<PAGE>
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, 1999
/ / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-26758
ALKERMES CLINICAL PARTNERS, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 043-145043
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
64 Sidney Street, Cambridge, MA 02139-4136
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (617) 494-0171
---------------------------
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 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 ___
<PAGE>
ALKERMES CLINICAL PARTNERS, L.P.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
-September 30, 1999 and December 31, 1998
Statements of Operations 4
-Three months ended September 30, 1999 and 1998
-Nine months ended September 30, 1999 and 1998
Statements of Cash Flows 5
-Nine months ended September 30, 1999 and 1998
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits, Financial Statement Schedules and Reports 13
on Form 8-K
SIGNATURES 14
EXHIBIT INDEX 15
</TABLE>
(2)
<PAGE>
ITEM 1. FINANCIAL STATEMENTS:
ALKERMES CLINICAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- -------------
A S S E T S
<S> <C> <C>
Total Assets $-- $--
============== =============
L I A B I L I T I E S A N D P A R T N E R S' C A P I T A L
Total Liabilities and Partners' Capital $-- $--
============== =============
</TABLE>
See notes to financial statements.
(3)
<PAGE>
ALKERMES CLINICAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue: $-- $-- $-- $--
------------- -------------- ------------- -------------
Expenses:
General and administrative 4,021 -- 24,924 --
------------- -------------- ------------- -------------
4,021 -- 24,924 --
------------- -------------- ------------- -------------
Net loss ($4,021) $-- ($24,924) $--
============= ============== ============= =============
Net Loss Per Class A and B Unit $-- $-- $-- $--
============= ============== ============= =============
Average Units Outstanding 921 921 921 921
============= ============== ============= =============
</TABLE>
(4)
<PAGE>
ALKERMES CLINICAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($24,924) $--
------------- --------------
Net cash used for operating activities (24,924) --
------------- --------------
Cash flows from financing activities:
General Partner cash capital contributions 24,924 --
------------- --------------
Net decrease in cash and cash equivalents -- --
Cash and cash equivalents, beginning of period -- --
------------- --------------
Cash and cash equivalents, end of period $-- $--
============= ==============
</TABLE>
See notes to financial statements.
(5)
<PAGE>
ALKERMES CLINICAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements for Alkermes Clinical Partners, L.P. (the
"Partnership") for the three and nine month periods ended September 30, 1999 and
1998, are unaudited and include all adjustments which, in the opinion of
management, are necessary to present fairly the results of operations for the
periods then ended. All such adjustments are of a normal recurring nature. These
financial statements should be read in conjunction with the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998, which includes
financial statements and notes thereto for the years ended December 31, 1998,
1997 and 1996.
The results of the Partnership's operations for any interim period are not
necessarily indicative of the results of the Partnership's operations for any
other interim period or for a full year.
2. NET LOSS PER CLASS A AND B LIMITED PARTNERSHIP INTEREST
Net loss per Class A and B limited partnership interest is calculated with
the net loss attributable only to the limited partners of the Partnership
(each, a "Limited Partner" and collectively, the "Limited Partners") and
excludes the loss attributable to the General Partner. There were no losses
attributable to the Limited Partners for the three and nine months ended
September 30, 1999 and 1998. The Partnership accounts for earnings per share
in accordance with the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings per Share." The Partnership
does not have, and is not expected to have, any common stock equivalents.
3. COMPLETION OF SCHEDULED FUNDING
For the three and nine months ended September 30, 1999, the Partnership incurred
no research and development expenses related to the RMP(TM) program,
notwithstanding the continuing development of such product candidate. The
Partnership was providing funding to Alkermes, Inc. ("Alkermes") for research
and development expenses for Cereport(R) from capital contributions received
from Partners. Funding to Alkermes ended during the quarter ended June 30, 1996
when such capital contributions were substantially depleted. None of the
Partners of the Partnership is obligated to make any further capital
contributions. Since the funding was not sufficient for Alkermes to complete
clinical trials and seek regulatory approval of Cereport, Alkermes has used its
own resources, and intends to continue to use its own resources, to develop
Cereport. Alkermes has obtained and intends to continue to obtain such resources
through equity offerings, bank borrowings and its collaborative arrangements.
Alkermes is required to fund the development of Cereport to maintain its
Purchase Option with the Limited Partners.
(6)
<PAGE>
Alkermes is also obligated, through the General Partner, to perform
administrative services for the Partnership, such as preparing financial
statements, tax returns and reports to Partners. Alkermes intends to continue to
cause the General Partner to perform such services at its expense since the
Partnership's current assets are depleted, unless it exercises its Purchase
Option and thereby acquires all the interests in the Partnership. The services
performed by Alkermes and the General Partner constitute all of the activities
undertaken by or on behalf of the Partnership.
After September 30, 1999, the Partnership is expected to have no future
liquidity or capital resources requirements other than those funded by Alkermes.
(7)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Alkermes Clinical Partners, L.P. (the "Partnership") was formed on February 7,
1992, and is managed by its general partner, Alkermes Development Corporation II
(the "General Partner"), a wholly owned subsidiary of Alkermes, Inc. ("Alkermes"
or the "Company"). The Partnership was organized to fund the further development
and clinical testing of a family of molecules, designated by Alkermes as
Receptor-Mediated Permeabilizers(TM) ("RMPs(TM)"), for human pharmaceutical use
in the United States and Canada.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Any statements set forth below or otherwise made in writing or orally by the
Partnership or the General Partner with regard to its expectations as to
financial results and other aspects of its business may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements can be identified by
forward-looking words such as "may", "will", "expect", "anticipate", "believe",
"estimate", "continue" or similar words. Although the General Partner believes
that its expectations are based on reasonable assumptions within the bounds of
its knowledge of its business and operations, there can be no assurance that
actual results of the Partnership's or the Company's development activities and
the Partnership's results of operations will not differ materially from its
expectations. Factors which could cause actual results to differ from
expectations include, among others:
(i) the Partnership and the Company could not be permitted by regulatory
authorities to undertake additional clinical trials for Cereport(R) or
clinical trials could be delayed or regulatory authorities could
require additional clinical trials before approving Cereport;
(ii) clinical trials for Cereport may not proceed as planned, the trials may
require more time to enroll patients than anticipated, and even if they
are completed Cereport could prove to be ineffective or unsafe;
(iii) the Company could incur difficulties or set-backs in obtaining the
substantial additional funding required to continue research and
development programs and clinical trials;
(iv) the Company could reduce or discontinue funding of Cereport;
(v) even if Cereport appears promising at an early stage of development, it
could fail to receive necessary regulatory approvals, be difficult to
manufacture on a large scale, be uneconomical, fail to achieve market
acceptance, be precluded from commercialization by proprietary rights
of third parties or experience substantial competition in the
marketplace; and
(vi) technological change in the biotechnology or pharmaceutical industries
and the approval of other drugs or therapies to treat brain tumors
could render Cereport obsolete or noncompetitive.
(8)
<PAGE>
RESULTS OF OPERATIONS
REVENUES
The Partnership did not have any revenue for the three and nine months ended
September 30, 1999 and 1998.
EXPENSES
There were no research and development expenses for the three and nine months
ended September 30, 1999 and 1998 because of the completion of the development
funding to Alkermes pursuant to the product development agreement between
Alkermes and the Partnership (the "Product Development Agreement").
General and administrative expenses for the three and nine months ended
September 30, 1999 were $4,021 and $24,924, as compared to zero and zero for the
three and nine months ended September 30, 1998. The increase was mainly a result
of professional service fees incurred by the Partnership and paid through the
General Partner. Alkermes is obligated through the General Partner to perform
general and administrative services for the Partnership at its expense, unless
Alkermes exercises its Purchase Option (see Liquidity and Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Partnership had no remaining current assets or
current liabilities.
The Partnership's primary source of funding and capital resources had been the
annual capital contributions by the Limited Partners and the General Partner.
The Limited Partners' capital contributions were remitted to the Partnership in
four annual installments, the fourth and final payment of which was due on April
15, 1995. There have been and will be no additional capital contributions
received by the Partnership from the Limited Partners after the quarter ended
June 30, 1996.
The Partnership was funding research and development expenses for Cereport(R)
from capital contributions received from Partners. Such development is being
conducted for the Partnership by Alkermes pursuant to the Product Development
Agreement. The research and development funding to Alkermes ended during the
quarter ended June 30, 1996 when such capital contributions were substantially
depleted. None of the Partners is obligated to make any further capital
contributions. Because the funding was not sufficient for Alkermes to complete
clinical trials and seek regulatory approval of Cereport, Alkermes has used its
own resources, and intends to continue to obtain such resources through equity
offerings, bank borrowings and its collaborative arrangements. Effective
September 30, 1997, Alkermes entered into an agreement with ALZA Corporation
related to the development and commercialization of Cereport. Alkermes is
required to fund the development of Cereport to maintain its Purchase Option
with the Limited Partners.
The Partnership used its remaining cash and cash equivalents during the quarter
ended September 30, 1997 to pay for administrative services for the Partnership.
Alkermes is obligated, through the General Partner, to perform administrative
services for the Partnership,
(9)
<PAGE>
such as preparing financial statements, tax returns and reports to the Limited
Partners. Alkermes intends to continue to cause the General Partner to perform
such services at its expense (since the Partnership's current assets are
depleted) to maintain its Purchase Option with the Limited Partners, unless it
exercises its Purchase Option and thereby acquires all limited partnership
interests in the Partnership. The activities performed by Alkermes and the
General Partner constitute all of the activities undertaken by or on behalf of
the Partnership.
After September 30, 1999, the Partnership is expected to have no future
liquidity or capital resources requirements other than those funded by Alkermes.
YEAR 2000 READINESS DISCLOSURE
THIS YEAR 2000 READINESS DISCLOSURE STATEMENT CONTAINS INFORMATION CONCERNING
THIRD PARTIES AND THEIR PRODUCTS AND SERVICES, WHICH HAS NOT BEEN INDEPENDENTLY
VERIFIED BY ALKERMES.
The Year 2000 problem concerns the application of computer systems written using
six (e.g., 12/31/99) versus eight (e.g., 12/31/1999) digits to define the
applicable date. This could result, among other things, in computer systems
recognizing "00" as the year 1900 rather than the year 2000. Computer hardware,
software and embedded chip equipment are potentially affected, and, if such
systems and components are not remediated satisfactorily, could lead to
operational interruptions and business misinformation.
The Partnership does not own or use any hardware, software or other equipment
because the General Partner and Alkermes conduct all of the research,
development and general administrative operations of the Partnership.
Alkermes' Year 2000 Compliance Plan provides for a four-phase process:
inventory; assessment; remediation and testing; and preparation of
contingency plans. Alkermes has identified its mission critical and medium
priority internal systems which will require remediation to provide for its
continuing business operations after January 1, 2000. The remaining systems
are considered to be of low priority because they are judged to have no
direct impact on safety or Alkermes' business.
The inventory phase is completed for Alkermes. The assessment phase is
substantially completed, except for information not yet received from certain
external suppliers, vendors and manufacturers over which Alkermes does not have
control. Alkermes is undergoing planned remediation of stand-alone computers and
minor upgrades. Alkermes has requested each supplier, vendor and manufacturer of
mission critical equipment owned or leased by Alkermes containing embedded chip
technology to provide Alkermes with its Year 2000 testing methodology and
results and in certain instances Alkermes has performed in-house testing on such
equipment. As of November 12, 1999, substantially all planned testing of
equipment, hardware and software has been completed, with the exception of a few
systems that are scheduled to be tested and remediated by the end of 1999. As of
November 12, 1999, there has been an overall 87% response rate to Alkermes'
requests for information sent to suppliers, vendors and manufacturers of
equipment, hardware and software purchased or leased by Alkermes. Based on the
responses received as of November 12, 1999, Alkermes has a 93% response rate for
mission critical items and a 91% response rate for medium priority items.
According to the supplier, vendor and manufacturer responses received as of
November 12, 1999, all mission critical items are compliant and approximately
90% of all medium priority
(10)
<PAGE>
items are compliant. However, Alkermes has not independently verified the
accuracy of the supplier, vendor and manufacturer responses received. Alkermes
has determined what is required to remediate these medium priority items
identified to it as non-compliant and is in the process of final remediation.
All remaining items for which responses have not been received as of
November 12, 1999 are being addressed in contingency plans.
Alkermes believes, based in part upon supplier, vendor and manufacturer
responses received as of November 12, 1999, that its mission critical and medium
priority internal computer systems will be Year 2000 compliant in a timely
manner. However, Alkermes' computer systems are complex, interdependent and
there are a number of risks associated with the complexity and integration of
the systems. For example, an incorrect classification of the importance of a
system or systems, or the cumulative effect of a number of low priority systems
that have not been remediated, could result in an unpredicted failure or
shutdown in one or more of Alkermes' business, processing or manufacturing
systems, which could have a material adverse effect on production or cost of
operations. Alkermes' current belief is that this is unlikely to occur. To
minimize these risks, Alkermes is utilizing both skilled and knowledgeable
internal resources as well as contract personnel to assist in its contingency
planning processes and to perform integrated systems testing.
Alkermes continues to request and assess compliance information from all of
its suppliers, vendors, manufacturers, collaborative partners and other
organizations with which Alkermes does business (each a "Third Party").
Certain of these Third Parties may refuse to respond to a readiness survey or
other request for information. It is possible that such Third Parties may, in
fact, be prepared to address Year 2000 concerns, but simply refuse to
respond. Conversely, various Third Parties may respond that they are Year
2000 ready, when, in fact, they are not ready. As of November 12, 1999,
approximately 72% of all Third Parties had responded to Alkermes' survey.
Approximately 70% of all Third Parties have responded that they are or will
be Year 2000 compliant on a timely basis. Alkermes will continue to request
Year 2000 readiness disclosures from Third Parties through the end of 1999
and will focus primarily on obtaining responses from the remaining key
suppliers and partners.
If the Year 2000 problem causes key Third Parties to fail to deliver essential
materials and services, disruptions in Alkermes' operations, computer
infrastructure or telecommunications systems could result. Because of the
inherent uncertainties associated with the Year 2000 problem, including
understanding the Year 2000 readiness of the Third Parties, it is not possible
to quantify the potential impact. However, failure of key Third Parties or
Alkermes to address on a proper and timely basis the Year 2000 problem could
have a material adverse effect on Alkermes' financial condition, results of
operations or liquidity. Furthermore, there can be no guarantee that any
contingency plans developed by Alkermes will prevent such failures from having a
material adverse effect. Alkermes believes that there is a low probability that
these disruptions will occur.
Contingency plans have been formulated by each of Alkermes' various departments.
The plans are currently undergoing management review as well as an internal
audit of critical business areas and may be updated or revised accordingly
during the remainder of 1999. Alkermes currently expects total external
expenditures to become Year 2000 compliant to be less than $800,000. To date,
Alkermes has incurred external expenditures of approximately $735,000. In
addition, Alkermes has dedicated significant internal resources, including staff
and equipment, to
(11)
<PAGE>
Year 2000 projects, but does not track such costs and therefore cannot provide
an estimate of the amount of such internal costs. Alkermes will fund Year 2000
expenditures from its cash and expects that total remediation costs, including
the reallocation of internal resources, will not have a material adverse effect
on Alkermes' financial condition, results of operations or liquidity.
The foregoing information reflects management's best estimates. These
estimates are based upon many assumptions, including: assumptions about cost,
availability and ability of resources to identify and classify systems
properly; locating, remediating and modifying affected systems; and making
various assessments of Year 2000 readiness of key Third Parties. Based upon
its activities to date, Alkermes does not believe that these factors will
cause its current cost and timetable projections to differ significantly from
those estimated. However, Alkermes cannot reasonably estimate the potential
impact on its financial condition, results of operations or liquidity if
critical Third Parties, including suppliers and governments, do not become
Year 2000 compliant on a timely basis.
(12)
<PAGE>
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<S> <C>
3.1 Alkermes Clinical Partners, L.P.
Agreement of Limited Partnership, dated
as of February 7, 1992.*
3.1(a) Amendment No. 1 to Alkermes Clinical
Partners, L.P. Agreement of Limited
Partnership, dated as of September 29,
1992.*
3.1(b) Amendment No. 2 to Alkermes Clinical
Partners, L.P. Agreement of Limited
Partnership, dated as of March 30,
1993.*
4.1 Alkermes Clinical Partners, L.P.
Agreement of Limited Partnership, dated
as of February 7, 1992.*
4.1(a) Amendment No. 1 to Alkermes Clinical
Partners, L.P. Agreement of Limited
Partnership, dated as of September 29,
1992.*
4.1(b) Amendment No. 2 to Alkermes Clinical
Partners, L.P. Agreement of Limited
Partnership, dated as of March 30,
1993.*
11 Statement Regarding Computation of Per
Share Loss.
27 Financial Data Schedule.
</TABLE>
* Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form 10 filed September 13, 1995.
(b) During the quarter ended September 30, 1999, the Registrant
filed no reports on Form 8-K.
(13)
<PAGE>
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.
ALKERMES CLINICAL PARTNERS, L.P.
(Registrant)
By its General Partner
ALKERMES DEVELOPMENT CORPORATION II
Date: November 15, 1999 By: /s/ Richard F. Pops
-------------------------------------
Richard F. Pops
Director, President and Chief Executive
Officer (Principal Executive Officer)
Date: November 15, 1999 By: /s/ James M. Frates
------------------------------------
James M. Frates
Director, Vice President, Chief
Financial Officer, Treasurer and
Assistant Secretary (Principal
Financial and Accounting Officer)
(14)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 Alkermes Clinical Partners, L.P.
Agreement of Limited Partnership, dated
as of February 7, 1992.*
3.1(a) Amendment No. 1 to Alkermes Clinical
Partners, L.P. Agreement of Limited
Partnership, dated as of September 29,
1992.*
3.1(b) Amendment No. 2 to Alkermes Clinical
Partners, L.P. Agreement of Limited
Partnership, dated as of March 30,
1993.*
4.1 Alkermes Clinical Partners, L.P.
Agreement of Limited Partnership, dated
as of February 7, 1992.*
4.1(a) Amendment No. 1 to Alkermes Clinical
Partners, L.P. Agreement of Limited
Partnership, dated as of September 29,
1992.*
4.1(b) Amendment No. 2 to Alkermes Clinical
Partners, L.P. Agreement of Limited
Partnership, dated as of March 30,
1993.*
11 Statement Regarding Computation of Per
Share Loss.
27 Financial Data Schedule.
</TABLE>
* Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form 10 filed September 13, 1995.
(15)
<PAGE>
Exhibit 11
STATEMENT REGARDING COMPUTATION OF PER SHARE LOSS
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 1999 September 30, 1998 September 30, 1999 September 30, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net loss-Limited Partners $0 $0 $0 $0
Average Class A and B units outstanding 921 921 921 921
Net loss per Class A and B unit $0 $0 $0 $0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 24,924
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (24,924)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24,924)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,924)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
