<PAGE>
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 MARCH 31, 1996
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 APRIL 30, 1996, REGISTRANT HAD 27,991,491 SHARES OF ITS COMMON STOCK, $.01
PAR VALUE, OUTSTANDING.
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
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
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
2
<PAGE>
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
--------------- --------------
ASSETS (UNAUDITED) (NOTE)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 22,560,000 $ 12,519,000
Short-term investments 9,488,000 10,964,000
Research revenue receivable 2,000,000 2,060,000
Inventories and other current assets 1,860,000 1,913,000
------------- -------------
Total current assets 35,908,000 27,456,000
PROPERTY, PLANT AND EQUIPMENT - NET 11,845,000 9,946,000
PURCHASED TECHNOLOGY - NET 16,345,000 17,371,000
OTHER ASSETS - NET 1,109,000 1,257,000
------------- -------------
$ 65,207,000 $ 56,030,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,191,000 $ 2,509,000
Accrued expenses 3,323,000 2,601,000
Current portion of long-term debt 701,000
------------- -------------
Total current liabilities 6,215,000 5,110,000
LONG-TERM DEBT 1,132,000
OTHER 1,365,000 843,000
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; 5,000,000 shares authorized;
2,450,000 and 1,500,000 outstanding at March 31, 1996
and June 30, 1995, respectively 25,000 15,000
Common stock - $.01 par value; 50,000,000 shares authorized;
25,119,603 and 24,759,150 outstanding at
March 31, 1996 and June 30, 1995, respectively 251,000 248,000
Additional paid-in capital 263,844,000 238,874,000
Accumulated deficit (207,625,000) (189,060,000)
------------- -------------
Total stockholders' equity 56,495,000 50,077,000
------------- -------------
$ 65,207,000 $ 56,030,000
------------- -------------
------------- -------------
</TABLE>
Note: The balance sheet at June 30, 1995 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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
License and research revenue $ 7,200,000 $ 2,450,000 $ 11,310,000 $ 9,550,000
Product revenue 32,000 26,000 108,000 135,000
----------- ----------- ------------ ------------
7,232,000 2,476,000 11,418,000 9,685,000
OPERATING EXPENSES:
Research and development 8,843,000 6,792,000 24,404,000 25,922,000
General and administrative 2,198,000 2,397,000 5,583,000 6,200,000
----------- ----------- ------------ ------------
11,041,000 9,189,000 29,987,000 32,122,000
----------- ----------- ------------ ------------
LOSS FROM OPERATIONS (3,809,000) (6,713,000) (18,569,000) (22,437,000)
INVESTMENT INCOME AND OTHER - NET 137,000 232,000 567,000 807,000
----------- ----------- ------------ ------------
NET LOSS (3,672,000) (6,481,000) (18,002,000) (21,630,000)
DIVIDENDS ON PREFERRED STOCK (187,000) (188,000) (563,000) (407,000)
----------- ----------- ------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $(3,859,000) $(6,669,000) $(18,565,000) $(22,037,000)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
NET LOSS PER COMMON SHARE $ (0.15) $ (0.31) $ (0.75) $ (1.03)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 25,023,000 21,409,000 24,908,000 21,393,000
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1996 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(18,002,000) $(21,630,000)
Adjustments to reconcile net loss to net
cash used in operations:
Depreciation and amortization 2,313,000 2,175,000
Acquired research and development 757,000 1,686,000
Non-cash compensation 277,000
Changes in operating assets and liabilities:
Research revenue receivable 60,000 (2,000,000)
Inventories and other 53,000 (953,000)
Accounts payable and accrued expenses
and other 283,000 225,000
------------ -------------
Net cash used in operating activities (14,259,000) (20,497,000)
------------ -------------
FINANCING ACTIVITIES:
Issuance of common stock and preferred
stock 23,979,000 14,859,000
Proceeds from long-term debt 2,208,000
Principal payments on long-term debt (375,000)
------------ -------------
Net cash provided by financing activities 25,812,000 14,859,000
------------ -------------
INVESTING ACTIVITIES:
Short-term investments 1,561,000 9,083,000
Property, plant and equipment (3,073,000) (768,000)
------------ -------------
Net cash (used in) provided by investing
activities (1,512,000) 8,315,000
------------ -------------
INCREASE IN CASH AND CASH EQUIVALENTS 10,041,000 2,677,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,519,000 1,902,000
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22,560,000 $ 4,579,000
------------ -------------
------------ -------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Preferred stock dividends $ 563,000 $ 407,000
------------ -------------
------------ -------------
</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 identifying, designing, and
developing novel medical and pharmaceutical products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Alliance, its
wholly owned subsidiary, Rosanin Corporation, and its majority-owned
subsidiaries, Astral, Inc., Talco Pharmaceutical, Inc., and Applications et
Transferts de Technologies Avancees. All significant intercompany accounts and
transactions have been eliminated. Certain amounts in 1995 have been
reclassified to conform to the current year's presentation. BioPulmonics, Inc.
("BioPulmonics") was merged into Alliance in March 1996, and Rosanin Corporation
was dissolved in April 1996.
INTERIM CONDENSED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of March 31, 1996, the
condensed consolidated statements of operations for the three and nine months
ended March 31, 1996 and 1995, and the condensed consolidated statements of cash
flows for the nine months ended March 31, 1996 and 1995 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, 1995.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash, cash equivalents, and short-term investments consist of highly liquid
debt instruments. Management has classified the Company's cash equivalents and
short-term investments as available-for-sale securities in the accompanying
financial statements. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity.
PURCHASED TECHNOLOGY
The purchased technology was primarily acquired as a result 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-TM- (temporary
blood substitute) and LIQUIVENT-Registered Trademark- (intrapulmonary oxygen
carrier) products. Purchased technology also includes $2.0 million for
technology capitalized as a result of the acquisition of BioPulmonics in
December 1991. Since the acquisition, an alternative future use of the
acquired technology has been pursued by the Company. An intrapulmonary drug
delivery system using the PFC-based liquid as a carrier (or dispersing agent)
is being developed by Alliance from the liquid ventilation technology.
The PFC technology is the basis for the Company's main drug development
programs and is being amortized over a 20-year life. Accumulated amortization
for this PFC technology was $7,355,000 and $8,226,000 at June 30, 1995 and March
31, 1996, respectively. The technology acquired from BioPulmonics is being
amortized over five to seven years, and accumulated amortization was $500,000
and $757,000 at June 30, 1995 and March 31, 1996, respectively. Amortization of
purchased technology is included in research and development expense.
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.
6
<PAGE>
LONG-TERM DEBT
The Company entered into a loan and security agreement in August 1995 under
which the Company received $2.2 million. Amounts borrowed under the agreement
are secured by fixed assets, and are being repaid over three years. If certain
financial covenants are not satisfied, the note may become due and payable.
NET LOSS PER COMMON SHARE
Net loss per common 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 would be anti-dilutive.
2. LICENSE AGREEMENT
In February 1996, the Company entered into a license agreement (the "HMRI
License Agreement") with Hoechst Marion Roussel, Inc. ("HMRI"), which provides
HMRI with worldwide marketing rights to LIQUIVENT. The product will be jointly
developed by Alliance and HMRI with HMRI responsible for substantially all of
the remaining costs of development after March 31, 1996. HMRI will pay Alliance
royalties based on sales of the product after commercialization. In conjunction
with the HMRI License Agreement, HMRI purchased 750,000 shares of the Company's
Series B Preferred Stock and 200,000 shares of its Series C Preferred Stock for
an aggregate of $22.0 million. There were 750,000 shares of Series B Preferred
Stock and 200,000 of Series C Preferred Stock outstanding at March 31, 1996.
HMRI also received a five-year warrant to acquire 300,000 shares of the
Company's common stock at $20.00 per share. The Series B Preferred Stock is
convertible into shares of the Company's common stock upon the earliest of: (i)
the Company's common stock closing at a price per share of at least $20.00 for
twenty consecutive days; (ii) termination of the HMRI License Agreement; or
(iii) February 28, 2001. Each share of Series B Preferred Stock will be
converted into a number of shares of the Company's common stock based upon the
lower of the average closing price of the Company's common stock over the twenty
trading days preceding the time of conversion or $20.00 per share. The Series C
Preferred Stock converts automatically on June 30, 1997 into a number of shares
of the Company's common stock obtained by dividing the average closing price of
the Company's common stock over the twenty trading days preceding January 14,
1997 into $5.0 million. Prior to June 29, 1997, HMRI may, if the HMRI License
Agreement is terminated, cause the Company to redeem the Series C Preferred
Stock for $15.0 million, payable in cash or the Company's common stock at
Alliance's election, any time on or before the expiration of five years
following the redemption date. In addition, HMRI paid Alliance an initial
license fee and will make other payments upon the achievement of certain
milestones.
3. SUBSEQUENT EVENT - SALE OF COMMON STOCK
In April 1996, the Company completed a public offering of 2.9 million
shares of newly issued common stock. Net proceeds to the Company from the
offering were approximately $44 million.
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 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, and commercial manufacturing start-up.
The amount of net losses and the time required by the Company to achieve
profitability are highly uncertain due to differences in the timing of
revenues earned and expenses incurred. The Company has entered into
collaborative research and development agreements with pharmaceutical
companies that generate revenue to augment the level of its research and
development activities and to offset portions of its research and
development costs. The timing and amounts of such revenue, if any, cannot be
predicted with certainty and will likely fluctuate sharply. To date, the
Company's revenue from the sale of products has not been material. The majority
of the Company's products are in the development stage and there can be no
assurance as to whether or when the Company will be able to increase its
revenues significantly. There can be no assurance that the Company will be able
to achieve profitability at all or on a sustained basis.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Through March 1996, the Company financed its activities primarily from
public and private sales of equity and funding from collaborations with
corporate partners. In April 1996, the Company completed a public offering of
2.9 million shares of newly issued common stock, resulting in net proceeds to
the Company of approximately $44 million.
In February 1996, the Company entered into the HMRI License Agreement,
which provides for joint development of LIQUIVENT with HMRI responsible for
substantially all of the costs of development and marketing. In conjunction with
the HMRI License Agreement, HMRI purchased shares of Series B Preferred Stock
and Series C Preferred Stock for $22.0 million. In addition, HMRI paid Alliance
an initial license fee and will pay further license fees, milestone payments,
and royalties on product sales. HMRI also received a five-year warrant to
acquire 300,000 shares of Common Stock at $20.00 per share.
In August 1995, the Company entered into a loan and security agreement
under which the Company received $2.2 million. Amounts borrowed under the
agreement are secured by fixed assets, and are being repaid over three years.
If certain financial covenants are not satisfied, the debt may become due and
payable. The Company has financed substantially all of its office and research
facilities and related leasehold improvements under operating lease
arrangements.
In April 1995, the Company completed offerings of 3.2 million shares of
newly issued Common Stock, resulting in net proceeds to the Company of
approximately $14.3 million.
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 license
agreement (the "Ortho License Agreement") for injectable PFC emulsions capable
of transporting oxygen for therapeutic use, including OXYGENT. Under the Ortho
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 and
marketing the products and will pay Alliance a royalty based upon sales of
products after commercialization. From August 1994 through March 31, 1996, the
Company had received aggregate research revenue payments under the Ortho License
Agreement of $11.1 million from Ortho, and as of March 31, 1996, had recorded a
receivable of $2.0 million, which was received subsequently. In conjunction
with the Ortho License Agreement, Johnson & Johnson Development Corp. purchased
1.5 million shares of Series A Preferred Stock for $15.0 million and obtained a
three-year warrant to purchase 300,000 shares of Common Stock at $15.00 per
share.
The Company had net working capital of $29.7 million at March 31, 1996
compared to $22.3 million at June 30, 1995. The Company's cash, cash
equivalents, and short-term investments increased to $32.0 million at March 31,
1996 from $23.5 million at June 30, 1995. The Company received $22.0 million
from the issuance of preferred stock to HMRI, and $2.2 million under the August
1995 loan and security agreement. These increases were partially offset by net
operating expenses of $14.3 million, and property, plant and equipment additions
of $3.1 million. The Company's operations to date have consumed substantial
amounts of cash, and are expected to continue to do so for the foreseeable
future.
In December 1993, in order to obtain a commitment for a long-term supply of
raw material for both clinical trials and anticipated future production
requirements, the Company entered into an agreement with a supplier under which
the Company was obligated to make payments to the supplier through May 1997
based, in part, upon the achievement of certain milestones. Based upon the
supplier's intent to negotiate directly with the Company's existing and future
collaborative partners, that agreement was modified in July 1995 to terminate
certain commitments by both parties. Some or all of the Company's payment
obligations that remain may be reimbursed to the Company by existing and future
collaborative partners.
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, status of its proprietary rights, 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.
8
<PAGE>
The Company expects to incur substantial additional expenditures associated
with product development. The Company will 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 will be available on reasonable 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 the net
proceeds from the recent offering, expected revenues from the Ortho License
Agreement, HMRI License Agreement and investments, will be adequate to satisfy
its capital requirements for at least the next 24 months. 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 additional collaborative relationships, and the cost of manufacturing
scale-up.
While the Company believes that it can produce materials for clinical
trials and the initial market launch for its emulsion products at its existing
San Diego facility and for LIQUIVENT at its Otisville facility, it may need to
expand its commercial manufacturing capabilities for 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, nor can
there be any assurance that it will be able to do so. 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 FDA will determine
that such facility complies with Good Manufacturing Practices. Construction
of a facility will depend on regulatory approvals, product development, and
capital resources, among other things. The Ortho 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 HMRI License Agreement requires the Company to
manufacture LIQUIVENT at its Otisville facility for a period of time after
market launch and to sell the product to HMRI at a negotiated price. HMRI
will be responsible for establishing production capacity beyond the maximum
capacity of the Otisville facility.
Except for historical information, the statements made herein are forward
looking. The Company wishes to caution readers that these statements are only
predictions and that the Company's business is subject to significant risks.
The following important factors, among others, in some cases have affected, and
in the future could affect, the Company's actual results and could cause the
Company's actual consolidated results for 1996, and beyond, to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. These risks include the inability to enter into collaborative
relationships to further develop and commercialize the Company's products,
changes in any such relationships, or the inability of any collaborative partner
to adequately commercialize any of the Company's products; 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. Furthermore, even if the Company's products appear promising at an
early stage of development, they may not reach the market for a number of
important 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, 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.
During September 1992, the Company and certain of its officers and
directors were named as defendants in several lawsuits filed in the U.S.
District Court for the Southern District of California by certain shareholders.
The actions were consolidated into one class action lawsuit titled "In re
Alliance Pharmaceutical Securities Litigation." The complaint claimed, among
other things, that the defendants failed to disclose certain problems with two
of the Company's products
9
<PAGE>
under development, which conduct is alleged to have portrayed falsely the
Company's financial condition. On May 25, 1995, summary judgment was granted
in favor of the Company and its officers and directors. Attorneys for the
plaintiffs have appealed the decision. The Company believes the eventual
outcome of the litigation will not have a material adverse effect on the
Company's financial condition or results of operations.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1996 AS COMPARED WITH NINE MONTHS ENDED
MARCH 31, 1995
The Company's license and research revenue was $11.3 million for the nine
months ended March 31, 1996, compared to $9.6 million for the nine months ended
March 31, 1995. License revenue included $5.0 million from the HMRI License
Agreement for the nine months ended March 31, 1996, compared to $4.0 million
from the Ortho License Agreement for the nine months ended March 31, 1995.
Research revenue from the Ortho License Agreement increased to $6.0 million for
the nine months ended March 31, 1996, compared to $5.1 for the nine months ended
March 31, 1995. The Company expects research revenue to continue at higher
levels in 1996 compared to 1995.
Research and development expenses decreased by 6% to $24.4 million for the
nine months ended March 31, 1996, compared to $25.9 million for the nine months
ended March 31, 1995. The decrease in expenses was primarily the result of a
$2.8 million reduction in purchases of raw materials, and a $929,000 net
reduction in acquired research and development expense. These reductions were
partially offset by a $1.3 million increase in payments to universities and
outside consultants, and $639,000 paid to a supplier under a previous raw
material commitment. The expenses for the nine months ended March 31, 1995
included a one-time $1.7 million charge to research and development expense
which arose when the Company licensed product rights to Ortho. The expenses for
the nine months ended March 31, 1996 included a $757,000 charge arising from the
acquisition of certain PFC patents, patent rights, and related documents in
exchange for 50,000 shares of the Company's common stock and a five-year warrant
to purchase up to an additional 100,000 shares of the Company's common stock at
$10 per share.
General and administrative expenses decreased by 10% to $5.6 million for
the nine months ended March 31, 1996, compared to $6.2 million for the nine
months ended March 31, 1995. The decrease in general and administrative
expenses was primarily due to decreased professional fees.
Investment income and other was $567,000 for the nine months ended March
31, 1996, compared to $807,000 for the nine months ended March 31, 1995. 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 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 MARCH 31, 1996 AS COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1995
The Company's license and research revenue increased to $7.2 million for
the three months ended March 31, 1996, compared to $2.5 million for the three
months ended March 31, 1995. The increase was due to $5.0 million received from
the HMRI License Agreement. The Company expects research revenue to continue at
higher levels in 1996 compared to 1995.
Research and development expenses increased by 30% to $8.8 million for the
three months ended March 31, 1996, compared to $6.8 million for the three months
ended March 31, 1995. The increase was primarily due to increased payments to
universities and outside consultants as well as increased clinical trial
expenses.
General and administrative expenses decreased by 8% to $2.2 million for the
three months ended March 31, 1996, compared to $2.4 million for the three months
ended March 31, 1995. The decrease in expenses was primarily due to decreased
professional fees.
Investment income and other was $137,000 for the three months ended March
31, 1996, compared to $232,000 for the three months ended March 31, 1995. The
decline in investment revenue was primarily a result of lower average cash
balances.
10
<PAGE>
PART II OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits.
(b) There were no reports on Form 8-K.
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: May __, 1996
11
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 22,560,000
<SECURITIES> 9,488,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,908,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 65,207,000
<CURRENT-LIABILITIES> 6,215,000
<BONDS> 0
2,000
23,000
<COMMON> 251,000
<OTHER-SE> 56,219,000
<TOTAL-LIABILITY-AND-EQUITY> 65,207,000
<SALES> 108,000
<TOTAL-REVENUES> 11,418,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 24,404,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18,565,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,565,000)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,565,000)
<EPS-PRIMARY> (18,565,000)
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</TABLE>
