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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 September 30, 2000
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
incorporation or organization) Identification No.)
11010 Torreyana Road, San Diego, CA 92121
----------------------------------- ----------
(Address of principal executive offices) (Zip code)
(858) 404-6600
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(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 [X] No [ ]
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 October 31, 2000
----- ----------------
<S> <C>
Common Stock, $.001 par value 20,579,424
</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 - September 30, 2000 (Unaudited) and December 31, 1999........................................ 3
Statements of Operations (Unaudited) - Three and nine months ended September 30, 2000 and 1999............... 4
Statements of Cash Flows (Unaudited) - Nine months ended September 30, 2000 and 1999......................... 5
Notes to Financial Statements (Unaudited).................................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K................................................................... 11
SIGNATURE....................................................................................................... 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AURORA BIOSCIENCES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 25,120,940 $ 15,934,352
Investment securities, available-for-sale 81,424,322 20,683,696
Accounts receivable 14,522,271 5,282,485
Notes receivable from officers and employees 50,000 50,000
Prepaid expenses 1,160,143 1,443,840
Other current assets 4,468,517 1,623,301
------------- -------------
Total current assets 126,746,193 45,017,674
Equipment, furniture and leaseholds, net 12,225,334 11,892,398
Notes receivable from officers and employees 227,000 115,000
Other assets 11,968,381 6,837,388
------------- -------------
Total assets $ 151,166,908 $ 63,862,460
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,758,196 $ 3,832,428
Accrued compensation 3,985,916 2,219,172
Other current liabilities 2,048,900 442,200
Unearned revenue 7,305,071 10,214,848
Capital lease and loan obligations, current portion 2,482,933 2,497,046
------------- -------------
Total current liabilities 21,581,016 19,205,694
Capital lease and loan obligations, less current portion 3,948,681 4,342,726
Stockholders' equity:
Preferred stock, $.001 par value; 7,500,000 shares
authorized and no shares issued and outstanding -- --
Common stock, $.001 par value, 50,000,000 shares
authorized, 20,376,888 and 17,442,741 shares issued and
outstanding at September 30, 2000 and December 31, 20,377 17,443
1999, respectively
Additional paid-in capital 139,435,579 62,754,348
Accumulated other comprehensive income (loss) 2,332,633 (48,567)
Deferred compensation (235,376) (830,112)
Accumulated deficit (15,916,002) (21,579,072)
------------- -------------
Total stockholders' equity 125,637,211 40,314,040
------------- -------------
Total liabilities and stockholders' equity $ 151,166,908 $ 63,862,460
============= =============
</TABLE>
See accompanying notes.
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AURORA BIOSCIENCES CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 16,793,549 $ 10,880,151 $ 47,122,899 $ 30,440,929
Operating expenses:
Cost of revenue 8,810,186 6,560,914 25,785,642 19,728,053
Research and development 4,403,105 3,234,796 10,415,533 9,299,210
Selling, general and administrative 3,612,944 2,978,022 10,715,124 8,543,400
------------ ------------ ------------ ------------
Total operating expenses 16,826,235 12,773,732 46,916,299 37,570,663
------------ ------------ ------------ ------------
Income (loss) from operations (32,686) (1,893,581) 206,600 (7,129,734)
Interest and other income 1,867,679 401,287 6,479,615 1,123,805
Interest expense (161,682) (175,940) (513,145) (519,549)
------------ ------------ ------------ ------------
Income (loss) before taxes 1,673,311 (1,668,234) 6,173,070 (6,525,478)
Income taxes (270,000) -- (510,000) --
------------ ------------ ------------ ------------
Net income (loss) $ 1,403,311 $ (1,668,234) $ 5,663,070 $ (6,525,478)
============ ============ ============ ============
Basic net income (loss) per share $ 0.07 $ (0.10) $ 0.29 $ (0.39)
============ ============ ============ ============
Diluted net income (loss) per share $ 0.06 $ (0.10) $ 0.26 $ (0.39)
============ ============ ============ ============
Shares used in computing:
Basic income (loss) per share 20,258,485 17,010,179 19,614,942 16,881,342
============ ============ ============ ============
Diluted income (loss) per share 22,597,191 17,010,179 22,044,946 16,881,342
============ ============ ============ ============
</TABLE>
See accompanying notes.
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AURORA BIOSCIENCES CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 5,663,070 $ (6,525,478)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 2,566,947 2,391,760
Amortization of deferred compensation 463,756 660,834
Gain from sale of investment (1,729,514) --
Revenue earned through barter agreement -- (300,000)
Other non-cash items, net 243,062 --
Changes in operating assets and liabilities:
Accounts receivable (9,239,786) (3,084,118)
Prepaid expenses and other current assets (2,561,519) (2,182,038)
Other assets (1,155,714) (1,120,061)
Accounts payable and accrued compensation 3,692,512 3,830,509
Other current liabilities 1,606,700 229,934
Customer advances -- 875,000
Unearned revenue (2,909,777) 5,493,431
------------ ------------
Net cash provided by (used in) operating activities (3,360,263) 269,773
INVESTING ACTIVITIES:
Purchases of short-term investments (80,982,981) (6,922,439)
Sales and maturities of short-term investments 20,341,313 7,763,169
Capital expenditures (2,308,931) (269,375)
Notes receivable from officers and employees (147,000) 235,000
Restricted cash -- 355,567
Other assets 36,477 --
------------ ------------
Net cash provided by (used in) investing activities (63,061,122) 1,161,922
FINANCING ACTIVITIES:
Private placement of common stock, net 70,940,179 --
Other issuances of common stock, net 5,666,904 639,426
Proceeds from capital lease and loan obligations 1,129,887 619,225
Principal payments on capital lease and loan obligations (2,128,997) (1,643,983)
------------ ------------
Net cash provided by (used in) financing activities 75,607,973 (385,332)
------------ ------------
Net increase in cash and cash equivalents 9,186,588 1,046,363
Cash and cash equivalents at beginning of period 15,934,352 9,477,916
------------ ------------
Cash and cash equivalents at end of period $ 25,120,940 $ 10,524,279
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 513,145 $ 519,549
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Property and equipment acquired under capital leases and loans $ 590,952 $ 1,415,238
============ ============
Property and equipment acquired under through barter agreement $ - $ 300,000
============ ============
</TABLE>
See accompanying notes
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AURORA BIOSCIENCES CORPORATION
SEPTEMBER 30, 2000
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.
The balance sheet at December 31, 1999 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.
These financial statements should be read in conjunction with the
audited financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1999, as filed with the Securities and Exchange Commission ("SEC").
2. ACCOUNTS RECEIVABLE
Included in accounts receivable are unbilled amounts totaling
$11,193,635 and $3,465,264 at September 30, 2000 and December 31, 1999,
respectively. Unbilled receivables are not billable in accordance with
contract terms until some future date. The unbilled receivables at
September 30, 2000 are expected to be billed and collected within one
year.
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AURORA BIOSCIENCES CORPORATION
SEPTEMBER 30, 2000
3. INCOME (LOSS) PER SHARE
The following table sets forth the computation of shares used in basic
and diluted net income (loss) per share calculations for the three and
nine months periods ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares used in basic income
(loss) per share computations
- weighted average common
shares outstanding 20,258,485 17,010,179 19,614,942 16,881,342
Effect of dilutive securities:
Nonvested common stock 16,802 -- 38,719 --
Common stock options 2,321,904 -- 2,391,285 --
---------- ---------- ---------- ----------
Dilutive securities subtotal 2,338,706 -- 2,430,004 --
---------- ---------- ---------- ----------
Shares used in diluted income
(loss) per share computations 22,597,191 17,010,179 22,044,946 16,881,342
========== ========== ========== ==========
</TABLE>
4. COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) was $2,639,610 and ($1,659,371) for
the three months ended September 30, 2000 and 1999, respectively, and
$8,044,270 and ($6,528,418) for the nine months ended September 30, 2000
and 1999, respectively. Total comprehensive income (loss) for the three
and nine months ended September 30, 2000 includes unrealized gains from
investments totaling $1,236,299 and $2,381,200, respectively.
5. SUBSEQUENT EVENT
In October 2000, the Company acquired Quorum Sciences, Inc., a leader in
understanding the basis for microorganism defenses and infection, for
81,287 shares of common stock. The acquisition will be accounted for
using the pooling-of-interests method of accounting for business
combinations. The unaudited pro forma combined historical results of
operations are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue $ 16,799,919 $ 10,886,701 $ 47,287,136 $ 30,635,309
Net income (loss) $ 1,093,607 $ (1,903,385) $ 5,271,919 $ (6,738,035)
Basic net income (loss) per share $ 0.05 $ (0.11) $ 0.27 $ (0.40)
Diluted net income (loss) per share $ 0.05 $ (0.11) $ 0.24 $ (0.40)
</TABLE>
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AURORA BIOSCIENCES CORPORATION
SEPTEMBER 30, 2000
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 our future financial performance. 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 our Annual Report on
Form 10-K/A for the year ended December 31, 1999 and in our Quarterly Reports on
Form 10-Q for the quarters ended March 31, 2000 and June 30, 2000, as filed with
the Securities and Exchange Commission.
OVERVIEW
Aurora Biosciences Corporation designs, develops and commercializes advanced
drug discovery technologies, services and systems to accelerate the discovery of
new medicines. Our core technologies include a broad portfolio of proprietary
fluorescent assay technologies, including our GeneBLAzer(TM) and VIPR(TM)
technologies; our functional genomics GenomeScreen(TM) program; our automated
master compound store, the AMCS; our ultra-high throughput screening system, the
UHTSS(TM) Platform; and subsystems to miniaturize and automate drug screening
and profiling assays derived from those technologies.
We had an accumulated deficit of $15.9 million as of September 30, 2000. Our
objective for 2000 is to maintain profitability for the full year. Our ability
to maintain profitability will depend in part on our ability to successfully
complete development, manufacture and delivery of UHTSS Platforms and other
systems that meet contractual specifications, continue to provide drug discovery
services to pharmaceutical and biotechnology customers and achieve further
growth in sales of our technologies, services and systems.
Revenue is predominately derived from sales of services, technology and
instruments and intellectual property licenses. Revenue to date has been
generated from a limited number of customers in the life sciences industry in
the United States and Europe. Many of our agreements provide for future
milestone payments from drug development achievements and royalties from the
sale of products derived from certain of our technologies. However, customers
may not ever generate products from technology provided by us and thus we may
not ever receive milestone payments or royalties. We believe our ability to
maintain profitability is not dependent on receipt of milestone payments or
royalties.
We may encounter significant fluctuations in our quarterly financial performance
depending on factors such as revenue from existing and future contracts and
collaborations, timing of the delivery of technologies and systems and the
completion of contracted service commitments to our customers. We will also
continue to invest in new technologies to expand our core drug discovery
capabilities. Accordingly, our results of operations for any period may not be
comparable to, or predictive of, the results of operations for any other period.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
1999
Total revenue increased 54% from the three months ended September 30, 1999 to
the three months ended September 30, 2000 (the "three-month period") and
increased 55% from the nine months ended September 30, 1999 to the nine months
ended September 30, 2000 (the "nine-month period"). The increases in revenue
resulted from our existing collaborations with Pfizer (including our original
collaboration with Warner-Lambert, acquired by Pfizer in June 2000), acceptance
of Module Two of the UHTSS Platform by Merck, and new agreements entered into
since September 30, 1999, including a
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AURORA BIOSCIENCES CORPORATION
SEPTEMBER 30, 2000
therapeutic drug discovery agreement with the Cystic Fibrosis Foundation, as
well as ion channel technology agreements with Glaxo Wellcome, American Home
Products, R.W. Johnson Pharmaceutical Research Institute and Organon.
Total operating expenses increased 32% for the three-month period and 25% for
the nine-month period. The increases in operating expenses resulted primarily
from our growth, reflected by the increase to 232 full-time employees at
September 30, 2000 from 180 full-time employees at September 30, 1999. Cost of
revenue increased 34% and 31% for the three-month and nine-month periods,
respectively, related to the continuing development of the UHTSS Platform, the
AMCS system and screening subsystems for our customers, as well as instrument
sales and drug discovery services performed under the new agreements. Research
and development expenses increased 36% for the three-month period due to the
advancement of an internal target-focused drug discovery initiative. For the
nine-month period, research and development expenses increased only 12%, despite
our overall growth, with the assignment of scientific resources to support
revenue-generating programs. Selling, general and administrative expenses
increased 21% and 25% for the three-month and nine-month periods, respectively,
primarily attributable to the growth of the sales, marketing and legal functions
in addition to increased professional services expenses.
Net interest and other income increased 657% and 887% for the three-month and
nine-month periods, respectively, due to the increased cash and investment
balances resulting from a $71 million private placement of 1.8 million shares of
common stock in February 2000 and a $1.7 million gain from the sale of shares of
Cytovia, Inc. upon its acquisition by Maxim Pharmaceuticals, Inc. in June 2000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we held cash, cash equivalents and investment securities
available-for-sale of $107 million and working capital of $105 million. We have
funded our operations since inception primarily through the issuance of equity
securities with aggregate net proceeds of $135 million, receipts from corporate
collaborations and strategic technology alliances of $133 million, capital
equipment lease and loan financing of $13 million and interest income of $11
million.
We have entered into certain contractual commitments, subject to satisfactory
performance by third parties, which obligate expenditures totaling approximately
$5.5 million over the next four years.
Our strategy for the UHTSS Platform includes the establishment of a syndicate of
collaborators to provide us with funding for development, technology and
personnel resources and payments for system validation. The UHTSS Platform
co-development syndicate currently includes Bristol-Myers Squib, Warner-Lambert
(acquired by Pfizer in June 2000), Merck and Pfizer. We have also entered into
agreements with Warner-Lambert and Pfizer to develop AMCS systems. In addition,
we have entered into collaborations with the Cystic Fibrosis Foundation,
Families of Spinal Muscular Atrophy and the Hereditary Disease Foundation to
provide screen development and/or screening services, and with Warner-Lambert,
Merck, Becton Dickinson, the National Cancer Institute and Pfizer for functional
genomics programs. We have entered into ion channel technology agreements with
Bristol-Myers Squib, Eli Lilly and Company, Glaxo Wellcome, American Home
Products, Merck, N.V. Organon and R.W. Johnson Pharmaceutical Research
Institute. Other collaborations include a combinatorial chemistry agreement with
SIDDCO to synthesize large libraries of chemical compounds for us.
Our ability to achieve sustained profitability will be dependent upon our
ability to deliver and obtain acceptance of equipment by collaborators, perform
contracted screening services, sell or license new
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AURORA BIOSCIENCES CORPORATION
SEPTEMBER 30, 2000
products and services, and increase market share of existing discovery services
and technologies by agreements with new collaborators and expansion of
agreements with existing collaborators. We may not be able to meet our revenue
goals or sustain profitability on a quarterly or annual basis. Although we are
actively seeking to enter into additional collaborations, we may not be able to
negotiate additional collaborative agreements on acceptable terms, if at all.
Some of our current collaborative agreements may be terminated by the
collaborator without cause upon short notice, which would result in loss of
anticipated revenue. Although certain of our collaborators would be required to
pay some penalties in the event they terminate their agreements without cause,
any of our collaborators may elect to terminate their agreements with us. In
addition, collaborators may terminate their agreements for cause if we cannot
deliver the technology in accordance with the agreements. Our collaborators may
not perform their obligations as expected and we may not derive any additional
revenue from the agreements. Current or future collaborative agreements may not
be successful and provide us with expected benefits. Termination of our existing
or future collaborative agreements, or the failure to enter into a sufficient
number of additional collaborative agreements on favorable terms or generate
sufficient revenues from our services and technologies could have a material
adverse effect on our business, financial condition or results of operations.
An important element of our strategy includes entering into strategic
transactions and evaluating strategic programs in order to maximize our business
opportunities and enhance stockholder value. These transactions and programs
could include acquisitions of other companies, joint ventures, collaborations,
divestitures, reorganizations and research and development undertakings. We
cannot assure you, however, that such transactions or programs will ultimately
take place on terms favorable to us or at all, or will ultimately maximize the
company's business opportunities or enhance stockholder value. Such transactions
and programs could have a number of adverse effects on us, including significant
diversions of management resources, substantial write-offs or other accounting
charges, requiring us to raise substantial additional capital, dilution to
stockholders from the issuance of additional shares, significant variances
between analysts projections and actual financial results, and volatility in our
stock price.
The complexity of both the UHTSS and the AMCS has led to delays in developing
these platforms that may lead to contractual disputes regarding the delivery and
acceptance of these platforms by our customers. Because we are also dependent in
part on the performance of our customers and suppliers in order to deliver these
platforms, our ability to timely deliver these platforms may be outside of our
control. Our agreement with Warner-Lambert provides for a penalty payment up to
a maximum of $888,300 if we fail to deliver the completed AMCS according to a
specified development schedule. Failing to meet the development schedules under
any of our UHTSS and AMCS agreements could have a material adverse effect on our
business, financial condition or results of operations.
We may be required to raise additional capital over the next several years in
order to expand our operations or acquire new technology. This capital may be
raised through additional public or private equity financings, borrowings and
other available sources. Our business or operations may change in a manner that
would consume available resources more rapidly than anticipated and substantial
additional funding may be required before we can sustain profitable operations.
We may not continue to generate sales from and receive payments under existing
collaborative agreements and existing or potential revenue may not be adequate
to fund our operations. If additional funding becomes necessary, it may not be
available on favorable terms, if at all. If adequate funds are not available, we
may be required to curtail operations significantly or to obtain funds by
entering into arrangements with others that may have a material adverse effect
on our business, financial condition or results of operations.
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AURORA BIOSCIENCES CORPORATION
SEPTEMBER 30, 2000
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule related to the Financial Statements for
the period ended September 30, 2000.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended September 30,
2000.
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AURORA BIOSCIENCES CORPORATION
SEPTEMBER 30, 2000
SIGNATURE
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: November 9, 2000 By: /s/ John Pashkowsky
-------------------------------------
John Pashkowsky
Vice President, Finance and Treasurer
(on behalf of the Registrant and as
Registrant's Principal Financial and
Accounting Officer)
12
