<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 1996
---------------------------
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: 0-19651
-------------------------------------------------------
MAGAININ PHARMACEUTICALS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3445668
(State or other jurisdiction of incorporation of organization) (I.R.S. Employer Identification No.)
</TABLE>
5110 CAMPUS DRIVE, PLYMOUTH MEETING, PENNSYLVANIA, 19462
(Address of principal executive offices and Zip Code)
(610) - 941 - 4020
(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. 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, $.002 Par Value - 17,180,258 Shares (August 2, 1996)
<PAGE> 2
MAGAININ PHARMACEUTICALS INC.
(a development stage company)
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Statements of Operations for the three and six
months ended June 30, 1996 and 1995 and for the period
June 29, 1987 (Inception) to June 30, 1996 . . . . . . . . . . . . . . . . . . . . . 1
Unaudited Balance Sheets as of June 30, 1996 and December
31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Unaudited Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 and for the
period June 29, 1987 (Inception) to June 30, 1996 . . . . . . . . . . . . . . . . . 3
Notes to Unaudited Financial Statements . . . . . . . . . . . . . . . . . . . . . . 4
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAGAININ PHARMACEUTICALS INC.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended June 29, 1987
June 30, June 30, (Inception) to
1996 1995 1996 1995 June 30, 1996
---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues:
Related party contract . . . . . $ -- $ 70 $ -- $ 138 $ 1,527
Contract and government grant . 38 39 75 83 2,908
------- ------- -------- ------- --------
38 109 75 221 4,435
------- ------- -------- ------- --------
Costs and expenses:
Research and development . . . . 5,978 3,663 12,082 6,919 68,437
General and administrative . . . 789 700 1,589 1,430 18,613
------- ------- -------- ------- ------
6,767 4,363 13,671 8,349 87,050
------- ------- -------- ------- ------
Loss from operations . . . . . . . (6,729) (4,254) (13,596) (8,128) (82,615)
Interest income . . . . . . . . . . 508 301 1,102 624 6,140
Interest expense . . . . . . . . . (5) (9) (10) (19) (652)
------- ------- -------- ------- --------
Net loss . . . . . . . . . . . . . $(6,226) $(3,962) $(12,504) $(7,523) $(77,127)
======= ======= ======== ======= ========
Net loss per share . . . . . . . . $ (.36) $ (.30) $ (.73) $ (.57)
======= ======= ======== =======
Weighted average
shares outstanding . . . . . . . 17,108 13,320 17,084 13,320
</TABLE>
See accompanying notes to unaudited financial statements.
1
<PAGE> 4
MAGAININ PHARMACEUTICALS INC.
(a development stage company)
BALANCE SHEETS
(unaudited)
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 2,706 $ 1,880
Short-term investments . . . . . . . . . . . . . . . . . 29,946 32,270
Prepaid expenses and other current assets . . . . . . . 652 509
-------- --------
Total current assets . . . . . . . . . . . . . . . 33,304 34,659
Fixed assets, net . . . . . . . . . . . . . . . . . . . . . 1,828 1,476
Long-term investments . . . . . . . . . . . . . . . . . . . ---- 9,516
Other assets . . . . . . . . . . . . . . . . . . . . . . 76 76
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . $ 35,208 $ 45,727
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses . . . . . . . . . $ 5,901 $ 4,080
Equipment lease obligations - current . . . . . . . . . 139 150
-------- --------
Total current liabilities . . . . . . . . . . . . 6,040 4,230
Equipment lease obligations - long term . . . . . . . . . . 96 161
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . 136 143
-------- --------
Total liabilities . . . . . . . . . . . . . . . . 6,272 4,534
-------- --------
Commitments, contingencies and other matters
Stockholders' equity:
Preferred stock -- $.001 par value; shares authorized . . .
-- 9,211, none issued . . . . . . . . . . . . . . . . . . ---- ----
Common stock -- $.002 par value; shares authorized
- - 45,000; shares issued and outstanding
- - 17,160 and 17,052 . . . . . . . . . . . . . . . . . . . . 34 34
Additional paid-in capital . . . . . . . . . . . . . . . . 106,027 105,662
Deficit accumulated during the development stage . . . (77,127) (64,623)
Unrealized gain on investments . . . . . . . . . . . . . . 2 120
-------- --------
Total stockholders' equity . . . . . . . . . . . . 28,936 41,193
Total liabilities and stockholders' equity . . . . $ 35,208 $ 45,727
======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
2
<PAGE> 5
MAGAININ PHARMACEUTICALS INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, June 29, 1987
------------------------- (Inception) to
1996 1995 June 30, 1996
-------- -------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $(12,504) $(7,523) $ (77,127)
Adjustments to reconcile net loss to
net cash used in operating activities:
Fair value of stock, options and warrants
issued . . . . . . . . . . . . . . . . . . . . - - 1,749
Depreciation and amortization . . . . . . . . . . . . 250 231 3,434
Deferred rent . . . . . . . . . . . . . . . . . . . . (7) (2) 136
(Increase) decrease in prepaid expenses and other assets (143) 26 (843)
Increase in accounts payable
and accrued expenses . . . . . . . . . . . . . . . . 1,821 726 5,901
-------- -------- ---------
Net cash used in operating activities . . . . . . (10,583) (6,542) (66,750)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments . . . . . . . . . . . . . . . . . . (9,227) (8,880) (164,060)
Proceeds from maturities and sales of investments . . . . . 20,949 15,224 134,114
Capital expenditures . . . . . . . . . . . . . . . . . . . . (602) (65) (3,143)
-------- --------- ---------
Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . 11,120 6,279 (33,089)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capitalized equipment leases . . . . . . . . . . (76) (114) (1,766)
Proceeds from sale of stock and
exercise of options and warrants . . . . . . . . . . . . . 365 -- 104,311
-------- -------- ---------
Net cash provided by (used in)
financing activities . . . . . . . . . . . . . 289 (114) 102,545
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . 826 (377) 2,706
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . 1,880 2,550 -
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . $ 2,706 $ 2,173 $ 2,706
======== ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest . . . . . . . . . . $ 10 $ 9 $ 401
</TABLE>
See accompanying notes to unaudited financial statements.
3
<PAGE> 6
MAGAININ PHARMACEUTICALS INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
A) BASIS OF PRESENTATION
The accompanying condensed financial statements do not include all of
the information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but in the opinion of management, contain all adjustments
(which consist of only normal recurring adjustments) necessary for a fair
presentation of such financial information. Results of operations for
interim periods are not necessarily indicative of those to be achieved for
full fiscal years.
The condensed financial statements should be read in conjunction with
the audited financial statements as of December 31, 1995 and for the year
then ended, included in the Company's 1995 Annual Report on Form 10-K,
filed with the Securities and Exchange Commission.
B) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------ ------
<S> <C> <C>
Accounts payable $ 442 $ 290
Clinical trial costs 1,652 1,333
Manufacturing development costs 2,891 1,865
Preclinical costs 221 0
Professional fees 239 334
Deferred contract income 13 87
Accrued compensation and benefits 299 87
Other 144 84
-------- --------
$ 5,901 $ 4,080
</TABLE>
4
<PAGE> 7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company commenced operations in 1988. The Company is a development
stage company engaged in the development of breakthrough medicines for serious
diseases. The Company isolates and develops compounds from the host-defense
systems of animals and uses molecular techniques such as gene identification to
understand the pathogenesis of disease. The Company's development efforts are
focused on anti-infectives, oncology and, pulmonary and allergic disorders.
The Company has not generated any sales revenue, and has received nominal
amounts of revenue from contracts and grants. The Company has incurred net
losses in each year since its inception and expects to incur substantial
additional losses for the next several years. At June 30, 1996, the Company's
accumulated deficit was approximately $77,127,000.
RESULTS OF OPERATIONS
To date, the Company has received no revenue from product sales. Revenues
recorded to date have consisted principally of revenues recognized under
collaborations with corporate partners, and pursuant to Small Business
Innovative Research grants. Revenues in the 1996 periods have decreased as
compared to the 1995 periods due to the expiration of a contractual
arrangement. The Company anticipates that its revenues from operations will be
limited for the foreseeable future.
Research and development expenses consist principally of clinical and
preclinical testing expenses, manufacturing development expenses, personnel
costs and laboratory supplies. The Company's clinical and manufacturing
expenses have increased in the 1996 periods as compared to the 1995 periods due
principally to increasing costs associated with the Company's lead product
candidate, MSI-78, including the initiation, in the second half of 1995, of a
second pivotal clinical trial of MSI-78 for the treatment of infection in
diabetic foot ulcers. Preclinical expenses have also increased in the 1996
periods compared to the 1995 periods due to increasing activities associated
with the Company's other development programs, including, MSI-1436, Squalamine
and MSI-843. The Company is also incurring expenses in 1996 relating to its
asthma genomics program.
While the objective of the Company's interim analysis of results in the
first pivotal trial of MSI-78 was successfully met, there can be no assurance
that either of the trials, when fully completed, will be successful. Success in
both pivotal trials will be required for the submission of MSI-78 for review by
the U.S. Food and Drug Administration ("FDA").
5
<PAGE> 8
Failure of MSI-78 to show efficacy in current trials would have a material
adverse effect on the Company. Furthermore, even if such clinical testing is
successful, the submission to FDA of any application for product approval, and
the review by FDA of such application, will require additional time to complete
manufacturing stability studies, which additional time may be significant.
The Company contracts with third parties for the manufacture of materials,
and is working with Abbott Laboratories ("Abbott") with regard to MSI-78. In
1995, the Company negotiated a continuation and extension of its arrangement
with Abbott, under which Abbott will continue MSI-78 scale-up activities,
perform other activities necessary to submit a Drug Master File to the FDA in
support of any filing for marketing approval of MSI-78, and produce certain
quantities of MSI-78. This arrangement with Abbott provides for cash payments
by the Company through early 1998 aggregating approximately $11,000,000, as
well as the issuance by the Company to Abbott of up to 500,000 shares of its
Common Stock, and the obligation to pay a royalty on future sales of MSI-78.
Through June 30, 1996, the Company has paid Abbott approximately $5,600,000
under this arrangement. Stock issuances by the Company will result in a charge
to earnings, representing the fair value of the shares when issued. The
Company issued 125,000 shares of Common Stock to Abbott in October 1995,
resulting in a charge to earnings of $1,250,000 in the three months ended
December 31, 1995. Future stock issuances are related to the achievement by
Abbott of contractual performance milestones which could occur in late 1996 and
1997.
The level of research and development expenses in future periods will
depend upon the success of the MSI-78 clinical program, and the progress of
other research programs at the Company. Expenses relating to the development
of MSI-78 are expected to continue to be significant in future periods
principally as a result of the Company's on-going manufacturing development
program with Abbott, and the carrying on of the two clinical trials, as
described above. The Company also expects increased research and development
expenses relating to its preclinical programs in cystic fibrosis, viral
disease, solid mass tumors and asthma.
General and administrative expenses consist principally of personnel costs
and professional fees, and increased in the 1996 periods as compared to the
1995 periods due principally to increases in personnel related costs. The
Company expects general and administrative expenses to increase in future
periods to the extent that the Company's level of activities increase.
The increase in interest income in the three and six month periods ended
June 30, 1996 as compared to the three and six month periods ended June 30,
1995 is due to an increased investment balance and increases in prevailing
interest rates.
The Company expects to conduct, over the next several years, significant
research, preclinical development, clinical testing and manufacturing
development activities which,
6
<PAGE> 9
together with projected general and administrative expenses, are expected to
result in continued and increasing losses, particularly due to the extended
time period before the Company expects to commercialize any products.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and investments were approximately $32,652,000 at June 30, 1996 as
compared to $43,666,000 at December 31, 1995. The primary use of cash was to
finance the Company's operations. Since inception, the Company has funded its
operations primarily from the proceeds of public and private placements of
securities, including $17,080,000 raised from its initial public offering in
December 1991, $21,469,000 raised from a public offering completed in February
1993, $18,023,000 raised from a private placement of Common Stock completed in
October 1993, and $32,627,000 raised from a public offering completed in August
1995, as well as contract and grant revenues, interest income and lease
financing.
Accounts payable and accrued expenses increased to approximately
$5,901,000 at June 30, 1996 as compared to approximately $4,080,000 at December
31, 1995, due principally to expenses incurred for manufacturing development
efforts and clinical testing of MSI-78.
The Company will require substantial additional funds to continue its
research and development programs and to commercialize any potential products.
The Company intends to seek funds for the further development of MSI-78, and
for other projects, through a combination of future offerings of securities and
collaborative arrangements with third parties, and regularly explores
alternatives in this regard. There can be no assurance that future funding
will be available to the Company. The receipt of funding from corporate
partners, if any, will depend largely on the progress of research and
development programs.
If the Company does not enter into appropriate collaborations, or is not
able to raise sufficient funds from the periodic sale of securities, the
Company will be required to delay or eliminate expenditures for certain of its
potential products, including MSI-78, or to license third parties to
commercialize potential products or technologies that the Company would
otherwise seek to develop itself, or to seek other arrangements.
Prior to marketing, any drug developed by the Company must undergo
rigorous preclinical and clinical testing and an extensive regulatory approval
process mandated by the FDA and similar foreign authorities. These processes
can take years to complete and require the expenditure of substantial
resources. The time required for completing such testing and obtaining such
approvals is uncertain, and ultimately, approval may not be obtained. Even if
a product were to receive marketing approval, there can be no assurance that
the Company will be able to successfully and profitably manufacture, market and
distribute the
7
<PAGE> 10
product. To attempt to limit risks in this process, the Company seeks to
broaden its technology base through internal basic research, collaborations and
strategic relationships.
The Company believes that patent and other proprietary rights are
important to its business, and in this regard intends to file applications as
appropriate for patents covering both its potential products and processes that
have been licensed or developed by the Company. The Company may be required to
expend substantial funds to protect any such patents against infringement or to
determine the priority of inventions in interference proceedings. If patents
are issued to other parties that contain claims that are interpreted to cover
any of the Company's proposed products, there can be no assurance that the
Company would be able to obtain licenses to such patents at a reasonable cost,
if at all, or be able to develop or obtain alternative technology. Failure by
the Company to obtain a patent on, or license to use, any technology required
to commercialize its proposed products would have a material adverse impact on
the Company. Under license agreements, the Company will owe royalties on sales
of most of its potential products, including its lead product development
candidate, MSI-78. Certain of these agreements also provide that if the
Company elects not to pursue the commercial development of any licensed
technology, or does not adhere to an acceptable schedule of commercialization,
then the Company's rights to such technology would terminate.
The Company's capital expenditure requirements will depend upon numerous
factors, including the success of MSI-78 and the progress of the Company's
other research and development programs, the time and cost required to obtain
regulatory approvals, the ability of the Company to enter into additional
collaborative arrangements, the demand for products based on the Company's
technology, if and when such products are approved, and possible acquisitions
of products, technologies and companies. The Company contracted with a
construction group to begin a facility expansion in the second quarter of 1996,
at a cost of approximately $750,000.
There can be no assurance that the Company's products can be manufactured
at a cost which is competitive to other commercial products. The Company
contracts with third parties for the manufacture of materials. There are a
limited number of companies which are currently able to produce materials on
the scale which the Company expects to require to commercialize its compounds.
There can be no assurance that qualified outside contractors will continue to
be available to manufacture materials for the Company, or at costs which are
affordable by the Company. The Company is currently dependent upon Abbott for
the production of MSI-78, and, as described above, Abbott is currently
conducting certain manufacturing development activities. The Company and
Abbott have agreed that, upon completion of such activities, they will
negotiate in good faith a supply agreement for the Company's worldwide supply
needs of MSI-78. In the event that this agreement is not entered into, or
Abbott does not otherwise continue to manufacture MSI-78, the Company's
timeline to commercialize MSI-78 would be adversely affected, and the Company
may need to spend substantial funds on building a manufacturing infrastructure
and licensing applicable manufacturing related technology from such contract
manufacturer.
8
<PAGE> 11
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on May 20, 1996. At
this meeting, stockholders of the Company approved the following:
1. Election of five directors;
2. An amendment to the Company's Restated Certificate of Incorporation to
increase the number shares of common stock authorized for issuance
from 25,000,000 to 45,000,000 shares; and
3. An amendment to the Magainin Pharmaceuticals Inc. 1992 Stock Option
Plan (the "Option Plan") increasing the maximum number of shares
available for issuance from 1,500,000 to 2,500,000.
The number of votes cast for, and withheld from, each nominee is set forth
below.
<TABLE>
<CAPTION>
For Withheld
---- --------
<S> <C> <C>
Jay Moorin 12,082,632 307,187
Michael A. Zasloff, M.D., Ph.D. 12,104,132 285,687
Bernard Canavan, M.D. 12,099,032 290,787
James A. Cavanaugh, Ph.D. 12,103,032 286,787
Zola P. Horovitz, Ph.D. 12,100,032 289,787
</TABLE>
The number of votes cast for, and against, and the number of abstentions,
in the following matters, is set forth below.
- The amendment to the Company's Restated Certificate of Incorporation
increasing the number of authorized shares of Common Stock: For,
9,934,575; Against, 1,939,570; Abstain, 25,941.
- The amendment to the Option Plan increasing the number of shares
issuable thereunder: For, 5,678,976; Against, 3,600,679; Abstain,
21,260.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
9
<PAGE> 12
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.
MAGAININ PHARMACEUTICALS INC.
(REGISTRANT)
DATE: AUGUST 2, 1996 /S/ JAY MOORIN
---------------------------------------
JAY MOORIN
CHAIRMAN, PRESIDENT &
CHIEF EXECUTIVE OFFICER
/S/ MICHAEL R. DOUGHERTY
---------------------------------------
MICHAEL R. DOUGHERTY
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEETS AS OF JUNE 30, 1996, AND THE UNAUDITED STATEMENTS
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q PERIOD END JUNE 30, 1996.
</LEGEND>
<CIK> 0000880431
<NAME> MAGAININ PHARMACEUTICALS INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,706
<SECURITIES> 29,946
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,304
<PP&E> 5,147
<DEPRECIATION> 3,319
<TOTAL-ASSETS> 35,208
<CURRENT-LIABILITIES> 6,040
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> 28,902
<TOTAL-LIABILITY-AND-EQUITY> 35,208
<SALES> 0
<TOTAL-REVENUES> 75
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,671
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> (12,504)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,504)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,504)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
