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 March 31, 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 May 3, 1996
Common Stock, $.01 par value 33,474,338
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
Part I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the Three Month Periods Ending
March 31, 1996 and 1995.......................... 4
Consolidated Statements of Cash Flows
for the Three Month Periods Ending
March 31, 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 8-11
Part II. OTHER INFORMATION 12
Signatures 13
************************************************
Note concerning trademarks: Certain names
mentioned in this report are trademarks owned by
The Liposome Company, Inc. or its affiliates or
licensees. ABELCETTM is a trademark of The
Liposome Company, Inc.
Page 2 of 13
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
ASSETS March 31 December 31
Current assets: 1996 1995
Cash and cash equivalents $ 2,742 $ 3,937
Short-term investments 41,002 50,451
Accounts receivable, net 8,340 6,799
Inventories 4,154 3,543
Prepaid expenses 835 333
Other current assets 48 46
Total current assets 57,121 65,109
Long-term investments 11,303 11,303
Plant and equipment, net 26,142 22,400
Restricted cash 6,642 6,642
Other assets, net 458 472
Total assets $ 101,666 $105,926
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 697 $ 1,839
Accrued expenses and other current liabilities 8,269 7,002
Current obligations under capital lease 1,517 1,509
Current obligations under mortgage 303 303
Preferred Stock dividends payable 658 1,337
Total current liabilities 11,444 11,990
Long-term obligation under capital lease 2,235 2,616
Long term obligation under mortgage 1,413 1,488
Total liabilities 15,092 16,094
Commitments and contingencies
Stockholders' equity:
Capital stock:
Preferred Stock, par value $.0l;
2,400,000 authorized; 136,415 shares of
Series A Cumulative Convertible Exchangeable
Preferred Stock outstanding on March 31, 1996,
and 2,757,000 shares outstanding on December 31,
1995 (liquidation preference of $34,104) 1 3
Common Stock, par value $.0l;
60,000,000 shares authorized;
32,960,345 and 29,950,031 shares issued
and outstanding 330 299
Additional paid in capital 235,563 234,545
Net unrealized investment loss (819) (543)
Foreign currency translation adjustment 110 48
Accumulated deficit (148,611) (144,520)
Total stockholders' equity 86,574 89,832
Total liabilities and stockholders' equity $ 101,666 $105,926
See accompanying notes
Page 3 of 13
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share figures)
(Unaudited)
Three Months Ended March 31,
1996 1995
Product sales $ 10,103 $ --
Collaborative research and development
and other revenues............... 1,293 1,500
Interest and investment income, net 1,013 353
Total revenues................. 12,409 1,853
Cost of goods sold..... 3,224 --
Research and development expenses..... 7,006 9,216
Selling, general and administrative
expenses... 6,206
2,886
Interest expense...................... 64 84
Total expenses................ 16,500 12,186
Net loss... (4,091) (10,333)
Preferred Stock dividends (662) (1,337)
Net loss applicable to Common Stock $ (4,753) $(11,670)
Net loss per share applicable to
Common Stock........................ $ (.16) $ (.49)
Weighted average number of common
shares outstanding.................. 30,191 24,050
See accompanying notes
Page 4 of 13
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Cash flows from operating activities:
Net loss $(4,091) $(10,333)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 910 813
Other 99 70
Changes in assets and liabilities
Accounts receivable (1,541) (179)
Inventory (611) (548)
Prepaid expenses (502) (313)
Other current assets (2) (165)
Accounts payable (1,142) (32)
Accrued expenses and other current liabilities 1,450 650
Unearned contract income and other fees (183) 921
Net cash used by operating activities (5,613) (9,116)
Cash flows from investing activities:
Purchases of short and long-term investments (6,019) (7,359)
Sales of short and long-term investments... 15,192 16,069
Purchases of property, plant and equipment (4,638) (618)
Net cash provided by investing activities 4,535 8,092
Cash flows from financing activities:
Net payments from conversion of Preferred Stock (434) --
Proceeds from the exercise of stock options 2,044 538
Principal payments under note payable (75) (76)
Principal payments under capital lease obligations (373)
(367)
Preferred Stock dividend payments (1,341) (1,337)
Net cash used by financing activities (179) (1,242)
Effects of exchange rate changes on cash 62 7
Net decrease in cash and cash equivalents (1,195) (2,259)
Cash and cash equivalents at beginning of the period 3,937
2,369
Cash and cash equivalents at end of the period $ 2,742 $ 110
See accompanying notes.
Page 5 of 13
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Basis of Presentation
The information presented at March 31, 1996, and for the 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 increase in
weighted average Common Stock outstanding is due primarily to the
issuance of stock in certain offerings, the conversion of the 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 $.02 and $.06 per common share for the three months ended March 31,
1996 and 1995 respectively.
3.Inventories
The Company values inventory on a lower of cost or market basis and
relieves it on the first-in first-out (FIFO) method. The components of
inventories are as follows:
March 31, December 31,
1996 1995
Finished Goods $2,052,000 $2,273,000
Work in process 1,264,000 139,000
Raw materials 369,000 761,000
Supplies 469,000 370,000
$4,154,000 $3,543,000
4.Stockholders' Equity
Dividend Payable:
On March 7, 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 $658,000 was
paid on April 15, 1995 to Preferred stockholders of record on April 1,
1996.
Page 6 of 13
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Preferred Stock:
On March 25, 1996 the Company completed the underwritten call for
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. As a result of the
conversion, 139,285 shares of the Preferred Stock were converted into
2,709,773 shares of Common Stock. Net issuance costs including
financial advisory, professional, registration and filing fees of
$460,000 were incurred in connection with the call.
5.Supplemental Disclosure of Cash Flow Information
Three Months Ended March 31,
1996 1995
Cash paid during the year for interest $64,434 $77,000
Page 7 of 13
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,
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, Ireland
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 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. 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 three months ended March 31, 1996 were $12,409,000
which was an increase of $10,556,000 or 570% compared with the three months
ended March 31, 1995. The primary components of revenues for the Company are
collaborative research and development revenues, interest and investment
income and, in the first quarter of 1996, product sales.
Product sales of the Company's lead product ABELCETTM were $10,103,000 for
the first quarter 1996. Net sales of ABELCETTM in the United States totaled
approximately $8,535,000; the balance of product sales were made to
international customers. The Company has received approval to market
ABELCETTM in the United States and in several European nations such as the
United Kingdom, Spain, and Luxembourg. In addition, sales are realized on a
named patient basis in certain other countries where broad based approval has
not yet been received. There were no product sales in first quarter 1995,
and product sales in 1996 are solely attributable to ABELCETTM.
Collaborative research and development revenues of $1,293,000 for the three
months ended March 31, 1996 decreased $207,000 or 14% compared to the three
month period ended March 31, 1995. The Company earned its collaborative
research and development revenues from Pfizer Inc. during the first three
months of 1996 and 1995. The Company and Pfizer are developing TLC D-99,
liposomal doxorubicin, primarily as a treatment for metastatic breast cancer.
Interest and investment income for the three months ended March 31, 1996 was
$1,013,000 compared to $353,000 for the same period last year. This 187%
increase is due primarily to higher average cash balances and cash inflows
from trade receivables, and also to losses realized on certain investments in
the first quarter of 1995.
Page 8 of 13
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
The components of revenue can increase or decrease significantly based on the
level of product sales and the level of cost reimbursement under research
collaborations, the possible initiation of new licensing agreements and, in
the case of interest and investment income, the level of cash balances
available for investment and the rate of interest earned and gains and
losses, if any, realized on the sale of such investments.
Expenses
Total expenses for the Company were $16,500,000 for the first quarter of 1996
compared to $12,186,000 the same period one year ago. This increase of
$4,314,000 or 35% is primarily due to the Company's cost of goods sold
associated with the sale of ABELCETTM and increased selling, general and
administrative costs partially offset by lower research and development
expenses. Cost of goods sold of $3,224,000 related to the sales of ABELCET
TM was recorded in the first quarter of 1996.
Research and development expenditures were $7,006,000 and $9,216,000 for the
quarters ended March 31, 1996 and 1995, respectively. This decline was
partially offset by increased spending for TLC C-53 as this product
progressed into phase III clinical trials during 1995. These 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. Spending for TLC C-53 and TLC D-99, as they continue
late stages of development, and the cost of the Company's other research and
development activities also contributed to the level of spending. As in prior
years, costs associated with the development of TLC D-99 are reimbursed by
Pfizer.
Selling, general and administrative expenses for the first quarter 1996 were
$6,206,000, an increase of $3,320,000 or 115% over the same period a year
ago. The primary components of the increase were costs associated with the
commencement of United States sales and marketing activities, continued
development of the international sales and marketing operations and the
addition of certain key personnel. In the U.S., as well as the U.K., the
Company is marketing ABELCETTM with its own sales force as it intends to do
in several other countries.
The Company expects that expenditures in all areas will increase throughout
1996 as the Company continues to receive marketing approvals in Europe,
progresses further in clinical development, and enhances the infrastructure
for sales and marketing in the United States for ABELCETTM.
Page 9 of 13
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Preferred Stock Dividends
In January 1993, the Company completed the issuance of 2,760,000 Depository
Shares representing 276,000 shares of Series A Cumulative Convertible
Exchangeable Preferred Stock with an annual dividend of 7.75%. The Company
has declared and paid dividends quarterly on the Preferred Stock since
issuance of the Depository Shares. These dividends are included as part of
the Company's net loss applicable to Common Stock and net loss per share of
Common Stock.
Net Loss, Net Loss Applicable to Common Stock and Net Loss per Share of
Common Stock
The net loss for the three months ended March 31, 1996 of $4,091,000 was a
decrease of $6,242,000 from that of the same period a year ago due to the
factors discussed above. After Preferred Stock dividends of $662,000 and
$1,337,000, the net loss applicable to Common Stock was $4,753,000 or $.16
per share and $11,670,000 or $.49 per share for the three months ended March
31, 1996 and 1995 respectively.
Liquidity and Capital Resources
The Company had $61,689,000 in cash and marketable securities as of March 31,
1996. Included in these reserves were cash and cash equivalents of
$2,742,000, short term investments of $41,002,000, long term investments of
$11,303,000 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 reserves decreased $10,644,000 from the first quarter 1995 due to
the use of funds for operations, capital acquisitions, primarily to retrofit
the Company's Indianapolis manufacturing facility to make larger quantities
of ABELCETTM, working capital requirements, Preferred Stock dividend payments
and the current market value adjustment to investments. The Company expects
to spend approximately $13,000,000 for the Indianapolis project with
completion expected in late 1996. Approximately $9,600,000 has been spent on
this project through March 31, 1996. These uses of cash were partially
offset by the inflow of $2,044,000 worth of stock option exercises. The
cumulative effect at March 31, 1996 of Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities was a net unrealized loss of $819,000. 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 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 maturity or sale of certain investments. Funds may also
be provided to the Company by leasing arrangements for capital expenditures
and from the licensing of its products and technology. The Company believes
that its available cash and marketable securities, revenues from research and
development contracts and interest income will be sufficient to meet its
expected operating and capital cash flow requirements for the intermediate
term.
Page 10 of 13
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources(Continued)
On March 25, 1996 the Company completed the underwritten call for
redemption of 50% of the outstanding shares of its Series A 7.75% Cumulative
Convertible Exchangeable Preferred Stock represented by depositary shares.
Each Depositary Share represents 1/10 of a share of Preferred Stock and is
convertible into 1.9455 shares of Common Stock. Virtually all of the
Preferred Stock called for redemption was converted into Common Stock. As a
result of the conversion, 139,285 shares of the Preferred Stock were
converted into 2,709,773 shares of Common Stock. Net issuance costs
including financial advisory, professional, registration and filing fees of
$460,000 were incurred in connection with the call. With half of the
Preferred Stock retired, the Company reduced its annual Preferred Stock
dividend requirement by $2.7 million. It is also possible that the Company
will in the future call the remaining 50% of the 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 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. There was no material impact for the adoption of
this standard during the first quarter of 1996.
Page 11 of 13
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
On April 1, 1996, a patent infringement action was filed against
the Company by the University of Texas and the M.D. Anderson Cancer
Center in the Federal District Court for the Southern District of
Texas. The complaint alleges that the manufacture, use and sale of
the Company's product ABELCETTM infringes a patent assigned to the
University of Texas. The complaint seeks damages in an unspecified
amount and injunctive relief. The Company believes that it has
meritorious defenses to the lawsuit intends to defend it vigorously
and believes that the outcome will not have a material adverse
effect on the Company's results of operations of financial
position.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10-15. The Liposome Company 1996 Equity Incentive Plan (incorporated
by reference from Proxy statement dated April 3, 1996, file No. 000-
14887).
(b) Reports on Form 8-K
During the quarter for which this report on Form 10-Q is filed, two
(2) reports on Form 8-K were filed:
February 22, 1996: Item 5, Other Events (including financial
statements for the 1995 fiscal year and Exhibits).
February 28, 1996: Item 5, Other Events
12 of 13
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: May ______, 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 13 of 13
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: May ___, 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 13 of 13
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JAN-01-1996
<CASH> 2,742
<SECURITIES> 41,002
<RECEIVABLES> 8,733
<ALLOWANCES> (393)
<INVENTORY> 4,154
<CURRENT-ASSETS> 57,121
<PP&E> 40,915
<DEPRECIATION> (14,772)
<TOTAL-ASSETS> 101,666
<CURRENT-LIABILITIES> 11,444
<BONDS> 0
0
1
<COMMON> 330
<OTHER-SE> 86,243
<TOTAL-LIABILITY-AND-EQUITY> 101,666
<SALES> 10,103
<TOTAL-REVENUES> 12,409
<CGS> 3,224
<TOTAL-COSTS> 16,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> (4,091)
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<INCOME-CONTINUING> (4,091)
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<NET-INCOME> (4,091)
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