<PAGE> 1
UNITED STATES
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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-22890
SANGSTAT MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3076-069
(State of incorporation) (IRS Employer Identification No.)
1505 Adams Drive
Menlo Park, CA 94025
(Address of principal executive office, Zip Code)
Registrant's telephone number, including area code: 415-328-0300
None
(Former name, former address and former fiscal year, if changed since last
report)
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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of September 30, 1996.
CLASS NUMBER OF SHARES
----- ----------------
Common Stock 13,106,125
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SANGSTAT MEDICAL CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
CONDENSED CONSOLIDATED BALANCE SHEETS..........................3
September 30, 1996 and December 31, 1995
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS................4
Three and Nine Months Ended September 30, 1996 and 1995
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS................5
Nine Months Ended September 30, 1996 and 1995
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...........6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................7-9
PART II. OTHER INFORMATION
OTHER INFORMATION..........................................................10
SIGNATURES.................................................................11
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<PAGE> 3
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 19,343,204 $ 4,609,186
Short-term Investments 25,327,732 4,612,565
Accounts Receivable 432,689 406,153
Other Receivables 375,777 170,118
Inventories 779,244 766,124
Prepaid Expenses 199,927 73,531
------------ ------------
Total Current Assets 46,458,573 10,637,677
PROPERTY AND EQUIPMENT -- NET 997,872 528,962
OTHER ASSETS 384,373 393,238
------------ ------------
TOTAL $ 47,840,818 $ 11,559,877
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 899,591 $ 1,041,389
Accrued Liabilities 675,349 652,742
Capital Lease Obligations -- Current 133,834 238,651
Notes Payable -- Current 193,168 254,249
------------ ------------
Total Current Liabilities 1,901,942 2,187,031
------------ ------------
CAPITAL LEASE OBLIGATIONS 498,015 286,558
------------ ------------
NOTES PAYABLE 939,754 804,811
------------ ------------
Common Stock 81,564,711 36,275,765
Accumulated Deficit (37,238,606) (28,051,991)
Accumulated Translation Adjustment 18,585 46,811
Unrealized Gain on Short-Term Investment 156,417 10,892
------------ ------------
Total Stockholders' Equity 44,501,107 8,281,477
------------ ------------
TOTAL $ 47,840,818 $ 11,559,877
============ ============
</TABLE>
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<PAGE> 4
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Net Product Sales $ 639,675 $ 581,725 $ 1,732,263 $ 1,855,931
Collaborative Agreement 0 0 0 1,125,000
------------ ------------ ------------ ------------
Total Revenues 639,675 581,725 1,732,263 2,980,931
------------ ------------ ------------ ------------
Operating Expenses
Cost of Sales and Manufacturing 729,777 617,268 2,018,416 1,932,417
Research and Development 2,132,472 1,657,968 6,187,703 4,582,333
Selling, General & Administrative 1,827,942 907,270 4,168,592 2,688,685
------------ ------------ ------------ ------------
Total Operating Expenses 4,690,191 3,182,506 12,374,711 9,203,435
------------ ------------ ------------ ------------
Loss from Operations (4,050,516) (2,600,781) (10,642,448) (6,222,504)
Other Income (Expense)
Interest Income 614,536 183,596 1,552,462 645,530
Interest & Other Expense (29,935) (33,347) (96,629) (101,569)
------------ ------------ ------------ ------------
Other Income, Net 584,601 150,249 1,455,833 543,961
------------ ------------ ------------ ------------
Net Loss $ (3,465,915) $ (2,450,532) $ (9,186,615) $ (5,678,543)
============ ============ ============ ============
Net Loss per Common Share $ (0.26) $ (0.26) $ (0.76) $ (0.61)
============ ============ ============ ============
Common Shares used in Computing
per Share Amounts 13,098,852 9,586,657 12,166,640 9,306,312
============ ============ ============ ============
</TABLE>
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<PAGE> 5
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,186,615) $ (5,678,543)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 286,323 259,718
Changes in assets and liabilities
Accounts receivable (27,141) (151,480)
Other receivables (208,010) (134,463)
Inventories (13,631) (348,350)
Prepaid expenses (127,902) (38,692)
Accounts payable (131,123) 131,727
Accrued liabilites 31,856 (240,587)
------------ ------------
Net cash used in operating activities (9,376,243) (6,200,670)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Common stock and warrants 45,288,946 5,548,400
Note payable borrowings 133,904 252,033
Note payable repayments (307,722) (281,444)
Repayment of capital lease obligations (238,685) (185,157)
------------ ------------
Net cash provided by financing activities 44,876,443 5,333,832
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (144,356) (2,569)
Maturities of short-term investments 10,294,309 14,982,433
Purchase of short-term investments (30,861,139) (19,645,283)
Deposits and other assets (14,114) 196,413
------------ ------------
Net cash used in investing activities (20,725,300) (4,469,006)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (40,882) (46,328)
------------ ------------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS 14,734,018 (5,382,172)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,609,186 9,828,928
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,343,204 $ 4,446,756
============ ============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Property acquired under capital leases $ 345,325 $ 239,645
Property acquired under notes payable $ 268,322 $ 0
============ ============
Unrealized gain on short-term investments $ 145,525 $ 64,190
============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION - -
Cash paid during the period for interest $ 115,686 $ 113,118
============ ============
</TABLE>
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SANGSTAT MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The consolidated financial statements include the accounts of SangStat Medical
Corporation and its wholly owned subsidiaries. Intercompany accounts and
transactions have been eliminated.
While the quarterly financial information in this filing is unaudited,
the financial statements presented reflect all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a fair
presentation of the results of operations for the interim periods covered and
of the financial condition of the Company at the dates of the interim balance
sheets. These results for interim periods are not necessarily indicative of the
results expected for the entire year. The information included in this report
should be read in conjunction with the Company's audited consolidated financial
statements and notes thereto included in the Company's 1995 Annual Report to
Stockholders.
Per Share Information
Net loss per common share is computed using the weighted average number
of common shares outstanding during the period. Options and warrants granted by
the Company have been excluded in the calculation of common shares outstanding
since they would serve to reduce the net loss per share.
Inventories
Inventories, valued at the lower of cost (first-in, first-out) or
market, consist of:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Raw materials $472,798 $432,549
Work-in-progress 210,816 213,863
Finished goods 95,630 119,712
-------- --------
Total $779,244 $766,124
======== ========
</TABLE>
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS -- THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net product sales increased by 10% to $640,000 for the quarter ended September
30, 1996 from $582,000 in the corresponding quarter in 1995. This primarily
reflects continuing demand for THYMOGLOBULIN(R) under Canada's Emergency Drug
Release (EDR) Program and increased sales of PRA-STAT(R) and CROSS-STAT(R).
Effective July 1, 1996, SangStat reacquired exclusive commercial rights for
these two monitoring products from Baxter Healthcare Corporation and since this
date, SangStat has been marketing these monitoring products through its own
sales staff in the U.S. and Europe. Net product sales for the first nine months
of 1996 were $1,732,000 compared to $1,856,000 in the first nine months of 1995.
This primarily reflects a decrease in revenues for certain contract
manufacturing, OEM and other products for research use. As expected, no
collaborative agreement milestone payments were received from Baxter in 1996,
reflecting completion of the final milestones for PRA-STAT and CROSS-STAT in
1995. The final payments of $1,125,000 in the first six months of 1995
represented the completion of $10.0 million received by SangStat for milestones,
license fees and equity in 1993 through 1995 under its collaborative agreement
with Baxter.
Cost of sales and manufacturing expenses increased to $730,000 and $2,018,000
for the quarter and nine months ended September 30, 1996 from $617,000 and
$1,932,000 in the corresponding periods of 1995, respectively. These increases
primarily reflect increases in monitoring product manufacturing costs, partially
offset by lower cost of goods sold in Canada. The Company's monitoring products
business does not currently generate a profit, because certain sales are made on
a cost recovery basis and the Company has not yet achieved a scale of production
which allows it to cover fixed manufacturing costs. Sales of these monitoring
products however, partially offset fixed costs and serve as a prototype for the
manufacture of further products as well as to further the Company's reputation
and presence in the industry. Notwithstanding these losses, the Company's
strategy is to obtain regulatory approval for certain of these and other
monitoring products and to produce and sell these products on a commercially
profitable basis. The Company accordingly obtained FDA 510(k) market clearance
for its PRA-STAT(R) product in September 1994, and obtained 510(k) approval for
CROSS-STAT(R) in May 1995.
Research, development and regulatory expenses increased to $2,132,000
in the third quarter of 1996 from $1,658,000 in the same quarter in 1995 and
also increased to $6,188,000 in the first nine months of 1996 from $4,582,000
in the first nine months of 1995. These increases reflect expenses incurred to
attain several significant clinical development achievements. In August, the
Company completed its pivotal Phase III clinical trial for THYMOGLOBULIN(R) and
the results of this trial were announced in early October. A preliminary
intent-to-treat analysis of the data (primary endpoint) indicated that the
observed overall success rate in the reversal of acute kidney rejection by
THYMOGLOBULIN(R) was significantly higher than for ATGAM(R) (87.8% vs 76.3%).
Based on the results of this trial (not yet reviewed by the FDA), SangStat
expects to file the Product License Application (PLA) for THYMOGLOBULIN in the
U.S. by year end.
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<PAGE> 8
In September the Company announced the positive results of its pivotal
bioequivalance trials showing that SangStat's proprietary CYCLOSPORINE
formulation is bioequivalent to branded cyclosporine, as defined by FDA policy
for generic drugs. Based on these results, SangStat intends to file for
marketing clearance with the FDA by year end, earlier than previously
forecasted. Cyclosporine is the leading immunosuppressive drug used in human
organ transplantation to prevent graft rejection. SangStat is continuing a
second Phase II dose-finding safety and surrogate end-point trial for its
proprietary peptide ALLOTRAP(R) 2702 and has also begun bioequivalence trials
for its generic AZATHIOPRINE product. Also in September, SangStat launched The
Transplant Pharmacy(TM), a comprehensive pharmacotherapy management program
intended to address the chronic care needs of the transplant recipient. This
new program will promote medication compliance, measure clinical and economic
outcomes, provide feedback directly to clinicians, and dispense all needed
medications by mail from SangStat's central pharmacy to transplant recipients
enrolled in the program. The program is being piloted at a select number of
transplant centers.
Selling, general and administrative expenses increased to $1,828,000 in the
third quarter of 1996 from $907,000 for the same quarter of the previous year
and also increased to $4,169,000 in the first nine months of 1996 from
$2,689,000 in the first nine months of 1995. This primarily reflects expenses
for the addition of a sales staff in both the U.S. and Europe for the Company's
monitoring products, establishment of a pharmacy, increased activities in
investor relations and expanded general administrative activities.
Interest income increased in the third quarter of 1996 to $615,000 from $184,000
in the same quarter of the previous year, and increased to $1,552,000 from
$646,000 for the first nine months of 1996 and 1995, respectively. This reflects
interest earned from investment of the cash proceeds from the Company's public
offering in March 1996. Interest and other expense for capital lease obligations
and long term notes remained essentially unchanged at $30,000 in the third
quarter of 1996 compared with $33,000 in the same quarter of the previous year
and $97,000 in the first nine months of 1996 compared with $102,000 in the first
nine months of 1995.
The Company's net loss was $3,466,000 or $0.26 per share in the third quarter of
1996, compared with a net loss of $2,451,000 or $0.26 per share in the third
quarter of 1995. The net loss of $9,187,000 or $0.76 per share for the first
nine months of 1996 compared with a net loss of $5,679,000 or $0.61 per share
for the first nine months of 1995. These changes are primarily the result of
higher operating expenses in the third quarter and the first nine months of 1996
as compared with the same periods in 1995.
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<PAGE> 9
FINANCIAL CONDITION
Total assets as of September 30, 1996 were $47,841,000, an increase of
$36,281,000 from December 31, 1995. This increase is primarily due to an
increase in cash, cash equivalents and short-term investments of $35,449,000,
an increase in accounts receivable and other receivables of $232,000 and an
increase in prepaid expenses of $126,000.
Total liabilities increased slightly by $61,000, a result of increases in
capital lease obligations and notes payable of $181,000 and accrued liabilities
of $23,000 respectively, partially offset by a decline of accounts payable of
$142,000. Stockholders' equity increased by $36,220,000 from year end 1995. This
increase consisted primarily of $45,061,000 in net proceeds from the Company's
public offering in March 1996, offset partially by the net loss of $9,187,000
for the first nine months of 1996.
LIQUIDITY
The Company has cash, cash equivalents and short-term investments of
$44,671,000 as of September 30, 1996. The Company expects to incur significant
costs related to continued research and development programs, preclinical and
clinical testing and regulatory approval activities in the years ahead. In
addition, in the event the Company receives regulatory approval for any of its
therapeutic products, the Company may then need to raise additional funds
through additional financings, including private or public equity offerings and
collaborative research and development arrangements with corporate partners.
There can be no assurance that funds will be raised on favorable terms, if at
all, or that discussions with potential collaborative partners will result in
any agreements. The Company believes that its existing capital resources,
together with product sales and interest income will be sufficient to meet the
Company's operating and capital requirements through at least 1997. The
Company's future capital requirements will depend on many factors, including
but not limited to: continued scientific progress in its research and
development programs; progress in clinical trials; the time and costs involved
in obtaining regulatory approvals; the costs involved in obtaining and
enforcing patents; the ability of the Company to establish development and
commercialization relationships; and the costs of manufacturing scale-up.
This document contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. For a discussion of
factors that might result in different outcomes, see the Company's Registration
Statement on Form S-3 filed on February 9, 1996, in particular "Risk Factors"
set forth therein, and the Company's annual report on Form 10-K for the year
ended December 31, 1995, filed with the Securities and Exchange Commission.
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<PAGE> 10
PART II. OTHER INFORMATION
There is no disclosure required pursuant to the Items in Part II.
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<PAGE> 11
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.
SANGSTAT MEDICAL CORPORATION
(REGISTRANT)
DATE: November 12, 1996 BY:__________________________________________
DAVID L. WINTER, M.D.
PRESIDENT AND CHIEF OPERATING OFFICER
DATE: November 12, 1996 BY:____________________________________________
HENRY N. EDMUNDS, PH.D.
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
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<PAGE> 12
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 19,343,204
<SECURITIES> 25,327,732
<RECEIVABLES> 808,066
<ALLOWANCES> 0
<INVENTORY> 779,244
<CURRENT-ASSETS> 46,458,573
<PP&E> 2,542,512
<DEPRECIATION> 1,544,640
<TOTAL-ASSETS> 47,840,818
<CURRENT-LIABILITIES> 1,901,942
<BONDS> 0
0
0
<COMMON> 81,564,711
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 47,840,818
<SALES> 1,732,263
<TOTAL-REVENUES> 1,732,263
<CGS> 2,018,416
<TOTAL-COSTS> 12,374,711
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,629
<INCOME-PRETAX> (9,186,615)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,186,615)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,186,615)
<EPS-PRIMARY> (0.76)
<EPS-DILUTED> 0
</TABLE>
