<PAGE> 1
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- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO
______________.
Commission file number 0-26866
SONUS Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4343413
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
22026 20th Ave. S.E., Suite 102, Bothell, Washington 98021
(Address of Principal Executive Offices)
(425) 487-9500
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the issuer (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
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at April 30, 1997
----- -----------------------------
<S> <C>
Common Stock, $.001 par value 8,553,152
</TABLE>
Page 1 of 12 Pages
Exhibit is on Page 12
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<PAGE> 2
SONUS PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page Number
-----------
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets as of March 31, 1997 (unaudited) and December 31, 1996...................................3
Unaudited Statements of Operations for the three months ended
March 31, 1997 and March 31, 1996.......................................................................4
Unaudited Statements of Cash Flow for the three months ended March 31, 1997 and
March 31, 1996..........................................................................................5
Notes to Financial Statements...........................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................................................10
SIGNATURES ..............................................................................................................11
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
SONUS PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................... $ 5,652,651 $ 7,236,615
Marketable securities .......................................... 19,982,889 17,894,450
Prepaid expenses and other current assets ...................... 316,412 397,733
------------ ------------
Total current assets ......................................... 25,951,952 25,528,798
Equipment, furniture and leasehold improvements, net of accumulated
depreciation of $1,267,204 and $1,144,721 ...................... 1,199,858 1,168,503
Other assets ...................................................... 64,878 64,878
------------ ------------
Total assets ...................................................... $ 27,216,688 $ 26,762,179
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit ............................................ $ 5,000,000 $ 5,000,000
Accounts payable and accrued expenses .......................... 2,141,996 2,203,806
Accrued clinical trial expenses ................................ 1,384,805 1,213,563
Deferred revenue ............................................... - 1,000,000
Current portion of capitalized lease obligations ............... 215,257 228,049
------------ ------------
Total current liabilities .................................... 8,742,058 9,645,418
Capitalized lease obligations, less current portion ............... 205,827 239,511
Commitments
Stockholders' equity:
Preferred stock, $.001 par value:
5,000,000 authorized; no shares outstanding .................. - -
Common stock, $.001 par value:
20,000,000 shares authorized; 8,533,387 and 8,530,911
shares issued and outstanding in 1997 and 1996, respectively . 34,313,354 34,275,015
Accumulated deficit ............................................ (16,008,897) (17,355,374)
Deferred compensation .......................................... (35,654) (42,391)
------------ ------------
Total stockholders' equity ................................... 18,268,803 16,877,250
------------ ------------
Total liabilities and stockholders' equity ........................ $ 27,216,688 $ 26,762,179
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
SONUS PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1997 1996
----------- ------------
<S> <C> <C>
Revenues:
Collaborative agreements .............................. $ 5,100,000 $ 400,000
Operating expenses:
Research and development .............................. 2,583,986 4,218,280
General and administrative ............................ 1,187,610 926,511
----------- -----------
3,771,596 5,144,791
----------- -----------
Operating income (loss) ................................. 1,328,404 (4,744,791)
Other income (expense):
Interest income ....................................... 249,971 132,571
Interest expense ...................................... (32,188) (55,483)
----------- -----------
Income (loss) before income taxes ....................... 1,546,187 (4,667,703)
Income taxes ............................................ 190,000 40,000
----------- -----------
Net income (loss) ....................................... $ 1,356,187 $(4,707,703)
=========== ===========
Net income (loss) per share ............................. $ 0.14 $ (0.56)
=========== ===========
Shares used in computation of net income (loss) per share 9,502,357 8,449,879
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SONUS PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) .......................................................... $ 1,356,187 $ (4,707,703)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization ........................................... 122,483 97,309
Amortization of premium (discount) on marketable securities ............. (30,949) (40,549)
Amortization of deferred compensation ................................... 6,737 12,920
Realized gain on marketable securities .................................. (840) --
Changes in operating assets and liabilities:
Prepaid expenses and other assets ..................................... 81,321 14,275
Accounts payable and accrued expenses ................................. (61,809) 370,783
Accrued clinical trial expenses ...................................... 171,242 437,114
Deferred revenue ...................................................... (1,000,000) --
------------ ------------
Net cash provided by (used in) operating activities ........................ 644,372 (3,815,851)
INVESTING ACTIVITIES
Purchases of equipment, furniture and leasehold improvements ............... (153,838) (52,322)
Purchases of marketable securities ......................................... (8,005,737) (17,598,744)
Proceeds from sale of marketable securities ................................ 2,000,000 20,853,098
Proceeds from maturities of marketable securities .......................... 3,939,376 --
------------ ------------
Net cash provided by (used in) investing activities ........................ (2,220,199) 3,202,032
FINANCING ACTIVITIES
Proceeds from line of credit ............................................... 5,000,000 5,000,000
Repayment of line of credit ................................................ (5,000,000) (5,000,000)
Repayment of capitalized lease obligations ................................. (46,476) (52,315)
Proceeds from issuance of common stock ..................................... 38,339 24,324
------------ ------------
Net cash used in financing activities ...................................... (8,137) (27,991)
------------ ------------
Change in cash and cash equivalents for the period ......................... (1,583,964) (641,810)
Cash and cash equivalents at beginning of period ........................... 7,236,615 5,656,620
------------ ------------
Cash and cash equivalents at end of period ................................. $ 5,652,651 $ 5,014,810
============ ============
Supplemental cash flow information:
Interest paid .............................................................. $ 32,188 $ 52,317
Income taxes paid .......................................................... $ 40,000 $ 40,000
</TABLE>
See accompanying notes.
5
<PAGE> 6
SONUS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q. Accordingly, they do not include all of
the information and footnotes required to be presented for complete financial
statements. The accompanying financial statements reflect all adjustments
(consisting only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented.
The financial statements and related disclosures have been prepared
with the assumption that users of the interim financial information have read or
have access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited financial statements and the related notes thereto included in the Form
10-K for the year ended December 31, 1996.
2. RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
No. 128 on the calculation of earnings per share for current and prior periods
is not expected to be material.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in October 1991, the Company has engaged in the
research and development of proprietary contrast agents for use in ultrasound
imaging. The Company has financed its research and development and clinical
trials through payments received under agreements with its collaborative
partners, private equity and debt financings, and an initial public offering
completed in October 1995. Clinical trials of the Company's principal product
under development, EchoGen(R) Emulsion, began in January 1994. The Company has
completed various Phase 1, 2 and Phase 3 clinical trials of EchoGen since 1994
and, in August 1996 submitted a New Drug Application ("NDA") with the United
States Food and Drug Administration ("FDA"). In November 1996, the Company filed
a Marketing Authorization Application ("MAA") for EchoGen with the European
Medicines Evaluation Agency ("EMEA").
On April 21, 1997, the United States District Court for the District of
Columbia issued an order of preliminary injunction against the FDA from
continuing any approval or review procedures with respect to EchoGen and three
other ultrasound contrast agents until the FDA resolves the merits of various
Citizen Petitions that have been filed with the FDA. The Citizen Petition filed
by SONUS asks that all ultrasound contrast agents be regulated through the
Center for Drug Evaluation and Research ("CDER") rather than through the Center
for Devices and Radiological Health ("CDRH"). The Company is aware of two other
Citizen Petitions which have been filed with the FDA on the same issue. The
Company is unable to estimate how long the FDA will take to respond to the
Citizen Petitions or what response the FDA will make to the Citizen Petitions,
or the effect this action will have on the scheduled June 30, 1997 Medical
Imaging Advisory Committee Meeting.
The Company will not be able to commence sales of EchoGen unless and
until it receives the appropriate regulatory approvals in the United States and
the various international markets. To date, all of the Company's revenues have
been derived from option and license payments that have been received under
agreements for the collaborative development of EchoGen worldwide.
In May 1996, the Company formed a strategic alliance with Abbott
Laboratories ("Abbott") for marketing and sale of EchoGen in the United States.
Under the agreement, Abbott has agreed to pay the Company $31.0 million in
upfront, clinical support and milestone payments, of which $14.0 million has
been paid as of March 31, 1997. In addition, Abbott has purchased, for $4.0
million, warrants to acquire 500,000 shares of common stock of the Company,
equal to approximately six percent (6%) of the Company's outstanding common
stock. The warrants are exercisable over five years at $16.00 per share. In
October 1996, the Company and Abbott entered into an agreement expanding
Abbott's licensed territory to include Europe, Latin America, Canada, Middle
East, Africa and certain Asia/Pacific countries. Under the October 1996
agreement, Abbott has agreed to pay the Company $34.6 million in license and
milestone payments, a portion of which will be credited against future royalties
once EchoGen is approved for commercial sale. As of March 31, 1997, $1.7 million
has been paid.
In April 1993, the Company granted Daiichi Pharmaceutical Co. Ltd.
("Daiichi"), an option to acquire exclusive marketing and distribution rights to
EchoGen in certain countries in the Pacific Rim. In March 1995, Daiichi
exercised the option and entered into a license agreement with the Company.
Under the option and license agreements, Daiichi has paid the Company option and
license fees totaling $9.8 million and $3.0 million in the form of milestone
payments and has agreed to pay an additional $19.2 million in the form of
milestone payments conditioned on the achievement of certain clinical
development, regulatory and commercialization milestones in Japan. In addition
to the option and license agreements, Daiichi entered into a convertible
subordinated debenture purchase agreement with the Company in November 1993
under which the Company issued a convertible subordinated debenture to Daiichi
in the principal amount of $3.0 million, which was converted into 462,857 shares
of common stock concurrently with the closing of the Company's initial public
offering.
The Company's results of operations have varied and will continue to
vary significantly from quarter to quarter and depend on, among other factors,
the timing of fees and milestone payments made by collaborative partners, the
entering into product license agreements by the Company and the timing and costs
of the clinical trials conducted by the Company. The Company's current
collaborative partners can terminate their agreements at any time, and there can
be no assurance that the Company will receive any additional funding or
milestone payments.
7
<PAGE> 8
RESULTS OF OPERATIONS
Revenue from collaborative agreements increased to $5.1 million for the
three months ended March 31, 1997 as compared to $400,000 for the three months
ended March 31, 1996. The revenue in the current period represents regular
quarterly payments from Abbott and Daiichi of $1.0 million and $0.4 million,
respectively, as well as milestone payments from Abbott of $3.7 million. The
prior period revenue represents a regular quarterly payment under the Daiichi
agreement.
Research and development expenses decreased to $2.6 million for the
three months ended March 31, 1997 from $4.2 million for the three months ended
March 31, 1996, primarily due to a decrease in clinical trial expenses resulting
from the completion of two Phase 3 clinical trials of EchoGen in 1996.
General and administrative expenses increased to $1.2 million for the
three months ended March 31, 1997 from $927,000 for the three months ended March
31, 1996, reflecting the implementation of marketing programs in anticipation of
the FDA approval and planned product launch of EchoGen, and an increase in the
costs of filing and prosecuting patent and trademark applications.
Interest income increased to $250,000 for the three months ended March
31, 1997 from $133,000 for the three months ended March 31, 1996 primarily
reflecting a larger average invested cash balance as a result of payments from
the Abbott and Daiichi strategic alliances.
Income taxes of $190,000 and $40,000 for the three months ended March
31, 1997 and 1996, respectively, were attributable to withholding taxes paid to
Japan relating to the collaborative payments received from Daiichi and the
Company's estimated 1997 first quarter federal income tax payment.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations with payments from
collaborative partners, proceeds from an initial public offering, proceeds from
the issuance of stock and warrants, and a $5.0 million line of credit. At March
31, 1997, the Company had cash, cash equivalents and marketable securities of
$25.6 million, compared to $25.1 million at December 31, 1996. Cash provided by
operations for the three months ended March 31, 1997 increased to $644,000 as
compared to cash used in operations of $3.8 million for the three months ended
March 31, 1996.
In August 1996, the Company renewed a loan agreement with Silicon
Valley Bank which provides for a $5.0 million revolving line of credit facility,
which is secured by the tangible assets of the Company. At March 31, 1997 there
was $5.0 million outstanding under the line of credit. The line of credit
expires in August 1997 and bears interest at the prime rate plus 1.0% per annum
and the Company is required to maintain certain minimum balances of cash, cash
equivalents and marketable securities.
The Company expects that its cash needs will increase significantly in
future periods due to ongoing and planned clinical trials and higher
administrative and marketing expenses as the Company prepares for
commercialization of EchoGen. The Company estimates that existing cash, cash
equivalents and marketable securities will be sufficient to meet the Company's
capital requirements for at least the next 12 months. The Company's future
capital requirements will, however, depend on many factors, including the
progress of the Company's research and development programs, clinical trials,
the time and costs required to gain regulatory approvals, the ability of the
Company to obtain and retain continued funding from third parties under
collaborative agreements, the costs of filing, prosecuting and enforcing
patents, patent applications, patent claims and trademarks, the costs of
marketing and distribution, the status of competing products and the market
acceptance of the Company's products, if and when approved. The Company may have
to raise substantial additional funds to complete development of any product or
to commercialize any products if and when approved by the FDA. There can be no
assurance that additional financing will be available on acceptable terms, if at
all.
8
<PAGE> 9
FORWARD-LOOKING STATEMENTS
This 10-Q report contains trend analysis and other forward-looking
statements. As discussed in the Company's annual report on From 10-K filed March
19, 1997, actual results could differ materially from those projected in the
forward-looking statements as a result of the following factors, among others:
uncertainty of governmental regulatory requirements in the U.S. and foreign
countries; lengthy regulatory approval process; uncertainty of safety and
efficacy; uncertainty of clinical trials; uncertainty of market acceptance;
competitive products; future capital requirements and uncertainty of additional
funding and dependence on third parties for manufacturing, marketing and sales.
9
<PAGE> 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
11.1 Computation of net income (loss) per share
27 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the quarter
ended March 31, 1997.
10
<PAGE> 11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SONUS PHARMACEUTICALS, INC.
Date: May 8, 1997 By: /s/ Gregory Sessler
----------------------------------------------
Gregory Sessler
Chief Financial Officer and
Assistant Secretary
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
11.1 Computation of net income (loss) per share
27 Financial Data Schedule
</TABLE>
10
<PAGE> 1
EXHIBIT 11.1
SONUS PHARMACEUTICALS, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
----------- ------------
<S> <C> <C>
Net income (loss) .................... $ 1,356,187 $(4,707,703)
=========== ===========
Weighted average shares outstanding .. 8,531,352 8,449,879
Net effect of common stock equivalents
using the treasury stock method .... 971,005 -
----------- -----------
Shares used in computation of net
income (loss) per share ............ 9,502,357 8,449,879
=========== ===========
Net income (loss) per share .......... $ 0.14 $ (0.56)
=========== ===========
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,652,651
<SECURITIES> 19,982,889
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,951,952
<PP&E> 2,467,062
<DEPRECIATION> 1,267,204
<TOTAL-ASSETS> 27,216,688
<CURRENT-LIABILITIES> 8,742,058
<BONDS> 0
0
0
<COMMON> 34,313,354
<OTHER-SE> (16,044,551)
<TOTAL-LIABILITY-AND-EQUITY> 27,216,688
<SALES> 0
<TOTAL-REVENUES> 5,100,000
<CGS> 0
<TOTAL-COSTS> 3,771,596
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,188
<INCOME-PRETAX> 1,546,187
<INCOME-TAX> 190,000
<INCOME-CONTINUING> 1,356,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,356,187
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
