-----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, L9TMjhEcUS1TXYYHY3Aly+JUTz/2MXDpGZa1CepH7RuwFBM8ltzS9n/NiW8YfLBY aex+wUCaAt6r5TdpOEg37A== 0000950133-97-001847.txt : 19970515 0000950133-97-001847.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950133-97-001847 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GUILFORD PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000918066 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 521841960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23736 FILM NUMBER: 97603592 BUSINESS ADDRESS: STREET 1: 6611 TRIBUTARY ST CITY: BALTIMORE STATE: MD ZIP: 21224 BUSINESS PHONE: 4106316300 10-Q 1 FORM 10-Q FOR QUARTER ENDED 3/31/97 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 ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 -------------- COMMISSION FILE NUMBER 0-23736 ------- GUILFORD PHARMACEUTICALS INC. (Exact name of registrant as specified in its charter) - -------------------------------------------------------------------------------- DELAWARE 52-1841960 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 6611 TRIBUTARY STREET, BALTIMORE, MARYLAND 21224 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 410-631-6300 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 13, 1997 Common Stock, $.01 par value 18,553,431 - ---------------------------- -------------------------- 2 GUILFORD PHARMACEUTICALS INC. INDEX
Page (s) ---- PART I. FINANCIAL INFORMATION (UNAUDITED) Item 1. Financial Statements Consolidated Balance Sheets March 31, 1997 and December 31, 1996 3 Consolidated Statements of Operations Three months ended March 31, 1997 and 1996 4 Consolidated Statement of Stockholders' Equity Three months ended March 31, 1997 5 Consolidated Statements of Cash Flows Three months ended March 31, 1997 and 1996 6 Notes to Consolidated Financial Statements 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 PART II. OTHER INFORMATION 17 SIGNATURES 18
2 3 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, 1997 (UNAUDITED) DECEMBER 31, 1996 -------------------------- ------------------- ASSETS ------ Current assets: Cash and cash equivalents $ 5,536 $ 16,560 Short-term investments 30,251 20,097 Short-term investments - restricted 2,043 1,608 Accounts receivable - net 1,019 - Collaborative research receivable 236 376 Inventory 1,465 1,533 Other current assets 445 435 --------------------- -------------------- Total current assets 40,995 40,609 Investments 23,025 30,653 Investments - restricted 8,902 8,521 Property and equipment, net 14,227 13,455 Other assets 332 421 --------------------- -------------------- Total assets $ 87,481 $ 93,659 ===================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 2,182 $ 2,038 Bond payable - current portion 941 941 Term loan payable - current portion 818 540 Accrued consulting and contracted research 787 935 Accrued payroll related costs 686 1,238 Accrued expenses and other current liabilities 949 1,185 --------------------- ------------------- Total current liabilities 6,363 6,877 Long-term liabilities: Bond payable, less current portion 6,353 6,588 Term loan payable, less current portion 4,537 4,317 --------------------- ------------------- Total liabilities 17,253 17,782 Stockholders' equity: Preferred stock, par value $.01 per share Authorized 4,700,000 shares, none issued Series A junior participating preferred stock, par value $.01 per share. Authorized 300,000 shares, none issued Common stock, par value $.01 per share. Authorized 20,000,000 shares; (40,000,000 shares effective April, 1997) 14,805,556 and 13,979,490 issued and outstanding at March 31, 1997 and December 31, 1996 148 140 Additional paid-in capital 92,309 90,880 Notes receivable on common stock (129) (129) Accumulated deficit (21,210) (14,874) Unrealized gain (loss) on available for sale securities (183) 62 Treasury stock, at cost 26,188 shares (655) Deferred compensation (52) (202) --------------------- ------------------- 70,228 75,877 --------------------- ------------------- Total liabilities and stockholders' equity $ 87,481 $ 93,659 ===================== ===================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 3 4 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED MARCH 31, 1997 1996 --------------------- ------------------------- Revenues: Product sales $ 2,058 $ - License fees and royalties 201 100 Revenues under collaborative agreements - 10 --------------------- ------------------------- Total revenues 2,259 110 Costs and Expenses: Cost of Sales 907 - Research and development 6,664 3,572 General and administrative 1,781 1,344 --------------------- ------------------------- Total costs and expenses 9,352 4,916 --------------------- ------------------------- Operating loss (7,093) (4,806) Other income (expense): Interest income 990 358 Other income 6 - Interest expense (239) (71) --------------------- ------------------------- Net loss $ (6,336) $ (4,519) ===================== ========================= Net loss per share: $ (0.45) $ (0.43) ===================== ========================= Weighted average common shares outstanding 14,237,446 10,438,608 ===================== =========================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 4 5 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ------------ TREASURY ADDITIONAL NUMBER STOCK PAID-IN OF SHARES AMOUNT AT COST CAPITAL --------- ------ -------- ------- BALANCE, DECEMBER 31, 1996 13,979,490 $ 140 $ - $ 90,880 Issuances of common stock 826,066 8 1,012 Purchase of common stock (655) Amortization of stock option compensation 417 Amortization of deferred compensation Unrealized loss on available for sale securities Net loss for the period ----------------- ----------- -------------- --------------- BALANCE, MARCH 31, 1997 14,805,556 $ 148 $ (655) $ 92,309 ================= =========== ============== =============== NOTES RECEIVABLE ON COMMON ACCUMULATED STOCK DEFICIT ----- ------- BALANCE, DECEMBER 31, 1996 $ (129) $ (14,874) Issuances of common stock Purchase of common stock Amortization of stock option compensation Amortization of deferred compensation Unrealized loss on available for sale securities Net loss for the period (6,336) ------------------ ---------------- BALANCE, MARCH 31, 1997 $ (129) $ (21,210) ================== ================ UNREALIZED GAIN (LOSS) ON TOTAL AVAILABLE FOR DEFERRED STOCKHOLDERS' SALE SECURITIES COMPENSATION EQUITY --------------- ------------ ------ BALANCE, DECEMBER 31, 1996 $ 62 $ (202) $ 75,877 Issuances of common stock 1,020 Purchase of common stock (655) Amortization of stock option compensation 417 Amortization of deferred compensation 150 150 Unrealized loss on available for sale securities (245) (245) Net loss for the period (6,336) ------------------- ------------------ ---------------------- BALANCE, MARCH 31, 1997 $ (183) $ (52) $ 70,228 =================== ================== ======================
5 6 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (6,336) $ (4,519) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 594 231 Noncash compensation expense 567 32 Changes in assets and liabilities: Accounts receivable - net (1,019) - Licensing fee receivable - 455 Collaborative research receivable 140 - Notes receivable - (1) Inventory 68 - Other current assets (10) 119 Other assets 89 2 Accounts payable 144 1,902 Accrued expenses and other current liabilities (937) (304) ------------------- ---------------- Net cash used in operating activities (6,700) (2,083) ------------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in purchases of property and equipment (1,366) (3,036) Maturities of held-to-maturity investments 8,399 6,685 Maturities of available-for-sale investments 3,454 - Purchases of held-to-maturity investments (8,157) (5,195) Purchases of available-for-sale investments (7,489) - Restricted cash - 12 Restricted investments 208 - ------------------- ---------------- Net cash used in investing activities (4,951) (1,534) ------------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuances of common stock 321 37,242 Purchase of treasury stock (655) - Proceeds from bond and term loan issuances 498 1,002 Equity proceeds from Gell Pharmaceuticals Inc. relating to the put option 698 232 Principal payments on bond payable (235) - ------------------- ---------------- Net cash provided by financing activities 627 38,476 ------------------- ---------------- Net increase (decrease) in cash and cash equivalents (11,024) 34,859 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 16,560 4,260 ------------------- ---------------- CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 5,536 $ 39,119 =================== ================ Supplemental disclosures of cash flow information: Net interest paid $ 237 $ 111 Unrealized loss on available for sale securities $ (245) $ - Receivable from over-allotment purchase of 300,000 common shares $ - $ 5,640 Collateral transferred from unrestricted to restricted investments, net $ 435 $ 701 =================== ================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 6 7 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-K/A for the year ended December 31, 1996. In the opinion of the Company's management, any adjustments contained in the accompanying unaudited consolidated financial statements are of a normal recurring nature, necessary to present fairly its financial position, results of operations, changes in stockholders' equity and cash flows for the respective periods as set forth in the Index to Financial Information. Interim results are not necessarily indicative of results for the full fiscal year. Net loss per share data for the period ending March 31, 1996 have been adjusted to reflect a three-for-two stock split declared on October 15, 1996. 2. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Guilford Pharmaceuticals Inc. and its subsidiaries, all of which are wholly-owned. All significant intercompany transactions have been eliminated. 3. ACCOUNTING POLICIES During the first quarter 1997, the Company adopted or implemented the following accounting policies: REVENUE RECOGNITION Sales revenues are recognized at the time the goods are shipped and the title to the goods passes to the buyer. 7 8 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. ACCOUNTING POLICIES (CONTINUED) NET LOSS PER SHARE The computation of net loss per share is based on the weighted average common shares outstanding during the period. Common stock equivalents relating to stock options and warrants are excluded from the computation as their effect is anti-dilutive. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 is effective for financial statements for periods ending after December 15, 1997. SFAS 128 requires companies to change the method currently used to compute earnings per share and to restate all prior periods for comparability. Under SFAS 128, primary and fully diluted earnings per share are eliminated and SFAS 128 requires presentation of basic and diluted earnings per share. The adoption of SFAS 128 is not expected to have a material impact on the Company's earnings per share due to the fact that the Company is and expects to be in a loss position and, consequently, common equivalent shares from stock options are excluded as their effect is anti-dilutive. 4. INVENTORIES Inventories consist of the following (in thousands): March 31, 1997 December 31, 1996 Finished products $ 497 $ 501 Work in Process 467 432 Raw materials 501 600 ------ ------ $1,465 $1,533 ====== ====== Inventories include products and materials that can be either held for sale to third parties as well as used in the Company's research and development activities. The amount of products or materials identified as intended for research and development activities is expensed as soon as such inventory is specifically identified for non-commercial use. 8 9 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. PRODUCT SALES & ROYALTIES Pursuant to the Company's Marketing, Sales and Distribution Rights Agreement (together with related agreements, the "RPR Agreements") with Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPR"), the Company recognized revenues of $2.3 million ($2.1 million in product sales and $0.2 million in royalty revenues) for the three months ended March 31, 1997 relating to sales of GLIADEL (R) Wafer ("GLIADEL"). GLIADEL was commercially launched in the United States on February 25, 1997. Under the RPR Agreements, Guilford receives a combined transfer price and royalty of 35% (which escalates to 40% based on achieving certain levels of total GLIADEL sales) of the net sales of GLIADEL. 6. INCOME TAXES As of December 31, 1996, the Company had net operating loss ("NOL") carryforwards available in the United States for federal income tax purposes of approximately $10.3 million, which will begin to expire at various dates between 2008 to 2010. NOL carryforwards are subject to ownership change limitations and may also be subject to various other limitations on the amounts to be utilized. Additionally, through December 31, 1996, the Company had foreign tax credit carryforwards of $61,000 expiring in 2000 and 2001, and general business tax credit carryforwards of $450,000 expiring between 2008 and 2011. Realization of net deferred tax assets related to the Company's NOL carryforwards and other items is dependent on future earnings, which are uncertain. Accordingly, a valuation allowance has been established equal to net deferred tax assets which may not be realized in the future, resulting in net deferred tax assets of approximately $179,000 at March 31, 1997. 7. GELL PHARMACEUTICALS INC. In February 1995, the Company and The Abell Foundation, Inc., a Baltimore-based not-for-profit corporation ("Abell"), formed Gell Pharmaceuticals Inc.("Gell"), which was initially 20% owned by the Company and 80% owned by Abell. On March 5, 1997, Abell exercised its put option to receive 750,000 shares of the Company's common stock in exchange for its 80% interest in Gell, and thereafter Gell became a wholly-owned subsidiary of the Company. The number of shares exchanged for Abell's interest in Gell was fixed and agreed to at the inception of Gell. 9 10 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. SUBSEQUENT EVENTS In April 1997, the Company completed a follow-on public offering of approximately 3.7 million shares of its common stock, resulting in net proceeds to the Company of approximately $71 million. In addition, on April 1, 1997, the Company's stockholders approved an amendment to the Company's Amended and Restated Certificate of Incorporation, as amended, increasing the number of authorized shares of common stock from 20 million to 40 million shares. 10 11 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Any statements made by Guilford Pharmaceuticals Inc. (together with its subsidiaries, "Guilford" or the "Company") in this quarterly report that are forward looking are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The following discussion contains forward-looking statements, including, but not limited to, those concerning the commencement and completion of clinical trials, the Company's strategic plans, anticipated expenditures and the need for additional funds, which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Information concerning factors that could affect such results are set forth herein and in the Company's filings with the Securities and Exchange Commission, including the section entitled "Risk Factors" in the Company's Registration Statement on Form S-3, initially filed March 7, 1997 (the "March 1997 Form S-3"). * * * GENERAL Guilford, founded in 1993, is a biopharmaceutical company engaged in the development and commercialization of novel products in two principal areas: (i) targeted and controlled drug delivery systems using proprietary biodegradable polymers for the treatment of cancer and other diseases; and (ii) therapeutic and diagnostic products for neurological diseases and conditions. Since its inception, the Company has primarily focused its effort on commercializing its first product, GLIADEL(R)Wafer ("GLIADEL"), a proprietary biodegradable polymer for delivering the chemotherapeutic agent, BCNU, for brain cancer and developing its second product candidate, DOPASCAN(R) Injection ("DOPASCAN"), a radiolabeled imaging agent for the diagnosis and monitoring of Parkinson's disease. In September 1996, the U.S. Food and Drug Administration ("FDA") cleared the Company's New Drug Application for GLIADEL as an adjunct to surgery in patients with recurrent glioblastoma multiforme for whom surgery is indicated. On February 25, 1997, GLIADEL was commercially launched in the United States by the Company's worldwide marketing partner (except in Scandinavia), Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPR"). In addition, the Company has in-licensed and itself developed certain technologies that may be useful in connection with the prevention and treatment of certain neurological diseases and conditions and has accelerated research and development activities with respect to certain of these technologies. While the Company reported net earnings of $5.1 million for fiscal 1996 (primarily the result of nonrecurring milestones and licensing fees), the Company incurred net operating losses from its inception through the first quarter of 1996 and again in the fourth quarter of 1996. For the first quarter of 1997, the Company incurred a net operating loss of $6.3 million, and through March 31, 1997, the Company had an accumulated deficit of $21.2 million. Through December 31, 1996, substantially all the Company's revenues have been recognized as non-recurring research and development or rights and milestone payments under the Company's collaborations. In the first quarter of 1997, the Company launched its first commercial product, GLIADEL and recognized $2.3 million in product sales and royalties. Except for GLIADEL, the Company's product candidates are not expected to generate revenues for at least the next several years, if at all, and the recognition of 11 12 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES GENERAL (CONTINUED) material revenues related to GLIADEL sales is subject to significant uncertainty. The Company does not anticipate that 1997 will be profitable, and there can be no assurance that the Company will ever achieve or sustain profitability in the future. Furthermore, the Company expects to experience quarter-to-quarter and year-to-year fluctuations in its operating results based upon the timing and amount of sales of GLIADEL, the timing and realization of milestone and other payments under the Company's agreements with RPR and other existing and potential collaborations, expenditures relating to the Company's research and development, clinical and manufacturing activities, and the extent and timing of costs related to the Company's patenting activities and other activities undertaken in connection with the preservation and extension of the Company's intellectual property rights. The Company expects that expenses related to research and product development, preclinical testing, clinical trials, regulatory matters, operations, manufacturing and general and administrative expenses will continue to increase as the Company commercializes GLIADEL through its marketing partners and conducts research and development activities to develop its other technologies and potential products. The Company has experienced substantial personnel growth since its inception and had 4, 34, 78, and 140 full-time employees at December 31, 1993, 1994, 1995, and 1996, respectively. As of March 31, 1997 the Company had 165 full-time employees. The Company's ability to achieve consistent profitability in the future will depend, among other things, upon future sales of GLIADEL as well as the Company's ability, either alone or with others, to develop its product candidates successfully, conduct clinical trials, obtain required regulatory clearances, manufacture at reasonable cost and successfully market its product candidates and enter into collaborative arrangements and license agreements on acceptable terms. For discussion of these and other risks, see the "Risk Factors" section of the March 1997 Form S-3, particularly those paragraphs specifically addressing the aforementioned risks. Future sales of GLIADEL are subject to certain risks, including the following. The Company's agreements with RPR do not impose any minimum purchase requirements on the part of RPR, and there can be no assurance that RPR will be successful in marketing and selling GLIADEL. GLIADEL represents a novel approach to the treatment of brain cancer, and there can be no assurance of broad acceptance by the medical or patient communities. The Company currently relies on a single supplier for BCNU, the chemotherapeutic agent used in GLIADEL, and on its own single manufacturing facility to produce GLIADEL. Inability to secure timely, sufficient, or GMP quality supply of BCNU, unforeseen plant shutdowns due to personnel or plant or equipment problems, risks associated with regulatory compliance (including the need to manufacture GLIADEL in accordance with the FDA's Good Manufacturing Practice (GMP) regulations), and the potential inability to meet future product demand, among others, could adversely affect the timing and extent of any future revenues related to GLIADEL sales. For discussion of these and other risks, see the "Risk Factors" section of the March 1997 Form S-3, particularly those paragraphs specifically addressing the aforementioned risks. 12 13 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES RESULTS OF OPERATIONS Comparison of the Three Month Periods Ended March 31, 1997 and 1996 The Company recognized $2.3 million in revenues for the three months ended March 31, 1997, all of which resulted from product sales of and royalties relating to GLIADEL, following its commercial launch in the United States on February 25, 1997. For the same period in 1996 the Company recognized $110,000 in revenues, primarily related to a one-time license fee paid to the Company by Orion Corporation Farmos, the Company's marketing partner for GLIADEL in Scandinavia. Cost of sales for the first quarter 1997 were $907,000. Included in this amount are approximately $162,000 representing both royalty payments made to a third party from which the Company licensed certain technologies related to GLIADEL and certain costs specifically related to the commercial product launch of GLIADEL in the United States. As GLIADEL production levels increase, the Company expects that per unit product costs may decrease as economies of scale are achieved. There can be no assurance, however, that GLIADEL product sales will ever reach levels necessary for the Company to realize significant costs savings related to manufacturing economies of scale. Research and development expenses increased to $6.7 million for the three months ended March 31, 1997 as compared to $3.6 million for the same period in 1996. The increase in these costs was primarily attributable to expenses related to increased personnel costs and contracted research, consulting and laboratory supplies. In the first quarter of 1997, the Company accelerated its neuroimmunophilin, pre-synaptic glutamate inhibitors, polymer development, and other research and development programs, continued work on the study report on the Phase IIb clinical trials of DOPASCAN in the United States (which completed patient enrollment at the end of 1996), and continued with Phase I clinical trials for a high dose formulation of GLIADEL during the first quarter of 1997. In addition, in the first quarter of 1997, research and development expenses also included a non-cash compensation expense charge of $417,000, and $58,000 in cash compensation expense, both relating to certain consulting agreements entered into in April 1996. These agreements are intended to enhance the Company's ability to develop new polymer technologies and products for the delivery of chemotherapeutics in indications where local tumor recurrence is likely and controlled release may be more effective than current therapies. The Company expects it will be required to record varying amounts quarterly of up to an additional $1.8 million in the aggregate of non-cash compensation charges in research and development expenses through 2001 relating to these agreements. The Company anticipates that its research and development expenses will continue to increase significantly in future periods. 13 14 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES RESULTS OF OPERATIONS (CONTINUED) General and administrative expenses increased to $1.8 million for the three months ended March 31, 1997 as compared to $1.3 million for the same period in 1996. The increase in general and administrative expenses of $437,000 million from the 1996 period to the 1997 period was attributable to higher personnel costs related to an increase in the number of employees necessary to support the Company's research and development and commercialization activities. Additionally, indirect personnel costs, including recruiting and relocation costs, have increased as the total number of employees has increased. Increases in costs related to patenting and other activities related to establishment and preservation of the Company's intellectual property and costs related to operations as a public company also contributed to increased general and administrative expenditures over the periods covered. The Company anticipates that its general and administrative expenses will continue to increase in future periods. Other income and expense relates primarily to interest income and interest expense. Interest income increased to $990,000 for the three months ended March 31, 1997 as compared to $358,000 for the same period in 1996. The increase was primarily attributable to an increase in the average invested capital during the first quarter of 1997 as compared to the same period in 1996. The increase in average invested capital was primarily due to the sales of the Company's Common Stock in 1996 and milestone/licensing fee revenues from RPR in 1996. For the three months ended March 31, 1997 and 1996, the Company incurred interest expense of $239,000 and $71,000, respectively, relating to borrowings under its loan agreements with Signet Bank providing for the construction of manufacturing, administrative and research and development facilities and the purchase of related equipment. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and investments were $69.6 million at March 31, 1997. Included in this amount is $10.9 million of restricted cash held as collateral with respect to certain of the Company's indebtedness. The Company incurred capital expenditures of $1.4 million for the three months ended March 31, 1997 compared to $3.0 million for the same period in 1996. The capital expenditures made in the 1997 period were primarily for purchases of capital equipment, consisting of laboratory, manufacturing, and computer equipment, and the construction of the Company's manufacturing plant for GLIADEL and other polymers under development. The capital expenditures made in the 1996 period were primarily for the construction of the Company's polymer manufacturing plant and tenant improvements for research and development laboratories and administrative offices. In addition funds were used to purchase capital equipment, consisting of laboratory, manufacturing and computer equipment. Construction for the Company's research and development laboratories and administrative offices was substantially completed in November 1996. 14 15 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The Company had available approximately $1.3 million at March 31, 1997 under its existing loan agreements with Signet Bank to finance the remaining tenant improvements related to the construction of laboratories and related areas. To finance capital equipment, the Company finalized a $5.0 million operating lease arrangement with General Electric Capital Corporation in September 1996 for the financing of certain equipment. Such financing, along with other sources, is expected to provide for the Company's equipment needs at least through the third quarter of 1997. At March 31, 1997, $3.0 million was available under this arrangement to lease additional equipment. During the remainder of 1997 and 1998, the Company expects to make additional capital expenditures of approximately $3.7 million to expand the Company's GLIADEL manufacturing and other polymer development plant capacity. The Company expects to use the funds available under its $7.5 million loan agreement with RPR to fund the expansion. As of January 2, 1997, $4.0 million became available under the loan agreement; the remainder is available no earlier than 12 nor later than 18 months following funding of the initial tranche. Any principal amounts borrowed under this loan agreement are due five years from the date borrowed and will carry an interest rate equal to the lowest rate paid by RPR from time to time on its most senior indebtedness. No amounts were outstanding under this loan at March 31, 1997. The Company will require substantial funds in order to continue its research and development programs and preclinical and clinical testing and to manufacture and, where applicable, market its products. The Company's capital requirements depend on numerous factors, including the progress of its research and development programs, the progress of preclinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the cost 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 development of collaborative and licensing agreements and other arrangements and the progress of manufacturing scale-up efforts. SUBSEQUENT EVENTS In April 1997, the Company completed a public offering of an aggregate of approximately 3.7 million shares of its Common Stock, resulting in net proceeds to the Company of approximately $71 million. The Company believes that its existing resources, including the net proceeds of the offering and the interest earned thereon, will be sufficient to fund the Company's activities for at least the next three years. There can be no assurance, however, that changes in the Company's research and development and commercialization plans or other factors affecting the Company's operating expenses including potential acquisitions will not result in the expenditure of these proceeds and the Company's other resources before that time. 15 16 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES SUBSEQUENT EVENTS (CONTINUED) The Company anticipates that it will fund future capital requirements through a combination of its existing working capital, revenues (including product sales, royalty income, milestones/licensing fees) generated under its agreements with RPR relating to GLIADEL, public or private financings (as necessary), additional collaborative or other research and development agreements, commercialization and marketing arrangements with corporate partners or other potential sources. The Company's ability to raise future capital on acceptable terms is dependent on conditions in the public and private equity markets and the performance of the Company, as well as the overall performance of other companies in the biopharmaceutical and biotechnology sectors. There can be no assurance that any required future financing arrangements will be available on acceptable terms, or at all. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable 16 17 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES PART II. - OTHER INFORMATION Item 1. Legal Proceedings: None Item 2. Changes in Securities: None Item 3. Defaults in 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: (a) Exhibits: 10.41 Amendments to 1993 Employee Share Option and Restricted Share Plan, as amended 10.42 Employment letter agreement with David R. Savello, Ph.D. 11.1 Statement Re: Computation of Net Loss Per Share 27.1 Financial Data Schedule PART II. - OTHER INFORMATION (b) Report on Form 8-K None 17 18 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES 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. Guilford Pharmaceuticals Inc. Date: May 14, 1997 /s/ Craig R. Smith, M.D. ------------------------ Craig R. Smith, M.D. President and CEO Date: May 14, 1997 /s/ Andrew R. Jordan -------------------- Andrew R. Jordan Senior Vice President and Chief Financial Officer (Principal Accounting Officer) 18 EX-10.41 2 AMENDMENTS TO 1993 EMPLOYEE SHARE OPTION PLAN 1 EXHIBIT 10.41 1. Section 5.1 of the Company's 1993 Employee Share Option and Restricted Share Plan, as amended, is amended by adding the following to the end of that section ",provided that no outside director on the Board shall be eligible to participate in this Plan". 2. Section 12.1 of the Company's 1993 Employee Share Option and Restricted Share Plan, as amended, is amended to read in its entirely as follows: "12.1 Term. Each Option granted under the Plan shall terminate and all rights to purchase shares thereunder shall cease upon the expiration of ten years from the date such Option is granted, or on such other date as may be fixed by the Board and stated in the Share Option Agreement relating to such Option; provided, however, that in the event the Optionee would otherwise be ineligible to receive an Incentive Share Option by reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of more than ten percent), an Option granted to such Optionee that is intended to be an Incentive Share Option shall in no event be exercisable after the expiration of five years from the date it is granted." 3. Article 15 of the Company's 1993 Employee Share Option and Restricted Share Plan, as amended, is amended to read in its entirely as follows: "15.1 General. Except as provided in Section 15.2 with respect to non-Incentive Share Options, during the lifetime of an Optionee, only such Optionee or grantee (or, in the event of legal incapacity or incompetency, the guardian or legal representative of the Optionee or grantee) may exercise the Option. No Restricted Shares shall be assignable or transferable, other than by will or the laws of descent and distribution, before the satisfaction of applicable performance and service requirements with respect to such Shares, as set forth in the applicable Restricted Share Agreement." "15.2 Family Transfers. The Committee may, in its discretion, authorize all or a portion of non-Incentive Share Options granted to an Optionee to be on terms which permit transfer by such Optionee to (i) the spouse, children or grandchildren of the Optionee "Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family members are the only partners, provided that (x) there may be no consideration for any such transfer, (y) the Share Option Agreement pursuant to which such non-Incentive Share Options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred Options shall be prohibited except those in accordance with Section 15.2 or by will or the laws of descent and distribution. Following transfer, any such non-Incentive Share Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Sections 12.7 hereof the term "Optionee" shall be deemed to refer the transferee. The events of termination of employment of Section 12 hereof shall continue to be applied with respect to the original Optionee, following which the non-Incentive Share Options shall be exercisable by the transferee only to the extent, and for the periods specified in Section 12." EX-10.42 3 EMPLOYMENT LETTER AGREEMENT WITH DAVID SAVELLO 1 EXHIBIT 10.42 [GUILFORD PHARMACEUTICALS LETTERHEAD] CRAIG R. SMITH, M.D. President and Chief Executive Officer January 13, 1997 David R. Savello, Ph.D. 3430 Dover Road Durham, NC 17707 Dear David: I am pleased to offer you employment with Guilford Pharmaceuticals Inc. on the following terms: 1. Your title will be Senior Vice President, Development. In this capacity you will serve as an officer of the Company and will report to and serve at the discretion of the President and Chief Executive Officer. 2. In consideration of your services, the Company will provide the following compensation: a. Salary: Your salary will be $20,000.00 per month (an annual rate of $240,000), payable semi-monthly. Your performance and salary will be reviewed annually. b. Bonus: As an officer of the Company, you will be eligible to participate in any Bonus Plan which the Board of Directors may adopt from time to time for executive officers of the Company. c. Joining Bonus: To assist you in the transition to your new position, the Company will pay you a joining bonus of $25,000. This payment will be made within 30 days of commencement of your employment, and will be subject to all deductions required by law. d. Stock Grant: The Company will offer you 10,000 shares of its common stock as a "Restricted Share Award" under the Company's 1993 Employee Share Option and Restricted Share Plan, as amended (the "Employee Plan"), on the following basis, subject to specific terms contained in a Restricted Share Agreement containing terms similar to those currently available to executive officers of the Company: i) These shares will vest 25% per year over four years. 2 David R. Savello, Ph.D. January 13, 1997 Page 2 ii) In the event your employment with the Company is terminated for cause, you voluntarily leave the Company, or you are unable to perform your duties for any reason, the unvested shares will immediately revert to the Company. iii) In the event that your employment is terminated within one year after a change in control of the Company, all non-vested shares held by you shall immediately vest. e. Stock Options: The Company will award you options under the Employee Plan to purchase 75,000 share of its common stock, subject to approval of this award by the Board of Directors and further subject to specific terms contained in a Share Option Agreement containing terms similar to those currently available to executive officers of the Company. The exercise price of the options will be the fair market value of the stock on the trading date immediately preceding the date the Board approves such grant or your commencement of employment, whichever is later. These options will vest 50% after two years, 75% after three years, and 100% after four years form the date of the grant. Such options will be subject to accelerated vesting in the event of a change in control on terms similar to those extended to other executive officers of the Company. f. Additional Stock Options: The Company will award you additional options to purchase 25,000 shares of its common stock, subject to approval of this award by the Board of Directors and further subject to specific terms contained in a separate Share Option Agreement. The exercise price of the options will the same as the exercise price for the options contemplated in Section 2.e above. However, these option will vest only upon the fulfillment of the following two conditions: (i) continued employment with the Company for a period of at least four years; and (ii) your subsequent separation from the Company. These options must be exercised within six months of vesting, or such other limited amount of time as may be mutually agreed between you and the Company. 3. In addition to the compensation described above, you will be eligible for the following benefits: a. Relocation: To assist you in relocating to the Baltimore area, the Company will: i) Pay for two trips to Baltimore area for you to find living accommodations. Reasonable travel and hotel expenses will be reimbursed. 3 David R. Savello, Ph.D. January 13, 1997 Page 3 ii) If needed, pay for temporary living expenses for up to three months, not to exceed $1,000 per month, grossed-up for tax purposes. iii) Pay the direct cost of moving your household possessions from North Carolina to the Baltimore area. iv) Pay the closing costs for a new home in the Baltimore area up to 3 1/2% of its purchase price, grossed-up for tax purposes. This includes up to two points on a mortgage (one point loan origination fee and one discount point on a mortgage). v) Pay the selling costs of your Durham, North Carolina home, not to exceed 8% of its fair market value, grossed up for tax purposes. vi) In the event you purchase a home in Maryland prior to selling your North Carolina home, Guilford will provide duplicate mortgage assistance. Guilford will reimburse the lesser of the two monthly mortgage payments (including property tax payments) for a period not to exceed twelve months. vii) Guilford will equally share with you the cost for return flights home during the period April 1, 1997 through July 31, 1997. Should you terminate your employment with the company within one year of your date of hire, you will be responsible for reimbursement to the Company of the relocation expenses, prorated for the term of your employment. b. Insurance: The Company will offer medical, dental, vision, life, accidental death, short-term and long-term disability insurance on the same terms offered to other executive officers of the Company. In addition, the Company will provide you with $1,00,000 life insurance coverage. c. Vacation: You will be entitled to 20 vacation days in addition to paid Company Holidays (currently 11 per year). d. 401(k) Match: Once you meet the employment eligibility requirements contained in the Company's 401(k) Plan, you will be eligible to participate in said Plan on the same terms as other executive officers of the Company. Currently, the Plan provides for matching by the Company of 50% of the first 6% of employee salary deferral, in the form of Guilford stock. An employment date of April 1, 1997 would permit an enrollment into the Plan on July 1, 1997. 4 David R. Savello, Ph.D. January 13, 1997 Page 4 In accordance with the Immigration Reform Act of 1986, on your first day of work, and from time to time thereafter, you will be required to present documentation that proves your identity and legal right to work in the United States. Employment with the company is contingent on your being able to meet this requirement. In the event your employment is terminated by the Company other than for cause, you would be entitle to severance in the form of a continuation of your then-current base salary, as follows: (i) Six months salary if the termination occurs in the first twelve months of your employment; and (ii) Twelve months salary if the termination occurs thereafter. (iii) Twenty-four months salary in the event of a change of control at Guilford and the new management does not offer you a similar or better position. Such payments, except those resulting from a change in control (unless you decline any such similar or better position offered by new management contemplated in (iii) above), would cease upon your commencement of full-time employment during the severance period. During the severance period, the Company would also continue in effect any health, life and disability insurance coverage that had been established by the Board. Remaining benefits of employment, including your eligibility for any bonus program and continued vesting of any non-vested stock options (except those contemplated in Section 2.f., in the event you have been with the Company for at least four years), would cease at termination and not continue in accrue during the severance period. This offer is conditioned on your signing a Patent and Confidentiality Agreement in connection with your employment by the Company. You may accept this offer by signing below and returning the original letter to me. This offer is in effect until January 15, 1997. I would like you to start at Guilford on or before April 1, 1997. Sincerely, /s/ CRAIG R. SMITH, M.D. Craig R. Smith, M.D. President and Chief Executive Officer Guilford Pharmaceuticals Inc. Agreed to an accepted: /s/ DAVID R. SAVELLO, PH.D. 15 January 1997 - ----------------------------- -------------------------------------- David R. Savello, Ph.D. Date EX-11.1 4 STATEMENT RE: COMPUTATION OF NET LOSS PER SHARE 1 EXHIBIT 11.1 COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED MARCH 31, 1997 1996 --------------------- -------------------- Weighted average common shares outstanding 14,237,446 10,438,608 ===================== ==================== Weighted average common shares used in the computation of net loss per share 14,237,446 10,438,608 ===================== ==================== Net loss $ (6,336) $ (4,519) ===================== ==================== Net loss per share $ (0.45) $ (0.43) ===================== ====================
EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 69,757 0 1,255 0 1,465 40,995 16,534 2,307 87,481 6,363 12,649 0 0 148 70,080 87,481 2,058 2,259 907 9,352 0 0 239 (6,336) 0 (6,336) 0 0 0 (6,336) (.45) (.45)
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