UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
ý | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| | SECURITIES EXCHANGE ACT OF 1934 |
| | |
| | For the quarterly period ended March 31, 2002 |
| | |
| | OR |
| | |
o | | 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 ý No o
APPLICABLE ONLY TO CORPORATE ISSUERS:
At April 30, 2002, the Registrant had outstanding 21,760,829 shares of common stock, $.001 par value.
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GENVEC, INC.
FORM 10-Q
TABLE OF CONTENTS
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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, 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 terminology such as “believes,” “expects,” “intends,” “may,” “will,” “should,” or “anticipates” or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date thereof, actual results could differ materially from those currently anticipated due to a number of factors, including risks relating to the early stage of products under development; uncertainties relating to clinical trials; dependence on third parties; future capital needs; and risks relating to the commercialization, if any, of our product candidates (such as marketing, safety, regulatory, patent, product liability, supply, competition and other risks). Additional important factors that could cause actual results to differ materially from our current expectations are identified in other filings with the Securities and Exchange Commission. We will not update any forward-looking statements to reflect events or circumstances that occur after the date on which the statement is made, except as may be required by law.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENVEC, INC.
BALANCE SHEETS
| | March 31, | | December 31, | |
| | 2002 | | 2001 | |
| | (Unaudited) | | | |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 6,489,773 | | $ | 14,516,442 | |
Short-term investments | | 5,666,673 | | 5,413,979 | |
Prepaid expenses | | 571,985 | | 661,331 | |
Accounts receivable | | 499,745 | | — | |
Other current assets | | 376,645 | | 461,688 | |
Bond sinking fund | | 351,635 | | 238,021 | |
Total current assets | | 13,956,456 | | 21,291,461 | |
Property and equipment, net | | 7,856,378 | | 7,974,279 | |
Long-term investments | | 22,239,991 | | 21,988,265 | |
Other assets | | 108,089 | | 111,700 | |
Total assets | | $ | 44,160,914 | | $ | 51,365,705 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
Current liabilities: | | | | | |
Accounts payable | | $ | 766,543 | | $ | 1,184,126 | |
Accrued expenses | | 1,290,609 | | 1,696,338 | |
Unearned revenue | | 520,741 | | 461,136 | |
Current portion of bond payable | | 450,000 | | 450,000 | |
Current portion of notes payable and capital lease obligation | | 539,015 | | 482,459 | |
Total current liabilities | | 3,566,908 | | 4,274,059 | |
| | | | | |
Notes payable and capital lease obligations | | 796,466 | | 963,407 | |
Bond payable | | 4,125,000 | | 4,125,000 | |
Deferred credit | | 1,164,031 | | 1,182,973 | |
Other liabilities | | 623,656 | | 692,519 | |
Total liabilities | | 10,276,061 | | 11,237,958 | |
Stockholders’ equity: | | | | | |
Preferred stock, $.001 par value; 5,000,000 shares authorized, no shares issued or outstanding | | — | | — | |
Series A junior participating preferred stock, $0.01 par value, 600,000 shares authorized at March 31, 2002, December 31, 2001, no shares issued oroutstanding | | — | | — | |
Common stock, $.001 par value; 60,000,000 shares authorized, 21,822,502 and 21,781,173 shares issued at March 31, 2002 and December 31, 2001; 21,751,552 and 21,710,223 shares outstanding at March 31, 2002 and December 31, 2001 | | 21,822 | | 21,781 | |
Additional paid-in capital | | 112,953,323 | | 112,798,109 | |
Accumulated deficit | | (76,232,972 | ) | (69,840,671 | ) |
Deferred compensation | | (2,749,470 | ) | (3,146,344 | ) |
Accumulated other comprehensive income | | (107,779 | ) | 294,943 | |
Treasury stock, 70,950 common shares | | (71 | ) | (71 | ) |
Total stockholders’ equity | | 33,884,853 | | 40,127,747 | |
Total liabilities and stockholders’ equity | | $ | 44,160,914 | | $ | 51,365,705 | |
See accompanying notes to financial statements.
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GENVEC, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
| | THREE MONTHS ENDED | |
| | MARCH 31, | |
| | 2002 | | 2001 | |
Revenues: | | | | | |
Ongoing research and development support | | $ | 627,640 | | $ | 1,262,588 | |
Contract, license and milestone payments | | — | | 775,000 | |
| | 627,640 | | 2,037,588 | |
Operating expenses: | | | | | |
Research and development | | 5,120,980 | | 3,856,845 | |
General and administrative | | 2,171,855 | | 1,981,872 | |
Total operating expenses | | 7,292,835 | | 5,838,717 | |
| | | | | |
Loss from operations | | (6,665,195 | ) | (3,801,129 | ) |
| | | | | |
Other income (expense): | | | | | |
Interest income | | 406,990 | | 671,892 | |
Interest expense | | (134,096 | ) | (146,575 | ) |
Total other income | | 272,894 | | 525,317 | |
| | | | | |
Net loss | | $ | (6,392,301 | ) | $ | (3,275,812 | ) |
Other comprehensive loss, net of tax | | | | | |
Unrealized holding gain (loss) on securities available for sale during the period | | (473,148 | ) | 251,830 | |
Transition adjustment upon adoption of SFAS No. 133 | | — | | (166,911 | ) |
Change in fair value of derivatives used for cash flow hedge | | 70,426 | | (107,632 | ) |
Other comprehensive income | | (402,722 | ) | (22,713 | ) |
Comprehensive loss
| | $ | (6,795,023 | ) | $ | (3,298,525 | ) |
Basic and diluted net loss per share
| | $ | (0.29 | ) | $ | (0.18 | ) |
Shares used in computing basic and diluted net loss per share
| | 21,733,483 | | 17,946,449 | |
See accompanying notes to financial statements.
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GENVEC, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | THREE MONTHS ENDED | |
| | MARCH 31, | |
| | 2002 | | 2001 | |
Cash flows from operating activities: | | | | | |
Net loss | | $ | (6,392,301 | ) | $ | (3,275,812 | ) |
Adjustments to reconcile net (loss) income to net cash used in operating activities: | | | | | |
Depreciation and amortization | | 466,961 | | 423,238 | |
Stock option and warrant compensation expense | | 542,315 | | 365,421 | |
Loss (gain) on disposal of assets | | 11,572 | | (5,490 | ) |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | | (499,745 | ) | 46,525 | |
Accounts payable and accrued expenses | | (823,312 | ) | (885,847 | ) |
Unearned revenue | | 59,605 | | (775,000 | ) |
Other assets and liabilities, net | | 138,407 | | (42,903 | ) |
Net cash used in operating activities | | (6,496,498 | ) | (4,149,868 | ) |
Cash flows from investing activities: | | | | | |
Purchases of property and equipment | | (296,450 | ) | (271,062 | ) |
Purchases of investment securities | | (4,984,534 | ) | (24,948,033 | ) |
Proceeds from sale of investment securities | | 3,971,394 | | 3,947,798 | |
Proceeds from sale of assets | | 940 | | — | |
Net cash used in investing activities | | (1,308,650 | ) | (21,271,297 | ) |
Cash flows from financing activities: | | | | | |
Proceeds from issuance of common stock, net of issuance costs | | 9,815 | | 5,095 | |
Payments under capital lease obligation | | (10,099 | ) | (8,427 | ) |
Loan payments | | (108,737 | ) | (98,594 | ) |
Bond sinking fund payments | | (112,500 | ) | (106,250 | ) | |
Net cash used in financing activities | | (221,521 | ) | (208,176 | ) |
Decrease in cash and cash equivalents | | (8,026,669 | ) | (25,629,341 | ) |
Cash and cash equivalents at beginning of period | | 14,516,442 | | 33,623,689 | |
Cash and cash equivalents at end of period | | $ | 6,489,773 | | $ | 7,994,348 | |
Supplemental disclosures of non-cash activities: | | | | | |
Cash paid for interest | | $ | 108,597 | | $ | 127,240 | |
Equipment financed by lessor | | $ | 8,450 | | $ | — | |
See accompanying notes to financial statements.
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GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly GenVec’s (the “Company”) financial position as of March 31, 2002 and December 31, 2001, and the results of its operations and cash flows for the three-month period ended March 31, 2002 and 2001. It is recommended that these financial statements be read in conjunction with the financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. Results for interim periods are not necessarily indicative of results for the entire year.
(2) Investments
The amortized cost, gross unrealized holding gains and fair value of available-for-sale securities by major security type at March 31, 2002 and December 31, 2001, are as follows:
| | March 31, 2002 | |
| | Amortized Cost | | Gross
unrealized
holding gains | | Fair Value | |
Available-for-sale: | | | | | | | |
Asset backed securities | | $ | 3,231,451 | | $ | 18,422 | | $ | 3,249,873 | |
Government obligations | | 10,514,117 | | 89,345 | | 10,603,462 | |
Corporate bonds | | 14,002,898 | | 50,431 | | 14,053,329 | |
| | $ | 27,748,466 | | $ | 158,198 | | $ | 27,906,664 | |
Classified as cash equivalents: | | | | | | | |
Commercial paper | | $ | 7,796,856 | | $ | — | | $ | 7,796,856 | |
| | December 31, 2001 | |
| | Amortized Cost | | Gross
unrealized
holding gains | | Fair Value | |
Available-for-sale: | | | | | | | |
Government agency notes | | $ | 10,534,557 | | $ | 232,058 | | $ | 10,766,615 | |
Asset backed securities | | 1,979,907 | | 33,625 | | 2,013,532 | |
Corporate bonds | | 14,256,434 | | 365,663 | | 14,622,097 | |
| | $ | 26,770,898 | | $ | 631,346 | | $ | 27,402,244 | |
Classified as cash equivalents: | | | | | | | |
Commercial paper | | $ | 14,272,729 | | $ | — | | $ | 14,272,729 | |
Maturities of securities classified as available-for-sale were as follows at March 31, 2002:
| | Amortized Cost | | Fair Value | |
Available for sale: | | | | | |
Due within one year | | $ | 5,587,750 | | $ | 5,666,673 | |
Due after one year through five years | | 22,160,716 | | 22,239,991 | |
| | $ | 27,748,466 | | $ | 27,906,664 | |
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(3) Common Stock Warrants
On March 18, 2002, in connection with the renegotiation of a license agreement with a university research foundation, the Company amended a warrant agreement thereby reducing the exercise price of 101,694 common stock warrants issued to the foundation in 1998 from $11.80 per share to $3.60 per share. Also, as a part of the amended agreement, 66,102 previously unvested warrants became fully vested and exercisable. The Company recorded a non-cash charge of approximately $245,000 in the first quarter to reflect the fair value of the warrants.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 and 2001
OVERVIEW
GenVec is focused on the development and commercialization of novel gene-based therapies that produce medically beneficial proteins at the site of disease. The Company combines its patented gene transfer technologies with proprietary therapeutic genes to create product candidates, such as BioBypass® angiogen that addresses medical needs in the area of cardiovascular disease, TNFeradeÔ for oncology and the AdPEDF program for ophthalmology.
To date, none of our proprietary or collaborative programs have resulted in a commercial product; therefore, we have not received any revenues or royalties from the sale of products by us or by our collaborators. We have funded our operations primarily through public and private placements of equity securities, payments under collaborative programs with other companies and debt financings.
GenVec’s net loss was $6.4 million or ($0.29) per share on revenues of $628,000 for the quarter ended March 31, 2002. This compares to a net loss of $3.3 million or ($0.18) per share on revenues of $2.0 million in the same period in the prior year. GenVec ended the first quarter of 2002 with $34.4 million in cash and investments.
REVENUES
Revenues for the three months ended March 31, 2002 were $628,000, a decrease of $1.4 million or 69 percent, compared to revenues of $2.0 million in the comparable quarter of 2001. Revenues for the current quarter were primarily attributable to the commencement of activities under the Company’s new $10.2 million contract with the Vaccine Research Center at the National Institute of Allergy and Infectious Diseases of the National Institutes of Health under which GenVec will use its proprietary adenovector technology for the development and manufacture of clinical grade preventative AIDS vaccine candidates. The overall decline in revenues was due to the absence of research and development payments under the Company’s 1997 collaboration agreement with Pfizer, Inc. relating to the research, development and commercialization of BioBypass® angiogen, which is now in Phase II trials for the treatment of coronary artery disease and peripheral vascular disease. Under the terms of the collaboration, Pfizer will be responsible for all development costs associated with the ongoing clinical trials through July 22, 2002, including the costs related to the orderly transition of the product development program to GenVec.
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EXPENSES
Operating expenses were $7.3 million for the three months ended March 31, 2002, an increase of $1.5 million or 25 percent, compared to $5.8 million in the comparable quarter last year. Research and development expenses for the three months ended March 31, 2002 increased 33 percent to $5.1 million, from $3.9 million for the three months ended March 31, 2001. This increase was primarily related to the Company’s independent product development and research programs, partially offset by anticipated decreases in research activities under the Pfizer collaboration. General and administrative expenses increased 10 percent to $2.2 million for the three months ended March 31, 2002 compared to $2.0 million for the three months ended March 31, 2001. This increase was primarily attributed to higher salaries related to new hires in investor relations, corporate communications and marketing as the Company continues to grow toward a more fully integrated biopharmaceutical company.
Operating expenses are expected to increase over the balance of the year as GenVec (i) advances the clinical development of TNFerade into Phase II trials, (ii) initiates a Phase Ib trial using AdPEDF for the treatment of macular degeneration, and (iii) assumes full responsibility for the clinical development, regulatory approval, manufacturing and commercialization of BioBypass® angiogen.
Other income, net of expenses, decreased 48 percent to $273,000 for the three months ended March 31, 2002 from $525,000 for the comparable quarter last year. This decrease is due to lower investment income as we used available cash to fund operating activities and recent declines in interest rates resulted in lower returns on our investment portfolio.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, working capital (primarily cash, cash equivalents and short-term investments) aggregated $10.4 million compared to $17.0 million at December 31, 2001. This decrease resulted primarily from the use of cash for general operating activities, purchases of equipment ($296,000) and repayment of debt obligations ($231,000).
We expect to incur additional losses over the next several years as we increase expenditures for research and development and administrative activities. Our liquidity and capital resources will depend upon, among other things, the level of our research, development, clinical, regulatory and marketing expenses and funding from collaborations.
As of March 31, 2002, we held $34.4 million in cash and investments. We believe that our cash reserves and anticipated cash flow from our current corporate collaborations will be sufficient to support our operations through mid 2003. We will require substantial funds in addition to our present working capital to develop our product candidates and meet our business objectives. We may seek additional future funding through collaborative arrangements and strategic alliances, additional public or private equity or debt financing, additional licensing arrangements, or some combination of these alternatives. Some of these arrangements may require us to relinquish rights to certain of our existing or future technologies, product candidates or products that 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. In addition, if we lack adequate funding, we may be required to delay, reduce the scope of, or eliminate certain research and development activities or one or more of our clinical programs.
We anticipate that expenditures for research and development, including clinical trials, product development and preclinical studies, and general and administrative activities will increase significantly in future periods. In the future, our liquidity and capital resources will depend upon, among other things, the
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level of our research, development, clinical, regulatory, manufacturing and marketing expenses and funding from collaborations.
In connection with the return of BioBypass® angiogen from Pfizer, we expect to incur additional costs related to the transfer of required technology and manufacturing capability to a contract manufacturing organization for production of BioBypass® angiogen for Phase III clinical trials. Costs may be incurred in connection with the transfer itself as well as potential delays in our clinical trials if product is not available for scheduled trials due to manufacturing delays. We may also incur patient follow-up costs in connection with our assumption of the ongoing Phase II clinical trials for BioBypass® angiogen.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 loss included in stockholders’ equity. For additional disclosure of market risks refer to note 2(b) to the financial statements contained in our annual report on Form 10-K for the year ended December 31, 2001.
We have addressed our exposure to market risk of changes in interest rates through the use of derivative financial instruments. We maintain an interest rate swap agreement to mitigate the risk of changes in interest rates on our variable debt.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Since completion of the public offering in December 2000, pursuant to Form S-1, (Commission File No. 333-47408) declared effective December 11, 2000, the net offering proceeds have been invested in cash equivalents and short and long-term investments. The cash equivalents consist of commercial paper having maturities of three months or less. Our investment portfolio consists of investment grade government agency notes and corporate bonds having maturities of less than five years. To date we have expended approximately $7.6 million of the proceeds of our initial public offering for research and development activities, approximately $3.5 million for general and administrative expenses, approximately $420,000 for capital expenditures and approximately $460,000 for repayment of loans and capital leases.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Not applicable.
(b) Reports on Form 8-K
On January 3, 2002, we filed a Current Report on Form 8-K dated December 21, 2001 to announce the completion of a private equity placement of 3,582,000 shares of Common Stock with HealthCare Ventures V, L.P. and HealthCare Ventures VI, L.P.
On January 28, 2002 we filed a Current Report on Form 8-K dated January 24, 2002 to announce that Pfizer, Inc. made the business decision to discontinue the co-development of BioBypass® angiogen.
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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: May 8, 2002 | /s/ Paul H. Fischer |
| Paul H. Fischer, Ph.D. |
| Director, President and |
| Chief Executive Officer |
| |
Date: May 8, 2002 | /s/ Jeffrey W. Church |
| Jeffrey W. Church |
| Chief Financial Officer, Treasurer and |
| Secretary |
| (Principal Financial and Accounting Officer) |
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