<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended March 31, 1998.
/ / 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
--------------------------
MEGABIOS CORP.
(Exact name of registrant as specified in its charter)
Delaware 94-3156660
- --------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
863A Mitten Rd., Burlingame, CA 94010
- --------------------------------- ---------------------------------
(Address of principal offices) (Zip Code)
650-697-1900
- ---------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required 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 outstanding shares of the registrant's Common Stock , $.001 par
value, was 12,808,528 as of March 31, 1998.
<PAGE>
MEGABIOS CORP.
INDEX
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 1: Condensed Balance Sheets ............................... 3
Condensed Statements of Operations...................... 4
Condensed Statements of Cashflows ...................... 5
Notes to Condensed Financial Statements ................ 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 8
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 ........................ 14
Item 4: Submission of Matters to a Vote of Security Holders .... 14
Item 5: Other Information ...................................... 14
Item 6: Exhibits and Reports on Form 8-K ....................... 14
Signatures ............................................. 15
Exhibit Index .......................................... 16
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
MEGABIOS CORP.
CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,179 $ 9,044
Short-term investments 39,305 15,225
Other receivables 1,133 238
Prepaid expenses and other current assets 444 390
------------ ------------
Total current assets 53,061 24,897
------------ ------------
Property and equipment, net 5,491 4,733
Other receivables 22 27
Deposits and other assets 39 321
------------ ------------
$ 58,613 $ 29,978
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,102 $ 694
Accrued compensation 356 170
Accrued construction-in-progress - 249
Other accrued liabilities 204 35
Deferred revenue 633 887
Current portion of long-term debt 892 1,233
------------ ------------
Total current liabilities 3,187 3,268
Long-term debt 1,873 1,487
Stockholders' equity:
Preferred stock - 44,700
Common stock 13 1,410
Additional paid-in capital 79,843 -
Deferred compensation, net of amortization (1,107) (679)
Unrealized loss on available-for-sale securities (44) -
Accumulated deficit (25,152) (20,208)
------------ ------------
Total stockholders' equity 53,553 25,223
------------ ------------
$ 58,613 $ 29,978
------------ ------------
------------ ------------
</TABLE>
See accompanying notes
Page 3 of 17
<PAGE>
MEGABIOS CORP.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Collaborative research and development revenue $ 1,862 $ 1,603 $ 6,615 $ 4,586
Operating expenses:
Research and development 4,826 2,332 10,741 6,080
General and administrative 1,002 465 2,429 1,498
------------ ------------ ------------ ------------
Total operating expenses 5,828 2,797 13,170 7,578
------------ ------------ ------------ ------------
Loss from operations (3,966) (1,194) (6,555) (2,992)
Interest income 757 185 1,931 418
Interest expense (112) (92) (320) (287)
------------ ------------ ------------ ------------
Net loss $ (3,321) $ (1,101) $ (4,944) $ (2,861)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic and diluted net loss per share $ (0.27) $ (1.02) $ (0.54) $ (2.71)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Shares used in computing basic and diluted net
loss per share 12,469 1,081 9,208 1,054
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma net loss per share (Note 3) $ (0.14) $ (0.43) $ (0.38)
------------ ------------ ------------
------------ ------------ ------------
Shares used in computing pro forma net loss per
share (Note 3) 7,902 11,601 7,431
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes
Page 4 of 17
<PAGE>
MEGABIOS CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,944) $ (2,861)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation 1,355 968
Amortization of deferred compensation 309 -
Purchased in-process research and development 1,500 -
Changes in operating assets and liabilities:
Other receivables (890) (232)
Prepaid expenses and other assets (54) (48)
Deferred revenues (254) -
Accounts payable 159 33
Accrued liabilities 355 9
--------- ---------
Net cash used in operating activities (2,464) (2,131)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,113) (652)
Deposits and other assets 282 (32)
Purchases of short-term investments (35,324) (9,744)
Maturities of short-term investments 11,200 -
--------- ---------
Net cash used in investing activities (25,955) (10,428)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 681 729
Payments on long-term debt (636) (832)
Proceeds from issuance of convertible preferred stock, net - 9,985
Proceeds from issuance of common stock, net 31,509 19
--------- ---------
Net cash provided by financing activities 31,554 9,901
--------- ---------
Net increase in cash and cash equivalents 3,135 (2,658)
Cash and cash equivalents, beginning of period 9,044 5,253
--------- ---------
Cash and cash equivalents, end of period $ 12,179 $ 2,595
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information
Interest paid $ 317 $ 287
--------- ---------
--------- ---------
</TABLE>
See accompanying notes
Page 5 of 17
<PAGE>
MEGABIOS CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed financial statements are unaudited and have
been prepared by Megabios Corp. (the "Company") in accordance with the rules
and regulations of the Securities and Exchange Commission for interim
financial information and in accordance with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Certain information and footnote
disclosures normally included in the Company's annual financial statements as
required by generally accepted accounting principles have been condensed or
omitted. The interim financial statements, in the opinion of management,
reflect all adjustments (consisting of normal recurring accruals) necessary
for a fair statement of the results for the interim periods ended March 31,
1998 and 1997. The balance sheet at June 30, 1997 is derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year,
although the Company expects to incur a substantial loss for the year ended
June 30, 1998. These interim financial statements should be read in
conjunction with the audited financial statements for the year ended June 30,
1997, which are contained in the Company's Registration Statement on Form S-1
(No. 333-32593) dated September 15, 1997 filed with the Securities and
Exchange Commission.
2. REVENUE RECOGNITION
Revenue related to collaborative research agreements with the Company's
corporate partners is recognized over the related funding periods for each
contract. The Company is required to perform research and development
activities as specified in each respective agreement on a best-efforts basis.
The Company is reimbursed based on the costs associated with the number of
full time equivalent employees working on each specific contract.
3. NET LOSS PER COMMON SHARE
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share",
which modifies the way in which earnings per share are calculated and
disclosed. The Company adopted SFAS 128 in the quarter ended December 31,
1997.
"Basic" net loss per share (as defined by SFAS 128) is computed using the
weighted average number of common shares outstanding less those shares
outstanding subject to continued vesting. As the Company reported a loss for
all periods presented, there is no difference between basic and diluted net
loss per share amounts as prescribed by SFAS 128. Loss per share amounts for
all periods presented prior to December 31, 1997 have been restated to
conform to the requirements of SFAS 128.
Page 6 of 17
<PAGE>
In addition, in 1998, the Security and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 98 (SAB 98) which eliminates the inclusion in the
calculation of net loss per share of common and common equivalent shares
(stock options, warrants, convertible notes and preferred stock) issued
during the 12 month period prior to an initial public offering at prices
below the public offering price as if they were outstanding for all periods
presented. All loss per share amounts for all periods have been presented,
and where appropriate, restated to conform to the Statement 128 and SAB 98
requirements.
Pro forma net loss per share for the three months ended March 31, 1997 and
the nine month periods ended March 31, 1998 and 1997 has been computed as
described above and also gives effect to the conversion of convertible
preferred shares that automatically converted upon completion of the
Company's initial public offering (using the "if converted" method) from
original date of issuance.
4. PUBLIC OFFERING OF COMMON STOCK
On September 15, 1997, the Company completed an initial public offering
of 2,500,000 shares of its common stock at $12.00 per share. On September
29, 1997, the underwriters of the initial public offering exercised their
over-allotment option and purchased an additional 375,000 shares at $12.00
per share. The Company anticipates using the net proceeds of $31.4 million
(after deducting underwriters' discounts and offering expenses) to fund
research and development programs, leasehold improvements to its facility,
capital equipment purchases, working capital and general corporate purposes.
Concurrent with the Company's initial public offering, all shares of
preferred stock then outstanding were converted into common stock.
5. DISCONTINUATION OF AGREEMENT WITH PFIZER
In May 1996, the Company entered into a four-year collaborative research
agreement, as well as a license and royalty agreement, with Pfizer Inc
("Pfizer") to develop a gene-based therapeutic for the treatment of solid
tumors via angiogenesis inhibition. Under the terms of the agreement, Pfizer
could, at its option, terminate the program as of June 1998 upon six months
prior notice to the Company. In December 1997, Pfizer decided to discontinue
the program. Under the terms of the program, Pfizer will continue to fund the
program through May 31, 1998.
6. COLLABORATIVE, LICENSE AND RESEARCH AGREEMENTS:
Effective March 16, 1998, the Company entered into a license and
collaboration agreement with the University of Pittsburgh (the "University")
and with key scientists at the University whereby the Company has acquired an
exclusive worldwide license to intellectual property and know-how related to
gene therapy of joint diseases. In exchange for the grant of this exclusive
license, the Company issued 117,555 shares of common stock to the University
in a private placement transaction. The value of the common stock issued in
this transaction was $1.5 million. Under the terms of the license and
collaboration agreement, the Company has agreed to fund certain efforts with
respect to the use of the licensed technology both at the Company's
facilities and at the University.
Page 7 of 17
<PAGE>
ITEM II.
MEGABIOS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" IN
THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1, FILE NO. 333-32593, FILED
SEPTEMBER 15, 1997.
The Company develops proprietary gene delivery systems and provides
preclinical development expertise to create gene-based therapeutics designed
for the treatment or prevention of genetic and acquired diseases. The
Company has developed several IN VIVO, non-viral gene delivery systems to
address a number of potential therapeutic applications using a variety of
therapeutic genes. The Company's clinical development and commercialization
strategy is to enter into corporate partnerships with pharmaceutical and
biotechnology companies. The Company has established corporate partnerships
with Glaxo Wellcome plc ("Glaxo Wellcome"), Pfizer Inc ("Pfizer") and Eli
Lilly and Company ("Lilly"). In December 1997, Pfizer decided to discontinue
its research and development program to develop gene-based therapeutics to
treat cancer via angiogenesis inhibition. Under the terms of the agreement,
Pfizer will continue funding the program through May 31, 1998. Megabios
intends to continue to advance the angiogenesis inhibition program and is
actively seeking a new corporate partner. The corporate partnerships with
Glaxo Wellcome and Lilly are ongoing.
In March 1998, the Company acquired patent rights and a technology portfolio
in the area of rheumatology via an exclusive license agreement and
collaboration with the University of Pittsburgh and with key scientists at
the University. Under the terms of the agreement, the Company entered into a
collaboration with Joe Glorioso, Ph.D., William S. Mc Ellroy Professor and
Chairman of the Department of Molecular Genetics and Biochemistry at the
University of Pittsburgh and Director of the Pittsburgh Human Gene Therapy
Center, which is exclusive with respect to certain gene-based therapeutics
for joint diseases.
To date, substantially all revenue has been generated by collaborative
research and development agreements from corporate partners, and no revenue
has been generated from product sales. Under the terms of its corporate
partnerships the Company receives research and development funding on a
quarterly basis in advance of associated research and development costs. The
Company expects that future revenue will be derived in the short-term from
research and development agreements and milestone payments and in the
long-term from royalties on product sales.
Page 8 of 17
<PAGE>
The Company has incurred significant losses since inception and expects to
incur substantial losses for the foreseeable future, primarily due to the
expansion of its research and development programs and because the Company
does not expect to generate revenue from the sale of products in the
foreseeable future, if at all. The Company expects that operating results
will fluctuate from quarter to quarter and that such fluctuations may be
substantial. As of March 31, 1998, the Company's accumulated deficit was
approximately $25.2 million.
The Company uses computer software programs and operating systems in its
operations, including applications used in financial business systems and
various administrative functions. To the extent that these software
applications contain source code that is unable to appropriately interpret
the upcoming calendar year 2000, some level of modification, or possible
replacement of such source code or applications will be necessary. This
condition is commonly referred to as the Year 2000 Issue. The Company is
still analyzing its software applications and, to the extent they are not
fully year 2000 compliant, the costs necessary to update software or
potential systems interruptions may have a material adverse effect on the
Company's business, financial condition and results of operations.
The Year 2000 Issue may affect systems of organizations with which the
Company conducts business, including but not limited to its corporate
partners, suppliers and vendors. The Company is addressing the Year 2000
Issue with such organizations. There can be no assurance that the systems of
other organizations on which the Company may rely will adequately address the
Year 2000 Issue, or that failure for other organizations to address the Year
2000 Issue will not have a material adverse affect on the Company's financial
condition or results of operations.
RESULTS OF OPERATIONS
The Company's revenue from corporate partnerships for the three and nine
months ended March 31, 1998 increased to $1.9 million and $6.6 million,
respectively, compared to $1.6 million and $4.6 million for the corresponding
periods in fiscal 1997. The fiscal 1998 revenue was attributable to amounts
earned for research and development performed under the Company's corporate
partnerships with Pfizer and Lilly. The fiscal 1997 revenue was primarily
attributable to amounts earned for research and development performed under
the Company's corporate partnerships with Glaxo Wellcome and Pfizer. No
revenue from milestones or royalties from product sales have been earned
under any corporate partnership to date.
Page 9 of 17
<PAGE>
Research and development expenses for the three and nine months ended March
31, 1998 increased to $4.8 million and $10.7 million, respectively, compared
to $2.3 million and $6.1 million for the corresponding periods in 1997. The
increase was primarily attributable to increases in personnel and payroll
expenses, increased purchases of laboratory supplies and materials, increased
depreciation from additional equipment and leasehold improvements and the
increased use of consultants and other services to support the Company's
increased research and development activities. In addition, in March 1998,
the Company acquired patent rights and certain technology from the University
of Pittsburgh. In partial consideration for this exclusive license, the
Company issued 117,555 shares of its common stock to the University of
Pittsburgh. The value of the common stock issued in the transaction was $1.5
million, which was expensed to research and development during the period.
The Company expects research and development expenses to increase as the
Company continues to expand its research and development programs.
General and administrative expenses for the three and nine months ended March
31, 1998 increased to $1.0 million and $2.4 million, respectively, compared
to $465,000 and $1.5 million for the corresponding periods in 1997. The
increase in both periods was primarily attributable to increased consulting,
legal, professional, insurance, treasury costs, travel and expenses
associated with increased business development activities and with being a
publicly-traded company. The Company expects general and administrative
expenses to increase due to business development activities and to expenses
incurred as a publicly-traded company.
Interest income for the three and nine months ended March 31, 1998 increased
to $757,000 and $1.9 million, respectively, compared to $185,000 and $418,000
for the corresponding periods in 1997. The increase in interest income in
both periods resulted from the increase in average cash and investment
balances primarily as a result of the proceeds from the Company's initial
public offering in September, 1997 and its private financing in fiscal 1997.
Interest expense for the three and nine months ended March 31, 1998 increased
to $112,000 and $320,000, respectively, compared to $92,000 and $287,000 for
the corresponding periods in 1997. The increase in interest expense
resulted from higher outstanding balances on an equipment financing line of
credit.
Page 10 of 17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through the
sale of equity securities, research and development funding provided under
corporate partnerships and equipment and leasehold improvement financing.
The Company's near-term operating requirements include increased research and
development expenditures associated with the expansion of its research and
development programs. The Company's capital spending program includes
planned leasehold improvements to the Company's facilities and the purchase
of capital equipment to be used primarily in the Company's pilot
manufacturing facility. The Company expects to finance these cash needs with
its existing cash and investments, together with interest thereon, future
payments to be received under its existing corporate partnerships, and
facilities and equipment financing.
Net cash used in the Company's operations increased to $2.5 million for the
nine months ended March 31, 1998 from $2.1 million for the same period in
1997. The increase was primarily due to an increase in research and
development activities. The Company's capital expenditures for the nine
months ended March 31, 1998 were $2.1 million and $652,000 for the same
period in 1997.
As of March 31, 1998, the Company had $51.5 million in cash, cash equivalents
and short-term investments compared to $24.3 million as of June 30, 1997.
On September 15, 1997, the Company completed an initial public offering of
2,500,000 shares of common stock at $12.00 per share. In addition, on
September 29, 1997, the Company's underwriters exercised their over-allotment
option and purchased an additional 375,000 shares of the Company's common
stock at $12.00 per share. The combined net proceeds raised from the initial
public offering and the exercise of the over-allotment option were
approximately $31.4 million.
Page 11 of 17
<PAGE>
The Company anticipates that its cash and cash equivalents, committed funding
from existing corporate partnerships, lines of credit and projected interest
income, will enable the Company to maintain its current and planned
operations through fiscal 1999. However, there can be no assurance that the
Company will not require additional funding prior to such time. The
Company's future capital requirements will depend on many factors, including
scientific progress in its research and development programs, the size and
complexity of such programs, the scope and results of preclinical studies and
clinical trials, the ability of the Company to establish and maintain
corporate partnerships, the time and costs involved in obtaining regulatory
approvals, the time and costs involved in filing, prosecuting and enforcing
patent claims, competing technological and market developments, the cost of
manufacturing preclinical and clinical materials and other factors not within
the Company's control. The Company is seeking additional collaborative
agreements with corporate partners and may seek additional funding through
public or private equity or debt financing. There can be no assurance,
however, that any such agreements will be entered into or that they will
reduce the Company's funding requirements or that additional funding will be
available. The Company expects that additional equity or debt financing will
be required to fund its operations. There can be no assurance that
additional financing to meet the Company's funding requirements will be
available on acceptable terms or at all.
If additional funds are raised by issuing equity securities, substantial
dilution to existing stockholders may result. Insufficient funds may require
the Company to delay, scale back or eliminate some or all of its research or
development programs or to relinquish greater or all rights to products at an
earlier stage of development or on less favorable terms than the Company
would otherwise seek to obtain, which could materially adversely affect the
Company's business, financial condition and results of operations.
Page 12 of 17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
The effective date of the Company's registration statement on Form
S-1, filed under the Securities Act of 1933 (No. 333-32593), was
September 15, 1997 (the "Registration Statement"). The class of
securities registered was Common Stock. The offering commenced on
September 15, 1997 and all securities were sold in the offering. The
managing underwriters for the offering were NationsBanc Montgomery
Securities, Inc. and Hambrecht & Quist LLC.
Pursuant to the Registration Statement, the Company sold 2,875,000
shares of its Common Stock for an aggregate offering price of
$34,500,000.
The Company incurred expenses of approximately $3.1 million of which
$2.4 million represented underwriting discounts and commissions and
$700,000 represented other expenses. All such expenses were direct or
indirect payments to others. The net offering proceeds to the Company
after total expenses was $31.4 million.
The Company has not used any of the net proceeds from the offering.
All net proceeds have been invested in cash, cash equivalents and
short-term investments. The use of the proceeds from the offering
does not represent a material change in the use of the proceeds
described in the prospectus.
Pursuant to that certain License and Collaboration Agreement by and
between the Company and the University of Pittsburgh (the
"University"), dated March 16, 1998 (the "License Agreement"), the
Company issued 117,555 shares of its common stock to the University in
exchange for an exclusive, worldwide license to certain technology
rights. The Common stock was issued in reliance on Regulation D of the
Security Act of 1933, as amended. The Stock Issuance Agreement entered
into by the Company and University concurrently with the License
Agreement restricts the University's ability to sell the common stock
it acquired from the Company for two years.
Page 13 of 17
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a. Exhibits
11.1 Computation of Net Loss Per Share.
27 Financial Data Schedule (Exhibit 27 is submitted as an
exhibit only in the electronic format of this Quarterly
Report on Form 10-Q submitted to the Securities and
Exchange Commission).
b. Reports on Form 8-K
None
Page 14 of 17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Megabios Corp.
Date: May 14, 1998 /s/ Benjamin F. McGraw III
------------------------------
Benjamin F. McGraw III
CEO and President
Page 15 of 17
<PAGE>
MEGABIOS CORP.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
11.1 Statement Re: Computation of Earnings Per Share 17
27 Financial Data Schedule (Exhibit 27 is submitted
as an exhibit only in the electronic format of this
Quarterly Report on Form 10-Q submitted to the
Securities and Exchange Commission).
</TABLE>
Page 16 of 17
<PAGE>
Exhibit 11
MEGABIOS CORP.
STATEMENT RE CALCULATION OF NET LOSS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net loss $ (3,321) $ (1,101) $ (4,944) $ (2,861)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares of common stock outstanding: 12,469 1,081 9,208 1,054
Basic and diluted loss per share $ (0.27) $ (1.02) $ (0.54) $ (2.71)
--------- --------- --------- ---------
--------- --------- --------- ---------
Calculation of shares outstanding for computing
pro forma net loss per share:
Shares used in computing basic and diluted net loss
per share 1,081 9,208 1,054
Adjustment to reflect the effect of the assumed
conversion of preferred stock from the date
of issuance 6,821 2,393 6,377
--------- --------- ---------
Shares used in computing pro forma net loss per share 7,902 11,601 7,431
--------- --------- ---------
--------- --------- ---------
Pro forma net loss per share $ (0.14) $ (0.43) $ (0.38)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Page 17 of 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 12,179
<SECURITIES> 39,305
<RECEIVABLES> 1,133
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,061
<PP&E> 10,021
<DEPRECIATION> 4,530
<TOTAL-ASSETS> 58,613
<CURRENT-LIABILITIES> 3,187
<BONDS> 0
0
0
<COMMON> 79,856
<OTHER-SE> (26,303)
<TOTAL-LIABILITY-AND-EQUITY> 58,613
<SALES> 0
<TOTAL-REVENUES> 6,615
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320
<INCOME-PRETAX> (4,944)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,944)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,944)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
ACCOUNT BALANCES FOR DECEMBER 31, 1997 ARE CORRECTED TO SHOW PROFIT AND LOSS
BALANCES FOR NINE MONTH PERIOD. ACCOUNT BALANCES FOR MARCH 31, 1997 REPRESENT
RESTATEMENT OF EPS FOR SAB 98.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> DEC-31-1997 MAR-31-1997
<CASH> 33,624 2,595
<SECURITIES> 19,589 9,731
<RECEIVABLES> 521 254
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 54,205 12,903
<PP&E> 9,403 6,625
<DEPRECIATION> 4,061 2,811
<TOTAL-ASSETS> 59,609 17,064
<CURRENT-LIABILITIES> 2,306 2,196
<BONDS> 0 0
0 0
0 30,790
<COMMON> 78,388 1,141
<OTHER-SE> (23,078) (18,676)
<TOTAL-LIABILITY-AND-EQUITY> 59,609 17,064
<SALES> 0 0
<TOTAL-REVENUES> 4,753 4,586
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 7,342 7,578
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 209 287
<INCOME-PRETAX> (1,623) (2,861)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,623) (2,861)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,623) (2,861)
<EPS-PRIMARY> (.22) (2.71)
<EPS-DILUTED> (.22) (2.71)
</TABLE>
