UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----- -----
Commission File No. 000-20139
Diacrin, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-3016912
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Building 96 13th Street
Charlestown Navy Yard
Charlestown, MA 02129
(Address of principal executive
offices, including zip code)
(617) 242-9100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of October 31, 2002, 17,937,204 shares of the registrant's Common
Stock were outstanding.
-1-
Diacrin, Inc.
Index
Page
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of
December 31, 2001 and September 30, 2002.....................3
Statements of Operations for each of the three and nine month
periods ended September 30, 2001 and 2002....................4
Statements of Cash Flows for each of the nine month periods
ended September 30, 2001 and 2002............................5
Notes to Financial Statements................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................9
Item 3. Quantitative and Qualitative Disclosure About
Market Risk........................................21
Item 4. Controls and Procedures.............................21
PART II. - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.......... 22
Item 4. Submission of Matters to a Vote of Security Holders.22
Item 6. Exhibits and Reports on Form 8-K....................22
Signatures....................................................23
Certifications................................................23
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 concerning
our business, operations and financial condition, including statements with
respect to planned timetables for the initiation and completion of various
clinical trials. All statements, other than statements of historical facts
included in this Quarterly Report on Form 10-Q regarding our strategy, future
operations, timetables for product testing, financial position, costs,
prospects, plans and objectives of management are forward-looking statements.
When used in this Quarterly Report on Form 10-Q, the words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are intended to identify forward looking statements, although not
all forward-looking statements contain these identifying words. Because these
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by these forward-looking
statements for a number of important reasons, including those discussed
under "Certain Factors That May Affect Future Results," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and elsewhere in
this Quarterly Report on Form 10-Q.
You should read these statements carefully because they discuss our
expectations about our future performance and financial condition or state other
"forward-looking" information. You should be aware that the occurrence of any of
the events described in these risk factors and elsewhere in this Quarterly
Report on Form 10-Q could substantially harm our business, results of operations
and financial condition and that upon the occurrence of any of these events, the
trading price of our common stock could decline.
We cannot guarantee any future results, levels of activity, performance or
achievements. The forward-looking statements contained in this Quarterly Report
on Form 10-Q represent our expectations as of the date this Quarterly Report on
Form 10-Q was first filed with the Securities and Exchange Commission and should
not be relied upon as representing our expectation as of any other date.
Subsequent events and developments will cause our expectations to change.
However, while we may elect to update these forward-looking statements, we
specifically disclaim any obligation to do so even if our expectations change.
-2-
Diacrin, Inc.
Balance Sheets
(Unaudited)
December 31, September 30,
2001 2002
ASSETS
Current assets:
Cash and cash equivalents $ 8,534,426 $ 10,846,252
Short-term investments 33,410,736 29,195,630
Accounts receivable - 2,000,000
Interest receivable and other current assets 668,020 513,908
---------- ----------
Total current assets 42,613,182 42,555,790
---------- ----------
Property and equipment, at cost:
Laboratory and manufacturing equipment 1,660,963 1,679,436
Furniture and office equipment 324,913 327,382
Leasehold improvements 77,529 81,397
--------- ---------
2,063,405 2,088,215
Less- Accumulated depreciation and amortization 1,861,110 1,971,913
--------- ---------
202,295 116,302
--------- ---------
Long-term investments 7,782,035 4,640,235
Investment in joint venture 83,984 -
--------- ---------
Total other assets 7,866,019 4,640,235
---------- ----------
Total assets $ 50,681,496 $ 47,312,327
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 119,167 $ 21,667
Accounts payable 117,663 57,455
Accrued expenses 1,269,278 990,169
Deferred revenue 29,238 1,937,106
---------- ----------
Total current liabilities 1,535,346 3,006,397
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value, authorized--
5,000,000 shares; none issued and outstanding - -
Common stock, $.01 par value; authorized-- 30,000,000
shares; issued and outstanding-17,937,204
shares at December 31, 2001 and
September 30, 2002 179,372 179,372
Additional paid-in capital 101,401,822 101,401,822
Accumulated deficit (52,435,044) (57,275,264)
---------- ----------
Total stockholders' equity 49,146,150 44,305,930
---------- ----------
Total liabilities and stockholders' equity $ 50,681,496 $ 47,312,327
========== ==========
The accompanying notes are an integral part of these financial statements
-3-
Diacrin, Inc.
Statements of Operations
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
2001 2002 2001 2002
REVENUES:
Research and development $ 69,197 $ 92,159 $ 609,804 $ 171,599
--------- -------- --------- --------
OPERATING EXPENSES:
Research and development 1,587,628 1,523,168 4,736,036 4,845,272
General and administrative 381,886 376,843 1,269,199 1,167,641
--------- -------- --------- -------
Total operating expenses 1,969,514 1,900,011 6,005,235 6,012,913
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Equity in operations of joint venture (111,113) (17,493) (493,753) (88,078)
Investment income 839,676 289,004 2,581,409 1,091,742
Interest expense (2,912) (441) (11,955) (2,570)
--------- -------- -------- --------
Total other income (expense) 725,651 271,070 2,075,701 1,001,094
--------- -------- -------- --------
NET LOSS $ (1,174,666) $(1,536,782) $(3,319,730) $(4,840,220)
========== ========= ========= =========
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $ (.07) $ (.09) $ (.19) $ (.27)
========= ======== ======== =======
SHARES USED IN COMPUTING BASIC
AND DILUTED NET LOSS PER
COMMON SHARE 17,914,704 17,937,204 17,914,704 17,937,204
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements
-4-
Diacrin, Inc.
Statements of Cash Flows
(Unaudited)
Nine Months
Ended September 30,
2001 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,319,730) $ (4,840,220)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization 159,081 110,803
Equity in operations of joint venture 493,753 88,078
Changes in assets and liabilities-
Accounts receivable - (2,000,000)
Interest receivable and other current assets 58,424 154,112
Accounts payable (15,813) (60,208)
Accrued expenses (182,207) (313,736)
Deferred revenue (131,727) 1,907,868
--------- ---------
Net cash used in operating activities (2,938,219) (4,953,303)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in short-term investments (4,940,976) 4,215,106
Purchases of property and equipment (4,838) (24,810)
Decrease in long-term investments 18,374,887 3,141,800
Investment in joint venture (1,060,077) -
Return of capital for services provided on behalf of joint venture 203,268 30,533
------- -------
Net cash provided by investing activities 12,572,264 7,362,629
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (97,500) (97,500)
--------- ---------
Net cash used in financing activities (97,500) (97,500)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,536,545 2,311,826
CASH AND CASH EQUIVALENTS, beginning of period 11,143,116 8,534,426
---------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 20,679,661 $ 10,846,252
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during the period $ 11,955 $ 2,570
======= ========
The accompanying notes are an integral part of these financial statements
-5-
Diacrin, Inc.
Notes to Financial Statements
(Unaudited)
1. Operations and Basis of Presentation
Diacrin, Inc. (the "Company") was incorporated on October 10,
1989 and is developing transplantable cells for the treatment of human
diseases which are characterized by cell dysfunction or cell death and for
which current therapies are either inadequate or nonexistent.
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of interim period results. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that its disclosures are
adequate to make the information presented not misleading. The results for
the interim periods presented are not necessarily indicative of results to be
expected for the full fiscal year or any future periods. These financial
statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's latest Annual Report
on Form 10-K filed with the Securities and Exchange Commission.
2. Summary of Significant Accounting Policies
(a) Terumo Agreement
In September 2002, the Company entered into a development and
license agreement with Terumo Corporation ("Terumo"). Under the terms
of the agreement, Diacrin licensed to Terumo its human muscle cell
transplantation technology for cardiac disease in Japan. Terumo will fund all
development in Japan while Diacrin continues to independently develop its
cardiac repair technology for commercialization in the U.S. and elsewhere.
On October 1, 2002, the Company received an upfront non-refundable
license fee of $2.0 million. The agreement also includes payments for
development milestones and a royalty on product sales. The Company will
record the upfront license fee as deferred revenue and recognize revenue
over the development period of the agreement in accordance with SEC Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB
101 requires companies to recognize certain upfront non-refundable fees
over the period in which the Company completes its performance obligations
under the related agreement when such fees are received in conjunction with
an agreement which includes performance obligations. Included in research
and development revenue for the three and nine month periods ended
September 30, 2002 is $80,000 in revenue related to performance obligations
completed by September 30, 2002.
Revenue from milestone payments for which we have no continuing
performance obligations will be recognized upon achievement of the related
milestone. When we have continuing performance obligations, we recognize
milestone payments as revenue upon the achievement of the milestone only
if all of the following conditions are met:
-6-
Diacrin, Inc.
Notes to Financial Statements
(Unaudited)
- - the milestone payments are non-refundable;
- - achievement of the milestone was not reasonably assured at the
inception of the arrangement;
- - there is a substantial effort involved in achieving the milestone; and
- - the amount of the milestone is reasonable in relation to the level of
effort associated with achievement of the milestone.
If any of these conditions are not met, the milestone payments are
deferred and recognized as revenue over the term of the arrangement as we
complete our performance obligations.
(b) Joint Venture Agreement
In September 1996, the Company and Genzyme Corporation
("Genzyme") formed a joint venture to develop and commercialize two
product candidates. The joint venture is funded by Genzyme and the
Company in accordance with the terms of the joint venture agreement.
Collaborative revenue under the joint venture agreement with Genzyme is
recognized as revenue to the extent that the Company's research and
development costs are funded by Genzyme through the joint venture. The
Company receives non-refundable advances from the joint venture. A
portion of deferred revenue at period end represents amounts received prior
to recognition of revenue. Research and development costs are expensed as
incurred.
The detail of the Company's investment in the joint venture for the
nine months ended September 30, 2002 is as follows:
2002
------
Balance, beginning of period $ 83,984
Contributions to joint venture -
Return of capital (26,480)
Funding of operations of joint venture (57,504)
---------
Balance, end of period $ -
=========
At September 30, 2002, the Company had accrued $35,000 in costs
incurred by Genzyme on behalf of the joint venture.
Contributions to the joint venture represent cash contributions. The
return of capital represents cash payments made to the Company by the joint
venture for research and development costs that are funded by the Company.
Funding of operations of the joint venture represents costs incurred by
Genzyme on behalf of the joint venture, which are funded by the Company.
-7-
Diacrin, Inc.
Notes to Financial Statements
(Unaudited)
A summary of the revenue and expenses from the joint venture are as
follows:
Nine months ended September 30,
2001 2002
------ ------
Revenue recognized $609,804 $91,599
Research and development expense $813,072 $122,132
Equity in operations of joint venture $493,753 $88,078
(c) Net Loss per Common Share
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings per Share, basic and diluted net loss per share
is calculated by dividing the net loss by the weighted average number of
common shares outstanding for all periods presented. Diluted weighted
average shares outstanding for all periods presented exclude the potential
common shares from stock options of 1,286,497 and 1,481,057 at September
30, 2001 and 2002, respectively, because to include such shares would be
antidilutive.
(d) Reclassification
Investment income has been reclassified in the prior period financial
statements into Other Income / (Expense) to conform to the current period
presentation.
3. Cash Equivalents and Investments
The Company's cash equivalents and investments are classified as
held-to-maturity and are carried at amortized cost, which approximates fair
market value. Cash equivalents, short-term investments and long-term
investments have maturities of less than three months, less than one year and
greater than one year, respectively. Cash equivalents, short-term
investments and long-term investments at December 31, 2001 and
September 30, 2002 consisted of the following:
December 31, September 30,
2001 2002
Cash and cash equivalents-
Cash $ 1,003 $ 952
Money market mutual fund 8,533,423 10,845,300
----------- ------------
$ 8,534,426 $ 10,846,252
=========== ============
Short-term investments-
Corporate notes (remaining avg. mat. of 8 mos. at Sept. 30, 2002) $ 26,651,221 $ 24,165,399
U.S. gov't oblig. & agencies (remaining avg. mat. of 3 mos. at Sept. 30, 2002) 6,510,826 5,030,231
Commercial paper 248,689 -
---------- -----------
$ 33,410,736 $ 29,195,630
=========== ===========
Long-term investments-
Corporate notes (remaining mat. of 16 mos. at Sept. 30, 2002) $ 4,198,142 $ 4,640,235
U.S. gov't obligations 3,583,893 -
---------- ----------
$ 7,782,035 $ 4,640,235
=========== ===========
-8-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Since our inception, we have principally focused our efforts and
resources on research and development of cell transplantation technology for
treating human diseases that are characterized by cell dysfunction or cell
death and for which current therapies are either inadequate or nonexistent.
Our primary source of working capital to fund those activities has been
proceeds from the sale of equity and debt securities. In addition, since
October 1, 1996, we have received funding from our joint venture with
Genzyme in support of the joint venture's product development programs.
We have not received any revenues from the sale of products to date and do
not expect to generate product revenues for the next several years. We have
experienced fluctuating operating losses since inception and expect that the
additional activities required to develop and commercialize our products will
result in increasing operating losses for the next several years. At September
30, 2002, we had an accumulated deficit of $57.3 million.
In September 2002, we entered into a development and license
agreement with Terumo Corporation ("Terumo"). Under the terms of the
agreement, we licensed to Terumo our human muscle cell transplantation
technology for cardiac disease in Japan. Terumo will fund all development in
Japan while we continue to independently develop our cardiac repair
technology for commercialization in the U.S. and elsewhere. The agreement
includes an upfront non-refundable license fee of $2.0 million, milestone
payments and a royalty on product sales.
Critical Accounting Policies
We believe our most critical accounting policies are those that dictate
how we account for our development and license agreement with Terumo
and joint venture with Genzyme. On October 1, 2002 we received an upfront
non-refundable license fee from Terumo. We will record this fee as deferred
revenue and recognize revenue over the development period of the
agreement in accordance with SEC Staff Accounting Bulletin No. 101,
"Revenue Recognition" ("SAB 101"). SAB 101 requires companies to
recognize certain upfront non-refundable fees over the period in which the
Company completes its performance obligations under the related agreement
when such fees are received in conjunction with an agreement which
includes performance obligations. In 1996, we formed a joint venture with
Genzyme to develop and commercialize two product candidates. We record
as research and development expense all costs related to the joint venture's
product candidates incurred by us on behalf of the joint venture. We then
recognize research and development revenue equal to the amount of
reimbursement received by us from the joint venture out of funds contributed
by Genzyme. We do not recognize research and development revenue for
amounts we receive from the joint venture out of funds contributed by us. As
Genzyme incurs costs on behalf of the joint venture that we are obligated to
fund, we recognize an expense in our statement of operations captioned
"Equity in operations of joint venture."
Results of Operations
Three Months Ended September 30, 2002 Versus Three Months Ended
September 30, 2001
Research and development revenues were approximately $92,000 for
the three months ended September 30, 2002 and $69,000 for the three
months ended September 30, 2001. The increase in revenues was primarily
due to the recognition of $80,000 of revenue in the current year period
related to the Company's license and development agreement with Terumo
Corporation.
- 9 -
Research and development expenses were $1.5 million and $1.6
million for the three months ended September 30, 2002 and 2001,
respectively. The decrease in expenses was primarily due to a decrease in
costs associated with the development of our porcine cells for spinal cord
injury technology offset by license costs associated with our human muscle
cells for cardiac disease technology.
General and administrative expenses of $377,000 and $382,000 for
the three months ended September 30, 2002 and 2001, respectively,
remained relatively unchanged.
For the three months ended September 30, 2002 and 2001, the
Company recorded an expense of $17,000 and $111,000, respectively,
related to its equity in operations of the joint venture. This expense was due
to funds contributed by the Company to the joint venture that were used to
fund expenses incurred by Genzyme on behalf of the joint venture. The
decreased charge in the current year period was primarily due to a decrease
in clinical activity performed by Genzyme on behalf of the joint venture.
Investment income was $289,000 and $840,000 for the three months
ended September 30, 2002 and 2001, respectively. The decrease in
investment income was due to lower cash balances available for investment
in the current year period and a lower return on investment due to the decline
in interest rates.
The Company incurred a net loss of approximately $1.5 million for
the three months ended September 30, 2002 versus approximately $1.2
million for the three months ended September 30, 2001.
Nine Months Ended September 30, 2002 Versus Nine Months Ended
September 30, 2001
Research and development revenues were $172,000 for the nine
months ended September 30, 2002 and $610,000 for the nine months ended
September 30, 2001. The decrease in revenues was primarily a result of a
decrease in clinical production activity related to the joint venture's product
candidates.
Research and development expenses were $4.8 million and $4.7
million for the nine months ended September 30, 2002 and 2001,
respectively. The increase in research and development expenses was due to
an increase in costs related to the development of our human muscle cells for
cardiac disease technology.
General and administrative expenses were $1.2 million and $1.3
million for the nine months ended September 30, 2002 and 2001,
respectively. The decrease in general and administrative expenses was
primarily due to a decrease in personnel costs related to an executive
retention plan and a decrease in professional fees.
For the nine months ended September 30, 2002 and 2001, the
Company recorded an expense of $88,000 and $494,000, respectively,
related to its equity in operations of the joint venture. This expense was due
to funds contributed by the Company to the joint venture that were used to
fund expenses incurred by Genzyme on behalf of the joint venture. The
decreased charge in the current year period was primarily due to a decrease
in clinical activity performed by Genzyme on behalf of the joint venture.
Investment income was $1.1 million and $2.6 million for the nine
months ended September 30, 2002 and 2001, respectively. The decrease in
investment income was due to lower cash balances available for investment
in the current year period and a lower return on investment due to the decline
in interest rates.
- 10 -
The Company incurred a net loss of approximately $4.8 million for
the nine months ended September 30, 2002 versus approximately $3.3
million for the nine months ended September 30, 2001.
Liquidity and Capital Resources
We have financed our activities primarily with the net proceeds from
the sale of equity and debt securities aggregating $102 million and with the
interest earned thereon. In addition, we have recorded approximately $15.3
million in revenue from our joint venture since it commenced on October 1,
1996. At September 30, 2002, we had cash and cash equivalents, short-term
investments and long-term investments aggregating approximately $44.7
million.
Net cash used in operating activities was $5.0 million for the nine
months ended September 30, 2002 and $2.9 million for the nine months
ended September 20, 2001. Cash used in operations for the nine months
ended September 30, 2002 was primarily attributable to our net loss and an
increase in accounts receivable, offset in part by an increase in deferred
revenue. The increase in accounts receivable was due to funds due from
Terumo Corporation. Cash used in operations for the nine months ended
September 30, 2001 was primarily attributable to our net loss and a decrease
in accrued expenses, offset in part by our equity in operations of joint
venture and depreciation.
Net cash provided by investing activities was $7.4 million for the
nine months ended September 30, 2002 and $12.6 million for the nine
months ended September 30, 2001. Net cash provided by investing activities
for the nine months ended September 30, 2002 was primarily attributable to
a decrease in short-term and long-term investments. Net cash provided by
investing activities for the nine months ended September 30, 2001 was
primarily attributable to a decrease in long-term investments offset by an
increase in short-term investments.
Net cash used in financing activities of $97,500 for the nine months
ended September 30, 2002 and 2001 was attributable to principal payments
on long-term debt.
In November 1997, we borrowed $650,000 at the prime rate plus
0.5% (5.25% at September 30, 2002) under an unsecured five-year term loan
with a bank to finance our biomedical animal facility acquired during 1997.
At September 30, 2002 we had $21,667 outstanding under the borrowing.
We had no material commitments for capital expenditures as of September
30, 2002. In October 2000, we exercised the first of two options we have to
extend the lease of a facility an additional five years. During the extension
period, which began in October 2001, we will pay annual rent of
approximately $908,000.
We believe that our existing funds will be sufficient to fund our
operating expenses and capital requirements as currently planned for the
foreseeable future. However, our cash requirements may vary materially
from those now planned because of results of research and development, the
scope and results of preclinical and clinical testing, any termination of the
joint venture, relationships with future strategic partners, changes in the
focus and direction of our research and development programs, competitive
and technological advances, the FDA's regulatory process, the market
acceptance of any approved products and other factors.
We expect to incur substantial additional costs, including costs
related to ongoing research and development activities, preclinical studies,
clinical trials, expanding our cell production capabilities and the expansion
of our laboratory and administrative activities. Therefore, in order to achieve
commercialization of our potential products, we may need substantial
additional funds. We cannot assure you that we will be able to obtain the
additional funding that we may require on acceptable terms, if at all.
- 11 -
Certain Factors That May Affect Future Results
The following important factors, among others, could cause actual results
to differ materially from those contained in forward-looking statements
made in this Quarterly Report on Form 10-Q or presented elsewhere by
management from time to time. The forward-looking statements contained in
this Quarterly Report on Form 10-Q represent our expectations as of
November 13, 2002, the date our Quarterly Report on Form 10-Q was filed
with the SEC. Subsequent events will cause our expectations to change.
However, while we may elect to update these forward-looking statements,
we specifically disclaim any obligation to do so. See "Cautionary Note
Regarding Forward-Looking Statements."
Risks Related to Our Business, Industry and Strategy
We have not successfully commercialized any products to date and, if
we do not successfully commercialize any products, we will not be
profitable
Neither we nor any other company has received regulatory approval to
market the types of products we are developing. The products that we are
developing will require additional research and development, clinical trials
and regulatory approval prior to any commercial sale. Our product
candidates are currently in early phase clinical trials or in the preclinical
stage of development. Our products may not be effective in treating any of
our targeted disorders or may prove to have undesirable or unintended side
effects, toxicities or other characteristics that may prevent or limit their
commercial use.
We currently have no products for sale and do not expect to have any
products available for sale for several years. If we are not successful in
developing and commercializing any products, we will never become
profitable.
Our cell transplantation technology is complex and novel and there
are uncertainties as to its effectiveness
We have concentrated our efforts and therapeutic product research on cell
transplantation technology, and our future success depends on the successful
development of this technology. Certain of our product candidates involve
xenotransplantation, or the transplantation of cells, tissues or organs from
one species to another. These product candidates all involve the
transplantation of porcine (pig) cells into humans. Xenotransplantation is an
emerging technology with limited clinical experience. Neither the FDA nor
any foreign regulatory body has approved any xenotransplantation-based
therapeutic product for humans.
Our technological approaches may not enable us to successfully develop
and commercialize any products. If our approaches are not successful, we
may be required to change the scope and direction of our product
development activities. In that case, we may not be able to identify and
implement successfully an alternative product development strategy.
- 12 -
Xenotransplantation involves risks which have resulted in additional
FDA oversight and which in the future may result in additional
regulation
Xenotransplantation poses a risk that viruses or other animal pathogens
may be unintentionally transmitted to a human patient. The FDA requires us
to perform tests to determine whether infectious agents, including porcine
endogenous retroviruses, referred to as PERV, are present in patients who
have received porcine cells. While PERV has not been shown to cause any
disease in pigs, it is not known what effect, if any, PERV may have on
humans. We have performed tests on patients who have received our porcine
cells. No PERV has been detected to date, but we cannot assure you that we
will not detect PERV or another infectious agent in the future.
The FDA requires lifelong monitoring of porcine cell transplant
recipients. If PERV or any other virus or infectious agent is detected in tests
or samples, the FDA may require us to halt our clinical trials and perform
additional tests to assess the risk to patients of infection. This could result
in additional costs to us and delays in the trials of our porcine cell products.
Furthermore, even if patients who have received our porcine cells remain
PERV-free, we could be adversely affected if PERV is detected in patients
who receive porcine cells provided by others.
In January 2001, the FDA issued definitive regulatory guidelines for
xenotransplantation titled "PHS Guideline on Infectious Disease Issues in
Xenotransplantation." We cannot assure you that we will be able to comply
with these guidelines.
We face substantial competition, which may result in others
discovering, developing or commercializing products before or more
successfully than we do
The products we are developing compete with existing and new products
being developed by pharmaceutical, biopharmaceutical and biotechnology
companies, as well as universities and other research institutions. Many of
our competitors are substantially larger than we are and have substantially
greater capital resources, research and development staffs and facilities than
we have. Efforts by other biotechnology or pharmaceutical companies could
render our products uneconomical or result in therapies for the disorders we
are targeting that are superior to any therapy we develop. Furthermore, many
of our competitors are more experienced in product development and
commercialization, obtaining regulatory approvals and product
manufacturing. As a result, they may develop competing products more
rapidly and at a lower cost. These competitors may discover, develop and
commercialize products which render non-competitive or obsolete the
products that we are seeking to develop and commercialize.
If the market is not receptive to our products upon introduction, our
products may not achieve commercial success
The commercial success of any of our products will depend upon their
acceptance by patients, the medical community and third-party payors.
Among the factors that we believe will materially affect acceptance of our
products are:
- the timing of receipt of marketing approvals and the countries in which
those approvals are obtained;
- the safety and efficacy of our products;
- the need for surgical administration of our products;
- problems encountered in the field of xenotransplantation;
- the success of physician education programs;
- the cost of our products which may be higher than conventional
therapeutic products because our products involve surgical
transplantation of living cells; and
- 13 -
- the availability of government and third-party payor reimbursement of
our products.
Risks Relating to Clinical and Regulatory Matters
If our clinical trials are not successful for any reason, we will not be
able to develop and commercialize any related products
In order to obtain regulatory approvals for the commercial sale of our
product candidates, we will be required to complete extensive clinical trials
in humans to demonstrate the safety and efficacy of the products. We have
limited experience in conducting clinical trials.
The submission of an investigational new drug application, or IND, may
not result in FDA authorization to commence clinical trials. If clinical trials
begin, we may not complete testing successfully within any specific time
period, if at all, with respect to any of our product candidates. Furthermore,
we or the FDA may suspend clinical trials at any time on various grounds,
including a finding that the patients are being exposed to unacceptable health
risks. Clinical trials, if completed, may not show any potential product to be
safe or effective. Thus, the FDA and other regulatory authorities may not
approve any of our product candidates for any disease indication.
The rate of completion of clinical trials depends in part upon the rate of
enrollment of patients. Patient enrollment is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites, the eligibility criteria for the study, the existence of
competitive clinical trials and the availability of alternative treatments. In
particular, the patient population for some of our potential products is small.
Delays in planned patient enrollment may result in increased costs and
program delays.
We rely on third-party clinical investigators to conduct our clinical
trials. As a result, we may encounter delays outside of our control.
We may not be able to reinitiate a clinical trial that has been
suspended by the FDA
Clinical trials are subject to ongoing review by the FDA. The FDA has
the authority to suspend a clinical trial for various reasons, as they did in
April 2000 with respect to our clinical trial using porcine neural cells to
treat stroke patients. Because our products are novel and complex, getting
the FDA to lift a suspension could result in significant program delays and
additional costs to us. It is possible that we may not be able to obtain
permission from the FDA to continue a clinical trial that has been suspended.
Cost increases and ongoing delays as a result of an FDA suspension could
result in our decision to postpone pursuing certain product candidates.
The regulatory approval process is costly and lengthy and we may
not be able to successfully obtain all required regulatory approvals
We must obtain regulatory approval for each of our product candidates
before we can market or sell it. We may not receive regulatory approvals to
conduct clinical trials of our products or to manufacture or market our
products. In addition, regulatory agencies may not grant approvals on a
timely basis or may revoke previously granted approvals. Any delay in
obtaining, or failure to obtain, approvals could adversely affect the
marketing of our products and our ability to generate product revenue.
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The process of obtaining FDA and other required regulatory approvals is
lengthy and expensive. The time required for FDA and other clearances or
approvals is uncertain and typically takes a number of years, depending on
the complexity and novelty of the product. We have only limited experience
in filing and prosecuting applications necessary to gain regulatory approvals.
Our analysis of data obtained from preclinical and clinical activities is
subject to confirmation and interpretation by regulatory authorities which
could delay, limit or prevent regulatory approval. Any regulatory approval to
market a product may be subject to limitations on the indicated uses for
which we may market the product. These limitations may limit the size of
the market for the product.
We also are subject to numerous foreign regulatory requirements
governing the design and conduct of the clinical trials and the manufacturing
and marketing of our future products. The approval procedure varies among
countries. The time required to obtain foreign approvals often differs from
that required to obtain FDA approvals. Moreover, approval by the FDA does
not ensure approval by regulatory authorities in other countries.
Even if we obtain marketing approval, our products will be subject
to ongoing regulatory oversight which may affect the success of our
products
Any regulatory approvals that we receive for a product may be subject to
limitations on the indicated uses for which the product may be marketed or
contain requirements for costly post-marketing follow-up studies. After we
obtain marketing approval for any product, the manufacturer and the
manufacturing facilities for that product will be subject to continual review
and periodic inspections by the FDA and other regulatory authorities. The
subsequent discovery of previously unknown problems with the product,
such as the presence of PERV, or with the manufacturer or facility, may
result in restrictions on the product or manufacturer, including withdrawal of
the product from the market.
If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions, and criminal prosecution.
Risks Relating to Financing Our Business
We have incurred substantial losses, we expect to continue to incur
losses and we may never achieve profitability
We have incurred losses in each year since our founding in 1989. At
September 30, 2002, we had an accumulated deficit of $57.3 million. We
expect to incur substantial operating losses for the foreseeable future. We
have no material sources of revenue from product sales or license fees. We
anticipate that it will be a number of years, if ever, before we develop
significant revenue sources or become profitable, even if we are able to
commercialize products.
We expect to increase our spending significantly as we continue to
expand our research and development programs, expand our clinical trials,
apply for regulatory approvals and begin commercialization activities.
We may require additional financing, which may be difficult to
obtain and may dilute your ownership interest
We will require substantial funds to conduct research and development,
including clinical trials of our product candidates, and to manufacture and
market any products that are approved for commercial sale. Our future
capital requirements will depend on many factors, including the following:
- continued progress in our research and development programs, as well
as the magnitude of these programs;
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- the resources required to successfully complete our clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the cost of manufacturing and commercialization activities;
- the cost of any additional facilities requirements;
- the timing, receipt and amount of milestone and other payments from
future collaborative partners;
- the timing, receipt and amount of sales and royalties from our potential
products in the market; and
- the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and other patent-related costs, including
litigation costs and the costs of obtaining any required licenses to
technologies.
We may seek additional funding through collaborative arrangements and
public or private financings. Additional financing may not be available to us
on acceptable terms or at all.
If we raise additional funds by issuing equity securities further dilution
to our then existing stockholders may result. In addition, the terms of the
financing may adversely affect the holdings or the rights of our stockholders.
If we are unable to obtain funding on a timely basis, we may be required to
significantly curtail one or more of our research or development programs.
We also could be required to seek funds through arrangements with
collaborative partners or others that may require us to relinquish rights to
certain of our technologies, product candidates, or products which we would
otherwise pursue independently.
Risks Relating to Intellectual Property
We may not be able to obtain patent protection for our discoveries
and we may infringe patent rights of others
The patent positions of pharmaceutical and biotechnology companies,
including us, are generally uncertain and involve complex legal, scientific
and factual issues.
Our success depends significantly on our ability to:
- obtain patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
Patents may not issue from any patent applications that we own or
license. If patents do issue, the claims allowed may not be sufficiently broad
to protect our technology. In addition, issued patents that we own or license
may be challenged, invalidated or circumvented. Our patents also may not
afford us protection against competitors with similar technology. Because
patent applications in the United States may be maintained in secrecy until
patents issue, others may have filed or maintained patent applications for
technology used by us or covered by our pending patent applications without
our being aware of these applications.
- 16 -
We may not hold proprietary rights to some patents related to our
proposed products. In some cases, others may own or control these patents.
As a result, we or our collaborative partners may be required to obtain
licenses under third-party patents to market some of our proposed products.
If licenses are not available to us on acceptable terms, we will not be able to
market these affected products.
If we are not able to keep our trade secrets confidential, our
technology and information may be used by others to compete against
us
We rely significantly upon unpatented proprietary technology,
information, processes and know how. We seek to protect this information
by confidentiality agreements with our employees, consultants and other
third-party contractors as well as through other security measures. These
confidentiality agreements may be breached, and we may not have adequate
remedies for any such breach. In addition, our trade secrets may otherwise
become known or be independently developed by competitors.
We may become involved in expensive patent litigation or other
intellectual property proceedings which could result in liability for
damages or stop our development and commercialization efforts
There has been substantial litigation and other proceedings regarding the
complex patent and other intellectual property rights in the pharmaceutical
and biotechnology industries. We may become a party to patent litigation or
other proceedings regarding intellectual property rights.
The types of situations in which we may become involved in patent
litigation or other intellectual property proceedings include:
- we may initiate litigation or other proceedings against third parties to
enforce our patent rights;
- we may initiate litigation or other proceedings against third parties to
seek to invalidate the patents held by these third parties or to obtain a
judgment that our products or services do not infringe the third parties'
patents;
- if our competitors file patent applications that claim technology also
claimed by us, we may participate in interference or opposition
proceedings to determine the priority of invention; and
- if third parties initiate litigation claiming that our processes or
products infringe their patent or other intellectual property rights, we
will need to defend against such claims.
The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be
able to sustain the cost of such litigation or proceedings more effectively
than we can because of their substantially greater financial resources. If a
patent litigation or other intellectual property proceeding is resolved
unfavorably to us, we may be enjoined from manufacturing or selling our
products and services without a license from the other party and be held
liable for significant damages. We may not be able to obtain any required
license on commercially acceptable terms or at all.
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Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our
ability to compete in the marketplace. Patent litigation and other proceedings
may also absorb significant management time.
If we breach any of the agreements under which we license
technology from others we could lose license rights that are important to
our business
We are a party to technology in-licenses that are important to our
business and expect to enter into additional licenses in the future. In
particular, our immunomodulation technology and some of our product
candidates are covered by patents licensed from Massachusetts General
Hospital. These licenses impose commercialization, sublicensing, royalty,
insurance and other obligations on us. If we fail to comply with these
requirements, the licensor will have the right to terminate the license.
Risks Relating to Product Manufacturing, Marketing and Sales
Since we have no sales and marketing experience or infrastructure,
we must rely on third parties
We have no sales, marketing and distribution experience or infrastructure.
We plan to rely significantly on sales, marketing and distribution
arrangements with third parties for the products that we are developing. For
example, under our development and license agreement with Terumo, we
have granted to Terumo sales and marketing rights to our human muscle cell
transplantation technology for cardiac disease in Japan. We may have
limited or no control over the sales, marketing and distribution activities of
Terumo in Japan or other collaborative partners. Our future revenues may be
materially dependent upon the success of these third parties.
If in the future we determine to perform sales, marketing and distribution
functions ourselves, we would face a number of additional risks, including:
- we may not be able to attract and build a significant marketing or sales
force;
- the cost of establishing a marketing or sales force may not be
justifiable in light of any product revenues; and
- our direct sales and marketing efforts may not be successful.
Delays in obtaining regulatory approval of our manufacturing
facility and disruptions in our manufacturing process may delay or
disrupt our commercialization efforts
Before we can begin commercially manufacturing our product candidates,
we must obtain regulatory approval of our manufacturing facility and
process. Manufacturing of our product candidates must comply with cGMP,
and foreign regulatory requirements. The cGMP requirements govern quality
control and documentation policies and procedures. In complying with
cGMP and foreign regulatory requirements, we will be obligated to expend
time, money and effort on production, recordkeeping and quality control to
ensure that our product candidates meet applicable specifications and other
requirements. If we fail to comply with these requirements, we would be
subject to possible regulatory action and may be limited in the jurisdictions
in which we are permitted to sell our product candidates.
We are the only manufacturers of our product candidates. For the next
several years, we expect that we will conduct all of our manufacturing in our
facility in Charlestown, Massachusetts. If this facility or the equipment in
this facility is significantly damaged or destroyed, we will not be able to
replace quickly or inexpensively our manufacturing capacity.
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We have no experience manufacturing our product candidates in the
volumes that will be necessary to support large clinical trials or commercial
sales. Our present manufacturing process may not meet our initial
expectations as to scheduling, reproducibility, yield, purity, cost, potency or
quality.
The manufacture of our products would be delayed by disruptions in
our supply of porcine tissue
The manufacture of some of our products requires the continuous
availability of porcine tissue harvested from pigs tested to be free of
infectious agents and quarantined in a qualified animal facility. Our main
sources of these facilities and services are Tufts University School of
Veterinary Medicine and PharmServices, Inc., a division of Charles River
Laboratories, Inc. A disease epidemic or other catastrophe in either of these
facilities could destroy all or a portion of our pig supply, which would
interrupt or significantly delay the research, development and
commercialization of our products.
Risks Related to Ongoing Operations
If we fail to obtain an adequate level of reimbursement for our future
products by third party payors, there may be no commercially viable
markets for our products
Our products may be more expensive than conventional treatments
because they involve the surgical transplantation of living cells. The
availability of reimbursement by governmental and other third-party payors
affects the market for any pharmaceutical product. These third-party payors
continually attempt to contain or reduce the costs of health care by
challenging the prices charged for medical products. In some foreign
countries, particularly the countries of the European Union, the pricing of
prescription pharmaceuticals is subject to governmental control. We may not
be able to sell our products profitably if reimbursement is unavailable or
limited in scope or amount.
In both the United States and some foreign jurisdictions, there have been
a number of legislative and regulatory proposals to change the health care
system. Further proposals are likely. The potential for adoption of these
proposals may affect our ability to raise capital, obtain additional
collaborative partners and market our products.
If we obtain marketing approval for our products, we expect to experience
pricing pressure due to the trend toward managed health care, the increasing
influence of health maintenance organizations and additional legislative
proposals.
We could be exposed to significant liability claims if we are unable to
obtain insurance at acceptable costs or otherwise to protect us against
potential product liability claims
We may be subjected to product liability claims that are inherent in the
testing, manufacturing, marketing and sale of human health care products.
These claims could expose us to significant liabilities that could prevent or
interfere with the development or commercialization of our products.
Product liability claims could require us to spend significant time and money
in litigation or to pay significant damages. Product liability insurance is
generally expensive for biopharmaceutical companies such as ours.
Although we maintain limited product liability insurance coverage for the
clinical trials of our products, it is possible that we will not be able to
obtain further product liability insurance on acceptable terms, if at all,
and that our present insurance levels and any insurance we subsequently obtain
will not provide adequate coverage against all potential claims.
- 19 -
Our growth could be limited if we are unable to attract and retain
key personnel and consultants
Our success depends substantially on our ability to attract and retain
qualified scientific and technical personnel for the research and development
activities we conduct or sponsor. If we lose one or more of the members of
our senior management or other key employees or consultants, our business
and operating results could be seriously harmed.
Our anticipated growth and expansion into areas and activities requiring
additional expertise, such as regulatory compliance, manufacturing and
marketing, will require the addition of new management personnel. The pool
of personnel with the skills that we require is limited. Competition to hire
from this limited pool is intense, and we may be unable to hire, train, retain
or motivate such additional personnel.
Risks Relating to our Common Stock
Our officers and directors may be able to control the outcome of
most corporate actions requiring stockholder approval
Our directors and officers and entities with which they are affiliated
control approximately 41% of our outstanding common stock. Due to this
concentration of ownership, this group may be able to prevail on all matters
requiring a stockholder vote, including:
- the election of directors;
- the amendment of our organizational documents; or
- the approval of a merger, sale of assets or other major corporate
transaction.
Our stock price could be volatile, which could cause you to lose part
or all of your investment
The market price of our common stock, like that of the common stock of
many other development stage biotechnology companies, may be highly
volatile. In addition, the stock market has experienced extreme price and
volume fluctuations. This volatility has significantly affected the market
prices of securities of many biotechnology and pharmaceutical companies
for reasons frequently unrelated to or disproportionate to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the market price of our common stock. Prices for our
common stock will be determined in the market place and may be influenced
by many factors, including variations in our financial results and investors'
perceptions of us, changes in recommendations by securities analysts as well
as their perceptions of general economic, industry and market conditions.
We have antitakeover defenses that could delay or prevent an
acquisition and could adversely affect the price of our common stock
Provisions of our certificate of incorporation, our bylaws, and Delaware
law may have the effect of deterring unsolicited takeovers or delaying or
preventing changes in control of our management, including transactions in
which our stockholders might otherwise receive a premium for their shares
over then current market prices. In addition, these provisions may limit the
ability of stockholders to approve transactions that they may deem to be in
their best interest.
Our certificate of incorporation permits our board of directors to issue
preferred stock without shareholder approval upon such terms as the board of
directors may determine. The rights of the holders of our common stock will
be subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of our outstanding common stock. The
issuance of a substantial number of preferred shares could adversely affect
the price of our common stock.
- 20 -
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We own financial instruments that are sensitive to market risks as
part of our investment portfolio. The investment portfolio is used to
preserve our capital until it is required to fund operations, including our
research and development activities. None of these market-risk sensitive
instruments are held for trading purposes. We do not own derivative
financial instruments in our investment portfolio. Our investment portfolio
contains instruments that are subject to the risk of a decline in interest
rates. For example, if the annualized interest rate on our interest bearing
investments were to change 1%, investment income would have
hypothetically increased or decreased by approximately $354,000 during the
nine months ended September 30, 2002. This hypothetical analysis does not
take into consideration the effects of the economic conditions that would
give rise to such an interest rate change or our response to such hypothetical
conditions.
Our investment portfolio includes investment grade debt instruments.
These bonds are subject to interest rate risk, and could decline in value if
interest rates fluctuate. Due to the short duration and conservative nature of
these instruments, we do not believe that it has a material exposure to
interest rate risk.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on
their evaluation of the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Act of 1934)
as of a date within 90 days of the filing date of this Quarterly Report on
Form 10-Q, the Company's chief executive officer and controller have
concluded that the Company's disclosure controls and procedures are
designed to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and are operating in an effective manner.
(b) Changes in internal controls. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their most recent
evaluation.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) The Company did not sell any equity securities during the quarter
ended September 30, 2002 that were not registered under the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on August
29, 2002, the following proposals were adopted by the vote specified below:
Proposal For Withheld
1. Election of Directors
Thomas H. Fraser 14,667,314 91,856
Zola P. Horovitz 14,667,314 91,856
John W. Littlechild 14,667,314 91,856
Stelios Papadopoulos 14,667,314 91,856
Joshua Ruch 14,667,314 91,856
Henri Termeer 14,667,314 91,856
For Against Abstain
2. To ratify the selection of
PricewaterhouseCoopers LLP
As the Company's independent
Auditors for fiscal year 2002 14,719,705 28,948 10,517
Item 6. Exhibits and Reports on Form 8-K
(a) See the Exhibit Index on the page immediately preceding the
exhibits for a list of exhibits filed as part of this Quarterly Report, which
Exhibit Index is incorporated herein by reference.
(b) On July 11, 2002, the Company filed a Current Report on Form
8-K under Item 4 announcing the dismissal of Arthur Andersen LLP as the
Company's independent auditors and the engagement of
PricewaterhouseCoopers LLP.
On July 25, 2002, the Company furnished the SEC with a Current
Report on Form 8-K under Item 9, Regulation FD Disclosure, providing a
copy of the Letter to Shareholders which was mailed to all shareholders as
part of the Company's Annual Report.
- 22 -
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.
Diacrin, Inc.
November 13, 2002 /s/ Thomas H. Fraser
-----------------------
Thomas H. Fraser
President and
Chief Executive Officer
/s/ Kevin Kerrigan
-----------------------
Kevin Kerrigan
Controller
CERTIFICATIONS
I, Thomas H. Fraser, President and Chief Executive Officer, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Diacrin, Inc.;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act
of 1934) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation of the Evaluation Date;
- 23 -
5) The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were any significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Thomas H. Fraser
-----------------------
Thomas H. Fraser
President and
Chief Executive Officer
CERTIFICATIONS
I, Kevin Kerrigan, Controller, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Diacrin, Inc.;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of
1934) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation of the Evaluation Date;
- 24 -
5) The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were any significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Kevin Kerrigan
----------------------
Kevin Kerrigan
Controller
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EXHIBIT INDEX
Exhibit Number Description
99.1 Chief Executive Officer - Certification
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Controller - Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
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