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 SEPTEMBER 30, 2000
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|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-28674
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CADUS PHARMACEUTICAL CORPORATION
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(Exact Name of Registrant as Specified on its Charter)
Delaware 13-3660391
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(State of Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
767 Fifth Avenue, New York, New York 10153
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 702-4315
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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 registrant's common stock, $0.01 par value, outstanding
as of September 30, 2000 was 13,144,040.
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CADUS PHARMACEUTICAL CORPORATION
INDEX
PAGE NO.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS 3
PART I - CONDENSED FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets - September 30, 2000 (unaudited)
and December 31, 1999 (audited) 4
Condensed Statements of Operations - Three and Nine Months
ended September 30, 2000 and 1999 (unaudited) 5-6
Condensed Statements of Cash Flows - Nine Months Ended
September 30, 2000 and 1999 (unaudited) 7
Notes to Condensed Financial Statements (unaudited) 8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8K 16
SIGNATURES 17
EXHIBIT INDEX 18
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements involve known
and unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, technological uncertainties
regarding the Company's technologies, the Company's capital needs and
uncertainty of future funding, risks and uncertainties relating to the Company's
ability to realize value from its assets, the Company's dependence on
proprietary technology and the unpredictability of patent protection, intense
competition in the pharmaceutical and biotechnology industries, rapid
technological development that may result in the Company's technologies becoming
obsolete, as well as other risks and uncertainties discussed in the Company's
prospectus dated July 17, 1996.
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CADUS PHARMACEUTICAL CORPORATION
CONDENSED BALANCE SHEET
ASSETS
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September 30, December 31,
2000 1999
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(Unaudited) (Audited)
Current assets
Cash and cash equivalents $5,003,084 $5,082,212
Cash held in escrow - current 19,841,489 --
Restricted cash -- 13,566
Due from officer and director -- 294,636
Prepaid and other current assets 176,314 69,783
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Total current assets 25,020,887 5,460,197
Cash held in escrow - noncurrent -- 19,065,431
Investments in other ventures 158,934 999,590
Other assets, net 1,112,879 1,173,558
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Total assets $26,292,700 $26,698,776
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ -- $17,644
Accrued expenses and other current liabilities 63,226 121,843
Accrued legal fees 1,000,000 --
Deferred revenue 5,030 28,500
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Total current liabilities 1,068,256 167,987
Reserve for litigation damages -- 19,065,431
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Total liabilities 1,068,256 19,233,418
Stockholders' equity
Common stock, $.01 par value. Authorized
35,000,000 shares at September 30, 2000
and December 31, 1999; issued 13,285,707
shares and 13,210,607 shares at
September 30, 2000 and December 31, 1999,
respectively; outstanding 13,144,040
shares and 13,068,940 shares at
September 30, 2000 and December 31, 1999,
respectively 132,857 132,106
Additional paid-in capital 59,844,355 59,689,446
Accumulated deficit (34,452,693) (52,056,119)
Treasury stock, 141,667 shares of common
stock at September 30, 2000
and December 31, 1999, respectively (300,075) (300,075)
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Total stockholders' equity 25,224,444 7,465,358
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Total liabilities and
stockholders' equity $26,292,700 $26,698,776
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See accompanying notes to condensed financial statements.
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CADUS PHARMACEUTICAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
2000 1999
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(Unaudited) (Unaudited)
Revenues, principally from related parties $ -- $ 949,992
License and maintenance fee 23,470 --
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Total revenues 23,470 949,992
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Costs and expenses:
Research and development costs -- 1,711,630
General and administrative expenses 251,701 864,022
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Total costs and expenses 251,701 2,575,652
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Operating loss (228,231) (1,625,660)
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Other income (expense):
Gain on reversal of litigation
judgment, net of legal fees 18,841,489 --
Interest income 71,394 76,868
Loss of equity in other ventures, net (126,418) (299,820)
Gain on sales of equipment -- 118,179
Loss on sale of assets -- (805,555)
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Total other income (expense) 18,786,465 (910,328)
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Income (loss) before income taxes 18,558,234 (2,535,988)
State and local taxes (16,181) 1,332
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Net income (loss) $18,574,415 (2,537,320)
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Basic and diluted income (loss) per share $ 1.41 $ (0.19)
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Weighted average shares of common stock
outstanding - basic and diluted 13,144,040 13,068,940
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See accompanying notes to condensed financial statements
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CADUS PHARMACEUTICAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
Nine Months Ended
September 30,
2000 1999
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(Unaudited) (Unaudited)
Revenues, principally from related parties $ -- $6,027,544
License and maintenance fee 723,470 --
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Total revenues 723,470 6,027,544
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Costs and expenses:
Research and development costs -- 8,891,517
General and administrative expenses 1,451,793 3,306,205
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Total costs and expenses 1,451,793 12,197,722
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Operating loss (728,323) (6,170,178)
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Other income (expense):
Gain on reversal of litigation
judgment, net of legal fees 18,841,489 --
Interest income 214,735 493,670
Loss of equity in other ventures, net (840,656) (980,752)
Gain on sales of equipment 100,000 150,585
Loss on sale of assets -- (805,555)
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Total other income (expense) 18,315,568 (1,142,052)
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Income (loss) before income taxes 17,587,245 (7,312,230)
State and local taxes (16,181) (16,359)
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Net income (loss) $17,603,426 $(7,295,871)
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Basic and diluted income (loss) per share $ 1.34 $ (0.56)
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Weighted average shares of common stock
outstanding - basic and diluted 13,130,140 13,068,940
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See accompanying notes to condensed financial statements
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CADUS PHARMACEUTICAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2000 1999
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(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss) $17,603,426 ($7,295,871)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Recognition of deferred revenue (23,470) --
Depreciation and amortization 60,679 678,466
Loss of equity in other ventures 840,656 980,752
Gain on sales of equipment (100,000) (150,585)
Loss on sale of assets -- 805,555
Changes in assets and liabilities:
Decrease in due from officer and director 294,636 --
Decrease in prepaid and other
current assets (106,531) (90,221)
Decrease in other assets -- 117,521
Increase in deferred revenue -- 28,500
(Decrease) increase in reserve for
litigation damages (19,065,431) 330,735
Decrease in accounts payable (17,644) (24,587)
Increase in accrued legal fees 1,000,000 --
Decrease in accrued expenses and other
current liabilities (58,617) (1,594,297)
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Net cash provided by (used in) operating activities 427,704 (6,214,032)
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Cash flows from investing activities:
Increase in cash held in escrow - current (762,492) (57,437)
Acquisition of fixed assets -- (470,378)
Proceeds from sale of fixed assets and patents 100,000 1,644,073
Capitalized patent costs -- (167,500)
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Net cash (used in) provided by investing activities (662,492) 948,758
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Cash flows from financing activities:
Proceeds from issuance of common stock
upon exercise of stock options
155,660 --
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Net cash provided by financing activities 155,660 --
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Net decrease in cash and cash equivalents (79,128) (5,265,274)
Cash and cash equivalents - beginning of period 5,082,212 10,975,528
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Cash and cash equivalents - end of periods $ 5,003,084 $ 5,710,254
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See accompanying notes to condensed financial statements
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CADUS PHARMACEUTICAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note - 1 ORGANIZATION AND BASIS OF PREPARATION
The information presented as of September 30, 2000 and for the three and
nine month periods then ended is unaudited, but includes all adjustments
(consisting only of normal recurring accruals) that the Company's
management believes to be necessary for the fair presentation of results
for the periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to the
requirements of the Securities and Exchange Commission, although the
Company believes that the disclosures included in these financial
statements are adequate to make the information not misleading. The
December 31, 1999 balance sheet was derived from audited financial
statements. These financial statements should be read in conjunction with
the Company's annual report on Form 10-K for the year ended December 31,
1999.
The results of operations for the three and nine month periods ended
September 30, 2000 are not necessarily indicative of the results to be
expected for the year ending December 31, 2000.
Note - 2 NET INCOME (LOSS) PER SHARE
For the three month and nine month periods ended September 30, 2000 and
1999 basic net income (loss) per share is computed by dividing the net
income (loss) by the weighted average number of common shares outstanding.
Diluted net income (loss) per share is the same as basic net income (loss)
per share since the inclusion of potential common stock equivalents (stock
options and warrants) in the computation would be anti-dilutive.
Note - 3 PATENT LITIGATION
In July 1996, SIBIA Neuroscience, Inc. ("SIBIA") (which was acquired by
Merck & Co. in 1999) commenced a patent infringement action against the
Company alleging infringement by the Company of a patent concerning the use
of cells, engineered to express any type of cell surface receptor and a
reporter gene, used to report results in the screening of compounds against
target assays and seeking injunctive relief and monetary damages. After
trial, on December 18, 1998, the jury issued a verdict in favor of SIBIA
and awarded SIBIA $18.0 million in damages. On January 29, 1999 the United
States District Court granted SIBIA's request for injunctive relief that
precludes the Company from using the method claimed in SIBIA's patent. On
February 26, 1999, the United States District Court denied the Company's
motions to set aside the jury verdict, to grant a new trial and to reduce
or set aside the $18.0 million judgment awarded by the jury. The Company
appealed the judgment. In order to stay execution pending appeal of the
$18.0 million judgment obtained by SIBIA, in
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March 1999, the Company deposited $18.5 million in escrow to secure payment
of the judgments in the event the Company were to lose the appeal. Such
$18.5 million was previously classified as "cash held in escrow-noncurrent"
and the Company's "cash and cash equivalents" were reduced by $18.5 million
in 1998. The Company recorded a reserve for litigation damages of $18.5
million in the statement of operations for the year ended December 31,
1998. On September 6, 2000 the United States Court of Appeals ruled in
favor of the Company and overturned the prior judgment entered by the U.S.
District Court. The Court of Appeals ruled that the claims of the SIBIA
patent asserted against the Company were invalid and that the District
court erred in denying the Company's motion for judgment as a matter of law
on the issue of invalidity. On October 30, 2000, the U.S. District Court
set aside the $18,000,000 judgment in favor of SIBIA and vacated the
injunction against the Company. Separately, in October 2000, the Company
obtained the release of the cash escrow of $19.9 million representing the
original $18.5 million and interest that has accumulated on the escrow
balance. The interest earned on the escrow has been added to the escrow
balance and the reserve for litigation damages. The reserve for litigation
damages of $18,841,489 (net of direct legal costs of $1 million) at
September 30, 2000 has been reversed and credited to the statement of
operations for the three and nine months ended September 30, 2000.
Note - 4 ASSET SALE
On July 30, 1999 the Company sold to OSI Pharmaceuticals, Inc. ("OSI")
pursuant to an asset purchase agreement various assets and ceased its drug
discovery operations and research efforts for collaborators as a result of
this transaction. The Company recognized a loss of $805,555 in connection
with the transaction. The Company terminated all employees that were not
hired by OSI or who did not voluntarily resign, except for the Chief
Executive Officer who resigned in April 2000. The Company retained
ownership of all its other assets including its core yeast technology for
developing drug discovery assays, its collection of over 25,000 proprietary
yeast strains, human and mammalian cell lines, and genetic engineering
tools, its joint ownership of the human orphan G protein-coupled receptors
identified pursuant to its collaboration with Genome Therapeutics
Corporation, its proprietary software, its genomics databases related to G
protein-coupled receptors, all assays and technologies reverting to it from
its collaboration with Bristol Myers Squibb Company, an equity position in
Axiom Biotechnologies, Inc., the Company's cash and cash equivalents, and
the funds that were being held in escrow pending appeal of the verdict in
favor of SIBIA.
Note - 5 RELATED PARTY TRANSACTION
In August 1998, the Company guaranteed the payment of a $286,000 loan made
to a board member and secured its guarantee obligation with cash collateral
of $286,000. In August 1999, the lender called on the guarantee and
foreclosed on the cash collateral. The Director executed an interest
bearing promissory note in the amount of $286,000 in favor of the Company,
which was payable, together with accrued interest, on August 31, 2000. The
amount owed as of December 31, 1999 is included in due from officer and
director. This loan was repaid in its entirety in March 2000.
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Note - 6 NON-EXCLUSIVE LICENSE OF YEAST TECHNOLOGY
In February 2000, the Company licensed to OSI, on a non-exclusive basis,
its yeast technologies, including various reagents and its library of over
30,000 yeast strains and its bioinformatics software. OSI paid to the
Company a license fee of $100,000 and an access fee of $600,000, which has
been recorded as license fee revenue in the quarter ended March 31, 2000.
OSI is also obligated to pay an annual maintenance fee of $100,000 until
2010 and a supplemental license fee of $250,000 if the injunction obtained
by SIBIA is lifted or dissolved. The injunction was dissolved on October
30, 2000 and the supplemental license fee of $250,000 is payable to the
Company in November 2000.
Note - 7 NEW ACCOUNTING PRONOUNCEMENTS
On December 3, 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 - "Revenue Recognition in Financial
Statements" ("SAB No. 101"). SAB No. 101 provides the SEC staff's views on
the recognition of revenue including nonrefundable technology access fees
received by biotechnology companies in connection with research
collaborations with third parties. SAB No. 101 states that in certain
circumstances the SEC staff believes that up-front fees, even if
nonrefundable, should be deferred and recognized systematically over the
term of the research arrangement. SAB No. 101B, which amends the
implementation date for SAB No. 101, requires registrants to adopt the
accounting guidance contained therein by no later than the fourth fiscal
quarter of the fiscal year beginning after December 15, 1999. The Company
is currently assessing the financial impact of complying with SAB No. 101
and does not believe that applying the accounting guidance of SAB No. 101
will have a material effect on its financial position or results of
operations.
Note - 8 EQUITY IN OTHER VENTURES
For the three months ended September 30, 2000 the Company recognized a net
loss of $126,418 in its investment in Axiom Biotechnologies, Inc. and
Laurel Partners Limited Partnership. The loss for the same period in 1999
was $299,820. As of September 30, 2000, the investment in Axiom
Biotechnologies, Inc. has been written down to zero.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in 1992 and until July 30, 1999, devoted
substantially all of its resources to the development and application of
novel yeast-based and other drug discovery technologies. On July 30, 1999,
the Company sold its drug discovery assets to OSI Pharmaceuticals, Inc.
("OSI") and ceased its internal drug discovery operations and research
efforts for collaborative partners. The Company terminated all employees
who were not hired by OSI or who did not voluntarily resign except for the
Chief Executive Officer who resigned in April 2000.
The Company has incurred operating losses in each year since its inception.
At September 30, 2000, the Company had an accumulated deficit of
approximately $34.5 million, after
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reversing the $18.5 million charge for litigation damages with respect to
the patent infringement litigation with SIBIA after the Court of Appeals
ruled in the Company's favor. The Company's losses have resulted
principally from costs incurred in connection with its research and
development activities and from general and administrative costs associated
with the Company's operations. These costs have exceeded the Company's
revenues and interest income. As a result of the sale of its drug discovery
assets to OSI and the cessation of its internal drug discovery operations
and research efforts for collaborative partners, the Company ceased to have
research funding revenues and substantially reduced its operating expenses.
The Company expects to generate revenues in the future only if it is able
to license its technologies.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
REVENUES
Revenues for the three months ended September 30, 2000 decreased to $23,470 from
$949,992 for the same period in 1999. The decrease was attributable primarily to
the Company having ceased research efforts for collaborators and, therefore, not
receiving any research funding in 2000.
OPERATING EXPENSES
The Company's research and development expenses for the three months ended
September 30, 2000 decreased to $0 from $1,711,630 for the same period in 1999.
This decrease was attributable to the Company having ceased its drug discovery
operations and research efforts for collaborators and having no research
personnel after its asset sale in July 1999.
General and administrative expenses decreased to $251,701 for the three months
ended September 30, 2000 from $864,022 for the same period in 1999. This
decrease was attributable primarily to the elimination of facility related
expenses and the reduction in administrative personnel.
GAIN ON REVERSAL OF LITIGATION JUDGMENT
On September 6, 2000, the U.S. Court of Appeals ruled in favor of the Company
and overturned the prior judgment of $18.0 million. The gain recognized
represents the original $18.5 million reserve plus interest accrued on the
escrow balance through September 30, 2000 of $1,341,489 less legal fees of
$1,000,000 that were contingent on the success of the appeal.
NET INTEREST INCOME
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Interest income for the three months ended September 30, 2000 decreased to
$71,394 from $76,868 for the same period in 1999. The decrease is primarily
attributable to the decrease in the Company's unrestricted cash and cash
equivalents balance as compared to the prior year's quarter.
EQUITY IN OTHER VENTURES
For the three months ended September 30, 2000 the Company recognized a net loss
of $126,418 in its investment in Axiom Biotechnologies, Inc. and Laurel Partners
Limited Partnership. The loss for the same period in 1999 was $299,820. As of
September 30, 2000, the investment in Axiom Biotechnologies, Inc. has been
written down to zero.
NET INCOME (Loss)
The net income for the three months ended September 30, 2000 increased to
$18,574,415 from a $2,537,320 loss for the same period in 1999. This increase
can be attributed to the reversal of the SIBIA litigation judgment (net of
direct legal expense of $1,000,000) and a decrease in operating expenses
partially offset by a decrease in revenue.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
REVENUES
Revenues for the nine months ended September 30, 2000 decreased to $723,470 from
$6,027,544 for the same period in 1999. This decrease was attributable primarily
to the Company having ceased research efforts for collaborators and, therefore,
not receiving any research funding for the first nine months of 2000. The
Company's revenues for the first nine months of 2000 were derived primarily from
the licensing of its yeast technology to OSI.
OPERATING EXPENSES
The Company's research and development expenses for the nine months ended
September 30, 2000 decreased to $0 from $8,891,517 for the same period in 1999.
This decrease was attributable to the Company having ceased its drug discovery
operations and research efforts for collaborators and having no research
personnel after its asset sale in July 1999.
General and administrative expense decreased to $1,451,793 for the nine months
ended September 30, 2000 from $3,306,205 for the same period in 1999. This
decrease was attributable primarily to the elimination of facility related
expenses and the reduction in administrative personnel. For the nine months
ended September 30, 2000, the Chief Executive Officer's compensation was
$607,500 which includes $497,500 in severance pay recorded in the quarter ended
March 31, 2000 and fully paid in May 2000.
GAIN ON REVERSAL OF LITIGATION JUDGMENT
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On September 6, 2000, the U.S. Court of Appeals ruled in favor of the Company
and overturned the prior judgment of $18.0 million. The gain recognized
represents the original $18.5 million reserve plus interest accrued on the
escrow balance through September 30, 2000 of $1,341,489 less legal fees of
$1,000,000 that were contingent on the success of the appeal.
NET INTEREST INCOME
Interest income for the nine months ended September 30, 2000 decreased to
$214,735 from $493,670 for the same period in 1999. The decrease is attributable
primarily to the decrease in the Company's unrestricted cash and cash
equivalents balance as compared to the prior year's nine month period.
EQUITY IN OTHER VENTURES
For the nine months ended September 30, 2000 the Company recognized a net loss
of $840,656 in its investment in Axiom Biotechnologies, Inc. and Laurel Partners
Limited Partnership. The loss for the same period in 1999 was $980,752. As of
September 30, 2000, the investment in Axiom Biotechnologies, Inc. has been
written down to zero.
NET INCOME (LOSS)
The net income for the nine months ended September 30, 2000 increased to
$17,603,426 from a $7,295,871 loss for the same period in 1999. This increase
can be attributed to the reversal of the SIBIA litigation settlement (net of
direct legal expense of $1,000,000) and a decrease in operating expenses
partially offset by a decrease in revenues.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000 the Company held cash and cash equivalents of $24,844,573
including the escrow cash that was later released to the Company in October 2000
as discussed in Note 3 to the accompanying financial statements. The Company's
working capital at September 30, 2000 was $23,952,631.
On July 30, 1999, the Company sold its drug discovery assets to OSI and ceased
its internal drug discovery operations and research efforts for collaborative
partners. Pursuant to such sale transaction, OSI assumed, among other things,
the Company's lease to the Company's research facility in Tarrytown, New York
and the Company's equipment lease with GECC. The Company terminated all
employees who were not hired by OSI or who did not voluntarily resign, except
for its Chief Executive Officer who resigned in April 2000. As a result of the
foregoing, the Company ceased to have revenues and substantially reduced its
operating expenses. The Company expects to generate revenues in the future only
if it is able to license its technologies.
In February 2000, the Company licensed to OSI, on a non-exclusive basis, its
yeast technologies. OSI paid to the Company a license fee of $100,000 and an
access fee of $600,000. OSI is also obligated to pay an annual maintenance fee
of $100,000 until 2010 and a supplemental license fee
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of $250,000 if the injunction obtained by SIBIA is lifted or dissolved. The
injunction was dissolved on October 30, 2000 and the supplemental license fee of
$250,000 is payable to the Company in November 2000.
The Company believes that its existing resources, together with interest income,
will be sufficient to support its current and projected funding requirements
through the end of 2001. This forecast of the period of time through which the
Company's financial resources will be adequate to support its operations is a
forward-looking statement that may not prove accurate and, as such, actual
results may vary. The Company's capital requirements may vary as a result of a
number of factors, including the transactions, if any, arising from the
Company's efforts to license its technologies and otherwise realize value from
its assets; the transactions, if any, arising from the Company's efforts to
acquire technologies or products or to acquire or invest in companies; and the
expenses of pursuing such transactions.
NEW ACCOUNTING PRONOUNCEMENTS
On December 3, 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 - "Revenue Recognition in Financial Statements"
("SAB No. 101"). SAB No. 101 provides the SEC staff's views on the recognition
of revenue including nonrefundable technology access fees received by
biotechnology companies in connection with research collaborations with third
parties. SAB No. 101 states that in certain circumstances the SEC staff believes
that up-front fees, even if nonrefundable, should be deferred and recognized
systematically over the term of the research arrangement. SAB No. 101B, which
amends the implementation date for SAB No. 101, requires registrants to adopt
the accounting guidance contained therein by no later than the fourth fiscal
quarter of the fiscal year beginning after December 15, 1999. The Company is
currently assessing the financial impact of complying with SAB No. 101 and does
not believe that applying the accounting guidance of SAB No. 101 will have a
material effect on its financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings and cash flows are subject to fluctuations due to
changes in interest rates primarily from its investment of available cash
balances in money market funds consisting of investment grade corporate and
U.S. government securities. The Company does not believe it is materially
exposed to changes in interest rates. Under its current policies, the
Company does not use interest rate derivative instruments to manage
exposure to interest rate changes.
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PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
The Company is not a party to any material legal proceedings other than
SIBIA Neurosciences, Inc. v. Cadus Pharmaceutical Corporation and an
arbitration proceeding commenced by Philip N. Sussman, the former Senior
Vice President, Finance and Corporate Development, and Chief Financial
Officer of the Company.
(a) SIBIA (which was acquired by Merck & Co. in 1999) commenced an action
on July 9, 1996 in the United States District Court for the Southern
District of California alleging infringement by the Company of a patent
covering the use of cells, engineered to express any type of cell surface
receptor and a reporter gene, used to report results in the screening of
compounds against target assays, and seeking injunctive relief and monetary
damages. After trial, on December 18, 1998, the jury issued a verdict in
favor of SIBIA and awarded SIBIA $18.0 million in damages. On January 29,
1999, the United States District Court granted SIBIA's request for
injunctive relief that precluded the Company from using the method claimed
in SIBIA's patent. On February 26, 1999, the United States District Court
denied the Company's motions to set aside the jury verdict, to grant a new
trial and to reduce or set aside the $18.0 million damage award by the
jury. The Company appealed the judgment. On September 6, 2000, the United
States Court of Appeals ruled in favor of the Company and overturned the
prior judgment entered by the U.S. District Court. The Court of Appeals
ruled that the claims of SIBIA asserted against the Company were invalid
and that the District Court erred in denying the Company's motion for
judgment as a matter of law on the issue of invalidity. On October 30,
2000, the U.S. District Court set aside the $18,000,000 judgment in favor
of SIBIA and vacated the injunction against the Company.
(b) On October 4, 1999, Philip N. Sussman, the former Senior Vice
President, Finance and Corporate Development, and Chief Financial Officer
of the Company, commenced an arbitration proceeding against the Company
seeking severance pay of approximately $525,000. The Company believes that
Mr. Sussman is not entitled to such severance pay and intends to vigorously
defend the action.
Item 2. Changes in Securities and Use of Proceeds
Nothing to Report.
Item 3. Defaults Upon Senior Securities
Nothing to Report
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<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Nothing to Report
Item 5. Other Information
Nothing to Report
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits listed in the Exhibit Index are included in this report.
(b) Reports on Form 8-K.
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CADUS PHARMACEUTICAL CORPORATION
(REGISTRANT)
Date: November 14, 2000 By: /s/ RUSSELL D. GLASS
-------------------------------------
Russell D. Glass
President and Chief Executive Officer
(Authorized Officer and
Principal Financial Officer)
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<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
27 Financial Data Schedule
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