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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 2002
Commission File Number
0-28308
COLLAGENEX PHARMACEUTICALS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 52-1758016
- ---------------------------------- --------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
41 University Drive, Newtown, PA 18940
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(Address of Principal Executive Offices) (Zip Code)
(215) 579-7388
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(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: X No:
----- -----
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock as of July 31, 2002:
Class Number of Shares
----- ----------------
Common Stock $.01 par value 11,273,466
COLLAGENEX PHARMACEUTICALS, INC.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION........................................... 1
Item 1. Financial Statements......................................... 1
Condensed Consolidated Balance Sheets as of December 31,
2001 and June 30, 2002 (unaudited)...................... 2
Condensed Consolidated Statements of Operations for the Three
Months Ended June 30, 2001 and 2002 (unaudited)......... 3
Condensed Consolidated Statements of Operations for the Six
Months Ended June 30, 2001 and 2002 (unaudited) ........ 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2001 and 2002 (unaudited)......... 5
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 11
Results of Operations........................................ 12
Liquidity and Capital Resources.............................. 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 27
PART II. OTHER INFORMATION............................................... 28
Item 4. Submission of Matters to a Vote of Security Holders ......... 28
Item 5. Other Information............................................ 29
Item 6. Exhibits and Reports on Form 8-K............................. 30
SIGNATURES................................................................ 32
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
- 1 -
COLLAGENEX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 2001 and June 30, 2002
(dollars in thousands, except per share data)
DECEMBER 31, JUNE 30,
ASSETS 2001 2002
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents........................................... $ 6,171 $ 5,605
Accounts receivable, net of allowance of $950 and $1,217 at
December 31, 2001 and June 30, 2002, respectively................. 4,478 4,643
Inventories......................................................... 1,402 1,522
Prepaid expenses and other current assets........................... 1,200 1,584
--------- ---------
Total current assets.......................................... 13,251 13,354
Equipment and leasehold improvements, net.............................. 537 670
Other assets........................................................... 910 2,220
--------- ---------
Total assets.................................................. $ 14,698 $ 16,244
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of note payable..................................... $ 35 $ --
Accounts payable.................................................... 3,769 3,684
Accrued expenses.................................................... 3,153 4,793
--------- ---------
Total current liabilities..................................... 6,957 8,477
--------- ---------
Deferred revenue....................................................... 614 537
Commitments
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized;
200,000 shares of Series D cumulative convertible preferred
stock issued and outstanding at December 31, 2001 and June 30,
2002 (liquidation value of $20,000 at June 30, 2002).............. 2 2
Common stock, $0.01 par value; 25,000,000 shares authorized,
10,999,573 and 11,273,466 shares issued and outstanding at
December 31, 2001 and June 30, 2002, respectively................. 110 113
Common stock to be issued (103,196 shares at December 31, 2001
and 87,636 at June 30, 2002)...................................... 840 611
Additional paid in capital.......................................... 80,129 82,230
Accumulated deficit................................................. (73,954) (75,726)
--------- ---------
Total stockholders' equity.................................... 7,127 7,230
--------- ---------
Total liabilities and stockholders' equity.................... $ 14,698 $ 16,244
========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
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COLLAGENEX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 2001 and 2002
(dollars in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED JUNE 30,
---------------------------
2001 2002
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Revenues:
Product sales........................................... $ 7,267 $ 10,377
Contract revenues....................................... 1,024 555
License revenues........................................ 420 35
----------- -----------
Total revenues..................................... 8,711 10,967
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Operating expenses:
Cost of product sales................................... 1,516 1,598
Research and development................................ 874 870
Selling, general and administrative..................... 9,070 8,899
----------- -----------
Total operating expenses.......................... 11,460 11,367
----------- -----------
Operating loss.................................... (2,749) (400)
Other income (expense):
Interest income......................................... 74 15
Interest expense........................................ (2) (1)
Other income (expense).................................. (4) 1
----------- -----------
Net loss.......................................... (2,681) (385)
Preferred stock dividend.................................. 420 409
----------- -----------
Net loss allocable to common stockholders................. $ (3,101) $ (794)
=========== ===========
Basic and diluted net loss per share allocable to common
stockholders............................................ $ (0.29) $ (0.07)
=========== ===========
Shares used in computing basic and diluted net loss per
share allocable to common stockholders.................. 10,550,638 11,163,585
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
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COLLAGENEX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Six Months Ended June 30, 2001 and 2002
(dollars in thousands, except per share data)
(unaudited)
SIX MONTHS ENDED JUNE 30,
----------------------------
2001 2002
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Revenues:
Product sales........................................... $ 13,381 $ 20,258
Contract revenues....................................... 1,899 1,347
License revenues........................................ 456 122
---------- -----------
Total revenues..................................... 15,736 21,727
---------- -----------
Operating expenses:
Cost of product sales................................... 2,882 3,178
Research and development................................ 1,818 1,699
Selling, general and administrative..................... 16,547 17,827
---------- -----------
Total operating expenses.......................... 21,247 22,704
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Operating loss.................................... (5,511) (977)
Other income (expense):
Interest income......................................... 136 37
Interest expense........................................ (5) (2)
Other income............................................ 8 --
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Net loss.......................................... (5,372) (942)
Preferred stock dividend.................................. 840 829
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Net loss allocable to common stockholders................. $ (6,212) $ (1,771)
========== ===========
Basic and diluted net loss per share allocable to common
stockholders............................................ $ (0.62) $ (0.16)
========== ===========
Shares used in computing basic and diluted net loss per
share allocable to common stockholders.................. 9,946,992 11,122,041
========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
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COLLAGENEX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2001 and 2002
(dollars in thousands)
(unaudited)
SIX MONTHS ENDED JUNE 30,
----------------------------
2001 2002
------------ ------------
Cash flows from operating activities:
Net loss.................................................. $ (5,372) $ (942)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash compensation expense.......................... 178 --
Depreciation and amortization expense................. 127 129
Change in assets and liabilities:
Accounts receivable, net............................ (825) (165)
Inventories......................................... (939) (120)
Prepaid expenses and other assets................... (198) (1,942)
Accounts payable.................................... 2,013 (85)
Accrued expenses.................................... 64 1,640
Deferred revenue.................................... (31) (77)
--------- ---------
Net cash used in operating activities........ (4,983) (1,562)
--------- ---------
Cash flows from investing activities:
Capital expenditures...................................... (49) (262)
Proceeds from the sale of short term investments.......... 1,739 --
Purchase of short term investments........................ (296) --
--------- ---------
Net cash provided by (used in) investing
activities................................ 1,394 (262)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock................ 6,814 1,293
Repayment of long-term debt............................... (37) (35)
--------- ---------
Net cash provided by financing activities.... 6,777 1,258
Net increase (decrease) in cash and cash equivalents........ 3,188 (566)
Cash and cash equivalents at beginning of period............ 3,709 6,171
--------- ---------
Cash and cash equivalents at end of period.................. $ 6,897 $ 5,605
========= =========
Supplemental schedule of noncash financing activities:
Common stock dividends issued or issuable
on preferred stock...................................... $ 840 $ 611
========= =========
Cash dividends declared................................. -- 218
========= =========
Issuance of common stock to be issued................... 872 840
========= =========
Issuance of warrants to purchase common stock in
connection with equity line......................... -- 248
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest................ $ 8 $ 2
========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
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COLLAGENEX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2002
(dollars in thousands)
(Unaudited)
NOTE 1 -- BASIS OF PRESENTATION:
The unaudited condensed consolidated financial statements included herein
have been prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission and in accordance with accounting principles
generally accepted in the United States of America. Certain information and
footnote disclosures normally included in the annual financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations. These unaudited condensed consolidated financial statements
should be read in conjunction with the Company's 2001 audited consolidated
financial statements and footnotes included in its Form 10-K for the year ended
December 31, 2001.
The accompanying unaudited condensed consolidated financial statements
include the results of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements have been prepared on a basis
substantially consistent with the audited consolidated financial statements and
contain adjustments, all of which are of a normal recurring nature, necessary to
present fairly the Company's consolidated financial position as of June 30,
2002, their results of operations for the three and six months ended June 30,
2001 and 2002, and their cash flows for the six months ended June 30, 2001 and
2002. Interim results are not necessarily indicative of results anticipated for
the full fiscal year.
NOTE 2 -- INVENTORIES:
Inventories at December 31, 2001 and June 30, 2002 consist of the
following:
2001 2002
---- ----
Raw materials........... $ 174 $ 196
Work-in-process......... 66 800
Finished goods.......... 1,162 526
---------- ----------
$ 1,402 $ 1,522
========== ==========
NOTE 3 -- COMMON STOCK AND DEBT FINANCING:
On March 19, 2001, the Company consummated a one-year revolving credit
facility (the "Facility") with Silicon Valley Bank (the "Bank"). The Facility
was subsequently amended on
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March 22, 2002 to increase the amount available to the Company under the
Facility to the lesser of $4,000 or 80% of eligible accounts receivable, as
defined in the amendment. The amount available is also reduced by outstanding
letters of credit which may be issued under this agreement in amounts totaling
up to $1,500.
The Facility may be used only for working capital purposes. The Company is
not obligated to draw amounts under the Facility and any such draws under the
Facility will bear interest at the then prevailing prime rate plus 1.0 to 1.5%
per annum. The Company must also maintain (i) a tangible net worth of $5,000,
subject to certain upward adjustments as defined in the amendment, as a result
of profitable operation or additional debt or equity financings and (ii) a
minimum of $2,000 in cash, net of borrowings under the facility, at all times
during the term of the Facility, which expires March 15, 2004. Without the
consent of the Bank, the Company, among other things, shall not (i) merge or
consolidate with another entity; (ii) acquire assets outside the ordinary course
of business; or (iii) pay or declare any cash dividends on the Company's Common
Stock. In addition, the Company has secured its obligations under the Facility
through the granting of a security interest in favor of the Bank with respect to
all of the Company's assets, including its intellectual property. At June 30,
2002, there were no borrowings against the Facility, however, on March 26, 2002,
the Company issued an irrevocable letter of credit under the Facility for
$1,343. This letter of credit will be used to secure future purchases of
inventory that the Company expects to make from a supplier. As the Company pays
down amounts under the letter of credit, the amount available to the Company
under the Facility will increase.
On February 14, 2002, the Company entered into an equity line (the "Equity
Line") arrangement under the terms of a Common Stock Purchase Agreement (the
"Agreement") with Kingsbridge Capital Limited ("Kingsbridge"). Under the terms
of the Agreement, the Company may, at its sole discretion and from time to time
over the twelve month period that began February 14, 2002, sell shares of its
Common Stock to Kingsbridge at a discount to market price of up to 10%, as
determined prior to each such sale. The maximum amount of each draw down is
based on the Company's market capitalization and may not exceed $3,000. Pursuant
to the terms of the Agreement, the Company committed to: (i) draw down on the
Equity Line an amount aggregating at least $1,500 in registered shares of Common
Stock, prior to August 14, 2002 (the "Minimum Commitment Amount"), of which the
Company has drawn down an aggregate of $1,266 as of June 30, 2002; or (ii) if
the Company has not satisfied such Minimum Commitment Amount, pay to Kingsbridge
an amount equal to 10% of the amount by which the Minimum Commitment Amount
exceeds the aggregate of all amounts drawn down under the Equity Line in respect
of the shares of Common Stock issued and sold thereunder, except if the price of
the Company's Common Stock is below certain levels during this period.
Kingsbridge and the Company have agreed to extend the date by which the Company
must draw down the Minimum Commitment Amount to October 29, 2002. The Equity
Line provides for the sale of up to an aggregate $8,500 in registered shares of
Common Stock. In connection with the consummation of the Equity Line, the
Company issued to Kingsbridge a warrant to purchase 40,000 shares of Common
Stock at an exercise price of $9.38 per share. Such warrant is exercisable as of
August 14, 2002, and will expire on August 13, 2007. The fair value of the
warrants issued in connection with the Equity Line of approximately $248 has no
net impact as the increase to additional paid in capital representing the value
of the warrants issued is offset by the decrease in additional paid in capital
representing a cost of the offering. On May 30, 2002,
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the Company issued 119,335 shares of its Common Stock under the Equity Line for
gross proceeds of approximately $1,000 and on June 28, 2002, the Company issued
32,187 shares of its Common Stock under the Equity Line for gross proceeds of
approximately $266.
NOTE 4 -- COMMITMENTS:
During 1999, the Company entered into a three-year co-promotion agreement
with Merck & Co., Inc. for Vioxx under which the Company is committed to spend
up to $1,000 annually for promotional expenses, unless the agreement is earlier
terminated pursuant to the terms of the agreement. The current agreement, which
expires on September 22, 2002, may be renewable upon mutual agreement. The
Company is currently evaluating its options with respect thereto.
Pursuant to the Company's License and Marketing Agreement with Atrix
Laboratories, the Company is committed to: (i) expend no less than $2,000 in
advertising and selling expenses related to the Atrix products during the fiscal
year beginning January 1, 2002; (ii) maintain, through 2003, a force of no less
than ninety full time dental consultants and divisional and regional managers to
make sales and product recommendation calls on dental professionals; and (iii)
make the Atrix products the subject of a specific number of detail calls in the
United States during 2002. The Company will also be required to make certain
minimum expenditures for advertising and promotional activities after 2002,
including: (i) the lesser of $4,000 or 30% of the Company's contribution margin,
as defined in the agreement, relating to a specific Atrix product that the
Company's markets, and (ii) the lesser of $2,000 or 30% of the Company's
contribution margin, as defined in the agreement, relating to a separate Atrix
product that the Company markets. For the six months ended June 30, 2002, the
Company had fulfilled $1,079 of the $2,000 advertising and selling expense
commitment for 2002.
On February 11, 2002, the Company executed a Co-operation, Development and
Licensing Agreement with Thomas Skold pursuant to which the Company was granted
an exclusive, sublicenseable, transferable license with respect to the
Restoraderm(TM) topical drug delivery system which the Company intends to
develop for dermatological applications. Pursuant to the terms of such
agreement, upon the occurrence of certain events, the Company will be required
to pay certain consulting, royalty and milestone payments in the aggregate
amount of up to $4,030, of which no more than $393, $950, $1,650 and $1,037
shall be payable prior to December 31, 2002, January 1, 2003, January 1, 2004
and January 1, 2005, respectively. The term of such agreement is for the life of
any patent that may be issued to the Company for the first product the Company
develops utilizing such technology, or, if the Company does not acquire any
patentable products, seven years.
On May 24, 2002, the Company executed a Sublicense Agreement with Altana
Inc. ("Altana"), the United States subsidiary of Altana Pharma AG, pursuant to
which the Company was granted the exclusive right to create improvements to,
market, advertise, promote, distribute, offer for sale and sell, in the United
States and Puerto Rico, Pandel(R) Cream, a mid-potency topical corticosteroid
that is indicated for the relief of mild-to-moderate inflammatory disorders of
the skin, such as atopic dermatitis and psoriasis. Altana currently licenses
such rights from Taisho Pharmaceutical Co., Ltd., a company organized and
existing under the laws of Japan. The Company will purchase from Altana all
Pandel products to be sold. Pursuant to the terms of
- 8 -
such agreement, the Company agreed to pay Altana an aggregate sublicense fee of
$1,700, of which $800 was payable on June 30, 2002 and $900 of which is due on
May 31, 2003. The sublicense fee has been capitalized and will be amortized to
cost of product sales over the estimated term of agreement. In addition, the
Company is required to pay a royalty fee equal to a percentage of the net sales
of the product, if any. The agreement may be terminated by the Company: (i) at
any time, without cause, upon twelve months prior written notice; (ii) if Altana
shall commit any uncured, willful or material breach of the provisions of the
agreement; or (iii) if Altana shall cease to manufacture or supply the product
to the Company. Altana may terminate the agreement: (i) at any time, without
cause, upon twelve months written notice; (ii) if the Company shall commit any
uncured, willful or material breach of the provisions of the agreement; (iii) if
the Company shall cease to offer the product for distribution to its customers;
or (iv) if the Company fails to make certain payments or fulfill certain
invoicing obligations. In certain circumstances, all monies paid to the other
party under the agreement shall be refunded to the paying party upon
termination.
On June 10, 2002, the Company executed a Development and Licensing
Agreement with Shire Laboratories, Inc. ("Shire") pursuant to which the Company
was granted an exclusive worldwide license (including the right to sublicense)
to develop, make, have made, use, supply, export, import, register and sell
products for the treatment of various inflammatory disorders using Shire's
technology. In addition, under the agreement, Shire shall perform certain
product development functions for the Company. Also under the agreement, the
Company has committed to payments, in cash or at the Company's option, a
combination of cash and the Company's Common Stock, upon the achievement of
certain clinical and regulatory milestones in the event the Company pursues
certain applications of the technology which could total up to $7,900 in the
aggregate. Pursuant to the terms of such agreement, the Company shall also pay
to Shire a percentage of certain net sales of products, if any, utilizing any
part of Shire's technology. The Company may terminate the agreement upon sixty
days notice.
NOTE 5 -- STOCK OPTION PLANS:
At the Company's 2002 Annual Meeting of Stockholders held on May 9, 2002,
the stockholders of the Company approved a proposal to amend the Company's 1996
Stock Option Plan (the "1996 Stock Option Plan") to increase the maximum number
of shares of the Company's Common Stock available for issuance under the 1996
Stock Option Plan from 2,000,000 to 2,500,000 shares and to reserve an
additional 500,000 shares of the Company's Common Stock for issuance in
connection with awards granted under the 1996 Stock Option Plan.
NOTE 6 -- ADOPTION OF AMENDED AND RESTATED SHAREHOLDER PROTECTION RIGHTS
AGREEMENT:
On May 29, 2002, the Company's Board of Directors approved an Amended and
Restated Shareholder Protection Rights Agreement (the "Rights Agreement"). The
Rights Agreement amended and restated, in its entirety, the Company's then
existing Shareholder Protection Rights Agreement (the "Prior Rights Agreement")
dated September 15, 1997, as amended, by and between the Company and American
Stock Transfer & Trust Company, as rights agent thereunder. American Stock
Transfer & Trust Company remains as rights agent under the Rights Agreement.
Each right previously authorized and distributed under the Prior Rights
Agreement
- 9 -
was deemed to constitute a Right under the Rights Agreement effective May 29,
2002. The Board of Directors further authorized the issuance of one Right for
each share of the Company's Common Stock issued between the date of the Rights
Agreement and the earlier of the Distribution Date or the Expiration Date, as
defined in the Rights Agreement.
Each Right, once exercisable, entitles the holder to purchase from the
Company one one-hundredth of a share of the Company's Series A Participating
Preferred Stock at an exercise price of $65. All Rights expire on September 26,
2007 unless earlier redeemed. At June 30, 2002, the Rights were neither
exercisable nor traded separately from the Company's Common Stock, and become
exercisable only if a person or a group of affiliated or associated persons has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of the voting power of all outstanding shares of the Company's Common Stock and
in certain other limited circumstances. Upon separation from the Common Stock,
each Right will entitle the holder, other than the acquiring person that has
triggered such separation, to effectively purchase certain shares of the
Company's Common Stock equal in market value to two times the then applicable
exercise price of the Right. If the Company is acquired in a merger or other
business combination transaction, or 50% or more of the Company's assets or
earning power are sold in one or more related transactions, the Rights will
entitle holders, upon exercise of the Rights, to receive shares of Common Stock
of the acquiring or surviving company with a market value equal to twice the
exercise price of each Right.
- 10 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
CollaGenex Pharmaceuticals, Inc. and subsidiaries is a specialty
pharmaceutical company currently focused on providing innovative medical
therapies to the dental and dermatology markets. Our first product, Periostat,
is an orally administered, prescription pharmaceutical product that was approved
by the United States Food and Drug Administration in September 1998 and is the
first and only pharmaceutical to treat adult periodontitis by inhibiting the
enzymes that destroy periodontal support tissues. We are marketing Periostat to
the dental community through our own professional dental pharmaceutical sales
force of approximately 120 sales representatives and managers. Pursuant to an
exclusive License and Marketing Agreement with Atrix Laboratories, Inc., we
began, in October 2001, to actively market Atrix's proprietary dental products,
Atridox(R), Atrisorb FreeFlow(R) and Atrisorb-D(R), to the United States dental
market. In May 2002, we executed a sublicense agreement with Altana Inc. to,
among other things, market and distribute, in the United States and Puerto Rico,
Pandel(R), a topical corticosteroid product developed by Altana Inc. and
indicated for dermatologic use. We distribute Periostat and, effective July 1,
2002, Pandel, through drug wholesalers and large retail chains in the United
States. Periostat is also sold through wholesalers in the United Kingdom. The
Atrix dental products are distributed through a specialty distributor who sells
these products directly to dental practitioners in the United States. Our sales
force also currently co-promotes Vioxx, a prescription non-steroidal
anti-inflammatory drug developed by Merck & Co., Inc., in the United States.
We began operations in January 1992 and functioned primarily as a research
and development company until 1998. During this period, we operated with a
minimal number of employees, and substantially all of our pharmaceutical
development activities were contracted to independent contract research and
other organizations. Following FDA approval of Periostat in September 1998, we
significantly increased our number of employees, primarily in the areas of sales
and marketing. We continue to outsource the majority of our research and
development activities as well as manufacturing, warehousing and distribution
functions.
We have incurred losses each year since inception and have an accumulated
deficit of $75.7 million at June 30, 2002.
Statements contained or incorporated by reference in this Quarterly Report
on Form 10-Q that are not based on historical fact are "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may," "will," "expect," "estimate,"
"anticipate," "continue," or similar terms, variations of such terms or the
negative of those terms. This Form 10-Q contains forward-looking statements that
involve risks and uncertainties. Our business of selling, marketing and
developing pharmaceutical products is subject to a number of significant risks,
including risks relating to the implementation of our sales and marketing plans
for Periostat and other products that we market, risks inherent in research and
development activities, risks associated with conducting business in a highly
regulated environment and uncertainty relating to clinical trials of products
under development.
- 11 -
Our success depends to a large degree upon the market acceptance of Periostat by
periodontists, dental practitioners, other health care providers, patients and
insurance companies. Periostat has been approved by the FDA for marketing in the
United States, approved by the Medicines Control Agency for marketing in the
United Kingdom and approved for marketing in Austria, Finland, Ireland, Israel,
Italy, Luxembourg, the Netherlands and Portugal. There can be no assurance that
any of our other product candidates will be approved by any regulatory authority
for marketing in any jurisdiction or, if approved, that any such products will
be successfully commercialized by us. In addition, there can be no assurance
that we will successfully commercialize Vioxx, Pandel, Atridox, Atrisorb
FreeFlow and Atrisorb-D. As a result of these risks, and others expressed from
time to time in our filings with the Securities and Exchange Commission, our
actual results may differ materially from the results discussed in the
forward-looking statements contained herein.
Periostat(R), Metastat(R), Dermostat(R), Nephrostat(R), Osteostat(R),
Arthrostat(R), Rheumastat(R), Corneostat(R), Gingistat(R), IMPACS(TM), PS20(TM),
The Whole Mouth Treatment(TM), Restoraderm(TM) and Dentaplex(R) are United
States trademarks of CollaGenex Pharmaceuticals, Inc. Periostat(R),
Nephrostat(R), Optistat(R), Xerostat(R), IMPACS(TM) and Dentaplex(TM) are
European Community trademarks of CollaGenex Pharmaceuticals Inc.
Periostat(R), Nephrostat(R), Optistat(R), Xerostat(R), IMPACS(R),
Dentaplex(R), Restoraderm(R), Dermostat(R), Periocycline(R), Periostatus(R) are
United Kingdom trade marks of our wholly-owned subsidiary, CollaGenex
International Limited. And, CollaGenex(R), PS20(R), "C" Logo(R), The Whole Mouth
Treatment(R) are both European Community trade marks and United Kingdom trade
marks of CollaGenex International Limited. All other trade names, trademarks or
service marks appearing in this Quarterly Report on Form 10-Q are the property
of their respective owners and are not property of CollaGenex Pharmaceuticals,
Inc. or any of our subsidiaries.
RESULTS OF OPERATIONS
During the three months ended June 30, 2002, we achieved net product sales
of $10.4 million. We launched each of Atridox and Atrisorb FreeFlow in October
2001, and launched Atrisorb-D in February 2002. In addition, during the three
months ended June 30, 2002, we generated $555,000 in contract revenues from our
two co-promotion agreements for Vioxx and Pandel, and $35,000 in licensing
revenue.
Critical Accounting Judgments and Estimates
Management's discussion and analysis of its financial position and results
of operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make judgments and estimates that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. Management believes the critical accounting policies and areas
that require the most significant judgments and estimates to be used in the
preparation of the consolidated financial statements pertain to revenue
recognition.
- 12 -
We recognize product sales revenue upon shipment, net of estimated returns,
provided that collection is determined to be probable and no significant
obligations remain. Sales revenue from our customers is subject to agreements
allowing limited rights of return, rebates and price protection. Accordingly, we
reduce revenue recognized for estimated future returns, rebates and price
protection at the time the related revenue is recorded. The estimates for
returns are adjusted periodically based upon historical rates of returns,
inventory levels in the distribution channel and other related factors. While
management believes it can make reliable estimates for these matters, unsold
products in these distribution channels may be exposed to expiration.
Accordingly, it is possible that these estimates will change in the future or
that the actual amounts could vary materially from our estimates and that the
amounts of such changes could impact our results of operations, financial
condition and our business.
Since our inception, a portion of our revenue has been generated from
license and distribution agreements for our products. We recognize nonrefundable
signing or license fees that are not dependent on future performance under these
agreements as revenue when received and over the term of the arrangement if we
have continuing performance obligations. Any amounts deferred are amortized to
revenue over the expected performance period of each underlying agreement. The
expected performance period is based on management's best estimate and subject
to change based on current market conditions. Deferred revenue represents the
portion of up front license payments received that has not been earned.
Milestone revenue from licensing arrangements is recognized upon completion of
the milestone event or requirement if it represents the achievement of a
significant step in the research, development or regulatory process.
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30,
2001
REVENUES
- --------------------------------------------------------------------------------
Revenues
(dollars in thousands) 2002 CHANGE 2001
- --------------------------------------------------------------------------------
Product Sales................. $ 10,377 42.8% $ 7,267
- --------------------------------------------------------------------------------
Contract Revenues............. 555 (45.8)% 1,024
- --------------------------------------------------------------------------------
License Revenues.............. 35 (91.7)% 420
-------- --------
- --------------------------------------------------------------------------------
Total..................... $ 10,967 25.9% $ 8,711
- --------------------------------------------------------------------------------
Total revenues during the three months ended June 30, 2002 were $11.0
million, representing a 25.9% increase over total revenues of $8.7 million
during the three months ended June 30, 2001. Such 2002 revenues included
approximately $10.4 million in net product sales of Periostat, Atridox, Atrisorb
FreeFlow and Atrisorb-D, $555,000 in contract revenues, which were derived from
our co-promotion of Vioxx and Pandel, and $35,000 in previously deferred foreign
license income and milestone revenues for Periostat. Product sales increased
$3.1 million, or 42.8%, to $10.4 million during the three months ended June 30,
2002 compared to $7.3 million during the three months ended June 30, 2001 due to
significantly higher prescriptions for Periostat and the addition of the Atrix
dental products which we began marketing in October 2001.
- 13 -
Contract revenues for the three months ended June 30, 2002 declined 45.8%
to $555,000 from $1.0 million during the three months ended June 30, 2001 as a
result of the termination in April 2001 of our agreement with Novartis
Pharmaceuticals to co-promote Denavir and a decline in contract revenues from
Merck relating to our co-promotion of Vioxx. Contact revenues for the three
months ended June 30, 2001 included $122,000 in co-promotion revenues for
Denavir. There were no contract revenues for Denavir in the three months ended
June 30, 2002. The decline in contract revenues from Merck was due to lower
levels of prescriptions for Vioxx resulting from negative publicity relating to
adverse cardiovascular events experienced by a small segment of patients who had
been administered Vioxx.
In accordance with SAB 101, which we adopted in 2000, we recorded $15,000
in licensing revenues during each of the three months ended June 30, 2002 and
June 30, 2001. This revenue was attributable to our recognition of previously
recognized up-front license fees received for various agreements that were
deferred upon the adoption of SAB 101 and is being recognized as income over the
expected performance period of these agreements. We also recorded milestone
revenues from our foreign licensing partners of $20,000 and $405,000 during the
three months ended June 30, 2002 and 2001, respectively.
COST OF PRODUCT SALES
- --------------------------------------------------------------------------------
Cost of Product Sales
(dollars in thousands) 2002 CHANGE 2001
- --------------------------------------------------------------------------------
Cost of Product Sales......... $ 1,598 5.4% $ 1,516
- --------------------------------------------------------------------------------
Percent of Product Sales...... 15.4% 20.9%
- --------------------------------------------------------------------------------
Cost of product sales includes product packaging, third-party royalties,
amortization of product licensing fees, and the costs associated with the
manufacturing, storage and stability of Periostat and the Atrix products.
Cost of product sales were $1.6 million, or 15.4% of product sales during
the three months ended June 30, 2002, compared to $1.5 million, or 20.9% of
product sales during the three months ended June 30, 2001. Cost of product sales
increased in absolute dollars but decreased as a percentage of product sales
during such period in 2002 compared to 2001, primarily due to manufacturing cost
savings for Periostat tablets, which we launched in July 2001, compared to
Periostat capsules.
RESEARCH AND DEVELOPMENT
- --------------------------------------------------------------------------------
Research and Development
(dollars in thousands) 2002 CHANGE 2001
- --------------------------------------------------------------------------------
Research and development...... $ 870 (0.5)% $ 874
- --------------------------------------------------------------------------------
Percentage of total revenue... 7.9% 10.0%
- --------------------------------------------------------------------------------
Research and development expenses consist primarily of funds paid to third
parties for the provision of services and materials for drug development,
manufacturing and formulation enhancements, clinical trials, statistical
analysis and report writing and regulatory compliance costs.
- 14 -
Research and development expenses decreased $4,000 to $870,000 during the
three months ended June 30, 2002 from $874,000 during the three months ended
June 30, 2001.
Development projects conducted during the three months ended June 30, 2002
included our continuing formulation development work for a once-a-day
formulation of Periostat and formulation and stability testing for several
potential products utilizing our licensed Restoraderm technology, which totaled
$92,000 and $140,000, respectively. Future development of the once-a-day
technology will be contingent on the outcome of the initial phase of the
project, which is expected to be determined by the end of 2002. Additional
expenses ranging from approximately $1.0 million in 2002 to as much as $6.0
million through completion could be incurred if the project is successful.
Clinical projects totaling $256,000 were conducted during the three months
ended June 30, 2002 and included several Phase IV studies for Periostat in
various dental indications, initiation of a 70-patient clinical study to
evaluate the efficacy of Periostat to treat meibomiantis (an ocular condition)
and clinical development work relating to Periostat in dermatological
indications. In August 2002, we launched a Phase III trial to evaluate Periostat
for the treatment of rosacea. Until the outcome of these trials are determined,
it is premature to estimate the future costs associated with the development of
Periostat for dermatological indications.
Other expenses incurred during the three months ended June 30, 2002
included $55,000 in regulatory consulting and filing fees under the Mutual
Recognition Procedure in Europe and $138,000 for various regulatory costs,
including annual FDA filing fees, legal, and regulatory expenses in the United
States. Direct salaries and other personnel expenses incurred during the three
months ended June 30, 2002 were $122,000. Additionally, during such period we
incurred $67,000 in consulting travel and other office expenses.
Research and development expenses incurred during the three months ended
June 30, 2001 included $73,000 in research grants to various academic
institutions for conducting research related to our core technology, $5,000 in
Periostat Phase IV clinical trial grants, $156,000 in contracted clinical and
development expenses related to a safety and pharmacokinetic study for Metastat
and other IMPACS compounds in the development stage.
Other expenses incurred during the three months ended June 30, 2001
included $232,000 in regulatory consulting and filing fees under the Mutual
Recognition Procedure in Europe and $149,000 for various regulatory costs,
including annual FDA filing fees and legal and regulatory expenses in the United
States related to obtaining FDA approval for Periostat tablets. Research and
development expenses incurred during the three months ended June 30, 2001 also
included $134,000 in direct salaries and other personnel related expenses,
$164,000 related to stock compensation expense and an expense credit of $39,000
relating to consulting, travel and other office expenses.
- 15 -
SELLING, GENERAL AND ADMINISTRATIVE
- --------------------------------------------------------------------------------
Selling, General and Administrative
(dollars in thousands) 2002 CHANGE 2001
- --------------------------------------------------------------------------------
Selling, general and administrative.. $ 8,899 (1.9)% $ 9,070
- --------------------------------------------------------------------------------
Percentage of total revenue.......... 81.1% 104.1%
- --------------------------------------------------------------------------------
Selling, general and administrative expenses consist primarily of personnel
salaries and benefits, direct marketing costs, professional, legal and
consulting fees, insurance and general office expenses.
This decrease of $171,000, or 1.9%, from the three months ended June 30,
2001 to the three months ended June 30, 2002, was primarily the result of the
reduction in our Direct-to-Consumer, or DTC, expenditures offset in part by
additional promotional expenses for the Atrix dental products, Pandel and
additional incentive compensation for our sales force.
During the three months ended June 30, 2002 we incurred $1.3 million in DTC
advertising expenses compared to $2.4 million during the same period in 2001.
Selling, general and administrative expenses decreased 1.9% to $8.9 million
during the three months ended June 30, 2002 from $9.1 million during the three
months ended June 30, 2001. Significant components of selling, general and
administrative expenses incurred during the three months ended June 30, 2002
included $3.8 million in direct selling and sales training expenses, $3.5
million in marketing expenses (including Periostat DTC advertising expenditures,
launch expenditures for the Atrix products and co-promotion expenses relating to
Vioxx and Pandel) and $1.6 million in general and administrative expenses, which
include business development, finance and corporate activities. Significant
components of selling, general and administrative expenses during the three
months ended June 30, 2001 included $3.3 million in direct selling and training
expenses, $4.5 million in marketing expenses (including Periostat DTC
advertising expenditures and co-promotion expenses related to Vioxx) and $1.3
million in general and administrative expenses.
OTHER INCOME/EXPENSE
- --------------------------------------------------------------------------------
Other Income/Expense 2002 CHANGE 2001
- --------------------------------------------------------------------------------
Interest income............... $ 15,000 (79.7)% $ 74,000
- --------------------------------------------------------------------------------
Interest expense.............. $ 1,000 (50.0)% $ 2,000
- --------------------------------------------------------------------------------
Other Income (Expense)........ $ 1,000 N/A $ (4,000)
- --------------------------------------------------------------------------------
Interest income decreased to $15,000 for the three months ended June 30,
2002 compared to $74,000 for the three months ended June 30, 2001. This decrease
was due to lower average balances in cash and short-term investments and lower
investment yields during the three months ended June 30, 2002. Interest expense
for the three months ended June 30, 2002 was $1,000, compared to $2,000 for the
three months ended June 30, 2001. Other income during the three months ended
June 30, 2002 was $1,000. Other expense during the three months ended June 30,
2001 of $4,000 resulted from exchange rate changes on foreign currency
transactions.
- 16 -
PREFERRED STOCK DIVIDEND
Preferred stock dividends were $409,000 and $420,000 during each of the
three months ended June 30, 2002 and June 30, 2001, respectively. Such preferred
stock dividends, paid in shares of our Common Stock through May 11, 2002, and
thereafter in cash, are the result of our obligations in connection with the
issuance of our Series D Preferred Stock in May 1999. As more fully set forth in
the Amended Certificate of Designation, Preferences and Rights of the Series D
Cumulative Convertible Preferred Stock, after May 11, 2002, we no longer pay
dividends on the Series D Preferred Stock in shares of our Common Stock, and we
became obligated to pay such dividends in cash, at a rate equal to 8% per annum.
Cash dividends accrued for the period May 12, 2002 to June 30, 2002 were
approximately $218,000.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
REVENUES
- --------------------------------------------------------------------------------
Revenues
(dollars in thousands) 2002 CHANGE 2001
- --------------------------------------------------------------------------------
Product Sales................. $ 20,258 51.4% $ 13,381
- --------------------------------------------------------------------------------
Contract Revenues............. 1,347 (29.1)% 1,899
- --------------------------------------------------------------------------------
License Revenues.............. 122 (73.2)% 456
-------- ---------
- --------------------------------------------------------------------------------
Total..................... $ 21,727 38.1% $ 15,736
- --------------------------------------------------------------------------------
Total revenues during the six months ended June 30, 2002 were $21.7
million, representing a 38.1% increase over total revenues of $15.7 million
during the six months ended June 30, 2001. Such 2002 revenues included
approximately $20.3 million in net product sales of Periostat, Atridox, Atrisorb
FreeFlow, Atrisorb-D and Dentaplex, $1.3 million in contract revenues, which
were derived from our co-promotion of Vioxx and Pandel, and $122,000 in deferred
foreign license and milestone revenues for Periostat. Product sales increased
$6.9 million, or 51.4%, during the six months ended June 30, 2002 to $20.3
million compared to $13.4 million during the six months ended June 30, 2001,
mainly due to significantly higher prescriptions for Periostat and the addition
of the Atrix dental products, which we began marketing in October 2001.
Contract revenues for the six months ended June 30, 2002 declined 29.1% to
$1.3 million from $1.9 million during the six months ended June 30, 2001 as a
result of the termination in April 2001 of our agreement with Novartis
Pharmaceuticals to co-promote Denavir and a decline in contract revenues from
Merck relating to our co-promotion of Vioxx. Contract revenues for the six
months ended June 30, 2001 included $297,000 in co-promotion revenues for
Denavir. There were no contract revenues for Denavir in the six months ended
June 30, 2002. The decline in contract revenues from Merck was due to lower
levels of prescriptions for Vioxx resulting from negative publicity relating to
adverse cardiovascular events experienced by a small segment of patients who had
been administered Vioxx.
In accordance with SAB 101, which we adopted in 2000, we recorded $30,000
in licensing revenues during each of the six months ended June 30, 2002 and June
30, 2001. This revenue was attributable to our recognition of previously
recognized up-front license fees
- 17 -
received for various agreements that were deferred upon the adoption of SAB 101
and is being recognized as income over the expected performance period of these
agreements. We also recorded milestone revenues from our foreign licensing
partners of $92,000 and $426,000 during the six months ended June 30, 2002 and
2001, respectively.
COST OF PRODUCT SALES
- --------------------------------------------------------------------------------
Cost of Product Sales
(dollars in thousands) 2002 CHANGE 2001
- --------------------------------------------------------------------------------
Cost of Product Sales......... $ 3,178 10.3% $ 2,882
- --------------------------------------------------------------------------------
Percent of Product Sales...... 15.7% 21.5%
- --------------------------------------------------------------------------------
Cost of product sales includes product packaging, third-party royalties,
amortization of new product licensing fees, and the costs associated with the
manufacturing, storage and stability of Periostat and the Atrix products.
Cost of product sales were $3.2 million, or 15.7% of product sales during
the six months ended June 30, 2002, compared to $2.9 million, or 21.5% of
product sales during the six months ended June 30, 2001. Cost of product sales
increased in absolute dollars but decreased as a percentage of product sales
during such period in 2002 compared to 2001, primarily due to manufacturing cost
savings for Periostat tablets, which we launched in July 2001, compared to
Periostat capsules.
RESEARCH AND DEVELOPMENT
- --------------------------------------------------------------------------------
Research and Development
(dollars in thousands) 2002 CHANGE 2001
- --------------------------------------------------------------------------------
Research and development...... $ 1,699 (6.5)% $ 1,818
- --------------------------------------------------------------------------------
Percentage of total revenue... 7.8% 11.6%
- --------------------------------------------------------------------------------
Research and development expenses consist primarily of funds paid to third
parties for the provision of services and materials for drug development,
manufacturing and formulation enhancements, clinical trials, statistical
analysis and report writing and regulatory compliance costs.
Research and development expenses decreased to $1.7 million during the six
months ended June 30, 2002 from $1.8 million during the six months ended June
30, 2001. This decrease of $119,000, or 6.5%, was mainly the result of higher
research and clinical development expenses incurred exclusively in 2001 for
Metastat, our antiangiogenesis drug, and Dentaplex, a nutritional supplement, as
well as European regulatory expenses for Periostat. This was partially offset by
the initial spending in 2002 for clinical trials for Periostat in dermatologic
and ophthalmologic indications.
Development projects conducted during the six months ended June 30, 2002
included our continuing formulation development work for a once-a-day
formulation of Periostat and formulation and stability testing for several
potential products utilizing our licensed Restoraderm technology, which totaled
$247,000 and $210,000, respectively. Future development of the
- 18 -
once-a-day technology will be contingent on the outcome of the initial phase of
the project, which is expected to be determined by the end of 2002. Additional
expenses ranging from approximately $1.0 million in 2002 to as much as $6.0
million through completion could be incurred if the project is successful.
Clinical projects totaling $528,000 were conducted during the six months
ended June 30, 2001 and included several Phase IV studies for Periostat in
various dental indications, initiation of a 70-patient clinical study to
evaluate the efficacy of Periostat to treat meibomiantis (an ocular condition)
and clinical development work relating to Periostat in dermatological
indications. In August 2002, we launched a Phase III trial to evaluate Periostat
for the treatment of rosacea. Until the outcome of these trials are determined,
it is premature to estimate the future costs associated with the development of
Periostat for dermatological indications.
Other expenses incurred during the six months ended June 30, 2002 included
$99,000 in regulatory consulting and filing fees under the Mutual Recognition
Procedure in Europe and $198,000 for various regulatory costs, including annual
FDA filing fees, legal, and regulatory expenses in the United States. Direct
salaries and other personnel expenses incurred during the six months ended June
30, 2002 were $266,000. Additionally, during such period we incurred $151,000 in
travel and other office expenses.
Research and development expenses incurred during the six months ended June
30, 2001 included $175,000 in research grants to various academic institutions
for conducting research related to our core technology, $110,000 in Periostat
Phase IV clinical trial grants, $335,000 in contracted clinical and development
expenses related to a safety and pharmacokinetic study for Metastat and other
IMPACS compounds in the development stage and $71,000 in manufacturing
development and validation expenses for Dentaplex.
Other expenses incurred during the six months ended June 30, 2001 included
$322,000 in regulatory consulting and filing fees under the Mutual Recognition
Procedure in Europe and $240,000 for various regulatory costs, including annual
FDA filing fees and legal and regulatory expenses in the United States related
to obtaining FDA approval for Periostat tablets. Research and development
expenses incurred during the six months ended June 30, 2001 also included
$229,000 in direct salaries and other personnel related expenses, $164,000
related to stock compensation expense and $172,000 in consulting, travel and
other office expenses.
SELLING, GENERAL AND ADMINISTRATIVE
- --------------------------------------------------------------------------------
Selling, General and Administrative 2002 CHANGE 2001
(dollars in thousands)
- --------------------------------------------------------------------------------
Selling, general and administrative..... $ 17,827 7.7% $ 16,547
- --------------------------------------------------------------------------------
Percentage of total revenue............. 82.0% 105.2%
- --------------------------------------------------------------------------------
Selling, general and administrative expenses consist primarily of personnel
salaries and benefits, direct marketing costs, professional, legal and
consulting fees, insurance and general office expenses.
- 19 -
The increase of $1.3 million in selling, general and administrative
expenses, or 7.7%, from the six months ended June 30, 2001 to the six months
ended June 30, 2002, was primarily the result of the reduction in our DTC
expenditures offset by additional promoting expenses for the Atrix dental
products, Pandel and additional incentive compensation for our sales force.
Additionally, we incurred an incremental $1.3 million in selling expenses
associated with our Atrix dental products and our Pandel co-promotion which we
began in 2002.
During the six months ended June 30, 2002 we incurred $2.8 million in DTC
advertising expenses compared to $3.8 million during the same period in 2001.
Selling, general and administrative expenses increased 7.7% to $17.8
million during the six months ended June 30, 2002 from $16.5 million during the
six months ended June 30, 2001. Significant components of selling, general and
administrative expenses incurred during the six months ended June 30, 2002
included $8.2 million in direct selling and sales training expenses, $6.7
million in marketing expenses (including Periostat DTC advertising expenditures,
launch expenditures for the Atrix products and co-promotion expenses relating to
Vioxx and Pandel) and $2.9 million in general and administrative expenses, which
include business development, finance and corporate activities. Significant
components of selling, general and administrative expenses during the six months
ended June 30, 2001 included $6.7 million in direct selling and training
expenses, $7.5 million in marketing expenses (including Periostat DTC
advertising expenditures and co-promotion expenses related to Vioxx) and $2.3
million in general and administrative expenses.
OTHER INCOME/EXPENSE
- --------------------------------------------------------------------------------
Other Income/Expense 2002 CHANGE 2001
- --------------------------------------------------------------------------------
Interest income............... $ 37,000 (72.8)% $ 136,000
- --------------------------------------------------------------------------------
Interest expense.............. $ 2,000 (60.0)% $ 5,000
- --------------------------------------------------------------------------------
Other income.................. $ -- N/A $ 8,000
- --------------------------------------------------------------------------------
Interest income decreased to $37,000 for the six months ended June 30, 2002
compared to $136,000 for the six months ended June 30, 2001. This decrease was
due to lower average balances in cash and short-term investments and lower
investment yields during the six months ended June 30, 2002. Interest expense
for the six months ended June 30, 2002 was $2,000, compared to $5,000 for the
six months ended June 30, 2001. Other income during the six months ended June
30, 2001 of $8,000 was recognized as a result of foreign currency transactions.
PREFERRED STOCK DIVIDEND
Preferred stock dividends were $829,000 and $840,000 during each of the six
months ended June 30, 2002 and June 30, 2001, respectively. Such preferred stock
dividends, paid in shares of our Common Stock through May 11, 2002, and
thereafter in cash, were the result of our obligations in connection with the
issuance of our Series D Preferred Stock in May 1999. As more fully set forth in
the Amended Certificate of Designation, Preferences and Rights of the Series D
Cumulative Convertible Preferred Stock, after May 11, 2002, we no longer pay
dividends on the Series D Preferred Stock in shares of our Common Stock, and we
became
- 20 -
obligated to pay such dividends in cash, at a rate equal to 8% per annum. Cash
dividends accrued for the period May 12, 2002 to June 30, 2002 were
approximately $218,000.
LIQUIDITY AND CAPITAL RESOURCES
Since our origin in January 1992, we have financed our operations through
private placements of our preferred and Common Stock, an initial public offering
of 2,000,000 shares of Common Stock, which generated net proceeds to us of
approximately $18.0 million after underwriting fees and related expenses, and a
subsequent public offering of 1,000,000 shares of Common Stock, which generated
net proceeds to us of approximately $11.6 million after underwriting fees and
related expenses. On May 12, 1999, we consummated a $20.0 million financing
through the issuance of our Series D Preferred Stock, which generated net
proceeds to us of $18.5 million. The issuance of the Series D Preferred Stock
was approved by a majority of our stockholders at our Annual Meeting of
Stockholders on May 11, 1999. A portion of the proceeds of the Series D
Preferred Stock financing consummated in May 1999 were used to repay a $10.0
million senior secured convertible note provided by one of the investors on
March 19, 1999 in connection with such financing. The remaining proceeds have
been and will be used for general working capital purposes.
The Series D Preferred Stock is convertible at any time into shares of our
Common Stock at a current conversion price of $9.91 per share, which conversion
price reflects a decrease from the initial conversion price of $11.00 per share
as a result of both a Common Stock financing in March 2001 and the sale of
shares of our Common Stock to Atrix Laboratories, Inc. in August 2001. Such
conversion price is not subject to reset except in the event that we should fail
to declare and pay dividends when due or we should issue new equity securities
or convertible securities at a price per share or having a conversion price per
share lower than the then applicable conversion price of the Series D Preferred
Stock. During the first three years following issuance, holders of the Series D
Preferred Stock received dividends payable in shares of fully registered Common
Stock at a rate of 8.4% per annum. Thereafter, and beginning on May 12, 2002, we
began paying such dividends in cash at a rate of 8.0% per annum.
All or a portion of the shares of Series D Preferred Stock shall, at our
option (as determined by our board of directors), automatically be converted
into fully paid, registered and non-assessable shares of Common Stock, if the
following two conditions are met: (i) the last sale price, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices on
the Nasdaq National Market is at least 200% of the conversion price then in
effect (as of June 30, 2002, such conversion price was $9.91 per share) for
forty consecutive trading days; and (ii) a shelf registration statement is in
effect for the shares of Common Stock to be issued upon conversion of the Series
D Preferred Stock. Without written approval of a majority of the holders of
record of the Series D Preferred Stock, we, among other things, shall not: (i)
declare or pay any dividend or distribution on any shares of our capital stock
other than dividends on the Series D Preferred Stock; (ii) make any loans, incur
any indebtedness or guarantee any indebtedness, advance capital contributions
to, or investments in any person, issue or sell any securities or warrants or
other rights to acquire our debt securities, except that we may incur such
indebtedness in any amount not to exceed $10.0 million in the aggregate
outstanding at any time for working capital requirements in the ordinary course
of business; or (iii) make research and development expenditures in excess of
$7.0 million in any continuous twelve month
- 21 -
period, unless we have reported positive net income for four consecutive
quarters immediately prior to such twelve month period.
In April 1999, we received $219,000 in proceeds from our issuance of a note
payable. We used the proceeds of such note to fund the purchase of equipment,
fixtures and furniture for our corporate offices in Newtown, Pennsylvania. The
term of the note was three years at 9.54% per annum, with monthly minimum
payments of principal and interest. We repaid such note on May 1, 2002.
On March 12, 2001, we consummated a private equity offering of 1,500,000
shares of Common Stock for an aggregate purchase price of $7.5 million, which
generated net proceeds to us of approximately $6.8 million. We are using such
proceeds primarily for our DTC advertising campaign and for general working
capital purposes. In addition, the investors in such financing were also issued
an aggregate of 400,000 warrants which are exercisable for up to three years
from the date of such financing into 400,000 shares of our Common Stock at an
exercise price per share of $6.00. The consideration received for such warrants
is included in the aggregate proceeds received in such financing. We also issued
to our financial advisor in such financing warrants to purchase an aggregate of
150,000 shares of our Common Stock exercisable for up to three years at an
exercise price of $5.70 per share, as partial consideration for services
rendered in connection with the financing. Such warrants may be deemed
automatically exercised in certain circumstances based upon our stock price. In
connection with the March 2001 financing, we are obligated to maintain the
effectiveness of a shelf registration statement with respect to all such shares
of Common Stock issued and shares underlying all such warrants for a continuous
24 month period, or we will be required to issue to the investors and the
financial advisor an additional 27,500 shares of our Common Stock, in the
aggregate, for no additional consideration.
On March 19, 2001, we consummated a revolving credit facility with Silicon
Valley Bank, which was subsequently amended in March 2002. The credit facility,
as amended, extends through March 15, 2004. We may borrow up to the lesser of
$4.0 million or 80% of eligible accounts receivable, as defined under the credit
facility. The amount available to us is also reduced by outstanding letters of
credit which may be issued under the credit facility in amounts totaling up to
$1.5 million. On March 26, 2002, we secured our expected purchase order
commitments for Periostat from Pharmaceutical Manufacturing Research Services,
Inc., a contract manufacturing company, with a letter of credit under the credit
facility for approximately $1.3 million. As we pay down amounts under the letter
of credit, the amount available to us under the Facility will increase. We are
not obligated to draw amounts and any such borrowings bear interest, payable
monthly, currently at the prime rate plus 1.0 to 1.5% per annum and may be used
only for working capital purposes. Without the consent of the Silicon Valley
Bank, we, among other things, shall not (i) merge or consolidate with another
entity; (ii) acquire assets outside the ordinary course of business; or (iii)
pay or declare any cash dividends on our Common Stock. We must also maintain a
certain tangible net worth and a minimum of $2.0 million in cash at Silicon
Valley Bank, net of borrowings under the credit facility, at all times during
the term thereto. In addition, we have secured our obligations under the credit
facility through the granting of a security interest in favor of the bank with
respect to all of our assets, including our intellectual property. As of June
30, 2002, we had no current borrowings outstanding against the credit facility.
- 22 -
On August 24, 2001, we signed a License and Marketing Agreement with Atrix
Laboratories, Inc. to market Atrix's proprietary dental products, Atridox,
Atrisorb FreeFlow and Atrisorb-D, to the United States dental market. Pursuant
to the terms of this agreement, among other things: (i) Atrix will manufacture
the dental products for us at an agreed upon transfer price and will receive
royalties on future net sales of the products each calendar year; (ii) we paid
to Atrix a $1.0 million licensing fee to market such products; (iii) we have
committed to no less than $2.0 million in advertising and selling expenses
related to the Atrix products during the fiscal year beginning January 1, 2002
($1.1 million of which we have expended as of June 30, 2002); (iv) we have
agreed to maintain, for a period of 24 months, a force of no less than ninety
full time dental consultants and divisional and regional managers to make sales
and product recommendation calls on dental professionals; and (v) we have agreed
that the Atrix products will be the subject of a specific number of detail calls
in the United States during 2002. We will also be required to make certain
minimum expenditures for advertising and promotional activities beginning
January 1, 2003, including: (i) the lesser of $4,000,000 or 30% of our
contribution margin relating to a specific Atrix product that we market, and
(ii) the lesser of $2,000,000 or 30% of our contribution margin relating to a
separate Atrix product that we market.
In addition, pursuant to the terms of a Stock Purchase Agreement that we
executed with Atrix, dated August 24, 2001, Atrix purchased 330,556 unregistered
shares of our Common Stock for an aggregate purchase price of approximately $3.0
million. As a result of the sale of such shares to Atrix, the conversion price
of our Series D Preferred Stock was reduced from $9.94 to $9.91 per share.
On February 14, 2002, we entered into an equity line arrangement under the
terms of a Common Stock Purchase Agreement with Kingsbridge Capital Limited.
Pursuant to this agreement, we may, at our sole discretion and from time to time
through February 13, 2003, sell shares of our Common Stock to Kingsbridge at a
discount to market price, as determined prior to each such sale. Under the terms
of the agreement, we committed to: (i) draw down on this equity line, an amount
aggregating at least $1.5 million in registered shares of Common Stock, prior to
August 14, 2002; or (ii) if, prior to August 14, 2002, we had not drawn down an
amount aggregating at least $1.5 million in registered shares of Common Stock,
we were obligated to pay Kingsbridge, in cash, an amount equal to 10% of the
amount by which $1.5 million exceeds the aggregate of all amounts drawn down by
us under the equity line up to that date. We and Kingsbridge have agreed to
extend the date by which we must draw down such minimum commitment amount to
October 29, 2002. The equity line provides for the sale of up to $8.5 million in
registered shares of our Common Stock to Kingsbridge. As of June 30, 2002, we
had drawn down and issued an aggregate of approximately $1.3 million in
registered shares of Common Stock under such equity line arrangement.
Additionally, in connection with the consummation of the equity line and
pursuant to the terms of a warrant agreement executed by us, we issued
Kingsbridge a warrant to purchase 40,000 shares of our Common Stock at an
exercise price of $9.38 per share. The conversion price of our Series D
Preferred Stock was not reduced as a result of such issuance. Such warrant is
exercisable as of August 14, 2002, and will expire on August 13, 2007. We have
registered the shares of our Common Stock which may be issued by us under the
equity line and upon any exercise of the warrant by Kingsbridge under a shelf
registration statement on Form S-3 which
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registered an aggregate of 964,880 shares of our Common Stock. On April 29,
2002, the Securities and Exchange Commission declared such shelf registration
statement on Form S-3 effective.
At June 30, 2002, we had cash and cash equivalents of approximately $5.6
million, a decrease of $566,000 from the $6.2 million balance at December 31,
2001. In accordance with investment guidelines approved by our Board of
Directors, cash balances in excess of those required to fund operations have
been invested in short-term United States Treasury securities and commercial
paper with a credit rating no lower than A1/P1. Our working capital at June 30,
2002 was $4.9 million, a decrease of $1.4 million from $6.3 million at December
31, 2001. This decrease primarily reflects our current obligation to Altana for
the sublicensing rights for Pandel acquired in June 2002.
We anticipate that our existing working capital will be sufficient to fund
our current operations through at least the end of 2002 and that existing cash
and cash equivalents, internally generated funds from operations and the
anticipated cash inflows from both our equity line of credit with Kingsbridge
and our revolving credit facility with Silicon Valley Bank will be sufficient to
support our operations through the end of 2003. Our actual future cash
requirements, however, will depend on many factors, including market acceptance
of our products and technology.
We believe that other key factors that could affect our internal and
external sources of cash are:
o Revenues and margins from sales of Periostat and other products and
contracted services;
o The success of our dermatology franchise;
o The success of our pre-clinical, clinical and development programs;
o The receptivity of the capital markets to future financings and our
ability to draw down on our equity line at desired price levels;
o Our ability to enter into additional strategic collaborations and to
maintain existing and new collaborations and the success of such
collaborations; and
o Our ability to meet the covenant requirements under our revolving
credit facility.
CONTRACTUAL OBLIGATIONS
Our major outstanding contractual obligations relate to cash dividends on
our outstanding Series D Preferred Stock, operating leases for our office space
and other contractual commitments with our marketing partners for certain
selling and promotional expenses associated with the products we are currently
detailing. Additionally, we also expect to make certain inventory purchases from
our contract manufacturer of Periostat, guaranteed by our irrevocable Letter of
Credit with Silicon Valley Bank.
- 24 -
Our Series D Preferred Stock paid dividends in Common Stock at a rate of
8.4% per annum from the date of issuance of such Series D Preferred Stock
through May 11, 2002. After May 11, 2002, the Series D Preferred Stock pays
dividends in cash at a rate of 8.0% per annum. The Series D Preferred Stock is
convertible into our Common Stock at a current conversion price of $9.91 per
share, subject to adjustment, at any time by the holder and under certain
conditions by us. The conversion price of the Series D Preferred Stock is
subject to adjustment in the event we fail to declare or pay dividends when due
or should we issue new equity securities or convertible securities at a price
per share or having a conversion price per share lower than the applicable
conversion price of the Series D Preferred Stock.
In May 1999, we entered into a lease agreement relating to our office space
in Newtown, Pennsylvania. The lease has an initial term of ten years. Rent is
expected to be approximately $318,000 per year and is subject to market
adjustments at the end of the fifth year.
During 1999, we entered into a three-year co-promotion agreement with Merck
& Co., Inc. for Vioxx under which we are committed to spend up to $1.0 million
annually for promotional expenses, unless the agreement is earlier terminated.
The current agreement, which expires on September 22, 2002, may be renewable
upon mutual agreement. We are currently evaluating our options with respect
thereto.
Pursuant to our License and Marketing Agreement with Atrix Laboratories, we
have committed to: (i) expend no less than $2.0 million in advertising and
selling expenses related to the Atrix products during the fiscal year beginning
January 1, 2002; (ii) maintain, through 2003, a force of no less than ninety
full time dental consultants and divisional and regional managers to make sales
and product recommendation calls on dental professionals; and (iii) make the
Atrix products the subject of a specific number of detail calls in the United
States during 2002. We will also be required to make certain minimum
expenditures for advertising and promotional activities after 2002, including:
(i) the lesser of $4.0 million or 30% of our contribution margin, as defined in
the agreement, relating to a specific Atrix product that we market, and (ii) the
lesser of $2.0 million or 30% of our contribution margin, as defined in the
agreement, relating to a separate Atrix product that we market. For the six
months ended June 30, 2002, we had fulfilled $1.1 million of the $2.0 million
advertising and selling expense commitment for 2002.
On February 11, 2002, we executed a Co-operation, Development and Licensing
Agreement with Thomas Skold pursuant to which we were granted an exclusive,
sublicenseable, transferable license with respect to the Restoraderm(TM) topical
drug delivery system which we intend to develop for dermatological applications.
Pursuant to the terms of such agreement, upon the occurrence of certain events,
we will be required to pay certain consulting, royalty and milestone payments in
the aggregate amount of up to $4.0 million, of which no more than $393,000,
$950,000, $1,650,000 and $1,037,000 shall be payable prior to December 31, 2002,
January 1, 2003, January 1, 2004 and January 1, 2005, respectively. The term of
such agreement is for the life of any patent that may be issued to us for the
first product we develop utilizing such technology, or, if we do not acquire any
patentable products, seven years.
On June 10, 2002, we executed a Development and Licensing Agreement with
Shire Laboratories, Inc. pursuant to which we were granted an exclusive
worldwide license (including the right to sublicense) to develop, make, have
made, use, supply, export, import, register and
- 25 -
sell products for the treatment of various inflammatory disorders using Shire's
technology. In addition, under the agreement, Shire shall perform certain
product development functions for us. Pursuant to the terms of such agreement,
we will pay to Shire a percentage of certain net sales of products utilizing any
part of Shire's technology. Also under the agreement, we have committed to
payments, in cash or at our option, a combination of cash and our Common Stock,
upon the achievement of certain clinical and regulatory milestones in the event
we pursue certain applications of the technology which could total up to $7.9
million in the aggregate.
Below is a table which presents our contractual obligations and commercial
commitments as of June 30, 2002:
- ----------------------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
---------------------------------------------------------------------------------
SIX MONTHS
ENDING
CONTRACTUAL DECEMBER 31, 2003 AND 2007 AND
OBLIGATIONS TOTAL 2002 2004 2005 AND 2006 AFTER
- ----------------------------------------------------------------------------------------------------------
OPERATING LEASES(1).. $ 2,364,000 $ 167,000 $ 667,000 $ 668,000 $862,000
- ----------------------------------------------------------------------------------------------------------
UNCONDITIONAL $ 341,000(2)
PURCHASE $ 870,000(3)
OBLIGATIONS........ $ 2,132,000 $ 921,000(4) $ --(4) $ --(4) $ --(4)
- ----------------------------------------------------------------------------------------------------------
CASH DIVIDENDS ON
SERIES D
PREFERRED STOCK.... $ 7,200,000(5) $ 800,000(5) $ 3,200,000(5) $ 3,200,000(5) $ --(5)
- ----------------------------------------------------------------------------------------------------------
TOTAL CONTRACTUAL
OBLIGATIONS........ $ 11,696,000 $ 3,099,000 $ 3,867,000 $ 3,868,000 $862,000
- ----------------------------------------------------------------------------------------------------------
(1) Such amounts primarily include minimum rental payments for our office
lease in Newtown, Pennsylvania.
(2) Such amount represents committed inventory purchases on a purchase
order under the terms of our Agreement with Pharmaceutical Research
Manufacturing Services, Inc.
(3) Such amount represents the maximum amounts payable under the terms of
our Co-Promotion Agreement with Merck & Co., Inc. for Vioxx.
(4) Such amounts are payable under the terms of our Agreement with Atrix
Pharmaceuticals. As of June 30, 2002, we will be required to expend
$921,000 in advertising and selling expenses related to the Atrix
products in 2002, and to make certain minimum expenditures for
advertising and promotional activities after 2002, including: (i) the
lesser of $4,000,000 or 30% of our contribution margin (as defined in
the agreement) relating to a specific Atrix product that we market,
and (ii) the lesser of $2,000,000 or 30% of our contribution margin
(as defined in the agreement) relating to a separate Atrix product
that we market.
(5) Pursuant to the terms of our Series D Cumulative Convertible Preferred
Stock issued in May 1999, and unless earlier converted pursuant to its
terms, the holders of the Series D Preferred Stock are entitled to
dividends payable in cash at a rate of 8.0% per annum.
- 26 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company believes that it is not subject to a material impact to its
financial position or results of operations relating to market risk.
- 27 -
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders was held on May 9, 2002.
There were present at the Annual Meeting in person or by proxy stockholders
holding an aggregate of 8,236,579 shares of Common Stock and 199,000 shares of
Series D Stock, which shares of Series D Stock account for an additional
2,007,771 shares of Common Stock on an as converted to Common Stock basis. The
results of the vote taken at such Annual Meeting with respect to the election of
the nominees to be the Common Stock directors were as follows:
COMMON STOCK NOMINEES FOR WITHHELD
--------------------- --- --------
Brian M. Gallagher, Ph.D. 7,923,356 Shares 313,223 Shares
Peter R. Barnett, D.M.D. 7,923,356 Shares 313,223 Shares
Robert C. Black 7,923,356 Shares 313,223 Shares
James E. Daverman 7,923,356 Shares 313,223 Shares
Robert J. Easton 7,923,356 Shares 313,223 Shares
W. James O'Shea 7,923,356 Shares 313,223 Shares
The results of the vote taken at such Annual Meeting with respect to the
election of the nominee to be the Series D Director, Stephen A. Kaplan, were as
follows: 2,007,771 shares of Series D Stock (on an as converted to Common Stock
basis) were voted for the Series D Stock nominee, with no shares voting against
or abstaining.
A vote of the stockholders was taken at such Annual Meeting with respect to
the proposal to amend the Company's 1996 Stock Option Plan to increase the
maximum aggregate number of shares of Common Stock available for issuance
thereunder from 2,000,000 to 2,500,000 shares and to reserve an additional
500,000 shares of Common Stock of the Company for issuance in connection with
awards granted under the 1996 Stock Option Plan. For the purposes of such vote,
the holders of shares of Common Stock and the holders of Series D Stock (on an
as converted to Common Stock basis) voted together as a single class. Of such
shares, 9,547,107 shares voted in favor of such proposal, 692,637 shares were
voted against such proposal and 4,606 shares abstained from voting.
In addition, a vote of the stockholders was taken at the Annual Meeting on
the proposal to ratify the appointment of KPMG LLP as the independent auditors
of the Company for the fiscal year ending December 31, 2002. For the purpose of
such vote, the holders of shares of Common Stock and the holders of Series D
Stock (on an as converted to Common Stock basis) voted together as a single
class. Of such shares, 10,211,544 shares voted in favor of such proposal, 29,580
shares were voted against such proposal and 3,266 shares abstained from voting.
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ITEM 5. OTHER INFORMATION.
Sublicense Agreement
On May 24, 2002, we executed a Sublicense Agreement with Altana Inc.
("Altana"), the United States subsidiary of Altana Pharma AG, pursuant to which
we were granted the exclusive right to create improvements to, market,
advertise, promote, distribute, offer for sale and sell, in the United States
and Puerto Rico, Pandel Cream, a mid-potency topical corticosteroid that is
indicated for the relief of mild-to-moderate inflammatory disorders of the skin,
such as atopic dermatitis and psoriasis. Altana currently licenses such rights
from Taisho Pharmaceutical Co., Ltd., a company organized and existing under the
laws of Japan. We will purchase from Altana all Pandel products to be sold.
Pursuant to the terms of such agreement, we agreed to pay Altana an aggregate
sublicense fee of $1,700,000, $800,000 of which was payable on June 30, 2002 and
$900,000 of which is due on May 31, 2003. In addition, we are required to pay a
royalty fee equal to a percentage of the net sales of the product, if any.
Shareholder Protection Rights Agreement
On June 5, 2002, we announced that our Board of Directors had adopted an
Amended and Restated Shareholder Protection Rights Agreement which superceded in
its entirety our then existing Shareholder Protection Rights Agreement, as
amended.
Rights attached to outstanding shares of Common Stock under the original
plan and rights attached to shares of Common Stock issued by us after the date
of adoption are governed pursuant to the terms of the amended and restated plan.
The amended and restated plan was not adopted in response to any specific
effort to acquire control of CollaGenex, but rather to continue to ensure that
all of our stockholders are treated fairly in the event of an unsolicited
takeover of CollaGenex or other tactics intended to gain control of CollaGenex
without maximizing stockholder value.
Development and Licensing Agreement
On June 10, 2002, we executed a Development and Licensing Agreement with
Shire Laboratories, Inc. ("Shire") pursuant to which we were granted an
exclusive worldwide license (including the right to sub-license) to develop,
make, have made, use, supply, export, import, register and sell products for the
treatment of various inflammatory disorders using Shire's technology. In
addition, under the agreement, Shire shall perform certain product development
functions for us. Pursuant to the terms of such agreement, we will pay to Shire
a percentage of certain net sales of products utilizing any part of Shire's
technology. Also under the agreement, we have committed to payments, in cash or
at our option, a combination of cash and our Common Stock, upon the achievement
of certain clinical and regulatory milestones in the event we pursue certain
applications of the technology which could total up to $7.9 million in the
aggregate.
- 29 -
Initiation of Clinical Studies
On June 17, 2002, we announced that we had initiated a multi-center,
double-blinded, placebo-controlled clinical study to evaluate the efficacy of
Periostat for the treatment of meibomianitis, also known as ocular rosacea and
characterized by symptoms of "dry eye."
On August 13, 2002, we announced that we had initiated a multi-center,
double-blinded, placebo-controlled Phase III clinical study to evaluate the
efficacy of Periostat for the treatment of rosacea, a chronic inflammatory skin
disease.
Receipt of Marketing Authorization
On June 25, 2002, we announced that we had received final Marketing
Authorizations for our lead product, Periostat, from the Ministries of Health in
the Netherlands and Portugal. Both the Netherlands and Portugal will be supplied
product by CollaGenex International Ltd., our wholly-owned United Kingdom
subsidiary. We will partner in Portugal with the Portuguese affiliate of our
Spanish partner, ISDIN S.A. We are currently in discussions with potential
partners in the Netherlands.
Publication of Clinical Data
On July 11, 2002, we announced that data with respect to new evidence from
a Phase IV clinical trial of the adjunctive use of Periostat would be published
in the July 2002 issue of the Journal of Periodontology.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
* 10.1 Agreement between Altana Inc. and CollaGenex
Pharmaceuticals, Inc., dated May 24, 2002.
99.1 Certification Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K.
On May 20, 2002, the Company filed a current report on Form 8-K with
the Securities and Exchange Commission relating to an amendment to the
Company's Shareholder Protection Rights Agreement.
On May 30, 2002, the Company filed a current report on Form 8-K with
the Securities and Exchange Commission relating to the issuance of
119,335 shares of Common Stock under its existing Equity Line
arrangement.
On June 5, 2002, the Company filed a current report on Form 8-K with
the Securities and Exchange Commission relating to the Company's
adoption of an Amended and Restated Shareholder Protection Rights
Agreement.
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On June 28, 2002, the Company filed a current report on Form 8-K with
the Securities and Exchange Commission relating to the issuance of
32,187 shares of Common Stock under its existing Equity Line
arrangement.
*Confidential Treatment has been sought for a portion of this Exhibit.
- 31 -
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.
CollaGenex Pharmaceuticals, Inc.
Date: August 14, 2002 By: /s/ Brian M. Gallagher, Ph.D.
--------------------------------------
Brian M. Gallagher, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2002 By: /s/ Nancy C. Broadbent
--------------------------------------
Nancy C. Broadbent
Chief Financial Officer (Principal
Financial and Accounting Officer)