<PAGE> 1
UNITED STATES
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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-28006
MICROCIDE PHARMACEUTICALS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-3186021
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
850 MAUDE AVENUE, MOUNTAIN VIEW, CALIFORNIA 94043
- ------------------------------------------- ----------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: 415-428-1550
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 [ ]
Number of shares of Common Stock, no par value, outstanding as of May 1, 1997:
10,810,561.
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MICROCIDE PHARMACEUTICALS, INC.
INDEX FOR FORM 10-Q
MARCH 31, 1997
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
Condensed Balance Sheets as of March 31, 1997 3
and December 31, 1996
Condensed Statements of Operations for the three
months ended March 31, 1997 and March 31, 1996 4
Condensed Statements of Cash Flows for the three
months ended March 31, 1997 and March 31, 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION 11
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults in Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 12
</TABLE>
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MICROCIDE PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- --------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,360 $ 8,317
Short-term investments 37,849 39,191
Prepaid expenses and other current assets 565 334
-------- --------
Total current assets 46,774 47,842
Property and equipment, net 8,980 8,825
Other assets 153 159
-------- --------
Total assets $ 55,907 $ 56,826
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 821 $ 1,523
Construction payable 47 745
Accrued compensation 604 496
Current portion of capital lease obligations 1,031 1,110
Deferred revenue 1,799 1,189
Other accrued liabilities 398 237
-------- --------
Total current liabilities 4,700 5,300
Long-term portion of capital lease obligations 595 811
Accrued rent 157 141
Stockholders' equity:
Common stock 66,471 66,314
Stockholder note receivable - (35)
Deferred compensation (1,575) (1,577)
Net unrealized gain on securities available-for-sale 77 9
Accumulated deficit (14,518) (14,137)
-------- --------
Total stockholders' equity 50,455 50,574
-------- --------
Total liabilities and stockholders' equity $ 55,907 $ 56,826
======== ========
</TABLE>
NOTE: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Notes to Condensed Financial Statements.
-3-
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MICROCIDE PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
-------- -------
<S> <C> <C>
Revenues:
License and milestone fees $ 1,000 $ 1,000
Research revenue 3,107 1,625
-------- -------
Total revenues 4,107 2,625
Operating expenses:
Research and development 4,101 1,780
General and administrative 1,022 526
-------- -------
Total operating expenses 5,123 2,306
-------- -------
Income (loss) from operations (1,016) 319
Interest income 688 137
Interest and other expense (53) (73)
-------- -------
Net income (loss) per share $ (381) $ 383
======== =======
Net loss per share $ (0.04)
========
Shares used in calculation of net loss per share 10,760
Pro forma net income per share $ 0.04
=======
Shares used in calculation of pro forma net income per share 8,563
</TABLE>
See Notes to Condensed Financial Statements.
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<PAGE> 5
MICROCIDE PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income (loss) $ (381) $ 383
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 528 351
Amortization of deferred compensation 145 64
Accrued rent 16 (2)
Net unrealized gain on securities 68 -
Changes in assets and liabilities:
Prepaid expenses and other current assets (231) (74)
Other assets 6 23
Accounts payable (702) 360
Construction payable (698) -
Accrued compensation and other accrued liabilities 269 36
Deferred revenue 610 1,624
-------- --------
Net cash provided by (used in) operating activities (370) 2,765
-------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of short-term investments (39,298) -
Maturities of short-term investments 40,640 -
Capital expenditures (683) (922)
-------- --------
Net cash provided by (used in) investing activities 659 (922)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (295) (265)
Repayment of shareholder note receivable 35 -
Net proceeds from issuance of common stock 14 8
Net proceeds from issuance of convertible preferred stock - 4,990
-------- --------
Net cash provided by (used in) financing activities (246) 4,733
-------- --------
Net increase in cash and cash equivalents 43 6,576
Cash and cash equivalents, beginning of period 8,317 8,517
-------- --------
Cash and cash equivalents, end of period $ 8,360 $ 15,093
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 21 $ -
======== ========
Interest paid $ 42 $ 70
======== ========
</TABLE>
See Notes to Condensed Financial Statements.
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<PAGE> 6
MICROCIDE PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Microcide Pharmaceuticals, Inc. (the "Company") is a
biopharmaceutical company founded to discover, develop and commercialize novel
antibiotics for the treatment of serious bacterial infections. The Company's
discovery and development programs address the growing problem of antibiotic
resistance in certain bacteria through two principal themes: (i) Targeted
Antibiotics, which focuses on developing novel antibiotics and antibiotic
potentiators, and (ii) Targeted Genomics, which utilizes bacterial genetics to
discover new classes of antibiotics and other novel treatments for bacterial
disease. The Company has also extended its functional genomics technology
platform into a program designed to discover improved systemic antifungal
agents.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the interim periods shown herein
are not necessarily indicative of operating results for the entire year.
This unaudited financial data should be read in conjunction with the
financial statements and footnotes contained in the Company's annual report on
Form 10-K for the year ended December 31, 1996.
2. INVESTMENTS
Investment securities are classified as available-for-sale
(estimated fair value) and consist of the following investments (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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<S> <C> <C>
Cash equivalents and short-term investments:
Money market funds $ 1,275 $ 420
U.S. government securities 4,016 -
Corporate debt securities 40,082 44,174
------- -------
$45,373 $44,594
======= =======
</TABLE>
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<PAGE> 7
3. PER SHARE INFORMATION
Net income (loss) per share is computed using the weighted average
number of shares of common stock outstanding during the periods presented.
Common equivalent shares are included in the computation for income periods and
excluded from the computation in loss periods as their effect is antidilutive,
except that, pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares (stock options, warrants, and
convertible preferred stock) issued during the 12 month period prior to the
Company's initial public offering have been included in the calculation as if
they were outstanding for all periods through March 31, 1996 (using the treasury
stock method for stock options and warrants and the if-converted method for
convertible preferred stock). Historical net income per share for the three
months ended March 31, 1996 was $0.14.
The pro forma calculation of net income (loss) per share has been
computed as described above but also gives retroactive effect from the date of
issuance to the conversion of the convertible preferred stock which
automatically converted to common shares upon closing of the Company's initial
public offering in May 1996.
In February 1997, the Financial Accounting Standards Board issued
Statement 128, "Earnings per Share", which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact is not expected to
result in a change in primary earnings per share for the three months ended
March 31, 1997 as the Company incurred a net loss in that period and,
accordingly, the calculation of earnings per share for that period excluded
stock options as their effect was antidilutive. The impact is expected to result
in an increase in primary earnings per share for the three months ended March
31, 1996 of $0.02 per share.
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<PAGE> 8
MICROCIDE PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
As part of the Company's strategy to enhance its research and
development capabilities and to fund, in part, its capital requirements,
Microcide has entered into collaborative agreements with three major
pharmaceutical companies. The Company has received license fees, research
support payments and milestone payments pursuant to these agreements and can
potentially receive additional research support payments, additional milestone
payments and royalty payments. License payments are typically nonrefundable
up-front payments for licenses to develop, manufacture and market products, if
any, that are developed as a result of the collaboration. Research support
payments are typically contractually obligated payments to fund research and
development over the term of the collaboration. Milestone payments are payments
contingent upon the achievement of specified milestones, such as selection of
candidates for drug development, the commencement of clinical trials or receipt
of regulatory approvals. If drugs are successfully developed and commercialized
as a result of the collaborative agreements, the Company will receive royalty
payments based upon the net sales of such drugs.
Through March 31, 1997, the Company had received in the aggregate
$21.2 million in license fees, milestone payments and research support payments
under the collaborative agreements. Assuming none of the existing collaborative
agreements is terminated prior to its scheduled expiration, the Company will be
entitled to receive an additional $26.3 million of research support payments. In
addition, in the event that any of the collaborative agreements are extended
beyond their current terms, the Company will be entitled to receive additional
research support payments.
In the event that the Company achieves the specified research and
product development milestones, the Company will be entitled to receive
milestone payments ranging from $13.0 million to $32.5 million per product. No
royalty payments have yet been received and the Company does not expect to
receive royalties based upon the net sales of drugs for a significant number of
years, if ever.
Quarterly results of operations are subject to significant
fluctuations based on the timing and amount of certain revenues earned under the
collaborative agreements. The Company expects to incur operating losses in the
future.
This Form 10-Q contains forward-looking statements based upon
current expectations, including statements with regard to the potential receipt
of additional research support payments, milestone payments and royalties from
the Company's collaborative partners, the period of time the Company's existing
capital resources and future payments under collaborative agreements will be
sufficient to satisfy the Company's funding requirements. Such forward-looking
statements involve risk and uncertainties, including without limitation, the
risk that the Company's collaborations will be terminated, development
candidates will not be identified, development candidates which are selected
will not proceed through pre-clinical trials or will not prove safe and
effective for treatment of humans in clinical trials, or that the
identification, selection, pre-clinical, and clinical testing of development
candidates will take substantially longer or be substantially more expensive
than contemplated by the Company, or that the Company will not be able to obtain
on a timely basis government regulatory clearance required for clinical testing,
-8-
<PAGE> 9
manufacturing, and marketing of its products, and the other risks and
uncertainties set forth in the Company's annual report on Form 10-K for the year
ended December 31, 1996. Actual results and timing of certain events could
differ materially from those indicated in the forward-looking statements as a
result of these or other factors.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Revenues. Total revenues for the first quarter of 1997 were $4.1 million, an
increase of 56% from the $2.6 million in revenues received in the first quarter
of 1996. License and milestone fees were $1.0 million in each period. Research
support revenue increased from $1.6 million in the first quarter of 1996 to $3.1
million in the first quarter of 1997 due primarily to an increase in the number
of research personnel devoted to collaborative projects, including those related
to the Pfizer collaboration which commenced late in the first quarter of 1996.
Research and Development Expenses. Research and development expenses for the
first quarter increased approximately 130% from $1.8 million in 1996 to $4.1
million in 1997 primarily due to increased compensation and other expenses
related to increased headcount to support the Company's corporate collaborations
and its internal programs, as well as due to expenses related to assembling the
Company's molecular diversity collection. Additionally, expenditures for
research materials and outside research contributed to the increase in expense.
Research and development expenses are expected to further increase in the second
quarter as the Company adds research personnel to support its corporate
collaborations and internal programs.
General and Administrative Expenses. General and administrative expenses for the
first quarter increased 94% from $526,000 in 1996 to $1.0 million in 1997.
Increased expenses primarily consisted of higher compensation
expenses due to an increase in administrative personnel and bonus expenses that
were awarded in the first quarter of 1997 and higher costs for legal and other
outside services associated with being a public company. General and
administrative expenses are not expected to change significantly in the second
quarter as compared to the first quarter of 1997.
Interest Income and Expense. Interest income for the first quarter increased
from $137,000 in 1996 to $688,000 in 1997, primarily due to an increase in
average cash balances in 1997 related to proceeds received from the Company's
initial public offering in May 1996, proceeds received from the sale of other
equity and cash received under collaborative agreements. Interest and other
expense for the first quarter decreased from $73,000 in 1996 to $53,000 in 1997
due to a decrease in capital lease balances outstanding.
Net Income (Loss). The net loss for the first quarter of 1997 was $381,000 as
compared to net income of $383,000 in the first quarter of 1996, primarily as a
result of the items discussed above.
-9-
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily
through the sale of equity, through funds provided under collaborative
agreements and through equipment financing. As of March 31, 1997 the Company had
received approximately $63.8 million in net proceeds from the sale of equity and
approximately $21.2 million for license and milestone fees and research support
payments under collaborative agreements.
Cash, cash equivalents and short-term investments at March 31, 1997
were $46.2 million compared to $47.5 million at December 31,1996. The decrease
during the first quarter of 1997 was due primarily to cash used by operations of
$370,000, $683,000 in capital expenditures and $295,000 utilized in financing
activities which predominantly consisted of principal payments on capital lease
obligations.
The Company believes that its existing capital resources, interest
income and future payments due under collaborative agreements will enable the
Company to maintain current and planned operations at least through 1998. The
foregoing is a forward-looking statement.
-10-
<PAGE> 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed with this report:
11.1 Calculation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1997.
-11-
<PAGE> 12
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.
Dated: March 14, 1997
MICROCIDE PHARMACEUTICALS, INC.
(Registrant)
/s/ James E. Rurka
-------------------------------------------------
President, Chief Executive Officer and Director
(principal executive officer)
/s/ Matthew J. Hogan
-------------------------------------------------
Chief Financial Officer
(principal financial and accounting officer)
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<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
11.1 Calculation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.1 CALCULATION OF NET INCOME (LOSS) PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1997 1996
-------- ------
<S> <C> <C>
Net income (loss) $ (381) $ 383
======== ======
Weighted average shares of common stock outstanding 10,760 876
Net effect of dilutive stock options and warrants
using the treasury stock method - 484
Shares related to staff accounting bulletin topic 4D:
Stock options - 322
Preferred stock(1) - 1,145
-------- ------
Shares used in calculating net income (loss) per share 10,760 2,827
======== ======
Net income (loss) per share $ (0.04) $ 0.14
======== ======
Calculation of shares outstanding for computing pro forma net income per share:
Shares used in computing net income per share 2,827
Adjusted to reflect the effect of the
assumed conversion of preferred
stock from the date of issuance (2) 5,736
------
Shares used in computing pro forma net income per share 8,563
======
Pro forma net income per share $ 0.04
======
</TABLE>
- --------------------
(1) Series D and E shares
(2) Series A, B and C shares
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,360
<SECURITIES> 37,849
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,774
<PP&E> 13,237
<DEPRECIATION> (4,257)
<TOTAL-ASSETS> 55,907
<CURRENT-LIABILITIES> 4,700
<BONDS> 0
0
0
<COMMON> 64,095
<OTHER-SE> 878
<TOTAL-LIABILITY-AND-EQUITY> 55,907
<SALES> 0
<TOTAL-REVENUES> 4,107
<CGS> 0
<TOTAL-COSTS> 5,123
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> (381)
<INCOME-TAX> 0
<INCOME-CONTINUING> (381)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (381)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
