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FORM 10-Q
UNITED STATES
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, 1999 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 March
31, 1999 was 22,876,125.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
Number
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months
ended March 31, 1999 and 1998...................... 3
Balance Sheets at March 31, 1999 and December 31, 1998 4
Statements of Cash Flows for the three months
ended March 31, 1999 and 1998...................... 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
</TABLE>
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PART I. FINANCIAL INFORMATION
HUMAN GENOME SCIENCES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
------------ ----------
(dollars in thousands,
except share
and per share amounts)
<S> <C> <C>
Revenue - research and development
collaborative contracts........................ $ 1,422 $ 1,991
------------ ----------
Costs and expenses:
Research and development.................... 13,374 10,855
General and administrative.................. 2,786 3,685
------------ ----------
Total costs and expenses.................... 16,160 14,540
------------ ----------
Income (loss) from operations..................... (14,738) (12,549)
Interest income................................... 2,512 2,850
Interest expense.................................. (27) (34)
------------ ----------
Income (loss) before taxes........................ (12,253) (9,733)
Provision for income taxes........................ - -
------------ ----------
Net income (loss)................................. $ (12,253) $ (9,733)
============ ==========
Basic and diluted net income (loss) per share..... $ (0.54) $ (0.44)
============ ==========
Weighted average shares outstanding, basic and
diluted......................................... 22,826,172 22,342,147
============ ==========
</TABLE>
See accompanying notes to financial statements.
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HUMAN GENOME SCIENCES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
- ------ ----------- -------------
(dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................... $ 24,975 $ 16,139
Short-term investments............................. 144,866 165,628
Prepaid expenses and other current assets.......... 5,846 5,374
----------- -------------
Total current assets............................ 175,687 187,141
Long-term investments................................. 22,137 27,228
Property, plant and equipment (net of accumulated
depreciation)......................................... 21,450 20,965
Restricted investments................................ 6,820 6,749
Other assets.......................................... 2,121 2,164
----------- -------------
TOTAL ASSETS.................................... $ 228,215 $ 244,247
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................. $ 444 $ 444
Accounts payable and accrued expenses.............. 4,008 4,642
Accrued payroll and related taxes.................. 3,423 2,400
Deferred revenues.................................. 4,493 5,265
----------- -------------
Total current liabilities....................... 12,368 12,751
Long-term debt, net of current portion................ 1,780 1,780
Deferred revenues..................................... 19,901 20,543
Other liabilities..................................... 316 325
----------- -------------
Total liabilities............................... 34,365 35,399
----------- -------------
Stockholders' Equity:
Common stock....................................... 229 228
Additional paid-in capital......................... 288,143 285,535
Unearned portion of compensatory stock............. (97) (110)
Retained earnings (deficit)........................ (90,957) (78,704)
Accumulated other comprehensive income (deficit)... (3,468) 1,899
----------- -------------
Total stockholders' equity...................... 193,850 208,848
----------- -------------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 228,215 $ 244,247
=========== =============
</TABLE>
See accompanying notes to financial statements.
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HUMAN GENOME SCIENCES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1999 1998
---------- ---------
(dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $(12,253) $(9,733)
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.................................. 338 190
Depreciation and amortization....................... 1,638 1,653
Loss (gain) on disposal of fixed assets............. 4 -
Compensation expense related to stock options ...... 13 24
Changes in operating assets and liabilities:
Prepaid expenses and other current assets........ (448) (1,550)
Other assets..................................... 43 (396)
Accounts payable and accrued expenses............ (926) (128)
Accrued payroll and related taxes................ 1,023 581
Deferred revenues................................ (1,414) 23,924
Other liabilities................................ (9) 10
---------- ---------
Net cash provided by (used in) operating activities. (11,991) 14,575
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - property, plant and equipment. (1,834) (1,520)
Purchase of short-term investments and marketable
securities.......................................... (16,844) (51,477)
Purchase of long-term investment...................... - (24,620)
Proceeds from sales and maturities of investments and
marketable Securities............................... 36,967 65,398
---------- ---------
Net cash provided by (used in) investing activities. 18,289 (12,219)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted investments................................ (71) 89
Payments on capital lease obligations................. - (156)
Proceeds from issuance of common stock (net of
expenses)........................................... 2,609 1,164
---------- ---------
Net cash provided by (used in) financing activities. 2,538 1,097
---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... 8,836 3,453
Cash and cash equivalents - beginning of period.......... 16,139 44,346
---------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD................ $ 24,975 $ 47,799
========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................ $ 17 $ 43
Income taxes........................................ 50 25
</TABLE>
See accompanying notes to financial statements.
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HUMAN GENOME SCIENCES, INC
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1999
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements of Human Genome Sciences,
Inc. ( the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information. 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, 1999 and 1998, the Company's financial
position at March 31, 1999, and the cash flows for the three month periods
ended March 31, 1999 and 1998. 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 1998 Annual Report on Form 10-K.
The results of operations for the three month period ended March 31, 1999
are not necessarily indicative of future financial results.
NOTE 2. COMPREHENSIVE INCOME (LOSS)
During the first quarter of 1999 and 1998, total comprehensive loss amounted
to:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1999 1998
----------- -----------
<S> <C> <C>
Net loss $12,253,000 $ 9,733,000
Unrealized loss on short-term investments 276,000 29,000
Unrealized loss on long-term investments 5,091,000
----------- -----------
Total Comprehensive Loss $17,620,000 $ 9,762,000
</TABLE> =========== ===========
NOTE 3. RECLASSIFICATION
Certain amounts in the prior periods' financial statements have been
reclassified to conform to the current year's presentation.
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HUMAN GENOME SCIENCES, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998.
RESULTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 1999 AND MARCH 31, 1998
Revenues. The Company had revenues of $1.4 million for the three months
ended March 31, 1999 compared with revenues of $2.0 million for the three
months ended March 31, 1998. Revenue for the three months ended March 31,
1999 consisted of the recognition of $0.8 million from Pharmacia and
UpJohn for ongoing research services pursuant to their collaboration
agreement and the recognition of $0.6 million from the Transgene S.A.
collaboration. Revenue for the three months ended March 31, 1998 consisted
of the recognition of $1.4 million from Pioneer Hi-Bred International,
Inc. ("Pioneer") for ongoing research services pursuant to their
collaboration agreement and the recognition of $0.6 million from Transgene
S.A.. The Company expects that its revenues may be limited to annual
license fees and research payments from Schering Plough Corporation,
Synthelabo S.A. and Merck KGaA over the next two years, 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 to $13.4 million
for the three months ended March 31, 1999 from $10.9 million for the three
months ended March 31, 1998. The increase is due primarily to the
operational costs incurred related to the start up of the Company's new
leased 80,000 square foot process development and production facility.
General and administrative expenses decreased to $2.8 million for the
three months ended March 31, 1999 from $3.7 million for the three months
ended March 31, 1998. The decrease resulted from the resignation of the
Company's President in late 1998 and the assumption of his duties by the
Chairman and Chief Executive Officer and non-recurring consulting expenses
incurred in the quarter ended March 31, 1998. Interest income was lower
for the three months ended March 31, 1999 compared to the three months
ended March 31, 1998 due to lower cash balances and interest rates.
Net Income (Loss). The Company recorded a net loss of $12.3 million, or
$0.54 per share for the three months ended March 31, 1999 compared to a
net loss of $9.7 million, or $0.44 per share for the three months ended
March 31, 1998. The difference in results for the three months ended
March 31, 1999 and 1998 is primarily due to higher research and
development expenses, slightly lower revenues and interest income
partially offset by lower general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $163.3 million at March 31, 1999 as
compared to $174.4 million at December 31, 1998. The decrease resulted
primarily from the net loss generated during the quarter.
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.
The Company expects that its existing funds, interest income, and
committed license fees and research payments from its current
collaboration agreements will be sufficient to fund the Company's
operations for the next two to three years. 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.
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The Company's funds are currently invested in U.S. Treasury and
government agency obligations, and high grade corporate debt securities
and commercial paper. 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.
YEAR 2000
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date
code fields will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, many companies'
software and computer systems may need to be upgraded or replaced in order
to comply with such "Y2K" requirements. Since the Company was founded in
1992, most if not all of the Company's computer equipment and software
adopt modern design principles. The Company believes the majority of
purchased computer systems, operating systems, and database management
systems are ready for Y2K based on in-house testing and information
supplied by vendors. For internal systems development, the Company uses
fully-specified dates for all date items in the databases. Because these
date representations have been built into systems from their inception,
the Company believes they should be fully Y2K compliant. The Company
utilizes third-party equipment and software that may not be Y2K compliant.
The Company is concerned about the impact of the Y2K problem on
suppliers, government agencies, electrical power, voice and data
communications, shipping and other services required. The Company
initiated a comprehensive program in October 1998 to identify risks,
validate essential systems, confirm that vendor products are Y2K ready,
and develop contingency plans to deal with problems that may arise. A
task force representing various departments in the Company has been
formed to carry out the Company's Y2K program and is currently performing
a comprehensive inventory of computer equipment, software and other
devices that may have embedded microprocessors and software and is leading
efforts to confirm that essential systems and suppliers are tested for
correct Y2K behavior. The Company's contingency plans to address its
concerns include building an inventory of key supplies and assuring that
critical equipment has emergency backup power available. The task force
reports to the Chief Information Officer on a regular basis. To date the
task force has found only minimal internal non-compliant systems which
have or will be updated through the purchase of compliant software
upgrades. The Company plans to have substantially completed its Y2K
assessment before June 30, 1999.
The Company does not believe that the cost of identification and
correction of any Y2K compliance problems, estimated to be less than
$100,000, will have a material adverse effect on the Company's business,
financial condition or operating results. However, there can be no
assurance that a failure of the Company's internal computer systems,
third-party equipment, software used by the Company, or systems maintained
by the Company's suppliers, to be Y2K compliant, will not have a material
adverse effect on the Company's business, financial condition or operating
results.
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 degree of success of the Company's collaboration partners in
identification, research, development and marketing of products based on
the Company's technology; the extent to which the Company engages in
clinical development of any products on its own; the degree of success of
the Company in using its technology and data base to select viable product
opportunities; the ability of the Company to develop or arrange for
marketing and sales initiatives with respect to products under
development; the success of the Company in raising additional capital and
satisfying liquidity needs in the future; the scope and results of
pre-clinical testing and clinical trials; the time and costs involved in
obtaining regulatory approvals; the costs and uncertainties involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims;
competing technological and market developments; whether conditions to
milestone payments are met and the timing of such payments; and other
risks and uncertainties detailed in the Company's filings with the
Securities and Exchange Commission.
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HUMAN GENOME SCIENCES, INC.
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
------------------------
William A. Haseltine, Ph.D.
Chairman and CEO
BY: /s/ STEVEN C. MAYER
-----------------------
Steven C. Mayer
Sr. Vice President and Chief Financial Officer
Dated: May 17, 1999
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<TABLE>
<CAPTION>
EXHIBIT INDEX
Page
Exhibit Number
- ------- ------
<S> <C>
27 Financial data schedule..................................
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 24,975
<SECURITIES> 144,866
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 175,687
<PP&E> 43,114
<DEPRECIATION> 21,664
<TOTAL-ASSETS> 228,215
<CURRENT-LIABILITIES> 12,368
<BONDS> 1,780
0
0
<COMMON> 229
<OTHER-SE> 193,621
<TOTAL-LIABILITY-AND-EQUITY> 228,215
<SALES> 0
<TOTAL-REVENUES> 1,422
<CGS> 0
<TOTAL-COSTS> 13,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> (12,253)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,253)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,253)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
