-----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, CVERbqZApDnMTVuHXDMscDZHuCFVVDZKUwV2/CfIfVKq5hA5zdcyMZWzvdhAi8kN rlZrEv4Npc3mrwvtWVH8Ew== 0000891020-96-001358.txt : 19961113 0000891020-96-001358.hdr.sgml : 19961113 ACCESSION NUMBER: 0000891020-96-001358 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TARGETED GENETICS CORP /WA/ CENTRAL INDEX KEY: 0000921114 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 911549568 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23930 FILM NUMBER: 96657854 BUSINESS ADDRESS: STREET 1: 1100 OLIVE WAY STREET 2: STE 100 CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2066237612 MAIL ADDRESS: STREET 1: 1100 OLIVE WAY STREET 2: STE 100 CITY: SEATTLE STATE: WA ZIP: 98101 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED 09/30/96 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1996 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: 0-23930 ---------------------------------------- TARGETED GENETICS CORPORATION ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Washington 91-1549568 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1100 Olive Way, Suite 100, Seattle, Washington 98101 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (206) 623-7612 - -------------------------------------------------------------------------------- (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. Common Stock, $.01 par value 20,120,068 - ------------------------------------ -------------------------------------- (Class) (Outstanding at November 5, 1996) 2 TARGETED GENETICS CORPORATION Quarterly Report on Form 10-Q September 30, 1996 TABLE OF CONTENTS
Page No. -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements a) Condensed Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 3 b) Condensed Consolidated Statements of Operations - for the three and nine months ended September 30, 1996 and 1995 4 c) Condensed Consolidated Statements of Cash Flows - for the nine months ended September 30, 1996 and 1995 5 d) Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II OTHER INFORMATION Item 1. Legal Proceedings * Item 2. Changes in Securities * Item 3. Defaults Upon Senior Securities * Item 4. Submission of Matters to a Vote of Security Holders * Item 5. Other Information * Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11
* No information is provided due to inapplicability of the item. 2 3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TARGETED GENETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1996 1995 -------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,209,936 $ 2,154,814 Securities available for sale 19,666,084 12,287,748 Deposits, prepaid expenses and other 310,493 196,150 ------------ ------------ Total current assets 22,186,513 14,638,712 Property, plant and equipment, net 4,998,824 4,959,502 Other assets 581,305 362,246 ------------ ------------ $ 27,766,642 $ 19,960,460 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,565,654 $ 564,403 Accrued payroll and other liabilities 249,150 336,713 Current portion of long-term obligations 1,087,747 881,210 ------------ ------------ Total current liabilities 2,902,551 1,782,326 Long-term obligations 2,153,593 2,405,298 Shareholders' equity: Preferred stock -- -- Common stock (20,119,268 and 12,317,183 shares outstanding at September 30, 1996 and December 31, 1995, respectively) 73,114,702 43,295,436 Deficit accumulated during development stage (50,404,204) (27,522,600) ------------ ------------ Total shareholders' equity 22,710,498 15,772,836 ------------ ------------ $ 27,766,642 $ 19,960,460 ============ ============
See accompanying notes. 3 4 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) TARGETED GENETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Period from March 9, 1989 (date of Three months ended Nine months ended inception) September 30, September 30, through ------------------------------ ------------------------------ September 30, 1996 1995 1996 1995 1996 ------------ ------------- ------------- ------------ ------------ Revenues: Revenue under collaborative agreements $ 752,980 $ 19,267 $ 827,980 $ 99,625 $ 1,002,605 Investment income 299,687 228,447 638,500 460,085 2,715,782 ------------ ------------ ------------ ------------ ------------ Total revenues 1,052,667 247,714 1,466,480 559,710 3,718,387 ------------ ------------ ------------ ------------ ------------ Expenses: Research and development 3,634,181 1,942,767 8,431,820 5,877,664 31,202,940 In-process research and development -- -- 13,517,911 -- 13,517,911 General and administrative 834,847 447,893 2,005,820 1,683,026 8,580,540 Interest 103,686 76,841 299,192 230,146 794,178 ------------ ------------ ------------ ------------ ------------ Total expenses 4,572,714 2,467,501 24,254,743 7,790,836 54,095,569 ------------ ------------ ------------ ------------ ------------ Net loss $ (3,520,047) $ (2,219,787) $(22,788,263) $ (7,231,126) $(50,377,182) ============ ============ ============ ============ ============ Net loss per share $ (0.18) $ (0.19) $ (1.50) $ (0.73) ============ ============ ============ ============ Shares used in computation of net loss per share 20,048,355 11,823,320 15,160,884 9,931,965 ============ ============ ============ ============
See accompanying notes. 4 5 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) TARGETED GENETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Period from March 9, 1989 (date of Nine months ended inception) September 30, through -------------------------------- September 30, 1996 1995 1996 ------------ ------------ ------------ Net cash used in operating activities $ (7,707,065) $ (6,661,323) $(31,675,330) Investing activities: Purchases of property, plant and equipment (1,320,552) (1,095,750) (8,491,149) Purchases of securities available for sale (19,941,764) (9,816,766) (75,032,286) Sales of securities available for sale 12,430,340 6,252,310 55,382,360 Net cash acquired in RGene acquisition 1,710,239 -- 1,710,239 Increase in other assets (115,000) (62,500) (689,179) ------------ ------------ ------------ Net cash used in investing activities (7,236,737) (4,722,706) (27,120,015) Financing activities: Advances from Immunex -- -- 2,807,316 Net proceeds from sale of capital stock 15,044,092 12,282,098 55,466,212 Proceeds from equipment financing 646,996 237,459 4,493,290 Payments under capital leases and installment loans (692,164) (453,086) (1,761,537) ------------ ------------ ------------ Net cash provided by financing activities 14,998,924 12,066,471 61,005,281 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 55,122 682,442 2,209,936 Cash and cash equivalents, beginning of period 2,154,814 2,306,979 -- ------------ ------------ ------------ Cash and cash equivalents, end of period $ 2,209,936 $ 2,989,421 $ 2,209,936 ============ ============ ============
See accompanying notes. 5 6 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) TARGETED GENETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The condensed consolidated financial statements included herein have been prepared by Targeted Genetics Corporation (the "Company"), without audit, according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The financial statements reflect, in the opinion of management, all adjustments (which consist solely of normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the three and nine months ended September 30, 1996 are not necessarily indicative of the results to be expected for the full year. Note 2. Revenue Under Collaborative Agreements Revenue under collaborative agreements is recognized as defined under the terms of the respective collaborative agreements. Revenue related to milestones is recognized upon the achievement of the related milestone and when collection is probable. Royalty payments and other similar payments due as a direct result of such revenues being earned or received are offset against and recognized in the same period as such revenue. Note 3. Subsequent Events In October 1996, The Company adopted a Shareholder Rights plan under which it distributed a dividend of one right for each outstanding share of common stock. The issuance of these rights had no dilutive effect, did not impact reported earnings per share, and is not taxable to the Company or the Company's shareholders. These rights could cause substantial dilution to certain persons or groups that attempt to acquire the Company on terms not approved by the Board of Directors. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Risks and Uncertainties The following discussion contains forward-looking statements that are subject to certain risks and uncertainties that could cause the actual results to differ materially from those projected. The Company's future cash requirements and expense levels will depend on many factors, including the successful consolidation of RGene with the Company; continued scientific progress in its research and development programs; the results of research and development, preclinical studies and clinical trials; acquisition of products or technology, if any; relationships with corporate collaborators; competing technological and market developments; the time and costs involved in obtaining regulatory approvals; the costs involved in filing, prosecuting and enforcing patent claims; the time and costs of manufacturing scale-up and commercialization activities; and other factors. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. Financial Condition The Company had cash, cash equivalents and securities available for sale totaling $21.9 million as of September 30, 1996, compared to $14.4 million at December 31, 1995. The increase was primarily attributable to net proceeds of $15 million from the Company's June public offering and $1.7 million from the acquisition of RGene Therapeutics, Inc. ("RGene"), offset by the use of $7.7 million to fund operations and $1.3 million to purchase property, plant and equipment during the first nine months of 1996. The Company is a development stage company conducting gene and cell therapy research and development. Income earned from investments and, to a lesser degree, revenues under collaborative agreements have been its only sources of revenue, covering less than ten percent of expenses. Gene and cell therapy products are subject to the risks of failure inherent in the development of products based on innovative technologies. Although the Company's technology appears promising, it is unknown whether any commercially viable products will result from the research and development. It is not anticipated that the Company will have any product-related revenues for a number of years. Accordingly, the Company expects to incur substantial additional losses over the next several years and to use its capital resources to fund preclinical and clinical research programs, development of manufacturing capabilities and the preparation for commercialization of its products under development. On June 19, 1996, the Company completed a merger with RGene, a private biotechnology firm located in The Woodlands, Texas. As a result of this transaction, Targeted Genetics acquired proprietary non-viral gene delivery technology that complements the viral technologies the Company currently has under development, a potential gene therapy product for the treatment of cancer and key consulting and collaborative relationships with other leading scientists in the gene therapy field. Under 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Financial Condition (continued) the terms of the merger agreement, the Company acquired all the outstanding shares of RGene stock in exchange for approximately 3.64 million unregistered shares of the Company's common stock. The transaction was accounted for using the purchase method of accounting and the consideration issued by the Company was allocated to the tangible and intangible assets acquired. The Company acquired approximately $1,600,000 of cash and cash equivalents in the transaction, net of liabilities assumed from RGene. The Company raised $15 million through the completion of a public offering of 4.025 million shares of common stock, including the underwriters' overallotment option, at $4.00 per share. The net proceeds of the offering will be used to fund continuing operations in research and development, clinical testing and for capital expenditures. The Company currently estimates that, at its planned rate of spending, adjusted to reflect the increased expenses expected to result from the RGene merger, its existing cash, cash equivalents and securities available for sale will be sufficient to meet its capital requirements until at least late 1997. Such estimates include the impact of future milestone payments potentially receivable under collaborative agreements. There can be no assurance that the underlying assumed levels of revenue and expense will prove to be accurate. In any event, substantial additional funds will be needed to continue the development and commercialization of the Company's products. Accordingly, the Company is seeking to establish additional collaborative agreements with corporate partners that would provide research and development funding and equity investment. The Company also may seek to raise additional equity capital whenever conditions in the financial markets allow it to do so. There can be no assurance, however, that adequate funds will be available when needed or will be available on terms favorable to the Company. Results of Operations Over the past several years, the Company's net loss has grown, consistent with the growth in the Company's scope and size of operations. In the near term, the Company plans additional moderate growth in employee headcount necessary to address increasing requirements in areas such as clinical research, manufacturing and quality control. Assuming capital is available to finance such growth, the Company's operating expenses will continue to increase as a result. At least until such time as the Company enters into a collaborative arrangement providing a significant amount of research and development funding, the net loss will continue to increase as well. For the three and nine months ended September 30, 1996, revenue under collaborative agreements increased to $753,000 and $828,000 compared to $19,000 and $100,000 during the three and nine months ended September 30, 1995. The increase was largely attributable to the receipt of a $1,000,000 milestone payment, offset by royalties and other such payments due as a result of receiving 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Results of Operations (continued) the milestone payment. The milestone was earned through the enrollment of patients in a U.S. clinical trial for treatment of breast and ovarian cancer. For the three and nine months ended September 30, 1996, investment income increased to $300,000 and $639,000 compared to $228,000 and $460,000 during the three and nine months ended September 30, 1995. The increases in both periods were largely attributable to higher average cash balances for investment and higher rates of return on those balances compared to the same periods in 1995. Research and development expenses were $3,634,000 and $8,432,000 for the three and nine months ended September 30, 1996, and $1,943,000 and $5,878,000 for the three and nine months ended September 30, 1995. Expenses that resulted directly from the RGene acquisition and the continuation of its research, development and clinical programs were $1,024,000 and $1,085,000 for the three and nine months ended September 30, 1996. Approximately $304,000 of non-recurring termination payments and other payroll-related expenses were included in the third quarter expenses. Additional factors that contributed to the increases in both the three- and nine-month periods were a moderate increase in the level of expenses for development, manufacturing, and quality control as well as additional employees and related expenses in preclinical immunology. A one-time expense resulting from the acquisition of RGene was charged against income in the second quarter of 1996. The RGene purchase price exceeded the fair value of tangible assets acquired by $13,518,000. This amount was allocated to RGene's existing in-process technology and was written off in the second quarter to in-process research and development expense. General and administrative expenses were $835,000 and $2,006,000 for the three and nine months ended September 30, 1996, and $448,000 and $1,683,000 for the three and nine months ended September 30, 1995. The Company incurred expenses resulting directly from the RGene acquisition of $300,000 and $312,000 for the three- and nine-month periods ended September 30, 1996. Such expenses are not expected to continue in future periods due to the closure of RGene's offices and transfer of all administration functions to Targeted Genetics. In addition to the RGene expenses, the Company experienced a moderate expense increase related to corporate development activities. Interest expense was $104,000 and $299,000 for the three and nine months ended September 30, 1996, and $77,000 and $230,000 for the three and nine months ended September 30, 1995. The increases in both periods were attributable to additional equipment leases entered into by the Company. 9 10 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit 27 - Financial Data Schedule (a) A Current Report on Form 8-K, dated July 3, 1996, was filed with the Securities and Exchange Commission reporting that Targeted Genetics Corporation had completed the acquisition or merger with RGene Therapeutics, Inc. 10 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. TARGETED GENETICS CORPORATION ------------------------------------------------- (Registrant) Date November 11, 1996 /s/ H. STEWART PARKER ------------------ ------------------------------------------------- H. Stewart Parker, Chief Executive Officer (Principal Executive Officer) Date November 11, 1996 /s/ JAMES A. JOHNSON ------------------ ------------------------------------------------- James A. Johnson, Vice President, Finance (Principal Financial and Accounting Officer) 11 12 EXHIBIT INDEX ------------- Exhibit 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 2,209,936 19,666,084 0 0 0 22,186,513 9,208,719 (4,209,895) 27,766,642 2,902,551 0 0 0 73,114,702 0 27,766,642 0 1,466,480 0 0 (24,254,743) 0 299,192 (22,788,263) 0 (22,788,263) 0 0 0 (22,788,263) (1.50) (1.50)
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