Attached files
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EX-31.1 - GENVEC INC | v192211_ex31-1.htm |
EX-10.1 - GENVEC INC | v192211_ex10-1.htm |
EX-32.2 - GENVEC INC | v192211_ex32-2.htm |
EX-32.1 - GENVEC INC | v192211_ex32-1.htm |
EX-31.2 - GENVEC INC | v192211_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended June 30, 2010
or
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from to
Commission
file number:
|
0-24469
|
GenVec, Inc.
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
23-2705690
|
|
(State
or other jurisdiction of
|
(IRS
Employer Identification
|
|
incorporation
or organization)
|
Number)
|
65
West Watkins Mill Road, Gaithersburg, Maryland
|
20878
|
(Address
of principal executive offices)
|
(Zip
Code)
|
240-632-0740
|
(Registrant's
telephone number, including area
code)
|
(Former name, former address and
former fiscal year, if changed since last
report.)
|
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
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ¨ No ¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
(do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No
x
As of
July 31, 2010, the Registrant had 129,022,759
shares of common stock, $.001 par value,
outstanding.
GENVEC,
INC.
FORM
10-Q
TABLE
OF CONTENTS
PART
I.
|
FINANCIAL
INFORMATION
|
||
Item
1.
|
Financial
Statements (unaudited)
|
3
|
|
Condensed
Balance Sheets
|
3
|
||
Condensed
Statements of Operations
|
4
|
||
Statements
of Comprehensive Loss
|
5
|
||
Condensed
Statement of Stockholders’ Equity and Comprehensive Loss
|
6
|
||
Condensed
Statements of Cash Flows
|
7
|
||
Notes
to Condensed Financial Statements
|
8
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
18
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
25
|
|
Item
4.
|
Controls
and Procedures
|
25
|
|
PART
II.
|
OTHER
INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
27
|
|
Item
1A.
|
Risk
Factors
|
27
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
28
|
|
Item
4.
|
[Removed
and Reserved]
|
28
|
|
Item
5.
|
Other
Information
|
28
|
|
Item
6.
|
|
Exhibits
|
28
|
SIGNATURES |
29
|
2
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
GENVEC,
INC.
(in
thousands, except per share data)
June 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 38,937 | $ | 10,887 | ||||
Short-term
investments
|
62 | 74 | ||||||
Accounts
receivable
|
1,979 | 1,442 | ||||||
Prepaid
expenses and other
|
469 | 331 | ||||||
Total
current assets
|
41,447 | 12,734 | ||||||
Property
and equipment, net
|
813 | 687 | ||||||
Other
assets
|
22 | 22 | ||||||
Total
assets
|
$ | 42,282 | $ | 13,443 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 1,139 | $ | 1,096 | ||||
Accrued
clinical trial expenses
|
1,350 | 1,195 | ||||||
Accrued
other expenses
|
1,839 | 2,838 | ||||||
Unearned
revenue
|
2,126 | 603 | ||||||
Total
current liabilities
|
6,454 | 5,732 | ||||||
Unearned
revenue
|
1,035 | 75 | ||||||
Total
liabilities
|
7,489 | 5,807 | ||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, $0.001 par value, 5,000 shares authorized in 2010 and 2009; none
issued and outstanding in 2010 and 2009
|
- | - | ||||||
Common
stock, $0.001 par value; 200,000 shares authorized; 128,918 and 106,336
shares issued and outstanding at June 30, 2010 and December 31, 2009,
respectively
|
129 | 106 | ||||||
Additional
paid-in capital
|
275,557 | 239,519 | ||||||
Accumulated
other comprehensive income/(loss)
|
(10 | ) | 2 | |||||
Accumulated
deficit
|
(240,883 | ) | (231,991 | ) | ||||
Total
stockholders’ equity
|
34,793 | 7,636 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 42,282 | $ | 13,443 |
See
accompanying notes to unaudited condensed financial statements.
3
GENVEC,
INC.
CONDENSED
STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
(Unaudited)
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenues
|
$ | 3,182 | $ | 3,781 | $ | 6,120 | $ | 7,576 | ||||||||
Operating
expenses:
|
||||||||||||||||
Research
and development
|
5,134 | 7,096 | 10,879 | 14,385 | ||||||||||||
General
and administrative
|
2,281 | 1,453 | 4,229 | 3,383 | ||||||||||||
Total
operating expenses
|
7,415 | 8,549 | 15,108 | 17,768 | ||||||||||||
Loss
from operations
|
(4,233 | ) | (4,768 | ) | (8,988 | ) | (10,192 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Interest
income
|
2 | 8 | 2 | 35 | ||||||||||||
Interest
(expense) income, net of change in fair value of warrants
|
38 | (52 | ) | 125 | (65 | ) | ||||||||||
Other
|
- | 3 | (31 | ) | (268 | ) | ||||||||||
Total
other income (expense), net
|
40 | (41 | ) | 96 | (298 | ) | ||||||||||
Net
loss
|
$ | (4,193 | ) | $ | (4,809 | ) | $ | (8,892 | ) | $ | (10,490 | ) | ||||
Net
loss per share - basic and diluted
|
$ | (0.03 | ) | $ | (0.05 | ) | $ | (0.07 | ) | $ | (0.12 | ) | ||||
Weighted
average shares outstanding - basic and diluted
|
128,911 | 92,053 | 124,327 | 90,356 |
See
accompanying notes to unaudited condensed financial statements.
4
STATEMENTS
OF COMPREHENSIVE LOSS
(in
thousands)
(Unaudited)
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
loss
|
$ | (4,193 | ) | $ | (4,809 | ) | $ | (8,892 | ) | $ | (10,490 | ) | ||||
Unrealized
holding (loss)/gain on securities available for sale
|
(17 | ) | 108 | (12 | ) | 165 | ||||||||||
Comprehensive
loss
|
$ | (4,210 | ) | $ | (4,701 | ) | $ | (8,904 | ) | $ | (10,325 | ) |
See
accompanying notes to unaudited condensed financial statements.
5
GENVEC,
INC.
CONDENSED
STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
(in
thousands)
(Unaudited)
Accumulated
|
||||||||||||||||||||||||
Additional
|
Other
|
|||||||||||||||||||||||
Common Stock
|
Paid-in
|
Comprehensive
|
Accumulated
|
|||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Income (Loss)
|
Deficit
|
Total
|
|||||||||||||||||||
Balance,
December 31, 2009
|
106,336 | $ | 106 | $ | 239,519 | $ | 2 | $ | (231,991 | ) | $ | 7,636 | ||||||||||||
Comprehensive
loss:
|
||||||||||||||||||||||||
Net
loss
|
- | - | - | - | (8,892 | ) | (8,892 | ) | ||||||||||||||||
Unrealized
change in investments, net
|
- | - | - | (12 | ) | - | (12 | ) | ||||||||||||||||
Total
comprehensive loss
|
(8,904 | ) | ||||||||||||||||||||||
Common
stock and warrants issued under shelf registration, net
|
22,417 | 22 | 34,952 | - | - | 34,974 | ||||||||||||||||||
Common
stock issued under stock benefit plans
|
165 | 1 | 117 | - | - | 118 | ||||||||||||||||||
Stock-based
compensation
|
- | - | 969 | - | - | 969 | ||||||||||||||||||
Balance,
June 30, 2010
|
128,918 | $ | 129 | $ | 275,557 | $ | (10 | ) | $ | (240,883 | ) | $ | 34,793 |
See
accompanying notes to unaudited condensed financial statements.
6
GENVEC,
INC.
CONDENSED
STATEMENTS OF CASH FLOWS
(in
thousands)
(Unaudited)
Six Months Ended
|
||||||||
June 30,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (8,892 | ) | $ | (10,490 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
121 | 510 | ||||||
Non-cash
adjustments for premiums/discounts on investments
|
- | 11 | ||||||
Non-cash
charges for stock-based compensation
|
969 | 849 | ||||||
Change
in fair value of warrant
|
(126 | ) | 35 | |||||
Change
in accounts receivable
|
(537 | ) | 1,050 | |||||
Change
in accounts payable and accrued expenses
|
(675 | ) | (1,442 | ) | ||||
Change
in unearned revenue
|
2,483 | (1,361 | ) | |||||
Change
in other assets and liabilities, net
|
(138 | ) | 798 | |||||
Net
cash used in operating activities
|
(6,795 | ) | (10,040 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchases
of property and equipment
|
(247 | ) | - | |||||
Purchases
of investment securities
|
- | (1,002 | ) | |||||
Proceeds
from sale and maturity of investment securities
|
- | 3,000 | ||||||
Net
cash (used in) provided by investing activities
|
(247 | ) | 1,998 | |||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from issuance of common stock and warrants, net of issuance
costs
|
35,092 | 5,577 | ||||||
Principal
payments of long-term debt and change in sinking fund
|
- | (420 | ) | |||||
Net
cash provided by financing activities
|
35,092 | 5,157 | ||||||
Increase
(decrease) in cash and cash equivalents
|
28,050 | (2,885 | ) | |||||
Beginning
balance of cash and cash equivalents
|
10,887 | 14,315 | ||||||
Ending
balance of cash and cash equivalents
|
$ | 38,937 | $ | 11,430 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Interest
paid
|
$ | - | $ | 32 |
See
accompanying notes to unaudited condensed financial statements.
7
GENVEC,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1)
|
General
|
Basis
of Presentation
The
condensed financial statements included herein have been prepared by GenVec,
Inc. (GenVec, we, our, or the Company) without audit pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and
regulations. We believe the disclosures are adequate to make the information
presented not misleading. The condensed financial statements included
herein should be read in conjunction with the financial statements and the notes
thereto included in our 2009 Annual Report on Form 10-K filed with the
SEC.
In June
2010, GenVec announced that the Company had retained Wells Fargo Securities, LLC
to conduct a comprehensive review of strategic alternatives aimed at enhancing
shareholder value. Strategic alternatives we may pursue could
include, but are not limited to, execution of our operating plan, sale of
assets, partnering or other collaboration agreements, or a merger, sale of the
Company or other strategic transaction. There can be no assurance that the
exploration of strategic alternatives will result in any agreements or
transactions, or that, if completed, any agreements or transactions will be
successful or on attractive terms. We do not intend to disclose developments
with respect to this process unless and until the evaluation of strategic
alternatives has been completed or the board of directors has approved a
specific transaction.
In the
opinion of management, the accompanying condensed, unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company as
of June 30, 2010 and December 31, 2009 and the results of its operations and
cash flows for the three-month and six-month periods ended June 30, 2010 and
June 30, 2009. The results of operations for any interim period are
not necessarily indicative of the results of operations for any other interim
period or for a full fiscal year.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the US, or GAAP, requires management to make judgments,
estimates, and assumptions that affect the amount reported in the Company’s
condensed financial statements and accompanying notes. Actual results could
differ materially from those estimates.
Revenue
Recognition
Revenue
is recognized when all four of the following criteria are met (1) a contract is
executed, (2) the contract price is fixed and determinable, (3) delivery of the
service or products have occurred, and (4) collectability of the contract
amounts is considered probable.
Our
collaborative research and development agreements can provide for upfront
license fees, research payments, and/or milestone payments. Upfront
nonrefundable fees associated with license and development agreements where we
have continuing involvement in the agreement are recorded as deferred revenue
and recognized over the estimated service period. If the estimated service
period is subsequently modified, the period over which the upfront fee is
recognized is modified accordingly on a prospective basis. Non-refundable
research and development fees for which no future performance obligations exist
are recognized when collection is assured.
Research
and development revenue from cost-reimbursement and cost-plus fixed fee
agreements is recognized as earned based on the performance requirements of the
contract. Revisions in revenues, cost, and billing factors (e.g. indirect rate
estimates) are accounted for in the period of change. Reimbursable costs under
such contracts are subject to audit and retroactive adjustment. Contract
revenues and accounts receivable reported in the financial statements are
recorded at the amount expected to be received. Contract revenues are adjusted
to actual upon final audit and retroactive adjustment. Estimated contractual
allowances are provided based on management’s evaluation of current contract
terms and past experience with disallowed costs and reimbursement levels.
Payments received in advance of work performed are recorded as deferred
revenue.
8
New
Accounting Pronouncements
In
October 2009, the Financial Accounting Standards Board (the FASB) issued
Accounting Standards Update (ASU) No. 2009-13, “Multiple-Deliverable Revenue
Arrangements”. ASU 2009-13 amends existing revenue recognition accounting
pronouncements that are currently within the scope of FASB ASC Topic 605. This
consensus provides accounting principles and application guidance on how the
arrangement should be separated, and the consideration allocated. This guidance
changes how to determine the fair value of undelivered products and services for
separate revenue recognition. Allocation of consideration is now based on
management’s estimate of the selling price for an undelivered item where there
is no other means to determine the fair value of that undelivered item. This new
approach is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, with
early application permitted. We are currently evaluating the impact, if any, on
our financial condition and results of operations.
In
January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and
Disclosures”. This ASU amends Topic 820 and related guidance within U.S. GAAP to
require disclosure of the transfers in and out of Levels 1 and 2 and a schedule
for Level 3 that separately identifies purchases, sales, issuances and
settlements and requires more detailed disclosures regarding valuation
techniques and inputs. The adoption of this standard did not have a material
impact on the presentation of our financial statements.
In March
2010, the Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act were signed into law. We are currently in the
process of determining the effects, if any, of these new laws on the
Company.
In April
2010, FASB issued ASU No. 2010-17, “Revenue Recognition—Milestone Method”, which provides guidance on
defining a milestone and determining when it may be appropriate to apply the
milestone method of revenue recognition for research or development
transactions. Research or development arrangements frequently include payment
provisions whereby a portion or all of the consideration is contingent upon
milestone events such as successful completion of phases in a study or achieving
a specific result from the research or development efforts. The amendments in
this ASU provide guidance on the criteria that should be met for determining
whether the milestone method of revenue recognition is appropriate. The ASU is
effective for fiscal years and interim periods within those years beginning on
or after June 15, 2010, with early adoption permitted. We are currently
evaluating the impact, if any on our financial condition and results of
operations.
In July
2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed
into law. This legislation includes an exemption for companies with less than
$75 million in market capitalization (non-accelerated filers) to Section 404(b)
of the Sarbanes-Oxley Act of 2002, which requires an external auditor’s report
on the effectiveness of a registrant’s internal control over financial
reporting. The SEC has not published a final rule on this new law. Under the
existing SEC rules a Company cannot exit accelerated filer status unless the
market value of voting and non-voting common equity held by non-affiliates of
the issuer falls below $50M as of the last business day of the company’s second
fiscal quarter. We are currently in the process of determining the effects, if
any, of this new law on the Company.
(2)
|
Fair
Value Measurements
|
We apply
the provisions of the FASB Accounting Standards Codification (ASC) Section 820
(formerly SFAS No. 157) “Fair Value Measurements and Disclosures” (ASC 820). ASC
820 establishes a three-level hierarchy for fair value measurements. The
hierarchy is based upon the transparency of inputs to the valuation of an asset
or liability as of the measurement date. The three levels of inputs used to
measure fair value are as follows:
·
|
Level
1 – Quoted prices in active markets for identical assets or
liabilities;
|
·
|
Level
2 – Observable inputs other than quoted prices included in Level 1, such
as quoted prices for similar assets and liabilities in active markets;
quoted prices for identical or similar assets and liabilities in markets
that are not active; or other inputs that are observable or can be
corroborated by observable market data;
and
|
9
·
|
Level
3 – Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities. This includes certain pricing models, discounted
cash flow methodologies, and similar techniques that use significant
unobservable inputs.
|
The
following table presents information about assets and liabilities recorded at
fair value on a recurring basis at June 30, 2010 on the Condensed Balance
Sheet:
Quoted Prices in
|
||||||||||||||||
Active Markets for
|
Significant
|
Significant
|
||||||||||||||
Total Carrying
|
Identical
|
Other Observable
|
Unobservable
|
|||||||||||||
Value on the
|
Assets/Liabilities
|
Inputs
|
Inputs
|
|||||||||||||
(In thousands)
|
Balance Sheet
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
Assets:
|
||||||||||||||||
Cash
& cash equivalents
|
$ | 38,937 | $ | 38,937 | $ | - | $ | - | ||||||||
Marketable
securities
|
62 | 62 | - | - | ||||||||||||
Total
assets at fair value
|
$ | 38,999 | $ | 38,999 | $ | - | $ | - | ||||||||
Liabilities:
|
||||||||||||||||
Warrant
liability
|
$ | 7 | $ | - | $ | 7 | $ | - | ||||||||
Total
liabilities at fair value
|
$ | 7 | $ | - | $ | 7 | $ | - |
The
following table presents information about assets and liabilities recorded at
fair value on a recurring basis at December 31, 2009 on the Condensed Balance
Sheet:
Quoted Prices in
|
||||||||||||||||
Active Markets for
|
Significant
|
Significant
|
||||||||||||||
Total Carrying
|
Identical
|
Other Observable
|
Unobservable
|
|||||||||||||
Value on the
|
Assets/Liabilities
|
Inputs
|
Inputs
|
|||||||||||||
(In thousands)
|
Balance Sheet
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
Assets:
|
||||||||||||||||
Cash
& cash equivalents
|
$ | 10,887 | $ | 10,887 | $ | - | $ | - | ||||||||
Marketable
securities
|
74 | 74 | - | - | ||||||||||||
Total
assets at fair value
|
$ | 10,961 | $ | 10,961 | $ | - | $ | - | ||||||||
Liabilities:
|
||||||||||||||||
Warrant
liability
|
$ | 133 | $ | - | $ | 133 | $ | - | ||||||||
Total
liabilities at fair value
|
$ | 133 | $ | - | $ | 133 | $ | - |
We
determine fair value for marketable securities with Level 1 inputs through
quoted market prices and have classified them as
available-for-sale. Our marketable securities consist of an equity
investment in a publically traded company.
10
The
warrant liability has been valued using the Black-Scholes pricing model, the
inputs of which are described more fully in Note 4 to the condensed financial
statements. The warrant liability, related to the Kingsbridge warrants, has been
classified within Level 2.
There
were no transfers of assets or liabilities between Level 1 and Level 2 during
the six months ended June 30, 2010.
All
unrealized holding gains or losses related to our investments in marketable
securities are reflected in accumulated other comprehensive income/loss in
stockholders’ equity. Included in accumulated other comprehensive income/(loss)
was a net unrealized loss of $12,000 for the six months ended June 30, 2010 and
a net unrealized gain $165,000 for the six months ended June 30,
2009.
(3)
|
Stock
Benefit Plans
|
Stock
Option Plans
At our
Annual Meeting in June 2002, our stockholders approved the 2002 Incentive Stock
Plan (2002 Plan) as the replacement for the 1993 Stock Incentive Plan (1993
Plan) and 2000 Director Plan (2000 Plan). Our stockholders have
subsequently approved amendments to the 2002 Plan to increase the number of
shares of common stock available to be issued under the 2002 Plan to 16,700,000,
which includes the amendment approved at the June 16, 2010 Annual Meeting to
increase the number of shares of common stock to be issued by 5,120,000. The
Compensation Committee administers options granted under all stock option plans,
approves the individuals to whom options were granted, and determines the number
of options and exercise price of each option. At June 30, 2010 there
are 6,984,910 shares available for future issuance under the 2002 Plan.
Outstanding options under the 2002 Plan at June 30, 2010 expire through
2020. Outstanding options under the 1993 Plan and 2000 Plan at June
30, 2010 expire through 2012 and 2011, respectively.
In August
2003, GenVec, Inc. and Diacrin Inc. consummated a business combination under
which we acquired Diacrin through an exchange of stock. Under the
terms of the agreement, we agreed to assume each option, vested or unvested,
granted by Diacrin pursuant to the Diacrin 1997 Stock Option Plan (1997
Plan). As of June 30, 2010, awards outstanding under the 1997 Plan
were 48,934 shares, which expire through 2012.
Stock-Based
Compensation Expense
We
measure the cost of all share-based payment awards made to our employees and
directors including awards of employee stock options, restricted stock units and
employee stock purchases based on the fair value method of measurement and
recognize compensation expense on a straight-line basis over the service period
of each award.
The
following table summarizes stock-based compensation expense related to employee
stock options for the three and six month periods ended June 30, 2010 and June
30, 2009, which was allocated as follows:
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(in thousands)
|
(in thousands)
|
|||||||||||||||
Research
and development
|
$ | 346 | $ | 308 | $ | 704 | $ | 627 | ||||||||
General
and administrative
|
134 | 114 | 265 | 222 | ||||||||||||
$ | 480 | $ | 422 | $ | 969 | $ | 849 |
11
The
weighted-average estimated fair value of employee stock options granted during
the six months ended June 30, 2010 and 2009 were $1.55 and $0.33,
respectively. The weighted-average estimated fair value of employee
stock options granted during the six months ended June 30, 2010 and 2009 was
calculated using the Black-Scholes model with the following weighted-average
assumptions:
For the Six
|
For the Six
|
|||||||
Months Ended
|
Months Ended
|
|||||||
June 30, 2010
|
June 30, 2009
|
|||||||
Risk-free
interest rate
|
2.43 | % | 1.66 | % | ||||
Expected
dividend yield
|
0.00 | % | 0.00 | % | ||||
Expected
volatility
|
90.08 | % | 94.59 | % | ||||
Expected
life (years)
|
5.85 | 5.87 |
The
volatility assumption for 2010 and 2009 is based on the weighted average
volatility for the most recent one-year period as well as the volatility over
the expected life of 5.85 years and 5.87 years, respectively.
The
risk-free interest rate assumption is based upon the five year U.S. Treasury
note at various rates as of the date of the grants ranging from 2.06% to 2.65%
for the six months ended June 30, 2010 and 1.61% to 2.69% for the six months
ended June 30, 2009.
The
dividend yield is based on the assumption that we do not expect to declare a
dividend over the life of the options.
The
expected life of employee stock options represents the weighted average
combining the actual life of options that have already been exercised or
cancelled with the expected life of all outstanding options. The
expected life of outstanding options is calculated assuming the options will be
exercised at the midpoint of the vesting date (four years) and the full
contractual term (ten years). Forfeitures are estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. Forfeitures are estimated based on our historical
forfeiture rates and standard probabilities of employee turnover based on the
demographics of current option holders. We do not record tax related
effects on stock-based compensation given our historical and anticipated
operating experience and offsetting changes in our valuation allowance which
fully reserves against potential deferred tax assets.
12
Stock
Options
The
following table summarizes the stock option activity for the six months ended
June 30, 2010:
Weighted
|
Weighted
|
|||||||||||||||
average
|
average
|
Aggregate
|
||||||||||||||
Number
|
exercise
|
contractual
|
intrinsic
|
|||||||||||||
(in thousands, except exercise price and contractual term data)
|
of shares
|
price
|
life (years)
|
value
|
||||||||||||
Stock
options outstanding, December 31, 2009
|
7,854 | $ | 1.72 | |||||||||||||
Granted
|
2,002 | 2.09 | ||||||||||||||
Exercised
|
(98 | ) | 0.78 | |||||||||||||
Forfeited
|
(450 | ) | 1.46 | |||||||||||||
Expired
|
(184 | ) | 2.37 | |||||||||||||
Stock
options outstanding at June 30, 2010
|
9,124 | $ | 1.81 | 6.87 | $ | 85 | ||||||||||
Vested
or expected to vest at June 30, 2010
|
7,748 | $ | 1.86 | 6.52 | $ | 71 | ||||||||||
Exercisable
at June 30, 2010
|
5,328 | $ | 2.01 | 5.46 | $ | 30 |
Unrecognized
stock-based compensation related to stock options was approximately $3.3 million
as of June 30, 2010. This amount is expected to be expensed over a weighted
average period of 2.8 years. We realized $77,000 in proceeds from
options exercised during the six months ended June 30, 2010 and no proceeds
during the six months ended June 30, 2009.
13
The
following table summarizes information about our stock options outstanding at
June 30, 2010:
Outstanding
|
Exercisable
|
||||||||||||||||||||
Weighted
|
|||||||||||||||||||||
average
|
Weighted
|
Weighted
|
|||||||||||||||||||
remaining
|
average
|
average
|
|||||||||||||||||||
Range of exercise
|
Number
|
contractual
|
exercise
|
Number
|
exercise
|
||||||||||||||||
prices
|
of shares
|
life (in years)
|
price
|
of shares
|
price
|
||||||||||||||||
(number of shares in thousands)
|
|||||||||||||||||||||
$0.00
- $1.00
|
2,030 | 8.42 | $ | 0.46 | 725 | $ | 0.48 | ||||||||||||||
$1.01
- $3.00
|
6,142 | 6.96 | 1.98 | 3,673 | 1.90 | ||||||||||||||||
$3.01
- $4.00
|
724 | 3.04 | 3.23 | 717 | 3.23 | ||||||||||||||||
$4.01
- $5.00
|
172 | 3.13 | 4.28 | 157 | 4.29 | ||||||||||||||||
$5.01
- $10.00
|
56 | 0.67 | 6.37 | 56 | 6.37 | ||||||||||||||||
9,124 | 6.87 | $ | 1.81 | 5,328 | $ | 2.01 |
In
October 2009, the Company issued 500,000 restricted shares of common stock under
the 2002 Plan. The following table summarizes the status of the
Company’s unvested restricted stock as of June 30, 2010:
Weighted
|
||||||||||||
Average
|
Aggregate
|
|||||||||||
Number
|
Grant Date
|
Intrinsic
|
||||||||||
(in thousands, except per share data)
|
of Units
|
Fair Value
|
Value
|
|||||||||
Non-vested
RSU's at December 31, 2009
|
500 | $ | 0.79 | |||||||||
Granted
|
- | - | ||||||||||
Exercised
|
- | - | ||||||||||
Cancelled
|
(50 | ) | 0.79 | |||||||||
Non-vested
restricted stock units at June 30, 2010
|
450 | $ | 0.79 | $ | 357 | |||||||
Expected
to vest at June 30, 2010
|
321 | $ | 0.79 | $ | 254 |
Restricted
stock units granted are scheduled to vest 50 percent two years after the date of
grant and 50 percent three years after the date of grant. The cost of
the grant is charged to operations over the vesting period. At June
30, 2010, the weighted average remaining term of non-vested restricted stock was
2.3 years.
Forfeitures
are estimated based on our historical forfeiture rates and standard
probabilities of employee turnover based on the demographics of current
restricted stockholders.
Unrecognized
stock-based compensation related to restricted stock units was approximately
$0.2 million as of June 30, 2010. This amount is expected to be expensed over a
weighted average period of 2.3 years.
14
Employee
Stock Purchase Plan
In
December 2000, we adopted the 2000 Employee Stock Purchase Plan (Purchase
Plan). Under the Purchase Plan, employees may purchase our common
stock through payroll deductions at a purchase price equal to 85 percent of the
fair market value of our common stock on either the first business day or last
business day of the applicable six month offering period, whichever is
lower. Substantially all employees are eligible to
participate. Participants may purchase common stock through payroll
deductions of up to 15 percent of the participant’s compensation. As
of June 30, 2010, there were 1,515,594 shares available for issuance under the
Purchase Plan. In July 2010, subsequent to the offering period ended
June 30, 2010; we issued 84,642 shares of common stock pursuant to the Purchase
Plan for net proceeds of approximately $33,000. The maximum number of
shares a participant may purchase during a six-month offering period is 6,250
shares. The Purchase Plan will terminate on October 18, 2010.
(4)
|
Committed
Equity Financing Facility
(CEFF)
|
On March
15, 2006, we entered into a Committed Equity Financing Facility (CEFF) with
Kingsbridge Capital Ltd. (Kingsbridge), under which Kingsbridge committed to
purchase up to $30.0 million of our common stock within a 3-year period, subject
to certain conditions and limitations. The CEFF expired on March 15,
2009. Due to the pricing formula under the CEFF the actual amount of
financing available to us under the CEFF was substantially less than the
committed amount. Net proceeds from the sale of common stock under
the CEFF were used to help defray costs associated with expanded clinical
testing of TNFerade™ in locally advanced pancreatic cancer and/or other
indications and used for general corporate purposes. As part of the arrangement,
we issued a warrant to Kingsbridge to purchase 520,000 shares of our common
stock at an exercise price equal to $2.67 per share. The warrant became
exercisable on September 15, 2006 and will remain exercisable until September
15, 2011. We classified the warrant as a current liability, which is
recorded at its fair value of $7,000 as of June 30, 2010 as determined under a
Black-Scholes pricing model. Changes in fair value are recorded
against operations in the reporting period in which they occur; increases and
decreases in fair value are recorded to interest expense.
Prior to
the expiration of the CEFF, we had sold 3,284,830 shares of common stock to
Kingsbridge in the aggregate for gross proceeds of $6.5
million. Kingsbridge holds no shares of common stock purchased
pursuant to the CEFF; therefore all shares sold are recorded in permanent
equity. When the CEFF expired we expensed the remaining $273,000 of
deferred financing charges associated wit the CEFF.
(5)
|
Net
Loss per Share
|
We
calculate net loss per share in accordance with ASC 260 (formerly SFAS No. 128)
“Earnings per Share.” Basic earnings per share is computed based upon
the net loss available to common stock stockholders divided by the weighted
average number of common stock shares outstanding during the period. The
dilutive effect of common stock equivalents is included in the calculation of
diluted earnings per share only when the effect of the inclusion would be
dilutive. For the six months ended June 30, 2010 and 2009 approximately 5.3
million and 4.4 million common stock equivalent shares associated with our stock
option plans and unvested restricted shares and approximately 14.0 million and
12.4 million common stock equivalent shares associated with our warrants,
respectively, were excluded from the denominator in the diluted loss per share
calculation as their inclusion would have been antidilutive.
(6)
|
Stockholders’
Equity
|
On
February 1, 2010, pursuant to the 2007 shelf registration statement, we
completed a registered direct offering to various investors of 14,000,000 shares
of common stock and warrants to purchase 4,200,000 shares of common
stock. The shares of common stock and warrants were offered in units
consisting of one share of common stock and 0.3 warrants to purchase one share
of common stock at a per unit price of $2.00. The warrants, which
have a term of five years and an exercise price of $2.75 per share, have been
valued using the Black-Scholes pricing model as of the closing date and have
been accounted for in permanent equity. The estimated fair market value of the
warrants at the date of issuance was $5.0 million. Proceeds of this
offering, net of offering costs, totaled $26.2 million.
During
the six months ended June 30, 2010, 6,547,820 warrants to purchase shares of
common stock were exercised for gross proceeds of $5.6 million. The table
below sets forth the outstanding warrants as of June 30, 2010:
15
Offering Date
|
Outstanding Warrants
|
Exercise Price
|
Expiration Date
|
Status
|
|||||||
March
2006
|
520,000 | $ | 2.670 |
9/15/2011
|
Exercisable
|
||||||
June
2008
|
2,203,833 | $ | 2.016 |
6/11/2013
|
Exercisable
|
||||||
May
2009
|
7,115,385 | $ | 0.858 |
5/29/2014
|
Exercisable
|
||||||
February
2010
|
4,200,000 | $ | 2.750 |
2/1/2015
|
Exercisable
|
||||||
14,039,218 |
On
February 11, 2010, we filed with the Securities and Exchange Commission a $150.0
million shelf registration statement on Form S-3 that allows us to issue any
combination of common stock, preferred stock, or warrants to purchase common
stock or preferred stock. This shelf registration was declared
effective on May 20, 2010.
(7)
|
Collaborative
Agreement
|
In
January 2010, we signed a research collaboration and license agreement (the
Agreement) with Novartis Institutes for Biomedical Research Inc. (Novartis) to
discover and develop novel treatments for hearing loss and balance disorders.
Under terms of the Agreement, we licensed the world-wide rights to our
preclinical hearing loss and balance disorders program to Novartis. We received
a $5 million non-refundable upfront license fee and Novartis purchased $2.0
million of our common stock. The common stock was recorded at fair value of $3.3
million on the date of issuance. The upfront non-refundable fee will
be recognized ratably over the term of the two year research and collaboration
term of the Agreement. Revenue to be recognized from the
non-refundable upfront license fee will be $3.7 million by the end of the
Agreement due to the pricing agreement associated with the sale of our common
stock. In addition, we will receive funding from Novartis for a
research program focused on developing additional adenovectors for hearing loss.
If certain clinical, regulatory, and sales milestones are met, we are eligible
to receive up to an additional $206.6 million in milestone payments in addition
to royalties on future sales, if any. During the three and six
month periods ended June 30, 2010 we recognized $466,000 and $854,000,
respectively, of the upfront payment and $373,000 and $588,000,
respectively, for research performed under this Agreement.
(8)
|
Subsequent
Events
|
In August
2010, we entered into a new agreement for the supply of services relating to
development materials with Novartis Pharma AG, related to the companies’
collaboration in hearing loss and balance disorders. Under this new agreement,
GenVec could receive approximately $13 million over four years to
manufacture clinical trial material for up to two lead
candidates.
16
GENVEC,
INC.
FORM
10-Q
FORWARD-LOOKING
STATEMENTS
This
report includes forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended.
Forward-looking
statements also may be included in other statements that we make. All statements
that are not descriptions of historical facts are forward-looking statements and
are based on management’s estimates, assumptions, and projections that are
subject to risks and uncertainties. These statements can generally be identified
by the use of forward-looking words like “believe,” “expect,” “intend,” “may,”
“will,” “should,” “anticipate,” “estimate,” or similar
terminology.
Although
we believe that the expectations reflected in our forward-looking statements are
reasonable as of the date we make them, actual results could differ materially
from those currently anticipated due to a number of factors, including risks
relating to:
•
|
our
financial condition and the sufficiency of our existing cash, cash
equivalents, marketable securities, and cash generated from
operations;
|
•
|
our
access to additional cash and working capital and our ability to raise
capital to fund clinical programs and future operations, including through
sales of common or preferred stock , the issuance of debt, or through
strategic alternatives;
|
•
|
our
product candidates being in the early stages of
development;
|
•
|
uncertainties
with, and unexpected results and related analyses relating to, clinical
trials of our product candidates (including the length of time required to
enroll suitable patient subjects and our ability to secure clinical trial
sites);
|
•
|
the
timing, amount, and availability of revenues from our government-funded
vaccine programs;
|
•
|
the
timing and content of future FDA regulatory actions related to us, our
product candidates, or our
collaborators;
|
•
|
our
ability to find collaborators or commercialize our product candidates;
and
|
•
|
the
scope and validity of patent protection for our product candidates and our
ability to commercialize products without infringing the patent rights of
others.
|
Further
information on the factors and risks that could affect our business, financial
condition, and results of operations is set forth under Item 1A of Part II in
this Quarterly Report on Form 10-Q, in Item 1A in our Annual Report on Form 10-K
for the year ended December 31, 2009, and Item 1A of Part II of our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2010, and is contained in
our other filings with the SEC. The filings are available on our website at
www.genvec.com or at the SEC’s website, www.sec.gov.
These
forward-looking statements speak only as of the date of this Quarterly Report on
Form 10-Q, and we assume no duty to update our forward-looking
statements.
17
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
STRATEGIC
AND CLINICAL OVERVIEW
GenVec,
Inc. (GenVec, we, our, or the Company) is a clinical stage biopharmaceutical
company developing novel, gene-based therapeutic drugs and vaccines. We have
used our proprietary drug discovery and development technologies to create a
portfolio of product programs that address the prevention and treatment of a
number of major diseases and in partnership with our collaborators, we have
development programs utilizing our proprietary technology.
For
therapeutic applications, our core technology has the important advantage of
localizing protein delivery in the body. This is accomplished by using our
adenovector platform to locally deliver genes to cells, which then direct
production of the desired protein. We believe that localized production of
proteins can enable the proteins to produce a potential benefit while minimizing
the overall toxicity that can occur when proteins are introduced directly into
the body by systemic administration. We believe that this approach
allows us to take advantage of the established biology of known, important
proteins.
For
vaccines, the goal is to induce a broad immune response against a target protein
or antigen. This is accomplished by using the adenovector to deliver a gene that
causes production of an antigen, which then stimulates the desired immune
reaction by the body.
We are
developing applications of our technology for hearing and balance
disorders. In January 2010, we entered into a research collaboration
and license agreement with Novartis Institutes for BioMedical Research, Inc.
(Novartis), which focuses on the discovery and development of novel treatments
for hearing loss and balance disorders. Preclinical research in
hearing loss and balance disorders suggests delivery of the atonal gene using
GenVec’s adenovector technology may have the potential to restore hearing and
balance function. There are currently no effective treatments available for
patients who have lost all balance function, and hearing loss remains a major
unmet medical problem.
On August 4, 2010, we entered into an Agreement
for the Supply of Services Relating to Development Materials (the Clinical
Supply Agreement) with Novartis Pharma AG (Novartis Pharma). Pursuant to the
terms of the Clinical Supply Agreement, and in support of our obligations under
the Agreement, we will provide certain services relating to development
materials to Novartis Pharma in connection with our previously announced
collaboration in hearing loss and balance disorders. Under the Clinical Supply
Agreement, we could receive approximately $13 million over four years to
manufacture clinical trial material for up to two lead candidates.
The Clinical Supply Agreement
may be terminated by either party in the event of an unremedied material breach
after providing the notice required under the Clinical Supply Agreement.
Novartis Pharma may terminate the Clinical Supply Agreement immediately in the
event that we are in material breach of our obligations under the Agreement.
We are
evaluating our TNFeradeä biologic (TNFerade) for
use in the treatment of cancer. Using our core adenovector technology, TNFerade
stimulates the production of tumor necrosis factor alpha (TNFα), a known
anti-tumor protein in cells of the tumor. In March 2010, GenVec discontinued a
Phase 3 pivotal trial for first-line treatment of inoperable, locally advanced
pancreatic cancer (known as PACT) based on results of an interim analysis. The
interim data strongly suggested that the trial would not achieve the statistical
significance required to form the basis for approval of a biological license
application in the population chosen for study, thereby warranting discontinuing
the trial. We believe that identifying an appropriate partner for TNFerade
represents the best path forward in the development of the product.
TNFerade
is also being evaluated for possible use in the treatment of other types of
cancer. Clinical trials have been conducted and encouraging results have
previously been reported in studies for esophageal cancer, head and neck cancer,
rectal cancer, and soft tissue sarcomas. We expect a Phase 1 clinical trial in
prostate cancer to be initiated at the University of Chicago in
2010.
In
partnership with our collaborators, we also have multiple vaccines in
development. All of these programs are funded by third-parties and utilize our
core adenovector technology. One vaccine candidate targets the prevention of a
major animal health problem, foot-and-mouth disease (FMD). Development efforts
for this program are supported by the U.S. Department of Homeland Security (DHS)
and in collaboration with the U.S. Department of Agriculture. We anticipate a
conditional license application for a FMD vaccine will be filed in 2011. In
addition, we have a collaboration with the National Institute of Allergy and
Infectious Diseases (NIAID) of the National Institutes of Health (NIH) to
develop a human immunodeficiency virus (HIV) vaccine and an influenza virus
vaccine. We also have a program with the U.S. Naval Medical Research Center and
the PATH Malaria Vaccine Initiative to develop vaccines for malaria. GenVec also
has grant-supported preclinical programs to develop vaccine candidates for the
prevention of respiratory syncytial virus (RSV) and herpes simplex virus type 2
(HSV-2).
18
In June
2010, GenVec announced that the Company had retained Wells Fargo Securities, LLC
to conduct a comprehensive review of strategic alternatives aimed at enhancing
shareholder value. Strategic alternatives we may pursue could
include, but are not limited to, execution of our operating plan, sale of
assets, partnering or other collaboration agreements, or a merger, sale of the
Company or other strategic transaction. There can be no assurance that the
exploration of strategic alternatives will result in any agreements or
transactions, or that, if completed, any agreements or transactions will be
successful or on attractive terms. We do not intend to disclose developments
with respect to this process unless and until the evaluation of strategic
alternatives has been completed or the board of directors has approved a
specific transaction.
An
element of our current business strategy is to pursue, as resources permit, the
research and development of a range of product candidates for a variety of
indications. This is intended to allow us to diversify the risks
associated with our research and development expenditures. To the
extent we are unable to maintain a broad range of product candidates, our
dependence on the success of one or a few product candidates would
increase.
Furthermore,
our current business strategy includes the option of entering into collaborative
arrangements with third parties to complete the development and
commercialization of our product candidates. In the event that third parties
take over the clinical trial process for one or more of our product candidates,
the estimated completion date would largely be under the control of that third
party rather than us. We cannot forecast with any degree of certainty which
proprietary products or indications, if any, will be subject to future
collaborative arrangements, in whole or in part, and how such arrangements would
affect our development plan or capital requirements. Our programs may also
benefit from subsidies, grants, or government or agency-sponsored studies that
could reduce our development costs.
As a
result of the uncertainties discussed above, among others, we are unable to
estimate the duration and completion costs of our research and development
projects or when, if ever, and to what extent we will receive cash inflows from
the commercialization and sale of a product. Our inability to complete our
research and development projects in a timely manner or our failure to enter
into collaborative agreements when appropriate could significantly increase our
capital requirements and could adversely impact our liquidity. These
uncertainties could force us to seek additional, external sources of financing
from time to time in order to continue with our business strategy. Our inability
to raise additional capital, or to do so on terms reasonably acceptable to us,
would jeopardize the future success of our business.
While our
estimated future capital requirements are uncertain and will depend on, and
could increase or decrease as a result of, many factors, including the extent to
which we choose to advance our research, development and clinical or are in a
position to pursue manufacturing, and commercialization activities, it is clear
we will need significant additional capital to develop our product candidates
through clinical development, manufacturing, and
commercialization. We do not know whether we will be able to access
additional capital when needed or on terms favorable to us or our
stockholders.
As a
clinical stage biopharmaceutical company, our business and our ability to
execute our strategy to achieve our corporate goals are subject to numerous
risks and uncertainties. Material risks and uncertainties relating to our
business and our industry are described in Item 1A of Part II of this Quarterly
Report on Form 10-Q, in Item 1A of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2009. in Item 1A of Part II of our Quarterly Report
on Form 10-Q for the quarter ended March 31, 2010, and in our other filings with
the SEC. The description of our business in this Form 10-Q should be
read in conjunction with the information described in Item 1A of the
10-K.
FINANCIAL
OVERVIEW FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
Results
of Operations
GenVec’s
net loss was $4.2 million (or $0.03 per share) on revenues of $3.2 million for
the three months ended June 30, 2010. This compares to a net loss of
$4.8 million (or $0.05 per share) on revenues of $3.8 million in the same period
in the prior year. GenVec’s net loss was $8.9 million (or $0.07 per share) on
revenues of $6.1 million for the six months ended June 30, 2010. This
compares to a net loss of $10.5 million (or $0.12 per share) on revenues of $7.6
million for the six months ended June 30, 2009. Included in our net loss for the
first six months of 2010 was stock-based compensation expense of $969,000 as
compared to $849,000 million for the same period in the prior year. GenVec ended
the second quarter of 2010 with $39.0 million in cash, cash equivalents, and
short-term investments.
19
Revenue
Revenues
for the three-month and six-month periods ended June 30, 2010 were $3.2 million
and $6.1 million, respectively, which represent decreases of 16 percent and 19
percent, respectively as compared to $3.8 million and $7.6 million in the
comparable prior year periods.
Revenues
for the three and six month periods ended June 30, 2010 were primarily derived
from the Company’s funded research and development programs with the Department
of Homeland Security (DHS), the National Institute of Allergy and Infectious
Diseases (NIAID), and the National Institutes of Health (NIH), all of which use
GenVec’s proprietary adenovector technology for the development of either
vaccine candidates against foot-and-mouth disease for livestock or vaccines
against malaria, HIV, RSV, and HSV-2. Revenue has also been derived from the
collaboration we entered with Novartis Institutes for Biomedical Research Inc.
(Novartis) to discover and develop novel treatments for hearing loss and balance
disorders.
In
January 2010, we signed a research collaboration and license agreement (the
Agreement) with Novartis to discover and develop novel treatments for hearing
loss and balance disorders. Under terms of the Agreement, we licensed the
world-wide rights to our preclinical hearing loss and balance disorders program
to Novartis. We received a $5 million non-refundable upfront license fee and
Novartis purchased $2.0 million of our common stock. The common stock was valued
at fair value on the date of issuance. The upfront non-refundable fee will be
recognized ratably over the term of the two year Agreement. Revenue to be
recognized from the non-refundable upfront license fee will be $3.7 million by
the end of the Agreement due to the pricing agreement associated with the sale
of our common stock. During the three and six month periods ended June 30, 2010
we recognized $466,000 and $854,000, respectively of the upfront payment. In
addition, we will receive funding from Novartis for a research program focused
on developing additional adenovectors for hearing loss. If certain clinical,
regulatory, and sales milestones are met, we are eligible to receive up to an
additional $206.6 million in milestone payments in addition to royalties on
future sales, if any. During the three and six month periods ended June 30,
2010, we recognized $373,000 and $588,000 respectively for research performed
under the Agreement.
In August 2010, we entered into a
new agreement for the supply of services relating to development materials with
Novartis Pharma, related to the companies’ collaboration in hearing loss and
balance disorders. Under this new agreement, GenVec could
receive approximately $13 million over four years to manufacture clinical
trial material for up to two lead candidates.
In
February 2010, we signed a new contract with the DHS to continue the development
of adenovector-based vaccines against FMD. Under this new agreement, GenVec will
receive $3.8 million in program funding the first year and an additional $0.7
million if DHS exercises its renewal option under the contract. Under this
contract, we will use our adenovector technology to develop additional
FMD-serotype candidate vaccines and also explore methods to increase the potency
and simplify the production process of adenovector-based FMD vaccines. In June
2010 the DHS exercised the 2011 funding under this agreement for $0.7 million.
There was $35,000 of revenue recognized under this contract during the three
month and six month periods ended June 30, 2010.
In June
2010, we signed a new contract with SAIC to continue the development of a
universal influenza vaccine. Under this new contract, GenVec will receive
$634,000 in program funding. There were no revenues recognized under this
contract during the three and six month periods ending June 30,
2010.
20
Revenues
recognized under our various funded research projects for the three and six
month periods ended June 30, 2010 and 2009 are as follows:
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
Program
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
FMD
|
$ | 444 | $ | 1,372 | $ | 1,064 | $ | 3,223 | ||||||||
Hearing
loss and balance disorders
|
839 | 40 | 1,453 | 112 | ||||||||||||
HIV
|
1,147 | 1,839 | 2,485 | 3,341 | ||||||||||||
Malaria
|
151 | 208 | 335 | 209 | ||||||||||||
Other
|
601 | 322 | 783 | 691 | ||||||||||||
Total
|
$ | 3,182 | $ | 3,781 | $ | 6,120 | $ | 7,576 |
The
decrease for the three and six month periods ended June 30, 2010 is primarily
due to decreased revenue associated with our agreement with the DHS for the FMD
program of $928,000 and $2.2 million, respectively. The lower revenue
under the DHS agreement is a result of the decreased work scope and effort in
2010 as compared to the 2009 periods. Revenue associated with our HIV
program also decreased $692,000 and $856,000, respectively as compared to the
prior year periods. The lower revenue under the HIV agreements is a
result of decreased work scope and effort as compared to the 2009
periods. The decreased revenue associated with our FMD and HIV
programs have been partially offset by increased revenue of $799,000 and $1.3
million, respectively due mainly to our hearing loss and balance disorder
program with Novartis that began in January 2010.
Expenses
Operating
expenses were $7.4 million and $15.1 million for the three-month and six-month
periods ended June 30, 2010, which represent decreases of 13 percent and 15
percent as compared to $8.5 million and $17.8 million in the comparable prior
year periods.
Research
and development expenses for the three-month and six-month periods ended June
30, 2010 decreased 28 percent and 24 percent to $5.1 million and $10.9 million,
respectively, as compared to $7.1 million and $14.4 million for the comparable
prior year periods. The decrease is primarily due to lower manufacturing and to
lesser outside clinical costs related to our TNFerade
program. Manufacturing costs decreased significantly due to $1.5 million
and $2.8 million, respectively of expense associated with the Cobra
Biomanufacturing Plc (Cobra) agreement that was recognized in the three and six
month periods ended June 30, 2009 as there were no corresponding costs in the
comparable periods in 2010. These decreases are partially offset by increased
material costs in both periods and personnel costs in the three month period
ended June 30, 2010 as compared to the comparable period in 2009. Included in
the personnel costs are $0 and $193,000 in severance costs for the three and six
month periods ended June, 2009 as a result of our reduction in force in January
2009. There were $5,000 in severance costs in the comparable periods
in 2010. Additionally, stock-based compensation expense allocated to research
and development increased $38,000 and $77,000 as compared to the comparable
prior year periods.
General
and administrative expense for the three-month and six-month periods ended June
30, 2010 increased 56 percent and 25 percent to $2.3 million and $4.3 million as
compared to $1.5 million and $3.4 million for the comparable prior year
periods. During the three and six month periods ended June 30, 2010
we experienced lower depreciation, offset by higher professional and facility
costs. Stock-based compensation expense allocated to general and
administrative expenses, which is included in the personnel costs, increased
$20,000 and $43,000, respectively for the three and six month periods ended June
30, 2010 as compared to the same periods in 2009. Included in the personnel
costs for the three and six month periods ended June 30, 2009 is $0 and $76,000
in severance costs as a result of our reduction in force in January
2009. There were no severance costs incurred in the comparable
periods in 2010.
21
Other
Income (Expense)
Total
other income increased by $81,000 and $394,000, respectively for the three and
six month periods ended June 30, 2010 as compared to the prior year
periods. Total other income is composed of interest income,
interest expense, net of the change in fair value of the Kingsbridge warrants,
and other income.
Interest
income for the three and six month periods ended June 30, 2010 was $2,000 for
both periods compared to $8,000 and $35,000, respectively, in the comparable
prior year periods. The decrease in interest income was due mainly to lower
yields earned in 2010.
Interest
expense, net of the change in the fair market value of the Kingsbridge warrants,
for the three and six month periods ended June 30, 2010 was a net interest
income of $38,000 and $125,000 compared to net interest expense of $52,000 and
$65,000 in the comparable prior year periods. The decrease in
interest expense was primarily due to a decrease in the fair value of the
Kingsbridge warrants of $78,000 and $161,000, respectively, as compared to the
change in value in the corresponding periods in the prior
year. Additionally, in the three and six month periods ended June 30,
2010, interest expense associated with our debt obligations decreased due to the
declining balances of these obligations as compared to the corresponding periods
in the prior years.
Other
income (expense) for the three and six month periods ended June 30, 2010 was a
net expense for the periods of $0 and $31,000, respectively as compared to net
income of $3,000 and expense of $268,000, respectively in the comparable prior
year periods. The decrease resulted primarily from expensing the
remaining $273,000 of deferred financing charges associated with our Committed
Equity Financing Facility (CEFF) with Kingsbridge Capital Ltd. (Kingsbridge)
when the agreement expired on March 15, 2009. This decrease is
partially offset by an increase in miscellaneous discounts and interest payments
received from the government associated with late payments during the period as
compared to the prior year periods.
Liquidity
and Capital Resources
We have
experienced significant losses since our inception. As of June 30, 2010 we have
an accumulated deficit of $240.9 million. The process of developing and
commercializing our product candidates requires significant research and
development work and clinical trial work, as well as significant manufacturing
and process development efforts. These activities, together with our general and
administrative expenses, are expected to continue to result in significant
operating losses for the foreseeable future.
As of
June 30, 2010, cash, cash equivalents, and short-term investments totaled
$39.0 million as compared to $11.0 million at December 31, 2009.
For the
six months ended June 30, 2010, we used $6.8 million of cash for operating
activities. This consisted of a net loss for the period of $8.9 million, which
included approximately $121,000 of non-cash depreciation and amortization and
$969,000 of non-cash stock option expense. In addition, cash was used
for the payment of accrued compensation and other obligations of $675,000 and
increased accounts receivable balances of $537,000 due to the timing of
collections, offset by a net increase in unearned revenue, due mainly to the
Novartis agreement, of $2.5 million. Net cash was used primarily for
the advancement and subsequent wind down of our TNFerade pancreatic clinical
trial, and to a lesser extent general and administrative
activities.
Net cash
used in investing activities during the six months ended June 30, 2010 was
$247,000. The cash used during the period was for the purchase of laboratory
equipment.
Net cash
provided by financing activities during the six months ended June 30, 2010 was
$35.1 million, which included $26.2 million from the issuance of common stock
and warrants associated with our February 2010 equity financing, $3.3 million
from our sale of common stock under our collaboration agreement with Novartis,
$5.6 million from the exercise of previously issued warrants, $77,000 from the
issuance of common stock related to the exercise of employee stock options and
$40,000 of cash provided from the issuance of common stock under our Employee
Stock Purchase Plan.
22
On
February 11, 2010, we filed with the Securities and Exchange Commission a $150
million shelf registration statement on Form S-3, which we later amended on May
13, 2010 (the 2010 shelf registration statement). The 2010 shelf
registration statement was declared effective May 20, 2010 and allows us to
issue any combination of common stock, preferred stock, or warrants to purchase
common stock or preferred stock.
On June
11, 2008, pursuant to a shelf registration statement on Form S-3 filed on
February 1, 2007 that expired on February 12, 2007 (the 2007 shelf registration
statement), we completed a registered direct offering to various investors of
11,258,279 shares of common stock and warrants to purchase 2,251,653 shares of
common stock. Proceeds of this offering, net of offering costs,
totaled $15.7 million. During the three months ended March 31, 2010,
individual investors exercised a portion of these warrants and purchased 47,820
shares of common stock for gross proceeds to the Company of
$96,000. The shares of common stock issuable upon exercise of
the warrants have been registered on the 2010 shelf registration
statement. There were no warrants exercised during the three months
ended June 30, 2010.
On May
29, 2009, pursuant to the 2007 shelf registration statement, we completed a
registered direct offering to an institutional investor for the sale of
9,615,385 shares of common stock and warrants to purchase 9,615,385 shares of
common stock. Proceeds of this offering, net of offering costs,
totaled $5.5 million. During the three months ended March 31,
2010, the institutional investor exercised a portion of these warrants and
purchased 2,500,000 shares of common stock for gross proceeds to the Company of
$2.1 million. The shares of common stock issuable upon exercise of
the warrants have been registered on the 2010 shelf registration
statement. There were no warrants exercised during the three months
ended June 30, 2010.
On August
31, 2009, pursuant to the 2007 shelf registration statement, we completed a
registered direct offering to an institutional investor of 8,000,000 shares of
common stock and warrants to purchase 4,000,000 shares of common
stock. Proceeds of this offering, net of offering costs, totaled $5.5
million. During the three months ended March 31, 2010, the institutional
investor exercised all of these warrants for gross proceeds to the Company of
$3.3 million. There were no warrants exercised during the three
months ended June 30, 2010. The shares of common stock issuable upon
exercise of the warrants have been registered on the 2010 shelf registration
statement.
On
January 13, 2010 we entered into a research collaboration and license agreement
with Novartis to discover and develop novel treatments for hearing loss and
balance disorders. Under the terms of the Agreement, we licensed the
world-wide rights to our preclinical hearing loss and balance disorders program
to Novartis. Concurrent with entry into the agreement with Novartis,
we sold 1,869,158 shares of our common stock to Novartis Pharma AG in a private
placement for $1.07 per share of common stock, which represents an aggregate
purchase price of approximately $2.0 million and was calculated based on the
average of the closing price for the common stock on the NASDAQ Global Market
for the 30 consecutive trading days ending on the fifth trading day prior to the
sale of the shares. The purchase of the shares of common stock by
Novartis Pharma AG was undertaken in partial consideration for the rights
granted under the research collaboration and license agreement. Due to the
pricing formula used in the sale of the common stock, a discount of
approximately $1.3 million has been recorded against the upfront license payment
and the value of stock associated with this sale is recorded in equity at $3.3
million.
On
February 1, 2010, pursuant to the 2007 shelf registration statement, we
completed a registered direct offering to various investors of 14,000,000 shares
of common stock and warrants to purchase 4,200,000 shares of common
stock. The shares of common stock and warrants were offered in units
consisting of one share of common stock and 0.3 warrants to purchase one share
of common stock at a per unit price of $2.00. The warrants, which
have a term of five years and an exercise price of $2.75 per share, have been
valued using the Black-Scholes pricing model as of the closing date and have
been accounted for in permanent equity. The estimated fair market value of the
warrants at the date of issuance was $5.0 million. Proceeds of this
offering, net of offering costs, totaled $26.2 million. The
shares of common stock issuable upon exercise of the warrants have been
registered on the 2010 shelf registration statement. There were no
warrants exercised during the six months ended June 30, 2010.
Our
estimated future capital requirements are uncertain and could change materially
as a result of many factors, including the progress of our research,
development, clinical, manufacturing, and commercialization
activities.
We
currently estimate we will use approximately $10.0 to $12.0 million of cash in
the 12 months ending June 30, 2011. Our estimated cash to be used
includes approximately $0.9 million in contractual obligations and $0.2 million
for capital expenditures. Based on this estimate we have sufficient
resources to fund our operations for at least 36 months.
23
On May
12, 2010, we received a notice from The Nasdaq Stock Market (Nasdaq) stating
that the minimum bid price of our common stock was below $1.00 per share for 30
consecutive business days and that we were therefore not in compliance with the
minimum bid price requirement for continued listing set forth in Marketplace
Rule 5450. The notification letter states that we will be afforded 180 calendar
days, or until November 8, 2010, to regain compliance with the minimum bid price
requirement. To regain compliance, the closing bid price of the our common stock
must meet or exceed $1.00 per share for at least ten consecutive business days
during the 180 calendar day grace period. Nasdaq may, in its discretion, require
our common stock to maintain a bid price of at least $1.00 per share for a
period in excess of ten consecutive business days, but generally no more than 20
consecutive business days, before determining that we have demonstrated an
ability to maintain long-term compliance. If we do not regain compliance by
November 8, 2010, Nasdaq will provide written notification to us that the our
common stock will be delisted. At that time, we may appeal Nasdaq's delisting
determination to a Nasdaq Listing Qualifications Panel. Alternatively, we could
apply to transfer our common stock to The NASDAQ Capital Market if we satisfy
all of the requirements, other than the minimum bid price requirement, for
initial listing on The NASDAQ Capital Market set forth in Marketplace Rule 5505.
If we were to elect to apply for such transfer, and if we satisfy the applicable
requirements and our application is approved, we would have an additional 180
days to regain compliance with the minimum bid price rule while listed on The
NASDAQ Capital Market.
Significant
additional capital will be required to develop our product candidates through
clinical development, manufacturing, and commercialization. Subject to our
review of strategic alternatives, we may seek additional capital through further
public or private equity offerings, debt financing, additional strategic
alliance and licensing arrangements, collaborative arrangements, or some
combination of these financing alternatives. If we are successful in raising
additional funds through the issuance of equity securities, investors will
likely experience dilution, or the equity securities may have rights,
preferences, or privileges senior to those of the holders of our common stock.
If we raise funds through the issuance of debt securities, those securities
would have rights, preferences, and privileges senior to those of our common
stock. If we seek strategic alliances, licenses, or other alternative
arrangements, such as arrangements with collaborative partners or others, we may
need to relinquish rights to certain of our existing or future technologies,
product candidates, or products we would otherwise seek to develop or
commercialize on our own, or to license the rights to our technologies, product
candidates, or products on terms that are not favorable to us. The overall
status of the economic climate could also result in the terms of any equity
offering, debt financing, or alliance, license or other arrangement being even
less favorable to us and our stockholders than if the overall economic climate
were stronger. We also will continue to look for government sponsored research
collaborations and grants to help offset future anticipated losses from
operations, as we expect to continue to rely on government funding for a
significant portion of our revenues for the next few years and, to a lesser
extent, interest income.
If
adequate funds are not available through either the capital markets, strategic
alliances, or collaborators, we may be required to delay, reduce the scope of or
eliminate our research, development, clinical programs, manufacturing, or
commercialization efforts, effect additional changes to our facilities or
personnel, or obtain funds through other arrangements that may require us to
relinquish some of our assets or rights to certain of our existing or future
technologies, product candidates, or products on terms not favorable to
us.
Off-Balance
Sheet Arrangements and Contractual Obligations
We have
no off-balance sheet financing arrangements other than in connection with our
operating leases, which are disclosed in the contractual commitments table in
our Form 10-K for the year ended December 31, 2009.
Significant
Accounting Policies and Estimates
We
describe our significant accounting policies in Note 2, Summary of Significant Accounting
Policies, of the Notes to Financial Statements included in our Annual
Report on Form 10-K for the year ended December 31, 2009. We discuss
our critical accounting estimates in Item 7, Management’s Discussion and Analysis
of Financial Condition and Results of Operations, in our Annual Report on
Form 10-K for the year ended December 31, 2009. There has been no
significant change in our significant accounting policies or critical accounting
estimates since the end of 2009.
24
Recently
Issued Accounting Pronouncements
In
October 2009, the Financial Accounting Standards Board (the FASB) issued
Accounting Standards Update (ASU) No. 2009-13, “Multiple-Deliverable
Revenue Arrangements”. ASU 2009-13 amends existing revenue recognition
accounting pronouncements that are currently within the scope of FASB ASC Topic
605. This consensus provides accounting principles and application guidance on
how the arrangement should be separated, and the consideration allocated. This
guidance changes how to determine the fair value of undelivered products and
services for separate revenue recognition. Allocation of consideration is now
based on management’s estimate of the selling price for an undelivered item
where there is no other means to determine the fair value of that undelivered
item. This new approach is effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010, with early application permitted. We are currently
evaluating the impact, if any, on our financial condition and results of
operations.
In
January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and
Disclosures”. This ASU amends Topic 820 and related guidance within
U.S. GAAP to require disclosure of the transfers in and out of Levels 1 and 2
and a schedule for Level 3 that separately identifies purchases, sales,
issuances and settlements and requires more detailed disclosures regarding
valuation techniques and inputs. The adoption of this standard did
not have a material impact on the presentation of our financial
statements.
In March
2010, the Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act were signed into law. We are currently
in the process of determining the effects, if any, of these new laws on the
Company.
In April
2010, FASB issued ASU No. 2010-17, “Revenue Recognition—Milestone Method”, which provides guidance on
defining a milestone and determining when it may be appropriate to apply the
milestone method of revenue recognition for research or development
transactions. Research or development arrangements frequently include payment
provisions whereby a portion or all of the consideration is contingent upon
milestone events such as successful completion of phases in a study or achieving
a specific result from the research or development efforts. The amendments in
this ASU provide guidance on the criteria that should be met for determining
whether the milestone method of revenue recognition is appropriate. The ASU is
effective for fiscal years and interim periods within those years beginning on
or after June 15, 2010, with early adoption permitted. We are currently
evaluating the impact, if any on our financial condition and results of
operations.
In July
2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed
into law. This legislation includes an exemption for companies with less than
$75 million in market capitalization (non-accelerated filers) to Section 404(b)
of the Sarbanes-Oxley Act of 2002, which requires an external auditor’s report
on the effectiveness of a registrant’s internal control over financial
reporting. The SEC has not published a final rule on this new
law. Under the existing SEC rules a Company cannot exit accelerated
filer status unless the market value of voting and non-voting common equity held
by non-affiliates of the issuer falls below $50M as of the last business day of
the company’s second fiscal quarter. We are currently in the process
of determining the effects, if any, of this new law on the Company.
The
primary objective of our investment activities is to preserve our capital until
it is required to fund operations while at the same time maximizing the income
we receive from our investments without significantly increasing risk. Our cash
flow and earnings are subject to fluctuations due to changes in interest rates
in our investment portfolio. We maintain a portfolio of various
issuers, types, and maturities. These securities are classified as
available-for-sale and, consequently, are recorded on the balance sheet at fair
value with unrealized gains or losses reported as a component of accumulated
other comprehensive income (loss) included in stockholders’ equity.
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
As of
June 30, 2010, under the supervision and with the participation of our President
and Chief Executive Officer and our Senior Vice President, Chief Financial
Officer, Treasurer, and Corporate Secretary (our principal executive officer and
principal financial officer, respectively), we have reviewed and evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on that evaluation, the President and Chief
Executive Officer and the Senior Vice President, Chief Financial Officer,
Treasurer, and Corporate Secretary have concluded that, as of June 30, 2010,
these disclosure controls and procedures are effective at the reasonable
assurance level in alerting them in a timely manner to material information
required to be included in our periodic SEC reports.
25
There
were no changes in our internal controls over financial reporting during the
quarter ended June 30, 2010 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
26
PART
II. OTHER INFORMATION
ITEM
1. LEGAL
PROCEEDINGS
We are not currently a party to any
material legal proceedings.
ITEM
1A. RISK
FACTORS
An
investment in our securities involves a high degree of risk. Before
making an investment decision you should carefully consider the risk factors
discussion provided under Risk Factors in Item 1A of our Annual Report on
Form 10-K for the fiscal year ended December 31, 2009, in Item 1A of Part
II of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010,
and all of the other information we include in this report and the additional
information in the other reports we file with the Securities and Exchange
Commission. If any of the risks contained in those reports, or
described below, actually occur, our business, results of operations, financial
condition and liquidity could be harmed and the value of our securities could
decline and you could lose all or part of your investment. In addition, you should
also consider the following risk factors, which amend and supplements the
foregoing risk factors.
Our
common stock is at risk for delisting from The NASDAQ Stock Market. If it
is delisted, our stock price and the liquidity of our common stock would be
impacted.
On May
12, 2010 we received a notice from The Nasdaq Stock Market (Nasdaq) stating that
the minimum bid price of our common stock was below $1.00 per share for 30
consecutive business days and that the we were therefore not in compliance with
Marketplace Rule 5450. The notification letter states that we will be
afforded 180 calendar days, or until November 8, 2010, to regain compliance with
the minimum closing bid price requirement. To regain compliance, the
closing bid price of our common stock must meet or exceed $1.00 per share for at
least ten consecutive business days. Nasdaq may require our common
stock to maintain a bid price of at least $1.00 per share for a period in excess
of ten consecutive business days, but generally no more than 20 consecutive
business days, before determining we have demonstrated an ability to maintain
long-term compliance. If we do not regain compliance by November 8,
2010, Nasdaq will provide written notification to us that our common stock will
be delisted. At that time, we may appeal Nasdaq’s delisting
determination to a Nasdaq Listing Qualifications
Panel. Alternatively, we could apply to transfer our common stock to
The Nasdaq Capital Market if we satisfy all requirements, other than the minimum
bid requirement, for initial listing on The Nasdaq Capital Market set forth in
Marketplace Rule 5505. If we were to elect to apply for such transfer
and if we satisfy the applicable requirements and our application is approved,
we would have an additional 180 days to regain compliance with the minimum bid
price rule while listed on The Nasdaq Capital Market.
Delisting
from Nasdaq would adversely affect our ability to raise additional financing
through the public or private sale of equity securities, would significantly
affect the ability of investors to trade our securities and would negatively
affect the value and liquidity of our common stock. Delisting could also have
other negative results, including the potential loss of confidence by employees,
the loss of institutional investor interest, and fewer business development
opportunities.
Our
efforts to explore strategic alternatives may not result in any definitive
transaction or enhance shareholder value, and may create a distraction for our
management and uncertainty that may adversely affect our operating results and
business.
As
previously announced on June 15, 2010, the Board has commenced a process to
evaluate our strategic alternatives to enhance shareholder value. No timetable
has been set for completion of this evaluation process, and there can be no
assurance that any transaction will result. The Board has engaged
Wells Fargo Securities, LLC to provide financial advice and assist the Board
with its evaluation process. Strategic alternatives we may pursue could include,
but are not limited to, execution of our operating plan, sale of our assets,
partnering or other collaboration agreements, or a merger, sale of the Company
or other strategic transaction. There can be no assurance that the exploration
of strategic alternatives will result in any agreements or transactions, or
that, if completed, any agreements or transactions will be successful or on
attractive terms.
27
There are
various uncertainties and risks relating to our evaluation and negotiation of
possible strategic alternatives and our ability to consummate a definitive
transaction, including:
|
·
|
expected
benefits may not be successfully
achieved;
|
|
·
|
evaluation
and negotiation of a proposed transaction may distract management from
focusing our time and resources on execution of our operating plan, which
could have a material adverse effect on our operating results and
business;
|
|
·
|
the
current market price of our common stock may reflect a market assumption
that a transaction will occur, and a failure to complete a transaction
could result in a negative perception by investors in the Company
generally and could cause a decline in the market price of our common
stock, which could adversely affect our ability to access the equity and
financial markets, as well as our ability to explore and enter into
different strategic alternatives;
|
|
·
|
the
process of evaluating proposed transactions may be time consuming and
expensive and may result in the loss of business
opportunities;
|
|
·
|
perceived
uncertainties as to our future direction may result in increased
difficulties in retaining key employees and recruiting new employees,
particularly senior management; and
|
|
·
|
even
if our Board of Directors negotiates a definitive agreement, successful
integration or execution of the strategic alternatives will be subject to
additional risks.
|
In
addition, the market price of our common stock could be highly volatile during
the period in which we are evaluating and negotiating a transaction, and may
continue to be more volatile if we announce that we are no longer pursuing a
proposed transaction.
None
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES
None
ITEM
4. {REMOVED
AND RESERVED}
None
ITEM
5. OTHER
INFORMATION
None
ITEM
6. EXHIBITS
10.1
|
Agreement
for the Supply of Services related to Development Materials, dated August
4, 2010, between Novartis Pharma AG and GenVec,
Inc.+
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification
of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
+
|
Confidential
treatment was requested for certain portions of this Agreement. The
confidential portion were filed separately with the
Commission.
|
28
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENVEC,
INC.
|
||
(Registrant)
|
||
Date: August
6, 2010
|
By:
|
/s/
Paul H. Fischer, Ph.D.
|
Paul
H. Fischer, Ph.D.
|
||
President
and Chief Executive Officer
|
Date: August
6, 2010
|
By:
|
/s/
Douglas J. Swirsky
|
Douglas
J. Swirsky
|
||
Senior
Vice President, Chief Financial Officer,
Treasurer,
and Corporate Secretary
|
29