<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/ X / Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 1996 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ______________
Commission file number 0-23272
NPS PHARMACEUTICALS, INC.
(Exact name of Registrant as Specified in Its Charter)
DELAWARE 87-0439579
- -------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
420 CHIPETA WAY, SALT LAKE CITY, UTAH 84108-1256
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 583-4939
- -------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
- -------------------------------------------------------------------------------
(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 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 September 30, 1996
----- ---------------------------------
Common Stock $.001 par value 11,800,629
Preferred Stock $.001 par value -0-
<PAGE>
NPS PHARMACEUTICALS, INC.
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to 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
(a) Exhibits - None
(b) Reports on Form 8-K - None
SIGNATURES 11
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<PAGE>
NPS PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1996 1995
------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 60,567,414 $ 8,039,625
Marketable investment securities 9,327,796 300,000
Accounts receivable 197,305 23,000
------------- ------------
Total current assets 70,092,515 8,362,625
Plant and equipment:
Equipment 2,849,114 2,272,006
Leasehold improvements 1,864,759 1,635,189
------------- ------------
4,713,873 3,907,195
Less accumulated depreciation and
amortization 2,291,551 1,711,551
------------- ------------
Net plant and equipment 2,422,322 2,195,644
Other assets 39,854 42,154
------------- ------------
$ 72,554,691 $ 10,600,423
------------- ------------
------------- ------------
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of obligations under
capital leases $ 84,771 $ 435,230
Current installments of long-term debt 365,691 331,746
Accounts payable 524,252 1,036,464
Accrued expenses 253,437 139,714
Deferred income 633,438 587,500
Income tax payable 200,000 -
------------- ------------
Total current liabilities 2,061,589 2,530,654
Obligations under capital leases, excluding
current installments 43,423 53,761
Long-term debt, excluding current installments 415,943 693,528
------------- ------------
Total liabilities 2,520,955 3,277,943
Stockholders' equity:
Common stock 11,793 7,073
Additional paid-in capital 84,114,443 28,067,130
Deferred compensation (42,833) (234,458)
Deficit accumulated during development
stage (14,049,667) (20,517,265)
------------- ------------
Net stockholders' equity 70,033,736 7,322,480
------------- ------------
$ 72,554,691 $ 10,600,423
------------- ------------
------------- ------------
</TABLE>
See accompanying note to financial statements.
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<PAGE>
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
October 22,
1986
(inception)
Three Months Ended September 30, Nine Months Ended September 30, through
-------------------------------- ------------------------------- September 30,
1996 1995 1996 1995 1996
------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues from research
and license agreements $ 1,330,768 $ 1,355,194 $ 17,196,705 $ 8,179,194 $ 39,512,554
Operating expenses:
Research and development 2,414,393 2,392,216 8,232,579 5,939,725 38,592,769
General and administrative 1,246,247 824,702 3,924,219 2,867,777 16,712,664
------------- ------------ ------------- ----------- -------------
Total operating expenses 3,660,640 3,216,918 12,156,798 8,807,502 55,305,433
------------- ------------ ------------- ----------- -------------
Operating income (loss) (2,329,872) (1,861,724) 5,039,907 (628,308) (15,792,879)
Other income (expense):
Interest income 939,954 123,068 1,737,205 359,141 2,994,049
Interest expense (31,082) (54,652) (109,514) (105,413) (585,227)
Other - - - - 34,390
------------- ------------ ------------- ----------- -------------
Total other income 908,872 68,416 1,627,691 253,728 2,443,212
------------- ------------ ------------- ----------- -------------
Income (loss) before taxes (1,421,000) (1,793,308) 6,667,598 (374,580) (13,349,667)
Income taxes - 200,000 500,000 700,000
------------- ------------ ------------- ----------- -------------
Net income (loss) $ (1,421,000) $ (1,793,308) $ 6,467,598 $ (874,580) $(14,049,667)
------------- ------------ ------------- ----------- -------------
------------- ------------ ------------- ----------- -------------
Net income (loss) per common
share - primary $ (0.12) $ (0.26) $ 0.59 $ (0.13)
------------- ------------ ------------- -----------
------------- ------------ ------------- -----------
Weighted average shares
outstanding - primary 11,765,600 6,966,600 10,896,800 6,876,200
------------- ------------ ------------- -----------
------------- ------------ ------------- -----------
</TABLE>
See accompanying note to financial statements.
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<PAGE>
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, October 22, 1986
------------------------------- (inception) through
1996 1995 September 30, 1996
------------- ------------ -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 6,467,598 $ (874,580) $ (14,049,667)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 580,000 505,000 2,993,028
Gain on sale of equipment - - (28,720)
Issuance of stock in lieu of cash for services 319,400 - 533,939
Amortization of deferred compensation 191,625 191,625 723,667
Decrease (increase) in receivables (174,305) 163,716 (197,305)
Decrease (increase) in other assets 2,300 23,698 (43,454)
Increase (decrease) in accounts payable and
accrued expenses (398,489) (167,218) 777,689
Increase (decrease) in deferred income 45,938 500,000 633,438
Increase (decrease) in taxes payable 200,000 - 200,000
------------- ------------ --------------
Net cash provided by (used in) operating activities 7,234,067 342,241 (8,457,385)
Cash flows from investing activities:
Net purchase of marketable investment securities (9,027,796) 3,392,135 (9,327,796)
Acquisition of equipment and leasehold improvements (774,178) (310,436) (4,833,304)
Proceeds from sale of equipment - - 1,048,484
------------- ------------ --------------
Net cash provided by (used in) investing activities (9,801,974) 3,081,699 (13,112,616)
Cash flows from financing activities:
Proceeds from note payable to bank - - 123,855
Proceeds from issuance of preferred stock - - 17,581,416
Proceeds from issuance of common stock 55,732,633 190,495 65,544,381
Proceeds from long-term debt - 1,115,290 1,166,434
Principal payments on note payable to bank - - (123,855)
Principal payments under capital lease obligations (393,297) (315,287) (1,272,712)
Principal payments on long-term debt (243,640) (67,846) (582,104)
Repurchase of preferred stock - - (300,000)
------------- ------------ --------------
Net cash provided by financing activities 55,095,696 922,652 82,137,415
------------- ------------ --------------
Net increase in cash and cash equivalents 52,527,789 4,346,592 60,567,414
Cash and cash equivalents at beginning of period 8,039,625 5,931,082 -
------------- ------------ --------------
Cash and cash equivalents at end of period $ 60,567,414 $ 10,277,674 $ 60,567,414
------------- ------------ --------------
------------- ------------ --------------
</TABLE>
See accompanying note to financial statements.
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<PAGE>
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30, October 22, 1986
------------------------------- (inception) through
1996 1995 September 30, 1996
------------- ------------ -------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 109,514 $ 31,311 $ 585,227
Cash paid for taxes - - $ 500,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of equipment through incurrence of
capital lease obligations 32,500 62,945 1,400,906
Acquisition of leasehold improvements through
incurrence of debt - - 197,304
</TABLE>
See accompanying note to financial statements.
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<PAGE>
NPS Pharmaceuticals, Inc.
(A Development Stage Company)
Note to Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying financial statements of NPS Pharmaceuticals, Inc. ("NPS"
or the "Company") are unaudited, except as specifically noted. The financial
statements reflect all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary to present
fairly the financial position and results of operations for the interim
periods presented. The results of operations for the three month and nine
month periods ended September 30, 1996, are not necessarily indicative of the
results to be expected for the full year. The financial information included
herein should be read in conjunction with the Company's Form 10-K for 1995
which includes the audited financial statements and the notes thereto for the
year ended December 31, 1995.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS QUARTERLY REPORT ON FROM 10-Q CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED HEREIN AS WELL AS
THOSE DISCUSSED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1995 UNDER THE HEADING "RISK FACTORS".
OVERVIEW
Since its inception in 1986, NPS has devoted substantially all of its
resources to its research and development programs. To date, the Company has
not completed development of any pharmaceutical products for sale and has
incurred substantial losses. NPS has incurred cumulative losses through
September 30, 1996, of $14.0 million net of cumulative revenues from research
and license agreements of $39.5 million. The Company expects to incur
significant operating losses over at least the next several years as the
Company continues and expands its research and development and preclinical
and clinical testing activities. Substantially all of the Company's revenues
are derived from license fees, milestone payments and research support
payments from its licensees and collaborators, and these revenues fluctuate
from quarter to quarter. Accordingly, the Company expects that income or
losses will fluctuate from quarter to quarter, that such fluctuations may be
substantial, and that results from prior quarters may not be indicative of
future operating results. The Company's ability to achieve profitability
depends in part on its ability, alone and/or with others, to complete
development of its proposed products, to obtain required regulatory approvals
and to manufacture and market such products, as to which matters there can be
no assurance.
RESULTS OF OPERATIONS
Revenues were $1.3 million for the three-month period ended September 30,
1996, compared to $1.4 million for the three-month period ended September 30,
1995 and $17.2 million for the nine-month period ended September 30, 1996,
compared to $8.2 million for the same nine-month period of 1995. The increase
in revenues in the nine-month period of 1996 compared to the same period in
1995 was primarily due to the receipt by NPS of a license fee from Amgen Inc.
("Amgen") and a milestone payment from SmithKline Beecham Corporation
("SmithKline") in the first quarter of 1996. See "Liquidity and Capital
Resources" below for further discussion of payments that may be received by
the Company in the future.
Research and development expenses were $2.4 million in both three-month
periods ended September 30, 1996 and 1995, and $8.2 million compared to $5.9
million for the nine-month periods ended September 30, 1996 and 1995,
respectively. The increase in the current nine-month period was primarily due
to ongoing clinical trials for NPS R-568 in early 1996, increased
expenditures for the preclinical development of NPS 1506, and the hiring of
additional personnel. The Company's research and development expenses are
expected to increase significantly in the future as NPS conducts discovery,
preclinical development and clinical trials for non-licensed product
candidates, sponsors research or obtains licenses for technology from
third-party institutions, and hires more research and development personnel.
General and administrative expenses increased to $1.2 million for the
three-month period ended September 30, 1996, from $825,000 in the comparable
period of 1995, and to $3.9 million for the nine-month period ended September
30, 1996, from $2.9 million in the comparable period of 1995. The increases
were primarily due to the hiring of additional personnel in the areas of
business development, investor relations, and legal affairs during 1996,
costs incurred in finalizing the agreement with Amgen in March 1996 and costs
associated with a follow-on offering of the Company's common stock which was
completed in May 1996. The Company expects that general and administrative
expenses will continue to increase in the future as more personnel and
facilities are needed to support research and development activities.
Interest income increased to $940,000 and $1.7 million for the
three-month and nine-month periods ended September 30, 1996, respectively,
from $123,000 and $359,000 for the same periods in 1995. The increases were
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<PAGE>
primarily due to higher average cash balances resulting from the net proceeds
of the stock offering in May 1996 in which the Company sold 3.45 million
shares of its common stock with net proceeds to the Company of approximately
$48.4 million (includes proceeds from the exercise of the underwriters'
over-allotment).
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
collaborative research and license agreements and the private and public
placement of equity securities. As of September 30, 1996, the Company had
recognized approximately $39.5 million of cumulative revenues from research
and license agreements and approximately $84.1 million as consideration for
the placement of equity securities. The Company's principal sources of
liquidity are its cash, cash equivalents, and marketable investment
securities which totaled $69.9 million at September 30, 1996.
The Company receives quarterly payments under its agreements with Kirin
and SmithKline to support the Company's research efforts in HPT and
osteoporosis, respectively. The Kirin payments are currently $500,000 per
quarter with total potential payments of up to $7 million over the five years
of the research term of the Kirin Agreement. The scheduled expiration date of
the SmithKline agreement has been extended for an additional year to October
31, 1997, and NPS expects to receive approximately $500,000 per quarter from
SmithKline. Amgen will reimburse the Company up to $400,000 per year for a
period not to exceed five years for certain costs which may be incurred by
the Company in the development of NPS R-568 for primary hyperparathyroidism
in the Amgen territory, with such participation occurring under the direction
of Amgen. The Company could receive additional payments of up to $56.0
million in the aggregate from Amgen, Kirin, and SmithKline upon the
accomplishment of specified research and/or development milestones under the
respective agreements. NPS does not control the subject matter, timing or
resources applied by its licensees (SmithKline, Kirin and Amgen) under their
respective development contracts. Thus, the Company's potential receipt of
milestone payments from these licensees is largely beyond the control of NPS.
Progress under these agreements is subject to risk and each of these support
agreements may be terminated before the scheduled expiration date by the
respective licensee. Therefore, no assurance can be given that any future
milestone or research or development support payments will be received
thereunder.
The Company has entered into certain sponsored research and license
agreements which obligate the Company to make research support payments to
third-party institutions. Additional payments may be required upon the
accomplishment of research milestones by the institutions or as license fees
or royalties to maintain the licenses. As of September 30, 1996, the Company
had a total commitment of approximately $700,000 for future research support
payments. The Company expects to enter into additional sponsored research and
license agreements in the future.
As of September 30, 1996, the Company's net investment in leasehold
improvements, equipment and furnishings was approximately $2.4 million. The
Company has financed a portion of such expenditures through capital leases
and long-term debt with a total principal obligation of approximately
$910,000 as of September 30, 1996. Additional equipment and facilities will
be needed as the Company increases its research and development activities, a
portion of which may be financed with debt. Equipment and leasehold
improvements subject to the capital leases and the long-term debt have been
pledged in support of the obligations.
The Company anticipates that its existing capital resources, including
interest earned thereon and expected research and development support
payments from its licensees will be sufficient to enable it to maintain its
current and planned operations through at least 1998. However, actual needs
are dependent on numerous factors, including the progress of the Company's
research and development programs, the magnitude and scope of these
activities, progress with preclinical and clinical trials, the cost of
preparing, filing, prosecuting, maintaining and enforcing patent claims and
other intellectual property rights, competing technological and market
developments, changes in or terminations of existing research and license
arrangements, the establishment of additional license arrangements and the
cost of manufacturing scale-up and development of marketing activities, if
undertaken by the Company. Substantial expenditures will be required to
conduct preclinical studies and clinical trials, manufacture or have
manufactured and market any proprietary products of NPS which may be derived
from NPS's current research and development efforts and to perform research
and development activities in additional areas. In addition, if Amgen
terminates its agreement,
-9-
<PAGE>
the Company may not have sufficient capital to complete the development and
commercialization of a drug for hyperparathyroidism in Amgen's territory.
NPS may need to raise additional funds to support its long-term product
development and commercialization programs. The Company also intends to seek
additional funding through collaborations and licensing agreements and the
Company may seek additional funding through public or private financing.
There can be no assurance that additional financing will be available on
acceptable terms, if 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 and development programs or to obtain funds through arrangements
with licensees or others that may require the Company to relinquish rights to
certain of its technologies, product candidates or products that the Company
may otherwise seek to develop or commercialize on its own.
CERTAIN BUSINESS RISKS
The Company is currently in the early stage of product development. NPS
R-568 is the only product candidate currently under development by the
Company or its licensees that is in human clinical trials. All of the
Company's remaining technologies are new and will require significant
additional research and development efforts prior to any commercial use,
including extensive preclinical and clinical testing as well as lengthy
regulatory approval. In addition, because the Company has granted exclusive
development, commercialization and marketing rights to its licensees in the
fields of hyperparathyroidism and osteoporosis, the success of its existing
hyperparathyroidism and osteoporosis programs is entirely dependent upon the
efforts of its licensees. All public releases of project status, updates and
other information generated under the license agreements are entirely in the
control of the licensees.
Other risks include the Company's lack of product sales, a history of
operating losses, the uncertainty of regulatory approvals, rapid
technological change and competition, the uncertainty of protection of the
Company's patents and proprietary technology, the Company's dependence on
third parties for manufacturing, the Company's future capital needs and the
uncertainty of additional funding, the Company's lack of marketing
capabilities, the uncertainty of third-party reimbursement, the Company's
dependence on key personnel and the Company's ability to manage growth. A
more detailed discussion of factors that could cause actual results to differ
materially from those in the forward-looking statements is contained in the
Company's SEC filings, including the Company's annual report on Form 10-K for
the year ended December 31, 1995.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 6, 1996 NPS PHARMACEUTICALS, INC.
By: /S/ James U. Jensen
----------------------------------------
James U. Jensen
Vice President, Corporate Development
and Legal Affairs
(Executive Officer)
By: /S/ Robert K. Merrell
----------------------------------------
Robert K. Merrell
Vice President, Finance, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting
Officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 60,567,414
<SECURITIES> 9,327,796
<RECEIVABLES> 197,305
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 70,092,515
<PP&E> 4,713,873
<DEPRECIATION> 2,291,551
<TOTAL-ASSETS> 72,554,691
<CURRENT-LIABILITIES> 2,061,589
<BONDS> 0
0
0
<COMMON> 11,793
<OTHER-SE> 70,021,943
<TOTAL-LIABILITY-AND-EQUITY> 72,554,691
<SALES> 0
<TOTAL-REVENUES> 17,196,705
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,156,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,514
<INCOME-PRETAX> 6,667,598
<INCOME-TAX> 200,000
<INCOME-CONTINUING> 6,467,598
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,467,598
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0
</TABLE>
