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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
- ------------
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 0-12900
ALLIANCE PHARMACEUTICAL CORP.
(Exact name of Registrant as specified in its charter)
New York 14-1644018
- ------------------------------------ ----------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3040 Science Park Road
San Diego, California 92121
- ------------------------------------ ----------------------------------------
(Address of principal Zip Code
executive offices)
Registrant's telephone number,
including area code: 619-558-4300
----------------------------------------
Indicate by a check whether the registrant (1) has filed all reports required to
be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
--------------------------- ______________________
As of November 2, 1994, Registrant had 21,405,787 shares of its Common Stock,
$.01 par value, outstanding.
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
----------------------------------------------
INDEX
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<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
PART I, item 1 and item 2 are hereby amended in
their entirety to read as follows:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
</TABLE>
2
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
- ----------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1994 1994
----------------- -----------------
Assets (Unaudited) (Note)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,344,000 $ 1,902,000
Short-term investments 25,094,000 19,154,000
Inventories and other current assets 1,884,000 1,349,000
----------------- -----------------
Total current assets 31,322,000 22,405,000
Property, plant and equipment - net 10,046,000 10,165,000
Purchased technology - net 16,742,000 17,033,000
Other assets - net 1,780,000 3,529,000
----------------- -----------------
$ 59,890,000 $ 53,132,000
================= =================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 2,462,000 $ 1,074,000
Accrued expenses 1,408,000 1,885,000
----------------- -----------------
Total current liabilities 3,870,000 2,959,000
Other 324,000 348,000
Stockholders' equity:
Preferred stock - $.01 par value; 5,000,000 shares authorized;
1,500,000 and 0 shares outstanding at September 30, 1994
and June 30, 1994 respectively 15,000
Common stock - $.01 par value; 30,000,000 shares authorized;
21,372,787 and 21,372,054 outstanding at
September 30, 1994 and June 30, 1994 respectively 214,000 214,000
Additional paid-in capital 222,942,000 208,954,000
Accumulated deficit (167,475,000) (159,343,000)
----------------- -----------------
Total stockholders' equity 55,696,000 49,825,000
----------------- -----------------
$ 59,890,000 $ 53,132,000
================= =================
</TABLE>
Note: The balance sheet at June 30, 1994 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 for complete financial statements.
See Notes to Condensed Consolidated Financial Statements.
3
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
September 30,
1994 1993
-------------- --------------
(Unaudited)
<S> <C> <C>
Revenues:
Product revenue $ 58,000 $ 129,000
License and research revenue 5,125,000 24,000
-------------- --------------
5,183,000 153,000
Operating expenses:
Research and development (including 11,566,000 6,894,000
charge of $1,686,000 for
disposition of product rights)
General and administrative 2,052,000 1,577,000
-------------- --------------
13,618,000 8,471,000
-------------- --------------
Loss from operations (8,435,000) (8,318,000)
Investment income and other 303,000 477,000
-------------- --------------
Net loss $ (8,132,000) $ (7,841,000)
============== ==============
Net loss per share $ (0.38) $ (0.41)
============== ==============
Weighted average number of shares outstanding 21,373,000 19,009,000
============== ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
September 30,
1994 1993
-------------- --------------
(Unaudited)
<S> <C> <C>
Operating activities:
Net loss $ (8,132,000) $ (7,841,000)
-------------- --------------
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization 748,000 724,000
Disposition of product rights 1,686,000
Changes in assets and liabilities:
Inventories and other (553,000) 473,000
Accounts payable and accrued expenses and other 887,000 338,000
-------------- --------------
Net adjustments 2,768,000 1,535,000
-------------- --------------
Net cash used in operating activities (5,364,000) (6,306,000)
-------------- --------------
Financing activities:
Issuance of common stock, preferred stock and warrants 14,580,000 (1,000)
-------------- --------------
Net cash provided by (used in) financing activities 14,580,000 (1,000)
-------------- --------------
Investing activities:
Short-term investments (6,517,000) 8,569,000
Property, plant and equipment (257,000) (386,000)
-------------- --------------
Net cash (used in) provided by investing activities (6,774,000) 8,183,000
-------------- --------------
Increase in cash and cash equivalents 2,442,000 1,876,000
Cash and cash equivalents at beginning of period 1,902,000 5,316,000
-------------- --------------
Cash and cash equivalents at end of period $ 4,344,000 $ 7,192,000
============== ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Alliance Pharmaceutical Corp. ("Alliance") and its subsidiaries
(collectively, the "Company") are engaged in the development, manufacturing
and early-stage marketing of medical and pharmaceutical products.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Alliance
and its wholly owned subsidiaries, BioPulmonics, Inc. and Rosanin Corporation,
and its majority owned subsidiaries, Astral, Inc., and Applications et
Transferts de Technologies Avancees. All significant intercompany accounts
and transactions have been eliminated. Certain amounts in 1994 have been
reclassified to conform to the current year's presentation.
Interim Condensed Financial Statements
--------------------------------------
The condensed consolidated balance sheet as of September 30, 1994, the
condensed consolidated statements of operations for the three months ended
September 30, 1994 and 1993, the condensed consolidated statements of cash
flows for the three months ended September 30, 1994 and 1993 are unaudited.
In the opinion of management, such unaudited financial statements include all
adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the results for the periods presented. Interim results
are not necessarily indicative of the results to be expected for the full
year. The financial statements should be read in conjunction with the
Company's consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended June 30, 1994.
Cash, Cash Equivalents and Short-Term Investments
-------------------------------------------------
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 ("FASB No. 115"), Accounting for Certain
Investments in Debt and Equity Securities. Management determines the
appropriate classification of short-term investments at the time of purchase
and re-evaluates such designation as of each balance sheet date. As of
September 30, 1994, the Company classified its short-term investments as
available-for-sale. Available-for-sale investments are stated at fair value,
with unrealized gains and losses (if any) carried as a component of
stockholders' equity. Application of FASB No. 115 did not materially affect
stockholders' equity as of September 30, 1994.
Purchased Technology
--------------------
The purchased technology was acquired by virtue of the merger of
Fluoromed Pharmaceutical, Inc. into a subsidiary of the Company in fiscal
1989. The technology acquired is the Company's core perfluorochemical ("PFC")
technology and was valued based on an analysis of the present value of future
earnings anticipated from this technology at that time. The Company identified
alternative future uses for the PFC technology, including Oxygent (temporary
blood substitute) and LiquiVent (intrapulmonary oxygen carrier) products.
The PFC technology is the basis for the Company's main drug
development programs and is being amortized over a 20 year life. Amortization
of purchased technology is included in research and development expense.
Accumulated amortization was $6,193,000 and $6,484,000 at June 30, 1994 and
September 30, 1994, respectively.
The carrying value of purchased technology is reviewed periodically
based on the projected cash flows to be received from license fees, milestone
payments, royalties and other product revenues. If such cash flows are less
than the carrying value of the purchased technology, the difference will be
charged to expense.
Net Loss Per Share
------------------
Net loss per share is based on the weighted average number of shares
outstanding during the respective periods and does not include common stock
equivalents since their effect on the net loss per share would be anti-
dilutive.
2. LICENSE AGREEMENT
In August 1994, the Company executed a license agreement with Ortho
Biotech, Inc. and The R.W. Johnson Pharmaceutical Research Institute, a
division of Ortho Pharmaceutical Corporation (collectively referred to as
"Ortho"), which provides Ortho with worldwide marketing and, at its election,
manufacturing rights to the Company's injectable perfluorochemical emulsions
capable of transporting oxygen for therapeutic use. Ortho will pay to
Alliance a royalty based upon its sales of the product after
commercialization. In addition, Ortho paid to Alliance an initial license fee
of $4.0 million and will make other payments based on the achievement of
certain milestones. Ortho will also be responsible for substantially all the
remaining costs of developing the products. In conjunction with the license
agreement, Johnson & Johnson Development Corp. purchased 1.5 million shares of
Alliance convertible preferred stock for $15.0 million and obtained a warrant
to purchase 300,000 shares of Alliance common stock at $15 per share during
the next three years. As a result of the Ortho license agreement, the Company
expensed capitalized product rights of $1.7 million (see Results of
Operations).
6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(References to years are to the Company's fiscal years ended June 30.)
Alliance has devoted substantial resources to research and development
related to its pharmaceutical products based upon perfluorochemical ("PFC") and
emulsion technologies. The Company has been unprofitable since inception and
expects to incur operating losses for at least the next several years due to
continued requirements for research and development, preclinical testing and
clinical trials, regulatory activities, commercial manufacturing start-up, and
the establishment of a sales and marketing organization and/or arrangements
therefor. The amount of net losses and the time required by the Company to
achieve profitability are highly uncertain. There can be no assurance that the
Company will be able to achieve profitability at all or on a sustained basis.
Liquidity and Capital Resources
Through September 1994, the Company financed its activities primarily
from public and private sales of equity and funding from marketing and related
agreements with corporate partners. In August 1994, the Company and Ortho
Biotech, Inc. ("Ortho") entered into a worldwide exclusive license agreement
("License Agreement") for injectable PFC emulsions capable of transporting
oxygen for therapeutic use, including Oxygent(TM). Pursuant to the License
Agreement, license and research revenues are expected to increase in 1995 from
1994. Under the License Agreement, Ortho paid to Alliance an initial fee of $4.0
million and will make other payments upon the achievement of certain milestones.
Ortho is responsible for substantially all the remaining costs of developing the
products and will pay Alliance a royalty based upon sales of products after
commercialization. In conjunction with the License Agreement, Johnson & Johnson
Development Corp. ("J&JDC") purchased 1.5 million shares of Alliance convertible
preferred stock for $15.0 million and obtained a warrant to purchase 300,000
shares of Alliance common stock at $15 per share during the next three years. In
January 1994, the Company completed a private placement of 2.2 million shares of
common stock, resulting in net proceeds to the Company of $15.2 million. The
Company has financed substantially all of its office and research facilities and
related leasehold improvements under operating lease arrangements.
The Company had net working capital of $27.5 million at September 30,
1994, compared to $19.4 million at June 30, 1994. The Company's cash, cash
equivalents, and short-term investments increased to $29.4 million at September
30, 1994, from $21.1 million at June 30, 1994. The increase was primarily the
result of $15.0 million received from the sale of convertible preferred stock to
J&JDC and from $4.0 million of license revenue attributable to the License
Agreement. These cash increases were partially offset by cash used in
operations. Capital expenditures for 1995 are expected to be comparable to
those incurred during 1994. The Company's operations to date have consumed
substantial amounts of cash, and are expected to continue to do so over the
foreseeable future.
In September 1993, Alliance's previously inactive subsidiary, Astral,
Inc. ("Astral"), entered into licensing and research agreements with the
University of Pennsylvania ("Penn"), whereby Astral agreed to make certain
payments to Penn, and Penn and certain investigators received an initial 15%
ownership interest in Astral. Alliance also sublicensed to Astral certain
technology for which it had previously funded research. During 1994, Alliance
provided approximately $1.1 million to Astral for its research activities. For
the three months ended September 30, 1994, Alliance provided approximately
$350,000 to Astral for its research activities. The Company intends to consider
other technologies that may be available to Astral or other subsidiaries for
licensing and research agreements with other research institutions. The Company
intends to seek outside sources of funding for the operations of Astral or any
such other subsidiaries. There can be no assurance that such funding will be
available on favorable terms, if at all. If new license and research agreements
are added and outside sources of funding are not available, research support to
Astral or any such other subsidiaries is expected to increase significantly.
The Company continually reviews its product development activities in
an effort to allocate its resources to those product candidates that the Company
believes have the greatest commercial potential. Factors considered by the
Company in determining the products to pursue include projected markets and
need, potential for regulatory approval and reimbursement under the existing
health care system, as well as anticipated health care reforms, technical
feasibility, expected and known product attributes, and estimated costs to bring
the product to market. Based on these and other factors, the Company may from
time to time reallocate its resources among its product development activities.
Additions to products under development or changes in products being pursued can
substantially and rapidly change the Company's funding requirements.
In December 1993, the Company entered into an agreement with its
primary supplier of raw material for certain products. Under the terms of the
agreement, the Company is obligated to fund the supplier at defined minimum
levels. All costs associated with the contract are charged to expense as
incurred.
7
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The Company expects to incur substantial additional expenditures
associated with product development. The Company may seek additional
collaborative research and development relationships with suitable corporate
partners for its non-licensed products. There can be no assurance that such
relationships, if any, will successfully reduce the Company's funding
requirements. Additional equity or debt financing may be required, and there
can be no assurance that funds from these sources would be available on
favorable terms, if at all. The public has recently focused significant
attention on issues of health care reform. If some of the health care reform
proposals under consideration become law, potential financial returns from the
Company's products could be reduced. The Company's ability to raise additional
funds through sales of its securities at attractive prices depends in part on
investor perception of the eventual successful commercialization of the
Company's products. Consequently, health care reforms which are currently being
considered could, if adopted, have an adverse effect on the Company's ability to
secure adequate funds and the extent to which the Company may be able to
recognize profit from product sales; however, the impact is difficult to predict
at this time. If adequate funds are not available, the Company may be required
to delay, scale back, or eliminate one or more of its product development
programs, or obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates, or products that the Company would not
otherwise relinquish.
Alliance anticipates that its current capital resources, including
expected revenues from the License Agreement, its investments, and product
sales, will be adequate to satisfy its capital requirements and fund current and
planned operations through 1995. The Company's future capital requirements will
depend on many factors, including continued scientific progress in its research
and development programs, progress with preclinical testing and clinical trials,
the time and cost involved in obtaining regulatory approvals, patent costs,
competing technological and market developments, changes in existing
collaborative relationships, the ability of the Company to establish development
arrangements, the cost of manufacturing scale-up, and the establishment of an
effective sales and marketing organization and/or arrangements therefor.
While the Company believes that it can produce materials for the
initial market launch of its emulsion products at its existing San Diego
facility, it may need to expand its commercial manufacturing capability for all
of its products in the future. This expansion may occur in stages, each of
which would require regulatory approval, and product demand could at times
exceed supply capacity. The Company has not selected a site or obtained any
regulatory approvals for construction of a commercial production facility for
its products. The projected location and completion date of any production
facility will depend upon regulatory and development activities and other
factors. The Company cannot predict the amount that it will expend for the
construction of such a production facility, and there can be no assurance as to
when or whether the U.S. Food and Drug Administration will determine that such
facility conforms with Good Manufacturing Practices. The License Agreement
provides an option to Ortho to elect to manufacture the emulsion products
referred to therein, or to require the Company to manufacture such products at a
negotiated price.
The Company's business is subject to significant risks, including the
uncertainties associated with the lengthy regulatory approval process, obtaining
and enforcing patents important to the Company's business, and possible
competition from other products. Even if the Company's products appear
promising at an early stage of development, they may not reach the market for a
number of reasons. Such reasons include, but are not limited to, the
possibilities that the potential products will be found ineffective during
clinical trials, failure to receive necessary regulatory approvals, difficulties
in manufacturing on a large scale, failure to obtain market acceptance, or the
inability to commercialize because of proprietary rights of third parties. The
research, development, and market introduction of new products will require the
application of considerable technical and financial resources by Alliance, while
revenues generated from such products, assuming they are developed successfully,
may not be realized for several years. Other material and unpredictable factors
which could affect operating results include, without limitation, the
uncertainty of the timing of product approvals and introductions and of sales
growth; the ability to obtain necessary raw materials at cost effective prices
or at all; the effect of possible technology and/or other business acquisitions
or transactions; and the increasing emphasis on controlling health care costs
and potential legislation or regulation of health care pricing.
The Company and certain of its officers and directors are named as
defendants in a lawsuit filed by certain shareholders in September 1992. The
Company believes it has meritorious defenses and intends to defend vigorously
against the claims brought by the shareholders in the action. The Company
believes the eventual outcome of the litigation will not have a material adverse
effect on the Company's financial condition.
Results of Operations
Three Months Ended September 30, 1994 as Compared with Three Months
Ended September 30, 1993
The Company's license and research revenue increased to $5.1 million
for the three months ended September 30, 1994, compared to $24,000 for the three
months ended September 30, 1993. The increase was due to $4.0 million of
8
<PAGE>
license and $1.1 million of research revenues derived from the License
Agreement. The Company expects research revenue to increase significantly
during 1995, compared to 1994.
The Company had net product revenue of $58,000 for the three months
ended September 30, 1994, compared to $129,000 for the three months ended
September 30, 1993. The Company's sales of Imagent(R) GI and Sat Pad(TM) have
not been expected to provide significant revenue to the Company, and substantial
increases are not anticipated. In September 1994, the Company discontinued
promotional activities for Imagent GI. The majority of the Company's products
are in the development stage and there can be no assurance as to whether or when
it will be able to increase its product revenue significantly.
The Company incurred total operating expenses of $13.6 million for the
three months ended September 30, 1994. Operating expenses include a $1.4 million
charge for purchases of raw material for certain products, $1.8 million for
Oxygent costs incurred prior to execution of the License Agreement, $0.5 million
for products no longer promoted or developed by Alliance, and a $1.7 million
charge for capitalized product rights. The $1.4 million charge for purchases of
raw material arises under a December 1993 agreement the Company entered into
with its primary supplier. Under terms of the agreement, the Company is
obligated to fund the supplier at defined minimum levels. All costs associated
with the contract are charged to research and development expense as incurred.
In January 1994, the Company regained from Boehringer Ingelheim International
GmbH ("BII") all marketing and manufacturing rights to Imagent (diagnostic
imaging agents) and Oxygent (temporary blood substitute) products outside of
North America. In conjunction with the acquisition of the marketing and
manufacturing rights from BII, the Company recorded product rights of $1.8
million. The unamortized portion ($1.7 million) of these product rights was
charged to research and development expense when the Company licensed these
product rights to Ortho.
Research and development expenses increased by 68% to $11.6 million
for the three months ended September 30, 1994, compared to $6.9 million for the
three months ended September 30, 1993, primarily a result of the increases
described above.
General and administrative expenses increased to $2.1 million for the
three months ended September 30, 1994, compared to $1.6 million for the three
months ended September 30, 1993. The increase in general and administrative
expenses was primarily due to increased professional fees.
Investment income and other was $303,000 for the three months ended
September 30, 1994, compared to $477,000 for the three months ended September
30, 1993.
Alliance expects to incur substantial operating losses over the next
several years due to continuing and increasing expenses associated with its
research and development programs. Operating losses may fluctuate from quarter
to quarter as a result of differences in the timing of revenues earned and
expenses incurred and such fluctuations may be substantial. The Company's
historical results are not necessarily indicative of future results.
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.
ALLIANCE PHARMACEUTICAL CORP.
(Registrant)
/s/ Theodore D. Roth
---------------------------------
Theodore D. Roth
Executive Vice President
and Chief Financial Officer
Date: March 7, 1994
9
