-----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, B1VYofZgcE9ejgTeezWUUYPwWAJ/HHZXn2oWAh4oHHzFw3VBR/eKI6oetX6FdGIG BNrPUSVYVuuxGOfmTqj2oQ== 0001032210-98-000454.txt : 19980511 0001032210-98-000454.hdr.sgml : 19980511 ACCESSION NUMBER: 0001032210-98-000454 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980508 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: 98613945 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 QUARTERLY PERIOD ENDED 03/31/98 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 March 31, 1998 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 incorporation or organization) No.) 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 28,919,381 - -------------------------------------- ------------------------------------ (Class) (Outstanding at May 4, 1998) TARGETED GENETICS CORPORATION Quarterly Report on Form 10-Q For the quarter ended March 31, 1998 TABLE OF CONTENTS
Page No. ------- PART I FINANCIAL INFORMATION Item 1. Financial Statements a) Condensed Balance Sheets - March 31, 1998 and December 31, 1997 3 b) Condensed Statements of Operations - for the three months ended March 31, 1998 and 1997 4 c) Condensed Statements of Cash Flows - for the three months ended March 31, 1998 and 1997 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 PART I FINANCIAL INFORMATION Item 1. Financial Statements TARGETED GENETICS CORPORATION (a development stage company) CONDENSED BALANCE SHEETS
March 31, December 31, 1998 1997 --------------- -------------- (Unaudited) ASSETS - ------ Current assets: Cash and cash equivalents $ 556,399 $ 1,011,845 Securities available for sale 1,286,967 4,025,976 Prepaid expenses and other 212,367 248,278 --------------- ------------- Total current assets 2,055,733 5,286,099 Property, plant and equipment, net 4,087,033 3,927,533 Other assets 508,297 553,452 --------------- ------------- $ 6,651,063 $ 9,767,084 =============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 1,765,993 $ 1,352,297 Accrued payroll and other liabilities 285,833 275,876 Current portion of long-term obligations 1,189,459 1,030,562 --------------- ------------- Total current liabilities 3,241,285 2,658,735 Long-term obligations 1,599,055 1,516,762 Shareholders' equity: Preferred stock -- -- Common stock (20,216,714 and 20,211,114 shares outstanding at March 31, 1998 and December 31, 1997, respectively) 73,404,101 73,401,141 Deficit accumulated during development stage (71,594,756) (67,782,204) Accumulated other comprehensive income 1,378 (27,350) ---------------- ------------- Total shareholders' equity 1,810,723 5,591,587 ---------------- ------------- $ 6,651,063 $ 9,767,084 ================ =============
See accompanying notes. 3 Item 1. Financial Statements (continued) TARGETED GENETICS CORPORATION (a development stage company) CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Period from Three months ended March 9, 1989 March 31, (date of inception) ----------------------- through 1998 1997 March 31, 1998 ---------- --------- ------------------ Revenues: Collaborative agreements $ 8,339 $ 77,382 $ 2,174,639 Investment income 42,304 230,336 3,694,198 Other 225,544 98,255 891,912 --------- --------- ------------- Total revenues 276,187 405,973 6,760,749 --------- --------- ------------- Expenses: Research and development 3,206,574 3,051,538 50,523,566 In-process research and development -- -- 13,517,911 General and administrative 776,792 742,570 13,010,634 Interest 72,842 86,893 1,303,394 --------- --------- ------------- Total expenses 4,056,208 3,881,001 78,355,505 --------- --------- ------------- Net loss $(3,780,021) $(3,475,028) $(71,594,756) =========== =========== ============ Basic and diluted net loss per share $ (0.19) $ (0.17) =========== ========== Shares used in computation of basic and diluted net loss per share 20,213,614 20,162,043 ========== ==========
See accompanying notes. 4 Item 1. Financial Statements (continued) TARGETED GENETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Period from March 9, 1989 Three months ended March 31, (date of inception) ---------------------------- through 1998 1997 March 31, 1998 ---------------------------- ------------------- Operating Activities: Net Loss $(3,780,021) $(3,475,028) $(71,594,756) Adjustments to reconcile net loss to net cash used in operating activities: In-process research and development - - 12,867,986 Depreciation and amortization 438,683 425,620 7,162,225 Expenses paid with common stock - - 78,500 Changes in operating assets and liabilities: (Increase) decrease on other assets 29,386 81,742 (428,690) Decrease in accrued interest on securities available for sale 54,123 97,728 61,122 Increase (decrease) in accounts payable 461,843 (312,858) 2,182,113 ------------ ----------- ------------ Net cash used in operating activities (2,795,986) (3,182,796) (49,671,500) Investing activities: Purchases of property, plant and equipment (48,968) (396,692) (9,467,055) Purchases of securities available for sale (1,805,472) -- (81,284,368) Sales of securities available for sale 4,486,555 712,878 79,937,656 Net cash acquired in RGene acquisition -- -- 1,594,386 Increase in other assets (15,000) -- (784,179) ------------ ----------- ------------ Net cash provided by (used in) investing activities 2,617,115 316,186 (10,003,560) Financing activities: Advances from Immunex -- -- 2,807,316 Net proceeds from sale of capital stock 2,960 282,215 55,663,739 Proceeds from equipment financing -- 259,972 5,412,245 Payments under capital leases and installment loans (279,535) (315,527) (3,651,841) ------------ ----------- ------------ Net cash provided by (used in) financing activities (276,575) (226,660) 60,231,459 ------------ ----------- ------------ Net increase (decrease) in cash and cash equivalents (455,446) (2,639,950) 556,399 Cash and cash equivalents, beginning of period 1,011,845 3,532,568 -- ------------ ----------- ------------ Cash and cash equivalents, end of period $ 556,399 $ 892,618 $ 556,399 ============ =========== ============
See accompanying notes. 5 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 months ended March 31, 1998, are not necessarily indicative of the results to be expected for the full year. Note 2: Comprehensive Income - ----------------------------- In June 1997, the Financial Accounting Standards Board issued Statement 130, Reporting Comprehensive Income. Statement 130 established new rules for the reporting and display of comprehensive net income and its components; however, adoption in 1998 will have no impact on the Company's net income or shareholders' equity. Statement 130 requires unrealized gains or losses on the Company's available-for-sale securities, which currently are reported in shareholders' equity, to be included in other comprehensive income and the disclosure of total comprehensive income. The total of other comprehensive income was immaterial during the first quarter of 1998 and 1997. Note 3. Subsequent Events - -------------------------- In April 1998, the Company completed a private placement of common stock and warrants totaling $13 million with a group of four institutional investors. The group purchased 8.7 million shares at $1.50 per share. For every two shares purchased in the offering, the investors received one warrant to purchase one share of common stock for $2.00 per share. Net proceeds from the offering were approximately $12.7 million, net of offering expenses of approximately $300,000. 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 numerous factors, including continued scientific progress in the Company's research and development programs; the results of research and 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Risks and Uncertainties (continued) - ----------------------------------- development activities; preclinical studies and clinical trials; acquisition of products or technology, if any; relationships with existing and future corporate collaborators, if any; 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. Reference is made to the Company's Annual Report on Form 10-K for a 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. Financial Condition - ------------------- The Company had $1.8 million in cash, cash equivalents and securities available for sale as of March 31, 1998, compared to $5.0 million at December 31, 1997. The change was primarily attributable to the use of $2.8 million to fund operations and $280,000 of principal payments on capital equipment leases and installment loans. As described in Note 3 to the Condensed Financial Statements, the Company completed a private placement of common stock and warrants in April 1998, which resulted in net proceeds of approximately $12.7 million to be used to fund the Company's operations going forward. 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 Company's 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, assuming no new revenue sources and its planned rate of spending, its existing cash, cash equivalents and securities available for sale, together with the net proceeds from the aforementioned private placement of common stock, will be sufficient to meet its operating and capital requirements through the second quarter of 1999. There can be no assurance that the underlying assumed levels of revenue and expense will prove to be accurate. Whether or not these assumptions prove to be accurate, the Company will need to raise substantial additional capital. The Company intends to seek additional funding through public or private financing, including equity financing and through collaborative arrangements. 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. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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 February 1998 the Company announced a reorganization and restructuring plan designed to reduce operating expenses. The plan focuses the Company's resources on the advancement of its three lead product opportunities: tgAAV-CFTR, a gene therapy to treat cystic fibrosis; tgDCC-E1A, a gene therapy product for cancer; and cytotoxic T lymphocytes (CTLs), a cellular therapy for infectious diseases. The reorganization plan called for reductions in operating costs throughout the organization, including a reduction of approximately 24 management and staff positions. These positions were largely associated with programs in very early stage development. As a result, following the reorganization, Targeted Genetics has 66 employees, of which 51 are devoted to research and development. The Company recorded a restructuring charge during the first quarter of 1998 of approximately $300,000. Revenue under collaborative agreements for the periods presented primarily consisted of amounts earned from Laboratoires Fournier S.C.A. related to tgDCC- E1A manufacturing and development. Investment income for the three months ended March 31, 1998 decreased to $42,000 compared to $230,000 during the three months ended March 31, 1997. The decrease was largely attributable to lower average cash balances for investment in 1998 compared to the same periods in 1997. Other revenue for the three months ended March 31, 1998 and 1997 represented proceeds from research grants awarded by the National Institutes of Health. Research and development expenses increased to $3,207,000 for the three months ended March 31, 1998, compared to $3,052,000 in the 1997 quarter. The increase was attributable to the Company's reorganization and restructuring plan. Approximately $220,000 of employee severance costs were recorded as research and development expense in the first quarter of 1998 as a result of the reorganization. After removing the effect of these non-recurring expenses, research and development expenses showed a modest decrease in the comparable three-month periods. The Company expects to see continued modest year-to-year decreases in research and development expenses during the remainder of 1998. General and administrative expenses increased to $777,000 for the three months ended March 31, 1998, compared to $743,000 in the 1997 quarter. One-time reorganization and restructuring expenses of approximately $80,000 were responsible for the increase in the first quarter expenses. As with research and development expenses, after removing the effect of these non-recurring expenses, general and administrative expenses showed a modest decrease in the comparable three-month periods. 8 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 9 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 May 7, 1998 /s/ H. STEWART PARKER ------------- ------------------------------------- H. Stewart Parker, Chief Executive Officer (Principal Executive Officer) Date May 7, 1998 /s/ JAMES A. JOHNSON ------------- ------------------------------------- James A. Johnson, Vice President, Finance (Principal Financial and Accounting Officer) 10 Exhibit Index ------------- Exhibit No. Description - ----------- ----------- 27.1 Financial Data Schedule EX-27.1 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1997 JAN-01-1998 MAR-31-1998 556,399 1,286,967 0 0 0 2,055,733 10,679,081 (6,592,048) 6,651,063 3,241,285 0 0 0 73,404,101 (71,593,378) 6,651,063 0 276,187 0 0 3,983,366 0 72,842 0 0 0 0 0 0 (3,780,021) (.19) (.19)
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