<PAGE> 1
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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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] 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 000-29959
PAIN THERAPEUTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 91-1911336
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
250 EAST GRAND AVENUE, SUITE 70, SOUTH SAN FRANCISCO, CA 94080
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP
CODE)
(650) 624-8200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
COMMON STOCK, $0.001 PAR VALUE 26,717,716 SHARES
Class Outstanding at October 31, 2000
</TABLE>
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<PAGE> 2
PAIN THERAPEUTICS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
Condensed Balance Sheets -- September 30, 2000 and December
31, 1999 (unaudited)...................................... 1
Condensed Statements of Operations -- Three and Nine Month
Periods Ended September 30, 2000 and 1999 and the Period
from May 4, 1998 (Inception) Through September 30, 2000
(unaudited)............................................... 2
Condensed Statements of Cash Flows -- Nine Month Periods
Ended September 30, 2000 and 1999 and the Period from May
4, 1998 (Inception) Through September 30, 2000
(unaudited)............................................... 3
Notes to Condensed Financial Statements (unaudited)......... 4
</TABLE>
<TABLE>
<S> <C> <C>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 7
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 12
Item 2. Change in Securities and Use of Proceeds.................... 12
Item 3. Defaults Upon Senior Securities............................. 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
Item 5. Other Information........................................... 12
Item 6. Exhibits and Reports on Form 8-K............................ 12
Signatures........................................................... 13
Index of Exhibits.................................................... 14
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,339,669 $ 81,996,938
Interest receivable....................................... 15,362 7,715
Prepaid expenses.......................................... 41,387 571,043
----------- ------------
Total current assets.............................. 9,396,418 82,575,696
Property and equipment, net................................. 44,755 265,096
----------- ------------
Total assets...................................... $ 9,441,173 $ 82,840,792
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable and accrued liabilities.................. $ 300,587 $ 1,351,555
----------- ------------
Total liabilities................................. 300,587 1,351,555
----------- ------------
Commitments and contingencies
Redeemable convertible preferred stock:
Series C.................................................. -- --
Series B.................................................. 9,703,903 --
----------- ------------
9,703,903 --
----------- ------------
Stockholders' equity (deficit):
Convertible preferred stock -- Series A................... 2,660 --
Common stock.............................................. 9,445 26,718
Additional paid-in-capital................................ 9,367,750 107,856,817
Deferred compensation..................................... (4,980,180) (6,802,284)
Notes receivable.......................................... (74,400) (111,317)
Deficit accumulated during the development stage.......... (4,888,592) (19,480,697)
----------- ------------
Total stockholders' equity (deficit).............. (563,317) 81,489,237
----------- ------------
Total liabilities and stockholders' equity
(deficit)....................................... $ 9,441,173 $ 82,840,792
=========== ============
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE> 4
PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 4, 1998
THREE MONTHS ENDED NINE MONTHS ENDED (INCEPTION)
SEPTEMBER 30, SEPTEMBER 30, THROUGH
------------------------- -------------------------- SEPTEMBER 30,
1999 2000 1999 2000 2000
----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Licensing fees.............. $ -- $ -- $ -- $ -- $ 100,000
Research and development.... 1,473,082 1,615,833 1,855,196 4,409,052 6,701,171
General and
administrative........... 319,163 4,671,931 716,324 11,678,245 14,367,768
----------- ----------- ----------- ------------ ------------
Total expenses........... 1,792,245 6,287,764 2,571,520 16,087,297 21,168,939
----------- ----------- ----------- ------------ ------------
Operating loss........... (1,792,245) (6,287,764) (2,571,520) (16,087,297) (21,168,939)
Other income:
Interest income............. 13,140 1,017,287 64,318 1,495,792 1,690,442
----------- ----------- ----------- ------------ ------------
Net loss before income
taxes.................. (1,779,105) (5,270,477) (2,507,202) (14,591,505) (19,478,497)
Income tax expense............ 200 200 600 600 2,200
----------- ----------- ----------- ------------ ------------
Net loss................. (1,779,305) (5,270,677) (2,507,802) (14,592,105) (19,480,697)
Return to series C preferred
shareholders for beneficial
conversion feature.......... -- -- -- (14,231,595) (14,231,595)
----------- ----------- ----------- ------------ ------------
Loss available to common
shareholders................ $(1,779,305) $(5,270,677) $(2,507,802) $(28,823,700) $(33,712,292)
=========== =========== =========== ============ ============
Basic and diluted loss per
share....................... $ (0.19) $ (0.22) $ (0.27) $ (2.01)
=========== =========== =========== ============
Weighted-average shares used
in computing basic and
diluted loss per share...... 9,445,000 23,625,619 9,281,139 14,359,299
=========== =========== =========== ============
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 5
PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 4, 1998
NINE MONTHS ENDED (INCEPTION)
SEPTEMBER 30, THROUGH
--------------------------- SEPTEMBER 30,
1999 2000 2000
----------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(2,507,802) $(14,592,105) $(19,480,697)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 2,273 33,877 38,639
Amortization of deferred compensation........ 160,736 6,070,662 7,605,509
Noncash expense for options and warrants
issued..................................... -- 2,646,000 2,767,829
Loss on disposal of property and equipment... -- 2,729 2,729
Changes in operating assets and liabilities:
Interest receivable........................ (387) 7,647 (7,715)
Prepaid expenses........................... (19,894) (529,656) (571,043)
Accounts payable and accrued liabilities... 1,158,004 1,050,968 1,351,555
----------- ------------ ------------
Net cash used in operating activities... (1,207,070) (5,309,878) (8,293,194)
----------- ------------ ------------
Cash flows used in investing activities --purchase
of property and equipment....................... (13,657) (256,947) (306,464)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of series B redeemable
convertible preferred stock, net............. -- -- 9,703,903
Proceeds from issuance of series C redeemable
convertible preferred stock, net............. -- 15,194,835 15,194,835
Deferred financing costs........................ (60,166) -- --
Stock subscription received..................... 5,000 12,083 17,083
Proceeds from issuance of series A convertible
preferred stock, net......................... -- -- 2,639,999
Proceeds from issuance of common stock.......... 33,910 39,987 63,587
Proceeds from initial public offering, net...... -- 62,977,189 62,977,189
----------- ------------ ------------
Net cash (used in) provided by financing
activities............................ (21,256) 78,224,094 90,596,596
----------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents..................................... (1,241,983) 72,657,269 81,996,938
Cash and cash equivalents at beginning of
period.......................................... 2,333,512 9,339,669 --
----------- ------------ ------------
Cash and cash equivalents at end of period........ $ 1,091,529 $ 81,996,938 $ 81,996,938
=========== ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 6
PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. GENERAL
Pain Therapeutics, Inc. (a development stage enterprise) is a
clinical-stage specialty pharmaceutical company which was incorporated on May 4,
1998. Since our inception in May 1998, we have licensed proprietary technology
from Albert Einstein College of Medicine and have devoted substantially all of
our resources to the development of a new generation of opioid painkillers with
improved clinical benefits, which are based on this technology.
Our development activities involve inherent risks. These risks include,
among others, dependence on key personnel and our ability to protect our
intellectual property. In addition, we have product candidates which have not
yet obtained Food and Drug Administration approval. Successful future operations
depend on our ability to obtain approval for and commercialize these products.
We have prepared the unaudited financial statements included herein
pursuant to the rules and regulations of the Securities and Exchange Commission.
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. In
management's opinion, the accompanying financial statements have been prepared
on a basis consistent with the audited financial statements and contain
adjustments, all of which are of a normal and recurring nature, necessary to
present fairly our financial position and results of operations. Interim
financial results are not necessarily indicative of results anticipated for the
full year. These unaudited financial statements should be read in conjunction
with our 1999 audited financial statements and footnotes included in our
Registration Statement on Form S-1, as amended (File No. 333-32370).
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of expenses incurred during the reporting
period. Actual results could differ from those estimates.
NOTE 2. CASH AND CASH EQUIVALENTS
We consider all highly liquid financial instruments with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents consists of cash maintained at one financial institution and money
market funds invested in United States government securities.
NOTE 3. ISSUANCE OF SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK
In February 2000 we issued 3,044,018 shares of series C redeemable
convertible preferred stock for approximately $14.2 million, net of issuance
costs. The series C redeemable convertible preferred stock has the same rights,
preferences and privileges as the series B redeemable convertible preferred
stock.
In connection with the issuance of the series C redeemable convertible
preferred stock, we issued warrants to purchase 120,000 shares of common stock
at $5 a share. The fair value of these warrants of $963,240 was estimated using
a Black-Scholes model and the following assumptions: estimated volatility of
60%, a risk-free interest rate of 4.59%, no dividend yield, and an expected life
equal to the contractual term of 5 years. This fair value was recognized as an
increase to additional paid-in capital in the nine months ended September 30,
2000.
We determined that our series C preferred stock was issued with a
beneficial conversion feature. The beneficial conversion feature has been
recognized by allocating a portion of the preferred stock proceeds equal
4
<PAGE> 7
PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
to the intrinsic value of that feature, limited to the net proceeds received
(approximately $14.2 million), to additional paid-in capital. The intrinsic
value is calculated at the date of issue as the difference between the
conversion price of the preferred stock and the fair value of our common stock,
into which the preferred stock is convertible, multiplied by the number of
common shares into which the preferred stock is convertible, limited to the net
proceeds received. As our series C preferred stock is convertible into common
stock at the option of the holder, at the issuance date of the preferred stock
the entire $14.2 million discount resulting from the allocation of proceeds to
the beneficial conversion feature has been treated as a dividend and recognized
as a return to the preferred stockholders for purposes of computing basic and
diluted loss per share in the nine months ended September 30, 2000.
NOTE 4. DEFERRED STOCK BASED COMPENSATION
Deferred stock compensation for options granted to employees represents the
difference between the exercise price of the option and the fair value of our
common stock on the date of grant in accordance with Accounting Principles Board
Opinion No. 25 and its related interpretations. Deferred compensation for non-
employees is recorded at the fair value of the options granted in accordance
with Statement of Financial Accounting Standards No. 123 and Emerging Issues
Task Force Issue No. 96-18, Accounting for Equity Investments that are Issued to
Other than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services.
As of September 30, 2000 the Company has recorded a cumulative $14.6
million of deferred stock compensation related to stock options granted to
employees and non-employees. During the three month period ended September 30,
2000 $3.2 million of deferred stock compensation was recorded in connection with
the remeasurement of stock options granted to non-employees in accordance with
EITF 96-18. Stock compensation expense is being recognized over the vesting
period for employees and the service period for non-employees in accordance with
Financial Accounting Standards Board Interpretation No. 28 as that methodology
most closely approximates the way in which our options are earned by the option
holder. The Company recognized stock compensation expense for options of $6.1
million and $161,000 for the nine months ended September 30, 2000 and 1999,
respectively.
NOTE 5. LOSS PER SHARE
Basic loss per share is based on the weighted-average number of common
shares outstanding for the reporting period. Diluted loss per share is computed
on the basis of the weighted-average number of common shares plus dilutive
potential common shares outstanding using the treasury stock method. Potentially
dilutive securities, consisting of convertible preferred stock, shares issuable
to holders of unexercised stock options and outstanding warrants, have been
excluded from the diluted loss per share calculation as their effect is
antidilutive.
NOTE 6. INITIAL PUBLIC OFFERING
On July 19, 2000 we completed an initial public offering in which we sold
5,000,000 shares of common stock at $12 per share for net proceeds of
approximately $54.6 million, net of underwriting discounts, commissions and
estimated offering expenses. Upon the closing of the offering, all the Company's
convertible preferred and redeemable convertible preferred stock converted into
11,108,912 shares of common stock. After the offering the Company's authorized
capital consisted of 120,000,000 shares of common stock, $0.001 par value, and
10,000,000 shares of preferred stock, $0.001 par value, of which 25,967,091
shares of common stock was issued and outstanding.
5
<PAGE> 8
PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On July 27, 2000 the underwriters exercised an over-allotment option to
purchase an additional 750,000 shares resulting in net proceeds of approximately
$8.4 million.
NOTE 7. COMMITMENTS
We currently occupy approximately 3,250 square feet of leased space for
which the operating lease expired in September 2000. In September 2000 we
entered into a sublease agreement effectively extending the lease term on a
month-to-month basis through at least December 31, 2000. Either party may
terminate the sublease with 60 days written notice, provided that the
sublandlord can not effect any termination which would be effective prior to
April 30, 2001.
In September 2000 we entered into an agreement to sublease and now occupy
approximately 2,900 square feet of additional space in South San Francisco,
California which is used as general office space. The initial term of the
sublease agreement will end on February 28, 2001. Thereafter the sublease will
continue on a month-to-month basis until terminated by either party with 30 days
written notice.
In July 2000 we entered into an agreement to lease approximately 10,000
square feet of space in South San Francisco, California to be used as general
office space. Future lease payments under this agreement total approximately
$1.8 million and commence in October 2000 through the ten year term of the
lease. The construction of tenant improvements is currently in progress. We
expect to relocate to this facility in the first quarter of 2001 at which time
the sublease agreements noted above will be terminated.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis should be read in conjunction with our
condensed financial statements and accompanying notes included in this report
and the financial statements and notes thereto for the year ended December 31,
1999 included in our Registration Statement on Form S-1, as amended (File No.
333-32370) which was declared effective by the Securities and Exchange
Commission on July 13, 2000. Operating results are not necessarily indicative of
results that may occur in future periods.
The following discussion contains forward-looking statements that are based
upon current expectations. Our actual results and the timing of events may
differ significantly from the results discussed in the forward-looking
statements. Examples of such forward-looking statements include, but are not
limited to, statements about our future operating losses and anticipated
operating and capital expenditures, statements about increases in our research
and development expenses, statements about the timing and progress of our
clinical trials, statements about future non-cash charges related to option
grants to our employees, statements about the sufficiency of our cash on hand
and the net proceeds from our recent initial public offering to fund our
operations for the next 12 months, statements about anticipated hiring,
statements about the build out of our new facility and the timing of the
relocation of our offices and statements about the effect of changes in interest
rates on our business and financial results. Such forward looking statements
involve risks and uncertainties, including, but not limited to, those risks and
uncertainties relating to difficulties or delays in development, testing,
regulatory approval, production and marketing of the Company's drug candidates,
unexpected adverse side effects or inadequate therapeutic efficacy of the
Company's drug candidates that could slow or prevent product approval (including
the risk that current and past results of clinical trials are not necessarily
indicative of future results of clinical trials), the uncertainty of patent
protection for the Company's intellectual property or trade secrets and the
Company's ability to obtain additional financing if necessary. In addition such
statements are subject to the risks and uncertainties discussed elsewhere in
this document and the "Risk Factors" section of our Registration Statement on
Form S-1, as amended (File No. 333-32370).
OVERVIEW
Pain Therapeutics is engaged in the development of a new generation of
opioid painkillers. We use our technology to reformulate opioid drugs, such as
morphine, into new painkillers with improved clinical benefits. We currently
have four opioid painkillers in Phase II clinical trials. We believe our drugs
offer enhanced pain relief, fewer adverse side effects and reduced tolerance and
addiction compared to existing opioid painkillers.
We have yet to generate any revenues from product sales. We have not been
profitable and, since our inception, we have incurred a cumulative deficit of
$19.5 million through September 30, 2000. These losses have resulted principally
from costs incurred in connection with research and development activities,
including costs of clinical trials associated with our four product candidates,
and general and administrative expenses.
We expect to incur additional operating losses for the next several years.
We also expect to continue to incur significant operating and capital
expenditures and anticipate that our expenses will increase substantially in the
foreseeable future as we:
- continue to undertake clinical trials for our product candidates;
- seek to obtain regulatory approvals for our product candidates;
- develop, formulate, manufacture and commercialize our drugs;
- implement additional internal systems and infrastructure; and
- hire additional personnel.
7
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Research and Development
Research and development expense consists of drug development work
associated with product candidates, including costs of clinical trials and
clinical supplies, and research payments to the Albert Einstein College of
Medicine. Research and development expenses were $1.6 million for the three
months ended September 30, 2000 compared to $1.5 million for the three months
ended September 30, 1999, reflecting clinical development activities for our
four product candidates. We expect research and development expenses to increase
significantly over the next several years as we increase our development efforts
and our product candidates enter into phase III clinical trials.
General and Administrative
General and administrative expense consists primarily of amortization of
deferred compensation for options granted to employees and consultants (as
described below), charges resulting from stock issuances pursuant to restricted
stock purchase agreements, salaries and related benefit costs, consulting and
professional services expenses, travel, facilities expenses and other general
corporate expenses. General and administrative expenses increased to $4.7
million for the three months ended September 30, 2000 from $320,000 for the
three months ended September 30, 1999. This increase was primarily attributable
to the amortization of deferred compensation, the hiring of additional personnel
and related expenses, and increased consulting and professional services
expenses. There will be future non-cash charges for options granted to employees
and consultants.
Deferred Non-Cash Compensation
Deferred stock compensation for options granted to employees represents the
difference between the exercise price of the option and the fair value of our
common stock on the date of grant in accordance with Accounting Principles Board
Opinion No. 25 and its related interpretations. Deferred compensation for non-
employees is recorded at the fair value of the options granted in accordance
with Statement of Financial Accounting Standards No. 123 and is periodically
remeasured as the underlying options vest in accordance with Emerging Issues
Task Force No. 96-18.
In connection with the remeasurement of deferred stock compensation for
grants of stock options to non-employees, we recorded deferred stock
compensation of $3.2 million for the three month period ended September 30,
2000. $340,000 of deferred stock compensation was recorded for the three month
period ended September 30, 1999 related to the grant of options to employees and
non-employees. These amounts were recorded as a component of stockholders'
equity (deficit) and are being amortized as charges to operations. We recognized
non-cash stock compensation amortization expense for options granted of $3.4
million and $96,000 for the three months ended September 30, 2000 and 1999,
respectively.
Interest Income
Interest income increased to $1.0 million for the three months ended
September 30, 2000 from $13,000 for the period ended September 30, 1999. This
increase resulted from higher average balances of cash and cash equivalents
following the sale of our series B and series C redeemable convertible preferred
stock in the fourth quarter of 1999 and the first quarter of 2000, respectively,
and the completion of our initial public offering in July 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Research and Development
Research and development expenses increased to $4.4 million for the nine
months ended September 30, 2000 from $1.9 million for the nine months ended
September 30, 1999. This increase reflects increased clinical development
activities for our four product candidates in the current nine month period.
Clinical trial activity
8
<PAGE> 11
was initiated during the second quarter of 1999. We expect research and
development expenses to increase significantly over the next several years as we
increase our development efforts and our product candidates enter into phase III
clinical trials.
General and Administrative
General and administrative expenses increased to $11.7 million for the nine
months ended September 30, 2000 from $716,000 for the nine months ended
September 30, 1999. This increase was primarily attributable to the amortization
of deferred compensation (as described below), charges resulting from stock
issuances pursuant to restricted stock purchase agreements, the hiring of
additional personnel and related expenses and increased consulting and
professional services expense. There will be future non-cash charges for options
granted to employees and consultants.
Deferred Non-Cash Compensation
In connection with the grant of stock options to employees as well as the
remeasurement of deferred stock compensation for grants of stock options to
non-employees, we recorded deferred stock compensation of $8.1 million for the
nine month period ended September 30, 2000. $806,000 of deferred stock
compensation was recorded for the nine month period ended September 30, 1999
related to the grant of options to employees and non-employees. These amounts
were recorded as a component of stockholders' equity (deficit) and are being
amortized as charges to operations. We recognized non-cash stock compensation
amortization expense for options granted of $6.1 million and $161,000 for the
nine months ended September 30, 2000 and 1999, respectively.
Interest Income
Interest income increased to $1.5 million for the nine months ended
September 30, 2000 from $64,000 for the nine months ended September 30, 1999.
This increase resulted from higher average balances of cash and cash equivalents
following the sale of our series B and series C redeemable convertible preferred
stock in the fourth quarter of 1999 and the first quarter of 2000, respectively,
and the completion of our initial public offering in July 2000.
Return to Series C Preferred Stockholders for Beneficial Conversion Feature
In February 2000 we issued 3,044,018 shares of Series C redeemable
convertible preferred stock for $14.2 million, net of issuance costs. We
determined that our series C preferred stock was issued with a beneficial
conversion feature. The beneficial conversion feature has been recognized by
allocating a portion of the preferred stock proceeds equal to the intrinsic
value of that feature, limited to the net proceeds received ($14.2 million), to
additional paid-in capital. The intrinsic value is calculated at the date of
issue as the difference between the conversion price of the preferred stock and
the fair value of our common stock, into which the preferred stock is
convertible, multiplied by the number of common shares into which the preferred
stock is convertible, limited to the net proceeds received. As our series C
preferred stock is convertible into common stock at the option of the holder, at
the issuance date of the preferred stock the entire $14.2 million discount
resulting from the allocation of proceeds to the beneficial conversion feature
has been treated as a dividend and recognized as a return to the preferred
stockholders for purposes of computing basic and diluted loss per share in the
nine months ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the
private placement of our preferred stock and the public sale of our common
stock. In February 2000 we received net proceeds of $15.2 million from issuance
of our series C redeemable convertible preferred stock, and in July 2000 we
received net proceeds of $63 million from issuance of common stock in our
initial public offering. As of September 30, 2000, cash and cash equivalents
were $82 million.
9
<PAGE> 12
Net cash used in operating activities was $5.3 million for the nine months
ended September 30, 2000 compared to $1.2 million for the nine months ended
September 30, 1999. Cash used in operating activities related to the funding of
net operating losses and prepaid expenses, partially offset by increases in
non-cash compensation, non-cash charges resulting from stock issuances pursuant
to stock purchase agreements and accounts payable and accrued liabilities.
Our investing activities used cash of $257,000 for the nine months ended
September 30, 2000 compared to $14,000 for the nine months ended September 30,
1999. Investing activities consisted of purchases of property and equipment as
well as the funding of tenant improvements in conjunction with the buildout of
new office space. We expect to continue to make investments in our
infrastructure to support our operations, including the purchase of property and
equipment and the ongoing funding of tenant improvements as we complete the
buildout of our new facility.
Our financing activities provided cash of $78.2 million for the nine months
ended September 30, 2000. In February 2000 we issued an aggregate of 3,044,018
shares of our series C redeemable convertible preferred stock, raising total net
proceeds of $15.2 million. On July 19, 2000 we completed our initial public
offering in which we sold 5,000,000 shares of common stock at $12 per share for
net proceeds of $54.6 million, net of underwriting discounts, commissions and
estimated offering expenses. On July 27, 2000 the underwriters exercised an
over-allotment option to purchase an additional 750,000 shares resulting in net
proceeds of $8.4 million. From the time of receipt through October 31, 2000 all
of the net proceeds of the initial public offering were invested primarily in
short-term, investment grade, interest bearing U.S. government securities or
money market funds invested in similar securities.
We currently occupy approximately 3,250 square feet of leased space for
which the operating lease expired in September 2000. In September 2000 we
entered into a sublease agreement effectively extending the lease term on a
month-to-month basis through at least December 31, 2000. Either party may
terminate the sublease with 60 days written notice, provided that the
sublandlord cannot effect any termination which would be effective prior to
April 30, 2001. In September 2000 we entered into an agreement to sublease and
now occupy approximately 2,900 square feet of additional space in South San
Francisco, California, which is used as general office space. The initial term
of the sublease agreement will end on February 28, 2001. Thereafter the sublease
will continue on a month-to-month basis until terminated by either party with 30
days written notice. In July 2000 we entered into an agreement to lease
approximately 10,000 square feet of space in South San Francisco, California to
be used as general office space. Future lease payments under this agreement
total $1.8 million and commenced in October 2000 through the ten year term of
the lease. The construction of tenant improvements is currently in progress. We
expect to relocate to this facility in the first quarter of 2001 at which time
the sublease agreements noted above will be terminated.
We expect our cash requirements to increase as we continue our development
efforts, implement additional internal systems and infrastructure, hire
additional personnel and expand our leased facilities. Additionally, as our
clinical development efforts grow we anticipate a significant cash requirement
for working capital growth, capital expenditures and investment in
infrastructure. The amount and timing of cash requirements will depend on
regulatory and market acceptance of our products, if any, and the resources we
devote to researching and developing, formulating, manufacturing,
commercializing and supporting our products. We believe that the net proceeds
from our initial public offering together with our current cash and cash
equivalents should be sufficient to fund our operations for at least the next 12
months. However, we may require additional financing within this timeframe and
such additional funding, if needed, may not be available on terms acceptable to
us or at all. Further, any additional equity financing may be dilutive to
current shareholders.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In
accordance with SFAS 133, an entity
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is required to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
that a company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS 133, as amended by SFAS 137 and
138, shall be effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. We believe that the implementation of SFAS 133, as amended,
will not have a material effect on our results of operations or financial
position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial
position, operating results or cash flows due to changes in interest rates in
the United States. This exposure is directly related to our normal operating
activities. Our cash and cash equivalents are invested with high quality issuers
and are of a short-term nature. As a result, we do not believe that near-term
changes in interest rates will have a material effect on our future results of
operations.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1.. Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three months
ended September 30, 2000.
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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.
PAIN THERAPEUTICS, INC.
--------------------------------------
(Registrant)
Date: November 10, 2000 /s/ REMI BARBIER
--------------------------------------
Remi Barbier
President, Chief Executive Officer
and Chairman of the Board of Directors
/s/ DAVID L. JOHNSON
--------------------------------------
David L. Johnson
Chief Financial Officer
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PAIN THERAPEUTICS, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE NO.
----------- --------
<C> <S> <C>
27.1... Financial Data Schedule.....................................
</TABLE>
14
