UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
[X] AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2000
or,
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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COMMISSION FILE NUMBER: 0-23556
INHALE THERAPEUTIC SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3134940
- ------------------------------ ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
150 INDUSTRIAL ROAD
SAN CARLOS, CALIFORNIA 94070
(Address of principal executive offices)
650-631-3100
(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required 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
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, $0.0001 par
value, was 20,925,381 as of April 28, 2000.
Page 1 of 7
PART I: FINANCIAL INFORMATION
Item 1.
INHALE THERAPEUTIC SYSTEMS, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, 2000 DECEMBER 31, 1999 *
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $129,778 $33,430
Short-term investments 205,940 104,755
Accounts receivable 682 1,756
Other current assets 7,883 7,377
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Total current assets 344,283 147,318
Property and equipment, net 76,066 63,852
Investment in Alliance Pharmaceutical Corp. 14,674 6,328
Other assets 13,269 9,308
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$448,292 $226,806
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $23,737 $20,268
Deferred revenue 8,211 4,811
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Total current liabilities 31,948 25,079
Tenant improvement loan 4,885 4,895
Convertible subordinated notes and debentures 239,760 108,450
Accrued rent 1,824 1,753
Stockholders' equity:
Common stock 2 2
Capital in excess of par value 284,903 181,154
Deferred compensation (1,435) (1,530)
Accumulated other comprehensive gain 9,703 1,469
Accumulated deficit (123,298) (94,466)
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Total stockholders' equity 169,875 86,629
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$448,292 $226,806
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SEE ACCOMPANYING NOTES
(*) The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements
Page 2 of 7
INHALE THERAPEUTIC SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
---------------------------------
2000 1999
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Contract research revenue $10,633 $7,780
Operating costs and expenses:
Research and development 21,869 12,716
General and administrative 3,535 1,264
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Total operating costs and expenses 25,404 13,980
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Loss from operations (14,771) (6,200)
Interest income 3,627 1,095
Interest expense (17,688) (118)
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Net loss $(28,832) $(5,223)
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Basic and diluted net loss per share $(1.51) $(0.31)
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Shares used in computing basic and diluted net loss per share 19,034 16,929
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SEE ACCOMPANYING NOTES
Page 3 of 7
INHALE THERAPEUTIC SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Cash used in operations $ (1,890) $ (3,586)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase)/sale of short-term investments, net (101,298) 2,382
Purchases of property and equipment (13,583) (5,744)
Other investing activities (115) -
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Net cash used in by investing activities (114,996) (3,362)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of equipment financing obligations (18) (16)
Payment of debt conversion incentives (16,569) -
Issuance of convertible debt, net of issuance costs 222,439 -
Issuance of common stock, net of issuance costs 7,382 71
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Net cash provided by financing activities 213,234 55
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Net increase (decrease) in cash and cash equivalents 96,348 (6,893)
Cash and cash equivalents at beginning of period 33,430 24,916
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Cash and cash equivalents at end of period $ 129,778 $ 18,023
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SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Common stock issued upon conversion of convertible
subordinated debentures, net $ 95,220 $ -
SEE ACCOMPANYING NOTES
Page 4 of 7
INHALE THERAPEUTIC SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Inhale Therapeutic Systems ("Inhale" or the "Company") was
incorporated in the State of California in July 1990 and reincorporated in
the State of Delaware in July 1998. Since inception, Inhale has been engaged
in the development of systems for the pulmonary delivery of macromolecule
drug therapies for systemic and local lung applications.
The accompanying unaudited condensed financial statements of Inhale
have been prepared by management in accordance with generally accepted
accounting principles for interim financial information, the instructions for
Form 10-Q and Article 10 of Regulation S-X. The condensed balance sheet as of
March 31, 2000 and the related condensed statements of operations and cash
flows for the three month periods ended March 31, 2000 and 1999, are
unaudited but include all adjustments (consisting only of normal recurring
adjustments) which Inhale considers necessary for a fair presentation of the
financial position at such dates and the operating results and cash flows for
those periods. Although Inhale believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading, certain information normally included in financial statements and
related footnotes prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission"). The
accompanying financial statements should be read in conjunction with the
financial statements and notes thereto included in Inhale's Amended Annual
Report on Form 10-K/A for the year ended December 31, 1999 as filed with the
Commission.
Results for any interim period presented are not necessarily
indicative of results for any other interim period or for the entire year.
2. CASH, CASH EQUIVALENTS AND INVESTMENTS
The following is a summary of Inhale's available-for-sale debt securities as
of March 31, 2000:
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
(In thousands)
Amounts included in cash and cash equivalents........ $ 126,324 $ 121 $ (12) $ 126,433
Amounts included in short-term investments........... 206,021 236 (317) 205,940
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$ 332,345 $ 357 $ (329) $ 332,373
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The following is a summary of the Company's available-for-sale debt securities
as of December 31, 1999:
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
(In thousands)
Amounts included in cash and cash equivalents........ $ 29,822 $ 54 $ (-) $ 29,876
Amounts included in short-term investments........... 104,668 87 (-) 104,755
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$ 134,490 $ 141 $ (-) $ 134,631
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At March 31, 2000 and December 31, 1999, Inhale's investment
portfolio consisted largely of United States corporate commercial paper,
obligations of United States government agencies and repurchase agreements
secured by United States Government securities. The average portfolio
duration was approximately six months at March 31, 2000 and five months at
December 31, 1999. The contractual maturity of any single investment did not
exceed nineteen months at March 31, 2000 (eleven months at December 31, 1999).
3. COMPREHENSIVE LOSS
Other comprehensive gains/(losses) consists primarily of unrealized
gains or losses on available-for-sale securities. For the three-month period
ended March 31, 2000, Inhale recorded unrealized gains of approximately
$8,234,000, consisting of approximately $8,346,000 of gains relating to its
investment in Alliance Pharmaceutical Corp. and approximately $113,000 of
losses in other available for sale investments. For the three-month period
ended March 31, 1999, Inhale recorded unrealized losses of approximately
$13,000.
4. REVENUE RECOGNITION
Contract revenue from collaborative research agreements is recorded
when earned and as the related costs are incurred. Payments received which
are related to future performance are deferred and recognized as revenue when
earned over future performance periods. In accordance with contract terms,
up-front and progress payments from collaborative research agreements are
considered to be payments to support continued research and development
activities under the agreements. In accordance with the Company's revenue
recognition policy, these payments are included in deferred revenue and are
recognized as the related research and development expenditures are incurred.
Contract research revenue from one partner represented 66% of
Inhale's revenue in the three-month period ended March 31, 2000. Contract
research revenue from one partner accounted for 77% of Inhale's revenue in
the three month period ended March 31, 1999. Costs of contract research
revenue approximate such revenue and are included in operating costs and
expenses.
5. NET LOSS PER SHARE
Basic and diluted net loss per common share is computed in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," which Inhale adopted in 1997. Accordingly, the weighted
Page 5 of 7
average number of common shares outstanding are used while common stock
issuable upon the conversion of debt and common stock equivalent shares for
stock options and warrants are not included in the per share calculations as
the effect of their inclusion would be antidilutive.
6. LONG-TERM DEBT
In February 2000, Inhale received approximately $222,439,000 in net
proceeds from the issuance of $230,000,000 aggregate principal amount of
convertible subordinated notes to certain qualified institutional buyers
pursuant to an exemption under the Securities Act of 1933, as amended.
Interest on the notes accrues at a rate of 5% per year, subject to adjustment
in certain circumstances. The notes will mature in 2007 and are convertible
into shares of Inhale's common stock at a conversion price of $76.71 per
share, subject to adjustment in certain circumstances. The notes are
redeemable in part or in total at any time before February 8, 2003 at an
exchange premium of $137.93 per $1,000 principal amount, less any interest
actually paid on the notes before the call for redemption, if the closing
price of Inhale's common stock has exceeded 150% of the conversion price then
in effect for at least 20 trading days within a period of 30 consecutive
trading days. The Company can redeem some or all of the notes at any time
after February 8, 2003. Interest is payable semi-annually on August 8 and
February 8. The notes are unsecured subordinated obligations which rank
junior in right of payment to all of the Company's existing and future Senior
Debt.
Also in February 2000, Inhale entered into privately negotiated
agreements with certain holders of its outstanding 6 3/4% convertible
subordinated debentures sold in October and November 1999, providing for the
conversion into Inhale common stock of approximately $98,690,000 aggregate
principal amount of the outstanding debentures. In exchange for an exchange
premium of approximately $16,958,000, the $98,690,000 of convertible
debentures was converted into approximately 3,083,000 shares of Inhale common
stock. Inhale will no longer have interest payment obligations on the
debentures that were converted.
At March 31, 2000, an aggregate of $239,760,000 principal amount of
these debt instruments remained on the balance sheet. Costs relating to the
issuances of the notes are recorded as long-term assets and are being
amortized over the term of the debt.
PART II: OTHER INFORMATION
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Item 2. Changes in Securities
In February 2000 we issued $230,000,000 aggregate principal amount
of convertible subordinated notes, which are convertible at the option of the
holder, at any time on or prior to maturity into shares of our common stock.
The notes were sold only in the United States to certain qualified
institutional buyers under an exemption from registration provided by Rule
144A of the Securities Act of 1933, as amended. The notes are convertible at
a conversion price of $76.71 per share, which is equal to a conversion rate
of approximately 13.037 shares per $1,000 principal amount of notes, subject
to adjustment. Interest on the debentures will accrue at a rate of 5.0% per
year subject to adjustment in certain circumstances . We will pay interest on
the notes on August 8 and February 8 of each year, beginning August 8, 2000.
The notes mature on February 8, 2007. We may redeem some or all of the notes
at any time before February 8, 2003 at a redemption price of $1,000 per
$1,000 principal amount of notes, plus accrued and unpaid interest, if any,
to the redemption date, if the closing price of our common stock has exceeded
150% of the conversion price then in effect for at least 20 trading days
within a period of 30 consecutive trading days ending on the trading day
before the date of mailing of the provisional redemption notice. We will make
additional payment in cash with respect to the notes, called for provisional
redemption in an amount equal to $137.93 per $1,000 principal amount of
notes, less the amount of any interest actually paid on the notes, before the
call for redemption. We also may redeem some or all of the notes at any time
after February 8, 2003 by paying a premium on the notes. The notes are
unsecured and subordinated to our existing and future senior indebtedness.
Merrill Lynch & Co. served as the sole bookrunner for the offering and
received approximately $7,187,500 in discounts and commissions.
Page 6 of 7
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.
INHALE THERAPEUTIC SYSTEMS, INC.
DATE: May 12, 2000 BY: /s/Ajit S. Gill
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Ajit S. Gill
Chief Executive Officer and Director
(Duly Authorized Officer)
BY: /s/Brigid A. Makes
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Brigid A. Makes
Chief Financial Officer
Page 7 of 7
