<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------------------------
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------------------------
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 0-29801
---------------------------------
INTERMUNE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3296648
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1710 GILBRETH ROAD, SUITE 301, BURLINGAME, CALIFORNIA 94010
(Address of principal executive offices)
(650) 409-2020
(Registrant's telephone number, including area code)
---------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
COMMON STOCK, $.001 PAR VALUE NASDAQ NATIONAL MARKET SYSTEM
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES NO X
--- ---
AS OF MAY 1, 2000, THERE WERE 21,963,860 OUTSTANDING SHARES OF
COMMON STOCK, PAR VALUE $.001 PER SHARE, OF INTERMUNE PHARMACEUTICALS, INC.
This report on Form 10-Q/A contains 13 pages.
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<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
ITEM PART I. FINANCIAL INFORMATION NUMBER
------
<S> <C> <C>
1. Financial Statements (unaudited):
a. Condensed Balance Sheets at December 31, 1999 and March 31, 2000.......................... 3
b. Condensed Statements of Operations for the three months ended March 31, 1999 and 2000
and for the period from February 25, 1998 (inception) to March 31, 2000.................. 4
c. Condensed Statements of Cash Flows for the three months ended March 31, 1999 and 2000
and for the period from February 25, 1998 (inception) to March 31, 2000.................. 5
d. Notes to Condensed Financial Statements................................................... 6-8
2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 8-10
3. Quantitative and Qualitative Disclosures about Market Risk.................................... 10
PART II. OTHER INFORMATION
2. Changes in Securities and Use of Proceeds...................................................... 11
4. Submission of Matters to a Vote of Security Holders............................................ 11
6. Exhibits and Reports on Form 8-K............................................................... 12
Signatures..................................................................................... 13
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERMUNE PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................. $ 3,772,110 $ 127,399,645
Short-term investments, available for sale................................. 442,184 11,882,618
Accounts receivable, net................................................... 409,392 81,477
Receivable from Connetics.................................................. -- 746,447
Inventories................................................................ 831,145 280,910
Notes receivable from officer.............................................. 103,750 105,625
Other current assets and prepaid expenses ................................. 18,696 652,091
----------------- -----------------
Total current assets..................................................... 5,577,277 141,148,813
Office equipment, net......................................................... 27,901 407,316
Restricted cash balance....................................................... 250,000 250,000
----------------- -----------------
$ 5,855,178 $ 141,806,129
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable .......................................................... $ 1,809,028 $ 2,076,954
Accrued offering costs..................................................... -- 550,000
Accrued payroll............................................................ 93,652 178,827
Payable to Connetics....................................................... 538,434 --
Royalty payable to Genentech............................................... 1,913,785 861,854
----------------- -----------------
Total current liabilities................................................ 4,354,899 3,667,635
Long-term obligations payable to Connetics.................................... 1,624,343 1,667,357
Redeemable convertible preferred stock........................................ 7,416,427 --
Commitments
Stockholders' equity (deficit):
Convertible preferred stock, $ .001 par value; authorized:
5,000,000 shares; 1,835,000 shares at December 31, 1999 and
none at March 31, 2000................................................... 4,506,804 --
Common stock, $.001 par value; authorized: 45,000,000 shares; issued
and outstanding: 1,890,833 shares at December 31, 1999 and 21,963,860
shares at March 31, 2000................................................. 1,891 21,964
Additional paid-in capital................................................. 5,657,273 167,705,575
Deferred compensation related to stock options............................. (5,285,860) (13,110,910)
Notes receivable from stockholder.......................................... -- (89,600)
Accumulated other comprehensive income (loss).............................. 41 (3,196)
Deficit accumulated during the development stage........................... (12,420,640) (18,052,696)
----------------- -----------------
Total stockholders' equity (deficit)..................................... (7,540,491) 136,471,137
----------------- -----------------
$ 5,855,178 $ 141,806,129
================= =================
</TABLE>
See accompanying notes to Condensed Financial Statements.
3
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
FEBRUARY 25,
THREE MONTHS ENDED 1998
MARCH 31, (INCEPTION) TO
---------------------------------- MARCH 31,
1999 2000 2000
-------------- ----------------- -----------------
<S> <C> <C> <C>
Product sales, net......................... $ -- $ 105,967 $ 662,368
Costs and expenses:
Cost of goods sold........................ -- 55,470 295,272
Research and development.................. 489,320 4,037,059 8,155,237
Selling, general and administrative....... 392,946 1,294,724 4,584,391
Amortization of deferred compensation..... -- 758,440 1,103,451
Acquired pre-FDA approval rights.......... -- -- 5,093,750
-------------- ----------------- -----------------
Total costs and expenses............... 882,266 6,145,693 19,232,101
-------------- ----------------- -----------------
Loss from operations...................... (882,266) (6,039,726) (18,569,733)
Other income (expense):
Interest income.......................... 58,160 497,685 792,994
Interest expense......................... -- (90,015) (275,957)
-------------- ----------------- -----------------
Net loss................................... $(824,106) (5,632,056) (18,052,696)
==============
Preferred stock accretion.................. (268,970) (925,735)
Deemed redeemable preferred stock dividend. (27,762,000) (27,762,000)
----------------- -----------------
Net loss applicable to common stockholders. $(33,663,026) $(46,740,431)
================= =================
Historical basic and diluted net
loss per common share..................... $ (11.17)
=================
Shares used in computing historical
net loss per common share................. 3,014,374
=================
Pro forma basic and diluted net loss per
common share.............................. $(0.12) $ (2.33)
============== =================
Shares used in computing pro forma basic and
diluted net loss per common share......... 6,635,000 14,338,484
============== =================
</TABLE>
See accompanying notes to Condensed Financial Statements.
4
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
THREE MONTHS ENDED FEBRUARY 25, 1998
MARCH 31, (INCEPTION) TO
------------------------------------ MARCH 31,
1999 2000 2000
---------------- ---------------- --------------------
<S> <C> <C> <C>
Cash flows used for operating activities:
Net loss..................................................... $(824,106) $(5,632,056) $(18,052,696)
Adjustments to reconcile net loss to net cash used
for operating activities:
Amortization of deferred compensation..................... -- 758,440 1,103,451
Compensation related to vested stock options issued to
consultants for services................................ -- 687,088 687,088
Accretion of long-term obligations payable to parent
(Connetics)........................................... -- 43,014 153,688
Stock issued for acquired pre-FDA approval rights......... -- -- 5,093,750
Forgiveness of related party obligation................... -- -- 253,000
Depreciation ............................................. -- 13,744 16,308
Changes in operating assets and liabilities:
Current and other assets.................................. (138,005) 242,880 (1,370,103)
Current liabilities....................................... 348,771 903,101 2,805,781
Payable to Connetics...................................... 46,233 (1,284,881) (1,246,447)
Royalty payable to Genentech.............................. 439,526 (1,051,931) 861,854
---------------- ---------------- --------------------
Net cash used for operating activities................. (127,581) (5,320,601) (9,694,326)
Cash flows from investing activities:
Purchase of capital and equipment............................ -- (393,159) (423,624)
Purchases of short-term investments.......................... (167,860) (135,622,450) (171,228,953)
Sales and maturities of short-term investments............... 122,577 124,178,779 159,343,139
---------------- ---------------- --------------------
Net cash used for investing activities................. (45,283) (11,836,830) (12,309,438)
Cash flows from financing activities:
Contributed capital for preferred stock...................... -- -- 6,395,600
Return of capital to Parent (Connetics)...................... -- (1,000,000) (6,221,877)
Net proceeds from initial public offering of common stock.... -- 115,528,473 115,528,473
Proceeds from redeemable preferred stock..................... -- 25,838,146 32,597,808
Proceeds from issuance of common stock....................... -- -- 663,350
Proceeds from exercise of stock options...................... -- 418,347 440,847
Repurchase of restricted stock............................... -- -- (792)
---------------- ---------------- --------------------
Net cash provided by financing activities.............. -- 140,784,966 149,403,409
---------------- ---------------- --------------------
Net increase (decrease) in cash and cash equivalents ........... (172,864) 123,627,535 127,399,645
Cash and cash equivalents at beginning of period................ 2,314,781 3,772,110 --
---------------- ---------------- --------------------
Cash and cash equivalents at end of period...................... $2,141,917 $127,399,645 $127,399,645
================ ================ ====================
Supplemental disclosure of cash flow information:
Return of capital on obligation to Parent (Connetics)..... -- -- $(2,013,669)
Long-term obligation on return of capital................. -- -- 1,513,669
Short-term obligation on return of capital................ -- 500,000 1,000,000
Deferred stock compensation............................... -- 8,583,490 14,214,361
</TABLE>
See accompanying notes to Condensed Financial Statements.
5
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the opinion of the management of InterMune Pharmaceuticals, Inc.,
("InterMune," "we," "our," or "us"), the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly our financial position, results of
operations and cash flows for the periods presented. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to 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 amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with our financial statements and
notes thereto for the year ended December 31, 1999, which are contained in
our Registration Statement filed on Form S-1, as amended, declared effective
by the Securities and Exchange Commission on March 23, 2000 (File No.
333-96029). The results of operations for the interim periods presented are
not necessarily indicative of results that may be expected for any other
interim period or for the full fiscal year.
REVENUE RECOGNITION
Revenues from product sales are recognized upon shipment, net of
allowances for estimated returns, rebates and chargebacks. We are obligated
to accept from customers the return of pharmaceuticals that have reached
their expiration date. We monitor product ordering cycles and actual returns,
product date codes and wholesale inventory levels to estimate potential
product return rates. We believe that our product return reserves are
adequate, and we have not experienced any significant returns of expired
product.
Sales and related costs of sales and accounts receivable for sales
below the baseline amount are transacted for Connetics Corporation under the
Transition Agreement, dated April 27, 1999, that expires December 31, 2001.
For sales below the baseline amount, any amounts in excess of net revenues
less costs to produce and market are paid to Connetics under the Transition
Agreement. These sales, costs of sales and amounts receivable are recorded by
us on a net basis, which is equivalent to zero in the accompanying financial
statements. Thus, we do not record receivables or product returns for sales
transacted for Connetics in their financial statements. Such sales, costs of
sales and accounts receivable are not subject to the risks and rewards of
ownership by us.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist of highly liquid investments with
original maturities when purchased of less than three months. We consider
investments with maturities beyond three months at the date of acquisition
and that mature within one year from the balance sheet date to be short-term
investments. We carry cash equivalents and short-term investments at fair
value, with unrealized gains and losses, net of tax, as a separate component
of stockholders' equity. The cost of securities sold is based on the specific
identification method.
Cash in excess of immediate requirements is invested with regard to
liquidity and return and, wherever possible, we seek to minimize the
potential effects of concentration and degrees of risk.
Investment securities are classified as available-for-sale and
unrealized holding gains and losses are included in comprehensive income
(loss). In accordance with Statement of Financial Standards (SFAS) No. 115,
6
<PAGE>
Accounting for Certain Investments in Debt and Equity Securities Realized
gains or losses, calculated based on the specific identification method, were
not material for any period.
NET LOSS PER SHARE
In accordance with SFAS No. 128, Earnings Per Share, and SEC Staff
Accounting Bulletin (or SAB) No. 98, basic net income (loss) per share is
computed by dividing the net income (loss) for the period by the weighted
average number of common shares outstanding during the period. Shares subject
to repurchase are deducted from the outstanding shares in arriving at the
weighted average shares outstanding. Diluted net income (loss) per share is
computed by dividing the net income (loss) for the period by the weighted
average number of common and common equivalent shares outstanding during the
period. We excluded potentially dilutive securities, composed of incremental
common shares issuable upon the exercise of stock options and common shares
issuable on conversion of preferred stock, from historical diluted loss per
share because of their anti-dilutive effect. No earnings per share
information is presented for the three months ended March 31, 1999, as
InterMune was a wholly owned subsidiary of Connetics.
Pro forma net loss per share has been computed as described above
and also gives effect to common equivalent shares arising from preferred
stock that automatically converted upon the closing of the Company's initial
public offering on March 24, 2000 (using the as-if converted method from
original date of issuance). For the three months ended March 31, 1999, the
pro forma shares also reflect the common equivalent shares of preferred and
common stock issued on April 27, 1999 in connection with the reorganization
as though they had been outstanding for the entire period. The pro forma net
loss per share of the three months ended March 31, 2000, includes the impact
of the deemed preferred stock dividend and excludes the preferred stock
accretion.
The calculation of historical and pro forma basic and diluted net
loss per share is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
FEBRUARY 25,
THREE MONTHS ENDED 1998
MARCH 31, (INCEPTION) TO
---------------------------------- MARCH 31,
1999 2000 2000
-------------- ----------------- -----------------
<S> <C> <C> <C>
Actual:
Net loss................................ $(824) $(5,632) $(18,053)
Preferred stock accretion.............. -- (269) (926)
Deemed dividend to preferred
shareholders.......................... -- (27,762) (27,762)
-------------- ----------------- -----------------
Net loss allocable to common
Shareholders.......................... $(824) $(33,663) $(46,741)
============== ================= =================
Historical basic and diluted:
Weighted-average shares of
common stock outstandings............. 4,264
Less: weighted-average shares
subject to repurchase................. (1,250)
-----------------
Weighted-average shares used in
computing basic and diluted net
loss per common share................. 3,014
=================
Basic and diluted net loss per
Common share.......................... $(11.17)
=================
Pro forma basic and diluted:
Net loss allocable to common
stockholders.......................... $(824) $(33,663)
Add: Preferred stock accretion......... -- 269
-------------- -----------------
Net loss before preferred stock
accretion............................. $(824) $(33,394)
============== =================
Shares used above...................... -- 3,014
Pro forma adjustment to reflect
weighted average effect of assumed
conversion of preferred stock......... -- 11,324
Pro forma adjustment to reflect the
common equivalent shares of preferred
and common stock issued in connection
with the reorganization............... 6,635 --
Weighted-average shares used in
computing pro forma basic and
diluted net loss per common -------------- -----------------
share................................. 6,635 14,338
============== =================
Pro forma basic and diluted net
loss per common share................. $(0.12) $(2.33)
============== =================
</TABLE>
DEFERRED COMPENSATION
We have recorded deferred compensation for options granted in fiscal
year 1999 and the three-month period ended March 31, 2000. As of March 31,
2000, we had recorded aggregate deferred stock compensation of $14.2 million,
representing the difference between the deemed fair value of our common stock
for financial reporting purposes on the date such options were granted and
the applicable exercise prices. Such amount is included as a reduction of
stockholders' equity and is being amortized using the graded vesting method
over the vesting period of the individual options, which is generally five
years. This graded vesting method provides for vesting of portions of the
overall award at interim dates and results in higher vesting in earlier years
than straight-line vesting. The total charges to be recorded in future
periods from amortization of deferred stock compensation as of March 31, 2000
are anticipated to be approximately $5.8 million, $3.8 million, $2.1 million,
$1.0 million and $0.4 million for the remaining nine months of 2000, and for
2001, 2002, 2003 and 2004, respectively.
FINANCING ACTIVITIES
On January 7 and 27, 2000, we issued an aggregate of 4,876,916
shares of Series B redeemable convertible preferred stock at $5.59 per share
for aggregate proceeds of $27.3 million. We incurred approximately $1.5
million of issuance costs, including 120,000 shares of Series B redeemable
convertible preferred stock valued at $5.59 per share paid as a commission to
the private placement agent.
On January 7, 2000, pursuant to the terms of the collaboration
agreement with Connetics, we also issued to Connetics 89,445 shares of Series
B convertible preferred stock.
We recorded a deemed dividend of $27.8 million in January 2000, upon
the issuance of the 4,876,916 shares of Series B redeemable preferred stock.
At the dates of issuance, we believed the per share price of $5.59
represented the fair value of the preferred stock and was in excess of the
deemed fair value of our common stock. Subsequent to the commencement of our
initial public offering process, we re-evaluated the deemed fair market value
of our common stock as of January 2000 and determined it to be $12.60 to
$14.40 per share. Accordingly, the incremental fair value is deemed to be the
equivalent of a preferred stock dividend. We recorded the deemed dividend at
the date of issuance by offsetting charges and credits to additional paid in
capital of $27.8 million, without any effect on total stockholders' equity.
The amount increased the loss applicable to common stockholders in the
calculation of basic net loss per share for the first quarter of 2000.
On March 29, 2000, we closed our initial public offering, in which
we sold 6,250,000 shares of our common stock at a price of $20.00 per share,
raising $125.0 million in gross proceeds. We received offering proceeds, net
of approximately $8.8 million in aggregate underwriters discounts and
commissions and $1.0 million in estimated related expenses, of approximately
$115.2 million. On the closing of the initial public offering, each
outstanding share of our preferred stock was converted into one share of
common stock.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion in this report on Form 10-Q contains forward-looking
statements that involve risks and uncertainties. The statements contained in
this Report that are not purely historical are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding our expectations, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in this
document are based on information available to us on the date hereof, and we
assume no obligation to update any such forward-looking statements. Our
actual results could differ materially from those described in our
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed under the
heading "Risk Factors" and the risks and factors discussed in our
Registration Statement on Form S-1 declared effective on March 23, 2000 by
the Securities and Exchange Commission (File No. 333-96029).
InterMune's business is subject to significant risks, including, but
not limited to:
- those discussed under the heading "Risk Factors" and the risks and
factors discussed in our Registration Statement on Form S-1 declared
effective on March 23, 2000 by the Securities and Exchange Commission
(File No. 333-96029);
- the success of our research, development, commercialization, product
acceptance and capital raising efforts;
- uncertainties associated with obtaining and enforcing patents important
to our business;
- the lengthy and expensive regulatory process; and
- possible competition from other products.
Even if our products appear promising at any stage of development,
they may not reach the market for a number of reasons. Such reasons include,
but are not limited to the possibilities that the potential products will:
- be found ineffective during clinical trials,
- fail to receive the necessary regulatory approvals,
- be difficult to manufacture on a large scale,
- be uneconomical to market or
- be precluded from commercialization by the proprietary rights of third
parties.
Additional expenses, delays and losses of opportunities that may
arise out of these and other risks could have a material adverse impact on
our financial condition, results of operations and cash flows.
OVERVIEW
InterMune was formed in 1998 and began operations as a wholly owned
subsidiary of Connetics Corporation. We licensed from Genentech, Inc. and
Connetics the exclusive U.S. rights to ACTIMMUNE (Interferon gamma-1b)
Injection, an FDA-approved product. We currently market ACTIMMUNE in the
United States for the treatment of chronic granulomatous disease and
osteopetrosis. We have the rights and plan to develop ACTIMMUNE for a range
of diseases including idiopathic pulmonary fibrosis, infectious diseases and
cystic fibrosis.
We have sustained losses on a quarterly and an annual basis since
inception. As of March 31, 2000, we had an accumulated deficit of $18.1
million. Our net loss from operations was $6.0 million for the three-month
period ended March 31, 2000, and $0.9 million for the same period in 1999.
These losses resulted from significant costs incurred in the development and
marketing of our product.
Our expenses have consisted primarily of costs incurred in research
and development, sales and marketing and from general and administrative
costs associated with our operations. We expect our research and development
expenses to increase as we continue to commercialize ACTIMMUNE. Expansion of
our operations and the additional obligations of a public reporting entity
will also add to our expenses. As a result, we expect to incur losses for the
foreseeable future.
We have a limited history of operations and anticipate that our
quarterly results of operations will fluctuate for the foreseeable future due
to several factors, including market acceptance of current or new products,
patent conflicts, the introduction of new products by our competitors, the
timing and extent of our research and development efforts, and the timing of
significant orders. Our limited operating history makes accurate prediction
of future operating results difficult or impossible.
8
<PAGE>
Total sales of ACTIMMUNE, as reported by us to Connetics, were $1.8
million and $1.1 million for the three-month periods ended March 31, 2000 and
1999, respectively. Product sales as reported by InterMune for either the
three months ended March 31, 2000 or March 31, 1999 are not necessarily
indicative of product sales for any future period.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUE. Total revenues were $105,967 and $0 for the three
month-periods ended March 31, 2000 and 1999, respectively. The revenues in
2000 represent sales of ACTIMMUNE related to a new supply arrangement outside
the United States. The annual contractual baseline for ACTIMMUNE sales
established with Connetics increases nominally each year, until December 31,
2001, when it will be discontinued. Sales transacted for Connetics below the
annual contractual baseline are recorded on a net basis, which are zero, and
any amounts in excess of net revenues less costs to produce and market are
paid to Connetics.
COST OF GOODS SOLD. We recognized a total of $55,470 and $0 for the
three-month periods ended March 31, 2000 and 1999, respectively. Cost of
goods sold includes all product cost of goods sold including manufacturing
costs, royalties and distribution costs associated with our revenues. There
were no product sales in the period in 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $3,547,739 or 725%, to $4,037,059 for the three-month period
ended March 31, 2000, compared to $489,320 for the three-month period ended
March 31, 1999. The increase was due primarily to increased costs for
clinical trial expenses for ACTIMMUNE in new disease indications and the
expenses associated with our transfer of ACTIMMUNE to an additional
manufacturing facility. These costs have been recorded as research and
development expenses as the new facility is not yet operational. We expect
research and development expenses to increase significantly over the next
several years.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $1,294,724 and $392,946 for the three-month
periods ended March 31, 2000 and 1999, respectively, representing an
increase of 229%. This increase is attributable primarily to increased
staffing and related expenses necessary to manage the expansion of our
operations. We believe that selling, general and administrative expenses will
continue to increase in absolute dollars as a result of the anticipated
expansion of our administrative staff, increased marketing and selling
expenses for ACTIMMUNE in its approved diseases and the expenses associated
with being a public company, including but not limited to annual and public
reporting costs, directors' and officers' liability insurance and investor
relation programs.
AMORTIZATION OF DEFERRED COMPENSATION. We have recorded aggregate
deferred compensation charges of $14.2 million in connection with stock
options granted to our employees and non-employee directors through March 31,
2000. Amortization of deferred compensation was $758,440 and $0 for the
three-month periods ended March 31, 2000 and 1999, respectively. The deferred
compensation amounts are being amortized using the graded vesting method over
the vesting period of the individual options, which is generally five years.
INTEREST INCOME. Interest income increased to $497,685 for the
three-month period ended March 31, 2000, compared to $58,160 for the
three-month period ended March 31, 1999. The increase in interest income was
due to an increase in cash available for investments resulting from the
investment of the net proceeds from sales of our Series B redeemable
convertible preferred stock on January 7 and 27, 2000, and sale of our common
stock in our initial public offering, which closed on March 29, 2000.
INTEREST EXPENSE. Interest expense increased to $90,015 for the
three-month period ended March 31, 2000, compared to $0 for the three-month
period ended March 31, 1999. The increase in interest expense was due to
9
<PAGE>
$43,212 of imputed interest expense on the long-term obligation to Connetics
and $46,803 interest expense on the royalty payable obligation to Genentech,
Inc.
DEEMED DIVIDEND UPON ISSUANCE OF CONVERTIBLE PREFERRED STOCK. We
recorded a deemed dividend of $27,762,000 in January 2000, upon the issuance
of 4,876,916 shares of Series B redeemable preferred stock. At the dates of
issuance, we believed the per share price of $5.59 represented the fair value
of the preferred stock and was in excess of the deemed fair value of our
common stock. Subsequent to the commencement of our initial public offering
process, we re-evaluated the deemed fair value of our common stock as of
January 2000 and determined it to be $12.60 to $14.40 per share. Accordingly,
the incremental fair value is deemed to be the equivalent of a preferred
stock dividend. We recorded the deemed dividend at the date of issuance by
offsetting charges and credits to additional paid in capital of $27,762,000,
without any effect on total stockholders' equity. The amount increased the
loss applicable to common stockholders in the calculation of basic net loss
per share for first quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
For the three-month period ended March 31, 2000, cash expenditures
for operating activities and additions to capital equipment were $5,713,760.
We anticipate that these expenditures will increase significantly in future
periods.
At March 31, 2000, we had available cash, cash equivalents and
short-term investments of $139,282,263. Our cash reserves are held in a
variety of interest-bearing instruments including high-grade corporate bonds,
commercial paper and money market accounts. Cash in excess of immediate
requirements is invested with regard to liquidity and return and, wherever
possible. We seek to minimize the potential effects of concentration and
degrees of risk.
At December 31, 1999, we had deferred payment of the royalties due
Genentech for 1999 of approximately $1.9 million under a series of
interest-bearing promissory notes that became due upon the closing of our
initial public offering on March 29, 2000. Genentech did not exercise their
option to convert these promissory notes into shares of our stock at a price
per share sold in our most recent financing. In March 2000, we paid all
monies due to Genentech in cash.
In addition, we made a cash payment of $1.0 million to Connetics
upon the closing of our initial public offering. This obligation was payable
at our option in cash or stock, and was contingent upon the closing of a
round of financing, an initial public offering or an acquisition of our
company. We recorded this payment as a "return of capital to parent."
We believe our existing cash, cash equivalents and short-term
investments, together with cash flows will be sufficient to fund our
operating expenses, debt obligations and capital requirements through at
least the end of 2001. Therefore, our capital requirements may increase in
future periods. As a result, we may require additional funds and may attempt
to raise additional funds through equity or debt financings, collaborative
arrangements with corporate partners or from other sources. We have no
commitments for any additional financings, additional funding may not be
available to finance our operations when needed or, if available, the terms
for obtaining such funds may not be favorable or may result in dilution to
our stockholders.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is confined to our cash and cash
equivalents, which have maturities of less than three months. We maintain an
investment portfolio of depository accounts, master notes and liquidity
optimized investment contracts. The securities in our investment portfolio
are not leveraged, are classified as available-for-sale and are, due to their
very short-term nature, subject to minimal interest rate risk. We currently
do not hedge interest rate exposure. Because of the short-term maturities of
our investments, we do not believe that an increase in market rates would
have any negative impact on the realized value of our investment portfolio.
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<PAGE>
PART II - OTHER INFORMATION
INTERMUNE PHARMACEUTICALS, INC.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
1. In January 2000, we issued 4,876,916 aggregate shares of Series B
redeemable convertible preferred stock at $5.59 per share, for aggregate
cash proceeds of $27,262,000 and incurred approximately $1.5 million of
issuance costs, including 120,000 shares of Series B redeemable
convertible preferred stock valued at $5.59 per share. In addition, in
January 2000, pursuant to the terms of the collaboration agreement with
Connetics Corporation, InterMune issued to Connetics 89,445 shares of
series B convertible preferred stock. All of the preferred stock issued in
January 2000 was exempt from registration pursuant to Regulation D of the
Securities Act of 1933, as amended. All of InterMune's outstanding
preferred stock was converted into outstanding common stock upon the
closing of our initial public offering on March 29, 2000.
2. On March 29, 2000, we closed our initial public offering, at $20.00
per share, of 6,250,000 shares of common stock, pursuant to a registration
statement on Form S-1 as amended (Commission File No. 333-96029) that the
SEC had declared effective on March 23, 2000. The offering terminated
following the sale of 6,250,000 shares of registered securities. The
managing underwriters of the public offering were Warburg Dillon Read LLC,
Chase H&Q and Prudential Vector Securities. The aggregate offering price of
the shares offered by InterMune was $125.0 million, less underwriting
discounts and commissions of $8.8 million and expenses of approximately
$1.0 million. The offering proceeds of $115.2 million were to be and are
being used for clinical development and commercialization of our existing
products, working capital, payment of existing debt for royalties payable,
payment of obligations to Connetics, in-licensing new products and general
corporate purposes. The underwriters held a 30-day overallotment option to
purchase an additional 937,500 shares of our registered securities that
expired on April 24, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
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<PAGE>
During the quarter ended March 31, 2000, we submitted one matter to our
shareholders by written consent in lieu of a shareholders meeting by which
our shareholders approved on March 20, 2000, among other things:
- InterMune's reincorporation in Delaware;
- an Amended and Restated Delaware Certificate of
Incorporation to be filed following the closing of the
initial public offering, which, among other things,
authorized 45,000,000 shares of common stock and 5,000,000
shares of preferred stock;
- an amendment and restatement of InterMune's Bylaws, which,
among other things:
(a) prohibit stockholders from calling a special
meeting of stockholders,
(b) enable the board of directors and/or at least
two-thirds of the stockholders to amend the
bylaws and
(c) provide for indemnification of officers and
directors of the Company to the full extent
authorized or permitted by Delaware law;
- InterMune's 2000 Equity Incentive Plan;
- InterMune's Employee Stock Purchase Plan;
- InterMune's 2000 Non-Employee Directors' Stock Option Plan;
- the form of indemnification agreement to be entered into
with each of InterMune's officers and directors;
- a classified board of directors with three classes;
- the board members' ability to elect directors and fix the
number of directors under specific circumstances;
- elimination of stockholder actions by written consent; and
- advance notice requirements for stockholders wishing to
propose business or director nominations to be brought
before a meeting of the stockholders.
There were no votes against any of the matters, and the number of shares of
each class and series outstanding cast for and/or withheld was as follows:
<TABLE>
<CAPTION>
IN FAVOR WITHHELD
--------------- -------------
<S> <C> <C>
Series A-1 Preferred Stock............ 1,835,000 None
Series A-2 Preferred Stock............ 6,000,000 None
Series B Preferred Stock.............. 4,821,554 144,807
Common Stock.......................... 1,640,833 1,151,666
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herein:
(10.20) Form of Change of Control Provisions for Officers.(*)
(10.21) Employment Offer Letter, dated February 21, 2000, between
Registrant and David Cory.(*)
(10.22) Employment Offer Letter, dated March 3, 2000, between
Registrant and Stephen N. Rosenfield.(*)
(27) Financial Data Schedule.
(*) Filed as an exhibit to InterMune's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000.
(b) Reports on Form 8-K
During the quarter ended March 31, 2000, we filed no Current Reports
on Form 8-K.
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<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
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.
Date: October 30, 2000 InterMune Pharmaceuticals, Inc.
----------------------------
By: /s/ TIMOTHY P. LYNCH
----------------------------------
Timothy P. Lynch
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer and Duly
Authorized Officer)
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