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, 1997 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 0-16614
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 October 22, 1997 there were outstanding 20,706,726 shares of the Company's
common stock, $.02 par value.
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TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED September 30, 1997
<S> <C> <C>
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Balance Sheets as of September 30, 1997
and December 31, 1996 3
Statements of Operations for the
three and nine month periods ended
September 30, 1997 and 1996 4
Statements of Cash Flows for the
three and nine month periods ended
September 30, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 8
Item 3. Quantitative and Qualitative
Disclosure About Market Risks *
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a
Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
* No information is provided due to inapplicability of this item.
<PAGE>
NEORX CORPORATION
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 4,845 $ 2,945
Short-term investments ..................................... 32,081 15,322
Inventories ................................................ -- 600
Prepaids and other ......................................... 1,802 845
--------- ---------
Total current assets ..................................... 38,728 19,712
--------- ---------
FACILITIES AND EQUIPMENT, at cost:
Equipment and furniture .................................... 3,970 3,744
Leasehold improvements ..................................... 3,272 3,237
--------- ---------
7,242 6,981
Less: accumulated depreciation and amortization ............ (6,567) (6,295)
--------- ---------
Facilities and equipment, net ............................ 675 686
--------- ---------
OTHER ASSETS ................................................. 111 112
--------- ---------
$ 39,514 $ 20,510
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................... $ 900 $ 1,235
Accrued liabilities ........................................ 983 910
Current portion of capital leases .......................... 42 44
--------- ---------
Total current liabilities ................................ 1,925 2,189
--------- ---------
NON-CURRENT LIABILITIES:
Convertible subordinated debentures, 9 3/4% ................ 1,195 1,195
Capital leases, less current portion ....................... 12 47
--------- ---------
Total non-current liabilities ............................ 1,207 1,242
--------- ---------
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,
Convertible preferred stock, Series 2, 5,000 and 7,000
shares issued and outstanding, respectively, and
Convertible preferred stock, Series 3, 26,000 and -0-
shares issued and outstanding, respectively ........... 5 4
Common stock, $.02 par value, 60,000,000 shares authorized,
20,259,000 and 16,451,000 shares issued and outstanding,
respectively ................................................ 405 329
Additional paid-in capital .................................... 162,508 140,789
Accumulated deficit ........................................... (126,536) (124,043)
--------- ---------
Total shareholders' equity .................................. 36,382 17,079
--------- ---------
$ 39,514 $ 20,510
========= =========
</TABLE>
See notes to financial statements.
3
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NEORX CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES .......................... $ 5,002 $ 4,505 $ 10,349 $ 4,526
-------- -------- -------- --------
OPERATING EXPENSES:
Research and development ........ 2,804 2,690 8,194 7,814
General and administrative ...... 938 952 2,912 3,136
-------- -------- -------- --------
Total operating expenses ...... 3,742 3,642 11,106 10,950
-------- -------- -------- --------
Income(loss) from operations ...... 1,260 863 (757) (6,424)
OTHER INCOME (EXPENSE):
Investment and interest income .. 507 280 1,289 873
Interest expense ................ (33) (36) (102) (107)
-------- -------- -------- --------
Net income(loss) .................. $ 1,734 $ 1,107 $ 430 $ (5,658)
======== ======== ======== ========
Preferred stock dividends ......... (315) (186) (2,923) (588)
-------- -------- -------- --------
Net income(loss) applicable to
common shares .................... $ 1,419 $ 921 $ (2,493) $ (6,246)
======== ======== ======== ========
Net income(loss) per common share . $ .08 $ .06 $ (.15) $ (.41)
======== ======== ======== ========
Weighted average common shares
outstanding ..................... 18,288 15,740 17,193 15,378
======== ======== ======== ========
</TABLE>
See notes to financial statements.
4
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NEORX CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income(loss) .......................... $ 1,734 $ 1,107 $ 430 $ (5,658)
-------- -------- -------- --------
Adjustments to reconcile net income(loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization ......... 76 89 272 289
(Increase) decrease in inventories .... 643 (131) 600 (178)
Increase in prepaids and other assets . (928) (22) (945) (121)
Increase (decrease) in accounts payable
and accrued liabilities ............. (92) 67 (462) (350)
Compensation expense on stock awards
and options ......................... -- 28 -- 167
Common stock issued for services ...... 101 49 101 290
-------- -------- -------- --------
Net cash provided by (used in) operating
activities .............................. 1,534 1,187 (4) (5,561)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments, net .. (5,430) (4,386) (16,759) (10,273)
Facilities and equipment purchases ........ -- (37) (261) (180)
Other ..................................... 5 -- 17 54
-------- -------- -------- --------
Net cash used in investing activities ..... (5,425) (4,423) (17,003) (10,399)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock ........ -- -- 2,661 5,771
Proceeds from sales of preferred
stock ................................... 4,910 -- 16,370 4,425
Repayments of capital lease
obligations ............................. (9) (13) (36) (37)
Proceeds from stock options
exercised ............................... 162 4 297 208
Preferred stock dividends ................. (130) -- (385) (254)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities .................... 4,933 (9) 18,907 10,113
-------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents .................... 1,042 (3,245) 1,900 (5,847)
Cash and cash equivalents:
Beginning of period ....................... 3,803 4,580 2,945 7,182
-------- -------- -------- --------
End of period ............................. $ 4,845 $ 1,335 $ 4,845 $ 1,335
======== ======== ======== ========
</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 annual report on Form 10-K for the year ended
December 31, 1996.
Certain reclassifications were made to the 1996 financial statements to make
them comparable with the 1997 presentation.
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, 1997 and the results
of operations and cash flows for the three and nine month periods ended
September 30, 1997 and 1996.
The results of operations for the three and nine month periods ended September
30, 1997 are not necessarily indicative of the expected operating results for
the full year.
2. New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share"("SFAS 128"),
effective for financial statements for periods ending after December 15, 1997.
SFAS 128 specifies the computation, presentation, and disclosure requirements
for earnings per share, and will simplify the computation of earnings per share
for many companies eliminating calculation provisions which were required by the
prior earnings per share accounting standard. For entities with complex capital
structures, the statement requires dual presentation of both Basic Earnings Per
Share and Diluted Earnings Per Share on the face of the statement of operations.
In the opinion of management, the adoption of SFAS 128 will not have a material
effect on the Company's calculation of earnings per share.
6
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NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
3. Shareholders' Equity
Changes in shareholders' equity from December 31, 1996 to September 30, 1997
were as follows (in thousands):
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Balance December 31, 1996 $17,079
Preferred stock issued 18,488
Common stock issued 3,308
Preferred stock dividends (2,923)
Net income 430
-------
Balance September 30, 1997 $36,382
=======
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The Company entered into an agreement on August 8, 1997 with Janssen
Pharmaceutica, N.V. ("Janssen"), a wholly-owned subsidiary of Johnson & Johnson,
for the worldwide development, manufacture and distribution of NeoRx's
Avicidin(R) cancer therapy product. The Company received a $5,000,000 license
fee and rights to future milestone payments and royalties on product sales.
Janssen has assumed responsibility for development, registration and
commercialization of the product and will fund 95% of the estimated remaining
costs for development and clinical trials. In exchange, Johnson & Johnson
received a worldwide exclusive license to Avicidin and the right of first
negotiation to subsequent oncology products that fall under the agreement.
Subsequent oncology products developed and marketed under the agreement will
trigger royalty obligations and possible future milestone payments to NeoRx.
In connection with this agreement, Johnson & Johnson Development Corporation
("JJDC"), also a wholly-owned subsidiary of Johnson & Johnson, purchased for
$5,000,000 1,000 shares of NeoRx Series 4 Convertible Preferred Stock, par value
$.02 per share, at a stated value of $5,000 per share at the dividend rate of 7%
per annum ("Series 4 Preferred Stock"). On September 12, 1997, the Series 4
Preferred Stock automatically converted into 833,000 shares of NeoRx Common
Stock, in accordance with the JJDC agreement, when the Common Stock attained an
average closing price of at least $6.00 per share. These converted shares of
Common Stock are not freely tradeable for one year and are subject to volume
limitations in the second year.
7
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NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
In March and April of this year, the Company sold a total of 120,000 shares of
Series 3 Convertible Preferred Stock, $.02 par value, at a stated rate of 7% per
annum ("Series 3 Preferred Stock"). The shares are convertible at 85% of the
average stock market closing bid price of the Common Stock for the five trading
days ending one day prior to the day of conversion, but not less than $3.93 nor
more than $6.42 per share. During the quarter, 93,000 shares of Series 3
Preferred Stock were converted into 2,042,000 shares of Common Stock. Between
October 1 and October 22, 1997, an additional 25,000 shares of Series 3
Preferred Stock were converted into 427,000 shares of Common Stock.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Quarter and nine months ended September 30, 1997 compared to quarter and nine
months ended September 30, 1996.
Revenues for the quarter ended September 30, 1997 were $5,002,000 compared to
$4,505,000 for the quarter ended September 30, 1996. In August 1997, the Company
entered into an agreement with Janssen for the worldwide development,
manufacture and distribution of NeoRx's Avicidin cancer therapy product. NeoRx
received $10,000,000 up front; $5,000,000 was for the purchase of Series 4
Preferred Stock and the remaining $5,000,000 was recorded as license revenue.
For the same quarter in 1996, the Company received $4,500,000 from The DuPont
Merck Pharmaceutical Company relating to their prior agreement to market NeoRx's
Verluma(R) lung cancer imaging product. Revenues for the nine months ended
September 30, 1997 were $10,349,000 compared to $4,526,000 for the same period
in 1996. In addition to the Janssen licensing agreement, NeoRx entered into a
licensing agreement with Schwarz Pharma during the second quarter of 1997
covering NeoRx's Biostent(R) product that resulted in license revenue during
that quarter of $5,333,000.
Total operating expenses for the quarter and nine month periods were essentially
unchanged from the prior year; $3,742,000 and $3,642,000 for the quarters ended
September 30, 1997 and 1996, respectively, and $11,106,000 and $10,950,000 for
the nine months ended September 30, 1997 and 1996, respectively. Research and
development expenses increased 4% to $2,804,000 for the current quarter compared
to $2,690,000 for the comparable quarter in 1996, and increased 5% to $8,194,000
for the nine months ended September 30, 1997 from $7,814,000 for the comparable
period in 1996. General and administrative expenses were essentially unchanged
at $938,000 for the current quarter versus $952,000 for the comparable quarter
in 1996, and decreased 7% to $2,912,000 for the nine months ended September 30,
1997 versus $3,136,000 for the same period in
8
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NEORX CORPORATION
Item 2. (Continued)
1996. The decrease for the nine month period was primarily due to
reduced salary expense.
Investment and interest income increased to $507,000 from $280,000 for the three
months ended September 30, 1997 and 1996, respectively, and increased to
$1,289,000 from $873,000 for the nine months ended September 30, 1997 and 1996,
respectively. The increases in both the three and nine month periods were due to
the increase in funds available for investment.
The Company reported net income of $1,734,000 for the quarter ended September
30, 1997 compared to $1,107,000 for the quarter ended September 30, 1996. For
the nine months ended September 30, 1997, the Company reported net income of
$430,000 compared to a net loss of $5,658,000 in the 1996 period. The increase
in net income for the current nine month period was due principally to
additional license revenue.
Liquidity and capital resources.
Under the August 1997 agreement with Janssen, the Company received $10,000,000
up front.
The Company expects that its current capital resources and investment income
will be sufficient to finance its currently anticipated working capital and
capital requirements into the second quarter of 1999. The Company's working
capital and capital asset 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 potential products to market, and to
establish marketing and limited manufacturing capabilities. The Company intends
to seek additional funding through public or private equity financings,
arrangements with corporate collaborators or 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, 1996. Readers
9
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NEORX CORPORATION
Item 2.(Continued)
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
advise interested parties of certain 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
IN RE BLECH SECURITIES LITIGATION
On June 6, 1996, the United States District Court for the Southern District of
New York dismissed claims against NeoRx in a purported class action suit against
David Blech, D. Blech & Co. and a number of other defendants, including 11
publicly traded biotechnology companies, of which one was NeoRx, that had been
named in an amended complaint on March 27, 1995. The plaintiffs have not
appealed the order. On July 26, 1996, the plaintiffs filed a second amended
pleading which did not include any claims against the Company. NeoRx is not a
defendant in the subject suit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
Current Report on Form 8-K dated October 7, 1997 for
Agreements between Janssen Pharmaceutica, N.V. and NeoRx
Corporation, and Johnson & Johnson Development
Corporation and NeoRx Corporation.
10
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NEORX CORPORATION
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 11, 1997 By: /s/Richard L. Anderson
----------------------
Richard L. Anderson
Authorized Officer and
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
11
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS OF NEORX CORPORATION AS 9/30/97 AND 12/31/96, AND THE RELATED STATEMENTS
OF OPERATIONS FOR EACH OF THE 9 MONTHS ENDED 9/30/97 AND 9/30/96 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q REPORT FOR THE PERIOD ENDED
9/30/97.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,845
<SECURITIES> 32,081
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 38,728
<PP&E> 7,242
<DEPRECIATION> 6,567
<TOTAL-ASSETS> 39,514
<CURRENT-LIABILITIES> 1,925
<BONDS> 1,207
0
5
<COMMON> 405
<OTHER-SE> 35,972
<TOTAL-LIABILITY-AND-EQUITY> 39,514
<SALES> 0
<TOTAL-REVENUES> 10,349
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102
<INCOME-PRETAX> 430
<INCOME-TAX> 0
<INCOME-CONTINUING> 430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 430
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
