10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-21699 VIROPHARMA INCORPORATED (Exact Name of Registrant as Specified in its Charter) DELAWARE 94-2347624 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 405 Eagleview Boulevard Exton, Pennsylvania 19341 (Address of Principal Executive Offices and Zip Code) 610-458-7300 (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 requirement for the past 90 days: Yes X NO ______ Number of shares outstanding of the issuer's Common Stock, par value $.002 per share, as of November 13, 2000: 15,242,979 shares. VIROPHARMA INCORPORATED INDEX PART I. FINANCIAL INFORMATION
Page ---- Item 1. Financial Statements: Balance Sheets at December 31, 1999 and September 30, 2000............. 3 Statements of Operations for the three months ended September 30, 1999 and 2000, the nine months ended September 30, 1999 and 2000, and the period from December 5, 1994 (inception) to September 30, 2000................................................................. 4 Statements of Cash Flows for the nine months ended September 30, 1999 and 2000 and the period from December 5, 1994 (inception) to September 30, 2000................................................... 5 Notes to Financial Statements.......................................... 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................. 8 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........ 10 PART II. OTHER INFORMATION................................................ 11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 11 SIGNATURES........................................................ 12
2 PART I. FINANCIAL INFORMATION --------------------------------- ITEM 1. FINANCIAL STATEMENTS VIROPHARMA INCORPORATED (A Development Stage Company) Balance Sheets December 31, 1999 and September 30, 2000
December 31, September 30, 1999 2000 ------------------------------ ASSETS Audited Unaudited ------------------------------ Current assets: Cash and cash equivalents $ 6,984,707 4,623,763 Short-term investments 59,868,213 208,147,198 Notes receivable from officers - current 39,205 121,696 Due from partner - 1,783,130 Other current assets 1,068,764 3,568,352 ------------ ------------- Total current assets 67,960,889 218,244,139 Equipment and leasehold improvements, net 3,469,927 4,424,851 Restricted investments 550,000 550,000 Notes receivable from officers - noncurrent 23,151 266,231 Debt issue costs, net - 5,251,767 Other assets 81,899 45,899 ------------ ------------- Total assets $ 72,085,866 228,782,887 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 1,187,234 2,244,096 Loans payable - current 1,200,000 200,000 Deferred revenue - current 1,000,000 1,000,000 Accrued expenses and other current liabilities 5,882,396 7,624,898 ------------ ------------- Total current liabilities 9,269,630 11,068,994 Loans payable - noncurrent 525,000 375,000 Deferred revenue - noncurrent 4,000,000 3,250,000 Convertible subordinated notes - 180,000,000 ------------ ------------- 13,794,630 194,693,994 ------------ ------------- Stockholders' equity: Preferred stock, par value $.001 per share. 5,000,000 shares authorized; Series A convertible participating preferred stock; 2,300,000 issued and outstanding at December 31, 1999 and September 30, 2000 (liquidation value $14,537,031) 2,300 2,300 Series A junior participating preferred stock; 200,000 shares designated; no shares issued and outstanding - - Common stock, par value $.002 per share. Authorized 27,000,000 shares at December 31, 1999 and 100,000,000 shares at September 30, 2000; issued and outstanding 15,066,612 shares at December 31, 1999 and 15,242,854 shares at September 30, 2000 30,133 30,386 Additional paid-in capital 136,259,509 137,606,797 Deferred compensation (44,580) (1,056,250) Unrealized gains (losses) on available for sale securities (35,126) 310,475 Deficit accumulated during the development stage (77,921,000) (102,804,815) ------------ ------------- Total stockholders' equity 58,291,236 34,088,893 ------------ ------------- Commitments Total liabilities and stockholders' equity $ 72,085,866 228,782,887 ============ =============
See accompanying notes to financial statements. 3 VIROPHARMA INCORPORATED (A Development Stage Company) Statements of Operations (unaudited) Three months ended September 30, 1999 and 2000, The nine months ended September 30, 1999 and 2000, and the period from December 5, 1994 (inception) to September 30, 2000
Period from December 5, 1994 Three months ended Nine months ended (inception) to September 30, September 30, September 30, 1999 2000 1999 2000 2000 --------------- --------------- --------------- ------------------------------ Revenues: License fee and milestone revenue - 250,000 - 1,750,000 5,750,000 Grant revenue - - - - 526,894 --------------- --------------- --------------- ------------------------------ Total revenues - 250,000 - 1,750,000 6,276,894 --------------- --------------- --------------- ------------------------------ Operating expenses incurred in the development stage: Research and development 5,945,274 12,182,802 16,039,859 23,022,506 94,838,186 General and administrative 1,082,466 1,959,219 3,476,798 6,120,719 21,580,193 --------------- --------------- --------------- ------------------------------ Total operating expenses 7,027,740 14,142,021 19,516,657 29,143,225 116,418,379 --------------- --------------- --------------- ------------------------------ Loss from operations (7,027,740) (13,892,021) (19,516,657) (27,393,225) (110,141,485) Interest income 183,244 3,888,521 989,067 8,901,021 14,278,667 Interest expense 42,580 2,721,143 128,889 6,391,611 6,941,997 --------------- --------------- --------------- ------------------------------ Net loss (6,887,076) (12,724,643) (18,656,479) (24,883,815) (102,804,815) =============== =============== =============== ============================== Beneficial conversion feature of preferred stock - 4,140,000 - Preferred stock dividends, including beneficial conversion component 752,833 181,838 752,833 545,514 --------------- --------------- --------------- --------------- Net loss allocable to common stockholders (7,639,909) (12,906,481) (23,549,312) (25,429,329) =============== =============== =============== =============== Basic and diluted net loss per share allocable to common stockholders (0.66) (0.85) (2.04) (1.68) =============== =============== =============== =============== Shares used in computing basic and diluted net loss per share allocable to common stockholders 11,577,961 15,210,428 11,568,467 15,167,736 =============== =============== =============== ===============
See accompanying notes to financial statements. 4 VIROPHARMA INCORPORATED (A Development Stage Company) Statements of Cash Flows (unaudited) Nine months ended September 30, 1999 and 2000 and the period from December 5, 1994 (inception) to September 30, 2000
Period from December 5, 1994 Nine months ended (inception) to September 30, September 30, 1999 2000 2000 -------------- ------------- ----------------- Cash flows from operating activities: Net loss $ (18,656,479) (24,883,815) (102,804,815) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash compensation expense 164,832 44,580 833,086 Non-cash warrant value 11,952 - 153,751 Non-cash consulting expense 4,860 - 46,975 Depreciation and amortization expense 401,074 1,092,065 2,423,169 Changes in assets and liabilities: Other current assets 184,515 (2,499,588) (3,568,352) Notes receivable from officers 29,403 (325,570) (387,926) Due from partner - (1,783,130) (1,783,130) Other assets - 36,000 (45,899) Accounts payable 1,308,902 1,056,863 2,244,097 Deferred revenue - (750,000) 4,250,000 Accrued expenses and other current liabilities (3,496,165) 1,745,309 7,624,898 ------------- ------------ ------------- Net cash used in operating activities (20,047,106) (26,267,286) (91,014,146) Cash flows from investing activities: Purchase of equipment and leasehold improvements (1,193,138) (1,573,340) (6,374,371) Purchase of short-term and restricted investments (14,896,490) (220,303,882) (406,489,366) Sales of short-term investments - - 9,680,414 Maturities of short-term investments 23,757,660 72,370,497 188,422,228 ------------- ------------ ------------- Net cash (used in) provided by investing activities 7,668,032 (149,506,725) (214,761,095) Cash flows from financing activities: Net proceeds from issuance of preferred stock 13,310,900 - 27,242,143 Net proceeds from issuance of common stock 87,046 836,805 108,390,367 Preferred stock cash dividends - (545,514) (727,214) Proceeds from loans payable and milestone advance - - 2,100,000 Payment of loans payable (133,333) (1,150,000) (1,525,000) Proceeds received on notes receivable - - 1,625 Proceeds from notes payable - 174,274,583 174,967,083 Payment of notes payable - - (50,000) Obligation under capital lease (38,736) (2,807) - ------------- ------------ ------------- Net cash provided by financing activities 13,225,877 173,413,067 310,399,004 Net increase (decrease) in cash and cash equivalents 846,803 (2,360,944) 4,623,763 Cash and cash equivalents at beginning of period 1,076,682 6,984,707 - ------------- ------------ ------------- Cash and cash equivalents at end of period $ 1,923,485 4,623,763 4,623,763 ============= ============ ============= Supplemental disclosure of noncash transactions: Conversion of milestone advance to loan payable - - 1,000,000 Unrealized gains (losses) on available for sale securities 30,749 345,601 310,475
See accompanying notes to financial statements. 5 VIROPHARMA INCORPORATED (A Development Stage Company) Notes to Financial Statements September 30, 1999 and 2000 (unaudited) (1) ORGANIZATION AND BUSINESS ACTIVITIES ViroPharma Incorporated (a development stage company) (the "Company") commenced operations on December 5, 1994. The Company is a development stage pharmaceutical company engaged in the discovery and development of new antiviral medicines. The Company is devoting substantially all of its efforts towards conducting drug discovery and development, raising capital, conducting clinical trials, pursuing regulatory approval for products under development, recruiting personnel and building infrastructure. In the course of such activities, the Company has sustained operating losses and expects such losses to continue for the foreseeable future. The Company has not generated any significant revenues or product sales and has not achieved profitable operations or positive cash flow from operations. The Company's deficit accumulated during the development stage aggregated $102,804,815 through September 30, 2000. There is no assurance that profitable operations, if ever achieved, could be sustained on a continuing basis. The Company plans to continue to finance its operations with a combination of stock issuances, debt issuances, license payments, payments from strategic research and development arrangements and, in the longer term, revenues from product sales. There are no assurances, however, that the Company will be successful in obtaining an adequate level of financing needed for the long-term development and commercialization of its planned products. BASIS OF PRESENTATION The information at September 30, 2000 and for the periods ended September 30, 1999 and 2000, is unaudited but includes all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the financial information set forth therein in accordance with accounting principles generally accepted in the United States of America. The interim results are not necessarily indicative of results to be expected for the full fiscal year. These financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 1999 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. (2) COMPREHENSIVE LOSS In the Company's annual financial statements, comprehensive loss is presented as a separate financial statement. For interim financial statements, the Company is permitted to disclose the information in the footnotes to the financial statements. The disclosures are required for comparative purposes. The only comprehensive income item the Company has is unrealized gains and losses on available for sale securities. The following reconciles net loss to comprehensive loss for the quarter and nine-month periods ended September 30, 1999 and 2000:
Quarter ended Nine month period ended September 30, September 30, 1999 2000 1999 2000 --------------- --------------- --------------- ------------- Net loss (6,887,076) (12,724,643) (18,656,479) (24,883,815) Other comprehensive income: Unrealized gains (losses) on available securities 87,312 154,260 30,749 345,601 ----------- ------------ ------------ ------------ Comprehensive loss (6,799,764) (12,570,383) (18,625,730) (24,538,214) =========== ============ ============ ============
6 ViroPharma Incorporated (A Development Stage Company) Notes to Financial Statements (3) CORPORATE COLLABORATION The Company has a collaboration with the Wyeth-Ayerst Laboratories Division of American Home Products Corporation in the area of Hepatitis C. In connection with the collaboration, both parties perform certain research and development activities and share in the costs of those activities. As of September 30, 2000, the company is due from Wyeth-Ayerst approximately $1,783,130 for research and development expenses incurred by the company on behalf of the collaboration. The receivable is recorded with a corresponding reduction to research and development expenses. The amount due is arrived at using the contractual amounts for cost sharing and certain activities. For interim reporting periods, estimates are used to arrive at any amounts due from or to Wyeth-Ayerst. The estimates are based on specific activities that are being performed during the respective periods. The parties will reconcile the actual research and development activities on an annual basis. Any amounts owed to either party will be paid in the early part of the subsequent calendar year. (4) CONVERTIBLE SUBORDINATED NOTES The Company made a private offering of $180 million of convertible subordinated notes due 2007, which closed on March 8, 2000. Net proceeds from the issuance of convertible subordinated notes were approximately $174,400,000. The notes are convertible into shares of the Company's common stock at a price of $109.15 per share, subject to certain adjustments. The notes bear interest at a rate of 6 % per annum, payable semi-annually in arrears, and can be redeemed by the Company, at certain premiums over the principal amount, at any time on or after March 6, 2003. The notes are subordinated in right of payment to all senior indebtedness of the Company. The notes may be required to be repaid on the occurrence of certain fundamental changes, as defined. (5) EMPLOYEE STOCK PLANS In May 2000, the stockholders of the company approved amendments to the company's employee stock option plan. The amendments include increasing the number of shares eligible to grant under the plan by 750,000 shares and eliminating the discretion and authority of the company's board of directors to reprice outstanding stock options or grant stock options at an exercise price that is less that the fair market value at the date of grant. Also, the stockholders of the company approved the 2000 employee stock purchase plan. A total of 300,000 shares are available under this plan. Under this plan, employees may purchase common stock through payroll deductions in semi- annual offerings at a price equal to the lower of 85% of the closing price on the applicable offering commencement date or 85% of the closing price on the applicable offering termination date. This plan qualifies under section 423 of IRS code. (6) SUBSEQUENT EVENTS In October 2000, the company sold an aggregate of 200,993 shares of common stock to American Home Products Corporation for aggregate proceeds of $6 million. The sales of common stock were as a result of progress made under the companies' hepatitis C virus collaboration. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our disclosure and analysis in this report contains some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to present or anticipated scientific or regulatory progress, development of potential pharmaceutical products, future revenues, capital expenditures, research and development expenditures, future financings and collaborations, personnel, manufacturing requirements and capabilities, and other statements regarding matters that are not historical facts or statements of current condition. Any or all of our forward-looking statements in this report may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors , including those mentioned in the discussion below and those described in the "Risk Factors" discussion of our most recent registration statement on Form S-3 filed with the Securities and Exchange Commission, will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. We do not intend to update our forward-looking statements to reflect future events or developments. Since inception, the Company has devoted substantially all of its resources to its research and product development programs. ViroPharma has generated no revenues from product sales and has been dependent upon funding primarily from equity and debt financing. The Company does not expect any revenues from product sales for at least the next two years. The Company has not been profitable since inception and has incurred a cumulative net loss of $102,804,815 through September 30, 2000. Losses have resulted principally from costs incurred in research and development activities and general and administrative expenses. The Company expects to incur additional operating losses over at least the next several years. The Company expects such losses to increase over historical levels, primarily due to expected increases in the Company's research and development expenses, further clinical trials of the Company's most advanced drug candidate, pleconaril (including any significant additional studies for approval in the European Union, if any are required), and milestone payments that may be payable under the terms of the Company's Agreement with Sanofi-Synthelabo in respect of pleconaril. Also, the Company expects to incur expenses related to its marketing and market research activities for pleconaril, its development of a marketing and sales staff and further research and development related to its hepatitis C and respiratory syncytial virus (RSV) disease product candidates. The Company's ability to achieve profitability is dependent on developing and obtaining regulatory approvals for its product candidates, successfully commercializing such product candidates (which may include entering into collaborative agreements for product development and commercialization), and securing contract manufacturing services and distribution and logistics services. LIQUIDITY AND CAPITAL RESOURCES The Company commenced operations in December 1994. The Company is a development stage company and to date has not generated revenues from product sales. The cash flows used in operations are primarily for research and development activities and the supporting general and administrative expenses. Through September 30, 2000, the Company has used approximately $91.0 million in operating activities. The Company invests its cash in short-term investments. Through September 30, 2000, the Company has used approximately $214.8 million in investing activities, including $208.4 million in short-term investments and $6.4 million in equipment purchases and new construction. Through September 30, 2000, the Company has financed its operations primarily through public offerings of common stock, a convertible subordinated notes offering, private placements of redeemable preferred stock, two bank loans, equipment lease lines and a milestone advance totaling approximately $310.4 million. At September 30, 2000, the Company had cash and cash equivalents and short-term investments aggregating approximately $212.8 million. We lease our corporate and research and development facilities under an operating lease expiring in 2008. We also have the right to expand the facility and, under certain circumstances, to purchase the facility. We have exercised our right to expand our current facility by 15,600 square feet. We expect to incur an estimated $3 million of capital expenditures in connection with this expansion. We expect that we will incur these expenses in the second half of 2001. In addition, we expect that rent expense in future years will increase approximately $200,000 per year, commencing in early 2002. We 8 have financed substantially all of our equipment under two bank loans and two master lease agreements. The first bank loan, which we entered into in February 1997, is for $600,000, is payable in equal monthly installments over 72 months and has a 9.06% interest rate. The second bank loan, which we entered into in December 1998, is for $500,000, is payable in equal monthly installments over 60 months and has a 7.25% interest rate. In addition, the company paid off a $1 million loan to Boehringer Ingelheim in August 2000. We have paid off both of the lease agreements. As of October 1, 2000, aggregate outstanding borrowings under these bank loans were approximately $575,000. Under our agreement with Sanofi-Synthelabo, we are required to make milestone payments upon the achievement of certain development milestones and, until the expiration of the last patent on pleconaril or any related drug, royalty payments on any sales in the United States and Canada of products developed under the agreement. The development milestones include regulatory submissions of New Drug Applications and regulatory approvals in various jurisdictions, however, we may not be able to achieve these milestones. Unless the agreement is earlier terminated, in September 2001 or within 60 days after we file a New Drug Application for pleconaril (whichever occurs sooner), we will be required to pay Sanofi-Synthelabo $900,000. We entered into an addendum to our development agreement with SELOC France in 1998. Under this addendum, SELOC France has manufactured three validation batches of pleconaril drug substance. We will pay approximately $1,000,000 between the fourth quarter of 2000 and the first quarter of 2001 under this addendum. SELOC France is also assisting us in preparing the pleconaril drug master file and is preparing certain documentation that will be required with our New Drug Applications for pleconaril. We have incurred losses from operations since inception. We expect to incur additional operating losses over at least the next several years. We expect to incur such losses at an increasing rate over at least the next several years primarily due to expected increases in our research and development expenses, further clinical trials and clinical development of our most advanced product candidate, pleconaril (including any significant additional studies for approval in the European Union, if any are required), and milestone payments that may be payable under the terms of our agreement with Sanofi-Synthelabo for pleconaril. Specifically, we expect to increase spending over historical levels for at least the next six months as we conduct two pivotal clinical trials and several supporting studies for the use of pleconaril for the treatment of viral respiratory infection. Also, we expect to incur expenses for pleconaril marketing and market research activities, our development of a marketing and sales staff and building the requisite infrastructure, and further research and development related to our hepatitis C and RSV disease product candidates. We expect to increase spending over historical levels for at least the next six months for our hepatitis C and RSV disease product candidates in connection with an anticipated exploratory clinical trial with VP50406 for the treatment of Hepatitis C and the safety studies with VP14637 for the treatment of RSV disease. We expect that our spending in the general and administrative areas to remain relatively constant over at least the next six months with such spending in the first nine months of 2000. We expect that we will need to raise additional funds to continue our business activities and to further expand our facilities. We may need additional financing to complete all clinical studies, to develop our marketing and sales staffs for pleconaril and to build the requisite infrastructure. We expect that we will need additional financing for the development and required testing of our hepatitis C and RSV disease compounds, and for any other product candidates. To obtain this financing, we intend to access the public or private equity or debt markets or enter into additional arrangements with corporate collaborators to whom we may issue shares of our stock. For example, in connection with our collaboration and license agreement, American Home Products Corporation will purchase our common stock at a market value premium at the time of completion of certain product development stages. If we raise additional capital by issuing equity securities, the terms and prices for these financings may be much more favorable to the new investors than the terms obtained by our existing stockholders. These financings also may dilute the ownership of existing stockholders. Collaborative arrangements may require us to grant product development programs or licenses to third parties for products that we might otherwise seek to develop or commercialize ourselves. Additional financing, however, may not be available on acceptable terms from any source. If sufficient additional financing is not available, we may need to delay, reduce or eliminate current research and development programs or other aspects of our business. RESULTS OF OPERATIONS Quarters ended September 30, 2000 and 1999 We earned license fee revenue from our hepatitis C collaboration with Wyeth- Ayerst Laboratories Division of American Home Products Corporation of $250,000 for the quarter ended September 30, 2000. We had no revenues for the quarter ended September 30, 1999. Research and development expenses increased to $12,182,802 for the quarter ended September 30, 2000 9 from $5,945,274 for the quarter ended September 30, 1999. The increase in expenses in the third quarter of 2000 was due primarily to the initiation of two large phase 3 trials with pleconaril, the company's most advanced drug candidate, for the treatment of viral respiratory infection and additional preclinical studies with VP14637 for the treatment of RSV disease. In addition, the company was preparing for patient studies with VP50406 for the treatment of hepatitis C expected to start by year-end and conducting substantial discovery research activities on additional product candidates for both hepatitis C and RSV diseases. In the third quarter of 1999, the company was conducting two smaller clinical trials with pleconaril and advancing both the hepatitis C and RSV disease programs. Also, the offsetting credit related to the increased receivable due from Wyeth-Ayerst in connection with our hepatitis C collaboration of approximately $508,000 has been recorded as a reduction to research and development expenses. General and administrative expenses increased to $1,959,219 for the quarter ended September 30, 2000 from $1,082,466 for the quarter ended September 30, 1999. The increase was principally due to an increase in employee related expenses and business development related activities. Interest expense and interest income increased substantially in the third quarter of 2000 compared to the third quarter of 1999. The increases are due to the investing of $180 million convertible subordinated debentures issued in March of 2000 which pay 6% interest per annum. Currently the weighted average interest rate that we are earning on our investments is 6.1%. The net loss increased to $12,724,643 for the quarter ended September 30, 2000 from $6,887,076 for the quarter ended September 30, 1999. Nine-months ended September 30, 2000 and 1999 We earned license fee and milestone revenue from our hepatitis C collaboration with Wyeth-Ayerst of $1,750,000 for the nine-month period ended September 30, 2000. We had no revenues for the nine-month period ended September 30, 1999. Research and development expenses increased to $23,022,506 for the nine-month period ended September 30, 2000 from $16,039,859 for the nine-month period ended September 30, 1999. The increase was principally due to the completion of three phase 3 clinical trials of pleconaril, conduct of phase 1 clinical trials of VP50406 for the treatment of hepatitis C and the advancement of our drug candidate for the treatment of RSV disease. Also, the offsetting credit to the receivable due from Wyeth-Ayerst in connection with our hepatitis C collaboration of $1,783,130 has been recorded as a credit to research and development expenses. General and administrative expenses increased to $6,120,719 for the nine-month period ended September 30, 2000 from $3,476,798 for the same period of 1999. The increase was principally due to an increase in employee related expenses, pre-marketing expenses related to pleconaril and business development related activities. Interest expense and interest income increased substantially in the nine-month period ended June 30, 2000 compared to the same period in 1999. The increases are due to the investing of $180 million convertible subordinated debentures issued in March of 2000 which pay 6% interest per annum. Currently the weighted average interest rate that we are earning on our investments is 6.1%. The net loss increased to $24,883,815 for the nine-month period ended September 30, 2000 from $18,656,479 for the nine- month period ended September 30, 1999. RECENTLY ISSUED ACCOUNTING STANDARDS In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulleting ("SAB") No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes certain of the staff's views in applying accounting principles generally accepted in the United States of America to revenue recognition in financial statements, including the recognition of non-refundable fees received upon entering into arrangements. We are in the process of evaluating this SAB and the effect it will have on our financial statements and current revenue recognition policy. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our holdings of financial instruments are comprised of a mix of U.S. corporate debt, government securities and commercial paper. All such instruments are classified as securities available for sale. Our debt security portfolio represents funds held temporarily pending use in our business and operations. We manage these funds accordingly. We seek reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed income securities while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We typically invest in the shorter-end of the maturity spectrum. The principal amount and weighted average interest rate of our investment portfolio at September 30, 2000 was $208,147,198 and approximately 6.1%, respectively. The Company has $180 million of convertible subordinated notes due 2007. The notes are convertible into shares of the Company's common stock at a price of $109.15 per share, subject to certain adjustments. The notes bear interest at a rate of 10 6% per annum, payable semi-annually in arrears, and can be redeemed by the Company, at certain premiums over the principal amount, at any time on or after March 6, 2003. PART II - OTHER INFORMATION ---------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: 10.30 Restricted Stock Agreement dated August 21, 2000 between ViroPharma Incorporated and Michel de Rosen. 10.31 Severance Agreement dated August 21, 2000 between ViroPharma Incorporated and Michel de Rosen. 10.32 Promissory Note of Michel de Rosen dated August 21, 2000. 10.33 Severance Agreement dated August 21, 2000 between ViroPharma Incorporated and Claude Nash. 27 Financial Data Schedule. (b) Reports on Form 8-K: We filed the following Current Reports on Form 8-K during the quarter ended September 30, 2000: We filed a Current Report on Form 8-K dated July 6, 2000 to report, pursuant to item 5, that Dennis Purcell was appointed to the Company's board of directors as a Class III director to serve until the 2002 annual meeting of shareholders and that Mr. Purcell will also serve on the audit committee. We filed a Current Report on Form 8-K dated July 27, 2000 to report, pursuant to item 5, the Company's financial results for the second quarter ended June 30, 2000. We filed a Current Report on Form 8-K dated August 21, 2000 to report, pursuant to item 5, that the Securities and Exchange Commission declared the Company's Registration Statement on Form S-3 (File No. 333-37960) effective, registering the resale of its 6% Subordinated Convertible Notes due March 1, 2007 and of shares of its common stock issuable upon conversion thereof by certain holders of the Notes, pursuant to the Registration Rights Agreement that ViroPharma entered into when the Notes were issued. We filed a Current Report on Form 8-K dated August 22, 2000 to report, pursuant to item 5, the appointment of Michel de Rosen as president and chief executive officer of the Company. We filed a Current Report on Form 8-K dated August 30, 2000 to report, pursuant to item 5, the appointment of Ellen C. Cooper, M.D. as vice president, clinical and regulatory affairs. 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. VIROPHARMA INCORPORATED Date: November 13, 2000 By: /s/ Michel de Rosen ---------------------------------- Michel de Rosen President and Chief Executive Officer (Principal Executive Officer) By: /s/ Vincent J. Milano --------------------------- Vincent J. Milano Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 12 EXHIBIT INDEX ------------- Exhibit Description 10.30 Restricted Stock Agreement dated August 21, 2000 between ViroPharma Incorporated and Michel de Rosen. 10.31 Severance Agreement dated August 21, 2000 between ViroPharma Incorporated and Michel de Rosen. 10.32 Promissory Note of Michel de Rosen dated August 21, 2000. 10.33 Severance Agreement dated August 21, 2000 between ViroPharma Incorporated and Claude Nash. 27 Financial Data Schedule. 13