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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-10615
EMISPHERE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3306985
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
15 Skyline Drive 10532
Hawthorne, New York (Zip Code)
(Address of principal executive
offices)
(914) 347-2220
(Registrant s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be files by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for at least the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the Registant's common stock, $.01 par value,
outstanding as of December 10, 1996 was: 9,476,023.
Page 1 of 12
Exhibit Index on Page 10
<page 1>
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EMISPHERE TECHNOLOGIES, INC.
TABLE OF CONTENTS
October 31, 1996
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Page
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statement of Stockholders' Equity 5
Condensed Statements of Cash Flows 6
Condensed Notes to Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
<page 2>
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<TABLE>
EMISPHERE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
July 31, October 31,
1996 1996
----------- -----------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 11,904,674 $ 8,705,744
Marketable securities 6,332,817 9,637,393
Receivable due from Elan-Emisphere venture 494,450
Prepaid expenses and other current assets 289,769 188,178
---------- ----------
Total current assets 18,527,260 19,025,765
Equipment and leasehold improvements, at cost, net of
accumulated depreciation and amortization 1,450,862 1,460,712
Other assets 61,243 61,243
---------- ----------
Total assets $ 20,039,365 $ 20,547,720
========== ==========
Liabilities and Stockholders Equity:
Current liabilities:
Accounts payable $ 191,038 $ 270,297
Accrued compensation 211,826 211,826
Accrued professional fees 263,000 162,953
Accrued expenses 61,923 17,212
-------- --------
Total current liabilities 727,787 670,106
Investment deficiency in Elan-Emisphere venture 981,936
Deferred lease liability 44,823 42,252
-------- --------
Total liabilities 772,610 1,694,294
-------- ---------
Commitments and contingencies
Stockholders equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized,none issued and outstanding
Common stock, $.01 par value; 20,000,000 shares
authorized; 9,450,760 shares issued
(9,407,260 outstanding) at July 31,1996;
9,513,664 shares issued (9,470,164 outstanding)
at October 31, 1996 94,508 95,137
Additional paid-in capital 62,129,161 62,668,607
Accumulated deficit (42,735,810) (43,742,167)
Net unrealized (loss) gain on marketable securities (28,291) 24,662
----------- ----------
19,459,568 19,046,239
Less, common stock held in treasury, at cost;
43,500 shares (192,813) (192,813)
----------- ----------
Total stockholders equity 19,266,755 18,853,426
----------- -----------
Total liabilities and
stockholders equity $ 20,039,365 $ 20,547,720
=========== ===========
See accompanying notes to financial statements. The July 31, 1996 Condensed
Balance Sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
</TABLE>
<page 3>
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EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months
Ended October 31,
------------------------
1995 1996
---------- ------------
Contract revenues $ --- $ 1,994,450
---------- ----------
Costs and expenses:
Research and development 1,383,409 1,661,547
Loss in Elan-Emisphere venture --- 991,934
General and administrative expenses 615,900 603,645
---------- ----------
Total operating expenses 1,999,309 3,257,126
---------- ----------
Operating loss (1,999,309) (1,262,676)
---------- ----------
Other income:
Investment income 60,118 256,319
---------- ----------
Net loss $(1,939,191) $(1,006,357)
============ ============
Net loss per share $ (0.25) $ (0.11)
=========== ============
Weighted average number of shares outstanding 7,746,457 9,415,870
=========== ============
See accompanying notes to the financial statements
<page 4>
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<TABLE>
EMISPHERE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS EQUITY
For the three months ended October 31, 1996
Net
Unrealized
Additional Gain Common Stock
Common Stock Paid-in Accumulated (Loss) on Held In Treasury
------------------- Marketable
Shares Amount Capital Deficit Securities Shares Amount Total
-------- -------- ----------- ----------- ---------- ----- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1996 9,450,760 $ 94,508 $ 62,129,161 $(42,735,810) $ (28,291) 43,500 $(192,813) $ 19,266,755
Sale of common stock
under employee stock
purchase plans and
exercise of options 62,904 629 539,446 540,075
Change in net unrealized
gain(loss) on marketable
securities 52,953 52,953
Net loss (1,006,357) (1,006,357)
---------- --------- ----------- ------------ ------- ------ --------- ------------
Balance,October 31,1996 9,513,664 $ 95,137 $62,668,607 $(43,742,167) $ 24,662 43,500 $(192,813) $ 18,853,426
========= ======== =========== ============ ======== ====== ========== ============
See accompanying notes to financial statements
</TABLE>
<page 5>
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EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Increase (Decrease) in Cash and Cash Equivalents
Three Months
Ended October 31,
1995 1996
---------- ----------
Cash flows from operating activities
Net (loss) $ (1,939,191) $(1,006,357)
------------- ------------
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Loss in Elan-Emisphere venture 991,934
Depreciation and amortization 134,799 100,994
Decrease in deferred lease liability (2,569) (2,571)
Realized gain on sale of marketable
securities (335) (44)
Changes in assets and liabilities:
Receivable due from Elan-
Emisphere venture (494,450)
Prepaid expenses and other
current assets 13,819 101,591
Accounts payable and accrued expenses (16,897) (57,681)
Deposit from Elan plc 3,000,000
Investment in Elan-Emisphere (9,998)
--------- ---------
Total adjustments 3,128,817 629,775
--------- ---------
Net cash provided by (used
in) operating activities 1,189,626 (376,582)
--------- ---------
Cash flows from investing activities:
Capital expenditures (14,078) (110,844)
Purchases of marketable securities (4,478,856)
Proceeds from sales of marketable securities 129,004 1,227,277
--------- -----------
Net cash provided by (used
in)investing activities 114,926 (3,362,423)
--------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock
and warrants to Elan International Services ltd. 7,463,000
Proceeds from exercise of options and
employee stock purchases 179,655 540,075
--------- ---------
Net cash provided by 7,642,655 540,075
financing activities --------- ---------
Net increase (decrease) in
cash and cash equivalents 8,947,207 (3,198,930)
Cash and cash equivalents, beginning of period 2,226,156 11,904,674
---------- -----------
Cash and cash equivalents, end
of period $ 11,173,363 $ 8,705,744
============ ===========
See accompanying notes to financial statements
<page 6>
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EMISPHERE TECHNOLOGIES, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
1. Interim Financial Statements:
The interim Condensed Statements of Operations and Condensed Statements of
Cash Flows for the three months ended October 31, 1995 and 1996, and the
Condensed Balance Sheets as of July 31, and October 31, 1996, of Emisphere
Technologies, Inc. (the "Company"), have been prepared in accordance with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all information and disclosures necessary
for a presentation of the Company's financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. In the opinion of management, these financial statements
reflect all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the Company's financial position,
results of operations and cash flows for such periods. The results of
operations for any interim period are not necessarily indicative of the
results for the full year. These financial statements should be read in
conjunction with the financial statements and notes thereto contained in
the Company`s Annual Report on Form 10-K for the fiscal year ended July
31, 1996.
2. Elan-Emisphere Venture
During October 1996, the equally owned joint venture formed by the Company
and Elan Corporation plc, (the Elan-Emisphere venture or the Venture )
commenced operations. The Company accounts for its investment in the
Venture in accordance with the equity method of accounting. Since the
Venture s inception, the Company has contributed capital to the Venture of
approximately $10,000. For the period from inception to October 31, 1996,
the Venture incurred a net loss of approximately $1,984,000. The
Company s 50% share of such loss was approximately $992,000.
Contract revenue from the Venture, with respect to services provided by
the Company to the Venture, is recognized as the related service are
rendered. Such revenue for the three months ended October 31, 1996
totaled approximately $1,994,000.
Selected financial data of the Venture as of October 31,1996 and for the
period from inception to October 31, 1996 is as follows:
Balance Sheet Data
Current assets $3,030,000
Accounts payable (1) 494,000
Stockholder s equity 2,536,000
(1) Such amount is due to the Company at October 31, 1996.
Statement of Operations Data
Total revenue $ 10,000
Total expenses (2) 1,994,000
Net loss $ 1,984,000
(2) Such expenses related to services provided by the Company
<page 7>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the caption "Management s Discussion and
Analysis of Financial Conditions and Results of Operations" and elsewhere in
this report on Form 10-Q constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance, or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, the following:
uncertainties related to future testing results and viability of the Company's
products; the Company s dependence on partnerships with pharmaceutical and other
companies to develop, manufacture and commercialize products using the Company s
drug delivery technologies; the need to obtain regulatory approval for the
Company s products; the Company's dependence on the success of its joint venture
with Elan Corporation plc ( Elan ) for the development and commercialization of
an oral heparin product; the risk of technological obsolescence in a highly
competitive industry; the Company's dependence on patents and proprietary
rights; the Company's absence of profitable operations and need for additional
capital; the availability, terms and deployment of capital; the risk of product
liability and policy limits of product liability insurance; potential liability
for human clinical trials; the Company's dependence on key personnel,consultants
and collaborators; uncertain availability of third-party reimbursement for
commercial medical products; general business and economic conditions; and other
factors referenced in its report on Form 10-K for the fiscal year ended July 31,
1996.
General
Emisphere is a drug delivery company focused on the discovery and
application of proprietary synthetic chemical compounds that enable the oral
delivery of macromolecules and other compounds that are not currently
deliverable by oral means. Since its inception in 1986, the Company has devoted
substantially all of its efforts and resources to research and development
conducted on its own behalf and through collaborations with corporate partners
and academic research institutions. The Company has had no product sales to
date. The major sources of the Company's working capital have been proceeds
from its initial public offering in 1989, a second public offering in February
1993, private equity financing, the latest of which occurred with an affiliate
of Elan in October 1995, reimbursement of expenses and other payments from
corporate partners, the registered sale of one million shares of Common Stock to
two institutional investors in April 1996, and income earned on the investment
of available funds. The Company's operations are not significantly affected by
inflation or seasonality.
Results of Operations
The Company has since its inception generated significant losses from
operations. The Company does not expect to achieve profitability in the
foreseeable future. Profitability will ultimately depend on the Company's
ability to develop its lead product, an oral formulation of heparin, in
conjunction with the Company s joint venture with Elan (the Elan-Emisphere
Venture or the Venture ) or to develop other products in conjunction with
other partners. There can be no assurance that the development will be
completed or if completed, any regulatory agency will approve the final product.
Even if final products are developed and approved, there is no assurance that
sales will be sufficient to achieve profitability. If development of such
products is not achieved or approval not granted, the Company's prospects will
be materially affected.
The ability of the Company to reduce its operating losses in the near term
will be dependent upon, among other things, its ability to attract new
pharmaceutical and other companies who are willing to provide funding to the
Company for a portion of the Company's research and development with respect to
specific projects. While the Company is constantly engaged in discussions with
pharmaceutical and other companies, there can be no assurance that the Company
will enter into any additional agreements or that the agreements will provide
research and development revenues to the Company.
<page 8>
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Three Months Ended October 31, 1996 vs. Three Months Ended October 31, 1995:
For the three months ended October 31, 1996, the Company had revenues of
$1,994,450 from the Elan-Emisphere Venture arising from work Emisphere performed
prior to October 31, 1996 in connection with the development of an oral
formulation of heparin. For the three months ended October 31, 1995, the
Company had no contract revenue.
Total operating expenses for the fiscal quarter ended October 31, 1996
increased by approximately, $1,258,000 or 63%, as, compared to the fiscal
quarter ended October 31, 1995. The details of this increase are as follows:
Research and development costs increased by approximately $278,000, or
20%, in the fiscal quarter ended October 31, 1996, as compared to the fiscal
quarter ended October 31, 1995. This increase is mainly attributable to
increased personnel and related expenses associated with the Company s
development of an oral heparin formulation. The Company also experienced an
increase in funding of outside consultants and universities engaged to conduct
studies to help advance the Company s scientific research efforts. The Company
believes that this level of research and development spending will continue for
the foreseeable future and may increase if operations are expanded.
General and administrative expenses decreased by approximately $12,000, or
2%, in the fiscal quarter ended October 31, 1996, as compared to the fiscal
quarter ended October 31, 1995. This decrease is primarily the result of a
reduction in legal and other professional fees associated with the settlement of
a class action lawsuit and the completion of the letter of intent with Elan plc.
The reduction was partially offset by an increase in personnel and related
expenses to support the companys ongoing corporate development efforts.
The Company's other income in the quarter ended October 31, 1996
increased by approximately $196,000 from that of the fiscal quarter ended
October 31, 1995. The increase was due to a larger investment portfolio and
higher returns on investments.
Based on the above, the company sustained a net loss for the first quarter
of fiscal 1997 of $1,006,357, a 48% decrease over the 1996 fiscal first quarter
loss of $1,931,191.
Liquidity and Capital Resources
As of October 31, 1996, the Company had working capital of approximately
$18,356,000 as compared with approximately $17,799,000 at July, 31, 1996. Cash
and cash equivalents and marketable securities were approximately $18,343,000 as
of October 31, 1996, as compared to approximately $18,237,000 at July 31, 1996.
The increase in the Company's cash and cash equivalents and marketable
securities was primarily due to the exercise of options and reimbursement from
the Elan-Emisphere Venture for certain development costs, partially offset by
cash used to fund operations in the first fiscal quarter of 1997.
Elan and the Company finalized the terms and provisions of the Elan-
Emisphere Venture on September 26, 1996. In connection with the Venture, Elan
has provided $4,500,000 to the Venture of which $1,500,000 has been paid to the
Company. The remaining $3,000,000 will be applied by the Venture primarily for
future research and development expenses. After expenditure of such $3,000,000,
Emisphere will be responsible for one-half of the Venture cash needs upon the
Ventures request. Emisphere s funding of the Venture is not expected to commence
until the fiscal year ending July 31, 1998. The Company and Elan are sharing the
financial benefits and expense obligations of the Venture on a 50/50 basis and
they have equal representation on the Board of Directors of the Venture.
The Company expects to incur substantial research and development expenses
associated with the development of the Company's oral drug delivery system. As
a result of the ongoing research and development efforts of the Company,
management believes that the Company will continue to incur operating losses and
that, potentially, such losses could increase. The Company expects to need
substantial resources to continue its research and development efforts. Under
present operating assumptions, the Company expects that cash, cash equivalents
and marketable securities will be adequate to meet its liquidity and capital
requirements through the second quarter of fiscal 1998. Thereafter, the Company
would need to seek additional funds, primarily in the public and private equity
markets, and to the extent necessary and available, through debt financing. The
Company has no firm agreements with respect to any additional financing and
there can be no assurance that the Company would be able to obtain adequate
funds on acceptable terms. If adequate funds were not available, the Company
would be required to delay, scale back, or eliminate one or more of its research
or development programs, or obtain funds, if available, through arrangements
with collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates, or products that the
Company would not otherwise relinquish. The Company does not maintain any
credit lines with financial institutions.
<page 9>
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Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-k
(a) Exhibits Page
11. Statement of computation of per share data 11
(b) Reports
No Reports on Form 8-K were filed by the Registrant during the
quarter ended October 31, 1996.
<page 10>
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Exhibit 11
EMISPHERE TECHNOLOGIES, INC.
STATEMENT OF COMPUTATION OF PER SHARE DATA
Three months ended
--------------------------------------------------------
October 31, 1995 October 31, 1996
-------------------------- --------------------------
Primary Fully Primary Fully
Diluted Diluted
Net loss $(1,939,191) $(1,939,191) $(1,006,357) $(1,006,357)
Interest earned on
excess proceeds 79,658
------------ ------------ ------------ ------------
Adjusted net loss $(1,939,191) $(1,939,191) $(1,006,357) (926,699)
============ ============ ============ ============
Weighted average number
of common shares
outstanding 7,746,457 7,746,457 9,415,870 9,415,870
Shares issuable upon
exercise of
outstanding options
and warrants 349,669 3,485,221
Shares assumed to be
repurchased under
the treasury stock
method 201,871 1,881,452
------------ ------------ ------------ ------------
7,746,457 7,894,255 9,415,870 11,019,639
============ ============ ============ ============
NET LOSS PER SHARE $ (0.25) $ (0.25) $ (0.11) $ (0.08)
============ ============ ============ ============
<page 11>
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SIGNATURE
Pursuant to the requirement 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.
Emisphere Technologies, Inc.
Dated: December 13, 1996 Michael M. Goldberg, M.D.
-------------------------
Michael M. Goldberg, M.D.
Chairman, and Chief Executive Officer
Joseph D. Poveromo, C.P.A.
--------------------------
Joseph D. Poveromo, C.P.A.
Controller (Principal Financial
and Accounting Officer)
<page 12>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summery financial information extracted from Emisphere
Technologies, Inc. 1997 first Quarter 10-q and is qualified in its entirety by
referance to such 10-q filing
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 8,705,744
<SECURITIES> 9,637,393
<RECEIVABLES> 494,450
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,025,765
<PP&E> 1,460,712
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,547,720
<CURRENT-LIABILITIES> 670,106
<BONDS> 0
0
0
<COMMON> 95,137
<OTHER-SE> 18,758,289
<TOTAL-LIABILITY-AND-EQUITY> 20,547,720
<SALES> 0
<TOTAL-REVENUES> 1,994,450
<CGS> 0
<TOTAL-COSTS> 3,257,126
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,006,357)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,006,357)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,006,357)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.08)
</TABLE>
