UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended March 31, 1998
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 0-22927
CRESCENDO PHARMACEUTICALS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0460388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1454 Page Mill Road, Palo Alto, California 94304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 494-5600
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
Number of shares outstanding of each of the registrant's classes
of common stock as of April 30, 1998:
Class A Common Stock, $.01 par value - 4,965,470 shares
Class B Common Stock, $1.00 par value - 1,000 shares
CRESCENDO PHARMACEUTICALS CORPORATION
FORM 10-Q for the Quarter Ended
March 31, 1998
INDEX
Part I. Financial Information
Item 1. Financial Statements
Statement of Operations 3
Balance Sheet 4
Statement of Cash Flows 5
Notes to Financial Statements 6-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-15
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibits
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Crescendo Pharmaceuticals Corporation
(a development stage company)
Statement of Operations (unaudited)
(in thousands, except per share amounts)
Three months Period from inception
ended (June 26, 1997)
March 31, to March 31,
1998 1998
________________________________________________________________
Revenues:
Net interest and
investment income $ 3,838 $ 7,921
Expenses:
Research and development
performed under
contract with ALZA
Corporation 21,425 53,704
General and administrative 295 540
________________________________________________________________
Total expenses 21,720 54,244
________________________________________________________________
Net loss $(17,882) $ (46,323)
================================================================
Net loss per common share
Basic $ (3.60) $ (13.91)
================================================================
Diluted $ (3.60) $ (13.91)
================================================================
See accompanying notes.
Crescendo Pharmaceuticals Corporation
(a development stage company)
Balance Sheet (unaudited)
(in thousands, except number of shares and per share amounts)
March 31, December 31,
1998 1997
________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 68,530 $179,971
Short-term investments 70,073 29,601
Interest receivable 1,945 967
Prepaid expenses and other
current assets 334 110
________________________________________________________________
Total current assets 140,882 210,649
Employee loan 300 300
Long-term investments 126,328 75,638
________________________________________________________________
Total assets $ 267,510 $286,587
================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to ALZA Corporation $ 13,769 $ 15,068
Accrued liabilities 61 40
________________________________________________________________
Total current liabilities 13,830 15,108
Stockholders' equity:
Class A Common Stock, $0.01 par value,
6,000,000 shares authorized; 4,965,470
issued and outstanding 50 50
Class B Common Stock, $1.00 par value,
1,000 shares authorized, issued and
outstanding 1 1
Additional paid-in capital 299,949 299,949
Accumulated other comprehensive income
(loss) 3 (80)
Deficit accumulated during development
stage (46,323) (28,441)
________________________________________________________________
Total stockholders' equity 253,680 271,479
________________________________________________________________
Total liabilities and
stockholders' equity $ 267,510 $286,587
================================================================
See accompanying notes.
Crescendo Pharmaceuticals Corporation
(a development stage company)
Statement of Cash Flows (unaudited)
Increases (Decreases) in Cash and Cash Equivalents
(in thousands)
Period
from inception
Three months ended (June 26, 1997)
March 31, 1998 to March 31,
1998
_________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (17,882) $ (46,323)
Non-cash adjustments to reconcile
net loss to net cash used in
operating activities:
Increase in assets:
Interest receivable (978) (1,945)
Prepaid expenses and other
assets (224) (334)
Increase (decrease) in liabilities:
Payable to ALZA Corporation (1,299) 13,769
Accrued liabilities 21 61
_________________________________________________________________
Total Adjustments (2,480) 11,551
Net cash used in operating activities (20,362) (34,772)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale
securities (91,703) (197,022)
Sales of available-for-sale
securities 624 624
Employee loan, long-term - (300)
_________________________________________________________________
Net cash used in investing activities (91,079) (196,698)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock to
ALZA Corporation - 300,000
_________________________________________________________________
Net cash provided by financing
activities - 300,000
_________________________________________________________________
Net increase (decrease) in cash and
cash equivalents (111,441) 68,530
_________________________________________________________________
Cash and cash equivalents
at beginning of period 179,971 -
_________________________________________________________________
Cash and cash equivalents
at end of period $ 68,530 $ 68,530
================================================================
See accompanying notes.
Crescendo Pharmaceuticals Corporation
(a development stage company)
Notes to Financial Statements (unaudited)
Note 1. Basis of Presentation and Significant Accounting Policies
Crescendo Pharmaceuticals Corporation ("Crescendo") was
incorporated in Delaware on June 26, 1997 and commenced
operations on September 30, 1997. Crescendo was formed for the
purpose of selecting and developing human pharmaceutical products
and commercializing such products, most likely through licensing
to ALZA Corporation ("ALZA"). Since its formation, Crescendo's
principal activities have been obtaining capital from ALZA and
participating in the distribution of Crescendo's Class A Common
Stock (the "Crescendo Shares") to ALZA's stockholders and
debenture holders, recruiting a chief executive officer and a
board of directors and commencing product development under its
agreements with ALZA. In accordance with generally accepted
accounting principles, Crescendo is considered a development
stage company.
The information at March 31, 1998, for the quarter ended March
31, 1998 and the period from inception through March 31, 1998 is
unaudited, and includes all adjustments (consisting only of
normal recurring adjustments) that the management of Crescendo
believes necessary for fair presentation of the results for the
periods presented. Interim results are not necessarily
indicative of the results for the full year. The balance sheet
for December 31, 1997 was derived from the audited balance sheet.
The financial statements should be read in conjunction with the
audited financial statements and accompanying notes for the year
ended December 31, 1997 included in Crescendo's 1997 Annual
Report on Form 10-K.
Accounting for Revenues and Expenses
Crescendo's revenue currently consists solely of interest and
investment income. If and when any product of Crescendo is
commercialized, Crescendo will also derive revenue from the sale
or license of its products, most likely through the sale of
licensed products by third parties. Royalty and other product
revenue will be recorded as earned.
Crescendo expects to incur most of its expenses under its
agreements with ALZA. Development costs paid to ALZA under a
Development Agreement, and a Technology Fee (as defined below)
paid to ALZA under a Technology License Agreement, will be
recorded as research and development expenses when incurred.
Amounts paid to ALZA under a Services Agreement will be recorded
as administrative expenses when incurred. See Note 4 for a
description of the agreements between Crescendo and ALZA.
Use of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents include cash balances and
investments with maturities of three months or less at the time
of purchase. Short-term investments include commercial paper and
other highly liquid investments with maturities less than one
year. The carrying amount reported on the balance sheet for
cash, cash equivalents and short-term investments approximates
their fair value.
Recently Issued Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for
annual and interim disclosures of operating segments, products
and services, geographic areas and major customers, and is
effective in 1998. The adoption of SFAS 131 will have no impact
on Crescendo's results of operations or financial condition.
Comprehensive Income (Loss)
As of January 1, 1998, Crescendo adopted Statement of
Financial Accounting Standards No 130, "Reporting Comprehensive
Income" ("SFAS 130") which establishes standards for reporting
comprehensive income and its components. Comprehensive income
(loss) includes net income (loss) plus other comprehensive income
(loss). For Crescendo, other comprehensive income (loss)
primarily comprises net unrealized gains or losses on available-
for-sale securities. For the quarter ended March 31, 1998 and for
the period from inception through March 31, 1998 Crescendo had
comprehensive loss, which was not material. Total comprehensive
loss for the quarter ended March 31, 1998 and the period from
inception through March 31, 1998 approximates net loss for these
periods. The adoption of SFAS 130 had no impact on Crescendo's
results of operations or financial condition.
Note 2. Investments
Crescendo has classified its entire investment portfolio,
including cash and cash equivalents of approximately $68.5
million at March 31, 1998, as available-for-sale. Investments in
the available-for-sale category are carried at fair market value
with unrealized gains and losses recorded as a separate component
of stockholders' equity. Realized gains and losses for the
period ended March 31, 1998 were not material. The cost of
securities when sold is based upon specific identification.
The following is a summary of available-for-sale securities
at March 31, 1998 (in thousands):
Available-for-Sale Securities
_________________________________________________________________
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
_________________________________________________________________
U.S. Treasury
securities and
obligations of
U.S. government
agencies $ 83,333 $ 24 $ (197) $ 83,160
Collateralized
mortgage
obligations and
asset backed
securities 33,917 37 (37) 33,917
Corporate securities
(commercial paper,
corporate notes and
money market funds) 147,348 174 (4) 147,518
_________________________________________________________________
$ 264,598 $ 235 $ (238) $264,595
================================================================
The amortized cost and estimated fair value of debt and
marketable securities at March 31, 1998, by contractual maturity,
are shown below (in thousands). Expected maturities will differ
from contractual maturities because the issuers of the securities
may have the right to prepay obligations without prepayment
penalties.
Estimated
Amortized Fair
Cost Value
_________________________________________________________________
Due in one year or less $ 138,183 $ 138,266
Due after one year through
three years 77,082 76,967
Due after three years through
five years 49,333 49,362
_________________________________________________________________
$ 264,598 $ 264,595
================================================================
Investment Risk
Crescendo invests excess cash in money market and fixed
income securities of companies with strong credit ratings, from a
variety of industries, and in U.S. government obligations. These
securities typically bear minimal credit risk and Crescendo has
not experienced any losses on its investments to date due to
credit risk.
Note 3. Per Share Information
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings per Share" ("SFAS 128"), which was
adopted for the year ended December 31, 1997. Under SFAS 128,
basic earnings per share is calculated by dividing net income
(loss) by the weighted average common shares outstanding for the
period. Diluted earnings (loss) per share is calculated by
dividing net income (loss) by the weighted average common shares
outstanding for the period plus the dilutive effect of stock
options, warrants and convertible securities.
The following table sets forth the computation of
Crescendo's basic and diluted loss per share:
Period from inception
Three months ended (June 26, 1997) to
March 31, 1998 March 31, 1998
__________________________________________________________________
NUMERATOR (in thousands):
Basic and Diluted
Net loss $ (17,882) $(46,323)
================================================================
DENOMINATOR (in thousands):
Basic and Diluted
Weighted average shares
outstanding $ 4,966 $ 3,329
================================================================
Basic net loss per share $ (3.60) $ (13.91)
================================================================
Diluted net loss per share $ (3.60) $ (13.91)
The potentially dilutive effect of outstanding options to
purchase 100,000 shares of Crescendo Class A Common Stock would
have been anti-dilutive in the three months ended March 31, 1998
and for the period from inception through March 31, 1998, and
they were therefore excluded from the diluted per share
calculations.
Note 4. Arrangements with ALZA Corporation
On September 29, 1997, ALZA contributed $300 million in cash
to Crescendo. On September 30, 1997, all of the Crescendo
Shares, a total of 4,965,470, were distributed to the holders of
ALZA common stock and ALZA's convertible subordinated debentures.
Crescendo Shares are traded on The NASDAQ Stock Market (service
mark) under the symbol "CNDO." ALZA holds 1,000 shares of
Crescendo Class B Common Stock.
In connection with ALZA's contribution to Crescendo and the
distribution of Crescendo Shares, Crescendo and ALZA entered into
a number of agreements, including a Development Agreement,
Technology License Agreement, License Option Agreement and
Services Agreement, discussed below.
Crescendo and ALZA have entered into a Development Agreement
pursuant to which ALZA conducts product development and related
activities on behalf of Crescendo under work plans and cost
estimates which have been proposed by ALZA and approved by
Crescendo. Crescendo is required to utilize the cash initially
contributed to it by ALZA plus interest thereon, less Crescendo's
administrative expenses, the Technology Fee paid to ALZA and
reserves of up to $2 million (the "Available Funds") to conduct
activities under the Development Agreement.
Under the Development Agreement, Crescendo agreed to fund the
development of seven products (the "Initial Products"), the
development of which was commenced by ALZA and Therapeutic
Discovery Corporation ("TDC"), from August 25, 1997, the date on
which TDC ceased funding such products, through October 31, 1997.
The Initial Products are OROS (registered trade mark) oxybutynin,
DUROS (trade mark) leuprolide, OROS (registered trade mark)
methylphenidate, IUTS progesterone, D-TRANS (trade mark)
testosterone matrix, E-TRANS (trade mark) LHRH and E-TRANS (trade
mark) Macroflux (trade mark) insulin. Continuation of
development of the Initial Products after October 31, 1997 was
subject to ALZA proposing, and Crescendo's Board of Directors
accepting, work plans and cost estimates for the Initial
Products. As of March 31, 1998, five of the seven initial
products (OROS oxybutynin, DUROS leuprolide, OROS
methylphenidate, E-TRANS LHRH and E-TRANS Macroflux insulin) were
in active development. On ALZA's recommendation, Crescendo is no
longer funding additional development of the IUTS progesterone
and D-TRANS testosterone matrix products. For the quarter ended
March 31, 1998, Crescendo recorded research and development
expenses of $21.4 million, including a Technology Fee expense of
$3.0 million. For the period from inception through March 31,
1998, Crescendo recorded research and development expenses of
$53.7 million, including a Technology Fee expense of $7.0
million, discussed below.
Crescendo and ALZA have entered into a Technology License
Agreement pursuant to which ALZA has granted to Crescendo a
worldwide license to use ALZA technology solely to select and
develop human pharmaceutical products (the "Crescendo Products")
(including the Initial Products), to conduct related activities,
and to commercialize such products. In exchange for the license
to use existing ALZA technology relating to the Initial Products,
Crescendo pays a Technology Fee to ALZA, monthly over a period of
three years, in the amount of $1 million per month for the first
12 months following the distribution of Crescendo Shares,
$667,000 per month for the following 12 months and $333,000 per
month for the next 12 months (the "Technology Fee"). The
Technology Fee will no longer be payable at such time as fewer
than two of the Initial Products are being developed by Crescendo
and/or have been licensed by ALZA pursuant to the License Option
(defined below) Crescendo recorded a Technology Fee expense of
$3.0 million for the quarter ended March 31, 1998, and $7.0
million for the period from inception through March 31, 1998.
The Technology Fee is included in research and development
expenses.
Pursuant to the License Option Agreement entered into by
Crescendo and ALZA, Crescendo has granted ALZA an option to
acquire a license to each Crescendo Product (the "License
Option"). The License Option for any such Crescendo Product is
exercisable on a country-by-country basis at any time until (i)
with respect to the United States, 30 days after clearance by the
FDA to market such Crescendo Product in the United States and
(ii) with respect to any other country, 90 days after the earlier
of (a) clearance by the appropriate regulatory agency to market
the Crescendo Product in such country and (b) clearance by the
FDA to market the Crescendo product in the United States. The
License Option will expire, to the extent not previously
exercised, 30 days after the expiration of ALZA's option to
purchase all of the outstanding Crescendo Shares, described
below. If and to the extent the License Option is exercised as
to any Crescendo Product, ALZA will acquire a perpetual,
exclusive license (with the right to sublicense) to develop,
make, have made and use the licensed product, and to sell and
have sold the licensed product in the country or countries as to
which the License Option is exercised.
Under the License Agreement for each licensed product (a
form of which is attached to the License Option Agreement), ALZA
will make payments to Crescendo with respect to the licensed
product equal to 1% of net sales of the licensed product by ALZA
and its sublicensees, distributors and marketing partners, plus
an additional 0.1% of such net sales for each full $1 million of
development costs (as defined in the Development Agreement) of
the licensed product that have been paid by Crescendo, not to
exceed 2.5% of net sales in the first year a licensed product is
sold in a major market country, and not to exceed 3% for the
following two years. ALZA has the right to buy out Crescendo's
right to receive payments for licensed products on a country-by-
country or global basis in accordance with a formula set forth in
the License Agreement.
Pursuant to Crescendo's Restated Certificate of Incorporation,
ALZA has a purchase option which gives ALZA the right to purchase
all (but not less than all) of the Crescendo Shares (the "Purchase
Option"). The Purchase Option will be exercisable by written notice
to Crescendo at any time until January 31, 2002, provided that such
date will be extended for successive six month periods if, as of any
July 31 or January 31 beginning with July 31, 2001, Crescendo has
not paid (or accrued expenses for) at least 95% of Available Funds
pursuant to the Development Agreement. In any event, the Purchase
Option will terminate on the 60th day after Crescendo provides ALZA
with a statement that, as of the end of any calendar month, there
are less than $2.5 million of Available Funds remaining, accompanied
by a report of Crescendo's independent auditors.
If the Purchase Option is exercised, the exercise price will
be the greatest of:
(a)(i) 25 times the actual payments made by or due from ALZA to
Crescendo under the Development Agreement and the License
Agreement for any product (and, in addition, such payments as
would have been made by or due from ALZA to Crescendo if ALZA
had not previously exercised its payment buy-out option with
respect to any such payments) for the four calendar quarters
immediately preceding the quarter in which the Purchase
Option is exercised (provided, however, that for any product
which has not been commercially sold during each of such four
calendar quarters, the portion of the exercise price for such product
will be 100 times the average of the quarterly payments made
by or due from ALZA to Crescendo for each of such calendar
quarters during which such product was commercially sold)
less (ii) any amounts previously paid to exercise any payment
buy-out option;
(b) the fair market value of one million shares of ALZA common
stock;
(c) $325 million less all amounts paid by or due from Crescendo
under the Development Agreement to the date the Purchase
Option is exercised; and
(d) $100 million.
In each case, the amount payable as the Purchase Option
exercise price will be reduced to the extent, if any, that
Crescendo's liabilities at the time of exercise (other than
liabilities under the Development Agreement, the Technology
License Agreement and the Services Agreement, described below)
exceed Crescendo's cash and cash equivalents, and short-term and
long-term investments (excluding the amount of Available Funds
remaining at such time). ALZA may pay the exercise price in
cash, in ALZA common stock or in any combination of cash and ALZA
common stock.
Crescendo and ALZA have entered into a Services Agreement
pursuant to which ALZA has agreed to provide Crescendo with
administrative services, including accounting and legal services,
on a fully-burdened cost reimbursement basis. The Services
Agreement has a one-year term and will be renewed automatically
for successive one-year terms during the term of the Development
Agreement unless terminated by Crescendo at any time upon 60
days' written notice. General and administrative expenses
incurred under this agreement for the quarter ended March 31,
1998 and the period from inception through March 31, 1998 were
$0.3 million and $0.5 million, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Notice Concerning Forward-Looking Statements
Some of the statements made in this Form 10-Q are forward-
looking in nature. Forward-looking statements include but are
not limited to statements that are not historical facts and
statements including forms of the words "intend", "believe",
"will", "may", "could", "expect", "anticipate", "possible" and
similar terms. The occurrence of the events described, and the
achievement of the intended results, are subject to the future
occurrence of many events, some or all of which are not
predictable or within Crescendo's control (including without
limitation any possible future actions by ALZA) and various risk
factors; therefore, actual results may differ materially from
those anticipated in any forward-looking statements. The
significant risks related to Crescendo's business are those
associated with technology and product development, clinical
development, product manufacturing, regulatory clearance to
market products, changes in the health care marketplace, patent
and intellectual property matters, medical and market acceptance
of products (including third party reimbursements),
commercializing products (including competition), conflicts of
interest between ALZA and Crescendo and the risk of a lack of
funds to complete the development of products. Such risks are
described in more detail in Crescendo's Annual Report on Form 10-
K for the year ended December 31, 1997.
Results of Operations
Revenues, consisting of net interest and investment income
earned on invested funds, were approximately $3.8 million for the
quarter ended March 31, 1998 and $7.9 million from Crescendo's
inception (June 26, 1997) through March 31, 1998. As Crescendo's
funds are used under the Development Agreement and to pay the
Technology Fee, lower cash balances will be available for
investment and, therefore, interest and investment income is
expected to decrease. During the period in which all of
Crescendo's products are under development and applications for
regulatory clearance are submitted and reviewed, Crescendo does
not anticipate revenues other than from interest and investment
income.
Crescendo incurred research and development expenses of
approximately $21.4 million and $53.7 million for the quarter
ended March 31, 1998 and the period from inception through March
31, 1998, respectively. These expenses related primarily to
development of the Initial Products from August 25, 1997, the
date TDC ceased funding such products, through March 31, 1998 and
payment of Technology Fees of $3.0 million to ALZA during the
quarter ended March 31, 1998 ($7 million from inception through
March 31, 1998). Crescendo's research and development expenses
are expected to continue at approximately current levels during
1998, although quarterly fluctuations can be expected. Research
and development expenses are expected to increase in 1998 over
1997 as Crescendo will be conducting a full year of operations.
General and administrative expenses for the quarter ended
March 31, 1998 were $0.3 million and were $0.5 million for the
period from inception through March 31, 1998. It is anticipated
that such expenses will increase during 1998 over 1997 as
Crescendo will be conducting a full year of operations. Expenses
incurred by Crescendo under its Services Agreement with ALZA were
approximately $50,000 for the three months ended March 31, 1998
and $92,000 for the period from inception through March 31, 1998.
The results of operations of Crescendo currently reflect
primarily interest and investment income on the funds contributed
by ALZA, and research and development expenses related to
development of Crescendo Products and the Technology Fee.
Crescendo's net loss for the quarter ended March 31, 1998 was
$17.9 million or $3.60 per share. The net loss from its inception
through March 31, 1998 was $46.3 million, or $13.91 per share.
Crescendo is expected to continue to record significant net
losses in future periods, as product development expenses under
its agreements with ALZA are expected to continue to exceed
income. Crescendo anticipates that the net loss for 1998 will be
substantially higher than the net loss for 1997, reflecting
Crescendo's first full year of operations.
Under its agreements with ALZA, Crescendo depends upon
ALZA's operating and accounting systems. ALZA has indicated to
Crescendo that the majority of ALZA's operating and accounting
systems are year 2000 compliant. Also, Crescendo plans to
request confirmation of year 2000 compliance from its investment
managers. Crescendo therefore does not currently expect its
financial condition or results of operations to be materially
adversely affected by year 2000 issues.
Liquidity and Capital Resources
On September 29, 1997, ALZA contributed $300 million in cash
to Crescendo in exchange for the Crescendo Shares. On September
30, 1997, ALZA distributed the Crescendo Shares to holders of
ALZA common stock and ALZA's outstanding convertible subordinated
debentures, and Crescendo commenced operations. The funds
contributed by ALZA, plus investment income earned thereon, will
be used primarily to fund the development of Crescendo Products
and to conduct related activities. Funds not immediately required
for development activities will be invested in low-risk
securities.
At March 31, 1998 and December 31, 1997, Crescendo had cash,
cash equivalents and investments of approximately $264.9 million
and $285.2 million, respectively. Crescendo's cash expenditures
for operating activities were approximately $20.4 million for the
three months ended March 31, 1998 and approximately $34.8 million
for the period from inception through March 31, 1998. As
Crescendo's funds continue to be utilized under the Development
Agreement and to pay the Technology Fee to ALZA, increasingly
lower cash balances will be available for investment.
Based on anticipated spending levels for the continued
development of all the current Crescendo Products, it is expected
that Crescendo's funds for product development will be exhausted
during the next few years. At that time, product development
funding by Crescendo will cease. However, several factors could
impact the level and timing of Crescendo funding, including the
addition of any new Crescendo Products, the discontinuation of the
development of any Crescendo Products, any commercial arrangements
between ALZA and other companies which would cause ALZA to exercise
its License Option with respect to any Crescendo Product, any change
in the number of projects advancing to or continuing in later stages
of development or any adjustments in the rate of spending on
products currently in development.
When Crescendo's cash available for product development is
exhausted, certain critical timetables will be triggered. First,
ALZA's Purchase Option with respect to all of the Crescendo Shares
will terminate on the 60th day after Crescendo provides ALZA with a
statement that, as of the end of any calendar month, there are less
than $2.5 million of Available Funds remaining, accompanied by a
report of Crescendo's independent auditors. In addition, ALZA has
the right, for 30 days after expiration of the Purchase Option, to
license any or all Crescendo Products which have not yet been
licensed, on a product-by-product and country-by-country basis.
ALZA is under no obligation to exercise the Purchase Option or the
License Option with respect to any Crescendo Product and will do so
only if ALZA determines that it is in the best interests of ALZA and
its stockholders at the time the decision is made. In the event
that ALZA does not exercise the Purchase Option or the License
Option for all Crescendo Products after Crescendo's cash available
for product development is exhausted, Crescendo will not have funds
to continue or complete development of any remaining products.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter.
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.
Crescendo Pharmaceuticals
Corporation
Date: May 14, 1998 By: /s/ Gary L. Neil
_________________________________
Gary L. Neil
President and
Chief Executive Officer
Date: May 14, 1998 By: /s/ David R. Hoffmann
_________________________________
David R. Hoffmann
Vice President, Finance
and Secretary