<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File No.
September 30, 1996 0-18231
ATRIX LABORATORIES, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1043826
- --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
2579 Midpoint Drive
Fort Collins, Colorado 80525
- --------------------------------------------------------------------------------
(Address of principal (Zip Code)
executive offices)
(970) 482-5868
-----------------------------------------------------
(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
-------- -------
As of October 21, 1996, there were 11,094,729 issued and outstanding
shares of the Registrant's $.001 par value common stock.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATRIX LABORATORIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30, 1996
1995
---------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 925,487 $ 21,284,381
Marketable securities, available-for-sale, at fair value 10,996,847 5,889,559
Accounts receivable 190,665 560,854
Interest receivable 112,303 54,435
Prepaid expenses and deposits 572,751 619,641
Inventory 202,264 337,404
---------------------------------------
Total current assets 13,000,317 28,746,274
---------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment 1,847,164 5,730,289
Leasehold improvements 506,190 545,593
---------------------------------------
Total 2,353,354 6,275,882
---------------------------------------
Accumulated depreciation (1,133,864) (1,517,953)
---------------------------------------
Property, plant and equipment, net 1,219,490 4,757,929
---------------------------------------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of 674,116 775,239
$52,240 and $65,308
---------------------------------------
TOTAL $ 14,893,923 $ 34,279,442
=======================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 1,862,850 $ 990,435
Accrued salaries and payroll taxes 72,199 80,217
Other accrued liabilities 152,108 155,980
---------------------------------------
Total current liabilities 2,087,157 1,226,632
---------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value; authorized 5,000,000
shares; none issued or outstanding
Common stock, $.001 par value; authorized 25,000,000 shares; 8,433 11,095
8,433,296 and 11,094,729 shares issued and outstanding
Additional paid-in capital 43,889,473 72,192,539
Unrealized holding loss on marketable securities, available- (35,176) (242,957)
for-sale
Accumulated deficit (31,055,964) (38,907,867)
---------------------------------------
Total shareholders' equity 12,806,766 33,052,810
---------------------------------------
TOTAL $ 14,893,923 $ 34,279,442
=======================================
</TABLE>
See notes to financial statements
2
<PAGE> 3
ATRIX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
REVENUE: 1995 1996
----------------------------------
<S> <C> <C>
Sales $ --- $ 163,367
Contract revenue 169,250 343,571
Interest income 253,562 421,045
Rental income --- 5,444
Gain (loss) on sale of marketable securities (3,468) ---
Gain (loss) on sale of equipment (1,702) 32,258
----------------------------------
Total revenue 417,642 965,685
----------------------------------
EXPENSES:
Cost of goods sold --- 77,702
Research and development
o ATRIDOX(TM) product 1,607,047 1,025,620
o Other 905,896 1,210,127
Administrative and marketing 161,920 1,094,750
Acquisition of rights 3,703,521 ---
----------------------------------
Total expenses 6,378,384 3,408,199
----------------------------------
NET LOSS $ (5,960,742) $ (2,442,514)
==================================
NET LOSS PER COMMON SHARE $ (0.76) $ (0.22)
==================================
WEIGHTED AVERAGE SHARES OUTSTANDING 7,883,307 11,083,217
==================================
</TABLE>
See notes to financial statements
3
<PAGE> 4
ATRIX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
REVENUE: 1995 1996
---------------------------------
<S> <C> <C>
Sales $ --- $ 283,328
Contract revenue 413,916 745,142
Interest income 798,253 858,594
Rental income --- 5,444
Gain (loss) on sale of marketable securities (3,468) 36,419
Gain (loss) on sale of equipment (1,702) 32,272
---------------------------------
Total revenue 1,206,999 1,961,199
---------------------------------
EXPENSES:
Cost of goods sold --- 165,316
Research and development
o ATRIDOX(TM) product 4,177,603 3,813,512
o Other 2,638,167 3,578,008
Administrative and marketing 620,227 2,256,266
Acquisition of rights 3,810,507 ---
---------------------------------
Total expenses 11,246,504 9,813,102
---------------------------------
NET LOSS $ (10,039,505) $ (7,851,903)
=================================
NET LOSS PER COMMON SHARE $ (1.28) $ (0.80)
=================================
WEIGHTED AVERAGE SHARES OUTSTANDING 7,857,419 9,832,847
=================================
</TABLE>
See notes to financial statements
4
<PAGE> 5
ATRIX LABORATORIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Additional Unrealized Total
Common Stock Paid-in Holding Accumulated Shareholders'
Shares Capital Loss Deficit Equity
Amount
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 8,433,296 $8,433 $43,889,473 $ (35,176) $(31,055,964) $12,806,766
Exercise of stock options 73,933 74 461,677 --- --- 461,751
Issuance of common stock 2,587,500 2,588 27,841,389 --- --- 27,843,977
Unrealized holding loss --- --- --- (207,781) --- (207,781)
Net loss for the period --- --- --- --- (7,851,903) (7,851,903)
-----------------------------------------------------------------------------------
BALANCE, September 30, 1996 11,094,729 $11,095 $72,192,539 $(242,957) $ (38,907,867) $33,052,810
===================================================================================
</TABLE>
See notes to financial statements
5
<PAGE> 6
ATRIX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,039,505) $ (7,851,903)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 260,308 386,680
(Gain) loss on sale of equipment 1,703 (32,272)
Amortization of patents 10,363 13,068
Amortization of bond premiums 143,573 39,780
(Gain) loss on sale of marketable securities 3,467 (36,419)
Write-off of obsolete patents 5,507 4,942
Acquisition of rights through issuance of common stock 3,520,958 ---
Net changes in current assets and liabilities:
Accounts receivable 56,794 (370,189)
Interest receivable (26,944) 57,868
Prepaid expenses and deposits (255,047) (46,890)
Inventory (197,249) (135,140)
Accounts payable - trade 317,927 (872,415)
Accrued salaries and payroll taxes 3,936 8,018
Other accrued liabilities (31,572) 3,872
Deferred revenue (59,999) ---
-----------------------------
Net cash used in operating activities (6,285,780) (8,831,000)
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (342,359) (4,021,236)
Acquisition of leasehold improvements (29,297) (39,403)
Investments in intangible assets (101,900) (119,134)
Proceeds from sale of property, plant and equipment 450 167,560
Proceeds from sale of marketable securities 1,567,099 4,070,501
Proceeds from maturities of marketable securities 3,140,800 1,000,000
Investment in marketable securities (167,940) (174,122)
-----------------------------
Net cash provided by investing activities 4,066,853 884,166
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and exercise
of stock options 376,000 28,305,728
-----------------------------
Net cash provided by financing activities 376,000 28,305,728
-----------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,842,927) 20,358,894
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,880,275 925,487
-----------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 37,348 $ 21,284,381
=============================
</TABLE>
See notes to financial statements
6
<PAGE> 7
ATRIX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements of Atrix Laboratories,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial statements and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of
management, all adjustments considered necessary (which consist only of normal
recurring accruals) for a fair presentation have been included. These
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the year ended December 31, 1995, filed with
the Securities and Exchange Commission in the Company's Annual Report Form
10-K.
2. INVENTORIES
Inventories are stated at the lower of cost, determined by the
first-in, first out (FIFO) method, or market. The components of inventories at
September 30, 1996 are:
Raw Materials $ 263,114
Work in Process 6,303
Finished Goods 67,987
-----------------
$ 337,404
=================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The statements contained in this report, if not historical, are
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve risks and uncertainties that could
cause actual results to differ materially from the financial results described
in such forward looking statements. These risks and uncertainties include,
among others, whether the Company will receive regulatory approval to market
any products besides the ATRISORB(R) Barrier product, the results of current
and future clinical trials, the time, costs and expenses associated with the
regulatory approval process for products. The success of the Company's
business operations is in turn dependent on factors such as the effectiveness
of the Company's marketing strategies to market its current and any future
products, the Company's ability to manufacture products on a commercial scale,
the appeal of the Company's mix of products, the Company's success at entering
into and collaborating with others to conduct effective strategic alliances and
joint ventures, general competitive conditions within the biotechnology and
drug delivery industry and general economic conditions. Further, any forward
looking statement or statements speak only as of the date on which such
statement or statements were made, and the Company undertakes no obligation to
update any forward looking statement or statements to reflect events or
circumstances after the date on which such statement
7
<PAGE> 8
is made or to reflect the occurrence of unanticipated events. Therefore,
forward looking statements should not be relied upon as a prediction of actual
future results.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1995
Sales recorded during the three months ended September 30, 1996,
primarily represents revenue from sales of the ATRISORB(R) Barrier product in
the United States. The Company had no product sales during 1995.
Contract revenue represents revenue the Company received from grants
and from unaffiliated third parties for performing contract research and
development activities utilizing the ATRIGEL(R) system, and was approximately
$344,000 for the three months ended September 30, 1996, compared to
approximately $169,000 for the three months ended September 30, 1995,
representing a 104% increase. The increased revenues are primarily due to the
Company being awarded two federal research grants during the current year.
Interest income for the three months ended September 30, 1996, was
approximately $421,000 compared to approximately $254,000 for the three months
ended September 30, 1995. Interest income for the current quarter increased
over the comparable period in the prior year due to a substantial increase in
principal investments as a result of the investment of approximately
$27,000,000 from the proceeds of the common stock offering completed in May
1996.
Rental income for the three months ended September 30, 1996, was
approximately $5,000 and was derived from leasing space at the Company's
newly-acquired manufacturing facility. The Company had no rental income during
1995.
A gain on the sale of equipment of approximately $32,000 was
recognized during the three months ended September 30, 1996, compared to a loss
on the sale of equipment of approximately $2,000 for the three months ended
September 30, 1995. The gain for the current quarter related to the sale of
certain equipment purchased with the manufacturing facility in July 1996.
There were no sales of marketable securities for the three months
ended September 30, 1996, whereas a loss on the sale of marketable securities
of approximately $3,000 was realized for the comparable period in 1995. The
proceeds from the sale of marketable securities during 1995 were used to fund
normal operations.
Cost of goods sold for the three months ended September 30, 1996 was
primarily associated with the launch of the Company's first dental product,
the ATRISORB(R) Barrier product.
8
<PAGE> 9
Research and development expenses - ATRIDOX(TM) product for the three
months ended September 30, 1996, were approximately $1,026,000 compared to
approximately $1,607,000 for the three months ended September 30, 1995
representing a 36% decrease. Expenses for the ATRIDOX(TM) product were lower
than in the previous year due to the completion of Phase III clinical trials in
May 1996.
Other research and development expenses included activities for the
development of the ATRISORB(R) Barrier product and other research activities.
Other research and development expenses for the three months ended September
30, 1996, were approximately $1,210,000 compared to approximately $906,000 for
the three months ended September 30, 1995, representing a 34% increase. The
increase was primarily a result of hiring additional personnel in the
Manufacturing and Quality Assurance/Quality Control departments.
Administrative and marketing expenses increased to approximately
$1,095,000 for the three months ended September 30, 1996, compared to $162,000
for the three months ended September 30, 1995, representing a 576% increase.
The primary reasons for this increase were expenses related to the initiation
in the current year of marketing and sales efforts related to the ATRISORB(R)
Barrier product and increased general operating costs.
The Company recorded a net loss of approximately $2,443,000 for the
three months ended September 30, 1996, compared to a net loss of approximately
$5,961,000 for the three months ended September 30, 1995, representing a 59%
decrease. The decrease in net loss was primarily the result of the charge in
the previous year of approximately $3,704,000 associated with the acquisition
of Vipont Royalty Income Fund, Ltd.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1995
Sales recorded during the nine months ended September 30, 1996,
primarily represents revenue from sales of the ATRISORB(R) Barrier product.
The Company had no product sales during 1995.
Contract revenue represents revenue the Company received from grants
and from unaffiliated third parties for performing contract research and
development activities utilizing the ATRIGEL(R) system, and was approximately
$745,000 for the nine months ended September 30, 1996, compared to
approximately $414,000 for the nine months ended September 30, 1995,
representing a 80% increase. The increased revenues are partially due to the
Company being awarded two federal research grants during the second quarter of
the current year.
Interest income for the nine months ended September 30, 1996, was
approximately $859,000 compared to approximately $798,000 for the nine months
ended September 30, 1995, representing a 8% increase. Interest income was
higher than that of the comparable period in the prior year due to a reduction
in principal investments to fund general operations, offset by
9
<PAGE> 10
a substantial increase in principal investments during the second quarter as a
result of the receipt of $27,800,000 in proceeds from the common stock offering
completed in May 1996.
Rental income for the nine months ended September 30, 1996, was
approximately $5,000 and was derived from leasing space at the Company's
newly-acquired manufacturing facility. The company had no rental income
during 1995.
A gain on the sale of equipment of approximately $32,000 was
recognized during the nine months ended September 30, 1996, compared to a loss
on the sale of equipment of approximately $2,000 for the nine months ended
September 30, 1995. The gain for the current period related to the sale of
certain equipment purchased with the manufacturing facility in July 1996.
A gain on sale of marketable securities of approximately $36,000 was
realized for the nine months ended September 30, 1996, whereas a loss of
approximately $3,000 was realized for the comparable period in 1995. The
proceeds from the sale of marketable securities were used to fund normal
operations.
Cost of goods sold recorded for the nine months ended September 30,
1996 was primarily associated with the launch of the Company's first dental
product, the ATRISORB(R) Barrier product in certain European countries and the
United States.
Research and development expenses - ATRIDOX(TM) product for the nine
months ended September 30, 1996, were approximately $3,814,000 compared to
approximately $4,178,000 for the nine months ended September 30, 1995,
representing a 9% decrease due to the completion of Phase III clinical trials
in May 1996.
Other research and development expenses, which included activities for
the ATRISORB(R) Barrier product and other research activities for the nine
months ended September 30, 1996, were approximately $3,578,000 compared to
approximately $2,638,000 for the nine months ended September 30, 1995,
representing a 36% increase. The increase was primarily a result of hiring
additional personnel in the Manufacturing and Quality Assurance/Quality Control
departments.
Administrative and marketing expenses increased to approximately
$2,256,000 for the nine months ended September 30, 1996, compared to $620,000
for the nine months ended September 30, 1995, representing a 264% increase.
The primary reasons for this increase were expenses related to the initiation
of marketing and sales efforts related to the ATRISORB(R) Barrier product and
increased general operating costs.
The Company recorded a net loss of approximately $7,852,000 for the
nine months ended September 30, 1996, compared to a net loss of approximately
$10,040,000 for the nine months ended September 30, 1995, representing a 22%
decrease. The decrease in net loss was
10
<PAGE> 11
primarily the result of the charge in the previous year of approximately
$3,811,000 associated with the acquisition of Vipont Royalty Income Fund, Ltd.
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter of 1996, the Company completed the sale of
2,587,500 shares of common stock for $115/8 per share, which provided the
Company with net proceeds of approximately $27,844,000. The majority of the
proceeds were invested in commercial paper with A1P1 ratings, and the remaining
cash and cash equivalents were invested in interest bearing accounts to fund
the Company's short-term operations. The Company intends to use the net
proceeds of the offering to fund further research of its products,
commercialize its dental products in the United States and Europe, expand its
manufacturing capability, and for working capital purposes.
As of September 30, 1996, the Company had cash and cash equivalents of
approximately $21,284,000, marketable securities, available-for-sale, at fair
value of approximately $5,890,000 and other current assets of approximately
$1,572,000, for total current assets of approximately $28,746,000. Current
liabilities totaled approximately $1,227,000, which resulted in working capital
of approximately $27,519,000.
During the nine months ended September 30, 1996, the Company used net
cash in operating activities of $8,831,000. This was primarily a result of the
net loss for the period of approximately $7,852,000, adjusted for certain
non-cash expenses, and changes in other operating assets and liabilities as set
forth in the statement of cash flows.
Net cash provided by investing activities was approximately $884,000
during the nine months ended September 30, 1996, primarily as a result of the
proceeds from sales and maturities of marketable securities, offset by the
acquisition of property, plant and equipment.
Net cash provided by financing activities was approximately
$28,306,000. The increase was primarily the result of the issuance and sale of
2,587,500 shares of common stock during the second quarter.
The Company's long-term capital requirements will depend on numerous
factors, including the progress of the Company's research and development
programs, the time required to file and process regulatory approval
applications, the development of the Company's commercial manufacturing
facilities, the ability of the Company to obtain additional licensing
arrangements, and the demand for the Company's products, if and when approved.
Capital expenditures for the nine months ended September 30, 1996
totaled approximately $4,061,000 of which approximately $3,400,000 was for the
purchase of the new manufacturing facility and its existing equipment.
11
<PAGE> 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period ended
September 30, 1996.
12
<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.
ATRIX LABORATORIES, INC.
(Registrant)
November 11, 1996 By:/s/ John E. Urheim
- ----------------- -------------------------------------------
John E. Urheim
Vice Chairman of the Board of Directors and
Chief Executive Officer
November 11, 1996 By:/s/ Kimberly A. Marks
- ----------------- -------------------------------------------
Kimberly A. Marks
Corporate Controller, Assistant Secretary, and
Assistant Treasurer
<PAGE> 14
EXHIBIT INDEX
Exhibit
No. Exhibit Description
- ------- -------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 21,284,381
<SECURITIES> 5,889,559
<RECEIVABLES> 560,854
<ALLOWANCES> 0
<INVENTORY> 337,404
<CURRENT-ASSETS> 28,746,274
<PP&E> 6,275,882
<DEPRECIATION> (1,517,953)
<TOTAL-ASSETS> 34,279,442
<CURRENT-LIABILITIES> 1,226,632
<BONDS> 0
11,095
0
<COMMON> 0
<OTHER-SE> 33,041,715
<TOTAL-LIABILITY-AND-EQUITY> 34,279,442
<SALES> 283,328
<TOTAL-REVENUES> 1,961,199
<CGS> 165,316
<TOTAL-COSTS> 165,316
<OTHER-EXPENSES> 9,647,786
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,851,903)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,851,903)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,851,903)
<EPS-PRIMARY> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
