UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
___________________________________
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the period ended April 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 0-20772
CYPROS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
California 33-0476164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
2714 Loker Avenue West
Carlsbad, California 92008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(760) 929-9500
Indicate by mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act 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.
[ X ] YES [ ] NO
As of June 12, 1997, the Registrant had 13,484,691 shares of
Common Stock, no par value, outstanding.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Item
Page
Part I
<S> <C>
<C>
1. Financial Statements:
a. Balance Sheets -- April 30, 1997 and July 31,
1996 3
b. Statements of Operations -- Three and Nine
Months Ended April 30, 1997 and 1996 4
c. Statements of Cash Flows -- Nine Months Ended
April 30, 1997 and 1996 5
d. Notes to Financial Statements 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
</TABLE>
<TABLE>
<CAPTION>
Part II.
<S> <C> <C>
1. Legal Proceedings *
2. Changes in Securities *
3. Defaults Upon Senior Securities *
4. Submission of Matters to a Vote of Securities *
Holders
5. Other Information *
6. Exhibits and Reports on Form 8-K *
Signatures 11
</TABLE>
* No information provided due to inapplicability of item.
<TABLE>
<CAPTION>
PART I.
Item 1. Financial Statements
Cypros Pharmaceutical
Corporation
Balance Sheets
April 30, July 31,
1997 1996
Assets (Unaudited (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $3,013,404 8,306,752
Short-term investments 12,520,893 7,690,297
Accounts receivable 425,831 149,626
Inventory 98,251 63,386
Prepaid expenses 124,253 61,409
Total current assets 16,182,632 16,271,470
Property, equipment and
leasehold improvements, net 656,619 608,206
Purchased technology, net 5,285,222 2,629,427
Licenses and patents, net 159,825 111,231
Deposits and other assets, net 127,160 126,180
Total assets $22,411,458 $19,746,514
Liabilities and shareholders'
equity
Current liabilities:
Accounts payable $ 289,718 119,092
Other accrued liabilities 451,033 387,612
Purchased asset obligation 1,248,000 200,000
Current portion of capital
lease obligations 107,113 81,035
Current portion of long-
term debt 66,188 99,282
Total current liabilities 2,162,052 887,021
Capital lease obligations 173,368 187,265
Deferred rent 130,407 120,411
Long-term debt - 41,367
Shareholders' equity:
Common stock, 30,000,000 shares
authorized, 13,460,097
and 11,613,748 shares issued
and outstanding as of
April 30, 1997 and July 31,
1996, respectively 29,758,707 21,838,493
Mandatorily convertible
notes 4,398,173 7,458,498
Deferred compensation (154,352) (304,309)
Accumulated deficit (14,056,897) (10,482,232)
Total shareholders' equity 19,945,631 18,510,450
Total liabilities and
shareholders' equity $ 2,411,458 $ 19,746,514
</TABLE>
Note: The balance sheet at July 31, 1996 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.
<TABLE>
<CAPTION>
Cypros
Pharmaceutical
Corporation
Statements of
Operations
(Unaudited)
Three Months Ended April 30 Nine Months Ended April 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 717,658 $324,859 $1,672,454 $ 903,577
Cost of sales 148,154 98,883 388,016 293,952
Gross profit 569,504 225,976 1,284,438 609,625
Operating expenses:
Sales and
marketing 287,212 95,473 706,850 209,805
General and
administrative 599,111 452,192 1,920,045 1,225,196
Clinical testing
and regulatory 441,767 298,521 1,342,200 1,010,295
Research and
development 234,578 273,254 720,668 688,183
Depreciation and
amortization 293,989 152,368 772,029 448,160
Total operating
espenses 1,856,657 1,271,808 5,461,792 3,581,639
Loss from
operations (1,287,153) (1,045,832) (4,177,354) (2,972,014)
Research grant
income - 83,074 79,490 249,000
Interest and other
income, net 138,486 175,339 523,199 554,655
Net loss $(1,148,667) $(787,419) $(3,574,665) $(2,168,359)
Net loss per share $ (0.09) $ (0.07) $ (0.30) $ (0.19)
Shares used in
computing net
loss per share 12,431,095 11,604,373 11,880,209 11,457,199
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
Cypros Pharmaceutical
Corporation
Statements of Cash Flows
(Unaudited)
Nine Months Ended
April 30,
1997 1996
<S> <C> <C>
Operating activities
Net loss $(3,574,665) $(2,168,359)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization of deferred
compensation 283,519 208,296
Compensation expense related
to warrant issuances - 74,082
Depreciation and amortization 772,029 448,160
Deferred rent expense 9,996 20,451
Changes in operating assets and
liabilities, net of effects
from acquisitions:
Accounts receivable (276,205) (206,855)
Inventory 37,729 (27,030)
Prepaid expenses (62,844) (71,530)
Accounts payable 170,626 131,203
Other current liabilities 116,679 91,033
Net cash flows used in
operating activities (2,523,136) (1,500,549)
Investing activities
Payment for purchase of
acquired businesses (2,286,642) (1,835,356)
Short-term investments (4,830,596) 2,741,435
Note receivable - (200,000)
Purchase of property, equipment
and leasehold improvements (152,298) (169,877)
Increase in licenses and
patents (71,533) (27,182)
(Increase)/decrease in deposits
and other assets (7,940) 38,442
Net cash flows from/(used in)
investing activities (7,349,009) 547,462
Financing activities
Issuance of common stock, net 4,721,069 902,036
Issuance of mandatorily
convertible notes - 939,825
Repurchase and retirement of
common stock - (1,540,000)
Repayments of long-
term debt (74,461) (74,462)
Principal payments under
capital lease obligations (67,811) (25,390)
Net cash flows from financing
activities 4,578,797 202,009
Decrease in cash and cash
equivalents (5,293,348) (751,078)
Cash and cash equivalents at
beginning of period 8,306,752 5,026,745
Cash and cash equivalents at
end of period $3,013,404 $4,275,667
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 40,362 $ 34,261
Non-cash investing and
financing activities:
Issuance of common stock in
business acquisition $ - $ 1,032,309
Issuance of purchased asset
obligation in business
acquisitions $ 1,200,000 200,000
Equipment financed under
capital leases $ 79,992 76,553
</TABLE>
See accompanying notes.
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting
Policies Organization and Business Activity
Cypros Pharmaceutical Corporation (the "Company") is engaged
in
the development and marketing of acute-care, hospital-based
products. It is currently marketing three products, Glofil,
Inulin and Ethamolin and developing two drugs, CPC-111 and
Ceresine (formerly CPC-211), which are in various Phase II
clinical trials for cardiovascular and neurological disorders.
The Company's clinical and pre-clinical development programs
focus on cytoprotective drugs designed to reduce ischemia (low
blood flow) induced tissue damage in acute-care settings.
On November 4, 1996, the Company acquired the New Drug
Application, the U.S. trademark for Ethamolin Injection (the
"Ethamolin Assets") and the finished goods inventory on hand at
closing from Schwarz Pharma, Inc., a Delaware corporation. The
acquisition was accounted for using the purchase method. The
total purchase price was $3,286,642, of which the Company paid
$2,086,642 in cash and issued a $1,200,000 note (the "Schwarz
Note") bearing interest at 8% per annum at closing. The
principal and accrued interest on the Schwarz Note are due and
payable on November 3, 1997. Repayment of the principal and
interest on the Schwarz Note is secured by the Ethamolin
Assets. The Company used its working capital to make the cash
payment at closing.
Basis of Presentation
The unaudited financial statements for the three and nine
months ended April 30, 1997 and 1996 have been prepared on the
same basis as the Company's audited financial statements for
the year ended July 31, 1996 and reflect all adjustments
(consisting only of normal recurring accruals) which are, in
the opinion of management, necessary for the fair presentation
of the results of the interim periods presented. Results for
the interim periods are not necessarily indicative of the
results for the entire year.
For more complete financial information, these financial
statements should be read in conjunction with the audited
financial statements and the related notes thereto for the year
ended July 31, 1996 included in the Company's Annual Report on
Form 10-K/A.
The Company has experienced significant quarterly fluctuations
in operating results and increases in expenses and losses since
inception and it expects these fluctuations, expenses and
losses will continue.
Inventory
Inventory is stated at the lower of cost (first-in, first-out
method) or market and is comprised of raw materials of $5,818
and finished goods of $92,433.
Revenue Recognition
Revenues from product sales of Ethamolin and whole vials of
Glofil and Inulin are recognized upon shipment. Revenues from
Glofil unit sales are recognized upon receipt by the Company of
monthly sales reports from Syncor, the exclusive marketing
agent for Glofil in this form.
Sales are reported net of returns during the period in which
product is shipped. These sales are subsequently adjusted for
discounts on certain pharmaceuticals under contracts with
hospitals and hospital buying groups. For the nine months
ended April 30, 1997, such discounts totalled $34,923.
Net Loss Per Share
Net loss per share is computed using the weighted average
number of common shares outstanding during the periods.
Reclassifications
Certain previously reported amounts have been reclassified to
conform with the 1997 presentation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and disclosures made in the
accompanying notes to the financial statements. Actual results
could differ from those estimates.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Except for the historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties, including statements regarding
the period of time during which the Company's existing capital
resources and income from various sources will be adequate to
satisfy its capital requirements. The Company's actual results
could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include but
are not limited to, those discussed in this section, as well as
in the sections entitled "Business", "Licenses",
"Manufacturing", "Sales and Marketing", "Competition",
"Government Regulation", "Patents and Proprietary Rights"of the
Company's Annual Report (Form 10K/A) for the fiscal year ended
July 31, 1996 and those discussed in the S-3 Registration
Statement (File No. 333-17501) filed with U.S. Securities and
Exchange Commission, as well as those discussed in any
documents incorporated by reference herein or therein.
The Company was founded in 1990, commenced its research and
development activities in 1991, completed an initial public
offering (the "IPO") in November 1992, commenced clinical
trials in December 1994 and acquired two FDA-cleared products,
Glofil and Inulin, in August 1995 and a third FDA-cleared
product, Ethamolin, in November 1996. The Company has sustained
an accumulated deficit of $14,056,897 from inception through
April 30, 1997. As the Company will not have significant
positive net operating cash flow for the next few years and the
Company's sales and marketing, research and development,
clinical testing and regulatory and general and administrative
expenses during these years will be substantial and increasing,
the Company expects to incur increasing losses for the
foreseeable future.
Results of Operations
Three Months Ended April 30, 1997 Versus Three Months Ended
April 30, 1996
During the quarter ended April 30, 1997, the Company reported
sales of $717,658, a 121% increase over the $324,859 reported
in the prior-year period, and a gross profit on sales of
$569,504, a 152% increase over the $225,976 reported in the
prior-year period, both increases resulting principally from
the acquisition of Ethamolin. For this same reason, the gross
margin in the current quarter as a percent of sales was 79%
compared to 70% in
the prior-year period.
For the quarter, the Company sustained a loss of $1,148,667 (or
$.09 per share), compared to a loss of $787,419 (or $.07 per
share) for the prior-year quarter, as expenses increased in all
operating areas, except research and development. Sales and
marketing expense increased by more than 200%, principally due
to the tripling of the field sales force and the hiring of a
product manager during the second quarter, increased travel
expense by sales and marketing personnel and increased
promotional expense. General and administrative expense
increased more than 32%, principally due to the continuation of
the substantial investor relations program begun during the
second quarter and the increased insurance premiums from the
product liability insurance coverage obtained during the second
quarter. Clinical testing and regulatory expense increased more
than 47%, principally due to increased enrollment at the
various sites for the Phase II trials of CPC-111 and Ceresine
and increased usage of consultants to perform clinical
monitoring, data base management and statistical analysis
functions. Depreciation and amortization expense increased by
$141,621, or nearly 93%, $114,788 of which was due to the
amortization of the purchased technology related to the
acquisition of Ethamolin during the current quarter.
During the current quarter, research grant income decreased
100% due to the prior-year quarter receiving income from a
Phase II SBIR grant that was completed in September 1996. The
research and development expense for the quarter includes
expenses incurred in connection with the grant.
In addition, net interest and other income for the current
quarter declined more than 21% principally due to interest
income received in the prior-year quarter from fees and
interest on a loan that the Company made during that quarter
which was subsequently repaid, coupled with interest expense
during the current quarter accruing on the Schwarz Note.
Nine Months Ended April 30, 1997 Versus Nine Months Ended April
30, 1996
During the nine months ended April 30, 1997, the Company
reported sales of $1,672,454, an 85% increase over the $903,577
reported in the prior-year period, principally due to the
acquisition of Ethamolin. Gross profit on sales was $1,284,438,
a 111% increase over the $609,625 reported in the prior-year
period, principally due to the acquisition of Ethamolin and
because the gross profit in the prior-year period was adversely
affected by the recall of a lot of Inulin. As a percent of
sales, the gross margin in the current period was 77% compared
to 67% in the prior-year period. Without the effect of the
recall of the Inulin lot, the gross margin for the prior-year
period would have been 72%.
During the nine months ended April 30, 1997, the Company
sustained a loss of $3,574,665 (or $.30 per share), compared to
a loss of $2,168,359 (or $.19 per share) for the prior-year
period, as expenses increased in all operating areas. Sales
and marketing expense increased more than 237% for the reasons
set forth in the three-month analysis above, plus executive
search fees related to the hiring of the previously-mentioned
sales and marketing personnel. General and administrative
expense increased 57% for the reasons set forth in the three-
month analysis above, in addition to a one-time payment of
$100,000 to a financial advisor in September 1996, the payment
of 1996 and 1997 annual product user fees to the Food and Drug
Administration for Glofil and Inulin and increased rent
(related to leasing the Company's new executive offices).
Clinical testing and regulatory expense
increased by nearly 33% for the reasons set forth in the three
month analysis above. Depreciation and amortization expense
increased by $323,869, or more than 72%, $229,575 of which was
due to the amortization of the purchased technology related to
the acquisition of Ethamolin during the current nine-month
period.
During the current nine-month period, research grant income
declined more than 68% for the reason set forth in the three
month analysis above. The research and development expense for
the current nine-month period includes expenses incurred in
connection with the SBIR grants.
Liquidity and Capital Resources
The Company has principally funded its activities to date
through its initial public offering ("IPO") in November 1992,
which raised net proceeds of $5,951,000, subsequent exercises
of its Redeemable Class A Warrants in 1994 and early 1995,
which raised net proceeds of $10,497,000, exercises by the
underwriter of the IPO of its unit purchase options (and the
Redeemable Class A Warrants within such options), which raised
net proceeds of $1,681,000, three private placements of
mandatorily convertible notes during April and July 1996, which
raised net proceeds of $7,464,000 (the "Notes") and a private
placement of Common Stock to the President and Fellows of
Harvard College and another institutional investor during March
1997, which raised net proceeds of $4,714,000.
During the current quarter, $3,326,938 in principal amount of
the Notes was converted into 769,849 shares of Common Stock,
no par value, of the Company.
At April 30, 1997, the Company had cash, cash equivalents and
short-term investments of $15,534,297 compared to $15,997,049
at July 31, 1996. At April 30, 1997, working capital was
$14,020,580, compared to $15,384,449 at July 31, 1996.
The Company expects that its cash needs will increase
significantly in future periods due to expansion of research
and development programs, increased clinical testing activity,
growth of administrative, clinical and laboratory staff and
expansion of facilities to accommodate increased numbers of
employees. The Company's management believes that the Company's
working capital will be sufficient to fund the operations of
the Company for more than two years dependent, in part, on the
timing of the commencement of each phase of the clinical trials
on CPC-111 and Ceresine and the funding priorities that it
gives its various research programs, the results of clinical
tests and research programs; competing technological and market
developments; the time and costs involved in obtaining
regulatory approvals and in obtaining, maintaining and
enforcing patents; the cost of product acquisitions and their
resulting cash flows and other factors.
The Company is funding a significant portion of its operating
expenses through cash flow from product sales, but expects to
seek additional funds through exercises of its currently
outstanding options and warrants, public or private equity
financings, collaborations or from other sources. There can be
no assurance that additional funds can be obtained on desirable
terms or at all. The Company may seek to raise additional
capital whenever conditions in the financial markets are
favorable, even if the Company does not have an immediate need
for additional cash at that time.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Carlsbad, County of
San Diego, State of California, on the 12th day of June, 1997.
CYPROS PHARMACEUTICAL CORPORATION
By /s/Paul J. Marangos
- ----------------------------
Paul J. Marangos
Chairman of the Board,
President and Chief Executive Officer
By /s/ David W. Nassif
- ----------------------------
Vice President, Chief Financial Officer
and Secretary
(Principal Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> APR-30-1997
<CASH> 3,013,404
<SECURITIES> 12,520,893
<RECEIVABLES> 425,831
<ALLOWANCES> 0
<INVENTORY> 98,251
<CURRENT-ASSETS> 16,182,632
<PP&E> 1,120,414
<DEPRECIATION> (463,795)
<TOTAL-ASSETS> 22,411,458
<CURRENT-LIABILITIES> 2,162,052
<BONDS> 0
0
0
<COMMON> 29,758,707
<OTHER-SE> (9,813,076)
<TOTAL-LIABILITY-AND-EQUITY> 22,411,458
<SALES> 1,672,454
<TOTAL-REVENUES> 2,363,504
<CGS> 388,016
<TOTAL-COSTS> 388,016
<OTHER-EXPENSES> 5,461,792
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,362
<INCOME-PRETAX> (3,574,665)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,574,665)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,574,665)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> 0
</TABLE>
