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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2000, or
[_] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to _________________
Commission File Number 0-12943
CYPRESS BIOSCIENCE, INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE 22-2389839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4350 Executive Drive, Suite 325, San Diego, California 92121
(Address of principal executive offices) (zip code)
(858) 452-2323
(Registrant's telephone number including area code)
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Indicate by check (X) 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 [_]
At May 10, 2000, 48,686,120 shares of Common Stock of the Registrant
were outstanding.
This filing, without exhibits, contains 13 pages.
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TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION Page
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ITEM 1 - Consolidated Balance Sheets as of
March 31, 2000 (unaudited) and December 31, 1999 .............................. 3
Consolidated Statements of Operations for the three months ended
March 31, 2000 and 1999 (unaudited)............................................ 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 (unaudited)......................... 5
Notes to Consolidated Financial Statements (unaudited)............................ 6
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................... 8
ITEM 3 - Quantitative and Quantitative Disclosures About Market Risk....................... 11
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings ................................................................. 12
ITEM 6 - Exhibits and Reports on Form 8-K .................................................. 12
Signatures ................................................................................. 13
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CYPRESS BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
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(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,309,065 $ 11,569,966
Accounts receivable from agreement with Fresenius 367,722 387,474
Prepaid expenses 154,112 389,180
Debt acquisition cost 135,060 144,654
------------ ------------
Total current assets 13,965,959 12,491,274
Property and equipment, net 201,946 226,042
Other assets 26,170 20,360
Deferred financing costs 64,987 93,796
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Total assets $ 14,259,062 $ 12,831,472
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 907,307 $ 952,932
Accrued compensation 134,499 135,211
Accrued liabilities 486,421 478,477
Current portion of convertible debentures 275,000 -
Current portion of long-term obligations 1,161,610 850,108
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Total current liabilities 2,964,837 2,416,728
Convertible debentures - 400,000
Long-term obligations, net of current portion 1,944,821 2,269,891
Stockholders' equity:
Common stock, $.02 par value; 75,000,000 shares authorized,
48,644,490 and 46,314,110 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively 972,890 926,282
Additional paid-in capital 99,148,490 94,609,138
Accumulated deficit (90,771,976) (87,790,567)
------------ ------------
Total stockholders' equity 9,349,404 7,744,853
------------ ------------
Total liabilities and stockholders' equity $ 14,259,062 $ 12,831,472
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</TABLE>
See accompanying notes.
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles.
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CYPRESS BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
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REVENUE:
Product sales $ - $ 588,120
Revenue from Fresenius agreement 566,867 -
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Total revenue 566,867 588,120
COSTS AND EXPENSES:
Production costs 63,709 519,485
Sales and marketing 1,922,608 1,086,248
Research and development 847,100 681,293
General and administrative 731,836 1,443,711
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Total costs and expenses 3,565,253 3,730,737
OTHER INCOME (EXPENSE):
Interest income 153,701 52,316
Interest expense (136,724) (11,891)
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16,977 40,425
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Net loss $ (2,981,409) $ (3,102,192)
============ ============
Net loss per share (basic and diluted) $ (0.06) $ (0.07)
============ ============
Shares used in computing net loss
per share (basic and diluted) 47,598,257 42,364,408
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</TABLE>
See accompanying notes.
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CYPRESS BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,981,409) $(3,102,192)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 28,112 127,256
Amortization of deferred compensation - 227,994
Changes in operating assets and liabilities, net 218,483 229,090
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Net cash used by operating activities (2,734,814) (2,517,852)
INVESTING ACTIVITIES
Purchase of equipment (4,016) (64,119)
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Net cash used by investing activities (4,016) (64,119)
FINANCING ACTIVITIES
Payment of notes payable (12,087) (4,029)
Deferred financing costs 38,403 -
Proceeds from exercise of stock options and warrants 4,453,094 898,189
Proceeds from notes payable - 4,050,000
Proceeds from private placement of common stock
and warrants - 1,500,000
Payment of capital lease obligations (1,481) (2,193)
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Net cash provided by financing activities 4,477,929 6,441,967
INCREASE IN CASH AND CASH EQUIVALENTS 1,739,099 3,859,996
Cash and cash equivalents at beginning of period 11,569,966 5,619,568
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Cash and cash equivalents at end of period $13,309,065 $ 9,479,564
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 70,963 $ 4,982
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</TABLE>
See accompanying notes.
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CYPRESS BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. FORMATION AND BUSINESS OF THE COMPANY
The accompanying consolidated financial statements have been prepared
by Cypress Bioscience, Inc. (the "Company") without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission (the "SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the SEC. The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany accounts and transactions have been
eliminated. In the opinion of the Company's management, all adjustments
necessary for a fair presentation of the accompanying unaudited financial
statements are reflected herein. All such adjustments are normal and recurring
in nature. Interim results are not necessarily indicative of results for the
full year. For more complete financial information, these consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements included in the Company's 1999 Annual Report on Form 10-K/A filed
with the SEC.
The Company markets the PROSORBA(R) column for the treatment of types
of rheumatoid arthritis ("RA") and idiopathic thrombocytopenia purpura ("ITP"),
which are types of immune disorders, and is engaged in the development of novel
therapeutic agents for the treatment of blood platelet disorders. The PROSORBA
column absorbs antibodies and circulating immune complexes and modulates the
patient's inappropriate immune response to certain diseases. In March 1999, the
Food and Drug Administration ("FDA") granted Cypress marketing clearance to
distribute the PROSORBA column for the treatment of moderate to severe RA. The
Company previously received marketing clearance from the FDA in December 1987 to
distribute the PROSORBA column for the treatment of ITP, an immune-mediated
bleeding disorder. The Company is also developing Cyplex(TM), a platelet
alternative, previously known as Infusible Platelet Membranes, as an alternative
to traditional platelet transfusions.
2. FRESENIUS AGREEMENTS
In March 1999, Cypress entered into an agreement with Fresenius AG of
Bad Homburg, Germany and its U.S. subsidiary, Fresenius Hemotechnology, Inc.
("FHI"). The agreement provides Fresenius with an exclusive license to
distribute the PROSORBA column in the U.S., Europe, Latin America, and subject
to certain conditions, Japan and certain other countries. Upon signing of the
agreement, Cypress received a total of $1.5 million from Fresenius consisting of
the purchase of 297,530 shares of Cypress common stock for $1.0 million, and
$500,000 for the purchase of three-year warrants to buy 342,466 shares of
Cypress common stock at $7.50 per share.
In the U.S., Cypress and FHI will jointly market the PROSORBA column.
Cypress and FHI will share in clinical trials and sales and marketing expenses
in the U.S., subject to certain
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annual dollar limits. Fresenius will have exclusive distribution rights and
responsibility for clinical trials and registration of the product overseas. In
the U.S., net profit will be split 50/50 until PROSORBA column revenue reaches a
pre-determined sales threshold, after which time Cypress will receive 60% of the
profits and Fresenius will receive 40%. Net profits will be split 50/50 outside
the U.S.
Revenue from the Fresenius agreement for the quarter ended March 31,
2000 consisted of Cypress's pro rata share of sales by Fresenius. Until profits
are generated, Cypress will recognize revenue based on the payments from
Fresenius, which are generally determined as the ratio of allowable expenses
incurred for production, research and development and sales and marketing by
Cypress compared to allowable expenses incurred by Cypress and Fresenius under
the agreement.
The agreement also included an option for Fresenius to purchase assets
used in Cypress' manufacturing facilities in Redmond, Washington. In April 1999,
Fresenius exercised its option and acquired the asset related to the PROSORBA
column manufacturing function for $5.2 million. During 1999 Cypress recorded a
total gain on the sale of approximately $2.5 million recognized from inventory
and manufacturing assets.
In addition, in March 1999, Fresenius purchased 297,530 shares of the
Company's common stock for approximately $1.0 million or $3.361 per share and
purchased for $500,000 a three-year warrant to purchase 342,466 shares of common
stock with an exercise price of $7.50 per share.
3. INVENTORIES
In April 1999, Fresenius acquired the PROSORBA column manufacturing
facility. As a result the Company has no inventory as of March 31, 2000 or
December 31, 1999.
4. NET LOSS PER SHARE
The computation of net loss per share is based on the weighted
average number of shares of common stock outstanding for each period. Common
stock equivalents related to options, warrants and convertible debentures are
excluded, as their effect is antidilutive.
5. EQUITY
In March 2000, Cypress received proceeds of approximately $4.5 million
from the exercise of options to purchase approximately 2,284,000 shares of
common stock.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934 that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed below and
elsewhere in this 10Q. Factors that could cause or contribute to such
differences include, without limitation, those discussed in this section, as
well as other sections of this 10Q, and those discussed in the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1999.
Company Overview
In March 1999, the Company entered into an agreement with Fresenius
Hemotechnology Inc. ("FHI"), a U.S. subsidiary of Fresenius AG ("Fresenius") of
Bad Homburg, Germany. FHI is a leading provider of apheresis equipment and
disposables. The agreement provides Fresenius with an exclusive license to
manufacture and distribute the PROSORBA column in the U.S., Europe, Latin
America, and subject to certain conditions, Japan and certain other countries.
In April 1999, the Company and Fresenius launched the sale of the
PROSORBA column for the treatment of moderate to severe rheumatoid arthritis
("RA") in adult patients with long standing disease who have failed or are
intolerant to disease-modifying anti-rheumatic drugs ("DMARDs"). The PROSORBA
column had been previously approved for idiopathic thrombocytopenia purpura
("ITP"), a rare hematologic disorder.
Also in April 1999, Fresenius exercised its option to acquire the
PROSORBA column manufacturing facility and related assets, located in Redmond,
Washington, for $5.2 million. During 1999 Cypress recorded a total gain on the
sale of $2.5 million.
Results of Operations
Total revenues for the quarter ended March 31, 2000 totaled $567,000
compared to $588,000 in the same period of 1999. The 1999 revenue consists
entirely of PROSORBA column sales recorded by the Company. However, as a result
of the Fresenius agreement entered into in March 1999, the 2000 revenue consists
of $567,000 in revenue from the Fresenius agreement. Sales of the PROSORBA
column are booked as revenues by FHT, based on the terms of the partnership
agreement. Expenses incurred related to the PROSORBA column are reimbursed to
the party incurring such expenses. Profits from the product after expense
reimbursement is divided between Cypress and Fresenius with at least 50% of such
profits allocated to Cypress.
Total PROSORBA column sales for the quarters ended March 31, 2000 and
1999 totaled $1.3 million and $588,000, respectively. The increase of $712,000
in PROSORBA column sales is a result of increased sales of the PROSORBA column
for the RA indication, offset in part by decreased sales of the PROSORBA column
for idiopathic thrombocytopenia purpura ("ITP") indication. The Company received
approval to market the PROSORBA column for RA in March 1999.
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Total operating expenses for the quarters ended March 31, 2000 and 1999
totaled $3.6 million and $3.7 million, respectively. Total operating expenses
were relatively consistent due to decreases in production costs since Fresenius
now manufactures the PROSORBA column, and general and administrative expenses,
offset by an increases in sales and marketing, and research and development
expenses.
Production costs decreased to $64,000 in the first quarter of 2000 from
approximately $519,000 for the same period in 1999 primarily due to the
Fresenius' acquisition of the PROSORBA column manufacturing facility in April
1999. As a result, the Company did not record product costs associated with
manufacturing the PROSORBA column in 2000 as it did during the first quarter of
1999. The production costs incurred in 2000 were a result of royalties paid by
the Company based on total PROSORBA column sales.
Research and development expenses increased to $847,000 for the quarter
ended March 31, 2000 from $681,000 for the same period in 2000. The increase is
due to costs incurred for an investigator recruitment meeting, jointly sponsored
by Fresenius and Cypress, held in February 2000, and partially offset by the
absence of costs associated with the FDA approval process incurred during the
first quarter of 1999.
General and administrative expenses for the quarter ended March 31,
2000 totaled approximately $732,000, compared to $1.4 million for the same
period in 1999. The decrease of $712,000 in general and administrative expenses
was due primarily to increased business development activity in 1999 associated
with negotiating the Company's agreement with Fresenius.
Sales and marketing expenses for the quarter ended March 31, 2000
totaled approximately $1.9 million compared to approximately $1.1 million for
the same period in 1999. The increase in 2000 from the same period in 1999 is
due to sales and marketing efforts associated with the PROSORBA column for the
RA indication. These efforts were launched in April 1999.
Liquidity and Capital Resources
The Company's cash and cash equivalents at March 31, 2000 totaled $13.3
million, compared to $11.6 million at December 31, 1999. The net increase in
cash is due to the proceeds from the exercises of stock options, partially
offset by cash used in operations. Working capital at March 31, 2000 totaled
$11.0 million.
The Company believes its cash and cash equivalents balance on March 31,
2000, together with the revenues the Company anticipates will be received under
the Fresenius agreement, are sufficient to fund operations through the year
2000. The Company is actively seeking alternatives in an attempt to increase its
cash position. In addition, to the extent the Company decides to develop and/or
acquire products other than the PROSORBA column, including Cyplex(TM), it will
be required to raise additional capital. The amount of capital required by the
Company is dependent upon many factors, including the following: the Company's
ability to successfully market the PROSORBA column for the RA indication,
results of and the costs associated with the mandatory post approval clinical
trials, results of current research and development efforts, the FDA regulatory
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process, costs of commercialization of products and potential competitive and
technological advances and levels of product sales. Because the Company is
unable to predict the outcome of the foregoing factors, some of which are beyond
the Company's control, the Company is unable to estimate with certainty its mid
to long-term capital needs. Although the Company may seek to raise additional
capital through a combination of additional equity sources, there is no
assurance the Company will be able to raise additional capital through such
sources or the funds raised thereby will allow the Company to maintain its
current and planned operations. If the Company is unable to obtain additional
capital, it will be required to delay, scale back or eliminate some or all of
its planned research and development activities related to additional product
opportunities.
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QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
The Company invests its excess cash in U.S. government securities and
money market funds with strong credit ratings. As a result, the Company's
interest income is most sensitive to changes in the general level of U.S.
interest rates. The Company does not use derivative financial instruments,
derivative commodity instruments or other market risk sensitive instruments,
positions or transactions in any material fashion. Accordingly, the Company
believes that, while the investment-grade securities it holds are subject to
changes in the financial standing of the issuer of such securities, the Company
is not subject to any material risks arising from changes in interest rates,
foreign currency exchange rates, commodity prices, equity prices or other market
changes that affect market risk sensitive instruments.
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PART II
Item 1 - Legal Proceedings
The Company is not party to any material legal proceedings.
Item 6 - Exhibits and Reports on Form 8-K
None
27.1 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cypress Bioscience, Inc.
May 15, 2000 /s/ Jay D. Kranzler
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Chief Executive Officer, Chief Financial
Officer and Chairman of the Board
(Principal Executive Officer and
Principal Financial and Accounting Officer)
13
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