Back to GetFilings.com
FORM 1O-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-19732
CORVAS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0238812
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3030 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices and zip code)
(858) 455-9800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark whether the Registrant (l) 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 [ ]
At November 6, 2002, there were 27,567,968 shares of Common Stock,
$0.001 par value, of the Registrant issued and outstanding.
CORVAS INTERNATIONAL, INC.
INDEX
Page
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 2002 (unaudited)
and December 31, 2001 1
Condensed Statements of Operations for the Three and Nine Months
Ended September 30, 2002 and 2001 (unaudited) 2
Condensed Statements of Cash Flows for the Nine Months
Ended September 30, 2002 and 2001 (unaudited) 3
Notes to Condensed Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
Item 4. Controls and Procedures 11
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
None
Item 3. Defaults Upon Senior Securities 21
None
Item 4. Submission of Matters to a Vote of Security Holders 21
None
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 21
(b) Reports on Form 8-K 21
None
Signatures and Section 906 Certification 22
Section 302 Certifications
Part I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CORVAS INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
In thousands
(unaudited)
September 30, 2002 December 31, 2001
------------------ -----------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,643 $ 4,332
Short-term debt securities held to maturity
and time deposits, partially restricted 66,517 72,359
Receivables 1,188 1,865
Note receivable from related party 250 250
Other current assets 1,781 382
------------- -------------
Total current assets 74,379 79,188
------------ ------------
Debt issuance costs, net 74 89
Long-term debt securities held to maturity 23,964 35,608
Property and equipment, net 2,414 2,118
------------- -------------
$ 100,831 $ 117,003
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 345 $ 925
Accrued liabilities 1,070 1,123
Accrued benefits 37 --
Accrued leave 388 546
Accrued restructuring charges 923 --
------------- -------------
Total current liabilities 2,763 2,594
------------- -------------
Convertible notes payable 12,348 11,736
Deferred rent 256 216
Stockholders' equity:
Common stock 27 27
Additional paid-in capital 227,631 227,430
Accumulated deficit (142,194) (125,000)
------------- -------------
Total stockholders' equity 85,464 102,457
Commitments and contingencies
------------- -------------
$ 100,831 $ 117,003
============= =============
See accompanying notes to condensed financial statements.
1
CORVAS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
In thousands, except per share data
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Revenues:
Royalties $ 43 $ 32 $ 116 $ 99
Research grants -- 99 -- 195
------------- ------------- ------------- -------------
Total revenues 43 131 116 294
------------- ------------- ------------- -------------
Costs and expenses:
Research and development 3,854 4,184 13,579 19,204
General and administrative 1,266 1,416 3,739 3,911
Restructuring charges 1,972 -- 1,972 --
------------- ------------- ------------- -------------
Total costs and expenses 7,092 5,600 19,290 23,115
------------- ------------- ------------- -------------
Loss from operations (7,049) (5,469) (19,174) (22,821)
Other income (expense):
Interest income 710 1,407 2,606 5,082
Interest expense (211) (200) (626) (593)
------------- ------------- ------------- -------------
499 1,207 1,980 4,489
------------- ------------- ------------- -------------
Net loss and other comprehensive loss $ (6,550) $ (4,262) $ (17,194) $ (18,332)
============= ============= ============= =============
Basic and diluted net loss per share $ (0.24) $ (0.16) $ (0.63) $ (0.67)
============= ============= ============= =============
Shares used in calculation of basic
and diluted net loss per share 27,568 27,469 27,526 27,409
============= ============= ============= =============
See accompanying notes to condensed financial statements.
2
CORVAS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
In thousands
(unaudited)
Nine Months Ended
September 30,
---------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net loss $ (17,194) $ (18,332)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 665 478
Amortization of premiums and discounts on investments 878 24
Amortization of debt issuance costs 15 15
Non-cash interest expense on convertible notes payable 612 579
Gain on sale of property and equipment (5) --
Asset impairment related to restructuring charges 160 --
Stock compensation expense 59 151
Changes in assets and liabilities:
(Increase) decrease in receivables 677 (40)
(Increase) decrease in other current assets (1,399) 108
Decrease in accounts payable, accrued
liabilities, accrued benefits and accrued leave (754) (30)
Increase in accrued restructuring charges 923 --
Increase in deferred rent 40 73
------------ ------------
Net cash used in operating activities (15,323) (16,974)
------------ ------------
Cash flows from investing activities:
Purchases of investments held to maturity (43,460) (108,096)
Proceeds from maturity of investments held to maturity 48,443 115,850
Proceeds from sale of investments held to maturity 11,625 1,981
Proceeds from sale of property and equipment 5 --
Purchases of property and equipment (1,121) (1,517)
------------ ------------
Net cash provided by investing activities 15,492 8,218
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 142 410
Capital contribution -- 225
------------ ------------
Net cash provided by financing activities 142 635
------------ ------------
Net increase (decrease) in cash and cash equivalents 311 (8,121)
Cash and cash equivalents at beginning of period 4,332 14,153
------------ ------------
Cash and cash equivalents at end of period $ 4,643 $ 6,032
============ ============
See accompanying notes to condensed financial statements.
3
CORVAS INTERNATIONAL, INC.
Notes to Condensed Financial Statements
(unaudited)
(1) The Company
-----------
Corvas International, Inc. (the "Company") was incorporated on March
27, 1987 under the laws of the State of California. In July 1993, the Company
reincorporated in the State of Delaware. The Company is focused on the discovery
and development of novel therapeutics that address today's largest medical
markets, cardiovascular disease and cancer, based on the Company's expertise in
vascular biology and protease modulation.
(2) Basis of Presentation
---------------------
The interim financial information contained herein is unaudited but, in
management's opinion, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. Following the rules
and regulations of the Securities and Exchange Commission (the "SEC"), we have
omitted footnote disclosures that would substantially duplicate the disclosures
contained in the annual audited financial statements. The condensed financial
statements should be read in conjunction with the Company's audited financial
statements and notes thereto for the year ended December 31, 2001 included in
the Company's Annual Report on Form 10-K. Results for the interim periods are
not necessarily indicative of results for other interim periods or for the full
year.
(3) Net Loss Per Share
------------------
Net loss per share for the three months ended September 30, 2002 and
2001 is computed using the weighted-average number of common shares outstanding.
Options totaling 3,151,000 and 2,393,000 shares were excluded from the
calculation of diluted net loss per share for the nine months ended September
30, 2002 and 2001 respectively. In addition, 3,625,000 and 3,247,000 shares from
the assumed conversion of the 5.5% convertible senior subordinated notes issued
in 1999 have been excluded from this calculation for the three months ended
September 30, 2002 and 2001, respectively.
(4) Debt Securities Held to Maturity
--------------------------------
Certain securities that were no longer in compliance with the Company's
investment policy were sold prior to maturity during the nine months ended
September 30, 2002.
(5) Subsequent Event
----------------
The note receivable from related party of $250,000 was repaid in full
in November 2002.
4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM WHAT IS DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE HEADING "RISK
FACTORS."
THE TERMS "CORVAS," "WE," "US" AND "OUR" REFER TO CORVAS
INTERNATIONAL, INC.
OVERVIEW
We are a biopharmaceutical company focused on the discovery and
development of novel therapeutics that address today's largest medical markets,
including cardiovascular disease and cancer, based on our expertise in vascular
biology and protease modulation. We recently initiated a Phase II clinical trial
with our novel anticoagulant rNAPc2 in patients with acute coronary syndromes
that include unstable angina and non-ST-segment elevation myocardial infarction
or UA/NSTEMI. Our cancer program is based on an enzyme family, genomics-driven
approach to the discovery of therapeutic products that modulate the activity of
serine proteases associated with the growth and progression of solid tumors.
We currently have no products for sale and are focused on research and
development and clinical trial activities. We have not been profitable on an
annual basis since inception and we anticipate that we will incur substantial
additional operating losses for at least the next several years as we progress
in our cardiovascular and cancer programs. To date, we have funded our
operations primarily through the sale of equity and debt securities, payments
received from collaborators and interest income. At September 30, 2002, we had
an accumulated deficit of $142.2 million. Unless we enter into any new
collaborative agreements that include funding for research and development or
funding for the continued development of our clinical drug candidates, we expect
that our sources of income, if any, for the next several years will continue to
primarily consist of interest income. We may not enter into any additional
collaborative agreements and may not recognize any revenue pursuant to
collaborative agreements in the future.
We recently initiated a Phase II clinical program of rNAPc2 in
UA/NSTEMI patients with the primary objective of determining a safe and
effective dose of rNAPc2 for the treatment of ischemic complications of
UA/NSTEMI. We also plan to continue to build on selected preclinical cancer
programs. The process of developing our product candidates will require
significant additional research and development, preclinical and clinical
testing, and regulatory approvals prior to commercialization of a product
candidate. In July 2002, we announced a significant workforce reduction as part
of an extensive strategic alignment of our research and development programs. As
a result of this reduction in personnel and other cost-cutting measures, we
anticipate that our research and development and, to a lesser degree, general
and administrative expenditures in 2002 will be less than those incurred in
2001. In addition, we continue to pursue and evaluate various possible strategic
transactions to expand our pipeline of clinical drug candidates, including
in-licensing or acquiring complementary products, technologies or companies, or
combining with another company. If we in-license or acquire products,
technologies or companies or combine with another company, we expect that our
operating expenses would increase as a result.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
REVENUES. Our operating revenues of $43,000 in the three months ended
September 30, 2002 were comprised of royalties from licenses for recombinant
tissue factor. Revenues in the corresponding period of 2001 were $131,000. This
$88,000 decrease was attributable to the completion of a research grant in
August 2001.
5
We currently do not have any collaborative agreements from which we
expect to receive any revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in
the quarter ended September 30, 2002 decreased to $3.9 million, or 54% of our
total expenses, compared to $4.2 million, or 75% of total expenses, in the
corresponding quarter of 2001. This $330,000 decrease was primarily the result
of our late-July workforce reduction and realignment of our research and
development programs.
In November 2002, we announced the initiation of our Phase II clinical
program of rNAPc2 for the treatment of UA/NSTEMI. However, as a result of the
reduction in expenses afforded by our recent restructuring, we expect our
research and development expenses for 2002 to decrease from the 2001 levels.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses in the three months ended September 30, 2002 decreased to $1.3 million
from $1.4 million in the same quarter of 2001. This $150,000 decrease is mainly
attributable to the recent reduction in force.
RESTRUCTURING CHARGES. In July 2002 we announced a significant
workforce reduction of nearly 40% of our research and administrative staff,
which resulted in a third quarter charge of nearly $2.0 million. $767,000 of
this amount was paid in the third quarter for severance, outplacement services
and related costs. Future cash payments of approximately $920,000 are
anticipated in connection with the restructuring, approximately one-half of
which is expected to be paid in 2003.
NET OTHER INCOME. Net other income, which consists of interest income
and interest expense on our convertible notes payable, was $499,000 in the third
quarter of 2002, compared to $1.2 million one year earlier. This $708,000
decrease was due to a combination of lower balances available for investment and
the significant reduction in interest rates earned on our investments. We expect
that our interest income will continue to decline in subsequent quarters.
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
REVENUES. Operating revenues for the nine months ended September 30,
2002 decreased to $116,000 from $294,000 in the same period of 2001. This
$178,000 decrease was primarily attributable to the completion of a research
grant in August 2001.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in
the nine months ended September 30, 2002 decreased to $13.6 million, or 70% of
our total costs, from $19.2 million, or 83% of our total costs, one year
earlier. This $5.6 million decrease was primarily attributable to non-recurring
costs associated with manufacturing of rNAPc2 in the first half of 2001.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased by $172,000 to $3.7 million in the nine months ended
September 30, 2002 from $3.9 million in the same period of 2001. This decrease
was mainly attributable to our reduction in force.
RESTRUCTURING CHARGES. The restructuring charges of $2.0 million in the
third quarter of 2002 relate to our workforce reduction and strategic
realignment of our research programs in July 2002. $889,000 of this amount was
paid in the nine months ended September 30, 2002.
NET OTHER INCOME. Net other income decreased to $2.0 million for the
nine months ended September 30, 2002 from $4.5 million one year earlier. This
$2.5 million decrease was due to lower investment balances and interest rates.
6
We expect that we will continue to incur substantial additional
operating losses for at least the next several years as we pursue our clinical
trials and research and development efforts. We also expect both our expenses
and losses to fluctuate from quarter to quarter and that the fluctuations may,
at times, be substantial.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our operations have been financed primarily through
public offerings and private placements of our equity and debt securities,
payments received through collaborative agreements, and interest income earned
on cash and investment balances. Our principal sources of liquidity are cash and
cash equivalents, time deposits and short- and long-term held to maturity debt
securities, which, net of $303,000 in restricted time deposits, totaled $94.8
million as of September 30, 2002. Working capital at September 30, 2002 was
approximately $71.6 million. In the nine months ended September 30, 2002, we
used net cash of $15.3 million in our operating activities, which was provided
by our investing activities. We invest available cash in accordance with an
investment policy set by our board of directors. Our policy has established
objectives of preserving principal, maintaining adequate liquidity and
maximizing income. Our policy provides guidelines concerning the quality, term
and liquidity of investments. We presently invest our excess cash primarily in
debt instruments of corporations with strong credit ratings and
government-backed debt obligations.
In July 2002, we announced a workforce reduction which resulted in the
termination of 42 research and administrative employees. This restructuring was
part of an extensive strategic realignment of our research programs designed to
focus our resources on our later-stage development programs, which include
rNAPc2 and selected cancer programs. Along with other cost-cutting measures,
this restructuring is expected to result in annualized cost savings of more than
$8.0 million.
Summary information related to the restructuring as of September 30,
2002 is included in the table below (in thousands).
Cash Total
Payments Restructuring
Made Non-Cash Accrued Charges
------------ ------------ ------------ ------------
Severance and related $ 598 $ -- $ 722 $ 1,320
Outplacement 156 -- 41 197
Asset impairment -- 160 -- 160
Contractual obligations and legal costs 135 -- 160 295
------------ ------------ ------------ ------------
$ 889 $ 160 $ 923 $ 1,972
============ ============ ============ ============
In August and October of 1999 we issued and sold, in two private
financings, a total of 2,000,000 shares of our common stock for $2.50 per share
and 5.5% convertible senior subordinated notes due in August 2006 in an
aggregate principal amount of $10.0 million. Net proceeds of $14.8 million were
raised in these financings. At the option of the note holder, the principal
balance of both notes is convertible into shares of our common stock at $3.25
per share, subject to certain adjustments. Interest on the outstanding principal
amounts of these notes accretes at 5.5% per annum, compounded semi-annually,
with interest payable upon redemption or conversion. Upon maturity, these notes
will have an accreted value of $14.6 million. At our option, the accreted
interest portion of both notes may be paid in cash or in our common stock priced
at the then-current market price. We have agreed to pay any applicable
withholding taxes on behalf of the note holder that may be incurred in
7
connection with the accreted interest, which are estimated and accrued at 30% of
the annual accretion. We may redeem the notes upon payment of the outstanding
principal and accreted interest, although we have no current intent to do so.
In April 2002, we entered into an exclusive collaboration agreement
with Abgenix, Inc. to discover, develop and commercialize fully-human monoclonal
antibodies against two selected antigens from our portfolio of membrane-bound
serine proteases. Under the terms of the collaboration, Abgenix will use its
human antibody technologies to generate and select antibodies against the Corvas
targets. Both companies will have the right to co-develop and commercialize, or,
if co-development is not elected, to solely develop and commercialize any
antibody products discovered during the collaboration. Both companies will share
equally in the product development costs and any profits from sales of products
successfully commercialized from any co-development efforts.
In September 2001, we entered into a collaboration agreement with Dyax
Corp. to discover, develop and commercialize novel cancer therapeutics focused
on serine protease inhibitors for two targets that we isolated and
characterized. Under the terms of this agreement, both companies will assume
joint development of any product candidates that may be identified and will
share commercialization rights and profits from any marketed products.
In July 2001, we entered into an agreement with Incyte Genomics, Inc.
for a multi-year subscription to Incyte's LifeSeq(R) databases, including Gold
and Foundation, for use in our cancer research programs focused on serine
proteases. We have non-exclusive rights to Incyte's full-length gene program in
addition to copies of genes to facilitate the identification and validation of
new drug targets in the serine protease gene family. Our agreement requires us
to pay an annual subscription fee and, in the event that any products based on
the information acquired from this database are developed and commercialized, we
would also be required to make milestone and royalty payments.
For at least the next several years, we expect additional operating
losses and negative cash flows from operations. We currently expect our burn
rate for 2002 to be in the low to mid $20 million range. Our current estimate
does not account for any potential strategic transactions. We expect to fund our
working capital and capital expenditure requirements during the next twelve
months from our available cash and investments. Based on our current estimates
including expected annualized cost savings of more than $8.0 million from our
restructuring and other cost-cutting measures, we believe that our available
cash and investments should be sufficient to satisfy our anticipated funding
requirements for at least the next several years.
8
Our material external commitments for the fourth quarter of 2002 and
for the full year 2003, based on contractual obligations and/or our current
estimates, are as follows:
Payments Due/Estimated by Year
------------------------------
2002 2003
---- ----
Commitments (In thousands)
-----------
Operating lease $ 333 $ 1,345
Capital expenditures(1) 175 500
Committed research and development(2) 2,780 18,900
Workforce reduction termination costs 485 438
----------- -----------
$ 3,773 $ 21,183
=========== ===========
Our current estimate of our future burn rate and capital requirements
may change for many reasons, some of which are beyond our control, including,
but not limited to:
o the costs associated with our recently-initiated
double-blinded, placebo-controlled Phase II clinical study of
rNAPc2 in patients with UA/NSTEMI;
o the rate of patient recruitment in our Phase II clinical study
of rNAPc2 in patients with UA/NSTEMI;
o the timing and magnitude of expenses incurred to further
develop rNAPc2;
o the costs and timing of regulatory approvals related to
rNAPc2;
o the timing of, costs of and our success in acquiring and
integrating complementary products, technologies or companies,
if any;
o the progress related to our collaboration agreements with
Abgenix and Dyax, including the selection of any preclinical
candidates;
o the progress on, and scope of, our internally-funded cancer
programs;
o our success in entering into future collaborative agreements,
if any;
o competing technological and market developments;
o the costs we incur in obtaining and enforcing patent and other
proprietary rights; and
o the costs we incur in defending against potential infringement
of the patents of others or in obtaining a license to operate
under such patents.
Our expected cash requirements may vary materially from those now
anticipated for many reasons. In the future we may need to raise additional
capital through strategic or other financings or through collaborative
relationships. Our ability to raise additional funds through the sale of
securities depends in part on investors' perceptions of the biotechnology
industry, in general, and of Corvas, in particular. Market prices for securities
of biotechnology companies, particularly Corvas, have been highly volatile and
may continue to be volatile in the future. Accordingly, additional funding may
not be available on acceptable terms or at all. If additional funds are raised
- ----------------
1) Based on our current projections for 2002 and 2003. These estimates may
change for many reasons including, but not limited to, the reasons listed above.
2) Includes both contractually-committed items and costs estimated for 2002 and
2003 for rNAPc2 and for our cancer programs. These future estimates may change
for many reasons including, but not limited to, the reasons listed above.
9
by issuing securities, our stockholders will experience dilution, which may be
substantial, especially if our stock price remains at the current low levels. If
we are not able to raise adequate funds in the future, we may be required to
significantly delay, further scale back or discontinue one or more additional
drug discovery programs, clinical trials or other aspects of our operations.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies, which have been consistently
applied in all material respects, are more fully described in Note 2 to our
Notes to Financial Statements included in our Annual Report on Form 10-K. We
consider certain of these policies to be critical policies.
REVENUE RECOGNITION. Revenues from collaborative agreements are
recognized as the related research and development activities are performed
under the terms of our agreements; any advance payments received in excess of
amounts earned are recorded as deferred revenue and recognized as revenue in
accordance with the terms of the agreements. Non-refundable license fees are
recognized when we receive such payments, absent any continuing involvement as
required by Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." We recognize milestone payments as revenue upon achievement of the
milestones specified in our agreements. Research grant revenues are recognized
as the related research is performed under the terms of the grant.
USE OF ESTIMATES. The preparation of our financial statements in
accordance with accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the amounts reported
in our financial statements and accompanying notes. These estimates include,
among others, useful lives for depreciation of fixed assets, accrued
restructuring charges and other accrued liabilities, and assumptions for valuing
stock options. We typically base our estimates on historical experience, terms
of existing contracts, trends in the industry, information available from other
outside sources, and on various other assumptions that we believe are reasonable
under the circumstances. Actual results could vary from these estimates under
different assumptions or conditions.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 146, "Accounting for Restructuring
Costs," which applies to costs associated with an exit activity, including
restructuring, or with a disposal of long-lived assets. SFAS 146 requires that a
liability be recorded for costs associated with an exit or disposal activity
when that liability is incurred and can be measured at fair value, rather than
at the date of commitment to an exit activity. SFAS 146 also requires
disclosures about exit and disposal activities, the related costs, and changes
in those costs in the notes to the financial statements that include the period
in which an exit activity is initiated and in any subsequent period until the
activity is completed. SFAS 146 is effective prospectively for exit or disposal
activities initiated after December 31, 2002, although earlier adoption is
encouraged. We do not expect the adoption of SFAS 146 to have a material effect
on our financial statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In accordance with our investment policy, we do not invest in
derivative financial instruments or any other market risk sensitive instruments.
Our available cash is invested in high quality fixed income investments that we
intend to hold to maturity. We believe that our interest rate market risk is
limited, and that we are not exposed to significant changes in fair value
because our investments are held to maturity and are primarily short-term in
nature. The fair value of each investment approximates its amortized cost.
10
For purposes of measuring interest rate sensitivity, we have assumed
that the similar nature of our investments allow us to aggregate their value.
The carrying amount of all held to maturity investments as of September 30, 2002
is $90.2 million and they have a weighted-average interest rate of 2.9%. These
investments mature at various dates through August 18, 2004.
Considering our investment balances as of September 30, 2002, rates of
return and the fixed rate nature of the convertible notes payable that were
issued in the second half of 1999, an immediate 10% change in interest rates
would not have a material impact on our financial condition or results of
operations.
Since the $10.0 million aggregate principal of the 5.5% convertible
senior subordinated notes that we issued is convertible into common stock at
$3.25 per share at the option of the holder, there is underlying market risk
related to an increase in our stock price or an increase in interest rates that
may make conversion of these notes into common stock beneficial to the holder.
Conversion of these convertible notes will have a dilutive effect on our common
stock.
Item 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Vice President and Controller, we
performed an evaluation of the effectiveness of our disclosure controls and
procedures within 90 days before the filing date of this quarterly report. Based
on that evaluation, our management including our Chief Executive Officer and
Vice President and Controller, concluded that our disclosure controls and
procedures are effective.
CHANGES IN INTERNAL CONTROLS
There have been no significant changes in internal controls or in other
factors that could significantly affect internal controls.
RISK FACTORS
WE HAVE A HISTORY OF OPERATING LOSSES AND WE MAY NEVER BECOME PROFITABLE.
We have experienced significant operating losses since our inception in
1987. At September 30, 2002, we had an accumulated deficit of approximately
$142.2 million. We have not earned any revenues from commercial sales of any
therapeutic products. We have funded our operations principally from sales of
our equity and debt securities, payments received from collaborators and
interest income. Currently, we do not have any committed sources of external
funding. We will continue to incur substantial additional operating losses for
at least the next several years as we pursue our clinical trials and research
and development efforts. To become profitable, we, either alone or with
collaborators, must successfully identify, develop, manufacture and market new
product candidates. We do not expect to generate revenues from product sales or
royalties from commercial sales of our products for at least a number of years,
and it is possible that we will never have product sales revenue or receive
significant royalties from sales of any of our licensed products.
WE HAVE NEVER HAD A PRODUCT CANDIDATE ADVANCE BEYOND PHASE II CLINICAL TRIALS
AND WE DO NOT HAVE, AND MAY NEVER DEVELOP, ANY COMMERCIAL DRUGS OR OTHER
PRODUCTS THAT GENERATE REVENUES.
We are at an early stage of development as a biopharmaceutical company,
and we do not have any commercial products. We have recently commenced our Phase
II clinical program for the only product candidate we are currently developing,
rNAPc2. rNAPc2 will require significant additional development, clinical trials,
regulatory clearances and additional investment before it can be commercialized.
Our product development efforts may not lead to commercial drugs, either because
our product candidates fail to be safe and effective in clinical trials or
because we have inadequate financial or other resources to pursue the program
11
through the clinical trial process. We do not expect to be able to market rNAPc2
or any future product candidates for a number of years, if at all. If we are
unable to develop any commercial drugs, or if such development is delayed, we
will be unable to generate revenues, which may require that we raise additional
capital through financings, scale back or discontinue some part of our
operations, or cease our operations entirely.
WE ARE DEPENDENT ON THE SUCCESSFUL OUTCOME OF THE CLINICAL TRIALS FOR OUR RNAPC2
PRODUCT CANDIDATE.
Because we currently have only one product in clinical development, our
business prospects depend in large part on our ability, alone or with
collaborators, to successfully commercialize rNAPc2. Many factors will affect
our current and future clinical trials for rNAPc2 including patient enrollment,
which is affected by the size of the patient population, the proximity of
patients to clinical sites, the eligibility criteria for the trial, competing
clinical trials and new drug approvals. Delays in patient enrollment in our
current or any future trials may result in increased costs, program delays, or
both, which could slow down our product development and approval process. If
clinical trials for rNAPc2 are not completed or conducted as planned, due to any
reason including, but not limited to, rNAPc2 not being safe or effective, the
commercialization of rNAPc2 would likely be delayed or prevented, our business
would likely be materially harmed and our stock price would likely decline. In
addition, if we do not receive required regulatory approvals, we may never
commercialize rNAPc2 and therefore may never be profitable.
OUR PRECLINICAL AND CLINICAL TESTING RESULTS ARE UNCERTAIN. IF TRIAL RESULTS ARE
NEGATIVE, WE MAY BE FORCED TO STOP DEVELOPING PRODUCT CANDIDATES IMPORTANT TO
OUR FUTURE.
The results of preclinical studies and initial clinical trials of our
product candidates will not necessarily predict the results obtained from
later-stage clinical trials. Product candidates in later stages of clinical
trials may fail to show the desired safety and efficacy endpoints despite having
progressed through initial clinical testing. In addition, the data collected
from clinical trials of our product candidates may not be sufficient to support
FDA or other regulatory approval. Although we have completed a Phase IIa
clinical trial of rNAPc2 in patients undergoing elective coronary angioplasty to
establish safety prior to conducting additional clinical trials in patients with
UA/NSTEMI, results from our Phase II clinical studies in UA/NSTEMI patients may
not support the continued development of rNAPc2.
rNAPc2, or any of our future product candidates, may not be safe for
human use. Administering any product candidates we may develop to humans may
produce undesirable side effects. These side effects could interrupt, delay or
cause us or the FDA to halt clinical trials of our product candidates and could
result in the FDA or other regulatory authorities denying approval of our
product candidates for any or all targeted indications. Along with the FDA or
other regulatory authorities, we, or our collaborators, may suspend or terminate
clinical trials at any time.
THE FDA HAS NEVER APPROVED ANY CORVAS PRODUCT CANDIDATE AND WE MAY NEVER BE
PERMITTED TO COMMERCIALIZE ANY PRODUCT WE MAY DEVELOP.
We have never had a product candidate advance beyond the early stages
of development and none have received the regulatory clearance required from the
FDA or any other regulatory body to be commercially marketed and sold. While our
goal is to commence commercial sales of rNAPc2 and any other product candidates
we may develop, we may not achieve this goal for any product candidate in the
expected timeframe, or at all. The regulatory clearance process typically takes
many years and is extremely expensive, and regulatory clearance is never
guaranteed. If we fail to obtain regulatory clearance for our current or future
product candidates, we will be unable to market and sell any products and
therefore may never be profitable.
12
As part of the regulatory clearance process, for each of our product
candidates we must conduct, at our own expense or our collaborators' expense,
preclinical research and clinical trials to demonstrate safety and efficacy. In
addition, it is difficult to predict if the FDA will agree with the design of
our clinical trials. Even though earlier clinical trial results for a particular
compound and a specific indication may indicate that the compound appears to be
safe and effective, the FDA may suggest or even require that additional trials
be completed before advancing to later-stage trials. The number of preclinical
studies and clinical trials that will be required varies depending on many
factors including the product, disease or condition that the product is in
development for, and any regulations applicable to a particular product.
The FDA can delay, limit or not grant approval for many reasons,
including:
o a product candidate may not demonstrate sufficient safety or
efficacy;
o FDA officials may interpret data from preclinical testing and
clinical trials in different ways than we interpret it, or
require data that is different from what was obtained in our
clinical trials;
o the FDA may not approve our manufacturing processes or
facilities, or the processes or facilities of our
collaborators; and
o the FDA may change its approval policies or adopt new
regulations.
The FDA may also approve a product candidate for fewer indications than
requested or may condition approval on the performance of post-marketing studies
for a product candidate. Even if we receive FDA and other regulatory approvals,
our product candidates may later exhibit adverse effects that limit or prevent
their widespread use or that force us to withdraw those product candidates from
the market. In addition, any marketed product and its manufacturer continue to
be subject to strict regulation after approval. Any unforeseen problems with an
approved product or any violation of regulations could result in restrictions on
the product, including its withdrawal from the market.
The process of obtaining approvals in foreign countries is subject to
delay and failure for many of the same reasons. Any delay in, or failure to
receive or maintain approval for, any of our products could materially harm our
business, financial condition and results of operations.
IF WE FAIL TO OBTAIN ADDITIONAL FINANCING, WE MAY BE UNABLE TO COMPLETE THE
DEVELOPMENT AND COMMERCIALIZATION OF RNAPC2 AND ANY OTHER PRODUCT CANDIDATES WE
MAY DEVELOP, OR TO CONTINUE OUR RESEARCH AND DEVELOPMENT PROGRAMS.
Our operations have consumed substantial amounts of cash since
inception. Our sources of revenue have been primarily limited to research
funding, license fees and milestone payments from corporate collaborators. We
expect that we will continue to spend substantial amounts on research and
development, including amounts spent on our recently-initiated Phase II
UA/NSTEMI trial of rNAPc2 as well as clinical trials for future product
candidates, if any. Our future burn rate and capital needs will depend on many
factors, including, but not limited to, those outlined in "Liquidity and Capital
Resources."
We do not have committed external sources of funding. If we are unable
to raise additional capital when required or on acceptable terms, we may have to
significantly delay, scale back or discontinue one or more of our drug discovery
programs, clinical trials or other aspects of our operations. We could also be
required to:
o seek corporate collaborators for programs at an earlier stage
than would be desirable to maximize the rights that we retain
to future product candidates; and/or
13
o relinquish or license rights to technologies, product
candidates or products that we would otherwise seek to develop
or commercialize ourselves on terms that are less favorable to
us than might otherwise be available.
IF WE DO NOT FIND COLLABORATORS FOR RNAPC2 AND FOR ANY OTHER PRODUCT CANDIDATES
WE MAY DEVELOP, WE MAY HAVE TO REDUCE OR DELAY OUR RATE OF PRODUCT DEVELOPMENT
AND/OR INCREASE OUR EXPENDITURES.
Our strategy for developing, manufacturing and commercializing our
products includes entering into various relationships with pharmaceutical and/or
biotechnology companies to advance our programs and reduce our expenditures on
each program. We may not be able to negotiate additional collaborations on
acceptable terms or at all. If we are not able to establish additional
collaborative arrangements, in the future we may have to reduce or delay further
development of rNAPc2 or some of our cancer programs and/or increase our
expenditures and undertake further development activities at our own expense.
Future clinical development of rNAPc2 in deep vein thrombosis, or DVT, will
depend on securing an appropriate development partner. If we elect to increase
our expenditures to fund our development programs, we will need to obtain
additional capital, which may not be available on acceptable terms or at all.
We may have to rely on our collaborators for all aspects of partnered
programs, including the conduct of research and development that the
collaborator chooses to conduct, clinical trials and the regulatory approval
process. We may have no control over the amount and timing of resources that our
collaborators dedicate to the development of our licensed product candidates, if
any. Our ability to generate royalties from our collaborators depends on their
abilities to establish the safety and efficacy of our product candidates, obtain
regulatory approvals and achieve market acceptance of our products.
Collaborative agreements generally pose the following risks:
o collaborators may not pursue further development and
commercialization of compounds resulting from collaborations
or may elect not to renew research and development programs;
o collaborators may delay clinical trials, underfund a clinical
trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials, require a
new formulation or encounter other manufacturing difficulties
of a product candidate for clinical testing;
o collaborators could independently develop, or develop with
third parties, products that could compete with our future
products;
o the terms of our agreements with current or future
collaborators may not be favorable to us in the future;
o a collaborator with marketing and distribution rights to one
or more products may not commit enough resources to the
marketing and distribution of our products, limiting our
potential revenues from the commercialization of a product;
o disputes may arise delaying or terminating the research,
development or commercialization of our product candidates, or
result in significant litigation or arbitration;
o collaborations may be terminated and we will experience
increased capital requirements if we elect to pursue further
development of the product candidate; and
14
o collaborators may not have the financial or other resources to
fund the research, development or commercialization of our
product candidates, and we will experience increased capital
requirements if we elect to pursue further development of
these candidates.
In addition, there continues to be a significant number of business
consolidations among and between large pharmaceutical and biopharmaceutical
companies that have resulted in a reduced number of potential future
collaborators. If business combinations involving our existing or potential
collaborators were to occur, the effect could be to diminish, terminate or cause
delays in one or more of our product development programs.
IF WE ARE SUCCESSFUL IN ACQUIRING COMPLEMENTARY PRODUCTS, TECHNOLOGIES OR
COMPANIES, WE MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF SUCH ACQUISITIONS,
AND OUR CASH REQUIREMENTS MAY INCREASE SIGNIFICANTLY.
We continue to pursue and evaluate various possible strategic
transactions, including in-licensing or acquiring complementary products,
technologies or companies. If we undertake any transaction of this sort, we may
not be able to successfully integrate any products, technologies, companies or
personnel that we might acquire without a significant expenditure of financial
and management resources, if at all. We expect that our operating expenses and
cash requirements would increase as a result, and such increase could be
significant. Further, we may fail to realize the anticipated benefits of any
acquisition or investment, or it may not ultimately be determined to be
consistent with our overall objectives. We may have to incur debt or issue
equity securities to pay for such acquisition, which could be dilutive to our
stockholders. We could also be exposed to contingent liabilities that may
negatively impact our business operations. However, we may not be successful in
our efforts to in-license or acquire any such complementary products,
technologies or companies.
OUR COMPETITORS MAY DEVELOP AND MARKET DRUGS THAT ARE LESS EXPENSIVE, MORE
EFFECTIVE, OR SAFER, OR REACH THE MARKET SOONER, WHICH MAY DIMINISH OR ELIMINATE
THE COMMERCIAL SUCCESS OF ANY PRODUCTS WE MAY COMMERCIALIZE.
The biopharmaceutical market is highly competitive. We expect that
competition from other biopharmaceutical companies, pharmaceutical companies,
universities and public and private research institutions will increase. Almost
all of the larger biopharmaceutical companies have developed, or are attempting
to develop, products that will compete with products we may develop, including
some that are in advanced stage clinical trials. In particular, many other
companies and institutions have active programs for cardiovascular disease and
cancer against which ours may compete. It is possible that our competitors will
develop and market products that are less expensive, more effective or safer
than our future products, if any, or that will render our products obsolete. It
is also possible that our competitors will commercialize competing products
before any of our products are approved and marketed. Many of our competitors
have substantially greater financial, technical, research and other resources
than we do. We may not have the financial resources, technical expertise or
marketing, distribution or support capabilities to compete successfully.
MARKET ACCEPTANCE OF RNAPC2 AND FUTURE PRODUCT CANDIDATES, IF ANY, IS UNCERTAIN.
If approved, we intend for rNAPc2 to be combined with the current
treatment regimen for UA/NSTEMI. However, physicians may not ultimately use
rNAPc2. Physicians will only prescribe rNAPc2 or any of our future products if
they determine, based on experience, clinical data, side effect profiles and
other factors, that they are beneficial in combination with other products or
preferable to other products then in use. Recommendations and endorsements by
influential physicians will be essential for market acceptance of rNAPc2 or any
of our products, if any, and we may not be able to obtain these recommendations
and endorsements. In addition, many other factors influence the adoption of new
drugs, including marketing and distribution restrictions, adverse publicity,
product pricing and reimbursement by third-party payors. Even if rNAPc2 and our
future product candidates, if any, achieve market acceptance, the market may not
be sufficiently large to result in significant revenues. If any of our products
do not achieve adequate sales, we may never be profitable and our business and
financial condition would be adversely affected.
15
FAILURE TO RETAIN OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER, OUR CHIEF
SCIENTIFIC OFFICER AND OTHER KEY PERSONNEL COULD DECREASE OUR ABILITY TO OBTAIN
FINANCING, CONDUCT CLINICAL TRIALS OR DEVELOP OUR PRODUCT CANDIDATES.
We depend on our key personnel, particularly our President and Chief
Executive Officer, Randall E. Woods, and our Chief Scientific Officer, George P.
Vlasuk, Ph.D. The loss of either of these individuals may prevent us from
achieving our business objective of commercializing our product candidates. Both
of these employees have employment agreements with us, but the agreements
provide for "at-will" employment with no specified term. Our future success will
also depend in large part on our continued ability to attract and retain other
highly qualified scientific, technical and management personnel, as well as
personnel with expertise in clinical testing and governmental regulation. We
face intense competition for personnel from other companies, universities,
public and private research institutions, government entities and other
organizations. If we are unsuccessful in our recruiting and retention efforts,
our business operations will be harmed.
BECAUSE WE HAVE LIMITED MANUFACTURING EXPERIENCE AND RELY ON THIRD-PARTY
MANUFACTURERS, WE ARE UNABLE TO CONTROL THE AVAILABILITY OF, AND MANUFACTURING
COSTS FOR, OUR PRODUCT CANDIDATES.
In order to be successful, our product candidates must be capable of
being manufactured in sufficient quantities, in compliance with regulatory
requirements, and at an acceptable cost. We have only limited experience in
pilot scale manufacturing. For larger-scale production, which is required for
clinical testing, we expect to continue to rely on third parties to manufacture
our product candidates. There are only a limited number of contract
manufacturers capable of manufacturing rNAPc2. If we cannot continue to contract
for large-scale manufacturing capabilities on acceptable terms, or if we
encounter delays or difficulties with manufacturers, we may not be able to
conduct clinical trials as planned. This would delay or cause us to halt
submission of our product candidates for regulatory clearance, and may prevent
us from selling our products and achieving profitability. Also, third-party
manufacturers may be unable to manufacture any product candidate we develop in
commercial quantities on a cost-effective basis.
We may need to expand our existing relationships or establish new
relationships with third-party manufacturers for rNAPc2 and for future product
candidates. We may be unable to establish or maintain relationships with
third-party manufacturers on acceptable terms, or at all. Our dependence on
third parties may reduce our profit margins and delay or limit our ability to
develop and commercialize our products on a timely and competitive basis.
Furthermore, third-party manufacturers may encounter manufacturing or quality
control problems in connection with the manufacture of our product candidates
and may be unable to obtain or maintain the necessary governmental licenses and
approvals to manufacture any product candidates. Any such failure could delay or
preclude us from receiving regulatory approvals to sell our product candidates.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, WE MAY NOT BE ABLE TO
COMPETE AS EFFECTIVELY.
Our success depends in part on our ability to obtain and enforce patent
protection for our products, both in the United States and other countries, and
operate without infringing the proprietary rights of third parties. The scope
and extent of patent protection for our product candidates is uncertain and
frequently involves complex legal and factual questions. We cannot predict the
breadth of claims that will be allowed and issued in patents related to
biotechnology or pharmaceutical applications. Once such patents have issued, we
cannot predict how the claims will be construed or enforced. In addition,
statutory differences between countries may limit the protection we can obtain
on some of our inventions outside of the United States. For example, methods of
treating humans are not patentable in many countries outside of the United
States. We rely on patent and other intellectual property protection to prevent
our competitors from developing, manufacturing and marketing products based on
our technology. Our patents may not be enforceable and they may not afford us
protection against competitors, especially since there is a lengthy lead time
between when a patent application is filed and when it is actually issued.
Because of this, we may infringe on intellectual property rights of others
16
without being aware of the infringement. If a patent holder believes that one of
our product candidates infringes on their patent, they may sue us even if we
have applied, or received patent protection, for our technology. If another
party claims we are infringing their technology, we could face a number of
issues, including the following:
o defending a lawsuit, which is very expensive and time
consuming;
o paying a large sum for damages if we are found to be
infringing;
o being prohibited from selling or licensing our products or
product candidates until we obtain a license from the patent
holder, who may refuse to grant us a license or only agree to
do so on unfavorable terms. Even if we are granted a license,
we may have to pay substantial royalties or grant
cross-licenses to our patents; and
o redesigning our drug so it does not infringe on the patent
holder's technology. This may not be possible and, even if
possible, it would require substantial additional capital, FDA
approval, and would delay commercialization.
The coverage claimed in a patent application can be significantly
narrowed before a patent is issued, either in the United States or abroad. We do
not know whether any of our pending or future patent applications will result in
the issuance of patents. To the extent patents have been issued or will be
issued, we do not know whether these patents will be subjected to further
proceedings limiting their scope, will provide significant proprietary
protection or competitive advantage, or will be circumvented or invalidated.
Furthermore, patents already issued to us, or patents that may issue on our
pending applications, may become subject to dispute, including interference
proceedings in the United States to determine priority of invention or
opposition proceedings in foreign countries contesting the validity of issued
patents.
We also rely on trade secrets, proprietary know-how and continuing
inventions to develop and maintain our competitive position. Some of our current
or former employees, consultants or scientific advisors, or current or
prospective corporate collaborators, may unintentionally or willfully disclose
our confidential information to competitors or use our proprietary technology
for their own benefit. Furthermore, enforcing a claim alleging the infringement
of our trade secrets would be expensive and difficult to prove, making the
outcome uncertain. Our competitors may also independently develop equivalent
knowledge, methods and know-how or gain access to our proprietary information
through some other means.
Because we collaborate with third parties on some of our technology,
there is also the risk that disputes may arise as to the rights to technology or
drugs developed in collaboration with other parties.
IF WE BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS, THE DAMAGES MAY EXCEED OUR
INSURANCE.
It is impossible to fully predict the potential adverse effects that a
product candidate may have in humans from the results of studies in animals.
Because we conduct clinical trials on humans, we face the risk that the use of
our product candidates will result in adverse effects. These risks will exist
even for products that may be cleared for commercial sale. We maintain liability
insurance of $10.0 million for our product candidates in clinical trials;
however this amount of insurance coverage may not be adequate to protect us from
any liabilities. Furthermore, coverage is becoming increasingly expensive and we
may not be able to maintain or obtain insurance at a reasonable cost or in
sufficient amounts to protect us against potential losses. We may not have
sufficient resources to pay for any liabilities resulting from a claim beyond
the limit of our insurance coverage.
17
CHANGES IN, OR INTERPRETATIONS OF, ACCOUNTING RULES AND REGULATIONS COULD RESULT
IN UNFAVORABLE ACCOUNTING CHARGES.
Accounting regulations and corporate governance practices have begun to
receive increased scrutiny and are subject to further review, interpretation and
guidance from relevant accounting authorities, including the SEC. Although we
believe that our accounting practices are consistent with current accounting
regulations, changes to, or interpretations of, accounting methods or policies
in the future may require us to reclassify, restate or otherwise change or
revise our financial statements, which may adversely affect our results of
operations and business.
THE REIMBURSEMENT STATUS OF NEWLY APPROVED HEALTHCARE DRUGS IS UNCERTAIN AND
FAILURE TO OBTAIN ADEQUATE REIMBURSEMENT COULD LIMIT OUR ABILITY TO MARKET ANY
PRODUCTS WE MAY DEVELOP AND DECREASE OUR ABILITY TO GENERATE REVENUE.
There is significant uncertainty related to the reimbursement of newly
approved pharmaceutical products. Our ability, and that of our collaborators, to
commercialize our products in both domestic and foreign markets will partially
depend on the reimbursements obtained from third-party payors such as government
health administration authorities, private health insurers, managed care
programs and other organizations. Third-party payors are increasingly attempting
to contain healthcare costs by limiting both coverage and the level of
reimbursement of new pharmaceutical products. Cost control initiatives could
decrease the price that we, or our collaborators, would receive for our products
and affect our ability to commercialize any products we may develop so that the
sale of our drug would not be economically feasible. If third parties fail to
provide reimbursement for any drugs we may develop, consumers and physicians may
not choose to use our products, and we may not realize an acceptable return on
our investment in product development.
IF WE ARE UNABLE TO CREATE SALES, MARKETING AND DISTRIBUTION CAPABILITIES OR
ENTER INTO AGREEMENTS WITH THIRD PARTIES TO PERFORM THESE FUNCTIONS, WE WILL NOT
BE ABLE TO COMMERCIALIZE OUR PRODUCTS.
Because we do not have any marketed products, we have virtually no
experience in sales, marketing and distribution. To directly market and
distribute any products we may develop, we must build a substantial marketing
and sales force with appropriate technical expertise and supporting distribution
capabilities. Alternatively, we may obtain the assistance of a pharmaceutical
company or other entity with a large distribution system and a large direct
sales force. We may not be able to establish sales, marketing and distribution
capabilities of our own or enter into such arrangements with third parties in a
timely manner or on acceptable terms. To the extent that we enter into
co-promotion or other licensing arrangements, our product revenues are likely to
be lower than if we directly marketed and sold our products, and some or all of
the revenues we receive will depend upon the efforts of third parties, which
efforts may not be successful.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS AND WE MUST COMPLY WITH ENVIRONMENTAL
LAWS AND REGULATIONS, WHICH CAN BE EXPENSIVE.
Our research and development activities involve the controlled use of
hazardous materials, including chemicals and radioactive and biological
materials. Our operations also produce hazardous waste products. We are subject
to a variety of federal, state and local regulations relating to the use,
handling, storage and disposal of these materials. We generally contract with
third parties for the disposal of such substances, and store our low level
radioactive waste at our facility until the materials are no longer considered
radioactive because there are no facilities permitted to accept such waste in
California or neighboring states. We cannot eliminate the risk of accidental
contamination or injury from these materials. We may be required to incur
substantial costs to comply with current or future environmental and safety
regulations. In the event of an accident or contamination, we would likely incur
significant costs associated with civil penalties or criminal fines and in
complying with environmental laws and regulations.
18
OUR STOCK HAS BEEN, AND MAY CONTINUE TO BE, EXTREMELY VOLATILE, AND YOUR
INVESTMENT IN OUR COMMON STOCK COULD DECLINE IN VALUE.
Our stock price has been, and will likely continue to be, extremely
volatile, and it has continued to decline in price. As with many other
companies, our stock price will likely continue to be subject to wide
fluctuations in response to a variety of factors, many of which are beyond our
control, including:
o changes in the market valuations and perceptions of
biotechnology companies;
o announcements and results of our clinical trials for rNAPc2,
or clinical trials of our competitors;
o results of the regulatory process for rNAPc2 or any of our
future products, if any, as well as competing products;
o changes in our existing, or any future, collaborative
agreements;
o fluctuations in our operating results;
o announcements of technological innovations or new products or
services by us or by our competitors;
o developments related to patents or other proprietary rights of
us or others;
o comments, or changes in financial estimates, by securities
analysts;
o actions by governmental regulatory agencies;
o announcements by us or our competitors of acquisitions,
strategic relationships, joint ventures or capital
commitments;
o developments in domestic and international affairs or
governmental regulations;
o additions or departures of our key personnel;
o sales of our common stock in the open market; and
o general market conditions and other events or factors,
including factors unrelated to our performance or the
performance of our competitors.
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION, BYLAWS AND
STOCKHOLDER RIGHTS PLAN AND UNDER DELAWARE LAW MAY ADVERSELY AFFECT A POTENTIAL
TAKEOVER AND COULD PREVENT STOCKHOLDERS FROM RECEIVING A FAVORABLE PRICE FOR
THEIR SHARES.
Provisions in our certificate of incorporation and bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in our control, even if the transaction would benefit our stockholders. These
provisions:
o authorize our board of directors, without requiring
stockholder approval, to issue up to 8.25 million shares of
"blank check" preferred stock to increase the number of
outstanding shares and prevent a takeover attempt;
19
o limit who has the authority to call a special meeting of
stockholders;
o prohibit stockholder action by written consent, thereby
requiring all stockholder actions to be taken at a meeting of
our stockholders; and
o require the approval of holders of at least 66 2/3% of our
voting stock as a condition to a merger or other specified
business transactions with, or proposed by, a holder of 15% or
more of our voting stock.
Further, our board of directors has adopted a stockholder rights plan,
commonly known as a "poison pill," that may delay or prevent a change in
control.
ISSUANCE OF SHARES IN CONNECTION WITH FINANCING TRANSACTIONS OR UNDER STOCK
PLANS AND OUTSTANDING CONVERTIBLE NOTES WILL DILUTE CURRENT STOCKHOLDERS.
We maintain stock plans under which employees, directors and certain
consultants can acquire shares of our common stock through the exercise of stock
options and other purchase rights. We also have outstanding convertible notes.
You will incur dilution upon exercise of our outstanding options and convertible
notes. If we raise additional funds by issuing additional stock or convertible
debt, further dilution to our stockholders will result, and new investors could
have rights superior to existing stockholders.
20
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, we are involved in certain litigation arising out of
our operations. We are not currently engaged in any legal proceedings that we
expect would materially harm our business or financial condition.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
In October 2001, Randall E. Woods, our President and Chief Executive
Officer, established a pre-arranged trading plan in accordance with Rule 10b5-1
to sell up to a maximum of 270,000 shares of common stock underlying his vested
Corvas stock options over a nine-month period beginning in November 2001. No
shares were sold pursuant to this plan prior to its expiration date or otherwise
by Mr. Woods in this timeframe.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit Number Description
-------------- -----------
10.52 Separation Agreement by and between Kevin Helmbacher
and the Company dated as of August 5, 2002.
b. Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
September 30, 2002.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CORVAS INTERNATIONAL, INC.
Date: November 13, 2002 By: /s/ RANDALL E. WOODS
--------------------------------------
Randall E. Woods
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2002 By: /s/ CAROLYN M. FELZER
--------------------------------------
Carolyn M. Felzer
Vice President and Controller
(Principal Financial Officer)
SECTION 906 CERTIFICATION
Pursuant to Section 906 of the Public Company Accounting Reform and
Investor Protection Act of 2002 (18 U.S.C.ss. 1350, as adopted), each of the
undersigned hereby certifies that, to the best of his or her knowledge:
1. The Company's Quarterly Report on Form 10-Q for the period ended September
30, 2002 fully complies with the requirements of Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in this Report fairly presents, in all material
respects, the financial condition of the Company at the end of the period
covered by this Report and the results of operations of the Company for the
period covered by this Report.
Date: November 13, 2002 By: /s/ RANDALL E. WOODS
-------------------------------------
Randall E. Woods
President and Chief Executive Officer
Date: November 13, 2002 By: /s/ CAROLYN M. FELZER
-------------------------------------
Carolyn M. Felzer
Vice President and Controller
22
SECTION 302 CERTIFICATION
Pursuant to Section 302 of the Public Company Accounting Reform and
Investor Protection Act of 2002 (18 U.S.C.ss. 1350, as adopted), I, Randall E.
Woods, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Corvas International,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and 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 registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether 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.
Date: November 13, 2002 By: /s/ RANDALL E. WOODS
-------------------------------------
Randall E. Woods
President and Chief Executive Officer
SECTION 302 CERTIFICATION
Pursuant to Section 302 of the Public Company Accounting Reform and
Investor Protection Act of 2002 (18 U.S.C.ss. 1350, as adopted), I, Carolyn M.
Felzer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Corvas International,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and 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 registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether 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.
Date: November 13, 2002 By: /s/ CAROLYN M. FELZER
-----------------------------
Carolyn M. Felzer
Vice President and Controller