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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For Annual and Transition Reports Pursuant to
Sections 13
or 15(d) of the Securities Exchange Act of 1934
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2004
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-31918
HYBRIDON, INC.
(Exact name of Registrant as specified in its certificate of
incorporation)
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Delaware
(State or other jurisdiction
of incorporation or organization) |
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04-3072298
(I.R.S. Employer
Identification No.) |
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345 Vassar Street
Cambridge, Massachusetts
(Address of principal executive offices)
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02139
(Zip Code) |
(617) 679-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act: None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.001 par value
(Including Associated Preferred Stock Purchase Rights)
(Title of Class)
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 the filing requirements for the past
90 days. Yes þ No o
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 the
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. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes o No þ
The approximate aggregate market value of the voting stock held
by non-affiliates of the registrant was $60,166,000 based on the
last sale price of the registrant’s common stock on the
American Stock Exchange on June 30, 2004. As of
March 1, 2005, the registrant had 110,989,836 shares
of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the Registrant’s Proxy Statement with respect
to the Annual Meeting of Stockholders to be held on
June 15, 2005 |
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Items 10, 11, 12, 13 and 14 of Part III. |
HYBRIDON, INC.
FORM 10-K
INDEX
Hybridon®, IMOxine® and GEM® are our registered
trademarks.
Amplivaxtm,
CpRtm,
Cyclicontm,
IMOtm,
Immunomertm,
RpGtm,
YpGtm
and
YpRtm
are also our trademarks. Other trademarks appearing in this
annual report are the property of their respective owners.
i
PART I.
Overview
We are engaged in the discovery, development and
commercialization of novel therapeutics based on synthetic DNA
for the treatment of cancer, asthma/allergies and infectious
diseases. Our activities are primarily focused on the
development of our immunomodulatory oligonucleotide, or IMO,
technology. Our IMO compounds are synthetic DNA-based sequences
that are designed to mimic bacterial DNA and be recognized by a
specific protein receptor called Toll-like Receptor 9, or
TLR9, which triggers the activation and modulation of the immune
system. We also have been a pioneer in the development of
antisense technology, which uses synthetic DNA to block the
production of disease causing proteins at the cellular level. In
2003 and 2004, we devoted substantially all of our research and
development efforts to our IMO technology and products and
expect to continue to focus our research and development efforts
in 2005 and in future years on our IMO technology and products.
We plan to continue to seek to enter into collaborations with
third parties for the development and commercialization of
products based on our antisense technology.
Drug Development Strategy
In the near term, we are focusing our internal drug development
efforts on the lead IMO drug candidate in our pipeline, HYB2055.
We are developing HYB2055 for oncology applications under the
name IMOxine. In October 2004, we commenced patient recruitment
for an open label, multi-center phase 2 clinical trial of
IMOxine as a monotherapy in patients with metastatic or
recurrent clear cell renal carcinoma. We plan to recruit a
minimum of 46 patients into the first stage of the trial.
In addition to the phase 2 clinical trial of IMOxine, we
are conducting a phase 1 clinical trial of IMOxine in
patients with refractory solid tumor cancers, which was closed
to enrollment in November 2004. In November 2004, we announced
interim results of this phase 1 clinical trial of IMOxine,
which is being conducted at the Lombardi Comprehensive Cancer
Center at Georgetown University Medical Center in
Washington, D.C. We anticipate announcing further results
in the second quarter of 2005. In the interim results of the
phase 1 trial, IMOxine was found to be well tolerated with
no dose-limiting toxicity observed. Adverse effects recognized
through March 1, 2005 have been consistent with the
expected immune stimulation activity of IMOxine, consisting
primarily of mild to moderate injection site reactions, pain,
and “flu-like” symptoms. The interim results provided
evidence of dose response effects on immunology parameters in
patients with a variety of cancer types including patients with
renal cell carcinoma, melanoma, colorectal cancer, sarcoma,
breast cancer, non-small cell lung cancer and other cancers.
In addition to these trials, we may in the future conduct trials
in which we evaluate IMOxine for the treatment of other specific
types of cancer, as a monotherapy and/or in combination with
other anticancer agents, including chemotherapeutics,
antibodies, and vaccines/antigens.
Collaboration Strategy
In addition to developing drug candidates on our own, we are
seeking to establish alliances with other parties for the
development and commercialization of products based on our IMO
and antisense technologies.
We believe that pharmaceutical and biotechnology companies may
seek to use our IMO compounds as a monotherapy for the treatment
of specific diseases or in combination with, or as an adjuvant
to, their own chemotherapeutics, vaccines and monoclonal
antibodies. In particular, we are developing HYB2055 in a lower
dosage form, under the name Amplivax, for use as a vaccine
adjuvant. We licensed Amplivax to The Immune Response
Corporation for use in its development of a potential
therapeutic and prophylactic vaccine for HIV infection, and we
plan to seek additional licensees for Amplivax in the future. In
June 2004, The Immune Response Corporation initiated a
phase 1/2 clinical trial involving the use of Amplivax as
an adjuvant to REMUNE, an immune-based HIV therapeutic vaccine
being developed by The Immune Response Corporation.
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We also believe that our antisense technology may prove useful
to pharmaceutical and biotechnology companies that are seeking
to develop drug candidates that down-regulate gene targets
discovered by, or proprietary to, such companies. In addition to
collaborations based on gene targets whose proprietary rights
are controlled by third parties, we are seeking collaborators to
continue development of our most advanced antisense drug
candidate GEM231 and our other antisense drug candidates. GEM231
is a 2nd generation antisense compound for treating solid
tumor cancers that we developed to inhibit Protein Kinase A, or
PKA, a protein that has been shown to be present at increased
levels in the cells of many human cancers. We completed
enrollment of a phase 1/2 clinical trial of GEM231 as a
combination therapy with irinotecan, an anticancer drug marketed
in the United States under the name Camptosar®. We
presented interim data from this trial at the 2004 Annual
Meeting of the American Society of Clinical Oncology, or ASCO.
We have already entered into nine collaboration and licensing
agreements for our antisense technology including agreements
with Alnylam Pharmaceuticals, Inc. and VasGene Therapeutics Inc.
which were entered into during 2004. We are seeking to enter
into additional collaboration agreements for our antisense
technologies.
Our Product Pipeline
The table below summarizes the principal products that we or our
collaborators are developing and the therapeutic use and
development status of these products.
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| Product Description |
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Therapeutic Use |
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Development Status |
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IMO
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IMOxine1
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Cancer |
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phase 2 |
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Amplivax2
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HIV |
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phase 1/2 |
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IMOxine3
(used in combination)
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Cancer |
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preclinical candidate |
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HYB2093
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Asthma/allergy |
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preclinical candidate |
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HYB2125
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Hepatitis C |
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preclinical candidate |
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Antisense
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GEM2314
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Cancer |
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phase 1/2 |
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GEM640
(AEG35156)5
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Cancer |
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phase 1 |
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MBI11216
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Human papillomavirus |
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phase 1 |
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Veglin7
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Cancer |
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phase 1 |
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HYB676
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Ophthalmology |
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preclinical candidate |
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Being used as a monotherapy in patients with metastatic or
recurrent clear cell renal carcinoma. |
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Being used as an adjuvant in combination with REMUNE®, an
immune-based HIV therapeutic vaccine developed by The Immune
Response Corporation under a collaboration agreement with us. |
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Being used in combination with chemotherapy, selected monoclonal
antibodies and radiation. |
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We are seeking to enter into a collaboration for further
development of this product. |
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Being developed by Aegera Therapeutics, Inc. under a
collaboration agreement with us. |
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Migenix Inc. has the rights to develop MBI1121 under a
collaboration agreement with us. |
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Being developed by VasGene Therapeutics Inc. under a
collaboration agreement with us. |
In addition, we have developed several antisense drug candidates
for specific applications that are not currently in active
development programs but could be suitable candidates for
collaborations. These include:
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| Product Description |
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Therapeutic Use |
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Development Status |
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GEM92
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HIV |
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phase 1 |
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GEM240
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Cancer |
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preclinical candidate |
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Immunomodulatory Oligonucleotide (IMO) Technology
Overview
Our IMO technology has evolved from our research and clinical
experience with antisense oligonucleotides. We learned from this
research and clinical experience that some types of
oligonucleotides can act as potent stimulators of the immune
system. Our early insights and those of others showed that
oligonucleotides containing specific nucleotide segments, or
motifs, mimic in the human body the immune stimulating effects
of bacterial DNA. Nucleotides are the molecules that are linked
together to form DNA. Using our DNA chemistry, we have
designed and are developing a new, proprietary class of IMO
compounds. We believe these compounds, which we refer to as IMO
compounds, may offer a number of potential advantages over
earlier immune stimulatory oligonucleotides.
We are designing our IMO compounds to be used in the treatment
of conditions such as cancer, allergic asthma and other
allergies, and infectious diseases, either alone as a
monotherapy or in combination therapies with chemotherapeutics,
radiation, vaccines and antibodies.
Background
The human immune system protects the body against viruses,
bacteria and other infectious agents, referred to as pathogens.
It also acts to identify and eliminate abnormal cells, such as
cancer cells. The immune system works through various mechanisms
which recognize pathogens and abnormal cells. These mechanisms
initiate a series of interactions resulting in stimulation of
specific genes in response to the pathogens or abnormal cells.
The activities of the immune system are undertaken by its two
components: the innate immune system and the adaptive immune
system.
The role of the innate immune system is to provide a rapid,
non-specific response to a pathogenic invasion or to the
presence of a foreign substance in the body and to activate the
adaptive immune system. The innate immune system consists of
cells such as macrophages, dendritic cells and monocytes. When
the body is presented with a foreign pathogen, cells of the
innate immune system are activated, resulting in a cascade of
signaling events that cause the production of proteins to fight
the infection. Unlike the antibodies and proteins produced by
the adaptive immune system described below, the proteins
produced by the innate immune system are not pathogen-specific,
but rather are active against a broad spectrum of pathogens.
Moreover, once the infection is resolved, the innate immune
system will not remember the pathogen.
In contrast to the innate immune system, the adaptive immune
system provides a pathogen-specific response to a pathogenic
invasion. The adaptive immune system does this by recognition of
specific cell surface proteins, called antigens, which signal
the presence of a pathogen. This process is initiated through
signals produced by the innate immune system. Upon recognition
of a foreign antigen, the adaptive immune system produces
antibodies and antigen-specific toxic immune cells that
specifically detect and destroy infected cells. This response is
referred to as an antigen-specific immune response. An
antigen-specific immune response normally takes several weeks to
develop the first time. However, once activated by a specific
pathogen, the adaptive immune system “remembers” the
antigens of the pathogen. In this manner, if the pathogen again
invades the body, the presence of the “remembered”
antigens will allow the adaptive immune system to respond once
more, this time in a matter of days. Scientists generally
believe that the adaptive immune system also may be able to
eliminate abnormal cells, such as cancer cells.
The human immune reaction is initially commenced by activation
of the innate immune system. One way this occurs is through
recognition by the immune system of a pathogen-associated
molecular pattern, referred to as a PAMP. These patterns include
components of DNA that are present with great frequency in
pathogens and with low frequency, or not at all, in humans. The
presence of a PAMP acts as a signal to the immune system of the
presence of a foreign pathogen and starts an immune response.
In the case of bacteria, one common PAMP is a combination of DNA
known as a CpG dinucleotide or CpG DNA. A CpG dinucleotide, or
motif, consists of a cytosine (C) molecule and guanine
(G) molecule linked by a phosphate bond (p). Most bacteria
contain this CpG motif at the expected frequency of one in
sixteen base pairs in their genome. Vertebrates, including
humans, display many fewer CpG dinucleotides, and
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usually the cytosine (C) molecule of the CpG motif is
methylated, unlike bacterial CpG dinucleotides where the
cytosine (C) molecule is unmethylated. Methylation is the
substitution of a methyl group, a molecule containing one carbon
atom and three hydrogen atoms, for a hydrogen atom. In this way,
self DNA, which is methylated, is not mistaken for pathogen DNA.
CpG DNA has been shown to be recognized by a specific protein
receptor called Toll-like Receptor 9, or TLR9. TLR9 is
located inside some types of immune cells. Scientists generally
believe that once TLR9 recognizes bacterial DNA, such as CpG
DNA, it triggers an immune response through a cascade of cell
signals that ultimately leads to the release of immune system
molecules both from the innate and eventually the adaptive
immune systems. These molecules attack the infection. Additional
receptors other than TLR9 may also contribute to or modify the
recognition of certain CpG DNA, emphasizing the structural
importance of CpG DNA in TLR-specific signaling.
Our IMO compounds are intended to mimic bacterial DNA. We
believe the sequences of these compounds are recognized as
bacterial DNA by TLR9 and possibly other receptors. As a result,
we believe that our IMO compounds can trigger an innate immune
response similar to the innate immune response triggered by
bacterial DNA. Results from our preclinical studies and our
initial clinical trials of our IMO compounds suggest this
response leads to signaling events that include production of
cytokines. Cytokines are a specific type of immune system
molecule that are known to have broad spectrum therapeutic
properties against infectious disease as well as against cancer.
These signals from the innate immune system also may trigger
responses of the adaptive immune system.
Because recognition of IMO compounds by TLR9 or other receptors
may lead to both innate and adaptive immune responses, we
believe IMO compounds may have the potential to be useful in
treatment of a wide variety of diseases either as a monotherapy
or in combination with other agents such as chemotherapeutics,
radiation, vaccines, antigens and monoclonal antibodies. We and
independent third parties who are investigating CpG DNA drug
candidates that work in a manner similar to our IMO compounds
are currently exploring the use of these drug candidates in
clinical trials for cancer, asthma, allergies and infectious
diseases.
Therapeutic Potential of IMO Compounds
Because IMO compounds can generate a broad range of immune
responses, we believe they may provide therapeutic benefits in a
number of areas:
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Cancer. Cancer cells are recognized by the body as
abnormal cells and trigger an immune response. However, the
body’s immune response to cancer cells is notoriously weak.
The benefits of immune stimulation by bacterial DNA in cancer
patients have been long recognized. IMO compounds have been
shown to activate dendritic cells and B cells and induce Th1
cytokine secretion in human cell-based assays. The secreted
cytokines are known to stimulate natural killer cells to destroy
cells within a tumor mass. In pre-clinical studies in mouse
models, our IMO compounds have also been shown to enhance the
activity of selected chemotherapeutic agents, selected
anticancer antibodies and radiation. |
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Allergic Asthma and Other Allergies. Based on preclinical
studies of our IMO compounds in mouse models, we believe that
IMO compounds have potential for use in the treatment of
allergic asthma, other allergies and other diseases that result
from an overreaction of the immune system by suppressing
specific allergen induced allergic responses. In these studies
the type of cytokines produced as a result of the activation of
immune cells by IMO compounds suppressed asthmatic and allergic
immune conditions while simultaneously promoting an immune
response that further alleviated asthmatic and allergic
conditions. |
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Infectious Diseases. According to published reports,
various CpG DNA sequences have been shown in studies in mice and
other animals to activate an immune defense against pathogens
that is of a general nature and not directed at any specific
microorganism. As a result, we believe that our IMO compounds
have the potential to be used prophylactically to ward off the
danger of infection or to boost the immune response to an
early-stage or ongoing infection. Some of our IMO compounds have
been shown in ongoing preclinical studies to induce Th1-type
cytokines, IFN-α in non-human primate |
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studies for example. These cytokines are useful as
anti-infectious agents against bacteria, viruses, and parasites.
We have a portfolio of various IMO structures, including
compounds that induce high levels of IFN-α, which may be
suitable for treating Hepatitis C and other viral
infections. |
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Combinations with Vaccines. In preclinical studies in
mice, the immune response triggered by IMO compounds has
been shown to increase the effectiveness of vaccines and
peptides. As a result, we believe that IMO compounds have
the potential to be used in combination with, or as an adjuvant
to, vaccines. The Immune Response Corporation is evaluating our
Amplivax IMO compound for use as an adjuvant in combination
with REMUNE in a phase 1/ 2 clinical trial. |
IMO Chemistry
Based on our expertise in synthetic oligonucleotide chemistry
compiled over the past fifteen years, we have developed a
portfolio of IMO compounds containing different proprietary
synthetic motifs and different site-specific sequences. In our
preclinical studies of several IMO compounds and initial
clinical trials of our lead IMO compound, our
IMO compounds have triggered an immune response that has
resulted in the expression of many cytokines. This immune
response and the resulting expression of cytokines have varied
depending on the sequence and structure of the IMO compound. We
believe that by varying the synthetic motifs, site-specific
sequences and secondary structures in the IMO compounds, we can
design IMO compounds that optimize immunostimulatory activity
and induce different profiles of immune response. As a result,
we believe we may create IMO compounds that are optimized
for the treatment of different diseases.
HYB2055 Drug Discovery and Development
IMOxine
We are focusing our internal drug development efforts on the
lead drug candidate in our pipeline, HYB2055, for oncology
applications under the name IMOxine. We selected HYB2055 for
clinical development because of the potency it demonstrated as
an immune modulator in preclinical models, both in vitro
and in vivo. We filed an Investigational New Drug
Application, or IND, for HYB2055 with the FDA that became
effective March 6, 2003.
In March 2004, we completed a phase 1 clinical trial of
HYB2055 in 28 healthy volunteers over a broad range of
dosing levels. In this trial, HYB2055 was well tolerated by the
volunteers, who did not experience any significant
treatment-related adverse effects. In addition, HYB2055
demonstrated biological activity in the volunteers, according to
the several parameters monitored in the study.
In May 2003, we commenced a phase 1 clinical trial of
IMOxine in patients with refractory solid tumor cancers at the
Lombardi Comprehensive Cancer Center at Georgetown University
Medical Center in Washington, D.C. We announced enrollment
completion and interim results from the phase 1 oncology
trial in November 2004. We enrolled 23 patients in this
trial and one patient continues to receive IMOxine treatment as
of March 1, 2005 (for over one year). Interim results from
the trial included that IMOxine was found to be well tolerated
with no significant dose-limiting toxicity observed. The adverse
effects patients experienced as of the November 2004
announcement were consistent with the expected immune
stimulation activity of IMOxine, and primarily have been mild to
moderate injection site reactions, pain and “flu-like”
symptoms including rigors/chills, fever, nausea, myalgia,
headache, malaise and fatigue. Observations that were considered
serious adverse events and possibly related to IMOxine treatment
have been transient dyspnea with hypoxia (1 patient),
rigors/chills 1 hour post dose (1 patient), abdominal
pain with nausea/vomiting (1 patient) and anemia requiring
transfusion (2 patients). The one patient continuing to
receive IMOxine therapy has had no additional adverse effects
since the November 2004 announcement. The interim results of
this phase 1 trial provided evidence of dose response
effects on immunology parameters in patients with a variety of
cancer types, including renal cell carcinoma, melanoma,
colorectal cancer, sarcoma, breast cancer, non-small cell lung
cancer and other cancers.
In February 2005, Hybridon agreed to support a single-patient
investigator-sponsored IND involving the weekly administration
of IMOxine at a dosage of 0.64 mg/ kg per week. The
investigator is Michael
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Seiden, M.D., Ph.D., of Massachusetts General
Hospital. The single patient has chemotherapy resistant
epithelial ovarian carcinoma.
We are currently conducting a phase 2 clinical trial of
IMOxine in patients with metastatic or recurrent clear cell
renal carcinoma. The trial, for which we began patient
recruitment in October 2004, is a two-stage, multi-center, open
label study of IMOxine as a monotherapy. The primary objective
of the study is to determine tumor response by Response
Evaluation Criteria in Solid Tumors, or RECIST. Secondary study
objectives are safety, duration of response, time to
progression, survival one year after the last dose and the
treatment effect on quality of life. In the trial, one of two
dose levels of 0.16 or 0.64 mg/ kg is administered by
weekly subcutaneous injection. Treatment duration is defined as
24 weeks based on safety and the absence of disease
progression. We expect that patients can continue to receive
IMOxine treatment beyond 24 weeks based on investigator
recommendations and independent medical monitor concurrence. We
plan to recruit a minimum of 46 patients in the first stage
of the trial and anticipate preliminary results related to the
primary objective within the first half of 2006. We expect the
second stage of the trial to be a continuation of the same trial
design if warranted by the first stage interim results.
In addition to cancer applications, we are also developing
HYB2055 for use as a vaccine adjuvant. We are developing HYB2055
in a lower dosage form under the name Amplivax for these
applications. We licensed Amplivax to The Immune Response
Corporation for use in its development of a potential
therapeutic and prophylactic vaccine for HIV infection, and
we plan to seek additional licensees for Amplivax in the future.
In June 2004, The Immune Response Corporation initiated a
phase 1/ 2 clinical trial involving the use of Amplivax as
an adjuvant to REMUNE, an immune-based HIV therapeutic
vaccine being developed by The Immune Response Corporation.
We believe that HYB2055, or similar compounds based on our
IMO technology, may also be used as a monotherapy for
treatment of infectious diseases, allergic asthma and other
allergies. We may explore the potential of these uses either on
our own, or with collaborators through submission of additional
INDs.
Antisense Technology
Overview
Most drugs are chemicals that stimulate or suppress the function
of a particular molecule, usually a protein, which causes a
disease. The drug acts by binding to the target molecule and
interrupting the disease-causing activity of the target
molecule. Frequently, however, sites on other non-target
molecules present in the body resemble the target-binding site
of a disease-causing molecule and, as a result, the conventional
drug binds to some degree to those non-target molecules. Most
drug side effects arise due to this off-target activity.
In contrast, antisense drug candidates interact with the target
molecule with extremely high specificity. Antisense drug
candidates are designed to bind to a unique messenger RNA (mRNA)
target and thereby block production of the specific protein
encoded by the target mRNA. We believe that drugs based on
antisense technology may be more effective and cause fewer side
effects than conventional drugs because antisense drugs are
designed to intervene in a highly specific fashion in the
production of proteins, rather than after the proteins are made.
Background
A normal cell produces a particular set of normal proteins in
the right amount for the body to function properly. A diseased
cell produces inappropriate proteins or the wrong amount of
normal proteins. A cell produces inappropriate types or amounts
of proteins when its DNA expression changes, either through
mutation as in many types of cancer cells or through an
imbalance of normal bodily function. In some
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instances, inappropriate proteins act directly to cause or
support a disease. In other instances, inappropriate proteins
interfere with proteins that prevent or combat disease.
Cells make proteins in a two-stage process. All proteins are
based on the DNA which comprises the cellular genome. DNA is a
string of individual building blocks chemically known as
nucleotides. The specific sequence in which the nucleotides are
arranged is the code that embodies genetic information into the
DNA. First, the cell uses its genetic DNA code as a pattern
to create a molecule of messenger RNA or mRNA consisting of a
string of nucleotides in a sequence that is the exact mirror
image of, or complementary to, the sequence of the coding strand
of nucleotides in the DNA. This mRNA strand is called the
“sense” sequence. In the next step, the cell
translates the information contained in the “sense”
sequence into a specific protein.
Therapeutic Potential of Antisense Compounds
A synthetic DNA molecule with a sequence exactly complementary
to a portion of a specific mRNA can bind to and inhibit the
function of that mRNA. This exact complement of the sense mRNA
is referred to as an antisense oligonucleotide. By inhibiting
binding to a specific mRNA target, the antisense oligonucleotide
blocks synthesis of the protein.
We believe that the pharmaceutical industry is increasingly rich
in potential gene-based drug targets. We further believe that
the increase in the number of potential targets provides us with
increasing opportunities to employ our antisense technology.
Once a gene coding for a disease-associated protein is
identified, it should be possible to design a synthetic DNA with
an antisense mechanism designed to stop production of that
protein. Moreover, in contrast with small molecule drug
discovery which may take many years, we can design an antisense
drug candidate for a gene target in about 90 days after
that gene target has been identified.
Hybridon Antisense Technology
We and other companies recognized early in the exploration of
antisense technology that natural DNA-based oligonucleotides are
not suitable as drug candidates because they are rapidly
degraded in the blood and other tissues before they can reach
their intended target within cells. Early modifications made by
us and other companies to increase the biological stability of
oligonucleotides lead to a chemical class of oligonucleotides
which we refer to as 1st generation antisense compounds. To
date, the FDA has approved only one 1st generation
antisense compound, which one of our competitors developed and
which is currently marketed by Novartis Ophthalmics to treat a
viral infection through local delivery. Several
1st generation antisense drug candidates of third parties
have failed to show activity in late stage clinical trials.
We have focused our efforts on the design and creation of more
advanced synthetic DNA chemistries which we refer to as
2nd generation antisense compounds. We believe that
2nd generation antisense compounds may show more favorable
pharmaceutical characteristics and significantly improved
therapeutic utility as compared to 1st generation antisense
compounds. We believe that these 2nd generation antisense
compounds may exhibit the following desirable characteristics in
comparison with 1st generation compounds: (1) fewer
side effects; (2) greater stability in the body, enabling
patients to take doses less frequently; (3) greater
potency, permitting patients to take lower doses; and
(4) greater potential for multiple routes of
administration, including by injection, orally or topically.
The following companies have licensed Hybridon’s antisense
technology: Aegera Therapeutics, Inc., Alnylam Pharmaceuticals,
Inc., Avecia Biotechnology, Epigenesis Pharmaceuticals, Inc.,
Integrated DNA Technologies, Inc., Isis Pharmaceuticals, Inc.,
Methylgene Inc., Migenix Inc. and VasGene Therapeutics Inc.
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Antisense Drug Development and Discovery |
GEM231 for the Treatment of Cancer. GEM231 is designed to
inhibit protein kinase A, or PKA. PKA is a protein that
plays a key role in the control of the growth and
differentiation of mammalian cells. Levels of PKA have been
shown to be increased in the cells of many human cancers. GEM231
has been shown to have preclinical anti-tumor activity in models
of various types of cancer, alone and in combination with various
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agents. In August 2004, we completed enrollment of a
phase 1/ 2 clinical trial of GEM231 at Vanderbilt
University Medical Center as a combination therapy with
irinotecan, an anticancer drug marketed in the United States
under the name Camptosar®. In March 2004, we presented
interim data from this trial showing that the combination of
irinotecan at 125 mg/
m2
with GEM231 at 40 mg/
m2 per
day was well tolerated in patients in the trial. Higher dosages
of irinotecan and/or GEM231 were associated with dose-limiting
toxicities such as fatigue, nausea, diarrhea, anorexia, weight
loss and death attributable to pulmonary embolism. Preliminary
evidence was seen of GEM231 effects on PKA activity in the blood
and on irinotecan pharmacokinetics. We expect to collect and
analyze the final data from the trial by the end of 2005. Even
if the final pharmacokinetic data and other findings from this
phase 1/ 2 trial are favorable, we do not plan to continue
further development of GEM231 without a collaborator.
One patient who was withdrawn from the Hybridon sponsored trial
due to prolonged treatment interruption was enrolled onto a
single-patient physician-sponsored IND held by Mace
Rothenberg, M.D., of Vanderbilt Medical Center. The single
patient had breast cancer and received 125 mg/
m2
of irinotecan plus 40 mg/
m2 per
day of GEM231.
GEM640/ AEG35156 is an antisense compound being developed by
Aegera Therapeutics, Inc. under a collaboration with us. GEM640
is targeted to the XIAP protein and is intended for the
treatment of cancer. XIAP is an inhibitor of apoptosis, which is
the process by which disrupted cells are dismantled without
causing inflammation or other response. Cancer cells often fail
to undergo apoptosis despite damage caused by chemotherapy or
radiotherapy. Aegera began a phase 1 trial of GEM640/
AEG35156 in 2004.
Veglintm
is an antisense drug candidate being developed by VasGene
Therapeutics, Inc. and targeted against Vascular Endothelial
Growth Factor (VEGF). VEGF contributes to the growth of new
blood vessels, which is critical to disease processes including
cancer and macular degeneration. In June 2004, VasGene announced
the presentation of phase 1 data. The primary objective of
this study was to determine the Maximum Tolerated Dose (MTD) and
toxicity profile of Veglin among relapsed and refractory
patients with a variety of tumor types. Patients in the trial
received Veglin intravenously by two-hour infusion for five days
followed by a seven-day rest period, for a maximum treatment
duration of four months. Results demonstrated that Veglin was
well tolerated by patients with a wide variety of cancers.
VasGene anticipates initiating multi-center phase 2
clinical trials during 2005 for patients with renal cell
carcinoma and/or other specific malignancies.
GEM92 is an antisense compound that is targeted to a specific
region of the genome of the human immunodeficiency virus HIV-1
known as the gag region. In 1997, we conducted a
phase 1 study that showed GEM92 was well tolerated by the
participating subjects. We are not currently pursuing
development of GEM92.
We have two principal antisense compounds that we are developing
in the preclinical testing phase:
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HYB676 is a 2nd generation antisense agent targeted to VEGF
as a potential drug candidate for age-related macular
degeneration. |
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GEM240 is targeted to inhibit the protein mdm2 which is
increased in many human cancers. |
Research and Development
For the years ended December 31, 2004, 2003 and 2002, we
spent approximately $10.3 million, $10.8 million and
$7.9 million, respectively, on research and development
activities. Our collaborators sponsored only a nominal portion
of these research and development activities in 2004, 2003 and
2002.
8
Patents, Proprietary Rights and Licenses
Patents and Proprietary
Rights
Our success depends in part on our ability to obtain and
maintain proprietary protection for our product candidates,
technology and know-how, to operate without infringing the
proprietary rights of others and to prevent others from
infringing our proprietary rights. Our policy is to seek to
protect our proprietary position by, among other methods, filing
U.S. and foreign patent applications related to our proprietary
technology, inventions and improvements that are important to
the development of our business. We also rely on trade secrets,
know-how, continuing technological innovation and in-licensing
opportunities to develop and maintain our proprietary position.
As of December 31, 2004, we owned 29 U.S. patents and
U.S. patent applications and over 80 corresponding
world wide patents and patent applications relating to our IMO
technology. As of December 31, 2004, we owned or
exclusively licensed over 532 world wide patents and patent
applications relating to our antisense technology of which 137
are U.S. patents and U.S. patent applications. The
issued patents held or exclusively licensed by us include
composition of matter patents on our own advanced DNA
chemistries covering the use of these chemistries with various
genes or sequences, patents covering therapeutic targets,
patents covering immune modulation and patents covering oral and
other routes of administering our synthetic DNA. These issued
patents expire at various dates ranging from 2006 to 2022.
The composition of matter patents covering GEM231 expire at
various dates ranging from 2010 to 2022. We have applied for
composition of matter patents covering HYB2055.
The patent positions of companies like ours are generally
uncertain and involve complex legal and factual questions. Our
ability to maintain and solidify our proprietary position for
our technology will depend on our success in obtaining effective
claims and enforcing those claims once granted. We do not know
whether any of our patent applications or those patent
applications which we license will result in the issuance of any
patents. Our issued patents and those that may issue in the
future, or those licensed to us, may be challenged, invalidated
or circumvented, and the rights granted thereunder may not
provide us proprietary protection or competitive advantages
against competitors with similar technology. Furthermore, our
competitors may independently develop similar technologies or
duplicate any technology developed by us. Because of the
extensive time required for development, testing and regulatory
review of a potential product, it is possible that, before any
of our products can be commercialized, any related patent may
expire or remain in force for only a short period following
commercialization, thus reducing any advantage of the patent,
which could adversely affect our ability to protect future drug
development and, consequently, our operating results and
financial position.
Because patent applications in the United States and many
foreign jurisdictions are typically not published until eighteen
months after filing, or in some cases not at all, and because
publications of discoveries in the scientific literature often
lag behind actual discoveries, we cannot be certain that we were
the first to make the inventions claimed in each of our issued
patents or pending patent applications, or that we were the
first to file for protection of the inventions set forth in
these patent applications.
Litigation may be necessary to defend against or assert claims
of infringement, to enforce patents issued to us, to protect
trade secrets or know-how owned by us, or to determine the scope
and validity of the proprietary rights of others. In addition,
the U.S. Patent and Trademark Office may declare
interference proceedings to determine the priority of inventions
with respect to our patent applications or reexamination or
reissue proceedings to determine if the scope of a patent should
be narrowed. Litigation or any of these other proceedings could
result in substantial costs to and diversion of effort by us,
and could have a material adverse effect on our business,
financial condition and results of operations. These efforts by
us may not be successful.
Trade Secrets
We may rely, in some circumstances, on trade secrets to protect
our technology. However, trade secrets are difficult to protect.
We seek to protect our proprietary technology and processes, in
part, by confidentiality agreements with our employees,
consultants, scientific advisors and other contractors. There
can be no
9
assurance that these agreements will not be breached, that we
will have adequate remedies for any breach, or that our trade
secrets will not otherwise become known or be independently
discovered by competitors. To the extent that our employees,
consultants or contractors use intellectual property owned by
others in their work for us, disputes may also arise as to the
rights in related or resulting know-how and inventions.
Licenses
We are a party to a number of royalty-bearing license agreements
under which we have acquired rights to patents, patent
applications and technology of third parties. Our principal
license agreement is with University of Massachusetts Medical
Center. Under the terms of our license agreement with the
University of Massachusetts Medical Center, we are the
worldwide, exclusive licensee under a number of U.S. issued
patents and various patent applications owned by UMass Medical
Center relating to antisense oligonucleotides and their
production and use. Many of these patents and patent
applications have corresponding applications on file or
corresponding patents in other major industrial countries. The
patents licensed to us by the University of Massachusetts
Medical Center expire at dates ranging from 2006 to 2019. This
license expires upon the expiration of the last to expire of the
patents covered by the license.
Other license agreements under which we are the licensee include:
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an exclusive license agreement with Louisiana State University
covering patents and patent applications jointly owned by us and
Louisiana State University relating to mdm2, |
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a non-exclusive license agreement with Genzyme Corporation
covering patents and patent applications relating to mdm2, |
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a non-exclusive license agreement with Integrated DNA
Technologies, Inc., covering patents and patent applications
that broadly claim chemical modifications to synthetic DNA, |
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an exclusive license agreement with Dr. Yoon S. Cho-Chung
covering patents and patent applications relating to Protein
Kinase A, |
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an exclusive license agreement with Children’s Hospital
Medical Center covering patents and patent applications relating
to VEGF and |
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a non-exclusive license agreement with VasGene Therapeutics,
Inc. covering patents and patent applications relating to the
use of VEGF for ophthalmic applications. |
Under these licenses we are obligated to pay royalties on net
sales by us of products or processes covered by a valid claim of
a patent or patent application licensed to us. We also are
required in some cases to pay a specified percentage of any
sublicense income that we may receive. These licenses impose
various commercialization, sublicensing, insurance and other
obligations on us. Our failure to comply with these requirements
could result in termination of the licenses. Each of these
licenses terminates upon the expiration of the last to expire of
the patents covered by the license.
Corporate Alliances
An important part of our business strategy is to enter into
research and development collaborations, licensing agreements
and other strategic alliances, primarily with biotechnology and
pharmaceutical corporations, to develop and commercialize drugs
based on our technologies.
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Isis Pharmaceuticals, Inc. |
We are a party to a collaboration and license agreement with
Isis Pharmaceuticals, Inc. Under the agreement, we granted Isis
a license, with the right to sublicense, to our antisense
chemistry and delivery patents and patent applications. We
retained the right to use these patents and patent applications
in our own drug discovery and development efforts and in
collaborations with third parties. In consideration of the
license, in 2001 Isis paid us $15.0 million in cash and
issued to us 857,143 shares of its common stock having an
aggregate fair market value on the date of issuance of
$17.3 million. Under the agreement, Isis is also required
10
to pay us a portion of specified sublicense income it receives
from some types of sublicenses of our patents and patent
applications. In 2003 and 2004, Isis made such payments to us in
connection with sublicenses of our patents and patent
applications.
In addition under the agreement, we licensed from Isis specified
antisense patents and patent applications, principally
Isis’ suite of RNase H patents and patent applications. We
have the right under the agreement to use these patents and
patent applications in our drug discovery and development
efforts and in some types of collaborations with third parties.
In consideration of this license, in 2002 we paid Isis
approximately $716,000 in cash and issued to Isis
1,005,499 shares of our common stock having an aggregate
fair market value on the date of issuance of approximately
$1.2 million. We also agreed to pay Isis a nominal annual
maintenance fee and a modest royalty on sales of products
covered by specified patents and patent applications sublicensed
to us by Isis. The licenses granted under the Isis agreement
terminate upon the last to expire of the patents and patent
applications licensed under the agreement. We may terminate at
any time the sublicense by Isis to us of the patents and patent
applications for which we have maintenance fee and royalty
obligations to Isis.
We are a party to nine other collaboration and license
arrangements involving the use of our IMO or antisense
technologies and specified indications. Some of these include:
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VasGene Therapeutics, Inc. On October 29, 2004, we
entered into reciprocal Collaboration and License Agreements
with VasGene Therapeutics, Inc. pursuant to which both parties
agreed to collaborate on the research and development of VEGF
antisense products. We intend to pursue the treatment of
opthalmologic and other non-cancer diseases that are susceptible
to treatment based on localized administration under one
agreement, and VasGene intends to pursue the treatment of cancer
and other non-ophthalmologic diseases that are susceptible to
treatment through systemic administration under the other
agreement.
We are entitled to receive milestone payments, royalties, and
sublicensing payments. Additionally, we would be entitled to
reimbursement of research services we perform in accordance with
the terms of the agreement at the request of VasGene. We may
have to pay VasGene royalties and sublicensing payments.
Likewise, VasGene would be entitled to reimbursement of research
services that it performed under the agreement at our request.
The milestones, if fully achieved, would result in payments to
us totalling $8.0 million for each non-cancer VEGF
antisense product developed by VasGene. Milestone payments would
be triggered by the achievement of specific events in the
development and commercial launch process. |
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Alnylam Pharmaceuticals, Inc. On August 2, 2004, we
entered into a Collaboration and License Agreement with Alnylam
Pharmaceuticals, Inc. pursuant to which we granted to Alnylam an
exclusive license to a series of patents and patent applications
relating to the therapeutic use of oligonucleotides that inhibit
the production of the protein VEGF. Under the license,
Alnylam’s rights are limited to targeting VEGF for ocular
indications with RNAi molecules. We are entitled to receive an
up-front payment, annual license fees, milestone payments,
royalties and sublicensing payments from Alnylam under the terms
of the agreement. The upfront payment, license fees and
milestone payments payable to us under the agreement could total
approximately $4.4 million, if all the milestones are
achieved. Milestone payments are triggered by the achievement of
specific events in the development process. |
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Aegera Therapeutics Inc. We are a party to an agreement
with Aegera Therapeutics, Inc. that relates to the development
of an antisense drug targeted to the XIAP gene, a gene which has
been implicated in the resistance of cancer cells to
chemotherapy. In July 2003, Aegera and we announced that we had
selected AEG35156/GEM640, an antisense oligonucleotide, targeted
to the XIAP gene, as the development candidate. Aegera has
advised us in 2003 that it has completed preclinical toxicology
studies of AEG35156/GEM640 and in 2004, that it initiated a
phase 1 clinical trial in the first quarter of 2004. Under
the terms of the license we may receive up to approximately
$7.7 million in up-front |
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and milestone payments upon the achievement of specified
development milestones. We are also entitled to receive a
royalty on net sales of any drugs that are approved for sale. |
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The Immune Response Corporation. We are a party to an
agreement with Immune Response that relates to the development
of Amplivax as an adjuvant for use in combination with Immune
Response’s REMUNE® vaccine candidate for the
prevention and treatment of HIV-1. Under the terms of the
agreement, we granted Immune Response, during an exclusivity
period, a worldwide license to Amplivax as an HIV vaccine
adjuvant for the prevention and treatment of HIV. In order to
maintain the exclusivity of the license, Immune Response must
make payments to us at specified times under the agreement. We
are also entitled to receive a royalty on net sales of the
REMUNE vaccine combined with Amplivax if it is approved for sale. |
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Migenix Inc. (formerly Micrologix Biotechnology, Inc.) We
are a party to an agreement with Migenix that relates to the
development of an antisense drug for the treatment of human
papillomavirus. Origenix, a former subsidiary of ours, and the
entity from which Migenix acquired the rights to the
development, previously conducted a phase 1 clinical trial
of this drug candidate. Under the terms of the agreement we may
receive, in cash or equity, up to approximately
$5.8 million in up-front and milestone payments upon the
achievement of specified development milestones. We are also
entitled to receive a royalty on net sales of the drug if it is
approved for sale. |
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Epigenesis Pharmaceuticals, Inc. We are a party to an
agreement with Epigenesis that relates to the development of up
to five antisense drugs for the treatment of respiratory
disease. Under the agreement, we received an upfront payment and
are entitled to receive a royalty on net sales of the drug if it
is approved for sale. |
Under these arrangements, we typically license to our
collaborators our chemistries and delivery patents and patent
applications on a non-exclusive basis, and any patents and
patent applications that we have that are directed at the genes
that are the subject of the arrangement on an exclusive basis.
In addition, although our collaborators are responsible for the
development and commercialization of the product, we typically
provide specified research, development and compound
optimization services to our collaborators. In consideration for
the license and these services, we typically are entitled to
receive license fees and are entitled to receive research
payments, payments upon achievement of development milestones
and royalties on product sales and sublicensing, if earned. The
licenses granted under these agreements typically terminate upon
the later of the last to expire of the patents licensed under
the agreements or a specified number of years after the first
commercial sale of products covered by the agreements. These
agreements may be terminated by either party upon a material
breach. Our collaborators may terminate these agreements at any
time upon written notice.
Academic and Research Collaborations
We have entered into a number of collaborative research
relationships with independent researchers, leading academic and
research institutions and U.S. government agencies. These
research relationships allow us to augment our internal research
capabilities and obtain access to specialized knowledge and
expertise.
In general, our collaborative research agreements require us to
pay various amounts to support the research. We usually provide
the synthetic DNA for the collaboration, which the collaborator
then tests. If in the course of conducting research under its
agreement with us a collaborator, solely or jointly with us,
creates any invention, we generally have an option to negotiate
an exclusive, worldwide, royalty-bearing license to the
invention. Inventions developed solely by our scientists in
connection with a collaborative relationship generally are owned
exclusively by us. Most of these collaborative agreements are
nonexclusive and can be cancelled with limited notice.
Government Regulation
The testing, manufacturing, labeling, advertising, promotion,
distribution, import, export, and marketing, among other things,
of drugs are extensively regulated by governmental authorities
in the U.S. and other countries. In the U.S., the FDA regulates
pharmaceutical products under the Federal Food, Drug, and
12
Cosmetic Act, or FDCA, and other laws. Both before and after
approval for marketing is obtained, violations of regulatory
requirements may result in various adverse consequences,
including the FDA’s delay in approving or refusal to
approve a drug, withdrawal of approval, suspension or withdrawal
of an approved product from the market, operating restrictions,
warning letters, product recalls, product seizures, injunctions,
fines, and the imposition of civil or criminal penalties.
The steps required before a product may be approved for
marketing in the U.S. generally include:
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preclinical laboratory tests and animal tests under the
FDA’s good laboratory practices regulations; |
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the submission to the FDA of an investigational new drug
application, or IND, for human clinical testing, which must
become effective before human clinical trials may begin; |
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adequate and well-controlled human clinical trials to establish
the safety and efficacy of the product for each indication; |
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satisfactory completion of an FDA inspection of the
manufacturing facility or facilities at which the product is
made to assess compliance with the FDA’s current good
manufacturing practices regulations, or cGMP; and |
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the submission to the FDA of a new drug application, or NDA. |
Preclinical tests include laboratory evaluation of the product,
as well as animal studies to assess the potential safety and
efficacy of a drug. The results of the preclinical tests,
together with manufacturing information and analytical data, are
submitted to the FDA as part of an IND, which must become
effective before human clinical trials may be commenced. The IND
will automatically become effective 30 days after its
receipt by the FDA, unlessthe FDA before that time raises
concerns or questions about the conduct of the trials as
outlined in the IND. In such a case, the IND sponsor and the FDA
must resolve any outstanding concerns before clinical trials can
proceed. If these issues are unresolved, the FDA may not allow
the clinical trials to commence. There is no guarantee that
submission of an IND will result in the FDA allowing clinical
trials to begin.
Clinical trials typically are conducted in three sequential
phases, but the phases may overlap or be combined. Clinical
trials are conducted under protocols detailing the objectives of
the trials, the parameters to be used in monitory safety and the
effectiveness criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND prior to beginning the
trial. Each trial must be reviewed and approved by an
independent Institutional Research Board before it can begin.
Subjects must provide informed consent for all trials.
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In phase 1, the initial introduction of the drug into human
subjects, the drug is usually tested for safety or adverse
effects, dosage tolerance, and pharmacologic action; |
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Phase 2 usually involves controlled trials in a limited
patient population to: |
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evaluate preliminarily the efficacy of the drug for specific,
targeted conditions, |
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determine dosage tolerance and appropriate dosage, and |
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identify possible adverse effects and safety risks; and |
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Phase 3 trials generally further evaluate clinical efficacy
and test further for safety within an expanded patient
population. |
Phase 1, 2, and 3 testing may not be completed successfully
within any specified period, or at all. We, an Institutional
Review Board, or the FDA, may suspend or terminate clinical
trials at any time on various grounds, including a finding that
the patients are being exposed to an unacceptable health risk.
The results of the preclinical and clinical studies, together
with other detailed information, including information on the
manufacture and composition of the product, are submitted to the
FDA as part of an NDA for approval prior to the marketing and
commercial shipment of the product. In most cases, the NDA must
be accompanied by a substantial user fee. The FDA also will
inspect the manufacturing facility used to produce
13
the product for compliance with cGMPs. The FDA may deny a new
drug application if all applicable regulatory criteria are not
satisfied or may require additional clinical, toxicology or
manufacturing data. Even after an NDA results in approval to
market a product, the FDA may limit the indications or place
other limitations that restrict the commercial application of
the product. After approval, some types of changes to the
approved product, such as adding new indications, manufacturing
changes and additional labeling claims, are subject to further
FDA review and approval. The FDA may withdraw product approval
if compliance with regulatory standards is not maintained or if
safety problems occur after the product reaches the market. In
addition, the FDA requires surveillance programs to monitor the
consistency of manufacturing and the safety of approved products
that have been commercialized. Holders of an approved NDA are
required to report certain adverse reactions and production
problems to the FDA to provide updated safety and efficacy
information and to comply with requirements concerning
advertising and promotional labeling. The agency has the power
to require changes in labeling or to prevent further marketing
of a product based on new data that may arise after
commercialization. Also, new federal, state, or local government
requirements may be established that could delay or prevent
regulatory approval of our products under development.
We will also be subject to a variety of foreign regulations
governing clinical trials and sales of our products. Whether or
not FDA approval has been obtained, approval of a product by the
comparable regulatory authorities of foreign countries must be
obtained prior to the commencement of marketing of 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. For marketing outside the U.S., we are also
subject to foreign regulatory requirements governing human
clinical trials. The requirements governing the conduct of
clinical trials, product licensing, approval, pricing, and
reimbursement vary greatly from country to country.
In addition to regulations enforced by the FDA, we are also
subject to regulation under the Occupational Safety and Health
Act, the Toxic Substances Control Act, the Resource Conservation
and Recovery Act, and other present and potential future
federal, state, or local regulations. Our research and
development activities involve the controlled use of hazardous
materials, chemicals and various radioactive compounds. Although
we believe that our safety procedures for handling and disposing
of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In
the event of such an accident, we could be held liable for any
damages that result and any such liability could exceed our
resources.
Manufacturing
We were a party to a supply agreement with Avecia Biotechnology,
which was formally known as Boston Biosystems Inc., under which
we purchased our requirements for oligonucleotide compounds from
Avecia at a preferential price, which expired in March 2004. We
have continued to purchase all of the oligonucleotides we are
using in our ongoing clinical trials and pre-clinical testing
from Avecia. The terms of the agreement have been extended until
such time as a new agreement is negotiated. We expect that we
will enter into a longer term arrangement with Avecia or new
arrangements with other third-party manufacturers to supply us
with the oligonucleotide compounds that we need for our
research, preclinical, clinical and if we receive approval of a
product, commercial supply purposes.
Competition
We expect that our product candidates will address several
different markets defined by the potential indications for which
these product candidates are developed and ultimately approved
by regulatory authorities. For several of these indications,
these product candidates will be competing with products and
therapies either currently existing or expected to be developed,
including IMO-like compounds and antisense oligonucleotides
developed by third parties. Many of these existing products and
therapies are marketed by large pharmaceutical companies, have
recognized brand names and are widely accepted by physicians and
patients.
Competition among these products and therapies will be based,
among other things, on product efficacy, safety, reliability,
availability, price, and patent position.
14
The timing of market introduction of our products and
competitive products will also affect competition among
products. We also expect the relative speed with which we can
develop products, complete the clinical trials and approval
processes and supply commercial quantities of the products to
the market to be an important competitive factor. Our
competitive position will also depend upon our ability to
attract and retain qualified personnel, to obtain patent
protection or otherwise develop proprietary products or
processes and to secure sufficient capital resources for the
often substantial period between technological conception and
commercial sales.
There are a number of companies, both privately and publicly
held, that are conducting research and development, preclinical
and clinical and commercial activities relating to technologies
and products that are similar to our technologies and products,
including large pharmaceutical companies with programs in CpG
DNA compounds that have a similar mechanism of action to our IMO
compounds or in antisense technology and biotechnology companies
with similar programs. Our principal competitors include Isis
Pharmaceuticals, Inc., Genta Inc., Coley Pharmaceutical Group
and Dynavax Technologies Corp.
The primary indications for which we are developing our
antisense and IMO products are cancer and infectious diseases.
None of our competitors is currently marketing any antisense or
IMO-like product for cancer or infectious diseases, except for
Isis which is currently marketing an antisense product for the
treatment of cytomegalovirus retinitis in patients with AIDS.
However, our competitors are developing a number of product
candidates for cancer and infectious diseases that are currently
in clinical trials.
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Isis has seven antisense compounds presently in clinical trials. |
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Genta is in late-stage clinical trials for an oligonucleotide
compound for the treatment of various cancers. |
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Dynavax has a CpG DNA compound in clinical trials for four
indications. These indications include the treatment of cancer,
asthma/allergy and infectious disease. |
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Coley has two CpG DNA compounds in clinical trials for three
indications. These indications include treatment of cancer,
asthma/allergy and infectious disease. |
Many of our competitors, particularly the pharmaceutical and
biotechnology companies with which we compete, have
substantially greater financial, technical and human resources
than we have. In addition, many of our competitors have
significantly greater experience than we have in undertaking
preclinical studies and human clinical trials of new
pharmaceutical products, obtaining FDA and other regulatory
approvals of products for use in health care and manufacturing,
marketing and selling approved products.
Employees
As of March 1, 2005, we employed 24 individuals
full-time, including 17 employees in research and
development. Ten of our employees hold a doctoral degree. None
of our employees are covered by a collective bargaining
agreement, and we consider relations with our employees to be
good.
Information Available on the Internet
Our internet address is www.hybridon.com. We make available free
of charge through our web site our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and amendments to these reports filed
or furnished pursuant to Section 12(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, as soon as
reasonably practicable after we electronically file or furnish
such materials to the Securities and Exchange Commission.
We lease approximately 26,000 square feet of laboratory and
office space, including 6,000 square feet of specialized
preclinical lab space, in Cambridge, Massachusetts under a lease
that expires April 30, 2007. We believe these facilities
are adequate to accommodate our needs for the near term.
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| Item 3. |
Legal Proceedings |
None.
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| Item 4. |
Submission of Matters to a Vote of Security Holders |
None.
Executive Officers and Key Employees of Hybridon
The following table sets forth the names, ages and positions of
our executive officers and other key employees as of
March 1, 2005:
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|
|
|
| Name |
|
Age | |
|
Position |
| |
|
| |
|
|
|
Sudhir Agrawal, D. Phil
|
|
|
51 |
|
|
President, Chief Executive Officer, Chief Scientific Officer and
Director |
|
Robert G. Andersen
|
|
|
54 |
|
|
Chief Financial Officer, Vice President of Operations, Treasurer
and Secretary |
|
Naveen N. Anand, Ph.D., MBA
|
|
|
44 |
|
|
Vice President of Corporate and Business Development |
|
Timothy M. Sullivan, Ph.D.
|
|
|
50 |
|
|
Vice President of Development Programs |
|
Jinyan Tang, Ph.D.
|
|
|
61 |
|
|
Vice President of Chemistry |
Dr. Sudhir Agrawal joined us in 1990 and has served
as our Chief Scientific Officer since January 1993, our Senior
Vice President of Discovery since March 1994, our President
since February 2000, a director since March 1993 and our Chief
Executive Officer since August 2004. Prior to his appointment as
Chief Scientific Officer, he served as our Principal Research
Scientist from February 1990 to January 1993 and as our Vice
President of Discovery from December 1991 to January 1993. He
served as Acting Chief Executive Officer from February 2000
until September 2001. Prior to joining us, Dr. Agrawal
served as a Foundation Scholar at the Worcester Foundation from
1987 through 1991. Dr. Agrawal served as a Research
Associate at the Medical Research Council’s Laboratory of
Molecular Biology in Cambridge, England from 1985 to 1986,
studying DNA chemistry and synthetic oligonucleotides.
Dr. Agrawal received a D. Phil. in chemistry in 1980, an
M.Sc. in organic chemistry in 1975 and a B.Sc. in chemistry,
botany and zoology in 1973 from Allahaban University in India.
Dr. Agrawal is one of the most published researchers in the
field of antisense technology. He has authored more than
260 research papers and reviews and has edited three books.
He is a member of the editorial board of Antisense
Research & Development Journal, Trends in Molecular
Medicine, Investigational Drug Journal, and Current Cancer Drug
Targets, and is associate editor of Molecular Biotechnology.
Dr. Agrawal is the co-author of more than 230 patents
worldwide.
Robert G. Andersen joined us in November 1996 as Vice
President of Systems Engineering and Management Information
Systems and has served as our Vice President of Operations and
Planning since 1997, our Treasurer since March 1998 and our
Chief Financial Officer since February 2000. Prior to joining
us, Mr. Andersen held a variety of management positions at
Digital Equipment Corporation from 1986 to 1996, most recently
as Group Manager of the Applied Objects Business Unit. From 1978
to 1986, Mr. Andersen held technical management positions
at United Technologies Corporation, most recently as Director of
Quality for Otis Elevator Company’s European Operations
based in Paris, France and Worldwide Director of Controls for
Otis Group. Mr. Andersen received an M.S. in Management
from Northeastern University in 1978 and his B.E.E. magna cum
laude in Electrical Engineering from The City College of New
York in 1972. He is also a graduate of the United Technologies
Advanced Studies Program.
Dr. Naveen Anand joined us in December 2004 as Vice
President of Corporate and Business Development after serving as
a consultant to us from September 2004 to December 2004. From
2002 to 2004, Dr. Anand served as Vice President, Business
Development at Shire Biologics in Montréal, Canada, and
from 1999 to 2002 he held the position of Vice President,
Business Development and Licensing, at Procyon Biopharma, a
Canadian biotechnology company. Dr. Anand served as
Manager, New Products and New Markets Development at Aventis
Pasteur in Toronto, Canada (now part of Sanofi Aventis) from
1991 to
16
1999. Dr. Anand received his B.S and Masters in
Pharmaceutical Sciences from Panjab University in Chandigarh,
India; his Ph.D. from the University of Cambridge in the U.K.;
and his MBA from the University of Toronto.
Dr. Timothy Sullivan joined us in 2002 as Senior
Director, Preclinical Drug Development. His prior professional
experience includes positions as Executive Director of
Non-clinical Drug Safety Evaluation for Purdue Pharma L.P. from
1999 to 2002 and Vice President of Eastern Operations for Oread,
Inc., a contract drug development organization, from 1997 to
1999. Prior to 1997, Mr. Sullivan held a variety of
technical management roles with other pharmaceutical companies
and contract research organizations (Adria, Battelle, Roma
Toxicology Centre), and in veterinary medicine (International
Minerals & Chemical). Dr. Sullivan brings broad
expertise in the design, execution, and application of drug
development programs. Dr. Sullivan earned his B.S. in
Microbiology from Michigan State University in 1975. His
graduate studies were at Purdue University, where he earned a
M.S. degree in Health Physics in 1978 and a Ph.D. in Toxicology
in 1981.
Dr. Jinyan Tang joined us in 1991 and has served as
our Vice President of Chemistry since 2000. Dr. Tang was
our Vice President of Process Research and Development from 1995
to 1997 and Vice President of Production from 1997 to 2000.
Prior to joining us, Dr. Tang served as Visiting Fellow at
the Worcester Foundation from 1988 to 1991. Dr. Tang served
as Visiting Research Professor at the University of Colorado in
1988 and Associate Professor at the Shanghai Institute of
Biochemistry, Chinese Academy of Sciences from 1985 to 1988
where he specialized in oligonucleotide chemistry. Dr. Tang
received a B.Sc. in Biochemistry in 1965 and a Ph.D. of
Biochemistry in 1978 from the Shanghai Institute of
Biochemistry, Chinese Academy of Sciences.
17
PART II.
|
|
| Item 5. |
Market For Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Market Information
Our common stock has been listed on the American Stock Exchange
under the symbol “HBY” since December 5, 2003.
Prior to December 5, 2003, our common stock was quoted on
the OTC Bulletin Board under the symbol “HYBN”.
Quotes on the OTC Bulletin Board may have reflected
inter-dealer prices without retail markups, markdowns or
commissions and may not necessarily have represented actual
transactions.
The following table sets forth, for the periods indicated, the
high and low sales prices per share of our common stock during
each of the quarters set forth below as reported on the OTC
Bulletin Board for the periods from January 1, 2003
through December 4, 2003 and on the American Stock Exchange
from December 5, 2003 through December 31, 2004:
| |
|
|
|
|
|
|
|
|
| |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
2004
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
1.51 |
|
|
$ |
0.92 |
|
|
Second Quarter
|
|
|
1.10 |
|
|
|
0.51 |
|
|
Third Quarter
|
|
|
0.69 |
|
|
|
0.36 |
|
|
Fourth Quarter
|
|
|
0.68 |
|
|
|
0.40 |
|
|
2003
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
1.01 |
|
|
$ |
0.65 |
|
|
Second Quarter
|
|
|
1.11 |
|
|
|
0.70 |
|
|
Third Quarter
|
|
|
1.81 |
|
|
|
0.78 |
|
|
Fourth Quarter
|
|
|
1.65 |
|
|
|
0.95 |
|
The number of common stockholders of record on March 1,
2005 was 460.
We have never declared or paid cash dividends on our common
stock, and we do not expect to pay any cash dividends on our
common stock in the foreseeable future.
Since December 4, 2003, our series A convertible
preferred stock has paid dividends at 1.0% per year,
payable semi-annually in arrears. Prior to December 4,
2003, our series A convertible preferred stock paid
dividends at 6.5% per year payable semi-annually in
arrears. We may pay these dividends either in cash or in
additional shares of series A convertible preferred stock,
at our discretion, subject to the restriction under the
indenture described above.
Sales of Unregistered Securities
There were no sales of unregistered securities during the fourth
quarter of 2004.
18
|
|
| Item 6. |
Selected Financial Data |
The following selected financial data are derived from the
consolidated financial statements of Hybridon, Inc. The data
should be read in conjunction with the consolidated financial
statements, related notes, and other financial information
included herein.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alliance revenue(1)
|
|
$ |
942 |
|
|
$ |
897 |
|
|
$ |
29,606 |
|
|
$ |
1,122 |
|
|
$ |
344 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Research and development
|
|
|
10,305 |
|
|
|
10,817 |
|
|
|
7,877 |
|
|
|
4,868 |
|
|
|
3,620 |
|
| |
General and administrative
|
|
|
4,273 |
|
|
|
6,924 |
|
|
|
7,054 |
|
|
|
5,051 |
|
|
|
3,184 |
|
| |
Stock-based compensation from repriced options
|
|
|
(713 |
) |
|
|
543 |
|
|
|
(1,297 |
) |
|
|
1,762 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
13,865 |
|
|
|
18,284 |
|
|
|
13,634 |
|
|
|
11,681 |
|
|
|
6,804 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(12,923 |
) |
|
|
(17,387 |
) |
|
|
15,972 |
|
|
|
(10,559 |
) |
|
|
(6,460 |
) |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Investment income, net
|
|
|
217 |
|
|
|
190 |
|
|
|
650 |
|
|
|
577 |
|
|
|
229 |
|
| |
Interest expense
|
|
|
(29 |
) |
|
|
(118 |
) |
|
|
(150 |
) |
|
|
(1,319 |
) |
|
|
(2,154 |
) |
| |
Loss on conversion of 8% convertible subordinated notes
payable
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,412 |
) |
|
|
— |
|
| |
Gain on sale of securities, net
|
|
|
— |
|
|
|
104 |
|
|
|
— |
|
|
|
5,217 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Loss) income from continuing operations
|
|
|
(12,735 |
) |
|
|
(17,211 |
) |
|
|
16,472 |
|
|
|
(7,496 |
) |
|
|
(8,385 |
) |
| |
Income from discontinued operations(2)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,663 |
|
|
|
5,462 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Loss) income before income taxes
|
|
|
(12,735 |
) |
|
|
(17,211 |
) |
|
|
16,472 |
|
|
|
(4,833 |
) |
|
|
(2,923 |
) |
| |
Income tax benefit (provision)
|
|
|
— |
|
|
|
— |
|
|
|
500 |
|
|
|
(500 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(12,735 |
) |
|
|
(17,211 |
) |
|
|
16,972 |
|
|
|
(5,333 |
) |
|
|
(2,923 |
) |
|
Accretion of preferred stock dividend
|
|
|
(2,676 |
) |
|
|
(5,529 |
) |
|
|
(4,246 |
) |
|
|
(8,342 |
) |
|
|
(4,087 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to common stockholders
|
|
$ |
(15,411 |
) |
|
$ |
(22,740 |
) |
|
$ |
12,726 |
|
|
$ |
(13,675 |
) |
|
$ |
(7,010 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
$ |
(0.13 |
) |
|
$ |
(0.34 |
) |
|
$ |
0.36 |
|
|
$ |
(0.26 |
) |
|
$ |
(0.48 |
) |
| |
Discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.09 |
|
|
|
0.31 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net (loss) income per share
|
|
|
(0.13 |
) |
|
|
(0.34 |
) |
|
|
0.36 |
|
|
|
(0.17 |
) |
|
|
(0.17 |
) |
| |
Accretion of preferred stock dividends
|
|
|
(0.03 |
) |
|
|
(0.11 |
) |
|
|
(0.09 |
) |
|
|
(0.27 |
) |
|
|
(0.23 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net (loss) income per share applicable to common stockholders
|
|
$ |
(0.16 |
) |
|
$ |
(0.45 |
) |
|
$ |
0.27 |
|
|
$ |
(0.44 |
) |
|
$ |
(0.40 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
$ |
(0.13 |
) |
|
$ |
(0.34 |
) |
|
$ |
0.32 |
|
|
$ |
(0.26 |
) |
|
$ |
(0.48 |
) |
| |
Discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.09 |
|
|
|
0.31 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net (loss) income per share
|
|
|
(0.13 |
) |
|
|
(0.34 |
) |
|
|
0.32 |
|
|
|
(0.17 |
) |
|
|
(0.17 |
) |
| |
Accretion of preferred stock dividends
|
|
|
(0.03 |
) |
|
|
(0.11 |
) |
|
|
(0.08 |
) |
|
|
(0.27 |
) |
|
|
(0.23 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net (loss) income per share applicable to common stockholders
|
|
$ |
(0.16 |
) |
|
$ |
(0.45 |
) |
|
$ |
0.24 |
|
|
$ |
(0.44 |
) |
|
$ |
(0.40 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Shares used in computing basic net (loss) income per common
share(3)
|
|
|
98,914 |
|
|
|
51,053 |
|
|
|
46,879 |
|
|
|
30,820 |
|
|
|
17,418 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Shares used in computing diluted net (loss) income per common
share(3)
|
|
|
98,914 |
|
|
|
51,053 |
|
|
|
52,984 |
|
|
|
30,820 |
|
|
|
17,418 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$ |
14,413 |
|
|
$ |
13,668 |
|
|
$ |
19,175 |
|
|
$ |
31,834 |
|
|
$ |
3,532 |
|
|
Working capital (deficit)
|
|
|
13,181 |
|
|
|
10,740 |
|
|
|
17,638 |
|
|
|
27,259 |
|
|
|
(4,238 |
) |
|
Total assets
|
|
|
15,391 |
|
|
|
14,410 |
|
|
|
21,249 |
|
|
|
32,309 |
|
|
|
10,001 |
|
|
Restricted cash
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,000 |
|
|
Capital lease obligations, current portion
|
|
|
— |
|
|
|
— |
|
|
|
34 |
|
|
|
— |
|
|
|
— |
|
|
9% convertible subordinated notes payable
|
|
|
— |
|
|
|
1,306 |
|
|
|
1,306 |
|
|
|
1,306 |
|
|
|
1,306 |
|
|
8% convertible subordinated notes payable
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
288 |
|
|
|
8,046 |
|
|
Series A convertible preferred stock
|
|
|
— |
|
|
|
5 |
|
|
|
7 |
|
|
|
6 |
|
|
|
6 |
|
|
Accumulated deficit
|
|
|
(299,294 |
) |
|
|
(283,883 |
) |
|
|
(261,143 |
) |
|
|
(273,868 |
) |
|
|
(260,193 |
) |
|
Total stockholders’ equity (deficit)
|
|
|
12,769 |
|
|
|
10,526 |
|
|
|
17,444 |
|
|
|
(33 |
) |
|
|
(7,530 |
) |
|
|
| (1) |
See Note 6(f) of notes to consolidated financial statements
appearing elsewhere in this Annual Report on Form 10-K for
information on the alliance revenue recognized during 2002. |
| |
| (2) |
Consolidated financial statements reflect the financial results
of our Hybridon Specialty Products Division as a discontinued
operation for the years ended December 31, 2001 and 2000.
Reported revenues, expenses and cash flows exclude the operating
results of discontinued operations. |
| |
| (3) |
Computed on the basis described in Note 11 of notes to
consolidated financial statements appearing elsewhere in this
Annual Report on Form 10-K. |
19
Quarterly Operating Results (Unaudited)
The following table presents the unaudited statement of
operations data for each of the eight quarters in the period
ended December 31, 2004. The information for each of these
quarters is unaudited, but has been prepared on the same basis
as the audited financial statements appearing elsewhere in this
Annual Report on Form 10-K. In our opinion, all necessary
adjustments, consisting only of normal recurring adjustments,
have been made to present fairly the unaudited quarterly results
when read in conjunction with the audited financial statements
and the notes thereto appearing elsewhere in this document.
These operating results are not necessarily indicative of the
results of operations that may be expected for any future period.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended | |
| |
|
| |
| |
|
Dec. 31 | |
|
Sep. 30 | |
|
Jun. 30 | |
|
Mar. 31 | |
|
Dec. 31 | |
|
Sep. 30 | |
|
Jun. 30 | |
|
Mar. 31 | |
| |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2003 | |
|
2003 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alliance revenues
|
|
$ |
131 |
|
|
$ |
78 |
|
|
$ |
88 |
|
|
$ |
645 |
|
|
$ |
108 |
|
|
$ |
334 |
|
|
$ |
120 |
|
|
$ |
335 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Research and development
|
|
|
2,349 |
|
|
|
2,610 |
|
|
|
2,541 |
|
|
|
2,805 |
|
|
|
2,986 |
|
|
|
2,567 |
|
|
|
2,858 |
|
|
|
2,406 |
|
| |
General and administrative
|
|
|
801 |
|
|
|
1,550 |
|
|
|
1,025 |
|
|
|
897 |
|
|
|
1,475 |
|
|
|
943 |
|
|
|
1,282 |
|
|
|
3,224 |
|
| |
Stock-based compensation from repriced options
|
|
|
(121 |
) |
|
|
(18 |
) |
|
|
(257 |
) |
|
|
(317 |
) |
|
|
(98 |
) |
|
|
506 |
|
|
|
129 |
|
|
|
6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
3,029 |
|
|
|
4,142 |
|
|
|
3,309 |
|
|
|
3,385 |
|
|
|
4,363 |
|
|
|
4,016 |
|
|
|
4,269 |
|
|
|
5,636 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,898 |
) |
|
|
(4,064 |
) |
|
|
(3,221 |
) |
|
|
(2,740 |
) |
|
|
(4,255 |
) |
|
|
(3,682 |
) |
|
|
(4,149 |
) |
|
|
(5,301 |
) |
|
Investment income
|
|
|
74 |
|
|
|
57 |
|
|
|
50 |
|
|
|
36 |
|
|
|
43 |
|
|
|
28 |
|
|
|
36 |
|
|
|
82 |
|
|
Interest expense
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(29 |
) |
|
|
(29 |
) |
|
|
(29 |
) |
|
|
(29 |
) |
|
|
(29 |
) |
|
Gain on sale of securities, net
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
104 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,824 |
) |
|
|
(4,007 |
) |
|
|
(3,171 |
) |
|
|
(2,733 |
) |
|
|
(4,241 |
) |
|
|
(3,683 |
) |
|
|
(4,038 |
) |
|
|
(5,248 |
) |
|
Accretion of preferred stock dividend
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,676 |
) |
|
|
(2,127 |
) |
|
|
(1,138 |
) |
|
|
(1,194 |
) |
|
|
(1,071 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$ |
(2,824 |
) |
|
$ |
(4,007 |
) |
|
$ |
(3,171 |
) |
|
$ |
(5,409 |
) |
|
$ |
(6,368 |
) |
|
$ |
(4,821 |
) |
|
$ |
(5,232 |
) |
|
$ |
(6,319 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share applicable to common
stockholders
|
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.14 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic and diluted loss per common
share(1)
|
|
|
110,911 |
|
|
|
105,301 |
|
|
|
98,269 |
|
|
|
80,972 |
|
|
|
64,119 |
|
|
|
50,704 |
|
|
|
43,485 |
|
|
|
45,700 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Computed on the basis described in Note 11 of notes to
consolidated financial statements appearing elsewhere in this
Annual Report on Form 10-K. |
20
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
We are engaged in the discovery, development and
commercialization of novel therapeutics based on synthetic DNA
for the treatment of cancer, asthma/allergies and infectious
diseases. Our activities are primarily focused on the
development of our immunomodulatory oligonucleotide, or IMO,
technology. Our IMO compounds are synthetic DNA-based sequences
that are designed to mimic bacterial DNA and be recognized by a
specific protein receptor called Toll-like Receptor 9, or
TLR9, which triggers the activation and modulation of the immune
system. We also have been a pioneer in the development of
antisense technology, which uses synthetic DNA to block the
production of disease causing proteins at the cellular level. In
2003 and 2004, we devoted substantially all of our research and
development efforts to our IMO technology and products and
expect to continue to focus our research and development efforts
in 2005 and in future years on our IMO technology and products.
We plan to continue to seek to enter into collaborations with
third parties for the development and commercialization of
products based on our antisense technology.
Since we began operations in February 1990, we have been
involved primarily in research and development and
manufacturing. To date, almost all of our revenues have been
from collaborative and license agreements. In addition, we
generated revenues from the sale of synthetic DNA and reagent
products manufactured by our Hybridon Specialty Products
Division, or HSP, prior to our selling HSP in September 2000.
The sale of HSP together with the sale of our interest in
Methylgene, our first spin-off company, and net proceeds from
our Collaboration and License Agreement with Isis
Pharmaceuticals, Inc. generated approximately $52.5 million.
We have incurred total losses of $299.3 million through
December 31, 2004 and expect to incur substantial operating
losses in the future. In order to commercialize our therapeutic
products, we need to address a number of technological
challenges and to comply with comprehensive regulatory
requirements. In 2005, we expect that our research and
development expenses will be similar to those in 2004 as we
continue to advance IMOxine through clinical development.
Critical Accounting Policies
This management’s discussion and analysis of financial
condition and results of operations is based on our consolidated
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United
States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, management
evaluates its estimates and judgments, including those related
to revenue recognition. Management bases its estimates and
judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
While our significant accounting policies are more fully
described in Note 2 of the notes to our consolidated
financial statements appearing elsewhere in this Annual Report
on Form 10-K, we believe the most critical accounting
policy affecting the portrayal of our financial condition is
revenue recognition.
We recognize revenue in accordance with SEC Staff Accounting
Bulletin No. 104, or SAB 104. SAB 104 requires
that four basic criteria be met before revenue can be recognized:
|
|
|
| |
• |
persuasive evidence of an arrangement exists; |
| |
| |
• |
delivery has occurred, services have been rendered or
obligations have been satisfied; |
21
|
|
|
| |
• |
the fee is fixed or determinable; and |
| |
| |
• |
collectibility is reasonably assured. |
Determination of the last three criteria are based on
management’s judgments regarding the fixed nature of the
fee charged for services rendered or products delivered and the
collectibility of these fees. Should changes in conditions cause
management to determine these criteria are not met for any
future transactions, revenues recognized for any reporting
period could be adversely affected.
During 2001, we received a total of $32.3 million in cash
and stock under our collaboration and license agreement with
Isis. This amount and future amounts due under this license
agreement are non-refundable. Prior to amending the agreement in
August 2002, we recognized the revenue from Isis on a
straight-line basis over the 10-year term of the agreement. Our
decision to recognize Isis revenue over the term of the Isis
agreement was based primarily on a continuing obligation
contained in the license agreement which we had interpreted as
neither inconsequential nor perfunctory according to
SAB 101, “Revenue Recognition in Financial
Statements”. In 2002, the agreement was amended. The
amendment limited each party’s obligation to participate in
collaboration committee meetings and terminated the obligations
of each party to pay the remaining installment payments due from
each party under the agreement. Based on this amendment, we
determined that our obligations under the agreement were
inconsequential and perfunctory according to SAB 101 and as
such did not preclude recognition of revenue. For this reason,
in the third quarter of 2002, we recognized the revenue and
directly related and incremental expenses that we had previously
deferred.
Results of Operations
Years ended December 31, 2004, 2003 and 2002
Revenues
Total revenues remained fairly constant at $0.9 million for
both 2003 and 2004. Total revenues decreased by
$28.7 million from $29.6 million in 2002 to
$0.9 million in 2003. Our revenues for 2003 and 2004 were
comprised of payments under various collaboration and licensing
agreements for research and development, including reimbursement
of third party expenses, and as milestone payments, license
fees, sublicense fees, and royalty payments. The significant
difference in revenues between 2003 and 2002 was primarily due
to our recognition in the third quarter of 2002 of
$27.9 million of deferred revenue as a result of the August
2002 amendment to the license agreement with Isis.
Research and Development
Expenses
Research and development expenses decreased by approximately
$0.5 million, or 5%, from $10.8 million in 2003 to
$10.3 million in 2004 and increased by approximately
$2.9 million, or 37%, from $7.9 million in 2002 to
$10.8 million in 2003. The decrease in 2004 was primarily
attributable to a decrease in spending on antisense technology
as we completed enrollment in our GEM231 phase 1/2 clinical
trial and lower salary expenses due to a decrease in bonuses and
other compensation savings resulting from the retirement of one
of our officers. These decreases were partially offset by an
increase in our HYB2055 costs in 2004 reflecting additional
manufacturing costs we incurred to acquire additional supply of
HYB2055. The increase in 2003 was primarily attributable to the
ramp up of our immune modulatory development efforts, including
the initiation in 2003 of clinical trials of IMOxine, increased
costs associated with the clinical trials of GEM231 and
increased costs relating to the filing of patents related to new
discoveries, offset by a reduction in manufacturing costs
associated with our antisense program.
Our current research and development efforts relate primarily to
HYB2055. We have reduced our focus on antisense technology
significantly, including the development of GEM231. We plan to
continue to seek to enter into collaborations with third parties
for the development and commercialization of products based on
our antisense technology.
|
|
|
| |
• |
In 2004, 2003 and 2002, we incurred approximately $2.5, $2.3 and
$1.8 million, respectively, in direct expenses in
connection with developing HYB2055. These expenses included
payments to independent |
22
|
|
|
| |
|
contractors and vendors for preclinical studies, drug
manufacturing and related costs and an allocation for patent
preparation costs and related filing fees but exclude internal
costs such as payroll and overhead. In October 2004, we
commenced patient recruitment for an open label, multi-center
phase 2 clinical trial of IMOxine as a monotherapy in
patients with metastatic or recurrent clear cell renal
carcinoma. We plan to recruit a minimum of 46 patients into
the first stage of the trial. We are also conducting a
phase 1 clinical trial of IMOxine in patients with
refractory solid tumor cancers, which is being conducted at the
Lombardi Comprehensive Cancer Center at Georgetown University
Medical Center in Washington, D.C. Patient enrollment for this
phase 1 oncology trial is complete. In May 2004, we also
completed a phase 1 study of HYB2055 in healthy volunteers
in the UK. Because the development of HYB2055 is in the early
stage and given the technological and regulatory hurdles likely
to be encountered in the development and commercialization of
HYB2055, the future timing and costs of this research and
development program is uncertain. |
| |
| |
• |
In 2004, 2003 and 2002, we incurred approximately $0.3, $0.6 and
$1.2 million, respectively, in direct expenses in
connection with developing GEM231. These direct expenses
included payments to independent contractors and vendors for
clinical studies, patent preparation costs and related filing
fees and drug manufacturing and related costs but exclude
internal costs such as payroll and overhead. The decrease from
2003 to 2004 reflected a decreasing patient enrollment rate as
the trial moved toward completion. The decrease from 2002 to
2003 reflects the manufacturing costs we incurred in 2002 to
acquire a supply of GEM231 for use in our clinical trials in
2002, 2003 and 2004. We completed enrollment of a phase 1/2
clinical trial of GEM231 as a combination therapy with
irinotecan, an anticancer drug marketed in the Untied States
under the name Camptosar. The decrease from 2003 to 2004
reflects the reduction in clinical trial expenses as the
phase 1/2 trial of GEM231 moved to completion. We do not
expect to incur significant expenses in 2005 in connection with
the development of GEM231, because we do not intend to continue
further development of GEM231 without having a collaboration
agreement in place. |
General and Administrative
Expenses
General and administrative expenses decreased by approximately
$2.6 million, or 38%, from $6.9 million in 2003 to
$4.3 million in 2004 and decreased by approximately
$0.1 million, or 2%, from $7.0 million in 2002 to
$6.9 million in 2003. General and administrative expenses
consisted primarily of salary expense, consulting fees and
professional legal fees associated with our regulatory filing
requirements and business development. These costs were
generally consistent from period to period. The
$2.6 million decrease in 2004 primarily reflects the
one-time expense for the $1.9 million premium paid in
repurchasing shares of our common stock in 2003 and other
consulting and professional fees related to the repurchase of
our common stock in 2003. The 2004 decrease also reflects a
decrease in legal expenses due mainly to decreased expenses
incurred in connection with the patent interference proceeding
conducted in 2003. These decreases were partially offset by a
$0.7 million charge relating to the resignation of our
former Chief Executive Officer in 2004.
The difference between 2003 and 2002 expenses primarily reflects
our recognition in 2002 of $2.1 million of deferred
expenses as a result of the August 2002 amendment to the license
agreement with Isis. No direct expenses associated with our
agreement with Isis were included in general and administrative
expense in 2004 or 2003. The impact of recognizing deferred
expenses from Isis in 2002 was offset by a one-time expense in
2003 of $1.9 million representing the premium over fair
market value that we paid in repurchasing shares of our common
stock in the first quarter of 2003 and by other consulting and
professional fees related to the repurchase of our common stock.
Stock-Based Compensation
As a result of our repricing of stock options in September 1999,
some of our outstanding stock options are subject to variable
plan accounting which requires us to measure the intrinsic value
of the repriced options through the earlier of the date of
exercise, cancellation or expiration at each reporting date. We
recorded a
23
credit to operating results of approximately $0.7 million
in 2004 as a result of a decrease in the intrinsic value of
these options. In 2003, we incurred stock-based compensation
expense of $0.5 million in operating results, which
resulted from an increase in the intrinsic value of these
options. We recorded a credit to operating results of
approximately $1.3 million in 2002 as a result of a
decrease in the intrinsic value of these options. We expect that
compensation charges and credits may occur in the future based
upon changes in the intrinsic value of our repriced stock
options and upon pending adoption of SFAS No. 123
(revised 2004), “Share-Based Payment”, which is
a revision of SFAS No. 123, “Accounting for
Stock-Based Compensation”. SFAS No. 123(R)
supersedes APB Opinion No. 25, “Accounting for
Stock Issued to Employees”, and amends
SFAS No. 95, “Statement of Cash
Flows”.
Investment Income, net
Investment income remained relatively constant at approximately
$190,000 in 2003 and $217,000 in 2004 and decreased by
approximately $460,000 from $650,000 in 2002 to $190,000 in
2003. The decrease from 2002 to 2003 is primarily attributable
to lower interest income as a result of lower cash and
investment balances in 2003.
Interest expense decreased by approximately $89,000 from
$118,000 in 2003 to $29,000 in 2004 and decreased by $32,000
from $150,000 in 2002 to $118,000 in 2003. The decrease from
2003 to 2004 was due to the maturity of our 9% notes on
April 1, 2004. Upon the maturity of these notes, we paid
$1.3 million, representing the outstanding principal amount
of our 9% notes, plus accrued interest. The decrease from
2002 to 2003 was attributable to the maturity of our
8% notes in November 2002.
Gain on Sale of Securities,
net
The $104,000 gain on sale of the securities in 2003 represents
the gain on the sale of shares of Migenix common stock that we
received as payment under our agreement with Migenix. There were
no gains on sales of securities during 2004 and 2002.
Income Tax Credit (Expense)
In 2002, we recognized a $0.5 million tax credit to
operations that represented a reversal of the income tax expense
recorded in 2001 as a result of income subject to the
Alternative Minimum Tax or AMT. In March 2002, the National
Economic Stabilization and Recovery Act temporarily rescinded
the AMT as it applies to us. As a result, we received a $450,000
refund and recognized a $0.5 million credit to operations
during 2002.
Preferred Stock Dividends
On December 4, 2003, shareholders approved amendments to
our Certificate of Incorporation that:
|
|
|
| |
• |
reduced the liquidation preference of our series A
convertible preferred stock from $100 per share to
$1 per share; |
| |
| |
• |
reduced the annual dividend on our series A convertible
preferred stock from 6.5% to 1%; and |
| |
| |
• |
increased the number of shares of our common stock issuable upon
conversion of our series A convertible preferred stock by
25% over the number of shares that would otherwise be issuable.
This special conversion extended for a 60-day period between
December 4, 2003 and February 2, 2004 inclusive. |
During the 60-day conversion period, the conversion ratio was
increased such that the series A convertible preferred
shareholders received approximately 29.41 shares of common
stock for each preferred share converted instead of the
23.53 shares that they would normally have received. During
the conversion period holders of 99.9% of the series A
convertible preferred stock converted their preferred stock to
common stock.
24
The preferred stock dividends for each of the three years ended
December 31, 2004 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Preferred Stock Dividends | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Accretion of dividends expected to be paid on Series A
Preferred Stock
|
|
$ |
503 |
|
|
$ |
3,402,856 |
|
|
$ |
4,246,282 |
|
|
Accretion of dividend that would have been paid on April 1,
2004 and reversal since preferred shares were converted in
January and February 2004
|
|
|
(570,000 |
) |
|
|
570,000 |
|
|
|
— |
|
|
Market value of 25% additional shares issued upon conversion
|
|
|
3,245,492 |
|
|
|
1,556,000 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total preferred stock dividend
|
|
$ |
2,675,995 |
|
|
$ |
5,528,856 |
|
|
$ |
4,246,282 |
|
| |
|
|
|
|
|
|
|
|
|
As shown above, the value of the 25% additional shares issued
during the special preferred stock conversion periods is
recorded as an addition to dividends in the statement of
operations during 2004 of $3.2 million and during 2003 of
$1.6 million. As a result of the amendment to our
Certificate of Incorporation and the series A convertible
preferred stock conversions, the preferred stock liquidation
preference was reduced from $73.1 million at
December 3, 2003 to $0.5 million at December 31,
2003 and $655 at December 31, 2004.
All preferred stock dividends are payable, at our election,
either in cash or shares of series A convertible preferred
stock.
|
|
|
Net Operating Loss Carryforwards |
As of December 31, 2004, we had cumulative net operating
losses of approximately $254.9 million and tax credit
carryforwards of approximately $4.6 million. The Tax Reform
Act of 1986 contains provisions that may limit our ability to
utilize net operating loss and tax credit carryforwards in any
given year if certain events occur, including cumulative changes
in ownership interests in excess of 50% over a three-year
period. We have completed several financings since the effective
date of the Tax Act, which, as of December 31, 2004, have
resulted in ownership changes, as defined under the Tax Act,
which will limit our ability to utilize all of our available net
operating loss and tax credit carryforwards in the future. The
Company has not prepared an analysis to determine the effect of
the ownership change limitation on its ability to utilize its
net operating losses and tax credit carryforwards.
Liquidity and Capital Resources
We require cash to fund our operating expenses, to make capital
expenditures and to pay debt service. Historically, we have
funded our cash requirements primarily through the following:
|
|
|
| |
• |
equity and debt financing; |
| |
| |
• |
license fees and research funding under collaborative and
license agreements; |
| |
| |
• |
interest income; and |
| |
| |
• |
lease financings. |
We have also funded our cash requirements through the following:
|
|
|
| |
• |
manufacturing of synthetic DNA and reagent products within HSP
prior to its sale in 2000; |
| |
| |
• |
the sale of HSP for which we received a total of
$15.0 million in 2000 and 2001; and |
| |
| |
• |
the sale of our shareholding in MethylGene Inc. for which we
received net proceeds of $6.9 million in 2001. |
25
In August 2004, we raised approximately $5.1 million in
gross proceeds from a private placement to institutional and
overseas investors. In the private placement, we sold
8,823,400 shares of common stock and warrants to
purchase 1,764,680 shares of common stock. The
warrants to purchase common stock have an exercise price of
$0.67 per share and will expire if not exercised on or
prior to August 27, 2009. The warrants may be exercised by
cash payment only. On or after February 27, 2005, we may
redeem the warrants if the closing sales price of the common
stock for each day of any 20 consecutive trading day period is
greater than or equal to $1.34 per share. The redemption
price will be $0.01 per share of common stock underlying
the warrants. We may exercise our right to redeem the warrants
by providing 30 days prior written notice to the holders of
the warrants. The net proceeds to us from the offering,
excluding the proceeds of any future exercise of the warrants,
totaled approximately $4.7 million.
In April 2004, we raised approximately $11.8 million in
gross proceeds through a registered direct offering. In the
offering, we sold 16,899,800 shares of common stock and
warrants to purchase 3,041,964 shares of common stock to
institutional and other investors. The warrants to purchase
common stock have an exercise price of $1.14 per share and
are exercisable at any time on or after October 21, 2004
and on or prior to April 20, 2009. The warrants may be
exercised by cash payment only. On or after October 21,
2005, we may redeem the warrants if the closing sales price of
the common stock for each day of any 20 consecutive trading day
period ending within 30 days prior to providing notice of
redemption is greater than or equal to $2.60 per share. The
redemption price will be $0.01 per share of common stock
underlying the warrants. We may exercise our right to redeem the
warrants by providing 30 days prior written notice to the
holders of the warrants. The net proceeds to us from the
offering, excluding the proceeds of any future exercise of the
warrants, totaled approximately $10.7 million.
In August 2003, we raised approximately $14.6 million in
gross proceeds from a private placement to institutional and
accredited investors. In the private placement, we sold
20,053,022 shares of our common stock and warrants to
purchase 6,015,934 shares of our common stock. The warrants
to purchase common stock have an exercise price of
$1.00 per share and will expire if not exercised by
August 28, 2008. The warrants may be exercised by paying
cash or by invoking a cashless exercise feature. We may redeem
the warrants at a price of $0.05 per share of common stock
issuable upon exercise of the warrants if the average closing
price of our common stock for a ten consecutive trading day
period is greater than or equal to $2.00 per share. The net
proceeds to us from the placement, excluding the proceeds of any
future exercise of the warrants, totaled approximately
$13.1 million. As part of this transaction, we issued to
selected dealers and placement agents warrants to purchase
2,458,405 shares of common stock at an exercise price of
$0.73 per share and warrants to purchase
1,325,342 shares of common stock at an exercise price of
$1.00 per share.
As of December 31, 2004, we had approximately
$14.4 million in cash and cash equivalents and investments,
a net increase of approximately $0.7 million from
December 31, 2003. We used $13.3 million of cash in
operating activities during 2004, principally to fund our
research and development expenses and our general and
administrative expenses. The $13.3 million primarily
consists of our $12.7 million net loss for the period, as
adjusted for non-cash expenses including depreciation and
amortization and a non-cash benefit for stock-based compensation.
The net cash used in investing activities during 2004 of
$3.5 million reflects our purchase of approximately
$18.6 million in “available-for-sale” securities
offset by our sale of $12.3 million of
“available-for-sale” securities and the proceeds of
approximately $2.9 million from securities that matured in
2004.
The net cash provided by financing activities during 2004,
reflects the $4.7 million in net proceeds that we raised in
our August 2004 private placement and the $10.7 million in
net proceeds that we raised through our April 2004 registered
direct offering offset by the use of $1.3 million of our
cash to repay our 9% notes upon their maturity. Cash from
other financing activities included proceeds from the exercise
of stock options and warrants.
26
We have incurred operating losses in most fiscal years and had
an accumulated deficit of $299.3 million at
December 31, 2004. We had cash, cash equivalents and
short-term investments of $14.4 million at
December 31, 2004. Based on our current operating plan, we
believe that these funds will be sufficient to fund operations
into January 2006. However, we could reduce planned activities
if we need to conserve such funds. We plan to continue operating
as a going concern.
We do not expect to generate significant additional funds
internally until we successfully complete development and obtain
marketing approval for products, either alone or in
collaboration with third parties, which we expect will take a
number of years. In addition, we have no committed external
sources of funds. As a result, in order for us to continue to
pursue our clinical and preclinical development programs and
continue operations beyond January 2006, we must raise
additional funds in 2005 from debt, equity financings or from
collaborative arrangements with biotechnology or pharmaceutical
companies. There can be no assurance that the requisite funds
will be available in the necessary time frame or on terms
acceptable to us. Should we be unable to raise sufficient funds,
we may be required to significantly curtail our operating plans
and possibly relinquish rights to portions of our technology or
products. In addition, increases in expenses or delays in
clinical development may adversely impact our cash position and
require further cost reductions. No assurance can be given that
we will be able to operate profitably on a consistent basis, or
at all, in the future.
We believe that the key factors that will affect our internal
and external sources of cash are:
|
|
|
| |
• |
the success of our clinical and preclinical development programs; |
| |
| |
• |
the receptivity of the capital markets to financings by
biotechnology companies; and |
| |
| |
• |
our ability to enter into strategic collaborations with
biotechnology and pharmaceutical companies and the success of
such collaborations. |
As of December 31, 2004, our contractual obligations were
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period | |
| |
|
| |
| |
|
|
|
Less than | |
|
|
| Contractual Obligations |
|
Total | |
|
1 year | |
|
1-3 years | |
| |
|
| |
|
| |
|
| |
|
Lease Commitments
|
|
$ |
1,426,000 |
|
|
$ |
611,000 |
|
|
$ |
815,000 |
|
|
Employment Agreements
|
|
|
1,892,000 |
|
|
|
1,082,000 |
|
|
|
810,000 |
|
|
Consulting & Collaboration Agreements
|
|
|
79,000 |
|
|
|
79,000 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,397,000 |
|
|
$ |
1,772,000 |
|
|
$ |
1,625,000 |
|
| |
|
|
|
|
|
|
|
|
|
Our only material lease commitment relates to our facility in
Cambridge, Massachusetts. Under our license agreements, we are
obligated to make milestone payments upon achieving specified
milestones and to pay royalties to our licensors. These
contingent milestone and royalty payment obligations are not
included in the above table. We do not expect to make any
material capital expenditures in 2005.
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. All
statements, other than statements of historical facts, included
or incorporated in this report regarding our strategy, future
operations, financial position, future revenues, projected
costs, prospects, plans and objectives of management are
forward-looking statements. The words “believes,”
“anticipates,” “estimates,”
“plans,” “expects,” “intends,”
“may,” “projects,” “will,” and
“would” and similar expressions are intended to
identify forward-looking statements, although not all
forward-looking statements contain these identifying words. We
cannot guarantee that we actually will achieve the plans,
intentions or expectations disclosed in our forward-looking
statements and you should not place undue reliance on our
forward-looking statements. There are a number of important
27
factors that could cause our actual results to differ materially
from those indicated or implied by forward-looking statements.
These important factors include those set forth below under
“Risk Factors.” These factors and the other cautionary
statements made in this annual report should be read as being
applicable to all related forward-looking statements whenever
they appear in this annual report. In addition, any
forward-looking statements represent our estimates only as of
the date that this annual report is filed with the SEC and
should not be relied upon as representing our estimates as of
any subsequent date. We do not assume any obligation to update
any forward-looking statements. We disclaim any intention or
obligation to update or revise any forward-looking statement,
whether as a result of new information, future events or
otherwise.
RISK FACTORS
The following important factors could cause actual results to
differ from those indicated by forward-looking statements made
by us in this annual report on Form 10-K and elsewhere from
time to time.
Risks Relating to Our Financial Results and Need for
Financing
We have incurred substantial losses and expect to continue
to incur losses. We will not be successful unless we reverse
this trend.
We have incurred losses in every year since our inception,
except for 2002 when our recognition of revenues under a license
and collaboration agreement resulted in us reporting net income
for that year. As of December 31, 2004, we had incurred
operating losses of approximately $299.3 million. We expect
to continue to incur substantial operating losses in future
periods. These losses, among other things, have had and will
continue to have an adverse effect on our stockholders’
equity, total assets and working capital.
We have received no revenues from the sale of drugs. To date,
almost all of our revenues have been from collaborative and
license agreements and the sale of manufactured synthetic DNA
and reagent products by our Hybridon Specialty Products Division
prior to our selling that division in September 2000. We have
devoted substantially all of our efforts to research and
development, including clinical trials, and we have not
completed development of any drugs. Because of the numerous
risks and uncertainties associated with developing drugs, we are
unable to predict the extent of any future losses, whether or
when any of our products will become commercially available, or
when we will become profitable, if at all.
We will need additional financing, which may be difficult
to obtain. Our failure to obtain necessary financing or doing so
on unattractive terms could adversely affect our discovery and
development programs and other operations.
We will require substantial funds to conduct research and
development, including preclinical testing and clinical trials
of our drugs. We will also require substantial funds to conduct
regulatory activities and to establish commercial manufacturing,
marketing and sales capabilities. We believe that, based on our
current operating plan, our existing cash and cash equivalents
and short-term investments, will be sufficient to fund our cash
requirements into January 2006. However, we could reduce planned
activities if we need to conserve such funds. We will need to
raise additional funds to operate our business beyond such time.
We believe that the key factors that will affect our ability to
raise cash are:
|
|
|
| |
• |
the success of our clinical and preclinical development programs; |
| |
| |
• |
the receptivity of the capital markets to financings by
biotechnology companies; and |
| |
| |
• |
our ability to enter into strategic collaborations with
biotechnology and pharmaceutical companies and the success of
such collaborations. |
Additional financing may not be available to us when we need it
or may not be available to us on favorable terms. We could be
required to seek funds through arrangements with collaborators
or others that may require us to relinquish rights to some of
our technologies, drug candidates or drugs which we would
otherwise pursue on our own. In addition, if we raise additional
funds by issuing equity securities, our then existing
stockholders will experience dilution. The terms of any
financing may adversely affect the holdings or
28
the rights of existing stockholders. If we are unable to obtain
adequate funding on a timely basis or at all, we may be required
to significantly curtail one or more of our discovery or
development programs. For example, we significantly curtailed
expenditures on our research and development programs during
1999 and 2000 because we did not have sufficient funds available
to advance these programs at planned levels.
Risks Relating to Our Business, Strategy and Industry
We are depending heavily on the success of our lead drug
candidate, IMOxine, which is in clinical development. If we are
unable to commercialize this product, or experience significant
delays in doing so, our business will be materially
harmed.
We are investing a significant portion of our time and financial
resources in the development of our lead drug candidate,
IMOxine. We anticipate that our ability to generate product
revenues will depend heavily on the successful development and
commercialization of this product. The commercial success of
this product will depend on several factors, including the
following:
|
|
|
| |
• |
successful completion of clinical trials; |
| |
| |
• |
receipt of marketing approvals from the FDA and equivalent
foreign regulatory authorities; |
| |
| |
• |
establishing commercial manufacturing arrangements with third
party manufacturers; |
| |
| |
• |
launching commercial sales of the product, whether alone or in
collaboration with others; and |
| |
| |
• |
acceptance of the product in the medical community and with
third party payors. |
Our efforts to commercialize this product are at an early stage,
as we are currently conducting a phase 1 clinical trial of
this product candidate in patients with refractory solid tumor
cancers and a phase 2 clinical trial in patients with
metastatic or recurrent clear cell renal carcinoma. If we are
not successful in commercializing this product, or are
significantly delayed in doing so, our business will be
materially harmed.
If our clinical trials are unsuccessful, or if they are
significantly delayed, we may not be able to develop and
commercialize our products.
We may not be able to successfully complete any clinical trial
of a potential product within any specified time period. In some
cases, we may not be able to complete the trial at all.
Moreover, clinical trials may not show our potential products to
be both safe and efficacious. Thus, the FDA and other regulatory
authorities may not approve any of our potential products for
any indication.
In order to obtain regulatory approvals for the commercial sale
of our products, we will be required to complete extensive
clinical trials in humans to demonstrate the safety and efficacy
of our drug candidates. We may not be able to obtain authority
from the FDA or other equivalent foreign regulatory agencies to
complete these trials or commence and complete any other
clinical trials.
The results from preclinical testing of a drug candidate that is
under development may not be predictive of results that will be
obtained in human clinical trials. In addition, the results of
early human clinical trials may not be predictive of results
that will be obtained in larger scale, advanced stage clinical
trials. A failure of one or more of our clinical trials can
occur at any stage of testing. Further, there is to date little
data on the long-term clinical safety of our lead compounds
under conditions of prolonged use in humans, nor on any
long-term consequences subsequent to human use. We may
experience numerous unforeseen events during, or as a result of,
preclinical testing and the clinical trial process that could
delay or prevent our ability to receive regulatory approval or
commercialize our products, including:
|
|
|
| |
• |
regulators or institutional review boards may not authorize us
to commence a clinical trial or conduct a clinical trial at a
prospective trial site; |
| |
| |
• |
our preclinical tests or clinical trials may produce negative or
inconclusive results, and we may decide, or regulators may
require us, to conduct additional preclinical testing or
clinical trials or we may abandon projects that we expect may
not be promising; |
29
|
|
|
| |
• |
we might have to suspend or terminate our clinical trials if the
participating patients are being exposed to unacceptable health
risks; |
| |
| |
• |
regulators or institutional review boards may require that we
hold, suspend or terminate clinical research for various
reasons, including noncompliance with regulatory requirements; |
| |
| |
• |
the cost of our clinical trials may be greater than we currently
anticipate; and |
| |
| |
• |
the effects of our products may not be the desired effects or
may include undesirable side effects or the products may have
other unexpected characteristics. |
As an example, in 1997, after reviewing the results from the
clinical trial of GEM91, a 1st generation antisense
compound and our lead drug candidate at the time, we determined
not to continue the development of GEM91 and suspended clinical
trials of this product candidate.
The rate of completion of clinical trials is dependent in part
upon the rate of enrollment of patients. The rate of enrollment
in our ongoing phase 2 clinical trial of IMOxine has thus
far been slower than anticipated and may delay the completion of
trial beyond the time we expected. Patient accrual is a function
of many factors, including:
|
|
|
| |
• |
the size of the patient population, |
| |
| |
• |
the proximity of patients to clinical sites, |
| |
| |
• |
the eligibility criteria for the study, |
| |
| |
• |
the nature of the study, |
| |
| |
• |
the existence of competitive clinical trials and |
| |
| |
• |
the availability of alternative treatments. |
Our product development costs will increase if we experience
delays in our clinical trials. We do not know whether planned
clinical trials will begin as planned, will need to be
restructured or will be completed on schedule, if at all.
Significant clinical trial delays also could allow our
competitors to bring products to market before we do and impair
our ability to commercialize our products.
We face substantial competition which may result in others
discovering, developing or commercializing drugs before or more
successfully than us.
The biotechnology industry is highly competitive and
characterized by rapid and significant technological change. We
face, and will continue to face, intense competition from
organizations such as pharmaceutical and biotechnology
companies, as well as academic and research institutions and
government agencies. Some of these organizations are pursuing
products based on technologies similar to our technologies.
Other of these organizations have developed and are marketing
products, or are pursuing other technological approaches
designed to produce products, that are competitive with our
product candidates in the therapeutic effect these competitive
products have on diseases targeted by our product candidates.
Our competitors may discover, develop or commercialize products
or other novel technologies that are more effective, safer or
less costly than any that we are developing. Our competitors may
also obtain FDA or other regulatory approval for their products
more rapidly than we may obtain approval for ours.
Many of our competitors are substantially larger than we are and
have greater capital resources, research and development staffs
and facilities than we have. In addition, many of our
competitors are more experienced than we are in drug discovery,
development and commercialization, obtaining regulatory
approvals and drug manufacturing and marketing.
We anticipate that the competition with our products and
technologies will be based on a number of factors including
product efficacy, safety, availability and price. The timing of
market introduction of our products and competitive products
will also affect competition among products. We expect the
relative speed with which we can develop products, complete the
clinical trials and approval processes and supply commercial
quantities of the products to the market to be important
competitive factors. Our competitive
30
position will also depend upon our ability to attract and retain
qualified personnel, to obtain patent protection or otherwise
develop proprietary products or processes and to secure
sufficient capital resources for the period between
technological conception and commercial sales.
Because the products that we may develop will be based on
new technologies and therapeutic approaches, the market may not
be receptive to these products upon their introduction.
The commercial success of any of our products for which we may
obtain marketing approval from the FDA or other regulatory
authorities will depend upon their acceptance by the medical
community and third party payors as clinically useful,
cost-effective and safe. Many of the products that we are
developing are based upon technologies or therapeutic approaches
that are relatively new and unproven. The FDA has only granted
marketing approval for one product based on antisense technology
which is currently being marketed by another company for the
treatment of cytomegalovirus retinitis, an infectious disease,
in patients with AIDs. The FDA has not granted marketing
approval to any products based on IMO technology and no such
products are currently being marketed. As a result, it may be
more difficult for us to achieve regulatory approval or market
acceptance of our products. Our efforts to educate the medical
community on these potentially unique approaches may require
greater resources than would be typically required for products
based on conventional technologies or therapeutic approaches.
The safety, efficacy, convenience and cost-effectiveness of our
products as compared to competitive products will also affect
market acceptance.
Competition for technical and management personnel is
intense in our industry, and we may not be able to sustain our
operations or grow if we are unable to attract and retain key
personnel.
Our success is highly dependent on the retention of principal
members of our technical and management staff, including Sudhir
Agrawal. Dr. Agrawal serves as our President, Chief
Scientific Officer and Chief Executive Officer. Dr. Agrawal
has extensive experience in the pharmaceutical industry, has
made significant contributions to the field of nucleic acid
chemistry and is named as an inventor on over 200 patents and
patent applications worldwide. Dr. Agrawal provides the
scientific leadership for our research and development
activities and directly supervises our research staff. The loss
of Dr. Agrawal’s services would be detrimental to our
ongoing scientific progress and the execution of our business
plan.
We are a party to an employment agreement with Dr. Agrawal,
but this agreement may be terminated by us or Dr. Agrawal
for any reason or no reason at any time upon notice to the other
party. We do not carry key man life insurance for
Dr. Agrawal.
Furthermore, our future growth will require hiring a significant
number of qualified technical and management personnel.
Accordingly, recruiting and retaining such personnel in the
future will be critical to our success. There is intense
competition from other companies and research and academic
institutions for qualified personnel in the areas of our
activities. If we are not able to continue to attract and
retain, on acceptable terms, the qualified personnel necessary
for the continued development of our business, we may not be
able to sustain our operations or grow.
Regulatory Risks
We may not be able to obtain marketing approval for
products resulting from our development efforts.
All of the products that we are developing or may develop in the
future will require additional research and development,
extensive preclinical studies and clinical trials and regulatory
approval prior to any commercial sales. This process is lengthy,
often taking a number of years, is uncertain and is expensive.
Since our inception, we have conducted clinical trials of a
number of compounds. In 1997, we determined not to continue
clinical development of GEM91, our lead product candidate at the
time. Currently, we are conducting clinical trials of IMOxine,
our lead IMO drug candidate.
We may need to address a number of technological challenges in
order to complete development of our products. Moreover, these
products may not be effective in treating any disease or may
prove to have
31
undesirable or unintended side effects, unintended alteration of
the immune system over time, toxicities or other characteristics
that may preclude our obtaining regulatory approval or prevent
or limit commercial use.
We are subject to comprehensive regulatory requirements,
which are costly and time consuming to comply with; if we fail
to comply with these requirements, we could be subject to
adverse consequences and penalties.
The testing, manufacturing, labeling, advertising, promotion,
export and marketing of our products are subject to extensive
regulation by governmental authorities in Europe, the United
States and elsewhere throughout the world.
In general, submission of materials requesting permission to
conduct clinical trials may not result in authorization by the
FDA or any equivalent foreign regulatory agency to commence
clinical trials. In addition, submission of an application for
marketing approval to the relevant regulatory agency following
completion of clinical trials may not result in the regulatory
agency approving the application if applicable regulatory
criteria are not satisfied, and may result in the regulatory
agency requiring additional testing or information.
Any regulatory approval of a product may contain limitations on
the indicated uses for which the product may be marketed or
requirements for costly post-marketing testing and surveillance
to monitor the safety or efficacy of the product. Any product
for which we obtain marketing approval, along with the
facilities at which the product is manufactured, any
post-approval clinical data and any advertising and promotional
activities for the product will be subject to continual review
and periodic inspections by the FDA and other regulatory
agencies.
Both before and after approval is obtained, violations of
regulatory requirements may result in:
|
|
|
| |
• |
the regulatory agency’s delay in approving, or refusal to
approve, an application for approval of a product; |
| |
| |
• |
restrictions on such products or the manufacturing of such
products; |
| |
| |
• |
withdrawal of the products from the market; |
| |
| |
• |
warning letters; |
| |
| |
• |
voluntary or mandatory recall; |
| |
| |
• |
fines; |
| |
| |
• |
suspension or withdrawal of regulatory approvals; |
| |
| |
• |
product seizure; |
| |
| |
• |
refusal to permit the import or export of our products; |
| |
| |
• |
injunctions or the imposition of civil penalties; and |
| |
| |
• |
criminal penalties. |
We have only limited experience in regulatory affairs and
our products are based on new technologies; these factors may
affect our ability or the time we require to obtain necessary
regulatory approvals.
We have only limited experience in filing the applications
necessary to gain regulatory approvals. Moreover, the products
that result from our research and development programs will
likely be based on new technologies and new therapeutic
approaches that have not been extensively tested in humans. The
regulatory requirements governing these types of products may be
more rigorous than for conventional drugs. As a result, we may
experience a longer regulatory process in connection with
obtaining regulatory approvals of any product that we develop.
32
Risks Relating to Collaborators
We need to establish collaborative relationships in order
to succeed.
An important element of our business strategy includes entering
into collaborative relationships for the development and
commercialization of products based on our discoveries. We face
significant competition in seeking appropriate collaborators.
Moreover, these arrangements are complex to negotiate and
time-consuming to document. We may not be successful in our
efforts to establish collaborative relationships or other
alternative arrangements.
The success of collaboration arrangements will depend heavily on
the efforts and activities of our collaborators. Our
collaborators will have significant discretion in determining
the efforts and resources that they will apply to these
collaborations. The risks that we face in connection with these
collaborations include the following:
|
|
|
| |
• |
disputes may arise in the future with respect to the ownership
of rights to technology developed with collaborators; |
| |
| |
• |
disagreements with collaborators could delay or terminate the
research, development or commercialization of products, or
result in litigation or arbitration; |
| |
| |
• |
we may have difficulty enforcing the contracts if one of our
collaborators fails to perform; |
| |
| |
• |
our collaborators may terminate their collaborations with us,
which could make it difficult for us to attract new
collaborators or adversely affect the perception of us in the
business or financial communities; |
| |
| |
• |
collaborators have considerable discretion in electing whether
to pursue the development of any additional drugs and may pursue
technologies or products either on their own or in collaboration
with our competitors that are similar to or competitive with our
technologies or products that are the subject of the
collaboration with us; and |
| |
| |
• |
our collaborators may change the focus of their development and
commercialization efforts. Pharmaceutical and biotechnology
companies historically have re-evaluated their priorities
following mergers and consolidations, which have been common in
recent years in these industries. The ability of our products to
reach their potential could be limited if our collaborators
decrease or fail to increase spending relating to such products. |
Given these risks, it is possible that any collaborative
arrangements into which we enter may not be successful. Previous
collaborative arrangements to which we were a party with F.
Hoffmann-La Roche and G.D. Searle & Co. both were
terminated prior to the development of any product. The failure
of any of our collaborative relationships could delay our drug
development or impair commercialization of our products.
Risks Relating to Intellectual Property
If we are unable to obtain patent protection for our
discoveries, the value of our technology and products will be
adversely affected.
Our patent positions, and those of other drug discovery
companies, are generally uncertain and involve complex legal,
scientific and factual questions.
Our ability to develop and commercialize drugs depends in
significant part on our ability to:
|
|
|
| |
• |
obtain patents; |
| |
| |
• |
obtain licenses to the proprietary rights of others on
commercially reasonable terms; |
| |
| |
• |
operate without infringing upon the proprietary rights of others; |
33
|
|
|
| |
• |
prevent others from infringing on our proprietary
rights; and |
| |
| |
• |
protect trade secrets. |
We do not know whether any of our patent applications or those
patent applications which we license will result in the issuance
of any patents. Our issued patents and those that may issue in
the future, or those licensed to us, may be challenged,
invalidated or circumvented, and the rights granted thereunder
may not provide us proprietary protection or competitive
advantages against competitors with similar technology.
Furthermore, our competitors may independently develop similar
technologies or duplicate any technology developed by us.
Because of the extensive time required for development, testing
and regulatory review of a potential product, it is possible
that, before any of our products can be commercialized, any
related patent may expire or remain in force for only a short
period following commercialization, thus reducing any advantage
of the patent.
Because patent applications in the United States and many
foreign jurisdictions are typically not published until
18 months after filing, or in some cases not at all, and
because publications of discoveries in the scientific literature
often lag behind actual discoveries, neither we nor our
licensors can be certain that we or they were the first to make
the inventions claimed in issued patents or pending patent
applications, or that we or they were the first to file for
protection of the inventions set forth in these patent
applications.
Third parties may own or control patents or patent
applications and require us to seek licenses, which could
increase our development and commercialization costs, or prevent
us from developing or marketing products.
We may not have rights under some patents or patent applications
related to our products. Third parties may own or control these
patents and patent applications in the United States and abroad.
Therefore, in some cases, to develop, manufacture, sell or
import some of our products, we or our collaborators may choose
to seek, or be required to seek, licenses under third party
patents issued in the United States and abroad or under patents
that might issue from United States and foreign patent
applications. In such an event, we would be required to pay
license fees or royalties or both to the licensor. If licenses
are not available to us on acceptable terms, we or our
collaborators may not be able to develop, manufacture, sell or
import these products.
We may lose our rights to patents, patent applications or
technologies of third parties if our licenses from these third
parties are terminated. In such an event, we might not be able
to develop or commercialize products covered by the
licenses.
We are party to ten royalty-bearing license agreements under
which we have acquired rights to patents, patent applications
and technology of third parties. Under these licenses we are
obligated to pay royalties on net sales by us of products or
processes covered by a valid claim of a patent or patent
application licensed to us. We also are required in some cases
to pay a specified percentage of any sublicense income that we
may receive. These licenses impose various commercialization,
sublicensing, insurance and other obligations on us. Our failure
to comply with these requirements could result in termination of
the licenses. These licenses generally will otherwise remain in
effect until the expiration of all valid claims of the patents
covered by such licenses or upon earlier termination by the
parties. The issued patents covered by these licenses expire at
various dates ranging from 2006 to 2022. If one or more of these
licenses is terminated, we may be delayed in our efforts, or be
unable, to develop and market the products that are covered by
the applicable license or licenses.
We may become involved in expensive patent litigation or
other proceedings, which could result in our incurring
substantial costs and expenses or substantial liability for
damages or require us to stop our development and
commercialization efforts.
There has been substantial litigation and other proceedings
regarding patent and other intellectual property rights in the
biotechnology industry. We may become a party to various types
of patent litigation or other proceedings regarding intellectual
property rights from time to time even under circumstances where
we are not practicing and do not intend to practice any of the
intellectual property involved in the proceedings.
34
For instance, in 2002, we became involved in an interference
declared by the United States Patent and Trademark Office, or
USPTO, involving a patent application exclusively licensed by us
from University of Massachusetts Medical Center, or UMMC, and
three patents issued to the National Institutes of Health, or
NIH. In January, 2005, we and UMMC entered into an Interference
Settlement Agreement with the NIH. The agreement is subject to
approval of the Board of Patent Appeals and Interferences. In
addition, in 2003, we became involved in an interference
declared by the USPTO involving another patent exclusively
licensed to us from UMMC and a patent application assigned
jointly to the University of Montreal and The Massachusetts
Institute of Technology. On August 6, 2004, the USPTO
entered judgment in favor of the patent application jointly
assigned to the University of Montreal and The Massachusetts
Institute of Technology and against certain claims of the patent
exclusively licensed to us from UMMC. We are neither practicing
nor intending to practice the intellectual property involved in
either of the interference proceedings in which we are involved.
The cost to us of any patent litigation or other proceeding,
including the interferences referred to above, even if resolved
in our favor, could be substantial. Some of our competitors may
be able to sustain the cost of such litigation or proceedings
more effectively than we can because of their substantially
greater financial resources. If any patent litigation or other
proceeding is resolved against us, we or our collaborators may
be enjoined from developing, manufacturing, selling or importing
our drugs without a license from the other party and we may be
held liable for significant damages. We may not be able to
obtain any required license on commercially acceptable terms or
at all.
Uncertainties resulting from the initiation and continuation of
patent litigation or other proceedings could have a material
adverse effect on our ability to compete in the marketplace.
Patent litigation and other proceedings may also absorb
significant management time.
Risks Relating to Product Manufacturing, Marketing and Sales
and Reliance on Third Parties
Because we have limited manufacturing experience, we are
dependent on third-party manufacturers to manufacture products
for us. If we cannot rely on third-party manufacturers, we will
be required to incur significant costs and devote significant
efforts to establish our own manufacturing facilities and
capabilities.
We have limited manufacturing experience and no commercial scale
manufacturing capabilities. In order to continue to develop our
products, apply for regulatory approvals and ultimately
commercialize products, we need to develop, contract for or
otherwise arrange for the necessary manufacturing capabilities.
We currently rely upon third parties to produce material for
preclinical and clinical testing purposes and expect to continue
to do so in the future. We also expect to rely upon third
parties to produce materials that may be required for the
commercial production of our products.
There are a limited number of manufacturers that operate under
the FDA’s current good manufacturing practices regulations
capable of manufacturing our products. As a result, we may have
difficulty finding manufacturers for our products with adequate
capacity for our needs. If we are unable to arrange for third
party manufacturing of our products on a timely basis, or to do
so on commercially reasonable terms, we may not be able to
complete development of our products or market them.
Reliance on third party manufacturers entails risks to which we
would not be subject if we manufactured products ourselves,
including:
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• |
reliance on the third party for regulatory compliance and
quality assurance, |
| |
| |
• |
the possibility of breach of the manufacturing agreement by the
third party because of factors beyond our control, |
| |
| |
• |
the possibility of termination or nonrenewal of the agreement by
the third party, based on its own business priorities, at a time
that is costly or inconvenient for us, |
35
|
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|
| |
• |
the potential that third party manufacturers will develop
know-how owned by such third party in connection with the
production of our products that is necessary for the manufacture
of our products, and |
| |
| |
• |
reliance upon third party manufacturers to assist us in
preventing inadvertent disclosure or theft of our proprietary
knowledge. |
We purchased oligonucleotides for preclinical and clinical
testing from Avecia at a preferential price under a supply
agreement, which expired in March 2004. We have continued to
purchase all of the oligonucleotides we are using in our ongoing
clinical trials and pre-clinical testing from Avecia. The terms
of the agreement have been extended until such time as a new
agreement is negotiated. If Avecia determines not to accept any
purchase order for oligonucleotides or we are unable to enter
into a new manufacturing arrangement with Avecia or a new
contract manufacturer on a timely basis or at all, our ability
to supply the product needed for our clinical trials could be
materially impaired.
We have no experience selling, marketing or distributing
products and no internal capability to do so.
If we receive regulatory approval to commence commercial sales
of any of our products, we will face competition with respect to
commercial sales, marketing and distribution. These are areas in
which we have no experience. To market any of our products
directly, we would need to develop a marketing and sales force
with technical expertise and with supporting distribution
capability. In particular, we would need to recruit a large
number of experienced marketing and sales personnel.
Alternatively, we could engage a pharmaceutical or other
healthcare company with an existing distribution system and
direct sales force to assist us. However, to the extent we
entered into such arrangements, we would be dependent on the
efforts of third parties. If we are unable to establish sales
and distribution capabilities, whether internally or in reliance
on third parties, our business would suffer materially.
If third parties on whom we rely for clinical trials do
not perform as contractually required or as we expect, we may
not be able to obtain regulatory approval for or commercialize
our products and our business may suffer.
We do not have the ability to independently conduct the clinical
trials required to obtain regulatory approval for our products.
We depend on independent clinical investigators, contract
research organizations and other third party service providers
in the conduct of the clinical trials of our products and expect
to continue to do so. For example, we have contracted with
PAREXEL International to manage our Phase 2 trials clinical
trials of IMOxine. We rely heavily on these parties for
successful execution of our clinical trials, but do not control
many aspects of their activities. We are responsible for
ensuring that each of our clinical trials is conducted in
accordance with the general investigational plan and protocols
for the trial. Moreover, the FDA requires us to comply with
standards, commonly referred to as good clinical practices, for
conducting, recording and reporting clinical trials to assure
that data and reported results are credible and accurate and
that the rights, integrity and confidentiality of trial
participants are protected. Our reliance on third parties that
we do not control does not relieve us of these responsibilities
and requirements. Third parties may not complete activities on
schedule or may not conduct our clinical trials in accordance
with regulatory requirements or our stated protocols. The
failure of these third parties to carry out their obligations
could delay or prevent the development, approval and
commercialization of our products. If we seek to conduct any of
these activities ourselves in the future, we will need to
recruit appropriately trained personnel and add to our
infrastructure.
If we are unable to obtain adequate reimbursement from
third party payors for any products that we may develop or
acceptable prices for those products, our revenues and prospects
for profitability will suffer.
Most patients will rely on Medicare and Medicaid, private health
insurers and other third party payors to pay for their medical
needs, including any drugs we may market. If third party payors
do not provide adequate coverage or reimbursement for any
products that we may develop, our revenues and prospects for
profitability will suffer. Congress recently enacted a limited
prescription drug benefit for Medicare recipients in the
36
Medicare Prescription Drug and Modernization Act of 2003. While
the program established by this statute may increase demand for
our products, if we participate in this program, our prices will
be negotiated with drug procurement organizations for Medicare
beneficiaries and are likely to be lower than we might otherwise
obtain. Non-Medicare third party drug procurement organizations
may also base the price they are willing to pay on the rate paid
by drug procurement organizations for Medicare beneficiaries.
A primary trend in the United States healthcare industry is
toward cost containment. In addition, in some foreign countries,
particularly the countries of the European Union, the pricing of
prescription pharmaceuticals is subject to governmental control.
In these countries, pricing negotiations with governmental
authorities can take six to 12 months or longer after the
receipt of regulatory marketing approval for a product. To
obtain reimbursement or pricing approval in some countries, we
may be required to conduct a clinical trial that compares the
cost effectiveness of our product candidates or products to
other available therapies. The conduct of such a clinical trial
could be expensive and result in delays in commercialization of
our products.
Third party payors are challenging the prices charged for
medical products and services, and many third party payors limit
reimbursement for newly-approved healthcare products. In
particular, third party payors may limit the indications for
which they will reimburse patients who use any products that we
may develop. Cost control initiatives could decrease the price
we might establish for products that we may develop, which would
result in lower product revenues to us.
We face a risk of product liability claims and may not be
able to obtain insurance.
Our business exposes us to the risk of product liability claims
that is inherent in the manufacturing, testing and marketing of
human therapeutic drugs. Although we have product liability and
clinical trial liability insurance that we believe is adequate,
this insurance is subject to deductibles and coverage
limitations. We may not be able to obtain or maintain adequate
protection against potential liabilities. If we are unable to
obtain insurance at acceptable cost or otherwise protect against
potential product liability claims, we will be exposed to
significant liabilities, which may materially and adversely
affect our business and financial position. These liabilities
could prevent or interfere with our commercialization efforts.
Risks Relating to an Investment in Our Common Stock
Our corporate governance structure, including provisions
in our certificate of incorporation and by-laws, our stockholder
rights plan and Delaware law, may prevent a change in control or
management that stockholders may consider desirable.
Section 203 of the Delaware General Corporation Law and our
certificate of incorporation, by-laws and stockholder rights
plan contain provisions that might enable our management to
resist a takeover of our company or discourage a third party
from attempting to take over our company. These provisions
include:
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• |
a classified board of directors, |
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| |
• |
limitations on the removal of directors, |
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• |
limitations on stockholder proposals at meetings of stockholders, |
| |
| |
• |
the inability of stockholders to act by written consent or to
call special meetings, and |
| |
| |
• |
the ability of our board of directors to designate the terms of
and issue new series of preferred stock without stockholder
approval. |
These provisions could have the effect of delaying, deferring,
or preventing a change in control of us or a change in our
management that stockholders may consider favorable or
beneficial. These provisions could also discourage proxy
contests and make it more difficult for you and other
stockholders to elect directors and take other corporate
actions. These provisions could also limit the price that
investors might be willing to pay in the future for shares of
our common stock.
37
Our stock price has been and may in the future be
extremely volatile. In addition, because an active trading
market for our common stock has not developed, our
investors’ ability to trade our common stock may be
limited. As a result, investors may lose all or a significant
portion of their investment.
Our stock price has been volatile. During the period from
January 1, 2003 to December 31, 2004, the closing
sales price of our common stock ranged from a high of
$1.69 per share to a low of $0.41 per share. The stock
market has also experienced significant price and volume
fluctuations, and the market prices of biotechnology companies
in particular have been highly volatile, often for reasons that
have been unrelated to the operating performance of particular
companies. The market price for our common stock may be
influenced by many factors, including:
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• |
results of clinical trials of our product candidates or those of
our competitors; |
| |
| |
• |
the regulatory status of our product candidates; |
| |
| |
• |
failure of any of our product candidates, if approved, to
achieve commercial success; |
| |
| |
• |
the success of competitive products or technologies; |
| |
| |
• |
regulatory developments in the United States and foreign
countries; |
| |
| |
• |
developments or disputes concerning patents or other proprietary
rights; |
| |
| |
• |
the departure of key personnel; |
| |
| |
• |
variations in our financial results or those of companies that
are perceived to be similar to us; |
| |
| |
• |
our cash resources; |
| |
| |
• |
the terms of any financing conducted by us; |
| |
| |
• |
changes in the structure of healthcare payment systems; |
| |
| |
• |
market conditions in the pharmaceutical and biotechnology
sectors and issuance of new or changed securities analysts’
reports or recommendations; and |
| |
| |
• |
general economic, industry and market conditions. |
In addition, our common stock has historically been traded at
low volume levels and may continue to trade at low volume
levels. As a result, any large purchase or sale of our common
stock could have a significant impact on the price of our common
stock and it may be difficult for investors to sell our common
stock in the market without depressing the market price for the
common stock or at all.
As a result of the foregoing, investors may not be able to
resell their shares at or above the price they paid for such
shares. Investors in our common stock must be willing to bear
the risk of fluctuations in the price of our common stock and
the risk that the value of their investment in our stock could
decline.
|
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| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
Historically, our primary exposures have been related to
nondollar-denominated operating expenses in Europe. As of
December 31, 2004, we have no assets and liabilities
related to nondollar-denominated currencies.
We maintain investments in accordance with our investment
policy. The primary objectives of our investment activities are
to preserve principal, maintain proper liquidity to meet
operating needs and maximize yields. Although our investments
are subject to credit risk, our investment policy specifies
credit quality standards for our investments and limits the
amount of credit exposure from any single issue, issuer or type
of investments. We do not own derivative financial investment
instruments in our investment portfolio.
Based on a hypothetical ten percent adverse movement in interest
rates, the potential losses in future earnings, fair value of
risk sensitive financial instruments, and cash flows are
immaterial, although the actual effects may differ materially
from the hypothetical analysis.
38
|
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| Item 8. |
Financial Statements and Supplementary Data |
All financial statements required to be filed hereunder are
filed as listed under Item 15(a) and are incorporated
herein by this reference.
|
|
| Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
None.
|
|
| Item 9A. |
Controls and Procedures |
(a) Evaluation of Disclosure Controls and
Procedures. Our management, with the participation of our
chief executive officer and our chief financial officer,
evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2004. The term
“disclosure controls and procedures,” as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means
controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in
the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time
periods specified in the SEC’s rules and forms. Disclosure
controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to
be disclosed by a company in the reports that it files or
submits under the Exchange Act is accumulated and communicated
to the company’s management, including its principal
executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosure. Management
recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies
its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of our
disclosure controls and procedures as of December 31, 2004,
our chief executive officer and chief financial officer
concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance level.
(b) Changes in Internal Controls. No change in our
internal control over financial reporting occurred during the
fiscal quarter ended December 31, 2004 that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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| Item 9B. |
Other Information. |
On March 24, 2005, the Company filed a Certificate of
Increase with the Secretary of State of the State of Delaware
pursuant to Section 151 of the Delaware General Corporation
Law, increasing the number of authorized shares of the
Company’s Series C Junior Participating Preferred
Stock, $.01 par value per share, from 150,000 shares
to 185,000 shares, effective as of March 24, 2005.
On September 16, 2004, the Company granted a bonus of
$25,000 to Dr. Sudhir Agrawal, the Company’s Chief
Executive Officer.
On December 21, 2004, the Company granted a bonus of
$29,500 to Dr. Sudhir Agrawal and a bonus of $32,700 to
Robert G. Andersen, the Company’s Chief Financial
Officer.
PART III.
The response to the Part III items incorporate by reference
certain sections of our Proxy Statement for our annual meeting
of stockholders to be held on June 15, 2005. The 2005 Proxy
Statement will be filed with the Securities and Exchange
Commission on or before April 29, 2005.
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| Item 10. |
Directors and Executive Officers of Hybridon |
The response to this item is contained under the following
captions in the 2005 Proxy Statement: “Election of
Directors” and “Section 16(a) Beneficial
Ownership Reporting Compliance,” which sections are
incorporated herein by reference. See Part I of this Annual
Report on 10-K under the caption “Executive Officers and
Key Employees of Hybridon.”
39
Information required by this item pursuant to Item 402(h)
and 402(i) of Regulation S-K relating to an audit committee
financial expert and identification of the audit committee of
our board of directors is contained in our 2005 Proxy Statement
under the caption “Corporate Governance” and is
incorporated herein by reference.
We have adopted a written code of business conduct and ethics
that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller,
or persons performing similar functions. We intend to disclose
any amendments to, or waivers from, our code of business conduct
and ethics on our website which is located at www.Hybridon.com.
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| Item 11. |
Executive Compensation |
The response to this item is contained in the 2005 Proxy
Statement under the captions: “Certain Transactions,”
and “Director Compensation” and “Executive
Compensation”, which sections are incorporated herein by
reference.
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| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The response to this item is contained in the 2005 Proxy
Statement under the caption “Security Ownership of Certain
Beneficial Owners and Management” which section is
incorporated herein by reference.
|
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| Item 13. |
Certain Relationships and Related Transactions |
The response to this item is contained in the 2005 Proxy
Statement under the captions “Certain Transactions,”
and “Director Compensation”, which sections are
incorporated herein by reference.
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| Item 14. |
Principal Accountant Fees and Services |
The response to this item is contained in the 2005 Proxy
Statement under the caption “Principal Accountant Fees and
Services”, which section is incorporated herein by
reference.
40
PART IV.
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| Item 15. |
Exhibits and Financial Statement Schedules |
(a)(1) Financial Statements.
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|
Page number in | |
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|
this Report | |
| |
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| |
|
Report of Independent Registered Public Accounting Firm
|
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F-2 |
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|
Consolidated Balance Sheets at December 31, 2004 and 2003
|
|
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F-3 |
|
|
Consolidated Statements of Operations for the years ended
December 31, 2004, 2003 and 2002
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F-4 |
|
|
Consolidated Statements of Stockholders’ Equity (Deficit)
for the years ended December 31, 2004, 2003 and 2002
|
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F-5 |
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002
|
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F-6 |
|
|
Notes to Consolidated Financial Statements
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F-7 |
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| |
(2) |
We are not filing any financial statement schedules as part of
this Annual Report on Form 10-K because they are not
applicable or the required information is included in the
financial statements or notes thereto. |
| |
| |
(3) |
The list of Exhibits filed as a part of this Annual Report on
Form 10-K is set forth on the Exhibit Index
immediately preceding such Exhibits and is incorporated herein
by this reference. |
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on this 15th day of
March 2005.
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|
| |
Sudhir Agrawal |
| |
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
| |
|
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|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ James B. Wyngaarden
James
B. Wyngaarden |
|
Chairman of the Board of Directors |
|
March 15, 2005 |
| |
/s/ Sudhir Agrawal
Sudhir
Agrawal, D. Phil |
|
President, Chief Executive Officer, Chief Scientific Officer and
Director
(Principal Executive Officer) |
|
March 15, 2005 |
| |
/s/ Robert G. Andersen
Robert
G. Andersen |
|
Chief Financial Officer and Vice President of Operations,
Treasurer and Secretary (Principal Financial and Accounting
Officer) |
|
March 15, 2005 |
| |
/s/ Youssef El-Zein
Youssef
El-Zein |
|
Director |
|
March 15, 2005 |
| |
/s/ C. Keith Hartley
C.
Keith Hartley |
|
Director |
|
March 15, 2005 |
| |
/s/ William S. Reardon
William
S. Reardon, C.P.A. |
|
Director |
|
March 15, 2005 |
| |
/s/ Alison
Taunton-Rigby
Alison
Taunton-Rigby, Ph.D., OBE |
|
Director |
|
March 15, 2005 |
| |
/s/ Paul C.
Zamecnik, M.D.
Paul
C. Zamecnik |
|
Director |
|
March 15, 2005 |
42
HYBRIDON, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
| |
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|
Page | |
| |
|
| |
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2 |
|
|
Consolidated Balance Sheets
|
|
|
F-3 |
|
|
Consolidated Statements of Operations
|
|
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F-4 |
|
|
Consolidated Statements of Stockholders’ Equity (Deficit)
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|
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F-5 |
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|
Consolidated Statements of Cash Flows
|
|
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F-6 |
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Hybridon, Inc.
We have audited the accompanying consolidated balance sheets of
Hybridon, Inc. and subsidiaries as of December 31, 2004 and
2003, and the related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2004. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Hybridon, Inc. and subsidiaries at
December 31, 2004 and 2003, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2004, in conformity with
U.S. generally accepted accounting principles.
Boston, Massachusetts
January 28, 2005
F-2
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| |
|
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|
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|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
5,021,860 |
|
|
$ |
7,607,655 |
|
| |
Short-term investments
|
|
|
9,391,140 |
|
|
|
6,060,420 |
|
| |
Receivables
|
|
|
293,113 |
|
|
|
202,936 |
|
| |
Prepaid expenses and other current assets
|
|
|
333,316 |
|
|
|
101,697 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total current assets
|
|
|
15,039,429 |
|
|
|
13,972,708 |
|
|
Property and equipment, net
|
|
|
351,791 |
|
|
|
436,813 |
|
| |
|
|
|
|
|
|
|
Total Assets
|
|
$ |
15,391,220 |
|
|
$ |
14,409,521 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
354,736 |
|
|
$ |
675,926 |
|
| |
Accrued expenses
|
|
|
1,332,150 |
|
|
|
1,123,058 |
|
| |
Current portion of deferred revenue
|
|
|
171,287 |
|
|
|
127,537 |
|
| |
9% convertible subordinated notes payable
|
|
|
— |
|
|
|
1,306,000 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total current liabilities
|
|
|
1,858,173 |
|
|
|
3,232,521 |
|
| |
Non-current portion of accrued expenses
|
|
|
240,000 |
|
|
|
— |
|
| |
Deferred revenue, net of current portion
|
|
|
523,655 |
|
|
|
651,192 |
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Preferred stock, $0.01 par value
|
|
|
|
|
|
|
|
|
| |
|
Authorized — 5,000,000 shares
|
|
|
|
|
|
|
|
|
| |
|
Series A convertible preferred stock
|
|
|
|
|
|
|
|
|
| |
|
|
Designated — 1,500,000 shares
|
|
|
|
|
|
|
|
|
| |
|
|
Issued and outstanding — 655 and 489,205 shares
at December 31, 2004 and 2003, respectively
|
|
|
|
|
|
|
|
|
| |
|
|
Liquidation value — $655 at December 31, 2004
|
|
|
7 |
|
|
|
4,892 |
|
| |
Common stock, $0.001 par value
|
|
|
|
|
|
|
|
|
| |
|
Authorized — 185,000,000 and 150,000,000 shares
at December 31, 2004 and 2003, respectively
|
|
|
|
|
|
|
|
|
| |
|
|
Issued and outstanding — 110,931,529 and
70,482,570 shares at December 31, 2004 and 2003,
respectively
|
|
|
110,932 |
|
|
|
70,483 |
|
|
Additional paid-in capital
|
|
|
311,988,467 |
|
|
|
294,373,630 |
|
|
Accumulated deficit
|
|
|
(299,293,785 |
) |
|
|
(283,882,840 |
) |
|
Accumulated other comprehensive loss
|
|
|
(14,989 |
) |
|
|
(2,995 |
) |
|
Deferred compensation
|
|
|
(21,240 |
) |
|
|
(37,362 |
) |
| |
|
|
|
|
|
|
| |
|
|
|
Total stockholders’ equity
|
|
|
12,769,392 |
|
|
|
10,525,808 |
|
| |
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$ |
15,391,220 |
|
|
$ |
14,409,521 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Alliance revenue
|
|
$ |
942,598 |
|
|
$ |
896,572 |
|
|
$ |
29,605,930 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Research and development
|
|
|
10,305,292 |
|
|
|
10,817,288 |
|
|
|
7,877,343 |
|
| |
General and administrative
|
|
|
4,273,009 |
|
|
|
6,923,899 |
|
|
|
7,054,023 |
|
| |
Stock-based compensation from repriced options (1)
|
|
|
(713,074 |
) |
|
|
542,666 |
|
|
|
(1,297,445 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total operating expenses
|
|
|
13,865,227 |
|
|
|
18,283,853 |
|
|
|
13,633,921 |
|
| |
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(12,922,629 |
) |
|
|
(17,387,281 |
) |
|
|
15,972,009 |
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Investment income, net
|
|
|
217,064 |
|
|
|
190,178 |
|
|
|
649,554 |
|
| |
Interest expense
|
|
|
(29,385 |
) |
|
|
(117,540 |
) |
|
|
(150,023 |
) |
| |
Gain on sale of securities, net
|
|
|
— |
|
|
|
103,585 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(12,734,950 |
) |
|
|
(17,211,058 |
) |
|
|
16,471,540 |
|
|
Income tax benefit
|
|
|
— |
|
|
|
— |
|
|
|
500,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(12,734,950 |
) |
|
|
(17,211,058 |
) |
|
|
16,971,540 |
|
|
Accretion of preferred stock dividends
|
|
|
(2,675,995 |
) |
|
|
(5,528,856 |
) |
|
|
(4,246,282 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to common stockholders
|
|
$ |
(15,410,945 |
) |
|
$ |
(22,739,914 |
) |
|
$ |
12,725,258 |
|
| |
|
|
|
|
|
|
|
|
|
|
(Loss) income per share from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
(0.13 |
) |
|
$ |
(0.34 |
) |
|
$ |
0.36 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
(0.13 |
) |
|
$ |
(0.34 |
) |
|
$ |
0.32 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share applicable to common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
(0.16 |
) |
|
$ |
(0.45 |
) |
|
$ |
0.27 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
(0.16 |
) |
|
$ |
(0.45 |
) |
|
$ |
0.24 |
|
| |
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net (loss) income per common share
|
|
|
98,913,927 |
|
|
|
51,053,415 |
|
|
|
46,879,232 |
|
| |
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net (loss) income per common
share
|
|
|
98,913,927 |
|
|
|
51,053,415 |
|
|
|
52,984,415 |
|
| |
|
|
|
|
|
|
|
|
|
|
(1) The following summarizes the allocation of stock based
compensation from repriced options
Research and development
|
|
$ |
(516,809 |
) |
|
$ |
403,310 |
|
|
$ |
(925,210 |
) |
| |
|
General and administrative
|
|
|
(196,265 |
) |
|
|
139,356 |
|
|
|
(372,235 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
$ |
(713,074 |
) |
|
$ |
542,666 |
|
|
$ |
(1,297,445 |
) |
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(DEFICIT)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Series A | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Convertible | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Preferred Stock | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Common Stock | |
|
|
|
|
|
Accumulated | |
|
|
|
Total | |
| |
|
Number | |
|
|
|
| |
|
Additional | |
|
|
|
Other | |
|
|
|
Stockholders’ | |
| |
|
of | |
|
$0.01 Par | |
|
Number of | |
|
$0.001 Par | |
|
Paid-In | |
|
Accumulated | |
|
Comprehensive | |
|
Deferred | |
|
Equity | |
| |
|
Shares | |
|
Value | |
|
Shares | |
|
Value | |
|
Capital | |
|
Deficit | |
|
Loss | |
|
Compensation | |
|
(Deficit) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balance, December 31, 2001
|
|
|
640,166 |
|
|
$ |
6,402 |
|
|
|
45,632,525 |
|
|
$ |
45,632 |
|
|
$ |
273,870,458 |
|
|
$ |
(273,868,184 |
) |
|
$ |
— |
|
|
$ |
(87,582 |
) |
|
$ |
(33,274 |
) |
|
Exercise of common stock options and warrants
|
|
|
— |
|
|
|
— |
|
|
|
1,162,172 |
|
|
|
1,162 |
|
|
|
458,514 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
459,676 |
|
|
Issuance of stock under the Isis Agreement
|
|
|
— |
|
|
|
— |
|
|
|
1,005,499 |
|
|
|
1,006 |
|
|
|
1,263,664 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,264,670 |
|
|
Issuance of stock options to employees
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,150 |
|
|
|
— |
|
|
|
— |
|
|
|
(6,150 |
) |
|
|
— |
|
|
Amortization of deferred compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
49,325 |
|
|
|
49,325 |
|
|
Conversion of 8% notes into stock
|
|
|
— |
|
|
|
— |
|
|
|
52,637 |
|
|
|
53 |
|
|
|
31,529 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
31,582 |
|
|
Preferred stock dividends
|
|
|
42,107 |
|
|
|
421 |
|
|
|
— |
|
|
|
— |
|
|
|
4,245,861 |
|
|
|
(4,246,282 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Conversion of preferred into common stock
|
|
|
(3,911 |
) |
|
|
(39 |
) |
|
|
92,024 |
|
|
|
92 |
|
|
|
(53 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation from repriced options
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,297,445 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,297,445 |
) |
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,944 |
) |
|
|
— |
|
|
|
(1,944 |
) |
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,971,540 |
|
|
|
— |
|
|
|
— |
|
|
|
16,971,540 |
|
|
Total comprehensive income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,969,596 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
678,362 |
|
|
|
6,784 |
|
|
|
47,944,857 |
|
|
|
47,945 |
|
|
|
278,578,678 |
|
|
|
(261,142,926 |
) |
|
|
(1,944 |
) |
|
|
(44,407 |
) |
|
|
17,444,130 |
|
|
Sale of common stock
|
|
|
— |
|
|
|
— |
|
|
|
20,053,022 |
|
|
|
20,053 |
|
|
|
13,031,797 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,051,850 |
|
|
Repurchase of common stock
|
|
|
— |
|
|
|
— |
|
|
|
(4,643,034 |
) |
|
|
(4,643 |
) |
|
|
(3,477,632 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,482,275 |
) |
|
Exercise of common stock options and warrants
|
|
|
— |
|
|
|
— |
|
|
|
173,860 |
|
|
|
174 |
|
|
|
91,963 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
92,137 |
|
|
Issuance of stock options and stock for services
|
|
|
— |
|
|
|
— |
|
|
|
75,882 |
|
|
|
76 |
|
|
|
82,288 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
82,364 |
|
|
Amortization of deferred compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,045 |
|
|
|
7,045 |
|
|
Preferred stock dividends
|
|
|
44,777 |
|
|
|
447 |
|
|
|
— |
|
|
|
— |
|
|
|
5,528,409 |
|
|
|
(5,528,856 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Conversion of preferred into common stock
|
|
|
(233,934 |
) |
|
|
(2,339 |
) |
|
|
6,877,983 |
|
|
|
6,878 |
|
|
|
(4,539 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation from repriced options
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
542,666 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
542,666 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,051 |
) |
|
|
— |
|
|
|
(1,051 |
) |
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,211,058 |
) |
|
|
— |
|
|
|
— |
|
|
|
(17,211,058 |
) |
|
Total comprehensive loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,212,109 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
489,205 |
|
|
|
4,892 |
|
|
|
70,482,570 |
|
|
|
70,483 |
|
|
|
294,373,630 |
|
|
|
(283,882,840 |
) |
|
|
(2,995 |
) |
|
|
(37,362 |
) |
|
|
10,525,808 |
|
|
Sale of common stock
|
|
|
— |
|
|
|
— |
|
|
|
25,723,200 |
|
|
|
25,723 |
|
|
|
15,377,566 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15,403,289 |
|
|
Exercise of common stock options and warrants
|
|
|
— |
|
|
|
— |
|
|
|
246,175 |
|
|
|
246 |
|
|
|
154,497 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
154,743 |
|
|
Issuance of stock options and stock for services
|
|
|
— |
|
|
|
— |
|
|
|
109,844 |
|
|
|
110 |
|
|
|
129,338 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
129,448 |
|
|
Amortization of deferred compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,122 |
|
|
|
16,122 |
|
|
Preferred stock dividends
|
|
|
20 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,675,995 |
|
|
|
(2,675,995 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Conversion of preferred into common stock
|
|
|
(488,570 |
) |
|
|
(4,885 |
) |
|
|
14,369,740 |
|
|
|
14,370 |
|
|
|
(9,485 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation from repriced options
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(713,074 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(713,074 |
) |
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11,994 |
) |
|
|
— |
|
|
|
(11,994 |
) |
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,734,950 |
) |
|
|
— |
|
|
|
— |
|
|
|
(12,734,950 |
) |
|
Total comprehensive loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,746,944 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
655 |
|
|
$ |
7 |
|
|
|
110,931,529 |
|
|
$ |
110,932 |
|
|
$ |
311,988,467 |
|
|
$ |
(299,293,785 |
) |
|
$ |
(14,989 |
) |
|
$ |
(21,240 |
) |
|
$ |
12,769,392 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net (loss) income
|
|
$ |
(12,734,950 |
) |
|
$ |
(17,211,058 |
) |
|
$ |
16,971,540 |
|
| |
Adjustments to reconcile net loss to net cash used in operating
activities —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Realized gain on marketable securities
|
|
|
— |
|
|
|
(103,585 |
) |
|
|
— |
|
| |
|
Stock repurchase expense
|
|
|
— |
|
|
|
1,857,214 |
|
|
|
— |
|
| |
|
Stock-based compensation
|
|
|
(713,074 |
) |
|
|
542,666 |
|
|
|
(1,297,445 |
) |
| |
|
Depreciation and amortization expense
|
|
|
288,464 |
|
|
|
280,596 |
|
|
|
552,115 |
|
| |
|
Issuance of stock options and stock for services
|
|
|
129,448 |
|
|
|
82,364 |
|
|
|
— |
|
| |
|
Amortization of deferred compensation
|
|
|
16,122 |
|
|
|
7,045 |
|
|
|
49,325 |
|
| |
|
Amortization of deferred financing costs
|
|
|
— |
|
|
|
— |
|
|
|
10,586 |
|
| |
|
Issuance of common stock and warrants
|
|
|
— |
|
|
|
— |
|
|
|
1,264,669 |
|
| |
|
Non cash interest expense
|
|
|
— |
|
|
|
— |
|
|
|
21,882 |
|
| |
|
Changes in operating assets and liabilities —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Receivables
|
|
|
(90,177 |
) |
|
|
203,377 |
|
|
|
(131,450 |
) |
| |
|
|
Prepaid expenses and other current assets
|
|
|
(231,619 |
) |
|
|
90,073 |
|
|
|
(145,364 |
) |
| |
|
|
Accounts payable and accrued expenses
|
|
|
127,903 |
|
|
|
139,565 |
|
|
|
144,892 |
|
| |
|
|
Deferred revenue
|
|
|
(83,787 |
) |
|
|
(266,771 |
) |
|
|
(28,422,685 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used in operating activities
|
|
|
(13,291,670 |
) |
|
|
(14,378,514 |
) |
|
|
(10,981,935 |
) |
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchases of held-to-maturity securities
|
|
|
— |
|
|
|
— |
|
|
|
(14,582,249 |
) |
| |
Purchases of available-for-sale securities
|
|
|
(18,635,747 |
) |
|
|
(17,681,672 |
) |
|
|
(8,219,615 |
) |
| |
Proceeds from sale of available-for-sale securities
|
|
|
12,300,000 |
|
|
|
15,343,377 |
|
|
|
4,800,000 |
|
| |
Proceeds from sale of held-to-maturity securities
|
|
|
— |
|
|
|
— |
|
|
|
3,047,725 |
|
| |
Proceeds from maturities of held-to-maturity securities
|
|
|
2,850,000 |
|
|
|
14,080,000 |
|
|
|
7,816,000 |
|
| |
Purchases of property and equipment
|
|
|
(60,410 |
) |
|
|
(53,943 |
) |
|
|
(371,584 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(3,546,157 |
) |
|
|
11,687,762 |
|
|
|
(7,509,723 |
) |
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sale of common stock and warrants, net of issuance costs
|
|
|
15,403,289 |
|
|
|
13,051,850 |
|
|
|
— |
|
| |
Repurchase of common stock
|
|
|
— |
|
|
|
(5,339,489 |
) |
|
|
— |
|
| |
Proceeds from exercise of common stock options and warrants
|
|
|
154,743 |
|
|
|
92,137 |
|
|
|
459,676 |
|
| |
Payments on debt
|
|
|
(1,306,000 |
) |
|
|
— |
|
|
|
(284,102 |
) |
| |
Payments on capital lease
|
|
|
— |
|
|
|
(33,591 |
) |
|
|
(79,711 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by financing activities
|
|
|
14,252,032 |
|
|
|
7,770,907 |
|
|
|
95,863 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(2,585,795 |
) |
|
|
5,080,155 |
|
|
|
(18,395,795 |
) |
|
Cash and cash equivalents, beginning of period
|
|
|
7,607,655 |
|
|
|
2,527,500 |
|
|
|
20,923,295 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
5,021,860 |
|
|
$ |
7,607,655 |
|
|
$ |
2,527,500 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
Hybridon, Inc. (the Company) was incorporated in the State of
Delaware on May 25, 1989. The Company is engaged in the
discovery, development and commercialization of novel
therapeutics based on synthetic DNA for the treatment of cancer,
asthma/allergies and infectious diseases. Hybridon’s
activities are primarily focused on the development of its
immunomodulatory oligonucleotide, or IMO, technology. Our IMO
compounds are synthetic DNA-based sequences that are designed to
mimic bacterial DNA and be recognized by a specific protein
receptor called Toll-like Receptor 9, or TLR9, which
triggers the activation and modulation of the immune system. The
Company has also been a pioneer in the development of antisense
technology, which uses synthetic DNA to block the production of
disease causing proteins at the cellular level. In 2003 and
2004, Hybridon devoted substantially all of its research and
development efforts on developing its IMO technology and
products and expects to continue to focus its research and
development efforts in 2005 and in future years to its IMO
technology and products. The Company plans to continue to seek
to enter into collaborations with third parties for the
development and commercialization of products based on its
antisense technology.
Since inception, the Company has been primarily engaged in
research and development and manufacturing. To date almost all
revenues received by the Company have been from collaboration
and licensing agreements. In addition, the Company generated
revenues from the sale of synthetic DNA and reagent products
manufactured by Hybridon Specialty Products Division, or HSP,
prior to selling HSP in September 2000.
The Company has incurred operating losses in most fiscal years
and had an accumulated deficit of $299.3 million at
December 31, 2004. The Company had cash, cash equivalents
and short-term investments of $14.4 million at
December 31, 2004. Based on its current operating plan, the
Company believes that these funds will be sufficient to fund
operations into January 2006, although the Company could reduce
planned activities if it needed to conserve such funds.
Therefore, the accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern.
The Company does not expect to generate significant additional
funds internally until it successfully completes development and
obtains marketing approval for products, either alone or in
collaboration with third parties, which the Company expects will
take a number of years. In addition, it has no committed
external sources of funds. As a result, in order for the Company
to continue to pursue its clinical and preclinical development
programs and continue its operations beyond January 2006, the
Company must raise additional funds in 2005 from debt, equity
financings or from collaborative arrangements with biotechnology
or pharmaceutical companies. There can be no assurance that the
requisite funds will be available in the necessary time frame or
on terms acceptable to the Company. If the Company is unable to
raise sufficient funds, the Company may be required to delay,
scale back or eliminate some or all of its operating plans and
possibly relinquish rights to portions of the Company’s
technology or products. In addition, increases in expenses or
delays in clinical development may adversely impact the
Company’s cash position and require further cost
reductions. No assurance can be given that the Company will be
able to operate profitably on a consistent basis, or at all, in
the future.
|
|
| (2) |
Summary of Significant Accounting Policies |
(a) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
F-7
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
The Company is subject to a number of risks and uncertainties
similar to those of other companies of the same size within the
biotechnology industry, such as uncertainty of clinical trial
outcomes, uncertainty of additional funding and history of
operating losses.
(b) Cash
Equivalents and Short-Term Investments
The Company considers all highly liquid investments with
maturities of 90 days or less when purchased to be cash
equivalents. Cash and cash equivalents at December 31, 2004
and 2003 consist of cash and money market funds.
The Company accounts for investments in accordance with
Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments
in Debt and Equity Securities. Management determines the
appropriate classification of marketable securities at the time
of purchase. In accordance with SFAS No. 115,
investments that the Company has the positive intent and ability
to hold to maturity are classified as “held to
maturity” and reported at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity,
which approximates fair market value. Such amortization is
included in “Investment income, net” on the
accompanying consolidated statements of operations. Investments
that the Company does not have the positive intent to hold to
maturity are classified as “available-for-sale” and
reported at fair market value. Unrealized gains and losses
associated with “available-for-sale” investments are
recorded in “Accumulated other comprehensive loss” on
the accompanying consolidated balance sheet. The amortization of
premiums and accretion of discounts and interest and dividends
are included in “Investment income, net” on the
accompanying consolidated statements of operations for all
securities. Any realized gains and losses and declines in value
judged to be other than temporary are included in “Gain on
sale of securities, net”. The cost of securities sold is
based on the specific identification method. The Company
recorded $103,585 of realized gains in “Gain on sale of
securities, net” on the accompanying consolidated statement
of operations from available-for-sale securities sold in 2003.
For the years ended December 31, 2004, 2003 and 2002, there
were no realized losses or permanent declines in value included
in “Gain on sale of securities, net” for any
securities.
There were no long-term investments as of December 31, 2004
and 2003. Available for sale securities are classified as
short-term regardless of the maturity date if the Company plans
to use them to fund operations within one year of the balance
sheet date. Auction securities are highly liquid equity and debt
securities that have floating interest or dividend rates that
reset periodically through an auctioning process that sets rates
based on bids. Issuers include municipalities, closed-end bond
funds and corporations. These securities can either be debt or
preferred shares. At December 31, 2004 and 2003, the
Company’s short-term investments consisted of the following
all of which are classified as available-for-sale securities:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2004 | |
| |
|
| |
| |
|
|
|
Gross | |
|
Gross |
|
|
| |
|
|
|
Unrealized | |
|
Unrealized |
|
Estimated | |
| |
|
Cost | |
|
Losses | |
|
Gains |
|
Fair Value | |
| |
|
| |
|
| |
|
|
|
| |
|
Corporate bonds due in one year or less
|
|
$ |
2,006,129 |
|
|
$ |
1,979 |
|
|
$ |
— |
|
|
$ |
2,004,150 |
|
|
Government bonds due in one year or less
|
|
|
3,000,000 |
|
|
|
13,010 |
|
|
|
— |
|
|
|
2,986,990 |
|
|
Auction Securities
|
|
|
4,400,000 |
|
|
|
— |
|
|
|
— |
|
|
|
4,400,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
9,406,129 |
|
|
$ |
14,989 |
|
|
$ |
— |
|
|
$ |
9,391,140 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
F-8
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2003 | |
| |
|
| |
| |
|
|
|
Gross | |
|
Gross |
|
|
| |
|
|
|
Unrealized | |
|
Unrealized |
|
Estimated | |
| |
|
Cost | |
|
Losses | |
|
Gains |
|
Fair Value | |
| |
|
| |
|
| |
|
|
|
| |
|
Corporate bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Due in one year or less
|
|
$ |
520,545 |
|
|
$ |
1,045 |
|
|
$ |
— |
|
|
$ |
519,500 |
|
| |
Due in one to two years
|
|
|
2,042,870 |
|
|
|
1,950 |
|
|
|
— |
|
|
|
2,040,920 |
|
|
Auction Securities
|
|
|
3,500,000 |
|
|
|
— |
|
|
|
— |
|
|
|
3,500,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
6,063,415 |
|
|
$ |
2,995 |
|
|
$ |
— |
|
|
$ |
6,060,420 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Although unrealized losses exist as of December 31, 2004,
the Company does not believe they are other-than-temporary based
on the nature of the investment and the lack of any adverse
events.
(c) Depreciation and
Amortization
Depreciation and amortization are computed using the
straight-line method based on the estimated useful lives of the
related assets, as follows:
| |
|
|
|
|
| |
|
Estimated | |
| Asset Classification |
|
Useful Life | |
| |
|
| |
|
Leasehold improvements
|
|
|
Life of lease |
|
|
Laboratory equipment and other
|
|
|
3 – 5 years |
|
(d) Reclassification and
Additional Disclosures
Certain amounts in the prior years consolidated financial
statements have been reclassified and certain additional
disclosures have been made to such financial statements as
discussed below.
(e) Revenue Recognition
In December 2003, the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 104, Revenue
Recognition, which codifies, revises and rescinds certain
sections of SAB No. 101, Revenue Recognition,
in order to make this interpretive guidance consistent with
current authoritative accounting and auditing guidance and SEC
rules and regulations. The changes noted in
SAB No. 104 did not have a material effect on the
Company’s consolidated results of operations, consolidated
financial position or consolidated cash flows. The
Company’s revenue recognition policy complies with
SAB No. 101 as modified by SAB No. 104.
Alliance revenues are comprised of payments under various
collaboration and licensing agreements for research and
development, including reimbursement of third party expenses,
milestone payments, license fees, sublicense fees, and royalty
payments.
The Company recognizes license fees and other upfront fees, not
specifically tied to a separate earnings process, ratably over
the term of the contract or the term in which the Company must
fulfill an obligation to aid in the research or use of the
licensed technology.
The Company recognizes service and research and development
revenue when the services are performed.
For payments that are specifically associated with a separate
earnings process, the Company recognizes revenue when the
specific performance obligation is completed. Performance
obligations typically consist of significant milestones in the
development life cycle of the related technology, such as
initiation of clinical trials, filing for approval with
regulatory agencies and approvals by regulatory agencies.
F-9
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
Royalty income represents amounts earned under certain
collaboration and license agreements and is recognized as
earned, which generally occurs upon receipt of quarterly royalty
statements from the licensee or, in the case of a
contractually-stated minimum annual royalty arrangement, the
greater of the amount actually earned or the guaranteed minimum
amount.
(f) Financial
Instruments
SFAS No. 107, Disclosures About Fair Value of
Financial Instruments, requires disclosure of the estimated
fair values of financial instruments. The Company’s
financial instruments consist of cash and cash equivalents,
short-term investments, and receivables. The estimated fair
values of these financial instruments approximates their
carrying values as of December 31, 2004 and 2003,
respectively. The estimated fair values have been determined
through information obtained from market sources and management
estimates. As of December 31, 2004 and 2003, the Company
does not have any derivatives or any other financial instruments
as defined by SFAS No. 133, Accounting for
Derivative and Hedging Instruments.
(g) Comprehensive
Income (Loss)
The Company applies SFAS No. 130, Reporting
Comprehensive Income. Comprehensive income (loss) is defined
as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from
nonowner sources. Comprehensive income or loss for the years
ended December 31, 2004, 2003 and 2002 is comprised of
reported net income or loss and the change in net unrealized
losses on investments during each year which is included in
“Accumulated other comprehensive loss” on the
accompanying consolidated balance sheet.
(h) Net (Loss)
Income per Common Share
The Company applies SFAS No. 128, Earnings per
Share. Under SFAS No. 128, basic and diluted net
(loss) income per common share is computed using the weighted
average number of shares of common stock outstanding during the
period. In addition, diluted net income per common share is
calculated to give effect of stock options, convertible
preferred stock and convertible debt (where the effect is not
antidilutive) resulting in lower net income per share. The
dilutive effect of outstanding stock options is reflected by the
application of the treasury stock method under
SFAS No. 128. Diluted net loss per common share is the
same as basic net loss per common share for the years ended
December 31, 2004 and 2003 as the effects of the
Company’s potential common stock equivalents are
antidilutive (see Note 11).
(i) Segment
Reporting
SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, establishes standards
for reporting information regarding operating segments in annual
financial statements and requires selected information for those
segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards
for related disclosures about products and services and
geographic areas. To date, the Company has viewed its operations
and manages its business as one operating segment. Accordingly,
the Company operates in one segment, which is the business of
discovering and developing novel therapeutics through the
application of synthetic DNA. As a result, the financial
information disclosed herein represents all of the material
financial information related to the Company’s principal
operating segment. For all of the periods presented, all of the
Company’s revenues were generated in the United States. As
of December 31, 2004 and 2003, all assets were located in
the United States.
F-10
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
(j) Stock-Based
Compensation
The Company applies the disclosure only provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by the disclosure requirements of
FASB Statement No. 148, Accounting for Stock-Based
Compensation — Transition and Disclosure. The
Company continues to account for employee stock compensation at
intrinsic value, in accordance with Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued
to Employees and related interpretations, with disclosure of
the effects of fair value accounting on net income or net loss
and related per share amounts on a pro forma basis.
The Company has computed the pro forma disclosures required by
SFAS No. 123 for all stock options granted to
employees after January 1, 1995, using the Black-Scholes
option-pricing model. The assumptions used for the years ended
December 31, 2004, 2003, and 2002 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Average risk free interest rate
|
|
|
4.18 |
% |
|
|
3.30 |
% |
|
|
4.23 |
% |
|
Expected dividend yield
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Expected lives
|
|
|
6 years |
|
|
|
6 years |
|
|
|
6 years |
|
|
Expected volatility
|
|
|
90 |
% |
|
|
90 |
% |
|
|
90 |
% |
|
Weighted average grant date fair value of options granted during
the period (per share)
|
|
$ |
0.40 |
|
|
$ |
0.79 |
|
|
$ |
0.70 |
|
For the years ended December 31, 2004, 2003 and 2002, the
weighted average per share grant date fair value and exercise
price per share of option grants to employees in relation to
market price of the stock on the date of the grant is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Exercise Price | |
| |
|
| |
| |
|
Equals | |
|
Exceeds | |
|
Is Less than | |
| |
|
Market | |
|
Market | |
|
Market | |
| |
|
Price | |
|
Price | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
2004 Option Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value of options granted during
the period
|
|
$ |
0.41 |
|
|
$ |
0.36 |
|
|
$ |
— |
|
|
Weighted average exercise price of options granted during the
period
|
|
$ |
0.54 |
|
|
$ |
0.52 |
|
|
$ |
— |
|
|
2003 Option Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value of options granted during
the period
|
|
$ |
0.79 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Weighted average exercise price of options granted during the
period
|
|
$ |
1.05 |
|
|
$ |
— |
|
|
$ |
— |
|
|
2002 Option Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value of options granted during
the period
|
|
$ |
0.62 |
|
|
$ |
1.12 |
|
|
$ |
1.11 |
|
|
Weighted average exercise price of options granted during the
period
|
|
$ |
0.82 |
|
|
$ |
1.54 |
|
|
$ |
1.40 |
|
The Black-Scholes option-pricing 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-pricing models require the input of highly subjective
assumptions including 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
F-11
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
management’s opinion, the existing models do not
necessarily provide a reliable single measure of the fair value
of its employee stock options.
The pro forma effect of applying SFAS No. 123 for the
three years ended December 31, 2004 would be as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net (loss) income applicable to common stockholders, as reported
|
|
$ |
(15,410,945 |
) |
|
$ |
(22,739,914 |
) |
|
$ |
12,725,258 |
|
|
Less: stock-based compensation (income) expense included in
reported net (loss) income
|
|
|
(713,074 |
) |
|
|
542,666 |
|
|
|
(1,297,445 |
) |
|
Add: stock-based employee compensation expense determined under
fair value based method for all awards
|
|
|
(1,711,953 |
) |
|
|
(1,078,898 |
) |
|
|
(1,586,526 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net (loss) income applicable to common stockholders,
as adjusted for the effect of applying SFAS No. 123
|
|
$ |
(17,835,972 |
) |
|
$ |
(23,276,146 |
) |
|
$ |
9,841,287 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
(0.16 |
) |
|
$ |
(0.45 |
) |
|
$ |
0.27 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Pro forma
|
|
$ |
(0.18 |
) |
|
$ |
(0.46 |
) |
|
$ |
0.21 |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
(0.16 |
) |
|
$ |
(0.45 |
) |
|
$ |
0.24 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Pro forma
|
|
$ |
(0.18 |
) |
|
$ |
(0.46 |
) |
|
$ |
0.19 |
|
| |
|
|
|
|
|
|
|
|
|
The effects on years ended December 31, 2004, 2003 and 2002
pro forma net (loss) income and net (loss) income per share of
expensing the estimated fair value of stock options are not
necessarily representative of the effects on reported net (loss)
income for future years because of the vesting period of the
stock options and the potential for issuance of additional stock
options in future years.
|
|
| (k) |
Concentration of Credit Risk |
Financial instruments that subject the Company to credit risk
primarily consist of cash and cash equivalents and short-term
investments. The Company’s credit risk is managed by
investing its cash and cash equivalents and marketable
securities in highly rated money market instruments and debt
securities. Due to these factors, no significant additional
credit risk is believed by management to be inherent in the
Company’s assets. As of December 31, 2004, approximately
99% of the Company’s cash, cash equivalents, and
investments are held at one financial institution.
|
|
| (l) |
New Accounting Pronouncement |
In December 2004, the FASB issued SFAS No. 123
(revised 2004), “Share-Based Payment”, which is
a revision of SFAS No. 123, “Accounting for
Stock-Based Compensation”. SFAS No. 123(R)
supersedes APB Opinion No. 25, “Accounting for
Stock Issued to Employees”, and amends
SFAS No. 95, “Statement of Cash
Flows”. Generally, the approach in
SFAS No. 123(R) is similar to the approach described
in SFAS No. 123. However, SFAS No. 123(R)
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no
F-12
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
longer an alternative. The new standard will be effective for
the Company in the quarter beginning July 1, 2005.
As permitted by SFAS 123, the Company currently accounts
for share-based payments to employees using APB 25’s
intrinsic value method and, as such, generally, except for
marking to market the repriced options discussed in
Note 7(e), the Company recognizes no compensation cost for
employee stock options. Accordingly, the adoption of
SFAS 123(R)’s fair value method may have a material
impact on the Company’s results of operations, although it
will have no impact on the Company’s overall financial
position. The impact of adopting SFAS 123(R) cannot be
predicted at this time because it will depend on levels of
share-based payments granted in the future. However, had the
company adopted SFAS 123(R) in a prior period, the impact
of applying that standard would have approximated the impact of
SFAS 123 as described in the disclosure of pro forma net
loss and net loss per share in Note 2(j) to these financial
statements. The Company is currently evaluating the impact of
adopting of SFAS 123(R) on its financial position and
results of operations, including the valuation methods and
support for the assumptions that underlie the valuation of the
awards.
At December 31, 2004 and 2003, accrued expenses consist of
the following:
| |
|
|
|
|
|
|
|
|
| |
|
December 31 | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Payroll and related costs
|
|
$ |
527,000 |
|
|
$ |
308,891 |
|
|
Clinical trial expenses
|
|
|
306,596 |
|
|
|
364,070 |
|
|
Other
|
|
|
498,554 |
|
|
|
450,097 |
|
| |
|
|
|
|
|
|
| |
|
$ |
1,332,150 |
|
|
$ |
1,123,058 |
|
| |
|
|
|
|
|
|
|
|
| (4) |
Property and Equipment |
At December 31, 2004 and 2003, net property and equipment
at cost consists of the following:
| |
|
|
|
|
|
|
|
|
| |
|
December 31 | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Leasehold improvements
|
|
$ |
424,500 |
|
|
$ |
407,812 |
|
|
Laboratory equipment and other
|
|
|
1,804,799 |
|
|
|
1,761,077 |
|
| |
|
|
|
|
|
|
|
Total property and equipment, at cost
|
|
|
2,229,299 |
|
|
|
2,168,889 |
|
|
Less: Accumulated depreciation and amortization
|
|
|
1,877,508 |
|
|
|
1,732,076 |
|
| |
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
351,791 |
|
|
$ |
436,813 |
|
| |
|
|
|
|
|
|
For the years ended December 31, 2004 and 2003, laboratory
equipment and other includes approximately $113,000 of office
equipment financed under capital leases with accumulated
depreciation of approximately $57,000 and $34,000, respectively.
Depreciation expense, which includes amortization of assets
recorded under capital leases, was approximately $145,000,
$152,000 and $93,000 in 2004, 2003 and 2002, respectively.
F-13
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
|
|
| (a) |
9% Convertible Subordinated Notes Payable |
On April 1, 2004, the Company’s 9% convertible
subordinated notes payable (the 9% Notes) matured. As a
result, the Company paid $1,306,000 to the note holders in
payment of the principal amount outstanding under the notes plus
accrued interest through the maturity date of $58,770. Under the
terms of the 9% Notes, the Company made semi-annual
interest payments on the outstanding principal balance through
the maturity date of April 1, 2004. The Company currently
has no debt outstanding.
|
|
| (b) |
8% Convertible Notes Payable |
Upon maturity of the Company’s 8% convertible notes
payable (the 8% Notes) on November 30, 2002, $31,582
of the 8% Notes plus accrued interest were converted into
52,637 shares of common stock. The Company paid
approximately $284,000 to the holders of the remaining
8% Notes in payment of the outstanding principal and
accrued interest thereon.
|
|
| (6) |
Collaboration and License Agreements |
|
|
| (a) |
Collaboration and License Agreement with VasGene
Therapeutics, Inc. |
On October 29, 2004, the Company and VasGene Therapeutics
Inc. entered into reciprocal Collaboration and License
Agreements pursuant to which both parties agreed to collaborate
on the research and development of VEGF antisense products. The
Company intends to pursue the treatment of ophthalmologic and
other non-cancer diseases that are susceptible to treatment
based on localized administration under one agreement, and
VasGene intends to pursue the treatment of cancer and other
non-ophthalmologic diseases that are susceptible to treatment
through systemic administration under the other agreement. The
Company is entitled to receive milestone payments, royalties,
and sublicensing payments. Additionally, the Company may be
entitled to reimbursement of research services performed in
accordance with the terms of the agreement at the request of
VasGene. The Company may have to pay VasGene royalties and
sublicensing payments. VasGene may also be entitled to
reimbursement of research services that it performs under the
agreement at the Company’s request. The milestones, if
fully achieved, could result in payments to the Company of
$8.0 million for each non-cancer VEGF antisense product
developed by VasGene. Milestone payments would be triggered by
the achievement of specific events in the development and
commercial launch process.
|
|
| (b) |
Collaboration and License Agreement with Alnylam
Pharmaceuticals, Inc. |
On August 2, 2004, the Company and Alnylam Pharmaceuticals,
Inc. entered into a collaboration and license agreement pursuant
to which the Company granted to Alnylam an exclusive license to
a series of patents and patent applications relating to the
therapeutic use of oligonucleotides that inhibit the production
of the protein Vascular Endothelial Growth Factor (VEGF). Under
the license, Alnylam’s rights are limited to targeting VEGF
for ocular indications with RNAi molecules. The Company is
entitled to receive an up-front payment, annual license fees,
milestone payments, royalties and sublicensing payments from
Alnylam under the terms of the agreement. The up-front payment,
license fees and milestone payments payable to the Company under
the agreement could total approximately $4.4 million if all
the milestones are achieved. Milestone payments are triggered by
the achievement of specific events in the development process.
|
|
| (c) |
Collaboration and License Agreement with The Immune Response
Corporation. |
On October 8, 2003, the Company entered into a
collaboration and license agreement with The Immune Response
Corporation to develop Amplivax as an adjuvant for use in
combination with Immune Response’s REMUNE vaccine candidate
for the prevention and treatment of HIV-1. Under the terms of
the agreement,
F-14
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
the Company granted Immune Response, during an exclusivity
period, a worldwide license to Amplivax as an HIV vaccine
adjuvant for the prevention and treatment of HIV. In order to
maintain the exclusivity of the license to Amplivax that the
Company granted to Immune Response in the agreement, Immune
Response must make payments to the Company at specified times
under the agreement. The Company is also entitled to
reimbursement for time and materials and amounts payable to
third parties for contracted services at cost plus an additional
contractually stated percentage. In addition, the Company may
receive certain specified fees, royalties on sales of the REMUNE
vaccine combined with Amplivax and a percentage of sublicense
income received by Immune Response.
|
|
| (d) |
Collaboration and License Agreement with Aegera Therapeutics
Inc. |
On September 13, 2002, the Company and Aegera Therapeutics
Inc. entered into a Collaboration and License Agreement (the
Collaboration) to research, develop, and optimize a
2nd generation antisense drug targeted to the XIAP gene, a
gene which has been implicated in the resistance of cancer cells
to chemotherapy. In addition, Hybridon licensed to Aegera, on a
non-exclusive basis, rights to the Company’s portfolio of
2nd generation antisense chemistries and oral antisense
delivery intellectual property owned or licensed by the Company.
In consideration for research, development and optimization work
to be performed by the Company under the Collaboration and the
license of technology by the Company, Aegera paid the Company an
upfront license fee and a prepaid milestone. In addition, Aegera
agreed to pay the Company additional research payments,
milestone payments upon the achievement of specified development
milestones, and royalties on product sales and sublicensing, if
any. Future anticipated payments under the Collaboration could
total approximately $7.7 million if all of the milestones
are achieved. Aegera is responsible for the development costs of
the drug candidate.
|
|
| (e) |
Collaboration and License Agreement with Migenix Inc. |
On September 11, 2002, the Company and Migenix Inc.
(formerly Micrologix Biotechnology, Inc.) entered into a
Collaboration and License Agreement to develop an antisense drug
candidate (MBI1121) for the treatment of human papillomavirus
(HPV). The Company licensed Migenix the exclusive worldwide
rights to a family of patents, claims of which cover a number of
antisense oligonucleotides targeted to the HPV genome and
non-exclusive rights to a portfolio of antisense chemistries
owned or licensed by the Company. In consideration, Migenix
agreed to pay the Company a license fee, paid in two
installments, milestone payments upon the achievement of
specified milestones, and royalties on product sales and
sublicensing, if earned. The total license fee and milestone
payments could amount to approximately $5.8 million, if all
the milestones are achieved.
As part of the collaboration and license agreement, the Company
and Migenix entered into a stock purchase agreement relating to
the payment of the remaining portion of the license fee and
certain future milestone payments under which Migenix issued to
the Company shares of preferred stock of Migenix. Under the
terms of the agreement, upon a specified date or the achievement
of a milestone, a portion of the shares of preferred stock
would, at the option of Migenix, either (i) be converted
into common stock of Migenix at a conversion rate based on an
average market price or (ii) be redeemed by Migenix for a
cash amount equal to the payment due in respect of such date or
milestone. The Company became entitled to receive the final
installment of the license fee on April 17, 2003 and was
issued 379,139 shares of Migenix common stock upon
conversion of a portion of the preferred stock. The Company
classified the common stock as available-for-sale. In the second
quarter of 2003, the Company sold all the shares it received
from Migenix for approximately $343,000 and recorded a realized
gain of approximately $103,000. License fee revenue is being
recorded over the current estimated development term of the drug
candidate, MBI1121.
F-15
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
|
|
| (f) |
Collaboration and License Agreement with Isis
Pharmaceuticals, Inc. |
On May 24, 2001, the Company and Isis Pharmaceuticals, Inc.
(Isis) entered into a Collaboration and License Agreement (the
Isis Agreement). Under the Isis Agreement, the Company granted
Isis a license, with the right to sublicense, to the
Company’s antisense chemistry and delivery patents and
patent applications. Isis also agreed to pay the Company a
portion of specified sublicense income it receives from
specified types of sublicenses of the Company’s patents and
patent applications. The Company has retained the right to use
the patents and patent applications in its own drug discovery
and development efforts and in collaboration with third parties.
In consideration of the license granted by the Company, Isis
paid $15.0 million in cash and issued 857,143 shares
of its common stock having an aggregate fair market value on the
dates on which title to the shares was received of
$17.3 million. An additional $4.5 million installment
was due in 2003; this obligation was subsequently canceled as
part of the August 2002 amendment to the Isis Agreement
described below.
Isis granted the Company a license to use specified antisense
patents and patent applications, principally Isis’ suite of
RNase H patents. The Company has the right under the Isis
Agreement to use these patents and patent applications in its
drug discovery and development efforts and in specified types of
collaborations with third parties. In consideration of this
license, the Company originally agreed to pay Isis a total of
$6.0 million in cash or in shares of its common stock in
three equal annual installments of $2.0 million beginning
in 2002. In May 2002, the Company made its first payment to Isis
consisting of approximately $716,000 in cash and
1,005,499 shares of common stock having a fair market value
of approximately $1.2 million on the date of issuance. The
Company also agreed to pay Isis a nominal annual maintenance fee
and a modest royalty on sales of products covered by specified
patents and patent applications sublicensed to the Company by
Isis. The actual number of shares of Hybridon stock that was
issuable to Isis under the Isis Agreement was based on certain
market conditions, as defined in the Isis Agreement, but was
intended to have a fair market value of $6.0 million, if
the stock remained in a certain price range as defined in the
Isis Agreement; this obligation was subsequently cancelled as
part of the August 2002 amendment to the Isis Agreement
described below.
Prior to August 14, 2002, the Company interpreted its
obligations under the Isis Agreement not to be inconsequential
and perfunctory. As a result, for the year ended
December 31, 2001, the Company recognized revenue under the
Isis Agreement, net of amortization of the Company’s
payments to Isis, over the 10-year term of the Isis Agreement
expiring in 2011. On August 14, 2002, the Company and Isis
entered into an amendment to the Isis Agreement. As part of the
amendment, each party agreed to cancel the remaining tranche
payments due to the other under the Isis Agreement. In addition,
the Company and Isis agreed to more specifically define and
limit each party’s future collaborative obligations under
the Isis Agreement. As a result of the amendment, the Company
was able to specifically limit the nature of its obligation and
related cost of compliance under the Isis Agreement and to
determine that such amended obligation and cost was
inconsequential. In accordance with SAB 101, the Company
recognized all previously deferred revenue under the Isis
Agreement at the time of the amendment. Revenue for 2002
included approximately $29.5 million which was the
previously deferred portion, at the time of the amendment, of
the $32.3 million of cash and Isis stock received by the
Company in 2001. Revenue for 2003 includes sublicense income
received from Isis in connection with sublicenses of the
Company’s patents and patent applications granted by Isis
to third parties. General and administrative expenses for the
year ended December 31, 2002 include the $2.2 million
previously unrecognized portion of the $2.4 million in
direct expenses related to the Isis Agreement.
|
|
| (g) |
License Agreement with University of Massachusetts Medical
Center |
The Company has a licensing agreement with the University of
Massachusetts Medical Center (UMass), under which the Company
has received exclusive licenses to technology in specified
patents and patent applications. The Company is required to make
royalty payments based on future sales of products employing
F-16
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
the technology or falling under claims of a patent, as well as a
specified percentage of sublicense income received related to
the licensed technology. Additionally, the Company is required
to pay an annual maintenance fee through the life of the patents.
Pursuant to the terms of a unit purchase agreement dated as of
May 5, 1998, the Company issued and sold a total of
9,597,476 shares of common stock (the “Put
Shares”) at a price of $2.00 per share. Under the
terms of the unit purchase agreement, the initial purchasers
(the “Put Holders”) of the Put Shares have the right
(the “Put Right”) to require the Company to repurchase
the Put Shares. The Put Right may not be exercised by any Put
Holder unless: 1) the Company liquidates, dissolves or
winds up its affairs pursuant to applicable bankruptcy law,
whether voluntarily or involuntarily; 2) all of the
Company’s indebtedness and obligations, including without
limitation the indebtedness under the Company’s then
outstanding notes, has been paid in full; and 3) all rights
of the holders of any series or class of capital stock ranking
prior and senior to the common stock with respect to
liquidation, including without limitation the Series A
convertible preferred stock, have been satisfied in full. The
Company may terminate the Put Right upon written notice to the
Put Holders if the closing sales price of its common stock
exceeds $4.00 per share for the twenty consecutive trading
days prior to the date of notice of termination. Because the Put
Right is not transferable, in the event that a Put Holder has
transferred Put Shares since May 5, 1998, the Put Right
with respect to those shares has terminated. As a consequence of
the Put Right, in the event the Company is liquidated, holders
of shares of common stock that do not have Put Rights with
respect to such shares may receive smaller distributions per
share upon the liquidation than if there were no Put Rights
outstanding.
In February 2003, the Company repurchased 2,415,880 Put Shares
(see Note 14). As of December 31, 2004, 1,087,124 of
the Put Shares continued to be held in the name of Put Holders.
The Company cannot determine at this time what portion of the
Put Rights of the remaining 6,094,472 Put Shares have terminated.
The Company has the following warrants outstanding and
exercisable for the purchase of common stock at
December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted | |
| |
|
|
|
Exercise Price | |
| Expiration Date |
|
Shares | |
|
Per Share | |
| |
|
| |
|
| |
|
March 31, 2006
|
|
|
500,000 |
|
|
$ |
0.50 |
|
|
January 1, 2007
|
|
|
100,000 |
|
|
|
1.65 |
|
|
August 28, 2008
|
|
|
2,368,629 |
|
|
|
0.73 |
|
|
August 28, 2008
|
|
|
7,308,684 |
|
|
|
1.00 |
|
|
April 20, 2009
|
|
|
3,041,964 |
|
|
|
1.14 |
|
|
August 27, 2009
|
|
|
2,197,200 |
|
|
|
0.67 |
|
| |
|
|
|
|
|
|
| |
|
|
15,516,477 |
|
|
|
|
|
| |
|
|
|
|
|
|
| |
Weighted average exercise price per share
|
|
|
|
|
|
$ |
0.93 |
|
| |
|
|
|
|
|
|
During 2002, the Company issued warrants to
purchase 100,000 shares of common stock to a financial
advisor which it valued at approximately $98,000 using the
Black-Scholes pricing model and charged to
F-17
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
general and administrative expense during the year. The warrants
that expire in 2008 and 2009 are described in Notes 8(d)
and 15.
The 1990 Stock Option Plan provided for the grant of incentive
stock options and nonqualified stock options. All options
granted under this plan and outstanding are fully vested. No
additional options are being granted under the 1990 Option Plan.
As of December 31, 2004, options to purchase a total of
53,334 shares of common stock remained outstanding under
the 1990 Option Plan.
The 1995 Stock Option Plan provides for the grant of incentive
stock options and nonqualified stock options. Options granted
under this plan generally vest over three to five years, and
expire no later than 10 years from the date of grant. A
total of 700,000 shares of common stock may be issued upon
the exercise of options granted under this plan. The maximum
number of shares with respect to which options may be granted to
any employee under the 1995 Option Plan shall not exceed
500,000 shares of common stock during any calendar year.
The Compensation Committee of the Board of Directors has the
authority to select the employees to whom options are granted
and determine the terms of each option, including (i) the
number of shares of common stock subject to the option;
(ii) when the option becomes exercisable; (iii) the
option exercise price, which in the case of incentive stock
options must be at least 100% and 110% in the case of incentive
stock options granted to a stockholder owning in excess of 10%
of the Company’s common stock, of the fair market value of
the common stock as of the date of grant and (iv) the
duration of the options which in the case of incentive stock
options may not exceed 10 years. As of December 31,
2004, options to purchase a total of 442,954 shares of
common stock remained outstanding under the 1995 Stock Option
Plan.
Under the 1995 Director Stock Option Plan, a total of
800,000 shares of common stock may be issued upon the
exercise of options. Under the terms of the Director Plan
options to purchase 3,750 shares of common stock are
granted to each non-employee director on the first day of each
calendar quarter and options to purchase 25,000 shares
of common stock are granted to non-employee directors upon
appointment to the Board. All options vest on the first
anniversary of the date of grant. As of December 31, 2004,
options to purchase a total of 242,250 shares of common
stock remained outstanding under the Director Plan.
Under the 1997 Stock Incentive Plan, options generally vest over
three to five years, and expire no later than 10 years from
the date of grant. A total of 13,500,000 shares of common
stock may be issued upon the exercise of options granted under
the plan. The maximum number of shares with respect to which
options may be granted during any calendar year to any employee
under the 1997 Stock Incentive Plan is determined by dividing
1,500,000 by the fair market value of a share of the
Company’s common stock at the time of grant, and may not
exceed an overall per participant annual limit of
5,000,000 shares. The Compensation Committee of the Board
of Directors has the authority to select the employees to whom
options are granted and determine the terms of each option,
including (i) the number of shares of common stock subject
to the option; (ii) when the option becomes exercisable;
(iii) the option exercise price, which in the case of
incentive stock options must be at least 100% (110% in the case
of incentive stock options granted to those holding 10% or more
of the voting power of the Company) of the fair market value of
the common stock as of the date of grant and (iv) the
duration of the option, which in the case of incentive stock
options may not exceed 10 years. As of December 31,
2004, options to purchase a total of 9,583,876 shares of
common stock remained outstanding under the 1997 Stock Incentive
Plan.
As of December 31, 2004, options to purchase
2,411,414 shares of common stock remain available for grant
under the 1995 Stock Option Plan, the 1995 Director Plan
and the 1997 Stock Incentive Plan.
F-18
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
Stock option activity for the years ended December 31,
2004, 2003, and 2002 is summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted | |
| |
|
Number of | |
|
Exercise Price | |
|
Average Price | |
| |
|
Shares | |
|
Per Share | |
|
Per Share | |
| |
|
| |
|
| |
|
| |
|
Outstanding, December 31, 2001
|
|
|
14,477,114 |
|
|
$ |
0.50 – $2.00 |
|
|
$ |
0.74 |
|
| |
Granted
|
|
|
786,500 |
|
|
|
0.50 – 1.54 |
|
|
|
0.92 |
|
| |
Exercised
|
|
|
(889,687 |
) |
|
|
0.50 – 0.56 |
|
|
|
0.50 |
|
| |
Terminated
|
|
|
(66,667 |
) |
|
|
0.50 – 2.00 |
|
|
|
0.51 |
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2002
|
|
|
14,307,260 |
|
|
|
0.50 – 2.00 |
|
|
|
0.77 |
|
| |
Granted
|
|
|
596,000 |
|
|
|
0.70 – 1.15 |
|
|
|
1.05 |
|
| |
Exercised
|
|
|
(96,841 |
) |
|
|
0.50 – 0.56 |
|
|
|
0.50 |
|
| |
Terminated
|
|
|
(86,500 |
) |
|
|
0.50 – 2.00 |
|
|
|
0.87 |
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2003
|
|
|
14,719,919 |
|
|
|
0.50 – 2.00 |
|
|
|
0.78 |
|
| |
Granted
|
|
|
2,084,750 |
|
|
|
0.52 – 1.14 |
|
|
|
0.53 |
|
| |
Exercised
|
|
|
(85,784 |
) |
|
|
0.50 – 0.82 |
|
|
|
0.59 |
|
| |
Terminated
|
|
|
(159,178 |
) |
|
|
0.50 – 1.54 |
|
|
|
1.13 |
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2004
|
|
|
16,559,707 |
|
|
$ |
0.50 – $2.00 |
|
|
$ |
0.75 |
|
| |
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2002
|
|
|
8,739,045 |
|
|
$ |
0.50 – $2.00 |
|
|
$ |
0.74 |
|
| |
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2003
|
|
|
10,357,565 |
|
|
$ |
0.50 – $2.00 |
|
|
$ |
0.75 |
|
| |
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2004
|
|
|
12,883,125 |
|
|
$ |
0.50 – $2.00 |
|
|
$ |
0.76 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
| |
|
|
|
Remaining | |
|
Exercise | |
|
|
|
Exercise | |
| Exercise | |
|
|
|
Contractual Life | |
|
Price Per | |
|
|
|
Price Per | |
| Prices | |
|
Number | |
|
(Years) | |
|
Share | |
|
Number | |
|
Share | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| $ |
0.50 |
|
|
|
2,622,028 |
|
|
|
3.66 |
|
|
$ |
0.50 |
|
|
|
2,602,888 |
|
|
$ |
0.50 |
|
| |
0.52 |
|
|
|
1,965,000 |
|
|
|
9.92 |
|
|
|
0.52 |
|
|
|
— |
|
|
|
— |
|
| |
0.56 |
|
|
|
2,497,192 |
|
|
|
6.24 |
|
|
|
0.56 |
|
|
|
2,490,939 |
|
|
|
0.56 |
|
| |
0.57 – 0.79 |
|
|
|
1,196,000 |
|
|
|
7.50 |
|
|
|
0.74 |
|
|
|
1,010,311 |
|
|
|
0.74 |
|
| |
0.82 – 0.83 |
|
|
|
2,353,750 |
|
|
|
6.59 |
|
|
|
0.83 |
|
|
|
1,221,250 |
|
|
|
0.83 |
|
| |
0.84 |
|
|
|
3,152,500 |
|
|
|
6.57 |
|
|
|
0.84 |
|
|
|
3,151,250 |
|
|
|
0.84 |
|
| |
0.93 – 1.10 |
|
|
|
1,469,487 |
|
|
|
5.81 |
|
|
|
1.06 |
|
|
|
1,436,487 |
|
|
|
1.06 |
|
| |
1.12 – 2.00 |
|
|
|
1,303,750 |
|
|
|
6.77 |
|
|
|
1.23 |
|
|
|
970,000 |
|
|
|
1.26 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
16,559,707 |
|
|
|
6.48 |
|
|
|
0.75 |
|
|
|
12,883,125 |
|
|
|
0.76 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with EITF No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling Goods or Services,
the Company recognizes the fair value of non-employee options as
they vest using the Black-Scholes option pricing model. The
Company has recorded compensation expense of $1,082, $1,082, and
$2,079 in 2004, 2003 and 2002, respectively, related to grants
to non-employees.
F-19
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
(d) Employee Stock
Purchase Plan
The 1995 Employee Stock Purchase Plan (the Stock Purchase Plan)
was adopted in October 1995 and amended in June 2003. Under the
Stock Purchase Plan up to 500,000 shares of common stock
may be issued to participating employees of the Company, as
defined, or its subsidiaries. Participation is limited to
employees that would not own 5% or more of the total combined
voting power or value of the stock of the Company after the
grant.
On the first day of a designated payroll deduction period, the
“Offering Period”, the Company will grant to each
eligible employee who has elected to participate in the Stock
Purchase Plan an option to purchase shares of common stock as
follows: the employee may authorize an amount, a whole
percentage from 1% to 10% of such employee’s regular pay,
to be deducted by the Company from such pay during the Offering
Period. On the last day of the Offering Period, the employee is
deemed to have exercised the option, at the option exercise
price, to the extent of accumulated payroll deductions. Under
the terms of the Stock Purchase Plan, the option price is an
amount equal to 85% of the fair market value per share of the
common stock on either the first day or the last day of the
Offering Period, whichever is lower. In no event may an employee
purchase in any one Offering Period a number of shares that is
more than 15% of the employee’s annualized base pay divided
by 85% of the market value of a share of common stock on the
commencement date of the Offering Period. The Compensation
Committee may, in its discretion, choose an Offering Period of
12 months or less for each of the Offerings and choose a
different Offering Period for each Offering.
Offering periods are three months in duration and commence on
March 1, June 1, September 1, and December 1. In
2004, 2003 and 2002, the Company issued 92,215, 58,179 and
25,185 shares of common stock, respectively, under the
Stock Purchase Plan.
(e) Repricing
In September 1999, the Company’s Board of Directors
authorized the repricing of options to
purchase 5,251,827 shares of common stock to
$0.50 per share, which represented the market value on the
date of the repricing. These options are subject to variable
plan accounting, as defined in FASB Interpretation No. 44
(FIN 44). The Company will remeasure the intrinsic value of
the repriced options, through the earlier of the date of
exercise, cancellation or expiration, at each reporting date. A
decrease in the intrinsic value of these options over 2004 and
2002 resulted in credits of approximately $713,000 and
$1,297,000 to stock compensation expense for the years ended
December 31, 2004 and 2002, respectively. For the year
ended December 31, 2003, the Company recognized
approximately $543,000 as stock compensation expense from
repriced options. As of December 31, 2004, options to
purchase 2,403,256 shares are subject to variable plan
accounting.
(f) Preferred Stock
The Restated Certificate of Incorporation of the Company permits
its Board of Directors to issue up to 5,000,000 shares of
preferred stock, par value $0.01 per share, in one or more
series, to designate the number of shares constituting such
series, and fix by resolution, the powers, privileges,
preferences and relative, optional or special rights thereof,
including liquidation preferences and dividends, and conversion
and redemption rights of each such series. During 1998, the
Company designated 1,500,000 shares as Series A
convertible preferred stock which is described below in
Note (7)(g). As of December 31, 2004 and 2003, there
were 655 and 489,205 shares, respectively, of Series A
convertible preferred stock outstanding. As discussed in
Note (13), during 2002 the Company designated
100,000 shares of Series C junior participating
preferred stock. In 2003, the Company designated an additional
50,000 shares of Series C junior participating
preferred stock. There were no shares of Series C junior
participating preferred stock issued or outstanding at
December 31, 2004 and 2003.
F-20
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
|
|
| (g) |
Series A Convertible Preferred Stock |
On December 4, 2003, stockholders approved amendments to
the Company’s Restated Certificate of Incorporation that:
|
|
|
| |
• |
reduced the liquidation preference of the Company’s
Series A convertible preferred stock from $100 per
share to $1 per share; |
| |
| |
• |
reduced the annual dividend on the Company’s Series A
convertible preferred stock from 6.5% to 1%; and |
| |
| |
• |
increased the number of shares of the Company’s common
stock issuable upon conversion of the Company’s
Series A convertible preferred stock by 25% over the number
of shares that would otherwise be issuable for a sixty-day
conversion period between December 4, 2003 and
February 2, 2004 inclusive. |
During the sixty-day conversion period, the conversion ratio was
increased so that the Series A convertible preferred
shareholders could receive approximately 29.41 shares of
common stock for each share of Series A convertible
preferred stock converted instead of the stated conversion rate
of 23.53 shares.
During the conversion period, 99.9% of the Series A
convertible preferred stock was converted to common stock. The
combined effects of the amendments to the Company’s
Restated Certificate of Incorporation and the Series A
convertible preferred stock conversions are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 3, 2003 | |
|
December 31, 2003 | |
|
February 2, 2004 | |
| |
|
| |
|
| |
|
| |
|
Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Preferred stock outstanding
|
|
|
722,727 |
|
|
|
489,205 |
|
|
|
635 |
|
| |
Common stock issued from conversions (cumulative)
|
|
|
— |
|
|
|
6,868,288 |
|
|
|
21,238,028 |
|
| |
Common stock outstanding
|
|
|
63,595,442 |
|
|
|
70,482,570 |
|
|
|
84,900,627 |
|
|
Series A preferred liquidation preference
|
|
$ |
73,055,654 |
|
|
$ |
494,912 |
|
|
$ |
643 |
|
|
Annual dividend amount
|
|
$ |
4,697,726 |
|
|
$ |
937,643 |
|
|
$ |
864 |
|
The financial statement recognition of the Series A
preferred stock conversion is shown below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Preferred Stock Dividends | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Accretion of dividends expected to be paid on Series A
Preferred Stock
|
|
$ |
503 |
|
|
$ |
3,402,856 |
|
|
$ |
4,246,282 |
|
|
Accretion of dividend that would have been paid on April 1,
2004 and reversal since preferred shares were converted in
January and February 2004
|
|
|
(570,000 |
) |
|
|
570,000 |
|
|
|
— |
|
|
Market value of 25% additional shares issued upon conversion
|
|
|
3,245,492 |
|
|
|
1,556,000 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total preferred stock dividend
|
|
$ |
2,675,995 |
|
|
$ |
5,528,856 |
|
|
$ |
4,246,282 |
|
| |
|
|
|
|
|
|
|
|
|
As shown above, $1.6 million of the 25% additional
shares issued during the sixty-day conversion period was
recorded as additional dividends (a) in the calculation of
net loss applicable to common stockholders in the
2003 statement of operations and (b) in the
2003 statement of stockholders’ equity. The remaining
$3.2 million of the 25% additional shares were issued
between January 1, 2004 and February 2, 2004 and was
recorded as additional dividends (a) in the calculation off
“Net (loss) applicable to common stockholders” in
F-21
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
the 2004 statement of operations and (b) in the
2004 statement of stockholders equity. As a result of the
amendment to the Company’s Certificate of Incorporation and
the Series A convertible preferred stock conversions, the
preferred stock liquidation preference was reduced from
$73,055,654 at December 3, 2003 to $494,912 at
December 31, 2003 and $643 at February 2, 2004.
The dividends are now payable semi-annually in arrears at the
rate of 1% per annum, at the election of the Company,
either in cash or additional duly authorized, fully paid and
nonassessable shares of Series A preferred stock. In the
event of liquidation, dissolution or winding up of the Company,
after payment of debts and other liabilities of the Company, the
holders of the Series A convertible preferred stock then
outstanding will be entitled to a distribution of $1 per
share out of any assets available to shareholders. The
Series A preferred stock is non-voting. All remaining
shares of Series A preferred stock rank as to payment upon
the occurrence of any liquidation event senior to the common
stock. Shares of Series A preferred stock are convertible,
in whole or in part, at the option of the holder into fully paid
and nonassessable shares of common stock at $4.25 per
share, subject to adjustment as defined.
|
|
| (8) |
Commitments and Contingencies |
The Company leases its headquarters facility on Vassar Street in
Cambridge, Massachusetts, under a lease that has a 10-year term,
which commenced on May 1, 1997. Future minimum commitments
as of December 31, 2004, under existing lease agreements
through the lease term, are approximately:
| |
|
|
|
|
| |
|
Operating | |
| December 31, |
|
Leases | |
| |
|
| |
|
2005
|
|
|
611,000 |
|
|
2006
|
|
|
611,000 |
|
|
2007
|
|
|
204,000 |
|
| |
|
|
|
| |
|
$ |
1,426,000 |
|
| |
|
|
|
During 2004, 2003, and 2002, facility rent expense for
continuing operations, net of sublease income, was approximately
$282,000, $397,000 and $282,000, respectively.
|
|
| (b) |
External Collaborations |
The Company funds research efforts of various academic
collaborators and consultants in connection with its research
and development programs. Total future fixed commitments under
these agreements are estimated at approximately $79,000 for 2005.
In July 2004, the Company signed an agreement with PAREXEL
International (PAREXEL) to manage the phase 2 clinical
trial of IMOxine in patients with renal cell carcinoma. Under
the agreement, the Company may pay PAREXEL up to
$4.4 million in connection with this trial. As of
December 31, 2004, the Company had paid approximately
$0.7 million to PAREXEL under the agreement and expensed
approximately $0.4 million in “Research and
development” on the accompanying consolidated statement of
operations.
In August 2004, Dr. Sudhir Agrawal, the Company’s
President and Chief Scientific Officer, was appointed to the
additional position of Chief Executive Officer, replacing
Stephen R. Seiler who resigned as
F-22
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
CEO and a director of the Company. The Company has expensed
approximately $0.7 million for amounts to be paid to
Mr. Seiler through September 1, 2006 under his
employment agreement.
|
|
|
(d) Related-Party Agreements with Affiliates of
Stockholders and Directors |
In 2004, the Company paid Pillar Investment Ltd., which is
controlled by a director of the Company, a total of $281,000 for
commissions relating to the Company’s August 2004
financing. In conjunction with the financing, the Company also
issued Pillar Investment Ltd., as additional commissions,
warrants to purchase 432,520 shares of common stock at an
exercise price of $0.67 per share. These warrants have a
Black-Scholes value of approximately $155,000. Optima Life
Sciences Limited, which is controlled by Pillar Investment Ltd.,
purchased 2,768,100 shares of common stock and warrants to
purchase 553,620 additional shares of common stock at an
exercise price of $0.67 per share in the financing.
In 2003, the Company paid Pillar S.A. and Pillar Investment Ltd.
a total of $550,000 for (i) consulting services relating to
international investor relations (ii) consulting services
related to the repurchase of the Company’s common stock
from certain stockholders and (iii) commissions relating to
the Company’s August 2003 private placement. In
conjunction with the private placement, the Company also issued
Pillar Investment Ltd., as additional compensation for services
provided as a placement agent in the private placement, warrants
to purchase 587,709 shares of common stock at an exercise
price of $1.00 per share. The amounts payable to Pillar in
cash and warrants for the August 2003 private placement
were less on a percentage basis than the comparable fees paid to
the other placement agent involved in the private placement.
Optima Life Sciences Limited, which is controlled by Pillar
Investment Ltd., purchased 5,500,381 shares of common stock
and warrants to purchase 1,650,114 additional shares of common
stock in the private placement.
Drs. James Wyngaarden and Paul Zamecnik, Chairman of the
Board of Directors and a director of the Company, respectively,
participated in the August 2003 private placement offering
under the same terms as other investors. Dr. Wyngaarden
purchased 34,246 shares of common stock and warrants to
purchase 10,274 shares of common stock at an exercise price
of $1.00 per share; Dr. Zamecnik purchased
68,493 shares of common stock and warrants to purchase
20,548 shares of common stock at an exercise price of
$1.00 per share.
In addition to the fees described above, the Company also paid
other directors consulting fees of $35,875, $65,000 and $20,000
in 2004, 2003 and 2002, respectively.
In the fourth quarter of 2002, the United States Patent and
Trademark Office (the PTO) declared an interference involving a
patent application exclusively licensed by the Company from the
University of Massachusetts Medical Center, or UMMC (formerly
the Worcester Foundation for Biological Research), and three
patents issued to the National Institutes of Health. An
interference proceeding is a proceeding to determine who was the
first to invent and thus who is entitled to patent a claimed
invention. The PTO’s initial declaration of interference
named UMMC, and indirectly the Company, as the senior party. In
the fourth quarter of 2004, the PTO redeclared and restyled the
interference subsequently naming UMMC, and indirectly the
Company, as the junior party in the interference. See
Note 16.
On July 8, 2003, the PTO declared a second interference
between another patent exclusively licensed to the Company from
UMMC and a patent application assigned jointly to the University
of Montreal and Massachusetts Institute of Technology. The
PTO’s declaration of interference in the second proceeding
named UMMC, and indirectly the Company, as the junior party.
Under the terms of the license agreement with UMMC, the Company
is responsible for the prosecution and maintenance of the
patents and patent
F-23
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
applications at issue and is acting on behalf of UMMC in
connection with the interference proceedings. Based upon
priority of filing, the PTO issued judgment against UMMC, and
indirectly the Company. As a result, UMMC, and indirectly the
Company, are not entitled to certain claims of the UMMC patent
involved.
The Company is not practicing nor does it intend to practice any
of the intellectual property involved in either interference.
Consequently, if the remaining matter is not resolved in a way
beneficial to the Company, the Company does not believe that it
will have a negative impact on the Company’s business. If
UMMC is successful in the patent interferences, the Company may
be entitled to a portion of any sublicense income resulting from
the patents that are the subject of the interferences.
The Company applies SFAS No. 109, Accounting for
Income Taxes. Accordingly, a deferred tax asset or liability
is determined based on the difference between the financial
statement and tax basis of assets and liabilities, as measured
by the enacted tax rates expected to be in effect when these
differences reverse. At December 31, 2004, the Company had
cumulative net operating loss and tax credit carryforwards for
federal income tax purposes of approximately $254.9 million
and $4.6 million, respectively, available to reduce federal
taxable income and federal income taxes, respectively. These
carryforwards expire through 2024. The Tax Reform Act of 1986
contains provisions which limit the amount of net operating loss
and credit carryforwards that companies may utilize in any one
year in the event of cumulative changes in ownership over a
three-year period in excess of 50%. The Company has completed
several financings since the effective date of the Tax Reform
Act of 1986, which as of December 31, 2004, have resulted
in ownership changes in excess of 50%, as defined under the Act
and which will limit the Company’s ability to utilize its
net operating loss and tax credit carryforwards. The Company has
not prepared an analysis to determine the effect of the
ownership change limitation on its ability to utilize its net
operating loss and tax credit carryforwards. Ownership changes
in future periods may place additional limits on the
Company’s ability to utilize net operating loss and tax
credit carryforwards.
As of December 31, 2004 and 2003, the components of the
deferred tax assets are approximately as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Operating loss carryforwards
|
|
$ |
101,946,064 |
|
|
$ |
97,330,439 |
|
|
Tax credit carryforwards
|
|
|
4,603,431 |
|
|
|
4,362,658 |
|
|
Other
|
|
|
679,106 |
|
|
|
692,546 |
|
| |
|
|
|
|
|
|
| |
|
|
107,228,601 |
|
|
|
102,385,643 |
|
|
Valuation allowance
|
|
|
(107,228,601 |
) |
|
|
(102,385,643 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
The Company has provided a valuation allowance for its deferred
tax asset due to the uncertainty surrounding the ability to
realize this asset. During 2001, the Company accrued $500,000
for Alternative Minimum Tax (AMT) of which $450,000 was paid
prior to December 31, 2001. The National Economic
Stabilization and Recovery Act, enacted in March 2002, has
temporarily rescinded the AMT as it applies to the Company. The
Company received a $450,000 refund and recognized a $500,000
credit to operations during 2002 in accordance with
SFAS No. 109, Accounting for Income Taxes.
F-24
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
|
|
| (10) |
Employee Benefit Plan |
The Company has an employee benefit plan under
Section 401(k) of the Internal Revenue Code. The plan
allows employees to make contributions up to a specified
percentage of their compensation. Under the plan, the Company
may, but is not obligated to, match a portion of the
employees’ contributions up to a defined maximum. The
Company is currently contributing up to 3% of employee base
salary, by matching 50% of the first 6% of annual base salary
contributed by each employee. Approximately $82,000, $74,000,
and $58,000 of 401(k) benefits were charged to continuing
operations during 2004, 2003, and 2002, respectively.
|
|
| (11) |
Income (Loss) Per Share |
The following table sets forth the computation of basic and
diluted (loss) income per share:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
$ |
(12,734,950 |
) |
|
$ |
(17,211,058 |
) |
|
$ |
16,971,540 |
|
|
Accretion of preferred stock dividend
|
|
|
(2,675,995 |
) |
|
|
(5,528,856 |
) |
|
|
(4,246,282 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Numerator for basic (loss) income applicable to common
shareholders
|
|
|
(15,410,945 |
) |
|
|
(22,739,914 |
) |
|
|
12,725,258 |
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest expense related to convertible debt
|
|
|
— |
|
|
|
— |
|
|
|
21,896 |
|
| |
|
|
|
|
|
|
|
|
|
|
Numerator for diluted (loss) income applicable to common
shareholders
|
|
$ |
(15,410,945 |
) |
|
$ |
(22,739,914 |
) |
|
$ |
12,747,154 |
|
| |
|
|
|
|
|
|
|
|
|
|
Denominator for basic (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
98,913,927 |
|
|
|
51,053,415 |
|
|
|
46,879,232 |
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common stock options and warrants
|
|
|
— |
|
|
|
— |
|
|
|
5,647,539 |
|
| |
Convertible debt
|
|
|
— |
|
|
|
— |
|
|
|
457,644 |
|
| |
|
|
|
|
|
|
|
|
|
|
Denominator for diluted (loss) income per share
|
|
|
98,913,927 |
|
|
|
51,053,415 |
|
|
|
52,984,415 |
|
| |
|
|
|
|
|
|
|
|
|
|
(Loss) income per share — basic
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Loss) income from operations
|
|
$ |
(0.13 |
) |
|
$ |
(0.34 |
) |
|
$ |
0.36 |
|
| |
Accretion of preferred stock dividends
|
|
|
(0.03 |
) |
|
|
(0.11 |
) |
|
|
(0.09 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Net (loss) income per share applicable to common stockholders
|
|
$ |
(0.16 |
) |
|
$ |
(0.45 |
) |
|
$ |
0.27 |
|
| |
|
|
|
|
|
|
|
|
|
|
(Loss) income per share — diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Loss) income from operations
|
|
$ |
(0.13 |
) |
|
$ |
(0.34 |
) |
|
$ |
0.32 |
|
| |
Accretion of preferred stock dividends
|
|
|
(0.03 |
) |
|
|
(0.11 |
) |
|
|
(0.08 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Net (loss) income per share applicable to common stockholders
|
|
$ |
(0.16 |
) |
|
$ |
(0.45 |
) |
|
$ |
0.24 |
|
| |
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2004 and 2003, diluted net
loss per share from operations is the same as basic net loss per
common share, as the effects of the Company’s potential
common stock equivalents are antidilutive. Total antidilutive
securities were 32,091,596 and 39,545,229 at December 31,
2004 and 2003, respectively, and consist of stock options,
warrants, and convertible preferred stock. Antidilutive
securities for the year ended December 31, 2003 also
includes convertible debt instruments (on an as-converted
basis). As of December 31, 2002, 22,383,725 shares
were not included in diluted net income per share as the effects
of certain convertible debt, convertible preferred stock,
warrants, and certain stock options are antidilutive.
F-25
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
|
|
| (12) |
Supplemental Disclosure of Cash Flow Information |
Supplemental disclosure of cash flow information for the periods
presented are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid for interest
|
|
$ |
58,770 |
|
|
$ |
117,540 |
|
|
$ |
121,278 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Cash (received) paid for taxes
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(450,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non cash financing and investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Exchange of 8% convertible notes payable for common stock
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
31,582 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Accretion (reversal) of Series A preferred stock
dividends
|
|
$ |
(569,497 |
) |
|
$ |
3,972,856 |
|
|
$ |
4,246,282 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Dividend from induced conversion of Series A preferred stock
|
|
$ |
3,245,492 |
|
|
$ |
1,556,000 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Issuance of stock options and stock for services
|
|
$ |
129,448 |
|
|
$ |
82,364 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Interest paid in kind on 8% Notes
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
27,657 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Conversion of Series A preferred stock into common stock
|
|
$ |
14,370 |
|
|
$ |
6,878 |
|
|
$ |
92 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Issuance of warrants in connection with consulting services
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
98,000 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Cashless exercise of stock warrants
|
|
$ |
7 |
|
|
$ |
19 |
|
|
$ |
247 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Deferred compensation relating to issuance of stock options
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,150 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Equipment acquired under capital lease
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
113,303 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (13) |
Shareholder Rights Plan |
The Company adopted a shareholder rights plan in
December 2001. Under the rights plan, one right was
distributed as of the close of business on January 7, 2002
on each then outstanding share of the Company’s common
stock. The rights will automatically trade with the underlying
common stock and ordinarily will not be exercisable. The rights
will only become exercisable if a person acquires beneficial
ownership of, or commences a tender offer for, fifteen percent
or more of the Company’s common stock, unless, in either
case, the transaction was approved by the Company’s board
of directors.
If the rights become exercisable, the type and amount of
securities receivable upon exercise of the rights would depend
on the circumstances at the time of exercise. Initially, each
right would entitle the holder to purchase one one-thousandth of
a share of the Company’s newly created Series C junior
participating preferred stock for an exercise price of $13.00.
If a person acquires fifteen percent or more of the
Company’s common stock in a transaction that was not
approved by the Company’s board of directors, then each
right, other than those owned by the acquiring person, would
instead entitle the holder to purchase $26.00 worth of the
Company’s common stock for the $13.00 exercise price. If
the Company is involved in a merger or other transaction with
another company in which the Company is not the surviving
corporation, or transfers more than 50% of its assets to another
company, in a transaction that was not approved by the
Company’s board of directors, then each right, other than
those owned by the acquiring person, would instead entitle the
holder to purchase $26.00 worth of the acquiring company’s
common stock for the $13.00 exercise price.
The Company’s board of directors may redeem the rights for
$0.001 per right at any time until ten business days after
a person acquires fifteen percent or more of the Company’s
outstanding common stock. Unless the rights are redeemed or
exchanged earlier, they will expire on December 10, 2011.
F-26
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
|
|
| (14) |
Repurchase of Common Shares |
On February 14, 2003, the Company repurchased
4,643,034 shares of its common stock at a price of
$1.15 per share. The fair market value of the common stock
was $0.75 per share on the date of the transaction
resulting in a premium of approximately $1,857,000 in the
aggregate. The Company charged this premium to general and
administrative expense in 2003. The repurchased stock was
retired on March 13, 2003.
In August 2004, the Company raised approximately
$5.1 million in gross proceeds from a private placement to
institutional and overseas investors. In the private placement,
the Company sold 8,823,400 shares of common stock and
warrants to purchase 1,764,680 shares of common stock. The
warrants to purchase common stock have an exercise price of
$0.67 per share and will expire if not exercised on or
prior to August 27, 2009. The warrants may be exercised by
cash payment only. On or after February 27, 2005, the
Company may redeem the warrants if the closing sales price of
the common stock for each day of any 20 consecutive trading day
period is greater than or equal to $1.34 per share. The
redemption price will be $0.01 per share of common stock
underlying the warrants. The Company may exercise its right to
redeem the warrants by providing 30 days prior written
notice to the holders of the warrants. The net proceeds to the
Company from the offering, excluding the proceeds of any future
exercise of the warrants, totaled approximately
$4.7 million.
In April 2004, the Company raised approximately
$11.8 million in gross proceeds through a registered direct
offering. In the offering, the Company sold
16,899,800 shares of common stock and warrants to purchase
3,041,964 shares of common stock to institutional and other
investors. The warrants to purchase common stock have an
exercise price of $1.14 per share and are exercisable at
any time on or after October 21, 2004 and on or prior to
April 20, 2009. The warrants may be exercised by cash
payment only. On or after October 21, 2005, the Company may
redeem the warrants if the closing sales price of the common
stock for each day of any 20 consecutive trading day period
within 30 days prior to providing advance notice of
redemption is greater than or equal to $2.60 per share. The
redemption price will be $0.01 per share of common stock
underlying the warrants. The Company may exercise its right to
redeem the warrants by providing 30 days prior written
notice to the holders of the warrants. The net proceeds to the
Company from the offering, excluding the proceeds of any future
exercise of the warrants, totaled approximately
$10.7 million.
In August 2003, the Company raised approximately
$14.6 million in gross proceeds from a private placement to
institutional and accredited investors. In the private
placement, the Company sold 20,053,022 shares of common
stock and warrants to purchase 6,015,934 shares of common
stock. The warrants to purchase common stock have an exercise
price of $1.00 per share and will expire if not exercised
by August 28, 2008. The warrants may be exercised by paying
cash or by invoking a cashless exercise feature. The Company may
redeem the warrants at a price of $0.05 per share of common
stock issuable upon exercise of the warrants if the average
closing sales price of the common stock for a ten consecutive
trading day period is greater than or equal to $2.00 per
share. The net proceeds to the Company from the offering,
excluding the proceeds of any future exercise of the warrants,
totaled approximately $13.1 million. In addition, the
Company issued warrants to selected dealers and placement agents
which assisted with the private placement. These include
warrants to purchase 2,458,405 shares of common stock at an
exercise price of $0.73 per share and warrants to purchase
1,325,342 shares of common stock at an exercise price of
$1.00 per share. These warrants have a Black-Scholes value
of $2.8 million and will expire if not exercised by
August 28, 2008. These warrants may be exercised by paying
cash or through a cashless exercise feature. The Company does
not have the right to redeem these warrants.
F-27
HYBRIDON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
On January 15, 2005, the Company and UMMC entered into an
Interference Settlement Agreement with the NIH with respect to
the interference proceeding discussed in the first paragraph of
Note 8(e). The agreement is subject to approval of the
Board of Patent Appeals and Interferences.
F-28
Exhibit Index
| |
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| |
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|
Incorporated by Reference |
| |
|
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|
|
|
| Exhibit | |
|
|
|
Filed with this | |
|
Form or | |
|
Filing Date |
|
SEC File |
| Number | |
|
Description |
|
Form 10-K | |
|
Schedule | |
|
with SEC |
|
Number |
| | |
|
|
|
| |
|
| |
|
|
|
|
| |
3.1 |
|
|
Restated Certificate of Incorporation of Hybridon, Inc., as
amended. |
|
|
X |
|
|
|
|
|
|
|
|
|
| |
3.2 |
|
|
Amended and Restated Bylaws of Hybridon, Inc. |
|
|
|
|
|
|
S-1 |
|
|
November 6, 1995 |
|
33-99024 |
| |
4.1 |
|
|
Specimen Certificate for shares of Common Stock, $.001 par
value, of Hybridon, Inc. |
|
|
|
|
|
|
S-1 |
|
|
December 8, 1995 |
|
33-99024 |
| |
4.2 |
|
|
Indenture dated as of March 26, 1997 between Forum Capital
Markets LLC and Hybridon, Inc. |
|
|
|
|
|
|
8-K |
|
|
April 14, 1997 |
|
000-27352 |
| |
4.3 |
|
|
Rights Agreement dated December 10, 2001 by and between
Hybridon, Inc. and Mellon Investor Services LLC, as rights
agent, as amended. |
|
|
|
|
|
|
S-2 |
|
|
October 10, 2003 |
|
333-109630 |
| |
10.1† |
|
|
License Agreement dated February 21, 1990 and restated as
of September 8, 1993 between Hybridon, Inc. and University
of Massachusetts Medical Center. |
|
|
|
|
|
|
S-1 |
|
|
November 6, 1995 |
|
33-99024 |
| |
10.2† |
|
|
Patent License Agreement effective as of October 13, 1994
between Hybridon, Inc. and McGill University. |
|
|
|
|
|
|
S-1 |
|
|
November 6, 1995 |
|
33-99024 |
| |
10.3† |
|
|
License Agreement effective as of October 25, 1995 between
Hybridon, Inc. and the General Hospital Corporation. |
|
|
|
|
|
|
S-1 |
|
|
November 6, 1995 |
|
33-99024 |
| |
10.4† |
|
|
License Agreement dated as of October 30, 1995 between
Hybridon, Inc. and Yoon S. Cho-Chung. |
|
|
|
|
|
|
S-1 |
|
|
November 6, 1995 |
|
33-99024 |
| |
10.5 |
|
|
Registration Rights Agreement dated as of February 21, 1990
between Hybridon, Inc., University of Massachusetts Medical
Center and Paul C. Zamecnik. |
|
|
|
|
|
|
S-1 |
|
|
November 6, 1995 |
|
33-99024 |
| |
10.6†† |
|
|
1990 Stock Option Plan, as amended. |
|
|
|
|
|
|
S-1 |
|
|
November 6, 1995 |
|
33-99024 |
| |
10.7†† |
|
|
1995 Stock Option Plan. |
|
|
|
|
|
|
S-1 |
|
|
November 6, 1995 |
|
33-99024 |
| |
10.8†† |
|
|
1995 Director Stock Plan. |
|
|
|
|
|
|
S-1 |
|
|
November 6, 1995 |
|
33-99024 |
| |
10.9†† |
|
|
1995 Employee Stock Purchase Plan. |
|
|
|
|
|
|
S-1 |
|
|
November 6, 1995 |
|
33-99024 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Incorporated by Reference |
| |
|
|
|
|
|
|
| Exhibit | |
|
|
|
Filed with this | |
|
Form or | |
|
Filing Date |
|
SEC File |
| Number | |
|
Description |
|
Form 10-K | |
|
Schedule | |
|
with SEC |
|
Number |
| | |
|
|
|
| |
|
| |
|
|
|
|
| |
10.10†† |
|
|
Employment Agreement dated April 1, 2002 between Hybridon,
Inc. and Dr. Sudhir Agrawal. |
|
|
|
|
|
|
10-Q |
|
|
May 14, 2002 |
|
000-27352 |
| |
10.11†† |
|
|
Consulting Agreement dated as of March 1, 2003 between
Hybridon, Inc. and Dr. Paul C. Zamecnik. |
|
|
|
|
|
|
10-K |
|
|
March 31, 2003 |
|
000-27352 |
| |
10.12† |
|
|
Amendment No. 1 to License Agreement, dated as of
February 21, 1990 and restated as of September 8,
1993, by and between University of Massachusetts Medical Center
and Hybridon, Inc., dated as of November 26, 1996. |
|
|
|
|
|
|
10-Q |
|
|
August 14, 1997 |
|
000-27352 |
| |
10.13† |
|
|
Licensing Agreement dated March 12, 1999 by and between
Hybridon, Inc. and Integrated DNA Technologies, Inc. |
|
|
|
|
|
|
10-K |
|
|
April 15, 1999 |
|
000-27352 |
| |
10.14† |
|
|
Licensing Agreement dated September 7, 1999 by and between
Hybridon, Inc. and Genzyme Corporation. |
|
|
|
|
|
|
10-Q |
|
|
November 15, 1999 |
|
000-27352 |
| |
10.15 |
|
|
License Agreement dated September 20, 2000 by and between
Hybridon and Boston Biosystems, Inc. |
|
|
|
|
|
|
S-1/A |
|
|
December 29, 2000 |
|
333-69649 |
| |
10.16 |
|
|
Assignment of Coexclusive License dated September 20, 2000
by and between Hybridon and the Public Health Service. |
|
|
|
|
|
|
S-1/A |
|
|
December 29, 2000 |
|
333-69649 |
| |
10.17 |
|
|
Oligonucleotide Purification Patent License Agreement dated
September 20, 2000 by and between Hybridon and Boston
Biosystems, Inc. |
|
|
|
|
|
|
S-1/A |
|
|
December 29, 2000 |
|
333-69649 |
| |
10.18 |
|
|
Asset Purchase Agreement dated June 29, 2000 by and between
Hybridon and Boston Biosystems, Inc. |
|
|
|
|
|
|
Schedule
14A |
|
|
August 15, 2000 |
|
000-27352 |
| |
10.19† |
|
|
Assignment of Patent Rights dated September 20, 2000 by and
between Hybridon and Boston Biosystems, Inc. |
|
|
|
|
|
|
S-1/A |
|
|
December 29, 2000 |
|
333-69649 |
| |
10.20† |
|
|
PNT Monomer Patent License and Option Agreement dated
September 20, 2000 by and between Hybridon and Boston
Biosystems, Inc. |
|
|
|
|
|
|
S-1/A |
|
|
December 29, 2000 |
|
333-69649 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
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|
|
Incorporated by Reference |
| |
|
|
|
|
|
|
| Exhibit | |
|
|
|
Filed with this | |
|
Form or | |
|
Filing Date |
|
SEC File |
| Number | |
|
Description |
|
Form 10-K | |
|
Schedule | |
|
with SEC |
|
Number |
| | |
|
|
|
| |
|
| |
|
|
|
|
| |
10.21† |
|
|
Agreement Relating to Patents Forming Part of Acquired Assets
but to be Licensed Back to Hybridon for the Purposes of OriGenix
Agreements dated September 20, 2000 by and between Hybridon
and Boston Biosystems, Inc. |
|
|
|
|
|
|
S-1/A |
|
|
December 29, 2000 |
|
333-69649 |
| |
10.22 |
|
|
Agreement and Mutual Release between Hybridon and MethylGene,
Inc. dated March 21, 2001. |
|
|
|
|
|
|
10-K |
|
|
April 13, 2001 |
|
000-27352 |
| |
10.23†† |
|
|
Amended and Restated 1997 Stock Incentive Plan. |
|
|
|
|
|
|
10-Q |
|
|
May 15, 2001 |
|
000-27352 |
| |
10.24† |
|
|
Collaboration and License Agreement by and between Isis
Pharmaceuticals, Inc., and Hybridon, Inc., dated May 24,
2001. |
|
|
|
|
|
|
10-Q |
|
|
August 20, 2001 |
|
000-27352 |
| |
10.25 |
|
|
Amendment No. 1 to the Collaboration and License Agreement,
dated as of May 24, 2001 by and between Isis
Pharmaceuticals, Inc. and Hybridon, Inc., dated as of
August 14, 2002. |
|
|
|
|
|
|
10-K |
|
|
March 31, 2003 |
|
000-27352 |
| |
10.26 |
|
|
Master Agreement relating to the Cross License of Certain
Intellectual Property and Collaboration by and between Isis
Pharmaceuticals, Inc. and Hybridon, Inc., dated May 24,
2001. |
|
|
|
|
|
|
10-Q |
|
|
August 20, 2001 |
|
000-27352 |
| |
10.27†† |
|
|
Employment Agreement by and between Stephen R. Seiler and
Hybridon, Inc. effective as of July 25, 2001. |
|
|
|
|
|
|
10-Q |
|
|
November 14, 2001 |
|
000-27352 |
| |
10.28†† |
|
|
Amendment to Employment Agreement, dated August 20, 2004,
by and between Hybridon, Inc. and Stephen R. Seiler. |
|
|
|
|
|
|
10-Q |
|
|
November 12, 2004 |
|
001-31918 |
| |
10.29 |
|
|
Unit Purchase Agreement by and among Hybridon, Inc. and certain
persons and entities listed therein, dated April 1, 1998. |
|
|
|
|
|
|
10-K |
|
|
April 1, 2002 |
|
000-27352 |
| |
10.30†† |
|
|
Employment Agreement dated April 1, 2002 between Hybridon,
Inc. and Robert G. Andersen. |
|
|
|
|
|
|
10-Q |
|
|
May 14, 2002 |
|
000-27352 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Incorporated by Reference |
| |
|
|
|
|
|
|
| Exhibit | |
|
|
|
Filed with this | |
|
Form or | |
|
Filing Date |
|
SEC File |
| Number | |
|
Description |
|
Form 10-K | |
|
Schedule | |
|
with SEC |
|
Number |
| | |
|
|
|
| |
|
| |
|
|
|
|
| |
10.31†† |
|
|
Executive Stock Option Agreement for 3,150,000 Options effective
as of July 25, 2001 between Hybridon, Inc. and Stephen R.
Seiler. |
|
|
|
|
|
|
10-Q |
|
|
August 14, 2002 |
|
000-27352 |
| |
10.32†† |
|
|
Executive Stock Option Agreement for 490,000 Options effective
as of July 25, 2001 between Hybridon, Inc. and Stephen R.
Seiler. |
|
|
|
|
|
|
10-Q |
|
|
August 14, 2002 |
|
000-27352 |
| |
10.33†† |
|
|
Executive Stock Option Agreement for 1,260,000 Options effective
as of July 25, 2001 between Hybridon, Inc. and
Dr. Sudhir Agrawal. |
|
|
|
|
|
|
10-Q |
|
|
October 24, 2002 |
|
000-27352 |
| |
10.34†† |
|
|
Executive Stock Option Agreement for 550,000 Options effective
as of July 25, 2001 between Hybridon, Inc. and
Dr. Sudhir Agrawal. |
|
|
|
|
|
|
10-Q |
|
|
October 24, 2002 |
|
000-27352 |
| |
10.35†† |
|
|
Executive Stock Option Agreement for 500,000 Options effective
as of July 25, 2001 between Hybridon, Inc. and
Dr. Sudhir Agrawal. |
|
|
|
|
|
|
10-Q |
|
|
October 24, 2002 |
|
000-27352 |
| |
10.36 |
|
|
Consulting Agreement effective as of October 1, 2002
between Hybridon, Inc. and Pillar, S.A. |
|
|
|
|
|
|
10-Q |
|
|
October 24, 2002 |
|
000-27352 |
| |
10.37† |
|
|
License Agreement by and between Louisiana State University and
Hybridon, Inc., dated July 1, 1998. |
|
|
|
|
|
|
10-K |
|
|
March 31, 2003 |
|
000-27352 |
| |
10.38 |
|
|
Engagement Letter, dated as of April 18, 2003, by and among
Hybridon, Inc., Pillar Investment Limited and PrimeCorp Finance
S.A. |
|
|
|
|
|
|
S-2 |
|
|
October 10, 2003 |
|
333-109630 |
| |
10.39 |
|
|
Registration Rights Agreement, dated as of August 28, 2003
by and among Hybridon, Inc., the Purchasers and the Agents. |
|
|
|
|
|
|
S-2 |
|
|
October 10, 2003 |
|
333-109630 |
| |
10.40 |
|
|
Form of Common Stock Purchase Warrant issued to purchasers of
units in a private placement on August 28, 2003 and
August 29, 2003. |
|
|
|
|
|
|
S-2 |
|
|
October 10, 2003 |
|
333-109630 |
| |
10.41 |
|
|
Form of Common Stock Purchase Warrant issued to selected dealers
and placement agents on August 28, 2003 in connection with
a private placement. |
|
|
|
|
|
|
S-2 |
|
|
October 10, 2003 |
|
333-109630 |
| |
10.42 |
|
|
Engagement Letter, dated as of August 27, 2004, by and
among Hybridon, Inc. and Pillar Investment Limited. |
|
|
|
|
|
|
10-Q |
|
|
November 12, 2004 |
|
001-31918 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Incorporated by Reference |
| |
|
|
|
|
|
|
| Exhibit | |
|
|
|
Filed with this | |
|
Form or | |
|
Filing Date |
|
SEC File |
| Number | |
|
Description |
|
Form 10-K | |
|
Schedule | |
|
with SEC |
|
Number |
| | |
|
|
|
| |
|
| |
|
|
|
|
| |
10.43 |
|
|
Registration Rights Agreement, dated August 27, 2004 by and
among Hybridon, Inc., Pillar Investments Limited and Purchasers. |
|
|
|
|
|
|
10-Q |
|
|
November 12, 2004 |
|
001-31918 |
| |
10.44 |
|
|
Form of Warrants issued to investors and the placement agent in
connection with Hybridon’s August 27, 2004 financing. |
|
|
|
|
|
|
10-Q |
|
|
November 12, 2004 |
|
001-31918 |
| |
10.45 |
|
|
Amendment to the License Agreement dated as of October 30,
1995 by and between Hybridon, Inc. and Yoon
S. Cho-Chung, M.D., Ph.D. dated February 4,
2005. |
|
|
X |
|
|
|
|
|
|
|
|
|
| |
10.46 |
|
|
Summary of Director Compensation of Hybridon, Inc. |
|
|
X |
|
|
|
|
|
|
|
|
|
| |
10.47 |
|
|
Non-Employee Director Nonstatutory Stock Option Agreement
Granted under 1997 Stock Incentive Plan |
|
|
X |
|
|
|
|
|
|
|
|
|
| |
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
X |
|
|
|
|
|
|
|
|
|
| |
31.1 |
|
|
Certification of Chief Executive Officer pursuant to Exchange
Act Rules 13a-14 and 15d-14, as adopted pursuant to
Section 302 of Sarbanes-Oxley Act of 2002. |
|
|
X |
|
|
|
|
|
|
|
|
|
| |
31.2 |
|
|
Certification of Chief Financial Officer pursuant to Exchange
Act Rules 13a-14 and 15d-14, as adopted pursuant to
Section 302 of Sarbanes-Oxley Act of 2002. |
|
|
X |
|
|
|
|
|
|
|
|
|
| |
32.1 |
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
X |
|
|
|
|
|
|
|
|
|
| |
32.2 |
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
| |
† |
Confidential treatment granted as to certain portions, which
portions are omitted and filed separately with the Commission. |
|
|
| †† |
Management contract or compensatory plan or arrangement required
to be filed as an Exhibit to the Annual Report on Form 10-K. |