SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO.1)
(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, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-19171
ICOS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 91-1463450
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22021 - 20th Avenue S.E., Bothell, WA 98021
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(Address of principal executive offices) (Zip code)
(425) 485-1900
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(Registrant's telephone number, including area code)
Not Applicable
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(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 ____
-
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 September 30, 2000
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Common Stock, $0.01 par value 46,930,877
PART 1: Financial Information
ITEM 1: Financial Statements
ICOS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
------------------------------ ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
Revenue:
Collaborative research and development from related
parties $ 11,460 $ 17,622 $ 31,698 $ 49,287
Other - - - 500
--------- --------- --------- ---------
Total revenue 11,460 17,622 31,698 49,787
Operating expenses:
Research and development 19,694 28,363 63,603 77,252
General and administrative 1,133 1,553 4,253 3,558
--------- --------- --------- ---------
Total operating expenses 20,827 29,916 67,856 80,810
--------- --------- --------- ---------
Operating loss (9,367) (12,294) (36,158) (31,023)
--------- --------- --------- ---------
Other income (expense):
Equity in losses of affiliates (13,436) (5,393) (18,922) (10,168)
Investment income 918 1,048 3,184 3,097
Other, net 200 240 897 550
--------- --------- --------- ---------
(12,318) (4,105) (14,841) (6,521)
--------- --------- --------- ---------
Net loss $ (21,685) $ (16,399) $ (50,999) $ (37,544)
========= ========= ========= =========
Net loss per common share - basic and diluted $ (0.47) $ (0.37) $ (1.11) $ (0.87)
========= ========= ========= =========
Weighted-average common shares outstanding - basic
and diluted 46,494 43,970 45,851 43,134
See accompanying notes to condensed consolidated financial statements.
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ICOS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
September 30, December 31,
2000 1999
---------------- ---------------
(unaudited)
Current assets:
Cash and cash equivalents $ 19,140 $ 12,885
Investment securities, at market value 33,667 55,349
Interest receivable 503 1,020
Receivables from related parties under collaborative arrangements 20,415 9,780
Loan receivable from related party - 7,341
Other current assets 2,302 2,049
--------- ---------
Total current assets 76,027 88,424
Net property and equipment, at cost 19,683 21,042
Investments in affiliates 133 3,241
Other assets 123 81
--------- ---------
$ 95,966 $ 112,788
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,320 $ 4,854
Accrued clinical expenses 2,698 3,409
Due to affiliates 13,635 -
Other accrued expenses 3,802 5,126
--------- ---------
Total current liabilities 22,455 13,389
Stockholders' equity:
Common stock 469 448
Additional paid-in capital 248,391 223,477
Accumulated other comprehensive loss (40) (216)
Accumulated deficit (175,309) (124,310)
--------- ---------
Total stockholders' equity 73,511 99,399
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$ 95,966 $ 112,788
========= =========
See accompanying notes to condensed consolidated financial statements.
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ICOS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine months ended September 30,
--------------------------------------
2000 1999
--------------- ---------------
Cash flows from operating activities:
Net loss $ (50,999) $ (37,544)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,424 3,361
Loss on sale of investment securities - 13
Equity in losses of affiliates 18,922 10,168
Stock compensation costs 555 -
Change in operating assets and liabilities:
Interest receivable 517 (690)
Receivables from related parties under collaborative arrangements (11,036) (6,693)
Other current assets 397 (129)
Accounts payable (2,381) 2,543
Accrued clinical expenses (711) (1,547)
Other accrued expenses (1,324) (355)
Other (42) (72)
--------------- ---------------
Net cash used in operating activities (42,678) (30,945)
Cash flows from investing activities:
Purchases of investment securities (15,860) (54,324)
Maturities of investment securities 33,959 13,686
Sales of investment securities 3,999 1,981
Acquisitions of property and equipment (2,461) (4,175)
Proceeds upon repayment of related party loan 7,341 -
Equity investments in affiliates (2,179) (10,219)
--------------- ---------------
Net cash provided by (used in) investing activities 24,799 (53,051)
--------------- ---------------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 22,158 23,605
Proceeds from issuance of warrants 1,976 3,020
--------------- ---------------
Net cash provided by financing activities 24,134 26,625
Net increase (decrease) in cash and cash equivalents 6,255 (57,371)
Cash and cash equivalents at beginning of period 12,885 69,584
--------------- ---------------
Cash and cash equivalents at end of period $ 19,140 $ 12,213
=============== ===============
Supplemental disclosure concerning cash flow information:
Cash paid during the period for income taxes $ - $ 648
=============== ===============
See accompanying notes to condensed consolidated financial statements.
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ICOS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
The information contained herein has been prepared in accordance with
instructions for Form 10-Q. In the opinion of the management of ICOS Corporation
("ICOS" or the "Company"), the information reflects all adjustments necessary to
make the results of operations for the interim periods a fair statement of such
operations. All such adjustments are of a normal recurring nature. Interim
results are not necessarily indicative of results for a full year. For a
presentation including all disclosures required by generally accepted accounting
principles, these condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1999, included in the Company's Annual Report on Form 10-K.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of
ICOS and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Reclassifications
Certain reclassifications of prior year amounts have been made to conform
to the presentation of current year amounts.
2. Research and Development Arrangements
-------------------------------------
Abbott Laboratories
In April 1995, the Company formed a collaboration with Abbott Laboratories
("Abbott") to discover small molecule drugs that modulate the intracellular
signaling connections of certain intercellular adhesion molecules and integrins.
In September 1997, the Company expanded and extended this relationship to
include small molecule antagonists of the extracellular domains of certain
integrins and intercellular adhesion molecules. The research program under which
the Company received research funding from Abbott ended on April 1, 1999. Under
the terms of the agreement, each company had exclusive rights to drugs against
specific molecular targets with royalties and milestone obligations to the other
party. Each party was responsible for the development, registration and
commercialization of its own product candidates. In addition, the collaboration
provided the Company with a
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library of chemical compounds for use in the Company's own discovery programs.
In June 2000, the Company acquired Abbott's rights to drugs for indications
covered by the collaboration. Costs associated with the acquisition of Abbott's
rights were recognized as research and development expense during the second
quarter of 2000. The Company now has marketing rights to all compounds in all
indications worldwide. Abbott will receive royalties on any marketed products.
Suncos
In February 1997, the Company and Suntory Limited formed Suncos Corporation
("Suncos"), a joint venture to develop and commercialize PAFASE(R) worldwide.
Under the terms of the arrangement, the joint venture was established with a $30
million cash investment by Suntory to Suncos. The Company granted Suncos a
license to all rights to Pafase on a worldwide basis. Both the Company and
Suntory retain 50% ownership in Suncos. Suncos has granted Suntory exclusive
rights to develop and commercialize Pafase in Japan, and Suncos has granted the
Company exclusive rights to develop and commercialize Pafase in the United
States. Suncos retains the rights to develop and commercialize Pafase in Europe
and the rest of the world. Suncos is managed jointly by Suntory and the Company.
Suntory and the Company will each pay royalties to Suncos on sales of Pafase in
their respective territories.
For the quarter and nine months ended September 30, 2000, the Company
recognized cost reimbursement revenue under this arrangement of $4.5 million and
$10.6 million, respectively. For the quarter and nine months ended September 30,
1999, the Company recognized cost reimbursement revenue under this arrangement
of $10.7 million and $21.8 million, respectively.
For the quarter and nine months ended September 30, 2000, the Company
recognized $2.3 million and $5.5 million of equity in losses of affiliates,
respectively, representing its proportionate share of Suncos' net losses. For
the quarter and nine months ended September 30, 1999, the Company recognized
$5.3 million and $10.0 million of equity in losses of affiliates, respectively,
representing its proportionate share of Suncos' net losses.
ICOS Clinical Partners, L.P.
In 1997, ICOS Clinical Partners, L.P. (the "Partnership"), an affiliate of
the Company, completed the sale to private investors of interests in the
Partnership ("partnership units"). Proceeds from the offering are dedicated to
fund the Company's development of certain product candidates including Pafase.
For the quarter and nine months ended September 30, 2000, the Company recognized
cost reimbursement revenue from the Partnership of $1.3 million and $6.8
million, respectively. For the quarter and nine months ended September 30, 1999,
the Company recognized cost reimbursement revenue from the Partnership of $4.3
million and $13.4 million, respectively.
In connection with the Partnership's 1997 sale of limited partnership
units, the Company issued Series A warrants to purchase 5.6 million and 2.0
million shares of the Company's common stock at exercise prices of $9.13 and
$10.35 per share, respectively. The Series A warrants are exercisable through
May 31, 2002. In June 1999, the Company issued Series B warrants to purchase 7.6
million shares of the Company's common stock at an exercise
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price of $52.49 per share. The Series B warrants issued are exercisable through
June 30, 2004. During the nine months ended September 30, 2000, warrants to
purchase 1,053,400 shares were exercised at a weighted-average exercise price of
$9.74 per share resulting in total proceeds to the Company of $10.3 million. At
September 30, 2000, warrants to purchase approximately 10.3 million shares
remain outstanding at a weighted-average exercise price of $40.88 per share.
Lilly ICOS, LLC
In October 1998, the Company and Eli Lilly and Company formed Lilly ICOS
LLC ("Lilly ICOS"), a 50/50-owned limited liability company, to develop and
globally commercialize PDE5 inhibitors. Lilly ICOS is developing CIALIS(TM) as
an oral therapeutic agent for the treatment of both erectile dysfunction and
female sexual dysfunction. Under the terms of the joint venture agreement, the
Company received a $75.0 million payment upon formation of the joint venture and
an additional $15.0 million payment in 1999 upon initiation of a Phase 3
clinical trial program for Cialis, and could receive additional payments based
on the progression of Cialis through development. The joint venture was
initially capitalized by Eli Lilly through cash contributions and the
contribution by the Company of intellectual property associated with Cialis and
its research platform. The joint venture will market any products resulting from
this collaborative effort in North America and Europe. For countries outside
North America and Europe, potential products will be licensed exclusively to Eli
Lilly for commercialization with a royalty paid to the joint venture.
For the quarter and nine months ended September 30, 2000, the Company
recognized cost reimbursement revenue under this arrangement of $4.8 million and
$13.3 million, respectively. For the quarter and nine months ended September 30,
1999, the Company recognized cost reimbursement revenue under this arrangement
of $2.6 million and $14.1 million, respectively.
The intellectual property contributed to Lilly ICOS by the Company had no
basis for financial reporting purposes and, accordingly, the Company recorded
its initial investment in Lilly ICOS at zero. The Company did not recognize any
portion of Lilly ICOS' operating losses during the time the joint venture
activities were funded exclusively by Lilly. In the third quarter of 2000, the
Company began recognizing its share of Lilly ICOS' losses because the Company
will now provide its proportionate share of the funding of joint venture
operations. For the quarter and nine months ended September 30, 2000, the
Company recognized $9.4 million of equity in losses of affiliates, representing
its share of the net losses of Lilly ICOS.
ICOS - Texas Biotechnology L. P.
In June 2000, the Company and Texas Biotechnology formed ICOS-Texas
Biotechnology L.P. ("ICOS-TBC"), a 50/50-owned limited partnership, to develop
and commercialize endothelin antagonists such as sitaxsentan. Under the terms of
this arrangement, the Company and Texas Biotechnology will equally fund the
development of endothelin antagonists and equally share in the profits of the
partnership. The Company made an initial $2.0 million
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payment to Texas Biotechnology and may make further milestone payments of up to
$53.5 million. Texas Biotechnology made an initial contribution of intellectual
property associated with endothelin antagonists, including patent rights and
technical information. Both parties will provide the partnership with research
and development services. The partnership will manufacture, market and sell any
products resulting from the collaboration worldwide.
For the quarter and nine months ended September 30, 2000, the Company
recognized $0.9 million and $1.0 million, respectively, in revenue under a
research and development agreement with Texas Biotechnology. During the same
periods, the Company also recognized equity in losses of affiliates of $1.6
million and $3.9 million, respectively, representing its proportionate share of
the ICOS-TBC net losses.
3. Comprehensive Loss
------------------
Three months ended Nine months ended
(in thousands) September 30, September 30,
-------------------------- ------------------------
2000 1999 2000 1999
-------------------------- ------------------------
Net loss $(21,685) $(16,399) $(50,999) $(37,544)
Other comprehensive income (loss):
Unrealized holding gains (losses) 100 9 176 (191)
arising during the period
Less reclassification adjustment for
losses included in net loss - 4 - 3
------------------------- ------------------------
Total other comprehensive income (loss) 100 13 176 (188)
------------------------- ------------------------
Comprehensive loss $(21,585) $(16,386) $(50,823) $(37,732)
========================= ========================
4. Net Loss Per Common Share
-------------------------
Net loss per common share is based on the weighted-average number of common
shares outstanding during the periods. For the quarter and nine months ended
September 30, 2000, options to acquire 7.7 million shares of common stock and
warrants to acquire 10.3 million shares of common stock have been excluded from
the computation of net loss per common share because their impact would be
antidilutive. For the quarter and nine months ended September 30, 1999, options
to acquire 8.6 million shares of common stock and warrants to acquire 11.5
million shares of common stock have been excluded from the computation of net
loss per common share because their impact would be antidilutive.
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5. Financing
---------
On October 11, 2000, the Company filed a Registration Statement on Form S-3
with the Securities and Exchange Commission (the "SEC") in connection with a
proposed offering of 5.0 million shares of the Company's common stock. The
Company anticipates that the proceeds from this offering, if consummated, along
with its existing cash, interest income from investments, anticipated payments
from affiliates, and cash flow from other operating activities, will be
sufficient to fund its cash requirements for at least the next 18 months.
However, the amounts and timing of expenditures will depend on the progress of
ongoing research and development, the rate at which operating losses are
incurred, the execution of development and licensing agreements with potential
corporate partners, the Company's development of products, the Food and Drug
Administration's regulatory process, and other factors, many of which are beyond
the Company's control.
6. Operating Segments
------------------
The Company's operations are confined to one operating segment, the
discovery and development of proprietary pharmaceuticals for the treatment of
serious medical conditions.
7. Recent Accounting Pronouncements
--------------------------------
In June 2000, the SEC issued Staff Accounting Bulletin No. 101B, or SAB
101B. SAB 101B delays the effective date of Staff Accounting Bulletin No. 101,
or SAB 101, "Revenue Recognition in Financial Statements," to no later than the
fourth quarter of fiscal years beginning after December 15, 1999. SAB 101
provides guidance on revenue recognition and the SEC staff's views on the
application of accounting principles to selected revenue recognition issues.
The interpretation of SAB 101 is currently uncertain as it relates to
biotechnology companies and, consequently, the impact on the Company's financial
statements is unknown. The Company is currently evaluating the impact of SAB
101 on the accounting for license fees received under collaboration agreements.
Should the Company determine that a change in the method of accounting for these
fees is necessary, such changes will be made in the fourth quarter of 2000.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation; an Interpretation of Accounting Principles Board Opinion No. 25."
Interpretation No. 44 clarifies the application of Interpretation of Accounting
Principles Board Opinion No. 25, or APB 25, and became effective on July 1,
2000. Interpretation No. 44 clarifies the definition of "employee" for purposes
of applying APB 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. The Company's
adoption of Interpretation No. 44 on July 1, 2000 did not have a material impact
on its consolidated financial statements.
Page 8
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133, as amended, is effective for
fiscal years beginning after June 15, 2000. SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. The Company does not expect the adoption of SFAS 133 will have a
material impact on its consolidated financial statements as the Company does not
currently hold any derivative instruments.
Page 9
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.
ICOS CORPORATION
Date: November 14, 2000 By: /s/ PAUL N. CLARK
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Paul N. Clark
Chairman of the Board of Directors,
Chief Executive Officer and President
Date: November 14, 2000 By: /s/ SANFORD S. HASKINS
---------------- ----------------------
Sanford S. Haskins
Acting Chief Financial Officer
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