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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(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, 2000,
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
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QUESTCOR PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
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CALIFORNIA 33-0476164
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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26118 RESEARCH ROAD
HAYWARD, CA 94545
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 732-5551
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter prior 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 [ ]
At April 20, 2000 there were 24,747,648 shares of the Registrant's common
stock, no par value, outstanding.
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QUESTCOR PHARMACEUTICALS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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PAGE
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Item 1 Financial Statements and Notes (Unaudited)..................
Consolidated Balance Sheets -- March 31, 2000 and December
31, 1999.................................................... 3
Consolidated Statements of Operations for the three months
ended March 31, 2000 and April 30, 1999..................... 4
Consolidated Statement of Cash Flows - for three months
ended March 31, 2000 and April 30, 1999..................... 5
Notes to Consolidated Financial Statements.................. 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3 Quantitative and Qualitative Disclosures about Market
Risk........................................................ 11
PART II. OTHER INFORMATION
Item 1 Legal Proceedings........................................... 12
Item 2 Changes in Securities and Use of Proceeds................... 12
Item 3 Defaults upon Senior Securities............................. 12
Item 4 Other Information........................................... 12
Item 5 Exhibits and Reports -- Form 8-K............................ 12
Signatures.................................................. 13
</TABLE>
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QUESTCOR PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
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<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (NOTE 1)
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Current assets:
Cash and cash equivalents................................. $ 9,739 $ 10,912
Short-term investments.................................... 8,415 10,787
Accounts receivable, net of allowance for doubtful
accounts of $200 at March 31, 2000 and $30 at December
31, 1999............................................... 191 1,889
Inventories............................................... 171 176
Prepaid expenses and other current assets................. 555 412
-------- --------
Total current assets.............................. 19,071 24,176
Property and equipment...................................... 2,690 2,852
Goodwill and other intangibles, net......................... 4,655 5,029
Other assets................................................ 406 164
-------- --------
Total assets...................................... $ 26,822 $ 32,221
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,210 $ 2,444
Accrued compensation...................................... 423 1,682
Deferred revenue.......................................... -- 167
Accrued development costs................................. 2,911 1,579
Other accrued liabilities................................. 43 415
Current portion of long-term debt......................... 357 348
Current portion of capital lease obligations.............. 249 240
-------- --------
Total current liabilities......................... 6,193 6,875
Long-term debt.............................................. 5,800 5,893
Capital lease obligations................................... 123 185
Other non-current liabilities............................... 613 561
Commitments
Stockholders' equity:
Preferred stock, no par value, 7,500,000 shares authorized
at March 31, 2000 and December 31, 1999, 2,155,715
Series A shares issued and outstanding at March 31,
2000 and December 31, 1999, (aggregate liquidation of
$10,000 at March 31, 2000 and December 31, 1999)....... 5,081 5,081
Common stock, no par value, 75,000,000 shares authorized
at March 31, 2000 and December 31, 1999; 24,747,648 and
24,470,068 shares issued and outstanding at March 31,
2000 and December 31, 1999 respectively................ 66,065 65,423
Deferred compensation..................................... (74) (53)
Accumulated deficit....................................... (56,975) (51,724)
Accumulated other comprehensive loss...................... (4) (20)
-------- --------
Total stockholders' equity........................ 14,093 18,707
-------- --------
Total liabilities and stockholders' equity........ $ 26,822 $ 32,221
======== ========
</TABLE>
See accompanying notes.
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QUESTCOR PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
MARCH 31, 2000 APRIL 30, 1999
-------------- --------------
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Revenue:
Net product sales......................................... $ 520 $ 606
Contract research revenue................................. 166 --
Royalty revenue........................................... 12 --
------- -------
Total revenues.................................... 698 606
Operating costs and expenses:
Cost of product sales..................................... 586 169
Sales and marketing....................................... 511 365
General and administrative................................ 1,541 491
Product development....................................... 2,065 645
Discovery research........................................ 820 511
Depreciation and amortization............................. 536 323
------- -------
Total operating costs and expenses................ 6,059 2,504
------- -------
Loss from operations........................................ (5,361) (1,898)
Interest and other income, net.............................. 58 129
Rental income, net.......................................... 52 21
------- -------
Net loss.................................................... $(5,251) $(1,748)
======= =======
Net loss per common share:
Basic and diluted........................................... $ (0.21) $ (0.11)
======= =======
Weighted average shares of common stock outstanding......... 24,590 15,712
======= =======
</TABLE>
See accompanying notes.
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QUESTCOR PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
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<CAPTION>
THREE MONTHS ENDED
--------------------------------
MARCH 31, 2000 APRIL 30, 1999
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OPERATING ACTIVITIES
Net loss.................................................... $(5,251) $(1,748)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred compensation..................... 13 10
Depreciation and amortization............................. 543 334
Deferred rent expense..................................... 52 16
Loss (gain) on the sale of equipment...................... 21 --
Changes in operating assets and liabilities, net of effects
from acquisitions:
Accounts receivable....................................... 1,698 121
Inventories............................................... 5 2
Prepaid expenses and other current assets................. (143) 53
Accounts payable.......................................... (234) 69
Accrued compensation...................................... (1,259) --
Deferred revenue.......................................... (167) --
Accrued development costs................................. 1,332 --
Other accrued liabilities................................. (372) 55
------- -------
Net cash flows used in operating activities................. (3,762) (1,088)
------- -------
INVESTING ACTIVITIES
Purchase of short-term investments.......................... -- (3,328)
Proceeds from the maturity of short-term investments........ 2,388 4,651
Purchase of property, equipment and leasehold
improvements.............................................. (28) (255)
(Increase) Decrease in other assets......................... (242) 2
------- -------
Net cash flows provided by (used in) investing activities... 2,118 1,070
------- -------
FINANCING ACTIVITIES
Issuance of common stock, net............................... 608 --
Repayment of long-term debt................................. (84) 1
Repayments of capital leases/obligations.................... (53) (28)
------- -------
Net cash flows (used in) provided by financing activities... 471 (27)
------- -------
Increase (decrease) in cash and cash equivalents............ (1,173) (45)
Cash and cash equivalents at beginning of period............ 10,912 3,016
------- -------
Cash and cash equivalents at end of period.................. $ 9,739 $ 2,971
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 169 $ 11
======= =======
</TABLE>
See accompanying notes.
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QUESTCOR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Questcor
Pharmaceuticals, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles and applicable Securities and Exchange
Commission regulations for interim financial information. These financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. The
unaudited financial statements are intended to be read in conjunction with the
audited financial statements and footnotes thereto for the year ended December
31, 1999, contained in the Company's Annual Report filed on Form 10-K with the
Securities and Exchange Commission on March 30, 2000. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for fair presentation of interim financial information have
been included. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
In conjunction with the November 1999 acquisition of RiboGene, Inc.
("RiboGene"), the Company changed its fiscal year end from July 31 to December
31. As a result, the 1999 statement of operations and statement of cash flows
have been presented for the three months ended April 30, 1999. Additionally,
certain previously reported amounts have been reclassified to conform with 2000
presentation.
2. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers highly liquid investments with maturities from the
date of purchase of three months or less to be cash equivalents. The Company
determines the appropriate classifications of investment securities at the time
of purchase and reaffirms such designation as of each balance sheet date. The
Company had previously classified certain of its investments in marketable
securities as held to maturity. Upon the merger with RiboGene, the Company
re-evaluated its classification policy and changed the classification of
securities to be available-for-sale. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses, if any, reported in
accumulated other comprehensive loss, a separate component of stockholders'
equity. The Company's comprehensive loss for the three months ended March 31,
2000 and 1999, respectively, approximated the Company's net loss.
Held-to-maturity investments were carried at cost, adjusted for amortization of
premiums and accretion of dividends. The cost of securities sold is based on the
specific identification method. Realized gains and losses, if any, are included
in the statement of operations, in interest and other income, net.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and are comprised of raw materials of $103,000 and finished goods of
$68,000.
4. RECENTLY -- ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board Issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
has determined that adoption of SFAS 133, which will be effective for the year
ending December 2001, will have no impact on its financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition", which
provides guidance on the recognition, presentation and disclosure in the
financial statements files with the SEC. SAB 101 outlines the basic criteria
that must be met
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QUESTCOR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
to recognize revenue and provides guidance for disclosures related to revenue
recognition policies. Management believes that the Company's revenue recognition
policy is in compliance with the provisions of SAB 101 and the impact of SAB 101
will have no material affect on its financial position or results of operations.
5. NOTES PAYABLE
In December 1998, RiboGene received $5.0 million in proceeds from the
issuance of a long-term note payable to a bank. The note required monthly
interest-only payments at prime plus 1%. The rate at March 31, 2000 was 9.75%.
The principal is due at the end of the three-year term. The loan is
collateralized by a perfected security interest in all the unencumbered assets
of the Company and requires that the Company maintain its depository accounts
with the bank with a minimum of $5.0 million in aggregate cash and depository
balances. The Company is also required to comply with financial covenants based
on certain ratios. At March 31, 2000, the Company was in compliance with all
required covenants.
6. NET LOSS PER SHARE
Under SFAS No. 128, Earnings Per Share, basic and diluted loss per share is
based on net loss for the relevant period, divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share gives effect to all potential dilutive common shares outstanding during
the period such as options, warrants, convertible preferred stock, and
contingently issuable shares. Diluted net loss per share has not been presented
separately as, due to the Company's net loss position, it is anti-dilutive. Had
the Company been in a net income position at March 31, 2000, shares used in
calculating diluted earnings per share would have included the dilutive effect
of an additional 5,322,329 stock options, 2,155,715 preferred shares, placement
unit options for 986,898 shares and 977,207 warrants.
7. STOCK OPTIONS AND WARRANTS
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to account for stock options and purchase rights granted to employees using the
intrinsic value method and, accordingly, does not recognize compensation expense
for options and purchase rights granted to employees with exercise prices which
are not less than fair value of the underlying common stock.
For equity awards to non-employees, including lenders and lessors, the
Company applies the Black-Scholes method to determine the fair value of such
instruments. The value of these awards is periodically revalued over their
vesting term and recognized as expense over the period of services received or
the term of the related financing.
8. COLLABORATION AGREEMENTS
In January 1998, RiboGene entered into a collaboration with Dainippon for
two of its targets in the antibacterial program. As part of the collaboration,
Dainippon agreed to provide research support payments over three years, and fund
additional research and development at Dainippon.
In January 2000, the Company amended its existing agreement with Dainippon.
In exchange for a $2.0 million cash payment and potential future milestone and
royalty payments, the Company granted an exclusive, world-wide license to
Dainippon to use the Company's ppGpp Degradase and Peptide Deformylase
technology for the research, development and commercialization of pharmaceutical
products. The Company has retained the right to co-promote, in Europe and the
United States, certain products resulting from the arrangement. The Company will
be entitled to receive milestone payments upon the achievement of clinical and
regulatory milestones in the amount of $5.0 million in Japan and $5.0 million in
one other major market.
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QUESTCOR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Additionally, the Company will receive a royalty on net sales that will range
from 5% to 10%, depending on sales volume and territory. The original agreement
anticipated a third year of research collaboration between the two firms.
However, both companies agreed to terminate the antibacterial research
collaboration that was established in January 1998. Hence, all drug discovery
efforts of the Company will cease and will be assumed by Dainippon in Osaka,
Japan.
9. LEGAL PROCEEDINGS
In July 1998, the Company was served with a complaint in the United States
Bankruptcy Court for the Southern District of New York by the Trustee for the
liquidation of the business of A.R. Baron & Co., Inc. ("A.R. Baron") and the
Trustee of The Baron Group, Inc. (the "Baron Group"), the parent of A.R. Baron.
The complaint alleges that A.R. Baron and the Baron Group made certain
preferential or fraudulent transfers of funds to the Company prior to the
commencement of bankruptcy proceedings involving A.R. Baron and the Baron Group.
The Trustee is seeking return of the funds totaling $3.2 million. The Company
believes that the Trustee's claims are unfounded and is contesting the
allegations in the complaint vigorously. The Company contends that the transfers
challenged by the Trustee related to (i) the exercise by A.R. Baron in 1995 of
unit purchase options issued to it in 1992 as part of its negotiated
compensation for underwriting the Company's initial public offering and (ii) the
repayment by the Baron Group of the principal and interest (at 12% per annum)
payments and certain loan extension fees related to certain collateralized loans
made to it by the Company in 1995 and 1996 were appropriate and correct. The
ultimate outcome of these matters is uncertain.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Note: Except for the historical information contained herein, this press
release contains forward-looking statements that involve risks and
uncertainties. Such statements are subject to certain factors, which may cause
the Company's results to differ. Factors that may cause such differences
include, but are not limited to, the Company's need for additional funding,
uncertainties regarding the company's intellectual property and other research,
development, marketing and regulatory risks, and, the ability of the Company to
implement its strategy and acquire products and, if acquired, to market them
successfully as well as the risks discussed in Questcor's transition report on
Form 10-K for the fiscal year ended December 31, 1999 and the Risk Factor
section of Cypros' Registration Statement on form S-4 (No. 333-87611),
RiboGene's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 and other documents filed with the Securities and Exchange Commission. The
risk factors and other information contained in these documents should be
considered in evaluating Questcor's prospects and future financial performance.
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, acquired two FDA-cleared
products, Glofil and Inulin, in August 1995, acquired a third FDA-cleared
product, Ethamolin(R), in November 1996, and acquired the Dermaflo(TM) topical
burn/wound care technology and two FDA-cleared products, Neoflo(TM) and
Sildaflo(TM), in November 1997. On November 17, 1999, Cypros changed its name to
Questcor Pharmaceuticals, Inc. after completing the acquisition of RiboGene,
Inc. The Company has sustained an accumulated deficit of $57 million from
inception through March 31, 2000. As the Company will not have positive net
operating cash flow for the next few years and the Company's cost of product
sales, sales and marketing, product development 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 may vary significantly from quarter to quarter depending on, among
other factors, the results of the Company's clinical testing, the timing of
certain expenses, the establishment of strategic alliances and corporate
partnering.
In conjunction with the November 1999 acquisition of RiboGene, Inc.
("RiboGene"), the Company changed its fiscal year end from July 31 to December
31. As a result, the 1999 statement of operations and statement of cash flows
have been presented for the three months ended April 30, 1999. Additionally,
certain previously reported amounts have been reclassified to conform with 2000
presentation.
RESULTS OF OPERATIONS
Three months ended March 31, 2000 compared to the three months ended April
30, 1999
During the first quarter ended March 31, 2000, the Company incurred a loss
of $5.3 million (or $0.21 per share) compared to a loss of $1.7 million (or
$0.11 per share) for the quarter ended April 30, 1999. During the current
quarter, the Company reported revenues of $698,000, a 15% increase over the
$606,000 reported in the comparable period in the prior year, principally due to
increases in sales of our rolled padded stock of NeoFlo(TM) and contract
research revenue earned from the Dainippon research agreement. This increase was
partially offset by declines in Ethamolin(R) and Inulin sales volumes.
Ethamolin(R) sales declines were a result of wholesale stocking during previous
periods and competition from certain medical devices in the Ethamolin(R) market.
Sales of Inulin declined as a result of production delays at the Company's
contract manufacturer. The Company's management is aggressively seeking
solutions to remedy the manufacturing delays and the decline in the supply of
Inulin and the shortfall of Ethamolin(R) sales.
Cost of product sales increased 247% to $586,000 during the quarter ended
March 31, 2000 from $169,000 in the comparable 1999 quarter. The increase in the
cost results from the production of the Company's topical triple antibiotic
rolled padded stock. Management anticipates that the gross margin for this
product will improve as production levels increase.
Sales and marketing expense increased 40% to $511,000 during the quarter
ended March 31, 2000 from $365,000 in the comparable quarter ended April 30,
1999. The increase is principally due to an increase in
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salary and recruiting costs associated with the expansion of the sales force and
expenses for sales and marketing materials.
General and administrative expense increased 214% to $1.5 million during
the quarter ended March 31, 2000 from $491,000 in the comparable quarter ended
April 30, 1999. This increase was principally due to: an overall increase in
management compensation that resulted from the expansion and restructuring of
the Company's management team; merger related expenses associated with the
consolidation of the Company's corporate offices and combination of
administration functions; and bad debt expense associated with the bankruptcy
filing under Chapter 11 of the U.S. Bankruptcy Code by one of the Company's
major customers. To a lesser extent, public relations and insurance costs also
increased during the quarter ended March 31, 2000.
Product development increased 220% to $2.1 million during the quarter ended
March 31, 2000 from $645,000 in the comparable quarter ended April 30, 1999, due
to the increased costs associated with the development of Emitasol(R). There
were no costs associated with Emitasol(R) during the quarter ended April 30,
1999, because Emitasol(R) was acquired in the RiboGene merger.
Discovery research increased to 61% to $820,000 during the quarter ended
March 31, 2000 from $511,000 in the comparable quarter ending April 30, 1999,
due to research costs associated with drug discovery programs acquired in the
RiboGene merger. Subsequent to the merger with RiboGene, the Company implemented
a strategy to focus on approved pharmaceutical products and late stage drug
development candidates, as a result, the Company discontinued its drug discovery
programs in the first quarter of 2000. It is anticipated that drug discovery
costs will decline significantly in the future and that in-house drug discovery
research expenses will be limited to legal, patents and other costs to license
such programs.
Depreciation and amortization increased 66% to $536,000 during the quarter
ended March 31, 2000 from $323,000 in the comparable quarter ended April 30,
1999, due to the additional tangible and intangible assets acquired in the
RiboGene merger.
In addition, net interest, net rental and other income decreased 27% to
$110,000 during the quarter ended March 31, 2000 from $150,000 in the comparable
quarter ended April 30, 1999. This increase was principally due to interest
expenses relating to notes payable and capital leases acquired in the RiboGene
merger.
LIQUIDITY AND CAPITAL RESOURCES
The Company has principally funded its activities to date through various
issuances of equity securities, which have raised total net proceeds of $35
million, as well as product sales.
At March 31, 2000, the Company had cash, cash equivalents and short-term
investments of $18.1 million compared to $21.7 million at December 31, 1999. At
March 31, 2000, working capital was $13.0 million, compared to $17.3 million at
December 31, 1999. The decrease in both balance sheet items was principally due
to the loss from operations for the current quarter and payments for accrued
restructuring costs resulting from the acquisition of RiboGene, Inc.
As a result of the merger with RiboGene, the Company assumed $5.0 million
of long-term debt financing with a bank. The note requires monthly interest
payments, at prime plus 1% (9.5% at December 31, 1999), with the principal
payment due at the end of the three-year term. The note is collateralized by a
perfected security interest in all unencumbered assets of the Company and
requires that the Company maintain its depository balances. The Company is also
required to comply with financial covenants based on certain ratios.
During the quarter ended March 31, 2000, the Company implemented a strategy
to focus on approved pharmaceutical products and late stage drug development
candidates, as a result, the Company discontinued all drug discovery programs
and intends to out-license its early stage drug targets and technology. In
January 2000, the Company agreed to out-license exclusive rights to certain
aspects of the Company's proprietary drug research technology to Dainippon
Pharmaceutical Co., Ltd. Osaka, Japan. In exchange for a $2 million cash payment
and potential future milestone and royalty payments, the Company granted an
exclusive, worldwide license to Dainippon to use the Company's ppGpp Degradase
and Peptide Deformylase technology for the
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research, development and commercialization of pharmaceutical products. The
Company retained the right to co-promote, in Europe and the United States,
certain products resulting from the arrangement. The Company will be entitled to
receive milestone payments upon the achievement of clinical and regulatory
milestones in the amount of $5.0 million in Japan and $5.0 million in one other
major market. Additionally, the Company will receive royalties on net sales that
will range from 5% to 10%, depending on sales volume and territory.
The Company anticipates that future in-house drug discovery research
expenses associated with drug discovery will be limited to legal, patents and
other costs to license such programs. Discovery research costs totaled $820,000
for the quarter ended March 31, 2000.
The Company's employees, former employees and consultants exercised stock
options that resulted in $608,000 of additional capital.
In May 2000, one of the Company's major customers, NutraMax Products Inc.
("NutraMax) filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy
Code. The Company has a multi-year marketing and joint venture agreement with
NutraMax Products, Inc. under which the Company is supplying its proprietary
triple antibiotic product using the Dermaflo(TM) technology to NutraMax for
conversion and sale in the form of adhesive strips and patches. NutraMax has the
exclusive right to sell the finished products to the retail and industrial first
aid markets. Further, the agreement calls for the Company and NutraMax to
jointly develop several new products using the Dermaflo(TM) technology and to
share the development expense and profits from future sales. The Company began
shipping the products to NutraMax in March 1999. Net sales to NutraMax totaled
$167,000 for the year ended July 31, 1999, $35,000 for the five months ended
December 31, 1999, and $226,000 for the three months ended March 31, 2000,
representing 7%, 6% and 32% of total sales, respectively.
It is anticipated that the NutraMax reorganization will have an impact on
the Company's future sales and cash flow, the extent of which, will depend on
the outcome of the NutraMax reorganization and/or the Company's success in
identifying alternative customers for the product.
The Company expects that its cash needs will increase significantly in
future periods due to 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 into the first quarter of 2001. However, there can be no assurance
that the Company will not require additional funding prior to such time. The
Company's future funding requirements will depend on many factors, including,
any expansion or acceleration of the Company's development programs; the results
of preclinical studies and clinical trials conducted by the Company or its
collaborative partners or licenses, if any; the acquisition and licensing of
products, technologies or compounds, if any; the Company's ability to manage
growth; competing technological and market developments; time out costs involved
in filing, prosecuting, defending and enforcing patent and intellectual property
claims; the receipt of licensing milestone fees from current or future
collaborative and license agreements, if established; the timing of regulatory
approvals and other factors.
The Company is funding a portion of its operating expenses through cash
flow from product sales, but expects to seek additional funds through 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk at March 31, 2000 has not changed
materially from December 31, 1999, and reference is made to the more detailed
disclosures of market risk included in the Company's 1999 Form 10-K as filed
with the Securities and Exchange Commission on March 30, 2000.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. OTHER INFORMATION
Not applicable
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
None
12
<PAGE> 13
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 hereunto duly authorized.
RIBOGENE, INC.
Date: May 11, 2000 By: /s/ CHARLES J. CASAMENTO
------------------------------------
Charles J. Casamento
Chairman, President & CEO
By: /s/ HANS P. SCHMID
------------------------------------
Hans P. Schmid
Principal Financial and Chief
Accounting Officer
Date: May 11, 2000
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,739
<SECURITIES> 8,415
<RECEIVABLES> 191
<ALLOWANCES> 0
<INVENTORY> 171
<CURRENT-ASSETS> 19,071
<PP&E> 4,065
<DEPRECIATION> (1,375)
<TOTAL-ASSETS> 26,822
<CURRENT-LIABILITIES> 6,193
<BONDS> 6,639
0
5,081
<COMMON> 66,065
<OTHER-SE> (56,979)
<TOTAL-LIABILITY-AND-EQUITY> 26,822
<SALES> 520
<TOTAL-REVENUES> 698
<CGS> 586
<TOTAL-COSTS> 586
<OTHER-EXPENSES> 6,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 194
<INCOME-PRETAX> (5,251)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,251)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,251)
<EPS-BASIC> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
