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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-22890
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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: 650-328-0300
None
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(Former name, former address and former fiscal year,
if changed since last report)
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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.
[ x ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 30, 1997.
CLASS NUMBER OF SHARES
----- ----------------
Common Stock 15,956,855
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
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(unaudited) (1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $69,099,789 $19,818,940
Short-term investments 33,163,727 21,501,961
Accounts receivable 909,775 399,437
Other receivables 1,494,183 483,252
Inventories 3,413,695 802,137
Prepaid expenses 232,309 413,181
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Total current assets 108,313,478 43,418,908
PROPERTY AND EQUIPMENT -- Net 2,049,530 993,995
OTHER ASSETS 556,518 337,213
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TOTAL $110,919,526 $44,750,116
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $4,643,147 $1,094,104
Accrued liabilities 950,366 875,602
Capital lease obligations -
current portion 351,320 262,339
Notes payable -- current portion 146,411 462,743
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Total current liabilities 6,091,244 2,694,788
CAPITAL LEASE OBLIGATIONS 1,091,716 296,715
NOTES PAYABLE 736,860 803,631
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, 15,956,855 shares;
1996, 13,129,560 shares 159,009,170 81,657,314
Accumulated deficit (56,004,521) (40,825,827)
Accumulated translation adjustment (14,036) 20,634
Unrealized gain
on short-term investments 9,093 102,861
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Total stockholders' equity 102,999,706 40,954,982
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TOTAL $110,919,526 $44,750,116
============= =============
</TABLE>
(1) Derived from the Company's audited consolidated financial statements.
See notes to consolidated financial statements.
<PAGE>
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Total Revenues $1,126,791 $639,675 $2,528,840 $1,732,263
Operating Expenses:
Cost of Sales and Manufacturing 852,294 729,777 2,345,150 2,018,416
Research and Development 4,481,168 2,132,472 12,150,598 6,187,703
Selling, General & Administrative 2,944,711 1,827,942 7,416,847 4,168,592
------------- ------------- ------------- -------------
Total Operating Expenses 8,278,173 4,690,191 21,912,595 12,374,711
------------- ------------- ------------- -------------
Loss from Operations (7,151,382) (4,050,516) (19,383,755) (10,642,448)
Other Income (Expense):
Interest Income 2,001,745 614,536 4,332,919 1,552,462
Interest & Other Expense (52,319) (29,935) (127,858) (96,629)
------------- ------------- ------------- -------------
Other Income, Net 1,949,426 584,601 4,205,061 1,455,833
------------- ------------- ------------- -------------
Net Loss ($5,201,956) ($3,465,915) ($15,178,694) ($9,186,615)
============= ============= ============= =============
Net loss per Common Share ($0.33) ($0.26) ($1.00) ($0.76)
============= ============= ============= =============
Weighted Average Shares 15,925,534 13,098,852 15,170,198 12,166,640
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($15,178,694) ($9,186,615)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 424,365 286,323
Changes in assets and liabilities:
Accounts receivable (521,231) (27,141)
Other receivables (1,019,946) (208,010)
Inventories (2,615,556) (13,631)
Prepaid expenses 178,614 (127,902)
Accounts payable 3,576,924 (131,123)
Accrued liabilites 102,282 31,856
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Net cash used in operating activities (15,053,242) (9,376,243)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock and options 77,351,856 45,288,946
Note payable borrowings -- 133,904
Note payable repayments (351,216) (307,722)
Repayment of capital lease obligations (260,477) (238,685)
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Net cash provided by financing activities 76,740,163 44,876,443
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (343,355) (144,356)
Maturities of short-term investments 7,436,722 10,294,309
Purchase of short-term investments (19,192,255) (30,861,139)
Other assets (271,926) (14,114)
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Net cash used in investing activities (12,370,814) (20,725,300)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (35,258) (40,882)
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NET INCREASE IN CASH AND EQUIVALENTS 49,280,849 14,734,018
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 19,818,940 4,609,186
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CASH AND CASH EQUIVALENTS, END OF PERIOD $69,099,789 $19,343,204
============= =============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Property acquired under capital leases $1,144,459 $345,325
Property acquired under notes payable -- 268,322
Unrealized gain (loss) on investments (93,768) 145,525
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION -
Cash paid during the period for interest $150,209 $115,686
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
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
sheet. 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 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,
1997 1996
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<S> <C> <C>
Raw materials $1,505,932 $265,537
Work-in-progress 287,415 275,503
Finished goods 1,620,348 261,097
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Total $3,413,695 $802,137
============ ============
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations - Three and Nine Months Ended September 30,
1997 and 1996
Total revenues. Net product sales in third quarter 1997 increased to
$1,127,000 from $640,000 in the same quarter of 1996. This increase of
$487,000 or 76% reflects an increase of 25% in sales of monitoring products,
including PRA- STAT(R) and CROSS-STAT(R), sales of THE TRANSPLANT
PHARMACY(TM)(which began in third quarter 1996) and an increase of 18% in
therapeutic sales (including THYMOGLOBULIN(R)) in Canada. Net product sales
in the first nine months of 1997 increased to $2,529,000 from $1,732,000 in
the first nine months of 1996. This increase of $797,000 or 46% similarly
reflects an increase of 37% in sales of monitoring products, including
PRA-STAT and CROSS-STAT, continuing sales of THE TRANSPLANT PHARMACY and
partially offset by an 18% decline in therapeutic sales (including
THYMOGLOBULIN) in Canada. The changes in sales of THYMOGLOBULIN in Canada
under that country's Emergency Drug Release (EDR) Program reflect
compassionate use demand.
Cost of sales and manufacturing. Cost of sales and manufacturing expenses were
$852,000 in the third quarter of 1997 as compared with $730,000 in the
corresponding quarter of 1996. This increase of $122,000 or 17% was due to an 8%
increase in cost of sales in Canada and commencement of THE TRANSPLANT PHARMACY,
partially offset by a decrease in costs of monitoring products. Cost of sales
and manufacturing expenses were $2,345,000 in the first nine months of 1997 as
compared with $2,018,000 in the first nine months of 1996. This increase of
$327,000 or 16% is a result of a 10% decrease in costs of monitoring products, a
16% decrease in costs of sales in Canada, partially offset by costs of sales for
THE TRANSPLANT PHARMACY.
Research and development. Research and development expenses increased to
$4,481,000 in the third quarter of 1997 from $2,132,000 in the same period in
1996. This increase of $2,349,000 or 110% primarily reflects several clinical
trials in transplant patients for CYCLOSPORINE and THYMOGLOBULIN and continuing
product development of AZATHIOPRINE, ALLOTRAP(R) peptides and XENOJECT(TM). In
July the Company announced the one year follow-up of its pivotal U.S. Phase
III trial with THYMOGLOBULIN(R). These data have not yet been reviewed by the
U.S. Food and Drug Administration (FDA). A Product License Application (PLA)
for THYMOGLOBULIN was submitted to the FDA in January 1997. During the third
quarter, SangStat also successfully completed an additional clinical trial
with its proprietary CYCLOSPORINE in renal transplant recipients. The results
of this trial, conducted at the University of Cincinnati, will be presented at
a satellite symposium at the American Society of Nephrology Annual Meeting in
November 1997. The Company has a number of additional clinical trials in
different transplant recipient populations ongoing and results are planned to
be presented at future scientific and regulatory meetings in the future.
Research and development expenses also increased to $12,151,000 in the first
nine months of 1997 as compared to $6,188,000 in the first nine months of 1996.
This increase of $5,963,000 or 96% reflects, in addition to the key events
described above for the third quarter of 1997, support of an on going trial
utilizing THYMOGLOBULIN for induction therapy to prevent acute rejection in
kidney transplant recipients. This is not a registration study but may provide
useful data to help assess the potential of this indication for THYMOGLOBULIN.
The Company filed applications with the FDA for market clearance of its
proprietary CYCLOSPORINE, for prevention of organ transplant rejection, and
THYMOGLOBULIN, for treatment of rejection, in November 1996 and January 1997,
respectively. Both drugs are now under active review at the FDA. 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 continue to increase in the next few quarters over
levels from corresponding quarters of the previous year.
Selling, general and administrative. Selling, general and administrative
expenses increased to $2,945,000 in the third quarter of 1997 from $1,828,000 in
the same quarter of the previous year. This increase of $1,117,000 or 61% is in
accordance with the Company's announcement in April 1997 of its plans to expand
its sales and marketing staff to further its near term commercialization
strategies. In May 1997 R. J. Tesi, M.D., joined the Company as Senior Vice
President of Marketing and in August 1997 Martin Rosendale joined the Company as
Senior Vice President of U.S. Sales and Services. Selling and marketing
expenses for monitoring and therapeutic products increased by $120,000 from the
third quarter of 1996, as compared to the same quarter in 1997. General and
administrative expenses further increased by $997,000 in the third quarter of
1997 as compared to the third quarter of 1996 primarily as the result of the
establishment of a pilot facility for THE TRANSPLANT PHARMACY, as well as
expanded patent and other general and administrative activities.
Selling, general and administrative expenses increased to $7,417,000 in the
first nine months of 1997 from $4,169,000 in the first nine months of 1996.
This increase of $3,248,000 or 78% from the first nine months of 1996 to the
first nine months of 1997 is largely attributable to an increase of $2,038,000
in general administrative expenses, including expenses of THE TRANSPLANT
PHARMACY. This reflects an increase of $1,210,000 in selling and marketing
expenses for monitoring and therapeutic products. This increase in selling and
marketing expenses reflects in part that the Company established its own
monitoring products sales staffs in the United States and Europe and expanded
its sales and marketing group in Canada in third quarter 1996 in connection with
the Company's reacquisition of marketing rights to PRA-STAT and CROSS-STAT from
Baxter Healthcare Corporation in July 1996. The Company is building its
therapeutic products sales and marketing team in that market approval
applications for THYMOGLOBULIN and CYCLOSPORINE have been submitted and accepted
for review by the FDA. In the next several quarters, the Company expects to
continue to build its therapeutic products sales force so that, in the event of
market clearances, the Company will be ready to launch and market 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 $1,387,000 or 226% to
$2,002,000 in the third quarter of 1997 from $615,000 in the third quarter of
1996 and also increased by $2,780,000 or 179% to $4,333,000 in the first nine
months of 1997 from $1,552,000 in the third quarter of 1996. These increases
are 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 and the overallotment completed in April 1997. Interest and other
expense for capital lease obligations and long term notes increased by $31,000
or 32% to $128,000 in the first nine months of 1997 from $97,000 in the first
nine months of 1996.
Net loss. The Company's net loss increased to $5,202,000 or $0.33 per share in
the third quarter of 1997, compared with a net loss of $3,466,000 or $0.26 per
share in the third quarter of 1996. For the first nine months of 1997, the
Company's net loss increased to $15,179,000 or $1.00 per share compared with a
net loss of $9,187,000 or $0.76 per share in the first nine months of 1996.
Liquidity and Capital Resources
During the first nine months of 1997 and 1996, the net cash used in operating
activities was approximately $15,053,000 and $9,376,000, 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
periods. As of September 30, 1997, the Company had cash, cash equivalents and
short-term investments of $102,264,000 and total assets of $110,920,000.
Net cash provided by financing activities totaled $76,740,000 and $44,876,000
for the nine months ended September 30, 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 $12,371,000
and $20,725,000 in the nine months ended September 30, 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
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 be 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 Annual Report, in particular
"Risks Associated with CYCLOSPORINE" set forth therein, and the Company's
filings on Forms 10-K and 10-Q with the Securities and Exchange Commission.
Recently Issued Accounting Standards
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.
In June 1997, the Financial Accounting Standards Board adopted Statements of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income",
which requires that an enterprise report by major components and as a single
total, the change in its net assets during the period from nonowner sources;
and No. 131 "Disclosures about Segments of an Enterprise and Related
Information" which establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographic areas, and major customers. Adoption of these
statements will not impact the Company's consolidated financial position,
results of operations or cash flows. Both statements are effective for
fiscal years beginning after December 15, 1997, with earlier application
permitted.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EDGAR Financial Data Schedule 27.1
(b) There were no reports on Form 8-K filed during the period covered
by this report.
<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.
SANGSTAT MEDICAL CORPORATION
----------------------------
(REGISTRANT)
DATE: November 14, 1997 BY: /S/ PHILIPPE POULETTY, M.D.
------------------------------------
PHILIPPE POULETTY, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DATE: November 14, 1997 BY: /S/ HENRY N. EDMUNDS, PH.D.
------------------------------------
HENRY N. EDMUNDS, PH.D.
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBITS
- - -------- --------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CONDENSED CONSOLIDATED BALANCE SHEET OF SEPTEMBER 30,
1997/1996 AND THE CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS, SEPTEMBER 30, 1997/1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 69,099,789
<SECURITIES> 33,163,727
<RECEIVABLES> 2,403,958
<ALLOWANCES> 0
<INVENTORY> 3,413,695
<CURRENT-ASSETS> 108,313,478
<PP&E> 2,049,530
<DEPRECIATION> 0
<TOTAL-ASSETS> 110,919,526
<CURRENT-LIABILITIES> 6,091,244
<BONDS> 0
0
0
<COMMON> 159,009,170
<OTHER-SE> (56,009,464)
<TOTAL-LIABILITY-AND-EQUITY> 110,919,526
<SALES> 2,528,840
<TOTAL-REVENUES> 2,528,840
<CGS> 2,345,150
<TOTAL-COSTS> 2,345,150
<OTHER-EXPENSES> 19,567,445
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127,858
<INCOME-PRETAX> (15,178,694)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,178,694)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,178,694)
<EPS-PRIMARY> ($1.00)
<EPS-DILUTED> ($1.00)
</TABLE>
