-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, aoanHHmHXfoLetbiHuZWcvTsrV7BcQAY4NhvO4PdTptjprsP7XKqLtPlj45CK/Fl ynuK+4iwjegm3y8rOp8WdQ== 0000730358-94-000028.txt : 19941122 0000730358-94-000028.hdr.sgml : 19941122 ACCESSION NUMBER: 0000730358-94-000028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNERGEN INC CENTRAL INDEX KEY: 0000730358 STANDARD INDUSTRIAL CLASSIFICATION: 2834 IRS NUMBER: 840868248 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14339 FILM NUMBER: 94559171 BUSINESS ADDRESS: STREET 1: 1885 33RD ST CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3039386200 MAIL ADDRESS: STREET 1: 1885 33RD STREET CITY: BOULDER STATE: CO ZIP: 80301 10-Q 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994 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 0-14339 SYNERGEN, INC. (Exact name of registrant as specified in charter) Delaware 84-0868248 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1885 33rd Street Boulder, Colorado 80301 (Address of principal executive offices) (Zip Code) (303) 938-6200 (Registrant's telephone number, including area code) N.A. (Former name, former address and former fiscal year, if changed since last report) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Applicable only to issuers involved in bankruptcy proceedings during the preceding five years: N.A. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ___ No ___ Applicable only to corporate issuers: As of October 31, 1994, there were outstanding 25,932,798 shares of Synergen, Inc. Common Stock - par value $.01. PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SYNERGEN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
Three Months Ended September 30, Nine Months Ended September 30, 1994 1993 1994 1993 REVENUES: Sponsored research and development $ 2,515,400 $ 2,641,000 $ 10,781,200 $ 10,112,200 Interest and other income 1,312,400 2,062,000 4,003,200 7,628,600 ----------- ----------- ------------ ------------ TOTAL REVENUES 3,827,800 4,703,000 14,784,400 17,740,800 EXPENSES: Research and development 14,021,000 19,379,700 53,192,100 66,602,200 General and administrative 3,639,300 3,542,400 13,062,100 13,751,700 Restructuring and asset impairment charges 33,279,200 -- 39,079,200 2,000,000 Interest 30,700 173,700 132,400 356,800 ----------- ----------- ----------- ----------- TOTAL EXPENSES 50,970,200 23,095,800 105,465,800 82,710,700 ----------- ----------- ----------- ----------- Loss before cumulative effect of change in accounting principle (47,142,400) (18,392,800) ( 90,681,400) (64,969,900) Cumulative effect of change in accounting principle -- -- -- ( 2,417,800) ---------- ---------- ---------- ----------- NET LOSS $(47,142,400) $(18,392,800) $(90,681,400) $(67,387,700) ========== ========== ========== ========== LOSS PER SHARE: Loss before cumulative effect of change in accounting principle $ (1.83) $ (0.73) $ (3.52) $ (2.58) Cumulative effect of change in accounting principle -- -- -- (0.09) ---------- ---------- ---------- ---------- NET LOSS PER SHARE $ (1.83) $ (0.73) $ (3.52) $ (2.67) ========== ========== ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 25,779,300 25,274,500 25,746,800 25,163,900 ========== ========== ========== ========== See notes to consolidated financial statements.
SYNERGEN, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (unaudited) ASSETS
September 30, December 31, 1994 1993 CURRENT ASSETS: Cash and cash equivalents $ 6,271,300 $ 51,579,100 Short-term investments 104,979,200 104,637,200 Accounts receivable (No allowance for doubtful accounts considered necessary) 9,655,400 13,277,200 Receivable from Synergen Clinical Partners -- 6,200,000 Accrued interest receivable 609,800 779,200 Restricted short-term investments 8,253,200 -- Prepaid expenses and other 1,735,700 2,975,400 ----------- ----------- TOTAL CURRENT ASSETS 131,504,600 179,448,100 PROPERTY AND EQUIPMENT, Net 53,899,700 86,856,100 OTHER ASSETS: Restricted short-term investments 200,000 4,630,100 Other 2,458,100 5,123,400 ----------- ----------- TOTAL OTHER ASSETS 2,658,100 9,753,500 ----------- ----------- TOTAL ASSETS $188,062,400 $276,057,700 =========== =========== See notes to consolidated financial statements.
SYNERGEN, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31, 1994 1993 CURRENT LIABILITIES: Accounts payable and accrued expenses $ 11,539,700 $ 11,229,100 Industrial Development Revenue Bonds 6,000,000 -- ------------ ------------ TOTAL CURRENT LIABILITIES 17,539,700 11,229,100 INDUSTRIAL DEVELOPMENT REVENUE BONDS -- 6,000,000 STOCKHOLDERS' EQUITY: Preferred Stock, $.01 par value; authorized, 10,000,000 shares; none issued Common Stock, $.01 par value; authorized, 120,000,000 shares; issued: 25,921,880 and 25,666,186 shares 259,200 256,700 Additional paid-in capital, net 409,557,400 408,369,500 Deficit (239,503,100) (148,821,700) Deferred compensation, net 209,200 (975,900) ------------ ----------- TOTAL STOCKHOLDERS' EQUITY 170,522,700 258,828,600 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 188,062,400 $ 276,057,700 ============ ============ See notes to consolidated financial statements.
SYNERGEN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Nine Months Ended September 30, 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(90,681,400) $ (64,472,700) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization of assets 8,006,400 6,944,300 Amortization of receivable for warrants and deferred compensation 947,200 1,438,400 Impairment of assets and restructuring 33,991,400 -- Change in operating assets and liabilities: Accounts receivable 3,621,800 5,533,400 Accrued interest receivable 169,400 874,200 Prepaid expenses and other (1,683,300) (382,600) Accounts payable and accrued expenses 310,700 (1,524,900) Unearned revenue, net -- (779,900) ----------- ----------- Total Adjustments 45,363,600 12,102,900 ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (45,317,800) (52,369,800) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1,266,700) (15,561,400) Net (purchase) redemption of short-term investments (4,165,100) 126,268,300 Payment received on note receivable from affiliate 5,905,700 -- Other assets (1,254,100) (465,700) ---------- ----------- NET CASH PROVIDED BY INVESTING ACTIVITIES $ (780,200) $ 110,241,200 (continued) See notes to consolidated financial statements.
SYNERGEN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Nine Months Ended September 30, 1994 1993 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock and other, net $ 790,200 $ 580,500 ----------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (45,307,800) 58,451,900 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 51,579,100 2,632,100 ----------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,271,300 $61,084,000 =========== ========== See notes to consolidated statements.
SYNERGEN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Accounting Policies The consolidated balance sheets as of September 30, 1994, the related consolidated statements of operations for the three-month and nine-month periods ended September 30, 1994 and 1993, and the consolidated statements of cash flows for the nine-month periods ended September 30, 1994 and 1993, are unaudited, but in management's opinion, include all adjustments, consisting only of normal recurring adjustments except as otherwise disclosed, necessary for a fair presentation of such financial statements. Interim results are not necessarily indicative of results for a full year. The financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 1993. The accounting policies used in the preparation of these financial statements are the same as those used in the Company's annual financial statements except as modified for appropriate interim accounting policies. Certain reclassifications have been made to the Company's 1993 financial statements to conform them to 1994 classifications. The consolidated statements of operations for the nine months ended September 30, 1993, and consolidated statement of cash flows for the three-month and nine-month periods ending September 30, 1993, have been restated to reflect the Company's change in its method of accounting for external patent development costs. Pursuant to Financial Accounting Standard No. 52, the financial position and results of the Company's European and Japanese subsidiaries are measured using the local currency as the functional currency. The balance sheet has been translated at the exchange rate in effect at September 30, 1994, while revenues and expenses have been translated at the average exchange rate on a monthly basis. The aggregate effect of translation is being deferred as a component of stockholders' equity. At September 30, 1994, the translation effect was $139,800 and is reported within additional paid-in capital. 2. Asset Impairment and Restructuring Charges On July 15, 1994, Synergen learned that an interim analysis of the follow-up Phase III clinical trial of interleukin-1 receptor antagonist (IL-1ra) showed a lack of efficacy for severe sepsis. As a result, certain assets were determined to be impaired and were written down to estimated net realizable value. In August, Synergen announced a restructuring which included a termination of 60 percent of the Company's workforce (approximately 375 employees) and elimination of some operations and development activities. Synergen recorded an asset impairment charge of $5.8 million in the second quarter of 1994 for assets used primarily for the production of IL-1ra and asset impairment and restructuring charges of $33.3 million in the third quarter of 1994 primarily related to the discontinuation of the sepsis trial and the Company's decision to restructure its operations. The third quarter charges of $33.3 million were comprised of restructuring charges of $7.3 million and asset impairment charges of $26 million. Of the third quarter asset impairment charges, $22.6 million related to the write-down of the LakeCentre manufacturing facility, $1.9 million was due to other assets impaired as a result of the restructuring and the remaining $1.5 million was a charge against the Company's equity investment in Selectide Corporation based on their recent rights offering. The charge against the LakeCentre facility was based on a preliminary independent appraisal of the property which estimated the net realizable value of the property. The Company may take additional charges against the LakeCentre facility in the future. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Overview Synergen has focused its resources since inception on research and development of biotechnology products, principally pharmaceuticals. After it obtained the results of its initial Phase III clinical trial of interleukin-1 receptor antagonist (IL-1ra) for the treatment of sepsis in February of 1993, the Company restructured its organization and reprioritized its clinical programs, making the completion of a follow-up Phase III clinical trial of IL-1ra for the treatment of severe sepsis its first priority. On July 15, 1994, an independent safety and efficacy monitoring committee (SEMC) conducted an interim analysis of the results of the follow- up Phase III clinical trial of IL-1ra for severe sepsis. The SEMC concluded that the data showed a lack of efficacy of IL-1ra for severe sepsis, and that continuation of the trial would not likely produce evidence of efficacy. As a result, Synergen stopped the Phase III trial of IL-1ra for the treatment of severe sepsis. In addition, the Company has withdrawn marketing approval applications for IL-1ra for severe sepsis that were previously filed with the European Union and a number of other countries. In order to conserve cash and direct its efforts toward its most promising opportunities, the Company has eliminated significant operations and reduced personnel by approximately 60 percent. The reductions occurred in those areas that primarily supported the development of IL-1ra for severe sepsis, including the Company's clinical and commercial manufacturing groups. The Company believes the restructured organization has the capabilities and expertise required to develop its current portfolio of potential products through Phase II clinical trials. Due to the results of the interim analysis of the Phase III clinical trial of IL-1ra for severe sepsis and the restructuring of the Company's operations, the Company recognized certain asset impairment and restructuring charges. See "Three Months Ended September 30, 1994 and 1993." At this time, the Company plans to continue the ongoing Phase II trial of IL-1ra for the treatment of rheumatoid arthritis, which is being conducted in Europe. Development of other indications for IL- 1ra will be evaluated individually. The Company plans to continue with its clinical development of ciliary neurotrophic factor (CNTF) for amyotrophic lateral sclerosis (ALS or Lou Gehrig's disease) through a joint venture with Syntex (U.S.A.) Inc. (Syntex); preclinical and clinical development of tumor necrosis factor binding protein (TNFbp) for inflammatory diseases; and preclinical evaluation of glial derived neurotrophic factor (GDNF) for Parkinson's disease. The Company is also exploring various strategic alternatives for its business and research and development operations. See "Liquidity and Capital Resources." Three Months Ended September 30, 1994 and 1993 Sponsored research and development revenues consisted of funding from the Syntex-Synergen Neuroscience Joint Venture (Joint Venture) and were approximately the same for the three months ended September 30, 1993 compared to the three months ended September 30, 1994. Interest and other income decreased 36 percent from the third quarter of 1993 to the third quarter of 1994, primarily due to a decrease in the average amount of cash available for investment. Interest income will continue to decrease during 1994 as cash available for investment is used to fund operating costs. Total research and development expenses decreased 28 percent for the three months ended September 30, 1993 compared to the three months ended September 30, 1994, primarily due to a decrease in personnel and a reprioritization of the Company's projects as a result of the August 1994 restructuring. The Company recorded a $33.3 million charge for asset impairments and restructuring in the third quarter of 1994 primarily due to the results of the interim analysis of the Phase III trial of IL-1ra for severe sepsis and the Company's decision to stop the trial and restructure its operations. The charge consisted of non-cash asset impairment charges of $26 million and restructuring charges of $7.3 million. Approximately $5 million of the restructuring charges represented cash expenditures, primarily related to severance costs. The $26 million asset impairment charges included a $22.6 million charge against the LakeCentre manufacturing plant which previously had a book value of approximately $40 million. The charge against the LakeCentre facility was based on a preliminary independent appraisal which estimated the net realizable value of the property. The Company may take additional charges against the LakeCentre facility in the future. In addition to LakeCentre, certain property and equipment in United States and the European and Japanese operations were written down by $1.9 million due to the Company's decision to restructure. These assets consist primarily of property and equipment that have been or are being sold. The remainder of the third quarter asset impairment charge was a write-down of the Company's equity investment in Selectide Corporation from $3 million to $1.5 million based on their recent rights offering. Capital expenditures were $0.5 million and $2.3 million for the three months ended September 30, 1994 and 1993, respectively. The decrease was primarily due to a reduction in personnel and a reprioritization of the Company's projects as a result of the August 1994 restructuring. Nine Months Ended September 30, 1994 and 1993 Sponsored research and development revenues increased 7 percent for the nine months ended September 30, 1993 compared to the nine months ended September 30, 1994, primarily due to funding from the Joint Venture for increased patient enrollment in the Joint Venture's Phase II/III trial of CNTF during the first half of 1994 and the full recognition of revenue attributable to Clinical Partners by the first quarter of 1993. These increased revenues were offset by approximately the same amount of increased expenditures incurred on behalf of the Joint Venture. Interest and other income decreased 48 percent for the first nine months of 1993 compared to the first nine months of 1994, primarily due to a decrease in the average amount of cash available for investment. Interest income will continue to decrease during 1994 as cash available for investment is used to fund operating costs. Total research and development expenses decreased 20 percent for the nine months ended September 30, 1993 compared to the nine months ended September 30, 1994, primarily due to a decrease in personnel and a reprioritization of the Company's projects as a result of the restructuring that took place during the third quarter of 1994. The Company recorded a $39.1 million charge for restructuring and asset impairment in the first nine months of 1994. In the second quarter of 1994, $5.8 million was charged against assets impaired by the results of the interim analysis and which were used primarily for the production of IL-1ra. In the third quarter of 1994, $33.3 million was charged against restructuring and asset impairment. See "Three Months Ended September 30, 1994 and 1993." Capital expenditures were $1.5 million and $15.6 million for the nine months ended September 30, 1994 and 1993, respectively. The decrease was primarily due to a reduction in personnel and a reprioritization of the Company's projects as a result of the restructuring that took place during the second quarter of 1993. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations since inception primarily from payments from joint development agreements, research and development limited partnerships, interest earned on short-term investments, and proceeds from the sale of equity securities. The Syntex-Synergen Neuroscience Joint Venture to develop certain neurotrophic factors is the Company's only existing third-party joint development arrangement that provides funding to the Company. Funding available from Syntex under that agreement is expected to be fully utilized in the first half of 1995. At that time, Synergen may incur funding obligations to the Joint Venture and revenues recognized from the Joint Venture may decline. The Company's use of joint development arrangements and limited partnerships to fund research and development programs and the sale of equity securities have permitted the Company to maintain significant levels of cash and other liquid investments. Cash, short-term investments, and restricted short-term investments at September 30, 1994, and December 31, 1993, were $120 million and $161 million, respectively. The decrease is attributable primarily to cash used in operations. At September 30, 1994, there was no material difference between the net book value and fair market value of short-term investments. The Company has taken steps to significantly reduce the amount of cash used to fund ongoing operations. These steps include reduction of Synergen's and its subsidiaries' staffs by approximately 60 percent and elimination of certain programs and operations, including its Japanese operations and most of its European operations. In addition, the Company may sell or lease certain of its real property holdings. As a result of the restructuring, the Company recognized a restructuring charge of $7.3 million in the third quarter of 1994 (see "Three Months Ended September 30, 1994 and 1993"). Approximately $5 million of this amount were cash charges, of which approximately $2 million will be expended after September 30, 1994. The Company has $6 million of Industrial Development Revenue Bonds outstanding. The Company intends to redeem all of the outstanding bonds in the fourth quarter of 1994. The bonds are collateralized with approximately $8.3 million of restricted short-term investments which appears under current assets in the Consolidated Balance Sheet. Until the Company's operations generate significant revenues, cash reserves will continue to fund operations. The Company currently expects that its existing cash will fund operations for the next several years based on its current estimates of the cash requirements of its restructured operations and assuming no extraordinary cash requirements. The Company may pursue opportunities to obtain additional financings in the future. Such financing may be sought through various sources, including bank borrowings, lease arrangements relating to fixed assets, or other financing methods. There can be no assurances that such financing can be obtained or can be obtained on favorable terms. In addition, the Company's ability to raise additional capital through equity financings in the near future may be negatively impacted because of the termination of the follow-up Phase III trial of IL-1ra for severe sepsis, the withdrawal of the marketing approval application for IL-1ra for severe sepsis in the European Union and other countries, and the reduction of Synergen's operations. The Company is currently exploring various strategic alternatives for its business and research and development operations. The market price of the Company's common stock is volatile, and the price of the stock could be dramatically affected one way or another depending on numerous factors. Following the Company's announcement on July 18, 1994, of the Company's decision to stop the follow-up Phase III clinical trial of IL-1ra for severe sepsis, the price of the Company's common stock dropped by approximately 50 percent. The market price of the Company's common stock could be materially affected by the results of the Phase II trial of IL-1ra for the treatment of rheumatoid arthritis, the progress of the Joint Venture's CNTF development program, the results of the Phase II/III clinical trial of CNTF for the treatment of ALS (which is expected to be completed in the last quarter of 1994), and the results of the Company's other development programs and the results of the Company's investigation of strategic alternatives. Results of the CNTF trial are expected to be available during the first half of 1995. The Company's stock price could also be affected by the outcome of the Company's investigation of strategic alternatives. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS Following a drop in the price of Synergen's stock on February 22, 1993, a number of class action complaints were filed against Synergen and certain of its officers and directors in the United States District Court for the District of Colorado on behalf of various classes of the Company's investors. The complaints were consolidated by a consolidated class action complaint that was filed on April 15, 1993, and amended on May 2, 1994. In addition to Synergen, Larry Soll, chairman of the Board of Directors of Synergen and the former chief executive officer, and Kenneth J. Collins, executive vice president of finance and administration, were named as defendants in the amended consolidated complaint, together with Jon S. Saxe, the former president and chief executive officer and a former director, and Michael A. Catalano, the former vice president of clinical research. The original consolidated complaint alleged violations of federal securities laws and state law. The Court dismissed the state law claims on April 8, 1994. On May 30, 1994, the defendants in the suit filed a motion to dismiss or in the alternative for summary judgment which was heard on September 2, 1994 and was denied on September 15, 1994. Synergen filed a motion for reconsideration or in the alternative for an interlocutory appeal which was denied on October 28, 1994. Trial has been set for May 22, 1995. Also see Part II, Item 1 of the Company's Quarterly Reports on Form 10-Q for the quarters ended June 30, 1994 and March 31, 1994. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 Financial Data Schedule. (b) Reports on Form 8-K The Company filed a report on Form 8-K dated July 20, 1994, disclosing the termination of the Company's follow-up Phase III clinical trial of IL-1ra for the treatment of severe sepsis. The Company filed a report on Form 8-K dated August 10, 1994, disclosing overall staff reductions made following the termination of the Company's follow-up Phase III clinical trial of IL-1ra for the treatment of severe sepsis. 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. SYNERGEN, INC. (Registrant) Date: November 11, 1994 By: Kenneth J. Collins Kenneth J. Collins Executive Vice President, Finance and Administration and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1994 SEP-30-1994 6,271,000 104,979,000 10,625,000 0 0 131,505,000 53,900,000 0 188,062,000 17,540,000 0 259,000,000 0 0 209,000,000 188,062,000 0 14,784,000 0 105,333,000 0 0 132,000,000 0 0 90,681,000 0 0 0 90,681,000 3.52 0
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