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 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period ended March 29, 1998 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 6, 1998
Common Stock, $.01 par value 37,964,601
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 29, 1998 and December 28, 1997 3
Consolidated Statements of Operations
for the Three Month Period Ending
March 29, 1998 and March 30, 1997.... 4
Consolidated Statements of Cash Flows
for the Three Month Period Ending
March 29, 1998 and March 30, 1997...................5
Notes to Consolidated Financial Statements 6-7
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-14
Part II. OTHER INFORMATION 15
Signatures 16
************************************************
Note concerning trademarks: Certain names mentioned in this
report are trademarks owned by The Liposome
Company, Inc. or its affiliates or licensees.
ABELCET is a registered trademark of The
Liposome Company, Inc.
Page 2
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
Current assets: 3/29/98 12/28/97
Cash and cash equivalents $ 23,884 $ 15,236
Short-term investments 5,600 15,359
Accounts receivable, net of allowance for doubtful
accounts ($1,285 for 1998, $1,285 for 1997) 8,554 7,150
Inventories 9,160 10,530
Prepaid expenses 1,312 1,034
Other current assets 236 216
Total current assets 48,746 49,525
Long-term investments 3,000 3,000
Property, plant and equipment, net 26,044 26,652
Restricted cash 11,930 11,930
Intangibles, net 378 393
Total assets $ 90,098 $ 91,500
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,537 $ 2,616
Accrued expenses and other current liabilities 7,133 6,009
Current obligations under capital leases 1,962 2,031
Current obligations under note payable 303 303
Total current liabilities 13,935 10,959
Long-term obligations under capital leases 6,096 5,996
Long-term obligations under note payable 807 883
Total liabilities 20,838 17,838
Commitments and contingencies
Stockholders' equity:
Capital stock:
Common Stock, par value $.0l; 60,000 shares authorized;
37,965 and 37,663 shares issued and outstanding 380 377
Additional paid-in capital 263,322 262,637
Accumulated other comprehensive loss (521) (508)
Accumulated deficit (193,921) (188,844)
Total stockholders' equity 69,260 73,662
Total liabilities and stockholders' equity $ 90,098 $ 91,500
See accompanying notes
Page 3
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
Three Months Ended
3/29/98 3/30/97
Product sales $ 16,044 $ 14,405
Collaborative research and development
revenues............... 0 900
Interest, investment and othe income 1,050 549
Total revenues................. 17,094 15,854
Cost of goods sold..... 4,799 3,450
Research and development expense..... 8,292 7,315
Selling, general and administrative
expense 8,869 9,357
Interest expense...................... 211 201
Total expenses................ 22,171 20,323
Net loss applicable to Common Stock $ (5,077) $(4,469)
Net loss per share applicable to
Common Stock (basic and diluted) $ (.13) $ (.12)
Weighted average number of common shares
outstanding (basic and diluted) 37,846 36,132
See accompanying notes
Page 4 of 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
3/29/98 3/30/97
Cash flows from operating activities:
Net loss $ (5,077) $ (4,469)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 1,481 1,275
Provision for bad debts 0 73
Other 687 427
Changes in assets and liabilities
Accounts receivable (1,404) (1,851)
Inventories 1,370 (4,453)
Prepaid expenses (278) (304)
Other current assets (20) (153)
Accounts payable 1,921 194
Accrued expenses and other current
liabilities 1,124 696
Net cash used by operating activities (196) (8,565)
Cash flows from investing activities:
Purchases of short and long-term investments (583) (670)
Sales of short and long-term investments... 10,410 9,970
Purchases of property, plant and equipment (363) (420)
Net cash provided by investing activities 9,464 8,880
Cash flows from financing activities:
Net payments from registration of Common Stock 0 (38)
Proceeds from the exercise of stock options 1 1,000
Principal payments under note payable (76) (76)
Principal payments under capital lease obligations (464)
(577)
Net cash (used)/provided by financing activities (539) 309
Effects of exchange rate changes on cash (81) 114
Net increase in cash and cash equivalents 8,648 738
Cash and cash equivalents at beginning of the period 15,236 1,841
Cash and cash equivalents at end of the period $23,884 $ 2,579
See accompanying notes
Page 5
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Basis of Presentation
The information presented at March 29, 1998, 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 28, 1997 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 28,
1997, which were included as part of the Company's Annual 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 29, 1998 and the comparable prior year
period, weighted average shares were to 37,846,000 and
36,132,000, respectively. The increase is due primarily to the
full-year impact of shares issued pursuant to conversions of
Preferred Stock, shares issued for cash in a private placement
and the exercise of stock options. On April 23, 1997 the Company
issued an additional 1,000,000 shares 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
24.64% of the Company's outstanding Common Stock.
Options and warrants to purchase 5,781,447 shares of Common Stock
at $1.03 - $24.38 per share were outstanding during 1998 but were
not included in the computation of diluted earnings per share
because the effect would be anti-dilutive to the net loss. The
options and warrants expire on various dates from May 23, 1998 to
March 24, 2008.
3.Comprehensive Income
The Company has adopted the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income" for the period ended March 29,
1998. Comprehensive Income represents the change in net assets of a
business enterprise as a result of nonowner transactions. The
following table details "Comprehensive Income" as defined in SFAS
No. 130 for the three month period ended March 29, 1998.
Three Months Ended:
3/29/98 3/30/97
Net loss applicable to Common Stock $(5,077) $(4,469)
Other comprehensive income/(expenses):
Net unrealized investment gain/(loss) 68 (37)
Foreign currency translation adjustment (81) 114
Comprehensive net loss $(5,090) $(4,392)
Page 6
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
4.Recently Issued Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
requires that a business enterprise report certain information
about operating segments, products and services, geographic areas
of operation, and major customers in complete sets of financial
statements and in condensed financial statements for interim
periods. The Company is required to adopt this standard in the
1998 year-end and is currently evaluating the impact of the
standard.
5.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 29, December 28,
1998 1997
Finished goods $ 2,291,000 $ 1,849,000
Work in process 2,565,000 4,715,000
Raw materials 3,741,000 3,378,000
Supplies 563,000 588,000
$ 9,160,000 $10,530,000
6.Supplemental Disclosure of Cash Flow Information
Three Months Ended:
3/29/98 3/30/97
Cash paid during the year for interest $271,000 $201,000
7.Subsequent Event
On April 22, 1998 the Company announced it had entered into a
three year agreement with Astra USA, Inc. ("Astra"). The Company
will process and package Astra's M.V.I.-12 Unit Vial, an
injectable multi-vitamin product used by severely ill
hospitalized patients in need of nutritional supplements. The
product will be processed and packaged at the Company's
Indianapolis facility, taking advantage of its modern, large-
scale capabilities. Under the terms of the agreement, Astra will
supply bulk quantities of the vitamin product and the Company
will sterilize, fill, package and perform quality control on
M.V.I.-12 Unit Vial.
Page 7
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 biopharmaceutical
company engaged in the discovery, development, manufacturing and
marketing of proprietary lipid- and liposome-based pharmaceuticals,
primarily for the treatment of cancer and other related 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
and 18 foreign markets and is the subject of marketing application
filings in several other countries. In the United States, ABELCET has
been approved for the treatment of invasive fungal infections in
patients who are refractory to or intolerant of conventional
amphotericin B therapy. International approvals have been received
for primary and/or refractory treatment of these infections.
Currently all product sales are derived from ABELCET.
In the U.S., Canada and the United Kingdom, the Company markets
ABELCET with its own sales force. For other countries, the Company's
general strategy is to market ABELCET through marketing partners.
Specific marketing partnerships are determined on a country-by-country
basis. In addition, sales are realized on a "named patient" basis in
certain countries where marketing approvals have not yet been
received.
The Company is developing EVACETTM (formerly TLC D-99), liposomal
doxorubicin, as a treatment for metastatic breast cancer and
potentially other cancers. EVACETTM is currently in two Phase III
clinical studies comparing it to conventional doxorubicin as a single
agent and in combination with cyclophosphamide, another commonly used
chemotherapeutic agent. Results of an interim analysis at the half-
way point of the studies indicate that EVACETTM is significantly less
cardiotoxic than conventional doxorubicin with essentially equal
efficacy. If clinical results continue to be positive, the Company
expects to file a New Drug Application for EVACETTM with the U.S. Food
and Drug Administration ("FDA") in 1998.
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. If
successful, the Company expects to file an Investigational New Drug
application with the FDA and, if approved, to commence human clinical
studies of TLC ELL-12 in late 1998 or early 1999.
The Company has a continuing discovery research program
concentrating on oncology treatment and has a number of products in
research. These products include: bromotaxol (a hydrophobic
derivative of paclitaxel), which has shown anticancer activity in
several experimental models; ceramides and sphingosines (molecules
widely implicated in cell differentiation and apoptosis) certain of
which the Company has identified as displaying anticancer activity;
and fusogenic liposomes (liposomes specifically designed to fuse to
cell membranes), which the Company hopes to use for the efficient
delivery of genes to their intended targets.
On June 25, 1997, the Company announced results of a Phase III study
of VENTUSTM as a treatment for Acute Respiratory Distress Syndrome
(ARDS), an inflammatory condition affecting the lungs. The Company's
analysis of the two arms of the study showed no significant difference
between patients receiving VENTUSTM or placebo either in reducing the
time on mechanical ventilation or in 28 day mortality. No safety
concerns for the drug were identified. The Company does not intend to
perform any further significant development of VENTUSTM for this
indication but, instead, intends to make VENTUSTM available for
licensing to another company.
Page 8
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview (Continued)
Following the results of the VENTUSTM study, the Company announced its
intention to focus its resources on the development of an oncology
franchise. As part of implementing this strategy, the Company
restructured its operations to reflect ongoing operating realities and
to focus the organization on the development and marketing of oncology
and related pharmaceuticals. The restructuring eliminated 137
positions, which resulted in unusual charges of $2,550,000 in the
second quarter of 1997. The annualized benefit of the restructuring
is approximately $8,000,000.
Additionally, in order to gain operational access to a second,
potentially significant oncology-related drug, the Company reacquired,
on July 14, 1997, all development, manufacturing and marketing rights
to EVACETTM from Pfizer Inc ("Pfizer"), which had previously been co-
developing EVACETTM with the Company. The Company is assuming control
and the cost of all clinical studies, including the ongoing Phase III
clinical studies that were previously being conducted by Pfizer.
Pfizer will receive royalties on worldwide (except Japan) commercial
sales of EVACETTM.
In July and August 1997, the Company entered into agreements to settle
patent litigation with the University of Texas and M.D. Anderson
Cancer Center ("UT") and with NeXstar Pharmaceuticals, Inc. and
Fujisawa U.S.A., Inc. Under the UT settlement the Company received an
exclusive license under UT's patent, paid past royalties on sales of
ABELCET, agreed to pay royalties on future sales, and issued to UT a
ten-year warrant to purchase 1,000,000 shares of the Company's Common
Stock at $15.00 per share. Under the NeXstar settlement, the Company
received a payment of $1,750,000 in 1997 and began receiving quarterly
minimum payments (classified as interest, investment and other income)
based on AmBisome sales in the first quarter of 1998.
Results of Operations
Revenues
- Three Months Ended March 29, 1998:
Total revenues for the quarter ended March 29, 1998 were $17,094,000,
an increase of $1,240,000 or 7.8% compared to $15,854,000 for the
quarter ended March 30, 1997. The primary components of 1998 revenues
for the Company are product sales of ABELCET and interest, investment
and other income. In addition, collaborative research and development
revenue was also included during the 1997 period, primarily due to the
Pfizer development funding agreement.
Page 9
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Net product sales of ABELCET for the first quarter ended March 29,
1998 were $16,044,000 compared to $14,405,000 for the first quarter of
1997. The sales increase of $1,639,000 or 11.4%, is due primarily to
higher U.S. sales volume and additional marketing clearance in major
European countries and Canada. Unit shipments of ABELCET worldwide
increased by 53.9% over the comparable prior year period. The
disparity between increases in unit volume terms and dollar terms is
due to several factors as discussed below.
Domestic sales in the first quarter of 1998 were $12,897,000, an
increase of 3.9% from the comparable prior year period. Unit shipments
increased 43.7% compared to the prior year period. During the second
quarter of 1997, the Company instituted a targeted pricing program in
response to a competitor, by offering discounts to high volume
purchasers. The price reduction is effected by chargebacks paid to
wholesalers based on their sales at contract prices to targeted
hospitals. The Company believes that the reduced prices to large
customers also served to stimulate significantly greater demand for
ABELCET. U.S. sales are also subject to rebates pursuant to government
mandated price protection programs. The Company provides a reserve
for the impact on sales for these rebates and chargebacks and
periodically evaluates the estimates used in establishing the reserve
in order to make necessary adjustments. The provision for the quarter
ended March 29, 1998 was approximately $5,300,000.
International product sales were $3,147,000 in the first quarter of
1998 versus $1,995,000 in the first quarter of 1997. The majority of
the growth is due to the impact of the launch of ABELCET in late 1997
in France, Italy and Canada. In addition, the Company's marketing
partner in Spain has resumed more normal ordering patterns during
1998. While international sales revenues increased by 57.7%, unit
volume increased by 121.8%. The principal reason for this difference
is the mix of sales to end users (ie. direct distribution) in certain
countries and to marketing partners in others. In France the Company
has been directly distributing and recording sales revenue at invoiced
prices to end users. Following the Company's marketing agreement with
Wyeth-Ayerst through the first quarter of 1998, the Company has also
been recording a provision for marketing fees to its partner,
classified in selling, general and administrative expense. Commencing
in the second quarter of 1998 the Company will be recording revenue
net of this marketing fee.
Collaborative research and development revenues for 1998 were $0 and
$900,000 in the first quarter of 1997. The change is due to the
cessation of development funding by Pfizer pursuant to the July 14,
1997 agreement in which the Company reacquired all development,
manufacturing and marketing rights to EVACETTM from Pfizer.
Interest, investment and other income for the three months ended March
29, 1998 and March 30, 1997 were $1,050,000 and $549,000,
respectively. The increase of interest, investment and other income of
$501,000 or 91.3% is primarily due to the recognition of a minimum
quarterly royalty as part of the settlement of certain patent
litigation.
Due to the Company's reacquisition of rights in EVACETTM from Pfizer,
the Company anticipates there will be no collaborative research and
development revenues in future quarters, as it currently has no other
agreements in place. Interest, investment and other income will be
related to the level of cash balances available for investment and the
rate of interest earned and the royalty from NeXstar.
Page 10
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Expenses
- Three Months Ended March 29, 1998:
The components of total expenses for the quarter ended March 29, 1998
were cost of goods sold, research and development, selling, general
and administrative and interest expenses. Total expenses for the three
months ended March 29, 1998 were $22,171,000, an increase of
$1,848,000 over the comparable prior year period.
Cost of goods sold for the quarter ended March 29, 1998 was $4,799,000
or $1,349,000 higher than the comparable prior year period. The
increase in cost of goods sold is primarily due to the 53.9% unit
volume growth during the 1998 period. This increase was partially
offset by high volume efficiencies available at the Indianapolis
facility. Gross margin in the 1998 period was 70.1% compared to 76.0%
in the 1997 period, a decline of 5.9 percentage points. This decline
was essentially due to the lower average price of ABELCET during 1998,
as a result of the targeted pricing program in the U.S. and increased
European sales to marketing partners (which were made at significant
discounts from end user sales price), partially offset by the
aforementioned production efficiencies.
Research and development expense was $8,292,000 for the quarter ended
March 29, 1998, compared to $7,315,000 for the comparable prior year
period. The increase is due to the reorientation of the Princeton
facility to the production of supplies related to clinical activity
for EVACETTM and increased research and development activity for TLC
ELL-12, partially offset by the absence of spending associated with
VENTUSTM as development on that product has stopped.
Selling, general and administrative expenses for the three months
ended March 29, 1998 were $8,869,000 compared to $9,357,000 in 1997.
The principal reason for the $488,000 decrease was the absence in 1998
of litigation costs associated with the University of Texas and
NeXstar lawsuits.
Interest expense was $211,000 in the first quarter of 1998 or $10,000
higher than the comparable 1997 period. Interest expense is related
to capital leases for the Princeton and Indianapolis manufacturing
equipment and the mortgage on the Indianapolis building.
The Company expects the gross margin for ABELCET to continue to
improve versus the fourth quarter of 1997, as the Company recognizes
the advantages of lower unit manufacturing costs at Indianapolis. The
Company expects research and development expenses to increase as a
result of the reacquisition of EVACETTM and the related costs of
completing EVACETTM product development. As ABELCET is launched in
additional international markets, the Company's selling, general and
administrative expenses in support of its marketing partners'
activities, may increase.
Page 11
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Net Loss Applicable to Common Stock and Net Loss per Share of Common
Stock
The net loss applicable to Common Stock was $5,077,000 or $0.13 per
share and $4,469,000 or $0.12 per share (basic and diluted) for the
first quarters of 1998 and 1997, respectively. Weighted average
shares used in the per share calculations were 37,846,000 in the 1998
period and 36,132,000 in the 1997 period. The number of shares of
Common Stock used in each period to calculate basic and diluted loss
per share were identical as the Company was in a loss position in all
the periods and the inclusions of contingently issuable shares would
have been anti-dilutive.
Liquidity and Capital Resources
The Company had $44,414,000 in cash and marketable securities as of
March 29, 1998. Included in this amount were cash and cash equivalents
of $23,884,000, short-term investments of $5,600,000, long-term
investments in marketable securities of $3,000,000 and restricted cash
of $11,930,000. The Company invests its cash reserves in a diversified
portfolio of high-grade corporate marketable and United States
Government-backed securities. The market value of certain securities
in the Company's investment portfolio at March 29, 1998 was below
their acquisition cost. The effect of unrealized investment losses at
March 29, 1998, pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," at March 29, 1998 was $40,000. This
unrealized loss was recorded as a reduction of shareholders' equity.
Cash and marketable securities (both short- and long-term and
restricted cash) decreased $1,111,000 from December 28, 1997 to March
29, 1998. The major components of the use of funds were the net loss
applicable to Common Stock (net of depreciation) of $3,596,000,
accounts receivable of $1,404,000 due to higher sales, and capital
lease and note payable payments of $540,000. Favorably impacting cash
flow were the higher accounts payable and accrued liabilities balance
change totaling $3,045,000, combined with lower inventory balances of
$1,370,000.
Inventories at March 29, 1998 decreased $1,370,000 from December 28,
1997. During 1997, the Company completed its plan to shift
manufacturing of ABELCET from Princeton to a new, more cost efficient
facility in Indianapolis, Indiana. In order to ensure a smooth
transition, the Company increased its inventory of ABELCET during the
first half of 1997. FDA approval of the Indianapolis facility was
received during the third quarter, and the Company has reoriented the
Princeton facility to the production of clinical supplies. As
planned, the Company has reduced inventories to levels consistent with
unit demand for ABELCET.
Accounts payable at March 29, 1998 was $4,537,000 or $1,921,000 higher
than at December 28, 1997 and accrued expenses and other current
liabilities were $7,133,000 or $1,124,000 higher than 1997 year-end.
The variance is primarily due to the timing of payments to vendors.
Page 12
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
In July 1993, the Company entered into a capitalized lease financing
agreement for certain manufacturing equipment providing for an initial
lease term followed by options to extend the lease, or to return or
purchase the equipment. In December 1996, the agreement was amended
to include an additional $6,101,000 of manufacturing equipment. In
November 1997 and January 1998, the Company exercised its options to
purchase certain manufacturing equipment under the original 1993 lease
for $1,583,000 and $495,000, respectively. These amounts have been re-
financed as a capital lease obligation under the lease agreement for a
three-year period. The lease is collateralized by $4,310,000 in
standby letters of credit which are in return collateralized by AAA
rated securities owned by the Company. Pursuant to the December 1996
lease amendment, the Company is required to maintain a minimum balance
of $25,000,000 in cash and marketable securities, including those
securities collateralizing the letters of credit. In addition, the
Company completed a U.S. working capital revolving credit line
agreement in early 1997, with a maximum capacity of $14,000,000. All
borrowings must be secured by approved accounts receivable and
finished goods inventories. The Company has a pledge of $5,000,000 to
support this agreement, which has been classified as restricted cash.
There have been no advances made against this line through the date of
this report.
As part of the agreement to repurchase the development, manufacturing
and marketing rights to EVACETTM, the Company has obtained from Pfizer
a credit line of up to $10,000,000 to continue the development of
EVACETTM. To the extent that any funding is actually used by the
Company, the outstanding principal and interest would be repayable on
the earlier of 180 days after FDA clearance to market EVACETTM or in
twenty quarterly installments commencing July 14, 2002. Pfizer at its
option may elect to receive payment in the form of shares of Common
Stock.
The Company has a mortgage-backed note to partially fund the purchase
of the Indianapolis manufacturing facility. The principal balance
outstanding at March 29, 1998 is $1,110,000.
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 24.64% of the Company's outstanding shares of Common
Stock.
The Company expects to finance its operations and capital spending
requirements from, among other things, the proceeds received from
product sales, 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, a
line of credit from a former licensing partner, 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.
Year 2000
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year
2000" issue. The Company presently believes that the "Year 2000"
problem will not pose significant operational problems for the
Company's computer systems.
Page 13
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Risk Factors
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 and preclinical studies, (ii) the timing of filing of
new drug applications, (iii) future marketing approvals, (iv) the
expansion of sales efforts, (v) possible new licensing agreements,
(vi) future product revenues, (vii) the future uses of capital, and
financial needs of the Company, (viii) cost savings from restructuring
and (ix) manufacturing efficiencies and other benefits to be realized
from use of the Indianapolis facility. 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.
Among these factors and assumptions that could affect the forward-
looking statements in this Report are the following: (a) the
commercialization of ABELCET is in an early stage and the ultimate
rate of sales of ABELCET is uncertain; (b) 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; (c)
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; (d) 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; (e) the levels of protection afforded by the
Company's patents and other proprietary rights is uncertain and may be
challenged; and (f) the Company has incurred losses in each year since
its inception and there can be no assurance of profitability in any
future period.
Page 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is involved in lawsuits, claims, investigations
and proceedings, including patent, commercial, and
environmental matters, which arise in the ordinary course of
business. There are no such matters pending that the
Company expects to be material in relation to its business,
financial condition, cash flows, or results of operations.
27 Financial Data Schedule
(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
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 12, 1998
THE LIPOSOME COMPANY, INC.
By:
Charles A. Baker
Chairman of the Board and
Chief Executive Officer
By:
Lawrence R. Hoffman
Vice President and
Chief Financial Officer
Page 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: May 12, 1998
THE LIPOSOME COMPANY, INC.
By: /s/ Charles A. Baker
Charles A. Baker
Chairman of the Board and
Chief Executive Officer
By: /s/ Lawrence R. Hoffman
Lawrence R. Hoffman
Vice President and
Chief Financial Officer
Page 16
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