UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 31, 1995
Commission File Number 0-14758
SOMATIX THERAPY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2762045
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
850 Marina Village Parkway, Alameda, California 94501
(Address of principal executive offices) (zip code)
(510) 748-3000
(Registrant's telephone number, including area code)
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:
Class Outstanding at March 31, 1995
_________________________________________________________________
Common Stock, $0.01 Par Value 18,101,685
<PAGE>
_________
TABLE OF CONTENTS
_________
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements.
Consolidated Balance Sheets as of
March 31, 1995 and June 30, 1994. . . . . . . . . . . 1, 2
Consolidated Statements of Operations
for the Three and Nine Months Ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows
for the Nine Months Ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements. . . . . . . . 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . . . 6
PART II. OTHER INFORMATION
Item 1 Legal Proceedings. . . . . . . . . . . . . . . . . 8
Item 2 Changes in Securities. . . . . . . . . . . . . . . 8
Item 3 Defaults upon Senior Securities. . . . . . . . . . 8
Item 4 Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . 8
Item 5 Other Information. . . . . . . . . . . . . . . . . 8
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . 8
Exhibits Index . . . . . . . . . . . . . . . . . . . . . . . . 8
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
<TABLE>
SOMATIX THERAPY CORPORATION
___________
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
March 31, June 30,
1995 1994
(unaudited)
___________ ___________
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 2,126,000 $ 777,000
Marketable securities . . . . . . . . . . . . . . 2,981,000 19,196,000
Other current assets. . . . . . . . . . . . . . 988,000 901,000
___________ ___________
Total current assets . . . . . . . . . . . . 6,095,000 20,874,000
Marketable securities. . . . . . . . . . . . . . . 250,000 249,000
Restricted cash. . . . . . . . . . . . . . . . . . 300,000 250,000
Equipment and improvements, at cost:
Laboratory and production equipment . . . . . . 3,907,000 4,040,000
Equipment under capital leases. . . . . . . . . 2,910,000 2,107,000
Furniture and office equipment. . . . . . . . . 1,167,000 1,204,000
Leasehold improvements. . . . . . . . . . . . . 4,250,000 3,555,000
___________ ___________
12,234,000 10,906,000
Less accumulated depreciation
and amortization. . . . . . . . . . . . . . . 8,146,000 6,720,000
___________ ___________
Net equipment and improvements. . . . . . . . . 4,088,000 4,186,000
___________ ___________
Other assets. . . . . . . . . . . . . . . . . . 211,000 188,000
___________ ___________
$10,944,000 $25,747,000
=========== ===========
See accompanying notes.
</TABLE>
1
<PAGE>
<TABLE>
SOMATIX THERAPY CORPORATION
___________________
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
March 31, June 30,
1995 1994
(unaudited)
___________ ____________
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities. . . . $ 3,100,000 $ 1,418,000
Accrued compensation and related expenses . . . 849,000 311,000
Capital lease obligations . . . . . . . . . . . 692,000 517,000
Other current liabilities . . . . . . . . . . . 15,000 15,000
___________ ___________
Total current liabilities. . . . . . . . . 4,656,000 2,261,000
Capital lease obligations,
net of current portion. . . . . . . . . . . . . 1,754,000 1,627,000
Other liabilities. . . . . . . . . . . . . . . . . 31,000 13,000
Stockholders' equity
Series A preferred stock, par value $0.01
per share, 1,000,000 shares authorized;
none outstanding.
Common stock, par value $0.01 per share,
40,000,000 shares authorized,
18,101,685 issued and outstanding
(15,748,937 at June 30, 1994) . . . . . . . 181,000 157,000
Additional paid-in capital. . . . . . . . . . 144,537,000 132,109,000
Accumulated deficit . . . . . . . . . . . . . (140,215,000) (110,420,000)
_____________ _____________
Total stockholders' equity. . . . . . . . . 4,503,000 21,846,000
_____________ _____________
$ 10,944,000 $ 25,747,000
============= =============
See accompanying notes.
</TABLE>
2
<PAGE>
<TABLE>
SOMATIX THERAPY CORPORATION
___________________
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
_____________________________ ______________________________
<S> <C> <C> <C> <C>
March 31, March 31, March 31, March 31,
1995 1994 1995 1994
_____________ _____________ _____________ ______________
Revenues:
Licensing agreement . . . . $ -- $ -- $ -- $ 2,000,000
Research agreement. . . . . -- -- 250,000 --
_____________ _____________ _____________ ______________
Total revenues . . . . . . . . -- -- 250,000 2,000,000
Costs and expenses:
Research and development. . 4,809,000 3,329,000 13,605,000 9,327,000
General and administrative. 1,008,000 915,000 3,020,000 2,983,000
Write off of in-process
technology. . . . . . . . 13,679,000 -- 13,679,000 --
_____________ _____________ _____________ ______________
Total costs and expenses. 19,496,000 4,244,000 30,304,000 12,310,000
_____________ _____________ _____________ ______________
Operating loss . . . . . . . . (19,496,000) (4,244,000) (30,054,000) (10,310,000)
Other income, net. . . . . . . 20,000 173,000 259,000 322,000
_____________ _____________ _____________ ______________
Net loss. . . . . . . . . . $(19,476,000) $ (4,071,000) $(29,795,000) $ (9,988,000)
_____________ _____________ _____________ ______________
Net loss per share . . . . . . $ (1.15) $ (0.27) $ (1.85) $ (0.71)
_____________ _____________ _____________ ______________
Shares used in calculation of
net loss per share . . . . . 16,911,945 15,281,515 16,145,588 14,049,937
No dividends were declared or paid during the period.
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
SOMATIX THERAPY CORPORATION
___________________
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
___________________
Nine Months Ended March 31,
___________________________
1995 1994
_____________ ____________
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . $(29,795,000) $(9,988,000)
Adjustments to reconcile net loss to
net cash used in operating activities,
net of effects of acquired company
Depreciation and amortization. . . . . . . . 1,426,000 1,059,000
Write-off of acquired in-process
technology. . . . . . . . . . . . . . . . 13,679,000 --
Decrease (increase) in other current assets. (65,000) 95,000
Increase in other assets . . . . . . . . . . (23,000) (78,000)
Increase (decrease) in accounts payable
and accrued liabilities . . . . . . . . . 234,000 (270,000)
Increase in accrued compensation
and related expenses. . . . . . . . . . . 538,000 209,000
Increase (decrease) in deferred rent . . . . 18,000 (13,000)
_____________ ____________
Net cash used in operating activities . . (13,988,000) (8,986,000)
Cash flows from investing activities:
Sales of marketable securities. . . . . . . . . 23,025,000 6,619,000
Purchase of marketable securities . . . . . . . (6,811,000) (9,119,000)
Increase in restricted cash . . . . . . . . . . (50,000) --
Purchase of equipment and
improvements . . . . . . . . . . . . . . . . (1,328,000) (938,000)
_____________ ____________
Net cash provided by (used in)
investing activities. . . . . . . . . . . 14,836,000 (3,438,000)
Cash flows from financing activities:
Borrowings under sale/leaseback agreement . . . 803,000 --
Principal payments under capital
lease obligations. . . . . . . . . . . . . . (501,000) (139,000)
Net proceeds from issuance of common stock. . . 199,000 10,913,000
_____________ ____________
Net cash provided by financing
activities. . . . . . . . . . . . . . . 501,000 10,774,000
Net increase (decrease) in cash. . . . . . . . . . 1,349,000 (1,650,000)
Cash and cash equivalents, beginning of period . . 777,000 5,214,000
_____________ ____________
Cash and cash equivalents, end of period . . . . . $ 2,126,000 $ 3,564,000
============= ============
Cash paid for interest . . . . . . . . . . . . . . $ 218,000 $ 76,000
See accompanying notes.
</TABLE>
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
1. Basis of Presentation
The information at March 31, 1995 and 1994, and for the periods
then ended, is unaudited, but includes all adjustments
(consisting only of normal recurring entries) which the Company's
management believes to be necessary for the fair presentation of
the financial position, results of operations and changes in cash
flows for the periods presented. Interim results are not
necessarily indicative of results for a full year. The
accompanying consolidated financial statements should be
read in conjunction with the Company's audited financial
statements for the fiscal year ended June 30, 1994.
2. Per Share Information
Per share information is based on the weighted average number of
shares of common stock outstanding during each period. Shares
issuable upon the exercise of outstanding options and warrants to
purchase shares of the Company's common stock (common stock
equivalents) are not included in the calculation of the net loss
per share for the three and nine month periods ended March 31,
1995 and 1994, since their inclusion would be anti-dilutive.
3. Investments
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS
115"). The Company adopted the provisions of the new standard
for investments held as of or acquired after July 1, 1994. In
accordance with SFAS 115, prior period financial statements have
not been restated to reflect the change in accounting principle.
The Company has classified its entire investment portfolio as
held-to-maturity. There is no impact of adopting SFAS 115 on
results of operations or financial position.
In accordance with SFAS 115, debt securities are classified as
held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income. Interest on
securities classified as held-to-maturity is included in
investment income.
The following is a summary of debt securities:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
__________ __________ __________ __________
<S> <C> <C> <C> <C>
March 31, 1995:
U.S. government securities
and agencies. . . . . . . . $4,355,000 $ 1,000 $ (1,000) $4,355,000
Corporate notes. . . . . . . 250,000 0 (5,000) 245,000
__________ __________ __________ __________
$4,605,000 $ 1,000 $ (6,000) $4,600,000
</TABLE>
5
<PAGE>
The amortized cost and estimated fair value of debt securities at
March 31, 1995, by contract maturity, are as follows:
<TABLE>
<CAPTION>
Estimated
Cost Fair Value
___________ __________
<S> <C> <C>
Due in one year or less. . . . . . . . . . . . . . $4,605,000 $4,600,000
Included in cash and cash equivalents. . . . . . . $1,374,000 $1,374,000
Included in marketable securities. . . . . . . . . 3,231,000 3,226,000
___________ ___________
$4,605,000 $4,600,000
</TABLE>
4. Acquisition of Merlin Pharmaceutical Corporation
On February 13, 1995, the Company completed its acquisition (the
"Acquisition") of Merlin Pharmaceutical Corporation ("Merlin"),
a privately-held gene therapy company. The Company issued
2,257,385 shares of common stock in exchange for all of the
outstanding capital stock of Merlin and assumed options and
warrants to purchase an aggregate of 742,615 shares of the
Company's common stock at exercise prices between $0.01 and
$1.943 per share. The shares are subject to lock-up provisions
providing for the release of one-fourth of the shares at
periods of 6, 12, 18 and 24 months after the closing and an
escrow of 50% of the shares contingent upon the founding Merlin
scientists remaining actively involved with the Company.
The transaction was accounted for as a purchase and the
consideration issued by the Company was allocated to the tangible
assets acquired based upon their estimated fair values on the
Acquisition date. The aggregate purchase price of $13,702,000
consisted of (in thousands):
Market value of common stock $ 9,144
Fair value of warrants
and options assumed 3,110
Acquisition costs and expenses 900
Liabilities assumed 548
_______
Total purchase price $13,702
=======
The aggregate purchase price exceeded the fair value of Merlin's
tangible assets by $13,679,000. This amount was allocated to
acquired in-process technology and written off to operations in
fiscal 1995. The allocation of the aggregate purchase price was
as follows (in thousands):
Current assets $ 23
In-process technology 13,679
_______
$13,702
=======
6
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
Results Of Operations
Somatix Therapy Corporation ("Somatix" or the "Company") is
a research and development company in the field of gene therapy.
The Company has not commercialized any of its product candidates
and has experienced significant losses to date. Absent significant
funding from research collaborations, the Company expects costs and
expenses to exceed revenues in future periods. This will result in
increasing losses for the next several years.
On February 13, 1995, the Company completed the acquisition
(the "Acquisition") of Merlin Pharmaceutical Corporation
("Merlin"), a private gene therapy company developing in vivo gene
therapies, in which the Company acquired all outstanding capital
stock of Merlin. The transaction was accounted for using the
purchase method of accounting and the consideration issued by the
Company was allocated to the tangible and intangible assets
acquired. The resulting purchase price exceeded fair value of
Merlin tangible assets by $13,679,000. This amount was allocated
to acquired in-process technology and was written off in the
current period. As a result of this transaction, cost and
expenses for the three-month and nine-month periods ending March
31, 1995, include the write-off of $13,679,000 related to the
acquired in-process technology.
At March 31, 1995, the Company's accumulated deficit was
approximately $140,215,000. Such losses have resulted
principally from expenses incurred in the Company's research and
development programs, the acquisition of new technology, and to
a lesser extent, from general and administrative expenses. The
Company expects to incur substantial and increasing losses for at
least the next several years due primarily to the expansion of its
research and development programs, including preclinical studies,
clinical trials and manufacturing. The Company expects that losses
will fluctuate from quarter to quarter and that such fluctuations
may be substantial. There can be no assurance that the Company will
successfully develop, commercialize, manufacture or market its
products or ever achieve or sustain product revenues or profitability.
Revenues for the nine months ended March 31, 1995 were
$250,000 compared to $2,000,000 in the same period in the prior
fiscal year. Current fiscal year revenues were derived from a
research agreement whereas prior fiscal year revenues resulted
from technology licensing.
Research and development expenses for the nine-month and
three-month periods ended March 31, 1995 increased by $4,278,000
and $1,480,000, respectively, from the same periods in the prior
fiscal year. Increases are due to clinical trials for oncology
indications and ongoing support, both external and internal.
Expenses will continue to increase as the Company initiates
clinical trials for additional indications.
General and administrative expenses for the nine-month and
three-month periods ending March 31, 1995, increased by $37,000
and $93,000, respectively from the same periods in the prior
fiscal year. Increases are due primarily to professional fees
incurred in connection with funding and corporate partnership
efforts.
Other income consists principally of interest income earned
on the Company's cash reserves. The decrease, to $259,000 in the
first nine months of fiscal year 1995, from $322,000 for the same
period in fiscal year 1994, was primarily due to smaller cash
balances available for investment.
7
<PAGE>
Liquidity And Capital Resources
On March 31, 1995, the Company had cash, cash equivalents,
and marketable securities of $5,357,000, compared with
$20,222,000 on June 30, 1994. Operating expenses have exceeded
revenues for a number of years. For the nine-month period ended
March 31, 1995, capital expenditures amounted to $1,328,000. The
capital expenditures/new leases included $346,000 for equipment
for research and development and $287,000 for computer equipment
and office furniture, and $695,000 for tenant improvements.
Tenant improvements included $378,000 for a new office facility
and $267,000 for design costs for a future manufacturing
facility. The Company expects its cash requirements and net
losses to increase significantly in future periods due to higher
research and development costs and other expenses. The Company
has no material capital commitments.
Given its current operating plans, the Company anticipates
that its existing cash will be sufficient to meet its cash
requirements for the next three months. The Company's future
cash requirements will depend upon many factors, including the
progress of the Company's research and development, the scope and
results of preclinical studies and clinical trials, the expense
in conjunction with obtaining regulatory approvals, the rate of
technological advances, the determination of the commercial
potential of the Company's products under development, the status
of competitive products, and the establishment of production
capacity for clinical trials. The Company will be required
to raise substantial additional funds in the near term, through
collaborative research, development and commercialization
relationships and public or private financings. Consummation of
any such transaction would be subject to numerous conditions and
contingencies, and there can be no assurance that any such
transaction will occur. Because of the Company's significant
long-term capital requirements, it may also seek to access the
public equity markets if and when conditions are favorable, even
if it does not have an immediate need for additional cash at
that time. If the Company does not raise adequate funds in the
near term, it may be forced to suspend research and development
programs or take other actions that may have a material adverse
effect on the Company's future financial position or results
of operation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following documents are referenced or included in
this report:
Exhibit
No.
_______
2.1<F1>* Agreement and Plan of Reorganization dated December 19, 1994 as
amended on January 18, 1995 and January 31, 1995 among Somatix, STC
Acquisition Co. and Merlin Pharmaceutical Corporation. Reference
Exhibit Number 3.
8
<PAGE>
10.0<F1> Escrow Agreement, dated as of February 3, 1995, by and between
STC Acquisition Company, The First National Bank of Boston and the
stockholders of Merlin Pharmaceutical Corporation. Reference Exhibit
Number 4.
10.2<F1>* Consulting and Repurchase Agreement, dated February 3,
1995, between Somatix and Samuel D. Waksal. Reference Exhibit
Number 5.
10.3<F1>* Consulting and Repurchase Agreement, dated January 21, 1995,
between Somatix and Thomas Shenk. Reference Exhibit Number 6.
10.4<F1>* Consulting and Repurchase Agreement, dated February 3,
1995, between Somatix and R. Jude Samulski. Reference Exhibit
Number 7.
10.5<F1>* Consulting and Repurchase Agreement, dated February 3,
1995, between Somatix and Michael Kaplitt. Reference Exhibit
Number 8.
10.6<F1>* Consulting and Repurchase Agreement, dated February 3,
1995, between Somatix and Matthew During. Reference Exhibit
Number 9.
10.7<F1> Indemnification Agreement, dated as of December 19, 1994
as amended by Amendment No. 1, dated as of February 3, 1995, among
Merlin Pharmaceutical Corporation and Samuel D. Waksal. Reference
Exhibit Number 10.
10.8<F1> Promissory Note, dated February 2, 1995, by and between
Samuel D. Waksal and Somatix Therapy Corporation. Reference Exhibit
Number 11.
10.9<F2> Merlin Pharmaceutical Corporation 1993 Stock Option Plan.
Reference Exhibit Number 99.1.
10.10<F2> Non-Qualified Stock Option Agreement to be generally used
in connection with Merlin Pharmaceutical Corporation 1993 Stock Option
Plan. Reference Exhibit Number 99.2.
10.11<F2> Stock Option Assumption Agreement - Installment Option.
Reference Exhibit Number 99.3.
10.12<F2> Stock Option Assumption Agreement - Immediately Exercisable
Option. Reference Exhibit Number 99.4.
27 Financial Data Schedule
* Confidential Treatment has been requested for certain portions of
this agreement.
[FN]
<F1> Incorporated by reference to exhibit filed with registrant's
Amendment No. 1 to Current Report on Form 8-K/A as filed with the SEC
on February 14, 1995.
<F2> Incorporated by reference to exhibit filed with registrant's
Registration Statement on Form S-8 as filed with the SEC on March 3,
1995.
9
<PAGE>
(b) Reports on Form 8-K.
Amendment No. 1 to Current Report on Form 8-K/A dated
February 13, 1995 and Amendment No. 2 to Current Report on Form 8-K/A
dated March 2, 1995 were filed in the quarter ended March 31, 1995,
with supplemental disclosure in Item 2, Item 5 and Item 7 thereto.
The following financial statements were filed in conjunction with
Amendment No. 2:
Financial Statements of Merlin Pharmaceutical
Corporation for the period from inception (July 14, 1993) through
June 30, 1994.
Financial Statements of Merlin Pharmaceutical
Corporation for the period from inception (July 14, 1993) through
November 30, 1994.
Pro forma financial statements of Merlin Pharmaceutical
Corporation and Somatix Therapy Corporation.
10
<PAGE>
SOMATIX THERAPY CORPORATION
March 31, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this report
to be signed in its behalf by the undersigned thereunto duly
authorized.
DATE: April 21, 1995 By: DAVID W. CARTER
___________________________
President, Chief Executive
Officer and Chairman of the
Board
DATE: April 21, 1995 By: MARK N.K. BAGNALL
___________________________
Vice President, Finance
(Principal Financial and
Accounting Officer)
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000791925
<NAME> 0
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 2,126
<SECURITIES> 2,981
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,095
<PP&E> 12,234
<DEPRECIATION> 8,146
<TOTAL-ASSETS> 10,944
<CURRENT-LIABILITIES> 4,656
<BONDS> 0
<COMMON> 181
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,944
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 19,496
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (19,496)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,476)
<EPS-PRIMARY> (1.15)<F1>
<EPS-DILUTED> 0
<FN>
<F1>Multiplier does not apply.
</FN>
</TABLE>
