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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[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 0-19125
ISIS PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 33-0336973
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2292 Faraday Avenue, Carlsbad, CA 92008
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(Address of principal executive offices, including zip code)
(760) 931-9200
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(Registrant's telephone number, including area code)
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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.
(1) Yes [X] No [ ] (2) 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.
Common stock $.001 par value 26,822,237 shares
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(Class) (Outstanding at May 1, 1998)
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ISIS PHARMACEUTICALS, INC.
FORM 10-Q
INDEX
PAGE
PART I FINANCIAL INFORMATION
ITEM 1: Financial Statements
Condensed Balance Sheets as of March 31, 1998 and December 31, 1997 3
Condensed Statements of Operations for the three months
ended March 31, 1998 and 1997 4
Condensed Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 5
Notes to Financial Statements 6
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations 7
Liquidity and Capital Resources 8
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings 9
ITEM 2: Changes in Securities 9
ITEM 3: Default upon Senior Securities 9
ITEM 4: Submission of Matters to a Vote of Security Holders 9
ITEM 5: Other Information 9
ITEM 6: Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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ISIS PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
ASSETS
March 31, December 31,
1998 1997
--------- ---------
(Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 27,786 $ 38,102
Short-term investments 41,746 48,684
Prepaid expenses and other current assets 2,312 2,364
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Total current assets 71,844 89,150
Property, plant and equipment, net 19,093 18,785
Patent costs, net 7,959 7,485
Deposits and other assets 2,422 2,461
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$ 101,318 $ 117,881
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,200 $ 2,843
Accrued payroll and related expenses 1,095 2,242
Accrued liabilities 4,744 4,347
Deferred contract revenues 10,705 14,893
Current portion of long term debt and capital lease obligations 2,239 2,252
--------- ---------
Total current liabilities 19,983 26,577
Long-term debt and capital lease obligations, less current portion 56,696 56,452
Stockholders' equity:
Common stock, $.001 par value; 50,000,000 shares authorized, 26,797,000
shares and 26,655,000 shares issued and outstanding at March 31, 1998 and
December 31, 1997, respectively 27 27
Additional paid-in capital 189,883 188,793
Unrealized gain on investments 389 165
Accumulated deficit (165,660) (154,133)
--------- ---------
Total stockholders' equity 24,639 34,852
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$ 101,318 $ 117,881
========= =========
Note: The balance sheet at December 31, 1997 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
March 31,
1998 1997
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Revenue:
Research and development revenues
under collaborative agreements $ 5,840 $ 4,626
Interest income 1,055 947
-------- --------
6,895 5,573
Expenses:
Research and development 14,859 11,786
General and administrative 1,858 1,707
Interest expense 1,704 634
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18,421 14,127
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Net loss $(11,526) $ (8,554)
======== ========
Basic and diluted net loss per share $ (.43) $ (.33)
======== ========
Shares used in computing basic and diluted net loss per
share 26,740 26,278
======== ========
See accompanying notes.
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ISIS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
Three months ended
March 31,
1998 1997
-------- --------
Cash used in operations: $(17,182) $ (3,711)
Investing activities:
Short-term investments 6,938 (4,604)
Property and equipment (1,071) (2,678)
Other assets (322) (268)
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Net cash provided from (used in) investing activities 5,545 (7,550)
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Financing activities:
Net proceeds from issuance of common stock 1,090 1,136
Proceeds from long-term borrowings 903 --
Principal payments on debt and capital lease obligations (672) (708)
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Net cash provided from financing activities 1,321 428
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Net decrease in cash and cash equivalents (10,316) (10,833)
Cash and cash equivalents at beginning of period 38,102 37,082
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Cash and cash equivalents at end of period $ 27,786 $ 26,249
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 335 $ 240
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Additions to capital lease obligations for acquisitions of property,
plant and equipment $ -- $ 386
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 months
ended March 31, 1998 and 1997 have been prepared on the same basis as the
Company's audited financial statements for the year ended December 31, 1997. 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, 1997 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
2. SUBSEQUENT EVENTS
In April 1998, the Company filed a New Drug Application ("NDA") with
the U.S. Food and Drug Administration for fomivirsen, a drug to treat CMV
retinitis. As a result of this NDA filing, the Company received a $5 million
milestone payment from CIBA Vision.
On May 1, 1998, the Company completed a follow-on $15 million
private debt financing. This financing was a follow-on to the Company's October
1997 $25 million private debt financing and has the same terms. The debt, which
is not convertible, will mature on November 1, 2007, and bears interest at 14%
per annum. No payments of either principal or interest are required until
February 1, 2003. Thereafter, interest must be paid quarterly until the end of
the loan. No principal payments are required until maturity. In conjunction with
this transaction, Isis issued warrants to the lender to purchase 300,000 shares
of common stock at a price of $25 per share.
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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 and their projected prospects and qualities as well as the Company's
relationships with its corporate partners. Such statements are subject to
certain risks and uncertainties, particularly those inherent in the process of
discovering, developing and commercializing drugs that are 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
discussed in this Form 10-Q. As a result, the reader should not place undue
reliance on these forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in Isis' Annual Report on Form 10-K for the year ended December 31, 1997 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, almost all of the Company's
resources have been devoted to its research, drug discovery and drug development
programs. The Company is not yet profitable and expects to continue to have
operating losses for the next several years. Isis' revenue comes from
collaborative research and development agreements with pharmaceutical companies,
research grants and interest income. The revenue from the collaboration
increases the amount of research and development activity that the Company is
able to fund and offsets a portion of its research and development costs. To
date, Isis has not received any significant revenue from the sale of products.
RESULTS OF OPERATIONS
The Company's revenue from collaborative research and development
agreements was $5.8 million for the quarter ended March 31, 1998, compared with
$4.6 million for the same period in 1997, a 26% increase. The revenue increase
was primarily due to the increasing level of development activity supported by
our corporate partners. The Company also had interest income totaling $1.1
million for the quarter compared with $0.9 million for the same period in 1997.
This increase in interest income was primarily due to higher average investment
balances in the quarter ended March 31, 1998.
Research and development expenses increased 26% to $14.9 million for
first quarter of 1998 from $11.8 million for the same period in 1997. The
overall increase in research and development expenses was driven by the cost of
preclinical and clinical activities to support the increasing number of
compounds in clinical trials. We expect that research and development expenses
will continue to increase as compounds continue to advance in clinical
development.
General and administrative expenses increased 9% to $1.86 million
for the quarter ended March 31, 1998, from $1.71 million for the same period in
1997. This increase in general and administrative expense is related to
additional staffing in general and administrative functions required to support
the growth in research and development. We expect that general and
administrative expenses will continue to increase in the future to support our
growing research and development efforts.
Interest expense increased to $1.7 million for the first quarter of
1998 from $0.6 million in the first quarter of 1997. This increase in interest
expense is principally due to the interest cost related to the $25 million
private debt financing completed in the fourth quarter of 1997.
During the quarter ended March 31, 1998, the Company recorded a net
loss of $11.5 million, or $.43 per share, compared with $8.6 million, or $.33
per share, for the same period in 1997. We expect that operating losses will
increase for several more years as research and development activities grow.
Operating losses may fluctuate from quarter to quarter because of differences in
the timing of revenue and expense recognition.
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The Company believes that inflation and changing prices have not had
a material effect on its operations to date.
LIQUIDITY AND CAPITAL RESOURCES
Isis has financed its operations with revenue from contract research
and development, through the sale of equity securities and the issuance of
long-term debt. From its inception through March 31, 1998, Isis has earned
approximately $111 million in revenue from contract research and development.
The Company has also raised net proceeds of approximately $180 million from the
sale of equity securities since it was founded. In 1996 and 1997, Isis borrowed
approximately $47.6 million under long-term debt arrangements to finance a
portion of its operations.
As of March 31, 1998, the Company had cash, cash equivalents and
short-term investments totaling $69.5 million and working capital of $51.9
million. In comparison, the Company had cash, cash equivalents and short-term
investments of $86.8 million and working capital of $62.6 million as of December
31, 1997. The decreases in cash and working capital during the quarter resulted
from the funding of operating losses, investments in capital equipment and
principal payments on debt and capital lease obligations.
The Company's collaborative agreement with Boehringer Ingelheim
provides Isis with a $40 million line of credit. This line of credit is
available under certain circumstances and is to be used to support the
collaboration cell adhesion programs. As of March 31, 1998, the outstanding
balance under this line of was $22.6 million.
In October 1997, Isis borrowed $25 million in a private transaction.
The loan bears interest at 14% per annum and must be repaid on November 1, 2007.
No payments of either principal or interest are required during the first five
years of the loan. After the first five years, interest must be paid quarterly.
No principal payments are required until November 1, 2007. Because interest is
deferred during the first five years, the principal balance will accrue to a
total of $50 million on November 1, 2002. In conjunction with this transaction,
Isis issued warrants to purchase 500,000 shares of common stock at a price of
$25 per share. The warrants expire on November 1, 2004. On May 1, 1998, the
Company completed a $15 million follow-on debt financing on the same terms. See
Note 2 to the Financial Statements, "Subsequent events."
The Company had long-term debt and capital lease obligations at
March 31, 1998 totaling $56.7 million, versus $56.5 million at December 31,
1997. This increase was due to the accrual of interest on the ten-year described
above, partially offset by principal repayments on existing obligations. We
expect that capital lease obligations will increase over time to fund capital
equipment acquisitions required for the Company's growing business. We will
continue to use lease financing as long as the terms remain commercially
attractive. We believe that the Company's existing cash, cash equivalents and
short-term investments, combined with interest income, contract revenue and the
$15 million proceeds of the May 1, 1998 debt financing will be sufficient to
meet its anticipated requirements for at least two years.
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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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None.
b. Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
March 31, 1998.
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ISIS PHARMACEUTICALS, INC.
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.
ISIS PHARMACEUTICALS, INC.
(Registrant)
Date: May 8, 1998 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: May 8, 1998 By: /S/ B. LYNNE PARSHALL
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B. Lynne Parshall
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
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1,000
3-MOS
DEC-31-1997
JAN-01-1998
MAR-31-1998
27,786
41,746
0
0
0
71,844
19,093
0
101,318
19,983
56,696
0
0
27
24,612
101,318
0
6,895
0
0
16,717
0
1,704
(11,526)
0
(11,526)
0
0
0
(11,526)
(.43)
(.43)
