-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O4NqPGCGWwaf/jt9RhOk9ORUvv4aRIGYBA7rYzG7DBp4wMbXzrX0QwRpfd+fYfiS Q75p3HCa858NEWhpEEMtPA== /in/edgar/work/0000950135-00-004871/0000950135-00-004871.txt : 20001109 0000950135-00-004871.hdr.sgml : 20001109 ACCESSION NUMBER: 0000950135-00-004871 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICINES CO/ MA CENTRAL INDEX KEY: 0001113481 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 043324394 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-31191 FILM NUMBER: 755997 BUSINESS ADDRESS: STREET 1: ONE CAMBRIDGE CTR CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6172259099 10-Q 1 b37373mce10-q.txt THE MEDICINES COMPANY 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended September 30, 2000 Commission File Number 000-22347 The Medicines Company (Exact Name of Registrant as Specified in Its Charter)
Delaware 04-3324394 -------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) One Cambridge Center, Cambridge, MA 02142 ----------------------------------- ----- (Address of Principle Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (617) 225-9099 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date: As of October 31, 2000, there were 30,297,532 shares of Common Stock, $0.001 par value per share, outstanding. 2 THE MEDICINES COMPANY TABLE OF CONTENTS PART I. FINANCIAL INFORMATION.............................................. 1 ITEM 1 - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS..................... 1 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................................... 7 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..... 11 PART II. OTHER INFORMATION................................................ 12 ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS...................... 12 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K............................... 13 SIGNATURES................................................................. 14 EXHIBIT INDEX.............................................................. 15 3 PART I. FINANCIAL INFORMATION ITEM 1 - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS THE MEDICINES COMPANY (a company in the development stage) CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 68,109,035 $ 6,643,266 Marketable securities 29,181,638 539,274 Accrued interest receivable 957,724 55,225 Prepaid expenses and other current assets 457,650 154,967 ------------- ------------- Total current assets 98,706,047 7,392,732 Fixed assets, net 655,114 430,061 Other assets 302,502 168,605 ------------- ------------- Total assets $ 99,663,663 $ 7,991,398 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 3,892,161 $ 7,815,028 Accrued expenses 6,753,414 3,680,293 ------------- ------------- Total current liabilities 10,645,575 11,495,321 Convertible notes -- 5,776,319 Redeemable Convertible Preferred Stock, $1.00 par value; 5,000,000 and 31,550,000 shares authorized at September 30, 2000 and December 31, 1999, respectively; 0 and 22,962,350 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively, at redemption value [Liquidation value of $0 and $86,167,221 at September 30, 2000 and December 31, 1999, respectively] -- 85,277,413 Stockholders' equity (deficit): Common stock, $.001 par value, 75,000,000 and 36,000,000 shares authorized at September 30, 2000 and December 31, 1999, respectively; 30,297,532 and 833,400 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively 30,298 834 Additional paid-in capital 279,133,225 339,144 Deferred compensation (15,740,140) -- Deficit accumulated during the development stage (174,377,144) (94,925,028) Accumulated other comprehensive income (28,151) 27,395 ------------- ------------- Total stockholders' equity (deficit) 89,018,088 (94,557,655) ------------- ------------- Total liabilities and stockholders' equity (deficit) $ 99,663,663 $ 7,991,398 ============= =============
See accompanying notes to unaudited consolidated financial statements. Page 1 4 THE MEDICINES COMPANY (a company in the development stage) CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED
PERIOD THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, JULY 31, 1996 ---------------------------- --------------------------- (DATE OF INCEPTION) 2000 1999 2000 1999 TO SEPT. 30, 2000 ------------- ------------- ------------- ------------- ----------------- Operating expenses: Research and development $ 6,734,799 $ 7,869,573 $ 23,503,579 $ 25,116,175 $ 94,724,679 General and administrative 3,562,440 1,130,788 7,339,618 4,082,037 21,717,950 ------------- ------------- ------------- ------------- ------------- Total operating expenses 10,297,239 9,000,361 30,843,197 29,198,212 116,442,629 Loss from operations (10,297,239) (9,000,361) (30,843,197) (29,198,212) (116,442,629) Other income (expense): Interest income 838,606 123,505 1,124,331 814,813 4,013,957 Interest expense -- -- (19,390,414) -- (19,617,104) ------------- ------------- ------------- ------------- ------------- Net loss (9,458,633) (8,876,856) (49,109,280) (28,383,399) (132,045,776) Dividends and accretion to redemption value of redeemable preferred stock (1,624,395) (1,498,542) (30,342,988) (4,370,770) (42,331,520) ------------- ------------- ------------- ------------- ------------- Net loss attributable to common stockholders $ (11,083,028) $ (10,375,398) $ (79,452,268) $ (32,754,169) (174,377,296) ============= ============= ============= ============= ============= Basic and diluted net loss attributed to common stockholders per common share $ (0.67) $ (19.21) $ (13.32) $ (66.99) Unaudited pro forma basic and diluted net loss attributable to common stockholders per common share $ (0.34) $ (0.49) $ (1.28) $ (1.64) Shares used in computing net loss attributable to common stockholders per common share: Basic and diluted 16,467,030 540,046 5,964,852 488,973 Unaudited pro forma basic and diluted 27,514,031 18,137,377 23,222,614 17,336,229
See accompanying notes to unaudited consolidated financial statements. Page 2 5 THE MEDICINES COMPANY (a company in the development stage) CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
NINE MONTHS ENDED SEPT. 30, PERIOD JULY 31, 1996 ----------------------------- (DATE OF INCEPTION) 2000 1999 TO SEPT. 30, 2000 ------------- ------------- ----------------- Cash flows from operating activities: Net loss $ (49,109,280) $ (28,383,399) $(132,045,776) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 178,385 151,147 519,907 Amortization of discount on convertible notes 19,013,486 -- 19,115,160 Amortization of deferred stock compensation 1,539,472 -- 1,539,472 Loss on sales of fixed assets 9,156 -- 9,156 Changes in operating assets and liabilities: Accrued interest receivable (138,184) 679,606 (193,409) Prepaid expenses and other current assets (304,611) 1,372 (459,132) Other assets (135,164) (3,349) (303,402) Accounts payable (3,916,349) 737,543 3,897,573 Accrued expenses 3,330,229 5,106,686 7,008,330 ------------- ------------- ------------- Net cash used in operating activities (29,532,860) (21,710,394) (100,912,120) Cash flows from investing activities: Purchases of marketable securities (30,057,921) -- (90,103,208) Maturities and sales of marketable securities 541,400 17,571,063 60,045,287 Purchase of fixed assets (420,879) (250,274) (1,190,945) ------------- ------------- ------------- Net cash provided by (used in) investing activities (29,937,400) 17,320,789 (31,248,866) Cash flows from financing activities: Proceeds from issuance of convertible notes and warrants 13,348,779 -- 19,348,779 Proceeds from issuances of preferred stock, net 6,095,338 -- 79,395,165 Proceeds from issuances of common stock, net 101,445,745 -- 101,460,593 Repurchases of common stock (30) (73) (255) Dividends paid in cash (118) (73) (11,064) ------------- ------------- ------------- Net cash provided by (used in) financing activities 120,889,714 (146) 200,193,218 Effect of exchange rate changes on cash 46,315 3,758 76,803 ------------- ------------- ------------- Increase (decrease) in cash and cash equivalents 61,465,769 (4,385,993) 68,109,035 Cash and cash equivalents at beginning of period 6,643,266 8,997,522 -- ------------- ------------- ------------- Cash and cash equivalents at end of period $ 68,109,035 $ 4,611,529 68,109,035 ============= ============= ============= Non-cash transactions: Dividends paid on preferred stock $ 31,894,474 $ 5,351,178 40,106,652 ============= ============= ============= Supplemental disclosure of cash flow information: Interest paid $ 255,781 $ -- $ 285,016 ============= ============= =============
See accompanying notes to unaudited consolidated financial statements. Page 3 6 THE MEDICINES COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by The Medicines Company, also referred to as the Company, in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments, including normal recurring accruals, considered necessary for a fair presentation of financial position, results of operations, and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2000. For further information, refer to the consolidated financial statements and notes thereto included in our Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on August 4, 2000. 2. NET LOSS AND UNAUDITED PRO FORMA NET LOSS PER SHARE The following table sets forth the computation of basic and diluted, and unaudited pro forma basic and diluted, net loss per share for the three and nine months ended September 30, 2000 and 1999. The unaudited pro forma basic and diluted net loss per share gives effect to the conversion of redeemable convertible preferred stock and accrued dividends and convertible notes and accrued interest as if converted at the date of original issuance.
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, ---------------------------- ----------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------- Basic and diluted Net loss $ (9,458,633) $ (8,876,856) $(49,109,280) $(28,383,399) Dividends and accretion to redemption value of redeemable preferred stock (1,624,395) (1,498,542) (30,342,988) (4,370,770) ------------ ------------ ------------ ------------ Net loss attributable to common stockholders $(11,083,028) $(10,375,398) $(79,452,268) $(32,754,169) ============ ============ ============ ============ Weighted average common shares outstanding 16,644,519 836,367 6,156,621 855,112 Less: unvested restricted common shares outstanding (177,490) (296,322) (191,770) (366,140) ------------ ------------ ------------ ------------ Weighted average common shares used to compute net loss per share 16,467,030 540,046 5,964,852 488,973 ============ ============ ============ ============ Basic and diluted net loss per share $ (0.67) $ (19.21) $ (13.32) $ (66.99) ============ ============ ============ ============
Page 4 7 THE MEDICINES COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Unaudited pro forma basic and diluted Net loss $ (9,458,633) $ (8,876,856) $(49,109,280) $(28,383,399) Interest expense on convertible notes -- -- 19,390,414 -- Dividends and accretion to redemption value of redeemable preferred stock -- -- -- -- ------------ ------------ ------------ ------------ Net loss to compute pro forma net loss per share $ (9,458,633) $ (8,876,856) $(29,718,866) $(28,383,399) ============ ============ ============ ============ Weighted average common shares used to compute pro forma net loss per share 16,467,030 540,046 5,964,852 488,973 Weighted average number of common shares assuming the conversion of all redeemable convertible preferred stock and convertible notes and accrued interest at the date of original issuance 11,047,001 17,597,331 17,257,763 16,847,256 ------------ ------------ ------------ ------------ Weighted average common shares used to compute pro forma net loss per share 27,514,031 18,137,377 23,222,614 17,336,229 ============ ============ ============ ============ Unaudited pro forma basic and diluted pro forma net loss per share $ (0.34) $ (0.49) $ (1.28) $ (1.64) ============ ============ ============ ============
Options to purchase 2,521,316 and 912,957 shares of common stock as of September 30, 2000 and 1999, respectively, have not been included in the computation of diluted net loss per share as their effect would have been antidilutive. Outstanding warrants to purchase 3,269,564 shares of common stock as of September 30, 2000 were excluded from the computation of diluted net loss per share as their effect would have been antidilutive. During the three and nine months ended September 30, 2000, the Company issued options to purchase 636,286 and 2,247,615 shares of common stock, respectively, at exercise prices below the estimated fair value of the Company's common stock as of the date of grant of such options, based on the estimated price (as of the date of grant) of the Company's common stock in connection with the Company's initial public offering (the "IPO"). Also during the three and nine months ended September 30, 2000, options to purchase shares of 7,577 and 65,869 shares of common stock were cancelled because employees left the Company before options vested. The total deferred compensation associated with options granted during the three and nine months ended September 30, 2000 was approximately $4.6 million and $17.3 million, respectively. Included in the results of operations for the three and nine months ended September 30, 2000 is compensation expense of approximately $932,000 and $1.5 million, respectively, associated with such options. Page 5 8 3. REDEEMABLE PREFERRED STOCK The Company issued 1,411,000 shares of Series IV Redeemable Convertible Preferred Stock (the "Series IV Preferred Stock") for net proceeds of $6.1 million on May 17, 2000. In addition, on May 17, 2000, convertible notes in the aggregate principal amount of $19.3 million and accrued interest were converted into 4,535,366 shares of Series IV Preferred Stock. The Series IV Preferred Stock carried terms and conditions similar to the Company's Series I, Series II, and Series III Redeemable Convertible Preferred Stock. The Series IV Preferred Stock was convertible into common stock at a 1-for-0.73 conversion rate and automatically converted upon the closing of the IPO. The Series IV Preferred Stock issued on May 17, 2000 contained a beneficial conversion feature based on the estimated fair market value of common stock into which it was convertible. In accordance with EITF 98-5, the total amount of such beneficial conversion was approximately $25.5 million. The beneficial conversion is analogous to a dividend and was recognized in the period of issuance. In addition, in conjunction with the sale of the Series IV Preferred Stock, the Company received commitments of continued financial support totaling $15.2 million from substantially all of its existing investors. These commitments terminated upon the closing of the IPO. 4. INITIAL PUBLIC OFFERING In its IPO, which was completed on August 11, 2000, the Company sold 6,000,000 shares of its common stock at a price of $16.00 per share. In addition, on September 8, 2000, the underwriters of the IPO exercised their over-allotment option and purchased an additional 900,000 shares of common stock at a price of $16.00 per share. The Company received proceeds of approximately $101.4 million, net of underwriting discounts and commissions, and estimated expenses relating to the IPO. Simultaneously with the closing of the IPO, 30,659,957 shares of Redeemable Convertible Preferred Stock then outstanding (including accrued dividends for the period August 1, 2000 to August 11, 2000) were converted into 22,381,735 shares of common stock. In addition, commitments of continued financial support totaling $15.2 million received from substantially all of our existing investors terminated as a result of the closing of the IPO. In conjunction with the IPO, a reverse stock split of 0.73 shares for every one share of common stock then outstanding became effective. The accompanying financial statements and footnotes have been restated to reflect the reverse stock split. 5. COMPREHENSIVE INCOME (LOSS) Comprehensive losses for the three and nine months ended September 30, 2000 were $47,000 and $56,000, respectively. Page 6 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL We acquire, develop and commercialize biopharmaceutical products in late stages of development. Our lead product, Angiomax(TM) (bivalirudin), directly blocks or inhibits the actions of thrombin, a key component in the formation and growth of blood clots. In May 2000, we received an approvable letter from the U.S. Food and Drug Administration (the "FDA") for the use of Angiomax in the treatment of patients with unstable angina undergoing coronary balloon angioplasty. Final approval of the New Drug Application (the "NDA") for Angiomax is contingent upon the satisfactory completion of conditions specified by the FDA. Development programs are underway for additional potential applications of Angiomax for the treatment of ischemic heart disease. Since our inception, we have incurred significant losses and, as of September 30, 2000, had a deficit accumulated during the development stage of $174.4 million. Most of our expenditures to date have been for research and development activities and general and administrative expenses. Research and development expenses represent costs incurred for product acquisition, clinical trials, activities relating to regulatory filings and manufacturing development efforts. We generally outsource our clinical and manufacturing development activities to independent organizations to maximize efficiency and minimize our internal overhead. We expense our research and development costs as they are incurred. General and administrative expenses consist primarily of salaries and related expenses, general corporate activities and costs associated with initial product marketing activities. We expect to continue to incur operating losses during fiscal 2000 and for the foreseeable future as a result of research and development activities attributable to new and existing products and costs associated with the commercialization and launch of our products. In the fourth quarter of 2000, we expect increased cash outlays for research and development costs associated with our ongoing clinical trials and manufacturing development activities. We also expect increased outlays during the fourth quarter of 2000 for sales, general and administrative costs related to the commercial launch in the United States of Angiomax, the Company's lead product. We will need to generate significant revenues to achieve and maintain profitability. To date, we have had no revenues from any product sales, and we have not achieved profitability on a quarterly or annual basis. During the three and nine months ended September 30, 2000, we recorded deferred stock compensation on the grant of stock options of approximately $4.6 million and $17.3 million, respectively, representing the difference between the exercise price of such options and the fair market value of our common stock at the date of grant of such options. The exercise prices of these options were below the estimated fair market value of our common stock as of the date of grant based on the estimated IPO price of our common stock. We amortize deferred stock compensation over the respective vesting periods of the individual stock options. We recorded an amortization expense for deferred compensation of Page 7 10 approximately $932,000 and $1.5 million for the three and nine months ended September 30, 2000, respectively. We expect to record an amortization expense for deferred compensation as follows: approximately $2.0 million for the last quarter of 2000, approximately $4.3 million for 2001, approximately $4.0 million for 2002, approximately $3.9 million for 2003 and approximately $1.5 million for 2004. In May 2000, we sold shares of Series IV Redeemable Convertible Preferred Stock. The Series IV Redeemable Convertible Preferred Stock contained a beneficial conversion feature based on the estimated fair market value of common stock into which it was convertible. The total amount of such beneficial conversion was approximately $25.5 million and has been reflected as a dividend in the period of issuance, the second quarter of 2000. Additionally, in the second quarter of 2000, we recorded approximately $11.7 million, the remaining discount associated with our convertible notes, as interest expense. We have not generated taxable income to date. At December 31, 1999, net operating losses available to offset future taxable income for federal income tax purposes were approximately $77.9 million. If not utilized, federal net operating loss carryforwards will expire at various dates beginning in 2011 and ending 2019. We have not recognized the potential tax benefit of our net operating losses in our statements of operations. The future utilization of our net operating loss carryforwards may be limited pursuant to regulations promulgated under the Internal Revenue Code of 1986, as amended. RESULTS OF OPERATIONS Three Months Ended September 30, 2000 and 1999 Research and Development Expenses. Research and development expenses decreased 14% to $6.7 million for the three months ended September 30, 2000, from $7.9 million for the three months ended September 30, 1999. The decrease in research and development expenses of $1.2 million was primarily due to reduced development expenses reflecting our termination of the semilog manufacturing development program with Lonza AG in the fourth quarter of 1999 and to a reduction in development activity for IS-159 in 2000. This reduction in costs was partly offset by the development costs incurred for CTV-05, a biotherapeutic drug that we exclusively licensed from GyneLogix in August 1999 for the treatment of bacterial vaginosis, and to the increased enrollment rate of our Angiomax HERO-2 phase 3 clinical trial for acute myocardial infraction during the three months ended September 30, 2000. General and Administrative Expenses. General and administrative expenses increased 215% to $3.6 million for the three months ended September 30, 2000, from $1.1 million for the three months ended September 30, 1999. The increase in general and administrative expenses of $2.5 million was primarily due to an increase in marketing and selling expenses and corporate infrastructure costs arising from an increase in activity relating to the planned commercial launch of Angiomax. Interest Income. Interest income increased 579% to $839,000 for the three months ended September 30, 2000, from $124,000 for the three months ended September 30, 1999. The Page 8 11 increase in interest income of $715,000 was primarily due to interest income arising from investment of the proceeds of the IPO during the three months ended September 30, 2000. Nine Months Ended September 30, 2000 and 1999 Research and Development Expenses. Research and development expenses decreased 6% to $23.5 million for the nine months ended September 30, 2000, from $25.1 million for the nine months ended September 30, 1999. The decrease in research and development expenses of $1.6 million was primarily due to reduced development expenses reflecting our termination of the semilog manufacturing development program with Lonza AG in the fourth quarter of 1999 and to a reduction in development activity for IS-159 in 2000. This reduction in costs was partly offset by the recognition of $6.5 million of research and development costs in connection with the completion of UCB Bioproduct's manufacture of Angiomax bulk drug substance in March 2000, the increased development costs of CTV-05, and the increased enrollment rate of our Angiomax HERO-2 phase 3 clinical trial for acute myocardial infarction during the period. General and Administrative Expenses. General and administrative expenses increased 80% to $7.3 million for the nine months ended September 30, 2000, from $4.1 million for the nine months ended September 30, 1999. The increase in general and administrative expenses of $3.2 million was primarily due to an increase in marketing and selling expenses and corporate infrastructure costs arising from an increase in activity relating to the planned commercial launch of Angiomax. Interest Income and Interest Expense. Interest income increased 38% to $1.1 million for the nine months ended September 30, 2000, from $815,000 for the nine months ended September 30, 1999. The increase in interest income of $309,000 was primarily due to interest income arising from investment of the proceeds of the IPO during the three months ended September 30, 2000. Interest expense was $19.4 million for the nine months ended September 30, 2000 and related to interest charges and amortization of discount on our convertible notes issued in October 1999 and March 2000. The notes were converted into preferred stock in May 2000, accelerating the remaining unamortized discount. LIQUIDITY AND CAPITAL RESOURCES In August and September 2000, we received $101.4 million in net proceeds from the sale of common stock in our IPO at a price of $16.00 per share. Prior to the IPO, we had financed our operations primarily through the private placement of equity, convertible debt securities and warrants. Until the IPO, we had received net proceeds of $79.4 million from the private placement of equity securities, primarily redeemable convertible preferred stock, and $19.4 million from the issuance of convertible notes and warrants. As of September 30, 2000, we had $97.3 million in cash, cash equivalents and marketable securities, as compared to $7.2 million as of December 31, 1999. For the nine months ended September 30, 2000, we used net cash of $29.5 million in operating activities. This consisted of a net loss of $49.1 million, combined with a decrease in accounts Page 9 12 payable of $3.9 million, partly offset by an increase in accrued expenses of $3.3 million, non-cash amortization of discount on convertible notes of $19.0 million and deferred compensation of $1.5 million. We spent $29.9 million for investing activities, which consisted principally of purchases of marketable securities with net proceeds from the IPO. We received $120.9 million from financing activities, primarily from our IPO, which resulted in net proceeds of $101.4 million, and from the issuance of convertible notes and preferred stock, which resulted in proceeds of $19.4 million during the nine months ended September 30, 2000. During 1999, we placed an order with UCB Bioproducts for the manufacture of Angiomax bulk drug substance. Under the terms of this purchase order, we are scheduled to receive material and make payments totaling $13.0 million in fiscal 2000. Manufacture of $6.5 million of this material was completed in the nine months ended September 30, 2000 and was expensed during that period. We expect the manufacture and delivery of the remaining material to be completed in the fourth quarter of 2000. All costs associated with the manufacture of Angiomax bulk drug substance and finished products will be expensed until FDA approval of Angiomax. Should FDA approval of Angiomax come before we take delivery of the Angiomax bulk drug substance, then such material will be treated as inventory, reducing our research and development expenses in fiscal 2000, but increasing our cost of sales in fiscal 2001 and possibly the following year. We expect to devote substantial resources to continue our research and development efforts and to expand our sales, marketing and manufacturing programs associated with the commercialization and launch of our products. Our funding requirements will depend on numerous factors, including the timing of regulatory approval of Angiomax and whether Angiomax is commercially successful, the progress, level and timing of our research and development activities, the cost and outcomes of regulatory reviews, the establishment, continuation or termination of third party manufacturing or sales and marketing arrangements, the cost and effectiveness of our sales and marketing programs, the status of competitive products, our ability to defend and enforce our intellectual property rights and the establishment of additional strategic or licensing arrangements with other companies or acquisitions. We believe that our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least 12 months. If our existing resources are insufficient to satisfy our liquidity requirements, or if we acquire additional product candidates, we may need to sell additional equity or debt securities. The sale of additional equity and debt securities may result in additional dilution to our stockholders, and we cannot be certain that additional financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may be required to reduce the scope of our planned research, development and commercialization activities, which could harm our financial condition and operating results. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS This quarterly report on Form 10-Q contains certain forward-looking statements. For this purpose any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates", "plans," "expects," "intends" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause our actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth under the caption "Risk Factors" in our Prospectus filed with the Securities and Exchange Commission on August 8, 2000, which Risk Factors are expressly incorporated by reference herein. Page 10 13 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk is confined to our cash, cash equivalents and marketable securities. We place our investments in high-quality financial instruments, primarily money market funds and corporate debt securities with maturities or auction dates of less than one year, which we believe are subject to limited credit risk. We currently do not hedge interest rate exposure. Due to the short-term nature of our investments, we do not believe that we have any material exposure to interest rate risk arising from our investments. Most of our transactions are conducted in U.S. dollars. We do have certain development and commercialization agreements with vendors located outside the United States. Transactions under certain of these agreements are conducted in U.S. dollars, subject to adjustment based on significant fluctuations in currency exchange rates. Transactions under certain other of these agreements are conducted in the local foreign currency. If the exchange rate undergoes a change of 10%, we do not believe that it would have a material impact on our results of operations or cash flows. Page 11 14 PART II OTHER INFORMATION ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS To supplement the information previously reported, we are furnishing the following information with respect to the use of proceeds from our IPO of common stock in August 2000: (1) The effective date and Commission file number of the registration statement for the offering were August 7, 2000 and 333-37404, respectively. (4)(i) The offering terminated on August 7, 2000 after all of the shares were sold. On September 8, 2000, the underwriters purchased an additional 900,000 shares pursuant to their over-allotment option. (4)(iv) All of the 6,900,000 shares sold in the offering were registered for the account of the Company. (4)(v) From August 6, 2000 through September 30, 2000, the actual expenses incurred in connection with the offering are as follows: Underwriting discount $7,728,000 SEC registration fee $ 29,000 NASD filing fee $ 13,000 NASDAQ entry fee $ 94,000 Accounting fees and expenses $ 374,000 Legal fees and expenses $ 474,000 Printing and mailing expenses $ 234,000 Roadshow expenses $ 266,000 ---------- Total $9,212,000 ========== Payments of expenses were to persons other than directors or officers (or their associates), persons owning 10% or more of the equity securities of the Company or affiliates of the Company. (4)(vi) The net offering proceeds to the Company after expenses were approximately $101.4 million (4)(vii) From August 7, 2000 through September 30, 2000, the Company used approximately $3.8 million and $215,000 of the net proceeds from the offering for operating activities, including operating losses of $3.6 million and working capital, and the purchase of fixed assets, respectively. The balance of the offering proceeds ($97.4 million) was invested in cash equivalents or other marketable securities. All payments from the offering proceeds were to persons other than directors or officers (or their associates), persons owning 10% or more of the equity securities of the Company or affiliates of the Company. Page 12 15 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits See the Exhibit Index on Page 14 for a list of exhibits filed as part of this Quarterly Report on Form 10-Q, which Exhibit Index is incorporated herein by reference. b. Reports on Form 8-K None. Page 13 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE MEDICINES COMPANY Date: November 8, 2000 By: /s/ Peyton J. Marshall --------------------------------- Peyton J. Marshall Chief Financial Officer Page 14 17 Exhibit Index
Exhibit Number Description - -------------- ----------- 10 Amendment No. 1 dated as of August 8, 2000 to the Services Agreement dated April 1, 2000 between the Company and Stack Pharmaceuticals, Inc. 27 Financial Data Schedule 99 (1) Pages 7 through 13 of the Prospectus filed pursuant to Rule 424(b)(3) with the Securities and Exchange Commission on August 8, 2000.
(1) Incorporated herein by reference to the Company's Form 10-Q for the quarter ended June 30, 2000 Page 15 EX-10 2 b37373mcex10.txt AMENDMENT NO. 1 TO THE SERVICES AGREEMENT 1 Exhibit 10 AMENDMENT NO. 1 TO THE SERVICES AGREEMENT This Amendment No. 1 to the Services Agreement dated as of August 8, 2000 (the "Amendment"), among The Medicines Company, a Delaware corporation (the "Company") and Stack Pharmaceuticals, Inc., a Delaware corporation ("Stack"). WHEREAS, the Company and Stack are parties to the Services Agreement dated April 1, 2000 (the "Agreement"); and WHEREAS, the Company and Stack believe it to be in their mutual best interests to amend the Agreement ; NOW, THEREFORE, in consideration of the mutual promises and covenants contained in the Amendment, the parties hereto agree as follows: 1. Section 3.1, "Service Fees", of the Agreement is hereby deleted in its entirety and the following shall be inserted in lieu thereof: "3.1 Services Fees (a) During the Services Period (from and after July 1, 2000), the Company shall pay to Stack in connection with the services provided by David M. Stack, Melinda Popolla and Fred Ryan (the "Original Employees") service fees of $20,100 per month, payable in advance on the first day of each month. Payment for any partial month shall be prorated and Stack will reimburse the Company for any excess fees advanced to Stack. In the event that any of the Original Employees ceases to be an employee of Stack or ceases to provide services to the Company, these fees will be appropriately adjusted upon the mutual agreement of the Company and Stack. (b) During the Services Period (from and after July 1, 2000), the Company shall pay Stack additional service fees on a monthly basis at the end of each month which shall be calculated as follows: (i) For each individual employed by both the Company and Stack (other than any Original Employee), their individual portion of the service fee shall equal the product of $1,500 and % of time committed during applicable month committed to Company projects plus the product of such individual's monthly salary from the Company and 35%; and (ii) For each individual Company employee residing at the office of Stack, their individual portion of the service fee shall be $1,500. The monthly service fee will be the sum of all of the individual portions incurred under clauses (i) and (ii) above plus an additional amount not to exceed $600 a month to cover additional administrative expenses. If services are provided by any individual for a partial month, the fees for such services shall be prorated. 2 (c) In the event that any additional fees are payable to Stack in connection with the additional services contemplated by the last sentence of Section 1, the Company shall pay to Stack the fees due for such services on a monthly basis in arrears within thirty (30) days of receipt by the Company of a monthly invoice from Stack in a form reasonably satisfactory to the Company setting forth the fees owed to Stack for the additional services performed in the prior month." 2. RATIFICATION. In all other respects, the Agreement is hereby ratified and confirmed. 3. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. 4. EFFECTIVE DATE. This Amendment shall be deemed to have become effective as of July 1, 2000. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. to the Agreement as of the date first above written. THE MEDICINES COMPANY By: /s/ John M. Nystrom -------------------------------------- Name: John M. Nystrom Title: Vice President, Chief Technical Officer STACK PHARMACEUTICALS, INC. By: /s/ David Stack -------------------------------------- Name: David Stack Title: President, General Partner -2- EX-27 3 b37373mcex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2000 AND THE CONS0LIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 68,109,035 29,181,638 0 0 0 98,706,047 1,122,783 (467,669) 99,663,663 10,645,575 0 0 0 30,298 88,987,790 99,663,663 0 0 0 0 30,843,197 (30,843,197) (19,390,414) (49,109,280) 0 0 0 0 0 (79,452,268) (13.32) (13.32)
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