<PAGE> 1
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 June 30, 1998
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 205, SAN MATEO, CALIFORNIA 94404
- ----------------------------------------------------------- -----
(Address of principal executive offices) (Zip code)
(650) 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 July 31, 1998, 17,419,001 shares of the registrant's Common
Stock, no par value, were issued and outstanding.
<PAGE> 2
SCICLONE PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations
Three and six months ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997 5
Notes to 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 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,633,930 $ 3,619,100
Short-term investments 4,851,893 3,866,007
Accounts receivable 1,561,851 1,024,802
Inventory 1,700,521 2,046,218
Prepaid expenses and other current assets 351,706 332,193
------------- -------------
Total current assets 12,099,901 10,888,320
Property and equipment, net 482,314 525,077
Long-term investments 1,965,912 5,415,358
Notes receivable from officers 1,566,630 2,326,851
Other assets 617,516 39,899
------------- -------------
Total assets $ 16,732,273 $ 19,195,505
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 615,579 $ 562,730
Accrued compensation and benefits 598,551 758,955
Accrued clinical trials expense 1,632,726 1,210,164
Accrued professional fees 719,000 818,000
Other accrued expenses 254,042 121,999
------------- -------------
Total current liabilities 3,819,898 3,471,848
Redeemable preferred stock, no par value; 10,000,000
shares authorized; 661,157 shares issued and
outstanding 7,100,476 --
Shareholders' equity:
Common stock, no par value; 75,000,000 shares
authorized; 17,405,384 and 17,348,108 shares
issued and outstanding 107,640,116 107,033,516
Note receivable from former officer (5,944,000) (5,944,000)
Net unrealized loss on available-for-sale securities (2,949) (17,588)
Accumulated deficit (95,881,268) (85,348,271)
------------- -------------
Total shareholders' equity 12,912,375 15,723,657
------------- -------------
Total liabilities and shareholders' equity $ 16,732,273 $ 19,195,505
============= =============
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Product revenue $ 801,290 $ 623,080 $ 1,355,689 $ 1,293,618
Contract revenue -- -- 100,000 --
------------ ------------ ------------ ------------
Total revenue 801,290 623,080 1,455,689 1,293,618
Cost of product sales 203,199 262,913 428,144 524,478
------------ ------------ ------------ ------------
Gross profit 598,091 360,167 1,027,545 769,140
Operating expenses:
Research and development 2,193,268 2,019,880 4,362,842 4,085,599
Marketing 1,306,768 950,314 2,554,782 1,979,452
General and administrative 954,755 898,256 1,847,974 1,765,297
------------ ------------ ------------ ------------
Total operating expenses 4,454,791 3,868,450 8,765,598 7,830,348
------------ ------------ ------------ ------------
Loss from operations (3,856,700) (3,508,283) (7,738,053) (7,061,208)
Interest and investment income, net 151,425 333,672 348,095 846,427
------------ ------------ ------------ ------------
Net loss (3,705,275) (3,174,611) (7,389,958) (6,214,781)
Deemed dividend on issuance of
preferred stock (3,143,039) -- (3,143,039) --
------------ ------------ ------------ ------------
Net loss attributable to common
shareholders $ (6,848,314) $ (3,174,611) $(10,532,997) $ (6,214,781)
============ ============ ============ ============
Net loss per share (basic & diluted) $ (0.44) $ (0.18) $ (0.68) $ (0.36)
============ ============ ============ ============
Weighted average shares used in
computing per share amounts 15,495,989 17,174,520 15,480,917 17,354,579
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss attributable to common shareholders $(10,532,997) $ (6,214,781)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 116,787 76,450
Deemed dividend on issuance of Series C preferred stock 3,143,039 --
Changes in operating assets and liabilities:
Prepaid expenses and other assets (586,909) 610,939
Accounts receivable (537,049) (948,837)
Inventory 345,697 152,612
Accounts payable and other accrued expenses 184,892 (923,507)
Accrued clinical trial expense 422,562 785,785
Accrued professional fees (99,000) (461,000)
Accrued compensation and benefits (160,404) (300,352)
------------ ------------
Net cash used in operating activities (7,703,382) (7,222,691)
------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (74,024) (222,430)
Sale of marketable securities, net 2,478,199 9,534,739
------------ ------------
Net cash provided by investing activities 2,404,175 9,312,309
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock & equity line
financing warrants, net 606,600 1,050,354
Proceeds from issuance of Series C preferred stock &
warrants, net 3,957,437 --
Payment on notes receivable from officer 750,000 --
Repurchase of common stock -- (4,267,249)
------------ ------------
Net cash provided by (used in) financing activities 5,314,037 (3,216,895)
------------ ------------
Net Increase (decrease) in cash and cash equivalents 14,830 (1,127,277)
Cash and cash equivalents, beginning of period 3,619,100 4,642,590
------------ ------------
Cash and cash equivalents, end of period $ 3,633,930 $ 3,515,313
============ ============
Supplemental disclosures of non-cash financing activities:
Deemed dividend on issuance of Series C preferred stock $ 3,143,039 --
Warrants attributable to Series C preferred stock $ 245,000 --
Warrants attributable to equity line financing $ 460,000 --
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
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, 1997.
Certain items in the financial statements have been reclassified to
conform to current quarter presentation. 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. As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128
requires the presentation of basic earnings (loss) per share and diluted
earnings (loss) per share, if more dilutive, for all periods presented.
In accordance with SFAS 128, basic net loss per share has been computed
using the weighted average number of shares of common stock outstanding
during the period. Diluted net loss per share has not been presented as
the result would be antidilutive given the Company's history of net
losses.
3. As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net loss or shareholders'
equity. SFAS 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in
shareholders' equity to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the
requirements of SFAS 130. For the three-month periods ended June 30, 1998
and 1997, total comprehensive loss attributable to common shareholders
amounted to $(6,851,263) and $(3,311,934), respectively. For the
six-month periods ended June 30, 1998 and 1997, total comprehensive loss
attributable to common shareholders amounted to $(10,535,946) and
$(6,352,104), respectively.
4. As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires that
the Company report financial and descriptive information about its
reportable operating segments. The Company is evaluating the impact, if
any, on SFAS 131 disclosures, but does not believe the disclosures are
material.
6
<PAGE> 7
5. The following is a summary of available-for sale securities at June 30,
1998:
<TABLE>
<CAPTION>
Available-for-Sale Securities
-------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government &
Agency obligations $ 2,211,191 $ 23,555 $ (19,333) $ 2,215,413
Corporate obligations 4,548,894 36,327 (33,039) 4,552,182
Corporate securities 75,000 6,410 (31,200) 50,210
----------- ----------- ----------- -----------
$ 6,835,085 $ 66,292 $ (83,572) $ 6,817,805
=========== =========== =========== ===========
</TABLE>
The amortized cost and estimated fair value of available-for-sale
securities at June 30, 1998 by contractual maturity are shown below.
<TABLE>
<CAPTION>
Estimated
Fair
Cost Value
---------- ----------
<S> <C> <C>
Due in one year or less $4,826,574 $4,801,683
Due after one year through three years 1,933,511 1,965,912
---------- ----------
6,760,085 6,767,595
Corporate securities 75,000 50,210
---------- ----------
$6,835,085 $6,817,805
========== ==========
</TABLE>
6. The following is a summary of inventories at June 30, 1998:
<TABLE>
<S> <C>
Raw materials $1,514,262
Finished goods 186,259
----------
$1,700,521
==========
</TABLE>
7. For the six months ended June 30, 1998, one customer in China accounted
for 73% of the Company's product sales. Such customer represents 86% of
the accounts receivable balance at June 30, 1998. Such receivables are
currently being paid on time; however, payments have been delayed in the
past and may slow in the future. At June 30, 1998, the Company had
allowances for bad debts of $70,000. If collection of outstanding
accounts receivable do not remain favorable, it may be necessary to
further increase related allowances for bad debts.
8. In April 1998, the Company sold 661,157 shares of Series C preferred
stock at $6.05 per share and received $3,712,000 in net proceeds from the
offering. The preferred stock is convertible into common stock on a
scheduled basis over the next five years at prices based on the market
price of the common stock during a pricing period preceding conversion.
In conjunction with the offering, the Company granted to the investors
warrants to purchase 100,000 shares of common stock. These warrants are
exercisable during the five-year period ending March 2003 at an exercise
price of $5.67 per share. In the second quarter ended June 30, 1998, the
Company recognized a deemed dividend in the amount of $3,143,000 in
connection with the issuance of the Series C preferred stock. This amount
increased the net loss and net loss per share attributable to common
shareholders and was calculated as required by the SEC.
7
<PAGE> 8
9. In April 1998, the Company entered into an agreement with Sclavo S.p.A.,
an international pharmaceutical company, to acquire its marketing
approval for ZADAXIN thymosin alpha 1 in Italy as an influenza vaccine
adjuvant. This agreement also included a marketing application for use of
ZADAXIN to treat non-small cell lung cancer, as well as all of Sclavo's
development and marketing rights to ZADAXIN in Italy, Spain and Portugal.
Under the agreement, which is subject to certain standard closing
conditions, the purchase price includes $296,000 in cash, the issue of
375,000 shares of the Company's common stock, and two-year warrants to
purchase 375,000 shares of common stock at an exercise price of $4.125
per share. As of June 30, 1998, the agreement had not closed.
10. In June 1998, the Company entered into an agreement with an institutional
investor for an equity line which allows the Company to access up to $32
million through sales of its common stock over a two-year period, subject
to certain limitations. The decision to draw any funds and the timing for
any such draw is solely at the Company's discretion. The Company is not
obligated to draw any minimum amount under the equity line. The agreement
provides that the Company, at its option, can obtain up to $4,000,000 per
quarter for two years through sales of its common stock. Should the
Company elect to draw upon the equity line, any shares sold will be at a
3% discount to the average sale price of the Company's common stock over
a specified period of time prior to the date of each sale. As a
commitment fee to the investor, the Company issued a five-year warrant to
purchase 200,000 shares of its common stock at an exercise price of $5.53
per share. Up to 300,000 additional warrants to purchase common stock at
no less than $5.53 per share will be issued to the investor based upon
the number of shares of common stock purchased by the investor each
calendar year during the term of the financing. Draws under the equity
line are subject to the satisfaction of certain conditions, including
registration of the investor's resale of the shares, a minimum trading
price per share, volume limitations, and limitations on the number of
shares of the Company's common stock the investor may hold at any point
in time. No assurances can be given that the Company will be able to
obtain funds when and if it desires to do so.
11. In December 1997, the Company and Alpha 1 Biomedicals, Inc. ("A1B")
entered into an Asset Purchase Agreement pursuant to which the Company
will acquire A1B's worldwide rights to thymosin alpha 1 and eliminate the
Company's and its current and future sublicensee's royalty obligations to
A1B with respect to future sales of thymosin alpha 1. This agreement was
approved by A1B's stockholders at A1B's 1988 Annual Meeting of
Stockholders in July 1998. In accordance with the agreement, the Company
has agreed to issue to A1B up to 600,000 shares of common stock and lend
A1B up to $280,000 to A1B in exchange for the assets described above.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following material contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. Such forward-looking statements include those which management has
identified with an asterisk (*). Such forward-looking statements are subject to
risks and uncertainties, including those identified in Factors That May Affect
Future Operating Results elsewhere herein and in the Company's Annual Report on
Securities and Exchange Commission Form 10-K for the year ended December 31,
1997. These risks and uncertainties include (i) the Company's current reliance
on a single product, ZADAXIN(R) thysmosin alpha 1, for its revenues, (ii) the
absence of regulatory approval for ZADAXIN in major pharmaceutical markets,
(iii) the expensive, time consuming and uncertain regulatory approval process,
(iv) risks associated with the manufacture and supply of ZADAXIN, (v)
competition from competing therapies, (vi) market acceptance of the Company's
products, (vii) uncertainties regarding the outcome of the Company's efforts to
develop and commercialize additional products, including CPX and (viii) the need
for additional funds and a strategic partner for the commencement of additional
trials for ZADAXIN and CPX, 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 a global biopharmaceutical company that acquires,
develops and commercializes specialist-oriented drugs for treating chronic and
life-threatening diseases such as hepatitis B, hepatitis C, cancer, immune
system disorders and cystic fibrosis. Currently, the Company has two drugs in
clinical development, ZADAXIN for hepatitis B, hepatitis C, cancer and immune
system disorders, and CPX for cystic fibrosis. The Company also has other drug
candidates in preclinical development. To date, the Company's principal focus
has been the development and commercialization of ZADAXIN and the development of
CPX.
From commencement of operations through June 30, 1998, the Company
incurred a cumulative net loss of approximately $95.9 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 increasing ZADAXIN sales in approved markets, securing
regulatory approvals for ZADAXIN in additional countries and successfully
launching ZADAXIN, if approved, in such countries. In addition, other factors
may also impact the Company's ability to achieve a profitable level of
operations such as spending associated with successful development of ZADAXIN
and CPX in major pharmaceutical markets, 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, market acceptance of ZADAXIN, the timing and
costs associated with preclinical and clinical development of the Company's
products, 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 the launch, sale or distribution of ZADAXIN, preclinical and
clinical development of the Company's products, the regulatory approval process
or 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.
9
<PAGE> 10
RESULTS OF OPERATIONS
Total revenue was approximately $801,000 and $1,456,000 for the
three-month and six-month periods ended June 30, 1998, respectively as compared
to approximately $623,000 and $1,294,000 for the corresponding periods in 1997.
For the six months ended June 30, 1998, $1,356,000 of total revenue was derived
from ZADAXIN product sales and $100,000 from a research grant from the U.S. Food
and Drug Administration. For the three months ended June 30, 1998, all of the
$801,000 total revenue was related to ZADAXIN product sales. Currently, ZADAXIN
has been approved for marketing in Argentina, Italy, Kuwait, the People's
Republic of China, Peru, the Philippines and Singapore. For the three months
ended June 30, 1998, one customer in China accounted for 73% of the Company's
product sales. The Company's accounts receivable collections in China are
typically 180 days or longer. Such customer represents 86% of the accounts
receivable balance at June 30, 1998. Such receivables are currently being paid
on time; however, payments have been delayed in the past and may slow in the
future. At June 30, 1998, the Company had allowances for bad debts of $197,000.
If collection of outstanding accounts receivable do not remain favorable, it may
be necessary to increase related allowances for bad debts. 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 revenue to
increase in 1998 and beyond, upon the commencement of the commercial launch of
ZADAXIN in additional markets once regulatory approvals are secured.* The level
of such product revenue increase, if any, is dependent upon increased ZADAXIN
market penetration in the Company's existing approved markets, additional
ZADAXIN marketing approvals and the successful launch of ZADAXIN in new markets.
Although the Company remains optimistic regarding the prospects of ZADAXIN,
there can be no assurance that the Company will ever achieve significant levels
of product revenue or that the Company will receive additional ZADAXIN market
approvals.
Cost of sales was approximately $203,000 and $428,000 for the
three-month periods and six-month periods ended June 30, 1998, respectively as
compared to approximately $263,000 and $524,000 for the corresponding periods in
1997. The decrease is attributable to decreased payroll costs and travel
expenses. The Company expects cost of sales to vary from quarter to quarter,
dependent upon the level of product revenue, the absorption of fixed
product-related costs, and any charges associated with excess or expiring
finished product.
Research and development expenses were approximately $2,193,000 and
$4,363,000 for the three-month periods and six-month periods ended June 30,
1998, respectively as compared to approximately $2,020,000 and $4,086,000 for
the corresponding periods in 1997. The increase in the three-month period is
primarily attributable to license fees associated with the acquisition of Sclavo
S.p.A.'s rights to thymosin alpha 1 and increased consulting fees offset by
decreased clinical expenses and payroll costs. The increase in the six-month
period is primarily attributable to license fees associated with the proposed
acquisition of rights to thymosin alpha 1 from Alpha 1 Biomedicals, Inc. and
Sclavo S.p.A. and increased consulting fees, partially offset by decreased
payroll costs and clinical trial expenses. The Company recently completed its
CPX Phase 1 clinical study in the United States and plans to start a Phase 2
clinical trial in the third quarter of this year.* In addition, the Company is
pursuing a corporate partnering arrangement with a major pharmaceutical company
for a phase 3 development of the combination of ZADAXIN plus interferon for
hepatitis C in the U.S. and Europe.* The initiation and continuation of these
programs by
10
<PAGE> 11
the Company had and will continue to have a significant effect on the Company's
research and development expenses in the future and will require the Company to
seek additional capital resources.* In general, the Company expects product
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, entering into one or more corporate
partnering arrangements, acquiring product rights, and expanding regulatory
activities.*
Marketing expenses were approximately $1,307,000 and $2,555,000 for the
three-month periods and six-month periods ended June 30, 1998, respectively as
compared to approximately $950,000 and $1,979,000 for the corresponding periods
in 1997. The increase relates to increased payroll costs, travel and
entertainment and promotional materials expenses associated with the expansion
in its approved markets offset by decreased conference and seminar costs. 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 $955,000 and
$1,848,000 for the three-month periods and six-month periods ended June 30,
1998, respectively as compared to approximately $898,000 and $1,765,000 for the
corresponding periods in 1997. The increase is attributable to increased general
office and travel expenses and fees for professional services, offset by
decreased payroll costs. 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 and resources to support increased
expenditures on clinical trials and testing, and regulatory,
pre-commercialization and marketing activities.*
Net interest and investment income was approximately $151,000 and
$348,000 for the three-month periods and six-month periods ended June 30, 1998,
respectively as compared to approximately $334,000 and $846,000 for the
corresponding periods in 1997. The decrease primarily resulted from decreased
interest and investment income due to lower average invested cash balances.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had approximately $10,452,000 in cash,
cash equivalents and liquid short and long-term investments.
Net cash used by the Company in operating activities amounted to
approximately $7,703,000 for the six-month period ended June 30, 1998. Net cash
used in operating activities in the 1998 period is greater than the Company's
net loss attributable to common shareholders for such period due to increases in
accounts receivable and payments to third parties for goods and services and to
employees for compensation and benefits. These uses of cash were offset by
non-cash charges associated with depreciation and amortization, a deemed
dividend on issuance of preferred stock, decreases in inventory and prepayments
of certain future expenses and increases in amounts owed to third parties for
clinical trials. Net cash used by the Company in operating activities amounted
to approximately $7,223,000 for the six-month period ended June 30, 1997. Net
cash used in operating activities in the 1997 period is greater than the
Company's net loss for such period
11
<PAGE> 12
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 non-cash charges associated with
depreciation and amortization and increases in amounts owed to third parties for
clinical trials.
Net cash provided by investing activities amounted to approximately
$2,404,000 for the six-month period ended June 30, 1998 related to the net sale
of approximately $2,478,000 of marketable securities offset by the purchase of
approximately $74,000 in equipment and furniture. Net cash provided by investing
activities amounted to approximately $9,313,000 for the six-month period ended
June 30, 1997 related to the net sale of approximately $9,535,000 of marketable
securities offset by the purchase of $222,000 in equipment and furniture.
Net cash provided by financing activities for the six-month period
ending June 30, 1998 amounted to approximately $5,314,000, consisting of a
partial repayment of $750,000 on a note receivable from an officer,
approximately $3,957,000 in net proceeds received from the issuance of Series C
preferred stock and warrants and approximately $607,000 in net proceeds received
from the issuance of warrants under the Company's equity line and issuance of
common stock under the Company's stock option plan and employee stock purchase
plan. Net cash provided by financing activities for the six-month period ending
June 30, 1997 primarily consisted of approximately $1,050,000 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 $4,267,000.
Management believes its existing capital resources and interest on
funds available are adequate to maintain its current and planned operations at
least through June 1999.* In April 1998, the Company concluded an offering of
Series C preferred stock with net proceeds of $3,712,000. In June 1998, the
Company entered into an agreement with an institutional investor for an equity
line which allows the Company to access up to $32 million through sales of its
common stock over a two-year period, subject to certain limitations. The Company
is pursuing corporate partnering and other opportunities to increase its capital
resources.* If one or more of such other opportunities occurred, the Company
would consider accelerating drug development activities, including clinical
trials.* 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
preclinical and clinical trials and testing, the timing of regulatory approvals,
developments in relationships with existing or future collaborative partners and
the status of competitive products. If the Company cannot eventually generate
sufficient funds from operations or its equity line, it will need to raise
additional public or private financing in the near future. There can be no
assurance that such financing will be available on acceptable terms and on a
timely basis, if at all.
12
<PAGE> 13
IMPACT OF THE YEAR 2000
As the year 2000 approaches, an issue impacting all companies has
emerged regarding how existing application software programs and operating
systems can accommodate this date value. In brief, many existing application
software products in the marketplace were designed to accommodate only a two
digit date position which represents the year (e.g., "95" is stored on the
system and represents the year 1995). As a result, the year 1999 (i.e., "99")
could be the maximum date value systems will be able to accurately process.
Management is in the process of working with its software vendors to assure that
the Company is prepared for the year 2000. Management does not anticipate that
the Company will incur significant operating expenses or be required to invest
heavily in computer system improvements to be year 2000 compliant.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Dependence on ZADAXIN and CPX. The Company's principal drug development
efforts are currently focused primarily on ZADAXIN and CPX. Clinical trials of
ZADAXIN sponsored by the Company and/or other parties are currently in progress
or planned and favorable results from such trials will be necessary to gain
regulatory approval in major pharmaceutical markets. Sales of ZADAXIN commenced
in 1997 but are not material at this time. While ZADAXIN has been approved for
commercial sale for treatment of hepatitis B in the People's Republic of China,
Kuwait, Peru, the Philippines and Singapore, no assurance can be given that
ZADAXIN approvals will be obtained in additional countries or for the treatment
of additional indications, such as hepatitis C or cancer, in a timely fashion or
at all. The Company's launch of ZADAXIN in the People's Republic of China, the
Philippines and Singapore is the first commercial introduction of ZADAXIN by the
Company, and no assurance can be given that commercialization of ZADAXIN will
prove successful. The Company has not yet launched ZADAXIN in Argentina, Italy,
Kuwait or Peru and no assurance can be given that future launches of ZADAXIN
will prove successful in these countries or in any additional countries. Future
sales of ZADAXIN will depend on market acceptance and successful distribution.
In particular, although the People's Republic of China has the highest hepatitis
B prevalence rate in the world, the low average income and poorly developed
distribution infrastructure present ongoing challenges to successful
commercialization of ZADAXIN in that market. Because the Company currently
relies on ZADAXIN as its sole source of revenue, the failure to demonstrate the
drug's efficacy in future clinical trials, obtain additional marketing approvals
or commercialize the drug successfully would have a material adverse effect on
the Company.
The Company may experience delays and encounter difficulties in
clinical trials of CPX. In addition, there can be no assurance that any clinical
trial will provide statistically significant evidence of the efficacy of CPX in
treating cystic fibrosis ("CF"). A failure to demonstrate the safety and
efficacy of CPX in a CF clinical trial, obtain regulatory approval of CPX for CF
or successfully commercialize CPX would have a material adverse effect on the
Company.
13
<PAGE> 14
No History of Significant Revenues; Continuing Operating Losses. The
Company has only recently generated revenues from the commercialization of its
lead product, ZADAXIN, and there is substantial uncertainty regarding the timing
and amount of any future revenues and whether such future revenues will be
material. The Company cannot predict when or if marketing approvals for CPX will
be obtained or additional marketing approvals for ZADAXIN will be obtained. Even
if such approvals are obtained, there can be no assurance that ZADAXIN and CPX
will be commercialized successfully. The Company has experienced significant
operating losses since its inception and has a substantial accumulated deficit.
The Company expects its operating expenses to increase over the next several
years as it expands its development, clinical testing and marketing
capabilities. The Company's ability to achieve a profitable level of operations
is dependent in large part on successful expansion of the market for ZADAXIN in
Asia, Latin America and the Middle East, obtaining additional regulatory
approvals for ZADAXIN and/or future products, entering into a corporate
partnering arrangement for phase 3 development of the combination of ZADAXIN
plus interferon for hepatitis C in the U.S. and Europe, entering into other
agreements for product development and commercialization, where appropriate, and
continuing to expand from development into successful marketing. There can be no
assurance that the Company will ever achieve a profitable level of operations.
Future Capital Needs; Uncertainty of Additional Financing. Since
inception, the Company has financed its operations primarily through sales of
equity securities. The Company will need to obtain additional financing through
sales of equity securities to support its long-term product development and
commercialization programs. The Company believes its existing capital resources
and interest on funds available are adequate to maintain its current and planned
operations at least through June 1999.* The Company is considering corporate
partnering and other opportunities to increase its capital resources. However,
the Company's future capital requirements will depend on many factors, including
the level of ZADAXIN product sales, the availability of complementary products,
technologies and businesses, the initiation of preclinical and clinical trials
and testing, the timing and cost of regulatory approvals, patent costs,
competing technological and market developments, the nature of existing and
future collaborative relationships, and the Company's ability to establish
development, sales, manufacturing and marketing arrangements. If additional
funds are raised by the Company through the issuance of equity securities or
securities convertible into or exercisable for equity securities, the percentage
ownership of the then current shareholders of the Company will be reduced. The
Company may issue a series of Preferred Stock with rights, preferences and
privileges senior to those of the Company's Common Stock. There can be no
assurance that such financing will be available on acceptable terms or a timely
basis, if at all. The unavailability or timing of financing could prevent or
delay the Company's long-term product development and commercialization programs
and may require curtailment of operations of the Company.
Dilution; Shares eligible for Future Sale. Pursuant to the equity line,
the Company may issue to an institutional investor up to $4.0 million of Common
Stock during its each of eight consecutive three-month investment periods (or
$32 million in the aggregate) at a price equal to 97% of the lowest reported
sale price during the four days immediately preceding the notice of purchase
delivered by the investor to the Company. Issuances, if any, of Common Stock
pursuant to the equity line would have a dilutive effect on existing holders of
Common Stock. In connection with the equity line, the Company also issued to the
institutional investor the Warrant to purchase 200,000 shares of Common Stock at
$5.53 per
14
<PAGE> 15
share and may issue warrants to purchase up to an additional 300,000 shares of
Common Stock at a price equal to 150% of weighted average purchase price of the
Common Stock purchased during the year with respect to which the additional
warrant is issued. The resale by the investor of the Common Stock that it
acquires could depress the market price of the Common Stock. Moreover, as all
the shares to be issued pursuant to the equity line as well as the shares
issuable upon exercise of the warrant and the additional warrants, if any, will
be available for immediate resale, the prospects of such sales could further
adversely affect the market price for the Common Stock. The Company recently
issued shares of Series C Preferred Stock (the "Series C Shares") in a private
placement with proceeds of $4,000,000 (before deducting offering expenses).
Under certain conditions each Series C Share may convert into substantially more
than one share of the Company's Common Stock. If such events were to occur, the
conversion of the Series C Shares would have a dilutive effect on the common
shareholders.
Dependence on Third Parties. The Company's strategy contemplates that
it will enter into various arrangements with other entities. To date, the
Company has acquired rights to ZADAXIN, CPX and certain other drugs but is only
actively pursuing clinical development of ZADAXIN and CPX. Failure to license or
otherwise acquire rights to additional drugs would result in a shortage of
products for development. In addition, the Company has licensed exclusive rights
to develop and market ZADAXIN in Japan to Schering-Plough K.K. ("SPKK"), the
Japanese subsidiary of Schering-Plough Corporation. SPKK has a substantial
commitment to alpha interferon, which is an approved therapy for hepatitis B and
hepatitis C in Japan. There can be no assurance that the relationship will prove
successful or that the Company will be able to negotiate additional arrangements
in the future. The amount and timing of resources that collaborators devote to
their activities with the Company will not be within the control of the Company
and may be affected by financial difficulties or other factors affecting these
third parties. There can be no assurance that such parties will perform their
obligations as expected. Moreover, the Company's ability to obtain regulatory
approval in one country may be delayed or adversely affected by the timing of
regulatory activities and approvals in one or more other countries, particularly
if the Company does not participate in the regulatory approval process in such
other countries.
Foreign Sales and Operations. The Company's financial condition in the
near term will be highly dependent on ZADAXIN sales in foreign jurisdictions,
where sales and operations are subject to inherent risks, including difficulties
and delays in obtaining pricing approvals and reimbursement, unexpected changes
in regulatory requirements, tariffs and other barriers, political instability,
difficulties in staffing and managing foreign operations, longer payment cycles,
greater difficulty in accounts receivable collection, currency fluctuations and
potential adverse tax consequences. Certain foreign countries regulate pricing
of pharmaceuticals and such regulation may result in prices significantly below
those that would prevail in a free market. The majority of the Company's current
sales are to customers in the People's Republic of China where the Company's
accounts receivable collections are typically 180 days or greater. Such
collections to date are now being paid on time; however, these payments may slow
in the future.
Patents and Proprietary Rights. The U.S. and most European composition
of matter patents for thymosin alpha 1 have expired. The Company will in the
future have only limited composition of matter patents for thymosin alpha 1 or
other products and this could
15
<PAGE> 16
adversely affect the Company's proprietary rights. However, the Company owns or
has exclusive licenses for use and/or process patents or patent applications in
the U.S., Europe, Japan and other jurisdictions for thymosin alpha 1, and for
CPX in the U.S. and will seek to protect such products from competition through
such patent protection and through other means. The Company's success is
significantly dependent on its ability to obtain patent protection for its
products and technologies and to preserve its trade secrets and operate without
infringing on the proprietary rights of third parties. No assurance can be given
that the Company's pending patent applications will result in the issuance of
patents or that any patents will provide competitive advantages or will not be
invalidated or circumvented by its competitors. Moreover, no assurance can be
given that patents are not issued to, or patent applications have not been filed
by, other companies which would have an adverse effect on the Company's ability
to use, manufacture or market its products or maintain its competitive position
with respect to its products. Numerous patents and patent applications relating
to thymosin alpha 1 are held under exclusive license and the breach by the
Company of the terms of such license could result in the loss of the Company's
rights to such patents and patent applications. Other companies obtaining
patents claiming products or processes useful to the Company may bring
infringement actions against the Company and such litigation is typically costly
and time-consuming. As a result, the Company may be required to obtain licenses
from others or not be able to use, manufacture or market its products. Such
licenses may not be available on commercially reasonable terms, if at all.
The patent positions of biotechnology firms generally are highly
uncertain and involve complex legal and factual questions. No consistent policy
has emerged regarding the validity and scope of claims in biotechnology patents,
and courts have issued varying interpretations in the recent past, and legal
standards concerning validity, scope and interpretations of claims in
biotechnology patents may continue to evolve. Even issued patents may later be
modified or revoked by the U.S. Patent and Trademark Office, the European Patent
Office or the courts in proceedings instituted by third parties. Moreover, the
issuance of a patent in one country does not assure the issuance of a patent
with similar claims in another country and claim interpretation and infringement
laws vary among countries, so the extent of any patent protection is uncertain
and may vary in different countries.
Pharmaceuticals are not patentable in certain countries in SciClone's
ZADAXIN territory, or have only recently become patentable, and enforcement of
intellectual property rights in many countries in such territory has been
limited or non-existent. Future enforcement of patents and proprietary rights in
many countries in SciClone's ZADAXIN territory can be expected to be problematic
or unpredictable. There can be no assurance that any patents issued or licensed
to the Company will provide it with competitive advantages or will not be
challenged by others. No assurance can be given that holders of patents licensed
to the Company will file, prosecute, extend or maintain their patents in
countries where the Company has rights. Furthermore, there can be no assurance
that others will not independently develop similar products or will not design
around patents issued or licensed to the Company.
Government Regulation and Product Approvals. The research, preclinical
and clinical development, manufacturing, marketing and sales of pharmaceuticals,
including ZADAXIN, CPX and the Company's other drug candidates, are subject to
extensive regulation by governmental authorities. Products developed by the
Company cannot be
16
<PAGE> 17
marketed commercially in any jurisdiction in which they have not been approved.
The process of obtaining regulatory approvals is lengthy and requires the
expenditure of substantial resources. In some countries where the Company
contemplates marketing ZADAXIN, the regulatory approval process for drugs not
previously approved in countries that have established clinical trial review
procedures is uncertain and this uncertainty may result in delays in granting
regulatory approvals. In addition, in certain countries such as Japan, the
process for obtaining regulatory approval is time consuming and costly because
all clinical trials and most preclinical studies must be conducted there. The
Company is currently sponsoring clinical trials and pursuing regulatory
approvals of ZADAXIN in a number of countries and of CPX in the U.S., but there
can be no assurance that the Company will be able to complete such trials, that
such trials, if completed, will fulfill regulatory approval criteria or that the
Company will ultimately obtain approvals in such countries. Adverse results in
the Company's development programs also could result in the placement of
restrictions on the use of ZADAXIN and CPX or revocation of the approval. The
marketing approval for ZADAXIN in Singapore requires a patient surveillance
program to continue study of the drug's safety and efficacy. Adverse results in
such program could result in the placement of restrictions on the use of ZADAXIN
or revocation of the approval in Singapore. Failure to comply with the
applicable U.S. or foreign regulatory requirements can, among other things,
result in Warning Letters, fines, suspensions of regulatory approvals, product
recalls or seizures, operating restrictions, injunctions and criminal
prosecutions. Further, additional government regulation may be established or
imposed which could prevent or delay regulatory approval of ZADAXIN, CPX or any
future products of the Company.
Manufacturing. The Company has entered into contract manufacturing and
supply agreements to source ZADAXIN and CPX. The Company has experienced delays
of supply of thymosin alpha 1 bulk drug in the past and could do so again in the
future. To be successful, the Company's products must be manufactured in
commercial quantities in compliance with regulatory requirements and at an
acceptable cost. While the Company believes it has and will be able in the
future to establish manufacturing relationships with experienced suppliers
capable of meeting the Company's needs, there can be no assurance that the
Company will establish long term manufacturing relationships with suppliers or
that these suppliers will prove satisfactory. The Company currently has vialing
and packaging supply agreements in effect and has a sufficient supply of
finished thymosin alpha 1 for the near term. Production interruptions, if they
occur, could significantly delay clinical development of potential products,
reduce third party or clinical researcher interest and support of proposed
clinical trials. Such interruptions could also delay commercialization of the
Company's products and impair their competitive position, which would have a
material adverse effect on the business and financial condition of the Company.
Marketing and Sales. The Company has established distribution
arrangements with local pharmaceutical distribution companies covering countries
in Asia, Latin America and the Middle East. However, no assurance can be given
that any such distribution arrangements will remain in place or prove
successful.
Technological Change and Competition. Rapid technological development
may result in the Company's products becoming obsolete before they are marketed
or before the Company recovers a significant portion of the related development
and commercialization expenses. Competition in the pharmaceutical field is
intense and the Company expects that competition will increase. The Company's
competitors include major pharmaceutical
17
<PAGE> 18
companies, biotechnology firms and universities and other research institutions,
both in the U.S. and abroad, that are actively engaged in research and
development of products in the therapeutic areas being pursued by the Company.
Many of these companies and institutions have substantially greater financial,
technical, manufacturing, marketing and human resource capabilities than the
Company and extensive experience in undertaking clinical testing and obtaining
regulatory approvals necessary to market drugs. Principal competitive factors in
the pharmaceutical field include efficacy, safety, price and therapeutic
regimen. Where comparable products are marketed by other companies price is also
a competitive factor.
Uncertainty of Third Party Reimbursement; Resources of Patient
Populations. The Company's ability to successfully commercialize its products
may depend in part on the extent to which reimbursement for the cost of such
products will be available from government health administration authorities,
private health insurers and other organizations. Significant uncertainty exists
as to the reimbursement status of new therapeutic products and there can be no
assurance that third party reimbursement will be available for therapeutic
products the Company might develop. In many of the foreign countries in which
the Company intends to operate, reimbursement of ZADAXIN under government or
private health insurance programs will not be available. In the U.S., health
care reform is an area of increasing national attention and a priority of many
governmental officials. Certain reform proposals, if adopted, could impose
limitations on the prices the Company will be able to charge in the U.S. for its
products or the amount of reimbursement for the Company's products from
governmental agencies or third party payors. In many countries where the Company
has marketing rights for ZADAXIN, government resources and per capita income
levels may be so low that the Company's products will be prohibitively expensive
for a large percentage of the population. In such countries, there can be no
assurance that the Company will be successful in marketing its products on
economically favorable terms, if at all.
Dependence on Qualified Personnel and Key Individuals. Because of the
specialized scientific nature of the Company's business, the Company is highly
dependent upon its ability to continue to attract and retain qualified
management, scientific and technical personnel. There is intense competition for
qualified personnel in the areas of the Company's activities, and there can be
no assurance that the Company will be able to continue to attract and retain the
qualified personnel necessary for the development of its business. In addition,
many key responsibilities within the Company have been assigned to a relatively
small number of individuals. Loss of the services of any of these individuals
unless they were promptly replaced could be significantly detrimental to the
Company's development. The Company does not maintain key person life insurance
on the lives of any of its key personnel.
Product Liability; Absence of Insurance. The Company's business will
expose it to potential product liability risks which are inherent in the
testing, manufacturing, marketing and sale of pharmaceutical products, and there
can be no assurance that product liability claims will not be asserted against
the Company. Product liability insurance for the pharmaceutical products, and
there can be no assurance that product liability claims will not be asserted
against the Company. Product liability insurance for the pharmaceutical industry
generally is expensive to the extent that it is available at all. The Company
has product liability insurance coverage for clinical trials and commercial
sales. However, there can be no assurance that a product liability claim would
not adversely affect the business or financial condition of the Company.
18
<PAGE> 19
Preferred Stock. The Company's Board of Directors has the authority to
issue additional series of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, without any
further vote or action by the Company's shareholders. The rights of the holders
of the Common Stock will be subject to, and may be adversely affected by, the
rights of the holders of any Preferred Stock that may be issued in the future.
The issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company.
Under certain conditions, each Series C Share may convert into
substantially more than one share of the Company's Common Stock. If such events
were to occur, the conversion of the Series C Shares would have a dilutive
effect on the common shareholders.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Recent Sales of Unregistered Securities
On April 1, 1998, the Company issued and sold 661,157 shares of Series
C Convertible Preferred Stock ("Preferred Stock") at $6.05 per share to three
institutional investors, and received $3,712,000 in net proceeds from the
offering. The Preferred Stock is convertible into Common Stock on a scheduled
basis over the next five years at prices based on the market price of the Common
Stock during a pricing period preceding conversion. In conjunction with the
offering, the Company granted to the investors warrants to purchase 100,000
shares of common stock. These warrants are exercisable during the five-year
period ending March 2003 at an exercise price of $5.67 per share. Such
securities were not registered under the Securities Act of 1933, as amended (the
"Act") in reliance upon the exemptions provided by Section 4(2) of the Act
and/or Regulation D promulgated thereunder as a transaction by an issuer not
involving a public offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on June 26, 1998 to
elect five (5) directors, to approve an amendment to the Company's 1995 Equity
Incentive Plan, and to ratify the appointment of the independent auditors of the
Company.
At the Annual Meeting, all of the nominees were elected as follows:
<TABLE>
<CAPTION>
Votes
----------
For Withheld
---------- -------
<S> <C> <C>
Jere E Goyan, Ph.D. 12,212,941 841,007
Donald R. Sellers 12,218,135 835,813
John D. Baxter, M.D. 12,220,391 833,557
Edwin C. Cadman, M.D. 12,216,031 837,917
Rolf H. Henel 12,218,179 835,769
</TABLE>
The shareholders also approved an amendment to the Company's 1995
Equity Incentive Plan to increase by 1,500,000 the maximum number of shares of
common stock that may be issued under such plan with voting as follows:
2,432,462 for; 1,583,365 against; 49,600 abstaining; and 8,988,521 broker
non-votes.
The shareholders also ratified the selection of Ernst & Young LLP as
independent auditors for the Company for the fiscal year ending December 31,
1998 with voting as follows: 12,956,040 for; 61,816 against; and 36,092
abstaining.
20
<PAGE> 21
ITEM 5. OTHER INFORMATION
Shareholder Proposals
Pursuant to new amendments to Rule 14a-4(c) of the Securities Exchange
Act of 1934, as amended, the Company's proxy for its 1999 Annual Meeting of
Shareholders may confer discretionary authority to vote on any proposal
submitted by a shareholder if written notice of such proposal is not received by
Shawn K. Singh, SciClone Pharmaceuticals, Inc., 901 Mariners Island Boulevard,
San Mateo, California 94404, on or before April 14, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i).1 Restated Articles of Incorporation (incorporated by
reference from the Company's Registration Statement on
Form S-1 (No. 33-45446), declared effective by the
Commission on March 17, 1992).
3(i).2 Certificate of Amendment of Restated Articles of
Incorporation (incorporated by reference from the
Company's Registration Statement on Form S-8 (No.
33-66832) filed with the Commission on August 3,
1993).
3(ii).1 Bylaws (incorporated by reference from the Company's
Registration Statement on Form S-1 (No. 33-45446),
declared effective by the Commission on March 17,
1992).
3(ii).2 Certificate of Amendment of Bylaws (incorporated by
reference from the Company's Registration Statement on
Form S-8 (No. 33-66832) filed with the Commission on
August 3, 1993).
4.1 Rights Agreement, dated as of July 25, 1997, between
SciClone and ChaseMellon Shareholder Services, LLC.
(incorporated by reference to the Company's Current
Report on Form 8-K filed on October 14, 1997).
10.24 Structured Equity Line Flexible Financing Agreement by
and between the Company and Cheyenne LLC dated as of
June 30, 1998.
10.25 Warrant to purchase up to 200,000 shares of Common
Stock of the Company issued to Cheyenne LLC dated June
30, 1998.
10.26 Registration Rights Agreement by and between the
Company and Cheyenne LLC dated as of June 30, 1998.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
21
<PAGE> 22
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: August 14, 1998 Donald R. Sellers
---------------------------------------------------
Donald R. Sellers
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1998 Diane Lee
---------------------------------------------------
Diane Lee
Director, Corporate Finance and
Administration
(Principal Financial & Accounting Officer)
22
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,633,930
<SECURITIES> 6,817,805
<RECEIVABLES> 3,128,481
<ALLOWANCES> 0
<INVENTORY> 1,700,521
<CURRENT-ASSETS> 12,099,901
<PP&E> 1,377,258
<DEPRECIATION> (894,944)
<TOTAL-ASSETS> 16,732,273
<CURRENT-LIABILITIES> 3,819,898
<BONDS> 0
0
7,100,476
<COMMON> 107,640,116
<OTHER-SE> (101,828,217)
<TOTAL-LIABILITY-AND-EQUITY> 16,732,273
<SALES> 1,455,689
<TOTAL-REVENUES> 1,455,689
<CGS> 428,144
<TOTAL-COSTS> 428,144
<OTHER-EXPENSES> 8,765,598
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,532,997)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,532,997)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,532,997)
<EPS-PRIMARY> (0.68)
<EPS-DILUTED> 0
</TABLE>
