<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934.
For the quarterly period ended December 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934.
For the transition period from _______________ to ________________
Commission File #0-14732
ADVANCED MAGNETICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2742593
(State or other jurisdiction of organization) (I.R.S. Employer Incorporation
or Identification No.)
61 Mooney Street
Cambridge, MA 02138
(Address of principal executive offices)
Registrant's telephone number, including area code: 617/497-2070
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 ____
At February 12, 1997, 6,747,040 shares of registrant's common stock (par value,
$.01) were outstanding.
<PAGE> 2
ADVANCED MAGNETICS, INC.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1996
PART I. FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Page 2 of 14
<PAGE> 3
ADVANCED MAGNETICS, INC.
BALANCE SHEET
DECEMBER 31, 1996 AND SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS December 31, September 30,
------------ -------------
1996 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................. $ 12,840,449 $ 10,805,842
Marketable securities (Note B) ............ 27,146,301 23,271,169
Accounts receivable ....................... 830,261 149,235
Inventories ............................... 49,517 182,166
Prepaid expenses .......................... 268,146 131,234
------------ ------------
Total current assets .................... 41,134,674 34,539,646
------------ ------------
Property, plant and equipment:
Land ...................................... 360,000 360,000
Buildings ................................. 4,320,766 4,320,766
Laboratory equipment ...................... 7,376,879 7,316,534
Furniture and fixtures .................... 557,085 553,149
------------ ------------
12,614,730 12,550,449
Less--accumulated depreciation and
amortization .............................. (6,490,944) (6,219,579)
------------ ------------
Net property, plant and equipment ......... 6,123,786 6,330,870
------------ ------------
Other assets .............................. 195,857 195,857
------------ ------------
Total assets ............................ $ 47,454,317 $ 41,066,373
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................... $ 441,453 $ 383,335
Accrued expenses .......................... 997,017 500,365
Income taxes payable ...................... 50,128 50,128
------------ ------------
Total current liabilities ............... 1,488,598 933,828
------------ ------------
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 2,000,000 shares; none issued... -- --
Common stock, par value $.01 per share,
authorized 15,000,000 shares; issued and
outstanding 6,742,358 shares at
December 31, 1996 and 6,761,612 shares
at September 30, 1996 .................. 67,424 67,616
Additional paid-in capital ................ 44,615,479 44,926,502
Retained earnings ......................... (2,401,523) (6,678,476)
Net unrealized gains on marketable
securities ............................. 3,684,339 1,816,903
------------ ------------
Total stockholders' equity .............. 45,965,719 40,132,545
------------ ------------
Total liabilities and stockholders' equity $ 47,454,317 $ 41,066,373
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 3 of 14
<PAGE> 4
ADVANCED MAGNETICS, INC.
STATEMENT OF OPERATIONS
FOR THE QUARTERS ENDED
DECEMBER 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
First Quarter Ended December 31,
1996 1995
----------- ------------
<S> <C> <C>
Revenues:
License fees ......................... $5,500,000 $ -0-
Royalties ............................ 125,000 75,000
Product sales ........................ 666,462 --
Interest, dividends and net gains
and losses on sales of securities .. 746,446 451,859
---------- -----------
Total revenues .................. 7,037,908 526,859
---------- -----------
Cost and expenses:
Cost of product sales ................ 143,196 --
Research and development expenses .... 2,296,576 2,160,560
Selling, general and administrative
expenses ........................... 321,183 290,984
---------- -----------
Total costs and expenses ........ 2,760,955 2,451,544
---------- -----------
Income (loss) before provision for income
taxes .............................. 4,276,953 (1,924,685)
Provision for income taxes ........... -- --
---------- -----------
Net income (loss) ....................... $4,276,953 $(1,924,685)
========== ===========
---------- -----------
Income (loss) per share ................. $ 0.63 $ (0.28)
---------- -----------
Weighted average number of common
and common equivalent shares ....... 6,833,175 6,756,072
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 4 of 14
<PAGE> 5
ADVANCED MAGNETICS, INC.
STATEMENT OF CASH FLOW
FOR THE QUARTERS ENDED
DECEMBER 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
First Quarter Ended December 31,
--------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers ........................ $ 5,750,755 $ 1,270,438
Cash paid to suppliers and employees ................ (1,939,082) (2,079,507)
Dividends and interest received ..................... 251,229 413,838
Income taxes paid ................................... -- (20,000)
------------ -----------
Net cash provided by (used in) operating activities . 4,062,902 (415,231)
------------ -----------
Cash flows from investing activities:
Purchase of securities .............................. (4,329,087) (1,450,162)
Capital expenditures ................................ (64,281) (181,571)
Proceeds from sales of marketable securities ........ 2,676,288 2,435,833
Proceeds from notes and bonds maturing .............. -- 1,000,000
------------ -----------
Net cash provided by (used in) investing activities . (1,717,080) 1,804,100
------------ -----------
Cash flows from financing activities:
Proceeds from issuances of common stock ............. (12) 70,677
Purchase of Treasury Stock .......................... (311,203) --
------------ -----------
Net cash provided by (used in) financing activities . (311,215) 70,677
------------ -----------
Net increase (decrease) in cash and cash equivalents 2,034,607 1,459,546
Cash and cash equivalents at beginning of the quarter 10,805,842 1,066,419
------------ -----------
Cash and cash equivalents at end of the quarter ..... $ 12,840,449 $ 2,525,965
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 5 of 14
<PAGE> 6
ADVANCED MAGNETICS, INC.
RECONCILIATION OF NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
FOR THE QUARTERS ENDED
DECEMBER 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
First Quarter Ended December 31,
--------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net income (loss) .......................................................... $ 4,276,953 $(1,924,685)
----------- -----------
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization .............................................. 271,365 263,603
(Increase) decrease in accounts receivable ................................. (681,026) 1,150,328
(Increase) decrease in prepaid expenses .................................... (136,912) 30,348
(Increase) decrease in inventories ......................................... 132,649 (25,801)
Increase (decrease) in accounts payable and accrued expenses .............. 554,770 103,887
(Increase) decrease in income taxes payable ................................ -- (20,000)
Net realized (gains) losses on sales of marketable securities .............. (346,001) 14,701
----------- -----------
Accretion of U.S. Treasury Notes discount .................................. (8,896) (7,612)
----------- -----------
Total adjustments .......................................................... (214,051) 1,509,454
----------- -----------
Net cash provided by (used in) operating activities ........................ $ 4,062,902 $ (415,231)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 6 of 14
<PAGE> 7
ADVANCED MAGNETICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
A. Summary of Accounting Policies.
Founded in November 1981, Advanced Magnetics, Inc., a Delaware
corporation (the "Company"), is a biopharmaceutical company engaged in the
development and manufacture of compounds utilizing the Company's core
proprietary colloidal superparamagnetic particle technology for magnetic
resonance imaging ("MRI") and for polysaccharide directed drug delivery systems.
The initial products developed by the Company are diagnostic imaging agents for
use in conjunction with MRI to aid in the diagnosis of cancer and other
diseases. In therapeutics, the Company is developing antiviral products for the
treatment of hepatitis.
The balance sheet of the Company as of December 31, 1996 and the
statement of operations and cash flows for the quarter then ended are unaudited
and in the opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been recorded. Such adjustments
consisted only of normal recurring items. Certain amounts in the fiscal 1996
financial statement have been reclassified to conform with the fiscal 1997
presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The year-end balance sheet data was derived from audited financial
statements, but does not include disclosures required by generally accepted
accounting principles. It is suggested that these interim financial statements
be read in conjunction with the Company's most recent Form 10-K and Annual
Report as of September 30, 1996.
B. Marketable Securities.
The cost and market value of the marketable securities portfolio are as
follows:
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1996
----------------------------- -----------------------------
Cost Fair Value Cost Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U. S. government securities
Due in one year or less ........ $ 7,507,581 $ 7,481,250 $ 7,510,203 $ 7,481,250
Due after one through five years 7,404,303 7,368,750 7,392,785 7,312,500
Preferred stock ................... 2,025,406 2,100,000 3,062,404 3,145,029
Common Stock ...................... 6,524,672 10,196,301 3,488,874 5,332,390
----------- ----------- ----------- -----------
$23,461,962 $27,146,301 $21,454,266 $23,271,169
=========== =========== =========== ===========
</TABLE>
C. Income Taxes.
There was no income tax provision for the first fiscal quarter ended
December 31, 1996 and 1995 due to the availability of a net loss carry forward
in the quarter ended December 31, 1996 and to an operating loss in the quarter
ended December 31, 1995.
Page 7 of 14
<PAGE> 8
D. Legal Proceedings.
The Company and certain of its officers were sued in an action in the
United States District Court for the District of Massachusetts on September 3,
1992. The plaintiff, a former consultant to the Company, claims that he was
incorrectly omitted as an inventor or joint inventor on six of the Company's
patents and on pending applications, and seeks injunctive relief and unspecified
monetary damages. The plaintiff filed a related case in the Superior Court of
the Commonwealth of Massachusetts. The Superior Court has dismissed some of the
claims on summary judgment. While the final outcome of these actions cannot be
determined, the Company believes that the plaintiff's claims are without merit
and intends to defend the actions vigorously.
Page 8 of 14
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This document contains forward looking statements. Any statements
contained herein that do not describe historical facts are forward looking
statements. The forward looking statements contained herein are based on current
expectations, but are subject to a number of risks and uncertainties. The facts
that could cause actual results to differ materially from current expectations
include the following: the ability to successfully market Feridex I.V. and
GastroMARK, the timing and result of FDA action, delays in arrangements with
clinical investigations, uncertainties relating to results of the clinical
trials of Combidex and other product candidates, the Company's dependence on its
corporate partners, the Company's ability to obtain future financing,
uncertainties relating to patents and proprietary rights, the ability of the
Company to compete successfully in the future and the risks identified in the
Company's Securities and Exchange Commission filings, including but not limited
to its Form 10-K for the year ended September 30, 1996.
OVERVIEW
Since its inception in November 1981, Advanced Magnetics, Inc. (the
"Company") has focused its efforts on developing its core magnetic particle
technology to develop magnetic resonance imaging (MRI) contrast agents and its
core polysaccharide technology for targeted delivery of antiviral therapeutics.
The Company has funded its operations with cash from license fees from corporate
partners, royalties, sales of its products, fees from contract research
performed for third parties, the proceeds of financings and income earned on
invested cash. The Company's success in the market for diagnostic and
therapeutic products will depend, in part, on the Company's ability to:
successfully develop, test, produce and market its products; obtain necessary
governmental approvals in a timely manner; attract and maintain key employees;
and successfully respond to technological changes in its marketplace.
The Company's operating results may continue to vary significantly from
quarter to quarter or from year to year depending on a number of factors,
including: the timing of payments from corporate partners and research grants;
the introduction of new products by the Company; the timing and size of orders
from the Company's customers; and the acceptance of the Company's products. The
Company's current planned expense levels are based in part upon expectations as
to future revenue. Consequently, profits may vary significantly from quarter to
quarter or year to year based on the timing of revenue. Revenue or profits in
any period will not necessarily be indicative of results in subsequent periods
and there can be no assurance that the Company will maintain profitability or
that revenue growth can be sustained in the future.
A substantial portion of the Company's expenses consists of research and
development expenses. The Company expects its research and development expenses
to increase as it funds additional clinical trials and associated toxicology and
pharmacology studies and as it devotes resources to developing additional
contrast agents and its targeted drug delivery programs.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 1996 AS COMPARED TO THE
QUARTER ENDED DECEMBER 31, 1995.
REVENUES
Revenues for the fiscal quarter ended December 31, 1996 were $7,037,908 compared
to $526,859 for the fiscal quarter ended December 31, 1995.
License fee revenues for the fiscal quarter ended December 31, 1996 were
$5,500,000. On September 3, 1996, the Company and Berlex Laboratories, Inc.
("Berlex") announced that the United States Food and Drug Administration ("FDA")
granted marketing approval for Feridex I.V. The Company received a $5,000,000
milestone payment from Berlex on October 15, 1996 as a result of Berlex's market
launch of
Page 9 of 14
<PAGE> 10
Feridex I.V. in the United States. The Company also received approval
for GastroMARK(TM) on December 6, 1996. As a result of this action, the Company
received a milestone payment of $500,000 from its U.S. marketing partner,
Mallinckrodt Medical, Inc. There were no license fee revenues for the fiscal
quarter ended December 31, 1995,
Royalties for the fiscal quarter ended December 31, 1996 were $125,000 relating
mainly to the product launch of Feridex I.V. in the United States by Berlex.
Royalties for the fiscal quarter ended December 31, 1995 of were $75,000
associated primarily with European product sales of the Company's Feridex I.V.
and GastroMARK MRI contrast agents.
Product sales for the fiscal quarter ended December 31, 1996 were $666,462,
reflecting primarily the product launch of Feridex I.V. in the United States.
There were no product sales by the Company in the fiscal quarter ended December
31, 1995.
Interest, dividends and gains and losses on sales of securities resulted in
revenues of $746,446 in the fiscal quarter ended December 31, 1996 compared to
$451,859 for the fiscal quarter ended December 31, 1995. Interest, dividends and
net gains (losses) on sales of securities consisted of the following:
<TABLE>
<CAPTION>
First Quarter Ended December 31,
---------------------------------
1996 1995
-------- ---------
<S> <C> <C>
Interest Income .............. $312,971 $ 345,687
Dividend Income .............. 87,474 120,873
Net gains (losses) on sales of 346,001 (14,701)
securities
-------- ---------
Total $746,446 $ 451,859
</TABLE>
Interest income for the fiscal quarter ended December 31, 1996 was $32,716 less
than the fiscal year ended December 31, 1995. The decrease was primarily due to
the maturity of United States Treasury Notes and lower interest rates earned on
money market accounts in fiscal 1997. Dividend income of $87,474 for the year
ended December 31, 1996 was $33,399 less than the $120,873 for the fiscal year
ended December 31, 1995. The decrease was primarily due to a reduction in funds
invested in dividend paying preferred stock. There were net gains on sales of
securities of $346,001 for the fiscal year ended December 31, 1996 compared to a
net loss of $14,701 for the fiscal year ended December 31, 1995.
COSTS AND EXPENSES
The cost of product sales for the fiscal quarter ended December 31, 1996 was
$143,196 or 21% of product sales. There were no product sales and consequently
no associated costs for the fiscal quarter ended December 31, 1995.
Research and development expenses for the fiscal quarter ended December 31, 1996
were $2,296,576, an increase of 6% compared to $2,160,560 for the fiscal quarter
ended December 31, 1995. The increase was caused by a $400,000 one-time
milestone payment to one of its licensors relating to the approval of
GastroMARK. Excluding this one-time expense, research and development expenses
decreased by $263,984 as the Company reduced its staffing slightly compared to
the fiscal quarter ended December 31, 1995.
Selling, general and administrative expenses for the fiscal quarter ended
December 31, 1996 were $321,183, an increase of 10% from $290,984 for the fiscal
year ended December 31, 1995. The increase was due to the timing of certain
legal fees.
Page 10 of 14
<PAGE> 11
INCOME TAXES
There was no income tax provision for the fiscal quarter ended December
31, 1996 due to an estimated net operating loss carry-forward. There was no
income tax provision for the fiscal quarter ended December 31, 1995 because of a
net operating loss.
EARNINGS
In the fiscal quarter ended December 31, 1996, the Company recorded a net profit
of $4,276,953 or $0.63 per share. In the fiscal quarter ended December 31, 1995,
the Company recorded a net loss of $1,924,686 or $0.28 per share.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company's cash and cash equivalents totaled
$12,840,449, representing an increase of $2,034,607 from September 30, 1996. In
addition, the Company had marketable securities of $27,146,301 at December 31,
1996 as compared to $23,271,169 on September 30, 1996. Net cash provided by
operating activities was $4,062,902 in the fiscal quarter ended December 31,
1996 compared to net cash used in operating activities of $415,231 in the fiscal
quarter ended December 31, 1995. The increase in cash provided by operating
activities was primarily due to the $5,500,000 in license fees during the
quarter ended December 31, 1996. Cash used by investing activities was
$1,717,080 for the fiscal quarter ended December 31, 1996 compared to $1,804,100
generated by investing activities in the fiscal quarter ended December 31, 1995.
Cash provided by investing activities in the fiscal quarter ended December 31,
1996 included $2,676,288 from the sale of marketable securities. Offsetting
these proceeds was the purchase of marketable securities of $4,329,087 in the
fiscal quarter ended December 31, 1996. Cash used in investing activities in the
fiscal quarter ended December 31, 1995 included the purchase of marketable
securities of $1,450,162. Proceeds from the sale of marketable securities was
$2,435,833 and $1,000,000 from the maturing United States Treasury notes in the
fiscal quarter ended December 31, 1995. Cash used in financing activities was
$311,215 for the fiscal quarter ended December 31, 1996 principally as a result
of the purchase of 20,000 shares of the Company's common stock on the open
market for $311,203. In May 1996, the Board of Directors authorized the purchase
of up to 250,000 shares of the Company's common stock on the open market at
prevailing market prices.
Capital expenditures in the fiscal quarter ended December 31, 1996 were $64,281
compared to $181,571 in the fiscal quarter ended December 31, 1995, reflecting
the Company's efforts to upgrade existing equipment. Expenditures for research
and development for fiscal 1997 are expected to increase due to ongoing clinical
trials for the Company's development stage contrast agents.
Management believes that funds for future needs can be generated from existing
cash balances, cash generated from investing activities and cash generated from
operations. In addition, the Company will consider from time to time various
financing alternatives that may seek to raise additional capital through equity
or debt financing or to enter into corporate partnering arrangements. There can
be no assurance, however, that funding will be available on terms acceptable to
the Company, if at all.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," is effective for fiscal years beginning after December 15, 1995.
This statement establishes financial accounting and reporting standards for
stock based employee compensation plans. The Company adopted the "disclosure
only" alternative and accordingly this standard will have no impact on the
Company's results of operations or its financial position.
Page 11 of 14
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 11 Statement re: Computation of per share earnings
Exhibit 27.1 Financial Data Schedule (EDGAR filing only)
The Company did not file any current reports on Form 8-K during the
quarter ended December 31,1996.
Page 12 of 14
<PAGE> 13
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.
ADVANCED MAGNETICS, INC.
Date By /s/ Jerome Goldstein
---------------------------- -------------------------------------
Jerome Goldstein, President,
Treasurer and Chairman of the
Board of Directors
Date By /s/ James A. Matheson
---------------------------- -------------------------------------
James A. Matheson, Vice President
and Principal Accounting Officer
Page 13 of 14
<PAGE> 1
ADVANCED MAGNETICS, INC.
Exhibit 11 - Statement re: Computation of Per Share Earnings
Attached to and made part of Part II of Form 10-Q for the
Three-Month Periods Ended December 31, 1996 and 1995 (unaudited)
<TABLE>
<CAPTION>
December 31
-------------------------
1996 1995
--------- ---------
<S> <C> <C>
Weighted average number of shares issued and outstanding 6,742,358 6,756,072
Common stock equivalents ............................... 90,817 -0-
--------- ---------
As adjusted ............................................ 6,833,175 6,756,072
========= =========
</TABLE>
As a result of a net loss in the quarter ended December 31, 1995, common stock
equivalents are not included in the calculation of weighted average shares when
their effect would be antidilutive.
Page 14 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) FIRST
QUARTER 1997 10-Q REPORT
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,840,449
<SECURITIES> 27,146,301
<RECEIVABLES> 830,261
<ALLOWANCES> 0
<INVENTORY> 49,517
<CURRENT-ASSETS> 41,134,674
<PP&E> 12,614,730
<DEPRECIATION> 6,490,944
<TOTAL-ASSETS> 47,454,317
<CURRENT-LIABILITIES> 1,488,598
<BONDS> 0
0
0
<COMMON> 67,424
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 47,454,317
<SALES> 666,462
<TOTAL-REVENUES> 7,037,908
<CGS> 143,196
<TOTAL-COSTS> 2,760,955
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,276,953
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,276,953
<EPS-PRIMARY> .63
<EPS-DILUTED> 0
</TABLE>
