-----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, J79yX3XZH/co9vJHxFEerykghEAhiA53WL1WkgUwWroKxs3ce6huSGbA3nn4xzJV /XmX3Xm31ouZjnK8mWUwuQ== 0000755806-98-000021.txt : 19980812 0000755806-98-000021.hdr.sgml : 19980812 ACCESSION NUMBER: 0000755806-98-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEORX CORP CENTRAL INDEX KEY: 0000755806 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 911261311 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16614 FILM NUMBER: 98681645 BUSINESS ADDRESS: STREET 1: 410 W HARRISON ST CITY: SEATTLE STATE: WA ZIP: 98119 BUSINESS PHONE: 206-286-25 MAIL ADDRESS: STREET 1: 410 W. HARRISON STREET 2: 410 W. HARRISON CITY: SEATTLE STATE: WA ZIP: 98119 10-Q 1 FORM 10-Q FOR PERIOD 06/30/98 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 June 30, 1998 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 0-16614 NeoRx Corporation (Exact Name of Registrant as Specified in its Charter) WASHINGTON 91-1261311 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 410 West Harrison Street, Seattle, Washington 98119 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (206) 281-7001 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 --- --- Applicable only to corporate issuers: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. As of July 9, 1998 there were outstanding 20,995,040 shares of the Company's Common Stock, $.02 par value.
TABLE OF CONTENTS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 PART I FINANCIAL INFORMATION Page Item 1. Financial Statements: Balance Sheets as of June 30, 1998 and December 31, 1997 3 Statements of Operations for the three and six months ended June 30, 1998 and 1997 4 Statements of Cash Flows for the three and six months ended June 30, 1998 and 1997 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 Item 5. Other Information 12 Signature 13
2 NEORX CORPORATION BALANCE SHEETS (in thousands, except share data)
June 30, December 31, 1998 1997 ----------- ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents .................................................... $ 1,569 $ 1,949 Short-term investments ....................................................... 33,684 31,760 Prepaids and other ........................................................... 1,275 1,820 --------- --------- Total current assets ....................................................... 36,528 35,529 --------- --------- FACILITIES AND EQUIPMENT, at cost: Leasehold improvements ....................................................... 3,260 3,300 Equipment and furniture ...................................................... 4,590 4,023 --------- --------- 7,850 7,323 Less: accumulated depreciation and amortization .............................. (6,806) (6,642) --------- --------- Facilities and equipment, net .............................................. 1,044 681 --------- --------- OTHER ASSETS ................................................................... 484 111 --------- --------- Total assets ............................................................... $ 38,056 $ 36,321 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................................................. $ 760 $ 800 Accrued liabilities .......................................................... 710 911 Current portion of capital leases ............................................ 26 43 --------- --------- Total current liabilities .................................................. 1,496 1,754 LONG-TERM LIABILITIES: Convertible subordinated debentures, 9 3/4% .................................. 1,195 1,195 Capital leases, less current portion ......................................... -- 4 --------- --------- Total liabilities .......................................................... 2,691 2,953 --------- --------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Series preferred stock, $.02 par value, 3,000,000 shares authorized: Convertible exchangeable preferred stock, Series 1, 208,240 shares issued and outstanding at June 30, 1998 and December 31, 1997(entitled in liquidation to $5,248 at June 30, 1998 and December 31, 1997) Convertible preferred stock, Series 2, -0- shares issued and outstanding at June 30, 1998 and 5,167 shares issued and outstanding at December 31, 1997 Convertible preferred stock, Series 3, -0- shares issued and outstanding at June 30, 1998 and 1,000 shares issued and outstanding at December 31, 1997 ................................................................... 4 4 Common Stock, $.02 par value, 60,000,000 shares authorized, 20,995,040 and 20,707,251 shares issued and outstanding at June 30, 1998 and December 31, 1997, respectively ......................................................... 420 414 Additional paid-in capital ................................................... 163,155 162,612 Accumulated deficit .......................................................... (128,214) (129,662) --------- --------- Total shareholders' equity ................................................. 35,365 33,368 --------- --------- Total liabilities and shareholders' equity ................................. $ 38,056 $ 36,321 ========= =========
See accompanying notes to the financial statements. 3 NEORX CORPORATION STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three months Six months ended June 30, ended June 30, -------------------- -------------------- 1998 1997 1998 1997 -------- -------- -------- -------- REVENUE ... ............................................ $ 10 $ 5,335 $ 7,548 $ 5,347 -------- -------- -------- -------- OPERATING EXPENSES: Research and development ............................. 2,259 2,738 4,480 5,390 General and administrative ........................... 1,368 1,080 2,390 1,974 -------- -------- -------- -------- Total operating expenses ........................... 3,627 3,818 6,870 7,364 -------- -------- -------- -------- Income (loss) from operations .......................... (3,617) 1,517 678 (2,017) OTHER INCOME (EXPENSE): Investment and interest income ....................... 517 444 1,108 782 Interest expense ..................................... (32) (34) (65) (69) -------- -------- -------- -------- Net income (loss) ...................................... $ (3,132) $ 1,927 $ 1,721 $ (1,304) ======== ======== ======== ======== Preferred stock dividends .............................. (132) (702) (273) (2,608) -------- -------- -------- -------- Net income (loss) applicable to common shares ......................................... $ (3,264) $ 1,225 $ 1,448 $ (3,912) ======== ======== ======== ======== Earnings (loss) per share: Basic .................................................. $ (.16) $ .07 $ .07 $ (.23) ======== ======== ======== ======== Diluted ................................................ $ (.16) $ .07 $ .07 $ (.23) ======== ======== ======== ======== Shares used in calculation of earnings (loss) per share: Basic .................................................. 20,895 16,874 20,807 16,701 ======== ======== ======== ======== Diluted ................................................ 20,895 17,339 21,554 16,701 ======== ======== ======== ========
See accompanying notes to the financial statements. 4 NEORX CORPORATION STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Three months Six months ended June 30, ended June 30, -------------------- --------------------- 1998 1997 1998 1997 --------- -------- -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income(loss) ...................... $ (3,132) $ 1,927 $ 1,721 $ (1,304) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ...... 89 100 175 196 (Increase) decrease in prepaids and other assets ................. (328) (125) 149 (60) (Decrease) in accounts payable ..... (33) (364) (40) (217) (Decrease) in accrued liabilities .. (376) (169) (116) (153) -------- -------- -------- -------- Net cash provided by (used in) operating activities ........................... (3,780) 1,369 1,889 (1,538) -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of short- term investments ..................... 15,687 18,669 33,821 25,565 Purchases of short-term investments .... (11,332) (32,379) (35,745) (36,894) Facilities and equipment purchases ..... (266) (119) (527) (261) Other .................................. 6 6 12 12 -------- -------- -------- -------- Net cash provided by (used in) investing activities ................. 4,095 (13,823) (2,439) (11,578) -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock ..... -- 2,661 -- 2,661 Proceeds from sale of preferred stock .. -- 1,970 -- 11,460 Repayments of capital lease obligations (11) (14) (21) (27) Proceeds from stock options and warrants exercised ............................. 409 8 447 135 Preferred stock dividends .............. (256) (255) (256) (255) -------- -------- -------- -------- Net cash provided by financing activities ........................... 142 4,370 170 13,974 -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents 457 (8,084) (380) 858 Cash and cash equivalents: Beginning of period .................... 1,112 11,887 1,949 2,945 -------- -------- -------- -------- End of period .......................... $ 1,569 $ 3,803 $ 1,569 $ 3,803 ======== ======== ======== ========
See accompanying notes to the financial statements. 5 NEORX CORPORATION NOTES TO FINANCIAL STATEMENTS 1. Basis of Presentation The interim financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 1997. Certain reclassifications were made to the 1997 financial statements to make them comparable with the 1998 presentation. In the opinion of management, the interim financial statements reflect all adjustments, consisting only of normal recurring accruals necessary to present fairly the Company's financial position as of June 30, 1998 and the results of operations and cash flows for the three and six month periods ended June 30, 1998 and 1997. The results of operations for the three and six month periods ended June 30, 1998 are not necessarily indicative of the expected operating results for the full year. 2. Shareholders' Equity Changes in shareholders' equity from December 31, 1997 to June 30, 1998 were as follows (in thousands): Balance December 31, 1997 $33,368 Common stock issued 549 Preferred stock dividends (273) Net income 1,721 ------- Balance June 30, 1998 $35,365 =======
6 NEORX CORPORATION NOTES TO FINANCIAL STATEMENTS (Continued) During the quarter, the Company issued 138,422 shares of Common Stock in exchange for 5,167 shares of Series 2 Convertible Preferred Stock ("Series 2 Preferred Stock") and 1,000 shares of Series 3 Convertible Preferred Stock ("Series 3 Preferred Stock"). Dividends of $101,240 were also paid on the Series 2 Preferred Stock by issuing 21,038 shares of Common Stock. As of June 30, 1998, no Series 2 Preferred Stock or Series 3 Preferred Stock remain outstanding. Note 3. Earnings (loss) per share: The following is a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share computations for the three months and six months ended June 30, 1997 and 1998:
Three months Six months ended June 30, ended June 30, -------------------- --------------------- 1998 1997 1998 1997 --------- -------- --------- -------- Net Income (loss)...... $ (3,132) $ 1,927 $ 1,721 $ (1,304) Less: Preferred stock dividends ...... (132) (702) (273) (2,608) -------- -------- -------- -------- Net Income (loss) applicable to basic & diluted earnings (loss) per share ..... $ (3,264) $ 1,225 $ 1,448 $ (3,912) ======== ======== ======== ======== Weighted average shares - basic ....... 20,895 16,874 20,807 16,701 Dilutive effect of options & warrants ... -- 465 747 -- -------- -------- -------- -------- Weighted average shares - diluted ..... 20,895 17,339 21,554 16,701 ======== ======== ======== ======== Basic earnings (loss) per share ............ $ (.16) $ .07 $ .07 $ (.23) ======== ======== ======== ======== Diluted earnings (loss) per share ............ $ (.16) $ .07 $ .07 $ (.23) ======== ======== ======== ========
The numerator and denominator of the basic and diluted loss per share calculations for the three months ended June 30, 1998 were the same, because including the effect of options and warrants to purchase an additional 2,354,856 shares of Common Stock would have been antidilutive. Options to purchase 1,608,690 additional shares 7 NEORX CORPORATION NOTES TO FINANCIAL STATEMENTS (Continued) of Common Stock were outstanding during the three months ended June 30, 1997 but were not included in the computation of diluted earnings per share because the options' average exercise price of $7.12 was greater than the average market price of the common shares of $4.25. Warrants to purchase an additional 1,033,727 shares of Common Stock were outstanding during the three months ended June 30, 1997 but were also not included in the computation of diluted earnings per share because the warrants' average exercise price of $13.63 was greater than the average market price of the common shares of $4.25. Options to purchase 942,589 additional shares of Common Stock were outstanding during the six months ended June 30, 1998 but were not included in the computation of diluted earnings per share because the options' average exercise price of $8.60 was greater than the average market price of the common shares of $5.55. The numerator and denominator of the basic and diluted loss per share calculations for the six months ended June 30, 1997 were the same, because including the effect of options and warrants to purchase an additional 1,747,622 shares of Common Stock would have been antidilutive. Shares issuable upon conversion of the Company's Convertible Subordinated Debentures, Series 1 Preferred Stock, Series 2 Preferred Stock and Series 3 Preferred Stock are not included in the calculation of diluted EPS for the three and six month periods ended June 30, 1998 and 1997 because the effect of including such shares would have been antidilutive. 8 NEORX CORPORATION Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition This discussion contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words "believe", "expect", "intend", "anticipate", and variations of such words and similar expressions identify forward-looking statements, but their absence does not mean the statement is not forward looking. Factors that could affect the Company's actual results include, among other things, results of research and development activities, clinical trials, expenses associated with expanding marketing and manufacturing capabilities, competitive and technological developments, and the timing, cost, and successful continuation of the Company's collaborative relationships. Reference is made to the Company's Annual Report on Form 10-K filed with the Commission for a more detailed description of such factors. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to update publicly any forward-looking statement to reflect new information, events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO QUARTER AND SIX MONTHS ENDED JUNE 30, 1997. Revenues for the three months ended June 30, 1998 were $10,000 compared to $5,335,000 for the three months ended June 30, 1997. For the six months ended June 30, 1998 revenues were $7,548,000 compared to $5,347,000 for the six months ended June 30, 1997. In January 1998, the Company received a $7,000,000 milestone payment from Janssen Pharmaceutica NV ("Janssen"), a subsidiary of Johnson & Johnson, Inc., reflecting Janssen's decision to begin Phase II trials of Avicidin(R) cancer therapy product. In the second quarter of 1997 the Company received $4,000,000 in revenue from Schwarz Pharma for marketing rights to NeoRx's Biostent product and $4,000,000 for 698,702 unregistered shares of NeoRx's common stock. The excess amount received over the fair market value of the Common Stock of $1,333,000 was recorded as revenue. In May 1998 DuPont gave one year's notice of termination of its license agreement with the Company for the Verluma(R) lung cancer imaging product. Royalties collected for Verluma in 1998 and 1997 were insignificant and the Company believes that termination of the licensing agreement with Dupont will not have a material impact on future revenues. 9 NEORX CORPORATION Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) Total operating expenses for the quarter ended June 30, 1998 decreased 5% to $3,627,000 from $3,818,000 in the quarter June 30, 1997, and for the six month period decreased 7% to $6,870,000 from $7,364,000. Research and development expenses for the quarter ended June 30, 1998 decreased 17% to $2,259,000 from $2,738,000 for the same time period in 1997. Research and development expenses for the six months ended June 30, 1998 decreased 17% to $4,480,000 from $5,390,000. The decrease in research and development expenses both for the quarter and for the six months is a result of increased research and development reimbursements. The Company receives expense reimbursements related to the Avicidin(R) and Biostent(R) programs. Reimbursed research and development expenses totaled $1,420,000 for the six months ended June 30, 1998. In the first half of 1997, the Company's research and development expense reimbursements totaled $94,000. General and administrative expenses for the quarter ended June 30, 1998 increased 27% to $1,368,000 from $1,080,000 for the quarter ended June 30, 1997. General and administrative expenses for the six months ended June 30, 1998 increased 21% to $2,390,000 to from $1,974,000. General and administrative expenses for the quarter and the six months ended June 30, 1998 increased principally due to increased expenses for personnel and outside consulting services. These costs were added to support increased research and product development activities. Investment and interest income for the quarter increased to $517,000 from $444,000 for the same time period in 1997, and increased to $1,108,000 from $782,000 for the six months ended June 30,1998 and 1997, respectively. Interest income increased due to higher average cash balances, which resulted from milestone payments and equity proceeds. LIQUIDITY AND CAPITAL RESOURCES. Cash and short-term investments as of June 31, 1998 were $35,253,000 compared to $33,709,000 at December 31, 1997. The second quarter balance of cash and short-term investments increased due to the receipt of a $7,000,000 milestone payment from Janssen in January 1998, reflecting Janssen's decision to begin Phase II trials of Avicidin(R) cancer therapy product. The Company expects that its capital resources and interest income will be sufficient to finance its currently anticipated working capital and capital requirements at least through 1999. 10 NEORX CORPORATION Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) The Company's working capital and capital requirements will depend upon numerous factors, including results of research and development activities, clinical trials, expenses associated with expanding marketing and manufacturing capabilities, competitive and technological developments and the timing, cost and successful continuation of the Company's collaborative relationships. The Company will need to raise substantial additional funds to conduct research and development activities, preclinical studies and clinical trials necessary to bring its potential products to market, and to establish marketing and manufacturing capabilities. The Company intends to seek additional funding through public or private equity financing, arrangements with corporate collaborators, out-licensing certain technologies, or other sources. Adequate funds may not be available when needed or on terms acceptable to the Company. If funding is insufficient at any time in the future, the Company will be forced to delay, reduce or eliminate some or all of its research and development activities, clinical studies and trials, and manufacturing and administrative programs, dispose of assets or technology, or cease operations. IMPACT OF YEAR 2000. The "Year 2000 Problem" is pervasive and complex, as virtually every computer operation will be affected in some way by the rollover of the two-digit year value to 00. This issue is whether computer systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize date sensitive information could generate erroneous data or cause a system to fail. In 1997 the Company initiated the installation of a new accounting system that is compliant with the Year 2000 requirements, and is currently evaluating other systems for Year 2000 concerns. The Company has not initiated formal communications with its significant suppliers and corporate partners to determine the extent to which the Company is vulnerable to those third parties' failure to resolve their own Year 2000 issue. There can be no guarantee that the systems of other companies on which the Company relies will be converted in a timely manner, or that another company's failure to convert would not have a material adverse effect on the Company. The Company does not anticipate that it will incur significant operating expenses or be required to invest heavily in 11 NEORX CORPORATION Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) computer systems improvement to be Year 200 compliant. However, significant uncertainty exists concerning the potential costs and effects associated with Year 2000 compliance. Any Year 2000 compliance problem of either the Company or its suppliers and collaborative partners could have a material adverse effect on the Company's business, financial condition and results of operations. Item 5. Other Information In accordance with the Company's Bylaws, a shareholder proposing to transact business at the Company's annual meeting must provide written notice of such a proposal, in the manner provided by the Company's Bylaws, not fewer than 60 or more than 90 days prior to the date of such annual meeting (or, if the Company provides less than 70 days notice of such meeting, no later than 10 days after the date of the Company's notice). In addition, if the Company receives notice of a shareholder proposal after February 23, 1999, the persons named as proxies in such proxy statement will have discretionary authority to vote on such shareholder proposal. 12 NEORX CORPORATION SIGNATURE 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. NeoRx Corporation (Registrant) Date: August 11, 1998 By: /s/Richard L. Anderson ---------------------- Richard L. Anderson Senior Vice President, Finance and Operations, (Principal Financial and Accounting Officer) 13 EX-27 2 FDS FOR JUNE 30,1998
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS OF NEORX CORPORATION AS OF 06/30/98 AND 12/31/97, AND THE RELATED STATE- MENTS OF OPERATIONS FOR EACH OF THE 6 MONTHS ENDED 06/30/98 AND 06/30/97 AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH 10-Q REPORT FOR THE PERIOD ENDED 06/30/98. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1,569 33,684 0 0 0 36,528 7,850 6,806 38,056 1,496 1,195 0 4 420 34,941 38,056 0 7,548 0 0 0 0 65 1,721 0 1,721 0 0 0 1,721 .07 .07
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