ Mark J. Levin
-----------------------------
Mark J. Levin
Chief Executive Officer
(Principal Executive Officer)
Date: August 12, 1996 By: /s/ Harry F. Arader, Jr.
-----------------------------
Harry F. Arader, Jr.
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on
Form 10-Q:
Exhibit
No. Description
- ------- -----------
10.1+ CNS Research, Collaboration and License Agreement
effective as of August 1, 1996 by and between American
Home Products Corporation and the Company.
10.2+ Bioinformatics Access and License Agreement effective
as of August 1, 1996 by and between American Home
Products Corporation and the Company.
10.3+ Transcription Profiling Technology Access and License
Agreement effective as of August 1, 1996 by and between
American Home Products Corporation and the Company.
11 Statement regarding Computation of Pro Forma Net Loss
Per Common Share.
27 Financial Data Schedule.
- --------------------
+ Confidential treatment requested as to certain portions.
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