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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-15327
CYTRX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 58-1642740
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
11726 San Vicente Blvd.
Suite 650
Los Angeles, CA 90049
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 826-5648
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 [ ]
Number of shares of CytRx Corporation Common Stock, $.001 par value, issued and
outstanding as of August 8, 2003: 28,622,499.
CYTRX CORPORATION
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Form 10-Q
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Table of Contents
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Page
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Balance Sheets as of June 30, 2003 (unaudited)
and December 31, 2002 3
Condensed Statements of Operations (unaudited) for the
Three Month and Six Month Periods Ended June 30, 2003 and 2002 4
Condensed Statements of Cash Flows (unaudited) for the
Six Month Periods Ended June 30, 2003 and 2002 5
Notes to Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 23
Item 4 Controls and Procedures 23
PART II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 23
Item 6 Exhibits and Reports on Form 8-K 24
SIGNATURES 25
2
Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements
CYTRX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2003 2002
------------ ------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 5,852,320 $ 387,314
Short-term investments -- 1,401,358
Accounts receivable, less allowances 40,527 98,529
Current portion of note receivable 153,422 135,291
Prepaid insurance 60,551 119,332
Other current assets 18,978 4,166
------------ ------------
Total current assets 6,125,798 2,145,990
Property and equipment, net 963 1,084
Other assets:
Investment in minority -owned entity - acquired developed technology 6,120,873 6,644,492
Note receivable, less current portion 157,088 229,958
Prepaid insurance, less current portion 185,243 208,160
Other assets 53,900 53,900
------------ ------------
Total other assets 6,517,104 7,136,510
------------ ------------
Total assets $ 12,643,865 $ 9,283,584
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 86,311 $ 79,947
Accrued expenses and other current liabilities 297,891 428,490
------------ ------------
Total current liabilities 384,202 508,437
Accrued loss on facility abandonment, less current portion 390,368 419,038
Deferred gain on sale of building, less current portion 107,799 121,762
Deferred revenue from license agreements 275,000 275,000
------------ ------------
Total liabilities 1,157,369 1,324,237
Commitments
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000 shares authorized, including 1,000
shares of Series A Junior Participating Preferred
Stock; no shares issued and outstanding -- --
Common stock, $.001 par value, 50,000,000 shares authorized;
28,447,840 and 22,143,927 shares issued at June 30, 2003 and
December 31, 2002 28,448 22,144
Additional paid-in capital 91,655,096 82,173,839
Treasury stock, at cost (633,816 shares held at June 30, 2003
and December 31, 2002) (2,279,238) (2,279,238)
Accumulated deficit (77,917,810) (71,957,398)
------------ ------------
Total stockholders' equity 11,486,496 7,959,347
------------ ------------
Total liabilities and stockholders' equity $ 12,643,865 $ 9,283,584
============ ============
See accompanying notes
3
CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues:
Service revenues $ -- $ -- $ -- $ 22,453
License fees -- -- -- 1,000,000
Interest income 11,549 29,553 27,315 61,670
Grant income -- 14,831 -- 46,144
Other 16,150 30,824 26,487 85,961
------------ ------------ ------------ ------------
27,699 75,208 53,802 1,216,228
Expenses:
Cost of service revenues -- -- -- 11,287
Research and development 2,270,119 127,428 2,272,619 280,954
(includes $1,829,435 of non-cash stock issued
for the 3 month and 6 month periods of 2003)
Depreciation and amortization 182,815 228,682 365,629 374,902
Common stock and warrants issued for
services 1,489,029 144,550 1,637,529 249,800
Contractual payment to officer -- -- -- 428,007
Selling, general and administrative 1,044,851 505,365 1,580,327 981,340
------------ ------------ ------------ ------------
4,986,814 1,006,025 5,856,104 2,326,290
------------ ------------ ------------ ------------
Loss before other expenses (4,959,115) (930,817) (5,802,302) (1,110,062)
Equity in losses from minority-owned entity (87,300) -- (158,110) --
------------ ------------ ------------ ------------
Net loss $ (5,046,415) $ (930,817) $ (5,960,412) $ (1,110,062)
============ ============ ============ ============
Basic and diluted (loss) per common share $ (0.21) $ (0.08) $ (0.26) $ (0.10)
============ ============ ============ ============
Basic and diluted
weighted average shares outstanding 24,605,755 11,649,394 23,066,484 11,372,006
============ ============ ============ ============
See accompanying notes.
4
CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Month Period Ended June 30,
--------------------------
2003 2002
----------- -----------
Cash flows from operating activities:
Net loss $(5,960,412) $(1,110,062)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 121 374,902
Amortization of intangible assets 365,509 --
Equity in losses from minority-owned entity 158,110 --
Stock and stock purchase warrants issued for services 1,637,529 249,800
License fees paid with common stock 1,829,435 --
Net change in operating assets and liabilities 12,759 (842,063)
----------- -----------
Total adjustments 4,003,463 (217,361)
----------- -----------
Net cash used in operating activities (1,956,949) (1,327,423)
----------- -----------
Cash flows from investing activities:
Maturity of held-to-maturity securities 1,401,358 --
----------- -----------
Net cash provided by financing activities 1,401,358 --
----------- -----------
Cash flows from financing activities:
Net proceeds from exercise of stock options and warrants 1,169,540 --
Net proceeds from issuances of common stock 4,851,057 349,372
----------- -----------
Net cash provided by financing activities 6,020,597 349,372
----------- -----------
Net increase (decrease) in cash and cash equivalents 5,465,006 (978,051)
Cash and cash equivalents at beginning of period 387,314 5,272,914
----------- -----------
Cash and cash equivalents at end of period $ 5,852,320 $ 4,294,863
=========== ===========
See accompanying notes.
5
CYTRX CORPORATION
-----------------
NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
June 30, 2003
-------------
(Unaudited)
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1. Description of Company and Basis of Presentation
CytRx Corporation ("CytRx" or "the Company") is a Delaware corporation that was
incorporated in 1985 and is engaged in the development and commercialization of
pharmaceutical products. Subsequent to its acquisition of Global Genomics
Capital in July 2002, CytRx modified its corporate business strategy by
discontinuing any further additional research and development efforts for any of
its then existing technologies and by seeking strategic partners to complete the
development of these technologies. As part of its new strategy, CytRx has also
focused its efforts on acquiring new technologies and products, including
products that are already being marketed or have been approved for marketing.
In April 2003, CytRx acquired its first new technologies by entering into
exclusive license arrangements with the University of Massachusetts Medical
School ("UMass") covering potential applications for the medical institution's
proprietary gene silencing technology in the treatment of specified diseases,
including those within the areas of obesity, type II diabetes and Lou Gehrig's
disease (ALS), and covering UMass's proprietary technology with potential gene
therapy applications within the area of cancer. There is growing scientific
interest in various techniques to halt the activity or silence targeted genes
that cause cells to produce undesirable proteins as a means for developing
therapeutic products. In consideration of the licenses, CytRx made cash payments
to UMass totalling approximately $186,000 and issued it a total of 1,613,258
shares of CytRx common stock which were valued for financial statement purposes
at approximately $1,468,000.
In May 2003, CytRx broadened its strategic alliance with UMass by acquiring an
exclusive license from that institution covering a proprietary DNA-based HIV
vaccine technology. In consideration of this license, CytRx made cash payments
to UMass totalling approximately $18,000 and issued it 215,101 shares of CytRx
common stock which were valued for financial statement purposes at approximately
$361,000. Under the various license agreements with UMass, CytRx will be
required to make annual license maintenance payments as well as milestone
payments to UMass based on the development of products utilizing the licensed
technology and will be required to pay royalties based on future sales of those
products. CytRx also agreed to fund certain pre-clinical research at UMass
related to the use of our licensed technologies for the development of
therapeutic products within the fields of obesity, type II diabetes and certain
other areas. As the gene silencing technology from UMass has not achieved
technological feasibility at the time of its license by CytRx and had no
alternative future uses and, therefore, no separate economic value, the
aggregate total of $2,068,000 in cash payments and stock issued for acquisition
of the technology was expensed as research and development.
CytRx's other products are FLOCOR, an intravenous agent for treatment of sickle
cell disease and other acute vaso-occlusive disorders, and TranzFect, a delivery
technology for DNA and conventional-based vaccines. Sickle cell disease is an
inherited disease caused by a genetic mutation of hemoglobin in the blood and
vaso-occlusive disorders are a blockage of blood flow caused by deformed or
"sickled" red blood cells which can cause intense pain in sickle cell disease
patients. CytRx is currently seeking strategic partners to complete the
development of FLOCOR, and TranzFect is currently being developed by two
licensees for this product, Merck & Co., Inc. and Vical Incorporated. The
Company is also seeking to license its TranzFect technology for development as a
potential DNA-based prostate cancer adjuvant and may also seek to license this
technology as a potential conventional adjuvant for hepatitis B and C, flu,
malaria and other viral diseases. (Adjuvants are agents added to a vaccine to
increase its effectiveness.) CytRx also has a portfolio of potential products
and technologies in the areas of spinal cord injury, vaccine delivery and gene
therapy.
6
On July 19, 2002, CytRx consummated a merger with Global Genomics Capital, Inc.,
which became a wholly-owned subsidiary of the Company and was renamed GGC
Pharmaceuticals, Inc. ("Global Genomics"). Global Genomics is a genomics holding
company that currently has a 40% ownership interest in Blizzard Genomics, Inc.
("Blizzard Genomics") in Minneapolis, Minnesota and a 5% ownership interest in
Psynomics, Inc., a central nervous system genomics company in San Diego,
California. Blizzard Genomics is developing instrumentation, software, and
consumable supplies (including patent-pending "T-Chip" and "Contact"
technologies) for the genomics industry. Global Genomics expects that DNA chips
may significantly impact a broad range of biomedical and agricultural
businesses. These include drug development, diagnostic testing, forensics,
environmental testing and plant biotechnology. Psynomics, Inc. is an early stage
genomics company developing technology for the diagnosis and treatment of
neuropsychiatric diseases and has rights to access a significant database of
patient data and corresponding tissue samples. The Company accounts for its
investment in Blizzard Genomics using the equity method. The Company's
investment in Psynomics is accounted for using the cost method.
The accompanying condensed consolidated financial statements at June 30, 2003
and for the three month and six month periods ended June 30, 2003 and 2002 are
unaudited, but include all adjustments, consisting of normal recurring entries,
which the Company's management believes to be necessary for a fair presentation
of the periods presented. Interim results are not necessarily indicative of
results for a full year. The accounts of Global Genomics are included since July
19, 2002. Certain prior year amounts have been reclassified to conform to the
2003 financial statement presentation. The financial statements should be read
in conjunction with the Company's audited financial statements in its Form
10-K/A for the year ended December 31, 2002.
2. Adoption of Recently Issued Accounting Standards
In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150").
This statement changes the classification of certain financial instruments from
equity to a liability. The three types of financial instruments requiring the
change in classification are: (1) mandatorily redeemable shares, which the
issuing company is obligated to buy back in exchange for cash or other assets;
(2) put options and forward purchase contracts; and (3) obligations that can be
settled with shares, the monetary value of which is fixed, tied solely or
predominantly to a variable such as a market index, or varies inversely with the
value of the issuer's shares. This statement is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The Company will adopt SFAS 150 as of July 1, 2003 and does not expect
that the statement will have a material impact on its consolidated financial
statements.
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" ("SFAS 149"). This statement amends and clarifies financial
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
is generally effective for contracts entered into or modified after June 30,
2003 and hedging relationships designated after June 30, 2003. The Company will
apply the provisions of SFAS 149 for any derivative instruments or hedging
activities entered into after June 30, 2003. As the Company does not currently
enter into derivative instruments or hedging activities, adoption of this
statement will not have a material impact on the Company's consolidated
financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB 51" ("FIN 46"). The primary
objectives of FIN 46 are to provide guidance on the identification of entities
for which control is achieved through means other than through voting rights
("variable interest entities" or "VIEs") and how to determine when and which
business enterprise should consolidate the VIE (the "primary beneficiary"). This
new model for consolidation applies to an entity in which either (1) the equity
investors (if any) do not have a controlling financial interest or (2) the
equity investment at risk is insufficient to finance that entity's activities
without receiving additional subordinated financial support from other parties.
In addition, FIN 46 requires that both the primary beneficiary and all other
enterprises with a significant variable interest in a VIE make additional
disclosures regarding the nature, purpose, size and activities of the VIE and
7
the enterprise's maximum exposure to loss as a result of its involvement with
the VIE. The Company is required to adopt this interpretation no later than July
1, 2003 for any VIEs in which it holds a variable interest that it acquired
before February 1, 2003. The interpretation is effective immediately for any
VIEs created after January 31, 2003 and for VIEs in which an enterprise obtains
an interest after that date. The Company has adopted the provisions of FIN 46,
and the pronouncement did not have a material effect on the Company's
consolidated financial statements.
In December 2002, FASB issued Statement of Financial Accounting Standards No.
148, "Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS
148"), amending Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), to provide alternative methods of
transition to the fair value method of accounting for stock-based employee
compensation. The three methods provided in SFAS 148 include (1) the prospective
method which is the method currently provided for in SFAS 123, (2) the
retroactive method which would allow companies to restate all periods presented
and (3) the modified prospective method which would allow companies to present
the recognition provisions to all outstanding stock-based employee compensation
instruments as of the beginning of the fiscal year of adoption. In addition,
SFAS 148 amends the disclosure provisions of SFAS 123 to require disclosure in
the summary of significant accounting policies of the effects of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
SFAS 148 does not amend SFAS 123 to require companies to account for their
employee stock-based awards using the fair value method. However, the disclosure
provisions are required for all companies with stock-based employee
compensation, regardless of whether they utilize the fair value method of
accounting described in SFAS 123 or the intrinsic value method described in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25"). The Company will continue to account for its
stock-based compensation awards to employees and directors under the accounting
prescribed by APB Opinion No. 25 and related interpretations; however, the
Company has adopted the disclosure provisions of SFAS 148 in the current year.
(See Note 4).
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. FIN 45 also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of FIN 45
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, and the disclosure provisions are effective as of December
31, 2002. The Company has adopted FIN 45 and, as the Company does not enter into
significant guarantees on a routine basis, the pronouncement did not have a
material impact on the consolidated financial statements.
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for the Cost Associated with Exit or Disposal Activities." This
statement applies to all exit or disposal activities initiated after December
31, 2002 and requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the
standard include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operation, plant closing,
or other exit or disposal activity. The Company will apply this accounting
standard for all exit or disposal activities initiated after December 31, 2002.
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13 and Technical Corrections ("SFAS 145"). SFAS 145 rescinds SFAS 4,
Reporting Gains and Losses from Extinguishment of Debt, and an amendment of SFAS
4, SFAS 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.
SFAS 145 also rescinds SFAS 44, Accounting for Intangible Assets of Motor
Carriers and amends SFAS 16, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS 145 also amends
other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. SFAS 145 is effective for fiscal years beginning after May 15, 2002.
The provisions of SFAS 145 related to SFAS 13 are effective for transactions
occurring after May 15, 2002. All other provisions of SFAS 145 are effective for
financial statements issued on or after May 15, 2002.
8
The Company adopted SFAS 145 as of January 1, 2003. Adoption of the
pronouncement did not have a material impact on the consolidated financial
statements.
3. Loss Per Share
Basic and diluted loss per common share are computed based on the weighted
average number of common shares outstanding. Common share equivalents (which may
consist of options and warrants) are excluded from the computation of diluted
loss per share since the effect would be antidilutive. Common share equivalents
which could potentially dilute basic earnings per share in the future, and which
were excluded from the computation of diluted loss per share totaled
approximately 8,065,000 and 5,557,000 shares at June 30, 2003 and 2002,
respectively.
4. Stock Based Compensation
The Company uses the intrinsic value method of APB Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), in accounting for its employee stock
options, and presents disclosure of pro forma information required under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-based
Compensation ("SFAS 123"), as amended by Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure ("SFAS 148").
The following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation (amounts in thousands except per share data.)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
------- ------- ------- -------
Net loss, as reported $(5,046) $ (931) $(5,960) $(1,110)
Deduct: Total stock - based employee compensation expense
determined under fair-value based method for all awards (86) (139) (158) (261)
------- ------- ------- -------
Pro forma net loss $(5,132) $(1,070) $(6,118) $(1,371)
======= ======= ======= =======
Loss per share, as reported (basic and diluted) $ (0.21) $ (0.08) $ (0.26) $ (0.10)
Loss per share, pro forma (basic and diluted) $ (0.21) $ (0.09) $ (0.27) $ (0.12)
5. Private Placement of Common Stock
In May 2003, the Company completed a $5,440,000 private equity financing to a
group of institutional investors in which it issued 2,940,539 shares of its
common stock and warrants to purchase an additional 735,136 shares of its common
stock at an exercise price of $3.05 per share, expiring in 2008. CytRx agreed to
register for resale under the Securities Act the shares of common stock, the
warrants and the shares of common stock issuable upon exercise of the warrants
sold in this financing. After consideration of offering expenses of $614,000,
net proceeds to the Company were $4,826,000.
6. Equity in Losses From Minority-Owned Entity
The Company records its portion of the losses of Blizzard Genomics, a
minority-owned entity, using the equity method. For the three month and six
month periods ended June 30, 2003, the Company recorded $87,300 and $158,110,
respectively, as its share in the losses of Blizzard Genomics. These amounts are
reported as a separate line item in the accompanying condensed consolidated
statement of operations. Summarized financial information for Blizzard Genomics
as of June 30, 2003 and for the three month and six month periods ended June 30,
2003 that has been provided by Blizzard Genomics is as follows (amounts in
thousands):
9
Company's
Total Share
----------------- --------------
Current assets $ 26 $ 10
Other assets 11 4
Current liabilities 831 332
Long-term convertible notes payable 188 75
Net assets (982) (393)
Net loss - three month period (218) (87)
Net loss - six month period (395) (158)
7. Segment Reporting
Product Recruiting
(in thousands) Development Services* Total
- -----------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2003
Revenues from external customers $ -- $ -- $ --
Intersegment sales -- -- --
Collaborative, grant & other income 16 -- 16
Interest income 12 -- 12
Interest expense -- -- --
Depreciation and amortization 183 -- 183
Common stock and warrants issued for services 1,489 -- 1,489
Equity in loss from minority-owned entity (87) -- (87)
Segment profit (loss) (5,046) -- (5,046)
Total assets 12,644 -- 12,644
Capital expenditures -- -- --
Three Months Ended June 30, 2002
Revenues from external customers -- --
Intersegment sales -- -- --
Collaborative, grant & other income 46 -- 46
Interest income 30 -- 30
Interest expense -- -- --
Depreciation and amortization 229 -- 229
Common stock and warrants issued for services 53 -- 53
Segment profit (loss) (931) -- (931)
Total assets 6,776 -- 6,776
Capital expenditures -- -- --
Six Months Ended June 30, 2003
Revenues from external customers -- -- --
Intersegment sales -- -- --
Collaborative, grant & other income 26 -- 26
Interest income 27 -- 27
Interest expense -- -- --
Depreciation and amortization 366 -- 366
Common stock and warrants issued for services 1,638 -- 1,638
Equity in loss from minority-owned entity (158) -- (158)
Segment profit (loss) (5,960) -- (5,960)
Total assets 12,644 -- 12,644
Capital expenditures -- -- --
10
Six Months Ended June 30, 2002
Revenues from external customers -- 22 22
Intersegment sales -- -- --
Collaborative, grant & other income 1,132 -- 1,132
Interest income 62 -- 62
Interest expense -- -- --
Depreciation and amortization 375 -- 375
Common stock and warrants issued for services 142 -- 142
Segment profit (loss) (1,115) 5 (1,110)
Total assets 6,776 -- 6,776
Capital expenditures -- -- --
* The activities of the Spectrum Recruitment Research segment were terminated
effective February 1, 2002.
11
Item 2. -- Management's Discussion and Analysis of Financial Condition And
--------------------------------------------------------------------
Results of Operations
---------------------
This discussion includes "forward looking" statements that reflect our current
views with respect to future events and financial performance. Investors should
be aware that actual results may differ materially from our expressed
expectations because of risks and uncertainties inherent in future events,
particularly those risks identified under "Risk Factors" set forth below, and
should not unduly rely on these forward looking statements. We undertake no duty
to update the information in this discussion.
Liquidity and Capital Resources
At June 30, 2003, we had cash, cash equivalents and short-term investments of
$5,852,000 and net assets of $11,486,000, compared to $1,789,000 and $7,959,000,
respectively, at December 31, 2002. Working capital totaled $5,742,000 at June
30, 2003, compared to $1,638,000 at December 31, 2002.
Subsequent to our merger with Global Genomics in July 2002, we modified our
corporate business strategy by discontinuing any additional internal research
and development efforts for any of our then existing products or technologies.
We have, instead, more recently focused our efforts on obtaining strategic
alliances, license partners or other collaborative arrangements with larger
pharmaceutical companies for FLOCOR and additional strategic partners or
licensees for TranzFect. Our spending for each of these technologies now will
primarily relate to maintaining patents and other agreements as required under
our existing license agreements and to support our additional licensing efforts.
We may also pursue product or technology acquisition opportunities, such as the
license agreements with the University of Massachusetts Medical School discussed
below.
In April and May 2003, we entered into exclusive license agreements with the
University of Massachusetts Medical School ("UMass") covering potential
applications for UMass's proprietary gene silencing technology in the treatment
of specified diseases, including those within the areas of HIV, ALS, obesity and
type II diabetes. RNA interference (RNAi) has been shown to effectively silence
a targeted disease-causing gene within a living cell. The technology essentially
uses ribonucleic acid (RNA) to selectively turn off the harmful genes of
infectious viruses or malignant tumor cells. In consideration of the licenses,
we made aggregate cash payments to UMass of approximately $204,000 and issued it
and another medical institution involved in developing the gene silencing
technology a total of 1,828,359 shares of our common stock which were valued for
financial statement purposes at $1,829,000. As part of our strategic alliance
with UMass, we also agreed to fund certain pre-clinical research at UMass
relating to the use of its gene silencing technology for the development of
therapeutic products within the fields of obesity and type II diabetes and
cancer. Although we intend to internally fund the early stage development work
for certain gene silencing product applications, we may seek as part of our
corporate business strategy to secure strategic alliances or license agreements
with larger pharmaceutical companies to fund subsequent development of these
potential products.
We currently have three license agreements for our technologies - with Merck &
Co, Inc. (TranzFect), Vical, Incorporated (TranzFect), and Ivy Animal Health,
Inc. (CRL-8761). From the dates that we entered into these agreements through
June 30, 2003, we have received $7,200,000 in upfront fees, milestone payments
and annual maintenance fees pursuant to these agreements, and have the potential
to receive in excess of $8,000,000 in additional milestone and maintenance fees,
plus additional royalties on eventual sales of approved products of from 1% to
5% of net sales by the licensees. Merck continues to study the use of TranzFect
with their HIV vaccine development program. We have the potential to receive
future milestone payments from Merck of up to $3,000,000 for an HIV vaccine
utilizing the TranzFect technology and, under certain circumstances, a royalty
equal to 1% of Merck's net sales of an HIV vaccine product utilizing the
TransFect technology. In July 2003, Merck notified us that they were returning
to us the rights to the additional three infectious disease targets covered by
our license agreement. We intend now to seek additional licensees for these
additional disease indications.
We believe that we will have adequate working capital to allow us to operate at
least through the end of 2004. Our strategic alliance with UMass may require us
to make significant expenditures to fund research at that medical institution
relating to developing therapeutic products based on that institution's
proprietary technology that has been licensed to us. The aggregate amount of
these expenditures under certain circumstances could range from approximately
$1,600,000 to $1,800,000 annually over the next three years. Our license
agreements with UMass
12
also provide in certain cases for milestone payments based on the progress made
by us in the clinical development of products utilizing the licensed
technologies and the marketing of these products. These milestone payments could
aggregate over time up to $13,610,000 if we successfully complete the
development of six separate products. These potentially required sponsored
research and milestone payment expenditures could substantially exceed our
current financial resources, and we will need to raise additional capital or
secure a licensee or strategic partner to fulfill our obligations to UMass and
to complete the development of any products based on the technology that we have
licensed from that medical institution.
We also may require additional working capital in order to fund any product
acquisitions that we consummate. Any additional capital requirements may be
provided by potential milestone payments pursuant to the Merck and Vical
licenses or by potential payments from future strategic alliance partners or
licensees of our technologies. However, Merck is at an early stage of clinical
trials of a product utilizing TranzFect, and Vical has not yet commenced any
clinical trials of a product utilizing TranzFect so there is likely to be a
substantial period of time, if ever, before we receive any further significant
payments from Merck or Vical. Our recent efforts to license or find a strategic
partner for FLOCOR have thus far been unsuccessful, although we will continue to
seek such a licensee or partner. We may also pursue other sources of capital,
although we do not currently have commitments from any third parties to provide
us with capital. The results of our technology licensing efforts and the actual
proceeds of any fund-raising activities will determine our ongoing ability to
operate as a going concern. These efforts are subject to market conditions and
our ability to identify parties that are willing and able to enter into such
arrangements on terms that are satisfactory to us. There is no assurance that
such funding will be available to finance our operations on acceptable terms, if
at all.
The above statements regarding our plans and expectations for future financing
are forward-looking statements that are subject to a number of risks and
uncertainties. Our ability to obtain future financings through joint ventures,
product licensing arrangements, equity financings or otherwise is subject to
market conditions and our ability to identify parties that are willing and able
to enter into such arrangements on terms that are satisfactory to us. There can
be no assurance that we will be able to obtain future financing from these
sources. Additionally, depending upon the outcome of our fund raising efforts,
the accompanying financial information may not necessarily be indicative of
future operating results or future financial condition.
Results of Operations
We recorded net losses of $5,046,000 and $5,960,000 for the three month and six
month periods ended June 30, 2003 as compared to $931,000 and $1,110,000 for the
same periods in 2002.
From 1996 to 2002, we marketed the services of a small group of human resources
professionals under the name of Spectrum Recruitment Research ("Spectrum") as a
way of offsetting our cost of maintaining this function. In February 2002 the
operations of Spectrum were terminated and the rights to use the Spectrum
tradenames were transferred to Albert, Isaac & Alexander, Inc., a consulting
firm comprised of former Spectrum employees. No service revenues for Spectrum
were recorded during 2003. Service revenues related to Spectrum were $0 and
$22,000 during the three month and six month periods ended June 30, 2002,
respectively. Cost of service revenues were $0 and $11,000 during the three
month and six month periods ended June 30, 2002, respectively.
No license fee income has been recorded during 2003. License fee income was $0
and $1,000,000 during the three month and six month periods ended June 30, 2002,
respectively. License fees for 2002 consisted of a milestone fee received in the
first quarter of 2002 from Merck related to the commencement by Merck of a Phase
I human clinical trial incorporating our TranzFect technology.
Interest income was $12,000 and $27,000 during the three month and six month
periods ended June 30, 2003, as compared to $30,000 and $62,000 for the same
periods of 2002. The variance generally corresponds to fluctuating cash and
investment balances and declining interest rates.
No grant income has been recorded during 2003. Grant income was $15,000 and
$46,000 during the three month and six month periods ended June 30, 2002. Costs
related to grant income are included in research and development expense and
generally approximate the amount of revenue recognized. Grant income recognized
in 2002 primarily relates to SBIR (Small Business Innovative Research) grants we
received from the National Institutes of Health in support of our research and
development activities.
13
Other income was $16,000 and $26,000 during the three month and six month
periods ended June 30, 2003 as compared to $31,000 and $86,000 for the same
periods in 2002. Other income primarily consists of subrental revenues for our
former headquarters facility located in Atlanta, Georgia. The decrease
represents the effect of vacancy in the building during the first half of 2003.
During the fourth quarter of 2002, we accrued the estimated loss on the facility
represented by the difference between the total remaining lease obligations and
estimated operating costs through the remainder of the lease term, less
estimated sublease income. This accrual is being written off against the actual
expenses as they occur.
Research and development expenses were $2,270,000 and $2,273,000 during the
three month and six month periods ended June 30, 2003, as compared to $127,000
and $281,000 for the same periods in 2002. Subsequent to our merger with Global
Genomics in July 2002, we modified our corporate business strategy so that we
have not pursued additional internal research and development efforts for any of
our then existing products or technologies, other than through partnering or
out-licensing this research and development work to outside parties. In
consideration of our license agreements with UMass (see discussion under
"Liquidity and Capital Resources"), we made cash payments payments to UMass and
another medical institution involved in developing the gene silencing technology
of approximately $239,000. We also issued a total of 1,828,359 shares of our
common stock to UMass which were valued for financial statement purposes at
$1,829,000. The aggregate expense of $2,068,000 was recorded during the second
quarter of 2003. Research and development expense during 2003 also includes a
payment of $201,000 to UMass for sponsored research related to developing
therapeutic products in one area that are based on the gene silencing technology
that has been licensed to us by others. We expect research and development
expense to increase in the future as a result of our commitment to fund research
and development activities conducted at UMass related to the technologies
covered by the UMass license agreements. The aggregate amount of these
commitments under certain circumstances could range from approximately
$1,600,000 to $1,800,000 annually over each of the next three years.
Depreciation and amortization expense was $183,000 and $366,000 during the three
month and six month periods ended June 30, 2003, as compared to $229,000 and
$375,000 for the same periods in 2002. The amounts for 2003 consists almost
entirely of amortization of intangible assets related to our acquisition of
Global Genomics in July 2002. During the fourth quarter of 2002, we recorded an
impairment loss equal to the net book value of most of our equipment and related
leasehold improvements associated with FLOCOR. As a result of the recognition of
this impairment charge, our property balances have been reduced to a nominal
amount as of December 31, 2002, and therefore, our depreciation expense related
to these assets will be nominal for the foreseeable future.
From time to time, we issue shares of our common stock or warrants to purchase
shares of our common stock to consultants and other service providers in
exchange for services. For financial statement purposes, we value these shares
or warrants at the fair market value of the stock or warrants granted, or the
services received, whichever is more reliably measurable, and we recognize the
expense in the period in which a performance commitment exists or the period in
which the services are received, whichever is earlier. During each of the
periods presented in the accompanying condensed consolidated statement of
operations, certain vesting criteria of stock purchase warrants issued to
consultants were achieved, resulting in aggregate non-cash charges of $678,000
and $827,000 during the three and six month periods ended June 30, 2003, and
$53,000 and $142,000 during the same periods in 2002. We also recognized
non-cash charges of $811,000 during each of the three and six month periods
ended June 30, 2003 and $92,000 and $108,000 during the same periods in 2002 for
shares of our common stock issued to consultants. These charges are combined and
reported as a separate line item on the accompanying condensed consolidated
statement of operations.
Pursuant to his employment agreement, our former President and CEO was entitled
to a payment of $435,000 upon the execution of the merger agreement between
Global Genomics and us and an additional $435,000 upon the closing of the
merger. In order to reduce the amount of cash that we had to pay to our former
President & CEO, we agreed that approximately $325,200 of the first $435,000
payment would be satisfied by CytRx granting a stock award to him under the
CytRx Corporation 2000 Long-Term Incentive Plan under which CytRx issued him
558,060 shares of our common stock. Those shares of stock were issued at a value
equal to 85% of the volume weighted
14
average price of our common stock for the 20 trading days ended on February 8,
2002. The cash payment and fair value of the shares issued were recognized as
expense (total of $428,000) during the first quarter of 2002 and is reported as
a separate line item on the accompanying condensed consolidated statement of
operations.
Selling, general and administrative expenditures were $1,045,000 and $1,580,000
during the three month and six month periods ended June 30, 2003, as compared to
$505,000 and $981,000 for the same periods in 2002. Contributing to the increase
for 2003 were (a) greater use of consultants for technical, financial and
business development advisory services (contributing approximately $151,000 and
$263,000 to the increase for the three and six month periods, respectively), (b)
higher legal and accounting costs (contributing approximately $168,000 and
$227,000 to the increase for the three and six month periods, respectively), and
(c) higher patent costs (contributing approximately $52,000 to the increase for
each of the three and six month periods, respectively).
Equity in Losses of Minority-Owned Entity. We record our portion of the losses
of Blizzard Genomics on the equity method. For the three month and six month
periods ended June 30, 2003, we recorded $87,000 and $158,000 as our share in
the loss of Blizzard Genomics. This amount is reported as a separate line item
in the accompanying condensed consolidated statement of operations.
Related Party Transactions
In July 2002, the Company entered into a services and facilities agreement with
The Kriegsman Group ("TKG") and Kriegsman Capital Group ("KCG"), which was
subsequently amended in January 2003 and July 2003, whereby TKG and KCG agreed
to provide us with office space and certain administrative services and TKG
agreed to reimburse us for its use of certain of our administrative personnel.
TKG and KCG are owned by Steven A. Kriegsman, our President and CEO. During the
three month and six month periods ended June 30, 2003, we paid approximately
$40,000 and $65,000 to TKG under this agreement. The charges are determined
based upon actual space used and estimated percentages of employee time used. We
believe that such charges approximate the fair value of the space and services
provided.
Risk Factors
You should carefully consider the following risks before deciding to purchase
shares of our common stock. If any of the following risks actually occur, our
business or prospects could be materially adversely affected and the trading
price of our common stock could be negatively impacted, and investors in our
securities could lose all or part of their investment. You should also refer to
the other information in this Quarterly Report, including our financial
statements and the related notes.
We Have Operated at a Loss and Will Likely Continue to Operate at a Loss For the
- --------------------------------------------------------------------------------
Foreseeable Future
- ------------------
We have incurred significant losses over the past five years, including net
losses of approximately $5,960,000 for the six months ended June 30, 2003 (on an
unaudited basis), and $6,176,000, $931,000 and $348,000 for 2002, 2001 and 2000,
respectively, and we had an accumulated deficit of approximately $77,918,000 (on
an unaudited basis) as of June 30, 2003. Our operating losses have been due
primarily to our expenditures for research and development on our products and
for general and administrative expenses and our lack of significant revenues. We
are likely to continue to incur operating losses until such time, if ever, that
we generate significant recurring revenues. Unless we are able to acquire
products from third parties that are already being marketed and that can be
profitably marketed by us, it will take an extended period of time for us to
generate recurring revenues. We anticipate that it will take at least several
years before the development of any of our licensed or other current potential
products is completed, FDA marketing approvals are obtained and commercial sales
of any of these products can begin.
15
We Have No Source of Significant Recurring Revenues, Which May Make Us Dependent
- --------------------------------------------------------------------------------
on Financing to Sustain Our Operations
- --------------------------------------
Although we generated $3,751,000 in revenues from milestone payments and license
fees from our licensees during 2001 and $1,051,000 from these sources in 2002,
we do not have any significant sources of recurring operating revenues. We will
not have significant recurring operating revenues until at least one of the
following occurs:
o one or more of our currently licensed products is commercialized by our
licensees that generates royalty income for us
o we are able to enter into license or other arrangements with third
parties who are then able to complete the development and commercialize
one or more of our other products that are currently under development
o we are able to acquire products from third parties that are already being
marketed or are approved for marketing
We are likely to incur negative cash from operations until such time, if ever,
as we can generate significant recurring revenues. Should we be unable to
generate these recurring revenues after the next 24 months, it is likely that we
will become dependent on obtaining financing from third parties to continue to
meet our obligations to the University of Massachusetts Medical School and
maintain our operations. We have no commitments from third parties to provide us
with any debt or equity financing. Accordingly, financing may be unavailable to
us or only available on terms that substantially dilute our existing
shareholders. A lack of needed financing could force us to reduce the scope of
or terminate our operations or to seek a merger with or be acquired by another
company. There can be no assurance that we would be able to identify an
appropriate company to merge with or be acquired by or that we could consummate
such a transaction on terms that would be attractive to our shareholders or at
all.
Most of Our Revenues Have Been Generated by License Fees for TranzFect, Which
- -----------------------------------------------------------------------------
May Not be a Recurring Source of Revenue for Us
- -----------------------------------------------
License fees paid to us with respect to our TranzFect technology have
represented 78%, 85% and 60% of our total revenues for 2002, 2001 and 2000,
respectively. We have already licensed most of the potential applications for
this technology, and there can be no assurance that we will be able to generate
additional license fee revenues from any new licensees for this technology. Our
current licensees for TranzFect (Merck and Vical) may be required to make
further milestone payments to us under their licenses based on their future
development of products using TranzFect. However, Merck is at an early stage of
clinical trials of a product utilizing TranzFect, and Vical has not yet
commenced any clinical trials of a product utilizing TranzFect. Accordingly,
there is likely to be a substantial period of time, if ever, before we receive
any further significant payments from Merck or Vical under their TranzFect
licenses.
We Have Changed Our Business Strategy, Which Will Require Us to Find and Rely
- -----------------------------------------------------------------------------
Upon Third Parties for the Development of Our Products and to Provide Us With
- -----------------------------------------------------------------------------
Products
- --------
We have modified our prior business strategy of internally developing FLOCOR and
our other potential products not yet licensed to third parties. We will now seek
to enter into strategic alliances, license agreements or other collaborative
arrangements with larger pharmaceutical companies that will provide for those
companies to be responsible for the development and marketing of our products,
although we intend to internally fund the early stage development work for
certain product applications based on the gene silencing and other technologies
that we have licensed from the University of Massachusetts Medical School. There
can be no assurance that our products will have sufficient potential commercial
value to enable us to secure these arrangements with suitable companies on
attractive terms or at all. If we enter into these arrangements, we will be
dependent upon the timeliness and effectiveness of the development and marketing
efforts of our contractual partners. If these companies do not allocate
sufficient personnel and resources to these efforts or encounter difficulties in
complying with applicable FDA requirements, the timing of receipt or amount of
revenues from these arrangements may be materially and adversely affected. By
entering into these arrangements rather than completing the development and then
marketing these products on our own, we may suffer a reduction in the ultimate
overall profitability for us of these products. If we are unable to enter into
these arrangements for a particular product, we may be required to either sell
the product to a third party or abandon it unless we are able to raise
sufficient capital to fund the substantial expenditures necessary for
development and marketing of the product.
16
Our Limited Financial Resources May Adversely Impact Our Ability to Execute
- ---------------------------------------------------------------------------
Certain Strategic Initiatives
- -----------------------------
On June 30, 2003 we had approximately $5,852,000 in cash and cash equivalents
and approximately $5,742,000 in working capital. Our recently modified product
development strategy calls for seeking strategic alliances, licensing agreements
or other collaborative arrangements with larger pharmaceutical companies to
complete the development of FLOCOR and our other potential products, and we will
not continue any further FLOCOR development work on our own in the meantime.
Although we are not doing any further development work on TranzFect, our two
licensees for this technology (Merck & Co. and Vical Incorporated) are
continuing to do development work on product applications for this technology
that could entitle us to future milestone payments should they continue with
this work and it successfully meets the defined milestones, as well as future
royalty payments should either of these licensees commercialize products based
on our technology. However, there can be no assurance that our licensees will
continue to develop or ever commercialize any products that are based on our
TranzFect technology.
Our strategic alliance with the University of Massachusetts Medical School may
require us to make significant expenditures to fund research at that medical
institution relating to developing therapeutic products based on that
institution's proprietary technology that has been licensed to us. We estimate
that the aggregate amount of these sponsored research expenditures under certain
circumstances could range from approximately $1,600,000 to $1,800,000 annually
over the next three years. Our license agreements with the University of
Massachusetts Medical School also provide in certain cases for milestone
payments based on the progress made by us in the clinical development of
products utilizing the technologies licensed from the University of
Massachusetts Medical School and the marketing of these products. These
milestone payments could aggregate over time up to $13,610,000 if we
successfully complete the development of six separate products.
Our potentially required expenditures under our agreements with the University
of Massachusetts Medical School could substantially exceed our current financial
resources and require us to raise additional capital or secure a licensee or
strategic partner to fulfill our obligations to the University of Massachusetts
Medical School and to develop any products based on the technology that we have
licensed from that medical institution. If we are unable to meet our various
financial obligations under these license agreements, which included a
requirement that we raise at least $10,000,000 of additional capital within 18
months after the signing of these agreements, we could lose all of our rights
under these agreements.
Our Recent Acquisition of Global Genomics May Place Additional Financial and
- ----------------------------------------------------------------------------
Operational Burdens on Us
- -------------------------
In July 2002, we acquired Global Genomics through a merger. Global Genomics is a
development stage company that, to date, has not generated any operating
revenue, does not expect to generate any revenues in the foreseeable future and
has operated at a loss since its organization in May 2000. Global Genomics had a
cumulative loss from inception through June 30, 2003 (on an unaudited basis) of
approximately $3,422,000, a loss of approximately $395,000 for the six months
ended June 30, 2003 (on an unaudited basis), and a loss of approximately
$303,000 and $1,563,000 for 2002 and 2001, respectively. We have moved our
headquarters in connection with the merger to Los Angeles, California while we
continue to incur a substantial lease expense ($14,000 per month, less
offsetting sublease income of currently $3,000 per month) for our prior
headquarters in Norcross, Georgia. We may be unable to substantially mitigate
the future rental expense for our prior headquarters by subleasing this space.
Although a majority of the members of our board of directors were directors
prior to our merger with Global Genomics, all of our then current operating
officers were terminated as a part of the merger. This change in personnel may
place additional administrative burdens on our management in conducting our
operations.
If Our Products Are Not Successfully Developed and Approved by the FDA, We May
- ------------------------------------------------------------------------------
Be Forced to Reduce or Terminate Our Operations
- -----------------------------------------------
Each of our products is in the development stage and must be approved by the FDA
or similar foreign governmental agencies before they can be marketed. The
process for obtaining FDA approval is both time-consuming and costly, with no
certainty of a successful outcome. This process typically includes the conduct
of extensive pre-clinical and clinical testing, which may take longer or cost
more than we or our licensees currently anticipate due to numerous factors such
as:
17
o difficulty in securing centers to conduct trials
o difficulty in enrolling patients in conformity with required protocols
or projected timelines
o unexpected adverse reactions by patients in trials
o difficulty in obtaining clinical supplies of the product
o changes in the FDA s requirements for our testing during the course of
that testing
o inability to generate statistically significant data confirming the
efficacy of the product being tested
The gene silencing and other technologies that we have acquired from the
University of Massachusetts Medical School have not yet been clinically tested
by us, nor are we aware of any clinical trials having been conducted by third
parties involving similar gene silencing technologies. Our TranzFect technology
is currently in Phase I clinical trials that are being conducted by our
licensee, Merck & Co., as a component of a vaccine to prevent AIDS. Since
TranzFect is to be used as a component in vaccines, we do not need to seek FDA
approval, but the vaccine manufacturer will need to seek FDA approval for the
final vaccine formulation containing TranzFect.
We Were Only Able to Establish the Effectiveness of FLOCOR in a Subset of
- --------------------------------------------------------------------------------
Patients in a Recent Clinical Trial and May Be Unable to Establish a Viable
- --------------------------------------------------------------------------------
Medical Indication for FLOCOR or Find a Partner to Fund the Necessary Research
- --------------------------------------------------------------------------------
for FLOCOR
- ----------
In December 1999, we reported results from our Phase III clinical trial of
FLOCOR for treatment of sickle cell disease patients experiencing an acute
vaso-occlusive crisis. Overall, the study was not able to achieve its primary
objective, which was to show a statistically significant decrease in the length
of vaso-occlusive crisis for the study population as a whole. However, for
patients 15 years of age or younger, the number of patients achieving resolution
of crisis was higher for FLOCOR-treated patients at all time periods than for
placebo-treated patients, which may indicate that future clinical trials should
focus on juvenile patients. We believe that there were certain design flaws in
the protocol for the previous Phase III clinical trial relating primarily to the
assumed period for resolution of a vaso-occlusive crisis in patients not treated
with FLOCOR that may have impacted the results of that clinical trial and that
would need to be addressed in properly designing any future trial.
To generate sufficient data to seek FDA approval for FLOCOR will require
additional clinical studies, which will entail substantial time and expense. We
currently estimate the cost of these clinical trials to be in the range of
$10,000,000 - $12,000,000, although the actual costs could vary substantially,
depending on the nature and number of trials that the FDA ultimately would
require. We do not intend to conduct or fund these tests ourselves but will seek
a strategic alliance partner or licensee for this purpose. The failure of our
prior Phase III trial to generate sufficient data could make it more difficult
for us to secure a strategic alliance partner or licensee for this product. In
June 2002, the National Heart, Lung and Blood Institute of the National
Institutes of Health turned down a grant application by Johns Hopkins University
School of Medicine to provide financial support for a potential new Phase III
trial for FLOCOR. Since this grant application was submitted at the NIH's
suggestion, we believed that there was a reasonable possibility of obtaining
governmental funding for the cost of a new FLOCOR trial. However, based on the
NIH's rejection of the Johns Hopkins application, we may encounter difficulty in
obtaining future governmental financial support for FLOCOR development work
should we or any strategic partner or licensee seek such support in the future.
If Blizzard Genomics Fails to Successfully Commercialize Its Products, the Value
- --------------------------------------------------------------------------------
of Our Assets Will Be Adversely Impacted
- ----------------------------------------
Blizzard Genomics, Inc., which is Global Genomics principal portfolio company,
has not yet commercialized any of its products. Although Blizzard Genomics plans
to introduce its first product, the I-Scan Imager, a low cost DNA chip reader,
in late 2003 or early 2004, it may experience delays in completing the
development of or commercially launching this product. Blizzard Genomics'
products will be used in research laboratories and will not require FDA approval
prior to their being marketed. These products are likely to face intense market
competition from existing
18
products or technologies and products or technologies that are developed in the
future. Blizzard Genomics is the licensee of several U.S. patents, and is
seeking additional patent protection for its products and technologies. There
can be no assurance, however, that the company will be able to secure sufficient
patent coverage for its products and technologies. The failure of Blizzard
Genomics to successfully commercialize its products would require us to write
down or write off the substantial carrying value of Global Genomics' investment
in that company as part of our assets, which would have a materially adverse
effect on our stockholders' equity.
Blizzard Genomics May Be Unable to Raise Sufficient Funding to Commercialize Its
- --------------------------------------------------------------------------------
Products, Which Would Adversely Impact the Value of Our Assets
- --------------------------------------------------------------
Blizzard Genomics has no working capital and is currently seeking to raise up to
$2,000,000 in capital to fund the commercial launch of the I-Scan Imager(TM) and
for its working capital needs. Blizzard Genomics has encountered difficulty to
date in obtaining this capital. Failure to raise at least a portion of this
capital could delay Blizzard Genomics' commercialization of its products and
might force it to suspend its operations. Should Blizzard Genomics raise at
least $750,000 in capital, it believes that it would have sufficient funding to
begin commercial marketing of the I-Scan Imager(TM) but would require additional
capital to complete development of any other products and might need additional
capital to support its operations. Any significant delay in the
commercialization of Blizzard Genomics' products or the cessation of its
operations would adversely affect the carrying value of Global Genomics'
investment in that company as part of our assets, which would have a materially
adverse effect on our stockholders' equity. Although we may consider making a
further investment in Blizzard Genomics, we have not discussed the terms of any
such investment with Blizzard Genomics and have no obligation to make any new
investment in that company.
We Are Dependent Upon a Limited Operational Management Team and Need to Recruit
- --------------------------------------------------------------------------------
a Chief Financial Officer and Perhaps Other Personnel to Effectively Operate
- ----------------------------------------------------------------------------
Our current management team is small and we rely significantly on the efforts of
external consultants. We are dependent on the availability and quality of the
efforts of Steven A. Kriegsman, our Chief Executive Officer and interim Chief
Financial Officer, in managing our company. We have recently recruited a
permanent Chief Financial Officer and may need to recruit other personnel in
order to effectively operate the company and carry out our business plan.
We Are Subject to Intense Competition That Could Materially Impact Our Operating
- --------------------------------------------------------------------------------
Results
- -------
We and our strategic partners or licensees may be unable to compete successfully
against our current or future competitors. The pharmaceutical, biopharmaceutical
and biotechnology industry is characterized by intense competition and rapid and
significant technological advancements. Many companies, research institutions
and universities are working in a number of areas similar to our primary fields
of interest to develop new products. Many of the companies with which we compete
have or are likely to have substantially greater research and product
development capabilities and financial, technical, scientific, manufacturing,
marketing, distribution and other resources than at least some of our present or
future strategic partners or licensees.
As a result, these competitors may:
o Succeed in developing competitive products earlier than we or our
strategic partners or licensees
o Obtain approvals for such products from the FDA or other regulatory
agencies more rapidly than we or our strategic partners or licensees
do
o Obtain patents that block or otherwise inhibit the development and
commercialization of our product candidates
o Develop treatments or cures that are safer or more effective than
those we propose for our products
o Devote greater resources to marketing or selling their products
19
o Introduce or adapt more quickly to new technologies or scientific
advances
o Introduce products that make the continued development of our product
candidates uneconomical
o Withstand price competition more successfully than our strategic
partners or licensees can
o More effectively negotiate third-party strategic alliances or
licensing arrangements
o Take advantage of other opportunities more readily than we can
Although we do not expect FLOCOR to have direct competition from other products
currently available or that we are aware of that are being developed related to
FLOCOR's ability to reduce blood viscosity in the cardiovascular area, there are
a number of anticoagulant products that FLOCOR would have to compete against,
such as tissue plasminogen activator (t-PA) and streptokinase (blood clot
dissolving enzymes) as well as blood thinners such as heparin and coumatin, even
though FLOCOR acts by a different mechanism to prevent damage due to blood
coagulation. In the sickle cell disease area, we would compete against companies
that are developing or marketing other products to treat sickle cell disease,
such as Droxia (hydroxyurea) marketed by Bristol-Myers Squibb Co. and
Decitabine, which is being developed by SuperGen, Inc. Our TranzFect technology
will compete against a number of companies that have developed adjuvant
products, such as the adjuvant QS-21 marketed by Aquila Biopharmaceuticals, Inc.
and adjuvants marketed by Corixa. Blizzard Genomics' products will compete with
a number of currently marketed products, including those offered by Axon
Instruments, Affymetrix, Applied Precision, Perkin Elmer and Agilent
Technologies. A number of medical institutions and pharmaceutical companies are
seeking to develop products based on gene silencing technologies. Companies
working in this area include Sirna Therapeutics, Inc., Ribopharma A.G., Alnylam,
Inc., Benitec, Nucleonics, Inc. and a number of the multinational pharmaceutical
companies. Companies developing HIV vaccines that could compete with our product
include Merck, VaxGen, AlphaVax and Immunitor Corporation.
The Manufacturing Requirements for FLOCOR May Make It More Difficult for Us to
- --------------------------------------------------------------------------------
License FLOCOR or for Our Licensee to Develop FLOCOR
- ----------------------------------------------------
The manufacture of CRL-5861 requires the following:
o a supply of the raw drug substance
o a supply of the purified drug which is refined from the raw drug
substance
o formulation and sterile filling of the purified drug substance into
the finished drug product
A number of suppliers and manufacturers can provide the raw drug substance and
the finished drug product. Prior to the change in our business strategy to now
seek a strategic partner or licensee for FLOCOR (who we anticipate would be
responsible for the manufacture of FLOCOR), we entered into an agreement with
Organichem Corp. to provide us with commercial supplies of the purified drug
substance. However, this agreement will expire before the end of 2003, which
will be well before any potential strategic partner or licensee that we might
secure will need commercial supplies of this substance. There can be no
assurance that any strategic partner or licensee that we secure will either have
the specific equipment expertise to purify the FLOCOR drug substance or will be
able to enter into an agreement with Organichem or another supplier on
acceptable terms. An inability to obtain purified drug substance in sufficient
amounts and at acceptable prices could have a material adverse effect on our
ability to secure a strategic partner or licensee or on the ability of that
partner or licensee to commercialize FLOCOR.
We May Be Unable to Protect Our Intellectual Property Rights, Which Could
- --------------------------------------------------------------------------------
Adversely Affect the Value of Our Assets
- ----------------------------------------
Obtaining and maintaining patent and other intellectual property rights for our
technologies and potential products is critical to establishing and maintaining
the value of our assets and our business. Although we believe that we have
20
significant patent coverage for our FLOCOR and TranzFect technologies, there can
be no assurance that this coverage will be broad enough to prevent third parties
from developing or commercializing similar or identical technologies, that the
validity of our patents will be upheld if challenged by third parties or that
our technologies will not be deemed to infringe the intellectual property rights
of third parties. We have a non-exclusive license to a patent owned by the
University of Massachusetts Medical School and another institution that covers
the general field of gene silencing. The specific medical applications of the
gene silencing technology and the other technologies that we have licensed from
the University of Massachusetts Medical School are covered by a number of
pending patent applications. However, other researchers have been active in the
field of gene silencing, and these researchers may hold or seek to obtain
patents that could make it more difficult or impossible for us to develop
products based on the gene silencing technology that we have licensed. Any
litigation brought by us to protect our intellectual property rights or by third
parties asserting intellectual property rights against us could be costly and
have a material adverse effect on our operating results or financial condition
and make it more difficult for us to enter into strategic alliances with third
parties to develop our products or discourage our existing licensees from
continuing their development work on our potential products. If our patent
coverage is insufficient to prevent third parties from developing or
commercializing similar or identical technologies, the value of our assets is
likely to be materially and adversely affected.
We May Incur Substantial Costs from Future Clinical Testing or Product Liability
- --------------------------------------------------------------------------------
Claims
- ------
If any of our products are alleged to be defective, they may expose us to claims
for personal injury by patients in clinical trials of our products or by
patients using our commercially marketed products. Even if the commercialization
of one or more of our products is approved by the FDA, users may claim that such
products caused unintended adverse effects. We currently do not carry product
liability insurance covering the use of our products in human clinical trials or
the commercial marketing of these products but anticipate that our licensees who
are developing our products will carry liability insurance covering the clinical
testing and marketing of those products. However, if someone asserts a claim
against us and the insurance coverage of our licensees or their other financial
resources are inadequate to cover a successful claim, such successful claim may
exceed our financial resources and cause us to discontinue operations. Even if
claims asserted against us are unsuccessful, they may divert management's
attention from our operations and we may have to incur substantial costs to
defend such claims.
It Will Be Difficult For Us To Manage Our Operations If We Are Regulated As An
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Investment Company In The Future
- --------------------------------
The Investment Company Act of 1940 regulates certain companies that own
investment securities with a value greater than 40% of the total assets of that
company. In the Global Genomics merger, we acquired a 40% equity interest in
Blizzard Genomics, which investment represented approximately 48% of our total
assets as of June 30, 2003. Accordingly, because our investment in Blizzard
Genomics represents such a large percentage of our total assets, we would be
subject to the Investment Company Act if an exemption were not available. The
SEC's regulations, however, exempt certain companies from the Investment Company
Act if they, among other things, have a controlling interest in the subsidiary
company. While we believe this exemption is currently available to us, if our
ownership interest in Blizzard Genomics significantly decreases or we otherwise
no longer remain the largest shareholder of Blizzard Genomics, the value of our
investment in Blizzard Genomics could cause us to become subject to the
provisions of the Investment Company Act. Should we become subject to the
Investment Company Act, we would essentially have to operate as a mutual fund
and would be subject to all of the substantive regulations imposed on such
companies, including the restrictions on the securities we can issue, the rules
specifying the composition and structure of our management, the additional
reporting requirements, and other limitations on our ability to conduct our
operations in the manner currently conducted. Our Board of Directors has
determined that, should we become subject to these provisions, we will either
(i) seek an order from the SEC exempting us from these provisions, or (ii)
attempt to restructure our business in a manner that would relieve us from these
provisions. The regulatory requirements for investment companies are extremely
restrictive and would materially and adversely affect our ability to manage and
operate our business and could materially and adversely affect our financial
condition. Although it is our intention to remain an operating company that is
not subject to the Investment Company Act, no assurance can be given that we
will not become subject to the provisions of that act.
21
Our Anti-Takeover Provisions May Make It More Difficult to Change Our Management
- --------------------------------------------------------------------------------
or May Discourage Others From Acquiring Us and Thereby Adversely Affect
- --------------------------------------------------------------------------------
Shareholder Value
- -----------------
We have a shareholder rights plan and provisions in our bylaws that may
discourage or prevent a person or group from acquiring us without our board of
directors approval. The intent of the shareholder rights plan and our bylaw
provisions is to protect our shareholders interests by encouraging anyone
seeking control of our company to negotiate with our board of directors.
We have a classified board of directors, which requires that at least two
stockholder meetings, instead of one, will be required to effect a change in the
majority control of our board of directors. This provision applies to every
election of directors, not just an election occurring after a change in control.
The classification of our board increases the amount of time it takes to change
majority control of our board of directors and may cause our potential
purchasers to lose interest in the potential purchase of us, regardless of
whether our purchase would be beneficial to us or our stockholders. The
additional time and cost to change a majority of the members of our board of
directors makes it more difficult and may discourage our existing shareholders
from seeking to change our existing management in order to change the strategic
direction or operational performance of our company.
Our bylaws provide that directors may only be removed for cause by the
affirmative vote of the holders of at least a majority of the outstanding shares
of our capital stock then entitled to vote at an election of directors. This
provision prevents stockholders from removing any incumbent director without
cause. Our bylaws also provide that a stockholder must give us at least 120 days
notice of a proposal or director nomination that such stockholder desires to
present at any annual meeting or special meeting of stockholders. Such provision
prevents a stockholder from making a proposal or director nomination at a
stockholder meeting without us having advance notice of that proposal or
director nomination. This could make a change in control more difficult by
providing our directors with more time to prepare an opposition to a proposed
change in control. By making it more difficult to remove or install new
directors, the foregoing bylaw provisions may also make our existing management
less responsive to the views of our shareholders with respect to our operations
and other issues such as management selection and management compensation.
Our Outstanding Options and Warrants and the Registration of Our Shares Issued
- --------------------------------------------------------------------------------
in the Global Genomics Merger May Adversely Affect the Trading Price of Our
- --------------------------------------------------------------------------------
Common Stock
- ------------
As of August 8, 2003, there were outstanding stock options and warrants to
purchase 7,222,287 shares of our common stock at exercise prices ranging from
$0.01 to $7.75 per share. Our outstanding options and warrants could adversely
affect our ability to obtain future financing or engage in certain mergers or
other transactions, since the holders of options and warrants can be expected to
exercise them at a time when we may be able to obtain additional capital through
a new offering of securities on terms more favorable to us than the terms of
outstanding options and warrants. For the life of the options and warrants, the
holders have the opportunity to profit from a rise in the market price of our
common stock without assuming the risk of ownership. To the extent the trading
price of our common stock at the time of exercise of any such options or
warrants exceeds the exercise price, such exercise will also have a dilutive
effect to our stockholders.
We May Experience Volatility in Our Stock Price, Which May Adversely Affect the
- --------------------------------------------------------------------------------
Trading Price of Our Common Stock
- ---------------------------------
The market price of our common stock has experienced significant volatility in
the past and may continue to experience significant volatility from time to
time. Our stock price has ranged from $0.21 to $3.74 over the past three years.
Factors such as the following may affect such volatility:
o our quarterly operating results
o announcements of regulatory developments or technological innovations
by us or our competitors
o government regulation of drug pricing
o developments in patent or other technology ownership rights
22
o public concern regarding the safety of our products
Other factors which may affect our stock price are general changes in the
economy, financial markets or the pharmaceutical or biotechnology industries.
Item 3. -- Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Our financial intruments that are sensitive to changes in interest rates are our
investments and cash equivalents. As of June 30, 2003, we held no investments
other than amounts invested in money market accounts. We are not subject to any
other material market risks.
Item 4. - Controls and Procedures
-----------------------
Our Chief Executive Officer and interim Chief Financial Officer, after
evaluating the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e)) as of the end of the quarterly period
covered by this Form 10-Q, has concluded that the Company's disclosure controls
and procedures are adequate and effective to reasonably ensure that material
information relating to us can be gathered, analyzed and disclosed on a timely
basis in the reports that we file under the Securities Exchange Act. There were
no significant changes made during our most recently completed fiscal quarter in
our internal control over financial reporting that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
PART II-- OTHER INFORMATION
Item 2 -- Changes in Securities and Use of Proceeds
-----------------------------------------
In April 2003, we issued 1,613,258 shares of our common stock and in May 2003,
we issued 215,101 shares of our common stock to the University of Massachusetts
Medical School as partial consideration for seven medical technology licenses
that we acquired from that institution. The shares of common stock were issued
in reliance upon an exemption from registration under the Securities Act of 1933
provided by Regulation D.
In May 2003, we issued a total of 2,940,539 shares of our common stock and
warrants to purchase a total of 735,136 shares of our common stock at $3.05 per
share to nine institutional investors for total cash consideration of
$5,440,000. The shares of common stock and warrants were issued in reliance upon
an exemption from registration under the Securities Act of 1933 provided by
Regulation D. Cappello Capital Corp. and Cardinal Securities LLC acted as the
placement agents for the foregoing private placement in May 2003. We issued
warrants to Cardinal Securities LLC to purchase 78,750 shares of our common
stock at $1.85 per share, and we issued to eight employees of Cappello Capital
Corp. warrants to purchase a total of 294,054 shares of our common stock at
$1.85 per share and a total of 73,515 shares of our common stock at $3.05 per
share as partial consideration for the services of the two firms as placement
agents for the May 2003 private placement. The warrants were issued in reliance
upon an exemption from registration under the Securities Act of 1933 provided by
Regulation D.
In May 2003, we issued 25,000 shares of our common stock to Troy & Gould
Professional Corporation for a cash purchase price of $25,000. The shares of
common stock were issued in reliance upon an exemption from registration under
the Securities Act of 1933 provided by Regulation D.
In April 2003, we issued warrants to purchase 400,000 shares of our common stock
at $0.20 per share to J.P. Turner & Company LLC in consideration of its
agreement to provide us with certain investment banking services, and in June
2003, we issued that firm an additional 275,000 shares of our common stock and
warrants to purchase 82,500 shares of our common stock at $2.00 per share in
connection with an extension of that agreement. The shares of common stock and
warrants were issued in reliance upon an exemption from registration under the
Securities Act of 1933 provided by Regulation D.
23
In May 2003, we issued 100,000 shares of our common stock and warrants to
purchase 200,000 shares of our common stock at $1.00 per share to James Skalko
as the consideration for services he was to provide us under a financial
consulting agreement. In April 2003, we issued warrants to purchase 100,000
shares of our common stock at $0.75 per share, 100,000 shares of our common
stock at $0.90 per share and 200,000 shares of our common stock at $1.05 per
share to Rockwell Asset Management, LLC in consideration of that firm's
agreement to provide us with certain investment banking services. The shares of
common stock and warrants issued to James Skalko and the warrants issued to
Rockwell Asset Management, LLC were issued in reliance upon an exemption from
registration under the Securities Act of 1933 provided by Regulation D.
In April 2003, we issued to three family trusts 39,064, 39,064 and 13,022 shares
of our common stock, respectively, upon the exercise of warrants for cash
consideration of $391, $391 and $130, respectively. In May 2003 and June 2003,
we issued 150,000 and 100,000 shares of our common stock, respectively, to an
investment banking firm upon its exercise of warrants for cash consideration of
$225,000 and $150,000, respectively.
In July 2003, we issued 111,859 shares of our common stock to an individual upon
his cashless exercise of a warrant to purchase 200,000 shares of our common
stock and 70,339 shares of our common stock to a second individual upon his
cashless exercise of a warranat to purchase 141,388 shares of our common stock.
In July 2003, we also issued to two individuals 95,746 and 100,000 shares of our
common stock, respectively, upon their exercise of warrants for cash
consideration of $958 and $1,000, respectively. The shares of common stock
issued to the foregoing individuals, trusts and investment banking firms were
issued in reliance upon an exemption from registration under the Securities Act
of 1933 provided by Regulation D.
Item 6. -- Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
The exhibits listed in the accompanying Index to Exhibits are filed as part of
this Quarterly Report on Form 10-Q.
(b) Reports on Form 8-K
On April 23, 2003, we filed a Current Report on Form 8-K disclosing that we had
entered into a series of license agreements with the University of Massachusetts
Medical School ("UMMS") pursuant to which we acquired a license to UMMS's
proprietary RNAi technology and applications for that technology within areas
that include obesity, diabetes II, and cancer.
On May 29, 2003, we filed a Current Report on Form 8-K disclosing the completion
of a private placement of our common stock and warrants to purchase shares of
common stock.
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SIGNATURES
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.
CYTRX CORPORATION
(Registrant)
Date: August 14, 2003 By: /s/ Steven A. Kriegsman
--------------- --------------------------
Steven A. Kriegsman
Chief Executive Officer and
Interim Chief Financial Officer
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INDEX TO EXHIBITS
-----------------
Exhibit Number Description
- --------------------------------------------------------------------------------
4.1 Form of Common Stock Purchase Warrant between Company and
each of the investors in the May 29, 2003 private placement
(incorporated herein by reference to Exhibit 4.1 to the
Company's current report on Form 8-K filed on May 30, 2003)
10.1 Securities Purchase Agreement, dated as of May 29, 2003,
between the Company and the Purchasers identified on the
signatory page thereof (incorporated herein by reference to
Exhibit 10.1 to the Company's current report on Form 8-K
filed on May 30, 2003)
10.2 Registration Rights Agreement, dated as of May 29, 2003,
between the Company and the Purchasers identified on the
signature page thereof (incorporated herein by reference to
Exhibit 10.2 to the Company s current report on Form 8-K
filed on May 30, 2003)
10.3 Non-Exclusive License Agreement dated as of April 15, 2003
between University of Massachusetts Medical School and
Company covering RNA sequence specific mediators of RNA
interference (incorporated herein by reference to Exhibit
10.2 to the Form S-3 Amendment No. 4 File Number 333-100947
filed on August 5, 2003)+
10.4 Exclusive License Agreement dated as of April 15, 2003
between University of Massachusetts Medical School and
Company covering in vivo production of small interfering
RNA's (incorporated herein by reference to Exhibit 10.3 to
the Form S-3 Amendment No. 4 File Number 333-100947 filed on
August 5, 2003)+
10.5 Exclusive License Agreement dated as of April 15, 2003
between University of Massachusetts Medical School and
Company covering inhibition of gene expression in adipocytes
using interference RNA (incorporated herein by reference to
Exhibit 10.4 to the Form S-3 Amendment No. 4 File Number
333-100947 filed on August 5, 2003)+
10.6 Exclusive License Agreement dated as of April 15, 2003
between University of Massachusetts Medical School and
Company covering RNAi targeting of viruses (incorporated
herein by reference to Exhibit 10.5 to the Form S-3 Amendment
No. 4 File Number 333-100947 filed on August 5, 2003)+
10.7 Exclusive License Agreement dated as of April 15, 2003
between University of Massachusetts Medical School and
Company covering primary and polyvalent HIV-1 envelope
glycoprotein DNA vaccines (incorporated herein by reference
to Exhibit 10.6 to the Form S-3 Amendment No. 4 File Number
333-100947 filed on August 5, 2003)+
10.8 Exclusive License Agreement dated as of April 15, 2003
between University of Massachusetts Medical School and
Company covering gene based therapeutics for solid tumor
treatments (incorporated herein by reference to Exhibit 10.7
to the Form S-3 Amendment No. 4 File Number 333-100947 filed
on August 5, 2003)+
10.9 Exclusive License Agreement dated as of April 15, 2003
between University of Massachusetts Medical School and
Company covering selective silencing of a dominant ALS gene
by RNAi (incorporated herein by reference to Exhibit 10.8 to
the Form S-3 Amendment No. 4 File Number 333-100947 filed on
August 5, 2003)+
10.10 Investment Banking Agreement dated April 1, 2003 between
Rockwell Asset Management Inc. and the Company
10.11 Investment Banking Agreement dated April 3, 2003 between J.P.
Turner & Company, LLC and the Company
10.12 First Amendment to Investment Banking Agreement dated June 4,
2003 between J.P. Turner & Company, LLC and the Company
10.13 Exclusive Financial Advisor Engagement Agreement dated May
16, 2003 between Cappello Capital Corp. and the Company
10.14 Modification letter dated June 6, 2003 to Financial Advisor
Engagement Agreement between Cappello Capital Corp. and the
Company
26
Exhibit Number Description
- --------------------------------------------------------------------------------
10.15 Engagement Letter dated May 27, 2003 between Cardinal
Securities, LLC and the Company
10.16 Second Amended and Restated Employment Agreement dated June
10, 2003 between Steven A. Kriegsman and the Company
10.17 Financial Consulting Agreement dated May 10, 2003 between
James Skalko and the Company
31.1 Certification Pursuant to 15 U.S.C. Section 7241, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
+ Certain portions of this exhibit have been omitted pursuant to a
request for confidential treatment filed with the Securities and
Exchange Commission. Omitted portions have been filed separately with
the Securities and Exchange Commission.
27