<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 JUNE 30, 1997
-------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-22669
-------
AURORA BIOSCIENCES CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0669859
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11149 N. Torrey Pines Road, La Jolla, CA 92037
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(619) 452-5000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class July 31, 1997
----- -------------
<S> <C>
Common Stock, $.001 par value 17,041,181
</TABLE>
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AURORA BIOSCIENCES CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance sheets - June 30, 1997 (Unaudited) and December 31, 1996.................................3
Statements of operations (Unaudited) - Three and six months ended
June 30, 1997 and 1996...........................................................................4
Statements of cash flows (Unaudited) - Six months ended June 30, 1997 and 1996...................5
Notes to financial statements (Unaudited) - June 30, 1997........................................6
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................7
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities...................................................................9
ITEM 4. Submission of Matters to a Vote of Security Holders.....................................9
ITEM 6. Exhibits and Reports on Form 8-K........................................................10
SIGNATURES................................................................................................11
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AURORA BIOSCIENCES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,761,531 $ 3,914,038
Investment securities, available-for-sale 5,016,618 9,252,870
Accounts receivable under collaborative agreements 748,000 1,116,523
Prepaid expenses 691,420 228,029
Other current assets 470,484 169,175
------------ ------------
Total current assets 49,688,053 14,680,635
Equipment, furniture and leaseholds, net 3,033,137 1,901,515
Notes receivable from officers and employees 277,000 200,000
Other assets 1,116,834 732,374
------------ ------------
$ 54,115,024 $ 17,514,524
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 732,296 $ 299,819
Accrued compensation 199,103 319,770
Unearned revenue 637,500 250,000
Capital lease obligations, current portion 677,303 350,247
------------ ------------
Total current liabilities 2,246,202 1,219,836
Capital lease obligations, less current portion 1,899,260 1,110,897
Stockholders' equity:
Convertible preferred stock, $.001 par value; 7,500,000 and 25,000,000
shares authorized, none and 9,915,973 shares issued and outstanding at
June 30, 1997 and December 31, 1996, respectively; aggregate liquidation
preference of $18,679,119 at December 31, 1996 -- 9,916
Common stock, $.001 par value, 50,000,000 shares authorized, 16,890,997 and
2,865,156 shares issued and outstanding at June 30, 1997 and
December 31, 1996, respectively 16,891 2,865
Additional paid-in capital 59,323,380 18,887,790
Deferred compensation (3,581,328) (371,573)
Accumulated deficit (5,789,381) (3,345,207)
------------ ------------
Total stockholders' equity 49,969,562 15,183,791
------------ ------------
$ 54,115,024 $ 17,514,524
============ ============
</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 accompanying notes.
3
<PAGE> 4
AURORA BIOSCIENCES CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Screening system development $ 598,000 $ -- $ 1,248,000 $ --
Screening services 942,500 -- 1,347,500 --
License fees 487,500 -- 975,000 --
------------ ------------ ------------ ------------
Total revenue 2,028,000 -- 3,570,500 --
Operating expenses:
Cost of screening system development 1,578,871 -- 2,266,483 --
Cost of screening services 519,321 -- 806,761 --
Research and development 932,241 573,031 1,843,070 978,169
General and administrative 752,213 282,651 1,394,381 419,897
------------ ------------ ------------ ------------
Total operating expenses 3,782,646 855,682 6,310,695 1,398,066
------------ ------------ ------------ ------------
Loss from operations (1,754,646) (855,682) (2,740,195) (1,398,066)
Interest income 228,659 187,035 431,842 230,208
Interest expense (76,559) -- (135,821) --
------------ ------------ ------------ ------------
Net loss $ (1,602,546) $ (668,647) $ (2,444,174) $ (1,167,858)
============ ============ ============ ============
Net loss per share $ (0.12) $ (0.05) $ (0.18) $ (0.12)
============ ============ ============ ============
Shares used in computing net loss per share 13,908,935 13,123,268 13,655,949 9,463,409
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
AURORA BIOSCIENCES CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,444,174) $ (1,167,858)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 346,601 9,150
Forgiveness of notes receivable from officers and employees -- 93,129
Amortization of deferred compensation 332,167 --
Change in operating assets and liabilities:
Accounts receivable under collaborative agreements 368,523 --
Prepaid expenses and other current assets (764,700) (408,687)
Accounts payable and accrued compensation 311,810 187,755
Unearned revenue 387,500 --
------------ ------------
Net cash used in operating activities (1,462,273) (1,286,511)
------------ ------------
INVESTING ACTIVITIES:
Purchases of investment securities (1,485,021) (9,681,097)
Sales and maturities of investment securities 5,721,273 --
Purchases of equipment, furniture and leaseholds (107,384) (485,738)
Notes receivable from officers and employees (77,000) (23,331)
Other assets (384,460) (5,076)
------------ ------------
Net cash provided by (used in) investing activities 3,667,408 (10,195,242)
------------ ------------
FINANCING ACTIVITIES:
Issuance (cost) of convertible preferred stock, net (36,528) 15,617,650
Issuance of common stock, net 36,934,306 7,842
Issuance of notes payable -- 449,997
Principal payments on capital lease obligations (255,420) (2,334)
------------ ------------
Net cash provided by financing activities 36,642,358 16,073,155
------------ ------------
Net increase in cash and cash equivalents 38,847,493 4,591,402
Cash and cash equivalents at beginning of period 3,914,038 11,119
------------ ------------
Cash and cash equivalents at end of period $ 42,761,531 $ 4,602,521
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 135,821 $ --
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired under capital leases $ 1,370,839 $ 81,513
============ ============
Conversion of notes payable to convertible preferred stock $ -- $ 924,997
============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Aurora Biosciences
Corporation ("Aurora" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 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
adjustments, considered necessary for a fair presentation have been
included. Interim results are not necessarily indicative of results for
a full year. These financial statements should be read in conjunction
with the audited financial statements and footnotes thereto for the
year ended December 31, 1996, included in the Company's prospectus
dated June 19, 1997, filed with the Securities and Exchange Commission.
2. STOCKHOLDERS' EQUITY
On June 19, 1997, the Company completed an initial public offering of
4,000,000 shares of common stock at $10.00 per share, with the Company
receiving proceeds, net of underwriting discounts and commissions, of
$37.2 million. On July 23, 1997, the Company sold an additional 150,184
shares of common stock in connection with the partial exercise of an
over-allotment option granted to the underwriters for proceeds of $1.4
million.
3. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares outstanding during the periods, as adjusted for the effects of
certain rules of the Securities and Exchange Commission for the periods
prior to the Company's initial public offering.
6
<PAGE> 7
AURORA BIOSCIENCES CORPORATION
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-Q contains certain statements of a forward-looking nature relating
to future events or the future financial performance of the Company. Such
statements are only predictions and actual events or results may differ
materially. Factors that could cause or contribute to such differences include,
without limitation, those discussed in this Item 2 as well as those discussed in
the Company's prospectus dated June 19, 1997 relating to the Company's initial
public offering.
OVERVIEW
Aurora Biosciences Corporation ("Aurora" or the "Company") designs and develops
proprietary drug discovery systems, services and technologies to accelerate and
enhance the discovery of new medicines. The Company is developing an integrated
technology platform comprised of a portfolio of proprietary fluorescent assay
technologies and an ultra-high throughput screening ("UHTS") system designed to
integrate advanced instrumentation and miniaturized assays. The Company has
incurred losses since inception and, as of June 30, 1997, had an accumulated
deficit of $5.8 million.
The Company's ability to achieve profitability will depend in part on its
ability to successfully develop its UHTS system, provide screen development and
screening services to pharmaceutical and biotechnology companies, achieve
acceptable performance specifications for the UHTS system and gain industry
acceptance of its systems, services and technologies. Payments from corporate
collaborators and interest income are expected to be the only sources of revenue
for the foreseeable future. The Company has not yet generated any revenue from
milestones under its collaborative agreements. Royalties or other revenue from
commercial sales of products developed from any compounds identified by using
the Company's technologies are not expected for at least several years, if at
all. Payments under collaborative agreements will be subject to significant
fluctuation in both timing and amount and therefore the Company's results of
operations for any period may not be comparable to the results of operations for
any other period.
RESULTS OF OPERATIONS
Three and six months ended June 30, 1997 and 1996
Revenue from screening system development, screening services and license fees
totaled $598,000, $943,000 and $488,000, respectively, for the three months
ended June 30, 1997, and $1,248,000, $1,348,000 and $975,000, respectively, for
the six months ended June 30, 1997. There was no revenue recorded for the three
and six months ended June 30, 1996. The 1997 revenue resulted from the Company's
collaborative agreements with Bristol-Myers Squibb, Eli Lilly and Company, Roche
Bioscience Corporation and Allelix Biopharmaceuticals, Inc. and the technology
alliance with Packard Instrument Company.
Cost of screening system development and cost of screening services totaled
$1,579,000 and $519,000, respectively, for the three months ended June 30, 1997
and $2,266,000 and $807,000, respectively, for the six months ended June 30,
1997. There was no cost of screening system development or cost of screening
services for the three and six months ended June 30, 1996.
Research and development expenses increased to $932,000 for the three months
ended June 30, 1997 from $573,000 for the three months ended June 30, 1996.
Research and development expenses increased to $1,843,000 for the six months
ended June 30, 1997 from $978,000 for the six months ended June 30, 1996. The
increases were attributable to increased research and development personnel
expenses,
7
<PAGE> 8
AURORA BIOSCIENCES CORPORATION
JUNE 30, 1997
increased equipment, depreciation and facilities expenses in connection with the
expansion of operations, payments under technology development and license
agreements and the purchase of laboratory supplies.
General and administrative expenses increased to $752,000 from $283,000 for the
three months ended June 30, 1997 and 1996, respectively, and increased to
$1,394,000 from $420,000 for the six months ended June 30, 1997 and 1996,
respectively. The increases were attributable to increased management and
administrative personnel expenses, increased depreciation and facilities
expenses in connection with the expansion of operations and legal and
professional fees incurred in connection with the overall scale-up of the
Company's operations and business development efforts.
Net interest income decreased to $152,000 from $187,000 for the three months
ended June 30, 1997 and 1996, respectively, and increased to $296,000 for the
six months ended June 30, 1997 from $230,000 for the same period in 1996.
Interest income has primarily been generated to date from the proceeds of the
private placement of equity securities in March 1996 and has been offset by
interest expense incurred on capital lease obligations entered into during the
second half of 1996 and the first six months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, Aurora held cash, cash equivalents and investment securities
available-for-sale of $47.8 million and working capital of $47.4 million. The
Company has funded its operations to date primarily through the issuance of
equity securities with aggregate net proceeds of $55.6 million, capital
equipment lease financing totaling $3.1 million, interest income and receipts
from corporate collaborations and strategic technology alliances totaling $5.7
million through June 30, 1997.
The Company has entered into various strategic technology agreements with third
parties regarding the development of instrumentation technology which require
the Company to make future payments totaling approximately $900,000 through 1998
if all milestones are met. In addition, the Company has entered into license
agreements with third parties regarding certain inventions and technologies for
which the Company is obligated to make future payments totaling $750,000 over
the next seven years.
To date, all revenue received by the Company has been from collaborations and
technology alliances. The Company expects that substantially all revenue for the
foreseeable future will come from collaborators and interest income.
The Company has entered into collaborative agreements with Bristol-Myers Squibb
and Eli Lilly and Company, and drug discovery collaborations with Sequana
Therapeutics, Inc., Alanex Corporation and ArQule, Inc. The Company's ability to
achieve profitability will be dependent in part upon the ability of the Company
to enter into additional corporate collaborations. Although the Company is
actively seeking to enter into a collaborative agreement prior to the end of the
year with at least one additional pharmaceutical company, there can be no
assurance that the Company will be able to negotiate such collaborative
agreement or additional collaborative agreements in the future on acceptable
terms, if at all, or that such current or future collaborative agreements will
be successful and provide the Company with expected benefits.
8
<PAGE> 9
AURORA BIOSCIENCES CORPORATION
JUNE 30, 1997
ITEM 2. CHANGES IN SECURITIES
On April 25, 1997, the Company effected a four-for-five reverse split of the
shares of common stock outstanding as of such date. The split did not directly
adjust the outstanding shares of Preferred Stock, but instead adjusted the
conversion ratio for such shares. As a result of the Company's initial public
offering of Common Stock completed June 18, 1997, all outstanding shares of
Preferred Stock were automatically converted into 9,915,973 shares of Common
Stock. The Company's Restated Certificate of Incorporation has been amended and
restated to delete all references to such shares of Preferred Stock. Under the
Certificate of Incorporation, as amended and restated, the Board of Directors
has the authority, without further action by stockholders, to issue up to
7,500,000 shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges, qualifications and restrictions granted to or imposed
upon such Preferred Stock, including dividend rights, conversion rights, voting
rights, rights and terms of redemption, liquidation preference and sinking fund
terms, any or all of which may be greater than the rights of the Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 15, 1997, in connection with the preparation for its initial public
offering (the "IPO"), the Company solicited the written consent of its
stockholders with respect to various matters. The matters for which stockholder
consent was solicited were as follows:
PROPOSAL 1: The amendment of the Company's Restated Certificate of Incorporation
(the "Restated Certificate") prior to the IPO to effectuate a 4-for-5 reverse
stock split of the outstanding shares of the Company's Common Stock.
PROPOSAL 2: The restatement of the Company's Restated Certificate, to be
effective upon the closing of the IPO, to effectuate the following: (i)
eliminate the provisions relating to the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock following
the conversion of such Preferred Stock to Common Stock upon the closing of the
IPO; (ii) decrease the total number of authorized shares of the Company's
Preferred Stock from 25,000,000 to 7,500,000; and (iii) adopt certain
stockholder protection measures.
PROPOSAL 3: The restatement of the Company's Amended and Restated Bylaws upon
the closing of the IPO to include stockholder protection measures that
correspond to those set forth in the Restated Certificate, as amended above, and
to effect certain other changes.
PROPOSAL 4: Approval of the amendment and restatement of the Company's 1996
Stock Plan (the "Stock Plan") to increase the number of shares reserved under
the Stock Plan and adopt certain other changes to address recent developments in
the federal securities and tax laws.
PROPOSAL 5: Approval of the adoption of the Company's Non-Employee Directors'
Stock Option Plan.
PROPOSAL 6: Approval of the adoption of the Company's Employee Stock Purchase
Plan.
PROPOSAL 7: Approval of the form of indemnity agreement to be entered into
between the Company and its officers and directors.
The voting of stockholders with respect to each of the foregoing proposals was
as follows:
<TABLE>
<CAPTION>
CONSENTS RECEIVED CONSENTS NOT RECEIVED
----------------- ---------------------
<S> <C>
14,445,399 1,565,056
</TABLE>
9
<PAGE> 10
AURORA BIOSCIENCES CORPORATION
JUNE 30, 1997
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1(1) Restated Certificate of Incorporation
3.2(2) Restated Bylaws
11.1 Statement regarding Computation of Net Loss per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended June 30, 1997:
None
(1) Previously filed as Exhibit 3.4 to the Company's Registration Statement
on Form S-1 (File No. 333-23407)
(2) Previously filed as Exhibit 3.5 to the Company's Registration Statement
on Form S-1 (File No. 333-23407)
10
<PAGE> 11
AURORA BIOSCIENCES CORPORATION
JUNE 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Aurora Biosciences Corporation
Date: August 13, 1997 By: /s/ Deborah J. Tower
---------------------------------------
Deborah J. Tower
Senior Director of Finance and
Administration (on behalf of the
Registrant and as Registrant's Principal
Financial and Accounting Officer)
11
<PAGE> 1
AURORA BIOSCIENCES CORPORATION
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (1,602,546) $ (668,647) $ (2,444,174) $ (1,167,858)
Computation of common and common equivalent
shares outstanding:
Weighted average common shares outstanding 3,417,482 1,994,293 3,167,096 1,484,017
Convertible preferred stock assuming
conversion from date of issuance 9,915,973 9,217,655 9,915,973 5,643,989
------------ ------------ ------------ ------------
13,333,455 11,211,948 13,083,069 7,128,006
Shares related to SAB 83 (1):
Common stock 374 921,060 9,040 954,758
Convertible preferred stock -- 437,811 -- 828,196
Warrants (2) 45,290 45,290 45,290 45,290
Common stock options granted (2) 529,816 507,159 518,550 507,159
------------ ------------ ------------ ------------
575,480 1,911,320 572,880 2,335,403
Shares used in computing net loss per share 13,908,935 13,123,268 13,655,949 9,463,409
============ ============ ============ ============
Net loss per share $ (.12) $ (.05) $ (.18) $ (.12)
============ ============ ============ ============
</TABLE>
(1) Using the treasury stock method.
(2) All warrants and common stock options were granted after March 14, 1996
and are included in this calculation as SAB 83 shares.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1997 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 42,761,531
<SECURITIES> 5,016,618
<RECEIVABLES> 748,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,161,904
<PP&E> 3,538,422
<DEPRECIATION> 505,285
<TOTAL-ASSETS> 54,115,024
<CURRENT-LIABILITIES> 2,246,202
<BONDS> 0
0
0
<COMMON> 16,891
<OTHER-SE> 49,952,671
<TOTAL-LIABILITY-AND-EQUITY> 54,115,024
<SALES> 0
<TOTAL-REVENUES> 3,570,500
<CGS> 0
<TOTAL-COSTS> 3,073,244
<OTHER-EXPENSES> 3,237,451
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,821
<INCOME-PRETAX> (2,444,174)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,444,174)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,444,174)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
