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 March 30, 1997 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 5, 1997
Common Stock, $.01 par value 37,280,158
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 30, 1997 and December 29, 1996 3
Consolidated Statements of Operations
for the Three Month Periods Ending
March 30, 1997 and March 31, 1996 ........... 4
Consolidated Statements of Cash Flows
for the Three Month Periods Ending
March 30, 1997 and March 31, 1996 5
Notes to Consolidated Financial Statements 6,7
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
Part II. OTHER INFORMATION
13
Signatures 14
************************************************
Note concerning trademarks: Certain names
mentioned in this report are trademarks owned by
The Liposome Company, Inc. or its affiliates or
licensees. ABELCET is a registered trademark of
The Liposome Company, Inc.
Page 2 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
Current assets: 3/30/97 12/29/96
Cash and cash equivalents $ 2,579 $ 1,841
Short-term investments 19,352 28,269
Accounts receivable, net of allowance for doubtful
accounts ($1,152 for 1997, $1,079 for 1996) 9,662 7,884
Inventories 14,357 9,904
Prepaid expenses 1,139 835
Other current assets 200 47
Total current assets 47,289 48,780
Long-term investments 9,720 10,140
Plant and equipment, net 27,451 28,292
Restricted cash 6,930 6,930
Other assets, net 399 413
Total assets $ 91,789 $ 94,555
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,000 $ 1,806
Accrued expenses and other current liabilities 8,378 7,682
Current obligations under capital leases 2,375 2,348
Current obligations under note payable 303 303
Total current liabilities 13,056 12,139
Long-term obligation under capital leases 5,765 6,369
Long term obligation under note payable 1,110 1,186
Total liabilities 19,931 19,694
Commitments and contingencies
Stockholders' equity:
Capital stock:
Common Stock, par value $.0l; 60,000 shares
authorized; 36,221 and 36,061 shares issued
and outstanding 362 361
Additional paid in capital 239,197 237,809
Net unrealized investment loss (518) (481)
Foreign currency translation adjustment (316) (430)
Accumulated deficit (166,867) (162,398)
Total stockholders' equity 71,858 74,861
Total liabilities and stockholders' equity $ 91,789 $ 94,555
See accompanying notes
Page 3 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
Three Months Ended
3/30/97 3/31/96
Product sales $ 14,405 $ 10,103
Collaborative research and development
and other revenues............... 900 1,293
Interest, investment and other income 549 1,013
Total revenues................. 15,854 12,409
Cost of goods sold..... 3,450 3,224
Research and development expense..... 7,315 7,006
Selling, general and administrative
expense 9,357 6,206
Interest expense...................... 201 64
Total expenses................ 20,323 16,500
Net loss (4,469) (4,091)
Preferred Stock dividends -- (662)
Net loss applicable to Common Stock $ (4,469) $ (4,753)
Net loss per share applicable to
Common Stock $ (.12) $ (.16)
Weighted average number of common
shares outstanding 36,132 30,191
See accompanying notes
Page 4 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
3/30/97 3/31/96
Cash flows from operating activities:
Net loss $ (4,469) $ (4,091)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 1,275 910
Provision for bad debts 73 53
Other 427 99
Changes in assets and liabilities
Accounts receivable (1,851) (1,594)
Inventories (4,453) (611)
Prepaid expenses (304) (502)
Other current assets (153) (2)
Accounts payable 194 (1,142)
Accrued expenses and other current liabilities 696
1,267
Net cash used by operating activities (8,565) (5,613)
Cash flows from investing activities:
Purchases of short and long-term investments (670) (6,019)
Sales of short and long-term investments... 9,970 15,192
Purchases of property, plant and equipment (420) (4,638)
Net cash provided by investing activities 8,880 4,535
Cash flows from financing activities:
Net payments from registration of Common Stock (38) --
Net payments from conversion of Preferred Stock -- (434)
Proceeds from the exercise of stock options 1,000 2,044
Principal payments under note payable (76) (75)
Principal payments under capital lease obligations (577)
(373)
Preferred Stock dividend payments -- (1,341)
Net cash provided/(used) by financing activities 309
(179)
Effects of exchange rate changes on cash 114 62
Net increase/(decrease) in cash and cash equivalents 738
(1,195)
Cash and cash equivalents at beginning of the period 1,841
3,937
Cash and cash equivalents at end of the period $ 2,579 $ 2,742
See accompanying notes
Page 5 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Basis of Presentation
The information presented at March 30, 1997, and for the three month
period then ended is unaudited, but includes all adjustments (consisting
only of normal recurring accruals) that management at The Liposome
Company, Inc. (the "Company") believes to be necessary for the fair
presentation of results for the periods presented. The December 29,
1996 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 29, 1996, 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. For the three
months ended March 30, 1997 and the comparable prior year period,
weighted average shares increased to 36,132,000 from 30,191,000. The
increases are due primarily to certain conversions of Preferred Stock
and the exercise of stock options. Unexercised stock options (Common
Stock equivalents) and the conversion of any remaining outstanding
Preferred Stock to Common Stock are not included in the calculation
since their inclusion would be anti-dilutive.
In March 1996, the Company completed the call for the redemption of 50%
of the Preferred Stock, with the remainder being called in October 1996.
Virtually all of the outstanding Preferred Stock was converted into
Common Stock, thereby eliminating the Company's annual Preferred Stock
dividend requirements.
The net loss per common share includes a charge for dividends paid on
the outstanding shares of Preferred Stock of $0 and $.02 for the three
months ended March 30, 1997 and March 31, 1996, respectively.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
Per Share", which specifies computation and disclosure requirements for
earnings per share and is effective for financial statements issued
after December 15, 1997. If SFAS #128 had been adopted at March 30,
1997 there would have been no change in the earnings per share amounts
reflected in the accompanying financial statements.
Page 6 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
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:
March 30, December 29,
1997 1996
Finished goods $ 3,049,000 $3,063,000
Work in process 8,133,000 5,011,000
Raw materials 2,727,000 1,447,000
Supplies 448,000 383,000
$14,357,000 $9,904,000
4.Supplemental Disclosure of Cash Flow Information
Three Months Ended:
3/30/97 3/31/96
Cash paid during the year for interest $201,000 $64,000
5.Subsequent Event
On April 23, 1997 the Company issued 1,000,000 shares of
Common Stock at $20.875 per share to a private investor for cash of
$20,875,000. At the date of this report, this investor has reported
total holdings of approximately 20.2% of the Company's outstanding
shares of Common Stock.
Page 7 of 14
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 anticipated
outcome or financial impact of litigation, (vi) future product revenues, and
(vii) 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 commercialization of ABELCET, is in an
early stage 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; and (h) the progress of
commercialization of certain of the Company's products may be affected by
decisions of the Company's corporate sponsors as to the timing and funding of
commercialization.
Page 8 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company is a leading 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, France, Spain, Italy, United Kingdom,
Ireland, Portugal, Austria, Greece, Denmark, Finland, Sweden, Luxembourg,
Iceland and Cyprus and is the subject of marketing application filings in
several other countries. In October 1996, the FDA cleared for marketing an
expanded indication for ABELCET for the treatment of invasive fungal infections
in patients who are refractory to or intolerant of conventional amphotericin B
therapy. Currently all product sales are derived from ABELCET. The Company's
products in late stage development are VENTUSTM (TLC C-53) and TLC D-99.
VENTUSTM, liposomal prostaglandin E1, is being developed primarily for the
treatment of acute respiratory distress syndrome ("ARDS"). Patient accrual in a
pivotal Phase III clinical study for the treatment of ARDS has recently been
completed. 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 is
conducting preclinical toxicology studies of TLC 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
concentrating primarily on the treatment of cancer and inflammatory conditions.
Results of Operations
Revenues
Total revenues for the quarter ended March 30, 1997 were $15,854,000, an
increase of $3,445,000 or 27.8% compared to the quarter ended March 31, 1996.
The primary components of revenues for the Company are product sales,
collaborative research and development revenue and interest, investment and
other income. The major component of the revenue increase is the growth of
U.S. and international product sales. Partially offsetting the sales
increase was a reduction in collaborative research and development revenues,
due to the shift of TLC D-99 spending from the Company to its collaborative
partner, Pfizer Inc ("Pfizer"). Interest, investment and other income
decreased $464,000, primarily due to lower cash balances in 1997.
Net product sales in 1997 of ABELCET were $14,405,000, of which $12,410,000
occurred in the U.S. with the remaining from international activity. The U.S.
growth is related to further market penetration. In the U.S., ABELCET is
marketed by the Company's sales force. The Company received FDA clearance
for expanded labeling of ABELCET as second-line therapy for all systemic
fungal infections, including candidiasis (the most common invasive fungal
infection), cryptococcal meningitis, zygomycosis, fusariosis and others, in
October 1996.
Page 9 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Internationally, the Company has received clearance to market ABELCET in 14
countries, the most recent being France, which the Company received in March
1997. In the U.K., the Company markets ABELCET with its own sales force. In
Spain and Portugal, the Company has a marketing/distribution relationship
with a local pharmaceutical Company. The Company will determine whether to
market ABELCET directly or with a partner on a country by country basis as
it receives further marketing approvals. In addition, sales are realized on a
named patient basis in certain countries where marketing approval has not yet
been obtained.
Collaborative research and development revenues of $900,000 for the quarter
ended March 30, 1997, decreased $393,000 or 30.4% compared to the comparable
prior year period. The Company earned all of its collaborative research and
development revenues from Pfizer during 1997 and 1996. The revenue decline
from the prior year period is due to Pfizer handling the final phases of TLC
D-99 development, resulting in a reduction in the amount of pass through
expenses charged to Pfizer.
Interest, investment and other income for the quarter ended March 30, 1997
was $549,000 compared to $1,013,000 for the same 1996 period. The reduction
is primarily the result of lower cash balances in 1997.
The Company anticipates continued growth in product sales as greater market
penetration is achieved, additional international approvals are received and
related commercial sales activities commence. Revenues are also impacted by
the level of cost reimbursement under research collaboration agreements, the
level of cash balances available for investment and the rate of interest
earned.
Expenses
The components of total expenses for the three months ended March 30, 1997
were cost of goods sold, research and development, selling, general and
administrative and interest expense.
Cost of goods sold was $3,450,000 versus $3,224,000 in the 1996 period. The
slight increase from 1996 to 1997 of $226,000 was the result of higher sales
volume, mostly offset by manufacturing efficiencies. Gross margins on sales
of ABELCET improved from 68.1% for 1996 to 76.0% for 1997 reflecting these
realized efficiencies.
Research and development expenses were $7,315,000 for the quarter ended March
30, 1997, compared to $7,006,000 for the comparable prior year period. The
major components of this category are research, development, clinical and
regulatory activities. The increased spending of $309,000 versus the
comparable prior year period is the result of efforts to complete the pivotal
Phase III ARDS study for VENTUSTM and spending related to the development of
TLC ELL-12. Partially offsetting the increase is lower spending related to
TLC D-99 as Phase III clinical studies are being handled by Pfizer and the
elimination of pre-production work, which was completed in late 1996, in
connection with the retrofit of the Indianapolis facility.
Page 10 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Selling, general and administrative expenses for the first quarter of 1997
were $9,357,000, a $3,151,000 increase versus the prior year period. The
major component of the increase was U.S. and international sales and
marketing expenses. The U.S. sales and marketing increase is related to the
growth of U.S. sales and marketing efforts, expanded medical education and
marketing programs, combined with a sales force expansion in late 1996. The
higher international sales and marketing expenses were the result of the
Company receiving marketing clearances in additional countries. In addition,
the Company has experienced higher general and administrative costs primarily
due to legal expenses incurred in connection with ongoing intellectual
property litigation.
Interest expense was $201,000 in 1997 or $137,000 higher than the comparable
1996 period. The major reason for the increase is from a capital lease
signed in December 1996, primarily for the Indianapolis, Indiana
manufacturing assets.
As a result of the factors discussed above, total expenses for the three
months ended March 30, 1997 were $20,323,000, an increase of $3,823,000 or
23.2% over the prior year period.
The Company expects that expenses in all areas will increase, particularly in
selling, general and administrative expenses, as the Company launches ABELCET
in additional European countries and continues to expand its sales and
marketing efforts in the United States for ABELCET. If price erosion occurs
due to competitive conditions in major markets, gross margins could decline
in those markets.
Net Loss, Net Loss Applicable to Common Stock and Net Loss per Share of
Common Stock
The net loss for the first quarter of $4,469,000 increased by $378,000 from
the same prior year period. The net loss applicable to Common Stock was
$4,469,000 or $0.12 per share and $4,753,000 or $0.16 per share for the first
quarters 1997 and 1996, respectively.
The net loss applicable to Common Stock of $4,469,000 for the period ended
March 30, 1997 improved $284,000 versus the same prior year period. The
reason for the improvement was the elimination of Preferred Stock dividends
as a result of conversions of Preferred Stock into Common Stock during 1996.
Liquidity and Capital Resources
The Company had $38,581,000 in cash and marketable securities as of March 30,
1997. Included in these reserves were cash and cash equivalents of
$2,579,000, short-term investments of $19,352,000, long term investments in
marketable securities of $9,720,000 and restricted cash of $6,930,000. The
Company invests its cash reserves in a diversified portfolio of high-grade
marketable and United States Government-backed securities.
Cash and marketable securities decreased $8,599,000 from December 29, 1996 to
March 30, 1997, due to the use of funds for operations (including planned
increases in inventory of ABELCET to facilitate the transfer of certain
manufacturing operations from Princeton to Indianapolis), accounts receivable
and other working capital requirements, partially offset by the receipt of
$1,000,000 from the exercise of stock options. The major increase in the
1997 work in process category relates to inventory produced at the
Indianapolis manufacturing facility, which the Company expects to be approved
during 1997.
Page 11 of 14
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 its Indianapolis facility. In
addition, the Company entered into an agreement and received cash funding of
$6,101,000 from a capital lease signed in December 1996, primarily for the
Indianapolis manufacturing assets. In connection with these financing
arrangements, the Company is required to maintain minimum cash balances, of
which the largest requirement is $25,000,000. In addition, the Company
completed a working capital revolving credit line agreement in early 1997.
There have been no advances made against this line through the date of this
report.
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 under its line of
credit, the licensing of its products and technology and the sale of equity
or debt securities. 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 April 23, 1997 the Company issued 1,000,000 shares of Common Stock at
$20.875 per share to a private investor for cash of $20,875,000. At the date
of this report, this investor has reported total holdings of approximately
20.2% of the Company's outstanding shares of Common Stock.
Page 12 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. See report on Form 10-K for the year ended December 29, 1996 for
a description of legal proceedings pending 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 13 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: May 13, 1997
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 14 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: May 13, 1997
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 14 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> MAR-30-1997
<CASH> 2,579
<SECURITIES> 19,352
<RECEIVABLES> 10,814
<ALLOWANCES> (1,152)
<INVENTORY> 14,357
<CURRENT-ASSETS> 47,289
<PP&E> 46,300
<DEPRECIATION> (18,849)
<TOTAL-ASSETS> 91,789
<CURRENT-LIABILITIES> 13,056
<BONDS> 0
0
0
<COMMON> 362
<OTHER-SE> 71,496
<TOTAL-LIABILITY-AND-EQUITY> 91,789
<SALES> 14,405
<TOTAL-REVENUES> 15,854
<CGS> 3,450
<TOTAL-COSTS> 20,323
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201
<INCOME-PRETAX> (4,469)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,469)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,469)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> 0
</TABLE>
