<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-30929
KERYX BIOPHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 134087132
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
5 Kiryat Mada, Har Hotzvim
Jerusalem 91236 Israel
(Address Including Zip Code of Principal Executive Offices)
+972-2-541-2700
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X NO
--- ---
As of November 10, 2000, the issuer had outstanding 19,504,643 shares of Common
Stock, $0.001 par value.
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Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Interim Consolidated Balance Sheets.............................. 1
Interim Consolidated Statements of Operations.................... 2
Interim Consolidated Statements of Cash Flows.................... 3
Notes to Interim Consolidated Financial Statements............... 5
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 2. Changes in Securities and Use of Proceeds........................ 13
Item 6. Exhibits and Reports on Form 8-K................................. 13
SIGNATURES................................................................ 14
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Keryx Biopharmaceuticals, Inc. (Development Stage Company)
<TABLE>
<CAPTION>
Interim Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000
----------------------------------------------------------------------------------
December 31 September 30
1999 2000
(Audited) (Unaudited)
------------ ------------
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents $ 4,126,735 $ 50,349,477
Other receivables 85,685 443,523
Prepaid expenses 166,137 104,591
------------ ------------
Total current assets 4,378,557 50,897,591
Long-term investments related to severance obligations 64,047 97,753
Fixed assets, net 160,141 243,463
Patents 345,471 675,746
------------ ------------
$ 4,948,216 $ 51,914,553
============ ============
Liabilities and Stockholders' Equity
Current liabilities
Other liabilities and accrued expenses $ 252,934 $ 472,291
Related party 141,483 3,505
------------ ------------
Total current liabilities 394,417 475,796
Long-term liabilities
Liability in respect of employee severance benefits 117,736 187,433
------------ ------------
Total liabilities 512,153 663,229
------------ ------------
Stockholders' equity
Series A convertible preferred stock, $0.001 par value each (liquidation
preference - $100 per share plus all declared
but unpaid dividends, 170,000 shares authorized, 79,465 and 0 issued and fully
paid at December 31, 1999 and September 30, 2000, respectively) 79 --
Common stock, $0.001 par value each (20,000,000 and 40,000,000 shares
authorized, 1,208,306 and 19,440,147 shares issued
and fully paid at December 31, 1999 and September 30, 2000, respectively) 1,208 19,440
Additional paid-in capital 19,712,951 78,158,164
Unearned compensation (2,854,280) (6,036,915)
Accumulated deficit (12,423,895) (20,889,365)
------------ ------------
Total stockholders' equity 4,436,063 51,251,324
------------ ------------
$ 4,948,216 $ 51,914,553
============ ============
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
1
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Keryx Biopharmaceuticals, Inc. (Development Stage Company)
<TABLE>
<CAPTION>
Interim Consolidated Statements of Operations and Accumulated Deficit for the Three Months and Nine Months Ended
September 30, 1999 and 2000
-------------------------------------------------------------------------------------------------------------------
Amounts
Accumulated
During the
Development
Three months ended Nine months ended Stage
--------------------------- --------------------------- ------------
September 30 September 30 September 30 September 30 September 30
----------- ------------ ----------- ------------ ------------
1999 2000 1999 2000 2000
----------- ------------ ----------- ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Management fees from related company $ - $ - $ - $ - $ 299,997
----------- ------------ ----------- ------------ ------------
Expenses
Research and development expenses 508,769 1,892,833 1,292,953 4,422,503 13,321,152
General and administrative expenses 96,256 1,364,857 625,153 4,633,453 7,982,791
----------- ------------ ----------- ------------ ------------
Total operating expenses 605,025 3,257,690 1,918,106 9,055,956 21,303,943
----------- ------------ ----------- ------------ ------------
Operating loss (605,025) (3,257,690) (1,918,106) (9,055,956) (21,003,946)
Financing income (expenses) (76,426) 530,867 (176,330) 683,486 257,776
----------- ------------ ----------- ------------ ------------
Net loss before income taxes (681,451) (2,726,823) (2,094,436) (8,372,470) (20,746,170)
Income taxes -- 38,000 -- 93,000 143,195
----------- ------------ ----------- ------------ ------------
Net loss for period (681,451) (2,764,823) (2,094,436) (8,465,470) (20,889,365)
Accumulated deficit at beginning of period (4,834,118) (18,124,542) (3,421,133) (12,423,895) --
----------- ------------ ----------- ------------ ------------
Accumulated deficit at end of period $(5,515,569) $(20,889,365) $(5,515,569) $(20,889,365) $(20,889,365)
=========== ============ =========== ============ ============
Basic and diluted net loss per common share ($0.08) ($0.17) ($0.26) ($0.79) ($2.42)
Weighted average shares used in computing
basic and diluted net loss per common share 8,108,306 15,927,878 8,108,306 10,721,036 8,630,852
Pro forma net loss per common share ($0.05) ($0.16) ($0.15) ($0.55) ($1.45)
Weighted average shares used in computing pro
forma net loss per common share 14,223,268 17,706,190 14,223,268 15,385,368 14,455,688
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
2
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Keryx Biopharmaceuticals, Inc. (Development Stage Company)
<TABLE>
<CAPTION>
Interim Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 2000
---------------------------------------------------------------------------------------------------
Amounts
Accumulated
During the
Development
Nine months ended Stage
------------------------------ ------------
September 30 September 30 September 30
1999 2000 2000
----------- ----------- ------------
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- ------------
Net loss $(2,094,436) $(8,465,470) $(20,889,365)
Adjustments to reconcile cash flows used in operating activities:
Revenues and expenses not involving cash flows:
<S> <C> <C> <C>
Employee stock compensation expense -- 3,358,965 8,323,762
Consultants' stock compensation expense -- 1,745,451 2,794,362
Interest expense on convertible notes settled
through issuance of preferred shares 177,252 -- 252,966
Provision for employee severance benefits 22,180 69,697 209,433
Depreciation 13,232 11,305 87,473
Increase in other receivables (13,356) (357,838) (417,169)
Decrease (increase) in prepaid expenses (3,823) 61,546 (126,467)
Increase (decrease) in related party (515) (137,978) 3,505
Increase (decrease) in other liabilities and
accrued expenses (6,100) 219,357 468,091
----------- ----------- ------------
Net cash used in operating activities (1,905,566) (3,494,965) (9,293,409)
----------- ----------- ------------
Cash flows from investing activities
Purchases of fixed assets (18,560) (94,628) (330,197)
Investment in patents (91,980) (330,275) (676,715)
Purchase of investment securities -
employee severance obligation (23,263) (33,706) (119,753)
----------- ----------- ------------
Net cash used in investing activities (133,803) (458,609) (1,126,665)
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
3
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Keryx Biopharmaceuticals, Inc. (Development Stage Company)
<TABLE>
<CAPTION>
Interim Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 2000
-------------------------------------------------------------------------------------------------------------------
Amounts
Accumulated
During the
Development
Nine Months Ended Stage
---------------------------- -----------
September 30 September 30 September 30
1999 2000 2000
--------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
--------- ----------- -----------
Cash flows from financing activities
<S> <C> <C> <C>
Proceeds from short-term loans - - 500,000
Proceeds from long-term loans 124,861 - 3,250,902
Issuance of convertible notes, net 2,150,000 - 2,150,000
Issuance of shares, net and contributed capital 52 50,176,316 54,868,649
--------- ----------- -----------
Net cash provided by financing activities 2,274,913 50,176,316 60,769,551
--------- ----------- -----------
Effect of exchange rate on cash 474 (2,442) 4,286
Net increase in cash and cash equivalents 236,018 46,220,300 50,353,763
Cash and cash equivalents at beginning of period 127,872 4,126,735 -
--------- ----------- -----------
Cash and cash equivalents at end of period $ 363,416 $50,349,477 $50,349,477
========= =========== ===========
Non-cash transactions
Conversion of short-term loans into contributed capital $ - $ - $ 50,000
Conversion of long-term loans into contributed capital - - 2,680,541
Conversion of long-term loans into convertible notes of Partec 570,361 - 570,361
Conversion of convertible notes of Partec and accrued interest
into stock in Keryx - - 2,973,376
Declaration of stock dividend - 2,702 2,702
Supplementary disclosures of cash flow information
Cash paid during the period for interest - - 134,055
Cash paid during the period for income taxes - 78,251 78,251
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
4
<PAGE>
Keryx Biopharmaceuticals, Inc. (Development Stage Company)
Notes to the Interim Consolidated Financial Statements of September 30, 2000
----------------------------------------------------------------------------
Note 1 - General:
Basis of Presentation
The accompanying unaudited interim consolidated financial statements were
prepared in accordance with the instructions for Form 10Q and, therefore,
do not include all disclosures necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity
with generally accepted accounting principles. All adjustments which are,
in the opinion of management, of a normal recurring nature and are
necessary for a fair presentation of the interim financial statements, have
been included. The results of operations for the period ended September 30,
2000 are not necessarily indicative of the results that may be expected for
the entire fiscal year or any other interim period.
The accompanying unaudited interim consolidated financial statements for
the period ended September 30, 2000 have been prepared in order to present
the financial position, results of operations and cash flows relating to
the Company's activities for all periods covered by the statements. Until
November 1999, most of the Company's activities were carried out by Partec
Limited, an Israeli corporation, and its subsidiaries (hereinafter
collectively referred to as "Partec"). The subsidiaries of Partec during
the period prior to November 1999 were SignalSite Inc. (85% owned) and its
wholly owned subsidiary SignalSite Israel Ltd., and Vectagen Inc. (87.25%
owned) and its wholly owned subsidiary, Vectagen Israel Ltd. In November
1999, the Company and its subsidiary acquired substantially all of the
assets and liabilities of Partec and as of that date, the activities
formerly carried out by Partec are now performed by the Company and its
subsidiary. Consequently, these financial statements include the activities
performed in previous periods by Partec by aggregating the relevant
historical financial information with the financial statements of the
Company as if they had formed a discrete operation under common management
for the entire development stage. This has been effected by means of an "as
if" pooling and Partec is being presented as a "predecessor" company.
Loss Per Share
Basic loss per share is computed by dividing the losses allocable to common
stockholders by the weighted average number of common shares outstanding
for the period. Diluted loss per share does not reflect the effect of
common shares issued upon exercise of stock options and warrants, as their
inclusion would be anti-dilutive.
Unaudited Pro Forma Net Loss Per Share
The Company completed its initial public offering as described in Note 3
below. The unaudited pro forma net loss per share included in these
financial statements reflects the conversion of all shares of Series A
convertible preferred stock, which were automatically converted upon
consummation of the initial public offering, to 6,114,962 shares of common
stock at a 51.54:1 ratio. The weighted average number of shares used to
calculate the unaudited pro forma net loss per share reflects the
conversion of the preferred stock as though it occurred on January 1, 1999.
5
<PAGE>
Keryx Biopharmaceuticals, Inc. (Development Stage Company)
Notes to the Interim Consolidated Financial Statements of September 30, 2000
----------------------------------------------------------------------------
Note 2 - Recent Accounting Pronouncements:
The Financial Accounting Standards Board ("FASB") Statement No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - a replacement of FASB Statement No. 125"
("Statement 140") was issued in September 2000. Statement 140 revises the
standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but
retains most of Statement 125's provisions without reconsideration. The
Company does not expect the adoption of Statement 140 to have a significant
impact, if any, on its financial statements.
Note 3 - Stockholders' Equity:
A. In January 2000, 39,180 shares of Series A convertible preferred stock were
issued as part of the continuation of the private placement commenced in
1999 in consideration for $3.9 million.
B. In June 2000, the stockholders approved an increase in authorized capital
stock by 20,000,000 to 40,000,000 shares of common stock, par value $0.001,
which increase took effect on the completion of an initial public offering.
C. In June 2000, the board of directors declared a 3:2 common stock dividend
to be effective in conjunction with the Company's initial public offering,
whereby the stockholders receive one share of common stock for each two
shares of common stock held of record at July 15, 2000. These financial
statements have been prepared to retroactively reflect the stock dividend.
D. In June 2000, the Company adopted a stock option plan (the "new plan")
pursuant to which the compensation committee of the Company's board of
directors may grant stock options to directors, consultants, and employees.
The new plan authorizes option grants to purchase up to 4,455,000 shares of
authorized but unissued common stock. As of September 2000, the
compensation committee has issued incentive stock options to purchase
10,000 shares of common stock to employees and non-qualified options to
purchase 177,500 shares of common stock to employees and consultants at an
exercise price set based upon an average of the closing price of our common
stock on Nasdaq on the five trading days preceding the date of each grant.
The exercise prices of these options range between $10.00-$12.6375 per
share. 4,267,500 shares of common stock remain available for grant.
6
<PAGE>
Keryx Biopharmaceuticals, Inc. (Development Stage Company)
Notes to the Interim Consolidated Financial Statements of September 30, 2000
----------------------------------------------------------------------------
Note 3 - Stockholders' Equity:
E. The Company completed its initial public offering of 4.6 million shares of
its common stock at $10 per share pursuant to a Registration Statement on
Form S-1 (Registration no. 333-37402) which was effective on July 28, 2000.
Additionally, the underwriters exercised their over-allotment option and
purchased an additional 600,000 shares of the Company's common stock, at
$10 per share, on August 30, 2000. Total proceeds of this offering,
including the exercise of the over-allotment option, were approximately
$46.4 million, net of underwriting fees and estimated offering expenses of
approximately $5.6 million.
As a result of the offering, all outstanding shares of Series A Convertible
Preferred Stock automatically converted into 6,114,962 shares of common
stock.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We were incorporated as a Delaware corporation in October 1998. Since
commencing operations, our activities have been primarily devoted to developing
our technologies, raising capital, purchasing assets and recruiting personnel.
We are a development stage company and have no product sales to date. Our major
sources of working capital have been proceeds from various private placements of
equity securities and, more recently, our initial public offering of 5,200,000
common shares at $10 per share. We have a 100% wholly owned subsidiary, Keryx
(Israel) Limited, which engages in research and development activities and
administrative functions in Israel.
Research and development expenses consist primarily of salaries and related
personnel costs, fees paid to consultants and outside service providers for
laboratory development, legal expenses resulting from intellectual property
activities and other expenses relating to the design, development, testing, and
enhancement of our product candidates. We expense our research and development
costs as they are incurred.
General and administrative expenses consist primarily of salaries and
related expenses for executive, finance and other administrative personnel,
recruitment expenses, professional fees and other corporate expenses, including
business development and general legal activities.
Our results of operations include non-cash compensation expense as a result
of the grants of stock and stock options. Compensation expense for options
granted to employees represents the difference between the intrinsic value of
our common stock and the exercise price of the options at the date of grant. We
account for stock-based employee compensation arrangements in accordance with
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and comply with the disclosure provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Compensation for options granted to consultants has been
determined in accordance with SFAS No. 123, as the fair value of the equity
instruments issued, and according to the guidelines set forth in EITF 96-18,
"Accounting for Equity Instruments that are Issued to Other than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services." APB Opinion No.
25 has been applied in accounting for fixed and milestone-based stock options to
employees and directors as allowed by SFAS No. 123. The compensation cost is
recorded over the respective vesting periods of the individual stock options.
The expense is included in the respective categories of expense in the statement
of operations. We expect to record additional non-cash compensation expense in
the future, which may be significant. However, because some of the options are
milestone-based, the total expense is uncertain.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues. We are a development stage company and have not had revenues from
our planned principal operations.
8
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Research and Development Expenses. Research and development expenses
increased by $1,384,000 to $1,893,000 for the quarter ended September 30, 2000
as compared to $509,000 for the quarter ended September 30, 1999. This increase
was primarily attributable to non-cash compensation expense of $1,013,000
related to stock options and secondarily to professional fees and expenditures
on expansion of our existing research and development activities during the
period. We expect our research and development costs to increase significantly
over the next several years as we expand our research and product development
efforts and implement our business strategy.
General and Administrative Expenses. General and administrative expenses
increased by $1,269,000 to $1,365,000 for the quarter ended September 30, 2000
as compared to $96,000 for the quarter ended September 30, 1999. This increase
was primarily attributable to non-cash compensation expense of $658,000 related
to stock options and secondarily to professional services and expansion of
our existing general and administrative activities during the period. We expect
general and administrative expenses to continue to increase over the next
several years as we implement our business strategy and commercialize our future
products.
Financing Income (Expense). Financing income increased to $531,000 for the
quarter ended September 30, 2000 as compared to an expense of $76,000 for the
quarter ended September 30, 1999. The increase resulted from a higher level of
invested funds due primarily to proceeds from the initial public offering which
closed in August 2000.
Income Taxes. Income tax expense increased to $38,000 for the quarter ended
September 30, 2000 as compared to $0 for the quarter ended September 30, 1999.
This increase is attributable to taxable income from the continuing operations
of our subsidiary in Israel. This income is eliminated upon consolidation of our
financial statements.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999
Revenue. As a development stage company, we did not have any revenues for
either of the nine-month periods ending September 30, 2000 or September 30,
1999.
Research and Development Expenses. Research and development expenses
increased by $3,130,000 to $4,423,000 for the nine months ended September 30,
2000, as compared to $1,293,000 for the nine months ended September 30, 1999.
This increase was primarily attributable to non-cash compensation expense of
$2,389,000 related to stock options and secondarily to professional fees and
expenditures on expansion of our existing research and development activities
during the period. We expect our research and development costs to increase
significantly over the next several years as we expand our research and product
development efforts and implement our business strategy.
General and Administrative Expenses. General and administrative expenses
increased by $4,008,000 to $4,633,000 for the nine months ended September 30,
2000, as compared to $625,000 for the nine months ended September 30, 1999. This
increase was primarily attributable to non-cash compensation expense of
$2,716,000 related to stock options and secondarily to professional services
and expansion of our existing general and administrative activities during the
period. We expect general and administrative expenses to continue to increase
over the next several years as we implement our business strategy and
commercialize our future products.
9
<PAGE>
Financing Income (Expense). Financing income increased to $683,000 for the nine
months ended September 30, 2000 as compared to an expense of $176,000 for the
nine months ended September 30, 1999. The increase resulted from a higher level
of invested funds due primarily to proceeds from the initial public offering
which closed in August 2000.
Income Taxes. Income tax expense increased to $93,000 for the nine months
ended September 30, 2000 as compared to $0 for the nine months ended September
30, 1999. This increase is attributable to taxable income from the continuing
operations of our subsidiary in Israel. This income is eliminated upon
consolidation of our financial statements.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception primarily through various
private and public financings. As of September 30, 2000, we had received gross
proceeds of $52.0 million from our initial public offering, $11.6 million from
private placement issuances of common and preferred stock and $3.2 million
through the contribution by holders of their notes issued by our predecessor
company.
As of September 30, 2000, we had $50.4 million in cash and cash
equivalents. Cash used in operating activities for the nine-month period ended
September 30, 2000 was $3.5 million as compared to $1.9 million for the
nine-month period ended September 30, 1999. This increase was due primarily to
increased expenses associated with the expansion of our business. Net cash used
in investing activities was $0.46 million for the nine-month period ended
September 30, 2000, consisting primarily of expenses incurred in connection with
patent applications and related capital expenditures.
In connection with research services provided to us, we are obligated to
make payments totaling $716,000 to Yissum Research Development Company of the
Hebrew University of Jerusalem periodically until December 15, 2001. In
addition, in connection with our license agreement for KRX-101, we are obligated
to make milestone payments to Alfa Wassermann, the licensor, of up to $2,950,000
and annual payments in the aggregate of up to $900,000.
We have incurred negative cash flow from operations since we started our
business. We have spent, and expect to continue to spend, substantial amounts in
connection with implementing our business strategy, including our planned
product development efforts, our clinical trials, and our research and discovery
efforts. Based on our current plans, we believe that the net proceeds of
approximately $46.4 million from our July 2000 initial public offering of
5,200,000 shares of common stock, which includes the exercise of a portion of
the underwriters' overallotment option, together with our existing cash and cash
equivalents immediately prior to our initial public offering will be sufficient
to enable us to meet our planned operating needs until mid-2002.
Our forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties. The actual amount of funds we will need to operate is
subject to many factors, some of which are beyond our control.
These factors include the following:
. the progress of our research activities;
. the number and scope of our research programs;
10
<PAGE>
. the progress of our pre-clinical and clinical development activities;
. the progress of the development efforts of parties with whom we have
entered into research and development agreements;
. our ability to maintain current research and development programs and to
establish new research and development and licensing arrangements;
. our ability to achieve our milestones under licensing arrangements;
. the costs involved in prosecuting and enforcing patent claims and other
intellectual property rights; and
. the costs and timing of regulatory approvals.
We have based our estimate on assumptions that may prove to be wrong. We
may need to obtain additional funds sooner or in greater amounts than we
currently anticipate. Potential sources of financing include strategic
relationships, public or private sales of our shares or debt and other sources.
We may seek to access the public or private equity markets when conditions are
favorable due to our long-term capital requirements. We do not have any
committed sources of financing at this time, and it is uncertain whether
additional funding will be available when we need it on terms that will be
acceptable to us, or at all. If we raise funds by selling additional shares of
common stock or other securities convertible into common stock, the ownership
interest of our existing stockholders will be diluted. If we are not able to
obtain financing when needed, we may be unable to carry out our business plan.
As a result, we may have to significantly limit our operations and our business,
financial condition and results of operations would be materially harmed.
FORWARD LOOKING STATEMENTS
Statements contained or referenced in this filing that are not historical
facts may be forward-looking statements, as the term is defined in the Private
Litigation Reform Act of 1995. In some cases, you can identify forward-looking
statements by terminology such as "anticipate", "estimate", "expect", "project",
"intend", "plan", "believe" and other words and terms of similar meaning in
connection with any discussion of future operating or financial performance. Our
actual results and the timing of certain events may differ significantly from
the results discussed in forward-looking statements. Factors that might cause or
contribute to such a discrepancy include, but are not limited to, the risks
outlined in our Registration Statement on Form S-1 and other documents filed
with the Securities and Exchange Commission. The forward-looking statements
contained in this filing or in our Registration Statement on Form S-1 include,
among other things, statements relating to our drug development and regulatory
strategy, growth strategy, use of proceeds, projected capital expenditures,
research and development expenditures, other costs and expenses, revenue,
profitability, and liquidity and capital resources.
Any and all of our forward-looking statements can be affected by inaccurate
assumptions we might make or by known or unknown risks and uncertainties. Our
actual future results may vary materially.
11
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. The primary objective of our investment activities is
to preserve principal while at the same time maximizing the income we receive
from our investments without significantly increasing risk. Some of the
securities that we invest in may have market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the principal amount of our investment will probably decline. We
currently maintain an investment portfolio of primarily money market investments
and certificates of deposits with maturities of less than 90 days. We expect to
maintain our portfolio in cash equivalents and short-term, interest bearing
securities, including commercial paper, money market funds and government debt
securities. The average duration of all of our investments in 1999 was less than
one year. Due to the short-term nature of these investments, we believe we have
no material exposure to interest rate risk arising from our investments.
Therefore, no quantitative tabular disclosure is required.
Foreign Currency Rate Fluctuations. While our Israeli subsidiary primarily
operates in New Israel Shekels or NIS, most operating expenses and commitments
are linked to the US dollar. As a result, there is currently minimal exposure to
foreign currency rate fluctuations. Any foreign currency revenues and expenses
are translated using the daily average exchange rates prevailing during the year
and any transaction gains and losses are included in net income. In the future,
our subsidiary may enter into NIS-based commitments that may expose us to
foreign currency rate fluctuations. We may use hedging instruments, including
forward contracts, to minimize any foreign currency rate fluctuation exposure.
Any hedging transactions that we enter into may not adequately protect us
against currency rate fluctuations and may result in losses to us.
Impact of Inflation. The effects of inflation and changing prices on our
operations were not significant during the periods presented.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Changes in Securities. During the quarter ended September 30, 2000, we
issued additional options to four employees and four consultants of the company
to purchase 94,500 shares of our common stock under our 2000 Stock Option Plan.
The exercise prices of these options were set based upon an average of the
closing price of our common stock on Nasdaq on the five trading days preceding
the date of each grant. The exercise prices of these options range between
$10.00-$12.6375 per share. The shares underlying these options have not been
registered under the Securities Act of 1933, as amended.
We believe that the issuance of these options was exempt from registration
under the Securities Act of 1933, as amended, because they were issued pursuant
to a compensatory benefit plan pursuant to Rule 701 under that Act. We believe
all option grantees had adequate access, through their relationships with us, to
information about us.
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(d) Use of Proceeds
Our registration statement on Form S-1 (Registration No. 333-37402)
relating to our initial public offering of common stock was declared effective
by the SEC on July 28, 2000. We registered a total of 5,290,000 shares of common
stock at a maximum aggregate offering price of $52,900,000. In our initial
public offering, we sold 4,600,000 shares of common stock at a price of $10.00
per share. Our initial public offering was managed on behalf of the underwriters
by Roth Capital Partners (in the United States) and WestLB Panmure Limited (in
the United Kingdom). The offering commenced on July 28, 2000 and closed on
August 2, 2000. On August 30, 2000, the underwriters purchased an additional
600,000 shares of our common stock in connection with the exercise of their
over- allotment option. Proceeds to us from our initial public offering
(including those derived from the exercise of the underwriters' over-allotment
option), after deduction of the underwriting discounts and commissions of
approximately $3.64 million and offering expenses of approximately $2.0 million,
totaled approximately $46.4 million. We paid the amount of approximately $60,000
to Pennie & Edmonds, LLP for legal services rendered in connection with the
initial public offering. S. Leslie Misrock, one of our directors, is a senior
partner of Pennie & Edmonds. Apart from that payment to Pennie & Edmonds, none
of the expenses incurred in our initial public offering were direct or indirect
payments to our directors, officers or their associates, to persons owning 10%
or more of any class of our equity securities or to our affiliates. We have
invested the net proceeds from our initial public offering in short term money
market accounts. The balance of the offering proceeds remains available to us to
use for the purposes specified in our registration statement on Form S-1
including (1) to fund clinical trials for KRX-101 for diabetic nephropathy; (2)
to fund clinical trials for KRX-123 for hormone-resistant prostate cancer; (3)
to fund expansion of our KinAce platform and to further develop the compounds we
have generated with it; and (4) for working capital and general corporate
purposes.
The occurrence of unforeseen events or changed business conditions could cause
us to use the proceeds of our initial public offering in a manner other than as
described above.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KERYX BIOPHARMACEUTICALS, INC.
Date: November 14, 2000 By: /s/ Morris Laster
-----------------------------
Morris Laster
Chief Executive Officer and Chairman
Date: November 14, 2000 By: /s/ Robert Gallahue, Jr.
-----------------------------
Robert Gallahue, Jr.
Chief Financial Officer and Treasurer
