EX-99.2 5 a2039916zex-99_2.txt EXHIBIT 99.2 Exhibit 99.2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GELTEX PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ ASSETS Current assets: Cash and cash equivalents ................................... $ 71,178,825 $ 20,178,391 Marketable securities ....................................... 68,427,498 52,250,534 Prepaid expenses and other current assets ................... 11,323,030 1,763,400 Due from affiliates ......................................... 416,250 411,250 Due from Joint Venture ...................................... 836,075 664,741 ------------- ------------- Total current assets ............................................. 152,181,678 75,268,316 Long-term receivables, affiliates ................................ 120,500 371,750 Property and equipment, net ...................................... 13,538,260 11,117,725 Purchased goodwill, net .......................................... 6,017,054 6,753,729 Intangible assets, net ........................................... 1,726,378 1,282,490 Investment in Joint Venture ...................................... 15,771,774 11,295,056 ------------- ------------- $ 189,355,644 $ 106,089,066 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses ....................... $ 5,909,836 $ 5,175,756 Current portion of long-term obligations .................... 1,467,498 1,646,296 ------------- ------------- Total current liabilities ........................................ 7,377,334 6,822,052 Deferred revenue ................................................. 430,011 5,390 Long-term obligations, less current portion ...................... 5,493,420 6,559,884 Commitments and contingencies .................................... -- -- Stockholders' equity: Preferred Stock, $0.01 par value, 5,000,000 shares authorized, none issued or outstanding .................................. -- -- Common Stock, $.01 par value, 50,000,000 shares authorized, 21,548,506 and 18,063,122 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively ... 215,485 180,631 Additional paid-in capital .................................. 277,025,257 202,210,089 Deferred compensation ....................................... (701,432) (483,019) Unrealized loss on available-for-sale securities ............ (26,133) (245,099) Accumulated deficit ......................................... (100,458,298) (108,960,862) ------------- ------------- Total stockholders' equity ....................................... 176,054,879 92,701,740 ------------- ------------- $ 189,355,644 $ 106,089,066 ============= =============
The accompanying notes are an integral part of the financial statements. -3- GELTEX PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 2000 1999 2000 1999 ---- ---- ---- ---- Revenue: Collaborative Joint Venture project reimbursement .......... $ 1,400,306 $ 1,473,053 $ 3,841,161 $ 4,434,648 Contract revenue ........................................... 3,765,845 -- 33,069,629 1,751,669 ------------ ------------ ------------ ------------ Total revenue ................................................. 5,166,151 1,473,053 36,910,790 6,186,317 Costs and expenses: Research and development ................................... 6,942,512 7,277,507 21,587,414 21,705,489 Collaborative Joint Venture project costs .................. 1,400,306 1,473,053 3,841,161 4,434,648 ------------ ------------ ------------ ------------ Total research and development .......................... 8,342,818 8,750,560 25,428,575 26,140,137 General and administrative ................................. 4,158,937 1,258,088 7,506,507 3,868,360 ------------ ------------ ------------ ------------ Total costs and expenses ...................................... 12,501,755 10,008,648 32,935,082 30,008,497 Income (loss) from operations ................................. (7,335,604) (8,535,595) 3,975,708 (23,822,180) Interest income, net .......................................... 2,004,813 834,741 4,331,137 3,023,078 Equity in gain (loss) of Joint Venture ........................ 800,001 (1,726,267) 195,718 (5,785,378) ------------ ------------ ------------ ------------ Net income (loss) ............................................. $ (4,530,790) $ (9,427,121) $ 8,502,563 $(26,584,480) ============ ============ ============ ============ Basic net income (loss) per share ............................. $ (0.22) $ (0.56) $ 0.43 $ (1.58) Shares used in computing basic net income (loss) per share .... 20,947,000 16,871,000 19,872,000 16,853,000 Diluted net income (loss) per share ........................... $ (0.22) $ (0.56) $ 0.41 $ (1.58) Shares used in computing diluted net income (loss) per share... 20,947,000 16,871,000 20,502,000 16,853,000
The accompanying notes are an integral part of the financial statements. -4- GELTEX PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net income (loss) ............................................... $ (4,530,790) $ (9,427,121) $ 8,502,563 $(26,584,480) Other comprehensive income (loss): Unrealized gain (loss) on securities held during the period.. 175,718 (70,019) 218,966 (494,226) ------------ ------------ ------------ ------------ Comprehensive income (loss) .................................... $ (4,355,072) $ (9,497,140) $ 8,721,529 $(27,078,706) ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements. -5- GELTEX PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 ---- ---- OPERATING ACTIVITIES Net income (loss) .................................................................... $ 8,502,563 $ (26,584,480) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ..................................................... 2,461,924 1,518,263 Equity in net loss of Joint Venture ............................................... (195,718) 5,785,378 Compensation from issuance of stock options ....................................... 809,303 472,715 Changes in operating assets and liabilities: Prepaid expenses and other current assets ..................................... (9,328,147) (1,498,680) Due from Joint Venture ........................................................ (171,334) 706,076 Long-term receivables ......................................................... 28,170 32,725 Accounts payable and accrued expenses ......................................... 1,652,520 (4,009,457) Other long-term obligations ............................................... (493,817) -- Amount due to Joint Venture ................................................... -- (129,600) Inventory ..................................................................... -- (4,035,022) ------------- ------------- Net cash provided by (used in) operating activities .................................. 3,265,464 (27,742,082) INVESTING ACTIVITIES Purchase of marketable securities .................................................... (457,369,739) (13,285,855) Proceeds from sale and maturities of marketable securities ........................... 441,234,182 30,572,302 Investment in Joint Venture .......................................................... (4,281,000) (11,608,917) Purchase of intangible assets ........................................................ (797,263) (512,177) Purchase of property and equipment, net .............................................. (3,792,409) (1,017,968) ------------- ------------- Net cash used in investing activities ................................................ (25,006,229) 4,147,385 FINANCING ACTIVITIES Sale of Common Stock and warrants, net of issuance costs ............................. 73,986,462 343,268 Payments on long-term obligations .................................................... (1,245,262) (1,594,894) ------------- ------------- Net cash provided by (used in) financing activities .................................. 72,741,200 (1,251,626) Increase (decrease) in cash and cash equivalents ..................................... 51,000,434 (24,846,323) Cash and cash equivalents at beginning of period ..................................... 20,178,391 30,874,900 ------------- ------------- Cash and cash equivalents at end of period ........................................... $ 71,178,825 $ 6,028,577 ============= ============= Interest paid ........................................................................ $ 546,292 $ 259,720
The accompanying notes are an integral part of the financial statements. -6- GELTEX PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. NATURE OF BUSINESS GelTex Pharmaceuticals, Inc. develops and markets non-absorbed polymer drugs that bind and eliminate targeted substances within the gastrointestinal tract. In addition, GelTex is developing small-molecule pharmaceuticals consisting of novel polyamine analogues and metal chelators. Therapeutic areas of interest include hyperphosphatemia, hypercholesterolemia, cancer, iron overload and infectious diseases. 2. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of GelTex Pharmaceuticals, Inc. and its wholly owned subsidiaries (the "Company") for the three and nine months ended September 30, 2000 and 1999, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial condition, results of operations and cash flows for the periods presented. The results of operations for the interim period ended September 30, 2000, are not necessarily indicative of the results to be expected for the year ended December 31, 2000. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 31, 1999, included in the Company's Annual Report on Form 10-K (File Number 0-26872) as filed with the Securities and Exchange Commission. 3. BUSINESS CHANGES On September 11, 2000, the Company announced that it had entered into a definitive Merger Agreement (the "Merger Agreement") with Genzyme Corporation ("Genzyme"). Under the terms of the Merger Agreement, which was approved by each Company's board of directors, each outstanding share of GelTex Common Stock will be converted, at the option of the holder, into either (i) $47.50 in cash, or (ii) 0.7272 (the "Exchange Ratio") of a share of Genzyme General Common Stock (the "Merger Consideration"). Under the Merger Agreement, 50% of the shares of GelTex Common Stock outstanding at the time of the Merger will be exchanged for Genzyme General Common Stock. The cash to be issued in the Merger is subject to proration to maintain the cash portion of the Merger Consideration at 50% in order to preserve the status of the Merger as a reorganization under the Internal Revenue Code. Based on Genzyme General's closing stock price of $65.3125 on September 8, 2000, and on the Company's 21.4 million shares outstanding on September 11, 2000, the transaction would be valued at approximately $1 billion. The transaction is subject to approval by the Company's shareholders and customary closing conditions. The transaction is expected to be completed in December 2000, and will be accounted for using the "purchase accounting" method. In July 2000, the Company was granted approval by the U.S. Food and Drug Administration ("FDA") to market its Renagel(1) brand phosphate binder (sevelamer hydrochloride) in a tablet formulation of 800 mg and 400 mg dosages for the reduction of serum phosphorus in hemodialysis patients with end-stage renal disease. In June 2000, the Company filed an Investigational New Drug ("IND") application for a non-absorbed toxin binding polymer, GT160-246, for the treatment of Clostridium difficile ("C. difficile") colitis. The FDA has given approval for human testing of GT160-246, and a Phase 1 trial was completed in August 2000. In May 2000, the Company was granted marketing approval by the FDA for a cholesterol-lowering product which the Company's collaboration partner began marketing in the United States in September 2000 under the trade name, WelChol(2) (formerly Cholestagel(3); colesevelam hydrochloride) for the treatment of hypercholesterolemia, a condition characterized by undesirably high cholesterol levels. - -------------------------------- (1) Renagel(R)is a registered trademark of the Company. (2) WelChol(TM)is a trademark of Sankyo Pharma Inc., the Company's partner for commercializing WelChol(TM). (3) Cholestagel(R)is a registered trademark of the Company. -7- In April 2000, as part of a corporate evaluation of its research pipeline, Warner-Lambert Company informed the Company of its intention to return all rights to diethylnorspermine ("DENSPM"), which is in Phase 1/2 trials for solid tumors. The Company acquired the alliance with Warner-Lambert as part of its acquisition of SunPharm Corporation in November 1999. The Company will evaluate its development plan for DENSPM within the context of the Company's ongoing research on second-generation polyamine analogues as anti-cancer agents. The Company received approval to market its Renagel brand capsules, for the control of hyperphosphatemia, in the European Union and Canada during the first quarter of 2000. 4. EQUITY FINANCINGS In March 2000, the Company sold 1,750,000 newly issued shares of Common Stock to certain institutional investors for net proceeds of $35.0 million. In addition, the Company entered into an agreement with Acqua Wellington North American Equities Fund, Ltd. ("Acqua Wellington") for a financing facility covering the sale of up to 1,750,000 shares of Common Stock over the next twelve months. These shares may be sold, at the Company's discretion, at a small discount to the market price. The total amount of the investment is dependent, in part, on the Company's stock price, with the Company to control the amount and timing of the stock sold. These transactions were entered into pursuant to an effective shelf registration statement previously filed by the Company with the Securities and Exchange Commission, covering the sale of up to 3.5 million shares of its Common Stock. The following table summarizes the shares sold to Acqua Wellington and the proceeds received by the Company under this financing facility to date: SCHEDULE OF EQUITY FINANCINGS
# OF SHARES DATE PROCEEDS SOLD ---- ------------ ----------- April 3, 2000 ................. $ 4,300,000 230,179 June 16, 2000 ................. $ 6,000,000 323,099 August 8, 2000 ................ $13,000,000 467,498 September 11, 2000............. $10,000,000 291,073
The Merger Agreement between the Company and Genzyme prohibits the Company from selling any additional shares of common stock under this financing facility. 5. RECLASSIFICATION Certain amounts from the prior year have been reclassified to conform to the current year presentation. 6. JOINT VENTURE AGREEMENT Effective April 1, 2000, the Company and Genzyme modified the terms of their joint venture (the "Joint Venture") for the final development and commercialization of the Company's Renagel brand product. Previous to this modification, the Joint Venture sold product directly to customers. Under the revised terms, the Joint Venture sells Renagel product directly to Genzyme at a discount. Genzyme, in turn, re-sells Renagel product to customers. Additionally, Genzyme is obligated to purchase finished goods ordered by Genzyme when such goods have been bottled. To the extent Genzyme earns a profit on sales of Renagel product to customers, GelTex's share of the Joint Venture's net income or loss is adjusted to maintain a net 50/50 split between the two venturers. Accordingly, GelTex's share of the Joint Venture's operations for the three months ended September 30, 2000, was a gain of $0.8 million and GelTex's share of the Joint Venture's operations for the nine months ended September 30, 2000, was a gain of $0.2 million. Summarized financial information regarding the Joint Venture for the three and nine months ended September 30, 2000 and September 30, 1999 is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales ........................ $ 13,180,000 $ 4,481,000 $ 33,287,000 $ 12,148,000 Costs and expenses ............... $ 9,047,000 $ 1,438,000 $ 24,943,000 $ 4,516,000 Loss from operations.............. $ (3,264,000) $ (3,492,000) $ (8,265,000) $(13,122,000) Net loss ......................... $ (3,230,000) $ (3,453,000) $ (8,116,000) $(11,571,000)
-8- 7. ACCOUNTING PRONOUNCEMENTS In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which provides guidance related to revenue recognition based on interpretations and practices followed by the SEC. SAB 101A was released on March 24, 2000, and deferred the effective date of SAB 101 to no later than the second fiscal quarter beginning after December 15, 1999. In June 2000, The SEC issued SAB 101B which delays the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. SAB 101 requires companies to report any changes in revenue recognition as a cumulative change in accounting principle at the time of implementation in accordance with Accounting Principles Board Opinion No.20, "Accounting Changes." The Company believes that this Interpretation will not have a significant effect on its financial statements. In March 2000, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB No. 25." The Interpretation will be applied prospectively to new awards, modifications to outstanding awards, and changes in employee status on or after July 1, 2000, as necessary. The Company has concluded that this Interpretation will not have a material impact on the financial position or results of operations of the Company. 8. ACCOUNTING PRINCIPLES Net Income (Loss) Per Common Share Basic net income (loss) per common share is based on the weighted-average number of common shares outstanding. For the three months ended September 30, 2000, diluted net loss per common share is the same as basic net loss per common share as the inclusion of weighted-average shares of common stock issuable upon exercise of stock options and warrants would be antidilutive. For the nine months ended September 30, 2000, the difference between basic and diluted shares used in the computation of earnings per share is 0.6 million weighted-average common equivalent shares, resulting from the inclusion of outstanding common stock options and warrants. For the three and nine month periods ended September 30, 1999, diluted net loss per common share is the same as basic net loss per common share as the inclusion of weighted-average shares of common stock issuable upon exercise of stock options and warrants would be antidilutive. -9-