1
- --------------------------------------------------------------------------------
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 SEPTEMBER 30, 1997
[ ] 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 0-18231
ATRIX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1043826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2579 MIDPOINT DRIVE FORT COLLINS, COLORADO 80525
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (970) 482-5868
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
--- ---
The number of shares outstanding of the registrant's common stock as of
October 22, 1997 was 11,175,909.
- --------------------------------------------------------------------------------
1
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATRIX LABORATORIES, INC.
BALANCE SHEETS
September 30, December 31,
1997 1996
-----------------------------
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 13,292,007 $ 18,368,472
Restricted cash equivalents -- 7,000,000
Marketable securities, at fair value 8,295,264 6,040,389
Accounts receivable, net of allowance for doubtful accounts of 984,227 681,290
$9,355 and $10,000
Interest receivable 82,472 154,128
Inventories 951,087 303,505
Prepaid expenses and deposits 526,500 301,321
------------ ------------
Total current assets 24,131,557 32,849,105
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment 7,718,233 5,888,007
Leasehold improvements 605,107 565,608
------------ ------------
Total 8,323,340 6,453,615
Accumulated depreciation and amortization (2,206,840) (1,687,056)
------------ ------------
Property, plant and equipment, net 6,116,500 4,766,559
------------ ------------
OTHER ASSETS -
Intangible assets, net of accumulated amortization of 994,917 847,830
$84,934 and $69,624
------------ ------------
TOTAL $ 31,242,974 $ 38,463,494
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 1,434,977 $ 933,147
Accrued salaries and payroll taxes 95,899 88,868
Short term debt 452,932 --
Other accrued liabilities 114,967 155,657
Deferred revenue -- 7,002,192
------------ ------------
Total current liabilities 2,098,775 8,179,864
------------ ------------
COMMITMENTS AND CONTINGENCIES
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;
11,172,876 and 11,113,624 shares issued and outstanding 11,173 11,114
Additional paid-in capital 73,193,153 72,913,274
Unrealized holding loss on marketable securities (94,846) (152,641)
Accumulated deficit (43,965,281) (42,488,117)
------------ ------------
Total shareholders' equity 29,144,199 30,283,630
------------ ------------
TOTAL $ 31,242,974 $ 38,463,494
============ ============
See notes to financial statements
2
3
ATRIX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
REVENUE: 1997 1996
------------ ------------
Sales $ 355,203 $ 163,367
Contract revenue 368,095 343,571
Interest income 314,913 421,045
Other income (loss) (28,305) 37,702
------------ ------------
Total revenue 1,009,906 965,685
------------ ------------
EXPENSES:
Cost of goods sold 292,521 77,702
Research and development
ATRIDOX(TM)product 1,465,679 1,025,620
Other 1,576,260 1,210,127
Administrative and marketing 500,906 1,094,750
------------ ------------
Total expenses 3,835,366 3,408,199
------------ ------------
NET LOSS $ (2,825,460) $ (2,442,514)
============ ============
NET LOSS PER COMMON SHARE $ (0.25) $ (0.22)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 11,128,756 11,083,217
============ ============
See notes to financial statements
3
4
ATRIX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
REVENUE: 1997 1996
------------ ------------
Sales $ 1,108,871 $ 283,328
Contract revenue 656,635 745,142
Sale of marketing rights 7,100,000 --
Interest income 1,108,632 858,594
Other income (loss) (14,954) 74,135
------------ ------------
Total revenue 9,959,184 1,961,199
------------ ------------
EXPENSES:
Cost of goods sold 867,061 165,316
Research and development
o ATRIDOX(TM) product 4,376,405 3,813,512
o Other 4,610,255 3,578,008
Administrative and marketing 1,582,627 2,256,266
------------ ------------
Total expenses 11,436,348 9,813,102
------------ ------------
NET LOSS $ (1,477,164) $ (7,851,903)
============ ============
NET LOSS PER COMMON SHARE $ (0.13) $ (0.80)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 11,119,312 9,832,847
============ ============
See notes to financial statements
4
5
ATRIX LABORATORIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
Net
Additional Unrealized Total
Common Stock 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 59,252 59 279,879 -- -- 279,938
Unrealized holding gain -- -- -- 57,795 -- 57,795
Net loss for the period -- -- -- -- (1,477,164) (1,477,164)
---------- ------------ ------------ ------------ ------------ ------------
BALANCE, September 30, 1997 11,172,876 $ 11,173 $ 73,193,153 $ (94,846) $(43,965,281) $ 29,144,199
========== ============ ============ ============ ============ ============
See notes to financial statements
5
6
ATRIX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,477,164) $ (7,851,903) 1
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation 568,970 386,680
Amortization 18,687 52,848
Gain on sale of marketable securities -- (36,419)
(Gain)/loss on sale of property, plant and equipment 28,104 (32,272)
Write-off of obsolete patents -- 4,942
Net changes in current assets and liabilities:
Restricted cash equivalents 7,000,000 --
Accounts receivable (302,936) (370,189)
Interest receivable 71,656 57,868
Inventories (647,582) (135,140)
Prepaid expenses and deposits (225,179) (46,890)
Accounts payable - trade 501,830 (872,415)
Accrued salaries and payroll taxes 7,031 8,018
Short term debt 452,932 --
Other accrued liabilities (40,690) 3,872
Deferred revenue (7,002,192) --
------------ ------------
Net cash used in operating activities (1,046,533) (8,831,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (1,913,372) (4,021,236)
Acquisition of leasehold improvements (39,499) (39,403)
Investments in intangible assets (162,398) (119,134)
Proceeds from sale of equipment 5,856 167,560
Proceeds from sale of marketable securities -- 4,070,501
Proceeds from maturities of marketable securities 991,127 1,000,000
Investment in marketable securities (3,191,584) (174,122)
------------ ------------
Net cash (used in) provided by investing activities (4,309,870) 884,166
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and exercise of stock options 279,938 28,305,728
------------ ------------
Net cash provided by financing activities 279,938 28,305,728
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,076,465) 20,358,894
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,368,472 925,487
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,292,007 $ 21,284,381
============ ============
See notes to financial statements
6
7
ATRIX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 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.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). Generally, SFAS 130 establishes standards for reporting and display
of comprehensive income in financial statements. All components of comprehensive
income shall be reported in the financial statements in the period in which they
are recognized. A total amount for comprehensive income shall be displayed in
the financial statement where the components of other comprehensive income are
reported. The statement divides comprehensive income into net income and other
comprehensive income. Items included in other comprehensive income shall be
classified separately based on their nature and include foreign currency items,
minimum pension liability adjustments, and unrealized gains and losses in
certain investments in debt and equity securities. The total of other
comprehensive income for a period shall be transferred to a component of equity
that is accumulated and displayed separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet. SFAS 130
is effective for periods beginning after December 15, 1997, and will require
reclassification of all prior periods presented in the financial statements. The
Company does not expect the adoption of SFAS 130 to materially effect its
financial statement presentation.
7
8
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:
September 30, December 31,
1997 1996
------------- ------------
Raw Materials $688,676 $228,533
Work in Process 150,474 13,435
Finished Goods 111,937 61,537
-------- --------
$951,087 $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 revenue from the sale of marketing rights during the three
months ended March 31, 1997.
NOTE 4. CREDIT AGREEMENT
In August 1997, the Company closed on a line of credit agreement with a bank.
Under the terms of the line of credit, the Company may borrow up to $1,000,000.
Borrowings under the line bear interest at the prime rate. As of September 30,
1997, the Company has borrowed $452,932 under this agreement.
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.
8
9
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1996
The Company had revenue from product sales of approximately $355,000
during the three months ended September 30, 1997 compared to approximately
$163,000 for the three months ended September 30, 1996, representing a 118%
increase. The increase is primarily due to the increased sales of the
ATRISORB(R)GTR Barrier in the United States as a result of the Block Agreement.
The Company expects to receive additional future revenue upon the achievement of
certain milestones which, under the Block Agreement, result in substantial
payments. Additionally, the Company anticipates to receive increased royalties
from Block as sales of the ATRISORB(R)GTR Barrier product increase.
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
$368,000 for the three months ended September 30, 1997, compared to
approximately $344,000 for the three months ended September 30, 1996.
Interest income for the three months ended September 30, 1997, was
approximately $315,000 compared to approximately $421,000 for the three months
ended September 30, 1996, representing a 25% decrease. Interest income decreased
due to a reduction in principal investments resulting primarily from increased
capital investment in manufacturing facilities and equipment as well as normal
operating expenses. 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 September 30,
1997 was approximately $293,000 compared to approximately $78,000 for the period
ended September 30, 1996. The increase is primarily due to increased sales of
the ATRISORB(R)GTR Barrier in the United States as a result of the Block
Agreement.
Research and development expenses - ATRIDOX(TM)product for the three
months ended September 30, 1997, were approximately $1,466,000 compared to
approximately $1,026,000 for the three months ended September 30, 1996,
representing a 43% increase. This increase was primarily the result of
additional spending on new product development.
Other research and development expenses, which included activities for
the ATRISORB(R) Barrier and other research activities for the three months ended
September 30, 1997, were approximately $1,576,000 compared to approximately
$1,210,000 for the three months ended September 30, 1996, representing a 30%
increase. The increase was primarily a result of increased expenditures in new
areas of research using the existing technology.
Administrative and marketing expenses decreased to approximately
$501,000 for the three months ended September 30, 1997, from approximately
$1,095,000 for the three months ended September 30, 1996, representing an 54%
decrease. The primary reason for this decrease was the reduction in sales and
marketing expenses related to the ATRISORB(R)GTR Barrier product, since those
functions are now performed by Block. The Company expects sales and marketing
expenses to continue to decrease through 1997 as a result of the Block
Agreement.
9
10
The Company recorded a net loss of approximately $2,825,000 for the
three months ended September 30, 1997, compared to a net loss of approximately
$2,443,000 for the three months ended September 30, 1996, representing a 16%
increase. The increased loss was primarily the result of the increase in
research and development expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30,1996
The Company had revenue from product sales of approximately $1,109,000
during the nine months ended September 30, 1997 compared to approximately
$283,000 for the nine months ended September 30, 1996, representing a 292%
increase. The increase is primarily due to the increased sales of the
ATRISORB(R)GTR Barrier in the United State as a result of the Block Agreement.
The Company expects to receive additional future revenue upon the achievement of
certain milestones which, under the Block Agreement, result in substantial
payments. Additionally, the Company anticipates to receive increased royalties
from Block as sales of the ATRISORB(R)GTR Barrier product increase.
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
$657,000 for the nine months ended September 30, 1997, compared to approximately
$745,000 for the nine months ended September 30, 1996.
Interest income for the nine months ended September 30, 1997, was
approximately $1,109,000 compared to approximately $859,000 for the nine months
ended September 30, 1996, representing an 29% 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 nine months ended September 30,
1997 was approximately $867,000 compared to approximately $165,000 for the
period ended September 30, 1996, representing a 425% increase. The increase is
primarily due to the increased sales of the ATRISORB(R)GTR Barrier in the United
States as a result of the Block Agreement.
Research and development expenses - ATRIDOX(TM)product for the nine
months ended September 30, 1997, were approximately $4,376,000 compared to
approximately $3,814,000 for the nine months ended September 30, 1996,
representing a 15% increase. This increase was primarily the result of
additional spending on new product development.
Other research and development expenses, which included activities for
the ATRISORB(R) GTR Barrier and other research activities were approximately
$4,610,000 for the nine months ended September 30, 1997, compared to
approximately $3,578,000 for the nine months ended September 30, 1996,
representing a 29% increase. The increase was primarily a result of additional
expenditures in new areas of research using the existing technology.
Administrative and marketing expenses decreased to approximately
$1,583,000 for the nine months ended September 30, 1997, from approximately
$2,256,000 for the nine months ended September 30, 1996, representing a 30%
decrease. The primary reason for this decrease was the reduction in sales and
marketing expenses related to the ATRISORB(R)GTR Barrier product, since those
functions are currently performed by Block. The Company expects sales and
marketing expenses to continue to decrease through 1997 as a result of the Block
Agreement.
10
11
The Company recorded a net loss of approximately $1,477,000 for the
nine months ended September 30, 1997, compared to a net loss of approximately
$7,852,000 for the nine months ended September 30, 1996, representing a 81%
decrease. The reduction in net loss was primarily the result of the receipt of
the payment of $7,000,000 from Block.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had cash and cash equivalents of
approximately $13,292,000, marketable securities of approximately $8,295,000 and
other current assets of approximately $2,544,000, for total current assets of
approximately $24,131,000. Current liabilities totaled approximately $2,099,000,
which resulted in working capital of approximately $22,032,000.
During the nine months ended September 30, 1997, net cash used in
operating activities was approximately $1,047,000. This was primarily a result
of the net loss for the period of approximately $1,477,000, adjusted for certain
non-cash expenses, and changes in other operating assets and liabilities as set
forth in the statements of cash flows.
Net cash used in investing activities was approximately $4,310,000
during the nine months ended September 30, 1997, primarily as a result of the
net investment in marketable securities during the period and the acquisition of
property, plant and equipment for the manufacturing facility.
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 $1,953,000 for property, plant and equipment
and leasehold improvements, and approximately $162,000 for patent development in
the nine month period ended September 30, 1997. The Company expects its capital
expenditures to be approximately $2,100,000 for the year ending December 31,
1997, which will be primarily used to complete the manufacturing facility.
11
12
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
1. A Current Report on Form 8-K, dated September 22, 1997,
was filed with the Securities and Exchange Commission under Item 5 regarding the
decision of Block Drug Corporation to market Atridox (TM) in Canada and Atrix'
pursuit of marketing opportunities for Atridox(TM) in Europe.
No other reports on Form 8-K were filed during the period
ended September 30, 1997.
12
13
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)
October 27, 1997 By: /s/ John E. Urheim
-------------------------------------------
John E. Urheim
Vice Chairman of the Board of Directors
and Chief Executive Officer
October 27, 1997 By: /s/ Brian G. Richmond
------------------------------------------
Brian G. Richmond
Corporate Controller, Assistant Secretary,
and Assistant Treasurer
13
14
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule