UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1999.
____ 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
0-27410
INTERCARDIA, INC.
-----------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 56-1924222
-------- ----------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
P.O. Box 14287
3200 East Highway 54
Cape Fear Building, Suite 300
Research Triangle Park, NC 27709
- ----------------------------- -----------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code 919-558-8688
-----------------------------
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 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of April 27, 1999
-------------- --------------------------------
Common Stock, par value $.001 7,341,503 Shares
INTERCARDIA, INC.
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 (unaudited )
and September 30, 1998................ . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Operations for the Three Months and Six
Months ended March 31, 1999 and 1998 (unaudited) . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows for the Six Months ended
March 31, 1999 and 1998 (unaudited) . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . .6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . .8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 15
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
INTERCARDIA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
March 31, September 30,
1999 1998
-------------- ---------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,589 $ 10,647
Marketable securities 6,160 9,314
Accounts receivable 35 1,096
Prepaids and other current assets 123 117
-------------- ---------------
Total current assets 12,907 21,174
Marketable securities -- 3,601
Property and equipment, net 2,864 2,976
Other assets 83 85
============== ===============
$ 15,854 $ 27,836
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,301 $ 752
Accrued expenses 2,290 3,191
Current portion of capital lease obligations 394 565
Current portion of notes payable 210 194
Accounts payable to Interneuron 1,964 1,865
-------------- ---------------
Total current liabilities 6,159 6,567
Long-term portion of capital lease obligations 823 816
Long-term portion of notes payable 668 777
Stockholders' equity:
Common stock, $.001 par value per share, 40,000,000 shares
authorized, 7,341,340 and 7,289,153 shares issued and
outstanding at March 31, 1999 and September 30, 1998,
respectively 7 7
Additional paid-in capital 78,808 78,399
Deferred compensation (670) (1,086)
Accumulated deficit (69,941) (57,644)
-------------- ---------------
Total stockholders' equity 8,204 19,676
-------------- ---------------
$ 15,854 $ 27,836
============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
3
INTERCARDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ----------- ------------
Revenue:
Contract and license fee revenue $ 209 $ 551 $ 400 $ 1,085
------------ ------------ ----------- ------------
Costs and expenses:
Research and development 5,602 3,480 11,420 6,136
General and administrative 842 1,151 1,489 2,156
------------ ------------ ----------- ------------
Total costs and expenses 6,444 4,631 12,909 8,292
------------ ------------ ----------- ------------
Loss from operations (6,235) (4,080) (12,509) (7,207)
Investment income (expense), net 59 (86) 212 55
------------ ------------ ----------- ------------
Net loss $(6,176) $(4,166) $(12,297) $(7,152)
============ ============ =========== ============
Net loss per common share:
Basic $ (0.85) $ (0.59) $ (1.68) $ (1.02)
============ ============ =========== ============
Diluted $ (0.85) $ (0.59) $ (1.68) $ (1.02)
============ ============ =========== ============
Weighted average common shares
outstanding 7,306 7,004 7,301 7,001
============ ============ =========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
INTERCARDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
March 31,
--------------------------
1999 1998
----------- ------------
Cash flows from operating activities:
Net loss $(12,297) $(7,152)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 390 549
Noncash compensation 659 400
Interest expense on notes payable to Interneuron --- 672
Change in assets and liabilities:
Accounts receivable 1,061 (359)
Prepaids and other assets (5) (161)
Accounts payable and accrued expenses (351) (8,007)
Deferred revenue --- (334)
----------- ------------
Net cash used in operating activities (10,543) (14,392)
----------- ------------
Cash flows from investing activities:
Proceeds from sales and maturities of marketable securities 7,799 15,062
Purchases of marketable securities (1,044) (12,782)
Purchases of property and equipment (278) (1,081)
----------- ------------
Net cash provided by investing activities 6,477 1,199
----------- ------------
Cash flows from financing activities:
Net proceeds from issuance of stock 166 174
Advances from Interneuron, net 98 3,671
Principal payments on notes payable (93) (33)
Principal payments on capital lease obligations (163) (316)
----------- ------------
Net cash provided by financing activities 8 3,496
----------- ------------
Net decrease in cash and cash equivalents (4,058) (9,697)
Cash and cash equivalents at beginning of period 10,647 18,186
=========== ============
Cash and cash equivalents at end of period $ 6,589 $ 8,489
=========== ============
The accompanying notes are integral part of these consolidated financial
statements.
5
INTERCARDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
---------------------
The "Company" refers collectively to Intercardia, Inc. ("Intercardia")
and its majority-owned subsidiaries, CPEC, Inc., a Nevada corporation ("CPEC"),
Aeolus Pharmaceuticals, Inc., a Delaware corporation ("Aeolus"), and Renaissance
Cell Technologies, Inc., a Delaware corporation ("Renaissance"). As of March 31,
1999, Intercardia owned 80.1% of the outstanding stock of CPEC, 65.8% of the
outstanding stock of Aeolus and 79.6% of the outstanding stock of Renaissance.
Intercardia is a majority-owned subsidiary of Interneuron Pharmaceuticals, Inc.
("Interneuron"). As of March 31, 1999, Interneuron owned 61.4% of the
outstanding capital stock of Intercardia and the 19.9% of the outstanding stock
of CPEC not owned by Intercardia.
All significant intercompany activity has been eliminated in the
preparation of the consolidated financial statements. The consolidated financial
statements included herein have been prepared by the Company without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the consolidated
financial position, results of operations and cash flows of the Company. The
consolidated balance sheet at September 30, 1998 was derived from the Company's
audited financial statements included in the Company's Annual Report on Form
10-K. The unaudited consolidated financial statements included herein should be
read in conjunction with the audited consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998 and in the Company's other SEC filings.
Results for the interim period are not necessarily indicative of the results for
any other interim period or for the full fiscal year. The Company's financial
statements for the three months and six months ended March 31, 1998 have been
restated to reflect the merger (the "Transcell Merger") of Transcell
Technologies, Inc. ("Transcell") and the Company in May 1998. The former
Transcell operation, which is now a division of Intercardia, is referred to as
Intercardia Research Laboratories ("IRL").
The Company focuses on development of therapeutics for the treatment of
cardiovascular, infectious and other diseases. The Company's most advanced
product is BEXTRA(R), a compound currently in Phase III clinical trials for the
treatment of congestive heart failure ("CHF"). The Company's other programs are
in earlier stages of development.
6
B. Recent Accounting Pronouncements
--------------------------------
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," effective October
1, 1998. The Company had no items of comprehensive income for the three months
and six months ended March 31, 1999 and 1998.
The Company will adopt SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," for the fiscal year ending September 30,
1999. SFAS No. 131 specifies revised guidelines for determining an entity's
operating segments and the type and level of financial information to be
disclosed. Management believes its current disclosures will not be materially
affected by the adoption of SFAS No. 131.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations.
---------------
Introduction
- ------------
This Report contains, in addition to historical information, statements
by the Company with respect to expectations about its business and future
financial results, which are "forward-looking" statements under the Private
Securities Litigation Reform Act of 1995. These statements and other statements
made elsewhere by the Company or its representatives, which are identified or
qualified by words such as "likely," "will," "suggests," "expects," "may,"
"believe," "could," "should," "would," "anticipates" or "plans," or similar
expressions, are based on a number of assumptions that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated or suggested due to a number of factors, including those set forth
herein, those set forth in the Company's Annual Report on Form 10-K and in the
Company's other SEC filings, and including, risks relating to the need for
additional funds, dependence on collaborative partners, dependence on one
product, competition, the early stage of products under development,
uncertainties related to clinical trials and regulatory reviews. All
forward-looking statements are based on information available as of the date
hereof, and the Company does not assume any obligation to update such
forward-looking statements.
The Company focuses on development of therapeutics for the treatment of
cardiovascular, infectious and other diseases. The Company's most advanced
product is BEXTRA, a compound currently in Phase III clinical trials for the
treatment of congestive heart failure. The Company's other programs are in
earlier stages of development.
As a result of the Transcell Merger in May 1998, the Company's
financial statements for the three months and six months ended March 31, 1998
have been restated to include the results of operations of Transcell.
Results of Operations
- ---------------------
The Company incurred net losses of $6,176,000 and $12,297,000 for the
three and six months ended March 31, 1999, respectively, versus net losses of
$4,166,000 and $7,152,000 for the three and six months ended March 31, 1998,
respectively.
Contract and license fee revenue decreased by $342,000 (62%) to $209,000
for the three months ended March 31, 1999 from $551,000 for the three months
ended March 31, 1998. Contract and license fee revenue decreased by $685,000
(63%) to $400,000 for the six months ended March 31, 1999 from $1,085,000 for
the six months ended March 31, 1998. These decreases were due primarily to the
termination in September 1998 of a collaboration between the Company and Astra
Merck Inc. ("Astra Merck") for the U.S. development and commercialization of
bucindolol (the "Astra Merck Collaboration"). Contract and license fee revenue
of $209,000 and $400,000 for the three months and six months ended March 31,
1999, respectively, consisted primarily of contract revenue payments from Merck
& Co., Inc. ("Merck") pursuant to a collaboration between Intercardia and Merck
related to the carbohydrate
8
combinatorial chemistry technology of IRL (the "Merck Collaboration"). Contract
and license fee revenue of $551,000 and $1,085,000 for the three months and six
months ended March 31, 1998, respectively, consisted primarily of contract
revenue payments received from both the Merck Collaboration and the Astra Merck
Collaboration.
Research and development ("R&D") expenses increased by $2,122,000 (61%)
to $5,602,000 for the three months ended March 31, 1999 from $3,480,000 for the
three months ended March 31, 1998. R&D expenses increased by $5,284,000 (86%) to
$11,420,000 for the six months ended March 31, 1999 from $6,136,000 for the six
months ended March 31, 1998.
Bucindolol and general R&D expenses increased by $1,671,000 (172%) to
$2,641,000 for the three months ended March 31, 1999 from $970,000 for the three
months ended March 31, 1998. Bucindolol and general R&D expenses increased by
$3,598,000 (220%) to $5,232,000 for the six months ended March 31, 1999 from
$1,634,000 for the six months ended March 31, 1998. These increases were
primarily due to increases in the Company's share of bucindolol clinical trial
costs associated with the Bucindolol Evaluation after Acute myocardial
infarction Trial ("BEAT") in Europe and the Beta-blocker Evaluation of Survival
Trial ("BEST") in the United States. In June 1998, BASF Pharma/Knoll AG
("Knoll"), the Company's international partner for BEXTRA, initiated BEAT in
Denmark and the United Kingdom. Although BEST commenced in June 1995, the
Company's share of costs for BEST for the three months and six months ended
March 31, 1999 increased significantly over the prior fiscal year due to the
termination of the Astra Merck Collaboration in September 1998, as Astra Merck
had assumed approximately $2,094,000 and $3,313,000 of BEST and U.S. bucindolol
development costs for the three months and six months ended March 31, 1998,
respectively.
IRL R&D expenses increased by $449,000 (27%) to $2,143,000 for the
three months ended March 31, 1999 from $1,694,000 for the three months ended
March 31, 1998. IRL R&D expenses increased by $1,580,000 (52%) to $4,615,000 for
the six months ended March 31, 1999 from $3,035,000 for the six months ended
March 31, 1998. In March 1999, the Company reduced its headcount at IRL from 32
employees to 14 employees(11 of whom are scientists). This reduction in force
was done as part of a refocus of IRL's research programs to concentrate on
projects with lead compounds. For the three months and six months ended March
31, 1999, the Company incurred a charge of $180,000 for related severance costs.
Other increases in R&D expenses were due to increases in research support and
license fees paid to Princeton University, patent fees and noncash compensation
to consultants.
Aeolus R&D expenses increased by $28,000 (4%) to $668,000 for the three
months ended March 31, 1999 from $640,000 for the three months ended March 31,
1998. Aeolus R&D expenses increased by $93,000 (8%) to $1,244,000 for the six
months ended March 31, 1999 from $1,151,000 for the six months ended March 31,
1998. These increases were primarily due to increases in sponsored research
expenses.
9
Renaissance R&D expenses for its liver stem cell program decreased by
$26,000 (15%) to $150,000 for the three months ended March 31, 1999 from
$176,000 for the three months ended March 31, 1998. Renaissance R&D expenses
increased by $13,000 (4%) to $329,000 for the six months ended March 31, 1999
from $316,000 for the six months ended March 31, 1998.
General and administrative ("G&A") expenses decreased by $309,000 (27%)
to $842,000 for the three months ended March 31, 1999 from $1,151,000 for the
three months ended March 31, 1998. G&A expenses decreased by $667,000 (31%) to
$1,489,000 for the six months ended March 31, 1999 from $2,156,000 for the six
months ended March 31, 1998. These decreases were primarily due to the
elimination of certain IRL administrative personnel and functions after the
Transcell Merger.
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1999, the Company had cash, cash equivalents and
marketable securities of $12,749,000, which was $10,813,000 less than the
balance at September 30, 1998. This decrease was primarily due to the funding of
the Company's operations for the six-month period ended March 31, 1999. The
Company believes it has sufficient cash for planned expenditures through the
fiscal year ending September 30, 1999, without raising additional capital.
However, the Company's capital requirements may change due to numerous factors,
including the progress of the Company's research and development programs, the
terms of collaborative arrangements and other factors, many of which are beyond
the Company's control.
Following termination of the Astra Merck Collaboration in September
1998, the Company has been responsible for 100% of U.S. bucindolol development
and marketing costs and, accordingly, the Company is refocusing and prioritizing
its research and development programs in view of its limited cash resources.
Astra Merck had funded approximately $17,000,000 of U.S. bucindolol development
costs during the period of the Astra Merck Collaboration (December 1995 through
September 1998). The Company estimates that it could incur additional costs of
up to $3,000,000 during the remainder of fiscal 1999 for the development of
bucindolol in the United States, primarily to support BEST. The Company is
discussing opportunities to share bucindolol development and marketing
responsibilities and costs in the United States with other potential partners.
The Company can not predict whether any collaborative arrangement can be
obtained on terms that are satisfactory to the Company. If a collaborative
partner funds a portion of bucindolol expenses, the Company's share of revenues
or profits, if any, from bucindolol will be reduced.
Pursuant to a collaboration with Knoll (the "Knoll Collaboration") for
the development, manufacturing and marketing of bucindolol in countries other
than the United States and Japan (the "Knoll Territory"), the Company is
responsible for approximately 40% of the development and marketing costs of
bucindolol for the Knoll Territory, subject to certain maximum dollar
limitations. As of March 31, 1999, the remaining portion of the Company's
payment obligations for development and clinical trial costs of the twice-daily
formulation of bucindolol for the Knoll Territory is estimated to be
approximately $9,000,000. Of this amount, $1,500,000 has been accrued at March
31, 1999, approximately $1,500,000 is expected to be incurred during the
remainder of fiscal 1999 and the remainder is expected to be incurred during
fiscal years 2000 and 2001. It is
10
estimated that the Company's portion of marketing costs prior to product
launch will be $4,000,000. Upon product launch, the Company will receive 40% of
the net income and will be responsible for 40% of the net loss in the Knoll
Territory, if any, as defined. The Company is also responsible for approximately
40% of the costs incurred to develop a once-daily formulation of bucindolol for
the Knoll Territory and approximately 67% of the once-daily formulation
development costs that have a worldwide benefit. The development program for a
once-daily formulation of bucindolol is currently on hold.
The Company's future prospects substantially depend on favorable results
of BEST. The Phase III CHF studies of three other beta-blockers terminated
before their scheduled completion date because of positive results. However,
bucindolol differs in some respects from those other compounds and the results
of the other studies may not be predictive of the results of BEST. BEST is
sponsored by the National Institutes of Health (the "NIH") and the Department of
Veterans Affairs (the "VA"), and the schedule, conduct and analysis of the study
is not under the control of the Company. Enrollment for BEST ended on December
31, 1998. The BEST protocol provides for a follow-up period of at least 18
months for each patient. Once the study ends, the NIH and VA plan to submit the
data for publication in a scientific journal, and the Company is not entitled to
receive the data from the trial before a manuscript is accepted for publication.
The Company cannot control the timing of the publication's preparation or
review, and the timing of its receipt of the BEST database therefore cannot be
predicted. If the BEST results are positive, the Company must obtain approval of
the U.S. Food and Drug Administration (the "FDA") before bucindolol can be
marketed in the United States. The Company currently intends to submit a New
Drug Application (an "NDA") for BEXTRA to the FDA within six months after it
receives the BEST data, if the study results are favorable. The U.S. submission
would be used as the basis for an equivalent submission by Knoll in Europe.
There can be no assurance that the Company will meet this planned schedule, that
any regulatory authority will review the regulatory submissions for bucindolol
in a timely manner, or that BEXTRA will receive marketing approval in any
country. Failure of BEST to demonstrate the safety and efficacy of bucindolol,
or the failure of the Company to obtain regulatory approvals in major markets,
would materially adversely affect the Company. Even assuming successful
completion of BEST and regulatory approval of BEXTRA, the Company does not
expect that BEXTRA will be commercially available before 2001.
The Company faces competition in all the therapeutic areas in which it
has development programs. One beta-blocker has been approved by the FDA for use
in treating CHF, and positive results for two other beta-blockers studied in CHF
patients have been announced. If the BEST results are positive and the Company
is able to obtain regulatory approval of BEXTRA, bucindolol could be the third
or fourth beta-blocker to be introduced in the U.S. market for CHF therapies.
The Company expects competition to be intense. The other companies who currently
market, or who are expected to market, competitive beta-blockers are large,
multinational pharmaceutical companies with greater marketing resources and
experience than the Company. The company does not have, nor is it expected to
have, sufficient cash and other resources to market bucindolol, and accordingly,
will be dependent on obtaining a collaborative partner to commercialize
bucindolol.
The Company will incur additional charges to operations relating to its
1994 acquisition of CPEC in the event that certain milestones are achieved in
the development and commercialization of bucindolol. The Company will be
required to issue to the former CPEC stockholders shares of Interneuron's common
stock upon achieving the milestones of filing an
11
NDA and receiving an approval letter (an "Approval Letter") from the FDA to
market bucindolol. In exchange for Interneuron providing such shares,
Intercardia will pay Interneuron the value of such shares, either in cash or
Intercardia Common Stock, at Intercardia's option. Each additional payment would
have minimum and maximum charges to the Company of $750,000 and $1,875,000,
respectively. The value of these additional shares was not included in the CPEC
purchase price because their issuance is contingent upon achieving these
milestones. In the event the Company files an NDA for bucindolol, the Company
expects it would recognize the expense immediately, and in the event an Approval
Letter for bucindolol is received, the Company expects it would capitalize the
amount and amortize it over the expected life of the product.
In conjunction with the Transcell Merger, Intercardia must issue
additional shares of Intercardia Common Stock to the former Transcell
stockholders, including Interneuron as the former majority stockholder of
Transcell. Additional installments consisting of $3,000,000 of Intercardia
Common Stock, as valued at each issuance date, will be issued in August 1999 and
February 2000. The impact of the issuance of these additional shares has not
been reflected in Intercardia's Common Stock outstanding or its net loss per
share calculations, but was included in the determination of the value of the
purchase price of Transcell.
Intercardia is subject to various risks arising from Interneuron's
majority ownership and control of Intercardia, including conflicts of interest
relating to significant corporate transactions for which stockholder approval is
required. Because Interneuron owns 61.4% of the outstanding Common Stock of
Intercardia, Interneuron has the ability to elect all of the directors of
Intercardia and control voting with respect to other matters submitted to a vote
of the stockholders, including extraordinary corporate transactions such as a
merger or sale of substantially all of the Company's assets. Interneuron's
voting control may have the effect of delaying or preventing sales of additional
securities or other financing of Intercardia, a sale of the Company, or other
dilutive activities. Pursuant to an intercompany services agreement between
Intercardia and Interneuron, Interneuron has the right to purchase from
Intercardia additional shares of Intercardia's Common Stock at fair market
value, if necessary to provide that Interneuron's equity ownership in
Intercardia does not fall below 51.0%. In the event that all or part of the
shares of Intercardia Common Stock held by Interneuron are sold or otherwise
transferred, the market price of the Intercardia Common Stock could be adversely
affected. Interneuron is entitled to receive royalties based on sales of certain
products being developed by IRL under the Merck Agreement, which are payable in
Intercardia Common Stock unless Intercardia and Interneuron agree that the
royalty may be paid in cash. Interneuron also owns directly 19.9% of CPEC,
Intercardia's 80.1% owned subsidiary. As of March 31, 1999, the Company owed
Interneuron $1,964,000 from net advances by Interneuron to the Company.
The Company expects to incur substantial additional costs and losses in
all of its research and development programs over the next few years. The
Company also has other significant commitments and contingencies for which it is
responsible, including building operating leases and capitalized equipment
leases. The Company's working capital and capital requirements will depend
upon numerous factors, including: the progress of the development and clinical
trials of bucindolol; the timing and cost of obtaining regulatory approvals; the
effect of competitive drugs on commercialization of bucindolol; and the ability
of the Company to establish additional collaborative arrangements with other
companies to provide research or
12
development funding to the Company and to conduct clinical trials,
obtain regulatory approvals, and manufacture and market certain of the Company's
products. The Company continually evaluates opportunities to acquire other
products, technologies or businesses that complement the Company's existing and
planned products, although the Company currently has no understanding,
commitment or agreement with respect to any such acquisitions.
Although the Company believes it has adequate funds to finance
operations through fiscal 1999, the Company will require additional financing to
fund operating activities beyond fiscal 1999, to complete its clinical trials of
bucindolol, to make payments to fund 40% of development and marketing costs of
bucindolol in the Knoll Territory pursuant to the Knoll Collaboration, to fund
its other research and development programs, and to fund new business
opportunities and growth. During the remainder of fiscal 1999, the Company
intends to seek additional capital through collaborative partnering
arrangements, debt financing or equity financing. However, the Company has no
agreements or commitments to obtain additional funds and there can be no
assurance that adequate funds will be available on terms acceptable or favorable
to the Company, if at all. It is currently difficult for biotechnology companies
to raise funds in the equity markets and, if the results of BEST are delayed or
are not positive, raising funds in the equity markets will be even more
difficult. Any additional equity financing, if available, would result in
dilution to Intercardia's stockholders. The Company does not have any
commitments to obtain any additional funds and has not established banking
arrangements through which it can obtain additional debt financing. Financial
constraints may cause the company to reassess the allocation of resources among
its research and development programs. If the Company is unable to enter into
additional collaborations or raise additional capital to support its current
level of operations, the Company would be required to reduce or discontinue one
or more of its research and development programs, or obtain funds through
strategic alliances on terms that are not favorable to the Company or its
existing stockholders. Reduction or discontinuation of research and development
programs could result in additional charges which would be reflected in the
period of such reduction or discontinuation.
Year 2000
- ---------
The Company recognizes the need to ensure that "Year 2000" hardware and
software issues will not adversely impact its operations. In 1998, the Company
initiated a program, and subsequently established a Year 2000 committee, to
assess the expected impact of the Year 2000 date recognition problem on its
existing internal systems, those which it intends to implement and the systems
of its key business vendors. The purpose of this program is to attempt to ensure
that this problem does not have a material adverse effect on the Company's
business operations or its financial condition. Key financial, information and
operational systems, including equipment with embedded microprocessors, were
inventoried and assessed, and detailed plans have been finalized to ready the
Company's internal operating systems. Currently the members of the Year 2000
committee are in the process of upgrading or replacing systems that were
determined to be non-compliant. As of March 31, 1999, the Company believes its
Year 2000 compliance programs were approximately 50% complete. The Company's
goal is to continue upgrading its personal computer hardware and software to
become fully Year 2000 compliant by the end of calendar 1999.
In addition, the Company is in the process of assessing key business
vendors' Year 2000 compliance so as to minimize the likelihood that
non-compliance of any vendor would significantly impact the Company's
operations. Informational requests are being distributed and/or formal
discussions with key business vendors are in progress, and replies and readiness
will be evaluated pending receipt or completion of these inquiries and/or
discussions. Key
13
business vendors are being requested to provide assurances
regarding their Year 2000 compliance. Risk assessment, readiness evaluation and
action and contingency plans related to these vendors are expected to be
completed by October 1999. Due to the Company's evolving internal systems and
reliance on third parties, the Company anticipates periodic re-evaluation and
maintenance regarding its internal systems and business vendors throughout 1999.
Due to the Company's relatively short operating history and evolving
internal systems, the modification or replacement of internal systems has not
been, nor is it expected to be, a material expenditure for the Company. Total
expenditures to date for Year 2000 compliance have been less than $25,000 and
future expenditures are expected to be less than $50,000. Expenditures required
to make the Company Year 2000 compliant have been and will continue to be
expensed as incurred. The Company does not believe it has a risk of loss of
significant revenues due to the Year 2000 because the Company does not expect
that any of its potential pharmaceutical products will have FDA approval prior
to January 2000.
14
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits
10.39* Development, Manufacturing, Marketing and License Agreement,
effective as of December 19, 1996, among Knoll AG, CPEC, Inc.
and Intercardia, Inc.
11.1 Statement re computation of net loss per share
27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only and
not filed.
(b) No reports on Form 8-K were filed by the Company during the three months
ended March 31, 1999.
*Confidential treatment requested
15
SIGNATURE
---------
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.
INTERCARDIA, INC.
Date: April 29, 1999 By: /s/ Richard W. Reichow
---------------------------------------------
Richard W. Reichow, Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
16