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 June 30, 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 August 8, 1996
Common Stock, $.01 par value 33,672,314
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
Part I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the Six Month and Three Month Periods Ending
June 30, 1996 and 1995.......................... 4
Consolidated Statements of Cash Flows
for the Six Month Period Ending
June 30, 1996 and 1995.......................... 5
Notes to Consolidated Financial Statements 6,7
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
Part II. OTHER INFORMATION 14-15
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 June 30, December 31,
Current assets: 1996 1995
Cash and cash equivalents $ 1,494 $ 3,937
Short-term investments 40,228 50,451
Accounts receivable, net 7,871 6,799
Inventories 5,706 3,543
Prepaid expenses 855 333
Other current assets 50 46
Total current assets 56,204 65,109
Long-term investments 6,303 11,303
Plant and equipment, net 27,365 22,400
Restricted cash 6,642 6,642
Other assets, net 443 472
Total assets $ 96,957 $105,926
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,071 $ 1,839
Accrued expenses and other current liabilities 7,520 7,002
Current obligations under capital lease 1,526 1,509
Current obligations under note payable 303 303
Preferred Stock dividends payable 572 1,337
Total current liabilities 10,992 11,990
Long-term obligation under capital lease 1,848 2,616
Long term obligation under note payable 1,337 1,488
Total liabilities 14,177 16,094
Commitments and contingencies
Stockholders' equity:
Capital stock:
Preferred Stock, par value $.0l;
2,400,000 authorized; 118,045 shares of
Series A Cumulative Convertible Exchangeable
Preferred Stock outstanding on June 30, 1996,
and 275,700 shares outstanding on December 31,
1995 (liquidation preference of $29,511) 1 3
Common Stock, par value $.0l;
60,000,000 shares authorized;
33,622,349 and 29,950,031 shares issued
and outstanding 333 299
Additional paid in capital 236,981 234,545
Net unrealized investment loss (854) (543)
Foreign currency translation adjustment 60 48
Accumulated deficit (153,741) (144,520)
Total stockholders' equity 82,780 89,832
Total liabilities and stockholders' equity $ 96,957 $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 Six Months Ended
June 30, June 30,
1996 1995 1996
1995
Product sales $ 12,467 $ 843 $ 22,570$ 843
Collaborative research,
development revenues and other........... 599 2,213 1,892 3,713
Interest and investment income, net 1,336 661 2,349
1,014
Total revenues................. 14,402 3,717 26,811
5,570
Cost of goods sold 4,040 340 7,264 340
Research and development expenses..... 8,229 9,038 15,235
18,254
Selling, general and administrative
expenses... 7,207 3,093 13,413 5,979
Interest expense...................... 56 73 120
157
Total expenses................. 19,532 12,544 36,032
24,730
Net Loss (5,130) (8,827) (9,221) (19,160)
Preferred Stock dividends (571) (1,337) (1,233) (2,674)
Net loss applicable to Common Stock $(5,701) $(10,164)$(10,454)
$(21,834)
Net loss per share applicable to
Common Stock........................ $ (.17) $ (.38)$ (.33) $
(.87)
Weighted average number of common
shares outstanding.................. 33,493 26,407 31,842
25,228
See accompanying notes
Page 4 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1995
Cash flows from operating activities:
Net loss $(9,221) $(19,160)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 1,850 1,636
Other 300 110
Changes in assets and liabilities
Accounts receivable (1,072) (1,080)
Inventory (2,163) (1,624)
Prepaid expenses (522) (319)
Other current assets (4) (132)
Accounts payable (768) (75)
Accrued expenses and other current liabilities 518
1,459
Net cash used by operating activities (11,082) (19,185)
Cash flows from investing activities:
Purchases of short and long-term investments (16,142) (34,069)
Sales of short and long-term investments... 31,054 29,794
Purchases of property, plant and equipment (6,786) (1,968)
Net cash provided/(used) by investing activities 8,126
(6,243)
Cash flows from financing activities:
Net proceeds from the issuance of Common Stock 29 28,839
Net payments from conversion of Preferred Stock (379) --
Proceeds from the exercise of stock options 3,752 1,087
Principal payments under note payable (151) (151)
Principal payments under capital lease obligations (751)
(734)
Preferred Stock dividend payments (1,999) (2,674)
Net cash provided by financing activities 501 26,367
Effects of exchange rate changes on cash 12 (6)
Net increase/(decrease) in cash and cash equivalents (2,443)
933
Cash and cash equivalents at beginning of the period 3,937
2,369
Cash and cash equivalents at end of the period $ 1,494 $ 3,302
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 June 30, 1996, and for the six 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, 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.
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 33,493,000 shares from
26,407,000 for the three months ended June 30, 1996 and 31,842,000 from
25,228,000 for the six months ended June 30, 1996. The increase in
weighted average Common Stock outstanding is 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 $.11 per common share for the six
months ended June 30, 1996 and 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:
June 30, December 31,
1996 1995
Finished Goods $2,448,000 $2,273,000
Work in process 1,546,000 139,000
Raw materials 1,260,000 1,002,000
Supplies 452,000 129,000
$5,706,000 $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:
On March 25, 1996 the Company completed the redemption of 50% of the
outstanding shares of its Series A 7.75% Cumulative Convertible
Exchangeable Preferred Stock represented by Depositary Shares. Virtually
all of the Preferred Stock called for redemption was converted into
Common Stock. Net issuance costs including financial advisory,
professional, registration and filing fees of $379,000 were incurred in
connection with the call and were charged to equity. As a result of the
call and subsequent voluntary conversions through June 30, 1996, 157,656
shares of the Preferred Stock represented by 1,576,560 Depositary Shares
were converted into 3,067,197 shares of Common Stock.
Preferred Stock Dividend Payable:
On May 9, 1996, the Board of Directors of the Company declared a
quarterly cash dividend on the Series A 7.75% 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 $572,000 was
paid on July 15, 1996 to Preferred stockholders of record on July 1,
1996.
5.Supplemental Disclosure of Cash Flow Information
Six Months Ended June 30,
1996 1995
Cash paid during the year for interest $120,000 $152,000
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 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 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 which 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 action 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 progress of
commercialization of certain of the Company's products may be affected by the
decisions of the Company corporate sponsors as to the timing and funding of
commercialization; and (h) the Company must substantially increase it
manufacturing, marketing, distribution and sales capabilities, and it 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 Liposome Company, Inc. (the "Company") is a leading biotechnology 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, Sweden, Luxembourg, Ireland and
Iceland and is the subject of marketing application filings in several other
countries. 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 overseas. The
Company also has a continuing discovery research program which concentrates
primarily on the treatment of cancer and inflammatory conditions.
Results of Operations
Revenues
- Six Months Ended June 30:
Total revenues for the six months ended June 30, 1996 were $26,811,000 which
was an increase of $21,241,000 or 381% compared with the six months ended
June 30, 1995. The primary components of revenues for the Company are
product sales, collaborative research and development revenues, and interest
and investment income.
Net sales of the Company's product ABELCET were $22,570,000 for the first six
months of 1996. Net sales of ABELCET in the United States totaled
approximately $18,600,000 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 $1,892,000 for the six
months ended June 30, 1996 decreased $1,821,000 or 49% compared to the six
month period ended June 30, 1995. The Company earned its collaborative
research and development revenues from Pfizer Inc. ("Pfizer") during the
first six 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 which are being conducted by Pfizer.
In addition, in the first six months of 1995, the Company earned such
revenues from Schering AG (a former collaborative partner) as well as Pfizer.
It should be noted that collaborative research and development revenues are
not necessarily indicative of the level of research and development activity
being carried out in connection with collaborative research projects as 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.
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 six months ended June 30, 1996 was
$2,349,000 compared to $1,014,000 for the same period last year. This 132%
increase is due primarily to higher average cash and investment balances and
cash receipts from trade receivables. In addition, the Company realized
losses on certain investments in the first quarter of 1995.
- Three Months Ended June 30:
Total revenues of the Company for the quarter ended June 30, 1996 were
$14,402,000 compared to $3,717,000 for the same period during 1995. This
change in total revenue represents an increase of $10,685,000 or 287%. This
net increase is due primarily to revenue of $12,467,000 from sales of
ABELCET. The other components of revenue are collaborative research and
development agreements and interest and investment income.
Collaborative research and development revenues were $599,000 for the second
quarter of 1996, $1,614,000 or 73% lower than the comparable prior year
period. In the second quarter of 1995 the Company earned revenues from both
Pfizer and Schering AG, and in 1996 such revenue was generated solely under
the agreement with Pfizer. In addition, responsibility for clinical trials
was assumed by Pfizer as TLC D-99 progressed to Phase III studies, resulting
in reduced activities and revenues to the Company.
Interest and investment income for the quarters ended June 30, 1996 and 1995
were $1,336,000 and $661,000, respectively. This change represents an
increase of $675,000 or 102% from 1995. Interest income increased primarily
due to higher average cash and investment balances in the Company's
investment portfolio and cash receipts from trade receivables.
Total revenue can increase or decrease significantly based on the volume of
product sales, the level of cost reimbursement under research collaborations
and the possible initiation of new licensing agreements. It is also impacted
by 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. The effect of seasonality on U.S. product sales, is unclear.
Management expects that seasonality may have a significant impact on sales in
overseas markets, possibly resulting in lower international sales in the
third quarter of 1996 compared to the second quarter.
Expenses
- Six Months Ended June 30:
The components of total expenses for the six months ended June 30, 1996 were
cost of goods sold, research and development, selling, general and
administrative and interest expense.
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)
Cost of goods sold was $7,264,000 versus $340,000 from the same period in the
prior year. The increase in cost of goods is due to increased ABELCET sales
in the U.S. and internationally. Partially offsetting the volume increase
were production efficiencies resulting in improvements of gross margins from
59.7% for the 1995 period to 67.8% for the comparable 1996 period.
Research and development expenses were $15,235,000 for the six months ended
June 30, 1996, compared to $18,254,000 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 scale-up costs associated with the Indianapolis
manufacturing facility.
Selling, general and administrative expenses for the first six months of 1996
were $13,413,000, an increase of $7,434,000 or 124% 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. 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 six months
ended June 30, 1996 were $36,032,000, an increase of $11,302,000 over the
same prior year period.
- Three Months Ended June 30:
The components of total expenses for the three months ended June 30, 1996
were cost of goods sold, research and development, selling, general and
administrative and interest expense.
Cost of goods sold was $4,040,000 or $3,700,000 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 59.7% for the 1995 period to 67.6% for the comparable 1996
period.
Research and development expense was $8,229,000 for the quarter ended June
30, 1996, 9% lower than the comparable prior year period. Expenses declined
due to the November 1995 FDA approval of ABELCET and the transfer of product
costs from clinical manufacturing to cost of goods sold. The reduction was
partially offset by higher research and development activities related to TLC
C-53 and scale-up costs associated with the Indianapolis manufacturing
facility.
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)
Selling, general and administrative expenses for the second quarter 1996 were
$7,207,000, a $4,114,000 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 June 30, 1996 were $19,532,000, an increase of $6,988,000 over
the same prior year period.
The Company expects that expenses in all areas will increase throughout 1996
as the Company receives additional marketing approvals in Europe, continues
to expand its sales and marketing efforts in the United States for ABELCET,
progresses further in clinical development and continues scale-up activities
at the Indianapolis facility.
Net Loss, Net Loss Applicable to Common Stock and Net Loss per Share of
Common Stock
The net loss for the six months ended June 30, 1996 was $9,221,000, a
decrease of 52% or $9,939,000 from that of the same period a year ago, due to
the factors discussed above. After Preferred Stock dividends of $1,233,000
and $2,674,000, the net loss applicable to Common Stock was $10,454,000 or
$.33 per share and $21,834,000 or $.87 per share for the six months ended
June 30, 1996 and 1995, respectively. Preferred Stock dividends were reduced
in the 1996 period due to the call of approximately 50% of the Preferred
Stock on March 25, 1996.
The net loss for the second quarter of $5,130,000 was a decrease of
$3,697,000 from the same prior year period. After the Preferred Stock
dividends of $571,000 and $1,337,000, the net loss applicable to Common Stock
was $5,701,000 or $0.17 per share and $10,164,000 or $0.38 per share for the
second quarters 1996 and 1995, respectively. Preferred Stock dividends were
reduced in the 1996 quarter due to the call of approximately 50% of the
Preferred Stock on March 25, 1996.
Liquidity and Capital Resources
The Company had $54,667,000 in cash and marketable securities reserves as of
June 30, 1996. Included in these reserves were cash and cash equivalents of
$1,494,000, short term investments of $40,228,000, 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 $17,666,000 from
December 31, 1995 to June 30, 1996 due to the use of funds for operations,
capital expenditures (primarily the retrofit of the Company's Indianapolis
manufacturing facility to make larger 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 June 30, 1996 the Company has
spent approximately $12,000,000 of that amount on this project. The
Company's uses of cash during the first six months of 1996 were partially
offset by the receipt of $3,752,000 from the exercise of stock options.
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(Continued)
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 June 30, 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 $854,000. 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 redemption of 50% of the
outstanding shares of its Series A 7.75% Cumulative Convertible Exchangeable
Preferred Stock represented by Depositary Shares. Virtually all of the
Preferred Stock called for redemption was converted into Common Stock. Net
issuance costs including financial advisory, professional, registration and
filing fees of $379,000 were incurred in connection with the call and were
charged to equity. As a result of the call and subsequent voluntary
conversions through June 30, 1996, 157,656 shares of the Preferred Stock
represented by 1,576,560 Depositary Shares were converted into 3,067,197
shares of Common Stock. With more than half of the Preferred Stock retired,
the Company's annual Preferred Stock dividend has been reduced by
approximately $2.9 million. It is also possible that the Company will in the
future call the remaining Preferred Stock.
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 13 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
On July 2, 1996, the U.S. Patent and Trademark Office issued a
certificate of re-examination on the Company's patent covering
its liposome drying technology. The original patent, issued in
1989 covering "Dehydrated Liposomes," was voluntarily submitted
by the Company for re-examination.
The patent is currently the subject of litigation between the
Company and NeXstar Pharmaceuticals, Inc. NeXstar's suit for a
declaratory judgment that the patent was invalid and was not
infringed by NeXstar's liposomal amphotericin B product was
stayed during the pendancy of the re-examination. The stay has
now been lifted, and the Company will shortly file a counterclaim
for damages and an injunction based on infringement of the re-
examined patent. This litigation is not expected to have a
material impact on the Company's results of operations or
financial position.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) An annual meeting of stockholders of the Company was held on May 9,
1996.
(c) All members of the Board of Directors were re-elected at the annual
meeting. The following votes were cast for and withheld from each
nominee:
For Withheld
Charles A. Baker 26,254,124 326,601
James G. Andress 26,246,527 334,198
Morton Collins 26,361,722 219,003
Stuart F. Feiner 26,357,074 223,651
Robert F. Hendrickson 26,358,063 222,662
Bengt Samuelsson 26,354,154 226,571
Joseph T. Stewart 26,354,337 235,388
Gerald Weissmann 26,338,092 242,633
Horst Witzel 26,356,545 224,180
A proposal to approve The Liposome Company 1996 Equity Incentive
Plan was approved by a vote of 10,223,375 affirmative votes and
7,052,098 negative votes, with 209,058 shares abstaining and
9,096,194 broker non-votes.
An amendment to increase the number of shares of Common Stock
authorized for issuance under the 1991 Directors' Nonqualified
Stock Option Plan to 550,000 and to increase each participant's
annual option award to 10,000 shares was approved by a vote of
15,772,188 affirmative votes and 1,502,097 negative votes, with
210,246 shares abstaining and 9,096,194 broker non-votes.
The appointment of Coopers & Lybrand L.L.P. as the Company's
independent accountants for the fiscal year ending December 31,
1996 was ratified by a vote of 26,357,518 affirmative votes and
166,766 negative votes, with 56,441 shares abstaining.
Page 14 of 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION (Continued)
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10-16.1991 Directors Non-Qualified Stock Option Plan, as amended November
16, 1995 and March 7, 1996 and approved by the shareholders on May 9,
1996.
(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: _________, 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: ________, 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,494
<SECURITIES> 40,228
<RECEIVABLES> 7,183
<ALLOWANCES> (688)
<INVENTORY> 5,706
<CURRENT-ASSETS> 56,204
<PP&E> 43,527
<DEPRECIATION> (16,162)
<TOTAL-ASSETS> 96,957
<CURRENT-LIABILITIES> 10,992
<BONDS> 0
0
1
<COMMON> 333
<OTHER-SE> 82,446
<TOTAL-LIABILITY-AND-EQUITY> 96,957
<SALES> 22,570
<TOTAL-REVENUES> 26,811
<CGS> 7,264
<TOTAL-COSTS> 36,032
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> (9,221)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,221)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,221)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> 0<F1>
<FN>
<F1>EPS-diluted not calcuated because the effects would be anti-dilutive.
</FN>
</TABLE>
7
EXHIBIT 10-16
THE LIPOSOME COMPANY, INC.
1991 DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSE. This 1991 Directors' Non-Qualified Stock Option Plan is
intended to advance the interests of The Liposome Company, Inc., a Delaware
corporation (the "Company"), and its investors and shareholders, by providing
for the grant of options to purchase shares of Common Stock of the Company to
the Independent Directors of the Company for the purpose of attracting,
motivating and retaining such persons to serve on the Board.
This Plan does not supersede, amend, modify or in any other way affect
the existing non-qualified stock option plans of the Company heretofore approved
by the Board and the Shareholders. Such plans and the options granted thereunder
remain in full force and effect in accordance with their respective terms and
provisions.
2. DEFINITIONS. The following terms shall have the meanings ascribed to
them below:
a. "Board" means the Board of Directors of the Company.
b. "Common Stock" means the Company's $.01 par value Common Stock.
c. "Company" means The Liposome Company, Inc., a Delaware
corporation.
d. "Date of Approval" means the date this Plan is first approved by
the Shareholders, that is May 21, 1992.
e. "Date of Grant" means the date on which an Option is granted
under this Plan.
f. "Expiration Date" means the date by which an Option must be
exercised or all rights to exercise such Option shall expire.
g. "Independent Director" means, as of each July 1, any member of
the Board who is not an employee of the Company and (a) does not own 5% or more
of the Common Stock; (b) does not represent an owner of 5% or more of the Common
Stock; or (c) does not join the Board pursuant to or as a result of a
contractual arrangement between the Company and a third party.
h. "Option" means an option granted under this Plan.
i. "Option Agreement" shall mean the agreement which must be entered
into between the Optionee and the Company upon the grant of an Option by the
Company to the Optionee.
j. "Optionee" means an Independent Director to whom an option, which
has not expired, has been granted under this Plan, and any persons or entities
entitled to exercise an Option pursuant to Section 15.
k. "Option Price" means the price per share of Common Stock which
the Optionee must pay to the Company upon any exercise of any Option, determined
pursuant to Section 8 of the Plan.
l. "Plan" means the Company's 1991 Directors' Non-Qualified Stock
Option Plan, adopted by the Board of Directors on May 16, 1991 and amended on
March 12, 1992, and approved by the Shareholders on May 21, 1992 (the "Date of
Adoption"); further amended on March 11, 1993 and approved by the Shareholders
on May 20, 1993.
m. "Shareholders" shall mean the holders at any point in time of the
outstanding shares of the Company's voting stock.
3. STOCK SUBJECT TO PLAN. Only Common Stock shall be subject to the
Options. The aggregate number of shares of Common Stock which may be issued
pursuant to Options shall not exceed 550,000 shares, subject to adjustment under
the terms of Section 19. The shares of Common Stock issuable upon exercise of
any Option shall be either shares authorized but unissued by the Company or
shares issued and reacquired by the Company. At all times during the term of
this Plan and prior to the Expiration Date of any Options, the Company shall
reserve and keep available such number of shares of its Common Stock as shall be
sufficient for the requirements of this Plan and of any Options. If any Option
shall expire, terminate or be surrendered without having been exercised in full,
the unpurchased shares subject to such Option shall again be available for the
purposes of this Plan.
4. ELIGIBILITY AND PARTICIPATION.
a. Effective May 10, 1992, an Option to purchase 10,000 shares of
Common Stock shall be automatically granted to each Independent Director on the
day the Independent Director is approved as a member of the Board of Directors.
The Option shall vest 2,000 shares on each anniversary date of the Date of Grant
over a five (5) year period, that is twenty percent (20%) on each anniversary,
provided the Grantee remains on the Board.
b. An Option or Options to purchase 5,000 shares of Common Stock
shall be granted to each Independent Director on July 1 of each year beginning
in 1991. Each Independent Director is eligible for participation in this Plan.
Any Independent Director who has been granted an Option may be granted
additional Options provided such Independent Director continues to be a member
of the Board.
5. EFFECTIVE DATE AND APPROVAL OF PLAN. No Option shall be granted
pursuant to this Plan prior to the Date of Approval and this Plan shall become
effective only upon the Date of Approval. All Options under this Plan must be
granted within 10 years from the Date of Adoption.
6. OPTION GRANT AND AGREEMENT.
a. Options granted under this Plan shall not require any further
authorization of the Board.
b. A grant to purchase 10,000 shares of Common Stock shall be made,
in accordance with the provisions of this Plan automatically, effective March
10, 1992, to each Independent Director upon appointment to the Board and shall
be evidenced by a written Option Agreement dated as of the Date of Grant and
executed by the Company and the Optionee. The form of Option Agreement is
attached hereto as Exhibit A. The Company shall require no monetary
consideration from an Optionee in exchange for the grant of an Option.
c. A grant to purchase 10,000 shares of Common Stock will be made,
in accordance with the provisions of this Plan, automatically on each July 1 to
each Independent Director and shall be evidenced by a written Option Agreement
dated as of the Date of Grant and executed by the Company and the Optionee. The
form of Option Agreement is attached hereto as Exhibit B. The Company shall
require no monetary consideration from an Optionee in exchange for the grant of
an Option.
7. PERIOD FOR EXERCISE OF OPTIONS. The Option Agreement shall state the
date on which each Option, and all rights under such Option, shall become
exercisable and shall expire. All Options granted under Section 4b. of this
Plan shall vest and shall become exercisable one year from the Date of Grant.
All Options granted under Section 4a. of this Plan shall vest and shall become
exercisable in five (5) equal installments of 2,000 shares on each anniversary
of the Date of Grant beginning on the first anniversary of the Date of Grant,
that is, one year from the Date of Grant. The Expiration Date shall be 10 years
from the Date of Grant. Options shall be subject to early termination as
provided by this Plan and the Option Agreements.
8. OPTION PRICE. The Option Agreement shall state the Option Price. The
Option Price shall be the fair market value of the Common Stock which shall be
equal to the NASDAQ-quoted closing price of the Common Stock on the Date of
Gant. If the Common Stock did not trade on the Date of Grant, then the Option
Price shall be equal to the NASDAQ-quoted closing price on the last business day
prior to the Date of Grant on which the Common Stock traded.
9. NON-TRANSFERABILITY OF OPTION.
a. No option shall be transferable or assignable in any way by an
Optionee, otherwise than by will or by the laws of descent and distribution.
Each Option shall be exercisable only by the Optionee. No Option may be pledged
or hypothecated in any way or subjected to execution, attachment, or similar
process.
b. Each Option is subject to the provisions of this Section
regardless of any community property interest of any spouse of the Optionee in
the Option, or such spouse's successor in interest. In the event that any
spouse of the Optionee shall have acquired a community property interest in such
Option, the Optionee or his successor shall have the sole authority and
discretion to exercise the Option on behalf of the spouse of the Optionee or
such spouse's successors in interest.
10. EXERCISE OF OPTION.
a. Each Option shall be exercisable from time to time over a period
commencing on the first anniversary of the Date of Grant and ending upon the
Expiration Date of the Option, unless earlier terminated in accordance with the
provisions of this Plan or the Option Agreement under which such Option is
granted.
b. The Option shall be exercised by the Optionee by giving written
notice to the Secretary of the Company specifying the number of shares to be
purchased and accompanied by payment of the full Option Price of the shares in
whatever manner the Board authorizes.
c. Within a reasonable period after receipt by the Secretary of the
Company of notice and payment, the Company shall issue the shares purchased in
the name of the Optionee and deliver the certificates evidencing the shares;
provided, however, that the Company shall not issue the shares unless and until
the Company effects or obtains the satisfaction of withholding tax or other
withholding liabilities, or the listing, registration, or qualifications of any
shares upon any securities exchange or under any state or federal law, or the
consent or approval of any regulatory body, which the Company, in its
discretion, deems necessary or desirable.
11. INVESTMENT PURPOSE. Notwithstanding any other provision in this Plan,
no Option may be exercised unless and until the shares to be issued upon the
exercise thereof have been registered under the Securities Act of 1933 and
applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration. The Company shall not be under any
obligation to register under applicable federal or state securities laws any
shares to be issued upon the exercise of an Option, or to comply with an
appropriate exemption from registration under such laws in order to permit the
exercise of an Option and the issuance and sale of the shares subject to such
Option.
12. RESTRICTIVE LEGEND. A restrictive legend shall be placed on each
certificate of stock issued pursuant to the exercise of an Option if the
securities are unregistered, setting forth the unregistered nature of the
securities, and the restrictions upon repurchase or resale of such securities as
provided in this Plan, the By-Laws or Certificate of Incorporation of the
Company, the Option Agreements, or any other document or agreement pertaining to
the shares.
13. VESTING OF SHAREHOLDER RIGHTS. No Optionee shall have any of the
rights of a Shareholder until the certificates evidencing the shares purchased
are properly delivered to the Optionee. No adjustment shall be made for any
type of dividend or distribution or right for which the record date is prior to
the date the shares are delivered.
14. CONTINUATION OF SERVICES. The granting of an Option to an Independent
Director does not alter in any way the Company's or Shareholders' existing
rights to remove such Independent Director from the Board, nor does it confer
upon any such Independent Director any rights or privileges, except as
specifically provided in this Plan.
15. EARLY TERMINATION OF OPTIONS: DEATH OR DISABILITY OF OPTIONEE.
a. If an Optionee leaves the Board due to death or disability with
an outstanding Option, his Option privileges shall be limited to the shares
which were immediately purchasable by him on the date he left the Board. Such
Option privileges shall expire unless exercised by the Optionee, or by the
executor or administrator of the Optionee's estate or the person or persons to
whom the Option has been validly transferred by the executor or administrator
pursuant to will or laws of descent and distribution, within twenty-four (24)
months after the date the Optionee left the Board or within the remaining term
of the Option, whichever is less.
b. Any person or entity succeeding to the right to exercise an
Option pursuant to this Section 15 shall be bound by all of the provisions of
this Plan and the relevant Option Agreement as an Optionee.
16. EARLY TERMINATION OF OPTIONS: OTHER. If an Optionee leaves the Board
for other than (i) cause (see Section 21 of this Plan) or (ii) death or
disability (see Section 15 of this Plan) with an outstanding Option, his Option
privileges shall be limited to the shares which were immediately purchasable by
him on the date he left the Board. Such Option privileges shall expire unless
exercised by the Optionee within six (6) months after the date the Optionee left
the Board or within the remaining term of the Option, whichever is less.
17. RESTRICTIONS AND RIGHT OF FIRST REFUSAL ON RESALE BY OPTIONEE. The
shares acquired pursuant to the exercise of an Option shall be subject to such
restrictions as the Board may determine.
18. RESOLUTION OF QUESTIONS. Any questions or issues arising under
this Plan or any Option shall be resolved by the Board, whose decision shall be
final and binding.
19. ADJUSTMENTS.
a. In the event that the issued and outstanding shares of the Common
Stock are increased, decreased, changed into, or exchanged for, a different
number or kind of shares or other securities of the Company or of another
corporation, by reason of recapitalization, reclassification, merger,
consolidation, stock split, or combination of shares, appropriate adjustment
shall be made by the Board in the number and kind of shares available for
purchase under outstanding Options. Such adjustment in outstanding Options
shall be made with an adjustment in the Option Price and the number of shares
subject to Option, but without change in the total Option Price.
b. In the event of the dissolution of the Company, all outstanding
Options shall terminate as of a date to be fixed by the Board, provided that not
less than thirty (30) days' written notice of the date so fixed shall be given
to each Optionee and each such Optionee shall have the right during such period
to exercise his Option as to all or part of the shares subject to the Option
including shares as to which such Option would not otherwise be exercisable by
reason of an insufficient lapse of time.
20. NOTICE OF DISPOSITION OF SHARES. Each Optionee shall agree pursuant
to an Option Agreement to promptly notify the Company of any disposition, sale,
exchange, gift or transfer of legal title of the shares acquired by the Optionee
pursuant to an Option, and of any other event which, to the Optionee's
knowledge, requires the Optionee to include in his gross income any amount in
connection with the Option or any Option Shares.
21. FORFEITURE OF OPTIONS AND OPTION SHARES. The Option Agreements shall
state the circumstances under which an Option and shares acquired pursuant to
such Option shall be forfeitable. The Option Agreements shall provide that an
Optionee shall forfeit Options with or without consideration, automatically if,
the Optionee is removed from the Board for cause.
22. AMENDMENT, SUSPENSION AND TERMINATION OF PLAN.
a. The Board may at any time and from time to time suspend,
discontinue, modify, or amend the Plan in any respect whatsoever except that (i)
the Board may not amend any provision of the Plan relating to (x) the amount and
price of shares underlying the Options, (y) eligibility to receive Options, or
(z) the timing of awards, more than once every six (6) months other than to
comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act, or the rules thereunder and (ii) the Board may not suspend,
discontinue, modify, or amend the Plan so as to adversely affect the rights of
an Optionee with respect to any grants that have theretofore been made to such
Optionee without such Optionee's approval.
b. No amendment to or modification of the Plan which (i) materially
increases the benefits accruing to Participants; (ii) except as provided in
Section 19 of this Plan, materially increases the number of shares that may be
issued under the Plan; or (iii) materially modifies the eligibility requirements
for participation under the Plan, shall be effective without shareholder
approval.
23. APPLICABLE LAW. This Plan shall be construed and interpreted in
accordance with the laws of the State of Delaware.
The undersigned certifies that the above 1991 Directors' Non-Qualified
Stock Option Plan was adopted by the Board of Directors of The Liposome Company,
Inc. on May 16, 1991, amended on March 12, 1992 and approved by the Shareholders
on May 21, 1992; was further amended on March 11, 1993 and approved by the
Shareholders on May 20, 1993, and was further amended on on November 16, 1995
and March 7, 1996 and approved by the Shareholders on May 9, 1996.
_______________________________
Carol J.
Gillespie
Dated: August 5, 1996
