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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File No. 0-31261
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ATHEROGENICS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-2108232
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(State of incorporation) (I.R.S. Employer Identification Number)
8995 WESTSIDE PARKWAY, ALPHARETTA, GEORGIA 30004
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(Address of registrant's principal executive offices, including zip code)
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(Registrant's telephone number, including area code): (678) 336-2500
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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 ](1) No [ ]
As of November 1, 2000, there were 23,888,995 shares of the registrant's
common stock outstanding.
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(1) The registrant commenced its initial public offering of common
stock August 9, 2000 and closed the offering on August 14, 2000.
The registrant has filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934, but it has not been subject to
such filing requirements for the past 90 days.
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ATHEROGENICS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
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<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets 3
September 30, 2000 and December 31, 1999
Condensed Statements of Operations 4
Three months ended September 30, 2000 and 1999 and nine months ended
September 30, 2000 and 1999
Condensed Statements of Cash Flows 5
Nine months ended September 30, 2000 and 1999
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission Of Matters To A Vote Of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
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SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ATHEROGENICS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ........................................ $ 56,376,187 $ 13,409,450
Receivables ...................................................... 873,420 791,653
Interest and other receivables ................................... 272,687 32,708
Prepaid expenses ................................................. 450,844 56,911
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Total current assets ..................................... 57,973,138 14,290,722
Equipment and leasehold improvements, net of accumulated
depreciation ...................................................... 1,696,321 1,234,633
Long-term note receivable ............................................ 179,343 191,859
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Total assets ...................................................... $ 59,848,802 $ 15,717,214
============= ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable ................................................. $ 601,428 $ 679,142
Accrued liabilities .............................................. 713,850 285,600
Accrued development costs ........................................ 624,118 240,000
Current portion of capitalized lease obligation .................. 129,381 101,408
Current portion of deferred revenues ............................. 1,944,444 3,333,333
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Total current liabilities ................................ 4,013,221 4,639,483
Long-term portion of capitalized lease obligation .................... 94,354 61,854
Long-term portion of deferred revenues ............................... -- 1,111,111
Redeemable convertible preferred stock:
Series A, $1 par and liquidation value ............................ -- 1,000,000
Series B, $3 par and liquidation value ............................ -- 13,704,499
Series C, $3 par and liquidation value ............................ -- 24,006,992
Preferred stock warrants .......................................... -- 481,875
Common shareholders' equity (deficit):
Common stock, no par value:
Authorized - 100,000,000 shares at September 30, 2000 and
21,100,000 shares at December 31, 1999; issued and
outstanding - 23,888,995 shares at September 30, 2000 and
2,536,543 shares at December 31, 1999
103,578,866 2,209,962
Warrants ........................................................... 225,713 --
Deferred stock compensation ........................................ (7,932,933) (1,809,680)
Accumulated deficit .................................................. (40,130,419) (29,688,882)
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Total common shareholders' equity (deficit) ...................... 55,741,227 (29,288,600)
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Total liabilities, redeemable convertible preferred stock and
shareholders' equity (deficit) .................................. $ 59,848,802 $ 15,717,214
============= ============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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ATHEROGENICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
License fees ....................................... $ 833,333 $ -- $ 2,499,999 $ --
Research and development ........................... 1,071,822 -- 3,560,486 --
------------ ------------ ------------ ------------
Total revenues ............................. 1,905,155 -- 6,060,485 --
Operating expenses:
Research and development, excluding
amortization of deferred stock
compensation ....................................... 3,597,324 2,330,192 9,211,361 6,147,379
General and administrative, excluding
amortization of deferred stock
compensation ....................................... 764,967 625,530 2,126,506 1,806,709
Amortization of deferred stock
compensation ....................................... 2,018,616 1,878 5,970,675 2,103
------------ ------------ ------------ ------------
Total operating expenses ..................... 6,380,907 2,957,600 17,308,542 7,956,191
------------ ------------ ------------ ------------
Operating loss ........................................ (4,475,752) (2,957,600) (11,248,057) (7,956,191)
Net interest income (expense) ......................... 512,221 95,501 806,520 (225,300)
------------ ------------ ------------ ------------
Net loss .............................................. $ (3,963,531) $ (2,862,099) $(10,441,537) $ (8,181,491)
============ ============ ============ ============
Net loss per share - basic and diluted ................ $ (0.30) $ (1.17) $ (1.66) $ (3.37)
Weighted average shares outstanding -
basic and diluted ................................. 13,399,032 2,445,312 6,295,537 2,427,986
Pro forma net loss per share - basic and diluted ...... $ (0.20) $ (0.20) $ (0.59) $ (0.71)
Pro forma weighted average shares outstanding -
basic and diluted ................................ 20,174,593 14,311,371 17,705,747 11,571,763
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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ATHEROGENICS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................................. $(10,441,537) $ (8,181,491)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ..................................... 316,755 182,567
Amortization of deferred stock compensation ....................... 5,970,675 2,103
Amortization of debt discount ..................................... -- 235,750
Stock issued for services ......................................... 60,652 49,998
Stock issued for interest ......................................... -- 271,071
Deferred revenues ................................................. (2,500,000) --
Changes in operating assets and liabilities:
Interest and other receivables ................................ (227,463) (18,843)
Receivables ................................................... (81,767) --
Prepaid expenses .............................................. (393,933) (36,963)
Accounts payable .............................................. (77,714) (1,238,782)
Accrued liabilities ........................................... 812,368 (1,192,107)
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Net cash used in operating activities .................. (6,561,964) (9,926,697)
INVESTING ACTIVITIES
Purchases of equipment and leasehold improvements .................... (555,943) (336,947)
FINANCING ACTIVITIES
Payments on capital lease ............................................ (162,027) (147,151)
Proceeds from the issuance of preferred stock, Series C .............. -- 17,535,923
Proceeds from the issuance of common stock ........................... 49,429,251 --
Proceeds from the exercise of preferred stock warrants ............... 636,635 --
Proceeds from the exercise of common stock options ................... 180,785 8,525
Proceeds from bridge loan financing, net of warrants ................. -- 150,000
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Net cash provided by financing activities ............. 50,084,644 17,547,297
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Increase in cash and cash equivalents ................................ 42,966,737 7,283,653
Cash and cash equivalents at beginning of period ..................... 13,409,450 3,683,423
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Cash and cash equivalents at end of period ........................... $ 56,376,187 $ 10,967,076
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid ........................................................ $ 29,122 $ 24,276
Conversion of bridge loan and accrued interest to preferred stock .... -- 6,421,071
Warrants issued for extension of bridge loan ......................... -- 235,750
Equipment purchased under capitalized lease obligation ............... 222,500 --
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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ATHEROGENICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed financial statements
reflect all adjustments (consisting solely of normal recurring adjustments)
which management considers necessary for a fair presentation of the financial
position, results of operations and cash flows of AtheroGenics for the interim
periods. Certain footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted from the interim financial statements as permitted by the
rules and regulations of the Securities and Exchange Commission. Interim results
are not necessarily indicative of results for the full year. The interim results
should be read in conjunction with the financial statements and notes thereto
included in the AtheroGenics' Registration Statement on Form S-1 (File No.
333-31140) (the "Registration Statement").
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Investments and Hedging Activities." SFAS 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes several
existing standards. SFAS 133, as amended by SFAS 137 and SFAS 138, is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. We do not
expect the adoption of SFAS 133 to have a material impact on our financial
statements.
In December 1999, the SEC staff issued Staff Accounting Bulletin (SAB)
No. 101, "Revenue Recognition in Financial Statements." SAB 101 explains how the
SEC staff applies by analogy the existing rules on revenues recognition to other
transactions not covered by such rules. In March 2000, the SEC issued SAB 101A
that delayed the original effective date of SAB 101 until the second quarter of
2000 for calendar year companies. In June 2000, the SEC issued SAB 101B that
further delayed the effective dated of SAB 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. We do not
expect the adoption of SAB 101 to have a material impact on our financial
statements.
3. NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares of common stock outstanding. Shares associated with stock options and
warrants and the convertible preferred stock are not included because they are
antidilutive.
Pro forma net loss per share is computed using the weighted average
number of common shares outstanding, including pro forma effects of the
automatic conversion of outstanding redeemable convertible preferred stock into
shares of AtheroGenics' common stock effective upon the closing of AtheroGenics'
initial public offering (refer to Note 4) as if such conversion occurred on the
date of original issuance.
The following is a reconciliation of the numerator and denominator of
basic and diluted and pro forma basic and diluted net loss per share amounts:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic and diluted
Net loss ................................... $ (3,963,531) $ (2,862,099) $(10,441,537) $ (8,181,491)
============ ============ ============ ============
Weighted average shares used in
computing basic and diluted net loss
per share .................................. 13,399,032 2,445,312 6,295,537 2,427,986
============ ============ ============ ============
Basic and diluted net loss per share ....... $ (0.30) $ (1.17) $ (1.66) $ (3.37)
------------ ------------ ------------ ------------
Pro forma basic and diluted:
Shares used above .......................... 13,399,032 2,445,312 6,295,537 2,427,986
Pro forma adjustment to reflect weighted
average effect of assumed conversion
of preferred stock ......................... 6,775,561 11,866,059 11,410,210 9,143,777
------------ ------------ ------------ ------------
Pro forma weighted average shares of
common stock outstanding ................... 20,174,593 14,311,371 17,705,747 11,571,763
============ ============ ============ ============
Basic and diluted pro forma loss per
share ...................................... $ (0.20) $ (0.20) $ (0.59) $ (0.71)
============ ============ ============ ============
</TABLE>
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4. DEFERRED STOCK COMPENSATION
During 1999, in connection with the grant of stock options to employees
and directors, AtheroGenics recorded non-cash deferred stock compensation of
$1.9 million, representing the difference between the fair value of common stock
on the dates such options were granted and the exercise prices. During the nine
months ended September 30, 2000 AtheroGenics recorded additional deferred stock
compensation of $12.1 million in connection with grants of stock options. These
amounts are included as a reduction of shareholders' equity and are being
amortized over the vesting periods of the individual options, generally four
years, using the graded vesting method. The 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 fair value of
AtheroGenics common stock for purposes of this calculation was determined based
on the business factors underlying the value of common stock on the date such
option grants were made. During the nine months ended September 30, 2000,
AtheroGenics recorded a total of $6.0 million of amortization of deferred stock
compensation, as compared to $2,103 during the same period in the prior year. At
September 30, 2000, AtheroGenics had a total of $7.9 million remaining to be
amortized over the vesting periods of the stock options.
5. INITIAL PUBLIC OFFERING
On August 8, 2000, AtheroGenics' Registration Statement was declared
effective by the Securities and Exchange Commission. Pursuant to the
Registration Statement, AtheroGenics sold an aggregate of 6,900,000 shares of
its common stock (including the exercise of underwriters' overallotment option)
at $8 per share. AtheroGenics received net proceeds of approximately $49.4
million from its initial public offering, after payment of underwriting
discounts and commissions and estimated offering expenses.
Immediately prior to the closing of the AtheroGenics' initial public
offering on August 14, 2000, all of the outstanding shares of the AtheroGenics'
convertible preferred stock automatically converted into 13,859,102 shares of
common stock. Immediately following the automatic conversion of the preferred
stock, AtheroGenics filed an amended and restated certificate of incorporation.
Under the amended and restated certificate of incorporation, AtheroGenics is
authorized to issue 100,000,000 shares of common stock and 5,000,000 shares of
preferred stock.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read with the financial statements and related footnotes
and Management's Discussion and Analysis of Results of Operations and Financial
Condition included in AtheroGenics' Registration Statement on Form S-1(File No.
333-31140). The results discussed below are not necessarily indicative of the
results to be expected in any future periods. The following discussion contains
forward-looking statements that are subject to risks and uncertainties which
could cause actual results to differ from the statements made.
OVERVIEW
Since our operations began in 1994, we have been engaged in the
discovery and development of novel therapeutics for the treatment of acute and
chronic inflammatory diseases. Our lead product candidate, AGI-1067, is
currently in a Phase II clinical trial for the treatment and prevention of
post-angioplasty restenosis.
To date, we have devoted substantially all of our resources to research
and development. We have not derived any commercial revenues from product sales
and, excluding the effect of certain license fees of a non-recurring nature
received in connection with entering into an exclusive license agreement, we
expect to incur significant losses in most years prior to deriving any such
product revenue. We have incurred significant losses since we began operations
in 1994 and as of September 30, 2000 we had an accumulated deficit of $40.1
million. There can be no assurance if or when we will become profitable. We
expect to continue to incur significant operating losses over the next several
years as we continue to incur increasing research and development costs. We
expect that losses will fluctuate from quarter to quarter and that these
fluctuations may be substantial. Our ability to achieve profitability depends
upon our ability, alone or with others, to complete the successful development
of our product candidates, to obtain required regulatory clearances, and to
manufacture and market our future products. In October 1999 we entered into an
exclusive licensing agreement with Schering-Plough Corporation covering our lead
compound, AGI-1067. Under terms of the agreement, Schering-Plough obtained
exclusive worldwide rights to AGI-1067 and related compounds. Schering-Plough is
responsible for all costs of development and commercialization. Schering-Plough
paid us an initial licensing fee and will pay additional fees upon achievement
of specific development, regulatory and commercial milestones.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues
Total revenues were $1.9 million for the three months ended September
30, 2000, compared to none in 1999. Revenues of $833,333 in 2000 were
attributable to licensing fees from the exclusive license agreement signed in
October 1999 with Schering-Plough. This amount represents the earned portion of
the $5.0 million initial license fee, which is being amortized over
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18 months. Research and development revenues related to such license agreement
were $1.1 million for the three-month period ended September 30, 2000.
Expenses
Research and Development. Research and development expenses were $3.6
million for the three months ended September 30, 2000, compared to $2.3 million
for the three months ended September 30, 1999. The increase of $1.3 million, or
57%, reflects the continued expansion of our internal research and development
capabilities, higher costs associated with the AGI-1067 clinical trials and
pre-clinical costs related to our other product development programs.
General and Administrative. General and administrative expenses were
$764,967 for the three months ended September 30, 2000, compared to $625,530 for
the three months ended September 30, 1999. The increase of $139,437, or 22%, was
primarily due to the hiring of an increased number of administrative personnel
to support continued growth of our research and development efforts and
increased professional fees.
Amortization of Deferred Stock Compensation. In 1999 and 2000, we
recorded non-cash deferred stock compensation totaling approximately $14.0
million for options granted with exercise prices below the deemed fair value for
financial reporting purposes of our common stock on their respective grant
dates. This deferred stock compensation is being amortized using the graded
vesting method. Amortization of deferred stock compensation was $2.0 million for
the three months ended September 30, 2000, compared to $1,878 for the three
months ended September 30, 1999. The increase is due to option grants made in
the second half of 1999 and the first half of 2000.
Net Interest Income (Expense)
Net interest income was $512,221 for the three months ended September
30, 2000 as compared to net interest income of $95,501 for the three months
ended September 30, 1999. The increase in net interest income was due to an
increased level of invested funds.
COMPARISON OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues
Total revenues were $6.1 million for the nine months ended September
30, 2000, compared to none in 1999. Revenues of $2.5 million in 2000 were
attributable to licensing fees from the exclusive license agreement signed in
October 1999 with Schering-Plough. This amount represents the earned portion of
the $5.0 million initial license fee, which is being amortized over 18 months.
Research and development revenues related to this license agreement were $3.6
million for the nine-month period ended September 30, 2000.
Expenses
Research and Development. Research and development expenses were $9.2
million for the nine months ended September 30, 2000, compared to $6.1 million
for the nine months ended September 30, 1999. The increase of $3.1 million, or
51%, reflects the continued expansion of our internal research and development
capabilities, higher costs associated with the AGI-1067 clinical trials and
pre-clinical costs related to our other product development programs.
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General and Administrative. General and administrative expenses were
$2.1 million for the nine months ended September 30, 2000, compared to $1.8
million for the nine months ended September 30, 1999. The increase of $319,797,
or 18%, was primarily due to increases in facility costs, personnel costs and
professional fees.
Amortization of Deferred Stock Compensation. In 1999 and 2000, we
recorded non-cash deferred stock compensation totaling approximately $14.0
million for options granted with exercise prices below the deemed fair value for
financial reporting purposes of our common stock on their respective grant
dates. This deferred stock compensation is being amortized using the graded
vesting method. Amortization of deferred stock compensation was $6.0 million for
the nine months ended September 30, 2000, compared to $2,103 for the nine months
ended September 30, 1999.
Net Interest Income (Expense)
Net interest income was $806,520 for the nine months ended September
30, 2000 as compared to net interest expense of $225,300 for the nine months
ended September 30, 1999. The increase in net interest income was due to an
increased level of invested funds, as well as the elimination of interest
expense related to the bridge loan, which was converted to preferred stock in
April 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through
private placements of preferred stock, and most recently, we have completed an
initial public offering that raised net proceeds of $49.4 million. The stock
sales have provided an aggregate of $88.6 million in net proceeds through
September 30, 2000. We had cash and cash equivalents of $56.4 million at
September 30, 2000, compared with $13.4 million at December 31, 1999. Working
capital at September 30, 2000 was $54.0 million, compared to $9.7 million at
December 31, 1999. Long-term debt was $94,354 at September 30, 2000 compared to
$61,854 for the year ending December 31, 1999. Long-term debt consists primarily
of capital equipment lease obligations.
Net cash used in operating activities was $6.6 million for the nine
months ended September 30, 2000, compared to $9.9 million for the nine months
years ended September 30, 1999. The decrease in net cash is principally due to
research and development revenues received in 2000 of $3.6 million and none in
1999.
Net cash used in investing activities was $555,943 for the nine months
ended September 30, 2000, compared to $336,947 for the nine months ended
September 30, 1999. Net cash used in investing activities consisted primarily of
equipment purchases and leasehold improvements.
Net cash provided by financing activities was $50.1 million for the
nine months ended September 30, 2000, compared to $17.5 million for the nine
months ended September 30, 1999. Net cash provided by financing activities in
2000 consisted primarily of $49.4 million net proceeds from the initial public
offering and the exercise of preferred stock warrants and common stock options.
Net cash provided by financing activities in 1999 consisted primarily of
proceeds from the sale of preferred stock.
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Based upon the current status of our product development and
commercialization plans, we believe that our existing cash and cash equivalents,
together with the net proceeds from our initial public offering in August 2000,
will be adequate to satisfy our capital needs for at least the next 12 months.
However, our actual capital requirements will depend on many factors, including:
- the status of product development;
- the time and cost involved in conducting clinical trials and
obtaining regulatory approvals;
- filing, prosecuting and enforcing patent claims;
- competing technological and market developments; and
- our ability to market and distribute our future products and
establish new licensing agreements.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Reform Act")
provides a safe harbor for forward-looking statements made by or on behalf of
AtheroGenics. AtheroGenics and its representatives may from time to time make
written or verbal forward-looking statements, including statements contained in
this report and other company filings with the Securities and Exchange
Commission and in our reports to our shareholders. Generally, the words
"believe," "expect," "intend," "estimate," "anticipate," "will" and similar
expressions identify forward-looking statements. All statements which address
operating performance, events or developments that we expect or anticipate will
occur in the future, including projections about our future results of
operations or our financial condition, our licensing relationship with
Schering-Plough, our anticipated product commercialization strategies, and
anticipated trends in our business, are forward-looking statements within the
meaning of the Reform Act. The forward-looking statements are and will be based
on management's then current views and assumptions regarding future events and
operating performance, and speak only as of their dates. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
The following are some of the factors that could affect our financial
performance or could cause actual results to differ materially from those
expressed or implied in our forward-looking statements:
- AGI-1067 may fail in clinical trials;
- our ability to generate positive cash flow in light of our
history of operating losses;
- our ability to successfully develop our other product
candidates;
- our ability to commercialize our product candidates if we fail
to demonstrate adequately their safety and efficacy;
- possible delays in our clinical trials;
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- our inability to predict whether or when we will obtain
regulatory approval to commercialize our product candidates or
the timing of any future revenue from these product
candidates;
- if Schering-Plough decides to terminate our exclusive license
agreement, we would lose access to their substantial
development, commercial and financial resources, which could
materially adversely affect our ability to develop and
commercialize AGI-1067;
- the receipt and timing of milestone payments from
Schering-Plough is uncertain;
- our ability to protect adequately or enforce our intellectual
property rights or secure rights to third party patents;
- the ability of our competitors to develop and market
anti-inflammatory products that are more effective, have fewer
side effects or are less expensive than our current or future
product candidates;
- third parties' failure to synthesize and manufacture our
product candidates could delay our clinical trials or hinder
our commercialization prospects;
- our ability to create sales, marketing and distribution
capabilities or enter into agreements with third parties to
perform these functions;
- our ability to attract, retain and motivate skilled personnel
and cultivate key academic collaborations;
- if we need additional financing and cannot obtain it, we may
not be able to develop or market our products;
- our ability to obtain an adequate level of reimbursement or
acceptable prices for our products; and
- if plaintiffs bring product liability lawsuits against us, we
may incur substantial financial loss or may be unable to
obtain future product liability insurance at reasonable
prices, if at all, either of which could diminish our ability
to commercialize our future products.
The foregoing list of important factors is not exclusive.
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 generally of a short-term nature. Interest rates payable on our
lease obligations are generally fixed. 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
The effective date of the Registration Statement on Form S-1
(Registration No. 333-31140) filed under the Securities Act of 1933, as amended,
relating to the initial public offering of our common stock was August 8, 2000.
On the same date, we signed an underwriting agreement with Chase Securities
Inc., FleetBoston Robertson Stephens Inc., Adams, Harkness, & Hill, Inc. and
A.G. Edwards & Sons, Inc., the managing underwriters for the initial public
offering and the representatives of the underwriters named in the underwriting
agreement, for the initial public offering of 6,900,000 shares of our common
stock (including the exercise of underwriters' overallotment option) at an
initial public offering price of $8.00 per share. The initial public offering
resulted in gross proceeds of $55.2 million. We received net proceeds of $49.4
million after deducting underwriting discounts of $3.9 million and estimated
offering expenses of $1.9 million.
Concurrently with the closing of the initial public offering, the
13,859,102 outstanding shares of our Series A, B and C Preferred Stock were
automatically converted into 13,859,102 shares of common stock. As a result, we
no longer have any outstanding preferred stock.
We expect to use the proceeds from this offering for research and
development activities, including clinical trials, process development and
manufacturing support, and for general corporate purposes, including working
capital. We may use a portion of the proceeds to acquire or invest in
complementary businesses, products or technologies. Pending such uses, we have
invested the net proceeds of this offering in interest bearing, money market
accounts.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- -----------------------
<S> <C>
3.1+ Amended and Restated Certificate of Incorporation
3.2+ Amended and Restated Bylaws
4.1+ Specimen Common Stock Certificate
27.1 Financial Data Schedule
</TABLE>
---------------
+ Filed with AtheroGenics' Registration Statement on Form S-1,
Registration No. 333- 31140, declared effective by the
Securities and Exchange Commission on August 8, 2000, and
incorporated herein by reference.
b. Reports on Form 8-K
No report on Form 8-K has been filed by AtheroGenics during
the quarter for which this report is filed.
14
<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.
ATHEROGENICS, INC.
Date: November 3, 2000. By: /s/ RUSSELL M. MEDFORD, M.D., PH.D.
-------------------------------------------------
RUSSELL M. MEDFORD, M.D., PH.D.
President and Chief
Executive Officer
Date: November 3, 2000. By: /s/ MARK P. COLONNESE
-------------------------------------------------
MARK P. COLONNESE
Vice President of Finance and Administration and
Chief Financial Officer (Principal Accounting and
Financial Officer)
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
3.1+ Amended and Restated Certificate of Incorporation
3.2+ Amended and Restated Bylaws
4.1+ Specimen Common Stock Certificate
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
-----------------
+ Filed with AtheroGenics' Registration Statement on Form S-1, Registration
No. 333-31140, declared effective by the Securities and Exchange Commission
on August 8, 2000, and incorporated herein by reference.
16
