<PAGE> 1
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, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act Of 1934
Commission file number 0-27150
PATHOGENESIS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 91-1542150
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 Elliott Avenue West
Seattle, Washington 98119
(Address of principal executive (Zip Code)
offices)
</TABLE>
Registrant's telephone number including area code: (206) 476-8100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of class)
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 [ ]
At May 13, 1996, the number of shares outstanding of the registrant's Common
Stock, par value $.001 per share, was 13,735,927 shares.
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PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
December
31, March 31,
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................. $ 575,297 $5,407,603
Investment securities...................................... 36,871,537 27,131,526
Interest receivable........................................ 765,216 390,525
Prepaid expenses........................................... 671,711 409,518
---------- ----------
Total current assets.................................. 38,883,761 33,339,172
---------- ----------
Property and equipment, at cost:
Leasehold improvements..................................... 6,435,336 6,435,336
Furniture and equipment.................................... 5,338,435 5,356,193
---------- ----------
11,773,771 11,791,529
Less accumulated depreciation and amortization............. 3,702,152 4,095,829
---------- ----------
Net property and equipment............................ 8,071,619 7,695,700
---------- ----------
Other assets, net............................................... 7,758 6,469
---------- ----------
Total assets.......................................... $46,963,138 $41,041,341
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $1,635,711 $ 429,805
Compensation and benefits.................................. 859,463 522,851
Clinical development costs................................. 876,131 1,489,646
Other accrued expenses..................................... 81,473 93,171
---------- ----------
Total current liabilities............................. 3,452,778 2,535,473
---------- ----------
Long-term liability............................................. 461,986 319,387
Stockholders' equity:
Preferred stock $.01 par value. Authorized 1,000,000
shares; issued and outstanding none...................... -- --
Common stock $.001 par value. Authorized 20,000,000 shares;
issued and outstanding 10,859,945 shares................. 10,898 10,860
Additional paid-in capital................................. 89,520,221 89,594,908
Unrealized gain (loss) on investment securities............ 38,458 (107,667)
Deficit accumulated during the development stage........... (46,521,203) (51,311,620)
---------- ----------
Total stockholders' equity............................ 43,048,374 38,186,481
---------- ----------
Total liabilities and stockholders' equity............ $46,963,138 $41,041,341
========== ==========
</TABLE>
2
<PAGE> 3
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
December 10,
Three Months Ended 1991
March 31, (Incorporation)
--------------------------- Through
1995 1996 March 31, 1996
---------- ---------- --------------
<S> <C> <C> <C>
Operating expenses:
Research and development................ $3,557,504 $4,490,958 $41,919,447
General and administrative.............. 729,859 833,305 13,969,491
---------- ---------- --------------
Total operating expenses........... 4,287,363 5,324,263 55,888,938
Other income (expense):
Investment income, net.................. 305,377 546,288 4,727,553
Other expense........................... (9,520) (12,442) (150,235)
----------- ----------- ------------
Net other income................... 295,857 533,846 4,577,318
---------- ---------- --------------
Net loss........................... $3,991,506 $4,790,417 $51,311,620
========== ========== ==============
Net loss per common share.................... $ 0.51 $ 0.44
========== ==========
Weighted average common shares outstanding... 7,862,857 10,874,857
========== ==========
</TABLE>
3
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PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
NUMBER OF ACCUMULATED
COMMON PRICE ADDITIONAL UNREALIZED DURING THE TOTAL
SHARES PER COMMON PAID-IN LOSS ON DEVELOPMENT STOCKHOLDERS'
DATE DESCRIPTION OUTSTANDING SHARE STOCK CAPITAL INVESTMENTS STAGE EQUITY
- ------------------ ------------------------ --------- ----- ------ --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Feb to Mar 1992 Shares issued for 1,870,000 $0.08 1,870 147,730 149,600
cash....................
June to Dec 1992 Share issued for cash 4,308,500 10.00 4,309 42,335,725 42,340,034
net of issue costs of
$744,966
November 1992 Repurchase of common (25,000) 10.00 (25) (249,975) (250,000)
stock through
forgiveness of note
receivable..............
Repurchase of common (46,875) 0.08 (47) (3,703) (3,750)
stock for cash..........
Net loss for the period (2,930,285) (2,930,285)
ended December 31,
1992....................
---------- ----- ------ ---------- --------- ----------- -----------
Balances at December 31, 6,106,625 6,107 42,229,777 (2,930,285) 39,305,599
1992....................
October 1993 Shares issued in payment 50,000 10.00 50 499,950 500,000
of license fees.........
Net loss for the year (10,804,878) (10,804,878)
ended December 31,
1993....................
---------- ----- ------ ---------- --------- ----------- -----------
Balances at December 31, 6,156,625 6,157 42,729,727 (13,735,163) 29,000,721
1993....................
March 1994 Shares issued for cash 1,690,677 12.00 1,690 19,093,694 19,095,384
net of issue costs of
$1,251,739..............
Unrealized loss on (172,809) (172,809)
investment securities...
Net loss for the year (14,762,117) (14,762,117)
ended December 31,
1994....................
---------- ----- ------ ---------- --------- ----------- -----------
Balances at December 31, 7,847,302 7,847 61,823,421 (172,809) (28,497,280) 33,161,179
1994....................
March 1995 Shares issued in payment 50,000 12.00 50 599,950 600,000
of license fees.........
April to Aug 1995 Exercise of stock 413 10.00 1 4,124 4,125
options for cash........
November 1995 Shares issued for cash 3,000,000 10.00 3,000 27,092,726 27,095,726
net of issue costs of
$2,904,274..............
Unrealized loss on 211,267 211,267
investment securities...
Net loss for the year (18,023,923) (18,023,923)
ended December 31,
1995....................
---------- ----- ------ ---------- --------- ----------- -----------
Balances at December 31, 10,897,715 10,898 89,520,221 38,458 (46,521,203) 43,048,374
1995....................
Jan to Mar 1996 Exercise of stock 1,025 15.89 1 16,288 16,289
options.................
Jan to Mar 1996 Redemption of fractional (45) 12.00 (0) (540) (540)
shares..................
February 1996 Shares issued in payment 6,250 10.00 6 62,494 62,500
of license fees.........
February 1996 Repurchase of common (45,000) 0.08 (45) (3,555) (3,600)
stock for cash..........
Unrealized loss on (146,125) (146,125)
investment securities...
Net loss for the period (4,790,417) (4,790,417)
ended March 31, 1996....
---------- ----- ------ ---------- --------- ----------- -----------
Balances at March 31, 10,859,945 10,860 89,594,908 (107,667) (51,311,620) 38,186,481
1996....................
---------- ----- ------ ---------- --------- ----------- -----------
---------- ----- ------ ---------- --------- ----------- -----------
</TABLE>
4
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PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 10,
1991
THREE MONTHS ENDED (INCORPORATION)
MARCH 31, THROUGH
--------------------------- MARCH 31,
1995 1996 1996
---------- ---------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $(3,991,506) $(4,790,417) $(51,311,620)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................... 385,382 393,677 4,210,258
Amortization of investment premiums............................. (36,980) -- 372,350
Common stock issued in payment of license fees.................. 600,000 -- 1,159,000
Loss on sale of furniture and equipment......................... 62,859
Change is certain assets and liabilities:
Interest receivable........................................... 16,788 374,691 (390,525)
Prepaid expenses.............................................. 77,314 262,193 (409,518)
Other assets, net............................................. (22,067) 1,289 (6,469)
Accounts payable.............................................. (49,624) (1,205,906) 429,805
Compensation and benefits..................................... (18,898) (336,612) 582,850
Clinical development costs.................................... (301,602) 613,515 1,489,647
Other accrued expenses........................................ (118,242) 11,698 93,171
Long-term liability........................................... -- (80,099) 381,887
---------- ---------- -----------
Net cash used in operating activities.................... (3,459,435) (4,755,971) (43,336,305)
---------- ---------- -----------
Cash flows from investing activities:
Purchases of investment securities.............................. (1,818,653) (2,969,377) (137,475,028)
Sales of investment securities.................................. 3,804,683 12,563,263 109,863,485
Purchases of furniture and equipment............................ (163,353) (17,757) (12,068,816)
Proceeds from sale of furniture and equipment................... -- -- 40,000
Issuance of note receivable..................................... -- -- (250,000)
---------- ---------- -----------
Net cash (used) provided in investing activities........... 1,822,677 9,576,129 (39,890,359)
---------- ---------- -----------
Cash provided by financing activities:
Net proceeds from issuance of common stock...................... -- 12,148 88,634,267
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents....... (1,636,758) 4,832,306 5,407,603
Cash and cash equivalents at beginning of period..................... 2,873,792 575,297
---------- ---------- -----------
Cash and cash equivalents at end of period........................... $1,237,034 $5,407,603 5,407,603
========== ========== ===========
Supplemental schedule of noncash investing and financing activities:
Stock issued to extinguish long term-liability.................. 62,500 62,500
Repurchase of common stock through forgiveness of note
receivable..................................................... 250,000
</TABLE>
5
<PAGE> 6
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
March 31, 1995 and 1996
(1) BASIS OF PRESENTATION
The accompanying financial statements and related notes have been prepared
pursuant to Securities and Exchange Commission rules and regulations for interim
financial statements. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The accompanying financial statements and related notes
should be read in conjunction with the audited financial statements for the year
ended December 31, 1995.
The information furnished reflects, in the opinion of management, all
adjustments necessary for a fair presentation of the results for the interim
periods presented. Interim results are not necessarily indicative of results for
a full year.
(2) SUBSEQUENT EVENTS
On May 1, 1996, the company completed a public offering of 2,875,000 shares
of Common Stock, including 375,000 shares of Common Stock issued upon the
exercise of the underwriters' over-allotment option. The net proceeds from the
offering, including those from the exercise of the over-allotment option, were
approximately $43.4 million.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The Company develops drugs for the treatment of serious human
infectious diseases where there is a significant need for improved therapy.
Since its incorporation in December 1991, the Company has been engaged in
research and development, clinical trials and administrative activities.
The Company's most advanced drug candidate, TOBI(TM)(tobramycin for
inhalation), is a stable, premixed, proprietary formulation of the
antibiotic tobramycin for delivery by inhalation. In March 1996, the
Company completed enrollment for its Phase III clinical trials of TOBI for
the treatment of chronic pseudomonal lung infections in patients with
cystic fibrosis. The Company's second drug candidate, PA-1648, a derivative
of the antibiotic rifampin, is being developed for the treatment of MAC, a
tuberculosis-like disease, in AIDS patients, and tuberculosis. PathoGenesis
received approval for its Investigational New Drug application for PA-1648
and initiated Phase I clinical trials in April 1995. The Company has also
selected PA-824, a proprietary antibiotic, for further research as a drug
candidate for tuberculosis.
Financial results for the first three months of 1996 reflect a planned
increase in operating expenses for activities related to advancing
potential products through the development process. Such activities include
product development and clinical trials. The Company expects to invest in
additional clinical, regulatory and product development efforts over the
next few years.
The Company currently has no sources of operating revenue, has
incurred losses since its inception and has an accumulated deficit through
March 31, 1996 of $51,311,620. The Company expects that operating losses
will continue and increase for at least the next few years as total costs
and expenses continue to increase due principally to the advancement of the
Company's clinical development programs through various phases of clinical
trials and, if successful, the cost of commercializing its first products.
The Company's results of operation may vary significantly from period to
period depending on several factors, such as the timing of certain expenses
and the progress of the Company's research and development efforts.
RECENT ISSUANCE OF COMMON STOCK
In May 1996, the Company completed a public offering of 2,875,000
shares of Common Stock, including 375,000 shares of Common Stock issued
upon the exercise of the underwriters' over-allotment option. The net
proceeds from the offering, including those from the exercise of the
over-allotment option, were approximately $43.4 million.
THREE MONTHS ENDED 1996 AND 1995
Total operating expenses for the quarter ended March 31, 1996
increased by $1,036,900 to $5,324,263 from $4,287,363 for the quarter ended
March 31, 1995. Research and development expense for the first quarter
increased by $933,454 to $4,490,958 in 1996 from $3,557,504 for the first
quarter of 1995. Such increase was due primarily to increases in clinical
development activity. General and administrative expense for the first
quarter increased by $103,446 to $833,305 in 1996 from $729,859 for the
first quarter of 1995. This increase was due primarily to increases in
marketing activity, investor relations expenses and higher premiums for
directors' and officers' liability insurance.
Other income primarily represents investment income from the Company's
investment securities. In the first quarter of 1996, investment income, net
increased by $240,911 to $546,288 from $305,377 for the first quarter of
1995. Such increase was due primarily to higher average invested cash
balances and, to a lesser extent, higher effective interest rates on
invested funds.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily by
the issuance of equity securities. Through March 31, 1996, the Company has
raised $61,331,268 from private sales of Common Stock and $27,095,726 from
an initial public offering of Common Stock. Through March 31, 1996, the
Company has earned net interest and investment income of $4,727,553 from
investments.
7
<PAGE> 8
The Company's combined cash, cash equivalents and investment
securities totaled $32,539,129 at March 31, 1996, a decrease of $4,907,705
from the balance at December 31, 1995. The primary uses of cash during the
quarter ended March 31, 1996, were to finance the Company's operations and
working capital requirements. From the Company's inception through March
31, 1996, the Company purchased approximately $12.1 million of property and
equipment.
The Company plans to continue its policy of investing excess funds in
government securities and investment grade, interest-bearing securities
primarily with a maturity of one and one half years or less.
The Company anticipates that its existing capital resources should be
sufficient to meet its capital requirements through the second quarter of
1998. Until such time as the Company can generate sufficient levels of cash
from operations, the Company will have to continue to finance future cash
needs through some or all of the sources previously used or through other
means. The Company does not expect to generate a positive internal cash
flow for at least a few years due to the expected increase of spending for
research and clinical development programs and the expected cost of
commercializing its first products. The Company may need to arrange
additional financing for the future operation of the business, including
the commercialization of its drug candidates currently under development.
There can be no assurances that such additional financing can be obtained,
and if obtained, at reasonable terms.
8
<PAGE> 9
PART II - OTHER INFORMATION
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<S> <C> <C>
Item 1. Legal Proceedings None.
Item 2. Changes in Securities None.
Item 3. Defaults Upon Senior Securities None.
Item 4. Submission of Matters to a Vote of Security- None.
Holders
Item 5. Other Information None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K The Company filed a Form 8-K, dated
March 6, 1996, under Item 5. Other
Events.
</TABLE>
9
<PAGE> 10
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.
PATHOGENESIS CORPORATION
Date: May 14, 1996 By: /s/ Wilbur H. Gantz
Wilbur H. Gantz
President and Chief Executive Officer
Date: May 14, 1996 By: /s/ Alan R. Meyer
Alan R. Meyer
Senior Vice President and Chief
Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,407,603
<SECURITIES> 27,131,526
<RECEIVABLES> 800,043
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,339,172
<PP&E> 11,791,529
<DEPRECIATION> 4,095,829
<TOTAL-ASSETS> 41,041,341
<CURRENT-LIABILITIES> 2,535,473
<BONDS> 0
0
0
<COMMON> 10,860
<OTHER-SE> 38,175,621
<TOTAL-LIABILITY-AND-EQUITY> 41,041,341
<SALES> 0
<TOTAL-REVENUES> 533,846
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,324,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,790,417)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,790,417)
<EPS-PRIMARY> .44
<EPS-DILUTED> 0
</TABLE>
