<PAGE>
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 MARCH 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-21699
VIROPHARMA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2347624
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
76 GREAT VALLEY PARKWAY
MALVERN, PENNSYLVANIA 19355
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
610-651-0200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENT FOR THE PAST 90 DAYS: YES X NO ______
-------
NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON STOCK, PAR VALUE $.002 PER
SHARE, AS OF MAY 12, 1997: 9,077,116 SHARES.
1
<PAGE>
VIROPHARMA INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
ITEM 1. FINANCIAL STATEMENTS:
<S> <C>
Balance Sheets at December 31, 1996 3
and March 31, 1997
Statements of Operations for the three months ended 4
March 31, 1996 and 1997 and the period from December 5,
1994 (inception) to March 31, 1997
Statements of Cash Flows for the three months ended 5
March 31, 1996 and 1997 and the period from December 5,
1994 (inception) to March 31, 1997
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 8
CONDITION AND RESULTS OF OPERATIONS.
</TABLE>
PART II. OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
ITEM 2. CHANGES IN SECURITIES 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
- ---------------------------------
ITEM 1. FINANCIAL STATEMENTS
VIROPHARMA INCORPORATED
(A Development Stage Company)
Balance Sheets
December 31, 1996 and March 31, 1997
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
----------------------------------
ASSETS Audited Unaudited
----------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,810,310 7,709,854
Short-term investments 11,737,369 13,734,144
Other current assets 197,171 220,044
----------------------------------
Total current assets 22,744,850 21,664,042
Equipment and leasehold improvements, net 672,029 906,063
Restricted Investment - 300,000
Other assets 36,000 70,400
----------------------------------
Total assets $ 23,452,879 22,940,505
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 356,171 274,753
Loan payable - current - 100,000
Obligation under capital lease - current 52,950 56,250
Accrued expenses and other current 2,334,026 2,955,724
liabilities
----------------------------------
Total current liabilities 2,743,147 3,386,727
Loan payable - non-current - 483,333
Obligation under capital lease - 104,571 99,979
noncurrent
----------------------------------
2,847,718 3,970,039
----------------------------------
Stockholders' equity :
Preferred stock, par value $.001 per
share. Authorized 5,000,000 shares - -
at December 31,1996 and March 31,
1997; none outstanding
Common stock, par value $.002 per
share. Authorized 27,000,000 shares
at December 31, 1996 and March 31, 18,154 18,154
1997 issued and outstanding
9,076,861 shares at December 31,
1996 and 9,077,116 at March 31, 1997
Additional paid-in capital 31,758,996 31,763,030
Deferred compensation (661,337) (608,598)
Unrealized gains on available for 58,311 98,257
sale securities
Deficit accumulated during the (10,568,963) (12,300,377)
development stage
----------------------------------
Total stockholders' equity 20,605,161 18,970,466
----------------------------------
Commitments.
Total liabilities and $ 23,452,879 22,940,505
stockholders' equity
----------------------------------
See accompanying notes to financial statements.
</TABLE>
3
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VIROPHARMA INCORPORATED
(A Development Stage Company)
Statements of Operations
(unaudited)
Three months ended March 31, 1996 and 1997 and the
period from December 5, 1994 (inception) to March 31, 1997
<TABLE>
<CAPTION>
Period
December 5,
1994
Three months ended (inception) to
March 31, March 31,
1996 1997 1997
-------------------------------------- --------------------
<S> <C> <C> <C>
Revenues:
License fee $ - - 1,000,000
Milestone revenue - 750,000 750,000
Grant revenue - - 526,894
-------------------------------------- --------------------
Total revenues - 750,000 2,276,894
Operating expenses incurred in the
development stage:
Research and development 1,415,429 1,908,252 11,608,840
General and administrative 220,173 764,569 3,520,710
-------------------------------------- --------------------
Total operating expenses 1,635,602 2,672,821 15,129,550
Interest income, net 55,824 191,407 552,279
-------------------------------------- --------------------
Net loss $ (1,579,778) (1,731,414) (12,300,377)
====================================== ====================
Accretion of redemption value 116,415 - 1,616,445
attributable to
mandatory redeemable convertible
preferred stock
-------------------------------------- --------------------
Net loss allocable to common $ (1,696,193) (1,731,414) (13,916,822)
shareholders
====================================== ====================
$ (.32) (.19)
Pro forma net loss per share
======================================
Shares used in computing pro forma 4,933,093 9,076,986
net loss per share
======================================
See accompanying notes to financial statements.
</TABLE>
4
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VIROPHARMA INCORPORATED
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
Three months ended March 31, 1996 and 1997 and the
period from December 5, 1994 (inception) to March 31, 1997
<TABLE>
<CAPTION>
Period
December 5, 1994
Three months ended (inception) to
March 31, March 31,
1996 1997 1997
--------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,579,778) (1,731,414) (12,300,377)
Adjustments to reconcile net loss to
net cash
used in operating activities:
Non-cash compensation expense - 52,739 224,488
Non-cash warrant value - 3,984 113,904
Depreciation and amortization - 50,741 108,765
expense
Changes in assets and liabilities:
Other current assets (46,236) (22,873) (220,044)
Other assets 20,324 (34,400) (70,400)
Accounts payable 310,145 (81,418) 274,753
Accrued expenses and other 744,659 621,698 2,955,724
current liabilities
--------------------------------------------------------------
Net cash used in operating (2,040,203) (1,140,943) (8,913,187)
activities
Cash flows from investing activities:
Purchase of equipment - (284,775) (1,014,828)
Purchase of short-term investments (1,272,131) (4,877,179) (31,231,848)
Sales of short-term investments - - 4,363,754
Maturities of short-term investments 4,771,518 2,620,350 12,932,206
--------------------------------------------------------------
Net cash used in investing 3,499,387 (2,541,604) (14,950,716)
activities
Cash flows from financing activities:
Net proceeds from issuance of - - 13,931,243
preferred stock
Net proceeds from issuance of common 5,000 50 16,258,827
stock
Proceeds received on notes - - 1,625
receivable
Proceeds from loan payable - 600,000 600,000
Proceeds from notes payable 12,500 - 692,500
Payment of notes payable - (16,667) (66,667)
Obligation under capital lease - (1,292) 156,229
--------------------------------------------------------------
Net cash provided by financing 17,500 582,091 31,573,757
activities
Net increase (decrease) in cash and 1,476,683 (3,100,456) 7,709,854
cash equivalents
Cash and cash equivalents at beginning 337,044 10,810,310 -
of period
--------------------------------------------------------------
Cash and cash equivalents at end of $ 1,813,727 7,709,854 7,709,854
period
==============================================================
Supplemental disclosure of noncash
transactions:
Conversion of Note Payable to Series
A and Series B Preferred Stock $ - - 642,500
Conversion of mandatorily redeemable
convertible
preferred stock to common shares - - 16,264,199
Notes issued for 828,750 common shares - - 1,625
Deferred compensation - - 833,086
Accretion of redemption value
attributable to
mandatorily redeemable convertible 116,415 - 1,616,445
preferred stock
Unrealized gains on available for 26,742 39,946 98,257
sale securities
==============================================================
See accompanying notes to financial statements.
</TABLE>
5
<PAGE>
VIROPHARMA INCORPORATED
(A Development Stage Company)
Notes to Financial Statements
March 31, 1996 and 1997
(unaudited)
(1) ORGANIZATION AND BUSINESS ACTIVITIES
ViroPharma Incorporated (a development stage company) (the "Company") was
incorporated in Delaware on December 5, 1994. The Company is a development
stage company engaged in the discovery and development of proprietary
antiviral pharmaceuticals for the treatment of diseases caused by RNA
viruses.
The Company is devoting substantially all of its efforts towards conducting
drug discovery and development, raising capital, conducting clinical trials,
pursuing regulatory approval for products under development, recruiting
personnel and building infrastructure. In the course of such activities, the
Company has sustained operating losses and expects such losses to continue
for the foreseeable future. The Company has not generated any significant
revenues or product sales and has not achieved profitable operations or
positive cash flow from operations. The Company's deficit accumulated during
the development stage aggregated $12,300,377 through March 31, 1997. There
is no assurance that profitable operations, if ever achieved, could be
sustained on a continuing basis.
The Company plans to continue to finance its operations with a combination of
stock issuances, private placements and follow-on public offerings, license
payments, payments from strategic research and development arrangements and,
in the longer term, revenues from product sales. There are no assurances,
however, that the Company will be successful in obtaining an adequate level
of financing needed for the long-term development and commercialization of
its planned products.
BASIS OF PRESENTATION
The information at March 31, 1997 and for the three months ended March 31,
1996 and 1997, is unaudited but includes all adjustments (consisting only of
normal recurring adjustments) which, in the opinion of management, are
necessary to state fairly the financial information set forth therein in
accordance with generally accepted accounting principles. The interim
results are not necessarily indicative of results to be expected for the full
fiscal year. These financial statements should be read in conjunction with
the audited financial statements for the year ended December 31, 1996
included in the Company's Annual Report on Form 10-K filed with Securities
and Exchange Commission.
6
<PAGE>
VIROPHARMA INCORPORATED
(A Development Stage Company)
Notes to Financial Statements, continued
(unaudited)
(2) Pro forma net loss per share
For periods subsequent to the Company's Initial Public Offering (IPO) in
November 1996, net loss per share is calculated by dividing the net loss by
the weighted average number of common shares outstanding for the respective
periods adjusted for the dilutive effect, if any, of common stock equivalents
which consist of stock options and warrants using the treasury stock method.
Common stock equivalents that are anti-dilutive are excluded from net loss
per share calculations subsequent to the IPO.
For periods prior to the Company's IPO, all common and common equivalent
shares from stock options and warrants and convertible preferred stock issued
during the twelve-month period prior to the IPO at prices below the IPO price
are presumed to have been issued in contemplation of the IPO and have been
included in the calculation of pro-forma net loss per share as if they were
outstanding for all periods presented (using the treasury stock method and an
IPO price of $7.00 per share). The calculation of shares used in computing
pro-forma net loss per share prior to the Company's IPO also included all
series of mandatorily redeemable convertible preferred stock, assuming
conversion into shares of common stock (using the if-converted method) from
their respective original dates of issuance. In the computation of pro forma
net loss per share, accretion of the redemption value attributable to
mandatorily redeemable convertible preferred stock is not included as an
increase to net loss.
The following table sets forth the calculation of total number of shares used
in the computation of pro forma net loss per share for the three months ended
March 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------------------------------------
<S> <C> <C>
Weighted average common shares 891,480 9,076,986
outstanding
Incremental shares assumed to be
outstanding related to common
stock, stock options and warrants
granted and convertible preferred
stock based on the treasury stock 96,763 -
method
Convertible preferred stock 3,944,850 -
(if-converted method)
------------------------------------
Weighted average common and common
equivalent shares used in computation
of pro forma net loss per share 4,933,093 9,076,986
====================================
</TABLE>
(3) SUBSEQUENT EVENT
In April 1997, the Company entered into a development agreement with SELOC AG
(SELOC) and SICOR S.A. (SICOR), subsidiaries of Schwarz Pharma AG, for the
manufacture of clinical supplies of pleconaril, the Company's most advanced
drug candidate. Under the terms of the agreement, SELOC and SICOR will
manufacture pleconaril for use in clinical trials and further develop the
synthetic process for production of commercial quantities of pleconaril.
7
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that
might cause or contribute to such differences include, but are not limited
to, those discussed in "Important Factors Regarding Forward-Looking
Statements" attached as Exhibit 99 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
Since inception, the Company has devoted substantially all of its
resources to its research and product development programs. ViroPharma has
generated no revenues from product sales and has been dependent upon funding
primarily from equity financing. The Company does not expect any revenues
from product sales for at least the next three year period. The Company has
not been profitable since inception and has incurred a cumulative net loss
of $12,300,377 through March 31, 1997. Losses have resulted principally
from costs incurred in research and development activities and general and
administrative expenses. The Company expects to incur additional operating
losses over at least the next several years. The Company expects such
losses to increase over historical levels as the Company's research and
development expenses increase due to further clinical trials, preclinical
development and manufacturing for supply of drug substance for use in
clinical trials of the Company's most advanced drug candidate, pleconaril,
and further research and development related to other product candidates.
The Company's ability to achieve profitability is dependent on developing
and obtaining regulatory approvals for its product candidates, successfully
commercializing such product candidates, which may include entering into
collaborative agreements for product development and commercialization, and
securing contract manufacturing services.
RESULTS OF OPERATIONS
The Company earned and received a milestone payment of $750,000 from
Boehringer Ingelheim during the three month period ended March 31, 1997. The
Company earned no revenues during the three months ended March 31, 1996. Net
interest income increased to $191,407 for the three months ended March 31,
1997 from $55,824 for the three months ended March 31, 1996, principally due
to larger invested balances provided by the proceeds of the Company's
initial public offering completed in November 1996.
Research and development expenses increased to $1,908,252 for the
three months ended March 31, 1997 from $1,415,429 for the three months ended
March 31, 1996. The increase was principally due to the cost of clinical
trials related to pleconaril and the advancement of drug candidates for the
Company's influenza, hepatitis C and viral pneumonia programs.
General and administrative expenses increased to $764,569 for the
three months ended March 31, 1997 from $220,173 for the three months ended
March 31, 1996. The increase was principally due to increased personnel
expenses and public company costs, as well as to increased costs associated
with the pursuit of corporate collaborations.
The net loss increased to $1,731,414 for the three months ended March
31, 1997 from $1,579,778 for the three months ended March 31, 1996.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company commenced operations in December 1994. The Company is a
development stage company and to date has not generated revenues from product
sales. The cash flows used in operations are for research and development
activities and the supporting general and administrative expenses. Through
March 31, 1997, the Company has used approximately $8.9 million in operating
activities. The Company invests its cash in short-term investments. Through
March 31, 1997, the Company has used approximately $15.0 million in investing
activities, primarily for short-term investments. Through March 31, 1997, the
Company has financed its operations primarily through an initial public offering
of Common Stock and private placements of redeemable preferred stock and Common
Stock totaling approximately $32.7 million. At March 31, 1997, the Company had
cash and cash equivalents and short-term investments aggregating approximately
$21.7 million.
The Company leases its corporate and research and development facilities
under an operating lease expiring in 1998. The Company is currently negotiating
with several third parties for laboratory and office space and believes that it
can secure adequate facilities on terms acceptable to the Company after the
current operating lease expires. The Company has financed substantially all of
its equipment under two master lease agreements and one bank loan. The bank
loan, which was consummated in February 1997, is for $600,000, is payable in
equal installments over 72 months and bears interest at approximately 9%. The
Company is required to repay amounts outstanding under the two leases within
periods ranging from 32 to 48 months. As of March 31, 1997, outstanding
borrowings under these arrangements are approximately $1.7 million. The Company
is required to make a milestone payment to Sanofi, S.A. of up to $2 million upon
the earlier of a future milestone event as defined in the agreement with Sanofi
or December 1998. In addition, the Company would also be required to make
certain significant additional payments, including royalties, as defined, should
agreed-upon future milestones be attained. In April 1997, the Company entered
into a development agreement with SELOC AG (SELOC) and SICOR S.A. (SICOR),
subsidiaries of Schwarz Pharma AG, for the manufacture of clinical supplies of
pleconaril, the Company's most advanced drug candidate. Under the terms of the
agreement, SELOC and SICOR will manufacture pleconaril for use in clinical
trials and further develop the synthetic process for production of commercial
quantities of pleconaril.
The Company has incurred losses from its operations since inception. The
Company expects to incur additional operating losses over at least the next
several years. The Company expects such losses to increase over historical
levels as the Company's research and development expenses increase due to the
cost of further clinical trials, preclinical development and manufacturing for
supply of drug substance for use in clinical trials of the Company's most
advanced drug candidate, pleconaril, and further research and development
related to other product candidates. The Company will require additional
financing for operations and expansion of its facilities prior to achieving
positive cash flows from its commercial activities. The Company expects that
it will need additional financing to complete all clinical studies for
pleconaril and other development and required testing for any other of the
Company's product candidates. To obtain this financing, the Company may seek to
access the public or private equity markets or enter into additional
arrangements with corporate collaborators. To the extent the Company raises
additional capital by issuing equity securities, ownership dilution to existing
stockholders may result. There can be no assurance, however, that additional
financing will be available on acceptable terms from any source.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" (Statement 128).
The provisions of Statement 128 specify the computation, presentation and
disclosure requirements for earnings per share effective for the year ended
December 31, 1997. Statement 128 should have no effect on earnings per share
due to the antidilutive nature of the common stock equivalents issued to date by
the Company.
9
<PAGE>
PART II - OTHER INFORMATION
- ----------------------------
ITEM 2. CHANGES IN SECURITIES.
In February 1997, an employee of the Company exercised an option to
purchase 255 shares of Common Stock at an exercise price of $0.20 per share.
The Company believes that this transaction was exempt from registration under
Section 3(b) of the Securities Act of 1933, as amended (the "Securities
Act"), because the securities were issued pursuant to the exercise of options
granted prior to the Company's IPO under the Company's 1995 Stock Option Plan
in compliance with the requirements of Rule 701 under the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended March
31, 1997.
10
<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.
VIROPHARMA INCORPORATED
Date: May 13, 1997 By: /s/ Claude H. Nash
---------------------------------------
Claude H. Nash
President, Chief Executive Officer and
Chairman of the Board of Directors
By: /s/ Vincent J. Milano
---------------------------------------
Vincent J. Milano
Vice President, Finance &
Administration and Treasurer
(Principal Financial Officer)
11
<PAGE>
Exhibit Index
Exhibit Description
- ------- -----------
27 Financial Data Schedule
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> MAR-31-1996 MAR-31-1997
<CASH> 0 7,709,854
<SECURITIES> 0 14,034,144
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 220,044
<PP&E> 0 906,063
<DEPRECIATION> 0 50,741
<TOTAL-ASSETS> 0 22,940,505
<CURRENT-LIABILITIES> 0 3,386,727
<BONDS> 0 0
0 0
0 0
<COMMON> 0 18,154
<OTHER-SE> 0 18,952,312
<TOTAL-LIABILITY-AND-EQUITY> 0 22,940,505
<SALES> 0 0
<TOTAL-REVENUES> 0 750,000
<CGS> 0 0
<TOTAL-COSTS> 1,635,602 2,672,821
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,579,778) (1,731,414)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
