-----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, Jr2GPrgVme2IdkjH+jUsM9W6DtW9GF09u6bNhuzqBHFJAp6AZ/f6T3NbdfMyklm4 cAsRTIA6KjeQbWBo8M0pXA== 0000891618-01-500715.txt : 20010516 0000891618-01-500715.hdr.sgml : 20010516 ACCESSION NUMBER: 0000891618-01-500715 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENELABS TECHNOLOGIES INC /CA CENTRAL INDEX KEY: 0000874443 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 943010150 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19222 FILM NUMBER: 1634629 BUSINESS ADDRESS: STREET 1: 505 PENOBSCOT DR CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 6503969500 MAIL ADDRESS: STREET 1: 505 PENOBSCOT DR CITY: REDWOOD CITY STATE: CA ZIP: 94063 10-Q 1 f72406e10-q.txt FORM 10-Q PERIOD ENDED MARCH 31, 2001 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-Q Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange X Act of 1934 for the quarterly period ended March 31, 2001. - --- 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, 94063 (Address of principal executive offices) (Zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 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 49,482,876 shares of the Registrant's Common Stock issued and outstanding on May 7, 2001. ================================================================================ 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GENELABS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
March 31, December 31, 2001 2000 ----------- ------------ (Unaudited) ASSETS Current assets: Cash, cash equivalents and short-term investments: Cash and cash equivalents $ 7,319 $ 11,646 Short-term investments 23,568 23,025 --------- --------- Total cash, cash equivalents and short-term investments 30,887 34,671 Other current assets 221 478 --------- --------- Total current assets 31,108 35,149 Property and equipment, net 1,561 1,459 Long-term investments 960 986 --------- --------- $ 33,629 $ 37,594 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued liabilities $ 1,684 $ 1,587 Accrued compensation and related expenses 946 1,387 Unearned contract revenue 3,000 3,417 --------- --------- Total current liabilities 5,630 6,391 Accrued compensation 578 578 Unearned contract revenue 5,875 6,625 --------- --------- Total liabilities 12,083 13,594 --------- --------- Shareholders' equity: Common stock 179,860 179,600 Accumulated deficit (158,461) (155,600) Accumulated other comprehensive income 147 -- --------- --------- Total shareholders' equity 21,546 24,000 --------- --------- $ 33,629 $ 37,594 ========= =========
See notes to condensed consolidated 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, -------------------------- 2001 2000 --------- ---------- Contract revenue $ 1,504 $ 1,982 -------- -------- Operating expenses: Research and development 3,411 3,687 General and administrative 1,534 1,199 -------- -------- Total operating expenses 4,945 4,886 -------- -------- Operating loss (3,441) (2,904) Interest income, net 580 72 -------- -------- Net loss $ (2,861) $ (2,832) ======== ======== Net loss per share $ (0.06) $ (0.07) ======== ======== Weighted average shares outstanding 49,446 40,558 ======== ========
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, -------------------------- 2001 2000 --------- ---------- Cash flows from operating activities: Net loss $ (2,861) $(2,832) Adjustments to reconcile net loss to net cash used in operating activities: Other comprehensive income: Unrealized gains on available-for-sale securities 147 -- Depreciation and amortization expense 166 135 Gains on sales of long-term investments (20) -- Non-employee equity awards 56 -- Changes in assets and liabilities: Other current assets 257 193 Accounts payable, accrued liabilities, accrued compensation and long-term obligations (344) (789) Unearned contract revenue (1,167) (228) -------- ------- Net cash used in operating activities (3,766) (3,521) -------- ------- Cash flows from investing activities: Purchases of short-term investments (6,140) -- Proceeds from sales and maturities of short-term investments 5,597 1,685 Capital expenditures (268) (196) Other 46 51 -------- ------- Net cash (used in) / provided by investing activities (765) 1,540 -------- ------- Cash flows from financing activities: Payments on short-term borrowings -- (1,000) Proceeds from issuance of common stock, net 204 2,110 -------- ------- Net cash provided by financing activities 204 1,110 -------- ------- Net decrease in cash and cash equivalents (4,327) (871) Cash and cash equivalents, beginning of the period 11,646 2,534 -------- ------- Cash and cash equivalents, end of the period 7,319 1,663 Short-term investments, end of the period 23,568 3,880 -------- ------- Cash, cash equivalents and short-term investments, end of the period $ 30,887 $ 5,543 ======== =======
See notes to condensed consolidated financial statements. 4 5 GENELABS TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) MARCH 31, 2001 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include the accounts of Genelabs Technologies, Inc. and its subsidiaries ("Genelabs" or the "Company") after elimination of all significant intercompany accounts and transactions. Genelabs is a biopharmaceutical company focused on discovering and developing pharmaceutical products. We have a near-term drug candidate, Aslera(TM), for which the U.S. Food and Drug Administration, referred to as the FDA, is reviewing our marketing application. Aslera is a potential new treatment for systemic lupus erythematosus ("SLE" or "lupus"), a disease for which current therapies are not adequate. Longer term, our DNA-binding drug discovery program has the potential to create an entirely new class of pharmaceutical products that directly target DNA. 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. Operating results for the three month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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, 2000. 2. COMPREHENSIVE INCOME During the three months ended March 31, 2001 and 2000, the Company's comprehensive loss amounted to ($2,714) and ($2,832), respectively. 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. Forward-looking statements involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, those statements concerning regulatory approval, clinical trials, progress of drug discovery programs, the Genelabs' business plans, anticipated expenditures and the timing and need for additional funds. Forward-looking statements may be identified by terminology such as "may," "will," "expects," "anticipates," "intends," "plans," "believes," "potential," "goal" and similar expressions. Some of the factors that could cause material differences in actual results of Genelabs' activities are uncertainty of regulatory approval, the outcome of drug discovery and product development efforts, manufacturing risks, intellectual property risks and other factors and risks detailed under the caption "Risk Factors" in the Company's 2000 Annual Report on Form 10-K and other filings with the U.S. Securities and Exchange Commission. Shareholders and prospective investors in Genelabs should carefully consider these risk factors. Genelabs disclaims any obligation to update these statements for subsequent events. Genelabs Technologies, Inc., referred to as Genelabs or the Company, is a biopharmaceutical company focused on discovering and developing pharmaceutical products. We have a near-term drug candidate, Aslera(TM), for which the U.S. Food and Drug Administration, referred to as the FDA, is reviewing our marketing application. Aslera is a potential new treatment for systemic lupus erythematosus ("SLE" or "lupus"), a disease for which current therapies are not adequate. Longer term, our DNA-binding drug discovery program has the potential to create an entirely new class of pharmaceutical products that directly target DNA. In 2000, Genelabs submitted a New Drug Application for Aslera(TM) as a treatment for lupus to the FDA. Lupus is a life-long autoimmune disease that causes the immune system to attack the body's own tissues and organs. According to various industry sources, there are approximately 200,000 lupus patients in the United States and Genelabs believes there are over one million worldwide. If approved by the FDA, Aslera will be the first new drug approved in the U.S. for this debilitating disease in more than 40 years. Genelabs expects to receive a decision from the FDA on approval status by mid-year 2001. In November 2000, Genelabs entered into a collaboration and license agreement with Watson Pharmaceuticals, Inc., referred to as Watson, under which Watson plans to market Aslera in the United States, if the product is approved by the FDA. Genelabs believes it is well positioned in the biopharmaceutical industry with both a near-term product opportunity and a proprietary, potentially revolutionary approach to drug discovery. Genelabs intends to fund the discovery and development of future products from royalties received on sales of Aslera, if approved by the FDA. RESULTS OF OPERATIONS - FIRST QUARTER 2001 COMPARED TO FIRST QUARTER 2000 Net loss was $2.9 million for the three months ended March 31, 2001 compared to a loss of $2.8 million for the same period in 2000. The Company recorded contract revenues of $1.5 million in the 2001 first quarter versus $2.0 million for the first quarter of 2000. The decrease in contract revenue was primarily due to lower revenues recorded after the completion, as expected, of the U.S. Defense Advanced Research Projects Agency ("DARPA") grant in early February 2001. Partially offsetting this decrease is an increase of $0.8 million of revenue recognized from the collaboration and license agreement made with Watson. Contract revenues include grant, licensing, milestone, and research and development payments. Contract revenues recognized in the future will be dependent upon the continuation of existing corporate collaborations, 6 7 achievement of milestones under these collaborations, and establishment of new research, development and/or licensing agreements. Operating expenses were $4.9 million in both the first quarter of 2001 and the first quarter of 2000. Research and development expenses represented 69% of operating expenses in the 2001 period compared to 75% of operating expenses for the same period in 2000. Research and development expenses decreased to $3.4 million for the three months ended March 31, 2001 versus $3.7 million for the three months ended March 31, 2000. The decrease in research and development was primarily attributable to lower costs in the Company's DNA-targeted drug discovery research program subsequent to the planned expiration of the DARPA grant. Research and development costs for the Company's near term product opportunity, Aslera, increased as Genelabs prepared for an FDA Advisory Committee meeting held in April, 2001. General and administrative expenses were $1.5 million in the first quarter of 2001, an increase from $1.2 million in the first quarter of 2000. This increase is the result of preparation costs for the potential commercial introduction of Aslera. Interest income increased to $0.6 million in the three months ended March 31, 2001 versus $0.1 million for the same period in 2000 as a result of a higher average balance of short-term investments during the current period. LIQUIDITY AND CAPITAL RESOURCES The Company had cash, cash equivalents and short-term investment balances totaling $30.9 million at March 31, 2001 compared to $34.7 million at December 31, 2000. The $3.8 million decrease in cash, cash equivalents and short-term investments was primarily attributable to cash used in operations. In addition, Genelabs has $21.9 million available under an equity facility with Acqua Wellington North American Equities Fund that allows Genelabs to sell stock at a 3.5% to 6% discount to market when Genelabs' stock price is $4.00 per share or higher. The collaboration and license agreement with Watson provides a milestone payment of up to $45 million to Genelabs in the event of FDA approval of Aslera for SLE. Genelabs estimates that if Aslera is approved by the FDA, this milestone payment combined with the existing cash and short-term investments of Genelabs will be sufficient to fund the Company's operations for more than two years, prior to consideration of any royalty revenues on sales of Aslera. If Aslera is not approved by the FDA and the milestone is not received from Watson, Genelabs estimates that its cash and short-term investments will be sufficient to fund its operations into early 2003. Since Genelabs' inception, the Company has operated at a loss and has funded operations primarily through public and private offerings of equity securities and, to a lesser extent, contract revenues. Regardless of the FDA's decision on Aslera, we expect to incur substantial additional costs, including research costs for the Company's drug discovery technologies and development costs for Aslera. The amount of additional costs will depend on numerous factors including the actions of regulatory agencies, progress of our research and development programs and the status of corporate partnership agreements. CERTAIN BUSINESS RISKS The following discussion summarizes certain business risks which management believes are particularly relevant at this time. It is not possible to comprehensively address all risks that exist, but there is more detailed information about these risks and additional risks under the caption "Risk Factors" in the Company's 2000 Annual Report on Form 10-K, which shareholders and prospective investors are encouraged to review. 7 8 IF THE FDA DOES NOT APPROVE ASLERA(TM), GENELABS' DRUG CANDIDATE FOR SYSTEMIC LUPUS ERYTHEMATOSUS, FOR MARKETING IN THE UNITED STATES, OUR BUSINESS PROSPECTS WILL SUFFER BECAUSE WE HAVE NO OTHER NEAR-TERM SOURCE OF POTENTIAL REVENUE. Genelabs has focused its development efforts to date on conducting clinical trials for an investigational new drug, Aslera, formerly referred to as GL701, for the treatment of women with systemic lupus erythematosus, or lupus. Lupus is a severe, chronic and debilitating autoimmune disease that can affect the lungs, heart, kidneys, skin, joints and nervous system. Aslera is a pharmaceutical formulation containing highly purified prasterone, the synthetic equivalent of dehydroepiandrosterone or DHEA, a naturally occurring hormone. Before our North American partner Watson Pharmaceuticals, Inc. can market Aslera in the United States, the FDA must review and approve a new drug application submitted by Genelabs. Genelabs has submitted this application to the FDA, and Genelabs' business plans depend on FDA approval of Aslera in the United States. If the FDA does not approve the new drug application in a timely manner, our business would suffer because we have no other near-term source of potential revenue. OUR OUTSIDE SUPPLIERS AND MANUFACTURERS FOR ASLERA ARE SUBJECT TO REGULATION, INCLUDING BY THE FDA, AND IF THEY DO NOT MEET THEIR COMMITMENTS, WE WOULD HAVE TO FIND SUBSTITUTE SUPPLIERS OR MANUFACTURERS WHICH COULD DELAY SUPPLY OF PRODUCT TO THE MARKET. Regulatory requirements applicable to pharmaceutical products tend to make the substitution of suppliers and manufacturers costly and time consuming. We rely on suppliers of prasterone, the active ingredient in Aslera, for production of Aslera. The disqualification of these suppliers through their failure to comply with regulatory requirements could negatively impact our business because of delays and costs in obtaining and qualifying alternate suppliers. In addition, currently we have a single manufacturer, Schering Plough, to supply Aslera capsules and packaging for clinical trials and commercial sales. We have no internal manufacturing capabilities for pharmaceutical products and are entirely dependent on Schering Plough to manufacture Aslera. If Schering Plough does not meet FDA requirements or fails to manufacture Aslera capsules and packaging as required for our needs, we may not be able to ship product in a timely manner, if at all. This failure could negatively impact our relationships with customers and would harm sales of Aslera. The following could harm our ability to manufacture and market Aslera: o the unavailability of adequate quantities of the active ingredient for commercial sale; o the loss of a supplier's or manufacturer's regulatory approval; o the inability to develop alternative sources in a timely manner or at all; o an interruption in supply of finished product; and o competing demands on the contract manufacturer's capacity, for example, shifting manufacturing priorities to their own products or more profitable products for other customers. GENELABS' RESEARCH PROGRAMS ARE IN AN EARLY STAGE AND MAY NOT SUCCESSFULLY PRODUCE COMMERCIAL PRODUCTS. Genelabs' research is in an early stage. Our research focuses on the discovery of pharmaceutical products that bind to DNA and function as drugs, including products that selectively regulate gene expression and products that treat fungal, bacterial and viral infections. Gene expression controls the functions of all cells, tissues and organs. Selective regulation of gene expression using a DNA-binding drug means specifically "turning on" or "turning off" a gene, affecting its function. To date, Genelabs' research programs have not produced a compound that has progressed into clinical trials. Genelabs' 8 9 product candidates, other than Aslera, are in an early stage of research. The goal of the research is to discover novel chemical compounds that bind directly to DNA or RNA, the fundamental matter in genes, and develop them into drugs. Genelabs, or others working in this area, may never achieve this goal. If Genelabs discovers compounds that have the potential to be drugs, public information about this research breakthrough may lead other companies with greater resources to focus more efforts on these types of compounds. Genelabs has limited human and financial resources. Creation of the type of compounds Genelabs seeks to discover requires sophisticated and expensive lab equipment and facilities, a team of scientists with advanced scientific knowledge in many disciplines such as chemistry, biochemistry and biology, and time and effort. Large pharmaceutical companies have access to the latest equipment and have many more personnel available to focus on solving particular research problems, including those that Genelabs is investigating. Therefore, even if our research programs are successful, we have a competitive disadvantage. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Genelabs' exposure to market risk for changes in interest rates relates primarily to the Company's short-term investments. Genelabs considers the risk minimal as the Company has maintained financial instruments with average maturities of less than two years, to date has not used derivative instruments, and has placed its investments with high quality debt issuers. Genelabs' exposure to market risk for changes in foreign currency exchange rates relates primarily to the Company's investment in a Taiwan-based biopharmaceutical company, Genelabs Biotechnology Co., Ltd. This investment is the only item included in the balance sheet caption "Long-term investments." Genelabs may attempt to divest a portion of this investment, in which case changes in foreign currency exchange rates would impact the proceeds received upon sale of these shares. The Company does not believe that such foreign currency exchange rate changes will materially impact the value reported in the financial statements, even if the changes are significant. 9 10 PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 3.01 Amended and Restated Articles of Incorporation of Genelabs Technologies, Inc. (B) REPORTS ON FORM 8-K There were no reports on Form 8-K filed during the quarter ended March 31, 2001. 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) Principal Executive Officer: /s/ IRENE A. CHOW Date: May 14, 2001 ----------------------------------- IRENE A. CHOW Chairman and Chief Executive Officer Principal Financial and Accounting Officer: /s/ MATTHEW M. LOAR Date: May 14, 2001 ------------------------------------ MATTHEW M. LOAR Vice President, Finance 10 11 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 3.01 Amended and Restated Articles of Incorporation of Genelabs Technologies, Inc. EX-3.01 2 f72406ex3-01.txt EXHIBIT 3.01 1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF GENELABS TECHNOLOGIES, INC. Irene A. Chow and Heather C. Keller certify that: 1. They are the Chief Executive Officer and Secretary, respectively, of Genelabs Technologies, Inc., a California corporation. 2. The Articles of Incorporation of this corporation are amended and restated to read as follows: "FIRST: The name of this corporation is Genelabs Technologies, Inc. SECOND: The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. THIRD: This corporation is authorized to issue two classes of shares of stock designated respectively "Common Stock" and "Preferred Stock," both of which shall have no par value. The number of shares of Common Stock that the corporation is authorized to issue is 75,000,000 and the number of shares of Preferred Stock that the corporation is authorized to issue is 4,990,000. The Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issuance of shares of that series. FOURTH: The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. FIFTH: This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, by agreement or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the California Corporations Code." 2 3. The foregoing Amendment and Restatement of Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing Amendment and Restatement of Articles of Incorporation has been effected pursuant to Section 510 of the General Corporation Law of California and approval by the outstanding shares of the corporation is therefore not required. No shares of Series A Convertible Preferred Stock are outstanding. All Preferred Stock converted to common stock. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Dated: May 7, 2001 /s/ IRENE A. CHOW ---------------------------------- Irene A. Chow Chief Executive Officer /s/ HEATHER C. KELLER ---------------------------------- Heather C. Keller Secretary -----END PRIVACY-ENHANCED MESSAGE-----