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| SIRT > SEC Filings for SIRT > Form 10-Q on 14-May-2008 | All Recent SEC Filings |
14-May-2008
Quarterly Report
The following discussion contains forward-looking statements, which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors
,including those set forth below under Part II, Item 1A, "Risk Factors." The
interim financial statements and this Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the financial statements and notes thereto for the year ended December 31, 2007
and the related Management's Discussion and Analysis of Financial Condition and
Results of Operations, both of which are contained in the Company's Annual
Report on
Form 10-K as filed with the SEC on March 24, 2008. Except as required by law, we
assume no obligation to update these forward-looking statements, whether as a
result of new information, future events or otherwise.
Overview
We are a biopharmaceutical company focused on discovering and developing proprietary, orally available, small molecule drugs with the potential to treat diseases associated with aging, including metabolic diseases such as Type 2 Diabetes. Our goal is to successfully develop therapeutics for diseases of aging by modulating sirtuins, a recently discovered class of enzymes, and their related pathways. To date, we have devoted substantially all of our resources to our drug discovery efforts and the development of our drug candidates, including conducting preclinical studies and clinical trials and seeking protection for our intellectual property. Since our inception in March 2004, we have had no revenue from product sales, and have funded our operations principally through private and public sales of equity securities and debt financings.
We have never been profitable and, as of March 31, 2008, we have an accumulated deficit of $68.7 million. We had net losses of $9.7 million for the year ended December 31, 2005, $17.0 million for the year ended December 31, 2006, $31.1 million for the year ended December 31, 2007 and $9.1 million for the three months ended March 31, 2008. We expect to incur significant and increasing operating losses for the foreseeable future as we advance our product candidates from discovery through preclinical studies and clinical trials and seek regulatory approval and eventual commercialization. In addition to these increasing research and development expenses, we expect general and administrative costs to increase as we add personnel and continue to operate as a public company. We will need to generate significant revenues to achieve profitability and may never do so.
On April 22, 2008, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with SmithKline Beecham Corporation, a Pennsylvania corporation ("SKB"), and Fountain Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of SKB (the "Purchaser"), pursuant to which, among other things, the Purchaser agreed to commence a tender offer for all our outstanding shares of common stock, subject to the terms and conditions of the Merger Agreement. SKB is a wholly-owned subsidiary of GlaxoSmithKline plc ("GSK"). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, the Purchaser commenced a tender offer on May 2, 2008 (the "Offer") to acquire all of our outstanding shares of common stock, par value $0.001 per share ("Company Common Stock"), at a price of $22.50 per share, net to the selling stockholders in cash, without interest thereon (the "Offer Price"). Pursuant to the Merger Agreement, after the consummation of the Offer, and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, the Purchaser will merge with and into us (the "Merger") and we will become a wholly-owned subsidiary of SKB. At the effective time of the Merger, each issued and outstanding share of Company Common Stock (the "Shares") (other than Shares owned by us, GSK or any wholly-owned subsidiary of GSK, and Shares held by stockholders who have perfected their statutory rights of appraisal under Section 262 of the Delaware General Corporation Law) will be automatically converted into the right to receive the Offer Price in cash, without interest, as set forth above. The Merger Agreement includes certain representations, warranties and covenants of us, SKB and the Purchaser. Among others, we have agreed to operate its business in the ordinary course until the Offer is consummated. We have also agreed not to solicit or initiate discussions with third parties regarding other proposals to acquire us and to certain restrictions on our ability to respond to such proposals. The Merger Agreement also includes customary termination provisions for both us and SKB and provides that, in connection with the termination of the Merger Agreement under specified circumstances, we will be required to pay to SKB a termination fee of $22.5 million. In connection with the proposed Merger, we agreed to pay our financial advisor a transaction fee for its services of approximately $7.2 million, in addition to a discretionary fee of up to $1.4 million to be determined by our board of directors prior to closing, payable upon the consummation of the Offer and the Merger.
Critical Accounting Policies
We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as "critical" because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates - which also would have been reasonable - could have been used, which would have resulted in different financial results. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies included in the Company's Annual Report on Form 10-K as filed with the SEC on March 24, 2008. There were no changes to such critical accounting policies in the three months ended March 31, 2008.
Results of Operations
Comparison of the Three Months ended March 31, 2008 (the "2008 Quarter") and March 31, 2007 (the "2007 Quarter")
Revenue. Revenue for the 2008 Quarter of $500,000 represents a payment from a sublicense for worldwide rights to certain technology in the field of plants. For the 2007 Quarter, we recorded no revenue.
Research and development. Research and development expense for the 2008 Quarter was $7.9 million compared to $5.1 million for the 2007 Quarter. The $2.8 million increase from the 2007 Quarter to the 2008 Quarter principally resulted from an increase of $697,000 in occupancy costs primarily due to costs relating to a new facility, an increase of $477,000 for personnel costs related principally to an increase in research and development headcount, an increase of $450,000 in preclinical studies, an increase of $359,000 in stock-based compensation expense, an increase of $275,000 in formulation costs for our product candidates, an increase of $230,000 in consulting expense and an increase in general lab supplies of $143,000.
General and administrative. General and administrative expense for the 2008 Quarter was $2.6 million compared to $1.2 million for the 2007 Quarter. The $1.4 million increase from the 2007 Quarter to the 2008 Quarter was primarily due to an increase of $413,000 in professional fees primarily as a result of being a public company, an increase of $413,000 in stock-based compensation expense and an increase of $256,000 in personnel costs.
Interest income. Interest income increased to $1.3 million for the 2008 Quarter from $900,000 for the 2007 Quarter. The increase in interest income was caused by an increase in the average fund balances available for investment. The increase in the average fund balances for investment was primarily due to net proceeds of approximately $35.9 million from the sale of redeemable convertible preferred stock in January and February of 2007 and net proceeds of approximately $62.5 million from the completion of our initial public offering in May 2007.
Interest expense. Interest expense decreased to $305,000 for the 2008 Quarter from $324,000 for the 2007 Quarter. The decrease in interest expense from the 2007 Quarter to the 2008 Quarter was primarily due to lower outstanding balances under a loan agreement with Hercules Technology Growth Capital, Inc. and an equipment loan agreement with Silicon Valley Bank.
Liquidity and Capital Resources
Since our inception in March 2004, we have funded our operations principally through the private placement of equity securities, which provided aggregate net cash proceeds of approximately $102.6 million and the completion of an initial public offering that provided net proceeds of approximately $62.5 million. We have also generated funds from debt financing and interest income. As of March 31, 2008, we had cash, cash equivalents and short-term investments of approximately $107.5 million. Our funds are currently invested in investment grade and United States government securities.
During the 2008 Quarter and 2007 Quarter, our operating activities used cash of $9.6 million and $5.1 million, respectively. The use of cash in both periods primarily resulted from our net losses and changes in our working capital accounts. The increase in cash used in operations in the 2008 Quarter was due primarily to an increase in research and development activities as noted above.
Our investing activities provided cash of $14.7 million during the 2008 Quarter and used cash of $14.1 million during 2007 Quarter. Investing activities provided cash during the 2008 Quarter because cash provided from sales and maturities of short-term investment exceeded cash used to purchase short-term investments. Investing activities used cash during the 2007 Quarter because cash used to purchase short-term investments exceeded cash provided from sales and maturities of short-term investments.
Our financing activities used cash of $453,000 in the 2008 Quarter and provided cash of $36.0 million in the 2007 Quarter. Cash used in the 2008 Quarter resulted from the repayment of notes payable, partially offset by proceeds from the issuance of common stock from the exercise of stock options. Cash provided in the 2007 Quarter resulted from the sale and issuance of 21.4 million shares of Series C-1 redeemable convertible preferred stock in January and February 2007 that provided net proceeds of approximately $35.9 million.
In April 2006, we obtained a loan from Hercules Technology Growth Capital, Inc. which permitted borrowings of up to $15.0 million, $10.0 million of which was available immediately and an additional $5.0 million was available during the third quarter of 2007 when certain clinical milestones were achieved. The additional $5.0 million was not drawn down, so there is no remaining amount available under this loan. We were obligated to make interest-only payments through July 2007 followed by forty-five equal monthly payments of principal and interest. The loan is secured by essentially all our assets except for intellectual property and bears interest at 10.60% per annum. In April 2006, we borrowed $10.0 million under the loan. As of March 31, 2008, there was $8.5 million outstanding under the loan. In connection with the loan, the lender received a warrant to purchase up to 127,551 shares of our common stock depending upon the amount actually borrowed at
an exercise price of $5.88 per share. The warrant is currently exercisable for up to 85,034 shares of our common stock and no additional shares of our common stock will become exercisable as we cannot make additional borrowings under this loan. This warrant has not been exercised.
In May 2006, we entered into an equipment loan agreement with Silicon Valley Bank to borrow up to $1.5 million through March 2007. Amounts borrowed under the equipment loan agreement are repayable over 36 months beginning in April 2007 and bear interest at prime plus 0.25% per annum. As of March 31, 2008, there was $532,000 outstanding and no remaining amount available under the equipment loan agreement. In connection with the financing, the lender received a warrant to purchase up to 4,749 shares of our common stock depending upon the amount actually borrowed at an exercise price of $4.20 per share. The warrant is currently exercisable for up to 2,526 shares of our common stock while the warrant for the remaining 2,223 additional shares of our common stock was cancelled since we did not make any additional borrowings under this loan before March 2007. The warrant was exercised in December 2007 to purchase 2,526 shares of our common stock. The equipment loan agreement was repaid in April 2008.
We expect our existing resources to be sufficient to fund our planned operations until at least early 2010.
Contractual Obligations
There are no other additional material obligations incurred by us that materially change the disclosure of our contractual obligations in our Annual Report on Form 10-K as filed with the SEC on March 24, 2008.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or relationships with unconsolidated entities of financial partnerships, such as entities often referred to as structured finance or special purpose entities.
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