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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-21699
VIROPHARMA INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 94-2347624
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
405 Eagleview Boulevard
Exton, Pennsylvania 19341
(Address of Principal Executive Offices and Zip Code)
610-458-7300
(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
requirement for the past 90 days: Yes X No _____
---
Number of shares outstanding of the issuer's Common Stock, par value $.002 per
share, as of August 9, 2002: 25,751,576 shares.
1
VIROPHARMA INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements:
Consolidated Balance Sheets at December 31, 2001 and June 30, 2002 3
Consolidated Statements of Operations for the three months ended June 30, 4
2001 and 2002, the six months ended June 30, 2001 and 2002 and the
period from December 5, 1994 (Inception) to June 30, 2002
Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2002 and the 5
period from December 5, 1994 (Inception) to June 30, 2002
Notes to Consolidated Financial Statements 6
Important Information About Forward-Looking Statements 10
Item 2. Management's Discussion and Analysis of Financial Condition and 11
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 19
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ViroPharma Incorporated
(A Development Stage Company)
Consolidated Balance Sheets
(unaudited)
December 31, 2001 and June 30, 2002
December 31, June 30,
2001 2002
------------- -------------
Assets
Current assets:
Cash and cash equivalents ........................................................ $ 9,826,879 $ 14,015,239
Short-term investments ........................................................... 230,213,314 186,926,290
Notes receivable from officers--current .......................................... 89,662 88,743
Due from partners ................................................................ 7,356,084 6,813,892
Other current assets ............................................................. 4,299,552 3,341,957
------------- -------------
Total current assets ........................................................ 251,785,491 211,186,121
Equipment and leasehold improvements, net ................................................ 8,326,530 10,512,907
Restricted investments ................................................................... 1,550,000 1,553,169
Notes receivable from officers--noncurrent ............................................... 244,187 140,510
Debt issue costs, net .................................................................... 4,228,696 3,819,467
Other assets ............................................................................. 45,899 143,016
------------- -------------
Total assets ................................................................ $ 266,180,803 $ 227,355,190
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable--current ........................................................... $ 200,000 $ 166,667
Accounts payable ................................................................. 2,657,597 5,166,009
Accrued expenses and other current liabilities ................................... 26,153,108 35,097,101
Deferred revenue--current ........................................................ 2,153,846 2,153,846
------------- -------------
Total current liabilities ................................................... 31,164,551 42,583,623
Loans payable--noncurrent ................................................................ 125,000 58,334
Convertible subordinated notes ........................................................... 180,000,000 180,000,000
Deferred revenue--noncurrent ............................................................. 5,461,538 4,384,615
Other liabilities ........................................................................ 10,000,000 -
------------- -------------
Total liabilities ........................................................... 226,751,089 227,026,572
------------- -------------
Commitments:
Stockholders' equity:
Preferred stock, par value $.001 per share. 5,000,000 shares authorized;
Series A convertible participating preferred stock; no shares issued and
outstanding .................................................................... - -
Series A junior participating preferred stock; 200,000 shares designated;
no shares issued and outstanding .......................................... - -
Common stock, par value $.002 per share. Authorized 100,000,000 shares;
issued and outstanding 22,740,814 at December 31, 2001 and 22,751,576
at June 30, 2002 ............................................................... 45,482 45,503
Additional paid-in capital ....................................................... 244,034,513 244,072,443
Deferred compensation ............................................................ (942,893) (729,666)
Unrealized losses on available for sale securities ............................... (1,011,566) (2,126,172)
Deficit accumulated during the development stage ................................. (202,695,822) (240,933,490)
------------- -------------
Total stockholders' equity .................................................. 39,429,714 328,618
------------- -------------
Total liabilities and stockholders' equity .................................. $ 266,180,803 $ 227,355,190
============= =============
See accompanying notes to consolidated financial statements.
3
ViroPharma Incorporated
(A Development Stage Company)
Consolidated Statements of Operations
(unaudited)
Three months ended June 30, 2001 and 2002, six months ended June 30, 2001 and
2002 and the period from December 5, 1994 (Inception) to June 30, 2002
Period from
December 5, 1994
Three months ended Six months ended (Inception) to
June 30, June 30, June 30,
2001 2002 2001 2002 2002
-------------- ------------ ------------ ------------- -----------------
Revenues:
Detailing fees $ - $ 6,752,085 $ - $ 12,736,259 $ 12,736,259
License fee and milestone revenue 250,000 538,462 2,500,000 1,076,923 10,461,538
Grant revenue - - - - 526,894
------------- ------------ ------------- ------------- --------------
Total revenues 250,000 7,290,547 2,500,000 13,813,182 23,724,691
------------- ------------ ------------- ------------- --------------
Operating expenses incurred in the
development stage:
Research and development 6,896,645 10,328,220 18,735,890 23,848,519 175,216,703
Acquisiton of technology rights - - 16,500,000 - 16,500,000
Sales and marketing 2,607,106 9,473,591 3,887,204 20,720,415 41,766,426
General and administrative 2,602,127 2,786,602 4,929,597 5,223,879 36,656,041
------------- ------------ ------------- ------------- --------------
Total operating expenses 12,105,878 22,588,413 44,052,691 49,792,813 270,139,170
------------- ------------ ------------- ------------- --------------
Loss from operations (11,855,878) (15,297,866) (41,552,691) (35,979,631) (246,414,479)
Interest income 3,137,882 1,446,472 6,545,199 3,562,237 33,251,976
Interest expense 2,913,957 2,909,559 5,793,742 5,820,274 27,770,987
------------- ------------ ------------- ------------- --------------
Net loss ($11,631,953) ($16,760,953) ($40,801,234) ($38,237,668) ($240,933,490)
============= ============ ============= ============= ==============
Preferred stock dividends 163,405 - 345,242 -
------------- ------------ ------------- -------------
Net loss allocable to common stockholders ($11,795,358) ($16,760,953) ($41,146,476) ($38,237,668)
============= ============ ============= =============
Basic and diluted net loss per share allocable
to common stockholders ($0.67) ($0.74) ($2.47) ($1.69)
============= ============ ============= =============
Shares used in computing basic and diluted
net loss per share allocable to common
stockholders 17,624,349 22,702,277 16,649,369 22,688,907
============= ============ ============= =============
See accompanying notes to consolidated financial statements.
4
ViroPharma Incorporated
(A Development Stage Company)
Consolidated Statements of Cash Flows
(unaudited)
Six months ended June 30, 2001 and 2002 and
the period from December 5, 1994 (Inception) to June 30, 2002
Period from
December 5, 1994
Six months ended (Inception) to
June 30, June 30,
2001 2002 2002
------------------ ------------------ -----------------
Cash flows from operating activities:
Net loss $ (40,801,234) $ (38,237,668) $ (240,933,490)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash acquisition of technology rights 16,500,000 - 16,500,000
Non-cash compensation expense 168,177 213,227 1,466,692
Non-cash warrant value - - 153,751
Non-cash consulting expense - - 46,975
Non-cash interest expense 409,229 409,229 1,905,950
Depreciation and amortization expense 611,532 1,374,672 5,075,116
Changes in assets and liabilities:
Other current assets 641,254 957,595 (3,341,957)
Notes receivable from officers 18,518 104,596 (229,253)
Due from partners 2,688,355 542,192 (6,813,892)
Other assets and restricted investments - (100,286) (146,185)
Accounts payable (899,047) 2,508,412 5,116,009
Deferred revenue (500,000) (1,076,923) 6,538,461
Accrued expenses and other current liabilities (2,129,264) 8,943,993 35,097,101
Other liabilities - (10,000,000) -
------------------ ------------------ ---------------
Net cash used in operating activities (23,292,480) (34,360,961) (179,514,722)
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (1,226,860) (3,561,049) (15,588,023)
Purchase of short-term investments (95,056,895) (102,397,613) (948,122,887)
Sales of short-term investments - - 9,680,414
Maturities of short-term investments 123,873,110 144,570,031 747,840,010
------------------ ------------------ ---------------
Net cash (used in) provided by investing activities 27,589,355 38,611,369 (206,190,486)
Cash flows from financing activities:
Net proceeds from issuance of preferred stock - - 27,242,143
Net proceeds from issuance of common stock 728,221 37,951 198,588,888
Preferred stock cash dividends (345,242) - (1,254,294)
Proceeds from loans payable and milestone advance - - 2,100,000
Payment of loans payable (100,000) (99,999) (1,874,999)
Proceeds received on notes receivable - - 1,625
Gross proceeds from notes payable - - 180,692,500
Issuance costs on notes payable - - (5,725,416)
Payment of notes payable - - (50,000)
------------------ ------------------ ---------------
Net cash (used in) provided by financing activities 282,979 (62,048) 399,720,447
Net increase in cash and cash equivalents 4,579,854 4,188,360 14,015,239
Cash and cash equivalents at beginning of period 960,355 9,826,879 -
------------------ ------------------ ---------------
Cash and cash equivalents at end of period $ 5,540,209 $ 14,015,239 $ 14,015,239
================== ================== ===============
Supplemental disclosure of non-cash transactions:
Conversion of Note Payable to Series A and Series B Preferred Stock - - 642,500
Conversion of mandatorily redeemable convertible preferred stock to
common shares - - 16,264,199
Notes issued for 828,750 common shares - - 1,625
Deferred compensation 216,875 - 2,196,358
Accretion of redemption value attributable to mandatorily
redeemable convertible preferred stock - - 1,616,445
Conversion of milestone advance to loan payable - - 1,000,000
Unrealized gains (losses) on available for sale securities (132,110) (1,114,606) (2,126,172)
Supplemental disclosure of cash flow information:
Cash paid for interest 5,419,513 5,406,100 22,241,343
See accompanying notes to consolidated financial statements.
5
ViroPharma Incorporated
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2001 and 2002
(unaudited)
(1) Organization and Business Activities
ViroPharma Incorporated (a development stage company) commenced operations
on December 5, 1994. ViroPharma Incorporated and its subsidiary (the "Company"
or "ViroPharma") is a development stage pharmaceutical company engaged in the
discovery and development of new antiviral medicines.
The Company is devoting substantial effort towards conducting drug
discovery and development, raising capital, conducting clinical trials, pursuing
regulatory approval for products under development, and until recently,
supporting the sales and marketing organizations and infrastructure for a
potential commercial launch of Picovir(TM), if the drug were to be approved by
the U.S. Food and Drug Administration (FDA). The Company is also actively
promoting and detailing two products owned by Aventis Pharmaceuticals Inc.
(Aventis), and will cease this detailing activity on August 31, 2002. In the
course of such activities, the Company has sustained operating losses and
expects such losses to continue for the next several years. Other than detailing
fees earned in the first half of 2002 for promoting products owned by Aventis,
the Company has not generated any significant revenues or product sales and has
not achieved profitable operations or positive cash flow from operations. The
Company's deficit accumulated during the development stage aggregated
$240,933,490 through June 30, 2002. There is no assurance that profitable
operations, if ever achieved, could be sustained on a continuing basis.
The Company plans to continue to finance its operations with a combination
of stock issuances and debt issuances, as available, license payments, payments
from strategic research and development arrangements when and if agreed upon
milestones are achieved and, in the longer term, revenues from product sales or
collaborations, if its planned products are commercialized. There are no
assurances, however, that the Company will be successful in obtaining regulatory
approval for any of its product candidates or in obtaining an adequate level of
financing needed for the long-term development and commercialization of its
product candidates.
Basis of Presentation
The consolidated financial information at June 30, 2002 and for the three
and six months ended June 30, 2001 and 2002, is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) which, in the
opinion of management, are necessary to state fairly the financial information
set forth therein in accordance with accounting principles generally accepted in
the United States of America. The interim results are not necessarily indicative
of results to be expected for the full fiscal year. These consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 2001 included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
(2) Comprehensive Loss
In the Company's annual consolidated financial statements, comprehensive
loss is presented as a separate financial statement. For interim consolidated
financial statements, the Company is permitted to disclose the information in
the footnotes to the consolidated financial statements. The disclosures are
required for comparative purposes. The only comprehensive income item the
Company has is unrealized gains and losses on available for sale securities. The
following reconciles net loss to comprehensive loss for the three and six months
ended June 30, 2001 and 2002:
6
ViroPharma Incorporated
(A Development Stage Company)
Notes to Consolidated Financial Statements
Quarter ended Six-month period ended
June 30, June 30,
2001 2002 2001 2002
-------------- -------------- --------------- --------------
Net loss ($11,631,953) ($16,760,953) ($40,801,234) ($38,237,668)
Other comprehensive income (loss):
Unrealized gains (losses) on
available for sale securities (618,332) 38,733 (132,110) (1,114,606)
-------------- -------------- --------------- --------------
($12,250,285) ($16,722,220) ($40,933,344) ($39,352,274)
Comprehensive loss ============== ============== =============== ==============
(3) Acquisition of Technology Rights
On February 27, 2001, the Company revised its agreement with
Sanofi-Synthelabo for Picovir(TM), the Company's anti-picornavirus compound. The
original agreement signed in 1995 provided the Company with exclusive rights to
develop and commercialize the product in the United States and Canada. Under the
revised agreement, the Company expanded its intellectual property position,
eliminated obligations for future milestone payments, and reduced royalty rate
obligations to Sanofi-Synthelabo on future sales of products, if any, under
certain conditions, in exchange for a reduction of royalty rate obligations by
Sanofi-Synthelabo to the Company on future sales of products, if any, under
certain conditions, outside of the United States and Canada and the issuance of
750,000 shares of the Company's common stock. Included in the statement of
operations for the six months ended June 30, 2001 is a non-cash charge of $16.5
million resulting from the issuance of 750,000 shares of common stock to
Sanofi-Synthelabo in exchange for the expansion of the Company's intellectual
property rights related to Picovir(TM), as these additional intellectual
property rights licensed from Sanofi-Synthelabo have not reached technological
feasibility and have no alternative uses.
(4) Conversion of Preferred Stock
Effective on May 7, 2001, pursuant to the terms of our Series A Convertible
Participating Preferred Stock, 2,300,000 shares of preferred stock were
converted into 2,346,295 shares of common stock.
(5) Stockholders' Meeting Action
In May 2002, the stockholders of the Company approved an amendment to the
Company's Stock Option and Restricted Share Plan (the "plan") to increase the
number of shares eligible for grant under the plan by 750,000 shares.
(6) Copromotion and Codevelopment Agreement
In September 2001, the Company entered into a collaboration to co-develop
and co-promote Picovir(TM) in the United States with Aventis. As part of the
agreement, the Company received an initial payment of $25.0 million from
Aventis. $5.0 million of the initial payment received is reflected in Deferred
revenue, and has been recognized as revenue on a straight-line basis through
June 30, 2002 based on the estimated performance period ending December 31,
2005. At December 31, 2001, $10.0 million of the initial payment is reflected in
Accrued expenses and other current liabilities and $10.0 million is reflected in
Other liabilities. At June 30, 2002, $20.0 million of the initial payment is
reflected in Accrued expenses and other current liabilities. Since September
2001, the Company and Aventis have shared the cost of preparing for the
commercial launch of Picovir(TM) and the continued marketing and
commercialization efforts: 55 percent by Aventis and 45 percent by ViroPharma.
Additionally, Aventis has funded 50 percent of the Company's research and
development efforts for the use of Picovir(TM) in the treatment of adult and
pediatric viral respiratory infection (VRI). At December 31, 2001 and June 30,
2002, the Company was due approximately $5.2 million and $2.3 million,
respectively, under these cost sharing provisions. During the quarter ended June
30, 2002 approximately $1.2 million and $1.1 million were reflected as
reductions of Picovir(TM) research and
7
ViroPharma Incorporated
(A Development Stage Company)
Notes to Consolidated Financial Statements
development and sales and marketing costs, respectively. No corresponding
reductions were recorded in the second quarter of 2001. For the six months ended
June 30, 2002 approximately $4.5 million and $1.4 million were reflected as
reductions of Picovir(TM) research and development and sales and marketing
costs, respectively. ViroPharma has been co-promoting a product from the
Allegra(R) family and Nasacort(R) AQ, Aventis Pharmaceuticals prescription
products, to primary care physicians in the United States, and will receive
detailing fees from Aventis for such calls. At June 30, 2002, the Company was
due approximately $4.5 million for detailing of Aventis products. We will not
earn detailing fees beyond August 31, 2002.
(7) Significant Event
In May 2002, the FDA issued the Company a "not approvable" letter in
response to the Company's New Drug Application (NDA). In March 2002, the
Antiviral Drugs Advisory Committee of the FDA voted to not recommend Picovir(TM)
for approval for the treatment of the common cold in adults. The Advisory
Committee requested that additional data not included in the pivotal trials be
provided before the drug could be considered for recommendation by the Advisory
Committee for approval.
(8) Subsequent Events
In August 2002, the Company announced that it has restructured its
organization. As part of this process, the Company has reduced its workforce by
approximately 63%, which includes selling its sales force to Aventis and
reductions in development, commercial operations and administration. The Company
and Aventis have agreed to terminate their agreement regarding Picovir(TM). The
Company does not intend to fund any additional significant clinical development
of Picovir for the treatment of the common cold without a new partner. The
Company expects to record a one-time restructuring charge of approximately $4
million in the third quarter of 2002.
Under the agreement ending their collaboration to co-develop and co-promote
Picovir, Aventis returned Picovir to the Company, and both parties received
mutual releases of all obligations without incurring termination fees. Aventis
will compensate the Company for Aventis' current share of development and
commercial expenses and the Company's detailing fees through August, and the
Company has returned to Aventis advance milestone payments of $20.0 million.
Aventis also purchased 3 million shares of the Company's common stock for $4.59
million.
In a separate transaction, Aventis will acquire the Company's sales force,
which totals nearly 200 people, for a payment to the Company of $15.41 million.
The sales force will continue to promote Aventis' products through the end of
August 2002.
ViroPharma expects to record income of approximately $19.4 million in the
third quarter of 2002 in connection with these events. The income is related to
the $15.41 million referred to above and the acceleration of the recognition of
the remaining deferred revenue related to the up front payment of $5.0 million
received in September 2001.
Also, the Board of Directors of ViroPharma approved a convertible note
repurchase program to spend up to $20.0 million to purchase a portion of its
$180.0 million in convertible notes. The Company may, in its discretion,
purchase the notes in the open market or in privately negotiated transactions
from time to time as market conditions warrant.
The following table reflects a summary of the actual and pro forma balance
sheet data at June 30, 2002. The pro forma June 30, 2002 balance sheet reflects
the effect on the balance sheet data as if the termination of the Aventis
collaboration, the Company's estimated restructuring charge, the purchase by
Aventis of 3 million shares of the Company's common stock, the refund of the
advanced milestone payment and the sale of the Company's sales force had
occurred on June 30, 2002:
8
ViroPharma Incorporated
(A Development Stage Company)
Notes to Consolidated Financial Statements
Balance sheet data (in thousands) Actual ProForma
June 30, June 30,
2002 2002
-------------------- ----------------------
Cash, cash equivalents and short-term investments 200,942 198,942
Working capital 168,602 187,756
Total assets 227,355 223,355
Total stockholders' equity 329 20,368
(9) Litigation
In March and May 2002, the Company and certain of its directors were named
as defendants in purported class actions filed in the U.S. District Court for
the Eastern District of Pennsylvania. In July 2002, these actions were
consolidated into a single complaint. The plaintiffs in these actions have
alleged that certain statements by the Company about Picovir(TM) were
misleading. A judgment against the Company could materially exceed the coverage
which may be available under its directors' and officers' liability insurance.
The Company is vigorously defending itself against these lawsuits and believes
that it has meritorious defenses against the claims.
While it is not feasible to predict the outcome of this action at this
time, the ultimate resolution of this matter could have a material adverse
effect on the Company's financial position and the resolution of this matter
during a specific period could have a material adverse effect on the quarterly
or annual operating results for that period. To date no liability related to
this matter has been reflected in the Company's consolidated balance sheet.
9
IMPORTANT INFORMATION ABOUT FORWARD LOOKING STATEMENTS
Our disclosure and analysis in this report contains some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. They use words such
as "anticipate", "estimate", "expect", "project", "intend", "plan", "believe"
and other words and terms of similar meaning in connection with any discussion
of future operating or financial performance. These forward-looking statements
include the statements in this report on Form 10-Q about:
. our anticipated cash balance at the beginning of 2003, and the ability
of that cash to fund operations for an additional three years;
. our expected average monthly cash burn (excluding a third quarter
restructuring charge and interest expense on our convertible notes)
through the end of 2005;
. our estimate of the restructuring charge that we expect to record in
the third quarter of 2002;
. our estimate of the income that we expect to record in the third
quarter of 2002 in connection with the termination of our
collaboration agreement with Aventis and the transfer of our sales
force to Aventis;
. the sufficiency of the reduction in expenses anticipated by this
restructuring to provide the financial resources required to execute
the planned development of our portfolio of antiviral programs, and
pursue new research and development opportunities to expand our
pipeline;
. our plan to advance a compound from our HCV program into phase 1
safety studies by the end of 2002;
. our efforts to secure a partner for our RSV program;
. the exploration of alternatives for the continued development of
Picovir; and
. our purchase of a portion of our convertible subordinated debt.
Our actual results could differ materially from those results expressed
in, or implied by, these forward-looking statements. There can be no assurance
that:
. our actual cash balance at the beginning of 2003 will reflect our
anticipated cash balance, or such cash balance will be sufficient to
fund operations for an additional three years;
. our actual average monthly cash burn (excluding a third quarter
restructuring charge and interest expense on our convertible notes)
through the end of 2005 will reflect our anticipated spending levels
during those periods;
. our actual third quarter restructuring charge will reflect our
anticipated restructuring charge;
. the income that we actually record in the third quarter of 2002 in
connection with the termination of our collaboration agreement with
Aventis and the transfer of our sales force to Aventis will reflect
our anticipated income arising from these events;
. the reduction in expenses anticipated by this restructuring will be
sufficient to provide the financial resources required to execute the
planned development of our portfolio of antiviral programs, and pursue
new research and development opportunities to expand our pipeline;
. we will be able to achieve the development milestones for our HCV
program during the timeframe described in this quarterly report on
Form 10-Q, or at all;
. we will be able to secure a partner for our RSV program;
. we will be able to identify and pursue alternatives or attract a new
partner for the continued development of Picovir; or
. we will be able to purchase portions of our convertible subordinated
debt at favorable prices, or at all.
Our actual expenses over the period described in this quarterly report on
Form 10-Q may vary depending on a variety of factors, including: the actual cost
of conducting clinical trials; the outcome of clinical trials in our HCV and RSV
programs, and our resulting right to receive or obligation to pay milestone
payments under collaborations relating to those programs; our ability to attract
a development and commercialization partner for our RSV program; the actual face
amount of our convertible notes that we are able or willing to acquire, if any;
the resulting reduction in interest expense associated with the purchase of such
convertible notes, if any; costs associated with litigation; and the cost of
exploring and investing in other strategic opportunities. Conducting clinical
trials for investigational pharmaceutical products are subject to risks and
uncertainties. There can be no assurance that planned clinical trials can be
initiated, or that planned or ongoing clinical trials
10
can be successfully concluded or concluded in accordance with our anticipated
schedule. In addition, in the future, we may not be able to maintain our listing
on the Nasdaq Stock Market.
These and other risks and uncertainties that could affect our actual
results are discussed in greater detail in this report and in our other filings
with the Securities and Exchange Commission. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, events, levels of activity, performance, or
achievements. We do not assume responsibility for the accuracy and completeness
of the forward-looking statements other than as required by applicable law.
We do not undertake any duty to update after the date of this report any of
the forward-looking statements in this report to conform them to actual results.
You should read this report on Form 10-Q in combination with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the description of our business and the discussion of our risk
factors included in our Annual Report on Form 10-K for the year ended December
31, 2001 and our Quarterly Report on Form 10-Q for the period ended March 31,
2002.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We have not been profitable since inception and have incurred a cumulative
net loss of approximately $240.9 million through June 30, 2002. Losses have
resulted principally from costs incurred in research and development activities,
general and administrative expenses and sales and marketing expenses. We expect
to incur additional operating losses over the next several years.
Since inception, we have devoted substantially all of our resources to our
research, sales and marketing and product development programs. We have
generated no revenues from sales of our own products and have been dependent
upon funding primarily from equity and debt financing. In the first six months
of 2002, we earned detailing fees of approximately $12.7 million for promoting
Nasacort(R) AQ and Allegra(R), two products owned by Aventis Pharmaceuticals
Inc. (Aventis). We will stop promoting Nasacort (R) AQ and Allegra(R) at the end
of August 2002.
In August 2002, we announced a restructuring of our operations, and that
ViroPharma and Aventis mutually agreed to terminate our collaboration for
Picovir. As part of the restructuring, we have reduced our workforce by
approximately 63%, which includes selling our sales force to Aventis and
reductions in development, commercial operations and administration. We do not
intend to fund any additional significant clinical development of Picovir for
the treatment of the common cold without a new partner. We will focus our
resources on the continued development of our HCV product candidates with Wyeth,
the continued development of our RSV product candidates, and pursuing new
research and development opportunities to expand our pipeline. We intend to seek
a worldwide development partner for our RSV program to maximize its value.
Under our agreement with Aventis that ends our collaboration to co-develop
and co-promote Picovir, Aventis returned Picovir to us, and both parties
received mutual releases of all obligations without incurring termination fees.
Aventis will compensate us for Aventis' current share of development and
commercial expenses and our detailing fees through August, and we returned to
Aventis advance milestone payments of $20.0 million. Aventis also purchased 3
million shares of ViroPharma's common stock for $4.59 million.
In a separate transaction, Aventis will acquire our sales force for a
payment to ViroPharma of approximately $15.41 million. The sales force currently
promotes products from the Aventis respiratory portfolio - Nasacort(R) AQ and
the Allegra(R) family, and will continue to do so through August 2002. We expect
to record income of approximately $19.4 million in the third quarter in
connection with the termination of the Picovir collaboration and sale of our
sale force to Aventis. The income is related to the $15.41 million referred to
above and the acceleration of the recognition of the remaining deferred revenue
related to the up front payment of $5.0 million received in September 2001.
As a result of our restructuring, we expect our expenses and operating
losses in the near term to be lower than we have experienced during the past
twelve-month period. Our expected decreases in expenses and operating losses
under this
11
scenario will be due to lower development, marketing, sales and general and
administrative expenses. As a result of our restructuring, we expect to have
sufficient cash available at the beginning of 2003 to fund our planned business
operations and debt service requirements for an additional three years.
Specifically, we anticipate that our monthly cash burn (before a one-time
restructuring charge and interest expense on our $180.0 million 6% convertible
notes due in 2007) will be reduced to an average of less than $3.5 million
through the end of 2005, compared to an average of $6.0 million per month over
the first six months of 2002. We expect to record a one-time charge in the third
quarter of 2002 of approximately $4.0 million related to this restructuring,
which includes employee-related costs, exit costs associated with the
automobile fleet and write-off of certain equipment.
In order to improve our capital structure and reduce annual interest
expense, our board of directors has approved a convertible note repurchase
program to spend up to $20.0 million to purchase a portion of our $180.0 million
in convertible notes. We may, in our discretion, purchase the notes in the open
market or in privately negotiated transactions from time to time as market
conditions warrant. There can be no assurance that we will be able to purchase
any of these notes at prices favorable to us, or at all.
Our ability to achieve profitability is dependent on developing and
obtaining regulatory approvals for our product candidates, successfully
commercializing such product candidates (which may include entering into
collaborative agreements for product development and commercialization), and
securing contract manufacturing services and distribution and logistics
services. We will need to raise substantial additional funds to continue our
business activities and fund our debt service obligations beyond 2005.
In March and May 2002, we and certain of our directors were named as
defendants in purported class actions filed in the U.S. District Court for the
Eastern District of Pennsylvania. In July 2002, these actions were consolidated
into a single complaint. The plaintiffs in these actions have alleged that
certain statements by us about Picovir(TM) were misleading. A judgment against
us could materially exceed the coverage which may be available under our
directors' and officers' liability insurance. We are vigorously defending
ourselves against these lawsuits and believe we have meritorious defenses
against the claims.
While it is not feasible to predict the outcome of this action at this
time, the ultimate resolution of this matter could have a material adverse
effect on our financial position and the resolution of this matter during a
specific period could have a material adverse effect on the quarterly or annual
operating results for that period. To date no liability related to this matter
has been reflected in our consolidated balance sheet.
Liquidity and Capital Resources
We commenced operations in December 1994. We are a development stage
company and, other than detailing fees earned in the first and second quarters
of 2002 for promoting products owned by Aventis, we have not generated revenues
from product sales. The cash flows used in operations historically have been
applied to research and development activities and the supporting marketing and
general and administrative expenses. We expect that the most significant sources
of our near-term operating expenses will be discovery and development activities
with our hepatitis C and RSV disease programs and business development
activities seeking new opportunities to expand our pipeline. Also, we expect to
take a one-time charge in the third quarter of 2002 of approximately $4.0
million related to our restructuring.
Through June 30, 2002, we have used approximately $179.5 million of cash in
operating activities. We invest our cash in short-term investments. Through June
30, 2002, we have used approximately $206.2 million in investing activities,
including $190.6 million in short-term investments and $15.6 million in
equipment purchases and new construction. Through June 30, 2002, we have
financed our operations primarily through private and public offerings of common
stock, a convertible subordinated notes offering, private placements of
redeemable preferred stock, two bank loans and equipment lease lines totaling
approximately $399.7 million. At June 30, 2002, we had cash and cash equivalents
and short-term investments aggregating approximately $200.9 million.
We lease our corporate and research and development facilities under an
operating lease expiring in 2008. We also have the right, under certain
circumstances, to purchase the facility. We recently completed our final
expansion of this facility. Rent and operating expense will increase
approximately $0.5 million per year, commencing in August 2002. In September
2001, we entered into a lease for approximately 30,000 square feet of additional
office space, which will result in an annual increase in rent expense of
approximately $0.6 million starting in mid-to late 2002. The term of the lease
is fifteen years. We do not expect to incur any significant additional
expenditures related to these two items. We are actively seeking to sublease the
additional office space that we leased in September 2001.
We have financed substantially all of our equipment, other than automobiles
for our sales force, under two bank loans. The first bank loan, which we entered
into in February 1997, is for $0.6 million, is payable in equal monthly
installments
12
over 72 months and has a 9.06% interest rate. The second bank loan, which we
entered into in December 1998, is for $0.5 million, is payable in equal monthly
installments over 60 months and has a 7.25% interest rate. As June 30, 2002,
aggregate outstanding borrowings under these bank loans were approximately $0.2
million.
In November 2001, we entered into an automobile fleet leasing arrangement
for our sales force. The initial term of the lease for each individual leased
vehicle is for a twelve month period and is renewable on a per vehicle basis for
successive twelve month periods with no stated expiration dates. The lease is
secured with a two-year $1 million letter of credit which is further
collateralized with a $1 million investment at the lending institution that
issued the letter of credit. The investment is restricted over the term of the
letter of credit. We will be terminating this automobile fleet leasing
arrangement in September 2002. Our estimated $4.0 million restructuring charge
that we expect to record in the third quarter of 2002 includes an amount for the
early termination of this arrangement.
We amended and restated our agreement with Sanofi-Synthelabo in February
2001. Under this agreement, we are required to make royalty payments on any
sales in the United States and Canada of products developed under the agreement,
which royalty payments will be reduced upon the expiration of the last patent on
Picovir(TM) or any related drug.
In February 2002, we entered into a commercial supply agreement with
Patheon, Inc. for final Picovir(TM) drug product. In May 2001, we entered into a
commercial manufacturing agreement with Produits Chimiques Auxilliares et de
Synthese (PCAS) to manufacture commercial and validation supplies of bulk
Picovir(TM) drug substance. We also entered into an agreement with an
alternative supplier to manufacture pilot and validation batches of bulk
Picovir(TM). These agreements will commit these suppliers to manufacture and
supply Picovir(TM) to us at prices based on the quantity of product we require
from them. In the second quarter of 2002, we incurred approximately $2.3 million
of cost under these agreements. We are in dispute with two manufacturers of
Picovir(TM) bulk drug substance concerning amounts due to them. We may pay up to
$3.9 million in total under these arrangements.
In August 2002, we and Aventis mutually agreed to end our
collaboration to co-develop and co-promote Picovir. Under the agreement, Aventis
returned Picovir to us, and both parties received mutual releases of all
obligations without incurring termination fees. Aventis will compensate us for
Aventis' current share of development and commercial expenses and our detailing
fees through August, and we returned to Aventis advance milestone payments of
$20.0 million. Aventis also purchased 3 million shares of ViroPharma's common
stock for $4.59 million.
In a separate transaction, Aventis will acquire our sales force for a
payment to ViroPharma of approximately $15.41 million. The sales force currently
promotes products from the Aventis respiratory portfolio - Nasacort(R) AQ and
the Allegra(R) family, and will continue to do so through August 31, 2002.
We expect to record income of approximately $19.4 million in the third
quarter in connection with the termination of the Picovir collaboration and sale
of our sale force to Aventis. The income is related to the $15.41 million
referred to above and the acceleration of the recognition of the remaining
deferred revenue related to the up front payment of $5.0 million received in
September 2001.
As a result of our restructuring, particularly the termination of our
copromotion and codevelopment agreement with Aventis and our decision not to
fund any additional significant clinical development of Picovir for the
treatment of the common cold without a new partner, we expect our expenses and
operating losses in the near term to be lower than we have experienced during
the past twelve month period. Our expected decreases in expenses and operating
losses under this scenario would be due to lower development, marketing, sales
and general and administrative expenses. As a result of our restructuring, we
expect to have sufficient cash available at the beginning of 2003 to fund our
planned business operations and debt service requirements for an additional
three years. Specifically, we anticipate that our monthly cash burn (before a
one-time restructuring charge and interest expense on our convertible notes)
will be reduced to an average of less than $3.5 million through the end of 2005,
compared to an average of $6.0 million per month over the first six months of
2002.
We expect that the most significant sources of our near-term operating
expenses will be discovery and development activities with our hepatitis C and
RSV disease programs and business development activities seeking new
opportunities to expand our pipeline. Also, we expect to take a one-time charge
in the third quarter of 2002 of approximately $4.0 million related to our
restructuring.
Our ability to achieve profitability is dependent on developing and
obtaining regulatory approvals for our product candidates, successfully
commercializing such product candidates (which may include entering into
collaborative agreements for product development and commercialization), and
securing contract manufacturing services and distribution and logistics
services. We will need to raise substantial additional funds to continue our
business activities and fund our debt service obligations beyond 2005.
In June 2002, we announced that we and Wyeth extended the screening phase
of our HCV drug discovery, development and commercialization agreement for up to
an additional two years. We will continue to fund the development
13
of additional compounds under our collaboration agreement with Wyeth. Wyeth pays
a substantial portion of the collaboration's HCV research and development
expenses. We expect to advance our next lead compound into phase 1 safety
studies by the end of 2002. We also are advancing several additional compounds
in earlier stages of development. There can be no assurance, however, that these
clinical trials can be initiated during the timeframes that we expect, or at
all.
We expect that we will need to raise additional funds to continue our
business activities and fund our debt service obligations beyond 2005. We have
convertible notes payable in the amount of $180.0 million. These notes bear
interest at 6% per annum and become due in March 2007. In order to improve the
company's capital structure and reduce annual interest expense, our board of
directors approved a convertible note repurchase program to spend up to $20.0
million to purchase a portion of our $180.0 million convertible notes. We may,
in our discretion, purchase the notes in the open market or in privately
negotiated transactions from time to time as market conditions warrant. There
can be no assurance that we will be able to purchase any of these notes at
prices favorable to us, or at all.
We believe that our restructuring will provide us with sufficient cash to
fund our planned business operations and debt service obligations through 2005.
However, we will need additional financing for the development and required
testing of our hepatitis C and RSV disease compounds and for any other product
candidates. To obtain this financing, we intend to access the public or private
equity or debt markets or enter into additional arrangements with corporate
collaborators to whom we may issue shares of our stock. We have an effective
Form S-3 universal shelf registration statement filed with the Securities and
Exchange Commission for the potential additional issuance of up to approximately
$207.0 million of our securities. The registration statement provides us with
the flexibility to determine the type of security we choose to sell, including
common stock, preferred stock, warrants and debt securities, as well as the
ability to time such sales when market conditions are favorable.
If we raise additional capital by issuing equity securities, the terms and
prices for these financings may be much more favorable to the new investors than
the terms obtained by our existing stockholders. These financings also may
dilute the ownership of existing stockholders.
Additional financing, however, may not be available on acceptable terms
from any source as a result of, among other factors, our failure to achieve
regulatory approval of Picovir(TM), our inability to generate revenue through
our existing collaborative agreements, the existence of pending litigation
involving the allegations of securities fraud, and our inability to file,
prosecute, defend and enforce any patent claim and or other intellectual
property rights. If sufficient additional financing is not available, we may
need to delay, reduce or eliminate current research and development programs, or
reduce or eliminate other aspects of our business.
Additionally, Wyeth is required to purchase our common stock at the time of
completion of certain product development and regulatory approval events
pursuant to the terms of our collaboration agreement. However, in the event we
are not able to successfully achieve the product development or regulatory
approval events, the additional financing provided by this agreement would not
be available to us.
Results of Operations
Quarters ended June 30, 2002 and 2001
Revenues were approximately $7.3 million for the quarter ended June 30,
2002, compared to approximately $0.3 million during the same period in 2001.
During the quarter ended June 30, 2002, we earned detailing fees of
approximately $6.8 million for promoting Nasacort(R) AQ and Allegra(R), two
products owned by Aventis. During the quarter ended June 30, 2002, we also
recognized deferred revenue of approximately $0.5 million from advance payments
received under our collaborations with Wyeth and Aventis, compared to
recognizing deferred revenue of approximately $0.3 million from advance payments
received under our collaboration agreement with Wyeth during the same period in
2001. We will not earn detailing fees beyond August 31, 2002, and we will
accelerate the recognition of approximately $4.0 million of deferred revenue in
the third quarter of 2002 as the result of the termination of our collaboration
with Aventis.
Research and development expenses increased approximately $3.4 million to
$10.3 million in the second quarter of 2002 from $6.9 million in the second
quarter of 2001. The increase was primarily due to higher manufacturing costs
related to Picovir, and increased efforts in discovery. Partially offsetting
these increases is a higher amount of costs to be reimbursed to us during the
quarter ended June 30, 2002 compared to the quarter ended June 30, 2001 as a
result of our collaboration agreement with Aventis and lower employee-related
costs. Manufacturing costs were approximately $2.1 million higher in the quarter
ended June 30, 2002 when compared to the same three month period in 2001 due to
the acquisition of drug substance of Picovir. The increased efforts in discovery
research resulted in increased spending of approximately $0.8 million for the
second quarter of 2002 when compared to the same period in 2001.
Employee-related costs were approximately $0.3 million lower in the quarter
ended June 30, 2002 compared to the quarter ended June 30, 2001. The amount of
research and development expenses to be
14
reimbursed by our collaboration partners increased to approximately $0.9 million
during the three month period ended June 30, 2002 primarily as a result of our
September 2001 agreement with Aventis. Expenses in our three development
programs increased approximately $1.7 million on a quarter over quarter basis.
During the second quarter of 2002, we were conducting additional studies in
adults for the prevention of the common cold and for the treatment of this
disease in the pediatric population and began studies of drug interaction
effects of pleconaril on oral contraceptives. We were also conducting one phase
I study for the treatment of respiratory syncytial virus (RSV) disease. In
comparison, during the second quarter of 2001 our primary effort was on
preparing for the submission of the New Drug Application (NDA) for pleconaril.
In addition, we were conducting patient studies with VP50406 for the treatment
of hepatitis C and safety studies with VP14637 for the treatment of RSV disease.
We do not expect to fund any additional significant clinical development of
Picovir for the treatment of the common cold without a new partner. We expect
that without significant clinical development of Picovir, our research and
development expenses will be lower for the remaining six months of 2002 compared
to the same period in 2001.
Sales and marketing expenses for the second quarter of 2002 were
approximately $9.5 million, which is net of Aventis cost sharing of
approximately $1.1 million, compared to approximately $2.6 million for the same
period of 2001. This increase reflects our 45% portion of the investments in
pre-launch activities for Picovir(TM), including medical education, brand
development and market research, and the costs of our sales organization. We
expect these costs to be substantially reduced due to the termination of the
agreement with Aventis. During the second quarter of 2002, we earned
approximately $6.8 million of detailing fees for promoting the two Aventis
products. We will not earn detailing fees beyond August 31, 2002. Our sales and
marketing expenditures during the second quarter of 2002 were approximately $2.7
million, net of detailing fee revenue of $6.8 million.
General and administrative expenses for the second quarter of 2002 of
approximately $2.8 million increased slightly when compared to the $2.6 million
from the same period in 2001. The increase of approximately $0.2 million is
primarily due to higher facility costs and legal costs associated with the
Company's ongoing litigation.
Interest expense for the quarter ended June 30, 2002 was essentially flat
when compared to the same period in the prior year due to relatively consistent
levels of debt in both periods. Interest income fell approximately $1.7 million
during the second quarter of 2002 when compared to the same quarter in 2001
primarily due to lower effective yields on investments due to the relatively
lower interest rate environment during the current quarter versus the same
quarter in the prior year.
The net loss allocable to common shareholders increased to approximately
$16.8 million for the quarter ended June 30, 2002 from approximately $11.8
million for the quarter ended June 30, 2001.
Six months ended June 30, 2002 and 2001
Revenues were approximately $13.8 million for the six months ended June 30,
2002, compared to approximately $2.5 million during the same period in 2001.
During the six months ended June 30, 2002, we earned detailing fees of
approximately $12.7 million for promoting Nasacort(R) AQ and Allegra(R), two
products owned by Aventis. During the six months ended June 30, 2002, we also
recognized deferred revenue of approximately $1.1 million from advance payments
received under our collaborations with Wyeth and Aventis, compared to
recognizing deferred revenue of approximately $0.5 million from advance payments
received under our collaboration agreement with Wyeth during the same period in
2001. In the six month period ended June 30, 2002, we did not earn any milestone
revenue compared to $2.0 million in milestone revenues earned during the same
period ending June 30, 2001. We will not earn detailing fees beyond August 31,
2002.
Research and development expenses increased to $23.8 million for the six
month period ended June 30, 2002 from $18.7 million for the six month period
ended June 30, 2001. The increase was primarily due to higher manufacturing
costs for Picovir, increased efforts in discovery, and higher employee related
costs. Partially offsetting these increases is a higher amount of costs to be
reimbursed to us during the six months ended June 30, 2002 compared to the same
period for 2001 as a result of our collaboration agreement with Aventis.
Manufacturing costs were approximately $3.4 million higher in the six month
period ended June 30, 2002 when compared to the same period in 2001 due to the
acquisition of drug substance of Picovir and the initiation of manufacturing
process validation. Employee-related costs were approximately $1.5 million
higher in the six month period ended June 30, 2002 compared to the same period
in 2001. The increased efforts in discovery research resulted in increased
spending of approximately $1.7 million for the six month period ended June 30,
2002 when compared to the same
15
period in 2001. The amount of research and development expenses to be reimbursed
by our collaboration partners increased from approximately $1.3 million during
the six month period ended June 30, 2001 to approximately $4.3 million during
the six month period ended June 30, 2002 primarily as a result of our September
2001 agreement with Aventis. Expenses in our three development programs
increased approximately $1.5 million from the six months ended June 30, 2001.
During the six months ended June 30, 2002, in addition to the preparation for
the Advisory Committee meeting, we were conducting additional studies in adults
for the prevention of the common cold and for the treatment of this disease in
the pediatric population and began studies of drug interaction effects of
pleconaril on oral contraceptives. We were also conducting one phase I study for
the treatment of respiratory syncytial virus (RSV) disease. In comparison,
during the six months ended June 30, 2001 we completed two large phase III
clinical trials with Picovir(TM) for the treatment of the common cold in adults
and were preparing the NDA for Picovir(TM). In addition, we were conducting
patient studies with VP50406 for the treatment of hepatitis C and safety studies
with VP14637 for the treatment of RSV disease. We do not expect to fund any
additional significant clinical development of Picovir for the treatment of the
common cold without a new partner. We expect that without significant clinical
development of Picovir, our research and development expenses will be lower for
the remaining six months of 2002 compared to the same period in 2001.
Sales and marketing expenses for the six months ended June 30, 2002 were
approximately $20.7 million, which is net of Aventis cost sharing of
approximately $1.4 million, compared to approximately $3.9 million for the same
period of 2001. This increase reflects our 45% portion of the investments in
pre-launch activities for Picovir(TM), including medical education, brand
development and market research and the costs of our sales organization. We
expect these costs to be substantially reduced due to the termination of the
Aventis agreement. During the six months ended June 30, 2002, we earned
approximately $12.7 million of detailing fees for promoting the two Aventis
products. We will not earn detailing fees beyond August 31, 2002. Our sales and
marketing expenditures during the first six months of 2002 were approximately
$8.0 million, net of detailing fee revenue of $12.7 million.
General and administrative expenses increased to $5.2 million in the six
months ended June 30, 2002 from $4.9 million for the same period of 2001. The
increase of approximately $0.3 million is primarily due to higher facility costs
and legal costs associated with the Company's ongoing litigation.
Included in operating expenses in the six month period ended June 30, 2001
is a non-cash charge of $16.5 million resulting from the issuance of 750,000
shares of common stock to Sanofi-Synthelabo in exchange for the expansion of our
intellectual property rights related to Picovir(TM), as these additional
intellectual property rights licensed from Sanofi-Synthelabo have not reached
technological feasibility and have no alternative uses.
Interest expense for the six months ended June 30, 2002 was essentially
flat when compared to the same period in the prior year due to relatively
consistent levels of debt in both periods. Interest income fell approximately
$3.0 million during the first six months of 2002 when compared to the same
period in 2001 primarily due to lower effective yields on investments due to the
relatively lower interest rate environment during the current six-month period
versus the same six month period in the prior year.
The net loss allocable to common shareholders decreased to approximately
$38.2 million for the six-month period ended June 30, 2002 from approximately
$41.1 million for the six-month period ended June 30, 2001.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Our holdings of financial instruments are comprised of a mix of U.S.
corporate debt, government securities and commercial paper. All such instruments
are classified as securities available for sale. Our debt security portfolio
represents funds held temporarily pending use in our business and operations. We
manage these funds accordingly. We seek reasonable assuredness of the safety of
principal and market liquidity by investing in rated fixed income securities
while at the same time seeking to achieve a favorable rate of return. Our market
risk exposure consists principally of exposure to changes in interest rates. Our
holdings are also exposed to the risks of changes in the credit quality of
issuers. We typically invest in the shorter-end of the maturity spectrum. The
principal amount and the annualized weighted average nominal interest rate of
our investment portfolio at June 30, 2002 was $186,926,290 and approximately
6.3%, respectively.
16
We have $180.0 million of convertible subordinated notes due 2007. The
notes are convertible into shares of our common stock at a price of $109.15 per
share, subject to certain adjustments. The notes bear interest at a rate of 6%
per annum, payable semi-annually in arrears, and can be redeemed by us, at
certain premiums over the principal amount, at any time on or after March 6,
2003. At June 30, 2002, the aggregate market price of our convertible
subordinated notes was estimated to be approximately approximately $61.2 million
based on trading prices on that date. The value of our convertible subordinated
notes is dependant upon, among other factors, the fair value of our common stock
and prevailing market interest rates.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
In March and May 2002, we and certain of our directors were named as
defendants in purported class actions filed in the U.S. District Court for the
Eastern District of Pennsylvania. In July 2002, these actions were consolidated
into a single compliant. The plaintiffs in these actions have alleged that
certain statements by us about Picovir(TM) were misleading. A judgment against
us could materially exceed the coverage which may be available under our
directors' and officers' liability insurance. We are vigorously defending
ourself against these lawsuits and believe we have meritorious defenses against
the claims.
We are from time to time a party to litigation in the ordinary course of
our business. We are currently involved in a matter alleging breach of
commercial contract. However, we are vigorously defending ourselves against this
action and do not believe the matter, even if adversely adjudicated or settled,
would have a material adverse effect on our financial condition or results of
operations.
ITEM 4. Submission of Matters to a Vote of Security Holders.
On May 10, 2002 the Company held its annual stockholders meeting. In
connection with the stockholders meeting, the Company solicited proxies (1) for
the election of Dr. Frank Baldino and Mr. Claude Nash as class III directors of
the Company, and (2) to approve an amendment to the Company's Stock Option and
Restricted Share Plan to increase the number of shares of common stock available
for issuance under that plan by 750,000 shares. The record date for determining
the stockholders entitled to receive notice of, and vote at, the meeting was
March 25, 2002. The Company had 22,751,575 shares of its common stock
outstanding on the record date for the meeting, of which, a total of 19,180,806
shares were represented at the stockholders meeting by proxy. Such shares were
voted at the stockholders meeting as follows:
Number of Votes
FOR AGAINST WITHHELD ABSTAIN
Election to the Board:
Dr. Frank Baldino 18,871,690 309,116
Mr. Claude Nash 18,884,820 295,986
Approval of Amendment to 18,382,646 699,016 99,144
Stock Option and Restricted
Share Plan
Paul A. Brooke, Robert J. Glaser, David J. Williams, Michel de Rosen and
Howard Pien constitute Class I and II directors whose terms continued after the
annual meeting.
ITEM 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
10.35 Letter Agreement dated May 29, 2002 between ViroPharma
Incorporated and Wyeth, acting through its Wyeth
Pharmaceuticals Division.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K:
We filed the following Current Reports on Form 8-K during the quarter ended June
30, 2002:
(i) We filed a Current Report on Form 8-K dated June
19, 2002 to report, pursuant to Item 5, that
ViroPharma Incorporated and Wyeth extended the
screening phase of its hepatitis C drug discovery,
development and commercialization agreement with
Wyeth hepatitis C collaboration.
17
(ii) We filed a Current Report on Form 8-K dated June 5,
2002 to report, pursuant to Item 5, a set of
"Frequently Asked Questions" describing information
that experience has demonstrated to be often
requested by analysts and investors, and the
answers to these questions.
(iii) We filed a Current Report on Form 8-K dated June 4,
2002 to report, pursuant to Item 5, that ViroPharma
Incorporated received a "not approvable" letter
from the U.S. Food and Drug Administration in
response to the new drug application (NDA) for
Picovir(TM) for the treatment of the common cold in
adults.
(iv) We filed a Current Report on Form 8-K dated May 10,
2002 to report, pursuant to Item 5, that the U.S.
Food and Drug Administration informed ViroPharma
Incorporated that it intended to issue a "not
approvable" letter in response to ViroPharma's new
drug application (NDA) for Picovir(TM) for the
treatment of the common cold in adults.
(v) We filed a Current Report on Form 8-K dated May 1,
2002 to report, pursuant to Item 5, our financial
results for the first quarter ended March 31, 2002.
18
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.
VIROPHARMA INCORPORATED
Date: August 12, 2002 By: /s/ Michel de Rosen
------------------------------------------
Michel de Rosen
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Vincent J. Milano
------------------------------------------
Vincent J. Milano
Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
19
Exhibit Index
Exhibit Description
10.35 Letter Agreement dated May 29, 2002 between ViroPharma Incorporated
and Wyeth, acting through its Wyeth Pharmaceuticals Division.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.