SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
- ----- Securities Exchange Act of 1934. For the quarterly
period ended June 30, 1997.
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
0-27410
INTERCARDIA, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 56-1924222
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
P.O. Box 14287
3200 East Highway 54
Cape Fear Building, Suite 300
Research Triangle Park, NC 27709
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code 919-558-8688
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 such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of August 8, 1997
- ----------------------------- --------------------------------
Common Stock, par value $.001 6,760,417 Shares
<PAGE>
INTERCARDIA, INC.
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 (unaudited)
and September 30, 1996 ...............................................3
Consolidated Statements of Operations for the Three Months and Nine
Months ended June 30, 1997 and 1996 (unaudited) ......................4
Consolidated Statements of Cash Flows for the Nine Months ended
June 30, 1997 and 1996 (unaudited)....................................5
Notes to Unaudited Consolidated Financial Statements .................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ..................13
SIGNATURE ...........................................................14
<PAGE>
INTERCARDIA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
June 30, September 30,
1997 1996
----------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 18,420 $ 21,441
Marketable securities 19,419 14,084
Accounts receivable 1,495 1,444
Prepaids and other current assets 152 98
-------- --------
Total current assets 39,486 37,067
Marketable securities - 1,572
Property and equipment, net 298 299
Other assets 6 7
-------- --------
$ 39,790 $ 38,945
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 192 $ 168
Accrued expenses 1,507 1,827
Current portion of capital lease obligations 42 36
-------- --------
Total current liabilities 1,741 2,031
Long-term portion of capital lease obligations 77 109
Long-term notes payable 16 10
Minority interest 1,015 568
Stockholders' equity
Common stock, $.001 par value per share, 40,000,000
shares authorized, 6,759,417 and 6,738,603 shares
issued and outstanding at June 30, 1997 and
September 30, 1996, respectively 7 7
Additional paid-in capital 39,979 39,709
Deferred compensation (144) (185)
Accumulated deficit (2,901) (3,304)
-------- --------
Total stockholders' equity 36,941 36,227
-------- --------
$ 39,790 $ 38,945
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
INTERCARDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- ----------------------
1997 1996 1997 1996
-------- --------- --------- ----------
Revenue:
Contract revenue $ 523 $ 5 $ 3,820 $ 5,009
Investment income 548 503 1,580 826
-------- --------- --------- ----------
Total revenue 1,071 508 5,400 5,835
-------- --------- --------- ----------
Costs and expenses:
Research and development 1,185 865 2,953 1,770
General and administrative 518 494 1,597 1,365
-------- --------- --------- ----------
Total costs and expenses 1,703 1,359 4,550 3,135
-------- --------- --------- ----------
Income (loss) from operations (632) (851) 850 2,700
Minority interest (17) (74) 447 632
-------- --------- --------- ----------
Net income (loss) $ (615) $ (777) $ 403 $ 2,068
======== ========= ========= ==========
Net income (loss) per common share $ (0.09) $ (0.12) $ 0.06 $ 0.36
======== ========= ========= ==========
Weighted average common shares
outstanding 6,758 6,727 7,002 5,812
======== ========= ========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
INTERCARDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
June 30,
-----------------
1997 1996
Cash flows from operating activities:
Net income $ 403 $ 2,068
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 112 49
Amortization of deferred compensation 41 -
Minority interest in net income of consolidated subsidiary 447 632
Change in assets and liabilities:
Accounts receivable (51) (1,621)
Other current assets (54) (120)
Accounts payable 24 (106)
Accrued expenses (320) 1,327
-------- -------
Net cash provided by operating activities 602 2,229
-------- -------
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities 9,247 2,000
Purchases of marketable securities (13,010) (19,914)
Purchases of property and equipment (110) (145)
-------- -------
Net cash used in investing activities (3,873) 18,059
-------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock 270 34,992
Payments to Interneuron, net - (159)
Principal payments on capital lease obligations (26) (23)
Proceeds from long-term notes payable 6 -
-------- -------
Net cash provided by financing activities 250 34,810
-------- -------
Net increase (decrease) in cash and cash equivalents (3,021) 18,980
Cash and cash equivalents at beginning of period 21,441 1,122
-------- -------
Cash and cash equivalents at end of period $ 18,420 $ 20,102
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
INTERCARDIA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
Intercardia, Inc. was incorporated in Delaware on March 15, 1994, and
is a majority-owned subsidiary of Interneuron Pharmaceuticals, Inc.
("Interneuron"). The "Company" refers to Intercardia, Inc. ("Intercardia") and
its majority-owned subsidiaries, CPEC, Inc., a Nevada corporation ("CPEC"), and
Aeolus Pharmaceuticals, Inc., a Delaware corporation ("Aeolus"). As of June 30,
1997, Intercardia owned 80.1% of CPEC and 65.8% of Aeolus.
The Company focuses on development of therapeutics for the treatment of
cardiovascular and pulmonary disease. The Company has directed the majority of
its efforts toward the development and clinical trials of bucindolol, a compound
currently in Phase III clinical trials for the treatment of congestive heart
failure. This clinical trial, which commenced in June 1995, is known as the
Beta-blocker Evaluation of Survival Trial (the "BEST Study") and is sponsored by
the National Institutes of Health and the Department of Veterans Affairs.
The consolidated financial statements include the accounts of
Intercardia and its subsidiaries, CPEC and Aeolus. All significant intercompany
activity has been eliminated. The consolidated financial statements included
herein have been prepared by the Company without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the accompanying unaudited consolidated financial statements include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the consolidated financial position, results of operations and
cash flows of the Company. The unaudited consolidated financial statements
included herein should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996. Results for
the interim period are not necessarily indicative of the results for any other
interim period or for the full fiscal year.
The Company will adopt Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," on December 31, 1997. SFAS No. 128
requires the Company to change its method of computing, presenting and
disclosing earnings per share information. Upon adoption, all prior period data
presented will be restated to conform to the provisions of SFAS No. 128.
Management has not determined the effect of adopting SFAS No. 128.
The Company will adopt SFAS No. 130, "Reporting Comprehensive Income",
for the fiscal year ending September 30, 1999. SFAS No. 130 establishes
standards for reporting and
6
<PAGE>
display of comprehensive income and its components in a full set of
general-purpose financial statements. Management has not determined the effect
of adopting SFAS No. 130.
The Company will adopt SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", for the fiscal year ending September 30,
1999. SFAS No. 131 specifies revised guidelines for determining an entity's
operating segments and the type and level of financial information to be
disclosed. Management has not determined the effect of adopting SFAS No. 131.
B. Income Taxes
No income tax provision has been provided for the net income realized
during the nine months ended June 30, 1997 and 1996 as the Company utilized
projected expenses for the remainder of the fiscal years and net operating loss
carryforwards to offset the normal income tax expense.
C. Agreement
In December 1996, the Company executed an agreement (the "Knoll
Collaboration") with BASF Pharma/Knoll AG ("Knoll") to provide for the
development, manufacture and marketing of bucindolol for all countries with the
exception of the United States and Japan (the "Territory"). The Knoll
Collaboration includes both the twice-daily bucindolol formulation and the
once-daily bucindolol formulation currently under development. Under the terms
of the collaboration, Knoll paid CPEC $2,143,000 in December 1996 and $1,000,000
in January 1997. Knoll must also pay to CPEC $10,000,000 upon bucindolol
regulatory approval in a major European Community ("EC") member state and
$10,000,000 upon first attainment of $200,000,000 of net sales in the Territory
during any consecutive 12-month period. Upon product launch, Knoll will pay
royalties to CPEC for the use of the license and trademarks of bucindolol in the
Territory. The royalty will be equal to 40% of net profits, as defined in the
Knoll Collaboration. The Company would be responsible for, and pay to Knoll, 40%
of any net loss, as defined.
Knoll and the Company will share the development and marketing costs of
bucindolol in the Territory. In general, Knoll will pay approximately 60% of
certain development and marketing costs incurred prior to product launch and the
Company will pay approximately 40% of such costs, subject to certain maximum
dollar limitations. Knoll will also bear approximately 60% of once-daily
development costs that relate solely to the Territory and approximately
one-third of once-daily development costs that have a worldwide benefit. The
Company is responsible for the remainder of once-daily development costs.
The Knoll Collaboration continues in effect for 15 years after the
first commercial sale with respect to each country in the Territory, subject to
two additional five-year renewals at Knoll's option. Knoll has the right to
terminate the Knoll Collaboration at any time prior to the
7
<PAGE>
termination of the BEST Study and within 60 days after the BEST Study's primary
end-point results are reported in writing to Knoll.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Introduction
Statements in this Form 10-Q that are not descriptions of historical
facts are forward-looking statements that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors, including those set forth herein and in
the Company's other SEC filings, including, in particular, risks relating to
uncertainties relating to clinical trials, dependence on collaborative partners,
the early stage of products under development, dependence on one product,
government regulations and competition.
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and notes thereto appearing
elsewhere in this report. Unless the context indicates otherwise, all references
to the Company include Intercardia, Inc. and its subsidiaries, CPEC, Inc. and
Aeolus Pharmaceuticals, Inc.
Intercardia was incorporated in March 1994 and had no operations until
September 1994, when Intercardia acquired 80.0% of CPEC. Intercardia acquired an
additional 0.1% of CPEC in September 1996. In January 1996, Interneuron acquired
directly from the former CPEC minority stockholders the remaining outstanding
capital stock of CPEC not owned by Intercardia. CPEC has a worldwide license for
the development, distribution and sale of bucindolol for the treatment of
congestive heart failure and left ventricular dysfunction. The Company is
currently conducting Phase III clinical trials on bucindolol for the treatment
of congestive heart failure.
Intercardia purchased a majority interest in Aeolus in July 1995 and
owned 65.8% of the outstanding capital stock of Aeolus at June 30, 1997. Aeolus
is conducting early stage development on catalytic antioxidant small molecules
as therapeutics for a variety of conditions, including neonatal respiratory
distress syndrome and resulting broncho-pulmonary dysplasia, stroke and asthma.
Results of Operations
The Company incurred net losses of $615,000 and $777,000 for the three
months ended June 30, 1997 and 1996, respectively, and recognized net income of
$403,000 and $2,068,000 for the nine months ended June 30, 1997 and 1996,
respectively. The realization of net income for each of the nine-month periods
was the result of the receipt of initial payments associated with the signing of
two major collaborative agreements, one in each of these fiscal years. During
the nine months ended June 30, 1997, the Company signed the Knoll Collaboration
and Knoll made initial payments of $3,143,000, which were recognized as contract
revenue. During the nine months ended June 30, 1996, the Company signed a
collaborative agreement with Astra Merck Inc. ("Astra Merck") for the
development, commercialization and marketing of a twice-daily formulation of
bucindolol in the United States for the treatment of congestive heart failure
("Astra Merck Collaboration") and Astra Merck made an initial payment of
$5,000,000, which
9
<PAGE>
was also recognized as contract revenue. The initial payments and contract
revenue associated with the signing of these collaborative agreements are
one-time, non recurring events. Because the Company is still in the process of
developing its first potential product, it should not be assumed that the
Company will be profitable on an on-going basis over the next few years.
Revenues were $1,071,000 and $5,400,000 for the three months and nine
months ended June 30, 1997, respectively, versus $508,000 and $5,835,000 for the
three months and nine months ended June 30, 1996, respectively. In addition to
the initial contract revenue payments discussed above, the Company recognized
$523,000 and $677,000 during the three months and nine months ended June 30,
1997, respectively, of other contract revenue resulting primarily from the Knoll
Collaboration and the Astra Merck Collaboration. The Company earned investment
income of $548,000 and $1,580,000 during the three months and nine months ended
June 30, 1997, respectively, versus $503,000 and $826,000 during the three
months and nine months ended June 30, 1996, respectively. Investment income was
higher for the nine months ended June 30, 1997 than the nine months ended June
30, 1996 primarily due to the receipt of approximately $35,000,000 of net
proceeds from the Company's initial public offering completed in February 1996.
Research and development ("R&D") expenses increased $320,000 (37%) to
$1,185,000 for the three months ended June 30, 1997 from $865,000 for the three
months ended June 30, 1996. R&D expenses increased $1,183,000 (67%) to
$2,953,000 for the nine months ended June 30, 1997 from $1,770,000 for the nine
months ended June 30, 1996. These expense increases for the quarter and nine
months were primarily due to increases in R&D staff and other bucindolol
development activities.
The Astra Merck Collaboration requires Astra Merck to pay for certain
expenses related to the development of bucindolol in the United States. During
the nine months ended June 30, 1997, Astra Merck assumed liabilities of
$4,081,000 on the Company's behalf. Since the inception of the Astra Merck
Collaboration, Astra Merck has assumed liabilities totaling $8,382,000 on the
Company's behalf. These amounts did not flow through the Company's Statements of
Operations, as they were offset against related expenses. As of June 30, 1997,
the Company's Balance Sheet included accounts receivables from Astra Merck of
$1,124,000 and accrued expenses of $1,051,000 related to obligations assumed by
Astra Merck.
General and administrative ("G&A") expenses increased $24,000 (5%) to
$518,000 for the three months ended June 30, 1997 from $494,000 for the three
months ended June 30, 1996. G&A expenses increased $232,000 (17%) to $1,597,000
for the nine months ended June 30, 1997 from $1,365,000 for the nine months
ended June 30, 1996. These increases primarily resulted from increases in the
administrative staff and additional costs associated with being a public
company.
The minority interest amounts in the Consolidated Balance Sheets and
the Consolidated Statements of Operations reflect the minority interest in net
income earned by CPEC.
10
<PAGE>
Liquidity and Capital Resources
As of June 30, 1997, the Company had cash, cash equivalents and
marketable securities of $37,839,000, which was $742,000 greater than the
balance at September 30, 1996 primarily due to the $850,000 of income from
operations before minority interest for the nine months ended June 30, 1997.
Pursuant to the Astra Merck Collaboration, the Company has agreed to
pay Astra Merck $10,000,000 in December 1997 and up to $11,000,000 for one-third
of product launch costs incurred beginning when the Company files a New Drug
Application ("NDA") with the U.S. Food and Drug Administration (the "FDA") for
the twice-daily formulation of bucindolol and continuing through the first 12
months subsequent to the first commercial sale of the formulation. These amounts
are payable at the option of the Company, and in the event the Company elects
not to make these payments, the royalties payable by Astra Merck to the Company
would be substantially reduced.
Pursuant to the Knoll Collaboration, the Company is responsible for
approximately 40% of the development and marketing costs of bucindolol for the
Territory, which includes all countries other than the United States and Japan,
subject to certain maximum dollar limitations. The Company's portion of
development and clinical trial costs of the twice-daily formulation for the
Territory is estimated to be up to $10,000,000 and the Company's portion of
marketing costs prior to product launch is estimated to be up to $4,000,000.
Upon product launch the Company will be responsible for 40% of net loss in the
Territory, if any, as defined. The Company is also responsible for approximately
40% of the once-daily development costs incurred for the Territory and
approximately 67% of the once-daily development costs that have a worldwide
benefit.
The Company will incur additional charges to operations relating to the
acquisition of CPEC in the event that certain milestones are achieved in the
development and commercialization of bucindolol. The first milestone payment
will be due if and when an NDA for bucindolol has been accepted for filing by
the FDA, and the second milestone payment will be due if and when the Company
receives an Approval Letter from the FDA with respect to bucindolol. Achievement
of each of these milestones would require additional payments, each for a
maximum of 75,000 shares of Interneuron common stock, subject to adjustment
based on the price of Interneuron common stock at the time of issuance. In
exchange for Interneuron providing such shares, the Company will pay Interneuron
the value of such shares, in either cash or Intercardia Common Stock, at
Intercardia's option. Each additional payment would have a minimum and maximum
charge to the Company of $750,000 and $1,875,000, respectively.
The Company expects to incur substantial additional costs and losses
over the next few years. The Company's working capital and capital requirements
will depend upon numerous factors, including: the progress of the development
and clinical trials of bucindolol; the timing and cost of obtaining regulatory
approvals; the effect of competitive drugs on the BEST Study and on
commercialization of bucindolol; and the ability of the Company to establish
additional collaborative arrangements with other companies to provide research
or development funding to
11
<PAGE>
the Company and to conduct clinical trials, obtain regulatory approvals, and
manufacture and market certain of the Company's products. The Company is aware
of products in research or development by its competitors that address the
diseases being targeted by the Company. In particular, Coreg(TM) (carvedilol), a
non-selective beta-blocker with moderate vasodilating properties, is owned by
Boehringer Mannheim and licensed in the United States and certain other
countries to SmithKline Beecham ("SKB"). In May 1997, the FDA approved the use
of carvedilol as a treatment for congestive heart failure in the United States
and SKB is currently marketing carvedilol in the United States and a number of
other countries. The Company may acquire other products, technologies or
businesses that complement the Company's existing and planned products, although
the Company currently has no material commitment or agreement with respect to
any such acquisitions.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement re computation of net income (loss) per share
27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and not filed.
(b) No reports on Form 8-K were filed during the period.
13
<PAGE>
SIGNATURE
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.
INTERCARDIA, INC.
Date: August 13, 1997 By: /s/ Richard W. Reichow
--------------------------------------------
Richard W. Reichow,
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
14
<PAGE>
EXHIBIT 11.1
INTERCARDIA, INC.
STATEMENT RE COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------------- --------------------------------------
1997 1996 1997 1996
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Net Income (Loss) per Unaudited
Consolidated Statements of
Operations $ (615) $ (777) $ 403 $ 2,068
================= ================= ================= ==================
Calculation of Weighted Average
Number of Common Shares and
Common Share Equivalents:
Common Stock 6,758,411 6,726,621 6,746,842 5,273,114
Series A Preferred Stock - - - 312,060 (1)
Stock Options and Warrants - - 254,924 227,275 (2)
----------------- ----------------- ----------------- ------------------
6,758,411 6,726,621 7,001,766 5,812,449
================= ================= ================= ==================
Net Income (Loss) per Common Share $ (0.09) $ (0.12) $ 0.06 $ 0.36
================= ================= ================= ==================
</TABLE>
- --------------
(1) All of the Series A Preferred shares were issued within one year of the
initial filing date of Intercardia's initial public offering and are
therefore treated as outstanding in accordance with Staff Accounting
Bulletin Topic 4-D.
(2) Includes stock options and warrants granted within one year of the
initial filing date of Intercardia's initial public offering, which are
treated as outstanding in accordance with Staff Accounting Bulletin
Topic 4-D. The amount is net of 60,882 shares that would be repurchased
under the treasury stock method.
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 18,420
<SECURITIES> 19,419
<RECEIVABLES> 1,495
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,486
<PP&E> 298
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,790
<CURRENT-LIABILITIES> 1,741
<BONDS> 93
0
0
<COMMON> 7
<OTHER-SE> 36,934
<TOTAL-LIABILITY-AND-EQUITY> 39,790
<SALES> 0
<TOTAL-REVENUES> 5,400
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 403
<INCOME-TAX> 0
<INCOME-CONTINUING> 403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
