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 March 31, 1997
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 April 30, 1997, there were 25,112,338 shares of Common Stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited consolidated balance sheet as of March 31, 1997, the
audited consolidated balance sheet as of December 31, 1996, and the unaudited
consolidated statements of operations and of cash flows for the three month
periods ended March 31, 1997 and 1996, 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
consolidated 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, including "Item 1.
Business - Additional Risk Factors," filed with the Commission for the year
ended December 31, 1996.
The results for the first three month period ended March 31, 1997,
presented in the accompanying financial statements, are not necessarily
indicative of the results for the entire year. In addition, the results for
the three month period ended March 31, 1996 have been restated to give effect
to the accounting treatment for the Company's convertible debentures. See
Note 6 of the Notes to Financial Statements.
ONCOR, INC.
CONSOLIDATED BALANCE SHEETS
As of
------------------------------
Mar. 31, 1997 Dec. 31, 1996
Unaudited
------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $12,941,192 $13,058,657
Short-term investments, at market 2,808,149 388,504
Restricted cash 700,000 5,432,478
Accounts receivable, net of allowance
for doubtful accounts of approxi-
mately $417,000 and $372,000 2,050,436 2,401,639
Receivable from Officer/Director 302,542 294,039
Inventories 4,034,635 3,839,630
Other current assets 1,303,718 863,060
------------ ------------
Total current assets 24,140,672 26,278,007
------------ ------------
NON-CURRENT ASSETS:
Property and equipment, net 4,735,539 5,044,270
Deposits and other non-current assets 441,108 216,035
Investment in and advances to affiliates 2,839,484 3,213,548
Intangible assets, net 6,083,136 6,918,278
------------ ------------
Total non-current assets 14,099,267 15,392,131
------------ ------------
Total assets $38,239,939 $41,670,138
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,785,658 $2,523,585
Accrued expenses and other current
liabilities 980,676 1,656,900
Current portion of long-term debt 764,518 719,337
------------ -------------
Total current liabilities 4,530,852 4,899,822
------------ -------------
LONG-TERM DEBT 11,456,297 10,386,110
------------ -------------
Total liabilities 15,987,149 15,285,932
------------ -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 2,935,617 3,040,119
------------ -------------
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,
25,112,338 and 24,214,349 issued;
25,032,929 and 24,134,940 outstanding 251,123 242,143
Common stock warrants outstanding 781,250 781,250
Additional paid-in capital 130,251,411 125,327,438
Deferred compensation (573,214) (641,270)
Unrealized gain on investments (2,204) (94)
Cumulative translation adjustment (1,530,205) (508,172)
Accumulated deficit (109,640,476) (101,636,696)
Less - 79,409 shares of common
stock held in treasury, at cost (220,512) (220,512)
------------ -------------
Total stockholders' equity 19,317,173 23,344,087
------------ -------------
Total liabilities and
stockholders' equity $38,239,939 $41,670,138
============ =============
The accompanying notes are an integral part
of these consolidated financial statements.
ONCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
March 31,
------------------------------
1997 1996
------------------------------
GROSS REVENUES:
Product sales $3,204,386 $3,923,372
Grants and contracts 122,750 272,025
------------ ------------
Gross revenues 3,327,136 4,195,397
OPERATING EXPENSES:
Direct cost of sales 1,930,049 2,413,115
Amortization of
intangibles 307,119 344,379
Selling, general and
administrative 3,241,100 3,458,816
Research and development 1,540,530 1,986,477
Clinical and regulatory 456,166 492,279
------------ ------------
Total operating expenses 7,474,964 8,695,066
LOSS FROM OPERATIONS (4,147,828) (4,499,669)
OTHER INCOME (EXPENSE):
Investment income 193,845 178,964
Interest and other expenses,
net (Note 6) (2,745,923) (660,695)
Foreign exchange loss (4,787) (21,165)
Equity in net loss of
affiliates (1,299,087) (1,596,772)
------------ ------------
(3,855,952) (2,099,668)
Net loss ($8,003,780) ($6,599,337)
============ ============
NET LOSS PER SHARE ($0.32) ($0.30)
============ ============
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING 24,865,816 21,815,426
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
ONCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended March 31,
------------------------------------
1997 1996
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($8,003,780) ($6,599,337)
Adjustments to reconcile net loss to
net cash used in operating activities:
Issuance of common stock for interest
and imputed interest of convertible
notes 2,175,000 569,842
Issuance of common stock in
connection with research and
development agreements 111,681 192,505
Depreciation and amortization 649,547 745,740
Expenses for non-employee stock options 107,118 -
Equity in net loss of affiliate
and other 1,319,670 1,596,775
Changes in operating assets
and liabilities:
Accounts receivable 235,403 803,411
Inventories (295,661) 268,213
Other current assets 29,129 (64,325)
Deposits and other non-current assets (24,743) 12,787
Accounts payable (153,407) (379,526)
Accrued expenses and other
liabilities 384,941 (536,125)
Deferred rent - (18,223)
Net cash used in operating
activities (3,465,102) (3,408,263)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (114,303) (152,779)
Purchases of investments (2,421,755) (2,590,110)
------------- -------------
Net cash used in investing
activities (2,536,058) (2,742,889)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Offering costs of private placement - (54,100)
Exercise of stock options and warrants 19,950 199,950
Reduction in restricted funds 4,732,478 -
Payment on notes for acquisitions - (603,444)
Payment on bank loans (96,201) (328,601)
Loan to unconsolidated affiliate (250,000) -
Proceeds from borrowings and issuance
of warrants 2,000,000 207,410
------------- -------------
Net cash provided by (used in)
financing activities 6,406,227 (578,785)
------------- -------------
------------- -------------
EFFECT OF CHANGE IN EXCHANGE RATE ON CASH (522,532) (14,669)
------------- -------------
Net decrease in cash and cash
equivalents (117,465) (6,744,606)
CASH AND CASH EQUIVALENTS, beginning of
the period 13,058,657 13,458,895
------------- -------------
CASH AND CASH EQUIVALENTS, end of the
period $12,941,192 $6,714,289
The accompanying notes are an integral part of these
consolidated financial statements.
ONCOR, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1997
(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. Approximately $0.7
million in restricted cash is pledged as collateral for a loan of an officer
and director for an indefinite period of time.
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
shareholders' 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 five 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.
The Financial Accounting Standards Board has issued Statement No. 128,
Earnings Per Share. Statement 128 requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all periods
presented. Statement 128 is effective for fiscal years ending after December
15, 1997 and requires restatement of prior years' earnings per share. Since
the effect of outstanding options is antidilutive, they have been excluded
from the Company's computation of net loss per share. Accordingly, Statement
128 does not have an impact upon historical net loss per share as reported.
4. Investments in Debt Securities at March 31, 1997
The aggregate fair value of investments in debt securities as of
March 31, 1997 is as follows:
Government securities
$U.S. denominated $1,131,077
Commercial paper 1,892,824
----------
Total $3,023,901
5. Oncor Private Placement
In January 1997, the Company completed a private placement of 6.0%
five-year unsecured
notes convertible into shares of Common Stock of the Company. The Company
received total proceeds of approximately $2.0 million. 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 120 days.
6. Accounting for the Issuance of Convertible Debentures
In December 1995, August 1996, December 1996 and January 1997, the
Company issued convertible debentures in private placements in exchange for
cash of $7.0 million, $5.0 million, $8.0 million and $2.0 million,
respectively. In each such issuance, the holders of the debentures had
"beneficial conversion" rights to convert the debentures into common shares of
the Company at established discounts to the quoted trading price of the shares
in a period immediately preceding the dates of conversions.
The value of the fixed discount, ranging from 15%-20% of the respective
issuance's face value of the Company's issuances, has been reflected in the
interest expense in an aggregate amount of $2.2 million and $0.5 million in
1997 and 1996, respectively. Such additional fixed discount has been accreted
for the period from date of issuance through the conversion dates of the
respective issuances.
The unaudited financial position and results of operations for the
unaudited quarter ending March 31, 1996 has been restated to give effect to
the accounting treatment announced in March 1997 by the staff of the
Securities and Exchange Commission (SEC) at a meeting of the Emerging Issues
Task Force relevant to certain of the Company's convertible debentures having
"beneficial conversion" features.
The first quarter of 1996 has been restated as follows:
Originally
Reported As Restated
------------ -------------
Interest and other
expense, net $ (151,695) $ (660,695)
Net loss (6,090,337) (6,599,337)
Net loss per share (0.28) (0.30)
7. Related Party Transactions
During the first quarter of 1997, the Company agreed to increase the
guarantee of a loan for an officer and director from $700,000 to $960,000.
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, 1996.
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 which could cause actual results to differ
materially from those indicated by such forward-looking statements, including
the matters set forth in "Risk Factors."
Results of Operations
Consolidated products sales decreased 18% to $3.2 million in the three
months ended March 31, 1997 compared to $3.9 million in the three months ended
March 31, 1996. The sales decrease was attributable to the discontinuation of
certain product lines and to the 11% change in exchange rates between the
dollar and French franc. After adjusting for the elimination of the sales of
discontinued products, sales of continuing products increased 5%.
Contract and grant revenue decreased 55% to $0.1 million in the three
months ended March 31, 1997 compared to $0.3 million in the three months ended
March 31, 1996, 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 sales increased to 39.8% in the
three months ended March 31, 1997 from 38.5% in the three months ended March
31, 1996. The increase, which was due to the discontinuation of sales of
lower profit product lines, was partially offset by the costs for regulating
the initial stages of the manufacture of a controlled diagnostic product.
Amortization of intangible assets in the three months ended March 31,
1997 and the three months ended March 31, 1996 was due to the amortization of
the portion of the purchase price of Appligene S.A. attributable to the value
of intangible assets acquired, primarily for contracts, completed research
projects, and the excess of the purchase price over the book value of the
assets acquired. The intangible assets are being amortized on a straight line
basis over periods ranging from two to ten years, with a weighted average
period of approximately eight years.
Selling, general and administrative expenses decreased 6% to $3.2
million in the three months ended March 31, 1997 from $3.5 million in the
three months ended March 31, 1996. The beneficial effects of the
discontinuation plan instituted in the second quarter of 1996, change in
exchange rates and the postponement of certain marketing programs accounted
for a decrease of $0.5 million, which decrease was partially offset by (i)
legal and other expenses associated with certain intellectual property issues
and (ii) the continuing development of a sales and marketing staff in Europe.
An anticipated reduction in the aforementioned legal expenses and the
implementation of the aforementioned marketing programs are expected to have
largely offsetting effects on selling, general and administrative expenses
throughout 1997.
Research and development expenses decreased 22% to $1.5 million in the
three months ended March 31, 1997 from $2.0 million in the three months ended
March 31, 1996. This decrease is a result of initial payments made to The
John Hopkins University under collaboration research agreements in the three
months ended March 31, 1996, which payments were not repeated in the three
months ended March 31, 1997, and to the effect of the above mentioned product
discontinuation plan.
Clinical and regulatory expense remained largely unchanged for the three
months ended March 31, 1997 compared to the three months ended March 31, 1996.
This expense is expected to continue at approximately this rate throughout
1997.
Other net non-operating expenses increased by $1.8 million in the three
months ended March 31, 1997 compared to the three months ended March 31, 1996.
This increase resulted primarily from increased interest expense which has
become substantially more significant through the issuance of convertible
debentures in 1995, 1996 and 1997. In the three months ended March 31, 1997,
interest and other expenses included a non-cash charge of $2.2 million
compared to $0.5 million in the three months ended March 31, 1996. This
charge represents the value of the beneficial conversion feature in the
conversion formula associated with certain issuances of the convertible
debenture by the Company. Such charges will continue at a lower rate through
the second quarter of 1997. The net increase in interest and other expenses
was partially offset by a decrease of $0.3 million in the equity in net losses
of affiliates. The Company's proportionate share of net losses attributable
to Codon decreased due to a significant decrease in the Company's ownership
percentage.
As a result of the factors discussed above, net loss increased to $8.0
million ($0.32 per share) in 1997 from $6.6 million ($0.30 per share) in 1996.
Liquidity and Capital Resources
The following table sets forth the most significant elements of the cash
flows of the Company in the first quarter of 1997 (in millions):
Cash and liquid investments at January 1, 1997 $18.9
Net cash loss from operations (3.6)
Proceeds from issuance of debentures 2.0
Effects of foreign exchange rate adjustments,
purchases of equipment and other (0.8)
Cash and liquid investments at March 31, 1997 $16.5
The net cash used in operating activities is the result of the losses of
the Company described in "Results of Operations" above. Approximately $6.3
million of the cash and liquid investments shown in the table set forth above
is limited to fund operations of the Company's European subsidiary.
Purchases of equipment resulted from 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
manufacturing facilities are expected to be funded by the Company's primary
landlord in accordance with the Company's current lease agreements.
The Company has available for use in operations in North America, where
most of its cash losses occur, (i) approximately $10.2 million dollars at
March 1997 and (ii) an irrevocable commitment from a lending source in the
amount of $3.0 million expiring March 31, 1998. The Company also holds
marketable securities in affiliated companies with a present market value of
approximately $21.6 million dollars, though substantial contractual,
regulatory and market restrictions exist with respect to the rate at which
these investments could be liquidated and significantly fluctuating market
prices make the ultimate future selling prices unpredictable. With respect to
North America, the Company believes that it has sufficient sources of cash to
fund operations through the remainder of 1997 but believes that it will need
to raise funds or liquidate assets shortly thereafter. The Company plans to
raise needed additional financing through private equity placements and
collaborative or other arrangements with corporate partners and others. There
can be no assurance that the Company will be able to obtain additional
financing when needed, if at all, or on terms acceptable to the Company. The
Company currently has no commitments to receive additional financing. Any
additional funding which it may raise in 1997 or 1998 likely will be dilutive
to the interests of the current shareholders. Since December 1995, the
principal source of funds for North American operations has been through the
issuance of convertible debt securities. There are terms in certain of the
agreements underlying these transactions which would make it more difficult to
consummate similar such transactions in the future. There can be no assurance
that the Company could access such funding or other funding sources in the
future on commercially reasonable terms, if at all.
With respect to Europe, the Company believes that its cash position of
approximately $6.3 million is sufficient to fund operations beyond 1997.
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 Panel will reconsider
its position or 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 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. The Company has requested summary
judgment of invalidity, non-infringement and unenforceability of the patent
claims in suit. The University and Vysis have requested a summary judgment of
infringement and validity. In January 1997, a summary judgment hearing was
held but as of May 7, 1997, there had been no decision on the motions. 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 probes and genetic test kits.
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. The Company has settled the
interference with respect to one of the parties, and has reached a settlement
agreement in principle with the other party. 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 $8.7 million or 57% of its total
product revenues, from customers outside of the United States for the year
ended December 31, 1996. 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.
Investment in OncorMed and Codon
The Company owns approximately 26% of the common stock of its
publicly-traded affiliate, OncorMed, and 42% of the voting securities of its
affiliate, Codon. The shares of common stock of both OncorMed and Codon held
by the Company are not currently freely tradeable and no public market exists
for the Common Stock of Codon. Therefore, there can be no assurance that the
Company will be able to realize the economic benefit of its investment or
predict the timing of such realization. The value of the Company's investment
in OncorMed represents a significant portion of the total assets of the
Company and such value fluctuates with the market price of OncorMed's common
stock. Therefore, any event that has a material and adverse effect on the
market price of the common stock of OncorMed will have a material and adverse
effect on the value of the Company's investment in OncorMed. Although Stephen
Turner, the Company's Chief Executive Officer, is a Director of OncorMed and
the Company is a significant stockholder in OncorMed, the Company does not
control the day-to-day operations and management of OncorMed and, therefore,
has little direct control over its operations and financial results. Codon
will require additional financing in the future. The Company does not
currently intend to provide a significant portion of such financing although
the Company may provide additional financing in the future. The failure of
Codon to obtain any required financing on acceptable terms could have a
material and adverse effect on the value of the Company's investment in Codon.
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.
Item 6. Exhibits and Reports on Form 8-K.
a. The following exhibits are filed as part of this report on Form 10-Q.
27. Financial Data Schedule.
28. Leases.
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: May 13, 1997
Stephen Turner, Chairman and Chief
Executive Officer
Date: May 13, 1997 Cecil Kost, President and Chief
Operating Officer
Date: May 13, 1997 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: May 13, 1997 /s/ Stephen Turner
Stephen Turner, Chairman and Chief
Executive Officer
Date: May 13, 1997 /s/ Cecil Kost
Cecil Kost, President and Chief
Operating Officer
Date: May 13, 1997 /s/ John L. Coker
John L. Coker, Vice President
of Finance and Administration,
Chief Financial Officer