1
UNITED STATES
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: MARCH 31, 2001
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: 001-16033
ESPERION THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3419139
(State of incorporation) (IRS Employer Identification No.)
3621 S. STATE STREET, 695 KMS PLACE
ANN ARBOR, MI 48108
(734) 332-0506
(Address of principal executive offices, including zip
code, and 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.
[X] Yes [ ] No
The number of outstanding shares of the Registrant's common stock, as of
May 1, 2001, was 25,936,075.
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ESPERION THERAPEUTICS, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2001 and 3
December 31, 2000.................................................................
Condensed Consolidated Statements of Operations for the Three Months Ended March 31,
2001 and 2000, and the period from inception to March 31, 2001.................... 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
2001 and 2000, and the period from inception to March 31, 2001.................... 5
Notes to Condensed Consolidated 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............................... 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 13
Item 2. Changes in Securities and Use of Proceeds................................................ 13
Item 3. Defaults Upon Senior Securities.......................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders...................................... 13
Item 5. Other Information........................................................................ 13
Item 6. Exhibits and Reports on Form 8-K......................................................... 14
SIGNATURES.......................................................................................... 15
INDEX TO EXHIBITS................................................................................... 16
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
in thousands 2001 2000
================================================================================================================
ASSETS: (UNAUDITED)
Current assets:
Cash and cash equivalents $64,661 $70,228
Prepaid expenses and other 826 1,112
----------------------------------------------------------------------------------------------------------------
Total current assets 65,487 71,340
----------------------------------------------------------------------------------------------------------------
Furniture and equipment, net 2,620 2,503
Goodwill, net 3,737 3,500
Deposits and other assets 552 534
----------------------------------------------------------------------------------------------------------------
Total assets $72,396 $77,877
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $697 $697
Accounts payable 2,525 3,936
Accrued liabilities 3,443 2,526
----------------------------------------------------------------------------------------------------------------
Total current liabilities 6,665 7,159
----------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 3,307 3,027
Stockholders' equity:
Common stock 26 26
Additional paid-in capital 111,164 110,650
Notes receivable (46) (67)
Accumulated deficit during the development stage (46,370) (40,389)
Deferred stock compensation (2,520) (2,774)
Accumulated other comprehensive income 170 245
----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 62,424 67,691
----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $72,396 $77,877
================================================================================================================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, INCEPTION TO
--------------------------------- MARCH 31,
in thousands except share and per share data 2001 2000 2001
=====================================================================================================================
Operating expenses:
Research and development $5,604 $3,856 $37,800
General and administrative 1,100 951 6,752
Deferred stock amortization 254 262 1,547
Goodwill amortization 210 0 460
Purchased in-process research and development 0 0 4,000
---------------------------------------------------------------------------------------------------------------------
Total operating expenses 7,168 5,069 50,559
---------------------------------------------------------------------------------------------------------------------
Operating loss (7,168) (5,069) (50,559)
---------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 962 351 4,265
Interest expense (123) (129) (623)
Other, net 348 154 547
---------------------------------------------------------------------------------------------------------------------
Total other income 1,187 376 4,189
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Loss before income taxes (5,981) (4,693) (46,370)
Provision for income taxes 0 0 0
---------------------------------------------------------------------------------------------------------------------
Net loss (5,981) (4,693) (46,370)
Beneficial conversion feature on preferred stock 0 (22,870) (22,870)
---------------------------------------------------------------------------------------------------------------------
Net loss attributable to common stockholders ($5,981) ($27,563) ($69,240)
=====================================================================================================================
Basic and diluted net loss per common share ($0.23) ($13.91)
=================================
Weighted average common shares 25,898,639 1,980,933
=================================
Pro forma basic and diluted net loss per share ($1.64)
===================
Pro forma weighted average common shares 16,836,802
===================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, INCEPTION TO
----------------------------------- MARCH 31,
in thousands 2001 2000 2001
==================================================================================================================
Cash flows from operating activities:
Net loss ($5,981) ($4,693) ($46,370)
Adjustments to reconcile net loss to net cash
used in operating activities:
Purchased in-process research and development 0 0 4,000
Depreciation and amortization 715 405 3,516
Stock-based compensation expense 0 413 688
Decrease in notes receivable 21 8 80
Loss on sale of furniture and equipment 24 0 24
Non-cash interest included in long-term debt 40 36 200
Changes in assets and liabilities:
Prepaid expenses and other (179) (276) (1,573)
Other assets (20) 0 (105)
Accounts payable (1,268) (387) 2,746
Accrued liabilities 1,008 142 3,423
------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (5,640) (4,352) (33,371)
------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of furniture and equipment (405) (124) (4,173)
Deposit on furniture and equipment 0 (450) (450)
Acquisition of Talaria Therapeutics, Inc. 0 0 (233)
------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (405) (574) (4,856)
------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of convertible preferred stock 0 26,871 42,200
Net proceeds from initial public offering 0 0 56,153
Proceeds from the issuance of common stock 67 48 192
Proceeds from long-term debt 625 0 5,141
Repayments of long-term debt (170) (196) (936)
------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 522 26,723 102,750
------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (44) (3) 138
------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (5,567) 21,794 64,661
Cash and cash equivalents at beginning of period 70,228 5,904 0
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $64,661 $27,698 $64,661
==================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $84 $66
Income taxes $0 $0
=================================================================================================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(1) - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Esperion Therapeutics, Inc. ("Esperion" or the
"Company") and its subsidiaries, and have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. The Company believes that all adjustments, consisting of normal
recurring adjustments considered necessary for a fair presentation, have been
included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10-K for the
year ended December 31, 2000.
Operating results for the three-month periods ended March 31, 2001 and 2000
are not necessarily indicative of the results that may be expected for the full
year.
(2) - MILESTONE PAYMENTS
During the three months ended March 31, 2001, the Company achieved the first
of four development milestones under a merger agreement with Talaria
Therapeutics, Inc. ("Talaria") related to the Company's development of large
unilamellar vesicles, or LUV. This milestone payment was settled through the
issuance of approximately 58,600 shares of restricted common stock with an
aggregate value of $447,000. This milestone payment was accounted for as an
increase in the purchase price of Talaria and added to goodwill in the three
months ended March 31, 2001. The goodwill is being amortized on a straight-line
basis over a period of five years.
During the three months ended March 31, 2001, the Company achieved the first
milestone under a sub-license agreement with Inex Pharmaceuticals Corp., or
Inex, related to the Company's development of LUV. The milestone payment of
$100,000 was made during the quarter ended March 31, 2001.
(3) - COMPREHENSIVE LOSS
Comprehensive loss is the total of net loss and all other non-owner changes
in equity. Total comprehensive loss was $6,056,000 and $30,391,000 for the three
month periods ended March 31, 2001 and 2000, respectively. The difference
between net loss, as reported in the accompanying condensed consolidated
statements of operations, and comprehensive loss is the foreign currency
translation adjustment for the respective periods.
(4) - BASIC, DILUTED AND PRO FORMA LOSS PER SHARE
Basic and diluted net loss per share amounts have been calculated using the
weighted average number of shares of common stock outstanding during the
respective periods. For the three months ended March 31, 2001 and 2000, options
for the purchase of 638,519 and 730,285 shares of common stock, respectively,
were not included in the calculation of diluted loss per share as doing so would
have been anti-dilutive.
Pro forma basic and diluted net loss per share includes the shares used in
computing basic and diluted net loss per share and the assumed conversion of all
outstanding shares of preferred stock from the original date of issuance.
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ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the calculation of pro forma basic and diluted
net loss per share:
THREE MONTHS
ENDED
MARCH 31, 2000
=========================================================================
Net loss attributable to common stockholders........... $ (27,563,000)
==================
Shares used in computing basic and diluted net loss
per share......................................... 1,980,933
Pro forma adjustment to reflect assumed conversion of
Series A and Series B preferred stock from the
date of issuance.................................. 7,586,244
Pro forma adjustment to reflect assumed conversion of
Series C and Series D preferred stock from the
date of issuance.................................. 7,269,625
------------------
Shares used in computing pro forma basic and diluted
net loss per share................................ 16,836,802
==================
Pro forma basic and diluted net loss per share ........ $ (1.64)
==================
Series C and Series D Preferred Stock
In accordance with EITF 98-5, the Company recorded approximately $22.9
million relating to the beneficial conversion feature of the Series C preferred
stock and Series D preferred stock in the first quarter of 2000 through equal
and offsetting adjustments to additional paid-in capital with no net impact on
stockholders' equity, as the preferred stock was convertible immediately on the
date of issuance. The beneficial conversion feature was considered in the
determination of the Company's loss per common share amounts in the applicable
periods.
(5) - COMMITMENTS AND CONTINGENCIES
Contingent repurchase of stock
The Company may be required to repurchase approximately 47,000 shares of
common stock that were sold to certain employees and others under the Company's
directed share program as part of the initial public offering. The Company
believes that the maximum liability arising from this repurchase would be
approximately $423,000 plus interest. A liability has not been recorded in the
financial statements, as management believes that the potential repurchase of
these shares is not likely.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides an analysis of the Company's condensed
financial condition and results of operations, and should be read in conjunction
with the Company's consolidated financial statements and the notes included in
Item 1 of this Form 10-Q.
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations as well as information contained elsewhere in this
report contains "forward-looking statements" within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are often identified by words such as "may," "believe," "anticipate,"
"planned," "expect," "require," "intend," "assume," and similar expressions. Our
forward-looking statements involve uncertainties and other factors that may
cause our actual results, performance or achievements to be far different from
those suggested by our forward-looking statements. These factors include, but
are not limited to, risks associated with the development of our product
candidates, including regulatory approval; dependence on clinical research
organizations, license arrangements and other strategic relationships with third
parties for the research, development, manufacturing and commercialization of
our products; dependence on patents and proprietary rights; procurement,
maintenance, enforcement and defense of the Company's patents and proprietary
rights; risks related to manufacturing; risks associated with the timing and
acceptance of new products by the Company or its competitors; competitive
conditions in the industry; business cycles affecting the markets in which the
Company's products are sold; extraordinary events, such as litigation; risks
inherent in seeking and consummating acquisitions, including the diversion of
management attention to the assimilation of the operations and personnel of the
acquired business; risks relating to the timing of the Company's financing
needs; fluctuations in foreign exchange rates; and economic conditions generally
or in various geographic areas. All of the foregoing factors are difficult to
forecast. More detailed information about these and other factors is set forth
in our other filings with the Securities and Exchange Commission. We do not
intend to publicly update or revise any forward-looking statements to reflect
new information or future events or circumstances.
OVERVIEW
Background
We have devoted substantially all of our resources since we began our
operations in May 1998 to the research and development of pharmaceutical product
candidates for cardiovascular and metabolic diseases. We are a development stage
pharmaceutical company and have not generated any revenues from product sales.
We have not been profitable and have incurred a cumulative net loss of
approximately $46.4 million from inception through March 31, 2001. These losses
have resulted principally from costs incurred in research and development
activities, and general and administrative expenses. We expect to incur
significant additional operating losses for at least the next several years and
until such time as we generate sufficient revenue to offset expenses. Research
and development costs relating to product candidates will continue to increase.
We expect to have increasing manufacturing, sales and marketing costs as we
prepare for the commercialization of our products.
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RESULTS OF OPERATIONS
OPERATING EXPENSES
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
dollars in thousands 2001 2000 % CHANGE
================================================================================
Research and development $5,604 $3,856 45.3%
% of total 78.2% 76.0%
General and administrative $1,100 $951 15.7%
% of total 15.3% 18.8%
Deferred stock amortization $254 $262 -3.1%
% of total 3.6% 5.2%
Goodwill amortization $210 $0 ***
% of total 2.9% 0.0%
Three Months Ended March 31, 2001 and 2000
Research and Development Expenses. Research and development expenses include
all payroll costs and payments to third parties attributable to research and
development activities, milestone payments under certain license agreements, and
an allocation of overhead expenses incurred by the Company. Research and
development expenses increased to approximately $5.6 million for the three
months ended March 31, 2001 compared to approximately $3.9 million for the three
months ended March 31, 2000. This 45.3% increase is primarily due to the costs
associated with developing our product candidates, including the costs of
running our current AIM and LUV clinical trials as well as manufacturing costs
in preparation for upcoming additional clinical trials.
General and Administrative Expenses. General and administrative expenses
included the cost of salaries, employee benefits, and other payroll costs
associated with the Company's finance, accounting, human resources, legal,
administrative and executive management functions. General and administrative
expenses also included an allocation of overhead expenses incurred by the
Company. General and administrative expenses increased to approximately $1.1
million for the three months ended March 31, 2001 compared to approximately
$951,000 for the three months ended March 31, 2000. This 15.7% increase resulted
from certain expenses related to the Company's first annual reporting cycle as a
public company.
Deferred Stock Amortization. Deferred stock amortization relates to the
amortization of deferred costs for stock options granted prior to the Company's
initial public offering. These costs are being amortized over the vesting period
of the underlying options, generally four years. Deferred stock amortization was
approximately $254,000 for the three months ended March 31, 2001 compared to
approximately $262,000 for the three months ended March 31, 2000. We expect this
amortization expense to begin to decline in 2003 and end in 2004.
Goodwill Amortization. Goodwill amortization includes the amortization of
purchase price in excess of net assets on the Company's acquisition of Talaria
and the milestone payments made to date. The Company is amortizing this goodwill
over five years, which represents the period estimated to be benefited from the
acquisition, after considering such factors as product development timelines,
revenue potential, competition and patent life.
Other Income, Net. Other income, net consists of interest income (expense),
foreign currency transaction gain (loss) and loss on the disposal of property
and equipment. Interest income increased to approximately $962,000 for the three
months ended March 31, 2001 compared to approximately $351,000 for the three
months ended March 31, 2000. The increase is attributable to higher levels of
cash and cash equivalents available for investment in 2001 as a
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result of the Company's initial public offering. Interest expense for the three
months ended March 31, 2001 and 2000 was approximately $123,000 and $129,000,
respectively, and represents interest incurred on equipment financing facilities
and a special project loan. During the three months ended March 31, 2001 and
2000, we recorded approximately $373,000 and $154,000, respectively, of foreign
currency transaction gains on transactions denominated in various currencies of
European countries.
Net Loss. The net loss was approximately $6.0 million for the three months
ended March 31, 2001 compared to approximately $4.7 million for the three months
ended March 31, 2000. The increase reflects increases in research and
development expenses as well as increases in general and administrative
expenses, offset in part by the increase in interest income.
Net Loss Attributable to Common Stockholders. The net loss attributable to
common stockholders for the three months ended March 31, 2000 includes a one
time $22.9 million charge related to the beneficial conversion feature on the
Series C and D Convertible Preferred Stock. The total of the non-cash beneficial
conversion feature was reflected through equal and offsetting adjustments to
additional paid-in-capital with no net impact on stockholders' equity. The
beneficial conversion feature was considered in the determination of the
Company's loss per common share amounts.
Acquisition
On September 21, 2000, the Company acquired all of the outstanding shares of
stock of Talaria Therapeutics, Inc. ("Talaria") in exchange for the issuance of
813,008 shares of restricted Esperion common stock to Talaria stockholders,
valued at $9 per share, pursuant to a merger agreement with Talaria.
Additionally, the merger agreement with Talaria provides for the following
additional consideration to Talaria stockholders: (i) payment by the Company of
up to $6.25 million in cash and/or common stock based on the achievement of four
development milestones; and (ii) payment by the Company of royalties in cash
and/or common stock based on net annual sales of large unilamellar vesicles, or
LUV, in North America. The milestones are due upon the enrollment of the first
patient in certain future clinical trials and upon each of the filing and
approval of a new drug application in the United States. These milestone
payments increase the amount of the purchase price in the period when a
milestone is achieved, and the Company includes these additional amounts in
goodwill in such period. The first milestone was achieved in January 2001, upon
enrollment of the first patient in a Phase II clinical trial. This milestone
payment was settled through the issuance of approximately 58,600 shares of
restricted common stock with an aggregate value of $447,000. The royalty
payments will be included in cost of sales in the period when the respective
sales are recognized. The combined milestone payments and royalties are subject
to a maximum aggregate ceiling of $20.0 million.
The acquisition was accounted for under the purchase method of accounting.
The purchase price for amounts due at closing was allocated to both tangible and
intangible assets. In connection with this allocation, the Company recorded a
one-time charge to operations in the third quarter of 2000 of $4.0 million,
associated with the write-off of in-process research and development acquired in
the transaction that had not reached technological feasibility. The allocation
of the purchase price was based on an independent appraisal of the fair values
on the closing date using risk-adjusted cash flows related to the incomplete
research and development project. The Company recorded approximately $3.75
million as goodwill that represents the excess of the purchase price over the
fair value of net assets acquired. This amount included $265,000 of
acquisition-related costs. The goodwill is being amortized on a straight-line
basis over a period of five years.
The $4.0 million allocation to purchased in-process research and development
is based on the assumption that the development of LUV has not yet reached
technological feasibility, and that no alternative future uses have been
identified. At the acquisition date, the product candidate had exhibited
satisfactory safety and efficacy results in preliminary testing; however,
significant further investment is required to complete the development of the
acquired technology, including completion of clinical trials, manufacturing
scale-up and successful regulatory approvals. Costs associated with the
completion of the project have been and are expected to be consistent with the
assumptions used in the valuation.
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LIQUIDITY AND CAPITAL RESOURCES
In August 2000, the Company completed an initial public offering of its
stock, which resulted in the issuance of 6,000,000 shares of common stock at
$9.00 per share. In September 2000, an additional 900,000 shares were sold by
the Company at $9.00 per share to cover the underwriters' over-allotment. Total
proceeds to the Company from the offering were approximately $56.2 million,
after deducting the underwriting discount and offering expenses. As of March 31,
2001, the Company had cash and cash equivalents of approximately $64.7 million.
Our investment policy emphasizes liquidity and preservation of principal over
other portfolio considerations. We select investments that maximize interest
income to the extent possible by investing cash in short-term, investment-grade,
interest-bearing securities. We believe that our current cash position, along
with available borrowings under our credit facilities will be sufficient to fund
our operations and capital expenditures until at least the end of 2002.
During the three months ended March 31, 2001 and 2000, net cash used in
operating activities was approximately $5.6 million and $4.4 million,
respectively. This cash was used to fund our net losses for the periods,
adjusted for non-cash expenses and changes in operating assets and liabilities.
Net cash used in investing activities for the three months ended March 31,
2001 and 2000 was $405,000 and $574,000, respectively, primarily the result of
the acquisition of laboratory equipment, furniture and fixtures and office
equipment.
Net cash proceeds from financing activities were $522,000 and $26.7 million
for the three months ended March 31, 2001 and 2000, respectively. The net cash
proceeds from financing activities for the three months ended March 31, 2001
resulted primarily from $625,000 of additional borrowings on a special project
loan, and $67,000 raised from the issuance of common stock to employees as part
of the Company's equity compensation plans. The proceeds were partially offset
by $170,000 of cash used to repay borrowings under equipment loans. The net cash
proceeds from financing activities for the three months ended March 31, 2000
resulted primarily from the issuance of preferred stock of approximately $26.8
million, and approximately $48,000 raised from the issuance of common stock to
employees as part of the Company's equity compensation plans. The proceeds were
partially offset by approximately $196,000 of cash used to repay borrowings
under equipment loans. We anticipate that our capital expenditures for the next
twelve months will be approximately $2.5 million.
As of March 31, 2001, we had approximately $619,000 outstanding under a
credit facility with a U.S. bank. This credit facility was used to finance
purchases of equipment. Borrowings under the facility bear interest at the
bank's prime rate plus 1.0%. In addition, we have a loan facility with a U.S.
bank totaling $2.5 million, to finance additional equipment purchases.
Borrowings under this credit facility bear interest at approximately 12% and
amounted to approximately $729,000 as of March 31, 2001. We also have a credit
facility with a Swedish entity totaling 26 million Swedish kronor (approximately
$2.7 million of which was outstanding as of March 31, 2001) that may only be
used to finance the development of our AIM product candidate. If a related
product is not developed or does not succeed in the market, our obligation to
repay the loan may be forgiven. Borrowings under the loan facility bear interest
at 17.0% of which 9.5% is payable quarterly. The remaining 7.5% of interest
together with principal are payable in five equal annual installments starting
December 2004.
We lease our corporate and research and development facilities under
operating leases expiring at various times through December 2003. Minimum annual
payments under these leases are approximately $605,000 as of March 31, 2001.
We expect that our operating expenses and capital expenditures will increase
in future periods. We also intend to hire additional research and development,
clinical testing and administrative staff. Our capital expenditure requirements
will depend on numerous factors, including the progress of our research and
development programs, the time required to file and process regulatory approval
applications, the development of commercial manufacturing capability, the
ability to obtain additional licensing arrangements, and the demand for our
product candidates, if and when approved by the FDA or other regulatory
authorities.
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INCOME TAXES
As of March 31, 2001, we had operating loss carryforwards of approximately
$30.7 million. These net operating loss carryforwards begin to expire in 2018.
Additionally, utilization of net operating loss carryforwards may be limited
under Section 382 of the Internal Revenue Code. These and other deferred income
tax assets are fully reserved by a valuation allowance as management has
determined that it is more likely than not that the deferred tax assets will not
be realized.
EMPLOYEES
As of March 31, 2001, we had 67 full-time employees. Of these employees, 52
were engaged in research, preclinical and clinical development, regulatory
affairs, intellectual property activities, and/or manufacturing activities and
15 were engaged in finance and general administrative activities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio and on the increase or decrease in the amount of interest
expense we must pay with respect to our various outstanding debt instruments.
Under our current policies, we do not use interest rate derivative instruments
to manage our exposure to interest rate changes. We ensure the safety and
preservation of our invested principal funds by limiting default risks, market
risk and reinvestment risk. We mitigate default risk by investing in investment
grade securities. A hypothetical 100 basis point adverse move in interest rates
along the entire interest rate yield curve would not materially affect the fair
value of our interest sensitive financial instruments at March 31, 2001.
Declines in interest rates over time will, however, reduce our interest income
while increases in interest rates over time will increase our interest expense.
Although currency fluctuations are currently not a material risk to our
operating results, we have and will continue to monitor our exposure to currency
fluctuations and when appropriate, we may use financial hedging techniques to
minimize the effect of these fluctuations in the future. We cannot ensure that
exchange rate fluctuations will not harm our business in the future.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In September 2000, the Company entered into a merger agreement with Talaria
Therapeutics, Inc., or Talaria. Pursuant to the merger agreement, the Company
issued to Talaria's stockholders 813,008 shares of the Company's common stock
(the "Initial Shares") and agreed with Talaria that the Company would pay to
Talaria's stockholders: (i) cash and/or Company common stock upon the
achievement of four development milestones (the "Milestone Shares"); and (ii)
royalties in cash and/or Company common stock based on net annual sales of LUV
in North America. The first milestone was achieved in January 2001 and payment
for this milestone obligation was made through the issuance to Talaria
stockholders of a total of 58,626 shares of the Company's common stock. The
Company's sale of the Initial Shares and the Milestone Shares was not registered
under the Securities Act of 1933, as amended, in reliance upon the exemption
from registration contained in Section 4(2) of the Securities Act of 1933, as
amended. The merger transaction, and issuance of shares pursuant thereto, was in
settlement of certain claims against the Company and not for capital raising
purposes.
In August 2000, the Company completed an initial public offering of its
common stock, raising net proceeds of approximately $56.2 million. The Company
invested the net proceeds from the initial public offering in short-term,
investment-grade, interest-bearing securities. These proceeds, as well as
proceeds from earlier private placements, are being used to fund research and
development, payments under current licensing agreements, and for other working
capital and general corporate purposes, including employee compensation.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
13
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
NUMBER EXHIBIT
----------------------------------------------------------------------------
10.30 Fourth Amendment to Lease between Esperion Therapeutics, Inc. and
Kosmos Associates, LLC, successor to State 94 Limited
Partnership dated February 15, 2001
(b) REPORTS ON FORM 8-K
Not applicable.
14
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.
Dated: May 11, 2001 ESPERION THERAPEUTICS, INC.
(Registrant)
By: /s/ Roger S. Newton
-------------------------------------------
Roger S. Newton
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Timothy M. Mayleben
-------------------------------------------
Timothy M. Mayleben
Vice President and Chief Financial Officer
(Principal Financial Officer)
15
16
INDEX TO EXHIBITS
NUMBER EXHIBIT
----------------------------------------------------------------------------
10.30 Fourth Amendment to Lease between Esperion Therapeutics, Inc. and
Kosmos Associates, LLC, successor to State 94 Limited
Partnership dated February 15, 2001
16