<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
---------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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 0-19918
--------------------------------
NEOZYME II CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
British Virgin Islands N/A
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Todman Building, Main Street, Road Town, Tortola, British Virgin Islands
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(809) 494-2065
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
------ ------
The number of shares outstanding of each of the issuer's classes of common stock
as of July 31, 1996:
Class Outstanding at July 31, 1996:
----- -----------------------------
Callable Common Stock, $1.00 par value 2,415,000
Total number of pages in document - 15
Exhibit index located on page - 12
<PAGE> 2
NOTE REGARDING FORWARD-LOOKING STATEMENTS:
This Quarterly Report on Form 10-Q for Neozyme II Corporation ("Neozyme II" or
the "Company") contains forward-looking statements concerning, among other
things, the Company's expected future operations and expenditures, the Company's
ability to overcome technical challenges associated with the development of its
technology, assessments of competitors and potential competitors, projected
timetables for the preclinical and clinical development, regulatory approval and
market introduction of the Company's products and services and the exercise by
Genzyme Corporation of its right to purchase all of the Company's outstanding
Callable Common Stock. All such forward-looking statements are necessarily only
estimates of future events and the actual events may differ materially from
these estimates due to a number of factors, including (i) the Company's ability
to demonstrate significant progress toward successful completion of preclinical
and clinical development of its products and services, (ii) decisions, and the
timing of decisions, made by the United States Food and Drug Administration and
other agencies regarding regulatory approval of the Company's products and
services, (iii) the accuracy of the Company's estimates of the size and
characteristics of markets to be addressed by the Company's products and
services, (iv) the Company's ability to obtain patent and other proprietary
rights protection for its products and services, (vi) the accuracy of the
Company's information concerning the products and resources of competitors and
potential competitors. See also "Factors Affecting Future Operations" under
Item 7. Management's Discussion and Analysis of Financial Condition and results
of Operations of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
2
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NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
FORM 10-Q, JUNE 30, 1996
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Unaudited Condensed Financial Statements
Statements of Operations for the Three Months and
Six Months Ended June 30, 1996 and 1995 and
Cumulative from Inception (March 2, 1992) ............... 4
Balance Sheets as of June 30, 1996 and
December 31, 1995 ....................................... 5
Statements of Cash Flows for the Six Months Ended
June 30, 1996 and 1995 and Cumulative from
Inception (March 2, 1992) ............................... 6
Notes to Unaudited Condensed Financial Statements ....... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K .......................... 10
Signatures .......................................................... 11
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED CUMULATIVE
JUNE 30, JUNE 30, FROM
--------------------- ---------------------- INCEPTION
1996 1995 1996 1995 (MARCH 2, 1992)
---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
Investment income .............. $ 209 $ 340 $ 453 $ 820 $ 12,615
Costs and expenses:
Technology license fee ....... - - - - 5,000
Research and development ..... 5,217 5,949 10,596 11,652 70,175
General and administrative ... 83 98 162 158 1,358
------- ------- -------- -------- --------
5,300 6,047 10,758 11,810 76,533
------- ------- -------- -------- --------
Net loss ....................... $(5,091) $(5,707) $(10,305) $(10,990) $(63,918)
======= ======= ======== ======== ========
Net loss per callable
common share .................. $ (2.11) $ (2.36) $ (4.27) $ (4.55) $ (27.59)
======= ======= ======== ======== ========
Weighted average callable
common shares outstanding ..... 2,415 2,415 2,415 2,415 2,317
======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
unaudited, condensed financial statements.
4
<PAGE> 5
<TABLE>
NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ....................... $ 8,636 $ 5,546
Short-term investments .......................... 5,178 21,501
Prepaid research and development ................ 527 -
-------- --------
$ 14,341 $ 27,047
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to Genzyme Corporation .................. 29 2,469
Accrued expenses ................................ 129 92
-------- --------
Total current liabilities .................... 158 2,561
Note payable to Genzyme Corporation ................ 100 100
Stockholders' Equity:
Callable common Stock, $1.00 par value;
authorized 9,000,000 shares, 2,415,000
shares issued and outstanding .................. 2,415 2,415
Additional paid-in capital ...................... 75,620 75,620
Deficit accumulated during the
development stage .............................. (63,918) (53,613)
Unrealized loss on investments .................. (34) (36)
-------- --------
14,083 24,386
-------- --------
$ 14,341 $ 27,047
======== ========
</TABLE>
The accompanying notes are an integral part of these
unaudited, condensed financial statements.
5
<PAGE> 6
<TABLE>
NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<CAPTION>
SIX MONTHS ENDED
JUNE 30, CUMULATIVE
-------------------- FROM INCEPTION
1996 1995 (MARCH 2, 1992)
---- ---- ---------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss ............................................ $(10,305) $(10,990) $ (63,918)
Reconciliation of net loss to net cash
used by operating activities:
(Gain)/loss on sale of investments ............... (25) 226 (1,919)
Accrued interest/amortization on investments ..... (365) 276 796
Prepaid research and development ................. (527) (374) (527)
Due from Genzyme Corporation ..................... - - -
Payable to Genzyme Limited ....................... - - -
Payable to Genzyme Corporation ................... (2,440) (729) 29
Accrued expenses ................................. 37 41 129
-------- -------- ---------
Net cash used by operating activities ............... (13,625) (11,550) (65,410)
Cash flow from investing activities:
Purchases of short-term investments ................. - - (31,216)
Purchase of long-term investment .................... - - (109,521)
Sales and maturities of short-term investments ...... 16,715 22,638 63,959
Sales and maturities of long-term investments ....... - - 72,689
-------- -------- ---------
Net cash provided (used) by investing activities .... 16,715 22,638 (4,089)
Cash flow from financing activities:
Issuance of note payable to Genzyme Corporation ..... - - 100
Issuance of callable common stock ................... - - 78,035
-------- -------- ---------
Net cash provided by financing activities ........... - - 78,135
-------- -------- ---------
Increase in cash and cash equivalents ................... 3,090 11,088 8,636
Cash and cash equivalents at beginning of period ........ 5,546 135 -
-------- -------- ---------
Cash and cash equivalents at end of period .............. $ 8,636 $ 11,223 $ 8,636
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these
unaudited, condensed financial statements.
6
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NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
JUNE 30, 1996
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS FOR PRESENTATION:
Neozyme II Corporation ("Neozyme II" or the "Company") is a
development stage enterprise engaged in the research, development and
clinical testing of biotherapeutic products for the treatment of cystic
fibrosis.
These unaudited condensed financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 and the financial statements and footnotes
included therein. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
the Securities and Exchange Commission rules and regulations.
The financial statements for the three and six months ended June 30,
1996 and 1995 are unaudited but include, in the Company's opinion, all
adjustments (consisting only of normally recurring accruals) necessary for
a fair presentation of the results for the periods presented.
2. ACCOUNTING POLICIES:
The accounting policies underlying the quarterly financial statements
are those set forth in Note A of the financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
As of June 30, 1996, investments totaling $5,178,000 were classified
as available for sale and, accordingly, unrealized holding losses totaling
$34,000 have been recognized in a separate component of stockholders'
equity.
3. PURCHASE OPTION AGREEMENT WITH GENZYME CORPORATION:
<TABLE>
Under the Purchase Option Agreement, Genzyme has the option (the
"Purchase Option"), exercisable not later than December 31, 1996, to
purchase all, but not less than all, of the Callable Common Stock, at
stated prices which increase over time. The purchase price increases based
on a formula which prorates evenly by month the difference between a given
and prior year purchase price plus the prior year purchase price.
<CAPTION>
IF THE STOCK PURCHASE OPTION EXERCISE TOTAL
OPTION IS EXERCISED: PRICE PER SHARE PAYMENT
------------------- --------------- ------------
<S> <C> <C>
On or before December 31, 1995... $ 83 $200,445,000
December 31, 1996................ 117 282,555,000
</TABLE>
The purchase price, if exercised at June 30, 1996, was $100.00 per share
for a total payment of $241,500,000.
The Purchase Option Agreement may be terminated by Neozyme II
following expenditure of the funds available for its development program
unless Genzyme funds or obtains funding to continue the development
program.
4. TERMINATION OF LICENSE AND DEVELOPMENT AGREEMENT WITH NABI
Under agreement with Genzyme, Neozyme II funds Genzyme's obligations
to provide development funding to NABI in exchange for the exclusive
rights that Genzyme has acquired to market, on a worldwide basis,
HyperGAM+[Trademark]CF, for the treatment of Pseudomonas lung infections
in Cystic Fibrosis patients. In June 1996, Neozyme II and NABI announced
the halt of their Phase II clinical trial for HyperGAM+[Trademark]CF after
receiving the results of an interim analysis of the data from the trial by
an independent statistician which showed no evidence of a reduction in the
number of acute pulmonary exacerbations in trial participants. No major
issues with the safety of the product were identified. On June 21, 1996,
after review of the interim analysis data, the Board of Directors of
Neozyme II voted unanimously to terminate the License and Development
Agreement with NABI. Under the terms of this Agreement, Neozyme II is
required to reimburse NABI for certain costs incurred in connection with
the wind down of the HyperGAM+[Trademark]CF program up to maximum of
$900,000.
7
<PAGE> 8
NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Neozyme II incurred net losses for the three and six months ended June 30,
1996 totaling $5,091,000 ($2.11 per share) and $10,305,000 ($4.27 per share),
respectively, as compared to $5,707,000 ($2.36 per share) and $10,990,000 ($4.55
per share), respectively, for the corresponding periods in 1995. The net losses
are primarily attributable to contracted research and development expenses paid
to Genzyme Corporation ("Genzyme") which totaled $5,217,000 and $10,596,000,
respectively, for the three and six months ended June 30, 1996 as compared to
$5,949,000 and $11,652,000 for the same periods in 1995. The decrease in
research and development expenses of 12% and 9%, respectively, for the three and
six months ended June 30, 1996 resulted from a reduction in expenses incurred by
Genzyme related to external support contracted to assist with the Neozyme II
development programs. General and administrative expenses, which consist of
administrative and management support together with legal, auditing and other
operating costs totaled $83,000 and $162,000 for the three and six months ended
June 30, 1996, respectively, as compared to $98,000 and $158,000, respectively,
for the corresponding periods in 1995. The 15% decrease in general
administrative expenses for the three months ended June 30, 1996 was due
primarily to a reduction in legal expenses related to patent maintenance and
defense. For the six months ended June 30, 1996, general and administrative
expenses increased 3% as compared to the same period in 1995 due to increased
insurance and annual meeting costs incurred in the first quarter of 1996 offset
by a reduction in legal expenses in the second quarter of 1996.
The Company's only source of revenue has been the interest earned on the
investment of funds received from the initial public offering. Investment income
for the three and six months ended June 30, 1996 was $209,000 and $453,000,
respectively, as compared to $340,000 and $820,000, respectively, for the same
periods in 1995. Investment income for the three and six months ended June 30,
1995 included realized losses on sales of securities of $191,000 and $226,000,
respectively, whereas no realized losses or gains were recorded in the
corresponding periods of 1996. Excluding the effect of these realized losses,
investment income for the three and six months ended June 30, 1996 decreased 61%
and 57%, respectively, due primarily to lower average cash and investment
balances.
FINANCIAL CONDITION
- -------------------
Neozyme II's only source of funding and capital resources has been the
proceeds from the initial public offering plus income earned thereon. It is
expected that Neozyme II will continue to experience significant losses as
substantially all of the offering proceeds are committed to funding the work
performed by Genzyme under the Development Agreement. As of June 30, 1996, the
Company had $13.8 million in cash, cash equivalents and short-term investments,
a decrease of $13.2 million from December 31, 1995 resulting primarily from
$10.3 million required to fund operations in the first six months of 1996, a
reduction in the amount payable to Genzyme for contracted research and
development efforts incurred in the fourth quarter of 1995 of $2.4 million and
$0.5 million in prepayments to Genzyme for future research and development
expenses. It is anticipated that this balance will be sufficient to fund the
Company's operations through December 31, 1996. Substantial additional funds are
expected to be required in order to complete the clinical testing and
commercialization of Neozyme II's products. If Genzyme does not exercise the
Purchase Option to acquire all of the Company's outstanding shares of callable
common stock, Neozyme II will need to find
8
<PAGE> 9
alternative ways to fund commercialization of its products. There can be no
assurance that the Products will be developed to the point of commercialization
or that Neozyme II will be able to find such alternative ways to fund such
commercialization. If Genzyme does not exercise the Purchase Option and Neozyme
II decides to complete development, manufacture or marketing of the products
itself, Neozyme II will need substantial additional funds. Genzyme is not
obligated to provide those funds and there can be no assurance that such funds
will be available from others on attractive terms, if at all.
Under agreement with Genzyme, Neozyme II funds Genzyme's obligations to
provide development funding to NABI in exchange for the exclusive rights that
Genzyme has acquired to market, on a worldwide basis, HyperGAM+[TM]CF, for the
treatment of Pseudomonas lung infections in Cystic Fibrosis patients. In June
1996, Neozyme II and NABI announced the halt of their Phase II clinical trial
for HyperGAM+[TM]CF after receiving the results of an interim analysis of the
data from the trial by an independent statistician which showed no evidence of a
reduction in the number of acute pulmonary exacerbations in trial participants.
No major issues with the safety of the product were identified. On June 21,
1996, after review of the interim analysis data, the Board of Directors of
Neozyme II voted unanimously to terminate the License and Development Agreement
with NABI. Under the terms of this Agreement, Neozyme II is required to
reimburse NABI for certain costs incurred in connection with the wind down of
the HyperGAM+[Trademark]CF program up to a maximum of $900,000.
9
<PAGE> 10
NEOZYME II CORPORATION
FORM 10-Q, JUNE 30, 1996
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on Thursday, May
30, 1996. The following represents the results of the voting on
proposals submitted to a vote of stockholders at such meeting:
(a) Proposal to elect directors: Kennett F. Burnes, by a vote of
2,056,010 in favor and 129,000 votes withheld, Robert J.
Carpenter, by a vote of 2,056,010 in favor and 129,000 votes
withheld, and Robert E. Flynn, by a vote of 2,056,010 in favor
and 129,000 withheld, were re-elected as directors of the Company
for a term of office expiring in 1999. There were no
abstentions or broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
24.1 Power of Attorney. Filed herewith.
24.2 Certified copy of Board of Directors
resolution authorizing power of
attorney. Filed as Exhibit 24.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996 (Commission File No. 0-19918) and
incorporated herein by reference.
27 Financial Data Schedule for Neozyme II
Corporation (for EDGAR filing purposes only).
Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ending June 30, 1996.
10
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NEOZYME II CORPORATION
FORM 10-Q, JUNE 30, 1996
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.
NEOZYME II CORPORATION
DATE: August 14, 1996 By: /s/ David J. McLachlan
-----------------------
David J. McLachlan
Attorney-in-fact for
Paul M. Edwards, Duly
Authorized Officer and
Principal Executive,
Financial and Accounting
Officer
11
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NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
FORM 10-Q, JUNE 30, 1996
EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------- ----------- --------
24.1 Power of Attorney. Filed herewith. 13
24.2 Certified copy of Board of Directors'
resolution authorizing power of
attorney. Filed as Exhibit 24.2 to the Company's
Quarterly Report on Form 10-Q for the Quarter
ended March 31, 1996 (Commission File No.
0-19918) and incorporated herein by reference.
27 Financial Data Schedule for Neozyme II
Corporation (for EDGAR filing purposes only). 15
12
<PAGE> 1
EXHIBIT 24.1
13
<PAGE> 2
NEOZYME II CORPORATION
Power of Attorney
-----------------
I the undersigned officer of Neozyme II Corporation (the "Company"), hereby
constitute and appoint Henri A. Termeer, David J. McLachlan, Mark A. Hofer, Evan
M. Lebson, and Peter Wirth, and each of them singly, my true and lawful
attorney, with full power to sign for me, in my name and in all of my
capacities, the Company's quarterly report on Form 10-Q for the quarter ended
June 30, 1995 required to be filed with the Securities and Exchange Commission,
and any amendments thereto, hereby ratifying and confirming all that each of
said attorneys-in-fact may do or cause to be done by virtue hereof.
DATED this 14th day of August, 1996. /s/ Paul M. Edwards
---- ------- -------------------------------
Paul M. Edwards, Duly
Authorized Officer and
Principal Executive,
Financial and Accounting
Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS OF NEOZYME II CORPORATION FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 8,636
<SECURITIES> 5,178
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,341
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,341
<CURRENT-LIABILITIES> 158
<BONDS> 100
<COMMON> 2,415
0
0
<OTHER-SE> 11,668
<TOTAL-LIABILITY-AND-EQUITY> 14,341
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 10,758
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,305)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,305)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,305)
<EPS-PRIMARY> (4.27)
<EPS-DILUTED> 0
</TABLE>
