Back to GetFilings.com
1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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 NUMBER: 0-20859
GERON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2287752
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 CONSTITUTION DRIVE, MENLO PARK, CA 94025
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 473-7700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK $0.001
PAR VALUE
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 14, 1997, there were 10,213,771 shares of Common Stock
outstanding. The aggregate market value of voting stock held by non-affiliates
of the Registrant was approximately $76,068,067 based upon the closing price of
the Common Stock on March 14, 1997 on The Nasdaq National Market. Shares of
Common Stock held by each officer, director and holder of five percent or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
================================================================================
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Registrant for the 1997 Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission not
later than 120 days after the close of the Registrant's fiscal year are
incorporated into Part III of this Form 10-K.
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Potential risks and uncertainties
include, without limitation, those mentioned in this report and in particular,
the factors described below in Part II, Item 7, under heading "Factors That May
Affect Future Results of Operations".
1
3
PART I
ITEM 1. BUSINESS
Geron Corporation ("Geron" or the "Company") is a biopharmaceutical company
exclusively focused on discovering and developing therapeutic and diagnostic
products based upon common biological mechanisms underlying cancer and other
age-related diseases. As the pioneer in researching these mechanisms, the
Company focuses on telomeres, which are structures at the ends of chromosomes
that the Company has shown act as a molecular "clock" of cellular aging, and
telomerase, an enzyme which appears to stop the "clock" and confers cellular
immortality. The Company and its collaborators have established that these
mechanisms play a role in cancer and many other age-related diseases and
conditions, and thus the Company believes it has a broadly applicable,
proprietary platform for discovering and developing novel small molecule
therapeutics and diagnostics for such diseases. The most advanced of the
Company's three therapeutic programs is in the area of telomerase inhibition for
the treatment of cancer. Geron intends to build upon its leadership position in
the field of telomere biology and telomerase regulation by selectively
collaborating with companies and research institutions and by aggressively
pursuing an extensive patent portfolio. The Company owns four issued United
States patents and over 30 United States patent applications and has licensed
eight issued United States patents and over 30 United States patent
applications.
Cancer and other age-related diseases and conditions, such as skin aging,
atherosclerosis, osteoporosis and macular degeneration, are difficult and costly
to diagnose and/or treat. In many cases, entirely effective means of diagnosing
and treating these diseases and conditions are not currently available. Further,
with the progressive "graying" of the population, the incidence of cancer and
other age-related diseases and conditions is expected to increase and to place a
steadily growing financial burden on the health care system. Significant
improvements in the diagnosis and treatment of these diseases and conditions are
expected to offer attractive commercial opportunities. For example, the current
cancer drug therapy market in the United States is over $3.8 billion, having
grown at an annual compounded rate in excess of 15% since 1985.
Geron's scientific approach focuses on telomere shortening and telomerase
regulation as common biological mechanisms underlying cancer and other
age-related diseases and conditions. Geron and its collaborators have
demonstrated both in vivo and in vitro that telomeres, the repeated sequences of
DNA located at the ends of chromosomes, shorten throughout a normal cell's
replicative lifespan. The Company and its collaborators have also shown that
when telomeres reach a certain short length, cells stop dividing and become
senescent. Senescent cells display an altered pattern of gene expression
compared to replicatively young cells that leads to an imbalance in the
production of proteins and other cell products. This occurs in many tissues
throughout the body and can have a direct and destructive effect on surrounding
tissues and appears to contribute to many age-related diseases and conditions.
Cancer cells escape senescence and maintain an extended ability to divide
through mutations. Geron and its collaborators have shown that for most
cancerous tumors to attain life threatening size, or for cancer to metastasize
throughout the body, cancer cells must become immortal through an alteration
which prevents their telomeres from shortening with each division. In all
cancers types studied to date, a germ line enzyme called telomerase is
abnormally reactivated in these cancer cells to repair their telomeres with each
cell division, thereby conferring cellular immortality. Geron has shown
telomerase to be present in all of the over 20 types of cancer that it has
studied, including breast, prostate, lung, colon and bladder cancers. The
Company believes that telomerase inhibition has the potential to be a universal
and highly specific cancer therapy. Geron and its collaborators are using
proprietary screening technologies to identify small molecule compounds that
selectively inhibit telomerase. Traditional medicinal chemistry and
combinatorial chemistry are being used to optimize these compounds, and animal
models of human tumor growth have been developed to test appropriateness for
pre-clinical development.
In order to develop novel therapeutic and diagnostic products, the Company
is initially focused on three programs: (i) Telomerase Inhibition and
Detection -- developing both telomerase inhibitors as potentially universal and
highly specific cancer therapies and telomerase assays for the detection of
cancer; (ii) Genomics of Aging -- regulating the pattern of destructive gene
expression in senescent cells to treat various age-related
2
4
diseases; and (iii) Primordial Stem Cell Therapies -- generating a broad array
of cell types from Primordial Stem cells for aiding in drug discovery and
development and for cellular transplantation. In support of these programs, the
Company employs advanced drug discovery technologies, including proprietary
assays, high throughput screening, combinatorial chemistry, proprietary
differential gene display techniques, protein purification and gene sequencing.
The Company's strategy combines the following key elements: a focus on
fundamental biological mechanisms of cellular aging and cellular immortality to
treat cancer and other age-related diseases and conditions; building therapeutic
discovery and diagnostic programs on its common scientific platform; selective
pursuit of strategic collaborations; retention of rights to develop and market
products independently; and continued enhancement of its proprietary leadership
position in the field.
SCIENTIFIC BACKGROUND: CELLULAR AGING AND CELLULAR IMMORTALIZATION
Cells are the building blocks for all tissues in the human body. Cell
division plays an important role in the normal growth, maintenance and repair of
human tissue. However, cell division is a limited process -- depending on the
tissue type -- cells generally divide only 60 to 100 times in the course of
their normal lifespans. When cells reach the end of their replicative capacity,
they senesce. Cellular aging or senescence, although influenced by environmental
factors, is a genetically determined process. Geron and its collaborators have
demonstrated that telomeres, the repeated sequences of DNA at the ends of
chromosome, are key genetic elements involved in this process. Telomeres are
important because they protect chromosomes from degradation and fusion. Each
time a normal cell divides, however, telomeres shorten. Thus, it appears that
telomeres serve as a molecular "clock" governing normal cell replication and
lifespan.
Geron has demonstrated that once telomeres reach a certain short length,
cell division halts, and the cell enters a state known as cell senescence.
Although senescent cells have stopped dividing, they remain metabolically active
and, importantly, demonstrate an altered pattern of gene expression. In
senescent cells, certain genes normally expressed by young and healthy cells are
turned off or down-regulated while other genes are turned on or up-regulated,
creating an imbalance of proteins and other gene products that Geron believes
has a direct and destructive effect on the surrounding tissue. Geron believes
that this dysfunction at the cellular level, which occurs in numerous tissues
throughout the body, causes or contributes to age-related diseases and
conditions.
The converse of cell senescence occurs in cancer cells. Normal cells have
the potential to become cancerous when random mutations activate various
oncogenes and deactivate tumor suppressor genes. With each mutation,
pre-cancerous cells become increasingly aberrant and uncontrolled, and may begin
to generate a tumor mass. The Company believes, however, that most cells which
undergo such changes are eliminated when telomere shortening leads to either
cell senescence or chromosomal instability and cell death. Geron's and its
collaborators' research indicates that for most cancerous tumors to attain life
threatening size, or for cancer to metastasize throughout the body, some cancer
cells must become immortal, which occurs through the activation of telomerase.
Telomerase is a complex germ line enzyme, composed of RNA and protein
components, that maintains telomere length by resynthesizing the DNA that is
lost each time a cell divides. The result is that telomeres do not shorten and
cell death is averted. Geron's research has shown that telomerase is abnormally
reactivated in all major cancer types and that, conversely, it is not present in
most normal cell types. Telomerase enables cancer cells to maintain telomere
length, providing them with indefinite replicative capacity or cellular
immortality. Cellular immortality is responsible for most cancerous tumors
attaining life threatening size and/or cancers metastasizing throughout the
body.
Telomerase is expressed in certain normal cells. Telomerase is present at
high levels and telomeres are very long in reproductive cells. In addition,
telomerase is functionally active in germ line cells to ensure the full
complement of genetic information is passed from generation to generation.
Telomerase is also present at very low levels in certain hematopoietic (blood),
skin and gastrointestinal cells and may function to give these cells somewhat
increased replicative capacity. However, these cells continue to age and
gradually lose telomeric DNA, which suggests that telomerase may not be
essential for their normal functioning.
3
5
Primordial Stem ("PS") cells are germ line cells that appear for only a
short period after fertilization. These cells differentiate into the many types
of cells found in the body. PS cells are the only known normal cells which are
immortal and have the potential to differentiate into any cell or tissue in the
body. Prior to differentiation, PS cells express telomerase activity. Studies
indicate, however, that once PS cells have differentiated into particular
tissues or cells, telomerase activity is repressed and the differentiated cells
are destined to follow the senescence pathway.
MARKET OPPORTUNITY
Cancer and other age-related diseases and conditions, including skin aging,
atherosclerosis, osteoporosis and macular degeneration, are difficult and/or
costly to diagnose and treat. In many cases, effective means of diagnosing and
treating these diseases and conditions are not currently available. Further,
with the progressive "graying" of the population, the incidence of cancer and
other age-related diseases and conditions is expected to increase. By the year
2010, the over-65 population in the United States is expected to double to
approximately 64 million people, and worldwide, this population will increase to
over one billion. Significant improvements in the diagnosis and treatment of
these diseases and conditions will provide attractive commercial opportunities.
Cancer
The incidence of cancer increases dramatically with age. Eighty-five
percent of cancers diagnosed occur in people over the age of 50. People over the
age of 65 have, on average, a ten times greater risk of dying from cancer than
the under-65 population.
In the United States, over ten million people alive today have a history of
cancer and well over one million people will be diagnosed each year with cancers
of the lung, colon, breast, prostate, pancreas, ovary, kidney and bladder, along
with lymphomas, leukemia and other cancers. Despite significant medical
advances, cancer researchers and clinicians have had little impact on cancer
mortality rates. Each year, cancer is expected to claim more than a half-million
lives, or approximately 25% of the total projected deaths in the United States.
Within the next decade, largely because of population aging, cancer may become
the leading cause of death in industrialized nations.
Cancer therapy relies heavily on three treatment modalities: surgery, to
remove the tumor mass; radiation, to destroy tumors localized to a small region;
and chemotherapy, to eliminate tumor cells in diffuse parts of the body. Surgery
is an invasive procedure that may not remove the entire cancer, and the use of
radiation is limited to certain areas of the body. While drug therapies are less
invasive than surgery or radiation, many drugs used to treat cancer attack
rapidly dividing cells indiscriminately, damaging normal as well as cancer
cells. Further, when a drug is effective initially against a particular cancer,
it is often not effective against other types of cancer and, over time, the
particular cancer can become resistant to that drug and progress. The current
cancer drug therapy market in the United States is over $3.8 billion having
grown at an annual compounded rate in excess of 15% over the past decade. The
Company believes that a telomerase inhibitor could overcome the limitations of
current therapies and potentially be a universal and highly specific drug
treatment for cancer.
Other Age-related Diseases and Conditions
There are numerous other diseases and conditions for which the incidence
increases dramatically with age, including skin aging, atherosclerosis,
osteoporosis and macular degeneration. There are significant unmet medical needs
associated with these diseases and conditions. Many current therapies simply
address the symptoms of these diseases and conditions. Despite the limitation of
current therapies, drugs targeting these diseases and conditions represent some
of the largest selling pharmaceuticals. For example, the United States market
for cardiovascular drugs is approximately $10 billion, while the market for
drugs addressing osteoporosis and osteoarthritis is approximately $5 billion.
The market for retinoids used for skin therapy exceeds $3 billion. The Company's
focus on cellular aging and cellular immortality is designed to produce
therapeutics that address these diseases and conditions, and treat their causes
rather than their symptoms.
4
6
STRATEGY
Geron's strategy is to become the leading biopharmaceutical company
exclusively focused on discovering and developing therapeutic and diagnostic
products based upon common biological mechanisms underlying cancer and other
age-related diseases and conditions. The key elements of this strategy are
described below:
Focus on Fundamental Mechanisms of Cellular Aging and Cellular
Immortality. Geron focuses its research on fundamental mechanisms of cellular
aging and cellular immortality. These include telomere shortening and telomerase
regulation. As the pioneer in researching and modulating these mechanisms, which
affect many tissues of the body, the Company believes it has established a
broadly applicable, proprietary platform for discovering and developing novel
small molecule therapeutics and diagnostics for cancer and other age-related
diseases.
Develop High Value Programs with a Common Scientific Platform. Geron's
strategy is to leverage its expertise in cellular aging and cellular immortality
to develop those programs which offer the highest likelihood and shortest
development path for therapeutic and diagnostic products. Geron is currently
working in three program areas: (i) the detection and inhibition of telomerase
for the diagnosis and treatment of cancer; (ii) genomics of aging for skin
aging, atherosclerosis, osteoporosis and macular degeneration; and (iii)
primordial stem cell therapies for aiding in drug discovery and development and
cell transplantation.
Pursue Strategic Collaborations. Geron has established and will continue to
establish collaborations selectively with pharmaceutical and diagnostic
companies and leading academic institutions to enhance its research, development
and commercialization capabilities. Geron has entered into a strategic alliance
with Kyowa Hakko Kogyo Co., Ltd. ("Kyowa Hakko"), a leading oncology company in
Japan, for the development and marketing in certain Asian countries of a
telomerase inhibitor to treat cancer. The Company has also signed a Heads of
Agreement (non-binding letter of intent) with Pharmacia & Upjohn S.p.A
("Pharmacia & Upjohn"), a global leader in oncology, for a complementary
worldwide collaboration in telomerase inhibition. In addition, the Company has
established technology and clinical development collaborations with leading
diagnostic companies. Finally, Geron has formed numerous research and clinical
collaborations with the leading experts in the fields of cellular aging and
cellular immortality.
Retain the Ability to Develop and Market Products Independently. Geron
believes that its broad scientific platform will continue to generate
opportunities for a variety of collaborative arrangements. The Company intends
to retain significant rights to develop and market products on key therapeutic
and diagnostic applications of discoveries in its research programs.
Enhance Proprietary Leadership Position. Geron intends to maintain its
scientific leadership and accelerate its research programs by continuing to
attract and retain leaders in the fields of cellular aging and cellular
immortality, either as employees or research collaborators. The Company is
aggressively pursuing a broad and extensive patent portfolio to protect its
proprietary technology, including drug discovery and diagnostic technologies. To
date, the Company owns four issued United States patents and over 30 United
States patent applications and has licensed eight issued United States patents
and over 30 United States patent applications.
RESEARCH PROGRAMS
Geron will exploit its proprietary scientific platform to discover and
develop novel therapeutics and diagnostics for cancer and other age-related
diseases and conditions. Across its programs, the Company employs advanced drug
discovery technologies, including proprietary assays, high-throughput screening,
combinatorial chemistry, proprietary differential gene expression techniques,
protein purification and gene sequencing.
Telomerase Inhibition and Detection
Geron's intention is to discover and develop a small molecule telomerase
inhibitor, which, by blocking the activity of telomerase, will allow cancer cell
telomeres to resume shortening, ultimately leading to cancer cell
5
7
death. In addition, the Company's intention is to develop telomerase as a marker
for cancer diagnosis, prognosis, monitoring and screening applications.
Telomerase is not present in most normal cells, and as a result, these
cells exhibit telomere shortening. In contrast, telomerase is abnormally active
in cancer cells, causing telomere length to be maintained, which Geron believes
confers immortality to cancer cells in malignant tumors. Research has shown that
telomerase is present in all of the over 20 different cancer types that Geron
and its collaborators have studied, including the ten most prevalent cancers of
prostate, breast, lung, colon, bladder, uterus, and ovary, along with lymphomas
and leukemias, melanomas and pancreatic cancer. In all of these cancers, a high
percentage of tumor samples contain telomerase. Because telomerase is present in
all cancer types evaluated and is not biologically active in most normal cells,
telomerase appears to be a universal and highly specific marker of cancer. These
characteristics combine to make telomerase an attractive target for inhibition
to treat cancer, and for detection to diagnose cancer.
Therapeutics. Geron's research has demonstrated that a telomerase inhibitor
can block cancer cells from using telomerase to maintain telomere length. As a
result, the telomeres in the cancer cells shorten as the cells continue to
divide, until reaching a critically short length, at which point the cancer
cells die. Geron scientists have blocked human telomerase in tumor cell lines in
vitro using an antisense compound to the human telomerase RNA component. In this
experiment, blocking telomerase led to telomere shortening and cancer cell
death. Based on these results, Geron is aggressively pursuing the identification
of telomerase inhibitors as potential lead compounds for preclinical
development. While it has identified several strategies for inhibiting
telomerase activity, Geron is primarily focused on developing a small molecule
inhibitor. The Company believes the small molecule approach will produce a
development candidate with a more favorable commercial profile -- oral
bioavailability, compound stability and low manufacturing cost. Geron and its
collaborators are using proprietary screening technologies to identify small
molecule compounds that selectively inhibit telomerase. Traditional medicinal
chemistry and combinatorial chemistry are being used to optimize these compounds
and animal models of human tumor growth have been developed to test
appropriateness for preclinical development.
To advance this program, Geron has developed proprietary screening
technology, assembled a structurally diverse library of more than 100,000 small
molecules and established medicinal and combinatorial chemistry capabilities.
Specifically, the Company has developed a substantial automated high throughput
screening effort for the identification of telomerase inhibitors using
proprietary assays based on human telomerase. Geron is using this proprietary
screening capability to screen diverse small molecule compounds that Geron has
either acquired or created through its internal combinatorial chemistry
capabilities. As a result of its screening efforts, Geron and its collaborators
have identified several classes of compounds that demonstrate telomerase
inhibition and are actively pursuing structure/activity relationship studies to
develop lead compounds. Geron believes that these screens provide a strong
competitive advantage in view of the extreme difficulty and specialized skills
required for their development and use. More importantly, the United States
Patent and Trademark Office has recently allowed a patent application on one of
Geron's telomerase inhibitor screens.
Geron believes that blocking telomerase activity will cause the affected
cancer cells to resume telomere shortening during cell division and thus lose
their immortality. When telomeres reach a critically short length, cancer cells
will die. Telomerase inhibition is therefore expected to have delayed efficacy
as cancer cell telomeres resume normal shortening. Although Geron envisions that
a telomerase inhibitor could be effective as a stand-alone treatment in certain
cases, it is expected that in most cases a telomerase inhibitor will be used in
conjunction with traditional anti-cancer therapies.
The Company believes that a telomerase inhibitor will be an effective
therapeutic for a broad range of cancers, although there may be certain
limitations to its use. Because telomerase is present in reproductive cells, a
telomerase inhibitor, like almost all current cancer agents in current use, may
have a negative impact on such cells. Telomerase is also transiently expressed
in certain cells in the hematopoietic (blood), skin and gastrointestinal tract.
However, Geron scientists and others have demonstrated that these tissues age
and show gradual telomere shortening during the course of cell division. As a
result, the Company believes that
6
8
telomerase is not biologically critical for these tissues and that telomerase
inhibitors are unlikely to have as significant a negative effect on them as
currently used anti-cancer agents.
Geron has established a strategic alliance with Kyowa Hakko, a leading
oncology company in Japan, for the development and commercialization in certain
Asian countries of a telomerase inhibitor for the treatment of cancer. Geron has
also entered into a Heads of Agreement (non-binding letter of intent) with
Pharmacia & Upjohn S.p.A, a global leader in oncology, for a complementary
worldwide collaboration in telomerase inhibition. The Company has established
research collaborations for the study of telomerase inhibition with the National
Cancer Institute and the Memorial Sloan-Kettering Institute for Cancer Research,
and for the study of telomere biology with Cold Spring Harbor Laboratory.
Diagnostics. The Company believes that telomerase is a universal and highly
specific marker of cancer and, therefore, the detection and quantification of
telomerase may have significant clinical utility for cancer diagnosis,
prognosis, patient monitoring and screening. While most current cancer
diagnostics apply to a single or limited number of cancer types,
telomerase-based diagnostics could potentially address a broad range of cancer
types. The Company also believes that the availability of telomerase-based
diagnostics for cancer, which are likely to reach the market before
telomerase-based therapeutics, will enhance the commercial opportunity for a
telomerase inhibitor by increasing the understanding of clinicians of the
biological significance of telomerase activity in cancer.
The Company has developed several proprietary assays for the detection of
telomerase based on its activity or components. The first generation assay is
the Telomeric Repeat Amplification Protocol ("TRAP") assay which can be used to
detect telomerase activity in malignant tumor tissue. The United States Patent
and Trademark Office recently allowed Geron a patent for the TRAP assay. The
second generation assay detects the RNA component of human telomerase, which was
first cloned by Geron scientists. This enables the Company to use proprietary in
situ hybridization and other detection methods to detect the presence of
telomerase. The United States Patent and Trademark Office has issued to Geron a
patent relating to the RNA component of human telomerase as well as allowed
United States patent applications directed to cancer prognosis and detection of
specific types of cancer based on telomerase activity. The Company is also the
exclusive licensee of an issued United States patent which covers cancer
diagnostic applications of its telomerase detection technologies.
Geron is overseeing preclinical studies to assess the full potential of its
telomerase detection technology. Data from two such studies indicate telomerase
levels correlate with clinical outcome in breast cancer and neuroblastoma
patients. The Company intends to proceed with development of its telomerase
detection technology as a novel and important diagnostic for numerous cancers.
Oncor Inc. ("Oncor"), Boehringer Mannheim GmBH ("Boehringer Mannheim") and
Kyowa Medex Co., Ltd. ("Kyowa Medex") have licensed the Company's TRAP assay
technology; Dako Corporation ("Dako") has licensed the Company's RNA detection
technology; and Pharmingen has also licensed telomere length measurement
technology, each on a non-exclusive basis for sale to the research-use-only
market. Oncor commenced commercial sale of the TRAP-eze(TM) kit in May 1996,
followed by Boehringer Mannheim and Kyowa Medex in late 1996. Although the
Company does not expect royalties from the sale of these kits to be significant,
their use is expected to stimulate additional studies of telomerase activity by
academic laboratories. The Company has also established research collaborations
for the study of telomerase detection with The Cleveland Clinic, the University
of Texas, San Antonio, Johns Hopkins, Children's Hospital of Los Angeles and the
University of Texas Southwestern Medical Center at Dallas.
Genomics of Aging
Geron seeks to develop therapeutics to modulate the biological processes
leading to and regulating cell aging or senescence. The Company is applying
proprietary genomics and screening techniques to target and modulate the
destructive genetic changes that occur in senescent cells. Geron has entered
into research collaborations with several research institutions to support its
Genomics of Aging program, including Lawrence Berkeley Laboratory, the
University of Groningen (The Netherlands) and the University of Washington.
7
9
The goal of Geron's Genomics of Aging program is to treat age-related
diseases and conditions by small molecule drugs which modulate the destructive
pattern of gene expression that occurs in cells as they exhaust their
replicative capacity or become senescent. Geron's approach to genomics is unique
in that it focuses on the differences in gene expression between replicatively
young versus senescent cells. Geron believes there is a significant advantage in
defining differences in gene expression between young and senescent cells and
utilizing senescent cells in drug discovery screens. Many genomics companies use
diseased tissue for research and drug discovery, but diseased tissue is complex
in structure and varies from patient to patient. By comparison, Geron believes
that senescent cells are more representative of the disease process and provide
a homogeneous and reproducible population of cells for both gene and drug
discovery.
Geron has developed proprietary high throughput genetic analysis techniques
called "Enhanced Differential Display" and "Subtractive Differential Display".
The United States Patent and Trademark Office recently issued Geron a patent for
the Enhanced Differential Display methodology. These technologies have enabled
the Company to identify genes, including those which express products at low
levels, and gene products that are differentially expressed by replicatively
young versus senescent cells. The Company is using these genes and their
products in automated screens for discovering small molecule drugs that
counteract the destructive effects that may be caused by the altered patterns of
gene expression associated with cell senescence.
The Company's Genomics of Aging program is targeted at a wide range of
age-related diseases and conditions. Geron's initial focus is on skin aging,
atherosclerosis, osteoporosis, and macular degeneration.
Geron and its collaborators have established that when dermal fibroblasts
age, or senesce, they undergo numerous changes in gene expression. Geron and its
collaborators have discovered over 100 gene markers that are differentially
expressed in replicatively young versus senescent dermal fibroblasts. Some of
these gene markers appear to be associated with gene products destructive to the
extracellular matrix. The Company believes that these and other changes in gene
expression contribute to the characteristic age-related atrophy of skin.
Reversing or offsetting the effects of such altered gene expression in senescent
fibroblasts by targeted and cell-based drug discovery could provide an effective
treatment for dermal atrophy and problems with wound healing in aging adults.
The Unites States Patent and Trademark Office recently issued Geron a patent for
methods to extend the replicative capacity of fibroblasts using specific types
of small organic molecules known as PARP inhibitors.
Atherosclerotic plaques frequently form in blood vessels at areas of
turbulent blood flow, such as the vessels in the heart. Geron and its
collaborators have shown that endothelial cells lining arteries with turbulent
blood flow, where cell turnover and thus cell division is high, have shorter
telomeres than cells in regions with less blood turbulence and cell turnover.
Further, some gene products differentially expressed in senescent endothelial
cells have been shown to play a role in atherosclerosis. The Company believes
that altering expression of the senescence-associated genes and their products
in the vascular endothelium could provide a unique and effective therapy for
atherosclerosis.
Geron also believes that maintaining telomere length in somatic cells will
be clinically useful because cell lifespan will be extended and the onset of
cell senescence will be postponed. The Company and its collaborators have
demonstrated in vitro that telomere length and replicative senescence can be
modulated with synthetic compounds and that activating telomerase will maintain
telomere length. As the first and fundamental step toward transiently activating
telomerase in somatic cells, the Company is working to complete the cloning of
telomerase and its regulators. Geron has already cloned, and has received an
issued United States patent relating to, the RNA component of human telomerase.
Geron believes that the complete cloning of the telomerase enzyme and its
regulators may also provide the Company with the next generation of telomerase
inhibitor screens, new reagents for telomerase detection, and other markers
useful in cancer diagnosis.
Primordial Stem Cell Therapies
Geron seeks to generate a broad array of cell types from PS cells for
aiding in drug discovery and development and cellular transplantation. PS cells
are germ line cells that are unique in that they (i) have an unlimited ability
to replicate, and therefore, can be expanded indefinitely; and (ii) are capable
of differentia-
8
10
tion into any and all types of cells and tissues in the body. The Company
believes that PS cells offer significant advantages over other stem cells, which
do not proliferate well in culture and have limited ability to differentiate;
for example, the hematopoietic stem cells do not expand in vitro and are capable
of becoming only blood cells.
Initially, Geron plans to use PS cells as a unique source of cells that
cannot otherwise be grown in culture, for example cardiomyocytes and neurons.
These cells can be used at Geron for its own research or sold to third parties
for drug discovery assays. Geron also plans to pursue in vitro and in vivo
applications using PS cells derived from non-human primates. These cells were
derived at the University of Wisconsin-Madison and are currently licensed
exclusively to Geron. These cells have been shown to have unlimited replicative
capacity and the ability to differentiate into numerous cell types. The Company
is in the early stages of research directed towards controlling the
differentiation of PS cells.
STRATEGIC COLLABORATIONS
Geron believes that its broad scientific platform will generate significant
opportunities for a variety of strategic collaborative arrangements. Geron has
established and will continue to establish selectively collaborations with
leading pharmaceutical and diagnostic companies to enhance its research,
development and commercialization capabilities. In each of these strategic
collaborations, the Company will seek to retain significant rights to
participate in the commercial success of its products.
Kyowa Hakko Collaboration
In April 1995, the Company entered into a License and Research
Collaboration Agreement with Kyowa Hakko. Under the Kyowa Hakko Agreement, Kyowa
Hakko agreed to provide $16.0 million of research funding over four years to
support the Company's program to discover and develop in certain Asian countries
a telomerase inhibitor for the treatment of cancer. In addition, the Company is
entitled to receive future payments totaling $11.5 million upon the achievement
of certain contractual milestones relating to drug development and regulatory
progress, as well as royalty payments on product sales. Kyowa Hakko also
purchased $2.5 million of Geron Common Stock in connection with the Company's
initial public offering. Under the Kyowa Hakko Agreement, Geron exercises
significant influence during the research phase and Kyowa Hakko exercises
significant influence during the development and commercialization phases. Kyowa
Hakko will pay for all clinical expenses associated with product approval in the
licensed territory, which includes the countries of China, Hong Kong, India,
Indonesia, Japan, Kampuchea, Korea, Laos, Malaysia, Myan Mar, the Philippines,
Singapore, Taiwan, Thailand and Vietnam. The Kyowa Hakko Agreement provides that
Kyowa Hakko will not pursue research and development independent of its
collaboration with Geron with respect to telomerase inhibition for the treatment
of cancer in humans until April 24, 1999, at the earliest. Kyowa Hakko may
terminate the agreement only in the event of breach or bankruptcy by Geron or in
the event that both parties agree that it is no longer reasonably practical to
pursue further research and development of an inhibitor of telomerase.
Pharmacia & Upjohn Collaboration
On December 20, 1996, the Company signed a Heads of Agreement (non-binding
letter of intent) with Pharmacia & Upjohn to collaborate in the discovery,
development and commercialization of telomerase inhibitors for the treatment of
cancer. The Heads of Agreement states that Geron and Pharmacia & Upjohn will use
their best efforts to complete negotiations of a definitive agreement. The
companies also signed a Stock Purchase Agreement providing for an initial equity
investment of $2.0 million in Geron by Pharmacia & Upjohn, which was completed,
at a premium, in January 1997. The definitive agreement will include provisions
for additional equity, research support and milestone payments. Geron will also
receive royalties on sales and United States co-promotion rights. The
collaboration with Pharmacia & Upjohn strategically and financially complements
Geron's existing alliance with Kyowa Hakko.
9
11
Diagnostic Collaborations
Geron has entered into non-exclusive royalty bearing license agreements
with Oncor and Boehringer Mannheim for use of the Company's TRAP assay as a kit
for the research-use-only market. Kyowa Medex has obtained a royalty bearing
license for Japan for the TRAP assay for both the research-use-only market and
the clinical diagnostics market. Oncor commenced commercial sale of the
TRAP-eze(TM) kit during the second quarter of 1996 and Boehringer Mannheim and
Kyowa Medex commenced sales during the fourth quarter of 1996. The Company has
also entered into non-exclusive royalty-bearing license agreements with Dako for
use of Geron's telomerase RNA detection technology and Pharmingen for use of
Geron's TRAP assay and telomere length measurement technology both for the
research-use-only market on a worldwide basis.
RESEARCH COLLABORATIONS
The Company has entered into and intends to continue to enter into research
agreements selectively with leading academic and research institutions to
enhance significantly its research and development capabilities. Under these
agreements, the Company generally provides funding for scientific research in
exchange for exclusive commercial rights to the results of such research. In
each of these agreements, the Company seeks to retain rights to develop and
market applications of any discoveries made under such collaborations by
obtaining options to license exclusively any technology developed under such
programs, including patents or patent applications filed in connection with such
programs.
The Company has established collaborations for the study of telomeres and
telomerase and the discovery and development of a telomerase inhibitor with the
National Cancer Institute, the Memorial Sloan-Kettering Institute for Cancer
Research, the University of Colorado, Cold Spring Harbor Laboratory, the
University of Texas Southwestern Medical Center at Dallas, Children's Hospital
of Los Angeles, The Cleveland Clinic and the University of Texas, San Antonio.
In support of its Genomics of Aging program, Geron has established
collaborations with Lawrence Berkeley Laboratory, Baylor College of Medicine,
Aarhus University (Denmark), University of Groningen (The Netherlands) and the
University of Washington. Geron has established an exclusive license and
collaboration agreement in support of its PS Cell Therapies program with the
University of California at San Francisco and the licensing arm of the
University of Wisconsin-Madison.
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
Protection of the Company's proprietary compounds and technology is
important to the Company's business. The Company owns four issued United States
patents and over 30 United States patent applications and has licensed eight
issued United States patents and over 30 United States patent applications, as
well as international filings under the Patent Cooperation Treaty and pending
foreign national patent applications corresponding to certain of these United
States applications. The Company's policy is to seek, when appropriate, patent
protection for its lead compounds, gene discoveries, screening technologies and
certain other proprietary technologies through licensing and by filing patent
applications in the United States and certain other countries. The Company
believes its patent filings and patent licenses and options may provide
protection for its drug discovery and diagnostics development programs and that
its patent applications disclose useful discoveries in the field of telomere
biology and telomerase regulation as well as cellular senescence and cellular
immortality. For example, the United States Patent and Trademark Office recently
allowed a patent application for a telomerase inhibitor screen. The Company's
screening efforts have resulted in the identification of several compounds that
inhibit human telomerase in vitro and the Company has filed United States patent
applications on certain of these chemical classes of telomerase inhibitors,
three of which have been recently allowed. The Company has licensed an issued
United States patent relating to telomerase activity-based cancer diagnostic
methods, as well as allowed United States patent applications relating to cancer
prognosis and detection of specific types of cancer based on telomerase
activity. In addition, the Company's United States patent application for the
TRAP assay has recently been allowed, and the Company owns several United States
pending patent applications directed to improvements to the TRAP assay. The
Company's telomerase RNA detection technology is the subject of several patent
applications. One patent relating to reagents used in the assay has recently
issued from the United States Patent and Trademark Office. The Company has also
filed patent applications on its technologies for identifying genes that are
differentially
10
12
expressed in different cell types or at different stages of cellular
development, and the United States Patent and Trademark Office has recently
issued a patent relating to the Company's "Enhanced Differential Display"
technology, as well as a patent for methods to increase the replicative capacity
of skin cells.
While the Company believes its patents and patent applications provide a
competitive advantage in its efforts to discover, develop and market useful
therapeutic and diagnostic products, the patent positions of pharmaceutical and
biopharmaceutical companies, including the Company, are highly uncertain and
involve complex legal and technical questions for which legal principles are not
firmly established. There can be no assurance that the Company has developed or
will continue to develop products or processes that are patentable or that
patents will issue from any of the pending applications, including patent
applications that have been allowed. There can also be no assurance that the
Company's current patents, or patents that issue on pending applications, will
not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection or competitive advantages to the
Company. Because (i) patent applications in the United States are maintained in
secrecy until patents issue, (ii) patent applications are not generally
published until many months or years after they are filed and (iii) publication
of technological developments in the scientific and patent literature often
occur long after the date of such developments, the Company cannot be certain
that its or its licensors' patents and patent applications name as inventors
were the first to invent the inventions disclosed in the patent applications or
patents or that it or its licensors were the first to file patent applications
for such inventions. Litigation to establish the validity of patents, to defend
against patent infringement claims of others and to assert infringement claims
against others can be expensive and time consuming even if the outcome is
favorable to the Company. If the outcome of patent prosecution or litigation is
unfavorable to the Company, the Company could be materially adversely affected.
Patent law relating to the scope and enforceability of claims in the
technology fields in which the Company operates is still evolving. The degree of
future protection for the Company's proprietary rights, therefore, is highly
uncertain. In this regard, there can be no assurance that independent patents
will issue from each of the United States patent applications referenced above,
which include many interrelated applications directed to common or related
subject matter. The Company is aware of certain patent applications that have
been filed by others with respect to telomerase and telomere length. In this
regard, Iowa State University has filed United States and corresponding foreign
patent applications claiming methods and reagents relating to the RNA component
of human telomerase, and Isis Pharmaceuticals, Inc. has filed United States and
corresponding foreign patent applications relating to oligonucleotide-like
reagents asserted to have telomere length modulating activity. In addition,
there are a number of issued patents and pending applications owned by others
directed to differential display, stem cell and other technologies relating to
the Company's research, development and commercialization efforts. There can be
no assurance that the Company's technology can be developed and commercialized
without a license to such patents or that patent applications of others will not
be granted priority over patent applications filed by the Company. Furthermore,
there can be no assurance that others will not independently develop similar or
alternative technologies to those of the Company, duplicate any of the Company's
technologies, or design around the patented technologies developed by the
Company or its licensors, any of which may have a material adverse effect on the
Company.
The commercial success of the Company depends significantly on its ability
to operate without infringing patents and proprietary rights of others. There
can be no assurance that the Company's technologies do not and will not infringe
the patents or proprietary rights of others. In the event of such infringement,
the Company may be enjoined from pursuing research, development or
commercialization of its potential products or may be required to obtain
licenses to these patents or other proprietary rights or to develop or obtain
alternative technology. There can be no assurance that the Company will be able
to obtain alternative technologies or any required license on commercially
favorable terms, if at all, and if any such license is or alternative
technologies are not obtained, the Company may be delayed or prevented from
pursuing the development of certain of its potential products. The Company's
breach of an existing license or failure to obtain or delay in obtaining
alternative technologies or a license to any technology that it may require to
develop or commercialize its products may have a material adverse effect on the
Company. In this regard, the Company has been in discussion with a research
institution with respect to a research collaboration for the
11
13
development of certain technology related to its Primordial Stem Cell Therapies
program. A third party notified the Company that if the Company enters into such
an arrangement, the Company will violate the rights of such third party.
Although the Company believes that such an arrangement may be important to the
Primordial Stem Cell Therapies program, the Company does not believe that it is
essential to such program or the Company. As of the date of this Form 10-K, the
Company has made no decision whether to enter into such an arrangement and, in
any event, must yet complete scientific and legal due diligence and successfully
negotiate the terms of such an arrangement, as to which there can be no
assurance. If such an arrangement is entered into, the Company believes it has
substantial defenses to any claims that might be asserted by such third party.
Litigation may also be necessary to enforce any patents issued or licensed
to the Company or to determine the scope and validity of another's proprietary
rights. The Company could incur substantial costs if litigation is required to
defend itself in patent suits or other intellectual property litigation brought
by third parties or if Geron initiates such suits. There can be no assurance
that the Company's issued or licensed patents would be held valid or infringed
in a court of competent jurisdiction or that a patent held by another will be
held invalid or not infringed in such court. An adverse outcome in litigation or
an interference to determine priority or other proceeding in a court or patent
office could subject the Company to significant liabilities to other parties,
require disputed rights to be licensed from other parties or require the Company
to cease using such technology, any of which could have a material adverse
effect on the Company.
Geron also relies on trade secrets to protect its proprietary technology,
especially in circumstances in which patent protection is not believed to be
appropriate or obtainable. Geron attempts to protect its proprietary technology
in part by confidentiality agreements with its employees, consultants and
certain contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.
The Company is party to various license agreements which give it rights to
use certain technologies in its research, development and commercialization
activities. Disputes have arisen and may continue to arise as to the
inventorship and corresponding rights in know-how and inventions resulting from
the joint creation or use of intellectual property by the Company and its
licensors, research collaborators and consultants. There can be no assurance
that the Company will be able to continue to license such technologies on
commercially reasonable terms, if at all, or to maintain the exclusivity of its
exclusive licenses. In this regard, the Company's license with the licensing arm
of the University of Wisconsin-Madison for PS cells derived from primates is
currently exclusive until 1998 and non-exclusive thereafter. The failure of the
Company to maintain exclusive or other rights to such technologies could have a
material adverse effect on the Company.
SCIENTIFIC ADVISORS
The Company has consulting agreements with a number of leading academic
scientists and clinicians who serve as members of its Scientific Advisory Board
("SAB") or as consultants. These individuals are distinguished scientists and
clinicians with expertise in the areas of genetics of aging, cell senescence,
telomerase, cell biology and molecular biology.
The SAB was established to consult with the Company with respect to
scientific programs and strategies. The individuals also provide important
contacts throughout the broader scientific community. The SAB meets as a whole
or in smaller groups at least once per year to focus on general strategy and
certain scientific issues. Individual members are called upon on an ad hoc basis
as appropriate.
Each SAB member has entered into an agreement with the Company covering the
terms of his or her position as a member of the SAB. Each member provides
services on an as-needed basis. Certain SAB members hold options to purchase or
have purchased Common Stock of the Company. In addition, members of the SAB are
reimbursed for out-of-pocket expenses incurred in attending each meeting. Most
members of the SAB are employed by institutions other than the Company and may
have commitments to, or consulting or advisory agreements, with other entities
that may limit their availability to the Company.
12
14
The Company's SAB members and consultants include the following
individuals:
ELIZABETH BLACKBURN, PH.D., is a Professor and Chair of the Department of
Microbiology and Immunology at the University of California at San Francisco and
a member of the National Academy of Sciences. Dr. Blackburn is known for her
pioneering characterization of telomeres and for her co-discovery of telomerase
with Dr. Carol Greider in 1985 and subsequent characterization of this important
enzyme.
GUNTER K. BLOBEL, M.D., PH.D., is an investigator at the Howard Hughes
Medical Institute, Rockefeller University and is a member of the Company's SAB.
Dr. Blobel is a member of the National Academy of Sciences, the recipient of the
1993 Lasker Award and past president of the American Society for Cell Biology.
He is well known for his work in protein translocation and is now turning much
of his research focus to nuclear trafficking.
DAVID BOTSTEIN, PH.D., is Professor and Chairman of the Department of
Genetics, Stanford University School of Medicine. He was elected to the National
Academy of Sciences in 1981 and to the Institute of Medicine in 1993. His
current research activities include studies of yeast genetics and cell biology
and linkage mapping of human genes predisposing to manic-depressive illness and
the development and maintenance of the Saccharomyces Genome Database on the
World Wide Web. He has received numerous awards, including the Eli Lilly Award
in Microbiology (1978), the Genetics Society of America Medal (1985), and the
Allen Award of the American Society of Human Genetics (1989). Dr. Botstein has
served on numerous committees including the NAS/NRC study on the Human Genome
Project (1987-88), the NIH Program Advisory Panel on the Human Genome (1989-90)
and the Advisory Council of the National Center for Human Genome Research
(1990-1995).
ROBERT N. BUTLER, M.D., is a gerontologist and psychiatrist with broad
experience in aging research and advocacy. In 1982, he founded the first, and
still the only, department of geriatrics at a United States medical
school -- the Department of Geriatrics and Adult Development at the Mount Sinai
Medical Center -- where he continues to serve as Professor. Since 1990, he has
also been Director of the International Longevity Centers. In 1975, he became
the founding director of the National Institute on Aging of the National
Institutes of Health, a position he held until 1982. He currently serves on the
National Advisory Council of the National Institute on Aging. Dr. Butler also
serves as editor-in-chief of the journal Geriatrics and is the author of
approximately 300 scientific and medical articles. In 1976, he won the Pulitzer
Prize for his book, "Why Survive? Being Old in America."
JUDITH CAMPISI, PH.D., is a Senior Scientist and Acting Chair, Department
of Cancer Biology, Lawrence Berkeley National Laboratory. She has been an
Established Investigator of the American Heart Association and currently has a
MERIT Award from the National Institute on Aging, and serves on the NIA Board of
Scientific Counselors. Her major interest is the cellular and molecular biology
of senescence and tumorigenesis.
VINCENT CRISTOFALO, PH.D., is a Professor of Pathology and Laboratory
Medicine, and Director of the Center for Gerontological Research, Medical
College of Pennsylvania and Hahnemann University and is a member of the
Company's SAB. In addition, he is professor emeritus at the University of
Pennsylvania and adjunct professor at the Wistar Institute. He sits on the Board
of Scientific Counselors of the National Institute on Aging and the Department
of Veterans Affairs Geriatrics and Gerontology Advisory Committee, as well as
numerous editorial boards.
JOHN GEARHART, PH.D., is a Professor of Gynecology and Obstetrics,
Physiology, Comparative Medicine, and Population Dynamics at the School of
Medicine of Johns Hopkins University, where he is also the Director of the
Division of Genetics and the Preimplantation Genetics Diagnosis Program. Dr.
Gearhart has been a leader in the utilization of transgenic models and in the
development of new transgenic and embryonic stem cell technologies.
CAROL GREIDER, PH.D., is a Senior Staff Scientist at the Cold Spring Harbor
Laboratory and is a member of the Company's SAB. She is known for her
co-discovery of telomerase with Dr. Elizabeth Blackburn. Her pioneering work on
the molecular mechanisms of this enzyme and its role in cellular immortalization
is widely recognized.
13
15
LEONARD GUARANTE, PH.D., has studied mechanisms of eukaryotic
transcriptional regulation over the past 17 years. More recently, his lab has
turned its focus to identifying causes of aging by identifying genes that
control lifespan in the model system S. cerevisiae. His lab has also begun a
study of the WRN gene, mutations in which give rise to Werner's Syndrome, a
human disease characterized by premature aging.
DOUGLAS HANAHAN, PH.D., is a Professor of Biochemistry in the Department of
Biochemistry and Biophysics and Associate Director of the Hormone Research
Institute, University of California at San Francisco ("UCSF") and is a member of
the Company's SAB. His major research interests are the cellular and genetic
mechanisms of tumor development and autoimmunity. Prior to joining UCSF in 1988,
Dr. Hanahan was with the Cold Spring Harbor Laboratory for nine years, where he
developed technologies for recombinant DNA and molecular cloning and established
transgenic mouse models to study cancer and autoimmune diseases.
LEONARD HAYFLICK, PH.D., is a Professor of Anatomy at the School of
Medicine of the University of California at San Francisco, and is a member of
the Company's SAB. Dr. Hayflick is best known for his pioneering work in tissue
culture, where he discovered the finite replicative capacity of normal human
cells which he interpreted as aging at the cellular level. This phenomenon is
known as the "Hayflick Limit" and Dr. Hayflick is widely known as the "father"
of cellular gerontology. Dr. Hayflick has published over 200 papers and is the
recipient of numerous national and international research awards and honors, was
President of the Gerontological Society of America, is editor-in-chief of
Experimental Gerontology, was a founding member of the Council of the National
Institute on Aging, and recently authored the popular book, "How and Why We
Age."
ERIC LANDER, PH.D., is a Professor of Biology at the Massachusetts
Institute of Technology and serves as the Director of the Whitehead
Institute/MIT Center for Genome Research. Dr. Lander is active in several
organizations involved in human genetics research, including serving on the
board of directors for the Genetic Society of America, acting as former chair of
the Genome Research Review Committee for NIH's National Center for Human Genome
Research and is a member of the Company's SAB. He brings broad experience in
human and mammalian genetic research.
GEORGE M. MARTIN, M.D., is Professor of Pathology, Adjunct Professor of
Genetics and Director of Alzheimer's Disease Research Center, University of
Washington School of Medicine. He has held various positions in the departments
of pathology and genetics at the University of Washington School of Medicine
since 1957, and was appointed director of the Alzheimer's Disease Research
Center in 1985. Dr. Martin's recent awards include a Research Medal granted by
the American Aging Association in 1992 and the Robert W. Kleemeier Award given
by the Gerontological Society of America in 1993.
MALCOLM MOORE, PH.D., is a Professor of Biology at the Sloan-Kettering
Division, Cornell Graduate School of Medical Sciences. He is also currently
incumbent of the Enid A. Haupt Chair of Cell Biology, Memorial Sloan-Kettering
Cancer Center. Dr. Moore most recently received the William B. Coley Award For
Distinguished Research in Immunology by the Cancer Research Institute (June
1995).
ROGER A. PEDERSEN, PH.D., is a Professor of Obstetrics, Gynecology and
Reproductive Sciences at the University of California at San Francisco, where he
teaches developmental genetics and mammalian embryology. He received his B.A.
degree from Stanford University in 1965, and his Ph.D. in 1970 at Yale
University. He completed his postdoctoral research at the Johns Hopkins
University. Since 1991 he has served as Series Editor of Current Topics in
Developmental Biology. He has written numerous original publications and reviews
on early mouse development, and co-produced two instructional videotapes on the
use of mice in transgenic and gene targeting research.
JERRY W. SHAY, PH.D., is a Professor of Cell Biology and Neuroscience, the
University of Texas Southwestern Medical Center at Dallas and is a member of the
Company's SAB. Dr. Shay's research focuses on molecular mechanisms of
tumorigenesis and immortalization with a particular emphasis on cancer of the
breast.
JAMES D. WATSON, PH.D., is the President of Cold Spring Harbor Laboratory
and is a member of the Company's SAB. Dr. Watson is the former head of the NIH
Human Genome Project and is famous for his
14
16
1953 discovery with Francis Crick of the double helical structure of DNA for
which he received the Nobel Prize.
WOODRING E. WRIGHT, M.D., PH.D., is a Professor of Cell Biology and
Neuroscience, the University of Texas Southwestern Medical Center at Dallas and
is a member of the Company's SAB. He is widely recognized as a leading molecular
biologist working in the field of cellular senescence and on the molecular basis
of muscle development.
BUSINESS ADVISORS
The Company has also established a Business Advisory Board to advise it on
strategic business matters. Each member of the Business Advisory Board has
entered into an agreement with the Company covering the terms of the position
and provides services on an as-needed basis. The members of the Company's
Business Advisory Board are:
JACK L. BOWMAN has over 30 years of health care management experience, most
recently as company group chairman of Johnson & Johnson. Prior to Johnson &
Johnson, Mr. Bowman was with American Cyanamid, where his positions included
President of Lederle Laboratories, and Ciba-Geigy Pharmaceuticals.
ROBERT A. SWANSON is a founder of Genentech, Inc., served as its Chief
Executive Officer from 1976 to 1990, and has been Chairman of the Board since
1990. Prior to forming Genentech, Mr. Swanson was a partner with Kleiner &
Perkins venture capital partnership in San Francisco, and from 1970 to 1974, he
was an investment officer with Citicorp Venture Capital Ltd. He serves on the
Board of Fellows of the Faculty of Medicine at Harvard University and is a
member of the Biology Visiting Committee of, and has served as a Trustee for,
the Massachusetts Institute of Technology. Mr. Swanson is a member of the Royal
Swedish Academy of Engineering Sciences and a member of the Board of Molten
Metal Technology, Inc.
ANDERS P. WIKLUND has spent 30 years with Kabi and Pharmacia group
companies where he served as the President and CEO of Kabi Vitrum, Inc. and Kabi
Pharmacia, Inc. He also worked as part of the Corporate Business Development
function of Pharmacia and then Pharmacia & Upjohn and was actively involved in
forming strategic alliances with United States biotechnology companies and with
merger and acquisitions on the group level. He is presently an advisor to
numerous United States and European companies and serves on the Board of
Directors for several private and public biotechnology companies.
GOVERNMENT REGULATION
Regulation by governmental entities in the United States and other
countries will be a significant factor in the preclinical and clinical testing,
production, labeling, sale, distribution, marketing, advertising and promotion
of any products developed by the Company or its strategic partners. Most of the
Company's or its strategic partners' products will require regulatory approval
or clearance by governmental agencies prior to commercialization. The nature and
the extent to which such regulation may apply to the Company or its strategic
partners will vary depending on the nature of any such products. Generally,
biological drugs and non-biological drugs are regulated more rigorously than
medical devices. In particular, human pharmaceutical therapeutic products,
including a telomerase inhibitor, are subject to rigorous preclinical and
clinical testing and other requirements by the United States Food and Drug
Administration ("FDA") in the United States and similar health authorities in
foreign countries. Various federal and, in some cases, state statutes and
regulations also govern or influence the manufacturing, safety, labeling,
distribution, storage, record keeping and marketing of such products. The
process of obtaining these approvals or clearances is uncertain and the process
and the subsequent compliance with appropriate federal and foreign statutes and
regulations are time consuming and require the expenditure of substantial
resources.
Generally, to gain FDA pre-market approval for a biopharmaceutical product,
a company first must conduct extensive preclinical studies in the laboratory and
in animal model systems to gain preliminary information on a product's potential
efficacy and to identify any safety problems. The results of these studies are
submitted as a part of an investigational new drug application ("IND"), which
must become effective before human clinical trials of an investigational drug
can start. To commercialize any products, the Company
15
17
or its strategic partners will be required to sponsor and file an IND and will
be responsible for initiating and overseeing a series of clinical studies to
demonstrate the safety, purity, efficacy and potency in the case of biological
drugs, or safety and efficacy in the case of non-biological drugs that are
necessary to obtain FDA approval of any such products. Clinical trials are
normally done in three phases (Phase I -- safety and pharmacologic assessment;
Phase II -- a small efficacy study; and Phase III -- 200-1000 patient studies to
provide substantial evidence of safety and effectiveness) which generally take
three to six or more years to complete. After completion of clinical trials of a
new product, FDA marketing approval must be obtained. If the product is
classified as a non-biological drug, the Company or its strategic partner will
be required to file a new drug application ("NDA") and receive approval before
commercial marketing of the drug. In the case of a biological drug, an
Establishment License Application ("ELA") and Product License Application
("PLA") must be filed with and approved by the FDA before marketing can occur.
If a given recombinant product is considered to be a well-characterized
biological drug under the FDA's new program, only a Biological License
Application ("BLA") combining elements of an ELA and a PLA may be required.
These testing and approval processes are uncertain and require substantial time
and the expenditure of substantial resources, and there can be no assurance that
any such approval will be granted on a timely basis, if at all. NDAs or PLAs
/ELAs submitted to the FDA can take, on average, two to five years to receive
approval, and the FDA must confirm that good laboratory, clinical and
manufacturing practices were maintained as well as determine that safety,
purity, efficacy and potency (in the case of a biological drug) or safety and
efficacy (in the case of a non-biological drug) have been established. If
questions arise during the FDA review process, approval can take more than five
years. Even if FDA regulatory approvals are obtained, a marketed product is
subject to continual review, and later discovery of previously unknown problems
or failure to comply with the applicable regulatory requirements may result in
restrictions on the marketing of a product or withdrawal of the product from the
market as well as possible civil or criminal sanctions, including but not
limited to recall or seizure of product, injunction against manufacture,
distribution, sales and marketing and criminal prosecution. For marketing
outside the United States, the Company will also be subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for pharmaceutical products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country. Any diagnostic products to be developed by the Company or its strategic
partners are likely to be regulated by the FDA as medical devices rather than
drugs. The nature of the FDA requirements applicable to such medical diagnostic
devices depends on their classification by the FDA. A diagnostic device
developed by the Company or a strategic partner would initially be classified as
a Class III device, and would most likely require pre-market approval. Obtaining
pre-market approval involves the costly and time-consuming process, comparable
to that for new drugs, of conducting laboratory studies, obtaining an
investigational device exemption to conduct clinical tests, filing a pre-market
approval application ("PMA") and obtaining review and approval of the PMA by the
FDA. Such review and approval may take 12-18 months or more. The process from
laboratory to clinical studies to FDA review and approval of a PMA, which
approval cannot be assured on a timely basis, if at all, can take several years
or more. Both drugs and devices are subject to FDA current good manufacturing
practice regulations ("GMPs"), often even at the clinical trial stages. Both
drug and device GMPs specify extensive validation and record keeping
requirements, including the maintenance of product compliance files, as well as
require compliance with various standards governing personnel, equipment and raw
materials, including product stability requirements. There can be no assurance
that the Company or its collaborators or contract manufacturers, if any, will be
able to establish or maintain compliance with the GMP regulations on a
continuing basis. Failure to establish or maintain GMP compliance or compliance
with other FDA requirements could have a material adverse effect on the
Company's business.
The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for using,
handling, storing and disposing of such materials comply with the standards
prescribed by state and federal laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an
16
18
accident, the Company's use of these materials could be curtailed by state or
federal authorities, the Company could be held liable for any damages that
result and any liability could exceed the resources of the Company.
COMPETITION
The pharmaceutical and biopharmaceutical industries are intensely
competitive. The Company believes that certain pharmaceutical and
biopharmaceutical companies as well as certain research organizations currently
engage in or have in the past engaged in efforts related to the biological
mechanisms of cell aging and cell immortality, including the study of telomeres
and telomerase. In addition, other products and therapies that could compete
directly with the products that the Company is seeking to develop and market
currently exist or are being developed by pharmaceutical and biopharmaceutical
companies, and by academic and other research organizations. Many companies are
also developing alternative therapies to treat cancer and, in this regard, are
competitive with the Company. The pharmaceutical companies developing and
marketing such competing products have significantly greater financial resources
and expertise in research and development, manufacturing, preclinical and
clinical testing, obtaining regulatory consents and marketing than the Company.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies.
Academic institutions, government agencies and other public and private research
organizations may also conduct research, seek patent protection and establish
collaborative arrangements for research, clinical development and marketing of
products similar to those of the Company. These companies and institutions
compete with the Company in recruiting and retaining qualified scientific and
management personnel as well as in acquiring technologies complementary to the
Company's programs. There is also competition for access to libraries of
compounds to use for screening. Any inability of the Company to secure and
maintain access to sufficiently broad libraries of compounds for screening
potential targets would have a material adverse effect on the Company. In
addition to the above factors, Geron will face competition with respect to
product efficacy and safety, the timing and scope of regulatory consents,
availability of resources, reimbursement coverage, price and patent position,
including potentially dominant patent positions of others. There can be no
assurance that competitors will not develop more effective or more affordable
products, or achieve earlier patent protection or product commercialization than
the Company or that such products will not render the Company's products
obsolete.
EMPLOYEES
The Company had 89 full-time employees at December 31, 1996, of whom 30
hold Ph.D. degrees and 18 hold other advanced degrees. Of the total workforce,
75 are engaged in, or directly support, the Company's research and development
activities and 14 are engaged in business development, finance and
administration. The Company also retains outside consultants. None of the
Company's employees is covered by a collective bargaining agreement, nor has the
Company experienced work stoppages. The Company considers relations with its
employees to be good.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
executive officers of the Company as of December 31, 1996:
NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------
Ronald W. Eastman 45 President, Chief Executive Officer and
Director
David L. Greenwood 45 Chief Financial Officer, Treasurer and
Secretary
Richard T. Haiduck 49 Vice President of Corporate Development
Calvin B. Harley, Ph.D. 44 Chief Scientific Officer
Jeryl L. Hilleman 39 Vice President of Operations
Kevin R. Kaster, Esq. 37 Vice President of Intellectual Property and
Chief Patent Counsel
Michael D. West, Ph.D. 44 Vice President of New Technologies and
Director
17
19
RONALD W. EASTMAN has served as President, Chief Executive Officer and
Director of the Company since May 1993. From 1978 until joining the Company, Mr.
Eastman was employed with American Cyanamid Co., most recently as a Vice
President and General Manager of Lederle Laboratories, American Cyanamid's
pharmaceutical business. Mr. Eastman holds a B.A. from Williams College and an
M.B.A. from Columbia University.
DAVID L. GREENWOOD has served as Chief Financial Officer, Treasurer and
Secretary of the Company since July 1995. From 1979 until joining the Company,
Mr. Greenwood held various management positions with J.P. Morgan & Co.
Incorporated, an international banking firm, and its subsidiaries, J.P. Morgan
Securities Inc. and Morgan Guaranty Trust Company of New York. Mr. Greenwood
holds a B.A. from Pacific Lutheran University and an M.B.A. from Harvard
Business School.
RICHARD T. HAIDUCK has served as Vice President of Corporate Development of
the Company since October 1993. From March 1991 until joining the Company, Mr.
Haiduck was employed by ASB Meditest, a mobile medical testing company, as
Senior Vice President of Field Operations. From December 1989 to February 1991,
he was Chief Executive Officer of Lifescreen, Inc., a health screening company,
and from 1975 to 1989, Mr. Haiduck held various positions with Abbott
Laboratories, Inc., a pharmaceutical company. Mr. Haiduck holds a B.S. from
Miami University and an M.B.A. from Xavier University.
CALVIN B. HARLEY, PH.D., has served as Chief Scientific Officer of the
Company since July 1996. From May 1994 until July 1996, Dr. Harley was the Vice
President of Research of the Company and from April 1993 to May 1994, Dr. Harley
was Director, Cell Biology of the Company. Dr. Harley was an Associate Professor
from 1989 until joining the Company, and from 1982 to 1989, an Assistant
Professor of Biochemistry at McMaster University. Dr. Harley also was the Chair
of the Canadian Association on Gerontology, Division of Biological Sciences from
October 1989 to October 1991 and Chairman Elect from 1987 to 1989. Dr. Harley
holds a B.S. from University of Waterloo and a Ph.D. from McMaster University,
and conducted postdoctoral work at the University of Sussex and the University
of California at San Francisco.
JERYL L. HILLEMAN has served as Vice President of Operations of the Company
since July 1995. From June 1992 until July 1995, Ms. Hilleman served as Vice
President of Administration and Finance of the Company. From 1987 until joining
the Company, Ms. Hilleman served as Vice President, Finance and Operations of
Cytel Corporation, a biotechnology company. Ms. Hilleman holds an A.B. from
Brown University and an M.B.A. from the Wharton Graduate School of Business.
KEVIN R. KASTER, ESQ., has served as Vice President of Intellectual
Property and Chief Patent Counsel of the Company since June 1994. From September
1991 until joining the Company, Mr. Kaster was employed with Affymax, N.V., a
biotechnology company, as Director, Intellectual Property. From May 1988 until
September 1991, Mr. Kaster was a patent attorney with Cetus Corporation, a
biotechnology company. Prior to his employment with Cetus Corporation, he served
as an Associate Biologist and then as a Patent Technician with Eli Lilly and
Company, a pharmaceutical company. Mr. Kaster holds a B.S. in Chemistry and
Molecular Biology from Vanderbilt University and a J.D. from Indiana University.
MICHAEL D. WEST, PH.D., the founder of the Company, has served as a
Director of the Company since November 1990 and as Vice President of New
Technologies of the Company since October 1993. From February 1993 until October
1993, Dr. West served as Executive Vice President of Business Development of the
Company, and from March 1992 until February 1993, he was Executive Vice
President and Chief Scientific Officer of the Company. From November 1990 until
March 1992, Dr. West served as President of the Company. Prior to joining the
Company, Dr. West was a Senior Research Scientist at the University of Texas
Southwestern Medical Center at Dallas in the Department of Cell Biology and
Neuroscience and, from 1989 to 1990, was a Postdoctoral Research Fellow in the
same department. Dr. West holds a B.S. from Rensselaer Polytechnic Institute, an
M.S. from Andrews University and a Ph.D. from Baylor College of Medicine.
18
20
ITEM 2. PROPERTIES
Geron currently leases approximately 17,000 square feet of office space at
194 Constitution Drive and 200 Constitution Drive, Menlo Park, California. The
Company's lease for such office space expires in January 2002, with an option to
renew the lease for two additional periods of two and one-half years each. The
Company intends to use this space for general office and biomedical research and
development purposes.
In March 1996, the Company entered into a lease for an additional 24,000
square feet of office space at 230 Constitution Drive, Menlo Park, California,
with possession taken in November 1996. The Company's lease for such office
space expires in January 2002, with an option to renew the lease for two
additional periods of two and one-half years each. The Company intends to use
this space for general office purposes. The Company believes that its existing
facilities are adequate to meet its requirements for the near term.
In December 1996, the Company entered into a sublease agreement with a
non-affiliated company for approximately 12,350 square feet of office space at
230 Constitution Drive. The sublease for such office space expires in March
1998, with an option to extend for 90 days. The Company believes that this
sublease will not affect the Company's facility requirements in the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's Common Stock trades on The Nasdaq National Market under the
symbol "GERN". The high and low closing sales prices (excluding retail markup,
markdowns and commissions) of the Company's stock for the period beginning July
30, 1996 (the date of the Company's initial public offering) and ending December
31, 1996 are as follows:
HIGH LOW
------- -------
Year ended December 31, 1996
Third quarter (beginning July 30, 1996)................ $ 7.000 $ 6.875
Fourth quarter......................................... $13.250 $12.875
As of December 31, 1996, there were approximately 166 stockholders of
record. The Company participates in a highly dynamic industry, which often
results in significant volatility of the Company's Common Stock price.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does not
anticipate paying cash dividends in the foreseeable future, but intends to
retain its capital resources for reinvestment in its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and other such factors as the Board of
Directors deems relevant.
19
21
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Revenues from collaborative agreement
with related party................. $ 5,235 $ 5,490 $ -- $ -- $ --
License fees and royalties........... 58 -- -- -- --
Operating expenses:
Research and development........... 14,260 11,321 8,099 3,975 726
General and administrative......... 3,161 2,888 2,397 2,220 661
-------- ------- -------- ------- -------
Total operating expenses... 17,421 14,209 10,496 6,195 1,387
-------- ------- -------- ------- -------
Loss from operations................. (12,128) (8,719) (10,496) (6,195) (1,387)
Interest and other income............ 1,826 919 638 351 27
Interest and other expense........... (385) (399) (320) (103) --
-------- ------- -------- ------- -------
Net loss............................. $ (10,687) $ (8,199) $ (10,178) $ (5,947) $ (1,360)
======== ======= ======== ======= =======
Net loss per share(1)................ $ (2.07) $ (5.25) $ (7.91) $ (4.84) $ (1.25)
Shares used in computing net loss per
share.............................. 5,151,113 1,562,937 1,286,211 1,229,982 1,091,450
DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments........................ $ 24,269 $ 15,553 $ 13,915 $ 11,931 $ 1,259
Working capital...................... 21,468 12,115 12,410 10,247 1,014
Total assets............... 28,788 19,749 17,072 14,406 1,670
Noncurrent portion of capital lease
obligations and equipment loans.... 1,644 1,654 1,647 1,360 117
Accumulated deficit.................. (36,471) (25,773) (17,604) (7,405) (1,457)
Total stockholders'
equity................... 23,591 14,308 13,689 11,293 1,288
- ---------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
calculation of net loss per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Geron is a biopharmaceutical company exclusively focused on discovering
therapeutic and diagnostic products based upon common biological mechanisms
underlying cancer and other age-related diseases. The Company's results of
operations have fluctuated from period to period and will continue to fluctuate
in the future based upon the timing and composition of funding under various
collaborative agreements. Results of operations for any period may be unrelated
to results of operations for any other period. In addition, historical results
should not be viewed as indicative of future operating results. The following
discussion should be read in conjunction with the audited financial statements
and notes thereto included in Part II, Item 8 of this Report on Form 10-K.
In December 1996, the Company signed a Heads of Agreement (non-binding
letter of intent) with Pharmacia & Upjohn S.p.A. to collaborate in the
discovery, development and commercialization of a new class of anti-cancer
drugs. The Heads of Agreement states that both companies will use their best
efforts to complete negotiations of a definitive agreement. In conjunction with
the Heads of Agreement, Pharmacia & Upjohn purchased $2,000,000 of Geron Common
Stock at a premium in January 1997.
20
22
Geron is subject to risks common to companies in its industry and at its
stage of development, including risks inherent in its research and development
efforts, reliance upon collaborative partners, enforcement of patent and
proprietary rights, need for future capital, potential competition and
uncertainty of regulatory approvals or clearances. In order for a product to be
commercialized based on the Company's research, it will be necessary for Geron
and its collaborators to conduct preclinical tests and clinical trials,
demonstrate efficacy and safety of the Company's product candidates, obtain
regulatory approvals or clearances and enter into manufacturing, distribution
and marketing arrangements, as well as obtain market acceptance. The Company
does not expect to receive revenues or royalties based on therapeutic products
for many years. See "Additional Factors That May Affect Future Results".
RESULTS OF OPERATIONS
Revenues
The Company recognized revenues of $5.2 million in fiscal 1996 compared to
$5.5 million in fiscal 1995 and no revenues in fiscal 1994. The revenues were
research support payments under the Company's collaborative agreement with Kyowa
Hakko. The Company recognizes revenue as the related research and development
costs are incurred under the Kyowa Hakko agreement. Annual funding payments of
$4.0 million and $7.0 million were received under the Kyowa Hakko agreement in
fiscal 1996 and 1995, respectively. The agreement with Kyowa Hakko was signed in
April 1995.
In June 1996, the Company entered into a license and marketing agreement
with Kyowa Medex in connection with its telomerase diagnostic technology. The
agreement provided for a $50,000 license fee payment to the Company which was
recognized in 1996 and royalty payments on product sales. No license fee revenue
was recognized during 1995 and 1994. In addition, royalties from Oncor and Kyowa
Medex were received on the sale of diagnostic kits to the research-use-only
market in 1996. No royalties were received in 1995 and 1994.
Research and Development Expenses
Research and development expenses were $14.3 million, $11.3 million and
$8.1 million for the years ended December 31, 1996, 1995 and 1994, respectively.
The increases in 1996 and 1995 were primarily due to increases in scientific
staffing, expanded patent related activities, amortization of deferred
compensation and greater purchases of research materials and laboratory supplies
for the expansion of the Company's research programs. The Company expects
research and development expenses to increase in the future as a result of
continued development of its therapeutic and diagnostic programs.
General and Administrative Expenses
General and administrative expenses were $3.2 million, $2.9 million and
$2.4 million for the years ended December 31, 1996, 1995 and 1994, respectively.
The increases in 1996 and 1995 were primarily due to increases in staffing,
amortization of deferred compensation, higher legal, travel and other expenses
related to business development and other costs of being a public company.
Interest and Other Income
Interest income was $1.1 million, $643,000 and $440,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. The increases in 1996 and 1995
were due to higher average cash and investment balances as a result of the sale
of equity securities, completion of the Company's initial public offering and
research funding received under the Kyowa Hakko collaborative agreement.
Interest earned in the future will depend on the Company's funding cycles and
prevailing interest rates. The Company also received $714,000, $276,000 and
$198,000 in research payments under government grants for the years ended
December 31, 1996, 1995 and 1994, respectively. The Company does not expect
income from government grants to be substantially more significant in the
future.
21
23
Interest and Other Expense
Interest and other expense were $385,000, $399,000 and $320,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. The decrease in 1996
was due to lower outstanding capital lease obligations as a result of certain
leases expiring during the year. Higher outstanding capital lease balances
existed during 1995 and 1994. The Company expects interest and other expense to
increase as it intends to increase equipment financing in the near future.
Net Loss
Net loss was $10.7 million, $8.2 million and $10.2 million for the years
ended December 31, 1996, 1995 and 1994, respectively. Increase in net loss for
1996 was primarily due to the increase in operating expenses during that year.
The decrease in net loss from 1994 to 1995 was the result of the recognition of
revenue from research support payments from the Kyowa Hakko collaborative
agreement which more than offset the increase in operating expenses for that
year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through public and private
equity financings. The Company has also received additional funding from
collaborative agreements, grant revenues, interest income and equipment
financing. On July 30, 1996, the Company completed an initial public offering of
2,000,000 shares of Common Stock at $8.00 per share. In addition to and in
conjunction with the offering, Kyowa Hakko purchased 312,500 shares of Common
Stock at $8.00 per share. The total net proceeds from the initial public
offering and the Kyowa Hakko stock purchase were approximately $16.7 million.
These funds are being used to fund research and development expenses, laboratory
and equipment purchases and other working capital and general corporate
purposes.
Cash, cash equivalents and short-term investments at December 31, 1996 were
$24.3 million compared to $15.6 million at December 31, 1995 and $13.9 million
at December 31, 1994. It is the Company's investment policy to invest these
funds in liquid, investment grade securities, such as interest-bearing money
market funds, corporate master notes, commercial paper, repurchase agreements
with United States financial institutions and federal agency notes. The increase
in cash, cash equivalents and short-term investments for 1996 was primarily due
to the completion of the Company's initial public offering in July 1996.
Net cash used in operations was $9.9 million, $6.3 million and $10.1
million for the years ended December 31, 1996, 1995 and 1994, respectively.
Increase in net cash used in operations for 1996 was primarily due to higher
expenses incurred as a result of expanded research and development programs. The
decrease in net cash used in operations from 1994 to 1995 was a result of the
receipt of research funding from Kyowa Hakko which more than offset the increase
in research and development expenditures in that year.
Through December 31, 1996, the Company had invested approximately $5.4
million in property and equipment, of which approximately $4.5 million was
financed through equipment financing. Minimum annual payments due under the
equipment financing facility are expected to total $1.3 million, $924,000,
$515,000 and $261,000 in 1997, 1998, 1999 and 2000, respectively. As of December
31, 1996, the Company had approximately $1.0 million available for borrowing
under its equipment financing facility.
The Company estimates that its existing capital resources, payments under
the Kyowa Hakko collaborative agreement, interest income and equipment financing
will be sufficient to fund its current and planned operations through the first
quarter of 1998. There can be no assurance, however, that changes in the
Company's research and development plans or other changes affecting the
Company's operating expenses will not result in the expenditure of available
resources before such time, and in any event, the Company will need to raise
substantial additional capital to fund its operations in future periods. The
Company intends to seek additional funding through strategic collaborations,
public or private equity financings, capital lease transactions or other
financing sources that may be available.
22
24
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Specifically, the Company
wishes to alert readers that, except for the historical information contained
herein, the matters discussed in this report constitute forward-looking
statements that are dependent on certain risks and uncertainties. These and
other factors that may cause actual results to differ materially from those
expressed in any forward-looking statements made by or on behalf of the Company
are described below.
TECHNOLOGICAL UNCERTAINTY
The study of the mechanisms of cellular aging and cellular immortality,
including telomere biology and telomerase, is a relatively new area of research,
and there can be no assurance that this research will lead to the discovery or
development of any therapeutic or diagnostic product. If and when potential lead
drug compounds or product candidates are identified through the Company's
research programs, they will require significant preclinical and clinical
testing prior to regulatory approval in the United States and elsewhere, and
there can be no assurance that any of these efforts will result in a product
that can be marketed. Because of the significant additional scientific,
regulatory and commercial milestones that must be reached for the Company's
research programs to be successful, there can be no assurance that any program
will not be abandoned after significant resources have been expended. The
abandonment of any research program could have a material adverse effect on the
Company.
As a result of its drug discovery efforts to date, the Company has
identified compounds in in vitro studies that demonstrate potential for
inhibiting telomerase in vivo. However, additional development efforts will be
required prior to the selection of a lead compound for preclinical development
and clinical trials as a telomerase inhibitor for cancer. If and when selected,
a lead compound may prove to have undesirable and unintended side effects or
other characteristics affecting its efficacy or safety that may prevent or limit
its commercial use. For example, telomerase is active in reproductive cells and
transiently expressed in certain hematopoietic (blood), skin, gastrointestinal
and other cells. There can be no assurance that any product based on the
inhibition of telomerase will not adversely affect such cells and result in
unacceptable side effects. In addition, it is expected that telomerase
inhibition will have delayed efficacy as telomeres resume normal shortening and,
as a result, will in most cases, be used in conjunction with traditional cancer
therapies. There can be no assurance that the delayed efficacy of a telomerase
inhibitor will not have a material adverse effect on the preclinical and
clinical development, ability to obtain regulatory approval or marketability of
a telomerase inhibitor for the treatment of cancer. The abandonment of the
Telomerase Inhibition and Detection program would have a material adverse effect
on the Company.
With respect to the development and commercial application of the Company's
proprietary telomerase detection technology, there is, as yet, insufficient
clinical data to confirm its full utility to diagnose, prognose, monitor or
screen for cancer. Although the Company's licensees, Oncor, Boehringer Mannheim
and Kyowa Medex have commenced the sale of diagnostic kits for research use,
additional development work and regulatory consents will be necessary prior to
the introduction of tests for clinical use. With respect to the Company's
Genomics of Aging program, the Company has identified certain genes that are
expressed differentially in senescent cells versus replicatively young cells.
However, the Company has not identified any lead compounds that have been
demonstrated to modulate such gene expression, and there can be no assurance
that any such lead compound will be discovered or developed. The part of the
Company's Genomics of Aging program that is designed to modulate telomere length
is at an early stage of development. While telomere length and replicative
capacity have been extended in vitro, there can be no assurance that the Company
will discover a compound that will modulate telomere length or increase
replicative capacity effectively for clinical use. The Company's Primordial Stem
Cell Therapies program is also at a very early stage. While primate PS cells
have recently been isolated and allowed to differentiate into numerous cell
types, there can be no assurance that the Company's efforts in this program will
result in any commercial applications.
23
25
The Company may become aware of technology controlled by third parties that
is advantageous to the Company's business. There can be no assurance that the
Company will be able to acquire or license such technology on reasonable terms,
if at all. In the event that the Company is unable to acquire such technology,
the Company may be required to expend significant time and resources to develop
similar technology, and there can be no assurance that it will be successful in
this regard. If the Company cannot acquire or develop necessary technology, it
may be prevented from pursuing its business objectives. Moreover, a competitor
of the Company could acquire or license such technology. Any such event would
have a material adverse effect on the Company.
EARLY STAGE OF DEVELOPMENT
Geron is at an early stage in the development of therapeutic and diagnostic
products. The Company has not yet selected a lead compound for any of its drug
development programs. In order to identify and select such a compound, it must
have access to sufficient numbers of chemical compounds and resources, of which
there can be no assurance. Products that may result from the Company's research
and development programs are not expected to be commercially available for a
significant number of years, if at all. The Company's program to identify a
telomerase inhibitor is currently at the drug discovery stage, while the
Company's other programs are currently focused on research efforts prior to drug
discovery or preclinical development. It is difficult to predict when, if ever,
the Company will select a lead compound for drug development as a telomerase
inhibitor. In addition, there can be no assurance that the Company's other
programs will move beyond their current stage. Assuming the Company's research
advances and the Company is able to identify and select a lead compound for
telomerase inhibition, certain preclinical development efforts will be necessary
to determine whether the potential product has sufficient safety to enter
clinical trials. If such a potential product receives authorization from the
United States Food and Drug Administration ("FDA") to enter clinical trials,
then it will most likely be subjected to a multiphase, multicenter clinical
study to determine its safety and efficacy. It is not possible to predict the
length or extent of clinical trials or the period of any required patient
follow-up, but it is presently expected to extend at least several years.
Assuming clinical trials of any potential product are successful and other data
are satisfactory, the Company will submit an application to the FDA and
appropriate regulatory bodies in other countries to seek permission to market
the product. Typically, the review process at the FDA takes several years, and
there can be no assurance that the FDA will approve the Company's application or
will not require additional clinical trials or other data prior to approval.
Furthermore, even if such approval is ultimately obtained, delays in the
approval process could have a material adverse effect on the Company. In
addition, there can be no assurance that any potential product will be capable
of being produced in commercial quantities at a reasonable cost or that such
product will be successfully marketed. Based on the foregoing, the Company does
not anticipate being able to commence marketing of any therapeutic products for
many years, if at all. There can be no assurance that any of the Company's
product development efforts will be successfully completed, that regulatory
approvals will be obtained, or that the Company's products, if any, will achieve
market acceptance.
DEPENDENCE ON STRATEGIC AND RESEARCH COLLABORATIONS
The Company's strategy for the development, clinical testing and
commercialization of its products includes entering into collaborations with
corporate partners, licensors, licensees and others, and the Company is
dependent upon the subsequent success of these other parties in performing their
respective responsibilities. The success of any collaboration depends on the
continued cooperation of its partners, as to which there can be no assurance.
The amount and timing of resources to be devoted to activities by its
collaborators are not within the direct control of the Company. There can be no
assurance that such partners will perform their obligations as expected or that
the Company will derive any revenue from such arrangements. There can also be no
assurance that the Company's current collaborators or any future collaborators
will not pursue existing or alternative technologies in preference to those
being developed in collaboration with the Company.
The Company currently has no manufacturing infrastructure and no marketing
or sales organization, and intends to rely in substantial part on its current
and future strategic partners for the manufacture of any product and the
principal marketing and sales responsibilities for any such product. To the
extent the
24
26
Company chooses not to or is unable to establish such arrangements, the Company
will require substantially greater capital to undertake its own manufacturing,
marketing and sales of any product.
In April 1995, the Company entered into a License and Research
Collaboration Agreement with Kyowa Hakko (the "Kyowa Hakko Agreement") for the
development and commercialization in certain Asian countries of a telomerase
inhibitor for the treatment of cancer. Under the collaboration, Kyowa Hakko
provides certain funding for the Company's research and development activities
and is responsible for all clinical, regulatory, manufacturing, marketing and
sales efforts and expenses in the covered territory. The Kyowa Hakko Agreement
provides that Kyowa Hakko will not pursue research and development independent
of its collaboration with Geron with respect to telomerase inhibition for the
treatment of cancer in humans until April 24, 1999, at the earliest. The Kyowa
Hakko Agreement also provides in general that, while Geron exercises significant
influence during the research phase, Kyowa Hakko exercises significant influence
during the development and commercialization phases of the collaboration. There
can be no assurance that the collaboration will be successful. The Company has
also entered into licensing arrangements with several diagnostic companies for
the Company's telomerase detection technology. However, because these licenses
are limited to the research-use-only market, such arrangements are not expected
to generate significant commercial revenues.
In December 1996, the Company signed a Heads of Agreement (non-binding
letter of intent) with Pharmacia & Upjohn S.p.A. There can be no assurance that
a definitive agreement will be signed or that the Company will be able to
negotiate additional strategic arrangements in the future on acceptable terms,
if at all, or that such strategic arrangements will be successful. In the
absence of such arrangements, the Company may encounter significant delays in
introducing any product into certain markets or find that the research,
development, manufacture, marketing or sale of any product in such markets is
adversely affected. In the event that the Company does not enter into such
arrangements, it may be materially adversely affected.
The Company has relationships with collaborators and scientific advisors at
academic and other institutions, some of whom conduct research at the Company's
request. These collaborators and scientific advisors are not employees of the
Company and may have commitments to, or consulting or advisory contracts with,
other entities that may limit their availability to the Company. The Company has
limited control over the activities of these collaborators and advisors and,
except as otherwise required by its collaboration and consulting agreements, can
expect only limited amounts of their time to be dedicated to the Company's
activities.
DEPENDENCE ON PROPRIETARY TECHNOLOGY AND UNCERTAINTY OF PATENT PROTECTION
Protection of the Company's proprietary compounds and technology is
important to the Company's business. The Company owns four issued United States
patents and over 30 United States patent applications and has licensed eight
issued United States patents and over 30 United States patent applications, as
well as international filings under the Patent Cooperation Treaty and pending
foreign national patent applications corresponding to certain of these United
States applications. Geron's success will depend in part on its ability to
obtain and enforce its patents and maintain trade secrets, both in the United
States and in other countries. The patent positions of pharmaceutical and
biopharmaceutical companies, including the Company, are highly uncertain and
involve complex legal and technical questions for which legal principles are not
firmly established. There can be no assurance that the Company has developed or
will continue to develop products or processes that are patentable or that
patents will issue from any of the pending applications, including even allowed
patent applications. There can also be no assurance that the Company's current
patents, or patents that issue on pending applications, will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection or competitive advantages to the Company. Because (i)
patent applications in the United States are maintained in secrecy until patents
issue, (ii) patent applications are not generally published until many months or
years after they are filed and (iii) publication of technological developments
in the scientific and patent literature often occurs long after the date of such
developments, the Company cannot be certain that its or its licensors' patents
and patent applications name as inventors were the first to invent the
inventions disclosed in the patent applications or patents or that it or its
licensors were the first to file patent applications for such inventions.
Litigation to establish the validity of
25
27
patents, to defend against patent infringement claims of others and to assert
infringement claims against others can be expensive and time consuming even if
the outcome is favorable to the Company. If the outcome of patent prosecution or
litigation is unfavorable to the Company, the Company could be materially
adversely affected.
Patent law relating to the scope and enforceability of claims in the fields
in which the Company operates is still evolving. The degree of future protection
for the Company's proprietary rights, therefore, is highly uncertain. In this
regard, there can be no assurance that independent patents will issue from each
of the United States patent applications referenced above, which include many
interrelated applications directed to common or related subject matter. The
Company is aware of certain patent applications that have been filed by others
with respect to telomerase and telomere length modulation. In this regard, Iowa
State University has filed United States and corresponding foreign patent
applications claiming methods and reagents relating to the RNA component of
human telomerase, and Isis Pharmaceuticals, Inc. has filed United States and
corresponding foreign patent applications relating to oligonucleotide-like
reagents asserted to have telomere length modulating activity. In addition,
there are a number of issued patents and pending applications owned by others
directed to differential display, stem cell and other technologies relating to
the Company's research, development and commercialization efforts. There can be
no assurance that the Company's technology can be developed and commercialized
without a license to such patents or that such patent applications will not be
granted priority over patent applications filed by the Company. Furthermore,
there can be no assurance that others will not independently develop similar or
alternative technologies to those of the Company, duplicate any of the Company's
technologies or design around the patented technologies developed by the Company
or its licensors, any of which may have a material adverse effect on the
Company.
The commercial success of the Company depends significantly on its ability
to operate without infringing patents and proprietary rights of others. There
can be no assurance that the Company's technologies do not and will not infringe
the patents or proprietary rights of others. In the event of such infringement,
the Company may be enjoined from pursuing research, development or
commercialization of its potential products or may be required to obtain
licenses to these patents or other proprietary rights or to develop or obtain
alternative technologies. There can be no assurance that the Company will be
able to obtain alternative technologies or any required license on commercially
favorable terms, if at all, and if any such license is or alternative
technologies are not obtained, the Company may be delayed or prevented from
pursuing the development of certain of its potential products. The Company's
breach of an existing license or failure to obtain or delay in obtaining
alternative technologies or a license to any technology that it may require to
develop or commercialize its products may have a material adverse effect on the
Company. In this regard, the Company has been in discussion with a research
institution with respect to a research collaboration for the development of
certain technology related to its Primordial Stem Cell Therapies program. A
third party notified the Company that if the Company enters into such an
arrangement, the Company will violate the rights of such third party. Although
the Company believes that such an arrangement may be important to the Primordial
Stem Cell Therapies program, the Company does not believe that it is essential
to such program or the Company. As of the date of this Form 10-K, the Company
has made no decision whether to enter into such an arrangement and, in any
event, must yet complete scientific and legal due diligence and successfully
negotiate the terms of such an arrangement, as to which there can be no
assurance. If such an arrangement is entered into, the Company believes it has
substantial defenses to any claims that might be asserted by such third party.
Litigation may also be necessary to enforce any patents issued or licensed
to the Company or to determine the scope and validity of anothers' proprietary
rights. The Company could incur substantial costs if litigation is required to
defend itself in patent suits or other intellectual property litigation brought
by others or if Geron initiates such suits. There can be no assurance that the
Company's issued or licensed patents would be held valid or infringed in a court
of competent jurisdiction or that a patent held by another will be held invalid
or not infringed in such court. An adverse outcome in litigation or an
interference to determine priority or other proceeding in a court or patent
office could subject the Company to significant liabilities to other parties,
require disputed rights to be licensed from other parties or require the Company
to cease using such technology, any of which could have a material adverse
effect on the Company.
26
28
Geron also relies on trade secrets to protect its proprietary technology,
especially in circumstances in which patent protection is not believed to be
appropriate or obtainable. Geron attempts to protect its proprietary technology
in part by confidentiality agreements with its employees, consultants and
certain contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.
The Company is party to various license agreements which give it rights to
use certain technologies in its research, development and commercialization
activities. Disputes have arisen and may continue to arise as to the
inventorship and corresponding rights in know-how and inventions resulting from
the joint creation or use of intellectual property by the Company and its
licensors, research collaborators and consultants. There can be no assurance
that the Company will be able to continue to license such technologies on
commercially reasonable terms, if at all, or to maintain the exclusivity of its
exclusive licenses. In this regard, the Company's license with the licensing arm
of the University of Wisconsin-Madison for PS cells derived from primates is
currently exclusive until 1998 and non-exclusive thereafter. The failure of the
Company to maintain exclusive or other rights to such technologies could have a
material adverse effect on the Company.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial capital resources in order to conduct
its operations. The Company's future capital requirements will depend on many
factors, including, among others, continued scientific progress in its research
and development programs; the magnitude and scope of these activities; the
ability of the Company to maintain and establish strategic arrangements for
research, development, clinical testing, manufacturing and marketing; progress
with preclinical and clinical trials; the time and costs involved in obtaining
regulatory approvals; the costs involved in preparing, filing, prosecuting,
maintaining, defending and enforcing patent claims; or the potential for new
technologies and products. The Company intends to seek such additional funding
through strategic collaborations, public or private equity financings and
capital lease transactions; however, there can be no assurance that additional
financing will be available on acceptable terms, if at all. Additional equity
financings could result in significant dilution to stockholders. Further, in the
event that additional funds are obtained through arrangements with collaborative
partners, such arrangements may require the Company to relinquish rights to
certain of its technologies, product candidates or products that the Company
would otherwise seek to develop or commercialize itself. If sufficient capital
is not available, the Company may be required to delay, reduce the scope of or
eliminate one or more of its research or development programs, each of which
would have a material adverse effect on the Company. Based on current
projections, the Company estimates that its existing capital resources, payments
under the Kyowa Hakko Agreement, interest income and equipment financing will be
sufficient to fund its current and planned operations through the first quarter
of 1998. There can be no assurance that the assumptions underlying such
estimates are correct or that such funds will be sufficient to meet the capital
needs of the Company during such period. In addition, a substantial amount of
the payments to be made by Kyowa Hakko after 1997 are dependent upon the
achievement by the Company of development and regulatory milestones and there
can be no assurance that such milestones will be achieved.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT
Geron has incurred net operating losses in every year of operation since
its inception in 1990. Losses have resulted principally from costs incurred in
connection with the Company's research and development activities and from
general and administrative costs associated with the Company's operations. The
Company expects to incur additional operating losses over the next several years
as the Company's research and development efforts and preclinical testing are
expanded. Substantially all of the Company's revenues to date have been research
support payments under the Kyowa Hakko Agreement. The Company's right to receive
research support payments under the Kyowa Hakko Agreement is scheduled to expire
in April 1998. In addition, the Company is unable to determine at this time the
level of the revenue to be received from the sale of diagnostic products, if
any, and does not expect to receive significant revenues from the sale of the
research-use-only kits. The Company's ability to achieve profitability is
dependent on its ability, alone or with others, to select
27
29
successfully therapeutic compounds for development, obtain the required
regulatory consents and manufacture and market any resulting products. There can
be no assurance when or if the Company will receive revenues from product sales
or achieve profitability. Failure to generate significant additional revenues
and achieve profitability could impair the Company's ability to sustain
operations.
SUBSTANTIAL COMPETITION; RISK OF TECHNOLOGICAL OBSOLESCENCE
The pharmaceutical and biopharmaceutical industries are intensely
competitive. The Company believes that certain pharmaceutical and
biopharmaceutical companies as well as certain research organizations currently
engage in or have in the past engaged in efforts related to the biological
mechanisms of cell aging and cell immortality, including the study of telomeres
and telomerase. In addition, other products and therapies that could compete
directly with the products that the Company is seeking to develop and market
currently exist or are being developed by pharmaceutical and biopharmaceutical
companies, and by academic and other research organizations. Many companies are
also developing alternative therapies to treat cancer and, in this regard, are
competitive with the Company. The pharmaceutical companies developing and
marketing such competing products have significantly greater financial resources
and expertise in research and development, manufacturing, preclinical and
clinical testing, obtaining regulatory approvals and marketing than the Company.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies.
Academic institutions, government agencies and other public and private research
organizations may also conduct research, seek patent protection and establish
collaborative arrangements for research, clinical development and marketing of
products similar to those of the Company. These companies and institutions
compete with the Company in recruiting and retaining qualified scientific and
management personnel as well as in acquiring technologies complementary to the
Company's programs. There is also competition for access to libraries of
compounds to use for screening. Any inability of the Company to secure and
maintain access to sufficiently broad libraries of compounds for screening
potential targets would have a material adverse effect on the Company. In
addition to the above factors, Geron will face competition with respect to
product efficacy and safety, the timing and scope of regulatory consents,
availability of resources, reimbursement coverage, price and patent position,
including potentially dominant patent positions of others. There can be no
assurance that competitors will not develop more effective or more affordable
products, or achieve earlier patent protection or product commercialization than
the Company or that such products will not render the Company's products
obsolete.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the principal members of its scientific
and management staff, the loss of whose services might significantly delay or
prevent the achievement of research, development or business objectives. In
addition, the Company relies on consultants and advisors, including the members
of its Scientific Advisory Board, to assist the Company in formulating its
research and development strategy. Retaining and attracting qualified scientific
and management personnel, consultants and advisors is critical to the Company's
success. The Company faces competition for qualified individuals from numerous
pharmaceutical, biopharmaceutical and biotechnology companies, as well as
academic and other research institutions. There can be no assurance that the
Company will be able to attract and retain such individuals on acceptable terms,
if at all, and the failure to do so would have a material adverse effect on the
Company.
ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF PRIMORDIAL STEM CELL THERAPIES
The Company's Primordial Stem Cell Therapies program may involve the use of
PS cells that would be derived from human embryonic tissue, and therefore may
raise certain ethical, legal and social issues regarding the appropriate
utilization of this tissue. The use of embryonic tissue in scientific research
is an issue of national interest. Many research institutions, including certain
of the Company's scientific collaborators, have adopted policies regarding the
ethical use of these types of human tissue. These policies may have the effect
of limiting the scope of research conducted in this area, resulting in reduced
scientific progress. In addition, the United States government and its agencies
currently do not fund research which involves the use of such tissue and may in
the future regulate or otherwise restrict its use. The inability of the Company
to conduct research
28
30
on these cells due to such factors as government regulation or otherwise could
have a material adverse effect on the program. In the event the Company's
research related to PS cell therapies becomes the subject of adverse commentary
or publicity, the Company's name and goodwill could be adversely affected.
GOVERNMENT REGULATION
The preclinical testing and clinical trials of any products developed by
the Company or its collaborative partners and the manufacturing, labeling, sale,
distribution, marketing, advertising and promotion of any new products resulting
therefrom are subject to regulation by federal, state and local governmental
authorities in the United States, the principal one of which is the FDA, and by
similar agencies in other countries in which products developed by the Company
or its collaborative partners may be tested and marketed (each of such federal,
state, local and other authorities and agencies is referred to herein as a
"Regulatory Agency"). Any product developed by the Company or its collaborative
partners must receive all relevant Regulatory Agency approvals or clearances, if
any, before it may be marketed in a particular country. The regulatory process,
which includes extensive preclinical testing and clinical trials of each product
in order to establish its safety and efficacy, is uncertain, can take many years
and requires the expenditure of substantial resources. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations
which could delay, limit or prevent Regulatory Agency approval or clearance. In
addition, delays or rejections may be encountered based upon changes in
Regulatory Agency policy during the period of product development and/or the
period of review of any application for Regulatory Agency approval or clearance
for a product. Delays in obtaining Regulatory Agency approvals or clearances
could adversely affect the marketing of any products developed by the Company or
its collaborative partners, impose costly procedures upon the Company's and its
collaborative partners' activities, diminish any competitive advantages that the
Company or its collaborative partners may attain and adversely affect the
Company's ability to receive royalties and generate revenues and profits. There
can be no assurance that, even after such time and expenditures, any required
Regulatory Agency approvals or clearances will be obtained for any products
developed by or in collaboration with the Company. Moreover, if Regulatory
Agency approval or clearance for a new product is obtained, such approval or
clearance may entail limitations on the indicated uses for which it may be
marketed that could limit the potential market for any such product.
Furthermore, approved products and their manufacturers are subject to continual
review, and discovery of previously unknown problems with a product or its
manufacturer may result in restrictions on such product or manufacturer,
including withdrawal of the product from the market. In general, failure to
comply with FDA requirements can result in severe civil and criminal penalties,
including but not limited to recall or seizure of product, injunction against
manufacture, distribution, sales and marketing and criminal prosecution.
NO ASSURANCE OF MARKET ACCEPTANCE; UNCERTAINTY OF PHARMACEUTICAL PRICING; IMPACT
OF HEALTH CARE REFORM MEASURES
There can be no assurance that any products successfully developed by the
Company or its collaborative partners, if approved for marketing, will achieve
market acceptance. The products which the Company is attempting to develop will
compete with a number of traditional drugs and therapies manufactured and
marketed by major pharmaceutical companies, as well as new products currently
under development by such companies and others. The degree of market acceptance
of any products developed by the Company will depend on a number of factors,
including the establishment and demonstration in the medical community of the
clinical efficacy and safety of the Company's product candidates, their
potential advantage over alternative treatment methods and reimbursement
policies of government and third-party payors. There is no assurance that
physicians, patients or the medical community in general will accept and utilize
any products that may be developed by the Company or its collaborative partners.
In both domestic and foreign markets, sales of the Company's products, if
any, will depend in part on the availability of reimbursement from third-party
payors such as government health administration authorities, private health
insurers, health maintenance organizations, pharmacy benefit management
companies and other organizations. Both federal and state governments in the
United States and foreign governments continue to propose and pass legislation
designed to contain or reduce the cost of health care through various
29
31
means. Legislation and regulations affecting the pricing of pharmaceuticals and
other medical products may change or be adopted before any of the Company's
potential products are approved for marketing. Cost control initiatives could
decrease the price that the Company receives for any product it may develop in
the future and have a material adverse effect on the Company. In addition,
third-party payors are increasingly challenging the price and cost-effectiveness
of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, including
pharmaceuticals. There can be no assurance that the Company's potential products
will be considered cost effective or that adequate third-party reimbursement
will be available to enable Geron to maintain price levels sufficient to realize
an appropriate return on its investment in product development. In any such
event, the Company may be materially adversely affected.
REGULATIONS RELATING TO THE ENVIRONMENT AND HAZARDOUS MATERIALS
The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive compounds. As a
consequence, the Company is subject to numerous environmental and safety laws
and regulations. There can be no assurance that the Company will not be required
to incur significant costs to comply with current or future environmental laws
and regulations or that the Company will not be adversely affected by the cost
of compliance with such laws and regulations. Although the Company believes that
its safety procedures for using, handling, storing and disposing of such
materials comply with the standards prescribed by state and federal regulations,
the risk of accidental contamination or injury from these materials cannot be
eliminated. In the event of such an accident, the Company's use of these
materials could be curtailed by state or federal authorities, the Company could
be held liable for any damages that result and any such liability could have a
material adverse effect on the Company.
POTENTIAL PRODUCT LIABILITY CLAIMS; ABSENCE OF INSURANCE
Although the Company believes it does not currently have any exposure to
product liability claims, the Company's future business will expose it to
potential product liability risks that are inherent in the testing,
manufacturing and marketing of human therapeutic and diagnostic products. The
Company currently has no clinical trial liability insurance and there can be no
assurance that it will be able to obtain and maintain such insurance for any of
its clinical trials. In addition, there can be no assurance that the Company
will be able to obtain or maintain product liability insurance in the future on
acceptable terms or with adequate coverage against potential liabilities.
CONTROL BY MANAGEMENT AND CURRENT STOCKHOLDERS
Executive officers and directors of the Company, together with entities
affiliated with them, own or control approximately 44% of the outstanding shares
of Common Stock and are able to influence significantly the election of the
Company's Board of Directors and other corporate actions requiring stockholder
approval, as well as significantly influence the direction and policies of the
Company.
POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock in the public market could
adversely affect the market price of the Common Stock. The Company has
outstanding approximately 10,200,000 shares of Common Stock. Kyowa Hakko has
agreed not to sell the 312,500 shares of Common Stock held by it until July 30,
1997 and Pharmacia Upjohn S.p.A. has agreed not to sell the 99,805 shares held
by it until June 20, 1997 or such later time that may be set forth in the
definitive agreements for the proposed collaboration, after which time such
shares will be freely transferable in accordance with Regulation S promulgated
under the Securities Act of 1933, as amended ("the Securities Act"). In February
1997, the SEC adopted amendments to Rule 144 and Rule 701 of the Securities Act
to shorten the holding period required for shares issued in reliance on
exceptions from the Securities Act ("Restricted Shares"), which amendments will
become effective on April 29, 1997. As a result of the amendments, as of April
29, 1997, the Company's outstanding Restricted Shares will be eligible for sale
in the public market subject to Rule 144 and Rule 701 under the
30
32
Securities Act, except for those shares sold to Kyowa Hakko and Pharmacia
Upjohn. Certain holders of shares of Common Stock and securities convertible
into or exercisable for shares of Common Stock have certain registration rights
under a registration rights agreement among such holders and the Company.
POSSIBLE VOLATILITY OF STOCK PRICE
There has been a history of significant volatility in the market prices for
shares of biopharmaceutical companies, and it is likely that the market price of
the Common Stock will be similarly volatile. Prices for the Common Stock may be
influenced by many factors, including the depth of the market for the Common
Stock, investor perception of the Company, fluctuations in the Company's
operating results and market conditions relating to the biopharmaceutical and
pharmaceutical industries. In addition, the market price of the Common Stock may
be influenced by announcements of technological innovations, new commercial
products or clinical progress or the lack thereof by the Company, its
collaborative partners or its competitors. In addition, announcements concerning
regulatory developments, developments with respect to proprietary rights and the
Company's collaborations as well as other factors could also have a significant
impact on the Company's business and the market price of the Common Stock.
Finally, future sales of substantial amounts of Common Stock by existing
stockholders could also adversely affect the prevailing price of the Common
Stock.
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS; CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue up to 3,000,000
shares of undesignated Preferred Stock and to determine the rights, preferences,
privileges and restrictions of such shares without further vote or action by the
Company's stockholders. The rights of the holders of 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 could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. In addition,
certain provisions of the Company's charter documents, including the inability
of stockholders to take actions by written consent and the staggered election of
the Company's Board of Directors, and certain provisions of Delaware law could
delay or make difficult a merger, tender offer or proxy contest involving the
Company.
31
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Geron Corporation
We have audited the accompanying balance sheets of Geron Corporation at
December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Geron Corporation at
December 31, 1996 and 1995 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
February 21, 1997
32
34
GERON CORPORATION
BALANCE SHEETS
DECEMBER 31,
---------------------
1996 1995
-------- --------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 12,357 $ 12,542
Short-term investments............................................... 11,912 3,011
Other current assets................................................. 752 349
-------- --------
Total current assets......................................... 25,021 15,902
Property and equipment, net............................................ 2,968 2,746
Notes receivable from officers......................................... 624 817
Deposits and other assets.............................................. 175 284
-------- --------
$ 28,788 $ 19,749
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 794 $ 500
Accrued compensation................................................. 790 663
Accrued liabilities.................................................. 790 295
Deferred revenue..................................................... -- 1,335
Current portion of capital lease obligations and equipment loans..... 1,179 994
-------- --------
Total current liabilities.................................... 3,553 3,787
Noncurrent portion of capital lease obligations and equipment loans.... 1,644 1,654
Commitments
Stockholders' equity:
Preferred stock -- issuable in series, $0.001 par value; 3,000,000
shares authorized (6,410,759 in 1995); 6,071,390 shares issued and
outstanding in 1995............................................... -- 6
Common stock, $0.001 par value; 25,000,000 shares authorized
(10,294,117 in 1995); 10,040,415 shares and 929,089 shares issued
and outstanding in 1996 and 1995, respectively.................... 10 1
Additional paid-in capital........................................... 61,174 40,205
Notes receivable from stockholders................................... (119) (131)
Deferred compensation................................................ (1,003) --
Accumulated deficit.................................................. (36,471) (25,773)
-------- --------
Total stockholders' equity................................... 23,591 14,308
-------- --------
$ 28,788 $ 19,749
======== ========
See accompanying notes.
33
35
GERON CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
Revenues from collaborative agreement with related
party................................................ $ 5,235 $ 5,490 $ --
License fees and royalties............................. 58 -- --
Operating expenses:
Research and development............................. 14,260 11,321 8,099
General and administrative........................... 3,161 2,888 2,397
--------- --------- ---------
Total operating expenses..................... 17,421 14,209 10,496
--------- --------- ---------
Loss from operations................................... (12,128) (8,719) (10,496)
Interest and other income.............................. 1,826 919 638
Interest and other expense............................. (385) (399) (320)
--------- --------- ---------
Net loss............................................... $ (10,687) $ (8,199) $ (10,178)
========= ========= =========
Net loss per share..................................... $ (2.07) $ (5.25) $ (7.91)
========= ========= =========
Shares used in computing net loss per share............ 5,151,113 1,562,937 1,286,211
========= ========= =========
See accompanying notes.
35
36
GERON CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
NOTES
RECEIVABLE TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL FROM DEFERRED ACCUMU- STOCK-
------------------- ------------------- PAID-IN STOCK- COMPENSA- LATED HOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL HOLDERS TION DEFICIT EQUITY
---------- ------ ---------- ------ ---------- ---------- --------- -------- -------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Balances at December 31,
1993..................... 3,664,500 $ 3 520,546 $ 1 $ 18,694 $ -- $ -- $(7,405) $11,293
Issuance of preferred
stock, net of issuance
costs of $64........... 1,547,911 2 -- -- 12,565 -- -- -- 12,567
Issuance of common stock
upon exercise of
options................ -- -- 121,616 -- 66 (38) -- -- 28
Net change in unrealized
gain (loss) on
available-for-sale
securities............. -- -- -- -- -- -- -- (21) (21)
Net loss................. -- -- -- -- -- -- -- (10,178) (10,178)
---------- ------ ---------- ------ ---------- ---------- --------- -------- -------
Balances at December 31,
1994..................... 5,212,411 5 642,162 1 31,325 (38) -- (17,604) 13,689
Issuance of preferred
stock, net of issuance
costs of $28........... 858,979 1 -- -- 8,732 -- -- -- 8,733
Issuance of common stock
to certain research
institutions........... -- -- 32,352 -- 26 -- -- -- 26
Issuance of common stock
upon exercise of
options, net........... -- -- 254,575 -- 122 (93) -- -- 29
Net change in unrealized
gain (loss) on
available-for-sale
securities............. -- -- -- -- -- -- -- 30 30
Net loss................. -- -- -- -- -- -- -- (8,199) (8,199)
---------- ------ ---------- ------ ---------- ---------- --------- -------- -------
Balances at December 31,
1995..................... 6,071,390 6 929,089 1 40,205 (131) -- (25,773) 14,308
Issuance of preferred
stock, net of issuance
costs of $13........... 294,844 -- -- -- 2,988 -- -- -- 2,988
Issuance of common stock
upon exercise of
options, net........... -- -- 208,606 -- 190 12 -- -- 202
Issuance of common stock
upon exercise of
warrants............... -- -- 12,055 -- 51 -- -- -- 51
Issuance of preferred and
common stock, net of
issuance costs of
$2,050, in connection
with the Company's
Initial Public Offering
("IPO")................ 211,931 1 2,312,500 2 16,448 -- -- -- 16,451
Conversion of preferred
stock to common stock
in connection with the
Company's IPO.......... (6,578,165) (7) 6,578,165 7 -- -- -- -- --
Deferred compensation
related to certain
options and stock
purchase rights granted
to employees and
consultants............ -- -- -- -- 1,292 -- (1,292) -- --
Amortization of deferred
compensation related to
certain options and
stock purchase rights
granted to employees
and consultants........ -- -- -- -- -- -- 289 -- 289
Net change in unrealized
gain (loss) on
available-for-sale
securities............. -- -- -- -- -- -- -- (11) (11)
Net loss................. -- -- -- -- -- -- -- (10,687) (10,687)
---------- ------ ---------- ------ ---------- ---------- --------- -------- -------
Balances at December 31,
1996..................... -- $ -- 10,040,415 $ 10 $ 61,174 $ (119) $(1,003) $(36,471) $23,591
========= ======= ========= ======= ========= ========= ========== ======== =======
See accompanying notes.
36
37
GERON CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
-------- ------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(10,687) $(8,199) $(10,178)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 947 780 558
Issuance of common and preferred stock in exchange for
in-process technology, services rendered and research
agreements............................................. 22 82 --
Deferred compensation amortization........................ 289 -- --
Changes in assets and liabilities:
Other current assets................................... (403) (118) (164)
Notes receivable from officers......................... 193 (544) (18)
Deposits and other assets.............................. 109 (13) 7
Accounts payable....................................... 294 46 (627)
Accrued compensation................................... 127 332 339
Accrued liabilities.................................... 495 (19) 19
Deferred revenue....................................... (1,335) 1,335 --
-------- ------- --------
Net cash used in operating activities....................... (9,949) (6,318) (10,064)
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................................ (1,121) (482) (78)
Purchases of securities available-for-sale.................. (24,497) (7,579) (5,975)
Proceeds from sales of securities available-for-sale........ -- 500 8,645
Proceeds from maturities of securities available-for-sale... 15,585 11,490 --
-------- ------- --------
Net cash (used in) provided by investing activities......... (10,033) 3,929 2,592
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from equipment loans............................... 1,171 471 35
Payments of obligations under capital leases and equipment
loans..................................................... (1,044) (769) (483)
Proceeds from issuance of preferred stock................... 2,966 8,681 12,567
Proceeds from issuance of common stock...................... 16,704 25 28
-------- ------- --------
Net cash provided by financing activities................... 19,797 8,408 12,147
-------- ------- --------
Net (decrease) increase in cash and cash equivalents........ (185) 6,019 4,675
Cash and cash equivalents at beginning of period............ 12,542 6,523 1,848
-------- ------- --------
Cash and cash equivalents at end of period.................. $ 12,357 $12,542 $ 6,523
======== ======= ========
See accompanying notes.
37
38
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Geron Corporation ("Geron" or the "Company") was incorporated in the State
of Delaware on November 29, 1990. Geron is a biopharmaceutical company
exclusively focused on discovering and developing therapeutic and diagnostic
products based upon common biological mechanisms underlying cancer and other
age-related diseases. Principal activities to date have included obtaining
financing, recruiting management and technical personnel, securing operating
facilities and conducting research and development. The Company has no
therapeutic products currently available for sale and does not expect to have
any therapeutic products commercially available for sale for several years, if
at all. These factors indicate that the Company's ability to continue its
research and development activities is dependent upon the ability of management
to obtain additional financing as required.
Net Loss Per Share
Except as noted below, net loss per share is computed using the weighted
average number of shares of common stock outstanding. Common equivalent shares
from stock options and warrants are excluded from the computation as their
effect is antidilutive, except that, pursuant to the Securities and Exchange
Commission Staff Accounting Bulletins, common and common equivalent shares
issued at prices substantially below the public offering price during the
12-month period prior to the initial filing of the initial public offering have
been included in the calculation as if they were outstanding for all periods
through July 30, 1996 (using the treasury stock method and the initial public
offering price of $8.00 per share).
As described above, the antidilutive effect of certain stock options is
included in the calculation of loss per share for all periods through July 30,
1996, but is excluded from the calculation after that date. Additionally, the
effect of common shares issued upon conversion of preferred stock is included in
the loss per share calculation for all periods subsequent to the date of
conversion. The following supplemental per share data is provided to show the
calculation on a consistent basis for all periods presented. It has been
computed as described above, including the retroactive effect from the date of
issuance to the conversion of convertible preferred stock which automatically
converted to common shares upon closing of the Company's initial public
offering.
Supplemental net loss per share is as follows:
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
Supplemental net loss per share........... $ (1.21) $ (1.20) $ (1.67)
========= ========= =========
Shares used in computing supplemental net
loss per share.......................... 8,858,955 6,846,876 6,111,644
========= ========= =========
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Related party revenue consists of revenue from one collaboration agreement.
The Company recognizes revenue as the related research and development costs are
incurred. Milestone fees are recognized upon completion of specified milestones
according to contract terms. Deferred revenue represents the portion of research
payments received which have not been earned. Nonrefundable signing or licensing
fees that are not
38
39
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
dependent on future performance under collaborative agreements are recognized as
revenue when received. Royalties are generally recognized upon receipt.
Depreciation and Amortization
The Company records property and equipment at cost and calculates
depreciation using the straight-line method over the estimated useful lives of
the assets, generally four years. Furniture and equipment leased under capital
leases is amortized over the useful lives of the assets. Leasehold improvements
are amortized over the remaining term of the lease.
2. FINANCIAL INSTRUMENTS
Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
places its cash and cash equivalents in commercial paper, master notes, and
repurchase agreements with U.S. financial institutions. The Company's short-term
investments include corporate notes and U.S. Government securities with
maturities ranging from 3 to 12 months.
The Company classifies its marketable equity and debt securities as
available-for-sale. Available-for-sale securities are recorded at fair value
with unrealized gains and losses reported in the accumulated deficit. Fair
values for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments. Realized gains and losses are
included in interest and other income and are derived using the specific
identification method for determining the cost of securities sold and have been
immaterial to date. Declines in market value judged other-than-temporary result
in a charge to interest income. Dividend and interest income are recognized when
earned.
The following is a summary of available-for-sale securities at December 31,
1996 and 1995:
ESTIMATED FAIR
VALUE
-------------------
1996 1995
------- -------
(IN THOUSANDS)
Cash and cash equivalents:
Money market fund...................................... $ 5,453 $ 9,674
Commercial paper....................................... 2,979 --
Corporate master notes and repurchase agreements....... 2,194 2,115
------- -------
$10,626 $11,789
======= =======
Short-term investments:
U.S. Government bonds, U.S. Treasury bills, notes and
strips.............................................. $ -- $ 1,001
Corporate notes........................................ 11,912 2,010
------- -------
$11,912 $ 3,011
======= =======
As of December 31, 1996 and 1995, the difference between the fair value and
the amortized cost of available-for-sale securities was immaterial. As of
December 31, 1996 and 1995, the average portfolio duration was approximately
three months and the contractual maturity of any single investment did not
exceed one year.
39
40
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Notes Receivable from Officers
The Company presently holds notes receivable of $624,000 ($817,000 in 1995)
from officers of the Company. These notes, which in general bear no interest,
are collateralized by certain personal assets of the officers and are generally
due at December 31, 1998. The notes have certain amortization schedules for
periodic payments with the final payment to be made at the end of 1998.
Other Fair Value Disclosures
At December 31, 1996, the fair value of the notes receivable from officers
is $515,000. The fair value was estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms of
borrowers of similar credit quality.
The fair value of the equipment loans approximates the carrying value of
$1,726,000. The fair value was estimated using discounted cash flow analyses,
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
3. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
DECEMBER 31,
-------------------
1996 1995
------- -------
(IN THOUSANDS)
Furniture and equipment.................................. $ 1,249 $ 907
Lab equipment............................................ 2,763 2,445
Leasehold improvements................................... 1,424 915
------- -------
5,436 4,267
Less accumulated depreciation and amortization........... (2,468) (1,521)
------- -------
$ 2,968 $ 2,746
======= =======
Property and equipment at December 31, 1996 and 1995 includes assets under
capitalized leases of approximately $2,767,000 and $2,719,000, respectively.
Accumulated amortization related to leased assets was approximately $1,146,000
and $987,000 at December 31, 1996 and 1995, respectively.
4. CAPITAL LEASE OBLIGATIONS AND EQUIPMENT LOANS
The Company has lease and equipment loan credit lines available of
$2,000,000 of which approximately $1,035,000 was unused and available at
December 31, 1996. The drawdown period under the lease and equipment loan credit
lines expires on April 30, 1997. The obligations under the equipment loans are
secured by the equipment financed, bear interest at fixed rates of approximately
13% and are due in monthly installments through December 2000. Under the terms
of the master lease agreement, ownership of the leased equipment will transfer
to the Company at the end of the lease term.
40
41
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under capital leases and principal payments
on equipment loans are as follows:
CAPITAL EQUIPMENT
LEASES LOANS
------ ---------
(IN THOUSANDS)
Years ending December 31:
1997................................................... $ 638 $ 663
1998................................................... 492 432
1999................................................... 138 377
2000................................................... 7 254
------ ------
Total minimum lease and principal payments,
respectively........................................... 1,275 $ 1,726
======
Amount representing interest............................. (178)
------
Present value of future lease payments................... 1,097
Current portion of capital lease obligations............. (516)
------
Noncurrent portion of capital lease obligations.......... $ 581
======
5. OPERATING LEASE COMMITMENTS
On March 25, 1996, the Company leased two facilities under two five-year
noncancelable operating leases. Future minimum payments under noncancelable
operating leases are approximately $593,000 in 1997, $617,000 in 1998, $642,000
in 1999, $668,000 in 2000 and $694,000 in 2001.
The Company has the option to extend the term of both leases for two
additional periods of two and one half years each. Rent expense under operating
leases was approximately $298,000 and $273,000 for the years ended December 31,
1996 and 1995, respectively.
In December 1996, the Company entered into a sublease agreement with a
non-affiliated company for approximately 12,350 square feet of office space
under which the Company will receive a monthly rental fee of $18,525. The
sublease for such office space expires in March 1998, with an option to extend
for 90 days.
6. STOCKHOLDERS' EQUITY
Capital Stock
On July 30, 1996, the Company completed an initial public offering of
2,000,000 shares of Common Stock at $8.00 per share. In addition to and in
conjunction with the offering, Kyowa Hakko Kogyo Co., Ltd. purchased 312,500
shares of Common Stock at $8.00 per share. The total net proceeds from the
initial public offering and the Kyowa Hakko stock purchase were approximately
$16.7 million. Concurrent with the closing of the offering, all outstanding
shares of Preferred Stock converted to Common Stock at various ratios.
Additional shares of Preferred Stock were issued upon conversion to Common Stock
in accordance with certain anti-dilution provisions.
In July 1996, the Company effected a 1-for-3.4 reverse stock split. All
share and per share amounts have been adjusted to reflect this stock split
retroactively. In connection with this stock split, the Company also effected a
change in the authorized number of shares of Preferred Stock.
Warrants
In February 1994, in conjunction with a research agreement, the Company
issued a warrant to purchase 47,058 shares of Common Stock at $7.65 per share.
The warrant is exercisable through February 2004.
41
42
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In June 1994, in conjunction with the Series C Preferred Stock financing,
the Company issued warrants to purchase 9,190 shares of Common Stock at $9.38
per share. The warrants are exercisable through June 1999.
1992 Stock Option Plan
In July 1996, the Company amended the 1992 Stock Option Plan ("the Plan")
to increase the number of shares available for issuance thereunder and to comply
with certain requirements of Rule 16b-3 of the Securities and Exchange Act of
1934, as amended, and the Internal Revenue Code of 1986, as amended. The options
granted under this Plan may be either incentive stock options or nonstatutory
stock options. As of December 31, 1996, the Company had reserved 2,554,411
shares of Common Stock for issuance under the Plan. Options granted under this
Plan expire no later than ten years from the date of grant. For incentive stock
options and nonstatutory stock options, the option price shall be at least 100%
and 85%, respectively, of the fair market value on the date of grant. If, at the
time the Company grants an option, and the optionee directly or by attribution
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, the option price shall be at least 110% of the
fair market value and shall not be exercisable more than five years after the
date of grant.
Options to purchase shares of Common Stock generally vest over a period of
five years from the date of the option grant, with one-tenth vesting after six
months and the remainder vesting ratably over the following 54 months. Options
under the plan are generally immediately exercisable; however, any unvested
shares issued are subject to repurchase rights whereby the Company has the
option to repurchase any unvested shares upon termination of employment at the
original exercise price. During 1996, the Company granted options to purchase
841,068 shares of Common Stock, of which 18,207 shares with a weighted-average
fair value of $4.42, were exercised and are subject to repurchase. In 1996 and
1995, the Company repurchased 3,970 and 5,147 shares, respectively, in
accordance with these repurchase rights. As of December 31, 1996, 115,397 shares
remained subject to repurchase. At December 31, 1996, 1,996,180 shares of Common
Stock are reserved for issuances upon exercise of options currently outstanding
and options available for grant under the 1992 Stock Option Plan and exercise of
warrants.
Under the Plan, employees may exercise options in exchange for a note
receivable to the Company. As of December 31, 1996, notes receivable from
stockholders of $119,000 were outstanding. These notes generally bear interest
at 6% and are due and payable in one lump sum on the earlier of 30 days after
the date the maker transfers for value any of the shares of the Company's Common
Stock purchased with the note, or three years from the date of the note.
42
43
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Aggregate option activity is as follows:
OUTSTANDING OPTIONS
SHARES ----------------------------------------------
AVAILABLE NUMBER OF PRICE PER WEIGHTED AVERAGE
FOR GRANT SHARES SHARE EXERCISE PRICE
--------- --------- ----------- ----------------
Balance at December 31, 1993............ 128,724 475,715 $0.34-$0.78 $ 0.46
Additional shares authorized.......... 1,098,529 -- $ -- $ --
Options granted....................... (519,682) 519,682 $0.78-$0.82 $ 0.81
Options exercised..................... -- (121,616) $0.34-$0.78 $ 0.55
Options canceled...................... 11,184 (11,184) $0.34-$0.78 $ 0.37
--------- --------- -----
Balance at December 31, 1994............ 718,755 862,597 $0.34-$0.82 $ 0.66
Options granted....................... (492,908) 492,908 $ 0.82 $ 0.82
Options exercised..................... -- (252,370) $0.34-$0.82 $ 0.48
Options canceled...................... 35,486 (35,486) $0.34-$0.82 $ 0.71
--------- --------- -----
Balance at December 31, 1995............ 261,333 1,067,649 $0.34-$0.82 $ 0.77
Additional shares authorized.......... 823,529 -- $ -- $ --
Options granted....................... (841,068) 841,068 $1.02-$8.75 $ 4.09
Options exercised..................... -- (212,579) $0.34-$8.00 $ 0.90
Options canceled...................... 137,237 (137,237) $0.34-$8.00 $ 1.79
--------- --------- -----
Balance at December 31, 1996............ 381,031 1,558,901 $0.34-$8.75 $ 2.45
========= ========= =====
OPTIONS OUTSTANDING/EXERCISABLE
-------------------------------------------------
WEIGHTED AVERAGE
WEIGHTED REMAINING
EXERCISE PRICE AVERAGE CONTRACTUAL LIFE
RANGE NUMBER EXERCISE PRICE (IN YEARS)
- -------------- --------- -------------- ----------------
$ 0.34-$0.82 790,647 $ 0.78 7.77
$ 1.02-$2.04 489,953 $ 2.02 9.33
$ 5.95-$8.75 278,301 $ 7.97 9.63
--------- ----- ----
$ 0.34-$8.75 1,558,901 $ 2.45 8.59
========= ===== ====
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and the related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Financial Accounting Standards Board Statement No. 123 ("SFAS 123"), "Accounting
for Stock Based Compensation," requires use of option pricing valuation models
that were not developed for use in valuing employee stock options. Under APB 25,
the Company generally recognizes no compensation expense with respect to such
awards.
Pro forma information regarding net loss and net loss per share is required
by SFAS 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method prescribed by the Statement.
The fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates ranging from 5.68% to 6.70% and 5.34% to
7.90% for 1996 and 1995, respectively; a dividend yield of 0.0%; a volatility
factor of the expected market price of the Company's Common Stock of 0.7; and a
weighted average expected life of the options of 5 years. Options granted prior
to the Company's initial public offering on July 30, 1996 have a volatility
factor of 0.0.
The Company has recorded deferred compensation of approximately $1,300,000
for the difference between the grant price and the deemed fair value of certain
of the Company's Common Stock options granted in 1996. This amount is being
amortized over the vesting period of the individual options, generally a
43
44
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
60-month period. Deferred compensation expense recognized in 1996 totaled
$289,000. The weighted average fair value of options granted during 1996 with an
exercise price below the deemed fair value of the Company's Common Stock on the
date of grant was $3.69. The weighted average fair value of options granted
during 1996 with an exercise price equal to the deemed fair value of the
Company's Common Stock on the date of grant was $8.72.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options using the
straight-line method. The Company's pro forma information follows:
YEARS ENDED
DECEMBER 31,
--------------------
1996 1995
-------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
Net loss as reported.................................... $(10,687) $(8,199)
Pro forma net loss...................................... $(11,142) $(8,214)
Net loss per share as reported.......................... $ (2.07) $ (5.25)
Pro forma net loss per share............................ $ (2.16) $ (5.26)
The effects of applying SFAS 123 for pro forma disclosures are not likely
to be representative of the effects on reported net loss for future years. Pro
forma net loss for the year ended December 31, 1996 reflects expense for two
years' vesting while pro forma data for 1997 will reflect compensation expense
for three years' vesting of outstanding stock options.
Employee Stock Purchase Plan
In July 1996, the Company adopted the 1996 Employee Stock Purchase Plan
("Purchase Plan") and reserved an aggregate of 300,000 shares of Common Stock
for issuance thereunder. Under the terms of the Purchase Plan, employees can
choose to have up to 10% of their annual salary withheld to purchase the
Company's Common Stock. The purchase price of the stock is 85% of the lower of
the subscription date fair market value and the purchase date fair market value.
Approximately 50% of the eligible employees have participated in the Purchase
Plan. The Company does not recognize compensation cost related to employee
purchase rights under the Plan. No shares have been issued under the Purchase
Plan as of December 31, 1996. To comply with the pro forma reporting
requirements of SFAS 123, compensation cost is estimated for the fair value of
the employees' purchase rights using the Black-Scholes model with the following
weighted average assumptions for those rights granted in 1996: risk-free
interest rate of 5.64%; dividend yield of 0.0%; a volatility factor of the
expected market price of the Company's Common Stock of 0.7; and an expected life
of the purchase right of 6 months. Based upon these assumptions, the
compensation cost estimated for the fair value of the employees' purchase rights
was immaterial and therefore not included in the pro forma information.
Directors' Option Plan
In July 1996, the Company adopted the 1996 Directors' Stock Option Plan and
reserved an aggregate of 250,000 shares of Common Stock for issuance thereunder.
No shares have been issued under the Directors' Option Plan as of December 31,
1996.
7. COLLABORATIVE AGREEMENT
In April 1995, the Company entered into a license and research
collaboration agreement with a pharmaceutical company. Under the agreement, the
Company granted an exclusive license to the pharmaceutical company to make, use
and sell products based on telomerase inhibition technology within a specified
44
45
GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
territory in exchange for royalty payments, payments for certain research and
development activities and payments due on achieving specified development
milestones. Costs associated with research and development activities
attributable to this agreement approximate revenue recognized. Under this
agreement, revenues of approximately $5,200,000 and $5,500,000 and none were
recognized in 1996, 1995 and 1994, respectively. No milestone payments have been
received or earned to date.
8. INCOME TAXES
As of December 31, 1996, the Company had federal and State net operating
loss carryforwards of approximately $33,900,000 and $4,300,000, respectively.
The federal net operating loss carryforwards will expire at various dates
beginning in 2006 through 2011, if not utilized. The State net operating loss
carryforwards will expire at various dates beginning in 1997 through 2001.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets as of December
31 are as follows:
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
Net operating loss carryforwards.............. $11,800 $ 8,800 $ 5,800
Research credits (expiring 2006 -- 2011)...... 1,700 1,200 700
Capitalized research and development.......... 800 500 400
Other -- net.................................. 600 300 100
------- ------- -------
Total deferred tax assets................... 14,900 10,800 7,000
Valuation allowance for deferred tax assets... (14,900) (10,800) (7,000)
------- ------- -------
Net deferred tax assets....................... $ -- $ -- $ --
======= ======= =======
Because of the Company's history of losses, the net deferred tax asset has
been fully offset by a valuation allowance. The valuation allowance increased by
approximately $3,800,000 and $4,000,000 during the years ended December 31, 1995
and 1994, respectively.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change provisions of the
Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
9. SUBSEQUENT EVENTS
In December 1996, the Company signed a Heads of Agreement (non-binding
letter of intent) with an international pharmaceutical company. In conjunction
with the Heads of Agreement, the companies also signed a noncancelable Stock
Purchase Agreement pursuant to which the partner purchased $2,000,000 of Geron
Common Stock at a premium in January 1997.
10. STATEMENT OF CASH FLOWS DATA
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ---- ----
(IN THOUSANDS)
SUPPLEMENTARY INFORMATION
Interest paid...................................... $ 337 $359 $290
SUPPLEMENTARY INVESTING AND FINANCING ACTIVITIES
Equipment acquired under capital leases............ $ 48 $661 $988
Notes receivable from stockholders................. $ (12) $ 93 $ 38
Deferred compensation related to options granted... $(1,292) $ -- $ --
Net unrealized gain (loss) on available-for-sale
securities....................................... $ (11) $ 30 $(21)
45
46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS
The information required by this Item concerning the Company's directors is
incorporated by reference from the sections captioned "Proposal 1: Election of
Directors" contained in the Company's Definitive Proxy Statement related to the
Annual Meeting of Shareholders to be held May 23, 1997, to be filed by the
Company with the Securities and Exchange Commission (the "Proxy Statement").
IDENTIFICATION OF EXECUTIVE OFFICERS
The information required by this Item concerning the Company's executive
officers is set forth in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
section captioned "Executive Compensation" contained in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
section captioned "Certain Transactions" and "Executive Compensation" contained
in the Proxy Statement.
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS.
Included in Part II of this Report:
PAGE IN
FORM 10-K
---------
Report of Ernst & Young LLP, Independent Auditors..................... 32
Balance Sheets -- December 31, 1996 and 1995.......................... 33
Statements of Operations -- Years ended December 31, 1996, 1995 and
1994................................................................ 34
Statement of Stockholders' Equity -- Years ended December 31, 1996,
1995 and 1994....................................................... 35
Statements of Cash Flows -- Years ended December 31, 1996, 1995 and
1994................................................................ 36
Notes to Financial Statements......................................... 37
46
47
(2) FINANCIAL STATEMENT SCHEDULES.
Financial statement schedules are omitted because they are not required or
the information is disclosed in the financial statements listed in item
14(a)(1).
(3) EXHIBITS.
3.1*** Amended and Restated Certificate of Incorporation of Registrant
3.2**** Bylaws of Registrant
4.1** Form of Common Stock Certificate
10.1** Form of Indemnification Agreement
10.2** 1992 Stock Option Plan
10.3** 1996 Employee Stock Purchase Plan
10.4** 1996 Directors' Stock Option Plan
10.5** Investors' Rights Agreement dated November 10, 1995 among the Registrant and
certain security holders of the Registrant
10.6+** Agreement with Respect to Option dated August 31, 1992 between the Registrant
and Cold Spring Harbor Laboratory and Amendments No. 1 and 2 thereto dated May
3, 1993 and January 1994
10.7+** Patent License Agreement dated September 8, 1992 between the Registrant and
University of Texas Southwestern Medical Center at Dallas
10.8+** Sponsored Research Agreement dated as of September 8, 1992 between the
Registrant and University of Texas Southwestern Medical Center at Dallas
10.9+** Exclusive License Agreement dated February 2, 1994 between the Registrant and
the Regents of the University of California
10.10+** License and Research Collaboration Agreement dated April 24, 1995 between the
Registrant and Kyowa Hakko Kogyo Co., Ltd, and Amendment No. 1 thereto dated
July 15, 1995
10.11+** Standard Nonexclusive License Agreement dated January 1, 1996 between the
Registrant and Wisconsin Alumni Research Foundation
10.12** Business Park Lease dated March 25, 1996 between the Registrant and David D.
Bohannon Organization
10.13** Business Park Lease dated January 20, 1993 between the Registrant and David D.
Bohannon Organization and Amendments Nos. 1, 2 and 3 thereto dated July 26,
1993, February 22, 1994 and March 25, 1996, respectively
10.14** Equipment Financing Agreement dated January 5, 1992 between the Registrant and
Lease Management Services, Inc.
10.15** Master Lease Agreement dated January 5, 1993 between the Registrant and Lease
Management Services, Inc.
10.16** Note Secured by Stock Pledge Agreement dated July 7, 1993 between the
Registrant and Michael West and Amendment thereto dated May 20, 1996
10.19** Note Secured by Second Deed of Trust dated May 20, 1993 between the Registrant
and Jeryl Lynn Hilleman and Amendment thereto dated May 20, 1996
10.20** Note Secured by Second Deed of Trust dated December 1993 between the Registrant
and Calvin B. Harley
10.21** Note Secured by Second Deed of Trust dated September 30, 1995 between the
Registrant and David L. Greenwood
10.22** Note Secured by Second Deed of Trust dated September 30, 1995 between the
Registrant and David L. Greenwood
10.23** Common Stock Warrant dated May 4, 1994, issued by the Registrant to Cold Spring
Harbor Laboratory
10.24** Series C Preferred Stock Purchase Warrants issued to certain investors on June
29, 1994
10.25* Common Stock Purchase Agreement dated December 20, 1996 between the Registrant
and Pharmacia & Upjohn S.p.A.
47
48
11.1 Statement of Computation of Net Loss per Share
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
- ---------------
** Incorporated by reference to identically numbered exhibits filed with the Registrant's
Registration Statement Form S-1 which became effective on July 30, 1996.
+ Certain portions of this Exhibit have been omitted for which confidential treatment has
been requested and filed separately with the Securities and Exchange Commission.
* Incorporated by reference to Exhibit 10.1 on the Registrant's Form 8-K filed on January
24, 1997.
*** Incorporated by reference to Exhibit 3.3 filed with the Registrant's Registration
Statement Form S-1 which became effective July 30, 1996.
**** Incorporated by reference to Exhibit 3.4 filed with the Registrant's Registration
Statement Form S-1 which became effective July 30, 1996.
(B) REPORTS ON FORM 8-K.
None filed.
(C) INDEX TO EXHIBITS.
48
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Menlo
Park, State of California, on the 20th day of March, 1997.
GERON CORPORATION
By /s/ RONALD W. EASTMAN
------------------------------------
Ronald W. Eastman
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Ronald W. Eastman
and David L. Greenwood, and each one of them, attorneys-in-fact for the
undersigned, each with the power of substitution, for the undersigned in any and
all capacities, to sign any and all amendments to this Report on Form 10-K, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitutes, may do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated opposite his/her name.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------------------------
/s/ RONALD W. EASTMAN President, Chief Executive Officer March 20, 1997
- ------------------------------------------
and Director
Ronald W. Eastman (Principal Executive Officer)
/s/ DAVID L. GREENWOOD Chief Financial Officer, Treasurer, March 20, 1997
- ------------------------------------------
Secretary
David L. Greenwood (Principal Financial and Accounting
Officer)
/s/ ALEXANDER E. BARKAS Director March 20, 1997
- ------------------------------------------
Alexander E. Barkas
/s/ BRIAN H. DOVEY Director March 20, 1997
- ------------------------------------------
Brian H. Dovey
/s/ CHARLES M. HARTMAN Director March 20, 1997
- ------------------------------------------
Charles M. Hartman
/s/ THOMAS D. KILEY Director March 20, 1997
- ------------------------------------------
Thomas D. Kiley
/s/ PATRICK F. LATTERELL Director March 20, 1997
- ------------------------------------------
Patrick F. Latterell
49
50
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------------------------
/s/ ROBERT B. STEIN Director March 20, 1997
- ------------------------------------------
Robert B. Stein
/s/ MICHAEL D. WEST Director March 20, 1997
- ------------------------------------------
Michael D. West
50
51
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- -------- ----------------------------------------------------------------------------------
3.1*** Amended and Restated Certificate of Incorporation of Registrant
3.2**** Bylaws of Registrant
4.1** Form of Common Stock Certificate
10.1** Form of Indemnification Agreement
10.2** 1992 Stock Option Plan
10.3** 1996 Employee Stock Purchase Plan
10.4** 1996 Directors' Stock Option Plan
10.5** Investors' Rights Agreement dated November 10, 1995 among the Registrant and
certain security holders of the Registrant
10.6+** Agreement with Respect to Option dated August 31, 1992 between the Registrant and
Cold Spring Harbor Laboratory and Amendments No. 1 and 2 thereto dated May 3, 1993
and January 1994
10.7+** Patent License Agreement dated September 8, 1992 between the Registrant and
University of Texas Southwestern Medical Center at Dallas
10.8+** Sponsored Research Agreement dated as of September 8, 1992 between the Registrant
and University of Texas Southwestern Medical Center at Dallas
10.9+** Exclusive License Agreement dated February 2, 1994 between the Registrant and the
Regents of the University of California
10.10+** License and Research Collaboration Agreement dated April 24, 1995 between the
Registrant and Kyowa Hakko Kogyo Co., Ltd. and Amendment No. 1 thereto dated July
15, 1995
10.11+** Standard Nonexclusive License Agreement dated January 1, 1996 between the
Registrant and Wisconsin Alumni Research Foundation
10.12** Business Park Lease dated March 25, 1996 between the Registrant and David D.
Bohannon Organization
10.13** Business Park Lease dated January 20, 1993 between the Registrant and David D.
Bohannon Organization and Amendments No. 1, 2, and 3 thereto dated July 26, 1993,
February 22, 1994 and March 25, 1996, respectively
10.14** Equipment Financing Agreement dated January 5, 1992 between the Registrant and
Lease Management Services, Inc.
10.15** Master Lease Agreement dated January 5, 1993 between the Registrant and Lease
Management Services, Inc.
10.16** Note Secured by Stock Pledge Agreement dated July 7, 1993 between the Registrant
and Michael West and Amendment thereto dated May 20, 1996
10.19** Note Secured by Second Deed of Trust dated May 20, 1993 between the Registrant and
Jeryl Lynn Hilleman and Amendment thereto dated May 20, 1996
10.20** Note Secured by Second Deed of Trust dated December 1993 between the Registrant
and Calvin B. Harley
10.21** Note Secured by Second Deed of Trust dated September 30, 1995 between the
Registrant and David L. Greenwood
10.22** Note Secured by Second Deed of Trust dated September 30, 1995 between the
Registrant and David L. Greenwood
10.23** Common Stock Warrant dated May 4, 1994 issued by the Registrant to Cold Spring
Harbor Laboratory
10.24** Series C Preferred Stock Purchase Warrants issued to certain investors on June 29,
1994
10.25* Common Stock Purchase Agreement dated December 20, 1996 between the Registrant and
Pharmacia & Upjohn S.p.A.
11.1 Statement of Computation of Net Loss per Share
23.1 Consent of Ernst & Young LLP, Independent Auditors
51
52
EXHIBIT DESCRIPTION
- -------- ----------------------------------------------------------------------------------
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
- ---------------
** Incorporated by reference to identically numbered exhibits filed with the Registrant's
Registration Statement Form S-1 which became effective July 30, 1996.
+ Certain portions of this Exhibit have been omitted for which confidential treatment has
been requested and filed separately with the Securities and Exchange Commission.
* Incorporated by reference to Exhibit 10.1 on the Registrant's Form 8-K filed on January
24, 1997.
*** Incorporated by reference to Exhibit 3.3 filed with the Registrant's Registration
Statement Form S-1 which became effective July 30, 1996.
**** Incorporated by reference to Exhibit 3.4 filed with the Registrant's Registration
Statement Form S-1 which became effective July 30, 1996.
52