-----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, RGP30XdSFgOnEgYTt3OskX614aUid3f2pzQTNut8DB1V45wiqaZJfWRhuF3y7GMZ s7o+GvqQW1EV7qJ4boVDzQ== 0000950005-99-000999.txt : 19991117 0000950005-99-000999.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950005-99-000999 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99753881 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 SEPTEMBER 30, 1999 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 November 1, 1999: 11,137,922. MICROCIDE PHARMACEUTICALS, INC. INDEX FOR FORM 10-Q SEPTEMBER 30, 1999 PAGE NUMBER PART I FINANCIAL INFORMATION Item 1. Financial Statements and Notes Condensed Balance Sheets as of September 30, 1999 3 and December 31, 1998 Condensed Statements of Operations for the three and nine months ended September 30, 1999 and September 30, 1998 4 Condensed Statements of Cash Flows for the nine months ended September 30, 1999 and September 30, 1998 5 Notes to Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures about Market Risk 10 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, 1999 1998 ---- ---- (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $ 8,483 $ 7,794 Short-term investments 15,181 25,398 Receivables, prepaid expenses and other current assets 1,725 590 ---------- ---------- Total current assets 25,389 33,782 Property and equipment, net 8,178 9,755 Other assets 912 953 ---------- ---------- Total assets $ 34,479 $ 44,490 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 245 $ 642 Accrued compensation 646 920 Current portion of notes payable 1,291 1,129 Deferred revenue 326 300 Other accrued liabilities 1,092 522 ---------- ---------- Total current liabilities 3,600 3,513 Long-term portion of notes payable 1,933 2,912 Accrued rent 230 127 Stockholders' equity: Common stock 67,003 66,902 Deferred compensation (87) (464) Accumulated deficit (38,156) (28,497) Accumulated other comprehensive loss (44) (3) ---------- ---------- Total stockholders' equity 28,716 37,938 ---------- ---------- Total liabilities and stockholders' equity $ 34,479 $ 44,490 ========== ========== NOTE: The balance sheet at December 31, 1998 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, --------------------------- --------------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Revenues: Research revenue $ 1,560 $ 2,800 $ 5,498 $ 8,635 License, milestone and other revenues 32 43 331 43 -------- -------- -------- -------- Total revenues 1,592 2,843 5,829 8,678 Operating expenses: Research and development 4,044 4,723 13,249 14,599 General and administrative 1,103 980 3,087 2,991 -------- -------- -------- -------- Total operating expenses 5,147 5,703 16,336 17,590 -------- -------- -------- -------- Loss from operations (3,555) (2,860) (10,507) (8,912) Interest income, net 261 456 848 1,456 -------- -------- -------- -------- Net loss $ (3,294) $ (2,404) $ (9,659) $ (7,456) ======== ======== ======== ======== Net loss per share $ (0.30) $ (0.22) $ (0.87) $ (0.68) ======== ======== ======== ======== Shares used in calculation of net loss per share 11,105 10,972 11,069 10,951 See Notes to Condensed Financial Statements.
-4- MICROCIDE PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF CASH FLOWS Increase (decrease) in cash and cash equivalents (unaudited)
Nine Months Ended September 30, ----------------- 1999 1998 ---- ---- Cash flows used in operating activities: Net loss $ (9,659) $ (7,456) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,075 2,241 Amortization of deferred compensation 377 401 Accrued rent 103 (49) Net unrealized loss on securities (41) 75 Changes in assets and liabilities: Receivables, prepaid expenses and other current assets (1,135) (1,103) Other assets 41 236 Construction payable -- (330) Accounts payable (397) (611) Accrued compensation and other accrued liabilities 296 303 Deferred revenue 26 (558) -------- -------- Net cash used in operating activities (8,314) (6,851) -------- -------- Cash flows used in investing activities: Purchase of short-term investments (24,190) (13,797) Maturities of short-term investments 34,407 19,493 Capital expenditures (498) (2,628) -------- -------- Net cash provided by investing activities 9,719 3,068 -------- -------- Cash flows from financing activities: Principal payments on notes payable (817) (521) Net proceeds from issuance of common stock 101 131 -------- -------- Net cash used in financing activities (716) (390) -------- -------- Net increase (decrease) in cash and cash equivalents 689 (4,173) Cash and cash equivalents, beginning of period 7,794 11,763 -------- -------- Cash and cash equivalents, end of period $ 8,483 $ 7,590 ======== ======== Supplemental disclosure of cash flow information: Income taxes paid $ 1 $ 2 ======== ======== Interest paid $ 270 $ 21 ======== ======== See Notes to Condensed Financial Statements.
-5- MICROCIDE PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS September 30, 1999 (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 and fungal 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, 1998. 2. 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. 3. Changes in Accounting Standards Effective 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, 1999 and 1998, the Company's comprehensive loss amounted to approximately $9.7 million and $7.4 million, respectively. -6- ITEM 2. 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. In addition, the Company has derived other revenues principally through the sale of molecular diversity samples to other pharmaceutical and biotechnology companies for use in their research programs. Through September 30, 1999, the Company had received in the aggregate $45.9 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 $10.6 million of research support payments. In addition, in the event that any of the collaborative agreements is extended beyond its current term, 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 for human use. 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, the continuation of existing collaborative agreements, expectations concerning the Company's future research and development and general and administrative expenses, the potential impact of the Year 2000 issue and the market risk of the Company's investments. 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 or animals in clinical trials, or that the identification, selection, manufacture, pre-clinical testing, 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 -7- December 31, 1998. 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 September 30, 1999 and September 30, 1998 Revenues. Total revenues for the third quarter of 1999 were $1.6 million, a decrease of 43% from the $2.8 million in revenues recognized in the third quarter of 1998. Revenues were largely derived from corporate partnerships with Pfizer and two affiliates of Johnson & Johnson ("J&J"). The decline in comparative revenues during these periods was due to the conclusion of the Daiichi collaboration at the end of the first quarter of 1999 and lower revenues recognized from the J&J collaboration, partially offset by increased revenues from Pfizer related to the initiation of research under the Pfizer Animal Health agreement. Research and Development Expenses. Research and development expenses for the third quarter decreased approximately 15% from $4.7 million in 1998 to $4.0 million in 1999. The decrease was due primarily to lower compensation expenses resulting from a reduction in headcount and lower spending for research supplies and materials, partially offset by higher research support expenses associated with the Company's antiviral discovery and joint technology programs with Iconix. 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 increased approximately 10% from $1.0 million in 1998 to $1.1 million in 1999. The increase was due primarily to higher expenses for recruiting and outside consulting services, partially offset by lower compensation expenses resulting from a reduction in headcount. 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 $447,000 in 1998 to $343,000 in 1999, primarily due to a decrease in average cash balances. Interest expense for the third quarter of 1999 was higher than in 1998, primarily due to an equipment financing arrangement entered into at the end of 1998. Nine Months Ended September 30, 1999 and September 30, 1998 Revenues. Total revenues for the first nine months of 1999 were $5.8 million, a decrease of 33% from the $8.7 million in revenues recognized in the first nine months of 1998. Revenues were largely derived from corporate partnerships with Pfizer, Daiichi and J&J. The decline in comparative revenues during these periods was due to the conclusion of the Daiichi collaboration at the end of the first quarter of 1999 and lower revenues recognized from the J&J collaboration, partially offset by increased revenues from Pfizer related to the initiation of research under the Pfizer Animal Health agreement, and the sale of molecular diversity samples to Iconix. Revenues related to the sale of molecular diversity samples to Iconix were exactly offset by an increase in expenses charged to Microcide as part of the antiviral research collaboration with Iconix. Research and Development Expenses. Research and development expenses for the first nine months decreased approximately 10% from $14.6 million in 1998 to $13.2 million in 1999. The decrease was due primarily to lower compensation expenses resulting from a reduction in headcount, lower spending for research supplies and materials, lower depreciation costs, lower spending related to assembling the Company's molecular diversity collection and lower spending for outside consulting services and facility costs. These decreases were partially offset by higher research support expenses associated with the Company's antiviral discovery and joint technology programs with Iconix. -8- General and Administrative Expenses. General and administrative expenses for the first nine months increased approximately 3% from $3.0 million in 1998 to $3.1 million in 1999. The increase was due primarily to higher expenses for recruiting and outside services. Interest Income, net. Interest income for the first nine months decreased from $1.5 million in 1998 to $1.1 million in 1999, primarily due to a decrease in average cash balances. Interest expense for the first nine months increased from $21,000 in 1998 to $270,000 in 1999, primarily due to an equipment financing arrangement entered into at the end of 1998. 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, 1999, the Company had received approximately $67.0 million in net proceeds from the sale of equity, approximately $45.9 million from license fees, milestone payments and research support payments under collaborative agreements and $4.0 million from equipment financing. Cash, cash equivalents and short-term investments at September 30, 1999 were $23.7 million compared to $33.2 million at December 31, 1998. The decrease during the first nine months of 1999 was due primarily to cash used by operations of $8.3 million, $498,000 in capital expenditures and $817,000 utilized in financing activities which predominantly consisted of principal payments on the Company's equipment financing arrangement. This was partially offset by $101,000 in net proceeds from the issuance of common stock. 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 2000. 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. As of September 30, 1999, the Company has completed its assessment, repair, upgrade and replacement of its computer systems and research equipment with embedded chips or software and believes them to be Year 2000 compliant. The Company has also completed its survey and analysis regarding the readiness of third parties with whom the Company interacts, including the Company's research and development partners, suppliers and vendors and believes them to be Year 2000 compliant. While there can be no assurance that the systems of these third parties are Year 2000 compliant, the Company does not believe that its business, operating results and financial condition would be adversely affected. Although the Company believes its key financial, information and operational systems are Year 2000 compliant, there can be no assurance that other defects will not be discovered in the future. The Company is unable to control whether the third parties 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 these third parties would be unable to provide services or ship products. Expenditures to date have not been material and have consisted primarily of the time of certain Company personnel. Management does not believe the Year 2000 changes will have a material impact on its business, financial condition or results of operations. Because of this, the Company does not have a formal contingency plan; however, if deemed appropriate in the future, the Company would implement one. -9- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about the Company's market risk disclosure involves forward-looking statements. The Company is exposed to market risk related mainly to changes in interest rates. The Company does not invest in derivative financial instruments. Interest Rate Sensitivity The fair value of the Company's investments in marketable securities at September 30, 1999 was $21.3 million. The Company's investment policy is to manage its marketable securities portfolio to preserve principal and liquidity while maximizing the return on the investment portfolio. The Company's marketable securities portfolio is primarily invested in corporate debt securities with an average maturity of under one year and a minimum investment grade rating of A, A-1 or better to minimize credit risk. Although changes in interest rates may affect the fair value of the marketable securities portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments are sold prior to maturity. Foreign Currency Exchange Risk At this time, the Company does not participate in any foreign currency exchange activities; therefore, is not subject to risk of gains or losses for changes in foreign exchange rates. -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. No reports on Form 8-K were filed during the quarter ended September 30, 1999. -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 15, 1999 MICROCIDE PHARMACEUTICALS, INC. ----------------------------------- (Registrant) /s/ James E. Rurka ----------------------------------- President, Chief Executive Officer, Acting Chief Financial Officer and Director (principal executive officer and principal financial officer) -12- EX-27.1 2 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 0001010915 MICROCIDE PHARMACEUTICALS, INC. 1,000 U.S. DOLLARS QTR-3 DEC-31-1999 JUL-1-1999 SEP-30-1999 1 8,483 15,181 754 0 0 25,389 19,843 (11,665) 34,479 3,600 0 0 0 67,003 (38,287) 34,479 0 1,592 0 5,147 0 0 82 (3,294) 0 (3,294) 0 0 0 (3,294) (0.30) (0.30)
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