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UNITED STATES
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
Commission file number: 0-27972
HOUGHTEN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0336233
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
3550 GENERAL ATOMICS COURT, SAN DIEGO, CA 92121
(619) 455-3814
(Address, including zip code, and telephone, including
area code, of registrant's principal executive offices)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 July 31, 1996
----- ----------------------------
Common stock, $0.001 par value 13,147,262
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HOUGHTEN PHARMACEUTICALS, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
COVER PAGE .............................................................................. 1
TABLE OF CONTENTS ....................................................................... 2
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets at June 30, 1996 and December 31, 1995 ............. 3
Consolidated Statements of Operations for the three and six months ended June
30, 1996 and 1995 ............................................................ 4
Consolidated Statements of Cash Flows for the six months ended June
30, 1996 and 1995 ............................................................ 5
Notes to Consolidated Financial Statements ..................................... 6
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................................ 9
PART II. OTHER INFORMATION ............................................................. 13
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURE ............................................................................... 14
</TABLE>
2
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HOUGHTEN PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,617,456 $ 1,160,776
Short term investments 25,539,606 --
Accounts receivable 419,225 241,076
Other current assets 395,037 131,921
------------ ------------
Total current assets 32,971,324 1,533,773
Property and equipment, net 836,875 934,586
Other assets 438,762 277,097
------------ ------------
$ 34,246,961 $ 2,745,456
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (net capital deficiency)
- -------------------------------------------------------------
Current liabilities:
Accounts payable $ 469,811 $ 216,307
Accrued compensation 399,331 340,948
Other accrued liabilities 1,593,141 956,959
Current portion of obligations under capital leases 361,842 361,151
Deferred revenue 2,711,772 2,003,532
------------ ------------
Total current liabilities 5,535,897 3,878,897
Obligations under capital leases 315,587 470,301
Series One redeemable preferred stock
2,100,000 shares authorized, issued and outstanding
at December 31, 1995 -- 2,772,000
Stockholders' equity (net capital deficiency):
Convertible preferred stock, $.001 par value:
Authorized shares - 5,000,000 at June 30, 1996
Issued and outstanding shares - none and 15,931,493 at
June 30, 1996, and December 31, 1995 respectively -- 15,931
Common stock, $.001 par value:
Authorized shares - 40,000,000 at June 30, 1996
Issued and outstanding shares - 13,144,852 and 310,374 at
June 30, 1996, and December 31, 1995 respectively 13,145 310
Additional paid-in capital 69,685,024 30,366,418
Deferred compensation, net (1,875,151) (236,000)
Accumulated deficit (39,427,541) (34,522,401)
------------ ------------
Total stockholders' equity (net capital deficiency) 28,395,477 (4,375,742)
------------ ------------
$ 34,246,961 $ 2,745,456
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995, has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
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HOUGHTEN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 890,429 $ 521,045 $ 2,455,481 $ 534,045
------------ ------------ ------------ ------------
890,429 521,045 2,455,481 534,045
Costs and expenses:
Cost of sales 482,552 406,398 949,403 412,398
Research and development 3,002,911 1,579,227 5,169,083 3,116,909
Selling, general and administrative 866,512 639,509 1,661,602 1,130,453
------------ ------------ ------------ ------------
4,351,975 2,625,134 7,780,088 4,659,760
------------ ------------ ------------ ------------
Loss from operations (3,461,546) (2,104,089) (5,324,607) (4,125,715)
Other income (expense):
Interest income 431,280 45,398 509,796 58,563
Interest expense (17,473) (20,228) (43,509) (42,278)
Corporate joint venture -- -- -- 414,063
------------ ------------ ------------ ------------
Net loss $ (3,047,739) $ (2,078,919) $ (4,858,320) $ (3,695,367)
============ ============ ============ ============
Net loss per share $ (0.23) $ (0.22) $ (0.43) $ (0.38)
============ ============ ============ ============
Shares used in computing
net loss per share 13,000,939 9,658,302 11,349,378 9,631,426
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
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HOUGHTEN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,858,319) $ (3,695,367)
Adjustments to reconcile net loss to net cash flows
used for operating activities:
Depreciation and amortization 257,229 202,897
Corporate joint venture -- (414,063)
Amortization of deferred compensation 207,849 --
Changes in operating assets and liabilities, net of effects
from the transfer of assets to and from corporate joint
venture in 1994 and 1995:
Accounts receivable (195,940) 364,746
Other current assets (263,120) 94,486
Accounts payable 271,295 240,456
Other accrued liabilities 703,398 (128,284)
Deferred revenue 705,261 760,040
------------ ------------
Net cash flows used for operating activities (3,172,347) (2,575,089)
INVESTING ACTIVITIES
Additions to property and equipment, net (134,541) (21,637)
Short term investments (25,539,606) --
Other assets (167,520) (222,951)
------------ ------------
Net cash flows used for investing activities (25,841,667) (244,588)
FINANCING ACTIVITIES
Principal payments under capital lease obligations (178,997) (140,087)
Redemption of preferred stock (2,818,820) --
Issuance of convertible preferred stock, net of issuance costs 10,048,682 6,945,568
Issuance of common stock 27,419,829 12,309
------------ ------------
Net cash flows provided by financing activities 34,470,694 6,805,481
------------ ------------
Net increase in cash and cash equivalents 5,456,680 3,985,804
Cash and cash equivalents at beginning of period 1,160,776 516,429
------------ ------------
Cash and cash equivalents at end of period $ 6,617,456 $ 4,502,233
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 40,059 $ 42,278
============ ============
</TABLE>
See accompanying notes.
5
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HOUGHTEN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Houghten Pharmaceuticals, Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 1996, are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended December 31, 1995,
included in the Company's prospectus dated March 29, 1996, filed with the
Securities and Exchange Commission pursuant to Rule 424 (b) under the Securities
Act of 1933, as amended, with reference to Registration No. 333-1376 and
Registration No. 333-2982.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." The adoption of the new
standard had no effect on the financial statements.
Effective January 1, 1996, the Company adopted SFAS No. 123,
"Accounting and Disclosure of Stock-Based Compensation." As allowed under the
SFAS, the Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) in
accounting for its employee stock options. The adoption of the standard had no
effect on the financial statements.
2. CORPORATE JOINT VENTURE
Effective January 1, 1994, the Company transferred substantially all
tangible assets and certain liabilities having a net carrying value of $497,242
from its wholly-owned subsidiary, Multiple Peptide Systems, Inc. ("MPS"), to a
newly formed entity, Chiron Mimotopes Peptide Systems, LLC ("CMPS"), a Delaware
limited liability company. Chiron Corporation ("Chiron") also transferred
certain tangible assets of its peptide product line to CMPS. As of January 1,
1994, CMPS was 25% owned by MPS and 75% owned by Chiron. CMPS engaged in the
manufacture and sale of peptides and peptide libraries to the research
community.
Effective March 31, 1995, Chiron and the Company determined to cease
the operations of CMPS and return the previously contributed technology and
certain assets back to the stockholders. In connection with the dissolution, the
Company agreed to provide Chiron certain products at no cost and Chiron provided
the Company with a $145,000 note payable which was subsequently repaid.
The effect of the transaction on the Company is as follows:
<TABLE>
<S> <C>
Assets received:
Cash............................................. $ 130,000
Accounts receivable, net......................... 448,913
Other, net....................................... 71,150
Cost of products to be provided....................... (236,000)
---------
Gain on dissolution.............................. $ 414,063
=========
</TABLE>
The Company also received property and equipment for which no value has
been assigned. The net monetary assets received over the cost to provide product
to Chiron of approximately $414,000 is reported as other income from corporate
joint venture.
6
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HOUGHTEN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
During the three months ended March 31, 1995, there were no operations
in MPS, as these operations were conducted through CMPS. The consolidated
statements of operations and consolidated statements of cash flows for the three
and six months ended June 30, 1996 include the subsidiary's operations.
3. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
common shares outstanding during the periods as adjusted for the effects of
certain rules of the Securities and Exchange Commission for the periods prior to
the Company's initial public offering which closed April 3, 1996. The
calculation of the shares used in computing net loss per share also includes the
Series A, B, C, D, E, F and G Preferred Stock, which converted into shares of
common stock upon the closing of the initial public offering, as if they were
converted into common stock as of the original dates of issuance.
4. COLLABORATIVE ARRANGEMENTS
In connection with the sale of the Company's Series G Preferred Stock,
the Company entered into an agreement with Dura Pharmaceuticals, Inc. ("Dura").
The Company's chairman of the board of directors is a member of the board of
directors of Dura and Dura's chairman and chief executive officer is a member of
the Company's board of directors. Under the contract, Dura will perform research
to apply Dura's drug delivery technology to compounds developed by the Company.
The Company is required to make minimum contract payments of $6 million over
four years. Payments are due quarterly and must aggregate $2 million in each of
the first two years of the contract and $1 million in each of the last two years
of the contract. Concurrent with the execution of this contract, Dura purchased
$5 million of the Company's Series G Preferred Stock.
In February 1996, the Company entered into a collaborative arrangement
with Novo Nordisk A/S whereby the Company received $2 million for library access
fees and will receive additional fees in February 1997. The Company will also
receive milestone and royalty payments on products discovered and subsequently
developed and marketed by Novo Nordisk A/S.
5. STOCKHOLDERS' EQUITY
In January and February 1996, the Company issued 3,366,670 shares of
its Series G Preferred Stock for net cash proceeds of $10.1 million.
In February 1996, the Board of Directors approved a one-for-2.15
reverse stock split of the Company's outstanding common stock. All share and per
share amounts in the accompanying consolidated financial statements have been
retroactively restated to reflect the reverse stock split.
In the first quarter of 1996, the Company recorded $1.8 million in
deferred compensation relating to options granted under its Stock Incentive Plan
which will be expensed over the vesting period of these options.
On April 3, 1996, the Company closed its initial public offering of
3,300,000 shares of common stock at $8.00 per share for total gross proceeds of
$26,400,000 and net cash proceeds of $23,776,220. Upon closing of the initial
public offering, the Series A, B, C, D, E, F and G Preferred Stock automatically
converted into 8,975,845 shares of common stock. Also in connection with the
closing of the initial public offering, in April 1996, the 2,100,000 shares of
the Company's Series One Preferred Stock were redeemed for $2,818,820 (including
cumulative dividends of $718,820) in cash.
In April 1996, the underwriters of the Company's initial public
offering exercised an over-allotment option to purchase 495,000 shares of common
stock at $8.00 per share for net cash proceeds of $3,682,800.
7
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6. CHROMAXOME ACQUISITION
Effective August 1, 1996 the Company acquired all the outstanding
shares of ChromaXome Corp. ("CXC") for approximately 193,170 shares of the
Company's common stock, plus issuance of options to acquire up to approximately
27,660 shares of the Company's common stock. CXC is developing proprietary
technology to transfer metabolic pathways from marine and terrestrial microbes
into bacteria that may then be able to rapidly reproduce these pathways.
The Company will account for the acquisition of CXC using the purchase
method of accounting and will record an expense of approximately $1.6
million related to the acquisition of in-process technology in the third quarter
of 1996. Operating results for CXC will be reflected in the Company's financial
statements beginning in the third quarter.
In addition to the issuance of shares at the time of acquisition, the
Company is also committed to issue additional stock to former CXC stockholders
and additional options to consultants upon the achievement of certain scientific
and business milestones by the business of CXC. The maximum number of additional
shares that may be issued is approximately 412,600 shares of the Company's
common stock, including up to approximately 26,260 shares issuable upon the
exercise of options. Upon any such additional issuance of shares, the Company
will record an additional charge to acquisition of in-process technology in the
quarter of such issuance, the amount of which will be dependent upon the market
price of the Company's common stock at that time, the number of shares issued
and the value of milestone-based options which vest at that time.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is engaged primarily in the development of combinatorial
chemistry libraries for use by corporate collaborators and for internal research
and development programs. The Company has devoted substantially all of its
resources since its founding to developing methods to synthesize and screen
large libraries of chemicals for new drug discovery and optimization, and to
developing a select number of chemical compounds as potential pharmaceutical
products.
The Company expects that its revenue sources for at least the next
several years will be limited to licensing fees and milestone payments from
existing corporate partners and possible future corporate partners. The timing
and amounts of such revenues, if any, will be subject to significant
fluctuations and therefore the Company's results of operations for any period
may not be comparable to the results of operations for any other period. The
Company will be required to conduct significant research, development and
production activities during the next several years to fulfill its obligations
to corporate partners and for the development of its own compounds. The Company
has been unprofitable since its inception and does not anticipate having net
income in the next several years. As of June 30, 1996, the Company's accumulated
deficit was approximately $39,400,000.
The Company's wholly-owned subsidiary, Multiple Peptide Systems, Inc.,
a California corporation ("MPS"), was founded in 1986 and manufactures and
markets peptides to government entities, universities, research institutions and
private companies. Effective as of January 1, 1994, MPS entered into a Limited
Liability Company Agreement with Chiron Mimotopes U.S. ("CMUS"), pursuant to
which MPS agreed to contribute substantially all of its assets and certain of
its liabilities to Chiron Mimotopes Peptide Systems, LLC, a Delaware limited
liability company ("CMPS"), in exchange for a 25% ownership interest in CMPS.
CMUS and MPS agreed to form CMPS for the purpose of engaging in the business of
synthesizing and producing peptides and peptide libraries for commercial sale on
a joint basis. Pursuant to the terms of an agreement entered into as of March
31, 1995, among Chiron Corporation ("Chiron"), CMPS, CMUS, the Company and MPS,
CMPS was dissolved and the remaining net assets were transferred to MPS and
CMUS. The Company does not anticipate substantial revenue growth from, or the
investment by the Company of material amounts of resources in, MPS. The Company
is exploring strategic options regarding MPS.
Effective August 1, 1996 the Company acquired all the outstanding
shares of ChromaXome Corp. ("CXC") for shares of the Company's common stock and
options to acquire the Company's common stock. CXC is developing proprietary
technology to transfer metabolic pathways from marine and terrestrial microbes
into bacteria that may then be able to rapidly reproduce these pathways. In
addition to the issuance of shares at the time of acquisition, the Company is
also committed to issue additional stock to former CXC stockholders and
additional options to consultants upon the achievement of certain scientific and
business milestones by the business of CXC. (See Note 6 to the Consolidated
Financial Statements)
Except for the historical information contained herein, the matters
discussed in this Quarterly Report on Form 10-Q are forward-looking statements
that involve risks and uncertainties, including whether existing collaborations
will be successful, any new collaborations can be entered into on favorable
terms, any potential products can be timely developed, receive necessary
regulatory approvals and be successfully marketed, the Company's combinatorial
chemistry technology can be successfully developed and applied, competitors'
technology will eclipse or render obsolete or uncompetitive the Company's
technology and other risks detailed throughout this Form 10-Q. Actual results
may differ materially from those projected. These forward-looking statements
represent the Company's judgment as of the date of the filing of this Form 10-Q.
The Company disclaims, however, any intent or obligation to update these
forward-looking statements.
9
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RESULTS OF OPERATIONS
The Company recorded revenues of approximately $890,000 for the second
quarter and $2,455,000 for the six-month period ended June 30, 1996, compared
with $521,000 and $534,000 for the same periods in 1995 (the 1995 first quarter
operating results do not include revenues from MPS as explained above). The
second quarter revenues for 1996 include $553,000, derived from the sale of
custom peptides by the Company's subsidiary, MPS, compared to revenues of
$310,000 for the same period 1995. The remaining $337,000 in second quarter 1996
and $211,000 in second quarter 1995 revenue was generated from the shipment of
combinatorial libraries or individual compounds under collaborative agreements.
First half revenues from collaborative agreements were approximately $1,342,000
compared to $224, 000 in the prior year period as a result higher shipments of
combinatorial libraries. MPS first half revenues of $1,113,000 substantially
exceeded those recorded for the first half of 1995, which included only three
months of operating results. Although the Company typically receives a payment
at the initiation of a collaboration agreement, the Company does not recognize
revenue from those payments until the associated libraries are shipped to the
collaboration partner. As of June 30, 1996, the Company's balance sheet reflects
a liability of approximately $2,700,000 for deferred revenue relating to these
agreements. The liability balance reflects cash payments received in excess of
revenue recognized for libraries shipped.
Cost of sales increased from $406,000 in the second quarter of 1995 to
approximately $483,000 in the three months ending June 30, 1996. The increased
cost of sales is reflective of higher sales volume for MPS. The Company's
scientific founder, who is a director and an officer of the Company, is a
founder, director and president of TPIMS. For the first half of 1996 cost of
sales was $949,000, substantially higher than the $412,000 recorded for the
first half of 1995 and primarily reflecting the absence of MPS cost of sales
from the first quarter of 1995.
Research and development expenses increased to approximately $3,003,000
for the three months and $5,169,000 for the six months ended June 30, 1996, as
compared to $1,579,000 and $3,117,000, respectively, for the same periods in
1995. The higher spending in research and development results primarily from
increased funding for the Company's combinatorial chemistry program, including
increased funding to TPIMS. Funding to TPIMS was $578,000 for the three months
and $1,322,000 for the six months ended June 30, 1996, as compared to $481,000
and $978,000, respectively, for the same periods ended June 30, 1995. Increased
research and development spending is also attributable to the Company's drug
discovery and development collaboration with Dura Pharmaceuticals, Inc.
("Dura"). Research and development expense for the three and six months ended
June 30, 1996 include $607,000 and $785,000, respectively, of funding to Dura;
this collaboration was initiated in February 1996. The chairman of the board of
directors of the Company is a member of the board of directors of Dura and
Dura's chairman and chief executive officer is a member of the Company's board
of directors. The Company expects to incur continued and substantial increases
in research and development expenses relating to product development, clinical
trials and combinatorial chemistry development as well as for the development of
the combinatorial biology and related technologies acquired through the
acquisition of CXC effective August 1, 1996 as noted above. In connection with
the acquisition of CXC, in the third quarter the Company will record an
expense of approximately $1.6 million related to the acquisition of in-process
technology. Dependent on the achievement of certain scientific and business
milestones by the business of CXC, the Company may record additional charges in
future quarters to acquisition of in-process technology.
The Company's selling, general and administrative expenses were
approximately $867,000 and $1,662,000, respectively, for the three and six
months ending June 30, 1996 as compared to $640,000 and $1,130,000,
respectively, for the same periods in 1995. Higher selling, general and
administrative expenses in the second quarter compared to 1995 resulted from
amortization of deferred compensation resulting from stock options issued prior
to the Company's initial public offering in addition to increases in recruiting
costs and other administrative expenses. Increases in selling, general and
administrative expenses for the first half of 1996 compared to the first half of
1995 are primarily attributable to amortization of deferred compensation along
with higher legal costs incurred for patents and corporate development
10
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activities. Selling, general and administrative costs are expected to continue
to increase as a result of various costs associated with being a public company.
As a result of higher cash balances, the Company's interest income has
increased to approximately $431,000 and $510,000 for the three and six month
periods ending June 30, 1996, as compared to $45,000 and $59,000 for the same
periods in 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash, cash equivalents and short term
investments totaling approximately $32,157,000 compared with $1,161,000 at
December 31, 1995.
Historically, the Company has funded its operations primarily through
private placements of preferred stock, raising approximately $39,359,000 in net
proceeds from such issuances. In January and February 1996, the Company issued
3,366,670 shares of its Series G Preferred Stock for net cash proceeds of $10.1
million of which $5 million (1,666,667 shares) was purchased by Dura.
On April 3, 1996, the Company closed its initial public offering of
3,300,000 shares of its common stock raising $23,776,220, net of underwriting
discounts and commissions and estimated offering expenses. In April 1996, the
Company issued an additional 495,000 shares of its common stock in accordance
with the underwriters' option exercise to cover over-allotments. The sale of
these additional shares resulted in net proceeds to the Company of $3,682,800.
As required by the terms of the Company's Series One Redeemable
Preferred Stock, in April 1996, the Company redeemed all outstanding shares of
Series One Redeemable Preferred Stock resulting in a cash disbursement of
$2,818,820.
The Company has financed a significant amount of its equipment
purchases through a master lease line of credit. As of June 30, 1996, the
Company had approximately $371,000 available through the existing master lease
line of credit for acquisitions of additional equipment and furnishings. This
available lease line of credit funded property, plant and equipment needs
through July 1996, at which time the line of credit converted to a term lease.
The company is presently in negotiations to obtain additional leaseline
financing.
The Company's research and development commitments include the research
agreement with TPIMS which expires in June 1997 under which the Company is
committed to spend an additional approximately $2,000,000 prior to July 1997. In
addition, the Company's research agreement with Dura commits the Company to fund
$6,000,000 over four years in a drug discovery and development collaboration
using Dura's proprietary drug delivery technology and the Company's cytokine
regulating agents.
The Company has an option to acquire certain technology from TPIMS
which expires in June 1997. The Company intends to exercise this option, which
will require a cash payment of approximately $1,300,000 from the Company to
TPIMS.
Pursuant to a drug discovery collaboration with Novo Nordisk A/S ("Novo
Nordisk"), the Company received $2,000,000 in February 1996 as an advance
payment of library access fees and will receive a further $2,000,000 in February
1997. The initial upfront payment has been treated as deferred revenue and is
being recognized as revenue as libraries are shipped.
The Company's future cash requirements will depend on many factors,
including continued scientific progress in its research and development
programs, the scope and results of clinical trials, the time and costs involved
in obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patents, competing technological and market developments and the cost
of product commercialization. It is probable, however, that for the foreseeable
future, the Company's cash requirements will exceed its revenues. The Company
intends to seek additional funding through research and development agreements
11
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with suitable corporate collaborators and through public or private financings.
The Company also intends to seek equipment lease financing to fund future
capital expenditures. The Company expects that its primary potential revenue
source for the foreseeable future will be additional collaborative agreements.
There are no assurances that such collaboration arrangements, or any public,
private or equipment lease financings, will be available on acceptable terms, or
at all. If adequate funds are not available, the Company may be required to
delay, reduce the scope of, or eliminate one or more of its research or
development programs.
The Company estimates that its existing capital resources, including
the net proceeds of its initial public offering, together with facility and
equipment financing, will be sufficient to fund its current and planned
operations through 1997. There can be no assurance, however, that changes in the
Company's research and development plans or other changes affecting the
Company's operating expenses will not result in the expenditure of such
resources before such time, and in any event the Company will need to raise
substantial additional capital to fund its operations in future periods.
12
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months and six months ended June 30, 1996.
13
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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.
Houghten Pharmaceuticals, Inc.
Date: 8/14/96 /s/ ROBERT S. WHITEHEAD
--------------- -------------------------------------------------
Robert S. Whitehead
President and Chief Executive Officer
(Principal Executive Officer)
Date: 8/14/96 /s/ TERENCE E. McMORROW
--------------- -------------------------------------------------
Terence E. McMorrow
Vice President, Finance and Corporate Development
(Principal Financial and Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,617,456
<SECURITIES> 25,539,606
<RECEIVABLES> 419,225
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,971,324
<PP&E> 836,875
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,246,961
<CURRENT-LIABILITIES> 5,535,897
<BONDS> 0
0
0
<COMMON> 13,145
<OTHER-SE> 28,382,332
<TOTAL-LIABILITY-AND-EQUITY> 34,246,961
<SALES> 2,455,481
<TOTAL-REVENUES> 2,455,481
<CGS> 949,403
<TOTAL-COSTS> 949,403
<OTHER-EXPENSES> 6,830,685
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,509
<INCOME-PRETAX> (4,858,320)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,858,320)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,858,320)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
