-----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, ShaWVVv+/vPQttPF9Bdl5PD4LVQjwcC+SpgAh27Y2RN4z/ZGx5Fy+EJlIpDs658G 4MKOzfwQ52ToMY3uymKH8g== 0000891020-97-001375.txt : 19971110 0000891020-97-001375.hdr.sgml : 19971110 ACCESSION NUMBER: 0000891020-97-001375 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971107 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: SEC FILE NUMBER: 000-23930 FILM NUMBER: 97709540 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 SEPTEMBER 30, 1997 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, 1997 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to __________ Commission File 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 20,210,154 - --------------------------------------- -------------------------------- (Class) (Outstanding at November 3, 1997) 2 TARGETED GENETICS CORPORATION Quarterly Report on Form 10-Q For the quarter ended September 30, 1997 TABLE OF CONTENTS
Page No. -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements a) Condensed Balance Sheets - September 30, 1997 and December 31, 1996 3 b) Condensed Statements of Operations - for the three and nine months ended September 30, 1997 and 1996 4 c) Condensed Statements of Cash Flows - for the nine months ended September 30, 1997 and 1996 5 d) Notes to Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Quantitative and Qualitative Disclosure About Market Risk * 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 9 SIGNATURES 10
* 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 BALANCE SHEETS
September 30, December 31, 1997 1996 ------------ ------------ (Unaudited) ASSETS - ------ Current assets: Cash and cash equivalents $ 3,219,833 $ 3,532,568 Securities available for sale 5,968,082 15,518,502 Prepaid expenses and other 297,663 468,671 ------------ ------------ Total current assets 9,485,578 19,519,741 Property, plant and equipment, net 4,195,998 4,991,017 Other assets 556,533 628,294 ------------ ------------ $ 14,238,109 $ 25,139,052 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 1,395,698 $ 1,887,880 Accrued payroll and other liabilities 301,002 364,964 Current portion of long-term obligations 1,020,972 1,250,263 ------------ ------------ Total current liabilities 2,717,672 3,503,107 Long-term obligations 1,772,280 2,128,157 Shareholders' equity: Preferred stock -- -- Common stock (20,207,674 and 20,136,468 shares outstanding at September 30, 1997 and December 31, 1996, respectively) 73,399,249 73,115,362 Deficit accumulated during development stage (63,651,092) (53,607,574) ------------ ------------ Total shareholders' equity 9,748,157 19,507,788 ------------ ------------ $ 14,238,109 $ 25,139,052 ============ ============
See accompanying notes. 3 4 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) TARGETED GENETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
March 9, 1989 Three months ended Nine months ended (date of inception) September 30, September 30, through ------------------------------- ------------------------------ September 30, 1997 1996 1997 1996 1997 ------------ ------------ ------------ ------------ ------------ Revenues: Collaborative agreements $ 769,547 $ 752,980 $ 849,977 $ 827,980 $ 2,127,942 Investment income 146,918 299,687 557,732 638,500 3,558,734 Other 135,035 -- 331,544 -- 558,662 ------------ ------------ ------------ ------------ ------------ Total revenues 1,051,500 1,052,667 1,739,253 1,466,480 6,245,338 ------------ ------------ ------------ ------------ ------------ Expenses: Research and development 3,089,365 3,634,181 9,457,800 8,431,820 43,731,504 In-process research and development -- -- -- 13,517,911 13,517,911 General and administrative 665,263 834,847 2,052,595 2,005,820 11,501,631 Interest 82,740 103,686 264,260 299,192 1,156,655 ------------ ------------ ------------ ------------ ------------ Total expenses 3,837,368 4,572,714 11,774,655 24,254,743 69,907,701 ------------ ------------ ------------ ------------ ------------ Net loss $ (2,785,868) $ (3,520,047) $(10,035,402) $(22,788,263) $(63,662,363) ============ ============ ============ ============ ============ Net loss per share $ (0.14) $ (0.18) $ (0.50) $ (1.50) ============ ============ ============ ============ Shares used in computation of net loss per share 20,207,213 20,048,355 20,191,792 15,160,884 ============ ============ ============ ============
See accompanying notes. 4 5 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) TARGETED GENETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
March 9, 1989 Nine months ended (date of inception) September 30, through ------------------------------- September 30, 1997 1996 1997 ------------ ------------ ------------ Net cash used in operating activities $ (8,814,879) $ (7,707,065) $(43,154,060) Investing activities: Purchases of property, plant and equipment (570,453) (1,320,552) (9,283,644) Purchases of securities available for sale (813,579) (19,941,764) (79,478,224) Sales of securities available for sale 10,187,579 12,430,340 73,508,606 Net cash acquired in RGene acquisition -- 1,710,239 1,594,386 Increase in other assets -- (115,000) (719,179) ------------ ------------ ------------ Net cash provided by (used in) investing activities 8,803,547 (7,236,737) (14,378,055) Financing activities: Advances from Immunex -- -- 2,807,316 Net proceeds from sale of capital stock 283,887 15,044,092 55,658,887 Proceeds from equipment financing 326,287 646,996 5,270,169 Payments under capital leases and installment loans (911,577) (692,164) (2,984,424) ------------ ------------ ------------ Net cash provided by (used in) financing activities (301,403) 14,998,924 60,751,948 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (312,735) 55,122 3,219,833 Cash and cash equivalents, beginning of period 3,532,568 2,154,814 -- ------------ ------------ ------------ Cash and cash equivalents, end of period $ 3,219,833 $ 2,209,936 $ 3,219,833 ============ ============ ============
See accompanying notes. 5 6 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) TARGETED GENETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The condensed 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, 1997, are not necessarily indicative of the results to be expected for the full year. Note 2. Loss Per Share In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share ("Statement 128"), which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods presented. The impact of Statement 128 on the calculation of net loss per share for all current and prior periods is not expected to be material. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Risks and Uncertainties This discussion contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The Company's future cash requirements and expense levels will depend on many factors, including 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 filing, prosecuting and enforcing patent claims; the time and costs of manufacturing scale-up and commercialization activities; and other factors. Reference is made to the Company's Annual Report on Form 10-K for more detailed description of such 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. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Financial Condition The Company had cash, cash equivalents and securities available for sale totaling $9.2 million as of September 30, 1997, compared to $19.0 million at December 31, 1996. The change was primarily attributable to the use of $8.8 million to fund operations. Other cash outflows included $570,000 to purchase property, plant and equipment and $912,000 of principal payments on capital equipment leases and installment loans. These cash outflows were offset by the receipt of $326,000 of equipment financing proceeds and $277,000 for the exercise of warrants by existing shareholders. 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. The Company currently estimates that, at its planned rate of spending, its existing cash, cash equivalents and securities available for sale will be sufficient to meet its operating and capital requirements until approximately April 1998. However, 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, if at all. 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 does not expect significant growth in employee headcount or facilities; however, the Company estimates that operating expenses will continue to increase moderately as a result of continuing with its current operating plan, which includes growth in the level of clinical trial activity. At least until such time as the Company enters into an arrangement providing ongoing research and development funding, the net loss will continue to increase as well. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Results of Operations (continued) Revenue under collaborative agreements for all periods presented primarily consisted of amounts earned from Laboratoires Fournier S.C.A. related to tgDCC-E1A milestone payments. The Company cannot predict when or if further such revenues will be earned in the future. Investment income for the three and nine months ended September 30, 1997, decreased to $147,000 and $558,000, respectively, compared to $299,000 and $639,000 during the three and nine months ended September 30, 1996, respectively. The decrease was largely attributable to lower average cash balances for investment in 1997 compared to the same periods in 1996. Other revenue for the three and nine months ended September 30, 1997 represented proceeds from Small Business Innovation Research grants awarded by the National Institutes of Health. There were no such comparable revenues in the 1996 periods. Research and development expenses decreased to $3,089,000 for the three months ended September 30, 1997, compared to $3,634,000 in the 1996 quarter. The decrease was attributable to the Company's June 1996 acquisition of RGene Therapeutics Inc. ("RGene"). Prior period expenses included several one-time payments, such as employee severance, and other expenses that subsequently were eliminated through consolidation of RGene's operations with those of the Company. For the nine months ended September 30, 1997, and 1996, research and development expenses were $9,458,000 and $8,432,000, respectively. The increase in 1997 was largely attributable to the ongoing development costs of the tgDCC-E1A cancer product and related non-viral gene delivery technology, both of which were added with the acquisition of RGene. Higher expenses related to patents and licenses also contributed to the increase. In-process research and development expense resulted from the acquisition of RGene in the second quarter of 1996. The RGene purchase price exceeded the fair value of tangible assets acquired and the excess was allocated to RGene's existing in-process technology and written off in the second quarter to in-process research and development. General and administrative expenses decreased to $665,000 for the three months ended September 30, 1997, compared to $835,000 in the 1996 quarter. As with research and development expenses, non-recurring prior year expenses related to the RGene acquisition were responsible for the decline in the third quarter expenses. After removing the effect of these non-recurring expenses, general and administrative expenses showed a modest increase in both the three- and nine-month periods. These increases were largely attributable to increased corporate development activities. 8 9 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed as part of this report.
Exhibit No. Description ----------- ----------- 27.1 Financial Data Schedule
(b) A Current Report on Form 8-K, dated July 24, 1997, was filed with the Securities and Exchange Commission reporting that Targeted Genetics Corporation had extended the expiration date of certain warrants to January 31, 1998. 9 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TARGETED GENETICS CORPORATION ---------------------------------------------- (Registrant) Date November 7, 1997 /s/ H. STEWART PARKER ----------------------- ---------------------------------------------- H. Stewart Parker, Chief Executive Officer (Principal Executive Officer) Date November 7, 1997 /s/ JAMES A. JOHNSON ----------------------- ---------------------------------------------- James A. Johnson, Vice President, Finance (Principal Financial and Accounting Officer) 10 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 3,219,833 5,968,082 0 0 0 9,485,578 10,006,441 (5,810,443) 14,238,109 2,717,672 0 0 0 73,399,249 0 14,238,109 0 1,739,253 0 0 11,510,395 0 264,260 (10,035,402) 0 (10,035,402) 0 0 0 (10,035,402) (.50) (.50)
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