<PAGE>
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 June 30, 2000
-------------
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------------- ---------------------
Commission File Number 0-28674
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CADUS PHARMACEUTICAL CORPORATION
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified on its Charter)
Delaware 13-3660391
----------------------------------------- -------------------------------------
(State of Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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
------------------------------
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 July 31, 2000 was 13,144,040.
<PAGE>
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 - June 30, 2000 (unaudited)
and December 31, 1999 (audited) 4
Condensed Statements of Operations - Three and Six Months
ended June 30, 2000 and 1999 (unaudited) 5-6
Condensed Statements of Cash Flows - Six Months Ended
June 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 10-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
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 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8K 15
SIGNATURES 16
EXHIBIT INDEX 17
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<PAGE>
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
on going litigation with SIBIA Neurosciences, Inc. ("SIBIA")*, including
uncertainties relating to the outcome of appeals and the re-examination of
SIBIA's patent at issue in the litigation, 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.
--------
* SIBIA was acquired by Merck & Co. in the fourth quarter of 1999 and,
accordingly, references to SIBIA herein are references to Merck & Co.
after such date.
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<PAGE>
CADUS PHARMACEUTICAL CORPORATION
Condensed Balance Sheets
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
2000 1999
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 5,268,807 $ 5,082,212
Restricted cash -- 13,566
Due from officer and director -- 294,636
Prepaid and other current assets 71,958 69,783
------------ ------------
Total current assets 5,340,765 5,460,197
Restricted cash-noncurrent 19,561,445 19,065,431
Investments in other ventures 285,352 999,590
Other assets, net 1,133,105 1,173,558
------------ ------------
Total assets $ 26,320,667 $ 26,698,776
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Accounts payable $ -- $ 17,644
Accrued expenses and other current liabilities 80,693 121,843
Deferred revenue 28,500 28,500
------------ ------------
Total current liabilities 109,193 167,987
Reserve for litigation damages 19,561,445 19,065,431
------------ ------------
Total liabilities 19,670,638 19,233,418
Stockholders' equity
Common stock, $.01 par value. Authorized 35,000,000
shares at June 30, 2000 and December 31, 1999;
issued 13,285,707 shares and 13,201,607 shares at
June 30, 2000 and December 31, 1999, respectively;
outstanding 13,144,040 shares and 13,068,940
shares at June 30, 2000 and December 31, 1999,
respectively 132,857 132,106
Additional paid-in capital 59,844,355 59,689,446
Accumulated deficit (53,027,108) (52,056,119)
Treasury stock, 141,667 shares of common stock at
June 30, 2000 and December 31, 1999 (300,075) (300,075)
------------ ------------
Total stockholders' equity 6,650,029 7,465,358
------------ ------------
Total liabilities and stockholders' equity $ 26,320,667 $ 26,698,776
============ ============
</TABLE>
See accompanying notes to condensed financial statements
-4-
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
Condensed Statements of Operations
Three Months Ended
June 30,
2000 1999
------------ ------------
(Unaudited) (Unaudited)
Revenues, principally from related parties $ -- $ 2,038,776
------------ ------------
Costs and expenses
Research and development costs -- 3,267,405
General and administrative expenses 347,630 1,126,967
------------ ------------
Total costs and expenses 347,630 4,394,372
------------ ------------
Operating loss (347,630) (2,355,596)
------------ ------------
Other (expense) income
Net interest income 71,644 79,627
Loss of equity in other ventures, net (353,884) (359,144)
Gain on sale of equipment -- 16,203
------------ ------------
Total other (expense) income (282,240) (263,314)
------------ ------------
Loss before income taxes (629,870) (2,618,910)
State and local taxes -- (23,463)
------------ ------------
Net loss ($ 629,870) ($ 2,595,447)
============ ============
Basic and diluted loss per share $ (0.05) $ (0.20)
============ ============
Weighted average shares of
common stock outstanding - basic and diluted 13,144,040 13,068,940
============ ============
See accompanying notes to condensed financial statements
-5-
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
Condensed Statements of Operations
Six Months Ended
June 30,
2000 1999
------------ ------------
(Unaudited) (Unaudited)
Revenues, principally from related $ -- $ 5,077,552
parties
License fee 700,000 --
------------ ------------
Total revenues 700,000 5,077,552
------------ ------------
Costs and expenses
Research and development costs -- 7,179,887
General and administrative expenses 1,200,092 2,442,183
------------ ------------
Total costs and expenses 1,200,092 9,622,070
------------ ------------
Operating loss (500,092) (4,544,518)
------------ ------------
Other (expense) income
Net interest income 143,341 416,802
Loss of equity in other ventures, net (714,238) (680,932)
Gain on sale of equipment 100,000 32,406
------------ ------------
Total other (expense) income (470,897) (231,724)
------------ ------------
Loss before income taxes (970,989) (4,776,242)
State and local taxes -- (17,691)
------------ ------------
Net loss $ (970,989) $ (4,758,551)
============ ============
Basic and diluted loss per share $ (0.07) $ ( 0.36)
============ ============
Weighted average shares of
common stock outstanding - basic and diluted 13,123,190 13,068,940
============ ============
See accompanying notes to condensed financial statements
-6-
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (970,989) $ (4,758,551)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 40,453 557,083
Loss of equity in other ventures 714,238 680,932
Gain on sale of equipment (100,000) --
Other non-cash gain -- (32,406)
Reserve for litigation damages 496,014 140,915
Changes in assets and liabilities:
Decrease in due from officer and director 294,636 --
(Increase)/decrease in prepaid and other current assets (2,175) 82,901
Decrease in other assets -- 79,741
Increase in deferred revenue -- 185,501
(Decrease) increase in accounts payable (17,644) 726,441
Decrease in accrued expenses
and other current liabilities (41,150) (1,190,356)
----------- ------------
Net cash provided by (used in) operating activities 413,383 (3,527,799)
----------- ------------
Cash flows from investing activities:
Increase in restricted cash (482,448) (151,263)
Acquisition of fixed assets -- (162,236)
Sales of fixed assets 100,000 10,850
Patent costs -- (167,500)
----------- ------------
Net cash used in investing activities (382,448) (470,149)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock
upon exercise of stock options 155,660 --
----------- ------------
Net cash provided by financing activities 155,660 --
----------- ------------
Net increase (decrease) in cash and cash equivalents 186,595 (3,997,948)
Cash and cash equivalents - beginning of period 5,082,212 10,975,528
----------- ------------
Cash and cash equivalents - end of period $ 5,268,807 $ 6,977,580
=========== ============
</TABLE>
See accompanying notes to condensed financial statements
-7-
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
Notes to Condensed Financial Statements
Note - 1 Organization and Basis of Preparation
The information presented as of June 30, 2000 and for the three and six
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 six month periods ended
June 30, 2000 are not necessarily indicative of the results to be
expected for the year ending December 31, 2000.
Note - 2 Net Loss Per Share
For the three month and six month periods ended June 30, 2000 and 1999
basic net loss per share is computed by dividing the net loss by the
weighted average number of common shares outstanding. Diluted net loss
per share is the same as basic net 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 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 has appealed the
judgment. The appeal will be heard by the Court of Appeals for the
Federal Circuit in Washington, D.C. All briefs have been filed and the
Court of Appeals heard oral argument on March 9, 2000. In order to stay
execution pending appeal of the $18.0 million judgment obtained by
SIBIA, in 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 classified as "restricted cash
noncurrent" and the Company's "cash and cash equivalents" were reduced
by $18.5 million. The Company recorded a reserve for litigation damages
of $18.5 million in the statement of operations for
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<PAGE>
the year ended December 31, 1998. Interest earned on the restricted
cash has been added to the reserve for litigation damages, which was
approximately $19.6 million at June 30, 2000.
In January 1999, the U.S. Patent and Trademark Office granted the
Company's request to re-examine the patent issued to SIBIA that was the
subject of the litigation. In March 2000, Patent Office issued an
office action rejecting all claims of SIBIA's patent. SIBIA responded
to this office action and the Patent Office issued another office
action in July again rejecting all claims of SIBIA's patent. SIBIA will
also have an opportunity to respond to the July office action. The
Patent Office is not expected to issue a decision until at least
October, 2000. A final decision by the Patent Office that SIBIA's
patent is invalid would take precedence over the outstanding jury
verdict and judgment. There can be no assurance, however, that the
Patent and Trademark Office will issue a final decision finding SIBIA's
patent to be invalid.
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 terminated all employees that
were not hired by OSI or who did not voluntarily resign, except for the
Chief Executive Officer. 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.
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.
-9-
<PAGE>
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 has not yet determined whether
applying the accounting guidance of SAB No. 101 will have a material
effect on its financial position or results of operations.
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 including net losses of approximately $971,000 during the
six-month period ended June 30, 2000. At June 30, 2000, the Company had
an accumulated deficit of approximately $53.0 million, which reflects
an $18.5 million charge for litigation damages with respect to the
patent infringement litigation with SIBIA. 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.
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<PAGE>
Results of Operations
Three Months Ended June 30, 2000 and June 30, 1999
Revenues
Revenues for the three months ended June 30, 2000 decreased to $ 0 from
$2,038,776 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 June
30, 2000 decreased to $0 from $3,267,405 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 $347,630 for the three months
ended June 30, 2000 from $1,126,967 for the same period in 1999. This decrease
was attributable primarily to the elimination of facility related expenses and
the reduction in administrative personnel.
Net Interest Income
Interest income for the three months ended June 30, 2000 decreased to $71,644
from $79,627 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 June 30, 2000 the Company recognized a net loss of
$353,884 in its investment in Axiom Biotechnologies, Inc. and Laurel Partners
Limited Partnership. The loss for the same period in 1999 was $359,144.
Net Loss
The net loss for the three months ended June 30, 2000 decreased to $629,870 from
$2,595,447 for the same period in 1999. This decrease can be attributed to a
decrease in the Company's operating expenses which was partially offset by the
decrease in revenues.
Results of Operations
Six Months Ended June 30, 2000 and June 30, 1999
Revenues
Revenues for the six months ended June 30, 2000 decreased to $700,000 from
$5,077,522 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 six months of 2000. The
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<PAGE>
Company's revenues for the first six months of 2000 were derived solely from its
licensing of its yeast technology to OSI.
Operating Expenses
The Company's research and development expenses for the six months ended June
30, 2000 decreased to $ 0 from $7,179,887 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 $1,200,092 for the six months
ended June 30, 2000 from $2,442,183 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 six months ended June 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.
Net Interest Income
Interest income for the six months ended June 30, 2000 decreased to $143,341
from $416,802 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 six month period.
Equity In Other Ventures
For the six months ended June 30, 2000 the Company recognized a net loss of
$714,238 in its investment in Axiom Biotechnologies, Inc. and Laurel Partners
Limited Partnership. The loss for the same period in 1999 was $680,932.
Net Loss
The net loss for the six months ended June 30, 2000 decreased to $970,989 from
$4.8 million for the same period in 1999. This decrease can be attributed to a
decrease in the Company's operating expenses which was partially offset by the
decrease in revenues.
Liquidity and Capital Resources
At June 30,2000 the Company held cash and cash equivalents of $5,268,807. The
Company's working capital at June 30, 2000 was $5,231,572.
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.
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<PAGE>
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 of $250,000 if the
injunction obtained by SIBIA is lifted or dissolved.
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; expenses
of pursuing such transactions; and the outcome of its appeal of the judgment in
the SIBIA patent litigation.
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 has
not yet determined whether 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 consistings 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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<PAGE>
PART II - OTHER INFORMATION
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 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 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 damage award by the jury. The Company has appealed the
judgment. The appeal will be heard by the Court of Appeals for the
Federal Circuit in Washington, D.C. All briefs have been filed and the
Court of Appeals heard oral argument on March 9, 2000. In order to stay
execution pending appeal of the $18.0 million judgment obtained by
SIBIA, in March 1999, the Company deposited $18.5 million in escrow to
secure payment of the judgment in the event the Company were to lose
the appeal. If the Company is not successful in materially reducing or
setting aside the $18.0 million damage award on appeal, the business,
financial condition and results of operations of the Company will be
materially adversely affected. The costs of and the diversion of
Company resources associated with this litigation have had a material
adverse effect on the business, financial condition, results of
operations and liquidity of the Company.
In January 1999, the U.S. Patent and Trademark Office granted the
Company's request to re- examine the patent issued to SIBIA that was
the subject of the litigation. In March 2000, the Patent Office issued
an office action rejecting all claims of SIBIA's patent. SIBIA
responded to this office action and the Patent Office issued another
office action in July again rejecting all claims of SIBIA's patent.
SIBIA will also have an opportunity to respond to the July office
action. The Patent Office is not expected to issue a decision until at
least October, 2000. A final decision by the Patent Office that SIBIA's
patent is invalid would take precedence over the outstanding jury
verdict and judgment. There can be no assurance, however, that the
Patent Office will issue a final decision finding SIBIA's patent to be
invalid.
(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.
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<PAGE>
Item 2. Changes in Securities and Use of Proceeds
Nothing to Report.
Item 3. Defaults Upon Senior Securities
Nothing to Report
Item 4. Submission of Matters to a Vote of Security Holders
On June 13, 2000, the Company held its annual meeting of stockholders
in New York, New York. The holders of 12,259,863 shares of Common Stock
were present or represented by proxy and, accordingly, a quorum was
present and matters were voted on as follows:
The following persons were elected directors of the Company:
Votes For Votes Withheld
--------- --------------
James R. Broach 12,240,087 19,776
Russell D. Glass 12,241,754 18,109
Carl C. Icahn 12,241,694 18,169
Peter S. Liebert 12,241,694 18,169
Siegfried G. Schaefer 12,241,754 18,109
Jack G. Wasserman 12,241,754 18,109
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: August 11, 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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