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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 September 30, 2005
 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
    
    94-3200380(State or other jurisdiction of
    
    (I.R.S. Employer Identification Number)incorporation or organization)
 1009 Oak Hill Rd., Suite 201
Lafayette, CA 94549
  (925) 906-5331
  þ o
 o þ
 þ o




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TABLE OF CONTENTS
 INTRABIOTICS PHARMACEUTICALS, INC.
 FORM 10-Q
 QUARTER ENDED September 30, 2005
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1 Financial Statements (unaudited)
    
    
    3Condensed Balance Sheets as of September 30, 2005 and December 31, 2004
    
    
    3Condensed Statements of Operations for the Three and Nine months Ended September 30, 2005 and 2004
    
    
    4Condensed Statements of Cash Flows for the Nine months Ended September 30, 2005 and 2004
    
    
    5Notes to Condensed Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    16PART II. OTHER INFORMATION
    
    
    18Item 1 Legal Proceedings
    
    
    18Item 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 31.1EXHIBIT 32.1
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 INTRABIOTICS PHARMACEUTICALS, INC.
 
 CONDENSED BALANCE SHEETS
(In thousands)
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    488
    
    
    $
    1,755Short-term investments
    
    
    48,054
    
    
    
    48,988Prepaid expenses and other current assets
    
    
    499
    
    
    
    396Total current assets
    
    
    49,041
    
    
    
    51,139Property and equipment, net
    
    
    
    
    
    
    46Total assets
    
    $
    49,041
    
    
    $
    51,185LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    103
    
    
    $
    154Accrued clinical liabilities
    
    
    99
    
    
    
    161Accrued employee liabilities
    
    
    
    
    
    
    89Other accrued liabilities
    
    
    155
    
    
    
    273Total current liabilities
    
    
    357
    
    
    
    677Stockholders equity:Convertible preferred stock, $0.001 par value: 5,000,000 shares authorized;
300 and 325 shares outstanding and $3,000 and $3,250 aggregate liquidation
preference at September 30, 2005 and December 31, 2004, respectively
    
    
    1,634
    
    
    
    1,771Common stock, $0.001 par value: 70,000,000 shares authorized at September
30, 2005 and December 31, 2004; 9,271,401and 8,880,344 shares outstanding at
September 30, 2005 and December 31, 2004, respectively
    
    
    9
    
    
    
    9Additional paid-in capital
    
    
    281,961
    
    
    
    281,068Deferred stock compensation
    
    
    (55
    )
    
    
    (114
    )Accumulated other comprehensive loss
    
    
    (60
    )
    
    
    (67
    )Accumulated deficit
    
    
    (234,805
    )
    
    
    (232,159
    )Total stockholders equity
    
    
    48,684
    
    
    
    50,508Total liabilities and stockholders equity
    
    $
    49,041
    
    
    $
    51,185
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INTRABIOTICS PHARMACEUTICALS, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating expenses:Research and development
    
    $
    7
    
    
    $
    2,146
    
    
    $
    255
    
    
    $
    11,019General and administrative
    
    
    560
    
    
    
    1,070
    
    
    
    2,605
    
    
    
    3,759Restructuring charge (recovery)
    
    
    (27
    )
    
    
    791
    
    
    
    648
    
    
    
    791Total operating expenses
    
    
    540
    
    
    
    4,007
    
    
    
    3,508
    
    
    
    15,569Operating loss
    
    
    (540
    )
    
    
    (4,007
    )
    
    
    (3,508
    )
    
    
    (15,569
    )Other income (expense)
    
    
    1
    
    
    
    (175
    )
    
    
    1
    
    
    
    (175
    )Interest income
    
    
    395
    
    
    
    221
    
    
    
    1,043
    
    
    
    408Net loss
    
    
    (144
    )
    
    
    (3,961
    )
    
    
    (2,464
    )
    
    
    (15,336
    )Non-cash dividends on Series A preferred stock
    
    
    (60
    )
    
    
    (65
    )
    
    
    (180
    )
    
    
    (195
    )Net loss applicable to common stockholders
    
    $
    (204
    )
    
    $
    (4,026
    )
    
    $
    (2,644
    )
    
    $
    (15,531
    )Basic and diluted net loss per share applicable to common
stockholders
    
    $
    (0.02
    )
    
    $
    (0.46
    )
    
    $
    (0.29
    )
    
    $
    (2.18
    )Shares used to compute basic and diluted net loss per
share
applicable to common stockholders
    
    
    9,180
    
    
    
    8,844
    
    
    
    9,087
    
    
    
    7,121
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INTRABIOTICS PHARMACEUTICALS, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2005
    
    
    2004Operating activitiesNet loss
    
    $
    (2,464
    )
    
    $
    (15,336
    )Adjustments to reconcile net loss to net cash used in operating activities:Stock compensation for variable option awards
    
    
    (43
    )
    
    
    (249
    )Amortization of deferred stock compensation
    
    
    39
    
    
    
    47Stock compensation for consultant services
    
    
    141
    
    
    
    Depreciation and amortization
    
    
    9
    
    
    
    26Loss on disposal of property and equipment
    
    
    27
    
    
    
    28Write down of other assets
    
    
    
    
    
    
    175Change in assets and liabilities:Prepaid expenses and other current assets
    
    
    (104
    )
    
    
    60Other assets
    
    
    
    
    
    
    9Accounts payable
    
    
    (100
    )
    
    
    (31
    )Accrued clinical liabilities
    
    
    (62
    )
    
    
    (161
    )Accrued employee liabilities
    
    
    (38
    )
    
    
    (2
    )Accrued restructuring charges
    
    
    (5
    )
    
    
    619Other accrued liabilities
    
    
    (115
    )
    
    
    (78
    )Net cash used in operating activities
    
    
    (2,715
    )
    
    
    (14,893
    )Investing activitiesCapital expenditures
    
    
    
    
    
    
    (94
    )Proceeds from sale of property and equipment
    
    
    10
    
    
    
    Purchase of short term investments
    
    
    (116,672
    )
    
    
    (50,709
    )Proceeds from sale or maturity of short-term investments
    
    
    117,613
    
    
    
    13,472Net cash provided by (used in) investing activities
    
    
    951
    
    
    
    (37,331
    )Financing activityProceeds from issuance of common stock, net of issuance costs
    
    
    497
    
    
    
    41,715Net cash provided by financing activities
    
    
    497
    
    
    
    41,715Net decrease in cash and cash equivalents
    
    
    (1,267
    )
    
    
    (10,509
    )Cash and cash equivalents at beginning of the period
    
    
    1,755
    
    
    
    14,286Cash and cash equivalents at end of the period
    
    $
    488
    
    
    $
    3,777Supplemental disclosure of non-cash information:Issuance of common stock dividend on Series A preferred stock
    
    $
    (180
    )
    
    $
    (195
    )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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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per share
    
    
    (In thousands, except per shareamounts)
    
    
    amounts)Net loss applicable to common stockholders, as reported
    
    $
    (204
    )
    
    $
    (4,026
    )
    
    $
    (2,644
    )
    
    $
    (15,531
    )Add: Stock-based employee compensation expense (recovery) included in reported
net loss applicable to common stockholders
    
    
    16
    
    
    
    43
    
    
    
    (4
    )
    
    
    (619
    )Deduct: Total stock-based employee compensation expense determined under
fair value based method for all awards
    
    
    (280
    )
    
    
    (706
    )
    
    
    (1,643
    )
    
    
    (2,391
    )Net loss applicable to common stockholders, pro forma
    
    $
    (468
    )
    
    $
    (4,689
    )
    
    $
    (4,291
    )
    
    $
    (18,541
    )Net loss per share applicable to common stockholders:Basic and diluted  as reported
    
    $
    (0.02
    )
    
    $
    (0.46
    )
    
    $
    (0.29
    )
    
    $
    (2.18
    )Basic and diluted  pro forma
    
    $
    (0.05
    )
    
    $
    (0.53
    )
    
    $
    (0.47
    )
    
    $
    (2.60
    )
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Risk-free interest rate
    
    
    n/a
    
    
    
    n/a
    
    
    
    3.79
    %
    
    
    3.55
    %Volatility
    
    
    n/a
    
    
    
    n/a
    
    
    
    0.89
    
    
    
    1.00Dividend yield
    
    
    n/a
    
    
    
    n/a
    
    
    
    0.00
    %
    
    
    0.00
    %Expected life of option
    
    
    n/a
    
    
    
    n/a
    
    
    6.1 years
    
    5.0 years
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Note 3. Comprehensive Loss
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004 *
    
    
    2005
    
    
    2004 *(In thousands)
    
    
    (In thousands)Net loss
    
    $
    (144
    )
    
    $
    (3,961
    )
    
    $
    (2,464
    )
    
    $
    (15,336
    )Unrealized gain
(loss) on
available-for-sale
securities
    
    
    9
    
    
    
    18
    
    
    
    7
    
    
    
    (40
    )Comprehensive loss
    
    $
    (135
    )
    
    $
    (3,943
    )
    
    $
    (2,457
    )
    
    $
    (15,376
    )
 
 *
    
    Restatement of Prior Year Net Loss For Comprehensive Loss for the nine months ended September 30,
2004. A clerical error occurred in posting the nine months net loss figure on page 7, Note 3, of last
years 10-Q report, and that error has been corrected. The net loss as posted was $15,571 and
should have been $15,376.
 Note 4. Net Loss Per Share
  Note 5. Stockholders Equity
   Note 6. Commitments
  Note 7. Restructuring Charges
  8




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2005 Restructuring
  Note 8. Subsequent events
    
 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,
2004. 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 under Factors That Could Affect Future Results. 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
  9




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Critical Accounting Policies
 General
  10




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Stock-Based Compensation
    Results of Operations
 Three and Nine-Month Periods Ended September 30, 2005 and 2004
 Research and Development
  11




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General and Administrative
   Interest Income
  Net Loss and Net Loss Applicable to Common Stockholders
  Liquidity and Capital Resources
  12




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Contractual Obligations
   Off-Balance Sheet Arrangements
  Indemnifications
  Factors That Could Affect Future Results
 13




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The recent delisting of our common stock could have a substantial effect on the price and
liquidity of our common stock.
   We are currently a party to a securities litigation class action lawsuit, which, if determined
adversely, could negatively affect or limit our strategic alternatives, our financial results or
business.
  Directors, principal stockholders and affiliated entities beneficially own or control at least
42% of our capital stock and may be able to exert control over our activities, and the results of
our operations and financial condition may suffer.
  The holders of our Series A preferred stock have rights that they could exercise against your
best interests.
  14




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Anti-takeover provisions in our charter documents and under Delaware law may make it more
difficult to acquire us.
         Our stock price has been, and will be volatile, and the value of your investment may continue
to decline.
  We expect to continue to incur operating losses.
  We may not be able to complete the strategic alternative we initially elected to pursue,
resulting in increased expenses and a delay in finally completing a selected alternative.
 15




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We face risks associated with clinical trial liability claims in the event that the prior use,
or misuse, of our product candidates in clinical trials, that have since been terminated, results
in personal injury or death.
  
 ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
  
 ITEM 4. Controls and Procedures
   Disclosure Controls and Procedures
  Scope of the Controls Evaluation
  16




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Future requirements
   17




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 a)
    
    Beginning on July 2, 2004, three purported class action shareholder complaints were filed in
the United States District Court for the Northern of California against IntraBiotics and
several of its officers. The actions were consolidated and a consolidated amended complaint
has been filed, purportedly brought on behalf of purchasers of IntraBiotics common stock
between September 5, 2003 and June 22, 2004. The amended complaint generally alleges that
IntraBiotics and several of its officers and directors made false or misleading statements
concerning the clinical trial of iseganan. The plaintiffs seek unspecified monetary damages.
On February 28, 2005, the Company and the individual defendants filed a motion to dismiss the
amended complaint. A hearing on the motion to dismiss was held on June 17, 2005 and a ruling
on the motion is pending. The Company believes the suit to be without merit and intends to
defend itself vigorously. Due to the uncertainties surrounding the final outcome of this
matter, no amounts have been accrued at September 30, 2005. The Company and the individual
defendants are insured under the Companys directors and officers insurance policies, with
$15 million in total coverage, and a $500,000 deductible, which has been met. However, the
Company may incur expenses in the defense or disposition of the litigation beyond what is
covered by insurance.
 
 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.October 27th, 2005
    /s/ Denis HickeyDenis HickeyChief Executive Officer and Chief Financial Officer 19




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EXHIBIT INDEX
 3.1
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation; and Amended and Restated
Certificate of Incorporation.(9)3.2
    
    Amended and Restated Bylaws (12)3.3
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation.(13)3.4
    
    Certificate of Designation filed with the Delaware Secretary of State on May 1, 2003.(13)4.1
    
    Amended and Restated Investor Rights Agreement dated October 15, 1999.(1)4.2
    
    Form of Stock Purchase Agreement by and between the Company and each selling stockholder, dated January
29, 2002.(3)4.3
    
    Form of Preferred Stock and Warrant Purchase Agreement, dated February 5, 2003, as amended on February 11,
2003.(8)4.4
    
    Form of Second Amendment to Preferred Stock and Warrant Purchase Agreement of February 5, 2003, dated
April 10, 2003.(10)4.5
    
    Form of Warrant issued by the Company pursuant to Preferred Stock and Warrant Purchase Agreement of
February 5, 2003, as amended of February 11, 2003 and April 10, 2003.(10)4.6
    
    Form of Common Stock and Warrant Purchase Agreement, dated October 6, 2003.(11)4.7
    
    Form of Warrant issued by the Company pursuant to the Common Stock and Warrant Purchase Agreement of
October 6, 2003.(11)10.1
    
    Form of Indemnity Agreement.(1)10.2
    
    Amended and Restated 1995 Stock Option Plan, as amended on November 16, 2002.(7)(9)10.2.2
    
    Amended and Restated Form of Stock Option Agreement and Notice of Grant of Stock Options and Option
Agreement.(1)(7)10.3
    
    2000 Equity Incentive Plan, as amended on February 11, 2003.(7)(9)10.9
    
    2000 Employee Stock Purchase Plan and related documents.(1)(7)10.15
    
    Senior Executive Severance Benefit Plan, as amended and restated on August 1, 2002.(5)(7)10.16
    
    Executive Severance Benefit Plan, as amended and restated on August 1, 2002.(5)(7)10.17
    
    Summary of Officer Incentive Bonus Plan.(2)(7)10.18
    
    Release Agreement by and between the Company and Diversa Corporation dated July 27, 2001, including
Warrant to Purchase Common Stock of the Company and Registration Rights Agreement.(4)10.22
    
    2002 Non-Officer Equity Incentive Plan and related documents, as amended on February 3, 2003.(9)10.24
    
    Lease Termination Agreement by and between the Company and EOP-Shoreline Technology Park, L.L.C., dated
November 22, 2002, including Common Stock Purchase Agreement.(6)




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10.27
    
    Amendment and Assignment of Lease, Release and Assumption Agreement by and among the Company, PolyFuel,
Inc. and 1245 Terra Bella Partners, LLC, dated December 20, 2002, including Warrant to Purchase Common
Stock of the Company dated December 31, 2002.(9)10.29
    
    Lease Agreement by and between the Company and Embarcadero Corporate Center, dated February 10, 2003.(9)10.30
    
    Common Stock and Warrant Purchase Agreement, dated October 6, 2003 (the Purchase Agreement) by and among
the Company and each Investor as defined therein.(11)10.31
    
    Form of warrant issued by the Company in favor of each Investor, as defined in the Purchase Agreement.(11)10.32
    
    2004 Stock Incentive Plan. (13)10.33
    
    First Amendment to Office Lease, dated March 11, 2004, between the Company and Embarcadero Corporate
Center. (13)10.34
    
    Consulting agreement between the Company and Gregory W. Schafer the Companys Chief Financial Officer. (14)10.35
    
    Services Agreement between the Company and Hickey & Hill (15)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).*
 
 *
    
    Filed hereto.(1)
    
    Incorporated by reference to exhibit to our Registration Statement on Form S-1 (File No.
333-95461) initially filed with the Securities and Exchange Commission on January 27, 2000 as
subsequently amended.(2)
    
    Incorporated by reference to exhibit to our Form 10-Q (File No.000-29993) filed with the
Securities and Exchange Commission on August 14, 2001.(3)
    
    Incorporated by reference to exhibit to our Registration Statement on Form S-3 (File No.
333-82934) filed with the Securities and Exchange Commission on February 15, 2002.(4)
    
    Incorporated by reference to exhibit to our Registration Statement on Form S-3 (File No.
333-89840) filed with the Securities and Exchange Commission on June 5, 2002.(5)
    
    Incorporated by reference to exhibit to our Form 10-Q (File No.000-29993) filed with the
Securities and Exchange Commission on November 14, 2002.(6)
    
    Incorporated by reference to exhibit to our Form 8-K (File No.000-29993) filed with the
Securities and Exchange Commission on November 27, 2002.(7)
    
    Management contract or compensatory plan, contract or arrangement.(8)
    
    Incorporated by reference to Appendix B to the Definitive Proxy Statement for the Special
Meeting of Stockholders (File No.000-29993) filed with the Securities and Exchange Commission
on March 3, 2003.(9)
    
    Incorporated by reference to exhibit to our Form 10-K (File No.000-29993) filed with the
Securities and Exchange Commission on March 31, 2003.(10)
    
    Incorporated by reference to our Form 10-Q (File No. 000-29993) filed with the Securities and
Exchange Commission on May 14, 2003.(11)
    
    Incorporated by reference to exhibit to our Form 8-K (File No.000-29993) filed with the
Securities and Exchange Commission




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on October 9, 2003.(12)
    
    Incorporated by reference to our Form 10-Q (File No. 000-29993) filed with the Securities and
Exchange Commission on November 12, 2003.(13)
    
    Incorporated by reference to our Registration Statement on Form S-1 (File No. 333-114451)
initially filed with the Securities and Exchange Commission on April 14, 2004 as subsequently
amended.(14)
    
    Incorporated by reference to our Form 10-Q (File No. 000-29993) filed with the Securities and
Exchange Commission on May 12, 2005.(15)
    
    Incorporated by reference to our Form 10-Q (File No. 000-29993) filed with the Securities and
Exchange Commission on July 21, 2005.