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 September 30, 1996.
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 0-16614
NeoRx Corporation
(Exact Name of Registrant as Specified in its Charter)
WASHINGTON 91-1261311
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
410 West Harrison Street, Seattle, Washington 98119
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (206) 281-7001
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ----
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of November 6, 1996 there were outstanding 16.3 million shares of the
Company's common stock, $.02 par value.
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TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition, Liquidity and
Capital Resources 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
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2
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NEORX CORPORATION
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,335 $ 7,182
Short-term investments 19,210 8,937
Inventories 716 538
Prepaids and other 1,004 931
------- -------
Total current assets 22,265 17,588
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FACILITIES AND EQUIPMENT, at cost:
Equipment and furniture 3,693 3,498
Leasehold improvements 3,218 3,233
------- -------
6,911 6,731
Less: accumulated depreciation and amortization (6,203) (5,914)
------- -------
Facilities and equipment, net 708 817
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OTHER ASSETS 123 113
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$ 23,096 $ 18,518
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 768 $ 1,511
Accrued liabilities 751 531
Deferred revenue 250 250
Current portion of capital leases 47 51
------- -------
Total current liabilities 1,816 2,343
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NON-CURRENT LIABILITIES:
Convertible subordinated debentures, 9 3/4% 1,195 1,195
Capital leases, less current portion 56 88
------- -------
Total non-current liabilities 1,251 1,283
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Series preferred stock, $.02 par value,
3,000,000 shares authorized:
Convertible exchangeable preferred stock, Series 1
208,000 shares issued and outstanding 4 4
Convertible preferred stock, Series 2,
14,000 and -0- shares issued and
outstanding, respectively 1 -
Common stock, $.02 par value, 60,000,000
shares authorized, 16,071,000 and
14,359,000 shares issued and
outstanding, respectively 321 287
Additional paid-in capital 139,307 128,098
Deferred compensation - (139)
Accumulated deficit (119,604) (113,358)
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Total shareholders' equity 20,029 14,892
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$ 23,096 $ 18,518
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</TABLE>
See notes to financial statements.
3
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NEORX CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
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<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
------ ------ ------ ------
REVENUES:
<S> <C> <C> <C> <C>
Contract revenues and fees $ 4,505 $ - $ 4,526 $ 57
------ ------ ------ ------
OPERATING EXPENSES:
Research and development 2,410 1,904 7,101 5,889
General and administrative 1,232 1,142 3,849 3,455
------ ------ ------ ------
Total operating expenses 3,642 3,046 10,950 9,344
------ ------ ------ ------
Income (loss) from operations 863 (3,046) (6,424) (9,287)
Other income (expense):
Investment and interest
income, net 280 286 873 746
Interest expense (36) (37) (107) (104)
------ ------ ------ ------
Net income (loss) $ 1,107 $(2,797) $(5,658) $(8,645)
====== ====== ====== ======
Preferred stock dividends (186) (133) (588) (477)
------ ------ ------ ------
Net income (loss) applicable to
common shares $ 921 $(2,930) $(6,246) $(9,122)
====== ====== ====== ======
Net income (loss) per common share $ .06 $ (.22) $ (.41) $ (.71)
====== ====== ====== ======
Weighted average common shares
outstanding 15,740 13,578 15,378 12,824
====== ====== ====== ======
</TABLE>
See notes to financial statements.
4
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NEORX CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -------------------
1996 1995 1996 1995
----- ------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) $ 1,107 $(2,797) $ (5,658) $(8,645)
------ ------ ------- ------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 89 93 289 304
Increase in inventories (131) (159) (178) (157)
Increase in prepaids and other assets (22) (164) (121) (141)
Increase (decrease) in accounts payable
and accrued liabilities 67 244 (350) 92
Compensation expense on stock
awards and options 28 24 167 70
Common stock issued for services 49 - 290 80
------ ------ ------- ------
Total adjustments 80 38 97 248
------ ------ ------- ------
Net cash provided by (used in)
operating activities 1,187 (2,759) (5,561) (8,397)
------ ------ ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (purchases of)
short-term investments (4,386) 605 (10,273) (677)
Facilities and equipment purchases (37) (52) (180) (122)
Other - - 54 -
------ ------ ------- ------
Net cash provided by (used in)
investing activities (4,423) 553 (10,399) (799)
------ ------ ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock
and warrants - 1,880 5,771 8,331
Proceeds from sale of preferred stock - - 4,425 -
Repayments of capital lease obligations (13) (16) (37) (24)
Proceeds from stock options exercised 4 226 208 274
Preferred stock dividends - - (254) (204)
------ ------ ------- ------
Net cash provided by (used in)
financing activities (9) 2,090 10,113 8,377
------ ------ ------- ------
Net decrease in cash and cash equivalents (3,245) (116) (5,847) (819)
Cash and cash equivalents:
Beginning of period 4,580 1,725 7,182 2,428
------ ------- ------- ------
End of period $ 1,335 $ 1,609 $ 1,335 $ 1,609
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</TABLE>
See notes to financial statements.
5
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NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The interim financial statements contained herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the Company's Form 10-K for the year ended December 31,
1995.
In the opinion of management, the interim financial statements reflect all
adjustments, consisting only of normal recurring accruals necessary to present
fairly the Company's financial position as of September 30, 1996 and the results
of operations and cash flows for the three and nine month periods ended
September 30, 1996 and 1995.
The results of operations for the three and nine month periods ended September
30, 1996 are not necessarily indicative of the expected operating results for
the full year.
NeoRx Corporation is no longer considered a company in the development stage and
therefore will no longer present results of operations and cash flows for the
period from inception. The Company's first product, Verluma(TM) Small Cell Lung
Cancer Imaging Kit, received marketing approval by the Food and Drug
Administration ("FDA") in August 1996. Upon FDA approval, the Company received a
$4.5 million milestone payment from its marketing partner, The DuPont Merck
Pharmaceutical Company ("DuPont Merck"). Sales are expected to begin in November
1996, from which NeoRx will receive royalties.
6
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NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
2. Shareholders' Equity
Changes in shareholders' equity from December 31, 1995 to September 30, 1996
were as follows (in thousands):
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<CAPTION>
<S> <C>
Balance December 31, 1995 $14,892
Preferred stock issued 4,425
Common stock issued 6,819
Preferred stock dividends (588)
Net loss (5,658)
Amortization of deferred compensation 139
------
Balance September 30, 1996 $20,029
======
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3. During the quarter ended September 30, 1996, the Company exchanged 25,300
shares of Series 2 Convertible Preferred Stock for 562,138 shares of Common
Stock and paid accrued dividends on the shares by issuing 21,910 shares of
Common Stock valued at an average price of $5.34 per share.
7
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NEORX CORPORATION
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition, Liquidity and Capital Resources
Quarter and nine months ended September 30, 1996 compared to quarter and nine
months ended September 30, 1995.
For the quarter ended September 30, 1996, contract revenues and fees earned were
$4,505,000; there were no revenues recorded for the same quarter of 1995. For
the nine months ended September 30, 1996, contract revenues and fees were
$4,526,000 compared to $57,000 recorded for the nine months ended September 30,
1995. The increase in revenue was due to a $4,500,000 milestone payment from
DuPont Merck upon FDA marketing clearance of Verluma.
Total operating expenses increased 20% to $3,642,000 from $3,046,000 for the
quarters ended September 30, 1996 and 1995, respectively, and for the nine month
periods increased 17% to $10,950,000 from $9,344,000. Research and development
expenses increased 27% to $2,410,000 from $1,904,000 for the quarters ended
September 30, 1996 and 1995, respectively, and for the nine month periods
increased 21% to $7,101,000 from $5,889,000. The increases in both the three and
nine month periods were primarily due to antibody humanization and increased
clinical trial activities. General and administrative expenses increased 8% to
$1,232,000 from $1,142,000 for the quarters ended September 30, 1996 and 1995,
respectively, and for the nine month periods increased 11% to $3,849,000 from
$3,455,000. The increase for the nine month period was principally due to patent
filing and other legal costs.
Interest income decreased to $280,000 from $286,000 for the three months ended
September 30, 1996 and 1995, respectively, and increased to $873,000 from
$746,000 for the nine months ended September 30, 1996 and 1995, respectively.
Interest expense remained essentially unchanged for the periods.
The company reported a net income of $1,107,000 for the quarter ended September
30, 1996 compared to a net loss of $2,797,000 for quarter ended September 30,
1995. For the nine months ended September 30, 1996, the net loss was $5,658,000
compared to a net loss of $8,645,000 in the 1995 period.
8
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NEORX CORPORATION
Liquidity and capital resources.
The Company expects that its capital resources and interest income will be
sufficient to finance its currently anticipated working capital and capital
requirements into 1998. The Company's working capital and capital requirements
will depend upon numerous factors, including results of research and development
activities, clinical trials, the levels of resources that the Company devotes to
establishing and expanding marketing and manufacturing capabilities, competitive
and technological developments and the timing and cost of relationships with
parties to collaborative agreements. The Company will need to raise substantial
additional funds to conduct research and development activities, preclinical
studies and clinical trials necessary to bring its products to market, and to
establish marketing and limited manufacturing capabilities. The Company intends
to seek additional funding through public and private equity financings,
arrangements with corporate collaborators and other sources. Adequate funds may
not be available when needed or on terms acceptable to the Company.
When used in this report, the words "expects", "anticipates" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties such as those factors stated
above that could cause actual results to differ materially from those projected.
See "Important Factors Regarding Forward-Looking Statements" in the Company's
Form 10-K for the year ended December 31, 1995. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this report. Readers are also urged to carefully review and consider
the various disclosures made by the Company which attempt to advise interested
parties of the factors which affect the Company's business detailed in the
Company's Securities and Exchange Commission filings and those described from
time-to-time in the Company's press releases and other communications. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
9
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NEORX CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
IN RE BLECH SECURITIES LITIGATION
The Company had been named as an additional codefendant in an amended complaint
filed in the United States District Court Southern District of New York on March
27, 1995 in a pending purported class action suit against David Blech, D. Blech
& Co. and a number of other defendants, including eleven publicly traded
biotechnology companies.
On June 6, 1996 the Court granted the Company's motion to dismiss with leave for
plaintiffs to replead on or before July 26, 1996. The plaintiffs filed a second
amended complaint on July 26, 1996. The second amended complaint did not name
NeoRx as a defendant. NeoRx is not a defendant in the subject suit. Plaintiffs
have not appealed the Court's June 6, 1996 order of dismissal.
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.
NeoRx Corporation
(Registrant)
Date: November 13, 1996 By: \s\ Paul G. Abrams
------------------
Paul G. Abrams
Authorized Officer, President
and Chief Executive Officer
\s\ J. Timothy Beer
-------------------
J. Timothy Beer
Chief Accountant
10
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS OF NEORX CORPORATION AS OF 9/31/96 AND 12/31/95, AND THE RELATED
STATEMENTS OF OPERATIONS FOR EACH OF THE 9 MONTHS ENDED 9/30/96 AND 9/30/95 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q REPORT FOR THE PERIOD
ENDED 9/30/96.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,335
<SECURITIES> 19,210
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 716
<CURRENT-ASSETS> 22,265
<PP&E> 6,911
<DEPRECIATION> 6,203
<TOTAL-ASSETS> 23,096
<CURRENT-LIABILITIES> 1,816
<BONDS> 1,251
0
5
<COMMON> 321
<OTHER-SE> 19,703
<TOTAL-LIABILITY-AND-EQUITY> 23,096
<SALES> 0
<TOTAL-REVENUES> 4,526
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> (5,658)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,658)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,658)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
