-----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, VWqRygNtVIRZc7G0nKWT6ZhjQum3hz8a+5I8I2DxpYluENh6Jh+WaXtS52vbQ5yQ 3jPsFcM7LeT0+zTO4zxC6g== 0000950005-99-000660.txt : 19990730 0000950005-99-000660.hdr.sgml : 19990730 ACCESSION NUMBER: 0000950005-99-000660 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990729 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CELLEGY PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000887247 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 820429727 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26372 FILM NUMBER: 99672432 BUSINESS ADDRESS: STREET 1: 1065 E HILLSDALE BLVD STREET 2: SUITE 418 CITY: FORSTER CITY STATE: CA ZIP: 94404 BUSINESS PHONE: 4153826770 MAIL ADDRESS: STREET 1: 1065 E HILLSDALE BLVD STREET 2: SUITE 418 CITY: FORSTER CITY STATE: CA ZIP: 94404 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 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: 0-26372 CELLEGY PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) California 82-0429727 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 349 Oyster Point Boulevard, Suite 200, South San Francisco, California 94080 (Address of principal executive offices, including zip code) (650) 616-2200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 -------- ------- The number of shares outstanding of the registrant's common stock at July 19, 1999 was 10,177,063. CELLEGY PHARMACEUTICALS, INC. INDEX TO FORM 10-Q
Page ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements ( Unaudited ) Condensed Balance Sheets as of June 30, 1999 and December 31, 1998 ..... 3 Condensed Statements of Operations for three and six months ended June 30, 1999 and 1998, and the period from June 26, 1989 (inception) through June 30, 1999 .......................................................... 4 Condensed Statements of Cash Flows for the six months ended June 30, 1999 and 1998, and the period from June 26, 1989 (inception) through June 30, 1999 .......................................................... 5 Notes to Condensed Financial Statements ................................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................................... 7 Item 3. Quantitative and Qualitative Disclosure of Market Risk ................. 10 PART II OTHER INFORMATION Item 1. Legal Proceedings ...................................................... 11 Item 2. Changes in Securities .................................................. 11 Item 3. Defaults Upon Senior Securities ........................................ 11 Item 4. Submission of Matters to a Vote of Security Holders .................... 11 Item 5. Other Information ...................................................... 11 Item 6. Exhibits and Reports on Form 8-K ....................................... 11 Signature(s)........................................................................ 12
PART I - FINANCIAL INFORMATION Item 1. Financial Statements Cellegy Pharmaceuticals, Inc. (a development stage company) Condensed Balance Sheets (Amounts in thousands, except share amounts)
June 30, 1999 December 31, 1998 ---------------- ----------------- (Unaudited) (Note 1) Assets Current assets: Cash and cash equivalents .................................................. $ 2,178 $ 1,611 Short-term investments ..................................................... 6,246 7,282 Inventory .................................................................. -- 53 Prepaid expenses and other current assets .................................. 697 1,380 -------- -------- Total current assets ............................................................ 9,121 10,326 Long-term investments ........................................................... 2,252 6,327 Property and equipment, net ..................................................... 3,323 2,831 -------- -------- Total assets .................................................................... $ 14,696 $ 19,484 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities ................................... $ 690 $ 1,552 Deferred revenue ........................................................... -- 250 Accrued research fees ...................................................... 69 94 Accrued compensation and related expenses .................................. 102 69 Current portion of note payable ............................................ 982 403 -------- -------- Total current liabilities ....................................................... 1,843 2,368 Long-term portion of note payable ............................................... 3,518 2,818 Other long-term liabilities ..................................................... 111 80 Shareholders' equity: Common stock, no par value; 20,000,000 shares authorized: 10,177,063 shares issued and outstanding at June 30, 1999 and 10,173,294 shares issued and outstanding at December 31, 1998 ....................................... 44,364 44,363 Accumulated other comprehensive income (loss) .............................. 3 47 Deficit accumulated during the development stage ........................... (35,143) (30,192) -------- -------- Total shareholders' equity ................................................. 9,224 14,218 -------- -------- Total liabilities and shareholders' equity ...................................... $ 14,696 $ 19,484 ======== ======== The accompanying notes are an integral part of these condensed financial statements.
3 Cellegy Pharmaceuticals, Inc. (a development stage company) Condensed Statements of Operations (Unaudited) (Amounts in thousands, except per share amounts)
Period from June 26, 1989 (inception) Three Months Ended Six Months Ended through June 30, June 30, June 30, 1999 1998 1999 1998 1999 -------- -------- -------- -------- -------- Revenues: Licensing, milestone, and development funding ............................ $ -- $ 103 $ 42 $ 165 $ 2,621 Government grants .................................. -- 33 -- 86 400 Product sales ...................................... 394 -- 712 -- 1,170 -------- -------- -------- -------- -------- Total revenues .......................................... 394 136 754 251 4,191 Operating expenses: Cost of product sales .............................. 99 -- 194 -- 307 Research and development ........................... 1,966 1,752 4,290 2,934 23,867 General and administrative ......................... 686 834 1,413 1,353 11,689 Acquired in process technology ..................... -- -- -- -- 3,843 -------- -------- -------- -------- -------- Total operating expenses ................................ 2,751 2,586 5,897 4,287 39,706 -------- -------- -------- -------- -------- Operating loss .......................................... (2,357) (2,450) (5,143) (4,036) (35,515) Interest income / (expenses) ....................... 77 255 193 573 1,821 -------- -------- -------- -------- -------- Net loss ................................................ (2,280) (2,195) (4,950) (3,463) (33,694) Non-cash preferred dividends ............................ -- -- -- -- 1,448 -------- -------- -------- -------- -------- Net loss applicable to common shareholders .............. $ (2,280) $ (2,195) $ (4,950) $ (3,463) $(35,142) ======== ======== ======== ======== ======== Basic and diluted net loss per common share ............. $ (0.22) $ (0.22) $ (0.49) $ (0.34) ======== ======== ======== ======== Weighted average common shares outstanding .............. 10,176 10,165 10,175 10,154 ======== ======== ======== ======== The accompanying notes are an integral part of these condensed financial statements.
4 Cellegy Pharmaceuticals, Inc. (a development stage company) Condensed Statements of Cash Flows (Unaudited) (Amounts in thousands)
Period from June 26, 1989 (inception) Six Months Ended June 30, through -------------------------- June 30, 1999 1998 1999 -------- -------- -------- Operating activities Net cash used in operating activities ........................................ $ (5,107) $ (3,986) $(28,022) Investing activities Purchase of property and equipment ........................................... (703) -- (3,708) Purchases of investments ..................................................... (1,500) (3,000) (42,078) Sales and maturities of investments .......................................... 6,565 6,326 33,581 -------- -------- -------- Net cash provided by (used in) investing activities .......................... 4,362 3,326 (12,205) Financing activities Proceeds from notes payable .................................................. $ 1,280 $ -- $ 8,048 Repayment of notes payable ................................................... -- -- (2,111) Other long-term liabilities .................................................. 31 -- 111 Net proceeds from issuance of common stock ................................... 1 161 24,679 Issuance of convertible preferred stock, net of issuance costs ............... -- -- 11,758 Deferred financing costs ..................................................... -- -- (80) -------- -------- -------- Net cash provided by financing activities .................................... 1,312 161 42,405 -------- -------- -------- Net increase (decrease) in cash and cash equivalents ......................... 567 (499) 2,178 Cash and cash equivalents, beginning of period ............................... $ 1,611 $ 1,822 -- -------- -------- -------- Cash and cash equivalents, end of period ..................................... $ 2,178 $ 1,323 $ 2,178 ======== ======== ======== The accompanying notes are an integral part of these condensed financial statements.
5 Cellegy Pharmaceuticals, Inc. (a development stage company) Notes to Condensed Financial Statements Note 1. - Basis of Presentation The accompanying interim condensed financial statements have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying condensed financial statements include all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation of operating results for the six and three months ended June 30, 1999 and may not necessarily be indicative of the results to be expected for any other interim period or for the full year. The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-K for the year ended December 31, 1998. Note 2. - Basic and Diluted Net Loss per Share The financial statements are presented in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic net loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporate the incremental shares issued upon the assumed exercise of stock options and warrants, when dilutive. There is no difference between basic and diluted net loss per share, as presented in the statement of operations, because all options and warrants are anti-dilutive. Note 3. - Comprehensive Income Accumulated other comprehensive income (loss) presented on the accompanying balance sheet consists of the accumulated net unrealized gain (loss) on available-for-sale investments. It has no impact on net loss or on stockholder's equity. Total comprehensive loss for six months ended June 30, 1999 was $4,994,000 compared with $3,387,000 for the same six months ending June 30, 1998. Total comprehensive loss for three months ended June 30, 1999 and June 30, 1998 are $2,353,000 and $2,195,000 respectively. Note 4. - Segment Reporting The Company has two business segments: pharmaceuticals and cosmeceuticals. Pharmaceuticals include primarily research and development expenses for potential prescription products to be marked directly by the Company or through corporate partners. The cosmeceutical business segment primarily includes development expenses for non-prescription anti-aging products. Using related technologies, Cellegy is currently incurring development expenses and receiving all of its product sales from one customer, Gryphon Development, Inc., which is selling product through Bath & Body Works specialty retail stores exclusively in the United States. 6 The following table contains information ( amounts in thousands ) regarding revenues and loss from operating each business segment for the three and six months ended June 30, 1999 and 1998.
Three months ended June 30, Six months ended June 30, 1999 1998 1999 1998 Revenues: Pharmaceuticals $ -- $ 136 $ 42 $ 251 Cosmeceuticals 394 -- 712 -- ------- ------- ------- ------- $ 394 $ 136 $ 754 $ 251 ======= ======= ======= ======= Loss from Operations: Pharmaceuticals $(2,536) $(2,216) $(4,991) $(3,707) Cosmeceuticals 179 (234) (152) (329) ------- ------- ------- ------- $(2,357) $(2,450) $(5,143) $(4,036) ======= ======= ======= =======
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q includes forward-looking statements. Words such as "believes," "anticipates," "expects," "intends" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements concern matters that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Further, the Company undertakes no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report. Actual events or results may differ materially from those discussed in this Quarterly Report. Cellegy Pharmaceuticals, Inc. is a biopharmaceutical company engaged in the development of prescription drugs and cosmeceuticals to address a variety of diseases and conditions utilizing its patented transdermal and topical delivery technologies. The Company was incorporated in California in 1989. Cellegy is developing several prescription drugs, including Anogesic(R), a nitroglycerin-based product for the treatment of anal fissures and hemorrhoids, and a transdermal testosterone gel for the treatment of male hypogonadism, a condition that frequently results in lethargy and reduced libido in men above the age of 40. In addition to its prescription drugs, Cellegy is testing and developing a line of anti-wrinkling cosmeceutical products which the Company believes will address the skin care needs of an affluent and aging population. General In November 1997, the Company completed a $15.1 million public offering of approximately 2.0 million shares of Common Stock. Simultaneously, the Company's stock was approved for listing on the NASDAQ National Market. In December 1997, the Company completed an asset purchase agreement with Neptune Pharmaceutical Corporation ("Neptune") to acquire all patent and other intellectual property rights relating to Anogesic. Certain future milestone payments for Anogesic are payable to Neptune in Cellegy Common Stock. The Company expects additional non-cash charges to operations for milestone payments of approximately $750,000 in the second half of 1999. The exact number of shares issuable will be based on a formula tied to the market price of the common stock 7 when the milestone is achieved. Based on the July 19, 1999 closing price of Cellegy's common stock, approximately 100,000 shares would be issued for anticipated milestones achieved in the second half of 1999. In September 1998, Cellegy began initial shipments and product sales of its C79 intensive moisturizing formulation to Gryphon Development Inc., the product development arm of Bath & Body Works. C79 is a key ingredient in a line of healing hand creams launched at most Bath & Body Works stores in the United States. Total sales from inception through June 1999 exceed $1.1 million. In March 1999, Cellegy and Glaxo Wellcome ( "Glaxo" ) announced their intention to terminate the license agreement with the return to Cellegy of Glylorin(TM) product rights. Subject to final termination agreement terms, Cellegy expects to receive remaining development funding due from Glaxo through the date of termination. Cellegy intends to repay Glaxo approximately $250,000 in funds previously advanced by Glaxo. Cellegy does not currently intend to develop Glylorin on its own, but will seek an appropriate partner for certain geographic territories to develop the product in exchange for certain upfront payments, milestones, and royalties on future sales. Results of Operations Revenues. The Company had revenues of $754,000 and $251,000 for the six months ended June 30, 1999 and 1998, respectively. During the six months ended June 30, 1999, revenues consisted of $712,000 in product sales to Gryphon Development, the development subsidiary of specialty retailer Bath & Body Works, and $42,000 for development funding associated with the Glaxo license agreement. During the first six months of 1998, revenues consisted of $165,000 in development funding from Glaxo, and $86,000 related to an Orphan Drug grant from the Food and Drug Administration ("FDA") to cover certain of the Company's clinical trial costs for Glylorin. The Company expects to receive minimal additional development funding from Glaxo, pending termination of the license agreement. For the three months ended June 30, 1999, the Company recorded revenues of $394,000 consisting exclusively of product sales to Gryphon Development. For the same period in 1998, revenues were $136,000 consisting of $103,000 in development funding associated with the Glaxo and $33,000 from the FDA Orphan Drug grant. Cellegy has not yet received additional orders for the remainder of 1999 from Gryphon Development for its C79 intensive moisturizer. Cellegy expects certain orders will be forthcoming for the year end holiday selling season. However, there is no assurance that further orders for this product will be forthcoming. Research and Development Expenses. Research and development expenses were $4,290,000 for the six months ended June 30, 1999, compared with $2,934,000 for the same period last year. During the first three months of 1999 and 1998, research and development spending was $1,966,000 and $1,752,000, respectively. The increases were primarily due to costs associated with the Company's ongoing Phase III clinical trial studying Anogesic for the treatment of anal fissures. In addition, research and clinical staffing, as well as lease expenses associated with the Company's new office and laboratory facility increased from comparable periods last year. Cellegy's research expenses are expected to continue to increase during 1999 associated primarily with its Anogesic(R) clinical studies and regulatory filings and its transdermal testosterone gel clinical study. General and Administrative Expenses. General and administrative expenses were $1,413,000 for the six months ended June 30, 1999, compared with $1,353,000 for the same period last year. The Company incurred general and administrative expenses of $686,000 and $834,000 for the three months ended June 30, 1999 and 1998, respectively. The increase during the first six months was primarily due to higher lease expenses associated with its new facility. Expenses for the three month period ended June 30, 1998 were higher than during the comparable quarter of 1999 due to one-time staffing and relocation expenses that occurred last year. The Company's general and administrative expenses are expected to increase in the future resulting from its European corporate development program and in support of its research and product commercialization efforts. Interest Income and Expense. The Company earned $351,000 and $578,000 in interest income for the six 8 months ended June 30, 1999 and 1998, respectively. For the three months ended June 30, 1999 and 1998, the Company earned $151,000 and $255,000, respectively. The reductions in interest income earned during the six and three month periods of 1999 were due to lower average investment balances. Interest expense for the six and three month periods ended June 30, 1999 were $158,000 and $75,000, respectively. This was associated with a bank loan for new facility tenant improvements. There was no interest expense for the six and three month periods ended June 30, 1998. The Company expects interest expense to increase in the next quarter associated with increased loan balances. Net Loss. The net loss applicable to common shareholders was $4,950,000 or $0.49 per share for the six months ended June 30, 1999 based on 10,175,000 weighted average shares outstanding, compared with a net loss of $3,463,000 or $0.34 per share for the same period in the prior year, when 10,154,000 weighted average shares were outstanding. For the three months ended June 30, 1999, the net loss applicable to common shareholders was $2,280,000 or $0.22 per share based on 10,176,000 average shares outstanding compared with a net loss applicable to common shareholders of $2,195,000 or $0.22 per share during the same period in 1998 when 10,165,000 weighted average shares were outstanding. Liquidity and Capital Resources From inception through June 30, 1999, the Company had incurred an accumulated deficit of $35.1 million and had consumed cash from operations of $28.0 million. The Company's public financing included $6.4 million in net proceeds from its initial public offering in August 1995, $6.8 million in net proceeds from a preferred stock financing in April 1996, $3.8 million in net proceeds from a private placement of Common Stock in July 1997, and $13.8 million in net proceeds for a secondary public offering in November 1997. The Company's cash and investments were $10.7 million at June 30, 1999, compared with $15.2 million at December 31, 1998. The decrease in cash and investments was principally due to net cash used in operating activities. The Company's operations have and will continue to use substantial amounts of cash. The Company has no current source of significant ongoing revenues or capital beyond existing cash and investments and the current product sale agreement with Gryphon Development. In order to complete the research and development and other activities necessary to commercialize its products, additional financing will be required. The Company's future expenditures and capital requirements depend on numerous factors including, without limitation, the progress and focus of its research and development programs, the progress and results of pre-clinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, changes in the Company's existing research relationships, the ability of the Company to establish collaborative arrangements, the initiation of commercialization activities, the purchase of capital equipment and the availability of other financing. In the course of its development activities since inception, the Company has incurred significant losses and expects to incur substantial additional development costs. As a result, the Company will require additional funds to finance operations and is currently seeking private or public equity investments and future collaborative arrangements with third parties to meet such needs. There is no assurance that such funding will be available for the Company to finance its operations on acceptable terms, if at all. Insufficient funding may require the Company to delay, reduce or eliminate some or all of its research and development activities, planned clinical trials and administrative programs. The Company believes that available cash resources and the interest thereon will be adequate to satisfy its capital needs through at least December 31, 1999. Year 2000 Issues To address the potential impact of year 2000, the Company established a Y2K cross-function project team in August of 1998, chaired by the Company's Vice President, Finance and Chief Financial Officer. The Y2K project team reports to the Information Systems ("IS") committee which consists of the Company's Chief Executive 9 Officer and all its other officers. The Y2K project team developed a phased approach to identify and resolve any Year 2000 issues. All three phases of the Company's compliance program are now completed. Cellegy does not expect the cost of the Year 2000 compliance program to be material. The total cost is now estimated at less than $35,000. The Company has developed a contingency plan in the event that a business interruption caused by Year 2000 problems should occur. The contingency plan also addresses vendor and third parties' Year 2000 issues that may arise. Nevertheless, Year 2000 compliance is a complex project and it depends on many factors, some of which are not completely within the Company's control. Should either the Company's internal systems or the internal systems of one or more significant vendor or supplier fail to achieve Year 2000 compliance, the Company's business and its results of operations could be adversely affected. Factors That May Affect Future Operating Results This Quarterly Report on Form 10-Q contains forward-looking statements which involve risks and uncertainties, including, but not limited to, statements concerning the completion of clinical trials, particularly the Company's ongoing Phase III trial using Anogesic, the timing of planned regulatory filings, the scope of the Company's patent coverage, anticipated expenditures and the need for additional funds. The factors discussed in the Company's reports filed with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 1998, in particular under the caption "Factors That May Affect Future Operating Results," should be carefully considered when evaluating the Company's business and prospects. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company invests its excess cash in short-term, investment grade, fixed income securities under an investment policy. All of the Company's investments are classified as available-for-sale. Over 50% of the Company's securities will mature by the end of 1999. The Company believes that potential near-term losses in future earnings, fair values or cash flows related to their investment portfolio would not be significant. Cellegy has an outstanding long-term note payable with an interest rate that currently varies with the lender's prime rate. 10 PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K None 11 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. CELLEGY PHARMACEUTICALS, INC. Date: July 29, 1999 /s/ K. Michael Forrest -------------------------------------------- K. Michael Forrest President and Chief Executive Officer Date: July 29, 1999 /s/ A. Richard Juelis -------------------------------------------- A. Richard Juelis Vice President, Finance and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 2178 8,498 0 0 0 9,121 3,685 (362) 14,696 1,843 0 0 0 44,364 (35,143) 14,696 754 754 194 194 5,703 0 193 (4,950) 0 0 0 0 0 (4,950) (0.49) (0.49)
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