FORM 1O-Q
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 March 31, 2001
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 0-19732
-------
CORVAS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0238812
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3030 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices and zip code)
(858) 455-9800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark whether the Registrant (l) 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 [ ]
At May 1, 2001, there were 27,373,421 shares of Common Stock, $0.001
par value, of the Registrant issued and outstanding.
CORVAS INTERNATIONAL, INC.
INDEX
Page
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of March 31, 2001 (unaudited)
and December 31, 2000 1
Condensed Statements of Operations for the Three Months
Ended March 31, 2001 and 2000 (unaudited) 2
Condensed Statements of Cash Flows for the Three Months
Ended March 31, 2001 and 2000 (unaudited) 3
Notes to Condensed Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
None
Item 3. Defaults Upon Senior Securities 10
None
Item 4. Submission of Matters to a Vote of Security Holders 10
None
Item 5. Other Information 10
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 10
None
(b) Reports on Form 8-K 10
None
SIGNATURES 11
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CORVAS INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
In thousands
(unaudited)
MARCH 31, DECEMBER 31,
2001 2000
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 4,183 $ 14,153
Short-term debt securities held to maturity
and time deposits, partially restricted 104,847 109,089
Receivables 1,672 1,526
Note receivable from related party 278 278
Other current assets 618 502
---------- ----------
Total current assets 111,598 125,548
---------- ----------
Debt issuance costs 103 108
Long-term debt securities held to maturity 21,224 12,343
Property and equipment, net 1,595 1,023
---------- ----------
$ 134,520 $ 139,022
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,007 $ 1,082
Accrued liabilities 1,394 1,663
Accrued vacation 308 256
---------- ----------
Total current liabilities 2,709 3,001
---------- ----------
Convertible notes payable 11,148 10,958
Deferred rent 155 130
Stockholders' equity:
Common stock 27 27
Additional paid-in capital 226,551 226,465
Accumulated deficit (106,070) (101,559)
---------- ----------
Total stockholders' equity 120,508 124,933
Commitments and contingencies
---------- ----------
$ 134,520 $ 139,022
========== ==========
See accompanying notes to condensed financial statements.
1
CORVAS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
In thousands, except per share data
(unaudited)
Three Months Ended
March 31,
-----------------------
2001 2000
--------- ---------
REVENUES:
Revenue from collaborative agreements $ --- $ 1,013
Royalties 30 9
Research grants 39 21
--------- ---------
Total revenues 69 1,043
--------- ---------
COSTS AND EXPENSES:
Research and development 5,203 3,910
General and administrative 1,199 927
--------- ---------
Total costs and expenses 6,402 4,837
--------- ---------
Loss from operations (6,333) (3,794)
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 2,017 386
Interest expense (195) (191)
--------- ---------
1,822 195
--------- ---------
Net loss and other comprehensive loss $ (4,511) $ (3,599)
========= =========
Basic and diluted net loss per share $ (0.16) $ (0.18)
========= =========
Shares used in calculation of basic and
diluted net loss per share 27,359 19,636
========= =========
See accompanying notes to condensed financial statements.
2
CORVAS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
In thousands
(unaudited)
Three Months Ended
March 31,
-----------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,511) $ (3,599)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 137 122
Amortization of premiums and discounts on investments (97) (317)
Amortization of debt issuance costs 5 5
Non-cash interest expense on convertible notes payable 190 186
Stock compensation expense 53 15
Changes in assets and liabilities:
(Increase) decrease in receivables (146) 172
Increase in other current assets (116) (87)
Increase (decrease) in accounts payable, accrued
liabilities and accrued vacation (292) 180
Increase in deferred rent 25 24
--------- ---------
Net cash used in operating activities (4,752) (3,299)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments held to maturity (38,735) (26,050)
Proceeds from maturity of investments held to maturity 33,545 14,395
Proceeds from sale of investment held to maturity 648 ---
Purchases of property and equipment (709) (178)
--------- ---------
Net cash used in investing activities (5,251) (11,833)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 33 12,130
Capital contribution --- 2,561
--------- ---------
Net cash provided by financing activities 33 14,691
--------- ---------
Net decrease in cash and cash equivalents (9,970) (441)
Cash and cash equivalents at beginning of period 14,153 881
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,183 $ 440
========= =========
See accompanying notes to condensed financial statements.
3
CORVAS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
(1) The Company
-----------
Corvas International, Inc. (the "Company") was incorporated on March
27, 1987 under the laws of the State of California. In July 1993, the Company
reincorporated in the State of Delaware. The Company is engaged in the
discovery, development and commercialization of novel therapeutics that address
large markets, including cardiovascular disease, stroke and cancer.
(2) Basis of Presentation
---------------------
The interim financial information contained herein is unaudited but, in
management's opinion, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. The condensed
financial statements should be read in conjunction with the Company's audited
financial statements and notes thereto for the year ended December 31, 2000
included in the Company's Annual Report on Form 10-K. Results for the interim
periods are not necessarily indicative of results for other interim periods or
for the full year.
(3) Net Loss Per Share
------------------
Net loss per share for the three months ended March 31, 2001 and 2000
is computed using the weighted-average number of common shares outstanding. For
the three months ended March 31, 2001, 2,445,000 options were excluded from the
calculation of dilutive net loss per share. For the three months ended March 31,
2000, options and warrants totaling 2,131,000 shares were excluded from the
calculation of dilutive net loss per share. In addition, 3,349,000 and 3,172,000
shares from the assumed conversion of the 5.5% convertible senior subordinated
notes issued in 1999 have also been excluded from this calculation as of March
31, 2001 and 2000, respectively.
(4) Debt Securities Held to Maturity
--------------------------------
Certain securities that were no longer in compliance with the Company's
investment policy were sold prior to maturity during the three months ended
March 31, 2001.
4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM WHAT IS DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN OUR ANNUAL REPORT ON FORM
10-K UNDER THE HEADING "RISK FACTORS."
THE TERMS "CORVAS," "WE," "US" AND "OUR" REFER TO CORVAS
INTERNATIONAL, INC.
OVERVIEW
We are a biopharmaceutical company engaged in the discovery,
development and commercialization of novel therapeutics that address large
markets, including cardiovascular disease, stroke and cancer. We currently have
two product candidates in Phase II clinical trials. One of our lead product
candidates, partnered with Pfizer, is UK-279,276, formerly rNIF, a recombinant
protein in Phase IIb clinical trials for the treatment of reperfusion injury
associated with ischemic stroke. Our other lead product candidate, known as
rNAPc2, is a recombinant protein that we are developing for the prevention of
deep vein thrombosis and pulmonary embolism, and for the treatment of unstable
angina. We have completed a successful Phase II clinical trial for the
prevention of deep vein thrombosis and pulmonary embolism and, subject to
government regulations, plan to initiate a Phase III clinical trial for this
indication in the second half of 2001. We also have a number of research
programs aimed at discovering novel drugs to modulate proteases involved in
cancer and other diseases.
We currently have no products for sale and are focused on research and
development and clinical trial activities. We have not been profitable on an
annual basis since inception and we anticipate that we will incur substantial
additional operating losses over the next several years as we progress in our
research and development programs. To date, we have funded our operations
primarily through the sale of equity and debt securities, payments received from
collaborators and interest income. At March 31, 2001, we had an accumulated
deficit of $106.1 million. Although we expect that our sources of revenue, if
any, for the next several years will continue to primarily consist of payments
under collaborative agreements and interest income, we do not expect to record
any revenue under any of our existing collaborative agreements in 2001. The
process of developing our product candidates will require significant additional
research and development, preclinical testing and clinical trials, as well as
regulatory approval activities. In particular, if we initiate Phase III clinical
trials for rNAPc2, either independently or with a collaborator, we expect that
our research and development expenses will increase significantly. These
activities, together with our general and administrative expenses, are expected
to result in substantial operating losses for the foreseeable future. In
addition, we have, in the past, evaluated various possible strategic
transactions, including in-licensing or acquiring complementary products,
technologies or companies, and we expect to continue to do so in the future. If
we in-license or acquire products, technologies or companies, we expect that our
operating expenses would increase as a result.
5
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
REVENUES. Our operating revenues decreased to $69,000 in the three
months ended March 31, 2001 from $1.0 million in the corresponding period of
2000. This decrease was mainly attributable to the contractual end of the
research and development funding portion of our collaborative agreements with
Schering Corporation, or Schering-Plough, covering inhibitors of both thrombin
and hepatitis C.
In the year 2001, we do not expect to receive any research and
development funding or other revenues under our agreements with Schering-Plough.
In the event that we enter into new collaborative agreements, we may recognize
related revenue; however, we cannot predict whether we will enter into new
collaborative agreements during 2001. Even if we do enter into new collaborative
agreements, we may not recognize revenue under these agreements in 2001.
RESEARCH AND DEVELOPMENT EXPENSES. In the quarter ended March 31, 2001,
research and development expenses, which accounted for 81% of our total expenses
in the first quarters of both 2001 and 2000, increased to $5.2 million from $3.9
million one year earlier. This $1.3 million increase was primarily attributable
to increased clinical development costs for rNAPc2, our proprietary
anticoagulant drug candidate, as well as to increased staffing and related costs
in support of both rNAPc2 development and our preclinical cancer programs. We
expect that our research and development expenses will continue to increase due
to the manufacturing of clinical supplies of rNAPc2 in anticipation of a Phase
III trial planned to begin in the second half of 2001 and to the hiring of
additional research personnel in support of our cancer programs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $1.2 million in the three months ended March 31, 2001 from
$927,000 in the same quarter of 2000. This $272,000 increase was primarily due
to additional square footage leased in July 2000. We recently hired a Vice
President, Corporate Development and expect our general and administrative
expenses in 2001 to increase over the amounts spent in 2000.
NET OTHER INCOME. In the first quarter of 2001, net other income was
$1.8 million compared to $195,000 in the corresponding quarter of 2000. This
$1.6 million increase was the result of increased interest income earned on
higher balances of held to maturity securities, which are attributable to our
public offering of common stock completed in November 2000.
We expect that we will continue to incur significant expenses and
operating losses over the next several years as our research and development and
clinical trials progress. We may not be able to raise additional capital that
may be required to fund our operations. We also expect both our expenses and
losses to fluctuate from quarter to quarter and that the fluctuations may, at
times, be substantial.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our operations have been financed primarily through
public offerings and private placements of our debt and equity securities,
payments received through our collaborative agreements, and interest income
6
earned on cash and investment balances. Our principal sources of liquidity are
cash and cash equivalents, time deposits and debt securities which, net of
$303,000 in restricted time deposits, totaled $130.0 million as of March 31,
2001. Working capital at March 31, 2001 was $108.9 million. In the three months
ended March 31, 2001, we used net cash of $4.8 million in operating activities
and $5.3 million in investing activities. We invest available cash in accordance
with an investment policy set by our board of directors, which has established
objectives to preserve principal, maintain adequate liquidity and maximize
income. Our policy provides guidelines concerning the quality, term and
liquidity of investments. We presently invest our excess cash primarily in debt
instruments of corporations with strong credit rating and government-backed debt
obligations.
In August and October of 1999 we issued and sold, in two private
financings, a total of 2,000,000 shares of our common stock for $2.50 per share
and 5.5% convertible senior subordinated notes due in August 2006, in an
aggregate principal amount of $10.0 million. Net proceeds of $14.8 million were
raised in these financings. At the option of the note holder, the principal
balance of both notes is convertible into shares of our common stock at $3.25
per share, subject to certain adjustments. Interest on the outstanding principal
amounts of these notes accretes at 5.5% per annum, compounded semi-annually,
with interest payable upon redemption or conversion. Upon maturity, these notes
will have an accreted value of $14.6 million. At our option, the accreted
interest portion of both notes may be paid in cash or in our common stock priced
at the then-current market price. We have agreed to pay any applicable
withholding taxes on behalf of the note holder that may be incurred in
connection with the accreted interest, which are estimated and accrued at 30% of
the annual accretion. We may redeem the notes any time after August 18, 2002
upon payment of the outstanding principal and accreted interest.
In April 1997, we entered into an exclusive license and development
agreement with Pfizer to collaborate on the development of UK-279,276, an
anti-inflammatory agent with therapeutic potential for stroke and other
indications. Pfizer received an exclusive worldwide license to further develop,
commercialize and market UK-279,276 as a therapeutic agent, and funded our
internal research and development over a two-year period that ended March 31,
1999. Pfizer is responsible for funding all further development of UK-279,276,
if any. To date, we have received $4.4 million from Pfizer under this agreement,
our last payment being received in March 1999, and we may receive up to an
additional $27.0 million under this agreement if all future milestones are
achieved. However, we do not anticipate receiving any payments under this
agreement in 2001 and we cannot assure you that any future milestones will be
reached or that we will ever receive any additional payments under this
agreement. We are entitled to receive milestone payments based on clinical trial
progress, submissions for specified regulatory approvals and commercialization
events. If Pfizer commercializes a product candidate covered by this agreement,
we will also be entitled to receive royalties on product sales.
We also have two independent collaborations with Schering-Plough, one
for the design and development of an oral inhibitor of a key protease associated
with hepatitis C virus replication and the other for the discovery and
commercialization of an oral anticoagulant for chronic thrombosis. Our
collaboration with Schering-Plough for the development of treatments for
hepatitis C commenced in June 1997. In May 2000, we amended our original
agreement and licensed selected patents and other intellectual property relating
to a key protease associated with hepatitis C virus replication to
7
Schering-Plough in consideration for a lump-sum payment of $2.5 million and the
right to receive royalties on product sales, if any. Schering-Plough is now
responsible for conducting all further research and development, if any. We are
entitled to royalties on products developed during the research program for the
treatment of hepatitis C by either us or Schering-Plough, whether or not such a
product incorporates technology licensed from us. However, our royalties will be
lower if any product that is developed is not based on our technology. We have
no further responsibility under this agreement and we are not entitled to any
milestone payments.
Our second collaboration with Schering-Plough is to identify an
anticoagulant that can be taken in pill form. Under this collaboration, which
commenced in December 1994, Schering-Plough funded our internal research and
development through December 31, 2000. Schering-Plough is now responsible for
conducting all further research and development, if any. Unless Schering-Plough
selects a clinical candidate, we will not receive any additional revenues under
this collaboration. We are entitled to receive milestone payments based on
clinical trial progress, specified regulatory submissions and approvals and
commercialization events; however, these will only be received in the event
Schering-Plough selects a clinical candidate. If Schering-Plough commercializes
a product candidate covered by this agreement, we will also be entitled to
receive royalties on product sales, if any. Our existing collaborations may not
be successful. We may not receive any future milestones or other payments
related to our agreements, and our collaborations may not continue.
We will continue to incur substantial additional costs in the
foreseeable future due to, among other factors, costs related to ongoing and
planned clinical trial activities and other research and development activities.
Specifically, we expect research and development expenses in the first half of
2001 to increase over historical amounts due to the scheduled manufacturing of
clinical supplies for rNAPc2 in anticipation of a Phase III clinical trial
planned to begin in the second half of 2001. In addition, we expect research and
development expenses related to our cancer programs to increase throughout 2001.
Over the next several years, we expect our costs will result in additional
operating losses and negative cash flows from operations. Based on our
currently-expected burn rate for 2001, which is estimated to be between $15
million and $20 million, we believe that our existing capital resources should
be sufficient to satisfy our anticipated funding requirements for at least the
next two years. However, this is just management's estimate and this estimate
assumes that we are successful in consummating a collaborative agreement for
rNAPc2 in 2001. Our future burn rate and capital requirements will also be
impacted by many other factors including, but not limited to:
o the progress on and scope of our cancer programs and other
internally-funded research and development
o the timing and magnitude of expenses incurred to further
develop rNAPc2
o the success of our collaborators in developing and marketing
products under their respective collaborations with us
o competing technological and market developments
o the costs we incur in obtaining and enforcing patent and other
proprietary rights or obtaining a license to operate under the
patents of others
o our success in acquiring and integrating complementary
products, technologies or companies
8
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In accordance with our investment policy, we do not invest in
derivative financial instruments or any other market risk sensitive instruments.
Our available cash is invested in high quality fixed income investments that are
held to maturity. We believe that our interest rate market risk is limited, and
that we are not exposed to significant changes in fair value because our
investments are held to maturity and are primarily short-term in nature. The
fair value of each investment approximates its amortized cost.
For purposes of measuring interest rate sensitivity, we have assumed
that the similar nature of our investments warrants aggregation. The carrying
amount of all held to maturity investments as of March 31, 2001 is $125.8
million; they have a weighted-average interest rate of 5.6%.
Considering our investment balances as of March 31, 2001, rates of
return and the fixed rate nature of the convertible notes payable that were
issued in the second half of 1999, an immediate 10% change in interest rates
would not have a material impact on our financial condition or results of
operations.
Since the $10.0 million aggregate principal of the 5.5% convertible
senior subordinated notes that we issued is convertible into common stock at
$3.25 per share at the option of the holder, there is underlying market risk
related to an increase in our stock price or an increase in interest rates that
may make conversion of these notes into common stock beneficial to the holder.
Conversion of these 5.5% convertible senior subordinated notes will have a
dilutive effect on our common stock.
9
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
We are not currently engaged in any legal proceedings that we expect
would materially harm our business or financial condition.
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
None
b. Reports on Form 8-K
None
10
SIGNATURES
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.
CORVAS INTERNATIONAL, INC.
Date: May 11, 2001 By: /s/ RANDALL E. WOODS
---------------------------------------
Randall E. Woods
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 11, 2001 By: /s/ CAROLYN M. FELZER
--------------------------------------
Carolyn M. Felzer
Vice President and Controller
(Principal Financial Officer)
11