<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 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 0-28386
CELL THERAPEUTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Washington 91-1533912
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
201 Elliott Avenue West, Suite 400, 98119
Seattle, Washington (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(206) 282-7100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check [x] 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 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:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT APRIL 15, 1997
----- -----------------------------
<S> <C>
Common Stock, no par value (including asso-
ciated Preferred Stock Purchase Rights).... 13,028,377
</TABLE>
This report on Form 10-Q, including all exhibits, contains 15 pages.
The exhibit index is located on page 14.
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<PAGE>
CELL THERAPEUTICS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets -- March 31, 1997 and December 31, 3
1996............................................................
Consolidated Statements of Operations -- Three months ended
March 31, 1997 and 1996 and the period from September 4, 1991
(date of incorporation) to March 31, 1997....................... 4
Consolidated Statements of Cash Flows -- Three months ended
March 31, 1997 and 1996 and the period from September 4, 1991
(date of incorporation) to March 31, 1997....................... 5
Notes to Financial Statements................................... 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 7
PART II OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES .......................................... 11
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 11
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K................................ 11
SIGNATURES...................................................... 13
EXHIBIT INDEX................................................... 14
</TABLE>
2
<PAGE>
PART I
ITEM 1 FINANCIAL STATEMENTS
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents........................ $ 34,054,341 $ 5,483,515
Securities available-for-sale.................... 22,066,947 25,503,049
Prepaid expenses and other current assets........ 261,861 256,892
------------ ------------
Total current assets............................... 56,383,149 31,243,456
Property and equipment, net........................ 5,361,946 5,117,936
Notes receivable from officers, less current por-
tion.............................................. 174,232 172,698
Other assets....................................... 105,532 467,603
------------ ------------
Total assets....................................... $ 62,024,859 $ 37,001,693
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 715,152 $ 651,130
Accrued expenses................................. 3,373,155 3,065,297
Current portion of long-term obligations......... 1,237,921 1,226,971
Deferred revenue from collaboration agreement.... 718,573 --
------------ ------------
Total current liabilities.......................... 6,044,801 4,943,398
Long-term obligations, less current portion........ 1,703,225 2,004,575
Commitments........................................ -- --
Shareholders' equity:
Preferred Stock:
Authorized shares--10,000,000:
Series A Convertible Preferred Stock, no par
value:
Designated shares--146,193.272 at March 31,
1997 and December 31, 1996
Issued and outstanding shares--0 and
146,193.272 at March 31, 1997 and December
31, 1996, respectively (liquidation
preference $335 aggregating $0 at March 31,
1997 and $48,974,746 at December 31, 1996).. -- 47,366,204
Series B Convertible Preferred Stock, no par
value:
Designated shares--14,925.373 at March 31,
1997 and December 31, 1996
Issued and outstanding shares--0 and
14,925.373 at March 31, 1997 and December
31, 1996, respectively (liquidation
preference $335 per share aggregating $0 at
March 31, 1997 and $5,000,000 at December
31, 1996)................................... -- 4,960,000
Series C Preferred Stock, no par value:
Designated shares--100,000
No shares issued and outstanding (liquidation
preference $1,000 per share)................ -- --
Common Stock, no par value:
Authorized shares--100,000,000
Issued and outstanding shares--13,028,377 and
4,943,472 at March 31, 1997 and
December 31, 1996, respectively............... 133,995,048 51,810,160
Deficit accumulated during development stage..... (79,718,215) (74,082,644)
------------ ------------
Total shareholders' equity......................... 54,276,833 30,053,720
------------ ------------
Total liabilities and shareholders' equity......... $ 62,024,859 $ 37,001,693
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 4,
THREE MONTHS ENDED 1991 (DATE OF
MARCH 31, INCORPORATION)
------------------------ TO MARCH 31,
1997 1996 1997
----------- ----------- --------------
<S> <C> <C> <C>
Revenues:
Collaboration agreements............ $ 2,000,920 $ 3,000,000 $ 11,221,726
Operating expenses:
Research and development............ 5,828,445 3,321,993 66,699,096
General and administrative.......... 2,076,105 2,036,503 26,819,384
----------- ----------- ------------
7,904,550 5,358,496 93,518,480
----------- ----------- ------------
Loss from operations.................. (5,903,630) (2,358,496) (82,296,754)
Other income (expense):
Investment income................... 373,924 300,003 4,347,683
Interest expense.................... (109,062) (135,919) (1,761,524)
----------- ----------- ------------
Net loss.............................. $(5,638,768) $(2,194,412) $(79,710,595)
=========== =========== ============
Net loss per share.................... $ (1.06) $ (0.44)
=========== ===========
Shares used in computation of net loss
per share............................. 5,302,804 4,933,744
=========== ===========
Pro forma:
Net loss per share.................. $ (0.57) $ (0.28)
=========== ===========
Shares used in computation of net
loss per share...................... 9,875,044 7,768,293
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 4,
THREE MONTHS ENDED 1991 (DATE OF
MARCH 31, INCORPORATION)
------------------------ TO MARCH 31,
1997 1996 1997
----------- ----------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................. $(5,638,768) $(2,194,412) $(79,710,595)
Adjustments to reconcile net loss to
net cash used in operating activi-
ties:
Depreciation and amortization........ 404,880 408,188 6,866,141
Noncash compensation expense......... 51,474 -- 51,474
Noncash research and development ex-
pense............................... -- -- 1,155,750
Noncash interest expense............. -- -- 25,918
Noncash rent expense................. 18,527 8,349 512,815
Investment premium amortization...... (31,242) 27,877 490,819
Changes in assets and liabilities:
Prepaid expenses..................... (4,969) (41,583) (261,861)
Notes receivable from officers....... (1,534) (2,676) (174,232)
Other assets......................... 357,935 (19,961) (220,893)
Accounts payable..................... 64,022 (518,358) 715,152
Accrued expenses..................... 307,858 446,898 3,373,155
Deferred revenue from collaboration
agreement........................... 718,573 -- 718,573
----------- ----------- ------------
Total adjustments.................. 1,885,524 308,734 13,252,811
----------- ----------- ------------
Net cash used in operating activi-
ties.............................. (3,753,244) (1,885,678) (66,457,784)
----------- ----------- ------------
INVESTING ACTIVITIES
Purchases of securities available-
for-sale............................ (979,396) (2,823,296) (77,005,423)
Proceeds from sales of securities
available for-sale.................. 2,449,999 -- 17,340,312
Proceeds from maturities of securi-
ties available-for-sale............. 1,999,938 3,974,000 37,099,725
Purchase of property and equipment... (659,902) (398,752) (11,994,838)
Dispositions of property and equip-
ment................................ 15,148 -- 166,617
----------- ----------- ------------
Net cash provided by (used in) in-
vesting activities................ 2,825,787 751,952 (34,393,607)
FINANCING ACTIVITIES
Sales of common stock to founders.... -- -- 80,000
Proceeds from borrowings from stock-
holder.............................. -- -- 850,000
Sale of common stock via initial pub-
lic offering,
net of offering costs............... 26,807,176 -- 26,807,176
Sale of Series A Preferred Stock via
private placement, net of offering
costs............................... -- -- 47,366,204
Sale of Series B Preferred Stock via
private placement, net of offering
costs............................... -- -- 4,960,000
Sale of common stock via private
placements, net of offering costs... 3,000,000 -- 52,307,084
Repurchase of common stock........... -- -- (2,522)
Proceeds from common stock options
exercised........................... 34 20,910 80,794
Proceeds from common stock warrants
exercised........................... -- -- 305,558
Repayment of long-term obligations... (308,927) (194,565) (8,780,196)
Proceeds from the issuance of long-
term obligations.................... -- -- 10,931,634
----------- ----------- ------------
Net cash provided by (used in) fi-
nancing activities................ 29,498,283 (173,655) 134,905,732
----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents.................. 28,570,826 (1,307,381) 34,054,341
Cash and cash equivalents at begin-
ning of period.................... 5,483,515 6,931,592 --
----------- ----------- ------------
Cash and cash equivalents at end of
period............................ $34,054,341 $ 5,624,211 $ 34,054,341
=========== =========== ============
Supplemental schedule of noncash in-
vesting and financing activities:
Acquisition of equipment pursuant to
capital lease obligations........... $ 133,166 $ 85,532 $ 495,591
=========== =========== ============
Conversion of convertible debt and
related accrued interest into common
stock............................... $ -- $ -- $ 875,918
=========== =========== ============
Supplemental disclosure of cash flow
information:
Cash paid during the period for in-
terest.............................. $ 109,062 $ 137,856 $ 1,735,012
=========== =========== ============
</TABLE>
See accompanying notes.
5
<PAGE>
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial information of Cell Therapeutics, Inc.
(the "Company") as of March 31, 1997 and for the three months ended March 31,
1997 and 1996 has been prepared in accordance with the instructions to Form
10-Q. In the opinion of management, such financial information includes all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation of the financial position at such date and
the operating results and cash flows for such periods. Operating results for
the three month period ended March 31, 1997 are not necessarily indicative of
the results that may be expected for the entire year. These financial
statements and the related notes should be read in conjunction with the
Company's audited annual financial statements for the year ended December 31,
1996 included in the Company's Form 10-K for the year ended December 31, 1996.
Certain prior year balances have been reclassified to conform to the current
year presentation.
(2)SIGNIFICANT AGREEMENTS
Under the terms of a collaboration and license agreement with Ortho Biotech,
Inc. and the R.W. Johnson Pharmaceutical Research Institute (a division of
Ortho Pharmaceutical Corporation) each of which are wholly-owned subsidiaries
of Johnson & Johnson (collectively, "Johnson & Johnson") for the joint
development and commercialization of Lisofylline, Johnson & Johnson has
agreed, subject to certain termination rights, to fund up to $12,000,000 of
the Company's budgeted development costs per year for each of 1997 and 1998.
The Company recorded $2,000,920 of collaboration agreement revenues related to
the reimbursement of development expenses by Johnson & Johnson in the first
quarter of 1997.
Under the terms of the collaboration agreement, Johnson & Johnson shall
advance to the Company on January 15 of each calendar year 60% of the budgeted
development expenses for the first quarter of the year. The adjustment to
actual development expense reimbursement for the first quarter, and the
development expense reimbursement payments for the remaining quarters, shall
be made after the close of each calendar quarter. As of March 31, 1997, the
Company had recorded $718,573 of deferred revenue from the collaboration
agreement, which represents amounts advanced by Johnson & Johnson under the
collaboration agreement for which the earnings process has not yet been
completed and revenue has not yet been recognized.
(3)NET LOSS PER SHARE
In February 1997 the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted after December
31, 1997. Statement No. 128 supersedes Accounting Principles Board Opinion No.
15. At that time, the Company will be required to change the method currently
used to calculate net loss per share and to restate prior periods. At March
31, 1997 and 1996 and December 31, 1996, there is no material impact on the
Company's calculations of net loss per share.
The pro forma net loss per share is computed based on net loss per share
adjusted for the assumed conversion of all outstanding shares of convertible
preferred stock into common stock at the time of issuance.
6
<PAGE>
ITEM 2MANAGEMENT'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 WHICH INVOLVE RISKS AND UNCERTAINTIES.
WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES," "ANTICIPATES," "INTENDS,"
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-
LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY
FROM THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW AND IN THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1,
AS AMENDED. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF THIS FORM 10-Q.
THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS FORM 10-Q OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS.
OVERVIEW
Cell Therapeutics, Inc. ("cti or the "Company") focuses on the discovery,
development and commercialization of small molecule drugs for the treatment of
cancer and inflammatory and immune diseases. Since commencement of operations
in 1992, the Company has been engaged in research and development activities,
including conducting preclinical studies and clinical trials, recruiting its
scientific and management personnel, establishing laboratory facilities and
raising capital. The Company has not received any revenue from the sale of
products to date and does not expect to receive revenues from the sale of
products for at least the next several years.
In the fourth quarter of 1995 the Company began to receive revenue under a
collaboration agreement with an affiliate of BioChem Pharma, Inc. ("BioChem
Pharma") and in the fourth quarter of 1996 the Company began to receive
revenue under a collaboration agreement (the "Collaboration Agreement") with
subsidiaries of Johnson & Johnson ("Johnson & Johnson"). The Company expects
that its revenue sources for at least the next several years will consist
primarily of future expense reimbursements and milestone payments under its
collaboration agreements with Johnson & Johnson and BioChem Pharma, and of
interest income. The timing and amounts of such revenues will likely
fluctuate. The Company will be required to conduct significant research,
development and clinical activities during the next several years to fulfill
its obligations under the Collaboration Agreement with Johnson & Johnson.
There can be no assurance that Johnson & Johnson will not terminate the
Collaboration Agreement in accordance with its terms.
As of March 31, 1997, the Company had incurred aggregate net losses of
approximately $79.7 million since its inception. The Company expects to
continue to incur significant additional operating losses over the next
several years as its research, development and clinical trial efforts expand.
Operating losses may fluctuate from quarter to quarter as a result of
differences in the timing of expenses incurred and revenues recognized. To
date, the Company's operations have been funded primarily from the sale of
equity securities, which have raised aggregate net proceeds of approximately
$132.8 million.
On March 26, 1997 the Company completed an initial public offering of 3
million shares of its Common Stock at an offering price of $10.00 per share,
resulting in estimated net proceeds of approximately $26.8 million. Concurrent
with the closing of the offering, the Company sold 300,000 shares of Common
Stock to Johnson & Johnson at a price of $10.00 per share, resulting in net
proceeds of $3.0 million.
7
<PAGE>
RESULTS OF OPERATIONS
Three months ended March 31, 1997 compared with three months ended March 31,
1996.
During the three months ended March 31, 1997, the Company recorded
approximately $2.0 million of revenues for development cost reimbursements
from Johnson & Johnson in connection with the collaboration agreement. During
the three months ended March 31, 1996, the Company received a $3.0 million
signing fee from Schering AG in connection with a collaboration agreement that
was terminated by Schering AG in April, 1996.
Research and development expenses increased to approximately $5.8 million
for the three months ended March 31, 1997 from approximately $3.3 million for
the three months ended March 31, 1996. This increase was primarily due to
expanded manufacturing, preclinical and clinical-related development
activities, including the recruitment of additional personnel, with respect to
Lisofylline. The Company expects that research and development expenses will
increase significantly as the Company expands its research and development
programs and undertakes additional clinical trials, including research,
development and clinical activities undertaken pursuant to the Collaboration
Agreement with Johnson & Johnson.
General and administrative expenses increased slightly to approximately $2.1
million for the three months ended March 31, 1997 from approximately $2.0
million for the three months ended March 31, 1996. This increase was primarily
due to operating expenses associated with supporting the Company's increased
research, development and clinical activities. General and administrative
expenses are expected to increase to support the Company's expected increase
in research, development and clinical trial efforts.
Investment income principally comprises interest income from investment of
the Company's cash reserves. Interest expense results primarily from the
financing of laboratory and other equipment. Investment income increased to
approximately $374,000 for the three months ended March 31, 1997 from
approximately $300,000 for the three months ended March 31, 1996, reflecting
an increase in average cash balances and interest earned thereon. As the
Company's initial public offering and concurrent sale of Common Stock to
Johnson & Johnson was completed late in the period, the net proceeds therefrom
had little impact on investment income for the three months ended March 31,
1997. Interest expense decreased slightly to approximately $109,000 for the
three months ended March 31, 1997 from approximately $136,000 for the three
months ended March 31, 1996. This decrease was primarily due to decreased
average balances of outstanding long-term obligations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
the sale of equity securities. As of March 31, 1997, the Company had raised
aggregate net proceeds of approximately $132.8 million from such financing
activities, including approximately $26.8 million estimated net proceeds from
the sale of Common Stock in its initial public offering in March 1997 and $3.0
million from the sale of Common Stock to Johnson & Johnson concurrent with the
closing of the Company's initial public offering, $30.5 million and $16.9
million from the sale of Series A Convertible Preferred Stock in 1995 and
1996, respectively, $5.0 million from the sale of Series B Convertible
Preferred Stock to Johnson & Johnson in 1996, $49.3 million from the sale of
Common Stock in 1992 and 1993, $850,000 from a bridge loan which was
subsequently converted to equity, and approximately $400,000 from the exercise
of stock options and warrants. In addition, the Company financed the purchase
of approximately $11.3 million of property and equipment through financing
agreements, of which approximately $2.9 million remained outstanding as of
March 31, 1997.
The Company intends to use the substantial majority of the net proceeds of
its initial public offering and the concurrent Johnson & Johnson stock
purchase to fund its research and development activities with respect to the
Company's Lisofylline and CT-2584 programs, including preclinical testing,
clinical trials and process development activities, and to fund other research
and development activities. The amounts actually expended for research and
development activities and the timing of such expenditures will depend upon
numerous factors,
8
<PAGE>
including the progress of the Company's research and development programs, the
results of preclinical and clinical trials, the timing of regulatory
submissions and approvals, if any, technological advances, determinations as to
the commercial potential of the Company's compounds, and the status and timing
of competitive products. The amount of expenditures will also depend upon the
continued participation of Johnson & Johnson in the Collaboration Agreement,
the timing and availability of alternative methods of financing the Company's
research and development activities and preclinical and clinical trials, and
the establishment of collaborative agreements with other companies. In
addition, the Company's research and development expenditures will vary as
product development programs are added, expanded or discontinued. A variety of
other factors, some of which are beyond the Company's control, could also
affect the application of the proceeds.
The balance of the net proceeds of the Company's initial public offering and
the concurrent Johnson & Johnson stock purchase is expected to be used to
improve facilities, to purchase capital equipment and for general corporate
purposes. The Company has not identified precisely the amount it plans to spend
on these specific programs or the timing of such expenditures. Pending such
uses, the Company intends to invest the net proceeds from its initial public
offering and the concurrent Johnson & Johnson stock purchase in U.S. government
obligations and other highly rated liquid debt instruments. The Company may
also from time to time consider the acquisition of other companies,
technologies or products that complement the business of the Company, although
no agreements or understandings are in effect with respect to any such
transactions at this time.
The Company's principal sources of liquidity are its cash balances, cash
equivalents and securities available-for-sale, which totaled approximately
$56.1 million as of March 31, 1997. The Company invests in U.S. government
obligations and other highly rated liquid debt instruments.
The Company expects that its capital requirements will increase as the
Company expands its research and development programs and undertakes additional
clinical trials. In connection with such expansion, the Company expects to
incur substantial expenditures for hiring additional management, scientific and
administrative personnel, for planned expansion of its facilities, and for the
purchase or lease of additional equipment.
The Company does not expect to generate a positive cash flow from operations
for several years due to substantial additional research and development costs,
including costs related to drug discovery, preclinical testing, clinical
trials, manufacturing costs and operating expenses associated with supporting
such activities. The Company expects that its existing capital resources and
the interest earned thereon, combined with anticipated funding from Johnson &
Johnson under the Collaboration Agreement, will enable the Company to maintain
its current and planned operations at least through the end of 1998. In the
event that Johnson & Johnson were to terminate its participation in the
Collaboration Agreement prior to such date, the Company expects that it would
eliminate certain presently planned development activities. Furthermore, the
Company will need to raise substantial additional capital to fund its
operations beyond such time. The Company's future capital requirements will
depend on, and could increase as a result of, many factors, including the
continuation of the Company's collaboration development programs; the magnitude
of such programs; the progress of preclinical testing and clinical trials; the
time and costs involved in obtaining regulatory approvals; the costs involved
in preparing, filing, prosecuting, maintaining, enforcing and defending patent
claims; competing technological and market developments; changes in
collaborative relationships; the terms of any additional collaborative
arrangements that the Company may enter into; the ability of the Company to
establish research, development and commercialization arrangements pertaining
to products other than those covered by existing collaborative arrangements;
the cost of establishing manufacturing facilities; the cost of
commercialization activities and the demand for the Company's products if and
when approved.
The Company intends to raise additional funds though additional equity or
debt financings, research and development financings, collaborative relations,
or otherwise. Because of these long-term capital requirements, the Company may
seek to access the public or private equity markets from time to time, even if
it does not have an immediate need for additional capital at that time. There
can be no assurance that additional financing will be available to the Company,
or, if available, that it will be on acceptable terms. If additional funds are
raised by issuing equity securities, further dilution to shareholders may
result. If adequate funds are not available, the
9
<PAGE>
Company may be required to delay, reduce the scope of, or eliminate one or more
of its research, development and clinical activities. The Company may also be
required to obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize itself.
As of March 31, 1997, the Company had available for Federal income tax purposes
net operating loss carryforwards of approximately $76 million and research and
development credit carryforwards of approximately $2 million. These
carryforwards begin to expire in 2007. The Company's ability to utilize its net
operating loss and research and development credit carryforwards is subject to
an annual limitation in future periods pursuant to the "change in ownership"
rules under Section 382 of the Internal Revenue Code of 1986.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a number
of risks, some of which are outside of the Company's control. The following
discussion highlights some of these risks and others are discussed elsewhere
herein and in other documents filed by the Company with the Securities and
Exchange Commission.
The time frame for market success for any of the Company's potential products
is long and uncertain. The Company is at an early stage of development and its
technology is unproven. All of the Company's proposed products are in research
or development and will require significant additional research and development
efforts prior to any commercial use, including extensive preclinical and
clinical testing as well as lengthy regulatory approval. There can be no
assurance that the Company's research and development and clinical trial
efforts will be successful, that its lead drug candidate, Lisofylline, or any
of its other proposed products, will prove to be safe and efficacious in
clinical trials or meet applicable regulatory standards, that unforeseen
problems will not develop with the Company's technologies or applications, or
that any commercially successful products will ultimately be developed by the
Company. The Company faces substantial competition from a variety of sources,
both direct and indirect. There can be no assurance that research and
discoveries by others will not render some or all of the Company's programs or
products noncompetitive or obsolete or that the Company will be able to keep
pace with technological developments or other market factors.
The Company is dependent on the future payments from Johnson & Johnson under
the Collaboration Agreement to continue the development and commercialization
of Lisofylline as presently planned. There can be no assurance that Johnson &
Johnson will be able to establish effective sales and distribution capabilities
or will be successful in gaining market acceptance for Lisofylline, that
Johnson & Johnson will devote sufficient resources to the commercialization of
products under the Collaboration Agreement or that Johnson & Johnson will not
terminate the Collaboration Agreement in accordance with its terms. The
Company's products under development have never been manufactured on a
commercial scale and there can be no assurance that such products can be
manufactured at a cost or in quantities necessary to make them commercially
viable. The Company currently has no internal manufacturing facilities and has
no experience in sales, marketing or distribution. If the Company develops any
additional products with commercial potential outside of the Johnson & Johnson
collaboration, it may seek to enter into collaborative arrangements with other
parties which have established manufacturing, sales, marketing and distribution
capabilities or may need to develop such resources on its own.
The foregoing risks reflect the Company's early stage of development and the
nature of the Company's industry and potential products. Other risk factors
that may affect the Company's future results include competition, uncertainties
regarding protection of patents and proprietary rights, government regulation
and uncertainties regarding pharmaceutical pricing and reimbursement.
10
<PAGE>
PART II
ITEM 2 CHANGES IN SECURITIES
On March 14, 1997 (the "Split Date"), the Company filed an amendment to the
Company's Restated Articles of Incorporation with the Secretary of State of
the State of Washington effecting a reverse stock split of the Company's
Common Stock on the basis of one new share of common stock, without par value
("New Common Stock"), for every three and one-half outstanding shares of
Common Stock (the "Reverse Stock Split"). On the Split Date, every three and
one-half shares of Common Stock of the Company issued and outstanding
immediately prior to the Split Date automatically became, without further
action by the holder, one share of New Common Stock. As of and after the Split
Date, each outstanding certificate which, prior to the Split Date, represented
shares of Common Stock shall be deemed for all purposes to evidence ownership
of, and to represent, 0.2857 shares of New Common Stock. If a shareholder
owned fewer than three and one-half shares of Common Stock or a number of
shares not evenly divisible by three and one-half, that shareholder is
entitled to one whole share of New Common Stock in lieu of receiving
fractional shares of New Common Stock. See "Item 4--Submission of Matters to a
Vote of Security Holders."
The number of shares of capital stock authorized by the Articles and the par
value of such shares did not change as a result of the Reverse Stock Split.
The shares of New Common Stock issued pursuant to the Reverse Stock Split are
fully paid and nonassessable. The voting and other rights that characterized
the Common Stock were not altered by the Reverse Stock Split.
On March 26, 1997 the Company sold 300,000 shares of Common Stock to Johnson
& Johnson Development Corporation ("JJDC") for $3,000,000 in cash in a private
placement that closed concurrent with the closing of the Company's initial
public offering. The shares were sold pursuant to a stock purchase agreement
(the "Stock Purchase Agreement") between JJDC and the Company dated as of
November 8, 1996. Such shares were issued in reliance upon the exemption from
registration provided in Section 4(2) of the Secuties Act of 1933, as amended.
Pursuant to the Stock Purchase Agreement, JJDC represented its intention to
acquire the shares for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificate issued in such transaction.
ITEM 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 3, 1997, the Company held a Special Meeting of Shareholders (the
"Special Meeting"). Each share of Common Stock was entitled to one vote per
share, and each share of Series A Convertible Preferred Stock, without par
value, and Series B Convertible Preferred Stock, without par value
(collectively, the "Preferred Stock"), which vote with the Common Stock on an
as-converted basis, was entitled to 100 votes per share. At the Special
Meeting, the Company's shareholders approved a proposal to conditionally amend
the Company's Restated Articles of Incorporation pursuant to which the Reverse
Stock Split would be effected in connection with the Company's then pending
initial public offering. With respect to this proposal there were 24,114,976
votes cast for the proposal, 296,923 votes cast against the proposal, and
108,010 abstentions (prior to giving effect to the Reverse Stock Split). See
"Item 2--Changes in Securities."
No other matters were voted on at the Special Meeting.
ITEM 6EXHIBITS AND REPORTS ON FORM 8-K
(A)EXHIBITS
3.1* Articles of Amendment to Restated Articles of Incorporation of
Cell Therapeutics, Inc. Effecting a Reverse Stock Split
11
<PAGE>
10.1*+ Supply Agreement by and between ChiRex, Ltd. and Cell
Therapeutics, Inc., dated January 21, 1997
11.1 Computation of net loss per share
27.1 Financial Data Schedule
- --------
+ Confidential treatment granted.
* Incorporated by reference to exhibits to the Company's Registration Statement
on Form S-1 (No. 333-20855).
(B) REPORTS ON FORM 8-K
None.
12
<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:
CELL THERAPEUTICS, INC.
(Registrant)
Dated: May 15, 1997 By: /s/ James A. Bianco, M.D.
-----------------------------------
James A. Bianco, M.D.
President and Chief Executive
Officer
Dated: May 15, 1997 By: /s/ Louis A. Bianco
-----------------------------------
Louis A. Bianco
Executive Vice President,
Finance and Administration
(Principal Financial Officer,
Chief Accounting Officer)
13
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1* Articles of Amendment to Restated Articles of Incorporation
of Cell Therapeutics, Inc. Effecting a Reverse Stock Split
10.1*+ Supply Agreement by and between
ChiRex, Ltd. and Cell Therapeutics,
Inc., dated January 21, 1997
11.1 Computation of net loss per share
27.1 Financial Data Schedule
</TABLE>
- --------
+ Confidential treatment granted.
* Incorporated by reference to exhibits to the Company's Registration Statement
on Form S-1 (No. 333-20855).
14
<PAGE>
EXHIBIT 11.1
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
COMPUTATION OF NET LOSS AND PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Net loss................................ $ (5,638,768) $ (2,194,412)
============== ==============
Shares used in computation of net loss
per share:
Weighted average common shares out-
standing.............................. 5,302,804 4,933,744
============== ==============
Net loss per share...................... $ (1.06) $ (0.44)
============== ==============
Pro forma:
Net loss............................... $ (5,638,768) $ (2,194,412)
============== ==============
Shares used in computation of net loss
per share:
Weighted average common shares out-
standing............................. 5,302,804 4,933,744
Weighted average common shares giving
effect to conversion of convertible
preferred stock to common stock at
the time of preferred stock issu-
ance................................. 4,572,240 2,834,549
-------------- --------------
Total................................. 9,875,044 7,768,293
============== ==============
Net loss per share..................... $ (0.57) $ (0.28)
============== ==============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 34,054,341
<SECURITIES> 22,066,947
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,383,149
<PP&E> 11,909,829
<DEPRECIATION> 6,547,883
<TOTAL-ASSETS> 62,024,859
<CURRENT-LIABILITIES> 6,044,801
<BONDS> 0
0
0
<COMMON> 133,995,048
<OTHER-SE> (79,718,215)
<TOTAL-LIABILITY-AND-EQUITY> 62,024,859
<SALES> 2,000,920
<TOTAL-REVENUES> 2,000,920
<CGS> 0
<TOTAL-COSTS> 7,904,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,062
<INCOME-PRETAX> (5,638,768)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,638,768)
<EPS-PRIMARY> (1.06)
<EPS-DILUTED> (1.06)
</TABLE>
