<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, 1997 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
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(Address of principal executive offices) (Zip Code)
(801) 583-4939
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
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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 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, 1997
----- ---------------------------------
Common Stock $.001 par value 12,006,241
Preferred Stock $.001 par value -0-
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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 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 11
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURES 11
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NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Balance Sheets
September 30, December 31,
Assets 1997 1996
--------------- ------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 58,983,187 $ 68,961,764
Accounts receivable 100,462 415,208
Prepaid expenses 312,500 -
------------- -------------
Total current assets 59,396,149 69,376,972
Plant and equipment:
Equipment 4,751,738 3,259,376
Leasehold improvements 2,522,939 1,997,994
------------- -------------
7,274,677 5,257,370
Less accumulated depreciation and
amortization 3,312,665 2,477,665
------------- -------------
Net plant and equipment 3,962,012 2,779,705
Other assets 5,461 3,267
------------- -------------
$ 63,363,622 $ 72,159,944
------------- -------------
------------- -------------
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of obligations under
capital leases $ 42,688 $ 53,339
Current installments of long-term debt 338,289 369,467
Accounts payable 1,089,784 619,120
Accrued expenses 366,526 271,677
Deferred income 250,000 500,000
Income tax payable 20,000 150,000
------------- -------------
Total current liabilities 2,107,287 1,963,603
Obligations under capital leases, excluding
current installments 66,460 27,295
Long-term debt, excluding current installments 58,281 299,534
------------- -------------
Total liabilities 2,232,028 2,290,432
Stockholders' equity:
Common stock 12,006 11,807
Additional paid-in capital 84,777,779 84,270,283
Deficit accumulated during development stage (23,658,191) (14,412,578)
------------- -------------
Net stockholders' equity 61,131,594 69,869,512
------------- -------------
$ 63,363,622 $ 72,159,944
------------- -------------
------------- -------------
See accompanying note to financial statements.
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<PAGE>
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
October 22,
1986
(inception)
Three Months Ended September 30, Nine Months Ended September 30, through
-------------------------------- ------------------------------- September 30,
1997 1996 1997 1996 1997
---------------- --------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues from research
and license agreements $ 825,000 $ 1,330,768 $ 2,975,000 $ 17,196,705 $ 45,633,179
Operating expenses:
Research and development 4,019,319 2,414,393 10,563,780 8,232,579 51,882,854
General and administrative 1,655,629 1,246,247 4,189,404 3,924,219 22,456,660
----------- ------------ ------------ ------------ -------------
Total operating expenses 5,674,948 3,660,640 14,753,184 12,156,798 74,339,514
----------- ------------ ------------ ------------ -------------
Operating income (loss) (4,849,948) (2,329,872) (11,778,184) 5,039,907 (28,706,335)
Other income (expense):
Interest income 830,629 939,954 2,588,701 1,737,205 6,536,113
Interest expense (15,120) (31,082) (56,130) (109,514) (673,548)
Other - - - - 35,579
----------- ------------ ------------ ------------ -------------
Total other income 815,509 908,872 2,532,571 1,627,691 5,898,144
----------- ------------ ------------ ------------ -------------
Income (loss) before taxes (4,034,439) (1,421,000) (9,245,613) 6,667,598 (22,808,191)
Income tax expense - - - 200,000 850,000
----------- ------------ ------------ ------------ -------------
Net income (loss) $(4,034,439) $ (1,421,000) $ (9,245,613) $ 6,467,598 $ (23,658,191)
----------- ------------ ------------ ------------ -------------
----------- ------------ ------------ ------------ -------------
Net income (loss) per
common share $ (0.34) $ (0.12) $ (0.78) $ 0.59
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Weighted average shares
outstanding 11,974,800 11,765,600 11,914,300 10,896,800
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</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
1997 1996 September 30, 1997
------------ ------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (9,245,613) $ 6,467,598 $ (23,658,191)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 835,000 580,000 4,021,241
Gain on sale of equipment - - (29,909)
Issuance of stock in lieu of cash for services 128,100 319,400 806,554
Amortization of deferred compensation - 191,625 766,500
Decrease (increase) in receivables 314,746 (174,305) (100,462)
Decrease (increase) in other assets (314,694) 2,300 (321,561)
Increase (decrease) in accounts payable and
accrued expenses 565,513 (398,489) 1,456,310
Increase (decrease) in taxes payable (130,000) 45,938 20,000
Increase (decrease) in deferred income (250,000) 200,000 250,000
------------- ------------ --------------
Net cash provided by (used in) operating activities (8,096,948) 7,234,067 (16,789,518)
Cash flows from investing activities:
Net purchase of marketable investment securities - (9,027,796) -
Acquisition of equipment and leasehold improvements (1,935,572) (774,178) (7,345,672)
Proceeds from sale of equipment - - 1,075,621
------------- ------------ --------------
Net cash used in investing activities (1,935,572) (9,801,974) (6,270,051)
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 379,595 55,732,633 65,935,315
Proceeds from long-term debt - - 1,166,434
Principal payments on note payable to bank - - (123,855)
Principal payments under capital lease obligations (53,221) (393,297) (1,373,241)
Principal payments on long-term debt (272,431) (243,640) (967,168)
Repurchase of preferred stock - - (300,000)
------------- ------------ --------------
Net cash provided by financing activities 53,943 55,095,696 82,042,756
------------- ------------ --------------
Net increase (decrease) in cash and cash equivalents (9,978,577) 52,527,789 58,983,187
Cash and cash equivalents at beginning of period 68,961,764 8,039,625 -
------------- ------------ --------------
Cash and cash equivalents at end of period $ 58,983,187 $ 60,567,414 $ 58,983,187
------------- ------------ --------------
------------- ------------ --------------
</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
1997 1996 September 30, 1997
------------ ------------ ------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 56,130 $ 31,311 $ 673,548
Cash paid for taxes 130,000 - 830,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of equipment through incurrence of
capital lease obligations 81,735 62,945 1,482,389
Acquisition of leasehold improvements through
incurrence of debt - - 197,304
Issuance of preferred stock for stock subscription
receivable - - 4,000,000
Accrual of deferred offering costs - - 150,000
</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 period ended September 30, 1997, 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 1996
which includes the audited financial statements and the notes thereto for the
year ended December 31, 1996.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 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, 1996 UNDER THE HEADING "RISK FACTORS."
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, 1997, of $23.7 million net of cumulative revenues from research
and license agreements of $45.6 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 and
development support payments from its licensees and these revenues fluctuate
from quarter to quarter. Accordingly, the Company expects that income or loss
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 and the efforts of
its licensees, to complete development of its 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 $825,000 for the three-month period ended September 30,
1997 compared to $1.3 million for the three-month period ended September 30,
1996 and $3.0 million for the nine-month period ended September 30, 1997
compared to $17.2 million for the same nine-month period in 1996. The
decrease in revenues for the nine-month period was primarily due to the
receipt by NPS in 1996 of a $10 million license fee from Amgen Inc. ("Amgen")
and a $3 million milestone payment from SmithKline Beecham Corporation
("SmithKline Beecham"); these payments reflected one time events under
agreement with these parties and are non-recurring. See "Liquidity and
Capital Resources" below for further discussion of payments that may be
received by the Company in the future under the separate agreements with
these parties.
Research and development expenses increased to $4.0 million for the
three-month period ended September 30, 1997 from $2.4 million in the
comparable period of 1996, and to $10.6 million for the nine-month period
ended September 30, 1997 from $8.2 million in the comparable period of 1996.
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 academia or research institutions and hires more
research and development personnel.
General and administrative expenses were $1.7 million compared to $1.2
million for the three-month periods ended September 30, 1997 and 1996,
respectively, and $4.2 million compared to $3.9 million for the nine-month
periods ended September 30, 1997 and 1996, respectively. The Company expects
that general and administrative expenses will increase in the future as more
personnel and facilities are needed to support research and development
activities.
Interest income was $831,000 and $2.6 million for the three-month and
nine-month periods ended September 30, 1997 respectively, compared to
$940,000 and $1.7 million for the same periods of 1996. Interest income
decreased in the comparable three-month periods because there has been a net
outflow of cash during 1997 and cash balances were lower during that period
in 1997 than they were in 1996. The increase in 1997 for the nine-month
period was primarily due to a higher average cash balance during the first
five months of 1997 than the first five months of 1996 resulting from the net
proceeds of the follow-on offering of stock completed in May 1996. The
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<PAGE>
Company anticipates that interest income will decrease in the future as the
Company's cash is utilized for operations.
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 30,1997, the Company had
recognized $45.6 million of cumulative revenues from research and license
agreements and $84.8 million in consideration for the sale of equity
securities for cash and services. The Company's principal sources of
liquidity are its cash, cash equivalents, and marketable investment
securities which totaled $59.0 million at September 30, 1997.
The Company receives quarterly payments under its agreements with the
pharmaceutical division of Kirin Brewery Company, Limited ("Kirin") and
SmithKline Beecham to support the Company's research efforts in
hyperparathyroidism ("HPT") and osteoporosis, respectively. The Kirin
payments are scheduled to be $250,000 per quarter through June 2000, the
scheduled expiration of the supported research term of the Kirin agreement.
The scheduled expiration date of the SmithKline Beecham supported research
agreement was October 31, 1997 but it has been extended through November 30,
1997 while the parties finalize details of a longer term amendment and
extension. There can be no assurance that the Company and SmithKline Beecham
will sign an agreement and extension or that if an agreement is reached that
the terms and conditions of such agreement will be comparable to the terms of
the current agreement. NPS expects to receive $475,000 per quarter through
November 30, 1997, from SmithKline Beecham. Amgen is scheduled to reimburse
the Company up to $400,000 per year through December 2000 for costs incurred
by the Company for designation of NPS personnel to be available to
participate in the development of a compound for primary HPT in the Amgen
territory, with such participation occurring under the direction of Amgen.
The Company could receive future payments of up to $51.0 million in the
aggregate from Amgen, Kirin, and SmithKline Beecham 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 under their respective development programs. 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 agreements may be terminated before the scheduled
expiration date by the respective licensee. No assurance can be given that
any future milestone or research or development support payments will be
received from any of them or under any other licensing agreement then in
effect.
The Company has entered into certain sponsored research and license
agreements which obligate the Company to make research support payments to
academic and/or commercial research 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,
1997, the Company had a total commitment of approximately $4.0 million for
future research support payments. The Company expects to enter into
additional sponsored research and license agreements in the future.
As of September 30, 1997, the Company's net investment in leasehold
improvements, equipment and furnishings was $4.0 million. The Company has
financed a portion of such expenditures through capital leases and long-term
debt with a total principal obligation of $506,000 as of September 30, 1997,
of which $480,000 is classified as short term. 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 such 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 1999. 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
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<PAGE>
manufactured and market any proprietary products of NPS which may be derived
from current research and development efforts and perform research and
development activities in additional areas. In addition, if Amgen terminates
its agreement, the Company may not have sufficient capital to complete the
development and commercialization of a drug for HPT in the Amgen territory.
NPS may need to raise additional funds to support its long-term product
development and commercialization programs. The Company is presently seeking
additional funding for certain of its non-licensed programs through corporate
collaborations and licensing agreements. The Company may also seek additional
funding through public or private financing. There can be no assurance that
additional funding 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 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 and NPS 1506 are the only product candidates under development by the
Company or its licensees that are in human clinical trials. There is no
guarantee that NPS R-568 or NPS 1506 will prove to be safe or efficacious or
that back-up or later generation compounds will be identified or taken into
clinical trials or if so identified and so tested, that such compounds will
be found to be safe, effective or marketable. All of the Company's remaining
technologies are new and will require significant additional research and
development efforts prior to any commercial use. Because the Company has
granted exclusive development, commercialization and marketing rights in the
fields of HPT and osteoporosis, the success of its existing HPT and
osteoporosis programs is entirely dependent upon the efforts of Amgen, Kirin
and SmithKline Beecham.
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'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 forward-looking statements is contained in the
Company's SEC filings, including the Risk Factors in the Company's Annual
Report on Form 10-K.
PART II
ITEM 5. OTHER INFORMATION
OSTEOPOROSIS PROGRAM
On November 4, 1997, the Company announced that its existing agreement
with SmithKline Beecham has been extended for an additional month (through
November 30, 1997) while the companies finalize details of a longer term
amendment and extension.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. None.
(b) REPORTS ON FORM 8-K. The Company filed one report on Form 8-K,
dated September 12, 1997, reporting the update of strategy for the ongoing
development of the Company's novel drugs for treating primary and secondary
hyperparathyroidism by Amgen Inc.
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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 7, 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 58,983,187
<SECURITIES> 0
<RECEIVABLES> 100,462
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 59,396,149
<PP&E> 7,274,677
<DEPRECIATION> 3,312,665
<TOTAL-ASSETS> 63,363,622
<CURRENT-LIABILITIES> 2,107,287
<BONDS> 0
0
0
<COMMON> 12,006
<OTHER-SE> 61,119,588
<TOTAL-LIABILITY-AND-EQUITY> 63,363,622
<SALES> 0
<TOTAL-REVENUES> 5,563,701
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,753,184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,130
<INCOME-PRETAX> (9,245,613)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,245,613)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,245,613)
<EPS-PRIMARY> (0.78)
<EPS-DILUTED> 0
</TABLE>
