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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
Commission file number 000-28401
MAXYGEN, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
77-0449487 |
(State of incorporation) |
|
(I.R.S. Employer Identification No.) |
515 Galveston Drive
Redwood City, California 94063
(Address of principal executive offices, including zip code)
(650) 298-5300
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
As of November 1, 2002, there were 34,438,985 shares of the registrants common stock outstanding.
MAXYGEN, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
Part I FINANCIAL INFORMATION |
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Item 1: Financial Statements: |
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3 |
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4 |
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5 |
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6 |
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14 |
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31 |
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31 |
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Part II OTHER INFORMATION |
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32 |
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32 |
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32 |
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33 |
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33 |
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33 |
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34 |
2
PART IFINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
MAXYGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
|
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December 31, 2001
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September 30, 2002
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(Note 1) |
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(unaudited) |
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ASSETS |
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Current assets: |
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|
|
|
|
|
|
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Cash and cash equivalents |
|
$ |
48,388 |
|
|
$ |
177,870 |
|
Short-term investments |
|
|
157,557 |
|
|
|
50,736 |
|
Grant and other receivables |
|
|
7,300 |
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|
|
6,880 |
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Prepaid expenses and other current assets |
|
|
2,279 |
|
|
|
2,191 |
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|
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|
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Total current assets |
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215,524 |
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237,677 |
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Property and equipment, net |
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17,340 |
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|
17,456 |
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Goodwill |
|
|
12,192 |
|
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12,192 |
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Intangible assets, net of accumulated amortization of $1,593 at December 31, 2001 and $2,451 at September 30,
2002 |
|
|
1,842 |
|
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|
984 |
|
Long-term investments |
|
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28,932 |
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|
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Investment in joint venture |
|
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|
|
|
|
233 |
|
Deposits and other assets |
|
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1,588 |
|
|
|
1,508 |
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|
|
|
|
|
|
|
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Total assets |
|
$ |
277,418 |
|
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$ |
270,050 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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|
|
|
|
|
|
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Accounts payable |
|
$ |
3,398 |
|
|
$ |
1,876 |
|
Accrued compensation |
|
|
2,355 |
|
|
|
5,353 |
|
Accrued legal expenses |
|
|
815 |
|
|
|
975 |
|
Deferred rent |
|
|
937 |
|
|
|
974 |
|
Other accrued liabilities |
|
|
2,381 |
|
|
|
1,710 |
|
Deferred revenue |
|
|
9,093 |
|
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9,412 |
|
Current portion of equipment financing obligations |
|
|
622 |
|
|
|
703 |
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|
|
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|
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Total current liabilities |
|
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19,601 |
|
|
|
21,003 |
|
Deferred revenue |
|
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3,410 |
|
|
|
1,699 |
|
Non-current portion of equipment financing obligations |
|
|
673 |
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|
|
132 |
|
Minority interest |
|
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|
|
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|
10,000 |
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Stockholders equity: |
|
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|
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Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding at December 31, 2001
and September 30, 2002 |
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Common stock, $0.0001 par value: 100,000,000 shares authorized, 34,026,414, and 34,438,985 shares issued and outstanding
at December 31, 2001 and September 30, 2002, respectively |
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3 |
|
|
|
3 |
|
Additional paid-in capital |
|
|
389,607 |
|
|
|
393,054 |
|
Notes receivable from stockholders |
|
|
(339 |
) |
|
|
|
|
Deferred stock compensation |
|
|
(8,509 |
) |
|
|
(3,163 |
) |
Accumulated other comprehensive income |
|
|
1,698 |
|
|
|
1,042 |
|
Accumulated deficit |
|
|
(128,726 |
) |
|
|
(153,720 |
) |
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|
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Total stockholders equity |
|
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253,734 |
|
|
|
237,216 |
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Total liabilities and stockholders equity |
|
$ |
277,418 |
|
|
$ |
270,050 |
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See accompanying notes.
3
MAXYGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
|
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Three Months ended September
30,
|
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|
Nine Months ended September
30,
|
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2001
|
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2002
|
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2001
|
|
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2002
|
|
Collaborative research and development revenue |
|
$ |
6,384 |
|
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$ |
10,435 |
|
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$ |
17,381 |
|
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$ |
27,744 |
|
Grant revenue |
|
|
1,026 |
|
|
|
1,273 |
|
|
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4,635 |
|
|
|
3,818 |
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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Total revenues |
|
|
7,410 |
|
|
|
11,708 |
|
|
|
22,016 |
|
|
|
31,562 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Research and development |
|
|
13,468 |
|
|
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15,849 |
|
|
|
39,195 |
|
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|
46,201 |
|
General and administrative |
|
|
3,168 |
|
|
|
3,309 |
|
|
|
10,668 |
|
|
|
9,558 |
|
Stock compensation expense (1) |
|
|
2,674 |
|
|
|
1,311 |
|
|
|
9,729 |
|
|
|
5,439 |
|
Amortization of goodwill and other intangible assets |
|
|
2,182 |
|
|
|
286 |
|
|
|
6,545 |
|
|
|
858 |
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Total operating expenses |
|
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21,492 |
|
|
|
20,755 |
|
|
|
66,137 |
|
|
|
62,056 |
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Loss from operations |
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(14,082 |
) |
|
|
(9,047 |
) |
|
|
(44,121 |
) |
|
|
(30,494 |
) |
Interest income, net |
|
|
3,196 |
|
|
|
2,294 |
|
|
|
10,625 |
|
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|
6,266 |
|
Equity in net loss of joint venture |
|
|
|
|
|
|
(538 |
) |
|
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|
|
|
|
(767 |
) |
|
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|
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Net loss |
|
$ |
(10,886 |
) |
|
$ |
(7,291 |
) |
|
$ |
(33,496 |
) |
|
$ |
(24,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share |
|
$ |
(0.33 |
) |
|
$ |
(0.22 |
) |
|
$ |
(1.03 |
) |
|
$ |
(0.75 |
) |
Shares used in computing basic and diluted net loss per share |
|
|
32,707 |
|
|
|
33,757 |
|
|
|
32,475 |
|
|
|
33,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Stock compensation expense related to the following: |
|
Research and development |
|
$ |
2,080 |
|
|
$ |
973 |
|
|
$ |
7,831 |
|
|
$ |
4,065 |
|
General and administrative |
|
|
594 |
|
|
|
338 |
|
|
|
1,898 |
|
|
|
1,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,674 |
|
|
$ |
1,311 |
|
|
$ |
9,729 |
|
|
$ |
5,439 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
See accompanying notes.
4
MAXYGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
(UNAUDITED)
|
|
Nine months ended September
30,
|
|
|
|
2001
|
|
|
2002
|
|
Operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(33,496 |
) |
|
$ |
(24,995 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,150 |
|
|
|
3,945 |
|
Amortization of intangible assets |
|
|
6,545 |
|
|
|
858 |
|
Equity in net loss of joint venture |
|
|
|
|
|
|
767 |
|
Non-cash stock compensation |
|
|
9,411 |
|
|
|
5,705 |
|
Common stock issued and stock options granted to consultants for services rendered |
|
|
772 |
|
|
|
1,258 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Grant and other receivables |
|
|
(633 |
) |
|
|
420 |
|
Prepaid expenses and other current assets |
|
|
(596 |
) |
|
|
639 |
|
Deposits and other assets |
|
|
(198 |
) |
|
|
(406 |
) |
Accounts payable |
|
|
1,313 |
|
|
|
(1,522 |
) |
Accrued compensation |
|
|
2,402 |
|
|
|
2,998 |
|
Other accrued liabilities and deferred rent |
|
|
(629 |
) |
|
|
(474 |
) |
Deferred revenue |
|
|
3,289 |
|
|
|
(1,392 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(9,670 |
) |
|
|
(12,199 |
) |
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Purchases of available-for-sale securities |
|
|
(161,306 |
) |
|
|
(18,413 |
) |
Maturities of available-for-sale securities |
|
|
106,292 |
|
|
|
152,663 |
|
Sale of available-for-sale securities |
|
|
15,237 |
|
|
|
|
|
Investment in joint venture |
|
|
|
|
|
|
(1,000 |
) |
Acquisition of property and equipment |
|
|
(6,554 |
) |
|
|
(3,857 |
) |
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(46,331 |
) |
|
|
129,393 |
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Repayments under equipment financing obligation |
|
|
(389 |
) |
|
|
(460 |
) |
Equity adjustment from foreign currency translation |
|
|
(115 |
) |
|
|
581 |
|
Minority investment |
|
|
|
|
|
|
10,000 |
|
Proceeds from issuance of common stock |
|
|
1,788 |
|
|
|
1,828 |
|
Payments received on promissory notes |
|
|
27 |
|
|
|
339 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,311 |
|
|
|
12,288 |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(54,690 |
) |
|
|
129,482 |
|
Cash and cash equivalents at beginning of period |
|
|
111,374 |
|
|
|
48,388 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
56,684 |
|
|
$ |
177,870 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
MAXYGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Basis of Presentation and Significant Accounting Policies
Basis
of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information. The information as of September 30, 2002 and for the three months and nine months ended September 30, 2001 and September 30, 2002 includes all adjustments (consisting only
of normal recurring adjustments) that the management of Maxygen, Inc. (Maxygen or the Company) believes necessary for fair presentation of the results for the periods presented.
Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying condensed
consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Companys Report on Form 10-K for the year ended December 31, 2001.
Principles of Consolidation
The condensed
consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
Non-refundable up-front payments received in
connection with research and development collaboration agreements, including technology advancement funding that is intended for the development of the Companys core technology, are deferred and recognized on a straight-line basis over the
relevant periods specified in the agreement, generally the research term.
Revenue related to collaborative research with the
Companys corporate collaborators is recognized as research services are performed over the related funding periods for each contract. Under these agreements, the Company is required to perform research and development activities as specified
in each respective agreement. The payments received under each respective agreement are not refundable and are generally based on a contractual cost per full-time equivalent employee working on the project. Research and development expenses under
the collaborative research agreements approximate or exceed the research funding revenue recognized under such agreements over the term of the respective agreements. Deferred revenue may result when the Company does not incur the required level of
effort during a specific period in comparison to funds received under the respective contracts. Payments received related to substantive, at-risk incentive milestones, if any, are recognized as revenue upon achievement of the incentive milestone
event because the Company has no future performance obligations related to the payment. Incentive milestone payments are triggered either by the results of the Companys research efforts or by events external to the Company, such as regulatory
approval to market a product. Royalties are recorded as earned in accordance with the contract terms when third party results are reliably measured and collectibility is reasonably assured.
The Company was awarded grants from the Defense Advanced Research Projects Agency, National Institute of Standards and Technology-Advanced Technology Program, the U.S. Agency for
International Development and the U.S. Army Medical Research and Materiel Command for various research and development projects. The terms of each of these grant agreements are three years with various termination dates, the last of which is June
2005 for existing agreements. Revenue related to grant agreements is recognized as related research and development expenses are incurred.
6
Net loss per share
Basic and diluted net loss per common share are presented in conformity with the Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128), for all
periods presented. In accordance with SFAS 128, basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase.
The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):
|
|
Three Months ended September
30,
|
|
|
Nine months ended September
30,
|
|
|
|
2001
|
|
|
2002
|
|
|
2001
|
|
|
2002
|
|
Net Loss |
|
$ |
(10,886 |
) |
|
$ |
(7,291 |
) |
|
$ |
(33,496 |
) |
|
$ |
(24,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding |
|
|
33,854 |
|
|
|
33,341 |
|
|
|
33,781 |
|
|
|
34,200 |
|
Less: weighted-average shares subject to repurchase |
|
|
(1,147 |
) |
|
|
(584 |
) |
|
|
(1,306 |
) |
|
|
(861 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing basic and diluted net loss per share |
|
|
32,707 |
|
|
|
33,757 |
|
|
|
32,475 |
|
|
|
33,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share |
|
$ |
(0.33 |
) |
|
$ |
(0.22 |
) |
|
$ |
(1.03 |
) |
|
$ |
(0.75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has excluded all outstanding stock options, outstanding warrants and shares
subject to repurchase from the calculation of diluted loss per common share because all such securities are antidilutive for all applicable periods presented. The total number of shares excluded from the calculations of diluted net loss per share,
prior to application of the treasury stock method for options, was 8,323,000 at September 30, 2001 and 9,146,000 at September 30, 2002. Such securities, had they been dilutive, would have been included in the computations of diluted net loss per
share along with restricted common stock subject to the Companys right of repurchase.
Comprehensive Income (Loss)
Comprehensive income (loss) is primarily comprised of net unrealized gains or losses on available-for-sale securities and foreign
currency translation adjustments. Comprehensive income (loss) and its components for the three month and nine month periods ended September 30, 2001 and September 30, 2002 were as follows (in thousands):
|
|
Three Months ended September
30,
|
|
|
Nine months ended September
30,
|
|
|
|
2001
|
|
|
2002
|
|
|
2001
|
|
|
2002
|
|
Net loss |
|
$ |
(10,886 |
) |
|
$ |
(7,291 |
) |
|
$ |
(33,496 |
) |
|
$ |
(24,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gain (loss) on securities available-for-sale |
|
|
900 |
|
|
|
(228 |
) |
|
|
1,681 |
|
|
|
(1,503 |
) |
Changes in foreign currency translation adjustments |
|
|
1,118 |
|
|
|
(1,093 |
) |
|
|
(115 |
) |
|
|
847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(8,868 |
) |
|
$ |
(8,612 |
) |
|
$ |
(31,930 |
) |
|
$ |
(25,651 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
The components of accumulated other comprehensive income (loss) were as follows (in thousands):
|
|
December 31, 2001
|
|
|
September 30, 2002
|
Unrealized gains on securities available-for-sale |
|
$ |
1,791 |
|
|
$ |
289 |
Foreign currency translation adjustments |
|
|
(93 |
) |
|
|
753 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive income |
|
$ |
1,698 |
|
|
$ |
1,042 |
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (Statement 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes Statement 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a segment of a business. The Company adopted Statement 144 on January
1, 2002, and has determined that the Statement does not have a significant impact to the Companys financial position or results of operations.
In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (referred to as SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 addresses
financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue (referred to as EITF) No. 94-3 Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, not at the date of an
entitys commitment to an exit plan, as required under EITF 94-3. The provisions of SFAS 146 are effective for exit or disposal activities initiated after December 31, 2002, with earlier application encouraged. The adoption of SFAS 146 is not
anticipated to have a material effect on the Companys financial statements.
2. Investments
Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance
sheet date. The Companys debt securities are classified as available-for-sale and are carried at estimated fair value in cash equivalents and investments. Unrealized gains and losses are reported as accumulated other comprehensive income
(loss) in stockholders equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses
on available-for-sale securities and declines in value deemed to be other than temporary, if any, are included in interest income and expense. The cost of securities sold is based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest income. The Companys cash equivalents and investments as of September 30, 2002 are as follows (in thousands):
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
|
Estimated Fair
Value
|
|
Money market funds |
|
$ |
177,870 |
|
|
$ |
|
|
$ |
|
|
|
$ |
177,870 |
|
Corporate bonds |
|
|
50,447 |
|
|
|
290 |
|
|
(1 |
) |
|
|
50,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
228,317 |
|
|
|
290 |
|
|
(1 |
) |
|
|
228,606 |
|
Less amounts classified as cash equivalents |
|
|
(177,870 |
) |
|
|
|
|
|
|
|
|
|
(177,870 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
50,447 |
|
|
$ |
290 |
|
$ |
(1 |
) |
|
$ |
50,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was $173,000 in realized gains on the sale of available-for-sale securities for both
the three month and nine month periods ended September 30, 2001. There were no realized gains or losses on the sale of available-for-sale securities in the comparable periods of 2002.
8
At September 30, 2002, the contractual maturities of investments were as follows (in thousands):
|
|
Amortized Cost
|
|
Estimated Fair Value
|
Due within one year |
|
$ |
50,447 |
|
$ |
50,736 |
Due after one year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
50,447 |
|
$ |
50,736 |
|
|
|
|
|
|
|
3. Intangible Assets
In July 2001, the Financing Accounting Standard Board issued Statement of Financial Accounting Standards (referred to as SFAS) No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 specifies criteria that intangible assets acquired in a purchase business combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted for separately. SFAS 142 requires, among other things, that the assembled workforce be reclassified to goodwill and that goodwill (including assembled workforce) and
intangible assets with indefinite lives no longer be amortized, but instead be tested for impairment at least annually in accordance with SFAS 142. The Company has no intangible assets with indefinite lives. SFAS 142 also requires that intangible
assets with definite useful lives be amortized over their respective useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. The Company adopted the provisions of SFAS 141 and SFAS 142 effective January 1, 2002.
SFAS 141 provides that, upon
adoption of SFAS 142, the Company is required to evaluate existing intangible assets and goodwill that were acquired in a purchase business combination prior to June 30, 2001, and make necessary reclassifications to conform with the new criteria in
SFAS 141. As a result, the Company reclassified assembled workforce with a net carrying value of $378,000 to goodwill on January 1, 2002.
Upon adoption of SFAS 142, the Company reassessed the useful lives and residual values of all intangible assets (excluding goodwill and assembled workforce) acquired in purchase business combinations. No adjustments to amortization
periods were necessary.
The provisions of SFAS 142 also require the completion of a transitional impairment test within six months of
adoption, with any impairments treated as a cumulative effect of change in accounting principle. During the quarter ended June 30, 2002, the Company completed the transitional impairment test, which did not result in impairment of recorded goodwill.
In addition, the Company must perform an impairment test at least annually. Any impairment loss from the annual test will be recognized
as a part of operations.
A reconciliation of reported net loss to adjusted net loss, as if SFAS 142 had been implemented as of January
1, 1999, is as follows (in thousands, except per share data):
|
|
Year Ended December 31,
|
|
|
Three Months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
1999
|
|
|
2000
|
|
|
2001
|
|
|
2001
|
|
|
2002
|
|
|
2001
|
|
|
2002
|
|
Reported net loss |
|
$ |
(13,518 |
) |
|
$ |
(59,585 |
) |
|
$ |
(44,964 |
) |
|
$ |
(10,886 |
) |
|
$ |
(7,291 |
) |
|
$ |
(33,496 |
) |
|
$ |
(24,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back: goodwill (incl. assembled workforce) amortization |
|
|
|
|
|
|
2,970 |
|
|
|
7,581 |
|
|
|
1,895 |
|
|
|
|
|
|
|
5,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss |
|
$ |
(13,518 |
) |
|
$ |
(56,615 |
) |
|
$ |
(37,383 |
) |
|
$ |
(8,991 |
) |
|
$ |
(7,291 |
) |
|
$ |
(27,810 |
) |
|
$ |
(24,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net loss |
|
$ |
(1.53 |
) |
|
$ |
(1.96 |
) |
|
$ |
(1.38 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.22 |
) |
|
$ |
(1.03 |
) |
|
$ |
(0.75 |
) |
Goodwill (incl. assembled workforce) amortization |
|
|
|
|
|
|
0.10 |
|
|
|
0.23 |
|
|
|
0.06 |
|
|
|
|
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss |
|
$ |
(1.53 |
) |
|
$ |
(1.86 |
) |
|
$ |
(1.15 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.85 |
) |
|
$ |
(0.75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Intangible assets subject to amortization consist of purchased core technology as follows (in
thousands):
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
|
Gross Carrying Value |
|
$ |
3,435 |
|
|
$ |
3,435 |
|
|
$ |
3,435 |
|
Accumulated amortization |
|
|
(448 |
) |
|
|
(1,593 |
) |
|
|
(2,451 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Carrying Value |
|
$ |
2,987 |
|
|
$ |
1,842 |
|
|
$ |
984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense is as follows (in thousands):
For the year ended December 31, 2000 (actual) |
|
$ |
448 |
For the year ended December 31, 2001 (actual) |
|
$ |
1,145 |
For the nine months ended September 30, 2002 (actual) |
|
$ |
858 |
For the remaining three months in the year ended December 31, 2002 (estimated) |
|
$ |
286 |
For the year ended December 31, 2002 (estimated) |
|
$ |
1,144 |
For the year ended December 31, 2003 (estimated) |
|
$ |
698 |
4. Derivatives and Financial Instruments
The Company addresses certain financial exposures through a program of risk management that includes the use of derivative financial instruments. To date, the
Company has only entered into foreign currency forward exchange contracts generally expiring within one year to reduce the effects of fluctuating foreign currency exchange rates on forecasted cash requirements.
All derivatives are recognized on the balance sheet at their fair value. The Company has designated its derivatives as foreign currency cash flow hedges. Changes
in the fair value of derivatives that are highly effective as, and that are designated and qualify as, foreign currency cash flow hedges are recorded in other comprehensive income until the associated hedged transaction impacts earnings.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective
and strategy for undertaking various hedge transactions. The Company also formally assesses, both at the hedges inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively.
The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the cash flows related to the
Companys funding of Maxygen ApS. All foreign currency contracts are denominated in Danish kroner. At September 30, 2002, the Company had foreign currency contracts outstanding in the form of forward exchange contracts totaling $4.2 million.
5. Collaborative Agreements
Cargill Dow LLC
In March 2002, Codexis, Inc., then a wholly-owned subsidiary of the Company, established
a collaboration with Cargill Dow LLC, to research and develop a novel process for the production of lactic acid. The goal of the collaboration is to further improve Cargill Dows novel low-cost process for the production of lactic acid from
natural sugars derived from annually renewable resources, such as corn. Under the terms of the collaboration, Codexis received technology access payments and has received and will continue to receive full research funding, and may receive research
and commercialization milestones. Codexis will
10
also receive royalties on any sales of products manufactured using its technologies. Cargill Dow has worldwide commercialization rights for
products generated from any improved production process developed in the collaboration.
Delta and Pine Land Company
In May 2002, MaxyAg, Inc., a wholly-owned subsidiary of the Company, whose results are reported under the Agriculture segment (see Note
9), established a joint venture with Delta and Pine Land Company (D&PL) to develop and commercialize for the cotton seed market gene leads developed using MaxyAgs technologies. The joint venture, called DeltaMax Cotton LLC
(DeltaMax), will focus on the creation of gene-based improvements for herbicide tolerance and pest and disease control in cotton. Under the terms of the joint venture agreement, DeltaMax will contract research and development activities
to MaxyAg, D&PL and third parties, and license products to D&PL and, potentially, other cotton seed companies, for commercialization. DeltaMax is 50/50 jointly owned by MaxyAg and D&PL and such parties will share income earned by the
joint venture.
The Companys share of the joint ventures loss totaled approximately $767,000 as of September 30, 2002, and is
recorded, under the equity method of accounting, as a single line item in the Condensed Consolidated Statement of Operations. The Company received a payment of $1.7 million relating to past research and recognized $454,000 and $754,000 of this
payment as collaborative research and development revenue in the three and nine months ended September 30, 2002, respectively. The remaining amount will be recognized ratably over the term of the related research plans. MaxyAg and D&PL are
committed to fund the joint venture in an amount sufficient to pay the anticipated development costs, but neither party shall be required to provide funding in excess of $15 million. During May 2002, the Company funded the joint venture in the
amount of $1 million as an initial capital contribution, which reflects its 50% ownership interest.
6. Grant from U.S.
Army
In July 2002, the Company was awarded a $2.4 million, three-year grant from the U.S. Army Medical Research and Materiel Command
to develop cross protective vaccines against three viruses that cause encephalitis.
7. Financing of Codexis, Inc.
On September 13, 2002, Codexis, Inc., then a wholly-owned subsidiary of the Company, sold $15 million of Codexis preferred stock of
which $5 million was purchased by the Company and $10 million by several other investors. On October 1, 2002, Codexis sold an additional $10 million of preferred stock to several other investors. The private placement was Codexis first
independent financing since its establishment as a subsidiary of the Company in January 2002. Prior to its establishment as an independent company, Codexis was the chemicals business unit of the Company, which had been operating since 1997.
Codexis financial position and results of operations are shown as Maxygens Chemicals segment (see Note 9).
The
funds raised may be used only for Codexis operations and will be used to advance the commercialization of Codexis products, with a primary focus on developing novel biocatalysts and improved manufacturing processes for pharmaceutical
products. Codexis intends to directly supply pharmaceutical intermediates and bulk actives to pharmaceutical companies, in addition to novel biocatalysts and improved manufacturing processes.
8. Litigation
In December 2001, a lawsuit was filed in the
U.S. District Court for the Southern District of New York against Maxygen, Inc., certain officers of the Company, and certain underwriters of the Companys initial public offering and secondary public offering of common stock. The lawsuit,
which alleges claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, is among the so-called laddering cases that have been commenced against a number of companies
that had public offerings of securities prior to December 2000. The complaint has been consolidated with other laddering claims in a proceeding styled In re Initial Public Offering Securities Litigation, No. 21 MC 92 (SAS), pending before the
Honorable Shira A. Scheindlin. In early 2002 the Company was served with the complaint, and in April 2002 the Company was served with an amended complaint.
11
The complaint seeks damages in an unspecified amount. The Company believes that the claims alleged against the Company and its officers are
without merit and intends to defend the action vigorously. The Company does not expect the outcome of this matter to have a material effect on its financial position or results from operations.
The Company is aware of litigation involving a Company service provider under which the service provider may, under certain circumstances, be entitled to reimbursement from the Company for
its litigation and settlement costs. The damages sought in the litigation are unspecified. Even if reimbursement is payable, the Company does not believe that such payments will have a material adverse impact on its financial position or results of
operations.
9. Segment Information
The Company has four reportable segments: human therapeutics, agriculture, chemicals and all other. Codexis financial position and results of operations are shown as Maxygens
chemicals segment. The Company has determined its reportable operating segments based upon how the business is managed and operated. The accounting policies of the segments described above are the same as those described in Note 1 in
this report and in the Companys annual report on Form 10-K.
Segment Earnings
The Company evaluates the performance of its operating segments without considering the effects of net interest expense and income, amortization of intangibles
or stock compensation expense, all which are managed by corporate headquarters. Corporate administrative costs including depreciation and amortization expense are allocated based on headcount.
The following table presents segment operating loss reconciled to reported net loss:
|
|
Three Months Ended September
30,
|
|
|
Nine months ended September
30,
|
|
|
|
2001
|
|
|
2002
|
|
|
2001
|
|
|
2002
|
|
|
|
(in thousands) |
|
Human therapeutics |
|
$ |
(5,382 |
) |
|
$ |
(4,096 |
) |
|
$ |
(16,747 |
) |
|
$ |
(12,536 |
) |
Chemicals |
|
|
(2,023 |
) |
|
|
(2,484 |
) |
|
|
(6,120 |
) |
|
|
(6,705 |
) |
Agriculture |
|
|
(485 |
) |
|
|
(854 |
) |
|
|
(3,173 |
) |
|
|
(2,487 |
) |
All other |
|
|
(1,336 |
) |
|
|
(554 |
) |
|
|
(1,807 |
) |
|
|
(3,236 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment loss |
|
$ |
(9,226 |
) |
|
$ |
(7,988 |
) |
|
$ |
(27,847 |
) |
|
$ |
(24,964 |
) |
Interest income, net |
|
|
3,196 |
|
|
|
2,294 |
|
|
|
10,625 |
|
|
|
6,266 |
|
Stock compensation |
|
|
(2,674 |
) |
|
|
(1,311 |
) |
|
|
(9,729 |
) |
|
|
(5,439 |
) |
Amortization of intangibles |
|
|
(2,182 |
) |
|
|
(286 |
) |
|
|
(6,545 |
) |
|
|
(858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss |
|
$ |
(10,886 |
) |
|
$ |
(7,291 |
) |
|
$ |
(33,496 |
) |
|
$ |
(24,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Revenue
Revenues for each operating segment are derived from the Companys research collaboration agreements and government grants and are categorized based on the industry of the product or technology
under development.
|
|
Three Months Ended September 30,
|
|
Nine months ended September
30,
|
|
|
2001
|
|
2002
|
|
2001
|
|
2002
|
|
|
(in thousands) |
Human therapeutics |
|
$ |
2,681 |
|
$ |
6,332 |
|
$ |
8,711 |
|
$ |
16,356 |
Chemicals |
|
|
2,052 |
|
|
1,625 |
|
|
5,357 |
|
|
5,549 |
Agriculture |
|
|
2,677 |
|
|
3,751 |
|
|
7,948 |
|
|
9,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
7,410 |
|
$ |
11,708 |
|
$ |
22,016 |
|
$ |
31,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Identifiable Assets
The following table presents identifiable assets for each reporting segment:
|
|
December 31, 2001
|
|
September 30, 2002
|
|
|
(in thousands) |
Human therapeutics |
|
$ |
29,729 |
|
$ |
30,078 |
Chemicals |
|
|
4,766 |
|
|
20,355 |
Agriculture |
|
|
1,260 |
|
|
13,016 |
All other |
|
|
241,663 |
|
|
206,601 |
|
|
|
|
|
|
|
Total assets |
|
$ |
277,418 |
|
$ |
270,050 |
|
|
|
|
|
|
|
10. Subsequent Events
On October 1, 2002, Codexis, a majority-owned subsidiary of the Company, sold $10 million of Codexis preferred stock to several investors. Codexis was
established as a wholly-owned subsidiary of the Company in January 2002. On September 13, 2002, Codexis sold $15 million of Codexis preferred stock to the Company and several investors. Prior to its establishment as an independent company, Codexis
was the chemicals business unit of the Company.
On October 17, 2002, MaxyAg, Inc., a wholly-owned subsidiary of the Company, changed its
name to Verdia, Inc.
13
Forward Looking Statements
This report contains forward-looking statements within the meaning of federal securities laws that relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by terminology such as may, can, will, should, expect, plan, anticipate, believe,
estimate, predict, intend, potential or continue or the negative of these terms or other comparable terminology. Risks and uncertainties and the occurrence of other events could cause
actual results to differ materially from these predictions. Factors that could cause or contribute to such differences include those discussed below under Risk Factors That May Affect Results of Operations and Financial Condition, as
well as those discussed in our Annual Report on Form 10-K for the year ended December 31, 2001.
Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and
completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this report or to conform these statements to actual results.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Maxygen was founded in May 1996 and began operations in March 1997. To date, we have generated
revenues from research collaborations with agriculture, pharmaceutical, petroleum, and chemical companies and from government grants. We have strategic collaborations with leading companies including: Aventis Pasteur in novel vaccines; Celltech in
antibodies; InterMune in next generation interferon gamma therapies; Lundbeck in interferon beta therapies for central nervous system diseases and multiple sclerosis; ALK-Abelló in allergy; the International AIDS Vaccine Initiative (IAVI) in
HIV; Pfizer and DSM in pharmaceutical manufacturing; and Shearwater Corporation in protein pharmaceutical PEGylation technologies. Additionally, we have a range of other strategic alliances in industrial applications, as well as funding from U.S.
government organizations including from the Defense Advanced Research Projects Agency, the National Institute of Standards and Technology-Advanced Technology Program, the U.S. Agency for International Development and the U.S. Army Medical Research
and Materiel Command.
Revenue under strategic alliances and government grants increased from $24.5 million in 2000, to $30.5 million in
2001 and was $31.6 million in the nine months ended September 30, 2002. Revenues may fluctuate from period to period and there can be no assurance that these collaborations will continue for their initial term or beyond.
We have incurred significant losses since our inception. As of September 30, 2002, our accumulated deficit was $153.7 million and total stockholders equity
was $237.2 million. We have invested heavily in establishing our proprietary technologies. These investments have contributed to the increases in operating expenses from $70.4 million in 2000 (excluding $29.0 million of acquired in-process research
and development expense) to $88.4 million in 2001, to $62.1 million in the nine months ended September 30, 2002. Our total headcount increased from 252 employees at the end of 2000 to 305 employees at the end of 2001. As of September 30, 2002, we
had 314 employees, of whom 85% were engaged in research and development. We expect to incur additional operating losses over at least the next several years as we continue to expand our research and development efforts and infrastructure.
14
Source of Revenue and Revenue Recognition Policy
We recognize revenues from research collaboration agreements as earned upon achievement of the performance requirements of the agreements. Our existing corporate
collaboration agreements generally provide for research funding for a specified number of full time equivalent researchers working in defined research programs. Revenue related to these payments is earned as the related research work is performed.
In addition, these collaborators may make technology advancement payments that are intended to fund development of our core technology, as opposed to a defined research program. These payments are recognized ratably over the applicable funding
period. Payments received that are related to future performance are deferred and recognized as revenue as the performance requirements are achieved. As of September 30, 2002, we have deferred revenues of approximately $11.1 million.
Revenue related to performance milestones is recognized based upon the achievement of the milestones, as defined in the respective agreements.
Payments received related to substantive, at-risk incentive milestones, if any, are recognized as revenue upon achievement of the incentive milestone event because we have no future performance obligations related to the payment and we judge the
event to be the culmination of a separate earnings process. Incentive milestone payments are triggered either by the results of our research efforts or by events external to Maxygen, such as regulatory approval to market a product. Royalties are
recorded as earned in accordance with the contract terms when third party results are reliably measured and collectibility is reasonably assured.
Revenue related to grant agreements with various government agencies is recognized as the related research and development expenses are incurred, and when these research and development expenses are within the prior approved funding
amounts. Certain grant agreements provide an option for the government to audit the amount of research and development expenses, both direct and indirect, that have been submitted to the government agency for reimbursement. We believe the overhead
rates we used to calculate our indirect research and development expenses are within the contractual guidelines of allowable costs and are reasonable estimates of our indirect expenses incurred through the term of the agreement.
Our sources of potential revenue for the next several years are likely to be license, research, technology advancement and milestone payments under
existing and possible future collaborative arrangements, government research grants, and royalties from our collaborators based upon revenues received from any products commercialized under those agreements.
Deferred Compensation
Deferred
compensation for options granted to employees has been determined as the difference between the deemed fair market value for financial reporting purposes of our common stock on the date the applicable options were granted and the exercise price.
Deferred compensation for options granted to consultants has been determined in accordance with Statement of Financial Accounting Standards No. 123 and EITF 96-18 as the fair value of the equity instruments issued. Compensation for related options
granted to consultants is periodically remeasured as the underlying options vest.
In connection with the grant of stock options to
employees before our initial public offering, we recorded deferred stock compensation of approximately $2.4 million in 1998 and $19.5 million in 1999. These amounts were initially recorded as a component of stockholders equity and are being
amortized as charges to operations over the vesting period of the options using a graded vesting method. We recognized stock compensation expense related to the deferred compensation amortization on these option grants as follows:
|
|
Three Months Ended September 30,
|
|
Nine months ended September 30,
|
|
|
2001
|
|
2002
|
|
2001
|
|
2002
|
|
|
(in thousands) |
Research and development |
|
$ |
554 |
|
$ |
338 |
|
$ |
1,816 |
|
$ |
1,174 |
General and administrative |
|
|
570 |
|
|
338 |
|
|
1,873 |
|
|
1,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred compensation amortization |
|
$ |
1,124 |
|
$ |
676 |
|
$ |
3,689 |
|
$ |
2,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense in connection with the grant of stock options to consultants
for the three and nine months ended September 30, 2001 and 2002 were insignificant.
15
In connection with the Maxygen ApS acquisition in August 2000, stock options were granted in exchange
for outstanding warrants to purchase Maxygen ApS securities. In connection with this exchange we recorded aggregate deferred compensation totaling $1.5 million. This amount is being amortized over the remaining vesting period of the options, of
which $179,000 and $536,000 was expensed in the three and nine months ended September 30, 2001 and $82,000 and $420,000 in the comparable periods for 2002. For the shares exchanged that had a right of repurchase, deferred compensation of $13.1
million was recorded. This amount is being amortized to expense over a three-year graded vesting period. A total of $1.3 million and $5.3 million was recognized as expense for the three and nine months ended September 30, 2001, and $548,000 and $2.4
million in the comparable periods for 2002.
Results of Operations
Revenues
Our total revenues increased from $7.4
million and $22.0 million in the three and nine months ended September 30, 2001, to $11.7 million and $31.6 million in the comparable periods of 2002. The increase in collaborative research and development revenue was due to additional strategic
alliances and the expansion of existing alliances. The decline in grant revenue reflects the expiration of three government grants that began in late 1998 and early 1999. We expect our total revenues for the fourth quarter of 2002 to be somewhat
below those of the quarter ended September 30, 2002.
Revenues for each operating segment are derived from our research collaboration
agreements and government research grants and are categorized based on the industry of the product or technology under development. Results of Codexis, Inc. are shown as Maxygens chemicals segment.
|
|
Three Months Ended September 30,
|
|
Nine months ended September
30,
|
|
|
2001
|
|
2002
|
|
2001
|
|
2002
|
|
|
(in thousands) |
Human therapeutics |
|
$ |
2,681 |
|
$ |
6,332 |
|
$ |
8,711 |
|
$ |
16,356 |
Chemicals |
|
|
2,052 |
|
|
1,625 |
|
|
5,357 |
|
|
5,549 |
Agriculture |
|
|
2,677 |
|
|
3,751 |
|
|
7,948 |
|
|
9,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
7,410 |
|
$ |
11,708 |
|
$ |
22,016 |
|
$ |
31,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in revenue for each segment was due to additional strategic alliances and the
expansion of existing alliances. The decrease in revenue for Chemicals between quarters is due to the ending of two government grants at the end of 2001 and two collaborative agreements during 2002.
Research and Development Expenses
We have entered into a number of research and development collaborations to perform research for our collaborators. The major collaborative agreements all have similar contractual terms. The agreements generally require us to devote
a specified number of full-time equivalent employees to the research efforts over defined terms ranging from three to five years.
We do
not track fully burdened research and development costs or capital expenditures by project. However, we estimate, based on full-time equivalent (FTE) effort, that research and development costs (measured in hours incurred) approximated as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2001
|
|
|
2002
|
|
|
2001
|
|
|
2002
|
|
Collaborative projects funded by collaborators and government grants |
|
50 |
% |
|
50 |
% |
|
47 |
% |
|
49 |
% |
Internally funded projects |
|
50 |
% |
|
50 |
% |
|
53 |
% |
|
51 |
% |
16
Due to the nature of our research and our dependence on our collaborative partners to commercialize the
results of the research, we cannot predict with any certainty whether any particular collaboration or research effort will ultimately result in a commercial product and therefore whether we will receive future milestone payments or royalty payments
under our various collaborations.
Most of our human therapeutic, agriculture and chemical product development programs are at an early
stage and may not result in any marketed products. Product candidates that may appear promising at early stages of development may not reach the market for a number of reasons. Human therapeutic product candidates may be found ineffective or cause
harmful side effects during clinical trials, may take longer to pass through clinical trials than had been anticipated, may fail to receive necessary regulatory approvals and may prove impracticable to manufacture in commercial quantities at
reasonable costs and with acceptable quality. Chemical and agricultural product candidates may be found ineffective, may cause undesirable side effects or may prove impracticable to manufacture in commercial quantities at reasonable costs and with
acceptable quality. Furthermore, it is uncertain which of our internally developed product candidates will be subject to future collaborative arrangements. The participation of a collaborative partner may accelerate the time to completion and reduce
the cost to us of a product candidate or it may delay the time and increase the cost to us due to the alteration of our existing strategy. The risks and uncertainties associated with our research and development projects are discussed more fully in
the section of this report titled Risk Factors That May Affect Results of Operations and Financial Condition. Because of these risks and uncertainties, we cannot predict when or whether we will successfully complete the development of
our product candidates or the ultimate product development cost in any particular case.
Our research and development expenses consist
primarily of salaries and other personnel-related expenses, facility costs, research consultants and external collaborative research expenses, supplies and depreciation of facilities and laboratory equipment. Research and development expenses
increased from $13.5 million and $39.2 million for the three and nine months ended September 30, 2001 to $15.8 million and $46.2 million in the comparable periods of 2002. In addition, stock compensation expense related to research and development
was $2.1 million and $7.8 million for the three and nine months ended September 30, 2001 and $973,000 and $4.1 million in the comparable periods of 2002. The increase in total research and development expense is primarily due to our accelerated
efforts in all aspects of research and development as well as investments in our technology platforms and in the development of product candidates. The decrease in stock compensation expense is primarily a result of lower amortization expense
related to deferred compensation for the shares exchanged that had a right of repurchase in connection with the Maxygen ApS acquisition in August 2000. This amount is being amortized to expense over a three year graded vesting period.
Research and development expenses, excluding stock compensation expense, represented 182% and 178% of total revenues for the three and nine months
ended September 30, 2001 and 135% and 146% in the comparable periods of 2002. The decreases were primarily due to growth in our total revenue between periods.
We expect research and development cost to increase moderately during the remainder of 2002 as efforts on internally funded projects increase and new projects are initiated under existing collaboration agreements. We expect
to continue to devote substantial resources to research and development and we expect research and development expenses to increase in the next several years if we are successful in advancing our products into clinical trials. To the extent we
out-license our products prior to commencement of clinical trials or collaborate with others with respect to clinical trials, increases in research and development expenses may be reduced or avoided. We intend to manage the level of our expenditures
for research and development, including clinical trials, to balance advancing our products and maintaining adequate cash resources for our operations.
General and Administrative Expenses
Our general and administrative expenses
consist primarily of personnel costs for finance, human resources, business development, legal and general management, as well as insurance premiums and professional expenses, such as legal and accounting. General and administrative expenses
slightly increased from $3.2 million for the three months ended September 30, 2001 to $3.3 million in the three months ended September 30, 2002. General and administrative expenses decreased from $10.7 million
17
for the nine months ended September 30, 2001 to $9.6 million in the comparable period of 2002. In addition, general and administrative stock
compensation expense was $594,000 and $1.9 million for the three and nine months ended September 30, 2001 and $338,000 and $1.4 million in the comparable periods of 2002. The decrease in total general and administrative expenses is primarily due to
reimbursement of legal expenses of $657,000 received in the first quarter of 2002 resulting from the arbitration proceeding against Enchira Biotechnology Corporation. The decrease is also due to lower spending on legal expenses and investor relation
programs in 2002.
General and administrative expenses, excluding stock compensation expense, represented 43% and 48% of total revenues
for the three and nine months ended September 30, 2001 and 28% and 30% in the comparable periods of 2002. The decreases were due to the growth in our total revenue between periods combined with the decrease in general and administrative expenses.
We expect that our general and administrative expenses may increase modestly in absolute dollar amounts for at least the next several
years as a result of increased professional fees and insurance premiums.
Goodwill and Other Intangible Assets
In connection with the Maxygen ApS acquisition, we allocated $26.2 million to goodwill and other intangible assets and were
initially amortizing this goodwill and other intangible assets using the straight-line method over the assets estimated useful lives of three years, the term of expected benefit. We believed this term was reasonable given that Maxygen ApS was a
development stage entity and its technology was at an early stage of development and was yet unproven. Amortization expense for goodwill and other intangible assets of $2.2 million and $6.5 million for the three and nine months ended September 30,
2001 and amortization expense of other intangible assets of $286,000 and $858,000 in the comparable periods of 2002 was recorded.
In
July 2001, the Financing Accounting Standard Board issued Statement of Financial Accounting Standards No. 141, Business Combinations and No. 142, Goodwill and Other Intangible Assets, effective for the fiscal years beginning after December 15, 2001.
Under the new rules, goodwill is no longer amortized but is subject to annual impairment tests in accordance with Statement No. 142. Other intangible assets will continue to be amortized over the useful lives. We adopted the provisions of SFAS 141
and SFAS 142 effective January 1, 2002 and, based on the results of our transitional impairment test as of January 1, 2002, we determined there was no impairment of goodwill. We are required to perform goodwill impairment testing on an annual basis,
and on an interim basis if and when indicators of impairment exist. There can be no assurance that future goodwill impairment tests will not result in a charge in earnings. See also Note 3 of the Notes to Condensed Consolidated Financial Statements.
Net Interest Income
Net interest income represents income earned on our cash, cash equivalents and marketable securities net of interest expense. Net interest income decreased from $3.2 million and $10.6 million for the
three and nine months ended September 30, 2001 to $2.3 million and $6.3 million in the comparable periods of 2002. This decrease was due to lower interest rates and lower average balances of cash, cash equivalents and marketable securities.
Equity in Net Loss of Joint Venture
Equity in net loss of joint venture reflects Maxygens share of the net loss of its joint venture, DeltaMax Cotton LLC, formed in May 2002, which is accounted for under the equity method of
accounting. Equity in net losses of the joint venture was $538,000 and $767,000 for the three and nine months ended September 30, 2002.
Recent Accounting Pronouncements
In January 2002, we adopted Statement of Financing Accounting Standards
No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (Statement 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. We evaluate our intangible assets for
18
impairment whenever events or changes in circumstances indicate that such assets are impaired or the estimated useful lives are no longer
appropriate. If indicators of impairment exist, we will review our long-lived assets for impairment based on estimated future discounted cash flows attributable to the assets and other factors to determine the fair value of the respective assets. In
the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values.
In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (referred to as SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue (referred to as EITF) No. 94-3 Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the
liability is incurred, not at the date of an entitys commitment to an exit plan, as required under EITF 94-3. The provisions of SFAS 146 are effective for exit or disposal activities initiated after December 31, 2002, with earlier application
encouraged. The adoption of SFAS 146 is not anticipated to have a material effect on our financial statements.
Liquidity and Capital
Resources
Since inception, we have financed our operations primarily through private placements and public offerings of equity
securities, receiving aggregate consideration from such sales of such equity securities totaling $302.5 million and research and development funding from collaborators and government grants totaling approximately $147.8 million. Of the $228.6
million in cash, cash equivalents and investments at September 30, 2002, $15.0 million may only be used for Codexis, Inc. operations.
Our operating activities used cash of $9.7 million for the nine months ended September 30, 2001 and $12.2 million for the nine months ended September 30, 2002 consisting of adjustments to reconcile net loss to net cash in operating
activites and changes in operating asssets and liabilities. Uses of cash in operating activities were primarily to fund net operating losses.
Our investing activities used cash of $46.3 million for the nine months ended September 30, 2001 and provided cash of $129.4 million for the nine months ended September 30, 2002. The cash used during the nine months ended September
30, 2001 primarily represented the purchases of available-for-sale securities. The cash provided during the nine months ended September 30, 2002 primarily represented the maturities of available-for-sale securities.
Additions of property and equipment were $6.6 million for the nine months ended September 30, 2001 and $3.9 million for the nine months ended September 30, 2002
which includes a $204,000 adjustment from foreign currency translation at September 30, 2002 resulting from our cumulative purchases of equipment for our Danish operations. We expect to continue to make significant investments in the purchase of
property and equipment to support our expanding operations. We may use a portion of our cash to acquire or invest in complementary businesses, products or technologies, or to obtain the right to use such complementary technologies.
In connection with our joint venture, DeltaMax Cotton LLC, Maxygen and D&PL are committed to fund the joint venture in an amount sufficient to pay
the anticipated development costs, but neither party is required to provide funding in excess of $15 million. During May 2002, we funded the joint venture in the amount of $1 million as an initial capital contribution, which reflects our 50%
ownership interest.
The following are contractual commitments at September 30, 2002 associated with debt and lease obligations (in
thousands):
|
|
Payments Due by Period
|
Contractual Commitment
|
|
Total
|
|
1 year
|
|
2-3 years
|
Operating Leases |
|
$ |
11,964 |
|
$ |
4,983 |
|
$ |
6,981 |
Long-Term Debt |
|
|
835 |
|
|
703 |
|
|
132 |
|
|
|
|
|
|
|
|
|
|
Total Contractual Commitments |
|
$ |
12,799 |
|
$ |
5,686 |
|
$ |
7,113 |
|
|
|
|
|
|
|
|
|
|
19
Financing activities provided cash of $1.3 million for the nine months ended September 30, 2001 and
$12.3 million for the nine months ended September 30, 2002. The cash provided in the nine months ended September 30, 2002 was primarily from the minority investment of $10.0 million in Codexis, Inc., a majority-owned subsidiary. In addition, at
September 30, 2002, there was an equity adjustment of $581,000 resulting from foreign currency translation of our Danish subsidiarys financial statements. The cash provided in the nine months ended September 30, 2001 was primarily from the
proceeds of the sale of common stock in connection with our Employee Stock Purchase Plan and the exercise of stock options by employees. This was partially offset by payments on equipment financing obligations.
Assuming our research efforts for existing collaborations are expended for the full research term, as of September 30, 2002 we have total committed funding of
$147.8 million, of which approximately $112.5 million is from our collaborators and $35.3 million is from government funding. Of these committed funds, we have $40.5 million remaining to be received over the next four years. In addition, potential
milestone payments from our existing collaborations could exceed $309 million based on the accomplishment of specific performance criteria, and we may earn royalties on product sales. In general, the obligation of our corporate collaborators to
provide research funding cannot be terminated by either party before the end of the research term unless there has been a material breach of contract or either party has become bankrupt or insolvent. In the case of such an event, the agreement
specifies the rights, if any, that each party will retain.
We believe that our current cash, cash equivalents and short-term investments
together with funding received from collaborators and government grants will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, it is possible that we will seek
additional financing within this timeframe. We may raise additional funds through public or private financing, collaborative relationships or other arrangements. Additional funding, if sought, may not be available on terms favorable to us. Further,
any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Our failure to raise capital when needed may harm our business and operating results.
RISK FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION
You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties
described below are not the only ones facing Maxygen. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our
business could be harmed. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.
We Have a History of Net Losses. We Expect to Continue to Incur Net Losses and We May Not Achieve or Maintain Profitability.
We have incurred net losses since our inception, including a net loss of approximately $59.6 million in 2000, $45.0 million in 2001 and $25.0 million in the nine months ended September 30, 2002. As of September 30, 2002, we had an
accumulated deficit of approximately $153.7 million. We expect to have net losses and negative cash flow for at least the next several years. The size of these net losses will depend, in part, on the rate of growth, if any, in our contract revenues
and on the level of our expenses. To date, we have derived all our revenues from collaborations and grants and expect to derive a majority of our revenue from such sources for at least the next several years. Revenues from collaborations and grants
are uncertain because our existing agreements have fixed terms and because our ability to secure future agreements will depend upon our ability to address the needs of our potential future collaborators. We expect to spend significant amounts to
fund research and development and enhance our core technologies. We expect costs to increase further due to expanded operations and costs associated with operating in multiple international locations. As a result, we expect that our operating
expenses will increase in the near term and, consequently, we will need to generate significant additional revenues to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly
or annual basis.
20
Our Business and our Ability to Grow Revenues has been Adversely Impacted by the Economic Slowdown
and Related Uncertainties Affecting Markets in Which We Operate.
Adverse economic conditions worldwide have contributed to a
slowdown in the biotechnology industry and impacted our business resulting in:
|
|
|
reduced demand for our technology and the products resulting therefrom; |
|
|
|
increased competition for a decreasing number of research and development collaborations and joint ventures; |
|
|
|
significant reduction in the ability of biotechnology companies to raise capital; and |
|
|
|
higher overhead costs, as a percentage of revenues. |
Recent political and social turmoil in many parts of the world, including actual incidents and potential future acts of terrorism and war, may continue to put pressure on global economic conditions. These political, social
and economic conditions and uncertainties make it extremely difficult for Maxygen and our existing and potential collaboration partners to accurately forecast and plan future business activities. This reduced predictability challenges our ability to
increase revenues and reach profitability. In particular, it is difficult to develop and implement strategies, sustainable business models and efficient operations, and effectively manage collaboration relationships due to difficult macroeconomic
conditions. If the current economic or market conditions continue or further deteriorate, there could be a material adverse impact on our financial position, revenues, results of operations and cash flow.
We Need to Contain Costs and Reduce Expenses in Order to Achieve Profitability.
We are continuing our efforts to contain costs and reduce our expense structure. We believe strict cost containment and expense reductions in the near term are essential to achieving future
profitability. If we are not able to effectively contain our costs and achieve an expense structure commensurate with our business activities and revenues, we may have inadequate levels of cash for future operations or for future capital
requirements, which could significantly harm our ability to operate the business.
Commercialization of Our Technologies Depends On
Collaborations With Other Companies. If We Are Unable to Find Collaborators in the Future, We May Not Be Able to Develop Our Technologies or Products.
Since we do not currently possess the resources necessary to develop and commercialize potential products that may result from our technologies, or the resources to complete any approval processes that may be required for
these products, we must enter into collaborative arrangements, including joint ventures, to develop and commercialize products. We have entered into collaborative agreements with other companies to fund the development of new products for specific
purposes. These contracts expire after a fixed period of time. If they are not renewed or if we do not enter into new collaborative agreements, our revenues will be reduced and our products may not be commercialized.
We have limited or no control over the resources that any collaborator may devote to our products. Any of our present or future collaborators may not perform
their obligations as expected. These collaborators may breach or terminate their agreement with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner. Further, our collaborators may elect not to develop
products arising out of our collaborative arrangements or devote sufficient resources to the development, manufacture, marketing or sale of these products. If any of these events occur, we may not be able to develop our technologies or commercialize
our products.
We Are an Early Stage Company Deploying Unproven Technologies. If We Do Not Develop Commercially Successful Products,
We May Be Forced to Cease Operations.
You must evaluate us in light of the uncertainties and complexities affecting an early stage
biotechnology company. Our proprietary technologies are in the early stage of development. We may not develop products that prove to be safe and efficacious, meet applicable regulatory standards, are capable of being manufactured at reasonable costs
or can be marketed successfully.
21
We may not be successful in the commercial development of products. Successful products will require
significant development and investment, including testing, to demonstrate their cost-effectiveness before their commercialization. To date, companies in the biotechnology industry have developed and commercialized only a limited number of products.
We have not proven our ability to develop and commercialize products. We must conduct a substantial amount of additional research and development before any regulatory authority will approve any of our potential products. Our research and
development may not indicate that our products are safe and effective, in which case regulatory authorities may not approve them. Problems frequently encountered in connection with the development and utilization of new and unproven technologies and
the competitive environment in which we operate might limit our ability to develop commercially successful products.
We Intend to
Conduct Proprietary Research Programs, and Any Conflicts With Our Collaborators or Any Inability to Commercialize Products Resulting from This Research Could Harm Our Business.
An important part of our strategy involves conducting proprietary research programs. We may pursue opportunities in fields that could conflict with those of our collaborators. Moreover, disagreements
with our collaborators could develop over rights to our intellectual property. Any conflict with our collaborators could reduce our ability to obtain future collaboration agreements and negatively impact our relationship with existing collaborators,
which could reduce our revenues.
Certain of our collaborators could become our competitors in the future. Our collaborators could
develop competing products, preclude us from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, terminate their agreements with us prematurely or fail to devote sufficient resources to the development
and commercialization of products. Any of these developments could harm our product development efforts.
We will either commercialize
products resulting from our proprietary programs directly or through licensing to other companies. We have no experience in manufacturing and marketing, and we currently do not have the resources or capability to manufacture products on a commercial
scale. In order for us to commercialize these products directly, we would need to develop, or obtain through outsourcing arrangements, the capability to manufacture, market and sell products. We do not have these capabilities, and we may not be able
to develop or otherwise obtain the requisite manufacturing, marketing and sales capabilities. If we are unable to successfully commercialize products resulting from our proprietary research efforts, we will continue to incur losses.
We May Encounter Difficulties in Managing Our Growth. These Difficulties Could Increase Our Losses.
We have experienced substantial growth that has placed and, if this growth continues, will continue to place a strain on our human and capital resources. If this
growth continues, our losses will likely increase. The number of our employees increased from 252 at December 31, 2000 to 305 at December 31, 2001 and 314 at September 30, 2002. Our revenues increased from $24.5 million in 2000 to $30.5 million in
2001 and were $31.6 million in the nine months ended September 30, 2002. Our ability to manage our operations and growth effectively requires us to continue to expend funds to enhance our operational, financial and management controls, reporting
systems and procedures and to attract and retain sufficient numbers of talented employees. If we are unable to implement improvements to our management information and control systems in an efficient or timely manner, or if we encounter deficiencies
in existing systems and controls, then management may have access to inadequate information to manage our day-to-day operations. Failure to attract and retain sufficient numbers of talented employees will further strain our human resources and could
impede our growth and ability to satisfy our obligations under collaboration agreements. This would reduce our revenue, increase our losses and harm our reputation in the marketplace.
We May Need to Reduce Our Workforce. This Could Increase Our Net Losses.
We plan
to undertake measures to contain costs and reduce expenses in the near term. These measures may include, without limitation, reductions in our workforce and/or cancellation of some or all internally funded research. These measures could increase
costs in the short term as a result of severance arrangements and costs associated with the wind-down of research
22
projects. We assess market conditions on an ongoing basis and plan to take appropriate actions as required. If we are not able to effectively
manage our workforce and research expenditures commensurate with our revenues, we may have increasing net losses and inadequate levels of cash for future operations.
The Operation of International Locations May Increase Operating Expenses and Divert Management Attention.
Since August 2000 when we acquired Maxygen ApS, a Danish biotechnology company, we have been operating with international business locations. Expansion into an international operational entity requires additional management
attention and resources. We have limited experience in localizing our operations and in conforming our operations to local cultures, standards and policies. We may have to compete with local companies who understand the local situation better than
we do. We may not be successful in expanding into international locations or in generating revenues from foreign operations. Even if we are successful, the costs of operating internationally are expected to exceed our international revenues for at
least the next several years. As we continue to operate internationally, we are subject to risks of doing business internationally, including the following:
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regulatory requirements that may limit or prevent the offering of our products in local jurisdictions; |
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government limitations on research and/or research involving genetically engineered products or processes; |
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difficulties in staffing and managing foreign operations; |
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longer payment cycles, different accounting practices and problems in collecting accounts receivable; |
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cultural non-acceptance of genetic manipulation and genetic engineering; and |
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potentially adverse tax consequences. |
To the extent we expand our international operations and have additional portions of our international revenues denominated in foreign currencies, we also could become subject to increased difficulties in collecting accounts
receivable and risks relating to foreign currency exchange rate fluctuations.
Acquisitions Could Result in Dilution, Operating
Difficulties and Other Harmful Consequences.
If appropriate opportunities present themselves, we intend to acquire businesses and
technologies that complement our capabilities. The process of integrating any acquisition may create unforeseen operating difficulties and expenditures and is itself risky. The areas where we may face difficulties include:
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diversion of management time (both ours and that of the acquired company) from focus on operating the businesses to issues of integration during the period of
negotiation through closing and further diversion of such time after closing; |
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decline in employee morale and retention issues resulting from changes in compensation, reporting relationships, future prospects, or the direction of the
business; |
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the need to integrate each companys accounting, management information, human resource and other administrative systems to permit effective management and
the lack of control if such integration is delayed or not implemented; and |
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the need to implement controls, procedures and policies appropriate for a larger public company in companies that before acquisition had been smaller, private
companies. |
We do not have extensive experience in managing this integration process. Moreover, the anticipated
benefits of any or all of these acquisitions may not be realized.
Future acquisitions could result in potentially dilutive issuances of
equity securities, the incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could harm our business. Future acquisitions may require us to obtain additional equity or debt
financing, which may not be available on favorable terms or at all. Even if available, this financing may be dilutive.
23
Since Our Technologies Can Be Applied to Many Different Industries, If We Focus Our Efforts on
Industries That Fail to Produce Viable Product Candidates, We May Fail to Capitalize on More Profitable Areas.
We have limited
financial and managerial resources. Since our technologies may be applicable to numerous, diverse industries, we must prioritize our application of resources to discrete efforts. This requires us to focus on product candidates in selected industries
and forego efforts with regard to other products and industries. Our decisions may not produce viable commercial products and may divert our resources from more profitable market opportunities.
Public Perception of Ethical and Social Issues May Limit the Use of Our Technologies, Which Could Reduce Our Revenues.
Our success will depend in part upon our ability to develop products discovered through our technologies. Governmental authorities could, for social or other purposes, limit the use of genetic
processes or prohibit the practice of our directed molecular evolution technologies or other technologies. Ethical and other concerns about our directed molecular evolution technologies or other technologies, particularly the use of genes from
nature for commercial purposes, and products resulting therefrom, could adversely affect their market acceptance.
If the Public
Rejects Genetically Engineered Products, We Will Have Less Demand for Our Products.
The commercial success of our potential products
will depend in part on public acceptance of the use of genetically engineered products including drugs, plants and plant products. Claims that genetically engineered products are unsafe for consumption or pose a danger to the environment may
influence public attitudes. Our genetically engineered products may not gain public acceptance. Negative public reaction to genetically modified organisms and products could result in greater government regulation of genetic research and resultant
products, including stricter labeling laws or regulations, and could cause a decrease in the demand for our products.
The subject of
genetically modified organisms has received negative publicity in Europe and the United States, which has aroused public debate. The adverse publicity could lead to greater regulation and trade restrictions on genetic research and the resultant
agricultural and other products could be subject to greater domestic or international regulation. Such regulation and restrictions could cause a decrease in the demand for our products.
Many Potential Competitors Who Have Greater Resources and Experience Than We Do May Develop Products and Technologies That Make Ours Obsolete.
The biotechnology industry is characterized by rapid technological change, and the area of gene research is a rapidly evolving field. Our future success will
depend on our ability to maintain a competitive position with respect to technological advances. Rapid technological development by others may result in our products and technologies becoming obsolete.
We face, and will continue to face, intense competition from organizations such as large and small biotechnology companies, as well as academic and research
institutions and government agencies that are pursuing competing technologies for modifying DNA and proteins. These organizations may develop technologies that are alternatives to our technologies. Further, our competitors in the directed molecular
evolution field may be more effective at implementing their technologies to develop commercial products. Some of these competitors have entered into collaborations with leading companies within our target markets to produce commercial products.
Any products that we develop through our technologies will compete in multiple, highly competitive markets. Most of the organizations
competing with us in the markets for such products have greater capital resources, research and development and marketing staffs and facilities and capabilities, and greater experience in modifying DNA and proteins, obtaining regulatory approvals,
manufacturing products and marketing.
24
Accordingly, our competitors may be able to develop technologies and products more easily, which would render our technologies and products and
those of our collaborators obsolete and noncompetitive.
Any Inability to Adequately Protect Our Proprietary Technologies Could Harm
Our Competitive Position.
Our success will depend in part on our ability to obtain patents and maintain adequate protection of our
intellectual property for our technologies and products in the U.S. and other countries. If we do not adequately protect our intellectual property, competitors may be able to practice our technologies and erode our competitive advantage. The laws of
some foreign countries do not protect proprietary rights to the same extent as the laws of the U.S., and many companies have encountered significant problems in protecting their proprietary rights in these foreign countries. These problems can be
caused by, for example, a lack of rules and processes allowing for meaningfully defending intellectual property rights.
The patent
positions of biopharmaceutical and biotechnology companies, including our patent positions, are often uncertain and involve complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use by third parties
only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. We apply for patents covering our technologies and products as we deem appropriate. However, we may not
obtain patents on all inventions for which we seek patents, and any patents we obtain may be challenged and may be narrowed in scope or extinguished as a result of such challenges. Our existing patents and any future patents we obtain may not be
sufficiently broad to prevent others from practicing our technologies or from developing competing products. Others may independently develop similar or alternative technologies or design around our patented technologies or products. In addition,
others may challenge or invalidate our patents, or our patents may fail to provide us with any competitive advantages.
We rely upon
trade secret protection for our confidential and proprietary information. We have taken security measures to protect our proprietary information. These measures may not provide adequate protection for our trade secrets or other proprietary
information. We seek to protect our proprietary information by entering into confidentiality agreements with employees, collaborators and consultants. Nevertheless, employees, collaborators or consultants may still disclose or misuse our proprietary
information, and we may not be able to meaningfully protect our trade secrets. In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to our trade secrets.
Litigation or Other Proceedings or Third Party Claims of Intellectual Property Infringement Could Require Us to Spend Time and Money and Could Shut
Down Some of Our Operations.
Our commercial success depends in part on neither infringing patents nor proprietary rights of third
parties, nor breaching any licenses that we have entered into with regard to our technologies and products. Others have filed, and in the future are likely to file, patent applications covering genes or gene fragments that we may wish to utilize
with our proprietary technologies, or products that are similar to products developed with the use of our technologies or alternative methods of generating gene diversity. If these patent applications result in issued patents and we wish to use the
claimed technology, we would need to obtain a license from the third party.
Third parties may assert that we are employing their
proprietary technology without authorization. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes these patents. We could incur substantial costs and diversion of the time and attention of
management and technical personnel in defending ourselves against any of these claims or enforcing our patents or other intellectual property rights against others. Furthermore, parties making claims against us may be able to obtain injunctive or
other equitable relief that could effectively block our ability to further develop, commercialize and sell products, and such claims could result in the award of substantial damages against us. In the event of a successful claim of infringement
against us, we may be required to pay damages and obtain one or more licenses from third parties. We may not be able to obtain these licenses at a reasonable cost, if at all. In that event, we could encounter delays in product introductions while we
attempt to develop alternative methods or products or be required to cease commercializing affected products.
25
We routinely monitor the public disclosures of other companies operating in our industry regarding their
technological development efforts. If we determine that these efforts violate our intellectual property or other rights, we intend to take appropriate action, which could include litigation. Any action we take could result in substantial costs and
diversion of management and technical personnel. Furthermore, the outcome of any action we take to protect our rights may not be resolved in our favor.
From time to time, Maxygen becomes involved in claims and legal proceedings that arise in the ordinary course of its business. We are currently subject to two such claims. We do not believe that the resolution of these claims will
have a material adverse effect on us.
If We Lose Key Personnel or Are Unable to Attract and Retain Additional Personnel We May Be
Unable to Pursue Collaborations or Develop Our Own Products.
We are highly dependent on the principal members of our management and
scientific staff, the loss of whose services might adversely impact the achievement of our objectives. In addition, recruiting and retaining qualified scientific personnel to perform future research and development work will be critical to our
success. We do not currently have sufficient executive management personnel to execute fully our business plan. Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced scientists from
numerous companies and academic and other research institutions may limit our ability to do so on acceptable terms. Failure to attract and retain personnel could prevent us from pursuing collaborations or developing our products or core
technologies.
Our planned activities will require additional expertise in specific industries and areas applicable to the products
developed through our technologies. These activities will require the addition of new personnel, including management, and the development of additional expertise by existing management personnel. The inability to acquire these services or to
develop this expertise could impair the growth, if any, of our business.
We May Need Additional Capital in the Future. If Additional
Capital is Not Available, We May Have to Curtail or Cease Operations.
Our future capital requirements will depend on many factors
including payments received under collaborative agreements, including joint ventures, and government grants, the progress and scope of our collaborative and independent research and development projects, the extent to which we advance products into
clinical trials with our own resources, the effect of any acquisitions, and the filing, prosecution and enforcement of patent claims.
Changes may also occur that would consume available capital resources significantly sooner than we expect. We may be unable to raise sufficient additional capital. The current difficult economic climate means that the current ability
of biotechnology companies, including Maxygen, to raise capital is severely limited. If we fail to raise sufficient funds, we may have to curtail or cease operations. We anticipate that existing cash and cash equivalents and income earned thereon,
together with anticipated cash flows from operations, will enable us to maintain our currently planned operations for at least the next 12 months. If our capital resources are insufficient to meet future capital requirements, we will have to raise
additional funds to continue the development of our technologies and complete the commercialization of products, if any, resulting from our technologies.
Some of Our Programs Depend on Government Grants, Which May Be Withdrawn. The Government Has License Rights to Technology Developed With Its Funds.
We have received and expect to continue to receive funds under various U.S. government research and technology development programs. The government may reduce funding in the future for a number of
reasons. For example, some programs are subject to a yearly appropriations process in Congress. Additionally, we may not receive funds under existing or future grants because of budgeting constraints of the agency administering the program. There
can be no assurance that we will receive the entire funding under our existing or future grants.
Our grants provide the U.S. government
a non-exclusive, non-transferable, paid-up license to practice for or on behalf of the U.S. government, inventions made with federal funds. If the government exercises these rights, the U.S. government could use these inventions and our potential
market could be reduced.
26
Our Potential Therapeutic Products Are Subject to a Lengthy and Uncertain Regulatory Process. If Our
Potential Products Are Not Approved, We Will Not Be Able to Commercialize Those Products.
The Food and Drug Administration must
approve any vaccine or therapeutic product before it can be marketed in the U.S. Before we can file a new drug application or biologic license application with the FDA, the product candidate must undergo extensive testing, including animal and human
clinical trials, which can take many years and require substantial expenditures. Data obtained from such testing are susceptible to varying interpretations that could delay, limit or prevent regulatory approval. In addition, changes in regulatory
policy for product approval during the period of product development and regulatory agency review of each submitted new application or product license application may cause delays or rejections. The regulatory process is expensive and time
consuming. The regulatory agencies of foreign governments must also approve our therapeutic products before the products can be sold in those other countries.
Because our products involve the application of new technologies and may be based upon new therapeutic approaches they may be subject to substantial review by government regulatory authorities and government regulatory
authorities may grant regulatory approvals more slowly for our products than for products using more conventional technologies. We have not submitted an application to the FDA or any other regulatory authority for any product candidate, and neither
the FDA nor any other regulatory authority has approved any therapeutic product candidate developed with our MolecularBreeding directed molecular evolution technologies for commercialization in the U.S. or elsewhere. We may not be able to, or our
collaborators may not be able to, conduct clinical testing or obtain the necessary approvals from the FDA or other regulatory authorities for our products.
Even after investing significant time and expenditures we may not obtain regulatory approval for our products. Even if we receive regulatory approval, this approval may entail limitations on the indicated uses for which we
can market a product. Further, once regulatory approval is obtained, a marketed product and its manufacturer are subject to continual review, and discovery of previously unknown problems with a product or manufacturer may result in restrictions on
the product, manufacturer or manufacturing facility, including withdrawal of the product from the market. In certain countries, regulatory agencies also set or approve prices.
Laws May Limit Our Provision of Genetically Engineered Agricultural Products in the Future. These Laws Could Reduce Our Ability to Sell These Products.
We may develop genetically engineered agricultural products. The field-testing, production and marketing of genetically engineered plants and plant products are
subject to federal, state, local and foreign governmental regulation. Regulatory agencies administering existing or future regulations or legislation may not allow us to produce and market our genetically engineered products in a timely manner or
under technically or commercially feasible conditions. In addition, regulatory action or private litigation could result in expenses, delays or other impediments to our product development programs or the commercialization of resulting products.
The FDA currently applies the same regulatory standards to foods developed through genetic engineering as apply to foods developed
through traditional plant breeding. However, genetically engineered food products will be subject to pre-market review if these products raise safety questions or are deemed to be food additives. Our products may be subject to lengthy FDA reviews
and unfavorable FDA determinations if they raise questions, are deemed to be food additives, or if the FDA changes its policy.
The FDA
has also announced in a policy statement that it will not require that genetically engineered agricultural products be labeled as such, provided that these products are as safe and have the same nutritional characteristics as conventionally
developed products. The FDA may reconsider or change its labeling policies, or local or state authorities may enact labeling requirements. Any such labeling requirements could reduce the demand for our products.
The U.S. Department of Agriculture prohibits genetically engineered plants from being grown and transported except pursuant to an exemption, or under strict
controls. If our future products are not exempted by the USDA, it may be impossible to sell such products.
27
Health Care Reform and Restrictions on Reimbursements May Limit Our Returns on Pharmaceutical
Products.
Our future products are expected to include pharmaceutical products. Our ability and that of our collaborators to
commercialize pharmaceutical products developed with our technologies may depend in part on the extent to which reimbursement for the cost of these products will be available from government health administration authorities, private health insurers
and other organizations. Third-party payors are increasingly challenging the price of medical products and services. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and there can be no assurance
that adequate third party coverage will be available for any product to enable us to maintain price levels sufficient to realize an appropriate return on our investment in research and product development.
Destructive Actions By Activists or Terrorists Could Damage Our Facilities, Interfere with Our Research Activities and Cause Ecological Harm. Any Such Adverse
Events Could Damage Our Ability to Develop Products and Generate Adequate Revenue to Continue Operations.
Activists and terrorists
have recently shown a willingness to injure people and damage physical facilities, equipment and biological materials to publicize and/or further their ideological causes. Events in New York City and Washington, D.C. show that the amount of damage
people are willing and able to cause can be considerable. Our operations and research activities could be adversely impacted depending upon the nature and extent of such acts. Such damage could include disability or death of our personnel, damage to
our physical facilities, destruction of animals and biological materials, disruption of our communications and/or data management software used for research and/or destruction of research records. Any such damage could delay our research projects
and decrease our ability to conduct future research and development. Damage caused by activist and/or terrorist incidents could also cause the release of hazardous materials, including chemicals, radioactive and biological materials, which could
damage our reputation in the community. Clean up of any such releases could also be time consuming and costly.
Any significant
interruptions in our ability to conduct our business operations or research and development activities could reduce our revenue and increase our expenses.
We Use Hazardous Chemicals and Radioactive and Biological Materials in Our Business. Any Claims Relating to Improper Handling, Storage or Disposal of These Materials Could Be Time Consuming and Costly.
Our research and development processes involve the controlled use of hazardous materials, including chemicals, radioactive and biological materials.
Some of these materials may be novel, including viruses with novel properties and animal models for the study of viruses. Our operations also produce hazardous waste products. Some of our work also involves the development of novel viruses and viral
animal models. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these
materials. We believe that our current operations comply in all material respects with these laws and regulations. We could be subject to civil damages in the event of an improper or unauthorized release of, or exposure of individuals to, hazardous
materials. In addition, claimants may sue us for injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our total assets. Compliance with environmental laws and regulations may
be expensive, and current or future environmental regulations may impair our research, development, or production efforts. We believe that our current operations comply in all material respects with applicable Environmental Protection Agency
regulations.
In addition, certain of our collaborators are working with these types of hazardous materials in connection with our
collaborations. To our knowledge, the work is performed in accordance with biosafety regulations. In the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property by exposure to, or release of,
these viruses and hazardous materials. Further, under certain circumstances, we have agreed to indemnify our collaborators against damages and other liabilities arising out of development activities or products produced in connection with these
collaborations.
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Our Collaborations With Outside Scientists May Be Subject to Change, Which Could Limit Our Access to
Their Expertise.
We work with scientific advisors, consultants and collaborators at academic and other institutions. These
scientists are not our employees and may have other commitments that could limit their availability to us. Although our scientific advisors generally agree not to do competing work, if a conflict of interest between their work for us and their work
for another entity arises, we may lose their services. Although our scientific advisors and collaborators sign agreements not to disclose our confidential information, it is possible that certain of our valuable proprietary knowledge may become
publicly known through them.
We May Be Sued for Product Liability.
We may be held liable if any product we develop, or any product that is made with the use or incorporation of any of our technologies, causes injury or is found otherwise unsuitable during
product testing, manufacturing, marketing or sale. These risks are inherent in the development of chemical, agricultural and pharmaceutical products. Although we intend in the future to obtain product liability insurance, we do not have such
insurance currently. Any such insurance that we seek to obtain may be prohibitively expensive or may not fully cover our potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against
potential product liability claims could prevent or inhibit the commercialization of products developed by us or our collaborators. If we are sued for any injury caused by our products, our liability could exceed our total assets.
Our Stock Price Has Been, and May Continue to Be, Extremely Volatile.
The trading prices of life science company stocks in general, and ours in particular, have experienced extreme price fluctuations in the last two years. The valuations of many life science companies
without consistent product revenues and earnings, including ours, are high based on conventional valuation standards such as price to earnings and price to sales ratios. These trading prices and valuations may not be sustained. Any negative change
in the publics perception of the prospects of biotechnology or life science companies could depress our stock price regardless of our results of operations. Other broad market and industry factors may decrease the trading price of our common
stock, regardless of our performance. Market fluctuations, as well as general political and economic conditions such as recession or interest rate or currency rate fluctuations, also may decrease the trading price of our common stock. In addition,
our stock price could be subject to wide fluctuations in response to factors including the following:
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announcements of new technological innovations or new products by us or our competitors; |
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changes in financial estimates by securities analysts; |
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conditions or trends in the biotechnology and life science industries; |
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changes in the market valuations of other biotechnology or life science companies; |
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developments in domestic and international governmental policy or regulations; |
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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developments in or challenges relating to patent or other proprietary rights; |
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period-to-period fluctuations in our operating results; |
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future royalties from product sales, if any, by our strategic partners; and |
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sales of our common stock or other securities in the open market. |
In the past, stockholders have often instituted securities class action litigation after periods of volatility in the market price of a companys securities. If a stockholder files a securities
class action suit against us, we would incur substantial legal fees and our managements attention and resources would be diverted from operating our business to respond to the litigation.
In December 2001 a lawsuit was filed in the U.S. District Court for the Southern District of New York against Maxygen, our chief executive officer, Russell Howard, and our then chief
financial officer (now president), Simba Gill, together with certain underwriters of our initial public offering and secondary public offering of common stock. The lawsuit, which alleges claims under Sections 11, 12(a)(2) and 15 of the Securities
Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, is among the so-called laddering cases that have been commenced against a number of companies that had public offerings of securities prior to December 2000. The
complaint has been consolidated with other laddering claims in a
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proceeding styled In re Initial Public Offering Securities Litigation, No. 21 MC 92 (SAS), pending before the Honorable Shira A.
Scheindlin. An amended complaint was served on Maxygen and Drs. Howard and Gill in April 2002. We believe the lawsuit against Maxygen and its officers is without merit and intend to defend against it vigorously.
We Expect that Our Quarterly Results of Operations Will Fluctuate, and This Fluctuation Could Cause Our Stock Price to Decline.
Our quarterly operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our stock price to fluctuate
significantly or decline. Some of the factors that could cause our operating results to fluctuate include:
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expiration of research contracts with collaborators or government research grants, which may not be renewed or replaced; |
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the success rate of our discovery efforts leading to milestones and royalties; |
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the timing and willingness of collaborators to commercialize our products, which would result in royalties; and |
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general and industry specific economic conditions, which may affect our collaborators research and development expenditures.
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A large portion of our expenses are relatively fixed, including expenses for facilities, equipment and personnel. Accordingly, if
revenues decline or do not grow as anticipated due to expiration of research contracts or government research grants, failure to obtain new contracts or other factors, we may not be able to correspondingly reduce our operating expenses. Failure to
achieve anticipated levels of revenues could therefore significantly harm our operating results for a particular fiscal period.
Due to
the possibility of fluctuations in our revenues and expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. Our operating results in some quarters may not meet the
expectations of stock market analysts and investors. In that case, our stock price would likely decline.
Some of Our Existing
Stockholders Can Exert Control Over Us, and May Not Make Decisions that Are in the Best Interests of All Stockholders.
Our executive
officers, directors and principal stockholders together control approximately 34% of our outstanding common stock, including GlaxoSmithKline plc, which owns approximately 19% of our outstanding common stock. As a result, these stockholders, if they
act together, and GlaxoSmithKline plc by itself, are able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of directors and approval of significant
corporate transactions. In addition, this concentration of ownership may delay or prevent a change in control of Maxygen and might affect the market price of our common stock, even when a change may be in the best interests of all stockholders. In
addition, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders and accordingly, they could cause us to enter into transactions or agreements that we would not otherwise
consider.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
We are exposed to financial market risks, including changes in interest rates and foreign
currency exchange. To mitigate some of these risks, we utilize currency forward contracts. We do not use derivative financial instruments for speculative or trading purposes.
Interest Rate Risk
The primary objective of our investment activities is to
preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents, short-term and long-term investments in a variety of securities, including
corporate obligations and money market funds. All securities are held in U.S. currency. As of September 30, 2002, approximately 99% of our total portfolio will mature in one year or less, with the remainder maturing in less than two years.
The following table represents the fair value balance of our cash, cash equivalents, short-term and long-term investments that are
subject to interest rate risk by year of expected maturity and average interest rates as of September 30, 2002 (dollars in thousands):
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Expected Maturity
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2002
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2003
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Cash and cash equivalents |
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$ |
177,870 |
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Average interest rates |
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1.85 |
% |
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Short-term investments |
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$ |
12,289 |
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$ |
38,447 |
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Average interest rates |
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3.64 |
% |
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4.12 |
% |
We did not hold derivative instruments intended to mitigate interest rate risk as of
September 30, 2002, and we have never held such instruments in the past. In addition, we had outstanding debt related to equipment financing of $835,000 as of September 30, 2002, with a range of interest rates of between 11.73% and 12.78%.
Foreign Currency Exchange Risk
A majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, in 2000 we acquired a wholly-owned subsidiary in Denmark, Maxygen ApS. The functional currency of Maxygen ApS is the Danish
kroner. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, we have established a cash flow hedging program. Currency forward contracts are utilized in these hedging programs.
Our hedging programs reduce, but do not always eliminate, the impact of foreign currency exchange rate movements. Gains and losses on these foreign currency investments would generally be offset by corresponding losses and gains on the related
hedging instruments, resulting in negligible net exposure to Maxygen.
At September 30, 2002 we had a total of $4.2 million committed in
foreign currency cash flow forward contracts.
CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of Maxygen management,
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, our Chief Executive
Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Maxygen (including its consolidated subsidiaries) required to be included in our
periodic Securities and Exchange Commission filings.
There have been no significant changes in our internal controls or in other factors
that could significantly affect internal controls subsequent to the date we carried out this evaluation.
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PART IIOTHER
INFORMATION
LEGAL PROCEEDINGS
Not applicable.
CHANGES IN SECURITIES AND USE OF
PROCEEDS
Recent Sales of Unregistered Securities
On August 4, 2002, we issued an aggregate of 12,632 shares of our common stock in connection with the acquisition of a license of certain technology. On September 1, 2002, we issued 15,319
shares of our common stock in connection with the acquisition of a license of certain other technology. On September 13, 2002 we issued 4,633 shares of our common stock to a consultant in partial payment for consulting services rendered to us. On
September 30, 2002 we issued 8,052 shares of our common stock to three additional consultants in partial payment for consulting services rendered to us. There was no underwriter employed in connection with any of the above-described transactions.
The issuances of securities were deemed to be exempt from registration under the Securities Act of 1933, as amended (the Securities Act) in reliance on Section 4(2) of the Securities Act and Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering. The recipients of the securities represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates issued in the transactions. The recipients either received adequate information about us or had access, through employment or other relationships, to such information. The recipients, either
alone or together with their duly appointed purchaser representatives, were knowledgeable, sophisticated and experienced in making investment decisions of this kind and received adequate information about us.
Application of Initial Public Offering Proceeds
The effective date of our first registration statement, filed on Form S-1 under the Securities Act (No. 333-89413) relating to our initial public offering of common stock, was December 15, 1999. Net proceeds to us were approximately
$101.0 million. From the effective date through September 30, 2002, the proceeds were applied toward:
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purchases and installation of equipment and build-out of facilities, $19.8 million; |
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repayment of indebtedness, $1.2 million; |
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operating losses related to Company research and development programs and working capital, $40.5 million; and |
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temporary investments in certificates of deposits, mutual funds and corporate debt securities, $39.5 million. |
The use of the proceeds from the offering does not represent a material change in the use of the proceeds described in the registration statement.
DEFAULTS UPON SENIOR SECURITIES
Not applicable.
32
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
Not applicable.
OTHER INFORMATION
Not applicable.
EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
none
(b) There were no reports on Form 8-K filed during the quarter ended September 30, 2002.
33
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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MAXYGEN, INC. |
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November 13, 2002 |
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By: |
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/s/ Russell J. Howard
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Russell J. Howard Chief Executive Officer |
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November 13, 2002 |
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By: |
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/s/ Lawrence W. Briscoe
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Lawrence W. Briscoe Chief Financial Officer |
34
Form of Certification Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
I, Russell J. Howard, certify that:
1. |
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I have reviewed this quarterly report on Form 10-Q of Maxygen, Inc.; |
2. |
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Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. |
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Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. |
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The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. |
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The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent functions): |
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
6. |
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The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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Date: |
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November 13, 2002
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/s/ Russell J. Howard
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Russell J. Howard Chief Executive Officer |
35
Form of Certification Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
I, Lawrence W. Briscoe, certify that:
1. |
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I have reviewed this quarterly report on Form 10-Q of Maxygen, Inc.; |
2. |
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Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. |
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Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. |
|
The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. |
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The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent functions): |
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
6. |
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The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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Date: |
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November 13, 2002
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/s/ Lawrence W. Briscoe
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Lawrence W. Briscoe Chief Financial Officer |
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Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Russell J. Howard, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge the Quarterly Report of Maxygen, Inc. on Form 10-Q for the
quarterly period ended September 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material
respects the financial condition and results of operations of Maxygen, Inc.
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By: |
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/s/ Russell J. Howard
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Name: |
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Russell J. Howard |
Title: |
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Chief Executive Officer |
Date: |
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November 13, 2002 |
I, Lawrence W. Briscoe, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge the Quarterly Report of Maxygen, Inc. on Form 10-Q for the quarterly period ended September 30, 2002 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Maxygen, Inc.
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By: |
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/s/ Lawrence W. Briscoe
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Name: |
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Lawrence W. Briscoe |
Title: |
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Chief Financial Officer |
Date: |
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November 13, 2002 |
37