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FORM 10-Q/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] 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: 0-19825
SCICLONE PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3116852
(State or other jurisdiction of incorporation or organization) (I.R.S. employer
identification no.)
901 MARINERS ISLAND BLVD., SUITE 205, SAN MATEO, CALIFORNIA 94404
(Address of principal executive offices) (Zip code)
(650) 358-3456
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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
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As of November 13, 1998, 20,199,471 shares of the registrant's Common
Stock, no par value, were issued and outstanding.
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associated with depreciation and amortization, decreases in prepayments of
certain future periods expenses, and increases in amounts owed to third parties
for clinical trials.
Net cash provided by investing activities amounted to approximately
$4,499,000 for the nine-month period ended September 30, 1998 related to the net
sale of approximately $4,576,000 of marketable securities offset by the purchase
of approximately $77,000 in equipment and furniture. Net cash provided by
investing activities amounted to approximately $18,143,000 for the nine-month
period ended September 30, 1997 related to the net sale of approximately
$18,347,000 of marketable securities offset by the purchase of $203,000 in
equipment and furniture.
Net cash provided by financing activities for the nine-month period ending
September 30, 1998 amounted to approximately $6,006,000, consisting of the
following: a partial repayment of $750,000 on a note receivable from the
Company's President and Chief Executive Officer; approximately $3,957,000 in net
proceeds received from the issuance of Series C preferred stock and warrants;
approximately $342,000 in deemed net proceeds from the issuance of warrants
under the Company's equity line; $735,000 in deemed net proceeds from the
issuance of warrants under the Sclavo agreement; and $222,000 in net proceeds
from issuance of common stock under the Company's stock option plan and employee
stock purchase plan. Net cash provided by financing activities for the
nine-month period ending September 30, 1997 primarily consisted of approximately
$1,099,000 in proceeds received from the issuance of common stock from the
exercise of outstanding warrants and under the Company's stock option plan,
offset by repurchases of the Company's common stock under the Company's approved
stock repurchase plan of approximately $4,267,000 and amounts loaned to Mr.
Thomas E. Moore, a former officer, of approximately $5,944,000. In July 1997,
the Company loaned Thomas E. Moore, former Chairman, Chief Executive Officer and
one of the founders of the Company, $5,944,000 secured by approximately 1.9
million shares of SciClone common stock owned by Mr. Moore. In connection with
this transaction, Mr. Moore resigned from the Company. The loan carries interest
at 7% and is payable on demand. During the period Mr. Moore's loan is
outstanding and immediately prior to the closing of any offering of the
Company's common stock, the Company may convert the loan in a non-cash exchange
into Mr. Moore's SciClone common stock by retiring his common stock at a fixed
discount rate from the offering price. To date, the Company has not retired any
of Mr. Moore's SciClone common stock. This loan has been classified as an offset
to shareholders' equity. Because the market value of this underlying collateral
is currently below the face value of the note, there is the potential that if
this value is viewed as more than temporary, the book value of the note would
have to be written down through a non-cash charge to operations to the
underlying value of the collateral. As of September 30, 1998, the underlying
value of the collateral was approximately $3,407,000, resulting in a potential
impairment of approximately $2,537,000. Under all circumstances, including any
potential impairment, Mr. Moore is obligated to repay the entire balance of the
loan plus accrued interest. The Company is monitoring this matter and will
review it thoroughly as of the fiscal year-end and may be required to make such
an adjustment for the quarter ended December 31, 1998.
Management believes its existing capital resources and interest on funds
available are adequate to maintain its current and planned operations at least
through June 1999.* In April 1998, the Company concluded an offering of Series C
preferred stock with net proceeds of $3,712,000. In June 1998, the Company
entered into an agreement with an institutional investor for an equity line,
which allows the Company to access up to $32 million through sales of its common
stock over a two-year period, subject to certain limitations, including
registration of the investor's resale of the shares, minimum trading price per
share, volume limitations and limitations on the number of shares of the
Company's common stock the investor may hold at any point in time. Unless the
Company and the investor agree otherwise, the facility is not available when the
Company's stock is
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Uncertainty of Third Party Reimbursement; Resources of Patient Populations.
The Company's ability to successfully commercialize its products may depend in
part on the extent to which reimbursement for the cost of such products will be
available from government health administration authorities, private health
insurers and other organizations. Significant uncertainty exists as to the
reimbursement status of new therapeutic products and there can be no assurance
that third party reimbursement will be available for therapeutic products the
Company might develop. In many of the foreign countries in which the Company
intends to operate, reimbursement of ZADAXIN under government or private health
insurance programs will not be available. In the U.S., health care reform is an
area of increasing national attention and a priority of many governmental
officials. Certain reform proposals, if adopted, could impose limitations on the
prices the Company will be able to charge in the U.S. for its products or the
amount of reimbursement for the Company's products from governmental agencies or
third party payors. In many countries where the Company has marketing rights for
ZADAXIN, government resources and per capita income levels may be so low that
the Company's products will be prohibitively expensive for a large percentage of
the population. In such countries, there can be no assurance that the Company
will be successful in marketing its products on economically favorable terms, if
at all.
Dependence on Qualified Personnel and Key Individuals. Because of the
specialized scientific and international nature of the Company's business, the
Company is highly dependent upon its ability to continue to attract and retain
qualified management, scientific and technical personnel. There is intense
competition for qualified personnel in the areas of the Company's activities,
and there can be no assurance that the Company will be able to continue to
attract and retain the qualified personnel necessary for the development of its
business. In addition, many key responsibilities within the Company have been
assigned to a relatively small number of individuals. Loss of the services of
any of these individuals unless they were promptly replaced could be
significantly detrimental to the Company's development. The Company does not
maintain key person life insurance on the lives of any of its key personnel.
Product Liability; Absence of Insurance. The Company's business will expose
it to potential product liability risks which are inherent in the testing,
manufacturing, marketing and sale of pharmaceutical products, and there can be
no assurance that product liability claims will not be asserted against the
Company. Product liability insurance for the pharmaceutical industry
generally is expensive to the extent that it is available at all. The Company
has product liability insurance coverage for clinical trials and commercial
sales. However, there can be no assurance that a product liability claim would
not adversely affect the business or financial condition of the Company.
Preferred Stock. The Company's Board of Directors has the authority to
issue additional series of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, without any
further vote or action by the Company's shareholders. The rights of the holders
of the Common Stock will be subject to, and may be adversely affected by, the
rights of the holders of any Preferred Stock that may be issued in the future.
The issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCICLONE PHARMACEUTICALS, INC.
(Registrant)
Date: November 18, 1998 /s/ Donald R. Sellers
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Donald R. Sellers
Chief Executive Officer
(Principal Executive Officer)
Date: November 18, 1998 /s/ Diane Lee
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Diane Lee
Director, Corporate Finance and
Administration
(Principal Financial & Accounting Officer)
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