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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 Form 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of
1934
 For the quarterly period ended June 30, 2006
 Or
 o
    
    Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 For the transition period from               to
 Commission File Number 0-29993
 INTRABIOTICS PHARMACEUTICALS, INC.
 (Exact name of Registrant as specified in its charter)
 DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    94-3200380
(I.R.S. Employer Identification Number)
 1009 Oak Hill Rd., Suite 201
Lafayette, CA 94549
  (925) 906-5331
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 þ o




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##### Table of Contents



TABLE OF CONTENTS
 INTRABIOTICS PHARMACEUTICALS, INC.
 FORM 10-Q
 QUARTER ENDED JUNE 30, 2006
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Balance Sheets as of June 30, 2006 (unaudited) and December 31, 2005
    
    
    3Condensed Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2005 (unaudited)
    
    
    4Condensed Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005 (unaudited)
    
    
    5Notes to Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15PART II. OTHER INFORMATION
    
    
    17Item 1. Legal Proceedings
    
    
    17Item 1A. Risk Factors
    
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3. Defaults Upon Senior Securities
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 5. Other Information
    
    
    18Item 6. Exhibits
    
    
    18SIGNATURES
    
    
    19EXHIBIT INDEX
    
    
    20EXHIBIT 31.1EXHIBIT 32.1
 2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 INTRABIOTICS PHARMACEUTICALS, INC.
 
 CONDENSED BALANCE SHEETS
 (Dollars In thousands, except per share data)
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    577
    
    
    $
    2,772Short-term investments
    
    
    47,823
    
    
    
    46,058Prepaid expenses and other current assets
    
    
    747
    
    
    
    341Total current assets
    
    
    49,147
    
    
    
    49,171Total assets
    
    $
    49,147
    
    
    $
    49,171LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    33
    
    
    $
    58Accrued clinical liabilities
    
    
    7
    
    
    
    99Other accrued liabilities
    
    
    136
    
    
    
    194Total current liabilities
    
    
    176
    
    
    
    351Stockholders equity:Convertible preferred stock, $0.001 par
value: 5,000,000 shares authorized; 300
shares outstanding and $3,000 aggregate
liquidation preference at June 30, 2006
and December 31, 2005, respectively
    
    
    1,634
    
    
    
    1,634Common
stock, $0.001 par value: 70,000,000 shares authorized at June 30,
2006 and December 31, 2005; 9,321,444 and
9,287,685 shares outstanding at June 30,
2006 and December 31, 2005, respectively
    
    
    9
    
    
    
    9Additional paid-in capital
    
    
    283,157
    
    
    
    282,828Deferred stock compensation
    
    
    
    
    
    
    (45
    )Accumulated other comprehensive loss
    
    
    (11
    )
    
    
    (36
    )Accumulated deficit
    
    
    (235,818
    )
    
    
    (235,570
    )Total stockholders equity
    
    
    48,971
    
    
    
    48,820Total liabilities and stockholders equity
    
    $
    49,147
    
    
    $
    49,171
  3




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INTRABIOTICS PHARMACEUTICALS, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Operating expenses:Research and development
    
    $
    
    
    
    $
    59
    
    
    $
    7
    
    
    $
    248General and administrative
    
    
    554
    
    
    
    851
    
    
    
    1,214
    
    
    
    2,045Restructuring charge
    
    
    
    
    
    
    675
    
    
    
    
    
    
    
    675Total operating expenses
    
    
    554
    
    
    
    1,585
    
    
    
    1,221
    
    
    
    2,968Operating loss
    
    
    (554
    )
    
    
    (1,585
    )
    
    
    (1,221
    )
    
    
    (2,968
    )Other income (expense)
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    Interest income
    
    
    577
    
    
    
    339
    
    
    
    1,095
    
    
    
    648Net income (loss)
    
    
    23
    
    
    
    (1,246
    )
    
    
    (127
    )
    
    
    (2,320
    )Non-cash dividends on Series A preferred stock
    
    
    (60
    )
    
    
    (60
    )
    
    
    (120
    )
    
    
    (120
    )Net loss applicable to common stockholders
    
    $
    (37
    )
    
    $
    (1,306
    )
    
    $
    (247
    )
    
    $
    (2,440
    )Basic and diluted net loss per share applicable to common
stockholders
    
    $
    (0.00
    )
    
    $
    (0.14
    )
    
    $
    (0.03
    )
    
    $
    (0.27
    )Shares used to compute basic and diluted net loss per share
applicable to common stockholders
    
    
    9,315
    
    
    
    9,089
    
    
    
    9,307
    
    
    
    9,040
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INTRABIOTICS PHARMACEUTICALS, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 (In thousands)
(Unaudited)
 Six Months EndedJune 30,2006
    
    
    2005Operating activitiesNet loss
    
    $
    (127
    )
    
    $
    (2,320
    )Adjustments to reconcile net loss to net cash used in operating activities:Stock compensation for directors
    
    
    257
    
    
    
    Stock compensation for variable option awards
    
    
    
    
    
    
    (48
    )Amortization of deferred stock compensation
    
    
    
    
    
    
    28Stock compensation for consultant services
    
    
    2
    
    
    
    125Depreciation and amortization
    
    
    
    
    
    
    9Loss on disposal of property and equipment
    
    
    
    
    
    
    27Change in assets and liabilities:Prepaid expenses and other current assets
    
    
    (406
    )
    
    
    (150
    )Accounts payable
    
    
    (25
    )
    
    
    (109
    )Accrued clinical liabilities
    
    
    (92
    )
    
    
    (69
    )Accrued employee liabilities
    
    
    
    
    
    
    (89
    )Accrued restructuring charges
    
    
    
    
    
    
    34Other accrued liabilities
    
    
    (58
    )
    
    
    (73
    )Net cash used in operating activities
    
    
    (449
    )
    
    
    (2,635
    )Investing activitiesProceeds from sale of property and equipment
    
    
    
    
    
    
    10Purchase of short term investments
    
    
    (121,877
    )
    
    
    (50,877
    )Proceeds from sale or maturity of short-term investments
    
    
    120,131
    
    
    
    59,550Net cash provided by (used in) investing activities
    
    
    (1,746
    )
    
    
    8,683Financing activityProceeds from issuance of common stock, net of issuance costs
    
    
    
    
    
    
    49Net cash provided by financing activities
    
    
    
    
    
    
    49Net increase (decrease) in cash and cash equivalents
    
    
    (2,195
    )
    
    
    6,097Cash and cash equivalents at beginning of the period
    
    
    2,772
    
    
    
    1,755Cash and cash equivalents at end of the period
    
    $
    577
    
    
    $
    7,852Supplemental disclosure of non-cash information:Issuance of common stock dividend on Series A preferred stock
    
    $
    (120
    )
    
    $
    (120
    )Issuance of common stock upon conversion of Series A preferred stock
    
    $
    
    
    
    $
    (137
    )
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INTRABIOTICS PHARMACEUTICALS, INC.
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 Note 1. Basis of Presentation and Summary of Significant Accounting Policies
    Use of Estimates
   Note 2. Stock-Based Compensation
   6




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Adoption of SFAS No. 123 (R)
  Stock Compensation Expense
    7




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Determining Fair Value
 Valuation and amortization method
 Expected term
 Expected Volatility
 Risk-Free Interest Rate
 Expected Dividend
 Estimated Forfeiture
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Risk-free interest rate
    
    
    n/a
    
    
    
    n/a
    
    
    
    5.16
    %
    
    
    3.79
    %Volatility
    
    
    n/a
    
    
    
    n/a
    
    
    
    0.20
    
    
    
    0.89Dividend yield
    
    
    n/a
    
    
    
    n/a
    
    
    
    0.00
    %
    
    
    0.00
    %Expected life of option
    
    
    n/a
    
    
    
    n/a
    
    
    
    1.7
    
    
    
    6.1
  Stock Options and Awards Activities
  Outstanding OptionsWeighted Average
    
    AggregateNumber of
    
    Exercise
    
    Remaining
    
    IntrinsicShares
    
    Price
    
    Contract Life
    

Value
(000s)Balance at December 31, 2005
    
    
    570,667
    
    
    $
    8.92
    
    
    
    7.08Granted
    
    
    37,500
    
    
    $
    3.50Exercised
    
    
    Forfeitures and cancellations
    
    
    (65,000
    )
    
    $
    9.98Balance at June 30, 2006
    
    
    543,167
    
    
    $
    8.34
    
    
    
    6.63
    
    
    $
    184,550Vested and expected to Vest at June 30, 2006
    
    
    543,167
    
    
    $
    8.34
    
    
    
    6.63
    
    
    $
    184,550Exercisable at June 30, 2006
    
    
    386,076
    
    
    $
    7.98
    
    
    
    6.63
    
    
    $
    152,795
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Options Outstanding
    
    Options ExercisableWeighted-Average
    
    Weighted
    
    
    
    
    
    Weighted-Remaining
    
    Average
    
    
    
    
    
    AverageRange of Exercise
    
    Number of
    
    Contractual Life
    
    Exercise
    
    Number of
    
    ExercisePrices
    
    Shares
    
    (years)
    
    Price
    
    Shares
    
    Price$2.40  2.76
    
    
    211,667
    
    
    
    4.3
    
    
    $
    2.75
    
    
    
    178,327
    
    
    $
    2.74$3.80  4.08
    
    
    77,500
    
    
    
    9.1
    
    
    $
    3.73
    
    
    
    40,000
    
    
    $
    3.94$13.06  16.49
    
    
    254,000
    
    
    
    7.8
    
    
    $
    14.42
    
    
    
    167,749
    
    
    $
    14.53543,167
    
    
    
    7.1
    
    
    $
    8.92
    
    
    
    386,076
    
    
    $
    8.14
 Pro-forma Disclosures
  (In thousands, except per share amounts)Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2005
    
    
    June 30, 2005Net loss applicable to common stockholders, as reported
    
    $
    (1,306
    )
    
    $
    (2,440
    )Add: Stock-based employee compensation expense (recovery)
included in reported net loss applicable to common stockholders
    
    
    11
    
    
    
    (20
    )Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards
    
    
    (529
    )
    
    
    (1,363
    )Net loss applicable to common stockholders, pro forma
    
    $
    (1,824
    )
    
    $
    (3,823
    )Net loss per share applicable to common stockholders:Basic and diluted  as reported
    
    $
    (0.14
    )
    
    $
    (0.27
    )Basic and diluted  pro forma
    
    $
    (0.20
    )
    
    $
    (0.42
    )
  9




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Note 3. Comprehensive Loss
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)
    
    
    (In thousands)Net Income (loss)
    
    $
    23
    
    
    $
    (1,246
    )
    
    $
    (127
    )
    
    $
    (2,320
    )Unrealized gain (loss) on available-for-sale securities
    
    
    9
    
    
    
    51
    
    
    
    25
    
    
    
    (2
    )Comprehensive loss
    
    $
    32
    
    
    $
    (1,195
    )
    
    $
    (102
    )
    
    $
    (2,322
    )
 Note 4. Net Loss Per Share
 Earnings Per Share,
 Note 5. Stockholders Equity
      10




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Note 6. Commitments
  Note 7. Legal Proceedings
   
 ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis of our financial condition and results of operations
should be read together with our financial statements and related notes included in our quarterly
report on this Form 10-Q and in our annual report on Form 10-K for the year ended December 31,
2005. This discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. The actual results may differ materially from those anticipated in
these forward-looking statements as a result of many factors, including but not limited to those
set forth in Part1, Item 1A  Risk Factors of our Form 10-K for the year ended December 31, 2005.
All forward-looking statements included in this document are based on information available to us
on the date of this document and we assume no obligation to update any forward-looking statements
contained in this Form 10-Q .
 Overview
    11




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Critical Accounting Policies and Estimates
   Stock-Based Compensation
 Accounting
for Stock-Based Compensation, Accounting
for Stock-Based Compensation  Transition and Disclosure,
  12




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Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services
 Results of Operations
 Three and Six Months Ended June 30, 2006 and 2005
 Research and Development
  General and Administrative
   13




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Restructuring Charges
  Interest Income
  Net Loss and Net Loss Applicable to Common Stockholders
  Liquidity and Capital Resources
      14




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Contractual Obligations
   Off-Balance Sheet Arrangements
  Indemnifications
  
 ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
  
 ITEM 4. Controls and Procedures
   15




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Disclosure Controls and Procedures
  Scope of the Controls Evaluation
  Future requirements
   16




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  Directors, principal stockholders and affiliated entities beneficially own or control at least 51%
of our capital stock outstanding and may be able to exert control over our activities, and the
results of our operations and financial condition may suffer.
  We may continue to incur net losses.
  Our stock price has been, and will be volatile, and the value of your investment may continue to
decline.
  17




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  18




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SIGNATURES
  IntraBiotics Pharmaceuticals, Inc.July 28, 2006
    /s/ Denis HickeyDenis HickeyChief Executive Officer and Chief Financial Officer 19




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EXHIBIT INDEX
 10.1
    
    Amendment to Services Agreement, dated as of June 27, 2006, by and
between IntraBiotics Pharmaceuticals, Inc. and Hickey & Hill, Inc.
Incorporated by reference to Exhibit 10.1 to our current report on
Form 8-K filed with the SEC on June 29, 2006.31.1
    
    Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Rules 13a-14(a) or 15d-14(a) promulgated under the
Securities Exchange Act of 1934, as amended.*32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer
as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).*