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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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 June 30, 1996
/ / 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 0-19125
ISIS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
33-0336973
(I.R.S Employer Identification No.)
2292 Faraday Avenue, Carlsbad, CA 92008
(Address of principal executive offices, including zip code)
619-931-9200
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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 of 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.
(1) YES X (2) YES X
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
Common stock $.001 par value 25,674,548 shares
(Class) (Outstanding at July 26, 1996)
EXHIBIT INDEX: NO. 27 : FINANCIAL DATA SCHEDULE
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ISIS PHARMACEUTICALS, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
Condensed Balance Sheets as of June 30, 1996 and
December 31, 1995
Condensed Statements of Operations for the three months
and six months ended June 30, 1996 and 1995
Condensed Statements of Cash Flows for the six months
ended June 30, 1996 and 1995
Notes to Financial Statements
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Liquidity and Capital Resources
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings
ITEM 2: Changes in Securities
ITEM 3: Default upon Senior Securities
ITEM 4: Submission of Matters to a Vote of Security Holders
ITEM 5: Other Information
ITEM 6: Exhibits and Reports on Form 8-K
SIGNATURES
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ISIS PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
ASSETS
June 30, Dec 31
1996 1995
(Unaudited)
---------- --------
Current assets:
Cash and cash equivalents $ 25,520 $ 46,463
Short-term investments 43,051 30,944
Prepaid expenses and other current assets 1,649 1,638
------ ------
Total current assets 70,220 79,045
Property, plant and equipment, net 15,522 14,631
Patent cost, net 5,113 4,773
Deposits and other assets 768 1,120
------ ------
$ 91,623 $ 99,569
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 664 $ 997
Accrued payroll and related expenses 1,124 1,249
Accrued liabilities 2,866 2,838
Deferred contract revenues 11,281 8,913
Current portion of long-term debt and
capital lease obligations 4,972 5,008
------ ------
Total current liabilities 20,907 19,005
Long-term debt and capital lease obligations,
less current portion 4,884 4,714
Stockholders' equity:
Common stock, $.001 par value;
50,000,000 shares authorized,
25,616,000 shares and 25,249,000 shares
issued and outstanding at June 30, 1996 and
December 31, 1995, respectively 26 25
Additional paid-in capital 174,568 172,253
Unrealized gain on investments 158 118
Accumulated deficit (108,920) (96,546)
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Total stockholders' equity 65,832 75,850
------- -------
$ 91,623 $ 99,569
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The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
See accompanying notes
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ISIS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
(Unaudited)
Three months ended
June 30,
1996 1995
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Revenue:
Research and development revenue under
collaborative agreements: $ 4,719 $ 3,298
Interest Income 1,011 476
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5,730 3,774
Expenses:
Research and development 11,212 7,934
General and administrative 1,601 1,422
Interest expense 238 282
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13,051 9,638
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Net Loss $ (7,321) $ (5,864)
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Net Loss per share $ (.29) $ (.30)
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Weighted average common shares 25,459 19,833
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Six months ended
June 30,
1996 1995
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Revenue:
Research and development revenue under
collaborative agreements: $ 10,078 $ 5,868
Interest income 2,061 1,001
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12,139 6,869
Expenses:
Research and development 21,028 15,359
General and administrative 2,999 2,693
Interest expense 486 577
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24,513 18,629
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Net Loss $ (12,374) $(11,760)
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Net Loss per share $ (.49) $ (.59)
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Weighted average common shares 25,404 19,796
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See accompanying notes
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ISIS PHARMACEUTICALS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
Six months ended
June 30,
1996 1995
----- -----
Cash used in operations: $ (9,172) $ (9,038)
Investing activities:
Short-term investments (12,107) 13,251
Property and equipment (802) (135)
Other assets (18) (531)
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Net cash provided from (used in)
investing activities (12,927) 12,585
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Financing activities:
Net proceeds from issuance of common stock 2,316 3,771
Principal payments on debt and
capital lease obligations (1,160) (1,416)
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Net cash provided from financing
activities 1,156 2,355
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Net increase (decrease)in cash and
cash equivalents (20,943) 5,902
Cash and cash equivalents at beginning
of the period 46,463 12,926
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Cash and cash equivalents at end of period $ 25,520 $ 18,828
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 486 $ 575
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Additions to capital lease obligations
for acquisitions of property, plant
and equipment $ 1,294 $ 143
See accompanying notes
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ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of presentation
The unaudited interim financial statements for the three and six
month periods ended June 30, 1996 and 1995 have been prepared on the
same basis as the Company's audited financial statements for the year
ended December 31, 1995. The financial statements include all
adjustments (consisting only of normal recurring adjustments) which
the Company considers necessary for a fair presentation of the
financial position at such dates and the operating results and cash
flows for those periods. Results for the interim periods are not
necessarily indicative of the results for the entire year. For more
complete financial information, these financial statements, and notes
thereto, should be read in conjunction with the audited financial
statements for the year ended December 31, 1995 included in the
Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition to historical information contained in this Report,
this Report contains forward-looking statements regarding the Company's
business and products. Such statements are subject to certain risks and
uncertainties, particularly those inherent in the process of discovering
developing and commercializing drugs that can be proven to be safe and
effective for use as human therapeutics, and the endeavor of building a
business around such potential products. Actual results could differ
materially from those projected in this Form 10-Q. As a result, the
reader is cautioned not to rely on these forward-looking statements.
These and other risks are described in additional detail in Isis'
Annual Report on Form 10-K for the year ended December 31, 1995
which is on file with the U.S. Securities and Exchange Commission, a
copy of which is available from the Company.
Since its inception in January 1989, the Company has devoted
substantially all of its resources to its research, drug discovery
and development programs. The Company has been unprofitable since
its inception and expects to incur additional operating losses for
the next several years. The Company has entered into collaborative
research and development agreements with pharmaceutical companies
that generate revenue to augment the level of research and
development activity and to offset portions of its research and
development costs. To date, the Company has not received any
significant revenue from the sale of products.
RESULTS OF OPERATIONS
The Company had contract revenue of $4.7 million for the second
quarter and $10.1 million for the six-month period ended
June 30, 1996, compared with $3.3 million and $ 5.9 million,
respectively, for the same periods in 1995. The revenue increase was
primarily due to revenue received under an expanded collaborative
agreement with Ciba-Geigy Limited for the development of two drug
candidates identified through the collaborative research program
between Ciba and Isis. Additional revenue from a collaborative
agreement with Boehringer Ingelheim International GmbH also
contributed to the increase. The Company also had interest income
totaling $1.0 million for the quarter and $2.1 million for the
six month period, compared with $0.5 million and $1.0 million
for the same periods in 1995. The increase in interest income was
primarily due to higher investment balances in the first half
of 1996.
Research and development expenses increased to $11.2 million for
the three months and $21.0 million for the six months ended
June 30, 1996 from $7.9 million and $15.4 million during the same
periods in 1995. These increases are primarily attributable to an
increase in clinical development activities. The Company expects that
its research and development expenses will continue to increase as its
current preclinical and clinical activities continue and additional
preclinical and clinical studies are undertaken.
General and administrative expenses increased to $1.6 million for
the quarter and $3.0 million for the six months ended June 30, 1996
from $1.4 million and $2.7 million for the same periods in 1995.
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The Company expects that its general and administrative expenses will
increase in the future in support of its expanding operations.
During the quarter ended June 30, 1996, the Company recorded a net
loss of $7.3 million, or $0.29 per share, compared with $5.9 million,
or $0.30 per share, for the same period in 1995. During the six-month
period ended June 30, 1996, the Company's net loss amounted to $12.4
million, or $0.49 per share, compared to $11.8 million, or $0.59 per
share for the same period in 1995. The changes in net loss per share
from 1995 to 1996 include the effect of increases in the weighted
average number of shares outstanding due to the issuance of stock
in the second half of 1995 in conjunction with an equity offering
and corporate collaborations. The Company expects its operating
losses will increase for the remainder of the fiscal year and beyond
as its activities grow, and may fluctuate from quarter to quarter
as a result of differences in timing and composition of revenue
earned and expenses incurred.
The Company believes that inflation and changing prices have not
had a material effect on its ongoing operations to date.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations
primarily through the sale of equity securities, raising to date a net
aggregate of $169 million, as of June 30, 1996, from the private and
public sale of such securities. The company has also financed a
portion of its operations through contract research revenue,
portions of which were paid in advance of work being performed,
offsetting the Company's cash usage for operations.
As of June 30, 1996, the Company had cash, cash equivalents and
short-term investments totaling $68.6 million and working capital of
$49.3 million, compared with $77.4 million and $60.0 million,
respectively, as of December 31, 1995. The decreases in cash and
working capital resulted from funding operating losses and making
principal repayments on debt and capital lease obligations.
The Company had long-term debt and capital lease obligations at
June 30, 1996 totaling $9.9 million, versus $9.7 million at
December 31, 1995. This increase, which was partially offset by
principal repayments on existing obligations, was due to additional
capital lease financing. The Company expects that its capital lease
obligations will increase over time to fund capital equipment
acquisitions required for its expanding business. Lease lines will
continue to be used by the Company to the extent that the terms thereof
remain commercially attractive.
The Company expects to incur substantial additional research and
development costs related primarily to preclinical testing, clinical
trials, and manufacturing process development and expects losses to
continue to increase as the Company's preclinical testing and clinical
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trial efforts expand. It is the Company's intention to seek additional
collaborative research and development relationships with suitable
potential corporate partners. There can be no assurance that any
agreements resulting from these discussions will successfully
reduce the Company's funding requirements, and arrangements with
collaborative partners or others may require the Company to
relinquish rights to certain of its technologies, product candidates
or products. Additional equity or debt financings may be required,
and there can be no assurance that these funds will be available on
favorable terms, if at all. If additional funds are raised by
issuing equity securities, further dilution to then existing
stockholders may result.
The Company believes that its existing available cash, cash
equivalents and short-term investments, combined with anticipated
interest income and contract revenue, will be sufficient to meet its
anticipated requirements for at least two years. The Company's
future capital requirements will depend on many factors, including
continued scientific progress in its research, drug discovery and
development programs, the magnitude of these programs and progress with
preclinical and clinical trials; the time and costs involved in
obtaining regulatory approvals; the costs involved in filing,
prosecuting and enforcing patent claims; competing technological and
market developments; changes in the existing collaborative research and
development relationships; the ability of the Company to establish
additional research and development arrangements; and the cost of
manufacturing scale-up and effective commercialization activities and
arrangements. If adequate funds are not available, the Company may be
required to significantly curtail one or more of its research, drug
discovery or development programs.
Uncertainties associated with the length and expense of preclinical
and clinical testing of any of the Company's products could greatly
increase the cost of development of such product and affect the timing
of anticipated revenue from product sales, and failure by the Company to
obtain regulatory approval for any product will preclude its
commercialization. In addition, the failure by the Company to obtain
patent protection for its products may make certain of its products
commercially unattractive.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not party to any legal proceedings.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Stockholders
on May 31, 1996.
(b) Daniel L. Kisner, M.D., Larry Soll, Ph.D. and
Joseph H. Wender were elected to serve as
directors for a three-year term and until their
successors are duly elected and qualified.
Votes in Favor Votes Withheld
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Daniel L. Kisner, M.D. 21,359,093 741,096
Larry Soll, Ph.D. 21,358,593 741,596
Joseph H. Wender 21,358,893 741,296
Other directors whose terms of office continued after the
Annual Meeting were as follows:
Stanley T. Crooke, M.D., Ph.D., Mark B. Skaletsky,
Alan C. Mendelson, William R. Miller,
Christopher F.O. Gabrieli and Cristoph Hohbach.
(c) The following items were approved at the
Annual Meeting:
(1) An increase in the number of shares
authorized for issuance under the
Company's 1989 Stock Option Plan
from 6,000,000 to 8,200,0000.
Votes in favor: 13,451,477
Votes withheld: 2,709,615
Abstentions: 543,304
Unvoted: 5,395,793
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(2) An increase in the number of shares
authorized for issuance under the
Company's 1992 Non-Employee Directors'
Stock Option Plan from 200,000 to 300,000
and the amendment of the amounts and vesting
schedule of non-discretionary option grants.
Votes in favor: 14,991,104
Votes withheld: 1,383,147
Abstentions: 561,166
Unvoted: 5,164,772
(3) The selection of Ernst & Young LLP as
independent auditors of the Company for its
fiscal year ending December 31, 1996.
Votes in favor: 21,999,576
Votes withheld: 43,117
Abstentions: 57,496
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
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Exhibit no. 27 : FINANCIAL DATA SCHEDULE
b. Reports on Form 8-K
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The Company filed no reports on Form 8-K during the
quarter ended June 30, 1996.
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ISIS PHARMACEUTICALS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant duly has caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ISIS PHARMACEUTICALS, INC.
--------------------------
(Registrant)
Date: July 29, 1996 By: /S/ STANLEY T. CROOKE
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Stanley T. Crooke, M.D., Ph.D.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: July 29, 1996 By: /S/ B. LYNNE PARSHALL
-----------------------------------
B. Lynne Parshall
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
5
1000
6-MOS
DEC-31-1996
JAN-01-1996
JUN-30-1996
25,520
43,051
0
0
0
70,220
15,522
0
91,623
20,907
4,884
0
0
26
65,806
91,623
0
12,139
0
0
24,027
0
486
(12,374)
0
(12,374)
0
0
0
(12,374)
(.49)
(.49)
