<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Page 1 of 18
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 January 31, 1999
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)
<TABLE>
<CAPTION>
DELAWARE 13-3648318
<S> <C>
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
</TABLE>
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 MARCH 5, 1999
------------------------------- ----------------------------
Common Stock, $0.0001 par value 11,281,324
<PAGE>
ALEXION PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of January 31, 1999
and July 31, 1998 3
Statements of Operations for the three months and six months
ended January 31, 1999 and 1998 4
Statements of Cash Flows for the six months ended
January 31, 1999 and 1998 5
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II. OTHER INFORMATION 17
ITEM 2. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
ITEM 4. REPORTS ON FORM 8-K
SIGNATURES 18
</TABLE>
Page 2 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
Balance Sheets
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
January 31, 1999 July 31, 1998
---------------- -------------
---------------- -------------
(UNAUDITED)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash $21,675 $31,509
equivalents
Marketable securities 7,594 5,985
Prepaid expenses 461 209
Other current assets - 137
------------ ------------
Total current assets 29,730 37,840
------------ ------------
Equipment, net of accumulated
depreciation and amortization 2,409 2,357
------------ ------------
Other Assets:
License technology rights, net 110 154
Patent application costs, net 139 149
Security deposits and other assets 1,586 1,585
------------ ------------
Total other assets 1,835 1,888
------------ ------------
TOTAL ASSETS $33,974 $42,085
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $368 $368
Accounts payable 1,070 810
Accrued expenses 842 818
Deferred revenue - 67
------------ ------------
Total current liabilities 2,280 2,063
------------ ------------
Notes Payable, less current portion included above 647 832
------------ ------------
Stockholders' Equity:
Common stock $.0001 par value; 25,000,000 shares
authorized; 11,293,199 and 11,236,987 shares issued
at January 31, 1999 and July 31, 1998, respectively 1 1
Additional paid-in capital 80,178 79,781
Accumulated Deficit (49,132) (40,592)
Treasury stock, at cost; 11,875 shares
- -
------------ ------------
Total stockholders' equity 31,047 39,190
------------ ------------
TOTAL LIABILITIES AND NET EQUITY $33,974 $42,085
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
Page 3 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
Statements of Operations
(UNAUDITED)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended January 31, Six months ended January 31,
------------------------------ ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CONTRACT RESEARCH REVENUES $170 $321 $425 $4,447
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Research and Development 4,681 2,918 8,465 5,278
General and Administrative 790 688 1,418 1,276
---------- ---------- ---------- ----------
Total Operating Expenses 5,471 3,606 9,883 6,554
---------- ---------- ---------- ----------
OPERATING INCOME(LOSS) (5,301) (3,285) (9,458) (2,107)
OTHER INCOME, Net 421 527 918 972
---------- ---------- ---------- ----------
NET INCOME(LOSS) (4,880) (2,758) (8,540) (1,135)
ACCRETION OF PREFERRED STOCK DIVIDENDS - 450 - 750
---------- ---------- ---------- ----------
NET (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS ($4,880) ($3,208) ($8,540) ($1,885)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
BASIC NET (LOSS) PER COMMON SHARE
(Note 3) ($0.43) ($0.34) ($0.76) ($0.21)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SHARES USED IN COMPUTING BASIC NET
(LOSS) PER COMMON SHARE 11,226,910 9,427,201 11,245,891 9,189,818
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Page 4 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
Statements of Cash Flows
(UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Six months ended January 31,
-----------------------------------
1999 1998
-------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) ($8,540) ($1,135)
Adjustments to reconcile net income(loss) to net cash
used in operating activities:
Depreciation and amortization 340 279
Compensation expense related to grant of stock options 33 0
Change in assets and liabilities:
Prepaid expenses (252) (222)
Other current assets 137 0
Accounts payable 260 (9)
Accrued expenses 24 (792)
Deferred revenue (67) (349)
-------------- -------------------
Net cash (used in) provided by operating activities (8,065) (2,228)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds of marketable securities, net (1,611) (2,743)
Purchases of equipment (333) (331)
Patent application costs (4) 0
-------------- -------------------
Net cash (used in) provided by investing activities (1,948) (3,074)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred and common stock 364 16,429
Repayments of capital lease obligations 0 (7)
Borrowings under notes 0 200
payable
Repayments of notes payable (185) (130)
Security deposits and other assets 0 (9)
-------------- -------------------
Net cash provided by (used in) financing activities 179 16,483
-------------- -------------------
NET (DECREASE) INCREASE IN CASH (9,834) 11,181
CASH and CASH EQUIVALENTS at beginning of period 31,509 16,742
-------------- -------------------
CASH AND CASH EQUIVALENTS at end of period $21,675 $27,923
-------------- -------------------
-------------- -------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expense $40 $9
-------------- -------------------
-------------- -------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
Preferred stock dividend accretion $0 $750
-------------- -------------------
-------------- -------------------
See accompanying notes to financial statements.
</TABLE>
Page 5 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. OPERATIONS AND BASIS OF PRESENTATION -
Alexion Pharmaceuticals, Inc. ("Alexion" or the "Company") was organized in 1992
and is a biopharmaceutical company engaged in the research and development of
proprietary immunoregulatory compounds for the treatment of acute coronary
syndromes (cardiopulmonary bypass ("CPB"), acute myocardial infarction, coronary
angioplasty, and unstable angina) and autoimmune diseases (systemic lupus,
rheumatoid arthritis, multiple sclerosis and diabetes mellitus). The Company is
currently conducting clinical trials in CPB, rheumatoid arthritis, and systemic
lupus patients. As an outgrowth of its core technologies, the Company has been
developing non-human ("xenograft") cell and Unigraft organ products designed for
transplantation into humans or xenotransplantation, without clinical rejection,
including product candidates to treat spinal cord injury, Parkinson's disease
and solid organ failure.
The Company has incurred losses since inception and has cumulative net losses of
approximately $49.1 million through January 31, 1999. Prior to July 31, 1998,
the Company reported as a development stage entity.
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 the Company operates in an environment of
rapid change in technology and 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 expenditures in the foreseeable future
for the research and development and commercialization of its products. The
Company's management believes that, based upon its current business plans, the
cash and marketable securities, aggregating $29.3 million as of January 31,
1999, and its funding through the collaboration with Procter & Gamble
Pharmaceuticals ("P&G") (see Note 10) will be sufficient to fund operations of
the Company through the next twenty-four months.
The Company will require funds in addition to those previously described, which
it will seek to raise through public or private equity or debt financings,
collaborative or other arrangements with corporate sources, or through other
sources of financing. During 1998, the Company obtained a term loan facility for
$1.2 million with a commercial bank for the financing of capital expenditures
principally related to facilities manufacturing scale-up equipment (see Note 7).
The Company has no other capital sources and no arrangements or commitments with
regard to obtaining any further funds.
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
Page 6 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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, 1998.
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 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 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 "basic earnings (loss) per share".
The Company adopted this standard for all periods ending on or after January 31,
1998.
Page 7 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. REVENUE RECOGNITION -
Contract research revenues are recognized as the related work is performed under
the terms of the contracts and as 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 to 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 United States Surgical Corporation
("US Surgical") and Genetic Therapy, Inc. ("GTI/Novartis"), and funding from the
Commerce Department's National Institute of Standards and Technology ("NIST")
through the grants from Advanced Technology Program ("ATP").
In July 1995, the Company entered into a collaborative research and development
agreement with US Surgical. The Company received $4.0 million through October
1997 for pre-clinical development of the Company's xenotransplant products in
return for exclusive worldwide manufacturing, marketing and distribution rights
of such products. In furtherance of this joint collaboration, US Surgical also
purchased $4.0 million of the Company's common stock. At the end of September
1997, US Surgical and the Company modified the research and development
agreement and US Surgical made an additional $6.5 million payment to the Company
for equity, exclusive licensing rights, and certain manufacturing assets. As
part of the modified agreement, US Surgical and the Company agreed that the $3.5
million pre-clinical milestone payment in the original agreement was considered
to have been satisfied which the Company recognized as revenue in September
1997. In October 1998, US Surgical completed a merger with a subsidiary of Tyco
International Ltd. In February 1999, the Company reacquired the rights to all
aspects of its xenotransplantation program that had been obtained by US Surgical
(see Note 10).
In December 1996, Alexion and GTI/Novartis entered into a License and
Collaborative Research Agreement with respect to the Company's gene transfer
technology. GTI/Novartis agreed to fund for two years, a minimum of $400,000 per
year, research and development support by Alexion. In October 1998, in view of
Alexion's increased focus on the advanced clinical development of its
anti-inflammatory drug candidates and GTI/Novartis' announced restructuring and
reorganization, the Company and GTI/Novartis agreed to discontinue the
collaborative gene therapy program.
6. EQUITY OFFERINGS -
Page 8 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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. In March 1998, the investor converted the preferred stock into
935,782 shares of common stock and dividends of $900,000 were paid by the
delivery of an additional 70,831 shares of the Company's common stock. Also in
March 1998, Biotech Target S.A. purchased an additional, 670,000 shares of
common stock for aggregate consideration of approximately $8,800,000.
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. Since inception
through January 31, 1998, warrants were exercised for the purchase of 551,719
shares of common stock aggregating approximately $4,144,000 of proceeds to the
Company.
7. NOTES PAYABLE -
As of July 31, 1998, a term loan was used to finance the purchase of capital
equipment. The term loan requires quarterly principal payments of $92,000
commencing August 3, 1998 and payable through August 2001. The notes payable
balance was $1.0 million at January 31, 1999. The term loan agreement requires
the Company to maintain a restricted cash balance of $1.5 million in an interest
bearing account as collateral for the note. The restricted cash balance is
subject to reductions on an annual basis.
Page 9 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. PREFERRED STOCK DIVIDEND ACCRETION -
In September 1997, the Company began accruing a dividend payable to Biotech
Target S.A. of $2.25 per share of Series B Preferred Stock related to this
private placement. The dividend was payable in either cash or common stock. The
Company had recognized $750,000 of dividends payable through January 31, 1998.
In March 1998, the Company paid all dividends owed to this investor (see
Note 6).
9. COMPREHENSIVE INCOME(LOSS) -
Effective August 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income". This statement establishes standards for reporting and
display of comprehensive income(loss) and its components within financial
statements. There was no significant difference between net income(loss) and
comprehensive income(loss) for the six month periods ended January 31, 1999 and
1998.
10. SUBSEQUENT EVENT -
In January 1999, the Company and Procter & Gamble Pharmaceuticals ("P&G") an
affiliate of Procter & Gamble Company, entered into a collaboration to
develop and commercialize the Company's lead C5 complement inhibitor drug
candidate, 5G1.1-SC, for various acute cardiovascular indications such as
CPB, heart attack, and angioplasty, among others. The Company may receive up
to $95 million in payments, which will include an up-front license fee,
milestone payments, and research and development support payments. The
Company will receive royalties on sales of products and has retained U.S.
co-promotion rights and worldwide manufacturing rights for the drug, with P&G
receiving U.S. co-promotion rights, as well as marketing rights outside of
the United States. In February 1999, the Company received the up-front,
non-refundable license fee of $10 million upon satisfaction of certain
conditions in the collaboration agreement.
In February 1999, the Company completed its reacquisition of the rights to all
aspects of its xenotransplantation program that had been obtained by US
Surgical. The Company acquired all the substantial manufacturing assets that had
been developed by US Surgical, a subsidiary of Tyco International Ltd., during
the collaboration along with the return of all technology and product rights.
The manufacturing assets are secured by a note payable in the amount of
approximately $3.9 million with a balloon payment due on or before May 2005.
Interest on the note is payable quarterly.
Page 10 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
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 AND RESULTS TO DIFFER SIGNIFICANTLY FROM
PLANS AND RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT
MIGHT CAUSE OR CONTRIBUTE TO 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 EXHIBIT 99 TO THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED JULY 31, 1998.
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 its 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. As of January 31, 1999, the Company has an accumulated deficit of
$49.1 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 products for which greater
resources will be required, the Company's strategy is to form corporate
partnerships with major pharmaceutical companies for product development and
commercialization. In January 1999, Alexion entered into a collaboration
agreement with Procter & Gamble Pharmaceuticals ("P&G") to develop and
commercialize its lead C5 Inhibitor product, 5G1.1-SC, for various acute
cardiovascular indications such as cardiopulmonary bypass ("CPB"), heart attack,
and angioplasty, among others. Currently, 5G1.1-SC is in Phase IIb clinical
trials for patients undergoing CPB during coronary artery bypass graft ("CABG")
surgery. The Company is also in clinical trials with its anti-inflammatory
complement inhibitor drug candidate, 5G1.1, in Rheumatoid Arthritis ("RA") and
Lupus patients.
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 expenditures by the Company is
deferred and recognized as the future expenditures are incurred. Any revenues
contingent upon the achievement of milestones will be recognized when the
milestones are achieved.
Page 11 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1999
COMPARED WITH THREE MONTHS ENDED JANUARY 31, 1998
The Company's contract research and license revenues were $170,000 for the three
months ended January 31, 1999 compared to $321,000 for the same period ended
January 31, 1998. Revenues were lower than the previous year due to the
discontinuation of the license and collaboration research agreement with Genetic
Therapy, Inc ("GTI/Novartis").
Research and development expenses increased to $4,681,000 for the three months
ended January 31, 1999 from $2,918,000 for the three months ended January 31,
1998. The increase resulted principally from incurred costs related to clinical
trials of the Company's lead C5 Inhibitors, 5G1.1-SC and 5G1.1, and contract
manufacturing costs for the Company's recombinant product candidates.
General and administrative related expenses increased to $790,000 for the three
months ended January 31, 1999 from $688,000 for the same period ended January
31, 1998. The increase in general and administrative expenses resulted
principally from personnel increases and higher legal/patent fees.
The Company earned other income, net, of $421,000 for the three months ended
January 31, 1999 as compared to other income, net, of $527,000 for the same
three months period ended January 31, 1998. This decrease in other income, net,
resulted principally from greater interest expense and lower interest income
from decreased cash balances available for investment.
As a result of the above factors, the Company incurred net loss of $4,880,000
for the three months ended January 31, 1999 as compared to net loss of
$2,758,000 for the same three months period in 1998.
Page 12 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
SIX MONTHS ENDED JANUARY 31, 1999
COMPARED WITH SIX MONTHS ENDED JANUARY 31, 1998
The Company's contract research and license revenues were $425,000 for the six
months ended January 31, 1999 compared to $4,447,000 for the six months ended
January 31, 1998. Revenues were lower primarily due to a one-time license fee of
$3,500,000 the Company received last year from US Surgical in connection with
the September 1997 modification of the companies' collaborative research and
development agreement.
During the six months ended January 31, 1999 and 1998, the Company expended
$8,465,000 and $5,278,000 respectively, on research and development activities.
This increase of $3,187,000 resulted principally from costs incurred related to
the clinical trials of the Company's lead C5 Inhibitor, 5G1.1-SC and expanded
pre-clinical development, process development, and manufacturing costs for the
Company's recombinant product candidates.
General and administration related expenses increased to $1,418,000 for the six
months ended January 31, 1999 from $1,276,000 for the same period ended January
31, 1998. The increase in general and administration expenses resulted
principally from personnel increases and higher legal/patent fees.
Other income, net, was $918,000 for the six months ended January 31, 1999 as
compared to other income, net, of $972,000 for the same period a year ago. This
decrease in other income, net, resulted principally from greater interest
expense and lower interest income from decreased cash balances available for
investment.
As a result of the above factors, the Company's net loss increased to $8,540,000
from $1,135,000 for the six months ended January 31, 1999 and 1998,
respectively.
Page 13 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 1999, the Company had working capital of $27.4 million,
including $29.3 million of cash, cash equivalents and marketable securities.
This compares with working capital at July 31, 1998, of $35.7 million, including
$37.4 million of cash, cash equivalents and marketable securities. The decrease
in working capital was due to the costs of operating the business.
The Company leases its administrative and research and development facilities
under three operating leases expiring in December 1997, June 1998, and March
1999. The Company is currently continuing the leases that expired in December
1997 and June 1998 on a month-to-month basis while discussions for new leases
are ongoing.
The Company anticipates that its existing available capital resources, funding
from its collaboration with Procter & Gamble Pharmaceuticals ("P&G"), and
interest earned on available cash and marketable securities should be sufficient
to fund its operating expenses and capital requirements as currently planned
through the next twenty-four months. While the Company currently has no material
commitments for capital expenditures, the Company's future capital requirements
will depend on many factors, including 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.
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 substantial
additional funds through additional financings including public or private
equity offerings, collaborative or other arrangements with corporate partners,
or through other sources of financing. 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 on a timely
basis, if at all. The unavailability of additional financing could require 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.
Page 14 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
YEAR 2000
The Company has taken actions to minimize the impact of the Year 2000 ("Y2K") on
its systems and operations. This includes reviewing computer and information
technology ("IT") systems, non-IT systems, which include embedded technology
using date sensitive programs such as HVAC (heating, ventilation, air
conditioning), other analytical instruments and equipment, and the IT and non-IT
systems of certain third parties which have a material relationship with the
Company.
The Company has a program underway to reduce the level of uncertainty about
internal Y2K problems and the Y2K compliance of material third parties of the
Company. The program includes the following objectives: (1) identify and assess
potentially non-compliant internal systems; (2) remediate by updating and/or
replacing aging software and hardware; (3) verify critical IT and non-IT
systems; (4) assess critical third-party risks; and (5) assess contingency plans
for material third party risks.
Based on current information from its inventory and assessments of its internal
IT and non-IT systems, the Company believes that the costs associated with
remediation and verification of its internal IT and non-IT systems to become Y2K
compliant will not be more than $50,000. The Company believes that such
remediation and verification will be complete by July 1999.
The Company will contact all material third parties to determine the extent of
third party Y2K risks. These third parties include certain research suppliers
and partners, manufacturers, clinical research organizations and clinical study
administrators. Certain vendors and suppliers indicate that they will make every
effort to be Y2K compliant before December 31, 1999, but that no guarantees can
be given. We will assess and, to the extent necessary, develop contingency plans
if any significant third-party risks are identified. Necessary contingency plans
or remedies could be expensive.
In a worst case scenario, the Company could experience delays in receiving R&D
and manufacturing supplies as well as managing and accessing data on patients
enrolled in clinical studies - presuming broad Y2K compliance by general service
providers such as utilities, telephone, data transfer, and other government and
private entities. These delays could slow clinical development and research and
development programs, or impact the Company's ability to effectively manage and
monitor these programs. Any Y2K compliance problems of the Company (including
costs associated with Y2K compliances), its suppliers, its clinical research
organizations and administrators, its collaborative partners, or others could
have a material adverse effect on the Company's business, results of operations,
or cash flow.
Page 15 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
OTHER EVENTS
In January 1999, the Company and Procter & Gamble Pharmaceuticals ("P&G"), an
affiliate of Procter & Gamble Company, entered into a collaboration to
develop and commercialize the Company's lead C5 complement inhibitor drug
candidate, 5G1.1-SC, for various acute cardiovascular indications such as
CPB, heart attack, and angioplasty, among others. The Company may receive up
to $95 million in payments, which will include an up-front license fee,
milestone payments, and research and development support payments. The
Company will receive royalties on sales of products and has retained U.S.
co-promotion rights and worldwide manufacturing rights for the drug, with P&G
receiving U.S. co-promotion rights, as well as marketing rights outside of
the United States. In February 1999, the Company received the up-front,
non-refundable license fee of $10 million upon satisfaction of certain
conditions in the collaboration agreement.
In February 1999, the Company completed its reacquisition of the rights to all
aspects of its xenotransplantation program that had been obtained by US
Surgical. The Company acquired all the substantial manufacturing assets that had
been developed by US Surgical, a subsidiary of Tyco International Ltd., during
the collaboration along with the return of all technology and product rights.
The manufacturing assets are secured by a note payable in the amount of
approximately $3.9 million with a balloon payment due on or before May 2005.
Interest on the note is payable quarterly.
Page 16 of 18
<PAGE>
PART II. OTHER INFORMATION
ALEXION PHARMACEUTICALS, INC.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on December 4, 1998, the
stockholders voted to nominate and elect the following directors by the votes
indicated:
<TABLE>
<S> <C>
John H. Fried, Ph.D.: 9,329,485 For, 30,932 Against or Withheld, 0 Abstaining
Leonard Bell, M.D.: 9,328,485 For, 31,932 Against or Withheld, 0 Abstaining
Timothy F. Howe: 9,329,585 For, 30,832 Against or Withheld, 0 Abstaining
Max Link, Ph.D.: 9,328,485 For, 31,932 Against or Withheld, 0 Abstaining
Joseph A. Madri, Ph.D.,M.D.: 9,328,585 For, 31,832 Against or Withheld, 0 Abstaining
Leonard Marks, Jr.: 9,329.385 For, 31,032 Against or Withheld, 0 Abstaining
Eileen M. More: 9,329,485 For, 30,932 Against or Withheld, 0 Abstaining
</TABLE>
At the Company's Annual Meeting of Stockholders held on December 4, 1998, the
stockholders voted to approve the Amendment to the Company's 1992 Stock Option
Plan to increase the number of shares of Common Stock. The vote was:
6,228,522 For, 958,942 Against or Withheld, 18,682 Abstaining
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Article 5 Financial Data Schedule for 2nd Quarter
10-Q
(b) Form 8-K
Report on Form 8-K, filed on December 31, 1998, relating to
letter of intent to reacquire United States Surgical
Corporation's stake in xenotransplantation program.
Report on Form 8-K filed January 29, 1999, relating to Procter
and Gamble Pharmaceuticals collaboration for acute
cardiovascular indications.
Page 17 of 18
<PAGE>
ALEXION PHARMACEUTICALS, INC.
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.
<TABLE>
<S> <C>
Date: March 10, 1999 By: /s/ LEONARD BELL, M.D.
---------------------------------------
Leonard Bell, M.D.
President and Chief Executive Officer, Secretary
and Treasurer (principal executive officer)
Date: March 10, 1999 By: /s/ DAVID W. KEISER
---------------------------------------
David W. Keiser
Executive Vice President and Chief Operating
Officer (principal financial officer)
Date: March 10, 1999 By: /s/ BARRY P. LUKE
---------------------------------------
Barry P. Luke
Vice President of Finance and Administration
(principal accounting officer)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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 COMMON SHARE HAVE BEEN REFLECTED IN
SFAS NO. 128.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 21,675
<SECURITIES> 7,594
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,730
<PP&E> 5,312
<DEPRECIATION> (2,903)
<TOTAL-ASSETS> 33,974
<CURRENT-LIABILITIES> 2,280
<BONDS> 647
0
0
<COMMON> 1
<OTHER-SE> 31,047
<TOTAL-LIABILITY-AND-EQUITY> 33,974
<SALES> 0
<TOTAL-REVENUES> 425
<CGS> 0
<TOTAL-COSTS> 9,883
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (918)
<INCOME-PRETAX> (8,540)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,540)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,540)
<EPS-PRIMARY> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
