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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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 0-26534
VION PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3671221
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
4 Science Park
New Haven, Connecticut 06511
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 498-4210
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock, $0.01 par value (together with associated
Common Stock Purchase Rights)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of the
registrant as of March 1, 2001 was $134,439,272 based on the last sale price for
the common stock on that date.
The number of shares outstanding of the registrant's common stock as of March
22, 2001 was 26,176,637.
TABLE OF CONTENTS
FORM 10-K
Item Page
- ---- ----
PART I
1. Business.............................................................. 2
2. Properties .......................................................... 16
3. Legal Proceedings.................................................... 16
4. Submission of Matters to a Vote of Security Holders ................. 16
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................... 17
6. Selected Financial Data ............................................. 18
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 18
7A. Quantitative and Qualitative Disclosures About Market Risk........... 23
8. Financial Statements and Supplementary Data.......................... 24
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 46
PART III
10. Directors and Executive Officers of the Registrant.................. 47
11. Executive Compensation.............................................. 50
12. Security Ownership of Certain Beneficial Owners and Management...... 55
13. Certain Relationships and Related Transactions...................... 56
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...... 56
All statements other than statements of historical fact included in
this Annual Report, including without limitation statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business," regarding the Company's financial position, business strategy, and
plans and objectives of management of the Company for future operations, are
forward-looking statements. When used in this Annual Report, words such as
"may," "will," "should," "could," "potential," "seek," "project," "predict,"
"anticipate," "believe," "estimate," "expect," "intend," and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Forward-looking statements are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. These statements
are subject to risks and uncertainties that could cause actual results and
events to differ significantly.
PART I
ITEM 1: Business
General
We are a biopharmaceutical company engaged in research, development and
commercialization of therapeutics and technologies for the treatment of cancer.
Our product portfolio consists of one drug delivery platform and two distinct
small molecule anticancer agents.
o TAPET'r' (Tumor Amplified Protein Expression Therapy), our
drug delivery system using live Salmonella bacteria, is
designed to deliver cancer-fighting drugs preferentially to
solid tumors, and is currently being evaluated in Phase I
human safety trials.
o Triapine'r' prevents the replication of tumor cells by
blocking a critical step in the synthesis of DNA. Triapine
is currently being evaluated for its safety in Phase I
single agent trials. Triapine is expected to enter single
agent Phase II and combination clinical studies in the first
half of 2001.
o Sulfonyl Hydrazine Prodrugs are unique, potent alkylating
agents that are currently being evaluated in preclinical
studies. The lead candidate is slated to begin clinical
development in the first half of 2001.
Our product development strategy consists of two main approaches.
First, we engage in product development with respect to anticancer technologies
through in-house research and through collaboration with academic institutions.
Second, depending on the drug market conditions and required resources, we
determine the best method and/or partnership to develop, and eventually market,
our products. Our current research and development programs are based on
technologies that we license from Yale University.
Overview of Cancer
Cancer is the second leading cause of death in the United States,
exceeded only by heart disease. Since 1990, nearly five million Americans have
died from cancer. It is a devastating disease with tremendous unmet medical
needs. The American Cancer Society estimates that more than 1.2 million new
cases of cancer will be diagnosed in the United States in this year and 552,200
Americans are expected to die from cancer in 2001. Current statistics suggest
that approximately 30% of Americans will develop cancer in their lifetime and
roughly two-thirds of new cases of cancer are expected to result in death
within five years.
Cancer is characterized by uncontrolled cell division resulting in the
development of a mass of cells, commonly known as a tumor, as well as the
invasion and spreading of these cells. Cancerous tumors can arise in any
tissue or organ within the human body. Cancer is believed to occur as a
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result of a number of factors, such as genetic predisposition, chemical agents,
viruses and irradiation. These factors result in genetic changes affecting the
ability of cells to normally regulate their growth and differentiation. When a
normal cell becomes cancerous, it can spread to various sites in the body.
Common Treatment Methods
The three most common methods of treating patients with cancer are
surgery, radiation therapy and chemotherapy. A cancer patient often receives a
combination of these methods. Surgery and radiation therapy are particularly
effective in patients where the disease is localized and has not yet spread to
other tissues or organs. Surgery involves the removal of the tumor and adjacent
tissue. In many cases where the cancer cells have not yet spread, surgery cannot
be performed because of the inaccessible location of the tumor or the danger of
removing too much normal tissue along with the cancerous tissue.
Radiation therapy involves the exposure of the tumor and surrounding
tissue to ionizing radiation. The objective of radiation therapy is to kill the
cancer cells with ionized molecules that are created in the parts of the body
exposed to the ionizing radiation. Radiation, however, also kills or damages
normal cells. Radiation therapy can have varying levels of effectiveness, and
can cause patient weakness, loss of appetite, nausea and vomiting. Radiation can
also result in loss of normal body functions, which may include bone marrow
depression, gastrointestinal complications, kidney damage and damage to the
peripheral nervous system. In some cases, radiation-induced mutations in bone
marrow cells can lead to new secondary cancers, such as leukemia, years after
treatment for other forms of cancer.
Chemotherapy is the principal approach used for tumors that have
spread. Chemotherapy seeks to interfere with the molecular and cellular
processes that control the development, growth and survival of malignant tumor
cells. Chemotherapy involves the administration of drugs designed to kill cancer
cells or the administration of hormone analogs to either reduce the production
of, or block the action of, certain hormones that affect the growth of various
tumors. Chemotherapy, however, can also result in loss of normal body functions
and can result in patient weakness, loss of appetite, nausea and vomiting. In
many cases, chemotherapy consists of the administration of several different
drugs in combination.
Recent Advances
In recent years, there have been significant advances in molecular
biology, immunology and other related fields of biotechnology that have led to a
better understanding of how malfunctioning genes can result in the formation of
tumors. It is anticipated that these advances will lead to better ways to
diagnose cancer and to prevent tumors from forming or becoming malignant. Other
research has focused on mechanisms to efficiently deliver therapies to tumors.
Ultimately, these emerging technologies may lead to genetic-based therapies
aimed specifically at the genes that have malfunctioned and caused the cancer to
form or spread, and to therapies that can selectively deliver agents to tumors
that prevent the abnormal growth of cells.
Most current anticancer drugs, when introduced into the system by
current delivery methods, affect rapidly growing cells, both cancerous and
normal, throughout the body. The result is often significant side effects that
take a toll on a patient's health and can limit the amount of treatment a
patient may receive. Therefore, a great need exists for new therapies and
delivery strategies that
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preferentially deliver anticancer agents to tumors while having minimal effects
on healthy, normal tissues.
We believe that, for the foreseeable future, the principal means of
combating cancer will continue to be through the surgical removal of tumors and
the destruction of malignant cells through radiation therapy and chemotherapy,
delivered systemically or in ways that make anticancer agents preferentially
more toxic to tumors. Therefore, we intend to take a balanced approach in our
research and development efforts. We will continue to develop chemically defined
small molecules based upon unique cellular targets discovered through
biotechnology, while also pursuing development of technologies to deliver
therapeutic agents to tumors.
Our Product Development Program
We are currently developing several products for the treatment of
cancer. The discussion below sets forth the development status of our core
product candidates as of December 31, 2000. 'Preclinical' indicates that the
product candidate selected for development has met predetermined criteria for
potency, specificity, manufacturability and pharmacologic activity in vitro, or
cell culture, and in vivo, or animal, models. Clinical evaluation involves a
three-phase process. 'Phase I' indicates safety and proof-of-concept testing in
a limited patient population. 'Phase II' indicates safety, dosing and efficacy
testing in a limited patient population. 'Phase III' indicates safety, dosing
and efficacy testing in a large patient population.
Drug Delivery Platform: TAPET'r'
TAPET is a drug delivery system that utilizes bioengineered,
genetically altered Salmonella bacteria to deliver cancer-fighting drugs
preferentially to solid tumors. Extensive preclinical studies in animal models
have shown that TAPET bacteria migrate to and penetrate throughout solid tumors.
Inside the tumors, TAPET doubles in quantity every 30 to 45 minutes, achieving
very high bacterial counts, reaching ratios in tumor versus normal tissues of
1,000:1. TAPET can be genetically engineered to deliver anticancer agents
continuously within the tumor. By bringing the "drug factory" to the tumor,
anticancer agents delivered by TAPET are concentrated inside the tumor and
are, therefore, expected to be more efficacious against the tumor, while at
the same time, less toxic to normal surrounding tissue.
Furthermore, TAPET bacteria are genetically engineered to reduce the
normal, toxic reactions to these bacteria. As an additional safety measure,
TAPET bacteria remain fully sensitive to antibiotic therapies. Extensive
preclinical toxicology studies in several species, including mice, rats, pigs,
dogs and monkeys, have demonstrated these safety measures to be effective.
Given our preclinical database demonstrating TAPET's potential efficacy
and safety profile, we believe that TAPET may prove to be an ideal vector, or
delivery mechanism, for the delivery of specific cancer-fighting drugs
preferentially to solid tumors. We intend to use TAPET to deliver
Vion-developed, anticancer drugs. Some of these drugs will be generic and
non-proprietary, however, when combined with the TAPET system, they could result
in proprietary products for us. In addition, we intend to seek multiple
strategic partnerships with pharmaceutical companies to use TAPET to deliver
their proprietary anticancer drugs.
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The safety and distribution of VNP20009, the Company's first TAPET
bacterial candidate, is currently being evaluated in four Phase I clinical
trials using two routes of administration: intratumoral (IT) and intravenous
(IV). The first trial, administered by the IT route, was initiated at the
Cleveland Clinic Foundation in late 1999, and last year, Beth Israel Deaconess
Medical Center in Boston, Massachusetts joined the study. This trial was
designed to evaluate the safety profile, optimum biological dose and tumor
localization of VNP20009. The initial results of the trial have been
encouraging. Patients have tolerated treatment with minimal toxicity, and
injected tumors remain colonized with TAPET bacteria for at least two weeks.
Because of the excellent safety profile, we are testing the feasibility and
safety of administering even higher doses directly into tumors, and we have
introduced improved IT injection techniques.
In March 2000, we began the first study of TAPET by IV administration
at the National Cancer Institute (NCI) in Bethesda, Maryland and, at the same
time, signed a five-year Cooperative Research and Development Agreement (CRADA)
with the NCI, under the direct supervision of Steven A. Rosenberg, M.D., Ph.D.,
Chief of Surgery in the NCI's Division of Clinical Sciences, a renowned cancer
researcher and a leading authority on the application of cytokines, tumor
vaccines and other biologicals in cancer patients. Under the terms of the CRADA,
Vion's scientific team will work with Dr. Rosenberg's laboratory to evaluate a
number of TAPET vectors, alone and in combination with other anticancer agents,
as well as to explore the mechanisms by which bacterial vectors cause antitumor
activity. This represents a first step in forming an important collaboration
with the NCI, which provides us with an excellent setting to further investigate
the safety and biologic effects of our first TAPET vector. Two additional IV
studies of TAPET were initiated in 2000, one at the Cleveland Clinic Foundation
and Beth Israel Deaconess Medical Center, and another at the Royal Marsden
Hospital in Sutton, England, well-respected and experienced institutions in the
area of clinical cancer research. To date, the results observed in the IV trials
are encouraging. In one schedule of IV administration, evidence of colonization
within a metastatic tumor was obtained in some patients at the highest doses. A
vast amount of biological information was also gathered in the trials. Based on
this experience, the studies have been modified to continue dose escalation and
to extend the duration of infusion in order to optimize tumor colonization.
While progress has been made in terms of TAPET's clinical development,
our preclinical efforts have kept an equally strong pace, in terms of both
collaboration and investigation. Preclinical studies of "armed" TAPET vectors in
animal models to date have shown preferential accumulation within tumors and
increased antitumor activity as compared to "unarmed" TAPET vectors, as well as
the delivery of a variety of anticancer products at high concentrations
throughout the tumor mass. These studies have been reported at a variety of
conferences in both the U.S. and Europe. Specifically, at the 2000 Annual
Meeting of the American Association for Cancer Research (AACR), we presented a
series of preclinical abstracts on several "armed" TAPET vectors, delivering a
variety of potent anticancer agents such as DT-diaphorase, colicin E3, cytosine
deaminase, endostatin and TNF(alpha), all of which demonstrated preferential
replication in tumors, with tumor-to-normal tissue ratios of greater than
130-1000:1 In addition, Vion and Yale University (Yale) jointly presented
preclinical data of TAPET in combination with radiation therapy, which indicated
that while Vion's "unarmed" TAPET bacteria and radiotherapy alone slowed tumor
growth and prolonged survival, the combination of the two prolonged survival as
much as 50% over the best results obtained with radiotherapy alone.
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Ever-expanding TAPET's viability as a true platform, Vion is
collaborating with New York's Memorial Sloan-Kettering Cancer Center, to explore
TAPET's potential use in enhancing the imaging of solid tumors. Data presented
at The International Symposium on Tumor Targeted Delivery Systems in September
2000 showed that TAPET engineered to express HSV1-TK (herpes simplex virus
thymidine kinase) accumulated in the tumor tissue at ratios of 1000:1 compared
to normal tissue. Injection of a radio-labeled substrate for HSV-TK resulted
in the trapping of a radio-labeled compound within the confines of the tumor.
Microscopic analysis of the location of the radioactivity showed a high degree
of specificity for tumors, which may potentially enhance the detection and
visualization of solid tumors using existing imaging technologies. These early
data are encouraging, and warrant further investigation of the use of TAPET to
deliver diagnostic imaging markers.
These important findings enhance our growing preclinical database and
continue to show TAPET's broad versatility in not only expressing a variety of
anticancer agents, but also as a combination therapy, and as a diagnostic tool
in the fight against cancer.
Anticancer Cell Therapeutics
Triapine'r'
Triapine is a potent inhibitor of ribonucleotide reductase and,
therefore, a potent inhibitor of DNA synthesis. In animal tumor models, Triapine
has demonstrated a broad spectrum of activity, showing efficacy in both in vivo
and in vitro tests and an ability to inhibit tumor cell growth in the murine
L1210 leukemia, murine M109 lung carcinoma and human A2780 ovarian carcinoma
models. Also in animal studies, Triapine has demonstrated synergy with other
anticancer agents, such as topoisomerase 2 inhibitors and alkylating agents,
which damage DNA. These studies demonstrate that Triapine inhibits cancer cells'
ability to repair the damaged DNA.
In March 2000, we completed a Phase I single dose study of Triapine,
which was designed to assess its safety profile and pharmacokinetics when
administered intravenously as a two-hour infusion every four weeks. Patients
were treated on nine-dose levels of Triapine and tolerated the treatment well;
furthermore, at the highest dose level, there were no clinically significant
toxicities, and peak serum levels of Triapine exceeded the concentrations
required to show activity against tumor cells.
Given Triapine's favorable safety profile and pharmacokinetics, and
supported by preclinical data suggesting that Triapine has the greatest effect
on tumors when administered consecutively for several days, we began a second
Phase I trial administered daily for five days every four weeks. In May 2000,
our team initiated a third Phase I trial of Triapine administered intravenously,
by continuous infusion, over a 96-hour period at the Albert Einstein College of
Medicine/Montefiore Medical Center, Bronx, New York, to evaluate the safety
profile and feasibility of extending injections of Triapine over several days.
A maximum tolerated dose was reached for both the five-times daily and
the 96-hour continuous infusion regimens, which were administered every 3-4
weeks. Because of the favorable safety profile, the feasibility of administering
each regimen in a more compressed every other week schedule is being evaluated
in clinical trials. We were pleased to observe preliminary evidence of antitumor
activity in patients with advanced and chemotherapy-refractory malignancies
using the five-times daily, every other week regimen. Based on this information,
single agent Phase II studies of Triapine are expected to begin in 2001.
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Furthermore, the Phase I studies may set the stage to begin studies of Triapine
in combination with traditional anticancer agents, where in preclinical models
we have observed improvement in antitumor activity compared to administration of
the single agents.
Sulfonyl Hydrazine Prodrugs
Sulfonyl Hydrazine Prodrugs (SHPs) are potent alkylating (DNA-damaging)
agents, which are among the most highly effective agents in the treatment of
cancer. Due to the differences in the mechanisms by which alkylating agents
damage DNA, they may have different spectrums of activity and toxicity. SHPs
have unique alkylating agent properties and have demonstrated broad, potent
antitumor activity in mouse models with tolerable toxicity levels.
We have licensed several classes of SHPs from Yale, including various
prodrugs that are the subject of ten issued patents. Each of these alkylating
agent prodrugs may target a unique property of a cancer cell, thereby destroying
it. In the past year, Vion, in collaboration with Yale, identified a lead
candidate of the sulfonyl hydrazine prodrug class, VNP40101M, with which to
enter clinical development. Promising preclinical data on VNP40101M presented by
Vion and Yale at the AACR showed broad antitumor activity against leukemia,
melanoma, lung and colon carcinomas in animal models. In addition, VNP40101M
demonstrated excellent penetration of the blood brain barrier with antitumor
activity against leukemia in the brain, as well as activity against brain tumors
and tumor cells resistant to some of the standard alkylating agents commonly
used to treat various forms of human cancer. Vion has completed toxicology
studies and plans to initiate clinical trials in 2001.
Promycin'r'
Promycin is an anticancer cell therapeutic that is designed to improve
the treatment of solid tumors by attacking the hypoxic, or oxygen-depleted,
cells therein. Vion and Boehringer Ingelheim International GmbH (BI) of
Ingelheim, Germany conducted a Phase III trial of Promycin in patients with head
and neck cancer at 42 centers worldwide. In June 2000, patient accrual into
Promycin clinical trials sponsored by BI was put on hold as an interim
evaluation of the Phase III trial of Promycin did not meet the predetermined
criteria, which would warrant continuation of accrual. Since BI agreed to assume
manufacturing, supply and worldwide development expenses in December of 1999,
the Company will not incur any additional expenses related to the Promycin
studies.
Licensed Product and Product Candidates
MELASYN'r'
MELASYN is a synthetic form of melanin that dissolves readily in water.
Melanin is a pigment formed by cells in the skin that gives skin its color and
protects it from sun damage by absorbing ultraviolet rays. We believe that
MELASYN is the first water-soluble, synthetic version of melanin, making it a
novel and useful ingredient for formulation of skin care products and cosmetics.
The simplicity of its manufacture allows MELASYN to be produced in commercial
quantities at low cost. In
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addition, MELASYN blends in and conforms to a person's skin tone without the
orange color associated with most commercially available self-tanning products.
In February 1998, we entered into an exclusive worldwide agreement for
a three-year term to license our MELASYN technology to San-Mar Laboratories, a
leading manufacturer of private label cosmetics and pharmaceuticals. Under the
terms of this agreement, we granted an exclusive worldwide license to San-Mar
for the manufacture and sale of products containing MELASYN. We receive a
royalty on products sold by San-Mar with guaranteed minimum annual royalties of
$50,000 per year during the initial three-year period. We are currently in
discussion with San Mar for a new agreement, however, there is no assurance
as to the outcome.
We have also funded research projects relating to compounds to control
pigmentation and chemotherapeutic products for treating melanoma. To date, such
research has not provided any product candidates that we presently plan to
pursue.
Novel Nucleoside Analogs
We have licensed the development of a nucleoside analog, or synthetic
molecule, known as (beta)-L-Fd4C. (beta)-L-Fd4C is an anti-viral drug capable of
inhibiting the replication of the hepatitis B virus, or HBV, that has produced
preclinical results superior to those of competing anti-viral drugs. We expect
(beta)-L-Fd4C to last longer and require less frequent dosage than the current
treatment, 3TC. HBV is a causative agent of both acute and chronic forms of
hepatitis that affects about 300 million people worldwide. HBV also predisposes
its victims to the development of liver cancer.
In October 1996, the U.S. Patent and Trademark Office issued a patent
to Yale covering the composition of matter and method of use of (beta)-L-Fd4C
for treating HBV, and Yale has licensed to us exclusive worldwide rights to the
patent including the use of (beta)-L-Fd4C for the treatment of HBV and AIDS. In
February 2000 we announced that we signed a licensing agreement for
(beta)-L-Fd4C with Achillion Pharmaceuticals, a privately held biopharmaceutical
company located in New Haven that recently completed a financing and is
commencing operations to develop and commercialize innovative antiviral
therapies. Under the terms of the license agreement, Achillion will fund the
development of (beta)-L-Fd4C, which it intends to develop as one of its key
product candidates. In return, we will receive potential milestone payments,
downstream royalties and a small equity position in Achillion.
Sponsored Research And License Agreements
Yale/OncoRx Agreement. Under a license agreement with Yale, referred to
as the Yale/OncoRx Agreement, Yale granted us nontransferable worldwide
exclusive license to make, have made, use, sell and practice certain inventions
and research for therapeutic and diagnostic purposes. The term of the license is
the expiration of any patents relating to any inventions or, with respect to
non-patented inventions or research, 17 years. Yale has retained the right to
make, use and practice the inventions and research for non-commercial purposes.
This agreement also provides that if Yale, as a result of its own research,
identifies potential commercial opportunities for the inventions and research,
Yale will give us a first option to negotiate a commercial license for such
commercial opportunities. Pursuant to this agreement, we issued to Yale 159,304
shares of our common stock, granted registration rights to Yale with respect to
these shares and made a payment of $50,000. Yale is entitled to royalties on
sales, if any, of resulting products and sub-licensing revenues and, with regard
to one patent, milestone payments based on the status of clinical trials and
regulatory approvals.
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In June 1997, we amended this license agreement and another license
agreement pursuant to which Yale agreed to reduce certain amounts payable by the
Company in exchange for 150,000 shares of our common stock issued to Yale valued
at $600,000. We have agreed with Yale that we will plan and implement
appropriate research and development with respect to commercialization of
products based on the licensed inventions and research. In the event that the
agreement is terminated for breach, all rights under licenses previously granted
terminate. Accordingly, a default as to one product could affect our rights in
other products. In addition, Yale, at its sole option, can terminate any
sublicenses that we grant.
Subsequent to entering into the Yale/OncoRx Agreement, we have paid
approximately $8.1 million to fund certain research at Yale, including research
in the laboratory of Dr. Yung-Chi Cheng, a member of our scientific advisory
board, and of Dr. Sartorelli, one of our directors. Yale has sole discretion to
use these funds to conduct research relating to products that it desires to
pursue. Additionally, to the extent that such research results in technologies
not covered by the Yale/OncoRx Agreement, we may be unable to utilize such
technologies unless we negotiate additional license agreements.
Yale/MelaRx Agreement. Under a research agreement with Yale, referred
to as the Yale/MelaRx Agreement, Yale has agreed to perform a research program
under the supervision of Dr. John W. Pawelek of the Department of Dermatology.
The research program has primarily involved synthetic melanin and products
designed to control the effects of ultraviolet radiation. In addition, under our
TAPET program, Dr. Pawelek is conducting certain research regarding the use of a
bacterial vector in connection with genetic therapy for melanoma.
The agreement was renewed in June 1998 for a three-year term and
provided for reimbursement to Yale for its direct and indirect costs in
connection with the research program in an amount equal to $852,000 per year.
Effective October 1, 2000, we, in conjunction with Yale, restructured the
agreement to provide a gift to Yale of $670,000 for the year ending September
30, 2001, to support the research program.
We entered into an additional license agreement with Yale in December
1995, under which we received a nontransferable worldwide exclusive license,
expiring over the lives of the patents, to three inventions relating to gene
therapy for melanoma. Pursuant to this agreement, we paid Yale a $100,000 fee,
and have agreed to pay future milestone payments based on the status of clinical
trials and regulatory approvals. In addition, Yale is entitled to royalties on
sales, if any, of resulting products and sublicensing revenues.
Under the Yale/MelaRx Agreement, we and Yale have entered into five
license agreements that grant us exclusive licenses to make, use, sell and
practice the inventions covered by various patents. Each such license agreement
requires us to pay to Yale royalties based on a percentage of net sales of the
products covered and sublicensing income. In addition, four of the five licenses
provide that they are terminable in the event we do not exercise due diligence
in commercializing the licensed technology.
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Competition
Competition in the biopharmaceutical industry is intense and based
significantly on scientific and technological factors, the availability of
patent and other protection for technology and products, the ability to
commercialize technological developments and the ability to obtain governmental
approval for testing, manufacturing and marketing. Moreover, the
biopharmaceutical industry is characterized by rapidly evolving technology that
could result in the technological obsolescence of any products developed by us.
We compete with specialized biopharmaceutical firms in the United States, Europe
and elsewhere, as well as a growing number of large pharmaceutical companies
that are applying biotechnology to their operations. Most of our competitors
have substantially greater financial, technical and human resources than we have
and may be better equipped to develop, manufacture and market products. In
addition, many of these companies have extensive experience in preclinical
testing and human clinical trials and in obtaining regulatory approvals. These
companies, as well as academic institutions, governmental agencies and private
research organizations, also compete with us in recruiting and retaining highly
qualified scientific personnel and consultants.
The timing of market introduction of our potential products or of
competitors' products will be an important competitive factor. Accordingly, the
relative speed with which we can develop products, complete preclinical testing,
clinical trials and regulatory approval processes and supply commercial
quantities to market will influence our ability to bring a product to market. In
addition, we may apply for Orphan Drug designation by the FDA for our proposed
products. To the extent that a competitor of ours develops and receives Orphan
Drug designation and marketing approval for a drug to treat the same indication
prior to us, we may be precluded from marketing our product for a period of
seven years.
Patents, Licenses And Trade Secrets
Our policy is to protect our technology by, among other means, filing
patent applications for technology that we consider important to the development
of our business. We intend to file additional patent applications, when
appropriate, relating to new developments or improvements in our technology and
other specific products that we develop. We also rely on trade secrets and
improvements, unpatented know-how and continuing technological innovation to
develop and maintain our competitive position.
Pursuant to the Yale/MelaRx Agreement, we are the exclusive licensee of
a number of pending patent applications relating to our TAPET platform
technology, which include claims for methods of diagnosing and/or treating
various solid tumor cancers, including, but not limited to, melanoma, lung
cancer, breast cancer and colon cancer. We also have rights, either by license
and/or by assignment, to pending patent applications, U.S. and foreign, relating
to our TAPET platform technology. In particular, we have filed four US
non-provisional and four International patent applications related to this
technology. One of the applications is co-owned with Yale, another with Memorial
Sloan Kettering Cancer Center and the remaining two are exclusively owned by us.
We are also the exclusive licensee of issued U.S. and foreign utility patents
and pending patent applications relating to synthetic melanins and methods for
using synthetic melanins, such as, for sunscreening or self-tanning agents. Of
these U.S. patents and patent applications, however, only one issued patent is
relevant to our MELASYN products. Patent applications relevant to the MELASYN
products are pending in foreign countries.
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In connection with a collaboration with Memorial Sloan Kettering Cancer
Center, as indicated above, we have filed a US non-provisional and an
International patent application relating to non-invasive methods to detect
solid tumors in vivo using attenuated tumor-targeted bacteria.
In connection with the Yale/OncoRx Agreement, we are the exclusive
licensee of ten issued patents relating to our sulfonyl hydrazine prodrug
technology, including patents relating to treatment of trypanosomiasis and
cancer and for controlling neoplastic cell growth. We are also the exclusive
licensee of a number of issued and pending U.S. and foreign patent applications
relating to:
o (beta)-L-Fd4C, its composition and its use for the treatment of HIV and HBV
infections and their use in combination with other anti-AIDS drugs;
o the use of 3TC or mixtures containing 3TC for the treatment of HBV
infection;
o Triapine and other ribonucleotide reductase inhibitors.
We are aware that BioChem Pharma has been granted an issued U.S. patent
with claims to methods of use of a compound or a group of compounds, including
3TC, for treating HBV. We believe that the BioChem Pharma patent (as well as
other BioChem Pharma patent applications and/or patents) is licensed to Glaxo
Group. Under the Yale/OncoRx agreement, we have rights in a patent application
with claims directed to methods for the use of 3TC or a mixture containing 3TC
for treating HBV. We requested that the U.S. Patent and Trademark Office declare
an Interference between the BioChem patent and the Vion patent application. An
Interference is a legal proceeding held when more than one patent application or
at least one patent application and one or more patents, owned by different
parties, contain claims to the same subject matter. An Interference proceeding
determines which one of the parties is entitled to a patent containing claims to
the common subject matter. The United States Patent and Trademark Office, Board
of Patent Appeals and Interferences declared an Interference between the
Vion-licensed patent application from Yale University and United States patent
No. 5,532,246 assigned to BioChem Pharma, Inc. While the Interference is
ongoing, recently, the Patent Office re-declared the interference and placed the
burden of proof on Vion. It also declared another Interference between the Vion
patent application and a patent application relating to the use of 3TC to treat
HBV owned by Glaxo-Wellcome Inc., in which it placed the burden of proof on
Glaxo-Wellcome Inc. In both cases, all parties have an opportunity to argue
their respective positions during the Interference proceedings, which are
ongoing.
We expect many developments during the course of the Interference
proceedings and it may be a long time until final determinations are reached.
Depending upon the length of the Interference proceedings, which could be
reduced by a mutually agreed upon settlement, costs to each party could be
substantial. Determinations in Interference proceedings are subject to appeal in
the appropriate United States federal courts.
Further, even if we were to prevail in both the Interferences and were
to obtain a patent with claims directed to the method of use of 3TC or a mixture
containing 3TC for treating HBV, we would only have the right to go to court to
exclude any third party, for example, BioChem Pharma, from using 3TC or a
mixture containing 3TC in a method for treating HBV. It is possible, if we were
to prevail in the Interferences, other parties such as BioChem Pharma might be
willing to take
11
a license for the right to use 3TC in a method for treating HBV. There can be no
guarantee that we would be successful in licensing such rights at acceptable
terms.
It should be noted that even if we were to prevail in the
Interferences, we would not have any right to make, use, sell or import 3TC in
the United States based on any patent we could obtain by prevailing in the
Interferences.
In addition, we are aware that third parties, including BioChem Pharma,
Glaxo Group and Emory University, have filed patent applications, some of which
have been issued, relating to 3TC, mixtures containing 3TC, and methods of
preparation and use of 3TC or mixtures containing 3TC as an anti-viral drug. In
fact, we are aware that both BioChem Pharma and Emory University have been
granted patents that have claims directed to 3TC, itself, or a group of
compounds including 3TC. Accordingly, even if we had rights to an issued patent
with claims to a method of use of 3TC to treat HBV, we would not be able to
make, use and sell or import 3TC in the United States unless we obtained a
license from one or more third parties. There can be no guarantee that we
could obtain such a license or that if available, the license would be on
acceptable terms.
We have received correspondence from F. C. Gaskin, Inc. alleging that
we may be infringing certain of their patents relating to melanin-containing
compositions and their use. We believe this assertion has no merit.
We or our licensors are prosecuting the patent applications related to
products we license both with the U.S. Patent and Trademark Office and various
foreign patent agencies, but we do not know whether any of our applications will
result in the issuance of any patents or, whether any issued patent will provide
significant proprietary protection or will be circumvented or invalidated.
During the course of patent prosecution, patent applications are evaluated for,
among other things, utility, novelty, nonobviousness and enablement. The U.S.
Patent and Trademark Office may require that the claims of an initially filed
patent application be amended if it is determined that the scope of the claims
include subject matter that is not useful, novel, nonobvious or enabled.
Furthermore, in certain instances, the practice of a patentable invention may
require a license from the holder of dominant patent rights. In cases where one
party believes that it has a claim to an invention covered by a patent
application or patent of a second party, the first party may attempt to provoke
an interference proceeding in the U.S. Patent and Trademark Office or such a
proceeding may otherwise be declared by the U.S. Patent and Trademark Office. In
general, in an interference proceeding, the U.S. Patent and Trademark Office
reviews the competing patents and/or patent applications to determine the
validity of the competing claims, including, but not limited to, determining
priority of invention. Any such determination would be subject to appeal in the
appropriate United States federal courts.
We cannot predict whether our or our competitors' patent applications
will result in valid patents being issued. An issued patent is entitled to a
presumption of validity. The presumption may be challenged in litigation; a
court could find any patent of ours or our competitors invalid and/or
unenforceable. Litigation, which could result in substantial cost to us, may
also be necessary to enforce our patent and proprietary rights and/or to
determine the scope and validity of others proprietary rights. We may
participate in interference proceedings that may in the future be declared by
the United States Patent and Trademark Office to determine priority of
invention. Interference and/or litigation proceedings could result in
substantial cost to us.
12
The patent position of biotechnology and biopharmaceutical firms
generally is highly uncertain and involves complex legal and factual questions.
To date, no consistent policy has emerged regarding the breadth of claims
allowed in biotechnology and biopharmaceutical patents.
Government Regulation
Overview. Regulation by state and federal governmental authorities in
the United States and foreign countries is a significant factor in the
manufacture and marketing of our products and in our ongoing research and
product development activities. All of our products will require regulatory
clearances or approvals prior to commercialization. In particular, drugs,
biologicals and medical devices are subject to rigorous preclinical testing and
other approval requirements by the FDA pursuant to the FDC Act and the Public
Health Service Act and regulations promulgated thereunder, as well as by similar
health authorities in foreign countries. Various federal statutes and
regulations also govern or influence the testing, manufacturing, safety,
labeling, packaging, advertising, storage, registration, listing and
recordkeeping related to marketing of such products. The process of obtaining
these clearances or approvals and the subsequent compliance with appropriate
federal statutes and regulations require the expenditure of substantial
resources. We cannot be certain that any required FDA or other regulatory
approval will be granted or, if granted, will not be withdrawn.
Drugs and Biologicals. Preclinical development of diagnostic and
therapeutic drugs and biological products is generally conducted in the
laboratory to evaluate the safety and the potential efficacy of a compound by
relevant in vitro and in vivo testing. When a product is tested prospectively to
determine its safety for purposes of obtaining FDA approvals or clearances, such
testing must be performed in accordance with good laboratory practices for
nonclinical studies. The results of preclinical testing are submitted to the FDA
as part of an IND. The IND must become effective, informed consent must be
obtained from clinical subjects, and the study must be approved by an
institutional review board before human clinical trials can begin.
Regulatory approval often takes a number of years and involves the
expenditure of substantial resources. Approval time also depends on a number of
factors, including the severity of the disease in question, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials. Typically, clinical evaluation involves a three-phase process. In Phase
I, clinical trials are conducted with a small number of subjects to determine
the tolerated drug dose, early safety profile, proper scheduling and the pattern
of drug distribution, absorption and metabolism. In Phase II, clinical trials
are conducted with groups of patients afflicted with a specific disease in order
to determine efficacy, dose-response relationships and expanded evidence of
safety. In Phase III, large-scale, multi-center, controlled clinical trials are
conducted in order to:
o provide enough data for statistical proof of safety and efficacy;
o compare the experimental therapy to existing therapies;
o uncover any unexpected safety problems, such as side-effects; and
o generate product labeling.
13
In the case of drugs for cancer and other life-threatening diseases,
the initial human testing is generally conducted in patients rather than in
healthy volunteers. Because these patients are already afflicted with the target
disease, it is possible that such studies will provide results traditionally
obtained in Phase II trials. These trials are referred to as 'Phase I/II'
trials.
The results of the preclinical and clinical testing are submitted to
the FDA either as part of a new drug application, or NDA, for drugs, or a
product license application, or PLA, for biologics, for approval to commence
commercial distribution. For a biological, the manufacturer generally must also
obtain approval of an establishment license application. In responding to an NDA
or PLA, the FDA may grant marketing approval, request additional information or
deny the application if it determines that the application does not satisfy its
regulatory approval criteria. It may take several years to obtain approval after
submission of an NDA or PLA, although approval is not assured. The FDA also
normally conducts a pre-approval inspection and other occasional inspections of
an applicant's facilities to ensure compliance with current good manufacturing
practices. Further, stringent FDA regulatory requirements continue after a
product is approved for marketing, and changes to products or labeling can
require additional approvals. If any of our products is approved for marketing,
we will be subject to stringent post-marketing requirements.
We also will be subject to widely varying foreign regulations governing
clinical trials and pharmaceutical sales. Whether or not FDA approval has been
obtained, approval of a product by the comparable regulatory authorities of
foreign countries must be obtained before marketing the product in those
countries. The approval process varies from country to country and the time may
be longer or shorter than that required for FDA approval. We intend, to the
extent possible, to rely on foreign licensees to obtain regulatory approval to
market our products in foreign countries.
Orphan Drug Designation. Under the Orphan Drug Act, a sponsor may
obtain designation by the FDA of a drug or biologic as an 'orphan' drug for a
particular indication. Orphan Drug designation is granted to drugs for rare
diseases or conditions, including many cancers, with a prevalence of less than
200,000 cases in the United States. The sponsor of a drug that has obtained
Orphan Drug designation and which is the first to obtain approval of a marketing
application for such drug is entitled to marketing exclusivity for a period of
seven years for the designated indication. This means that no other company can
market the same Orphan Drug for the same indication approved by the FDA for
seven years after approval unless such company proves its drug is clinically
superior or the approved Orphan Drug marketer cannot supply demand for the drug.
Legislation is periodically considered that could significantly affect the
Orphan Drug law. We received Orphan Drug designation for Promycin in September
1995 to treat head and neck cancer and in May 1997 received FDA approval of our
request for Orphan Drug status for the use of Promycin to treat cervical cancer.
We intend to seek this designation for other products where appropriate. There
can be no assurance that future changes to the Orphan Drug Act would not
diminish the value of any Orphan Drug designation obtained by us.
Drugs for Life-Threatening Illnesses. FDA regulatory procedures
established in 1988 are intended to speed further the availability of new drugs
intended to treat life-threatening and severely debilitating illnesses. These
procedures provide for early and continuous consultation with the FDA regarding
preclinical and clinical studies necessary to gain marketing approval. This
regulatory framework also provides that if Phase I results are promising, Phase
II clinical trials may be designed that obviate the need for lengthy, expensive
Phase III testing. Notwithstanding the foregoing, approval
14
may be denied by the FDA or traditional Phase III studies may be required. The
FDA may also seek our agreement to perform post-approval Phase IV studies, which
confirm product safety and efficacy.
The FDA has announced that the accelerated approval concept is being
expanded for cancer drugs. The proposed changes are designed to speed drug
approvals by requiring less extensive preapproval testing in some circumstances.
Specifically, the FDA has stated that it may approve these drugs based on the
use of surrogate markers. 'Partial responses,' such as a drug's effectiveness at
short-term tumor shrinkage, that the FDA believes are clear indicators of
therapeutic effect, would be sufficient to demonstrate efficacy for these drugs.
This is in contrast to requiring the traditional 'full-endpoint' measures of
improved survival or quality of life. Other provisions of the new initiatives
include proactive solicitation by the FDA of expanded access filings for
foreign-approved cancer drugs and greater patient representation on the FDA's
Oncology Drugs Advisory Committee. Although agency officials have estimated that
the changes will reduce by as much as a year the normal development time for
most cancer drugs, it is uncertain whether and how these initiatives will
actually be implemented by the FDA and whether they will have a significant
impact on the approval process for cancer drugs.
Environmental Matters. We are subject to environmental laws, including
those promulgated by OSHA, the EPA and the NRC, that govern activities or
operations that may have adverse environmental effects, such as discharges to
air and water, as well as handling and disposal practices for solid and
hazardous wastes. These laws also impose strict liability for the costs of
cleaning up, and for damages resulting from, sites of past spills, disposals or
other releases of hazardous substances and materials for the investigation and
remediation of environmental contamination at properties operated by us and at
off-site locations where we have arranged for the disposal of hazardous
substances. If it is determined that we are not in compliance with current
environmental laws, we could be subject to fines and penalties. The amount of
any such fines and penalties could be material.
Our facilities have made, and will continue to make, expenditures to
comply with current and future environmental laws. We anticipate that we could
incur additional capital and operating costs in the future to comply with
existing environmental laws and new requirements arising from new or amended
statutes and regulations. In addition, because the applicable regulatory
agencies have not yet promulgated final standards for some existing
environmental programs, we cannot at this time reasonably estimate the cost for
compliance with these additional requirements. The amount of any such compliance
costs could be material. We cannot predict the impact that future regulations
will impose upon our business.
Employees
As of December 31, 2000, we had 54 full-time employees, including 36
scientists and technicians. We plan to hire additional employees over the next
12 months to support continuing progress in both research and development. Our
employees are not covered by any collective bargaining agreement. Additionally,
we had 5 scientific consultants on a part-time basis.
15
ITEM 2. Properties
Our principal facility consists of approximately 19,000 square feet of
leased laboratory and office space in New Haven, Connecticut at an annual rental
of approximately $222,000. The lease expires in May 2001, with a right to renew
for an additional five years. We are currently negotiating for additional space,
including discussions with our current landlord. We believe that sufficient
space is available and do not expect a material increase in the cost of our
facilities; however, there is no assurance as to what the ultimate cost will be.
ITEM 3. Legal Proceedings
In the normal course of business, the Company may be subject to
proceedings, lawsuits and other claims. We are aware of only one lawsuit and do
not believe that any ultimate liability arising out of this action will have a
material adverse effect on our business.
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on October
23, 2000, four proposals were voted upon by the Company's stockholders. A brief
description of each proposal voted upon at the Annual Meeting and the number of
votes cast for, against and the number of abstentions to each proposal are set
forth below.
Proposal No. 1 - Election of Directors. A vote was taken at the Annual
Meeting for the election of eight Directors of the Company to hold office until
the next Annual Meeting of Stockholders of the Company or until their successors
are elected and qualified. All eight nominees were elected. The aggregate number
of votes cast by holders of common stock and Class A Convertible Preferred Stock
voted in person or by proxy for each nominee were as follows:
Authority
For Withheld From
Nominee Nominee
------- -------
William R. Miller 24,112,191 300,230
Alan Kessman 24,109,524 302,897
Alan C. Sartorelli, Ph.D 24,119,469 292,952
Michel C. Bergerac 24,108,024 304,397
Frank T. Cary 24,103,098 309,323
James L. Ferguson 23,848,297 564,124
Walter B. Wriston 24,103,958 308,463
Charles K. MacDonald 24,119,219 293,202
Proposal No. 2 - Classified Board. A vote was taken at the Annual
Meeting on the proposal to amend the Company's Certificate of Incorporation and
to adopt the provisions relating to a classified board of directors. The
affirmative vote of holders of a majority of the outstanding shares of Common
Stock and the affirmative vote of holders of a majority of the shares of Class A
Preferred Stock, voting as a separate class, was required. The proposed
amendment was not adopted. The aggregate number of votes cast by holders of
common stock and Class A Convertible Preferred Stock voted in person or by proxy
for each proposal were as follows:
For Against Abstain
--- ------- -------
11,398,551 1,018,216 109,163
16
Proposal No. 3 - Approval of the Adoption of 2000 Employee Stock
Purchase Plan. A vote was taken at the Annual Meeting on the proposal to approve
the adoption of Vion Pharmaceuticals, Inc. 2000 Employee Stock Purchase Plan
(the Plan). The adoption of the Plan was approved. The aggregate number of votes
cast by holders of common stock and Class A Convertible Preferred Stock voted in
person or by proxy for each proposal were as follows:
For Against Abstain
--- ------- -------
23,911,408 394,673 106,340
Proposal No. 4 - Ratification of Selection of Independent Auditors. A
vote was taken at the Annual Meeting on the proposal to ratify the appointment
of Ernst & Young LLP as auditors for the Company for the fiscal year ending
December 31, 2000. The selection of Ernst & Young LLP was ratified. The
aggregate number of votes cast by holders of common stock and Class A
Convertible Preferred Stock voted in person or by proxy for each proposal were
as follows:
For Against Abstain
--- ------- -------
24,307,161 80,864 24,396
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information for Common Stock
The Company's common stock has traded on The Nasdaq Stock Market'sm'
since October 25, 1999, and traded on The Nasdaq SmallCap Market'sm' from April
29, 1996 until October 25, 1999, under the symbol "VION". From August 14, 1995
to April 26, 1996, the common stock traded on The Nasdaq SmallCap Market'sm'
under the symbol "OCRX". The following table reflects the range of high and low
closing sales prices of the common stock for each of the calendar quarters in
2000 and 1999. This information is based on closing sales prices as reported by
The Nasdaq Stock Market'sm'.
2000 1999
---------------------- ----------------------
High Low High Low
---- --- ---- ---
First Quarter $ 29.000 $ 5.875 $ 7.250 $ 4.438
Second Quarter 16.875 6.000 6.938 4.500
Third Quarter 18.000 6.625 6.000 4.063
Fourth Quarter 16.375 7.000 6.938 4.469
Recent Sales of Unregistered Securities
The Company made no sales of unregistered securities during the fourth
quarter of the fiscal year ended December 31, 2000.
17
Holders
At March 22, 2001, there were approximately 337 holders of record of
the Company's Common Stock.
Dividends
We have never paid any cash dividends on our Common Stock. We currently
intend to retain all earnings for use in our business and do not anticipate
paying cash dividends in the foreseeable future.
ITEM 6. Selected Financial Data
The following selected financial data for each of the five years in the
period ended December 31, 2000, and for the period from May 1, 1994 (inception)
through December 31, 2000, are derived from our audited financial statements.
The selected financial data should be read in conjunction with the financial
statements, related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
For the Period
From May 1, 1994
(Inception)
through December
2000 1999 1998 1997 1996 31, 2000
---------------------------------------------------------------------------
(In thousands, except per share data)
Statement of Operations Data:
Total revenues $ 947 $ 3,154 $ 1,956 $ 5,271 $ 52 $ 11,380
Total operating expenses 17,078 14,190 12,912 10,914 8,088 73,229
Loss from operations (16,131) (11,036) (10,956) (5,643) (8,036) (61,849)
Net loss (14,803) (10,769) (10,478) (5,343) (7,609) (59,008)
Preferred dividends and accretion (606) (710) (4,414) (1,132) (11,627) (18,489)
---------------------------------------------------------------------------
Loss applicable to common shareholders $(15,409) $(11,479) $(14,892) $ (6,475) $(19,236) $(77,497)
===========================================================================
Basic and diluted loss applicable to
common shareholders per share $ (0.64) $ (0.74) $ (1.24) $ (0.75) $ (2.52)
Weighted-average number of shares
of common stock outstanding 24,089 15,544 11,977 8,671 7,642
Balance Sheet Data:
Cash and cash equivalents $ 6,198 $ 11,038 $ 3,821 $ 3,891 $ 3,788
Working capital 22,050 9,911 5,045 10,678 7,938
Total assets 25,660 13,934 9,269 13,580 9,881
Redeemable preferred stock -- 5,179 4,854 -- --
Total shareholders' equity 22,657 5,853 1,504 11,959 9,072
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
We are a development stage biopharmaceutical company committed to the
discovery, development and commercialization of therapeutics and technologies
for the treatment of cancer. Our activities to date have consisted primarily of
research and product development, obtaining regulatory approval for clinical
trials, conducting clinical trials, negotiating and obtaining collaborative
agreements, and obtaining financing in support of these activities. Our revenues
consist of contract research grants,
18
technology license fees and reimbursements for research expenses. We have
generated minimal revenues and have incurred substantial operating losses from
our activities.
Our plan of operations for the next 12 months includes the following
elements:
o Continue to conduct internal research and development with respect to our
core technologies and other product candidates that we may identify;
o Conduct Phase I clinical "optimization" TAPET'r' studies of the "unarmed
base vector" for further safety and "optimized" selective accumulation of
bacteria in the tumor;
o Conduct Phase I clinical studies of the "armed" TAPET vector for safety and
selective accumulation of the bacteria and the anticancer agent within
tumors;
o Conduct Phase I combination studies for safety and dosage of Triapine'r'in
conjunction with standard chemotherapy treatments;
o Conduct Phase II clinical studies of Triapine as a single agent;
o Conduct Phase I clinical studies of VNP40101M, a member of the Sulfonyl
Hydrazine Prodrug class, in the United States for safety and dosage;
o Continue to support research and development being performed at Yale
University and by other collaborators; and
o Continue to seek collaborative partnerships, joint ventures, co-promotional
agreements or other arrangements with third parties.
Results of Operations
Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
Revenues. Revenues for the year ended December 31, 2000 were $0.9
million as compared to $3.2 million for 1999. The decrease was primarily due to
non-recurring revenues of $2.6 million in 1999 from reimbursed Promycin'r'
development costs under the terms of a collaboration agreement with Boehringer
Ingelheim International GmbH ("BI"), which was revised in December 1999. Under
the revised contractual arrangements, BI assumed all development costs for the
drug Promycin beginning in 2000, while continuing to pay Vion for certain
laboratory support services. 2000 revenues from Small Business Innovation and
Research ("SBIR") and other research grants increased to $0.8 million as
compared to $0.3 million for the comparable 1999 period due to additional
research grants received in 2000. Technology license fee revenue decreased to
$79,000 for the year ended December 31, 2000, from $155,000 for 1999. The
Company recorded approximately $82,000 in laboratory support service revenue for
the year ended December 31, 2000 as compared to $35,000 for 1999.
Research and Development. Total research and development expenses were
$12.8 million for the year ended December 31, 2000, compared to $11.5 million
for 1999. Clinical trials expenses were
19
$3.3 million for the year ended December 31, 2000, compared to $4.1 million for
1999. The decrease was due to BI's assumption of Promycin development costs
beginning in 2000 under the revised contractual arrangements for which the
Company recorded expenses of $3.4 million in 1999, partially offset by increased
costs of $2.6 million associated with patient accumulation for clinical trials
of TAPET and Triapine. Other research and development expenses increased to $9.6
million for the year ended December 31, 2000 from $7.4 million for 1999. The
increase was primarily due to scientific personnel hired in 2000, preclinical
activities related to the Company's Sulfonyl Hydrazine Prodrug technology and
other research support related to a cooperative research agreement ("CRADA")
with the National Cancer Institute and a research gift to Yale University
("Yale"). The Company expects research, development and clinical trials expenses
to increase in the future.
General and Administrative. General and administrative expenses were
$4.3 million as compared to $2.7 million in 1999. The increase was primarily due
to higher professional and patent-related fees.
Interest Income and Expense. Interest income increased to $1.3 million
for the year ended December 31, 2000, from 1999 interest income of $0.3 million.
The increase was due to higher levels of invested funds as a result of net
proceeds received from a public offering in October 1999 and from 2000 option
and warrant exercises.
Preferred Stock Dividends and Accretion. Preferred stock dividends and
accretion for the year ended December 31, 2000, decreased to $0.6 million from
$0.7 million for the comparable 1999 period. Dividends and accretion primarily
represent non-cash dividends and the accretion of dividends related to the
Company's preferred stock. During 2000, all outstanding shares of preferred
stock were converted or redeemed.
Loss Applicable to Common Shareholders. The loss applicable to common
shareholders increased to $15.4 million, or $0.64 per share on a higher number
of shares outstanding, for the year ended December 31, 2000, from $11.5 million,
or $0.74 per share, for 1999 as a result of the net loss and preferred dividends
and accretion reported.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Revenues. Fiscal 1999 revenues increased to $3.2 million from $2
million for the year ended December 31, 1998. The increase was primarily due to
higher reimbursed development costs under our collaboration agreement with BI
totaling $2.6 million for the year ended December 31, 1999, compared with $1.6
million for 1998. In 1999, the Company recorded $35,000 in laboratory support
service revenue for the first time under the revised BI arrangement. In
addition, reimbursements of expenses from SBIR grants on TAPET and Triapine
increased to $336,000 in 1999, compared to $309,000 in 1998.
Research and Development. Total research and development expenses
increased to $11.5 million for the year ended December 31, 1999 as compared to
$10.7 million for the same period in 1998. Clinical trials expenses were $4.1
million for the year ended December 31, 1999, compared to $3.4 million for 1998.
The increase is primarily due to higher costs associated with patient
accumulation for the Triapine Phase I clinical trial and expenses for TAPET
preclinical development and, to a lesser extent, costs related to patient
accumulation for the Promycin head and neck Phase III trial.
20
General and Administrative. General and administrative expenses
increased to $2.7 million in 1999 from $2.2 million in 1998. The 1999 increase
was primarily due to costs associated with management changes and increased
legal and patent fees.
Interest Income and Expense. Interest income on invested funds
decreased to $0.3 million in 1999 from $0.5 million in 1998. The change reflects
the level of invested funds during each period. Interest expense decreased to
approximately $35,000 in 1999 compared to $62,000 in 1998.
Preferred Stock Dividends and Accretion. Preferred stock dividends and
accretion decreased from $4.4 million for the year ended December 31, 1998 to
$0.7 million for 1999. The amounts included primarily represent non-cash
dividends related to the issuance of the 5% Redeemable Convertible Preferred
Stock Series 1998 ("Series 1998 Preferred Stock") in 1998. The amounts for 1998
also include additional dividend requirements equal to the excess of the fair
value of the common stock issued upon conversion over the fair value of the
common stock issuable pursuant to the original conversion terms of the Class B
Convertible Preferred Stock. Since the Class B Convertible Preferred Stock was
entirely converted into common stock in August 1998, none of the dividend
requirements relating to the conversion impacted 1999. Additionally, the annual
accretion of dividends related to the issuance of the Series 1998 Preferred
Stock is included in the amounts described above.
Loss Applicable to Common Shareholders. The loss applicable to common
shareholders decreased from $14.9 million, or $1.24 per share, in 1998 to $11.5
million, or $0.74 per share, in 1999 as a result of the net loss and the effects
of the preferred dividends and accretion.
Liquidity and Capital Resources
At December 31, 2000, we had cash, cash equivalents and short-term
investments of $24.4 million. The increase in cash, cash equivalents and
short-term investments in 2000 was primarily the result of net proceeds to the
Company from option and warrant exercises.
In October 1999, the Company completed a public offering of 2.53
million shares of newly issued common stock, including shares sold to the
underwriter upon the exercises of its over-allotment option, resulting in net
proceeds to the Company of $11.05 million.
In connection with Vion's initial public offering in 1995, Unit
Purchase Options ("UPOs") and underlying Class A and Class B Warrants were
granted to underwriters. Prior to their expiration in August 2000, holders of
the remaining 113,333 UPOs exercised the UPOs and underlying Class A and B
Warrants resulting in aggregate net proceeds to the Company of approximately
$2.2 million for the year ended December 31, 2000.
The Company notified registered holders of its outstanding Class A
Warrants of its intention to redeem the warrants on March 13, 2000 (the
"Redemption Date"). The Class A Warrants entitled the holder to purchase one
share of common stock and one Class B Warrant for an exercise price of $4.63. As
of the Redemption Date, the Company had received net proceeds of $5.1 million
from the exercise of 1.2 million Class A Warrants.
21
The Company notified registered holders of its outstanding Class B
Warrants of its intention to redeem the warrants on April 27, 2000 (the
"Redemption Date"). The Class B Warrants entitled the holder to purchase one
share of common stock at an exercise price of $6.23. As of the Redemption Date,
the Company had received net proceeds of $15.9 million from the exercise of 2.6
million Class B Warrants.
The Company's common stock traded above $7.20 for a period of 20
consecutive trading days ending on February 7, 2000 and, in accordance with the
terms of the Series 1998 Preferred Stock, all of the outstanding preferred
shares having a redemption value of $5.4 million were automatically converted
into 1,507,024 common shares at the $3.60 conversion price, effective February
22, 2000.
The Company's common stock traded above $9.9375 for a period of 20
consecutive trading days ending on February 17, 2000 and, in accordance with the
terms of the Class A Convertible Preferred Stock, the Company notified the
holders of outstanding shares of its intention to redeem their preferred stock
on December 26, 2000 (the "Redemption Date"). Prior to the Redemption Date,
1,405 shares of preferred stock were converted by the holders and 3,906 shares
of common stock were issued upon conversion. The remaining 545 shares of
preferred stock were redeemed for $5,450 in the aggregate and werecancelled as
of the Redemption Date.
During the year ending December 31, 2001, the Company is required to
make payments totaling $350,000 under the CRADA agreement and will contribute
$335,000 for the balance of the Yale research gift.
The lease for our facility is expiring and we are negotiating for
additional space, including discussions with our current landlord. We believe
that sufficient space is available and do not expect a material increase in the
cost of our facilities, however, there is no assurance as to what the ultimate
cost will be.
We currently estimate that our existing cash, cash equivalents and
short-term investments totaling $24.4 million at December 31, 2000, will be
sufficient to fund our planned operations through the first quarter of 2002. As
of December 31, 2000, we estimate that the amount required to fund all
operations net of cash inflows for the next twelve months is approximately $18
million. However, our cash requirements may vary materially from those now
planned because of the results of research, development, clinical trials and
product testing, relationships with strategic partners, changes in focus and
direction of our research and development programs, competitive and
technological advances, the regulatory process in the United States and abroad,
and other factors. In the future, we will need to complete our product
development and clinical trials and raise substantial capital to fund
operations, however, there is no assurance about raising additional capital or
what the terms may be.
22
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company accounts for its investments in debt and equity securities
("Investments") in accordance with Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS
115"). All Investments are treated as available-for-sale under SFAS 115.
Investments in fixed-rate, interest-earning instruments carry a degree
of interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. Due in part to these
factors, the Company's future investment income may fall short of expectations
due to changes in interest rates or the Company may suffer losses in principal
if forced to sell securities which have seen a decline in market value due to
changes in interest rates. The Company's investments are held for purposes other
than trading and we believe that we currently have no material adverse market
risk exposure.
23
ITEM 8. Financial Statements and Supplementary Data
Report of Independent Auditors
The Board of Directors and Shareholders
Vion Pharmaceuticals, Inc.
We have audited the accompanying balance sheet of Vion Pharmaceuticals, Inc.
(a development stage company) as of December 31, 2000 and 1999, and the
related statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2000 and the
period from May 1, 1994 (inception) to December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audi
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vion Pharmaceuticals, Inc. at
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000 and the period
from May 1, 1994 (inception) to December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Stamford, Connecticut
February 14, 2001
24
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Balance Sheet
December 31,
2000 1999
------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 6,197,725 $ 11,038,209
Short-term investments 18,159,759 --
------------------------------
Total cash, cash equivalents and short-term investments 24,357,484 11,038,209
Interest receivable 299,847 67,053
Accounts receivable 144,447 1,592,583
Other current assets 250,779 108,404
------------------------------
Total current assets 25,052,557 12,806,249
Property and equipment, net 577,277 659,823
Security deposits 29,910 49,851
Research contract prepayments -- 417,882
------------------------------
Total assets $ 25,659,744 $ 13,933,805
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital leases - current $ 6,181 $ 160,328
Accounts payable and accrued expenses 2,996,862 2,734,745
------------------------------
Total current liabilities 3,003,043 2,895,073
Obligation under capital leases - long term -- 6,181
------------------------------
Total liabilities 3,003,043 2,901,254
------------------------------
Redeemable Preferred Stock:
5% convertible preferred stock Series 1998, $0.01 par value, authorized:
15,000 shares; issued and outstanding: none and 5,000 shares at
December 31, 2000 and 1999, respectively (redemption value
$5,387,000 at December 31, 1999) -- 5,179,287
Shareholders' Equity:
Preferred stock, $0.01 par value - 5,000,000 shares authorized consisting of:
Class A convertible preferred stock, $0.01 par value, authorized:
3,500,000 shares; issued and outstanding: none and 498,194
at December 31, 2000 and 1999, respectively (liquidation
preference $4,982,000 at December 31, 1999) -- 4,982
Class B convertible preferred stock, $0.01 par value, authorized:
100,000 shares; issued and outstanding: none -- --
Class C convertible preferred stock, $0.01 par value, authorized:
25,000 shares; issued and outstanding: none -- --
Common stock, $0.01 par value, authorized: 35,000,000 shares;
issued and outstanding: 26,167,642 and 18,242,119 shares
at December 31, 2000 and 1999, respectively 261,676 182,421
Additional paid-in-capital 100,027,227 68,012,183
Deferred compensation -- (2,864)
Accumulated other comprehensive income 120,000 --
Accumulated deficit (77,752,202) (62,343,458)
------------------------------
22,656,701 5,853,264
------------------------------
Total liabilities and shareholders' equity $ 25,659,744 $ 13,933,805
==============================
The accompanying notes are an integral part of these financial statements.
25
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Statement of Operations
For the
Period from
May 1, 1994
For the Year (Inception)
Ended through
December 31, December 31,
2000 1999 1998 2000
-------------------------------------------------------------
Revenues:
Contract research grants $ 786,842 $ 335,767 $ 308,787 $ 1,531,396
Research support -- 2,628,039 1,647,202 5,498,153
Technology license fees 78,611 155,388 -- 4,233,999
Laboratory support services 81,912 35,000 -- 116,912
-------------------------------------------------------------
Total revenues 947,365 3,154,194 1,955,989 11,380,460
-------------------------------------------------------------
Operating expenses:
Research and development 9,568,482 7,387,302 7,280,027 44,320,024
Clinical trials 3,259,212 4,109,347 3,429,374 12,578,900
-------------------------------------------------------------
Total research and development 12,827,694 11,496,649 10,709,401 56,898,924
General and administrative 4,251,117 2,693,248 2,202,944 16,330,630
Interest Income (1,341,038) (301,382) (540,240) (3,048,608)
Interest Expense 12,624 34,603 61,553 207,893
-------------------------------------------------------------
Net Loss (14,803,032) (10,768,924) (10,477,669) (59,008,379)
Preferred stock dividends and accretion (605,712) (709,781) (4,414,050) (18,488,687)
-------------------------------------------------------------
Loss applicable to common shareholders $(15,408,744) $(11,478,705) $(14,891,719) $(77,497,066)
=============================================================
Basic and diluted loss applicable to
common shareholders per share $(0.64) $(0.74) $(1.24)
-------------------------------------------------------------
Weighted-average number of shares of
common stock outstanding 24,089,164 15,543,701 11,977,121
-------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
26
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Statement of Changes in Shareholders' Equity
Class A Class B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
---------------------------------------------------------------- Treasury
Shares Amount Shares Amount Shares Amount Stock
----------------------------------------------------------------------------
Common stock issued for cash - July 1994 -- $ -- -- $ -- 2,693,244 $ 26,932 $ --
Common stock issued for services -
August 1994 159,304 1,593
Net loss
----------------------------------------------------------------------------
Balance at December 31, 1994 -- $ -- -- $ -- 2,852,548 $ 28,525 $ --
----------------------------------------------------------------------------
Stock options issued for compensation -
February 1995
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 2,000,000 20,000
Shares repurchased pursuant to
employment agreements - April 1995 (274,859) (2,749)
Private placement of common stock -
April 1995 76,349 763
Warrants issued with bridge notes -
April 1995
Initial public offering of units of one
common share, one Class A warrant and
one Class B warrant at $4.00 per unit -
August 1995 and September 1995 2,875,000 28,750
Issuance of common stock 1,250 13
Receipts from sale of unit purchase option
Net loss
----------------------------------------------------------------------------
Balance at December 31, 1995 -- $ -- -- $ -- 7,530,288 $ 75,302 $ --
----------------------------------------------------------------------------
Issuance of Class A convertible preferred stock 1,250,000 12,500
Conversion of Class A convertible preferred stock (164,970) (1,650) 458,255 4,582
Class A convertible preferred stock dividend 21,998 220
Issuance of common stock 29,418 294
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
-----------------------------------------------------------------------------
Balance at December 31, 1996 1,107,028 $ 11,070 -- $ -- 8,017,961 $ 80,178 $ --
-----------------------------------------------------------------------------
Conversion of Class A convertible
preferred stock (396,988) (3,970) 1,102,757 11,028
Class A convertible preferred stock dividend 47,592 476
Issuance of Class B convertible preferred stock 4,850 49
Conversion of Class B convertible preferred stock (258) (3) 64,642 647
Accretion of dividend payable on Class B
convertible preferred stock
Extension/reassurance of underwriter warrants
Exercise of warrants 238 3
Issuance of common stock 598,336 5,983
Exercise of stock options 50,000 500
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
----------------------------------------------------------------------------
Balance at December 31, 1997 757,632 $ 7,576 4,592 $ 46 9,833,934 $ 98,339 $ --
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Accumulated
Additional Other Total
Paid-in Deferred Comprehensive Accumulated Shareholders'
Capital Compensation Income Deficit Equity
-----------------------------------------------------------------------------
Common stock issued for cash - July 1994 $ -- $ -- $ -- $ (19,877) $ 7,055
Common stock issued for services -
August 1994 (1,176) 417
Net loss (475,946) (475,946)
-----------------------------------------------------------------------------
Balance at December 31, 1994 $ -- $ -- $ -- $ (496,999) $ (468,474)
-----------------------------------------------------------------------------
Stock options issued for compensation -
February 1995 540,000 540,000
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 4,300,000 4,320,000
Shares repurchased pursuant to
employment agreements - April 1995 2,029 (720)
Private placement of common stock -
April 1995 205,237 206,000
Warrants issued with bridge notes -
April 1995 200,000 200,000
Initial public offering of units of one
common share, one Class A warrant and
one Class B warrant at $4.00 per unit -
August 1995 and September 1995 9,667,460 9,696,210
Issuance of common stock 488 501
Receipts from sale of unit purchase option 250 250
Net loss (9,530,535) (9,530,535)
-----------------------------------------------------------------------------
Balance at December 31, 1995 $14,913,435 $ -- $ -- $(10,025,505) $ 4,963,232
-----------------------------------------------------------------------------
Issuance of Class A convertible preferred stock 22,890,075 (11,371,523) 11,531,052
Conversion of Class A convertible preferred stock (2,932) --
Class A convertible preferred stock dividend 255,661 (255,881) --
Issuance of common stock 102,426 102,720
Compensation associated with stock option grants 190,407 (190,407) --
Amortization of deferred compensation 83,647 83,647
Net loss (7,608,679) (7,608,679)
-----------------------------------------------------------------------------
Balance at December 31, 1996 $38,349,072 $(106,760) $ -- $(29,261,588) $ 9,071,972
-----------------------------------------------------------------------------
Conversion of Class A convertible
preferred stock (7,058) --
Class A convertible preferred stock dividend 623,038 (623,514) --
Issuance of Class B convertible preferred stock 4,851,662 (369,861) 4,481,850
Conversion of Class B convertible preferred stock (644) --
Accretion of dividend payable on Class B
convertible preferred stock 138,365 (138,365) --
Extension/reassurance of underwriter warrants 168,249 168,249
Exercise of warrants (6) (3)
Issuance of common stock 3,463,818 3,469,801
Exercise of stock options 19,500 20,000
Compensation associated with stock option grants 55,643 55,643
Amortization of deferred compensation 34,632 34,632
Net loss (5,343,594) (5,343,594)
-----------------------------------------------------------------------------
Balance at December 31, 1997 $47,661,639 $ (72,128) $ -- $(35,736,922) $ 11,958,550
-----------------------------------------------------------------------------
27
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Statement of Changes in Shareholders' Equity
(Continued)
Class A Class B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
---------------------------------------------------------------- Treasury
Shares Amount Shares Amount Shares Amount Stock
----------------------------------------------------------------------------
Accretion of dividend payable on Class B
convertible preferred stock
Conversion of Class B convertible preferred
stock (4,592) (46) 1,205,178 12,052
Premium on Conversion dividend on class B
convertible preferred stock 585,898 5,859
Conversion of Class A convertible preferred
stock (174,981) (1,749) 486,062 4,860
Class A convertible preferred stock dividend 34,005 340
Discount on Series 1998 convertible preferred
stock
Series 1998 convertible preferred stock
accretion
Common stock issued in exchange for cancellation
of outstanding warrants 1,792,952 17,929
Exercise of stock options 32,750 328
Exercise of warrants 16,272 163
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
-------------------------------------------------------------------------
Balance at December 31, 1998 616,656 $ 6,167 -- $ -- 13,953,046 $ 139,530 $ --
-------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (144,612) (1,446) 401,707 4,018
Class A convertible preferred stock dividend 26,150 261
Series 1998 convertible preferred stock
accretion
Common stock issued in exchange for cancellation
of outstanding warrants 102 1
Exercise of stock options 470,886 4,709 (196,159)
Retirement of treasury stock (35,659) (357) 196,159
Exercise of warrants 26,296 263
Issuance of common stock 3,425,741 34,257
Amortization of deferred compensation
Net loss
-------------------------------------------------------------------------
Balance at December 31, 1999 498,194 $ 4,982 -- $ -- 18,242,119 $182,421 $ --
-------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (502,928) (5,029) 1,397,035 13,970
Redemption of Class A convertible preferred stock (545) (5)
Class A convertible preferred stock dividend 5,279 52
Series 1998 convertible preferred stock accretion
Conversion of Series 1998 convertible preferred stock 1,507,024 15,070
Exercise of stock options 650,409 6,504
Exercise of warrants 4,371,055 43,711
Compensation associated with stock option grants
Amortization of deferred compensation
Change in net unrealized gains and losses
Net loss
-------------------------------------------------------------------------
Balance at December 31, 2000 -- $ -- -- $ -- 26,167,642 $ 261,676 $ --
=========================================================================
The accompanying notes are an integral part of these financial statements.
Accumulated
Additional Other Total
Paid-in Deferred Comprehensive Accumulated Shareholders'
Capital Compensation Income Deficit Equity
---------------------------------------------------------------------------
Accretion of dividend payable on Class B
convertible preferred stock 286,776 (286,776) --
Conversion of Class B convertible preferred
stock (12,006) --
Premium on Conversion dividend on class B
convertible preferred stock 2,043,532 (2,049,391) --
Conversion of Class A convertible preferred --
stock (3,111)
Class A convertible preferred stock dividend 329,206 (329,546) --
Discount on Series 1998 convertible preferred
stock 1,597,218 (1,597,218)
Series 1998 convertible preferred stock
accretion -- (151,119) (151,119)
Common stock issued in exchange for cancellation
of outstanding warrants 8,441,442
(8,502,064) (42,693)
Exercise of stock options 119,854 120,182
Exercise of warrants 10,910 11,073
Compensation associated with stock option grants 51,252 51,252
Amortization of deferred compensation 34,632 34,632
Net loss (10,477,669) (10,477,669)
--------------------------------------------------------------------------
Balance at December 31, 1998 $52,024,648 $ (37,496) $ -- $(50,628,641) $ 1,504,208
--------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (2,572) --
Class A convertible preferred stock dividend 384,738 (384,999) --
Series 1998 convertible preferred stock
accretion (324,782) (324,782)
Common stock issued in exchange for cancellation
of outstanding warrants 473 474
Exercise of stock options 650,028 (40,310) 418,268
Retirement of treasury stock (195,802) --
Exercise of warrants (263) --
Issuance of common stock 14,955,131 14,989,388
Amortization of deferred compensation 34,632 34,632
Net loss (10,768,924) (10,768,924)
--------------------------------------------------------------------------
Balance at December 31, 1999 $68,012,183 $ (2,864) $ -- $ (62,343,458) $ 5,853,264
--------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (8,941) --
Redemption of Class A convertible preferred stock (5,445) (5,450)
Class A convertible preferred stock dividend 247,482 (247,534) --
Series 1998 convertible preferred stock accretion (358,178) (358,178)
Conversion of Series 1998 convertible preferred stock 5,522,395 5,537,465
Exercise of stock options 2,868,558 2,875,062
Exercise of warrants 23,270,995 23,314,706
Compensation associated with stock option grants 120,000 120,000
Amortization of deferred compensation 2,864 2,864
Change in net unrealized gains and losses 120,000 120,000
Net loss (14,803,032) (14,803,032)
--------------------------------------------------------------------------
Balance at December 31, 2000 $100,027,227 $ -- $120,000 $ (77,752,202) $ 22,656,701
==========================================================================
28
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Statement of Cash Flows
For The Period
From May 1,
For the 1994 (Inception)
Year Ended through
December 31, December 31,
2000 1999 1998 2000
--------------------------------------------------------------
Cash flows from operating activities:
Net loss $(14,803,032) $(10,768,924) $(10,477,669) $(59,008,379)
Adjustments to reconcile net loss to net cash
used in operating activities-
Purchased research and development -- -- -- 4,481,405
Amortization of financing costs -- -- -- 345,439
Depreciation and amortization 450,482 495,370 496,776 1,897,834
Decrease (increase) in receivables and other
current assets 1,072,967 (409,224) (511,165) (694,087)
Decrease (increase) in other assets 437,823 559 (16,453) (28,195)
Increase in accounts payable and accrued expenses 262,117 297,063 1,563,332 2,962,330
Extension/reissuance of placement agent warrants -- -- -- 168,249
Stock issued for services -- -- -- 600,417
Non-cash compensation 122,864 34,632 85,884 957,302
--------------------------------------------------------------
Net cash used in operating activities (12,456,779) (10,350,524) (8,859,295) (48,317,685)
--------------------------------------------------------------
Cash flows from investing activities:
Purchases of marketable securities (38,298,898) -- (2,498,422) (63,006,486)
Maturities of marketable securities 20,259,139 2,594,497 6,992,465 44,966,727
Acquisition of fixed assets (367,936) (129,009) (221,280) (1,530,678)
--------------------------------------------------------------
Net cash (used in) provided by investing
activities (18,407,695) 2,465,488 4,272,763 (19,570,437)
--------------------------------------------------------------
Cash flows from financing activities:
Initial public offering -- -- -- 9,696,210
Net proceeds from issuance of common stock 2,875,062 15,408,130 77,489 21,566,758
Net proceeds from issuance of preferred stock -- -- 4,703,386 20,716,288
Net proceeds from exercise of Class A
Warrants 5,675,480 -- -- 5,675,480
Net proceeds from exercise of Class B
Warrants 17,538,084 -- -- 17,538,084
Net proceeds from exercise of placement
agent warrants 101,142 -- -- 101,142
Repayment of equipment capital leases (160,328) (306,119) (274,803) (921,595)
Other financing activities, net (5,450) -- 11,073 (286,520)
--------------------------------------------------------------
Net cash provided by financing activities 26,023,990 15,102,011 4,517,145 74,085,847
--------------------------------------------------------------
(Decrease) increase in cash and cash
equivalents (4,840,484) 7,216,975 (69,387) 6,197,725
Cash and cash equivalents, beginning of period 11,038,209 3,821,234 3,890,621 --
--------------------------------------------------------------
Cash and cash equivalents, end of period $ 6,197,725 $ 11,038,209 $ 3,821,234 $ 6,197,725
==============================================================
Supplemental schedule of non-cash investing and financing activities:
o Capital lease obligations of $22,899 were incurred for the year ended
December 31, 1998, for laboratory and office equipment. No obligations
were incurred for the years ended December 31, 2000 and 1999.
o Cash paid for interest was $12,624, $34,603 and $61,553 for the years
ended December 31, 2000, 1999 and 1998, and $207,893 for the period
from May 1, 1994 (inception) through December 31, 2000.
The accompanying notes are an integral part of these financial statements.
29
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements
1. The Company
Vion Pharmaceuticals, Inc., formerly OncoRx, Inc., (the "Company") was
incorporated in May 1993 and began operations on May 1, 1994. The Company is a
development stage biopharmaceutical company engaged in the research, development
and commercialization of cancer treatment technologies.
In April 1995, the Company merged into OncoRx Research Corp. ("Research"), a
wholly-owned subsidiary of MelaRx Pharmaceuticals Inc. ("MelaRx"), which was
renamed OncoRx, Inc. after the merger. The stockholders of the Company were
issued 2,654,038 common and 23,859 preferred shares of MelaRx, the 100% owner of
Research, in exchange for all 2,000,000 outstanding shares of common stock of
the Company valued at $2.16 per share (fair value). In August 1995, the Company
completed an initial public offering (refer to Note 4) resulting in net proceeds
to the Company of approximately $9.7 million.
As the shareholders of the Company obtained a majority interest in the merged
company, for accounting purposes the Company is treated as the acquirer.
Therefore, the transaction was recorded as a purchase in the Company's financial
statements, which include the results of operations of the Company from
inception and MelaRx from the date of acquisition. The excess of cost over the
fair value of MelaRx's net tangible assets, $4.5 million, was treated as
purchased research and development and expensed immediately.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents include investments with original maturities of three months or
less.
Fair Value of Financial Instruments
The estimated fair value of amounts reported in the financial statements has
been determined by using available market information and appropriate valuation
methodologies. All current assets and current liabilities are carried at cost,
which approximates fair value, because of their short-term nature, except
short-term investments which are carried at market.
30
Short-Term Investments
The Company accounts for short-term investments in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The Company's investments in debt and equity
securities, which typically mature in one year or less, are classified as
available for sale and are carried at fair value. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized.
The cost, gross unrealized holding gains, gross unrealized holding losses and
fair value for available-for-sale securities at December 31, 2000 were as
follows (in thousands):
Gross Gross
Unrealized Unrealized
Holding Holding
Cost Gains Losses Fair Value
--------------------------------------------------------------
Debt Securities $18,040 $140 $(20) $18,160
==============================================================
No gross realized losses related to investments have been incurred to date.
Property and Equipment
Property and equipment are stated at cost. Depreciation of equipment is computed
under the straight-line method over the estimated useful lives of the assets
ranging from three to seven years. Leasehold improvements are carried at cost
and amortized on a straight-line basis over the shorter of the lease term or the
estimated useful lives of the assets.
The following is a summary of property and equipment as of December 31 (in
thousands):
2000 1999
------------------------------------------
Office equipment $ 379 $ 257
Furniture and fixtures 205 174
Laboratory equipment 573 394
Leasehold improvements 367 331
Equipment under capital lease 951 951
------------------------------------------
2,475 2,107
Accumulated depreciation and amortization (1,898) (1,447)
------------------------------------------
Property and equipment, net $ 577 $ 660
==========================================
Depreciation expense was $0.5 million for each of the years ended December 31,
2000, 1999 and 1998 and $1.9 million for the period from inception (May 1, 1994)
through December 31, 2000.
31
Income Taxes
The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under this method, deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of assets and liabilities.
Revenue Recognition
Contract Research Grants. In 1998 and 1999, the Company was awarded Small
Business Innovation Research ("SBIR") grants from the National Cancer Institute
for the Reduced Toxicity of Tumor-Targeted Salmonella and the Inhibitors of
Ribonucleotide Reductase programs. The grants allowed reimbursement of direct
costs of up to $848,329. For the years ended December 31, 2000, 1999 and 1998,
revenues of $197,389, $335,767, and $308,787, respectively, from these expired
grants have been recognized as the costs were incurred.
In January 2000, the Company received a two-year SBIR grant from the National
Institutes of Health/National Cancer Institute for TAPET research. The grant
allows reimbursement of direct costs of up to $750,000 and expires December 31,
2001. For the year ended December 31, 2000, revenue of $371,676 from this grant
has been recognized as the costs were incurred.
In April 2000, the Company received a six-month SBIR grant for $100,000 from the
National Institutes of Health/National Cancer Institute for TAPET research. For
the year ended December 31, 2000, revenue of $100,000 from this grant has been
recognized as the costs were incurred.
In August 2000, the Company and Memorial Sloan-Kettering Cancer Center ("MSKCC")
were awarded a $141,000 research contract by the National Cancer Institute to
study the use of Vion's TAPET bacterial vector technology (Tumor Amplified
Protein Expression Therapy) for the diagnostic imaging of tumors. The focus of
this joint effort by MSKCC and Vion is to perform a preliminary investigation of
TAPET-based tumor diagnostic imaging in pre-clinical animal models, as well as
to determine the suitability of this approach for tumor diagnosis based on
defined molecular signatures. For the year ended December 31, 2000, revenue of
$117,777 has been recognized as revenue from this contract.
Technology License Fees. The Company has recognized revenue from fees, including
nonrefundable upfront fees, under license agreements with Boehringer Ingelheim
International GmbH, San Mar Laboratories and others (refer to Note 3) totaling
$78,611, $155,388, $0 and $4,233,999 for the years ended December 31, 2000, 1999
and 1998 and the period from May 1, 1994 (inception) through December 31, 2000,
respectively. During the fourth quarter of 2000, the Company adopted, as
required, the Securities and Exchange Commission's Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 requires
companies to recognize the receipt of certain nonrefundable upfront fees over
the life of the related collaboration agreement. There was no impact from the
adoption of SAB 101 on the Company's financial statements for the years ended
December 31, 2000, 1999 and 1998.
32
Per Share Data
The following table sets forth the computation of basic and diluted loss
applicable to common shareholders per share (in thousands, except per share
amounts):
2000 1999 1998
-------------------------------------------
Numerator:
Net loss $(14,803) $(10,769) $(10,478)
Preferred stock dividends and accretion (606) (710) (4,414)
-------------------------------------------
Numerator for basic and diluted loss applicable
to common shareholders per share (15,409) (11,479) (14,892)
Denominator:
Weighted-average number of shares of
common stock outstanding 24,089 15,544 11,977
-------------------------------------------
Basic and diluted loss applicable to common
shareholders per share $ (0.64) $ (0.74) $ (1.24)
===========================================
For additional disclosures regarding warrants and preferred stock, refer to Note
4. For additional disclosures regarding stock options, refer to Note 5. These
potentially dilutive securities were not included in the calculation of the
diluted loss applicable to common shareholders per share as the effect would be
antidilutive.
Reclassifications
Certain reclassifications have been made to prior years' balances to conform
with the current year's presentation.
3. Research and License Agreements
Boehringer Ingelheim Agreement
In November 1997, the Company and Boehringer Ingelheim International GmbH ("BI")
entered into an exclusive worldwide licensing agreement for the development and
marketing of Promycin'r', an anticancer agent. The original agreement provided
the Company with exclusive co-promotion rights to Promycin in the United States
and Canada and gave BI exclusive worldwide rights to market and sell Promycin
outside the United States and Canada. Under the original agreement, the Company
was also responsible for the manufacturing and supply of Promycin for all
territories and was obliged to share worldwide development costs.
In exchange for these rights, the Company received $4.0 million in upfront
technology access fees and net proceeds of $2.9 million from the sale of 448,336
shares of common stock at a premium to the then current market price. BI also
reimbursed the Company for certain initial development costs and agreed to share
in future worldwide development costs.
The Company was required to use the BI license fee of $4.0 million exclusively
for Promycin development expenses. The Company recorded $2.6 million and $1.6
million of Promycin development expenses as research support revenue under the
original agreement for 1999 and
33
1998, respectively. Included in accounts receivable as of December 31, 1999, are
amounts due from BI of $1.5 million.
The original agreement was amended in December 1999 to provide BI with exclusive
worldwide rights to sell and market Promycin. The Company was not required to
return the technology access fees and BI agreed to assume manufacturing, supply
and worldwide development expenses in return for paying reduced future royalties
and milestone payments to the Company.
In June 2000, patient accrual into Promycin clinical studies sponsored by BI was
put on hold as an interim evaluation of a Phase III trial of Promycin did not
meet the predetermined criteria which would warrant continuation of accrual. The
Company will not incur any additional expense for costs associated with the
studies.
Covance Agreement
In 1997, the Company entered into a Clinical Development Agreement (the
"Agreement") with Covance Clinical Research Unit Ltd. and Covance Inc.
("Covance"). Pursuant to the Agreement, the Company contracted to Covance the
selection and management of clinical sites and the preparation of clinical trial
reports arising from clinical trials performed by Covance regarding the
Company's product candidate Promycin for the inclusion in a regulatory
submission.
During the fourth quarter of 1999, the Company and Covance agreed to terminate
the Agreement subject to the assumption of clinical site management
responsibilities by BI. BI also agreed to contract with Covance for future
patient randomization, assignment and clinical trial supply management.
The Company incurred expenses for Promycin-related costs paid to Covance and
other parties of $3.5 million and $3.4 million for the years ended December 31,
1999 and 1998, respectively, under these agreements, which have been recorded as
clinical trials expenses, a component of total research and development expense.
Included in the Company's total current liabilities at December 31, 1999, are
amounts due Covance Development Service Corporation of $0.7 million.
Yale/OncoRx Agreement
In 1994, Yale University ("Yale") granted the Company a nontransferable
worldwide exclusive license to make, have made, use, sell and practice certain
inventions and research for therapeutic and diagnostic purposes. The term of the
license is the expiration of any patents relating to any inventions or, with
respect to non-patented inventions or research, 17 years. Yale is entitled to
royalties on sales, if any, of resulting products and sublicensing revenues and,
with regard to one patent, milestone payments based on the status of clinical
trials and regulatory approvals.
Yale/MelaRX Agreement
Pursuant to a License Agreement between the Company and Yale, the Company
obtained rights to a synthetic form of melanin, which the Company has named
MELASYN'r'. In 1998, the Company agreed to be the exclusive selling agent for
MELASYN and licensed its MELASYN technology in an agreement with San Mar
Laboratories ("San Mar"), a manufacturer of private
34
label cosmetics and pharmaceuticals. Under the terms of the agreement, Vion
granted a worldwide exclusive license to San Mar for the manufacture and sales
of products containing MELASYN. Vion receives a license fee from products sold
by San Mar with guaranteed minimum annual royalties of $50,000 per year during
the initial three-year period.
In 1995, the Company and Yale entered into a License Agreement pursuant to which
the Company received a nontransferable worldwide exclusive license, expiring
over the lives of the patents, to three inventions relating to gene therapy for
melanoma. Pursuant to this agreement, the Company paid Yale a $100,000 fee, and
has agreed to pay future milestone payments based on the status of clinical
trials and regulatory approvals. In addition, Yale is entitled to royalties on
sales, if any, of resulting products and sublicensing revenues.
Yale Research Agreement
In 1992, the Company entered into a Research Agreement with Yale to provide
funding for certain research projects performed under the direction and
supervision of Dr. John Pawelek of the Department of Dermatology. The agreement
was renewed in June 1998 for a 3-year period and provided for funding of
$852,000 per year expiring June 30, 2001. Technology licensed by the Company
from research conducted under this agreement includes the inventions
collectively known as TAPET. The Company also has an option to obtain an
exclusive license for any inventions that result from research projects by Yale,
which are related to synthetic melanin funded by the Company.
Effective October 1, 2000, the Company, in conjunction with Yale, restructured
the Research Agreement to provide a gift to Yale of $670,000 for the year ended
September 30, 2001, to support the research projects. In accordance with
Statement of Financial Accounting Standards No. 116, Accounting for
Contributions Received and Contributions Made, the Company recorded the total
amount of the gift as research and development cost in the fourth quarter of
2000. Included in the Company's total current liabilities at December 31, 2000,
is $335,000 for the balance of the gift to be paid to Yale in 2001.
The Company was granted exclusive licenses by Yale to inventions in countries
where patents are effective and nonexclusive licenses elsewhere expiring over
the lives of the patents and 20 years, respectively. The Company is obligated to
pay royalties on sales of licensed products. No amounts have been paid or are
due to Yale through December 31, 2000 under this agreement
Cooperative Research and Development Agreement
On April 1, 2000, the Company entered into a Cooperative Research and
Development Agreement ("CRADA") with the National Institutes of Health, National
Cancer Institute, Division of Clinical Sciences, Surgery Branch for "Development
of TAPET-Based Immunotherapies Targeted Against Cancer". Under the terms of the
CRADA, the Surgery Branch will provide materials and supplies for research and
development projects using CRADA funds, personnel and "in kind" resources
supplied by the Company. The Company is required to contribute $350,000 per year
for a period of five years, payable quarterly, to be used for material support
as well as for work to be performed by National Cancer Institute staff. For the
year ended December 31, 2000, $262,500 has been recorded as research and
development expense under this agreement.
35
4. Shareholders' Equity
In 1995, 2,000,000 shares of common stock valued at $2.16 per share were issued
in conjunction with the merger with MelaRx (refer to Note 1). Shortly prior to
the consummation of the merger, the Company issued 76,349 shares of common stock
for net proceeds of $206,000 after deducting placement fees of $14,000.
In 1995, the Company completed an initial public offering ("IPO") of 2,875,000
Unit Purchase Options ("UPOs"), consisting of an aggregate of 2,875,000 shares
of common stock, 2,875,000 redeemable Class A Warrants and 2,875,000 redeemable
Class B Warrants at $4.00 per UPO. The net proceeds to the Company from the IPO
were approximately $9.7 million before repayment of the bridge financing. Each
Class A Warrant entitled the holder to purchase one share of common stock and
one Class B Warrant. Each Class B Warrant entitled the holder to purchase one
share of common stock. The warrants were exercisable through August 14, 2000,
and were exchanged, exercised or redeemed prior to that date. In conjunction
with the IPO, the Company granted the underwriter an option to purchase up to
250,000 units at $5.20 per UPO, subsequently adjusted due to anti-dilution
provisions. All options were exercised prior to their expiration on August 14,
2000.
Commencing with its IPO, and including the gross proceeds therefrom, the Company
has raised a gross amount of $74.7 million to date through the issuance of
common and preferred stock.
Class A Convertible Preferred Stock
In May 1996, the Company completed a private placement of 1,250,000 shares of
Class A Convertible Preferred Stock ("Class A Stock"), at $10.00 per share,
resulting in net proceeds to the Company of $11.5 million. Each share of Class A
Stock was immediately convertible into 2.777777 shares of the Company's common
stock. The Company recorded an imputed one-time non-cash dividend of
approximately $11.4 million as a result of the difference between the conversion
price and the quoted market price of the Company's common stock as of the date
of issuance as required by the Financial Accounting Standards Board Emerging
Issues Task Force D-60, Accounting for the Issuance of Convertible Preferred
Stock and Debt Securities with a Nondetachable Conversion Feature (EITF D-60).
The $11.4 million has been recognized as a charge against accumulated deficit
with a corresponding increase in additional paid-in capital. The imputed
non-cash dividend has been included in the dividend requirement on Preferred
Stock and the loss applicable to common shareholders. In connection with the
foregoing transaction, the Company issued warrants to the placement agent,
exercisable over a five-year period, to purchase an aggregate of 546,875 shares
of the Company's common stock at prices ranging from $3.96 to $12.00. The shares
of Class A Stock paid semi-annual dividends of 5% per annum, payable in
additional shares of Class A Stock, which were immediately convertible into
common stock of the Company. The Company has recorded non-cash dividends as a
charge against the accumulated deficit and a credit to additional paid-in
capital based on the quoted market price of the common stock as of the date of
the issuance of the preferred dividends of approximately $248,000, $385,000 and
$330,000 in 2000, 1999 and 1998, respectively. The non-cash dividend has been
included in the dividend requirement on Preferred Stock and the loss applicable
to common shareholders. The issuance of the Class A Stock at closing also
triggered
36
certain antidilution adjustment provisions of the Company's outstanding
warrants, resulting in the issuance of additional warrants.
The Company's common stock traded above $9.9375 for a period of 20 consecutive
trading days ending on February 17, 2000 and, in accordance with the terms of
the Class A Stock, on November 22, 2000 ("Notice Date"), the Company notified
the holders of outstanding shares of its intention to redeem their Class A stock
on December 26, 2000 ("Redemption Date"), at a redemption price of $10.00 per
share. From the Notice Date to the Redemption Date, 1,405 shares of Class A
Stock were converted by the holders and 3,906 shares of common stock were issued
upon conversion. The remaining 545 shares of Class A Stock were redeemed for
$5,450 in the aggregate and have been cancelled as of the Redemption Date.
Class B Convertible Preferred Stock
In August 1997, the Company completed a private placement of 4,850 shares of
non-voting Class B Convertible Preferred Stock ("Class B Stock"), at $1,000 per
share, resulting in net proceeds to the Company of $4.5 million. Shares of Class
B Stock were immediately convertible into shares of common stock including an
accretion of 8% per annum. The difference between the conversion price and the
quoted market price of the Company's common stock at the date of issuance of
$370,000 was recognized upon the issuance of the Class B Stock as a charge
against accumulated deficit, with a corresponding increase in additional paid-in
capital. The imputed non-cash dividend has been included in the dividend
requirement on Preferred Stock and the loss applicable to common shareholders.
Shares of the Class B Stock were eligible, under certain circumstances, to
receive dividends paid in Class C Convertible Preferred Stock ("Class C Stock").
The Class C Stock was immediately convertible into shares of common stock at the
average closing bid price of the Company's common stock for thirty consecutive
business days ending on the private placement closing date and was not entitled
to dividends.
Conversions of Class B Stock from January 1, 1998 through August 10, 1998,
resulted in Class C dividends representing 180,141 shares of common stock valued
at $623,000. In addition, the Company recorded accretion of 37,168 shares of
common stock valued at $138,000 in 1997, and 61,078 shares of common stock
valued at $264,000 through August 10, 1998. These dividends were recorded as a
charge against accumulated deficit, with a corresponding increase in paid-in
capital. The dividends have been included in the dividend requirement on
Preferred Stock and the loss applicable to common shareholders.
In August 1998, the Company reached agreement with each of the holders of its
Class B Stock to convert an aggregate of 2,892 shares of Class B Stock,
constituting all of the outstanding Class B Stock, into an aggregate of
1,070,423 shares of common stock. This included Class C dividends representing
304,188 shares of common stock valued at $1.1 million, and accretion of 6,553
shares of common stock valued at $23,000. As part of this agreement, an
additional 101,569 common shares were issued to holders of the Class B Stock. In
accordance with Financial Accounting Standards Board Emerging Issues Task Force
D-42, The Effect on the Calculation of Earnings Per Share for the Redemption or
Induced Conversion of Preferred Stock, the excess of the fair value of the
common stock issued upon conversion over the fair value of the common stock
issuable pursuant to the original conversion terms of $357,000, has been added
to the dividend requirement to arrive at loss applicable to common shareholders.
In addition, holders of
37
the Class B Stock waived their antidilution rights arising from the issuance of
the 5% Redeemable Convertible Preferred Stock Series 1998.
5% Redeemable Convertible Preferred Stock Series 1998
In June 1998, the Company completed a private placement of 5,000 shares of
non-voting 5% Redeemable Convertible Preferred Stock Series 1998 ("Series 1998
Preferred Stock"). The Series 1998 Preferred Stock was issued at $1,000 per
share, resulting in net proceeds to the Company of $4.7 million. The shares of
Series 1998 Preferred Stock accrued dividends of 5% per annum payable in-kind.
Each share of Series 1998 Preferred Stock was convertible into common stock
based on the formula of issued price plus accrued dividends divided by $3.60. In
connection with the sale of the Series 1998 Preferred Stock, the Company imputed
a one-time non-cash dividend of approximately $1.6 million as a result of the
difference between the conversion price and the quoted market price of the
Company's common stock at the date of issuance as required by EITF D-60. Such
amount was recognized upon issuance of the Series 1998 Preferred Stock as a
charge against the accumulated deficit with a corresponding increase to
additional paid-in capital. The imputed non-cash dividend has been included in
the dividend requirement on Preferred Stock and the loss applicable to common
shareholders. The dividend requirement on Preferred Stock also reflects the
amortization of the costs of completing the offering and the accretion of the 5%
per annum dividend. The 5% accretion resulted in a charge against the
accumulated deficit with a corresponding increase to additional paid-in-capital
of $358,000, $325,000 and $151,000 for the years ended December 31, 2000, 1999
and 1998, respectively. The issuance of the Series 1998 Preferred Stock at
closing also triggered certain antidilution adjustment provisions of the
Company's outstanding warrants, resulting in the issuance of additional
warrants.
The Company's common stock traded above $7.20 for a period of 20 consecutive
trading days ending on February 7, 2000 and, in accordance with the terms of the
Series 1998 Preferred Stock, all of the outstanding preferred shares having a
redemption value of $5.4 million were automatically converted into 1,507,024
common shares at the $3.60 conversion price, effective February 22, 2000.
Private Placement of Common Stock - April 1999
In April 1999, the Company consummated a private placement of the Company's
common stock and issued 893,915 shares of common stock at a price of
approximately $4.47 per share, for gross proceeds of approximately $4 million.
Public Offering of Common Stock - October 1999
In October and November 1999, the Company completed the sale of 2,530,000 newly
issued shares of common stock (including shares sold to the underwriter upon the
exercise of its over-allotment option) at a purchase price of $5.00 per share,
in an underwritten public offering. The net proceeds from this offering were
approximately $11.1 million.
38
Antidilution Adjustment to Class A and Class B Warrants
As a result of the sale in May 1996 of 1,250,000 shares of Class A Stock, an
adjustment was made to the exercise price of the Class A Warrants and the Class
B Warrants and there was a corresponding distribution of additional Class A
Warrants and Class B Warrants. Specifically, on July 12, 1996 (the "Payment
Date") each holder of a Class A Warrant at the close of business on July 3, 1996
(the "Record Date") was issued an additional 0.1 Class A Warrant and the
exercise price of the Class A Warrants was reduced from $5.20 to $4.73. In
addition, on the Payment Date each holder of a Class B Warrant on the close of
business on the Record Date was issued an additional 0.1 Class B Warrant and the
exercise price of the Class B Warrants was reduced from $7.00 to $6.37.
Subsequently, as a result of the sale in June 1998 of 5,000 shares of Series
1998 Preferred Stock, an additional adjustment was made to the exercise price of
the Class A Warrants and the Class B Warrants with a corresponding distribution
of additional Class A Warrants and Class B Warrants. Specifically, on September
8, 1998 (the "Payment Date") each holder of a Class A Warrant at the close of
business on August 26, 1998 (the "Record Date") was issued an additional 0.02
Class A Warrant and the exercise price of the Class A Warrants was reduced from
$4.73 to $4.63. In addition, on the Payment Date, each holder of a Class B
Warrant on the close of business on the Record Date was issued an additional
0.02 Class B Warrants and the exercise price of the Class B Warrant was reduced
from $6.37 to $6.23.
Class A and Class B Warrant Exchange Offers
In 1998, the Company commenced an offer to exchange each outstanding Class A
Warrant, at the holder's option, for either 0.438 shares of common stock or
0.254 shares of common stock and $0.66 in cash. The Company simultaneously
offered to exchange each outstanding Class B Warrant, at the holder's option,
for either 0.212 shares of common stock or 0.123 shares of common stock and
$0.32 in cash. As a result of the exchange offers, 3,209,806 Class A Warrants
and 1,881,835 Class B Warrants were exchanged for 1,395,027 and 397,925 shares
of the Company's common stock and $39,000 and $3,700 in cash, respectively.
Conversions of Unit Purchase Options
In connection with Vion's initial public offering in 1995, UPOs and underlying
Class A and Class B Warrants exercisable through August 13, 2000 were granted to
underwriters. Prior to their expiration, option holders exercised the remaining
113,333 UPOs and underlying Class A and B Warrants resulting in aggregate net
proceeds to the Company of approximately $2.8 million. The UPOs were exercised
for 127,161 shares of common stock for net proceeds of $0.6 million, 127,161
Class A Warrants and 127,161 Class B Warrants. These Class A Warrants were
immediately exercised for 127,161 shares of common stock for net proceeds of
$0.6 million and 127,161 Class B warrants. All of the 254,322 Class B warrants
were immediately exercised for 254,322 shares of common stock resulting in net
proceeds to the Company of $1.6 million.
39
Redemption of Class A Warrants
On February 11, 2000, the Company notified registered holders of its outstanding
Class A Warrants of its intention to redeem the warrants on March 13, 2000 (the
"Redemption Date"). The Class A Warrants entitled the holder to purchase one
share of common stock and one Class B Warrant for an exercise price of $4.63. As
of the Redemption Date, the Company had received net proceeds of $5.1 million
from the exercise of 1.2 million Class A Warrants. Subsequently, the Company
received net proceeds of $0.6 million from the exercise of 0.1 million Class A
Warrants as a result of the exercises of UPOs.
Redemption of Class B Warrants
On March 27, 2000, the Company notified registered holders of its outstanding
Class B Warrants of its intention to redeem the warrants on April 27, 2000 (the
"Redemption Date"). The Class B Warrants entitled the holder to purchase one
share of common stock at an exercise price of $6.23. As of the Redemption Date,
the Company had received net proceeds of $15.9 million from the exercise of 2.6
million Class B Warrants. Subsequently, the Company received net proceeds of
$1.6 million from the exercise of 0.3 million Class B Warrants as a result of
the exercises of UPOs.
Issuance and Extension of Placement Agent Warrants
In connection with its role as placement agent for two private financings of the
Company's predecessor, MelaRx, Inc., D.H. Blair Investment Banking Corporation
was issued warrants to purchase 56,504 and 11,929 shares of common stock at
$3.56 per share, expiring August 20, 1997 and November 1, 1997, respectively,
warrants to purchase 23,632 shares at $4.44 per share, expiring March 3, 1998
and warrants to purchase 110,421 shares at $4.44 per share, expiring July 5,
1998. The warrants to purchase 56,504 shares of common stock at $3.56 per share
initially expired on October 31, 1997; however, the Company agreed to reissue
the expired warrants and extend the expiration date of all warrants to July 5,
1998. The extension, which was approved by the Board of Directors in 1997,
resulted in an expense of $168,249. As of July 5, 1998, holders of warrants to
purchase 94,336 shares elected a "cashless" exercise into 13,949 shares of
common stock and warrants to purchase 108,150 shares expired.
Issuance of Common Stock to Yale University
Effective July 1997, the Company and Yale amended two license agreements
pursuant to which Yale agreed to reduce certain amounts payable by the Company
in exchange for 150,000 shares of common stock issued to Yale valued at
$600,000, which was expensed as research and development.
5. Employee Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-
40
Based Compensation ("SFAS 123"), requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25, if
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
In July 1995, the Board of Directors of the Company adopted the Amended and
Restated 1993 Stock Option Plan (the "Option Plan"). The Option Plan, as
subsequently amended, provides for the granting of both incentive stock options
and non-qualified stock options to employees, officers, directors and
consultants of the Company to purchase up to an aggregate of 3 million shares of
common stock. Incentive options granted under the Option Plan are exercisable
for a period of up to ten years from the date of grant at an exercise price
which is not less than the fair market value of the common stock on the date of
the grant except that the term of an incentive option granted under the Option
Plan to a stockholder owning more than 10% of the outstanding voting power may
not exceed five years and its exercise price may not be less than 110% of the
fair market value of the common stock on the date of grant. Options granted to
date under the Option Plan become exercisable in no less than four equal annual
installments commencing no earlier than the first anniversary of the date of
grant. No option may be granted under the Option Plan after April 14, 2003. The
Company recognized $120,000, $0 and $51,252 of compensation expense in 2000,
1999 and 1998, respectively, related to options granted under the Option Plan.
Options granted outside the Option Plan include stock options to purchase
980,000 shares of common stock granted to the Company's Chief Executive Officer
under the Senior Executive Stock Option Plan. There are no additional shares
available for issuance under this plan.
The provisions of the Option Plan provide for the automatic grant of
non-qualified stock options to purchase shares of common stock ("Director
Options") to directors of the Company who are not employees or principal
stockholders of the Company ("Eligible Directors"). Eligible Directors are
granted a Director Option to purchase 20,000 shares of common stock on the date
such person is first elected or appointed a director (an "Initial Director
Option"). Each Eligible Director, other than directors who received an Initial
Director Option since the last annual meeting, is granted a Director Option to
purchase 15,000 shares (20,000 shares for the Chairman of the Board) of common
stock on the day immediately following the date of each annual meeting of
stockholders, as long as such director is a member of the Board of Directors.
The exercise price for each share subject to a Director Option shall be equal to
the fair market value of the common stock on the date of grant. Director Options
are exercisable in two equal annual installments for 2000 grants and in four
equal annual installments for grants prior to 2000, commencing one year from the
date of grant. Director Options expire the earlier of ten years after the date
of grant or ninety days after the termination of the director's service on the
Board of Directors. The number of Director Options granted were 115,000,
110,000, and 140,000 in 2000, 1999, and 1998, respectively.
Pro forma information regarding net income and earnings per share is required by
SFAS 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value of options
granted under the Option Plan was estimated at the date of grant using the
Black-Scholes option-pricing model with the following assumptions for 2000, 1999
and 1998, respectively: risk-free interest rates of 6%, 5.1%, and 4.7%;
volatility factors of the expected market price of the Company's common stock of
1.455, 0.656, and 0.806; weighted-average expected option life of 7 years; and
no dividend yield.
41
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and, because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows (in thousands, except per share amounts):
2000 1999 1998
------------------------------------------------
Pro forma net loss $(17,123) $(12,213) $(10,925)
Pro forma preferred stock dividends and
accretion (606) (710) (4,414)
------------------------------------------------
Pro forma loss applicable to common
shareholders $(17,729) $(12,923) $(15,339)
================================================
Pro forma basic and diluted loss applicable to
common shareholders per share $ (0.74) $ (0.83) $ (1.28)
================================================
A summary of the Company's stock option activity under the Option Plan, and
related information for the years ended December 31 is as follows:
2000 1999 1998
-----------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
(in 000's) Price (in 000's) Price (in 000's) Price
-----------------------------------------------------------------------------------
Outstanding at beginning of year 1,557 $ 4.31 1,260 $3.91 980 $4.00
Granted 1,186 11.43 661 5.00 360 3.71
Exercised (355) 4.10 (150) 3.15 (30) 3.77
Cancelled (33) 10.94 -- -- -- --
Expired (25) 5.00 (214) 4.90 (50) 4.28
-----------------------------------------------------------------------------------
Outstanding at end of year 2,330 $ 7.94 1,557 $4.31 1,260 $3.91
===================================================================================
Exercisable at end of year 595 $ 4.21 661 $4.04 571 $3.94
===================================================================================
Weighted-average fair value of
options granted during the year $11.01 $3.63 $3.97
===================================================================================
42
A summary of the Company's ranges of exercise prices and weighted-average
remaining life and exercise price of options outstanding and of weighted-average
exercise price of options currently exercisable under the Option Plan as of
December 31, 2000, is as follows:
Options Options
Outstanding Exercisable
----------------------------------------------- ------------------------------
Weighted- Weighted-
Shares Average Average Shares Weighted-
Outstanding Remaining Life Exercise Exercisable Average
Exercise Price (in 000's) (Years) Price (in 000's) Exercise Price
- --------------------------------------------------------------------- ------------------------------
$2.219 - $3.0313 153 7.3 $ 2.87 58 $2.83
$3.625 - $6.063 1,019 7.1 4.74 537 4.36
$7.00 - $10.50 495 10.0 7.43 - -
$10.625 - $17.875 663 9.3 14.42 - -
--------------- ------------- ------------------------------
2,330 $ 7.94 595 $4.21
=============== ============= ==============================
A summary of the Company's stock option activity outside the Option Plan and
related information for the years ended December 31 is as follows:
2000 1999 1998
-----------------------------------------------------------------------------------
Weighted Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
(in 000's) Price (in 000's) Price (in 000's) Price
-----------------------------------------------------------------------------------
Outstanding at beginning of year 1,011 $5.41 347 0.18 348 $0.18
Granted - - 980 5.62 - -
Exercised (53) 1.70 (316) 0.50 (1) 0.40
Cancelled - - - - - -
Expired (9) 2.50 - - - -
-----------------------------------------------------------------------------------
Outstanding at end of year 949 $5.66 1,011 $5.41 347 $0.18
===================================================================================
Exercisable at end of year 379 $5.50 251 $4.30 347 $0.18
===================================================================================
Exercise price range of options
outstanding and exercisable $5.00 - $5.775
========================
Weighted-average remaining life
of options outstanding 4.1 years
========================
6. 401 (k) Savings Plan
Beginning April 1, 2000, the Company makes matching contributions under a 401(k)
Savings Plan in either cash or its common stock, at the election of the
employee. For stock matches, the contribution rate is 40% of an employee's
contribution, up to an annual maximum match of stock valued at $1,500. For cash
matches, the contribution rate is 30% of an employee's contributions, up to an
annual maximum match of $1,000. The expense for the matching contribution for
the year ended December 31, 2000 was $56,000.
43
7. Stock Purchase Plan
A total of 450,000 shares of common stock are authorized for issuance under the
Company's employee stock purchase plan (the "Employee Plan") effective January
1, 2001. The Employee Plan permits eligible employees to purchase up to 2,000
shares of common stock at the lower of 85% of the fair market value of the
common stock at the beginning or at the end of each six-month offering period.
8. Income Taxes
At December 31, 2000, the Company has available for federal income tax purposes
net operating loss carryforwards, subject to review by the Internal Revenue
Service, totaling $42.6 million and a general business tax credit of $1.6
million expiring in 2010 through 2020. The difference between the deficit
accumulated during the development stage for financial reporting purposes and
the net operating loss carryforwards for tax purposes is primarily due to
certain costs which are not currently deductible for tax purposes and
differences in accounting and tax basis resulting from the merger described in
Note 1. Significant differences have resulted from amortizing previously
capitalized research and development expenses. The ability of the Company to
realize a future tax benefit from a portion of its net operating loss
carryforwards and general business credits may be limited due to changes in
ownership of the Company. The U.S. statutory rate is 34%; however, the Company
has recorded no provision or benefit for income taxes in the financial
statements due to recurring losses. Accordingly, the Company has provided a full
valuation allowance against its deferred tax assets. The valuation allowance
increased by $6.3 million, $4.1 million and $4.3 million during 2000, 1999 and
1998, respectively.
The significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
December 31,
2000 1999
-------------------------------------
Deferred tax assets:
Operating loss carryforwards $ 16,597 $ 10,571
Research and development costs 3,205 4,159
General business tax credit 1,587 1,040
AMT tax credit 10 10
Contributions 286 97
Compensation related 351 -
Other 172 79
-------------------------------------
Total deferred tax assets 22,208 15,956
Total deferred tax liabilities (60) (89)
-------------------------------------
Total deferred tax assets and liabilities 22,148 15,867
Valuation allowance (22,148) (15,867)
-------------------------------------
Deferred tax assets, net $ - $ -
=====================================
44
9. Commitments and Contingencies
Leases. The Company is the lessee of equipment under capital leases expiring in
2001. The Company has non-cancelable operating leases for its facility and
laboratory and office equipment expiring in 2001. The future minimum lease
payments under the capital and operating leases as of December 31, 2000 are as
follows:
Capital Operating
Leases Leases
------------------------
Minimum lease payments for the year ended
December 31, 2001 $6,366 $100,859
========
Less amount representing interest 185
------
Present value of minimum lease payments $6,181
======
The cost of assets under capital leases amounted to $951,000 at December 31,
2000 and 1999, including $360,000 under a sale and leaseback agreement with
FINOVA Technology Finance, Inc., which is being depreciated over the three-year
lease term expiring January 1, 2001. Accumulated amortization relating to
equipment under capital leases amounted to $945,000 and $786,000 at December 31,
2000 and 1999, respectively. Amortization expense for the equipment under
capital leases was $159,000, $302,000, $299,000, and $945,000 for the years
ended December 31, 2000, 1999 and 1998, and for the period from May 1, 1994
(inception) through December 31, 2000, respectively.
Rental expense under the operating leases amounted to $297,000, $267,000,
$270,000 and $1,302,000 for the years ended December 31, 2000, 1999 and 1998,
and for the period from May 1, 1994 (inception) through December 31, 2000,
respectively.
Agreements. Under the terms of an employment agreement, the Company is obligated
to pay its Chief Executive Officer an annual salary of $400,000 through December
2003.
A former director of the Company is a party to a Consulting and Finder's
Agreement dated June 4, 1992 and amended February 17, 1995 with the Company.
This agreement entitles him to receive an annual fee equal to 10% of the net
after-tax profits of the Company attributable to the sale or licensing of
products or technology licensed pursuant to the Company's agreement with Yale
(refer to Note 3), until the cumulative total of such fees equals $3 million.
Such fee continues to be payable not withstanding the director's death or
incapacity until the $3 million has been paid. No amounts are due or have been
paid to date under the agreement.
The Company has various commitments relating to its research agreements (refer
to Note 3).
10. Related Party Transactions
A former director of the Company is a principal of a management consulting firm
that has rendered consulting services for the Company. The Company paid the firm
$60,000 and $120,000 for services rendered for the years ended December 31, 1999
and 1998, respectively.
45
The Company and one of its directors, an affiliate of Yale University, entered
into a five-year consulting agreement on September 29, 1995, which was renewed
for one additional year, providing for various advisory services. Under the
agreement, the director receives an annual fee of $48,000.
In connection with the retention of its Chief Executive Officer, the Company
granted options in 1999 to purchase an aggregate amount of 980,000 shares of the
Company's common stock. The options have exercise prices ranging from the fair
market value on the date of grant to 110% of the fair market value on the date
of grant.
11. Selected Quarterly Financial Data (Unaudited)
The following is a summary of unaudited selected quarterly financial data for
the years ended December 31, 2000 and 1999 (in thousands, except per share
amounts):
Quarter
--------------------------------------------- Year
2000 First Second Third Fourth 2000
- ---- ----- ------ ----- ------ ----
Revenues $ 198 $ 220 $ 368 $ 161 $ 947
Net loss (2,720) (3,168) (3,246) (5,669) (14,803)
Preferred stock dividends and accretion (358) (243) -- (5) (606)
Loss applicable to common shareholders (3,078) (3,411) (3,246) (5,674) (15,409)
Basic and diluted loss applicable to common
shareholders per share $ (0.16) $ (0.14) $ (0.13) $ (0.22) $ (0.64)
Quarter
--------------------------------------------- Year
1999 First Second Third Fourth 1999
- ---- ----- ------ ----- ------ ----
Revenues $ 371 $ 958 $ 287 $ 1,538 $ 3,154
Net loss (2,432) (3,656) (2,333) (2,348) (10,769)
Preferred stock dividends and accretion (81) (277) (77) (275) (710)
Loss applicable to common shareholders (2,513) (3,933) (2,410) (2,623) (11,479)
Basic and diluted loss applicable to common
shareholders per share $ (0.18) $ (0.26) $ (0.16) $ (0.15) $ (0.74)
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
46
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Executive Officers and Directors
Our executive officers and directors are as follows:
Name Position
---- --------
Alan Kessman.........................President, Chief Executive Officer and Director
Mario Sznol, M.D.....................Vice President, Clinical Affairs
Terrence W. Doyle, Ph.D..............Vice President, Research & Development
Thomas Mizelle.......................Vice President, Operations and Secretary
Bijan Almassian, Ph.D................Vice President, Development
Ivan King, Ph.D......................Vice President, Research
William R. Miller(1).................Chairman of the Board
Michel C. Bergerac(1)................Director
Frank T. Cary(1)(2)..................Director
Charles K. MacDonald(2)..............Director
Alan C. Sartorelli, Ph.D.............Director
Walter B. Wriston(2).................Director
- ----------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Alan Kessman, age 54, has been our Chief Executive Officer since
January 1999, our President since April 1999 and has served on our Board of
Directors since October 1998. Mr. Kessman has been a partner of PS Capital,
an international investment and management advisor and a director of Fastnet
Corporation, an internet service provider. From 1983 to 1998, Mr. Kessman was
Chairman, Chief Executive Officer and President of Executone Information
Systems, Inc., a developer and marketer of voice and data communications
systems, and its subsidiary eLottery, Inc.
Mario Sznol, M.D., age 43, has been our Vice President, Clinical
Affairs since September 1999 and became an executive officer in November 1999.
From 1987 to 1999, Dr. Sznol worked for the National Cancer Institute, or NCI, a
component of the National Institutes of Health. Most recently he was Head of the
Biologics Evaluation Section, Investigational Drug Branch, Cancer Therapy
Evaluation Program. From March 1997 to October 1998, he served as acting Chief
of NCI's Investigational Drug Branch, Cancer Therapy Evaluation Program. Prior
to joining the NCI, Dr. Sznol conducted his fellowship in Medical Oncology,
Department of Neoplastic Diseases, at Mt. Sinai School of Medicine, and his
residency in Internal Medicine at Baylor College of Medicine in Houston. Dr.
Sznol is on the editorial advisory boards of both the Journal of the National
Cancer Institute and the Journal of Immunotherapy.
Terrence W. Doyle, Ph.D., age 58, has been our Vice President, Research
and Development since the merger with OncoRx and served in the same capacity for
OncoRx from January 1994 until the merger. Dr. Doyle was an employee of the
Bristol-Myers Squibb
47
Company (Bristol-Myers) from 1967 to 1993. From 1990 to 1993, Dr. Doyle was an
Executive Director with Bristol-Myers. Dr. Doyle is the original holder of 41
U.S. patents for anti-infective, anti-inflammatory and anti-tumor agents and the
author of over 100 published research articles and abstracts on cancer
chemotherapy.
Thomas Mizelle, age 49, has been our Vice President, Operations since
the merger with OncoRx and has been our Secretary since October 1995. Prior to
the merger, Mr. Mizelle was Vice President, Business Development since August
1994. From May 1990 to July 1994, Mr. Mizelle served as Senior Vice President,
Vice President of Sales and Marketing and Director of Sales of Immunex
Corporation.
Bijan Almassian, Ph.D., age 47, has been our Vice President,
Development since March 1997 and was named an executive officer in July 1999.
From September 1995 to March 1997, Dr. Almassian was our Director of
Development. From 1994 to 1995, Dr. Almassian was the Director of Pharmaceutical
development at Genelabs Technologies, where he was responsible for product
development of several anticancer and antiviral drugs and biologics. Before
joining Genelabs, he held several scientific positions at Genzyme/Integrated
Genetics, Instrumentation Laboratories and Orion Research.
Ivan King, Ph.D., age 45, has been our Vice President, Biology since
September 1995 and became an executive officer in July 1999. From 1990 to 1995,
Dr. King was a Section Leader in the Department of Tumor Biology at
Schering-Plough Research Institute in charge of the Cell Biology and In Vivo
Biology groups where he was responsible for identifying targets, developing high
throughput assays, evaluating in vitro and in vivo activities of drug candidates
and recommending candidates for clinical development. Dr. King's first
industrial position was as a Senior Research Scientist at Bristol-Myers.
William R. Miller, age 72, has been Chairman of our Board since April
1995. From February 1995 until April 1995, Mr. Miller was Chairman of the Board
of OncoRx Inc., which merged into the Company (then known as MelaRx, Inc.) in
April 1995. Mr. Miller is currently Chairman of the Board of Cold Spring Harbor
Laboratory and a director of ImClone Systems, Inc., Isis Pharmaceuticals, Inc.
and Transkaryotic Therapies, Inc. From 1964 until his retirement in 1991, Mr.
Miller was employed by Bristol-Myers in various positions, including Vice
Chairman of the Board commencing in 1985.
Michel C. Bergerac, age 69, has been a director since 1992. Mr.
Bergerac has been Chairman of M.C. Bergerac & Co., Inc., an investment advisory
firm, since 1985. From 1974 to 1985, Mr. Bergerac was Chairman of the Board,
President and Chief Executive Officer of Revlon, Inc.
Frank T. Cary, age 80, has been a director since 1995. Mr. Cary is a
director of Celgene Corporation, Cygnus Therapeutic Systems, ICOS Corporation,
Lincare, Inc., Lexmark International Group, Inc. From 1973 to 1981, Mr. Cary was
Chairman of the Board and Chief Executive Officer of IBM.
Charles K. MacDonald, age 42, has been a director since 2000. Mr.
MacDonald is the principal and founder of Morgandane Management Corp., an
investment advisory firm, since
48
1996. From 1987 to 1995, Mr. MacDonald was an analyst and, later, Portfolio
Manager at Stonington Management Corp.
Alan C. Sartorelli, Ph.D., age 69, has been a director since 1995. Dr.
Sartorelli has been a Professor of Pharmacology at Yale University School of
Medicine since 1967 and Chairman of our Scientific Advisory Board since April
1995. Dr. Sartorelli was chairman of the OncoRx Scientific Advisory Board from
May 1993 to April 1995 and director of Yale Comprehensive Cancer Center from
1984 to 1993.
Walter B. Wriston, age 81, has been a director since 1995. Mr. Wriston
is a director of ICOS Corporation, York International and Cygnus, Inc. Mr.
Wriston retired as Chairman and Chief Executive Officer of Citicorp and its
principal subsidiary, Citibank, N.A., in 1984 after having served as Chief
Executive Officer for 17 years.
Our directors are elected annually to serve until the next annual
meeting of stockholders and until their successors shall have been duly elected
and shall qualify. Our executive officers are elected by the board annually and
serve for such period or until their earlier resignation or removal by the
board.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and directors, and persons who beneficially own more than ten
percent of our Common Stock, to file initial reports of ownership and reports of
changes in ownership with the SEC and The NASDAQ Stock Market. Executive
officers, directors and greater than ten percent beneficial owners are required
by the SEC to furnish us with copies of all Section 16(a) forms they file.
Based upon a review of the forms furnished to us and written
representations from our executive officers and directors, we believe that
during fiscal 2000 all Section 16(a) filing requirements applicable to our
executive officers, directors and greater than ten percent beneficial owners
were complied with, except that Mr. Bergerac failed to file Form 4 on a timely
basis.
49
ITEM 11. Executive Compensation
The following table sets forth information concerning all cash and
non-cash compensation awarded to, earned by or paid to the named executive
officers who earned over $100,000 and were serving at the end of 2000, for
services in all capacities to the Company, its subsidiaries and predecessors.
Annual Compensation Long-Term Compensation
------------------------------------- ------------------------
Securities
Underlying
Other Annual Options/ All Other
Name and Principal Position Year Salary($) Bonus($) Compensation SARs(#) Compensation($)
- --------------------------- ---- ---------- --------- ------------ ---------- --------------
Alan Kessman--President
and Chief Executive Officer(1) .... 2000 $ 412,000 $ 154,243 (3) 80,000 $ 11,275(4)
1999 $ 391,393(2) $ 152,000 (3) 980,000 $ 1,773(5)
1998 $ -- $ -- (3) 20,000 $ --
Mario Sznol--Vice President,
Clinical Affairs .................. 2000 $ 206,000 $ 47,856 (3) 140,000 $ 72,338(6)
1999 $ 60,219 $ 25,000 (3) 125,000 $ 7,695(6)
1998 $ -- $ -- (3) -- $ --
Terrence W. Doyle--Vice
President, Research and
Development ........................ 2000 $ 200,000 $ 45,863 (3) 68,000 $ 1,500(7)
1999 $ 191,100 $ 43,628 (3) 45,000 $ --
1998 $ 183,750 $ 27,563 (3) 9,600 $ --
Thomas Mizelle--Vice
President, Operations, and
Secretary .......................... 2000 $ 200,000 $ 44,963 (3) 130,000 $ 1,500(7)
1999 $ 191,100 $ 41,206 (3) 20,000 $ --
1998 $ 183,750 $ 27,563 (3) 9,600 $ --
Bijan Almassian--Vice President,
Development ........................ 2000 $ 170,000 $ 37,161 (3) 109,000 $ 1,500(7)
1999 $ 160,760 $ 30,896 (3) 12,500 $ --
1998 $ 153,400 $ 23,010 (3) 12,500 $ --
Ivan King--Vice President,
Research ........................... 2000 $ 165,000 $ 36,069 (3) 85,000 $ 1,500(7)
1999 $ 152,250 $ 30,165 (3) 31,300 $ --
1998 $ 137,500 $ 21,750 (3) 11,000 $ --
Thomas E. Klein--Former Vice
President, Finance, and
Chief Financial Officer(9) ......... 2000 $ 126,536 $ -- (3) 20,000 $ 43,179(8)
1999 $ 163,800 $ 26,159 (3) 20,000 $ --
1998 $ 157,500 $ 23,625 (3) 9,600 $ --
- ---------
(1) We are a party to an employment agreement with Mr. Kessman. See
"--Employment Agreements." Mr. Kessman became our Chief Executive Officer
in January 1999 and became our President in April 1999.
(2) Includes $324,726 paid pursuant to our January 1999 employment agreement
with Mr. Kessman to PS Capital, LLC of which Mr. Kessman is a controlling
member. See "--Employment Agreements."
50
(3) Aggregate amount of such compensation is less than the lesser of $50,000 or
10% of the total salary and bonus reported for the indicated person.
(4) Consists of life and disability insurance payments of $9,775 and matching
contribution to the Company's 401(k) Savings Plan of $1,500.
(5) Consists of life and disability insurance payments.
(6) Consists of relocation assistance of $70,838 and matching contribution to
the Company's 401(k) Savings Plan of $1,500.
(7) Consists of matching contribution to the Company's 401(k) Savings Plan.
(8) Consists of severance paid to Mr. Klein of $42,179 and matching
contribution to the Company's 401(k) Savings Plan of $1,000.
(9) In November 2000, Mr. Klein resigned from the position of Vice President,
Finance and Chief Financial Officer.
Option Grants in Last Fiscal Year
The following table sets forth the grant of stock options made during
the year ended December 31, 2000 to the persons named in the Summary
Compensation Table:
Potential Realizable Value
At Assumed Annual Rates
of Stock Price
Appreciation For Option
Term
--------------------------
Number of % of Total
Securities Options Granted
Underlying to Employees in Exercise Expiration 5% 10%
Name Options Granted Fiscal Period(1) Price Date ($) ($)
(a) (b) (c) (d) (e) (f) (g)
- ------------------- -------------- ---------------- -------- ---------- ---------- -----------
Alan Kessman ...... 50,000(2) 4.2% $14.875 2/24/2010 $1,204,131 $1,929,288
30,000(2) 2.5% $ 7.375 12/5/2010 $ 358,204 $ 573,923
Mario Sznol ....... 75,000 6.3% $14.875 2/24/2010 $1,806,197 $2,893,931
65,000 5.5% $ 7.375 12/5/2010 $ 776,108 $1,243,499
Terrence W. Doyle . 40,000 3.4% $14.875 2/24/2010 $ 963,305 $1,543,430
28,000 2.4% $ 7.375 12/5/2010 $ 334,324 $ 535,661
Thomas Mizelle .... 75,000 6.3% $14.875 2/24/2010 $1,806,197 $2,893,931
55,000 4.6% $ 7.375 12/5/2010 $ 656,707 $1,052,191
Bijan Almassian ... 64,000 5.4% $14.875 2/24/2010 $1,541,288 $2,469,488
45,000 3.8% $ 7.375 12/5/2010 $ 537,306 $ 860,884
Ivan King ......... 60,000 5.1% $14.875 2/24/2010 $1,444,958 $2,315,145
45,000 3.8% $ 7.375 12/5/2010 $ 537,306 $ 860,884
Thomas E. Klein (3) 20,000 1.7% $14.875 2/24/2010 $ 481,653 $ 771,715
- -------------------
51
(1) Computed based on an aggregate of 1,186,225 shares issuable upon
exercise of options granted to employees during the year ended December
31, 2000.
(2) Options were granted to CBK Associates, LLC, a family partnership,
of which Mr. Kessman is a controlling member.
(3) In November 2000, Mr. Klein resigned from the position of Vice
President, Finance and Chief Financial Officer.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information with respect to stock
options exercised in 2000 and unexercised stock options held by the persons
named in the Summary Compensation Table at December 31, 2000.
Number of Unexercised Value of Unexercised in-the-
Options at Fiscal Money Options at Fiscal
Year-End (#) Year-End ($)(1)
--------------------------- --------------------------------
Shares
Acquired on Value
Name Exercise(#) Realized $ Exercisable Unexercisable Exercisable Unexercisable
- -------------------- ------------ ---------- ----------- ------------- ----------- -------------
Alan Kessman 12,756 $ 15,626 388,144 660,000 $1,001,213 $5,385,106
Mario Sznol 3,000 5,811 28,250 233,750 82,970 315,969
Terrence W. Doyle -- -- 28,050 106,550 91,391 106,724
Thomas Mizelle 7,762 39,237 114,038 149,800 467,286 87,280
Bijan Almassian 65,625 1,092,408 12,500 130,875 38,447 110,937
Ivan King 20,500 208,163 52,200 137,100 193,956 126,695
Thomas E. Klein (2) 94,098 1,028,883 25,302 24,800 106,314 43,220
-------------------
(1) Computed based upon the difference between the closing price of
the Company's Common Stock on December 29, 2000 ($8.00) and the
exercise price.
(2) In November 2000, Mr. Klein resigned from the position of Vice
President, Finance and Chief Financial Officer.
Employment Agreements
In October 1999, we entered into an employment agreement with Alan
Kessman, our President and Chief Executive Officer. Pursuant to this agreement,
which will terminate on December 31, 2003, Mr. Kessman receives a minimum base
salary of $400,000 per year and will be eligible for a bonus of up to 50% of
his base salary based on the achievement of specified objectives. In the event
Mr. Kessman's employment is terminated by us for any reason other than cause or
disability, or if Mr. Kessman terminates for good reason, we are obligated to
pay him the sum of two times his base salary plus his average annual bonus for
the prior two years and continue payment of certain insurance costs on his
behalf. The agreement further provides that if Mr. Kessman's employment is
terminated on or after a change in control, he will be paid two and one-half
times his base amount as defined in the agreement. This agreement replaced a
prior agreement we entered into an agreement with Alan Kessman and PS Capital
LLC, an entity of which Mr. Kessman is a member, which was effective January 11,
1999, pursuant to which Mr. Kessman served as our chief executive officer.
Pursuant to the prior agreement, Mr. Kessman received a base salary of $400,000
per year. The prior agreement did not provide for any payments upon a change in
control or any other severance payments. As an inducement to enter into the
prior agreement, on January 11, 1999, we granted to Mr. Kessman options to
purchase an aggregate of 980,000 shares of common stock. The foregoing grants
consist of (1) an
52
option to purchase 760,000 shares at an exercise price of $5.775, representing a
10% premium to the market price on the date prior to the date of grant, such
option to vest 25% on July 11, 2000, 50% on July 11, 2001, 75% on July 11, 2002
and 100% on July 11, 2003 and (2) an option to purchase 220,000 shares at an
exercise price of $5.25, representing the market price on the date prior to the
date of grant, such option having vested in full on July 11, 1999, six months
from the date of grant.
Severance Agreements
Effective October 15, 1998, with respect to Thomas Mizelle, our Vice
President, Operations, Terrence W. Doyle, our Vice President, Research and
Development and Thomas E. Klein, our former Vice President, Finance, and
effective July 28, 1999 with respect to Ivan King, our Vice President Research
and Bijan Almassian, our Vice President Development, we entered into severance
agreements pursuant to which each of these officers would be entitled to certain
payments in the event such officer loses his employment during the twelve-month
period following a "change in control." Specifically, if a "change in control"
occurs, the officer shall be entitled to a lump sum severance payment equal to
the sum of twelve months of the officer's monthly base salary as in effect as of
the date of termination or immediately prior to the change in control, whichever
is greater, plus the average of the last two cash bonus payments made to the
officer prior to the change in control. The officer would also be entitled to
all payments necessary to provide him with group health insurance benefits
substantially similar to those which he was receiving immediately prior to the
date of termination until the earlier of 18 months after such termination or the
date he has obtained new full-time employment. The foregoing amounts are not
payable if termination of the officer is because of his death, by us for cause,
or by the officer other than for good reason. For purposes of the severance
agreements, a "change in control" means that (1) any person or entity becomes
the beneficial owner of our securities representing 30 percent or more of the
combined voting power of the then outstanding securities; (2) during any period
of two consecutive years, individuals who, at the beginning of such period,
constitute the Board, and any new director (other than a director designated by
an acquiring person) whose election by the Board or nomination for election by
our stockholders was approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof; or (3) our stockholders
approve a merger or consolidation (other than certain recapitalizations).
In November 2000, Mr. Klein resigned from the position of Vice
President, Finance and Chief Financial Officer.
Compensation of Directors
Directors are reimbursed for expenses actually incurred in connection
with each meeting of the Board of Directors or any committee thereof attended.
We also pay the Chairman of the Board $4,000 per meeting of the Board attended
and each other non-employee or non-consultant director $1,000 for each such
meeting attended. Various directors are also entitled to automatic grants of
options under our Amended and Restated 1993 Stock Option Plan.
53
Directors' Options
Our Amended and Restated 1993 Stock Option Plan provides for the
automatic grant of non-qualified stock options to purchase shares of common
stock to our directors who are not employees or principal stockholders. Eligible
directors elected after August 1995 will be granted an option to purchase 20,000
shares of common stock on the date such person is first elected or appointed a
director. Further, commencing on the day immediately following the date of the
Annual Meeting of stockholders each eligible director, other than directors who
received an initial director option since the last annual meeting, will be
granted an option to purchase 15,000 shares of common stock (20,000 shares in
the case of the Chairman of the Board) on the day immediately following the date
of each annual meeting of stockholders. The exercise price for each share
subject to a director option shall be equal to the fair market value of the
common stock on the date of grant. Director options will expire the earlier of
10 years after the date of grant or 90 days after the termination of the
director's service on the Board. During 2000, Messrs. Bergerac, Cary, Ferguson,
Sartorelli and Wriston were each granted ten-year options to purchase 15,000
shares of common stock at an exercise price of $12.25 per share and Mr. Miller
was granted an option to purchase 20,000 shares on the same terms. Mr. MacDonald
was granted an option to purchase 20,000 shares of common stock at an exercise
price of $7.00 per share when he was first elected a director on June 1, 2000.
54
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of March 1, 2001 (except
as otherwise noted in the footnotes) regarding the beneficial ownership (as
defined by the Securities and Exchange Commission (the "SEC")) of our Common
Stock: (i) each person known by us to own beneficially more than five percent of
our outstanding Common Stock; (ii) each of our current directors; (iii) each of
our executive officers who received over $100,000 in compensation from us during
the 2000 fiscal year; and (iv) all of our current directors and executive
officers as a group. Except as otherwise specified, the named beneficial owner
has the sole voting and investment power over the shares listed and the address
of each beneficial owner is c/o Vion Pharmaceuticals, Inc., 4 Science Park, New
Haven, Connecticut 06511.
Number of shares Percent of outstanding
Directors, Officers & 5% Stockholders beneficially owned shares of Common Stock
- ----------------------------------------------- ------------------ ---------------------------
Michel C. Bergerac ............................ 21,250(1) *
Frank T. Cary ................................. 72,718(2) *
Alan Kessman .................................. 436,500(3) 1.7%
William R. Miller ............................. 190,656(4) *
Alan C. Sartorelli, Ph.D. ..................... 411,455(5) 1.6%
Walter B. Wriston ............................. 68,968(6) *
Charles MacDonald ............................. 0 *
Mario Sznol, M.D. ............................. 50,000(7) *
Terrence W. Doyle, Ph.D ....................... 268,974(8) 1.0%
Thomas Mizelle ................................ 162,960(9) *
Bijan Almassian, Ph.D. ........................ 66,625(10) *
Ivan King, Ph.D. .............................. 82,075(11) *
Thomas E. Klein ............................... 35,102(12) *
All directors and executive officers as a group
(14 persons) .................................. 1,867,283(13) 7.1%
Other Beneficial Owners
------------------------
Elliott Associates, L.P.
Elliott International, L.P. (f/k/a Westgate
International, L.P.)
Martley International, Inc.
c/o Elliott Associates, L.P.
712 Fifth Avenue, 36th Floor
New York, NY 10019 ......................... 2,966,113(14) 11.3%
- ----------------
*Less than one percent
(1) Includes 21,250 shares issuable upon exercise of options.
(2) Includes 10,000 shares issuable upon exercise of options.
(3) Includes 400,644 shares issuable upon exercise of options.
(4) Includes 1,250 shares issuable upon exercise of options.
(5) Includes 190,874 shares beneficially owned by Dr. Sartorelli's wife, as
to which Dr. Sartorelli disclaims beneficial ownership. Also includes
11,250 shares issuable upon exercise of options.
(6) Includes 15,000 shares issuable upon exercise of options.
55
(7) Includes 47,000 shares issuable upon exercise of options.
(8) Includes 86,600 shares held by Dr. Doyle's wife and children,
as to which Dr. Doyle disclaims beneficial ownership. Also includes
40,450 shares issuable upon exercise of options.
(9) Includes 135,188 shares issuable upon exercise of options. Also includes
488 shares of common stock held by Mr. Mizelle's children.
(10) Includes 41,000 shares issuable upon exercise of options.
(11) Includes 76,575 shares issuable upon exercise of options.
(12) Includes 32,702 shares issuable upon exercise of options. Also include
856 shares of common stock held by Mr. Klein's wife and children. In
November 2000, Mr. Klein resigned from the position of Vice President,
Finance and Chief Financial Officer.
(13) Includes 826,309 shares issuable upon exercise of options.
(14) Beneficial ownership information is based upon data set forth in a
Schedule 13D Amendment No. 9 filed with the SEC on February 15, 2001.
Elliott Associates, L.P. owns 1,481,844 shares of Common Stock. Elliott
International, L.P. (f/k/a Westgate International, L.P.), which has its
business address at c/o Midland Bank Trust Corporation (Cayman) Limited,
P.O. Box 1109, Mary Street, Grand Cayman, Cayman Islands, British West
Indies, owns 1,484,269 shares of Common Stock. Martley International, Inc.
is the investment manager for Elliott International, L.P. and has shared
voting and dispository power over the shares held by Elliott
International, L.P. Martley International, Inc. disclaims beneficial
ownership of all such shares.
ITEM 13. Certain Relationships and Related Transactions
None.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following is a list of the Financial Statements included in Item 8 of Part
II of this Report:
Page
Report of Independent Auditors...................................................24
Balance Sheet as of December 31, 2000 and 1999...................................25
Statement of Operations for the Years Ended December 31, 2000, 1999 and 1998
and for the Period from May 1, 1994 (Inception) Through December 31, 2000......26
Statement of Changes in Shareholders' Equity for the Period from May 1, 1994
(Inception) Through December 31, 2000..........................................27
Statement of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 and
for the Period from May 1, 1994 (Inception) Through December 31, 2000.........29
Notes to Financial Statements....................................................30
2. Financial Statement Schedules
Schedules not included herein are omitted because they are inapplicable or
not required or because the required information is given in the financial
statements and notes thereto.
56
3. Exhibits
The exhibits required by this item and included in this report or
incorporated herein by reference are as follows:
Exhibit No. Description
2.1 -- Agreement and Plan of Merger among MelaRx Pharmaceuticals, Inc.,
OncoRx Research Corp. and OncoRx, Inc. dated as of April 19, 1995
(1)
2.2 -- Certificate of Merger, dated April 20, 1995 (1)
3.1 -- Restated Certificate of Incorporation, as amended (2)
3.2 -- By-laws, as amended
4.1 -- Rights Agreement dated as of October 26, 1998 between Vion
Pharmaceuticals, Inc. and American Stock Transfer & Trust Company
(includes form of Right Certificate attached as Exhibit A and a
Summary of Rights to Purchase Common Shares attached as Exhibit B
thereto) (3)
4.2 -- Revised form of Warrant Agreement by and between Vion
Pharmaceuticals, Inc. and Brean Murray & Co., Inc. (4)
4.3 -- Form of Underwriter's Warrant (included as Exhibit A to Exhibit
4.4 above) (4)
10.1 -- License Agreement between Yale University and OncoRx, Inc. dated
as of August 31, 1994 (1)
10.2 -- Letter Agreement between Yale University and OncoRx, Inc. dated
August 19, 1994 (1)
10.3 -- Extension Agreement between Yale University and MelaRx
Pharmaceuticals, Inc., dated as of July 1, 1992 (1)
10.4 -- Form of License Agreement between Yale University and MelaRx
Pharmaceuticals, Inc. (1)
10.5 -- Letter Agreement between Yale University and MelaRx
Pharmaceuticals, Inc., dated as of February 2, 1995 (1)
10.6 -- Employment Letter from MelaRx Pharmaceuticals, Inc. to Thomas
Mizelle, dated as of July 29, 1994 (1)
10.7 -- Marketing Services Agreement between MelaRx Pharmaceuticals, Inc.
and Creative Polymers, Inc. dated as of March 21, 1994 (1)
10.8 -- Amended and Restated 1993 Stock Option Plan of the Registrant (5)
10.9 -- Lease Agreement between Science Park Development Corporation and
Vion Pharmaceuticals, Inc., dated as of February 1, 1996 (6)
10.10 -- Option Agreement between the Registrant and PMP, Inc., dated
April 27, 1995 (1)
10.11 -- Agreement between MelaRx Pharmaceuticals, Inc. and certain
shareholders, dated February 17, 1995 (1)
10.12 -- Consulting and Finder's Agreement between MelaRx
Pharmaceuticals, Inc. and Jacob A. Melnick, dated June 4, 1992,
as amended by Agreement dated February 17, 1995 (1)
10.13 -- Form of Indemnification Agreement (1)
10.14 -- Letter Agreement between Yale University and OncoRx, Inc.
(formerly MelaRx Pharmaceuticals, Inc.), dated July 5, 1995 (1)
10.15 -- Lease between Science Park Development Corporation and OncoRx,
Inc. dated August 10, 1995 (7)
57
10.16 -- Master Lease Agreement between Citicorp Leasing, Inc. and OncoRx,
Inc. dated September 27, 1995 (7)
10.17 -- Sale and Leaseback Agreement and Master Equipment Lease Agreement
between FINOVA Technology Finance, Inc. and Vion Pharmaceuticals,
Inc. dated as of October 17, 1996 (8)
10.18 -- Clinical Development Agreement between Vion Pharmaceuticals,
Inc., Covance Clinical Research Unit Ltd. And Covance Inc.
(Confidential treatment has been granted with regard to certain
provisions of this exhibit) (9)
10.19 -- Amendment No. 1 to License Agreement between Yale University and
Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated as of
June 12, 1997 (9)
10.20 -- Amendment No. 2 to License Agreement between Yale University and
Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated as of
June 12, 1997 (9)
10.21 -- Collaborative Development and Distribution Agreement between
Boehringer Ingelheim International GmbH and Vion Pharmaceuticals,
Inc. dated November 24, 1997 (Confidential treatment has been
granted with regard to certain provisions of this exhibit) (6)
10.22 -- Sale and Leaseback Agreement between FINOVA Technology Finance,
Inc. and Vion Pharmaceuticals, Inc. dated as of December 10, 1997
(6)
10.23 -- License Agreement dated February 9, 1998 between Vion
Pharmaceuticals, Inc. and San Mar Laboratories Inc. (10)
10.24 -- Amendment No. 3 to a License Agreement between Yale University
and Vion Pharmaceuticals, Inc. (f/d/a OncoRx, Inc.) dated as of
September 25, 1998 (10)
10.25 -- Form of Severance Agreement between the Company and Terrence W.
Doyle, Thomas E. Klein and Thomas Mizelle (11)
10.26 -- Form of Employment Agreement between the Company and Alan
Kessman (4)
10.27 -- Senior Executive Stock Option Plan (11)
10.28 -- Separation and Release Agreement between the Company and John
Spears, dated April 7, 1999 (4)
10.29 -- Development and License Agreement dated December 1, 1999 between
the Company and Boehringer Ingelheim International GmbH
(confidential treatment has been requested with respect to
portions of this exhibit)
10.30 -- Amendment to Clinical Development Agreement between the Company
and Covance Clinical Research Unit Ltd. Dated October 27, 1999
(confidential treatment has been requested with respect to portions
of this exhibit)
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney (included on signature page)
- -------------
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 33-93468), effective August 14, 1995.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ended June 30, 1998.
(3) Incorporated by reference to the Company's Current Report on Form 8-K filed
on October 26, 1998.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-83837), effective October 26, 1999.
58
(5) Incorporated by reference to the Company's Registration Statement on Form
S-8 (Filed No. 333-39407), effective November 4, 1997.
(6) Incorporated by reference to the Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997.
(7) Incorporated by reference to the Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1995.
(8) Incorporated by reference to the Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996.
(9) Incorporated by reference to the Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1997.
(10) Incorporated by reference to the Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998.
(11) Incorporated by reference to the Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1999.
(b) Reports on Form 8-K
The Registrant filed the following reports on Form 8-K during the quarter ended
December 31, 2000:
1. On November 8, 2000, the Company announced the final results from the
Company's Annual Meeting of Stockholders, which was held on October 23,
2000.
2. On November 13, 2000, the Company announced the third quarter and
nine-month financial results for the period ended September 30, 2000.
3. On December 1, 2000, the Company announced its intention to redeem
outstanding shares of Class A Convertible Preferred Stock on December
26, 2000.
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: April 2, 2001 Vion Pharmaceuticals, Inc.
-----------------------------
By: /S/ ALAN KESSMAN
----------------
Alan Kessman
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alan Kessman and Karen Schmedlin, jointly
and severally, his true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
annual report on Form 10-K, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
60
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title
/S/ WILLIAM R. MILLER Chairman of the Board
- ----------------------------
William R. Miller
/S/ ALAN KESSMAN Director, Chief Executive Officer
- ---------------------------- (Principal Executive Officer)
Alan Kessman
/S/ KAREN SCHMEDLIN Controller
- ---------------------------- (Principal Financial and Accounting Officer)
Karen Schmedlin
/S/ MICHEL C. BERGERAC Director
- ----------------------------
Michel C. Bergerac
/S/ FRANK T. CARY Director
- ----------------------------
Frank T. Cary
Director
- ----------------------------
Charles K. MacDonald
/S/ ALAN C. SARTORELLI Director
- ----------------------------
Alan C. Sartorelli
/S/ WALTER B. WRISTON Director
- ----------------------------
Walter B. Wriston
Date: April 2, 2001
61
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as.................... 'r'
The service mark symbol shall be expressed as............................ 'sm'