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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________to ______________________
Commission file number: 0-19825
SCICLONE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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CALIFORNIA 94-3116852
(State or other jurisdiction of incorporation or organization) (I.R.S. employer
identification no.)
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901 MARINER'S 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 August 10, 1999, 24,925,246 shares of the registrant's Common
Stock, no par value, were issued and outstanding.
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SCICLONE PHARMACEUTICALS, INC.
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations
Three and Six months ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows
Six months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
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<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
(unaudited) (Note 1)
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Current assets:
Cash and cash equivalents $ 839,000 $ 3,490,000
Short-term investments 7,000 1,513,000
Accounts receivable, net 2,666,000 1,301,000
Inventory 1,125,000 1,353,000
Prepaid expenses and other current assets 381,000 639,000
------------- -------------
Total current assets 5,018,000 8,296,000
Property and equipment, net 321,000 391,000
Long-term investments -- 407,000
Notes receivable from officer -- 235,000
Other assets 2,210,000 2,398,000
------------- -------------
Total assets $ 7,549,000 $ 11,727,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 687,000 $ 430,000
Accrued compensation and benefits 444,000 731,000
Accrued clinical trials expense 898,000 2,402,000
Accrued professional fees 804,000 731,000
Other accrued expenses 167,000 157,000
------------- -------------
Total current liabilities 3,000,000 4,451,000
Redeemable preferred stock, Series C no par value; 10,000,000
shares authorized; 0 and 58,356 shares issued and outstanding -- 848,000
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized; issuable in
series (0 and 58,356 redeemable preferred
shares classified as outstanding - see above) -- --
Common stock, no par value; 75,000,000 shares authorized;
20,979,599 and 21,534,056 shares issued and outstanding 118,232,000 115,981,000
Net unrealized gain on available-for-sale securities 7,000 9,000
Accumulated deficit (113,690,000) (109,562,000)
------------- -------------
Total shareholders' equity 4,549,000 6,428,000
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Total liabilities and shareholders' equity $ 7,549,000 $ 11,727,000
============= =============
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See notes to consolidated financial statements
SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Three months ended Six months ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
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Product revenue $ 2,001,000 $ 801,000 $ 3,578,000 $ 1,356,000
Contract revenue 107,000 -- 307,000 100,000
------------ ------------ ------------ ------------
Total revenue 2,108,000 801,000 3,885,000 1,456,000
Cost of product sales 397,000 203,000 756,000 428,000
------------ ------------ ------------ ------------
Gross profit 1,711,000 598,000 3,129,000 1,028,000
Operating expenses:
Research and development 891,000 2,193,000 2,803,000 4,363,000
Marketing 1,485,000 1,307,000 2,757,000 2,555,000
General and administrative 863,000 955,000 1,772,000 1,848,000
------------ ------------ ------------ ------------
Total operating expenses 3,239,000 4,455,000 7,332,000 8,766,000
------------ ------------ ------------ ------------
Loss from operations (1,528,000) (3,857,000) (4,203,000) (7,738,000)
Interest and investment income, net 17,000 152,000 69,000 348,000
------------ ------------ ------------ ------------
Net loss (1,511,000) (3,705,000) (4,134,000) (7,390,000)
Deemed dividend on issuance of
preferred stock -- (3,143,000) -- (3,143,000)
------------ ------------ ------------ ------------
Net loss attributable to common
shareholders $ (1,511,000) $ (6,848,000) $ (4,134,000) $(10,533,000)
============ ============ ============ ============
Net loss per common share (basic &
diluted) $ (0.07) $ (0.44) $ (0.20) $ (0.68)
============ ============ ============ ============
Weighted average shares used in
computing per share amounts 20,622,801 15,495,989 20,327,706 15,480,917
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
4
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SCICLONE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Six months ended
June 30,
----------------------------
1999 1998
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OPERATING ACTIVITIES:
Net loss attributable to common shareholders $ (4,134,000) $(10,533,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 84,000 117,000
Deemed dividend on issuance of Series C preferred stock -- 3,143,000
Changes in operating assets and liabilities:
Prepaid expenses and other assets 441,000 (587,000)
Accounts receivable (1,365,000) (537,000)
Inventory 228,000 346,000
Accounts payable and other accrued expenses 266,000 185,000
Accrued compensation and benefits 232,000 (161,000)
Accrued clinical trials expense (1,504,000) 423,000
Accrued professional fees 73,000 (99,000)
------------ ------------
Net cash used in operating activities (5,679,000) (7,703,000)
------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (14,000) (74,000)
Sale of marketable securities, net 1,918,000 2,478,000
------------ ------------
Net cash provided by investing activities 1,904,000 2,404,000
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock & financing cost, net 889,000 607,000
Proceeds from issuance of common stock Series C preferred stock and
warrants, net -- 3,957,000
Payment on notes receivable from officer 235,000 750,000
------------ ------------
Net cash provided by financing activities 1,124,000 5,314,000
------------ ------------
Net (decrease) increase in cash and cash equivalents (2,651,000) 15,000
Cash and cash equivalents, beginning of period 3,490,000 3,619,000
------------ ------------
Cash and cash equivalents, end of period $ 839,000 $ 3,634,000
============ ============
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
Issuance of common stock as payment in lieu for accrued compensation
and benefits $ 520,000 --
</TABLE>
See notes to consolidated financial statements
5
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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,
1998. 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
balance sheet data at December 31, 1998 is derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The interim results are
not necessarily indicative of results for subsequent interim periods or
for the full year.
2. In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), which is required to be adopted for the year ending
December 31, 2001. Management does not anticipate that the adoption of
SFAS 133 will have a significant impact on results of operations or the
financial position of the Company.
3. For the six-month periods ended June 30, 1999 and 1998, total
comprehensive loss amounted to $(4,136,000) and $(10,518,000),
respectively.
4. The following is a summary of inventories at June 30, 1999:
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Raw materials $1,096,000
Finished goods 29,000
----------
$1,125,000
==========
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5. The following is a summary of other assets at June 30, 1999:
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Intangible product rights - net $2,115,000
Other 95,000
----------
$2,210,000
==========
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Product rights acquired are being amortized over 6 years beginning in
September 1998.
6. In April 1999, the Company received $235,000 from its chief executive
officer in payment of the remaining balance of a loan. As of June 30,
1999, the balance in "Notes receivable from officer" was $0.
7. In April 1998, the Company sold 661,157 shares of Series C preferred
stock at $6.05 per share and received $3,931,000 in net proceeds from
the sale. As of December 31, 1998 all but 58,356 shares of preferred
stock were converted into shares of common stock. In January 1999,
46,922 of the remaining 58,356 shares of preferred stock were converted
into 299,483 shares of common stock and 11,434 of such remaining shares
of preferred stock were redeemed at a conversion price of approximately
$0.95 per common share. As
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a result, there are no outstanding shares of Series C preferred stock.
In conjunction with the sale, 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.
8. 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 two-year period
commences with the first draw of funds under the line. Such first draw
has not been made as of the quarter ended June 30, 1999. 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
low 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, limitations on the number of shares
that can be issued without shareholder approval and limitations on the
number of shares of the Company's common stock the investor may hold at
any point in time. Unless the Company and the investor agree otherwise,
the facility is not available when the Company's stock is trading at
less than $1.00 per share. Further the amount available under the line
is subject to a formula and the amount available in any quarter could be
minimal. No assurances can be given that the Company will be able to
obtain necessary funds under the equity line when and if it desires to
do so.
9. In April 1999, Italy-based Sigma-Tau Group, one of the leading
pharmaceutical companies in Southern Europe, paid $1,000,000 for 445,000
shares of the Company's unregistered common stock. The Sigma-Tau Group
may not sell the shares until April 12, 2001. In addition, the Sigma-Tau
Group was not granted any registration rights covering resale of the
shares.
10. In April 1999, the Company was awarded a $517,000 grant from the Cystic
Fibrosis Foundation for its ongoing Phase 2 study of CPX, a potential
protein repair therapy for cystic fibrosis. The grant will be paid in
three installments over approximately the next 6 months. The first
installment of $107,000 was received in June 1999.
11. On July 2, 1999, the Company completed a $2,000,000 (before deducting
expenses) private placement to strategic institutional and accredited
investors. The offering consisted of units of 1,370,145 shares of common
stock and five-year warrants to purchase 1,370,145 shares of common
stock. Each unit, comprised of one share of common stock and a warrant
to purchase one share of common stock, was priced at $1.46. These
warrants are exercisable during the five-year period ending July 1, 2004
at an exercise price of $ 1.33 per share.
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12. On July 21, 1999, the Company completed a $4,000,000 (before deducting
expenses) private placement to strategic institutional investors led by
Brown Simpson Asset Management and New York Life Insurance Company. The
offering consisted of units of 2,515,934 shares of common stock and
five-year warrants to purchase 2,515,934 shares of common stock. Each
unit, comprised of one share of common stock and a warrant to purchase
one share of common stock, was priced at $1.59. These warrants are
exercisable during the five-year period ending July 20, 2004 at an
exercise price of $1.72 per share.
8
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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,
1998. These risks and uncertainties include (i) the Company's current reliance
on a single product, ZADAXIN(R) thymosin alpha 1, for its revenues; (ii) the
absence of regulatory approval for ZADAXIN in the U.S., Europe or Japan; (iii)
risks associated with the manufacture and supply of ZADAXIN; (iv) the Company's
ability to complete successfully preclinical and clinical development and obtain
timely regulatory approval and patent and other proprietary rights protection
for its products; (v) decisions and timing of decisions made by U.S. Food and
Drug Administration and comparable foreign agencies regarding the indications
for which the Company's products may be approved; (vi) market acceptance of the
Company's products; (vii) the Company's ability to obtain reimbursement for its
products from third party payers, where appropriate; (viii) the accuracy of the
Company's information concerning the products and resources of competitors and
potential competitors; 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 for hepatitis B,
hepatitis C and cancer and the development of CPX for cystic fibrosis.
From commencement of operations through June 30, 1999, the Company
incurred a cumulative net loss of approximately $113.7 million. The Company
expects its operating expenses to increase over the next several years
consistent with its expansion of sales, research and development, and clinical
testing.* The Company's ability to expand its operations or achieve
profitability is dependent in 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
additional corporate partnering arrangements for development in the U.S. and
Europe of a combination therapy for hepatitis C including ZADAXIN plus
interferon, entering into other agreements for product development and
commercialization, where appropriate, obtaining additional financing to support
its long-term product development and commercialization efforts, and continuing
to transition from a development operation into a successful marketing and
development operation. There can be no assurance 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. Setbacks in the launch, sale or distribution of ZADAXIN,
preclinical and clinical development of the Company's products, particularly
CPX, the regulatory approval process or relationships with collaborative
partners, and any shortfalls in
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ZADAXIN product sales 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.
RESULTS OF OPERATIONS
Total revenue was approximately $2,108,000 and $3,885,000 for the
three-month and six-month periods ended June 30, 1999, as compared to
approximately $801,000 and $1,456,000 for the corresponding period in 1998. For
the three months ended June 30, 1999, $2,001,000 of total revenue was derived
from ZADAXIN product sales and $107,000 from a research grant for CPX from the
Cystic Fibrosis Foundation. For the six months ended June 30, 1999, four
distributors in The People's Republic of China accounted for 84% of the
Company's product sales. The People's Republic of China, like Japan and certain
other Asian markets, uses a tiered method to import and distribute products. The
distributors make the sales in the country, but the product is imported for them
by licensed importers. The Company currently works with two importing agents who
have been reselling to four distributors within The People's Republic of China.
The Company has received ZADAXIN marketing approval in 14 countries but has not
yet commercially launched ZADAXIN in all of such countries. The Company has
filed for approval to market ZADAXIN in several additional countries and
anticipates additional filings in other countries.* As a result, the Company
expects product revenue to continue to increase in 1999 and beyond, upon the
commencement of the commercial launch of ZADAXIN in newly approved markets and
in additional markets once regulatory approvals are secured.* However, the level
of ZADAXIN product revenue in newly approved and potential markets and increases
in existing markets, if any, is dependent in part upon the Company's long-term
product development and commercialization efforts, increased ZADAXIN market
penetration, additional ZADAXIN marketing approvals and successful ZADAXIN
launch efforts. Although the Company remains optimistic regarding the prospects
of ZADAXIN, there can be no assurance that the Company will ever achieve
significant levels of ZADAXIN product revenue, or that the Company will receive
additional ZADAXIN market approvals.
Cost of sales was approximately $397,000 and $756,000 for the
three-month and six-month periods ended June 30, 1999, as compared to
approximately $203,000 and $428,000 for the corresponding period in 1998. The
increase was attributable to increased ZADAXIN product sales. The Company
expects cost of sales to vary from quarter to quarter, dependent upon the level
of ZADAXIN 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 $891,000 and
$2,803,000 for the three-month and six-month periods ended June 30, 1999, as
compared to approximately $2,193,000 and $4,363,000 for the corresponding period
in 1998. The decrease in the comparable three-month period was primarily
attributable to decreased clinical trial expenses, decreased consulting fees and
travel expenses partially offset by increased payroll expenses related to the
Company's domestic restructuring program. The decrease in the six-month period
was primarily attributable to decreased clinical trial expenses, decreased in
license fees associated with acquisition of rights to thymosin alpha 1, and
decreased consulting fees, partially offset by increased payroll expenses
related to the Company's domestic restructuring program. The Company started its
CPX Phase 2 clinical trial in the U.S. in September 1998 and has also started
various pilot clinical studies to expand the use of ZADAXIN in overseas markets.
The initiation and continuation of these and other clinical programs by the
Company had and will continue to have a significant effect on the Company's
research and development expenses in the future and
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could require the Company to seek additional capital resources.* In general, the
Company expects product research and development expenses to vary quarter to
quarter as the Company pursues its strategy of initiating additional clinical
trials and testing, entering into one or more additional corporate partnering
arrangements, acquiring product rights, and expanding regulatory activities.*
Marketing expenses were approximately $1,485,000 and $2,757,000 for the
three-month and six-month periods ended June 30, 1999, as compared to
approximately $1,307,000 and $2,555,000 for the corresponding period in 1998.
The increase relates to increased payroll expenses and expenses for advertising
and conferences associated with the expansion in the Company's existing ZADAXIN
markets partially offset by decreased travel expenses. The Company expects
marketing expenses to vary in the next several quarters and years as it pursues
its commercialization and marketing efforts and other strategic relationships.*
General and administrative expenses were approximately $863,000 and
$1,772,000 for the three-month and six-month periods ended June 30, 1999, as
compared to approximately $955,000 and $1,848,000 for the corresponding period
in 1998. The decrease was attributable to decreased travel and payroll expenses
partially offset by increased fees for professional services. In the near term,
the Company expects general and administrative expenses to vary quarter to
quarter as the Company takes steps to conserve cash resources while continuing
to support expenditures on clinical trials and testing, and regulatory,
pre-commercialization and marketing activities.*
Net interest and investment income was approximately $17,000 and $69,000
for the three-month and six-month periods ended June 30, 1999, as compared to
approximately $152,000 and $348,000 for the corresponding period in 1998. The
decrease primarily resulted from decreased interest and investment income due to
lower average invested cash balances.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had approximately $846,000 in cash, cash
equivalents and liquid short-term investments. As a result of the Company's
financing activities in July 1999, at July 22, 1999, the Company had
approximately $6,400,000 in cash, cash equivalents and liquid short-term
investments.
Net cash used by the Company in operating activities amounted to
approximately $5,679,000 for the six-month period ended June 30, 1999. Net cash
used in operating activities in the 1999 period was greater than the Company's
net loss for such period due to increases in accounts receivable and decreases
in amounts owed to third parties for clinical trials and to employees for
compensation and benefits. These uses of cash were partially offset by non-cash
charges associated with depreciation and amortization, decreases in prepayments
of certain future expenses and inventory and increases in accounts payable and
other accrued expenses. 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 comparable 1998 period was
less than the Company's net loss for such period due to 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.
These non-cash charges were partially offset by increases in accounts receivable
and payments to third parties for goods and services and to employees for
compensation and benefits.
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Net cash provided by investing activities amounted to approximately
$1,904,000 for the six-month period ended June 30, 1999 and related to the net
sale of approximately $1,918,000 of marketable securities offset by the purchase
of approximately $14,000 in equipment and furniture. Net cash provided by
investing activities amounted to approximately $2,404,000 for the six-month
period ended June 30, 1998 and related to the net sale of approximately
$2,478,000 of marketable securities offset by the purchase of $74,000 in
equipment and furniture.
Net cash provided by financing activities for the six-month period
ending June 30, 1999 amounted to approximately $1,124,000 primarily consisting
of $1,000,000 in net proceeds received from the issuance of unregistered common
stock to Sigma-Tau, repayment of $235,000 on a note receivable from an officer,
and net proceeds from issuances of common stock under the Company's employee
stock purchase plan offset by approximately $111,000 in various costs related to
the Company's 1999 financing activities. 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 issuance of common stock
under the Company's stock option plan and employee stock purchase plan,
partially offset by the Company's equity line financing costs.
The report of the Company's independent auditors on the Company's
financial statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 contains an explanatory paragraph indicating that the
Company's historical operating losses raises substantial doubt about the
Company's ability to continue as a going concern. In July 1999, SciClone
completed two private placements of common stock and common stock warrants which
resulted in aggregate net proceeds of approximately $5.5 million, excluding the
proceeds which will be received if the warrants issued in connection with such
private placements are exercised. Assuming ZADAXIN product sales continue to
increase at the average quarter to quarter growth rates the Company has achieved
over the past six quarters, management believes its existing capital resources
and interest on funds available are adequate to maintain its current and planned
operations until it reaches profitability, which is anticipated by the end of
the fourth quarter of 2000.* However, the timing of profitability and Company's
capital requirements may change depending upon numerous factors, including the
level of ZADAXIN product sales, the timing and amount of manufacturing costs
related to ZADAXIN and CPX, the availability of complementary products,
technologies and businesses, the initiation and continuation 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. In the event the Company needs to raise additional
financing, the unavailability or the timing of financing could prevent or delay
the Company's long-term product development and commercialization programs.
YEAR 2000 READINESS
The Company uses and relies on a wide variety of information
technologies and computer systems containing computer-related components. Some
of the Company's older computer software programs and equipment use two digit
fields rather than four digit fields to define the applicable year (i.e., "98"
in the computer code refers to the year "1998"). As a result, time-sensitive
functions of those software programs and equipment may misinterpret dates after
January 1, 2000, to refer to the twentieth century rather than the twenty-first
century (i.e., "02" could be interpreted as "1902" rather than "2002"). This
could cause system or equipment shutdowns, failures or miscalculations resulting
in inaccuracies in computer output or disruptions
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of operations, including, among other things, inaccurate processing of financial
information and/or temporary inability to process transactions or engage in
other normal business activities.
The Company has developed a strategy to address the potential exposures
related to the impact on its computer systems for the Year 2000 and beyond. An
inventory of key financial, informational and operational systems has been
completed. Plans to test any necessary modifications to these key computer
systems and equipment to ensure they are Year 2000 compliant have been developed
and have been fully implemented. The Company believes that with these plans and
completed modifications, the Year 2000 issue will not pose significant
operational problems for its computer systems and equipment.* However, even if
these modifications are made in a timely fashion, they still may not prevent a
material adverse effect on the Company's business, financial condition or
results of operations. If such a material adverse effect were to occur, the
magnitude of it cannot be known at this time. The Company currently has no
contingency plans to deal with major Year 2000 failures, though such plans, if
deemed necessary, will be developed over the coming months.
In addition to risks associated with the Company's own computer systems
and equipment, the Company has relationships with, and is to varying degrees
dependent upon, a large number of third parties that provide information, goods
and services to the Company. These include financial institutions, suppliers,
vendors, research partners and governmental entities. If a significant number of
these third parties experience failures in their computer systems or equipment
due to Year 2000 non-compliance, it could affect the Company's ability to
process transactions, develop, manufacture and distribute products, or engage in
similar normal business activities. While some of these risks are outside the
control of the Company, the Company has instituted programs, including internal
records review and use of external questionnaires, to identify key third
parties, assess their level of Year 2000 compliance, update contracts and
address any non-compliance issues. The Company expects to complete its review
and assessment by August 31, 1999 and complete any remedial efforts as required
by December 31, 1999.*
The total cost of the Year 2000 systems assessments and conversions is
funded through operating cash flows, and the Company is expensing these costs.
The financial impact of making the required systems changes and ensuring that
key third-parties are Year 2000 compliant is not known precisely at this time,
but it is currently expected to be less than $50,000.* The amount of the cost
incurred to date is less than $10,000. The actual financial impact could,
however, exceed this estimate. These costs are not expected to be material to
the Company's financial position, results of operations or cash flows.*
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Dependence on ZADAXIN Sales in Foreign Jurisdictions; Continuing
Operating Losses. SciClone began to generate revenues from thymosin alpha 1,
which the Company sells under the branded trademark ZADAXIN, in 1997. Future
ZADAXIN revenues are uncertain. SciClone's other drug under development, CPX, is
a drug that targets the underlying cause of cystic fibrosis, a disease caused by
genetic defects. Marketing approvals for CPX and additional marketing approvals
for ZADAXIN are uncertain. SciClone has experienced significant operating losses
since its inception and has a substantial accumulated deficit. Furthermore, the
Company expects its operating expenses to increase over the next several years
if it expands its development, clinical testing and marketing capabilities.*
SciClone's ability to become profitable depends in large part on the Company's
ability to do the following:
13
<PAGE> 14
o increase ZADAXIN sales in existing markets;
o launch ZADAXIN in newly-approved markets;
o obtain additional regulatory approvals for ZADAXIN and/or future
products;
o obtain regulatory approvals for CPX;
o enter into additional corporate partnering arrangements for
development of ZADAXIN in the U.S. and Europe for hepatitis C
and cancer; and
o enter into other agreements for product development and
commercialization.
If SciClone does not become profitable, the Company may have to delay or curtail
its long-term product development and commercialization efforts.
SciClone's financial condition in the near term is highly dependent on
ZADAXIN sales in foreign jurisdictions. The majority of SciClone's current
ZADAXIN sales are to customers in the People's Republic of China. However,
ZADAXIN sales in the People's Republic of China may be limited due to its low
average income and poorly developed infrastructure. In addition, ZADAXIN sales
and operations in Asia, Latin America and the Middle East are subject to
inherent risks, including difficulties and delays in obtaining pricing
approvals, reimbursement, and product health registration and importation
permits, unexpected changes in regulatory requirements, tariffs and other
barriers, political instability; the difficulties of staffing and managing
foreign operations, long payment cycles, difficulty in accounts receivable
collection, currency fluctuations, and potential adverse tax consequences.
SciClone currently does not have any sales in the United States with
which to offset any future decrease in revenue from ZADAXIN sales in Asia, Latin
America and the Middle East. In addition, certain countries in these territories
regulate pharmaceutical prices. This regulation may reduce prices for ZADAXIN
significantly below those that would prevail in a free market.
ZADAXIN and CPX are not yet Approved in the Major Pharmaceutical
Markets. SciClone's principal drug development efforts currently focus on its
two lead drugs, ZADAXIN and CPX. The Company needs favorable results from
additional clinical trials of ZADAXIN to get regulatory approval in major
pharmaceutical markets. ZADAXIN has been approved for commercial sale in 14
countries, principally as a treatment for hepatitis B and hepatitis C, diseases
caused by viruses that affect the liver. However, SciClone may not be able to
obtain approvals for ZADAXIN in other countries or for the treatment of
additional medical conditions, such as cancer.
SciClone's launch of ZADAXIN in the People's Republic of China, the
Philippines and Singapore was its first commercial introduction of ZADAXIN, and
may not be successful. Moreover, the Company's future launches of ZADAXIN in
additional countries may not be successful. Future sales of ZADAXIN will depend
on market acceptance and successful distribution.
In particular, although the People's Republic of China has the highest
prevalence of hepatitis B in the world, its low average income and poorly
developed distribution infrastructure may make it difficult to successfully
commercialize ZADAXIN in the Chinese market. Because
14
<PAGE> 15
SciClone currently relies on ZADAXIN as its sole source of product revenue, the
Company's failure to demonstrate its efficacy in future clinical trials, obtain
additional marketing approvals or successfully commercialize ZADAXIN in major
pharmaceutical markets would adversely affect the Company's revenue and
operating results.
CPX is currently undergoing clinical testing in the United States. The
Company may experience delays and difficulties in clinical trials of CPX. In
addition, clinical trials may not prove that CPX is an effective treatment for
cystic fibrosis. The Company's failure to demonstrate the safety and efficacy of
CPX as a treatment for cystic fibrosis in a clinical trial, obtain regulatory
approval of CPX as a treatment for cystic fibrosis or successfully commercialize
CPX could adversely affect its potential future revenue and operating results.
Future Capital Needs; Uncertainty of Additional Financing. Since
inception, the Company has financed its operations primarily through sales of
stock. Due to the Company's continuing operating losses, its independent
auditors issued an opinion on the Company's financial statements for the period
ended December 31, 1998 that includes a paragraph emphasizing the uncertainty
surrounding the Company's ability to continue as a going concern. However, in
July 1999, SciClone completed two private placements of common stock and common
stock warrants which resulted in aggregate net proceeds of approximately $5.5
million, excluding the proceeds which will be received if the warrants are
exercised. However, if the Company does not continue to increase its ZADAXIN
revenue and become profitable, it will need to obtain additional financing to
support its long-term product development and commercialization programs.
SciClone's need for capital will depend on many factors, including:
o the level of ZADAXIN sales;
o preclinical and clinical development expenses and opportunities;
o the timing and cost of regulatory approvals;
o patent costs;
o the Company's ability to use its equity line, described below;
o whether any or all of the Company's outstanding common stock
warrants are exercised and the timing amount of such exercises;
and
o the Company's ability to establish corporate partnering
arrangements for development, sales, manufacturing and marketing
of its products.
The unavailability or timing of any necessary financing could prevent or
delay the Company's long-term product development and commercialization
programs. Other than the equity line and the Company's outstanding warrants to
purchase common stock, the Company has no commitments or arrangements for
additional funding and it may not be able to obtain financing if and when
needed.
Dilution. In July 1999, SciClone completed two equity financings in
which the Company issued an aggregate of 3,886,079 shares of common stock and
warrants to purchase an aggregate
15
<PAGE> 16
of 4,415,191 shares of common stock. Any common stock issued upon exercise of
the warrants would reduce the percentage ownership of the Company's then-current
shareholders and decrease any earnings per share. Public resale of the common
stock issued in the private placements and issuable upon exercise of the
warrants and the possibility of such resales may depress the market price of the
Company's common stock.
In addition, the Company has entered into a Structured Equity Line
Flexible Financing Agreement which allows it, subject to certain limitations, to
sell to the investor under the equity line up to $4 million of common stock
during each "investment period" during the two-year term of the equity line. An
"investment period" under the equity line is approximately three months. If the
Company sells stock under the equity line, the investor's price will be 97% of
the lowest reported sale price during the four days immediately prior to each
purchase date selected by the investor during the investment period. In order to
use the equity line, SciClone's common stock must trade at more than $1.00 per
share, unless the Company reaches a different agreement with the investor under
the equity line. Draws under the equity line are subject to certain conditions,
including, registration of the investor's resale of the shares, a $1.00 minimum
trading price per share, volume limitations, limitations on the number of shares
that can be issued without shareholder approval, and limitations on the number
of shares of the Company's common stock the investor may hold at any time.
If SciClone sells common stock under the equity line, the percentage
ownership of its then-current shareholders will be reduced. In connection with
the equity line, the Company also issued to the investor a warrant to purchase
200,000 shares of its common stock. The Company will also issue to the investor
additional warrants to purchase up to 300,000 shares of common stock. Because
the shares that may be issued under the equity line, along with the shares
issuable upon exercise of the warrant and additional warrants, can be
immediately resold by the investor, the possibility of these sales could
adversely affect the market price of the Company's common stock.
Similarly, if the Company raises additional funds through the issuance
of common stock or securities convertible into or exercisable for common stock,
the percentage ownership of the Company's then-current shareholders will be
reduced.
Fluctuation in Operating Results. 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. Setbacks in the launch, sale
or distribution of ZADAXIN, preclinical and clinical development of the
Company's products, particularly CPX, the regulatory approval process or
relationships with collaborative partners, and any shortfalls in ZADAXIN product
sales 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.
Compliance With Nasdaq Listing Requirements. SciClone's common stock is
listed on the Nasdaq National Market. To remain listed on the Nasdaq, a company
must meet certain criteria, including:
o a minimum bid price of $1.00 per share;
16
<PAGE> 17
o $4,000,000 in net tangible assets; and
o $5,000,000 market value of the public float, excluding shares
held directly or indirectly by any of our officers or directors
and by anyone holding beneficially more than 10% of our
outstanding shares.
As of July 23, 1999, the closing bid price of SciClone's common stock
was $1.90 and as of July 23, 1999, the market value of the Company's public
float was approximately $46,000,000. As of July 24, 1999, SciClone had net
tangible assets of approximately $7,700,000.
If the Company fails to meet Nasdaq's listing criteria its common stock
may be delisted. The Company's common stock would thereafter be traded in the
non-Nasdaq, over-the-counter market. If the Company's common stock were
delisted, it may be more difficult to dispose of, or get an accurate market
value of, its common stock. This could severely limit the Company's common
shareholders' ability to sell SciClone common stock in the secondary market.
Dependence On Third Parties. SciClone's strategy includes entering into
various corporate partnering arrangements. To date, the Company has acquired
rights to ZADAXIN, CPX and certain other drugs but the Company is only actively
pursuing clinical development of ZADAXIN and CPX. If the Company does not
license or otherwise acquire rights to additional drugs it may have a shortage
of drugs to develop which would limit its potential future revenue.
In addition, SciClone has exclusively sublicensed its rights to develop
and market ZADAXIN in Japan to Schering-Plough K.K. However, Schering-Plough
K.K. already has a substantial commitment to alpha interferon, which is an
approved drug for hepatitis B and hepatitis C in Japan. SciClone's relationship
with Schering-Plough K.K. may not be successful and the Company may not be able
to negotiate similar additional arrangements in the future. SciClone generally
does not have control over the amount and timing of resources that its
collaborators devote to their activities with the Company. If these parties do
not perform their obligations as the Company expects them to, the development
and sale of SciClone's products could be limited or delayed.
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 other countries, particularly if the Company does not participate
in the regulatory approval process in these other countries. Any delay or
failure to achieve regulatory approvals may limit the Company's potential future
revenue.
Patents and Proprietary Rights. The United States composition of matter
patent, which covers the chemical structure of thymosin alpha 1, and most of the
European composition of matter patents for thymosin alpha 1 have expired. Going
forward, the Company will have only limited patents covering the chemical
structure of thymosin alpha 1 and this could adversely affect its proprietary
rights. SciClone's success depends significantly on its ability to obtain patent
protection for its products and technologies, to preserve its trade secrets and
to avoid infringing on the proprietary rights of third parties. However, the
Company's pending patent applications may not result in issued patents. Any
patents that are issued may not provide a competitive advantage to the Company
or may be invalidated or circumvented by its competitors. Others may
independently develop similar products or designs around patents issued or
licensed to the Company. Patents issued to or patent applications filed by other
companies could have an
17
<PAGE> 18
adverse effect on the Company's ability to use, manufacture or market its
products or maintain its competitive position with respect to its products,
particularly thymosin alpha 1. Many of the Company's patents and patent
applications relating to thymosin alpha 1 are held under exclusive licenses. If
the Company breaches the terms of any of these licenses it could lose its rights
to these patents and patent applications. Holders of patents licensed to the
Company may not file, prosecute, extend or maintain their patents in countries
where the Company has rights.
Other companies obtaining patents on products or processes useful to the
Company may bring infringement actions against the Company. This type of
litigation is typically costly and time-consuming and could require the Company
to obtain licenses from others, or prevent it from using, manufacturing or
marketing its products. These licenses may not be available on commercially
reasonable terms, if at all.
Pharmaceuticals are not patentable or have only recently become
patentable in certain countries in the territory in which SciClone has exclusive
rights to ZADAXIN. Enforcement of intellectual property rights in many countries
in this territory has been limited or non-existent. Future enforcement of
patents and proprietary rights in many countries in this territory will likely
be problematic or unpredictable. Moreover, the issuance of a patent in one
country does not assure the issuance of a similar patent in another country.
Claim interpretation and infringement laws vary by nation, so the extent of any
patent protection is uncertain and may vary in different jurisdictions.
Government Regulation and Product Approvals. The research, preclinical
and clinical development, manufacturing, marketing and sale of ZADAXIN, CPX and
our other drug candidates are subject to extensive regulation by governmental
authorities. ZADAXIN, CPX and any other products must be approved before they
can be sold in any jurisdiction. Obtaining regulatory approval is time-consuming
and expensive. In some countries where SciClone is contemplating marketing and
selling ZADAXIN, the regulatory approval process for drugs that have not been
previously approved in countries with established clinical trial review
procedures is uncertain, and this may delay the grant of regulatory approvals
for ZADAXIN.
The Company is currently sponsoring clinical trials and pursuing
regulatory approvals for ZADAXIN in a number of countries and it is currently
sponsoring clinical trials of CPX in the United States. However, SciClone may
not be able to complete these trials in a timely or cost-effective manner, and
even if completed, these trials may not fulfill the relevant regulatory approval
criteria. The Company ultimately may not be able to obtain regulatory approvals
in these countries. Adverse results in the Company's development programs also
could result in restrictions on the use of ZADAXIN and, if approved, CPX.
The Company's failure to comply with applicable United States or foreign
regulatory requirements could, among other things, result in warning letters,
fines, suspensions of regulatory approvals, product recalls or seizures,
operating restrictions, injunctions and criminal prosecutions. In addition,
government regulations may be established or imposed which prevent or delay
regulatory approval of ZADAXIN, CPX or the Company's future products.
Manufacturing. SciClone has entered into contract manufacturing and
supply agreements for ZADAXIN and CPX. 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 to establish and maintain manufacturing
18
<PAGE> 19
relationships with experienced suppliers*, the Company may not be able to
establish long-term manufacturing relationships with these suppliers. SciClone
currently has vialing and packaging supply agreements in effect and a sufficient
supply of finished ZADAXIN for the near term. The Company has recently changed
and upgraded its manufacturing source of finished ZADAXIN for the Company's
international markets, excluding Japan. In certain countries, this change may
require additional regulatory approvals. If the Company does not obtain any
required regulatory approvals of this manufacturing change in a timely fashion,
new ZADAXIN marketing approvals may be delayed or sales may be interrupted until
the manufacturing change is approved.
Production interruptions, if any, could significantly delay clinical
development of potential products and reduce third party or clinical researcher
interest and support of proposed trials. These kinds of interruptions could also
impede commercialization of the Company's products, including sales of ZADAXIN
in approved markets, and impair their competitive position, which would have a
material adverse effect on the Company's business.
Competition. Competition in the pharmaceutical industry is intense and
SciClone expects that competition to increase. The Company believes that the
principal competitive factors in the pharmaceutical industry include the
efficacy, safety, price and therapeutic regimen associated with a given drug.
The Company's competitors include large pharmaceutical companies, biotechnology
firms, universities and other research institutions, both in the United States
and abroad, that are actively engaged in research and development of chronic and
life-threatening diseases such as hepatitis B, hepatitis C, cancer, immune
system disorders and cystic fibrosis. Most of the Company's competitors,
particularly large pharmaceutical companies, have substantially greater
financial, technical, regulatory, manufacturing, marketing and human resource
capabilities than SciClone. Most of them also have extensive experience in
undertaking the clinical testing and obtaining the regulatory approvals
necessary to market drugs. In addition, SciClone currently relies on sales of
ZADAXIN as a treatment for hepatitis B, hepatitis C and cancer as its sole
source of product revenue. Several large pharmaceutical companies have
substantial commitments to alpha interferon, which is an approved drug for
treating hepatitis B and hepatitis C.
Uncertainty of Third Party Reimbursement; Resources of Patient
Populations. SciClone's ability to successfully sell ZADAXIN depends in part on
whether pharmaceutical drug consumers will be reimbursed for the cost of
ZADAXIN. This reimbursement may come from government health administration
authorities, private health insurers and other organizations. Third-party
reimbursement for new therapeutic products is highly uncertain and may not be
available for the Company's future products. In many of the foreign countries in
which SciClone currently operates or intend to operate, reimbursement for
ZADAXIN under government or private health insurance programs is currently not
available, particularly in Cambodia, the People's Republic of China, Mexico, the
Philippines, Peru, Myanmar and Malaysia. In the United States, certain proposed
health care reforms could limit the amount of third-party reimbursement
available for the Company's products. In many countries where SciClone has
marketing rights to ZADAXIN, government resources and per capita income may be
so low that the Company's products will be prohibitively expensive. In these
countries, SciClone may not be able to market its products on economically
favorable terms, if at all.
Dependence on Qualified Personnel and Key Individuals. SciClone is
highly dependent upon its ability to attract and retain qualified personnel
because of the specialized, scientific and international nature of the Company's
business. There is intense competition for qualified
19
<PAGE> 20
management, scientific and technical personnel in the pharmaceutical industry,
and the Company may not be able to attract and retain the qualified personnel it
needs to grow and develop its business globally. In addition, many key
responsibilities at SciClone are assigned to a relatively small number of
individuals, such as the Company's President and Chief Executive Officer, Chief
Operating Officer, Chief Administrative Officer and its Regional Managing
Director for Greater China. If SciClone is unable to attract and retain
qualified personnel as needed or promptly replace those employees who are
critical to the Company's product development and commercialization, the
development and commercialization of the Company's products would adversely be
affected. The Company does not maintain "key person" life insurance on any of
its key personnel.
Product Liability; Absence of Insurance. Companies which test,
manufacture, market and sell pharmaceutical products commonly receive product
liability claims. These claims may be asserted against the Company. Product
liability insurance for the pharmaceutical industry generally is expensive, if
it is available at all. SciClone has product liability insurance coverage for
its clinical trials and commercial sales. However, product liability claims in
excess of the Company's insurance coverage or that resulted in the payment of
large deductibles would adversely affect the Company's financial condition and
demand for its products.
Preferred Stock. The Company's charter documents give its board of
directors the authority to issue additional series of preferred stock without a
vote or action by the Company's shareholders. The board also has the authority
to determine the terms of preferred stock, including price, preferences and
voting rights. The rights of holders of the Company's common stock may be
adversely affected by the rights granted to holders of preferred stock. For
example, a series of preferred stock may be granted the right to receive a
liquidation preference a pre-set distribution in the event SciClone is
liquidated that would reduce the amount available for distribution to holders of
common stock. In addition, the issuance of preferred stock could make it more
difficult for a third party to acquire a majority of the Company's outstanding
voting stock. As a result, common shareholders could be prevented from
participating in transactions that would offer an optimal price for their
shares.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary objective of the Company's investment activities is to
preserve principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, the Company invests in
highly liquid and high quality debt securities. The Company's investments in
debt securities are subject to interest rate risk. To minimize the exposure due
to adverse shift in the interest rates the Company invests in short term
securities and maintains an average maturity of less than 2 years. A
hypothetical 60 basis point increase in interest rates would result in an
approximate $18,060 decrease (less than 0.5%) in fair value of the Company's
available-for-sale securities.
The potential change noted above is based on sensitivity analyses
performed on the Company's financial positions at June 30, 1999. Actual results
may differ materially.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Recent Sales of Unregistered Securities
On April 12, 1999, the Company issued and sold 445,000 shares of Common
Stock at $2.24 per share to The Sigma-Tau Group and received $1,000,000 in net
proceeds from the offering. The Sigma-Tau Group may not sell the shares until
April 12, 2001. In addition, The Sigma-Tau Group was not granted any
registration rights covering resale of the shares. Under the terms of the deal,
The Sigma-Tau Group received semi-exclusive ZADAXIN development and marketing
rights in Italy and Spain, and exclusive rights in Switzerland. Such securities
were not registered under the Act in reliance upon the exemptions provided by
Section 4(2) of the Act and/or Regulation D and /or Regulation S 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 May 27, 1999 to
elect five (5) directors, 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 15,807,434 337,726
Donald R. Sellers 15,810,714 334,446
John D. Baxter, M.D 15,812,514 332,646
Edwin C. Cadman, M.D 15,812,054 333,106
Rolf H. Henel 15,813,654 331,506
</TABLE>
The shareholders also ratified the appointment of Ernst & Young LLP as
independent auditors for the Company for the fiscal year ending December 31,
1999 with voting as follows: 15,922,699 for; 149,514 against; and 72,947
abstaining.
21
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
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(i).3 Certificate of Determination
(incorporated by reference from the Company's
Current Report on Form 8-K filed on October 14,
1997).
3(i).4 Certificate of Determination Regarding the terms
of the Series C Preferred Stock. (incorporated by
reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
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).
4.2 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).
10.1 Second Amendment to Acquisition Agreement by and
among SciClone, Sclavo S.p.A. and Solar
Developments and Partners, dated as November 6,
1998 (incorporated by reference to the Company's
Registration Statement on Form S-3 (No. 333-77543)
filed with the Commission on April 30, 1999).
10.2 Amendment to Warrant by and among SciClone, Sclavo
S.p.A. and Solar Developments and Partners, dated
as April 20 , 1999 (incorporated by reference to
the Company's Registration Statement on Form S-3
(No. 333-77543) filed with the Commission on April
30, 1999).
10.3 Amendment No.1 to Structured Equity Line Flexible
Financing(sm) Agreement by and between the Company
and Cheyenne LLC dated as of June 16, 1999
(incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999).
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Form 8-K filed on April 12, 1999 reporting the Company's sale and
issuance of 445,000 shares of unregistered common stock to the Sigma-Tau
Group for a purchase price of $1,000,000 ($2.24 per share).
22
<PAGE> 23
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 13, 1999 Donald R. Sellers
---------------------------------------------
Donald R. Sellers
President, Chief Executive Officer and
Interim Chief Financial Officer
(Principal Executive Officer and
Principal Financial & Accounting Officer)
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 839
<SECURITIES> 7
<RECEIVABLES> 2,666
<ALLOWANCES> 0
<INVENTORY> 1,125
<CURRENT-ASSETS> 5,018
<PP&E> 1,416
<DEPRECIATION> 1,095
<TOTAL-ASSETS> 7,549
<CURRENT-LIABILITIES> 3,000
<BONDS> 0
0
0
<COMMON> 118,232
<OTHER-SE> (113,683)
<TOTAL-LIABILITY-AND-EQUITY> 7,549
<SALES> 3,578
<TOTAL-REVENUES> 3,885
<CGS> 756
<TOTAL-COSTS> 756
<OTHER-EXPENSES> 7,332
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,134)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,134)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,134)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
