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
F O R M 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):February 22, 1996
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 0-14887 22-2370691
(State or other juris- (Commission File No) (I.R.S. Employer
diciton of incorporation Identification No.)
One Research Way, Princeton Forrestal Center, Princeton,
New Jersey, 08540
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code:(609) 452-7060
None
(Former name or former address, if changed since last report.)
THE LIPOSOME COMPANY, INC.
REPORT ON FORM 8-K
FEBRUARY 22, 1996
Item 5. Other Events
This report presents Management's Discussion and Analysis, Report of
Independent Accountants and financial statements, including the footnotes
related thereto, for The Liposome Company, Inc. and Subsidiaries as of December
31, 1995 and 1994 and for the three year period ended December 31, 1995.
Item 7: Financial Statements and Exhibits
(c) Exhibits
99.1 Management's Discussion and Analysis, independent Auditor's
Opinion and Financial Statements, including footnotes related thereto.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
THE LIPOSOME COMPANY, INC.
DATE: February 22, 1996 By: / s / Brooks Boveroux
Brooks Boveroux
Vice President, Finance and
Chief Financial Officer and
Treasurer
EXHIBIT INDEX
Exhibit No. Description
99.1 Management's Discussion and Analysis, Independent Auditor's
Opinion and Financial
Statements, including footnotes related thereto.
EXHIBIT 99.1
Management's Discussion and Analysis of Financial Condition and Results of
Operations
OVERVIEW
The Liposome Company, Inc. (the "Company") is a leading biotechnology company
engaged in the discovery, development and commercialization of proprietary lipid
and liposome-based pharmaceuticals for the treatment, prevention and diagnosis
of inadequately treated, life-threatening illnesses. ABELCETTM (amphotericin B
lipid complex injection), the Company's first commercialized product, has been
approved for marketing for certain indications in the United States, United
Kingdom, Spain, Luxembourg and Iceland and is the subject of marketing
application filings in several other countries. In addition to ABELCETTM, the
Company's other lead products are TLC C-53 and TLC D-99. TLC C-53, liposomal
prostaglandin E1, is being developed primarily for the treatment of acute
respiratory distress syndrome ("ARDS"). Patients are being accrued into a
pivotal Phase III clinical study for the treatment of ARDS. TLC D-99, liposomal
doxorubicin, is being developed in conjunction with a corporate sponsor
primarily as a first line treatment for metastatic breast cancer. TLC D-99 is
currently being studied in two Phase III clinical trials. The Company also has
a continuing discovery research program which concentrates primarily on the
treatment of cancer and inflammatory conditions.
RESULTS OF OPERATIONS
Revenues
Total revenues for the year ended December 31, 1995 were $15,717,000, an
increase of $5,277,000 or 50.5% as compared to the year ended December 31, 1994.
Revenues in 1994 were $10,440,000, a decrease of $2,602,000 or 20.0% compared to
the 1993 level. The primary components of revenues for the Company are
collaborative research and development revenues, interest and investment income
and commencing in 1995, product sales.
In May, 1995 the Company filed a New Drug Application ("NDA") with the U.S.
Food and Drug Administration ("FDA") for ABELCET. The application was given a
priority review, and in November, ABELCET was cleared for marketing by the FDA
for the treatment of aspergillosis in patients who have failed on or who are
intolerant of conventional amphotericin B. Initial U.S. shipments of ABELCET
were made in December. In February, 1995, the Company received approval from
the Medicines Control Agency of the United Kingdom to market ABELCET for the
second line treatment of severe systemic fungal infections. During 1995, the
Company received similar approvals in Spain, Luxembourg and Iceland. In the
U.S. as well as the U.K., the Company is marketing ABELCET with its own sales
force as it intends to do in several other countries. Product sales for 1995
amounted to $6,164,000 of which sales to international customers totaled
$3,010,000. There were no product sales in 1994 or 1993.
Collaborative research and development and other revenues were $6,589,000 for
1995, which was $708,000 or 12.0% higher than 1994 revenues. Collaborative
research and development and other revenues were $5,881,000 for 1994, which was
$463,000 or 8.5% higher than 1993. The Company earned its collaborative research
and development revenues from two corporate sponsors, Pfizer, Inc ("Pfizer") and
Schering A.G. (Berlin), in 1995, 1994 and 1993. 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.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Interest and investment income for the years ended December 31, 1995, 1994,
and 1993 was $2,964,000, $4,559,000, and $7,624,000, respectively. Interest and
investment income in 1995 decreased by $1,595,000 or 35.0% from 1994. Interest
and investment income in 1994 was $3,065,000 or 40.2% less than that in 1993.
During the second and third quarters of 1995 and the first quarter of 1993 the
Company raised capital through the sale of equity securities. Net proceeds to
the Company from these sales were $43,191,000 and $65,735,000,
respectively. No significant amounts of capital were raised during 1994.
Fluctuations in interest and investment income are primarily due to the
significant changes in the level of cash balances the Company had available for
investment as a result of these financings, the operating losses and dividend
and capital expenditures incurred and the rates of interest earned on the
investment portfolio.
The components of revenue can increase or decrease significantly based upon
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 1995, 1994 and 1993 were $51,378,000, $44,093,000 and
$35,519,000 respectively. Expenses in 1995 increased 16.5% compared to 1994 and
expenses in 1994 were 24.1% greater than in 1993. The Company's expenses
consist primarily of research and development expenditures to perform basic
research, conduct pre-clinical and clinical studies and other related product
development activities, manufacture supplies of product for such testing, and
prosecute applications to test and market products before various government
regulatory authorities. General and administrative expenses are incurred to
support the Company's operating activities. Selling expenses are incurred to
market and sell the Company's commercial products. In 1995, cost of sales were
incurred for the manufacture and distribution of ABELCETTM. The Company expects
its aggregate expenses to continue to increase due to increased product sales as
well as increased clinical trial and development costs associated with the
progression of its lead proprietary products through late stage development.
Research and development expenses of $30,149,000 for 1995 decreased
$1,564,000 or 4.9% over 1994. This decrease is primarily attributable to the
shift in certain manufacturing costs from research and development (to
manufacture clinical supplies of ABELCETTM) to cost of sales and product
inventory. This decline was partially offset by increased spending for TLC C-53
as this product progressed into phase III clinical trials during 1995. As in
prior years, costs associated with the development of TLC D-99 were reimbursed
by Pfizer.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Research and development expenses of $31,713,000 for 1994 increased $6,641,000
or 26.5% over 1993. The primary components of this increase were the costs
related to ABELCETTM, TLC C-53 and TLC D-99, reflecting higher expenditures
associated with the Company's products progressing to late stages of
development; increased staffing levels to support the manufacturing facility
located in Princeton, which began operations in early 1994; and the expansion of
the Company's medical, regulatory, and biostatistical departments to develop and
conduct increased clinical trial activity. In February, 1994, the Company
announced that it had suspended further development of Maitec(R), its liposomal
gentamicin product, in order to focus its resources on its other products.
Selling, general and administrative expenses in 1995 were $18,631,000, an
increase of $6,559,000 or 54.3% over 1994. The primary components of the
increase were costs attributable to expanding the Company's international sales
and marketing programs as well as preparation for the commencement of U.S.
marketing activities. By year-end 1994, the Company had filed applications to
market ABELCET in seventeen countries, and approval to market in the United
Kingdom was received in February, 1995. Approval to market ABELCETTM in the
U.S. was received in November, 1995.
Selling, general and administrative expenses in 1994 were $12,072,000, an
increase of $1,879,000 or 18.4% over 1993. The primary component of the
increase were costs associated with the start up of the international sales and
marketing operations in anticipation of launching ABELCET.
Interest expense for 1995, 1994, and 1993 was $294,000, $308,000, and
$254,000, respectively. Interest expense is mainly comprised of the costs
associated with capital leases that funded machinery and construction costs at
the Princeton manufacturing facility and mortgage interest related to the
Indianapolis, Indiana, manufacturing facility.
Preferred Stock Dividends
In January 1993, the Company completed the issuance of 2,760,000 Depositary
Shares representing 276,000 shares of Series A Cumulative Convertible
Exchangeable Preferred Stock with a cumulative dividend of 7.75%. The Company
has declared and paid in arrears dividends of $5,348,000 on such Preferred Stock
annually since issuance. 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 of $35,661,000 for 1995 increased by $2,008,000 or 6.0% compared
to 1994. This increase in net loss was due to the increases in total expenses of
$7,285,000, and total revenues of $5,277,000. The net loss applicable to Common
Stock was $41,009,000 in 1995 and $39,001,000 in 1994 as a result of the
operational factors discussed above and the declaration of $5,348,000 of
Preferred Stock dividends in each year. The net loss per common share was $1.50
per share for 1995 compared to $1.64 in 1994. The total loss per share of $1.50
comprises $.20 for Preferred Stock dividends and the remainder, $1.30, for the
current year net loss.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Although the net loss applicable to Common Stock increased in 1995 compared
to 1994, the net loss per share decreased as the Company, during 1995, sold an
aggregate of 4,950,000 shares of Common Stock. The impact of these sales
increased the weighted average shares outstanding by 3,021,000.
The net loss of $33,653,000 for 1994 increased by $11,176,000 or 49.7%
compared to 1993. This increase in net loss was due to the increase in total
expenses of $8,574,000, in conjunction with a decrease in total revenues of
$2,602,000. The net loss applicable to Common Stock was $39,001,000 in 1994 and
$27,825,000 in 1993 as a result of the operational factors discussed above and
the declaration of $5,348,000 of Preferred Stock dividends in each year. The net
loss per common share increased by $.46 per share to $1.64 per share for 1994.
The total loss per share of $1.64 comprises $.23 for Preferred Stock dividends
and the remainder, $1.41, for the current year net loss.
Liquidity and Capital Resources
The Company had $72,333,000 in cash reserves as of December 31, 1995. The cash
reserves include cash and cash equivalents of $3,937,000, short-term investments
of $50,451,000, long-term investments of $11,303,000 and restricted cash of
$6,642,000. The cash reserves increased $176,000 from 1994 due to capital raised
during the year, reduced by the use of funds for operations, capital
acquisitions, Preferred Stock dividend payments and the current market value
adjustment to investments to comply with the Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The cumulative effect at December 31, 1995 of SFAS No. 115
was a net unrealized loss of $543,000. In connection with certain financing
arrangements, the Company is required to maintain minimum cash balances, of
which the largest requirement is $20,000,000. The Company invests its excess
cash in a diversified portfolio of high-grade marketable and United States
Government-backed securities.
During 1995, cash used by operations increased to $37,020,000 as compared to
$32,407,000 in 1994. The 1995 change in cash used was primarily due to the
increase in net loss versus 1994 combined with the increase in other current
assets primarily inventory of marketable product and receivables from product
sales. This was partially offset by increases in depreciation and amortization,
along with accrued expenses and accounts payable. Funding required for operating
activities during 1995 was derived from cash raised from the sale of Common
Stock, existing cash balances and the sales of investments as well as from
product sales, revenues from corporate sponsors, interest income, and the
exercise of stock options. Facility and equipment expenditures increased in 1995
compared to 1994, reflecting funds expended to retrofit the Indianapolis
facility to manufacture ABELCETTM. The Company expects the total cost of this
project to be approximately $13,000,000.
At December 31, 1995, the Company had approximately $134,000,000 of operating
loss carryforwards, $3,200,000 of research and development credit carryforwards
and $45,000 of investment tax credit carryforwards. These carryforwards expire
in the years 1996 through 2010. The timing and manner in which these losses are
used may be limited as a result of certain ownership changes that occurred
pursuant to Internal Revenue Service regulations under Section 382.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
The Company expects to finance its operations from, among other things, the
commercial sale of ABELCETTM, the proceeds received from payments under research
and development agreements, interest earned on investments and the liquidation
of certain investments. Funds may also be provided to the Company by leasing
arrangements for capital expenditures. The Company expects to fund Preferred
Stock dividends from existing cash reserves. The Company believes that its
available cash and marketable securities, revenues from product sales, research
and development reimbursements and interest income will be sufficient to meet
its expected operating, cash flow and capital expenditures requirements for the
intermediate term.
The Company expects to call for redemption 50% of its Series A Cumulative
Convertible Exchangeable Preferred Stock represented by Depositary Shares at a
price of $26.40 per Depositary Share plus accrued and unpaid dividends. It is
also possible that the Company will in the future, call the remaining 50% of the
Preferred Stock. Each Depositary Share represents 1/10 of a share of Preferred
Stock and is convertible into 1.9455 shares of Common Stock. Should the price
of the Company's Common Stock on the redemption date exceed $13.57 plus an
amount equal to unpaid dividends (the "trigger price") the Company would expect
substantially all of the holders of Depositary Shares called for redemption to
convert such Depositary Shares into Common Stock. However, should the value of
the Common Stock be below the trigger price on the redemption date,
substantially all of the holders of redeemed Depositary Shares would be expected
to surrender such shares for redemption. The Company expects initially to call
for redemption 50% of the outstanding Preferred Stock. Approximately $36.4
million, plus unpaid dividends, would be required to satisfy redemption
requirements should all of such stock be submitted for redemption.
In connection with the call of the Preferred Stock, the Company expects to
enter into a standby purchase agreement for Depositary Shares that are submitted
for redemption, if any. Should Depositary Shares be submitted for redemption,
the standby purchasers would purchase from the Company, subject to certain
conditions, the number of shares of Common Stock that would have been issuable
upon conversion of such redeemed Depositary Shares. The purchase price received
from the standby purchasers will reimburse the Company for the redemption price
paid for the redeemed Depositary Shares. The Company expects to fund such
redemption requirements not satisfied by the standby purchase agreement, if any,
from its cash and marketable securities portfolio.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation"
("SFAS 123"). In October 1995, SFAS 123 established financial and reporting
standards for stock based compensation plans. The Company anticipates adopting
the disclosure only provision of this standard during 1996.
The Financial Accounting Standards Board has issued SFAS No. 121 "Accounting
for the Impairment of Assets to be Disposed of" which is required to be
implemented in 1996. The Company does not anticipate any material impact for
the adoption of this standard.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of The Liposome Company, Inc.:
We have audited the consolidated balance sheets of The Liposome Company,
Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Liposome
Company, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993
the Company changed its method of accounting for certain investments in debt and
equity securities.
Princeton, New Jersey
February 2, 1996
Coopers & Lybrand L.L.P.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
ASSETS
December 31,
Current assets: 1995 1994
Cash and cash equivalents $ 3,937$ 2,369
Short-term investments 50,451 55,487
Accounts receivable, net of allowance for doubtful
accounts ($200,000 for 1995) 6,799 1,618
Inventories 3,543 748
Prepaid Expenses 333 419
Other current assets 46 31
Total current assets 65,109 60,672
Long-term investments 11,303 9,421
Property, plant and equipment, net 22,400 17,686
Restricted cash 6,642 4,880
Intangibles, net 472 537
Total assets $105,926$ 93,196
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,839$ 1,112
Accrued expenses and other current liabilities 7,002 4,698
Current obligations under capital leases 1,509 1,476
Current obligations under note payable 303 303
Preferred Stock dividends payable 1,337 1,337
Total current liabilities 11,990 8,926
Long-term obligations under capital leases 2,616 4,126
Long-term obligations under note payable 1,488 1,791
Total liabilities 16,094 14,843
Commitments and contingencies
Stockholders' equity:
Capital stock:
Preferred Stock, par value $.0l; 2,400,000 authorized;
275,700 shares of Series A Cumulative Convertible
Exchangeable Preferred Stock outstanding
(liquidation preference of $68,925,000) 3 3
Common Stock, par value $.0l;
60,000,000 shares authorized;
29,950,031 and 23,982,849 shares issued and outstanding 299 240
Additional paid-in capital 234,545 192,003
Net unrealized investment loss (543) (5,033)
Foreign currency translation adjustment 48 (1)
Accumulated deficit (144,520)(108,859)
Total stockholders' equity 89,832 78,353
Total liabilities and stockholders' equity $105,926$ 93,196
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share figures)
Year Ended December 31,
1995 1994 1993
Product Sales $ 6,164 $ -- $ --
Collaborative research and development
and other revenues 6,589 5,881 5,418
Interest and investment income, net 2,964 4,559 7,624
Total revenues 15,717 10,440 13,042
Cost of Goods Sold 2,304 -- --
Research and development expense 30,149 31,713 25,072
Selling, general and administrative
expense 18,631 12,072 10,193
Interest expense 294 308 254
Total expenses 51,378 44,093 35,519
Net loss (35,661) (33,653) (22,477)
Preferred Stock dividends (5,348) (5,348) (5,348)
Net loss applicable to
Common Stock $(41,009) $(39,001) $(27,825)
Net loss per share
applicable to Common Stock $ (1.50) $ (1.64) $ (1.18)
Weighted average number
of common shares outstanding 27,293 23,850 23,536
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except share figures)
Shares Additional
Total
Preferred Common Par Paid-in
Accumulated Stockholders'
Stock Stock Value Capital Other
Deficit Equity
Balance, December 3l, l992 -- 23,478,410 $ 235 $135,687 $ 7
$ (52,729) $ 83,200
Issuance of stock:
For cash 276,000 -- 3 65,732 --
-- 65,735
To 401K plan -- 24,390 -- 182 --
-- 182
Exercise of stock options -- 202,634 2 402 --
-- 404
Dividends on Preferred Stock -- -- (5,348)
-- --
(5,348)
Net unrealized investment gain -- -- -- -- 650
-- 650
Foreign currency
translation adjustment -- -- -- -- 1
-- 1
Net loss for 1993 -- -- -- -- --
(22,477) (22,477)
Balance, December 31, 1993 276,000 23,705,434 240 196,655 658
(75,206) 122,347
Issuance of stock:
To 401K plan -- 31,254 -- 196 --
-- 196
Exercise of stock options -- 246,161 3 500 --
-- 503
Dividends on Preferred Stock -- -- (5,348) -- --
(5,348)
Net unrealized investment loss -- -- -- -- (5,683)
--
(5,683)
Foreign currency
translation adjustment -- -- -- -- (9)
-- (9)
Net loss for 1994 -- -- -- -- --
(33,653) (33,653)
Balance, December 31, 1994 276,000 23,982,849 243 192,003 (5,034)
(108,859) 78,353
Issuance of stock:
For cash -- 4,950,000 49 43,143 --
-- 43,192
To 401K plan -- 23,672 -- 199 --
-- 199
Exercise of stock options -- 987,674 10 4,548 --
-- 4,558
Conversion of Preferred Stock (300) 5,836 -- --
-- -- --
Dividends on Preferred Stock -- -- (5,348) -- --
(5,348)
Net unrealized investment gain -- -- -- -- 4,490
--
4,490
Foreign currency
translation adjustment -- -- -- -- 49
-- 49
Net loss for 1995 -- -- -- -- --
(35,661) (35,661)
Balance, December 31, 1995 275,700 29,950,031 302 234,545 (495)
(144,520) 89,832
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1995 1994 1993
Cash flows from operating activities:
Net loss $(35,661) $(33,653)$(22,477)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 3,409 3,145 1,622
Other 199 196 222
Changes in assets and liabilities:
Accounts receivable, net (5,181) (983) (542)
Inventory (2,795) (534) (170)
Prepaid expenses 86 238 455
Other current assets (15) (11) 341
Accounts payable 634 (2,195) 880
Accrued expenses and
other current liabilities 2,304 1,390 721
Net cash used by operating activities (37,020) (32,407) (18,948)
Cash flows from investing activities:
Purchases of short and long-term investments(51,990) (38,284) (205,982)
Sales of short and long-term investments 59,634 78,019 170,067
Restricted cash (1,762) (132) (4,748)
Purchases of property, plant and equipment (7,965) (2,896) (7,651)
Net cash (used)/provided by investing
activities (2,083) 36,707 (48,314)
Cash flows from financing activities:
Net proceeds from issuance of stock 43,192 -- 65,735
Exercises of stock options 4,558 503 404
Principal payments under note payable (303) (303) (302)
Receipt of proceeds from capital lease obligations-- -- 7,496
Principal payments under capital lease obligations (1,477) (1,444) (450)
Preferred Stock dividend payments (5,348) (5,348) (4,011)
Net cash provided/(used) by financing
activities 40,622 (6,592) 68,872
Effects of exchange rate changes on cash 49 (9) 1
Net (decrease)/increase in cash and cash equivalents 1,568 (2,301) 1,611
Cash and cash equivalents at beginning of year 2,369 4,670 3,059
Cash and cash equivalents at end of year $ 3,937 $ 2,369 $ 4,670
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS:
The Liposome Company, Inc. (the "Company") is a leading biotechnology company
engaged in the discovery, development and commercialization of proprietary lipid
and liposome-based pharmaceuticals for the treatment, prevention and diagnosis
of inadequately treated, life-threatening illnesses. ABELCETTM (amphotericin B
lipid complex injection), the Company's first commercialized product, has been
approved for marketing for certain indications in the United States, United
Kingdom, Spain, Luxembourg and Iceland and is the subject of marketing
application filings in several other countries. In addition to ABELCETTM, the
Company's other lead products are TLC C-53 and TLC D-99. TLC C-53, liposomal
prostaglandin E1, is being developed primarily for the treatment of acute
respiratory distress syndrome ("ARDS"). Patients are being accrued into a
pivotal Phase III clinical study for the treatment of ARDS. TLC D-99, liposomal
doxorubicin, is being developed in conjunction with a corporate sponsor
primarily as a first line treatment for metastatic breast cancer. TLC D-99 is
currently being studied in two Phase III clinical trials. The Company also has
a continuing discovery research program which concentrates primarily on the
treatment of cancer and inflammatory conditions.
FINANCIAL STATEMENT PRESENTATION:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany transactions and balances are
eliminated in consolidation.
REVENUE RECOGNITION:
Revenue from product sales is recognized upon transfer of title to unrelated
third parties. Payments for collaborative research and development are
generally received in advance and are recognized as revenue, ratably, as the
research and development is performed. Licensing fees, royalty and hurdle
payments are recognized in the period earned.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
DEPRECIATION AND AMORTIZATION:
Building and building improvements, furniture and fixtures, and machinery and
equipment are depreciated by the straight-line method over their estimated
useful lives ranging from three to twenty years. Leasehold improvements and
machinery and equipment under capital leases are amortized by the straight-line
method over the lesser of their estimated useful lives or the terms of the
related leases. Purchased patents are amortized by the straight-line method over
their life as determined by the country of issuance. The Company periodically
reviews the realizability of its patents.
CASH EQUIVALENTS:
The Company considers all highly liquid investments with maturities of three
months or less as cash equivalents.
INVESTMENTS:
On December 31, 1993, the Company adopted the provisions of the Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. This Statement requires certain
investments in debt and equity securities to be reported at current fair value.
Short-term investments represent marketable securities available for current
operations, all of which have been classified as available for sale, while long-
term investments represent marketable securities available for expected capital
acquisitions. These investments, which are all investment grade, are stated at
fair value, determined at December 31, 1995.
For the years ended December 31, 1995 and 1994, investment income includes
gross realized gains of $0 and $150,000, and realized losses of $489,000 and $0
respectively. At December 31, 1995 and 1994, investments included gross
unrealized gains of $6,500 and $7,000 and losses of $549,000 and $5,040,000,
respectively. The fair values of debt securities maturing within one year and
after one year but less than five years, amounted to approximately $5,800,000
and $45,000,000, respectively. Gains and losses are calculated on the specific
identification method.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
RESTRICTED CASH:
The Company has entered into certain financing arrangements that require the
issuance of letters of credit that are partially collateralized by certain
securities. The aggregate amount of these securities are segregated and
identified as restricted cash. The Company is also required to maintain minimum
cash balances in connection with certain of these financings.
INVENTORIES:
Inventories are carried at the lower of actual cost or market and cost is
accounted for on the first-in first-out (FIFO) basis.
CONCENTRATION OF CREDIT RISK:
The Company's significant concentrations of credit risk are with its cash and
investments and its accounts receivable. The investment portfolio consists of
investment grade securities or better as defined by the appropriate rating
institution. Product related accounts receivable in the United States are
generally with major distributors and internationally with hospitals. The
Company provides credit to its customers on an uncollateralized basis after
evaluating their credit status.
NET LOSS PER SHARE APPLICABLE TO COMMON STOCK:
Net loss per share applicable to Common Stock is computed based on the
weighted average of the Common Stock shares outstanding using the Treasury
method. Common Stock equivalents are not included in the computation of weighted
average shares outstanding since the effect would be anti-dilutive.
RECLASSIFICATION:
Certain reclassifications have been made to the prior year financial statement
amounts to conform with the presentation in the current year financial
statements.
FOREIGN CURRENCY TRANSACTIONS:
Generally Consolidated Balance Sheet amounts have been translated using
exchange rates in effect at the balance sheet dates and the translation
adjustments have been included in the foreign currency translation adjustment as
a separate component of Consolidated Stockholders' Equity. Amounts related to
transactions in the Consolidated Statements of Operations have been translated
using the average exchange rates in effect each year and transaction gains and
losses have been included therein. During 1995 the Company realized $49,000 in
foreign currency transaction losses. There was no gain or loss realized in 1994
or 1993.
RESEARCH AND DEVELOPMENT EXPENSES:
The research and development expenses of the Company, which are expensed as
incurred, include those efforts related to collaborative research and
development agreements, development of the Company's proprietary products and
general research. The expenses include, but are not limited to, medical,
biostatistical, regulatory, manufacturing of clinical products and scientific
support costs.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
2. STOCKHOLDERS' EQUITY:
PREFERRED STOCK:
In January 1993, the Company completed an offering of 2,760,000 Depositary
Shares, each of which represents one-tenth of a share of Series A Cumulative
Convertible Exchangeable Preferred Stock carrying a 7 3/4% dividend rate. The
liquidation value is $25.00 per Depositary Share, plus accrued and unpaid
dividends. Each Depositary Share is convertible at any time into shares of the
Company Common Stock at a conversion price of $12.85 per share of Common Stock,
which is equivalent to a conversion rate of 1.9455 shares of Common Stock for
each Depositary Share. At December 31, 1995 2,757,000 shares of Preferred Stock
remained outstanding and 5,363,744 shares of Common Stock have been reserved for
conversion of Depositary Shares into Common Stock. The Preferred Stock is
redeemable at the option of the Company, in whole or in part, on and after
January 15, 1996 initially at an amount equivalent to $26.40 per Depositary
Share and thereafter at prices declining to an amount equivalent to $25.00 per
Depositary Share on and after January 15, 2003, plus, in each case, all accrued
and unpaid dividends thereon. Proceeds to the Company from this offering were
$66,240,000 net of underwriter fees. Additional stock issuance costs, including
professional, registration, filing and printing fees of approximately $505,000
were also incurred in connection with this offering.
PREFERRED STOCK DIVIDENDS:
Since issuance, the Board of Directors of the Company has declared and paid
quarterly cash dividends on the Series A Cumulative Convertible Exchangeable
Preferred Stock at a prorated dividend rate of $.484375 per Depositary Share.
Dividend payments in 1995, 1994 and 1993 totaled $5,348,000, $5,348,000 and
$4,011,000, respectively. An additional dividend payment of $1,337,000 was paid
on January 15, 1996 to stockholders of record on January 2, 1996.
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 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 approximately $571,000 were incurred in connection with the sale.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
3. STOCK OPTION PLANS:
The Company has several stock option plans available for the issuance of
incentive stock options and non-qualified stock options (''NQSO''). These
options are designed to attract and retain key employees, directors and
consultants. As of December 31, 1995, the Company had outstanding grants of
4,139,921 shares and 1,541,818 shares available for grants, totaling 5,681,739
shares of Common Stock reserved for stock option grants.
Options are granted at fair market value. These options generally become
exercisable in ratable installments over a five-year period and are exercisable
over ten years. Options under the 1991 Non-Employee Directors NQSO Plan
("Directors' Plan") are automatically granted upon appointment to the Board of
Directors and annually on July 1 of each year to such non-employee Directors.
Such initial grants vest over a five year period and subsequent annual grants
vest in one year. Activity under all stock option plans for 1993, 1994 and 1995
is summarized as follows:
NUMBER OF
SHARES PRICE RANGE PER SHARE
Outstanding December 31, 1992 3,088,641
Granted 1,243,587 $ 5.75---- $11.75
Exercised (202,634) .75---- 3.625
Forfeited (261,339) 1.0625---- 16.50
Outstanding December 31, 1993 3,868,255
Granted 1,049,370 5.75----10.1875
Exercised (246,161) 2.036---- 8.00
Forfeited (446,641) .85---- 21.25
Outstanding December 31, 1994 4,224,823
Granted 1,124,775 8.25---- 20.875
Exercised (987,674) 8.75----20.9375
Forfeited (222,003) 1.0625---- 17.00
Outstanding at December 31, 1995 4,139,921
Exercisable at December 31, 19951,790,439 1.03 ---- 20.875
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation"
("SFAS 123"). In October 1995, SFAS 123 established financial and reporting
standards for stock based compensation plans. The Company anticipates adopting
the disclosure only provision of this standard during 1996.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
1995 1994
Building and building improvements $ 2,778,000$ 2,778,000
Land and land improvements 423,000 423,000
Furniture and fixtures 1,581,000 1,574,000
Machinery and equipment 11,462,000 9,082,000
Leasehold improvements and other 4,999,000 4,597,000
Construction in process 7,539,000 2,269,000
Machinery and equipment under capital lease 7,496,000 7,496,000
Total property, plant and equipment 36,278,000 28,219,000
Less: Accumulated depreciation and
amortization (13,878,000)(10,533,000)
Net property, plant and equipment $22,400,000$17,686,000
5. INVENTORIES:
The components of inventory are as follows:
1995 1994
Finished goods $2,273,000 $ 0
Work in process 139,000 0
Raw Materials 761,000 611,000
Supplies 370,000 137,000
$3,543,000 $748,000
6. COMMITMENTS AND CONTINGENCIES:
Operating Leases:
Total rental expense for property, plant and equipment was approximately
$1,449,000, $1,618,000 and $1,139,000 for 1995, 1994 and 1993, respectively.
The Company's future minimum lease payments under noncancelable operating
leases at December 31, 1995 are as follows:
1996 $1,443,000
1997 1,412,000
1998 764,000
1999 568,000
2000 568,000
2001 and thereafter 4,028,000
Total $8,783,000
CAPITAL LEASES:
On July 1, 1993 the Company entered into an agreement which provided for
equipment lease financing of $7,496,000. The lease is collaterized by
$4,310,000 in standby letters of credit provided under a letter of credit
agreement which is collaterized by AAA rated securities owned by the Company.
The Company is required to maintain a minimum balance of $20,000,000 in cash and
marketable securities, including those securities securing the letters of
credit, in connection with the lease financing.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
The following is a schedule by year of future minimum payments under capital
leases together with the present value of the minimum lease payments and the
capital lease portion of certain classes of property as of December 31, 1995:
1996 $1,584,000
1997 1,584,000
1998 1,085,000
1999 --
2000 --
2001 and thereafter --
Total minimum lease payments 4,253,000
Less: Amount representing interest (128,000)
Present value of minimum lease payments $4,125,000
CLASSES OF PROPERTY:
Machinery $4,205,000
Leasehold improvements 3,291,000
Total machinery and leasehold improvements 7,496,000
Less: Accumulated amortization (3,613,000)
Net machinery and leasehold improvements $3,883,000
7. LONG-TERM DEBT:
On July 24, 1992, The Liposome Manufacturing Company, Inc., a wholly-owned
subsidiary of The Liposome Company, Inc., entered into a mortgage-backed note to
partially fund the purchase of a pharmaceutical manufacturing facility in
Indianapolis, Indiana. The principal will be paid in equal installments of
$25,225 each month plus accrued interest. The note payments will be completed on
November 1, 2001. The interest rate, based on the prime rate plus 1/2%, has a
floor and ceiling of 6% and 10%, and was 9.25% at December 31, 1995. The note is
guaranteed by The Liposome Company, Inc. and the mortgage lending institution is
holding a $1,000,000 AAA rated security owned by The Liposome Company, Inc. as
collateral for the note. The Company is required to maintain a minimum balance
of $10,000,000 in cash and marketable securities, including those securities
collaterizing the letter of credit in connection with the financing.
The Liposome Manufacturing Company's principal repayment obligations as of
December 31, 1995 are as follows:
1996 $ 303,000
1997 303,000
1998 303,000
1999 303,000
2000 303,000
2001 and thereafter 276,000
Subtotal 1,791,000
Less: Current portion (303,000)
Total $1,488,000
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
8. SUPPLEMENTAL INFORMATION:
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
The components of accrued expenses and other current liabilities are as
follows:
1995 1994
Accrued expenses for preclinical
and clinical programs $2,871,000$2,068,000
Accrued legal fees 284,000 344,000
Accrued wages and vacation 909,000 433,000
Taxes payable 468,000 --
Unearned contract income 183,000 --
Other 2,287,000 1,853,000
Total $7,002,000 $4,698,000
STATEMENT OF CASH FLOW:
1995 1994 1993
Supplemental disclosure of cash
flow information:
Cash paid during the year for
interest $291,000$310,000$251,000
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
9. INCOME TAXES:
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The Company provides a valuation allowance against the net deferred tax debits
due to the uncertainty of realization. The increase in the valuation allowance
for the year ended December 31, 1995 was $12,010,000.
Temporary differences and carryforwards which gave rise to the deferred tax
assets and liabilities at December 31, 1995 are as follows:
Deferred Tax Deferred Tax
Assets Liabilities
Depreciation $ 655,000 --
Net unrealized investment loss 185,000 --
State taxes (net of Federal benefit) 6,861,000 --
Amortization 1,084,000 --
Net operating losses - Federal 45,640,000 --
Other 593,000 --
Tax credits 3,202,000 --
Subtotal 58,220,000 --
Valuation allowance - Federal (51,358,000) --
Valuation allowance - State (6,862,000) --
Total deferred taxes $ -- $ --
Temporary differences and carryforwards which gave rise to the deferred tax
assets and liabilities at December 31, 1994 are as follows:
Deferred Tax Deferred Tax
Assets Liabilities
Depreciation 517,000 --
Net unrealized investment loss 1,711,000 --
State taxes (net of Federal benefit) 5,533,000 --
Amortization 709,000 --
Net operating losses - Federal 34,480,000 --
Other 355,000 --
Tax credits 2,905,000 --
Subtotal 46,210,000 --
Valuation allowance - Federal (40,677,000) --
Valuation allowance - State (5,533,000) --
Total deferred taxes $ -- $ --
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
At December 31, 1995, the Company had approximately $134,000,000 of net
operating loss carryforwards, $45,000 of investment tax credit carryforwards,
and $3,200,000 of research and development credit carryforwards. These
carryforwards expire in the periods 1996 through 2010. The timing and manner in
which these losses are used may be limited as a result of certain ownership
changes which occurred as provided by IRS Regulations under Section 382.
10. GEOGRAPHIC SEGMENT DATA
The Company's operations are classified into two geographic areas: Domestic
(United States) and International (primarily Western Europe). Financial Data
(in thousands of dollars) for the years 1995, 1994, and 1993 is as follows:
Year Ended December 31, 1995
Domestic International Total
Sales to unaffiliated Customers $ 3,154 $ 3,010 $ 6,164
Collaborative research and development
revenues 6,589 -- 6,589
Interest and investment income, net 2,959 5 2,964
Total Revenue 12,702 3,015 15,717
Net loss (34,407) (1,254) (35,661)
Identifiable assets at December 31, 1995 104,817 $ 1,109 105,926
Year Ended December 31, 1994
Sales to unaffiliated Customers -- -- --
Collaborative research and development
revenues 5,831 -- 5,831
Interest and investment income, net 4,609 -- 4,609
Total Revenue 10,440 -- 10,440
Net loss (33,653) -- (33,653)
Identifiable assets at December 31, 1995 92,909 287 93,196
Year Ended December 31, 1993
Sales to unaffiliated Customers -- -- --
Collaborative research and development
revenues 4,877 -- 4,877
Interest and investment income, net 8,165 -- 8,165
Total Revenue 13,042 -- 13,042
Net loss (22,477) -- (22,477)
Identifiable assets at December 31, 1995$139,632$ -- $139,632
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
11. SAVINGS AND INVESTMENT RETIREMENT PLAN:
Effective January 1, 1988, the Company adopted a 401(k) Profit Sharing Plan
and Trust ("401(k) Plan") for eligible employees and their beneficiaries. All
employees are eligible to participate in the plan once they become full-time
employees and work a minimum of 1,000 hours per plan year. The 401(k) Plan
provides for employee contributions through a salary reduction election.
Employer discretionary matching contributions are determined annually by the
Company and vest over a maximum of a five year period of service. For the plan
years ended December 31, 1995, 1994 and 1993 the Company's discretionary
matching was based on a percentage of salary reduction elections in the form of
the Company's Common Stock.
12. MAJOR CUSTOMER AND RESEARCH AND DEVELOPMENT REVENUE DATA
In the United States, the Company sells ABELCETTM to national and regional
wholesalers who, in turn resell the product to hospitals and other service
providers. Internationally, sales are primarily made directly to hospitals.
For the years ended December 31, 1995, 1994 and 1993, sales to wholesalers
or other customers in excess of 10% of the Company's product revenues in any
year were as follows:
1995 1994 1993
Customer A 17% -- --
Customer B 14% -- --
Customer C 12% -- --
The Company has entered into various collaborative research and development
contracts. The Company earned substantially all of its research and development
revenues from two corporate sponsors in 1995, 1994 and 1993. Corporate sponsors
who contributed 10% or more of the Company's total revenues, pursuant to
collaborative agreements and licensing and other fees as reported in the
statements of operations, in any year were as follows:
1995 1994 1993
A $5,743,000 $4,694,000 $4,497,000
B 753,000 1,116,000 333,000
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
13. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data (in thousands of dollars, except for per
share data for the years ended December 31, 1995, and 1994 is as follows:
Quarter
First Second Third Fourth
1995
Total revenues $ 1,853 $ 3,717 $ 3,496 $ 6,651
Total expenses 12,186 12,544 12,223 14,425
Net loss (10,333) (8,827) (8,727) (7,774)
Preferred Stock dividends (1,337) (1,337) (1,337) (1,337)
Net loss applicable to
Common Stock...............$(11,670)$(10,164)$(10,064) $(9,111)
Net loss per share applicable
to Common Stock $ (.49) $ (.38) $ (.35) $ (.31)
Weighted average shares
outstanding 24,050 26,407 28,959 29,676
Quarter
First Second Third Fourth
1994
Total revenues $ 3,036 $ 2,941 $ 2,446 $ 2,017
Total expenses 9,874 11,084 11,127 12,008
Net loss (6,838) (8,143) (8,681) (9,991)
Preferred Stock dividends (1,337) (1,337) (1,337) (1,337)
Net loss applicable to
Common Stock...............$(8,175)$(9,480) $(10,018) $(11,328)
Net loss per share applicable
to Common Stock $ (.34) $ (.40) $ (.42) $ (.48)
Weighted average shares
outstanding 23,715 23,812 23,916
23,958
Net loss per share of Common Stock amounts are calculated independently for each
of the quarters presented. The sum of the quarters may not equal the full year
amounts.
