UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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
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(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, 1998.
CLASS NUMBER OF SHARES
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Common Stock 16,125,596
<PAGE>
SANGSTAT MEDICAL CORPORATION
FORM 10-Q/A
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1998 and December 31, 1997
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 1998 and 1997
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
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(unaudited) (1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $26,676,961 $50,630,819
Short-term investments......................... 16,623,841 41,404,955
Restricted cash................................ 7,500,000 --
Accounts receivable (net of allowance
for doubtful accounts of $1,244,723 in
1998 and $139,297 in 1997)................... 7,173,780 1,012,631
Other receivables.............................. 2,293,537 581,420
Inventories.................................... 23,737,143 3,757,451
Prepaid expenses............................... 1,275,427 1,752,036
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Total current assets...................... 85,280,689 99,139,312
PROPERTY AND EQUIPMENT -- Net...................... 3,387,493 2,015,373
INTANGIBLE ASSETS.................................. 14,400,243 --
OTHER ASSETS....................................... 3,922,502 3,199,785
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TOTAL.............................................. $106,990,927 $104,354,470
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $16,551,360 $3,486,726
Accrued liabilities............................. 3,399,291 1,222,607
Capital lease obligations -- current portion.... 424,036 327,222
Notes payable -- current portion................ 1,185,068 290,855
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Total current liabilities.................. 21,559,755 5,327,410
CAPITAL LEASE OBLIGATIONS........................... 797,959 1,020,361
NOTES PAYABLE....................................... 16,507,904 536,507
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000
shares authorized; none outstanding........... -- --
Common stock, $.001 par value,
25,000,000 shares authorized;
outstanding: 1998, 16,125,596 shares;
1997, 16,009,531 shares....................... 159,707,050 159,265,454
Accumulated deficit............................. (91,023,431) (61,806,012)
Accumulated translation adjustment.............. 87,545 (14,014)
Unrealized gain (loss) on investments........... (645,855) 24,764
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Total stockholders' equity................. 68,125,309 97,470,192
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TOTAL...................................... $106,990,927 $104,354,470
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</TABLE>
(1) Derived from the Company's audited consolidated financial statements.
<PAGE>
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
REVENUES
Net product sales............ $2,974,410 $1,126,791 $7,096,770 $2,528,840
Revenue from collaborative
agreements................. 53,479 - 363,877 -
------------- ------------- ------------- -------------
Total revenues............... 3,027,889 1,126,791 7,460,647 2,528,840
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COSTS AND OPERATING EXPENSES
Cost of sales and
manufacturing expenses..... 2,926,855 852,294 6,863,635 2,345,150
Research and development..... 4,801,444 4,481,168 12,110,418 12,150,598
Selling, general and
administrative............. 6,478,225 2,944,711 17,272,774 7,416,847
Acquired in-process research
and development............ 3,218,516 - 3,218,516 -
------------- ------------- ------------- -------------
Total costs and operating
expenses................... 17,425,040 8,278,173 39,465,343 21,912,595
------------- ------------- ------------- -------------
Loss from operations........ (14,397,151) (7,151,382) (32,004,696) (19,383,755)
INTEREST INCOME -- NET........ 803,764 1,949,426 2,787,277 4,205,061
------------- ------------- ------------- -------------
NET LOSS......................($13,593,387) ($5,201,956) ($29,217,419) ($15,178,694)
============= ============= ============= =============
NET LOSS PER SHARE -- Basic
and diluted (Note 3)....... ($0.84) ($0.33) ($1.82) ($1.00)
============= ============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES...................... 16,091,749 15,925,534 16,053,524 15,170,198
============= ============= ============= =============
</TABLE>
<PAGE>
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. ($29,217,419) ($15,178,694)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization....................... 797,755 424,365
Acquired in-process research and development........ 3,218,516
Changes in assets and liabilities:
Accounts receivable............................... (874,548) (521,231)
Other receivables................................. (126,171) (1,019,946)
Inventories....................................... (9,336,948) (2,615,556)
Prepaid expenses.................................. 918,301 178,614
Accounts payable.................................. 7,186,206 3,576,924
Accrued liabilities............................... (613,234) 102,282
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Net cash used in operating activities.......... (28,047,542) (15,053,242)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................... (1,071,390) (343,355)
Maturities of short-term investments.................. 23,253,108 7,436,722
Purchase of short-term investments.................... (6,642,613) (19,192,255)
Business acquired in purchase transaction,
net of cash acquired................................ (10,737,164) --
Other assets.......................................... (722,717) (271,926)
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Net cash provided by (used in) investing activities.. 4,079,224 (12,370,814)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock.................................. 441,596 77,351,856
Repayment of notes payable............................ (244,322) (351,216)
Repayment of capital lease obligations................ (284,353) (260,477)
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Net cash provided by (used in) financing activities.. (87,079) 76,740,163
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EFFECT OF EXCHANGE RATE CHANGES ON CASH.................. 101,539 (35,258)
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NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS.......... (23,953,858) 49,280,849
CASH AND EQUIVALENTS, Beginning of period................ 50,630,819 19,818,940
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CASH AND EQUIVALENTS, End of period...................... $26,676,961 $69,099,789
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.............. $187,721 $150,209
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NONCASH INVESTING AND FINANCING ACTIVITIES:
Property acquired under capital leases................ $158,765 $1,144,459
Unrealized loss on investments........................ ($670,619) ($93,768)
On September 30, 1998 the Company acquired IMTIX
(see Note 2). In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired........................... $34,166,679
Acquired in-process research and development............ 3,218,516
Cash paid............................................... (11,661,684)
Discounted note payable................................. (16,208,456)
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Liabilities assumed..................................... $9,515,055
=============
</TABLE>
<PAGE>
SANGSTAT MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. 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 1997 Annual Report to Shareholders.
2. Acquisition
On September 30, 1998, the Company completed the acquisition of Pasteur
Merieux Connaught's organ transplant business known as IMTIX. The
acquisition was accounted for using the purchase method of accounting.
The resulting wholly owned subsidiary of the Company, named IMTIX-
SangStat, is dedicated to the research, development, manufacture and
marketing of pharmaceuticals for transplantation. The aggregate purchase
price of approximately $31 million consisted of $10 million paid upon
closing and $21 million payable over five years as follows: $3 million in
1999, $3 million in 2000, $6 million in 2001, $5 million in 2002 and $4
million in 2003. At September 30, 1998, the deferred cash payments are
included in Notes Payable on the balance sheet and were discounted to
their present value of approximately $16 million using a discount rate of
9.5%. In addition, the Company will pay Pasteur Merieux Connaught
royalties on IMTIX-SangStat product sales that are variable and contingent
upon the sales of certain IMTIX-SangStat products. The aggregate purchase
price and approximately $2 million of acquisition costs were allocated to
the net tangible assets acquired, intangible assets and purchased in-
process research and development. The purchased in-process research and
development of approximately $3.2 million was charged to the Company's
operations in the third quarter of 1998 and represents the value of
products in the development stage that have not yet reached technological
feasibility. Approximately $14.4 million of the purchase price was
allocated to various specified intangible assets and is being amortized
over their estimated useful lives ranging from five to fifteen years. The
allocation of the purchase price reflected herein is estimated and is
subject to change upon the receipt of additional facts and the
finalization of the accounting for this acquisition. Additionally, as
part of the acquisition, the Company has approximately $7.5 million of
restricted cash that serves as collateral for the standby letter of credit
in favor of Pasteur Merieux Connaught.
3. Loss Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128") in the fourth quarter of 1997. SFAS 128
requires a dual presentation of basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net loss by the weighted average of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that would occur if securities or other contracts to
issue common stock were exercised or converted into common stock. Common
share equivalents including stock options, warrants and redeemable
convertible preferred stock have been excluded as their effect would be
antidilutive. All net loss per share amounts for all periods have been
presented, and where necessary, restated to conform to the SFAS 128
requirement.
4. Comprehensive Earnings (Loss)
Effective January 1, 1998, the Company adopted SFAS 130, Reporting
Comprehensive Income. This statement requires that all items recognized
under accounting standards as components of comprehensive earnings be
reported in an annual statement and displayed with the same prominence as
other annual financial statements. This statement also requires that an
entity classify items of other comprehensive earnings by their nature in
an annual financial statement. The Company's total comprehensive earnings
(loss) were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss......................($13,593,387) ($5,201,956) ($29,217,419) ($15,178,694)
Unrealized gains and losses
on marketable securities
classified as
available-for-sale.......... 97,037 20,372 (670,619) (93,768)
Foreign currency translation
adjustments.................. 88,825 (3,719) 101,559 (34,670)
------------- ------------- ------------- -------------
Total comprehensive loss......($13,407,525) ($5,185,303) ($29,786,479) ($15,307,132)
============= ============= ============= =============
</TABLE>
5. Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market
consist of:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials....................... $8,472,373 $1,929,954
Work-in-progress.................... 6,531,008 144,389
Finished goods...................... 8,733,762 1,683,108
------------ ------------
Total $23,737,143 $3,757,451
============ ============
</TABLE>
6. Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
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
this statement will not impact the Company's consolidated financial
position, results of operations, or cash flows and will be effective for
the Company's fiscal year 1998.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement requires companies to
record derivatives on the balance sheet as assets or liabilities, measured
at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. SFAS No. 133
will be effective for the Company's fiscal year 2000. Management believes
that this Statement will not have a significant impact on the Company.
7. Year 2000 Issue
The Company utilizes various computer software packages in the conduct of
its business activities. The Company has conducted a preliminary
assessment of its internal information technology systems that could be
affected by the Year 2000 issue. Based on this preliminary assessment, the
Company currently has no reason to believe that its internal information
technology systems are not Year 2000 compliant. The Company intends to
continue to assess the Year 2000 compliance of its internal information
technology systems. To date, the Company has not made any material
expenditures related to the Year 2000 compliance of its internal
information technology systems and the Company does not currently
anticipate spending any material amounts for Year 2000 remediation. There
can be no assurance that Year 2000 errors or defects will not be
discovered in the Company's internal information technology systems. In
the event Year 2000 errors or defects are discovered in the Company's
internal information technology systems and the Company is not able to
remedy such errors or defect in a timely manner or the cost to remedy such
errors or defects is significant, there would be a material adverse effect
on the Company's business, results of operations or financial condition.
The Company has not yet fully assessed the extent of its exposure, or
investigated the plans of its suppliers and vendors to address their
exposures to these year 2000 problems, and thus the Company may be
adversely impacted should these organizations not successfully address
this issue.
8. Euro-Currency.
The Single European Currency (Euro) will be introduced on January 1, 1999
with complete transition to this new currency required by January 2002.
The Company is currently assessing the issues raised by the introduction of the
Euro. The Company has made and expects to continue to make changes to its
internal systems in preparation for the initial introduction of the Euro.
The Company further expects that introduction and use of the Euro will affect
the Company's foreign exchange activities and may result in increased
fluctuations in foreign currency results. Any delays in the Company's
ability to be Euro-compliant could have an adverse impact on the Company's
results of operations or financial position.
<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, 1998 and 1997
SangStat is a specialty pharmaceutical company, applying a disease
management approach to improve the outcome of organ transplantation. The
Company has a total of 12 monitoring and therapeutic product and product
candidates to address the pre-transplant, acute care and chronic phases of
transplantation. During the first nine months of the year, the Company
continued to prepare for the launch of its two lead products, including
running additional clinical studies, building a sales and marketing sales
team and developing THE TRANSPLANT PHARMACY(TM).
Acquisition. SangStat has developed its plan to address the European
transplantation market. On September 30, 1998, the Company completed the
acquisition of Pasteur Merieux Connaught's organ transplant business known
as IMTIX. The resulting wholly owned subsidiary of the Company, named
IMTIX-SangStat, is dedicated to the research, development, manufacture and
marketing of pharmaceuticals for transplantation. The aggregate purchase
price of approximately $31 million consisted of $10 million paid upon
closing and $21 million payable over five years. In addition, the Company
will pay Pasteur Merieux Connaught royalties on IMTIX-SangStat product
sales that are variable and contingent upon the sales of certain IMTIX-
SangStat products. The acquisition was accounted for using the purchase
method of accounting, and accordingly, IMTIX-SangStat's operations will be
included in the Company's consolidated statements of operations beginning
in the fourth quarter of 1998. The aggregate purchase price and
approximately $2 million of acquisition costs were allocated to the net
tangible assets acquired, intangible assets and purchased in-process
research and development. The purchased in-process research and
development of approximately $3.2 million was charged to the Company's
operations in the third quarter of 1998 and represents the value of
products in the development stage that have not yet reached technological
feasibility. As part of the acquisition, the Company has approximately
$7.5 million of restricted cash that serves as collateral for the standby
letter of credit in favor of Pasteur Merieux Connaught. The historical
financial statements of IMTIX are expected to be filed on form 8-K in
December 1998.
Total revenues. Net product sales in the third quarter 1998 increased to
$2,974,000 from $1,127,000 in the same quarter of 1997 and were $7,097,000
for the nine months ended September 30, 1998 as compared to $2,529,000 in
the same period in 1997. Both the increase for the third quarter of
$1,847,000 or 164% and the increase for the nine months of $4,568,000 or
181%, were primarily due to an increase in sales of THE TRANSPLANT
PHARMACY. This increase was partially offset by a decrease in sales of
the Company's monitoring products. In the third quarter of 1998, two
additional transplant centers became participants in THE TRANSPLANT
PHARMACY. This brought the number of participating centers in the United
States to sixteen and further expanded the number of patients enrolled in
THE TRANSPLANT PHARMACY. Revenue from collaborative agreements was $53,000
and $364,000 for the three and nine months ended September 30, 1998,
respectively.
Cost of sales and manufacturing. Cost of sales and manufacturing expenses
were $2,927,000 in the third quarter of 1998 as compared with $852,000 in
the corresponding quarter of 1997 and were $6,864,000 for the nine months
ended September 30, 1998 as compared to $2,345,000 in the same period in
1997. Both the increase for the third quarter of $2,075,000 or 244% and
the increase for the nine months of $4,519,000 or 193%, were substantially
due to additional costs associated with increased sales of THE TRANSPLANT
PHARMACY.
Research and development. Research and development expenses increased
slightly to $4,801,000 in the third quarter of 1998 from $4,481,000 in the
same period in 1997 and decreased slightly to $12,110,000 for the nine
months ended September 30, 1998 from $12,151,000 in the same period in
1997. The decrease for the nine months ended September 30, 1998 primarily
reflects a decline in research and development expenses for monitoring
products as well as regulatory and clinical development expenses for
CYCLOSPORINE, partially offset by increases in expenses for THYMOGLOBULIN,
AZATHIOPRINE and XENOJECT(TM). The Company continues to conduct both ongoing
and newly initiated clinical trials with several cyclosporine dosage
forms, the CycloTech(R) dosing device, THYMOGLOBULIN, monitoring devices,
CELSIOR(R), AZATHIOPRINE, ALLOTRAP(R) peptides and XENOJECT.
SangCya(TM), oral solution, the Company's first CYCLOSPORINE product
candidate, was approved by the U.S. Food and Drug Administration (FDA) on
October 31, 1998, as a bioequivalent formulation to Neoral(R) for the
prevention of rejection in organ transplant recipients. The U.S. launch
of SangCya is planned for the fourth quarter of 1998. SangCya has also
been filed in Europe under the mutual recognition process. The Company
has now completed more than 30 human trials with SangCya and more than 500
healthy volunteers and kidney, liver and heart recipients have received
SangCya to date, while under clinical investigative use. In addition,
during the third quarter, the Company announced the FDA clearance of its
innovative dosing device, CycloTech, to be used in dispensing SangCya.
In regards to THYMOGLOBULIN, the Company's application for market
clearance for the treatment of acute rejection in kidney transplantation
is currently in late stage review at the FDA.
Acquired in-process research and development. In connection with the
acquisition of Pasteur Merieux Connaught's organ transplant business known
as IMTIX, the Company recorded in the third quarter a charge of $3,219,000
for purchased in-process research and development. Excluding this one-
time charge, the net loss for the quarter would have been $10,375,000 or
$.64 per share.
Selling, general and administrative. Selling, general and administrative
expenses increased to $6,478,000 in the third quarter of 1998 from
$2,945,000 in the same quarter of the previous year. This increase of
$3,533,000 or 120% primarily reflects the Company's successful expansion
of its commercial infrastructure and pre-launch activities to help support
the future U.S. launches of the Company's first two therapeutic product
candidates, THYMOGLOBULIN (subject to regulatory approval) and
CYCLOSPORINE, and the growth of The Transplant Pharmacy. Selling, general
and administrative expenses increased to $17,273,000 for the nine months
ended September 30, 1998 from $7,417,000 for the same period in 1997.
This increase of $9,856,000 or 133% from the comparable period in 1997 is
attributable to an increase of $6,196,000 in sales and marketing for
monitoring and therapeutic products and an increase of $3,660,000 in
general administrative expenses, including THE TRANSPLANT PHARMACY. The
Company has expanded its North American marketing, sales and customer
service departments and continues to make personnel additions to support
the growing number of patients and centers in THE TRANSPLANT PHARMACY.
Other income and expenses. Interest income decreased by $1,098,000 or 55%
to $913,000 in the third quarter of 1998 from $2,011,000 in the third
quarter of the previous year and also decreased by $1,341,000 or 31% to
$2,992,000 for the nine months ended September 30, 1998 from $4,333,000 in
the same period of 1997. These decreases are due to the decrease in the
average cash balance available for investment as a result of the Company's
use of cash for operating activities. Interest and other expense for
capital lease obligations, long term notes, and foreign exchange losses
increased by $77,000 or 60% to $205,000 for the nine months ended
September 30, 1998 from $128,000 in the comparable period of 1997.
Net loss. The Company's net loss increased to $13,593,000 or $0.84 per
share in the third quarter of 1998, compared with a net loss of $5,202,000
or $0.33 per share in the third quarter of 1997. For the nine months ended
September 30, 1998, the Company's net loss increased to $29,217,000 or
$1.82 per share compared with a net loss of $15,179,000 or $1.00 per share
in the nine months ended September 30, 1997.
Liquidity and Capital Resources
During the first nine months of 1998 and 1997, the net cash used in
operating activities was approximately $28,048,000 and $15,053,000,
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, 1998, the Company
had cash, cash equivalents and short-term investments of $50,801,000 and
total assets of $106,991,000.
Net cash provided by investing activities for the nine months ended
September 30, 1998 was $4,079,000 as compared to net cash used of
$12,371,000 for the comparable period in 1997. The amount in 1998 is
primarily the result of the maturity of short-term investments, offset by
the purchase of IMTIX compared to the Company's net purchases of short-
term investments in 1997.
Net cash used in financing activities for the nine months ended September
30, 1998 was $87,000 as compared to net cash provided of $76,740,000 for
the same period in 1997. The amount in 1997 was substantially comprised
of proceeds received from the sale of Common Stock in the Company's public
offering in March 1997, offset in part by net repayments of notes payable
and capital lease obligations.
The Company expects to incur significant costs related to, among other
things, continued clinical and pre-clinical 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 the approvals of its therapeutic drug
candidates, the Company expects to have additional working capital
requirements for expansion of sales, and increased inventory levels. The
Company believes that its existing capital resources, together with
product sales, interest income and short term borrowings will be
sufficient to meet the Company's operating and capital requirements
through 1999. 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 $1.3 million during 1998. 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 regulatory review
and approval process could cause actual results to differ materially with
regard to the possible market acceptance of the Company's CYCLOSPORINE
drug product and CycloTech device and the approvability and possible
market acceptance of THYMOGLOBULIN. 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 regulatory
agencies (or the agencies' panel of experts) will agree with the Company's
assessment of clinical trial results or proposed labels; (2) that there
can be no assurance that the agencies 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; (3) that there can be no assurance that
final labeling can be agreed upon in a timely manner; (4) that there can
be no assurance that any manufacturing or control issues will be
adequately resolved to the agencies' satisfaction; (5) that there can be
no assurance that any current or future questions relating to the FDA's
review of the PLA or ELA applications or to the inspection of the
THYMOGLOBULIN manufacturing facility can be adequately answered to the
FDA's satisfaction; and (6) that there can be no assurance of regulatory
approval of either CYCLOSPORINE or CycloTech, (in Europe) or THYMOGLOBULIN
(in the US).
Other factors that could cause actual results to differ materially
include, without limitation, uncertainty related to the current or future
manufacturing of commercial quantities of CYCLOSPORINE, CycloTech and
THYMOGLOBULIN on commercially favorable terms, adequate and continuous
supply of bulk CYCLOSPORINE drug substance and CycloTech devices, market
acceptance, profitability, competition and potential litigation. For a
discussion of other factors that might result in different outcomes, see
the Company's 1997 annual report on Form 10-K, in particular, "Risks
Associated with CYCLOSPORINE" set forth therein, filed with the Securities
and Exchange Commission.
<PAGE>
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under this item is not required in this filing.
<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 19, 1998 BY: /S/ PHILIPPE POULETTY, M.D.
------------------------------------
PHILIPPE POULETTY, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DATE: November 19, 1998 BY: /S/ JAMES HINRICHS, CFA
------------------------------------
JAMES HINRICHS, CFA
CHIEF FINANCIAL OFFICER
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTE
FROM CONDENSED CONSOLIDATED BALANCE SHEET OF SEPTEMBER 30,
1998 AND DECEMBER 31, 1997 AND THE CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS, SEPTEMBER 30, 1998/1997.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 26,676,961
<SECURITIES> 16,623,841
<RECEIVABLES> 8,418,503
<ALLOWANCES> 1,244,723
<INVENTORY> 23,737,143
<CURRENT-ASSETS> 85,280,689
<PP&E> 3,387,493
<DEPRECIATION> 0
<TOTAL-ASSETS> 106,990,927
<CURRENT-LIABILITIES> 21,559,755
<BONDS> 0
0
0
<COMMON> 159,707,050
<OTHER-SE> (91,581,741)
<TOTAL-LIABILITY-AND-EQUITY> 106,990,927
<SALES> 7,096,770
<TOTAL-REVENUES> 7,460,647
<CGS> 6,863,635
<TOTAL-COSTS> 6,863,635
<OTHER-EXPENSES> 39,465,343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (29,217,419)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,217,419)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,217,419)
<EPS-PRIMARY> (1.82)
<EPS-DILUTED> (1.82)
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