<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 March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 0-20713
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ENTREMED, INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-1959440
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 200
9610 Medical Center Drive
Rockville, Maryland
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(Address of principal executive offices)
20850
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(Zip code)
(301) 217-9858
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(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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the most recent practicable date.
Class Outstanding at May 7, 1997
- --------------------------- --------------------------
Common Stock $.01 Par Value 12,086,200
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ENTREMED, INC.
Table of Contents
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1 -- Financial Statements
Consolidated Balance Sheets
as of March 31, 1997 and December 31, 1996...................................................3
Consolidated Statements of
Operations for the Three Months Ended
March 31, 1997 and 1996.......................................................................4
Consolidated Statements of Cash
Flows for the Three Months Ended March 31, 1997
and 1996......................................................................................5
Notes to 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.................................................................10
Item 2 -- Changes in Securities.............................................................10
Item 3 -- Defaults upon Senior Securities...................................................10
Item 4 -- Submission of Matters to Vote of
Security Holders..................................................................10
Item 5 -- Other Information.................................................................10
Item 6 -- Exhibits and Reports on Form 8-K..................................................10
SIGNATURES...................................................................................11
</TABLE>
2
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ENTREMED, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------------- ------------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 30,374,922 $ 33,051,206
Short-term investments 19,718,517 19,669,623
Interest receivable 364,725 401,673
Prepaid expenses 39,245 97,962
-------------------- ------------------
Total current assets 50,497,409 53,220,464
-------------------- ------------------
Furniture and equipment, net 875,938 824,559
-------------------- ------------------
Other assets 403,307 101,316
-------------------- ------------------
Total assets $ 51,776,654 $ 54,146,339
==================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 496,968 $ 600,303
Accrued liabilities 1,136,831 957,718
Capital lease obligations - 104,152
Deferred revenues 1,591,667 2,509,167
-------------------- ------------------
Total current liabilities 3,225,466 4,171,340
-------------------- ------------------
Capital lease obligations, less current portion - -
-------------------- ------------------
Deferred revenues, less current portion 2,061,666 2,236,666
-------------------- ------------------
Minority interest 41,188 44,142
==================== ==================
Stockholders' equity:
Preferred stock, $1.00 par value
5,000,000 shares authorized, no shares issued and
outstanding as of March 31, 1997 (unaudited) and
December 31, 1996 - -
Common stock, $.01 par value: 27,000,000 shares
authorized, 12,062,200 (unaudited) and 12,009,598
shares issued and outstanding as of March 31, 1997
and December 31, 1996, respectively 120,622 120,096
Additional paid-in capital 73,008,022 72,830,898
Accumulated deficit (26,680,310) (25,256,803)
-------------------- ------------------
Total stockholders' equity 46,448,334 47,694,191
-------------------- ------------------
Total liabilities and stockholders' equity $ 51,776,654 $ 54,146,339
==================== ==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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ENTREMED, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---------------------------------------
Revenues:
<S> <C> <C>
Collaborative research & development $ 1,042,500 $ 1,042,500
License fee 50,000 50,000
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Total revenues 1,092,500 1,092,500
--------------- -----------------
Expenses:
Research & development 2,418,835 2,063,270
General & administrative 749,660 771,411
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Total operating expenses 3,168,495 2,834,681
Interest expense (1,418) (9,547)
Interest income 650,952 76,321
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Net loss before minority interest (1,426,461) (1,675,407)
Minority interest 2,954 -
--------------- -----------------
Net loss $( 1,423,507) $ ( 1,675,407)
=============== ==================
Net loss per share $ (0.12) $ (0.23)
--------------- -----------------
Weighted average number of shares
outstanding 12,044,203 7,312,035
--------------- -----------------
Pro forma net loss per share $ (0.18)
=================
Pro forma weighted average number
of shares outstanding 9,312,035
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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ENTREMED, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,423,507) $ (2,046,460)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 61,709 48,457
Changes in assets and liabilities:
Prepaid expenses 58,717 -
Other assets (1,991) 13,120
Accounts payable (103,335) 78,553
Accrued liabilities 179,113 -
Deferred revenue (1,092,500) -
Interest receivable 36,948 -
---------------- ----------------
Net cash used by operating activities (2,284,846) (1,906,330)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments, net (48,894) -
Investments (300,000) -
Purchases of furniture & equipment (116,042) (34,386)
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Net cash used by investing activities (464,936) (34,386)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payment of capital lease obligations (104,152) -
Proceeds from sales of common stock 177,650 1,783,227
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Net cash provided by financing activities 73,498 1,783,227
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Net decrease in cash and cash equivalents (2,676,284) (157,489)
Cash and cash equivalents at beginning of period 33,051,206 218,619
--------------- ---------------
Cash and cash equivalents at end of period $ 30,374,922 $ 61,130
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
AND NONCASH INVESTMENT AND FINANCING ACTIVITIES
Interest paid $ 1,418 $ -
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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ENTREMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial information of
EntreMed, Inc. (the "Company") includes the accounts of its 85% owned
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 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 month period ended March 31,
1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. For further information, refer
to the Company's audited financial statements and footnotes thereto
included in the Company's Form 10-K for the year ended December 31,
1996.
2. NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common
shares outstanding. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin No. 83, common and convertible preferred
stock issued for consideration below the initial public offering (the
"IPO") price of $15.00 and stock options and warrants issued with
exercise prices below the IPO price during the twelve-month period
preceding the initial filing of the registration statement (commonly
referred to as "Cheap Stock"), have been included in the calculation of
common shares using the treasury stock method for the three month
period ended March 31, 1996, as if they were outstanding prior to the
effective date of the IPO.
The net loss per share amounts for the three months ended March 31,
1996 as required by generally accepted accounting principles, which do
not give effect to the pro forma conversion of preferred stock and
Cheap Stock described above, or any stock option or warrant common
share equivalents considered antidilutive, is as follows:
Net loss per share $ (0.26)
Weighted average common shares
outstanding 6,460,717
Pro forma net loss per common share for the three month period ended
March 31, 1996 is calculated using the weighted average number of
common shares outstanding, Cheap Stock as described above and assumes
the conversion of the convertible preferred stock at the beginning of
the period.
6
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2. NET LOSS PER SHARE (continued)
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"), effective December 1997. SFAS 128 will require the
Company to present both "basic" and "diluted" loss per share amounts on
the face of the statement of operations, replacing the existing net
loss per share. Under SFAS 128, basic loss per share would not have
changed from the reported loss per share of $(0.12) and $(0.23) for the
three month periods ended March 31, 1997 and 1996, respectively.
Diluted loss per share would not have differed from basic loss per
share as stock option or warrant common share equivalents are
antidilutive.
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 believes 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
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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 Company ("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 March 31, 1997, 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 March 31, 1997 and 1996
Revenues were $1,092,500 during the three months ended March 31, 1997
("1997 Three Months") and during the three months ended March 31, 1996 ("1996
Three Months"). This 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 17% from approximately
$2,063,000 in the 1996 Three Months to $2,419,000 in the 1997 Three Months.
Research and development expenditures include sponsored research payments to
academic collaborators, including a $1,000,000 payment to Children's Hospital in
both the 1997 and 1996 Three Months; 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.
General and administrative expenses decreased by 3% to approximately
$749,000 during the 1997 Three Months as compared to approximately $771,000 in
the 1996 Three Months. General and administrative expenses remained relatively
constant, reflecting a one-time charge in the 1996 Three Months of $233,000
related to future payments under a termination agreement with a former director
of the Company, offset in part by higher general and administrative expenses
incurred in the 1997 Three Months as a result of being a public company.
Interest income increased to $651,000 for the 1997 Three Months from
$76,000 for the 1996 Three Months. This increase is a result of the investment
of the proceeds received from the BMS collaboration agreement and the Company's
initial public offering.
8
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The minority interest relates to the portion of the loss recognized
by Cytokine Sciences that is attributable to the minority shareholders of
Cytokine Sciences.
Liquidity and Capital Resources
At March 31, 1997, the Company had cash and cash equivalents of
approximately $30,375,000 and working capital of approximately $47,272,000,
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. Cash and cash
equivalents includes approximately $500,000 received from a principal
stockholder upon exercise of stock options by such stockholder, which exercise
was rescinded and which cash was returned in May 1997. As a result, at March
31, 1997, the Company recorded a corresponding accrued liability.
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 May 1, 1997, the Company was a party to sponsored research
agreements and clinical trials requiring the Company to fund an aggregate of
approximately $5,084,000 through 1999 (including $4,000,000 to Children's
Hospital) and license agreements requiring milestone payments of up to
$4,360,000 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 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, competition
and other risks).
9
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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
21 Subsidiaries of the Registrant
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed by Registrant during the
quarter ended March 31, 1997.
10
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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: May 12, 1997 /s/ John W. Holaday
---------------------------------------
John W. Holaday, Ph.D.
President and Chief Executive Officer
Date: May 12, 1997 /s/ R. Nelson Campbell
---------------------------------------
R. Nelson Campbell
Chief Financial Officer
11
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Exhibit 11
ENTREMED, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996 (1)
------------------------------------
<S> <C> <C>
Weighted average common and common
equivalent shares outstanding during the period 12,044,203 6,460,717
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) - 851,318
------------------------------------
Total common and common equivalent shares 12,044,203 7,312,035
====================================
Net loss $(1,423,507) $(1,675,407)
====================================
Net loss per share $ (0.12) $ (0.23)
====================================
</TABLE>
(1) All share information have 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 grants 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.
12
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ENTREMED, INC.
EXHIBIT 21
SUBSIDIARIES OF ENTREMED, INC.
Subsidiary State of Incorporation
Cytokine Sciences, Inc. Delaware
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 30,374,922
<SECURITIES> 19,718,517
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,497,409
<PP&E> 1,313,459
<DEPRECIATION> 437,521
<TOTAL-ASSETS> 51,776,654
<CURRENT-LIABILITIES> 3,225,466
<BONDS> 0
0
0
<COMMON> 120,622
<OTHER-SE> 46,327,712
<TOTAL-LIABILITY-AND-EQUITY> 51,776,654
<SALES> 0
<TOTAL-REVENUES> 1,092,500
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,168,495
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,418
<INCOME-PRETAX> (1,423,507)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,423,507)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,423,507)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> 0
</TABLE>
