<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 June 30, 2000
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.)
405 Eagleview Boulevard
Exton, Pennsylvania 19341
(Address of Principal Executive Offices and Zip Code)
610-458-7300
(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 August 4, 2000: 15,185,986 shares.
1
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VIROPHARMA INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements:
Balance Sheets at December 31, 1999 and June 30, 2000 3
Statements of Operations for the three months ended June 30, 1999 and 2000, the 4
six months ended June 30, 1999 and 2000, and the period from December 5, 1994
(inception) to June 30, 2000
Statements of Cash Flows for the six months ended June 30, 1999 and 2000 and the 5
period from December 5, 1994 (inception) to June 30, 2000
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote by Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 13
</TABLE>
2
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PART I. FINANCIAL INFORMATION
---------------------------------
ITEM 1. FINANCIAL STATEMENTS
ViroPharma Incorporated
(A Development Stage Company)
Balance Sheets
December 31, 1999 and June 30, 2000
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
-------------- -----------
Assets Audited Unaudited
-------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,984,707 2,088,016
Short-term investments 59,868,213 223,630,647
Notes receivable from officers - current 39,205 39,205
Due from partner - 1,274,585
Other current assets 1,068,764 3,603,665
-------------- -----------
Total current assets 67,960,889 230,636,118
Equipment and leasehold improvements, net 3,469,927 4,195,766
Restricted investments 550,000 550,000
Notes receivable from officers - noncurrent 23,151 3,549
Debt issue costs, net - 5,456,382
Other assets 81,899 45,899
-------------- -----------
Total assets $ 72,085,866 240,887,714
============== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 1,187,234 1,268,104
Loans payable - current 1,200,000 1,200,000
Deferred revenue - current 1,000,000 1,000,000
Accrued expenses and other current liabilities 5,882,396 6,708,098
-------------- -----------
Total current liabilities 9,269,630 10,176,202
Loans payable - noncurrent 525,000 425,000
Deferred revenue - noncurrent 4,000,000 3,500,000
Convertible subordinated notes - 180,000,000
-------------- -----------
13,794,630 194,101,202
-------------- -----------
Stockholders' equity:
Preferred stock, par value $.001 per share. 5,000,000 shares authorized;
Series A convertible participating preferred stock; 2,300,000 issued and
outstanding at December 31, 1999 and June 30, 2000 (liquidation value
$14,537,031) 2,300 2,300
Series A junior participating preferred stock; 200,000 shares designated;
no shares issued and outstanding - -
Common stock, par value $.002 per share. Authorized 27,000,000 shares at December 31,
1999 and 100,000,000 shares at June 30, 2000; issued and outstanding 15,066,612
shares at December 31, 1999 and 15,185,368 shares at June 30, 2000 30,133 30,371
Additional paid-in capital 136,259,509 136,677,799
Deferred compensation (44,580) -
Unrealized gains (losses) on available for sale securities (35,126) 156,214
Deficit accumulated during the development stage (77,921,000) (90,080,172)
-------------- -----------
Total stockholders' equity 58,291,236 46,786,512
-------------- -----------
Commitments
Total liabilities and stockholders' equity $ 72,085,866 240,887,714
============== ===========
</TABLE>
See accompanying notes to financial statements.
3
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ViroPharma Incorporated
(A Development Stage Company)
Statements of Operations
(unaudited)
Three months ended June 30, 1999 and 2000,
The six months ended June 30, 1999 and 2000, and the
period from December 5, 1994 (inception) to June 30, 2000
<TABLE>
<CAPTION>
Period from
December 5, 1994
Three months ended Six months ended (inception) to
June 30, June 30, June 30,
1999 2000 1999 2000 2000
------------ ---------- ----------- -----------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
License fee and milestone revenue - 250,000 - 1,500,000 5,500,000
Grant revenue - - - - 526,894
------------ ---------- ----------- -----------------------------
Total revenues - 250,000 - 1,500,000 6,026,894
------------ ---------- ----------- -----------------------------
Operating expenses incurred in the
development stage:
Research and development 5,233,702 4,267,971 10,094,585 10,839,704 82,655,384
General and administrative 1,240,116 2,052,367 2,394,332 4,161,500 19,620,974
------------ ---------- ----------- -----------------------------
Total operating expenses 6,473,818 6,320,338 12,488,917 15,001,204 102,276,358
------------ ---------- ----------- -----------------------------
Loss from operations (6,473,818) (6,070,338) (12,488,917) (13,501,204) (96,249,464)
Interest income 412,997 3,415,851 805,823 5,012,500 10,390,146
Interest expense 43,955 2,734,757 86,309 3,670,468 4,220,854
------------ ---------- ----------- -----------------------------
Net loss (6,104,776) (5,389,244) (11,769,403) (12,159,172) (90,080,172)
============ ========== =========== =============================
Beneficial conversion feature of preferred
stock 4,140,000 - 4,140,000 -
Preferred stock dividends - 181,838 - 363,676
------------ ---------- ----------- -----------
Net loss allocable to common stockholders (10,244,776) (5,571,082) (15,909,403) (12,522,848)
============ ========== =========== ===========
Basic and diluted net loss per share allocable
to common stockholders (0.89) (0.37) (1.38) (0.83)
============ ========== =========== ===========
Shares used in computing basic and diluted
net loss per share allocable to common
stockholders 11,572,195 15,179,702 11,563,641 15,146,156
============ ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
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ViroPharma Incorporated
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
Six months ended June 30, 1999 and 2000 and the
period from December 5, 1994 (inception) to June 30, 2000
<TABLE>
<CAPTION>
Period from
December 5, 1994
Six months ended (inception) to
June 30, June 30,
1999 2000 2000
-------------- ------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (11,769,403) (12,159,172) (90,080,172)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash compensation expense 126,643 44,580 833,086
Non-cash warrant value 7,968 - 153,751
Non-cash consulting expense 4,860 - 46,975
Depreciation and amortization expense 258,566 671,672 2,002,775
Changes in assets and liabilities:
Other current assets 154,056 (2,534,901) (3,603,665)
Notes receivable from officers 19,602 19,602 (42,754)
Due from partner - (1,274,585) (1,274,585)
Other assets - 36,000 (45,899)
Accounts payable 1,663,054 80,870 1,268,104
Deferred revenue - (500,000) 4,500,000
Accrued expenses and other current liabilities (3,134,756) 828,509 6,708,098
------------- ------------ ---------------
Net cash used in operating activities (12,669,410) (14,787,425) (79,534,286)
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (435,354) (1,128,476) (5,929,506)
Purchase of short-term and restricted investments (11,272,252) (188,217,089) (374,402,573)
Sales of short-term investments - - 9,680,414
Maturities of short-term investments 17,827,154 24,645,995 140,697,726
------------- ------------ ---------------
Net cash (used in) provided by investing activities 6,119,548 (164,699,570) (229,953,939)
Cash flows from financing activities:
Net proceeds from issuance of preferred stock 13,760,900 - 27,242,143
Net proceeds from issuance of common stock 82,573 782,204 108,335,766
Preferred stock cash dividends - (363,676) (545,376)
Proceeds from loans payable and milestone advance - - 2,100,000
Payment of loans payable (83,333) (100,000) (475,000)
Proceeds received on notes receivable - - 1,625
Proceeds from notes payable - 174,274,583 174,967,083
Payment of notes payable - - (50,000)
Obligation under capital lease (27,463) (2,807) -
------------- ------------ ---------------
Net cash provided by financing activities 13,732,677 174,590,304 311,576,241
Net increase (decrease) in cash and cash equivalents 7,182,815 (4,896,691) 2,088,016
Cash and cash equivalents at beginning of period 1,076,682 6,984,707 -
------------- ------------ ---------------
Cash and cash equivalents at end of period $ 8,259,497 2,088,016 2,088,016
============= ============ ===============
Supplemental disclosure of noncash transactions:
Conversion of milestone advance to loan payable - - 1,000,000
Unrealized gains (losses) on available for sale securities (56,563) 191,340 156,214
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
June 30, 1999 and 2000
(unaudited)
(1) Organization and Business Activities
ViroPharma Incorporated (a development stage company) (the "Company") commenced
operations on December 5, 1994. The Company is a development stage
pharmaceutical company engaged in the discovery and development of new antiviral
medicines.
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 $90,080,172 through June 30, 2000. 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, debt issuances, 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 June 30, 2000 and for the three and six months ended June 30,
1999 and 2000, 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, 1999 included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
(2) Comprehensive Loss
In the Company's annual financial statements, comprehensive loss is presented as
a separate financial statement. For interim financial statements, the Company
is permitted to disclose the information in the footnotes to the financial
statements. The disclosures are required for comparative purposes. The only
comprehensive income item the Company has is unrealized gains and losses on
available for sale securities.
The following reconciles net loss to comprehensive loss for the quarter and six-
month periods ended June 30, 1999 and 2000:
<TABLE>
<CAPTION>
Quarter ended Six-month period ended
June 30, June 30,
1999 2000 1999 2000
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss (6,104,776) (5,389,244) (11,769,403) (12,159,172)
Other comprehensive income:
Unrealized gains (losses) on
available for sale securities (93,349) 476,402 (56,563) 191,340
---------- ---------- ----------- -----------
Comprehensive loss (6,198,125) (4,912,842) (11,825,966) (11,967,832)
========== ========== =========== ===========
</TABLE>
6
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ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
(3) Corporate Collaboration
The Company has a collaboration with the Wyeth-Ayerst Laboratories Division of
American Home Products Corporation in the area of Hepatitis C. In connection
with the collaboration, both parties perform certain research and development
activities and share in the costs of those activities. As of June 30, 2000, the
company is due from Wyeth-Ayerst approximately $1,275,000 for research and
development expenses incurred by the company on behalf of the collaboration.
The receivable is offset by a credit to research and development expenses. The
amount due is arrived at using the contractual amounts for cost sharing and
certain activities. For interim reporting periods, estimates are used to
arrive at any amounts due from or to Wyeth-Ayerst. The estimates are based on
specific activities that are being performed during the respective periods. The
parties will reconcile the actual research and development activities on an
annual basis. Any amounts owed to either party will be paid in the early part
of the subsequent calendar year.
(4) Convertible Subordinated Notes
The Company made a private offering of $180 million of convertible subordinated
notes due 2007, which closed on March 8, 2000. Net proceeds from the issuance of
convertible subordinated notes were approximately $174,400,000. The notes are
convertible into shares of the Company's common stock at a price of $109.15 per
share, subject to certain adjustments. The notes bear interest at a rate of 6 %
per annum, payable semi-annually in arrears, and can be redeemed by the Company,
at certain premiums over the principal amount, at any time on or after March 6,
2003. The notes are subordinated in right of payment to all senior indebtedness
of the Company. The notes may be required to be repaid on the occurrence of
certain fundamental changes, as defined.
(5) Employee Stock Plans
In May 2000, the stockholders of the company approved amendments to the
company's employee stock option plan. The amendments include increasing the
number of shares eligible to grant under the plan by 750,000 shares; and
eliminating the discretion and authority of the company's board of directors to
reprice outstanding stock options or grant stock options at an exercise price
that is less that the fair market value at the date of grant.
Also, the stockholders of the company approved the 2000 employee stock purchase
plan. A total of 300,000 shares are available under this plan. Under this
plan, employees may purchase common stock through payroll deductions in semi-
annual offerings at a price equal to the lower of 85% of the closing price on
the applicable offering commencement date or 85% of the closing price on the
applicable offering termination date.
7
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our disclosure and analysis in this report contains some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. They use words such
as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe,"
and other words and terms of similar meaning in connection with any discussion
of future operating or financial performance. In particular, these include
statements relating to present or anticipated scientific or regulatory progress,
development of potential pharmaceutical products, future revenues, capital
expenditures, research and development expenditures, future financings and
collaborations, personnel, manufacturing requirements and capabilities, and
other statements regarding matters that are not historical facts or statements
of current condition.
Any or all of our forward-looking statements in this report may turn out to
be wrong. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Many factors, including those
mentioned in the discussion below and those described in the "Risk Factors"
discussion of our most recent registration statement on From S-3 filed with the
Securities and Exchange Commission, will be important in determining future
results. Consequently, no forward-looking statement can be guaranteed. Actual
future results may vary materially. We do not intend to update our forward-
looking statements to reflect future events or developments.
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 and debt financing. The Company does not expect any revenues from product
sales for at least the next two years. The Company has not been profitable since
inception and has incurred a cumulative net loss of $90,080,172 through June 30,
2000. 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,
primarily due to expected increases in the Company's research and development
expenses, further clinical trials of the Company's most advanced drug candidate,
pleconaril (including any significant additional studies for approval in the
European Union, if any are required), and milestone payments that may be payable
under the terms of the Company's Agreement with Sanofi-Synthelabo in respect of
pleconaril. Also, the Company expects to incur expenses related to its marketing
and market research activities for pleconaril, its development of a marketing
and sales staff and further research and development related to its hepatitis C
and RSV disease 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
and distribution and logistics services.
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 primarily for research and
development activities and the supporting general and administrative expenses.
Through June 30, 2000, the Company has used approximately $79.5 million in
operating activities. The Company invests its cash in short-term investments.
Through June 30, 2000, the Company has used approximately $230.0 million in
investing activities, including $224.1 million in short-term investments and
$5.9 million in equipment purchases and new construction. Through June 30, 2000,
the Company has financed its operations primarily through public offerings of
common stock, a convertible subordinated notes offering, private placements of
redeemable preferred stock, two bank loans, equipment lease lines and a
milestone advance totaling approximately $311.6 million. At June 30, 2000, the
Company had cash and cash equivalents and short-term investments aggregating
approximately $226 million.
We lease our corporate and research and development facilities under an
operating lease expiring in 2008. We also have the right to expand the facility
and, under certain circumstances, to purchase the facility. We have exercised
our right to expand our current facility by 22,500 square feet. We will incur no
additional material capital expenditures in connection with this expansion. We
expect that rent expense in future years will increase approximately $268,000
per year, commencing in late-2000. We have financed substantially all of our
equipment under two bank loans and two master lease
8
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agreements. The first bank loan, which we entered into in February 1997, is for
$600,000, is payable in equal monthly installments over 72 months and has a
9.06% interest rate. The second bank loan, which we entered into in December
1998, is for $500,000, is payable in equal monthly installments over 60 months
and has a 7.25% interest rate. We have paid off both of the lease agreements. As
of July 1, 2000, aggregate outstanding borrowings under these bank loans were
approximately $625,000.
Under our agreement with Sanofi-Synthelabo, we are required to make
milestone payments upon the achievement of certain development milestones and,
until the expiration of the last patent on pleconaril or any related drug,
royalty payments on any sales in the United States and Canada of products
developed under the agreement. The development milestones include regulatory
submissions of New Drug Applications and regulatory approvals in various
jurisdictions, however, we may not be able to achieve these milestones. Unless
the agreement is earlier terminated, in September 2001 or within 60 days after
we file a New Drug Application for pleconaril (whichever occurs sooner), we will
be required to pay Sanofi-Synthelabo $900,000.
We entered into an addendum to our development agreement with SELOC France
in 1998. Under this addendum, SELOC France has manufactured three validation
batches of pleconaril drug substance. We will pay approximately $1,000,000
during the second half of 2000 under this addendum. SELOC France is also
assisting us in preparing the pleconaril drug master file and is preparing
certain documentation that will be required with our New Drug Applications for
pleconaril.
On October 9, 1997, the Company received $1,000,000 from Boehringer
Ingelheim Pharmaceuticals, Inc. ("BI") as an advance on a future milestone in
connection with a Collaborative Research Agreement (the "Agreement"). The
Agreement expired in August 1998. Such amount is due and payable in August 2000.
The loan bears interest at 8.5% and is evidenced by a convertible promissory
note. If amounts due under the note are not paid as described in the note, BI
may convert the then outstanding principal balance and accrued interest thereon
into shares of the Company's common stock based on the last sale price of such
common stock on the date immediately prior to the date on which the Company is
notified of BI's intention to convert the promissory note.
We have incurred losses from operations since inception. We expect to incur
additional operating losses over at least the next several years. We expect to
incur such losses at an increasing rate over at least the next several years
primarily due to expected increases in our research and development expenses,
further clinical trials and clinical development of our most advanced product
candidate, pleconaril (including any significant additional studies for approval
in the European Union, if any are required), and milestone payments that may be
payable under the terms of our agreement with Sanofi-Synthelabo for pleconaril.
Specifically, we expect to increase spending over historical levels for at least
the next nine months as we conduct two pivotal clinical trials and several
supporting studies for the use of pleconaril for the treatment of viral
respiratory infection. Also, we expect to incur expenses for pleconaril
marketing and market research activities, our development of a marketing and
sales staff and building the requisite infrastructure, and further research and
development related to our hepatitis C and RSV disease product candidates. We
expect to increase spending over historical levels for at least the next nine
months for our hepatitis C and RSV disease product candidates in connection with
an anticipated exploratory clinical trial with VP50406 for the treatment of
Hepatitis C and the anticipated initiation of safety studies with VP14637 for
the treatment of RSV pneumonia. We expect that our spending in the general and
administrative areas to remain relatively constant over at least the next six to
nine months with such spending in the first half of 2000.
We expect that we will need to raise additional funds to continue our
business activities and to further expand our facilities. We may need additional
financing to complete all clinical studies, to develop our marketing and sales
staffs for pleconaril and to build the requisite infrastructure. We expect that
we will need additional financing for the development and required testing of
our hepatitis C and RSV disease compounds, and for any other product candidates.
To obtain this financing, we intend to access the public or private equity or
debt markets or enter into additional arrangements with corporate collaborators
to whom we may issue shares of our stock. For example, in connection with our
collaboration and license agreement, American Home Products Corporation will
purchase our common stock at a market value premium at the time of completion of
certain product development stages. If we raise additional capital by issuing
equity securities, the terms and prices for these financings may be much more
favorable to the new investors than the terms obtained by our existing
stockholders. These financings also may dilute the ownership of existing
stockholders. Collaborative arrangements may require us to grant product
development programs or licenses to third parties for products that we might
otherwise seek to develop or commercialize ourselves. Additional financing,
however, may not be available on acceptable terms from any source. If sufficient
additional financing is not available, we may need to delay, reduce or eliminate
current research and development programs or other aspects of our business.
9
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Results of Operations
Quarters ended June 30, 2000 and 1999
We earned license fee revenue from our collaboration with Wyeth-Ayerst in
the hepatitis C area of $250,000 for the quarter ended June 30, 2000. We had no
revenues for the quarter ended June 30, 1999. Research and development expenses
decreased to $4,267,971 for the quarter ended June 30, 2000 from $5,233,702 for
the quarter ended June 30, 1999. In the second quarter of 2000, the company was
preparing to initiate two pivotal trials with pleconaril, the company's most
advanced drug candidate, for the treatment of viral respiratory infection,
conducting safety studies with VP50406 for hepatitis C and conducting additional
preclinical studies with VP14637 for RSV disease. In the second quarter of
1999, the company was conducting two clinical trials with pleconaril and
advancing both the hepatitis C and RSV disease programs. The decrease in
expenses in the second quarter of 2000 was primarily due to the fact that
clinical studies for pleconaril were ongoing in the second quarter of 1999, and
no such studies were conducted in the same period of 2000. Also, the offsetting
credit to the receivable due from Wyeth-Ayerst in connection with our hepatitis
C collaboration of approximately $1,275,000 has been recorded as a credit to
research and development expenses. General and administrative expenses increased
to $2,052,367 for the quarter ended June 30, 2000 from $1,240,116 for the
quarter ended June 30, 1999. The increase was principally due to an increase in
employee related expenses and business development related activities. Interest
expense and interest income increased substantially in the second quarter of
2000 compared to the second quarter of 1999. The increases are due to the
investing of $180 million convertible subordinated debentures issued in March of
2000 which pay 6% interest per annum. Also, currently the weighted average
interest rate that we are earning on our investments is 6.1%. The net loss
decreased to $5,389,244 for the quarter ended June 30, 2000 from $6,104,776 for
the quarter ended June 30, 1999.
Six-months ended June 30, 2000 and 1999
We earned license fee and milestone revenue from our collaboration with
Wyeth-Ayerst in the hepatitis C area of $1,500,000 for the six-month period
ended June 30, 2000. We had no revenues for the six-month period ended June 30,
1999. Research and development expenses increased to $10,839,704 for the six-
month period ended June 30, 2000 from $10,094,585 for the six-month period ended
June 30, 1999. The increase was principally due to the completion of three
phase 3 clinical trials of pleconaril, conduct of phase 1 clinical trials of
VP50406 for the treatment of hepatitis C and the advancement of our drug
candidate for the treatment of RSV disease. Also, the offsetting credit to the
receivable due from Wyeth-Ayerst in connection with our hepatitis C
collaboration of approximately $1,275,000 has been recorded as a credit to
research and development expenses. General and administrative expenses
increased to $4,161,500 for the six-month period ended June 30, 2000 from
$2,394,332 for the same period of 1999. The increase was principally due to an
increase in employee related expenses, pre-marketing expenses related to
pleconaril and business development related activities. Interest expense and
interest income increased substantially in the six-month period ended June 30,
2000 compared to the same period in 1999. The increases are due to the
investing of $180 million convertible subordinated debentures issued in March of
2000 which pay 6% interest per annum. Also, currently the weighted average
interest rate that we are earning on our investments is 6.1%. The net loss
increased to $12,159,172 for the six-month period ended June 30, 2000 from
$11,769,403 for the six-month period ended June 30, 1999.
Recently Issued Accounting Standards
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulleting ("SAB") No. 101, Revenue Recognition in
Financial Statements ("SAB 101"). SAB 101 summarizes certain of the staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements, including the recognition of non-refundable
fees received upon entering into arrangements. We are in the process of
evaluating this SAB and the effect it will have on our financial statements and
current revenue recognition policy.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Our holdings of financial instruments are comprised of a mix of U.S.
corporate debt, government securities and commercial paper. All such
instruments are classified as securities available for sale. Our debt security
portfolio represents funds held temporarily pending use in our business and
operations. We manage these funds accordingly. We seek reasonable assuredness
of the safety of principal and market liquidity by investing in rated fixed
income securities while at
10
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the same time seeking to achieve a favorable rate of return. Our market risk
exposure consists principally of exposure to changes in interest rates. Our
holdings are also exposed to the risks of changes in the credit quality of
issuers. We typically invest in the shorter-end of the maturity spectrum. The
principal amount and weighted average interest rate of our investment portfolio
at June 30, 2000 was $223,630,647 and approximately 6.1%, respectively.
The Company has $180 million of convertible subordinated notes due 2007. The
notes are convertible into shares of the Company's common stock at a price of
$109.15 per share, subject to certain adjustments. The notes bear interest at a
rate of 6 % per annum, payable semi-annually in arrears, and can be redeemed by
the Company, at certain premiums over the principal amount, at any time on or
after March 6, 2003.
PART II - OTHER INFORMATION
---------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders.
On May 18, 2000, the Company held its annual stockholders meeting. In
connection with the stockholders meeting, the Company solicited proxies for (1)
the election of Mr. Robert Glaser and Mr. David Williams as directors of the
Company, (2) to approve an amendment to the Company's Stock Option Plan, (3) to
approve an amendment to the Company's Amended and Restated Certificate or
Incorporation, and (4) to approve the Company's 2000 Employee Stock Purchase
Plan. The record date for determining the stockholders entitled to receive
notice of, and vote at, the Meeting was April 1, 2000 (the "Record Date"). The
Company had 15,156,635 shares of its Common Stock outstanding as of the Record
Date, of which 13,005,144 shares were represented at the stockholders meeting by
proxy. Such shares were voted at the stockholders meeting as follows:
<TABLE>
<CAPTION>
Number of Votes
BROKER
FOR AGAINST WITHHELD ABSTAIN NON-VOTES
<S> <C> <C> <C> <C> <C>
Election to the Board:
Mr. Robert Glaser 12,838,847 165,897
Mr. David Williams 12,294,839 709,905
Approval of Amendment to 7,053,866 446,935 58,466 5,445,877
Stock Option Plan
Approval of Amendment 11,794,957 1,160,833 47,118 2,236
to Amended and Restated
Certificate of Incorporation
Approval of 2000 Employee 7,641,737 141,025 55,045 5,167,337
Stock Purchase Plan
</TABLE>
ITEM 5. Other Information.
In early August 2000, we initiated two pivotal clinical trials with
pleconaril for the treatment of viral respiratory infection. We intend to focus
our near-term clinical development efforts and resources for pleconaril on the
viral respiratory infection disease indication. As a result of this near-term
clinical focus, we do not currently intend to conduct further clinical studies
of pleconaril for the treatment of viral meningitis, if at all, until at least
2001.
ITEM 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
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<PAGE>
3.1 Amended and Restated Certificate of Incorporation of the Company,
as amended by a Certificate of Amendment of Amended and Restated
Certificate of Incorporation dated May 18, 1999, as further
amended by a Certificate of Amendment of Amended and Restated
Certificate of Incorporation dated May 24, 2000.
10.1 ViroPharma Incorporated Stock Option Plan.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
We filed the following Current Reports on Form 8-K during the quarter
ended June 30, 2000:
We filed a Current Report on Form 8-K dated May 26, 2000 to report,
pursuant to item 5, that the Company is pursuing additional trials for
viral respiratory infection, and that the Company was considering
whether to conduct an exploratory study in adult patients suffering
from viral meningitis in order to better understand the disease and to
determine the potential treatment benefit of pleconaril for these
patients, which exploratory study could take up to two years to
complete.
12
<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: August 7, 2000 By: /s/ Claude H. Nash
--------------------------------------
Claude H. Nash
President, Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
By: /s/ Vincent J. Milano
--------------------------------------
Vincent J. Milano
Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
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<PAGE>
Exhibit Index
-------------
Exhibit Description
3.1 Amended and Restated Certificate of Incorporation of the Company, as
amended by a Certificate of Amendment of Amended and Restated
Certificate of Incorporation dated May 18, 1999, as further amended by
a Certificate of Amendment of Amended and Restated Certificate of
Incorporation dated May 24, 2000.
10.1 ViroPharma Incorporated Stock Option Plan.
27 Financial Data Schedule.
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