<PAGE> 1
UNITED STATES
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 September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-26244
SEQUANA THERAPEUTICS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0550509
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11099 N. Torrey Pines Road, Suite 160, La Jolla, CA 92037
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(619) 452-6550
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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.
<TABLE>
<CAPTION>
Outstanding at
Class October 30, 1997
- ----- ----------------
<S> <C>
Common Stock, $.001 par value 10,258,091
</TABLE>
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SEQUANA THERAPEUTICS, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE NO.
--------
COVER PAGE....................................................................1
TABLE OF CONTENTS.............................................................2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 1997
and December 31, 1996.................................................3
Consolidated Statements of Operations for the Three Months and Nine
Months Ended September 30, 1997 and 1996..............................4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996...........................................5
Notes to Consolidated Financial Statements............................6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................10
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.............................13
SIGNATURE.....................................................................14
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SEQUANA THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- ---------------
ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,158,250 $ 9,402,958
Investment securities, available-for-sale 27,178,084 43,316,733
Marketable equity securities, available-for-sale 8,587,500 --
Other current assets 2,620,380 2,820,355
------------ ------------
Total current assets 56,544,214 55,540,046
------------ ------------
Furniture and equipment, net 8,100,136 8,285,305
Investment in joint venture 2,867,937 --
Other assets 341,774 1,737,075
Notes receivable from officers and employees 436,247 530,844
============ ============
$ 68,290,308 $ 66,093,270
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,568,873 $ 3,965,475
Deferred revenue 4,741,561 3,357,936
Current portion of loans and capital lease obligations 3,873,881 2,396,523
------------ ------------
Total current liabilities 12,184,315 9,719,934
------------ ------------
Loans and capital lease obligations, less current portion 7,313,216 4,524,311
Shareholders' equity:
Common stock, $.001 par value; 50,000,000 shares authorized, 10,257,153 shares
and 10,113,243 shares issued and outstanding at September 30, 1997 and
December 31, 1996, respectively 10,257 10,113
Additional paid-in capital 92,594,670 90,611,609
Notes receivable from shareholders (262,469) (237,040)
Deferred compensation (865,984) (1,220,650)
Unrealized gain on marketable equity securities,
available-for-sale 7,133,333 --
Accumulated deficit (49,817,030) (37,315,007)
------------ ------------
Total shareholders' equity 48,792,777 51,849,025
------------ ------------
$ 68,290,308 $ 66,093,270
============ ============
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes to consolidated financial statements.
3
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SEQUANA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------- --------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue under strategic alliances $ 4,400,180 $ 2,348,844 $ 12,965,872 $ 7,121,646
Operating expenses:
Research and development 7,119,705 7,040,468 22,291,970 18,470,957
General and administrative 1,347,040 1,465,028 3,869,187 3,684,487
------------ ------------ ------------ ------------
8,466,745 8,505,496 26,161,157 22,155,444
------------ ------------ ------------ ------------
Loss from operations (4,066,565) (6,156,652) (13,195,285) (15,033,798)
Equity in net loss of joint venture (406,458) -- (874,313) --
Other income (expense):
Interest income 644,029 885,300 2,020,925 2,460,163
Interest expense (179,715) (110,935) (453,350) (304,934)
============ ============ ============ ============
Net loss $ (4,008,709) $ (5,382,287) $(12,502,023) $(12,878,569)
============ ============ ============ ============
Net loss per share $ (0.39) $ (0.54) $ (1.22) $ (1.36)
============ ============ ============ ============
Shares used in computing net
loss per share 10,248,771 9,911,275 10,206,049 9,465,858
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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SEQUANA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------------------
1997 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(12,502,023) $(12,878,569)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,406,700 1,673,863
Amortization of deferred compensation 354,666 336,323
Equity in net loss of joint venture 874,313 --
Change in operating assets and liabilities and other 1,297,877 1,653,032
------------ ------------
Net cash used in operating activities (7,568,467) (9,215,351)
INVESTING ACTIVITIES:
Purchases of investment securities (19,185,721) (45,787,980)
Sales and maturities of investment securities 35,324,370 22,324,507
Purchases of furniture and equipment (2,220,319) (809,980)
Investment in joint venture (3,446,650) --
Other investing activities 34,519 (1,752,158)
------------ ------------
Net cash provided by (used in) investing activities 10,506,199 (26,025,611)
FINANCING ACTIVITIES:
Issuances of common stock 1,391,326 31,252,798
Proceeds from notes payable 6,050,000 --
Repayments of loans and capital lease obligations (1,783,737) (1,412,657)
Other financing activities 159,971 16,565
------------ ------------
Net cash provided by financing activities 5,817,560 29,856,706
------------ ------------
Increase (decrease) in cash and cash equivalents 8,755,292 (5,384,256)
Cash and cash equivalents at beginning of period 9,402,958 13,512,688
------------ ------------
Cash and cash equivalents at end of period $ 18,158,250 $ 8,128,432
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 417,144 $ 304,934
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired under capital leases and loans $ -- $ 3,751,046
============ ============
Unrealized gain on marketable equity securities,
available-for-sale $ 7,133,333 $ --
============ ============
Warrants issued in connection with formation of
joint venture $ 295,600 $ --
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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SEQUANA THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The accompanying financial statements reflect all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, considered necessary for a fair presentation of the results for the
interim periods presented. The Company has experienced significant quarterly
fluctuations in operating results and it expects that these fluctuations in
revenues, expenses and net losses will continue.
The financial statements and related disclosures have been prepared with
the presumption that users of the interim financial information have read or
have access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited financial statements and the related notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
2. AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
On November 2, 1997, the Company and Arris Pharmaceutical Corporation
("Arris") entered into an Agreement and Plan of Merger and Reorganization (the
"Merger Agreement") providing for the acquisition of the Company by Arris. Under
the terms of the Merger Agreement, a wholly-owned subsidiary of Arris will be
merged with and into Sequana, with Sequana to be the surviving corporation. Upon
the completion of the merger, Sequana will become a wholly-owned subsidiary of
Arris. Pursuant to the Merger Agreement, each outstanding share of the Company's
common stock will be converted into the right to receive 1.35 shares of Arris
common stock. The merger has been approved by the respective Boards of Directors
of the Company and Arris but is subject to the satisfaction of certain
conditions set forth in the Merger Agreement, including the required approval of
the respective shareholders of the companies. There can be no assurance that the
required conditions will be satisfied, the necessary regulatory approvals will
be obtained, or that the merger will be successfully completed as contemplated
under the Merger Agreement.
3. NET LOSS PER SHARE
Net loss per share is computed using the weighted-average number of
shares outstanding during the interim periods. Shares issuable upon the exercise
of outstanding stock options and warrants are not reflected as their effect is
anti-dilutive.
6
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SEQUANA THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute net earnings (loss) per share and to restate
all prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The adoption
of the new standard will have no effect on the Company's loss per share for the
three months and nine months ended September 30, 1997 and 1996.
4. MARKETABLE EQUITY SECURITIES, AVAILABLE-FOR-SALE
The Company's equity investment in Aurora Biosciences Corporation
("Aurora") is classified as marketable equity securities, available-for-sale in
accordance with FASB Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."
Aurora completed its initial public offering in June 1997 and, as of
September 30, 1997, the Company reported an unrealized gain of $7.1 million on
its investment in Aurora. The unrealized gain represents the excess of the fair
value of Sequana's investment over the original cost ($1.5 million) and is
reported as a separate component of shareholders' equity.
5. INVESTMENT IN JOINT VENTURE
In January 1997, the Company and Memorial Sloan-Kettering Cancer Center
("MSKCC") formed Genos Biosciences, Inc. ("Genos"), a joint venture focused on
the research and identification of genes and related genetic information of
value in the prognosis, diagnosis and possible treatment of certain common
cancers. The Company and MSKCC each own 50% of Genos and have committed to make
capital contributions of approximately $5 million each to fund its initial
operations. The Company invested approximately $3.2 million in Genos during the
nine months ended September 30, 1997 and Sequana's remaining capital
contribution is expected to be funded in early 1998. The investment in Genos is
accounted for under the equity method. Terms of the joint venture agreement
provide MSKCC a right of termination, under certain conditions, in the event of
a change in control of the Company.
Under terms of the agreement, the Company licensed certain of its
technology to Genos and has contracted with Genos to conduct research and
provide certain other services to the joint venture. Payments to date for such
research and services have not been material.
In connection with the formation of Genos, the Company sold a warrant to
MSKCC to purchase 350,000 shares of the Company's common stock exercisable at a
price of $17.38 per share. The Company's Chairman of the Board, Chief Executive
Officer and Chief Financial Officer are members of the Board of Directors of
Genos.
7
<PAGE> 8
SEQUANA THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
The Company is also in the process of establishing a joint venture
company with PE Applied Biosystems, a division of The Perkin-Elmer Corporation,
and SiniWest Holdings, Inc., a consulting company. The joint venture expects to
establish operations in China and is designed to provide large-scale sequencing
services. Sequana holds a 47.5% ownership interest in the joint venture and, to
date, has made advances to the joint venture totaling approximately $261,000.
Establishment of the joint venture organization is subject to the execution of
certain definitive agreements.
6. SHAREHOLDERS' EQUITY
In February 1997, pursuant to terms of the strategic alliance agreement
with the Company, Corange International, Ltd. made a $1.25 million private
equity investment in the Company, purchasing 56,849 shares of common stock at a
price of $21.99 per share.
7. STRATEGIC ALLIANCES
On October 31, 1997, the Company entered into a five-year strategic
alliance with the Warner-Lambert Company ("Warner-Lambert") aimed at developing
novel therapeutic products for the treatment of schizophrenia and bipolar
disorder. The alliance will combine the Company's research capabilities in the
areas of gene discovery, functional genomics, bioinformatics and screening with
Warner-Lambert's research, development and clinical expertise. Under the terms
of the alliance, Warner-Lambert paid the Company a non-refundable up-front fee
of $2 million and made a $2 million equity investment in the Company. The
Company will also receive ongoing payments for research support and may receive
additional payments upon achievement of certain milestones and royalties on the
sale of small molecule therapeutic products which may result from the alliance.
Under the agreement, Warner-Lambert was granted exclusive worldwide rights to
develop and commercialize small molecule therapeutic products, while the Company
retains certain rights to develop and commercialize diagnostic, pharmacogenetic
and non-small molecule therapeutic products. The strategic alliance may be
extended by Warner-Lambert for up to three additional one year periods.
Warner-Lambert has certain rights of early termination, including a right, in
the event certain conditions are not met, to terminate the research program
during the 30 day period commencing on the first anniversary of the proposed
change in control transaction discussed further in Note 2 of Notes to
Consolidated Financial Statements. There can be no assurance that the parties
will be successful in developing and commercializing any products under the
alliance or that Warner-Lambert will not exercise its rights to terminate the
alliance. As a result, there can be no assurance that any of the future
milestone payments, royalties or other payments contemplated by the agreement
will ever be made.
In August 1997, the Company was awarded a $500,000 payment in connection
with the attainment of a research milestone under the Company's strategic
alliance with Glaxo Wellcome Inc. ("Glaxo") in the areas of diabetes and
obesity. On November 3, 1997, the Company announced that Glaxo and the Company
intend to renegotiate the terms of their strategic alliance. The parties are in
the process of modifying the
8
<PAGE> 9
SEQUANA THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
terms of one of the termination provisions in the agreement. If Glaxo elects to
terminate the agreement pursuant to the revised provision, it may do so upon
notice to the Company and such termination would be effective on the later of
(i) April 1, 1998 or (ii) the date such notice of termination is received. In
addition, under the terms of the existing alliance, Glaxo also has the right to
terminate the agreement upon a change in control of the Company (see Note 2 of
Notes to Consolidated Financial Statements). There can be no assurance that
Glaxo and the Company will successfully renegotiate the terms of their strategic
alliance, that any such renegotiation will be on terms favorable to the Company
or its shareholders, or that Glaxo will not exercise its rights to terminate the
alliance.
In July 1997, the Company was awarded a $500,000 payment in connection
with the attainment of a research milestone under the Company's strategic
alliance with Corange International, Ltd. ("Corange") in the area of
osteoporosis.
In June 1997, the Company expanded its strategic alliance with
Boehringer Ingelheim International GmbH ("Boehringer Ingelheim") in the area of
asthma. Under terms of the expanded alliance, Boehringer Ingelheim doubled its
level of research funding to the Company to support additional research into
asthma-related genes. The increased funding support was effective retroactively
to January 1, 1997 and will continue through the term of the original five-year
agreement, subject to certain rights of early termination.
In June 1997, the Company was awarded a $2 million research milestone
from Boehringer Ingelheim in connection with Sequana's discovery of a gene
believed to be responsible for asthma.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in February 1993 and has devoted
substantially all of its resources since that time to the development of an
integrated technology platform for discovering and characterizing genes
associated with common human diseases. The Company has also developed or
acquired access to a variety of technologies that the Company believes will be
useful in determining gene function. The Company believes that identification of
disease genes and determination of their biological function will provide
insights into the fundamental causes of these diseases and may facilitate the
development of novel prognostic, diagnostic and therapeutic products. The
Company has incurred substantial operating losses since inception and, as of
September 30, 1997, had incurred a cumulative net loss of $49.8 million. The
Company anticipates incurring additional losses over at least the next several
years as it continues its gene discovery, functional genomics and bioinformatics
activities. Continued expansion of certain research activities may result in
increases in both research and development and general and administrative
expenses.
On November 2, 1997, the Company and Arris Pharmaceutical Corporation
("Arris") entered into an Agreement and Plan of Merger and Reorganization (the
"Merger Agreement") providing for the acquisition of the Company by Arris. Under
the terms of the Merger Agreement, a wholly-owned subsidiary of Arris will be
merged with and into Sequana, with Sequana to be the surviving corporation. Upon
the completion of the merger, Sequana will become a wholly-owned subsidiary of
Arris. The transaction is subject to the satisfaction of certain conditions set
forth in the Merger Agreement. There can be no assurance that the required
conditions will be satisfied, the necessary regulatory approvals will be
obtained, or that the merger will be successfully completed as contemplated
under the Merger Agreement. See Note 2 of Notes to Consolidated Financial
Statements.
The Company does not anticipate revenues from product sales in the
foreseeable future. The Company's sources of revenue for the next several years
will be payments under existing strategic alliances, license fees, proceeds from
the sale of rights, payments from future strategic alliances and licensing
arrangements, if any, and interest income. Certain payments under strategic
alliances are contingent upon the Company meeting established milestones.
Payments under strategic alliances and licensing arrangements will be subject to
significant fluctuation in both timing and amount and, therefore, the Company's
results of operations for any period may not be comparable to the results of
operations for any other period.
An integral component of Sequana's business strategy is to enter into
strategic alliances with major pharmaceutical and biotechnology companies in
order to develop and commercialize products based on information provided by the
Company's gene discovery, functional genomics and bioinformatics technologies.
In July 1994, the Company entered into a strategic alliance with Glaxo Wellcome
Inc. ("Glaxo") to discover disease genes associated with type II diabetes. In
February 1996, this alliance was expanded to include the study of human obesity.
In June 1995, the Company entered into strategic alliances with Boehringer
Ingelheim International GmbH ("Boehringer Ingelheim") in the area of asthma and
with Corange International, Ltd. ("Corange") in the area of osteoporosis. In
June 1997, the alliance with Boehringer Ingelheim was expanded to support
additional research into asthma-related genes. In October 1997, the Company
entered into a strategic alliance with Warner-Lambert in the areas of
schizophrenia and bipolar disorder. Pursuant to the terms of the various
agreements, the Company has granted the strategic alliance partners exclusive
worldwide rights to develop and commercialize therapeutic products which may be
discovered as a result of the alliances. Sequana has
10
<PAGE> 11
retained the right, with the exception of the alliance with Corange, to develop
and commercialize diagnostic products. In addition, under the Company's recent
alliance with Warner-Lambert, the Company has also retained certain rights to
non-small molecule therapeutic products. Under the terms of the strategic
alliance agreements, the Company receives ongoing payments for research support,
and may receive payments upon the achievement of certain research and product
development milestones and royalties on the sale of products resulting from the
alliance. Such agreements generally provide the strategic alliance partners
certain rights of early termination. During 1997, the Company also entered into
research agreements with Glaxo in the area of gene function analysis and with
ZymoGenetics, Inc. in the area of bioinformatics and sequencing.
RESULTS OF OPERATIONS
Revenue under strategic alliances increased to $4.4 million for the
three months ended September 30, 1997 from $2.3 million for the comparable
period of 1996, and $13.0 million for the nine months ended September 30, 1997
from $7.1 million in the comparable period of 1996. Such increases were
primarily attributable to increased research support resulting from expansion of
the strategic alliance with Boehringer Ingelheim in June 1997, the receipt of
research milestone payments under the Company's alliances with Boehringer
Ingelheim, Glaxo and Corange and, to a lesser degree, revenue from new research
agreements. The Company anticipates increased revenue under strategic alliances
in future quarters as a result of the Company's new strategic alliance with
Warner-Lambert entered into in October 1997.
On November 3, 1997, the Company announced that Glaxo and the Company
intend to renegotiate the terms of their strategic alliance. The parties are in
the process of modifying the terms of one of the termination provisions in the
agreement. If Glaxo elects to terminate the agreement pursuant to the revised
provision, it may do so upon notice to the Company and such termination would be
effective on the later of (i) April 1, 1998 or (ii) the date such notice of
termination is received. In addition, under the terms of the existing alliance,
Glaxo also has the right to terminate the agreement upon a change in control of
the Company. There can be no assurance that Glaxo and the Company will
successfully renegotiate the terms of their strategic alliance, that any such
renegotiation will be on terms favorable to the Company or its shareholders, or
that Glaxo will not exercise its rights to terminate the alliance.
Research and development expenses increased to $7.1 million for the
three months ended September 30, 1997 from $7.0 million for the comparable
period of 1996, and $22.3 million for the nine months ended September 30, 1997
from $18.5 million in the comparable period of 1996. The increase in research
and development expenses was primarily attributable to increased costs
associated with expansion of the Company's gene discovery efforts and its
functional genomics and screening technology platform. Such costs consisted
primarily of increased personnel expenses, supply costs, and facility and
equipment expenses associated with expansion of the Company's research
organization. The Company may continue to expand its functional genomics,
screening and bioinformatics activities in future periods, and such expansion
may result in additional increases in research and development expenses. In
addition, the Company expects to incur additional research expenses, including
costs associated with the collection of DNA patient samples, in connection with
its new strategic alliance with Warner-Lambert.
General and administrative expenses totaled $1.3 million for the three
months ended September 30, 1997 compared to $1.5 million during the comparable
period of 1996, and $3.9 million for the nine months ended September 30, 1997
from $3.7 million for the comparable period of 1996. Increases in general and
administrative expenses largely reflect expansion of the Company's
administrative organization to support increased research efforts and business
development activities.
11
<PAGE> 12
General and administrative expenses may increase in future periods as a result
of expansion necessary to support continued increases in research and
development programs and business development activities.
Genos Biosciences, Inc. ("Genos"), the joint venture between Sequana and
Memorial Sloan-Kettering Cancer Center, commenced operations in February 1997.
Genos expects to incur increased operating losses in future periods as it
expands its research and development activities, and such losses will result in
corresponding increases in Sequana's equity in net loss of joint venture.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through public and private offerings of its equity securities (generating net
proceeds of approximately $82 million) and cash received pursuant to the
Company's strategic alliances ($39.5 million). At September 30, 1997, the
Company had cash, cash equivalents and investment securities totaling $45.3
million compared to $52.7 million at December 31, 1996. The Company also had
$8.6 million in marketable equity securities, available-for-sale at September
30, 1997 (see Note 4 of Notes to Consolidated Financial Statements). The
decrease in cash, cash equivalents and investment securities during the nine
months ended September 30, 1997 was largely attributable to cash used in the
Company's operating activities, Sequana's $3.4 million investment in joint
ventures and equipment-related disbursements. Such cash disbursements were
offset, in part, by $6.0 million in proceeds from the Company's credit agreement
with a bank and $1.4 million in net proceeds from the issuance of common stock.
Pursuant to terms of the Company's joint venture agreement with Genos
(See Note 5 of Notes to Consolidated Financial Statements), Sequana has
committed to invest an additional $2 million in Genos. The Company also has
commitments associated with its capital leases, loans and operating leases. In
addition to these commitments, the Company anticipates that it may invest up to
an aggregate of $3 million in equipment during 1997. Terms of the Company's $7
million credit agreement with a bank require the Company to maintain specified
levels of cash and investment securities and comply with certain other financial
covenants and conditions.
The Company's continued expansion of its research and development
activities, its future capital requirements and the adequacy of its available
funds will depend on many factors, including progress of its gene discovery
programs, the number and breadth of these programs, the continuation of and
achievement of milestones under strategic alliance arrangements, the ability of
the Company to establish additional strategic alliances and licensing
agreements, the progress of the development and commercialization efforts of the
Company's strategic alliance partners, competing technological and market
developments, the costs associated with collecting patient information and DNA
samples, the costs involved in preparing, filing, prosecuting and maintaining
and enforcing patent claims and other intellectual property rights, the
regulatory process and other factors.
The Company believes that its existing cash, cash equivalents and
securities and anticipated cash flows from its current strategic alliances will
be sufficient to support the Company's operations through 1999. The Company is
actively seeking to establish new strategic alliances with potential corporate
partners, and may seek to raise additional financing through public or private
equity or debt financings or licensing arrangements. No assurance can be given
that additional financing or strategic alliance and licensing arrangements will
be available when needed or that, if available, such financing or strategic
alliance and licensing arrangements will be obtainable on terms favorable to the
Company or its shareholders. To the extent the Company raises additional capital
by issuing equity securities, ownership dilution to shareholders will result. In
the event that adequate funds are not available, the
12
<PAGE> 13
Company's business may be adversely affected. The Company's forecast of the
period of time through which its financial resources will be adequate to support
its operations and the statements with regard to future expansion of its
research and development activities are forward-looking statements, and actual
results and timing of certain events could vary. The factors described earlier
in this section will impact the Company's future capital requirements and the
adequacy of its available funds which could cause the period of time through
which the Company's financial resources will be adequate to support its
operations to vary from that set forth above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description of Document
------ -----------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
13
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SEQUANA THERAPEUTICS, INC.
--------------------------
September 30, 1997
------------------
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Sequana Therapeutics, Inc.
Date: November 12, 1997 By: /s/ M. SCOTT SALKA
--------------------------
M. Scott Salka
Vice President of Operations,
Chief Financial Officer and
Principal Financial and
Accounting Officer
14
<PAGE> 15
EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 18,158
<SECURITIES> 27,178
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,544
<PP&E> 14,678
<DEPRECIATION> (6,578)
<TOTAL-ASSETS> 68,290
<CURRENT-LIABILITIES> 12,184
<BONDS> 7,313
0
0
<COMMON> 92,605
<OTHER-SE> 6,005
<TOTAL-LIABILITY-AND-EQUITY> 68,290
<SALES> 0
<TOTAL-REVENUES> 12,966
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 453
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,502)
<EPS-PRIMARY> (1.22)
<EPS-DILUTED> 0
</TABLE>
