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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2003 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File Number: 00024889
CELL PATHWAYS, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2969600
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
702 Electronic Drive Horsham, Pennsylvania 19044
(Address of Principal Executive Office) (Zip Code)
(215) 706-3800
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
At April 30, 2003 there were 39,475,882 shares of Common Stock, par value $0.01
per share, outstanding.
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2003
Page
----
PART 1 FINANCIAL INFORMATION (UNAUDITED)
Item 1 Financial Statements:
Consolidated Balance Sheets as of March 31, 2003
and December 31, 2002............................................. 3
Consolidated Statements of Operations for the three
months ended March 31, 2003 and 2002 and for the period
from inception (August 10, 1990) to March 31, 2003................ 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 2003 and 2002 and for the period
from inception (August 10, 1990) to March 31, 2003................ 5
Notes to Consolidated Financial Statements ....................... 6-10
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 11-15
Item 3 Quantitative and Qualitative Disclosures about Market Risk........ 16
Item 4 Controls and Procedures........................................... 16
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.................................. 16
Signatures........................................................ 17
Sarbanes-Oxley Section 302(a) Certifications...................... 18-21
2
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 5,984,766 $ 10,920,335
Accounts receivable........................................... 330,018 472,012
Inventory..................................................... 2,430,849 2,140,615
Prepaid expenses and other ................................... 802,118 792,610
-------------- --------------
Total current assets.......................................... 9,547,751 14,325,572
EQUIPMENT, FURNITURE and LEASEHOLD IMPROVEMENTS................. 689,310 785,766
RESTRICTED CASH................................................. 468,687 468,233
NOTES RECEIVABLE FROM OFFICERS.................................. 954,576 938,972
PRODUCT DISTRIBUTION RIGHTS..................................... 883,333 908,333
OTHER ASSETS.................................................... 43,289 42,808
-------------- --------------
$ 12,586,946 $ 17,469,684
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of note payable............................... $ 104,808 $ 180,330
Current installments of obligation under capital lease........ 58,358 57,086
Accounts payable.............................................. 2,077,471 718,023
Accrued compensation.......................................... 372,950 198,842
Deferred revenue.............................................. 1,018,722 1,492,346
Other accrued liabilities..................................... 2,773,032 3,082,995
-------------- --------------
Total current liabilities..................................... 6,405,341 5,729,622
-------------- --------------
OBLIGATION UNDER CAPITAL LEASE.................................. 21,583 36,668
-------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 10,000,000 shares authorized,
none issued and outstanding .................................. -- --
Common Stock, $.01 par value, 150,000,000 shares authorized;
39,475,882 and 39,363,698 shares issued and outstanding ...... 394,759 393,637
Additional paid-in capital.................................... 152,565,427 152,524,388
Deferred Compensation......................................... (54,926) (58,672)
Deficit accumulated during the development stage.............. (146,745,238) (141,155,959)
-------------- --------------
Total stockholders' equity ................................... 6,160,022 11,703,394
-------------- --------------
$ 12,586,946 $ 17,469,684
============== ==============
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
3
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
PERIOD FROM
THREE MONTHS ENDED INCEPTION
MARCH 31, (AUGUST 10, 1990)
--------------------------------- TO
2003 2002 MARCH 31, 2003
-------------- -------------- --------------
REVENUES:
Product sales......................... $ 522,414 $ -- $ 1,059,287
Marketing services.................... -- -- 1,883,189
-------------- -------------- --------------
522,414 -- 2,942,476
-------------- -------------- --------------
EXPENSES:
Cost of products sold................ 189,595 -- 409,301
Research and development............. 3,456,436 4,311,246 114,007,781
Selling, general and administrative.. 2,489,371 2,259,476 40,871,669
Litigation settlement and expense.... -- (850,000) 1,743,000
-------------- -------------- --------------
6,135,402 5,720,722 157,031,751
-------------- -------------- --------------
Operating loss..................... (5,612,988) (5,720,722) (154,089,275)
INTEREST INCOME, net.................... 23,709 88,821 7,344,037
-------------- -------------- --------------
NET LOSS................................ $ (5,589,279) $ (5,631,901) $ (146,745,238)
============== ============== ==============
Basic and diluted net loss per Common
Share................................... $ (0.14) $ (0.18)
============== ==============
Shares used in computing basic and
diluted net loss per Common Share.... 39,431,821 31,322,203
============== ==============
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
4
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
PERIOD FROM
THREE MONTHS ENDED INCEPTION
MARCH 31, (AUGUST 10, 1990)
---------------------------------- TO
2003 2002 MARCH 31, 2003
------------- ------------ -------------
OPERATING ACTIVITIES:
Net loss................................... $ (5,589,279) $ (5,631,901) $(146,745,238)
Adjustments to reconcile net loss to net cash
used in operating activities:
Settlement of litigation through agreement
to Issue Common Stock .................... -- (850,000) 1,088,000
Depreciation and amortization expense...... 114,667 128,400 2,969,382
Loss on disposal of assets ................ 6,789 -- 26,444
Interest income on notes receivable from
officers ................................. (14,260) (13,152) (125,020)
Interest income on promissory note from
director ................................. (481) (284) (14,448)
Amortization of deferred compensation ..... 3,746 3,745 19,974
Issuance of Common Stock for services
rendered.................................. -- -- 48,578
Issuance of Common Stock options for
services rendered......................... -- (22,273) 490,393
Provision for redemption of Redeemable
Preferred Stock........................... -- -- 1,017,387
Write-off of deferred offering costs....... -- -- 469,515
(Increase) decrease in accounts receivable. 141,994 318,450 (330,018)
Increase in inventory...................... (290,234) -- (2,430,849)
Increase (decrease) in deferred revenue.... (473,624) -- 1,018,722
Increase in prepaid expenses and other
current assets............................ (9,508) (1,881,083) (483,492)
Increase (decrease) in reserve for notes
receivable from officers.................. (1,334) -- 113,398
(Increase) decrease in other assets........ (10) (469) 108,440
Other...................................... -- -- 68,399
Increase (decrease) in accounts payable and
accrued liabilities....................... 1,223,593 (382,898) 2,602,462
Decrease in accrued litigation settlement
and expense............................... -- (367,085) --
------------- ------------ -------------
Net cash flows used in operating activities (4,887,941) (8,698,550) (140,087,971)
------------- ------------ -------------
INVESTING ACTIVITIES:
Purchase of equipment, furniture and
leasehold improvements.................... -- (59,075) (5,876,205)
Sale of leasehold improvements............. -- -- 3,000,000
Purchase of marketing and distribution
rights.................................... -- (1,000,000) (1,000,000)
Increase in notes receivable from officers. -- -- (942,954)
Cash paid for deposits..................... -- -- (50,767)
(Purchase) sale of short term investments.. -- 5,352,749 --
------------- ------------ -------------
Net cash flows provided by (used in)
investing activities...................... -- 4,293,674 (4,869,926)
------------- ------------ -------------
FINANCING ACTIVITIES:
Proceeds from the issuance of Common Stock,
net of related offering costs............. -- 8,007,324 47,262,604
Proceeds from the exercise of Series E, F,
G, and Common Stock warrants to purchase
stock.................................... -- -- 19,966,894
Proceeds from the issuance of Common Stock
under the Employee Stock Purchase Plan.... 22,961 92,018 854,163
Proceeds from issuance of Convertible
Preferred Stock, net of related offering
costs.................................... -- -- 47,185,046
Proceeds from the transaction with Tseng
Labs, Inc. ............................... -- -- 27,966,372
Proceeds from the exercise of options to
purchase Common Stock..................... 19,200 -- 2,865,891
Redemption of Redeemable Preferred Stock... -- -- (546,051)
Proceeds from bridge loan.................. -- -- 791,000
Partner cash contributions................. -- -- 5,312,355
Increase in restricted cash................ (454) (1,260) (468,687)
Cash received from stock subscription..... -- 50,967 74,593
Principal payments under capital lease
obligations............................... (13,813) (9,814) (426,325)
Proceeds from borrowings................... -- -- 950,000
Repayment of borrowings.................... (75,522) (65,843) (845,192)
------------- ------------ -------------
Net cash flows provided by (used in)
financing activities.................... (47,628) 8,073,392 150,942,663
------------- ------------ -------------
Net increase (decrease) in cash and cash
equivalents............................... (4,935,569) 3,668,516 5,984,766
CASH AND CASH EQUIVALENTS, beginning of
period.................................... 10,920,335 2,905,767 --
------------- ------------ -------------
CASH AND CASH EQUIVALENTS, end of period... $ 5,984,766 $ 6,574,283 $ 5,984,766
============ ============= =============
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
5
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Cell Pathways, Inc. was incorporated in Delaware in July 1998 as a
subsidiary of, and, as of November 3, 1998, the successor to, a Delaware
corporation of the same name. As the context requires, "Company", is used herein
to signify the successor and/or the predecessor corporations.
The Company is a development stage pharmaceutical company focused on
the research and development of products to treat and prevent cancer, and the
future commercialization of such products. The Company also markets and sells
Gelclair(TM) Concentrated Oral Gel ("Gelclair(TM)") manufactured by Sinclair
Pharmaceuticals Ltd. of the United Kingdom ("Sinclair"). The Company has not
generated any revenues from the sale of its own products to date, nor is there
any assurance of any future product revenues from the development of its
products. The Company's intended products are subject to long development cycles
and there is no assurance the Company will be able to successfully develop,
manufacture, obtain regulatory approval for or market its products. During the
period required to develop its products, the Company had planned to continue to
finance operations through debt and equity financings, profits from the sale of
Gelclair(TM) and corporate alliances. In February 2003, the Company entered into
an acquisition agreement with OSI Pharmaceuticals, Inc. ("OSI") whereby, if
adopted by the Company's stockholders, the Company will merge with a subsidiary
of OSI. The merger is subject to approval by the Company's stockholders and
certain other customary conditions. There is no assurance that the merger will
be approved by the Cell Pathways stockholders or that other conditions will be
satisfied. If the merger should not occur, there is no assurance that additional
funding will be available on terms acceptable to the Company, if at all, or that
profits will be generated from the sale of Gelclair(TM) in which case the
Company would probably suspend or cease operations. The Company will likely be
considered to be in the development stage until such time, if ever, it receives
approval for, or generates significant revenues from the marketing and selling
of one or more of its pharmaceutical drug candidates, or generates significant
revenues from its marketing and selling of products made by others, such as
Gelclair(TM).
On November 3, 1998, the Company completed a financing through the
acquisition of Tseng Labs, Inc. ("Tseng") (a publicly held company with no
continuing operations) in which the Company issued to Tseng stockholders
approximately 5.5 million shares of the Company's Common Stock and received net
proceeds of approximately $26.4 million. The accompanying consolidated financial
statements include the accounts of the Company from inception (August 10, 1990)
and the accounts of Tseng after November 3, 1998.
In July 2000, the Company entered into an exclusive marketing and
promotion agreement (the "Nilandron(R) Agreement") with Aventis
Pharmaceuticals Inc. ("Aventis"), to market Nilandron(R) to urologists in the
U. S. and Puerto Rico for use in patients who suffer from prostate cancer. The
Company began to market and promote Nilandron(R) in September 2000 through
the use of a dedicated third party sales force. Under the terms of the
Nilandron(R) Agreement, the Company was responsible for its marketing and
promotion expenses and received from Aventis a percentage of the gross margin on
Aventis' sales in excess of a pre-established gross margin threshold, if any.
The Company's agreement with Aventis terminated in October 2002.
In January 2002, the Company entered into a ten-year exclusive
distribution agreement (the "Gelclair(TM) Agreement") with Sinclair to promote
and distribute Gelclair(TM) in North America (U.S., Canada and Mexico).
Gelclair(TM) is an oral gel care formulation for the management and relief of
pain associated with inflammation and ulceration of the mouth caused by
chemotherapy or radiotherapy treatments and other causes. In June 2002, the
Company began to promote Gelclair(TM) in the oncology market. The Company
purchases Gelclair(TM) from Sinclair and resells to wholesale customers in the
U.S.
6
In August 2002, the Company signed a four-year exclusive agreement with
John O. Butler Company ("Butler") to market and, to a limited extent, distribute
Gelclair(TM) to the dental market within the U.S. and, if and when approved for
sale, in Canada. Butler is a leading international supplier of oral health care
products. Butler commenced its launch of Gelclair(TM) in the dental market in
the U.S. in the fourth quarter of 2002.
In October 2002, the Company signed a three-year agreement with Celgene
Corporation ("Celgene") to co-promote Gelclair(TM) in the oncology markets and
markets other than the dental market in the U.S. Celgene has an oncology field
sales force in excess of 90 representatives. Celgene commenced field sales
promotional efforts in mid-November 2002. Cell Pathways terminated its own sales
force in the fourth quarter of 2002. Celgene will receive a fixed percentage of
net sales of Gelclair(TM) in the oncology and other markets.
In October 2002, the Company implemented a restructuring of its work
force eliminating 20% of its staff and reducing its efforts in research,
discovery and pre-clinical development of earlier-stage compounds, and
subsequently, upon signing an agreement with Celgene to promote Gelclair(TM) in
the U.S. oncology market, eliminated its 16 person sales force and subsequently
terminated its agreement with Aventis to promote Nilandron(R). A further
reduction of approximately 15% of the Company's work force occurred in late
February 2003. Both the work force reductions and elimination of the sales force
were for the purpose of decreasing future expenses by approximately $2.6 million
annually. If the merger with OSI does not occur, the Company will need to take
appropriate steps to further reduce the work force, reduce, eliminate or delay
research and development programs, reduce overall expenditures and reduce or
suspend operations until appropriate sources of funding are available, if ever,
on terms acceptable to the Company. As of March 31, 2003, the Company had a
deficit accumulated during the development stage of $146,745,238.
In January 2003, the Company received notification from Nasdaq that the
Company's stock would be delisted from the Nasdaq National Market because the
Company's stock price fell below the minimum bid requirements and thereby failed
to comply with Nasdaq marketplace rules. The Company appealed the delisting
notification, and Nasdaq determined to continue listing the Company's securities
on the Nasdaq National Market until June 30, 2003 in order to allow consummation
of the merger with OSI, provided the Company complies with all of the
requirements for continued listing, with the exception of the minimum bid
requirement, on the Nasdaq National Market.
In February 2003, the Company entered into an acquisition agreement
with OSI whereby OSI would acquire the Company in a stock-for-stock transaction.
Under the terms of the acquisition agreement, the Company will merge with a
subsidiary of OSI and become a wholly-owned subsidiary of OSI. OSI will exchange
0.0567 shares of OSI common stock for each outstanding share of the Company's
Common Stock. OSI will also provide additional consideration in the form of a
non-tradable five-year contingent value right through which each share of the
Company's Common Stock outstanding upon the closing of the acquisition will be
eligible for an additional 0.04 share of OSI common stock in the event an NDA
for either Aptosyn(R) or CP461 is accepted for filing by the FDA. If the merger
agreement is adopted by the Company's stockholders and the other conditions are
satisfied, it is anticipated that the merger will be closed in the second
quarter of 2003.
Basis of Presentation
The unaudited consolidated financial statements as of March 31, 2003
and for the three months ended March 31, 2003 and 2002 are unaudited but include
all adjustments (consisting of only normal recurring adjustments) which, in the
opinion of management, are necessary to state fairly the financial information
set forth therein in accordance with generally accepted accounting principles.
The interim results may not be indicative of the results that may be expected
for the year. These financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 2002
included in the Company's annual report on Form 10-K filed with the Securities
and Exchange Commission.
Concentration of Credit Risk
As of March 31, 2003, one wholesale customer represented 90% of the
$330,018 of accounts receivable due from shipments of Gelclair(TM). Credit risk
is controlled through use of credit limits, credit approvals and periodic credit
evaluations of wholesale customers.
2. GOING CONCERN:
The Company has incurred negative cash flows from operations since
inception and, as of March 31, 2003, the Company had a deficit accumulated
during the development stage of $146,745,238. Management believes that the
7
Company's existing cash and cash equivalents will be adequate to fund operations
through the second quarter of 2003, based on projected revenue and expenditure
levels. Should appropriate sources of funding not be available on terms
acceptable to the Company, management would take additional actions which could
include a further reduction in work force, a reduction in overall expenditures,
the delay or elimination of certain clinical trials and research activities and
the reduction or suspension of operations until such time as appropriate sources
of funding are available. In February 2003, the Company entered into an
agreement and plan of merger with OSI whereby, if approved by the Company's
stockholders, the Company would be acquired by OSI. There is no assurance,
however, that the transaction with OSI will be approved by the Company's
stockholders. Should the transaction not be approved by the Company's
stockholders, there is no assurance that additional funding will be available on
terms acceptable to the Company, if at all, to enable the Company to continue
operations.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
3. INVENTORY
Inventory is comprised solely of Gelclair(TM) and is stated at the
lower of cost or market, as determined using the first-in, first-out method.
Inventory at March 31, 2003 and December 31, 2002, consisted of the following:
March 31, 2003 December 31, 2002
---------- ----------
Finished goods on hand ..... $2,075,715 $1,632,149
Inventory subject to return. 355,134 508,466
---------- ----------
$2,430,849 $2,140,615
========== ==========
Inventory subject to return represents the amount of Gelclair(TM)
shipped to wholesale customers which has not been recognized as revenue (see
Note 6).
4. NOTES RECEIVABLE FROM OFFICERS:
During the years ended December 31, 2002, 2001 and 2000, the Company
made loans of $54,000, $256,000 and $632,954, respectively, to two of its
officers that were outstanding as of March 31, 2003. The loans are evidenced by
promissory notes which bear interest at a rate of 6% annually; principal and
interest are repayable five years from date of issuance. The loans, including
accrued interest, are secured by subordinate mortgages on real property and are
reviewed periodically to assess their realizable value. The Company has recorded
an allowance against one of the officer's loans. As of March 31, 2003 and
December 31, 2002, the balances of the allowance were $113,398 and $114,742,
respectively. The officer loans and accrued interest of $125,020 as of March 31,
2003 are presented net of the allowance on the accompanying consolidated balance
sheet.
5. STOCK-BASED COMPENSATION:
The Company accounts for stock option grants to employees in accordance
with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees". Under the Company's stock option plans, options are
granted at the fair market value on the date of the grant, and therefore no
compensation expense is recognized for stock options granted to employees.
8
The Company follows the disclosure provisions of the Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation, and SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure". Had compensation cost for option grants to employees
been recognized in the consolidated statement of operations under the fair value
method as prescribed in SFAS No. 123 and No. 148, the Company's net loss would
have increased to the following pro forma amounts:
Three Months Ended March 31,
-----------------------------------------
2003 2002
------------ ------------
Net loss:
As reported................................. $ (5,589,279) $ (5,631,901)
Add: Stock-based employee compensation
included in net loss............... 3,746 3,746
Deduct: Total stock-based employee
compensation expense determined
under fair-value based method for
all awards......................... (915,092) (1,273,656)
------------ ------------
Pro forma....................................... $ (6,500,625) $ (6,901,811)
============ ============
Basic and diluted net loss per Common Share:
As reported.................................. $ (0.14) $ (0.18)
============ ============
Pro forma.................................... $ (0.16) $ (0.22)
============ ===========
6. REVENUE RECOGNITION:
Product sales of Gelclair(TM) to the Company's wholesale customers were
initiated in the U.S. in June 2002. In accordance with SFAS No. 48, "Revenue
Recognition When Right of Return Exists", given the limited sales history of
Gelclair(TM), the Company at this time defers the recognition of revenue on
product shipments of Gelclair(TM) to wholesale customers until such time as the
product is prescribed to the end user. At each reporting period, the Company
monitors shipments from wholesale customers to pharmacies and hospitals,
wholesale customer reorder history and prescriptions filled by pharmacies based
on prescription data from external, independent sources. When this data
indicates a flow of product through the supply chain, which indicates that
returns are less likely to occur, product revenue is recognized. For the three
months ended March 31, 2003 and for the year ended December 31, 2002, shipments
to wholesale customers were $59,280 and $2,099,277, respectively, of which
$522,414 and $536,873, respectively, have been recognized as product revenues
with the balance, net of discounts and a marketing fee paid to Butler for direct
sales to dentists, recorded as deferred revenue in the accompanying balance
sheet. In addition, the related cost of the product shipped to wholesale
customers that has not been recognized as revenue has been reflected as
inventory subject to return (See Note 3).
7. BASIC AND DILUTED NET LOSS PER COMMON SHARE
The Company presents basic and diluted net loss per Common share
pursuant to SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires dual
presentation of basic and diluted net loss per Common share. "Basic" net loss
per Common share equals net loss divided by the weighted average Common shares
outstanding during the period. "Diluted" net loss per Common share equals net
loss divided by the sum of the weighted average Common shares outstanding during
the period plus Common Stock equivalents. The Company's basic and diluted net
loss per share amounts are the same since the assumed exercise of stock options
and warrants is anti-dilutive due to the Company's losses. The amount of Common
Stock equivalents excluded from the calculation are options and warrants to
purchase 3,937,969 and 8,905,022 shares of Common Stock as of March 31, 2003 and
2002, respectively. In addition, the weighted average Common shares outstanding
as of March 31, 2002 excludes 1,700,000 shares which as of March 31, 2002 were
planned to be issued in connection with the Company's settlement of class action
litigation, and which were subsequently issued in accordance with the settlement
that was finalized in September 2002.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS No. 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force ("EITF") Issue 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity." The provisions of
this Statement are effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged. The adoption of SFAS
No. 146 is not expected to have a material effect on the Company's financial
statements.
9
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123." This Statement amends FASB Statement No. 123, "Accounting
for Stock-Based Compensation", to provide alternative methods of transition for
a voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements. The disclosure modifications are
required for fiscal years ending after December 15, 2002 and are included in
the notes to these consolidated financial statements.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cell Pathways, Inc. was incorporated in Delaware in July 1998 as a
subsidiary of, and, as of November 3, 1998, the successor to, a Delaware
corporation of the same name. As the context requires, "Cell Pathways", the
"Company" or "CPI" is used herein to signify the successor and/or the
predecessor corporations.
Certain statements in this report, and oral statements made in respect
of this report, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are those
which express plan, anticipation, intent, contingency or future development
and/or otherwise are not statements of historical fact. These statements are
subject to risks and uncertainties, known and unknown, which could cause actual
results and developments to differ materially from those expressed or implied in
such statements. Statements of historic fact must also be understood in the
context of, and subject to, these risks and uncertainties.
Such risks and uncertainties relate both to the proposed acquisition of
Cell Pathways, Inc. (the "Company") by OSI Pharmaceuticals, Inc ("OSI") and to
the business of the Company and its environment. Risks and uncertainties related
to the proposed acquisition of the Company by OSI include, among other factors:
the ability of the Company to obtain stockholder approval of the transaction;
fluctuations in the trading price of the common stock of OSI; perceptions as to
the value of the transaction and the expected timing and benefits of the
transaction; delays in completing the transaction; potential breaches of the
merger agreement by either party leading to delay, re-negotiation or
non-completion of the transaction; difficulties in the integration of the
businesses of OSI and the Company; costs related to the transaction; and the
financial risk to the Company if the transaction is not completed. If the merger
with OSI is not consummated, the Company may lack the money and personnel to
continue operations and its Common Stock will likely be delisted from the Nasdaq
National Market.
Risks and uncertainties related to the business of the Company and its
environment include, among other factors: early stage of development; the
absence of approved products; history of operating losses; the need for further
financing, whether through the acquisition of the Company by OSI or, if such
acquisition should fail to close, through the issuance of equity or debt,
corporate collaborations or strategic alliances, or revenues generated from
marketing and selling in-licensed products produced by others; the risk that our
Common Stock may be delisted from the Nasdaq National Market for failure to
maintain a minimum bid price of $1.00, or for other reasons and other factors
discussed in this report generally. These and other risks are detailed in our
reports filed from time to time under the Securities Act of 1933 and/or the
Securities Exchange Act of 1934, including the sections entitled "Business,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Other Events" in our annual reports on Form 10-K
(including this report), our quarterly reports on Form 10-Q and our periodic
reports on Form 8-K and in such registration statements as we may file from time
to time. You are encouraged to read these filings as they are made. They are
available over the Internet from the SEC in its EDGAR database at
http://www.sec.gov and from the Company.
Given the uncertainties affecting pharmaceutical companies in the
development stage, readers are cautioned not to place undue reliance on any such
forward-looking statements, any of which may turn out to be wrong due to
inaccurate assumptions, unknown risks, uncertainties or other factors. No
forward-looking statement can be guaranteed; actual future results may vary
materially.
Both forward-looking statements and statements of historic fact must be
understood in the context of the factors referred to above. We undertake no
obligation to update or revise the statements made herein or the risk factors
that may relate thereto.
OVERVIEW
Cell Pathways is a development stage pharmaceutical company focused on
the research and development of products to treat and prevent cancer, and the
future commercialization of such products. Cell Pathways also markets and sells
Gelclair(TM) manufactured by Sinclair. The Company has not generated any
revenues from the sale of its own products to date, nor is there any assurance
of any future product revenues from the development of its products. The
Company's intended products are subject to long development cycles and there is
no assurance the Company will be able to successfully develop, manufacture,
obtain regulatory approval for or market its products. During the period
required to develop its products, the Company had planned to continue to finance
operations through debt and equity financings, profits from the sale of
Gelclair(TM) and corporate alliances. Management believes that the Company's
existing cash and cash equivalents of $6.0 million as of March 31, 2003 will be
adequate to sustain operations through
11
the second quarter of 2003, based on projected revenue and expenditures. In
February 2003, the Company entered into an acquisition agreement with OSI
whereby, if adopted by the Company's stockholders, the Company will merge with a
subsidiary of OSI. The merger is subject to approval by the Company's
stockholders and certain other customary conditions. There is no assurance that
the merger will be approved by the Cell Pathways stockholders or that other
conditions will be satisfied. If the merger should not occur, there is no
assurance that additional funding will be available on terms acceptable to the
Company, if at all, or that profits will be generated from the sale of
Gelclair(TM), in which case the Company would probably suspend or cease
operations. The Company will likely be considered to be in the development stage
until such time, if ever, it receives approval for, or generates significant
revenues from the marketing and selling of one or more of its pharmaceutical
drug candidates, or generates significant revenues from its marketing and
selling of products made by others, such as Gelclair(TM).
On November 3, 1998, CPI completed a financing through the acquisition
of Tseng Labs, Inc. ("Tseng") (a publicly held company with no continuing
operations) in which CPI issued to Tseng stockholders approximately 5.5 million
shares of CPI Common Stock and received net proceeds of approximately $26.4
million. The consolidated financial statements of Cell Pathways included in this
report include the accounts of Cell Pathways from inception (August 10, 1990)
and the accounts of Tseng after November 3, 1998.
In July 2000, the Company entered into an exclusive marketing and
promotion agreement (the "Nilandron(R) Agreement") with Aventis
Pharmaceuticals Inc. ("Aventis"), to market Nilandron(R)(nilutamide) to
urologists in the U.S. and Puerto Rico for use in patients who suffer from
prostate cancer. The Company began to market and promote Nilandron(R) in
September of 2000 through the use of a dedicated third party sales force. Under
the terms of the Nilandron(R) Agreement, the Company was responsible for its
marketing and promotion expenses and received from Aventis a percentage of the
gross margin on Aventis' sales in excess of a pre-established gross margin
threshold, if any. The Nilandron(R) Agreement terminated in October 2002. The
Company did not recognize any revenue under the Nilandron(R) Agreement in the
first quarter of 2002.
In January 2002, the Company entered into a ten-year exclusive
distribution agreement (the "Gelclair Agreement") with Sinclair Pharmaceuticals
Ltd. ("Sinclair") to promote and distribute Gelclair(TM) Concentrated Oral Gel
in North America (U.S., Canada and Mexico). Gelclair(TM) is an oral gel care
formulation for the management and relief of pain associated with inflammation
and ulceration of the mouth caused by chemotherapy or radiotherapy treatments
and other causes. In June 2002, the Company began to promote Gelclair(TM) in the
oncology market. The Company purchases Gelclair(TM) from Sinclair and resells to
wholesale customers in the U.S.
In August 2002, the Company signed a four-year exclusive agreement with
John O. Butler Company ("Butler") to market and , to a limited extent,
distribute Gelclair(TM) to the dental market within the U.S. and, if and when
approved for sale, in Canada. Butler is a leading international supplier of oral
health care products. Butler commenced its launch of Gelclair(TM) in the dental
market in the U.S. in the fourth quarter of 2002.
In October 2002, the Company signed a three-year agreement with Celgene
Corporation ("Celgene") to co-promote Gelclair(TM) in the oncology markets and
markets other than the dental market in the U.S. Celgene has an oncology field
sales force in excess of 90 representatives. Celgene commenced field sales
promotional efforts in mid-November 2002. Cell Pathways terminated its own sales
force in the fourth quarter of 2002. Celgene will receive a fixed percentage of
net sales of Gelclair(TM) in the oncology and other markets.
In October 2002, the Company implemented a restructuring of its work
force eliminating 20% of its staff and reducing its efforts in research,
discovery and pre-clinical development of earlier-stage compounds, and
subsequently, upon signing an agreement with Celgene to promote Gelclair(TM) in
the U.S. oncology market, eliminated its 16 person sales force and subsequently
terminated its agreement with Aventis to promote Nilandron(R). A further
reduction of approximately 15% of the Company's work force occurred in late
February 2003. Both the work force reductions and elimination of the sales force
were for the purpose of decreasing future expenses by approximately $2.6 million
annually. If the merger with OSI does not occur, the Company will need to take
appropriate steps to further reduce the work force, reduce, eliminate or delay
research and development programs and reduce overall expenditures until
appropriate sources of funding are available, if ever, on terms acceptable to
the Company. As of March 31, 2003, the Company had a deficit accumulated during
the development stage of $146,745,238.
In January 2003, the Company received notification from Nasdaq that the
Company's stock would be delisted from the Nasdaq National Market because the
Company's stock price fell below the minimum bid requirements and thereby failed
to comply with Nasdaq marketplace rules. The Company appealed the delisting
notification, and Nasdaq
12
determined to continue listing the Company's securities on the Nasdaq National
Market until June 30, 2003 in order to allow consummation of the merger with
OSI, provided the Company complies with all of the requirements for continued
listing, with the exception of the minimum bid requirement, on the Nasdaq
National Market.
In February 2003, the Company entered into an acquisition agreement
with OSI whereby OSI would acquire the Company in a stock-for-stock transaction.
Under the terms of the acquisition agreement, the Company will merge with a
subsidiary of OSI and become a wholly-owned subsidiary of OSI. OSI will exchange
0.0567 shares of OSI common stock for each outstanding share of the Company's
Common Stock. OSI will also provide additional consideration in the form of a
non-tradable five-year contingent value right through which each share of the
Company's Common Stock outstanding upon the closing of the acquisition will be
eligible for an additional 0.04 share of OSI common stock in the event an NDA
for either Aptosyn(R) or CP461 is accepted for filing by the FDA. If the merger
agreement is adopted by the Company's stockholders and the other conditions are
satisfied, it is anticipated that the merger will be closed in the second
quarter of 2003.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2003 Compared with Three Months Ended
March 31, 2002.
Total revenues for the three months ended March 31, 2003 were $522,414
compared to no revenues for the same period of 2002. Total revenues represented
revenue recognized on product sales of Gelclair(TM) which were initiated in June
2002. The Company defers the recognition of revenue on product shipments of
Gelclair(TM) to wholesale customers until such time that the product is
prescribed to the end user. At each reporting period, the Company monitors
shipments from wholesale customers to pharmacies and hospitals, wholesale
customer reorder history and prescriptions filled by pharmacies based on
prescription data from external, independent sources. When this data indicates a
flow of product through the supply chain, which indicates that returns are less
likely to occur, product revenue is recognized.
Total operating expenses, including cost of products sold, for the
three months ended March 31, 2003 were $6,135,402 compared to $5,720,722 for the
same period of 2002, an increase of $414,680 or 7.2%. Included in total expenses
for the three months ended March 31, 2002 was an $850,000 non-cash reduction of
litigation settlement and expense related to the Company's agreement in
principle, at that time, to settle its securities class action litigation. This
adjustment to the amount previously recorded as of December 31, 2001 represented
the change in the fair value of the 1.7 million shares of the Company's Common
Stock which was planned to be issued in connection with the settlement. Until
such time as the settlement was approved by the court, the Company adjusted the
value of the 1.7 million shares based on the then current fair value of the
shares. The litigation settlement was finalized in September 2002.
Cost of products sold, related to the sales of Gelclair(TM), for the
three months ended March 31, 2003 was $189,595 or 36.3% of product revenues.
There was no cost of products sold for the same period in 2002 since the Company
began selling Gelclair(TM) in June 2002.
Research and development expenses for the three months ended March 31,
2003 were $3,456,436 compared to $4,311,246 for the same period of 2002, a
decrease of $854,810, or 19.8%. This decrease was primarily the result of a
decrease of approximately $506,000 in personnel related expenses due to
reductions in staff, a decrease of approximately $420,000 in clinical study fees
primarily due to the Company's Phase III study of Aptosyn(R) in combination with
Aventis drug Taxotere(R) in patients with non-small cell lung cancer, a decrease
of approximately $110,000 in research supplies and a decrease of approximately
$50,000 in scientific advisory board expenses. These decreases were partially
offset by an increase of approximately $260,000 in expenses associated with the
development of CP461.
Selling, general and administrative expenses for the three months ended
March 31, 2003 were $2,489,371 compared to $2,259,476 for the same period of
2002, an increase of $229,895 or 10.2%. This increase was due primarily to an
increase of approximately $685,000 in consulting expenses related to business
development activities and the pending acquisition by OSI, an increase of
approximately $440,000 in accounting and legal expenses associated with the
pending acquisition by OSI and an increase of approximately $105,000 related to
marketing activities for Gelclair(TM). These increases were partially offset by
a reduction in personnel expenses of approximately $662,000 due to reductions in
staffing and bonuses and reductions in marketing consulting expenses of
approximately $225,000.
Interest income, net of interest expense, was $23,709 for the three
months ended March 31, 2003 compared to $88,821 for the same period of 2002, a
decrease of $65,112 due to lower average cash balances and lower average
interest rates.
13
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily with
the net proceeds received from the sale of equity securities, including the
transaction with Tseng. Financing activities have generated net proceeds of
$151.0 million from inception through March 31, 2003.
As of March 31, 2003, the Company had cash and cash equivalents of
$5,984,766, a decrease of $4,935,569 from December 31, 2002. This decrease was
primarily the result of cash used to fund operations for the three months ended
March 31, 2003. The Company invests its excess cash primarily in low risk,
highly liquid money market funds. As of March 31, 2003, the Company had $468,687
in a restricted cash account pledged for a security deposit under the lease of
its Horsham, Pennsylvania facility.
CPI leases approximately 40,000 square feet of laboratory and office
space in Horsham, Pennsylvania under a ten - year lease which expires in 2008
and which contains two five - year renewal options. The Company believes its
facilities will be adequate for the foreseeable future.
During the years ended December 31, 2002, 2001 and 2000, Cell Pathways
made loans of $54,000, $256,000 and $632,954, respectively, to two of its
officers that were outstanding at March 31, 2003. The loans, including accrued
interest, are repayable five years from the date of issuance. The Company has
recorded an allowance against one of the officer's loans. At March 31, 2003 and
December 31, 2002, the balances of the allowances were $113,398 and $114,742,
respectively.
Under the Gelclair(TM) Agreement, the Company has committed to
inventory purchases of $4.7 million and $5.0 million in 2003 and 2004,
respectively, and annual marketing expenditures of $750,000, $500,000 and
$250,000 for 2003 through 2006, 2007 through 2008 and 2009 through 2011,
respectively. In addition, The Company is obligated to spend $1.3 million
annually for direct sales force efforts. Cell Pathways has agreements with
Celgene and Butler that satisfy this obligation through 2006. Cell Pathways
could be responsible for milestone payments totaling $3.0 million related to the
achievement of certain sales, patent and clinical trial milestones.
In January 2003, the Company received notification from Nasdaq that the
Company's stock would be delisted from the Nasdaq National Market because the
Company's stock price fell below the minimum bid requirements and thereby failed
to comply with Nasdaq marketplace rules. The Company appealed the delisting
notification, and Nasdaq determined to continue listing the Company's securities
on the Nasdaq National Market until June 30, 2003 in order to allow consummation
of the merger with OSI, provided the Company complies with all of the
requirements for continued listing, with the exception of the minimum bid
requirement, on the Nasdaq National Market.
In February 2003, the Company entered into a merger agreement with OSI
whereby OSI would acquire the Company in a stock-for-stock transaction. Under
the terms of the merger agreement, the Company will merge with a subsidiary of
OSI and become a wholly-owned subsidiary of OSI. OSI will exchange 0.0567 shares
of OSI common stock for each share of the Company's Common Stock outstanding at
the closing of the acquisition. OSI will also provide additional consideration
in the form of a non-tradable five-year contingent value right through which
each outstanding share of the Company's Common Stock will be eligible for an
additional 0.04 share of OSI common stock in the event an NDA for either
Aptosyn(R) or CP461 is accepted for filing by the FDA. If the merger agreement
is adopted by the Company's stockholders and the other conditions are satisfied,
it is anticipated that the merger will be closed in the second quarter of 2003.
Cell Pathways believes, based on its current operating plan, that its
existing cash and cash equivalents balance of $5,984,766 as of March 31, 2003
will be adequate to sustain operations through the second quarter of 2003. If
the merger with OSI does not occur, Cell Pathways would take appropriate steps
to further reduce expenses, eliminate or delay research and development programs
and reduce or suspend operations until appropriate sources of funding are
available, if ever, on terms acceptable to Cell Pathways. There is no assurance
that the transaction with OSI will be approved by the Cell Pathways
stockholders. Should the transaction not be approved by the Cell Pathways
stockholders, there is no assurance that additional funding will be available on
terms acceptable to Cell Pathways, if at all. These factors raise substantial
doubt about Cell Pathways' ability to continue as a going concern. The Cell
Pathways consolidated financial statements included in this Form 10-Q do not
include any adjustments that might result from the outcome of this uncertainty.
14
INFLATION
The Company does not believe that inflation has had any significant
impact on its business to date.
INCOME TAXES
As of March 31, 2003, the Company had net operating loss carryforwards
("NOLs") for income tax purposes available to offset future federal income tax,
subject to limitations for alternative minimum tax. In addition, the Company has
other significant deferred tax assets that will also offset future income tax.
As the Company has not yet achieved profitable operations, management believes
the tax assets do not satisfy the realization criteria of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" and therefore the
Company has recorded a valuation allowance for the entire amount of its net tax
asset as of March 31, 2003. (Also see Note 13 of notes to consolidated financial
statements in the Company's December 31, 2002 annual report on Form 10-K.)
The Tax Reform Act of 1986 contains provisions that may limit the NOLs
available to be used in any given year upon the occurrence of certain events,
including significant changes in ownership interest. A change in ownership of a
company greater than 50% within a three-year period results in an annual
limitation on the Company's ability to utilize its NOLs from tax periods prior
to the ownership change. The Company believes that the transaction with Tseng
triggered such limitation. In addition, the OSI merger would trigger an
additional limitation. The annual limitation triggered by the proposed OSI
transaction could result in a significant portion of Cell Pathways' NOLs
expiring.
CRITICAL ACCOUNTING POLICIES
The Company's critical accounting policies are described in the
Company's December 31, 2002 annual report on Form 10-K. There have been no
changes to the Company's critical accounting policies since year end.
COMMITMENTS
The Company's commitments and contractual obligations are described in
the Company's December 31, 2002 annual report on Form 10-K. There have been no
material changes to the Company's commitments and contractual obligations since
year end.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates
primarily relates to the Company's investment portfolio. The Company is adverse
to principal loss and seeks to limit default risk, market risk and reinvestment
risk. In particular, the Company does not use derivative financial instruments
in its investment portfolio, places its investments with high quality issuers
and limits the amount of credit exposure to any one issuer. The Company
mitigates default risk by investing in only the safest and highest credit
quality securities, which include money market funds, and by positioning its
portfolio to respond appropriately to a significant reduction in a credit rating
of any investment issuer, guarantor or depository. The portfolio has included
only marketable securities with active secondary or resale markets to ensure
portfolio liquidity and has historically been invested in securities which have
original maturities of less than twelve months to ensure principal preservation.
As of March 31, 2003, the Company was primarily invested in money market funds,
which were classified as cash and cash equivalents in the Company's financial
statements. The investments had principal amounts of $5,984,766, an average
interest rate of 0.5% and maturities of less than three months.
ITEM 4. CONTROLS AND PROCEDURES
a. Within the 90 days prior to the date of filing of this report, the Company
carried out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's Chief Executive
Officer and the Company's Chief Financial Officer, of the effectiveness of
the design and operation of the Company's disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Company's Chief Executive Officer and the Company's Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company and required to be included in the Company's
periodic SEC filings.
b. There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbannes-Oxley Act of 2002.
Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbannes-Oxley Act of 2002.
(b) The Registrant filed a Report on Form 8-K on February 12, 2003
reporting under Item 5 Other Events the agreement to be acquired by OSI
Pharmaceuticals, Inc.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CELL PATHWAYS, INC.
Dated: May 14, 2003 By: /s/ Robert J. Towarnicki
--------------------------------------------
Robert J. Towarnicki
Chairman, President, Chief Executive Officer
and Director (Principal Executive Officer)
Dated: May 14 , 2003 By: /s/ Brian J. Hayden
--------------------------------------------
Brian J. Hayden
Chief Financial Officer; Vice President-Finance;
Treasurer (Principal Financial and Accounting Officer)
17
Sarbanes-Oxley Section 302(a) Certification
I, Robert J. Towarnicki, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cell Pathways,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003 /s/ Robert J. Towarnicki
-------------------------
Robert J. Towarnicki
Chief Executive Officer
18
Sarbanes-Oxley Section 302(a) Certification
I, Brian J. Hayden, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cell Pathways,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003 /s/ Brian J. Hayden
--------------------
Brian J. Hayden
Chief Financial Officer
19