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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(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, 1999,
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: 001-14165
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RIBOGENE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-3095154
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
</TABLE>
26118 RESEARCH ROAD
HAYWARD, CA 94545
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 732-5551
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter prior 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 [ ]
At October 31, 1999 there were 5,763,015 shares of the Registrant's common
stock, $0.001 value, outstanding.
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RIBOGENE, INC.
FORM 10-Q
TABLE OF CONTENTS
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<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes (Unaudited).................. 3
Condensed Balance Sheets -- September 30, 1999 and December
31, 1998.................................................... 3
Condensed Statements of Operations -- for the three and nine
months ended September 30, 1999 and 1998.................... 4
Condensed Statement of Cash Flows -- for nine months ended
September 30, 1999 and 1998................................. 5
Notes to Condensed Financial Statements..................... 6
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................... 8
Quantitative and Qualitative Disclosures about Market
Item 3. Risk........................................................ 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 13
Item 2. Changes in Securities and Use of Proceeds................... 13
Item 3. Defaults upon Senior Securities............................. 13
Item 4. Other Information........................................... 13
Item 5. Exhibits and Reports -- Form 8-K............................ 14
Signatures.................................................. 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RIBOGENE, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED) (NOTE 1)
<S> <C> <C>
Current assets
Cash and cash equivalents................................... $ 9,167 $ 12,815
Short-term investments.................................... 13,260 16,703
Prepaid expenses and other current assets................. 132 90
-------- --------
Total current assets.............................. 22,559 29,608
Property and equipment, net................................. 1,589 1,389
Deferred financing costs.................................... 491 622
Other assets................................................ 185 201
-------- --------
$ 24,824 $ 31,820
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 602 $ 1,456
Accrued development costs -- related party................ 1,108 400
Accrued liabilities....................................... 221 206
Deferred revenue -- related party......................... 667 167
Other current liabilities................................. 1,027 845
Current portion of capital lease obligations.............. 160 158
Current portion of notes payable.......................... 317 115
-------- --------
Total current liabilities......................... 4,102 3,347
-------- --------
Long-term portion of capital lease obligations.............. 103 224
Long-term portion of notes payable.......................... 5,955 5,482
Other noncurrent liabilities................................ 12 12
Stockholders' equity
Preferred Stock, 5,000,000 shares, $0.001 par value,
authorized at September 30, 1999 and December 31, 1998,
issuable in series; 1,428,572 shares issued and
outstanding at September 30, 1999 and December 31, 1998
(aggregate liquidation preference of $10,000,000 at
September 30, 1999 and December 31, 1998).............. 1 1
Common Stock, 30,000,000 shares, $0.001 par value,
authorized at September 30, 1999 and December 31, 1998;
5,763,017 and 5,774,421 shares issued and outstanding
at September 30, 1999 and December 31, 1998,
respectively........................................... 6 6
Additional paid-in capital.................................. 67,125 66,990
Notes receivable from stockholders.......................... (1) (147)
Deferred compensation....................................... (1,278) (1,811)
Accumulated deficit......................................... (51,157) (42,258)
Accumulated other comprehensive loss........................ (44) (26)
-------- --------
Total stockholders' equity........................ 14,652 22,755
-------- --------
$ 24,824 $ 31,820
======== ========
</TABLE>
See accompanying notes.
3
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RIBOGENE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1999 1998 1999 1998
------- ------- ------- --------
<S> <C> <C> <C> <C>
Revenue:
Contract research revenue from related parties..... $ 500 $ 501 $ 1,503 $ 1,889
Grant revenue.................................... -- 191 -- 594
Royalty revenue.................................. 4 -- 8 --
------- ------- ------- --------
Total revenue............................ 504 692 1,511 2,483
------- ------- ------- --------
Operating expenses:
Research and development......................... 1,790 3,176 6,955 5,781
General and administrative....................... 1,535 1,011 3,934 2,025
------- ------- ------- --------
Total operating expenses................. 3,325 4,187 10,889 7,806
------- ------- ------- --------
Loss from operations............................... (2,821) (3,495) (9,378) (5,323)
Interest income (expense), net..................... 99 327 479 296
------- ------- ------- --------
Net loss........................................... (2,722) (3,168) (8,899) (5,027)
Deemed dividend upon conversion of preferred
stock............................................ -- -- (7,989)
------- ------- ------- --------
Net loss attributable to common stockholders....... $(2,722) $(3,168) $(8,899) (13,016)
======= ======= ======= ========
Basic net loss per common share.................... $ (.48) $ (.58) $ (1.57) $ (5.34)
======= ======= ======= ========
Weighted average shares of common stock
outstanding...................................... 5,711 5,463 5,677 2,438
======= ======= ======= ========
</TABLE>
See accompanying notes.
4
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RIBOGENE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(8,899) $ (5,027)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 380 177
Amortization of warrants and deferred compensation........ 838 448
Issuance of common stock to collaboration partners........ -- 747
Forgiveness of stockholder notes.......................... 146 --
Other..................................................... -- 12
Changes in assets and liabilities:
Prepaid expenses and other current assets................. (42) 68
Other assets.............................................. 16 (58)
Accounts payable.......................................... (854) (1,046)
Deferred revenue -- related parties....................... 500 111
Accrued expenses and other liabilities.................... 905 856
------- --------
Net cash used in operating activities..................... (7,010) (3,712)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment......................... (580) (369)
Purchases of short-term investments......................... (6,720) (10,632)
Maturities of short-term investments........................ 10,145 --
------- --------
Net cash used in investing activities....................... 2,845 (11,001)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt................................ 881 338
Repayment of notes payable.................................. (206) (1,000)
Principal payments on capital lease obligations............. (119) (154)
Deferred offering costs..................................... -- 1,142
Proceeds from issuances of common stock and warrants, net of
issuance costs, repurchases and repayment of stockholder
notes..................................................... (39) 16,252
Net proceeds from issuance of convertible preferred stock
and warrants.............................................. -- 11,970
------- --------
Net cash provided by financing activities................... 517 28,548
------- --------
Net increase in cash and cash equivalents................... (3,648) 13,835
Cash and cash equivalents at beginning period............... 12,815 2,045
------- --------
Cash and cash equivalents at end of period.................. $ 9,167 $ 15,880
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 745 $ 324
======= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Equipment purchased under capital leases.................... $ -- $ 81
======= ========
Deferred compensation related to stock option grants........ $ -- $ 635
======= ========
</TABLE>
See accompanying notes.
5
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RIBOGENE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of RiboGene, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles and applicable Securities and Exchange Commission
regulations for interim financial information. These financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The unaudited financial
statements are intended to be read in conjunction with the audited financial
statements and footnotes thereto for the year ended December 31, 1998, contained
in the Company's Annual Report filed on Form 10-K with the Securities and
Exchange Commission on March 31, 1999. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for fair presentation of interim financial information have been included.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.
2. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity from
the date of purchase of three months or less to be cash equivalents.
The Company classifies its investments as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, if any, reported in accumulated other comprehensive loss. As
at September 30, 1999, the amortized cost of the Company's investments
approximated their fair value. The Company's comprehensive loss for the nine
month periods ended September 30, 1999 and 1998, approximated the Company's net
loss. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in income.
The Company has not experienced any realized gains or losses on its cash
equivalents. The cost of securities sold is based on the specific identification
method. Cash and cash equivalents and short-term investments at September 30,
1999 and December 31, 1998, consist of the following (in thousands) at fair
value:
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
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<S> <C> <C>
Demand deposits with banks and investment in money
market funds....................................... $ 9,167 $12,815
Corporate debt securities, including accrued interest
Maturing 1999...................................... 4,126 13,133
Maturing 2000...................................... 9,134 3,570
------- -------
$22,427 $29,518
======= =======
</TABLE>
3. NOTES PAYABLE
In December 1998, the Company received $5,000,000 in proceeds from the
issuance of a long-term note payable to a bank. The note required monthly
interest only payments at prime plus 1%. The rate at September 30, 1999 was
9.25%. The principal is due at the end of the three-year term. The loan is
collateralized by a perfected security interest in all the unencumbered assets
of the Company and requires that the Company maintain its depository accounts
with the bank with a minimum of $5,000,000 in aggregate cash and depository
balances. The Company is also required to comply with financial covenants based
on certain ratios. At September 30, 1999, the Company was in compliance with all
required covenants.
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RIBOGENE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NET LOSS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), basic net loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
the period, excluding certain shares, which are subject to the Company's
contractual right of repurchase.
Pro forma net loss per share giving effect to the conversion of the
convertible preferred stock that automatically converted upon completion of the
Company's initial public offering (using the as-if converted method) from the
original date of issuance for the nine months ended September 30, 1998 was
$3.45. Shares used in computing the pro forma net loss per share were 3,776,000
for the nine months ended September 30, 1998.
Diluted net loss per share has not been presented separately as, due to the
Company's net loss position, it is antidilutive. Had the Company been in a net
income position at September 30, 1999, shares used in calculating diluted
earnings per share may have included the effect of up to an additional 2,157,935
total shares related to outstanding stock options and warrants (prior to the
application of the treasury stock method), and 1,428,572 shares related to
convertible preferred stock.
5. STOCK OPTIONS AND WARRANTS
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to account for stock options and purchase rights granted to employees using the
intrinsic value method and, accordingly, does not recognize compensation expense
for options and purchase rights granted to employees with exercise prices which
are not less than fair value of the underlying common stock.
For equity awards to non-employees, including lenders and lessors, the
Company applies the Black-Scholes method to determine the fair value of such
instruments. The value is recognized as expense over the period of services
received or the term of the related financing.
6. SUBSEQUENT EVENT
On August 4, 1999, the Company signed a definitive merger agreement to form
a fully integrated pharmaceutical marketing and late stage product development
company with Cypros Pharmaceutical Corporation ("Cypros"). This pending merger
was approved by the stockholders of both RiboGene and Cypros at concurrent
special stockholder meetings held on November 5, 1999. As a result of the
merger, each outstanding share of RiboGene common stock will convert into the
right to receive 1.509 shares of Cypros common stock based on the fully diluted
capitalization of both companies as at November 4, 1999. The transaction is
structured to be a tax-free reorganization and will be accounted for as a
purchase. The merger is subject to customary closing conditions and is expected
to close in late 1999.
See Item 4 herein for further discussion of this proposed transaction.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this quarterly report on Form 10-Q that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements regarding the
proposed merger with Cypros, future pharmaceutical development, regulatory
approvals, revenues, expenses, and profits or losses. These forward-looking
statements are subject to known and unknown risks, uncertainties or other
factors, which may cause the actual results of the Company to be materially
different from historical results or any results expressed or implied by the
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, the risks and uncertainties
described or discussed in the section "Risk Factors" in the Company's Annual
Report on Form 10-K as filed by the Company with the Securities and Exchange
Commission on March 31, 1999. The forward-looking statements contained herein
represent the Company's judgement as of the date of this quarterly report on
Form 10-Q, and the Company cautions readers not to place undue reliance on such
statements. Furthermore, the Company disclaims any obligation or intent to
update any such forward-looking statements to reflect future events or
developments.
OVERVIEW
Up until the time of the announcement of the proposed merger with Cypros,
(see Item 4 herein for further discussion on this item), RiboGene was a drug
discovery company focused on the identification of novel lead compounds and the
development of potential drug candidates for the treatment of infectious
diseases. Concurrent with entering into the merger agreement with Cypros,
RiboGene management has refocused its efforts and modified its strategy to
emphasize the Company's clinical development program on Emitasol, while it
continues its drug discovery efforts on the antibacterial programs and its
program to acquire compounds in advanced stages of development.
Emitasol
In July 1998, the Company entered into an option and license agreement with
Roberts Pharmaceutical Corporation ("Roberts") to develop Emitasol, an
intranasal form of metoclopramide, in the United States, to treat diabetic
gastroparesis and delayed onset emesis caused by chemotherapy.
The Company expects Phase III clinical trials of Emitasol for diabetic
gastroparesis to begin in the United States in late 1999 or early 2000. RiboGene
is currently developing Emitasol in Europe through two corporate partners, where
Emitasol is undergoing regulatory review in Austria and five other Eastern
European countries and marketed in Italy under the tradename Pramidin.
Antibacterial Programs -- Dainippon
In January 1998, RiboGene entered into a research agreement with Dainippon
Pharmaceutical Company Ltd. ("Dainippon") in connection with RiboGene's two
principal antibacterial targets, deformylase and ppGpp degradase. Under the
research agreement, Dainippon and RiboGene agreed to collaborate in a research
program directed at accelerating the discovery of antibacterial drugs that have
activity against either of these two bacterial specific targets. Dainippon has
agreed to provide antibacterial research and development support at Dainippon
and research reimbursements over a three-year period, subject to extension upon
mutual agreement by both parties. RiboGene received $2.0 million of this support
in 1998 and another $2.0 million for the 1999 research year in February 1999.
Under the terms of the research agreement, the duties and responsibilities of
Dainippon and RiboGene are determined by a research committee comprised of
representatives from both companies. RiboGene's initial responsibilities include
assay development and lead discovery. Both parties are responsible for in vitro
testing against pathogens and lead optimization. Dainippon is responsible for in
vivo evaluation and preclinical development. Dainippon may terminate the
research agreement at any time after January 27, 1999 upon 180 days' written
notice to RiboGene.
To date, the Company has generated no revenue from the direct sale of
products and has generated only $8,000 in royalty revenues, and, through
September 30, 1999, has incurred cumulative net losses of approximately $51.2
million and, at September 30, 1999, had net stockholders' equity of $14.7
million. The
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Company expects to incur significant operating losses over the next several
years due primarily to expanded research and development efforts, preclinical
and clinical testing of its product candidates and commercialization activities.
If the merger with Cypros (see below) does not occur, the Company does not
anticipate significant revenues from product sales for a number of years, if
ever. The Company's sources of revenues for the next several years would be
payments from strategic collaborations, if any, royalties and interest income.
Certain payments under collaborations are or will be contingent upon the Company
or its collaborators achieving certain milestones as to which there can be no
assurance that such milestones will be achieved. Results of operations may vary
significantly from quarter to quarter depending on, among other factors, the
progress of the Company's research and development efforts, results of clinical
testing, the timing of certain expenses, the establishment of collaborative
research agreements and the receipt of grants or milestone payments, if any.
On August 4, 1999, the Company signed a definitive merger agreement to form
a fully integrated pharmaceutical marketing and late stage product development
company with Cypros Pharmaceutical Corporation ("Cypros"). This proposed merger
was approved by the stockholders of both RiboGene and Cypros at concurrent
special stockholder meetings held on November 5, 1999. As a result of the
merger, each outstanding share of RiboGene common stock will convert into the
right to receive 1.509 shares of Cypros common stock based on the fully diluted
capitalization of both companies as at November 4, 1999. The transaction is
structured to be a tax-free reorganization and will be accounted for as a
purchase. The merger is subject to customary closing conditions and is expected
to close in late 1999. See Item 4 herein for further discussion of this proposed
transaction.
RESULTS OF OPERATIONS
For the three months ended September 30, 1999 and 1998
For the three-month period ended September 30, 1999, the Company's revenues
consisted of revenues from the collaboration with Dainippon ("Dainippon
Collaboration") and royalty revenues from the sale of Pramidin in Italy by the
Company's marketing partner, Crinos. Revenue earned as part of the Dainippon
Collaboration, which began in February 1998, was $500,000 for the three-month
period ended September 30, 1999. Royalty revenues for the 1999 three-month
period consisted of $4,000 related to the sales of Pramidin in Italy. Revenues
for the three month period ended September 30, 1998 consisted of research
support revenues earned under the Dainippon Collaboration of $501,000 and
revenues of $191,000 for the three month period ended September 30, 1998 from
SBIR grants from the National Institutes of Health. Revenues earned under SBIR
grants are determined by the timing of the award from the issuing agency. As a
result, grant revenue earned in one period is not predictive of grant revenue to
be earned in future periods. The SBIR grants, from which the Company received
funding during the third quarter of 1998, ended in August 1998.
Research and development expenses were $1.8 million for the three months
ended September 30, 1999, compared to $3.2 million for the three months ended
September 30, 1998. This $1.4 million, or 44% decrease resulted in part from
reduced supply costs as the Company has focused all of its drug discovery
efforts on antibacterials subsequent to the end of the second quarter of 1999.
Additionally, during the three months ended September 30, 1998, the Company
incurred a $747,000 one time, non-cash charge equal to the fair market value of
common stock issued to Dainippon in exchange for an increase in the Company's
royalty interest in future product sales as defined in the Dainippon
Collaboration.
General and administrative expenses were $1.5 million for the three months
ended September 30, 1999, compared to $1.0 million for the three months ended
September 30, 1998. The $524,000 or 52%, increase was primarily due to
additional operating costs associated with the Company's legal and other
professional services related to increased business development and pending
merger activities.
For the three months ended September 30, 1999, the Company reported net
interest income of $99,000, compared to $327,000 for the three months ended
September 30, 1998. This decrease in interest income resulted from lower
interest earned as the proceeds from the company's initial public offering,
concurrent private placement and sale of preferred stock were used in operations
over the past twelve months.
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Additionally, the offsetting interest expense increase for the three months
ended September 30, 1999 over the three months ended September 30, 1998 was due
to the bank financing obtained in December 1998.
The net loss for the three-month period ended September 30, 1999 was $2.7
million, compared to $3.2 million for the three-month period ended September 30,
1998. This $446,000, or 14%, decrease resulted from the changes in revenue and
operating expenses discussed above.
For the nine months ended September 30, 1999 and 1998
For the nine month period ended September 30, 1999, the Company's revenues
consisted of $1.5 million of research support revenues earned from the Dainippon
Collaboration and $8,000 in royalty revenues from the initial sales of Pramidin
in Italy. For the nine month period ended September 30, 1998, the Company's
revenues consisted of $1.9 million in revenues earned from collaboration
agreements and $594,000 in SBIR grants from the National Institutes of Health.
Revenue earned as part of the Company's collaboration with Abbott Laboratories,
Inc., which ended on April 13, 1998, was $556,000 for the nine month period
ended September 30, 1998. Further, revenue earned under the Dainippon
Collaboration, which began in February 1998, was $1.3 million for the nine month
period ended September 30, 1998. The revenues earned under awarded research
grants were completed in August of 1998. Revenues earned under research grants
are determined by the timing of the award from the issuing agency. As a result,
research grant revenue earned in one period is not predictive of research grant
revenue to be earned in future periods.
Research and development expenses were $7.0 million for the nine months
ended September 30, 1999, compared to $5.8 million for the nine months ended
September 30, 1998. This $1.2 million, or 20% increase resulted from the
continuation of Emitasol development activities, personnel and supply costs,
relating to the establishment of the Company's medicinal chemistry capabilities,
and non cash charges for deferred compensation relating to certain stock options
granted to employees and consultants. Research and development expenses
represented approximately 64% of total operating expenses of $10.9 million in
the nine month period ended September 30, 1999, as compared to 74% of total
operating expenses of $7.8 million in the nine month period ended September 30,
1998.
General and administrative expenses were $3.9 million for the nine months
ended September 30, 1999, compared to $2.0 million for the nine months ended
September 30, 1998. This $1.9 million, or 94% increase, was due to additional
operating costs associated with the Company's status as a publicly held company,
travel, consultants, legal and other professional services associated with
increased business development and pending merger activities, forgiveness of
debt to certain officers and directors, non-cash charges for deferred
compensation relating to certain stock options and warrants granted to employees
and consultants.
For the nine months ended September 30, 1999, the company reported net
interest income of $479,000, compared to $296,000 for the nine months September
30, 1998. The interest income results from interest earned through the
investment of proceeds from the Company's initial public offering, concurrent
private placement, bank borrowing and sale of preferred stock, which occurred in
1998.
The net loss for the nine month period ended September 30, 1999 was $8.9
million, compared to $5.0 million for the nine month period ended September 30,
1998. This $3.9 million, or 77% increase, resulted from the changes in revenue
and operating expenses discussed above.
The net loss attributable to common stockholders for the nine months ended
September 30, 1999 was $8.9 million, compared to $13.0 million for the nine
month period ended September 30, 1998. The net loss attributable to common
shareholders in 1998 of $13.0 million included a deemed dividend of $8 million
that was recorded in 1998 upon the conversion of outstanding shares of Series F
preferred stock into shares of common stock concurrent with the closing of the
Company's initial public offering. The Series F preferred stock contained
certain antidilution provisions that resulted in the holders of shares of Series
F preferred stock receiving an additional 1,141,317 shares of common stock upon
conversion.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
public offerings of common stock, private sales of common stock and preferred
stock, the issuance of warrants, SBIR grants, collaborations, the issuance of
short-term convertible notes and equipment financing arrangements. Through
September 30, 1999, the Company has raised approximately $67.4 million from the
sale of common stock and preferred stock, and the issuance of warrants and
short-term convertible notes, $3.5 million from SBIR grants and $6.9 million
from collaborations. The Company's capital expenditures and payments under
capital lease obligations aggregate approximately $3.2 million through September
30, 1999, and cash used to fund operating activities since inception totaled
$37.9 million.
At September 30, 1999, the Company had cash and cash equivalents and
short-term investments of approximately $22.4 million and working capital of
$18.5 million. Net cash used in operations was $7.0 million for the nine months
ended September 30, 1999, compared to cash used of $3.7 million for the nine
months ended September 30, 1998. The increase of $3.3 million was due primarily
to increased research and development and general and administrative expenses
discussed above. The Company has a policy of investing excess funds in
investment grade, interest-bearing securities primarily with an expected
maturity of one-and-one-half years or less.
The Company will require substantial additional funds to continue and
expand its development activities, conduct preclinical and clinical studies and
expand administrative capabilities. The Company estimates that at its planned
rate of spending, existing cash and cash equivalents, and the interest income
earned on such funds, will be sufficient for the purposes specified herein and
to allow the Company to maintain its current and planned operations, including
compliance with compensating balance covenant requirements, into the second half
of 2000. There can be no assurance, however, that the Company's assumptions
regarding its future level of expenditures and operating losses will prove to be
accurate. The Company's future funding requirements will depend on many factors,
including changes to the breadth of the Company's research and development
programs; the results of research and development, preclinical studies and
clinical trials conducted by the Company or its collaborative partners or
licensees, if any; the acquisition and licensing of technologies or compounds,
if any; the Company's ability to maintain existing and establish new corporate
relationships and research collaborations; the Company's ability to manage
growth; competing technological and market developments; the time and costs
involved in filing, prosecuting, defending and enforcing patent and intellectual
property claims; the receipt of licensing or milestone fees from its current or
future collaborative and license arrangements, if established; the continued
funding of governmental research grants; the timing of regulatory approvals; and
other factors. On August 4, 1999, the Company entered into a definitive merger
agreement with Cypros. The Company expects that the merger will close by the end
of 1999. The Company anticipates that it will consolidate its operations with
those of Cypros and eliminate any redundant functions including facilities and
general and administration capabilities. In conjunction with the merger, the
Company may decide to divest, spin-off or eliminate some or all of its drug
discovery programs. Prior to June 30, 1999, the Company had active drug
discovery programs focusing on bacterial, fungal and viral (HCV) infections.
Subsequent to the end of the second quarter, the Company has focused all of its
drug discovery efforts on antibacterials.
YEAR 2000 READINESS
The Year 2000 ("Y2K") issue refers to the inability of older computer
hardware and software to accept four-digit codes for the year field in a set of
data (the "Year 2000 Issue"). Beginning in the year 2000, four-digit codes will
be necessary to distinguish between 1900 base-year dates and 2000 base-year
dates. Such inability to recognize a date using "00" as the year 2000 rather
than the year 1900 could result in a system failure or miscalculations causing
disruptions in the Company's operations or activities, including, among other
things, the Company's research and development efforts.
The Company developed a formal plan to address this issue including a
complete inventory and assessment of all systems. The plan's objective was to
ensure an uninterrupted transition into the year 2000. In conjunction with this
plan, the Company has completed its assessment with respect to its critical
systems and
11
<PAGE> 12
at this time believes that such systems critical to the core business will
function properly with respect to dates in the years 1999, 2000 and thereafter.
Additionally, in connection with its move to new facilities in 1997, the Company
improved, upgraded and replaced many of its systems. Based on written
representations from manufacturers of these systems, the Company believes that
these new systems are Y2K compliant. Further, the Company believes all other
systems are now Y2K compliant.
The Company has not incurred significant expenses in connection with
assessing, testing and modifying its systems for Y2K readiness, and the costs of
executing the plan have been funded from cash reserves. To the extent that the
Company or its key suppliers and providers fail to achieve Y2K readiness, there
could be a material adverse effect on the Company's business, results of
operations and financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk at September 30, 1999 has not changed
materially from December 31, 1998, and reference is made to the more detailed
disclosures of market risk included in the Company's 1998 Form 10-K as filed
with the Securities and Exchange Commission on March 31, 1999.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Recent Sales of Unregistered Securities
None
(b) Use of Proceeds
The effective date of the Company's registration statement, filed on Form
S-1 under the Securities and Exchange Act of 1933, as amended (File No.
333-38781), was May 28, 1998 (the "Registration Statement"). The class of
securities registered was Common Stock and all securities sold were sold in the
offering. The underwriter for the offering was Gruntal & Co., L.L.C. Pursuant to
the Registration Statement, the Company sold 2,300,000 shares of its Common
Stock for an aggregate offering price of $16.1 million.
In connection with the public offering, the Company incurred expenses of
$3.9 million, of which $1.8 million represented underwriting discounts and
commissions and expense reimbursements and $2.1 million represented other
expenses related to the offering. No proceeds were paid directly or indirectly
to directors, officers, general partners of the Company or to persons holding
ten percent or more of any class of equity security issued by the Company, or to
any other affiliate of the Company. The net offering proceeds to the Company
after total expenses was $12.2 million.
The Company has used $10.5 million of the net proceeds from the offering
for operations. The Company has invested the remainder of the net proceeds in
short-term, investment-grade, interest bearing financial instruments. The use of
the proceeds from the offering does not represent a material change in the use
of the proceeds described in the Registration Statement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. OTHER INFORMATION
On August 4, 1999, the Company signed a definitive merger agreement to form
a fully integrated pharmaceutical marketing and late stage product development
company with Cypros Pharmaceutical Corporation ("Cypros"). This merger was
approved by the stockholders of both RiboGene and Cypros at concurrent special
stockholder meetings held on November 4, 1999.
Following closing of the merger, Cypros stockholders and option holders
will hold approximately 55% of the fully diluted equity of the combined company,
and RiboGene stockholders, option holders and warrant holders will hold
approximately 45% of the fully diluted equity. Structurally, RiboGene will be
merged with a subsidiary of Cypros and become a wholly-owned subsidiary of
Cypros. As a result of the merger, each outstanding share of RiboGene common
stock will convert into the right to receive 1.509 shares of Cypros common
stock, based on the fully diluted capitalization of both companies as at
November 4, 1999.
The sole holder of RiboGene's outstanding preferred stock will receive a
new series of Cypros voting preferred stock based on the exchange ratio. Cypros
will assume all of RiboGene's outstanding stock options and warrants.
The transaction is structured to be a tax-free reorganization and will be
accounted for as a purchase. The merger is subject to customary closing
conditions and is expected to close in late 1999.
13
<PAGE> 14
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
During the three month period ending September 30, 1999, one Current Report
was filed on Form 8-K. In such report the Company announced that the Board of
Director's approved the adoption of a Stockholder's Rights Plan under which all
stockholders of record as of July 23, 1999 would receive rights to purchase
shares of a new series of Preferred Stock. This report was dated 7/1/99 and
filed 7/15/99.
14
<PAGE> 15
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 hereunto duly authorized.
RIBOGENE, INC.
Date: November 15, 1999 By: /s/ CHARLES J. CASAMENTO
------------------------------------
Charles J. Casamento
Chairman, President & CEO
Date: November 15, 1999 By: /s/ MICHAEL D. ROSE
------------------------------------
Michael D. Rose
Principal Financial and Chief
Accounting Officer
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,167
<SECURITIES> 13,260
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,559
<PP&E> 3,092
<DEPRECIATION> 1,503
<TOTAL-ASSETS> 24,824
<CURRENT-LIABILITIES> 4,102
<BONDS> 0
0
1
<COMMON> 6
<OTHER-SE> 14,645
<TOTAL-LIABILITY-AND-EQUITY> 24,824
<SALES> 0
<TOTAL-REVENUES> 1,511
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,889
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 742
<INCOME-PRETAX> (8,899)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,899)
<EPS-BASIC> (1.57)
<EPS-DILUTED> 0
</TABLE>
