<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report pursuant to Section 13 or 15(d) X of the Securities
- --- Exchange Act of 1934 for the Quarterly Period ended JUNE 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 July 28, 1997 there were outstanding 17,315,679 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 JUNE 30, 1997
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<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements:
Balance Sheets as of June 30, 1997
and December 31, 1996 3
Statements of Operations for the
three and six month periods ended
June 30, 1997 and 1996 4
Statements of Cash Flows for the
three and six month periods ended
June 30, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 9
Item 3. Quantitative and Qualitative
Disclosure About Market Risks *
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a
Vote of Security Holders 11
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
* No information is provided due to inapplicability of this item.
</TABLE>
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NEORX CORPORATION
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
(unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,803 $ 2,945
Short-term investments 26,651 15,322
Inventories 643 600
Prepaids and other 818 845
------- -------
Total current assets 31,915 19,712
------- -------
FACILITIES AND EQUIPMENT, at cost:
Equipment and furniture 4,001 3,744
Leasehold improvements 3,241 3,237
------- -------
7,242 6,981
Less: accumulated depreciation and amortization (6,491) (6,295)
------- -------
Facilities and equipment, net 751 686
------- -------
OTHER ASSETS 112 112
------- -------
$ 32,778 $ 20,510
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,018 $ 1,235
Accrued liabilities 981 910
Current portion of capital leases 41 44
------- -------
Total current liabilities 2,040 2,189
------- -------
NON-CURRENT LIABILITIES:
Convertible subordinated debentures, 9 3/4% 1,195 1,195
Capital leases, less current portion 22 47
------- -------
Total non-current liabilities 1,217 1,242
------- -------
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,
Convertible preferred stock, Series 2, 5,000 and 7,000
shares issued and outstanding, respectively, and
Convertible preferred stock, Series 3, 119,000 and -0-
shares issued and outstanding, respectively 7 4
Common stock, $.02 par value, 60,000,000 shares authorized,
17,248,000 and 16,451,000 shares issued and outstanding,
respectively 345 329
Additional paid-in capital 157,124 140,789
Accumulated deficit (127,955) (124,043)
------- -------
Total shareholders' equity 29,521 17,079
------- -------
$ 32,778 $ 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 Six months
Ended June 30, Ended June 30,
------------------ ------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES $ 5,335 $ - $ 5,347 $ 21
------ ------ ------ ------
OPERATING EXPENSES:
Research and development 2,738 2,446 5,390 5,124
General and administrative 1,080 1,080 1,974 2,184
------ ------ ------ ------
Total operating expenses 3,818 3,526 7,364 7,308
------ ------ ------ ------
Income(loss) from operations 1,517 (3,526) (2,017) (7,287)
OTHER INCOME (EXPENSE):
Investment and interest income 444 296 782 593
Interest expense (34) (34) (69) (71)
------ ------ ------ ------
Net income(loss) $ 1,927 $(3,264) $(1,304) $(6,765)
====== ====== ====== ======
Preferred stock dividends (702) (211) (2,608) (402)
------ ------ ------ ------
Net income(loss) applicable to
common shares $ 1,225 $(3,475) $(3,912) $(7,167)
====== ====== ====== ======
Net income(loss) per common share $ .07 $ (.23) $ (.23) $ (.47)
====== ====== ====== ======
Weighted average common shares
outstanding 16,874 15,416 16,701 15,185
====== ====== ====== ======
</TABLE>
See notes to financial statements.
4
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NEORX CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months Six months
Ended June 30, Ended June 30,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income(loss) $ 1,927 $(3,264) $ (1,304) $(6,765)
------- ------ ------- ------
Adjustments to reconcile net income(loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 100 102 196 200
(Increase) in inventories (143) (25) (43) (47)
(Increase) decrease in prepaids
and other assets 18 57 (17) (99)
(Decrease) in accounts payable
and accrued liabilities (533) (102) (370) (417)
Compensation expense on stock awards
and options - - - 139
Common stock issued for services - - - 241
------- ------ ------- ------
Net cash provided by (used in) operating
activities 1,369 (3,232) (1,538) (6,748)
------- ------ ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases of) proceeds from short-
term investments, net (13,710) 4,909 (11,329) (5,887)
Facilities and equipment purchases (119) (105) (261) (143)
Other 6 - 12 54
------- ------ ------- ------
Net cash provided by (used in)
investing activities (13,823) 4,804 (11,578) (5,976)
------- ------ ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 2,661 - 2,661 5,771
Proceeds from sales of preferred
stock 1,970 - 11,460 4,425
Repayments of capital lease
obligations (14) (13) (27) (24)
Proceeds from stock options
exercised 8 35 135 204
Preferred stock dividends (255) (254) (255) (254)
------- ------ ------- ------
Net cash provided by (used in)
financing activities 4,370 (232) 13,974 10,122
------- ------ ------- ------
Net increase (decrease) in cash
and cash equivalents (8,084) 1,340 858 (2,602)
Cash and cash equivalents:
Beginning of period 11,887 3,240 2,945 7,182
------- ------ ------- ------
End of period $ 3,803 $ 4,580 $ 3,803 $ 4,580
======= ====== ======= ======
</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 June 30, 1997 and the results of
operations and cash flows for the three and six month periods ended June 30,
1997 and 1996.
The results of operations for the three and six month periods ended June 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 ("SFAS 128"), "Earnings Per Share",
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.
6
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NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
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.
3. Shareholders' Equity
Changes in shareholders' equity from December 31, 1996 to June 30, 1997 were as
follows (in thousands):
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<CAPTION>
<S> <C>
Balance December 31, 1996 $17,079
Preferred stock issued 13,578
Common stock issued 2,776
Preferred stock dividends (2,608)
Net loss (1,304)
-------
Balance June 30, 1997 $29,521
=======
</TABLE>
The Company entered into an agreement with Schwarz Pharma AG ("Schwarz Pharma")
on March 31, 1997 that provides Schwarz Pharma with North American and European
marketing rights to Biostent(R) iN exchange for milestone payments and fees. In
May 1997, the Company received $4,000,000 from Schwarz Pharma for marketing
rights to NeoRx's Biostent product in North America and Europe and $4,000,000
for 699,000 unregistered shares of NeoRx Common Stock. The excess amount
received over the fair market value of the Common Stock of $1,333,000 was
recorded as revenue.
In 1997, the Company sold Series 3 Convertible Preferred Stock, $.02 par value
(the "Series 3 Stock") at a stated value of $100 per share in private
transactions. On March 31, 1997 and April 1, 1997, the Company sold 100,000 and
20,0000 shares and received net proceeds of $9,490,000 and $1,970,000,
respectively. The Series 3 Stock is redeemable at the option of the Company in
the first two years following issuance of the Series 3 Stock at $117.65 per
share plus accrued dividends and interest; two years following issuance of the
Series 3 Stock, any remaining outstanding Series 3 Stock will be converted to
Common Stock in accordance with the formula described below. Non-cash dividend
charges of $1,765,000 and $353,000 were recognized by the Company in March 1997
and April 1997, respectively, for the amount of the excess of the conversion
value over the stated value. Holders of the Series 3 Stock are entitled to
receive cumulative dividends at the rate of 7% per annum compounded quarterly
7
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NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
on the $100 per share stated value of the Series 3 Stock. The dividend is
payable, in cash or Common Stock at the Company's option, quarterly or at the
time the Series 3 Stock is redeemed or converted into Common Stock. Each share
of the Series 3 Stock is convertible in the first two years following issuance
of the Series 3 Stock at the option of the holder into the number of shares of
Common Stock determined by dividing the $100 stated value of the Series 3 Stock
by 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, plus accrued dividends and interest.
The holders of the Series 3 Stock have no voting rights except in limited
circumstances. The Series 3 Stock ranks junior to the Company's Convertible
Exchangeable Preferred Stock, Series 1, and on a parity with the Company's
Series 2 Convertible Preferred Stock as to dividends, distributions and payments
in liquidation.
8
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NEORX CORPORATION
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
QUARTER AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO QUARTER AND SIX MONTHS
ENDED JUNE 30, 1996.
For the quarter ended June 30, 1997, revenues earned were $5,335,000; there were
no revenues for the same quarter of 1996. For the six months ended June 30, 1997
revenues were $5,347,000 compared to $21,000 for the six months ended June 30,
1996. The increase in revenues was due to an $8,000,000 payment from Schwarz
Pharma. The Company received $4,000,000 from Schwarz Pharma for marketing rights
to NeoRx's Biostent product in North America and Europe and $4,000,000 for
699,000 unregistered shares of NeoRx Common Stock. The excess amount received
over the fair market value of the Common Stock of $1,333,000 was recorded as
revenue.
Total operating expenses for the quarter ended June 30, 1997 increased 8% to
$3,818,000 from $3,526,000 in the quarter ended June 30, 1996, and for the six
month period increased 1% to $7,364,000 from $7,308,000. Research and
development expenses increased 12% to $2,738,000 from $2,446,000 for the quarter
ended June 30, 1996 and 1995, respectively, and for the six month period
increased 5% to $5,390,000 from $5,124,000. The increases in both the three and
six month periods were primarily due to increases in salaries and materials.
General and administrative expenses remained unchanged at $1,080,000 for the
quarters ended June 30, 1997 and June 30, 1996, and for the six month period
decreased 10% to $1,974,000 from $2,184,000. The decrease for the six month
period was principally due to a reduction in other expenses and a smaller
executive staff.
Investment and interest income increased to $444,000 from $296,000 for the three
months ended June 30, 1997 and 1996, respectively, and increased to $782,000
from $593,000 for the six months ended June 30, 1997 and 1996, respectively. The
increases in both the three and six month periods were due to the recognition of
income from the increase in short-term investments.
The Company reported net income of $1,927,000 for the quarter ended June 30,
1997 compared to a net loss of $3,264,000 for the quarter ended June 30, 1996.
For the six months ended June 30, 1997, the net loss was $1,304,000 compared to
a net loss of $6,765,000 in the 1996 period.
9
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NEORX CORPORATION
LIQUIDITY AND CAPITAL RESOURCES.
On May 27, 1997, the Company received $4,000,000 from Schwarz Pharma for
marketing rights to NeoRx's Biostent product in North America and Europe and
$4,000,000 for 699,000 unregistered shares of NeoRx Common Stock. The excess
amount received over the fair market value of the Common Stock of $1,333,000 was
recorded as revenue.
The Company expects that its 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 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.
10
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NEORX CORPORATION
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 4. Submission of Matters to a Vote of Security Holders
The following matter was voted upon at the 1997 Annual Meeting of Shareholders
held May 13, 1997.
AMENDMENT TO THE RESTATED 1994 STOCK OPTION PLAN.
The shareholders amended the Restated 1994 Stock Option Plan to increase the
number of shares issuable thereunder from 2,500,000 to 4,000,000. The
shareholders voted 4,758,042 votes in favor of the amendment, 2,985,753 votes
against and 73,368 votes abstained.
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 April 11, 1997 for Change of
Accountants to KPMG Peat Marwick LLP; and
Current Report on Form 8-K dated June 11, 1997 for Sales of Equity
Securities to Schwarz Pharma AG Pursuant to Regulation S.
11
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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: July 30, 1997 By: /S/RICHARD L. ANDERSON
----------------------
Richard L. Anderson
Authorized Officer and
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
12
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS OF NEORX CORPORATION AS OF 6/30/97 AND 12/31/96, AND THE RELATED
STATEMENTS OF OPERATIONS FOR EACH OF THE SIX MONTHS ENDED 6/30/97 AND 6/30/96
AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH 10-Q REPORT FOR THE PERIOD
ENDED 6/30/97.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,803
<SECURITIES> 26,651
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 643
<CURRENT-ASSETS> 31,915
<PP&E> 7,242
<DEPRECIATION> 6,491
<TOTAL-ASSETS> 32,778
<CURRENT-LIABILITIES> 2,040
<BONDS> 1,217
0
7
<COMMON> 345
<OTHER-SE> 29,169
<TOTAL-LIABILITY-AND-EQUITY> 32,778
<SALES> 0
<TOTAL-REVENUES> 5,347
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> (1,304)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,304)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,304)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
