UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to ______
Commission File 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
-------------------------------------
(Telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 [ ]
As of August 12, 2002, there were 12,676,664 shares of the Registrant's Common
Stock issued and outstanding.
OXiGENE, INC.
Cautionary Factors that may Affect Future Results
Our disclosure and analysis in this report contain "forward-looking
statements." Forward-looking statements give management's current expectations
or forecasts of future events. You can identify these statements by the fact
that they do not relate strictly to historic or current facts. They use words
such as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," and other words and terms of similar meaning. These include
statements, among others, relating to our planned future actions, our clinical
trial plans, our research and development plans, our prospective products or
product approvals, our beliefs with respect to the sufficiency of our cash and
available-for-sale securities, our plans with respect to funding operations,
projected expense levels, and the outcome of contingencies.
Any or all of our forward-looking statements in this report may turn out to
be wrong. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Consequently, no forward-looking
statement can be guaranteed. Actual results may vary materially from those set
forth in forward-looking statements. The uncertainties that may cause
differences include, but are not limited to, the Company's history of losses,
anticipated continuing losses and uncertainty of future profitability; the early
stage of product development; uncertainties as to the future success of ongoing
and planned clinical trials; the unproven safety and efficacy of products under
development; the sufficiency of the Company's existing capital resources; the
possible need for additional funds; uncertainty of future funding; the Company's
dependence on others for much of the clinical development of its drugs under
development, as well as for obtaining regulatory approvals and conducting
manufacturing and marketing of any product candidates that might successfully
reach the end of the development process; the impact of government regulations,
health care reform and managed care; competition from other companies and other
institutions pursuing the same, alternative or superior technologies; the risk
of technological obsolescence, and uncertainties related to the Company's
ability to obtain adequate patent and other intellectual property protection for
its proprietary technology and product candidates; dependence on officers,
directors and other individuals; and risks related to product liability
exposure.
We will not update forward-looking statements, whether as a result of new
information, future events or otherwise, unless required by law. You are advised
to consult any further disclosures we make in our reports to the Securities and
Exchange Commission including our 10-Q, 8-K and 10-K reports. Our filings list
various important factors that could cause actual results to differ materially
from expected results. We note these factors for investors as permitted by the
Private Securities Litigation Reform Act of 1995. You should understand that it
is not possible to predict or identify all such factors. Consequently, you
should not consider any such list to be a complete set of all potential risks or
uncertainties.
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INDEX
Page No.
PART I - FINANCIAL INFORMATION.................................................4
Item 1.Financial Statements................................................4
Condensed Consolidated Balance Sheets.............................4
Condensed Consolidated Statements of Operations...................5
Condensed Consolidated Statements of Cash Flows...................6
Notes to Condensed Consolidated Financial Statements..............7
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................10
Item 3.Quantitative and Qualitative Disclosures about Market Risks........17
PART II - OTHER INFORMATION...................................................18
Item 1.Legal Proceedings..................................................18
Item 2.Changes in Securities and Use of Proceeds..........................18
Item 3.Defaults upon Senior Securities....................................18
Item 4.Submission of Matters to a Vote of Security Holders................18
Item 5.Other Information..................................................18
Item 6.Exhibits and Reports on Form 8-K...................................19
Signatures....................................................................21
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OXiGENE, Inc.
Condensed Consolidated Balance Sheets
(All amounts in thousands, except shares and per share data)
June 30, December 31,
2002 2001
------- -------
(Unaudited)
Assets
Current assets:
Cash $10,802 $19,030
Available-for-sale securities 4,441 -
Prepaid expenses 103 457
Interest receivable 1 -
Other current assets 16 13
------- -------
Total current assets 15,363 19,500
Property and equipment, at cost 863 867
Accumulated depreciation (305) (237)
------- -------
Net property and equipment 558 630
License agreements, net of accumulated amortization 1,215 1,939
Deposits 77 84
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Total assets $17,213 $22,153
======= =======
Liabilities and stockholders' equity
Current liabilities:
License agreement payable - current portion $ 279 $ 270
Accrued expenses for research and development 1,339 1,269
Other accrued expenses 757 514
Other payables 1,028 1,139
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Total current liabilities 3,403 3,192
License agreement payable - non-current portion 303 442
Stockholders' equity:
Common Stock, $.01 par value, 60,000,000 shares
authorized: 12,676,644 shares at June 30, 2002
and 11,432,093 shares at December 31, 2001,
issued and outstanding 123 114
Additional paid-in capital 83,514 82,385
Accumulated deficit (67,552) (60,641)
Accumulated other comprehensive income 592 461
Notes receivable (2,707) (3,765)
Deferred compensation (463) (35)
------- -------
Total stockholders' equity 13,507 18,519
------- -------
Total liabilities and stockholders' equity $17,213 $22,153
======= =======
See accompanying notes.
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OXiGENE, Inc.
Condensed Consolidated Statements of Operations
(All amounts in thousands, except per share data)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Revenues:
License revenue $ - $ 491 $ - $ 1,248
Interest income 71 166 151 518
-------- -------- -------- --------
Total revenues 71 657 151 1,766
Expenses:
Costs relating to license revenue - 358 - 982
Amortization of license agreement 22 74 42 148
Research and development 1,196 2,021 3,106 3,272
General and administrative 1,585 1,472 5,215 2,659
-------- -------- -------- --------
Total costs and expenses 2,803 3,925 8,363 7,061
-------- -------- -------- --------
Net loss from operations (2,732) (3,268) (8,212) (5,295)
Gain on sale of joint venture - - 1,325 -
Interest expense (4) (19) (17) (36)
Other expense, net (4) (452) (7) (551)
-------- -------- -------- --------
Net loss $ (2,740) $ (3,739) $ (6,911) $ (5,882)
======== ======== ======== ========
Basic and diluted net loss per common share $ (0.23) $ (0.33) $ (0.58) $ (0.52)
======== ======== ======== ========
Weighted average number of common
shares outstanding 11,973 11,233 11,984 11,226
======== ======== ======== ========
See accompanying notes.
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OXiGENE, Inc.
Condensed Consolidated Statements of Cash Flows
(All amounts in thousands)
(Unaudited)
Six months ended
June 30,
2002 2001
------- -------
Operating Activities:
Net loss $(6,911) $(5,882)
Adjustment to reconcile net loss to net cash used in operating
activities:
Gain on sale of joint venture (1,325) -
Stock compensation expense 2,371 105
Notes receivable - promissory notes (604) -
Depreciation 68 87
Disposal of property and equipment 11 -
Amortization of deferred license revenue - (267)
Amortization of licensing agreement 49 148
Loss on sale of available-for-sale securities - 551
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 362 281
Accounts payable and accrued expenses 123 (430)
------- -------
Net cash used in operating activities (5,856) (5,407)
Investing activities:
Purchase of available-for-sale securities (4,441) -
Proceeds from sale of investment 2,000 1,449
Purchase of property and equipment (7) (141)
Deposits - 17
Payment for license agreement - (126)
------- -------
Net cash provided by (used in) investing activities (2,448) 1,199
Effect of exchange rate on changes in cash 76 (53)
------- -------
Net decrease in cash and cash equivalents (8,228) (4,261)
Cash and cash equivalents at beginning of period 19,030 27,063
------- -------
Cash and cash equivalents at end of period $10,802 $22,802
======= =======
See accompanying notes.
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OXiGENE, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
2002 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2002.
The condensed consolidated balance sheet at December 31, 2001 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.
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 no
further obligation is deemed to exist.
Available-for-Sale Securities
In accordance with the Company's investment policy, surplus cash is
invested in corporate and U.S. Government debt securities. The Company
designates its marketable securities as 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 accumulated other
comprehensive income (loss) in stockholders' equity. Realized gains and losses
and declines in value judged to be other-than-temporary on available-for-sale
securities are included in other expense, net. Interest and dividends on
securities classified as available-for-sale are included in interest income.
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Net Loss Per Share
Basic and diluted net loss per share were calculated in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", by dividing the net loss per share by the weighted-average number of
shares outstanding. All options issued by the Company were antidilutive and,
accordingly, excluded from the calculation of weighted-average shares.
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 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 accumulated other
comprehensive income. Accumulated other comprehensive loss was approximately
$0.1 million at June 30, 2002 and at December 31, 2001. Accumulated other
comprehensive loss consists of unrealized loss on available-for-sale securities
of approximately $0.05 million and approximately $1.0 million and accumulated
foreign currency translation adjustment gain of approximately $0.6 million and
approximately $0.5 million at June 30, 2002 and December 31, 2001, respectively.
Comprehensive loss was approximately $6.4 million and approximately $4.6 million
at June 30, 2002 and December 31, 2001, respectively.
2. Stockholders' Equity
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. In January 2002, under the Compensation Award Stock Program, a total
of 821,030 shares of Common Stock were issued to directors, and under the
Restricted Stock Program, 208,541 shares of restricted Common Stock were issued
to employees and consultants. The shares of restricted Common Stock are subject
to forfeiture and transfer restrictions until they vest, generally over a
three-year period. The fair market value of the Common Stock on the date of
grant was $2.07. In connection with the two programs, the Company recognized
non-cash compensation expense of approximately $2.9 million, of which
approximately $2.3 million was recognized in the first quarter of 2002 and
approximately $0.6 million is to be recognized over a three-year period ending
January 2005. Of this approximate $0.6 million approximately $0.05 million was
recognized in the second quarter of 2002.
Under the original terms of both programs, all participants were permitted
to make a one-time request for a loan from the Company to satisfy any
participant tax obligations that arose from the awards. The loans are evidenced
by a promissory note. Principal amounts outstanding under the promissory notes
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, is
payable, in the case of employees in three annual installments, with the first
payment due on the first anniversary of the stock grant date and the second and
final installments due on the second and third anniversaries, respectively, of
the stock grant date and, in the case of directors and an employee director, on
the third anniversary of the grant date. Shares of Common Stock have been
-8-
pledged to the Company as security for repayment of the obligations under the
notes. The stock certificates representing those shares shall remain in the
possession of the Company until the loans, together with interest, are repaid in
full. In the event a participant fails to pay all amounts due under a promissory
note, a number of shares of that participant's Common Stock with a fair market
value, (as determined by the Company) sufficient to satisfy the unpaid amounts,
will be forfeited. The promissory notes are otherwise nonrecourse.
Approximately $0.6 million of promissory notes have been issued to
participants under the loan program and of this amount approximately $0.5
million principal was issued to officer and director participants. No further
loans are expected to be issued under the program and, in any event, no further
loans will be issued to officers or directors. Accrued interest of approximately
$30,000 was recorded in association with the promissory notes for the six months
ended June 30, 2002. In the second quarter of 2002 in connection with the loan
program, the Company made tax payments on behalf of the participants in the
amount of approximately $0.6 million. The Company does not expect to make any
additional tax payments in connection with the program.
The market value of the Company's Common Stock at June 30, 2002 was lower
than the exercise price of previously issued Stock Appreciation Rights ("SARs").
SARs granted to employees pursuant to the amended and restated 1992 Stock
Appreciation 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. During the six
months ended June 30, 2002, the Company recorded stock-based compensation
expense of approximately $20,000 in connection with options issued to
non-employees in the prior years.
3. Termination of Agreements
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. In
February 2002, the Company and Peregrine agreed to conclude the ARCUS joint
venture. Under the terms of the agreement, Peregrine paid the Company $2.0
million and both Peregrine and the Company reacquired full rights and interest
to the vascular targeting platforms they contributed to the joint venture.
On February 15, 2002, the Company and Bristol-Myers Squibb Company signed a
termination agreement relating to the termination of the parites' Research
Collaboration and License Agreement. Under the terms of the termination
agreement, the Company paid approximately $0.2 million at the date of execution
and is required to pay additional amounts as follows: $0.2 million due and
payable 180 days after date of execution, $0.3 million due and payable within 30
days of the first notice of allowance with respect to the licensed patent
rights, and $0.4 million due and payable within 30 days of issuance of a patent
relating to the licensed patent rights.
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and
results of Operations as of June 30, 2002 and 2001 should be read in conjunction
with the sections of our audited consolidated financial statements and notes
thereto, as well as our "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that is included in our Annual Report on
Form 10-K for the year ended December 31, 2001.
Description of Business
OXiGENE, Inc. (the "Company") is an international biopharmaceutical company
engaged principally in the research and 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. Recently, however, our
efforts have focused primarily on our vascular targeting agents ("VTAs" or
"VTA"), Combretatastin CA4 Prodrug ("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.
The Company 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.
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 have a materially adverse effect on 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 (the "BMS Agreement"). 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. The Company recognized
approximately $6.9 million of deferred revenue as revenue in the fourth quarter
of 2001 as a result of the termination of the BMS Agreement. In February 2002,
the Company and BMS finalized a termination agreement setting forth the two
companies' rights and obligations with respect to the termination. Under the
terms of the termination agreement, the Company has agreed to make certain
payments to BMS in connection with the in-license of certain BMS developed
technologies. These payments consist of approximately $0.2 million paid at the
time of execution of the termination agreement, $0.2 million due in August 2002,
$0.3 million due 30 days after the first notice of allowance involving the
licensed patent rights and $0.4 million due 30 days after the issuance of a
patent related to the licensed patent rights.
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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, the Company agreed
to provide exclusive licenses to its next generation tubulin-binding compounds
for use solely in conjunction with a Peregrine antibody and, based upon 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 the Company $2.0 million and both
Peregrine and the Company 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 provided approximately
$3.3 million in future 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 through the period ended June 30, 2002.
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. Pursuant to the agreement,
Jomed agreed to fund and perform proof-of-concept studies with the Company's
VTAs on drug eluting stents. At the conclusion of the studies, and dependant in
part on the results of the studies, the Company and Jomed intend to meet to
negotiate further business terms regarding rights, licenses and royalties
arrangements for going forward.
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 Company agreed to fund the cost of this
study.
In April 2002, the Company finalized an agreement to license its Benzamide
compound, Declopramide, to Active Biotech AB ("Active") for all indications.
Active will focus the majority of its Declopramide research on Inflammatory
Bowel Disease ("IBD"). In earlier studies involving animal models, Declopramide
had shown unexpectedly positive results for the treatment of IBD. The Company
will supply all of its existing documentation and results from its Phase I
Declopramide trials to Active. Active will assume all responsibilities for
development of the compound. The companies will share any future milestone and
royalty payments resulting from any furture licensing of Declopramide.
The Company has generated a cumulative net loss of approximately $67.6
million for the period from its inception through June 30, 2002. The Company
expects to incur significant additional operating losses over at least the next
several years, principally as a result of its continuing clinical trials,
planned future clinical trials, and anticipated research and development
expenditures. The principal source of the Company's working capital has been the
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proceeds of private and public equity financing and the exercise of warrants and
stock options. Prior to entering into the BMS Agreement, the Company had no
material licensing revenues or other fee income. Since the termination of the
BMS Agreement, the Company has had no material amount of revenues or fee income
and unless the Company enters into another arrangement providing licensing or
fee revenue, the Company will continue to have no material amount of revenues or
fee income. There can be no assurance that the Company will enter into any such
arrangements. As of June 30, 2002, the Company had no long-term debt or loans
payable.
Results of Operations - Three and Six Months Ended June 30, 2002 and 2001
Revenues
Three Months Ended June 30, 2002 and 2001
For the three months ended June 30, 2002, the Company had no licensing
revenue. For the three months ended June 30, 2001, the Company had licensing
revenue of approximately $0.5 million. The decrease is due to the termination of
the BMS Agreement. For the three months ended June 30, 2002 and 2001, the
Company had interest income of approximately $0.1 million and approximately $0.2
million, respectively. The decrease of approximately $0.1 million is
attributable to the decreasing cash position of the Company and declining rate
of returns on investments throughout 2002.
Six Months Ended June 30, 2002 and 2001
For the six months ended June 30, 2002, the Company had no licensing
revenue. For the six months ended June 30, 2001, the Company had licensing
revenue of approximately $1.2 million. The decrease is due to the termination of
the BMS Agreement. For the six months ended June 30, 2002 and 2001, the Company
had interest income of approximately $0.2 million and approximately $0.5
million, respectively. The decrease in interest income is primarily due to the
Company's cash position decreasing as well as declining interest rates and
returns on investments throughout 2002.
Expenses
Three Months Ended June 30, 2002 and 2001
Total operating expenses for the three months ended June 30, 2002 and 2001
amounted to approximately $2.8 million and approximately $3.9 million,
respectively. Research and development expenses decreased to approximately $1.2
million during the three months ended June 30, 2002 from approximately $2.0
million for the comparable 2001 period. The decrease of approximately $0.8
million was attributable to the Company's decision to cease further research on
its benzamide-based compound, Declopramide, the termination of the ARCUS
Therapeutics joint venture with Peregrine, and reduced travel and personnel
costs. The further funding of research and development of the Company's lead
compound CA4P following the termination of the BMS Agreement partially offset
this decrease. Under the terms of the BMS Agreement, the costs associated with
the research and development of CA4P in the second quarter of 2001 were
reimbursed by BMS. General and administrative expenses for the three months
ended June 30, 2002 increased to approximately $1.6 million from approximately
$1.5 million for the comparable 2001 period. The increase of approximately $0.1
million was primarily attributable to a one-time non-recurring severance accrual
partially offset by reduced audit, investor relations and travel related costs.
-12-
Six Months Ended June 30, 2002 and 2001
Total operating expenses for the six months ended June 30, 2002 and 2001
amounted to approximately $8.4 million and approximately $7.1 million,
respectively. Research and development expenses decreased to approximately $3.1
million during the six months ended June 30, 2002 from approximately $3.3
million for the comparable 2001 period. The decrease of approximately $0.2
million was attributable to the Company's decision to cease further research on
its benzamide-based compound, Declopramide, the termination of the joint venture
with Peregrine, ARCUS, and reduced travel and personnel costs. Funding the
research and development of the Company's lead compound CA4P following the
termination of the BMS Agreement partially offset this decrease. The costs
associated with the research and development of CA4P in the second quarter of
2001 were reimbursed by BMS. Due to the termination of the BMS Agreement, these
costs will no longer be reimbursed by BMS.
The Company expects research and development costs associated with the
Combretastatin compounds, including CA4P, to increase from current levels as the
compounds progress through the clinical development process.
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 2002 and 2001, the Company
recorded approximately $0.2 million and approximately $0.7 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 June 30, 2002 was lower than the exercise price of previously
issued SARs and there was no balance for previously recorded charges for the
SARs, no expense was recorded for the six month periods ended June 30, 2002 and
2001.
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
quarter to quarter.
General and administrative expenses for the six months ended June 30, 2002
increased to approximately $5.2 million from approximately $2.7 million for the
comparable 2001 period. The increase of approximately $2.5 million was primarily
attributable to a one-time non-cash compensation charge associated with the
Compensation Award Stock Program of approximately $2.2 million and an
approximate $0.1 million recurring charge in each of the first two quarters
associated with the Restricted Stock Program. Absent the one-time charge of
approximately $2.2 million and the associated recurring charges of approximately
$0.2 million for the six months ended June 30, 2002, general and administrative
expenses would have increased approximately $0.1 million. This increase was due
to a one-time non-recurring severance accrual for a workforce reduction offset
by reduced travel, investor relation and general office administration costs. 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.
-13-
Liquidity and Capital Resources
The Company has experienced net losses and negative cash flow from
operations each year since its inception, except in fiscal year 2000. As of June
30, 2002, the Company had an accumulated deficit of approximately $67.6 million.
The Company expects to incur additional expenses, resulting in operating losses,
over at least the next several years due to, among other factors, its continuing
clinical trials, planned future clinical trials, and other anticipated research
and development activities.
The Company had cash and available-for-sale securities of approximately
$15.2 million at June 30, 2002, compared to approximately $19.0 million at
December 31, 2001. In February 2002, the Company received $2.0 million from
Peregrine in connection with the termination of the ARCUS joint venture. Absent
this payment, the cash and available-for-sale securities would be approximately
$13.2 million at June 30, 2002. The approximate decrease of $5.8 million was
attributable to costs associated with further development of the Company's lead
compound, CA4P, which costs are no longer assumed by BMS as a result of the
termination of the BMS Agreement, a one-time payment of the tax obligations of
participants in connection with the participants' election to borrow from the
Company the amount necessary to satisfy income tax obligations arising as a
result of stock grants under the Compensation Award Stock Program and the
Restricted Stock Plan, and normal increases in monthly recurring charges.
The Company anticipates that cash and cash equivalent balances will
continue to decrease as cash is utilized in the normal course of operations.
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, and Baylor University, Waco, TX, for pre-clinical research.
The Company anticipates that its cash and cash equivalents as of June 30,
2002, should be sufficient to satisfy the Company's projected cash requirements
as of that date through approximately the second quarter of 2005. The Company
has focused and streamlined its research and development programs, reduced its
workforce and has thereby reduced its projected annual cash burn rate.
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, whether 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 CA4P, 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
-14-
against any possible claims the Company infringed any third party patent or
other technology rights; the impact of competition, including the threat of
technological advances and obsolescence; 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 following table sets forth the Company's contractual obligations and
commitments as of June 30, 2002:
Contractual Obligations Payments due by period
- --------------------------------
Less than 1
Total year 1-3 years 4-5 years After 5 years
----------------------------------------------------------------
License Agreement Payable $ 582,000 $279,000 $ 303,000 $ - $ -
-
BMS Termination Agreement 290,000 290,000 - - -
Executive Termination Agreement 282,000 207,000 75,000 - -
Operating lease 2,550,000 146,000 894,000 612,000 898,000
----------------------------------------------------------------
Total contractual cash
obligations $3,704,000 $922,000 $1,272,000 $612,000 $898,000
================================================================
The above table does not include any contingent obligations or commitments.
Under the BMS termination agreement, the Company is obligated to make additional
payments of up to $0.7 million upon the occurrence of certain critical
milestones related to in-licensed patents.
Critical Accounting Policies
We believe the following accounting policies to be critical:
Revenue - The Company has entered into collaborations agreements with
certain universities and other companies. 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 in fiscal 2002 and Declopramide in fiscal 2001. 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.
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
-15-
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 no further
obligations with respect to such milestone is deemed to 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 with Arizona State University ("ASU") for the
commercial development, use and sale of products or services covered by 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 the
licensed patent rights.
The Company evaluates its intangibles for important indicators in
accordance with SFAS No. 121. The Company did not have any impairment issues at
June 30, 2002.
Use of Estimates - The Company prepares financial statements in accordance
with generally accepted accounting principles in the United States. These
principles require that the Company make estimates and use assumptions that
affect the reporting of the Company's assets and 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 materially from our estimates.
R&D Disclosure
The Company's research and development team typically works 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 the
quarter ended June 30, 2002 and the year ended December 31, 2001, however, the
Company estimates that a majority of the research and development expense was
related to sub-contract clinical expense and employee salaries related to the
research and development of the Company's next generations compounds, including
CA4P, in fiscal year 2002 and the Company's third generation benzamide
technology, Declopramide, and the ARCUS joint venture in fiscal year 2001.
The expenses associated with the development of Declopramide in fiscal year
2001 related 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 in fiscal year 2001 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. The expenses
associated with CA4P related to further progression of clinical trials
sub-contracted to various clinical research organizations.
-16-
Tax Matters
As of December 31, 2001, the Company had net operating loss carry forwards
of approximately $80.9 million for U.S. and foreign income tax purposes, of
which approximately $48.4 million expires for U.S. tax 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
limitations under the change in stock ownership rules of the Internal Revenue
Service.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
The Company has reviewed the provisions of Regulation S-K Item 305. At June
30, 2002, 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 in place 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 marketable securities 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.
-17-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material suits or claims pending or, to the best of the Company's
knowledge, threatened against the Company.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On June 11, 2002, the Company held its Annual Meeting of Stockholders (the
"Meeting") at the Company's principal offices in Watertown, Massachusetts. On
April 12, 2002, the record date, there were 12,636,664 shares of outstanding
Common Stock of the Company that could be voted at the Meeting. A total of
10,311,273 shares were present, in person or by proxy, and voted at the Meeting.
At the Meeting, all nominees for director, Joel-Tomas Citron, Gerald A. Eppner,
Michael Ionata, Arthur B. Laffer, Dr. Bjorn Nordenvall, Frederick W. Driscoll,
Per-Olaf Soderberg and William Shiebler, were elected by plurality as follows:
- ---------------------------------------------------------------------
FOR Withhold Authority
- ---------------------------------------------------------------------
Name of Director Number of Shares Number of Shares
- ---------------------------------------------------------------------
Joel-Tomas Citron 4,419,870 5,891,403
Gerald A. Eppner 4,544,160 5,767,113
Michael Ionata 4,544,160 5,767,113
Arthur B. Laffer 4,489,255 5,822,018
Bjorn Nordenvall 4,542,890 5,768,413
Per-Olaf Soderberg 4,544,160 5,767,113
William N. Shiebler 4,542,860 5,768,413
Frederick W. Driscoll 4,544,160 5,767,113
- ---------------------------------------------------------------------
At the Meeting, the Company's stockholders also ratified the appointment of
Ernst & Young LLP as the Company's independent auditors for the year ending
December 31, 2002, with 4,553,790 votes cast in favor, 11,513 against, 29,359
abstentions and 5,716,611 broker non-votes.
Item 5. Other Information
Not applicable.
-18-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.13 Employment Agreement with Joel-Tomas Citron dated as of January
2, 2002.
10.14 Termination Agreement by and between the Registrant and
Bristol-Myers Squibb Company dated as of February 15, 2002.
10.15 Employment Agreement by and between the Company and Frederick W.
Driscoll dated October 23, 2000.
10.16 Independent Contractor Agreement for Consulting Services dated
April 1, 2001 by and between the Company and David Chaplin.
10.17 Employment Agreement dated April 1, 2001 by and between the
Company and David Chaplin.
10.18 Addendum dated April 23, 2002, July 1, 2001 and July 1, 1999 to
Executive Employment Agreement by and between the Company and
Bjorn Nordenvall dated October 9, 1995.
10.19 Amendment dated April 23, 2002, May 2001, July 1999, March 1997,
March 1996 and to Consulting Agreement by and between the
Company and B. Omentum Consulting AB dated October 9, 1995.
10.20 Amendment effective as of July 1, 2001 to Executive Employment
Agreement by and between the Company and Bjorn Nordenvall dated
October 9, 1995, as amended July 1, 1999.
10.21 Amendment dated July 1, 1999 to Executive Employment Agreement
by and between the Company and Bjorn Nordenvall dated October 9,
1995.
10.22 Restricted Stock Agreement dated January 2, 2002 by and between
the Company and David Chaplin.
10.23 Restricted Stock Agreement dated January 2, 2002 by and between
the Company and Bjorn Nordenvall.
10.24 Restricted Stock Agreement dated January 2, 2002 by and between
the Company and Frederick W. Driscoll.
10.25 Form of Restricted Stock Agreement dated January 2, 2002, by and
between the Company and each of Joel-Tomas Citron, Gerald A.
Eppner, Michael Ionata, Arthur B. Laffer, Per-Olaf Soderberg,
and William N. Shiebler.
10.26 Promissory Note of Bjorn Nordenvall dated February 2, 2002.
10.27 Promissory Notes of David Chaplin dated February 2, 2002.
10.28 Promissory Notes of Frederick W. Driscoll dated February 2,
2002.
-19-
10.29 Amendment and Confirmation of License Agreement by and between
the Company and with Arizona State University dated June 10,2002
99.1 Certification by principal executive officer and principal
financial officer.
(b) Reports on Form 8-K.
None
-20-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OXiGENE, INC.
(Registrant)
By: /s/ Frederick W. Driscoll
-------------------------------
Frederick W. Driscoll
President and
Chief Executive Officer
August 14, 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/ Rick St. Germain Controller and Chief August 14, 2002
- -------------------- Accounting Officer
Rick St. Germain
-21-
Exhibit Index
10.13 Employment Agreement with Joel-Tomas Citron dated as of January
2, 2002.
10.14 Termination Agreement by and between the Registrant and
Bristol-Myers Squibb Company dated as of February 15, 2002.
10.15 Employment Agreement by and between the Company and Frederick W.
Driscoll dated October 23, 2000.
10.16 Independent Contractor Agreement for Consulting Services dated
April 1, 2001 by and between the Company and David Chaplin.
10.17 Employment Agreement dated April 1, 2001 by and between the
Company and David Chaplin.
10.18 Addendum dated April 23, 2002, July 1, 2001 and July 1, 1999 to
Executive Employment Agreement by and between the Company and
Bjorn Nordenvall dated October 9, 1995.
10.19 Amendment dated April 23, 2002, May 2001, July 1999, March 1997,
March 1996 and to Consulting Agreement by and between the
Company and B. Omentum Consulting AB dated October 9, 1995.
10.20 Amendment effective as of July 1, 2001 to Executive Employment
Agreement by and between the Company and Bjorn Nordenvall dated
October 9, 1995, as amended July 1, 1999.
10.21 Amendment dated July 1, 1999 to Executive Employment Agreement
by and between the Company and Bjorn Nordenvall dated October 9,
1995.
10.22 Restricted Stock Agreement dated January 2, 2002 by and between
the Company and David Chaplin.
10.23 Restricted Stock Agreement dated January 2, 2002 by and between
the Company and Bjorn Nordenvall.
10.24 Restricted Stock Agreement dated January 2, 2002 by and between
the Company and Frederick W. Driscoll.
10.25 Form of Restricted Stock Agreement dated January 2, 2002, by and
between the Company and each of Joel-Tomas Citron, Gerald A.
Eppner, Michael Ionata, Arthur B. Laffer, Per-Olaf Soderberg,
and William N. Shiebler.
10.26 Promissory Note of Bjorn Nordenvall dated February 2, 2002.
10.27 Promissory Notes of David Chaplin dated February 2, 2002.
10.28 Promissory Notes of Frederick W. Driscoll dated February 2,
2002.
10.29 Amendment and Confirmation of License Agreement by and between
the Company and with Arizona State University dated June 10,2002
99.1 Certification by principal executive officer and principal
financial officer.
-22-