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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-26534
VION PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3671221
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
4 Science Park
New Haven, CT 06511
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (203) 498-4210
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 [ ]
The number of shares outstanding of the registrant's Common Stock as of August
7, 2002 was 28,891,686.
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Balance Sheet
June 30, December 31,
(In thousands, except share and per share data) 2002 2001
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 12,053 $ 6,645
Short-term investments 3,260 15,999
-----------------------------------
Total cash, cash equivalents and short-term investments 15,313 22,644
Interest receivable 110 193
State income tax receivable 227 --
Accounts receivable 67 54
Other current assets 32 130
-----------------------------------
Total current assets 15,749 23,021
Property and equipment, net 558 550
Security deposits 30 30
-----------------------------------
Total assets $ 16,337 $ 23,601
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 2,529 $ 2,503
-----------------------------------
Total current liabilities 2,529 2,503
-----------------------------------
Shareholders' Equity:
Preferred stock, $0.01 par value, authorized: 5,000,000 shares;
issued and outstanding: none -- --
Common stock, $0.01 par value, authorized: 100,000,000 shares;
issued and outstanding: 28,886,959 and 28,873,373 shares
at June 30, 2002 and December 31, 2001, respectively 289 289
Additional paid-in-capital 112,421 112,377
Accumulated other comprehensive loss (2) (6)
Accumulated deficit (98,900) (91,562)
-----------------------------------
13,808 21,098
-----------------------------------
Total liabilities and shareholders' equity $ 16,337 $ 23,601
===================================
The accompanying notes are an integral part of these financial statements.
Page 2
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Statement of Operations
(Unaudited)
For the Period
from May 1, 1994
For the Three Months Ended For the Six Months Ended (Inception)
June 30, June 30, through
(In thousands, except share and per share data) 2002 2001 2002 2001 June 30, 2002
---- ---- ---- ---- -------------
Revenues:
Contract research grants $ 35 $ 147 $ 56 $ 273 $ 2,069
Technology license fees 2 34 28 52 4,431
Laboratory support services -- -- -- -- 117
Research support -- -- -- -- 5,498
------- ------- ------ ------ --------
Total revenues 37 181 84 325 12,115
------- ------- ------ ------ --------
Operating expenses:
Research and development 1,564 1,997 3,575 4,426 56,534
Clinical trials 1,328 639 2,748 1,815 19,218
------- ------- ------ ------ --------
Total research and development 2,892 2,636 6,323 6,241 75,752
General and administrative 782 1,042 1,694 1,772 21,158
------- ------- ------ ------ --------
Total operating expenses 3,674 3,678 8,017 8,013 96,910
------- ------- ------ ------ --------
Interest income (101) (264) (368) (729) (4,620)
Interest expense -- -- -- -- 208
------- ------- ------ ------ --------
Loss before income tax benefit (3,536) (3,233) (7,565) (6,959) (80,383)
Income tax benefit (227) -- (227) -- (227)
------- ------- ------ ------ --------
Net loss (3,309) (3,233) (7,338) (6,959) (80,156)
Preferred stock dividends and accretion -- -- -- -- (18,489)
------- ------- ------ ------ --------
Loss applicable to common shareholders $(3,309) $(3,233) $(7,338) $(6,959) $(98,645)
======= ======= ======= ======= ========
Loss applicable to common shareholders
per share $ (0.11) $ (0.12) $ (0.25) $ (0.27)
======= ======= ======= =======
Weighted-average number of shares of
common stock outstanding 28,886,671 26,190,356 28,883,319 26,182,112
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
Page 3
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Statement of Changes in Shareholders' Equity
Accumulated
Other
Class A Compre- Total
Convertible Additional Deferred hensive Share-
Preferred Stock Common Stock Paid-in Compensa- Income Accumulated holders'
(In thousands, except share data) Shares Amount Shares Amount Capital tion (Loss) Deficit Equity
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 498,194 $ 5 18,242,119 $182 $ 68,012 $(3) $ -- $(62,343) $ 5,853
Conversion of Class A convertible (502,928) (5) 1,397,035 14 (9) --
preferred stock
Redemption of Class A convertible (545) -- (5) (5)
preferred stock
Class A convertible preferred stock
dividend 5,279 -- 248 (248) --
Series 1998 convertible preferred
stock accretion (358) (358)
Conversion of Series 1998 convertible
preferred stock 1,507,024 15 5,523 5,538
Exercise of stock options 650,409 7 2,868 2,875
Exercise of warrants 4,371,055 44 23,270 23,314
Compensation associated with stock
options 120 120
Amortization of deferred compensation 3 3
Change in net unrealized gains and
losses 120 120
Net loss (14,803) (14,803)
--------------------------------------------------------------------------------------
Balance at December 31, 2000 -- $-- 26,167,642 $262 $100,027 $ -- $ 120 $(77,752) $ 22,657
--------------------------------------------------------------------------------------
Issuance of common stock 2,500,000 25 11,386 11,411
Exercise of stock options 191,527 2 777 779
Exercise of warrants 4,015 -- 14 14
Compensation associated with stock
options 111 111
Issuances under employee benefit plans 10,189 -- 62 62
Change in net unrealized gains and
losses (126) (126)
Net loss (13,810) (13,810)
--------------------------------------------------------------------------------------
Balance at December 31, 2001 -- $-- 28,873,373 $289 $112,377 $ -- $ (6) $(91,562) $ 21,098
--------------------------------------------------------------------------------------
Exercise of stock options 10,395 -- 32 32
Issuances under employee benefit plans 3,191 -- 12 12
Change in net unrealized gains and
losses 4 4
Net loss (7,338) (7,338)
--------------------------------------------------------------------------------------
Balance at June 30, 2002 (unaudited) -- $-- 28,886,959 $289 $112,421 $ -- $ (2) $(98,900) $ 13,808
======================================================================================
The accompanying notes are an integral part of these financial statements.
Page 4
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Statement of Cash Flows
For The Period
From May 1,
For the Six Months Ended 1994 (Inception)
June 30, through
--------------------------- June 30,
(In thousands) 2002 2001 2002
- -------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(7,338) $(6,959) $(80,156)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 120 153 2,301
Loss on fixed asset disposals -- -- 4
(Increase) decrease in receivables and other
current assets (59) 164 (435)
Increase in other assets -- -- (27)
Increase (decrease) in accounts payable and
accrued expenses 26 (204) 2,494
Non-cash compensation -- 111 1,068
Purchased research and development -- -- 4,481
Stock issued for services -- -- 600
Amortization of financing costs -- -- 346
Extension/reissuance of placement agent warrants
-- -- 168
-------------------------------------------------------
Net cash used in operating activities (7,251) (6,735) (69,156)
-------------------------------------------------------
Cash flows from investing activities:
Purchases of marketable securities (2,234) (3,040) (83,288)
Maturities of marketable securities 14,977 10,828 80,026
Acquisition of property and equipment (128) (239) (1,919)
-------------------------------------------------------
Net cash provided by (used in) investing activities 12,615 7,549 (5,181)
-------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 44 198 33,863
Net proceeds from exercise of placement agent
warrants -- 15 115
Net proceeds from issuance of preferred stock -- -- 20,716
Net proceeds from exercise of Class A Warrants -- -- 5,675
Net proceeds from exercise of Class B Warrants -- -- 17,538
Initial public offering -- -- 9,696
Repayment of equipment capital leases -- (4) (927)
Other financing activities, net -- -- (286)
-------------------------------------------------------
Net cash provided by financing activities 44 209 86,390
-------------------------------------------------------
Increase in cash and cash equivalents 5,408 1,023 12,053
Cash and cash equivalents, beginning of period 6,645 6,198 --
-------------------------------------------------------
Cash and cash equivalents, end of period $12,053 $ 7,221 $ 12,053
=======================================================
The accompanying notes are an integral part of these financial statements.
Page 5
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)
1. The Company
Vion Pharmaceuticals, Inc. (the "Company") is a development stage
biopharmaceutical company engaged in the research, development and
commercialization of cancer treatment technologies. The Company, formerly
OncoRx, Inc., was incorporated in March 1992 as a Delaware corporation and began
operations on May 1, 1994.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for interim periods are not necessarily
indicative of the results that may be expected for the year ending December 31,
2002. For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report for the year ended December 31,
2001 on Form 10-K (File No. 000-26534).
3. Per Share Data - Antidilution
The warrants, stock options and preferred stock were antidilutive and
not included in the calculation of the diluted loss applicable to common
shareholders per share.
4. Income Tax Benefit
The Company recognized an income tax benefit of $0.2 million during the
second quarter of 2002 related to the sale of certain research and development
tax credits to the State of Connecticut.
5. Liquidity
The Company is executing the business strategy announced in May 2002
and has implemented cost reduction measures that are expected to extend existing
cash, cash equivalents and short-term investments to fund its planned operations
to November 2003, based on current estimates.
Page 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All statements other than statements of historical fact included in
this Quarterly Report on Form 10-Q, including without limitation statements
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations," regarding our financial position, business strategy, and plans
and objectives of our management for future operations, are forward-looking
statements. When used in this Quarterly Report on Form 10-Q, words such as
"may," "will," "should," "could," "potential," "seek," "project," "predict,"
"anticipate," "believe," "estimate," "expect," "intend" and similar expressions,
as they relate to us or our management, identify forward-looking statements.
Forward-looking statements are based on the beliefs of our management as well as
assumptions made by and information currently available to our management. These
statements are subject to risks and uncertainties that may cause actual results
and events to differ significantly. A detailed discussion of risks attendant to
the forward-looking statements is included under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K for the year ended December 31, 2001. The information
contained in this Quarterly Report on Form 10-Q is believed to be current as of
the date of filing with the Securities and Exchange Commission. We do not intend
to update any of the forward-looking statements after the date of this filing to
conform these statements to actual results or to changes in our expectations,
except as required by law.
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
currently consist of contract research grants and technology license fees. Since
inception, we have generated minimal revenues and have incurred substantial
operating losses from our activities. We expect to incur substantial operating
losses for the next several years due to expenses associated with our
activities.
Our plan of operations for the next 12 months includes the following
elements:
o Conduct Phase I clinical studies for safety and dosage of Triapine'r' in
conjunction with standard chemotherapy treatments;
o Conduct Phase II clinical studies of Triapine'r' in conjunction with
standard chemotherapy treatments;
o Conduct Phase II clinical studies of Triapine'r' as a single agent;
Page 7
o Conduct Phase I clinical studies for safety and dosage of VNP40101M, a
member of the Sulfonyl Hydrazine Prodrug class;
o Conduct Phase II clinical studies of VNP40101M;
o Conduct Phase I clinical studies of TAPET'r' in conjunction with immune
system modulation for further safety and "optimized" selective accumulation
of bacteria in the tumor;
o Develop second generation TAPET'r' vectors;
o Continue to conduct internal research and development with respect to our
core technologies and other product candidates that we may identify;
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
Comparison of the Three-Month Periods Ended June 30, 2002 and 2001
Revenues. Revenues were $37,000 for the three-month period ended June
30, 2002, as compared to $181,000 for the same period in 2001. The decrease was
due primarily to lower revenues for the second quarter of 2002 from Small
Business Innovation and Research ("SBIR") research grants.
Research and Development. Total research and development expenses
(which include clinical trials expenses) were $2.9 million for the three-month
period ended June 30, 2002, compared with $2.6 million for the same 2001 period.
Clinical trials expenses were $1.3 million for the three-month period ended June
30, 2002, as compared to $0.6 million for the same period in 2001. The increase
in 2002 was due to costs associated with higher patient enrollment and drug
production for clinical trials of TAPET, Triapine and VNP40101M. Other research
and development costs decreased to $1.6 million for the three months ended June
30, 2002, from $2.0 million for the same period in 2001. The decrease of $0.4
million was due primarily to lower external research support and gifts and, to
a lesser extent, no incentive compensation expense for 2002.
General and Administrative. General and administrative expenses
decreased to $0.8 million for the three-month period ended June 30, 2002 from
$1.0 million for the comparable 2001 period. The decrease was due primarily to
lower professional fees.
Page 8
Interest Income. Interest income was $0.1 million for the three-month
period ended June 30, 2002, as compared to $0.3 million for the same period in
2001. The 2002 decrease was due primarily to lower interest rates and, to a
lesser extent, a lower level of invested funds.
Income Tax Benefit. We recognized an income tax benefit of $0.2 million
during the second quarter of 2002 related to the sale of certain research and
development tax credits to the State of Connecticut.
Net Loss. The net loss was $3.3 million, or $0.11 per share, for the
three-month period ended June 30, 2002, compared to a loss of $3.2 million, or
$0.12 per share, for the same period in 2001. Weighted-average shares
outstanding for the three-month periods ended June 30, 2002 and 2001, were 28.9
million and 26.2 million, respectively.
Comparison of the Six-Month Periods Ended June 30, 2002 and 2001
Revenues. Revenues were $0.1 million for the six-month period ended
June 30, 2002, as compared to $0.3 million for the same period in 2001. The
decrease was primarily due to lower revenues for the six-month period ended June
30, 2002 from Small Business Innovation and Research ("SBIR") grants.
Research and Development. Total research and development expenses
(which include clinical trials expenses) were $6.3 million for the six-month
period ended June 30, 2002, compared with $6.2 million for the same 2001 period.
Clinical trials expenses were $2.7 million for the six-month period ended June
30, 2002, as compared to $1.8 million for the same period in 2001. The increase
in 2002 was due to costs associated with higher patient enrollment and drug
production for clinical trials of TAPET, Triapine and VNP40101M. Other research
and development costs decreased to $3.6 million for the three months ended June
30, 2002, from $4.4 million for the same period in 2001. The decrease of $0.8
million was due primarily to lower external research support, research gifts and
scientific consulting fees, and, to a lesser extent, no incentive compensation
expense for 2002.
General and Administrative. General and administrative expenses were
$1.7 million for the six-month period ended June 30, 2002, as compared to $1.8
million for the comparable 2001 period. The decrease was due primarily to lower
professional fees.
Interest Income. Interest income was $0.4 million for the six-month
period ended June 30, 2002, as compared to $0.7 million for the same period in
2001. The 2002 decrease in interest income was due primarily to lower interest
rates and, to a lesser extent, a lower level of invested funds.
Income Tax Benefit. We recognized an income tax benefit of $0.2 million
during the second quarter of 2002 related to the sale of certain research and
development tax credits to the State of Connecticut.
Net Loss. The net loss was $7.3 million, or $0.25 per share, for the
six-month period ended June 30, 2002, compared to a loss of $7.0 million, or
$0.27 per share, for the same period
Page 9
in 2001. Weighted-average shares outstanding for the six-month periods ended
June 30, 2002 and 2001, were 28.9 million and 26.2 million, respectively.
Liquidity and Capital Resources
At June 30, 2002, we had cash, cash equivalents and short-term
investments of $15.3 million compared to $22.6 million at December 31, 2001. The
decrease was due primarily to cash used to fund operating activities.
On May 30, 2002, we announced a realignment of priorities and
objectives for the 18 months following May 30, as we focus on advancing our
anti-cancer agents, Triapine and VNP40101M, to Phase II clinical trials. In
accordance with this realignment plan, we reduced our staff by 16 people,
deferred management salaries and decreased other expenses in order to extend
our existing cash resources to approximately November 2003, based on current
estimates. The plan is expected to provide the cash resources required to:
(i) initiate Phase II trials of Triapine'r' as a single agent and in
combination and obtain data from patients, (ii) initiate Phase II trials of
VNP40101M as a single agent and obtain data from patients, (iii) initiate an
additional Phase I trial of TAPET'r' in conjunction with modulation of the
immune system and obtain data from patients (iv) make progress in developing a
second-generation TAPET'r' vector. However, our cash requirements may vary
materially from those now planned because of the results of research,
development, clinical trials, 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 cash
to fund operations; however, there is no assurance we will be able to raise
additional capital or what the terms may be.
Subsequent Event
On July 15, 2002, we received a letter from The Nasdaq Stock Market,
Inc., notifying us that during the preceding 30 consecutive trading days, the
bid price of our common stock had closed below the minimum bid price of $1.00
per share as required by the Nasdaq National Market under Nasdaq Marketplace
Rule 4450(a)(5). The letter stated that we have until October 14, 2002 to
demonstrate compliance with such rule and that, if we are not in compliance by
that date, Nasdaq will notify us that our securities will be delisted from the
Nasdaq National Market. If such event occurs, we may appeal the decision to a
Nasdaq Listing Qualifications Panel. The letter also stated that we could apply
to transfer the listing of our common stock to the Nasdaq SmallCap Market. If we
apply and are accepted to the Nasdaq SmallCap Market, we will be afforded the
180 calendar day grace period available to companies listed on the Nasdaq
SmallCap Market which commences with the July 15, 2002 letter, or until January
13, 2003. We may also be eligible for an additional 180 calendar day grace
period provided that we meet the initial listing requirements for the Nasdaq
SmallCap Market under Nasdaq Marketplace Rule 4310 (c) (2) (A). This rule states
that for initial inclusion, the issuer shall have: (i) stockholders' equity of
$5 million; or (ii) market value of listed securities of $50 million; or (iii)
net income of
Page 10
$750,000 (excluding extraordinary or non-recurring items) in the most recently
completed fiscal year or in two of the three most recently completed fiscal
years.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding our exposure to certain market risks, see
Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", in our
Annual Report on Form 10-K for the year ended December 31, 2001. There have been
no significant changes in our market risk exposure since the year-end.
PART II
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on June 5,
2002, two proposals were voted upon by the Company's stockholders. There were
28,886,959 shares of the Company's common stock outstanding which could be voted
at the meeting. 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 seven
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 seven nominees were elected. The aggregate number of votes cast by holders
of common stock voted in person or by proxy for each nominee was as follows:
For Authority Withheld
Nominee From Nominee
------- ------------
Stephen K. Carter, M.D. 22,641,563 535,724
Frank T. Cary 22,407,590 769,697
Alan Kessman 22,281,391 895,896
Charles K. MacDonald 22,618,347 558,940
William R. Miller 22,381,390 795,897
Alan C. Sartorelli, Ph.D. 21,338,778 1,838,509
Walter B. Wriston 22,408,223 769,064
Proposal No. 2 - 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, 2002. The selection of Ernst & Young LLP was ratified. The
aggregate number of votes cast by holders of common stock voted in person or by
proxy for the proposal was as follows:
Page 11
Absentions and
For Against Broker Non-Votes
--- ------- ----------------
22,671,891 447,377 58,019
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K.
The Registrant filed the following reports on Form 8-K during the
quarter ended June 30, 2002:
1. On May 1, 2002 under Item 5 and Item 7 to announce the
Company's 2002 first quarter financial results.
2. On May 31, 2002 under Item 5 and Item 7 to announce the
Company's focus on advancement of its anti-cancer agents
Triapine'r' and VNP40101M and cost reductions to extend the
Company's existing cash resources to November 2003.
3. On June 6, 2002 under Item 5 and Item 7 to announce the
Company's 2002 Annual Meeting of Stockholders.
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: August 13, 2002 Vion Pharmaceuticals, Inc.
By: /s/ Howard B. Johnson
----------------------------------
Howard B. Johnson
Vice President, Finance and
Chief Financial Officer
Page 12
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as......................'r'
The section symbol shall be expressed as...................................ss.