<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996.
Commission File Number
0-28308
COLLAGENEX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1758016
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 South State Street, Newtown, PA 18940
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 579-7388
Indicate by check mark whether the registrant: (1) has filed all
reports required to 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 No X *
------- -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of June 30, 1996:
Common Stock $0.01 par value 7,514,283
* Registrant became subject to the filing requirements of the Securities
Exchange Act of 1934 on June 20, 1996, when its Registration Statements on Form
S-1 and 8-A were declared effective by the Commission.
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COLLAGENEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
12/31/95 6/30/96
-------- -------
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,807 $ 21,365
Prepaid expensesq 7 20
----- -------
Total current assets 5,814 21,385
EQUIPMENT, net 15 41
Other assets 11 12
----- -------
Total assets $ 5,840 $ 21,438
===== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 18 $ 308
Accrued expenses 495 770
----- -------
Total current liabilities 513 1,078
----- -------
Mandatorily redeemable convertible preferred
stock (at redemption value which includes
accreted dividends of $1,877,146 in 1995; $0 in 1996) 18,908 -
Common stockholders' equity (deficit):
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; none issued and outstanding - -
Common stock, $0.01 par value; in 1995, 6,725,000
shares authorized and 312,659 shares issued and
outstanding; in 1996, 25,000,000 shares
authorized and 7,514,283 issued and outstanding 3 75
Additional paid-in capital (deficit) ( 1,743) 35,572
Deferred compensation ( 20) ( 345)
Deficit accumulated during the developmental stage (11,821) (14,942)
-------- --------
Common stockholders' equity (deficit) (13,581) 20,360
-------- --------
Commitments
Total liabilities and stockholders' equity
(deficit) $ 5,840 $ 21,438
======== ========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
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COLLAGENEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
AND FOR THE PERIOD FROM JANUARY 10, 1992 (INCEPTION)
TO JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 FOR THE PERIOD FROM
------------------------- --------------------- 1/10/92 (INCEPTION)
1995 1996 1995 1996 TO 6/30/96
--------- --------- ------ ------- -------------------
(in thousands, except share amounts)
<C> <C> <C> <C> <C>
Revenues $ - $ - $ - $ - $ -
Operating expenses incurred in the
development stage:
Research and Development 683 1,301 1,773 2,277 10,884
general and Administrative 316 535 558 953 4,240
--------- --------- --------- -------- --------
Total operating expenses 999 1,836 2,331 3,230 15,124
Other income (expense)
Interest income 10 48 19 109 326
Interest expense (50) - (70) - (144)
--------- --------- --------- -------- ---------
Net Loss $ (1,039) $ (1,788) $ (2,382) $ (3,121) $ (14,942)
========= ========= ========= ========= =========
Accretion of undeclared dividends $ 144 $ 336 $ 288 $ 720 $ 2,597
========= ======== ========= ======== ========
attributable to mandatorily re-
deemable convertible preferred stock
Net loss allocable to common
stockholders $ (1,183) $ (2,124) $ (2,670) $(3,841) $ (17,539)
========= ========= ========= ======== =========
Net loss per share $ (0.22) $ (0.31) $ (0.51) $ (0.56)
========= ========= ========= ========
Shares used in computing
net loss per share 4,637,342 5,734,061 4,636,163 5,623,333
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
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COLLAGENEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
AND FOR THE PERIOD FROM JANUARY 10, 1992 (INCEPTION)
TO JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 FOR THE PERIOD
--------------------- FROM 1/10/92
1995 1996 (INCEPTION)TO 6/30/96
---- ---- ----------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss allocable to common stockholders $(2,670) $ (3,841) $ (17,539)
Adjustments to reconcile net loss to net
cash used in operating activities:
Accretion of undeclared dividends
attributable to mandatorily redeemable
convertible preferred stock 288 720 2,597
Non-cash research and development expense - - 514
Compensation expense - 101 124
Non-cash consulting expense - - 15
Accrued interest converted to preferred stock - - 121
Depreciation and amortization expense 1 2 8
Change in assets and liabilities:
Increase in prepaid expenses - (13) (20)
Increase in other assets (3) (1) (11)
Increase (decrease) in accounts payable (383) 290 308
Increase in accrued expenses 364 275 770
------- ------- ----
Net cash used in operating activities (2,403) (2,467) (13,113)
Cash flows from investing activities:
Organizational costs - - (5)
Capital expenditures (3) (28) (45)
------- ------- ------
Net cash used in investing activities (3) (28) (50)
------- ------- ------
Cash flows from financing activities:
Proceeds from issuance of preferred stock - - 13,508
Proceeds from issuance of common stock - 18,053 18,117
Proceeds from issuance of promissory notes 2,000 - 3,028
Repayment of promissory note - - (125)
--- - -------
Net cash provided by financing activities 2,000 18,053 34,528
----- ------ -------
Net increase (decrease) in cash and cash
equivalents (406) 15,558 21,365
Cash and cash equivalents at beginning of period 617 5,807 -
---- ------ -------
Cash and cash equivalents at end of period $ 211 $ 21,365 $ 21,365
==== ====== =======
</TABLE>
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(Continued from preceding page)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FOR THE PERIOD
JUNE 30 FROM 1/10/92
------------------
1995 1996 (INCEPTION)TO 6/30/96
----- ---- ----------------------
(in thousands)
<S> <C> <C> <C>
Supplemental disclosure of cash flows information:
Cash paid for interest - - $ 23
===== ====== ======
Supplemental schedule of non-cash financing
activities:
Conversion of mandatorily redeemable
convertible preferred stock to common stock $ $19,628 $19,628
===== ====== ======
Conversion of promissory notes plus accrued
interest to preferred stock $ - $ - $ 2,903
===== ====== ======
Deferred compensation $ - $ 21 $ 424
===== ====== ======
</TABLE>
See accompanying notes to unaudited condensed financial statements.
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COLLAGENEX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission and in accordance with generally
accepted accounting principles. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These unaudited financial statements should be read in
conjunction with the 1995 financial statements and notes thereto.
In the opinion of the Company's management, the accompanying unaudited
condensed financial statements have been prepared on a basis substantially
consistent with the audited financial statements and contain adjustments, all
of which are of a normal recurring nature, necessary to present fairly its
financial position as of June 30, 1996, its results of operations for the three
and six months ended June 30, 1995 and 1996 and for the period January 10, 1992
(inception) to June 30, 1996, and its cash flows for the six months ended June
30, 1995 and 1996 and for the period January 10, 1992 (inception) to June 30,
1996. Interim reports are not necessarily indicative of results for the full
fiscal year.
(2) COMPLETION OF INITIAL PUBLIC OFFERING/CONVERSION OF PREFERRED STOCK
On June 20, 1996, the Company completed an initial public offering of
2,000,000 shares of its common stock at a price of $10.00 per share. The
Company's net proceeds from the offering were approximately $18.1 million after
underwriting fees and other expenses.
On June 19, 1996, more than 60% of the holders of Series A, Series B and
Series C mandatorily redeemable convertible preferred stock approved an
amendment to the respective Series A, B and C agreements to reduce the price
per share upon which the mandatory conversion of the preferred stock shall
occur upon the closing of an initial public offering for the sale of the
Company's common stock from not less than $12.00 to not less than $8.00 per
share. Upon consummation of the initial public offering, all shares of such
convertible preferred stock outstanding were automatically converted on a
one-for-two basis into 5,199,124 shares of common stock.
(3) COMMITMENT
In April 1996, the Company entered into a manufacturing agreement for the
manufacture of Periostat. Under the terms of this agreement, the Company is
obligated to annual minimum purchase
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commitments with such vendor for three years following the date of initial
product launch, as defined.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company began operations in January 1992 and is engaged in the
development and commercialization of innovative, proprietary medical therapies
for the treatment of periodontal disease and other dental pathologies. Since
inception, the Company has had no revenues and has funded its operations
primarily through the issuance of common and preferred stock. Substantially
all of the Company's expenditures to date have been for pharmaceutical
development activities and general and administrative expenses.
The Company has incurred losses each year since inception and had an
accumulated deficit of $14.9 million at June 30, 1996. The Company expects to
continue to incur losses over the next several years from expenditures on
clinical, product development, marketing and administrative activities.
The Company does not expect to generate any revenues from product sales
for several years. No assurance can be given, however, that product sales will
be achieved for several years or at all. Successful future operations will
depend on the Company's ability to develop, obtain regulatory for and
commercialize its products.
RESULTS OF OPERATIONS
From inception through June 30, 1996, the Company had no revenues.
Operating expenses consist of research and development expenses and general and
administrative expenses. Research and development expenses consist primarily
of funds paid to contract research organizations for the provision of services
and materials for clinical trials and, to a lesser extent, for research grants
paid to The State University of New York and other research institutions.
General and administrative expenses consist primarily of personnel salaries and
benefits, professional and consulting fees, facilities and general office
expenses. The Company anticipates that selling, general and administrative
expenses will increase during the next several years due to the expansion of
its corporate infrastructure, primarily in sales, marketing and finance.
Research and development expenses increased $618,000, or 90%, and
$504,000, or 28%,
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respectively, during the three and six month periods ended June 30, 1996 over
the comparable year earlier periods due to higher contract costs associated
with preparing the New Drug Application ("NDA") for Periostat, including data
compilation, statistical analysis and validation of production processes.
General and administrative expenses increased $219,000, or 69%, and $395,000,
or 71%, respectively during these periods due to the hiring of additional staff
(which resulted in a non-cash compensation charge of approximately $100,000
during the six months ended June 30, 1996 from the grant of certain employee
stock options) and to higher consulting and legal fees.
LIQUIDITY AND CAPITAL RESOURCES
On June 20, 1996, the Company completed an initial public offering of
2,000,000 shares of common stock at a price of $10.00 per share, which
generated net proceeds to the Company of approximately $18.1 million after
underwriting fees and related expenses. At June 30, 1996, the Company had cash
and cash equivalents of $21.4 million. In accordance with investment
guidelines approved by the Company's board of directors, cash balances in
excess of those required to fund operations have been invested in short-term
U.S. Treasury securities and commercial paper with a credit rating no lower
than A1/P1. The Company's working capital of $20.3 million at June 30, 1996
reflected an increase of $15.0 million from December 31, 1995.
The Company had no debt outstanding (other than accounts payable and
accrued expenses) at June 30, 1996. The Company has no lines of credit, and no
capital leases were outstanding at June 30, 1996.
The Company anticipates that its existing cash resources will be
sufficient to fund the Company's operations through at least 1997. The
Company's future capital requirements and the adequacy of its available funds
will depend on many factors, including the timing of the Company's NDA
submission on Periostat to the FDA, regulatory approval for Periostat, if any,
the magnitude of the sales and marketing organization to be established, the
terms of agreements entered into with corporate partners, if any, and the
results of research and development and pre-clinical and clinical studies for
other applications of the Company's core technology.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On June 20, 1996, the Company consummated an initial public offering of
2,000,000 shares of its Common Stock for $10.00 per share, generating net
proceeds of approximately $18.1 million after deducting underwriting discounts
and commissions and estimated offering expenses.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter in which this
report on Form 10-Q is filed.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: July 26, 1996 By:/s/BRIAN M. GALLAGHEER, Ph.D
--------------------------------------
Brian M. Gallagher, Ph.D
President and Chief Executive Officer
Date: July 26, 1996 By:/s/NANCY C. BROADBENT
-----------------------------------
Nancy C. Broadbent
Chief Financial Officer (Principal
Financial and Accounting OFFICER)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
BALANCE SHEETS, CONDENSED STATEMENTS OF OPERATIONS, CONDENSED STATEMENTS OF CASH
FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE
QUARTER ENDED JUNE 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,365
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,385
<PP&E> 41
<DEPRECIATION> 8
<TOTAL-ASSETS> 21,438
<CURRENT-LIABILITIES> 1,078
<BONDS> 0
0
0
<COMMON> 20,360
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,438
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (109)
<INCOME-PRETAX> (3,121)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,121)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,121)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> (0.56)
</TABLE>
