U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1994
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 0-14339
SYNERGEN, INC.
(Exact name of registrant as specified in charter)
Delaware 84-0868248
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1885 33rd Street
Boulder, Colorado 80301
(Address of principal executive offices) (Zip Code)
(303) 938-6200
(Registrant's telephone number, including area code)
N.A.
(Former name, former address and former fiscal year, if changed
since last report)
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, and
(2) has been subject to such filing requirements for the past 90
days. Yes X No ___
Applicable only to issuers involved in bankruptcy proceedings
during the preceding five years: N.A.
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes
___ No ___
Applicable only to corporate issuers:
As of July 31, 1994, there were outstanding 25,767,289 shares of
Synergen, Inc. Common Stock - par value $.01.
<TABLE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SYNERGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
REVENUES:
Sponsored research and development $ 4,026,600 $ 820,000 $ 8,265,800 $ 7,471,200
Interest 1,186,000 2,818,100 2,690,800 5,566,600
TOTAL REVENUES 5,213,200 3,638,100 10,956,600 13,037,800
EXPENSES:
Research and development 18,492,400 22,328,400 39,171,100 47,222,500
General and administrative 4,585,200 4,972,900 9,422,800 10,209,300
Restructuring charge -- 2,000,000 -- 2,000,000
Impairment of assets 5,800,000 -- 5,800,000 --
Interest 45,900 91,700 101,700 183,100
TOTAL EXPENSES 28,923,500 29,393,000 54,495,600 59,614,900
Loss before cumulative effect of change
in accounting principle (23,710,300) (25,754,900) (43,539,000) (46,577,100)
Cumulative effect of change in accounting
principle -- -- -- (2,417,800)
NET LOSS $(23,710,300) $(25,754,900) $(43,539,000) $(48,994,900)
LOSS PER SHARE:
Loss before cumulative effect of change
in accounting principle $ (0.92) $ (1.02) $ (1.69) $ (1.85)
Cumulative effect of change in accounting
principle -- -- -- (0.09)
NET LOSS PER SHARE $ (0.92) $ (1.02) $ (1.69) $ (1.94)
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 25,743,300 25,246,300 25,730,300 25,194,400
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
SYNERGEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 20,743,500 $ 51,579,100
Short-term investments 109,846,800 104,637,200
Accounts receivable (No allowance for
doubtful accounts considered necessary) 10,245,100 13,277,200
Receivable from Synergen Clinical Partners -- 6,200,000
Accrued interest receivable 521,900 779,200
Prepaid expenses and other 3,029,300 2,975,400
TOTAL CURRENT ASSETS 144,386,600 179,448,100
PROPERTY AND EQUIPMENT, Net 82,478,400 86,856,100
OTHER ASSETS:
Restricted short-term investments 4,648,800 4,630,100
Other 4,290,300 5,123,400
TOTAL OTHER ASSETS 8,939,100 9,753,500
TOTAL ASSETS $235,804,100 $276,057,700
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
SYNERGEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 13,090,500 $ 11,229,100
INDUSTRIAL DEVELOPMENT REVENUE
BONDS 6,000,000 6,000,000
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value; authorized,
10,000,000 shares; none issued
Common Stock, $.01 par value; authorized,
120,000,000 shares; issued: 25,746,268
and 25,666,186 shares 257,500 256,700
Additional paid-in capital, net 409,203,800 408,369,500
Deficit (192,360,700) (148,821,700)
Deferred compensation, net (387,000) (975,900)
TOTAL STOCKHOLDERS' EQUITY 216,713,600 258,828,600
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $235,804,100 $276,057,700
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
SYNERGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Six Months Ended June 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(43,539,000) $(48,994,900)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of assets 5,365,400 4,149,500
Amortization of receivable for warrants
and deferred compensation 588,900 883,900
Impairment of assets 5,800,000 --
Change in operating assets and liabilities:
Accounts receivable 3,032,100 6,631,000
Accrued interest receivable 257,300 914,000
Prepaid expenses and other (3,241,900) (768,200)
Accounts payable and accrued expenses 1,861,400 2,286,000
Unearned revenue, net -- (342,800)
Total Adjustments 13,663,200 13,753,400
NET CASH USED IN OPERATING ACTIVITIES (29,875,800) (35,241,500)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (987,700) (13,218,400)
Net (purchase) redemption of short-term
investments (5,228,300) 104,588,800
Payment received on note receivable from
affiliate 5,905,700 --
Other assets (1,484,600) 2,451,700
NET CASH PROVIDED BY INVESTING
ACTIVITIES $(1,794,900) $93,822,100
(continued)
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
SYNERGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Six Months Ended June 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
and other, net $ 835,100 $ 583,800
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (30,835,600) 59,164,400
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 51,579,100 2,632,100
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $20,743,500 $61,796,500
<FN>
See notes to consolidated financial statements.
</TABLE>
SYNERGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
The consolidated balance sheets as of June 30, 1994, the related
consolidated statements of operations for the three-month and six-
month periods ended June 30, 1994 and 1993, and the consolidated
statements of cash flows for the six-month periods ended June 30,
1994 and 1993, are unaudited, but in management's opinion, include
all adjustments, consisting only of normal recurring adjustments
except as otherwise disclosed, necessary for a fair presentation
of such financial statements. Interim results are not necessarily
indicative of results for a full year.
The financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31,
1993. The accounting policies used in the preparation of these
financial statements are the same as those used in the Company's
annual financial statements except as modified for appropriate
interim accounting policies.
Certain reclassifications have been made to the Company's 1993
financial statements to conform them to 1994 classifications. The
consolidated statements of operations for the three and six months
ended June 30, 1993, and consolidated statement of cash flows for
the six months ended June 30, 1993, have been restated to reflect
the Company's change in its method of accounting for external
patent development costs.
Pursuant to Financial Accounting Standard No. 52, the financial
position and results of the Company's European and Japanese
subsidiaries are measured using the local currency as the
functional currency. The balance sheet has been translated at the
exchange rate in effect at June 30, 1994, while revenues and
expenses have been translated at the average exchange rate on a
monthly basis. The aggregate effect of translation is being
deferred as a component of stockholders' equity. At June 30, 1994,
the translation effect is $280,900 and is reported within
additional paid-in capital.
2. Subsequent Events
On July 15, 1994, Synergen learned that the interim analysis of the
follow-up Phase III clinical trial of IL-1ra showed a lack of
efficacy for severe sepsis. As a result, certain assets related
primarily to the production of interleukin-1 receptor antagonist
(IL-1ra or ANTRIL (trademark)) were determined to be impaired and were
written down to net realizable value. The Company is also analyzing
its options for the best use of its LakeCentre manufacturing facility
and may record an asset impairment charge for the facility in the
third quarter of 1994. See "Management's Discussion and Analysis -
Overview."
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
Synergen has focused its resources since inception on research and
development of biotechnology products, principally pharmaceuticals.
After it obtained the results of its initial Phase III clinical
trial of interleukin-1 receptor antagonist (IL-1ra or ANTRIL
(trademark)) for the treatment of sepsis in February of 1993, the
Company restructured its organization and reprioritized its clinical
programs, making the completion of a follow-up Phase III clinical
trial of IL-1ra for the treatment of severe sepsis its first
priority. On July 15, 1994, an independent safety and efficacy
monitoring committee (SEMC) conducted an interim analysis of the
results of the follow-up Phase III clinical trial of IL-1ra for
severe sepsis. The SEMC concluded that the data showed a lack of
efficacy of IL-1ra for severe sepsis, and that continuation of the
trial would not likely produce evidence of efficacy. As a result,
Synergen stopped the Phase III trial of IL-1ra for the treatment of
severe sepsis. In addition, the Company has withdrawn marketing
approval applications for IL-1ra for severe sepsis that were
previously filed with the European Union and a number of other
countries. The Company is now in the process of reprioritizing its
remaining clinical and other programs and eliminating certain
programs and operations to conserve cash and direct its efforts
toward its most promising opportunities. See "Management's
Discussion and Analysis - Liquidity and Capital Resources."
At this time, the Company plans to continue the ongoing Phase II
trial of IL-1ra for the treatment of rheumatoid arthritis, which is
being conducted in Europe. Development of other indications for IL-
1ra will be evaluated individually. The Company plans to continue
with its clinical development of ciliary neurotrophic factor (CNTF)
for amyotrophic lateral sclerosis (ALS or Lou Gehrig's disease)
through a joint venture with Syntex (U.S.A.) Inc. (Syntex);
preclinical and clinical development of tumor necrosis factor
binding protein (TNFbp) for inflammatory diseases; and preclinical
evaluation of glial derived neurotrophic factor (GDNF) for
Parkinson's disease. The Company is also exploring various
strategic alternatives for its business and research and
development operations.
The Company is currently funding research and development of its
proprietary products from cash reserves received from past public
offerings of equity securities. The termination of the follow-up
Phase III trial of IL-1ra for severe sepsis for lack of efficacy
and the withdrawal of the marketing applications for IL-1ra are
expected to have a significant and detrimental impact on the
Company's ability to raise additional capital for future
operations. See "Management's Discussion and Analysis - Liquidity
and Capital Resources."
Substantially all of Synergen's revenues since inception have
consisted of payments for sponsored research, payments under joint
development agreements, and interest earned on short-term
investments. All funding for development of IL-1ra through a
development agreement with Synergen Clinical Partners, L.P.
(Clinical Partners) was accrued as of March 31, 1993. The Syntex-
Synergen Neuroscience Joint Venture (Joint Venture) to develop
neurotrophic factors is the Company's only existing third-party
joint development arrangement that provides funding to the Company.
Funding available from Syntex under that agreement is expected to
be fully accrued in the first half of 1995. At that time, Synergen
may incur increased funding obligations to the Joint Venture.
Due to the results of the interim analysis, a non-cash charge
against assets of $5.8 million was recognized in the second quarter
of 1994 for assets primarily relating to a fill and finish contract
for IL-1ra for commercial sale in Europe and assets attributable to
the production of IL-1ra, including inventories of raw materials
and bulk product produced during the second quarter of 1994.
As a result of Synergen's decision to stop the Phase III follow-up
trial of IL-1ra for severe sepsis, the Company decided to
restructure its operations to conserve cash and permit continued
development of its priority projects. On August 1, 1994, as part
of the restructuring, the Company reduced its work force by
approximately 60 percent worldwide, or 375 employees. The Company
expects to record an expense of approximately $10 million for
restructuring (exclusive of any write-down charges relating to the
Company's LakeCentre manufacturing facility) in the third quarter
of 1994. Approximately two-thirds of the charge will be cash
expenses, including severance costs and, to a lesser extent,
shutdown costs. The remainder of the charge will be recognition of
asset write-downs resulting from the restructuring.
The Company's LakeCentre manufacturing facility in Boulder was
constructed to produce IL-1ra for commercial sale. At June 30,
1994, the net book value of the facility was approximately $40
million. In August 1994, the facility was closed in conjunction
with the Company's restructuring. The Company is currently
analyzing its options for the best use of the facility. Based on
its analysis, the Company may record a substantial non-cash asset
impairment charge for the facility in the third quarter of 1994.
Three Months Ended June 30, 1994 and 1993
Sponsored research and development revenues increased 391 percent
from the three months ended June 30, 1993, to the three months
ended June 30, 1994, primarily due to funding from the Joint
Venture for increased patient enrollment during the second quarter
of 1994 in the Joint Venture's Phase II/III trial of CNTF for the
treatment of ALS. These increased revenues were offset by
approximately the same amount of increased expenditures incurred on
behalf of the Joint Venture.
Interest and other income decreased 58 percent from the second
quarter of 1993 to the second quarter of 1994, primarily due to a
decrease in the average amount of cash available for investment.
Interest income will continue to decrease during 1994 as cash
available for investment is used to fund operating costs.
Total research and development expenses decreased 17 percent from
the three months ended June 30, 1993, to the three months ended
June 30, 1994, primarily due to a decrease in personnel and a
reprioritization of the Company's projects as a result of the
restructuring that took place during the second quarter of 1993.
General and administrative expenses decreased eight percent from
the second quarter of 1993 to the second quarter of 1994 primarily
due to a decrease in personnel as a result of the restructuring
that took place during the second quarter of 1993.
The Company recorded $5.8 million in non-cash charges against
assets in the second quarter. See "Management's Discussion and
Analysis - Overview."
Capital expenditures were $0.4 million and $4.3 million for the
three months ended June 30, 1994 and 1993, respectively. The
decrease was primarily due to a reprioritization of the Company's
projects as a result of the restructuring that took place during
the second quarter of 1993.
Six Months Ended June 30, 1994 and 1993
Sponsored research and development revenues increased 11 percent
from the six months ended June 30, 1993, to the six months ended
June 30, 1994, primarily due to funding from the Joint Venture for
increased patient enrollment in the Joint Venture's Phase II/III
trial of CNTF during the first half of 1994 and the full
recognition of revenue attributable to Clinical Partners by the
first quarter of 1993. These increased revenues were offset by
approximately the same amount of increased expenditures incurred on
behalf of the Joint Venture.
Interest and other income decreased 52 percent from the first half
of 1993 to the first half of 1994, primarily due to a decrease in
the average amount of cash available for investment. Interest
income will continue to decrease during 1994 as cash available for
investment is used to fund operating costs.
Total research and development expenses decreased 17 percent from
the six months ended June 30, 1993, to the six months ended June
30, 1994, primarily due to a decrease in personnel and a
reprioritization of the Company's projects as a result of the
restructuring that took place during the second quarter of 1993.
General and administrative expenses decreased eight percent from
the first half of 1993 to the first half of 1994 due to a decrease
in personnel as a result of the restructuring that took place
during the second quarter of 1993.
The Company recorded $5.8 million in non-cash charges against
assets in the second quarter. See "Management's Discussion and
Analysis - Overview."
Capital expenditures were $1.0 million and $13.2 million for the
six months ended June 30, 1994 and 1993, respectively. The
decrease was primarily due to a reprioritization of the Company's
projects as a result of the restructuring that took place during
the second quarter of 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily
from payments from joint development agreements, research and
development limited partnerships, interest earned on short-term
investments, and proceeds from the sale of equity securities. The
Company's use of joint development arrangements and limited
partnerships to fund research and development programs and the sale
of equity securities have permitted the Company to maintain
significant levels of cash and other liquid investments. Cash,
short-term investments, and restricted short-term securities
included in other assets at June 30, 1994, and December 31, 1993,
were $135 million and $161 million, respectively. The decrease is
attributable primarily to cash used in operations. At June 30,
1994, there was no material difference between the net book value
and fair market value of short-term investments.
The Company is currently taking steps to significantly reduce the
amount of cash used to fund ongoing operations. These steps
include reduction of Synergen's and its subsidiaries' staffs by
approximately 60 percent, elimination of certain programs and
operations, including its Japanese operations and most of its
European operations, and the possible sale or lease of certain of
its real property holdings.
The Company has $6 million of Industrial Development Revenue Bonds
outstanding. The Company currently intends to redeem all of the
outstanding bonds in the fourth quarter of 1994.
Until the Company's operations generate significant revenues, cash
reserves will continue to fund operations. The Company currently
expects that its existing cash will fund operations for the next
several years based upon its current estimates of restructured
operations and assuming no extraordinary cash requirements. The
Company may pursue opportunities to obtain additional financings in
the future. Such financing may be sought through various sources,
including bank borrowings, lease arrangements relating to fixed
assets, or other financing methods. The Company does not anticipate
that it will be able to raise additional capital through equity
financings in the near future because of the termination of the
follow-up Phase III trial of IL-1ra for severe sepsis, the
withdrawal of the marketing approval application for IL-1ra for
severe sepsis in the European Union and other countries, and the
reduction of Synergen's operations. The Company is currently
exploring various strategic alternatives for its business and
research and development operations.
The market price of the Company's common stock is volatile, and the
price of the stock could be dramatically affected one way or
another depending on numerous factors. Following the Company's
announcement on July 18, 1994, of the Company's decision to stop
the follow-up Phase III clinical trial of IL-1ra for severe sepsis,
the price of the Company's common stock dropped by approximately 50
percent. The market price of the Company's common stock could also
be materially affected by the results of the Phase II trial of IL-
1ra for the treatment of rheumatoid arthritis, the progress of the
Joint Venture's CNTF development program and the results of the
Phase II/III clinical trial of CNTF for the treatment of ALS, which
is expected to be completed in the last quarter of 1994, as well as
by the results of the Company's other development programs.
Results of the CNTF trial are expected to be available during the
first half of 1995.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Following a drop in the price of Synergen's stock on February 22,
1993, a number of class action complaints were filed against
Synergen and certain of its officers and directors in the United
States District Court for the District of Colorado on behalf of
various classes of the Company's investors. The complaints were
consolidated by a consolidated class action complaint that was
filed on April 15, 1993, and amended on May 2, 1994. In addition
to Synergen, Larry Soll, chairman of the Board of Directors of
Synergen and the former chief executive officer, and Kenneth J.
Collins, executive vice president of finance and administration,
were named as defendants in the amended consolidated complaint,
together with Jon S. Saxe, the former president and chief executive
officer and a former director, and Michael A. Catalano, the former
vice president of clinical research. The original consolidated
complaint alleged violations of federal securities laws and state
law. The Court dismissed the state law claims on April 8, 1994.
On May 30, 1994, the defendants in the suit filed a motion to
dismiss or in the alternative for summary judgment, which has been
set for hearing in September 1994.
On June 8, 1994, the United States Patent and Trademark Office
declared an interference between Synergen's United States patent
number 5,141,856, issued August 25, 1992, and a patent application
assigned to the Max Planck Institut fur Psychiatrie and Regeneron
Pharmaceuticals, Inc. The interference relates to a method for
producing CNTF in E. coli. When the Patent and Trademark Office
determines that there is a dispute as to who actually made an
invention first, an interference proceeding can be declared, and
the applicants are required to prove who was the first inventor.
In the United States, the general rule is that a patent ultimately
is awarded to the person who is first to make an invention, rather
than the person who is the first to file a patent application. The
Company believes it has a reasonable patent position.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on May
19, 1994. The following matters were submitted to a vote of the
stockholders:
(a)Election of directors -- The current slate of directors was re-
elected to serve as directors of the Company until the 1995
annual meeting of stockholders and until successors are
elected. There were no abstentions on the election of
directors.
Total Votes Total Votes
For Withheld
Gregory B. Abbott 22,512,481 688,673
Arthur H. Hayes, Jr. 22,545,476 635,678
David I. Hirsh 22,513,976 667,178
Barry MacTaggart 22,545,376 635,778
Larry Soll 22,511,293 669,861
Robert C. Thompson 22,513,431 667,723
Glenn S. Utt, Jr. 22,545,476 635,678
(b)Appointment of independent auditors -- A proposal to ratify the
appointment of Deloitte & Touche as the company's certified
public accountants for the fiscal year ending December 31,
1994, was approved by a vote of 22,919,582 shares in favor,
134,697 shares withheld, and 129,350 shares abstaining.
There were no broker non-votes on the election of directors or the
appointment of independent auditors.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
The Company filed a report on Form 8-K dated June 1, 1994,
disclosing the appointment of Gregory B. Abbott as President and
Chief Executive Officer of the Company.
The Company filed a report on Form 8-K dated July 20, 1994,
disclosing the termination of the Company's follow-up Phase III
clinical trial of IL-1ra for the treatment of severe sepsis.
The Company filed a report on Form 8-K dated August 10, 1994,
disclosing overall staff reductions made following the termination
of the Company's follow-up Phase III clinical trial of IL-1ra for
the treatment of severe sepsis.
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.
SYNERGEN, INC.
(Registrant)
Date: August 12, 1994 By: Gregory B. Abbott
Gregory B. Abbott
President and
Chief Executive Officer
Date: August 12, 1994 By: Kenneth J. Collins
Kenneth J. Collins
Executive Vice President,
Finance and Administration and
Chief Financial Officer
