Item 2. Properties - -------------------
The Company leases space in all of one and a portion of two other facilities in Princeton, New Jersey and owns a manufacturing facility in Indiana.
The Company currently leases a building of approximately 50,000 square feet that houses its scientific laboratories, manufacturing facilities and certain offices in the Princeton Forrestal Center located near Princeton, New Jersey. During 1994, the Company renegotiated the lease to provide for a longer initial term, together with certain renewal options, a reduced initial lease rate, and a change in structure to a triple net lease in exchange for the Company granting to the lessor a Letter of Credit for $1,000,000. The new lease, with an initial term of twelve years, commenced January 1, 1995, and the Company has options to renew for up to an additional ten years. Lease payments for the year ended December 31, 1994 totaled approximately $828,000. Future lease payments are subject to certain contractual escalations. The Company also leases approximately 23,500 square feet of office space also located in the Princeton Forrestal Center. This lease commenced March 1, 1993, with an initial lease term of ten years. The Company may terminate this lease at the end of the fifth year. Lease payments for this lease for the year ended December 31, 1994 totaled approximately $486,000. In January, 1995, the Company entered into a three year lease for approximately 13,200 square feet of office/warehouse space near its corporate offices. The Company also rents office space in London, England.
In July, 1992, the Company purchased a pharmaceutical manufacturing facility of approximately 55,000 square feet located on 26 acres of land located in Indianapolis, Indiana. The Company has begun to refurbish and equip certain portions of the facility. See "Manufacturing" and "Management's Discussion and Analysis of Financial Conditions and Results of Operations--Liquidity and Capital Resources."
Item 3.
Item 3. Legal Proceedings - --------------------------
The Company is engaged in various litigation proceedings none of which is believed to be material. Recent intellectual property litigation is described under "Business-Patents and Proprietary Technology".
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------
Not applicable.
PART II -------
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder - ------- ------------------------------------------------------------- Matters - -------
(a) Market Information
The Company's Common Stock is traded on the Nasdaq National Market System under the symbol LIPO. The following table sets forth for the periods indicated the high and low sale price for the Common Stock:
At January 31, 1995, there were approximately 1,480 stockholders of record of the Company's Common Stock.
(c) Dividends
The Company has not paid any cash dividends on its Common Stock since its inception and does not anticipate paying any cash dividends on the Company's Common Stock in the foreseeable future. The declaration and payment of Common Stock dividends, if any, is within the discretion of the Board of Directors and will depend, among other things, upon future earnings, the operating and financial condition of the Company, its capital requirements, and general business conditions.
Item 6.
Item 6. Selected Financial Data - --------------------------------
The following table sets forth consolidated financial data with respect to the Company for each of the five years in the period ending December 31, 1994. The information set forth below should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes included elsewhere herein.
___________ (1) Includes restricted cash of $4,880 and $4,748 in 1994 and 1993, respectively. See Note 1 of Notes to Consolidated Financial Statements. (2) In 1993, the Company adopted the provisions of Financial Accounting Standard 115 "Accounting for Certain Investments in Debt and Equity Securities." The effect of this adoption was to increase Total stockholders' equity by $650 in 1993 and reduce Total stockholders' equity by $5,033 in 1994.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - -------------
OVERVIEW
The Company is a leading biotechnology company engaged in the discovery, development and, recently, the commercialization of proprietary lipid and liposome-based pharmaceuticals for the treatment, prevention and diagnosis of inadequately treated, life-threatening illnesses. The Company is currently launching its first product, amphotericin B lipid complex (ABLC(R) or, in Europe, AbelcetTM), which has been approved for marketing for certain indications in the United Kingdom and is the subject of marketing application filings in eighteen other countries. The Company expects to file an NDA for ABLC(R) in the United States during 1995. In addition to ABLC(R)/AbelcetTM, the Company's other lead products are TLC D-99 and TLC C-53. TLC D-99, liposomal doxorubicin, is being developed in conjunction with Pfizer primarily as a first line treatment of metastatic breast cancer, and is undergoing Phase III clinical testing in the United States. The Company has completed a Phase II clinical trial for TLC C-53 for the treatment of ARDS and is preparing a protocol for a pivotal clinical trial of TLC C-53, liposomal prostaglandin E1, for ARDS. In January, 1995, the Company commenced a Phase II clinical trial of TLC C-53 for the treatment of AMI, or heart attack. The Company and Schering AG entered into a collaborative research and development agreement with respect to TLC I-16, a non-ionic contrast agent for use in connection with CT scanning of the liver. TLC I-16 is currently in preclinical development. The Company also has a continuing discovery research program which concentrates primarily on the treatment of cancer and inflammatory conditions.
RESULTS OF OPERATIONS
Revenues
Total revenues for the year ended December 31, 1994 were $10,440,000, a decrease of $2,602,000 or 20.0% as compared to the year ended December 31, 1993. Revenues in 1993 were $13,042,000, an increase of $2,153,000 or 19.8% compared to the 1992 level. The primary components of revenues for the Company are collaborative research and development activities, interest and investment income, and licensing and other fees. These components can increase or decrease significantly based on the number and amount of research collaborations, including the achievement of developmental milestones, the initiation of new licensing agreements and, in the case of interest and investment income, the level of cash balances available for investment and the rate of interest earned on such investments.
Collaborative research and development revenues were $5,831,000 for 1994, which was $954,000 or 19.6% higher than 1993 revenues. Collaborative research and development revenues were $4,877,000 for 1993, which was $890,000 or 15.4% lower than 1992. The Company earned substantially all of its collaborative research and development revenues from two corporate sponsors in 1994 and 1993 and three sponsors in 1992. In January, 1993, the Company reacquired the worldwide rights to ABLC(R) from Bristol-Myers Squibb ("BMS"), a former corporate sponsor. The Company assumed the responsibilities and funding for clinical development, manufacturing and marketing of ABLC(R). The financial impact of the reacquisition was the absence of research and development reimbursements from BMS in 1993 and 1994. Through January, 1995, the Company filed marketing applications for ABLC(R)/AbelcetTM in eighteen countries and in June, 1994, began Phase III clinical trials in the United States for the drug. During February, 1995, the Company received approval to market AbelcetTM in the United Kingdom for certain indications. During 1992, the Company completed work under a research agreement related to a certain diagnostic product with Schering AG; additional work under an amended research agreement with Schering AG began in the third quarter of 1993 and continued through 1994.
Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - -------------
Licensing and other fees were $50,000, $541,000 and $312,000 for 1994, 1993 and 1992, respectively. The change in this category from 1992 to 1994 was directly related to an agreement with Wyeth-Ayerst for TLC A-60, a liposomal vaccine adjuvant which required payments as follows: $250,000 in 1992, $500,000 in 1993 with no payment being scheduled in 1994. Wyeth-Ayerst recently advised the Company that it is no longer pursuing development of TLC A-60 and that it intends to return all rights to the Company.
Interest and investment income for the years ended December 31, 1994, 1993, and 1992 was $4,559,000, $7,624,000, and $4,810,000, respectively. Interest and investment income in 1994 decreased by $3,065,000 or 40.2% from 1993. Interest and investment income in 1993 was $2,814,000 or 58.5% greater than that in 1992. During the first quarter of each of 1993 and 1992 the Company raised capital through the sale of equity securities. Net proceeds to the Company from these sales were $65,735,000 and $44,603,000, respectively. No significant amounts of capital were raised during 1994. Fluctuations in interest and investment income are primarily due to the significant changes in the level of cash balances the Company has available for investment as a result of these financings. The Company expects that interest and investment income in 1995 will be substantially less than that reported in 1994 due to the anticipated lower level of cash and securities in its portfolio.
Expenses
Total expenses for 1994 of $44,093,000 increased $8,574,000 or 24.1% compared to 1993. Total expenses of $35,519,000 for 1993 increased $14,955,000 or 72.7% compared to 1992. The increase in expenses for each year reflects the greater funding required to support the clinical study programs of its lead proprietary products as these products progress through late-stage trials, and the expansion of the Company's research and development efforts.
Research and development expenses accounted for 71.0% of the expense increase from 1992 to 1994, while general and administrative and interest expenses accounted for the remainder. At year-end 1992, the Company's efforts were focused on research and pharmaceutical development using a small organization to support early stage clinical trial activities. During 1993, the Company significantly expanded its capability to design and monitor clinical trials, both in the U.S. and internationally and also added internal capabilities in biostatistics and regulatory affairs. During 1994, the Company continued to strengthen these activities and developed an internal manufacturing organization capable of producing clinical and commercial material and began to establish an international sales and marketing organization.
Research and development expenses of $31,713,000 for 1994 increased $6,641,000 or 26.5% over 1993. The primary components of this increase were the costs related to ABLC(R)/AbelcetTM, TLC C-53 and TLC D-99, reflecting higher expenditures associated with the Company's products progressing to late stages of development; increased staffing levels to support the new manufacturing facility located in Princeton, which began operations in early 1994; and the expansion of the Company's medical, regulatory, and biostatistical departments to develop and conduct increased clinical trial activity. As in prior years, costs associated with the development of TLC D-99 were reimbursed by Pfizer under the terms of a licensing agreement, signed in 1990. In February, 1994, the Company announced that it had suspended further development of Maitec(R), its liposomal gentamicin product, in order to focus its resources on its other products.
Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - -------------
Research and development expenses of $25,072,000 for 1993 increased $10,072,000 or 67.1% over 1992. The significant part of the increase was related to assuming the on-going development costs of ABLC(R) that were previously incurred by BMS. All rights to ABLC(R) were reacquired from BMS in January 1993. The 1993 increase also included the expansion of preclinical studies for TLC C- 53 and clinical study programs of Maitec(R), TLC C-53, and TLC D-99. The Company also increased research and development staff including medical, regulatory, biostatistical, manufacturing and scientific personnel to support the preclinical and clinical study programs.
General and administrative expenses in 1994 were $12,072,000, an increase of $1,879,000 or 18.4% over 1993. The primary component of the increase was costs associated with the start up of the international sales and marketing operations in anticipation of launching the Company's first product, amphotericin B lipid complex, using the trademark AbelcetTM. By year-end 1994, the Company had filed applications to market AbelcetTM in seventeen countries, and approval to market in the United Kingdom was received in February, 1995.
General and administrative expenses in 1993 were $10,193,000, an increase of $4,705,000 or 85.7% over 1992. The main reason for the increase was the cost associated with litigation brought by the Company for patent infringement. The court found in favor of the defendant, and the Company has decided not to appeal. The balance of the increase was due to the expansion of various administrative functions consistent with the growth of the Company.
The Company expects both its research and development expenses and its general and administrative expenses to continue to increase as it pursues the clinical development of its products, launches AbelcetTM in the United Kingdom and prepares for future potential marketing approvals in other European countries.
Interest expense for 1994 was $308,000 compared to $254,000 for 1993. The increase of $54,000 in interest expense was primarily due to a sale-leaseback agreement that funded machinery and construction costs within the Princeton manufacturing facility. This capital lease arrangement was initiated in 1993 and completed in early 1994. The increase in 1993 versus 1992 of $178,000 was due to the 1992 acquisition of a 55,000 square foot manufacturing facility in Indianapolis, Indiana, which was partially funded by a mortgage-backed note payable.
Preferred Stock Dividends
In January 1993, the Company completed the issuance of 2,760,000 Depositary Shares representing 276,000 shares of Series A Cumulative Convertible Exchangeable Preferred Stock with a cumulative dividend of 7.75%. The Company has declared and paid dividends of $5,348,000 on such Preferred Stock annually during 1993 and 1994. These dividends are included as part of the Company's net loss applicable to Common Stock and net loss per share of Common Stock.
Net Loss, Net Loss Applicable to Common Stock and Net Loss Per Share of Common Stock
The net loss of $33,653,000 for 1994 increased by $11,176,000 or 49.7% compared to 1993. This increase in net loss was due to the increase in total expenses of $8,574,000, in conjunction with a decrease in total revenues of $2,602,000. The net loss applicable to Common Stock was $39,001,000 in 1994 and $27,825,000 in 1993 as a result of the operational factors discussed above and the declaration of $5,348,000 of Preferred Stock dividends in each year. The net loss per common share increased by $.46 per share to $1.64 per share
for 1994. The total loss per share of $1.64 comprises $.23 for Preferred Stock dividends and the remainder, $1.41, for the current year net loss.
The net loss of $22,477,000 for 1993 increased by $12,802,000 or 132% compared to 1992. This increase in net loss was due to the increase in total expenses of $14,955,000, partially offset by an increase in total revenues of $2,153,000. The net loss applicable to Common Stock was $27,825,000 in 1993 compared to $9,675,000 in 1992. The increase was due to the operational factors discussed above and inclusion in 1993 of $5,348,000 in Preferred Stock dividends. The 1993 net loss per common share increased by $.75 per share to $1.18 per share. The increase is attributable to the $5,348,000 of Preferred Stock dividends, or $.23 per share, and the balance is due to the increase in net loss of $.52 per share.
Liquidity and Capital Resources -------------------------------
The Company had $72,157,000 in cash reserves as of December 31, 1994. The cash reserves include cash and cash equivalents of $2,369,000, short-term investments of $55,487,000, long-term investments of $9,421,000 and restricted cash of $4,880,000. The cash reserves decreased $47,586,000 from 1993 due to the use of funds for operations, capital acquisitions, Preferred Stock dividend payments and a current market value adjustment to investments to comply with the Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities. The cumulative effect at December 31, 1994 of SFAS No. 115 was a net unrealized loss of $5,033,000. In connection with certain financing arrangements, the Company is required to maintain minimum cash balances, of which the largest requirement is $20,000,000. The Company invests its excess cash in a diversified portfolio of high-grade marketable and United States Government-backed securities.
During 1994, cash used by operations increased to $32,407,000 as compared to $18,948,000 in 1993. The 1994 change in cash used was primarily due to the increase in net loss versus 1993 combined with the increase in other current assets and the reduction in accounts payable. This was partially offset by increases in depreciation and amortization, along with accrued expenses. Funding required for operating activities during 1994 was derived from existing cash balances and the sales of investments as well as from corporate sponsors, interest income, and the exercise of stock options. Plant acquisitions decreased in 1994 compared to 1993, reflecting the completion of the expansion of the clinical research and manufacturing facilities begun in 1993. The Company expects to make renovations costing between approximately $11,000,000 to $13,000,000 at the Indianapolis facility.
At December 31, 1994, the Company had approximately $101,412,000 of operating loss carryforwards, $2,860,000 of research and development credit carryforwards and $45,000 of investment tax credit carryforwards. These carryforwards expire in the years 1996 through 2009. The timing and manner in which these losses are used may be limited as a result of certain ownership changes that occurred pursuant to Internal Revenue Service regulations under Section 382.
The Company expects to finance its operations from, among other things, the proceeds received from payments under research and development agreements, interest earned on investments, liquidation of certain investments and product sales. Funds may also be provided to the Company by leasing arrangements for capital expenditures and from the licensing of its products. The Company expects to fund Preferred Stock dividends from existing cash reserves. The Company believes that its available cash and marketable securities, revenues from research and development contracts and interest income will be sufficient to meet its expected operating and capital cash flow requirements for the intermediate term.
Item 8.
Item 8. Financial Statements and Supplementary Data - ----------------------------------------------------
Reference is made to the Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flow, Notes to Consolidated Financial Statements, and Independent Accountants Report appearing in Item l4(a) of this Form l0-K.
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure - -------------------------------------------------------------
None.
PART III --------
Item l0. Directors and Executive Officers of the Registrant - ------------------------------------------------------------
Information required under this Item relating to executive officers of the Company is included in a separate item captioned "Executive Officers" contained in Part I of this report. Information required under this Item relating to the directors of the Company will be contained in the Company's Proxy Statement for the l995 Annual Meeting, the relevant portions of which are incorporated herein by reference.
Item ll. Executive Compensation - --------------------------------
Information required under this Item will be contained in the Company's Proxy Statement for the l995 Annual Meeting, the relevant portions of which are incorporated herein by reference.
Item l2. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------
Information required under this Item will be contained in the Company's Proxy Statement for the l995 Annual Meeting, the relevant portions of which are incorporated herein by reference.
Item l3. Certain Relationships and Related Transactions - --------------------------------------------------------
Information required under this Item will be contained in the Company's Proxy Statement for the l995 Annual Meeting, the relevant portions of which are incorporated herein by reference.
PART IV -------
Item l4. Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------------------------------------------------------------------------
(a) l. Financial Statements --------------------
Consolidated financial statements listed in the accompanying index are filed herewith.
2. Exhibits --------
See Exhibit Index included elsewhere in this Report.
(b) Reports on Form 8-K -------------------
No reports on Form 8-K have been filed during the last quarter of the period covered by this report.
-----------------------------
(Item l4(a)1 [and 14(a)2)]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of The Liposome Company, Inc.:
We have audited the consolidated balance sheets of The Liposome Company, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Liposome Company, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the Company changed its method of accounting for certain investments in debt and equity securities.
Princeton, New Jersey February 2, 1995
Coopers & Lybrand L.L.P.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands except share data)
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share figures)
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands except share figures)
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS:
The Liposome Company, Inc. (the "Company") is a leading biotechnology company engaged in the discovery, development and, recently, the commercialization of proprietary lipid and liposome-based pharmaceuticals for the treatment, prevention and diagnosis of inadequately treated, life-threatening illnesses. The Company is currently launching its first product, amphotericin B lipid complex (ABLC(R) or, in Europe, AbelcetTM), which has been approved for marketing for certain indications in the United Kingdom and is the subject of marketing application filings in eighteen other countries. The Company expects to file an NDA for ABLC(R) in the United States during 1995. In addition to ABLC(R)/AbelcetTM, the Company's other lead products are TLC D-99 and TLC C-53. TLC D-99, liposomal doxorubicin, is being developed in conjunction with a corporate sponsor primarily as a first line treatment of metastatic breast cancer. TLC C-53, liposomal prostaglandin E1, is being developed for the treatment of acute respiratory distress syndrome and acute myocardial infarction. The Company is also developing a contrast agent for CT scanning and has a continuing discovery research program which concentrates primarily on the treatment of cancer and inflammatory conditions.
CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances are eliminated in consolidation.
REVENUE RECOGNITION AND UNEARNED CONTRACT INCOME:
Payments for collaborative research and development are generally received in advance and are recognized as revenue, ratably, as the research and development is performed. Licensing fees, royalty and hurdle payments are recognized in the period earned.
The Company has entered into various collaborative research and development contracts. The Company earned substantially all of its research and development revenues from two corporate sponsors in 1994 and 1993, and three in 1992. Corporate sponsors who contributed 10% or more of the Company's total revenues, pursuant to collaborative agreements and licensing and other fees as reported in the statements of operations, in any year were as follows:
RESEARCH AND DEVELOPMENT EXPENSES:
The research and development expenses of the Company, which are expensed as incurred, include those efforts related to collaborative research and development agreements, development of the Company's proprietary products and general research. The expenses include, but are not limited to, medical, biostatistical, regulatory, manufacturing and scientific support costs.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DEPRECIATION AND AMORTIZATION:
Building and building improvements, furniture and fixtures, automobiles, and machinery and equipment are depreciated by the straight-line method over their estimated useful lives ranging from three to twenty years. Leasehold improvements and machinery and equipment under capital leases are amortized by the straight-line method over the lesser of their estimated useful lives or the terms of the related leases. Purchased patents are amortized by the straight- line method over their life as determined by the country of issuance. The Company reviews the realizability of the patents on a quarterly basis.
CASH EQUIVALENTS:
The Company considers all highly liquid investments with maturities of three months or less as cash equivalents.
INVESTMENTS:
Short-term investments represent marketable securities available for current operations, all of which have been classified as available for sale, while long- term investments represent marketable securities available for expected capital acquisitions. These investments, which are all investment grade, are stated at market value of the portfolio.
On December 31, 1993, the Company adopted the provisions of the Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities. This Statement requires certain investments in debt and equity securities to be reported at current market value. Prior to 1993 investments were carried at the lower of cost or market.
For the years ended December 31, 1994 and 1993, investment income includes gross realized gains of $150,000 and $765,000, respectively. At December 31, 1994 and 1993, investments included gross unrealized gains of $7,000 and $845,000 and losses of $5,040,000 and $195,000, respectively. The fair values of debt securities maturing within one year and after one year but less than 5 years, amounted to $5,954,000 and $57,148,000, respectively.
RESTRICTED CASH:
The Company has entered into certain financing arrangements that require the issuance of letters of credit that are partially secured by certain securities. The aggregate amount of these securities are segregated and identified as restricted cash. The Company is also required to maintain minimum cash balances in connection with these financings.
NET LOSS PER SHARE APPLICABLE TO COMMON STOCK:
Net loss per share applicable to Common Stock is computed based on the weighted average of the Common Stock shares outstanding. Common Stock equivalents are not included in the computation of weighted average shares outstanding since the effect would be anti-dilutive.
RECLASSIFICATION:
Certain reclassifications have been made to the prior year financial statement amounts to conform with the presentation in the current year financial statements.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. STOCKHOLDERS' EQUITY:
PREFERRED STOCK:
In January 1993, the Company completed an offering of 2,760,000 Depositary Shares, each of which represents one-tenth of a share of Series A Cumulative Convertible Exchangeable Preferred Stock carrying a 7 3/4% dividend rate. The liquidation value is $25.00 per Depositary Share, plus accrued and unpaid dividends. Each Depositary Share is convertible at any time into shares of the Company Common Stock at a conversion price of $12.85 per share of Common Stock, which is equivalent to a conversion rate of 1.9455 shares of Common Stock for each Depositary Share. 5,369,580 shares of Common Stock are reserved for such conversion. The proceeds to the Company were $66,240,000 net of underwriter fees. Additional stock issuance costs, including professional, registration, filing and printing fees of approximately $505,000 were incurred in connection with this offering.
PREFERRED STOCK DIVIDENDS:
During 1994 and 1993, the Board of Directors of the Company declared the quarterly cash dividends on the Series A Cumulative Convertible Exchangeable Preferred Stock at a prorated dividend rate of $.484375 per Depositary Share. Dividend payments in 1994 and 1993 totaled $5,348,000 and $4,011,000, respectively. An additional dividend payment of $1,337,000 was paid on January 16, 1995 to stockholders of record on January 2, 1995.
COMMON STOCK:
In March 1992, the Company completed the sale of 3,450,000 shares of Common Stock. Proceeds from the stock sale were $44,954,000 net of underwriter fees. Additional stock issuance costs, including professional, registration, filing and printing fees of approximately $351,000 were incurred in connection with the sale.
3. STOCK OPTION PLANS:
The Company has several stock option plans available for the issuance of incentive stock options and non-qualified stock options ("NQSO"). These options are designed to attract and retain key employees, directors and consultants. As of December 31, 1994, the Company had outstanding grants of 4,226,105 shares and 1,455,808 shares available for grants, totaling 5,671,913 shares of Common Stock reserved for stock option grants.
Options are granted at fair market value. These options generally become exercisable in ratable installments over a five-year period. Options under the 1991 Non-Employee Directors NQSO Plan ("Directors' Plan") are automatically granted upon appointment to the Board of Directors and annually on July 1 of each year to such non-employee Directors. Such initial grants vest over a five year period and subsequent annual grants vest in one year. Activity under all stock option plans for 1992, 1993 and 1994 is summarized as follows:
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
5. INVENTORIES:
The components of inventory are as follows:
6. COMMITMENTS AND CONTINGENCIES:
Operating Leases:
Total rental expense for property, plant and equipment was approximately $1,618,000, $1,139,000, and $739,000 for 1994, 1993 and 1992, respectively.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's future minimum lease payments under noncancelable operating leases at December 31, 1994 are as follows:
CAPITAL LEASES:
On July 1, 1993 the Company entered into an agreement which provided for equipment lease financing. As of December 31, 1994, the Company had received a total of $7,496,000 under the lease financing agreement in sale-leaseback refinancings outstanding against this arrangement. The sale-leaseback refinancings are secured by $3,748,000 in standby letters of credit provided under a letter of credit agreement which is secured by AAA rated securities owned by the Company. The Company is required to maintain a minimum balance of $20,000,000 in cash and marketable securities, including those securities securing the letters of credit in connection with the lease financing.
The following is a schedule by year of future minimum payments under capital leases together with the present value of the minimum lease payments and the capital lease portion of certain classes of property as of December 31, 1994:
CLASSES OF PROPERTY:
7. LONG-TERM DEBT:
On July 24, 1992, The Liposome Manufacturing Company, Inc., a wholly-owned subsidiary of The Liposome Company, Inc., entered into a mortgage-backed note to partially fund the purchase of a pharmaceutical manufacturing facility in Indianapolis, Indiana. The principal will be paid in equal installments of $25,225 each month plus accrued interest. The note payments will be completed on November 1, 2001. The interest rate, based on the prime rate plus 1/2%, has a floor and ceiling of 6% and 10%, respectively. The note is guaranteed by The Liposome Company, Inc. and the mortgage lending institution is holding a $1,000,000 AAA rated security owned by The Liposome Company, Inc. as collateral for the note. The Company is required to maintain a minimum balance of $10,000,000 in cash and marketable securities, including those securities securing the letter of credit in connection with the financing.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Liposome Manufacturing Company's principal repayment obligations as of December 31, 1994 are as follows:
8. SUPPLEMENTAL INFORMATION:
ACCRUED EXPENSES: The components of accrued expenses are as follows:
STATEMENT OF CASH FLOW:
9. INCOME TAXES:
The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company provides a valuation allowance against the net deferred tax debits due to the uncertainty of realization. The increase in the valuation allowance for the year ended December 31, 1994 was $16,050,000.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Temporary differences and carryforwards which gave rise to the deferred tax assets and liabilities at December 31, 1994 are as follows:
At December 31, 1994, the Company had approximately $101,412,000 of net operating loss carryforwards, $45,000 of investment tax credit carryforwards, and $2,860,000 of research and development credit carryforwards. These carryforwards expire in the periods 1996 through 2009. The timing and manner in which these losses are used may be limited as a result of certain ownership changes which occurred as provided by IRS Regulations under Section 382.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data (in thousands of dollars, except for per share) for the years ended December 31, 1994, and 1993 is as follows:
SIGNATURES ----------
Pursuant to the requirements of Section 13 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 this 21st day of March, 1995.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES By: /s/ Charles A. Baker ----- ---------------- Charles A. Baker
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on the 21st day of March, 1995 on behalf of the Registrant and in the capacities indicated.
/s/ Charles A. Baker Chairman of the Board, Chief Executive Officer - --------------------- Officer and Director (Chief Executive Officer) Charles A. Baker
/S/ Edward G. Silverman Executive Vice President and Chief - ------------------------ Operating Officer Edward G. Silverman
/S/ Brooks Boveroux Vice President Finance, Chief Financial - -------------------- Officer and Treasurer Brooks Boveroux
/S/ Dennis A. Rodrigues Controller (Chief Accounting Officer) - ------------------------ Dennis A. Rodrigues
/S/ James G. Andress Director - --------------------- James G. Andress
/S/ Morton Collins Director - ------------------- Morton Collins
/S/ Stuart Feiner Director - ------------------ Stuart Feiner
/S/ Robert F. Hendrickson Director - -------------------------- Robert F. Hendrickson
/S/ Bengt Samuelsson, Dr. Director - -------------------------- Bengt Samuelsson, Dr.
/S/ Joseph T. Stewart, Jr. Director - --------------------------- Joseph T. Stewart, Jr.
/S/ Gerald Weissmann, M.D. Director - --------------------------- Gerald Weissmann, M.D.
/S/ Horst Witzel, Dr.-Ing. Director - --------------------------- Horst Witzel, Dr.-Ing.
Item l4(a)3. Exhibits to Form l0-K - -----------------------------------
(A) Exhibits
Exhibit Number - ------
3(i)-01 Certificate of Incorporation of the Company, and Amendments thereto.
3(ii) By-Laws of the Company (Filed with Registration No. 33-23292, and incorporated herein by reference thereto).
l0-01 The Liposome Company, Inc. l983 Incentive Stock Option Plan (Filed with Registration No. 33-66924, and incorporated herein by reference thereto).
l0-02 The Liposome Company, Inc. l984 Non-Qualified Stock Option Plan (Filed with Registration No. 33-66924, and incorporated herein by reference thereto).
l0-03 The Liposome Company, Inc. l985 Incentive Stock Option Plan (Filed with Registration No. 33-66924, and incorporated herein by reference thereto).
l0-04 The Liposome Company, Inc. l985 Non-Qualified Stock Option Plan (Filed with Registration No. 33-66924, and incorporated herein by reference thereto).
l0-05 The Liposome Company, Inc. l986 Employee Stock Option Plan (Filed with Registration No. 33-66924, and incorporated herein by reference thereto).
l0-06 The Liposome Company, Inc. l986 Non-Qualified Stock Option Plan (Filed with Registration No. 33-66924, and incorporated herein by reference thereto).
10-07 The Liposome Company, Inc. 1991 Director's Non-Qualified Stock Option Plan (Filed with Registration No. 33-66924, and incorporated here by reference thereto).
10-08 Agreement dated December 8, 1989 between the Company and Charles A. Baker (Filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated herein by reference thereto).
10-09 Amendment dated November 17, 1994 to Employment Agreement dated December 8, 1989 between the Company and Charles A. Barker.
10-10 Development and License Agreement dated November 19, 1990 among the Company, Pfizer Inc. and Pfizer Chemical Corporation. (Filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated herein by reference thereto).
10-10 Joint Venture Agreement dated as of November 19, 1986 by and among the Company, Nippon Oil & Fats Co., Ltd., and Techno-Venture Co., Ltd., and associated agreements (Filed with Registration No. 33-39041, and incorporated herein by reference thereto).
10-11 Territory Expansion Agreement dated as of December 12, 1988 by and among the Company, Nippon Oil & Fats Co., Ltd., and Techno-Venture Co., Ltd., and Nichiyu Liposome Co., Ltd., and associated agreements (Filed with Registration No. 33-39041, and incorporated, and incorporated herein by re-finance thereto).
Item 14(a)3. Exhibits to Form 10-K (Continued) - -----------------------------------------------
Exhibit Number - ------
10-12 *Amphotericin B Supply Agreement dated as of January 1, 1993, between the Company and Bristol-Meyers Squibb Company.
10-13 *License Agreement dated as of September 2, 1994, between the Company and Bristol-Meyers Squibb Company.
10-14 Lease Agreement dated December 14, 1992, between the Company and Peregrine Investment Partners I (Filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated herein by reference) thereto.
10-15 First Amendment dated October 29, 1993 to Lease Agreement between the Company and Peregrine Investment Partners I.
21 List of Company subsidiaries.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
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* CONFIDENTIAL TREATMENT REQUESTED