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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
EXCHANGE ACT OF 1934 FOR QUARTER ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-12574
TEXAS BIOTECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3532643
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7000 Fannin, 20th Floor, Houston, Texas 77030
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(Address of principal executive office) (Zip code)
(713) 796-8822
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(Registrant's telephone number, including area code)
Not Applicable
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(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 April 30, 2000
----- -----------------------------
Common Stock, $0.005 par value 40,801,214
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TEXAS BIOTECHNOLOGY CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 1
Consolidated Statements of Operations for the three months ended
March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES 12
ABOUT MARKET RISK
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings 13
ITEM 2: Changes in Securities 13
ITEM 3: Defaults Upon Senior Securities 13
ITEM 4: Submission of Matters to a Vote of Security Holders 13
ITEM 5: Other Information 13
ITEM 6: Exhibits and Reports on Form 8-K 14
SIGNATURES 15
INDEX TO EXHIBITS 16
</TABLE>
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TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,185,941 $ 2,804,270
Short-term investments 6,222,284 11,366,066
Other current receivables 551,879 1,067,738
Prepaids 1,507,937 1,453,090
------------- -------------
Total current assets 16,468,041 16,691,164
Long-term investments -- 1,000,000
Equipment and leasehold improvements, at cost less
accumulated depreciation and amortization 2,769,738 2,998,431
Other assets 115,096 115,096
------------- -------------
Total assets $ 19,352,875 $ 20,804,691
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 874,940 $ 556,664
Accrued expenses 2,196,080 1,657,706
------------- -------------
Total current liabilities 3,071,020 2,214,370
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, par value $.005 per share. At March 31, 2000,
5,000,000 shares authorized; none outstanding. At
December 31, 1999, 5,000,000 shares authorized;
none outstanding -- --
Common stock, par value $.005 per share. At March 31, 2000, 75,000,000
shares authorized; 34,937,471 shares issued and outstanding. At
December 31, 1999, 75,000,000 shares
authorized; 34,392,909 shares issued and outstanding 174,687 171,964
Additional paid-in capital 120,993,268 118,317,599
Accumulated deficit (104,886,100) (99,899,242)
------------- -------------
Total stockholders' equity 16,281,855 18,590,321
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Total liabilities and stockholders' equity $ 19,352,875 $ 20,804,691
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
FORM 10-Q Page 1
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TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Research agreements $ 522,608 534,925
----------- ----------
Total revenues 522,608 534,925
----------- ----------
Expenses:
Research and development 3,781,949 3,158,640
General and administrative 1,930,935 1,339,441
----------- ----------
Total expenses 5,712,884 4,498,081
----------- ----------
Operating loss (5,190,276) (3,963,156)
Investment income 203,418 384,319
----------- ----------
Net loss $(4,986,858) (3,578,837)
Net loss per common share, basic and diluted: $ (0.14) (0.10)
=========== ==========
Weighted average common shares used to
compute net loss per common share, basic
and diluted: 34,612,293 34,168,310
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
FORM 10-Q Page 2
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TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,986,858) (3,578,837)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 250,613 208,510
Expenses paid with stock and warrants 43,615 5,883
Change in operating assets and liabilities
Increase in prepaids (54,847) (707,728)
Decrease in receivables 515,859 465,075
Increase in current liabilities 856,650 113,199
---------- ----------
Net cash used in operating activities (3,374,968) (3,493,898)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (21,920) (170,667)
Purchases of investments (3,154,148) (4,941,780)
Maturities of investments 9,090,886 18,201,801
Decrease in interest receivable included in short-term investments 207,044 298,515
---------- ----------
Net cash provided by investing activities 6,121,862 13,387,869
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock and exercises of
options and warrants, net 2,634,777 109,224
---------- ----------
Net increase in cash and cash equivalents 5,381,671 10,003,195
Cash and cash equivalents at beginning of period 2,804,270 4,176,911
---------- ----------
Cash and cash equivalents at end of period $ 8,185,941 14,180,106
=========== ==========
Supplemental disclosure of noncash financing activities:
Expenses paid with stock and warrants $ 43,615 5,883
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
FORM 10-Q Page 3
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TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Texas Biotechnology Corporation (the "Company" or "TBC") is a
biopharmaceutical company focused on the discovery, development
and commercialization of novel synthetic small molecule compounds
for the treatment of a variety of vascular diseases. Since its
formation in 1989, the Company has been engaged principally in
research and drug discovery programs and clinical development of
certain drug compounds. On July 25, 1994, the Company acquired all
of the outstanding Common Stock of ImmunoPharmaceutics, Inc.
("IPI") in exchange for Common Stock of the Company.
The Company is presently working on a number of long-term
development projects which involve experimental and unproven
technology, which may require many years and substantial
expenditures to complete, and which may be unsuccessful. To date,
other than compounds and services produced and sold by IPI, a
wholly-owned subsidiary, the Company has not sold any products.
(b) Basis of Consolidation
The Company's consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, IPI. All
material intercompany transactions have been eliminated.
(c) Cash, Cash Equivalents, Short-Term Investments and Long-Term
Investments
Cash equivalents are considered to be those securities or
instruments with original maturities, when purchased, of three
months or less. At March 31, 2000, approximately $1,106,000 was
invested in demand and money market accounts. Short-term
investments are those investments which have a remaining maturity
of less than one year at the balance sheet date. At March 31,
2000, the Company's short-term investments consisted of
approximately $4,923,000 in Government Agency Discount Bonds and
$1,299,000 in Corporate Commercial Paper. The Company had no
long-term investments at March 31, 2000. Cash equivalents,
short-term and long-term investments are stated at cost plus
accrued interest, which approximates market value. Interest income
is accrued as earned. The Company classifies all short-term and
long-term investments as held to maturity.
(d) Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation of
furniture and equipment is provided on the straight-line method
over the estimated useful lives of the respective assets (3 to 10
years). Amortization of leasehold improvements is provided on the
straight-line method over the shorter of the useful life or the
remaining minimum lease term.
(e) Research and Development Costs
All research and development costs are expensed as incurred and
include salaries of research and development employees, certain
rent and related building services, research supplies and
services, clinical trial expenses and other associated costs.
Salaries and benefits for the three months ended March 31, 2000
and 1999, were approximately $1,777,000 and $1,665,000,
respectively, of which approximately $1,360,000 and
FORM 10-Q Page 4
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$1,279,000, respectively, was charged to research and development.
Payments related to the acquisition of in-process research and
development are expensed.
(f) Net Loss Per Common Share
Basic net loss per common share is calculated by dividing the net
loss applicable to common shares by the weighted average number of
common and common equivalent shares outstanding during the period.
For the three months ended March 31, 2000 and 1999, there were no
common dilutive shares used in the calculation of weighted average
common shares outstanding. For the three months ended March 31,
2000 and 1999, the weighted average common shares used to compute
basic net loss per common share totaled 34,612,293 and 34,168,310,
respectively. The conversion of securities convertible into Common
Stock and the exercise of stock options and warrants were not
assumed in the calculation of diluted net loss per common share
because the effect would have been antidilutive.
(g) Reclassifications
Certain reclassifications have been made to prior period financial
statements to conform with the March 31, 2000 presentation with no
effect on net loss reported.
(h) Revenue Recognition
Revenues for research agreements is recognized as the services are
performed and/or as milestones are met. Milestone payments related
to contractual agreements are recognized as the milestones are
achieved. Revenue from licensing fees is recognized when the
license is granted, subject to section (l) of this footnote (1)
regarding accounting pronouncements dealing with revenue
recognition.
(i) Patent Application Costs
Costs incurred in filing for patents are expensed as incurred.
(j) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses to prepare these
consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
these estimates.
(k) Interim Financial Information
The Consolidated Balance Sheet as of March 31, 2000, and the
related Consolidated Statement of Operations for the three month
periods ended March 31, 2000 and 1999 and Consolidated Statements
of Cash Flows for the three month periods ended March 31, 2000 and
1999 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements
have been included. Such adjustments consisted of normal recurring
items. Interim results are not necessarily indicative of results
for a full year. The consolidated financial statements and notes
are presented as permitted by Form 10-Q and do not contain certain
information included in the Company's Annual Consolidated
Financial Statements and Notes which should be read in conjunction
with these consolidated financial statements and notes.
(l) Accounting Pronouncements
In December 1999, the United States Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin No. 101
("SAB101"), Revenue Recognition in Financial Statements. SAB101
summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial
FORM 10-Q Page 5
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statements. The Company will be required to implement SAB101 for
the quarter ended June 30, 2000. The Company has not yet
determined the impact, if any, that SAB101 will have on its
financial statements.
In March 2000, the Financial Accounting Standards Board issued
FASB Interpretation No. 44 ("FIN44"), Accounting for Certain
Transactions involving Stock Compensation. The provisions of
FIN44 that will be applicable to the Company will be effective
July 1, 2000. The Company has not yet determined the impact,
if any, that FIN44 will have on its financial statements.
(2) CAPITAL STOCK
During April 2000, the Company sold 5,750,000 shares of Common Stock for
$12.50 per share pursuant to an underwritten public offering. The net
proceeds to the Company for the 5,750,000 shares sold were approximately
$65.0 million after deducting selling commissions and expenses of
approximately $4.8 million related to the offering and approximately $2.1
million allocable to selling shareholders.
(3) STOCK OPTIONS
The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees and related interpretations in
accounting for its plans and applies Financial Accounting Standards Board
Statement No. 123, Accounting for Stock-Based Compensation and related
interpretations in reporting for its plans.
A summary of stock options as of March 31, 2000, follows:
<TABLE>
<CAPTION>
Exercise Price Exercised/ Available
Stock Option Plans Per Share Authorized Outstanding Other Exercisable for Grant
------------------ -------------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1990 Plan $1.38 - $21.59 285,715 190,495 95,220 139,496 --
1992 Plan $1.41 - $21.59 1,700,000 1,023,518 627,915 791,988 48,567
1995 Plan $1.31 - $8.13 2,000,000 1,652,162 165,723 1,294,912 182,115
1999 Plan $20.13 - $20.13 1,000,000 181,000 -- -- 819,000
Director Plan $3.50 - $4.54 71,429 34,242 37,187 34,242 --
1995 Director Plan $1.38 - $5.69 300,000 217,505 24,938 168,505 57,557
--------- --------- ------- --------- ---------
TOTALS 5,357,144 3,298,922 950,983 2,429,143 1,107,239
========= ========= ======= ========= =========
</TABLE>
As of March 6, 2000, the Compensation and Personnel Committee of the
Board of Directors approved an increase in the number of shares
authorized of 200,000 shares in the Amended and Restated 1995
Non-Employee Director Stock Option Plan which is scheduled to be
submitted to a vote of stockholders at the annual meeting on June 8,
2000.
(4) INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered
FORM 10-Q Page 6
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or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
At March 31, 2000 the net deferred tax asset, representing primarily net
operating loss carryforwards and start-up costs deferred for tax
purposes, totaled approximately $37,893,000. The Company has established
a valuation allowance for the full amount of these deferred tax assets,
as management believes that it is not more likely than not that the
Company will recover these assets. The Company did not incur any tax
expense in any year due to operating losses and the related increase in
the valuation allowance.
At March 31, 1999 the Company had net operating loss carryforwards of
approximately $69,894,000 for federal income tax return purposes.
Utilization of the Company's net operating loss carryforwards is subject
to certain limitations due to specific stock ownership changes which have
occurred or may occur. To the extent not utilized, the carryforwards will
expire during the years beginning 2002 through 2020.
(5) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
March 31,2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Laboratory and office equipment $ 5,782,034 $ 5,760,113
Leasehold improvements 3,974,942 3,974,942
----------- -----------
9,756,976 9,735,055
Less accumulated depreciation and amortization (6,987,238) (6,736,624)
----------- -----------
$ 2,769,738 $ 2,998,431
=========== ===========
</TABLE>
(6) COMMON STOCK RESERVED
The Company has reserved Common Stock for issuance as of March 31, 2000
as follows:
<TABLE>
<S> <C>
Stock option plans 4,406,161
Common Stock issuable under licensing agreement 71,429
Publicly traded warrants outstanding 3,950,222
Other warrants outstanding 638,433
----------
Total shares reserved 9,066,245
==========
</TABLE>
(7) REGULATORY FILING
On February 18, 2000, the Company received an approvable letter from the
FDA for NOVASTAN(R) as an anticoagulant for prevention or treatment of
thrombosis in patients with heparin-induced thrombocytopenia ("HIT"). The
Company is in the process of satisfying FDA requirements for securing the
final approval letter for NOVASTAN(R).
(8) COMMITMENTS AND CONTINGENCIES
Legal Proceedings
On November 21, 1994, a class action shareholders' suit was filed in the
United States District Court for the Southern District of Texas, Houston
Division seeking damages in the amount of $16 million. Plaintiffs were
two individuals who purchased the Company's shares on December 16, 1993
following the Company's initial public offering ("IPO"). In their
complaint, plaintiffs sued the Company, certain members of the board of
directors and certain officers alleging violations of Sections 11, 12 and
15 of the Securities Act of 1933, as amended. A subsequently filed class
action arising out of the IPO was dismissed in June 1996, leaving the
first class action as the only pending litigation arising out of the IPO.
In May 1999, the Company reached an agreement in principle to settle the
pending class action. The agreement in principle achieved with
plaintiff's counsel provides for dismissal of all claims against the
Company and the officers and directors named as defendants. The
settlement amount is $800,000, of which approximately $187,500
FORM 10-Q Page 7
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was expensed during 1999 and paid by the Company into escrow during
January 2000 and approximately $612,500 will be paid by the Company's
insurer.
On December 21, 1999, the Company and the plaintiffs filed a Stipulation
of Settlement of All Claims Against Certain Defendants. Notification of
the settlement to potential class members was delivered on or about
February 4, 2000, and a hearing to approve the settlement was held on
April 5, 2000. As there were no objections to the proposed settlement,
the Court indicated its intention to enter an Order approving it. As of
May 15, 2000, however, no written Order has been entered. The Court's
approval of the settlement and dismissal of all claims against the
Company and its directors and officers will become final upon expiration
of the deadline for appeal of that Order.
FORM 10-Q Page 8
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ITEM 2.
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
OVERVIEW
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes to the financial statements included in Form
10-K for the year 1999 and our consolidated financial statements and the related
notes to the financial statements included this Form 10-Q.
Since our inception in 1989, we have primarily devoted our resources to
funding drug discovery research and development. We have been unprofitable to
date and expect to incur substantial operating losses for the next several years
as we invest in product research and development, preclinical and clinical
testing and regulatory compliance. We have sustained net losses of approximately
$104.9 million from the date of our inception to March 31, 2000. We have
primarily financed our operations to date through:
o private placements of common stock, which raised an aggregate of $34.3
million in net proceeds;
o our initial public offering, which raised an aggregate of $24.2 million
in net proceeds including the over-allotment sold in January 1994;
o a private placement of 5% preferred stock on March 14, 1997, which raised
approximately $6.0 million in net proceeds;
o a subsequent public offering, which closed during October 1997 and raised
approximately $26.7 million in net proceeds; and
o a follow-on public offering, which closed during April 2000 and raised
approximately $65.0 million in net proceeds.
During October 1996, we signed a research and common stock purchase
agreement with LG Chemical. LG Chemical purchased 1,250,000 shares of our common
stock for $5.0 million and committed to pay us up to $10.7 million over a
five-year period to develop two compounds in clinical development. Of this
amount, $6.1 million has been paid. Furthermore, $1.0 million will be paid on
June 30 and December 31, 2000, and $1.3 million will be paid on June 30 and
December 31, 2001.
In August 1997, we entered into an agreement with SmithKline Beecham, plc,
commonly known as SmithKline, whereby we granted SmithKline the exclusive right
to work with us in the development and commercialization of NOVASTAN(R) in the
U.S. and Canada for specified indications. Upon execution of the agreement,
SmithKline paid an $8.5 million license fee, a $5.0 million milestone payment in
October 1997 and has also committed to pay up to a total of $15.0 million in
additional milestone payments based on the clinical development and FDA approval
of NOVASTAN(R) for the indications of HIT and acute myocardial infarction.
Future milestone payments for the acute myocardial infarction indication are
subject to SmithKline's agreement to market NOVASTAN(R) for the acute myocardial
infarction indication. At this time, SmithKline has no plans to conduct
development work for the acute myocardial infarction and stroke indications. We
are evaluating the feasibility of developing NOVASTAN(R) for ischemic stroke and
possibly other indications. In connection with the agreement, SmithKline
purchased 176,922 shares of our common stock for $1.0 million and an additional
400,000 shares of our common stock for $2.0 million in conjunction with our
public offering, which closed during October 1997.
Our operating results have fluctuated significantly during each quarter, and
we anticipate that such fluctuations, which are largely attributable to varying
research and development commitments and expenditures, will continue for the
next several years.
FORM 10-Q Page 9
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RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
Revenues were $534,925 and $522,608 during the three month periods ended
March 31, 1999 and 2000, respectively. Revenues were composed of amounts
recognized under research and development agreements and decreased 2% due to a
decrease in reimbursable expenses related to the SmithKline Agreement. Interest
income for the three month period ended March 31, 1999 was 47% higher than the
same period of 2000 due primarily to higher investment balances in 1999.
Research and development expenses increased 20% from $3,158,640 during the
three month period ended March 31, 1999 to $3,781,949 for the same period of
2000. The increase was due primarily to increased clinical trial expense related
to the sitaxsentan development program for pulmonary hypertension.
General and administrative expenses increased 44% from $1,339,441 during the
three month period ended March 31, 1999 to $1,930,935 during the same period of
2000. The increase was due primarily to increases in premarketing and consulting
costs related to NOVASTAN(R) and increased patent legal fees related to the
sitaxsentan program.
We incurred net losses of $3,578,837 and $4,986,858 for the three month
periods ended March 31, 1999 and 2000, respectively.
The Company had 82 employees at March 31, 1999 and 83 employees at March 31,
2000.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our research and development activities to date principally
through:
o private placements of our common and preferred stock;
o our initial public offering and subsequent offerings of our common stock;
o issuances of common stock in conjunction with acquisitions, research and
collaboration agreements and upon exercises of stock options and
warrants;
o milestone and research payments received in conjunction with research and
collaborative agreements; and
o investment income, net of interest expense.
At March 31, 2000 we had cash, cash equivalents and short-term investments
of $14,408,225. In April 2000, we raised approximately $65.0 million from an
underwritten public offering of our common stock.
We expect to incur substantial research and development expenditures as we
design and develop biopharmaceutical products for the prevention and treatment
of cardiovascular and other diseases. We anticipate that our operating expenses
will increase during 2000 and subsequent years because:
o We will incur significant clinical trial costs for sitaxsentan and
TBC1269 compounds and expect to begin to incur costs for clinical trials
related to additional compounds. These costs include:
o hiring personnel to direct and carry out all operations related to
clinical trials;
o hospital and procedural costs;
o services of a contract research organization; and
o purchasing and formulating large quantities of the compound to be
used in such trials.
FORM 10-Q Page 10
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o There will be additional costs in future periods related to NOVASTAN(R)
in complying with ongoing FDA requirements and possible clinical trial
expenditures for additional therapeutic indications.
Furthermore, we anticipate that the administrative costs associated with our
efforts will be significant. The amount and timing of expenditures will depend,
among other things, on our progress in ongoing research, clinical development
and commercialization efforts.
We anticipate that our existing capital resources and our other revenue
sources, should be sufficient to fund our cash requirements through the end of
2003 without considering the impact of revenues from NOVASTAN(R). This date is
contingent upon various factors, including the rates of patient enrollment and
spending associated with clinical trials for sitaxsentan and TBC1269 and the
level of research and development expenditures for our other compounds. We
cannot assure you that there will be market acceptance and commercial success of
NOVASTAN(R), which could significantly impact our cash flow.
We anticipate that we may need to raise substantial funds for future
operations, which may be raised through collaborative arrangements, public or
private issuance of debt and equity, or other arrangements. We expect that
additional expenditures will be required if additional product candidates enter
clinical trials, which may require additional expenditures for laboratory space,
scientific and administrative personnel, and services of contract research
organizations. We cannot assure you that we will be able to obtain such
additional financings on acceptable terms or in time to fund any necessary or
desirable expenditures. In the event such financings are not obtained, our drug
discovery or development programs may be delayed, scaled back or eliminated; or
we may be required to obtain funds through arrangements with collaborative
partners or others that may require that we relinquish rights to certain of our
technologies, product candidates or products that would not otherwise be
relinquished. Our ability to raise additional funding is contingent upon a
number of factors which include:
o the market acceptance and commercial success of NOVASTAN(R);
o the ongoing cost of research and development activities;
o the attainment of research and clinical goals of product candidates;
o the timely approval of our product candidates by appropriate governmental
and regulatory agencies;
o the presence and effect of competitive products;
o our ability to manufacture and market products commercially;
o the retention of key personnel; and
o conditions in the capital markets.
HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS
Our research and development processes involve the controlled use of
hazardous materials, chemicals and radioactive materials and produce waste
products. We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of hazardous
materials and waste products. Although we believe that our safety procedures for
handling and disposing of hazardous materials comply with the standards
prescribed by laws and regulations, the risk of accidental contamination or
injury from these materials cannot be eliminated completely. In the event of an
accident, we could be held liable for any damages that result. This liability
could exceed our resources or not be covered by our insurance. Although we
believe that we are in compliance in all material respects with applicable
environmental laws and regulations, there can be no assurance that we will not
be required to incur significant costs to comply with environmental laws and
regulations in the future. There can also be no assurance that our operations,
business or assets will not be materially adversely affected by current or
future environmental laws or regulations.
FORM 10-Q Page 11
<PAGE> 14
IMPACT OF INFLATION AND CHANGING PRICES
The pharmaceutical research industry is labor intensive, and wages and
related expenses increase in inflationary periods. The lease of space and
related building services for the Houston facility contains a clause that
escalates rent and related services each year based on the increase in building
operating costs and the increase in the Houston Consumer Price Index,
respectively. To date, inflation has not had a significant impact on our
operations.
YEAR 2000 ISSUE
The Year 2000, or Y2K, problem has not caused any material disruptions to
our facilities or operations and has not resulted in any material costs. We have
developed reasonable contingency plans to avoid, to the extent practicable, Year
2000-related problems that may yet occur due to hidden defects in computer
hardware or software. We anticipate, but cannot guarantee, that the Year 2000
problem will not create material disruptions to our facilities or operations and
will not cause us to incur material costs.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included in and incorporated by reference into this Form 10-Q are
forward-looking statements. These forward-looking statements include, without
limitation, statements regarding our estimate of the sufficiency of our existing
capital resources and our ability to raise additional capital to fund cash
requirements for future operations, and regarding the uncertainties involved in
the drug development process and the timing of regulatory approvals required to
market these drugs. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we can not give any assurance that
such expectations reflected in these forward-looking statements will prove to
have been correct.
When used in this Form 10-Q, the words "expect," "anticipate," "intend,"
"plan," "believe," "seek," "estimate" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these identifying words. Because these forward-looking statements
involve risks and uncertainties, actual results could differ materially from
those expressed or implied by these forward-looking statements for a number of
important reasons, including those discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
You should read these statements carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in our common stock, you should
be aware that the occurrence of any of the contingent factors described in under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" could substantially harm our
business, results of operations and financial condition and that upon the
occurrence of any of these events, the trading price of our common stock could
decline, and you could lose all or part of your investment.
We cannot guarantee any future results, levels of activity, performance or
achievements. Except as required by law, we undertake no obligation to update
any of the forward-looking statements in this Form 10-Q after the date of this
Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To date, interest rate risk has not had a significant impact on the operations
of the Company.
FORM 10-Q Page 12
<PAGE> 15
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 21, 1994, a class action shareholders' suit was filed in the United
States District Court for the Southern District of Texas, Houston Division
seeking damages in the amount of $16 million. Plaintiffs were two individuals
who purchased the Company's shares on December 16, 1993 following the Company's
initial public offering ("IPO"). In their complaint, plaintiffs sued the
Company, certain members of the board of directors and certain officers alleging
violations of Sections 11, 12 and 15 of the Securities Act of 1933, as amended.
A subsequently filed class action arising out of the IPO was dismissed in June
1996, leaving the first class action as the only pending litigation arising out
of the IPO.
In May 1999, the Company reached an agreement in principle to settle the pending
class action. The agreement in principle achieved with plaintiff's counsel
provides for dismissal of all claims against the Company and the officers and
directors named as defendants. The settlement amount is $800,000, of which
approximately $187,500 was expensed during 1999 and paid by the Company into
escrow during January 2000 and approximately $612,500 will be paid by the
Company's insurer.
On December 21, 1999, the Company and the plaintiffs filed a Stipulation of
Settlement of All Claims Against Certain Defendants. Notification of the
settlement to potential class members was delivered on or about February 4,
2000, and a hearing to approve the settlement was held on April 5, 2000. As
there were no objections to the proposed settlement, the Court indicated its
intention to enter an Order approving it. As of May 15, 2000, however, no
written Order has been entered. The Court's approval of the settlement and
dismissal of all claims against the Company and its directors and officers will
become final upon expiration of the deadline for appeal of that Order.
ITEM 2. CHANGES IN SECURITIES
In January, February and March 2000, the Company issued an aggregate of 127,145
shares of its Common Stock to certain institutions and individuals, pursuant to
the exercise of outstanding warrants for an aggregate purchase price of
$491,490. The issuance of Common Stock was exempt from registration under
Section 4 (2) of the Securities Act of 1933, as amended. The warrants and the
Common Stock underlying the warrants may not be sold in the United States absent
registration or an applicable exemption from registration requirements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
NOVASTAN(R)
The Company announced that is has submitted its response to the approvable
letter for NOVASTAN(R) issued by the U.S. Food & Drug Administration on February
18, 2000. The approvable letter from FDA included the Agency's recommendation
for NOVASTAN(R) as an anticoagulant for prophylaxis or treatment of thrombosis
in patients with HIT. Based on recent discussions with representatives from FDA,
TBC expects a response from the Agency by mid July.
The Company also reported that SmithKline Beecham, the partner for the
manufacturing and marketing of NOVASTAN(R) in the U.S. and Canada, and TBC are
rebranding the product to avoid confusion with several other approved hospital
based drugs.
The Company also reported that it has filed a Canadian New Drug Submission
seeking approval for argatroban in Canada as treatment for HIT. The Therapeutic
Products Program, the Canadian equivalent of the FDA, classified the argatroban
submission as a priority review, and is expected to issue its formal response in
the second half of the year.
FORM 10-Q Page 13
<PAGE> 16
SITAXSENTAN
During the first quarter, the Company completed enrollment of a 20 patient
open-label Phase II clinical trial to assess the safety and tolerability of
sitaxsentan in patients with pulmonary hypertension ("PH"). Preliminary results
for the trial will be available in the third quarter of this year.
A Phase IIb/III clinical trial is currently being finalized with the Company's
Scientific Advisory Board and is expected to be initiated during the second
half of this year. To date, sitaxsentan has demonstrated statistically
significant results in Phase II clinical trials for chronic heart failure and
essential hypertension. TBC is currently focused on developing the product as a
treatment for PH.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
One report on Form 8-K was filed during the quarter ended March 31, 2000. The
report was filed February 22, 2000 and regarded the Company's receipt of an
approvable letter from the U.S. Food and Drug Administration for NOVASTAN(R).
EXHIBIT NO. DESCRIPTION
----------- -----------
27.1 Financial Data Schedule
- ----------------
FORM 10-Q Page 14
<PAGE> 17
TEXAS BIOTECHNOLOGY CORPORATION
MARCH 31, 2000
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, on the 15th day of May, 2000.
TEXAS BIOTECHNOLOGY CORPORATION
By: /s/ David B. McWilliams
-------------------------------------
David B. McWilliams
President and Chief Executive Officer
By: /s/ Stephen L. Mueller
-------------------------------------
Stephen L. Mueller
Vice President, Finance and
Administration Secretary and
Treasurer (Principal Financial and
Accounting Officer)
FORM 10-Q Page 15
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
- ----------------
FORM 10-Q Page 16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,185,941
<SECURITIES> 6,222,284
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,468,041
<PP&E> 9,756,976
<DEPRECIATION> (6,987,238)
<TOTAL-ASSETS> 19,352,875
<CURRENT-LIABILITIES> 3,071,020
<BONDS> 0
0
0
<COMMON> 174,687
<OTHER-SE> 16,107,168
<TOTAL-LIABILITY-AND-EQUITY> 19,352,875
<SALES> 0
<TOTAL-REVENUES> 522,608
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,712,884
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,986,858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,986,858)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
