SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
Commission file number 0-16177
ONCOR, Inc.
(Exact name of registrant as specified in its charter)
Maryland 52-1310084
(State of Incorporation) (I.R.S. Employer Identification No.)
209 Perry Parkway
Gaithersburg, Maryland 20877
(Address of principal executive offices)
(Zip code)
(301) 963-3500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES x NO
At October 31, 1996 there were 23,693,062 shares of Common Stock
outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited consolidated balance sheet as of September 30,
1996, the audited consolidated balance sheet as of December 31,
1995, and the unaudited consolidated statements of operations for
the three month and nine month periods ended September 30, 1996
and 1995, and of cash flows for the nine month periods ended
September 30, 1996 and 1995, set forth below, have been prepared
pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission"). Certain information and
note disclosures normally included in the annual financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
those rules and regulations. Oncor, Inc. (the "Company")
believes that the disclosures made are adequate to make the
information presented not misleading.
In the opinion of management of the Company, the
accompanying financial statements reflect all adjustments
(consisting only of normal recurring adjustments) that are
necessary for a fair presentation of results for the periods
presented. It is suggested that this financial information be
read in conjunction with the Form 10-K filed with the Commission
for the year ended December 31, 1995.
The results for the third quarter and nine months ended
September 30, 1996, presented in the accompanying financial
statements, are not necessarily indicative of the results for the
entire year.
ONCOR, INC.
CONSOLIDATED BALANCE SHEETS
As of
------------------------------
Sept 30, 1996 Dec.31, 1995
Unaudited
--------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $14,327,256 $14,249,925
Short-term investments, at market 916,765 1,580,127
Accounts receivable, net of allowance
for doubtful accounts of approxi-
mately $370,000 and $341,000 2,670,804 3,946,147
Inventories 4,943,809 6,356,041
Other current assets 1,510,661 1,714,030
------------- -------------
Total current assets 24,369,295 27,846,270
------------- -------------
NON-CURRENT ASSETS:
Property and equipment, net (Note 5) 5,279,384 7,445,214
Deposits and other non-current assets 226,714 718,183
Investment in and advances to affiliates
(Note 5) 4,777,139 832,809
Intangible assets, net 7,262,755 9,278,376
------------- -------------
Total non-current assets 17,545,992 18,274,582
------------- -------------
Total assets $41,915,287 $46,120,852
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $3,522,190 $3,679,034
Accrued expenses and other current
liabilities 1,224,946 1,596,203
Short-term borrowings 17,163 227,839
Current portion of long-term debt 715,647 2,302,156
------------- -------------
Total current liabilities 5,479,946 7,805,232
------------- -------------
NON-CURRENT LIABILITIES:
Long-term debt 6,276,103 9,301,408
Deferred rent - 18,223
------------- -------------
Total non-current liabilities 6,276,103 9,319,631
------------- -------------
Total liabilities 11,756,049 17,124,863
------------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 3,216,056 3,008,637
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000
shares authorized, no shares issued - -
Common stock, $.01 par value,
50,000,000 shares authorized,
23,769,971 and 21,822,477 issued;
23,690,562 and 21,743,068 outstanding 236,906 217,431
Common stock warrants outstanding 406,250 -
Additional paid-in capital 118,724,901 98,233,612
Unrealized gain on investments 6,341 556
Cumulative translation adjustment (357,827) 412,787
Accumulated deficit (91,852,877) (72,656,522)
Less - 79,409 shares of common stock
held in treasury, at cost (220,512) (220,512)
------------- -------------
Total stockholders' equity 26,943,182 25,987,352
------------- -------------
Total liabilities and
stockholders' equity $41,915,287 $46,120,852
============= =============
The accompanying notes are an integral part of these
Consolidated Financial Statements.
ONCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
-------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
GROSS REVENUES:
Product sales $3,975,376 $3,734,216 $11,799,269 $11,667,730
Grants and contracts 91,058 289,596 584,779 885,184
------------- ------------ ------------- -------------
Gross revenues 4,066,434 4,023,812 12,384,048 12,552,914
OPERATING EXPENSES:
Direct cost of sales 2,345,051 1,807,001 7,269,032 5,621,085
Product discontinuation
costs (Note 8) - - 1,975,000 -
Amortization of
intangibles 332,394 339,636 1,014,540 999,462
Selling, general and
administrative 3,927,636 3,408,079 11,083,907 9,712,027
Research and development
(Note 5) 1,685,598 1,963,768 5,477,008 5,795,009
Clinical and regulatory 432,035 447,453 1,436,308 1,138,771
------------- ------------ ------------- -------------
Total operating expenses 8,722,714 7,965,937 28,255,795 23,266,354
------------- ------------ ------------- -------------
LOSS FROM OPERATIONS (4,656,280) (3,942,125) (15,871,747) (10,713,440)
------------- ------------ ------------- -------------
OTHER INCOME (EXPENSE):
Investment income 120,628 243,588 357,727 951,498
Other income (expense) net 88,267 (136,365) (144,360) (338,211)
Foreign exchange profit
(loss) 29,579 58,011 (27,561) 33,908
Equity in net loss of
affiliates (Note 5) (960,898) (513,325) (3,510,414) (1,643,787)
-------------- ----------- ------------- -------------
(722,424) (348,091) (3,324,608) (996,592)
Net loss ($5,378,704) ($4,290,216) ($19,196,355) ($11,710,032)
============= ============ ============= =============
NET LOSS PER SHARE ($0.23) ($0.21) ($0.84) ($0.56)
============= ============ ============= =============
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING 23,516,159 20,916,937 22,788,528 20,852,431
============= ============ ============= =============
The accompanying notes are an integral part of these
Consolidated Financial Statements.
ONCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended Sept. 30,
-----------------------------------
1996 1995
-----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($19,196,355) ($11,710,032)
Adjustments to reconcile net loss to
net cash used in operating activities:
Issuance of common stock for
interest payment of convertible
note 181,235 -
Issuance of common stock in
connection with research and
and development agreements 350,423 -
Depreciation and amortization 2,191,983 2,130,305
Gain on disposal of assets (269,978) -
Non-cash product discontinuation 1,619,473 -
Equity in net loss of affiliates 3,510,403 1,643,787
Changes in operating assets
and liabilities:
Accounts receivable 1,165,700 (228,942)
Inventories 514,397 (2,070,153)
Other current assets (330,578) (28,902)
Deposits and other non-current
assets 1,776 5,187
Accounts payable 44,998 257,605
Customer deposits - (105,508)
Accrued expenses and other
current liabilities (623,734) (534,214)
Deferred rent (18,223) (54,643)
------------- -------------
Net cash used in
operating activities (10,858,480) (10,695,510)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (500,605) (2,961,690)
Proceeds from disposal of assets 340,982 -
Currency protection in Appligene
agreement (44,423) (107,798)
Purchase of stock in affiliate (300,000) (82,315)
Redemptions of investments 149,907 8,735,703
------------- -------------
Net cash provided by
investing activities (354,139) 5,583,900
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants 658,535 632,542
Proceeds from sales of stock of
subsidiary 9,138,484 3,034,503
Offering costs of private placement (54,100) -
Repayment on long-term debt (2,497,243) (2,881,837)
Proceeds from borrowings and issuance
of warrants 5,207,410 645,728
------------- -------------
Net cash (used in) provided
by financing activities 12,453,086 1,430,936
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (372,106) (83,702)
------------- -------------
Net increase (decrease) in cash and
cash equivalents 868,361 (3,764,376)
CASH AND CASH EQUIVALENTS, beginning of
the period 13,458,895 9,749,911
------------- -------------
CASH AND CASH EQUIVALENTS, end of the
period $14,327,256 $5,985,535
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $212,621 $307,158
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
In August 1996, the Company issued 260,209 shares of its
common stock valued at $950,000 in connection with
conversion of convertible debt.
In April 1996, the Company issued 834,894 shares of its
common stock valued at $3,950,000 in connection with
conversion of convertible debt.
In March 1996, the Company issued 498,081 shares of its
common stock valued at $2,100,000 in connection with
conversion of convertible debt.
In February 1995, the Company entered into a $1,235,504
capital lease of a building.
The accompanying notes are an integral part of these
Consolidated Financial Statements.
ONCOR, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996
(Unaudited)
1. Cash Equivalents and Investments
Cash equivalents and investments consist primarily of funds
invested in money market instruments, commercial paper and U.S.
government treasury bills. Investments with maturities between
three months and one year are classified as short-term
investments. Investments in securities with original maturities
of three months or less are considered cash equivalents. Cash of
$3.2 million is pledged to or encumbered by financial
institutions largely on a reducing basis over three years.
Investments that are classified as available-for-sale
securities are carried at fair market value. Unrealized holding
gains and losses are excluded from earnings and reported as a net
amount in a separate component of stockholders' equity until
realized.
2. Intangible Assets
The intangible assets comprise technology acquired, the
estimated value of contractual positions, and the excess of the
purchase price of an acquisition over the fair market value of
the tangible assets acquired. The intangible assets are being
amortized on a straight line method over periods of two to ten
years, with a weighted average amortization period of eight
years.
3. Net Loss Per Share
Net loss per share is determined using the weighted-average
number of shares of Common Stock outstanding during the periods
presented. The effects of options and warrants have not been
considered since the effects would be antidilutive.
4. Investments in Debt Securities at September 30, 1996
The aggregate fair value of investments in debt securities
as of September 30, 1996 is as follows:
Government securities
$U.S. denominated $ 630,012
Commercial paper 834,429
Total $1,464,441
5. Codon Private Placement
In the second quarter, when the Company's voting interest in
Codon Pharmaceuticals, Inc. ("Codon"), formerly named OncorPharm,
Inc. ("OncorPharm"), became less than 50%, the Company began
accounting for its investment in Codon using the equity method of
accounting. The financial statements of the Company for the
three months ended March 31, 1996 have been retroactively
adjusted to record the results of Codon pursuant to the equity
method of accounting from January 1, 1996. Accordingly, the
Company has reflected in the financial statements presented for
all periods in 1996 only its proportionate share of the earnings
or losses of Codon. The restatement had no impact on the
Company's consolidated net loss or net loss per share.
6. Appligene Initial Public Offering
In July 1996, Appligene Oncor S.A. ("Appligene"), the
European subsidiary of the Company, completed an initial public
offering of newly issued common shares for approximately $9.3
million. As a result of this transaction, the Company's equity
interest in Appligene was reduced to approximately 80%.
In connection with this offering, Appligene entered into an
agreement with the underwriter and market maker to provide
support in after-market stabilization activities. This agreement
required Appligene to make available as a loan up to $1.0 million
to effect stock purchase transactions for the purpose of
stabilizing the market for Appligene's common stock and to share
in any gains and losses incurred by the underwriter through such
transactions. The parties are currently negotiating amendments
to the agreement with the objective of significantly reducing
Appligene's potential exposure. However, there can be no
assurance that such an amendment will be successfully negotiated
or, if so, that such amendment would reduce Appligene's potential
exposure in any material respect. The Company has recorded as a
cost of the offering $0.3 million for a portion of the trading
losses incurred by the underwriter to date.
7. Oncor Private Placement
On September 30, 1996, the Company completed a private
placement of 6.0% three-year unsecured notes convertible into
shares of Common Stock of the Company and warrants to purchase an
aggregate of 250,000 shares of the Company's Common Stock. The
Company received total proceeds of approximately $5.0 million of
which $406,250 was allocated to the warrants and the remainder to
the notes. Issuance costs were not significant. The notes are
immediately convertible at the option of the holder and will be
automatically converted upon maturity. The notes are convertible
at prices which reduce from 100.0% to 80.0% of the market value
of the common stock at the time of conversion over a period of
136 days.
8. Product Discontinuation Costs
In the second quarter of 1996, the Company adopted a plan to
discontinue the development, manufacture, sale, and support of
certain imaging, research, and non-diagnostic genetics products.
Product discontinuation costs of $1,975,00 recorded in the second
quarter comprise the revaluation of inventory of discontinued
products, charge off of goodwill associated with such products,
and severance payments to employees terminated in conjunction
with the plan.
9. Related Party Transactions
During the third quarter of 1996, the Company increased the
guarantee of a loan for an officer and director from $400,000 to
$700,000.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis provides information
which management believes is relevant to an assessment and
understanding of the Company's results of operations and
financial condition. The discussion should be read in
conjunction with the audited consolidated financial statements of
the Company and notes thereto, which were included in the
Company's Annual Report on Form 10-K for fiscal year ended
December 31, 1995. This Form 10-Q contains certain statements of
a forward-looking nature relating to future events or the future
financial performance of the Company. Readers are cautioned
that such statements are only predictions and that actual events
or results may differ materially. In evaluating such statements,
readers should specifically consider the various factors
identified in this Report and in the other reports and documents
filed by the Company with the Securities and Exchange Commission
from time to time which could cause actual results to
differ materially from those indicated by such forward-looking
statements, including the matters set forth below in "Risk
Factors."
General
In the second quarter of 1996, the Company adopted a plan to
discontinue the development, manufacture, sale and support of
certain imaging, research and non-diagnostic genetics products.
Sales in the third quarter and first nine months of 1996 included
$0.4 and $1.6 million of the sale of products scheduled to be
discontinued. The gross margins associated with those sales were
$0.2 million and $0.7 million, respectively. In the third
quarter, selling, general and administrative expenses and
research and development expenses were lower by $0.5 million and
$0.2 million, respectively, as a consequence of this
discontinuation plan.
Also, in the second quarter of 1996 and as further described
in Note 5 to the consolidated financial statements found
elsewhere in this Form 10-Q, the Company no longer owns a
majority of capital stock of Codon and, as a result,
deconsolidated the results of operations of Codon effective
January 1, 1996. Accordingly, the consolidated operating results
include the operating results of Codon in the 1995 periods
presented and exclude them in the 1996 periods presented.
Beginning in 1996, the Company's proportionate share of losses
incurred by Codon are included in Equity in Net Loss of
Affiliates.
Results of Operations
Revenues increased 1% to $4.1 million for the three months
ended September 30, 1996, as compared to $4.0 million for the
corresponding periods of 1995. Revenues decreased 1% to $12.4
million for the nine months ended September 30, 1996, as compared
to $12.6 million for the corresponding period of 1995, due to the
completion of certain research grants. Application for renewal
of the research grants has been made, but there can be no
assurance that such renewals will be granted.
Gross profit as a percentage of product revenues decreased
to 41% and to 38% in the third quarter and first nine months,
respectively, of 1996 from 52% in both corresponding periods of
1995. The decrease was due to (i) continuing efforts to cut
production levels in order to reduce inventory resulting in
significant manufacturing overhead being charged directly to cost
of sales, and (ii) manufacturing expenses incurred for the
development of processes to comply with U.S. Food and Drug
Administration ("FDA") regulations for diagnostic products.
Selling, general and administrative expenses increased by
$0.5 million and $1.4 million for the third quarter and first
nine months, respectively, of 1996 from the corresponding periods
of 1995. The increases in the third quarter and the first nine
months are due to legal and other expenses associated with
certain intellectual property issues and to expenses associated
with the continuing development of a sales and marketing staff in
Europe. These increases more than offset the decreases in such
expenses resulting from the aforementioned discontinuation plan
and deconsolidation of the operating results of Codon in 1996.
Codon selling, general, and administrative expenses were $0.2
million and $0.5 million for the third quarter and first nine
months of 1995, respectively.
Research and development expenses decreased by $0.3 million
for the third quarter and first nine months of 1996 from the
corresponding periods of 1995. The decreases resulted primarily
from (i) the deconsolidation of the operating results of Codon
and (ii) the product discontinuation plan. Codon research and
development expenses accounted for $0.2 million and $1.0 million
for the third quarter and the first nine months of 1995,
respectively. The decrease in the first nine months was largely
offset by the costs associated with (i) initial payments, made
largely in Common Stock of the Company, at the inception of two
research collaboration agreements with The John Hopkins
University, (ii) payments under a license agreement with Yale
University, (iii) the initial payment, made in Common Stock of
the Company, at the inception of a research agreement related to
the P43 diagnostic test, and (iv) substantial increased activity
associated with the development of other diagnostic products.
Clinical and regulatory expenses remained unchanged for the
third quarter of 1996 compared to the corresponding quarter in
1995 and increased $0.3 million in the first nine months of 1996
from the corresponding period of 1995. This increase is due to
professional fees incurred to support the Company's applications
for diagnostic products filed with the FDA.
Other net non-operating expenses increased by $0.4 million
and $2.3 million for the third quarter and first nine months of
1996, respectively, compared to the corresponding periods in
1995. The Company's proportionate share of net losses
attributable to Codon, included in this caption in 1996 but
included in operating results in 1995, were $0.4 million and $1.9
million for the third quarter and first nine months of 1996,
respectively. The net increases in non-operating expenses were
partially offset in the third quarter by the gain of $0.3 million
on the sale of the technology related to the Company's industrial
inspection products.
As a result of the factors discussed above, net loss
increased to $5.3 million ($0.23 per share) and $19.2 million
($0.84 per share) in the third quarter and the first nine months
of 1996 from $4.3 million ($0.21 per share) and $11.7 million
($0.56 per share), respectively, in the corresponding periods of
1995.
Liquidity and Capital Resources
The following table sets forth the most significant elements
of the cash flows of the Company in the first nine months of 1996
(in millions):
Cash and liquid investments at January 1, 1996 $14.5
Net cash loss (11.6)
Cash generated from the decline in working capital 0.8
Proceeds from sale of common stock of subsidiary 9.1
Proceeds from issuance of debentures and warrants 5.0
Purchases of equipment (0.5)
Principal portion of debt service (2.5)
Effects of foreign exchange rate adjustments,
proceeds from exercise of options and other 0.4
------
Cash and liquid investments at September 30, 1996 $15.2
======
Approximately $0.7 million of the cash and liquid investment
positions shown in the table set forth above is contractually
restricted for an indefinite period and $7.9 million is limited
to fund operations of the Company's European subsidiary. A
discussion addressing the elements of the table follows.
Net cash loss is discussed under Results of Operations found
elsewhere in this Management's Discussion and Analysis. The
decline in working capital represents a decrease in inventory and
accounts receivable, partially offset by a decline in current
liabilities.
Purchases of equipment are for the on-going replacement of
office and laboratory equipment; the Company expects such
purchases to continue at this rate. Any substantial leasehold
improvements which may be required in the Company's manufacturing
facilities are expected to be funded by the Company's landlord in
accordance with the Company's current lease agreements.
In the third quarter the Company made the final $0.6 million
quarterly installment of debt incurred in connection with the
acquisition of Appligene and, accordingly, expects principal
portion of debt service to decline substantially thereafter.
The Company believes that its cash and liquid investments at
September 30, 1996 will be sufficient to fund its operations in
North America, where a majority of its cash losses are incurred,
into the first quarter of 1997. The Company also believes that
its cash and liquid investments will be sufficient to fund
operations in Europe for more than the next twelve months. The
Company is actively pursuing financing alternatives with the
objective of securing sufficient additional financing such that
the Company will have adequate cash to fund operations in North
America beyond the first quarter of 1997. There can be no
assurance that such efforts will be successful or that, if
successful, the resulting financing will be sufficient such that
North American operations will be adequately funded for the next
twelve months. Any such financings could have the effect of
diluting or adversely affecting the holdings or the rights of
existing stockholders of the Company.
The current fair market value of that portion of the
Company's holdings of publicly traded common stock in affiliates
which is not subject to contractual restrictions is approximately
$15 million. The Company's basis in these securities is included
in Investments in and Advances to Affiliates and, accordingly, is
not included in Cash and Liquid Investments reported above. The
Company believes that a portion of these investments could be
converted into cash, if necessary. However, as of the date of
this report, the Company has no plans to do so.
Risk Factors
Risk Associated with the HER-2/neu Gene-Based Test System
In November 1995, an FDA advisory panel (the "Panel") made a
recommendation against final approval of the Company's Pre-Market
Approval ("PMA") application for the use of its HER-2/neu
gene-based test system for diagnostic purposes. No assurance can
be given that the FDA will overturn the recommendation of the
Panel or that the Company will obtain FDA approval for its
HER-2/neu gene-based test system. The failure to obtain FDA
approval for its HER-2/neu gene-based test system on a timely
basis, or at all, would have a material and adverse effect on the
Company's business, financial condition and results of
operations. In the event that the Company receives FDA approval
for its HER-2/neu gene-based test system, there can be no
assurance that the Company will be capable of manufacturing the
test system in commercial quantities at reasonable costs or
marketing the product successfully, that the test system will be
accepted by the medical diagnostic community, or that the market
demand for the test system will be sufficient to allow profitable
sales.
No Assurance of Regulatory Approvals; Government Regulation
The Company is currently pursuing FDA approval of certain
existing products and expects to pursue FDA approval of certain
additional products under development. There can be no assurance
that the Company will receive regulatory approval for any of its
products or, even if it does receive regulatory approval for a
particular product, that the Company will ever recover its costs
in connection with obtaining such approval. The timing of
regulatory approvals is not within the control of the Company.
The failure of the Company to receive requisite approval, or
significant delays in obtaining such approval, could have a
material and adverse effect on the business, financial condition
and results of operations of the Company.
Approval by the FDA requires lengthy, detailed and costly
laboratory procedures, clinical testing procedures and
application preparation and defense efforts to demonstrate a
product's efficacy and safety before a product can be sold for
diagnostic use. Even if such regulatory approval is obtained for
a product, its manufacturer and its manufacturing facilities are
subject to continual review and periodic inspections by the FDA
and other regulatory agencies. The regulatory standards for
manufacturing are applied stringently by the FDA. Discovery of
previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or
manufacturer, including costly recalls or even withdrawal of the
product from the market. Furthermore, approval may entail
ongoing requirements for postmarketing studies. Failure to
maintain requisite manufacturing standards or discovery of
previously unknown problems could have a material and adverse
effect on the Company's business, financial condition or results
of operations.
Patents and Proprietary Rights
The Company's success will depend in large part on its, or
its licensors, ability to obtain patents, defend its patents,
maintain trade secrets and operate without infringing upon the
proprietary rights of others, both in the United States and in
foreign countries. The patent position of firms relying upon
biotechnology is highly uncertain in general and involves complex
legal and factual questions. To date there has emerged no
consistent policy regarding the breadth of claims allowed in
biotechnology patents or the degree of protection afforded under
such patents. The Company relies on certain patents and pending
United States and foreign patent applications relating to various
aspects of its products. These patents and patent applications
are either owned by the Company or rights under them are licensed
to the Company. There can be no assurance that patents will
issue as a result of any such pending applications or that, if
issued, such patents will be sufficiently broad to afford
protection against competitors with similar technology. In
addition, there can be no assurance that any patents issued to
the Company, or for which the Company has license rights, will
not be challenged, invalidated or circumvented, or that the
rights granted thereunder will provide competitive advantages to
the Company. The commercial success of the Company will also
depend upon avoiding the infringement of patents issued to
competitors and upon maintaining the technology licenses upon
which certain of the Company's current products are, or any
future products under development might be, based. Litigation,
which could result in substantial cost to the Company, may be
necessary to enforce the Company's patent and license rights or
to determine the scope and validity of others' proprietary
rights. If competitors of the Company prepare and file patent
applications in the United States that claim technology also
claimed by the Company, the Company may have to participate in
interference proceedings declared by the United States Patent and
Trademark Office ("PTO") to determine the priority of invention,
which could result in substantial cost to the Company, even if
the outcome is favorable to the Company. An adverse outcome
could subject the Company to significant liabilities to third
parties and require the Company to license disputed rights from
third parties or cease using the technology. A United States
patent application is maintained under conditions of
confidentiality while the application is pending in the PTO, so
that the Company cannot determine the inventions being claimed in
pending patent applications filed by its competitors in the PTO.
Further, United States patents do not provide any remedies for
infringement that occurred before the patent is granted.
The University of California and its licensee, Vysis, Inc.
("Vysis"), filed suit against Oncor on September 5, 1995 for
infringement of U.S. Patent No. 5,447,841 entitled Methods and
Compositions for Chromosome Specific Staining which issued on
that same date. The patent relates to a method of performing in
situ hybridization using a blocking nucleic acid that is
complementary to repetitive sequences. A failure to successfully
defend against or settle this suit may result in damages being
assessed against the Company and an injunction against the sale
of some of the Company's products. The Company has attempted to
resolve the lawsuit through a negotiated settlement, but such
negotiations were unsuccessful. In connection with the suit,
there can be no assurance that the Company would be able to
license the technologies underlying the patent in question or, if
available, that such license would be on terms acceptable to the
Company or that the Company would be successful in any attempt to
redesign its products or processes to avoid infringement. An
unfavorable decision in the suit, or the Company's failure to
obtain a license or redesign its products or processes, could
have a material adverse effect on the Company.
The Company has licensed rights to inventions disclosed in
United States and foreign patent applications relating to methods
and probes for detecting the presence of the Fragile X syndrome.
The Company believes that its licensors are original inventors
and are entitled to patent protection in the United States, but
the Company is aware that certain third parties also have filed
patent applications in the United States and abroad and claim to
be entitled to patents related to this technology. The Company
has initiated an interference proceeding with these third parties
in the PTO to resolve which party is entitled to a United States
patent, if any. The application licensed by the Company is
senior in the interference. An unfavorable decision in such a
proceeding could have an adverse effect on the Company.
The Company currently has certain licenses from third
parties and in the future may require additional licenses from
other parties to develop, manufacture and market commercially
viable products effectively. There can be no assurance that such
licenses will be obtainable on commercially reasonable terms, if
at all, that the patents underlying such licenses will be valid
and enforceable or that the proprietary nature of the patented
technology underlying such licenses will remain proprietary.
The Company relies substantially on certain technologies
that are not patentable or proprietary and are therefore
available to the Company's competitors. The Company also relies
on certain proprietary trade secrets and know-how that are not
patentable. Although the Company has taken steps to protect its
unpatented trade secrets and know-how, in part through the use of
confidentiality agreements with its employees, consultants and
certain of its contractors, there can be no assurance that these
agreements will not be breached, that the Company would have
adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known or be independently
developed or discovered by competitors.
Uncertainties Relating to Product Development
Most of the Company's products have not been approved by the
FDA and may be sold only for research purposes. The Company has
undertaken to seek FDA approval for certain of these products,
and may in the future undertake to seek such approval for other
products, and substantial additional investment, laboratory
development, clinical testing and FDA approval will be required
prior to the commercialization of such products for diagnostic
purposes. There can be no assurance that the Company will be
successful in developing such existing or future products, that
such products will prove to be efficacious in clinical trials,
that required regulatory approvals can be obtained for such
products, that such products, if developed and approved, will be
capable of being manufactured in commercial quantities at
reasonable costs, will be marketed successfully or will be
accepted by the medical diagnostic community, or that market
demand for such products will be sufficient to allow profitable
operations.
International Sales and Foreign Exchange Risk
The Company derived approximately $9.0 million or 56% of its
total product revenues, from customers outside of the United
States for the year ended December 31, 1995. The Company
anticipates that a significant amount of its sales will take
place in European countries and likely will be denominated in
currencies other than the U.S. dollar. These sales may be
adversely affected by changing economic conditions in foreign
countries and by fluctuations in currency exchange rates. Any
significant decline in the applicable rates of exchange could
have a material adverse effect on the Company's business,
financial condition and results of operations. Additional risks
inherent in the Company's international business activities
generally include unexpected changes in regulatory requirements,
tariffs and other trade barriers, lack of acceptance of products
in foreign markets, longer accounts receivable payment cycles,
difficulties in managing international operations, potentially
adverse tax consequences, restrictions on repatriation of
earnings and the burdens of complying with a wide variety of
foreign laws. There can be no assurance that such factors will
not have a material adverse effect on the Company's future
international revenues and, consequently, on the Company's
business, financial condition and results of operations.
Competition and Technological Change
The diagnostic and biotechnology industries are subject to
intense competition and rapid and significant technological
change. Competitors of the Company in the United States and in
foreign countries are numerous and include, among others,
diagnostic, health care, pharmaceutical, biotechnology and
chemical companies, academic institutions, government agencies
and other public and private research organizations. Many of
these competitors have substantially greater financial and
technical resources and production and marketing capabilities
than the Company. There can be no assurance that these
competitors will not succeed in developing technologies and
products that are more effective, easier to use or less expensive
than those that have been or are being developed by the Company
or that would render the Company's technology and products
obsolete and noncompetitive. The Company also competes with
various companies in acquiring technology from academic
institutions, government agencies and research organizations. In
addition, many of the Company's competitors have significantly
greater experience than the Company in conducting clinical trials
of new diagnostic products and in obtaining FDA and other
regulatory approvals of products for use in health care.
Accordingly, the Company's competitors may succeed in obtaining
regulatory approval for products more rapidly than the Company.
Other Factors
Other factors that may affect the Company's business,
financial condition and results of operations, include
the Company's limited manufacturing, marketing and distribution
experience, the level and availability of government funding, the
Company's ability to attract and retain key personnel, potential
health care reform measures and the availability of third-party
reimbursement, potential product liability claims, and
environmental risks.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. The following exhibits are filed as part of this report on
Form 10-Q.
4.1 Form of 6% Convertible Debenture due August 27, 1999.
4.2 Form of Common Stock Purchase Warrant.
b. Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ONCOR, INC.
(Registrant)
Date: November 13, 1996
Stephen Turner, Chairman and Chief
Executive Officer
Date: November 13, 1996
John L. Coker, Vice President
of Finance and Administration,
Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ONCOR, INC.
(Registrant)
Date: November 13, 1996 /s/ Stephen Turner
Stephen Turner, Chairman and Chief
Executive Officer
Date: November 13, 1996 /s/ John L. Coker
John L. Coker, Vice President
of Finance and Administration,
Chief Financial Officer