<PAGE>
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 December 31, 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 January 31, 1995, Registrant had 21,407,787 shares of its Common Stock,
$.01 par value, outstanding.
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
----------------------------------------------
INDEX
-----
<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
<PAGE>
PART I Financial Information:
Item 1. Financial Statements
<TABLE>
<CAPTION>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
----------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------------------------
December 31, June 30,
1994 1994
----------------- -----------------
(Unaudited) (Note)
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 5,946,000 $ 1,902,000
Short-term investments 14,154,000 19,154,000
Research revenue receivable 3,100,000
Inventory and other current assets 1,408,000 1,349,000
----------------- -----------------
Total current assets 24,608,000 22,405,000
Property, plant and equipment - net 9,861,000 10,165,000
Purchased technology - net 16,452,000 17,033,000
Other assets - net 1,943,000 3,529,000
----------------- -----------------
$ 52,864,000 $ 53,132,000
================= =================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 1,692,000 $ 1,074,000
Accrued expenses 2,039,000 1,885,000
----------------- -----------------
Total current liabilities 3,731,000 2,959,000
Other 518,000 348,000
Stockholders' equity:
Preferred stock - $.01 par value; 5,000,000
shares authorized; 1,500,000 shares outstanding
at December 31, 1994 15,000
Common stock - $.01 par value; 30,000,000 shares
authorized at June 30, 1994 and 50,000,000 shares
authorized at December 31, 1994; 21,407,787
and 21,372,054 shares issued and outstanding at
December 31, 1994 and June 30, 1994, respectively 214,000 214,000
Additional paid-in capital 222,878,000 208,954,000
Accumulated deficit (174,492,000) (159,343,000)
----------------- -----------------
Total stockholders' equity 48,615,000 49,825,000
----------------- -----------------
$ 52,864,000 $ 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
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
- ----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1994 1993 1994 1993
------------------ ------------------ ------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Product revenue $ 51,000 $ 21,000 $ 109,000 $ 150,000
License and research revenue 1,975,000 78,000 7,100,000 102,000
------------------ ------------------ ------------------ ------------------
2,026,000 99,000 7,209,000 252,000
Operating expenses:
Research and development 7,414,000 8,660,000 18,981,000 15,555,000
General and administrative 1,901,000 1,809,000 3,952,000 3,385,000
------------------ ------------------ ------------------ ------------------
9,315,000 10,469,000 22,933,000 18,940,000
------------------ ------------------ ------------------ ------------------
Loss from operations (7,289,000) (10,370,000) (15,724,000) (18,688,000)
Investment income and other 272,000 474,000 575,000 951,000
------------------ ------------------ ------------------ ------------------
Net loss (7,017,000) (9,896,000) (15,149,000) (17,737,000)
Dividends on preferred stock (219,000) (219,000)
------------------ ------------------ ------------------ ------------------
Net loss applicable to common shares $ (7,236,000) $ (9,896,000) $ (15,368,000) $ (17,737,000)
================== ================== ================== ==================
Net loss per share $ (0.34) $ (0.52) $ (0.72) $ (0.93)
================== ================== ================== ==================
Weighted average number of shares
outstanding 21,398,000 19,209,000 21,385,000 19,109,000
================== ================== ================== ==================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
- ----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Six months ended
December 31,
1994 1993
------------------ ------------------
(Unaudited)
<S> <C> <C>
Operating activities:
Net loss $ (15,368,000) $ (17,737,000)
------------------ ------------------
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization 1,458,000 1,562,000
Disposition of product rights 1,686,000
Changes in assets and liabilities:
Research revenue receivable (3,100,000)
Accounts payable and accrued expenses and other 660,000 2,917,000
------------------ ------------------
Net adjustments 704,000 4,479,000
------------------ ------------------
Net cash used in operating activities (14,664,000) (13,258,000)
------------------ ------------------
Financing activities:
Issuance of common stock, preferred stock and warrants 14,859,000 13,029,000
------------------ ------------------
Net cash provided by financing activities 14,859,000 13,029,000
------------------ ------------------
Investing activities:
Short-term investments 4,300,000 15,282,000
Property, plant and equipment (451,000) (816,000)
------------------ ------------------
Net cash provided by investing activities 3,849,000 14,466,000
------------------ ------------------
Increase in cash and cash equivalents 4,044,000 14,237,000
Cash and cash equivalents at beginning of period 1,902,000 5,316,000
------------------ ------------------
Cash and cash equivalents at end of period $ 5,946,000 $ 19,553,000
================== ==================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
- ----------------------------------------------
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 December 31, 1994, the
condensed consolidated statements of operations for the three and six months
ended December 31, 1994 and 1993, the condensed consolidated statements of cash
flows for the six months ended December 31, 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. The Company classifies
its short-term investments as available-for-sale. Available-for-sale investments
are stated at fair value, with unrealized gains and losses carried as a
component of stockholders' equity.
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 $6,774,000 at June 30, 1994 and December 31,
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. As of December 31, 1994, the Company had recorded a receivable of $3.1
million, representing funding due from Ortho for development costs incurred.
Such amounts are recorded as research revenue in the statements of consolidated
operations. 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.
6
<PAGE>
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 December 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. and The R.W. Johnson Pharmaceutical Research Institute, a division
of Ortho Pharmaceutical Corporation (collectively referred to as "Ortho")
entered into a worldwide exclusive license agreement ("License Agreement") for
injectable PFC emulsions capable of transporting oxygen for therapeutic use,
including Oxygent/TM/ (temporary blood substitute). Pursuant to the License
Agreement, license and research revenues are expected to continue to increase in
1995. 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. As of December 31, 1994, the Company had recorded a
receivable of $3.1 million, representing funding due from Ortho for development
costs incurred. 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.
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 $20.9 million at December 31,
1994, compared to $19.4 million at June 30, 1994. The Company's cash, cash
equivalents, and short-term investments declined to $20.1 million at December
31, 1994, from $21.1 million at June 30, 1994. The decrease resulted primarily
from cash used for operating expenses of $18.7 million and from property, plant,
and equipment additions of $0.5 million. These uses of cash were offset by $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. 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.
During 1994, Alliance provided approximately $1.1 million to a
subsidiary of the Company, Astral, Inc. ("Astral"), for its research activities.
During the six months ended December 31, 1994, Alliance provided an additional
approximately $1.1 million to Astral for its research activities. For strategic
business reasons, in January 1995 Astral notified the University of Pennsylvania
that it intends to terminate the licensing and research agreements entered into
in September 1993. The Company intends to consider additional technologies that
may be available to Astral or it for licensing and/or research agreements. The
Company intends to seek outside sources of funding for the operations of Astral
or to fund any such other agreements. 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 funding for these activities 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.
7
<PAGE>
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.
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. 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 at least 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, and 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.
8
<PAGE>
Results of Operations
Six Months Ended December 31, 1994 as Compared with Six Months Ended
December 31, 1993
The Company's license and research revenue increased to $7.1 million
for the six months ended December 31, 1994, compared to $102,000 for the six
months ended December 31, 1993. The increase was due to $4.0 million of license
and $3.1 million of research revenues derived from the License Agreement. The
Company expects license and research revenue to increase significantly during
1995, compared to 1994, due to the License Agreement.
The Company incurred total operating expenses of $22.9 million for the
six months ended December 31, 1994. Operating expenses include a $2.9 million
charge for purchases of raw material for certain products currently being
developed, $1.8 million for Oxygent (temporary blood substitute) 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 $2.9 million charge for purchase of raw materials 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(R) (diagnostic imaging agents) and
Oxygent 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, based on the value of warrants issued to acquire the
rights. 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 22% to $19.0 million for
the six months ended December 31, 1994, compared to $15.6 million for the six
months ended December 31, 1993. The growth in expenses is primarily a result of
the increases discussed above and increased staffing to support growth in
research and development efforts. These expenses were partially offset by a
reduction in payments to universities and outside consultants.
General and administrative expenses increased by 17% to $4.0 million
for the six months ended December 31, 1994, compared to $3.4 million for the six
months ended December 31, 1993. The increase in general and administrative
expenses was primarily due to increased professional fees.
Investment income and other was $575,000 for the six months ended
December 31, 1994, compared to $951,000 for the six months ended December 31,
1993. The decline was primarily a result of lower average cash balances.
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.
Three Months Ended December 31, 1994 as Compared with Three Months
Ended December 31, 1993
The Company's license and research revenue increased by $1.9 million
for the three months ended December 31, 1994 from $78,000 for the three months
ended December 31, 1993. The increase was primarily a result of research
revenues derived from the License Agreement. The Company expects license and
research revenue to increase significantly during 1995, compared to 1994.
Research and development expenses decreased by 14% to $7.4 million for
the three months ended December 31, 1994, compared to $8.7 million for the three
months ended December 31, 1993, primarily a result of a reduction in payments to
universities and outside consultants. This decrease in expenses was partially
offset by increased staffing costs to support growth in certain core research
and development efforts, and increased materials expenses.
General and administrative expenses increased to $1.9 million for the
three months ended December 31, 1994, compared to $1.8 million for the three
months ended December 31, 1993. The increase in general and administrative
expenses was primarily due to increased professional fees.
Investment income and other was $272,000 for the three months ended
December 31, 1994, compared to $474,000 for the three months ended December 31,
1993. The decline was primarily a result of lower average cash balances.
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
9
<PAGE>
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, 1995
10
