UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to ______
Commission File Number: 0-21990
OXiGENE, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3679168
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
321 ARSENAL STREET
WATERTOWN, MA 02472
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(Address of principal executive offices, including zip code)
(617) 673-7800
-------------------------------------
(Telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No []
As of March 31, 2002, there were 12,636,664 shares of the Registrant's Common
Stock issued and outstanding.
OXiGENE, INC.
Cautionary Factors that may Affect Future Results
-------------------------------------------------
Our disclosure and analysis in this report contain "forward-looking
statements." Forward-looking statements give management's current expectations
or forecasts of future events. You can identify these statements by the fact
that they do not relate strictly to historic or current facts. They use words
such as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," and other words and terms of similar meaning. These include
statements, among others, relating to our planned future actions, our clinical
trial plans, our research and development plans, our prospective products or
product approvals, our beliefs with respect to the sufficiency of our cash and
available-for-sale securities, our plans with respect to funding operations,
projected expense levels, and the outcome of contingencies.
Any or all of our forward-looking statements in this report may turn out to
be wrong. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Consequently, no forward-looking
statement can be guaranteed. Actual results may vary materially from those set
forth in forward-looking statements. The uncertainties that may cause
differences include, but are not limited to, the Company's history of losses,
anticipated continuing losses and uncertainty of future profitability; the early
stage of product development; uncertainties as to the future success of ongoing
and planned clinical trials; the unproven safety and efficacy of products under
development; the sufficiency of the Company's existing capital resources; the
possible need for additional funds; uncertainty of future funding; the Company's
dependence on others for much of the clinical development of its drugs under
development, as well as for obtaining regulatory approvals and conducting
manufacturing and marketing of any product candidates that might successfully
reach the end of the development process; the impact of government regulations,
health care reform and managed care; competition from other companies and other
institutions pursuing the same, alternative or superior technologies; the risk
of technological obsolescence, and uncertainties related to the Company's
ability to obtain adequate patent and other intellectual property protection for
its proprietary technology and product candidates; dependence on officers,
directors and other individuals; and risks related to product liability
exposure.
We will not update forward-looking statements, whether as a result of new
information, future events or otherwise, unless required by law. You are advised
to consult any further disclosures we make in our reports to the Securities and
Exchange Commission including our 10-Q, 8-K and 10-K reports. Our filings list
various important factors that could cause actual results to differ materially
from expected results. We note these factors for investors as permitted by the
Private Securities Litigation Reform Act of 1995. You should understand that it
is not possible to predict or identify all such factors. Consequently, you
should not consider any such list to be a complete set of all potential risks or
uncertainties.
-2-
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION...............................................4
Item 1.Financial Statements...............................................4
Condensed Consolidated Balance Sheets.............................4
Condensed Consolidated Statements of Operations...................5
Condensed Consolidated Statements of Cash Flows...................6
Notes to Condensed Consolidated Financial Statements..............7
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................10
Item 3.Quantitative and Qualitative Disclosures about Market Risks.......17
PART II - OTHER INFORMATION.................................................18
Item 1.Legal Proceedings.................................................18
Item 2.Changes in Securities and Use of Proceeds.........................18
Item 3.Defaults upon Senior Securities...................................18
Item 4.Submission of Matters to a Vote of Security Holders...............18
Item 5.Other Information.................................................18
Item 6.Exhibits and Reports on Form 8-K..................................18
Signatures..................................................................19
-3-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OXiGENE, Inc.
Condensed Consolidated Balance Sheets
(All amounts, except share amounts, in thousands)
March 31, December 31,
2002 2001
---- ----
(Unaudited)
Assets
Current assets:
Cash $ 16,525 $ 19,030
Available-for-sale securities 1,671 -
Prepaid expenses 298 457
Interest receivable 1 -
Other current assets 14 13
-------- --------
Total current assets 18,509 19,500
Property and equipment, at cost 863 867
Accumulated depreciation (271) (237)
-------- --------
Net property and equipment 592 630
License agreements, net of accumulated amortization 1,240 1,939
Deposits 77 84
-------- --------
Total assets $ 20,418 $ 22,153
======== ========
Liabilities and stockholders' equity
Current liabilities:
License agreement payable - current portion $ 273 $ 270
Accrued expenses for research and development 1,350 1,269
Other accrued expenses 512 514
Other payables 1,208 1,138
-------- --------
Total current liabilities 3,343 3,191
License agreement payable - non-current portion 454 442
Stockholders' equity:
Common Stock, $.01 par value, 60,000,000
shares authorized: 12,636,664 shares at
March 31, 2002 and 11,432,093 shares at
December 31, 2001 issued and outstanding 123 114
Additional paid-in capital 84,067 82,385
Accumulated deficit (64,811) (60,640)
Accumulated other comprehensive income 423 461
Notes receivable (2,657) (3,765)
Deferred compensation (524) (35)
-------- --------
Total stockholders' equity 16,621 18,520
-------- --------
Total liabilities and stockholders' equity $ 20,418 $ 22,153
======== ========
See accompanying notes.
-4-
OXiGENE, Inc.
Condensed Consolidated Statements of Operations
(All amounts in thousands, except per share data)
(Unaudited)
Three months ended
March 31,
2002 2001
---- ----
Revenues:
Licensing revenue $ - $ 757
Interest income 79 352
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Total revenues 79 1,109
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Expenses:
Costs relating to licensing revenue - 624
Amortization of license agreement 20 74
Research and development 1,910 1,251
General and administrative 3,629 1,187
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Total costs and expenses 5,559 3,136
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Net loss from operations (5,480) (2,027)
Gain on sale of joint venture 1,325 -
Interest expense (13) (17)
Other expense, net (3) (99)
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Net loss $ (4,171) $ (2,143)
======== ========
Basic and diluted net loss per common share $ (0.35) $ (0.19)
======== ========
Weighted average number of common shares outstanding 11,961 11,376
======== ========
See accompanying notes.
-5-
OXiGENE, Inc.
Condensed Consolidated Statements of Cash Flows
(All amounts in thousands)
(Unaudited)
Three months ended
March 31,
2002 2001
---- ----
Operating Activities:
Net loss $ (4,171) $ (2,143)
Adjustment to reconcile net loss to net cash used in
operating activities:
Gain on sale of joint venture (1,325) -
Compensation expense related to issuance of Common Stock 2,297 -
Depreciation 38 43
Abandonment of property and equipment 2 -
Compensation related to issuance of options 13 66
Amortization of deferred licensing revenue - (133)
Amortization of licensing agreement 24 74
Loss on sale of available-for-sale securities - 99
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 166 (129)
Accounts payable and accrued expenses 138 (301)
-------- --------
Net cash used in operating activities (2,818) (2,424)
Investing activities:
Purchase of available-for-sale securities (1,691) -
Proceeds from sale of investment 2,000 -
Purchase of property and equipment (3) (125)
Deposits - 18
Amounts paid for licensing agreement - 17
-------- --------
Net cash provided by (used in) investing activities 306 (90)
Effect of exchange rate on changes in cash 7 (24)
-------- --------
Net decrease in cash and cash equivalents (2,505) (2,538)
Cash and cash equivalents at beginning of period 19,030 27,063
-------- --------
Cash and cash equivalents at end of period $ 16,525 $ 24,525
======== ========
See accompanying notes.
-6-
OXiGENE, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2002
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2002 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2002.
The condensed consolidated balance sheet at December 31, 2001 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 2001. All dollar amounts are shown in thousands, except
par value and per share data.
Revenue Recognition
Revenue is deemed earned when all of the following have occurred: all
obligations of the Company relating to the revenue have been met and the
earnings process is complete; the monies received or receivable are not
refundable irrespective of the research results; and there are neither future
obligations nor future milestones to be met by the Company with respect to such
revenue.
Collaboration revenues are earned based upon research expenses incurred and
milestones achieved. Non-refundable payments upon initiation of contracts are
deferred and amortized over the period in which the Company is obligated to
participate on a continuing and substantial basis in the research and
development activities outlined in each contract. Amounts received in advance of
reimbursable expenses are recorded as deferred revenue until the related
expenses are incurred. Milestone payments are recognized as revenue in the
period in which the parties agree that the milestone has been achieved and is
deemed no further obligation exists.
Available-for-Sale Securities
In accordance with the Company's investment policy, surplus cash is
invested in corporate and U.S. Government debt securities. The Company
designates its marketable securities as available-for-sale securities.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, if any, reported as accumulated other
comprehensive income (loss) in stockholders' equity. Realized gains and losses
and declines in value judged to be other-than-temporary on available-for-sale
-7-
securities are included in other expense, net. Interest and dividends on
securities classified as available-for-sale are included in interest income.
Net Loss Per Share
Basic and diluted net loss per share were calculated in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, Earnings Per
Share, by dividing the net loss per share by the weighted-average number of
shares outstanding. All options issued by the Company were antidilutive and,
accordingly, excluded from the calculation of weighted-average shares.
Comprehensive Income (Loss)
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"), establishes rules for the reporting and
display of comprehensive income and its components and requires unrealized gains
or losses on the Company's available-for-sale securities and the foreign
currency translation adjustments to be included in accumulated other
comprehensive income. Accumulated other comprehensive income consists of
unrealized loss on available-for-sale securities of approximately $0.02 million
and approximately $1.0 million and accumulated foreign currency translation
adjustment gain of approximately $0.4 million and approximately $0.5 million at
March 31, 2002 and December 31, 2001, respectively.
2. Stockholders' Equity
In January 2002, the Company offered to cancel 1,119,071 options
outstanding with exercise prices significantly above the current market value of
the Company's Common Stock. A total of 1,109,571 options were subsequently
cancelled. Under the recently adopted Compensation Award Stock Program, a total
of 821,030 shares of Common Stock were issued to directors. In addition, under
the Restricted Stock Program, 208,541 shares of Restricted Common Stock were
issued to employees and consultants. The restricted shares are subject to
forfeiture and transfer restrictions until they vest, generally over a
three-year period. As a result, the Company recognized non-cash compensation
expense of approximately $2.9 million, of which approximately $2.3 million was
recognized in the first quarter of 2002 and approximately $0.6 million will be
recognized over three years through 2004.
Under the terms of both programs, participants are permitted to request a
loan from the Company, the proceeds of which are to be used to satisfy any
participant tax obligations that arise from the awards. These loans will be
evidenced by a promissory note. Principal amounts outstanding under the
promissory note will accrue interest at a rate of 10% per year, compounded
annually. The principal amount, together with accrued interest on the principal
amount to be repaid, will be repaid in three equal installments, on the first
three anniversary dates of the stock grant date. Shares of Common Stock have
been pledged to the Company as security for repayment of the obligations under
the notes, and the stock certificates representing those shares shall remain in
the possession of the Company until the loans are repaid. In the event a
participant fails to pay all amounts due under a promissory note, the number of
shares of that participant's stock, sufficient to satisfy the unpaid amounts,
will be forfeited. No loans have been issued to date.
The market value of the Company's Common Stock at March 31, 2002 was lower
than the exercise price of previously issued Stock Appreciation Rights ("SARs").
SARs granted to employees pursuant to the amended and restated 1992 Plan
entitled the holder to receive the number of shares of Common Stock as is equal
-8-
to the excess of the fair market value of one share of Common Stock on the
effective date of exercise over the fair market value of one share of Common
Stock on the date of grant, divided by the fair market value on the date of
exercise, multiplied by the number of rights exercised. These rights vest
ratably over three years and are exercisable for ten years. Accordingly, there
was no financial reporting impact for the three months ended March 31, 2002.
During the three months ended March 31, 2002, the Company recorded stock-based
compensation expense of approximately $0.01 million in connection with options
issued to non-employees in the prior years.
3. Subsequent Event
On April 23, 2002, the Company and Active Biotech AB ("Active") signed an
exclusive licensing agreement pursuant to which the Company granted to Active
certain intellectual property rights related to the Company's benzamide-based
compound, Declopramide. Under the terms of the agreement, the Company will
supply all of its existing documentation and results from its Phase I
Declopramide trials to Active. Active assumes all responsibilities for
development of the compound and the Company will share any future milestone and
royalty payments resulting from successful development of the compound.
4. Termination of Joint Venture Agreement
On May 17, 2000, the Company entered into a joint venture agreement with
Peregrine Pharmaceutical, Inc. ("Peregrine") forming Arcus Therapeutics, LLC
("ARCUS") to develop and commercialize certain technologies. Under the terms of
the agreement, Peregrine and the Company supplied intellectual property and a
license to use certain compounds, respectively, to the joint venture.
In February 2002, the Company and Peregrine agreed to conclude the ARCUS
joint venture. Under the terms of the agreement, Peregrine paid the Company $2.0
million and both Peregrine and the Company reacquired full rights and interest
to the vascular targeting platforms they contributed to the joint venture.
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and
results of Operations as of March 31, 2002 and 2001 should be read in
conjunction with the sections of our audited consolidated financial statements
and notes thereto, as well as our "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that is included in our Annual
Report on Form 10-K for the year ended December 31, 2001.
Description of Business
OXiGENE, Inc. (the "Company") is an international biopharmaceutical company
engaged principally in the research and development of products for use in the
treatment of cancer. Historically, the Company's activities were directed
primarily towards products designed to complement and enhance the clinical
efficacy of radiation and chemotherapy, which are the most common and
traditional forms of non-surgical cancer treatment. Recently, however, our
efforts have focused primarily on our vascular targeting agents ("VTAs" or
"VTA"), Combretatastin CA4 Prodrug ("CA4P") and Oxi-4503. The Company has
incurred losses since inception, principally as a result of research and
development and general and administrative expenses in support of operations.
The Company has devoted substantially all of its efforts and resources to
research and development conducted on its own behalf and through strategic
collaborations with clinical institutions, universities and other research
organizations.
The Company's failure to successfully complete human clinical trials,
develop and market products over the next several years, or to realize product
revenues, would have a material effect on its business, financial condition and
results of operations. Royalties or other revenue generated for the Company from
commercial sales of the Company's potential products are not expected for
several years, if at all.
On December 15, 1999, the Company entered into a Research Collaboration and
License Agreement with Bristol-Myers Squibb Company ("BMS"). This agreement gave
BMS world-wide rights to develop Combretastatin compounds, including OXiGENE's
lead compound CA4P, as a new class of anti-cancer agents. Pursuant to the terms
of the BMS Agreement, BMS paid a non-refundable license fee and agreed to assume
all research, development, commercialization and/or marketing costs of all
in-licensed products. In October 2001, the Company announced that it had
regained its rights to the Combretastatin anti-tumor compounds licensed to BMS
upon the agreement of the parties to conclude the Research Collaboration and
License Agreement. The Company recognized approximately $6.9 million of deferred
revenue as revenue in the fourth quarter of 2001 as a result of the termination
of the above stated agreement. The Company may incur future liability to BMS
upon the in-license of certain technologies related to the agreement. In
February of 2002, the Company and BMS finalized a termination agreement setting
forth the two companies' agreement with respect to the termination.
On May 17, 2000, the Company entered into a joint venture agreement with
Peregrine Pharmaceuticals, Inc. ("Peregrine"), forming Arcus Therapeutics LLC
("ARCUS") to develop and commercialize VTA technologies employing conjugated
antibodies. Under the terms of the joint venture agreement, the Company agreed
to provide exclusive licenses to its next generation tubulin-binding compounds
-10-
for use solely in conjunction with a Peregrine antibody and, based upon the
development success of the joint venture, agreed to fund up to $20.0 million of
the development expenses of ARCUS. In addition, the Company paid Peregrine an
upfront licensing fee of $1.0 million and purchased $2.0 million, or 585,009
shares, of Peregrine's Common Stock. In June 2001, the Company sold all 585,009
shares of Peregrine's Common Stock and recorded a loss on sale of
available-for-sale securities of approximately $0.6 million. In February 2002,
the Company and Peregrine agreed to conclude the ARCUS joint venture. Under the
terms of the agreement, Peregrine paid the Company $2.0 million and both
Peregrine and the Company reacquired full rights and interest to the vascular
targeting platforms they contributed to the joint venture.
In July 2001, the Company concluded the sale of its nutritional and
diagnostic technology, Nicoplex and Thiol, respectively, to CampaMed LLC
("CampaMed"). Under the terms of the agreement, CampaMed provided approximately
$3.3 million in future payments based upon sales of the products. In addition,
the Company was granted a 10% equity position in CampaMed. No revenue was
recognized under this agreement during the period ended March 31, 2002.
In September 2001, the Company entered into a Joint Research Agreement with
Jomed N.V. ("Jomed") to research restenosis inhibitors, integrating Jomed's
stent technology with the Company's platform of VTAs. Pursuant to the agreement,
Jomed has agreed to fund and perform proof-of-concept studies with the Company's
VTAs on drug eluting stents. At the conclusion of the studies, and dependant in
part on the results of the studies, the Company and Jomed intend to meet to
negotiate further business terms regarding rights, licenses and royalties
arrangements for going forward.
In September 2001, the Company signed a Materials-Cooperative Research and
Development Agreement with the National Eye Institute, a division of the
National Institutes of Health, to study the effects of CA4P on an animal model
of proliferative diabetic retinopathy, which is an eye disease characterized by
aberrant neo-vasculature growth. The Company agreed to fund the cost of this
study.
The Company has generated a cumulative net loss of approximately $64.8
million for the period from its inception through March 31, 2002. The Company
expects to incur significant additional operating losses over at least the next
several years, principally as a result of its continuing clinical trials,
planned future clinical trials, and anticipated research and development
expenditures. The principal source of the Company's working capital has been the
proceeds of private and public equity financing and the exercise of warrants and
stock options. Prior to entering into the agreement with BMS, the Company had no
material licensing revenues or other fee income. The Company will continue to
have no material amount of revenues or fee income due to the termination of the
BMS agreement, unless the Company enters into another arrangement providing
licensing or fee revenue. As of March 31, 2002, the Company had no long-term
debt or loans payable.
-11-
Results of Operations - Three Months Ended March 31, 2002 and 2001
Revenues
Three Months Ended March 31, 2002 and 2001
For the three months ended March 31, 2002, the Company had no licensing
revenue due to the termination of the Research Collaboration and License
Agreement with BMS. For the three months ended March 31, 2001, the Company had
licensing revenue of approximately $0.8 million. For the three months ended
March 31, 2002 and 2001, the Company had interest income of approximately $0.1
million and approximately $0.4 million, respectively. The decrease in interest
income is primarily due to the Company's overall cash position decreasing as
well as declining interest rates and returns on investments throughout 2002. The
Company will continue to generate no material amount of revenues or fee income
due to the termination of the BMS agreement, unless the Company enters into
another arrangement providing the Company licensing or fee revenue.
Expenses
Three Months Ended March 31, 2002 and 2001
Total operating expenses for the three months ended March 31, 2002 and 2001
amounted to approximately $5.6 million and approximately $3.1 million,
respectively. Research and development expenses increased to approximately $1.9
million during the three months ended March 31, 2002 from approximately $1.3
million for the comparable 2001 period. The increase of approximately $0.6
million was attributable to the Company's decision to proceed forward with the
research and development of its lead compound CA4P following the termination of
the Research Collaboration and License Agreement with BMS, of which, research
and development costs associated with this agreement were previously assumed by
BMS. Partially offsetting this increase was the Company's termination of its
joint venture with Peregrine, ARCUS, and the conclusion of further development
of its benzamide-based compound, Declopramide.
Non-qualified stock options ("NQSOs") granted to certain consultants and
advisory board members who are not employees resulted in research and
development expenses relative to the fair value of the options that vested
during the applicable reporting period. During 2002 and 2001, the Company
recorded approximately $0.01 million and approximately $0.07 million,
respectively, of research and development expenses related to options issued for
services provided by non-employees. Because the market value of the Company's
Common Stock at December 31, 2001 was lower than the exercise price of
previously issued SARs and there was no balance for previously recorded charges
for the SARs, no expense was recorded for the three month period ended March 31,
2002 and 2001.
Generally, the Company makes payments to its clinical investigators if and
when certain pre-determined milestones in its clinical trials are reached,
rather than on a fixed quarterly or monthly basis. As a result of the foregoing
and the existence of outstanding SARs and NQSOs, research and development
expenses have fluctuated, and are expected to continue to fluctuate, from
quarter to quarter.
-12-
General and administrative expenses for the year ended March 31, 2002
increased to approximately $3.6 million from approximately $1.2 million for the
comparable 2000 period. The increase of approximately $2.4 million was primarily
attributable to a one-time non-cash compensation charge associated with the
Compensation Award Stock Program of approximately $2.2 million and an
approximate $0.1 million recurring charge associated with the Restricted Stock
Program, issued in February 2002. Absent this one-time charge of approximately
$2.3 million, general and administrative expenses would have increased
approximately $0.1 million, which was due to higher legal expenses. In an effort
to preserve cash and reduce cash flow requirements, the Company's policy has
been, and will continue to be, to minimize the number of employees and to use
outside consultants to perform services for the Company to the extent
practicable.
Liquidity and Capital Resources
The Company has experienced net losses and negative cash flow from
operations each year since its inception, except in fiscal 2000. As of March 31,
2002, the Company had an accumulated deficit of approximately $64.8 million. The
Company expects to incur additional expenses, resulting in operating losses,
over at least the next several years due to, among other factors, its continuing
clinical trials, planned future clinical trials, and other anticipated research
and development activities.
The Company had cash and available-for-sale securities of approximately
$18.2 million at March 31, 2002, compared to approximately $19.0 million at
December 31. 2001. In February 2002, the Company received $2.0 million from
Peregrine in connection with the termination of the ARCUS joint venture. Absent
this payment, the cash and available-for-sale securities would have been
approximately $16.1 million. The approximate decrease of $2.9 million was
attributable to higher legal expenses, costs associated with further development
of the Company's lead compound, CA4P, which such costs were not assumed by BMS
due to the termination of the Research Collaboration and License Agreement, and
normal increases in monthly recurring charges.
The Company anticipates that cash and cash equivalent balances will
continue to decrease as cash is utilized in the normal course of operations,
such decrease may be offset in whole or in part to the extent the Company enters
into any new collaboration agreements that are a source of funding.
The Company's policy is to seek to contain fixed expenditures by
maintaining a relatively small number of employees and relying as much as
possible on outside services for its research, development, pre-clinical testing
and clinical trials. The Company makes quarterly payments to the University of
Lund, Lund, Sweden, for pre-clinical research.
-13-
The Company anticipates that its cash and cash equivalents as of March 31,
2002, should be sufficient to satisfy the Company's projected cash requirements
as of that date through approximately the third quarter of 2005. The Company has
focused and streamlined its research and development programs and has thereby
reduced its projected annual cash burn rate. Management believes that these cost
containment measures should make available the capital required to pursue the
Company's current business plan, including the planned continued clinical
development of the Company's lead compound, CA4P. Further, the Company believes
its existing capital is sufficient to fund operations through completion of
clinical trials and the FDA approval process of CA4P, whether or not such
approval is ultimately obtained. However, the Company's cash requirements may
vary materially from those now planned for or anticipated by management due to
numerous risks and uncertainties. These risks and uncertainties include, but are
not limited to, the progress of and results of its pre-clinical testing and
clinical trials of CA4P, the progress of the Company's research and development
programs; the time and costs expended and required to obtain any necessary or
desired regulatory approvals; the resources, if any, that the Company devotes to
developing manufacturing methods and advanced technologies; the ability of the
Company to enter into licensing arrangements, including any unanticipated
licensing arrangements that may be necessary to enable the Company to continue
the Company's development and clinical trial programs; the costs and expenses of
filing, prosecuting and, if necessary, enforcing the Company's patent claims, or
defending the Company against possible claims of infringement by the Company of
third party patent or other technology rights; the impact of competition,
including the threat of technological advances and obsolescence; the cost of
commercialization activities and arrangements, if any, undertaken by the
Company; and, if and when approved, the demand for the Company's products, which
demand is dependent in turn on circumstances and uncertainties that cannot be
fully known, understood or quantified unless and until the time of approval, for
example the range of indications for which any product is granted approval.
The Security and Exchange Commission recommends that information about
contractual obligations and commercial commitments be provided in a single
location, preferably in a tabular form by due date and by expiration date. The
following table presents such information as of March 31, 2002:
Contractual Obligations Payments due by period
- -----------------------
Total Less than After 5
1 year 1-3 years 4-5 years years
----------------------------------------------------------
License Agreement Payable $ 727,000 $273,000 $ 454,000 $ - $ -
Termination Agreement 290,000 290,000 - - -
Operating lease 2,622,000 218,000 894,000 612,000 898,000
---------------------------------------------------------
Total contractual cash
obligations $3,639,000 $781,000 $1,348,000 $612,000 $898,000
=========================================================
Critical Accounting Policies
In December 2001, the SEC requested that all registrants discuss their most
"critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the Company's financial condition and results and requires management's most
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difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. We
believe the following accounting policies to be critical:
Revenue - The Company has entered into collaborations with a pharmaceutical
company and a university. These agreements provided for the development,
manufacturing and commercialization responsibilities related to our drug
candidates. Under these arrangements, the Company administered and participated
in several aspects of the remaining development of our drug candidates,
Combretastatin and Declopramide. The Company's collaborations have generally
provided for the Company's partners to make up-front payments, additional
payments upon the achievement of specific research and product development
milestones, share in the costs of development and/or pay royalties.
The Company recognizes revenue in accordance with Staff Accounting Bulletin
(SAB) No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. Under
this accounting method, the Company recognizes revenue when it is earned, that
is when all of the following have occurred: all obligations of the Company
relating to the revenue have been met and the earning process is complete; the
monies received or receivable are not refundable irrespective of research
results; and there are neither future obligations nor future milestones to be
met by the Company with respect to such revenue. In general, collaboration
revenues are earned based upon research expenses incurred and milestones
achieved. Non-refundable payments upon initiation of contracts are deferred and
amortized over the period in which the Company is obligated to participate on a
continuing and substantial basis in the research and development activities
outlined in each contract. The Company continually reviews these estimates that
could result in a change in the deferral period. Amounts received in advance of
reimbursable expenses are deferred and only recognized when the related expenses
have been incurred. Milestone payments are recognized as revenue in the period
in which the parties agree that the milestone has been achieved and it is deemed
that no further obligations exist.
Patent and Acquired License Costs - The Company files applications for
patents in connection with technologies being developed. The patent applications
and any patents issued as a result of these applications are important to the
protection of the Company's technologies that may result from its research and
development efforts. Costs associated with patent applications and maintaining
patents are expensed as incurred.
The Company has capitalized the costs of acquiring licenses related to its
exclusive License Agreement for the commercial development, use and sale of
products or services covered by patent rights related to Combretastatin owned by
ASU. The present value of the amount payable under the License Agreement has
been capitalized and is being amortized over the term of the agreement
(approximately 15.5 years). The Company also is required to pay royalties on
future net sales of products relating to these certain patent rights.
The Company evaluates it intangibles for important indicators in accordance
with SFAS No. 121. The Company does not have any impairment issues at March 31,
2002.
Use of Estimates - The Company prepares financial statements in accordance
with generally accepted accounting principles. These principles require that the
Company make estimates and use assumptions that affect the reporting of the
Company's assets and the Company's liabilities as well as the disclosures that
the Company makes regarding assets and liabilities and income and expense that
are contingent upon uncertain factors as of the reporting date. The Company's
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actual results, based upon the future resolution of these uncertainties, could
differ from our estimates.
R&D Disclosure
Members of the Company's research and development team typically work on a
number of development projects concurrently. Accordingly, the Company does not
separately track the costs for each of these research and development projects
to enable separate disclosure of these costs on a project-by-project basis. For
the quarter ended March 31, 2002 and the year ended December 31, 2001, however,
the Company estimates that the majority of the research and development expense
was related to sub-contract clinical expense and employee salaries related to
the research and development of Declopramide, a third generation benzamide
technology, the ARCUS joint venture and the next generation of VTAs.
The expenses involved with Declopramide relate to the Phase II human
clinical trials that were performed at three centers in the U.S and conducted by
a leading clinical research organization; the ARCUS joint venture expenses were
related to payments to the University of Texas Southwestern for the preclinical
development of conjugated monoclonal antibodies to be used as VTAs; and the
expenses for the drug discovery program targeted at developing the next enhanced
Combretastatin like compound relates to in vitro work performed at Baylor
University and in vivo studies at the University of Lund.
Tax Matters
As of March 31, 2002, the Company had net operating loss carry forwards of
approximately $85.0 million for U.S. and foreign income tax purposes, of which
approximately $52.6 million expires for U.S. tax purposes through 2020. Due to
the degree of uncertainty related to the ultimate use of these loss carry
forwards, the Company has fully reserved this tax benefit. Additionally, the
future utilization of the U.S. net operating loss carry forwards are subject to
limitations under the change in stock ownership rules of the Internal Revenue
Service.
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Item 3. Quantitative and Qualitative Disclosures about Market Risks
The Company has reviewed the provisions of Regulation S-K Item 305. At
March 31, 2002, the Company did not hold any derivative financial instruments,
commodity-based instruments or other long-term debt obligations. The Company has
adopted an Investment Policy and maintains its investment portfolio in
accordance with the Investment Policy. The primary objectives of the Investment
Policy is to preserve principal, maintain proper liquidity to meet operating
needs and maximize yields while preserving principal. Although our investments
are subject to credit risk, we follow procedures in place to limit the amount of
credit exposure in any single issue, issuer or type of investment. Our
investments are also subject to interest rate risk and will decrease in value if
market interest rates increase. However, due to the conservative nature of our
investments and relatively short duration, we believe interest rate risk is
mitigated. The Company's cash and marketable securities are maintained primarily
in U.S. dollar accounts and amounts payable for research and development to
research organizations are contracted in U.S. dollars. Accordingly, the
Company's exposure to foreign currency risk is limited because its transactions
are primarily based in U.S. dollars.
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PART II - OTHER INFORMATION
Item 2. Legal Proceedings
There are no material suits or claims pending or, to the best of the Company's
knowledge, threatened against the Company.
Item 3. Changes in Securities and Use of Proceeds
None.
Item 4. Defaults upon Senior Securities
None.
Item 5. Submission of Matters to a Vote of Security Holders
None.
Item 6. Other Information
Not applicable.
Item 7. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.13 Employment Agreement with Joel-Tomas Citron dated as of
January 2, 2002. *
10.14 Termination Agreement by and between the Registrant and
Bristol-Myers Squibb Company dated as of February 15, 2002. *
10.15 Plan and Agreement of Liquidation of Arcus Therapeutics LLC
dated as of February 28, 2002.
* Confidential treatment requested as to certain portions of the
document, which portions have been omitted and filed
separately with the Securities and Exchange Commission.
(b) Reports on Form 8-K.
On February 28, 2002, the Company filed a report on Form 8-K
announcing that the Arcus Therapeutics LLC joint venture with
Peregrine Pharmaceuticals Inc. ("Peregrine") ended with
Peregrine paying the Company $2.0 million and both companies
reacquiring full rights to their respective vascular targeting
technologies as well as the rights to any discoveries related
to their contributions to the joint venture.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OXiGENE, INC.
(Registrant)
By: /s/ Frederick W. Driscoll
-----------------------------
Frederick W. Driscoll
President and
Chief Executive Officer
May 15, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Rick St. Germain Controller and Chief May 15, 2002
- -------------------- Accounting Officer
Rick St. Germain
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