UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------ -------
Commission File Number: 0-27066
-------
Pharmacyclics, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 94-3148201
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
995 E. Arques Avenue, Sunnyvale, CA 94086-4521
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 774-0330
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
requirements for the past 90 days.
Yes X . No .
-------------- ------------
As of March 31, 1996, there were 8,477,524 shares of the Registrant's Common
Stock outstanding, par value $0.0001.
This quarterly report on Form 10-Q consists of 21 pages of which this is page 1.
The Exhibit Index is located at page 20.
<PAGE>
<TABLE>
Pharmacyclics, Inc.
Table of Contents
<CAPTION>
Part I. Financial Information Page Number
--------------------- -----------
<S> <C>
Item 1. Financial Statements (unaudited)
Condensed Balance Sheet as of March 31, 1996 and
June 30, 1995 ............................................................ 3
Condensed Statement of Operations for the three and nine months ended
March 31, 1996 and 1995 .................................................. 4
Condensed Statement of Cash Flows for the nine months ended
March 31,1996 and 1995 ................................................... 5
Notes to Condensed Financial Statements .................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operation ................................................................ 9
Part II. Other Information
Item 1. Legal Proceedings ........................................................ 18
Item 2. Changes in Securities .................................................... 18
Item 3. Defaults Upon Senior Securities .......................................... 18
Item 4. Submission of Matters to a Vote of Security Holders ...................... 18
Item 5. Other Information ........................................................ 18
Item 6. Exhibits and Reports on Form 8-K ......................................... 18
Signatures ................................................................................. 19
</TABLE>
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
Pharmacyclics, Inc.
(a development stage company)
Condensed Balance Sheet
(in thousands, unaudited)
<CAPTION>
March 31, June 30,
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 15,204 $ 376
Short term investments..................................................... 9,012 --
Prepaid expenses and other current assets.................................. 78 164
--------- --------
Total current assets.................................................... 24,294 540
Property and equipment, net.................................................. 2,493 2,850
Other assets................................................................. 149 149
--------- --------
$ 26,936 $ 3,539
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable.............................................................. $ -- $ 2,000
Accounts payable........................................................... 307 689
Accrued liabilities........................................................ 264 257
Current portion of capital lease obligations............................... 838 749
--------- --------
Total current liabilities............................................... 1,409 3,695
Capital lease obligations, less current portion.............................. 909 1,429
Deferred rent................................................................ 101 67
--------- --------
Total liabilities....................................................... 2,419 5,191
--------- --------
Stockholders' equity (deficit):
Common stock............................................................... 1 --
Convertible preferred stock................................................ -- --
Additional paid-in capital................................................. 49,712 18,071
Accumulated deficit........................................................ (25,196) (19,723)
--------- --------
Total stockholders' equity (deficit).................................... 24,517 (1,652)
--------- --------
$ 26,936 $ 3,539
========= ========
<FN>
The accompanying notes are an integral part
of these condensed financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
Pharmacyclics, Inc.
(a development stage company)
Condensed Statement of Operations
(in thousands, except per share data, unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
License and grant revenues ............................................... $ -- $ -- $ 301 $ --
------- ------- ------- -------
Operating expenses:
Research and development ................................................. 1,926 2,528 5,199 6,964
General and administrative ............................................... 428 245 982 728
------- ------- ------- -------
Total operating expenses ............................................... 2,354 2,773 6,181 7,692
------- ------- ------- -------
Loss from operations ........................................................ (2,354) (2,773) (5,880) (7,692)
Interest and other income/(expense), net .................................... 286 (50) 407 (96)
------- ------- ------- -------
Net loss .................................................................... $(2,068) $(2,823) $(5,473) $(7,788)
======= ======= ======= =======
Net loss per share .......................................................... $ (0.24) $ (0.72)
======= =======
Weighted average common and
common equivalent shares ................................................. 8,471 7,578
======= =======
Pro forma net loss per share ................................................ $ (0.45) $ (1.23)
======= =======
Pro forma weighted average common
and common equivalent shares ............................................. 6,341 6,341
======= =======
<FN>
The accompanying notes are an integral
part of these condensed financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
Pharmacyclics, Inc.
(a development stage company)
Condensed Statement of Cash Flows
(in thousands, unaudited)
<CAPTION>
Nine Months Ended
March 31,
---------------------------------
1996 1995
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................................. $ (5,473) $ (7,788)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ..................................................... 496 419
Changes in assets and liabilities:
Prepaid expenses and other assets ............................................... 86 (81)
Accounts payable ................................................................ (382) (231)
Accrued liabilities ............................................................. 58 --
Deferred rent ................................................................... 34 34
---------- ---------
Net cash used in operating activities ................................................ (5,181) (7,647)
---------- ---------
Cash flows from investing activities:
Purchases of property and equipment ............................................... (16) 2
Purchase of short term investments ................................................ (9,012) --
---------- ---------
Net cash used for investing activities ............................................... (9,028) 2
Cash flows from financing activities:
Payments under capital lease obligations .......................................... (554) (437)
Proceeds from notes payable ....................................................... 1,000 --
Proceeds from sale of stock, net of issuance costs ................................ 28,591 (42)
---------- ---------
Net cash provided by (used in) financing activities .................................. 29,037 (479)
---------- ---------
Net increase (decrease) in cash and cash equivalents ................................. 14,828 (8,124)
Cash and cash equivalents at the beginning of the period ............................. 376 8,689
Cash and cash equivalents at the end of the period ................................... $ 15,204 $ 565
========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................................ $ 223 $ 269
Equipment acquired under capital lease obligations ................................ $ 123 $ 285
Conversion of notes payable and accrued interest
into convertible preferred stock ................................................ $ 3,051 $ --
<FN>
The accompanying notes are an integral
part of these condensed financial statements.
</FN>
</TABLE>
5
<PAGE>
PHARMACYCLICS, INC.
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not contain all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the Company's
interim financial information. These financial statements should be read in
conjunction with the audited financial statements of the Company included in the
Company's Registration Statement on Form S-1 (Registration No. 33-96048)
declared effective by the Securities Exchange Commission on October 23, 1995.
The results of operations for the nine months ended March 31, 1996 are not
necessarily indicative of the operating results that may be reported for the
year ending June 20, 1996 or for any other future period.
Note 2 - Property and Equipment
Property and equipment consists of the following (in thousands):
March 31, June 30,
1996 1995
--------- --------
Equipment.......................................... $ 1,838 $ 1,699
Furniture and fixtures............................. 421 421
Leasehold improvements............................. 1,689 1,689
--------- --------
3,948 3,809
Less: accumulated depreciation and amortization.... (1,455) (959)
--------- --------
$ 2,493 $ 2,850
========= ========
6
<PAGE>
Note 3 - Net Loss Per Share
Net loss per share for the three and nine months ended March 31, 1996 is
computed using the weighted average number of shares of common stock outstanding
during each period. In addition, the computation includes the effect of the
conversion of all shares of Series A, A1, B and C Convertible Preferred Stock
into 5,156,971 shares of common stock upon the completion of the Company's
initial public offering using the if-converted method. Common stock equivalent
shares arising from stock options and warrants are excluded from the computation
because their effect is antidilutive, except that common stock equivalent shares
arising from stock options and warrants (using the treasury stock method and the
initial public offering price) issued from July 1, 1994 through the effective
date of the Company's initial public offering on October 23, 1995 are included
in the computation of net loss per share as if they were outstanding for all
periods prior to the initial public offering. Net loss per share for the three
and nine months ended March 31, 1995 is presented on a pro forma basis since it
includes the antidilutive effect of common stock equivalents.
Note 4 - Issuance of Preferred Stock and Initial Public Offering
On July 31, 1995, notes payable in the amount of $3,000,000 ($2,000,000
outstanding at June 30, 1995 plus additional borrowings of $1,000,000 entered
into during July 1995) plus accrued interest thereon were converted into 353,483
shares of Series C Convertible Preferred Stock. The Company also issued an
additional 295,649 shares of Series C Convertible Preferred Stock on July 31,
1995 generating net proceeds of $2,550,000.
The Company completed an initial public offering on October 23, 1995, issuing
2,150,000 shares of its common stock at $12.00 per share. Upon the closing of
the offering, all outstanding shares of Convertible Preferred Stock were
automatically converted into 5,156,971 shares of common stock. On November 6,
1995, the underwriters exercised an over-allotment option to sell an additional
233,450 shares of common stock at the initial public offering price. The Company
received, net of underwriters' commissions and other expenses, approximately $27
million in total proceeds from the initial public offering.
Note 5 - E-Z-EM Marketing, Sales and Distribution Agreement
In August 1995, the Company entered into an agreement with E-Z-EM, Inc.
("E-Z-EM"), a leading manufacturer and worldwide distributor of oral contrast
agents and other products for use in gastrointestinal radiology, for the
exclusive marketing and sale of GADOLITE(R) Oral Suspension in the United
States, Canada and Mexico ("E-Z-EM Agreement"). The Company
7
<PAGE>
and E-Z-EM will share equally in profits from the sale of GADOLITE, and the
Company also may receive premium payments based upon product sales if certain
unit sales levels are achieved.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains certain statements of a forward-looking nature relating to
future events or the future performance of the Company. Such statements are only
predictions and the actual events or results may differ materially from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors"
elsewhere in this report.
Results of Operations
Revenue
To date, Pharmacyclics has received only limited revenues and no revenues from
operations. For the quarters ended March 31, 1996 and March 31, 1995, the
Company reported no revenues.
The nine month period ended March 31, 1996 includes in revenue two payments
received pursuant to an August 1995 product distribution agreement with E-Z-EM.
Under this agreement, the Company recorded $250,000 as revenue (net of patent
related expenses paid to The University of Texas) for the nine month period. In
addition, $51,000 was received under a Small Business Innovation Research (SBIR)
grant from the National Cancer Institute during the same period. There was no
revenue received during the same period in fiscal 1995.
Research and Development
Research and development expenses totaled $1.9 million for the three months
ended March 31, 1996, compared to $2.5 million during the same period in the
prior fiscal year. This 32% decrease was due to fluctuations in the level of
clinical activity relating to the Company's products. During the third quarter
of 1995, the Company was conducting Phase III studies of GADOLITE(R) and
completing the preclinical studies required for an Investigational New Drug
application (IND) filing for gadolinium-texaphyrin (Gd-Tex). By comparison, the
third quarter of 1996 included a Phase I trial for lutetium-texaphyrin (Lu-Tex)
and Phase Ib/II trial for GdTex both of which required a lower number of
patients. There will continue to be significant quarterly variations in R&D
expenses related to the timing of clinical and preclinical trials and other
research activities.
9
<PAGE>
Expenses related to research and development totaled $5.2 million for the nine
months ended March 31, 1996, compared to $7.0 million during the same period in
the prior fiscal year. This decrease of 35% also reflects the timing of the
GADOLITE Phase III clinical trial relative to the Lu-Tex and Gd-Tex clinical
trials.
General and Administrative
General and administrative expenses totaled $428,000 for the three months ended
March 31, 1996 compared to $245,000 for the same period in the prior fiscal
year. The 42% increase in cost was primarily the result of insurance costs,
professional services costs and other expenses related to conducting business as
a public company. The Company expects that costs related to being a public
company will result in higher levels of G&A expenditures in the next and future
quarters.
General and administrative expenses totaled $982,000 in the nine months ended
March 31, 1996, compared to $728,000 during the same period in the prior fiscal
year, an increase of 26%. This increase also resulted from expenses related to
doing business as a public company.
Interest and Other Income
Interest income, net of interest expense, totaled $286,000 for the three months
ended March 31, 1996, compared to net interest expense of $50,000 for the same
period in the prior fiscal year. The increase in interest income is the result
of earnings on the proceeds from the initial public offering (IPO) completed in
October 1995. Interest income exceeded the payments on borrowings under the
Company's lease lines.
Income from interest totaled $407,000 for the nine months ended March 31, 1996,
compared to net interest expense of $96,000 for the same period in the prior
fiscal year. This is also the result of interest earned on the IPO proceeds.
Liquidity and Capital Resources
The Company completed an initial public offering on October 23, 1995, issuing
2,150,000 shares of its common stock at $12.00 per share. Upon the closing of
such offering, all outstanding shares of Convertible Preferred Stock were
automatically converted into 5,156,971 shares of common stock. On November 6,
1995, the underwriters of such offering exercised an option to acquire an
additional 233,450 shares of common stock at the initial
10
<PAGE>
public offering price to cover over-allotments. Proceeds received by the
Company, net of underwriters' commissions and expenses payable by the Company,
totaled approximately $27 million.
On July 31, 1995, notes payable aggregating $3 million ($2 million outstanding
at June 30, 1995 plus additional borrowings of $1 million entered into during
July, 1995) plus accrued interest thereon were converted into 353,483 shares of
Series C Convertible Preferred Stock. The Company also issued an additional
295,649 shares of Series C Convertible Preferred Stock on July 31, 1995
resulting in net proceeds to the Company of $2,550,000.
On March 31, 1996, the Company had approximately $24.2 million in cash, cash
equivalents and short term investments. Net cash used in operating activities of
$5.2 million during the nine months ended March 31, 1996 resulted primarily from
the net loss incurred during that period and a reduction in accounts payable
offset partially by increases in accrued liabilities, prepaid expenses and
depreciation expense.
The Company expects to incur ongoing levels of expenditures which may not only
fluctuate from quarter to quarter but which are expected to increase as the
levels of clinical activity for the Company's products increases. Additional
expenditures may occur in commercializing the Company's first product GADOLITE.
As a result of both these factors, the Company expects to report increased
expenses for research and development and general and administrative for at
least the next several years. The Company currently anticipates that Its cash
and cash equivalents will provide funding for the Company's operations through
at least June 1997. Accomplishment of future third party collaborations may
affect such timing as may additional equity offerings which the Company may
pursue from time to time.
11
<PAGE>
Risk Factors
Early Stage of Development
The Company was founded in 1991 and is a development stage company. The Company
has not generated revenues from the sale of its products and expects to incur
significant additional losses over the next several years. To achieve profitable
operations, the Company, alone or with others, must successfully develop, obtain
regulatory approval for, introduce, market and sell products. To date, none of
the Company's products has been approved for commercial sale. The Company will
require substantial additional funds to complete the development of its
therapeutic products. No assurance can be given that the Company's product
development efforts will be successfully completed or that required regulatory
approvals will be obtained in a timely manner, if at all. Moreover, there can be
no assurance that providers, payors or patients will accept the Company's
products.
Dependence on Third Party Relationships
The Company has no manufacturing facilities for commercial production of its
products under development, nor does the Company have experience in sales,
marketing or distribution. The Company's strategy for commercialization of its
products requires entering into various arrangements with corporate and other
collaborators to conduct clinical trials and to manufacture, distribute and
market its products. There can be no assurance that such parties will perform
their obligations as expected or that the Company's reliance on others for the
clinical development, manufacturing, distribution and marketing of its products
will not result in unforeseen problems.
Except for GADOLITE, which is the subject of a manufacturing and supply
agreement with Glaxo Wellcome Co., the Company does not have, and has not
contracted for, the manufacturing capacity necessary to provide clinical and
commercial quantities of the Company's products. Prior to any regulatory
approval of the Company's other products under development, the Company will
need to negotiate supply agreements with manufacturers who will have the ability
to manufacture, fill, label and package such materials prior to commercial
introduction of such products. There can be no assurance that the Company will
be able to enter into any such supply agreements on commercially acceptable
terms or with manufacturers who will be able to deliver supplies in appropriate
quantity and quality to develop and commercialize its products. Any interruption
of supply of its products could have a material adverse effect on the Company's
results of operations and market acceptance of the Company's products. In
addition, the Company is dependent on contract research
12
<PAGE>
organizations for the clinical development of its products. The Company does not
currently have the ability to conduct these development activities in house. If
one or more of these relationships were terminated or the organizations did not
perform up to expectations, the clinical development of the Company's product
candidates would likely be delayed and could be substantially impaired depending
on the availability and quality of substitute development capabilities.
The Company also has entered into a sales and distribution agreement with E-Z-EM
for North American sales, marketing and distribution of GADOLITE. The Company
plans to enter into similar agreements to market GADOLITE in Europe and Asia;
however, to date no such arrangements have been established. To the extent that
the Company determines not to, or is unable to, enter into co-promotion
agreements or to arrange for third party distribution of its other products or
to the extent that the agreement with E-Z-EM is terminated without a replacement
agreement, significant additional resources will be required to develop a sales
force. There can be no assurance that the Company will be able to establish such
a sales force or enter into such co-promotion or distribution agreements.
Uncertainty Regarding Patents and Proprietary Rights
The Company's success depends in part on its ability to obtain patent protection
for its products and preserve its trade secrets. The Company has not conducted
an extensive search of patents issued to other companies, research or academic
institutions or others, and no assurance can be given that such patents do not
exist, have not been filed or could not be filed or issued which contain claims
relating to the Company's technology, products or processes. Because of the
number of patents issued and patent applications filed relating to biometallic
and expanded porphyrin chemistries, Pharmacyclics believes there is a
significant risk that current and potential competitors and other third parties
have filed or in the future will file applications for, or have received or in
the future will receive, patents and will obtain additional proprietary rights
relating to materials or processes used or proposed to be used by the Company.
If such patents have been or become issued, the holders of such patents may
bring claims against the Company for infringement which may have an adverse
effect on the Company. As a result, the Company may be required to obtain
licenses from others to develop, manufacture or market its products. There can
be no assurance that the Company will be able to obtain any such licenses on
commercially reasonable terms, if at all.
13
<PAGE>
The Company is aware of several United States patents owned by or licensed to
Schering AG that relate to MRI contrast agents. The Company has obtained advice
of special patent counsel that the technologies employed by the Company for its
imaging products under development do not infringe the claims of such patents. A
determination of the infringement of any such patents could have a material
adverse effect on the Company's business. There can be no assurance that
Schering AG will not seek to assert such patent rights against the Company,
which would result in significant legal costs and require substantial management
resources. The Company is aware that Schering AG has asserted such rights
against at least one other company in the contrast agent imaging market and that
a number of companies have entered into licensing arrangements with Schering AG
with respect to one or more such patents. There can be no assurance that the
Company would be able to obtain a license from Schering AG, if required, on
commercially reasonable terms, if at all.
Rapid Technological Change and Substantial Competition
The pharmaceutical industry is subject to rapid and substantial technological
change. There can be no assurance that developments by others will not render
the Company's products or technologies noncompetitive or obsolete, or that the
Company will be able to keep pace with technological developments or other
market factors. Competitors have developed or are in the process of developing
technologies that are, or in the future may be, the basis for competitive
products. Some of these products may have an entirely different approach or
means of accomplishing similar diagnostic, imaging and/or therapeutic effects
than products being developed by the Company. These competing products may be
safer, more effective and less costly than the products developed by the Company
and, therefore, may represent a serious competitive threat to the Company's
product offerings.
Government Regulation and Product Approval
The manufacture and marketing of the Company's products and its research and
development activities are subject to regulation for safety, efficacy and
quality by numerous government authorities in the United States and other
countries. Clinical trials, manufacturing and marketing of products are subject
to the rigorous testing and approval process of the FDA and equivalent foreign
regulatory authorities. Clinical trials and regulatory approval can take a
number of years to accomplish and require the expenditure of substantial
resources. The regulatory authority or clinical investigator may suspend
clinical trials at any point in this process if either entity concludes that
clinical subjects are being exposed to an unacceptable health risk, or for other
reasons. Accordingly, there can be no
14
<PAGE>
assurance that clinical trials will be started or completed successfully within
any specified time period. Delays in FDA approval can occur for a number of
reasons, including the Company's failure to obtain necessary supplies of its
product materials or to obtain a sufficient number of available patients to
support the claims necessary for regulatory approval. There can be no assurance
that requisite FDA approvals will be obtained on a timely basis, if at all, or
that any approvals granted will cover all the clinical indications for which the
Company may seek approval. The FDA may deny an NDA if applicable regulatory
criteria are not satisfied, or may require additional clinical data. Even if
such data is submitted, the FDA may ultimately decide that the NDA does not
satisfy the criteria for approval. The Company submitted an NDA for its GADOLITE
product in September 1995. The Company's business would be adversely affected by
delays in FDA approvals of the manufacture and sale of GADOLITE or by failure of
the FDA to grant such approvals at all.
In addition to the drug approval requirements applicable to the Company's Lu-Tex
product for photosensitization of certain cancers, the Company will also need to
obtain the approval of the FDA for the laser and associated light delivery
devices used in such treatments. Such device approval requires additional
submissions and may result in additional delays or difficulties in obtaining
approval for the use of Lu-Tex as a photosensitizer.
Satisfaction of these FDA requirements, or similar requirements by foreign
regulatory agencies, typically takes several years and the time needed to
satisfy them may vary substantially, based upon the type, complexity and novelty
of the pharmaceutical product. The effect of government regulation may be to
delay or to prevent marketing of potential products for a considerable period of
time and to impose costly procedures upon the Company's activities. There can be
no assurance that the FDA or any other regulatory agency will grant approval for
any products being developed by the Company on a timely basis, or at all.
Success in preclinical or early stage clinical trials does not assure success in
later stage clinical trials. Data obtained from preclinical and clinical
activities are susceptible to varying interpretations which could delay, limit
or prevent regulatory approval. If regulatory approval of a product is granted,
such approval may impose limitations on the indicated uses for which a product
may be marketed. Further, even if regulatory approval is obtained, later
discovery of previously unknown problems with a product may result in
restrictions on the product, including withdrawal of the product from the
market. Delay in obtaining or failure to obtain regulatory approvals would have
a material adverse effect on the Company's business.
15
<PAGE>
Health Care Reform and Third Party Reimbursement
The FDA's policies may change and additional government regulations may be
promulgated which could prevent or delay regulatory approval of the Company's
potential products. Moreover, increased attention to the containment of health
care costs in the United States and in foreign markets could result in new
government regulations which could have a material adverse effect on the
Company's business. The Company is unable to predict the likelihood of adverse
governmental regulation which might arise from future legislative or
administrative action, either in the United States or abroad.
Federal and state regulations govern or influence the reimbursement to health
care providers of fees and capital equipment costs in connection with medical
treatment of certain patients. In response to concerns about the rising costs of
advanced medical technologies, the current administration of the federal
government has publicly stated its desire to reform health care, including the
possibility of price controls and revised reimbursement policies. There can be
no assurance that actions taken by the administration, if any, with regard to
health care reform will not have a material adverse effect on the Company and
the prospects for future sales of the Company's products. Further, to the extent
that these or other proposals or reforms have a material adverse effect on the
Company's ability to secure funding for its development or on the business,
financial condition and profitability of other companies that are prospective
collaborators for certain of the Company's product candidates, the Company's
ability to develop or commercialize its product candidates may be adversely
affected.
Given recent government initiatives directed at lowering the total cost of
health care throughout the United States, it is likely that the United States
Congress and state legislatures will continue to focus on health care reform and
the cost of prescription pharmaceuticals and on the reform of the Medicare and
Medicaid systems. Pharmacyclics cannot predict the likelihood of passage of
federal and state legislation related to health care reform or lowering
pharmaceutical costs. In certain foreign markets pricing of prescription
pharmaceuticals is already subject to government control. Continued significant
changes in the nation's health care system could have a material adverse effect
on the Company's business.
16
<PAGE>
Requirements for Additional Financing and Capital
The Company has expended and will continue to expend substantial funds to
complete the research, development and clinical testing of its products. The
Company will require additional funds for these purposes and to establish
additional clinical and commercial-scale manufacturing arrangements. However,
the actual amount of the Company's capital requirements will depend on many
factors, including the status of the development of products, the time and costs
involved in obtaining regulatory approvals, the costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market
developments and the ability of the Company to establish new collaborative and
licensing arrangements. The Company will attempt to raise any necessary
additional funds through equity or debt financings, collaborative arrangements
with corporate partners or from other sources. No assurance can be given that
such additional funds will be available on acceptable terms, if at all. If
adequate funds are not available from operations or additional sources of
financing, the Company's business will be materially and adversely affected.
Product Liability Exposure; Limited Insurance Coverage
The testing, manufacturing, marketing and sale of the products under development
by the Company entail an inherent risk that product liability claims will be
asserted against the Company. Although the Company is insured against such risks
up to a $3 million annual aggregate limit in connection with human clinical
trials and commercial sales of its products under development, there can be no
assurance that the Company's present product liability insurance is adequate.
17
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to Vote of Security holders. None
Item 5. Other information. None
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibit 11.1 - "Computation of Net Loss and Pro Forma
Net Loss Per Share" is attached hereto.
b. Reports on Form 8-K. None
18
<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.
Pharmacyclics, Inc.
(Registrant)
Date: May 8, 1996 By:
--------------------------------------------
Dr. Richard A. Miller
President and Chief Executive Officer
Date: May 8, 1996 By:
--------------------------------------------
Cheryl B. Jaszewski
Vice President, Finance and Administration
19
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Sequentially
Exhibit Numbered
No. Page
---- ----
<S> <C> <C>
11.1 Computation of Net Loss and Pro Forma Net Loss Per Share 21
27 Financial Data Schedule
</TABLE>
20
EXHIBIT 11.1
<TABLE>
PHARMACYCLICS, INC.
(a development stage company)
COMPUTATION OF NET LOSS AND PRO FORMA NET LOSS PER SHARE
(in thousands, except per share data, unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding........... 8,471 870 5,298 870
Convertible preferred stock (1)...................... -- 5,157 2,149 5,157
Common stock equivalent arising from
options and warrants issued subsequent
to June 30, 1994 through October 23, 1995 (2)..... -- 314 131 314
-------- --------- -------- --------
Weighted average common and
common equivalent shares.......................... 8,471 7,578
======== ========
Pro forma weighted average common and
common equivalent shares.......................... 6,341 6,341
========= ========
Net Loss............................................. $ (2,068) $ (2,823) $ (5,473) $ (7,788)
Net loss per share................................... $ (0.24) $ (0.72)
======== =========
Pro forma net loss per share......................... $ (0.45) $ (1.23)
========= ========
<FN>
(1) Shares of convertible preferred stock issued from July 1, 1994 through
the effective date of the Company's initial public offering on October
23, 1995 have been included in the calculation of net loss per share as
if they were outstanding for all periods prior to the initial public
offering (using the ifconverted method).
(2) Stock options and warrants granted from July 1, 1994 through the
effective date of the Company's initial public offering on October 23,
1995 have been included in the computation of pro forma net loss per
share as if they were outstanding for all periods prior to the initial
public offering (using the treasury stock method and the initial public
offering price).
</FN>
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,204
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,294
<PP&E> 2,493
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,936
<CURRENT-LIABILITIES> 1,409
<BONDS> 0
<COMMON> 1
0
0
<OTHER-SE> 49,712
<TOTAL-LIABILITY-AND-EQUITY> 26,936
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,354
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (2,354)
<INTEREST-EXPENSE> 286
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,068)
<EPS-PRIMARY> 00.24
<EPS-DILUTED> 00.00
</TABLE>
