<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: June 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 0-28386
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 AUGUST 1, 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.
<PAGE>
CELL THERAPEUTICS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited) -- June 30, 1997 and 3
December 31, 1996...............................................
Consolidated Statements of Operations (unaudited) -- Three
months and six months ended June 30, 1997 and 1996 and the
period from September 4, 1991 (date of incorporation) to June
30, 1997........................................................ 4
Consolidated Statements of Cash Flows (unaudited) -- Three
months and six months ended June 30, 1997 and 1996 and the
period from September 4, 1991 (date of incorporation) to June
30, 1997........................................................ 5
Notes to Consolidated Financial Statements...................... 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 7
PART II OTHER INFORMATION
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>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents........................ $ 3,326,226 $ 5,483,515
Securities available-for-sale.................... 44,590,786 25,503,049
Collaboration agreement receivables.............. 2,547,487 --
Prepaid expenses and other current assets........ 353,091 256,892
------------ ------------
Total current assets............................... 50,817,590 31,243,456
Property and equipment, net........................ 5,452,376 5,117,936
Notes receivable from officers, less current por-
tion.............................................. 158,517 172,698
Other assets....................................... 61,971 467,603
------------ ------------
Total assets....................................... $ 56,490,454 $ 37,001,693
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 1,467,447 $ 651,130
Accrued expenses................................. 3,003,339 3,065,297
Current portion of long-term obligations......... 1,276,188 1,226,971
------------ ------------
Total current liabilities.......................... 5,746,974 4,943,398
Long-term obligations, less current portion........ 1,389,041 2,004,575
Commitments
Shareholders' equity:
Preferred Stock:
Authorized shares--10,000,000:
Series A Convertible Preferred Stock, no par
value:
Designated shares--none and 146,193.272 at
June 30, 1997 and December, 31 1996,
respectively
Issued and outstanding shares--0 and
146,193.272 at June 30, 1997 and December
31, 1996, respectively (liquidation
preference $335 per share aggregating $0 and
$48,974,746 at June 30, 1997 and December
31, 1996, respectively)..................... -- 47,366,204
Series B Convertible Preferred Stock, no par
value:
Designated shares--none and 14,925.373 at
June 30, 1997 and December 31, 1996,
respectively
Issued and outstanding shares--0 and
14,925.373 at June 30, 1997 and December 31,
1996, respectively (liquidation preference
$335 per share aggregating $0 and $5,000,000
at June 30, 1997 and December 31, 1996,
respectively)............................... -- 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 June 30, 1997 and
December 31, 1996, respectively............... 134,038,835 51,810,160
Deficit accumulated during development stage..... (84,684,396) (74,082,644)
------------ ------------
Total shareholders' equity......................... 49,354,439 30,053,720
------------ ------------
Total liabilities and shareholders' equity......... $ 56,490,454 $ 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 SIX MONTHS ENDED JUNE 1991 (DATE OF
JUNE 30, 30, INCORPORATION)
------------------------ ------------------------- TO JUNE 30,
1997 1996 1997 1996 1997
----------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Collaboration
agreements............ $ 3,266,060 $ -- $ 5,266,980 $ 3,000,000 $ 14,487,786
Operating expenses:
Research and
development........... 6,798,846 4,074,883 12,627,291 7,396,876 73,497,942
General and
administrative........ 2,056,299 1,490,610 4,132,404 3,527,113 28,875,683
----------- ----------- ------------ ----------- ------------
8,855,145 5,565,493 16,759,695 10,923,989 102,373,625
----------- ----------- ------------ ----------- ------------
Loss from operations.... (5,589,085) (5,565,493) (11,492,715) (7,923,989) (87,885,839)
Other income (expense):
Investment income..... 808,645 247,692 1,182,569 547,695 5,156,328
Interest expense...... (96,841) (123,340) (205,903) (259,259) (1,858,365)
----------- ----------- ------------ ----------- ------------
Net loss................ $(4,877,281) $(5,441,141) $(10,516,049) $(7,635,553) $(84,587,876)
=========== =========== ============ =========== ============
Net loss per share...... $ (0.37) $ (1.10) $ (1.15) $ (1.55)
=========== =========== ============ ===========
Shares used in
computation of net loss
per share.............. 13,028,377 4,937,719 9,165,590 4,935,731
=========== =========== ============ ===========
Pro forma:
Net loss per share.... $ (0.37) $ (0.70) $ (0.92) $ (0.98)
=========== =========== ============ ===========
Shares used in
computation of net
loss per share........ 13,028,377 7,772,268 11,451,710 7,770,280
=========== =========== ============ ===========
</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,
SIX MONTHS ENDED 1991 (DATE OF
JUNE 30, INCORPORATION)
------------------------- TO JUNE 30,
1997 1996 1997
------------ ----------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................. $(10,516,049) $(7,635,553) $ (84,587,876)
Adjustments to reconcile net loss to
net cash used in operating activi-
ties:
Depreciation and amortization....... 841,031 827,457 7,302,292
Noncash compensation expense........ 100,186 -- 100,186
Noncash research and development ex-
pense.............................. -- -- 1,155,750
Noncash interest expense............ -- -- 25,918
Noncash rent expense................ 30,879 16,698 525,167
Investment premium amortization..... (127,158) 59,805 394,903
Changes in assets and liabilities:
Collaboration agreement receiv-
ables.............................. (2,547,487) -- (2,547,487)
Prepaid expenses.................... (96,199) (33,505) (353,091)
Notes receivable from officers...... 14,181 (5,352) (253,741)
Other assets........................ 397,360 18,536 (86,244)
Accounts payable.................... 816,317 662,664 1,467,447
Accrued expenses.................... (61,958) (96,391) 3,003,339
------------ ----------- -------------
Total adjustments................. (632,848) 1,449,912 10,734,439
------------ ----------- -------------
Net cash used in operating activi-
ties............................. (11,148,897) (6,185,641) (73,853,437)
------------ ----------- -------------
INVESTING ACTIVITIES
Purchases of securities available-
for-sale........................... (33,383,219) (3,881,099) (109,409,246)
Proceeds from sales of securities
available for-sale................. 1,999,938 -- 16,890,251
Proceeds from maturities of securi-
ties available-for-sale............ 12,337,000 8,074,000 47,436,787
Purchase of property and equipment.. (1,182,348) (620,931) (12,517,284)
Dispositions of property and equip-
ment............................... 15,148 -- 166,617
------------ ----------- -------------
Net cash provided by (used in) in-
vesting activities............... (20,213,481) 3,571,970 (57,432,875)
------------ ----------- -------------
FINANCING ACTIVITIES
Sales of common stock to founders... -- -- 80,000
Proceeds from borrowings from stock-
holder............................. -- -- 850,000
Sale of common stock via initial
public offering, net of offering
costs.............................. 26,802,251 -- 26,802,251
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 21,781 80,794
Proceeds from common stock warrants
exercised.......................... -- 305,558 305,558
Repayment of long-term obligations.. (597,196) (476,159) (9,068,465)
Proceeds from the issuance of long-
term obligations................... -- 616,300 10,931,634
Change in deferred offering costs... -- (332,337) --
------------ ----------- -------------
Net cash provided by financing ac-
tivities......................... 29,205,089 135,143 134,612,538
------------ ----------- -------------
Net increase (decrease) in cash
and cash equivalents............. (2,157,289) (2,478,528) 3,326,226
Cash and cash equivalents at be-
ginning of period................ 5,483,515 6,931,592 --
------------ ----------- -------------
Cash and cash equivalents at end
of period........................ $ 3,326,226 $ 4,453,064 $ 3,326,226
============ =========== =============
Supplemental schedule of noncash in-
vesting and financing activities:
Acquisition of equipment pursuant to
capital lease obligations.......... $ -- $ -- $ 362,425
============ =========== =============
Conversion of convertible debt and
related accrued interest into com-
mon stock.......................... $ -- $ -- $ 875,918
============ =========== =============
Supplemental disclosure of cash flow
information:
Cash paid during the period for in-
terest............................. $ 205,903 $ 261,508 $ 1,831,928
============ =========== =============
</TABLE>
See accompanying notes.
5
<PAGE>
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial information of Cell Therapeutics, Inc.
(the "Company") as of June 30, 1997 and for the three and six months ended
June 30, 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 and six month periods ended June 30, 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, and the Company's unaudited financial statements for
the quarter ended March 31, 1997 included in the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1997.
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 $3,266,060 and $5,266,980 of collaboration agreement
revenues related to the reimbursement of development expenses by Johnson &
Johnson for the three and six month periods ended June 30, 1997, respectively.
(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 June 30,
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 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This quarterly report on form 10-Q contains, in addition to historical
information, forward-looking statements 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 June 30, 1997, the Company had incurred aggregate net losses of
approximately $84.6 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.
RESULTS OF OPERATIONS
Three months ended June 30, 1997 compared with three months ended June 30,
1996.
During the three months ended June 30, 1997, the Company recorded
approximately $3.3 million of revenues for development cost reimbursements
from Johnson & Johnson in accordance with the Collaboration Agreement. No
similar revenues were recorded for the corresponding period of 1996.
7
<PAGE>
Research and development expenses increased to approximately $6.8 million
for the three months ended June 30, 1997 from $4.1 million for the three
months ending June 30, 1996. This increase was primarily due to expanded
research, 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 to approximately $2.1 million
for the three months ended June 30, 1997 from approximately $1.5 million for
the three months ended June 30, 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 continue to increase to support the Company's
expected increase in research, development and clinical trial efforts.
Investment income primarily consists of 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 $809,000 for the three months ended June 30, 1997 from
approximately $248,000 for the three months ended June 30, 1996, reflecting an
increase in average cash balances and interest earned thereon. The increase in
average cash balances was due to the proceeds from the Company's initial
public offering and concurrent sale of common stock to Johnson & Johnson
completed late in the first quarter of 1997. Interest expense decreased to
approximately $97,000 for the three months ended June 30, 1997 from
approximately $123,000 for the three months ended June 30, 1996. This decrease
was primarily due to lower average balances of outstanding long-term
obligations.
Six months ended June 30, 1997 compared with six months ended June 30, 1996.
During the six months ended June 30, 1997, the Company recorded
approximately $5.3 million of revenues for development cost reimbursements
from Johnson & Johnson in accordance with the Collaboration Agreement. During
the six months ended June 30, 1996, the Company received a $3.0 million
signing fee from Schering AG ("Schering") pursuant to an agreement to
collaborate on the funding, research, development and commercialization of
Lisofylline and CT-2584. The Company's agreement with Schering terminated in
April 1996.
Research and development expenses increased to approximately $12.6 million
for the six months ended June 30, 1997 from approximately $7.4 million for the
six months ended June 30, 1996. This increase was primarily due to expanded
research, manufacturing, preclinical and clinical-related development
activities, including the recruitment of additional personnel with respect to
Lisofylline.
General and administrative expenses increased to approximately $4.1 million
for the six months ended June 30, 1997 from approximately $3.5 million for the
six months ended June 30, 1996. This increase was primarily due to operating
expenses associated with supporting the Company's increased research,
development and clinical activities, offset in part by legal costs associated
with the Schering agreement discussed above during the six months ended June
30, 1996.
Investment income increased to approximately $1.2 million for the six months
ended June 30, 1997 from approximately $548,000 for the six months ended June
30, 1996. This increase was primarily associated with interest earnings on a
higher average cash balance between the six month periods due to the proceeds
of the Company's initial public offering and concurrent sale of common stock
to Johnson & Johnson completed late in the first quarter of 1997. Interest
expense decreased to approximately $206,000 for the six months ended June 30,
1997 from approximately $259,000 for the six months ended June 30, 1996. This
decrease was primarily due to lower 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 June 30, 1997, the Company had raised
aggregate net proceeds of approximately $132.8 million from such
8
<PAGE>
financing activities, including approximately $26.8 million 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 $11.4 million of property and equipment through financing
agreements, of which approximately $2.6 million remained outstanding as of
June 30, 1997.
The Company's principal sources of liquidity are its cash balances, cash
equivalents and securities available-for-sale, which totaled approximately
$47.9 million as of June 30, 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 through 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 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 June 30, 1997, the Company had available for Federal income tax
purposes net operating loss carryforwards of approximately $81 million and
research and development credit carryforwards of approximately $2.2 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.
9
<PAGE>
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 its development stage 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. However, the Company has initiated commercial scale
manufacturing in early 1997. 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 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 18, 1997, the Company held its 1997 Annual Meeting of Shareholders
(the "Annual Meeting"). Each share of Common Stock was entitled to one vote
per share.
At the Annual Meeting, the following Directors were elected to serve until
the Annual Meeting of Shareholders indicated below and until their respective
successors are elected and qualified:
<TABLE>
<CAPTION>
TERM
DIRECTOR NOMINATED EXPIRES VOTES FOR VOTES AGAINST
------------------ ------- --------- -------------
<S> <C> <C> <C>
James A. Bianco, M.D. ....................... 2000 2,468,903 7,672
Jack W. Singer, M.D. ........................ 2000 2,468,903 7,672
Mary O'Neil Mundinger, D.P.H................. 2000 2,468,903 7,672
Wilfred E. Jaeger, M.D. ..................... 1999 2,468,903 7,672
Jeremy L. Curnock Cook....................... 1998 2,468,903 7,672
</TABLE>
The Company's Stockholders also approved a proposal for the adoption of
amendments to the Company's 1994 Equity Incentive Plan (the "1994 Plan") to
(i) increase the maximum number of shares issuable under the 1994 Plan by an
additional 1,000,000 shares to a total of 2,336,715 shares; (ii) impose a
233,671-share limit on the maximum number of shares of Common Stock for which
any one individual may be granted stock options, stock appreciation rights and
direct stock awards in the aggregate per calendar year under the 1994 Plan;
and (iii) effect a series of additional changes to the provisions of the 1994
Plan (including the stockholder approval requirements, the transferability of
nonstatutory stock options, the elimination of the six (6)-month holding
period requirement as a condition to the exercise of stock options and stock
appreciation rights by officers and Directors and the elimination of certain
restrictions of non-employee Directors to serve as an administrator of the
1994 Plan) in order to take advantage of the recent amendments to Rule 16b-3
of the Securities and Exchange Commission (the "SEC") which exempts certain
officer and director transactions under the 1994 Plan from the short-swing
liability provisions of the Federal securities laws. With respect to this
proposal there were 1,034,971 votes cast for the proposal, 264,685 votes cast
against the proposal, 3,545 abstentions and 1,173,374 broker non-votes.
The Company's Stockholders also approved a proposal for the grant to each
non-employee Director of a fully-vested nonstatutory stock option to purchase
14,285 shares of Common Stock, other than Dr. Link, who was granted a fully-
vested nonstatutory stock option to purchase 28,570 shares of Common Stock.
With respect to this proposal there were 1,255,965 votes cast for the
proposal, 43,441 votes cast against the proposal, 3,795 abstentions and
1,173,374 broker non-votes.
The Company's stockholders also approved a proposal to amend the Company's
1996 Employee Stock Purchase Plan (the "Purchase Plan") to change the formula
by which the purchase price of the shares of Common Stock issuable upon
exercise of an option granted under the Purchase Plan will be calculated. The
purchase price of shares of Common Stock issuable upon exercise of an option
granted under the Purchase Plan was changed from 85% of the average of the
fair market value of the Common Stock at the beginning and at the end of each
six month offering period to 85% of the lower of the fair market value of the
Common Stock at the beginning and at the end of each six month offering
period. With respect to this proposal there were 2,067,304 votes cast for the
proposal, 109,435 votes cast against the proposal, 6,056 abstentions and
293,780 broker non-votes
The Company's stockholders also ratified the selection of Ernst & Young LLP
as the independent auditors for the Company for the year ended December 31,
1997. With respect to this proposal there were 2,464,602 votes cast for the
proposal, 7,165 votes cast against the proposal, and 4,808 abstentions.
No other matters were voted on at the Annual Meeting.
11
<PAGE>
ITEM 6EXHIBITS AND REPORTS ON FORM 8-K
(A)EXHIBITS
11.1 Computation of net loss per share
27.1 Financial Data Schedule
(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: August 14, 1997 By: /s/ James A. Bianco, M.D.
----------------------------------
James A. Bianco, M.D.
President and Chief Executive
Officer
Dated: August 14, 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>
11.1 Computation of net loss per share
27.1 Financial Data Schedule
</TABLE>
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 JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net loss................ $ (4,877,281) $ (5,441,141) $ (10,516,049) $ (7,635,553)
============= ============= ============= ============
Shares used in
computation of net loss
per share:
Weighted average common
shares outstanding.... 13,028,377 4,937,719 9,165,590 4,935,731
============= ============= ============= ============
Net loss per share...... $ (0.37) $ (1.10) $ (1.15) $ (1.55)
============= ============= ============= ============
Pro forma:
Net loss............... $ (4,877,281) $ (5,441,141) $ (10,516,049) $ (7,635,553)
============= ============= ============= ============
Shares used in
computation of net loss
per share:
Weighted average com-
mon shares outstand-
ing.................. 13,028,377 4,937,719 9,165,590 4,935,731
Weighted average com-
mon shares giving ef-
fect to conversion of
convertible preferred
stock to common stock
at the time of pre-
ferred stock issu-
ance................. -- 2,834,549 2,286,120 2,834,549
------------- ------------- ------------- ------------
Total................. 13,028,377 7,772,268 11,451,710 7,770,280
============= ============= ============= ============
Net loss per share..... $ (0.37) $ (0.70) $ (0.92) $ (0.98)
============= ============= ============= ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1997 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,326,226
<SECURITIES> 44,590,786
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,817,590
<PP&E> 12,432,275
<DEPRECIATION> 6,979,899
<TOTAL-ASSETS> 56,490,454
<CURRENT-LIABILITIES> 5,746,974
<BONDS> 1,389,041
0
0
<COMMON> 134,038,835
<OTHER-SE> (84,684,396)
<TOTAL-LIABILITY-AND-EQUITY> 56,490,454
<SALES> 0
<TOTAL-REVENUES> 5,266,980
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,759,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 205,903
<INCOME-PRETAX> (10,516,049)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,516,049)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,516,049)
<EPS-PRIMARY> (1.15)
<EPS-DILUTED> (1.15)
</TABLE>
