S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N
Washington, D. C. 20549
FORM 10Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter ended September 30, 1995 Commission file number 0-14887
T H E L I P O S O M E C O M P A N Y, I N C.
(Exact name of registrant as specified in its charter)
Delaware 22-2370691
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Research Way, Princeton Forrestal Center, Princeton, N.J. 08540
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 452-7060
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
The number of shares outstanding of each of the issuer's classes of Common
Stock as of the latest practicable date:
Class October 31, 1995
Common Stock, $.01 par value 29,680,639
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
Part I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Operations
for the Three and Nine Month Periods Ending
September 30, 1995 and 1994..........................
4
Consolidated Statements of Cash Flows
for the Nine Month Periods Ending
September 30, 1995 and 1994..........................
5
Notes to Consolidated Financial Statements 6,7
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operation 8-12
Part II. OTHER INFORMATION 13
Signatures 14
************************************************
Note concerning trademarks: Certain names
mentioned in this report are trademarks owned by
The Liposome Company, Inc. or its affiliates or
licensees. AbelcetTM is a trademark of The
Liposome Company, Inc.
Page 2 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
September 30, December 31,
ASSETS 1995 1994
Current assets:
Cash and cash equivalents $ 5,689 $ 2,369
Short-term investments 73,570 55,487
Accounts receivable 3,360 1,618
Inventories 2,958 748
Prepaid Expenses 498 419
Other current assets 14 31
Total current assets 86,089 60,672
Long-term investments 2,202 9,421
Plant and equipment, net 19,574 17,686
Restricted cash 6,080 4,880
Other assets, net 495 537
Total assets $ 114,440 $ 93,196
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,383 $ 1,112
Accrued expenses and other current liabilities 5,819 4,698
Current obligations under capital lease 1,501 1,476
Current obligations under mortgage 303 303
Preferred Stock dividends payable 1,337 1,337
Unearned contract income and other fees 1,734 0
Total current liabilities 13,077 8,926
Long-term obligations under capital lease 2,996 4,126
Long term obligation under mortgage 1,564 1,791
Total liabilities 17,637 14,843
Stockholders' equity:
Capital stock:
Preferred Stock, par value $.0l;
2,400,000 authorized; 276,000 shares of
Series A Cumulative Convertible Exchangeable
Preferred Stock outstanding (liquidation
preference of $69,000,000) 3 3
Common Stock, par value $.0l;
60,000,000 shares authorized;
29,640,433 and 23,982,849 shares issued
and outstanding 296 240
Additional paid in capital 234,415 192,003
Net unrealized investment loss (1,169) (5,033)
Foreign currency translation adjustment 4 (1)
Accumulated deficit (136,746) (108,859)
Total stockholders' equity 96,803 78,353
Total liabilities and stockholders' equity $ 114,440 $ 93,196
See accompanying notes
Page 3 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share figures)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Collaborative research and
development revenues and other $ 1,527 $ 1,431 $ 5,240 $ 4,664
Interest and investment income, net 1,119 1,015 2,133 3,759
Product sales 850 0 1,693 0
Total revenues 3,496 2,446 9,066 8,423
Cost of goods sold 396 0 736 0
Research and development expenses..... 7,590 8,214 25,84423,251
Selling, general and
administrative expenses 4,168 2,839 10,147 8,604
Interest expense...................... 69 74 226 230
Total expenses 12,223 11,127 36,953 32,085
Net loss (8,727) (8,681) (27,887) (23,662)
Preferred Stock dividends (1,337) (1,337) (4,011) (4,011)
Net loss applicable to
Common Stock $(10,064)$(10,018) $(31,898)$(27,673)
Net loss per share applicable to
Common Stock........................ $(.35) $ (.42)$ (1.20)$ (1.16)
Weighted average number of common
shares outstanding.................. 28,959 23,916 26,472 23,814
See accompanying notes
Page 4 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
1995 1994
Cash flows from operating activities:
Net loss $(27,887) $(23,662)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 2,498 2,334
Other 152 404
Changes in assets and liabilities
Accounts receivable (1,742) (869)
Inventory (2,210) (534)
Prepaid expenses (79) 178
Other current assets 17 (11)
Accounts payable 1,206 (2,464)
Accrued expenses and other current liabilities 1,121 1,136
Unearned contract income and other fees 1,734 631
Net cash used by operating activities (25,190) (22,857)
Cash flows from investing activities:
Purchases of short and long-term investments (52,428) (34,333)
Sales of short and long-term investments... 44,228 62,627
Purchases of property, plant and equipment (4,279) (2,403)
Net cash (used)/ provided by investing activities (12,479) 25,891
Cash flows from financing activities:
Net proceeds from the issuance of Common Stock 43,192 --
Proceeds from the exercise of stock options 3,135 179
Principal payments under note payable (227) (227)
Principal payments under capital lease obligations (1,105)
(1,080)
Preferred Stock dividend payments (4,011) (4,011)
Net cash provided /(used) by financing activities 40,984 (5,139)
Effects of exchange rate changes on cash 5 29
Net increase/(decrease) in cash and cash equivalents 3,320
(2,076)
Cash and cash equivalents at beginning of the period 2,369
4,670
Cash and cash equivalents at end of the period $ 5,689 $ 2,594
Page 5 of 14
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Basis of Presentation
The information presented at September 30, 1995, and for the nine month
and three month periods then ended is unaudited, but includes all
adjustments (consisting only of normal recurring accruals) that the
Company's management believes to be necessary for the fair presentation
of results for the periods presented. The December 31, 1994 balance
sheet was derived from audited financial statements. These financial
statements should be read in conjunction with the Company's audited
financial statements for the year ended December 31, 1994, which were
included as part of the Company's Report on Form 10-K. Certain
reclassifications have been made to the prior year financial statement
amounts to conform with the presentation in the current year financial
statements.
2.Common Stock Outstanding and Per Share Information
Per share data is based on the weighted average of shares of Common
Stock outstanding during each of the periods. During 1995, the Company
issued an aggregate of 4,950,000 shares of Common Stock in two offerings
(May and August). The weighted average shares outstanding increased to
28,959,000 shares from 23,916,000 for the three months ended September
30, 1995 and to 26,472,000 from 23,814,000 for the nine months ended
September 30, 1995 due to the impact of the 1995 offerings and the
exercise of stock options. Stock options (Common Stock equivalents) and
the conversion of Preferred Stock to Common Stock are not included in
the calculation since their inclusion would be anti-dilutive. The net
loss per common share includes a charge for dividends paid on the
outstanding shares of Preferred Stock of $.15 and $.17 per common share
for the nine months ended September 30, 1995 and 1994 respectively.
3.Inventories
The Company values inventory on a lower of cost or market basis and
relieves it on the first-in first-out (FIFO) method. Unfavorable
overhead variances related to underutilized capacity are expensed in the
period incurred. The components of inventories are as follows:
September 30, December 31,
1995 1994
Finished Goods $ 1,710,000 $ -
Raw materials 998,000 611,000
Supplies 250,000 137,000
$2,958,000 $ 748,000
Page 6 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
4.Stockholders' Equity
Dividend Payable:
On September 14, 1995, the Board of Directors of the Company declared a
quarterly cash dividend on the Series A Cumulative Convertible
Exchangeable Preferred Stock at a prorated dividend rate of $.484375 per
Depositary Share. Each Depositary Share represents one-tenth of a share
of Preferred Stock. The dividend, totaling approximately $1,337,000,
was paid on October 16, 1995 to Preferred stockholders of record on
October 2, 1995.
Common Stock:
In April, 1995 the Company sold 3,450,000 shares of its Common Stock
pursuant to an underwritten offering. Proceeds received pursuant to the
offering were $28,762,000, net of underwriters' fees, professional,
registration, filing and printing fees.
In August, 1995 the Company sold 1,500,000 shares of its Common Stock to
an institutional investor. Gross proceeds received were $15,000,000.
Stock issuance costs, including financial advisory, professional,
registration, and filing fees of $571,000 were incurred in connection
with this offering.
5.Supplemental Disclosure of Cash Flow Information
Nine Months Ended September
30,
1995 1994
Cash paid during the year for interest $223,000 $230,000
Page 7 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company is a leading biotechnology company engaged in the discovery,
development and, recently, the commercialization of proprietary lipid and
liposome-based pharmaceuticals, for the treatment, prevention and diagnosis
of inadequately treated, life threatening illnesses. The Company recently
launched its first product, amphotericin B lipid complex (AbelcetTM), which
has been approved for marketing for certain indications in the United
Kingdom, Spain and Luxembourg and is the subject of marketing application
filings in several other countries. The Company filed an NDA (new drug
application) for AbelcetTM in the United States on May 24, 1995. The
Company's other lead products are TLC D-99 and TLC C-53. TLC D-99, liposomal
doxorubicin, is being developed in conjunction with Pfizer Inc ("Pfizer")
primarily as a first line treatment of metastatic breast cancer, and is
undergoing Phase III clinical testing in the United States. The Company has
recently commenced a Phase III clinical trial for TLC C-53, liposomal
prostaglandin E1, for acute respiratory distress syndrome ("ARDS"). In
January 1995, the Company commenced a Phase II clinical trial of TLC C-53 for
the treatment of acute myocardial infarction ("AMI"), or heart attack. The
Company also has a continuing discovery research program that concentrates
primarily on the treatment of cancer and inflammatory conditions.
Results of Operations
Revenues
Total revenues for the nine months ended September 30, 1995 were $9,066,000
which was an increase of $643,000 or 8% compared with the nine months ended
September 30, 1994. Although revenues in the prior year period did not
include product sales, the components of revenues in the two periods were
otherwise the same. As discussed below, the reduction in interest income
partially offset increases in collaborative research and development revenues
and product sales.
In February, 1995, the Medicines Control Agency of the United Kingdom
approved the Company's marketing application for amphotericin B lipid complex
under the brand name AbelcetTM. This is the first product developed by the
Company to be approved for marketing in any country. The Company
subsequently launched the product and has recorded sales of $1,693,000
through September 30, 1995 which included commercial sales of AbelcetTM in
the United Kingdom and "named patient" sales in certain other countries.
Collaborative research and development revenues and other of $5,240,000 for
the nine months ended September 30, 1995 increased $576,000 or 12% compared
to the nine month period ended September 30, 1994. The Company earned its
collaborative research and development revenues from two corporate sponsors,
Pfizer and Schering A.G. (Berlin), during the first nine months of 1995 and
1994. The Company is continuing development of its liposomal doxorubicin
product TLC D-99 with Pfizer as its corporate sponsor. The agreement between
the Company and Schering A.G. was terminated on March 29, 1995.
Page 8 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Interest and investment income for the nine months ended September 30, 1995
was $2,133,000 compared to $3,759,000 for the same period last year. This
43% decrease is due primarily to the reduction in the level of cash balances
available for investment, the timing of cash inflows and realized losses on
certain investments.
Total revenues of the Company for the quarter ended September 30, 1995 were
$3,496,000 compared to $2,446,000 for the same period during 1994. This
change in revenue represents an increase of $1,050,000 or 43%. Although every
component of revenue increased, the variance is primarily due to $850,000 of
product sales in the 1995 period. There were no product sales in the 1994
quarter.
Collaborative research and development revenues and other were $1,527,000 for
the third quarter of 1995, $96,000 or 7% higher than the third quarter of
1994. This increase was primarily due to amounts earned from Pfizer, which
accounts for substantially all of the collaborative research and development
revenues for the 1995 quarter.
Interest and investment income for the quarters ended September 30, 1995 and
1994 were $1,119,000 and $1,015,000, respectively. This change represents an
increase of $104,000 or 10% from 1994 which is due to higher existing cash
balances and cash inflows from the sale of Common Stock to an institutional
investor (see Liquidity) that occurred during the 1995 quarter.
The components of revenue can increase or decrease significantly based on the
level of product sales and the level of cost reimbursement under research
collaborations, the possible initiation of new licensing agreements and, in
the case of interest and investment income, the level of cash balances
available for investment and the rate of interest earned and gains and
losses, if any, realized on the sale of such investments.
Expenses
Total expenses for the nine months ended September 30, 1995 were $36,953,000,
an increase of $4,868,000 or 15% compared to the nine months ended September
30, 1994. Research and development expenses accounted for 53% of the
increase; selling, general and administrative expenses, 32% and cost of goods
sold comprised the balance. The Company expects costs of goods sold and both
its research and development expenses and its selling, general and
administrative expenses to continue to increase due to increased product
sales, increased clinical trial and development costs associated with the
progression of its lead proprietary products through late stage development
and the development of the infrastructure for sales and marketing in Europe
and the United States.
Page 9 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Research and development expenses for the nine months ended September 30,
1995 were $25,844,000 as compared to $23,251,000 for the same period in 1994.
This increase of $2,593,000 or 11% is due to costs associated with the
development of product manufacturing and increased clinical study grant and
support costs. Other components of this increase are expenditures related to
TLC C-53 and TLC D-99 as these products progress to late stages of
development; increased staffing levels in connection with greater activity in
the manufacturing facility in Princeton; and the expansion of the Company's
Clinical, Regulatory and Biostatistical groups to develop, conduct and
analyze the results of increased clinical study activity. As in prior years,
costs associated with the development of TLC D-99 are reimbursed by Pfizer.
Selling, general and administrative expenses were $10,147,000 for the nine
months ended September 30, 1995, an increase of $1,543,000 or 18% compared to
the same period one year ago. Increases in this area are attributable to
expanding the Company's international sales and marketing programs as well as
preparation for the commencement of U.S. marketing activities.
Total expenses for the Company increased to $12,223,000 for the third quarter
of 1995 compared to $11,127,000 the same period one year ago. This increase
of $1,096,000 or 10% is primarily due to the Company's cost of goods sold
associated with the sale of AbelcetTM (amphotericin B lipid complex) and
increased selling, general and administrative costs. Cost of goods sold of
$396,000 related to the sales of AbelcetTM was recorded in the third quarter
of 1995.
Research and development expenditures were $7,590,000 and $8,214,000 for the
quarters ended September 30, 1995 and 1994, respectively. These expenditures
are related to AbelcetTM, including costs associated with the shift from
product development to the commencement of product manufacturing and
commercialization. Spending for TLC C-53 and TLC D-99, as they move into
late stages of development, and the cost of the Company's other research and
development activities also contributed to the level of spending.
General and administrative expenses for the third quarter 1995 were
$4,168,000, an increase of $1,329,000 or 47% over the same period a year ago.
The primary components of the increase were costs associated with preparation
for the commencement of United States sales and marketing activities,
continued development of the international sales and marketing operations and
the addition of certain key personnel.
The Company expects that expenditures in all areas will increase throughout
1995 as the Company continues to receive marketing approvals in Europe,
progresses further in clinical development, and develops the infrastructure
for sales and marketing in the United States for AbelcetTM.
Page 10 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Preferred Stock Dividends
In January 1993, the Company completed the issuance of 2,760,000 Depository
Shares representing 276,000 shares of Series A Cumulative Convertible
Exchangeable Preferred Stock with an annual dividend of 7.75%. The Company
has declared and paid dividends quarterly on the Preferred Stock since
issuance of the Depository Shares. These dividends are included as part of
the Company's net loss applicable to Common Stock and net loss per share of
Common Stock.
Net Loss, Net Loss Applicable to Common Stock and Net Loss per Share of
Common Stock
The net loss for the nine months ended September 30, 1995 of $27,887,000 was
an increase of $4,225,000 above that of the same period a year ago due to the
factors discussed above. After Preferred Stock dividends of $4,011,000, the
net loss applicable to Common Stock was $31,898,000 or $1.20 per share and
$27,673,000 or $1.16 per share for the nine months ended September 30, 1995
and 1994 respectively.
During 1995, the Company issued an aggregate of 4,950,000 shares of Common
Stock in two offerings. The impact of these offerings increased the weighted
average shares outstanding by 2,200,000 shares for the nine month period
ended September 30, 1995.
The net loss of $8,727,000 for the quarter ended September 30, 1995 increased
$46,000 or 1% as compared to the comparable 1994 quarter. After Preferred
Stock dividends, the net loss applicable to Common Stock was $10,064,000 in
the third quarter of 1995 and $10,018,000 for the same quarter a year ago and
the net loss per common share was $.35 and $.42 for September 30, 1995 and
September 30, 1994, respectively. The reduction in the net loss per common
share is primarily due to the increase in shares outstanding as a result of
the two Common Stock offerings completed in 1995.
Liquidity and Capital Resources
The Company had $87,541,000 in cash and marketable securities as of September
30, 1995. Included in these reserves were cash and cash equivalents of
$5,689,000, short term investments of $73,570,000, long term investments of
$2,202,000 and restricted cash of $6,080,000. Cash and the portfolio of
marketable securities increased by approximately $15,384,000 since December
31, 1994 due to cash received of approximately $28,762,000 (net of
underwriters fees and expenses) from the May, 1995 public offering of Common
stock and approximately $14,429,000 (net of fees and expenses) from the
August, 1995 sale of stock to an institutional investor and maturities of
certain investments, partially offset by funds used for operations.
Page 11 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
During the first nine months of 1995 cash used by operating activities
increased by $2,333,000 as compared to the comparable period of 1994. This
is primarily due to the increase in net loss between periods and the build up
of finished goods inventories related to the commercialization of AbelcetTM,
combined with increases in accounts receivable and prepaid expenses. Funding
required for operating activities was derived from existing cash balances,
revenue from a corporate sponsor, product sales, interest income and
exercises of stock options. The Company expects its working capital
requirements to increase as AbelcetTM related activities continue. Capital
purchases have totaled $4,279,000 for the first nine months of 1995, a
substantial portion of which is attributable to the refitting of the
Indianapolis manufacturing facility. The Company expects to spend a total of
between $11,000,000 and $13,000,000 for this project, with completion
expected in mid to late 1996.
The Company expects to finance its operations from, among other things, the
proceeds received from payments under research and development agreements,
interest earned on investments, the maturity, sale and/or use of certain
investments and product sales.
Funds may also be provided to the Company by leasing arrangements for capital
expenditures and from the licensing of its products and technology. The
Company believes that its available cash and marketable securities, revenues
from research and development contracts and interest income will be
sufficient to meet its expected operating and capital cash flow requirements
for the intermediate term.
Page 12 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
During the quarter for which this report on Form 10-Q is filed, two
(2) reports on Form 8-K were filed:
July 26, 1995: Item 5, Other Events
August 1, 1995: Item 5, Other Events (including financial
statement for 3 and 6-month periods ended June 30, 1995).
13 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
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.
DATE: November 14, 1995
THE LIPOSOME COMPANY, INC.
By:
Charles A. Baker
Chairman of the Board and
Chief Executive Officer
By:
Brooks Boveroux
Vice President, Finance and
Chief Financial Officer
Page 14 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
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.
DATE: November 14, 1995
THE LIPOSOME COMPANY, INC.
By: /s/ Charles A. Baker
Charles A. Baker
Chairman of the Board and
Chief Executive Officer
By: /s/ Brooks Boveroux
Brooks Boveroux
Vice President, Finance and
Chief Financial Officer
Page 14 of 14
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<ARTICLE> 5
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
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<SECURITIES> 73,570
<RECEIVABLES> 3,360
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<INVENTORY> 2,958
<CURRENT-ASSETS> 86,089
<PP&E> 32,564
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