Back to GetFilings.com
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 March 31, 2003
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 by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). YES NO X
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
As of April 30, 2003, 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, 2002 and March 31, 2003......3
Statements of Operations for each of the three month periods
ended March 31, 2002 and 2003..................................4
Statements of Cash Flows for each of the three month periods
ended March 31, 2002 and 2003..................................5
Notes to Financial Statements..................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................11
Item 3. Quantitative and Qualitative Disclosure About Market Risk......20
Item 4. Controls and Procedures........................................20
PART II. - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeeds.......................21
Item 6. Exhibits and Reports on Form 8-K...............................21
SIGNATURES...............................................................21
CERTIFICATIONS...........................................................21
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 clinical trials and the expected closing of our merger
into GenVec, Inc. 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, contain projections of our
future operating results or our future 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, March 31,
2002 2003
ASSETS
Current assets:
Cash and cash equivalents $ 4,189,700 $ 4,873,112
Short-term investments 33,484,274 35,871,549
Interest receivable and other current assets 683,473 709,613
------------ -----------
Total current assets 38,357,447 41,454,274
------------ -----------
Property and equipment, at cost:
Laboratory and manufacturing equipment 1,679,436 1,679,436
Furniture and office equipment 327,382 327,382
Leasehold improvements 86,597 86,597
------------ -----------
2,093,415 2,093,415
Less- Accumulated depreciation and amortization 1,985,364 1,997,524
------------ -----------
108,051 95,891
------------ -----------
Long-term investments 7,282,169 2,693,732
------------ -----------
Total assets $ 45,747,667 $ 44,243,897
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 147,633 51,022
Accrued expenses 726,168 782,352
Deferred revenue from joint venture 1,787,483 1,697,433
------------ -----------
Total current liabilities 2,661,284 2,530,807
------------ -----------
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, 2002 and
March 31, 2003 179,372 179,372
Additional paid-in capital 101,401,822 101,401,822
Accumulated deficit (58,494,811) (59,868,104)
------------ -----------
Total stockholders' equity 43,086,383 41,713,090
------------ -----------
Total liabilities and stockholders' equity $ 45,747,667 $ 44,243,897
============ ===========
The accompanying notes are an integral part of these financial
statements
-3-
Diacrin, Inc.
Statements of Operations
(Unaudited)
Three Months
Ended March 31,
2002 2003
REVENUES:
Research and development $ 32,588 $ 80,359
---------- ----------
OPERATING EXPENSES:
Research and development 1,622,336 1,102,397
General and administrative 357,195 553,965
---------- ----------
Total operating expenses 1,979,531 1,656,362
---------- ----------
OTHER INCOME (EXPENSE):
Equity in operations of joint venture (31,410) (41,619)
Investment income 456,613 244,329
Interest expense (1,264) -
---------- ----------
Total other income (expense) 423,939 202,710
---------- ----------
NET LOSS $ (1,523,004) $ (1,373,293)
=========== ===========
BASIC AND DILUTED
NET LOSS PER COMMON SHARE $ (.08) $ (.08)
=========== ===========
SHARES USED IN COMPUTING BASIC AND
DILUTED NET LOSS PER COMMON SHARE 17,937,204 17,937,204
=========== ===========
The accompanying notes are an integral part of these financial
statements
-4-
Diacrin, Inc.
Statements of Cash Flows
(Unaudited)
Three Months
Ended March 31,
2002 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,523,004) $ (1,373,293)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization 48,909 12,160
Equity in operations of joint venture 31,410 41,619
Changes in assets and liabilities-
Interest receivable and other current assets (175,174) (26,140)
Accounts payable (38,890) (96,611)
Accrued expenses (242,172) 12,153
Deferred revenue 6,549 (90,050)
---------- ---------
Net cash used in operating activities (1,892,372) (1,520,162)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (6,726,700) (5,751,519)
Maturities of investments 7,101,403 7,952,681
Purchases of property and equipment, net (8,874) -
Return of capital for services provided on behalf of joint venture 10,863 2,412
---------- ---------
Net cash provided by investing activities 376,692 2,203,574
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (32,500) -
---------- ---------
Net cash used in financing activities (32,500) -
---------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (1,548,180) 683,412
CASH AND CASH EQUIVALENTS, beginning of period 8,534,426 4,189,700
---------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 6,986,246 $ 4,873,112
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during the period $ 1,264 $ -
======= =========
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 by Terumo to Diacrin for development milestones and a royalty
on product sales. The Company recorded 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. Determination of the length of the
development period requires management's judgment. Any significant
changes in the assumptions underlying our estimates used while applying
SAB 101 could impact our revenue recognition. Included in research and
development revenue for the three months ended March 31, 2003 is
$73,000 in revenue related to this collaboration.
-6-
Diacrin, Inc.
Notes to Financial Statements
(Unaudited)
Revenue from milestone payments under which we have
continuing performance obligations are recognized as revenue upon the
achievement of the milestone only if all of the following conditions are met:
the milestone payments are non-refundable; achievement of the milestone
was not reasonably assured at the inception of the arrangement; substantive
effort is involved in achieving the milestone; and the amount of the
milestone is reasonable in relation to the effort expended or the risk
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. Payments received under these arrangements prior to the
completion of the related work are recorded as deferred revenue.
(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
first quarter is as follows:
2003
Balance, beginning of quarter $ (12,857)
---------
Contributions to joint venture -
Return of capital (2,412)
Funding of operations of joint venture (41,619)
---------
Balance, end of quarter $ (56,888)
=========
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 the Company
is obligated to fund.
-7-
Diacrin, Inc.
Notes to Financial Statements
(Unaudited)
A summary of the revenue and expenses from the joint venture are
as follows:
Three months ended
March 31,
2002 2003
Revenue recognized $32,588 $7,234
Research and development expense $43,451 $9,645
Equity in operations of joint venture $31,410 $41,619
(b) 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 1,513,872 and 1,529,057 at March
31, 2002 and 2003, respectively, because to include such shares would be
antidilutive.
(c) Reclassification
Investment income has been reclassified in the prior period
financial statements into Other Income / (Expense) to conform to the
current period presentation.
(d) Stock Options
We periodically grant stock options for a fixed number of shares to
employees and directors with an exercise price equal to the fair market
value of the shares at the date of the grant. We account for such stock
option grants using the intrinsic value method and intend to continue to do
so. Stock options granted to non-employee contractors are accounted for
using the fair value method.
Stock Option Summary
The following table presents combined activity for stock options
for the three months ended March 31, 2003:
March 31, 2003
Weighted
Average
Number of Exercise
Options Price
Options outstanding at beginning of year 1,461,557 4.49
Granted 125,000 1.06
Exercised - -
Canceled (57,500) 8.60
--------- -----
Outstanding options at end of period 1,529,057 4.06
========= =====
Exercisable options at end of period 1,052,557 4.75
========= =====
Weighted average fair value of options
granted during the period 1.06
-8-
Diacrin, Inc.
Notes to Financial Statements
(Unaudited)
The following table presents weighted average price and life
information about significant option groups outstanding and exercisable at
March 31, 2003:
Options Outstanding Options Exercisable
--------------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
$1.06 to $2.50 910,557 4.68 $ 1.95 539,057 $ 2.14
$4.63 to $7.50 423,750 6.43 $ 5.75 330,750 $ 5.91
$7.88 to $12.00 194,750 4.67 $ 10.20 182,750 $ 10.36
--------- ---------
1,529,057 1,052,557
========= =========
The following are the pro forma net income and income per share,
as if compensation expense for the option plans had been determined based
on the fair value at the date of grant:
Three months ended March 31,
2002 2003
Net loss, as reported (1,523,004) (1,373,293)
Less: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (161,639) (137,512)
--------- ---------
Pro forma net loss (1,684,643) (1,510,805)
========= =========
Earnings per share:
Basic and diluted-as reported ($.08) ($.08)
======= ======
Basic and diluted-pro forma ($.09) ($.08)
======= ======
The fair value of options at the date of grant were estimated using
the Black-Scholes option pricing model with the following assumptions:
Three months ended
March 31,
2002 2003
Volatility 95% 95%
Expected option life-years 7.5 7.5
Interest rate (risk free) 3.0 2.5
Dividends 0 0
The effects on the three months ended March 31, 2002 and 2003
pro forma net income and net income per share of the estimated fair value
of stock options and shares are not necessarily representative of the effects
on results of operations in the future. In addition, the estimates made utilize
a pricing model developed for traded options with relatively short lives; our
option grants typically have a life of up to ten years and are not
transferable. Therefore, the actual fair value of a stock option grant may be
different from our estimates. We believe that our estimates incorporate all
relevant information and represent a reasonable approximation in light of
the difficulties involved in valuing non-traded stock options.
-9-
Diacrin, Inc.
Notes to Financial Statements
(Unaudited)
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, 2002 and March
31, 2003 consisted of the following:
December 31, March 31,
2002 2003
Cash and cash equivalents-
Cash $ 400 $ 400
Money market mutual fund 4,189,300 4,872,712
----------- ----------
$ 4,189,700 $ 4,873,112
=========== ==========
Short-term investments-
Corporate notes (remaining avg. maturity of 5 mos. at Mar. 31, 2003) $29,981,389 $ 35,871,549
U.S. gov't oblig. & agencies 3,502,885 -
------------ ------------
$ 33,484,274 $ 35,871,549
============ ============
Long-term investments-
Corporate notes (remaining avg. maturity of 15 mos. at Mar. 31, 2003) $7,282,169 $ 2,693,732
=========== ===========
4. Subsequent Event
On April 14, 2003, we entered into an Agreement and Plan of
Reorganization and related Agreement and Plan Merger with GenVec, Inc.,
a publicly-traded company, providing for us to merge into GenVec. Upon
completion of the merger, each outstanding share of our common stock
would be exchanged for 1.5292 shares of GenVec common stock. The
merger is expected to close in the third quarter of 2003, subject to the
satisfaction of closing conditions, including receipt of Diacrin and GenVec
stockholder approval.
-10-
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, we have
received funding from our collaboration with Terumo and our joint venture
with Genzyme. We do not expect to derive a material amount of revenues
from our joint venture with Genzyme in the future. 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 March 31, 2003,
we had an accumulated deficit of $59.9 million.
In September 2002, we entered into a development and license
agreement with 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.
On April 14, 2003, we entered into an Agreement and Plan of
Reorganization and related Agreement and Plan Merger with GenVec, Inc.,
a publicly-traded company, providing for us to merge into GenVec. Upon
completion of the merger, each outstanding share of our common stock
would be exchanged for 1.5292 shares of GenVec common stock. The
merger is expected to close in the third quarter of 2003, subject to the
satisfaction of closing conditions, including receipt of Diacrin and GenVec
stockholder approval.
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 of $2.0 million from Terumo. We
recorded 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.
Determination of the length of the development period requires
management's judgment. Any significant changes in the assumptions
underlying our estimates used while applying SAB 101 could impact our
revenue recognition. Revenue from milestone payments under which we
have continuing performance obligations are recognized as revenue upon
the achievement of the milestone only if all of the following conditions are
met: the milestone payments are non-refundable; achievement of the
milestone was not reasonably assured at the inception of the arrangement;
substantive effort is involved in achieving the milestone; and the amount of
the milestone is reasonable in relation to the effort expended or the risk
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. Payments received under these arrangements prior to the
completion of the related work are recorded as deferred revenue.
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."
-11-
Results of Operations
Three Months Ended March 31, 2003 Versus Three Months Ended
March 31, 2002
Research and development revenues were $80,000 for the three
months ended March 31, 2003 and $33,000 for the three months ended
March 31, 2002. The increase in revenues was primarily a result of an
increase in revenue of $73,000 related to our collaboration with Terumo
offset in part by a decrease in revenue from our joint venture with
Genzyme. The decrease in revenues from our joint venture with Genzyme
is due to efforts by us to decrease the costs associated with the joint
venture's product candidates, which are no longer under development. We
do not expect to derive a material amount of revenues from our joint
venture with Genzyme in the future.
Research and development expenses were $1.1 million and $1.6
million for the three months ended March 31, 2003 and 2002, respectively.
The decrease in research and development expenses is primarily due to a
decrease in clinical and production costs related to several product
candidates.
General and administrative expenses were $554,000 and $357,000
for the three months ended March 31, 2003 and 2002, respectively. The
increase in general and administrative expenses was primarily due to an
increase in professional fees related to the Company's business
combination transaction with GenVec, Inc.
For the three months ended March 31, 2003 and 2002, the
Company recorded an expense of $42,000 and $31,000, 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
expense amount remained relatively unchanged between the periods.
Investment income was $244,000 and $457,000 for the three
months ended March 31, 2003 and 2002, 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 $1.4 million
for the three months ended March 31, 2003 versus approximately $1.5
million for the three months ended March 31, 2002.
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 March 31, 2003, we had cash and cash
equivalents, short-term investments and long-term investments aggregating
approximately $43.4 million.
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.
Net cash used in operating activities was $1.5 million for the three
months ended March 31, 2003 and $1.9 million for the three months ended
March 31, 2002. Cash used in operations for the three months ended March
31, 2003 was primarily attributable to our net loss. Cash used in operations
for the three months ended March 31, 2002 was primarily attributable to
our net loss and a decrease in accrued expenses.
-12-
Net cash provided by investing activities was $2.2 million for the
three months ended March 31, 2003 and $377,000 for the three months
ended March 31, 2002. Net cash provided by investing activities for the
three months ended March 31, 2003 and 2002 was primarily attributable
to a maturities of investments, offset in part by purchases of
investments.
Net cash used in financing activities of $32,500 for the three
months ended March 31, 2002 was attributable to principal payments on
long-term debt.
Our only material commitment at March 31, 2003 was a lease for a
facility. In October 2000, we exercised the first of two options we have to
extend this lease an additional five years. Minimum rental payments under
the lease are as follows:
Rental
Commitment
2003 $ 908,000
2004 908,000
2005 908,000
2006 681,000
---------
$ 3,405,000
============
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 May 7, 2003, 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
Failure to complete the merger with GenVec could negatively impact the
market price of our common stock and our future business and operations.
If the merger with GenVec is not completed for any reason, we will be
subject to a number of material risks, including:
- - under the circumstances described in the merger agreement, we could
be required to pay GenVec a termination fee in the amount of up to
$1.2 million;
- - the market price of our common stock may decline to the extent that
the current market price of such shares reflects a market assumption
that the merger will be completed;
- - the costs related to the merger, such as legal and accounting fees and a
portion of the investment banking fees, must be paid even if the merger
is not completed; and
- - the benefits that we expect to realize from the merger would not be
realized.
During the pendency of the merger agreement, we may not be able to
enter into a merger or business combination with another party at a
favorable price because of restrictions in the merger agreement. Covenants
in the merger agreement with GenVec also impede our ability to make
acquisitions or complete other transactions that are not in the ordinary
course of business but that could be favorable to us and our stockholders
pending completion of the merger. As a result, if the merger is not
consummated, we may be at a disadvantage to our competitors.
-13-
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.
We are focusing our resources on cell transplantation technology
which 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. Currently, we are focusing most
of our resources on the development of our cell transplantation technology
for cardiac disease.
Our technological approaches may not enable us to successfully develop
and commercialize any products. Our decision to focus on one technology
as opposed to multiple technologies increases the risk associated with our
stock. 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.
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;
- 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
- the availability of government and third-party payor reimbursement of
our products.
-14-
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 clinical trials could be
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.
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.
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 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.
-15-
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
March 31, 2003, we had an accumulated deficit of $59.9 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 develop 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;
- 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.
-16-
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.
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.
-17-
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. 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.
Disruptions in our manufacturing process may delay or disrupt our
development efforts
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.
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.
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.
-18-
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.
Our success 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 growth or 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.
-19-
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.
Our common stock may be delisted from The Nasdaq National
Market, which could cause the price to fall further and decrease its
liquidity.
Our common stock trades on The Nasdaq National Market. In order to
continue trading on The Nasdaq National Market, we must comply with
The Nasdaq National Market's continued listing requirements, which
require that we either maintain a minimum stockholders' equity of
$10.0 million and a minimum closing bid price of $1.00 per share or, if we
fall below the minimum stockholders' equity requirement, maintain a
minimum closing bid price of $3.00 per share. At March 31, 2003, we had
stockholders' equity of approximately $18.8 million. However, our
stockholders' equity may decline. If our stockholders' equity falls below
$10.0 million, we will need to maintain a minimum closing bid price of
$3.00 rather than $1.00.
If we do not satisfy Nasdaq's continued listing requirements, our
common stock may be delisted from The Nasdaq National Market. The
delisting of our common stock may result in the trading of the stock on the
Nasdaq Small Cap Market, the over-the-counter markets in the so-called
"pink sheets" or the NASD's electronic bulletin board. Consequently, a
delisting of our common stock from The Nasdaq National Market would
materially reduce the liquidity of our common stock, not only in the number
of shares that could be bought and sold, but also through delays in the
timing of the transaction and reductions in securities analysts and media
coverage. This may reduce the demand for our stock and significantly
destabilize the price our stock. In addition, a delisting would materially
adversely affect our ability to raise additional necessary capital.
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 $110,000 during
the three months ended March 31, 2003. 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 Exchange 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.
-20-
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 March 31, 2003 that were not registered under the Securities
Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the Exhibit Index on the page immediately preceeding the
exhibits for a list of exhibits filed as part of this Quarterly Report, which
Exhibit Index is incorporated herein by reference.
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the
quarter ended March 31, 2003.
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.
May 7, 2003 /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 Exchange Act Rules 13a-14 and 15d-14) 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 by
others within those entities, 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
-21-
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
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 registrant's board of directors (or persons performing the
equivalent function):
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 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: May 7, 2003
/s/ Thomas H. Fraser
- ---------------------------
Thomas H. Fraser
President and
Chief Executive Officer
(Principal 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 Exchange Act Rules 13a-14 and 15d-14) 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 by
others within those entities, 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 as of the Evaluation Date;
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 registrant's board of directors (or persons performing the
equivalent function):
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
-22-
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were 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: May 7, 2003
/s/ Kevin Kerrigan
- ------------------------
Kevin Kerrigan
Controller
(Principal Financial Officer)
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.
-23-