SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2001
Commission File Number: 0-21990
OXiGENE, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3679168
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
321 Arsenal Street
Watertown, MA 02472
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(Address of principal executive offices, including zip code)
(617) 673-7800
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(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share NASDAQ National Market
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Title of Each Class Name of Each Exchange
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 herein, or any amendment to this Form
10-K. []
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 21, 2002 was $29,260,195.49 based
on the closing price of $2.28 on that date.
As of March 21, 2002, the aggregate number of outstanding shares of Common
Stock of the registrant was 12,636,664.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Proxy Statement for the Annual Meeting of Stockholders,
scheduled to be held on June 11, 2002, is incorporated by reference to Part III
(Items 10, 11, 12 and 13) of this Form 10-K.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
UNDER THE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, this Annual Report on
Form 10-K ("Annual Report") contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements involve known and unknown risks and uncertainties that may cause the
Company's actual results or outcomes to be materially different from those
anticipated and discussed herein. Important factors that the Company believes
may cause such differences are discussed in the "Risk Factors" section of this
Annual Report and in the cautionary statements accompanying the forward-looking
statements in this Annual Report. In assessing forward-looking statements
contained herein, readers are urged to read carefully all Risk Factors and
cautionary statements contained in this Annual Report. Further, the Company
operates in an industry sector where securities values may be volatile and may
be influenced by regulatory and other factors beyond the Company's control.
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TABLE OF CONTENTS
PART I.........................................................................4
1. BUSINESS....................................................................4
INTRODUCTION................................................................4
PRODUCT DEVELOPMENT AND MARKETING STRATEGY..................................5
TECHNOLOGY OVERVIEW.........................................................7
OXIGENE'S CLINICAL TRIAL PROGRAM............................................7
PRODUCT DEVELOPMENT AND REGULATORY PROCESSES................................8
RESEARCH AND DEVELOPMENT AND COLLABORATIVE ARRANGEMENTS....................10
PATENTS AND TRADE SECRETS..................................................11
EMPLOYEES..................................................................12
SCIENTIFIC ADVISORY BOARD AND CLINICAL TRIAL ADVISORY BOARD................12
COMPETITION................................................................14
RISK FACTORS...............................................................15
GLOSSARY OF SCIENTIFIC TERMS...............................................19
2. PROPERTIES.................................................................20
3. LEGAL PROCEEDINGS..........................................................20
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................20
PART II.......................................................................21
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......21
6. SELECTED FINANCIAL DATA....................................................22
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................................22
OVERVIEW...................................................................22
RESULTS OF OPERATIONS......................................................24
LIQUIDITY AND CAPITAL RESOURCES............................................26
CRITICAL ACCOUNTING POLICIES...............................................27
R&D DISCLOSURE.............................................................28
TAX MATTERS................................................................28
7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................29
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................29
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.................................................................29
PART III......................................................................30
10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.........................30
11.EXECUTIVE COMPENSATION.....................................................30
12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............30
13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................30
PART IV.......................................................................31
14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K...........31
INDEX TO EXHIBITS.............................................................33
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PART I
1. BUSINESS
INTRODUCTION
OXiGENE, Inc. ("OXiGENE" or the "Company"), The Vascular Targeting Company,
is an international biopharmaceutical company engaged principally in research
into and the development of products for use in the treatment of cancer. The
Company's activities initially were directed primarily toward products designed
to complement and enhance the clinical efficacy of radiation and chemotherapy,
which are the most common and traditional forms of non-surgical cancer
treatment. Recently, however, the Company's efforts have focused on developing
products for application as direct cancer treatment agents, particularly
vascular targeting agents ("VTAs" or "VTA"). Certain Company activities are
conducted with third parties, either through licensing arrangements,
collaborations or joint ventures.
COMBRETASTATIN. The Company's primary technology is based on
Combretastatin. Combretastatins are a family of proprietary small molecule
anti-tumor vascular targeting agents that attack the existing blood vessels
within, and to some extent the blood vessels leading to, a tumor, thereby
inhibiting the growth of the tumor, shrinking it and potentially preventing it
from metastasizing. Blood vessels in normal tissue are much more resistant to
the action of Combretastatin. Combretastatin targets the inner areas and center
of the tumor, which are not otherwise readily reached by chemotherapeutic agents
or radiation, and is expected thereby also to enhance the efficacy of those
forms of treatment. Ultimately, the Company expects to participate in the
development of a Combretastatin-based product that will cause the targeted
tumors to shrink, acting either alone or in combination with other
chemotherapeutic agents or radiation. Currently, OXiGENE has, in various stages
of pre-clinical and clinical development, therapeutic product candidates.
On December 15, 1999, the Company entered into a Research Collaboration and
License Agreement with Bristol-Myers Squibb Company ("BMS"). This agreement gave
BMS world-wide rights to develop Combretastatin compounds, including OXiGENE's
lead compound CA4P, as a new class of anti-cancer agents. Pursuant to the terms
of the BMS Agreement, BMS paid a non-refundable license fee and agreed to assume
all research, development, commercialization and/or marketing costs of all
in-licensed products. In October 2001, the Company announced that it had
regained its rights to the Combretastatin anti-tumor compounds licensed to BMS
upon the agreement of the parties to conclude the Research Collaboration and
License Agreement established in December 1999. The Company recognized
approximately $6.9 million of deferred revenue as revenue in the fourth quarter
of 2001 as a result of the agreement. In addition, the Company recorded an
accrued liability of approximately $0.5 million related to certain inventory and
royalty payments negotiated with BMS. The Company may incur future liability to
BMS upon the in-license of certain technologies related to the agreement. In
February of 2002, the Company and BMS finalized their Termination Agreement.
VTAs, like Combretastatin, are distinguishable from anti-angiogenesis
agents because they directly target the blood vessels already formed in tumors.
Products that are developed as anti-angiogenesis agents attempt to prevent the
formation of new tumor blood vessels as opposed to attacking existing blood
vessels. The Company believes that anti-angiogenesis products, if successful,
may prevent the continued growth of tumors but may not shrink existing tumors.
In contrast, Combretastatin based CA4P appears to slow growth and result in
shrinkage of tumors.
Combretastatins are a family of naturally occurring, highly active
substances, of which OXiGENE's lead compound is CA4P. CA4P is an inactive
synthetic derivative that becomes activated following entry into the blood
stream, and then, targets the tumor's blood vessels. Recent work directed at
understanding how Combretastatin works shows CA4P can have dramatic effects on
the shape of newly formed endothelial cells, such as those formed in malignant
tumors, but less effect on quiescent endothelial cells that are found in
healthy, normal tissues. For example, in vitro effects of CA4P on tubulin
cytoskeleton and endothelial cell shape include rapid changes in endothelial
cell shape that dramatically alter capillary blood flow and, as a result, cause
an occlusion of blood vessels within tumors. The eventual result is reduction of
blood flow, which is critical to tumor maintenance and growth, and consequently
a cascade of tumor cell death by nutrient and oxygen deprivation.
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In December 2001, the Company announced selection of its next generation
VTA, Oxi-4503. Oxi-4503 is a VTA with a profile of activity that appears
distinct from CA4P in that it appears to be able to cause tumor regressions in
experimental tumor systems with single agent activity. While CA4P has
demonstrated the ability to block blood flow to the tumor in all but the
periphery of a tumor, Oxi-4503 appears to attack blood vessels in all regions of
the tumor including the periphery.
The Company has developed a synthetic process for the manufacture of
Combretastatin phosphates. The Company believes that this synthetic
water-soluble Combretastatin can be produced in commercial volumes at a
reasonable cost.
Certain Combretastatins were discovered by Dr. George R. Pettit, Regents
Professor of Chemistry at Arizona State University ("ASU"). ASU has granted the
Company an exclusive, world-wide, royalty-bearing license with respect to the
commercial rights to particular Combretastatins. Specific Combretastatins have
been successfully tested in vitro and in vivo in laboratories in the United
States and Europe. The Company's most promising Combretastatin product, CA4P,
has completed three Phase I clinical trials in the United States and the United
Kingdom.
THE BENZAMIDE PLATFORM. The benzamide technology was originally developed
by the Company around the inhibition of DNA repair processes. The third
generation benzamide is Declopramide (formerly Oxi-104). Declopramide makes
tumor cells more susceptible to radiation damage and/or chemotherapy. As a
consequence of the Company's decision to focus on the development of VTA
products, which narrowing of focus was announced in connection with the recent
developments regarding the mutual termination of the Research Collaboration and
License Agreement with BMS for CA4P, the Company has decided to discontinue all
further development of the benzamide compounds. The Company licensed to Active
Biotech its benzamide technology rights (other than Declopramide) in November
2001.
GENERAL. The Company is a Delaware corporation that was originally
incorporated in the state of New York in 1988 and reincorporated in the state of
Delaware in 1992. The Company has its corporate office in the United States at
321 Arsenal Street, Watertown, Massachusetts, 02472, (telephone: 617-673-7800;
fax: 617-924-9229).
In June 2001, the Company finished moving its corporate headquarters to
Watertown, Massachusetts from Stockholm, Sweden. On December 31, 2001, the
Company closed its Stockholm, Sweden office, however, the Company continues to
maintain its wholly-owned subsidiary, OXiGENE Europe AB, in Sweden. The Company
maintains a small employee and facilities base, with administrative and
scientific functions, which include among other things; product development,
regulatory oversight and clinical testing, being managed from its Watertown,
Massachusetts headquarters. Substantial scientific activities are conducted
pursuant to collaborative arrangements with universities. Regulatory and
clinical testing functions are generally the subject of contracts with third
party, specialty enterprises. References in this Annual Report to "OXiGENE" or
the "Company" mean OXiGENE, Inc. and its wholly-owned Swedish subsidiary OXiGENE
Europe AB.
PRODUCT DEVELOPMENT AND MARKETING STRATEGY
The Company's strategy is to develop innovative therapeutics for oncology
and to leverage its technology in the ophthalmology and in-stent restenosis
markets. The principle focus of the Company, in the foreseeable future, is to
complete the clinical development of its lead compound CA4P, as well as to
advance the pre-clinical development of its next generation VTA, Oxi-4053. To
advance its strategy, the Company has established relationships with
universities, research organizations and other institutions in these fields. The
Company intends to broaden these relationships, rather than expand its in-house
research, development and clinical staff. The Company plans to market its
products, if and when approved, generally through strategic alliances and joint
ventures with unaffiliated pharmaceutical companies.
In June 1999, the Company entered into a Research Collaboration Agreement
with Active Biotech AG ("Active") of Sweden to explore the use of OXiGENE's
benzamide and nicotinamide technology (the benzamide technology also being the
platform technology for Declopramide) in the treatment of inflammatory diseases.
Under the agreement, Active will evaluate the technology's potential as a
treatment for inflammatory diseases. Active will conduct research with an option
to jointly develop anti-inflammatory drug candidates with OXiGENE upon
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successful completion of the initial research. In November 2001, the Company
announced that it had signed an agreement to license, on a non-exclusive basis,
its benzamide technology to Active Biotech for all indications except for the
use of the benzamide compound Declopramide.
In July 2001, the Company announced the sale of its nutritional and
diagnostic technology, Nicoplex and Thiol, respectively, to CampaMed LLC
("CampaMed"). Under the terms of the agreement, CampaMed will provide up to
approximately $3.3 million in future installment payments based upon sales of
the products. In addition, the Company was granted a 10% equity position in
CampaMed. No revenue was recognized under this agreement during December 31,
2001.
In September 2001, the Company entered into a Joint Research Agreement with
Jomed N.V. ("Jomed") to research restenosis inhibitors, integrating Jomed's
stent technology with the Company's platform of VTAs. Under the agreement, Jomed
will fund and perform proof-of-concept studies with the Company's VTAs on drug
eluting stents. At the conclusion of the studies, business terms will be
negotiated.
In September 2001, the Company signed a Materials-Cooperative Research and
Development Agreement with the National Eye Institute, a division of the
National Institutes of Health, to study the effects of CA4P on an animal model
of proliferative diabetic retinopathy, which is an eye disease characterized by
aberrant neo-vasculature growth. The cost of this study will be funded by
OXiGENE.
In October 2001, the Company announced that it had regained its rights to
the Combretastatin anti-tumor compounds licensed to BMS upon the agreement of
the parties to conclude the Research Collaboration and License Agreement
established in December 1999. The Company recognized approximately $6.9 million
of deferred revenue as revenue in the fourth quarter of 2001 as a result of the
agreement. In addition, the Company recorded an accrued liability of
approximately $0.5 million related to certain inventory and royalty payments
negotiated with BMS. The Company may incur future liability to BMS upon the
in-license of certain technologies related to the agreement. In February of
2002, the Company and BMS finalized their Termination Agreement.
In December 2001, the Company announced the selection of its next
generation VTA, Oxi-4503. Oxi-4503 is a VTA with a profile of activity distinct
from CA4P in that it appears to be able to cause tumor regressions in
experimental tumor systems with single agent activity. While CA4P has
demonstrated the ability to block blood flow to the tumor in all but the
periphery of the tumor, Oxi-4503 appears to attack blood vessels in all regions
of the tumor including the periphery.
Additionally, the Company has collaborative arrangements with a number of
academic and other research institutions and organizations in the United States
and Europe, including:
o University of Lund in Lund, Swedenl;
o Gray Laboratory Cancer Research Trust in Middlesex, United Kingdom;
o University of Florida in Gainesville, Florida;
o Baylor University in Waco, Texas;
o Arizona State University in Tempe, Arizona.
See "Research and Development and Collaborative Arrangements."
While OXiGENE is likely to continue exploring other licensing and
development opportunities for its technologies with other companies, as of
December 31, 2001, it has no current commitments for any new collaborations and
there can be no assurance that the Company:
(i) will be successful in establishing new collaborative agreements or
licensing arrangements;
(ii) will enter into collaborative arrangements on terms favorable to
the Company; or
(iii) that any current or future licensees will be successful in
commercializing products.
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Unless and until the Company enters into any new material collaborations,
with respect to CA4P and/or the related Combretastatin family of compounds, the
Company intends to advance CA4P through the next stages of clinical trial and
development independently.
TECHNOLOGY OVERVIEW
OXiGENE's technology platform consists of a family of VTAs both in human
clinical trials as well as pre-clinical animal experiments.
COMBRETASTATIN: AN ANTI-TUMOR VASCULAR TARGETING AGENT. Combretastatins are
organic small molecules found naturally in the bark of the African Bush Willow,
(Combretum caffrum). They were discovered and isolated a decade ago by George R.
Pettit, Ph.D. of ASU. In May 1997, OXiGENE and ASU entered into an option
agreement to develop and test Combretastatin. The agreement granted OXiGENE an
option to acquire an exclusive, world-wide, royalty-bearing license with respect
to the family of Combretastatins commercial rights, which OXiGENE exercised and
subsequently signed a license agreement on August 2, 1999.
OXiGENE's lead Combretastatin family therapeutic candidate, CA4P, is a
derivative of the natural Combretastatin A-4 subtype found by Dr. Pettit. It is
a member of a relatively new class of drugs; anti-tumor VTAs that can induce
extensive cell death within solid tumors by selectively targeting and attacking
existing tumor-specific blood vessels. Phase I studies of Combretastatin have
been completed in the U.S. and Europe in patients with solid tumors. The Company
will conduct additional clinical trials in the cancer therapy field.
In December 2001, the Company announced selection of its next generation
VTA, Oxi-4503. Oxi-4503 is a VTA with a profile of activity that appears
distinct from CA4P in that it seems to be able to cause tumor regressions in
experimental tumor systems with single agent activity. While CA4P has
demonstrated the ability to block blood flow to the tumor in all but the
periphery of a tumor, Oxi-4503 appears to attack blood vessels in all regions of
the tumor including the periphery. Anti-tumor vascular targeting is a cancer
therapy that departs significantly from other current approaches to treating
cancer. In contrast to traditional methods involving a direct attack on cancer
cells, anti-tumor VTAs attack a tumor's life support system, a network of
existing and emerging blood vessels. Pre-clinical studies have shown that the
use of these therapies can cause a tumor to shrink.
According to Cancer Research UK, a cancer organization in the United
Kingdom, nearly 90 percent of all cancers, more than 200 types, are solid tumors
and, therefore, potential candidates for anti-tumor vascular targeting. Despite
advances in treatment with surgery, radiation and chemotherapy, serious problems
with those conventional treatments persist. Many solid tumors remain incurable,
especially when the tumor has metastasized or is a large mass at the time of
diagnosis. Surgery may not be capable of treating certain tumors because of
their location, and chemotherapy and radiation may not be effective in attacking
the tissue core of the tumor. Also, and importantly, chemotherapy and radiation
treatment damage healthy cells along with cancerous cells, resulting in serious
side effects for patients and, in many instances, eventually induce drug
resistance in the tumor.
While angiogenesis inhibitors (anti-angiogenesis agents) and anti-tumor
VTAs, such as Combretastatin, both target a tumor's blood vessels, they differ
in their approach and in their end result. With anti-angiogenesis agents, the
aim is to prevent tumor growth by inhibiting the formation of new tumor-specific
blood vessels that feed the tumor. As the tumor is not destroyed, it can form
new feeder blood vessels after treatment has stopped. Anti-tumor VTAs, on the
other hand, aim to attack tumors by selectively disrupting their existing blood
vessel structure, particularly those within the tumor, creating a rapid and
irreversible shutdown of these blood vessels. The Company believes that shutting
off a tumor's blood supply is an efficient therapeutic strategy. Whereas most
cancer drugs attack individual cancer cells, the Company believes that its
Combretastatin agent can attack many tumor cells simultaneously. Moreover, this
result is achieved with relatively small doses, as a result of which
Combretastatin may avoid many harmful side effects that accompany many other
cancer drugs.
OXIGENE'S CLINICAL TRIAL PROGRAM
COMBRETASTATIN A-4 PRODRUG. The Company began testing CA4P in three Phase
I/II dose escalation clinical trials during the fourth quarter 1998 and the
first quarter 1999. Each of these clinical trials, which examined the safety,
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pharmacokinetics and mode of action of CA4P using three different dose regimens
in patients with advanced solid cancers, have been completed. The key findings
of these clinical trials are summarized below:
(1) CA4P was well tolerated and a consistent maximum tolerated dose
(MTD) was determined at all three sites.
(2) Side effects were manageable and did not display the typical
toxicities associated with chemotherapeutic agents.
(3) It was determined that CA4P had a reasonable therapeutic index and
blood flow reduction was observed below, up to, and beyond the MTD.
(4) Data support biological and vascular activity.
(5) Promising signs of clinical effects were observed with one
complete response, three cases of measurable tumor size reduction
and one case of long-term stabilization of disease.
GENERAL. OXiGENE's products are in an early stage of development. In order
to achieve profitable operations on a continuing basis, the Company, alone or in
collaboration with others, must successfully develop, manufacture, introduce and
market its products. The time frame necessary to achieve market success for any
individual product is long and uncertain. See "Product Development and
Regulatory Processes." The products currently under development by the Company
will require significant additional research and development and the completion
of extensive pre-clinical and clinical testing prior to application for
commercial use. A number of companies in the biotechnology and pharmaceutical
industries have suffered significant setbacks in clinical trials, even after
showing promising results in earlier studies or trials. Although the Company has
obtained some favorable results to date in pre-clinical studies and clinical
trials of certain of its potential products, this does not mean favorable
results will continue to be obtained. The results may not be indicative of
results that will ultimately be obtained in or throughout such clinical trials,
and there can be no assurance that clinical testing will show any of the
Company's potential products to be safe or efficacious. Additionally, there can
be no assurance that the Company will not encounter problems in its clinical
trials that will cause the Company to delay, suspend or terminate those clinical
trials. There can also be no assurance that the Company's research or product
development efforts or those of its collaborative partners will be successfully
completed, that any compounds currently under development by the Company will be
successfully developed into drugs, that any potential products will receive
regulatory approval on a timely basis, if at all, or that competitors will not
develop and bring to market products or technologies that render the Company's
potential products obsolete. If any such problems occur, the Company could be
materially and adversely affected.
PRODUCT DEVELOPMENT AND REGULATORY PROCESSES
Research, the first step in biopharmaceutical product development,
initially involves optimization of leading chemical structures into leading
compounds. Once a leading compound has been identified, the pre-clinical phase
commences. In that phase, certain selected compounds are tested for therapeutic
potential in a number of animal models and undergo laboratory testing, with the
objective of characterizing the investigated compounds in relation to existing
treatment and obtaining a first indication of the compounds' development
potential. Successful pre-clinical work may lead to the filing of an
Investigational New Drug application ("IND"), or a foreign equivalent, with the
relevant national regulatory authorities. The IND is a permission to administer
the compound to humans in clinical trials. Several years of research and testing
generally are necessary before an IND may be obtained and clinical development
may commence. There can be no certainty that submission of an IND will result in
the United States Food and Drug Administration or FDA, authorization to commence
clinical trials or that authorization of a particular phase of a human clinical
trial program will result in authorization of other phases or that the
completion of any clinical trials will result in FDA approval.
The clinical development of new drugs is subject to approval by the health
authorities in individual countries, which have broad discretionary powers. For
example, in the United States, the FDA reviews the results of all clinical
studies and if it becomes aware of one or more significant safety issues, or
convincing evidence that the therapy is not effective for the chosen indication,
it may discontinue a clinical trial. The requirements regarding the duration of
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a clinical phase vary considerably among countries. For life threatening and
severely debilitating conditions where products provide meaningful therapeutic
benefit over existing treatments or where no satisfactory treatment currently
exists, however, it is possible to accelerate the development process in the
United States through the "Accelerated Drug Approval Program." In other
countries, the trial process for drugs directed toward life threatening diseases
is shortened by lower requirements regarding the patient sample size required to
be met in the trials.
The time periods mentioned below are indications only that may vary
significantly and be materially longer. Upon successful completion of the
development program, a New Drug Application ("NDA"), or a foreign equivalent,
may be submitted to the authorities, and, if approved, the product may then be
marketed upon the terms and conditions of such approval. Submission of an NDA
does not assure that the FDA will approve a product for manufacturing and
marketing. Clinical trials are typically conducted in three sequential phases,
but the phases may overlap.
PHASE I. The purpose of a Phase I study is to evaluate the toxicity of the
tested compound and to establish how the tested compound is tolerated and
decomposed in the human body. A Phase I clinical trial traditionally tests the
compound for safety (adverse effects), dosage tolerance, metabolism,
distribution, excretion and pharmacodynamics in a small group of healthy
individuals. A Phase I may last up to one year.
PHASE II. A Phase II study marks the beginning of clinical trials on a
limited number of patients to (i) determine the efficacy of the compound for
specific indications, (ii) determine dosage tolerance and optimal dosage and
(iii) identify possible adverse effects and safety risks. The trials also seek
to establish the most effective route of administration. Trials are conducted on
a larger, but still limited number of carefully monitored patients. A Phase II
study may last up to two and one-half years.
PHASE III. If preliminary evidence suggesting effectiveness has been
obtained during Phase II evaluations and the compound is found to have an
acceptable safety profile in Phase II evaluations, a Phase III trial may be
undertaken. A Phase III is an extensive clinical trial in a large number of
patients. The number of patients in a Phase III trial program depends to a great
extent on the clinical indications that the drug addresses. Trials are often
double-blinded and involve a detailed statistical evaluation of test results.
The compound is tested against placebos and existing treatment, if such
treatment is available. The product is manufactured in commercial quantities
(batch manufacturing) and tested for shelf life, or stability, and further
evaluation of the clinical efficacy and safety of the compound takes place.
Phase III may last several years and is the most time-consuming and expensive
part of a clinical trial program. There can be no assurance that Phase I, Phase
II or Phase III testing will be completed successfully within any specified time
period, if at all, with respect to any of the Company's potential products.
OXiGENE, like other biopharmaceutical companies, will be subject to strict
controls covering the manufacture, labeling, supply and marketing of any
products it may develop and market. The most important regulation is the
requirement to obtain and maintain regulatory approval of a product from the
relevant regulatory authority to enable that product to be marketed in a given
country. Further, OXiGENE is subject to strict controls over how clinical trials
of its potential pharmaceutical products are conducted.
The regulatory authorities in each country may impose their own
requirements and may refuse to grant, or may require additional data before
granting, an approval even though the relevant product has been approved by
another authority. The United States and European Union ("EU") countries have
very high standards of technical appraisal and, consequently, in most cases a
lengthy approval process for pharmaceutical products. The time required to
obtain such approval in particular countries varies, but if obtained generally
takes from six months to several years, if at all, from the date of application,
depending upon the degree of control exercised by the regulatory authority, the
duration of its review procedures and the nature of the product. The trend in
recent years has been towards stricter regulation and higher standards.
In the United States, the primary regulatory authority is the FDA. In
addition to regulating clinical procedures and processes, the FDA investigates
and approves market applications for new pharmaceutical products and is
responsible for regulating the labeling, marketing and monitoring of all
pharmaceutical products, whether currently marketed or under investigation. Upon
approval in the United States, a drug may be marketed only for the approved
indications in the approved dosage forms and dosages. In addition to obtaining
FDA approval for each indication to be treated with each product, each domestic
drug manufacturing firm must register with the FDA, list its drug products with
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the FDA, comply with current Good Manufacturing Practice ("cGMP") requirements
and be subject to inspection by the FDA. Foreign manufacturing firms
distributing drugs in the United States also must comply with cGMP requirements
and list their products with the FDA and are subject to periodic inspection by
the FDA or by local authorities under agreement with the FDA.
In Europe, the European Committee for Proprietary Medicinal Products
provides a mechanism for EU-member states to exchange information on all aspects
of product licensing and assesses license applications submitted under two
different procedures (the multistate and the high-tech concentration
procedures). The EU has established a European agency for the evaluation of
medical products, with both a centralized community procedure and a
decentralized procedure, the latter being based on the principle of mutual
recognition between the member states.
There can be no assurances that any of the Company's potential products
will ever obtain the governmental approvals necessary to permit commercial sales
of any of its potential products. Further, even if regulatory approval of a
potential product is obtained, such approval may significantly entail
limitations on the indicated uses for which that potential product may be
marketed.
RESEARCH AND DEVELOPMENT AND COLLABORATIVE ARRANGEMENTS
OXiGENE's research and development programs are generally pursued in
collaboration with academic and other research institutions. Currently, the
Company has collaborative agreements and arrangements with a number of such
institutions in the United States and abroad, including:
o University of Lund in Lund, Sweden;
o Gray Laboratory Cancer Research Trust in Middlesex, United Kingdom;
o University of Florida in Gainesville, Florida;
o Baylor University in Waco, Texas;
o Arizona State University in Tempe, Arizona.
In June 1999, the Company and Active entered into a Research Collaboration
Agreement involving the Company's benzamide and nicotinamide technology in the
treatment of inflammatory diseases. Under the agreement, Active will explore and
evaluate the technology's potential as a treatment for inflammatory diseases.
Active will contribute resources to conduct the research, and has an option to
jointly develop anti-inflammatory drug candidates with OXiGENE upon successfully
completing the initial research. In November 2001, the Company announced that it
had signed an agreement to license, on a non-exclusive basis, its benzamide
technology to Active for all indications except for the use of the benzamide
compound Declopramide.
On May 17, 2000 the Company entered into a joint venture agreement with
Peregrine Pharmaceuticals, Inc. ("Peregrine"), forming Arcus Therapeutics LLC
("ARCUS") to develop and commercialize VTA technologies. ARCUS was granted
patent protection over VTA technologies used in the treatment of solid tumors by
disrupting the function for use of the tumor blood vessels. Under the terms of
the joint venture agreement, Peregrine supplied its intellectual property to the
joint venture, and OXiGENE licensed its next generation tubulin-binding
compounds for use in conjunction with a Peregrine antibody. On February 28,
2002, the Company entered into an agreement to conclude ARCUS. Under the terms
of the agreement, Peregrine paid OXiGENE $2.0 million and both Peregrine and
OXiGENE reacquired full rights and interest to the vascular targeting platforms
they contributed to the joint venture.
In September 2001, the Company entered into a Joint Research Agreement with
Jomed to research restenosis inhibitors, integrating Jomed's stent technology
with OXiGENE's platform of VTAs. Under the agreement, Jomed will perform
proof-of-concept studies with OXiGENE's VTAs on drug eluting stents.
In September 2001, the Company signed a Materials-Cooperative Research and
Development Agreement with the National Eye Institute, a division of the
National Institutes of Health, to study the effects of CA4P on an animal model
of proliferative diabetic retinopathy.
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In October 2001, the Company announced that it had regained its rights to
the Combretastatin anti-tumor compounds licensed to BMS upon the agreement of
the parties to conclude the Research Collaboration and License Agreement
established in December 1999. The Company recognized approximately $6.9 million
of deferred revenue as revenue in the fourth quarter of 2001 as a result of the
agreement. In addition, the Company recorded an accrued liability of
approximately $0.5 million related to certain inventory and royalty payments
negotiated with BMS. The Company may incur future liability to BMS upon the
in-license of certain technologies related to the agreement. In February of
2002, the Company and BMS finalized their Termination Agreement.
In December 2001, the Company announced selection of its next generation
VTA, Oxi-4503. Oxi-4503 is a VTA with a profile of activity that appears
distinct from CA4P in that it seems to be able to cause tumor regressions in
experimental tumor systems with single agent activity. While CA4P has
demonstrated the ability to block blood flow to the tumor in all but the
periphery of a tumor, Oxi-4503 appears to attack blood vessels in all regions of
the tumor including the periphery.
The Company incurred approximately $8.4 million, approximately $8.1 million
and approximately $6.1 million in research and development expenses in the years
ended December 31, 1999, 2000 and 2001, respectively. Most of these amounts
represent external research and development expenditures.
PATENTS AND TRADE SECRETS
To date, OXiGENE's principal products have been based on certain previously
known compounds. The Company anticipates that any products it develops hereafter
may include or be based on the same or other compounds owned or produced by
unaffiliated parties, as well as synthetic compounds it may discover. Although
the Company expects to seek patent protection for any compounds it discovers,
there is no assurance that any or all of them will be subject to effective
patent protection. Further, the development of regimens for the administration
of pharmaceuticals, which generally involve specifications for the frequency,
timing and amount of dosages, has been, and the Company believes, will continue
to be, important to the Company's efforts, although those processes, as such,
may not be patentable.
PATENT PROTECTION. It is the Company's policy to seek patent protection in
the United States and in foreign countries. Primarily because of different
patent laws in various jurisdictions, the scope of, and hence the protection
afforded by, any patents OXiGENE may receive may vary even though they relate
essentially to the same subject matter.
The patent position of firms in the Company's industry generally involves
highly complex legal and other issues, resulting in both an apparent
inconsistency regarding the breadth of claims allowed in United States patents
and general uncertainty as to their legal interpretation and enforceability.
Accordingly, there can be no assurance that patent applications owned by the
Company will result in patents being issued or that, if issued, the patents will
afford competitive protection.
Further, there can be no assurance that products or processes developed by
the Company will not be covered by third party patents, in which case continued
development and marketing of those products or processes could require a license
under such patents. There can be no assurance that if a legal action were to be
brought against the Company on the basis of any third party patents, such action
would be resolved in the Company's favor. Such an unfavorable result against the
Company could result in monetary damages and injunctive relief. Further, even a
favorable result could cause expenditure of substantial monetary and other
resources in connection with the Company's defense against any such action.
GRANTED PATENTS AND PENDING APPLICATIONS. The following is a brief
description of the Company's current patent position, both in the United States
and abroad. As U.S. patent applications are generally maintained in secrecy by
the U.S. Patent and Trademark Office for at least some time after filing and
because publication of discoveries in the scientific or patent literature often
lags behind actual discoveries, OXiGENE cannot be certain that it was the first
creator of inventions covered by its pending applications or that it was the
first to file patent applications for those inventions.
The Company is the assignee of seven granted U.S. patents, nine pending
U.S. patent applications, and of granted patents and/or pending applications in
other countries (and/or international applications designating other countries)
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corresponding to five of the granted U.S. patents and eight of the pending U.S.
applications. One of the pending U.S. applications was filed in 1996, one in
1997, two in 2000 (of which one was based on a 1999 provisional application and
the other is a continuation-in-part of one of the granted patents). The Company
filed a total of four U.S. nonprovisional patent applications in 2001. Three of
these filings were based on provisional patent applications filed in 2000. In
addition, the Company jointly filed a provisional application with Baylor
University, which it expects to file as a regular U.S. patent application later
this year.
The Company's core Combretastatin technology platform is well protected by
a mix of existing and pending patents. The Company is an exclusive licensee of
five U.S. patents, two pending international applications, and of granted
patents and/or pending applications in other countries corresponding to three of
the granted U.S. patents, all of which relate to Combretastatin compositions
and/or methods of use in treating cancer. The owner of record of these licensed
patents and applications is the Arizona Board of Regents, a corporate body of
the State of Arizona, acting for and on behalf of ASU.
In 2001, the Company sought to aggressively expand on the breadth and scope
of its Combretastatin patent portfolio. In addition to continuing with the
prosecution of its U.S. application filed in 2000, the Company filed four
nonprovisional applications, which claim additional methods for the use and
manufacture of Combretastatins. OXiGENE solely owns two of these applications,
while OXiGENE and Bristol-Myers Squibb jointly own the other two. Further to
this, the Company jointly filed, with Baylor University, a U.S. provisional
application claiming a variety of Combretastatin synthetic analogs with the
potential of further development as VTAs.
In keeping with its position as a leading developer of VTAs, the Company
has maintained exclusive patent rights to a number of molecules which are
functionally related but structurally distinct from Combretastatin, some of
which have the potential for future development. The Company is an exclusive
licensee of two issued U.S. patents, one pending U.S. patent application, three
pending international applications, and of granted patent and/or pending
applications in other countries corresponding to one of the international
applications, all of which relate to anti-mitotic agents which inhibit tubulin
polymerization. The owner of the licensed patents and patent applications is
Baylor University.
The Company continues to retain ownership of patent rights to certain
benzamide and nicotinamide compositions and their use in a wide variety of
indications. The Company is the assignee of four U.S. patents and three pending
U.S. applications, and of granted patents and/or pending applications in foreign
countries covering new formulations and methods of use for treating cancer and
anti-inflammatory disorders.
In 2001, the Company divested much of its cancer diagnostics patent
portfolio by assigning its ownership interest in U.S. patents 5,925,571 and
6,020,351 and all foreign counterparts to CampaMed. In addition, the Company
terminated its exclusive license agreement with Preventive Medicine Institute, a
non-profit affiliate of the Strang Cancer Prevention Center in New York, NY, for
exclusive rights to U.S. patent 5,482,833, and corresponding foreign
equivalents. The Company remains the assignee of a U.S. patent 5,204,241, which
claims a method of measuring glutathione-s-transferase activity as a diagnostic
test for resistance to chemotherapy.
EMPLOYEES
The Company expects to maintain a relatively small number of executives and
other employees and to rely as much as possible on consultants and independent
contractors for its research, development, pre-clinical tests and clinical
trials. As of March 21, 2002 the Company had 14 full-time employees, of which 7
were engaged in research and development and monitoring of clinical trials. Most
of the Company's pre-clinical tests and clinical trials are subcontracted and
performed at certain universities in the United States and Europe with the
assistance of contract research organizations.
BOARD OF DIRECTORS
In February 2002, the board of directors of the Company appointed Joel
Citron as the new chairman of the board. Bjorn Nordenvall was appointed to the
position of vice chairman of the board.. In addition, Mr. Ron Pero, Ph.D. a
founder and formerly an officer and consultant of the Company stepped down as a
director and has been replaced by Mr. William Shiebler.
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SCIENTIFIC ADVISORY BOARD AND CLINICAL TRIAL ADVISORY BOARD
OXiGENE's Clinical Trial Advisory Board assesses and evaluates the
Company's clinical trial program. The Scientific Advisory Board discusses and
evaluates the Company's research and development projects. Members of the
Clinical Trial Advisory Board and the Scientific Advisory Board are independent
and have no involvement with the Company other than serving on such boards.
Some members of the Scientific Advisory Board and the Clinical Trial
Advisory Board receive cash compensation. Others have from time to time
received, and are expected to continue to receive, options to purchase shares of
Common Stock of the Company. All members are reimbursed for reasonable
out-of-pocket expenses.
The composition of the Scientific Advisory Board has been increased with
the addition of two new members: Robert S. Kerbel, Ph.D. and Dietmar W. Siemann,
Ph.D. and operate under the Chairmanship of Professor Hans Wigzell, M.D., Ph.D.
HANS WIGZELL, M.D., Ph.D. is Professor of Immunology at the Karolinska
Institute, Stockholm, Sweden, a well-known medical research institute in Europe.
Professor Wigzell is the chairman of OXiGENE's Scientific Advisory Board and
also serves as an advisor to the Company's Board of Directors. He was, for many
years, a member of the Nobel committee for the prize in medicine, of which he
also has served as chairman. Professor Wigzell is currently a member of the
editorial board of several international medical journals and has published more
than 500 articles in the areas of tumor biology, immunology, cell biology and
infectious diseases.
ROBERT S. KERBEL, Ph.D. is the director of Molecular and Cellular Biology
Research at Sunnybrook and Women's College Health Sciences Centre in Toronto and
the John & Elizabeth Tory Professor of Experimental Oncology at the University
of Toronto, as well as a Canada Research Chair in Molecular Medicine. He is the
author of more than 230 scientific papers and the recipient of numerous
scientific awards. Dr. Kerbel serves on the editorial boards of seven scientific
journals including: Cancer Research, Clinical Cancer Research, American Journal
of Pathology and Angiogenesis. He was Editor-in-Chief of Cancer & Metastasis
Reviews from 1991-2001.
DIETMAR W. SIEMANN, Ph.D. is the John P. Cofrin Professor and Associate
Chair for Research in Radiation Oncology at the University of Florida College of
Medicine in Gainesville. In addition, he is a professor in the school's
Department of Pharmacology and Therapeutics. Dr. Siemann has authored more than
150 scientific papers and is the recipient of numerous scientific awards,
including the Research Award of the Radiation Research Society in Oak Brook,
Illinois (1990). He is the former Chairman of the National Cancer Institute's
Radiation Study Section (1996-1998).
The members of the Company's Clinical Trial Advisory Board include:
HAKAN MELLSTEDT, M.D. Ph.D. is Professor of Oncologic Biotherapy at the
Karolinska Institute and Administrative Director of Cancer Center Karolinska,
Karolinska Institute, Stockholm, Sweden. He holds a position as Chief Physician
at the Department of Oncology (Radiumhemmet), Karolinska Hospital, Stockholm and
has specialist certificates in Oncology, Hematology and Internal Medicine. He is
the Chairman of the Swedish Society of Oncology. Professor Mellstedt is
currently a member of the Editorial Board of several international scientific
journals and has published more than 375 articles in the areas of hematology,
medical oncology, tumor immunology and the development of
immunotherapeutics/biotherapeutics in hematological malignancies as well as in
solid tumors. Professor Mellstedt is the Chairman of OXiGENE's Clinical Trial
Advisory Board.
MARGARET A. TEMPERO, M.D. is Deputy Director of the University of
California San Francisco Cancer Center and Professor and Chief of the Division
of Medical Oncology. Dr. Tempero is vice chairman of the Board of the National
Comprehensive Cancer Network. She also serves on the Board of the American
Society of Clinical Oncology and on the Board of Scientific Counselors, which is
advisory to the intramural programs on the National Cancer Institute. She holds
or has held editorial positions on numerous prestigious journals such as Cancer
Research, Journal of Clinical Oncology, Clinical Cancer Research and the
American Journal of Medicine. She is also credited with over 100 original
articles and book chapters.
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JAN B. VERMORKEN, M.D., Ph.D. is Professor of Oncology and head of the
Department of Medical Oncology of the University Hospital of the University of
Antwerp, Belgium. Professor Vermorken has held numerous functions with the Dutch
Cancer Society and the European Organization for Research on Treatment of Cancer
(EORTC), and currently is a member of EORTC's Early Clinical Studies Group and
the Subcommittee for Chemotherapy of EORTC's Head and Neck Cancer Cooperative
Group. Professor Vermorken has lectured extensively in the area of gynecological
oncology and currently serves of the Editorial Board of the International
Journal of Gynecological Oncology.
LEE S. ROSEN, M.D. is Adjunct Assistant Professor at UCLA's Department of
Medicine, Division of Hematology-Oncology and is a Director of UCLA's Cancer
Therapy Development Program. In 1995, Dr. Rosen received the Merit Award of the
American Association of Cancer Research and in 1996, Dr. Rosen was the recipient
of the Fellow Merit Award of the American Society of Clinical Oncology.
COMPETITION
The industry in which the Company is engaged is characterized by rapidly
evolving technology and intense competition. The Company's competitors include,
among others, major pharmaceutical, biopharmaceutical and biotechnology
companies, many of which have financial, technical and marketing resources
significantly greater than those of the Company. In addition, many of the small
companies that compete with the Company have also formed collaborative
relationships with large, established companies to support research,
development, clinical trials and commercialization of products that may be
competitive with those of the Company. Academic institutions, governmental
agencies and other public and private research organizations are also conducting
research activities and seeking patent protection and may commercialize products
on their own or through joint ventures or other collaborations.
The Company is aware of a limited number of companies involved in the
development of VTAs. Such companies include AstraZeneca, Aventis, and Abbott
Labortories, Inc., all of which are at an earlier stage of clinical development
than the Company's lead compound, CA4P.
The Company is aware of a number of companies engaged in the research,
development and testing of new cancer therapies or ways of increasing the
effectiveness of existing therapies. Such companies include, among others,
AstraZeneca, Aventis, Bayer, Bristol-Myers Squibb, Abbott Laboratories, Inc.,
Aeterna Laboratories Inc., Ciba-Geigy Ltd., Eli Lilly and Company, EntreMed
Inc., Glaxo Wellcome PLC, Johnson & Johnson, NeoPharm, Inc., Novartis AG,
Pharmacyclics, Inc., Pfizer Inc., and Pierre Fabre S.A., some of whose products
have already received, or are in the process of receiving, regulatory approval
or are in later stages of clinical trials.
The Company is also aware of companies engaged in the research, development
and testing of diagnostic assays for cancer, including Introgen Therapeutics,
Inc., AntiCancer Inc., Transgene S.A. and Medarex Inc. There are other companies
that have developed, or are in the process of developing, technologies that are,
or in the future may be, the basis for competitive products in the field of
cancer therapy or other products the Company intends to develop. Some of those
products may have an entirely different approach or means of accomplishing the
same desired effects as the products being developed by the Company, such as
gene transfer therapy, immunotherapy and photodynamic therapy. There can be no
assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective, safer or more affordable than
those being developed by the Company.
The Company expects that if any of its products gain regulatory approval
for sale they will compete primarily on the basis of product efficacy, safety,
patient convenience, reliability, price and patent protection. The Company's
competitive position also will depend on its ability to attract and retain
qualified scientific and other personnel, develop effective proprietary products
and implement joint ventures or other alliances with large pharmaceutical
companies in order to jointly market and manufacture its products.
-14-
RISK FACTORS
HISTORY OF LOSSES AND ANTICIPATED FUTURE FINANCIAL RESULTS; UNCERTAINTY OF
FUTURE PROFITABILITY. The Company has experienced net losses every year since
its inception and, as of December 31, 2001, had an accumulated deficit of
approximately $60.6 Million. The Company anticipates incurring substantial
additional losses over at least the next several years due to, among other
factors, the need to expend substantial amounts on its continuing clinical
trials and anticipated research and development activities and the general and
administrative expenses associated with those activities. The Company has not
commercially introduced any product and its potential products are in varying
early stages of development and testing. The Company's ability to attain
profitability will depend upon its ability to develop products that are
effective and commercially viable, to obtain regulatory approval for the
manufacture and sale of its products and to license or otherwise market its
products successfully. There can be no assurance that the Company will ever
achieve profitability or that profitability, if achieved, will be sustained on
an ongoing basis.
EARLY STAGE OF PRODUCT DEVELOPMENT; UNCERTAINTIES OF CLINICAL TRIALS;
UNPROVEN SAFETY AND EFFICACY. OXiGENE's products are in an early stage of
development. In order to achieve profitable operations, the Company, alone or in
collaboration with others, must successfully develop, manufacture, introduce and
market its products. The time frame necessary to achieve market success for any
individual product is long and uncertain. See "Product Development and
Regulatory Processes." The products currently under development by the Company
will require significant additional research and development and extensive
pre-clinical and clinical testing prior to application for commercial use. A
number of companies in the biotechnology and pharmaceutical industries have
suffered significant setbacks in clinical trials, even after showing promising
results in early or later stage studies of clinical trials. Although the Company
has obtained some favorable results to date in pre-clinical studies and clinical
trials of certain of its potential products, such results may not be indicative
of results that will ultimately be obtained in or throughout such clinical
trials, and there can be no assurance that clinical testing will show any of the
Company's products to be safe or capable of producing a desired result. There
can also be no assurance that the Company's research or product development
efforts or those of its collaborative partners will be successfully completed,
that any compounds currently under development by the Company will be
successfully developed into drugs, or that any potential products will receive
regulatory approval on a timely basis, if at all. If any such problems occur,
the Company could be materially and adversely affected.
SUFFICIENCY OF EXISTING CAPITAL RESOURCES; POSSIBLE NEED FOR ADDITIONAL
FUNDS; UNCERTAINTY OF FUTURE FUNDING. The Company's operations to date have
consumed substantial amounts of cash. Negative cash flow from the Company's
operations is expected to continue over at least the next several years. The
Company does not currently have any commitments or plans to raise additional
capital by selling equity, issuing debt or entering into any collaboration that
would provide material funding. The Company anticipates that its cash and cash
equivalents as of December 31, 2001, should be sufficient to satisfy the
Company's projected cash requirements as of that date for approximately 36
months. The Company's actual capital requirements will depend on numerous
factors, including: the progress of and results of its pre-clinical testing and
clinical trials of its VTAs under development, including CA4P, its lead
Combretastatin based compound; the progress of the Company's research and
development programs; the time and costs expended and required to obtain any
necessary or desired regulatory approvals; the resources, if any, that the
Company devotes to developing manufacturing methods and advanced technologies;
the ability of the Company to enter into licensing arrangements, including any
unanticipated licensing arrangements that may be necessary to enable the Company
to continue the Company's development and clinical trial programs; the costs and
expenses of filing, prosecuting and, if necessary, enforcing the Company's
patent claims, or defending the Company against possible claims of infringement
by the Company of third party patent or other technology rights; the cost of
commercialization activities and arrangements, if any, undertaken by the
Company; and, if and when approved, the demand for the Company's products, which
demand is dependent in turn on circumstances and uncertainties that cannot be
fully known, understood or quantified unless and until the time of approval, for
example the range of indications for which any product is granted approval.
Under the Company's current operating plan and capital budget, and based on
current costs' expectations, the Company believes its existing capital as of the
end of fiscal year 2001 is sufficient to fund operations through the period of
approximately the next 36 months and completion of clinical trials and the FDA
approval process of CA4P, its lead compound, whether or not such approval is
ultimately obtained. The Company cannot predict with any certainty the success
-15-
of any clinical trials, whether or not FDA approval will ultimately be obtained
and if obtained whether such approval will take longer than expected. Due to the
numerous risks and uncertainties of the drug development and FDA approval
process, the Company cannot guarantee that its current cash, cash equivalents
and capital will be sufficient to fund operations for the period of
approximately the next 36 months and through the completion of the development
of CA4P and the FDA approval process related to CA4P. If its existing funds are
not sufficient, the Company would be required to seek additional funding and/or
take other measures. In addition, the Company is certain it will have to raise
substantial additional funds: (i) if FDA approval is obtained on the CA4P
compound, to bring such compound to market, including arranging for or
developing manufacturing capabilities and completing marketing and other
commercialization activities related to CA4P; (ii) to complete the development
of any additional products other than the development and FDA approval process
related to CA4P; and (iii) to bring any other potential product to market.
Issuance of additional equity securities by the Company, for these or any other
purpose, would result in dilution to then existing stockholders. If additional
financing is needed, there can be no assurance that additional financing will be
available on acceptable terms when needed, if at all. If adequate funds are not
available on acceptable terms when needed, the Company would be required to
delay, scale back or eliminate one or more of its product development programs
or seek to obtain funds through arrangements with collaborative partners (or
others) which arrangements may include a requirement that the Company relinquish
rights to certain of its technologies or products or rights related to its
technologies or products that the Company would not otherwise relinquish. The
failure by the Company to obtain funding when and in the amounts needed and/or
the Company's acceptance of funding on terms that are not favorable to the
Company or less favorable to the Company than the Company would ordinarily
desire, would have a material adverse effect on the Company's financial position
and results of operations.
DEPENDENCE ON OTHERS FOR CLINICAL DEVELOPMENT AND MANUFACTURING AND
MARKETING. The Company has limited experience in drug development, the
regulatory approval process, manufacturing and marketing. Accordingly, OXiGENE
has depended, and in the future is likely to continue to depend, on others for
assistance in many areas, including research, conducting pre-clinical testing
and clinical trials, the regulatory approval process, manufacturing and
marketing. Funding requirements, competitive factors or prioritization of other
opportunities may lead the Company to seek additional arrangements with third
parties. While OXiGENE is likely to continue to explore other licensing and
development opportunities for its technologies with other companies, there can
be no assurance that the Company will be successful in establishing new
collaborative agreements or licensing arrangements; that any collaborative
partner will not be pursuing alternative technologies or developing alternative
compounds either on its own or in collaboration with others, directed at the
same diseases as those involved in its collaborative arrangements with the
Company; that any such collaborative partners will devote resources to the
Company's technologies or compounds on a basis favorable to the Company and thus
undermining any collaboration with the Company; that any such arrangements will
be on terms favorable to OXiGENE; or that any future licensees will be
successful marketing or in commercializing licensed products. See "Research and
Development and Collaborative Arrangements."
CLINICAL TRIALS; GOVERNMENT REGULATION AND HEALTH CARE REFORM; MANAGED
CARE. The Company's research and development activities, pre-clinical testing
and clinical trials, and the manufacturing and marketing of its products are
subject to extensive regulation by numerous governmental authorities in the
United States and other countries. See "Product Development and Regulatory
Processes." Pre-clinical testing and clinical trials and manufacturing and
marketing of OXiGENE's products are and will continue to be subject to the
rigorous testing and approval processes of the FDA, the Swedish Medical Products
Agency and other corresponding foreign regulatory authorities. Clinical testing
and the regulatory process generally take many years and require the expenditure
of substantial resources. In addition, delays or rejections may be encountered
during the period of product development, clinical testing and FDA regulatory
review of each submitted application. Similar delays may also be encountered in
foreign countries. There can be no assurance that, even after such time and
expenditures, regulatory approval will be obtained for any potential products
developed by OXiGENE or that a potential product, if approved in one country,
will be approved in other countries. See "Product Development and Regulatory
Processes." Moreover, if regulatory approval of a potential product is granted,
such approval may entail significant limitations on the indicated uses for which
that product may be marketed. Further, even if such regulatory approval is
obtained, a marketed product, its manufacturer and its manufacturing facilities
are subject to continual review and periodic inspections, and later discovery of
previously unknown problems (such as previously undiscovered side effects) with
a product, manufacturer or facility may result in restrictions on such product,
manufacturer or facility, including a possible withdrawal of the product from
the market. Failure to comply with the applicable regulatory requirements can,
among other things, result in fines, suspensions of regulatory approvals,
product recalls, operating restrictions, injunctions and criminal prosecution.
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Additionally, new government regulations may be established that could prevent
or delay regulatory approval of the Company's potential products. Further, the
U.S. Congress continues to debate various health care reform proposals which, if
adopted, may have a material adverse effect on the Company. Moreover, continued
cost control initiatives by health care maintenance organizations and similar
programs may affect the financial ability and willingness of patients and their
health care providers to utilize certain therapies which, in turn, could have a
material adverse effect on the Company.
COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE. The Company is engaged
in a rapidly evolving field. Competition from other pharmaceutical companies,
biotechnology companies and research and academic institutions is intense and
expected to increase. Many of those companies and institutions have
substantially greater financial, technical and human resources than the Company.
Those companies and institutions also have substantially greater experience in
developing products, in conducting clinical trials, in obtaining regulatory
approval and in manufacturing and marketing pharmaceutical products.
Accordingly, competitors may succeed in obtaining regulatory approval for their
products more rapidly than the Company. Competitors have developed or are in the
process of developing technologies that are, or in the future may be, the basis
for competitive products. Some of those products may have an entirely different
approach or means of accomplishing the desired therapeutic effect than products
being developed by the Company. See "Competition." There can be no assurance
that the Company's competitors will not succeed in developing technologies and
products that are more effective and/or cost competitive than those being
developed by the Company or that would render the Company's technology and
products less competitive or even obsolete. In addition, one or more of the
Company's competitors may achieve product commercialization or patent protection
earlier than the Company, which could materially adversely affect the Company.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. To date, OXiGENE's
principal products have been based on certain previously known compounds. The
Company anticipates that the products it develops in the future may include or
be based on the same or other compounds owned or produced by unaffiliated
parties, as well as synthetic compounds it may discover. Although the Company
expects to seek patent protection for any compounds it discovers and/or for any
specific uses it discovers for new or previously known compounds, there is no
assurance that any or all of them will be subject to effective patent
protection. Further, the development of regimens for the administration of
pharmaceuticals, which generally involve specifications for the frequency,
timing and amount of dosages, has been, and the Company believes, may continue
to be, important to the Company's efforts, although those processes, as such,
may not be patentable.
The Company's success will depend, in part, on its ability to obtain
patents, protect its trade secrets and operate without infringing on the
proprietary rights of others. As of March 21, 2002, the Company is the assignee
of seven granted U.S. patents, nine pending U.S. patent applications, and of
granted patents and/or pending applications in other countries (and/or
international applications designating other countries) corresponding to five of
the granted U.S. patents and eight of the pending U.S. applications, and is also
the exclusive licensee of a number of U.S. and foreign patents and pending
applications and pending international applications. The patent position of
pharmaceutical and biotechnology firms like OXiGENE generally is highly
uncertain and involves complex legal and factual questions, resulting in both an
apparent inconsistency regarding the breadth of claims allowed in U.S. patents
and general uncertainty as to their legal interpretation and enforceability.
Accordingly, there can be no assurance that patent applications assigned or
exclusively licensed to the Company will result in patents being issued, that
any issued patents assigned or exclusively licensed to the Company will provide
the Company with competitive protection or will not be challenged by others, or
that the current or future granted patents of others will not have an adverse
effect on the ability of the Company to do business and achieve profitability.
Moreover, since some of the basic research relating to one or more of the
Company's patent applications and/or patents was performed at various
universities and/or funded by grants, there can be no assurance that one or more
universities, employees of such universities and/or grantors will not assert
that they have certain rights in such research and any resulting products.
Furthermore, there can be no assurance that others will not independently
develop similar products, will not duplicate any of the Company's products or,
around the patent rights of the Company. In addition, as a result of assertion
of rights by a third party or otherwise, the Company may be required to obtain
licenses to patents or other proprietary rights of others in or outside of the
United States. No assurance can be given that any licenses required under any
such patents or proprietary rights would be made available on terms acceptable
to the Company, if at all. If the Company does not obtain such licenses, it
could encounter delays in product market introductions while it attempts to
design around such patents. In addition, the Company could incur substantial
-17-
costs in defending itself in suits brought against it or in connection with
patents to which it holds a license or in bringing suit to protect the Company's
own patents against infringement. The Company requires employees, Scientific
Advisory Board members and the institutions that perform its pre-clinical and
clinical tests to enter into confidentiality agreements with the Company. Those
agreements provide that all confidential information developed or made known to
the individual during the course of the relationship with the Company is to be
kept confidential and not to be disclosed to third parties, except in specific
circumstances. There can be no assurance, however, that any such agreement will
provide meaningful protection for the Company's trade secrets or other
confidential information in the event of unauthorized use or disclosure of such
information. See "Patents and Trade Secrets."
DEPENDENCE ON CERTAIN OFFICERS, DIRECTORS, PRINCIPAL CONSULTANTS AND
OTHERS. The Company believes that its success is, and will likely continue to
be, materially dependent upon its ability to retain the services of certain of
its current officers, directors, principal consultants and others, particularly
Joel-Tomas Citron, Dr. Bjorn Nordenvall, Dr. David Chaplin and Frederick
Driscoll. The loss of the services of any of these individuals could have a
material adverse effect on the Company. In addition, the Company has established
relationships with universities, hospitals and research institutions, which have
historically provided, and continue to provide, the Company with access to
research laboratories, clinical trials, facilities and patients. Additionally,
the Company believes that it may, at any time and from time to time, be
materially dependent on the services of consultants and other unaffiliated third
parties.
PRODUCT LIABILITY EXPOSURE; LIMITED INSURANCE COVERAGE. The use of the
Company's potential products in clinical trials and for commercial applications,
if any, may expose the Company to liability claims, in the event such products
cause injury, disease or result in adverse effects. These claims could be made
directly by health care institutions, contract laboratories, patients or others
using such products. Although the Company has obtained liability insurance
coverage for its ongoing clinical trials, and there can be no assurance that
such coverage will be in amounts sufficient to protect the Company and the
occurrence of any product liability claims or product recalls could have a
material adverse effect on the financial condition and prospects of the Company.
Further, adverse product and similar liability claims could negatively impact
the Company's ability to obtain or maintain regulatory approvals for its
technology and products under development.
PRICE VOLATILITY OF THE COMMON STOCK. The market price of the Common Stock
has been, and likely will continue to be highly volatile. See "Market For
Registrant's Common Equity and Related Stockholder Matters." Factors including
the Company's or its competitors results, clinical trials, research development
announcements by the Company or its competitors and government regulatory action
affecting the Company's potential products in both the United States and foreign
countries have had, and may continue to have, a significant effect on the
Company's results of operations and on the market price of the Company's Common
Stock. As of December 31, 2001, an aggregate of 25,100 stock appreciation rights
("SARs"), with a weighted average exercise price of $7.51 per SAR, had been
granted to certain clinical investigators and consultants. The Company is not
required to make any cash payments upon exercise of any such SAR. If and when
the spread between the market price of the Company's Common Stock and the
exercise price of the SARs changes, the charge for financial reporting purposes
to research and development will be adjusted to reflect an increase or decrease,
as the case may be, in the market price of the Company's Common Stock. In
addition, as of December 31, 2001, the Company had issued options to purchase an
aggregate of 12,000 shares of its Common Stock to certain consultants and
advisory board members who are not employees. Such options are accounted for at
their fair value and also result in a charge for financial reporting purposes.
The future charge related to these options are also influenced by changes in the
market price of the Company's Common Stock. In addition, substantially all of
the shares of the Company's Common Stock issuable upon exercise of outstanding
options, SARs have been registered for sale and may be sold from time to time
hereafter. Such sales, as well as future sales of the Company's Common Stock by
existing stockholders, or the perception that sales could occur, could adversely
affect the market price of the Company's Common Stock. The price and liquidity
of the Company's Common Stock may also be significantly affected by trading
activity and market factors related to the Nasdaq and Stockholm Stock Exchange
markets, which factors and the effects may differ between those markets.
NO DIVIDENDS. The Company has not declared or paid dividends on its Common
Stock since its inception and does not intend to declare or pay any dividends to
its stockholders in the foreseeable future. See "Market For Registrant's Common
Equity and Related Stockholder Matters."
-18-
GLOSSARY OF SCIENTIFIC TERMS
Angiogenesis................. The creation of new blood vessels.
Chemotherapy................. Drugs whose aim is the treatment, mitigation or
cure of diseases such as cancer.
DNA.......................... Chemical building blocks of genetic material.
Double-blind study........... A study in which neither the investigators
assessing the outcome of the trial nor the
patients know whether the patient is receiving
the drug being investigated or merely a placebo.
The outcome can only be determined when the
results are decoded.
IND.......................... An "Investigational New Drug" application filed
with the United States Food and Drug
Administration that permit the administration of
compounds to humans in clinical trials.
Malignant cell............... Cancer cell.
Metabolic function........... Living process of growth and reproduction.
NDA.......................... A "New Drug Application" filed with the United
States Food and Drug Administration, which, if
approved, allow a drug to be marketed in the U.S.
Necrosis..................... Cell death by decomposition.
Placebo...................... A non-active substance given to a group of
patients in a clinical trial to duplicate the
treatment method, but without the administration
of the active drug under investigation.
Radiation.................... Physical energy that splits molecules and
induces DNA damage.
Tubulin...................... A protein that forms the basic building blocks
of microtubules. Microtubules perform many
functions inside the cell including helping to
maintain endothelial cell shape.
-19-
2. PROPERTIES
The Company leases approximately 9,980 square feet of office space located
in Watertown, Massachusetts. The term of the lease is ten years and three months
commencing on August 21, 2000, with a yearly lease of approximately $0.3 million
expiring on November 30, 2010, with an option to extend for an additional term
of five years. In June 2001, the Company completed moving its corporate
headquarters to Watertown, Massachusetts from Stockholm, Sweden. On December 31,
2001, the Company closed its Stockholm, Sweden office, however, the Company
continues to maintain its wholly-owned subsidiary, OXiGENE Europe AB, in Sweden.
The Company does not own or lease any laboratories or other research and
development facilities.
3. LEGAL PROCEEDINGS
There are no material suits or claims pending or, to the best of the
Company's knowledge, threatened against the Company.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the vote of security holders of the Company for
the quarter ended December 31, 2001.
-20-
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Effective November 19, 1996, the Company's Common Stock commenced trading
on the Nasdaq National Market under the symbol "OXGN." Prior thereto, since the
completion of the Company's initial public offering in September 1993, the
Company's securities had been listed for quotation on the Nasdaq Small-Cap
Market. The Company's shares of Common Stock are also traded on the OM Stockholm
Exchange in Sweden under the symbol "OXGN". The following table sets forth the
high and low sales price per share for the Company's Common Stock for each
quarterly period within the two most recent fiscal years.
Fiscal Year 2001 Fiscal Year 2000
------------------------------------------------
High Low High Low
------------------------------------------------
First Quarter $ 8.31 $ 4.38 $ 28.75 $ 13.38
Second Quarter 6.42 4.90 22.63 9.38
Third Quarter 5.50 1.91 12.50 7.94
Fourth Quarter 3.90 1.55 10.44 5.13
As of March 21, 2002, there were 86 holders of record of the Company's
Common Stock. The Company believes, based on the number of proxy statements and
related materials distributed in connection with its 2001 Annual Meeting of
Stockholders, that there are approximately 10,000 beneficial owners of its
Common Stock.
The Company has not declared any cash dividends on its Common Stock since
its inception in 1988, and does not intend to pay cash dividends in the
foreseeable future. The Company presently intends to retain future earnings, if
any, to finance the growth and development of its business.
-21-
6. SELECTED FINANCIAL DATA
SUMMARY FINANCIAL INFORMATION
OXiGENE, INC.
Years ended December 31,
----------------------------------------------------------------------------
1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Revenues
Licensing revenue $ - $ - $ 1,271,918 $ 1,694,944 $ 8,953,119
Interest income 2,217,467 1,997,991 1,340,738 1,921,961 906,893
------------ ------------ ------------ ------------ ------------
Total revenues 2,217,467 1,997,991 2,612,656 3,616,905 9,860,012
Expenses
Costs related to licensing
revenue - - 1,250,000 1,161,612 1,508,372
Amortization of license
agreement - - 40,639 222,536 297,535
Research and development 7,281,504 10,358,913 8,397,799 8,057,671 6,132,283
General and administrative 3,046,484 3,135,871 3,336,463 3,160,489 5,446,876
Loss on sale of available-
for-sale securities - - - - 552,308
Interest expense - - 36,620 102,043 61,248
------------ ------------ ------------ ------------ ------------
Total expenses 10,327,988 13,494,784 13,061,521 12,704,351 13,998,622
------------ ------------ ------------ ------------ ------------
Net loss $ (8,110,521) $(11,496,793) $(10,448,865) $ (9,087,446) $ (4,138,610)
============ ============ ============ ============ ============
Basic and dilutive net loss
per common share $ (0.83) $ (1.13) $ (1.02) $ (0.81) $ (0.37)
Weighted average number of
common shares outstanding
(in thousands) 9,770 10,201 10,274 11,181 11,282
Years ended December 31,
----------------------------------------------------------------------------
1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ------------
BALANCE SHEET DATA:
Cash and cash equivalents $ 40,136,662 $ 31,756,534 $ 30,447,803 $ 27,062,762 $ 19,030,119
Available-for-sale securities - - - 548,738 -
Working capital 39,889,394 29,907,659 38,386,299 26,306,690 16,308,720
Total assets 41,152,357 33,018,825 42,659,727 31,229,242 22,153,347
Total liabilities 951,088 2,827,011 11,557,021 10,082,892 3,633,681
Accumulated deficit (25,468,828) (36,965,621) (47,414,486) (56,501,932) (60,640,542)
Total stockholders' equity $ 40,201,269 $ 30,191,814 $ 31,102,706 $ 21,146,350 $ 18,519,666
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
OXiGENE is an international biopharmaceutical company engaged principally
in research and the development of products for use in the treatment of cancer.
Historically, the Company's activities were directed primarily towards products
designed to complement and enhance the clinical efficacy of radiation and
chemotherapy, which are the most common and traditional forms of non-surgical
cancer treatment. In 2000, the Company announced its intent to focus exclusively
on advancing and developing its vascular targeting agents ("VTAs" or "VTA"),
-22-
CA4P and Oxi-4503. The Company has incurred losses since inception, principally
as a result of research and development and general and administrative expenses
in support of operations.
OXiGENE has devoted substantially all of its efforts and resources to
research and development conducted on its own behalf and through strategic
collaborations with clinical institutions, universities and other research
organizations. Consequently, OXiGENE believes that its research and development
expenditures have been somewhat lower than those of other comparable
biopharmaceutical companies.
The Company's failure to successfully complete human clinical trials,
develop and market products over the next several years, or to realize product
revenues, would materially adversely affect its business, financial condition
and results of operations. Royalties or other revenue generated for the Company
from commercial sales of the Company's potential products are not expected for
several years, if at all.
On December 15, 1999, the Company entered into a Research Collaboration and
License Agreement with Bristol-Myers Squibb Company ("BMS"). This agreement gave
BMS world-wide rights to develop Combretastatin compounds, including OXiGENE's
lead compound CA4P, as a new class of anti-cancer agents. Pursuant to the terms
of the BMS Agreement, BMS paid a non-refundable license fee and agreed to assume
all research, development, commercialization and/or marketing costs of all
in-licensed products. In October 2001, the Company announced that it had
regained its rights to the Combretastatin anti-tumor Compounds licensed to BMS
upon the agreement of the parties to conclude the Research Collaboration and
License Agreement established in December 1999. The Company recognized
approximately $6.9 million of deferred revenue as revenue in the fourth quarter
of 2001 as a result of the agreement. In addition the Company recorded an
accrued liability of approximately $0.5 million related to certain inventory and
royalty payments negotiated with BMS. The Company may incur future liability to
BMS upon the in-license of certain technologies related to the agreement. In
February of 2002, the Company and BMS finalized their Termination Agreement.
On May 17, 2000, the Company entered into a joint venture agreement with
Peregrine Pharmaceuticals, Inc. ("Peregrine"), forming Arcus Therapeutics LLC
("ARCUS") to develop and commercialize VTA technologies employing conjugated
antibodies. Under the terms of the joint venture agreement, OXiGENE agreed to
provide exclusive licenses to its next generation tubulin-binding compounds for
use solely in conjunction with a Peregrine antibody and, based on the
development success of the joint venture, agreed to fund up to $20.0 million of
the development expenses of ARCUS. In addition, the Company paid Peregrine an
upfront licensing fee of $1.0 million and purchased $2.0 million, or 585,009
shares, of Peregrine's Common Stock. In June 2001, the Company sold all 585,009
shares of Peregrine's Common Stock and recorded a loss on sale of
available-for-sale securities of approximately $0.6 million. In February 2002,
the Company and Peregrine agreed to conclude the ARCUS joint venture. Under the
terms of the agreement, Peregrine paid OXiGENE $2.0 million and both Peregrine
and OXiGENE reacquired full rights and interest to the vascular targeting
platforms they contributed to the joint venture.
In July 2001, the Company concluded the sale of its nutritional and
diagnostic technology, Nicoplex and Thiol, respectively, to CampaMed LLC
("CampaMed"). Under the terms of the agreement, CampaMed will provide up to
approximately $3.3 million in future installment payments based upon sales of
the products. In addition, the Company was granted a 10% equity position in
CampaMed. No revenue was recognized under this agreement during the year ended
December 31, 2001.
In September 2001, the Company entered into a Joint Research Agreement with
Jomed N.V. ("Jomed") to research restenosis inhibitors, integrating Jomed's
stent technology with the Company's platform of VTAs. Under the agreement, Jomed
will fund and perform proof-of-concept studies with the Company's VTAs on drug
eluting stents. At the conclusion of the studies, business terms will be
negotiated.
In September 2001, the Company signed a Materials-Cooperative Research and
Development Agreement with the National Eye Institute, a division of the
National Institutes of Health, to study the effects of CA4P on an animal model
of proliferative diabetic retinopathy, which is an eye disease characterized by
aberrant neo-vasculature growth. The cost of this study will be funded by
OXiGENE.
OXiGENE has generated a cumulative net loss of approximately $60.6 million
for the period from its inception through December 31, 2001. OXiGENE expects to
incur significant additional operating losses over at least the next several
years, principally as a result of its continuing clinical trials and anticipated
-23-
research and development expenditures. The principal source of OXiGENE's working
capital has been the proceeds of private and public equity financing and
theexercise of warrants and stock options, and, prior to entering into the BMS
Agreement, the Company had no material amount of licensing or other fee income.
As of December 31, 2001, OXiGENE had no long-term debt or loans payable.
The Company has consulting agreements with certain organizations whose
principal stockholders are officers or directors of the Company. Consulting fees
paid to such organizations amounted to approximately $0.5 million, approximately
$0.2 million and approximately $0.2 million for the years ended December 31,
1999, 2000 and 2001, respectively.
During 1999, 2000 and 2001, the Company incurred approximately $0.3
million, approximately $0.4 million and approximately $0.6 million,
respectively, in fees for services provided by a law firm, of which one of the
members of the Board of Directors is a partner.
RESULTS OF OPERATIONS
Years ended December 31, 2001 and 2000
Revenues
During the fiscal years ended December 31, 2001 and 2000, the Company had
licensing revenue of approximately $9.0 million and approximately $1.7 million,
respectively, and approximately $0.9 million and approximately $1.9 million in
interest income, respectively. The increase in licensing revenue of
approximately $7.3 million in 2001 compared to 2000 was primarily due to a
one-time non-cash recognition of approximately $6.9 million in deferred
licensing revenue associated with the termination of the Research Collaboration
and License Agreement with BMS on October 24, 2001.
Interest income decreased approximately $1.0 million in 2001 compared to
2000. The reason for the decrease in interest income is primarily due to the
Company's overall cash position decreasing which decrease was primarily the
result of increases in general and administrative expenses as well as declining
interest rates and returns on investments throughout 2001. The Company foresees
interest income will continue to decline in future periods, primarily as a
result of the Company's overall cash position continuing to decrease as cash and
cash equivalent balances are utilized in the normal course of operations. The
Company cannot predict whether interest rates and returns on investments will
remain flat or continue to decline or rise.
The Company's future revenue is dependent upon the Company's ability to add
additional collaborations and garner revenues from products currently under
development by the Company. As a result of the termination of the Research
Collaboration and License Agreement with BMS the Company expects it will not
generate meaningful revenue in fiscal 2002. Since the Research Collaboration and
License Agreement with BMS has terminated, the Company currently has no material
source of licensing or other fee revenue. The Company does not expect to
generate any material amounts of licensing or other fee revenue unless and until
the Company enters into new collaborations providing for funding whether through
the payment of licensing fees, up-front payments or otherwise.
Expenses
Total expenses for the fiscal years ended December 31, 2001 and 2000
amounted to approximately $14.0 and approximately $12.7 million, respectively.
Research and development expenses decreased to approximately $6.1 million during
fiscal 2001 from approximately $8.1 million for the comparable 2000 period. The
decrease of approximately $2.0 million was attributable to decreased research
and development efforts related to the Company's benzamide-based compound,
Declopramide, as well as the assumption by BMS of research and development costs
related to the Combretastatin family of VTAs. In the case of Combretastatin, the
costs were assumed by BMS under the terms of the Research Collaboration and
License Agreement. In the case of Declopramide, the decrease was the result of
lower research and development spending, specifically in the funding of clinical
trials. Under the Research Collaboration and License Agreement with BMS,
approximately $1.5 million of research and development expense in 2001, compared
to approximately $1.2 million in 2000, were recoverable and, accordingly, has
been classified as costs relating to licensing revenue and is not included in
research and development expenses.
-24-
The Company expects future research and development expenses to increase as
a result of the Company regaining licensing and development rights to the
Combretastatin family of VTAs and resumption by the Company of primary
responsibility for development of the Combretastatin family of VTAs,
specifically CA4P. These expenses will be partly offset by a decrease in
research and development expenses due to the Company's decision to end further
development by the Company of its benzamide-based compound, Declopramide, as
well as the decision to terminate funding of the ARCUS joint venture.
Non-qualified stock options ("NQSOs") granted to certain consultants and
advisory board members who are not employees resulted in research and
development expenses relative to the fair value of the options that vested
during the applicable reporting period. During 2001 and 2000, the Company
recorded approximately $0.1 million and approximately $0.5 million,
respectively, of research and development expenses related to options issued for
services provided by non-employees. Because the market value of the Company's
Common Stock at December 31, 2001 was lower than the exercise price of the SARs
and there was no balance for previously recorded charges for the SARs, no
amount was recorded at December 31, 2001. NQSOs and SARs had no net effect on
research and development expenses for this comparative period.
Generally, the Company makes payments to its clinical investigators if and
when certain pre-determined milestones in its clinical trials are reached,
rather than on a fixed quarterly or monthly basis. As a result of the foregoing
and the existence of outstanding SARs and NQSOs, research and development
expenses have fluctuated, and are expected to continue to fluctuate, from
reporting period to reporting period.
General and administrative expenses for the year ended December 31, 2001
increased to approximately $5.4 million from approximately $3.2 million for the
comparable 2000 period. The increase of approximately $2.2 million was primarily
attributable to costs associated with the relocation of the Company's corporate
office headquarters from Sweden to Massachusetts and the relocation of its U.S.
office from Boston, Massachusetts to Watertown, Massachusetts, and to a lesser
extent, additional staffing and legal costs associated with the Company's
intellectual property. In an effort to preserve cash and reduce cash flow
requirements, the Company's policy has been, and will continue to be, to
minimize the number of employees and to use outside consultants to perform
services for the Company to the extent practicable.
Years ended December 31, 2000 and 1999.
During the year ended December 31, 2000, the Company recognized
approximately $1.7 million of licensing revenue pursuant to the Research
Collaboration and License Agreement with BMS and approximately $1.9 million of
interest income. During the year ended December 31, 1999, the Company recognized
approximately $1.3 million of licensing revenue and approximately $1.3 million
of interest income. The increase in licensing revenue and interest income of
approximately $0.4 million in 2000 compared to 1999 and approximately $0.6
million in 2000 compared to 1999, respectively, is due to the fact that the year
2000 was the first whole year of accounting for the licensing revenue emanating
from the Research Collaboration and License Agreement with BMS and the Company's
overall increase in cash position due to the significant license fee received
upon signing of the Research Collaboration and License Agreement with BMS,
respectively. The Company's total expenses for the year ended December 31, 2000,
decreased to approximately $12.7 million from approximately $13.1 million for
the comparable 1999 period. Research and development expenses for 2000 and 1999
were approximately $8.1 million and approximately $8.4 million, respectively.
Excluding an approximate $0.4 million credit in 2000 and an approximate $0.2
million charge in 1999 related to SARs and an approximate $0.5 million charge
in 2000 and an approximate $0.7 million charge in 1999 related to NQSOs to
non-employees, research and development expense increased approximately $0.5
million.
Approximately $1.2 million of research and development expenses in 2000
were recoverable under the Research Collaboration and License Agreement with BMS
and, accordingly, has been classified as costs relating to licensing revenue and
is not included in research and development expenses. General and administrative
expenses for the year ended December 31, 2000, decreased to approximately $3.2
million from approximately $3.3 million for the comparable 1999 period.
-25-
LIQUIDITY AND CAPITAL RESOURCES
OXiGENE has experienced net losses and negative cash flow from operations
each year since its inception, except in fiscal 2000. As of December 31, 2001,
the Company had an accumulated deficit of approximately $60.6 million. The
Company expects to incur additional expenses, resulting in losses, over at least
the next several years due to, among other factors, its continuing clinical
trials and anticipated research and development activities. To date, the Company
has financed its operations principally through net proceeds it has received
from private and public equity financing.
The Company had cash and cash equivalents of approximately $19.0 million at
December 31, 2001, compared to approximately $27.1 million at December 31, 2000.
The decrease in cash and cash equivalents of approximately $8.1 million was
primarily attributable to increases in general and administrative costs
resulting from the Company's headquarter move from Sweden to Massachusetts, U.S.
office move from Boston, Massachusetts to Watertown, Massachusetts, research and
development expenses and to a lesser extent, additional staffing and legal costs
associated with the Company's intellectual property. The Company anticipates
that cash and cash equivalent balances will continue to decrease as cash is
utilized in the normal course of operations which decrease may be offset in
whole or in part to the extent the Company enters into any new collaboration
agreements that are a source of funding.
The Company's policy is to seek to contain fixed expenditures by
maintaining a relatively small number of employees and relying as much as
possible on outside services for its research, development, pre-clinical testing
and clinical trials. The Company makes quarterly payments to the University of
Lund, Lund, Sweden, for pre-clinical research. For the years ended December 31,
2001, 2000, and 1999, the amount paid to the University of Lund, were
approximately $0.6 million, approximately $0.9 million, and approximately $1.1
million, respectively.
The Company has an agreement with ILEX (TM) Oncology Inc., a contract
research organization in San Antonio, Texas ("ILEX"), pursuant to which ILEX
performs contract research services and clinical trials for the Company in
connection with the pre-clinical and clinical testing of compounds under
development by the Company, particularly Declopramide and Combretastatin. During
the years ended December 31, 2001, 2000, and 1999, the Company paid ILEX
approximately $0.7 million, approximately $1.4 million, and approximately $1.9
million, respectively. The amounts paid to ILEX have decreased, and are expected
to decline due to the Company's decision to focus exclusively on the development
of VTAs, in particular CA4P and Oxi-4503, and to terminate further research and
development on its benzamide-based compound, Declopramide.
On August 2, 1999, the Company entered into an exclusive License Agreement
for the commercial development, use and sale of products or services covered by
certain patent rights related to Combretastatin owned by Arizona State
University ("ASU"). The Company paid an initial license fee of approximately
$0.2 million and, is required to pay additional license fees in ten equal
semi-annual installments of approximately $0.2 million commencing June 1, 2000.
The Company also is required to pay royalties on future net sales of products
relating to these certain patent rights. The present value of the amounts
payable to the university is approximately $0.7 million at December 31, 2001.
On May 17, 2000, the Company entered into a joint venture agreement with
Peregrine, forming ARCUS. Under the terms of the joint venture agreement, the
Company was required to spend up to $20.0 million to fund the development
expenses of ARCUS. On February 28, 2002, the Company and Peregrine signed a plan
and agreement of liquidation to dissolve ARCUS. Under the terms of the
agreement, Peregrine paid OXiGENE $2.0 million and both Peregrine and OXiGENE
reacquired full rights and interest to the vascular targeting platforms they
contributed to the joint venture.
The Company anticipates that its cash and cash equivalents as of December
31, 2001, should be sufficient to satisfy the Company's projected cash
requirements as of that date for approximately 36 months. The Company has
focused and streamlined its research and development programs and has thereby
reduced its projected annual cash burn rate. Actions taken in this regard
included the termination of the ARCUS joint venture which action relieved the
Company of a $20 million funding obligation. Management believes that these cost
containment measures should make available the capital required to pursue the
Company's current business plan, including the planned continued clinical
development of the Company's lead compound, CA4P. Further, the Company believes
its existing capital is sufficient to fund operations through completion of
clinical trials and the FDA approval process of CA4P, its lead compound, whether
-26-
or not such approval is ultimately obtained. However, the Company's cash
requirements may vary materially from those now planned for or anticipated by
management due to numerous risks and uncertainties. These risks and
uncertainties include, but are not limited to, the progress of and results of
its pre-clinical testing and clinical trials of its VTAs under development,
including CA4P, its lead Combretastatin based compound; the progress of the
Company's research and development programs; the time and costs expended and
required to obtain any necessary or desired regulatory approvals; the resources,
if any, that the Company devotes to developing manufacturing methods and
advanced technologies; the ability of the Company to enter into licensing
arrangements, including any unanticipated licensing arrangements that may be
necessary to enable the Company to continue the Company's development and
clinical trial programs; the costs and expenses of filing, prosecuting and, if
necessary, enforcing the Company's patent claims, or defending the Company
against possible claims of infringement by the Company of third party patent or
other technology rights; the cost of commercialization activities and
arrangements, if any, undertaken by the Company; and, if and when approved, the
demand for the Company's products, which demand is dependent in turn on
circumstances and uncertainties that cannot be fully known, understood or
quantified unless and until the time of approval, for example the range of
indications for which any product is granted approval.
The Company believes it has sufficient capital to fund operations through
completion of clinical trials and the FDA approval process of CA4P, its lead
compound, whether or not such approval is ultimately obtained. If its existing
funds are not sufficient, the Company would be required to seek additional
funding and/or take other measures. If additional financing is needed, there can
be no assurance that additional financing will be available on acceptable terms
when needed, if at all. The Company had no material commitments for capital
expenditures as of December 31, 2001.
The Security and Exchange Commission recommends that information about
contractual obligations and commercial commitments be provided in a single
location, preferably in a tabular form by due date and by expiration date. The
following table presents such information as of December 31, 2001:
Contractual Obligations
----------------------- Payments due by period
Less than 1-3 4-5 After 5
Total 1 year years years years
--------------------------------------------------------
License Agreement Payable $ 712,000 $ 267,000 $ 445,000 $ - $ -
Termination Agreement 470,000 470,000 - - -
Operating lease 2,698,000 294,000 894,000 612,000 898,000
-------------------------------------------------------
Total contractual cash obligations $3,880,000 $1,031,000 $1,339,000 $612,000 $898,000
=======================================================
CRITICAL ACCOUNTING POLICIES
In December 2001, the SEC requested that all registrants discuss their most
"critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the Company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. While
our significant accounting policies are more fully described in Note 1 to our
consolidated financial statements included in this report, we believe the
following accounting policies to be critical:
Revenue - The Company has entered into collaborations with a pharmaceutical
company and a university. These agreements provided for the development,
manufacturing and commercialization responsibilities related to our drug
candidates. Under these arrangements, the Company administered and participated
in several aspects of the remaining development of our drug candidates,
Combretastatin and Declopramide. The Company's collaborations have generally
provided for the Company's partners to make up-front payments, additional
payments upon the achievement of specific research and product development
milestones, share in the costs of development and/or pay royalties.
-27-
The Company recognizes revenue in accordance with Staff Accounting Bulletin
(SAB) No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. Under
this accounting method, the Company recognizes revenue when it is earned, that
is when all of the following have occurred: all obligations of the Company
relating to the revenue have been met and the earning process is complete; the
monies received or receivable are not refundable irrespective of research
results; and there are neither future obligations nor future milestones to be
met by the Company with respect to such revenue. In general, collaboration
revenues are earned based upon research expenses incurred and milestones
achieved. Non-refundable payments upon initiation of contracts are deferred and
amortized over the period in which the Company is obligated to participate on a
continuing and substantial basis in the research and development activities
outlined in each contract. The Company continually reviews these estimates that
could result in a change in the deferral period. Amounts received in advance of
reimbursable expenses are deferred and only recognized when the related expenses
have been incurred. Milestone payments are recognized as revenue in the period
in which the parties agree that the milestone has been achieved and it is deemed
that no further obligations exist.
Patent and Acquired License Costs - The Company files applications for
patents in connection with technologies being developed. The Patent applications
and any patents issued as a result of these applications are important to the
protection of the Company's technologies that may result from its research and
development efforts. Costs associated with patent applications and maintaining
patents are expensed as incurred.
The Company has capitalized the costs of acquiring licenses related to its
exclusive License Agreement for the commercial development, use and sale of
products or services covered by certain patent rights related to Combretastatin
owned by ASU. The present value of the amount payable under the license
agreement has been capitalized and is being amortized over the term of the
agreement (approximately 15.5 years). The Company also is required to pay
royalties on future net sales of products relating to these certain patent
rights.
The Company evaluates its intangibles for impairment indicators in
accordance with SFAS No. 121. The Company does not have any impairment issues at
December 31, 2001.
Use of Estimates - The Company prepares financial statements in accordance
with generally accepted accounting principles. These principles require that the
Company make estimates and use assumptions that affect the reporting of the
Company's assets and the Company's liabilities as well as the disclosures that
the Company makes regarding assets and liabilities and income and expense that
are contingent upon uncertain factors as of the reporting date. The Company's
actual results, based upon the future resolution of these uncertainties, could
differ from our estimates.
R&D DISCLOSURE
Members of the Company's research and development team typically work on a
number of development projects concurrently. Accordingly, the Company does not
separately track the costs for each of these research and development projects
to enable separate disclosure of these costs on a project-by-project basis. For
2001 and 2000, however, the Company estimates that the majority of the research
and development expense was related to sub-contract clinical expense and
employee salaries related to the research and development of Declopramide, a
third generation benzamide technology, the ARCUS joint venture and the next
generation of VTAs.
The expenses involved with Declopramide relate to the Phase II human
clinical trials that were performed at three centers in the U.S and conducted by
a leading clinical research organization; the ARCUS joint venture expenses were
related to payments to the University of Texas Southwestern for the preclinical
development of conjugated monoclonal antibodies to be used as VTAs; and the
expenses for the drug discovery program targeted at developing the next enhanced
Combretastatin like compound relates to in vitro work performed at Baylor
University and in vivo studies at the University of Lund.
TAX MATTERS
As of December 31, 2001, the Company had net operating loss carry forwards
of approximately $80.8 million for U.S. and foreign income tax purposes, of
which approximately $48.4 million expires for U.S. purposes through 2020. Due to
the degree of uncertainty related to the ultimate use of these loss carry
forwards, the Company has fully reserved this tax benefit. Additionally, the
future utilization of the U.S. net operating loss carry forwards are subject to
-28-
limitations under the change in stock ownership rules of the Internal Revenue
Service. The valuation allowance increased by approximately $3.1 million and
approximately $6.9 million for the years ended 2000 and 2001, respectively, due
primarily to the increase in net operating loss carry forwards.
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has reviewed the provisions of Regulation S-K Item 305. At
December 31, 2001, the Company did not hold any derivative financial
instruments, commodity-based instruments or other long-term debt obligations.
The Company has adopted an Investment Policy and maintains its investment
portfolio in accordance with the Investment Policy. The primary objectives of
the Investment Policy is to preserve principal, maintain proper liquidity to
meet operating needs and maximize yields while preserving principal. Although
our investments are subject to credit risk, we follow procedures to limit the
amount of credit exposure in any single issue, issuer or type of investment. Our
investments are also subject to interest rate risk and will decrease in value if
market interest rates increase. However, due to the conservative nature of our
investments and relatively short duration, we believe interest rate risk is
mitigated. The Company's cash and cash equivalents are maintained primarily in
U.S. dollar accounts and amounts payable for research and development to
research organizations are contracted in U.S. dollars. Accordingly, the
Company's exposure to foreign currency risk is limited because its transactions
are primarily based in U.S. dollars.
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 for a list of the OXiGENE Financial Statements and Schedules
and Supplementary Information filed as part of this report.
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
-29-
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item, insofar as it relates to directors,
is incorporated herein by reference to the Company's definitive Proxy Statement
with respect to the Company's Annual Meeting of Stockholders scheduled to be
held on June 11, 2002.
11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to the Company's definitive Proxy Statement with respect to the Company's Annual
Meeting of Stockholders scheduled to be held on June 11, 2002.
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to the Company's definitive Proxy Statement with respect to the Company's Annual
Meeting of Stockholders scheduled to be held on June 11, 2002.
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to the Company's definitive Proxy Statement with respect to the Company's Annual
Meeting of Stockholders scheduled to be held on June 11, 2002.
-30-
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed with this Report.
The following documents are filed as part of this report.
1. Financial Statements
The financial statements listed in the accompanying List of
Financial Statements covered by Report of Independent Auditors.
2. Financial Statement Schedules
None.
3. Exhibits
The information called for by this paragraph is contained in the
Index to Exhibits of this report that is incorporated herein by
reference.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed by the Company during the
quarter ended December 31, 2001:
October 29, 2001 - Items 5, 7 and 9 - Completion of the Phase I U.S.
clinical trial of the Company's novel anti-tumor vascular targeting
agent, Combretastatin A4 Prodrug ("CA4P").
November 5, 2001 - Items 5, 7 and 9 - Regaining full developmental
and licensing rights to its Combretastatin family of vascular
targeting agents from Bristol-Myers Squibb Company to conclude their
Research Collaboration and Licensing Agreement.
-31-
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.
OXiGENE, INC.
By: /s/ Bjorn Nordenvall
--------------------------
Bjorn Nordenvall
Chief Executive Officer
March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Bjorn Nordenvall Chief Executive Officer March 29, 2002
- -------------------- and Director (principal
Bjorn Nordenvall executive officer)
/s/ Frederick W. Driscoll President of Finance and March 29, 2002
- ------------------------- Operations (principal
Frederick W. Driscoll financial officer)
/s/ Joel-Tomas Citron Chairman and Director March 29, 2002
- ---------------------
Joel-Tomas Citron
/s/ Marvin H. Caruthers Director March 29, 2002
- -----------------------
Marvin H. Caruthers
/s/ Michael Ionata Director March 29, 2002
- ------------------
Michael Ionata
/s/ Arthur B. Laffer Director March 29, 2002
- --------------------
Arthur B. Laffer
/s/ Per-Olof Soderberg Director March 29, 2002
- ----------------------
Per-Olof Soderberg
/s/ Gerald A. Eppner Director March 29, 2002
- --------------------
Gerald A. Eppner
/s/ William N. Shiebler Director March 29, 2002
- -----------------------
William N. Shiebler
-32-
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
3.1 Restated Certificate of Incorporation of the Registrant.*
3.2 By-Laws of the Registrant.*
3.3 Certificates of Amendment of Certificate of Incorporation,
dated June 21, 1995 and November 15, 1996.**
4.1 Representatives' Warrant Agreement (including form of
Representatives' Warrant Certificate), dated August 26, 1993,
between the Company and RAS Securities Corp.*
4.2 Warrant Agreement (including form of Warrant Certificate),
dated August 26, 1993, between the Company and American
Stock Transfer & Trust Company.*
10.1 Patent License Agreement dated as of October 7, 1991 between
Preventive Medicine Institute and Bio-Screen, Inc.*
10.2 Amended and Restated Stock Incentive Plan of Registrant
dated as of May 15, 1993.*
10.3 Employment Agreement, dated as of April 4, 1997, between
Registrant and Dr. Ronald W. Pero. ***
10.4 Executive Employment Agreement, dated as of October 9, 1993,
between Registrant and Bjorn Nordenvall, M.D.,
Ph.D.+
10.5 Consulting Agreement, dated as of October 9, 1995, between
OXiGENE (Europe) AB and B. Omentum Consulting AB. +
10.6 Consulting Agreement, dated as of August 1, 1995, between
Registrant and IPC Nordic A/S. +
10.7 OXiGENE 1996 Stock Incentive Plan, as amended. ++
10.8 Collaborative Research Agreement, dated as of August 1,
1997, between the Registrant and Boston Medical Center
Corporation. ***
10.9 Technology Development Agreement, dated as of May 27, 1997,
between the Registrant and the Arizona Board of Regents,
acting for and on behalf of Arizona State University. ***
10.10 Office Lease, dated February 28, 2000, between Registrant
and Charles River Business Center Associates, L.L.C.
10.11 Consulting Agreement, dated as of May 1, 1998, between
Registrant and Dr. Claus Moller. ****
10.12 Research Collaboration and License Agreement, dated as of
December 15, 1999, between OXiGENE Europe AB and
Bristol-Myers Squibb Company. +++
23 Consent of Ernst & Young LLP.
-33-
99.1 U.S. Patent Number 5,204,241, issued April 20, 1994,
registered to Ronald W. Pero, regarding
glutathione-s-transferase Mu as a measure of drug
resistance. ++
99.2 U.S. Patent Number 5,340,565, issued August 23, 1994,
registered to Ronald W. Pero, regarding tumor or cancer cell
killing therapy and agents useful therefore. ++
99.3 U.S. Patent Number 5,482,833, issued January 9, 1996,
registered to Ronald W. Pero and Daniel G. Miller,
regarding a test to determine the predisposition or
susceptibility to DNA-associated diseases. ++
99.4 International Application Published under the Patent
Cooperation Treaty (PCT) Number WO96/14565, published May 17,
1996, registered to Ronald W. Pero, regarding a method of
testing immune competency. ++
- -------------------------------
* Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (file no. 33-64968) and any
amendments thereto.
** Incorporated by reference to the Registrant's Annual Report
on Form 10-K for fiscal year ended December 31, 1996.
*** Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997.
**** Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999.
+ Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
++ Incorporated by reference to the Registrant's Registration
Statement on Form S-8 (file no. 333-92747) and any
amendments thereto.
+++ Incorporated by reference to the Registrant's Current Report
on Form 8-K, filed on December 28, 1999.
-34-
Form 10-K Item 14(a)(1)
OXiGENE, Inc.
Index to Consolidated Financial Statements
The following consolidated financial statements of OXiGENE, Inc. are included in
Item 8:
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-19
F-1
Report of Independent Auditors
The Board of Directors and Stockholders OXiGENE, Inc.
We have audited the accompanying consolidated balance sheets of OXiGENE, Inc.
(the "Company") as of December 31, 2000 and 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2001. 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 auditing standards generally accepted
in the United States. 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 consolidated financial position of OXiGENE, Inc. at
December 31, 2000 and 2001, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2001
in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Boston, Massachusetts
January 30, 2002,
except Note 9, as to which the date is
March 27, 2002
F-2
OXiGENE, Inc.
Consolidated Balance Sheets
December 31
2000 2001
----------------------------
Assets
Current assets:
Cash and cash equivalents $ 27,062,762 $ 19,030,119
Available-for-sale securities 548,738 -
Prepaid expenses 287,033 457,103
Interest receivable 277,603 -
Other 61,381 12,903
------------ ------------
Total current assets 28,237,517 19,500,125
Furniture, fixtures and equipment 827,117 867,083
Accumulated depreciation (173,417) (237,279)
------------ ------------
653,700 629,804
License agreements, net of accumulated amortization
of $263,174 and $560,731 at December 31, 2000 and 2001 2,236,422 1,938,865
Deposits 101,603 84,553
------------ ------------
Total assets $ 31,229,242 $ 22,153,347
============ ============
Liabilities and stockholders' equity Current liabilities:
License agreement payable - current portion $ 250,943 $ 270,050
Accounts payables 494,063 1,138,193
Accrued expenses:
Research and development 687,400 1,269,431
Other 498,421 513,731
------------ ------------
Total current liabilities 1,930,827 3,191,405
License agreement payable - non-current portion 707,316 442,276
Deferred license revenue 7,444,749 -
Commitments and contingencies - -
Stockholders' equity:
Common Stock, $.01 par value, 60,000,000 shares
authorized; 11,373,593 shares in 2000 and
11,432,093 shares in 2001, issued and outstanding 113,736 114,321
Common Stock issuable 369,656 -
Additional paid-in capital 81,984,525 82,385,172
Accumulated deficit (56,501,932) (60,640,542)
Accumulated other comprehensive income (loss) (972,790) 460,989
Notes receivable (3,609,356) (3,764,869)
Deferred compensation (237,489) (35,405)
------------ ------------
Total stockholders' equity 21,146,350 18,519,666
------------ ------------
Total liabilities and stockholders' equity $ 31,229,242 $ 22,153,347
============ ============
See accompanying notes.
F-3
OXiGENE, Inc.
Consolidated Statements of Operations
Year ended December 31
1999 2000 2001
--------------------------------------------
Revenues:
License revenue $ 1,271,918 $ 1,694,944 $ 8,953,119
Interest income 1,340,738 1,921,961 906,893
------------ ------------ ------------
Total revenues 2,612,656 3,616,905 9,860,012
Costs and expenses:
Costs relating to license revenue 1,250,000 1,161,612 1,508,372
Amortization of license agreement 40,639 222,536 297,535
Research and development 8,397,799 8,057,671 6,132,283
General and administrative (including related
party transactions of approximately
$821,000, approximately $554,000 and
approximately $775,000 in 1999, 2000
and 2001, respectively) 3,336,463 3,160,489 5,446,876
------------ ------------ ------------
Total costs and expenses 13,024,901 12,602,308 13,385,066
------------ ------------ ------------
Operating loss (10,412,245) (8,985,403) (3,525,054)
Interest expense 36,620 102,043 61,248
Other expense, net - - 552,308
------------ ------------ ------------
Net loss $(10,448,865) $ (9,087,446) $ (4,138,610)
============ ============ ============
Basic and diluted net loss per common share $ (1.02) $ (0.81) $ (0.37)
Weighted-average number of common shares
outstanding 10,273,902 11,181,426 11,282,090
See accompanying notes.
F-4
OXiGENE, Inc.
Consolidated Statements of Stockholders' Equity
Other Total
Common Stock Common Stock Additional Accumulated Notes Stock-
$.01 Par Value Issuable Paid-In Accumulated Comprehensive Receiv- Deferred holders'
Shares Amount Shares Amount Capital Deficit Income(Loss) able Compensation Equity
---------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 10,207,049 $102,071 - $ 369,696 $68,400,726 $(36,965,621) $ 325,888 - $(1,671,250) $30,191,814
Foreign currency
translation
adjustment - - - - - - 146,722 - - 146,722
Net loss - - - - - (10,448,865) - - - (10,448,865)
------------
Comprehensive loss (10,302,143)
------------
Issuance of Common
Stock upon exercise
of options and
warrants 1,045,337 10,453 - - 12,511,385 - - (2,288,733) - 10,233,105
Issuance of Common
Stock upon exercise
of stock
appreciation rights 987 10 - - 9,490 - - - - 9,500
Issuance of Common
Stock for services
at $9.50 per share 7,895 79 - - 74,921 - - - - 75,000
Accrued stock
appreciation rights - - - - 208,360 - - - - 208,360
Options issued for
services provided
by non-employees - - - - 351,379 - - - 335,691 687,070
--------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1999 11,261,268 112,613 - - 81,556,261 (47,414,486) 472,610 (2,288,733) (1,335,559) 31,102,706
Unrealized loss from
available-for-sale
security - - - - - - (1,451,262) - - (1,451,262)
Foreign currency
translation
adjustment - - - - - - 5,862 - - 5,862
Net loss - - - - - (9,087,446) - - - (9,087,446)
------------
Comprehensive loss - - - - - - - - - (10,532,846)
------------
Issuance of Common
Stock upon exercise
of options and
warrants 105,716 1,057 42,000 369,656 1,307,352 - - (1,320,623) - 357,442
Issuance of Common
Stock upon exercise
of stock
appreciation rights 6,609 66 - - 148,634 - - - - 148,700
Accrued stock
appreciation rights - - - - (385,106) - - - - (385,106)
Options issued for
services provided
by non-employees - - - - (642,616) - - - 1,098,070 455,454
---------------------------------------------------------------------------------------------------------------
Balance at
December 31, 2000 11,373,593 113,736 42,000 369,656 81,984,525 (56,501,932) (972,790) (3,609,356) (237,489) 21,146,350
Realized loss from
available-for-sale
security - - - - - - 1,451,262 - - 1,451,262
Foreign currency
translation
adjustment - - - - - - (17,483) - - (17,483)
Net loss - - - - - (4,138,610) - - - (4,138,610)
------------
Comprehensive loss - - - - - - - - - (2,704,831)
------------
Issuance of Common
Stock upon exercise
of options and
warrants 58,500 585 (42,000) (369,656) 474,672 - - (105,601) - -
Cancellation of notes
receivable - - - - (139,237) - - 139,237 - -
Interest on notes
receivable - - - - 189,149 - - (189,149) - -
Options issued for
services provided
by non-employees - - - - (123,937) - - - 202,084 78,147
---------------------------------------------------------------------------------------------------------------
Balance at
December 31, 2001 11,432,093 $114,321 - $ - $82,385,172 $(60,640,542) $460,989 $(3,764,869)$ (35,405) $18,519,666
===============================================================================================================
See accompanying notes.
F-5
OXiGENE, Inc.
Consolidated Statements of Cash Flows
Year ended December 31,
1999 2000 2001
--------------------------------------------
Operating activities:
Net loss $(10,448,865) $ (9,087,446) $ (4,138,610)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Loss on sale of available-for-sale securities - - 550,623
Depreciation 16,274 79,968 81,639
Amortization of deferred license revenue (21,918) (533,333) (7,444,747)
Amortization of license agreements 40,639 222,536 235,709
Abandonment of furniture, fixtures and equipment 97,560 5,403 127,828
Compensation related to issuance of warrants,
options and stock appreciation rights 979,930 219,048 78,147
Changes in operating assets and liabilities:
Accounts receivable-license agreement (1,250,000) 9,250,000 -
Prepaid expenses and other assets (352,593) 692,734 159,034
Accounts payable, accrued expenses and
other payables (372,048) (665,665) 1,309,625
------------ ------------ ------------
Net cash (used in) provided by operating activities (11,311,021) 183,245 (9,040,752)
------------ ------------ ------------
Investing activities:
Investment in available-for-sale security - (2,000,000) -
Proceeds from sale of available-for-sale investment - - 1,449,377
Amount paid for license agreements (323,380) (1,217,957) (285,471)
Deposits - (22,003) -
Purchase of furniture, fixtures and equipment (21,361) (636,900) (159,105)
------------ ------------ ------------
Net cash (used in) provided by investing activities (344,741) (3,876,860) 1,004,801
------------ ------------ ------------
Financing activity:
Proceeds from issuance of Common Stock 10,233,105 357,442 -
------------ ------------ ------------
Net cash provided by financing activity 10,233,105 357,442 -
------------ ------------ ------------
Effect of exchange rate on changes in cash 113,926 (48,868) 3,308
------------ ------------ ------------
Decrease in cash and cash equivalents (1,308,731) (3,385,041) (8,032,643)
Cash and cash equivalents at beginning of year 31,756,534 30,447,803 27,062,762
------------ ------------ ------------
Cash and cash equivalents at end of year $ 30,447,803 $ 27,062,762 $ 19,030,119
============ ============ ============
Supplemental Disclosure
Interest paid $ 36,620 $ 95,303 $ 74,067
============ ============ ============
See accompanying notes.
F-6
OXiGENE, Inc.
Notes to Consolidated Financial Statements
December 31, 2001
1. Description of Business and Significant Accounting Policies
Description of Business
OXiGENE, Inc. (the "Company"), incorporated in 1988 in the state of New York and
reincorporated in 1992 in the state of Delaware, is an international
biopharmaceutical company engaged principally in research and the development of
products for use in the treatment of cancer. Historically, the Company's
activities were directed primarily towards products designed to complement and
enhance the clinical efficacy of radiation and chemotherapy, which are the most
common and traditional forms of non-surgical cancer treatment. In 2000, the
Company announced its intent to focus exclusively on advancing and developing
its vascular targeting agents, CA4P and Oxi-4503.
Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiary in Sweden, OXiGENE Europe AB. All material intercompany
balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentration of
credit risk consist principally of cash and cash equivalents. The Company places
its cash and cash equivalents with a high credit quality financial institution.
At December 31, 2000 and 2001, substantially all cash and cash and equivalents
were deposited with one financial institution.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with maturities of
three months or less when purchased to be cash equivalents.
Available-for-Sale Securities
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, if any, reported as other comprehensive income
(loss) in shareholders' equity. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in other expenses. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in investment income.
F-7
OXiGENE, Inc.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes based upon the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"). Under SFAS 109, deferred taxes are recognized using the liability method
whereby tax rates are applied to cumulative temporary differences between
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes based on when and how they are expected
to affect the tax return.
License Agreement
The present value of the amount payable under the license agreement has been
capitalized and is being amortized over the term of the agreement (approximately
15.5 years).
Depreciation
Furniture, fixtures and equipment are recorded at cost. Depreciation is recorded
using the straight-line method over the estimated useful lives of the assets,
which is principally three years.
Patents and Patent Applications
The Company has filed applications for patents in connection with technologies
being developed. The patent applications and any patents issued as a result of
these applications are important to the protection of the Company's technologies
that may result from its research and development efforts. Costs associated with
patent applications and maintaining patents are expensed as incurred.
Foreign Currency Translation
Assets and liabilities of the subsidiary are translated at year-end rates and
income and expenses are translated at average exchange rates prevailing during
the year. Translation adjustments arising from differences in exchange rates
from period to period have been reported as other comprehensive income in
stockholders' equity.
Net Income (Loss) Per Share
Basic and diluted net income (loss) per share was calculated in accordance with
the provisions of Statement of Financial Accounting Standards No. 128, Earnings
Per Share, by dividing the net income (loss) per share by the weighted-average
number of shares outstanding. Diluted net income (loss) per share includes the
effect of all dilutive, potentially issuable common shares using the treasury
stock method. All options and restricted common shares issued by the Company
were antidilutive and, accordingly, excluded from the calculation of
weighted-average shares.
F-8
OXiGENE, Inc.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Stock-Based Compensation
The Company accounts for stock options and stock appreciation rights granted to
employees in accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations rather than the alternative fair value
accounting provided for under Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS 123"), which requires the
use of option valuation models that were not developed for use in valuing
employee stock options. The Company also has issued options to non-employees for
services provided to the Company. Such options have been accounted for at fair
value in accordance with the provisions of SFAS 123 and the Emerging Issues Task
Force consensus in Issue No. 96-18, Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring, or in Conjunction With Selling
Goods or Services. Such compensation expense is recognized based on the vested
portion of the compensation cost at the respective balance sheet dates.
Comprehensive Income (Loss)
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130"), establishes rules for the reporting and display of
comprehensive income (loss) and its components and requires unrealized gains or
losses on the Company's available-for-sale securities and the foreign currency
translation adjustments to be included in other comprehensive income (loss).
Accumulated other comprehensive income (loss) consists of unrealized gain (loss)
on available-for-sale security and accumulated foreign currency translation
adjustments at December 31, 2001 and 2000.
Revenue Recognition
Revenue is deemed earned when all of the following have occurred: all
obligations of the Company relating to the revenue have been met and the
earnings process is complete; the monies received or receivable are not
refundable irrespective of the research results; and there are neither future
obligations nor future milestones to be met by the Company with respect to such
revenue.
Collaboration revenues are earned based upon research expenses incurred and
milestones achieved. Non-refundable payments upon initiation of contracts are
deferred and amortized over the period in which the Company is obligated to
participate on a continuing and substantial basis in the research and
development activities outlined in each contract. Amounts received in advance of
reimbursable expenses are recorded as deferred revenue until the related
expenses are incurred. Milestone payments are recognized as revenue in the
period in which the parties agree that the milestone has been achieved and is
deemed no further obligation exists.
The nonrefundable fee received under the Research Collaboration and License
Agreement with BMS is being recognized as license revenue on a straight-line
basis over the term the Research Collaboration and License Agreement with BMS.
During 2001, the Research Collaboration and License agreement was terminated.
All unamortized license revenue under the agreement was recognized at December
31, 2001. License revenue for the reimbursement of costs is recognized as costs
are incurred.
F-9
OXiGENE, Inc.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 (FAS 141), "Business Combinations" and
No. 142 (FAS 142), "Goodwill and Other Intangible Assets." FAS 141 supercedes
APB 16. FAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001, and establishes specific
criteria for the recognition of intangible assets separately from goodwill.
Provisions of FAS 141 will be effective for the Company's business acquisitions
that are consummated after July 1, 2001. FAS 142 supercedes Accounting
Principles Board Opinion No. 17, "Intangible Assets," and addresses the
accounting for goodwill and intangible assets subsequent to their acquisition.
Under FAS 142, goodwill and indefinite lived intangible assets will no longer be
amortized but will be tested for impairment at least annually at the reporting
unit level. In addition, the amortization period of intangible assets with
finite lives will no longer be limited to forty years and is effective for
fiscal years beginning January 1, 2002.
In October 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
discontinued operations.
The Company does not believe that these pronouncements will have a material
effect on the financial position and results of operations of the Company.
2. Foreign Operations
Summary financial information for assets, liabilities at December 31, 1999, 2000
and 2001 and expenses and net loss for the years then ended related to foreign
operations are as follows:
December 31,
1999 2000 2001
--------------------------------------
Assets $21,043,000 $26,644,000 $7,110,000
Liabilities 1,952,000 1,555,000 1,398,000
Expenses 5,871,000 4,542,000 3,038,000
Net (loss) income $(5,865,000) $(2,535,000) $5,950,000
Foreign exchange gains for the years ended December 31, 1999, 2000, and 2001
were not significant.
3. Related Party Transactions
The Company has consulting agreements with certain organizations whose principal
stockholders are officers or directors of the Company. Consulting fees paid to
such organizations amounted to approximately $0.5 million, approximately $0.2
million and approximately $0.2 million for the years ended December 31, 1999,
2000 and 2001, respectively.
During 1999, 2000 and 2001, the Company incurred approximately $0.3 million,
approximately $0.4 million and approximately $0.6 million, respectively, in fees
for services provided by a law firm, of which one of the members of the Board of
Directors is a partner.
F-10
OXiGENE, Inc.
Notes to Consolidated Financial Statements (continued)
4. Joint Venture Agreement
On May 17, 2000, the Company entered into a joint venture agreement with
Peregrine Pharmaceutical, Inc. ("Peregrine") forming Arcus Therapeutics, LLC
("ARCUS") to develop and commercialize certain technologies. Under the terms of
the agreement, Peregrine and the Company supplied intellectual property and a
license to use certain compounds, respectively, to the joint venture.
Based on the development success of the joint venture, the Company was required
to fund up to $20.0 million for the development expenses of ARCUS. The partners
on an equal basis would share any further funding of the joint venture
thereafter. The Company funded approximately $0.5 million and approximately $1.3
million of the development costs in 2000 and 2001 respectively, which is
included in research and development costs.
In addition, the Company paid Peregrine an upfront licensing fee of $1.0 million
in cash, which is being amortized on a straight-line basis over 5 years. The
Company also purchased $2.0 million of Peregrine's Common Stock at the then fair
market value. At December 31, 2000, such investment was classified as an
available-for-sale security and the realized loss of approximately $1.4 million
was reflected as other comprehensive income in stockholders' equity. In June
2001, the Company sold all of Peregrine's Common Stock, which resulted in a loss
on sale of available-for-sale securities of approximately $0.6 million.
Additionally, under the terms of the joint venture agreement, any sublicensing
fees generated within the joint venture would have been allocated 75% and 25% to
Peregrine and the Company, respectively, until Peregrine had received $10.0
million in sublicense fee revenues. Thereafter, the joint venture partners would
share licensing fees on an equal basis. The Company also would have been
required to pay Peregrine an additional licensing fee of $1.0 million in cash
and would purchase an additional $1.0 million in Peregrine Common Stock upon the
filing of an Investigational New Drug application for the first clinical
candidate developed by ARCUS. Furthermore, Peregrine and the Company would have
shared equally any royalty income or profit from the joint venture. See Note 9
for further detail.
5. Research Collaboration and License Agreement
On December 15, 1999, the Company entered into a Research Collaboration and
License Agreement with Bristol-Myers Squibb Company ("BMS"). This agreement gave
BMS world-wide rights to develop Combretastatin compounds, including OXiGENE's
lead compound CA4P, as a new class of anti-cancer agents. Pursuant to the terms
of the BMS Agreement, BMS paid a non-refundable license fee and agreed to assume
all research, development, commercialization and/or marketing costs of all
in-licensed products. In October 2001, the Company announced that it had
regained its rights to the Combretastatin anti-tumor Compounds licensed to BMS
upon the agreement of the parties to conclude the Research Collaboration and
License Agreement established in December 1999. The Company recognized
approximately $6.9 million of deferred revenue as revenue in the fourth quarter
of 2001 as a result of the agreement. In addition the Company recorded an
accrued liability of approximately $0.5 million related to certain inventory and
royalty payments negotiated with BMS. The Company may incur future liability to
BMS upon the in-license of certain technologies related to the agreement. In
February of 2002, the Company and BMS finalized their Termination Agreement. The
Company has accrued and expensed approximately $0.5 million related to inventory
and licensed technology at December 31, 2001. During the year ended December 31,
2001, revenues from BMS accounted for 91% or $9.0 million of total revenues.
F-11
OXiGENE, Inc.
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity
Stock Option Plans
The Stock Incentive Option Plan (the "Plan") was implemented in 1992 and amended
in 1993. The plan provided for the grant of options to purchase up to 1,166,900
shares of Common Stock to any officer, director and employee of the Company upon
the terms and conditions (including price, exercise date and number of shares)
determined by the Board of Directors or a committee selected by the Board of
Directors to administer the Plan. The Plan also provided for the issuance of
stock appreciation rights ("SARs").
Under the Plan, the exercise price determined by the Board of Directors or
committee must be at least 100% of the fair market value of the Company's Common
Stock as of the date of the grant. Upon termination of employment, any granted
option, vested or unvested, shall, to the extent not previously exercised,
terminate except under certain conditions as outlined in the Plan. The options
granted under the Plan are generally exercisable at specific dates over a
ten-year period.
In 1996, the Company's stockholders approved the OXiGENE 1996 Stock Incentive
Plan (the "1996 Plan"). Certain directors, officers and employees of the Company
and its subsidiary and consultants and advisors thereto may be granted options
to purchase shares of Common Stock of the Company. Under the terms of the 1996
Plan, "incentive stock options" ("ISOs") within the meaning of Section 422 of
the Internal Revenue Code, "nonqualified stock options" ("NQSOs") and SARs may
be granted. A maximum of 1,500,000 shares may be the subject of ISOs, NQSOs and
SARs under the 1996 Plan.
On December 14, 1998, the Company repriced certain options issued to employees,
directors and members of the Scientific Advisory Board. Pursuant to the
revision, the number of options issued to these employees was reduced by 117,634
options and the exercise price was reduced to $8.93 per share (market value on
December 14, 1998) and $10.00 per share. However, the term of the options was
not revised. The Company recorded deferred compensation expense related to these
options and is amortizing the expense over the vesting period of the options.
In 1999, 2000 and 2001, the Company recorded stock-based compensation expense of
approximately $0.7 million, approximately $0.5 million and approximately $0.1
million, respectively, in connection with options issued to non-employees.
The Company has a commitment to issue 30,000 shares of Common Stock to an
officer upon the consummation of a strategic alliance by the Company in
connection with the development and marketing of certain of its products under
development. The exercise price of these options will be the fair value of the
Company's Common Stock on the day the Board authorizes such alliance.
F-12
OXiGENE, Inc.
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity (continued)
Stock Appreciation Rights
SARs granted to employees pursuant to the amended and restated 1992 Plan
entitled the holder to receive the number of shares of Common Stock as is equal
to the excess of the fair market value of one share of Common Stock on the
effective date of exercise over the fair market value of one share of Common
Stock on the date of grant, divided by the fair market value on the date of
exercise, multiplied by the number of rights exercised. These rights vest
ratably over three years and are exercisable for ten years.
The Company recognizes expense for financial reporting purposes when the market
value of the Common Stock exceeds the exercise price of the SARs. The expense
is adjusted to reflect subsequent changes in market value. Because stock
appreciation rights are satisfied, upon exercise, only by the distribution of
shares of Common Stock of the Company, the charge related to unexercised stock
appreciation rights is credited to additional paid-in capital. At December 31,
2001, there was no cumulative effect on additional paid-in capital for SARs.
Options and Warrants
The following is a summary of the Company's Stock option, warrant and stock
appreciation rights activity:
Number of Stock Options, Warrants and Appreciation Rights
Incentive Stock
Non-qualified Stock Appreciation
Stock Options Options Rights Warrants
----------------------------------------------------
Balance at December 31, 1998 1,084,481 139,313 49,612 946,550
Granted 254,925 - - -
Exercised (238,750) (10,831) (4,000) (795,756)
Canceled (10,000) - - (150,794)
----------------------------------------------------
Balance at December 31, 1999 1,090,656 128,482 45,612 -
Granted 313,130 - - 10,764
Exercised (136,952) - (10,000) (10,764)
Canceled (100,000) - - -
----------------------------------------------------
Balance at December 31, 2000 1,166,834 128,482 35,612 -
Granted 248,750 - - -
Exercised (16,500) - - -
Canceled (100,200) - (10,512) -
----------------------------------------------------
Balance at December 31, 2001 1,298,884 128,482 25,100 -
====================================================
F-13
OXiGENE, Inc.
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity (continued)
Weighted-Average Exercise Price of Stock Options, Warrants and
Appreciation Rights
Incentive Stock
Non-qualified Stock Appreciation
Stock Options Options Rights Warrants
-----------------------------------------------------
Balance at December 31, 1998 $ 10.50 $ 9.44 $ 7.26 $ 12.93
Granted 11.95 - - -
Exercised 9.08 8.94 7.25 12.83
Canceled 32.13 - - 13.41
Balance at December 31, 1999 10.95 9.48 7.26 -
Granted 9.26 - - 13.41
Exercised 10.03 - 7.63 13.41
Canceled 28.81 - - -
Balance at December 31, 2000 9.07 9.48 7.16 -
Granted 4.72 - - -
Exercised 6.40 - - -
Canceled 11.19 - 6.00 -
Balance at December 31, 2001 $ 8.11 $ 9.48 $ 7.51 $ -
Stock Options, Warrants and Appreciation Rights Exercisable
Incentive Stock
Non-qualified Stock Appreciation
Stock Options Options Rights
-----------------------------------------
December 31, 1999:
Exercisable 649,535 128,482 45,612
Weighted-average exercise price $ 10.22 $ 9.48 $ 7.26
December 31, 2000:
Exercisable 718,715 128,482 35,612
Weighted-average exercise price $ 8.95 $ 9.48 $ 7.16
December 31, 2001:
Exercisable 809,965 128,482 25,100
Weighted-average exercise price $ 8.20 $ 9.48 $ 7.51
There were no warrants outstanding on December 31, 2001, 2000 and 1999.
F-14
OXiGENE, Inc.
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity (continued)
Stock Options and Appreciation Rights Outstanding
Incentive Stock
Non-qualified Stock Appreciation
Stock Options Options Rights
-----------------------------------------
December 31, 2001:
Exercise prices ranging from $2.05 per share
to $8.25 per share:
Outstanding 708,555 115,000 25,100
Weighted-average exercise price - outstanding $ 5.77 $ 8.00 $ 7.51
Weighted-average remaining contractual life 6.47 years 1.95 years 2.4 years
Exercisable 395,361 115,000 25,100
Weighted-average exercise price - exercisable $ 6.20 $ 8.00 $ 7.51
Exercise prices ranging from $8.50 per share
to $12.75 per share:
Outstanding 507,686 - -
Weighted-average exercise price - outstanding $ 9.62 $ - $ -
Weighted-average remaining contractual life 7.16 years - -
Exercisable 391,961 - -
Weighted-average exercise price - exercisable $ 9.53 $ - $ -
Exercise prices ranging from $15.00 per share
to $22.13 per share:
Outstanding 82,643 13,482 -
Weighted-average exercise price - outstanding $18.69 $22.13 $ -
Weighted-average remaining contractual life 7.28 years 4.54 years -
Exercisable 22,643 13,482 -
Weighted-average exercise price - exercisable $20.20 $22.13 $ -
Notes Receivable
During 1999, 2000, and 2001, certain stock options were exercised with the
presentation of nonrecourse promissory notes to the Company. The interest rate
on the nonrecourse promissory notes is 5.6% with maturity terms of one to three
years.
Common Stock Reserved for Issuance
As of December 31, 2001, the Company has reserved approximately 1,634,000 shares
of its Common Stock for issuance in connection with stock options, stock
appreciation rights and warrants.
F-15
OXiGENE, Inc.
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity (continued)
Stock-Based Compensation
Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock options and stock appreciation rights under the
fair value method of SFAS 123. The fair value for these options and stock
appreciation rights was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1999,
2000 and 2001:
Assumption 1999 2000 2001
- ----------------------------------------------------------------------------
Risk-free rate 6.25% 6.08% 4.23%
Dividend yield 0.00% 0.00% 0.00%
Volatility factor of the expected market price
of the Company's Common Stock .762 .813 .632
Average life 4 years 4 years 4 years
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options and stock appreciation rights have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options and stock appreciation rights.
For purposes of pro forma disclosures, the estimated fair value of the options
and stock appreciation rights is amortized to expense over the vesting period of
the options and stock appreciation rights. The Company's pro forma information
follows:
1999 2000 2001
--------------------------------------------
Pro forma net loss $(13,200,000) $(10,100,000) (5,500,000)
Pro forma net loss per share $(1.29) $(0.91) $(0.48)
The weighted-average fair value of options granted during the years ended
December 31, 1999, 2000 and 2001 were $7.11, $5.69 and $2.33, respectively.
F-16
OXiGENE, Inc.
Notes to Consolidated Financial Statements (continued)
7. Income Taxes
At December 31, 2001, the Company had net operating loss carry forwards of
approximately $80.9 million for U.S. and foreign income tax purposes,
approximately $48.4 million expiring for U.S. purposes through 2021. Due to the
degree of uncertainty related to the ultimate use of these loss carry forwards,
the Company has fully reserved this tax benefit. Additionally, the future
utilization of the U.S. net operating loss carry forwards are subject to
limitations under the change in stock ownership rules of the Internal Revenue
Service.
Components of the Company's deferred tax asset at December 31, 2000 and 2001 are
as follows:
2000 2001
--------------------------
Net operating loss carry forwards $25,479,000 $32,932,000
Compensatory stock options, warrants and
stock appreciation rights 1,046,000 1,078,000
Unrealized loss on available-for-sale securities 581,000 -
-------------------------
Total deferred tax asset 27,106,000 34,010,000
--------------------------
Valuation allowance (27,106,000) (34,010,000)
--------------------------
Net deferred tax asset $ - $ -
=========================
The valuation allowance increased by approximately $3.1 million and
approximately $6.9 million for the years ended 2000 and 2001, respectively, due
primarily to the increase in net operating loss carry forwards.
8. Commitments and Contingencies
Leases
The Company leases facilities in Watertown, Massachusetts. Rent expense for the
years ended December 31, 1999, 2000 and 2001 was approximately $0.2 million,
approximately $0.3 million and approximately $0.3 million, respectively.
The minimum annual rent commitments for the above leases are as follows:
2002 294,000
2003 295,000
2004 295,000
2005 306,000
2006 306,000
Thereafter 1,202,000
-----------
$2,698,000
===========
F-17
OXiGENE, Inc.
Notes to Consolidated Financial Statements (continued)
8. Commitments and Contingencies (continued)
License Agreements
On August 2, 1999, the Company entered into an exclusive license for the
commercial development, use and sale of products or services covered by certain
patent rights owned by ASU (the "License Agreement"). The Company paid an
initial license fee of approximately $0.2 million and, is required to pay
additional license fees in ten equal semi-annual installments of approximately
$0.2 million commencing June 1, 2000. The license agreement and the related
obligation have been recorded at the present value of the amount payable using
an effective rate of 8.7%. The Company also is required to pay royalties on
future net sales of products associated with these certain patent rights.
The Company has another license agreement to patent rights to a certain product.
The agreement requires the Company to pay royalties, as defined, based on
revenues received by the Company in respect to the specified product. This
license expires in October 2011 and the product has not yet been commercially
developed.
On April 14, 2000, the Company entered into an agreement to license certain
technology to a pharmaceutical company. The agreement entitles the Company to
share proceeds under subsequent sublicensing and receive royalties, as defined.
Under the licensing agreement, the Company is obligated to pay 50% of
development costs up to $0.2 million. On June 30, 2001 the Company sold its
interest in and discharged all liabilities and obligations arising from this
license agreement to CampaMed LLC.
Litigation
From time-to-time, the Company may be a party to actions and claims arising from
the normal course of its business. The Company will vigorously defend actions
and claims against it. There are no material suits or claims pending or, to the
best of the Company's knowledge, threatened against the Company.
9. Subsequent Events
In March 2002, the Company announced that it had appointed Mr. Frederick
Driscoll as Chief Executive Officer replacing Bjorn Nordenvall, M.D. Ph.D., who
will transition out of his role as CEO by the end of June 2002. In addition, in
February 2002, Mr. Ron Pero, Ph.D. a founder and formerly an officer and
consultant of the Company stepped down as a director and has been replaced by
Mr. William Shiebler. As a result, the Company estimates that future cash
compensation expense will be reduced in 2002 by approximately $300,000 and
$500,000 annually thereafter.
In January 2002, the Company offered to cancel 1,119,071 options outstanding
with exercise prices significantly above the current market value of the
Company's common stock. A total of 1,109,571 options were subsequently
cancelled. Under the recently adopted Compensation Award Stock Program, a total
of 821,030 shares of Common Stock were issued to directors. In addition, under
the Restricted Stock Program, 208,541 shares of Restricted Common Stock were
issued to employees and consultants. The restricted shares are subject to
forfeiture and transfer restrictions until they vest, generally over a
three-year period. As a result, the Company will recognize non-cash compensation
expense of $2.9 million, of which $2.3 million will be recognized in the first
quarter of 2002 and $0.6 million will be recognized over three years through
2004.
F-18
OXiGENE, Inc.
Notes to Consolidated Financial Statements (continued)
9. Subsequent Events (continued)
Under the terms of both programs, participants are permitted to request a loan
from the Company, the proceeds of which are to be used to satisfy any
participant tax obligations that arise from the awards. These loans will be
evidenced by a promissory note. Principal amounts outstanding under the
promissory note will accrue interest at a rate of 10% per year, compounded
annually. The principal amount, together with accrued interest on the principal
amount to be repaid, will be repaid in three equal installments, on the first
three anniversary dates of the stock grant date. Shares of Common Stock have
been pledged to the Company as security for repayment of the obligations under
the notes, and the stock certificates representing those shares shall remain in
the possession of the Company until the loans are repaid. In the event a
participant fails to pay all amounts due under a promissory note, the number of
shares of that participant's stock, sufficient to satisfy the unpaid amounts,
will be forfeited. No loans have been issued to date.
10. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2000 and 2001:
Three months ended,
---------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
---------------------------------------------------
Licensing revenue $ 483,000 $ 380,000 $ 384,000 $ 448,000
Interest income 449,000 529,000 499,000 445,000
---------------------------------------------------
Total revenues 932,000 909,000 883,000 893,000
Costs relating to
licensing revenue 347,000 249,000 250,000 316,000
Net loss (2,820,000) (1,495,000) (2,689,000) (2,083,000)
Basic and diluted net
loss per share $ (0.25) $ (0.13) $ (0.24) $ (0.19)
Three months ended,
---------------------------------------------------
March 31, June 30, September 30, December 31,
2001 2001 2001 2001
---------------------------------------------------
Licensing revenue $ 757,000 $ 491,000 $ 454,000 $7,251,000
Interest income 352,000 166,000 123,000 265,000
---------------------------------------------------
Total revenues 1,109,000 657,000 577,000 7,516,000
Costs relating to
licensing revenue 624,000 358,000 320,000 206,000
Net income (loss) (2,143,000) (3,739,000) (2,040,000) 3,783,000
Basic and diluted net
income (loss) per share $ (0.19) $ (0.33) $ (0.18) $ 0.33
F-19