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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, 2000
[ ] 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.
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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)
9640 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
--- ---
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 9, 2000
- ------------------------------ ----------------------------
Common Stock $.01 Par Value 15,297,609
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ENTREMED, INC.
Table of Contents
PART I. FINANCIAL INFORMATION PAGE
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Item 1 -- Financial Statements
Consolidated Balance Sheets
as of March 31, 2000 and December 31, 1999 3
Consolidated Statements of
Operations for the Three Months Ended
March 31, 2000 and 1999 4
Consolidated Statements of Cash
Flows for the Three Months Ended March 31, 2000
and 1999 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 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
2
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ENTREMED, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------------- --------------------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 29,328,842 $ 26,027,235
Interest receivable 130,017 105,482
Accounts receivable 700,378 618,598
Prepaid expenses and other 313,882 336,443
-------------------- --------------------
Total current assets 30,473,119 27,087,758
Furniture and equipment, net 4,005,998 4,013,785
Other assets 652,744 742,082
-------------------- --------------------
Total assets $ 35,131,861 $ 31,843,625
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,505,212 $ 4,887,693
Accrued liabilities 1,084,884 1,756,538
Deferred revenue - 75,000
Notes payable 930,944 1,125,620
-------------------- --------------------
Total current liabilities 5,521,040 7,844,851
Note payable, less current portion 1,754,525 1,995,327
Minority interest 18,832 18,646
Stockholders' equity:
Convertible preferred stock, $1.00 par and $1.50
Liquidation value:
5,000,000 shares authorized, none issued and
outstanding at March 31, 2000 (unaudited)
and December 31, 1999 - -
Common stock, $.01 par value:
35,000,000 shares authorized, 15,449,060 (unaudited)
and 14,755,998 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively 154,491 147,560
Treasury stock, at cost: 291,667 shares held
March 31, 2000 (unaudited) and December 31, 1999 (3,833,379) (3,833,379)
Additional paid-in capital 124,350,659 107,863,638
Accumulated deficit (92,834,307) (82,193,018)
-------------------- --------------------
Total stockholders' equity 27,837,464 21,984,801
-------------------- --------------------
Total liabilities and stockholders' equity $ 35,131,861 $ 31,843,625
==================== ====================
</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,
2000 1999
---------------------------------
<S> <C> <C>
Revenues:
Collaborative research and development $ - $ 1,042,500
Licensing - 50,000
Grants 92,507 158,819
Royalties 524,927 191,680
Other 109,265 1,040
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Total revenues 726,699 1,444,039
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Costs and expenses:
Research and development 9,071,204 7,107,455
General and administrative 2,697,016 1,895,838
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11,768,220 9,003,293
Interest expense (49,791) -
Investment income 450,023 410,414
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Net loss $ (10,641,289) $ (7,148,840)
=============== =============
Net loss per share (basic and diluted) $ (0.72) $ ( 0.55)
=============== =============
Weighted average number of shares
outstanding (basic and diluted) 14,831,911 13,057,561
=============== =============
</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,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(10,641,289) $ (7,148,840)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 242,285 259,628
Loss on equity investment 70,000 -
Loss on disposal of furniture and equipment - 65,674
Minority interest 186 9,465
Changes in assets and liabilities:
Accounts receivable (81,780) (190,396)
Interest receivable (24,535) 116,858
Prepaid expenses and other 41,899 102,127
Accounts payable (1,382,481) 1,232,054
Accrued liabilities (671,654) (201,792)
Deferred revenue (75,000) (1,092,501)
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Net cash used by operating activities (12,522,369) (6,847,723)
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CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of short-term investments - 2,845,556
Purchases of furniture and equipment (234,498) (933,060)
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Net cash (used) provided by investing activities (234,498) 1,912,496
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from option and warrant exercises 16,493,952 207,351
Payment of note payable (435,478) -
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Net cash provided by financing activities 16,058,474 207,351
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Net increase (decrease) in cash and cash equivalents 3,301,607 (4,727,876)
Cash and cash equivalents at beginning of period 26,027,235 30,818,689
------------ ------------
Cash and cash equivalents at end of period $ 29,328,842 $ 26,090,813
============ ============
</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, 2000 (UNAUDITED)
1. BASIS OF PRESENTATION
Our accompanying unaudited consolidated financial information
includes the accounts of our 85% owned subsidiary, Cytokine
Sciences, Inc. Cytokine Sciences was formed in June 1996 and was
capitalized with $250,000 from us 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 our 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, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000. For
further information, refer to our audited financial statements and
footnotes thereto included in our Form 10-K for the year ended
December 31, 1999.
2. CONTINGENCIES
We are a defendant in a lawsuit initiated in August 1995 in the
United States District Court for the Eastern District of Tennessee
by Bolling, McCool & Twist ("BMT"), a consulting firm. In the suit,
BMT asserts that we breached an agreement between BMT and us by
failing to pay BMT certain fees it asserts are owed under the
agreement. More specifically, BMT has asserted a claim for the
payment of services rendered in the approximate amount of $50,000
and seeks a success fee in an unspecified amount in connection with
the BMS Collaboration. The judge in the case bifurcated the
proceeding into two phases: an adjudication of whether we breached
our agreement with BMT and then a damage phase. After a trial on the
merits the jury found in favor of BMT on the breach of contract
claim. A trial to determine damages had been scheduled for April 14,
1998. However, on April 6, 1998, the court issued an Order pursuant
to which damages were limited to those arising during the term of
the Agreement, which terminated on November 1, 1995. On May 6, 1999,
the court confirmed its decision by granting our motion for summary
judgement and limiting our damages to approximately $50,000 plus
interest. Thus, this litigation at the trial level has been
concluded. BMT has filed an appeal and we have cross-appealed. We
can not predict the outcome of such appeal. However, we intend to
continue to contest any further action vigorously and believe that
this proceeding will not have a material adverse effect on us or on
our financial condition, although there can be no assurance that
this will be the case.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Since our inception in September 1991, we have devoted substantially
all of our efforts and resources to sponsoring and conducting research and
development on our own behalf and through collaborations. Through March 31,
2000, with the exception of license fees, research and development funding,
royalty payments, and certain research grants, we have not generated any revenue
from operations. We anticipate our primary revenue sources for the next several
years to include royalty payments, research grants and collaboration payments
from collaborators under arrangements entered into in the future. The timing and
amounts of such revenues, if any, will likely fluctuate and depend upon the
achievement of specified research and development milestones, and results of
operations for any period may be unrelated to the results of operations for any
other period.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 and March 31, 1999
Revenues decreased approximately 50% from approximately $1,444,000
for the three months ended March 31, 1999 ("1999 Three Months") to approximately
$727,000 for the three months ended March 31, 2000 ("2000 Three Months"). This
decrease results from the absence of BMS collaborative research and development
fees and license fees due to the modification of the research agreement whereby
the we assumed all responsibility for preclinical and clinical work on the
Angiostatin protein. BMS collaborative research and development fees and license
fees recognized totaled approximately $1,092,000 for the 1999 Three Months.
Royalty income increased approximately 173% from approximately $192,000 for the
1999 Three Months to approximately $525,000 for the 2000 Three Months. This
increase is primarily due to royalty income received from Celgene on the sale of
THALOMID(R).
Research and development expenses increased by approximately 28%
from approximately $7,107,000 for the 1999 Three Months to approximately
$9,071,000 for the 2000 Three Months. Research and development expenditures
include sponsored research payments to academic collaborators, including
payments to Children's Hospital of $700,000 in 2000 and $1,000,000 in 1999 and
expenses related to our internal research programs. The increase in internal
research expenses resulted primarily from the increased efforts in manufacturing
of our three product candidates, Endostatin, Angiostatin and 2ME2, to support
our clinical trial programs, and our internal and sponsored research and product
development programs related to our antiangiogenesis and blood cell permeation
technologies. Overall, research personnel increased from 45 as of March 31, 1999
to 67 as of March 31, 2000. Research and development expenses are expected to
continue to increase as we continue to expand our research and development
efforts.
General and administrative expenses increased approximately 42% from
approximately $1,896,000 for the 1999 Three Months to approximately $2,697,000
for the 2000 Three Months. The 2000 Three Months increase resulted primarily
from the increase in administrative costs associated with adding administrative
staff to support our research efforts and external collaborations we are
conducting, investigating potential strategic relationships, and obtaining
professional services. Investment income increased approximately 10% from
approximately $410,000 for the 1999 Three Months to approximately $450,000 for
the 2000 Three Months.
7
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LIQUIDITY AND CAPITAL RESOURCES
We anticipate incurring substantial additional losses over at least
the next several years due to, among other factors, the need to expend
substantial amounts on our ongoing and planned clinical trials, additional
research and development activities, and related business development and
general corporate expenses. From inception through March 31, 2000, we have
financed our operations from:
- the net proceeds of private placements of equity securities which
raised approximately $17,000,000;
- payments from Bristol-Myers Squibb, including $9,700,000 received in
December 1995 (of which $6,500,000 was an equity investment),
$11,535,000 received in 1996 (of which $5,000,000 was an equity
investment), $3,670,000 in each of the years 1997 and 1998, $611,667
in 1999;
- various grants from the World Health Organization and SBIR grants
totaling approximately $1,371,000;
- our June 1996 Initial Public Offering ("IPO") which raised net
proceeds of approximately $43,541,000;
- proceeds of approximately $654,000 under capital leases;
- a private offering completed on July 27, 1999 of 1,478,118 shares of
our common stock, Series 1 Warrants to purchase a total of 739,059
shares of common stock at an exercise price of $33.02 and Series 2
Warrants to purchase a total of 739,059 shares of common stock at an
exercise price of $25.45, resulting in net proceeds to us of
approximately $28,400,000;
- redeemable warrants issued in connection with the private offering
which have resulted in additional proceeds to us of approximately
$12,700,000 through March 31, 2000; and
- proceeds of $3,000,000 from a borrowing in December 1999 secured by
substantially all of our furniture and equipment.
In connection with the private offering completed on July 27, 1999
described above, the Series 2 Warrants are terminable by us at any time after
April 22, 2000 if our common stock trades at a per share price greater than
$38.18 for ten consecutive trading days and such Warrants are not exercised
within a specified period after our delivery of a written notice. The Series 1
Warrants are terminable by us at any time after January 27, 2002 if our common
stock trades at a per share price greater than $61.91 for ten consecutive
trading days and such Warrants are not exercised within a specified period after
our delivery of a written notice. If the Series 2 Warrants were fully exercised,
they would result in us receiving $18,800,000 in aggregate exercise proceeds. If
the Series 1 Warrants were fully exercised, they would result in us receiving
$24,400,000 in aggregate exercise proceeds.
In December 1999, we exercised our option to repurchase 291,667 of
our common shares from BMS for $13.143 a share or a total repurchase price of
$3,833,379 and which is reflected as treasury stock in the accompanying
consolidated balance sheets. BMS's remaining 583,332 shares held in connection
with the collaborative research and development agreement are subject to certain
restrictions, including future repurchase rights which expire in December 2000
and 2001.
At March 31, 2000, we had cash and cash equivalents of approximately
$29,329,000 with working capital of approximately $24,952,000, primarily
representing the net proceeds of our private placements of equity securities and
our initial public offering, payments from BMS which include equity investments,
royalties received from Celgene, proceeds from secured borrowing and various
grants.
8
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Our cash resources have been used to finance research and
development, including sponsored research, capital expenditures, including
leasehold improvements to our new facility, and general and administrative
expenses. Over the next several years, we expect to incur substantial additional
research and development costs, including costs related to early-stage research,
preclinical and clinical trials, product manufacturing, increased administrative
expenses to support our research and development operations and increased
capital expenditures for expanded research capacity, various equipment needs and
facility improvements.
We are a party to sponsored research agreements requiring us to fund
an aggregate of approximately $2,153,000 through 2001 (including $1,550,000 to
Children's Hospital, Boston); a materials production agreement of an estimated
$9,000,000 for clinical trials; license agreements requiring future milestone
payments of up to $3,435,000; and additional payments upon attainment of
regulatory milestones.
We believe that our existing resources will be sufficient to meet
our planned expenditures over the next twelve months, although there can be no
assurance we will not require additional funds. Our working capital requirements
will depend upon numerous factors including:
- the progress of our research and development programs;
- preclinical testing and clinical trials;
- achievement of regulatory milestones;
- our potential corporate partners fulfilling their obligations to us;
- the timing and cost of seeking regulatory approvals;
- the level of resources that we devote to the development of
manufacturing, marketing and sales capabilities, if any;
- technological advances;
- the status of competing products; and
- our ability to maintain existing and establish new collaborative
arrangements with other companies to provide us with funding to
support these activities.
We will require substantial funds in addition to the present
existing working capital to develop our product candidates and to meet our
business objectives.
9
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
This information as set forth in Note 2 of "Notes to 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. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable
27.1 Financial Data Schedule
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, 2000 /s/ John W. Holaday
--------------------------------------
John W. Holaday, Ph.D.
President and Chief Executive Officer
Date: May 12, 2000 /s/ R. Nelson Campbell
--------------------------------------
R. Nelson Campbell
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONDENSED 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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 29,328,842
<SECURITIES> 0
<RECEIVABLES> 700,378
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,473,119
<PP&E> 6,570,395
<DEPRECIATION> 2,564,397
<TOTAL-ASSETS> 35,131,861
<CURRENT-LIABILITIES> 5,521,040
<BONDS> 1,754,525
0
0
<COMMON> 154,491
<OTHER-SE> 27,682,973
<TOTAL-LIABILITY-AND-EQUITY> 27,837,464
<SALES> 0
<TOTAL-REVENUES> 726,699
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,768,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,791
<INCOME-PRETAX> (10,641,289)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,641,289)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,641,289)
<EPS-BASIC> (0.72)
<EPS-DILUTED> (0.72)
</TABLE>
