<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 March 31, 1997
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
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(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
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(Address of principal executive office, Zip Code)
Registrant's telephone number, including area code: 415-328-0300
None
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(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 March 31, 1997.
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES
----- ----------------
<S> <C>
Common Stock 15,768,780
</TABLE>
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<PAGE> 2
SANGSTAT MEDICAL CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
----
<S> <C>
CONDENSED CONSOLIDATED BALANCE SHEETS........................3
March 31, 1997 and December 31, 1996
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS..............4
Three Months Ended March 31, 1997 and 1996
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS..............5
Three Months Ended March 31, 1997 and 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.........6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............7-10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................11
SIGNATURES...........................................................11
</TABLE>
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<PAGE> 3
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------------- ----------------
(unaudited) (1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $84,877,790 $19,818,940
Short-term investments 25,070,301 21,501,961
Accounts receivable 386,921 399,437
Other receivables 661,383 483,252
Inventories 835,517 802,137
Prepaid expenses 335,614 413,181
---------------- ----------------
Total current assets 112,167,526 43,418,908
PROPERTY AND EQUIPMENT -- Net 1,001,505 993,995
OTHER ASSETS 494,836 337,213
---------------- ----------------
TOTAL $113,663,867 $44,750,116
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,183,730 $1,094,104
Accrued liabilities 893,459 875,602
Capital lease obligations -- current portion 248,210 262,339
Notes payable -- current portion 328,535 462,743
---------------- ----------------
Total current liabilities 2,653,934 2,694,788
---------------- ----------------
CAPITAL LEASE OBLIGATIONS 277,192 296,715
---------------- ----------------
NOTES PAYABLE 777,425 803,631
---------------- ----------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.001 par value,
5,000,000 shares authorized; none outstanding -- --
Common stock, $.001 par value, 25,000,000
shares authorized; outstanding: 1997, 155,339,377 81,657,314
15,768,780 shares; 1996, 13,129,560 shares
Accumulated deficit (45,358,156) (40,825,827)
Accumulated translation adjustment 21,478 20,634
Unrealized gain (loss) on short-term investments (47,383) 102,861
---------------- ----------------
Total stockholders' equity 109,955,316 40,954,982
---------------- ----------------
TOTAL $113,663,867 $44,750,116
================ ================
</TABLE>
(1) Derived from the Company's audited consolidated financial statements.
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<PAGE> 4
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
NET PRODUCT SALES $690,499 $711,345
--------------- --------------
COSTS AND OPERATING EXPENSES:
Cost of sales and manufacturing 702,348 695,138
Research and development 3,383,507 2,229,436
Selling, general & administrative 1,825,777 1,002,703
--------------- --------------
Total operating expenses 5,911,632 3,927,277
--------------- --------------
Loss from operations (5,221,133) (3,215,932)
--------------- --------------
OTHER INCOME (EXPENSE)
Interest Income 721,829 203,300
Interest expense (33,025) (30,353)
--------------- --------------
Other income, net 688,804 172,947
--------------- --------------
Net Loss ($4,532,329) ($3,042,985)
=============== ==============
NET LOSS PER WEIGHTED AVERAGE SHARE ($0.33) ($0.29)
=============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,669,318 10,326,182
=============== ==============
</TABLE>
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<PAGE> 5
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($4,532,329) ($3,042,985)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 111,940 84,590
Changes in assets and liabilities:
Accounts receivable 4,986 34,474
Other receivables (184,123) (118,907)
Inventories (35,380) (107,855)
Prepaid expenses 76,070 (237,258)
Accounts payable 105,560 96,429
Accrued liabilites 35,809 15,317
-------------- --------------
Net cash used in operating activities (4,417,467) (3,276,195)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock and options 73,682,063 45,070,735
Note payable borrowings -- 127,980
Note payable repayments (138,849) (101,912)
Repayment of capital lease obligations (86,787) (76,138)
-------------- --------------
Net cash provided by financing activities 73,456,427 45,020,665
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (71,549) (16,615)
Maturities of short-term investments 10,183,426 3,956,293
Purchase of short-term investments (13,902,010) (9,467,862)
Other assets (193,646) 9,982
-------------- --------------
Net cash used in investing activities (3,983,779) (5,518,202)
-------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3,669 (51,387)
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 65,058,850 36,174,881
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,818,940 4,609,186
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $84,877,790 $40,784,067
============== ==============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Property acquired under capital leases $53,134 $58,886
============== ==============
Unrealized gain (loss) on short-term investments ($150,244) $14,706
============== ==============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION --
Cash paid during the period for interest $69,513 $61,697
============== ==============
</TABLE>
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<PAGE> 6
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 for the entire year. The information included in this report should be
read in conjunction with the Company's audited financial statements and notes
thereto included in the Company's 1996 Annual Report to Shareholders.
Per Share Information
Net loss per common share is computed using the weighted average number of
common shares outstanding during the period. Common equivalent shares, including
stock 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>
March 31, December 31,
1997 1996
--------- ---------
<S> <C> <C>
Raw materials $ 331,736 $ 265,537
Work-in-progress 326,013 275,503
Finished goods 177,768 261,097
--------- ---------
Total $ 835,517 $ 802,137
========= =========
</TABLE>
Public Offering
In March and April 1997, the Company completed a public offering, including the
underwriters' over-allotment of a total of 2.73 million shares with gross
proceeds of $81,900,000.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Total revenues. Net product sales were $690,000 in the first quarter of 1997 as
compared with $711,000 in the first quarter of 1996. This decrease of $21,000 or
3% was primarily due to a 35% decline in revenues for THYMOGLOBULIN(R) in
Canada under that country's emergency drug release program, which reflects
variations in compassionate use demand, partially offset by a 10% increase in
sales of PRA-STAT(R) and CROSS-STAT(R) and sales of THE TRANSPLANT PHARMACY.
Cost of sales and manufacturing. Cost of sales and manufacturing expenses were
$702,000 for the quarter ended March 31, 1997 as compared with $695,000 in the
corresponding quarter of 1996. This increase of $7,000 or 1% primarily reflects
declines of cost of sales for both monitoring products and THYMOGLOBULIN and
more than offset by cost of sales of THE TRANSPLANT PHARMACY. The Company's
monitoring products business does not currently generate a profit, because the
Company has not achieved a scale of production which allows it to cover fixed
manufacturing costs.
Research and development. Research and development expenses increased to
$3,384,000 in the first quarter of 1997 from $2,229,000 in the same period in
1996. This increase of $1,154,000 or 52% mainly reflects expenses for completion
of several key regulatory and clinical development milestones and initiation of
new clinical projects for THYMOGLOBULIN, CYCLOSPORINE and AZATHIOPRINE. In
January 1997, the Company's submission of a market approval application (AADA)
for its proprietary CYCLOSPORINE to the U.S. Food and Drug Administration (FDA)
was accepted and is now under review at the FDA. In addition to the CYCLOSPORINE
pivotal bioequivalence trials submitted to the FDA in the AADA, the Company also
completed several further bioequivalence trials with CYCLOSPORINE versus
Novartis' Neoral. These trials were not requested by the FDA but were conducted
to provide additional clinical data for opinion leader support. The Company also
initiated the design of several clinical protocols for Investigator Review Board
(IRB) submission of clinical trials for conversion of renal, heart and liver
transplant recipients on Novartis' Neoral to SangStat's CYCLOSPORINE. These
trials also were not requested by the FDA and are not deemed necessary for
approval of the Company's CYCLOSPORINE AADA under review by the FDA. Instead,
these trials are designed to provide information on the pharmacokinetics, safety
and efficacy of conversion from Neoral to SangStat's CYCLOSPORINE. In January
1997, a Product License Application (PLA) was filed with the FDA for approval of
THYMOGLOBULIN for the treatment of acute rejection episodes in renal transplant
recipients. Subsequently, this PLA submission was accepted and is now under
review at the FDA. The Company is continuing a trial for THYMOGLOBULIN for
induction therapy to prevent acute rejection in kidney transplant recipients.
The Company also initiated the design of a trial to investigate the efficacy and
safety of THYMOGLOBULIN in treating graft versus host disease in bone marrow
transplant recipients. These trials were not requested by the FDA but are being
conducted to help facilitate market acceptance and the assessment of future
activities for expanded labeling for THYMOGLOBULIN. The Company announced in
April 1997 that it is planning to expand its clinical trial programs and in
accordance with these plans, the Company expects research and development
expenses to increase in the next few quarters. Selling, general and
administrative. Selling, general and administrative expenses increased to
$1,826,000 in the first quarter of 1997 from $1,003,000 in the same quarter of
the previous year. This increase of $823,000 or 82% primarily reflects that in
connection with the Company's reacquisition of marketing rights to its
monitoring products, PRA-STAT and CROSS-STAT, from
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<PAGE> 8
Baxter Healthcare Corporation in 1996, the Company established its own sales
staffs in the United States and Europe. As a result, sales and marketing
expenses for monitoring products increased by $419,000 from the first quarter of
1996 to the same quarter in 1997. Selling, general and administrative expenses
further increased by $404,000 as the result of the establishment of a pilot
facility for THE TRANSPLANT PHARMACY, as well as expanded therapeutics sales,
patent and other general and administrative activities. The Company announced in
April, 1997 that, it is planning to expand its sales and marketing team to
further its near term product commercialization strategies. The Company is
preparing to build its sales and marketing team now that market approval
applications for THYMOGLOBULIN and CYCLOSPORINE have been submitted and accepted
for review by the FDA. The Company is currently hiring its senior sales and
marketing management to prepare for the anticipated market launches of these two
drugs, subject to FDA approval. In the next few months, the Company expects to
commence hiring of its acute care sales force so that, in the event of market
approvals, the Company will be ready to launch its products. Accordingly, the
Company expects selling, general and administrative expenses to increase in the
next several quarters.
Other income and expenses. Interest income increased by $518,000 to $722,000 in
the first quarter of 1997 from $203,000 in the same quarter of the previous
year. This increase is due to the increase in the average cash balance available
for investment as a result of the Company's sale of equity securities in a
public offering in March 1997. Interest and other expense for capital lease
obligations and long term notes increased to $33,000 in the first quarter of
1997 from $30,000 in the first quarter of 1996.
Net loss. The Company's net loss was $4,532,000 or $0.33 per share in the first
quarter of 1997, compared with a net loss of $3,043,000 or $0.29 per share in
the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the quarters ended March 31, 1997 and 1996, the net cash used in
operating activities was approximately $4,417,000 and $3,276,000, respectively.
The increase in net cash used in operating activities in these periods is due
substantially to the increased amount of net loss incurred in each of these
quarters. As of March 31, 1997, the Company had cash, cash equivalents and
short-term investments of $109,948,000 and total assets of $113,664,000.
Net cash provided by financing activities totaled $73,456,000 and $45,021,000 in
the quarters ended March 31, 1997 and 1996, respectively. Such amounts were
substantially comprised of proceeds received from the sale of Common Stock in
the Company's public offerings in March 1997 and March 1996, respectively,
offset in part by net repayments of notes payable and capital lease obligations.
Net cash used in investing activities totaled $3,984,000 and $5,518,000 in the
quarters ended March 31, 1997 and 1996, respectively, and resulted substantially
from the Company's net purchases of short-term investments. The Company expects
to incur significant costs related to, among other things, continued clinical
and preclinical testing, regulatory approval activities and research and
development programs in the future and establishment of larger sales staffs in
the United States and Europe. If and when the Company receives FDA approval of
its therapeutic drug candidates, the Company expects to have additional working
capital requirements for expansion of sales, increased inventory levels and
payment of certain license obligations. If the Company receives FDA approval for
THYMOGLOBULIN, it would be obligated to make a final
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<PAGE> 9
milestone payment under a related license agreement totaling $1.5 million. 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 1998. Although the Company has no current
contractual obligations relating to capital expenditures, it anticipates that
capital expenditures, primarily for its United States operations, will aggregate
approximately $1 million during 1997. The Company's future capital requirements
will depend on many factors, including its research and development programs,
the scope and results of clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in obtaining and enforcing
patents or any litigation by third parties regarding intellectual property, the
status of competitive products, the establishment of sales and marketing
capacity or third-party manufacturing arrangements, the establishment of
collaborative relationships with other parties, and the costs of manufacturing
scale-up and working capital requirements for inventory and financing of
accounts receivable. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate one or more of its development
programs or obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain
technologies, product candidates or products that the Company would not
otherwise relinquish.
This document contains forward-looking statements that involve risks and
uncertainties. Forward-looking statements may reflect the Company's current
views with respect to future events. Actual results may vary materially and
adversely from those anticipated, believed, estimated, or otherwise indicated.
Important factors common to the FDA drug review and approval process could cause
actual results to differ materially with regard to the approvability of
SangStat's THYMOGLOBULIN or CYCLOSPORINE. These factors include, without
limitation: (1) that data obtained from clinical trials are subject to varying
interpretations, and there can be no assurance that the FDA (or an FDA panel of
experts) will agree with the Company's assessment of clinical trial results; (2)
that there can no assurance that the agency will not issue new guidelines,
guidance documents, policies, or regulations or otherwise have new, different or
previously unknown requirements that may materially affect the approvability of
the product; and (3) that there can be no assurance of FDA approval of the
product. Other factors that could cause actual results to differ materially
include, without limitation, uncertainty related to the manufacturing of
commercial quantities of product on commercially favorable terms, market
acceptance and potential litigation. For a discussion of factors that might
result in different outcomes, see the Company's Registration Statement on Form
S-3 filed on January 24, in particular "Risk Factors" set forth therein, and the
Company's annual report on Form 10-K filed with the Securities and Exchange
Commission.
RECENTLY ISSUED ACCOUNTING STANDARD SFAS 128
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." (SFAS 128). The
Company is required to adopt SFAS 128 in the fourth quarter of 1997. SFAS 128
establishes the accounting standards for computing and presenting earnings per
share. The Company expects that this adoption will not have a material effect on
reported earnings (loss) per share.
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<PAGE> 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EDGAR Financial Data Schedule 27.1.
(b) No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1997.
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: May 14, 1997 BY: /s/ PHILIPPE POULETTY, M.D.
----------------------------------------
PHILIPPE POULETTY, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DATE: May 14, 1997 BY: /s/ HENRY N. EDMUNDS, PH.D.
----------------------------------------
HENRY N. EDMUNDS, PH.D.
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
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<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit # Description
- --------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS OF MARCH 31, 1997/96 AND THE CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS OF MARCH 31, 1997/96.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 84,877,790
<SECURITIES> 25,070,301
<RECEIVABLES> 1,048,304
<ALLOWANCES> 0
<INVENTORY> 835,517
<CURRENT-ASSETS> 112,167,526
<PP&E> 2,771,697
<DEPRECIATION> 1,770,192
<TOTAL-ASSETS> 113,663,867
<CURRENT-LIABILITIES> 2,653,934
<BONDS> 0
0
0
<COMMON> 155,339,377
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 113,663,867
<SALES> 690,499
<TOTAL-REVENUES> 690,499
<CGS> 702,348
<TOTAL-COSTS> 5,911,632
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,025
<INCOME-PRETAX> (4,532,329)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,532,329)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,532,329)
<EPS-PRIMARY> ($0.33)
<EPS-DILUTED> 0
</TABLE>
