-----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, LrTufEKuFx60JT2pob6NgccEMaSvMS4forKjDbvjU/4v3ApWeDwgseDURyrMaZfF iJid4DssUXPwiJGkc3TLFw== 0000950005-98-000901.txt : 19981118 0000950005-98-000901.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950005-98-000901 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98751190 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 10Q 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, 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 (I.R.S. Employer of 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 October 30, 1998: 10,996,683. MICROCIDE PHARMACEUTICALS, INC. INDEX FOR FORM 10-Q SEPTEMBER 30, 1998 PAGE NUMBER PART I FINANCIAL INFORMATION Item 1. Financial Statements and Notes Condensed Balance Sheets as of September 30, 1998 3 and December 31, 1997 Condensed Statements of Operations for the three and nine months ended September 30, 1998 and September 30, 1997 4 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and September 30, 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)
September 30, December 31, 1998 1997 -------- -------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 7,590 $ 11,763 Short-term investments 22,928 28,624 Receivables, prepaid expenses and other current assets 2,387 1,284 -------- -------- Total current assets 32,905 41,671 -------- -------- Property and equipment, net 9,927 9,540 Other assets 335 571 -------- -------- Total assets $ 43,167 $ 51,782 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 702 $ 1,313 Construction payable 17 347 Accrued compensation 840 746 Current portion of capital lease obligations 268 612 Deferred revenue 228 786 Other accrued liabilities 841 632 -------- -------- Total current liabilities 2,896 4,436 -------- -------- Long-term portion of capital lease obligations 47 224 Accrued rent 177 226 Stockholders' equity: Common stock 66,799 66,930 Deferred compensation (588) (1,251) Net unrealized gain (loss) on marketable securities 31 (44) Accumulated deficit (26,195) (18,739) -------- -------- Total stockholders' equity 40,047 46,896 -------- -------- Total liabilities & stockholders' equity $ 43,167 $ 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 Nine Months Ended September 30, September 30, ------------------------- ------------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenues License, milestone and other revenues $ 43 $ 1,054 $ 43 $ 2,054 Research revenue 2,800 3,024 8,635 9,125 -------- -------- -------- -------- Total revenues 2,843 4,078 8,678 11,179 -------- -------- -------- -------- Operating expenses Research and development 4,723 5,078 14,599 13,515 General and administrative 980 1,005 2,991 3,126 -------- -------- -------- -------- Total operating expenses 5,703 6,083 17,590 16,641 -------- -------- -------- -------- Loss from operations (2,860) (2,005) (8,912) (5,462) Interest income, net 456 624 1,456 1,869 -------- -------- -------- -------- Net loss $ (2,404) $ (1,381) $ (7,456) $ (3,593) ======== ======== ======== ======== Net loss per share $ (0.22) $ (0.13) $ (0.68) $ (0.33) ======== ======== ======== ======== Shares used in calculation of net loss per share 10,972 10,843 10,951 10,800 See Notes to Condensed Financial Statements.
-4- MICROCIDE PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF CASH FLOWS Increase (decrease) in cash and cash equivalents (In thousands)
Nine Months Ended September 30, ------------------------------ 1998 1997 -------- -------- Cash flows used in operating activities: Net loss $ (7,456) $ (3,593) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,241 2,231 Amortization of deferred compensation 401 446 Accrued rent (49) 81 Net unrealized gain (loss) on securities 75 (70) Changes in assets and liabilities: Receivables, prepaid expenses and other current assets (1,103) (1,032) Other assets 236 (414) Construction payable (330) (209) Accounts payable (611) (566) Accrued compensation and other accrued liabilities 303 550 Deferred revenue (558) (145) -------- -------- Net cash used in operating activities (6,851) (2,721) -------- -------- Cash flows provided by investing activities: Purchase of short-term investments (13,797) (21,289) Maturities of short-term investments 19,493 25,710 Capital expenditures (2,628) (2,508) -------- -------- Net cash provided by investing activities 3,068 1,913 -------- -------- Cash flows used in financing activities: Principal payments on capital lease obligations (521) (843) Repayment of shareholder note -- 35 Net proceeds from issuance of common stock 131 148 -------- -------- Net cash used in financing activities (390) (660) -------- -------- Net decrease in cash and cash equivalents (4,173) (1,468) Cash and cash equivalents at beginning of period 11,763 8,317 -------- -------- Cash and cash equivalents at end of period $ 7,590 $ 6,849 ======== ======== Supplemental disclosure of cash flow information: Income taxes paid $ 2 $ 22 ======== ======== Interest paid $ 21 $ 116 ======== ======== See Notes to Condensed Financial Statements.
-5- MICROCIDE PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS September 30, 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. 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. 2. Investments Investment securities are classified as available-for-sale (estimated fair value) and consist of the following investments (in thousands): September 30, December 31, 1998 1997 ---------- ---------- Cash equivalents and short-term investments: Money market funds $ 5,620 $ 2,133 Corporate debt securities 22,928 37,417 ---------- ---------- $ 28,548 $ 39,550 ========== ========== -6- 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 nine months ended September 30, 1998 and 1997, the Company's comprehensive loss amounted to $7,381,000 and $3,663,000, 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 fees 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 September 30, 1998, the Company had received in the aggregate $38.9 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 up to an additional $15.8 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 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 with the three major pharmaceutical companies 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, and the period of time for which the Company's existing capital resources and future payments under collaborative agreements will be sufficient to satisfy the Company's funding requirements, expectations concerning the Company's future research and development and general and administrative expenses and the potential impact of the Year 2000 issue. 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, manufacture, 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, or that the Year 2000 issue will have a material impact on the Company, 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. -8- Results of Operations Three Months Ended September 30, 1998 and 1997 Revenues. Total revenues for the third quarter of 1998 were $2.8 million, a decrease of 30% from the $4.1 million in revenues recognized in the third quarter of 1997; the decrease was largely due to $1.0 million in additional revenues associated with the sale of molecular diversity samples in the third quarter of 1997 as compared to the third quarter of 1998. In addition, research support revenue decreased $0.2 million in the third quarter of 1998 due primarily to lower revenues earned from the Daiichi collaborative agreement resulting from a decrease in reimbursable costs associated with the program. Research and Development Expenses. Research and development expenses for the third quarter decreased approximately 8% from $5.1 million in 1997 to $4.7 million in 1998. The decrease was due primarily to lower costs related to assembling the Company's molecular diversity collection and lower expenses for research supplies and materials, partially offset by higher compensation and other employee-related expenses associated with an increase in headcount to support the Company's corporate collaborations and its internal programs, higher costs relating to expanded research and development facilities, and costs associated with providing research support to Iconix Pharmaceuticals related to the viral research program. Research and development expenses are not expected to materially change in the fourth quarter. General and Administrative Expenses. General and administrative expenses for the third quarter were approximately equal at $1.0 million in both 1997 and 1998. General and administrative expenses are not expected to materially change in the fourth quarter. Interest Income, net. Interest income for the third quarter decreased from $665,000 in 1997 to $462,000 in 1998, primarily due to a decrease in average cash balances. Interest expense for the third quarter decreased from $41,000 in 1997 to $6,000 in 1998 due to a decrease in capital lease balances outstanding. Nine Months Ended September 30, 1998 and 1997 Revenues. Total revenues for the first nine months of 1998 were $8.7 million, a decrease of 22% from $11.2 million in revenues for the first nine months of 1997; the decrease was primarily due to an additional $2.0 million in milestone payments and revenues associated with the sales of molecular diversity samples in the first nine months of 1997 as compared to the first nine months of 1998. In addition, research support revenue decreased $0.5 million primarily as a result of lower revenues earned from the Daiichi collaborative agreement resulting from a decrease in reimbursable costs associated with the program. Research and Development Expenses. Research and development expenses for the first nine months of 1998 were $14.6 million, an increase of approximately 8% from $13.5 million in the first nine months of 1997, primarily due to increased compensation and other employee-related expenses associated with an increase in headcount to support the Company's corporate collaborations and its internal programs, higher costs relating to expanded research and development facilities and costs associated with providing research support to Iconix Pharmaceuticals related to the viral research program, partially offset by lower expenses related to assembling the Company's molecular diversity collection, as well as lower expenses for research supplies. General and Administrative Expenses. General and administrative expenses for the first nine months of 1998 decreased approximately 4% from $3.1 million in 1997 to $3.0 million in 1998. Decreased expenses primarily consisted of lower payroll and related expenses and lower operational costs partially offset by an increase in outside service expenses associated with legal and insurance activities and higher costs related to expansion of facilities. Interest Income, net. Interest income for the first nine months of 1998 decreased from $2.0 million in 1997 to $1.5 million in 1998, primarily due to a decrease in average cash balances. Interest expense decreased from $134,000 in the first nine months of 1997 to $21,000 in the first nine months of 1998 due to a decrease in capital lease balances outstanding. -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 September 30, 1998 the Company had received approximately $64.5 million in net proceeds from the sale of equity and approximately $38.9 million from license fees and milestone payments, research support payments under collaborative agreements and sales of molecular diversity samples. Cash, cash equivalents and short-term investments at September 30, 1998 were $30.5 million compared to $40.4 million at December 31, 1997. The decrease during the first nine months of 1998 was due primarily to cash used by operations of $6.9 million, $2.6 million in capital expenditures and $390,000 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. Impact of Year 2000 The "Year 2000" issue generally describes the various problems which may result from the improper processing of dates and date-sensitive calculations. Computers and other equipment containing computer-related components (such as programmable logic controllers and other embedded systems) using two digits to identify the year in a date may not be able to distinguish between dates in the 20th century versus the 21st century. This issue could cause system or equipment malfunctions resulting in material and adverse interruptions in operations. The Company has begun to assess the potential impact of the Year 2000 computer problem on its computer systems, research equipment with embedded chips or software, and on the ability of third parties to supply critical materials and services. The Company has completed the assessment of its computer systems and believes them to be Year 2000 compliant. The Company expects to complete the assessment of its embedded systems and certain third party suppliers by the second quarter of 1999, and to take necessary remediation action by the end of 1999. Expenditures to date have not been material and have consisted solely of the time of certain company personnel. Based on the partial assessment completed through September 30, 1998, the Company does not currently expect the future costs of completing the assessment and making equipment modifications to be material. Although the Company believes its key financial, information and operational systems are Year 2000 compliant, there can be no assurances that other defects will not be discovered in the future. The Company is unable to control whether the firms and vendors it does business with currently, and in the future, will have systems which are Year 2000 compliant. The Company's operations could be affected to the extent that firms and vendors would be unable to provide services or ship products. However, management does not believe the Year 2000 changes will have a material impact on its business, financial condition or results of operations. -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 Deadline for Receipt of Stockholder Proposals Stockholders are entitled to present proposals for action at a forthcoming meeting if they comply with the requirements of the proxy rules established by the Securities and Exchange Commission. Proposals of stockholders of the Company that are intended to be presented by such stockholders at the Company's 1999 Annual Meeting of Stockholders must be received by the Company no later than December 31, 1998 in order that they may be considered for inclusion in the proxy statement and form of proxy relating to that meeting. If a stockholder intends to submit a proposal at the Company's Annual Meeting, which is not eligible for inclusion in the proxy statement relating to that meeting, the stockholder must give the Company notice in accordance with the requirements set forth in the Securities Exchange Act of 1934, as amended, no later than February 14, 1999. If such a stockholder fails to comply with the foregoing notice provision, the proxy holders will be allowed to use their discretionary authority when and if the proposal is raised at the Company's Annual Meeting in 1999. 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. No reports on Form 8-K were filed during the quarter ended September 30, 1998. -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: November 16, 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-27.1 2 FINANCIAL DATA SCHEDULE
5 0001010915 MICROCIDE PHARMACEUTICALS, INC. 1,000 U.S. DOLLARS 3-MOS DEC-31-1998 JUL-01-1998 Sep-30-1998 1 1,970 28,548 1,743 0 0 32,905 18,884 8,957 43,167 2,896 0 0 0 64,484 1,759 43,167 0 2,843 0 5,703 0 0 6 (2,404) 0 (2,404) 0 0 0 (2,404) (0.22) (0.22)
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