<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
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COMMISSION FILE NUMBER 0-23736
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GUILFORD PHARMACEUTICALS INC.
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
DELAWARE 52-1841960
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6611 TRIBUTARY STREET, BALTIMORE, MARYLAND 21224
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(Address of principal executive offices) (Zip Code)
410-631-6300
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 13, 1997
Common Stock, $.01 par value 18,553,431
- ---------------------------- --------------------------
<PAGE> 2
GUILFORD PHARMACEUTICALS INC.
INDEX
<TABLE>
<CAPTION>
Page (s)
----
<S> <C>
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations
Three months ended March 31, 1997 and 1996 4
Consolidated Statement of Stockholders' Equity
Three months ended March 31, 1997 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II. OTHER INFORMATION 17
SIGNATURES 18
</TABLE>
2
<PAGE> 3
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION> MARCH 31, 1997
(UNAUDITED) DECEMBER 31, 1996
-------------------------- -------------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,536 $ 16,560
Short-term investments 30,251 20,097
Short-term investments - restricted 2,043 1,608
Accounts receivable - net 1,019 -
Collaborative research receivable 236 376
Inventory 1,465 1,533
Other current assets 445 435
--------------------- --------------------
Total current assets 40,995 40,609
Investments 23,025 30,653
Investments - restricted 8,902 8,521
Property and equipment, net 14,227 13,455
Other assets 332 421
--------------------- --------------------
Total assets $ 87,481 $ 93,659
===================== ===================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,182 $ 2,038
Bond payable - current portion 941 941
Term loan payable - current portion 818 540
Accrued consulting and contracted research 787 935
Accrued payroll related costs 686 1,238
Accrued expenses and other current liabilities 949 1,185
--------------------- -------------------
Total current liabilities 6,363 6,877
Long-term liabilities:
Bond payable, less current portion 6,353 6,588
Term loan payable, less current portion 4,537 4,317
--------------------- -------------------
Total liabilities 17,253 17,782
Stockholders' equity:
Preferred stock, par value $.01 per share
Authorized 4,700,000 shares, none issued
Series A junior participating preferred stock,
par value $.01 per share. Authorized 300,000
shares, none issued
Common stock, par value $.01 per share.
Authorized 20,000,000 shares; (40,000,000
shares effective April, 1997) 14,805,556 and
13,979,490 issued and outstanding at March 31,
1997 and December 31, 1996 148 140
Additional paid-in capital 92,309 90,880
Notes receivable on common stock (129) (129)
Accumulated deficit (21,210) (14,874)
Unrealized gain (loss) on available for sale securities (183) 62
Treasury stock, at cost 26,188 shares (655)
Deferred compensation (52) (202)
--------------------- -------------------
70,228 75,877
--------------------- -------------------
Total liabilities and stockholders' equity $ 87,481 $ 93,659
===================== ===================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
--------------------- -------------------------
<S> <C> <C>
Revenues:
Product sales $ 2,058 $ -
License fees and royalties 201 100
Revenues under collaborative agreements - 10
--------------------- -------------------------
Total revenues 2,259 110
Costs and Expenses:
Cost of Sales 907 -
Research and development 6,664 3,572
General and administrative 1,781 1,344
--------------------- -------------------------
Total costs and expenses 9,352 4,916
--------------------- -------------------------
Operating loss (7,093) (4,806)
Other income (expense):
Interest income 990 358
Other income 6 -
Interest expense (239) (71)
--------------------- -------------------------
Net loss $ (6,336) $ (4,519)
===================== =========================
Net loss per share: $ (0.45) $ (0.43)
===================== =========================
Weighted average common shares outstanding 14,237,446 10,438,608
===================== =========================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------ TREASURY ADDITIONAL
NUMBER STOCK PAID-IN
OF SHARES AMOUNT AT COST CAPITAL
--------- ------ -------- -------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 13,979,490 $ 140 $ - $ 90,880
Issuances of common stock 826,066 8 1,012
Purchase of common stock (655)
Amortization of stock option compensation 417
Amortization of deferred compensation
Unrealized loss on available for sale securities
Net loss for the period
----------------- ----------- -------------- ---------------
BALANCE, MARCH 31, 1997 14,805,556 $ 148 $ (655) $ 92,309
================= =========== ============== ===============
<CAPTION>
NOTES
RECEIVABLE
ON COMMON ACCUMULATED
STOCK DEFICIT
----- -------
<S> <C> <C>
BALANCE, DECEMBER 31, 1996 $ (129) $ (14,874)
Issuances of common stock
Purchase of common stock
Amortization of stock option compensation
Amortization of deferred compensation
Unrealized loss on available for sale securities
Net loss for the period (6,336)
------------------ ----------------
BALANCE, MARCH 31, 1997 $ (129) $ (21,210)
================== ================
<CAPTION>
UNREALIZED
GAIN (LOSS) ON TOTAL
AVAILABLE FOR DEFERRED STOCKHOLDERS'
SALE SECURITIES COMPENSATION EQUITY
--------------- ------------ ------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 62 $ (202) $ 75,877
Issuances of common stock 1,020
Purchase of common stock (655)
Amortization of stock option compensation 417
Amortization of deferred compensation 150 150
Unrealized loss on available for sale securities (245) (245)
Net loss for the period (6,336)
------------------- ------------------ ----------------------
BALANCE, MARCH 31, 1997 $ (183) $ (52) $ 70,228
=================== ================== ======================
</TABLE>
5
<PAGE> 6
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,336) $ (4,519)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 594 231
Noncash compensation expense 567 32
Changes in assets and liabilities:
Accounts receivable - net (1,019) -
Licensing fee receivable - 455
Collaborative research receivable 140 -
Notes receivable - (1)
Inventory 68 -
Other current assets (10) 119
Other assets 89 2
Accounts payable 144 1,902
Accrued expenses and other current liabilities (937) (304)
------------------- ----------------
Net cash used in operating activities (6,700) (2,083)
------------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in purchases of property and equipment (1,366) (3,036)
Maturities of held-to-maturity investments 8,399 6,685
Maturities of available-for-sale investments 3,454 -
Purchases of held-to-maturity investments (8,157) (5,195)
Purchases of available-for-sale investments (7,489) -
Restricted cash - 12
Restricted investments 208 -
------------------- ----------------
Net cash used in investing activities (4,951) (1,534)
------------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuances of common stock 321 37,242
Purchase of treasury stock (655) -
Proceeds from bond and term loan issuances 498 1,002
Equity proceeds from Gell Pharmaceuticals Inc. relating to the put option 698 232
Principal payments on bond payable (235) -
------------------- ----------------
Net cash provided by financing activities 627 38,476
------------------- ----------------
Net increase (decrease) in cash and cash equivalents (11,024) 34,859
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 16,560 4,260
------------------- ----------------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 5,536 $ 39,119
=================== ================
Supplemental disclosures of cash flow information:
Net interest paid $ 237 $ 111
Unrealized loss on available for sale securities $ (245) $ -
Receivable from over-allotment purchase of 300,000 common shares $ - $ 5,640
Collateral transferred from unrestricted to restricted investments, net $ 435 $ 701
=================== ================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. These consolidated financial statements should be
read in conjunction with the audited financial statements and notes thereto
included in the Company's annual report on Form 10-K/A for the year ended
December 31, 1996.
In the opinion of the Company's management, any adjustments contained in
the accompanying unaudited consolidated financial statements are of a normal
recurring nature, necessary to present fairly its financial position, results of
operations, changes in stockholders' equity and cash flows for the respective
periods as set forth in the Index to Financial Information. Interim results are
not necessarily indicative of results for the full fiscal year.
Net loss per share data for the period ending March 31, 1996 have been
adjusted to reflect a three-for-two stock split declared on October 15, 1996.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Guilford
Pharmaceuticals Inc. and its subsidiaries, all of which are wholly-owned. All
significant intercompany transactions have been eliminated.
3. ACCOUNTING POLICIES
During the first quarter 1997, the Company adopted or implemented the
following accounting policies:
REVENUE RECOGNITION
Sales revenues are recognized at the time the goods are shipped and the
title to the goods passes to the buyer.
7
<PAGE> 8
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
The computation of net loss per share is based on the weighted average
common shares outstanding during the period. Common stock equivalents
relating to stock options and warrants are excluded from the computation as
their effect is anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 is effective
for financial statements for periods ending after December 15, 1997. SFAS
128 requires companies to change the method currently used to compute
earnings per share and to restate all prior periods for comparability.
Under SFAS 128, primary and fully diluted earnings per share are eliminated
and SFAS 128 requires presentation of basic and diluted earnings per share.
The adoption of SFAS 128 is not expected to have a material impact on the
Company's earnings per share due to the fact that the Company is and
expects to be in a loss position and, consequently, common equivalent
shares from stock options are excluded as their effect is anti-dilutive.
4. INVENTORIES
Inventories consist of the following (in thousands):
March 31, 1997 December 31, 1996
Finished products $ 497 $ 501
Work in Process 467 432
Raw materials 501 600
------ ------
$1,465 $1,533
====== ======
Inventories include products and materials that can be either held for sale
to third parties as well as used in the Company's research and development
activities. The amount of products or materials identified as intended for
research and development activities is expensed as soon as such inventory is
specifically identified for non-commercial use.
8
<PAGE> 9
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PRODUCT SALES & ROYALTIES
Pursuant to the Company's Marketing, Sales and Distribution Rights
Agreement (together with related agreements, the "RPR Agreements") with
Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPR"), the Company recognized
revenues of $2.3 million ($2.1 million in product sales and $0.2 million in
royalty revenues) for the three months ended March 31, 1997 relating to sales of
GLIADEL (R) Wafer ("GLIADEL"). GLIADEL was commercially launched in the United
States on February 25, 1997. Under the RPR Agreements, Guilford receives a
combined transfer price and royalty of 35% (which escalates to 40% based on
achieving certain levels of total GLIADEL sales) of the net sales of GLIADEL.
6. INCOME TAXES
As of December 31, 1996, the Company had net operating loss ("NOL")
carryforwards available in the United States for federal income tax purposes of
approximately $10.3 million, which will begin to expire at various dates between
2008 to 2010. NOL carryforwards are subject to ownership change limitations and
may also be subject to various other limitations on the amounts to be utilized.
Additionally, through December 31, 1996, the Company had foreign tax credit
carryforwards of $61,000 expiring in 2000 and 2001, and general business tax
credit carryforwards of $450,000 expiring between 2008 and 2011.
Realization of net deferred tax assets related to the Company's NOL
carryforwards and other items is dependent on future earnings, which are
uncertain. Accordingly, a valuation allowance has been established equal to net
deferred tax assets which may not be realized in the future, resulting in net
deferred tax assets of approximately $179,000 at March 31, 1997.
7. GELL PHARMACEUTICALS INC.
In February 1995, the Company and The Abell Foundation, Inc., a
Baltimore-based not-for-profit corporation ("Abell"), formed Gell
Pharmaceuticals Inc.("Gell"), which was initially 20% owned by the Company and
80% owned by Abell. On March 5, 1997, Abell exercised its put option to receive
750,000 shares of the Company's common stock in exchange for its 80% interest in
Gell, and thereafter Gell became a wholly-owned subsidiary of the Company. The
number of shares exchanged for Abell's interest in Gell was fixed and agreed to
at the inception of Gell.
9
<PAGE> 10
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. SUBSEQUENT EVENTS
In April 1997, the Company completed a follow-on public offering of
approximately 3.7 million shares of its common stock, resulting in net proceeds
to the Company of approximately $71 million.
In addition, on April 1, 1997, the Company's stockholders approved an
amendment to the Company's Amended and Restated Certificate of Incorporation, as
amended, increasing the number of authorized shares of common stock from 20
million to 40 million shares.
10
<PAGE> 11
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Any statements made by Guilford Pharmaceuticals Inc. (together with its
subsidiaries, "Guilford" or the "Company") in this quarterly report that are
forward looking are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The following discussion contains
forward-looking statements, including, but not limited to, those concerning the
commencement and completion of clinical trials, the Company's strategic plans,
anticipated expenditures and the need for additional funds, which involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Information concerning
factors that could affect such results are set forth herein and in the Company's
filings with the Securities and Exchange Commission, including the section
entitled "Risk Factors" in the Company's Registration Statement on Form S-3,
initially filed March 7, 1997 (the "March 1997 Form S-3").
* * *
GENERAL
Guilford, founded in 1993, is a biopharmaceutical company engaged in the
development and commercialization of novel products in two principal areas: (i)
targeted and controlled drug delivery systems using proprietary biodegradable
polymers for the treatment of cancer and other diseases; and (ii) therapeutic
and diagnostic products for neurological diseases and conditions. Since its
inception, the Company has primarily focused its effort on commercializing its
first product, GLIADEL(R)Wafer ("GLIADEL"), a proprietary biodegradable polymer
for delivering the chemotherapeutic agent, BCNU, for brain cancer and developing
its second product candidate, DOPASCAN(R) Injection ("DOPASCAN"), a radiolabeled
imaging agent for the diagnosis and monitoring of Parkinson's disease. In
September 1996, the U.S. Food and Drug Administration ("FDA") cleared the
Company's New Drug Application for GLIADEL as an adjunct to surgery in patients
with recurrent glioblastoma multiforme for whom surgery is indicated. On
February 25, 1997, GLIADEL was commercially launched in the United States by the
Company's worldwide marketing partner (except in Scandinavia), Rhone-Poulenc
Rorer Pharmaceuticals Inc. ("RPR"). In addition, the Company has in-licensed and
itself developed certain technologies that may be useful in connection with the
prevention and treatment of certain neurological diseases and conditions and has
accelerated research and development activities with respect to certain of these
technologies.
While the Company reported net earnings of $5.1 million for fiscal 1996
(primarily the result of nonrecurring milestones and licensing fees), the
Company incurred net operating losses from its inception through the first
quarter of 1996 and again in the fourth quarter of 1996. For the first quarter
of 1997, the Company incurred a net operating loss of $6.3 million, and through
March 31, 1997, the Company had an accumulated deficit of $21.2 million. Through
December 31, 1996, substantially all the Company's revenues have been recognized
as non-recurring research and development or rights and milestone payments under
the Company's collaborations. In the first quarter of 1997, the Company launched
its first commercial product, GLIADEL and recognized $2.3 million in product
sales and royalties. Except for GLIADEL, the Company's product candidates are
not expected to generate revenues for at least the next several years, if at
all, and the recognition of
11
<PAGE> 12
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
GENERAL (CONTINUED)
material revenues related to GLIADEL sales is subject to significant
uncertainty. The Company does not anticipate that 1997 will be profitable, and
there can be no assurance that the Company will ever achieve or sustain
profitability in the future. Furthermore, the Company expects to experience
quarter-to-quarter and year-to-year fluctuations in its operating results based
upon the timing and amount of sales of GLIADEL, the timing and realization of
milestone and other payments under the Company's agreements with RPR and other
existing and potential collaborations, expenditures relating to the Company's
research and development, clinical and manufacturing activities, and the extent
and timing of costs related to the Company's patenting activities and other
activities undertaken in connection with the preservation and extension of the
Company's intellectual property rights.
The Company expects that expenses related to research and product
development, preclinical testing, clinical trials, regulatory matters,
operations, manufacturing and general and administrative expenses will continue
to increase as the Company commercializes GLIADEL through its marketing partners
and conducts research and development activities to develop its other
technologies and potential products. The Company has experienced substantial
personnel growth since its inception and had 4, 34, 78, and 140 full-time
employees at December 31, 1993, 1994, 1995, and 1996, respectively. As of March
31, 1997 the Company had 165 full-time employees. The Company's ability to
achieve consistent profitability in the future will depend, among other things,
upon future sales of GLIADEL as well as the Company's ability, either alone or
with others, to develop its product candidates successfully, conduct clinical
trials, obtain required regulatory clearances, manufacture at reasonable cost
and successfully market its product candidates and enter into collaborative
arrangements and license agreements on acceptable terms. For discussion of these
and other risks, see the "Risk Factors" section of the March 1997 Form S-3,
particularly those paragraphs specifically addressing the aforementioned risks.
Future sales of GLIADEL are subject to certain risks, including the
following. The Company's agreements with RPR do not impose any minimum purchase
requirements on the part of RPR, and there can be no assurance that RPR will be
successful in marketing and selling GLIADEL. GLIADEL represents a novel approach
to the treatment of brain cancer, and there can be no assurance of broad
acceptance by the medical or patient communities. The Company currently relies
on a single supplier for BCNU, the chemotherapeutic agent used in GLIADEL, and
on its own single manufacturing facility to produce GLIADEL. Inability to secure
timely, sufficient, or GMP quality supply of BCNU, unforeseen plant shutdowns
due to personnel or plant or equipment problems, risks associated with
regulatory compliance (including the need to manufacture GLIADEL in accordance
with the FDA's Good Manufacturing Practice (GMP) regulations), and the potential
inability to meet future product demand, among others, could adversely affect
the timing and extent of any future revenues related to GLIADEL sales. For
discussion of these and other risks, see the "Risk Factors" section of the March
1997 Form S-3, particularly those paragraphs specifically addressing the
aforementioned risks.
12
<PAGE> 13
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
RESULTS OF OPERATIONS
Comparison of the Three Month Periods Ended March 31, 1997 and 1996
The Company recognized $2.3 million in revenues for the three months ended
March 31, 1997, all of which resulted from product sales of and royalties
relating to GLIADEL, following its commercial launch in the United States on
February 25, 1997. For the same period in 1996 the Company recognized $110,000
in revenues, primarily related to a one-time license fee paid to the Company by
Orion Corporation Farmos, the Company's marketing partner for GLIADEL in
Scandinavia.
Cost of sales for the first quarter 1997 were $907,000. Included in this
amount are approximately $162,000 representing both royalty payments made to a
third party from which the Company licensed certain technologies related to
GLIADEL and certain costs specifically related to the commercial product launch
of GLIADEL in the United States. As GLIADEL production levels increase, the
Company expects that per unit product costs may decrease as economies of scale
are achieved. There can be no assurance, however, that GLIADEL product sales
will ever reach levels necessary for the Company to realize significant costs
savings related to manufacturing economies of scale.
Research and development expenses increased to $6.7 million for the three
months ended March 31, 1997 as compared to $3.6 million for the same period in
1996. The increase in these costs was primarily attributable to expenses related
to increased personnel costs and contracted research, consulting and laboratory
supplies. In the first quarter of 1997, the Company accelerated its
neuroimmunophilin, pre-synaptic glutamate inhibitors, polymer development, and
other research and development programs, continued work on the study report on
the Phase IIb clinical trials of DOPASCAN in the United States (which completed
patient enrollment at the end of 1996), and continued with Phase I clinical
trials for a high dose formulation of GLIADEL during the first quarter of 1997.
In addition, in the first quarter of 1997, research and development expenses
also included a non-cash compensation expense charge of $417,000, and $58,000 in
cash compensation expense, both relating to certain consulting agreements
entered into in April 1996. These agreements are intended to enhance the
Company's ability to develop new polymer technologies and products for the
delivery of chemotherapeutics in indications where local tumor recurrence is
likely and controlled release may be more effective than current therapies. The
Company expects it will be required to record varying amounts quarterly of up to
an additional $1.8 million in the aggregate of non-cash compensation charges in
research and development expenses through 2001 relating to these agreements. The
Company anticipates that its research and development expenses will continue to
increase significantly in future periods.
13
<PAGE> 14
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses increased to $1.8 million for the three
months ended March 31, 1997 as compared to $1.3 million for the same period in
1996. The increase in general and administrative expenses of $437,000 million
from the 1996 period to the 1997 period was attributable to higher personnel
costs related to an increase in the number of employees necessary to support the
Company's research and development and commercialization activities.
Additionally, indirect personnel costs, including recruiting and relocation
costs, have increased as the total number of employees has increased. Increases
in costs related to patenting and other activities related to establishment and
preservation of the Company's intellectual property and costs related to
operations as a public company also contributed to increased general and
administrative expenditures over the periods covered. The Company anticipates
that its general and administrative expenses will continue to increase in future
periods.
Other income and expense relates primarily to interest income and interest
expense. Interest income increased to $990,000 for the three months ended March
31, 1997 as compared to $358,000 for the same period in 1996. The increase was
primarily attributable to an increase in the average invested capital during the
first quarter of 1997 as compared to the same period in 1996. The increase in
average invested capital was primarily due to the sales of the Company's Common
Stock in 1996 and milestone/licensing fee revenues from RPR in 1996. For the
three months ended March 31, 1997 and 1996, the Company incurred interest
expense of $239,000 and $71,000, respectively, relating to borrowings under its
loan agreements with Signet Bank providing for the construction of
manufacturing, administrative and research and development facilities and the
purchase of related equipment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments were $69.6 million at March 31, 1997.
Included in this amount is $10.9 million of restricted cash held as collateral
with respect to certain of the Company's indebtedness.
The Company incurred capital expenditures of $1.4 million for the three
months ended March 31, 1997 compared to $3.0 million for the same period in
1996. The capital expenditures made in the 1997 period were primarily for
purchases of capital equipment, consisting of laboratory, manufacturing, and
computer equipment, and the construction of the Company's manufacturing plant
for GLIADEL and other polymers under development. The capital expenditures made
in the 1996 period were primarily for the construction of the Company's polymer
manufacturing plant and tenant improvements for research and development
laboratories and administrative offices. In addition funds were used to purchase
capital equipment, consisting of laboratory, manufacturing and computer
equipment. Construction for the Company's research and development laboratories
and administrative offices was substantially completed in November 1996.
14
<PAGE> 15
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company had available approximately $1.3 million at March 31, 1997
under its existing loan agreements with Signet Bank to finance the remaining
tenant improvements related to the construction of laboratories and related
areas. To finance capital equipment, the Company finalized a $5.0 million
operating lease arrangement with General Electric Capital Corporation in
September 1996 for the financing of certain equipment. Such financing, along
with other sources, is expected to provide for the Company's equipment needs at
least through the third quarter of 1997. At March 31, 1997, $3.0 million was
available under this arrangement to lease additional equipment.
During the remainder of 1997 and 1998, the Company expects to make
additional capital expenditures of approximately $3.7 million to expand the
Company's GLIADEL manufacturing and other polymer development plant capacity.
The Company expects to use the funds available under its $7.5 million loan
agreement with RPR to fund the expansion.
As of January 2, 1997, $4.0 million became available under the loan
agreement; the remainder is available no earlier than 12 nor later than 18
months following funding of the initial tranche. Any principal amounts borrowed
under this loan agreement are due five years from the date borrowed and will
carry an interest rate equal to the lowest rate paid by RPR from time to time on
its most senior indebtedness. No amounts were outstanding under this loan at
March 31, 1997.
The Company will require substantial funds in order to continue its
research and development programs and preclinical and clinical testing and to
manufacture and, where applicable, market its products. The Company's capital
requirements depend on numerous factors, including the progress of its research
and development programs, the progress of preclinical and clinical testing, the
time and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments, changes in the
Company's existing research relationships, the ability of the Company to
establish collaborative arrangements, the development of collaborative and
licensing agreements and other arrangements and the progress of manufacturing
scale-up efforts.
SUBSEQUENT EVENTS
In April 1997, the Company completed a public offering of an aggregate of
approximately 3.7 million shares of its Common Stock, resulting in net proceeds
to the Company of approximately $71 million. The Company believes that its
existing resources, including the net proceeds of the offering and the interest
earned thereon, will be sufficient to fund the Company's activities for at least
the next three years. There can be no assurance, however, that changes in the
Company's research and development and commercialization plans or other factors
affecting the Company's operating expenses including potential acquisitions will
not result in the expenditure of these proceeds and the Company's other
resources before that time.
15
<PAGE> 16
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
SUBSEQUENT EVENTS (CONTINUED)
The Company anticipates that it will fund future capital requirements
through a combination of its existing working capital, revenues (including
product sales, royalty income, milestones/licensing fees) generated under its
agreements with RPR relating to GLIADEL, public or private financings (as
necessary), additional collaborative or other research and development
agreements, commercialization and marketing arrangements with corporate partners
or other potential sources. The Company's ability to raise future capital on
acceptable terms is dependent on conditions in the public and private equity
markets and the performance of the Company, as well as the overall performance
of other companies in the biopharmaceutical and biotechnology sectors. There can
be no assurance that any required future financing arrangements will be
available on acceptable terms, or at all.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
16
<PAGE> 17
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults in Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
10.41 Amendments to 1993 Employee Share Option and Restricted Share
Plan, as amended
10.42 Employment letter agreement with David R. Savello, Ph.D.
11.1 Statement Re: Computation of Net Loss Per Share
27.1 Financial Data Schedule
PART II. - OTHER INFORMATION
(b) Report on Form 8-K
None
17
<PAGE> 18
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
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.
Guilford Pharmaceuticals Inc.
Date: May 14, 1997 /s/ Craig R. Smith, M.D.
------------------------
Craig R. Smith, M.D.
President and CEO
Date: May 14, 1997 /s/ Andrew R. Jordan
--------------------
Andrew R. Jordan
Senior Vice President and Chief Financial
Officer
(Principal Accounting Officer)
18
<PAGE> 1
EXHIBIT 10.41
1. Section 5.1 of the Company's 1993 Employee Share Option and Restricted
Share Plan, as amended, is amended by adding the following to the end of that
section ",provided that no outside director on the Board shall be eligible to
participate in this Plan".
2. Section 12.1 of the Company's 1993 Employee Share Option and
Restricted Share Plan, as amended, is amended to read in its entirely as
follows:
"12.1 Term. Each Option granted under the Plan shall
terminate and all rights to purchase shares thereunder shall cease upon the
expiration of ten years from the date such Option is granted, or on such
other date as may be fixed by the Board and stated in the Share Option
Agreement relating to such Option; provided, however, that in the event the
Optionee would otherwise be ineligible to receive an Incentive Share Option by
reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating
to stock ownership of more than ten percent), an Option granted to such
Optionee that is intended to be an Incentive Share Option shall in no event be
exercisable after the expiration of five years from the date it is granted."
3. Article 15 of the Company's 1993 Employee Share Option and Restricted
Share Plan, as amended, is amended to read in its entirely as follows:
"15.1 General. Except as provided in Section 15.2 with
respect to non-Incentive Share Options, during the lifetime of an Optionee,
only such Optionee or grantee (or, in the event of legal incapacity or
incompetency, the guardian or legal representative of the Optionee or grantee)
may exercise the Option. No Restricted Shares shall be assignable or
transferable, other than by will or the laws of descent and distribution,
before the satisfaction of applicable performance and service requirements with
respect to such Shares, as set forth in the applicable Restricted Share
Agreement."
"15.2 Family Transfers. The Committee may, in its
discretion, authorize all or a portion of non-Incentive Share Options granted
to an Optionee to be on terms which permit transfer by such Optionee to (i) the
spouse, children or grandchildren of the Optionee "Immediate Family Members"),
(ii) a trust or trusts for the exclusive benefit of such Immediate Family
Members, or (iii) a partnership in which such Immediate Family members are the
only partners, provided that (x) there may be no consideration for any such
transfer, (y) the Share Option Agreement pursuant to which such non-Incentive
Share Options are granted must be approved by the Committee, and must expressly
provide for transferability in a manner consistent with this Section, and (z)
subsequent transfers of transferred Options shall be prohibited except those in
accordance with Section 15.2 or by will or the laws of descent and
distribution. Following transfer, any such non-Incentive Share Options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of Sections 12.7
hereof the term "Optionee" shall be deemed to refer the transferee. The events
of termination of employment of Section 12 hereof shall continue to be applied
with respect to the original Optionee, following which the non-Incentive Share
Options shall be exercisable by the transferee only to the extent, and for the
periods specified in Section 12."
<PAGE> 1
EXHIBIT 10.42
[GUILFORD PHARMACEUTICALS LETTERHEAD]
CRAIG R. SMITH, M.D.
President and
Chief Executive Officer
January 13, 1997
David R. Savello, Ph.D.
3430 Dover Road
Durham, NC 17707
Dear David:
I am pleased to offer you employment with Guilford Pharmaceuticals
Inc. on the following terms:
1. Your title will be Senior Vice President, Development. In
this capacity you will serve as an officer of the Company and
will report to and serve at the discretion of the President
and Chief Executive Officer.
2. In consideration of your services, the Company will provide
the following compensation:
a. Salary: Your salary will be $20,000.00 per month (an
annual rate of $240,000), payable semi-monthly. Your
performance and salary will be reviewed annually.
b. Bonus: As an officer of the Company, you will be
eligible to participate in any Bonus Plan which the
Board of Directors may adopt from time to time for
executive officers of the Company.
c. Joining Bonus: To assist you in the transition to
your new position, the Company will pay you a joining
bonus of $25,000. This payment will be made within
30 days of commencement of your employment, and will
be subject to all deductions required by law.
d. Stock Grant: The Company will offer you 10,000 shares
of its common stock as a "Restricted Share Award"
under the Company's 1993 Employee Share Option and
Restricted Share Plan, as amended (the "Employee
Plan"), on the following basis, subject to specific
terms contained in a Restricted Share Agreement
containing terms similar to those currently available
to executive officers of the Company:
i) These shares will vest 25% per year over four
years.
<PAGE> 2
David R. Savello, Ph.D.
January 13, 1997
Page 2
ii) In the event your employment with the Company
is terminated for cause, you voluntarily
leave the Company, or you are unable to
perform your duties for any reason, the
unvested shares will immediately revert to
the Company.
iii) In the event that your employment is
terminated within one year after a change in
control of the Company, all non-vested shares
held by you shall immediately vest.
e. Stock Options: The Company will award you options
under the Employee Plan to purchase 75,000 share of
its common stock, subject to approval of this award
by the Board of Directors and further subject to
specific terms contained in a Share Option Agreement
containing terms similar to those currently available
to executive officers of the Company. The exercise
price of the options will be the fair market value of
the stock on the trading date immediately preceding
the date the Board approves such grant or your
commencement of employment, whichever is later.
These options will vest 50% after two years, 75%
after three years, and 100% after four years form the
date of the grant. Such options will be subject to
accelerated vesting in the event of a change in
control on terms similar to those extended to other
executive officers of the Company.
f. Additional Stock Options: The Company will award you
additional options to purchase 25,000 shares of its
common stock, subject to approval of this award by
the Board of Directors and further subject to
specific terms contained in a separate Share Option
Agreement. The exercise price of the options will
the same as the exercise price for the options
contemplated in Section 2.e above. However, these
option will vest only upon the fulfillment of the
following two conditions: (i) continued employment
with the Company for a period of at least four years;
and (ii) your subsequent separation from the Company.
These options must be exercised within six months of
vesting, or such other limited amount of time as may
be mutually agreed between you and the Company.
3. In addition to the compensation described above, you will be
eligible for the following benefits:
a. Relocation: To assist you in relocating to the
Baltimore area, the Company will:
i) Pay for two trips to Baltimore area for you
to find living accommodations. Reasonable
travel and hotel expenses will be reimbursed.
<PAGE> 3
David R. Savello, Ph.D.
January 13, 1997
Page 3
ii) If needed, pay for temporary living expenses
for up to three months, not to exceed $1,000
per month, grossed-up for tax purposes.
iii) Pay the direct cost of moving your household
possessions from North Carolina to the
Baltimore area.
iv) Pay the closing costs for a new home in the
Baltimore area up to 3 1/2% of its purchase
price, grossed-up for tax purposes. This
includes up to two points on a mortgage (one
point loan origination fee and one discount
point on a mortgage).
v) Pay the selling costs of your Durham, North
Carolina home, not to exceed 8% of its fair
market value, grossed up for tax purposes.
vi) In the event you purchase a home in Maryland
prior to selling your North Carolina home,
Guilford will provide duplicate mortgage
assistance. Guilford will reimburse the
lesser of the two monthly mortgage payments
(including property tax payments) for a
period not to exceed twelve months.
vii) Guilford will equally share with you the cost
for return flights home during the period
April 1, 1997 through July 31, 1997.
Should you terminate your employment with the company
within one year of your date of hire, you will be
responsible for reimbursement to the Company of the
relocation expenses, prorated for the term of your
employment.
b. Insurance: The Company will offer medical, dental,
vision, life, accidental death, short-term and
long-term disability insurance on the same terms
offered to other executive officers of the Company.
In addition, the Company will provide you with
$1,00,000 life insurance coverage.
c. Vacation: You will be entitled to 20 vacation days in
addition to paid Company Holidays (currently 11 per
year).
d. 401(k) Match: Once you meet the employment
eligibility requirements contained in the Company's
401(k) Plan, you will be eligible to participate in
said Plan on the same terms as other executive
officers of the Company. Currently, the Plan
provides for matching by the Company of 50% of the
first 6% of employee salary deferral, in the form of
Guilford stock. An employment date of April 1, 1997
would permit an enrollment into the Plan on July 1,
1997.
<PAGE> 4
David R. Savello, Ph.D.
January 13, 1997
Page 4
In accordance with the Immigration Reform Act of 1986, on your first
day of work, and from time to time thereafter, you will be required to present
documentation that proves your identity and legal right to work in the United
States. Employment with the company is contingent on your being able to meet
this requirement.
In the event your employment is terminated by the Company other than
for cause, you would be entitle to severance in the form of a continuation of
your then-current base salary, as follows:
(i) Six months salary if the termination occurs in the first
twelve months of your employment; and
(ii) Twelve months salary if the termination occurs thereafter.
(iii) Twenty-four months salary in the event of a change of control
at Guilford and the new management does not offer you a
similar or better position.
Such payments, except those resulting from a change in control (unless
you decline any such similar or better position offered by new management
contemplated in (iii) above), would cease upon your commencement of full-time
employment during the severance period. During the severance period, the
Company would also continue in effect any health, life and disability insurance
coverage that had been established by the Board. Remaining benefits of
employment, including your eligibility for any bonus program and continued
vesting of any non-vested stock options (except those contemplated in Section
2.f., in the event you have been with the Company for at least four years),
would cease at termination and not continue in accrue during the severance
period.
This offer is conditioned on your signing a Patent and Confidentiality
Agreement in connection with your employment by the Company.
You may accept this offer by signing below and returning the original
letter to me. This offer is in effect until January 15, 1997. I would like
you to start at Guilford on or before April 1, 1997.
Sincerely,
/s/ CRAIG R. SMITH, M.D.
Craig R. Smith, M.D.
President and Chief Executive Officer
Guilford Pharmaceuticals Inc.
Agreed to an accepted:
/s/ DAVID R. SAVELLO, PH.D. 15 January 1997
- ----------------------------- --------------------------------------
David R. Savello, Ph.D. Date
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
--------------------- --------------------
<S> <C> <C>
Weighted average common shares outstanding 14,237,446 10,438,608
===================== ====================
Weighted average common shares used in
the computation of net loss per share 14,237,446 10,438,608
===================== ====================
Net loss $ (6,336) $ (4,519)
===================== ====================
Net loss per share $ (0.45) $ (0.43)
===================== ====================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 69,757
<SECURITIES> 0
<RECEIVABLES> 1,255
<ALLOWANCES> 0
<INVENTORY> 1,465
<CURRENT-ASSETS> 40,995
<PP&E> 16,534
<DEPRECIATION> 2,307
<TOTAL-ASSETS> 87,481
<CURRENT-LIABILITIES> 6,363
<BONDS> 12,649
0
0
<COMMON> 148
<OTHER-SE> 70,080
<TOTAL-LIABILITY-AND-EQUITY> 87,481
<SALES> 2,058
<TOTAL-REVENUES> 2,259
<CGS> 907
<TOTAL-COSTS> 9,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 239
<INCOME-PRETAX> (6,336)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,336)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,336)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
