<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 SEPTEMBER 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 November 13, 2000: 15,242,979 shares.
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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 September 30, 2000............. 3
Statements of Operations for the three months ended September 30,
1999 and 2000, the nine months ended September 30, 1999 and 2000,
and the period from December 5, 1994 (inception) to September 30,
2000................................................................. 4
Statements of Cash Flows for the nine months ended September 30, 1999
and 2000 and the period from December 5, 1994 (inception) to
September 30, 2000................................................... 5
Notes to Financial Statements.......................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................. 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........ 10
PART II. OTHER INFORMATION................................................ 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 11
SIGNATURES........................................................ 12
</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 September 30, 2000
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------------------------
ASSETS Audited Unaudited
------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,984,707 4,623,763
Short-term investments 59,868,213 208,147,198
Notes receivable from officers - current 39,205 121,696
Due from partner - 1,783,130
Other current assets 1,068,764 3,568,352
------------ -------------
Total current assets 67,960,889 218,244,139
Equipment and leasehold improvements, net 3,469,927 4,424,851
Restricted investments 550,000 550,000
Notes receivable from officers - noncurrent 23,151 266,231
Debt issue costs, net - 5,251,767
Other assets 81,899 45,899
------------ -------------
Total assets $ 72,085,866 228,782,887
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,187,234 2,244,096
Loans payable - current 1,200,000 200,000
Deferred revenue - current 1,000,000 1,000,000
Accrued expenses and other current
liabilities 5,882,396 7,624,898
------------ -------------
Total current liabilities 9,269,630 11,068,994
Loans payable - noncurrent 525,000 375,000
Deferred revenue - noncurrent 4,000,000 3,250,000
Convertible subordinated notes - 180,000,000
------------ -------------
13,794,630 194,693,994
------------ -------------
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 September 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 September 30, 2000; issued
and outstanding 15,066,612 shares at
December 31, 1999 and 15,242,854 shares
at September 30, 2000 30,133 30,386
Additional paid-in capital 136,259,509 137,606,797
Deferred compensation (44,580) (1,056,250)
Unrealized gains (losses) on available
for sale securities (35,126) 310,475
Deficit accumulated during the
development stage (77,921,000) (102,804,815)
------------ -------------
Total stockholders' equity 58,291,236 34,088,893
------------ -------------
Commitments
Total liabilities and stockholders'
equity $ 72,085,866 228,782,887
============ =============
</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 September 30, 1999 and 2000,
The nine months ended September 30, 1999 and 2000, and the
period from December 5, 1994 (inception) to September 30, 2000
<TABLE>
<CAPTION>
Period from
December 5, 1994
Three months ended Nine months ended (inception) to
September 30, September 30, September 30,
1999 2000 1999 2000 2000
--------------- --------------- --------------- ------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
License fee and milestone revenue - 250,000 - 1,750,000 5,750,000
Grant revenue - - - - 526,894
--------------- --------------- --------------- ------------------------------
Total revenues - 250,000 - 1,750,000 6,276,894
--------------- --------------- --------------- ------------------------------
Operating expenses incurred in the
development stage:
Research and development 5,945,274 12,182,802 16,039,859 23,022,506 94,838,186
General and administrative 1,082,466 1,959,219 3,476,798 6,120,719 21,580,193
--------------- --------------- --------------- ------------------------------
Total operating expenses 7,027,740 14,142,021 19,516,657 29,143,225 116,418,379
--------------- --------------- --------------- ------------------------------
Loss from operations (7,027,740) (13,892,021) (19,516,657) (27,393,225) (110,141,485)
Interest income 183,244 3,888,521 989,067 8,901,021 14,278,667
Interest expense 42,580 2,721,143 128,889 6,391,611 6,941,997
--------------- --------------- --------------- ------------------------------
Net loss (6,887,076) (12,724,643) (18,656,479) (24,883,815) (102,804,815)
=============== =============== =============== ==============================
Beneficial conversion feature of
preferred stock - 4,140,000 -
Preferred stock dividends, including
beneficial conversion component 752,833 181,838 752,833 545,514
--------------- --------------- --------------- ---------------
Net loss allocable to common
stockholders (7,639,909) (12,906,481) (23,549,312) (25,429,329)
=============== =============== =============== ===============
Basic and diluted net loss per share
allocable to common stockholders (0.66) (0.85) (2.04) (1.68)
=============== =============== =============== ===============
Shares used in computing basic and
diluted net loss per share allocable
to common stockholders 11,577,961 15,210,428 11,568,467 15,167,736
=============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
4
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VIROPHARMA INCORPORATED
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
Nine months ended September 30, 1999 and 2000 and the
period from December 5, 1994 (inception) to September 30, 2000
<TABLE>
<CAPTION>
Period from
December 5, 1994
Nine months ended (inception) to
September 30, September 30,
1999 2000 2000
-------------- ------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (18,656,479) (24,883,815) (102,804,815)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash compensation expense 164,832 44,580 833,086
Non-cash warrant value 11,952 - 153,751
Non-cash consulting expense 4,860 - 46,975
Depreciation and amortization expense 401,074 1,092,065 2,423,169
Changes in assets and liabilities:
Other current assets 184,515 (2,499,588) (3,568,352)
Notes receivable from officers 29,403 (325,570) (387,926)
Due from partner - (1,783,130) (1,783,130)
Other assets - 36,000 (45,899)
Accounts payable 1,308,902 1,056,863 2,244,097
Deferred revenue - (750,000) 4,250,000
Accrued expenses and other current liabilities (3,496,165) 1,745,309 7,624,898
------------- ------------ -------------
Net cash used in operating activities (20,047,106) (26,267,286) (91,014,146)
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (1,193,138) (1,573,340) (6,374,371)
Purchase of short-term and restricted investments (14,896,490) (220,303,882) (406,489,366)
Sales of short-term investments - - 9,680,414
Maturities of short-term investments 23,757,660 72,370,497 188,422,228
------------- ------------ -------------
Net cash (used in) provided by investing activities 7,668,032 (149,506,725) (214,761,095)
Cash flows from financing activities:
Net proceeds from issuance of preferred stock 13,310,900 - 27,242,143
Net proceeds from issuance of common stock 87,046 836,805 108,390,367
Preferred stock cash dividends - (545,514) (727,214)
Proceeds from loans payable and milestone advance - - 2,100,000
Payment of loans payable (133,333) (1,150,000) (1,525,000)
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 (38,736) (2,807) -
------------- ------------ -------------
Net cash provided by financing activities 13,225,877 173,413,067 310,399,004
Net increase (decrease) in cash and cash equivalents 846,803 (2,360,944) 4,623,763
Cash and cash equivalents at beginning of period 1,076,682 6,984,707 -
------------- ------------ -------------
Cash and cash equivalents at end of period $ 1,923,485 4,623,763 4,623,763
============= ============ =============
Supplemental disclosure of noncash transactions:
Conversion of milestone advance to loan payable - - 1,000,000
Unrealized gains (losses) on available for sale securities 30,749 345,601 310,475
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
VIROPHARMA INCORPORATED
(A Development Stage Company)
Notes to Financial Statements
September 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 $102,804,815 through September 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 September 30, 2000 and for the periods ended September 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
accounting principles generally accepted in the United States of America. 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
nine-month periods ended September 30, 1999 and 2000:
<TABLE>
<CAPTION>
Quarter ended Nine month period ended
September 30, September 30,
1999 2000 1999 2000
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Net loss (6,887,076) (12,724,643) (18,656,479) (24,883,815)
Other comprehensive income:
Unrealized gains (losses) on
available securities 87,312 154,260 30,749 345,601
----------- ------------ ------------ ------------
Comprehensive loss (6,799,764) (12,570,383) (18,625,730) (24,538,214)
=========== ============ ============ ============
</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 September 30,
2000, the company is due from Wyeth-Ayerst approximately $1,783,130 for research
and development expenses incurred by the company on behalf of the collaboration.
The receivable is recorded with a corresponding reduction 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. This plan qualifies under section 423 of
IRS code.
(6) SUBSEQUENT EVENTS
In October 2000, the company sold an aggregate of 200,993 shares of common stock
to American Home Products Corporation for aggregate proceeds of $6 million. The
sales of common stock were as a result of progress made under the companies'
hepatitis C virus collaboration.
7
<PAGE>
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 Form 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
$102,804,815 through September 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 respiratory
syncytial virus (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 September 30, 2000, the Company has used approximately $91.0 million in
operating activities. The Company invests its cash in short-term investments.
Through September 30, 2000, the Company has used approximately $214.8 million in
investing activities, including $208.4 million in short-term investments and
$6.4 million in equipment purchases and new construction. Through September 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 $310.4 million. At September 30, 2000,
the Company had cash and cash equivalents and short-term investments aggregating
approximately $212.8 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 15,600 square feet. We expect to
incur an estimated $3 million of capital expenditures in connection with this
expansion. We expect that we will incur these expenses in the second half of
2001. In addition, we expect that rent expense in future years will increase
approximately $200,000 per year, commencing in early 2002. We
8
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have financed substantially all of our equipment under two bank loans and two
master lease 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. In addition, the company paid off a $1
million loan to Boehringer Ingelheim in August 2000. We have paid off both of
the lease agreements. As of October 1, 2000, aggregate outstanding borrowings
under these bank loans were approximately $575,000.
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
between the fourth quarter of 2000 and the first quarter of 2001 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.
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 six 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 six
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 safety studies with VP14637 for the treatment of RSV
disease. We expect that our spending in the general and administrative areas to
remain relatively constant over at least the next six months with such spending
in the first nine months 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.
RESULTS OF OPERATIONS
Quarters ended September 30, 2000 and 1999
We earned license fee revenue from our hepatitis C collaboration with Wyeth-
Ayerst Laboratories Division of American Home Products Corporation of $250,000
for the quarter ended September 30, 2000. We had no revenues for the quarter
ended September 30, 1999. Research and development expenses increased to
$12,182,802 for the quarter ended September 30, 2000
9
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from $5,945,274 for the quarter ended September 30, 1999. The increase in
expenses in the third quarter of 2000 was due primarily to the initiation of two
large phase 3 trials with pleconaril, the company's most advanced drug
candidate, for the treatment of viral respiratory infection and additional
preclinical studies with VP14637 for the treatment of RSV disease. In addition,
the company was preparing for patient studies with VP50406 for the treatment of
hepatitis C expected to start by year-end and conducting substantial discovery
research activities on additional product candidates for both hepatitis C and
RSV diseases. In the third quarter of 1999, the company was conducting two
smaller clinical trials with pleconaril and advancing both the hepatitis C and
RSV disease programs. Also, the offsetting credit related to the increased
receivable due from Wyeth-Ayerst in connection with our hepatitis C
collaboration of approximately $508,000 has been recorded as a reduction to
research and development expenses. General and administrative expenses increased
to $1,959,219 for the quarter ended September 30, 2000 from $1,082,466 for the
quarter ended September 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
third quarter of 2000 compared to the third 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. Currently the weighted average
interest rate that we are earning on our investments is 6.1%. The net loss
increased to $12,724,643 for the quarter ended September 30, 2000 from
$6,887,076 for the quarter ended September 30, 1999.
Nine-months ended September 30, 2000 and 1999
We earned license fee and milestone revenue from our hepatitis C
collaboration with Wyeth-Ayerst of $1,750,000 for the nine-month period ended
September 30, 2000. We had no revenues for the nine-month period ended
September 30, 1999. Research and development expenses increased to $23,022,506
for the nine-month period ended September 30, 2000 from $16,039,859 for the
nine-month period ended September 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 $1,783,130 has been recorded as a credit to
research and development expenses. General and administrative expenses increased
to $6,120,719 for the nine-month period ended September 30, 2000 from $3,476,798
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 nine-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. Currently the weighted average interest rate that we are
earning on our investments is 6.1%. The net loss increased to $24,883,815 for
the nine-month period ended September 30, 2000 from $18,656,479 for the nine-
month period ended September 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 accounting principles generally accepted in the United States of
America 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 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 September 30, 2000 was $208,147,198 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
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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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.30 Restricted Stock Agreement dated August 21, 2000 between
ViroPharma Incorporated and Michel de Rosen.
10.31 Severance Agreement dated August 21, 2000 between ViroPharma
Incorporated and Michel de Rosen.
10.32 Promissory Note of Michel de Rosen dated August 21, 2000.
10.33 Severance Agreement dated August 21, 2000 between ViroPharma
Incorporated and Claude Nash.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
We filed the following Current Reports on Form 8-K during the quarter
ended September 30, 2000:
We filed a Current Report on Form 8-K dated July 6, 2000 to report,
pursuant to item 5, that Dennis Purcell was appointed to the Company's
board of directors as a Class III director to serve until the 2002
annual meeting of shareholders and that Mr. Purcell will also serve on
the audit committee.
We filed a Current Report on Form 8-K dated July 27, 2000 to report,
pursuant to item 5, the Company's financial results for the second
quarter ended June 30, 2000.
We filed a Current Report on Form 8-K dated August 21, 2000 to report,
pursuant to item 5, that the Securities and Exchange Commission
declared the Company's Registration Statement on Form S-3 (File No.
333-37960) effective, registering the resale of its 6% Subordinated
Convertible Notes due March 1, 2007 and of shares of its common stock
issuable upon conversion thereof by certain holders of the Notes,
pursuant to the Registration Rights Agreement that ViroPharma entered
into when the Notes were issued.
We filed a Current Report on Form 8-K dated August 22, 2000 to report,
pursuant to item 5, the appointment of Michel de Rosen as president
and chief executive officer of the Company.
We filed a Current Report on Form 8-K dated August 30, 2000 to report,
pursuant to item 5, the appointment of Ellen C. Cooper, M.D. as vice
president, clinical and regulatory affairs.
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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: November 13, 2000 By: /s/ Michel de Rosen
----------------------------------
Michel de Rosen
President and Chief Executive Officer
(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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EXHIBIT INDEX
-------------
Exhibit Description
10.30 Restricted Stock Agreement dated August 21, 2000 between ViroPharma
Incorporated and Michel de Rosen.
10.31 Severance Agreement dated August 21, 2000 between ViroPharma
Incorporated and Michel de Rosen.
10.32 Promissory Note of Michel de Rosen dated August 21, 2000.
10.33 Severance Agreement dated August 21, 2000 between ViroPharma
Incorporated and Claude Nash.
27 Financial Data Schedule.
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