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 September 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
------------------------------ ------------------
(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
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(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 November 11, 2002, there were ______ 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, which can be found
at www.oxigene.com. 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.
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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
Item 4. Controls and Procedures.........................................18
PART II - OTHER INFORMATION...................................................19
Item 1. Legal Proceedings...............................................19
Item 2. Changes in Securities and Use of Proceeds.......................19
Item 3. Defaults upon Senior Securities.................................19
Item 4. Submission of Matters to a Vote of Security Holders.............19
Item 5. Other Information...............................................19
Item 6. Exhibits and Reports on Form 8-K................................19
Signatures....................................................................20
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OXiGENE, Inc.
Condensed Consolidated Balance Sheets
(All amounts in thousands, except share and per share data)
September 30, December 31,
2002 2001
---- ----
(Unaudited)
Assets
Current assets:
Cash $ 6,475 $ 19,030
Available-for-sale securities 7,340 -
Prepaid expenses and other current assets 100 470
-------- --------
Total current assets 13,915 19,500
Property and equipment, at cost 868 867
Accumulated depreciation (345) (237)
-------- --------
Net property and equipment 523 630
License agreements, net of accumulated amortization 1,191 1,939
Deposits 74 84
-------- --------
Total assets $ 15,703 $ 22,153
======== ========
Liabilities and stockholders' equity
Current liabilities:
License agreement payable - current portion $ 284 $ 270
Accrued expenses for research and development 1,256 1,269
Other accrued expenses 334 514
Other payables 1,702 1,139
-------- --------
Total current liabilities 3,576 3,192
License agreement payable - non-current portion 309 442
Stockholders' equity:
Common Stock, $.01 par value, 60,000,000 shares
authorized: 12,340,982 shares at September 30, 2002
and 11,432,093 shares at December 31, 2001, issued
and outstanding 123 114
Additional paid-in capital 83,532 82,385
Accumulated deficit (69,216) (60,641)
Accumulated other comprehensive income 520 461
Notes receivable (2,725) (3,765)
Deferred compensation (416) (35)
-------- --------
Total stockholders' equity 11,818 18,519
-------- --------
Total liabilities and stockholders' equity $ 15,703 $ 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 Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
License revenue $ - $ 454 $ - $ 1,702
Interest income 73 123 223 641
-------- -------- -------- --------
Total revenues 73 577 223 2,343
Expenses:
Costs relating to license revenue - 320 - 1,302
Amortization of license agreement 25 75 66 223
Research and development 994 1,096 4,101 4,368
General and administrative 725 1,105 5,940 3,764
-------- -------- -------- --------
Total costs and expenses 1,744 2,596 10,107 9,657
-------- -------- -------- --------
Net loss from operations (1,671) (2,019) (9,884) (7,314)
Gain on sale of joint venture - - 1,325 -
Interest (expense) income (12) (21) 13 (57)
Other income (expense), net 19 - (29) (551)
-------- -------- -------- --------
Net loss $ (1,664) $ (2,040) $ (8,575) $ (7,922)
======== ======== ======== ========
Basic and diluted net loss per common
share $ (0.14) $ (0.18) $ (0.72) $ (0.70)
======== ======== ======== ========
Weighted average number of common shares
outstanding 12,016 11,260 11,987 11,331
======== ======== ======== ========
See accompanying notes.
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OXiGENE, Inc.
Condensed Consolidated Statements of Cash Flows
(All amounts in thousands)
(Unaudited)
Nine months ended
September 30,
2002 2001
---- ----
Operating Activities:
Net loss $ (8,575) $ (7,922)
Adjustment to reconcile net loss to net cash
used in operating activities:
Gain on sale of joint venture (1,325) -
Stock compensation expense 2,418 59
Notes receivable - promissory notes (604) -
Depreciation 108 131
Disposal of property and equipment 11 30
Amortization of deferred license revenue - (400)
Amortization of licensing agreement 73 223
Loss on sale of available-for-sale securities - 551
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 384 (245)
Accounts payable and accrued expenses 281 235
-------- --------
Net cash used in operating activities (7,229) (7,338)
Investing activities:
Purchase of available-for-sale securities (7,291) 1,449
Proceeds from sale of investment 2,000 -
Purchase of property and equipment (12) (188)
Payment for license agreement (150) (108)
-------- --------
Net cash (used in) provided by investing activities (5,453) 1,153
Effect of exchange rate on changes in cash 127 (129)
-------- --------
Net decrease in cash and cash equivalents (12,555) (6,314)
Cash and cash equivalents at beginning of period 19,030 27,063
-------- --------
Cash and cash equivalents at end of period $ 6,475 $ 20,749
======== ========
See accompanying notes.
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OXiGENE, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2002
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated 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 nine months ended September
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. Certain amounts have
been reclassified for the year ended December 31, 2001 to conform to the current
year presentation. 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, which can be found at
www.oxigene.com.
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 income was approximately
$520,000 at September 30, 2002 and approximately $461,000 at December 31, 2001,
which consists of unrealized gains on available-for-sale securities of
approximately $49,000 at September 30, 2002 and accumulated foreign currency
translation adjustment gains of approximately $471,000 at September 30, 2002 and
approximately $461,000 at December 31, 2001. Comprehensive loss was
approximately $8.1 million and approximately $4.6 million at September 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 will recognize
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 $0.6 million approximately $0.1 million was recognized in
the nine months ended September 30, 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. Each loan is 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
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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 of principal was issued to officer and director participants. No further
loans are expected to be issued under the program. Accrued interest of
approximately $50,000 was recorded in association with the promissory notes for
the nine months ended September 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 September 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
nine months ended September 30, 2002, the Company recorded stock-based
compensation expense of approximately $25,000 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 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 parties' Research
Collaboration and License Agreement. Under the terms of the termination
agreement, the Company paid approximately $0.2 million at the date of execution,
$0.2 million after the date of execution, and is required to pay additional
amounts as follows: $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. As of September 30, 2002, the Company has accrued for the $0.7
million due and payable for the first notice of allowance and the issuance of a
patent relating to the licensed patent rights.
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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 September 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, which can be found at
www.oxigene.com.
Description of Business
OXiGENE, Inc. ("OXiGENE" or 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. Currently, the
Company's efforts focus primarily on its vascular targeting agents ("VTAs" or
"VTA"), Combretatastin CA4 Prodrug ("CA4P"), Oxi-4503 and Oxi-6197. 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 (the "BMS 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. 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 after the date
of execution, $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. As of September 30,
2002, the Company has accrued for the $0.7 million due and payable for the first
notice of allowance and the issuance of a patent relating 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 agreed to provide
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 September
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 future licensing of Declopramide.
-11-
The Company has generated a cumulative net loss of approximately $69.2
million for the period from its inception through September 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
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 September 30, 2002, the Company had no long-term debt or
loans payable.
Results of Operations - Three and Nine Months Ended September 30, 2002 and 2001
Revenues
Three Months Ended September 30, 2002 and 2001
For the three months ended September 30, 2002, the Company had no licensing
revenue. For the three months ended September 30, 2001, the Company had
licensing revenue of approximately $454,000. The decrease is due to the
termination of the BMS Agreement. For the three months ended September 30, 2002
and 2001, the Company had interest income of approximately $73,000 and
approximately $123,000, respectively.
Nine Months Ended September 30, 2002 and 2001
For the nine months ended September 30, 2002, the Company had no licensing
revenue. For the nine months ended September 30, 2001, the Company had licensing
revenue of approximately $1.7 million. The decrease is due to the termination of
the BMS Agreement. For the nine months ended September 30, 2002 and 2001, the
Company had interest income of approximately $223,000 and approximately
$641,000, 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 September 30, 2002 and 2001
Total operating expenses for the three months ended September 30, 2002 and
2001 amounted to approximately $1.7 million and approximately $2.6 million,
respectively. Research and development expenses decreased to approximately $1.0
million during the three months ended September 30, 2002 from approximately $1.1
million for the comparable 2001 period. The decrease of approximately $100,000
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 and research into
other VTA compounds within the Company's Combretastatin family of products,
partially offset this decrease. Under the terms of the BMS Agreement, the costs
associated with the research and development of CA4P in the third quarter of
2001 were
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reimbursed by BMS. General and administrative expenses for the three months
ended September 30, 2002 decreased to approximately $725,000 from approximately
$1.1 million for the comparable 2001 period. The decrease of approximately
$400,000 was primarily attributable to a reduction in administrative staff and
lower legal costs due to reduced outside legal services.
Nine Months Ended September 30, 2002 and 2001
Total operating expenses for the nine months ended September 30, 2002 and
2001 amounted to approximately $10.1 million and approximately $9.7 million,
respectively. Research and development expenses decreased to approximately $4.1
million during the nine months ended September 30, 2002 from approximately $4.4
million for the comparable 2001 period. The decrease of approximately $0.3
million was attributable to the Company's decision to cease further research on
its benzamide-based compound, Declopramide, the termination of the ARCUS joint
venture with Peregrine 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 and research into other VTA compounds within
the Company's Combretastatin family of products, partially offset this decrease.
The costs associated with the research and development of CA4P were reimbursed
by BMS in the nine months ended September 30, 2001. 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, the Company did not incur
any research and development expenses related to options issued for services
provided by non-employees and in 2001, the Company recorded approximately $0.1
million. Because the market value of the Company's Common Stock at September 30,
2002 was lower than the exercise price of previously issued SARs and there was
no balance for previously recorded compensation charges for the SARs, no expense
was recorded for the nine months ended September 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 nine months ended September 30,
2002 increased to approximately $5.9 million from approximately $3.8 million for
the comparable 2001 period. The increase of approximately $2.1 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 $50,000 recurring charge in each of the first three quarters
associated with the Restricted Stock Program. Absent the one-time charge of
approximately $2.2 million and the associated recurring charges of approximately
$200,000 for the nine months ended September 30, 2002, general and
administrative expenses would have decreased by approximately $300,000. This
-13-
decrease would have been primarily due to a workforce reduction and lower costs
resulting from a reduction in outside legal services. 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.
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
September 30, 2002, the Company had an accumulated deficit of approximately
$69.2 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
$13.8 million at September 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
$11.8 million at September 30, 2002. The approximate decrease of $7.2 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, research and development of other VTA
compounds in the Company's Combretastatin family of products, 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, Texas, for pre-clinical
research.
The Company anticipates that its cash and cash equivalents as of September
30, 2002, should be sufficient to satisfy the Company's projected cash
requirements as of that date through approximately the first quarter of 2005.
The Company has focused and streamlined its research and development programs
and 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
-14-
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 any possible claims that the Company infringed on 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 September 30, 2002:
Contractual Obligations
- -----------------------
Payments due by period
Less than After
Total 1 year 1-3 years 4-5 years 5 years
-------------------------------------------------------------------
License Agreement Payable $ 594,000 $ 285,000 $ 309,000 $ - $ -
BMS Termination Agreement * 990,000 990,000 - - -
Executive Termination
Agreement 188,000 150,000 38,000 - -
Operating lease 2,475,000 294,000 917,000 649,000 615,000
-------------------------------------------------------------------
Total contractual
cash obligations $ 4,247,000 $ 1,719,000 $ 1,264,000 $ 649,000 $ 615,000
===================================================================
* $200,000 of which was paid after September 30, 2002 but before the date
of this report.
The above table does not include any contingent obligations or commitments.
Critical Accounting Policies
Management of the Company believes the following accounting policies to be
critical:
Revenue - The Company has entered into collaboration 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.
-15-
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 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. 144. The Company did not have any impairment issues at
September 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 the 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 September 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.
-16-
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 United States 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.
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
September 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 primarily 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-
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures - The Company's Chief
Executive Officer and Chief Accounting Officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934 Rules 13A-14(c) and 15d-14(c)) on November
7, 2002, have concluded that, based on such evaluation, the Company's disclosure
controls and procedures were adequate and effective to ensure that material
information relating to the Company, including its consolidated subsidiary, was
made known to them by others within those entities, particularly during the
period in which this Quarterly Report on Form 10-Q was being prepared.
Changes in Internal Controls - There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in the Company's internal
controls. Accordingly, no corrective actions were required or undertaken.
-18-
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
None.
Item 5. Other Information
On October 31, 2002, the Company announced the execution of a funded research
agreement (the "Agreement") with The Foundation Fighting Blindness, Inc. (the
"Foundation") to advance vision-related research of the Company's lead vascular
targeting compound, Combretastatin A4 Prodrug (CA4P). The Foundation is a
nationwide charitable organization whose mission is to discover the causes,
treatments and cures for retinal degenerative diseases. Under the Agreement,
which is conditioned upon certain regulatory and institutional review board
approvals, the Foundation has agreed to fund a physician-sponsored Phase I/II
human clinical trial. The goal of the study is to evaluate the safety and
effectiveness of CA4P as a treatment for a retinal disease known as wet
age-related macular degeneration ("AMD"). Wet AMD is characterized by the
abnormal growth of blood vessels beneath the eye's retinal tissue, which growth
triggers a leakage of fluid that injures the photoreceptor cells that
discriminate color vision and fine visual detail. In the area of oncology, the
Company has already completed Phase I clinical trials of CA4P.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
-19-
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
November 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/ Richard A. St. Germain Controller and November 14, 2002
- -------------------------- Chief Accounting Officer
Richard A. St. Germain
-20-
CERTIFICATIONS
Certifications:
I, Frederick W. Driscoll, certify that:
1. I have reviewed this quarterly report on Form 10-Q of OXiGENE,
Inc.:
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Frederick W. Driscoll
- -------------------------
Frederick W. Driscoll
President and Chief Executive Officer
-21-
I, Richard A. St. Germain, certify that:
1. I have reviewed this quarterly report on Form 10-Q of OXiGENE,
Inc.:
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
c. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
d. any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Richard A. St. Germain
- --------------------------
Richard A. St. Germain
Controller and Chief Accounting Officer
-22-