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 QUARTERLY PERIOD ENDED SEPTEMBER 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 X No
--- ---
Number of shares of Common Stock outstanding as of October 25, 1996 was
23,857,852.
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MILLENNIUM PHARMACEUTICALS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
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PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Condensed Balance Sheets
September 30, 1996 and December 31, 1995 4
Condensed Statements of Operations
for the nine months ended
September 30, 1996 and 1995 5
Condensed Statements of Cash Flows
for the nine months ended
September 30, 1996 and 1995 6
Notes to Condensed Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION 13
ITEM 1. LEGAL PROCEEDINGS 13
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ITEM 2. CHANGES IN SECURITIES 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 13
SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
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PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS.
Millennium Pharmaceuticals, Inc.
Condensed Balance Sheets
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------------------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 16,881,412 $10,586,260
Short-term investments 48,997,120 7,260,284
Prepaid expenses and other current assets 2,430,026 694,763
-----------------------------
Total current assets 68,308,558 18,541,307
Property and equipment, net 11,327,779 4,905,528
Due from strategic partner 1,673,336 1,463,333
Deposits and other assets 472,660 194,682
-----------------------------
$ 81,782,333 $25,104,850
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,532,392 $ 1,122,446
Accrued expenses 1,091,721 567,611
Deferred revenue 2,849,183 3,110,000
Current portion of long-term debt 1,600,000 1,600,000
Current portion of capital lease obligations 2,028,625 1,643,168
-----------------------------
Total current liabilities 9,101,921 8,043,225
Long-term debt, net 266,667 1,466,667
Capital lease obligations, net 2,590,188 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: 100,000,000 shares authorized;
23,855,832 shares in 1996 and 4,211,926 shares in 1995 issued and
outstanding 23,856 4,212
Additional paid-in capital 87,771,403 22,722,267
Deferred compensation (2,985,801) --
Notes receivable from officers (290,285) (266,681)
Unrealized gain/loss on securities (324,011) --
Accumulated deficit (14,371,605) (9,375,711)
-----------------------------
Total stockholders' equity 69,823,557 13,095,870
-----------------------------
Total liabilities and stockholders' equity $ 81,782,333 $25,104,850
=============================
<FN>
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
--------------------------------------------------------------
Revenue under strategic alliances $ 9,581,533 $ 3,000,000 $22,240,382 $ 8,000,000
Costs and expenses:
Research and development 9,258,582 4,525,706 23,972,431 12,603,031
General and administrative 2,091,737 740,142 5,142,960 2,456,737
--------------------------------------------------------------
11,350,319 5,265,848 29,115,391 15,059,768
--------------------------------------------------------------
Loss from operations (1,768,786) (2,265,848) (6,875,009) (7,059,768)
Interest income 1,253,726 28,788 2,503,622 175,927
Interest expense (209,181) (159,294) (624,507) (638,458)
--------------------------------------------------------------
Net loss $ (724,241) $(2,396,354) $(4,995,894) $(7,522,299)
==============================================================
Net loss per share $ (0.03) $ (0.13) $ (0.23) $ (0.39)
==============================================================
Shares used in computing net loss
per share 23,837,703 19,150,695 21,749,426 19,150,695
==============================================================
See notes to condensed financial statements.
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Millennium Pharmaceuticals, Inc.
Condensed Statements of Cash Flows (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
-------------------------------
CASH USED IN OPERATIONS $ (4,039,826) $(3,333,562)
INVESTING ACTIVITIES
Purchase of property and equipment (6,783,459) (699,556)
Sale of short-term investments 35,313,064 --
Purchase of short-term investments (77,049,900) --
----------------------------
Net cash used in investing activities (48,520,295) (699,556)
FINANCING ACTIVITIES
Proceeds from sale of Preferred Stock 3,499,992 2,250,000
Proceeds from sale of Common Stock 58,031,662 15,659
Repurchase of Common Stock (1,858) --
Payments of long-term debt (1,200,000) (298,599)
Payments of capital lease obligations (1,474,523) (1,144,955)
----------------------------
Net cash provided by financing activities 58,855,273 822,105
----------------------------
Increase (decrease) in cash and cash equivalents 6,295,152 (3,211,013)
Cash and cash equivalents at beginning of period 10,586,260 6,105,468
----------------------------
Cash and cash equivalents at end of period $ 16,881,412 $ 2,894,455
============================
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital leases $ 1,951,080 $ 1,452,944
============================
Deferred compensation $ 3,487,283 --
============================
See notes to condensed financial statements.
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MILLENNIUM PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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 nine-month period ended September 30, 1996 are
not 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 Principles 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, reflecting the
conversion of Series A, B, C and D Convertible Preferred Stock into Common Stock
(as of their original date of issuance), which occurred upon the closing 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
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offering are included for all periods prior to and including the date of the
initial public offering whether or not anti-dilutive.
3 - LEASES
In September 1996, the Company executed a $7,000,000 equipment lease line.
The lease has a 60-month term. At the end of such term the Company has the right
to purchase the equipment at fair market value; PROVIDED, HOWEVER, that in no
event shall the purchase price be less than 10% of the original cost. The lease
will be accounted for as a capital lease. In October 1996, the Company drew down
approximately $5,000,000 on this line.
4 - STOCKHOLDERS' 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.
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 and commissions, of approximately $57,753,000. The
proceeds of the offering are being used for research and development, working
capital and general corporate purposes.
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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 ("AHP") 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 September 30, 1996 has aggregated approximately
$53,084,000.
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 September 30, 1996 and September 30, 1995
--------------------------------------------------------
Revenue under strategic alliances increased to $9,581,533 for the three
months ended September 30, 1996 (the "1996 Period") from $3,000,000 for the
three months ended September 30, 1995 (the "1995 Period"). The increase for the
1996 Period was due to strategic alliance revenue from four partners -- Roche,
Lilly, Astra, and AHP -compared with revenue in the 1995 Period from only Roche.
The 1996 Period included an up-front license fee from AHP and a research
milestone payment from Roche.
Research and Development expenses increased to $9,258,582 for the three
months ended September 30, 1996 from $4,525,706 for the three months ended
September 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 $2,091,737 for the three
months ended September 30, 1996 from $740,142 for the three months ended
September 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 $1,044,545 for the three months
ended September 30, 1996 and net interest expenses of $130,506 for the three
months ended September 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 non-cash deferred compensation aggregating
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 September 30, 1996 the
Company recognized approximately $198,000 of such compensation expense. The
remaining deferred compensation will be recognized ratably over the vesting
period of the options, which is generally four years.
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Nine Months Ended September 30, 1996 and September 30, 1995
-----------------------------------------------------------
Revenue under strategic alliances increased to $22,240,382 for the nine
months ended September 30, 1996 (the "1996 Period") from $8,000,000 for the nine
months ended September 30, 1995 (the "1995 Period"). The increase for the 1996
Period was due to strategic alliance revenue from four partners -- Roche, Lilly,
Astra, and AHP--compared with revenue in the 1995 Period from only Roche. The
1996 Period also included an up-front license fee from AHP and a research
milestone payment from Roche. Effective March 1996, Lilly exercised its option
to enter into a strategic alliance in select areas of 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 $23,972,431 for the 1996
Period from $12,603,031 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 $5,142,960 for the 1996
Period from $2,456,737 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 $1,879,115 for the 1996 Period and
net interest expense of $462,531 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 non-cash deferred compensation aggregating
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 nine-month period ended September 30, 1996 the
Company recognized approximately $484,000 of such compensation expense. The
remaining deferred compensation will be recognized ratably over the vesting
period of the options, which is generally four years.
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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 September 30, 1996, the Company recognized approximately
$53,084,000 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, $7,000,000 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 September 30,
1996, the Company had approximately $65,879,000 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 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 arrangement, 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
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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: November 8, 1996 By: /s/ Mark J. Levin
-- --------------------------
Mark J. Levin
Chief Executive Officer
(Principal Executive Officer)
Date: November 8, 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
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The following exhibits are filed as part of this Quarterly Report on Form
10-Q:
Exhibit
No. Description
------- -----------
10.1 Lease Agreement dated October 26, 1996 by and between the
Company and Fort Washington Limited Partnership.
10.2 Form of Master Equipment Lease Financing Agreement, as
amended, dated September 19, 1996 by and between the
Company and GE Capital Corporation.
11 Statement regarding Computation of Pro Forma Net Loss Per
Common Share.
27 Financial Data Schedule.
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