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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 April 30, 1998
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: 0-27756
ALEXION PHARMACEUTICALS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3648318
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 SCIENCE PARK, SUITE 360, NEW HAVEN, CONNECTICUT 06511
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
203-776-1790
----------------------------------------------------
(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 [_]
CLASS OUTSTANDING AT MAY 29, 1998
- ------------------------------- ---------------------------
Common Stock, $0.0001 par value 11,225,112
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<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of April 30, 1998
and July 31, 1997 3
Statements of Operations for the three and nine
months ended April 30, 1998 and 1997 and for
the period from inception January 28, 1992 to
April 30, 1998 4
Statements of Cash Flows for the nine months ended
April 30, 1998 and 1997 and for the period from
inception January 28, 1992 to April 30, 1998 5
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II. OTHER INFORMATION 15
SIGNATURES 16
Page 2 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, 1998 July 31, 1997
============== ==============
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $34,837,355 $16,742,516
Marketable securities 7,482,866 6,006,380
Prepaid expenses 405,581 232,385
----------- -----------
Total current assets 42,725,802 22,981,281
----------- -----------
Equipment, net of accumulated
depreciation and amortization 2,083,488 786,495
----------- -----------
Other Assets:
License technology rights, net 176,367 242,366
Patent application costs, net 151,383 168,691
Security deposits and other assets 85,402 81,728
----------- -----------
Total other assets 413,152 492,785
----------- -----------
TOTAL ASSETS $45,222,442 $24,260,561
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 625,000 $ 130,000
Current obligations under capital leases 803 7,768
Accounts payable 1,092,374 727,553
Accrued expenses 524,337 1,201,770
Deferred revenue 66,000 347,070
----------- -----------
Total current liabilities 2,308,514 2,414,161
----------- -----------
Stockholders' Equity:
Common stock $.0001 par value; 25,000,000 shares 1,124 886
authorized; 11,236,863 and 8,858,012 shares issued
at April 30, 1998 and July 31, 1997
Additional paid-in capital 79,790,015 53,671,867
Deficit accumulated during development stage (36,877,109) (31,826,251)
Treasury stock, at cost; 11,875 shares (102) (102)
----------- -----------
Total stockholders' equity 42,913,928 21,846,400
----------- -----------
TOTAL LIABILITIES AND NET EQUITY $45,222,442 $24,260,561
=========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 3 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended January 28, 1992
April 30 April 30, (inception)
------------------------- -------------------------- through
1998 1997 1998 1997 April 30, 1998
----------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
CONTRACT RESEARCH REVENUES $ 100,669 $ 621,027 $4,547,222 $2,869,766 $11,134,152
----------- ----------- ----------- ----------- ------------
OPERATING EXPENSES:
Research and Development 3,005,281 2,013,321 8,283,184 5,908,372 38,517,153
General and Administrative 672,990 700,169 1,948,991 2,107,530 11,466,640
----------- ----------- ----------- ----------- ------------
Total Operating Expenses 3,678,271 2,713,490 10,232,175 8,015,902 49,983,793
----------- ----------- ----------- ----------- ------------
OPERATING (LOSS) (3,577,602) (2,092,463) (5,684,953) (5,146,136) (38,849,641)
OTHER INCOME, Net 562,344 186,643 1,534,095 626,502 2,872,532
----------- ----------- ----------- ----------- ------------
NET (LOSS) (3,015,258) (1,905,820) (4,150,858) (4,519,634) ($35,977,109)
============
ACCRETION OF PREFERRED STOCK DIVIDENDS 150,000 0 900,000 0
----------- ----------- ----------- -----------
NET (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS ($3,165,258) ($1,905,820) ($5,050,858) ($4,519,634)
=========== =========== =========== ===========
NET (LOSS) PER COMMON SHARE
BASIC AND DILUTED (Note 3) ($0.30) ($0.26) ($0.52) ($0.62)
=========== =========== =========== ===========
SHARES USED IN COMPUTING NET
(LOSS) PER COMMON SHARE 10,639,638 7,366,687 9,662,470 7,345,582
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 4 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
January 28, 1992
Nine months ended April 30 (inception)
---------------------------- through
1998 1997 April 30, 1998
------------- ------------ --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($4,150,858) ($4,519,634) ($35,977,109)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 418,335 532,395 3,514,315
Compensation expense related to grant of stock options 0 0 122,500
Net realized loss (gain) on marketable securities 0 0 44,766
Change in assets and liabilities:
Prepaid expenses (173,196) 33,690 (405,581)
Accounts payable 364,821 54,570 1,092,374
Accrued expenses (677,433) (35,615) 524,337
Deferred revenue (281,070) (334,700) 66,000
----------- ---------- -----------
Net cash (used in) operating activities (4,499,401) (4,269,294) (31,018,398)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases of) proceeds from marketable securities, net (1,476,485) 2,854,612 (7,475,063)
Purchases of equipment (1,631,041) (569,220) (4,552,998)
Licensed technology costs 0 0 (615,989)
Patent application costs (980) (22,473) (359,952)
Organization costs 0 0 (63,530)
----------- ---------- -----------
Net cash (used in) provided by investing activities (3,108,506) 2,262,919 (13,067,532)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred and common stock 25,218,386 221,263 77,561,050
Advances from stockholder 0 0 1,200,000
Repayments of capital lease obligations (6,966) (21,848) (377,261)
Borrowings under notes payable 625,000 0 1,804,135
Repayments of notes payable (130,000) (245,107) (1,179,135)
Security deposits and other assets (3,674) 3,416 (85,402)
Repurchase of common stock 0 0 (102)
----------- ---------- -----------
Net cash provided by (used in) financing activities 25,702,746 (42,276) 78,923,285
=========== ========== ===========
NET INCREASE (DECREASE) IN CASH 18,094,839 (2,048,651) 34,837,355
CASH and CASH EQUIVALENTS at beginning of period 16,742,516 9,491,217 0
----------- ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $34,837,355 $7,442,566 $34,837,355
=========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (refunded) for income taxes $ 0 ($ 7,950) $ 30,684
=========== ========== ===========
Cash paid for interest expense $ 9,105 $ 41,299 $ 415,070
=========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
Conversion of advances from stockholder into common stock $ 0 $ 0 $ 1,200,000
=========== ========== ===========
Equipment acquired pursuant to capital lease obligations $ 0 $ 0 $ 378,064
=========== ========== ===========
Preferred stock dividend accretion $ 900,000 $ 0 $ 900,000
=========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 5 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Operations and Basis of Presentation -
Alexion Pharmaceuticals, Inc. ("Alexion" or the "Company") was organized in
January 1992 and is engaged in the research and development of proprietary
immunoregulatory compounds for the treatment of cardiovascular disorders
(perioperative bleeding and inflammation associated with cardiopulmonary bypass,
myocardial infarction, and stroke) and autoimmune diseases (lupus, rheumatoid
arthritis, and multiple sclerosis). As an outgrowth of its core technologies,
the Company is developing, in collaboration with a third party (see Note 5),
non-human UniGraft organ ("xenograft" organs) products designed for
transplantation into humans and, with another third party (see Note 5),
immunoprotected retroviral vector particles and producer cells for use in gene
therapy.
The Company is in the development stage and is devoting substantially all of its
efforts toward product research and development. The Company has incurred losses
since inception and has cumulative net losses of approximately $36.0 million
through April 30, 1998. The Company has made no product sales to date and has
recognized cumulative revenue from grant, license, and contract revenues (see
Note 5) of $11.1 million through April 30, 1998. During the nine months ended
April 30, 1998, the Company received approximately $18.3 million in net proceeds
from the issuance of shares of Series B Preferred Stock and the issuance of the
Company's Common Stock to a single institutional investor. In addition, the
Company received payments of an additional $6.5 million from United States
Surgical Corporation ("US Surgical") for equity, exclusive licensing rights, and
certain manufacturing assets. The Company has also received approximately $3.9
million from the exercise of warrants during the nine months ended April 30,
1998 (see Note 6).
The Company will need additional financing to obtain regulatory approvals, fund
operating losses, and, if deemed appropriate, establish a manufacturing, sales,
and marketing capability. In addition to normal risks associated with
development stage companies, there can be no assurance that the Company's
research and development will be successfully completed, that adequate patent
protection for the Company's technology will be obtained, that the Company's
products will not infringe third parties' patents, that any products developed
will obtain necessary government regulatory approval or that any approved
products will be commercially viable. In addition, the Company operates in an
environment of rapid change in technology, substantial competition from
pharmaceutical and biotechnology companies and is dependent upon the services of
its employees and its consultants.
The Company expects to incur substantial additional costs, including costs
associated with research, pre-clinical and clinical testing, manufacturing
process development, and additional capital expenditures associated with
facility expansion and manufacturing requirements in order to commercialize its
products currently under development. The Company will need to raise
Page 6 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
substantial additional funds in addition to those previously described, which it
will seek through public or private equity or debt financings, collaborative or
other arrangements with corporate sources, or through other sources of
financings.
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and include, in the opinion of management, all
adjustments, consisting of normal, recurring adjustments, necessary for a fair
presentation of interim period results. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The results for the interim periods
presented are not necessarily indicative of results to be expected for any
future period. It is suggested that these condensed financial statements be read
in conjunction with the audited financial statements and notes thereto included
in the Company's Form 10-K Annual Report for the fiscal year ended July 31,
1997.
2. Cash and Cash Equivalents and Marketable Securities -
Cash and cash equivalents are stated at cost, which approximates market, and
include short-term highly liquid investments with original maturities of less
than three months.
The Company invests in marketable securities of highly rated financial
institutions and investment-grade debt instruments and limits the amount of
credit exposure with any one entity. The Company follows Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Pursuant to this Statement, the Company has classified
its marketable securities as "available for sale" and, accordingly, carries such
securities at aggregate fair value. Unrealized gains or losses are included in
stockholders' equity as a component of additional paid-in capital.
3. Net Loss per Common Share -
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share", which superceded Accounting Principles Board Opinion 15.
This new standard replaces the computation of primary earnings (loss) per share
with a new computation of "basic earnings (loss) per share". The Company adopted
this standard for all periods ending on or after January 31, 1998. Previously
reported, net earnings (loss) per common share, is required to be restated under
the provisions of SFAS No. 128. There was no effect on previously reported net
loss per common share for the three and nine month periods ended April 30, 1998.
There is no difference in basic and diluted net loss per common share as the
effects of exercising outstanding
Page 7 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
stock options, warrants and converting Preferred Stock to Common Stock is
anti-dilutive for all periods presented.
4. Revenue Recognition -
Contract research revenues are recognized as the related work is performed under
the terms of the contracts and expenses for development activities are incurred.
Any revenue contingent upon future funding by the Company is deferred and
recognized as the future funding is expended. Any revenues resulting from the
achievement of milestones would be recognized when the milestone is achieved.
License fee revenues represent non-refundable payments received in accordance
with contractual agreements for various access and rights to the Company's
technologies, research, potential products and markets.
5. Revenues -
Revenues recorded by the Company consist of license fees and research and
development support under collaborations with US Surgical and GTI/Novartis,
Small Business Innovation Research ("SBIR") grants awarded in July and September
1995 from the National Institutes of Health ("NIH"), and funding from the
Commerce Department's National Institute of Standards and Technology ("NIST").
In July 1995, the Company entered into a collaborative research and development
agreement with US Surgical. US Surgical agreed to fund pre-clinical development
of the Company's xenotransplant products in return for exclusive worldwide
manufacturing, marketing and distribution rights of such products by paying the
Company up to $7.5 million allocated as follows: (1) up to $4.0 million of the
cost of pre-clinical development in four semi-annual installments of up to $1.0
million, and (2) $3.5 million upon achieving certain milestones. In furtherance
of this joint collaboration, US Surgical also purchased $4.0 million of the
Company's common stock. As of October 31, 1997 the Company had recognized the
$4.0 million for the cost of pre-clinical development. At the end of September
1997, US Surgical and the Company modified the July 1995 Joint Development
Agreement. As part of the modification, US Surgical made a $6.5 million payment
to the Company for equity, exclusive licensing rights, and certain manufacturing
assets. Further, as part of the modified agreement, US Surgical and the Company
agreed that the pre-clinical milestone payment in the original agreement was
considered to have been satisfied.
In December 1996, the Company and GTI/Novartis entered into a License and
Collaborative Research Agreement with respect to the Company's gene transfer
technology. Under the
Page 8 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Agreement, GTI/Novartis has been granted a worldwide exclusive license to use
the company's technology in its gene therapy products. GTI/Novartis agreed to
pay the Company an initial up-front payment of $850,000, which consisted of a
one-time license fee of $750,000 and a $100,000 research and development support
payment. GTI/Novartis also agreed to fund a minimum of $400,000 per year, for
two years for research and development support by the Company.
In November 1997, the Company and US Surgical were awarded a three-year $2.0
million Cooperative Agreement from NIST for funding a joint xenotransplantation
project.
6. Equity Offerings -
In September 1997, the Company completed the private placement of 400,000 shares
of Series B Preferred Stock for aggregate consideration of $10,000,000 to a
single institutional investor, Biotech Target S.A. The net proceeds to the
Company were approximately $9.5 million. The investor was entitled to a dividend
of $2.25 per share of Series B Preferred Stock if this stock was held through
March 4, 1998. On March 4, 1998 the Company converted the Preferred Stock into
935,782 shares of Common Stock and dividends of $900,000 were paid by the
delivery of 70,831 shares of the Company's Common Stock. Also, on March 4, 1998
Biotech Target S.A. purchased an additional, 670,000 shares of Common Stock for
an aggregate, offering price of $8,827,250.
In September 1997, the Company sold 166,945 shares of its common stock to US
Surgical for aggregate consideration of $3,000,000. The sale of common stock was
made in connection with the modification of the joint development agreement
between the Company and US Surgical.
In connection with its private placements in fiscal 1993 and 1994, the Company
had issued warrants to purchase Common Stock. These warrants were exercisable at
any time prior to the close of business on December 4, 1997. All such warrants
had expired or were exercised. Since the Company's inception warrants have been
exercised for the purchase of 551,719 shares of Common Stock aggregating
proceeds of approximately $4,144,000.
Page 9 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward looking statements which involve risks and
uncertainties. Such statements are subject to certain factors and uncertainties,
which may cause the Company's plans to differ. Factors and uncertainties that
may cause such differences include, but are not limited to, the rate of
progress, if any, of the Company's research and development programs, the
Company's ability to compete successfully, the Company's ability to attract and
retain qualified personnel, the Company's ability to successfully enter into
collaborations with third parties, the Company's ability to enter into and
progress in clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in obtaining and enforcing patents and any
necessary licenses, the ability of the Company to establish development and
commercialization relationships and strategic alliances with third parties, the
cost of manufacturing, the Company's ability to obtain additional funds, and
those other risks discussed in the Company's Annual Report or Form 10-K for the
fiscal year ended July 31, 1997.
OVERVIEW
Since its inception in January 1992, Alexion has devoted substantially all of
its resources to its drug discovery, research and product development programs.
To date, the Company has not received any revenues from the sale of products.
The Company has been unprofitable since inception, and expects to incur
substantial and increasing operating losses for the next several years due to
expenses associated with product research and development, pre-clinical and
clinical testing, regulatory activities and manufacturing development and
scale-up. For the period from inception to April 30, 1998, the Company incurred
a cumulative net loss of approximately $36.0 million.
The Company's plan is to develop and commercialize on its own those product
candidates for which the clinical trial and marketing requirements can be funded
by the Company. For certain of the Company's C5 Inhibitor and Apogen products
for which greater resources will be required, Alexion's strategy is to form
corporate partnerships with major pharmaceutical companies for product
development and/or commercialization. Alexion has entered into strategic
alliances with US Surgical with respect to the Company's Unigraft program,
GTI/Novartis with respect to the Company's gene therapy technologies, and
intends to seek additional strategic alliances with other major pharmaceuticals
companies.
The Company recognizes research and development revenues when the development
expenses are incurred and the related work is performed under the terms of the
contracts. Any revenue contingent upon future funding by the Company is deferred
and recognized as the future funding is expended. Any revenues resulting from
the achievement of milestones would be recognized when the milestone is
achieved. License fee revenues represent non-refundable payments
Page 10 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
received in accordance to contractual agreements for various, access and rights
to the Company's technologies, research, potential products and markets.
RESULTS OF OPERATIONS
Three Months Ended April 30, 1998
Compared with Three Months Ended April 30, 1997
The Company's contract research and license revenues decreased to $101,000 for
the three months ended April 30, 1998 from $621,000 for the same period ended
April 30, 1997. The decrease was due primarily to lower recognized grant
revenues. Contract research revenues represent revenues from the Company's
collaborative research and development agreement with GTI/Novartis.
Research and development expenses increased to $3,005,000 for the three months
ended April 30, 1998 from $2,013,000 for the three months ended April 30, 1997.
The increase resulted principally from expanded process development and
internal/external manufacturing costs associated with the Company's recombinant
product candidates.
General and administrative related expenses decreased to $673,000 for the three
months ended April 30, 1998 from $700,000 for the same period ended April 30,
1997. This decrease in general administrative expenses resulted principally from
lower outside professional services.
The Company earned other income, net, of $562,000 for the three months ended
April 30, 1998 as compared to other income, net, of $187,000 for the three
months ended April 30, 1997. This increase in other income, net, resulted
principally from greater interest income from higher cash balances available for
investment and decreased interest expense associated with maturing notes payable
and maturing capital equipment leases used to finance the purchase of certain
equipment.
As a result of the above factors, the Company incurred a net loss of $3,015,000
for the three months ended April 30, 1998 as compared to a net loss of
$1,906,000 for the same three month period in 1997.
Nine Months Ended April 30, 1998
Compared with Nine Months Ended April 30, 1997
The Company's contract research and license revenues increased to $4,547,000 for
the nine months ended April 30, 1998 from $2,870,000 for the nine months ended
April 30, 1997. This increase was due primarily to a one-time license fee of
$3.5 million the Company received from US Surgical in connection with the
September 1997 modification of the companies' collaborative research and
development agreement.
Page 11 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
During the nine months ended April 30, 1998 and 1997, the Company expended
$8,283,000 and $5,908,000, respectively, on research and development activities.
This increase of $2,375,000 resulted principally from costs incurred related to
the clinical trials of the Company's lead C5 Inhibitor, 5G1.1-SC, expanded
pre-clinical development, process development, and manufacturing costs for the
Company's recombinant product candidates.
General and administrative related expenses decreased to $1,949,000 for the nine
months ended April 30, 1998 from $2,108,000 for the same period ended April 30,
1997. This decrease was due principally to lower external professional fees.
Other income, net was $1,534,000 for the nine months ended April 30, 1998 as
compared to other income, net of $627,000 for same period a year ago. This
increase in other income, net, resulted principally from greater interest income
from higher cash balances available for investment and decreased interest
expense associated with maturing notes payable, and maturing capital equipment
leases used to finance the purchase of certain equipment.
As a result of the above factors, the Company's net loss decreased to $4,151,000
from $4,520,000 for the nine months ended April 30, 1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and capital
expenditures primarily through private placements and its initial public
offering of equity securities resulting in aggregate net proceeds of
approximately $77.6 million. The Company has financed the purchase of certain
equipment through $1.2 million of secured notes payable to a financing
institution, $378,000 of capital lease obligations, and recently, $625,000 from
a term loan from a commercial bank. Through April 1998, the Company has received
an aggregate of approximately $8.9 million in license fees and research and
development support under its collaborations with US Surgical and GTI/Novartis
and has received $1.1 million from its SBIR grants from the NIH and $1.1 million
under the ATP/NIST grant.
The proceeds of the Company's initial public offering, private placements, notes
payable and capital leases, and the cash generated from the corporate
collaborations and SBIR and ATP grants have been used to fund operating
activities of approximately $31.0 million and investments of approximately $4.6
million in equipment and approximately $976,000 in licensed technology rights
and patents through April 30, 1998. During the nine months ended April 30, 1998
and April 30, 1997, the Company's capital expenditures totaled $1,631,000 and
$569,000, respectively, primarily for the acquisition of laboratory and
manufacturing equipment. As of April 30, 1998, the Company had available in
cash, cash equivalents and marketable securities of approximately $42.3 million.
Page 12 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
The Company leases its administrative and research and development facilities
under three principal operating leases expiring in December 1997, June 1998, and
March 1999, respectively, each with an option for up to an additional three
years. The Company is currently continuing the lease that expired in December
1997 on a month to month basis while discussions for a lease extension are on
going.
The Company anticipates that its existing available capital resources and
interest earned on available cash and marketable securities should be sufficient
to fund its operating expenses and capital requirements as currently planned for
at least the next eighteen months. In November 1997, the Company completed a
term loan facility for up to $1.2 million with a commercial bank for the
financing of capital expenditures principally related to facilities
manufacturing scale-up equipment. As of April 30, 1998 the Company has drawn
down $625,000 of the available $1.2 million term loan. The Company's future
capital expenditure requirements will depend on many factors, including but not
limited to, the progress of the Company's research and development programs,
progress in clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in obtaining and enforcing patents and any
necessary licenses, the ability of the Company to establish development and
commercialization relationships, and the costs of manufacturing scale-up.
In connection with its private placements in fiscal 1993 and 1994, the Company
had issued warrants to purchase Common Stock. These warrants were exercisable at
any time prior to the close of business on December 4, 1997. All such warrants
had expired or were exercised. Since the Company's inception warrants have been
exercised for the purchase of 551,719 shares of Common Stock aggregating
proceeds of approximately $4,144,000.
On March 4, 1998, the Company's Series B Convertible Preferred Stock was
automatically converted into 935,782 shares of the Company's Common Stock, par
value $0.0001. The Company satisfied its dividend payment obligation,
aggregating $900,000, by delivery of 70,831 shares of the Company's Common Stock
to an institutional investor. In addition on March 4, 1998, the Company entered
into an agreement to sell 670,000 shares of Common Stock, par value $0.0001, to
the same institutional investor, Biotech Target S.A., for an aggregate purchase
price of $8,827,250, equal to a purchase price of $13.175 per share (the average
closing bid price of the Company's Common Stock for the five business days prior
to March 4, 1998).
The Company expects to incur substantial additional costs, including costs
associated with research, pre-clinical and clinical testing, manufacturing
process development, contract manufacturing, and additional capital expenditures
associated with facility expansion and manufacturing requirements in order to
commercialize its products currently under development. The Company will need to
raise substantial additional funds through additional financings including
public or private equity offerings and collaborative research and development
arrangements with corporate partners. There can be no assurance that funds will
be available on terms acceptable to the Company, if at all, or that discussions
with potential collaborative partners will result in any agreements. The
unavailability of additional financing could require
Page 13 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
the Company to delay, scale back or eliminate certain of its research and
product development programs or to license third parties to commercialize
products or technologies that the Company would otherwise undertake itself, any
of which could have a material adverse effect on the Company.
YEAR 2000
The "Year 2000" issue affects computer systems that have date sensitive programs
that may not properly recognize the year 2000. Systems that do not properly
recognize such information could generate data or cause a system to fail,
resulting in business interruption. The Company is currently developing a plan
to provide assurances that its computer systems are Year 2000 compliant. The
Company's accounting and payroll systems are provided by third party suppliers,
who have indicated that such systems are Year 2000 compliant. Other key internal
systems will be assessed and plans will be developed to address required systems
modifications. Given the relatively small size of the Company's internal systems
and the relatively new hardware, software and operating systems, management does
not anticipate any significant delays in becoming Year 2000 compliant. Further,
management believes at present that the costs associated with modifications to
become Year 2000 compliant will be immaterial to the Company's continued
internal operations.
The Year 2000 issue is expected to affect the systems of various entities with
which the Company interacts, including the Company's research and development
partners, suppliers and vendors. There can be no assurance that the systems of
other companies on which the Company's system rely will be timely converted, or
that a failure by another company's system to be Year 2000 compliant would not
have a material adverse affect on the Company's business, operating results and
financial condition.
Page 14 of 16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
PART II. OTHER INFORMATION
Item 6. Exhibits
(a) Exhibits
27 - Financial Data Schedule
Page 15 of 16
<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.
ALEXION PHARMACEUTICALS, INC.
Date: May 29, 1998 By: /s/ LEONARD BELL, M.D.
----------------------
Leonard Bell, M.D.
President and Chief Executive
Officer, Secretary and Treasurer
(principal executive officer)
Date: May 29, 1998 By: /s/ DAVID W. KEISER
-------------------
David W. Keiser
Executive Vice President and Chief
Operating Officer (principal
financial officer)
Date: May 29, 1998 By: /s/ BARRY P. LUKE
-----------------
Barry P. Luke
Senior Director of Finance and
Administration (principal
accounting officer)
Page 16 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET, THE STATEMENT OF OPERATIONS, AND THE STATEMENT OF CASH FLOWS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. ALL
PREVIOUSLY REPORTED NET EARNINGS (LOSS) PER COMMMON SHARE ARE UNAFFECTED BY THE
ADOPTION OF SFAS NO. 128, WITH THE EXCEPTION OF THE QUARTER ENDED OCTOBER 31,
1997. RESTATED BASIC AND DILUTED EARNINGS (LOSS) PER SHARE ARE $0.15 AND $0.13,
RESPECTIVELY, FOR THE QUARTER ENDED OCTOBER 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> APR-30-1998
<CASH> 34,837
<SECURITIES> 7,483
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,726
<PP&E> 4,553
<DEPRECIATION> (2,470)
<TOTAL-ASSETS> 45,222
<CURRENT-LIABILITIES> 2,309
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 42,913
<TOTAL-LIABILITY-AND-EQUITY> 45,222
<SALES> 0
<TOTAL-REVENUES> 4,547
<CGS> 0
<TOTAL-COSTS> 10,232
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,534)
<INCOME-PRETAX> (4,151)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,151)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,151)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
