-----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, BpOX0akzX3JR1by/wzGltsEGsmQ0FomhHQmHMk6+Pp2SV747xkmDfRl24SpjjrxO OS9iDZjl3GCZOAnTchEcMQ== 0000891618-97-002125.txt : 19970512 0000891618-97-002125.hdr.sgml : 19970512 ACCESSION NUMBER: 0000891618-97-002125 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970509 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENELABS TECHNOLOGIES INC /CA CENTRAL INDEX KEY: 0000874443 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 943050093 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19222 FILM NUMBER: 97599327 BUSINESS ADDRESS: STREET 1: 505 PENOBSCOT DR CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 4153699500 10-Q 1 FORM 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q [ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 1997. 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 NO. 0-19222 GENELABS TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) CALIFORNIA 94-3010150 (State or other jurisdiction of (I.R.S. employer identification number) incorporation or organization) 505 PENOBSCOT DRIVE, REDWOOD CITY, CALIFORNIA 94063 (Address of principal executive offices) (Zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 369-9500 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 . --- --- There were 39,215,971 shares of the Registrant's Common Stock issued and outstanding on April 30, 1997. ================================================================================ 1 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GENELABS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, December 31, 1997 1996 ----------- ------------ (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $ 2,238 $4,377 Cash held in escrow -- 6,953 Short-term investments 26,068 19,135 --------- -------- Cash, cash equivalents and short-term investments 28,306 30,465 Accounts receivable 2,599 3,170 Inventories 3,154 3,535 Other current assets 481 726 --------- -------- Total current assets 34,540 37,896 Property and equipment, net 1,296 1,463 Investment in Genelabs Biotechnology, Ltd. 4,519 4,628 Other assets 115 132 --------- -------- $ 40,470 $44,119 ========= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued liabilities $ 4,535 $4,778 Accrued compensation and related expenses 1,073 1,694 Unearned contract revenue 1,106 1,200 --------- -------- Total current liabilities 6,714 7,672 Long-term obligations 356 523 --------- -------- Shareholders' equity: Preferred stock 9,682 9,682 Common stock 137,084 129,591 Common stock to be issued -- 6,953 Accumulated deficit (113,366) (110,302) --------- -------- Total shareholders' equity 33,400 35,924 --------- -------- $ 40,470 $ 44,119 ========= ========
See notes to condensed consolidated financial statements. Note: The condensed consolidated balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. 2 3 GENELABS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited)
For the three months ended March 31, --------------------- 1997 1996 -------- -------- Revenues: Product sales $ 2,575 2,742 Contract and other 817 213 -------- -------- Total revenues 3,392 2,955 -------- -------- Operating costs and expenses: Cost of product sales 1,620 1,469 Research and development 2,793 2,445 Selling, general and administrative 2,190 2,222 -------- -------- Total operating costs and expenses 6,603 6,136 -------- -------- Operating loss (3,211) (3,181) -------- -------- Interest income, net 338 241 Equity in loss of Genelabs Biotechnology, Ltd. (109) (77) -------- -------- Net loss $ (2,982) $ (3,017) ======== ======== Net loss per share $ (0.08) $ (0.09) ======== ======== Weighted average shares outstanding 37,978 33,712 ======== ========
See notes to condensed consolidated financial statements. 3 4 GENELABS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS) (IN THOUSANDS) (UNAUDITED)
For the three months ended March 31, ------------------------ 1997 1996 -------- -------- Cash flows from operating activities: Net loss $ (2,982) $ (3,017) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 142 207 Amortization of unearned contract revenue (544) -- Equity in loss of Genelabs Biotechnology, Ltd. 109 77 Changes in assets and liabilities: Receivables 571 (839) Inventories 381 86 Accounts payable, accrued liabilities, accrued compensation and long-term obligations (1,031) (526) Additions to unearned contract revenue 450 -- Other -- 157 -------- -------- Net cash used in operating activities (2,904) (3,855) -------- -------- Cash flows from investing activities: Purchases of securities available-for-sale (10,228) -- Proceeds from sales and maturities of securities available-for-sale 3,501 -- Other 14 8 -------- -------- Net cash (used in)/provided by investing activities (6,713) 8 -------- -------- Cash flows from financing activities: Payments on long-term obligations -- (2,919) Proceeds from issuance of common stock, net 7,493 11,096 -------- -------- Net cash provided by financing activities 7,493 8,177 -------- -------- Effect of exchange rate change on cash (15) 5 -------- -------- Net (decrease)/increase in cash and cash equivalents (2,139) 4,335 Cash and cash equivalents, beginning of the period 4,377 22,557 -------- -------- Cash and cash equivalents, end of the period 2,238 26,892 Short-term investments, end of the period 26,068 -- -------- -------- Cash, cash equivalents and short-term investments, end of the period $ 28,306 $ 26,892 ======== ========
See notes to condensed consolidated financial statements. 4 5 GENELABS TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1997 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include the accounts of Genelabs Technologies, Inc. and its wholly-owned subsidiaries ("Genelabs" or the "Company") after elimination of all significant intercompany accounts and transactions. These financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") 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 of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Certain prior year amounts have been reclassified to conform to the current year presentation. Operating results for the three month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. These unaudited condensed consolidated financial statements are meant to be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 2. INVENTORIES The components of inventory are as follows:
March 31, December 31, (in thousands) 1997 1996 ------ ------ Raw materials $1,948 $2,126 Work-in-process 467 389 Finished goods 739 1,020 ------ ------ $3,154 $3,535 ====== ======
3. ISSUANCE OF COMMON STOCK In connection with a 1996 private offering, the Company agreed to issue 1,900,000 shares of Common Stock to Veron International Limited ("Veron") for net proceeds of $7.0 million, which the Company held in escrow at December 31, 1996 pending expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. In February 1997, upon termination of this waiting period, the funds held in escrow were released to Genelabs and the shares, reported as Common Stock to be Issued at December 31, 1996, were issued to Veron. 4. NET LOSS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" ("SFAS No. 128"), which is required to be adopted in the Company's December 31, 1997 financial statements. SFAS No. 128 requires a change in the method currently used to compute earnings per share and restatement of prior periods, excluding the dilutive effect of stock options. The implementation of this statement is not expected to impact Genelabs' earnings per share for the quarters ended March 31, 1997 and March 31, 1996 since the Company incurred net losses in those periods and, accordingly, the calculation of earnings per share already excluded stock options because their effect was antidilutive. 5 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All statements in Management's Discussion and Analysis of Financial Condition and Results of Operations that are not historical are forward-looking statements which involve a number of risks and uncertainties, including, but not limited to, those statements concerning the Company's ongoing clinical trials, the U.S. Food and Drug Administration ("FDA") regulatory process, the Company's anticipated expenditures and the timing and need for additional funds. Among the factors that could cause actual results of the Company's activities to differ materially are product non-approval or delays by the FDA and foreign regulatory authorities, product development, manufacturing and market acceptance risks, the Company's early stage of development, the impact of competitive products, pricing and intellectual property rights, the results of current and future licensing and other collaborative relationships and other factors and risks detailed under the caption "Risk Factors" in the Company's 1996 Annual Report on Form 10-K and other filings with the U.S. Securities and Exchange Commission. OVERVIEW Genelabs Technologies, Inc. is a global biopharmaceutical and diagnostics company focused on gene-regulating drug discovery, infectious diseases including hepatitis and immunological disorders including lupus. Using Genelabs' core technologies and expertise in drug and viral discovery, the Company is engaged in the research and development of potential new therapeutics, diagnostic tests and vaccines, both internally and through collaborations with academic institutions and corporations. The Company's lead pharmaceutical product, GL701, is in Phase III clinical trials as a new therapy for systemic lupus erythematosus ("lupus"). The lead research program is based on a proprietary enabling technology, Merlin, for creating gene-specific, small organic, DNA-binding molecules. The Company conducts its diagnostic business through its wholly-owned subsidiary Genelabs Diagnostics (Pte.) Ltd., located in Singapore ("GLD"). GLD's products are a focused mix of Western Blot assays and rapid and ELISA tests, primarily sold in major markets in Europe and Asia. Genelabs has a 40% interest in a Taiwan-based company, Genelabs Biotechnology, Ltd. ("GBL"), which is focused on late-stage development, manufacture and commercialization of newly developed or formulated pharmaceuticals for the rapidly expanding Asian market. On April 25, 1997, the Company announced preliminary results of its first Phase III trial of GL701 for lupus. The results indicated a treatment response in a group of women with clinically active lupus, which constituted a majority of patients enrolled in the study. However, the study did not achieve statistical significance when all patients were included in the analysis, as an unexpectedly high placebo response rate was observed among those patients with minimal or no disease activity at baseline. The Company expects to continue to invest in biopharmaceutical product research and development. Revenue from the sale of biopharmaceutical products is not expected until the launch of its first biopharmaceutical product, which is not expected to occur for several years, if at all. The Company has several collaborations and is seeking additional collaborations with other pharmaceutical companies for some of its technologies to maximize sales of products that may result from those technologies and to obtain funding for a portion of its research and development expenses. However, Genelabs expects to continue to incur operating losses for at least the next several years. 6 7 RESULTS OF OPERATIONS Revenues Total revenues for the quarter ended March 31, 1997 were $3.4 million, compared to $3.0 million for the same period in 1996. Total revenues include both diagnostic product sales and contract and other revenue. Diagnostic product sales were $2.6 million for the quarter ended March 31, 1997, compared to $2.7 million for the same period in 1996. Contract and other revenues were $0.8 million for the quarter ended March 31, 1997, compared to $0.2 million for the same period in 1996. Contract and other revenues include licensing, milestone and research and development payments. The increase in contract and other revenues in the first quarter of 1997, compared to the first quarter of 1996, was primarily due to recognition of revenue under a gene-regulating drug discovery collaboration that the Company began in January 1997. Contract and other revenues recognized in the future will be dependent in part upon the continuation of this agreement, achievement of milestones under this and other existing agreements and establishment of new research, development and/or licensing agreements with corporate collaborators. Cost of Product Sales Cost of product sales were $1.6 million for the quarter ended March 31, 1997, compared to $1.5 million for the same period in 1996. Gross margins decreased to 37% for the first quarter of 1997 from 46% for the same period a year ago. The decline in gross margins was primarily due to a decline in sales of higher margin products combined with a lower production yield on certain products. Research and Development Expenses The Company's research and development expenses were $2.8 million for the quarter ended March 31, 1997, compared to $2.4 million for the same period in 1996. The increase was primarily due to additional expenditures related to a gene-regulating drug discovery collaboration and higher patient enrollment in the Company's second Phase III trial of GL701 for lupus, offset by reduced spending in other research areas, most notably the hepatitis G virus program. Selling, General and Administrative Expenses Selling, general and administrative expenses were $2.2 million for each of the quarters ended March 31, 1997 and March 31, 1996. Net Loss The Company has operated at a loss since its inception and had an accumulated deficit of $113.4 million as of March 31, 1997. The net loss was $3.0 million for each of the three months ended March 31, 1997 and March 31, 1996. Higher contract and other revenues for the quarter ended March 31, 1997 were offset by lower gross margins on diagnostic product sales and increased research and development spending. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and short-term investment balances totaling $28.3 million at March 31, 1997, compared to $30.5 million at December 31, 1996. The $2.2 million decrease in cash and short-term investments was primarily attributable to $2.9 million used in operations, partially offset by funds received upon exercise of stock options. The cash and short-term investments balance at December 31, 1996 included $7.0 million from a 1996 private placement that was held in escrow by the Company pending expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. These funds were released to the Company in February 1997 and are shown as proceeds from issuance of common stock in the first quarter 1997 Condensed Consolidated Statement of Cash Flows. 7 8 The Company has funded its operations since inception primarily through public and private offerings of its equity securities, contract revenues and product sales. The Company has no bank debt or open credit lines. Genelabs expects to incur substantial additional costs, including costs for clinical trials of product candidates and costs for further research on gene-regulating drug discovery. The amount of the additional costs, as well as increased expenditures necessary for working capital and capital requirements, will depend on numerous factors including the timing and outcome of any clinical trials and regulatory actions related to the Company's products. In addition, funding requirements will depend on the progress of the Company's research and development programs as well as its ability to establish and maintain collaborations with other pharmaceutical companies to fund these programs. The Company anticipates that its current resources and expected revenues from existing collaborative agreements will enable it to maintain its current and planned operations through 1998. The Company anticipates realizing a net loss at least through 1998, and profitability thereafter is subject to significant uncertainty. There can be no assurance that revenues from product sales or royalties or from other sources will be sufficient to fund operations or that the Company will achieve profitability or positive cash flow. Additional financing may be required to fund the Company's continuing operations and research and development activities in the form of debt or equity securities, which may result in substantial dilution to existing shareholders. There can be no assurance that such financing will be available on acceptable terms, if at all. The unavailability of such financing could delay or prevent the development, testing, regulatory approval, manufacturing or marketing of some or all of the Company's products and technologies and could have a material adverse effect on the Company's business, financial condition and results of operations. The foregoing are forward looking statements which involve a number of risks and uncertainties. CERTAIN BUSINESS RISKS Genelabs is at an early stage of development. The Company has experienced significant operating losses since its inception and expects to incur significant operating losses over the next several years. The development of the Company's proposed products will require a commitment of substantial funds to conduct these costly and time-consuming activities. The Company's technologies, including DNA-binding and gene regulating drug discovery technology, are in many cases new and still under development. All of Genelabs' proposed therapeutic products, including GL701 for the treatment of lupus, are in research or development and will require substantial additional research and development efforts prior to any commercial use, including extensive clinical testing as well as potentially lengthy regulatory approval. Genelabs currently is seeking additional drug discovery research collaborations using its gene regulating technology with various pharmaceutical companies. No assurance can be given as to the ability of the Company to complete an agreement with such a collaborator on a timely basis or at all. On April 25, 1997, the Company announced preliminary results of its first Phase III trial of GL701 for lupus. The results indicated a treatment response in a group of women with clinically active lupus, which constituted a majority of patients enrolled in the study. However, the study did not achieve statistical significance when all patients were included in the analysis, as an unexpectedly high placebo response rate was observed among those patients with minimal or no disease activity at baseline. The Company currently is conducting a second Phase III clinical trial for GL701. No assurance can be given as to the results of these trials, the safety or efficacy of this drug candidate or, in any event, the ability of Genelabs to obtain regulatory approval for the commercialization of the drug candidate. 8 9 The active ingredient in GL701 is dehydroepiandrosterone ("DHEA"). DHEA is currently being marketed by others as an over the counter dietary supplement. The Company believes that DHEA is a drug that is subject to regulation and approval by the FDA. The Company further believes that in several instances these supplements do not contain true DHEA, but instead contain related substances that are not biologically equivalent. However, to date the FDA has taken no action to limit or regulate the sale of these dietary supplements, and no assurance can be given as to the willingness or ability of the FDA to do so in the future. In the event that clinical trials for GL701 are promising and the drug candidate receives FDA marketing approval, the concurrent sale of these dietary supplements could adversely affect the market for or selling prices of GL701. The Company is continuing limited research and development efforts related to the hepatitis G virus, and has substantially reduced expenditures on this program. While the presence of this virus has been detected in blood samples contained in the U.S., Europe, Japan and elsewhere, the Company and its collaborators are still seeking to determine the nature and severity of any diseases specifically caused by HGV. In order to test for HGV generally in the blood banks, the Company and its licensors are continuing efforts to develop a serological assay. To date, no such assay has been introduced. The Company has only limited sales, marketing and distribution capabilities. If the Company successfully develops any new products, Genelabs must either rely on large pharmaceutical companies to market such products or must develop a marketing and sales force with technical expertise and supporting distribution capability in order to market such products directly. Also inherent in the Company's stage of development is a range of additional risks, including competition, uncertainties regarding protection or patents and proprietary rights and the possibility of infringement of the proprietary rights of others, government regulation, and uncertainties regarding health care reform. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 27. Financial Data Schedule (b) REPORTS ON FORM 8-K There were no reports on Form 8-K filed during the quarter ended March 31, 1997. 9 10 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. GENELABS TECHNOLOGIES, INC. (Registrant) Chief Executive Officer: Date: May 8, 1997 /s/ IRENE A. CHOW ----------------------------------- IRENE A. CHOW President and Chief Executive Officer Chief Accounting Officer: Date: May 8, 1997 /s/ MATTHEW M. LOAR ----------------------------------- MATTHEW M. LOAR Director of Finance and Controller 10 11 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - -------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF GENELABS TECHNOLOGIES, INC. FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 2,238 26,068 2,599 0 3,154 34,540 11,537 10,241 40,470 6,714 0 0 9,682 137,084 (113,366) 40,470 2,575 3,392 1,620 1,620 5,092 0 (338) (2,982) 0 (2,982) 0 0 0 (2,982) (0.08) (0.08)
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