<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20459
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] 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 0-20713
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ENTREMED, INC.
--------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 58-1959440
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
Suite 200
9610 Medical Center Drive
Rockville, Maryland
-------------------
(Address of principal executive offices)
20850
-----
(Zip code)
(301) 217-9858
--------------
(Registrant's telephone number, including area code)
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 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 most recent practicable date.
<TABLE>
<S> <C>
Class Outstanding at November 12, 1996
- ---------------------------------- --------------------------------
Common Stock $.01 Par Value 11,993,912
</TABLE>
<PAGE> 2
ENTREMED, INC.
Table of Contents
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1 -- Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of
Operations for the Three and Nine Months Ended
September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended September 30, 1996
and 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2 -- Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Part II. OTHER INFORMATION
Item 1 -- Legal Proceedings 11
Item 2 -- Changes in Securities 11
Item 3 -- Defaults upon Senior Securities 11
Item 4 -- Submission of Matters to Vote of
Security Holders 11
Item 5 -- Other Information 11
Item 6 -- Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE> 3
ENTREMED, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------- -----------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 53,445,893 $ 6,885,099
Accounts receivable 100,289 2,500,000
Interest receivable 47,764 4,016
Prepaid expenses 156,800 -
------------------- -----------------
Total current assets 53,750,746 9,389,115
------------------- -----------------
Furniture and equipment, net 812,807 754,399
------------------- -----------------
Other assets 101,661 2,869
------------------- -----------------
Total assets $ 54,665,214 $ 10,146,383
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,411,128 $ 367,250
Accrued liabilities 342,276 341,776
Capital lease obligations 206,217 396,113
Deferred revenues 1,676,667 2,594,166
------------------- -----------------
Total current liabilities 3,636,288 3,699,305
------------------- -----------------
Capital lease obligations, less current portion - 104,152
------------------- -----------------
Deferred revenues, less current portion 2,216,666 2,741,666
------------------- -----------------
Minority interest 63,668 -
------------------- -----------------
Stockholders' equity:
Preferred stock, $1.00 par value
5,000,000 shares authorized, no shares issued and
outstanding as of September 30, 1996 (unaudited);
5,000,000 shares authorized, 3,000,000 shares of
Series A issued and outstanding as of
December 31, 1995; - 3,000,000
Common stock, $.01 par value: 27,000,000 shares
authorized, 11,993,912 and 6,376,588 shares issued
and outstanding as of September 30, 1996
and December 31, 1995, respectively 119,939 63,766
Additional paid-in capital 72,635,057 21,024,465
Accumulated deficit (24,006,404) (20,486,971)
------------------- -----------------
Total stockholders' equity 48,748,592 3,601,260
------------------- -----------------
Total liabilities and stockholders' equity $ 54,665,214 $ 10,146,383
=================== =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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ENTREMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Revenues:
Collaborative research & development $ 1,042,500 $ - $ 3,127,500 $ -
License fee 50,000 - 150,000 -
Grant revenues - 45,814 - 133,912
------------- ------------ ------------- -------------
Total revenues 1,092,500 45,814 3,277,500 133,912
------------- ------------ ------------- -------------
Expenses:
Research & development 2,429,696 1,161,948 5,739,011 3,874,463
General & administrative 721,022 457,272 1,964,657 1,379,338
------------- ------------ ------------- -------------
Total operating expenses 3,150,718 1,619,220 7,703,668 5,253,801
Interest expense (5,565) (14,779) (23,755) (30,013)
Interest income 704,247 5,640 950,042 16,976
------------- ------------ ------------- -------------
Net loss before minority interest (1,359,536) (1,582,545) (3,499,881) (5,132,926)
Minority interest (19,551) - (19,551) -
------------- ------------ ------------- -------------
Net loss $(1,379,087) $(1,582,545) $ (3,519,432) $(5,132,926)
============= ============ ============= =============
Pro forma net loss per share $ (0.11) $ (0.17) $ (0.35) $ (0.56)
============= ============ ============= =============
Pro forma weighted average number
of shares outstanding 11,993,912 9,396,811 10,181,028 9,128,924
============= ============ ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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ENTREMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,519,432) $ (5,132,926)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 151,207 140,041
Deferred revenue (1,442,499) -
Changes in assets and liabilities:
Accounts receivable 2,399,711 -
Prepaid expenses (156,800) -
Other assets (422) 14,877
Accounts payable 1,043,878 260,383
Accrued liabilities 500 180,648
Interest receivable (43,748) -
---------------- ---------------
Net cash used by operating activities (1,567,605) (4,536,977)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments (36,332) -
Purchases of furniture & equipment (207,985) (119,391)
---------------- ----------------
Net cash used by investing activities (244,317) (119,391)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale lease-back - 654,020
Payment of capital lease obligations (294,048) (182,564)
Proceeds from sales of common stock 48,666,765 4,420,132
Repayment of note payable - 510,000
--------------- ---------------
Net cash provided by financing activities 48,372,717 5,401,588
--------------- ---------------
Net increase in cash and cash equivalents 46,560,795 745,220
Cash and cash equivalents at beginning of period 6,885,099 218,619
--------------- ---------------
Cash and cash equivalents at end of period $ 53,445,894 $ 963,839
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
AND NONCASH INVESTMENT AND FINANCING ACTIVITIES
Interest paid $ 23,755 $ 30,013
=============== ===============
Equipment purchased under capital lease $ - $ 122,909
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
ENTREMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited and condensed consolidated financial
information of EntreMed, Inc. (the "Company") includes the accounts of
its subsidiary, Cytokine Sciences, Inc. Cytokine Sciences was formed
in June 1996 and was capitalized with $250,000 by EntreMed for the
purpose of acquiring the assets of Innovative Therapeutics, Inc. which
acquisition was completed in July 1996 in exchange for 15% of the
common stock of Cytokine Sciences, Inc.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, such consolidated financial statements do not include all
of the information and disclosures required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three- and nine-month periods
ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996. For
further information, refer to the Company's audited financial
statements and footnotes thereto included in the Company's Prospectus
dated June 11, 1996.
2. NET LOSS PER SHARE
Pro Forma Net Loss Per Share
Net loss per common share and weighted average shares outstanding for
the periods presented give effect to the automatic conversion of
3,000,000 shares of preferred stock into 2,000,000 shares of common
stock as of the date of the Company's initial public offering on June
11, 1996. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin Number 83, common and convertible preferred stock
issued for consideration below the initial public offering price of
$15.00 and stock options and warrants issued with exercise prices
below the initial public offering price during the twelve-month period
preceding the initial filing of the registration statement have been
included in the calculation of common shares, using the treasury stock
method, as if they were outstanding for all periods prior to the
effective date of the initial public offering. Net loss per common
share is computed based on the weighted average number of common
shares and, when dilutive, common equivalent shares (stock options and
warrants) outstanding during each of the periods.
6
<PAGE> 7
2. NET LOSS PER SHARE (Continued)
Historical Net Loss Per Share
The historical net loss per share amounts as required by generally
accepted accounting principles, which do not give effect to the pro
forma conversion of the preferred stock described above, are as
follows:
<TABLE>
<CAPTION>
Three Month Period Ended Nine Month Period Ended
September 30, September 30,
------------------------------ -------------------------
1996 1995 1996 1995
------------------------------ -------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss per share $ (0.11) $ (0.21) $ (0.39) $ (0.72)
=========== =========== ========= =========
Weighted average common and
common equivalent shares
outstanding during the period 11,993,912 7,396,811 8,994,214 7,128,124
=========== =========== ========= =========
</TABLE>
3. INITIAL PUBLIC OFFERING
On June 17, 1996, the Company completed an initial public offering of
3,200,000 shares of the Company's common stock at a price of $15.00
per share. Bristol-Myers Squibb Company, a party to a collaboration
with the Company, also purchased from the Company in a private
placement on the closing of the offering 333,333 shares of the
Company's common stock at $15.00 per share. The initial public
offering resulted in net proceeds to the Company of approximately
$43,500,000 and the private placement with Bristol-Myers Squibb
Company ("BMS") resulted in net proceeds to the Company of an
additional $5,000,000.
4. CONTINGENCIES
The Company is a party to certain litigation filed in August 1995 in
the United States District Court for the Eastern District of Tennessee
by Bolling McCool & Twist, a consulting firm. The suit relates to a
claim for services rendered in the approximate amount of $50,000 and
seeks a finder's fee in an unspecified amount in connection with the
Bristol-Myers collaboration. The Company is unable to predict with
certainty the eventual outcome of the lawsuit. The Company is
contesting the action vigorously and believe that this proceeding will
not have a material adverse effect on the Company or its financial
statements, although there can no assurance that this will be the
case.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Since its inception in September 1991, the Company has devoted
substantially all of its efforts and resources to sponsoring and conducting
research and development on its own behalf and through collaborations with
corporate partners and academic research and clinical institutions, and
establishing its facilities and hiring personnel. In December 1995, the
Company entered into a collaboration agreement with Bristol-Myers Squibb
("BMS") in which BMS made an equity investment in the Company and agreed to pay
certain research and development fees and expenses, license fees, milestone
payments, and royalties on net sales, if any. Through September 30, 1996, with
the exception of license fees and research and development funding from BMS and
certain research grants, the Company had not generated any revenue from
operations. The Company anticipates its revenue sources for the next several
years will be limited to research grants and future collaboration payments from
BMS and from other collaborators under arrangements that may be entered into in
the future. The timing and amounts of such revenues, if any, will likely
fluctuate and depend upon the achievement of specified milestones.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
Revenues increased to $1,092,500 during the three months ended
September 30, 1996 ("1996 Three Months") from approximately $45,800 during the
three months ended September 30, 1995 ("1995 Three Months"). This increase
primarily reflects revenue received under the BMS collaboration agreement which
was executed in December 1995. The collaborative research and development fees
relate to the amortization over five years of a one-time payment of $2,500,000
received in December 1995 and the amortization of semi-annual payments of
$1,835,000 under the BMS collaboration agreement. The license fee represents
the amortization over five years of a one-time $1,000,000 license fee received
in December 1995 under the BMS collaboration agreement.
Research and development expenses increased by 109% from
approximately $1,162,000 in the 1995 Three Months to $2,430,000 in the 1996
Three Months. Research and development expenditures include sponsored research
payments to academic collaborators and expenses related to the Company's
internal research programs. The increase in research and development costs
reflects increased efforts in the Company's sponsored research and product
development programs related to its angiogenesis and cell permeation
technologies, including a $1,000,000 payment to Children's Hospital in
connection with the Company's angiogenesis program.
General and administrative expenses increased by 58% to
approximately $721,000 during the 1996 Three Months as compared to
approximately $457,000 in the 1995 Three Months. The increase represents
increased management and administrative expenses related to supporting research
and development activities as well as a result of additional costs associated
with being a publicly-held company.
Interest income increased to $704,000 for the 1996 Three Months from
$6,000 for the 1995 Three Months. This increase is a result of the investment
of the proceeds received from the BMS collaboration agreement and the capital
raised in the Company's initial public offering.
8
<PAGE> 9
Minority interest expense relates to the portion of the income
recognized by Cytokine Sciences from the sponsored research funding provided by
EntreMed that is attributed to the minority shareholders' of Cytokine Sciences.
Nine Months Ended September 30, 1996 and 1995
Revenues increased to $3,278,000 during the nine months ended
September 30, 1996 ("1996 Nine Months") from approximately $134,000 during the
nine months ended September 30, 1995 ("1995 Nine Months"). This increase
primarily reflects revenue received under the BMS collaboration agreement,
which was executed in December 1995. The collaborative research and
development fees relate to the amortization over five years of a one-time
payment of $2,500,000 and the amortization of semi-annual payments of
$1,835,000 under the BMS collaboration agreement. The license fee represents
the amortization over five years of a one-time $1,000,000 license fee under the
BMS collaboration agreement.
Research and development expenses increased by 48% from
approximately $3,875,000 in the 1995 Nine Months to approximately $5,739,000 in
the 1996 Nine Months. This increase reflects increased efforts in the
Company's sponsored research and product development programs related to its
angiogenesis and cell permeation technologies, offset in part by a reduction in
expenditures relating to the development of vaccines.
General and administrative expenses increased by 42% in the 1996
Nine Months to approximately $1,965,000 from $1,379,000 in the 1995 Nine
Months. This increase in general and administrative expenses reflects (i) a
one time charge of $233,000 related to future payments to a founder and former
director of the Company as compared to $67,500 of consulting fees to this
individual during the 1995 Nine Months, (ii) additional general and
administrative expenses to support increased research and development
activities, and (iii) additional costs associated with being a publicly-held
company.
Interest income increased to $950,000 in the 1996 Nine Months from
$17,000 in the 1995 Nine Months. This increase is a result of the investment
of additional working capital generated from the BMS collaboration agreement
and the capital raised in the Company's initial public offering.
Minority interest expense relates to the portion of the income
recognized by Cytokine Sciences from the sponsored research funding provided by
EntreMed that is attributed to the minority shareholders' of Cytokine Sciences.
9
<PAGE> 10
Liquidity and Capital Resources
At September 30, 1996, the Company had cash and cash equivalents of
approximately $53,450,000 and working capital of approximately $50,100,000,
primarily representing the net proceeds of the Company's initial public
offering and concurrent private placement with BMS in June 1996 together with
funds received under the BMS agreement entered into in December 1995. Prior to
December 1995, the Company funded its operations from proceeds of private
placements of equity securities which raised approximately $17,000,000, various
grants totaling approximately $437,000, and certain borrowings.
The Company's cash resources have been used to finance research and
development, including sponsored research, capital expenditures, including
leasehold improvements to the Company's laboratory facility, and general and
administrative expenses. Over the next several years, the Company expects to
incur substantial additional research and development costs, including costs
related to early-stage research in areas not reimbursed by BMS, preclinical and
clinical trials, increased administrative expenses to support its research and
development operations and increased capital expenditures for pilot
manufacturing capacity, various equipment needs and facility improvements.
As of November 1, 1996, the Company was a party to sponsored
research agreements and clinical trials requiring the Company to fund an
aggregate of approximately $6,323,000 through 1999 (including $5,000,000 to
Children's Hospital) and license agreements requiring milestone payments of up
to $2,360,000 and additional payments upon attainment of regulatory milestones.
BMS is obligated to make additional semi-annual payments to the
Company of $1,835,000 in each of June and December through June 2000 and
$365,000 in December 1996 as well as additional payments in the event certain
mostly late-stage regulatory milestones are achieved. BMS may terminate the
collaboration agreement and return the licensed technology to the Company at
any time upon six months notice, in which event it would have no further
funding obligation to the Company.
-------------------
Statements herein that are not descriptions of historical facts are
forward-looking and subject to risk and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of
factors, including those set forth in the Company's Securities and Exchange
Commission filings under "Risk Factors", including risks relating to the early
stage of products under development; uncertainties relating to clinical trials'
dependence on third parties' future capital needs; and risks relating to the
commercialization, if any, of the Company's proposed products (such as
marketing, safety, regulatory, patent, product liability, supply, completion
and other risks).
10
<PAGE> 11
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
This information as set forth in Note 4 of "Notes to Condensed
Consolidated Financial Statements" appearing in Item 1 of Part I of
this report is incorporated herein by reference.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report:
11 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed by Registrant during the
quarter ended September 30, 1996.
11
<PAGE> 12
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.
ENTREMED, INC.
(Registrant)
Date: November 13, 1996 /s/ John W. Holaday
-------------------------------------
John W. Holaday, Ph.D.
President and Chief Executive Officer
Date: November 13, 1996 /s/ John C. Thomas, Jr.
--------------------------------------
John C. Thomas, Jr.
Chief Financial Officer
12
<PAGE> 1
EXHIBIT 11
ENTREMED, INC.
COMPUTATION OF EARNINGS PER SHARE (1)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common and common
equivalent shares outstanding during the period 11,993,912 5,463,575 8,710,439 5,315,435
Effect of common stock issued and stock options
and warrants granted subsequent to April 12, 1995
computed in accordance with the treasury stock
method as required by the SEC (2) - 1,933,236 283,775 1,812,689
---------------------------------------------------------------------------
Total common and common equivalent shares 11,993,912 7,396,811 8,994,214 7,128,124
===========================================================================
Net loss $ (1,379,087) $ (1,582,545) $ (3,519,432) $ (5,132,926)
===========================================================================
Net loss per share $ (0.11) $ (0.21) $ (0.39) $ (0.72)
---------------------------------------------------------------------------
</TABLE>
(1) All share information has been adjusted to reflect a two-for-three reverse
stock split.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, Common and Preferred Stock issued and stock options and warrants
granted at prices below the initial public offering price of $ 15.00 per share
during the 12-month period immediately preceding the initial filing date of the
Company's Registration Statement for its initial public offering have been
included as outstanding for all periods presented using the treasury stock
method.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 53,445,893
<SECURITIES> 0
<RECEIVABLES> 100,289
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,750,746
<PP&E> 1,149,376
<DEPRECIATION> 336,569
<TOTAL-ASSETS> 54,665,214
<CURRENT-LIABILITIES> 3,636,288
<BONDS> 0
0
0
<COMMON> 119,939
<OTHER-SE> 48,628,653
<TOTAL-LIABILITY-AND-EQUITY> 54,665,214
<SALES> 0
<TOTAL-REVENUES> 3,277,500
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,703,668
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,755
<INCOME-PRETAX> (3,519,432)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,519,432)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,519,432)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> 0
</TABLE>
