FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
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: 0-19825
SCICLONE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
California 94-3116852
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
901 Mariners Island Blvd., Suite 315, San Mateo, California 94404
(Address of principal executive offices) (Zip code)
(415) 358-3456
(Registrant's telephone number, including area code)
Not Applicable
(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 ___
As of April 30, 1997, 17,164,664 shares of the registrant's Common Stock, no par
value, were issued and outstanding.
<PAGE>
SCICLONE PHARMACEUTICALS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations
Three months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<CAPTION>
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1997 1996
----------- -----------
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,458,100 $ 4,642,590
Short-term investments 5,452,738 5,205,529
Accounts receivable 1,180,053 245,078
Inventory 2,531,091 2,608,877
Prepaid expenses and other current assets 1,732,138 1,783,778
----------- -----------
Total current assets 14,354,120 14,485,852
Property and equipment, net 300,971 299,405
Long-term investments 21,894,887 25,257,589
Notes receivable from officers 2,342,087 2,648,292
Other assets 36,770 36,549
----------- -----------
Total assets $38,928,835 $42,727,687
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 577,034 $ 639,392
Accrued compensation and benefits 461,840 817,774
Accrued clinical trials expense 1,299,328 964,331
Accrued professional fees 1,833,000 1,989,000
Other accrued expenses 326,816 851,562
----------- -----------
Total current liabilities 4,498,018 5,262,059
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized ; no shares issued and outstanding -- --
Common stock, no par value; 75,000,000 shares
authorized; 17,576,470 and 17,532,195 shares
issued and outstanding 109,186,964 108,988,019
Net unrealized loss on available-for-sale (364,711) (171,125)
securities
Accumulated deficit (74,391,436) (71,351,266)
----------- -----------
Total shareholders' equity 34,430,817 37,465,628
----------- -----------
Total liabilities and shareholders' equity $38,928,835 $42,727,687
=========== ===========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
3
<PAGE>
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
March 31,
1997 1996
------------ ------------
Product sales $ 670,538 $ 126,308
Cost of product sales 261,565 199,800
------------ ------------
Gross profit 408,973 (73,492)
Operating expenses:
Research and development 2,065,719 2,534,601
Marketing 1,029,138 1,070,817
General and administrative 867,041 775,698
------------ ------------
Total operating expenses 3,961,898 4,381,116
------------ ------------
Loss from operations (3,552,925) (4,454,608)
Interest and investment income, net 512,755 716,106
------------ ------------
Net loss $ (3,040,170) (3,738,502)
============ ============
Net loss per share $ (0.17) $ (0.22)
============ ============
Weighted average shares used in
computing per share amounts 17,536,639 17,051,546
============ ============
See notes to consolidated financial statements
4
<PAGE>
<TABLE>
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three months ended
March 31,
1997 1996
----------- -----------
Operating activities:
<S> <C> <C>
Net loss $(3,040,170) $(3,738,502)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 38,822 116,111
Changes in operating assets and liabilities:
Prepaid expenses and other assets 357,624 (110,964)
Accounts receivable (934,975) (12,423)
Inventory 77,786 (172,267)
Accounts payable and other accrued expenses (587,104) 25,598
Accrued clinical trial expense 334,997 (386,045)
Accrued professional fees (156,000) 356,500
Accrued compensation and benefits (355,934) (212,832)
----------- -----------
Net cash used in operating activities (4,264,954) (4,134,824)
----------- -----------
Investing activities:
Purchase of property and equipment (40,388) (45,906)
Sale of marketable securities, net 2,921,907 1,734,385
----------- -----------
Net cash provided by investing activities 2,881,519 1,688,479
----------- -----------
Financing activities:
Proceeds from issuance of common stock, net 1,025,429 2,352,303
Repurchase of common stock (826,484) --
----------- -----------
Net cash provided by financing activities 198,945 2,352,303
----------- -----------
Net decrease in cash and cash equivalents (1,184,490) (94,042)
Cash and cash equivalents, beginning of period 4,642,590 3,986,307
----------- -----------
Cash and cash equivalents, end of period $ 3,458,100 $ 3,892,265
=========== ===========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
5
<PAGE>
SCICLONE PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
1. The accompanying unaudited consolidated financial statements
have been prepared in conformity with generally accepted
accounting principles consistent with those applied in, and
should be read in conjunction with, the audited financial
statements for the year ended December 31, 1996. The interim
financial information reflects all normal recurring
adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods
presented. The interim results are not necessarily indicative
of results for subsequent interim periods or for the full
year.
2. In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, " Earnings Per Share," which is
required to be adopted on December 31, 1997. Under the
requirements for calculating net loss per share, the
antidilutive effect of stock options and warrants will be
excluded. The impact of Statement 128 on the calculation of
earnings per share for the quarters ended March 31, 1997 and
March 31, 1996 is not expected to be material, as the Company
already computes net loss per share in this manner. Net loss
per share has been computed using the weighted average number
of common shares outstanding during each period presented.
Common equivalent shares for outstanding options and warrants
were not included in the weighted average shares outstanding
because the effect of including such shares is antidilutive.
<TABLE>
3. The following is a summary of available-for sale securities at
March 31, 1997:
<CAPTION>
Available-for-Sale Securities
-----------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Government &
Agency obligation $ 19,117,223 $ 494 $ (305,740) $ 18,811,977
Corporate obligations 8,395,113 818 (46,821) 8,349,110
Corporate securities 200,000 11,538 (25,000) 186,538
------------ ------------ ------------ ------------
$ 27,712,336 $ 12,850 $ (377,561) $ 27,347,625
============ ============ ============ ============
The amortized cost and estimated fair value of
available-for-sale securities at March 31, 1997 by contractual
maturity are shown below.
Estimated
Fair
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $ 5,278,653 $ 5,266,200
Due after one year through three years 16,226,065 16,006,973
Due after three years 6,007,618 5,887,914
----------- -----------
27,512,336 27,161,087
Corporate securities 200,000 186,538
----------- -----------
$27,712,336 $27,347,625
=========== ===========
</TABLE>
6
<PAGE>
4. The following is a summary of inventories at March 31, 1997:
Raw materials $1,547,193
Finished goods 983,898
----------
$2,531,091
==========
5. In 1995, the Company's Board of Directors authorized the
repurchase of up to 1.0 million shares of the Company's common
stock. During the three months ended March 31, 1997, the
Company repurchased 122,500 shares of its common stock for an
aggregate cost of $826,484. There was no impact on the
Company's results of operations.
6. In conjunction with its initial public offering, the Company
granted its investment banker warrants to purchase 300,000
shares of common stock and 300,000 non-redeemable warrants.
The warrants were exercisable during the four-year period
ending March 16, 1997. The exercise price of the 300,000
shares of common stock was $6.00 per share and the
non-redeemable warrants was $0.33 per warrant. The
non-redeemable warrants were further exercisable into one
common share at $15.55 per share. In March 1997, 164,995
warrants exercisable at $6.00 per share remained outstanding
and were exercised by the investment banker, resulting in
proceeds of approximately $986,000. In exchange for exercising
the outstanding warrants at $6.00 per share, the Company
lowered the exercise price of the non-redeemable warrants from
$15.55 per share to $8.00 per share and extended the
expiration date to March 31, 1998.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following material contains certain forward-looking statements
including statements regarding the application of ZADAXIN(R) thymosin alpha 1 in
disease areas beyond hepatitis B, the potential for regulatory approvals of
ZADAXIN and the launching of ZADAXIN in additional markets, and the Company's
expectations regarding increases in revenues from ZADAXIN and increases in
marketing and research and development expense levels. These statements are
subject to certain risks and uncertainties. These risks and uncertainties
include the Company's current reliance on a single product, ZADAXIN , for its
revenues, the absence of regulatory approval for ZADAXIN in significant markets,
the expensive, time consuming and uncertain regulatory approval process, risks
associated with the manufacture and supply of ZADAXIN, competition from
competing therapies, and uncertainties regarding the outcome of the Company's
efforts to commercialize additional products, as well as other risks and
uncertainties described herein and in the Company's other reports filed with the
Securities and Exchange Commission.
The Company is an international biopharmaceutical company involved in
the acquisition, development and commercialization of pharmaceuticals worldwide.
The Company focuses on specialist oriented products that address significantly
unmet chronic or life-threatening diseases. The Company concentrates on
infectious diseases, cancer, immune system disorders, and cystic fibrosis.
Currently, the Company has acquired two drugs for development and
commercialization: ZADAXIN for hepatitis B and C, cancer and immune system
disorders; and CPX for cystic fibrosis. To date, the Company's principal focus
has been the development and commercialization of ZADAXIN.
From commencement of operations through March 31, 1997, the Company
incurred a cumulative net loss of approximately $74.4 million. The Company
expects its operating expenses to increase over the next several years as it
expands its research and development, clinical testing and marketing
capabilities. The Company's ability to achieve profitable operations is
primarily dependent on securing regulatory approvals for ZADAXIN in additional
countries, successfully launching ZADAXIN if approved in such countries and
meeting increased demand for ZADAXIN, if it arises. In addition, other factors
may also impact the Company's ability to achieve a profitable level of
operations such as spending associated with the successful development of CPX,
acquiring rights to additional drugs, and entering into and extending agreements
for product development and commercialization, where appropriate. There can be
no assurance that the Company will be able to attain these objectives or that
the Company will ever achieve a profitable level of operations.
The Company's operating results may fluctuate from period to period as
a result of, among other things, the timing and costs associated with clinical
trials and the regulatory approval process, and the acquisition of additional
product rights. The Company participates in a highly dynamic industry, which
often results in significant volatility of the Company's common stock price.
Setbacks in clinical trials, in the regulatory approval process or in
relationships with collaborative partners, and any shortfalls in revenue or
earnings from levels expected by securities analysts, among other developments,
have in the past had and could in the future have an immediate and significant
adverse effect on the trading price of the Company's common stock in any given
period.
8
<PAGE>
Results of Operations
Product sales were approximately $671,000 and $126,000 for the
three-month periods ended March 31, 1997 and 1996, respectively. Currently, the
Company has received approval to market ZADAXIN in China, the Philippines and
Singapore and commercially launched ZADAXIN during the first quarter of 1997. In
addition, the Company has filed for approval to market ZADAXIN in several
countries and anticipates additional filings in other countries. As a result,
the Company expects product sales to increase in 1997 and beyond, as a result of
the commercial launch of ZADAXIN in its existing approved markets and upon the
commencement of the commercial launch of ZADAXIN in additional markets once
regulatory approvals are secured. The level of such product sales increase is
dependent upon additional ZADAXIN marketing approvals and successfully launching
ZADAXIN. Although the Company remains optimistic regarding the prospects of
ZADAXIN, there can be no assurance that the Company will achieve significant
levels of product sales.
Cost of product sales was approximately $262,000 and $200,000 for the
three-month periods ended March 31, 1997 and 1996, respectively. The increase is
attributable to increased product sales. The Company expects cost of product
sales to vary from quarter to quarter, dependent upon the level of product sales
and the absorption of fixed product-related costs.
Research and development expenses were approximately $2,066,000 and
$2,535,000 for the three-month periods ended March 31, 1997 and 1996,
respectively. The decrease is primarily attributable to decreased clinical
expenses associated with completion of the ZADAXIN clinical trial in Taiwan in
early 1996 and decreased personnel costs associated with reduced headcount.
Clinical expenses in the 1997 period were impacted by additional preclinical
development and clinical trial expenses for the clinical development of CPX, a
synthetic compound licensed in April 1996 from the National Institutes of Health
as a potential treatment for cystic fibrosis. In April 1997, CPX entered a Phase
I clinical trial in the United States. In addition, the Company is organizing
its U.S. and European ZADAXIN clinical trial strategy and expects clinical
trials to start later this year. The initiation of these trials will have a
significant effect on the Company's research and development expenses in the
future. In general,the Company expects research and development expenses to
increase over the next several years and to vary quarter to quarter as the
Company pursues its strategy of initiating additional clinical trials and
testing, acquiring product rights, and expanding regulatory activities.
Marketing expenses were approximately $1,029,000 and $1,071,000 for the
three-month periods ended March 31, 1997 and 1996, respectively. The decrease is
primarily attributable to decreased professional services partially offset by
increased promotional material expenses associated with the launch of ZADAXIN in
its approved markets during the first quarter of 1997. The Company expects
marketing expenses to increase significantly in the next several quarters and
years as it anticipates expanding its commercialization and marketing efforts
and pursuing other strategic relationships.
General and administrative expenses were approximately $867,000 and
$776,000 for the three-month periods ended March 31, 1997 and 1996,
respectively. The increase is primarily attributable to increased general office
expenses associated with increased rent and office relocation expenses. In the
near term, the Company expects general and administrative expenses to vary
quarter to quarter as the Company augments its general and administrative
activities to support increased expenditures on clinical trials and testing, and
regulatory, pre-commercialization and marketing activities.
9
<PAGE>
Net interest and investment income was approximately $513,000 and
$716,000 for the three-month periods ended March 31, 1997 and 1996,
respectively. The decrease primarily resulted from decreased interest and
investment income due to lower average invested cash balances.
Liquidity and Capital Resources
At March 31, 1997, the Company had approximately $30,806,000 in cash,
cash equivalents and highly liquid short and long-term investments.
Net cash used by the Company in operating activities amounted to
approximately $4,265,000 for the three-month periods ended March 31, 1997. Net
cash used in operating activities in the 1997 period is greater than the
Company's net loss for such period primarily due to increases in accounts
receivable associated with sales from the Company's launch of ZADAXIN in its
approved markets and increases in payments to third parties for goods and
services and to employees for compensation and benefits. These uses of cash were
offset by noncash charges associated with depreciation and amortization and
increases in amounts owed to third parties for clinical trials. Net cash used in
operating activities amounted to approximately $4,135,000 for the three-month
period ended March 31, 1996. Net cash used in operating activities in the 1996
period is greater than the Company's net loss for such period primarily due to
cash used for inventory purchases, the prepayment of certain future period
expenses and decreases in amounts owed to third parties for goods and services
related to clinical trial expenses and compensation and benefits. These uses
were offset by increases in amounts owed for accrued professional fees and
noncash charges associated with depreciation and amortization.
Net cash provided by investing activities for the three-month periods
ended March 31, 1997 related to the net sale of approximately $2,922,000 of
marketable securities offset by the purchase of $40,000 in equipment and
furniture. Net cash provided by investing activities for the comparable 1996
period primarily resulted from the net sale of $1,735,000 of marketable
securities offset by the purchase of $46,000 of equipment and furniture.
Net cash provided by financing activities for the three-month periods
ending March 31, 1997 primarily consisted of approximately $1,025,000 in
proceeds received from the issuance of common stock from the exercise of
outstanding warrants and under the Company's stock option plan, offset by
repurchases of the Company's common stock under the Company's approved stock
repurchase plan of approximately $826,000. Net cash provided by financing
activities for the three-month period ending March 31, 1996 related to
approximately $2,352,000 in proceeds received from issuance of common stock
under the Company's stock option plan.
Management believes its existing capital resources and interest on
funds available are adequate to maintain its current and planned operations at
least through 1998. However, the Company's capital requirements may change
depending upon numerous factors, including the level of ZADAXIN product sales,
the availability of complementary products, technologies and businesses, the
initiation of clinical trials and testing, the timing of regulatory approvals,
developments in relationships with collaborative partners and the status of
competitive products. If the Company cannot eventually generate sufficient funds
from operations, it will need to raise additional financing. There can be no
assurance that such financing will be available on acceptable terms, or at all.
10
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SCICLONE PHARMACEUTICALS, INC.
(Registrant)
Date: May 14, 1997 Donald R. Sellers
-----------------------------------
Donald R. Sellers
Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1997 Mark A. Culhane
-----------------------------------
Mark A. Culhane
Vice President,
Finance and Administration
and Chief Financial Officer
(Principal Financial &
Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000880771
<NAME> SCICLONE PHARMACEUTICALS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,458,100
<SECURITIES> 27,347,625
<RECEIVABLES> 3,522,140
<ALLOWANCES> 0
<INVENTORY> 2,531,091
<CURRENT-ASSETS> 14,354,120
<PP&E> 939,466
<DEPRECIATION> (638,495)
<TOTAL-ASSETS> 38,928,835
<CURRENT-LIABILITIES> 4,498,018
<BONDS> 0
0
0
<COMMON> 109,186,964
<OTHER-SE> (74,756,147)
<TOTAL-LIABILITY-AND-EQUITY> 38,928,835
<SALES> 670,538
<TOTAL-REVENUES> 670,538
<CGS> 261,565
<TOTAL-COSTS> 261,565
<OTHER-EXPENSES> 3,961,898
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,040,170)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,040,170)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,040,170)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> 0
</TABLE>
