<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 30, 1999
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 0-22147
ILEX ONCOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2699185
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11550 I.H. 10 WEST, SUITE 100
SAN ANTONIO, TEXAS 78230
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(210) 949-8200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
-----------
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
----- -----
-----------
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
On November 9, 1999, there were outstanding 17,277,043 Common Stock,
$.01 par value, of the registrant.
<PAGE> 2
ILEX ONCOLOGY, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
<S> <C> <C>
Item 1: Financial Statements
Consolidated Balance Sheets - December
31, 1998 and September 30, 1999 3-4
Consolidated Statements of Operations - For
the three and nine month periods ended September 30, 1998
and September 30, 1999 5
Consolidated Statements of Cash Flows - For
the nine month periods ended September 30, 1998
and September 30, 1999 6
Consolidated Statements of Comprehensive Income - For
the three and nine month periods ended September 30, 1998
and September 30, 1999 7
Notes to the Consolidated Financial Statements 8-12
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-16
Item 3: Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Items 1-6: Other Information 17-18
SIGNATURES 19
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ILEX ONCOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30,
December 31, 1999
ASSETS 1998 (unaudited)
------ ------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,581 $14,880
Investments in marketable securities 18,999 20,187
Accounts receivable, net of allowance for doubtful accounts of
$150 and $164 at December 31, 1998 and September 30,
1999, respectively:
Billed 2,685 2,582
Unbilled 863 1,923
Prepaid expenses and other 1,194 1,485
------- -------
Total current assets 30,322 41,057
------- -------
NONCURRENT ASSETS:
Investment in and advances to:
Research and development partnerships 228 495
Contract research affiliate 473 --
Intangible asset, net of amortization 6,704 --
Other 75 --
Investments in marketable securities 445 275
------- -------
Total noncurrent assets 7,925 770
------- -------
PROPERTY AND EQUIPMENT, Net of accumulated depreciation and
amortization of $1,377 and $2,761 at December 31, 1998 and
September 30, 1999, respectively
4,441 4,401
------- -------
Total assets $42,688 $46,228
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE> 4
ILEX ONCOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30,
December 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 (unaudited)
------------------------------------ ------------ -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-
Related parties $ 306 $ 98
Other 2,000 2,474
Accrued subcontractor costs-
Related parties 148 331
Other 985 1,087
Accrued liabilities 908 2,615
Deferred revenue 2,033 2,212
--------- ---------
Total current liabilities 6,380 8,817
--------- ---------
OTHER LONG-TERM LIABILITIES 404 377
--------- ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST -- 5,007
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 40,000 shares authorized; 12,653 and
17,275 shares issued and outstanding at December 31, 1998 and
September 30, 1999, respectively
127 173
Additional paid-in capital 67,623 107,829
Receivables on sale of common stock (46) --
Accumulated deficit (31,283) (74,568)
Deferred compensation -- (902)
Foreign currency translation adjustment -- 12
Treasury Stock: 39 shares at December 31, 1998 and September 30, 1999 (517) (517)
--------- ---------
Total stockholders' equity 35,904 32,027
--------- ---------
Total liabilities and stockholders' equity $ 42,688 $ 46,228
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE> 5
ILEX ONCOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------------- ----------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUE:
Product development $ 1,400 $ 1,078 $ 3,490 $ 3,147
CRO 2,190 3,914 7,113 9,482
-------- -------- -------- --------
Total revenue 3,590 4,992 10,603 12,629
-------- -------- -------- --------
OPERATING EXPENSES:
Research and development 3,526 3,890 12,829 11,387
In-Process R & D -- 11,124 -- 11,124
CRO 2,559 3,726 8,166 9,901
General and administrative 1,272 852 3,517 3,367
Special charges -- -- -- 13,882
-------- -------- -------- --------
Total operating expenses 7,357 19,592 24,512 49,661
-------- -------- -------- --------
OPERATING LOSS (3,767) (14,600) (13,909) (37,032)
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Equity in income (losses) of:
Research and development partnerships (1,031) (1,964) (3,390) (3,851)
Contract research affiliate (150) -- (71) (3,310)
Interest income, net 486 375 1,503 915
Minority interest in loss of consolidated subsidiary -- (7) -- (7)
-------- -------- -------- --------
NET LOSS $ (4,462) $(16,196) $(15,867) $(43,285)
======== ======== ======== ========
BASIC AND DILUTED NET LOSS PER SHARE $ (.35) $ (1.00) $ (1.28) $ (3.10)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES USED IN
COMPUTING BASIC AND DILUTED LOSS PER
SHARE OF COMMON STOCK 12,640 16,207 12,423 13,967
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE> 6
ILEX ONCOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1998 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(15,867) $(43,285)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 1,480 1,744
Special charges -- 13,882
In-process R&D write-off -- 11,125
Net activity of research and development partnerships and contract research affiliate (1,564) 1,398
Minority Interest -- 7
Deferred Compensation -- 105
Valuation of warrants issued in payment as licensing fees 3,143 --
Change in assets and liabilities-
(Increase) decrease in assets-
Accounts receivable, net (814) (984)
Prepaid expenses and other (432) (14)
Other noncurrent asset -- 75
Increase (decrease) in liabilities-
Accounts payable 121 632
Accrued liabilities 667 (324)
Advance billings (98) 179
Other long-term liabilities (24) (27)
-------- --------
Net cash used in operating activities (13,388) (15,487)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net activity of marketable securities transactions (3,630) (1,018)
Advances to research and development partnership (519) (1,000)
Purchase of property and equipment (2,009) (940)
Acquisitions, net of cash acquired -- (328)
-------- --------
Net cash used in investing activities (6,158) (3,286)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock for cash, net of issuance cost 268 23,014
Payment of note payable assumed in acquisition -- (1,000)
Proceeds from sale of subsidiary's preferred stock -- 5,000
Collections of receivables on sale of common stock 6 46
-------- --------
Net cash provided by financing activities 274 27,060
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS -- 12
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,272) 8,299
CASH AND CASH EQUIVALENTS, beginning of period 22,655 6,581
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 3,383 $ 14,880
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest -- --
Income taxes -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
<PAGE> 7
ILEX ONCOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------------- -----------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss $ (4,462) $(16,196) $(15,867) $(43,285)
Other comprehensive income:
Foreign currency translation adjustments -- 12 -- 12
-------- -------- -------- --------
Comprehensive loss $ (4,462) $(16,184) $(15,867) $(43,273)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-7-
<PAGE> 8
ILEX ONCOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
(Amounts in Thousands, Except Share Information,
Per Share Information or As Otherwise Indicated)
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
The accompanying interim consolidated financial statements presented herein
include the accounts of ILEX Oncology, Inc. and its subsidiaries ("the
Company"). All significant intercompany transactions and accounts have been
eliminated in consolidation. These interim consolidated financial statements
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. 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. In management's opinion, all
adjustments which are necessary for a fair presentation of financial position
and results of operations have been made. It is recommended that these interim
consolidated financial statements are read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998. The results of operations for any
interim period are not necessarily indicative of the results of operations for
the entire year. Certain prior period amounts have been reclassified to conform
to the current period presentation.
2. ACQUISITION OF CONVERGENCE:
On July 16, 1999, the Company acquired Convergence Pharmaceutical, Inc.,
("Convergence") of Boston, MA, a privately held research-based pharmaceutical
company with an emerging portfolio of angiogenesis and DNA repair inhibitors.
Under the terms of the purchase agreement, ILEX acquired Convergence in exchange
for 1 million shares of the Company's common stock, and an additional earn-out
of up to 1 million shares to be issued to Convergence's founders if certain
development milestones are met. The Company also assumed $1.0 million in
Convergence debt as part of the purchase. Subsequent to the purchase of
Convergence by the Company, the note was called and the Company paid the
principal sum of this note together with the accrued interest.
Concurrent with the acquisition, the Company entered into four consulting
agreements with the founders of Convergence. The agreements specify compensation
levels and grant the four founders of Convergence the option to purchase a total
of 100,000 shares of the Company's common stock at an exercise price of $9.94.
The options vest at the rate of 25 percent per year beginning in July 2000. The
fair value of the options is recorded as deferred compensation as a separate
component of stockholders' equity and adjusted to current market value on a
quarterly basis. Deferred compensation is being amortized to expense over the
vesting period of the options. At September 30, 1999, using an option-pricing
model, the fair value of the options was calculated as approximately $1.0
million. Amortization of deferred compensation at September 30, 1999, was
approximately $105.
In connection with the acquisition of Convergence, the Company acquired certain
intangible assets including intellectual property in the area of angiogenesis
inhibitors. In connection with the purchase price allocation, $11.1 million was
expensed as a charge for the purchase of in-process research and development.
In performing this allocation, the Company considered, among other factors,
Convergence's research and development projects that were in process at the date
of acquisition. With regard to the in-process research and development projects,
the Company considered factors such as the stage of development of the
technology at the time of acquisition, the importance of each project to the
overall development plan, alternative future use of the technology and the
projected incremental cash flows from the projects when completed and any
associated risks. Due to their specialized nature, the in-process research and
development projects had no alternative future use, either for re-deployment
elsewhere in the business or in liquidation, in the event the projects failed.
The Income Approach was the primary technique utilized in valuing the purchased
research and development projects. The value assigned to these projects was
limited because technological feasibility had not been established, including
development, testing and regulatory activities associated with the introduction
of projected product launches. The value assigned to purchased in-process
technology was determined by estimating the costs to develop the purchased
in-process technology into commercially viable products, estimating the
resulting net cash flows from the projects and discounting the net cash flows to
their present value. The appraisal also considered the fact that the existing
know-how diminishes in value over time as new technologies are developed and
changes in market conditions render current products and methodologies obsolete.
The assumptions underlying the cash flow projections used were derived primarily
from investment banking reports, historical results, company records and
discussions with management.
-8-
<PAGE> 9
Revenue estimates for each in-process project were developed by management based
on estimates of relevant market sizes and growth factors, expected trends in
technology and the nature and expected timing of new product introductions by
the Company and its competitors. Due to the technological and economic risks
associated with the developmental projects, a discount rate of 100 percent was
used to discount cash flows from the in-process products. The Company believes
that the foregoing assumptions used in the forecasts were reasonable at the time
of the acquisition. No assurance can be given, however, that the underlying
assumptions used to estimate revenue, development costs or profitability, or the
events associated with such projects will transpire as estimated. For these
reasons, actual results may vary from projected results. The most significant
and uncertain assumptions relating to the in-process projects relate to the
projected timing of completion and revenues attributable to each project.
3. SPECIAL CHARGES:
The Company recorded special charges totaling $13.9 million in the
second quarter of 1999. As discussed below, these charges include the
recognition of $12.3 million of costs associated with the termination of the
Company's agreements with PRN Research, Inc. (PRN) and $1.6 million of charges
related to other items.
In July 1997, the Company entered into an assignment agreement and a
services agreement with PRN under which the Company and PRN agreed to jointly
market their clinical trial service capabilities. In accordance with these
agreements, the Company issued 312,188 and 314,600 common shares to PRN in July
1997 and 1998, respectively. The value of the shares issued was recorded as an
intangible asset and was being amortized over the term of the agreements. The
Company also agreed to issue up to an additional 629,200 shares to PRN over a
two-year period if PRN remained in compliance with various provisions of the
agreements. Additionally, 1,255,988 common shares could have been issued over a
four-year period if certain milestones were achieved. Effective June 30, 1999,
the Company and PRN terminated the agreements and the Company recorded a $12.3
million special charge associated with the value of the remaining 629,200 shares
issued and the write-off, in accordance with Financial Accounting Standard 121,
of the net intangible asset associated with the PRN agreements. The Company has
no further obligation with respect to the assignment agreement or with respect
to the contingent shares under the services agreement.
The remaining $1.6 million in special charges is composed of a $750
accrual for a debt guarantee of an unaffiliated site management organization
which management believes to be uncollectable, a $350 write-down of computer
equipment and an approximate $500 write-off of an operating lease commitment for
manufacturing equipment which management has determined will not be utilized.
4. MINORITY INTEREST:
On September 23, 1999, ILEX Oncology Services, Inc., a wholly-owned
subsidiary of the Company, issued 290,867 shares of Series A Convertible
Preferred Stock for $5 million to Impath, Inc. The preferred stock is
convertible to the Company's common stock based upon a computation set forth in
the certificate of designation for the preferred stock. The preferred stock is
entitled to liquidation preferences over the Company's common stock. The
preferred stock is eligible for dividends at an annual rate of $1.031 per share.
Dividends accrue to the preferred stockholders semiannually. Beginning in
September 2000, the dividends will be paid to the stockholders annually in
arrears when and as declared by ILEX Oncology Services' board of directors.
At September 30, 1999, the convertible preferred stock is reflected as minority
interest on the Company's consolidated balance sheet. The corresponding
dividends are reflected as minority interest in loss of subsidiary on the
Company's consolidated statements of operations.
5. STATEMENTS OF CASH FLOWS:
Noncash financing and investing activities for the nine months ended September
30, 1998 and 1999, include the following:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Issuance of common stock to PRN $3,107 $6,292
Issuance of common stock
for acquisition -- 9,938
Assets acquired in acquisitions -- 774
Liabilities acquired in acquisitions -- 2,199
Settlement of accounts payable
through acquisition -- 566
</TABLE>
-9-
<PAGE> 10
6. LOSS PER SHARE:
Diluted net loss per share is equal to basic net loss per share as the effect of
all common stock equivalents is antidilutive.
7. FOREIGN CURRENCY TRANSLATION:
ILEX Services, Limited is a wholly-owned subsidiary of ILEX Oncology Services,
Inc. based in the United Kingdom. The financial statements of ILEX Services,
Limited were prepared in British pounds and translated to U.S. dollars based on
the current exchange rate at the end of the period for the balance sheet and a
weighted-average rate for the period on the statement of operations. Translation
adjustments are reflected as a separate component of stockholders' equity and,
accordingly, have no effect on the net loss of the Company.
8. STOCKHOLDERS' EQUITY:
On July 16, 1999, the Company completed a $20 million private placement of
2,389,200 shares of common stock. The shares were sold at a 15% discount from
the average 30-day trading price prior to closing.
9. INVESTMENTS IN AND ADVANCES TO RESEARCH AND DEVELOPMENT PARTNERSHIPS:
In May 1997, the Company entered into an agreement with LeukoSite, Inc.
("LeukoSite"), for an equally owned joint venture, L&I Partners, L.P. ("L&I"),
for research collaboration endeavors. The following is summarized information
for L&I as of and for the three and nine months ended September 30, 1999
(unaudited):
Summarized Income Statement Information
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Revenue $ 1,069 $ 1,069
Research and development expenses (4,984) (8,802)
Other income (expense) (13) (8)
------- -------
Net loss $(3,928) $(7,741)
======= =======
</TABLE>
Summarized Balance Sheet Information
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Assets $ 3,710
Liabilities 10,125
Partners' equity (deficit) (6,415)
</TABLE>
10. SEGMENT INFORMATION:
The Company has two reportable segments: products and services. The products
segment is involved in the development of proprietary compounds for the
treatment and prevention of cancer. The services segment provides contract
research services for the development, manufacturing, and regulatory approval of
oncology compounds. The Company's reportable segments are strategic business
units that are managed separately because each business requires different
technology and marketing strategies.
The Company has reclassified certain 1998 segment income statement amounts
between its two operating segments and general and administrative costs for
purposes of comparability with current year presentation. The effect of these
reclassifications on the three and nine months ended September 30, 1998 is to
increase research & development costs by $475 and $425, respectively, increase
the cost of contract research services by $137 and $1,130, respectively, and to
reduce corporate general & administrative costs by $613 and $1,554,
respectively.
The accounting policies of the segments are the same as those of the Company.
The Company evaluates performance based on the profit or loss from operations
before income taxes.
-10-
<PAGE> 11
Selected Segment Information
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the three months ended
September 30, 1998 September 30, 1999
---------------------------------- ---------------------------------
Services Products Total Services Products Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers $ 2,190 $ 1,400 $ 3,590 $ 3,914 $ 1,078 $ 4,992
Intersegment revenues 1,971 0 1,971 2,509 0 2,509
-------- -------- -------- -------- -------- --------
Total revenues 4,161 1,400 5,561 6,423 1,078 7,501
Direct costs 4,172 3,884 8,056 4,997 5,128 10,125
In Process R&D write-off 0 0 0 0 11,124 11,124
-------- -------- -------- -------- -------- --------
Segment operating income (loss) (11) (2,484) (2,495) 1,426 (15,174) (13,748)
Equity in income (losses) in research and
development partnerships and contract
research affiliate (150) (1,031) (1,181) 0 (1,964) (1,964)
-------- -------- -------- -------- -------- --------
Segment net income (loss) $ (161) $ (3,515) $ (3,676) $ 1,426 $(17,138) $(15,712)
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended For the nine months ended
September 30, 1998 September 30, 1999
---------------------------------- ---------------------------------
Services Products Total Services Products Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers $ 7,113 $ 3,490 $ 10,603 $ 9,482 $ 3,147 $ 12,629
Intersegment revenues 5,483 0 5,483 8,192 0 8,192
-------- -------- -------- -------- -------- --------
Total revenues 12,596 3,490 16,086 17,674 3,147 20,821
Direct costs 12,645 13,833 26,478 15,193 14,287 29,480
In Process R&D write-off 0 0 0 0 11,124 11,124
Special charges 0 0 0 12,847 8 12,855
-------- -------- -------- -------- -------- --------
Segment operating income (loss) (49) (10,343) (10,392) (10,366) (22,272) (32,638)
Equity in income (losses) in research and
development partnerships and contract
research affiliate (71) (3,390) (3,461) (3,310) (3,851) (7,161)
-------- -------- -------- -------- -------- --------
Segment net income (loss) $ (120) $(13,733) $(13,853) $(13,676) $(26,123) $(39,799)
======== ======== ======== ======== ======== ========
</TABLE>
-11-
<PAGE> 12
Reconciliation of Segment Information
To Consolidated Totals
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
-------------------------- --------------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
RESEARCH and DEVELOPMENT COSTS:
Reportable products segment direct costs $ 3,884 $ 5,128 $ 13,833 $ 14,287
Elimination of intersegment gross profit (358) (1,238) (1,004) (2,900)
---------- ---------- ---------- ----------
Consolidated research and development costs $ 3,526 $ 3,890 $ 12,829 $ 11,387
========== ========== ========== ==========
CRO COSTS:
Reportable services segment direct costs $ 4,172 $ 4,997 $ 12,645 $ 15,193
Elimination of intersegment expenses (1,613) (1,271) (4,479) (5,292)
---------- ---------- ---------- ----------
Consolidated direct costs of research services $ 2,559 $ 3,726 $ 8,166 $ 9,901
========== ========== ========== ==========
OPERATING LOSS:
Reportable segment operating loss $ (2,495) $ (13,748) $ (10,392) $ (32,638)
Corporate special charges 0 0 0 (1,027)
Corporate general and administrative expense (1,272) (852) (3,517) (3,367)
---------- ---------- ---------- ----------
Consolidated operating loss $ (3,767) $ (14,600) $ (13,909) $ (37,032)
========== ========== ========== ==========
NET LOSS:
Reportable segment net loss $ (3,676) $ (15,712) $ (13,853) $ (39,799)
Corporate special charges 0 0 0 (1,027)
Corporate general and administrative expense (1,272) (852) (3,517) (3,367)
Minority interest in loss of consolidated subsidiary 0 (7) 0 (7)
Interest income 486 375 1,503 915
---------- ---------- ---------- ----------
Consolidated net loss $ (4,462) $ (16,196) $ (15,867) $ (43,285)
========== ========== ========== ==========
</TABLE>
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<PAGE> 13
FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q,
including statements regarding the anticipated development officers, primarily
with respect to the future operating performance of the Company and other
statements contained herein regarding matters that are not historical fact, are
"forward-looking statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995). Because such statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements include, but are not limited to, those contained in
the Company's Registration Statement on Form S-3 filed September 24, 1999, as
amended (Registration No. 333-87721), the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, and in other reports filed with the
Securities and Exchange Commission. The Company does not intend to update these
forward-looking statements.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We develop pharmaceuticals for treating and preventing cancer and provide
contract research services to other companies developing anticancer drugs. We
have a portfolio of seven anticancer products in clinical development and
several preclinical stage products. We built this portfolio by in-licensing and
acquiring product candidates developed by others and do not conduct early-stage
drug discovery research ourselves. We recently completed a pivotal clinical
trial in CLL (chronic lymphocytic lymphoma), for our most advanced product
candidate, CAMPATH(R). We are developing CAMPATH(R) in a partnership with
LeukoSite, Inc. called L&I Partners, L.P. The results of this trial should
enable the partnership to complete by the end of 1999 the filing with the U.S.
Food and Drug Administration (FDA) for marketing approval. The FDA has granted
CAMPATH(R) fast-track status, requiring agency review to be completed within six
months from acceptance of the filing. In August 1999, the partnership licensed
worldwide marketing rights (except for Japan and East Asia) for CAMPATH(R) to
Schering AG. In the future we plan to market or co-market our own products and
become an oncology-focused specialty pharmaceutical company.
We operate through two reportable segments: ILEX Products, through which we
develop our own portfolio of anticancer compounds, and ILEX Services, which is
our full service Contract Research Organization (CRO). ILEX Services manages the
preclinical research and clinical trials for our own product candidates as well
as oncology products being developed by other companies. In addition to building
our expertise in cancer drug development, our CRO business generates revenue,
reduces our cost to perform our own research and development, and gives us
access to product in-licensing opportunities.
We currently have no products available for sale. We have incurred losses since
inception and had an accumulated deficit through September 30, 1999 of $74.6
million. Our losses have resulted primarily from product development activities,
including in-licensing of products for which we pay fees, and related
administrative expenses. We expect to continue to incur operating losses for the
next several years. To date we have not generated any revenue from the sale of
our drug candidates.
Our revenue for the foreseeable future will be limited to product development
funding under our collaborative relationships, our CRO revenue, interest income,
and other miscellaneous income. In addition, if marketing approval is received
from the FDA with respect to our lead product candidate, CAMPATH(R), and
CAMPATH(R) is successfully commercialized, we will receive a portion of the
profits generated by its sale. The partnership may not obtain marketing approval
of CAMPATH(R), successfully commercialize it or ever generate profits from its
sale.
Most of the development of CAMPATH(R) has been conducted by us on behalf of L&I
Partners. L&I Partners pays us for these services. We have historically
accounted for these CAMPATH(R) development activities as follows:
o our operating revenue includes product development revenue we receive from
L&I Partners;
o our research and development expenses include all of the development costs
for CAMPATH(R), which are largely offset by L&I Partners' revenue we
receive; and
o our actual share of CAMPATH(R) development costs is reported as equity in
losses of research and development partnerships.
-13-
<PAGE> 14
Our CRO business generates revenue by performing services for companies within
the pharmaceutical and biotechnology industries. The terms of our contracts
vary, ranging from several months to two years, and generally may be terminated
upon notice of 60 to 90 days by our customers. We recognize revenue with respect
to our services either on a percentage-of-completion or fee-for-service basis as
work is performed. The CRO business performs all of the development services for
ILEX Products; however, our consolidated CRO revenue does not include any
amounts related to the services provided to ILEX Products.
In September 1999 we filed a registration statement with the Securities and
Exchange Commission relating to a proposed underwritten public offering of
3,500,000 shares of common stock, of which 3,200,000 shares will be offered by
the Company and approximately 300,000 shares will be offered by a selling
stockholder. We will not receive any of the proceeds from the sale of shares by
the selling stockholder. We will also grant the underwriters an option to
purchase up to an additional 525,000 shares to cover over-allotments, if any. We
intend to use the net proceeds from the offering for the expansion of its
clinical trials and preclinical research, with a particular focus on its
late-stage clinical product candidates and angiogenesis inhibitors; for
potential acquisitions of complementary technologies, products or companies; and
for general corporate purposes.
In September 1999 ILEX Services completed a $5.0 million sale of its preferred
stock, which is initially convertible, subject to certain conditions, into
290,867 shares of our common stock.
In August 1999 L&I Partners L.P. entered into a distribution and development
agreement with Schering AG. The agreement grants Schering AG exclusive worldwide
marketing and distribution rights to CAMPATH(R) except Japan and East Asia,
where L&I Partners L.P. has retained rights. CAMPATH(R) is a humanized
monoclonal antibody in late-stage development. L&I Partners L.P. plan to submit
the final segment of the Biologics License Application (BLA) for CAMPATH(R) with
the FDA under a rolling submittal process by the end of this year. As of
September 30 , 1999 L&I Partners L.P. had received $5 million in funding from
Schering AG of which $2.5 million was paid in royalties.
In July 1999 we acquired Convergence Pharmaceuticals, Inc. and its portfolio of
angiogenesis inhibitors in exchange for 1,000,000 shares of our common stock,
and an additional earn-out of up to 1,000,000 shares of our common stock which
will be issued to Convergence's founders if certain development milestones are
met. As part of the earn-out, we may issue 500,000 shares by the end of 2000. We
expensed approximately $11.1 million in the third quarter of 1999 as a non-cash
in-process research and development cost for this acquisition.
On July 16, 1999, the Company completed a $20 million private placement of
2,389,200 shares of common stock. The shares were sold at a 15% discount from
the average 30-day trading price prior to closing.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Operating Revenue. Total revenue increased 39% from $3.6 million in the third
quarter of 1998 to $5.0 million in the third quarter of 1999. Product
development and licensing revenue decreased from $1.4 million to $1.1 million.
The decrease resulted from fluctuations in costs billed to L&I Partners L.P. CRO
revenue increased 77% from $2.2 million to $3.9 million. The $1.7 million
increase in CRO revenue reflected an increase in the number of our customers and
an increase in the number, size and duration of our projects. We believe that
this 77% rate of increase in CRO revenue over the corresponding three month
period in 1998 may be substantially higher than the growth rates we expect to
experience in future periods. This increase is due to reaching a higher revenue
base, with growth in future periods expected to be more in line with current
industry growth averages.
Research and Development. Product development costs increased 11% from $3.5
million in the third quarter of 1998 to $3.9 million in the third quarter of
1999. This increase of $0.4 million reflected the increased costs associated
with late-stage development of CAMPATH(R) and the development of eflornithine.
In-Process R & D. In connection with the acquisition of Convergence, the Company
acquired certain intangible assets including intellectual property in the area
of angiogenesis inhibitors. In connection with the purchase price allocation, in
the third quarter 1999, $11.1 million was expensed as a charge for the purchase
of in-process research and development. This charge is described in greater
detail in Note 2 of the Notes To The Consolidated Financial Statements.
General and Administrative. General and administrative costs decreased 31% from
$1.3 million in the third quarter of 1998 to $.9 million in the third quarter of
1999. This decrease of $0.4 million was primarily attributable to a reduction in
staff in the second quarter 1999.
CRO. CRO costs increased 42% from $2.6 million in the third quarter of 1998 to
$3.7 million in the third quarter of 1999. This increase of $1.1 million was
primarily attributable to increased staffing expense related to CRO revenue
growth, and facility and equipment expansion.
-14-
<PAGE> 15
Equity in Losses of Research and Development Partnerships and Contract Research
Affiliate. Equity in losses of research and development partnerships increased
100% from $1.0 million in the third quarter of 1998 to $2.0 million in the third
quarter of 1999. This increase of $1.0 million was due to increased development
costs for CAMPATH(R) and payment of royalties.
Equity in losses of contract research affiliate decreased from $0.2 in losses
during the third quarter of 1998 to zero during the third quarter of 1999. The
decrease is due to our second quarter 1999 write-off of our remaining investment
in PFK.
Net Interest Income. Net interest income decreased 20% from $0.5 million in the
third quarter of 1998 to $0.4 million in the third quarter of 1999. This
decrease of $0.1 was primarily attributable to a gain on sale of securities in
the prior year period.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Operating Revenue. Total revenue increased 19% from $10.6 million in the first
nine months of 1998 to $12.6 million in the first nine months of 1999. Product
development and licensing revenue decreased 11%, from $3.5 million to $3.1
million. The decrease resulted from fluctuations in costs billed to L&I Partners
L.P. CRO revenue increased 34% from $7.1 million to $9.5 million. The $2.4
million increase in CRO revenue reflected an increase in the number of our
customers and an increase in the number, size and duration of our projects.
Research and Development. Product development costs decreased 11% from $12.8
million in the first nine months of 1998 to $11.4 million in the first nine
months of 1999. This decrease of $1.4 million reflected a one-time cost of $3.3
million incurred in March 1998 for the in-licensing of THP-Dox, offset primarily
by increased costs in 1999 associated with late-stage development of CAMPATH(R)
and the development of eflornithine.
In-Process R & D. In connection with the acquisition of Convergence, the Company
acquired certain intangible assets including intellectual property in the area
of angiogenesis inhibitors. In connection with the purchase price allocation, in
the third quarter 1999, $11.1 million was expensed as a charge for the purchase
of in-process research and development. This charge is described in greater
detail in Note 2 of the Notes To The Consolidated Financial Statements.
General and Administrative. General and administrative costs remained
essentially flat, decreasing 3% from $3.5 million in the first nine months of
1998 to $3.4 million in the first nine months of 1999.
CRO. CRO costs increased 21% from $8.2 million in the first nine months of 1998
to $9.9 million in the first nine months of 1999. This increase of $1.7 million
was primarily attributable to increased staffing expenses related to CRO revenue
growth and facility and equipment expansion.
Special Charges. We incurred special charges of $13.9 million in the second
quarter of 1999. These charges include $12.3 million in costs associated with
the termination of our agreement with PRN Research, Inc., or PRN. In July 1997,
we entered into a service agreement with PRN to jointly market our ability to
conduct clinical trials. As part of our arrangement, we issued to PRN 626,788
shares of our common stock in 1997 and 1998. The value of these shares was
recorded as an intangible asset to be amortized over the term of the relevant
agreement. Effective June 30, 1999, ILEX and PRN terminated the agreement and we
issued to PRN the remaining 629,200 shares of our common stock issuable under
this agreement. We recorded a $12.3 million special charge associated with the
value of such common stock and the write-off, in accordance with Financial
Accounting Standard 121, of the net intangible asset associated with our
arrangement with PRN. We have no further obligation to PRN with respect to this
arrangement.
The remaining $1.6 million in special charges consisted of:
o a $0.8 million accrual for a debt guarantee of an unaffiliated site
management organization which we believe is uncollectible;
o a $0.4 million write-down of computer equipment; and
o a $0.4 million write-off of an operating lease commitment for manufacturing
equipment which we have determined will no longer be utilized.
Equity in Losses of Research and Development Partnerships and Contract Research
Affiliate. Equity in losses of research and development partnerships increased
15% from $3.4 million in the first nine months of 1998 to $3.9 million in the
first nine months of 1999. This increase of $0.5 million was due to increased
development costs for CAMPATH(R) and payment of royalties.
Equity in losses of contract research affiliate increased from $71,000 in losses
during the first nine months of 1998 to $3.3 million in losses during the first
nine months of 1999. These increased losses resulted from our obligation under
our debt guarantee to PFK (our former European contract research affiliate), a
write-off of our remaining investment in PFK, and our share of its operating
losses.
-15-
<PAGE> 16
Net Interest Income. Net interest income decreased 40% from $1.5 million in the
first nine months of 1998 to $0.9 million in the first nine months of 1999. This
decrease of $0.6 million was attributable to lower aggregate average balances of
cash, cash equivalents and investments in marketable securities during the first
nine months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
We historically have financed our operations primarily from the sale of our
capital stock and receipt of product development and licensing fee revenue and
CRO revenue. The majority of our expenditures have been for product development
activities, including associated general and administrative expenses and losses
incurred by our research and development partnerships and our contract research
affiliate. We expect product development expenses to increase for the next
several years as our development programs progress. In addition, general and
administrative expenses necessary to support these expanded programs are also
expected to increase over the next several years.
At September 30, 1999, we had cash, cash equivalents and investments in
marketable securities of $35.3 million and working capital of $32.2 million.
Cash, cash equivalents and investments in marketable securities increased in
July 1999 as a result of a $20.0 million private placement of our common stock.
Also in July 1999 we repaid debt of $1.0 million in connection with our
acquisition of Convergence. In addition, in September 1999 we received $5.0
million from the sale of preferred stock of our subsidiary, ILEX Services, to
IMPATH Inc.
Our cash requirements are expected to continue to increase each year as we
expand our activities and operations. It is possible we will never be able to
generate significant product revenue or achieve or sustain profitability. We
expect our current funds will be adequate to cover all of our obligations for at
least two years.
Until our business can generate sufficient levels of cash from product sales, we
expect to continue to finance our operations through: (a) existing cash, (b)
revenue from collaborative relationships, (c) CRO revenue, and (d) proceeds from
the sale of equity securities.
We plan to continue our policy of investing available funds in government
securities and investment-grade, interest-bearing securities, primarily with
maturities of one year or less. We do not invest in derivative financial
instruments, as defined by Statement of Financial Accounting Standards No. 119.
At December 31, 1998, we had federal income tax net operating loss (NOL) and
research credit carryforwards of $27.9 million and $0.7 million, respectively,
which expire at various times during the period from 2010 through 2018. When an
ownership change (as defined under the Internal Revenue Code) occurs, the tax
law places an annual limitation on the subsequent carryforwards. We believe that
common stock issued in July 1999 caused an ownership change. Accordingly, only
approximately $6.4 million of our carryforwards are available in any single year
during the carryforward period from 2000 through 2018.
YEAR 2000 READINESS
The "Year 2000" issue concerns the potential exposures related to the automated
generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the application year of business transactions. We
have assessed our computer systems to identify the systems that could be
affected by the Year 2000, and we have determined that no material changes are
required for our computer systems to be Year 2000 compliant. Accordingly, we
believe that, based upon currently available information, we will not incur any
material costs associated with becoming Year 2000 compliant. We are in the
process of confirming the Year 2000 readiness of our material customers, service
providers, key licensees and material vendors. Failure by us, our software
providers, material customers, service providers, key licensees or material
vendors to adequately address the Year 2000 issue could result in misstatement
of reported financial information or scientific data or otherwise materially
harm our business and financial condition.
The above Year 2000 disclosure constitutes a "Year 2000 Readiness Disclosure" as
defined in the "Year 2000 Information and Readiness Disclosure Act" which was
signed into law on October 19, 1998. Such act provides added protection from
liability for certain public and private statements concerning a company's Year
2000 readiness.
-16-
<PAGE> 17
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to some market risk through interest rates related to our
investment of our current cash, cash equivalents and marketable securities.
These funds are generally invested in highly liquid treasury bills and money
market accounts with short-term maturities. As these instruments mature and the
funds are reinvested, we are exposed to changes in market interest rates. We do
not consider this risk to be material. We manage this risk by continuing to
evaluate the best investment rates available for short-term investment-grade
securities. We have not used derivative financial instruments in our investment
portfolio.
Our European operations are denominated in local currency, and we have unhedged
transaction exposures in these currencies. We have not entered into any forward
foreign exchange contracts for speculative, trading or other purposes.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS: NOT APPLICABLE
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable
(b) Not applicable
(c) Pursuant to a Stock Purchase Agreement dated July 16,
1999, the Company issued an aggregate of 2,389,201 shares of
its Common Stock (the "Shares") to certain investors (the
"Investors") for an aggregate of $20,000,000. The Shares were
not registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to Section 4(2) of the
Securities Act and Regulation D promulgated thereunder. The
Company relied on certain representations and warranties of
each of the Investors, including, among other things, each of
the Investors' ability to evaluate the merits and risks of an
investment in the Shares, each of the Investors' status as an
"accredited investor" (as that term is defined in Rule 501(a)
of Regulation D) and that the Shares were acquired solely for
each of the Investors' own account for investment and not with
a view to distribution.
On September 23, 1999, ILEX Oncology Services, Inc.,
a wholly-owned subsidiary of the Company, issued 290,867
shares of its Series A Convertible Preferred Stock (the
"Services Shares") for $5 million to IMPATH Inc. ("IMPATH").
Subject to the occurrence of certain events, the Services
Shares are convertible into either 290,867 shares of Common
Stock of the Company or 290,867 shares of common stock of ILEX
Oncology Services, Inc. The Services Shares were not
registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2) of the Securities
Act and Regulation D promulgated thereunder. The Company
relied on certain representations and warranties of IMPATH,
including, among other things, IMPATH's ability to evaluate
the merits and risks of an investment in the Service Shares,
IMPATH's status as an "accredited investor" (as that term is
defined in Rule 501(a) of Regulation D) and that the Services
Shares were acquired solely for IMPATH's own account for
investment and not with a view to distribution.
(d) Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES: NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: NOT
APPLICABLE
ITEM 5. OTHER INFORMATION: NOT APPLICABLE
-17-
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 2.1 Plan of Merger and Acquisition Agreement
dated July 16, 1999, by and among ILEX Oncology,
Inc., Convergence Pharmaceuticals, Inc., Vikas
Sukhatme, Raghuram Kalluri, Ralph Weichselbaum,
Donald Kufe, Glenn C. Rice Tsuneya Ohno
(Incorporated herein by reference to Exhibit 2.1
of the Company's Current Report on Form 8-K filed
July 30, 1999)
Exhibit 10.1 Employment Agreement dated July 16, 1999,
by and between ILEX Products, Inc. and Glenn C.
Rice (Incorporated herein by reference to Exhibit
10.1 of the Company's Current Report in Form 8-K
filed July 30, 1999)
Exhibit 10.2 Registration Rights Agreement dated July
16, 1999 among ILEX Oncology, Inc., Vikas
Sukhatme, Raghuram Kalluri, Ralph Weichselbaum,
Donald Kufe, Glenn C. Rice, Tsuneya Ohno, Stephan
Dolezalek, Beth Israel Deaconess Medical Center
and Arch Development Corporation (Incorporated
herein by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K filed July
30, 1999)
Exhibit 10.3** Distribution and Development Agreement
between L&I Partners, L.P. and Schering AG dated
August 24, 1999 (Incorporated herein by reference
to Exhibit 99.1 of the Company's Current Report on
Form 8-K/A filed September 21, 1999)
Exhibit 11.1*: Computation of Net Loss Per Share
Exhibit 27.1*: Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated July 30, 1999 with described the Company's
acquisition of Convergence Pharmaceuticals, Inc.
Form 8-K/A dated September 21, 1999 which provided the
financial statements, proforma financial information and
exhibits pertaining to the previously announced
acquisition of Convergence Pharmaceuticals, Inc., and
which related to the agreement between L&I Partners, L.P.
and Schering AG.
- ---------
* Filed herewith.
** Confidential treatment has been requested with respect to certain portions
of this document. Such portions have been omitted and have been filed
separately with the Commission.
-18-
<PAGE> 19
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.
ILEX ONCOLOGY, INC.
(Registrant)
Dated: November 15, 1999 By: /s/ Richard L. Love
----------------- -----------------------------------------
Richard L. Love
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 15, 1999 By: /s/ Michael T. Dwyer
----------------- -----------------------------------------
Michael T. Dwyer
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
-19-
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
Exhibit 2.1 Plan of Merger and Acquisition Agreement dated July 16,
1999, by and among ILEX Oncology, Inc., Convergence
Pharmaceuticals, Inc., Vikas Sukhatme, Raghuram Kalluri,
Ralph Weichselbaum, Donald Kufe, Glenn C. Rice Tsuneya Ohno
(Incorporated herein by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K filed July 30, 1999)
Exhibit 10.1 Employment Agreement dated July 16, 1999, by and between
ILEX Products, Inc. and Glenn C. Rice (Incorporated herein
by reference to Exhibit 10.1 of the Company's Current Report
in Form 8-K filed July 30, 1999)
Exhibit 10.2 Registration Rights Agreement dated July 16, 1999 among ILEX
Oncology, Inc., Vikas Sukhatme, Raghuram Kalluri, Ralph
Weichselbaum, Donald Kufe, Glenn C. Rice, Tsuneya Ohno,
Stephan Dolezalek, Beth Israel Deaconess Medical Center and
Arch Development Corporation (Incorporated herein by
reference to Exhibit 10.2 of the Company's Current Report on
Form 8-K filed July 30, 1999)
Exhibit 10.3** Distribution and Development Agreement between L&I Partners,
L.P. and Schering AG dated August 24, 1999 (Incorporated
herein by reference to Exhibit 99.1 of the Company's Current
Report on Form 8-K/A filed September 21, 1999)
Exhibit 11.1*: Computation of Net Loss Per Share
Exhibit 27.1*: Financial Data Schedule
</TABLE>
- -------
* Filed herewith.
** Confidential treatment has been requested with respect to certain portions
of this document. Such portions have been omitted and have been filed
separately with the Commission.
<PAGE> 1
EXHIBIT 11.1
ILEX ONCOLOGY, INC.
COMPUTATION OF NET LOSS PER SHARE
(In Thousands, Except Per Share Amount)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
---------------------- ----------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
COMPUTATION OF BASIC LOSS PER SHARE
Net Loss $ (4,462) $(16,196) $(15,867) $(43,285)
Weighted average number of shares of Common Stock outstanding 12,640 16,207 12,423 13,967
======== ======== ======== ========
Basic net loss per share $ (.35) $ (1.00) $ (1.28) $ (3.10)
======== ======== ======== ========
COMPUTATION OF DILUTED LOSS PER SHARE
Net Loss $ (4,462) $(16,196) $(15,867) $(43,285)
Preferred stock dividends not incurred upon assumed conversion of
preferred stock -- 7 -- 7
-------- -------- -------- --------
Loss available to common stockholders' assuming conversion of
subsidiary's preferred stock (4,462) (16,189) (15,867) (43,278)
Weighted average number of shares of Common Stock and Common Stock
equivalents outstanding:
Weighted average number of shares of Common Stock outstanding 12,640 16,207 12,423 13,967
Weighted average number of Common Stock equivalents
applicable to stock options, warrants and subsidiary's
preferred stock (1) 229 588 323 471
-------- -------- -------- --------
Common Stock and Common Stock equivalents 12,869 16,795 12,746 14,438
======== ======== ======== ========
Diluted net loss per share $ (.35) $ (.96) $ (1.24) $ (3.00)
======== ======== ======== ========
</TABLE>
(1) This calculation is submitted in accordance with Item 601(b)11 of
regulation S-K although it is not required by SFAS No. 128 because it is
antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the Balance
Sheet as of September 30, 1999, and the Statement of Operations for the period
then ended and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,880
<SECURITIES> 20,187
<RECEIVABLES> 4,669
<ALLOWANCES> 164
<INVENTORY> 0
<CURRENT-ASSETS> 41,057
<PP&E> 7,162
<DEPRECIATION> 2,761
<TOTAL-ASSETS> 46,228
<CURRENT-LIABILITIES> 8,817
<BONDS> 0
0
0
<COMMON> 173
<OTHER-SE> 31,854
<TOTAL-LIABILITY-AND-EQUITY> 46,228
<SALES> 0
<TOTAL-REVENUES> 12,629
<CGS> 0
<TOTAL-COSTS> 21,288
<OTHER-EXPENSES> 25,006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (43,285)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,285)
<EPS-BASIC> (3.10)
<EPS-DILUTED> (3.10)
</TABLE>
