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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, 1998
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, 1998, Registrant had 31,994,338 shares of its Common Stock,
$.01 par value, outstanding.
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
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INDEX
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Page No.
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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 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
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PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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MARCH 31, JUNE 30,
1998 1997
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ASSETS (UNAUDITED) (NOTE)
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Current assets:
Cash and cash equivalents $ 17,691,000 $ 15,368,000
Short-term investments 43,152,000 57,041,000
Research revenue receivable 6,177,000 7,250,000
Other current assets 1,265,000 1,147,000
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Total current assets 68,285,000 80,806,000
PROPERTY, PLANT AND EQUIPMENT - NET 20,407,000 16,574,000
PURCHASED TECHNOLOGY - NET 13,260,000 14,400,000
OTHER ASSETS - NET 273,000 233,000
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$ 102,225,000 $ 112,013,000
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-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,555,000 $ 2,807,000
Accrued expenses 2,938,000 3,439,000
Deferred revenue 2,286,000 2,500,000
Payable for acquired in-process technology - 7,557,000
Current portion of long-term debt 652,000 1,508,000
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Total current liabilities 7,431,000 17,811,000
LONG-TERM DEBT 9,648,000 2,742,000
OTHER 61,000 129,000
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; 5,000,000 shares authorized;
500,000 and 0 shares of Series D issued and outstanding at
March 31, 1998 and June 30, 1997, respectively 5,000 -
Common stock - $.01 par value; 50,000,000 shares authorized;
31,988,138 and 31,164,935 shares issued and outstanding at
March 31, 1998 and June 30, 1997, respectively 320,000 311,000
Additional paid-in capital 339,983,000 322,268,000
Accumulated deficit (255,223,000) (231,248,000)
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Total stockholders' equity 85,085,000 91,331,000
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$ 102,225,000 $ 112,013,000
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Note: The balance sheet at June 30, 1997 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 ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
------------ ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
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REVENUES:
License and research revenue $ 4,331,000 $ 6,838,000 $ 16,144,000 $ 34,714,000
OPERATING EXPENSES:
Research and development 13,414,000 10,380,000 37,238,000 30,100,000
General and administrative 2,285,000 2,093,000 5,965,000 5,962,000
Acquired in-process technology - - - 16,020,000
------------ ----------- ------------ ------------
15,699,000 12,473,000 43,203,000 52,082,000
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LOSS FROM OPERATIONS (11,368,000) (5,635,000) (27,059,000) (17,368,000)
INVESTMENT INCOME AND OTHER - NET 1,207,000 1,140,000 3,084,000 3,112,000
------------ ----------- ------------ ------------
NET LOSS $(10,161,000) $(4,495,000) $(23,975,000) $(14,256,000)
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
NET LOSS PER COMMON SHARE:
BASIC AND DILUTED $ (0.32) $ (0.15) $ (0.76) $ (0.47)
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
WEIGHTED AVERAGE SHARES OUSTANDING:
BASIC AND DILUTED 31,946,000 30,259,000 31,657,000 30,154,000
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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NINE MONTHS ENDED
MARCH 31,
1998 1997
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(UNAUDITED)
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OPERATING ACTIVITIES:
Net loss $(23,975,000) $(14,256,000)
Adjustments to reconcile net loss to net cash used in
operations:
Depreciation and amortization 3,737,000 2,885,000
Charge for acquired in-process technology - 16,020,000
Non-cash compensation - net 320,000 -
Changes in operating assets and liabilities:
Research revenue receivable 1,073,000 (1,000,000)
Deferred revenue (214,000) -
Other assets (158,000) 31,000
Accounts payable and accrued expenses and other (1,821,000) (572,000)
------------ ------------
Net cash provided by (used in) operating activities (21,038,000) 3,108,000
------------ ------------
INVESTING ACTIVITIES:
Short-term investments 13,672,000 (1,269,000)
Property, plant and equipment (6,430,000) (4,360,000)
Payment for acquired in-process technology (57,000) (595,000)
------------ ------------
Net cash provided by (used in) investing activities 7,185,000 (6,224,000)
------------ ------------
FINANCING ACTIVITIES:
Issuance of common stock 526,000 884,000
Issuance of convertible preferred stock 9,600,000 -
Proceeds from long-term debt 6,800,000 3,493,000
Principal payments on long-term debt (750,000) (596,000)
------------ ------------
Net cash provided by financing activities 16,176,000 3,781,000
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,323,000 665,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,368,000 10,258,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,691,000 $ 10,923,000
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Payable for acquired in-process technology $ 10,078,000
Issuance of common stock in connection with
acquired in-process technology $ 7,500,000 $ 5,347,000
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Alliance Pharmaceutical Corp. and its subsidiaries (collectively, the
"Company" or "Alliance") are engaged in identifying, designing, and
developing novel medical products. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Alliance
Pharmaceutical Corp., the accounts of its wholly owned subsidiary Astral,
Inc., its wholly owned subsidiary MDV Technologies, Inc. ("MDV") from the
acquisition date of November 1996, and its majority-owned subsidiaries, Talco
Pharmaceutical, Inc. and Applications et Transferts de Technologies Avances
("ATTA"). ATTA was dissolved in 1997. All significant intercompany accounts
and transactions have been eliminated. Certain amounts in fiscal 1997 have
been reclassified to conform to the current year's presentation.
INTERIM CONDENSED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of March 31, 1998, the
condensed consolidated statements of operations for the three and nine months
ended March 31, 1998 and 1997, and the condensed consolidated statements of
cash flows for the nine months ended March 31, 1998 and 1997 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, 1997.
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
the OXYGENT-TM- (temporary blood substitute) and LIQUIVENT-Registered
Trademark- (intrapulmonary oxygen carrier) products. Purchased technology
also includes $2 million for technology capitalized as a result of the
acquisition of BioPulmonics, Inc. ("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 $10.5 million and $9.7 million at
March 31, 1998 and June 30, 1997, respectively. The technology acquired from
BioPulmonics is being amortized over five to seven years and
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accumulated amortization was $1.4 million and $1.2 million at March 31, 1998
and June 30, 1997, 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.
ACQUIRED IN-PROCESS TECHNOLOGY
In November 1996, the Company acquired MDV by a merger (the "MDV
Merger") of a wholly owned subsidiary of the Company into MDV. MDV is
engaged in the development of a thermo-reversible gel, FLOGEL-Registered
Trademark-, intended for use as an anti-adhesion treatment for persons
undergoing abdominal or pelvic surgeries. FLOGEL is applied in a cold, liquid
form and becomes a gel at body temperature. MDV has obtained preliminary
human safety data with the product's current formulation, and has performed
preclinical studies on additional formulations.
The consideration payable in the MDV Merger consisted of $15.5 million,
payable in common stock or cash, of which $8 million was paid during fiscal
1997, and $7.5 million was paid during fiscal 1998. The $8 million payments
made in fiscal 1997 and the $7.5 million payments made in fiscal 1998 were
made through the delivery of 703,093 and 706,100 shares of the Company's
common stock, respectively. Additionally, the Company will pay up to $20
million if advanced clinical development or licensing milestones are achieved
in connection with MDV's technology. The Company will also make certain
royalty payments on the sales of products, if any, developed from such
technology. The Company may buy out its royalty obligation for $10 million
at any time prior to the first anniversary of the approval by U.S. regulatory
authorities of any products based upon the MDV technology (the amount
increasing thereafter over time). All of such payments to the former MDV
shareholders may be made in cash or, at the Company's option, shares of the
Company's common stock, except for the royalty obligations which will be
payable only in cash. The Company has not determined whether subsequent
payments (other than royalties) will be made in cash or in common stock or,
if made in cash, the source of such payments. There can be no assurance that
any of the contingent payments will be made, because they are dependent on
future developments which are inherently uncertain.
NET INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"). SFAS No. 128 requires the presentation of basic and
diluted earnings per share amounts. Basic earnings per share is calculated
based upon the weighted average number of common shares outstanding during
the period while diluted earnings per share also gives effect to all
potential dilutive common shares outstanding during the period such as
options, warrants, convertible securities, and contingently issuable shares.
SFAS No. 128 is effective for periods ending after December 15, 1997. All
potential dilutive common shares have been excluded from the calculation of
diluted earnings per share as their inclusion would be anti-dilutive.
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2. LICENSE AGREEMENT
In September 1997, the Company entered into a license agreement (the
"Schering License Agreement") with Schering AG, Germany ("Schering"), which
provides Schering with worldwide exclusive marketing and manufacturing rights
to Alliance's drug compounds, drug compositions, and medical devices and
systems related to perfluorocarbon ultrasound imaging products, including
IMAGENT-Registered Trademark-. The product will be developed jointly by
Alliance and Schering. Under the Schering License Agreement, Schering paid to
Alliance an initial license fee of $4 million and agreed to pay further
milestone payments and royalties on product sales. Schering also agreed to
provide funding to Alliance for some of its development expenses. In
conjunction with the Schering License Agreement, Schering Berlin Venture
Corp., an affiliate of Schering, purchased 500,000 shares of the Company's
convertible Series D Preferred Stock for $10 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 medical products. The Company has been unprofitable since
inception and expects to incur operating losses for at least the next several
years due to substantial spending on 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 companies for
OXYGENT, IMAGENT, and RODA-TM-. The arrangements with its existing partners
for OXYGENT and IMAGENT require them to reimburse the Company for certain
approved development expenses incurred for the respective products. Both
partners for such products will make milestone payments to the Company upon
the achievement of certain product development events, and pay royalties on
sales at commercialization. With respect to RODA, the Company has agreed to
reimburse VIA Medical Corporation for substantially all of its development
expenses and to share revenues on the sale of products. 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 March 1998, the Company financed its activities primarily from
public and private sales of equity and funding from collaborations with
corporate partners. To date, the Company's revenue from the sale of products
has not been significant.
In January 1997, the Company entered into a loan and security agreement
with a bank under which the Company received $3.5 million. In December 1997,
the Company restructured the agreement and increased the amount available
under the loan to $15.2 million. Amounts borrowed under the agreement are
secured by certain financial assets and are to be repaid over five years.
During the quarter ended March 31, 1998, the Company borrowed an additional
$6.8 million under the agreement. On March 31, 1998, the balance outstanding
on this loan was $10 million. The Company has another loan from a financing
company with an outstanding balance of $351,000 on March 31, 1998. The
Company has financed substantially all of its office and research facilities
and related leasehold improvements under operating lease arrangements and
loan and security agreements.
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In September 1997, the Company entered into the Schering License
Agreement with Schering. See Note 2 to the Condensed Consolidated Financial
Statements for information related to the license agreement. In December
1997, Schering paid the Company a $1 million milestone payment under the
Schering License Agreement.
See Note 1 to the Condensed Consolidated Financial Statements for
information related to the November 1996 acquisition of MDV by the Company.
In February 1996, the Company entered into a license agreement (the
"HMRI License Agreement") with Hoechst Marion Roussel, Inc. ("HMRI"), which
provided HMRI with worldwide marketing and manufacturing rights to the
intratracheal administration of liquids, including LIQUIVENT, which perform
bronchoalveolar lavage or liquid ventilation. Under the agreement, HMRI was
responsible for most of the costs of development and marketing of LIQUIVENT.
On June 30, 1997, HMRI paid the Company a $2.5 million milestone payment and
$2.5 million for the purchase of clinical trial supplies. The Company also
announced in June 1997 that the parties agreed in principle to modify the
HMRI License Agreement to (i) adjust certain milestone payments, and (ii)
temporarily revise the method for reimbursing the expenses for portions of
the development work. On December 5, 1997, HMRI gave written notice of
termination of the HMRI License Agreement. Therefore, Alliance has not been
reimbursed for its LIQUIVENT development expenses since July 1, 1997, and it
will be responsible for all future LIQUIVENT development expenses worldwide.
HMRI has no continuing rights to the development or marketing of LIQUIVENT.
The parties are considering a repurchase by Alliance of approximately $2.3
million of clinical trial supplies from HMRI. Because of the termination of
the arrangement with HMRI, Alliance has incurred and will continue to incur a
substantial increase in development expenses related to LIQUIVENT and a
substantial decrease in research revenue.
In August 1994, the Company executed a license agreement (the "Ortho
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, including OXYGENT. Ortho has agreed to pay
milestone payments and royalties on product sales. Ortho is responsible for
substantially all of the costs of developing and marketing the products. In
December 1996, Ortho paid the Company a $15 million milestone payment under
the Ortho License Agreement.
The Company had net working capital of $60.9 million at March 31, 1998,
compared to $63 million at June 30, 1997. The Company's cash, cash
equivalents, and short-term investments decreased to $60.8 million at March
31, 1998 from $72.4 million at June 30, 1997. The decrease resulted
primarily from cash used in operations of $21 million and property, plant,
and equipment additions of $6.4 million, partially offset by proceeds from a
loan and security agreement of $6.8 million and by net proceeds from the sale
of convertible preferred stock of $9.6 million in conjunction with the
Schering License Agreement. The Company's operations to date have consumed
substantial amounts of cash, and are expected to continue to do so for the
foreseeable future.
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
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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 healthcare 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.
The Company expects to incur substantial additional expenditures
associated with product development, particularly LIQUIVENT. 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 believes that its current capital resources, expected revenues
from the Ortho License Agreement and Schering License Agreement, and
investments will be adequate to satisfy its capital requirements through
fiscal 1999. The Company's future capital requirements will depend on many
factors, including, but not limited to, 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.
The Company believes that it can produce materials for clinical trials
and the initial market launch for OXYGENT and IMAGENT from its existing San
Diego facilities, which are currently undergoing improvements and will
continue to undergo improvements for the next twelve to eighteen months to
meet the Company's continuing needs. Additionally, the Company believes it
can produce materials for clinical trials and initial market launch for
LIQUIVENT at its Otisville, New York facility. However, Alliance may need to
expand its commercial manufacturing capabilities for its products in the
future. Any expansion for any of its products 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 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 complies with Good Manufacturing Practices. The projected
location and construction of a facility will depend on regulatory approvals,
product development, and capital resources, among other things. The Ortho
License Agreement provides an option for Ortho to elect to manufacture
OXYGENT, or to require the Company to manufacture such products at a
negotiated price. The Schering License Agreement requires the Company to
manufacture IMAGENT at its San Diego
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facility for a period of time after market launch at a negotiated price.
Schering will be responsible for establishing production capacity beyond the
maximum capacity of the San Diego facility.
Except for historical information, the statements made herein and
elsewhere 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 factors discussed herein and other
important factors 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 1998, 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 healthcare costs and potential
legislation or regulation of healthcare pricing.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998 AS COMPARED WITH NINE MONTHS ENDED
MARCH 31, 1997
The Company's license and research revenue decreased by $18.6 million to
$16.1 million for the nine months ended March 31, 1998, compared to $34.7
million for the nine months ended March 31, 1997. The nine months ended
March 31, 1997 included a $15 million milestone payment from Ortho under the
Ortho License Agreement. The Company expects research revenue to continue to
decrease in 1998 compared to 1997, due to the termination of the HMRI License
Agreement, and also expects milestone payments to diminish.
Research and development expenses increased by 24% to $37.2 million for
the nine months ended March 31, 1998, compared to $30.1 million for the nine
months ended March 31, 1997. The increase in expenses was primarily due to a
$2.1 million increase in payments to outside researchers for preclinical and
clinical trials and other product development work, a $3.6 million increase
in staffing costs for employees primarily engaged in research and development
activities, a $523,000 increase in rent and lease expense, a $655,000
increase in
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depreciation expense, as well as other increases related to the Company's
research and development activities.
General and administrative expenses were $6 million for the nine months
ended March 31, 1998, compared to $6 million for the nine months ended March
31, 1997.
The Company accounted for the acquisition of MDV as a purchase, and
recorded a one-time charge in the nine months ended March 31, 1997 of $16
million, including the $15.5 million scheduled payments and related
transaction costs.
Investment income and other was $3.1 million for the nine months ended
March 31, 1998, compared to $3.1 million for the nine months ended March 31,
1997.
THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1997
The Company's license and research revenue decreased by $2.5 million to
$4.3 million for the three months ended March 31, 1998, compared to $6.8
million for the three months ended March 31, 1997. The decrease in revenue
was primarily due to the termination of the HMRI License Agreement. The
Company expects research revenue to continue to decrease in 1998 compared to
1997, due to the termination of the HMRI License Agreement, and also expects
milestone payments to diminish.
Research and development expenses increased by 29% to $13.4 million for
the three months ended March 31, 1998, compared to $10.4 million for the
three months ended March 31, 1997. The increase in expenses was primarily
due to a $1.8 million increase in staffing costs for employees primarily
engaged in research and development activities, a $769,000 increase in
payments to outside researchers for preclinical and clinical trials and other
product development work, and a $200,000 increase in depreciation expense.
General and administrative expenses were $2.3 million for the three
months ended March 31, 1998, compared to $2.1 million for the three months
ended March 31, 1997.
Investment income and other was $1.2 for the three months ended March
31, 1998, compared to $1.1 for the three months ended March 31, 1997.
Alliance expects to continue to incur substantial 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.
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PART II OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits - None
(b) On February 28, 1998, the Company filed an amendment to the Current Report
on Form 8-K dated September 23, 1997. The report announced that the
Company entered into the Schering License Agreement which provides
Schering with worldwide exclusive marketing and manufacturing rights to
the Company's drug compounds, drug compositions, and medical devices and
systems related to perfluorocarbon ultrasound imaging products, including
IMAGENT. The amendment modified the redacted portions of the Schering
License Agreement filed with the original report.
</TABLE>
13
<PAGE>
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 5, 1998
14
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