<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND 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
AND EXCHANGE ACT OF 1934
Commission File Number: 0-19700
AMYLIN PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0266089
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9373 Towne Centre Drive, San Diego, California 92121
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(619) 552-2200
- --------------------------------------------------------------------------------
(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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30,1998
----- ---------------------------
Common Stock, $.001 par value 32,615,403
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AMYLIN PHARMACEUTICALS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
COVER PAGE..................................................1
TABLE OF CONTENTS...........................................2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997....................3
Condensed Consolidated Statements of Operations
for the three months and six months ended
June 30, 1998 and 1997.................................4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1998 and 1997........5
Notes to Condensed Consolidated Financial Statements...6
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations..........7
ITEM 3.
Quantitative and Qualitative Disclosures
about Market Risk......................................*
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..............................*
ITEM 2. Changes in Securities and Use of Proceeds......*
ITEM 3. Defaults upon Senior Securities................*
ITEM 4. Submission of Matters to a Vote of
Security Holders..............................16
ITEM 5. Other Information..............................*
ITEM 6. Exhibits and Reports on Form 8-K...............*
SIGNATURE..................................................18
</TABLE>
* No information provided due to inapplicability of item.
<PAGE> 3
AMYLIN PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(unaudited) (Note)
------------- -------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 26,026,000 $ 46,903,000
Short-term investments -- 5,845,000
Receivable from related party 506,000 966,000
Other current assets 739,000 1,298,000
------------- -------------
Total current assets 27,271,000 55,012,000
Property and equipment, at cost:
Equipment 15,318,000 14,707,000
Leasehold improvements 4,642,000 4,763,000
------------- -------------
19,960,000 19,470,000
Less accumulated depreciation and amortization (12,544,000) (10,860,000)
------------- -------------
7,416,000 8,610,000
Patents and other assets, net 1,840,000 1,716,000
------------- -------------
$ 36,527,000 $ 65,338,000
============= =============
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 1,591,000 $ 5,278,000
Accrued liabilities 10,359,000 10,606,000
Deferred revenue from related party 3,071,000 6,357,000
Current portion of obligation under capital
leases and equipment notes payable 1,444,000 1,468,000
------------- -------------
Total current liabilities 16,465,000 23,709,000
Obligation under capital leases and
equipment notes payable 4,205,000 3,047,000
Notes payable to related party, net of discount 37,076,000 33,933,000
Stockholders' equity (deficit):
Common stock, $.001 par value, 100,000,000 shares authorized,
32,615,403 and 32,394,433 issued and outstanding at
June 30, 1998 and December 31, 1997, respectively 33,000 32,000
Additional paid-in capital 216,681,000 215,246,000
Accumulated deficit (237,298,000) (209,732,000)
Deferred compensation (635,000) (893,000)
Unrealized gains/(losses)on short-term investments -- (4,000)
------------- -------------
Total stockholders' equity (deficit) (21,219,000) 4,649,000
------------- -------------
$ 36,527,000 $ 65,338,000
============= =============
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1997 has been
derived from audited condensed consolidated 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.
See accompanying notes.
17
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AMYLIN PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended
June 30,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues under collaborative agreements
from related party $ 5,889,000 $ 10,013,000
Operating Expenses:
Research and development 14,233,000 17,653,000
General and administrative 3,366,000 3,363,000
------------ ------------
17,599,000 21,016,000
------------ ------------
Loss from operations (11,710,000) (11,003,000)
Interest and other income 341,000 655,000
Interest and other expense (1,378,000) (157,000)
------------ ------------
Net loss ($12,747,000) ($10,505,000)
============ ============
Net loss per share - basic and diluted ($ 0.39) ($ 0.33)
============ ============
Shares used in computing net loss per share -
basic and diluted 32,572,000 32,071,000
============ ============
</TABLE>
See accompanying notes.
<PAGE> 5
AMYLIN PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues under collaborative agreements
from related party $ 12,975,000 $ 22,371,000
Operating Expenses:
Research and development 32,402,000 34,184,000
General and administrative 6,289,000 6,209,000
------------ ------------
38,691,000 40,393,000
------------ ------------
Loss from operations (25,716,000) (18,022,000)
Interest and other income 846,000 1,341,000
Interest and other expense (2,696,000) (473,000)
------------ ------------
Net loss ($27,566,000) ($17,154,000)
============ ============
Net loss per share - basic and diluted ($0.85) ($0.54)
============ ============
Shares used in computing net loss per share -
basic and diluted 32,505,000 32,047,000
============ ============
</TABLE>
See accompanying notes.
<PAGE> 6
AMYLIN PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Operating Activities:
Net loss ($27,566,000) ($17,154,000)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 1,734,000 1,362,000
Deferred revenue from related party (3,287,000) 3,635,000
Deferred rent and other expense 0 (13,000)
Amortization of deferred compensation 623,000 299,000
Amortization of warrants issued with debt 599,000 --
Changes in assets and liabilities:
Receivable from related party 460,000 1,369,000
Other current assets 559,000 253,000
Accounts payable (3,687,000) (2,289,000)
Accrued liabilities (247,000) 665,000
------------ ------------
Net cash flows used for operating activities (30,812,000) (11,873,000)
Investing activities:
Decrease in short-term investments 5,848,000 760,000
Purchase of equipment and leasehold improvements (490,000) (3,662,000)
Increase in deposits, patents and other assets (173,000) (254,000)
------------ ------------
Net cash flows provided by (used for) investing activities 5,185,000 (3,156,000)
Financing activities:
Issuance of notes payable 4,523,000 3,524,000
Principal payments on capital leases and
equipment notes payable (845,000) (1,034,000)
Issuance of common stock, net 1,072,000 629,000
------------ ------------
Net cash flows provided by financing activities 4,750,000 3,119,000
------------ ------------
Decrease in cash and cash equivalents (20,877,000) (11,910,000)
Cash and cash equivalents at beginning of period 46,903,000 42,654,000
------------ ------------
Cash and cash equivalents at end of period $ 26,026,000 $ 30,744,000
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 256,000 $ 184,000
</TABLE>
See accompanying notes.
<PAGE> 7
AMYLIN PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The information contained herein has been prepared in accordance with
instructions for Form 10-Q and Article 10 of Regulation S-X. The information at
June 30, 1998, and for the three months and six months ended June 30, 1998 and
1997, is unaudited. In the opinion of management, the information reflects all
adjustments necessary to make the results of operations for the interim periods
a fair statement of such operations. All such adjustments are of a normal
recurring nature. Interim results are not necessarily indicative of results for
a full year. For a presentation including all disclosures required by generally
accepted accounting principles, these financial statements should be read in
conjunction with the audited financial statements included in the Company's
Registration Statement on Form S-3 (Registration No. 333-58831), as amended.
Per Share Data
Basic and diluted net loss per share is computed using the weighted average
number of common shares outstanding during the periods.
Consolidation
The consolidated financial statements include the accounts of Amylin
Pharmaceuticals Inc. ("Amylin" or the "Company") and its wholly owned
subsidiary, Amylin Europe Limited. All significant intercompany transactions and
balances have been eliminated.
2. Subsequent Events
In July 1998, the Company completed a public stock offering of 4.0 million
shares of its common stock which raised net proceeds of approximately $12.7
million.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the
discussion in this report contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those discussed in this report due to, among other things, the results and
timing of the results of the Company's ongoing and planned clinical trials of
pramlintide, the Company's ability to raise additional capital to finance its
business operations through and following the first quarter of 1999, and the
timing of filing for regulatory approval of pramlintide. Additional factors that
could cause or contribute to such differences include, without limitation, those
discussed in the section entitled "Liquidity and Capital Resources" herein as
well as those discussed in the Company's Registration Statement on Form S-3
(Registration No. 333-58831), as amended, under the heading "Risk Factors."
Since its inception in September 1987, Amylin has devoted
substantially all of its resources to its research and development programs.
Substantially all of the Company's revenues to date have been derived from fees
and expense reimbursements under collaborative agreements and from interest
income. Amylin has no product sales and has not received any revenues from the
sale of products. The Company has been unprofitable since its inception and
expects to incur additional operating losses for the next several years. As of
June 30, 1998, the Company's accumulated deficit was approximately $237 million.
In July 1998, the Company completed a public stock offering of 4.0
million shares of its common stock which raised net proceeds of approximately
$12.7 million.
Since June 1995, the Company and Johnson & Johnson have been
collaborating on the development and commercialization of pramlintide, a
diabetes drug candidate that was invented and patented by the Company and which
is now in Phase III clinical trials. Through June 30, 1998 Johnson & Johnson
entities made various financial payments to the Company totaling $174 million.
In late February 1998, Johnson & Johnson provided the Company with six months'
notice of its intention to terminate their collaboration with the Company.
Johnson & Johnson's financial and other obligations under the Collaboration
Agreement (defined below) will continue during the termination notice period.
Based upon Johnson & Johnson's decision, in early March 1998 Amylin initiated
the process of restructuring its operations by reducing its workforce by
approximately 25% and reducing other non-personnel related expenses. The Company
believes that its ongoing restructuring, its existing available cash, interest
income from cash investments and the proceeds from the recently completed public
stock offering will permit the Company to finance its current operations until
late in the first quarter of 1999.
<PAGE> 9
The Company believes that if the results of its two six-month
European clinical trials for pramlintide are available when expected by the
Company and if those results improve upon the results of the Company's initial
Phase III clinical trials, it should be able to raise additional funds through
other corporate partnerships, equity offerings, debt offerings, and/or investor
partnerships. However, there can be no assurance that additional financial
resources will be raised in the necessary time frame or on terms favorable to
the Company, if at all. In the event that Amylin is unable to obtain additional
financing on acceptable terms, the Company will not have the financial resources
to continue research and development of pramlintide or any of the Company's
other product candidates.
RESULTS OF OPERATIONS
Revenue
The Company had $5.9 million and $13.0 million of revenue for the
three month and six month periods ended June 30, 1998 as compared to $10.0
million and $22.4 million for the same periods in 1997. The revenues recognized
in 1998 and 1997 were related to the Company's Collaboration Agreement dated as
of June 20, 1995 (the "Collaboration Agreement") with LifeScan, Inc., a wholly
owned subsidiary of Johnson & Johnson (hereinafter referred to as Johnson &
Johnson). Revenues in 1998 were comprised of Johnson & Johnson's reimbursement
of its one-half share of pramlintide development expenses incurred by Amylin
during the first six months of the year. Revenues in the first half of 1997 were
comprised of Johnson & Johnson's reimbursement of its one-half share of
pramlintide development expenses incurred by Amylin, as well as a $6.0 million
option fee payment made by Johnson & Johnson in the first quarter and a $3.0
million option fee payment made by Johnson & Johnson in the second quarter.
Operating Expenses
The Company's total operating expenses for the quarter ended June
30, 1998 decreased to $17.6 million from $21.0 million for the same period in
1997. For the six months ended June 30, 1998, operating expenses decreased to
$38.7 million from $40.4 million for the same period in 1997.
Research and development expenses decreased to $14.2 million for the
three months ended June 30, 1998 as compared to $17.7 million for the same
period in 1997. Research and development expenses for the six months ended June
30, 1998 decreased to $32.4 million from $34.2 million for the same period in
1997. The decrease in these expenditures was primarily due to lower product
development expenditures and reduced spending on the Company's non-pramlintide
research programs. On a year to date basis, spending on
<PAGE> 10
the Company's pramlintide clinical trials was slightly higher in 1998 than the
costs incurred in 1997 for these activities.
General and administrative expenses were $3.4 million for the three
months ended June 30, 1998 as well as for the same period in 1997. General and
administrative expenses for the quarter ended June 30, 1998, included however, a
one time deferred compensation charge. The deferred compensation expense
incurred was a non-cash expense of slightly more than $0.3 million which was
recognized as the result of stock option grants. General and administrative
expenses for the six months ended June 30, 1998 increased slightly to $6.3
million from $6.2 million for the same period in 1997, including the one time
non-cash deferred compensation charge.
Other Income and Expense
Interest and other income is principally comprised of interest
income from investment of the Company's cash reserves. Interest and other income
was $0.3 million for the quarter ended June 30, 1998 as compared to $0.7 million
for the same period in 1997. Interest and other income decreased to $0.8 million
for the six months ended June 30, 1998 from $1.3 million for the same period in
1997. The decrease in interest and other income was primarily due to lower
average cash reserves available for investment for the three months and six
months ended June 30, 1998 as compared to the same periods in 1997.
Interest and other expense is principally comprised of interest
expense resulting from long-term debt obligations. Debt financing has been
utilized by the Company to acquire laboratory and other equipment, to fund
tenant improvements to the Company's facilities, and for other working capital
purposes. In addition, in accordance with the terms of the Collaboration
Agreement, Johnson & Johnson has advanced Amylin's share of pramlintide
pre-launch marketing expenses incurred since the date of the collaboration.
Separately, in 1997, the Company received proceeds of approximately
$30.6 million from a draw down under its Development Loan Facility with Johnson
& Johnson. The proceeds were used to fund the Company's one-half share of
development expenses for its pramlintide invention during 1997. The loan carries
an interest rate of 9.0%. The loan is repayable 12 months after approval of a
new drug application for pramlintide out of 50% of the Company's pramlintide
profits, subject to certain exceptions set forth in the Loan Agreement. The loan
is secured by the Company's issued patents and pending patent applications
relating to amylin.
In conjunction with the borrowing under the Development Loan
Facility, the Company issued warrants to Johnson & Johnson to purchase 1,530,950
shares of the Company's common stock with a fixed exercise price of $12 per
share and a 10-year exercise period. The estimated value of the warrants will be
amortized to interest expense over the life of the Development Loan Facility.
Both the development loan and the pre-marketing loan were provided under the
terms and conditions of the Company's Loan and Security
<PAGE> 11
Agreement with Johnson & Johnson (the "Loan Agreement") and will be repaid with
interest over time out of the Company's share of future pramlintide profits, if
any, subject to certain exceptions set forth in the Loan Agreement.
Interest and other expense increased to $1.4 million for the three
months ended June 30, 1998 from $0.2 million for the same period in 1997.
Interest and other expense increased to $2.7 million for the six months ended
June 30, 1998 from $0.5 million for the same period in 1997. The increase in
interest and other expense was primarily due to the interest associated with the
development loan debt, amortization of the valuation placed on the warrants, and
interest expense related to the pre-marketing loan. Of the $2.7 million of
interest and other expense incurred in 1998, the Company had to expend cash
payments for only $0.3 million. The large majority of the interest expense
incurred, $2.4 million, was related to loans with Johnson & Johnson for which
payment is deferred until the occurrence of certain future events, which are
referenced above.
Net Loss
The net loss for the quarter ended June 30, 1998 was $12.7 million
compared to a net loss for the same quarter in 1997 of $10.5 million. The
Company incurred a net loss of $27.6 million for the six months ended June 30,
1998 as compared to $17.2 million for the six months ended June 30, 1997. The
increase in the net loss was due to decreased collaborative revenues and
increased interest expense.
Amylin expects to incur substantial operating losses over the next
several years due to continuing expenses associated with its research and
development programs, including clinical development of pramlintide, preclinical
and potential clinical testing of additional product candidates, and related
general and administrative support. Operating losses may fluctuate from quarter
to quarter as a result of differences in the timing of expenses incurred and
revenues recognized.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations
primarily through private placements of preferred stock, sales of common stock,
reimbursement of pramlintide development expenses through its collaboration with
Johnson & Johnson, and debt financings.
Prior to Johnson & Johnson's notification of its intent to terminate
the Collaboration Agreement, the regulatory strategy for pramlintide was based
on plans for global filings in both type 1 and type 2 diabetes during the first
half of 2000. However, as the Phase III trials have proceeded, Amylin scientists
and advisors have concluded that available data should support an earlier filing
for use by type 1 patients. In the
<PAGE> 12
major pharmaceutical markets, there are about two-million type 1 patients for
whom the only important glucose-control drug is insulin. The Company believes
that Europe offers the earliest market opportunity. Thus, Amylin aims to file
its first marketing application in Europe for type 1 diabetes during the first
half of 1999 and, subject to the approval of this indication and the results of
its ongoing clinical trials, plans to submit regulatory filings in Europe for
type 2 diabetes in the first half of 2000.
The Company plans to file a New Drug Application in the United
States during the first half of 2000 for type 1 and type 2 diabetes. The
acceleration of the regulatory filing in Europe for type 1 diabetes will require
a significant dedication of resources, including financial resources, to that
program.
At June 30, 1998, the Company had $26.0 million in cash, cash
equivalents and short-term investments as compared to $52.7 million at December
31, 1997. Cash, cash equivalents and short-term investments at June 30, 1998, as
adjusted to include the proceeds of the recently completed stock offering net of
estimated offering costs, would have been $38.7 million. The Company invests its
cash in U.S. government and other highly rated liquid debt instruments.
The Company intends to use its financial resources for the ongoing
development of its pramlintide invention, including the Phase III clinical
trials, for its extending research program, and for other general corporate
purposes. The Company plans to continue advancing its expanded research and
development pipeline when resources permit. To the extent that clinical trials
of the Company's compounds progress as planned, research and development
expenses will include costs of supplying materials for and conducting
pramlintide clinical trials, research activities to further explore amylin
biology, and research and development of other compounds targeted at metabolic
diseases. The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the progress of the Company's
research and development programs, the results of preclinical and clinical
studies, the timing of regulatory submissions and approvals, if any,
technological advances, determinations as to commercial potential of the
Company's compounds, and the status of competitive products. Expenditures will
also depend upon the availability of additional sources of funds, the
establishment of collaborative arrangements with other companies, and other
factors.
As of June 30, 1998, the Company leased approximately 127,000 square
feet of space. In association with the Company's process of restructuring its
operations, the Company intends to reduce its ongoing facilities lease expense
during 1998. In June 1998, the Company sub-leased 42,000 square feet of its
space to a third-party tenant under a two year sub-lease agreement. The space is
being leased to the tenant at competitive market prices, proceeds from which
will offset Amylin's expense on this space. At this time, the Company expects to
incur less than $0.2 million of capital expenditures in the remainder of 1998.
These expenditures will
<PAGE> 13
primarily be directed toward the purchase of new equipment to support its
research and development efforts.
The Company does not expect to generate a positive internal cash flow for
several years due to substantial additional research and development costs,
including costs related to drug discovery, preclinical testing, clinical trials,
manufacturing costs, and general and administrative expenses necessary to
support such activities. Operating losses may fluctuate from quarter to quarter
as a result of differences in the timing of expenses incurred and revenues
recognized.
The Company cannot assure that any of its drug candidates will
successfully meet any or all of their development goals. Important technical
milestones remain to be achieved before the Company can commercialize any of its
products. Failure to achieve these milestones could seriously jeopardize the
Company's chances of success, and its financial condition would be adversely
affected. The Company's future capital requirements will depend on many factors,
including the results of its six-month European Phase III clinical trials
(expected in the fourth quarter of 1998), the ability of the Company to
establish one or more development and/or commercialization collaborations for
its pramlintide program, progress with its other ongoing and new preclinical
studies and clinical trials, the time and costs involved in obtaining regulatory
approvals, scientific progress in its non-pramlintide research and development
programs, the magnitude of these programs, the costs involved in preparing,
filing, prosecuting, maintaining, enforcing or defending itself against patents,
competing technological and market developments, changes in collaborative
relationships and the costs of manufacturing scale-up.
Prior to marketing, any drug developed by the Company must undergo
rigorous preclinical and clinical testing and an extensive regulatory approval
process mandated by the Food and Drug Administration (FDA) and equivalent
foreign authorities. Human clinical testing is now underway on the Company's
first product candidate, pramlintide. Subject to compliance with FDA and foreign
authorities regulations, the Company plans to undertake extensive clinical
testing in an effort to demonstrate optimal dose, safety, and efficacy for its
product candidates in humans. Although the Company believes the initial Phase
III clinical data about pramlintide's clinical value warrants continuing with
the Phase III development program, there can be no assurance that these studies
will confirm or improve the results of the initial Phase III studies to date or
that the data will support regulatory approval of pramlintide. Further testing
of pramlintide and the Company's other product candidates in research or
development may reveal undesirable and unintended side effects or other
characteristics that may prevent or limit their commercial use. The Company or
the regulatory authorities may suspend clinical trials at any time if the
subjects or patients participating in such trials are being exposed to
unacceptable health risks. There can be no assurance that the Company will not
encounter problems in clinical trials which will cause the Company or the
regulatory authorities to delay or
<PAGE> 14
suspend clinical trials. In addition, there can be no assurance that any of the
Company's products will obtain regulatory approval for any indication. Products,
if any, resulting from Amylin's research and development programs are not
expected to be commercially available for a number of years.
The Company believes that patent and other proprietary rights are
important to its business, and in this regard intends to file applications as
appropriate for patents covering both its products and processes. The Company
currently owns 25 issued United States Patents and a number of other
still-pending U.S. applications, three of which have been allowed but are not
yet issued. Included within the Company's patent portfolio are issued patents
for (1) pramlintide and other amylin agonist analogues invented by Company
researchers; (2) the amylin molecule, which was discovered by University of
Oxford researchers Tony Willis and Garth Cooper, a co-founder of the Company;
(3) amylin agonist pharmaceutical compositions, including a)compositions
containing pramlintide, b)compositions containing pramlintide and insulin,
c)compositions containing amylin, and d)compositions containing amylin and
insulin; (4) methods for treating diabetes using any amylin agonist; (5) methods
for synthesis of amylin and amylin analogues; and, (6) methods for preparing
products that include an amylin agonist in composition for parenteral
administration. Litigation, which could result in substantial cost to the
Company, may also be necessary to enforce patents issued to the Company.
Litigation, whether or not there is any basis for it, may also be required to
determine the scope and validity of third-party proprietary rights.
The Company has received letters from the University of Minnesota
(the "University")and Per Westermark ("Westermark") asserting that the Company's
patented pramlintide invention is covered by a patent (the "University Patent")
which was licensed to the Company before it issued, while it was still pending
as an application, pursuant to a License Agreement dated November 11, 1991 among
the Company, the University and Westermark (the "University License Agreement").
The University Patent is directed to a different, tumor-derived molecule called
"Insulinoma Amyloid Polypeptide." In its letters, the University and Westermark
claim that they are entitled to 50% of any sublicense fees received by the
Company from sublicensing the University Patent to Johnson & Johnson pursuant to
the Collaboration Agreement, as well as future royalties as specified in the
University License Agreement. The Company has informed the University and
Westermark that no such sublicensing moneys have been received by the Company
from Johnson & Johnson, who is not a sublicensee under the University Patent. On
December 5, 1996, the Company filed a complaint against the University and
Westermark in the U.S. District Court for the Southern District of California
seeking a declaratory judgment that its patented pramlintide invention is not
covered by the University Patent and that no moneys are owed to the University
or Westermark. Although discussions were underway with the University and
Westermark, they did not result in any agreement regarding the
<PAGE> 15
litigation. The Company's complaint was served on the University and Westermark
in April 1997. The Company believes that the University's and Westermark's
assertions are without merit and intends to defend vigorously against the claims
that have now been brought against the Company related to the foregoing.
In addition, should any of the Company's competitors have prepared
and filed patent applications in the United States which claim technology also
invented by the Company, Amylin may have to participate in interference
proceedings declared by the U.S. Patent and Trademark Office in order to
determine priority of invention and, thus, the right to a patent for the
technology, all of which could result in substantial cost to the Company to
determine its rights. To date, no such interferences have been declared. It is
uncertain whether any third-party patents will require the Company to alter its
products or processes, obtain licenses, or cease certain activities. If any
licenses are required, there can be no assurances that the Company will be able
to obtain any such license on commercially favorable terms, if at all. Failure
by the Company to obtain a license to any technology that it may require to
commercialize its products may have a material adverse impact on the Company.
YEAR 2000 ISSUE
The Company is currently developing a plan to provide
assurances that its systems and software infrastructure are Year 2000 compliant.
Key financial, information and operation systems will be assessed and plans will
be developed to address required system modifications. Given the relatively
small size of the Company's systems and the relatively new hardware, software
and operating systems, management does not anticipate any significant delays in
becoming Year 2000 compliant. However, the Company is unable to control whether
the firms and vendors that it does business with currently and in the future
have systems that are Year 2000 compliant. To the extent that these firms and
vendors would be unable to provide services and ship products, the Company's
operations could be affected. However, management does not believe that Year
2000 changes will have a material impact on the Company's business and financial
condition or results of operations.
<PAGE> 16
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders (the "Annual Meeting") was
held on May 20, 1998. At the Annual Meeting, the stockholders of the Company (i)
elected each of the persons listed below to serve as a director of the Company
until the next annual meeting and until his or her successor is elected, (ii)
approved an amendment to the Company's Restated Certificate of Incorporation,
(iii) approved the Company's 1991 Stock Option Plan, as amended, (iv) ratified
the selection of Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending December 31, 1998, and (v) approved the partial option
exchange program for non-officer employees.
The Company had 32,453,364 shares of Common Stock outstanding as of March
20, 1998, the record date for the Annual Meeting. At the Annual Meeting, holders
of a total of 29,082,648 shares of Common Stock were present in person or
represented by proxy for Proposals 1 - 4, and 16,629,443 shares of Common Stock
were present in person or represented by proxy for Proposal 5. The following
sets forth information regarding the results of the voting at the Annual
Meeting:
Proposal 1: Election of Directors
<TABLE>
<CAPTION>
Shares
Voting Shares
Director in Favor Withheld
-------- ---------- --------
<S> <C> <C>
Joseph C. Cook, Jr. 28,853,258 229,390
James C. Blair 28,850,929 231,719
James C. Gaither 28,850,329 232,319
Ginger L. Graham 28,777,129 305,519
Howard E. Greene, Jr. 28,849,946 232,702
Vaughn M. Kailian 28,813,529 269,119
</TABLE>
Proposal 2: Approval of an amendment to the Company's Restated Certificate of
Incorporation
<TABLE>
<S> <C>
Votes in Favor: 23,539,897
Votes Against: 5,079,500
Abstentions: 100,932
</TABLE>
Proposal 3: Approval of the 1991 Stock Option Plan, as amended
<TABLE>
<S> <C>
Votes in Favor: 23,045,045
Votes Against: 5,525,691
Abstentions: 511,912
</TABLE>
<PAGE> 17
Proposal 4: Ratification of Selection of Independent Auditors
<TABLE>
<S> <C>
Votes in Favor: 28,781,114
Votes Against: 86,009
Abstentions: 215,525
</TABLE>
Proposal 5: Approval of the Partial Option Exchange Program for Non-Officer
Employees
<TABLE>
<S> <C>
Votes in Favor: 13,767,293
Votes Against: 2,812,310
Abstentions: 49,840
</TABLE>
<PAGE> 18
AMYLIN PHARMACEUTICALS, INC.
June 30, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Amylin Pharmaceuticals, Inc.
Date: August 7, 1998 By:/s/ Joseph C. Cook, Jr.
-------------------------------------------
Joseph C. Cook, Jr.
Chairman of the Board and
Chief Executive Officer
(on behalf of the registrant
and as the registrant's
principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AS FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 26,026,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,271,000
<PP&E> 19,960,000
<DEPRECIATION> 12,544,000
<TOTAL-ASSETS> 36,527,000
<CURRENT-LIABILITIES> 16,465,000
<BONDS> 0
0
0
<COMMON> 33,000
<OTHER-SE> (212,252,000)
<TOTAL-LIABILITY-AND-EQUITY> 36,527,000
<SALES> 0
<TOTAL-REVENUES> 13,821,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 38,691,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,696,000
<INCOME-PRETAX> (27,566,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,566,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,566,000)
<EPS-PRIMARY> (0.85)
<EPS-DILUTED> (0.85)
</TABLE>
