UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File No.
March 31, 1997 0-18231
ATRIX LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 84-1043826
- ------------------------ ----------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
2579 Midpoint Drive
Fort Collins, Colorado 80525
---------------------- ----------
(Address of principal (Zip Code)
executive offices)
(970) 482-5868
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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
As of April 24, 1997, there were 11,114,324 issued and outstanding shares
of the Registrant's $.001 par value common stock.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATRIX LABORATORIES, INC.
BALANCE SHEETS
March 31, December 31,
1997 1996
---- ----
ASSETS
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents $19,850,512 $18,368,472
Restricted cash equivalents -- 7,000,000
Marketable securities, at fair value 7,966,045 6,040,389
Accounts receivable, net of allowance for doubtful
accounts of $10,000 645,186 681,290
Interest receivable 108,123 154,128
Inventories 536,968 303,505
Prepaid expenses and deposits 553,343 301,321
----------- -----------
Total current assets 29,660,177 32,849,105
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment 6,304,410 5,888,007
Leasehold improvements 574,318 565,608
----------- -----------
Total 6,878,728 6,453,615
Accumulated depreciation and amortization (1,858,575) (1,687,056)
----------- -----------
Property, plant and equipment, net 5,020,153 4,766,559
----------- -----------
OTHER ASSETS:
Intangible assets, net of accumulated
amortization of $73,412 and $69,624 900,976 847,830
----------- -----------
TOTAL $35,581,306 $38,463,494
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 909,957 $ 933,147
Accrued salaries and payroll taxes 99,057 88,868
Other accrued liabilities 100,950 155,657
Deferred revenue --- 7,002,192
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Total current liabilities 1,109,964 8,179,864
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000 shares
authorized, none issued or outstanding
Common stock, $.001 par value; 25,000,000 shares
authorized; 11,114,324 and 11,113,624 shares
issued and outstanding 11,114 11,114
Additional paid-in capital 72,920,629 72,913,274
Unrealized holding loss on marketable securities (308,227) (152,641)
Accumulated deficit (38,152,174) (42,488,117)
----------- -----------
Total shareholders' equity 34,471,342 30,283,630
----------- -----------
TOTAL $35,581,306 $38,463,494
=========== ===========
See notes to financial statements
2
ATRIX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
REVENUE:
1997 1996
---- ----
Sales $ 209,739 $ 59,040
Contract revenue 151,485 120,008
Sale of marketing rights 7,000,000 ---
Interest income 437,509 149,921
Gain on sale of marketable securities --- 23,953
Rental income 8,968 ---
------------------------------
Total revenue 7,807,701 352,922
------------------------------
EXPENSES:
Cost of goods sold 138,989 40,670
Research and development
o ATRIDOX(TM) product 1,468,095 1,369,478
o Other 1,310,166 1,103,904
Administrative and marketing 554,508 588,961
------------------------------
Total expenses 3,471,758 3,103,013
------------------------------
NET INCOME (LOSS) $ 4,335,943 $ (2,750,091)
==============================
NET INCOME (LOSS) PER COMMON SHARE $ 0.39 $ (0.33)
==============================
WEIGHTED AVERAGE SHARES OUTSTANDING 11,113,865 8,462,433
==============================
See notes to financial statements
3
ATRIX LABORATORIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1997
(Unaudited)
Common Stock Additional Unrealized Total
--------------------------- Paid-in Holding Accumulated Shareholders'
Shares Amount Capital Loss Deficit Equity
------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 11,113,624 $11,114 $72,913,274 $(152,641) $(42,488,117) $30,283,630
Exercise of stock options 700 --- 7,355 --- --- 7,355
Unrealized holding loss --- --- --- (155,586) --- (155,586)
Net income for the period --- --- --- --- 4,335,943 4,335,943
------------------------------------------------------------------------------------------
BALANCE, March 31, 1997 11,114,324 $11,114 $72,920,629 $(308,227) $(38,152,174) $34,471,342
==========================================================================================
See notes to financial statements
4
ATRIX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,335,943 $(2,750,091)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 163,045 108,717
Amortization 12,262 29,482
Gain on sale of marketable securities -- (23,953)
Net changes in current assets and liabilities: 7,000,000 --
Restricted cash equivalents
Accounts receivable 36,104 77,419
Interest receivable 46,005 44,066
Inventory (233,463) (54,249)
Prepaid expenses and deposits (252,022) 322,848
Accounts payable - trade (23,190) (549,565)
Accrued salaries and payroll taxes 10,189 (1,983)
Other accrued liabilities (54,707) (12,135)
Deferred revenue (7,002,192) 5,003
--------------------------
Net cash provided by (used in) operating activities 4,037,974 (2,804,441)
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (416,403) (110,828)
Acquisition of leasehold improvements (8,710) (33,257)
Investments in intangible assets (56,935) (40,205)
Proceeds from sale of marketable securities 991,127 2,050,342
Investment in marketable securities (3,072,368) (59,670)
--------------------------
Net cash (used in) provided by investing activities (2,563,289) 1,806,382
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and exercise of stock
options 7,355 303,879
Deferred registration costs -- (57,612)
--------------------------
Net cash provided by financing activities 7,355 246,267
--------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,482,040 (751,792)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,368,472 925,487
--------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $19,850,512 $ 173,695
==========================
See notes to financial statements
5
ATRIX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 1997 and 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements of Atrix Laboratories, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial statements and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all
adjustments considered necessary (which consist only of normal recurring
accruals) for a fair presentation have been included. These financial statements
should be read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 1996, filed with the Securities and
Exchange Commission in the Company's Annual Report Form on 10-K.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
128). SFAS 128 supersedes existing generally accepted accounting principles
relative to the calculation of earnings per share, is effective for years ending
after December 15, 1997 and requires restatement of all prior period earnings
per share information upon adoption. Generally, SFAS 128 requires a calculation
of basic earnings per share, which takes into consideration income (loss)
available to common shareholders and the weighted average of common shares
outstanding. SFAS 128 also requires the calculation of a diluted earnings per
share, which takes into effect the impact of all additional common shares that
would have been outstanding if all dilutive potential common shares relating to
options, warrants, and convertible securities had been issued, as long as their
effect is dilutive, with a related adjustment of income available for common
shareholders, as appropriate. SFAS 128 requires dual presentation of basic and
diluted earnings per share on the face of the statement of operations and
requires a reconciliation of the numerator and denominator of the basic earnings
per share computation. The Company does not expect the effect of its adoption of
SFAS 128 to be material.
6
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market. The components of inventories at are as
follows:
March 31, December 31,
1997 1996
---- ----
Raw Materials $ 265,383 $ 228,533
Work in Process 93,496 13,435
Finished Goods 178,089 61,537
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$ 536,968 $ 303,505
========= =========
NOTE 3. BLOCK DRUG COMPANY AGREEMENT
On December 17, 1996, the Company entered into an agreement (the "Block
Agreement") with Block Drug Company ("Block"). Under the terms of the Block
Agreement, Block acquired the North American and certain European marketing
rights to the Company's first three products for the treatment of periodontal
disease. The Company received an advance payment of $7,000,000 for the sale of
the marketing rights to the ATRISORB(R) GTR Barrier. The funds were deposited in
an escrow account until February 1, 1997, at which time substantially all of the
initial services required by the Block agreement were performed. The $7,000,000
was initially included in restricted cash equivalents as of December 31, 1996
and was recognized as sale of marketing rights during the three months ended
March 31, 1997.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The statements contained in this report, if not historical, are forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, and involve risks and uncertainties that could cause actual
results to differ materially from the financial results described in such
forward looking statements. These risks and uncertainties include, among others,
whether the Company will receive regulatory approval to market any products
besides the ATRISORB(R) Barrier product, the results of current and future
clinical trials, the time, costs and expenses associated with the regulatory
approval process for products. The success of the Company's business operations
is in turn dependent on factors such as the effectiveness of the Company's
marketing strategies to market its current and any future products, the
Company's ability to manufacture products on a commercial scale, the appeal of
the Company's mix of products, the Company's success at entering into and
collaborating with others to conduct effective strategic alliances and joint
ventures, general competitive conditions within the biotechnology and drug
delivery industry and general economic conditions. Further, any forward looking
statement or statements speak only as of the date on which such statement or
statements were made, and the Company undertakes no obligation to update any
forward looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. Therefore, forward looking statements should not be relied
upon as a prediction of actual future results.
7
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1996
Total revenues for the three months ended March 31, 1997 were approximately
$7,807,000 compared to approximately $352,000 for the three months ended March
31, 1996. The increase in total revenue was primarily due to the receipt for the
sale of marketing rights to the ATRISORB(R) GTR Barrier. In addition, the
Company had increases in sales, contract revenue and interest income.
The Company had sales of approximately $210,000 during the three months
ended March 31, 1997 compared to sales of approximately $59,000 for the three
months ended March 31, 1996, representing a 256% increase. The increase is
primarily due to the commencement of sales of the ATRISORB(R) GTR Barrier in the
United States during the second quarter of 1996.
Contract revenue represents revenue the Company received from grants and
from unaffiliated third parties for performing contract research and development
activities utilizing the ATRIGEL(R) system, and was approximately $151,000 for
the three months ended March 31, 1997, compared to approximately $120,000 for
the three months ended March 31, 1996, representing a 26% increase.
Interest income for the three months ended March 31, 1997, was
approximately $438,000 compared to approximately $150,000 for the three months
ended March 31, 1996, representing a 192% increase. Interest income increased
due to additions in principal investments as a result of the proceeds from a
common stock offering completed in the second quarter 1996 and the $7,000,000
payment received under the Block Agreement. The majority of the funds were
invested in U.S. government bond funds, long-term U.S. government and government
agency investments. The remaining cash and cash equivalents were invested in
interest bearing accounts to fund the Company's short-term operations.
Cost of goods sold recorded for the three months ended March 31, 1997 was
approximately $139,000 compared to approximately $41,000 for the period ended
March 31, 1996, representing a 239% increase. The increase is primarily due to
the commencement of sales of the ATRISORB(R) GTR Barrier in the United States
during the second quarter of 1996.
Research and development expenses - ATRIDOX(TM) product for the three
months ended March 31, 1997, were approximately $1,468,000 compared to
approximately $1,369,000 for the three months ended March 31, 1996, representing
a 7% increase. This increase is primarily a result of the initiation of several
new research projects during the quarter.
8
Other research and development expenses, which included activities for the
ATRISORB(R) Barrier and other research activities for the three months ended
March 31, 1997, were approximately $1,310,000 compared to approximately
$1,104,000 for the three months ended March 31, 1996, representing a 19%
increase. The increase was primarily a result of additional expenditures in the
Manufacturing and Quality Assurance/Quality Control departments associated with
the commencement of sales and increased quality assurance and quality control
efforts.
Administrative and marketing expenses decreased to approximately $555,000
for the three months ended March 31, 1997, from approximately $589,000 for the
three months ended March 31, 1996, representing a 6% decrease. The primary
reason for this decrease was the decrease in sales and marketing expenses which
was a result of the Company eliminating the majority of its marketing personnel
and promotional expenses which will be performed by Block.
The Company recorded net income of approximately $4,336,000 for the three
months ended March 31, 1997, compared to a net loss of approximately $2,750,000
for the three months ended March 31, 1996, representing a 258% increase. The net
income was primarily the result of the receipt of the payment of $7,000,000 from
Block.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had cash and cash equivalents of
approximately $19,851,000, marketable securities of approximately $7,966,000 and
other current assets of approximately $1,844,000, for total current assets of
approximately $29,660,000. Current liabilities totaled approximately $1,110,000,
which resulted in working capital of approximately $28,550,000.
During the three months ended March 31, 1997, net cash from operating
activities was approximately $4,038,000 compared to net cash used in operating
activities of approximately $2,804,000 for the three months ended March 31,
1996. This was primarily a result of the net gain for the period of
approximately $4,336,000, adjusted for certain non-cash expenses, and changes in
other operating assets and liabilities as set forth in the statement of cash
flows.
Net cash used in investing activities was approximately $2,563,000 during
the three months ended March 31, 1997, primarily as a result of the investment
in additional marketable securities during the quarter. This was reduced by cash
used for the acquisition of capital equipment and leasehold improvements,
investments in intangible assets, and investments in marketable securities.
The Company's long-term capital expenditure requirements will depend on
numerous factors, including the progress of the Company's research and
development programs, the time required to file and process regulatory approval
applications, the development of the Company's commercial manufacturing
facilities, the ability of the Company to obtain additional licensing
arrangements, and the demand for the Company's products, if and when approved.
The Company expended approximately $425,000 for property, equipment and
leasehold
9
improvements, and approximately $57,000 for patent development in the three
month period ending March 31, 1997 compared to approximately $144,000 and
$40,000, respectively for the three months ended March 31, 1996. The Company
expects its capital expenditures to total approximately $1,800,000 for the year
ended December 31, 1997, which will be used primarily to complete its
manufacturing facility.
The Company expects sales and marketing expenses to decrease in future
periods as a result of eliminating the majority of its marketing personnel and
promotional expenses, which functions are now performed by Block. In addition,
the Company expects revenue to increase in future periods upon the achievement
of certain milestones and the receipt of royalties on sales of its products.
10
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period ended March 31, 1997.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ATRIX LABORATORIES, INC.
(Registrant)
By:/s/ John E. Urheim
--------------------------------------------------
John E. Urheim
Vice Chairman of the Board of Directors and Chief
Executive Officer
By:/s/ Brian G. Richmond
--------------------------------------------------
Brian G. Richmond
Corporate Controller, Assistant Secretary, and
Assistant Treasurer
12