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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1996 Commission File Number 0-22962
HUMAN GENOME SCIENCES, INC.
(Exact name of registrant)
Delaware 22-3178468
(State of organization) (I.R.S. Employer Identification
Number)
9410 Key West Avenue, Rockville, Maryland 20850-3331
(Address of principal executive offices and zip code)
(301) 309-8504
(Registrant's telephone Number)
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
---- -----
The number of shares of the registrant's common stock outstanding on April 30,
1996 was 18,650,355.
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TABLE OF CONTENTS
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months
ended March 31, 1996 and 1995.............................................. 3
Balance Sheets at March 31, 1996 and December 31, 1995......................... 4
Statements of Cash Flows for the three months
ended March 31, 1996 and 1995.............................................. 5
Notes to Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................... 8
Signatures..................................................................... 8
Exhibit Index.................................................................. Exhibit Volume
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2
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PART I. FINANCIAL INFORMATION
HUMAN GENOME SCIENCES, INC.
STATEMENTS OF OPERATIONS
Three months ended
March 31,
1996 1995
--------------- ------------
(dollars in thousands, except
per share amounts)
Revenue - research and development
collaborative contracts........................ $ 13,934 $ - 0 -
Costs and expenses:
Research and development:
Direct expenditures........................ 6,491 4,838
Payments under research services agreement. 2,521 2,389
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Total research and development...................... 9,012 7,227
General and administrative.......................... 2,023 1,718
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Total costs and expenses................... 11,035 8,945
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Income (loss) from operations....................... 2,899 (8,945)
Interest income..................................... 1,586 1,081
Interest expense.................................... (108) (137)
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Income (loss) before taxes.......................... 4,377 (8,001)
Provision (benefit) for income taxes................ 90 (2,001)
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NET INCOME (LOSS)................................... $ 4,287 $ (6,000)
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NET INCOME (LOSS) PER SHARE......................... $ 0.22 $ (0.40)
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Weighted average shares outstanding................. 19,489,122 14,858,784
============ ============
See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
HUMAN GENOME SCIENCES, INC.
BALANCE SHEETS
ASSETS
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March 31, December 31,
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1996 1995
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(dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................$ 31,275 $ 39,853
Short-term investments..................................................... 95,558 65,609
Prepaid expenses and other current assets.................................. 2,825 2,163
--------------- ------------------
Total current assets................................................... 129,658 107,625
Furniture and equipment (net of accumulated depreciation)....................... 17,401 16,005
Restricted investments.......................................................... 1,699 2,000
Other assets.................................................................... 1,327 1,333
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TOTAL..................................................................$ 150,085 $ 126,963
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LIABILITIES
-----------
Current liabilities:
Current portion of long-term debt..........................................$ 444 $ 444
Accounts payable and accrued expenses...................................... 1,599 2,341
Accrued payroll and related taxes.......................................... 1,100 692
Current obligation under capital leases.................................... 1,208 1,174
Deferred income............................................................ 3,000 2,000
Income taxes payable....................................................... 90 - 0 -
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Total current liabilities.............................................. 7,441 6,651
Long-term debt, net of current portion.......................................... 3,112 3,112
Obligations under capital leases, net of current portion........................ 874 1,220
Other liabilities............................................................... 367 374
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TOTAL.................................................................. 11,794 11,357
STOCKHOLDERS' EQUITY
--------------------
Common stock.................................................................... 186 182
Additional paid-in capital...................................................... 161,019 142,624
Unearned portion of compensatory stock and warrants............................. (715) (885)
Unrealized gain (loss) on investments available for sale........................ (124) 47
Retained earnings (deficit)..................................................... (22,075) (26,362)
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Total stockholders' equity............................................. 138,291 115,606
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TOTAL..................................................................$ 150,085 $ 126,963
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See accompanying notes to financial statements.
4
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HUMAN GENOME SCIENCES, INC.
STATEMENTS OF CASH FLOWS
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Three months ended
March 31,
1996 1995
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(dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...............................................................$ 4,287 $ (6,000)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Accrued interest on U.S. Treasury bills and commercial paper................ (333) (241)
Depreciation................................................................ 1,322 964
Loss due to disposal and write-down of furniture and equipment.............. - 0 - 6
Issuance of and accretion of compensatory stock and warrants................ 170 176
Changes in operating assets and liabilities:
Prepaid expenses and other current assets................................ (691) (301)
Funds available - facility fund.......................................... - 0 - (35)
Other assets............................................................. 6 (45)
Accounts payable and accrued expenses.................................... (498) (210)
Accrued payroll and related taxes........................................ 408 140
Deferred income.......................................................... 1,000 4,500
Income taxes payable..................................................... 90 (2,134)
Other liabilities........................................................ (7) (10)
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Net cash provided by (used in) operating activities......................... 5,754 (3,190)
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Cash flows from investing activities:
Capital expenditures - furniture and equipment.................................. (2,963) (2,668)
Purchase of short-term investments and marketable securities.................... (62,890) (15,216)
Proceeds from sales and maturities of short-term investments.................... 33,133 12,818
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Net cash used in investing activities....................................... (32,720) (5,066)
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Cash flows from financing activities:
Proceeds of long-term debt...................................................... - 0 - 1,090
Collateral on line of credit - restricted....................................... 301 (5)
Payments on capital lease obligations........................................... (312) (212)
Proceeds from issuance of common stock (net of expenses)........................ 18,399 135
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Net cash provided by financing activities................................... 18,388 1,008
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NET DECREASE IN CASH AND CASH EQUIVALENTS........................................... (8,578) (7,248)
Cash and cash equivalents - beginning of period..................................... 39,853 36,027
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CASH AND CASH EQUIVALENTS - END OF PERIOD...........................................$ 31,275 $ 28,779
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest....................................................................$ 50 $ 50
Income taxes................................................................ - 0 - 508
</TABLE>
See accompanying notes to financial statements.
5
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NOTES TO FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying financial statements of Human Genome Sciences, Inc. ( the
"Company") have not been audited by independent auditors, except for the balance
sheet at December 31, 1995. In the opinion of the Company's management, the
financial statements reflect all adjustments necessary to present fairly the
results of operations for the three month periods ended March 31, 1996 and 1995,
the Company's financial position at March 31, 1996, and the cash flows for the
three month periods ended March 31, 1996 and 1995. These adjustments are of a
normal recurring nature.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly report on Form 10-Q.
Therefore these financial statements should be read in conjunction with the
Company's 1995 Annual Report on Form 10-K.
The results of operations for the three month period ended March 31, 1996 are
not necessarily indicative of future financial results.
Note 2. Income Taxes
The Company produced income before taxes of $4,377,000 during the three months
ended March 31, 1996. As of December 31, 1995, the Company had net operating
loss carryforwards for federal income tax purposes of approximately $22 million
and available tax credit carryforwards of $4,347,000 that expire between the
years 2000 and 2010. The Company estimates that the net operating loss
carryforwards and tax credit carryforwards will be sufficient to offset ordinary
taxable income, if any, during 1996, and thus has provided for income taxes
during the current period based upon the Alternative Minimum Tax provisions of
the Internal Revenue Code.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Three Month Periods ended March 31, 1996 and 1995.
Results of Operations
- - ---------------------
Quarters Ended March 31, 1996 and March 31, 1995
- - ------------------------------------------------
Revenues. The Company had revenues of $13.9 million for the three months
ended March 31, 1996 compared with no revenues for the three months ended March
31, 1995. Revenue consisted of $6.9 million upon the achievement of Milestone
III pursuant to the Collaboration Agreement with SmithKline Beecham ("SB") and
$7.0 million in license fees and milestone payments from Pioneer Hi-Bred
International, Inc. (Pioneer") and F. Hoffmann-La Roche ("Roche"). The Company
expects that its revenue sources for at least the next several years will be
limited to interest income, payments under existing Collaboration Agreements
which are contingent on meeting certain product milestones, license fees,
proceeds from the sale of rights and other payments from other collaborators and
licensees under existing or future arrangements, to the extent that the Company
enters into any such further arrangements.
Expenses. Research and development expenses increased from $7.2 million for
the three months ended March 31, 1995 to $9.0 for the three months ended March
31, 1996. The Company's payments to The Institute for Genomic Research ("TIGR")
were $2.5 million for the quarter ended March 31, 1996 compared to $2.4 million
for the quarter ended March 31, 1995. The Company's direct expenditures for
research and development increased from $4.8 million for the three months ended
March 31, 1995 to $6.5 million for the three months ended March 31, 1996. These
increases resulted primarily from significant expansions in the Company's cell
biology, protein expression and pharmacology departments and reflect the
Company's increasing emphasis on determinng the biological functions and
possible medical utilities of genes and proteins discovered as a result of the
Company's gene discovery efforts.
General and administrative expenses increased from $1.7 million for the
three months ended March 31, 1995 to $2.0 million for the three months ended
March 31, 1996. The increase resulted primarily from significantly higher legal
expenses associated with filing a larger number of patent applications relating
to genes and proteins discovered by the Company. Interest income was
significantly higher for the three months ended March 31, 1996 compared to the
three months ended March 31, 1995 due to higher cash balances.
Net Income. The Company recorded net income of $4.3 million, or $.22 per
share for the three months ended March 31, 1996 compared to a loss of $6.0
million, or $.40 per share for the three months ended March 31, 1995. The
difference in results for the three months ended March 31, 1996 and 1995 is
primarily due to the receipt of $13.9 million in license and milestone revenues
during the three months ended March 31, 1996, which was partially off-set by
higher expenses.
Liquidity and Capital Resources
- - -------------------------------
The Company had working capital of $122.2 million at March 31, 1996 compared
to $101.0 million at December 31, 1995. The increase resulted from the net
income generated during the quarter, and the sale of 339,065 shares of Common
Stock to SB upon completion of the third milestone ("Milestone III") under the
Company's collaboration agreement with SB for $18.1 million, which were
partially off-set by capital expenditures and payments on capitalized leases.
The Company's funds are currently invested in U.S. Treasury and government
agency obligations, investment-grade commercial paper and interest-bearing
securities having a maximum maturity of two years.
The Company is committed to pay TIGR approximately $50.5 million during the
next seven years, including approximately $18.4 million through March 31, 1998.
At March 31, 1996, the Company had outstanding commitments for construction and
equipment purchases totaling approximately $500,000.
The Company expects that its existing funds, interest income, and
anticipated payments from Pioneer and Roche upon successful completion of
various milestones will be sufficient to fund the Company's operations for
approximately three years. The Company may require additional sources of
financing or funds prior to the time that it will receive any revenues from
product sales or royalties on product sales by licensees. The Company's future
capital requirements and
7
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the adequacy of its available funds will depend on many factors, including
scientific progress in its research and development programs, the magnitude of
those programs, the ability of the Company to establish collaborative and
licensing arrangements, the cost involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and competing technological and market
developments.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1) Computation of per share date.
(b) Reports on Form 8-K
None.
SIGNATURES
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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.
HUMAN GENOME SCIENCES, INC.
BY: /s/William A. Haseltine
--------------------------------
William A. Haseltine, Ph.D.
Chairman and Chief Executive Officer
BY: /s/Melvin D. Booth
---------------------------------
Melvin D. Booth
President and Chief Operating Officer and
Acting Chief Financial Officer
Dated: May 13, 1996
8
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EXHIBIT INDEX
Page
Exhibit Number
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11.1 Computation of per share data................................
9
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EXHIBIT 11.1
COMPUTATION OF PER SHARE DATA
(In thousands except per share data)
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Three months ended,
March 31,
------------------------------
1996 1995
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<S> <C> <C>
Net Income (Loss)............................................................. $ 4,287 $ (6,000)
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Primary:
Weighted average number of common shares outstanding...................... 18,438 14,859
Shares issuable upon exercise of dilutive stock options and warrants --- net
of shares assumed to be repurchased (at the average market price for the
period) from exercise proceeds........................................ 1,051 - 0 -
-------------- --------------
Shares used for computation................................................... 19,489 14,859
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Earnings (loss) per share of common stock (primary)........................... $ 0.22 $ (0.40)
============== ==============
Assuming full dilution:
Weighted average number of common shares outstanding...................... 18,438 14,859
Shares issuable upon exercise of dilutive stock options and warrants --- net
of shares assumed to be repurchased (at the higher of period-end market
price or the average market price for the period) from exercise proceeds 1,051 - 0 -
-------------- --------------
Shares used for computation................................................... 19,489 14,859
============== ==============
Earnings (loss) per share of common stock (assuming full
dilution) (1)............................................................ $ 0.22 $ (0.40)
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Notes & assumptions:
(1) Not presented as dilution is less than 3%.
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 31,275
<SECURITIES> 95,558
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 129,658
<PP&E> 26,190
<DEPRECIATION> 8,789
<TOTAL-ASSETS> 150,085
<CURRENT-LIABILITIES> 7,441
<BONDS> 3,986
<COMMON> 186
0
0
<OTHER-SE> 138,108
<TOTAL-LIABILITY-AND-EQUITY> 150,085
<SALES> 0
<TOTAL-REVENUES> 13,934
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 4,377
<INCOME-TAX> 90
<INCOME-CONTINUING> 4,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,287
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
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</TABLE>
