FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 0-28434
_________________________
DIATIDE, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3078258
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Nine Delta Drive, Londonderry, NH 03053
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
603-437-8970
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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 ____
The number of shares outstanding of the registrant's common stock, $0.001 par
value, as of October 23, 1997 was 10,521,983.
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DIATIDE, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
ITEM 1 FINANCIAL STATEMENTS (Unaudited)
Condensed Balance Sheets as of September 30, 1997 and December 31, 1996............3
Condensed Statements of Operations for the three months ended
September 30, 1997 and 1996........................................................4
Condensed Statements of Operations for the nine months ended
September 30, 1997 and 1996, and for the period from
February 6, 1990 (date of inception) to September 30, 1997.........................5
Condensed Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996, and for the period from
February 6, 1990 (date of inception) to September 30, 1997.........................6
Notes to Condensed Financial Statements............................................7
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................9
PART II OTHER INFORMATION
ITEM 2 Changes in Securities.........................................................12
ITEM 6 Exhibits and Reports on Form 8-K..............................................12
SIGNATURES......................................................................................13
EXHIBIT INDEX...................................................................................14
</TABLE>
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
DIATIDE, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1997
ASSETS (Unaudited) December 31, 1996
----------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,995,476 $ 6,004,207
Marketable securities 4,763,007 10,782,632
Other current assets 264,833 443,776
------------ ------------
Total current assets 22,023,316 17,230,615
Property and equipment, at cost 2,604,980 2,373,540
Less: accumulated depreciation and amortization 1,642,506 1,300,051
------------ ------------
962,474 1,073,489
Other assets 10,783 10,783
------------ ------------
Total assets $ 22,996,573 $ 18,314,887
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,471,943 $ 1,514,905
Accrued clinical expenses 1,298,598 2,099,826
Deferred revenue 500,000 -
Current portion of capital lease obligation 3,460 3,460
------------ ------------
Total current liabilities 3,274,001 3,618,191
Capital lease obligation, less current portion 10,584 12,878
Stockholders' equity:
Preferred stock, $0.01 par value
Authorized shares - 10,591,874
Series A convertible preferred stock:
Authorized shares - 1,300,000
Issued and outstanding shares - 1,210,256
(none in 1996) (liquidation value of
$11,800,000) 12,103 -
Common stock, $0.001 par value
Authorized shares - 50,000,000
Issued shares - 10,525,583 (10,404,248 in 1996) 10,526 10,404
Additional paid-in capital 61,476,798 50,140,186
Deferred compensation (412,686) (1,285,483)
Deficit accumulated during development stage (41,374,729) (34,181,265)
------------ ------------
19,712,012 14,683,842
Less: 4,800 shares of common stock in treasury, at cost (24) (24)
------------ ------------
Total stockholders' equity 19,711,988 14,683,818
------------ ------------
Total liabilities and stockholders' equity $ 22,996,573 $ 18,314,887
============ ============
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from audited
financial statements at that date but does not include all of the financial
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See Notes to Condensed Financial Statements.
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DIATIDE, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Sponsored research $ 500,000 $ 500,000
License fees 2,000,000 -
Research grants 20,000 20,000
------------ ------------
Total revenues 2,520,000 520,000
Costs and expenses:
Research and development 2,870,413 3,246,268
General and administrative 896,409 592,531
------------ ------------
Total costs and expenses 3,766,822 3,838,799
Loss from operations (1,246,822) (3,318,799)
Other income (expense):
Interest income 118,486 261,666
Interest expense (359) (1,998)
------------ ------------
Total other income (expense) 118,127 259,668
------------ ------------
Net loss $ (1,128,695) $ (3,059,131)
============ ============
Net loss per share (Note 4) $ (0.11) $ (0.30)
============ ============
Shares used in computing net loss
per share (Note 4) 10,515,518 10,216,146
</TABLE>
See Notes to Condensed Financial Statements.
Page 4
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DIATIDE, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Period
February 6, 1990
(date of
inception) to
Nine Months Ended September 30, September 30,
-------------------------------
1997 1996 1997
------------ ------------ ----------------
<S> <C> <C> <C>
Revenues:
Sponsored research $ 1,500,000 $ 1,500,000 $ 4,278,388
License fees 2,000,000 500,000 3,300,000
Research grants 130,000 76,073 685,498
------------ ------------ -------------
Total revenues 3,630,000 2,076,073 8,263,886
Costs and expenses:
Research and development 8,860,420 9,438,515 40,247,732
General and administrative 2,477,852 1,616,131 11,101,539
------------ ------------ -------------
Total costs and expenses 11,338,272 11,054,646 51,349,271
Loss from operations (7,708,272) (8,978,573) (43,085,385)
Other income (expense):
Interest income 516,124 486,423 1,952,624
Interest expense (1,316) (18,174) (241,968)
------------ ------------ -------------
Total other income (expense) 514,808 468,249 1,710,656
------------ ------------ -------------
Net loss $ (7,193,464) $ (8,510,324) $ (41,374,729)
============ ============ =============
Net loss and pro forma net loss
per share (Note 4) $ (0.69) $ (0.95)
============= ============
Shares used in computing net loss
and pro forma net loss per
share (Note 4) 10,475,644 8,963,370
</TABLE>
See Notes to Condensed Financial Statements.
Page 5
<PAGE>
DIATIDE, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Period
February 6, 1990
(date of
Nine Months Ended September 30, inception) to
------------------------------ September 30,
1997 1996 1997
------------- ------------ --------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (7,193,464) $ (8,510,324) $ (41,374,729)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 342,455 311,232 1,681,361
Cancellation of accrued interest - - 111,438
Amortization of deferred compensation 285,766 250,402 663,283
Compensation associated with stock option
grants 136,424 75,960 212,384
Changes in operating assets and liabilities (165,247) 2,364,181 2,956,070
------------- ------------ -------------
Cash used in operating activities (6,594,066) (5,508,549) (35,750,193)
Investing activities:
Additions to property and equipment (231,440) (497,456) (2,585,622)
Purchases of marketable securities (4,976,190) (1,351,749) (21,603,916)
Sales and maturities of marketable securities 10,995,815 5,345,094 16,840,909
------------- ------------ -------------
Cash provided by (used in) investing
activities 5,788,185 3,495,889 (7,348,629)
Financing activities:
Sale of preferred stock 11,695,231 - 39,950,364
Issuance of convertible notes - - 3,508,464
Repayment of convertible notes - - (315,000)
Issuance of long-term debt - - 900,518
Repayment of long-term obligations (2,294) (286,418) (905,832)
Sale of common stock 104,213 16,630,645 16,955,808
Repurchase of common stock - - (24)
Capitalized financing costs - - -
------------- ------------ -------------
Cash provided by (used in) financing
activities 11,797,150 16,344,227 60,094,298
------------- ------------ -------------
Net increase in cash and cash equivalents 10,991,269 14,331,567 16,995,476
Cash and cash equivalents at beginning of period 6,004,207 5,084,197 -
------------- ------------ -------------
Cash and cash equivalents at end of period $ 16,995,476 $ 19,415,764 $ 16,995,476
============= ============ =============
Noncash transactions:
Acquisition of equipment through capital
lease obligation $ - $ - $ 19,358
Conversion of convertible notes and
accrued interest to preferred
stock $ - $ - $ 3,304,902
Deferred compensation associated with
stock options issued at less
than fair value $ - $ - $ 1,663,000
Forfeiture of stock options issued at
less than fair value $ 587,031 $ - $ 587,031
Conversion of preferred stock
to common stock $ - $ 31,559,922 $ 31,559,922
</TABLE>
See Notes to Condensed Financial Statements.
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<PAGE>
DIATIDE, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
1. Nature of Business
Diatide, Inc. (the "Company") was founded in 1990 and is a development stage
biopharmaceutical company engaged in the discovery, development and
commercialization of proprietary, disease-specific diagnostic agents and
therapeutics for life-threatening conditions. The foundation of Diatide's
diagnostic imaging products is the Company's proprietary peptide (Techtide(R))
technology.
2. Basis of Presentation
The accompanying unaudited financial statements for the three and nine months
ended September 30, 1997 and 1996 and for the period February 6, 1990 (date of
inception) to September 30, 1997 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 the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying financial statements include all adjustments of a
normal recurring nature necessary for a fair presentation of results for these
interim periods. The results of operations for the three and nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the year ending December 31, 1997.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1996
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
3. Sale of Preferred Stock
On September 23, 1997, the Company completed the sale of 1,210,256 shares of the
Company's Series A convertible preferred stock (the "Preferred Stock") to three
of the Company's existing investors in a private transaction for $11.7 million,
net of issuance costs. The Preferred Stock is convertible into the Company's
Common Stock on a one-for-one basis, subject to adjustment for certain events.
Each share of Preferred Stock is entitled to the same number of votes as each
share of Common Stock into which it is convertible and will vote together with
the Common Stock. Dividends on the Common Stock, if and when declared by the
Board of Directors, are payable to the holders of the Preferred Stock based on
the number of shares of Common Stock into which the Preferred Stock is
convertible before any distribution to the holders of the Common Stock. The
Preferred Stock holders are entitled to priority liquidation rights of an amount
equal to $9.75 per share, as adjusted for certain events, plus any declared but
unpaid dividends. The Company also issued Common Stock Purchase Warrants (the
"Warrants") to the investors to purchase in the aggregate 181,538 shares of
Common Stock at an exercise price of $11.70 per share.
The Warrants will expire on September 23, 1999.
Under the terms of a Registration Rights Agreement, dated as of September 23,
1997, the investors holding in the aggregate at lease 51% of the Stockholder
Registrable Shares (as defined) have the right to require the Company to
register the Common Stock issuable upon the conversion of the Preferred Stock or
the exercise of the Warrants at any time after October 1, 1998. The Preferred
Stock is redeemable solely at the Company's option after September 23, 2000 and,
accordingly, is classified as equity in the accompanying condensed financial
statements.
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4. Public Offering
In June 1996, the Company completed its initial public offering of 2,200,000
shares of Common Stock raising approximately $16.4 million of net proceeds after
deducting offering costs. Concurrent with the completion of the initial public
offering, all 12,551,928 shares of Series A, Series B, Series C, Series D and
Series E Convertible Preferred Stock (collectively, the "Convertible Preferred
Stock") outstanding at that time were converted into 7,531,140 shares of Common
Stock. In connection with this conversion, all such shares of Convertible
Preferred Stock were retired.
5. Financial Information
For 1996, pro forma net loss per share is computed using the weighted average
number of outstanding shares of Common Stock and Common Stock equivalents and
assuming the previously outstanding Convertible Preferred Stock had been
converted into common shares effective at the beginning of the respective
period. Common Stock equivalent shares are excluded from the computation if
their effect is anti-dilutive; however, pursuant to the requirements of the SEC,
common shares issued by the Company and common equivalent shares relating to
stock options (using the treasury stock method) issued during the twelve months
prior to the initial public offering are included whether or not they are
anti-dilutive. Historical earnings per share have not been presented for the
nine months ended September 30, 1996 since such amounts are not deemed
meaningful due to the significant change in the Company's capital structure that
occurred in connection with the initial public offering. For the three and nine
months ended September 30, 1997, net loss per share is computed using the
weighted average number of outstanding shares of common stock. Common stock
equivalents are excluded from the computation since their effect is
anti-dilutive.
The common share amounts and per share dollar amounts have been adjusted for all
periods presented to reflect the effect of the 6-for-10 reverse stock split
effective June 6, 1996.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share (FAS No. 128), which is required to be adopted for
fiscal years ending after December 15, 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 FAS No. 128, the dilutive effect of stock
options will be excluded in calculating earnings per share. There is no material
impact on the net loss or proforma net loss per share for the three and nine
months ended September 30, 1997 and 1996 under FAS No. 128.
6. Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the Company's
financial statements.
Page 8
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is engaged in the discovery, development and commercialization of
proprietary, disease-specific diagnostic agents and therapeutics for
life-threatening conditions. The foundation of Diatide's diagnostic imaging
products is the Company's proprietary peptide (Techtide(R)) technology. To date,
the Company has not received revenue from the sale of products. In order to
commercialize products, the Company will need to address a number of
technological challenges and comply with comprehensive regulatory requirements.
Accordingly, it is not possible to predict the amount of funds that will be
required or the length of time that will pass before the Company receives
revenues from sales of its products. All revenues received by the Company
through September 30, 1997 have resulted from research grants from the National
Institutes of Health (the "NIH") and the Department of Defense (collectively,
the "Research Grants"), fees received for entering into option agreements with a
pharmaceutical company, and research and development support payments and option
exercise and milestone payments under the Company's collaborative agreements
with Nycomed.
The Company has incurred net losses since its inception. No revenues have
been generated from product sales and no product sales are anticipated for the
next 9 to 12 months. The Company expects to incur additional significant
operating losses over the next 15 to 18 months and expects its cumulative net
losses to increase significantly as the Company's research and development and
clinical trial efforts expand. The Company expects that its personnel and patent
costs will also increase in the future. Patent costs also would increase if the
Company became involved in litigation or administrative proceedings involving
its patents or those of third parties. The Company has incurred cumulative net
losses since inception through September 30, 1997 of $41,374,729.
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve a number of risks and uncertainties. There are a number of important
factors that could cause the Company's actual results to differ materially from
those indicated by such forward-looking statements. These factors include,
without limitation, those set forth in "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Certain Factors
That May Affect Future Results" of the Company's Annual Report on Form 10-K as
of December 31, 1996, which are expressly incorporated by reference herein.
Results of Operations
Three Months Ended September 30, 1997 and 1996
Revenues. The Company had revenues of $2,520,000 and $520,000 in the three
months ended September 30, 1997 and 1996, respectively. Revenues in the three
months ended September 30, 1997 were comprised of $20,000 of contract revenues
received under research grants from the NIH, and $500,000 of research and
development support payments and a $2,000,000milestone payment for the FDA
filing of a New Drug Application ("NDA") for AcuTect(TM) (formerly known as
P280) received by the Company under its collaborative agreements with Nycomed.
Revenues in the three months ended September 30, 1996 were comprised of $20,000
received under research grants from the NIH, and $500,000 of research and
development support payments.
Research and development. During the three months ended September 30, 1997
and 1996, the Company expended $2,870,413 and $3,246,268, respectively, on
research and development activities. The $375,855 decrease in the three months
ended September 30, 1997 in comparison with the same period in 1996 resulted
from reduced expenses associated with the timing of costs for clinical trials
which were offset by increases in staffing.
General and administrative. The Company's general and administrative
expenses were $896,409 and $592,531 in the three months ended September 30, 1997
and 1996, respectively. The $303,878 increase in 1997 from 1996 resulted from
increases in staffing and outside services to support the Company's growth.
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Interest. Interest income was $118,486 in the three months ended September
30, 1997 compared with $261,666 in the three months ended September 30, 1996,
reflecting a higher level of cash, cash equivalents and marketable securities
during the third quarter of 1996 compared to the third quarter of 1997. Interest
expense in the three months ended September 30, 1997 and 1996 was $359 and
$1,998, respectively, and was comprised primarily of interest incurred on
borrowings to finance the acquisition of certain equipment and leasehold
improvements. During the third quarter of 1996, the Company repaid its bank
borrowings.
Net loss. As a result of the above factors, the Company incurred net losses
of $1,128,695 and $3,059,131 in the three months ended September 30, 1997 and
1996, respectively.
Nine Months Ended September 30, 1997 and 1996
Revenues. The Company had revenues of $3,630,000 and $2,076,073 in the nine
months ended September 30, 1997 and 1996, respectively. Revenues in the nine
months ended September 30, 1997 were comprised of $130,000 of contract revenues
received under grants from the NIH and $1,500,000 of research and development
support payments and a $2,000,000 milestone payment for the FDA filing of an NDA
for AcuTect received by the Company under its collaborative agreements with
Nycomed. Revenues in the nine months ended September 30, 1996 were comprised of
$76,073 of contract revenues received under research grants from the NIH, and
$1,500,000 of research and development support payments and a $500,000 option
exercise payment for P829 received by the Company under its collaborative
agreements with Nycomed.
Research and development. During the nine months ended September 30, 1997
and 1996, the Company expended $8,860,420 and $9,438,515, respectively, on
research and development activities. The $578,095 decrease in the nine months
ended September 30, 1997 resulted from reduced expenses associated with reduced
clinical trial activity for AcuTect in 1997 as compared to 1996 and the timing
of costs of other clinical trials, which were offset by increases in staffing.
General and administrative. The Company's general and administrative
expenses were $2,477,852 and $1,616,131 in the nine months ended September 30,
1997 and 1996, respectively. The $861,721 increase in the nine months ended
September 30, 1997 resulted from increases in staffing and outside services to
support the Company's growth.
Interest. Interest income was $516,124 in the nine months ended September
30, 1997 compared with $486,423 in the nine months ended September 30, 1996,
reflecting a higher level of the Company's cash, cash equivalents and marketable
securities during 1997 resulting from the proceeds of the Company's initial
public stock offering. Interest expense in the nine months ended September 30,
1997 and 1996 was $1,316 and $18,174, respectively, and was comprised primarily
of interest incurred on borrowings to finance the acquisition of certain
equipment and leasehold improvements. During the third quarter of 1996, the
Company repaid its bank borrowings.
Net loss. As a result of the above factors, the Company incurred net losses
of $7,193,464 and $8,510,324 in the nine months ended September 30, 1997 and
1996, respectively.
Liquidity and Capital Resources
In September 1997, the Company issued 1,210,256 shares of convertible
preferred stock and warrants to purchase 181,538 shares of Common Stock raising
$11.7 million of net proceeds. The Company completed its initial public offering
of 2,200,000 shares of Common Stock in June 1996 raising approximately $16.4
million of net proceeds. As of September 30, 1997, the Company had $21,758,483
of cash, cash equivalents and marketable securities and working capital of
$18,749,315.
During the nine months ended September 30, 1997, the Company's capital
expenditures totaled $231,440, primarily for the acquisition of certain
equipment and furniture and fixtures.
The Company's future capital requirements will depend on many factors,
including continued progress in its research and product development programs,
the magnitude of these programs, the results of preclinical studies and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting, enforcing and defending patent claims,
competing technological and market developments, the ability of
Page 10
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the Company to establish and maintain collaborative academic and commercial
research, development and marketing relationships, and the costs and success of
commercialization activities and arrangements.
Based on its current operating plan, the Company anticipates that its
existing capital resources, including the proceeds of the initial public
offering and the preferred stock sale in September 1997 and interest earned
thereon, will be adequate to satisfy its capital requirements through mid-1999.
Substantial additional funds will be required from external sources to support
the Company's operations beyond that time, although there can be no assurance
that additional funds will be available, or, if available, that such funds will
be available on acceptable terms.
The Company intends to seek additional equity, debt and lease financing to
fund future operations, depending upon the terms on which such sources may be
available from time to time. In addition, the Company intends to seek additional
collaborative development and commercialization relationships with potential
corporate partners in order to fund certain of its programs, including the
continued development and commercialization of Sn-117 DTPA.
Except for research and development funding from Nycomed pursuant to its
collaboration with Diatide (which is subject to early termination in certain
circumstances), the Company has no committed external sources of capital, and,
as discussed above, expects no product revenues for a number of years. If the
Company is unable to obtain necessary additional funds, it would be required to
delay, scale back or eliminate certain of its research and development programs
or commercialization efforts or license to third parties certain technologies
which the Company would otherwise pursue on its own.
Page 11
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PART II. OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES
On September 23, 1997, the Company issued and sold 1,210,256 of convertible
preferred stock to three of the Company's existing investors for an aggregate
purchase price of $11.8 million pursuant to Section 4(2) of the Securities Act
of 1933, as amended. The convertible preferred stock is convertible into the
Company's Common Stock on a one-for-one basis, subject to adjustment for certain
events. The Company also issued to such investors two-year Common Stock Purchase
Warrants to purchase in the aggregate 181,538 shares of Common Stock at an
exercise price of $11.70 per share pursuant to Section 4(2).
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits. The Exhibits listed in the Exhibit Index immediately
preceding such Exhibits are filed as part of this Quarterly
Report on Form 10-Q.
(b) Reports on Form 8-K. On October 1, 1997, the Company filed a current
report on Form 8-K to report the sale of $11.8
million of convertible preferred stock and the
issuance of common stock purchase warrants on
September 23, 1997.
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<PAGE>
DIATIDE, INC.
FORM 10-Q
September 30, 1997
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.
DIATIDE, INC.
DATE: October 31, 1997 BY:_______________________________________
Daniel F. Harrington
Vice President, Chief Financial Officer
and Treasurer (Principal Financial
Officer)
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<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
11.1 Statement Re: Computation of Net Loss and Pro Forma Net Loss
Per Share
27 Financial Data Schedule (EDGAR)
99 Pages 24 through 32 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 as
filed with the SEC (which is not deemed filed except
to the extent that portions thereof are expressly
incorporated by reference herein)
Page 14
Exhibit 11.1 Statement Re: Computation of Net Loss Per Share and Pro Forma Net
Loss Per Share
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------------- --------------------------
1997 1996 1997 1996
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 10,515,518 10,216,146 10,475,644 4,447,440
Effect of convertible preferred stock
converted at date of issuance - - - 4,452,718
Effect of common equivalent shares issued
by the Company during the twelve
month period immediately preceding the
Company's initial public offering in
June 1996, as if they were outstanding
for all periods presented prior to
June 30, 1996 (using the treasury stock - - - 63,212
method)
------------ ------------ ------------ ------------
Shares used in computing net loss per
share and pro forma net loss per 10,515,518 10,216,146 10,475,644 8,963,370
share
Net loss $ (1,128,695) $ (3,059,131) $ (7,193,464) $ (8,510,324)
Net loss per share and pro forma net
loss per share $ (0.11) $ (0.30) $ (0.69) $ (0.95)
</TABLE>
Page 15
EXHIBIT 99
This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects,"
"intends" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forwarding-looking statements. These factors include, without limitation, those
set forth below under the caption "Certain Factors That May Affect Future
Results."
Certain Factors That May Affect Future Results
Early Stage of Development; Technological Uncertainty
Diatide was founded in February 1990 and is at an early stage of
development. All of the Company's potential products are in research or
development and will require additional research and development, extensive
preclinical studies and clinical trials and regulatory approval prior to any
commercial sales. The Company must successfully address a number of
technological challenges to complete certain of its development efforts. In
addition, there can be no assurance that the Company will be permitted to
undertake and complete human clinical trials of any of the Company's potential
products, either in the United States or elsewhere, or, if permitted, that such
products will be demonstrated to be safe and efficacious. In addition, there can
be no assurance that any of the Company's potential products will obtain FDA or
other regulatory approval for any indication or that an approved product will be
capable of being produced in commercial quantities at reasonable cost and
successfully marketed. See "Item 1. Business."
The use of synthetic peptides in radiopharmaceuticals, which is central to
the Company's technology, is new to nuclear medicine. The Company is aware of
only one imaging product and no therapeutics based on this scientific approach
that have been approved for sale by the FDA. The products for which the Company
has submitted or currently plans to submit IND applications and all of the
Company's other potential products in research or development may prove to have
undesirable and unintended side effects in humans or other characteristics that
may prevent or limit their commercial use.
Unproven Safety and Effectiveness of Potential Products; Uncertainties Related
to Clinical Trials
Before obtaining regulatory approvals for the commercial sale of any of its
products under development, the Company must demonstrate through preclinical
studies and clinical trials that the product is safe and efficacious for use in
each indication. The results from preclinical testing and early clinical trials
may not be predictive of results that will be obtained in large-scale clinical
trials, and there can be no assurance that the Company's clinical trials will
demonstrate the safety and effectiveness of any products or will result in
marketable products. A number of companies have suffered significant setbacks in
advanced clinical trials, even after promising results in earlier trials. The
Company, the FDA or other regulatory authorities may suspend or terminate
clinical trials at any time.
The Company relies on scientific, technical and clinical data supplied by
its academic collaborators and licensors in the evaluation and development of
potential products, including Sn-117m DTPA, which was licensed from BNL. BNL
conducted the Phase I and the Phase II clinical trials of the compound. There
can be no assurance that there are no errors or omissions in such data that
would materially adversely affect the development of such products.
The rate of completion of the Company's clinical trials is dependent upon,
among other things, the rate of patient enrollment. Patient enrollment is a
function of many factors, including the size of the patient population, the
nature of the protocol, the proximity of patients to clinical sites and the
eligibility criteria for the study. Delays in planned patient enrollment may
result in increased costs, program delays, or both, which could have a material
adverse effect on the Company.
The Company relies, in part, on clinical research organizations to conduct
its clinical trials. There can be no assurance that such entities will conduct
the clinical trials successfully.
<PAGE>
The Company is currently conducting clinical trials with respect to certain
of its Techtides and plans to continue clinical trials of its therapeutic
radiopharmaceutical, Sn-117m DTPA. There can be no assurance that any of these
clinical trials will be successfully completed within any specified time period,
if at all. There also can be no assurance that the results from any of these
clinical trials will warrant the commencement of further clinical trials or that
the Company will not encounter problems in these or other clinical trials which
would cause the Company or the FDA to delay or suspend the trials. In Phase I
clinical trials of one of its Techtides, P483H for the medical imaging of
infection due to inflammation, the compound concentrated in patients' stomachs
at unexpectedly high levels. As a result, the Company conducted additional
preclinical testing of this compound and alternative compounds in animals to
determine the cause of this phenomenon and recently initiated a new Phase I
clinical trial of a new formulation of P483H. In a pilot study of a compound for
medical imaging of atherosclerotic plaque, the Company determined that the
compound did not exhibit sufficient sensitivity to warrant continuing
development of the compound. The Company currently is synthesizing new compounds
for this application and screening them in animal models. See "Item 1. Business
- -- Products Under Development" and "Item 1.
Business -- Government Regulation."
No Assurance of Regulatory Approval; Extensive Government Regulation
The production and the marketing of the Company's products and the Company's
ongoing research and development activities are and will be subject to extensive
regulation by numerous federal, state and local governmental authorities in the
United States. The Company has had only limited experience in filing or pursuing
applications necessary to gain regulatory approvals. Preclinical testing of the
Company's product development candidates is subject to GLP requirements and the
manufacture of any products developed by the Company will be subject to GMP
requirements prescribed by the FDA.
The regulatory process, which includes preclinical studies, clinical trials
and ongoing post-approval testing of each compound to establish or monitor its
safety and effectiveness, takes many years and requires the expenditure of
substantial resources. The Company has limited experience in filing or pursuing
applications necessary to gain regulatory approval. There can be no assurance
that, even after the performance of clinical studies, and the passage of time
and the expenditure of such resources, regulatory approval will be obtained for
any products developed by the Company. The Company's analysis of data obtained
from preclinical and clinical activities is subject to confirmation and
interpretation by regulatory authorities which could delay, limit or prevent FDA
regulatory approval. The Company or the FDA may suspend clinical trials at any
time if the participants in such trials are being exposed to unanticipated or
unacceptable health risks. Moreover, if regulatory approval to market a product
is granted, such approval may entail limitations on the indicated uses for which
it may be marketed. Failure to comply with applicable regulatory requirements
can, among other things, result in fines, suspension or withdrawal of regulatory
approvals, product recalls, seizure of products, operating restrictions and
criminal prosecutions. FDA policy may change and additional government
regulations may be established that could prevent or delay regulatory approval
of the Company's potential products. In addition, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual review
and periodic inspections, and subsequent discovery of previously unknown
problems with a product, manufacturer or facility may result in restrictions on
such product or manufacturer, including withdrawal of the product from the
market. All of the foregoing regulatory matters also will be applicable to
development, manufacturing and marketing undertaken by any strategic partners of
the Company.
There can be no assurance that additional statutes or regulations applicable
to the Company's business will not be adopted, impose substantial additional
costs or otherwise adversely affect the Company's operations.
The use, handling, storage and disposal of products containing
radioisotopes, such as Sn-117m and sources of technetium, are regulated by the
Nuclear Regulatory Commission and by state authorities. Enforcement of existing
laws and regulations or future amendments or limitations thereto could have a
material adverse effect on the market for radiopharmaceuticals and on the
Company's business, financial condition and results of operations. See "Item 1.
Business -- Government Regulation."
<PAGE>
The Company is also subject to numerous and varying foreign regulatory
requirements governing the design and conduct of clinical trials and the
manufacturing and marketing of its products. The approval procedure varies among
countries and can involve additional testing, and the time required to obtain
approval may differ from that required to obtain FDA approval. The foreign
regulatory approval process may include all of the risks associated with
obtaining FDA approval set forth above, and there can be no assurance that
foreign regulatory approvals will be obtained on a timely basis, if at all.
Approval by the FDA does not ensure approval by regulatory authorities in other
countries and approval by one foreign regulatory authority does not ensure
approval by regulatory authorities in other foreign countries or by the FDA.
There can be no assurance that the Company or its strategic marketing partners
will file for regulatory approvals or receive necessary approvals to
commercialize its products in any market. Delays in receipt of or failure to
receive regulatory approvals, or the loss of previously received approvals,
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Item 1. Business -- Government
Regulation."
Need to Establish Collaborative Commercial Relationships; Dependence On Partners
Diatide's business strategy includes entering into strategic alliances or
marketing and distribution arrangements with corporate partners, primarily
pharmaceutical companies, for the development, commercialization and marketing
and distribution of certain of its potential products worldwide. To date, the
Company is a party to a collaborative arrangement with only one corporate
partner, Nycomed. There can be no assurance that the arrangement with Nycomed
will be scientifically or commercially successful. In the event that this
arrangement is terminated, such action might adversely affect the Company's
ability to develop, commercialize, market and distribute certain of its
potential products. In addition, the Company does not plan to conduct extensive
Phase II/III clinical trials of Sn-117m DTPA unless it enters into a corporate
collaboration for the completion of the development and the commercialization of
Sn-117m DTPA. There can be no assurance that the Company will be able to
negotiate any additional collaborative or marketing and distribution
arrangements, that such arrangements will be available to the Company on
acceptable terms or that any such relationships, if established, will be
scientifically or commercially successful. The Company's product candidates will
only generate milestone payments and royalties from collaborators upon the
occurrence of significant preclinical and clinical development, requisite
regulatory approvals, the establishment of manufacturing capabilities and
successful marketing.
There can be no assurance that the Company's collaborative partners will not
be pursuing alternative technologies or developing alternative products either
on their own or in collaboration with others, including the Company's
competitors, as a means for developing imaging agents or treatments for the
diseases targeted by these collaborative programs. For example, Nycomed
manufactures and distributes a wide variety of imaging agents for other
modalities that may compete against the products that Nycomed licenses from
Diatide or co-markets with Diatide. The Company's business also will be affected
by the success of its corporate partners in marketing any successfully developed
products within the geographic areas in which such partners are granted
marketing rights. A reduction in sales efforts or a discontinuance of sales of
the Company's products by collaborative or corporate partners, who are not
within the control of the Company, may result in reduced revenues and have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Certain Factors That May Affect Future Results --
Attraction and Retention of Key Management and Qualified Personnel" and "Item 1.
Business -- Products Under Development," "-- Corporate Collaborations" and "--
Marketing and Distribution."
History of Operating Losses and Accumulated Deficit; Uncertainty of Future
Profitability
Diatide has incurred net losses since its inception. At December 31, 1996,
the Company's accumulated deficit was approximately $34.2 million. No revenues
have been generated from product sales, and no product sales revenues are
anticipated for the next 18 to 24 months. The Company expects to incur
additional significant operating losses over the next 24 to 36 months and
expects cumulative losses to increase significantly as the Company's research
and development and clinical trial efforts expand. The Company expects that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial. The Company's ability to achieve profitability is dependent in part
on obtaining regulatory approvals for its products, entering into satisfactory
agreements with pharmaceutical corporate partners for research and development
and commercialization of its products and developing the capacity to
manufacture,
<PAGE>
market and sell its products or entering into satisfactory arrangements for such
manufacture, marketing and sale with third parties. There can be no assurance
that the Company will obtain required regulatory approvals, enter into any
additional agreements for drug discovery, development and commercialization,
develop the capacity to manufacture and sell its products (or enter into
arrangements therefor with third parties) or ever achieve sales or
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General."
Future Capital Needs; Uncertainty of Additional Funding
The Company's future capital requirements will depend on many factors,
including continued progress in its research and product development programs,
the magnitude of these programs, the results of preclinical studies and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting, enforcing and defending patent claims,
competing technological and market developments, the ability of the Company to
establish and maintain collaborative academic and commercial research,
development and marketing relationships, and the costs and success of
commercialization activities and arrangements.
Based upon its current operating plan, the Company anticipates that its
existing capital resources, will be adequate to satisfy its capital requirements
through mid-1998. The Company anticipates that it may be required to raise
substantial additional funds, including through collaborative relationships and
public or private financings. No assurance can be given that additional
financing will be available, or, if available, that it will be available on
acceptable terms. If additional funds are raised by issuing equity securities,
further dilution to then existing stockholders will result. Additionally, the
terms of the financing may adversely affect the holdings or the rights of the
then existing stockholders. If adequate funds are not available, the Company may
be required to significantly curtail one or more of its research or product
development programs, or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
of its technologies, product candidates or products which the Company would
otherwise pursue on its own. See "Item 1. Business -- Products Under
Development" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
Intense Competition and Risk of Technological Obsolescence
There are many companies, both private and publicly traded, that are
conducting extensive research and development activities on technologies and
products similar to or competitive with the Company's technologies and proposed
products. For example, many other companies are actively seeking to develop
nuclear medicine imaging agents that will compete with the Company's Techtides.
There can be no assurance that the Company's competitors will not succeed in
developing technology similar to the Company's proprietary process of
radiolabelling peptides with technetium used in the Company's Techtides.
The pharmaceutical industry is characterized by rapid and substantial
technological change and there can be no assurance that the Company's
competitors will not succeed in developing products which are more effective
than any that are being developed by the Company, or which would render
Diatide's technologies and products obsolete and noncompetitive. For example,
diagnostic imaging tests may be developed that are more cost-effective and have
superior imaging quality than the Company's tests or new radiopharmaceuticals
may be developed that have superior targeting and binding qualities than the
Company's Techtides. Certain radiopharmaceuticals already have been approved for
sale for the diagnosis or treatment of the indications targeted by the Company's
products under development. In particular, OctreoScan(R), a peptide-based
radiopharmaceutical, is available for the diagnosis of neuroendocrine tumors,
Ceretec(R), a radiopharmaceutical labelled with technetium, is available for
0imaging inflammation due to infection, and Metastron(R) is available for the
reduction of pain due to metastatic cancer to the bone. There are several
well-established medical imaging modalities that currently, and will continue
to, compete against nuclear medicine imaging, including x-rays, CT, MRI and
ultrasound, and there are alternative therapeutics available for the treatment
of the cancer indications that are the subject of the Company's therapeutic
programs.
The Company has numerous competitors in the United States and
internationally, which include, among others, pharmaceutical and chemical
companies, biotechnology firms, universities and other research
<PAGE>
institutions. Large pharmaceutical companies with significant research,
development, marketing and manufacturing operations in the nuclear medicine
field include Du Pont Merck, Mallinckrodt and Amersham . Many of the Company's
competitors have substantially greater financial, technical and human resources
than the Company. In addition, many of these competitors have significantly
greater experience than the Company in undertaking preclinical studies and human
clinical trials of new pharmaceutical products and obtaining FDA and other
regulatory approvals of products for use in health care. Accordingly, the
Company's competitors may succeed in obtaining FDA or other regulatory approvals
for products more rapidly than the Company. Furthermore, if the Company is
permitted to commence commercial sales of products, it will also be competing
with respect to manufacturing efficiency and marketing capabilities, areas in
which it has limited or no experience.
Uncertainty Regarding Patents and Proprietary Rights
The Company's success will depend in part on its ability to develop
patentable products, enforce its patents and obtain patent protection for its
products both in the United States and in other countries. The Company intends
to file applications as appropriate for patents covering both its products and
processes. However, the patent positions of pharmaceutical and biotechnology
firms, including Diatide, are generally uncertain and involve complex legal and
factual questions. No assurance can be given that patents will issue from any
patent applications owned by or licensed to Diatide or that, if patents do
issue, the claims allowed will be sufficiently broad to protect the Company's
technology. In addition, no assurance can be given that any issued patents owned
by or licensed to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company.
The commercial success of the Company will also depend in part on its
neither infringing patents issued to competitors or others nor breaching the
technology licenses upon which the Company's products might be based. The
Company's licenses of patents and patent applications impose various
commercialization, sublicensing, royalty and other payment, insurance and other
obligations on the Company. Failure of the Company to comply with these
requirements could result in conversion of the licenses from being exclusive to
nonexclusive in nature or termination of the licenses. The Company is aware of
patents and patent applications belonging to competitors, and it is uncertain
whether these patents and patent applications will require the Company to alter
its products or processes, pay licensing fees or cease certain activities.
Competitors of the Company and other third parties hold issued patents and
pending patent applications which may result in claims of infringement against
the Company or other patent litigation. In particular, the Company is aware of
one European patent issued to a pharmaceutical company which, if valid, may be
infringed by P748. The holder of this patent has indicated to the Company that
it is not prepared to offer a license under the patent to the Company. There can
be no assurance that the Company will be able to successfully obtain a license
to any technology that it may require or that, if obtainable, such technology
can be licensed at a reasonable cost or on an exclusive basis. Failure by the
Company to obtain a license to any technology that it may require to
commercialize its products could have a material adverse effect on the Company.
See "Item 1. Business -- Patents, Trade Secrets and Licenses."
The pharmaceutical and biotechnology industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
Litigation, which could result in substantial cost to the Company, may be
necessary to enforce any patents issued or licensed to the Company and/or to
determine the scope and validity of others' proprietary rights. The Company also
may have to participate in interference proceedings declared by the United
States Patent and Trademark Office, which could result in substantial cost to
the Company, to determine the priority of inventions. Furthermore, the Company
may have to participate at substantial cost in International Trade Commission
proceedings to abate importation of products which would compete unfairly with
products of the Company.
Diatide engages in collaborations, sponsored research agreements and other
agreements with academic researchers and institutions and United States
government agencies. Under the terms of such agreements, third parties may have
rights in certain inventions developed during the course of the performance of
such collaborations and agreements.
The Company relies on trade secrets and proprietary know-how which it seeks
to protect, in part by confidentiality agreements with its employees,
consultants, members of its Scientific Advisory Board,
<PAGE>
outside scientific collaborators and sponsored researchers and other advisors.
There can be no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach or that the Company's trade
secrets will not otherwise become known or be independently developed by
competitors. Failure to obtain or maintain patent and trade secret protection,
for any reason, could have a material adverse effect on the Company. See "Item
1. Business -- Patents, Trade Secrets and Licenses."
Uncertainty of Market Acceptance of Technology and Products
The commercial success of the Company's products, when and if approved for
marketing by the FDA, will depend upon their acceptance by the medical community
and third party payors as clinically useful, cost-effective and safe. The
synthetic peptide-based radiopharmaceutical technology being developed by the
Company is relatively new. To date, the Company is aware of only one imaging
product and no therapeutic products based on this scientific approach that has
been approved for sale by the FDA. Peptide-based radiopharmaceuticals have not
been extensively tested in humans. Market acceptance and thus, sales of the
Company's products, will depend on several factors, including the receipt of
regulatory approval in the United States, Europe, the Far East and elsewhere,
safety, price, ease of administration and effectiveness and extensive physician
education. There can be no assurance that the Company's products will gain
market acceptance. Failure to achieve market acceptance would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Item 1. Business -- Government Regulation."
Absence of Sales and Marketing Experience
Although Diatide plans to rely significantly on collaborative partners for
the marketing and distribution of its products through co-marketing or other
licensing or distribution arrangements, the Company expects to market and sell
certain of its products directly and to engage in certain other marketing
activities in collaboration with its collaborative partners. The Company has no
experience in sales, marketing or distribution. The Company does not expect to
establish a direct sales capability until such time as one or more of its
products in development approaches marketing approval. The Company has not
developed a specific sales and marketing plan with respect to any of its
potential products. Although Diatide plans to have only a small, specialized in
house sales group, it will need to recruit and train appropriate personnel and
develop a supporting distribution capability.
To the extent the Company enters into marketing or distribution arrangements
with collaborative partners, any revenues the Company receives will depend upon
the efforts of third parties. There can be no assurance that any third party
will market the Company's products successfully or that any third- party
collaboration will be on terms favorable to the Company. If any marketing
partner does not market a product successfully, the Company's business would be
materially adversely affected. If Diatide's plan to rely on corporate partners
for significant aspects of marketing and selling the Company's products is
unsuccessful for any reason, Diatide may need to recruit and train a far larger
marketing and sales force than it currently anticipates doing, which would
entail the incurrence of significant additional costs.
There can be no assurance that the Company would be able to attract and
build a sufficient marketing staff or sales force, that the cost of establishing
such a marketing staff or sales force will be justifiable in light of any
product revenues or that the Company's direct sales and marketing efforts will
be successful. In addition, if the Company succeeds in bringing one or more
products to market, it may compete with other companies that currently have
extensive and well-funded marketing and sales operations. There can be no
assurance that the Company's marketing and sales efforts would enable it to
compete successfully against such other companies. See "Item 1. Business --
Marketing and Distribution" and "-- Corporate Collaborations."
Limited Manufacturing Capability; Dependence on Sole Source Supplier
The Company lacks commercial-scale facilities to manufacture its products in
accordance with current GMP requirements prescribed by the FDA. To date, the
Company has relied on a large third party pharmaceutical company for the
manufacture of its peptides for clinical trials and has entered into an
arrangement with a GMP-qualified third party manufacturer for the supply of
Sn-117m for clinical trials. The Company expects to be dependent on third party
manufacturers or collaborative partners for all of its
<PAGE>
commercial production of peptides. There are a limited number of manufacturers
that operate under GMP regulations capable of manufacturing the Company's
products. In the event that the Company is unable to obtain contract
manufacturing, or obtain such manufacturing on commercially reasonable terms, it
may not be able to commercialize its products as planned. Where third-party
arrangements are established, the Company will depend upon such third parties to
perform their obligations in a timely manner. There can be no assurance that
third parties depended upon by the Company will perform and any failures by
third parties may delay clinical trial development or the submission of products
for regulatory approval, impair the Company's ability to commercialize its
products as planned and deliver products on a timely basis, or otherwise impair
the Company's competitive position, which could have a material adverse effect
on the Company's business, financial condition or results of operations.
The Company purchases its synthetic peptides from a sole source supplier and
may enter into similar arrangements with respect to other components of its
products. While the Company is aware of alternative sources for its peptides,
the establishment of additional or replacement suppliers could be time consuming
and result in a supply interruption and significant additional regulatory delays
and expense. The establishment of an alternative source of supply or any
significant supply interruption could have a materially adverse effect on the
Company's ability to develop and manufacture its potential products and,
therefore, upon its business, financial condition and results of operations. See
"Item 1. Business -- Manufacturing."
If the Company determines to develop its own manufacturing capabilities, it
will need to recruit qualified personnel and build or lease the requisite
facilities and equipment because it has no experience in manufacturing on a
commercial scale and no facilities or equipment therefor. There can be no
assurance that Diatide will be able to successfully develop its own
manufacturing capabilities or as to the cost thereof or the time required. In
addition, the manufacture of any products by the Company is subject to
regulation by the FDA and comparable agencies in foreign countries. Delay in
complying or failure to comply with such manufacturing requirements could
materially adversely affect the marketing of the Company's products and the
Company's business, financial condition and results of operations.
Hazardous Materials
The Company's research and development involves the controlled use of
hazardous materials, chemicals and various radioactive compounds. Although the
Company believes that its safety procedures for handling, storing and disposing
of such materials and the safety procedures of the third parties who ship such
materials for the Company comply with the standards prescribed by federal, state
and local regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for significant damages and any such liability
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Item 1. Business -- Government
Regulation."
Potential Product Liability Exposure and Insurance
The use of any of the Company's potential products in clinical trials and
the commercial sale of any products may expose the Company to potential product
liability risks which are inherent in the testing, manufacturing, marketing and
sale of human diagnostic and therapeutic products. Product liability claims
might be made directly by consumers, health care providers or by pharmaceutical
companies or others selling such products. There can be no assurance that
product liability claims, if made, would not result in a recall of the Company's
products or a change in the indications for which they may be used. Diatide has
limited product liability insurance coverage, and such coverage is subject to
various deductibles. Such coverage is expensive, and no assurance can be given
that the Company will be able to maintain or obtain such insurance at reasonable
cost or in sufficient amounts to protect the Company against losses due to
liability claims that could have a material adverse effect on the Company.
Uncertainty of Health Care Reform Measures
Federal, state and local officials and legislators (and certain foreign
government officials and legislators) have proposed or are reportedly
considering proposing a variety of reforms to the health care systems in the
United States and abroad. The Company cannot predict what health care reform
legislation, if any, will be
<PAGE>
enacted in the United States or elsewhere. Significant changes in the health
care system in the United States or elsewhere are likely to have a substantial
impact over time on the manner in which the Company conducts its business. Such
changes could have a material adverse effect on the Company. The existence of
pending health care reform proposals could have a material adverse effect on the
Company's ability to raise capital. Further, to the extent that proposals have a
material adverse effect on other pharmaceutical companies that are prospective
corporate partners for the Company, the Company's ability to establish
collaborative commercial relationships may be adversely affected. Furthermore,
the Company's ability to commercialize its potential products may be adversely
affected to the extent that such proposals have a material adverse effect on the
business, financial condition and profitability of other companies that are
prospective corporate partners with respect to certain of the Company's proposed
products. See "Item 1. Business -- Government Regulation."
Uncertainty of Pharmaceutical Pricing and Adequate Reimbursement
The Company's ability to commercialize its products successfully will depend
in part on the extent to which appropriate reimbursement levels for the cost of
such products and related treatment are obtained from government authorities,
private health insurers and other organizations, such as health maintenance
organizations ("HMOs"). Third-party payors are increasingly challenging the
prices charged for medical products and services. Also the trend towards managed
health care in the United States and the concurrent growth of organizations such
as HMOs, which could control or significantly influence the purchase of health
care services and products, as well as legislative proposals to reduce
government insurance programs, may all result in lower prices for the Company's
products. The cost containment measures that health care providers are
instituting could affect the Company's ability to sell its products and may have
a material adverse effect on the Company.
There can be no assurance that reimbursement in the United States or foreign
countries will be available for any of the Company's products, or if available,
will not be decreased in the future, or that reimbursement amounts will not
reduce the demand for, or the price of, the Company's products. The
unavailability or inadequacy of third-party reimbursement for the Company's
products would have a material adverse effect on the Company.
Attraction and Retention of Key Management and Qualified Personnel
The Company is highly dependent on the principal members of its management
and scientific staff, particularly Dr. Dean, the Company's President and Chief
Executive Officer, the loss of whose services could have a material adverse
effect on the Company. The Company is a party to an employment agreement with
Dr. Dean that extends through April 2, 1998, subject to automatic extension for
additional one-year periods unless either Dr. Dean or the Company provides
written notice to the contrary to the other party at least six months prior to
the expiration period. In the event Dr. Dean ceases to be employed by Diatide
through August 11, 1997, other than as a result of his death or disability or
termination for cause, Nycomed may terminate its collaboration with the Company,
which would result in a material loss of research and development revenues to
the Company and might adversely affect the Company's ability to develop,
commercialize, market and distribute certain of its potential products. Also,
recruiting and retaining qualified scientific personnel to perform research and
development work in the future will be critical to the Company's success. There
can be no assurance that the Company will be able to attract and retain such
highly skilled personnel on acceptable terms given the competition for
experienced scientists among numerous pharmaceutical, biotechnology and health
care companies, universities and non-profit research institutions. The Company
does not carry key-man insurance with respect to any of its executive officers.
The Company's anticipated growth and expansion into areas and activities
requiring additional expertise, such as clinical trials, governmental approvals,
production and marketing, are expected to require the addition of new management
personnel and the development of additional expertise by existing management
personnel. The failure to acquire such services or to develop such expertise
could have a material adverse effect on the Company.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (To Come)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (To Come)
</LEGEND>
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0
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