<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 March 31, 1998 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 March 31, 1998
----- -----------------------------
Common Stock $.001 par value 12,266,850
Preferred Stock $.001 par value -0-
<PAGE>
NPS PHARMACEUTICALS, INC.
TABLE OF CONTENTS
PART I Financial Information Page No.
--------------------- --------
Item 1 Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Note to Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
SIGNATURES 11
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<PAGE>
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1998 1997
---------------- ----------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28,906,075 $ 36,103,533
Marketable investment securities 25,006,857 21,838,568
Accounts receivable 95,366 391,667
Prepaid expenses 275,000 281,250
---------------- ----------------
Total current assets 54,283,298 58,615,018
Plant and equipment:
Equipment 5,429,481 4,965,521
Leasehold improvements 2,799,068 2,738,432
---------------- ----------------
8,228,549 7,703,953
Less accumulated depreciation and amortization 3,937,915 3,687,915
---------------- ----------------
Net plant and equipment 4,290,634 4,016,038
Other assets 3,267 3,267
---------------- ----------------
$ 58,577,199 $ 62,634,323
================ ================
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of obligations under capital leases $ 29,558 $ 35,764
Current installments of long-term debt 161,349 291,098
Accounts payable 981,178 999,477
Accrued expenses 427,207 340,172
Deferred income 483,333 583,333
---------------- ----------------
Total current liabilities 2,082,625 2,249,844
Obligations under capital leases, excluding current installments 48,639 56,908
Long-term debt, excluding current installments 38,475 8,436
---------------- ----------------
Total liabilities 2,169,739 2,315,188
Stockholders' equity:
Common stock 12,267 12,210
Additional paid-in capital 86,658,456 86,413,845
Deficit accumulated during development stage (30,263,263) (26,106,919)
---------------- ----------------
Net stockholders' equity 56,407,460 60,319,136
---------------- ----------------
$ 58,577,199 $ 62,634,324
================ ================
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, October 22, 1986,
----------------------------------------- (inception) through
1998 1997 March 31, 1998
------------------ ------------------ -------------------
<S> <C> <C> <C>
Revenues from research
and license agreements $ 887,500 $ 1,075,000 $ 49,387,346
Operating expenses:
Research and development 4,423,037 3,400,912 61,199,017
General and administrative 1,363,947 1,218,858 24,850,880
------------------ ------------------ -------------------
Total operating expenses 5,786,984 4,619,770 86,049,897
------------------ ------------------ -------------------
Operating income (loss) (4,899,484) (3,544,770) (36,662,551)
Other income (expense):
Interest income 752,058 854,285 7,957,041
Interest expense (8,918) (21,870) (694,253)
Other - - 154,265
------------------ ------------------ -------------------
Total other income 743,140 832,415 7,417,053
------------------ ------------------ -------------------
Income (loss) before tax expense (4,156,344) (2,712,355) (29,245,498)
Income tax expense - - 1,017,765
------------------ ------------------ -------------------
Net income (loss) $ (4,156,344) $ (2,712,355) $ (30,263,263)
================== ================== ===================
Net income (loss) per common share -
basic and diluted $ (0.34) $ (0.23)
================== ==================
Weighted average shares outstanding -
basic and diluted 12,247,000 11,866,000
================== ==================
</TABLE>
See accompanying notes to financial statements.
- 4 -
<PAGE>
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, October 22, 1986
------------------------------ (inception) through
1998 1997 March 31, 1998
------------ ------------ -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,156,344) $ (2,712,355) $ (30,263,263)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 250,000 225,000 4,646,491
Gain on sale of equipment -- -- (29,909)
Issuance of stock in lieu of cash for services 70,150 119,600 876,704
Amortization of deferred compensation -- -- 766,500
Decrease (increase) in receivables 296,301 310,752 (95,366)
Decrease (increase) in prepaids and other assets 6,250 (2,194) (281,867)
Increase in accounts payable and
accrued expenses 68,737 50,208 1,408,385
Decrease in taxes payable -- (130,000) --
Increase (decrease) in deferred income (100,000) -- 483,333
------------ ------------ -------------------
Net cash used in operating activities (3,564,906) (2,138,989) (22,488,992)
Cash flows from investing activities:
Net purchase of marketable investment securities (3,168,289) -- (25,006,857)
Acquisition of equipment and leasehold improvements (524,596) (498,121) (8,304,124)
Proceeds from sale of equipment -- -- 1,075,621
------------ ------------ -------------------
Net cash used in investing activities (3,692,885) (498,121) (32,235,360)
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 174,518 160,101 67,746,103
Proceeds from long-term debt -- -- 1,166,434
Principal payments on note payable to bank -- -- (123,855)
Principal payments under capital lease obligations (14,475) (18,070) (1,399,612)
Principal payments on long-term debt (99,710) (87,804) (1,163,914)
Repurchase of preferred stock -- -- (300,000)
------------ ------------ -------------------
Net cash provided by financing activities 60,333 54,227 83,630,427
------------ ------------ -------------------
Net increase (decrease) in cash and cash equivalents (7,197,458) (2,582,883) 28,906,075
Cash and cash equivalents at beginning of period 36,103,533 68,961,764 --
------------ ------------ -------------------
Cash and cash equivalents at end of period $ 28,906,075 $ 66,378,881 $ 28,906,075
============ ============ ===================
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
NPS PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, October 22, 1986
---------------------------------------- (inception) through
1998 1997 March 31, 1998
------------------ ------------------ ---------------------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest $ 8,918 $ 21,870 $ 694,253
Cash paid for taxes - 130,000 887,765
Supplemental Schedule of Noncash Investing and
Financing Activities:
Acquisition of equipment through incurrence of
capital lease obligations - 34,035 1,477,809
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 notes 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 period ended
March 31, 1998, 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 1997 which includes the audited
financial statements and the notes thereto for the year ended December 31, 1997.
(2) Comprehensive Loss
------------------
The Company adopted Statement of Financial Accounting Standard No. 130
("SFAS 130"), "Reporting Comprehensive Income," effective January 1, 1998. SFAS
130 establishes standards for reporting and display of comprehensive income and
its components in financial statements. For the periods ending March 31, 1998
and 1997 and from October 22, 1986 (inception) through March 31, 1998,
comprehensive loss approximated the net loss as presented in the accompanying
Statements of Operations.
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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 FORWARD-LOOKING
STATEMENTS DISCUSSED HERE. 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 SEC-FILED FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1997 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 March 31, 1998,
of $30.3 million net of cumulative revenues from research and license agreements
of $49.4 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. The Company
expects that revenue and expenses, and 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 the required regulatory approvals and to manufacture and
market such products, as to which matters there can be no assurance.
RESULTS OF OPERATIONS
Revenues were $887,500 for the three-month period ended March 31,1998,
compared to $1.1 million for the three-month period ended March 31, 1997, and
consisted entirely of research and development support payments from licensees
in both periods. The decrease in revenues in 1998 was primarily due to the
contractual reduction in research support payments from the pharmaceutical
division of Kirin Brewery Company, Limited ("Kirin") beginning in July 1997. See
"Liquidity and Capital Resources" below for further discussion of payments that
may be received by the Company in the future under agreements with the Company's
licensees.
Research and development expenses increased to $4.4 million for the
three-month period ended March 31, 1998, from $3.4 million in the comparable
period of 1997 primarily due to the conduct of clinical trials for NPS 1506
commencing in mid-1997 and continuing through 1998. Research and development
expenses are expected to continue to increase in the future as NPS conducts
discovery, preclinical development and clinical trials for non-licensed product
candidates, sponsors research or obtains licenses for technology, product
candidates or products from private commercial entities, academia or research
institutions and hires more research and development personnel.
General and administrative expenses were $1.4 million compared to $1.2
million for the three-month periods ended March 31, 1998 and 1997, 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 $752,000 for the three-month period ended March 31,
1998, compared to $854,000 for the same period of 1997. Interest income
decreased in the first quarter of 1998 because there had been a net outflow of
cash during 1997 and cash balances were lower during that period in 1998 than
they were in 1997. The 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 March 31, 1998, the Company
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<PAGE>
had recognized $49.4 million of cumulative revenues from research and license
agreements and $86.2 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 $53.9
million at March 31, 1998.
The Company receives quarterly research and/or development support
payments under its agreements with Amgen Inc. ("Amgen"), Kirin and SmithKline
Beecham Corporation ("SmithKline Beecham"). Such payments as of March 31, 1998,
are scheduled to aggregate $7.9 million through the scheduled expiration dates
of the agreements in December, June and October 2000, respectively. In addition,
SmithKline Beecham will purchase 453,000 shares of NPS common stock at a premium
to the market price if the research agreement is not terminated early.
The Company could receive future payments of up to $49.0 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 March 31,1998, the
Company had a total commitment of approximately $2.9 million for future research
support payments. The Company expects to enter into additional sponsored
research and license agreements in the future.
As of March 31, 1998, the Company's net investment in leasehold
improvements, equipment and furnishings was $4.3 million, net of accumulated
depreciation and amortization. The Company has financed a portion of such
expenditures through capital leases and long-term debt with a total principal
obligation of $278,000 as of March 31, 1998. 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 or leases. 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
and equity purchases from its licensees, will be sufficient to enable it to
maintain its current and planned operations for at least 24 months. However,
actual needs are dependent on numerous factors, including the progress of the
Company's current and future 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. Furthermore, in the event the Company were to in-license or
otherwise acquire a product candidate in clinical development, substantial
expenditures for clinical trials and regulatory submissions would be required.
Substantial expenditures will be required to conduct preclinical studies and
clinical trials, manufacture or have manufactured and market any proprietary
products of NPS that may be derived from current research and development
efforts and to perform research and development activities in additional areas.
In addition, if any licensee terminates its agreement, the Company may not have
sufficient capital to complete the development and commercialization of a
product in the relevant field and territory. A reduction in the expected amount
of research and development support payments or equity purchases may shorten the
period during which the Company could maintain its operations or require the
Company to reduce its operations.
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 current programs through corporate
collaborations and licensing agreements. The Company may also seek additional
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<PAGE>
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.
YEAR 2000 ASSESSMENT
The Company is in the process of assessing the impact of the year 2000
on its operations and systems. Management has developed assessment procedures
and a plan to address identified issues within the Company. The Company does not
yet know the extent, if any, of the impact of the year 2000 on its systems and
equipment. There can be no assurance that third parties, such as suppliers,
clinical research organizations and collaborative parties, are using systems
that are year 2000 compliant or will address any year 2000 issues in a timely
fashion. Any year 2000 compliance problems of either the Company, its suppliers,
its clinical research organizations, or its collaborative partners could have a
material adverse effect on the Company's business, operating results and
financial condition.
CERTAIN BUSINESS RISKS
The Company is currently in the early stage of product development. NPS
1506 and compounds for the treatment of hyperparathyroidism ("HPT") 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 1506 or any compound for
HPT will prove to be safe or effective 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 in preclinical
stages 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
primarily 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 lack of marketing capabilities, the
uncertainty of third-party reimbursement, the uncertainty of the Company's in-
licensing efforts, 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 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 for the year ended December 31, 1997.
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: May 14, 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)
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 28,906,075
<SECURITIES> 25,006,857
<RECEIVABLES> 95,366
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 54,283,298
<PP&E> 8,228,549
<DEPRECIATION> 3,937,915
<TOTAL-ASSETS> 58,577,199
<CURRENT-LIABILITIES> 2,082,625
<BONDS> 0
0
0
<COMMON> 12,267
<OTHER-SE> 56,395,193
<TOTAL-LIABILITY-AND-EQUITY> 58,577,199
<SALES> 0
<TOTAL-REVENUES> 1,639,558
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,786,984
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,918
<INCOME-PRETAX> (4,156,344)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,156,344)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,156,344)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
