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 January 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: 0-27756
ALEXION PHARMACEUTICALS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3648318
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 SCIENCE PARK, SUITE 360, NEW HAVEN, CONNECTICUT 06511
(Address of principal executive offices) (Zip Code)
203-776-1790
---------------------------------------------------
(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 [ ]
CLASS OUTSTANDING AT MARCH 10, 1998
------------------------------- -----------------------------
Common Stock, $0.0001 par value 11,221,888
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of January 31, 1998
and July 31, 1997 3
Statements of Operations for the three and six months ended
January 31, 1998 and 1997 and for the period from inception
January 28, 1992 to January 31, 1998 4
Statements of Cash Flows for the six months ended
January 31, 1998 and 1997 and for the period from inception
January 28, 1992 to January 31, 1998 5
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II. OTHER INFORMATION 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES 15
Page 2 of 15
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
BALANCE SHEETS
January 31, 1998 July 31, 1997
---------------- -------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $27,923,745 $16,742,516
Marketable securities 8,749,575 6,006,380
Prepaid expenses 454,568 232,385
----------- -----------
Total current assets 37,127,888 22,981,281
----------- -----------
Equipment, net of accumulated
depreciation and amortization 894,524 786,495
----------- -----------
Other Assets:
Licanse technology rights, net 198,367 242,366
Patent application costs, net 156,724 168,691
Security deposits and other assets 91,043 81,728
----------- -----------
Total other assets 446,134 492,785
----------- -----------
TOTAL ASSETS $38,468,546 $24,260,561
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 200,000 $ 130,000
Current obligations under capital leases 1,196 7,768
Accounts payable 718,432 727,553
Accrued expenses 409,453 1,201,770
Dividends payable 750,000 0
Deferred revenue 0 347,070
----------- -----------
Total current liabilities 2,079,081 2,414,161
----------- -----------
Stockholders' Equity:
Preferred Stock $.0001 par value; 5,000,000
shares authorized; 400,000 shares Series B
convertible authorized, issued and
outstanding at January 31, 1998 40 0
Common stock $.0001 par value; 25,000,000
shares authorized; 9,557,001 and 8,858,012
shares isued at January 31, 1998 and
July 31, 1997 956 886
Additional paid-in capital 70,100,422 53,671,867
Deficit accumulated during development stage (33,711,851) (31,826,251)
Deferred offering costs 0 0
Treasury stock, at cost; 11,875 shares (102) (102)
----------- -----------
Total stockholders' equity 36,389,465 21,846,400
----------- -----------
TOTAL LIABILITIES AND NET EQUITY $38,468,546 $24,260,561
=========== ===========
See accompanying notes to financial statements.
Page 3 of 15
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
(Unaudited)
January 28,1992
Three months ended January 31, six months ended January 31, (inception)
------------------------------ ---------------------------- through
1998 1997 1998 1997 January 31,1998
---------- ---------- ---------- ---------- ---------------
CONTRACT RESEARCH REVENUES $ 320,875 $1,437,984 $4,446,553 $2,248,739 $11,033,483
---------- ---------- ---------- ---------- -----------
OPERATING EXPENSES:
Research and Development 2,918,023 1,921,113 5,277,903 3,895,051 35,511,872
General and Administrative 668,527 758,306 1,276,001 1,407,361 10,793,650
---------- ---------- ---------- ---------- -----------
Total Operating Expenses 3,606,550 2,679,419 6,553,904 5,302,412 46,305,522
---------- ---------- ---------- ---------- -----------
OPERATING LOSS (3,285,675) (1,241,435) (2,107,351) (3,053,673) (35,272,039)
OTHER INCOME, Net 527,434 205,231 971,751 439,859 2,310,188
---------- ---------- ---------- ---------- -----------
NET (LOSS) ($2,758,241) ($1,036,204) ($1,135,600) ($2,613,814) ($32,961,851)
===========
ACCRETION OF PREFERRED STOCK DIVIDENDS 450,000 0 750,000 0
========== ========== ========== =========
NET (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS ($3,208,241) ($1,036,204) ($1,885,600) ($2,613,814)
========== ========== ========== ==========
NET (LOSS) PER COMMON SHARE (Note 3) ($0.34) ($0.14) ($0.21) ($0.36)
========== ========== ========== ==========
SHARES USED IN COMPUTING NET (LOSS)
PER COMMON SHARE 9,427,201 7,341,939 9,189,818 7,335,173
========== ========== ========== ==========
See accompanying notes to financial statements.
Page 4 of 15
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
January 28,1992
Six months ended January 31, (inception)
---------------------------- through
1998 1997 January 31,1998
------------ ------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,135,600) ($2,613,814) ($32,961,851)
Adjustments to reconcile net loss to
net cash used in operating acivities:
Depreciation and amortization 278,900 367,501 3,374,880
Compensation expense related to grant of stock options 0 0 122,500
Net realized loss (gain) on marketable securities 0 0 44,766
Change in assets and liabilities:
Prepaid expenses (222,183) 235,003 (454,568)
Accounts payable (9,121) 85,954 718,432
Accrued expenses (792,317) 63,429 409,453
Deferred revenue (349,070) (868,933) 0
----------- ---------- -----------
Net cash used in operating activities (2,227,391) (2,730,860) (28,746,388)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Purchases of) proceeds from marketable securities, net (2,743,193) 2,363,941 (8,741,771)
Purchases of equipment (330,738) (434,394) (3,252,695)
Licenced technology costs 0 0 (615,989)
Patent application costs (226) (21,003) (359,198)
Organization costs 0 0 (63,530)
----------- ---------- -----------
Net cash (used in) provided by investing activities (3,074,157) 1,908,544 (13,033,183)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred and common stock 16,428,665 151,903 68,771,329
Advances from stockholder 0 0 1,200,000
Repayments of capital lease obligations (6,573) (14,573) (376,868)
Borrowings under notes payable 200,000 0 1,379,135
Repayments of notes payable (130,000) (174,206) (1,179,135)
Security deposits and other assets (9,315) (2,725) (91,043)
Repurchase of common stock 0 0 (102)
----------- ---------- -----------
Net cash provided by (used in) financing activities 16,482,777 (34,151) 69,703,316
=========== ========== ===========
NET INCREASE (DECREASE) IN CASH 11,181,229 (856,467) 27,923,745
CASH and CASH EQUIVALENTS at the beginning of period 16,742,516 9,491,217 0
=========== ========== ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $27,923,745 $8,634,750 $27,923,745
=========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (refunded) for income taxes $ 0 ($ 7,950) $ 30,684
=========== ========== ===========
Cash paid for interest expense $ 8,652 $ 30,395 $ 414,617
=========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
Conversion of advances from stockholder into common stock $ 0 $ 0 $ 1,200,000
=========== ========== ===========
Equipment acquired pursuant to capial lease obligations $ 0 $ 0 $ 378,064
=========== ========== ===========
Preferred stock dividend accretion $ 750,000 $ 0 $ 750,000
=========== ========== ===========
See accompanying notes to financial statements.
Page 5 of 15
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Operations and Basis of Presentation -
Alexion Pharmaceuticals, Inc. ("Alexion" or the "Company") was organized in
January 1992 and is engaged in the research and development of proprietary
immunoregulatory compounds for the treatment of cardiovascular disorders
(perioperative bleeding and inflammation associated with cardiopulmonary bypass,
myocardial infarction, and stroke) and autoimmune diseases (lupus, rheumatoid
arthritis, and multiple sclerosis). As an outgrowth of its core technologies,
the Company is developing, in collaboration with a third party (see Note 5),
non-human UniGraft organ ("xenograft" organs) products designed for
transplantation into humans and, with another third party (see Note 5),
immunoprotected retroviral vector particles and producer cells for use in gene
therapy.
The Company is in the development stage and is devoting substantially all of its
efforts toward product research and development. The Company has incurred losses
since inception and has cumulative net losses of approximately $33.0 million
through January 31, 1998. The Company has made no product sales to date and has
recognized cumulative revenue from grant, license, and contract revenues of
$11.0 million through January 31, 1998. During the six months ended January 31,
1998, the Company received approximately $9.5 million in net proceeds from the
issuance of shares of Series B Preferred Stock to a single institutional
investor and received payments of an additional $6.5 million from United States
Surgical Corporation ("US Surgical") for equity, exclusive licensing rights, and
certain manufacturing assets. In addition, the Company has received various
grants to fund certain research activities (see Note 5).
The Company will need additional financing to obtain regulatory approvals, fund
operating losses, and, if deemed appropriate, establish a manufacturing, sales,
and marketing capability. In addition to normal risks associated with
development stage companies, there can be no assurance that the Company's
research and development will be successfully completed, that adequate patent
protection for the Company's technology will be obtained, that the Company's
products will not infringe third parties' patents, that any products developed
will obtain necessary government regulatory approval or that any approved
products will be commercially viable. In addition, the Company operates in an
environment of rapid change in technology, substantial competition from
pharmaceutical and biotechnology companies and is dependent upon the services of
its employees and its consultants.
The Company expects to incur substantial additional costs, including costs
associated with research, preclinical and clinical testing, manufacturing
process development, and additional capital expenditures associated with
facility expansion and manufacturing requirements in order to commercialize its
products currently under development. The Company will need to raise substantial
additional funds in addition to those previously described, which it will seek
through public or private equity or debt financings, collaborative or other
arrangements with corporate sources, or through other sources of financings.
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and include, in the opinion of management, all
adjustments, consisting of normal, recurring
Page 6 of 15
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
adjustments, necessary for a fair presentation of interim period results.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
results for the interim periods presented are not necessarily indicative of
results to be expected for any future period. It is suggested that these
condensed financial statements be read in conjunction with the audited financial
statements and notes thereto included in the Company's Form 10-K Annual Report
for the fiscal year ended July 31, 1997.
2. Cash and Cash Equivalents and Marketable Securities -
Cash and cash equivalents are stated at cost, which approximates market, and
include short-term highly liquid investments with original maturities of less
than three months.
The Company invests in marketable securities of highly rated financial
institutions and investment-grade debt instruments and limits the amount of
credit exposure with any one entity. The Company follows Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Pursuant to this Statement, the Company has classified
its marketable securities as "available for sale" and, accordingly, carries such
securities at aggregate fair value. Unrealized gains or losses are included in
stockholders' equity as a component of additional paid-in capital.
3. Net Loss per Common Share -
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share", which superceded Accounting Principles Board Opinion 15.
This new standard replaces the computation of primary earnings (loss) per share
with a new computation of "basic earnings (loss) per share". The Company adopted
this standard for all periods ending on or after January 31, 1998. Previously
reported net loss per common share is required to be restated under the
provisions of SFAS No. 128. There was no effect on previously reported net loss
per common share for the three and six month periods ended January 31. There is
no difference in basic and diluted net loss per common share as the effect of
exercising outstanding stock options, warrants, and converting Preferred Stock
to Common Stock is anti-dilutive for all periods presented. These outstanding
stock options and warrants entitled holders to purchase 818,845 and 1,110,497
shares of common stock at January 31, 1998 and 1997, respectively.
4. Revenue Recognition -
Contract research revenues are recognized as the related work is performed under
the terms of the contracts and expenses for development activities are incurred.
Any revenue contingent upon future funding by the Company is deferred and
recognized as the future funding is expended. Any revenues resulting from the
achievement of milestones would be recognized when the milestone is achieved.
License fee revenues represent non-refundable payments received in accordance
with
Page 7 0f 15
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
contractual agreements for various access and rights to the Company's
technologies, research, potential products and markets.
5. Revenues -
Revenues recorded by the Company consist of license fees and research and
development support under collaborations with US Surgical and GTI/Novartis,
Small Business Innovation Research ("SBIR") grants awarded in July and September
1995 from the National Institutes of Health ("NIH"), and funding from the
Commerce Department's National Institute of Standards and Technology ("NIST").
In July 1995, the Company entered into a collaborative research and development
agreement with US Surgical. US Surgical agreed to fund preclinical development
of the Company's xenotransplant products in return for exclusive worldwide
manufacturing, marketing and distribution rights of such products by paying the
Company up to $7.5 million allocated as follows: (1) up to $4.0 million of the
cost of preclinical development in four semi-annual installments of up to $1.0
million (the first installment of which was paid on July 31, 1995), and (2) $3.5
million upon achieving certain milestones. In furtherance of this joint
collaboration, US Surgical also purchased $4.0 million of the Company's common
stock. As of October 31, 1997 the Company has recognized the $4.0 million for
the cost of preclinical development. At the end of September 1997, US Surgical
and the Company modified the July 1995 Joint Development Agreement. As part of
the modification, US Surgical made a $6.5 million payment to the Company for
equity, exclusive licensing rights, and certain manufacturing assets. Further,
as part of the modified agreement, US Surgical and the Company agreed that the
preclinical milestone payments in the original agreements were considered to
have been satisfied.
In December 1996, the Company and GTI/Novartis entered into a License and
Collaborative Research Agreement with respect to the Company's gene transfer
technology. Under the Agreement, GTI/Novartis has been granted a worldwide
exclusive license to use the company's technology in its gene therapy products.
GTI/Novartis agreed to pay the Company an initial upfront payment of $850,000
which consisted of a one-time license fee of $750,000 and a $100,000 research
and development support payment. GTI/Novartis also agreed to fund a minimum of
$400,000 per year for two years for research and development support by the
Company.
In November 1997, the Company and US Surgical were awarded a three-year $2.0
million Cooperative Agreement from NIST. The award is for funding a joint
project called "Xenogeneic Cartilage Transplantation".
6. Equity Offerings -
In September 1997, the Company completed the private placement of 400,000 shares
of Series B preferred stock for aggregate consideration of $10,000,000 to a
single institutional investor,
Page 8 of 15
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Biotech Target S.A. The net proceeds to the Company were approximately $9.5
million. The Series B preferred stock is automatically convertible into 935,782
shares of the Company's common stock on March 4, 1998 or at any time prior
thereto at the election of the holder. The investor is entitled to a dividend of
$2.25 per share of Series B preferred stock if this stock is held through March
4, 1998. The dividend, if paid, is payable in cash or the Company's common stock
at the discretion of the Company. In addition, in September 1997, the Company
sold 166,945 shares of its common stock to US Surgical for aggregate
consideration of $3,000,000. The sale of common stock was made in connection
with the modification of the joint development agreement between the Company and
US Surgical.
In connection with its private placements in fiscal 1993 and 1994, the Company
had issued warrants to purchase common stock. The warrants were exercisable at
any time prior to the close of business on December 4, 1997. During the quarter
ended January 31, 1998, warrants were exercised for the purchase of 389,340
shares of common stock aggregating approximately $2,920,000 of proceeds to the
Company. Since inception through Janaury 31, 1998, warrants were exercised for
the purchase of 551,719 shares of common stock aggregating approximately
$4,144,000 of proceeds to the Company.
7. Subsequent Event -
On March 4, 1998, the Company's Series B Convertible Preferred Stock was
automatically converted into 935,782 shares of the Company's Common Stock, par
value $0.0001. The Company satisfied its dividend payment obligation,
aggregating $900,000, by delivery of 70,831 shares of the Company's Common Stock
to the institutional investor. In addition on March 4, 1998, the Company entered
into an agreement to sell 670,000 shares of Common Stock, par value $0.0001, to
the same institutional investor, Biotech Target S.A., for an aggregate purchase
price of $8,827,250, equal to a purchase price of $13.175 per share (the average
closing bid price of the Company's Common Stock for the five business days prior
to March 4, 1998). The financing will close upon the effectiveness of a resale
registration statement which was filed by the Company with the Securities and
Exchange Commission on March 10, 1998.
Page 9 of 15
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains forward looking statements which involve risks and
uncertainties. Such statements are subject to certain factors and uncertainties
which may cause the Company's plans to differ. Factors and uncertainties that
may cause such differences include, but are not limited to, the rate of
progress, if any, of the Company's research and development programs, the
Company's ability to compete successfully, the Company's ability to attract and
retain qualified personnel, the Company's ability to successfully enter into
collaborations with third parties, the Company's ability to enter into and
progress in clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in obtaining and enforcing patents and any
necessary licenses, the ability of the Company to establish development and
commercialization relationships and strategic alliances with third parties, the
cost of manufacturing, the Company's ability to obtain additional funds, and
those other risks discussed in the Company's Annual Report or Form 10-K for the
fiscal year ended July 31, 1997.
OVERVIEW
Since its inception in January 1992, Alexion has devoted substantially all of
its resources to its drug discovery, research and product development programs.
To date, the Company has not received any revenues from the sale of products.
The Company has been unprofitable since inception, and expects to incur
substantial and increasing operating losses for the next several years due to
expenses associated with product research and development, preclinical and
clinical testing, regulatory activities and manufacturing development and
scale-up. For the period from inception to January 31, 1998, the Company
incurred a cumulative net loss of approximately $33.0 million.
The Company's plan is to develop and commercialize on its own those product
candidates for which the clinical trial and marketing requirements can be funded
by the Company. For certain of the Company's C5 Inhibitor and Apogen products
for which greater resources will be required, Alexion's strategy is to form
corporate partnerships with major pharmaceutical companies for product
development and commercialization. Alexion has entered into a strategic
alliance with US Surgical with respect to the Company's Unigraft program,
GTI/Novartis with respect to the Company's gene therapy products, and intends to
seek additional strategic alliances with other major pharmaceuticals companies.
The Company recognizes research and development revenues when the development
expenses are incurred and the related work is performed under the terms of the
contracts. Any revenue contingent upon future funding by the Company is deferred
and recognized as the future funding is expended. Any revenues resulting from
the achievement of milestones would be recognized when the milestone is
achieved. License fee revenues represent non-refundable payments received in
accordance to contractual agreements for various access and rights to the
Company's technologies, research, potential products and markets.
Page 10 of 15
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
RESULTS OF OPERATIONS
Three Months Ended January 31, 1998
Compared with Three Months Ended January 31, 1997
The Company's contract research and license revenues decreased to $321,000 for
the three months ended January 31, 1998 from $1,438,000 for the same period
ended January 31, 1997. The decrease was due primarily to the receipt of an
upfront payment from GTI/Novartis in the amount of $850,000 received in December
1996. Contract research revenues represent principally revenues from the
Company's collaborative research and development agreement with GTI/Novartis,
pursuant to which the Company recognized revenue of $100,000 during the three
months ended January 31, 1998, and funding received from the Commerce
Department's National Institute of Standards and Technology ("NIST"), pursuant
to which the Company recognized revenue of approximately $221,000 during the
three months ended January 31, 1998.
Research and development expenses increased to $2,918,000 for the three months
ended January 31, 1998 from $1,921,000 for the three months ended January 31,
1997. The increase resulted principally from expanded process development and
manufacturing costs associated with the Company's recombinant product
candidates.
General and administrative related expenses decreased to $689,000 for the three
months ended January 31, 1998 from $758,000 for the same period ended January
31, 1997. This decrease in general administrative expenses resulted principally
from lower outside professional services.
The Company earned other income, net, of $527,000 for the three months ended
January 31, 1998 as compared to other income, net, of $205,000 for the three
months ended January 31, 1997. This other income, net, resulted principally from
greater interest income from higher cash balances available for investment and
decreased interest expense associated with maturing notes payable and maturing
capital equipment leases used to finance the purchase of certain equipment.
As a result of the above factors, the Company incurred a net loss of $2,758,000
for the three months ended January 31, 1998 as compared to a net loss of
$1,036,000 for the same three month period in 1997.
Six Months Ended January 31, 1998
Compared with Six Months Ended January 31, 1997
The Company's contract research and license revenues increased to $4,447,000 for
the six months ended January 31, 1998 from $2,249,000 for the six months ended
January 31, 1997. This increase was due primarily to a one-time license fee of
$3.5 million the Company received from US Surgical in connection with the
September 1997 modification of the companies' collaborative research and
development agreement.
During the six months ended January 31, 1998 and 1997, the Company expended
$5,278,000 and $3,895,000, respectively, on research and development activities.
This increase of $1,383,000 resulted principally from costs incurred related to
the clinical trials of the Company's lead C5
Page 11 of 15
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
Inhibitor, 5G1.1-SC, expanded preclinical development, process development, and
manufacturing costs for the Company's recombinant product candidates.
General and administrative related expenses decreased to $1,276,000 for the six
months ended January 31, 1998 from $1,407,000 for the same period ended January
31, 1997. This decrease was due principally to lower external professional fees.
Other income, net was $972,000 for the six months ended January 31, 1998 as
compared to other income, net of $440,000 for same period a year ago. This
increase in other income, net, resulted principally from greater interest income
from higher cash balances available for investment and decreased interest
expense associated with maturing notes payable, and maturing capital equipment
leases used to finance the purchase of certain equipment.
As a result of the above factors, the Company's net loss decreased to $1,136,000
from $2,614,000 for the six months ended January 31, 1998 and 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and capital
expenditures primarily through private placements and its initial public
offering of equity securities resulting in aggregate net proceeds of
approximately $68.8 million. The Company has financed the purchase of certain
equipment through $1.2 million of secured notes payable to a financing
institution, $378,000 of capital lease obligations, and recently, $200,000 from
a term loan from a commercial bank. Through January 1998, the Company has
received an aggregate of approximately $8.8 million in license fees and research
and development support under its collaborations with US Surgical and
GTI/Novartis and has received $1.1 million from its SBIR grants from the NIH and
$1.1 million under the ATP/NIST grant.
The proceeds of the Company's initial public offering, private placements, notes
payable and capital leases, and the cash generated from the corporate
collaborations and SBIR and ATP grants have been used to fund operating
activities of approximately $28.7 million and investments of approximately $3.3
million in equipment and approximately $975,000 in licensed technology rights
and patents through January 31, 1998. During the six months ended January 31,
1998 and January 31, 1997, the Company's capital expenditures totaled $331,000
and $434,000, respectively, primarily for the acquisition of laboratory and
manufacturing scale-up equipment. As of January 31, 1998, the Company had cash,
cash equivalents and marketable securities of approximately $36.7 million.
The Company leases its administrative and research and development facilities
under three principal operating leases expiring in December 1997, June 1998, and
March 1999, respectively, each with an option for up to an additional three
years. The Company has not exercised its option to extend the lease that expired
in December 1997 and is currently leasing that facility on a month to month
basis. The Company does expect to extend the lease.
The Company anticipates that its existing available capital resources and
interest earned on available cash and marketable securities should be sufficient
to fund its operating expenses and capital
Page 12 of 15
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
requirements as currently planned for at least the next eighteen months. In
November 1997, the Company completed a term loan facility for up to $1.2 million
with a financial institution for the financing of capital expenditures
principally related to facilities manufacturing scale-up equipment. As of
January 31, 1998 the Company has drawn down $200,000 of the available $1.2
million term loan. The Company's future capital requirements will depend on many
factors, the progress of the Company's research and development programs,
progress in clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in obtaining and enforcing patents and any
necessary licenses, the ability of the Company to establish development and
commercialization relationships, and the costs of manufacturing scale-up.
In connection with its private placements in fiscal 1993 and 1994, the Company
had issued warrants to purchase common stock. These warrants were exercisable at
any time prior to the close of business on December 4, 1997. During the quarter
ended Janaury 31, 1998, warrants were exercised for the purchase of 389,340
shares of common stock aggregating approximately $2,920,000 of proceeds to the
Company. Since inception through January 31, 1998 warrants were exercised for
the purchase of 551,719 shares of common stock aggregating approximately
$4,144,000 of proceeds to the Company.
On March 4, 1998, the Company's Series B Convertible Preferred Stock was
automatically converted into 935,782 shares of the Company's Common Stock, par
value $0.0001. The Company satisfied its dividend payment obligation,
aggregating $900,000, by delivery of 70,831 shares of the Company's Common Stock
to an institutional investor. In addition on March 4, 1998, the Company entered
into an agreement to sell 670,000 of Common Stock, par value $0.0001, to the
same institutional investor, Biotech Target S.A., for an aggregate purchase
price of $8,827,250, equal to a purchase price of $13.175 per share (the average
closing bid price of the Company's Common Stock for the five business days prior
to March 4, 1998). The financing will close upon the effectiveness of a resale
registration statement which was filed by the Company with the Securities and
Exchange Commission on March 10, 1998.
The Company expects to incur substantial additional costs, including costs
associated with research, preclinical and clinical testing, manufacturing
process development, contract manufacturing, and additional capital expenditures
associated with facility expansion and manufacturing requirements in order to
commercialize its products currently under development. The Company will need to
raise substantial additional funds through additional financings including
public or private equity offerings and collaborative research and development
arrangements with corporate partners. There can be no assurance that funds will
be available on terms acceptable to the Company, if at all, or that discussions
with potential collaborative partners will result in any agreements. The
unavailability of additional financing could require the Company to delay, scale
back or eliminate certain of its research and product development programs or to
license third parties to commercialize products or technologies that the Company
would otherwise undertake itself, any of which could have a material adverse
effect on the Company.
Page 13 of 15
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On March 4, 1998, the Company entered into an agreement to sell 670,000 shares
of Common Stock to an institutional investor, Biotech Target S.A. The financing
will close upon the effectiveness of a resale registration statement which was
filed by the Company with the Securities and Exchange Commission on March 10,
1998. The aggregate offering price for the Common Stock was $8,827,250,
representing a purchase price of $13.175 per share. The Company relied on the
exemption afforded by Section 4(2) of, and Regulation D promulgated under the
Securities Act of 1933.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on December 11, 1997, the
stockholders voted to nominate and elect the following directors by the votes
indicated:
John H. Fried, Ph.D.: 5,330,360 For, 4,800 Against or Withheld, 0 Abstaining
Leonard Bell, M.D.: 5,330,360 For, 4,800 Against or Withheld, 0 Abstaining
Timothy F. Howe: 5,330,360 For, 4,800 Against or Withheld, 0 Abstaining
Max Link, Ph.D.: 5,330,360 For, 4,800 Against or Withheld, 0 Abstaining
Joseph A. Madri, Ph.D.,M.D.: 5,330,360 For, 4,800 Against or Withheld, 0 Abstaining
Leonard Marks, Jr.: 5,330,360 For, 4,800 Against or Withheld, 0 Abstaining
Eileen M. More: 5,330,360 For, 4,800 Against or Withheld, 0 Abstaining
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 - Stock Purchase Agreement dated March 4, 1998, by and between
the Company and Biotech Target S.A. Incorporated by reference
from the Company's Registration Statement on Form S-3 (Reg No.
333-47645)
27 - Financial Data Schedule
(b) Reports on Form 8-K
Current report on Form 8-K dated March 6, 1998, relating to the
Company's agreement to sell Common Stock to Biotech Target S.A.
Page 14 of 15
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.
ALEXION PHARMACEUTICALS, INC.
Date: March 12, 1998 By: /s/ Leonard Bell, M.D.
-----------------------------------
Leonard Bell, M.D.
President and Chief Executive
Officer, Secretary and Treasurer
(principal executive officer)
Date: March 12, 1998 By: /s/ David W. Keiser
-----------------------------------
David W. Keiser
Executive Vice President and Chief
Operating Officer (principal
financial officer)
Date: March 12, 1998 By: /s/ Barry P. Luke
-----------------------------------
Barry P. Luke
Senior Director of Finance and
Administration (principal
accounting officer)
Page 15 of 15
5
1,000
AUG-01-1997
6-MOS
JUL-31-1998
JAN-31-1998
27,924
8,750
0
0
0
37,128
3,253
(2,358)
17,103
2,079
0
0
0
1
36,389
38,469
0
4,447
0
6,554
0
0
(972)
(1,136)
0
(1,136)
0
0
0
(1,136)
(0.21)
(0.21)
