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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(Amendment No. 1)
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to _______
Commission file number 0-19125
ISIS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0336973
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2292 Faraday Avenue, Carlsbad, CA
92008 (Address of principal executive offices,
including zip code)
(760) 931-9200
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be 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.
(1)Yes [X] No [ ](2) 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.
COMMON STOCK $.001 PAR VALUE 38,448,777 SHARES
---------------------------- -----------------
(Class) (Outstanding at July 31, 2000)
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ISIS PHARMACEUTICALS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1: Financial Statements
Condensed Balance Sheets as of June 30, 2000 and December 31, 1999 3
Condensed Statements of Operations for the three and six months
ended June 30, 2000 and 1999 4
Condensed Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 5
Notes to Financial Statements 6
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations *
Results of Operations *
Liquidity and Capital Resources *
Quantitative and Qualitative Disclosures About Market Risk *
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings *
ITEM 2: Changes in Securities *
ITEM 3: Default upon Senior Securities *
ITEM 4: Submission of Matters to a Vote of Security Holders *
ITEM 5: Other Information *
ITEM 6: Exhibits and Reports on Form 8-K 14
SIGNATURES
</TABLE>
* N/A
Explanatory Note: This amendment to form 10-Q is filed solely to amend
Part I, Item 1, Note 3 to Financial Statements, and Part II Item 6(a),
Exhibits.
2
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ISIS PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents 62,043 35,296
Short-term investments 58,291 17,543
Contract revenue receivable 4,644 5,429
Prepaid expenses and other current assets 1,210 929
------------ ------------
Total current assets 126,188 59,197
Property, plant and equipment, net 22,596 23,945
Patent costs, net 11,886 11,250
Deposits and other assets 1,587 1,724
Investment in joint ventures 14,767 6,991
------------ ------------
Total assets 177,024 103,107
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,134 3,148
Accrued payroll and related expenses 2,344 1,215
Accrued liabilities 3,210 2,563
Deferred contract revenues 2,351 4,166
Current portion of long term debt and capital lease obligations 3,723 3,892
------------ ------------
Total current liabilities 12,762 14,984
Long-term debt and capital lease obligations, less current portion 94,504 87,254
Stockholders' equity:
Series A Convertible Exchangeable 5% Preferred stock, $.001 par value;
15,000,000 shares authorized, 120,150 shares issued
and outstanding at June 30, 2000 and December 31, 1999, respectively 12,623 12,315
Accretion of Series A Preferred stock dividends 122 120
Series B Convertible Exchangeable 5% Preferred stock, $.001 par
value; 16,620 shares authorized, 12,015 shares and no shares issued and
outstanding at June 30, 2000 and December 31, 1999,
respectively 12,015 --
Accretion of Series B Preferred stock dividends 277 --
Common stock, $.001 par value; 50,000,000 shares authorized, 38,375,438 shares
and 31,613,000 shares issued and outstanding
at June 30, 2000 and December 31, 1999, respectively 38 32
Additional paid-in capital 334,687 245,192
Unrealized gain (loss) on investments (26) (29)
Accumulated deficit (289,978) (256,761)
------------ ------------
Total stockholders' equity 69,758 869
------------ ------------
Total liabilities and stockholders' equity 177,024 103,107
============ ============
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date.
See accompanying notes.
3
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ISIS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three months ended, Six months ended,
June 30, June 30,
2000 1999 2000 1999
------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenue:
Research and development revenues under
collaborative agreements $4,224 $5,815 $7,110 $12,391
Research and development revenues
from joint ventures 2,761 1,393 3,929 1,393
------------------------- -------------------------
Total Revenue 6,985 7,208 11,039 13,784
Expenses:
Research and development 12,746 16,443 25,985 30,759
General and administrative 2,414 2,762 4,238 5,577
Restructuring activities - - 1,608 -
------------------------- -------------------------
Total Operating Expenses 15,160 19,205 31,831 36,336
------------------------- -------------------------
(Loss) from operations (8,175) (11,997) (20,792) (22,552)
Equity in loss of joint ventures (4,594) (2,277) (8,089) (2,277)
Interest income 1,596 551 2,488 1,207
Interest expense (3,129) (2,800) (6,236) (5,505)
------------------------- -------------------------
Net loss (14,302) (16,523) (32,629) (29,127)
------------------------- -------------------------
Accretion of dividends on preferred stock (306) (117) (587) (117)
------------------------- -------------------------
Net loss applicable to common stock (14,608) (16,640) (33,216) (29,244)
========================= =========================
Basic and diluted net loss per share ($0.40) ($0.59) ($0.95) ($1.06)
========================= =========================
Shares used in computing basic and diluted
net loss per share 36,979 28,047 35,021 27,615
========================= =========================
</TABLE>
See accompanying notes.
4
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ISIS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
------------- -------------
<S> <C> <C>
Cash used in operations (19,385) (28,351)
Investing activities:
Short-term investments (40,745) 22,632
Property and equipment (924) (894)
Other assets (876) (1,423)
Investment in joint venture (15,865) (12,015)
------------------------------
Net cash used for investing activities (58,410) 8,300
------------------------------
Financing activities:
Net proceeds from issuance of equity securities 102,103 28,144
Proceeds from long-term borrowings 3,850 -
Principal payments on debt and capital lease obligations (1,411) (1,338)
------------------------------
Net cash provided from financing activities 104,542 26,806
------------------------------
Net increase (decrease) in cash and cash equivalents 26,747 6,755
Cash and cash equivalents at beginning of period 35,296 27,618
------------------------------
Cash and cash equivalents at end of period 62,043 34,373
==============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid 530 1,654
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to long-term debt obligations for acquisitions of property,
plant and equipment - 2,071
Conversion of preferred stock dividends into preferred stock 308 -
</TABLE>
See accompanying notes.
5
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ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited interim financial statements for the six month periods ended
June 30, 2000 and 1999 have been prepared on the same basis as the Company's
audited financial statements for the year ended December 31, 1999. The financial
statements include all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the financial position at such dates and the operating results and cash flows
for those periods. Results for the interim periods are not necessarily
indicative of the results for the entire year. For more complete financial
information, these financial statements, and notes thereto, should be read in
conjunction with the audited financial statements for the year ended December
31, 1999 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
2. STRATEGIC ALLIANCES
ORASENSE
On April 20, 1999, Isis Pharmaceuticals, Inc., a Delaware corporation
("Isis" or the "Company") and Elan Corporation, plc ("Elan") formed a joint
venture to develop technology for the formulation of oral oligonucleotide
drugs. The joint venture, Orasense Ltd. ("Orasense"), a Bermuda limited
company, is initially owned 80.1% by the Company and 19.9% by Elan. Isis and
Elan each contributed rights to certain oral drug delivery technology to the
joint venture. In addition, Isis contributed rights to ISIS 104838, an
antisense oligonucleotide to inhibit TNF-(alpha), which will be the first
candidate for oral formulation by Orasense. Isis and Elan will provide
development and manufacturing services to Orasense and will be entitled to a
portion of milestone payments and royalties received by Orasense for
development of orally formulated oligonucleotide drugs. If Isis enters into
an agreement with Orasense for oral formulation of any Isis oligonucleotide
drug, Isis will pay Orasense royalties and a portion of certain third party
milestone payments with respect to the drug.
While Isis owns 80.1% of the outstanding common stock of Orasense, Elan and
its subsidiaries have retained significant minority investor rights that are
considered "participating rights" as defined in EITF 96-16. Therefore, Isis does
not consolidate the financial statements of Orasense, but instead accounts for
its investment in Orasense under the equity method of accounting. During the six
month period ended June 30, 2000, Isis recognized $2,490,566 in contract
revenues for research and development activities performed for Orasense Ltd.
This amount is included as research and development revenues from joint ventures
for the related periods.
The results of operations of Orasense Ltd. for the six month period ended
June 30, 2000 is as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
----------------
<S> <C>
Revenue $ --
Research and Development expense $ 6,151
Net Loss $ 6,151
</TABLE>
HEPASENSE
On January 14, 2000, Isis and Elan Corporation formed a new joint venture
to develop an antisense drug, ISIS 14803, to treat patients chronically infected
with the Hepatitis C virus (HCV). The new joint venture is called HepaSense and
plans to develop and commercialize this novel therapeutic for HCV while
investigating delivery of the therapeutic with Elan's proprietary
MEDIPAD-Registered Trademark- Drug Delivery System, a disposable subcutaneous
infusion device. ISIS 14803 began Phase I clinical trials in early 2000. Isis
and Elan have each licensed technology to HepaSense.
In conjunction with the formation of HepaSense, Elan International
Services, Ltd. ("EIS") purchased 12,015 shares of Isis' Series B Preferred stock
for $12,015,000. In April 2000, EIS purchased an additional 298,000 shares of
Isis' common stock for $7,500,000. EIS will purchase an additional $7.5 million
of common stock at a premium to Isis' market price upon completion of a mutually
agreed milestone.
After June 30, 2002, the preferred stock (including accrued dividends) will
be convertible at EIS' option, into shares of Isis' common stock at 125% of the
60-trading day average closing price of Isis' common stock ending two business
days prior to June 30,
6
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2002 (as adjusted for stock splits, stock dividends and the like). In the
event of a liquidation of Isis or certain transactions involving a change of
control of Isis, the agreement provides for automatic conversion of the
preferred stock on terms similar to those set forth above.
Isis is not obligated to issue shares representing more than 19.99% of its
then outstanding Common Stock upon conversion of the Preferred Stock if it would
result in a violation of the rules of any securities market or exchange upon
which the Common Stock is traded.
At any time until June 30, 2002, the holders of preferred stock may
exchange their preferred stock with Isis for preferred shares of HepaSense, Ltd.
held by Isis that represent 60.2% of the total outstanding preferred stock of
HepaSense. The exchange right will terminate if the Isis Series B Convertible
Preferred stock is converted into Isis' common stock, unless such conversion
occurs as a result of a liquidation or certain transactions involving a change
of control of Isis.
Isis contributed $12,015,000 to HepaSense as the purchase price for 6,001
shares of common stock of HepaSense and 3,612 shares of HepaSense preferred
stock. Until July 14, 2002, EIS will, at Isis' request, purchase convertible
debt of Isis in an amount equal to Isis' share of budgeted funding for
HepaSense. The convertible debt will have a term of six years, bear interest at
the rate of 12% and be convertible into Isis' common stock at a premium. Isis
may prepay the convertible debt in cash or Isis' common stock. Isis will use the
proceeds of the sale of the convertible debt to provide additional development
funding to HepaSense.
While Isis owns 80.1% of the outstanding common stock of HepaSense, Elan
and its subsidiaries have retained significant minority investor rights that are
considered "participating rights" as defined in EITF 96-16. Therefore, Isis does
not consolidate the financial statements of HepaSense, but instead accounts for
its investment in HepaSense under the equity method of accounting. During the
six month period ended June 30, 2000, Isis recognized $1,439,126 in contract
revenues for research and development activities performed for HepaSense Ltd.
This amount is included as research and development revenues from joint ventures
for the related periods.
The results of operations of HepaSense Ltd. for the six month period ended
June 30, 2000 is as follows (in thousands):
<TABLE>
<CAPTION> SIX MONTHS ENDED
JUNE 30, 2000
----------------
<S> <C>
Revenue $ --
Research and Development expense $ 3,939
----------
Net Loss $ 3,939
==========
</TABLE>
AGOURON
In June 2000, Ibis Therapeutics ("Ibis"), a division of Isis
Pharmaceuticals, Inc. and Agouron Pharmaceuticals, Inc., a Pfizer Company,
entered into a collaboration for the discovery and development of small molecule
drugs against certain RNA targets in an undisclosed therapeutic area. Using
Ibis' proprietary technology and Agouron's expertise in small molecule drug
discovery, the collaboration will focus on discovering drugs that bind to RNA.
Agouron will fund collaborative research, pay an upfront technology access fee
and make milestone payments totaling $37 million for the first product. In
addition, Agouron will develop and commercialize drugs discovered by the
collaboration and will pay Isis royalties on the sales of drugs.
3. FINANCING
Over the six months ended June 30, 2000, Isis sold 2,939,460 shares of
its common stock to institutional investors at negotiated prices of $10.45
per share to $27.25 per share. In addition, over the six months ended June
30, 2000 the company sold 1,997,879 shares of its common stock to Ridgeway
Investment Limited at prices ranging from an average of $7.57 per share to
$14.45 per share under the terms of the Common Stock Purchase Agreement filed
as an exhibit to the prospectus dated December 6, 1999. The per share average
purchase prices reflect the average trading prices of the common stock over a
period of time less a discount from 4.5% to 5.875%.
7
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
3.1 Amended and Restated Certificate of Incorporation.(1)
3.2 Bylaws.(1)
3.3 Certificate of Designation of the Series A Convertible
Preferred Stock.(2)
3.4 Certificate of Designation of the Series B Convertible
Preferred Stock.(3)
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2 Specimen Common Stock Certificate.(1)
4.3 Specimen Series A Preferred Stock Certificate.
4.4 Specimen Series B Preferred Stock Certificate.
4.5 Purchase Agreement for 14% Senior Subordinated Discount
Notes due November 1, 2001 and Warrants for Common Stock
dated October 24, 1997 (with certain confidential
information deleted).(4)
4.6 First Supplement to Purchase Agreement for 14% Senior
Subordinated Discount Notes due November 1, 2001 and Warrants
for Common Stock dated May 1, 1998 (with certain confidential
information deleted).(5)
4.7 Registration Rights Agreement dated April 20, 1999 among
Registrant, Elan International Services, Ltd., and Orasense,
Ltd.(6)
4.8 Registration Rights Agreement dated January 14, 2000 among
Registrant, Elan International Services, Ltd., and Hapasense,
Ltd.(7)
4.9 Voting Rights Agreement among the Registrant, Novartis and
Dr. Cooke, dated November 9, 1990.(1)
10.33 Agreement between Registrant and Agouron Pharmaceuticals dated
June 9, 2000 (with certain confidential information deleted).*
27.1 Financial Data Schedules*
-----------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (No. 33-39640) or amendments thereto and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form
S-3 (No. 333-71911) or amendments thereto and incorporated herein by
reference.
(3) Filed as an exhibit to the Registrant's 8-K dated as of January 8, 2000
and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997, and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998 and incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's report on Form 8-K dated April
20, 1999 and incorporated herein by reference.
(7) Filed as an exhibit to the Registrant's report on Form 8-K dated January
28, 2000 and incorporated herein by reference.
* Previously filed.
b. Reports on Form 8-K
Not applicable
8
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ISIS PHARMACEUTICALS, INC.
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.
ISIS PHARMACEUTICALS, INC.
(Registrant)
Date: August 29, 2000 By: /S/ B. LYNNE PARSHALL
--------------- -------------------------------
B. Lynne Parshall
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and
Accounting Officer)
9
