UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001.
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
Commission File Number 0-29889
Rigel Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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94–3248524 |
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240 East Grand Avenue
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94080 |
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(Address of principal executive offices) |
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(650) 624-1100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
As of October 31, 2001, there were 37,591,548 shares of the Registrant's common stock outstanding.
RIGEL PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
INDEX
RIGEL
PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(in
thousands, except share and per share amounts)
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September 30, |
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December 31, |
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2001 |
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2000 |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
11,106 |
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$ |
49,030 |
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Available for sale securities |
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26,225 |
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3,964 |
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Accounts receivable |
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3,676 |
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663 |
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Prepaid expenses and other current assets |
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1,360 |
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1,026 |
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Total current assets |
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42,367 |
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54,683 |
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Property and equipment, net |
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9,053 |
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9,338 |
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Other assets |
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1,455 |
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241 |
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$ |
52,875 |
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$ |
64,262 |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Accounts payable |
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$ |
745 |
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$ |
1,314 |
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Accrued compensation |
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808 |
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724 |
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Accrued liabilities |
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699 |
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696 |
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Deferred revenue |
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4,632 |
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2,370 |
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Capital lease obligations |
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3,162 |
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2,952 |
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Total current liabilities |
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10,046 |
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8,056 |
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Capital lease obligations |
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4,829 |
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5,761 |
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Long-term portion of deferred revenue |
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2,613 |
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400 |
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Other long-term liabilities |
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1,078 |
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1,035 |
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Commitments |
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Stockholders’ equity: |
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Common stock, $0.001 par value; 100,000,000 shares authorized; 37,557,238 and 36,804,186 shares issued and outstandingon September 30, 2001 and December 31, 2000, respectively |
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38 |
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37 |
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Additional paid-in capital |
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108,956 |
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108,742 |
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Deferred stock compensation |
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(3,100 |
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(5,792 |
) |
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Accumulated other comprehensive income |
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88 |
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2 |
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Accumulated deficit |
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(71,673 |
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(53,979 |
) |
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Total stockholders’ equity |
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34,309 |
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49,010 |
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$ |
52,875 |
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$ |
64,262 |
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RIGEL
PHARMACEUTICALS, INC.
CONDENSED STATEMENT OF OPERATIONS
(in
thousands, except per share amounts)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2001 |
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2000 |
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2001 |
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2000 |
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(unaudited ) |
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(unaudited) |
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Revenues: |
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Contract revenues from collaborations |
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$ |
4,206 |
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$ |
3,211 |
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$ |
10,524 |
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$ |
10,008 |
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Costs and expenses: |
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Research and development (See Note A) |
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8,631 |
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8,598 |
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23,395 |
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24,609 |
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General and administrative (See Note A) |
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1,991 |
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1,869 |
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5,885 |
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5,010 |
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10,622 |
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10,467 |
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29,280 |
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29,619 |
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Loss from operations |
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(6,416 |
) |
(7,256 |
) |
(18,756 |
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(19,611 |
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Interest income |
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437 |
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208 |
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1,662 |
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695 |
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Interest expense |
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(240 |
) |
(222 |
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(600 |
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(677 |
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Net loss |
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$ |
(6,219 |
) |
$ |
(7,270 |
) |
$ |
(17,694 |
) |
$ |
(19,593 |
) |
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Deemed dividend to Series E preferred stockholders |
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- |
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(100 |
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- |
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(10,133 |
) |
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Net loss allocable to common stockholders |
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$ |
(6,219 |
) |
$ |
(7,370 |
) |
$ |
(17,694 |
) |
$ |
(29,726 |
) |
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Net loss per share, basic and diluted |
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$ |
(0.17 |
) |
$ |
(1.62 |
) |
$ |
(0.48 |
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$ |
(6.92 |
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Weighted average shares used in computing net loss per common share, basic and diluted |
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37,516 |
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4,561 |
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37,173 |
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4,297 |
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Note A: |
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Includes charges for stock-based compensation as follows: |
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Research and development |
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$ |
(151 |
) |
$ |
2,136 |
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$ |
1,199 |
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$ |
7,594 |
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General and administrative |
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85 |
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254 |
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424 |
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757 |
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$ |
(66 |
) |
$ |
2,390 |
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$ |
1,623 |
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$ |
8,351 |
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RIGEL PHARMACEUTICALS,
INC.
CONDENSED STATEMENT OF CASH FLOWS
(in
thousands)
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Nine Months Ended |
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September 30, |
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2001 |
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2000 |
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(unaudited) |
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Operating activities: |
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Net loss |
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$ |
(17,694 |
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$ |
(19,593 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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2,908 |
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1,907 |
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Amortization of deferred stock compensation |
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2,119 |
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3,781 |
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Noncash stock compensation |
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(496 |
) |
4,570 |
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Issuances of equity instruments for noncash benefits |
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- |
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1,250 |
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Changes in assets and liabilities: |
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Accounts receivable |
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(3,013 |
) |
1,886 |
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Prepaid expenses and other current assets |
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(334 |
) |
(364 |
) |
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Other assets |
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(531 |
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10 |
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Accounts payable |
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(569 |
) |
134 |
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Accrued compensation |
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84 |
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141 |
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Accrued liabilities |
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3 |
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148 |
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Deferred revenue |
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4,475 |
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(2,708 |
) |
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Other long-term liabilities |
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43 |
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432 |
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Net cash used in operating activities |
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(13,005 |
) |
(8,406 |
) |
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Investing activities: |
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Purchase of available-for-sale securities |
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(40,415 |
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(3,954 |
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Maturities of available-for-sale securities |
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18,240 |
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- |
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Capital expenditures |
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(2,623 |
) |
(2,590 |
) |
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Net cash used in investing activities |
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(24,798 |
) |
(6,544 |
) |
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Financing activities: |
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Proceeds from capital lease financing |
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1,748 |
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2,122 |
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Principal payments on capital lease obligations |
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(2,470 |
) |
(1,707 |
) |
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Net proceeds from issuances of common stock |
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601 |
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250 |
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Net proceeds from issuances of convertible preferred stock |
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- |
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15,465 |
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Net cash (used) provided by financing activities |
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(121 |
) |
16,130 |
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Net (decrease) increase in cash and cash equivalents |
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(37,924 |
) |
1,180 |
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Cash and cash equivalents at beginning of period |
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49,030 |
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5,836 |
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Cash and cash equivalents at end of period |
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$ |
11,106 |
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$ |
7,016 |
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The accompanying notes are an integral part of these condensed financial statements.
Rigel Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
1. Nature of operations
Rigel Pharmaceuticals, Inc. ("Rigel" or the "Company") was incorporated in the state of Delaware on June 14, 1996. The Company is engaged in the discovery and development of a broad range of new small molecule drug candidates.
On December 4, 2000, the Company completed its initial public offering of shares of common stock at $7.00 per share, and all outstanding shares of preferred stock were converted into 24,895,957 shares of common stock. In connection with the initial public offering, the Company amended its certificate of incorporation to decrease the number of authorized shares of preferred stock to 10,000,000 and increase the number of authorized shares of common stock to 100,000,000.
2. Basis of presentation
The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of Rigel's management, these unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, which we consider necessary to fairly state the Company's financial position and the results of its operations and its cash flows. Interim–period results are not necessarily indicative of results of operations or cash flows for a full-year period. The balance sheet at December 31, 2000 has been derived from audited financial statements at that date, but does not include all disclosures required by generally accepted accounting principles for complete financial statements.
These condensed financial statements and the notes accompanying them should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Stockholders are encouraged to review the Form 10-K for a broader discussion of the Company's business and the opportunities and risks inherent in the Company's business. Copies of the Form 10-K are available from the Company upon request.
Comprehensive loss did not materially differ from the net loss as reported.
3. Net loss per share
Net loss per share has been computed according to the Financial Accounting Standards Board Statement No. 128, "Earnings Per Share," which requires disclosure of basic and diluted earnings per share. Basic earnings per share excludes any dilutive effects of options, shares subject to repurchase, warrants and convertible securities. The calculation of diluted net loss per share excludes shares of potential common stock if the effect is anti-dilutive.
The Company's preferred stock converted into common stock upon the closing of the Company's initial public offering in December 2000. For informational purposes, the following unaudited pro forma net loss per share data reflects the assumed conversion of the Company's preferred stock into common stock at the beginning of each of the following periods (in thousands except per share information):
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Three months ended |
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Nine months ended September 30, |
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2001 |
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2000 |
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2001 |
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2000 |
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Net loss to common stockholders |
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$ |
(6,219 |
) |
$ |
(7,370 |
) |
$ |
(17,694 |
) |
$ |
(29,726 |
) |
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Weighted–average shares of common stock outstanding |
|
37,516 |
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4,561 |
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37,173 |
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4,297 |
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Pro forma adjustment to reflect weighted average effect of assumed conversion of preferred stock |
|
— |
|
24,734 |
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— |
|
24,412 |
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Total weighted average shares outstanding pro forma |
|
37,516 |
|
29,295 |
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37,173 |
|
28,709 |
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Basic and diluted pro forma loss per share |
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$ |
(0.17 |
) |
$ |
(0.25 |
) |
$ |
(0.48 |
) |
$ |
(1.04 |
) |
4. Revenue recognition
Non-refundable up-front payments received in connection with research and development collaboration agreements, including technology access fees, are deferred and recognized on a straight-line basis over the relevant periods specified in the agreement, generally the research term.
Revenue related to collaborative research with the Company's corporate collaborators is recognized as research services are performed over the related funding periods for each contract. Under these agreements, the Company is required to perform research and development activities as specified in each respective agreement. The payments received under each respective agreement are not refundable and are generally based on a contractual cost per full-time equivalent employee working on the project. Research and development expenses under the collaborative research agreements approximate or exceed the revenue recognized under such agreements over the term of the respective agreements. Deferred revenue may result when the Company does not incur the required level of effort during a specific period in comparison to funds received under the respective contracts. Milestone and royalty payments, if any, will be recognized pursuant to collaborative agreements upon the achievement of specified milestones.
5. Deemed dividend
In February 2000, the Company completed a private placement of 2,508,330 shares of Series E preferred stock at $6.00 per share for net proceeds of approximately $15.1 million. At the date of issuance, the Company believed the per share price of $6.00 represented the fair value of the preferred stock. Subsequent to the commencement of the Company's initial public offering process, the Company re-evaluated the fair value of its common stock as of February 2000 and determined it to be $10.00 per share. Accordingly, the increase in fair value has resulted in a beneficial conversion feature of $10.0 million that has been recorded as a deemed dividend to the preferred stockholders in 2000. The Company recorded the deemed dividend at the date of issuance by offsetting charges and credits to additional paid-in capital without any effect on total stockholders' equity. The preferred stock dividend increases the net loss allocable to common stockholders in the calculation of basic and diluted net loss per common share for the year ended December 31, 2000. Also in February 2000, the Company issued 50,000 shares of Series E preferred stock for a license of technology. The Company valued the license at $500,000 and has expensed this amount in 2000 as the useful life is less than one year.
6. Facility lease
On May 16, 2001, the Company entered into a 15-year non-cancelable lease for its future office and research facilities in South San Francisco, California. Under the terms of this lease, the Company will occupy these new facilities in late 2002 and will concurrently terminate its lease of the current facilities at Britannia Pointe Grand in South San Francisco. In addition, upon the execution of the new lease, the Company paid a $556,000 security deposit and issued a warrant to purchase 150,000 shares of common stock at $8.91 per share, a 15% premium to market at the time of issuance. This warrant will expire on May 16, 2006. The fair market value of this warrant, as determined by the Black–Scholes valuation model, was approximately $683,000. This amount has been capitalized in Other Long Term Assets and will be amortized into rent expense over the life of the lease. In connection with the termination of the current Britannia Pointe Grand lease, the Company will accelerate the amortization of existing tenant improvements over the expected remaining life of the lease. The change in estimated useful life of the tenant improvements will increase amortization by $0.7 million and $1.5 million over the remainder of fiscal 2001 and 2002, respectively. The Company expects to incur minimal costs in connection with the terminated lease.
7. Recent Accounting Pronouncements
In October 2001, the FASB issued Statement of Financial Accounting Standards No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which is effective for fiscal periods beginning after December 15, 2001. SFAS 144 provides a single accounting model for, and supersedes previous guidance on, accounting and reporting for the impairment / disposal of long-lived assets. SFAS 144 sets new criteria for the classification of an assets held-for-sale and changes the reporting of discontinued operations. The Company does not believe that the adoption of SFAS 144 will have a significant impact on its financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this report and the Company's 2000 audited financial statements and notes thereto included in our 2000 Annual Report on Form 10-K. Operating results for the three and nine months ended September 30, 2001 are not necessarily indicative of results that may occur in future periods.
Except for the historical information contained herein, the following discussion contains forward–looking statements that are based upon current expectations. Forward–looking statements involve risks and uncertainties. When used herein, the words "believe," "anticipate," "expect," "estimate" and similar expressions are intended to identify such forward–looking statements. There can be no assurance that these statements will prove to be correct. Our actual results and the timing of events could differ significantly from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors,” as well as those discussed elsewhere in this report and in our 2000 Annual Report on Form 10-K as filed with the SEC. Rigel undertakes no obligation to update any of the forward–looking statements contained herein to reflect any future events or developments.
Overview
We are a drug discovery and development company that utilizes advanced functional genomics to discover novel drug targets and drug candidates that regulate these targets. Our technology provides a new and rapid way to find novel drug targets and to validate the role of those targets in disease. We intend to develop a portfolio of novel drug candidates and commercialize the resulting drug products in partnership with corporate collaborators. We have incurred net losses since inception and expect to incur substantial and increasing losses for the next several years as we begin to move drug candidates into and through preclinical and later stages of drug development and expand our research and development activities. To date, we have funded our operations primarily through the sale of equity securities, non-equity payments from collaborative partners and capital asset lease financings. We received our first funding from our collaborative partners in December 1998. As of September 30, 2001, including both research funding and equity investments, we had received an aggregate of $56.9 million from our collaborative partners, including $12.1 million in the nine months ended September 30, 2001. As of September 30, 2001, our accumulated deficit was approximately $71.7 million.
We expect our sources of revenue for the next several years to consist primarily of payments under our current and future corporate collaborations. Under these arrangements, sources of revenue may include up-front payments, funded research, milestone payments and royalties. The process of carrying out our research programs for our collaborative partners and the development of our own non-partnered products to the later stages of development will require significant additional research and development expenditures including preclinical testing and clinical trials. These activities, together with our general and administrative expenses, are expected to result in substantial operating losses for the foreseeable future. We will not receive product revenue unless we or our collaborative partners complete clinical trials, obtain regulatory approval and successfully commercialize one or more of our products.
To date, we have entered into collaborations with three major pharmaceutical companies that are currently contributing to our revenues. On July 6, 2001, we expanded our collaboration with Novartis with the initiation of our angiogensis program. Pursuant to the expanded Novartis collaboration, we received a $4.0 million upfront payment from Novartis which will be taken to revenue ratably over the life of the contract. In addition, the expanded collaboration provides that the angiogensis research program will be carried out at Rigel and provides for research reimbursement over the next three years and milestones payments to Rigel.
A summary of these partnerships is as follows:
|
Partner |
|
Research Program |
|
Commencement Date |
|
|
|
|
|
|
|
Janssen Pharmaceutica |
|
Tumor Growth — Cell Cycle Inhibition |
|
December 4, 1998 |
|
Pfizer |
|
Asthma/Allergies — IgE Production in B Cells |
|
January 31, 1999 |
|
Novartis |
|
Transplant Rejection — T Cell Activation |
|
May 26, 1999 |
Under the terms of these collaborations, our partners have agreed to provide future research funding up to approximately $26.7 million over the next four years, $9.9 million of which is subject to possible cancellation. In addition, we may receive additional payments upon the achievement of specific research and development milestones and royalties upon commercialization of any products.
In order to maintain and increase proceeds from collaborations, we are addressing the exploration of new opportunities with existing and new potential collaborators. Our partnerships to date have generally focused on the early stages of drug discovery, specifically on target discovery and validation, while our collaboration with Janssen Pharmaceutica has been expanded to also include both chemistry and compound high throughput screening. We expect to continue to engage in collaborations focused on the early stages of drug discovery. In addition, we currently anticipate that we will self-fund, at an increased rate of spending, our own research programs to later stages of development prior to partnering with collaborative partners. Therefore, it is expected that future collaborative partnerships will have an expanded focus and could include cell pathway mapping, high throughput screening, combinatorial and medicinal chemistry and/or pre-clinical evaluations. For some programs, we may also seek to enter into collaborations for the development of compounds that we have discovered. The timing, the amount of funds received and the scope of any new collaboration are uncertain, and any compound collaboration will depend on the successful progress of clinical trials. New, expanded or larger collaborations will also be necessary to offset any decrease in proceeds as collaborations come to the end of their terms. Specifically, our collaboration with Janssen Pharmaceutica is a three-year agreement terminating on December 4, 2001, and our two-year collaboration with Pfizer, which has been extended one additional year, will terminate on January 31, 2002. Our Novartis programs are multiple-year agreements terminating in 2004 and 2005. As each collaboration reaches termination, the parties may evaluate the status of the collaboration and, if appropriate, seek to extend the collaboration agreement or negotiate alternative terms.
We recognize revenues from our research collaboration agreements as earned upon the achievement of performance requirements of the agreements. In addition, these agreements provide for research funding for a specified number of full time researchers working on their associated projects. Payments received that are related to future performance are deferred and recognized as revenue as the related work is performed. As of September 30, 2001, we had deferred revenues of approximately $7.2 million.
In December 2000, we completed our initial public offering of 5,650,000 shares of common stock at $7.00 per share with net proceeds to us of approximately $35.6 million. Concurrent with the closing of the initial public offering in December, we issued an additional 1,428,571 shares of common stock at $7.00 per share to Novartis in a private placement for net proceeds of $10.0 million. Upon the closing of the Company's initial public offering in December 2000, all outstanding shares of preferred stock converted into 24,895,957 shares of common stock.
In September 2000, we entered into a Technology Transfer Agreement with Questcor Pharmaceuticals, Inc. and acquired the license and technology to a hepatitis C research program. Under the terms of this agreement, we paid a nonrefundable and noncreditable fee of $500,000, issued Questcor 83,333 shares of Series E preferred stock and will be responsible for satisfying certain milestones and royalties. We are also committed to invest a total of $2.0 million in research and development expenses over a two-year period through 2002. The agreement terminates upon the expiration of the last patent within the agreement.
Deferred Stock Compensation
We recorded deferred stock compensation with respect to options granted to employees of approximately $4.9 million in the year ended December 31, 2000, and $0.3 million for the nine months ended September 30, 2001, representing the difference between the deemed fair value of our common stock for financial reporting purposes on the date these options were granted and the exercise price. These amounts have been reflected as components of stockholders' equity, and the deferred expense is being amortized to operations over the vesting period of the options, generally four to five years, using the graded vesting method. We amortized deferred stock compensation of $4.9 million in 2000, with $3.9 million recorded as research and development expense and $1.0 million as a general and administration expense. In the nine months ended September 30, 2001, we amortized deferred stock compensation of $2.1 million, with $1.7 million recorded as research and development expense and $0.4 million as a general and administration expense. At September 30, 2001, we had a total of $3.1 million remaining to be amortized over the vesting periods of the stock options.
Three Months Ended September 30, 2001 and 2000
Revenues. Contract revenues from collaborations were $4.2 million in the three months ended September 30, 2001, compared to $3.2 million in the three months ended September 30, 2000. The increase was primarily due to the commencement of the angiogensis program with Novartis on July 6, 2001. Revenues consisted primarily of research support and amortization of fees earned from the continuation of our collaborations with Pfizer, Janssen Pharmaceutica and Novartis. We expect contract revenues from collaborations to be a significant component of our total revenues for the foreseeable future.
Research and Development. Research and development expenses remained flat at $8.6 million for both the three-month periods ended September 30, 2001 and 2000. These costs include the stock compensation credit of $0.1 million and expense of $2.1 million in the three months ended September 30, 2001 and 2000, respectively. Excluding the stock compensation expenses, our research and development expenses were $8.8 million and $6.5 million in the three-month periods ending September 30, 2001 and 2000, respectively. This quarter-to-quarter increase of $2.3 million was primarily attributable to employee costs associated with our increase in scientific headcount as well as outside contract research organization costs offset by a reduction in technology license fees. In order to advance all of our non-partnered programs, including the advancement of some programs into preclinical and clinical stages of development, we expect research and development expenses to increase in future periods in connection with the addition of increased staffing and scientific program costs. In addition, our costs will increase with the advancement of our non-partnered programs into later stages of development. We also anticipate that research and development expenses may increase with the addition of new collaborations.
General and Administrative Expenses. For the three–month period ended September 30, 2001, general and administrative expenses increased nominally to $2.0 million from $1.9 million for the three–month period ended September 30, 2000. The general and administrative expenses in the three months ended September 30, 2001 and 2000 included $0.1 million and $0.3 million, respectively, related to the amortization of deferred stock in connection with options granted to employees. This increase, after excluding the effect of the amortization, was primarily attributable to increased employee headcount and infrastructure costs to support the growing research and development activities. We expect that general and administrative expenses will increase in the future to support the continued growth of our research and development efforts.
Net Interest Income/(Expense). Net interest income in the three months ended September 30, 2001 was $197,000, compared to a net interest expense of $14,000 in the three months ended September 30, 2000. Interest income increased to $437,000 in the three months ended September 30, 2001 from $208,000 in the comparable three months of 2000. The increase in interest income was due to the increased cash and investment balances resulting from our initial public offering in December of 2000. Interest expense, which results from our equipment financing agreements, was flat over the two periods.
Nine Months Ended September 30, 2001 and 2000
Revenues. Contract revenues from collaborations were $10.5 million in the nine months ended September 30, 2001, compared to $10.0 million in the nine months ended September 30, 2000. Revenues for the nine months ended September 30, 2001 consisted of research support and amortization of fees earned from the continuation of our collaborations with Pfizer, Janssen Pharmaceutica and Novartis.
Research and Development. Research and development expenses decreased to $23.4 million in the nine months ended September 30, 2001 from $24.6 million in the nine months ended September 30, 2000. This decrease was due primarily to a reduction in stock compensation expense as the fair value of the variable options issued to outside consultants decreased. Excluding the impact of stock based compensation, our research and development expenses increased from $17.0 million in the nine months ended September 30, 2000 to $22.2 million in the nine months ended September 30, 2001. This increase was primarily attributable to the increase in our scientific headcount.
General and Administrative Expenses. For the nine-month periods ended September 30, 2001 and 2000, general and administrative expenses increased to $5.9 million from $5.0 million, respectively. This increase was primarily attributable to higher employee headcount and infrastructure costs to support the growing research and development activities. The general and administrative expenses in the nine-month periods ended September 30, 2001 and 2000 include expenses of $0.4 million and $0.8 million, respectively, related to the amortization of deferred stock compensation in connection with options granted to employees.
Net Interest Income. Net interest income in the nine months ended September 30, 2001 was $1,062,000, an increase of $1,044,000 from the net interest income of $18,000 in the nine months ended September 30, 2000. The increase in interest income is due to the increased cash and investment balances resulting from our initial public offering in December of 2000. Interest expense, which results from our equipment financing agreements, was flat over the two periods.
Liquidity and Capital Resources
We have financed our operations from inception primarily through sales of equity securities, contract payments payable to us under our collaboration agreements and equipment financing arrangements. As of September 30, 2001, we have received $93.1 million in gross proceeds from the sale of equity securities, including $20.0 million from collaborators, and have received $36.9 million in research funding from collaborators. In addition, as of September 30, 2001, we had financed the purchase of equipment and leasehold improvements totaling approximately $15.2 million through leases and loans.
As of September 30, 2001, we had $37.3 million in cash, cash equivalents and available-for-sale securities, compared to $53.0 million as of December 31, 2000, a decrease of $15.7 million. The decrease was primarily attributable to the usage of $13.0 million for the funding of operations, the investment of $2.6 million in capital equipment and the usage of $2.5 million for payments associated with our equipment financing agreements. These payments were offset by the receipt of $1.7 million from our equipment financing arrangements and the proceeds of $0.6 million from the sale of equity securities.
As of September 30, 2001, we had $8.0 million in capitalized lease obligations in association with our financed purchase of equipment and leasehold improvements. All our equipment financing agreements are secured by the equipment financed, bear interest rates ranging from 7% to 15% and are due in monthly installments through 2005. In addition, three of these agreements have balloon payments at the end of each loan term.
In December 2000, we received approximately $35.6 million, net of issuance costs, in connection with our initial public offering of common stock at $7.00 per share and $10.0 million from the exercise of our right within the Novartis collaboration agreement to have Novartis purchase shares of our common stock in a private placement concurrent with the initial public offering at $7.00 per share. We believe that our existing capital resources, together with the proceeds from future and current collaborations, will be sufficient to support our current operating plan for at least the next 15 months. In the uncertain markets at the time of our initial public offering, the net proceeds to the Company from the initial public offering were less than originally intended. We, therefore, do anticipate efforts to raise additional equity capital within the next 12 months. Our future capital uses and requirements depend on numerous forward–looking factors. These factors include, but are not limited, to the following:
• our ability to maintain our existing collaboration partnerships;
• our ability to establish new collaborations and the scope of these new collaborations;
• the progress and number of research programs carried out at Rigel;
• the progress of the development efforts of our collaborators;
• our ability to meet the payment–triggering milestones identified in our collaborative agreements;
• the progress and success of preclinical and clinical trials of our drug candidates;
• the costs and timing of obtaining, enforcing and defending our patent and intellectual property rights;
• the costs and timing of regulatory approvals; and
• expenses associated with unforeseen litigation.
In addition, we are constantly reviewing potential opportunities to expand our technologies or add to our portfolio of drug candidates. In the future, we may need further capital in order to acquire or invest in technologies, products or businesses. For the next several years, we do not expect the cash generated from our operations to generate the amount of cash required by our future cash needs. We expect to finance future cash needs through strategic collaborations, debt financing and the sale of equity securities. We cannot assure you that additional financing or collaboration and licensing arrangements will be available when needed or that, if available, this financing will be obtained on terms favorable to us or our stockholders. Insufficient funds may require us to delay, scale back or eliminate some or all of our research or development programs, to lose rights under existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose or may adversely affect our ability to operate as a going concern. If additional funds are obtained by issuing equity securities, substantial dilution to existing stockholders may result.
Risk Factors
Rigel's business faces significant risks. These risks include those described below and may include additional risks of which Rigel is not currently aware or which Rigel currently does not believe are material. If any of the following risks actually occurs, our business could be harmed. In addition, the risks that we now foresee might affect us to a greater or different degree than we currently expect. These risks should be read in conjunction with the other information set forth in this report.
Our success as a company is uncertain due to our limited operating history, our history of operating losses and the uncertainty of future profitability.
Due in large part to the significant research and development expenditures required to identify and validate new drug candidates and move our programs toward later stages of drug development, we have not been profitable and have generated operating losses since we were incorporated in June 1996. Currently, our revenues are generated solely from research payments from our collaboration agreements and licenses and are insufficient to generate profitable operations. As of September 30, 2001, we had an accumulated deficit of approximately $71.7 million. We expect to incur losses for at least the next several years and expect that these losses will actually increase as we expand our research and development activities, incur significant clinical and testing costs and expand our facilities. Moreover, our losses are expected to continue even if our current research projects are able to successfully identify potential drug targets. If the time required to generate revenues and achieve profitability is longer than anticipated or if we are unable to obtain necessary capital, we may not be able to fund and continue our operations.
Because most of our expected future revenues are contingent upon collaborative and license agreements, we might not meet our strategic objectives.
Our ability to generate revenues in the near term depends on our ability to enter into additional collaborative agreements with third parties and to maintain the agreements we currently have in place. To date, all of our revenue has been related to the research phase of each of our collaborative agreements. Such revenue is for specified periods and is partially offset by corresponding research costs. Following the completion of the research phase of each collaborative agreement, additional revenue may come only from milestone payments and royalties, which may not be paid, if at all, until some time well into the future. The risk is heightened due to the fact that unsuccessful research efforts may preclude us from receiving any contingent funding under these agreements. Our receipt of revenue from collaborative arrangements is also significantly affected by the timing of efforts expended by us and our collaborators and the timing of lead compound identification. Under many agreements, milestone payments may not be earned until the collaborator has advanced products into clinical testing, which may never occur or may not occur until some time well into the future.
Our business plan contemplates that we will need to generate meaningful revenue from royalties and licensing agreements. To date, we have not yet received any revenue from royalties for the sale of commercial drugs, and we do not know when we will receive any such revenue, if at all. Likewise, we have not licensed any lead compounds or drug development candidates to third parties, and we do not know whether any such license will be entered into on acceptable terms in the future, if at all.
We are unable to predict when, or if, we will become profitable, and even if we are able to achieve profitability at any point in time, we do not know if our operations will be able to maintain profitability during any future periods.
There is a high risk that early–stage drug discovery and development might not successfully generate good drug candidates.
At the present time, our operations are in the early stages of drug identification and development. To date, we have only identified a few potential drug compounds, all of which are still in very early stages of development and have not yet been put into clinical testing. It is statistically unlikely that the few compounds that we have identified as potential drug candidates will actually lead to successful drug development efforts, and we do not expect any drugs resulting from our research to be commercially available for several years, if at all. Our leads for potential drug compounds will be subject to the risks and failures inherent in the development of pharmaceutical products based on new technologies. These risks include, but are not limited to, the inherent difficulty in selecting the right drug target and avoiding unwanted side effects as well as the unanticipated problems relating to product development, testing, regulatory compliance, manufacturing, marketing and competition, and additional costs and expenses that may exceed current estimates.
We might not be able to commercialize our drug candidates successfully if problems arise in the testing and approval process.
Commercialization of our product candidates depends upon successful completion of preclinical studies and clinical trials. Preclinical testing and clinical development are long, expensive and uncertain processes, and we do not know whether we, or any of our collaborative partners, will be permitted to undertake clinical trials of any potential products. It may take us or our collaborative partners several years to complete any such testing, and failure can occur at any stage of testing. Interim results of trials do not necessarily predict final results, and acceptable results in early trials may not be repeated in later trials. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier trials. Moreover, if and when our projects reach clinical trials, we or our collaborative partners may decide to discontinue development of any or all of these projects at any time for commercial, scientific or other reasons. There is also a risk that competitors and third parties may develop similar or superior products or have proprietary rights that preclude us from ultimately marketing our products, as well as the potential risk that our products may not be accepted by the marketplace.
If our current corporate collaborations or license agreements are unsuccessful or if conflicts develop with these relationships, our research and development efforts could be delayed.
Our strategy depends upon the formation and sustainability of multiple collaborative arrangements and license agreements with third parties in the future. We rely on these arrangements for not only financial resources, but also for expertise that we expect to need in the future relating to clinical trials, manufacturing, sales and marketing, and for licenses to technology rights. To date, we have entered into several such arrangements with corporate collaborators; however, we do not know if such third parties will dedicate sufficient resources or if any such development or commercialization efforts by third parties will be successful. Should a collaborative partner fail to develop or commercialize a compound or product to which it has rights from us, we may not receive any future milestone payments and will not receive any royalties associated with such compound or product. In addition, the continuation of some of our partnered drug discovery and development programs may be dependent on the periodic renewal of our corporate collaborations. More generally, our corporate collaboration agreements may terminate before the full term of the collaborations or upon a breach or a change of control. We may not be able to renew these collaborations on acceptable terms, if at all, or negotiate additional corporate collaborations on acceptable terms, if at all.
We are also a party to various license agreements that give us rights to use specified technologies in our research and development processes. The agreements, pursuant to which we have in-licensed technology, permit our licensors to terminate the agreements under certain circumstances. If we are not able to continue to license these and future technologies on commercially reasonable terms, our product development and research may be delayed.
Conflicts might also arise with respect to our various relationships with third parties. If any of our corporate collaborators were to breach or terminate their agreement with us or otherwise fail to conduct the collaborative activities successfully and in a timely manner, the preclinical or clinical development or commercialization of the affected product candidates or research programs could be delayed or terminated. We generally do not control the amount and timing of resources that our corporate collaborators devote to our programs or potential products. We do not know whether current or future collaborative partners, if any, might pursue alternative technologies or develop alternative products either on their own or in collaboration with others, including our competitors, as a means for developing treatments for the diseases targeted by collaborative arrangements with us. Conflicts also might arise with collaborative partners concerning proprietary rights to particular compounds. While our existing collaborative agreements typically provide that we retain milestone payments and royalty rights with respect to drugs developed from certain derivative compounds, any such payments or royalty rights may be at reduced rates and disputes may arise over the application of derivative payment provisions to such drugs, and we may not be successful in such disputes.
If we fail to enter into new collaborative arrangements in the future, our business and operations would be negatively impacted.
Although we have established several collaborative arrangements and various license agreements, we do not know if we will be able to establish additional arrangements, or whether current or any future collaborative arrangements will ultimately be successful. For example, there have been, and may continue to be, a significant number of recent business combinations among large pharmaceutical companies that have resulted and may continue to result in a reduced number of potential future corporate collaborators, which may limit our ability to find partners who will work with us in developing and commercializing our drug targets. If business combinations involving our existing corporate collaborators were to occur, the effect could be to diminish, terminate or cause delays in one or more of our corporate collaborations.
We will need additional capital in the future to sufficiently fund our operations and research.
We will require additional financing in the future to fund our operations. Our operations require significant additional funding in large part due to our research and development expenses, future preclinical and clinical–testing costs, the expansion of our facilities and the absence of any meaningful revenues over the foreseeable future. The amount of future funds needed will depend largely on the success of our collaborations and our research activities, and we do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on terms favorable to our stockholders or us. We have consumed substantial amounts of capital to date, and operating expenditures are expected to increase over the next several years as we expand our infrastructure and research and development activities.
We believe that our existing capital resources, together with the proceeds from future and current collaborations, will be sufficient to support our current operations for at least the next 15 months. Nonetheless, our future funding requirements will depend on many factors, including, but not limited to:
• any changes in the breadth of our research and development programs;
• the results of research and development, preclinical studies and clinical trials conducted by us or our collaborative partners or licensees, if any;
• the acquisition or licensing of technologies or compounds, if any;
• our ability to maintain and establish new corporate relationships and research collaborations;
• our ability to manage growth;
• competing technological and market developments;
• the time and costs involved in filing, prosecuting, defending and enforcing patent and intellectual property claims;
• the receipt of contingent licensing or milestone fees from our current or future collaborative and license arrangements, if established; and
• the timing of regulatory approvals.
To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we will not be able to continue developing our products.
Our success is dependent on intellectual property rights held by us and third parties and our interest in such rights is complex and uncertain.
Our success will depend to a large part on our own, our licensees' and our licensors' ability to obtain and defend patents for each party's respective technologies and the compounds and other products, if any, resulting from the application of such technologies. Seven U.S. patents have been issued to us as of September 30, 2001, and we have numerous applications in the U.S. and abroad awaiting approval. In the future, our patent position might be highly uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date. Accordingly, we cannot predict the breadth of claims allowed in our or other companies' patents.
The degree of future protection for our proprietary rights is uncertain and we cannot ensure that:
• we were the first to make the inventions covered by each of our pending patent applications;
• we were the first to file patent applications for these inventions;
• others will not independently develop similar or alternative technologies or duplicate any of our technologies;
• any of our pending patent applications will result in issued patents;
• any patents issued to us or our collaborators will provide a basis for commercially viable products or will provide us with any competitive advantages or will not be challenged by third parties;
• we will develop additional proprietary technologies that are patentable; or
• the patents of others will not have a negative effect on our ability to do business.
We rely on trade secrets to protect technology where we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we require employees, collaborators and consultants to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information.
We are a party to certain in-license agreements which are important to our business, and we generally do not control the prosecution of in-licensed technology. Accordingly, we are unable to exercise the same degree of control over this intellectual property as we exercise over our internally developed technology. Moreover, some of our academic institution licensors, research collaborators and scientific advisors have rights to publish data and information in which we have rights. If we cannot maintain the confidentiality of our technology and other confidential information in connection with our collaborations, then our ability to receive patent protection or protect our proprietary information will be impaired. In addition, some of the technology we have licensed relies on patented inventions developed using U.S. government resources. The U.S. government retains certain rights, as defined by law, in such patents, and may choose to exercise such rights.
If a dispute arises regarding the infringement or misappropriation of the proprietary rights of others, such dispute could be costly and result in delays in our research and development activities.
Our success will also depend, in part, on our ability to operate without infringing or misappropriating the proprietary rights of others. There are many issued patents and patent applications filed by third parties relating to products or processes that are similar or identical to ours or our licensors, and others may be filed in the future. There can be no assurance that our activities, or those of our licensors, will not infringe patents owned by others. We believe that there may be significant litigation in the industry regarding patent and other intellectual property rights, and we do not know if we or our collaborators would be successful in any such litigation. Any legal action against our collaborators or us claiming damages or seeking to enjoin commercial activities relating to the affected products, our methods or processes could:
• require our collaborators or us to obtain a license to continue to use, manufacture or market the affected products, methods or processes, which may not be available on commercially reasonable terms, if at all;
• prevent us from using the subject matter claimed in the patents held by others;
• subject us to potential liability for damages;
• consume a substantial portion of our managerial and financial resources; and
• result in litigation or administrative proceedings which may be costly, whether we win or lose.
Pharmexa (formerly M&E Biotech) has notified us that they have received patent protection in some European countries and Australia for a process they assert is similar to certain aspects of our technologies. Pharmexa has notified us of its belief that we have infringed, and are contributorily infringing, certain claims of that European patent. In June 2001, we commenced administrative proceedings to oppose Pharmexa's European patent. Earlier in the year, Pharmexa commenced an administrative proceeding to oppose our Australian patent. Legal proceedings with respect to these patents could be lengthy, costly and require significant management time and other resources which could adversely affect the pursuit of scientific and business goals. In addition, any such legal action could result in the award of damages or a court order preventing us from using the technology covered by the Pharmexa patent. In addition, any license or other transfer of rights to the patent by Pharmexa to a third party could adversely impact our ability to obtain a license to the patent. In the event we desire to seek a license to the patent, we may not be able to obtain a license on acceptable terms. Furthermore, such failure might adversely impact our collaborations with European partners or may materially adversely affect our business in the jurisdictions that may be covered by the patent protection. We are also aware that Pharmexa has sought patent protection in other countries, including the U.S., and has the option to seek patent protection in other parts of the world. If Pharmexa were to receive such patent protection, it might conflict with or overlap with the patent rights we are pursuing. We currently do not, and do not plan to, operate in any country outside the United States.
If we are unable to obtain regulatory approval to market products in the United States and foreign jurisdictions, we might not be permitted to commercialize products from our research.
Due, in part, to the early stage of our drug candidate research and development process, we cannot predict whether regulatory clearance will be obtained for any product we, or our collaborative partners, hope to develop. Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources. Of particular significance to us are the requirements covering research and development and testing.
Before commencing clinical trials in humans, we, or our collaborative partners, will need to submit and receive approval from the FDA of an Investigational New Drug application, or IND. If regulatory clearance of a product is granted, this clearance will be limited to those disease states and conditions for which the product is demonstrated through clinical trials to be safe and efficacious. We cannot ensure that any compound developed by us, alone or with others, will prove to be safe and efficacious in clinical trials and will meet all of the applicable regulatory requirements needed to receive marketing clearance.
Outside the United States, our ability, or that of our collaborative partners, to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authorities. This foreign regulatory approval process typically includes all of the risks associated with FDA clearance described above and may also include additional risks.
We may encounter difficulties in managing our growth and these difficulties could increase our losses.
We have experienced a period of rapid and substantial growth that has placed and will continue to place a strain on our human and capital resources. The number of our employees increased from 31 at December 31, 1997, to 143 at September 30, 2001. Our ability to manage our operations and growth effectively requires us to continue to use funds to improve our operational, financial and management controls, reporting systems and procedures and to attract and retain sufficient numbers of talented employees. If we are unable to manage this growth effectively, our losses will increase.
If our competitors develop technologies that are more effective than ours, our commercial opportunity will be reduced or eliminated.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Many of the drugs that we are attempting to discover will be competing with existing therapies. In addition, a number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. We face competition from pharmaceutical and biotechnology companies both in the United States and abroad. Our competitors may utilize discovery technologies and techniques or partner with collaborators in order to develop products more rapidly or successfully than we, or our collaborators, are able to do. Many of our competitors, particularly large pharmaceutical companies, have substantially greater financial, technical and human resources than we do. In addition, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or technologies and may establish exclusive collaborative or licensing relationships with our competitors.
We believe that our ability to compete is dependent, in part, upon our ability to create, maintain and license scientifically advanced technology and upon our and our strategic partners' ability to develop and commercialize pharmaceutical products based on this technology, as well as our ability to attract and retain qualified personnel, obtain patent protection or otherwise develop proprietary technology or processes and secure sufficient capital resources for the expected substantial time period between technological conception and commercial sales of products based upon our technology. The failure by us or any of our collaborators in any of those areas may prevent the successful commercialization of our potential drug targets.
Our competitors might develop technologies and drugs that are more effective or less costly than any that are being developed by us or that would render our technology and potential drugs obsolete and noncompetitive. In addition, our competitors may succeed in obtaining the approval of the FDA or other regulatory approvals for drug candidates more rapidly. Companies that complete clinical trials, obtain required regulatory agency approvals and commence commercial sale of their drugs before their competitors may achieve a significant competitive advantage, including certain patent and FDA marketing exclusivity rights that would delay or prevent our ability to market certain products. Any drugs resulting from our research and development efforts, or from our joint efforts with our existing or future collaborative partners, might not be able to compete successfully with competitors' existing or future products or products under development or obtain regulatory approval in the United States or elsewhere.
Our ability to generate revenues will be diminished if our collaborative partners fail to obtain acceptable prices or an adequate level of reimbursement for products from third–party payors.
The drugs we hope to develop may be rejected by the marketplace due to many factors, including cost. Our ability to commercially exploit a drug may be limited due to the continuing efforts of government and third–party payors to contain or reduce the costs of health care through various means. For example, in some foreign markets, pricing and profitability of prescription pharmaceuticals are subject to government control. In the United States, we expect that there will continue to be a number of federal and state proposals to implement similar government control. In addition, increasing emphasis on managed care in the United States will likely continue to put pressure on the pricing of pharmaceutical products. Cost control initiatives could decrease the price that any of our collaborators would receive for any products in the future. Further, cost control initiatives could adversely affect our collaborators' ability to commercialize our products and our ability to realize royalties from this commercialization.
Our ability to commercialize pharmaceutical products with collaborators may depend, in part, on the extent to which reimbursement for the products will be available from:
• government and health administration authorities;
• private health insurers; and
• other third–party payors.
Significant uncertainty exists as to the reimbursement status of newly–approved healthcare products. Third–party payors, including Medicare, are challenging the prices charged for medical products and services. Government and other third–party payors increasingly are attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval. Third–party insurance coverage may not be available to patients for any products we discover and develop, alone or with collaborators. If government and other third–party payors do not provide adequate coverage and reimbursement levels for our products, the market acceptance of these products may be reduced.
If conflicts arise between our collaborators or advisors and us, any of them may act in their self-interest, which may be adverse to your interests.
If conflicts arise between us and our corporate collaborators or scientific advisors, the other party may act in its self-interest and not in the interest of our stockholders. Some of our corporate collaborators are conducting multiple product development efforts within each disease area that is the subject of the collaboration with us. In some of our collaborations, we have agreed not to conduct, independently or with any third party, any research that is competitive with the research conducted under our collaborations. Our collaborators, however, may develop, either alone or with others, products in related fields that are competitive with the products or potential products that are the subject of these collaborations. Competing products, either developed by our collaborators or to which our collaborators have rights, may result in their withdrawal of support for our product candidates.
If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of our products.
The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. We currently do not have product liability insurance and our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of pharmaceutical products we develop, alone or with corporate collaborators. We, or our corporate collaborators, might not be able to obtain insurance at a reasonable cost, if at all. While under various circumstances we are entitled to be indemnified against losses by our corporate collaborators, indemnification may not be available or adequate should any claim arise.
Our research and development efforts will be seriously jeopardized if we are unable to attract and retain key employees and relationships.
Being a small company with only 143 employees as of September 30, 2001, our success depends on the continued contributions of our principal management and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, scientists and companies in the face of intense competition for such personnel. In particular, our research programs depend on our ability to attract and retain highly skilled chemists and other scientists. If we lose the services of any of our personnel, our research and development efforts could be seriously and adversely affected. Although we generally have not experienced problems retaining key employees, our employees can terminate their employment with us at any time. We also expect to encounter increasing difficulty in attracting enough qualified personnel as our operations expand and the demand for these professionals increases, and this difficulty could impede significantly the achievement of our research and development objectives.
We depend on various scientific consultants and advisors for the success and continuation of our research efforts.
We work extensively with various scientific consultants and advisors. The potential success of our drug discovery programs depends, in part, on continued collaborations with these consultants and advisors. We, and various members of our management and research staff, rely on these consultants and advisors for expertise in screening research. Our scientific advisors are not employees of ours and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. We do not know if we will be able to maintain such consulting agreements or that such scientific advisors will not enter into consulting arrangements, exclusive or otherwise, with competing pharmaceutical or biotechnology companies, any of which would have a detrimental impact on our research objectives and could have a material adverse effect on our business, financial condition and results of operations.
If we use biological and hazardous materials in a manner that causes injury or violates laws, we may be liable for damages.
Our research and development activities involve the controlled use of potentially harmful biological materials as well as hazardous materials, chemicals and various radioactive compounds. We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for damages that result, and such liability could exceed our resources. We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. The cost of compliance with, or any potential violation of, these laws and regulations could be significant.
Our facilities are located near known earthquake fault zones, and the occurrence of an earthquake or other catastrophic disaster could cause damage to our facilities and equipment, which could require us to cease or curtail operations.
Our facilities are located in the San Francisco Bay Area near known earthquake fault zones and are vulnerable to significant damage from earthquakes. We are also vulnerable to damage from other types of disasters, including fires, floods, power loss, communications failures and similar events. If any disaster were to occur, our ability to operate our business at our facilities would be seriously, or potentially completely, impaired and our research could be lost or destroyed. In addition, the unique nature of our research activities and of much of our equipment could make it difficult for us to recover from a disaster. The insurance we maintain may not be adequate to cover or losses resulting from disasters or other business interruptions.
If our officers, directors and largest stockholders choose to act together, they may be able to significantly affect our management and operations, acting in their best interests and not necessarily those of other stockholders.
Our directors, executive officers and principal stockholders and their affiliates beneficially own approximately 30.2% of our common stock, based on their beneficial ownership as of May 15, 2001. Accordingly, they collectively will have the ability to significantly affect the election of all of our directors and the outcome of most corporate actions requiring stockholder approval. They may exercise this ability in a manner that advances their best interests and not necessarily those of other stockholders.
Our stock price may be volatile and your investment in our stock could decline in value.
The market prices for our securities and those of other of biotechnology companies have been highly volatile and may continue to be highly volatile in the future. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:
• announcements of technological innovations or new commercial products by our competitors or us;
• developments concerning proprietary rights, including patents;
• developments concerning our collaborations;
• publicity regarding actual or potential medical results relating to products under development by our competitors or us;
• regulatory developments in the United States and foreign countries;
• litigation;
• economic and other external factors or other disaster or crisis; and
• period-to-period fluctuations in financial results.
Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us, which may be beneficial to our stockholders, more difficult.
Provisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. These provisions:
• establish that members of the board of directors may be removed only for cause upon the affirmative vote of stockholders owning at least two-thirds of our capital stock;
• authorize the issuance of "blank check" preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;
• limit who may call a special meeting of stockholders;
• prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
• establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings; and
• provide for a board of directors with staggered terms.
In addition, Section 203 of the Delaware General Corporation Law, which imposes certain restrictions relating to transactions with major stockholders, may discourage, delay or prevent a third party from acquiring us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities in which we invest may have market risk. This means that a change in prevailing interest rates may cause the fair value amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the market value amount of our investment will decline. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities. In 2000 and the first nine months of 2001, we maintained an investment portfolio primarily in depository accounts and corporate commercial paper. Due to the short-term nature of these investments, we believe we do not have a material exposure to interest rate risk arising from our investments. Therefore, no quantitative tabular disclosure is provided. We have not invested in derivative investments and our investment policy does not allow for investments in derivative investments in the future.
We have operated primarily in the United States, and all funding activities with our collaborators to date have been made in U.S. dollars. Accordingly, we have not had any exposure to foreign currency rate fluctuations.
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Our Registration Statement on Form S-1 (No. 333-45864), as amended, with respect to our initial public offering was declared effective by the SEC on November 28, 2000. We received net proceeds of approximately $35,560,000 after deducting offering expenses of $3,990,000, including underwriting discounts and commissions of $2,768,000 and other offering expenses of $1,222,000. We intend to continue to use the net proceeds of the offering for research and development, general corporate purposes and working capital and capital lease obligations. Rigel continually assesses the specific uses and allocations for these funds. As of September 30, 2001, approximately $35.6 million of the net proceeds remained available and were primarily invested in short-term marketable securities.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.
b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three–month period ended September 30, 2001.
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.
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RIGEL PHARMACEUTICALS, INC. |
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By: |
/s/ JAMES H. WELCH |
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James H. Welch
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Date: |
November 13, 2001 |
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INDEX TO EXHIBITS
Exhibit Number |
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Description of Document |
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3.1 |
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Amended and Restated Certificate of Incorporation. (1) |
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3.2 |
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Amended and Restated Bylaws. (1) |
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4.1 |
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Specimen Common Stock Certificate. (1) |
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10.18* |
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Second Amendment, dated July 6, 2001, to the Collaboration Agreement between Rigel and Novartis Pharma AG. |
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10.19* |
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License and Research Agreement (Amended and Restated) between Rigel and Cell Genesys, Inc., dated September 2, 1999, as first amended and restated on March 26, 2001 and again amended and restated on July 1, 2001. |
* Confidential treatment requested for certain portions of this exhibit, which is filed herewith.
(1) Filed with Rigel's Registration Statement on Form S-1, as amended (No. 333-45864), and incorporated herein by reference.