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 the Quarterly Period ended September 29, 1996 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 November 6, 1996
Common Stock, $.01 par value 36,005,570
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 29, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the Three Month and Nine Month Periods Ending
September 29, 1996 and September 30, 1995...........
4
Consolidated Statements of Cash Flows
for the Nine Month Periods Ending
September 29, 1996 and September 30, 1995............
5
Notes to Consolidated Financial Statements 6,7
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-14
Part II. OTHER INFORMATION 15
Signatures 16
************************************************
Note concerning trademarks: Certain names
mentioned in this report are trademarks owned by
The Liposome Company, Inc. or its affiliates or
licensees. ABELCET is a registered trademark of
The Liposome Company, Inc.
Page 2 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
ASSETS
Current assets: 9/29/96 12/31/95
Cash and cash equivalents $ 2,925 $ 3,937
Short-term investments 33,378 50,451
Accounts receivable, net 7,183 6,799
Inventories 7,090 3,543
Prepaid expenses 462 333
Other current assets 99 46
Total current assets 51,137 65,109
Long-term investments 6,303 11,303
Plant and equipment, net 27,723 22,400
Restricted cash 6,642 6,642
Other assets, net 429 472
Total assets $ 92,234 $105,926
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,043 $ 1,839
Accrued expenses and other current liabilities 8,758 7,002
Current obligations under capital lease 1,534 1,509
Current obligations under note payable 303 303
Preferred Stock dividends payable 2 1,337
Total current liabilities 11,640 11,990
Long-term obligation under capital lease 1,463 2,616
Long term obligation under note payable 1,261 1,488
Total liabilities 14,364 16,094
Commitments and contingencies
Stockholders' equity:
Capital stock:
Preferred Stock, par value $.0l;
2,400,000 authorized; 117,504 shares of
Series A Cumulative Convertible Exchangeable
Preferred Stock outstanding on September 29, 1996,
and 275,700 shares outstanding on December 31,
1995 (liquidation preference of $29,376 at 9/29/96) 1 3
Common Stock, par value $.0l;
60,000,000 shares authorized;
33,709,464 and 29,950,031 shares issued
and outstanding 333 299
Additional paid in capital 237,295 234,545
Net unrealized investment loss (652) (543)
Foreign currency translation adjustment (14) 48
Accumulated deficit (159,093) (144,520)
Total stockholders' equity 77,870 89,832
Total liabilities and stockholders' equity $ 92,234 $105,926
See accompanying notes
Page 3 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share figures)
(Unaudited)
Three Months Ended Nine Months Ended
9/29/96 9/30/95 9/29/96 9/30/95
Product sales $ 13,799 $ 850 $ 36,369$ 1,693
Collaborative research,
development revenues and other........... 610 1,527 2,502 5,240
Interest and investment income, net 501 1,119 2,850
2,133
Total revenues................. 14,910 3,496 41,721
9,066
Cost of goods sold 4,347 396 11,611 736
Research and development expenses..... 8,955 7,590 24,190
25,844
Selling, general and administrative
expenses... 6,905 4,168 20,318 10,147
Interest expense...................... 55 69 175
226
Total expenses................. 20,262 12,223 56,294
36,953
Net Loss (5,352) (8,727) (14,573) (27,887)
Preferred Stock dividends (2) (1,337) (1,235) (4,011)
Net loss applicable to Common Stock $(5,354) $(10,064)$(15,808)
$(31,898)
Net loss per share applicable to
Common Stock........................ $ (.16) $ (.35)$ (.49) $
(1.20)
Weighted average number of common
shares outstanding.................. 33,671 28,959 32,452
26,472
See accompanying notes
Page 4 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
9/29/96 9/30/95
Cash flows from operating activities:
Net loss $(14,573) $(27,887)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 2,765 2,498
Other 565 152
Changes in assets and liabilities
Accounts receivable (384) (1,742)
Inventory (3,547) (2,210)
Prepaid expenses (129) (79)
Other current assets (53) 17
Accounts payable (796) 1,206
Accrued expenses and other current liabilities 1,939
1,121
Unearned contract income and other fees (183) 1,734
Net cash used by operating activities (14,396) (25,190)
Cash flows from investing activities:
Purchases of short and long-term investments (26,760) (52,428)
Sales of short and long-term investments... 48,724 44,228
Purchases of property, plant and equipment (8,045) (4,279)
Net cash provided/(used) by investing activities 13,919
(12,479)
Cash flows from financing activities:
Net proceeds from the issuance of Common Stock 29 43,192
Net payments from conversion of Preferred Stock (466) --
Proceeds from the exercise of stock options 3,890 3,135
Principal payments under note payable (227) (227)
Principal payments under capital lease obligations (1,128)
(1,105)
Preferred Stock dividend payments (2,571) (4,011)
Net cash (used)/provided by financing activities (473)
40,984
Effects of exchange rate changes on cash (62) 5
Net (decrease)/increase in cash and cash equivalents (1,012)
3,320
Cash and cash equivalents at beginning of the period 3,937
2,369
Cash and cash equivalents at end of the period $ 2,925 $ 5,689
See accompanying notes
Page 5 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Basis of Presentation
The information presented at September 29, 1996, and for the three and
nine month periods then ended is unaudited, but includes all adjustments
(consisting only of normal recurring accruals) that The Liposome
Company, Inc.'s (the "Company") management believes to be necessary for
the fair presentation of results for the periods presented. The
December 31, 1995 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, 1995, 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. Beginning in 1996 the Company
changed its financial reporting year to a fiscal year consisting of
fifty-two weeks, with four thirteen week quarters.
2.Common Stock Outstanding and Per Share Information
Per share data is based on the weighted average number of shares of
Common Stock outstanding during each of the periods. The weighted
average shares outstanding increased to 33,671,000 shares from
28,959,000 for the three months ended September 29, 1996 and September
30, 1995, respectively. For the nine months ended September 29, 1996 and
the comparable prior year period, weighted average shares increased to
32,452,000 from 26,472,000. The increases are due primarily to the
issuance of stock in connection with certain equity offerings, the
conversion of Preferred Stock and the exercise of stock options.
Unexercised stock options (Common Stock equivalents) and the conversion
of outstanding 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 $.04 and $.15 per common share for the nine
months ended September 29, 1996 and September 30, 1995, respectively.
3.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. The components
of inventories are as follows:
September 29, December 31,
1996 1995
Finished Goods $3,351,000 $2,273,000
Work in process 1,604,000 139,000
Raw materials 1,774,000 1,002,000
Supplies 361,000 129,000
$7,090,000 $3,543,000
Page 6 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
4.Stockholders' Equity
Preferred Stock:
During 1996, the Company called for redemption all of the outstanding
shares of its Series A 7.75% Cumulative Convertible Exchangeable
Preferred Stock ("Preferred Stock"). The redemption period for the
first 50% of the outstanding shares of Preferred Stock ended on March
25, 1996, and the redemption period for the remaining Preferred Stock
ended on October 14, 1996. Virtually all of the Preferred Stock called
for redemption was converted into Common Stock. (Conversions through
September 29, 1996, amounted to 158,196 shares of Preferred Stock
represented by 1,581,960 depositary shares.) Combined net issuance
costs including financial advisory, professional, registration and
filing fees of $466,000 incurred in connection with these calls were
charged to equity.
Preferred Stock Dividend Payable:
Due to the call for redemption of the Preferred Stock effective October
14, 1996, only holders of depositary shares who did not submit their
shares for conversion received a prorated dividend of $0.5597 per
depositary share, which was paid together with the redemption price of
the depository shares on October 14, 1996. Approximately $2,000 was
paid in dividends to holders of redeemed depositary shares.
5.Supplemental Disclosure of Cash Flow Information
Nine Months Ended:
9/29/96 9/30/95
Cash paid during the year for interest $175,000 $223,000
Page 7 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934, and The Liposome
Company, Inc. (the "Company") intends that such forward-looking statements be
subject to the safe harbors created thereby. Examples of these forward-
looking statements include, but are not limited to, (i) the progress of
clinical trials, (ii) future marketing approvals, (iii) the expansion of
sales efforts, (iv) possible new licensing agreements, (v) the completion
date and total cost of the Indianapolis manufacturing facility, (vi) the
anticipated outcome or financial impact of litigation, (vii) future product
revenues, and (viii) the future uses of capital and financial needs of the
Company. While these statements are made by the Company based on
management's current beliefs and judgment, they are subject to risks and
uncertainties that could cause actual results to vary. In evaluating such
statements, stockholders and investors should specifically consider a number
of factors and assumptions, including those discussed in the text and the
financial statements and their accompanying footnotes in this Report and the
risk factors detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
Among these factors and assumptions that could affect the forward-looking
statements in this Report are the following: (a) the Company is experiencing
a rapid period of growth, and it is uncertain as to whether the rate of
growth can be maintained; (b) the Company has recently commenced
commercialization of ABELCET, and the ultimate rate of sales of ABELCET is
uncertain; (c) the Company's other products have not yet received regulatory
approvals for sale, and it is difficult to predict when approvals will be
received and, if approved, whether the products can be successfully
commercialized; (d) competitors of the Company have developed and are
developing products that are competitive with the Company's products, and the
Company will be dependent on the success of its products in competing with
these other products; (e) the rate of sales of the Company's products could
be affected by regulatory actions, decisions by government health
administration authorities or private health coverage insurers as to the
level of reimbursement for the Company's products, and risks associated with
international sales, such as currency exchange rates, currency controls,
tariffs, duties, taxes export license requirements and foreign regulations;
(f) the levels of protection afforded by the Company's patents and other
proprietary rights is uncertain and may be challenged; (g) the outcome of
litigation cannot be predicted with certainty; (h) the progress of
commercialization of certain of the Company's products may be affected by the
decisions of the Company's corporate sponsors as to the timing and funding of
commercialization; and (i) the Company must substantially increase its
manufacturing, marketing, distribution and sales capabilities, and its is not
certain that the Company will be able to do so in a timely manner or that it
will have the funds necessary to do so.
Page 8 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company is a leading biopharmaceutical company engaged in the discovery,
development, manufacturing and marketing of proprietary lipid- and liposome-
based pharmaceuticals for the treatment of inadequately treated, life-
threatening illnesses. ABELCET (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, Portugal,
Greece, Cyprus, Sweden, Finland, Luxembourg, Ireland and Iceland and is the
subject of marketing application filings in several other countries. The
Company recently received FDA approval to expand ABELCET labeling for
additional product indications. In addition to ABELCET, 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 enrolled 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 in the U.S. and a
third Phase III study in Europe. The Company recently initiated the
development of ELL-12 (liposomal ether lipid), a new cancer therapeutic that
may have applications for the treatment of many different cancers. The
Company also has a continuing discovery research program which concentrates
primarily on the treatment of cancer and inflammatory conditions.
Results of Operations
Revenues
- Three Months Ended September 29:
Total revenues of the Company for the quarter ended September 29, 1996 were
$14,910,000 compared to $3,496,000 for the same period during 1995. The
change in total revenue represents an increase of $11,414,000 or 326%. This
net increase is primarily due to product sales growth of $12,949,000 versus
the comparable prior year period. The major component of the product sales
increase is a result of the 1995 fourth quarter launch of ABELCET in the U.S.
Since the launch, domestic product sales have grown considerably in every
succeeding quarter due to the continued U.S. market penetration. Net U.S.
product sales of ABELCET in the third quarter 1996 totaled approximately
$12,000,000, a growth rate of 18.6% versus the second quarter 1996.
Partially offsetting the gain in product sales was a reduction in
collaborative research and development and interest and investment income
revenues.
Collaborative research and development revenues were $610,000 for the third
quarter of 1996, $917,000 or 60% lower than the comparable prior year period.
Pursuant to the Company's agreement with its collaborative development
partner, Pfizer Inc. ("Pfizer"), development effort for the commercialization
of TLC D-99, particularly the conduct of three Phase III clinical studies, is
shifting to Pfizer. The lower revenues from Pfizer recorded in the 1996
quarter reflects the shift in spending from the Company to Pfizer.
Page 9 of 16
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 quarters ended September 29, 1996 and
September 30, 1995 were $501,000 and $1,119,000, respectively. This change
represents a decrease of $618,000 or 55% from 1995. Interest income
decreased primarily due to lower average cash and investment balances in the
Company's investment portfolio.
- Nine months Ended September 29:
Total revenues for the nine months ended September 29, 1996 were $41,721,000,
an increase of $32,655,000 or 360% compared with the nine months ended
September 30, 1995. The majority of the growth of $34,676,000 is
attributable to the launch of ABELCET in the U.S. in late 1995, and
international approvals for ABELCET in Europe. Partially offsetting the
sales increase is a reduction of collaborative research and development
revenues due to the shift of the TLC D-99 spending from the Company to Pfizer
and the absence of payments from Schering AG, a former collaborative partner,
in 1996.
Net sales of the Company's product ABELCET were $36,369,000 for the first
nine months of 1996. Net sales of ABELCET in the United States totaled
approximately $30,654,000 and the balance of product sales were made to
international customers. Product sales in 1995 and 1996 were solely
attributable to ABELCET. The Company has received approval to market ABELCET
in the United States and in several European countries. In addition, sales
are realized on a named patient basis in certain other countries where broad
based approval has not yet been received.
Collaborative research and development revenues of $2,502,000 for the nine
months ended September 29, 1996 decreased $2,738,000 or 52% compared to the
nine month period ended September 30, 1995. The Company earned its
collaborative research and development revenues from Pfizer during the first
nine months of 1996. The Company and Pfizer are developing TLC D-99,
liposomal doxorubicin, primarily as a treatment for metastatic breast cancer.
Revenues from Pfizer declined in the 1996 period due to the progression of
TLC D-99 into Phase III clinical studies that are being conducted by Pfizer.
Most clinical trial activity and management is now being carried out and paid
for by Pfizer and is not reflected in the Company's financial statements. In
addition, in the first nine months of 1995, the Company earned revenues from
Schering AG (a former collaborative partner) of $728,000 pursuant to a
development agreement for a diagnostic imaging agent. This agreement is no
longer in force and all rights to the agent have been returned to the
Company.
Interest and investment income for the nine months ended September 29, 1996
was $2,850,000 compared to $2,133,000 for the same period last year. This
increase of 34% is due primarily to realized losses on the sale of certain
investments in the first quarter 1995.
The Company anticipates continued growth in product sales as greater market
penetration is achieved and as additional international approvals are
received. Revenues are also impacted by the level of cost reimbursement
under research collaboration agreements and the level of cash balances
available for investment and the rate of interest earned.
Page 10 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Expenses
- Three Months Ended September 29:
The components of total expenses for the three months ended September 29,
1996 were cost of goods sold, research and development, selling, general and
administrative and interest expense.
Cost of goods sold was $4,347,000 or $3,951,000 higher than the same period
last year. The change is due to the U.S. launch of ABELCET in November 1995
and continued international sales growth. The cost of the increased volume
was partially offset by production efficiencies, resulting in improvements of
gross margins from 53.4% for the 1995 period to 68.5% for the comparable 1996
period.
Research and development expense was $8,955,000 for the quarter ended
September 29, 1996, 18% higher than the comparable prior year period.
Expenses increased due to the pre-production costs associated with the
Indianapolis manufacturing facility and the higher research and development
activities related to TLC C-53.
Selling, general and administrative expenses for the third quarter 1996 were
$6,905,000, a $2,737,000 increase versus the prior year period. This is
primarily due to U.S. sales and marketing activities for ABELCET. The U.S.
approval of ABELCET in late 1995 required the establishment of a sales force
and marketing structure to market the product in the U.S. In addition, the
increase in international sales and marketing costs contributed to the
overall growth in this category.
As a result of the factors discussed above, total expenses for the three
months ended September 29, 1996 were $20,262,000, an increase of $8,039,000
over the same prior year period.
- Nine Months Ended September 29:
The components of total expenses for the nine months ended September 29, 1996
were cost of goods sold, research and development, selling, general and
administrative and interest expense.
Cost of goods sold was $11,611,000 versus $736,000 from the same period in
the prior year due to ABELCET sales in the U.S. and increased sales
internationally. Gross margins on sales of ABELCET improved from 56.5% for
the 1995 period to 68.1% for the comparable 1996 period reflecting
efficiencies realized from the greater production volume of the product.
Page 11 of 16
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 were $24,190,000 for the nine months ended
September 29, 1996, compared to $25,844,000 for the same prior year period.
The major components of this category are research, development, clinical and
regulatory activities. The reduction is primarily due to the transfer of
product costs from clinical manufacturing to cost of goods sold. Also
contributing to the reduction is the fact that Pfizer is now conducting
clinical studies for TLC D-99 as the product progressed to Phase III trials.
Partially offsetting the overall reduction were increases in clinical and
development activities with respect to TLC C-53 as this product entered Phase
III clinical studies and pre-production costs associated with the
Indianapolis manufacturing facility.
Selling, general and administrative expenses for the first nine months of
1996 were $20,318,000, an increase of $10,171,000 or 100% over the same
period a year ago. The primary reason for the increase is the establishment
of a U.S. sales and marketing organization to launch and market ABELCET
following the November 1995 approval. Increases in international sales and
marketing costs also contributed to the overall growth in this category.
As a result of the factors discussed above, total expenses for the nine
months ended September 29, 1996 were $56,294,000, an increase of $19,341,000
over the same prior year period.
The Company expects that expenses in all areas will increase, particularly in
selling, general and administrative expenses, as the Company receives
additional marketing approvals in Europe and continues to expand its sales
and marketing efforts in the United States for ABELCET. The Company is in
the process of doubling its U.S. sales force to approximately 40
representatives.
Net Loss, Net Loss Applicable to Common Stock and Net Loss per Share of
Common Stock
The net loss for the third quarter of $5,352,000 was an improvement of
$3,375,000 from the same prior year period. After the Preferred Stock
dividends of $2,000 and $1,337,000, the net loss applicable to Common Stock
was $5,354,000 or $0.16 per share and $10,064,000 or $0.35 per share for the
third quarters 1996 and 1995, respectively. Preferred Stock dividends were
reduced to approximately $2,000 due to the conversion of Preferred Stock into
Common Stock.
The net loss for the nine months ended September 29, 1996 was $14,573,000, an
improvement of 48% or $13,314,000 from the same period a year ago. After
Preferred Stock dividends of $1,235,000 and $4,011,000, the net loss
applicable to Common Stock was $15,808,000 or $.49 per share and $31,898,000
or $1.20 per share for the nine months ended September 29, 1996 and September
30, 1995, respectively. The improvement in net loss applicable to Common
Stock, is partially due to the completion of the Preferred Stock redemption.
Preferred Stock dividends have now been eliminated due to the calls for
redemption in March and October of the remaining shares of outstanding Series
A 7.75% Cumulative Convertible Exchangeable Preferred Stock ("Preferred
Stock"). Virtually all of the Preferred Stock called was converted into
Common Stock, with dividends for the third quarter totaling approximately
$2,000 being paid only on those shares that were not submitted for
conversion.
Page 12 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company had $49,248,000 in cash and marketable securities reserves as of
September 29, 1996. Included in these reserves were cash and cash
equivalents of $2,925,000, short term investments of $33,378,000, long term
investments in marketable securities of $6,303,000 and restricted cash of
$6,642,000. The Company invests its excess cash in a diversified portfolio
of high-grade marketable and United States Government-backed securities.
The cash and marketable securities reserves decreased $23,085,000 from
December 31, 1995 to September 29, 1996 due to the use of funds for
operations, capital expenditures (primarily the retrofit of the Company's
Indianapolis manufacturing facility to make larger and less costly quantities
of ABELCET), working capital requirements and Preferred Stock dividend
payments. The Company expects to spend a total of approximately $13,000,000
for the Indianapolis project, with completion expected in late 1996. Through
September 29, 1996 the Company has spent approximately $12,500,000 of that
amount on this project. The Company's uses of cash during the first nine
months of 1996 were partially offset by the receipt of $3,890,000 from the
exercise of stock options.
The Company has an outstanding mortgage on a facility and has financed
equipment through a capital lease. In connection with these financing
arrangements, the Company is required to maintain minimum cash balances, of
which the largest requirement is $20,000,000. The market value of certain
securities in the Company's investment portfolio at September 29, 1996 is
below their acquisition cost; the cumulative effect of Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in
Debt and Equity Securities, was a net unrealized loss of $652,000. This
unrealized loss is recorded as a reduction of shareholders' equity.
The Company expects to finance its operations and capital spending
requirements from, among other things, the proceeds received from product
sales, payments under research and development agreements, interest earned on
investments and the proceeds from maturity or sale of certain investments.
Cash may also be provided to the Company by leasing arrangements for capital
expenditures, financing of receivables and inventory and from the licensing
of its products and technology. The Company believes that its product
revenues and revenues from other sources, coupled with its available cash and
marketable securities reserves, will be sufficient to meet its expected
operating and capital cash flow requirements for the intermediate term.
On March 25, 1996, the Company completed the call of the first 50% of the
Series A 7.75% Cumulative Convertible Exchangeable Preferred Stock, with the
remainder being called on October 14, 1996. Virtually all of the outstanding
Preferred Stock was converted into Common Stock. Dividends for the third
quarter were paid only on those shares submitted for redemption, totaling
$2,000. Combined net issuance costs including financial advisory,
professional, registration and filing fees of $466,000 were incurred in
connection with both calls and were charged to equity. The Company's annual
Preferred Stock dividend, which was $5,300,000 for 1995, has now been
eliminated.
Page 13 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Continued)
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 will adopt 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 has been implemented in
1996. There was no material impact on the Company's financial statements as
a result of the adoption of this standard.
Page 14 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. See reports on Form 10-Q for the quarters ended March 31, 1996
and June 30, 1996 for a description of legal proceedings reported
during the current fiscal year.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
During the quarter for which this report on Form 10-Q is filed, no
reports on Form 8-K have been filed.
Page 15 of 16
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 12, 1996
THE LIPOSOME COMPANY, INC.
By:
Charles A. Baker
Chairman of the Board and
Chief Executive Officer
By:
Brian J. Geiger
Vice President and
Chief Financial Officer
Page 16 of 16
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 12, 1996
THE LIPOSOME COMPANY, INC.
By: /s/ Charles A. Baker
Charles A. Baker
Chairman of the Board and
Chief Executive Officer
By: /s/ Brian J. Geiger
Brian J. Geiger
Vice President and
Chief Financial Officer
Page 16 of 16
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> SEP-29-1996
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0
1
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<CGS> 11,611
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