-----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, Oj2Du7IhvLszWIKoXuFOMBC7u4IR320cR3wrjmhbk+mimBe5gCqhNgt9y4WXJD9M 98RrZKRCOPSfW1yJqD+Q8Q== 0000891020-98-001520.txt : 19981105 0000891020-98-001520.hdr.sgml : 19981105 ACCESSION NUMBER: 0000891020-98-001520 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981104 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: 98737689 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 THE PERIOD ENDED SEPTEMBER 30, 1998 1 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, 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 October 9, 1998 there were outstanding 21,006,964 shares of the Company's Common Stock, $.02 par value. 2 TABLE OF CONTENTS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I FINANCIAL INFORMATION PAGE Item 1. Financial Statements: Balance Sheets as of September 30, 1998 and December 31, 1997 3 Statements of Operations for the three and nine months ended September 30, 1998 and 1997 4 Statements of Cash Flows for the three and nine months ended September 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 11 Signature 12
2 3 NEORX CORPORATION
BALANCE SHEETS (in thousands, except share data) SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,798 $ 1,949 Short-term investments 30,786 31,760 Prepaids and other 882 1,820 --------- --------- Total current assets 33,466 35,529 --------- --------- FACILITIES AND EQUIPMENT, at cost: Leasehold improvements 3,260 3,300 Equipment and furniture 4,665 4,023 --------- --------- 7,925 7,323 Less: accumulated depreciation and amortization (6,890) (6,642) --------- --------- Facilities and equipment, net 1,035 681 --------- --------- OTHER ASSETS 472 111 --------- --------- Total assets $ 34,973 $ 36,321 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 760 $ 800 Accrued liabilities 855 911 Current portion of capital leases 15 43 --------- --------- Total current liabilities 1,630 1,754 LONG-TERM LIABILITIES: Convertible subordinated debentures, 9 3/4% 1,195 1,195 Capital leases, less current portion -- 4 --------- --------- Total liabilities 2,825 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 September 30, 1998 and December 31, 1997 (entitled in liquidation to $5,248 at September 30, 1998 and December 31, 1997) Convertible preferred stock, Series 2, -0- shares issued and outstanding at September 30, 1998 and 5,167 shares issued and outstanding at December 31, 1997 Convertible preferred stock, Series 3, -0- shares issued and outstanding at September 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, 21,006,964 and 20,707,251 shares issued and outstanding at September 30, 1998 and December 31, 1997, respectively 420 414 Additional paid-in capital 163,189 162,612 Accumulated deficit (131,465) (129,662) --------- --------- Total shareholders' equity 32,148 33,368 --------- --------- Total liabilities and shareholders' equity $ 34,973 $ 36,321 ========= =========
See accompanying notes to the financial statements. 3 4 NEORX CORPORATION STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------- --------------------- 1998 1997 1998 1997 -------- -------- -------- -------- REVENUES $ 149 $ 5,002 $ 7,697 $ 10,349 -------- -------- -------- -------- OPERATING EXPENSES: Research and development 2,648 2,804 7,128 8,194 General and administrative 953 938 3,343 2,912 -------- -------- -------- -------- Total operating expenses 3,601 3,742 10,471 11,106 -------- -------- -------- -------- Income (loss) from operations (3,452) 1,260 (2,774) (757) OTHER INCOME (EXPENSE): Investment and interest income 358 507 1,467 1,289 Interest expense (32) (33) (98) (102) -------- -------- -------- -------- Net income (loss) $ (3,126) $ 1,734 $ (1,405) $ 430 ======== ======== ======== ======== Preferred stock dividends (127) (315) (400) (2,923) -------- -------- -------- -------- Net income (loss) applicable to Common shares $ (3,253) $ 1,419 $ (1,805) $ (2,493) ======== ======== ======== ======== Earnings (loss) per share: Basic $ (.15) $ .08 $ (.09) $ (.15) ======== ======== ======== ======== Diluted $ (.15) $ .07 $ (.09) $ (.15) ======== ======== ======== ======== Shares used in calculation of Earnings (loss) per share: Basic 21,004 18,288 20,874 17,193 ======== ======== ======== ======== Diluted 21,004 19,015 20,874 17,193 ======== ======== ======== ========
See accompanying notes to the financial statements. 4 5 NEORX CORPORATION STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- ------------------- 1998 1997 1998 1997 ---- ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (3,126) $ 1,734 $ (1,405) $ 430 Adjustments to reconcile net income (loss)to net cash provided by (used in) operating activities: Depreciation and amortization 90 76 265 272 (Increase) decrease in prepaids and other assets 393 (285) 542 (345) (Decrease) in accounts payable 0 (118) (40) (335) (Decrease) in accrued liabilities 19 26 (97) (127) Common stock issued for services 101 - 101 Net cash provided by (used in) operating activities (2,624) 1,534 (735) (4) -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of short- term investments 23,274 12,419 57,095 37,984 Purchases of short-term investments (20,377) (17,849) (56,122) (54,743) Facilities and equipment purchases (75) - (602) (261) Other 7 5 19 17 -------- -------- -------- -------- Net cash provided by (used in) investing activities 2,829 (5,425) 390 (17,003) -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock - - - 2,661 Proceeds from the sale of preferred stock - 4,910 - 16,370 Repayments of capital lease obligations (11) (9) (32) (36) Proceeds from stock options and warrants exercised 35 162 482 297 Preferred stock dividends 0 (130) (256) (385) -------- -------- -------- -------- Net cash provided by financing activities 24 4,933 194 18,907 -------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 229 1,042 (151) 1,900 CASH AND CASH EQUIVALENTS: Beginning of period 1,569 3,803 1,949 2,945 -------- -------- -------- -------- End of period $ 1,798 $ 4,845 $ 1,798 $ 4,845 ======== ======== ======== ========
See accompanying notes to the financial statements. 5 6 NEORX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 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 September 30, 1998 and the results of operations and cash flows for the three and nine month periods ended September 30, 1998 and 1997. The results of operations for the three and nine month periods ended September 30, 1998 are not necessarily indicative of the expected operating results for the full year. Note 2. Shareholders' Equity Changes in shareholders' equity from December 31, 1997 to September 30, 1998 were as follows (in thousands): Balance December 31, 1997 $ 33,368 Common stock issued 585 Preferred stock dividends (400) Net loss (1,405) -------- Balance September 30, 1998 $ 32,148 ========
6 7 NEORX CORPORATION NOTES TO FINANCIAL STATEMENTS (Continued) 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 nine months ended September 30, 1997 and 1998:
Three months Nine months ended September 30, ended September 30, ------------------- ------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net Income (loss) $ (3,126) $ 1,734 $ (1,405) $ 430 Less: Preferred stock dividends (127) (315) (400) (2,923) -------- -------- -------- -------- Net Income (loss) applicable to basic & diluted earnings (loss) per share $ (3,253) $ 1,419 $ (1,805) $ (2,493) ======== ======== ======== ======== Weighted average shares - basic 21,004 18,288 20,874 17,193 Dilutive effect of options & warrants - 727 - - -------- -------- -------- -------- Weighted average shares - diluted 21,004 19,015 20,874 17,193 ======== ======== ======== ======== Basic earnings (loss) per share $ (.15) $ .08 $ (.09) $ (.15) ======== ======== ======== ======== Diluted earnings (loss) per share $ (.15) $ .07 $ (.09) $ (.15) ======== ======== ======== ========
The numerator and denominator of the basic and diluted loss per share calculations for the three months ended September 30, 1998 were the same, because including the effect of options to purchase an additional 1,289,859 shares of Common Stock would have been antidilutive. Options to purchase 955,115 additional shares of Common Stock were outstanding during the three months ended September 30, 1997 but were not included in the computation of diluted earnings per share because the options' average exercise price of $8.53 was greater than the average market price of the common shares of $5.33. Warrants to purchase an additional 1,033,727 shares of Common Stock were outstanding during the three months ended September 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 $5.33. Options to purchase 1,519,845 additional shares of Common Stock were outstanding during the nine months ended September 30, 1998 but were not included in the computation of diluted earnings per share because the effect of including such shares would have been antidilutive. 7 8 NEORX CORPORATION NOTES TO FINANCIAL STATEMENTS (Continued) The numerator and denominator of the basic and diluted loss per share calculations for the nine months ended September 30, 1997 were the same, because including the effect of options and warrants to purchase an additional 1,771,160 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 nine month periods ended September 30, 1998 and 1997 because the effect of including such shares would have been antidilutive. 8 9 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 nine months ended September 30, 1998 compared to quarter and nine months ended September 30, 1997. Revenues for the three months ended September 30, 1998 were $149,000 compared to $5,002,000 for the three months ended September 30, 1997. In the third quarter 1997, NeoRx entered into an agreement with Janssen Pharmaceutica, ("Janssen") N.V., a wholly-owned subsidiary of Johnson & Johnson (NYSE: JNJ), for the worldwide development, manufacture and distribution of NeoRx's Avicidin(R) cancer therapy product. NeoRx received $10 million up front; $5 million was for the purchase of Series 4 Convertible Preferred Stock and the remaining $5 million was recorded as revenue. In September 1998, Janssen terminated this agreement effective December 29, 1998. After this date the Company will no longer receive milestone payments or expenses reimbursements, from Janssen. Revenues for the nine months ended September 30, 1998 were $7,697,000 compared to $10,349,000 for the nine months ended September 30, 1997. In January 1998, the Company received a $7,000,000 milestone payment from Janssen, reflecting Janssen's decision to begin Phase II trials of Avicidin(R) cancer therapy product. 1997 revenues consist of Janssen licensing fees of $5 million for Avicidin(R) cancer therapy product and $5.3 million in license fees from Schwarz Pharma AG covering NeoRx's Biostent(R) product. 9 10 NEORX CORPORATION Total operating expenses for the quarter ended September 30, 1998 decreased 4% to $3,601,000 from $3,742,000 in the quarter September 30, 1997, and for the nine month period decreased 6% to $10,471,000 from $11,106,000. Research and development expenses for the quarter ended September 30, 1998 decreased 6% to $2,648,000 from $2,804,000 for the same time period in 1997. Research and development expenses for the nine months ended September 30, 1998 decreased 13% to $7,128,000 from $8,194,000. The decrease in research and development expenses for both the quarter and the year is the result of decreased clinical trial costs and manufacturing costs. The Company receives expense reimbursements related to the Avicidin(R) and Biostent(R) programs. Reimbursed research and development expenses totaled $1,801,000 for the nine months ended September 30, 1998. In the first nine months of 1997, the Company's research and development expense reimbursements totaled $2,137,000. General and administrative expenses decreased 30% from the previous quarter and were essentially unchanged from the same quarter in 1997. The decline from the second quarter in 1998 was due to lower costs from outside consulting services and general legal services. General and administrative expenses for the nine months ended September 30, 1998 increased 15% to $3,343,000 from $2,912,000. General and administrative expenses for the nine months ended September 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 decreased to $358,000 from $507,000 for the same time period in 1997, and increased to $1,467,000 from $1,289,000 for the nine months ended September 30, 1998 and 1997, respectively. The decrease in interest income for the current quarter is due to the decrease in funds available for investment. The increase in interest income for the nine months ended September 30, 1998 is 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 September 30, 1998 were $32,584,000 compared to $33,709,000 at December 31, 1997. The third quarter balance of cash and short-term investments decreased from the 1998 year-to-date net loss. 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 the year 1999. The Company's working capital and capital requirements will depend 10 11 NEORX CORPORATION 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 the year 2000 Overview 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. The 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. Readiness The Company has undertaken an initial review of its information technology computer systems and believes that the Year 2000 problem does not pose significant operational problems to its information technology systems. The majority of Company's software and computer equipment has been purchased within the last five years from third-party vendors who have already provided upgrades intended to bring their products into Year 2000 compliance. The Company plans to survey its research and development equipment and significant suppliers, including Clinical Research Organizations, to determine any additional needed Year 2000 solutions. Costs At this time, the Company cannot determine the full cost of correcting any potential year 2000 problems. Based upon the Company's initial review of its computer systems, the Company estimates that the cost to replace older, non-compliant computers and software is immaterial. The full estimated cost of correcting the Year 2000 issue will be known after the Company completes its survey of its research and development equipment and significant suppliers. Risks The Company anticipates that its largest Year 2000 risks are in activities involving research and development equipment and significant suppliers, including Clinical Research Organizations. If Year 2000 problems exist in these areas, it could take significantly longer for the Company to bring a product to market, which could have a material adverse effect on the Company's business, financial condition and results of operations. Contingency After the Company completes its survey of Year 2000 issues, it will establish a contingency plan to address any "high-risk" issues that could delay its efforts to bring products to market. Item 5. Other Information In November 1998, the Company licensed its Paclitaxel technology for non-oncological applications to Angiotech Pharmaceuticals, Inc., ("Angiotech"). Under the terms of the agreement, Angiotech will pay NeoRx Corporation up front license fees of $500,000 in cash and $500,000 in equity of Angiotech. The agreement also includes milestones, warrants and other payments. 11 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: November 4, 1998 By: /s/ RICHARD L. ANDERSON -------------------------- Richard L. Anderson Senior Vice President, Finance and Operations, (Principal Financial and Accounting Officer) 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS OF NEORX CORPORATION AS OF 09/30/98 AND 12/31/97 AND THE RELATED STATEMENTS OF OPERATIONS FOR EACH OF THE 9 MONTHS ENDED 09/30/98 AND 09/30/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q REPORT FOR THE PERIOD ENDED 09/30/98. 1000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1798 30786 0 0 0 33466 7925 6890 34973 1630 1195 0 4 420 31724 34973 0 7697 0 0 0 0 98 (1405) 0 (1405) 0 0 0 (1405) (.09) (.09)
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