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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _______
Commission File Number: 0-24274
LA JOLLA PHARMACEUTICAL COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 33-0361285
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6455 NANCY RIDGE DRIVE 92121
SAN DIEGO, CA (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (858) 452-6600
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
The number of shares of the Registrant's common stock, $.01 par value,
outstanding at September 30, 2000 was 29,290,474.
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LA JOLLA PHARMACEUTICAL COMPANY
FORM 10-Q
QUARTERLY REPORT
INDEX
<TABLE>
<S> <C>
COVER PAGE ....................................................................................... 1
INDEX ............................................................................................ 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets as of September 30, 2000 (Unaudited) and December 31, 1999 ............... 3
Statements of Operations (Unaudited) for the three months and nine months ended
September 30, 2000 and 1999 ............................................................. 4
Statements of Cash Flows (Unaudited) for the nine months ended
September 30, 2000 and 1999 ............................................................. 5
Notes to Financial Statements (Unaudited) ............................................... 6
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations ....................................................................... 7
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk ....................... 10
PART II OTHER INFORMATION
ITEM 2 Changes in Securities and Use of Proceeds ........................................ 11
ITEM 5 Other Information ................................................................ 11
Risk Factors
Amendment to Bylaws and 1994 Stock Incentive Plan
ITEM 6 Exhibits and Reports on Form 8-K ................................................. 19
SIGNATURES ....................................................................................... 20
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LA JOLLA PHARMACEUTICAL COMPANY
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,128 $ 4,409
Short-term investments 35,378 6,994
Other current assets 1,064 464
--------- --------
Total current assets 43,570 11,867
Property and equipment, net 633 658
Patent costs and other assets, net 1,671 1,518
--------- --------
Total assets $ 45,874 $ 14,043
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 311 $ 225
Accrued expenses 1,868 520
Accrued payroll and related expenses 382 262
Current portion of obligations under capital leases 87 199
--------- --------
Total current liabilities 2,648 1,206
Noncurrent portion of obligations under capital leases -- 44
Commitments
Stockholders' equity:
Common stock 293 202
Additional paid-in capital 124,794 84,358
Accumulated deficit (81,861) (71,767)
--------- --------
Total stockholders' equity 43,226 12,793
--------- --------
Total liabilities and stockholders' equity $ 45,874 $ 14,043
========= ========
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
balance sheets.
See accompanying notes.
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LA JOLLA PHARMACEUTICAL COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------- -------- -------- --------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue from collaborative
agreement - related party $ -- $ 1,576 $ -- $ 4,690
Expenses:
Research and development 4,184 3,170 9,327 9,577
General and administrative 617 717 1,922 2,420
-------- -------- -------- --------
Total expenses 4,801 3,887 11,249 11,997
-------- -------- -------- --------
Loss from operations (4,801) (2,311) (11,249) (7,307)
Interest expense (1) (3) (6) (16)
Interest income 580 197 1,161 645
-------- -------- -------- --------
Net loss and comprehensive net loss $ (4,222) $ (2,117) $(10,094) $ (6,678)
======== ======== ======== ========
Basic and diluted net loss per share $ (.15) $ (.11) $ (.41) $ (.33)
======== ======== ======== ========
Shares used in computing basic and
diluted net loss per share 28,037 20,160 24,921 20,127
======== ======== ======== ========
</TABLE>
See accompanying notes.
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LA JOLLA PHARMACEUTICAL COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(10,094) $ (6,678)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization 287 266
Loss on disposal of property and equipment -- 23
Change in operating assets and liabilities:
Other current assets (600) 235
Accounts payable and accrued expenses 1,434 (1,353)
Accrued payroll and related expenses 120 327
Deferred revenue - related party -- (1,769)
-------- --------
Net cash used for operating activities (8,853) (8,949)
INVESTING ACTIVITIES
(Increase) decrease in short-term investments (28,384) 4,333
Proceeds from the sale of property and equipment -- 20
(Additions) deletions to property and equipment (216) 55
Increase in patent costs and other assets (199) (254)
-------- --------
Net cash (used for) provided by investing activities (28,799) 4,154
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 40,527 44
Payments on obligations under capital leases (156) (114)
-------- --------
Net cash provided by (used for) financing activities 40,371 (70)
Net increase (decrease) in cash and cash equivalents 2,719 (4,865)
Cash and cash equivalents at beginning of period 4,409 11,176
-------- --------
Cash and cash equivalents at end of period $ 7,128 $ 6,311
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 6 $ 16
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations incurred for property
and equipment $ -- $ 404
======== ========
</TABLE>
See accompanying notes.
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LA JOLLA PHARMACEUTICAL COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of La Jolla Pharmaceutical
Company (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine months ended September 30, 2000 are not necessarily indicative of
the results that may be expected for other quarters or the year ended December
31, 2000. For more complete financial information, these financial statements,
and the notes thereto, should be read in conjunction with the audited financial
statements for the year ended December 31, 1999, included in the Company's Form
10-K/A filed with the Securities and Exchange Commission.
2. ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and disclosures made in
the accompanying notes to the financial statements. Actual results could differ
from those estimates.
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB
101"). SAB 101 formalizes the basic revenue recognition criteria that must be
met in order to record revenue. In June 2000, SAB 101 was amended to delay the
implementation date to the fourth quarter of 2000 to provide additional time to
study the guidance. The Company believes that the adoption of SAB 101 would not
have a material impact on the Company's financial statements.
STOCK COMPENSATION
In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation ("FIN 44"). FIN 44 clarifies certain issues in the application of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
FIN 44 did not have a material impact on the Company's financial statements.
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LA JOLLA PHARMACEUTICAL COMPANY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Statements regarding our analysis of results from preclinical and
clinical studies, as well as La Jolla Pharmaceutical's drug candidates and drug
development plans and certain statements made in the "Recent Developments"
section, are forward-looking statements involving risks and uncertainties, and a
number of factors, both foreseen and unforeseen, could cause actual results to
differ materially from those anticipated. The Company's analysis of clinical
results is ongoing, and future analyses may not necessarily support conclusions
to date. Clinical results are derived from a trial that was terminated prior to
completion, and certain data may be incomplete. Our blood test to measure
binding affinity for LJP 394 is experimental and has not been validated by
independent laboratories. Tolerance, or the specific inactivation of pathogenic
B cells, is a new technology that has not been proven. Future clinical trials of
LJP 394 may have negative or inconclusive results. Further, delays in continued
testing of LJP 394 and/or termination of development by the Company would result
in delays or lack of government approval to market the compound. The development
of LJP 394 involves many risks and uncertainties, including, without limitation,
whether LJP 394 can provide a meaningful clinical benefit, and any positive
results observed to date may not be indicative of future results. Our other drug
candidates, including our Toleragen(R) candidates for antibody-mediated
thrombosis and for xenotransplantation, none of which has progressed to clinical
trials, involve comparable risks. Readers are cautioned not to place undue
reliance upon forward-looking statements, which speak only as of the date
hereof, and we undertake no obligation to update forward-looking statements to
reflect events or circumstances occurring after the date hereof. Interested
parties are urged to review the risks described below and in other reports and
registration statements of La Jolla Pharmaceutical Company filed with the
Securities and Exchange Commission from time to time.
Our business is subject to significant risks including, but not limited
to, the risks inherent in our research and development efforts, including
clinical trials, uncertainties associated with both obtaining and enforcing our
patents and with the patent rights of others, the lengthy, expensive and
uncertain process of seeking regulatory approvals, uncertainties regarding
government reforms and of product pricing and reimbursement levels,
technological change and competition, manufacturing uncertainties, our lack of
marketing experience and the uncertainty of receiving future revenue from
product sales or other sources such as collaborative relationships, future
profitability and the need for additional financing. Even if our product
candidates appear promising at an early stage of development, they may not reach
the market for numerous reasons. Such reasons include the possibilities that the
products will be ineffective or unsafe during clinical trials, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on a
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties. These and other risks
are discussed below in Part II, Item 5 "Risk Factors."
RECENT DEVELOPMENTS
As announced on May 12, 1999, Abbott Laboratories ("Abbott") and La
Jolla Pharmaceutical, in discussion with the Food and Drug Administration
("FDA"), elected to stop the enrollment and treatment of the more than 200
patients enrolled in the jointly conducted Phase II/III clinical trial of LJP
394, our lupus drug candidate, until the data could be validated and analyzed.
This announcement was made subsequent to a planned interim analysis of the Phase
II/III clinical trial, wherein the independent Data Monitoring Committee
reported efficacy as defined by the primary chosen endpoint, time to renal
flare, was less than expected. No major safety concerns were observed, and
patients receiving the experimental drug appeared to have a reduction in
circulating antibodies to double-stranded DNA that are associated with lupus
nephritis.
Late in 1999, we reported encouraging results from our continuing
analysis of the Phase II/III trial. We reported results that indicate that there
was a statistically significant reduction in the time to renal flare and in the
incidence of treatments with high-dose corticosteriods or cyclophosphamide in
lupus patients with high affinity antibodies to LJP 394.
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In May 2000, we announced additional positive results from the Phase
II/III clinical trial of LJP 394. We completed an affinity analysis of more than
99% of the North American patients' samples that showed that 89% of the patients
had high-affinity antibodies to LJP 394. With this additional data, the
significance of the clinical results increased.
In September 2000, as a result of a meeting with the FDA in late April
where we provided the results of our analysis of the suspended Phase II/III
trial, we announced that we had initiated a Phase III trial of our lupus drug
candidate, LJP 394, and that we had dosed our first patient in the trial. We
also announced that the FDA had granted La Jolla Pharmaceutical orphan drug
designation for LJP 394 for the treatment of lupus kidney disease. The Orphan
Drug Act provides for seven years of marketing exclusivity in the U.S. and
enables us to obtain research funding, tax credits for certain research
expenses, and a waiver of the application user fees.
Also in September 2000 we announced positive preclinical results which
showed that our clinical Toleragen candidate, LJP 1082, reduced disease-causing
antibodies involved in antibody-mediated thrombosis, a life-threatening
blood-clotting disorder.
OVERVIEW
Since our inception in May 1989, we have devoted substantially all of
our resources to the research and development of technology and potential drugs
to treat antibody-mediated diseases. We have never generated any revenue from
product sales and have relied upon private and public investors, revenue from
collaborative agreements, equipment lease financings and interest income on
invested cash balances for our working capital. We have been unprofitable since
inception and expect to incur substantial additional expenses and operating
losses for at least the next several years as we increase our clinical trial and
manufacturing scale-up activities including the production of LJP 394 for
clinical trials, and increase our research and development expenditures on
additional drug candidates, and general and administrative expenditures to
support increased clinical trial, manufacturing scale-up and research and
development activities. Our activities to date are not as broad in depth or
scope as the activities we must undertake in the future and our historical
operations and the financial information reported below may not be indicative of
our future operating results or financial condition.
We expect that operating losses will fluctuate from quarter to quarter
as a result of differences in the timing of expenses incurred and potential
revenues from collaborative arrangements. Some of these fluctuations may be
significant. As of September 30, 2000, our accumulated deficit was approximately
$81.9 million.
RESULTS OF OPERATIONS
We earned no revenue from our former collaborative agreement with
Abbott for the three and nine months ended September 30, 2000, compared to $1.6
million and $4.7 million for the same periods in 1999. All revenue earned in
1999 was attributable to funding under our former collaborative agreement with
Abbott for the development of LJP 394. The decrease in revenue from 1999 is due
to the fact that following the May 1999 suspension of the jointly conducted
Phase II/III clinical trial of LJP 394, Abbott and La Jolla Pharmaceutical
terminated the collaborative agreement for LJP 394 in September 1999, including
any further development funding from Abbott. All rights to the compound were
returned to La Jolla Pharmaceutical at that time. There can be no assurance that
we will realize any further revenue from any other collaborative arrangement.
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Research and development expenses increased to $4.2 million for the
three months ended September 30, 2000 compared to $3.2 million for the same
period in 1999 primarily due to an increase in expenses associated with the
initiation of our Phase III clincal trial of LJP 394 in September 2000. Research
and development expenses decreased to $9.3 million for the nine months ended
September 30, 2000 compared to $9.6 million for the same period in 1999
primarily due to the reduction in our workforce related to the restructuring of
our operations in September 1999 partially offset by the increase in expenses
for our Phase III clinical trial of LJP 394 in September 2000. Our research and
development expenses are expected to increase significantly in the future as
clinical trial and manufacturing scale-up activities including the production of
LJP 394 for clinical trials are increased, efforts to develop additional drug
candidates are intensified, and other potential products progress into and
through clinical trials.
General and administrative expenses decreased to $617,000 and $1.9
million for the three and nine months ended September 30, 2000, respectively,
from $717,000 and $2.4 million for the same periods in 1999. The decrease was
due to the restructuring of our operations in September 1999 and the related
reduction in our workforce. We expect general and administrative expenses to
increase in the future in order to support increased clinical trial,
manufacturing scale-up and research and development activities.
Interest income increased to $580,000 and $1.2 million for the three
and nine months ended September 30, 2000, respectively, from $197,000 and
$645,000 for the same periods in 1999. The increase in interest income was due
to higher investment balances as a result of the sale of 4,800,000 shares of
common stock to private investors in July 2000 for net proceeds of $27.5 million
and the sale of 4,040,000 shares of common stock to private investors in
February 2000 for net proceeds of $12.7 million. For the three and nine months
ended September 30, 2000, interest expense decreased to $1,000 and $6,000,
respectively, from $3,000 and $16,000 for the same periods in 1999. The decrease
in interest expense was the result of decreases in our capital lease
obligations.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, we had incurred a cumulative net loss since
inception of approximately $81.9 million, and had financed our operations
through private and public offerings of our securities, payments from
collaborative agreements, capital and operating lease transactions, and interest
income on our invested cash balances. As of September 30, 2000, we had raised
$124.3 million in net proceeds since inception from sales of equity securities.
At September 30, 2000, we had $42.5 million in cash, cash equivalents
and short-term investments, as compared to $11.4 million at December 31, 1999.
Our working capital at September 30, 2000 was $40.9 million, as compared to
$10.7 million at December 31, 1999. The increase in cash, cash equivalents and
short-term investments as well as working capital resulted from the sale of
4,040,000 shares of our common stock to private investors in February 2000 for
net proceeds of $12.7 million and the sale of 4,800,000 shares of our common
stock to private investors in July 2000 for net proceeds of $27.5 million offset
by the continued use of our cash towards operating activities, patent
expenditures and the purchase of property and equipment. We invest our cash in
corporate and United States Government-backed debt instruments.
As of September 30, 2000, we had acquired an aggregate of $4.6 million
in property and equipment, of which approximately $368,000 of total property and
equipment costs are financed under capital lease obligations. In addition, we
lease our office and laboratory facilities and certain property and equipment
under operating leases. We have no material commitments for the acquisition of
property and equipment. However, we anticipate increasing our investment in
property and equipment in connection with the enhancement of our research and
development and manufacturing facilities and capabilities, as well as our Phase
III trial.
In September 2000, we initiated a Phase III trial of our lupus drug LJP
394. We anticipate that our existing capital and the interest earned thereon
will be sufficient to fund our operations as currently
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planned into early 2002. However, we will need to obtain substantial additional
capital to fund our Phase III trial to its completion. There can be no assurance
that such funding will be available on acceptable terms, if at all. We intend to
use our financial resources to fund clinical trials and manufacturing scale-up
activities including the production of LJP 394 for clinical trials, research and
development efforts, and for working capital and other general corporate
purposes. The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the results of clinical trials, the
timing of any regulatory applications and approvals, and technological
developments. Expenditures will also depend upon the establishment and
progression of collaborative arrangements and contract research as well as the
availability of other financings. There can be no assurance that these funds
will be available on acceptable terms, if at all.
Our future capital requirements will depend on many factors, including
continued scientific progress in our research and development programs, the size
and complexity of these programs, the scope and results of clinical trials, the
time and costs involved in applying for any regulatory approvals, the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims, competing technological and market developments, the ability to
establish and maintain collaborative relationships or raise additional equity
financing, and the cost of manufacturing scale-up and effective
commercialization activities and arrangements. We expect to incur significant
net operating losses each year for at least the next several years as we expand
our current research and development programs, including clinical trials and
manufacturing scale-up activities, and increase our general and administrative
expenses to support a larger, more complex organization. It is possible that our
cash requirements will exceed current projections and that we will therefore
need additional financing sooner than currently expected.
We have no current means of generating cash flow from operations. Our
lead drug candidate, LJP 394, will not generate revenues, if at all, until it
has been proven safe and effective, has received regulatory approval and has
been successfully commercialized, a process that is expected to take at least
the next several years. Our other drug candidates are at earlier stages of
development than LJP 394. There can be no assurance that our product development
efforts with respect to LJP 394 or any other drug candidate will be successfully
completed, that required regulatory approvals will be obtained, or that any
product, if introduced, will be successfully marketed or achieve commercial
acceptance. Accordingly, we must continue to rely upon outside sources of
financing to meet our capital needs for the foreseeable future.
We anticipate increasing expenditures on the clinical trials and
manufacturing scale-up activities as well as the development of other drug
candidates and, over time, our consumption of cash will necessitate obtaining
additional sources of financing. Furthermore, we have no internal sources of
liquidity, and termination of the Abbott arrangement has ended what was our
principal means of generating cash from operations.
We will continue to seek capital through any appropriate means,
including issuance of our securities and establishment of additional
collaborative arrangements. However, there can be no assurance that additional
financing will be available on acceptable terms and our negotiating position in
our capital-raising efforts may worsen as we continue to use our existing
resources. There is no assurance that we will be able to enter into further
collaborative relationships.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest our excess cash in interest-bearing investment-grade
securities that we hold for the duration of the term of the respective
instrument. We do not utilize derivative financial instruments, derivative
commodity instruments or other market-risk-sensitive instruments, positions or
transactions in any material fashion. Accordingly, we believe that, while the
investment-grade securities we hold are subject to changes in the financial
standing of the issuer of such securities, we are not subject to any
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material risks arising from changes in interest rates, foreign currency exchange
rates, commodity prices or other market changes that affect
market-risk-sensitive instruments.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 24, 2000, we completed a series of private transactions in
which we issued a total of 4,800,000 shares of our common stock to private
investors for an aggregate price of $29.4 million. The sale was a privately
negotiated sale to accredited investors as defined in Rule 501(a) of Regulation
D promulgated under the Securities Act of 1933, as amended (the "Act"). The
shares were sold without registration under the Act in reliance on Rule 506. The
sale was made for the purpose of financing our research and development
activities, including clinical trials and preclinical testing of our product
candidates, and for working capital and general corporate purposes. Our
registration statement covering the resale of these shares on Form S-3 became
effective on September 25, 2000.
ITEM 5. OTHER INFORMATION
RISK FACTORS
We are updating and restating the risk factors included in our 1999
Form 10K and our Form 10-Q for the quarter ending June 30, 2000 as follows:
I. RISK FACTORS RELATING TO LA JOLLA PHARMACEUTICAL COMPANY ("LJPC") AND THE
INDUSTRY IN WHICH WE OPERATE.
Our drug candidates may not perform well in clinical trials and we may not be
permitted to conduct further clinical trials. Without successful clinical
trials, we will not be able to market or sell any products.
If LJP 394 is ultimately not found to be safe and effective, we would
be unable to obtain regulatory approval for its commercialization. Because LJP
394 is our only drug candidate that has advanced to clinical trials, and because
there is no guarantee that we would be able to develop an alternate drug
candidate, our inability to commercialize LJP 394 would have a severe negative
effect on our business, including revenues and profits.
In order to sell our products that are under development, we must first
receive regulatory approval. To obtain regulatory approval, we must conduct
clinical studies demonstrating that our products are safe and effective.
Although LJP 394 appears promising, it may not be successful in future clinical
trials. Our prior clinical study of LJP 394, in collaboration with Abbott, was
halted, and the Phase III clinical study may also be delayed or halted for
various reasons, including:
- the product is not effective, or physicians think that it is not
effective,
- patients experience severe side effects during treatment,
- patients do not enroll in the study at the rate we expect, or
- product supplies are not sufficient to treat the patients in the
study.
In addition, the FDA and foreign regulatory authorities have
substantial discretion in the approval process. The FDA and foreign regulatory
authorities may not agree that we have demonstrated that LJP
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394 is safe and effective after we complete clinical trials. Even if the results
of prior clinical trials are positive, the FDA may require us to design and
conduct additional studies, which may result in significant expense and delay.
The FDA may require new clinical trials because of inconclusive results from
earlier clinical trials, a possible failure to conduct prior clinical trials in
complete adherence to FDA good clinical practice standards and identification of
new clinical trial endpoints.
Our products are in the early stage of development and the technology underlying
our products is uncertain and unproven. If our products cannot be successfully
developed, we will never be able to generate meaningful sales.
All of our product development efforts are based on unproven
technologies and therapeutic approaches that have not been widely tested or
used. LJP 394 has not been proven to be effective in humans and the technology
on which it is based has been used only in our preclinical tests and clinical
trials. If our products or technology is not effective, we will not generate
meaningful sales. Application of LJP 394's technology to antibody-mediated
diseases other than lupus is in even earlier research stages.
LJP 394 and our other potential drug candidates require significant
additional research and development and are subject to significant risks.
Potential products that appear to be promising at early stages of development
may nevertheless fail to reach market or become profitable for some of the
following reasons:
- products may be ineffective or cause harmful side effects during
preclinical testing or clinical trials,
- products may fail to receive necessary regulatory approvals,
- products may be difficult to manufacture,
- products may be uneconomical to produce particularly if high dosages
are required,
- products may fail to achieve market acceptance,
- products may be precluded from commercialization because of
proprietary rights of third parties, and
- competitors may develop superior products.
The technology underlying LJP 394 appears effective in humans. However,
no products have been developed to date that use our technology. There is no
guarantee that LJP 394 will work as intended. Furthermore, clinical trials of
LJP 394 may be viewed as a test of LJPC's entire approach to developing
therapies for antibody-mediated diseases. If the data from our clinical trials
indicate that LJP 394 is ineffective, the applicability of our technology to
other antibody-mediated diseases will be highly uncertain. Therefore, there is
significant risk that our therapeutic approaches will not prove to be
successful, and there can be no guarantee that our drug discovery technologies
will result in any commercially successful products.
Our success in developing our products and marketing them successfully depends
significantly upon our ability to obtain patent protection for LJP 394 and any
other developed products. In addition, we will need to successfully preserve our
trade secrets and operate without infringing on the rights of others.
We will depend on patents and other unpatented intellectual property to
prevent others from profiting from products or technologies that we may have
developed, and to preserve our freedom to operate our business. We own 86 issued
patents and 59 pending patent applications covering various technologies and
drug candidates. However, there can be no assurance that any additional patents
will be issued, or that the scope of any patent protection will be sufficient,
or that any current or future issued patent will be
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held valid if subsequently challenged. There is a substantial backlog of
biotechnology patent applications at the U.S. Patent and Trademark Office that
may delay the review and issuance of any patents. The patent position of
biotechnology firms like ours generally is highly uncertain and involves complex
legal and factual questions, and no consistent policy has emerged regarding the
breadth of claims covered in biotechnology patents or protection afforded by
these patents. Presently, we have a number of patent applications pending in the
United States relating to our technology, as well as foreign counterparts to
some of our U.S. patent applications. We intend to continue to file applications
as appropriate for patents covering both our products and processes. There can
be no assurance that patents will be issued from any of these applications, or
that the scope of any issued patents will protect our technology.
We are aware of one U.S. patent grant that contains claims covering
subject matter that may conflict with some of our key patents and patent
applications, and that may affect our ability to develop and sell our products.
Any conflict between our patents and patent applications, and patents or patent
applications of third parties, could result in a significant reduction of the
coverage of our existing patents or any future patents that may be issued. This
could have a negative effect on our ability to prevent competitors from
profiting from our products and technologies, and this could affect our future
sales. In addition, we may have to incur significant expenses in defending our
patents.
If the U.S. Patent and Trademark Office or any foreign counterpart
issues or has issued to a competitor patents containing competitive or
conflicting claims, and if these claims are valid, there can be no guarantee
that we would be able to obtain licenses to these patents, that any licensing
fees would be reasonable, or that we would be able to develop or obtain
alternative technology. Patent applications in the United States are kept secret
until a patent is issued. As a result, we do not know if others, including
competitors, have filed patent applications for technology covered by our
pending applications, nor can we be certain that we were the first to invent or
to file patent applications for our technologies. Competitors may have patents
or patent applications pending that relate to compounds or processes that
overlap or compete with our intellectual property.
We also rely on unpatented intellectual property such as trade secrets
and improvements, know how, and continuing technological innovation. While we
seek to protect these rights, it is possible that:
- inventions relevant to our business will be developed by a person
not bound by an LJPC invention assignment agreement,
- binding LJPC confidentiality agreements will be breached and we will
not have adequate remedies for such a breach, or
- our trade secrets will otherwise become known or be independently
discovered by competitors.
We could incur substantial costs in defending suits brought against us
by others for infringement of intellectual property rights or in prosecuting
suits that we might bring against others to protect our intellectual property
rights.
We have a history of losses and may not become profitable.
We have incurred operating losses each year since our inception in 1989
and had an accumulated deficit of approximately $81.9 million as of September
30, 2000. Our losses are likely to exceed those experienced in prior years due
to the termination of a collaborative relationship with Abbott, unless we are
successful in establishing additional collaborative relationships to help
finance our research and development costs. To achieve profitability we must,
among other things, complete the development of our products, obtain all
necessary regulatory approvals and establish commercial manufacturing and
marketing capabilities. We expect to incur significant losses each year for at
least the next several years as our clinical trial, research, development and
manufacturing scale-up activities increase. The amount of losses and the time
required by us to reach sustained profitability are highly uncertain, and we do
not
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<PAGE> 14
expect to generate revenues from the sale of products, if any, for at least
several years. We may never achieve product revenues or profitability.
We will need additional funds to support operations and may need to reduce
operations, sell stock or assets, or merge with another entity to continue
operations.
Our operations to date have consumed substantial capital resources, and
we will continue to expend substantial and increasing amounts of capital for
research, product development, preclinical testing and clinical trials of drug
candidates, to establish commercial-scale manufacturing capabilities, and to
market potential products. We will need to raise additional funds in some way,
and if we are not able to do so we will not be able to fund our operations.
Our future capital requirements will depend on many factors, including:
- continued scientific progress in our research and development
programs and the size and complexity of these programs,
- the scope and results of preclinical testing and clinical trials,
- the time and costs involved in applying for regulatory approvals,
- the costs involved in preparing, filing, prosecuting, maintaining
and enforcing patent claims,
- competing technological and market developments,
- our ability to establish and maintain collaborative research and
development arrangements, and
- the cost of manufacturing scale-up and effective commercialization
activities and arrangements.
We expect to incur substantial and increasing losses each year for at
least the next several years as our clinical trial, research, development and
manufacturing scale-up activities increase. We expect our existing capital
resources will be sufficient to fund our activities, as currently planned, for
approximately the next 18 months. However, the amounts expended by us for
various purposes may vary significantly, and it is possible that our cash
requirements will exceed current projections and that we will therefore need
additional financing sooner than currently expected. In the future, it is
possible that we will not have adequate resources to support our business
activities.
We actively seek additional funding, including through collaborative
arrangements and public and private financings. Our choice of financing
alternatives may vary from time to time depending upon various factors,
including the market price of our securities, conditions in the financial
markets, and the interest of other entities in strategic transactions with LJPC.
There can be no guarantee that additional financing will be available on
acceptable terms, if at all, whether through collaborative arrangement, issuance
of securities, or otherwise. If adequate funds are not available, we may be
required to delay, scale back or eliminate one or more of our research and
development programs or obtain funds through arrangements with collaborative
partners or others that require us to relinquish rights to certain technologies
or potential products. This could have a negative impact on our ability to
develop products, or to achieve profitability if our products are brought to
market. If we do obtain additional funding through sales of securities, your
investment in LJPC will be diluted.
We may not earn as much income as we hope due to possible changes in healthcare
reimbursement policies.
The continuing efforts of government and healthcare insurance companies
to reduce the costs of healthcare may reduce the amount of income we can
generate from our products. For example, in certain foreign markets, pricing and
profitability of prescription drugs are subject to government control. In the
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<PAGE> 15
United States, we expect that there will continue to be a number of federal and
state proposals to implement similar government controls. In addition,
increasing emphasis on managed care in the United States will continue to put
pressure on drug manufacturers to keep prices down. Cost control initiatives
could reduce the revenue that we receive for any products we may develop and
sell in the future. These cost control measures may also affect the
profitability of companies with whom we may transact business, such as
manufacturers of our products, and thus may have a negative effect on our
ability to continue to work with these companies.
Because a number of companies compete with us and many of these competitors have
greater resources than we do, and because we face rapid changes in technology in
our industry, we cannot be certain that our products will be accepted in the
marketplace or capture market share.
Competition from domestic and foreign biotechnology companies, large
pharmaceutical companies and other institutions is intense and is expected to
increase. A number of companies and institutions are pursuing the development of
pharmaceuticals in our targeted areas, many of which are very large, and have
financial, technical, sales and distribution and other resources substantially
greater than ours. The greater resources of these competitors could enable them
to develop competing products more quickly than we are able to, and to market
any competing product more quickly so as to make it extremely difficult for us
to develop a share of the market for these products. These competitors also
include companies that are conducting clinical trials and preclinical studies
for the treatment of lupus. Our competitors may develop or obtain regulatory
approval for products more rapidly than we do. Also, the biotechnology and
pharmaceutical industries are subject to rapid changes in technology. Our
competitors may also develop and market technologies and products that are more
effective than those being developed by us or that would render our technology
and proposed products obsolete or noncompetitive.
We may need to establish collaborative agreements, and this could have a
negative effect on our freedom to operate our business, or profit fully from
sales of our products.
We may seek to collaborate with pharmaceutical companies to gain access
to their research, drug development, manufacturing, marketing and financial
resources. However, we may not be able to negotiate arrangements with any
collaborative partners on acceptable terms, if at all. Any collaborative
relationships that we enter into may include restrictions on our freedom to
operate our business or to profit fully from the sales of our products.
Once a collaborative arrangement is established, the collaborative
partner may not continue funding any particular program or may pursue
alternative technologies or develop alternative drug candidates, either alone or
with others, to develop treatments for the diseases we are targeting. Competing
products, developed by a collaborative partner or to which a collaborative
partner has rights, may result in the collaborative partner withdrawing support
as to all or a portion of our technology.
Without collaborative arrangements, we must fund our own research and
development activities, accelerating the depletion of our capital and requiring
us to develop our own marketing capabilities. Therefore, if we are unable to
establish and maintain collaborative arrangements, we could experience a
material adverse effect on our ability to develop products and, once developed,
to market them successfully.
Our limited manufacturing capabilities could result in shortages of products for
testing and future sale, and our revenues and profit margin could be negatively
affected.
While we are producing limited quantities of LJP 394 for clinical
trials, our current facilities are not FDA approved for commercial production of
our potential products. The manufacture of our potential products for clinical
trials and the manufacture of any resulting products for commercial purposes are
subject to certain FDA standards. Substantial capital investment in the
expansion and build-out of our manufacturing facilities will be required to
enable us to manufacture any products in commercial quantities. While we have
initiated the process of obtaining FDA approval for our facilities, we have
never operated an FDA-approved manufacturing facility and may not obtain
necessary approvals. We have
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<PAGE> 16
limited manufacturing experience, and we may be unable to successfully
transition to commercial production. We may enter into arrangements with
contract manufacturing companies to expand our own production capacity in order
to meet requirements for our products, or to attempt to improve manufacturing
efficiency. If we choose to contract for manufacturing services and encounter
delays or difficulties in establishing relationships with manufacturers to
produce, package and distribute our finished products, the clinical trials,
market introduction and subsequent sales of these products would be negatively
affected by the lack of available products, and our profit margins and our
ability to develop and deliver products on a timely and competitive basis may be
negatively affected.
We lack experience in marketing products for commercial sale and thus may have
difficulty gaining acceptance for our products.
In order to commercialize any drug candidate approved by the FDA, we
must either develop a marketing and sales force or enter into marketing
arrangements with others. If we cannot do either of these we may have difficulty
generating sales for our products. We currently have no marketing arrangements
with others, and there can be no guarantee that we will be able to enter into
any marketing agreements on favorable terms, or that any such agreements will
result in payments to LJPC. To the extent that we enter into co-promotion or
other marketing and sales arrangements with other companies, any revenues that
we may receive will be dependent on the efforts of others. There can be no
guarantee that these efforts will be successful. If we attempt to develop our
own marketing and sales capabilities, we will compete with other companies that
have experienced and well-funded marketing and sales operations. Furthermore, if
we attempt to establish sales and distribution capabilities, we may experience
delays and expenditures and have difficulty in gaining market acceptance for our
drug candidates.
The use of LJP 394 and other potential products in clinical trials, and the sale
of any approved products may expose us to lawsuits resulting from the use of
these products.
The use and possible sale of LJP 394 and other potential products may
expose us to legal liability and generate negative publicity if claims are made
against us that people were harmed by our products. These claims might be made
directly by consumers, pharmaceutical companies, or others. We maintain $10.0
million of product liability insurance for claims arising from the use of LJPC
products in clinical trials. However, coverage is becoming increasingly
expensive, and there can be no guarantee that we will be able to maintain
insurance or that insurance can be acquired at a reasonable cost or in
sufficient amounts to protect us against possible losses. Furthermore, it is
possible that our financial resources would be insufficient to satisfy potential
product liability claims. A successful product liability claim or series of
claims brought could negatively impact our business and financial condition.
Our research and development and operations depend in part on certain key
employees and consultants. Losing these employees or consultants would have a
negative effect on our product development and operations.
We are highly dependent upon the principal members of our scientific
and management staff, the loss of whose services would delay the achievement of
our research and development objectives. This is because our key personnel,
including Steven Engle, Dr. Andrew Wiseman and Dr. Matthew Linnik, have been
involved in the development of LJP 394 and other drug candidates for several
years and have unique knowledge of our drug candidates and of the technology on
which they are based. Our anticipated growth and expansion into areas requiring
additional expertise, such as clinical trials, government approvals,
manufacturing, and marketing, is expected to place increased demands on our
resources and require the addition of new management personnel as well as the
development of additional expertise by existing management personnel.
Retaining our current key employees and recruiting additional qualified
scientific personnel to perform research and development work in the future will
also be critical to our success. Because competition for experienced scientists
among numerous pharmaceutical and biotechnology companies and research and
academic institutions is intense, we may not be able to attract and retain these
people. If we cannot attract and retain qualified people, our ability to conduct
necessary clinical trials and to
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<PAGE> 17
develop our products may be negatively affected because, for instance, the
trials may not be conducted properly, or the trials or our manufacturing of
products may be delayed. In addition, we rely upon consultants and advisors to
assist us in formulating our research and development, clinical, regulatory and
manufacturing strategies. All of our consultants and advisors are employed
outside LJPC and may have commitments or consulting or advisory contracts with
other entities that may affect their ability to contribute to our business.
It is possible that we may face environmental liabilities related to certain
hazardous materials used in our operations.
Due to the nature of our manufacturing processes, we are subject to
stringent federal, state and local laws governing the use, handling and disposal
of certain materials and wastes. It is possible that we may have to incur
significant costs to comply with environmental regulations as our manufacturing
increases to commercial volumes. Our operations may be significantly impacted by
current or future environmental laws because, for instance, our ability to
produce products may be slowed down, which may cause our costs in producing
these products to increase. In our research activities, we use radioactive and
other materials that could be hazardous to human health, safety, or the
environment. These materials and various wastes resulting from their use are
stored at our facility pending ultimate use and disposal. The risk of accidental
injury or contamination from these materials cannot be eliminated. In the event
of such an accident, we could be held liable for any resulting damages, and any
such liability could exceed our resources.
II. RISK FACTORS RELATED SPECIFICALLY TO OUR STOCK.
Our common stock price is volatile and may decline even if our business is doing
well.
The market price of our common stock has been and is likely to continue
to be highly volatile. Market prices for securities of biotechnology and
pharmaceutical companies, including ours, have historically been highly
volatile, and the market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. The following factors can have a significant effect on the
market price of our securities:
- announcements of technological innovations or new therapeutic
products by LJPC or others,
- clinical trial results,
- developments concerning agreements with collaborators,
- government regulation,
- developments in patent or other proprietary rights,
- public concern as to the safety of drugs discovered or developed by
LJPC or others,
- future sales of substantial amounts of our common stock by existing
stockholders, and
- comments by securities analysts and general market conditions.
The realization of any of the risks described in these "Risk Factors"
could have a negative effect on the market price of our common stock.
In the future, our stock may be removed from listing on the Nasdaq quotation
system and may not qualify for listing on any stock exchange, in which case it
may be difficult to find a market in our stock.
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If our stock is no longer traded on a national trading market it may be
more difficult for you to sell shares that you own, and the price of the stock
may be negatively affected. Currently our securities are traded on the Nasdaq
National Market. Nasdaq has certain continued listing requirements, including a
minimum trading price. Previously, we have received notice from Nasdaq that our
stock price fell below this minimum trading price. While we have since come back
into compliance with this Nasdaq requirement, it is possible that we will fall
out of compliance with this and/or other Nasdaq continued listing criteria at
some point in the future. Failure to comply with any one of several Nasdaq
requirements may cause our stock to be removed from listing on Nasdaq. Should
this happen, we may not be able to secure listing on other exchanges or
quotation systems. This would have a negative effect on the price and liquidity
of our stock.
Future sales of our stock by existing stockholders could negatively affect the
market price of our stock and make it more difficult for us to sell stock in the
future.
Sales of our common stock in the public market, or the perception that
such sales could occur, could result in a drop in the market price of our
securities and make it more difficult for us to complete future equity
financings. We cannot estimate the number of shares of common stock that may
actually be resold in the public market since this will depend upon the market
price for the common stock, the individual circumstances of the sellers and
other factors. We also have a number of institutional stockholders that own
significant blocks of our common stock. If these stockholders sell large
portions of their holdings in a relatively short time, for liquidity or other
reasons, the market price of our common stock could drop significantly.
Anti-takeover devices may prevent or delay changes in management of LJPC.
We have in place some anti-takeover devices, including a stockholder
rights plan, that may have the effect of delaying or preventing changes in the
management of LJPC. For example, one anti-takeover device provides for a board
of directors that is separated into three classes, with their terms in office
staggered over three year periods. This has the effect of delaying a change in
control of the Board of Directors without the cooperation of the incumbent
board. In addition, our bylaws do not allow stockholders to call a special
meeting of stockholders, require stockholders to give written notice of any
proposal or director nomination to us within a certain period of time prior to
the stockholder annual meeting, and establish certain qualifications for a
person to be elected or appointed to the Board of Directors during the pendency
of certain business combination transactions.
We may also issue shares of preferred stock without stockholder
approval and upon terms that our Board of Directors may determine in the future.
The issuance of preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of our outstanding stock, and
the holders of such preferred stock could have voting, dividend, liquidation and
other rights superior to those of holders of the common stock.
We do not pay dividends and this may negatively affect the price of our stock.
We have not paid any cash dividends since our inception and do not
anticipate paying any cash dividends in the foreseeable future. The future price
of our common stock may be depressed by the fact that we have not paid
dividends.
AMENDMENTS TO BYLAWS AND 1994 STOCK INCENTIVE PLAN
On July 21, 2000, our Board of Directors amended and restated our Amended
and Restated Bylaws to prohibit us, absent stockholder approval by a majority
vote at a duly convened stockholder meeting, from (1) granting stock options
with an exercise price less than 100% of the fair market value of the underlying
stock on the date the option is granted except in certain specified
circumstances, and (2) reducing the exercise price of any outstanding stock
options granted under any existing or future stock option plan. On September 21,
2000 our Board amended and restated our 1994 Stock Incentive Plan to be
consistent with the new Bylaw provisions.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
3.1 Intentionally omitted
3.2 Amended and Restated Bylaws of the Company
3.3 Amended and Restated Certificate of Incorporation of the Company (1)
4.0 Rights Agreement dated as of December 3, 1998 between the Company and American Stock
Transfer & Trust Company (2)
4.1 Certificate of Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock of the Company (3)
10.19 Amended and Restated La Jolla Pharmaceutical Company 1994 Stock Incentive Plan *
27 Financial Data Schedule
</TABLE>
----------
* This exhibit is a management contract or compensatory plan or arrangement.
(1) Previously filed with the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1999 and incorporated by reference herein.
(2) Previously filed with the Company's Registration Statement on Form 8-A
(No. 000-24274) as filed with the Securities and Exchange Commission on
December 4, 1998 and incorporated by reference herein.
(3) Previously filed with the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1999 and incorporated by reference herein.
(b) REPORTS ON FORM 8-K
None
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LA JOLLA PHARMACEUTICAL COMPANY
SIGNATURES
SEPTEMBER 30, 2000
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
La Jolla Pharmaceutical
Company
Date: November 13, 2000 By: /s/ Steven B. Engle
--------------------------------------
Steven B. Engle
Chairman and
Chief Executive Officer
Signed on behalf of the Registrant
By: /s/ Gail A. Sloan
--------------------------------------
Gail A. Sloan
Signed as Principal Accounting Officer
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LA JOLLA PHARMACEUTICAL COMPANY
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
3.2 Amended and Restated Bylaws of the Company
10.19 Amended and Restated La Jolla Pharmaceutical Company 1994
Stock Incentive Plan
27 Financial Data Schedule
</TABLE>
21
