<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 JUNE 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
(ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(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 [ ] No [X]
Indicate the number of shares outstanding of each of issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
COMMON STOCK, $0.001 PAR VALUE 26,717,716 SHARES
------------------------------ -----------------
<S> <C>
Class Outstanding at July 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
Condensed Balance Sheets -- June 30, 2000 and December 31,
1999 (unaudited)............................................ 1
Condensed Statements of Operations -- Three and Six Month
Periods Ended June 30, 2000 and 1999 (unaudited)............ 2
Condensed Statements of Cash Flows -- Six Month Periods
Ended June 30, 2000 and 1999 (unaudited).................... 3
Notes to Condensed Financial Statements..................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
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, JUNE 30,
1999 2000
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,339,669 $ 20,020,844
Interest receivable....................................... 15,362 6,254
Prepaid expenses.......................................... 41,387 45,876
----------- ------------
Total current assets.............................. 9,396,418 20,072,974
Property and equipment, net................................. 44,755 123,551
Deferred financing costs.................................... -- 942,184
----------- ------------
Total assets...................................... $ 9,441,173 $ 21,138,709
=========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 300,587 $ 720,328
----------- ------------
Total liabilities................................. 300,587 720,328
----------- ------------
Commitments and contingencies
Redeemable convertible preferred stock:
Series C.................................................. -- 14,231,595
Series B.................................................. 9,703,903 9,703,903
----------- ------------
9,703,903 23,935,498
----------- ------------
Stockholders' deficit:
Convertible preferred stock-- Series A.................... 2,660 2,660
Common stock.............................................. 9,445 9,858
Additional paid-in-capital................................ 9,367,750 17,779,858
Deferred compensation..................................... (4,980,180) (6,983,573)
Notes receivable.......................................... (74,400) (115,900)
Deficit accumulated during the development stage.......... (4,888,592) (14,210,020)
----------- ------------
Total stockholders' deficit....................... (563,317) (3,517,117)
----------- ------------
Total liabilities and stockholders' deficit....... $ 9,441,173 $ 21,138,709
=========== ============
</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>
THREE MONTHS ENDED SIX MONTHS ENDED MAY 4, 1998
JUNE 30, JUNE 30, (INCEPTION)
------------------------ ------------------------- THROUGH JUNE 30,
1999 2000 1999 2000 2000
---------- ----------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Licensing fees............... $ -- $ -- $ -- $ -- $ 100,000
Research and development..... 382,114 1,359,951 382,114 2,793,218 5,085,337
General and administrative... 278,904 2,386,595 397,158 7,006,315 9,695,838
---------- ----------- ---------- ------------ ------------
Total expenses............ 661,018 3,746,546 779,272 9,799,533 14,881,175
---------- ----------- ---------- ------------ ------------
Operating loss............ (661,018) (3,746,546) (779,272) (9,799,533) (14,881,175)
Other income:
Interest income.............. 23,771 233,455 51,178 478,505 673,155
---------- ----------- ---------- ------------ ------------
Net loss before income
taxes................... (637,247) (3,513,091) (728,094) (9,321,028) (14,208,020)
Income tax expense............. 200 200 400 400 2,000
---------- ----------- ---------- ------------ ------------
Net loss.................. (637,447) (3,513,291) (728,494) (9,321,428) (14,210,020)
Return to series C preferred
shareholders for beneficial
conversion feature........... -- -- -- (14,231,595) (14,231,595)
---------- ----------- ---------- ------------ ------------
Loss available to common
shareholders................. $ (637,447) $(3,513,291) $ (728,494) $(23,553,023) $(28,441,615)
========== =========== ========== ============ ============
Basic and diluted loss per
share........................ $ (0.07) $ (0.36) $ (0.08) $ (2.43)
========== =========== ========== ============
Weighted-average shares used in
computing basic and diluted
loss per share............... 9,393,527 9,821,493 9,197,851 9,675,225
========== =========== ========== ============
</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>
SIX MONTHS ENDED MAY 4, 1998
JUNE 30, (INCEPTION)
------------------------- THROUGH JUNE 30,
1999 2000 2000
---------- ----------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (728,494) $(9,321,428) $(14,210,020)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 1,350 20,348 25,110
Amortization of deferred compensation......... 64,645 2,716,526 4,251,373
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......................... (364) 9,108 (6,254)
Prepaid expenses............................ (10,916) (4,489) (45,876)
Accounts payable............................ (14,242) 419,741 720,328
---------- ----------- ------------
Net cash used in operating activities.... (688,021) (3,511,465) (6,494,781)
---------- ----------- ------------
Cash flows used in investing activities -- purchase
of property and equipment........................ (7,472) (101,873) (151,390)
---------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of series B redeemable
convertible preferred stock (net of issuance
costs of $296,096)............................ -- -- 9,703,903
Proceeds from issuance of series C redeemable
convertible preferred stock (net of cash
issuance costs of $25,255).................... -- 15,194,835 15,194,835
Deferred financing costs......................... (39,035) (942,184) (942,184)
Stock subscription received...................... 5,000 7,500 12,500
Proceeds from issuance of series A convertible
preferred stock (net of issuance costs of
$19,490)...................................... -- -- 2,639,999
Proceeds from issuance of common stock........... 33,810 34,362 57,962
---------- ----------- ------------
Net cash (used in) provided by financing
activities............................. (225) 14,294,513 26,667,015
---------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents........................................ (695,718) 10,681,175 20,020,844
Cash and cash equivalents at beginning of period... 2,333,512 9,339,669 --
---------- ----------- ------------
Cash and cash equivalents at end of period......... $1,637,794 $20,020,844 $ 20,020,844
========== =========== ============
</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 the acquired 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.
The unaudited financial statements included herein have been prepared by
the Company 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, which are of a normal and recurring nature, necessary to
present fairly the Company's 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 the Company's 1999 audited financial statements and footnotes
included in the Company's 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. ISSUANCE OF SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK
On February 1, 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 six months ended June 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 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
4
<PAGE> 7
PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 six months ended
June 30, 2000.
NOTE 3. 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 June 30, 2000 the Company has recorded a cumulative $11.4 million of
deferred stock compensation related to stock options granted to employees and
non-employees. 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 $2.7
million and $65,000 for the six months ended June 30, 2000 and 1999,
respectively.
NOTE 4. 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.
5
<PAGE> 8
PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following calculation of pro forma basic and diluted loss per share
available to common shareholders gives effect to the conversion of the
convertible preferred and redeemable convertible preferred stock, which
automatically converted to common stock upon the closing of the Company's
initial public offering in July 2000, from the original date of issuance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
1999 2000 1999 2000
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Actual:
Net loss........................... $ (637,447) $(3,513,291) $ (728,494) $ (9,321,428)
Return to series C preferred
shareholders.................... -- -- -- (14,231,595)
----------- ----------- ----------- ------------
Net loss available to common
shareholders.................... $ (637,447) $(3,513,291) $ (728,494) $(23,553,023)
=========== =========== =========== ============
Weighted-average shares used in
basic and diluted loss per
share........................... 9,393,527 9,821,493 9,197,851 9,675,225
=========== =========== =========== ============
Basic and diluted net loss per
share......................... $ (0.07) $ (0.36) $ (0.08) $ (2.43)
=========== =========== =========== ============
Pro forma:
Net loss available to common
shareholders.................... $ (637,447) $(3,513,291) $ (728,494) $(23,553,023)
=========== =========== =========== ============
Shares used above.................. 9,393,527 9,821,493 9,197,851 9,675,225
Adjustment to reflect
weighted-average effect of
assumed conversion of
convertible preferred stock..... 2,659,489 11,108,912 2,659,489 10,583,788
----------- ----------- ----------- ------------
Weighted-average shares used in pro
forma basic and diluted loss per
share........................... 12,053,016 20,930,405 11,857,340 20,259,013
=========== =========== =========== ============
Pro forma basic and diluted net
loss per share................ $ (0.05) $ (0.17) $ (0.06) $ (1.16)
=========== =========== =========== ============
</TABLE>
NOTE 5. INITIAL PUBLIC OFFERING
On July 19, 2000 the Company completed an initial public offering in which
it sold 5,000,000 shares of common stock at $12 per share for net proceeds of
approximately $54.7 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.
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. The Company has invested the net proceeds of the initial public
offering primarily in short-term, investment grade, interest bearing U.S.
government securities.
6
<PAGE> 9
PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6. COMMITMENTS
We currently occupy approximately 3,250 square feet of leased space for
which the operating lease expires in September 2000. We are in negotiations to
extend the expiration date of our current lease through at least December 2000.
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 will commence in October 2000 through the ten year term of the
lease.
7
<PAGE> 10
PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
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
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 the Company's 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. Forward-looking statements involve risks and
uncertainties. 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 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, and statements about the
effect of changes in interest rates on our business and financial results.
Factors that might cause such a difference include, but are not limited to,
those discussed elsewhere in this document and those discussed in "Risk Factors"
and elsewhere in 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
approximately $14.2 million through June 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.
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 Emerging Issues
Task Force No. 96-18.
8
<PAGE> 11
As of June 30, 2000 the Company has recorded a cumulative $11.4 million of
deferred stock compensation related to stock options granted to employees and
non-employees. 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. We recognized non-cash stock compensation expense for options granted of
$1.5 million and $48,000 for the three months ended June 30, 2000 and 1999,
respectively, and $2.7 million and $65,000 for the six months ended June 30,
2000 and 1999, respectively.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 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 $1.4 million for the three
months ended June 30, 2000 compared to $382,000 for the three months ended June
30, 1999. This increase reflects increased clinical development activities for
the Company's four product candidates. Clinical trial activity 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 expense consists primarily of amortization of
deferred compensation for options granted to employees and consultants, charges
resulting from stock issuances pursuant to restricted stock purchase agreements,
salaries and related benefit costs, facilities expenses, consulting and
professional services expenses, travel and other general corporate expenses.
General and administrative expenses increased to $2.4 million for the three
months ended June 30, 2000 from $279,000 for the three months ended June 30,
1999. This increase was primarily attributable to the hiring of additional
personnel and related expenses, the amortization of deferred compensation, and
increased consulting and professional services expenses. There will be future
non-cash charges for options granted to employees and consultants.
Interest Income
Interest income increased to approximately $233,000 for the three months
ended June 30, 2000 from $24,000 for the period ended June 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.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Research and Development
Research and development expenses increased to $2.8 million for the six
months ended June 30, 2000 from $382,000 for the six months ended June 30, 1999.
This increase reflects increased clinical development activities for our four
product candidates in the current six month period. Clinical trial activity 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 $7.0 million for the six
months ended June 30, 2000 from $397,000 for the six months ended June 30, 1999.
This increase was primarily attributable to the hiring
9
<PAGE> 12
of additional personnel and related expenses, the amortization of deferred
compensation, charges resulting from stock issuances pursuant to restricted
stock purchase agreements and increased consulting and professional services
expense. There will be future non-cash charges for options granted to employees
and consultants.
Interest Income
Interest income increased to approximately $478,000 for the six months
ended June 30, 2000 from $51,000 for the six months ended June 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.
Return to Series C Preferred Stockholders for Beneficial Conversion Feature
On February 1, 2000 we issued 3,044,018 shares of Series C redeemable
convertible preferred stock for approximately $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
(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 six months ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from the net
proceeds generated from sales of our preferred stock. 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 approximately $15.2 million. We
have allocated approximately $14.2 million of these proceeds to a beneficial
conversion feature which we have treated as a dividend to the preferred
shareholders. As of June 30, 2000, cash and cash equivalents were $20 million.
Net cash used in operating activities was $3.5 million for the six months
ended June 30, 2000 compared to $688,000 for the six months ended June 30, 1999.
Cash used in operating activities related to the funding of net operating losses
partially offset by increases in non-cash compensation, non-cash charges
resulting from stock issuances pursuant to stock purchase agreements and
accounts payable.
Our investing activities used cash of approximately $102,000 for the six
months ended June 30, 2000 compared to $7,000 for the six months ended June 30,
1999. Investing activities consisted of purchases of property and equipment. We
expect to continue to make investments in our infrastructure to support our
operations, including the purchase of property and equipment as well as the
funding of tenant improvements in conjunction with the recently executed
facility lease.
Our financing activities provided cash of $14.3 million for the six months
ended June 30, 2000. Our financing activities consisted primarily of proceeds
from the issuance of our series C preferred stock in February 2000 partially
offset by deferred finance costs incurred in conjunction with our initial public
offering completed in July 2000.
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 $54.7 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 approximately $8.4 million. We
10
<PAGE> 13
have invested the net proceeds of the initial public offering primarily in
short-term, investment grade, interest bearing U.S. government securities.
We currently occupy approximately 3,250 square feet of leased space, for
which the operating lease expires in September 2000. We are in negotiations to
extend the expiration date of our current lease through at least December 2000.
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 will commence in October 2000 through the ten year term of the
lease.
We expect our cash requirements to increase significantly in 2000, as we
continue our research and development efforts, hire and expand our product
development personnel, grow our administrative support activities 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 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.
In March 2000, the FASB issued Interpretation No. 44 of Accounting
Principals Board Opinion No. 25 ("APB 25"), which clarifies the application of
APB 25 as it relates to (i) the definition of employee for purposes of applying
APB 25, (ii) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (iii) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award and (iv) the accounting
for an exchange of stock compensation awards in a business combination.
Interpretation No. 44 is effective on July 1, 2000. We believe that the
implementation of Interpretation No. 44 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 U.S. interest rates.
This exposure is directly related to our normal operating activities. Our cash,
cash equivalents and short-term investments 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.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended June 30, 2000 we granted options to purchase
210,000 shares of common stock to employees under our 1998 Stock Plan. During
the three months ended June 30, 2000 employees and non-employees exercised
options for 139,949 shares of common stock. The issuance of these restricted
securities were deemed to be exempt from registration under the Act in reliance
upon Section 4 (2) of the Act or Rule 701 promulgated under Section 3 (b) of the
Act.
On July 19, 2000 we completed our initial public offering of 5,000,000
shares of our common stock at an initial public offering price of $12.00 per
share for gross proceeds of $60 million and estimated net proceeds of
approximately $54.7 million. We paid a total of approximately $4.2 million in
underwriting discounts and commissions and estimate other costs and expenses,
other than underwriting discounts and commissions, will total approximately $1.1
million in connection with the offering. The managing underwriters in the
offering were Thomas Weisel Partners LLC, CIBC World Markets and Tucker Anthony
Cleary Gull. The shares of common stock sold in the offering were registered
under the Act in a Registration Statement on Form S-1, as amended (No.
333-32370). The Securities and Exchange Commission declared the Registration
Statement effective on July 13, 2000.
Furthermore, on July 27, 2000 the underwriters exercised their
over-allotment option for an additional 750,000 shares of our common stock at
the initial public offering price of $12.00 per share for gross proceeds of
$9,000,000 and net proceeds of approximately $8.4 million. We paid a total of
approximately $630,000 in underwriting discounts and commissions in connection
with the exercise of the over-allotment option. From the time of receipt through
July 31, 2000 all of the net proceeds were invested primarily in short-term,
investment grade, interest bearing U.S. government securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In March 2000, prior to our initial public offering, our stockholders,
acting by written consent approved our amended and restated certificate of
incorporation to be in effect upon closing of the initial public offering. Also
prior to our initial public offering, in June 2000, our stockholders, acting by
written consent approved our 2000 Employee Stock Purchase Plan, certain
amendments to our 1998 Stock Plan and our amended bylaws to be in effect upon
closing of the initial public offering.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 Lease Agreement dated July 21, 2000 between the Registrant
and Goss-Jewett Company of Northern California
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 June 30, 2000.
12
<PAGE> 15
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: August 11, 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
13
<PAGE> 16
PAIN THERAPEUTICS, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE NO.
----------- --------
<C> <S> <C>
10.1 Lease Agreement dated July 21, 2000 between the Registrant
and Goss-Jewett Company of Northern California..............
27.1 Financial Data Schedule. ...................................
</TABLE>
14
