-----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, I9omSH9d8XVJi3HiYURFq83Kls5Yj0RP183blTbs7qLQshzuuvx5DOGpuzrS13/z vXPO7Ld+drTN8gqCZg/y3g== 0000950117-96-001459.txt : 19961118 0000950117-96-001459.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950117-96-001459 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALGOS PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000924862 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 223142274 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28844 FILM NUMBER: 96664689 BUSINESS ADDRESS: STREET 1: 4900 ROUTE 33 CITY: NEPTUNE STATE: NJ ZIP: 07753 BUSINESS PHONE: 9089385959 10-Q 1 ALGOS PHARMACEUTICAL CORPORATION 10Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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 011-12221 ALGOS PHARMACEUTICAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 22-3142274 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Collingwood Plaza, 4900 Route 33, Neptune, New Jersey, 07753-6804 (Address of principal executive offices) 908-938-5959 (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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ The aggregate number of shares of the Registrant's common stock outstanding on November 6, 1996 was 15,669,123. PART I - FINANCIAL INFORMATION Item 1. Financial Statements ALGOS PHARMACEUTICAL CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS
December 31 September 30 1995 1996 ---- ---- (Unaudited) ASSETS Current assets: Cash and cash equivalents (Note 2) $ 3,707,100 $ 3,284,024 Restricted cash (Note 8) 500,000 Prepaid expenses (Note 4) 11,057 318,416 ------------ ------------ Total current assets 3,718,157 4,102,440 Property and equipment, net 100,704 71,714 Other assets (Note 5) 1,591 1,039,208 ------------ ------------ Total assets $ 3,820,452 $ 5,213,362 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable (Note 6) $ 158,297 $ 1,631,059 Other current liabilities (Note 7) 141,335 758,643 ------------ ------------ Total current liabilities 299,632 2,389,702 ------------ ------------ Commitments Stockholders' equity (Notes 2 and 9): Preferred stock, $.01 par value, 10,000,000 shares authorized: Convertible Series A; 872,000 shares authorized; 702,500 and 707,500 shares issued and outstanding; respectively; $10,537,500 and $10,612,500 aggregate liquidation preference, respectively 7,025 7,075 Convertible Series B; 0 and 100,000 shares authorized, respectively; 0 and 100,000 shares issued and outstanding, respectively; $0 and $100,000 aggregate liquidation preference, respectively 1,000 Common stock, $.01 par value, 50,000,000 shares authorized, 6,010,030 and 6,171,876 shares issued and outstanding,respectively 60,100 61,719 Additional paid-in-capital 7,341,890 9,570,231 Unearned compensation expense (965,607) Deficit accumulated during the development stage (3,888,195) (5,850,758) ------------ ------------ Total stockholders' equity 3,520,820 2,823,660 ------------ ------------ Total liabilities and stockholders' equity $ 3,820,452 $ 5,213,362 ============ ============
The accompanying notes are an integral part of these financial statements. 1 ALGOS PHARMACEUTICAL CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF OPERATIONS
Cumulative For the three months ended For the nine months ended from September 30, September 30, inception to -------------------------- ------------------------- September 30, 1995 1996 1995 1996 1996 ---- ---- ---- ---- ---- (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues $ - $ - $ - $ 1,500,000 $ 1,811,000 ----------- ---------- ----------- ----------- ----------- Operating expenses: Research and development 389,005 609,221 1,189,789 1,612,806 4,046,463 General and administrative 203,029 345,104 599,487 1,973,288 4,161,550 ----------- ---------- ----------- ----------- ----------- Total operating expenses 592,034 954,325 1,789,276 3,586,094 8,208,013 ----------- ---------- ----------- ----------- ----------- Loss from operations (592,034) (954,325) (1,789,276) (2,086,094) (6,397,013) Interest income 60,128 46,519 198,801 123,531 546,255 ----------- ---------- ----------- ----------- ----------- Net loss $ (531,906) $ (907,806) $(1,590,475) $(1,962,563) $(5,850,758) =========== ========== =========== =========== =========== Pro forma: Net loss per common share $ (0.04) $ (0.07) $ (0.13) $ (0.16) =========== ========== =========== =========== Weighted average common 12,206,123 12,360,301 12,197,931 12,339,229 shares outstanding =========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements. 2 ALGOS PHARMACEUTICAL CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS
Cumulative For the nine months ended from September 30, inception to -------------------------- September 30, 1995 1996 1996 ---- ---- ---- (Unaudited) (Unaudited) (Unaudited) Cash flows from operating activities $ (1,431,490) $ (341,550) $ (3,725,502) Cash flows from investing activities: Purchases of property and equipment (12,319) (4,055) (172,018) ------------ ----------- ------------ Net cash used in investing activities (12,319) (4,055) (172,018) ------------ ----------- ------------ Cash flows from financing activities: Proceeds from issuance of preferred stock 50,000 6,659,015 Proceeds from issuance of common stock 24,950 19,570 669,570 Deferred financing costs (147,041) (147,041) ------------ ----------- ------------ Net cash provided by financing activities 24,950 (77,471) 7,181,544 ------------ ----------- ------------ Net increase (decrease) in cash and cash equivalents (1,418,859) (423,076) 3,284,024 Cash and cash equivalents, beginning of period 5,633,971 3,707,100 - ------------ ----------- ------------ Cash and cash equivalents, end of period $ 4,215,112 $ 3,284,024 $ 3,284,024 ============ =========== ============
The accompanying notes are an integral part of these financial statements. 3 ALGOS PHARMACEUTICAL CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The interim financial statements of Algos Pharmaceutical Corporation (the "Company") presented herein have been prepared in accordance with generally accepted accounting principles for interim financial information and with the rules and regulations of the Securities and Exchange Commission and are unaudited. In the opinion of management, the financial statements reflect all adjustments (which consist of normal recurring accruals and adjustments) necessary for a fair statement of the results of the interim periods presented. The results of the interim periods presented are not necessarily indicative of results to be expected for the full fiscal year. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The financial statements should be read in conjunction with the audited financial statements included in the Company's Registration Statement on Form S-1. 2. INITIAL PUBLIC OFFERING In October 1996, the Company completed an initial public offering of 3,625,000 shares of Common Stock, including 125,000 shares issued under an overallotment option granted to the underwriters, resulting in net proceeds to the Company of $47,197,500 after underwriting discounts and commissions and before other expenses of the offering. The accompanying balance sheet as of September 30, 1996 does not reflect the delivery of shares or receipt of net proceeds by the Company. In connection with the offering, all of the outstanding shares of Series A Preferred Stock were automatically converted into shares of Common Stock at the rate of 8.3 for 1. 3. EARNINGS PER SHARE Pro forma net loss per share is based on the net loss and the weighted average number of shares of common stock outstanding after giving effect to the conversion of all preferred stock as of January 1, 1995. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, all shares of common and convertible preferred stock and stock options issued during the twelve months prior to the filing date of the Registration Statement have been included in the calculation of weighted average number of shares of common stock outstanding as if they were outstanding for all periods presented. Outstanding stock options and warrants granted prior to this twelve-month period have not been included in the calculation of historical net loss per common share because inclusion of such shares would be antidilutive. Historical net loss per common share is as follows:
For the three months ended For the nine months ended September 30, September 30, --------------------------- ---------------------------- 1995 1996 1995 1996 ---- ---- ---- ---- Net loss per common share $ (0.09) $ (0.15) $ (0.27) $ (0.32) Weighted average common shares outstanding 6,009,660 6,171,880 6,001,468 6,153,334
Historical net loss per common share is based on the weighted average number of common shares outstanding during the periods presented. 4. PREPAID EXPENSES Included in prepaid expenses at September 30, 1996 is $294,238 of prepaid insurance premiums. 4 ALGOS PHARMACEUTICAL CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS 5. OTHER ASSETS Other assets consist of the following:
December 31, September 30, 1995 1996 ---- ---- Financing costs $ 799,103 Insurance premiums 238,514 Other $ 1,591 1,591 ------------- ------------- $ 1,591 $ 1,039,208 ============= ==============
6. ACCOUNTS PAYABLE Accounts payable at September 30, 1996 includes unpaid charges related to deferred financing costs and insurance premiums. 7. OTHER CURRENT LIABILITIES Other current liabilities consist of the following:
December 31, September 30, 1995 1996 ---- ---- Deferred revenue $ 0 $ 500,000 Accrued research expenses 118,100 160,543 Accrued compensation 23,235 98,100 ------------- -------------- $ 141,335 $ 758,643 ============= ==============
8. REVENUES In June 1996, the Company entered into a license agreement with McNeil Consumer Products Company which provides McNeil with exclusive worldwide rights to develop, manufacture, and market certain products. The Company received an inital payment of $2,000,000 in July 1996, $500,000 of which is restricted to fund future development costs, and may receive additional payments based on the achievement of specified milestones. McNeil will be responsible for substantially all of the remaining development costs in excess of $500,000. In addition, the Company will receive royalties based on sales of licensed products, if any. The agreement may be terminated by McNeil after one year. In connection with the transaction, the Company recorded revenue of $1,500,000 and deferred revenue of $500,000. 9. STOCKHOLDERS' EQUITY In June 1996, the Company issued 100,000 shares of convertible Series B Preferred Stock in connection with an amendment to a license agreement with a university and recorded an administrative expense of $915,000. Shares of Series B Preferred Stock are convertible into an equal number of shares of Common Stock at any time on or after February 1, 1997. In the nine months ended September 30, 1996, the Company adopted the 1996 Stock Option Plan and the 1996 Non-Employee Director Stock Option Plan and authorized a total of 498,000 shares of Common Stock for issuance under the plans. During the same period, options for the purchase of an aggregate of 283,190 shares of Common Stock were granted under the Company's various stock option plans at exercise prices ranging from $0.12 to $14 per share. Unearned compensation expense amounting 5 ALGOS PHARMACEUTICAL CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS to $1,246,440 was recorded in connection with the grants which will be amortized over the vesting periods, generally four years. 10. TRANSFER OF INTANGIBLE ASSETS In August 1996, the Company contributed certain intangible assets having no book value to a newly formed company and received preferred stock with an aggregate stated value and liquidation preference of $2,800,000 and all of the new company's common stock. Such common stock was subsequently distributed to the Company's stockholders, warrant holders, and employees. The preferred stock provides for an annual cumulative dividend of 30%, which may be paid in the form of cash or the issuing company's common stock, and a share of other earnings and may be redeemed by either the Company or the issuer under certain circumstances. The Company recorded no gain in connection with the transaction as management believes that at the present time realization of the redemption value is not assured. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain information set forth herein contains forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Certain factors discussed herein and under the caption "Risk Factors" in the Company's Registration Statement on Form S-1 could cause actual results to differ materially from those in the forward-looking statements. General Algos, a development stage company, is engaged primarily in the development and commercialization of proprietary pain management pharmaceutical products. Since its formation in January 1992, the Company has devoted a substantial amount of its efforts to licensing technology, recruiting key management and staff, developing products, filing patents and other regulatory applications and raising capital. The Company has incurred losses since its inception and expects to incur significant operating losses in the future. The Company expects that its product development expenses will increase significantly in future years as the drugs that the Company currently has under development move into advanced clinical trials and as additional drugs are considered for development. In addition, the Company expects that its personnel costs will increase significantly in the future, primarily as a result of the planned development of a direct sales force. Results of Operations Three Months Ended September 30, 1995 and 1996 Research and Development: In the three months ended September 30, 1996, research and development expenses increased $220,000 to $609,000 from $389,000 in the 1995 period. Expenses increased primarily as a result of investigator payments and drug supplies for current and future clinical trials of MorphiDex(TM), the Company's most developmentally advanced product. General and Administrative: In the three months ended September 30, 1996, general and administrative expenses increased $142,000 to $345,000 from $203,000 in the 1995 period. In the 1996 period, the Company amortized $69,000 of unearned compensation expense associated with 1996 stock option grants. In addition, the Company incurred one time administrative costs during the 1996 period in connection with the transfer of intangible assets. Interest Income: Interest income decreased $13,000 to $47,000 in the three months ended September 30, 1996 from $60,000 in the 1995 period, due to a lower average cash balance during the period. Nine Months Ended September 30, 1995 and 1996 Revenues: Revenues in the nine months ended September 1996 amounted to $1,500,000. This amount represents an initial payment of $2,000,000 received under a license agreement executed in the period less $500,000 which is currently restricted for the funding of future development costs. 7 Research and Development: In the nine months ended September 30, 1996, research and development expenses increased $423,000 to $1,613,000 from $1,190,000 in the 1995 period. Investigator payments and drug supplies for the Company's clinical studies increased in the current period, primarily as a result of the initiation of new studies of MorphiDex(TM). These costs and increases in employee and consultant compensation were partially offset by lower spending on preclinical studies of MorphiDex(TM) and other product candidates. General and Administrative: In the nine months ended September 30, 1996, general and administrative expenses increased $1,374,000 to $1,973,000 from $599,000 in the 1995 period. The 1996 period includes non-cash charges of (a) $915,000 for the issuance of preferred stock in connection with an amendment to a license agreement and (b) $258,000 of compensation expense related to 1996 stock option grants. Professional fees and other employee compensation also contributed to the increase. Interest Income: Interest income decreased $75,000 to $124,000 in the nine months ended September 30, 1996 from $199,000 in the 1995 period due to a lower average cash balance during the period. Liquidity and Capital Resources As a result of its drug development efforts, the Company has experienced cumulative net cash outflows from operations of $3,725,502 from its inception in 1992 through September 30, 1996. Investments by the Company's founders and a private placement of preferred stock in 1994 provided operating funds in this period. In the nine months ended September 30, 1996, cash outflows from operations amounted to $341,550, compared to $1,431,490 in the prior year period. In 1996, the receipt of an initial license payment under an agreement with McNeil Consumer Products Company partially offset continuing research and development expenses. The Company expects that its spending will increase significantly as its development programs expand and additional preclinical studies and clinical trials of its products are initiated. The Company completed an initial public offering of 3,625,000 shares of common stock in October 1996, resulting in net proceeds of approximately $47 million which Algos intends to use primarily to fund research and development activities and the planned establishment of a direct sales force and for general corporate purposes. Based upon the Company's currently anticipated schedule of clinical trials, the Company believes that these funds will be sufficient to fund its operations for approximately three years. However, the Company is subject to a number of risks and uncertainties common to companies in similar stages of development and its funding requirements will depend on a number of factors including the results of its development efforts, the timing and costs of obtaining required regulatory approvals to market products, the development of competing technologies, the amount of resources required for the establishment of marketing and distribution capabilities, and the cost of prosecuting and defending patents. In addition, Algos is currently considering alternatives for the relocation and expansion of its office facilities in anticipation of increased development activities and staff. However, it has not yet determined the cost of such relocation and expansion. The Company's funding requirements will also depend on current and possible future licensing or other collaborative research agreements. The license agreement with McNeil Consumer Products Company provides for up to $8 million of payments to the Company, after the first anniversary of the agreement, contingent upon the achievement of certain specified milestones. 8 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS In September 1996, by unanimous consent of the shareholders eligible to vote, the Company's Amended and Restated Certificate of Incorporation and its Amended and Restated By-Laws as filed as exhibits to the Company's Registration Statement on Form S-1 were approved. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits: 11 Computation of Pro Forma Per Share Earnings 27 Financial Data Schedule (EDGAR) 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. ALGOS PHARMACEUTICAL CORPORATION Date November 14, 1996 /s/ JOHN W. LYLE - ---------------------- ------------------------------------- John W. Lyle President and Chief Executive Officer Date November 14, 1996 /s/ GARY R. ANTHONY - ---------------------- ------------------------------------- Gary R. Anthony Chief Financial Officer and Principal Accounting Officer 9 STATEMENT OF DIFFERENCES ------------------------ The trademark symbol shall be expressed as .... (TM) EX-11 2 EXHIBIT 11 EXHIBIT 11. COMPUTATION OF PRO FORMA PER SHARE EARNINGS
For the three months ended For the nine months ended September 30, September 30, -------------------------- ------------------------- 1995 1996 1995 1996 ---- ---- ---- ---- Net loss $ (531,906) $ (907,806) $(1,590,475) $(1,962,563) =========== ========== =========== =========== Weighted average number of common shares outstanding: Weighted average number of common shares outstanding 6,009,660 6,171,880 6,001,468 6,153,334 Common shares issuable upon conversion of Series A Preferred Stock 5,830,750 5,872,250 5,830,750 5,853,856 Common shares issuable upon conversion of Series B Preferred Stock issued within one year of the initial public offering 100,000 100,000 100,000 100,000 Incremental common shares outstanding from stock options granted within one year of the initial public offering 265,713 216,171 265,713 232,039 ----------- ----------- ----------- ----------- 12,206,123 12,360,301 12,197,931 12,339,229 =========== =========== =========== =========== Net loss per common share $ (0.04) $ (0.07) $ (0.13) $ (0.16) =========== =========== =========== ===========
EX-27 3 EXHIBIT 27
5 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 3,284,024 0 0 0 0 4,102,440 71,714 0 5,213,362 2,389,702 0 61,719 0 8,075 2,753,866 5,213,362 0 1,500,000 0 3,586,094 0 0 0 (1,962,563) 0 0 0 0 0 (1,962,563) (0.16) 0
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