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FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number 0-26872
GELTEX PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-3136767
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Nine Fourth Avenue
Waltham, Massachusetts 02451
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(Address of principal executive offices) (Zip Code)
781-290-5888
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(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__
The number of shares outstanding of each of the issuer's classes of common stock
as of the latest practicable date:
Class Outstanding at August 4, 1998
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Common Stock, $.01 par value 16,721,461
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GELTEX PHARMACEUTICALS, INC.
TABLE OF CONTENTS
Page No.
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PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Balance Sheets as of June 30, 1998
and December 31, 1997.................................................. 3
Condensed Statements of Operations for the three
months ended June 30, 1998 and 1997.................................... 4
Condensed Statements of Operations for the six
months ended June 30, 1998 and 1997.................................... 5
Condensed Statements of Comprehensive Loss
for the three months ended June 30, 1998 and 1997...................... 6
Condensed Statements of Comprehensive Loss
for the six months ended June 30, 1998 and 1997........................ 7
Condensed Statements of Cash Flows for the six
months ended June 30, 1998 and 1997.................................... 8
Notes to Condensed Financial Statements................................ 9
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations......................... 10
ITEM 3 Quantitative and Qualitative Disclosures
About Market Risk...................................................... 11
PART II OTHER INFORMATION
ITEM 4 Submission of Matters to a Vote of Securities Holders.................. 12
ITEM 6 Exhibits and Reports on Form 8-K....................................... 12
SIGNATURES................................................................................. 13
EXHIBIT INDEX.............................................................................. 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GELTEX PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1998 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 7,933,054 $ 26,689,190
Marketable securities............................................... 100,062,776 25,933,722
Prepaid expenses and other current assets........................... 2,504,338 1,428,793
Due from Joint Venture.............................................. 1,909,357 1,823,877
------------ ------------
Total current assets..................................................... 112,409,525 55,875,582
Long-term receivables.................................................... 28,020 27,000
Property and equipment, net.............................................. 8,090,279 7,659,328
Intangible assets, net................................................... 555,167 466,673
Investment in Joint Venture.............................................. 3,751,260 3,089,196
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$124,834,251 $ 67,117,779
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses............................... $ 1,470,206 $ 4,827,752
Current portion of long-term obligations............................ 1,501,514 1,949,053
------------ ------------
Total current liabilities................................................ 2,971,720 6,776,805
Long-term obligations, less current portion.............................. 6,822,667 6,922,666
Commitments and contingencies
Stockholders' equity:
Undesignated Preferred Stock, $.01 par value, 5,000,000
shares authorized, none issued or outstanding...................... -- --
Common Stock, $.01 par value, 50,000,000
shares authorized; 16,709,426 and 13,642,264 shares issued
and outstanding at June 30, 1998 and December 31, 1997,
respectively...................................................... 167,094 136,423
Additional paid-in capital.......................................... 186,200,162 108,658,239
Deferred compensation............................................... (965,784) (509,632)
Unrealized gain on available-for-sale securities.................... 97,222 77,402
Accumulated deficit................................................. (70,458,830) (54,944,124)
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Total stockholders' equity............................................... 115,039,864 53,418,308
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$124,834,251 $ 67,117,779
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The accompanying notes are an integral part of the financial statements.
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GELTEX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months
Ended June 30,
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1998 1997
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Revenue:
Collaborative Joint Venture project reimbursement.. $ 3,660,169 $ --
Research grant..................................... -- 24,010
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Total revenue......................................... 3,660,169 24,010
Costs and expenses:
Research and development........................... 4,206,588 6,867,969
Collaborative Joint Venture project costs.......... 3,660,169 --
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Total research and development.................. 7,866,757 6,867,969
General and administrative......................... 1,406,728 1,370,217
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Total costs and expenses.............................. 9,273,485 8,238,186
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Loss from operations.................................. (5,613,316) (8,214,176)
Interest income, net.................................. 1,023,948 834,753
Equity in net loss of Renagel Joint Venture........... (2,028,881) --
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Net loss.............................................. $(6,618,249) $(7,379,423)
=========== ===========
Basic and diluted net loss per share ................. $ (.40) $ (.54)
=========== ===========
Shares used in computing basic and diluted
net loss per share ................................ 16,700,000 13,558,000
The accompanying notes are an integral part of the financial statements
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GELTEX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months
Ended June 30,
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1998 1997
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Revenue:
Collaborative Joint Venture project reimbursement.. $ 5,198,819 $ --
Research grant..................................... -- 163,652
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Total revenue......................................... 5,198,819 163,652
Costs and expenses:
Research and development........................... 11,608,472 13,012,012
Collaborative Joint Venture project costs.......... 5,198,819 --
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Total research and development.................. 16,807,291 13,012,012
General and administrative......................... 2,573,035 2,278,964
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Total costs and expenses.............................. 19,380,326 15,290,976
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Loss from operations.................................. (14,181,507) (15,127,324)
Interest income, net.................................. 1,591,354 1,790,221
Equity in net loss of Renagel Joint Venture........... (2,924,553) --
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Net loss.............................................. $(15,514,706) $(13,337,103)
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Basic and diluted net loss per share ................. $ (.97) $ (.99)
============ ============
Shares used in computing basic and diluted
net loss per share ................................ 16,052,000 13,537,000
The accompanying notes are an integral part of the financial statements
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GELTEX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
Three Months
Ended, June 30,
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1998 1997
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Net loss.............................................. $(6,618,249) $(7,379,423)
Other Comprehensive Income (Loss):
Unrealized gain (loss) on securities held
during the period................................. 248 116,263
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Comprehensive loss................................... $(6,618,001) $(7,263,160)
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The accompanying notes are an integral part of the financial statements
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GELTEX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
Six Months
Ended June 30,
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1998 1997
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Net loss.............................................. $(15,514,706) $(13,337,103)
Other Comprehensive Income (Loss):
Unrealized gain (loss) on securities held
during the period................................. 19,820 24,481
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Comprehensive loss................................... $(15,494,886) $(13,312,622)
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The accompanying notes are an integral part of the financial statements
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GELTEX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months
Ended June 30,
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1998 1997
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OPERATING ACTIVITIES
Net loss .................................................... $ (15,514,706) $(13,337,103)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................... 606,647 861,525
Equity in net loss of Renagel Joint Venture ............. 2,924,553 --
Changes in operating assets and liabilities:
Prepaid expenses and other current assets ............. (1,075,545) 625,898
Due from Joint Venture ................................ (85,480) --
Long-term receivables ................................. (1,020) --
Accounts payable and accrued expenses ................. (3,357,556) 593,195
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Net cash used in operating activities ....................... (16,503,107) (11,256,485)
INVESTING ACTIVITIES
Purchase of marketable securities ........................... (170,620,776) (18,106,218)
Proceeds from sale and maturities of
marketable securities ..................................... 96,473,671 25,481,170
Investment in Joint Venture ................................. (3,586,755) --
Purchase of intangible assets ............................... (238,485) (89,248)
Purchase of property and equipment, net ..................... (869,408) (3,787,049)
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Net cash used in investing activities ....................... (78,841,753) 3,498,655
FINANCING ACTIVITIES
Sale of Common Stock and warrants, net of
issuance costs ............................................ 77,136,262 2,588,731
Proceeds from financing of assets ........................... -- 2,038,449
Payments on notes payable and capital lease obligations ..... (547,538) (263,866)
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Net cash provided by financing activities ................... 76,588,724 4,363,314
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Increase (decrease) in cash and cash equivalents ............ (18,756,136) (3,394,516)
Cash and cash equivalents at beginning of period ............ (26,689,190) 20,801,465
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Cash and cash equivalents at end of period .................. $ 7,933,054 $ 17,406,949
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The accompanying notes are an integral part of the financial statements.
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GELTEX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements for the three
and six months ended June 30, 1998 and 1997 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 the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the accompanying condensed financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial condition, results of operations and
cash flows for the periods presented. The results of operations for the interim
periods ended June 30, 1998 are not necessarily indicative of the results to be
expected for the year ended December 31, 1998.
These financial statements should be read in conjunction with the
audited financial statements and notes thereto for the fiscal year ended
December 31, 1997 included in the Company's Annual Report on Form 10-K (File
Number 0-26872) as filed with the Securities and Exchange Commission.
2. COMMON STOCK OFFERING
On March 24, 1998, the Company received $76 million in net proceeds
from the public sale of 3,000,000 shares of its common stock.
3. REPORTING COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130, Reporting Comprehensive Income. Statement 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net loss or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities, which prior to
adoption were reported separately in shareholders' equity to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
4. DISCLOSURE OF SEGMENT INFORMATION
As of January 1, 1998, the Company has adopted Financial Accounting
Standards Board Statement No. 131 "Disclosure About Segments of an Enterprise
and Related Information" for annual reporting purposes. Adoption of this
standard is not expected to have a material impact on the Company's annual
financial statements or results of operations.
5. DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
As of January 1, 1998, the Company has adopted Financial Accounting
Standards Board Statement No. 129, "Disclosure of Information About Capital
Structure" for annual reporting purposes. Adoption of this standard did not have
a material impact on the Company's financial statements or results of
operations.
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GELTEX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
6. SUBSEQUENT EVENT
In August 1998, the Company entered into a Purchase and Sale Agreement
to purchase for $11 million a building and land for a new facility. The
purchase, which is contingent upon the favorable outcome of certain due
diligence to be conducted by the Company throughout the month of August, is
expected to close in the fourth quarter of 1998. The Company intends to convert
the existing building located on the site into a research and development and
administrative facility. The Company expects to secure financing, either through
debt or a third party leasing arrangement, sufficient to fund the purchase price
of the property and the construction costs. Following its move into the new
facility, the Company will sublease its existing facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements regarding the
Company's future revenues, operations and expenditures. Such forward-looking
statements reflect management's current expectations, and the actual results
could differ materially from those projections due to a number of factors
including (i) content and timing of decisions to be made by the U.S. Food and
Drug Administration regarding the Company's New Drug Application for Renagel(R)
phosphate binder, (ii) the Company's ability to successfully conduct and
complete Phase III clinical trials for CholestaGel(R) cholesterol reducer, (iii)
results of research and pre-clinical development being conducted in the areas of
infectious diseases and anti-obesity, and (iv) the risks and uncertainties
described under the heading "Factors Affecting Future Operating Results" in the
section entitled Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's Annual Report.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
The Company earned revenues of $3.7 million during the three months
ended June 30, 1998 compared with $24,000 earned during the three months ended
June 30, 1997. During the six months ended June 30, 1998, revenues earned were
$5.2 million compared with $163,000 earned during the six months ended June 30,
1997. Under the terms of the Collaboration Agreement the Company has entered
into with Genzyme Corporation for the final development and commercialization of
Renagel(R) phosphate binder (the "Joint Venture"), the Company and Genzyme
Corporation are each expected to fund the Joint Venture in an amount equal to
50% of the budgeted costs and expenses of the project for the relevant period.
Each party that incurs project expenses, either as internal operating costs or
as third party obligations, will be reimbursed by the Joint Venture for 100% of
the costs incurred. All revenue earned in 1998 represents reimbursement from the
Joint Venture for certain Renagel(R) phosphate binder development costs incurred
by the Company. The amount of reimbursement revenue earned by the Company will
vary according to the obligations of, and related expenses incurred by the
Company, and is expected to decrease in the future as the Company completes the
development of Renagel(R) phosphate binder. In the three and six month periods
ended June 30, 1997, the Company earned $24,000 and $163,000, respectively,
under the Company's $2.0 million grant from the United States Department of
Commerce's Advanced Technology Program. This grant concluded on January 31,
1998.
The Company's total operating expenses for the three months ended June
30, 1998 increased $1.1 million to $9.3 million from $8.2 million during the
same period in 1997. The Company's total operating expenses were $19.4 million
and $15.3 million for the six months ended June 30, 1998 and 1997, respectively.
Research and development expenses increased $1.0 million to $7.9 million for the
three months ended June 30, 1998 from $6.9 million for the three months ended
June 30, 1997. Research and development expenses were $16.8 million and $13.0
million for the six months ended June 30, 1998 and 1997, respectively. Increased
research and development expenses incurred in both the three and six month
periods were due primarily to increased clinical trial and process development
costs associated with the development of CholestaGel(R) non-absorbed cholesterol
reducer and manufacturing costs for Renagel(R) phosphate binder as
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well as increased internal expenses associated with new research and development
programs. The Company expects its research and development expenses to continue
to increase in connection with the ongoing Phase III clinical trials for
ChoelstaGel, the continuing development of processes for the manufacture of
commercial quantities of CholestaGel and the expansion of the anti-obesity,
infectious disease and other research and development programs. General and
administrative expenses remained constant at approximately $1.4 million during
the three month periods ended June, 30, 1998 and June 30, 1997. During the six
month period ended June 30, 1998 general and administrative expenses increased
to $2.6 million from $2.3 million during the same period in 1997. The increase
was due primarily to increased business development expenses and increased
administrative personnel costs.
The Company's equity in the loss of the Joint Venture with Genzyme
Corporation was $2.0 million and $2.9 million for the three and six month
periods ended June 30, 1998, respectively. This amount represents the Company's
portion of the Joint Venture's loss for that period. There were no corresponding
amounts in 1997. The Company expects that the Joint Venture will continue to
operate at a loss at least into 1999, and that the losses associated with the
Company's interest in the Joint Venture will increase during the period leading
to and throughout the market introduction of Renagel phosphate binder.
Net interest income increased to $1.0 million for the three months
ended June 30, 1998 from $835,000 for the three months ended June 30, 1997 due
primarily to increases in cash balances available for investment due to the
Company's public offering of common stock in March, 1998. Net interest income
decreased to $1.6 million for the six months ended June 30, 1998 from $1.8
million for the six months ended June 30, 1997 due primarily to net lower
average cash balances during part of the six month period in 1998.
.
LIQUIDITY AND CAPITAL RESOURCES
On March 24, 1998, the Company received $76 million in net proceeds
from a public offering of 3,000,000 shares of its common stock. As of June 30,
1998, the Company had $108 million in cash, cash equivalents and marketable
securities as compared to $53 million at December 31, 1997.
In August 1998, the Company entered into a Purchase and Sale Agreement
to purchase for $11 million a building and land for a new facility. The
purchase, which is contingent upon the favorable outcome of certain due
diligence to be conducted by the Company throughout the month of August, is
expected to close in the fourth quarter of 1998. The Company intends to convert
the existing building located on the site into a research and development and
administrative facility. The Company expects to secure financing, either through
debt or a third party leasing arrangement, sufficient to fund the purchase price
of the property and the construction costs. Following its move into the new
facility, the Company will sublease its existing facility.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1998 Annual Meeting of Stockholders was held May 27,
1998. The following is a description of the two matters submitted to a vote of
the stockholders at such meeting and the results of voting.
(i) At the meeting two directors were elected to serve on the
Company's Board of Directors for a three year term expiring in
the year 2001.
Number of Shares Number of Votes
Director Elected Voted For Withheld
---------------- ---------------- ---------------
Henri A. Termeer 11,744,347 342,885
Jesse Treu 11,756,048 331,184
There were no broker non-votes or absentions with respect to
this matter.
(ii) The stockholders also approved an amendment to the Company's 1992
Equity Incentive Plan to increase the number of shares of Common
Stock reserved for issuance under such plan from 2,000,000 to
2,750,000.
Number of Shares Voted For: 11,783,098
Number of Shares Voted Against: 266,664
Number of Shares Abstained: 37,470
There were no broker non-votes with respect to this matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See the Exhibit Index on page 14 hereto.
(b) Reports on Form 8-K.
None.
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GELTEX PHARMACEUTICALS, INC.
FORM 10-Q
JUNE 30, 1998
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GELTEX PHARMACEUTICALS, INC.
DATE: August 13, 1998 BY: /s/ Paul J. Mellett, Jr.
-----------------------------------
Paul J. Mellett, Jr.
Duly Authorized Officer and
Principal Financial Officer
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EXHIBIT INDEX
Exhibit Number Description
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4.1 Amended and Restated Facility One
Term Note issued to Fleet National
Bank dated as of May 21, 1997
4.2 Second Loan Modification Agreement
between the Company and Fleet
National Bank dated as of June 30,
1998
10.1# Amended and Restated 1992 Equity
Incentive Plan
10.2# Amended and Restated 1995 Director
Stock Option Plan
10.3# Promissory Note in favor of the
Company executed by Edmund J.
Sybertz on
June 30, 1998
10.4* Manufacturing and Supply Agreement
(United States) between Renagel LLC
and Circa Pharmaceuticals, Inc. dated
as of July 31, 1998
10.5 Purchase and Sale Agreement between
Sodexho USA, Inc. and Service Supply
Corporation and the Company dated as
of August 4, 1998
27 Financial Data Schedule
# Identifies a management contract or compensatory plan or
arrangement in which an executive officer or director of the
Company participates
* Certain confidential material contained in Exhibit 10.4 has
been omitted and filed separately with the Securities and
Exchange Commission.
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