-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E/NBe9dgVdDHkulKtUacHYpSa1juCRw00rz8JoqseXQB14WPbqTwXCiPOzj/3ju0 0Dyz05liRf0HVG/IF+m38w== 0000950005-98-000476.txt : 19980518 0000950005-98-000476.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950005-98-000476 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROCIDE PHARMACEUTICALS INC CENTRAL INDEX KEY: 0001010915 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 943186021 STATE OF INCORPORATION: CA FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28006 FILM NUMBER: 98623758 BUSINESS ADDRESS: STREET 1: 850 MAUDE AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4154281550 MAIL ADDRESS: STREET 1: 850 MAUDE AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-28006 MICROCIDE PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) Delaware 94-3186021 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification Number) 850 Maude Avenue, Mountain View, California 94043 (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code: 650-428-1550 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 __ Number of shares of Common Stock, no par value, outstanding as of April 30, 1998: 10,964,900. MICROCIDE PHARMACEUTICALS, INC. INDEX FOR FORM 10-Q MARCH 31, 1998 PAGE NUMBER PART I FINANCIAL INFORMATION Item 1. Financial Statements and Notes Condensed Balance Sheets as of March 31, 1998 3 and December 31, 1997 Condensed Statements of Operations for the three months ended March 31, 1998 and March 31, 1997 4 Condensed Statements of Cash Flows for the three months ended March 31, 1998 and March 31, 1997 5 Notes to Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION 11 Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults in Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES 12 -2- MICROCIDE PHARMACEUTICALS, INC. CONDENSED BALANCE SHEETS (in thousands)
March 31, December 31, 1998 1997 -------- -------- (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $ 6,719 $ 11,763 Short-term investments 30,295 28,624 Prepaid expenses and other current assets 979 1,284 -------- -------- Total current assets 37,993 41,671 Property and equipment, net 9,385 9,540 Other assets 684 571 -------- -------- Total assets $ 48,062 $ 51,782 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 537 $ 1,313 Construction payable -- 347 Accrued compensation 874 746 Current portion of capital lease obligations 459 612 Deferred revenue 632 786 Other accrued liabilities 725 632 -------- -------- Total current liabilities 3,227 4,436 Long-term portion of capital lease obligations 143 224 Accrued rent 261 226 Stockholders' equity: Common stock 66,940 66,930 Deferred compensation (1,119) (1,251) Net unrealized loss on securities available-for-sale (75) (44) Accumulated deficit (21,315) (18,739) -------- -------- Total stockholders' equity 44,431 46,896 -------- -------- Total liabilities and stockholders' equity $ 48,062 $ 51,782 ======== ======== NOTE: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See Notes to Condensed Financial Statements.
-3- MICROCIDE PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
Three Months Ended March 31, ----------------------------- 1998 1997 -------- -------- Revenues: License and milestone fees $ -- $ 1,000 Research revenue 3,035 3,107 -------- -------- Total revenues 3,035 4,107 Operating expenses: Research and development 5,061 4,101 General and administrative 1,058 1,022 -------- -------- Total operating expenses 6,119 5,123 -------- -------- Loss from operations (3,084) (1,016) Interest income 526 688 Interest and other expense (18) (53) -------- -------- Net loss $ (2,576) $ (381) ======== ======== Basic and diluted net loss per share $ (0.24) $ (0.04) ======== ======== Shares used in calculation of basic and diluted net loss per share 10,929 10,760 See Notes to Condensed Financial Statements.
-4- MICROCIDE PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF CASH FLOWS Increase (decrease) in cash and cash equivalents (unaudited) Three Months Ended March 31, -------------------- 1998 1997 -------- -------- Cash flows used in operating activities: Net loss $ (2,576) $ (381) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 787 528 Amortization of deferred compensation 132 145 Accrued rent 35 16 Net unrealized gain (loss) on securities (31) 68 Changes in assets and liabilities: Prepaid expenses and other current assets 305 (231) Other assets (113) 6 Accounts payable (776) (702) Construction payable (347) (698) Accrued compensation and other accrued liabilities 221 269 Deferred revenue (154) 610 -------- -------- Net cash provided by (used in) operating activities (2,517) (370) -------- -------- Cash flows used in investing activities: Purchase of short-term investments (26,746) (39,298) Maturities of short-term investments 25,075 40,640 Capital expenditures (632) (683) -------- -------- Net cash provided by (used in) investing activities (2,303) 659 -------- -------- Cash flows from financing activities: Principal payments on capital lease obligations (234) (295) Repayment of shareholder note receivable -- 35 Net proceeds from issuance of common stock 10 14 -------- -------- Net cash provided by (used in) financing activities (224) (246) -------- -------- Net increase (decrease) in cash and cash equivalents (5,044) 43 Cash and cash equivalents, beginning of period 11,763 8,317 -------- -------- Cash and cash equivalents, end of period $ 6,719 $ 8,360 ======== ======== Supplemental disclosure of cash flow information: Income taxes paid $ 2 $ 21 ======== ======== Interest paid $ 18 $ 42 ======== ======== See Notes to Condensed Financial Statements. -5- MICROCIDE PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS March 31, 1998 (Unaudited) 1. Summary of Significant Accounting Policies Organization and Basis of Presentation Microcide Pharmaceuticals, Inc. (the "Company") is a biopharmaceutical company whose mission is to discover, develop and commercialize novel antimicrobials for the improved treatment of serious bacterial, fungal and viral infections. The Company's discovery and development programs address the growing problem of bacterial drug resistance and the need for improved antifungal and antiviral agents through two principal themes: (i) Targeted Antibiotics, which focuses on developing novel antibiotics and antibiotic potentiators to directly address existing bacterial resistance problems, and (ii) Targeted Genomics, which utilizes bacterial, fungal and viral genetics to discover new classes of antimicrobials and other novel treatments for infectious diseases. On January 14, 1998, the Company announced the formation and financing of Iconix Pharmaceuticals, Inc. ("Iconix"). Iconix is a chemical genetics company which will seek to develop surrogate genetics and chemical informatics research into a technology platform with broad applicability to multiple human diseases. Through a private placement, Iconix arranged a $12.5 million equity investment from institutional investors. After giving effect to the investment and including the initial options pool reserved for employees and consultants of Iconix, Microcide holds approximately 35% of the pro forma fully diluted outstanding equity of Iconix. Microcide will account for its investment using the equity method of accounting and since Microcide's investment has a zero book basis, the losses of Iconix will not impact Microcide's Statement of Operations. 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 include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the interim periods shown herein are not necessarily indicative of operating results for the entire year. This unaudited financial data should be read in conjunction with the financial statements and footnotes contained in the Company's annual report on Form 10-K for the year ended December 31, 1997. -6- 2. Investments Investment securities are classified as available-for-sale (estimated fair value) and consist of the following investments (in thousands): March 31, December 31, 1998 1997 ------- ------- Cash equivalents and short-term investments: Money market funds $ 884 $ 2,133 Corporate debt securities 34,443 37,417 ------- ------- $35,327 $39,550 ======= ======= 3. Per Share Information Effective December 31, 1997, the Company adopted statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128 requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share, if more dilutive, for all periods presented. In accordance with SFAS 128, basic net loss per share has been computed using the weighted-average number of shares of Common Stock outstanding during the period. Diluted net loss per share has not been presented; given the Company's net loss position, the result would be anti-dilutive. 4. Changes in Accounting Standards As of January 31, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 established new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement has no impact on the Company's net loss or stockholders' equity. SFAS 130 requires, among other things, unrealized gains or losses on the Company's securities to be included in comprehensive income or loss. During the three months ended March 31, 1998 and 1997, the Company's comprehensive loss amounted to $2,607,000 and $313,000, respectively. -7- MICROCIDE PHARMACEUTICALS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview As part of the Company's strategy to enhance its research and development capabilities and to fund, in part, its capital requirements, Microcide has entered into collaborative agreements with three major pharmaceutical companies. The Company has received license fees, research support payments and milestone payments pursuant to these agreements and can potentially receive additional research support payments, additional milestone payments and royalty payments. License payments are typically nonrefundable up-front payments for licenses to develop, manufacture and market products, if any, that are developed as a result of the collaboration. Research support payments are typically contractually obligated payments to fund research and development over the term of the collaboration. Milestone payments are payments contingent upon the achievement of specified milestones, such as selection of candidates for drug development, the commencement of clinical trials or receipt of regulatory approvals. If drugs are successfully developed and commercialized as a result of the collaborative agreements, the Company will receive royalty payments based upon the net sales of such drugs. Through March 31, 1998, the Company had received in the aggregate $33.0 million in license fees, milestone payments and research support payments under the collaborative agreements. Assuming none of the existing collaborative agreements is terminated prior to its scheduled expiration, the Company will be entitled to receive an additional $18.0 million of research support payments. In addition, in the event that any of the collaborative agreements are extended beyond their current terms, the Company will be entitled to receive additional research support payments. In March 1998, Daiichi Pharmaceutical Co., Ltd. exercised its option to extend their collaborative agreement with Microcide for another year. In the event that the Company achieves the specified research and product development milestones, the Company will be entitled to receive milestone payments under its collaborative agreements ranging from $13.0 million to $32.5 million per product. No royalty payments have yet been received and the Company does not expect to receive royalties based upon the net sales of drugs for a significant number of years, if ever. Quarterly results of operations are subject to significant fluctuations based on the timing and amount of certain revenues earned under the collaborative agreements. The Company expects to incur operating losses in the future. This Form 10-Q contains forward-looking statements based upon current expectations, including statements with regard to the potential receipt of additional research support payments, milestone payments and royalties from the Company's collaborative partners, the period of time the Company's existing capital resources and future payments under collaborative agreements -8- will be sufficient to satisfy the Company's funding requirements. Such forward-looking statements involve risk and uncertainties, including without limitation, the risk that the Company's collaborations will be terminated, development candidates will not be identified, development candidates which are selected will not proceed through pre-clinical trials or will not prove safe and effective for treatment of humans in clinical trials, or that the identification, selection, pre-clinical, and clinical testing of development candidates will take substantially longer or be substantially more expensive than contemplated by the Company, or that the Company will not be able to obtain on a timely basis government regulatory clearance required for clinical testing, manufacturing, and marketing of its products, and the other risks and uncertainties set forth in the Company's annual report on Form 10-K for the year ended December 31, 1997. Actual results and timing of certain events could differ materially from those indicated in the forward-looking statements as a result of these or other factors. Results of Operations Three Months Ended March 31, 1998 and 1997 Revenues. Total revenues for the first quarter of 1998 were $3.0 million, a decrease of approximately 26% from the $4.1 million in revenues earned in the first quarter of 1997. The decline in revenues for the first quarter of 1998 relative to the first quarter of 1997 was largely due to the fact that there were no license and milestone fees in the first quarter of 1998 as compared to a $1.0 million milestone fee earned in the first quarter of 1997. Research and Development Expenses. Research and development expenses for the first quarter increased approximately 23% from $4.1 million in 1997 to $5.1 million in 1998, primarily due to increased compensation and other expenses related to increased headcount to support the Company's corporate collaborations and its internal programs. Additionally, expenditures for research materials and outside research contributed to the increase in research and development expenses. Research and development expenses are expected to further increase in the second quarter as the Company adds research personnel to support its corporate collaborations and internal programs, and due to increased expenses associated with the Company's antiviral research program with Iconix. General and Administrative Expenses. General and administrative expenses for the first quarter increased approximately 4% from $1.0 million in 1997 to $1.1 million in 1998. This increase in expenses was due primarily to higher facilities costs partially offset by a reduction of compensation expenses attributable to management and administrative personnel. General and administrative expenses are not expected to change significantly in the second quarter as compared to the first quarter of 1998. Interest Income and Expense. Interest income for the first quarter decreased from $688,000 in 1997 to $526,000 in 1998, primarily due to a decrease in average cash balances in the first quarter of 1998. Interest and other expense for the first quarter decreased from $53,000 in 1997 to $18,000 in 1998 due to a decrease in capital lease balances outstanding. Net Loss. The net loss for the first quarter of 1998 was $2.6 million as compared to a net loss of $381,000 in the first quarter of 1997, primarily as a result of the items discussed above. -9- Liquidity and Capital Resources The Company has financed its operations since inception primarily through the sale of equity, through funds provided under collaborative agreements, through other revenues principally consisting of sales of molecular diversity samples and through equipment financing. As of March 31, 1998 the Company had received $64.4 million from the sale of equity and $34.7 million in cash from license and milestone fees, research support payments under collaborative agreements and sales of molecular diversity samples. Cash, cash equivalents and short-term investments at March 31, 1998 were $37.0 million compared to $40.4 million at December 31, 1997. The decrease during the first quarter of 1998 was due primarily to cash used by operations of $2.5 million, $632,000 in capital expenditures and $224,000 utilized in financing activities which predominantly consisted of principal payments on capital lease obligations. The Company believes that its existing capital resources, interest income and future payments due under collaborative agreements will enable the Company to maintain current and planned operations at least through 1999. -10- PART II OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults in Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits have been filed with this report: 27.1 Financial Data Schedule (b) Reports on Form 8-K: On January 29, 1998, the Company filed a report on Form 8-K, as amended on January 30, 1998 and March 30, 1998, in connection with its collaboration with Iconix Pharmaceuticals, Inc. (formerly EpiGenix, Inc.). The Form 8-K/A filed March 30, 1998 contains financial statements required by Article 11 of Reg. S-X. -11- 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. Dated: March 14, 1998 MICROCIDE PHARMACEUTICALS, INC. ------------------------------- (Registrant) /s/ James E. Rurka ------------------ President, Chief Executive Officer and Director (principal executive officer) /s/ Matthew J. Hogan -------------------- Chief Financial Officer (principal financial and accounting officer) -12- EX-27 2 FINANCIAL DATA SCHEDULE
5 0001010915 MICROCIDE PHARMACEUTICALS, INC. 1,000 U.S. DOLLARS 3-MOS DEC-31-1998 JAN-31-1998 MAR-31-1998 1 6,719 30,295 0 0 0 37,993 16,887 7,502 48,062 3,227 0 0 0 64,361 1,384 48,062 0 3,035 0 6,119 0 0 18 (2,576) 0 (2,576) 0 0 0 (2,576) (0.24) (0.24)
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