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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)[XQUARTERLY]REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2000
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 Number 1-10615
Emisphere Technologies, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3306985
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
765 Old Saw Mill River Road 10591
Tarrytown, New York (Zip Code)
(Address of principal executive offices)
(914) 347-2220
(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 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 Registrant's common stock, $.01 par value,
outstanding as of December 8, 2000 was 17,652,321.
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EMISPHERE TECHNOLOGIES, INC.
Index
<TABLE>
<CAPTION>
Page
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<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets as of October 31, 2000 and July 31,
2000.......................................................... 3
Condensed Statements of Operations for the three months ended
October 31, 2000 and 1999..................................... 4
Condensed Statements of Cash Flows for the three months ended
October 31, 2000 and 1999..................................... 5
Notes to Condensed Financial Statements....................... 6
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations..................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote for Security Holders.......... 9
Item 5. Other Information............................................. 9
Item 6. Exhibits and Reports on Form 8-K.............................. 10
SIGNATURES.............................................................. 11
</TABLE>
All other schedules and compliance information called for by the
instructions to Form 10-Q have been omitted because the required information is
not applicable or not present in amounts sufficient to require submission.
2
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Item 1. FINANCIAL STATEMENTS
EMISPHERE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
October 31, 2000 and July 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
October 31, July 31,
2000 2000
------------- -------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents...................... $ 24,031,582 $ 30,050,036
Investments.................................... 82,906,842 31,311,406
Prepaid expenses and other current assets...... 4,318,762 3,264,050
------------- -------------
Total current assets......................... 111,257,186 64,625,492
Equipment and leasehold improvements, net...... 12,859,085 10,606,596
Purchased technology, net...................... 7,691,889 7,832,595
Investments.................................... 96,189,790 146,431,837
Other assets................................... 60,164 60,164
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Total assets................................. $ 228,058,114 $ 229,556,684
============= =============
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable and accrued expenses.......... $ 3,521,497 $ 4,447,424
Note payable..................................... 24,187,500 23,381,250
Deferred revenue................................. 1,748,942 --
Deferred lease liability......................... 2,231,301 2,176,975
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Total liabilities............................ 31,689,240 30,005,649
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Stockholders' equity:
Preferred stock, $.01 par value; authorized
1,000,000 shares; none issued and outstanding
Common stock, $.01 par value; authorized
40,000,000 shares;
issued 17,693,248 shares (17,649,748
outstanding) as of October 31, 2000, and
issued 17,679,504 shares (17,636,004
outstanding) as of July 31, 2000.............. 176,932 176,795
Additional paid-in capital..................... 315,390,661 315,148,140
Note receivable from officer and director...... (804,344) (804,344)
Accumulated deficit............................ (118,459,130) (114,701,558)
Accumulated other comprehensive income......... 257,568 (75,185)
------------- -------------
196,561,687 199,743,848
Less, common stock held in treasury, at cost;
43,500 shares................................. (192,813) (192,813)
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Total stockholders' equity................... 196,368,874 199,551,035
------------- -------------
Total liabilities and stockholders' equity... $ 228,058,114 $ 229,556,684
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements
3
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EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended October 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended October 31,
------------------------
2000 1999
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<S> <C> <C>
Contract research revenues $ 1,145,527 $ 625,000
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Costs and expenses:
Research and development.......................... 5,535,683 8,147,985
General and administrative expenses............... 1,564,887 1,258,412
Depreciation and amortization..................... 679,786 596,578
----------- -----------
7,780,356 10,002,975
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Operating loss.................................. (6,634,829) (9,377,975)
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Investment income and expense:
Investment income................................. 3,685,510 274,158
Interest expense.................................. (808,253) (778,903)
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2,877,257 (504,745)
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Net loss............................................ $(3,757,572) $(9,882,720)
=========== ===========
Net loss per share, basic and diluted............... $ (0.21) $ (0.81)
=========== ===========
Weighted average shares outstanding, basic and
diluted............................................ 17,640,784 12,146,917
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
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EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended October 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended
October 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (3,757,572) $ (9,882,720)
------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash interest expense.................... 806,250 707,836
Depreciation and amortization................ 539,079 455,873
Amortization of purchased technology......... 140,706 140,705
Increase in deferred lease liability......... 54,326 37,620
Increase in deferred revenue................. 1,748,942 --
Amortization of deferred financing cost...... -- 21,015
Amortization of discount on investments...... 358,105 94
Changes in assets and liabilities............ (2,509,341) (789,968)
------------ ------------
Total adjustments.......................... 1,138,067 573,175
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Net cash (used in) operating activities...... (2,619,505) (9,309,545)
Cash flows from investing activities:
Proceeds from sales of investments............. 9,000,000 850,000
Purchases of investments....................... (10,378,741) --
Capital expenditures........................... (2,262,867) (137,942)
------------ ------------
Net cash (used in) provided by investing
activities.................................. (3,641,608) 712,058
Cash flows from financing activities:
Proceeds from exercise of options.............. 242,659 202,053
Redemption of senior convertible notes......... -- (2,647,603)
------------ ------------
Net cash provided by (used in) financing
activities.................................. 242,659 (2,445,550)
Net decrease in cash and cash equivalents.... (6,018,454) (11,043,037)
Cash and cash equivalents, beginning of period... 30,050,036 11,461,126
------------ ------------
Cash and cash equivalents, end of period......... $ 24,031,582 $ 418,089
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
5
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EMISPHERE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Interim Financial Statements
The accompanying unaudited condensed financial statements of Emisphere
Technologies, Inc. have been prepared in accordance with generally accepted
accounting principles for interim financial information and 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 Emisphere's
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles.
In the opinion of management, the accompanying Condensed Statements of
Operations for the three months ended October 31, 2000 and 1999, Condensed
Statements of Cash Flows for the three months ended October 31, 2000 and 1999,
and the Condensed Balance Sheets as of October 31, 2000 and July 31, 2000
reflect all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of Emisphere's financial position, results of
operations, and cash flows for such periods and as of such dates. These
financial statements should be read in conjunction with the financial
statements and notes thereto contained in Emisphere's Annual Report on Form 10-
K for the fiscal year ended July 31, 2000. The July 31, 2000 Condensed Balance
Sheet data were derived from audited financial statements, but do not include
all disclosures required by generally accepted accounting principles.
The results of operations for any interim period are not necessarily
indicative of the results for the full year.
Emisphere expects to incur a substantial increase in heparin solution
clinical development expenses during the remainder of fiscal 2001, as the
product candidate continues through its Phase III clinical trials. In addition,
we expect to expand development of our proprietary products, including oral
insulin, begin first in-human studies with our second generation carrier
technology, and increase our efforts under collaborative research agreements.
As a result, we expect to incur increasing operating losses in fiscal 2001 over
those incurred in fiscal 2000.
2. Net Loss Per Share
Net loss per share, basic and diluted, is computed using the weighted
average number of shares of Emisphere's common stock outstanding during the
period. Had Emisphere been in a net income position, diluted earnings per share
would have included the shares used in the computation of basic net loss per
share, as well as an additional 4,487,828 and 4,144,479 shares for the three
months ended October 31, 2000 and 1999, respectively, relating to outstanding
options (after application of the Treasury Stock Method).
3. Comprehensive Loss
Emisphere's comprehensive loss was comprised of net loss adjusted for the
change in net unrealized gain or loss on investments. Comprehensive loss
amounted to approximately $3.5 million and $9.8 million for the three months
ended October 31, 2000 and 1999, respectively.
4. Collaborative Research Agreements
Cubist Pharmaceuticals, Inc.
Emisphere entered into a research and development collaboration with Cubist
Pharmaceuticals, Inc. for the oral delivery of Cubist's product candidate
Cidecin(TM) (daptomycin for injection) and other lipopeptides. Under the terms
of the collaboration, Emisphere could receive milestone payments totaling $30
million should a product be successfully commercialized. Emisphere would also
receive a royalty on sales of any product resulting from the collaboration,
while Cubist would be responsible for drug development and would receive
exclusive worldwide commercialization rights to any oral products.
6
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Eli Lilly and Company
In connection with the development agreement with Eli Lilly and Company,
Emisphere received an advance payment of $2,000,000 for future research and
development funding. The payment was recorded as deferred revenue and
approximately $251,000 was recognized as research and development services were
performed in the fiscal quarter ended October 31, 2000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements included in this Management Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this quarterly report that
do not relate to present or historical conditions are "forward looking
statements" within the meaning of that term in Section 21E of the Securities
Exchange Act of 1934, as amended. Additional oral or written statements may be
made from time to time, and such statements may be included in documents filed
with the Securities and Exchange Commission. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievements of Emisphere to be
materially different from those expressed or implied by such forward-looking
statements. Such factors include, but are not limited to, those factors
referenced in Item 5 to this quarterly report. Emisphere encourages you to read
all statements in this quarterly report in conjunction with Item 5.
General
Emisphere is a biopharmaceutical company specializing in the oral delivery
of therapeutic macromolecules and other compounds that are not currently
deliverable by oral means. Since our inception in 1986, Emisphere 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. We have no product sales to date. Our major
sources of working capital have been proceeds from various public and private
equity and debt financings, reimbursement of expenses and other payments from
corporate partners, and income earned on the investment of available funds.
Neither inflation nor seasonality significantly affects our operations.
Results of Operations
Three Months Ended October 31, 2000 Compared to Three Months Ended October 31,
1999
Contract research revenues were $1.1 million in the first quarter of fiscal
2001, an increase of $0.5 million as compared to $0.6 million in the same
period of fiscal 2000. Revenues for the first quarter of fiscal 2001 related to
research and development expense reimbursement under our collaborative
agreements with Novartis Pharma AG, Eli Lilly and Company and Cubist
Pharmaceuticals, Inc. Costs of contract research revenues approximate such
revenues and are included in research and development expenses.
Total operating expenses were $7.8 million in the first quarter of fiscal
2001, a decrease of $2.2 million, or 22%, compared to the same period of fiscal
2000. The details of this decrease are as follows:
Research and development costs were $5.5 million in the first quarter of
fiscal 2001, a decrease of $2.6 million, or 32%, compared to the same period of
fiscal 2000. This decrease is due to the absence of $4.2 million of expenses
related to the start up of the heparin solution Phase III clinical trial,
incurred during the first quarter of fiscal 2000 and partially offset by an
increase of $1.6 million of expenses comprised of laboratory fees and salaries
associated with the increase in development programs and scientific staff.
General and administrative expenses were $1.6 million in the first quarter
of fiscal 2001, an increase of $0.3 million, or 24%, compared to the same
period of fiscal 2000. This increase is primarily the result of additional
staff needed to support our increased levels of research and development
activity.
7
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Depreciation and amortization costs were $0.7 million in the first quarter
of fiscal 2001, an increase of $0.1 million, or 14%, compared to the same
period of fiscal 2000. This increase resulted from amortization expenses for
leasehold improvements related to additional laboratory and office space.
As a result of the above, our operating loss was $6.6 million in the first
quarter of fiscal 2001, a decrease of $2.7 million as compared to $9.4 million
for the same period of fiscal 2000.
Other income and expense increased to approximately $2.9 million, compared
to a loss of $0.5 million in the comparative period of fiscal 2000. The change
is primarily the result of an increase in investment income of $3.4 million, as
compared to the same period of the prior fiscal year. This increase resulted
from higher cash and investment balances resulting from the sale of common
stock in the two follow-on public offerings completed in fiscal 2000.
Based on the above, we sustained a net loss of $3.8 million in the first
quarter of fiscal 2001, as compared to a net loss of $9.9 million in the same
period of fiscal 2000.
Liquidity and Capital Resources
As of October 31, 2000, total cash, cash equivalents and investments were
$203.1 million, a decrease of $4.7 million, as compared to the fiscal year
ended July 31, 2000.
Net cash used in operations was $2.6 million in the first three months of
fiscal 2001, as compared to $9.3 million in the first three months of fiscal
2000. The decrease in cash used in operations was primarily due to the
decreased rate of spending on our heparin solution Phase III clinical
development.
Capital expenditures were approximately $2.3 million in the first three
months of fiscal 2001, as compared to $0.1 million for the first three months
of fiscal 2000. The increase in capital expenditures is due to the build-out of
additional laboratory and office leased space.
Net cash generated from financing activities was approximately $0.2 million
in the first three months of fiscal 2001, as compared to net cash consumed of
$2.4 million in the first three months of fiscal 2000. The change was due to
the repayment of approximately $2.6 million of the remaining balance of a
senior convertible note payable in the first three months of fiscal 2000.
We expect to incur a substantial increase in heparin solution clinical
development expenses during the remainder of fiscal 2001 as the product
candidate continues through its Phase III clinical development. In addition, we
expect to expand development of our other proprietary products, including oral
insulin, begin first in-human studies with our second generation carrier
technology and increase our efforts under collaborative research agreements. As
a result, we expect to incur increasing operating losses in fiscal 2001 over
those incurred in fiscal 2000.
Emisphere expects its cash requirements to continue to increase due to
increases associated with further research and development of its technologies,
development of additional drug formulations, process development and general
and administrative costs. These costs include, but are not limited to,
increases in personnel and personnel related costs, purchases of capital
equipment and facilities expansion.
We expect that cash, cash equivalents, investments and the related projected
interest income, along with committed funding from our corporate partners, will
be adequate to meet our liquidity requirements for at least the next two years.
Impact of the Future Adoption of Recently Issued Accounting Standards
We do not currently believe that the future impact of Staff Accounting
Bulletin 101, "Revenue Recognition," issued by the Securities and Exchange
Commission, will have a material impact on our financial statements and future
revenue recognition policy. We expect to formally adopt this statement no later
than the fourth quarter of fiscal 2001.
8
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our primary investment objective is to preserve principal while maximizing
yield without significantly increasing our risk. Our investments consist of
U.S. Treasuries, commercial paper and corporate notes. Our investments totaled
$179.1 million at October 31, 2000. Approximately $99.7 million of these
investments had fixed interest rates, and $79.4 million had interest rates that
were variable.
Due to the conservative nature of our short-term fixed interest rate
investments, we do not believe that we have a material exposure to interest
rate risk. Our fixed interest rate long-term investments are sensitive to
changes in interest rates. Interest rate changes would result in a change in
the fair value of these investments due to differences between the market
interest rate and the rate at the date of purchase of the investment. A 100
basis point increase in the October 31, 2000 market interest rates would result
in a decrease of approximately $0.8 million in the market values of these
investments.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" (Item 2) and the notes to
Emisphere's unaudited financial statements (Item 1) as well as certain oral
statements made from time to time by representatives of the Company constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward looking statements include
(without limitation) statements regarding: planned or expected studies and
trials of oral formulations that utilize Emisphere's technology; the timing of
the development and commercialization of Emisphere's products; potential
products that may be developed using Emisphere's technology; the potential
market size, advantages or therapeutic uses of Emisphere's liquid oral heparin
formulation or any other product; and the sufficiency of Emisphere's available
capital resources to meet its funding needs. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may
cause Emisphere's actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. These factors include, among
others, the following: the success of Emisphere's oral heparin product and
Emisphere's ability to find a marketing partner to help us commercialize it;
prospects for Emisphere's salmon calcitonin product candidate in development
with a partner; the viability of Emisphere's product candidates, most of which,
other than liquid oral heparin, are in the early stages of development; the
need to obtain regulatory approval for Emisphere's liquid oral heparin and
other product candidates; Emisphere's dependence on collaborative partners to
develop and commercialize products; Emisphere's ability to fund such efforts
with or without partners and uncertainty as to the timing and outcome of
commercialization decisions made by Emisphere's collaborative partners;
Emisphere's absence of profitable operations and need for additional capital;
Emisphere's dependence on patents and proprietary rights; and other factors
described in this Report and Emisphere's Annual Report on Form 10-K for the
fiscal year ending July 31, 2000 under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Risk Factors" under
the sub-heading "Risks related to Emisphere Technologies."
9
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- -----------------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
10
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SIGNATURES
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.
<TABLE>
<S> <C>
/s/ Charles H. Abdalian, Jr. Chief Financial Officer
___________________________________________ (Principal Financial Officer)
Charles H. Abdalian, Jr.
/s/ Friedrich K. Pfetsch Controller and Chief
___________________________________________ Accounting Officer
Friedrich K. Pfetsch (Principal Accounting Officer)
</TABLE>
11
