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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended December 31, 1999
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: 0-18976
CELTRIX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 94-3121462
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
</TABLE>
2033 Gateway Place, Suite 600, San
Jose, CA 95110 (Address of principal
executive offices and zip code)
Registrant's Telephone Number: (408) 988-2500
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
As of December 31, 1999, the Registrant had outstanding 27,862,372 shares of
Common Stock.
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CELTRIX PHARMACEUTICALS, INC.
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of December 31, 1999
and March 31, 1999 ........................................................... 3
Condensed Consolidated Statements of Operations for the three- and nine-month
periods ended December 31, 1999 and 1998 ..................................... 4
Condensed Consolidated Statements of Cash Flows for the nine-month periods
ended December 31, 1999 and 1998 ............................................. 5
Notes to Condensed Consolidated Financial Statements ............................ 6
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................................ 9
PART II. OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds ....................................... 25
Item 6: Exhibits and Reports on Form 8-K ................................................ 27
SIGNATURES ............................................................................... 28
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PART I. FINANCIAL INFORMATION
CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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<CAPTION>
December 31, March 31,
1999 1999
------------ ---------
(Unaudited) (1)
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Assets
Current assets:
Cash and cash equivalents $ 1,243 $ 1,258
Receivables and other current assets 159 172
--------- ---------
Total current assets 1,402 1,430
Property and equipment, net 75 101
Assets held for sale 349 416
Intangible and other assets, net 2,581 2,554
--------- ---------
Total assets $ 4,407 $ 4,501
========= =========
Liabilities, Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 333 $ 547
Other accrued liabilities 360 674
--------- ---------
Total current liabilities 693 1,221
Series A convertible/exchangeable preferred stock 7,948 --
Stockholders' equity (deficit):
Common stock 272 251
Additional paid-in capital 136,141 133,437
Cumulative preferred stock dividend 281 --
Accumulated deficit (140,928) (130,408)
--------- ---------
Total stockholders' equity (deficit) (4,234) 3,280
Total liabilities, preferred stock and stockholders' --------- ---------
equity (deficit) $ 4,407 $ 4,501
========= =========
</TABLE>
(1) Derived from audited financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See accompanying notes.
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CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
1999 1998 1999 1998
--------- -------- -------- --------
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Revenues:
Product sales $ -- $ -- $ -- $ 10
Revenues from related parties 597 -- 629 --
Other revenues 25 21 83 69
-------- -------- -------- --------
622 21 712 79
Costs and expenses:
Research and development 290 615 629 6,432
General and administrative 489 496 1,424 1,725
Restructuring costs -- -- -- 5,178
-------- -------- -------- --------
779 1,111 2,053 13,335
-------- -------- -------- --------
Operating loss (157) (1,090) (1,341) (13,256)
Equity in loss from joint venture (963) -- (8,973) --
Interest income, net 21 14 74 121
-------- -------- -------- --------
Net loss $ (1,099) $ (1,076) $(10,240) $(13,135)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.04) $ (0.04) $ (0.39) $ (0.59)
======== ======== ======== ========
Shares used in basic and diluted per
share computation 26,837 24,583 26,548 22,235
======== ======== ======== ========
</TABLE>
See accompanying notes.
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CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
(Unaudited)
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Nine Months Ended
December 31,
-----------------------
1999 1998
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Cash flows from operating activities:
Net loss $(10,240) $(13,135)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 267 939
Write off of leasehold improvements -- 5,311
Reduction in deferred rent liability -- (890)
Equity in loss from Celtrix/Elan joint venture 8,973 --
Other adjustments related to changes in operating
accounts (514) (506)
-------- --------
Net cash used in operating activities (1,514) (8,281)
Cash flows from investing activities:
Investment in Celtrix/Elan joint venture (8,973) --
Decrease in available-for-sale securities -- 6,307
Proceeds from sale of fixed assets 67 359
Capital expenditures (3) (77)
Increase in intangible and other assets (265) (85)
-------- --------
Net cash (used in) provided by investing activities (9,174) 6,504
Cash flows from financing activities:
Proceeds from issuance of common stock, net 2,725 1,957
Proceeds from issuance of Series A convertible/
exchangeable preferred stock, net 7,948 --
Principal payments under lease obligations -- (8)
-------- --------
Net cash provided by financing activities 10,673 1,949
-------- --------
Net (decrease) increase in cash and cash equivalents (15) 172
Cash and cash equivalents at beginning of period 1,258 1,608
-------- --------
Cash and cash equivalents at end of period $ 1,243 $ 1,780
======== ========
</TABLE>
See accompanying notes.
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CELTRIX PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Interim Financial Statements
The condensed consolidated balance sheet as of December 31, 1999 and the
condensed consolidated statements of operations and cash flows for the three-
and nine-month periods ended December 31, 1999 and 1998, have been prepared by
the Company, without audit. In the opinion of management, the accompanying
unaudited interim condensed consolidated financial statements include all
adjustments, which include normal recurring adjustments, necessary to present
fairly the Company's financial position, results of its operations and its cash
flows. Interim results are not necessarily indicative of results to be expected
for a full fiscal year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the fiscal year ended March 31, 1999 in the
Company's Annual Report on Form 10-K.
2. Acquisition of Celtrix by Insmed Pharmaceuticals, Inc.
On December 1, 1999, the Company announced that it had entered into a
definitive agreement for Insmed Pharmaceuticals, Inc. (Insmed) to acquire
Celtrix. The acquisition of Celtrix by Insmed, a bioscience company focused on
the diagnosis and treatment of medical conditions associated with insulin
resistance, including type 2 diabetes and polycystic ovary syndrome (PCOS), is
subject to approval by the shareholders of both companies, as well as certain
other contingencies and is expected to close at the beginning of the second
quarter, 2000. At closing, each share of Celtrix will be exchanged for one share
in a newly formed holding company and each share of Insmed will be exchanged for
three and one-half shares. Prior to the closing of the financing described
below, Celtrix's current shareholders will hold approximately 43% and Insmed's
current shareholders will hold approximately 57% of the new company. The
exchange will be tax-free for both companies' shareholders. The newly formed
holding company expects to be a publicly traded company.
In connection with the merger, Insmed entered into an agreement to sell
5,632,678 shares of its common stock and warrants, exercisable for five years,
to purchase 6,901,344 shares of common stock of the newly formed holding
company. The proceeds from the financing will be approximately $34.5 million.
Subsequent to the financing, the new investors, Celtrix's current shareholders
and Insmed's current shareholders will hold approximately 22%, 34% and 44%,
respectively, of the outstanding common stock of the newly formed holding
company, on a fully diluted basis. Such sale is contingent upon completion of
the merger with Celtrix.
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3. Joint Venture with Elan Corporation, plc
On April 21, 1999, the Company entered into an agreement with Elan
Corporation, plc to establish a joint venture company (Celtrix Newco, Ltd.), a
company incorporated in Bermuda, for the development of SomatoKine to treat
osteoporosis using Elan's MEDIPAD Delivery System.
The joint venture company is initially owned 80.1% by Celtrix and 19.9% by
Elan. The joint venture company has licensed SomatoKine technology from Celtrix
and MEDIPAD technology from Elan. Celtrix initially invested $8.01 million in
the joint venture and Elan invested $1.99 million. At the time of closing, Elan
International Services, Ltd. (EIS) purchased $8.01 million of Celtrix Series A
Convertible/Exchangeable Preferred Stock, which, with all accrued and unpaid
dividends, is convertible into Celtrix Common Stock at a price of $2.006 per
share or exchangeable for an incremental 30.1% ownership in the joint venture to
a total of 50.0%. If the exchange right is exercised, the Series A
Convertible/Exchangeable Preferred Stock will be cancelled. The Company
anticipates the Series A Convertible/Exchangeable Preferred Stock will be
converted to Common Stock, in accordance with the terms of the agreement with
Elan, at the time of the proposed merger with Insmed Pharmaceuticals, Inc. (see
Note 2). The Series A Convertible/Exchangeable Preferred Stock pays a 5% annual
in-kind dividend. Although the Company owns 80.1% of the joint venture, the
joint venture is accounted for under the equity method of accounting, because
Elan has substantive participating rights that give them the ability to block
significant decisions proposed by the Company. In addition, Elan actively
participates in directing and carrying out the operating and capital activities
of the joint venture's business.
The agreement with Elan also provides, at Celtrix's option, for EIS to
purchase from time to time Series B Convertible Preferred Stock up to an amount
of $4.8 million, the proceeds from which sale will be used by Celtrix to fund
its share of the joint venture's operating expenses. Celtrix and Elan will be
reimbursed by the joint venture for research and development and administrative
work performed on behalf of the joint venture. The Series B Convertible
Preferred Stock is convertible into Celtrix Common Stock at a price of $2.006
per share and pays a 9% annual in-kind dividend. The obligation of Elan to
purchase Series B Preferred Stock will terminate at the time of the merger with
Insmed. See Note 2.
Elan received a $10 million license payment from the joint venture for the
use of MEDIPAD technology while Celtrix will have an 80% share in any future
proceeds related to the further development and commercialization of the
osteoporosis product (e.g. upfront payments, milestones or royalties) received
by the joint venture, regardless of ownership, until Celtrix is paid $10
million. Thereafter, Celtrix and Elan will share the joint venture's proceeds in
accordance with their ownership interests.
In April 1999, in a separate transaction, the Company issued 1,508,751
shares of Common Stock to Elan International Services, Ltd. at a price of $1.657
per share, amounting to $2.4 million (net of expenses).
The following summarizes financial information of Celtrix Newco, Ltd.
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Condensed Statement of Operations
Three Months Nine Months
Ended Ended
December 31, 1999 December 31, 1999
----------------- -----------------
(in thousands)
<S> <C> <C>
Costs and Expenses:
Research and development $ 840 $ 11,075
General and administrative 60 127
----- --------
Net Loss $(900) $(11,202)
===== ========
Company's Share of Net Loss $ 963(1) $ 8,973
===== ========
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(1) Includes an adjustment for advances to the joint venture by Celtrix.
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<CAPTION>
Condensed Balance Sheet
December 31, 1999
(in thousands)
-----------------------
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Current liabilities $ 1,202
Stockholders' equity $(1,202)
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4. Restructuring Charges
In September 1998, Celtrix announced a restructuring of the Company to
focus on the clinical development of SomatoKine, cease manufacturing operations
and significantly reduce the cash burn rate.
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As a result, the Company recognized a $5.2 million restructuring charge in the
quarter ended September 30, 1998. As of December 31, 1999, the Company held
$349,000 in certain equipment and fixed assets to be sold. There are no
restructuring liabilities remaining to be paid as of December 31, 1999.
5. Nasdaq Listing
In April 1999, the Company participated in an oral hearing before a Nasdaq
Listing Qualifications Panel regarding its compliance with Nasdaq National
Market Standards. The hearing was in response to notification received by the
Company from Nasdaq in January 1999 that the Company failed to comply with the
minimum net tangible assets requirement. On July 6, 1999, the Nasdaq panel
informed the Company that its listing would be moved from The Nasdaq National
Market to The Nasdaq SmallCap Market effective July 8, 1999, subject to its
continued compliance with SmallCap listing requirements.
6. Subsequent Events
In January 2000, certain investors holding warrants issued in connection
with the $2.0 million November 1998 private placement financing completed a
cashless exercise of 4,230,000 shares underlying such warrants which resulted in
the issuance of 3,384,000 shares of common stock to such investors on the basis
of a $2.75 share price.
In February 2000, an investor in the $14.0 million April 1997 private
placement financing exercised 820,344 warrants at an exercise price of $2.6818
per share, which generated $2.2 million in additional cash for the Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in Part I -- Item 1
of this Quarterly Report and the financial statements and notes thereto in the
Company's 1999 Annual Report on Form 10-K.
OVERVIEW
On December 1, 1999, the Company announced that it had entered into a
definitive agreement for Insmed Pharmaceuticals, Inc. to acquire Celtrix. The
following discussion is presented on the basis of Celtrix as an independent
entity. References to future activities are subject to change based upon
completion of the merger. See Note 2.
Celtrix Pharmaceuticals, Inc. is a biopharmaceutical company developing
novel therapeutics for the treatment of seriously debilitating, degenerative
conditions primarily associated with severe trauma, chronic diseases or aging.
The Company's focus is on regenerating lost tissue and metabolic processes
essential for the patient's health and quality of life. Ongoing product
development programs target severe osteoporosis (recovery from hip fracture
surgery), traumatic burns and diabetes. Other potential indications include
protein wasting diseases associated with cancer, AIDS, advanced kidney failure
and other life-threatening conditions.
The Company's development focus is on SomatoKine, a naturally occurring
complex comprised of the anabolic hormone insulin-like growth factor-I (IGF-I)
and its primary binding protein, BP3. IGF-I is known to play a major role in
diverse biological processes, including muscle and bone formation, tissue repair
and endocrine regulation. However, limitations associated with administering
free IGF-I therapeutically have proven significant because IGF-I does not
naturally exist in quantity free of its binding proteins. SomatoKine delivers
IGF-I complexed with BP3, which contains biological information important for
the body's natural regulation of IGF-I bioavailability and biodistribution, and
the resulting complex does not display the acute limitations seen in free IGF-I
administration.
Results from the Company's three earlier Phase I studies demonstrated that
the repeated or continuous administration of SomatoKine safely delivers IGF-I at
substantially higher dosage levels than have ever been achievable with free
IGF-I, increasing the peak blood concentration of IGF-I up to 35-times its
normal level. Furthermore, the elevated levels substantially stimulated bone and
connective tissue metabolism.
In early 1997, the Company initiated a Phase II clinical feasibility study
using SomatoKine to treat severe osteoporosis patients recovering from hip
fracture surgery. Following the trauma of hip fracture,
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patients typically suffer an accelerated loss of hip bone mineral density (BMD)
which predisposes them to a high risk of refracture. Final data from this Phase
II clinical feasibility study reveal significant treatment results in several
key measurements including hip bone mass and tests of functional ability. The
results suggest that SomatoKine amplifies the body's natural bone metabolism and
that short-term treatment with SomatoKine appears to have sustained effects. The
findings suggest the potential usefulness of SomatoKine for the treatment of
osteoporosis.
Based on these promising findings, in April 1999 the Company entered into
an agreement with Elan Corporation, plc to establish a joint venture company
(Celtrix Newco, Ltd.), a company incorporated in Bermuda, for the development of
SomatoKine to treat osteoporosis using Elan's MEDIPAD Delivery System. The joint
venture company is initially owned 80.1% by Celtrix and 19.9% by Elan. The joint
venture company has licensed SomatoKine technology from Celtrix and MEDIPAD
technology from Elan. Celtrix initially invested $8.01 million in the joint
venture and Elan invested $1.99 million. At the time of closing, Elan
International Services, Ltd. (EIS) purchased $8.01 million of Celtrix Series A
Convertible/Exchangeable Preferred Stock, which, with all accrued and unpaid
dividends, is convertible into Celtrix Common Stock at a price of $2.006 per
share or exchangeable for an incremental 30.1% ownership in the joint venture to
a total of 50.0%. If the exchange right is exercised, the Series A
Convertible/Exchangeable Preferred Stock will be cancelled. The Company
anticipates the Series A Convertible/Exchangeable Preferred Stock will be
converted to Common Stock, in accordance with the terms of the agreement with
Elan, at the time of the proposed merger with Insmed Pharmaceuticals, Inc. (see
Note 2). The Series A Convertible/Exchangeable Preferred Stock pays a 5% annual
in-kind dividend. Although the Company owns 80.1% of the joint venture, the
joint venture is accounted for under the equity method of accounting, because
Elan has substantive participating rights that give them the ability to block
significant decisions proposed by the Company. In addition, Elan actively
participates in directing and carrying out the operating and capital activities
of the joint venture's business.
The agreement with Elan also provides, at Celtrix's option, for EIS to
purchase from time to time Series B Convertible Preferred Stock up to an amount
of $4.8 million, the proceeds from which sale will be used by Celtrix to fund
its share of the joint venture's operating expenses. Celtrix and Elan will be
reimbursed by the joint venture for research and development and administrative
work performed on behalf of the joint venture. The Series B Convertible
Preferred Stock is convertible into Celtrix Common Stock at a price of $2.006
per share and pays a 9% annual in-kind dividend. The obligation of Elan to
purchase Series B Preferred Stock will terminate at the time of the merger with
Insmed. See Note 2.
Elan received a $10 million license payment from the joint venture for the
use of MEDIPAD technology while Celtrix will have an 80% share in any future
proceeds related to the further development and commercialization of the
osteoporosis product (e.g. upfront payments, milestones or royalties) received
by the joint venture, regardless of ownership, until Celtrix is paid $10
million. Thereafter, Celtrix and Elan will share the joint venture's proceeds in
accordance with their ownership interests.
In April 1999, in a separate transaction, the Company issued 1,508,751
shares of Common Stock to Elan International Services, Ltd. at a price of $1.657
per share, amounting to $2.4 million (net of expenses).
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In mid-1997, the Company began a Phase II clinical feasibility study in
severely burned patients. Severe burns patients typically have low IGF-I levels
which may be connected to the disruption of the biological processes that are
essential for efficient and successful healing and protection from
complications. Results provided evidence that SomatoKine improved the metabolic
processes involved in maintaining muscle protein. In addition, SomatoKine
appeared to have a positive effect on the heart function and immune system of
these severely burned patients. Clinical findings from this study may be used to
establish corporate partnership(s) for future development of SomatoKine in
severe burns.
Based upon the results of this Phase II clinical feasibility study in
severely burned patients, Celtrix applied for orphan drug status to the Food and
Drug Administration (FDA). In July 1999, the Company received notification from
the FDA that SomatoKine qualified for orphan designation for the treatment of
major burns that require hospitalization.
Other potential indications include protein wasting conditions associated
with cancer cachexia, AIDS, advanced kidney failure, and other life-threatening
conditions. Celtrix plans to pursue the use of SomatoKine in these areas through
corporate collaborations. SomatoKine's anabolic effects offer the potential to
preserve and restore muscle strength and mobility which are important for these
patients' survival and quality of life.
In July 1998, Celtrix initiated a Phase II feasibility study in diabetes.
This 12-patient study investigated SomatoKine's potential to increase
sensitivity to insulin and improve blood glucose control. In a cross-over study,
patients served as their own control group. All patients reacted positively to
SomatoKine. On average, while using SomatoKine, patients reduced exogenous
insulin by 49% and recorded a 23% reduction in blood sugar levels, while
improving glycemic control. Clinical findings from this study, released in first
calendar quarter 1999, will be used to establish corporate partnership(s) for
future development of SomatoKine in diabetes.
The Company has a product development, license and marketing agreement
with Genzyme Corporation ("Genzyme") for TGF-beta-2, a potential pharmaceutical
based on a naturally occurring compound which appears to play an important role
in regulating healthy cell functions. In December 1997, under amended terms, the
Company granted Genzyme expanded territory rights to TGF-beta-2 to include
Japan, China, Korea and Taiwan. Additionally, under a separate license
agreement, Genzyme was granted a worldwide royalty-bearing license to TGF-beta
antibodies and receptor technology. In October 1999, this agreement was amended
to indicate that the receptor technology sublicense is effective until the end
of the full term(s) for which the patent rights are issued. Genzyme has
completed a Phase II clinical study in dermal ulcers; Celtrix is not currently
pursuing an in-house TGF-beta-2 program.
Celtrix has not earned substantial revenues from product sales since
inception and at December 31, 1999 has an accumulated deficit of $141.0 million.
The Company's revenues to date consist principally
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of licensing and milestone payments from pharmaceuticals, research and
development funding, related party revenue, and to a lesser extent, sales of
products for use in research and assay applications. The Company expects to
incur additional operating losses, which may fluctuate quarter to quarter, for
at least the next several years as the Company continues its development
activities, including clinical trials.
In November 1998, the Company received notice from the Nasdaq Stock market
that it failed to comply with two Nasdaq continued listing requirements - the
minimum net tangible assets requirement and the minimum bid price requirement.
In January 1999, Nasdaq officials confirmed that the Company had regained
compliance with the minimum bid price requirement, but that it would be subject
to delisting if it failed to comply with the minimum net tangible assets
requirement. In response, the Company requested an oral hearing before a Nasdaq
Listing Qualifications Panel to present its plan to regain compliance with the
minimum net tangible assets requirement. Such plan was presented at an oral
hearing on April 1, 1999, and on July 6, 1999, the Nasdaq panel informed the
Company that its listing would be moved from The Nasdaq National Market to The
Nasdaq SmallCap Market effective July 8, 1999, subject to its continued
compliance with SmallCap listing requirements.
There can be no assurance that Celtrix will ever achieve either
significant revenues from product sales or profitable operations. To achieve
profitable operations, the Company, alone or with others, must successfully
develop, obtain regulatory approval for and market its potential products. No
assurance can be given that the Company's product development efforts will be
successfully completed, that required regulatory approvals will be obtained, or
that any products, if developed and introduced, will be successfully marketed or
achieve market acceptance.
RESULTS OF OPERATIONS
Celtrix incurred a net loss of $1.1 million and $10.2 million for the
three- and nine-month periods ended December 31, 1999, compared to $1.1 million
and $13.1 million for the same periods in 1998. Net loss per share was $0.04 for
the three-month periods ended December 31, 1999 and 1998. The reduction of
operating expenses in the three-month period ended December 31, 1999 was offset
by the Company's share of losses attributable to the joint venture company
formed by Celtrix and Elan Corporation, plc in April 1999. Net loss per share
decreased to $0.39 per share for the nine-month period ended December 31, 1999,
compared to $0.59 for the same period in 1998. The decrease in net loss and
basic and diluted net loss per share for the nine-month period ended December
31, 1999 reflects both the reduction of operating expenses since the September
1998 restructuring of the Company, and the absence of one-time restructuring
charges associated with that event. The decrease in net loss for the nine-month
period ended December 31, 1999 is partially offset by the Company's 80.1% share
of the joint venture company's losses, including the $10 million one-time
license fee paid by the joint venture company to Elan for the use of Elan's
MEDIPAD Delivery System technology.
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Revenues increased to $622,000 and $712,000 for the three- and nine-month
periods ended December 31, 1999 from $21,000 and $79,000 for the same periods in
1998. The increase is due primarily to related party revenue from the joint
venture formed by Celtrix and Elan Corporation, plc, which includes revenues for
services performed on behalf of the joint venture and the reimbursement at cost
for SomatoKine drug substance provided to the joint venture for use in the
clinical trial currently planned by the joint venture.
Operating expenses decreased to $779,000 and $2.1 million for the three-
and nine-month periods ended December 31, 1999 from $1.1 million and $13.3
million for the same periods in 1998. The decrease results from the
restructuring plan implemented by the Company in September 1998, which included
the discontinuation of manufacturing and a reduction of workforce.
Net interest income increased to $21,000 for the three-month period ended
December 31, 1999 from $14,000 for the same period in 1998, and decreased to
$74,000 for the nine-month period ended December 31, 1999 from $121,000 for the
same period in 1998, due primarily to the increase and decrease, respectively,
in average cash, cash equivalent and short-term investment balances.
In September 1998, Celtrix announced a restructuring of the Company to
focus on the clinical development of SomatoKine, and to significantly reduce its
cash burn rate. Since sufficient clinical grade SomatoKine has been manufactured
for the conduct of clinical trials over the next two years, the Company
discontinued its manufacturing operations. As part of the restructuring, the
Company reduced its work force by 69 employees, or approximately 90%, by the end
of calendar year 1998. The reduction in work force affected all levels of staff
in manufacturing and other functions. Also, as a result of discontinuing its
manufacturing operations, the Company is currently in the process of selling
certain equipment and other assets. The Company terminated its 69,000 square
foot facility lease in November 1998, and relocated to offices in San Jose,
California to support ongoing clinical and business development activities.
As a result of the restructuring, the Company recognized a $5.2 million
one-time charge in the quarter ended September 30, 1998, which included a net
$4.5 million non-cash charge for the write-off of leasehold improvements,
$358,000 for severance and benefit expenses, $250,000 related to certain
operating lease obligations and $75,000 in other restructuring-related charges.
LIQUIDITY AND CAPITAL RESOURCES
Celtrix has funded its activities with proceeds from private offerings,
research and development revenues from collaborative arrangements, lease and
debt financing arrangements, proceeds from liquidating its equity investments
and, to a lesser extent, other revenues and product sales.
Celtrix's cash and cash equivalents were approximately $1.2 million at
December 31, 1999 and March 31, 1999. Net proceeds of $10.7 million received
from the issuance of Common and Preferred Stock
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and proceeds from the sale of fixed assets were offset by cash outlays which
included $9.2 million used for investing activities, primarily in connection
with the joint venture company formed with Elan in April 1999, and $1.5 million
used in operating activities.
In April 1999, in connection with the closing of a joint venture agreement
with Elan Corporation, plc, Elan International Services, Ltd. purchased
1,508,751 shares of Celtrix Common Stock at a purchase price of $1.657 per
share, resulting in net proceeds to the Company of $2.4 million, which is
included in the $10.7 million described above.
In February 2000, an investor in the $14.0 million April 1997 private
placement financing exercised 820,344 warrants at an exercise price of $2.6818
per share, which generated $2.2 million in additional cash for the Company.
At December 31, 1999, the Company had working capital of $.7 million and
an accumulated deficit of $141.0 million, and incurred a net loss of $1.1
million for the quarter ended December 31, 1999. The Company has reduced its
burn rate to approximately $200,000 per month not including reimbursable
expenditures attributed to the joint venture formed by Celtrix and Elan
Corporation, plc. Accordingly, the Company expects its working capital, plus
$2.2 million in proceeds from the February 2000 exercise of warrants from the
April 1997 private placement financing, will be sufficient to fund operations
into the first half of 2001. The Company will be required to seek additional
funds to finance operations beyond that period. The joint venture transaction
with Elan Corporation, plc provides, at Celtrix's option, for the purchase by
Elan of additional Celtrix equity securities, the proceeds from which will be
used to fund the Company's share of anticipated clinical expenses associated
with the joint venture's large-scale trial in osteoporosis (recovery from hip
fracture surgery).
To minimize future dilution to stockholders from additional equity
financing, the Company plans to concentrate on establishing additional corporate
partner arrangements and other opportunities that will enable the continued
development of SomatoKine. Merger opportunities that are consistent with the
Company's clinical development of SomatoKine will also be considered. There can
be no assurance that the Company will be able to raise additional funds or enter
into further collaborative arrangements on terms favorable to the Company.
Notwithstanding the foregoing, on December 1, 1999 the Company announced its
intention to merge with Insmed Pharmaceuticals, Inc. (see Note 2).
The Company anticipates that it will be necessary to expend significant
capital resources to support further clinical development. Capital resources may
also be required for the acquisition of complementary businesses, products or
technologies. The Company's future capital requirements will depend on many
factors, including progress with its clinical trials, the time and costs
involved in obtaining regulatory approvals, the time and costs involved in
filing, prosecuting, enforcing and defending patent claims, competition in
technological and market developments, the establishment of and changes in
collaborative relationships and the cost of commercialization activities and
arrangements. The Company anticipates that it will be required to raise
substantial additional capital over a period of several years in order to
continue its clinical development programs and to prepare for commercialization.
Raising additional funds may result in further dilution to then-existing
shareholders. No assurance can be given that
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such additional funds will be available on reasonable terms, or at all. The
unavailability of such financing could delay or prevent the development and
marketing of the Company's potential products.
RISK FACTORS
Early Stage of Development; No Developed or Approved Products
The Company's potential products are in research and development and no
material revenues have been generated to date from product sales. To achieve
profitable operations, the Company, alone or with others, must successfully
develop, obtain regulatory approval for, manufacture and market its potential
products. Much of the clinical development work for the Company's potential
products remains to be completed. No assurance can be given that the Company's
product development effort will be successfully completed, that required
regulatory approval will be obtained or that any products, if developed and
introduced, will be successfully marketed or achieve market acceptance.
History of Operating Losses; Accumulated Deficit
The Company has incurred net operating losses in every year of operation
since its inception. As of December 31, 1999, the Company had an accumulated
deficit of approximately $141.0 million. Losses have resulted principally from
costs incurred in connection with the Company's research and development
activities and from general and administrative costs associated with the
Company's operations. The Company expects to incur substantial and increasing
operating losses for at least the next several years. The Company's ability to
achieve profitability will depend in part on completing the research and
development of, and obtaining regulatory approvals for, its products and
successfully commencing product commercialization.
Possible Volatility of Stock Price; Dividend Policy
Since the Company's Common Stock became listed for public trading, its
market price has fluctuated over a wide range and the Company expects that it
will continue to fluctuate. Like the market prices for securities of
biopharmaceutical and biotechnology companies generally, the Company's stock
price has from time to time experienced significant price and volume
fluctuations that are unrelated to the Company's operating performance. In
addition, announcements concerning the Company or its competitors, the results
of clinical trials, technological innovations or new commercial products,
government regulations, developments concerning proprietary rights, litigation
or public concern as to safety of the Company's potential products as well as
changes in general market conditions may have a significant effect on the market
price of Celtrix's Common Stock.
The Company has never paid cash dividends on its capital stock and the
Company does not anticipate paying any cash dividends in the foreseeable future.
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Future Capital Requirements and Uncertainty of Additional Funding
The Company anticipates that proceeds from recent financings, as well as
proceeds from the February 2000 exercise of warrants from the April 1997 private
placement financing, will be sufficient to fund the Company's operations into
the first half of 2001. Further development of the Company's products will
require the commitment of substantial resources to conduct the time-consuming
research and development, clinical studies and regulatory activities necessary
to bring any potential therapeutic products to market and to establish
production, marketing and sales capabilities. Such additional funding will need
to be raised through collaborative arrangements or through public or private
financings, including equity financing. The joint venture transaction with Elan
Corporation, plc in April 1999 provides, at Celtrix's option, for the purchase
by Elan of additional Celtrix equity securities, the proceeds from which will be
used to fund the Company's share of anticipated clinical expenses associated
with the joint venture's large-scale trial in osteoporosis (recovery from hip
fracture surgery). Any additional equity financing may be dilutive to
stockholders, and any debt financing, if available, may involve restrictions on
the Company's ability to pay future dividends on its capital stock or the manner
in which the Company conducts its business.
There can be no assurance that any such financing will be available to the
Company or on terms attractive to the Company, or that the Company can enter
into an additional collaborative relationship with a corporate partner for the
continuation of the clinical trials in its current indications.
Stringent Government Regulation; Need for Product Approvals
The preclinical testing and clinical trials of any compounds developed by
the Company or its collaborative partners and the manufacturing and marketing of
any drugs resulting therefrom are subject to regulation by numerous federal,
state and local governmental authorities in the United States, the principal one
of which is the United States Food and Drug Administration (the "FDA"), and by
similar agencies in other countries in which drugs developed by the Company or
its collaborative partners may be tested and marketed (each of such federal,
state, local and other authorities and agencies, a "Regulatory Agency"). Any
compound developed by the Company or its collaborative partners must receive
Regulatory Agency approval before it may be marketed as a drug in a particular
country. The regulatory process, which includes preclinical testing and clinical
trials of each compound in order to establish its safety and efficacy, can take
many years and requires the expenditure of substantial resources. Data obtained
from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or prevent Regulatory Agency approval.
In addition, delays or rejections may be encountered based upon changes in
Regulatory Agency policy during the period of drug development and/or the period
of review of any application for Regulatory Agency approval for a compound.
Delays in obtaining Regulatory Agency approvals could adversely affect the
marketing of any drugs developed by the Company or its collaborative partners,
result in the imposition of costly procedures upon the Company's and its
collaborative partners' activities, diminish any competitive advantages that the
Company or its collaborative partners may attain
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and adversely affect the Company's ability to receive royalties, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
There can be no assurance that, even after such time and expenditures,
Regulatory Agency approvals will be obtained for any compounds developed by or
in collaboration with the Company. Moreover, if Regulatory Agency approval for a
drug is granted, such approval may entail limitations on the indicated uses for
which it may be marketed that could limit the potential market for any such
drug. Furthermore, if and when such approval is obtained, the marketing and
manufacture of the Company's products would remain subject to extensive
regulatory requirements, and discovery of previously unknown problems with a
drug or its manufacturer may result in restrictions on such drug or
manufacturer, including withdrawal of the drug from the market. Failure to
comply with regulatory requirements could, among other things, result in fines,
suspension of regulatory approvals, operating restrictions and criminal
prosecution. In addition, Regulatory Agency approval of prices is required in
many countries and may be required for the marketing of any drug developed by
the Company or its collaborative partners in such countries.
Uncertainties Related to Clinical Trials
Before obtaining regulatory approvals for the commercial sale of any of
its products under development, the Company must demonstrate through preclinical
studies and clinical trials that the product is safe and efficacious for use in
each target indication. The results from preclinical studies and early clinical
trials may not be predictive of results that will be obtained in large-scale
testing, and there can be no assurance that the Company's clinical trials will
demonstrate the safety and efficacy of any products or will result in marketable
products. A number of companies in the biotechnology industry have suffered
significant setbacks in advanced clinical trials, even after experiencing
promising results in earlier trials. For example, in fiscal year 1995, Celtrix
discontinued its in-house TGF-beta-2 program for the treatment of ophthalmic
conditions as a result of disappointing clinical study results.
The rate of completion of the Company's clinical trials is dependent upon,
among other factors, the rate of patient enrollment. Patient enrollment is a
function of many factors, including the size of the patient population, the
nature of the protocol, the proximity of patients to clinical sites and the
eligibility criteria for the study. Delays in planned patient enrollment may
result in increased costs and delays, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
No Assurance of Market Acceptance
There can be no assurance that any products successfully developed by the
Company, if approved for marketing, will achieve market acceptance. The products
and therapies which the Company is attempting to develop will compete with a
number of well-established traditional drugs and therapies manufactured and
marketed by major pharmaceutical companies. The degree of market acceptance of
any
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products developed by the Company will depend on a number of factors, including
the establishment and demonstration in the medical community of the clinical
efficacy and safety of the Company's product candidates, their potential
advantage over existing treatment methods, and reimbursement policies of
government and third-party payors. Competitors may also develop new technologies
or products which are more effective or less costly than SomatoKine or perceived
to be more cost-effective. There is no assurance that physicians, patients or
the medical community in general will accept and utilize any products that may
be developed by the Company. The Company's business, financial condition and
results of operations may be materially adversely affected if SomatoKine does
not receive market acceptance for any reason.
Substantial Competition
In each of the Company's potential product areas, competition from large
pharmaceutical companies, biotechnology companies and other companies,
universities and research institutions is substantial. At least three large
biotechnology and pharmaceutical companies with substantial financial and legal
resources have patent applications on file in the United States and abroad
directed at the production of recombinant IGF-I by various methods. Relative to
the Company, most of these entities have substantially greater capital
resources, research and development staffs, facilities and experience in
conducting clinical trials and obtaining regulatory approvals, as well as in
manufacturing and marketing pharmaceutical products. Furthermore, the Company
believes that competitors have used, and may continue to use, litigation to gain
competitive advantage. In addition, these and other entities may have or develop
new technologies or use existing technologies that are, or may in the future be,
the basis for competitive products.
Any potential products that the Company succeeds in developing and for
which it gains regulatory approval will have to compete for market acceptance
and market share. For certain of the Company's potential products, an important
factor in such competition may be the timing of market introduction of
competitive products. Accordingly, the relative speed with which the Company can
develop products, complete the clinical testing and regulatory approval
processes and supply commercial quantities of the product to the market are
expected to be important competitive factors. The Company expects that
competition will be based, among other things, on product efficacy, safety,
reliability, availability, timing and scope of regulatory approval and price.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective than any that are
being developed by the Company or that would render the Company's technology and
products obsolete or noncompetitive. In addition, many of the Company's
competitors may achieve product commercialization or patent protection earlier
than the Company. The failure of the Company to compete effectively would have a
material adverse effect on the Company's business, financial condition and
results of operations.
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Dependence on Proprietary Technology; Uncertainty of Patent Protection
The Company's success will depend in part on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of others, both in the United States and in other countries.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are highly uncertain and involve complex legal
and factual questions. Patent law relating to the scope of claims in the
technology fields in which the Company operates is still evolving. The degree of
future protection for the Company's proprietary rights is therefore uncertain.
No consistent policy has emerged regarding the permissible breadth of coverage
of claims in biotechnology patents. Therefore, no assurance can be given that
any of the Company's or its licensors' patent applications will issue as patents
or that any such issued patents will provide competitive advantages for the
Company's products or will not be successfully challenged or circumvented by its
competitors. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary technology that is
not covered by the Company's patents or that others will not be issued patents
that may prevent the sale of the Company's proposed products or require
licensing and the payment of significant fees or royalties by the Company.
At least three large biotechnology and pharmaceutical companies with
substantial financial and legal resources have issued patents and/or patent
applications on file in the United States and abroad directed at the production
and/or use of recombinant IGF-I by various methods. The earliest date of filing
of these patent applications is April 25, 1983. Unless and until all of these
applications issue, it is not possible to determine the breadth of these claims
regarding a process for IGF-I production or for the use of IGF-I for any
particular indication. Furthermore, a large biotechnology and pharmaceutical
company with substantial financial and legal resources has a patent issued in
the United States directed towards certain DNA molecules encoding BP3 and the
corresponding BP3 protein. This same patent was previously granted in Europe and
was successfully opposed by Celtrix. However, this large biotechnology and
pharmaceutical company has recently appealed the decision and there can be no
assurance that the appeal will not be successful, and it is not possible to
determine what, if any, claims will be reinstated or the breadth of such claims.
In addition, this large biotechnology company has been issued patents directed
toward the administration of IGF-BP3 for certain limited areas of use. Each of
the referenced companies can be expected to defend its patent position
vigorously.
Celtrix has developed a new process for the production of IGF and BP3
which it does not believe will infringe on other patents relating to recombinant
protein production in general or on other patents relating to the production of
IGF and BP3 in particular, although there can be no assurance that a contrary
position will not be asserted. A large number of other companies have pending
patent applications and/or issued patents which claim certain methods of use of
IGF. There can be no assurance that third parties will not claim the Company's
technology, current or future products or manufacturing processes infringe the
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proprietary rights of others. If other companies were to successfully bring
legal actions against the Company claiming patent or other intellectual property
infringements, in addition to any potential liability for damages, then the
Company could be required to obtain a license in order to continue to use the
affected process or to manufacture or use the affected products or cease using
such products or process if enjoined by a court. Any such claim, with or without
merit, could result in costly litigation or might require the Company to enter
into royalty or licensing agreements, all of which could delay or otherwise
adversely impact the Company's potential products for commercial use. If any
licenses are required, there can be no assurance that the Company will be able
to obtain any such license on commercially favorable terms, if at all, and if
these licenses are not obtained, the Company might be prevented from pursuing
the development of certain of its potential products. The Company's breach of an
existing license or failure to obtain or delay in obtaining a license to any
technology that it may require to commercialize its products may have a material
adverse impact on the Company.
Litigation, which could result in substantial costs to the Company, may
also be necessary to enforce any patents issued or licensed to the Company or to
determine the scope and validity of another party's proprietary rights. There
can be no assurance that the Company's issued or licensed patents would be held
valid by a court of competent jurisdiction. An adverse outcome in litigation or
an interference or other proceeding in a court or patent office could subject
the Company to significant liabilities to other parties, require disputed rights
to be licensed from other parties or require the Company to cease using such
technology, any of which could have a material adverse effect on the Company.
Celtrix also relies on trade secrets to protect technology, especially
where patent protection is not believed to be appropriate or obtainable. Celtrix
attempts to protect its proprietary technology and processes in part by
confidentiality agreements with its employees, consultants and certain
contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors in such a manner that the Company has no practical
recourse. To the extent that the Company or its consultants or research
collaborators use intellectual property owned by others in their work for the
Company, disputes may also arise as to the rights in related or resulting
know-how and inventions.
Limited Manufacturing Experience and Capacity
The Company's products must be manufactured in compliance with regulatory
requirements and at acceptable costs. In September 1998, the Company implemented
a restructuring plan to focus its operation on the clinical development of its
lead drug compound, SomatoKine, and to reduce its cash burn rate. With
sufficient clinical grade SomatoKine to support the conduct of clinical trials
over the next two years, the Company discontinued its in-house manufacturing
operations. In the future, the Company will need to contract its manufacturing
operations or enter into corporate partnering arrangements that will support
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manufacturing of drug material to support additional clinical drug needs and
eventual commercial scale manufacturing. There can be no assurance that the
Company will be able to successfully identify and contract a third party
manufacturer to manufacture any of its current or future products on a
commercial scale, nor that such products can be manufactured at a cost or in
quantities to make commercially viable products. Failure to obtain sufficient
commercial quantities of SomatoKine at acceptable terms will have an adverse
impact on the Company's attempts to seek approval for this product, or to
commercialize this product.
Limited Sales and Marketing Experience
If the Company is permitted to commence commercial sales of products, it
will face commercial competition with respect to sales, marketing and
distribution, areas in which it has no experience. To market any of its products
directly, the Company must develop a marketing and sales force with technical
expertise and with supporting distribution capability. Alternatively, the
Company may obtain the assistance of a pharmaceutical company with a large
distribution system and a large direct sales force. There can be no assurance
that the Company will be able to establish sales and distribution capabilities
or be successful in gaining market acceptance for its proprietary products. To
the extent the Company enters into co-promotion or other licensing arrangements,
any revenues received by the Company will be dependent on the efforts of third
parties and there can be no assurance that such efforts will be successful.
Reliance on Qualified and Key Personnel
The Company is highly dependent on the principal members of its scientific
and management staff, the loss of whose services might significantly delay or
prevent the achievement of research, development, or business objectives.
Although the Company believes it has retained sufficient employees to achieve
its near-term business objectives after its reduction in force in September
1998, there can be no assurance that the loss of service of such employees would
not impede the Company's objectives. Furthermore, there can be no assurance that
the reduction in force will not adversely affect the Company's ability to retain
its remaining employees. The loss of key management or scientific personnel
could adversely affect the Company's continued business.
The Company's potential expansion into areas and activities requiring
additional expertise, such as further clinical trials, governmental approvals,
contract manufacturing and marketing, are expected to place additional
requirements on the Company's management, operational and financial resources.
These demands are expected to require an increase in management and scientific
personnel and the development of additional expertise by existing management
personnel. The failure to attract and retain such personnel or to develop such
expertise could materially adversely affect prospects for the Company's success.
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Product Liability; Availability of Insurance
The Company currently has in force general liability insurance, with
coverage limits of $3.0 million per incident and $4.0 million in the aggregate
annually, and product liability insurance with coverage limits of $1.0 million
per incident and $3.0 million in the aggregate annually. The Company's insurance
policies provide coverage for product liability on a claims made basis and
general liability on occurrence basis. These policies are subject to annual
renewal. Such insurance may not be available in the future on acceptable terms
or at all. There can be no assurance that the Company's insurance coverage will
be adequate or that a product liability claim or recall would not materially
adversely affect the business or financial condition of the Company.
The use of the Company's potential products or technology in clinical
trials and the sale of such products may expose the Company to liability claims.
Such risks exist even with respect to those potential products, if any, that
receive regulatory approval for commercial sale. Although Celtrix has taken and
will continue to take what it believes are appropriate precautions, there can be
no assurance that it will avoid significant product liability exposure. There
also can be no assurance that the Company's insurance coverage will be adequate
or that a product liability claim or recall would not materially adversely
affect the business or financial condition of the Company.
Concentration of Stock Ownership
As of December 31, 1999 the Company's directors and officers and their
affiliates beneficially owned approximately 28% of the outstanding Common Stock.
As a result, these stockholders have been able to exercise significant influence
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. Such concentration
of ownership may have the effect of delaying or preventing a change in control
of the Company.
Impact of Year 2000
Many computer systems experience problems handling dates beyond the
year 1999. Therefore, certain computer hardware and software was
upgraded or modified before the Year 2000 in order to remain functional.
Celtrix has assessed the impact of Year 2000 on its existing software and
systems. Celtrix believes it implemented successfully the systems and software
changes necessary to address the Year 2000 issues, and does not believe that
the costs of such actions will have a material effect on Celtrix's results of
operations or financial condition. However, it is unknown the extent, if any,
of the impact of the Year 2000 on other systems and equipment of third parties
with which the Company does business. There can be no assurance that third
parties will address the Year 2000 issue in a timely fashion, or at all. Any
Year 2000 compliance problem or delay of either the Company, its suppliers, its
clinical research organizations, or its collaborative partners could have a
material adverse effect on the Company's business, operating results and
financial conditions.
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Nasdaq Issues
In November 1998, the Company received notice from the Nasdaq Stock market
that it failed to comply with two Nasdaq continued listing requirements - the
minimum net tangible assets requirement and the minimum bid price requirement.
In January 1999, Nasdaq officials confirmed that the Company had regained
compliance with the minimum bid price requirement, but that it would be subject
to delisting if it failed to comply with the minimum net tangible assets
requirement. In response, the Company requested an oral hearing before a Nasdaq
Listing Qualifications Panel to present its plan to regain compliance with the
minimum net tangible assets requirement. Such plan was presented at an oral
hearing on April 1, 1999, and on July 6, 1999, the Nasdaq panel informed the
Company that its listing would be moved from The Nasdaq National Market to The
Nasdaq SmallCap Market effective July 8, 1999, subject to its continued
compliance with SmallCap listing requirements. Although the Company intends to
comply with all continued listing requirements of The Nasdaq SmallCap Market,
there can be no assurance that it will be able to satisfy Nasdaq's requirements
in the future. Failure to meet Nasdaq's requirements may result in delisting by
Nasdaq, which may have a material adverse effect on the price of the Company's
Common Stock and the levels of liquidity currently available to its
stockholders.
Restructuring
In order to reduce the Company's cash burn rate and preserve value in the
Company's core assets and technologies, in September 1998, the Company
restructured its operations to eliminate manufacturing and announced a reduction
in work force of up to 90%. Such actions were designed to permit the Company to
continue its clinical development of SomatoKine. There can be no assurance that
the restructuring efforts the Company has engaged in to date will be successful.
Furthermore, there can be no assurance that the Company will be able to sustain
its clinical development activities going forward, with the exception of the
large-scale Phase II trial in osteoporosis (recovery from hip fracture surgery)
which will be undertaken by the Celtrix/Elan Corporation joint venture. In
addition, there can be no assurance that the Company's management will not deem
it appropriate to undertake other restructuring efforts in the future or to what
degree any such efforts will result in improved performance or a reduction in
the Company's cash burn rate.
Dilutive and Potential Dilutive Effect to Stockholders
In November 1998, pursuant to the terms of a Common Stock and Warrant
Purchase Agreement dated October 12, 1998, the Company completed a private
placement of 4,000,000 shares of the Company's Common Stock (the "Private
Placement"), resulting in net proceeds to the Company, after deducting estimated
transaction costs, of approximately $1.9 million. Also in connection with the
Private Placement for every share of stock issued, the Company issued one and
one-half warrants to purchase additional shares at $0.55 per share. In April
1999, the Company completed a private placement of
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1,508,751 shares of the Company's Common Stock to Elan International Services,
Ltd., resulting in net proceeds to the Company, after deducting estimated
transaction costs, of approximately $2.4 million. Also, in connection with the
formation of a joint venture company with Elan, the Company issued and sold to
Elan International Services, Ltd. 8,010 shares of Series A
Convertible/Exchangeable Preferred Stock for an aggregate price of $8,010,000,
which amount was used to fund the Company's investment in the joint venture
company. The foregoing issuances of shares of the Company's Common and Preferred
Stock and warrants exercisable for Common Stock dilutes the beneficial ownership
of existing Company stockholders.
FORWARD-LOOKING STATEMENTS
The Company notes that certain of the foregoing statements are forward
looking within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Actual results may differ materially from the statements made
due to a variety of factors including, but not limited to, the ability to obtain
financing for the Company's working capital, clinical study results, the ability
to secure corporate partnership arrangements, and other risk factors which are
described in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1999.
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PART II. OTHER INFORMATION
CELTRIX PHARMACEUTICALS, INC.
Item 2. Changes in Securities and Use of Proceeds.
(a) Securities Sold
(I) On April 21, 1999, the Company issued and sold to Elan
International Services, Ltd. 1,508,751 shares (the "EIS Common
Shares") of the Company's Common Stock.
(II) On April 21, 1999, the Company issued and sold to Elan
International Services, Ltd. 8,010 shares of the Company's
Series A Convertible/Exchangeable Preferred Stock (together with
the EIS Common Shares, the "EIS Shares").
(III) On November 20, 1998, the Company issued and sold to purchasers
in a private placement pursuant to a Common Stock and Warrant
Purchase Agreement dated October 12, 1998 (the "1998 Private
Placement") 4,000,000 shares of the Company's Common Stock (the
"Shares") and warrants exercisable for 6,000,000 shares of the
Company's Common Stock (the "Warrants"). The Shares and Warrants
were sold in the form of "Units" which consisted of one Share of
Common Stock and a Warrant exercisable for one and one half
shares of Common Stock.
(IV) On April 1, 1997, the Company issued and sold to purchasers in a
private placement (the "1997 Private Placement") 5,721,876
shares of the Company's Common Stock (the "Shares") and warrants
exercisable for 2,860,934 shares of the Company's Common Stock
(the "Warrants"). The Shares and Warrants were sold in the form
of "Units" which consisted of two Shares of Common Stock and a
Warrant exercisable for one share of Common Stock.
(V) On December 15, 1995, the Company issued and sold to Genzyme
Corporation pursuant to a 1994 Product Development, License and
Marketing Agreement, 1,472,829 shares (the "Genzyme Shares") of
the Company's Common Stock.
(b) Underwriters and Other Purchasers
There were no underwriters for the foregoing transactions mentioned in
(a)(I) through a(V). A finders fee of $520,000 was paid to BioAsia LLC
in connection with the private placement described in (a)(IV) above.
The Shares and Warrants in (a)(III) and (a)(IV) were offered only to a
group of accredited investors. The Genzyme Shares were offered only to
Genzyme Corporation, an accredited investor. The EIS Shares were
offered only to Elan International Services, Ltd., an accredited
investor.
(c) Consideration
(I) The shares of Common Stock issued to Elan International
Services, Ltd. were sold for an aggregate price of
$2,500,000.00.
(II) The shares of Series A Convertible/Exchangeable Preferred Stock
issued to Elan International Services, Ltd. were sold for an
aggregate price of $8,010,000.00. The Series A
Convertible/Exchangeable Preferred Stock pays a 5% annual
in-kind dividend.
(III) The Shares and Warrants from the 1998 Private Placement were
sold for an aggregate offering price of $2,000,000.00.
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(IV) The Shares and Warrants from the 1997 Private Placement were
sold for an aggregate offering price of $13,949,955.60.
(V) The shares issued to Genzyme Corporation were sold for an
aggregate price of $4,418,487.00.
(d) Exemption from Registration Claimed
(I) The foregoing transactions under (a) (I), (II) and (IV) were
exempt from registration under the Securities Act of 1933, as
amended (the "Act") pursuant to Rule 506 of Regulation D, which
provides an exemption for sales without regard to the dollar
amount of the offering, provided that there are no more than 35
purchasers, and the sale satisfies all terms and conditions of
Rules 501 and 502 under the Act.
(II) The foregoing transaction under (a)(V) was exempt from
registration under the Act pursuant to Rule 505 of Regulation D,
which provides an exemption for sales of securities not
exceeding $5 million, provided that there are no more than 35
purchasers, and the sale satisfies all terms and conditions of
Rules 501 and 502 under the Act.
(e) Terms of Conversion or Exercise
(I) In connection with the issuance of 8,010 shares of Preferred
Stock at $1,000 per share to Elan International Services, Ltd.,
each share is convertible into that number of shares of Celtrix
Common Stock as is determined by dividing the sum of $1,000 plus
all accrued and unpaid dividends on each such share of Preferred
Stock by $2.006 or the Preferred Shares are exchangeable for
shares of the joint venture company held by the Company.
(II) In connection with the 1998 Private Placement, the Warrants are
exercisable at a price of $0.55 per share and expire on November
20, 2001.
(III) In connection with the 1997 Private Placement, the Warrants are
exercisable at a price of $2.6818 per share and expire on April
1, 2000. If the holder of a Unit sold any Shares between April
1, 1997 and April 1, 1998, the number of shares issuable upon
exercise of that holder's Warrant would have been reduced by an
amount equal to 0.5 multiplied by the number of Shares sold or
otherwise disposed of during such period. Also, in the event
that the average of the daily high and low bid price per share
of the Company's Common Stock as reported on the Nasdaq National
Market (or such other equivalent market or exchange) exceeds
$4.876 for a period of thirty (30) consecutive trading days (a
"Callable Event"), then the Company may, on or before the tenth
(10th) trading day after such Callable Event has occurred, send
a written notice to the Warrant holder that a Callable Event has
occurred and that the Warrant shall terminate on the thirtieth
(30th) day after the date the notice became effective.
26
<PAGE> 27
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
2.2* Amended and Restated Agreement and Plan of Reorganization By
and Among Insmed, Inc., Celtrix Pharmaceuticals, Inc.,
Celtrix Merger Sub, Inc., and Insmed Pharmaceuticals, Inc.
dated as of February 9, 2000
(*) Incorporated by reference to identically numbered exhibit filed with
Registrant's Form 10-Q for the quarterly period ended December 31, 1999,
filed with the Securities and Exchange Commission on February 10, 2000.
<TABLE>
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(b) The Company filed the following reports on Form 8-K during the
quarter ended December 31, 1999:
None.
27
<PAGE> 28
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.
CELTRIX PHARMACEUTICALS, INC. (Registrant)
Date: March 24, 2000 By: /s/ DONALD D. HUFFMAN
---------------------------------------------
Donald D. Huffman
Vice President, Finance and Administration
and Chief Financial Officer (Duly authorized
principal financial and accounting officer)
28
<PAGE> 29
Exhibit Index
<TABLE>
<S> <C>
2.2* Amended and Restated Agreement and Plan of Reorganization By
and Among Insmed, Inc., Celtrix Pharmaceuticals, Inc.,
Celtrix Merger Sub, Inc., and Insmed Pharmaceuticals, Inc.
dated as of February 9, 2000
27.1 Financial Data Schedule
</TABLE>
(*) Incorporated by reference to identically numbered exhibit filed with
Registrant's Form 10-Q for the quarterly period ended December 31, 1999,
filed with the Securities and Exchange Commission on February 10, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS INCLUDED IN ITS FORM 10-Q FOR THE FISCAL QUARTER
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,243
<SECURITIES> 0
<RECEIVABLES> 32
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,402
<PP&E> 167
<DEPRECIATION> 92
<TOTAL-ASSETS> 4,407
<CURRENT-LIABILITIES> 693
<BONDS> 0
7,948
0
<COMMON> 272
<OTHER-SE> (4,506)
<TOTAL-LIABILITY-AND-EQUITY> 4,407
<SALES> 0
<TOTAL-REVENUES> 712
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,240)
<EPS-BASIC> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
