<PAGE>
FORM 1O-Q
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 September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19732
CORVAS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0238812
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3030 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices and zip code)
(619) 455-9800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark whether the Registrant (l) 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
---- ---
At October 31, 1996, there were 13,708,747 shares of Common Stock, $0.001
par value, of the Registrant issued and outstanding.
<PAGE>
CORVAS INTERNATIONAL, INC.
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets as of September 30, 1996 and
December 31, 1995 1
Condensed Statements of Operations for the Three and Nine
Months Ended September 30, 1996 and 1995 2
Condensed Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 3
Notes to Condensed Financial Statements 4
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II OTHER INFORMATION
Item 1 Legal Proceedings 9
Item 2 Changes in Securities 9
None
Item 3 Defaults Upon Senior Securities 9
None
Item 4 Submission of Matters to a Vote of Security Holders 9
None
Item 5 Other Information 9
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits 9
(b) Reports on Form 8-K 9
None
SIGNATURES 10
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CORVAS INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,099 $ 1,427
Short-term debt securities held to maturity
and time deposits, partially restricted 22,252 11,024
Receivables 280 338
Note receivable from related party 200 0
Other current assets 437 250
-------- --------
Total current assets 24,268 13,039
Property and equipment, net 1,159 1,423
Note receivable from related party 180 0
-------- --------
$ 25,607 $ 14,462
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 144 $ 272
Accrued expenses 534 461
Accrued benefits 6 0
Accrued vacation 193 205
Accrued litigation settlement expenses 0 313
Current portion of capital lease obligation 47 77
Deferred rent 0 34
Deferred revenue 1,020 4,305
-------- --------
Total current liabilities 1,944 5,667
-------- --------
Long-term capital lease obligation 0 27
Stockholders' equity:
Preferred stock - Series A 1 1
Common stock 15 9
Additional paid-in capital 89,608 69,346
Accumulated deficit (65,961) (60,588)
-------- --------
Total stockholders' equity 23,663 8,768
Commitments and contingencies
-------- --------
$ 25,607 $ 14,462
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE>
CORVAS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
In thousands, except per share amounts (unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $ 101 $ 162 $ 147 $ 376
Revenue from collaborative agreements 1,085 1,000 4,255 3,000
Royalties 18 46 99 120
------- ------- ------- -------
Total revenues 1,204 1,208 4,501 3,496
------- ------- ------- -------
COSTS AND EXPENSES:
Cost of products sold 75 89 129 198
Research and development 2,449 2,630 8,365 7,224
General and administrative 625 670 2,312 1,916
------- ------- ------- -------
Total costs and expenses 3,149 3,389 10,806 9,338
------- ------- ------- -------
Loss from operations (1,945) (2,181) (6,305) (5,842)
OTHER INCOME:
Interest income, net 332 187 901 670
Other income (expense) 1 0 31 (15)
------- ------- ------- -------
333 187 932 655
------- ------- ------- -------
Net loss $(1,612) $(1,994) $(5,373) $(5,187)
------- ------- ------- -------
------- ------- ------- -------
Net loss per share $ (0.12) $ (0.21) $ (0.42) $ (0.55)
------- ------- ------- -------
------- ------- ------- -------
Shares used in calculation
of net loss per share 13,705 9,377 12,650 9,367
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CORVAS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
IN THOUSANDS (UNAUDITED)
Nine Months Ended
September 30,
---------------------
1996 1995
-------- --------
Cash flows from operating activities:
Net loss $ (5,373) $(5,187)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 613 621
Amortization of premiums and discounts on
investments 184 110
Amortization of deferred compensation 0 65
Stock compensation expense 1 15
Change in assets and liabilities:
(Increase) decrease in receivables 58 (147)
Increase in other current assets (187) (198)
Decrease in accounts payable, accrued
expenses, accrued benefits, accrued vacation
and accrued litigation settlement expenses (374) (1,202)
Decrease in deferred revenue (3,285) (3,000)
Decrease in deferred rent (34) (109)
------- -------
Net cash used in operating activities (8,397) (9,032)
------- -------
Cash flows from investing activities:
Purchases of investments held to maturity (26,752) (8,039)
Proceeds from maturity of investments held to
maturity 15,640 15,400
Purchases of property and equipment (349) (510)
Proceeds from the sale of property and equipment 0 296
Loans to related parties (380) 0
------- -------
Net cash provided by (used in) investing activities (11,841) 7,147
------- -------
Cash flows from financing activities:
Principal payments under capital lease obligation (57) (53)
Net proceeds from issuance of common stock 19,967 17
------- -------
Net cash provided by (used in) financing activities 19,910 (36)
Effect of exchange rate changes on cash 0 (295)
------- -------
Net decrease in cash and cash equivalents (328) (2,216)
Cash and cash equivalents at beginning of period 1,427 3,687
------- -------
Cash and cash equivalents at end of period $ 1,099 $ 1,471
------- -------
------- -------
Supplemental disclosures:
Interest paid $ 5 $ 9
------- -------
------- -------
Noncash financing activities -
Common stock issued in exchange for settlement of
accrued litigation liability $ 298 $ 0
------- -------
------- -------
See accompanying notes to condensed financial statements.
3
<PAGE>
CORVAS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) THE COMPANY
Corvas International, Inc. (the "Company") was incorporated on March 27,
1987 under the laws of the State of California. In July 1993, the Company
reincorporated in the State of Delaware. The Company is engaged in the
design and development of a new generation of therapeutic agents for the
prevention and treatment of major cardiovascular and inflammatory diseases.
Previous financial statements of the Company were consolidated to
include the accounts of Corvas International, Inc. in San Diego and its
Belgian subsidiary, Corvas International, N.V. Operating activities at the
Belgian subsidiary ceased in December 1994 and the subsidiary was liquidated
in December 1995.
(2) BASIS OF PRESENTATION
The interim financial information contained herein is unaudited but, in
management's opinion, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. The financial
statements should be read in conjunction with the Company's audited financial
statements and notes thereto for the year ended December 31, 1995.
Results for the interim periods are not necessarily indicative of
results for other interim periods or for the full year.
(3) NOTES RECEIVABLE FROM RELATED PARTIES
Notes receivable from related parties as of September 30, 1996 consist
of two loans which are evidenced by promissory notes. The Company granted a
$200,000 short-term loan to an executive officer of the Company on June 25,
1996 in connection with such officer's relocation to San Diego. This secured
loan bears no interest and is due and payable in full on the earlier of (i)
six months from the loan date, (ii) the closing of the sale of the secured
property or any transfer thereof, or (iii) within 90 days of such officer's
termination of employment with the Company.
On February 23, 1996, the Company granted two loans to an executive
officer of the Company who resigned on July 8, 1996 (the "Former Officer").
The first loan, in the principal amount of $180,000, bears interest at 6% per
annum, is secured by the Former Officer's primary residence, and is due and
payable in full on February 23, 2001. The Company also granted a second loan
in the amount of $120,000 to such Former Officer on February 23, 1996. Of
such loan, $60,000 was repaid on April 25, 1996, and $60,000 has been
reserved.
(4) NET LOSS PER SHARE
Net loss per share for the three and nine months ended September 30,
1996 and 1995 is computed using the weighted average number of common share
equivalents outstanding. Common equivalent shares are not included in the
per share calculation since the effect of their inclusion would be
anti-dilutive.
4
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING STATEMENTS REGARDING THE PERIOD OF TIME DURING WHICH
THE COMPANY'S EXISTING CAPITAL RESOURCES AND INTEREST EARNED THEREON WILL BE
ADEQUATE TO SATISFY ITS CAPITAL REQUIREMENTS. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE
OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN THIS SECTION AND THOSE DISCUSSED IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-K/A.
OVERVIEW
Formed in 1987, Corvas International, Inc. (the "Company") is a
biopharmaceutical firm engaged in the design and development of a new
generation of therapeutic agents for the prevention and treatment of major
cardiovascular and inflammatory diseases. To date, the Company has not
generated significant revenues from product sales. The Company has not been
profitable since inception and expects to incur substantial additional
operating losses on an annual basis over the next several years as the
Company attempts to sustain, and possibly expand, its research and
development and clinical trial efforts. No assurance can be given that the
Company will generate sufficient revenues to become profitable on a sustained
basis or at all. At September 30, 1996, the Company had an accumulated
deficit of $65,961,000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Comparing the third quarters of 1995 and 1996, operating revenues
decreased slightly from $1,208,000 in 1995 to $1,204,000 in the corresponding
quarter of 1996. An $85,000 increase in revenue attributable to a research
and option agreement initiated in October 1995 with Pfizer Inc. ("Pfizer") to
collaborate on the development of the anti-inflammatory neutrophil inhibitory
factor ("NIF") was offset by decreases in product sales and related royalty
revenues.
Total costs and expenses decreased from $3,389,000 in the three months
ended September 30, 1995 to $3,149,000 in the same period of 1996. Research
and development expenditures decreased $181,000, primarily due to increased
costs incurred for clinical trials in the third quarter of 1995. General and
administrative expenses also decreased comparing these same quarters,
resulting, in part, from an adjustment to facilities costs.
Total other income increased from $187,000 in the quarter ended
September 30, 1995 to $333,000 in the corresponding quarter of 1996. This is
the result of increased interest income attributable to net proceeds of
$19,715,000 raised by the Company in two 1996 common stock offerings.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Operating revenues for the nine months ended September 30 increased from
$3,496,000 in 1995 to $4,501,000 in 1996. This increase, which was partially
offset by a decrease in product sales, is due to a $1,000,000 option
extension fee received from Schering Corporation ("Schering-Plough") pursuant
to a strategic alliance agreement for the prevention and treatment of chronic
cardiovascular disorders and to $255,000 in revenue attributable to the
Company's collaboration with Pfizer.
5
<PAGE>
Comparing the nine month periods ended September 30, 1995 and 1996,
total costs and expenses increased from $9,338,000 to $10,806,000. An
increase of $1,141,000 in research and development expenditures is primarily
attributable to costs incurred in support of a product development candidate.
Recruiting and relocation costs associated with the hiring of a new Chief
Executive Officer were the major factors causing general and administrative
expenses to increase by $396,000 during these same periods.
Principally as a result of increased interest income earned on higher
cash and investment balances, total other income increased from $655,000 in
the first nine months of 1995 to $932,000 in the corresponding period of 1996.
Subject to the availability of additional capital, the Company expects
expenses to increase over the next several years as the Company's research
and development programs progress. The Company also expects that both
expenses and losses will fluctuate from quarter to quarter and that such
fluctuations may, at times, be substantial.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's operations have been funded primarily
through public offerings and private placements of equity securities,
interest income earned on cash and investment balances, and revenues from
collaborative agreements, research grants and license agreements. The
Company's principal sources of liquidity are its cash and cash equivalents,
time deposits and debt securities which, net of a restricted time deposit,
totaled $23,291,000 as of September 30, 1996. Working capital at September
30, 1996 was $22,324,000. Available cash is invested in accordance with an
investment policy set by the Board of Directors, which has the objectives to
maximize income, to preserve principal and to maintain adequate liquidity.
The policy provides guidelines concerning the quality, term and liquidity of
investments. The Company presently invests its excess cash in U.S.
government securities.
Strategic collaborations with Schering-Plough and Pfizer provide for
payments to the Company if and when certain milestones are met. However,
there can be no assurance that any of these payments will be received. A
compound for development in the thrombin inhibitor program was submitted to
Schering-Plough in early October. Under the agreement, Schering-Plough must
confirm within 90 days that the acceptance criteria have been met, at which
time a $3,000,000 milestone payment would be due. Schering-Plough also has
an exclusive option, expiring in December 1996, to expand the existing
collaboration to include a program to develop inhibitors of a second blood
clotting enzyme, Factor Xa. If this option is exercised, Schering-Plough
will compensate the Company for the costs of research and preclinical
development of Factor Xa inhibitors over two years. A $5,000,000 payment
would be recorded as deferred revenue and would be recognized as revenue over
the five quarters beginning with the first quarter 1997, and an additional
$3,000,000 that would be paid in the fourth quarter 1997 would be recognized
as revenue in 1998. An equity investment of $2,000,000 would also be
triggered. The Company may also receive milestone payments and ultimately
royalties on sales of therapeutics resulting from this alliance. The
research and option agreement with Pfizer provides for an option period which
can be extended through April 1997. Pfizer recently notified the Company of
its intent to extend the option period by making monthly payments until
January 1997. Exercise of this option at that time would result in a license
fee payment of $850,000 and could result in future milestone payments.
Pfizer would then be responsible for funding all further development of NIF
as a therapeutic agent.
6
<PAGE>
The Company expects to incur substantial additional costs in the
foreseeable future, including costs related to sustaining, and possibly
expanding, research and development activities and preclinical and clinical
testing. The Company expects such costs to continue to increase. As a
result, the Company expects to experience substantial additional operating
losses over the next several years. The Company believes its existing
capital resources and interest earned thereon will satisfy its capital
requirements into mid-1998. In addition, the Company may also receive
additional capital resources through milestone payments and royalties on
sales of products in connection with its alliances, as noted above. However,
there can be no assurance that the Company will successfully develop and
commercialize such products or that the Company will receive any such amounts
under these alliances.
The Company's future capital requirements will depend on many factors,
including, but not limited to, the following: continued scientific progress
in its drug discovery programs; the magnitude of these programs; progress of
preclinical testing and clinical trials; the time and costs involved in
obtaining regulatory approvals; the costs involved in filing, prosecuting,
maintaining and enforcing patent claims; competing technological and market
developments; changes in its existing research relationships; the ability of
the Company to establish and to maintain collaborative or licensing
arrangements; the cost of manufacturing scale-up; and effective
commercialization activities and arrangements. The Company leases its
laboratory and office facilities and certain equipment under operating and
capital leases. The Company expects to acquire additional property and
equipment as research and development activities progress. In addition, the
Company may need to expand its laboratory and office facilities over the next
several years.
The Company's business is subject to significant risks, including but
not limited to the risks associated with its research and development
efforts, obtaining and enforcing patents, the lengthy and expensive
regulatory approval process, product reimbursement levels, competition from
other products, dependence on collaborative partners and other third parties,
and the availability of capital. Even if the Company's products appear
promising at an early stage of development, they may not reach the market for
a number of reasons. Such reasons include the possibilities that the
potential products: will be ineffective or found to be unsafe during clinical
trials, will fail to receive necessary regulatory approvals, will be
difficult to manufacture on a large scale, will be uneconomical to market or
will be precluded from commercialization by proprietary rights of third
parties.
Uncertainties associated with the duration and expense of preclinical
and clinical testing of any of the Company's products make it difficult to
predict the Company's capital requirements, and unexpected developments
and/or regulatory requirements could greatly increase the cost of development
of such products and affect the timing of anticipated revenues from such
products. Failure by the Company to obtain regulatory approval for any
product will preclude the sale of such products. In addition, failure by the
Company to obtain patent protection may make certain of its products
commercially unattractive.
7
<PAGE>
To continue product development efforts, the Company must raise
substantial additional funds through public or private sales of securities,
collaborative arrangements or other methods of financing. The Company's
ability to raise additional funds through such sales of securities depends in
part on investors' perceptions of the biotechnology industry, in general, and
of the Company, in particular. The market for biotechnology company stocks
has historically been highly volatile and, accordingly, there can be no
assurance that additional funding will be available, or, if available, that
it will be available on acceptable terms. The Company may enter into
additional collaborative relationships to support development and
commercialization under which rights to certain of its technologies or
products will be granted. There can be no assurance that the Company will be
able to establish such relationships on satisfactory terms, if at all, or
that agreements with collaborators will successfully reduce the Company's
funding requirements. In addition, the Company has no established bank
financing arrangements, and there can be no assurance that it will be able to
establish such arrangements on satisfactory terms, if at all. If adequate
funds are not available, the Company may be required to significantly delay,
scale back or eliminate one or more of its drug discovery programs or obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies,
product candidates or products that the Company would not otherwise
relinquish.
The Company has distributed all amounts due under a settlement agreement
in connection with a legal proceeding filed in 1993 against several of the
Company's current and former directors and Centocor, Inc.
In 1993, the U.S. Patent and Trademark Office (the "USPTO") declared an
interference to determine the priority of invention between a patent for
which some rights are licensed to the Company (the "Licensed Patent") and a
patent application for which rights are held by other parties (the "First
Patent Application"). During the third quarter of 1996, the USPTO added a
second patent application to the proceeding (the "Second Patent Application")
and redeclared the interference. Rights to the Second Patent Application are
held by other parties, at least some of which also hold rights in the First
Patent Application. The subject matter of the patent and these applications
is recombinant tissue factor, which is used by Ortho Diagnostic Systems, Inc.
("Ortho"), a Johnson & Johnson company, to determine the blood clotting
abilities of patients. The Company believes that the Licensed Patent should
be upheld and is contesting the other parties' claims of prior invention.
However, there can be no assurance that the Licensed Patent will be upheld.
8
<PAGE>
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company has distributed all amounts due under a settlement agreement
in connection with a legal proceeding filed in 1993 against several of the
Company's current and former directors and Centocor, Inc.
In 1993, the U.S. Patent and Trademark Office (the "USPTO") declared an
interference to determine the priority of invention between a patent for
which some rights are licensed to the Company (the "Licensed Patent") and a
patent application for which rights are held by other parties (the "First
Patent Application"). During the third quarter of 1996, the USPTO added a
second patent application to the proceeding (the "Second Patent Application")
and redeclared the interference. Rights to the Second Patent Application are
held by other parties, at least some of which also hold rights in the First
Patent Application. The subject matter of the patent and these applications
is recombinant tissue factor, which is used by Ortho Diagnostic Systems, Inc.
("Ortho"), a Johnson & Johnson company, to determine the blood clotting
abilities of patients. The Company believes that the Licensed Patent should
be upheld and is contesting the other parties' claims of prior invention.
However, there can be no assurance that the Licensed Patent will be upheld.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule.
b. Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
September 30, 1996.
9
<PAGE>
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.
CORVAS INTERNATIONAL, INC.
Date: November 12, 1996 By: /s/RANDALL E. WOODS
-----------------------
Randall E. Woods
President and Chief Executive Officer
Date: November 12, 1996 By: /s/JOHN E. CRAWFORD
-----------------------
John E. Crawford
Executive Vice President
and Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,099
<SECURITIES> 22,252
<RECEIVABLES> 480
<ALLOWANCES> 60
<INVENTORY> 43
<CURRENT-ASSETS> 24,268
<PP&E> 4,117
<DEPRECIATION> 2,958
<TOTAL-ASSETS> 25,607
<CURRENT-LIABILITIES> 1,944
<BONDS> 0
0
1
<COMMON> 15
<OTHER-SE> 23,647
<TOTAL-LIABILITY-AND-EQUITY> 25,607
<SALES> 147
<TOTAL-REVENUES> 4,501
<CGS> 129
<TOTAL-COSTS> 10,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> (5,373)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,373)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,373)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
