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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, 1997 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
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The number of shares of the registrant's common stock outstanding on April 30,
1997 was 22,080,661.
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<PAGE>
TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months
ended March 31, 1997 and 1996...................... 3
Balance Sheets at March 31, 1997 and December 31, 1996. 4
Statements of Cash Flows for the three months
ended March 31, 1997 and 1996...................... 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....................... 9
Signatures......................................... 9
Exhibit Index......................................Exhibit Volume
2
<PAGE>
PART I. FINANCIAL INFORMATION
HUMAN GENOME SCIENCES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
----------------- ------------------
(dollars in thousands, except
per share amounts)
Revenue - research and development
<S> <C> <C>
collaborative contracts............................... $ 1,272 $ 13,934
Costs and expenses:
Research and development:
Direct expenditures............................... 8,908 6,491
Payments under research services agreement........ 3,464 2,521
------------- --------------
Total research and development............................. 12,372 9,012
General and administrative................................. 2,389 2,023
------------- --------------
Total costs and expenses.......................... 14,761 11,035
------------- --------------
(Loss) income from operations.............................. (13,489) 2,899
Interest income............................................ 1,676 1,586
Interest expense........................................... (228) (108)
------------- --------------
(Loss) income before taxes................................. (12,041) 4,377
Provision for income taxes................................. - 0 - 90
------------- --------------
NET (LOSS) INCOME.......................................... $ (12,041) $ 4,287
============= ==============
NET (LOSS) INCOME PER SHARE................................ $ (0.62) $ 0.22
============= ==============
Weighted average shares outstanding........................ 19,466,557 19,489,122
============= ==============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
HUMAN GENOME SCIENCES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
--------------- ----------------
1997 1996
--------------- ----------------
(dollars in thousands)
Current assets:
<S> <C> <C>
Cash and cash equivalents .................................................$ 117,599 $ 27,341
Short-term investments..................................................... 98,231 58,282
Prepaid expenses and other current assets.................................. 2,320 2,935
--------------- ---------------
Total current assets................................................... 218,150 88,558
Long-term investments........................................................... - 0 - 30,493
Furniture and equipment (net of accumulated depreciation)....................... 17,988 18,031
Restricted investments.......................................................... 1,400 1,705
Other assets.................................................................... 1,359 1,330
--------------- ---------------
TOTAL..................................................................$ 238,897 $ 140,117
=============== ===============
LIABILITIES
Current liabilities:
Current portion of long-term debt..........................................$ 444 $ 444
Accounts payable and accrued expenses...................................... 5,296 3,361
Accrued payroll and related taxes.......................................... 1,716 1,120
Current obligation under capital leases.................................... 696 811
Deferred income............................................................ 5,165 2,537
--------------- ---------------
Total current liabilities.............................................. 13,317 8,273
Long-term debt, net of current portion.......................................... 2,668 2,668
Obligations under capital leases, net of current portion........................ 101 286
Other liabilities............................................................... 359 369
--------------- ---------------
TOTAL.................................................................. 16,445 11,596
STOCKHOLDERS' EQUITY
Common stock.................................................................... 219 188
Additional paid-in capital...................................................... 268,684 162,583
Unrealized loss on investments available for sale............................... (281) (121)
Retained deficit................................................................ (46,170) (34,129)
--------------- ---------------
Total stockholders' equity............................................. 222,452 128,521
--------------- ---------------
TOTAL..................................................................$ 238,897 $ 140,117
=============== ===============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
HUMAN GENOME SCIENCES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
-------------- --------------
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income............................................................... $ (12,041) $ 4,287
Adjustments to reconcile net (loss) income to net cash (used in) provided
by operating activities:
Accrued interest on U.S. Treasury bills and commercial paper................ 241 (333)
Depreciation................................................................ 1,583 1,322
Issuance of and accretion of compensatory stock and warrants................ - 0 - 170
Changes in operating assets and liabilities:
Prepaid expenses and other current assets................................ 708 (691)
Other assets............................................................. (30) 6
Accounts payable and accrued expenses.................................... 2,132 (498)
Accrued payroll and related taxes........................................ 596 408
Deferred income.......................................................... 2,628 1,000
Income taxes payable..................................................... - 0 - 90
Other liabilities........................................................ (10) (7)
-------------- --------------
Net cash (used in) provided by operating activities......................... (4,193) 5,754
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - furniture and equipment.................................. (1,736) (2,963)
Purchase of short-term investments and marketable securities.................... (38,306) (62,890)
Proceeds from sales and maturities of short-term investments.................... 28,356 33,133
-------------- --------------
Net cash used in investing activities....................................... (11,686) (32,720)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collateral on line of credit - restricted....................................... 305 301
Payments on capital lease obligations........................................... (300) (312)
Proceeds from issuance of common stock (net of expenses)........................ 106,132 18,399
-------------- --------------
Net cash provided by financing activities................................... 106,137 18,388
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................................... 90,258 (8,578)
Cash and cash equivalents - beginning of period..................................... 27,341 39,853
-------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD...........................................$ 117,599 $ 31,275
============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest....................................................................$ 68 $ 50
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
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, 1996. 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, 1997 and 1996,
the Company's financial position at March 31, 1997, and the cash flows for the
three month periods ended March 31, 1997 and 1996. 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 1996 Annual Report on Form 10-K.
The results of operations for the three month period ended March 31, 1997 are
not necessarily indicative of future financial results.
NOTE 2. PUBLIC STOCK OFFERING
The Company completed in March a public stock offering of 3,000,000 shares of
Common Stock at $37.00 per share for total net proceeds of approximately $105.0
million. Th Company subsequently sold an additional 192,750 shares of Common
Stock at $37.00 per share pursuant to an over-allotment option granted to the
underwriters. The sale of additional shares increased total net proceeds to
approximately $112.0 million.
NOTE 3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted in the December 31,
1997 financial statements. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
No. 128 on the calculation of fully diluted earnings per share is not expected
to be material.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Month Periods ended March 31, 1997 and 1996.
RESULTS OF OPERATIONS
- ---------------------
QUARTERS ENDED MARCH 31, 1997 AND MARCH 31, 1996
- ------------------------------------------------
Revenues. The Company had revenues of $1.3 million for the three months
ended March 31, 1997 compared with revenues of $13.9 million for the three
months ended March 31, 1996. Revenue for the three months ended March 31, 1997
consisted of the recognition of $0.8 million from Pioneer Hi-Bred International,
Inc. ("Pioneer") and $0.5 million from Pharmacia & UpJohn Company ("Pharmacia")
for ongoing research services pursuant to their respective collaboration
agreements. Revenue for the three months ended March 31, 1996 consisted of the
recognition 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 and F. Hoffman-La Roche
("Roche"). Revenue from collaboration payments due in the next quarter include
$7.5 million from Schering Corp. and Schering-Plough Ltd. ("Schering-Plough")
and $4.5 million from Synthelabo S.A. ("Synthelabo"). The Company expects that
its revenue sources for at least the next several years may be limited to
interest income, payments under the collaboration agreements with
Schering-Plough, Synthelabo and Merck KGaA, (collectively "the New Collaboration
Partners"), Pioneer and Pharmacia, payments 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 future
arrangements.
Expenses. Research and development expenses increased from $9.0 million for
the three months ended March 31, 1996 to $12.4 million for the three months
ended March 31, 1997. These increases resulted primarily from significant
expansions in the Company's cell biology, protein expression and pharmacology
departments during 1996 and reflect the Company's increasing emphasis on
determining 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 $2.0 million for the
three months ended March 31, 1996 to $2.4 million for the three months ended
March 31, 1997. 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 higher for
the three months ended March 31, 1997 compared to the three months ended March
31, 1996 due to higher cash balances.
Net (Loss) Income. The Company recorded a net loss of $12.0 million, or $.62
per share for the three months ended March 31, 1997 compared to a net income of
$4.3 million, or $.22 per share for the three months ended March 31, 1996. The
difference in results for the three months ended March 31, 1997 and 1996 is
primarily due to the receipt of $13.9 million in license and milestone revenues
during the three months ended March 31, 1996, and higher expenses for the three
months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had working capital plus long-term investments, which include
obligations of the U.S. government and corporate bonds that have maturities
greater than 12 months from the balance sheet date, of $204.8 million at March
31, 1997 as compared to $110.8 million at December 31, 1996. The increase
resulted from the sale of 3,000,000 shares of Common Stock in a public offering
for $37.00 per share for net proceeds of approximately $105.0 million offset by
the net loss generated during the quarter, capital expenditures, and payments on
capitalized leases. In addition, in April 1997 the Company received net proceeds
of $6.8 million after underwriting discounts and commissions from the sale of
192,750 shares of Common Stock pursuant to an over-allotment option granted to
the underwriters.
The Company expects to continue to incur substantial expenses relating to
its research and development efforts, which expenses are expected to increase
relative to historical levels as the Company focuses on preclinical and clinical
trials required for the development of therapeutic protein product candidates.
As of March 31, 1997, the Company is committed to pay TIGR approximately $40.5
million during the next six years. At March 31, 1997, the Company had
outstanding commitments for construction and equipment purchases totaling
approximately $1.1 million. In addition, the Company is planning the
construction of a pilot scale production and process development facility and
intends to seek financing with respect to all or a portion of the estimated $40
million construction cost of such facility. There can be no assurance that the
Company will be able to obtain such financing on terms acceptable to the
Company, or at all. In the
7
<PAGE>
event that financing is not available on acceptable terms, the Company may
determine to use its own capital resources to finance all or a portion of the
cost of such facility.
The Company expects that its existing funds, interest income, and committed
license fees and research payments from the New Collaboration Partners, Pioneer,
Pharmacia, and under other existing collaboration agreements will be sufficient
to fund the Company's operations for the foreseeable future. The Company's
future capital requirements and 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.
The Company's funds are currently invested in U.S. Treasury and government
agency obligations, investment-grade commercial paper and interest-bearing
securities. Such investments reflect the Company's policy regarding the
investment of liquid assets, which is to seek a reasonable rate of return
consistent with an emphasis on safety, liquidity and preservation of capital. As
a result of the Company's completion of its public offering of 3,000,000 shares
of Common Stock in March 1997, the Company's management has reviewed its
classification of marketable securities and has classified all marketable
securities as short-term. This classification reflects management's belief that
these securities are available for current operations based on current operating
activities and future business plans.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", including statements concerning
future collaboration agreements, royalties and other payments under
collaboration agreements, and product development and sales and other statements
are forward looking statements, as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected in
the forward looking statements as a result of risks and uncertainties, including
but not limited to, the following: the scientific progress of the Company in its
research and development programs; the magnitude of these programs; the ability
of the Company to establish additional collaborative and licensing arrangements;
the extent to which the Company engages in clinical development of any products
of its own; the scope and results of pre-clinical testing an clinical trials;
the time and costs involved in obtaining regulatory approvals; the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims; competing technological and market developments; and whether conditions
to milestone payments are met and the timing of such payments, and other risks
and uncertainties detailed elsewhere herein and from to time in the Company's
filings with the Securities and Exchange Commission.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial data schedule
(b) Reports on Form 8-K
None.
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.
HUMAN GENOME SCIENCES, INC.
BY: /s/William A. Haseltine, Ph.D.
-----------------------------------
William A. Haseltine, Ph.D.
Chairman and Chief Executive Officer
BY: /s/Steven C. Mayer
---------------------------------------------
Steven C. Mayer
Sr. Vice President and Chief Financial Officer
Dated: May 13, 1997
9
<PAGE>
EXHIBIT INDEX
Page
Exhibit Number
- ------- ------
27 Financial data schedule.......................................
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 117,599
<SECURITIES> 98,231
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 218,150
<PP&E> 32,382
<DEPRECIATION> 14,394
<TOTAL-ASSETS> 238,897
<CURRENT-LIABILITIES> 13,317
<BONDS> 2,769
0
0
<COMMON> 219
<OTHER-SE> 222,233
<TOTAL-LIABILITY-AND-EQUITY> 238,897
<SALES> 0
<TOTAL-REVENUES> 1,272
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,372
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> (12,041)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,041)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,041)
<EPS-PRIMARY> (.62)
<EPS-DILUTED> (.62)
</TABLE>
