UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 0-20138
PHARMAGENICS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-3072524
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4 Pearl Court, Allendale, New Jersey 07401-1623
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code - (201) 818-1000
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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 periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, $.01 par value,
455,108 Shares at November 1, 1996.
PHARMAGENICS, INC.
INDEX TO FORM 10-Q
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets as of September 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . .3
Statements of Operations for the Three Month and Nine Month
periods ended September 30, 1996 and September 30, 1995 . . . . . . .4
Statements of Cash Flows for the Nine Month periods ended
September 30, 1996 and September 30, 1995 . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . . 9
PART II. ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . 12
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . 12
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PHARMAGENICS, INC.
BALANCE SHEETS
September 30, 1996 December 31, 1995
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,607,554 $ 1,639,182
Prepaid expenses 27,297 22,970
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Total current assets 1,634,851 1,662,152
Property and equipment, net of $1,980,984 and
$1,705,980 of accumulated depreciation 874,908 996,048
Other assets 40,925 35,425
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Total assets $ 2,550,684 $ 2,693,625
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LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 1,106,763 $ 942,736
Deferred revenue 438,400 1,038,400
Capital lease obligations - current 155,127 321,650
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Total current liabilities 1,700,290 2,302,786
Capital lease obligations - long-term 28,826 39,280
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Total liabilities 1,729,116 2,342,066
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Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value;
10,000,000 shares authorized;
Series A convertible preferred stock
2,160,000 shares issued and outstanding,
liquidation preference $4,017,600 21,600 21,600
Series B convertible preferred stock
2,138,399 shares issued and outstanding,
liquidation preference $16,038,000 21,384 21,384
Series C convertible preferred stock
issued and outstanding 3,076,556 in 1996
and 1,356,592 shares in 1995,
liquidation preference $6,614,595 30,765 13,566
Common stock - $.01 par value,
15,000,000 shares authorized,
issued and outstanding 455,108 shares in 1996
and 451,608 shares in 1995 4,551 4,516
Additional paid-in capital 26,066,218 22,394,917
Accumulated deficit (25,244,781) (21,939,837)
Deferred compensation (78,169) (164,587)
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Total stockholders' equity 821,568 351,559
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Total liabilities and stockholders' equity $ 2,550,684 $ 2,693,625
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The accompanying notes are an integral part of these financial statements.
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PHARMAGENICS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended September 30, Nine months ended September 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
-------------- --------------- -------------- ---------------
REVENUES:
Research contracts $ 145,600 $ 775,000 $ 914,470 $ 2,170,633
License fees and royalties 0 0 0 766
Grants 0 372 90,249 36,372
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Total revenues 145,600 775,372 1,004,719 2,207,771
-------------- --------------- -------------- ---------------
COSTS AND EXPENSES:
Research and development 1,056,466 867,194 3,272,820 2,926,511
General and administrative 363,951 288,709 1,110,938 971,710
-------------- --------------- -------------- ---------------
Total costs and expenses 1,420,417 1,155,903 4,383,758 3,898,221
-------------- --------------- -------------- ---------------
LOSS FROM OPERATIONS (1,274,817) (380,531) (3,379,039) (1,690,450)
Interest expense (7,705) (73,530) (34,156) (331,087)
Interest income 25,185 15,079 108,251 33,337
-------------- --------------- -------------- ---------------
NET LOSS $ (1,257,337) $ (438,982) $(3,304,944) $ (1,988,200)
-------------- --------------- -------------- ---------------
-------------- --------------- -------------- ---------------
Net loss per common share $ (2.77) $ (0.97) $ (7.31) $ (4.41)
-------------- --------------- -------------- ---------------
-------------- --------------- -------------- ---------------
Weighted average common
shares outstanding 453,554 451,498 452,256 451,338
-------------- --------------- -------------- ---------------
-------------- --------------- -------------- ---------------
The accompanying notes are an integral part of these financial statements.
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PHARMAGENICS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended September 30,
-----------------------------------
1996 1995
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OPERATING ACTIVITIES:
Net loss $ (3,304,944) $ (1,988,200)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 275,004 276,809
Amortization of deferred compensation expense 75,282 73,301
Expense incurred for warrants issued below fair market value -- 165,000
Interest on loans converted into Series C preferred stock -- 100,623
Changes in operating assets and liabilities:
(Increase) in prepaid expenses (4,327) (12,062)
(Increase) decrease in other assets (5,500) 15,840
Increase (decrease) in accounts payable and accrued expenses 164,027 (149,937)
(Decrease) in deferred revenue (600,000) (425,633)
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Net cash used in operating activities (3,400,458) (1,944,259)
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INVESTING ACTIVITIES:
Capital expenditures (153,864) (31,391)
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Net cash used in investing activities (153,864) (31,391)
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FINANCING ACTIVITIES:
Issuance of Series C convertible preferred stock 3,697,922 --
Payments on capital lease obligations (176,978) (176,361)
Proceeds from exercise of stock options 1,750 338
Proceeds from loans converted into equity -- 2,000,000
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Net cash provided by financing activities 3,522,694 1,823,977
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NET INCREASE IN CASH AND CASH EQUIVALENTS (31,628) (151,673)
Cash and cash equivalents at beginning of period 1,639,182 753,038
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,607,554 $ 601,365
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 34,156 $ 65,464
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The accompanying notes are an integral part of these financial statements
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PHARMAGENICS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - THE COMPANY
PharmaGenics, Inc. (the "Company"), a Delaware corporation, was
incorporated on August 11, 1989 and is an integrated drug discovery company
principally engaged in the discovery and development of therapeutics for the
treatment of cancer based upon tumor suppressor genes and other cancer-related
genes. The Company utilizes proprietary SAGE (Serial Analysis of Gene
Expression) technology to evaluate and identify genes that are abnormally
expressed in cancer and other diseases, designs assays and implements
high-throughput screens for identification of therapeutic lead compounds, and
exploits its proprietary combinatorial chemistry technology to generate drug
candidates that target proteins relevant to cancer as well as other diseases.
The Company is subject to a number of risks similar to those of other
companies at this stage of development, including, but not limited to,
dependence on key individuals; uncertainty whether the Company's research and
development activities will result in the development of commercially usable
products and processes; competition from alternative products or processes; the
impact of research and product development activities of competitors of the
Company, many of whom have greater financial or other resources than those of
the Company; uncertainties related to clinical trials; uncertainties related to
technological improvements and advances; the need and ability to obtain adequate
additional financing necessary to fund continuing operations and product
development; uncertainties related to legal proceedings; uncertainties of
obtaining required regulatory approvals; and uncertainties of future
profitability. The Company expects to incur substantial additional costs before
it can begin to generate revenue from product sales sufficient to fund its
operations, including costs related to ongoing research and development
activities, preclinical studies and regulatory compliance, and for hiring
additional management, manufacturing, scientific, sales and administrative
personnel.
The Company was able to obtain additional financing in the first
quarter of 1996 and received a stand-by credit facility after the end of the
third quarter of 1996. The Company believes that its current cash resources and
other available funding sources, including the stand-by credit facility, are
sufficient to fund operations into early 1997. Since the Company will require
additional funds before it would be able to generate revenues sufficient to fund
its operations beyond such time, it is currently seeking additional financing
through a variety of strategies, including corporate collaborations and other
financing vehicles, and is contemplating various possible strategic options,
including mergers and corporate recapitalizations or reorganizations. No such
arrangements have yet been concluded and there can be no assurance that
continued funding will be available to the Company or that, if available, the
amounts will be sufficient to maintain the Company and its operations or the
terms will be acceptable to the Company.
NOTE 2 - BASIS OF PREPARATION
The information presented at September 30, 1996 and for the three
month and nine month periods then ended is unaudited, but includes all
adjustments (consisting only of normal recurring adjustments) that the Company's
management believes to be necessary for the fair presentation of results for the
periods presented. These financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not contain certain of the information and footnotes
required by generally accepted accounting principles for annual financial
statements. These financial statements should, therefore, be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1995, which were included as part of the Company's Annual
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PHARMAGENICS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - BASIS OF PREPARATION (CONTINUED)
Report on Form 10-K. The December 31, 1995 balance sheet was derived from
audited financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3 - SERIES C CONVERTIBLE PREFERRED STOCK
In February 1996, the Company held a final closing on 1,719,964
additional shares of Series C convertible preferred stock for proceeds to the
Company of approximately $3,698,000 in a private placement offering that
commenced in December 1995. The offering was made directly by the Company to
the holders of the Company's other preferred stock and to new investors.
Including an initial closing in December 1995, total shares sold in this private
placement were 2,099,522 and proceeds to the Company were approximately
$4,514,000.
NOTE 4 - AGREEMENTS WITH PAINEWEBBER R&D PARTNERS III, L.P.
In May 1994, the Company entered into a series of agreements (the "R&D
Agreements ) with PaineWebber R&D Partners III, L.P. (the "Partnership"),
pursuant to which the Partnership paid a $250,000 license fee and agreed,
subject to certain conditions, to pay the Company up to $5,750,000 to conduct
research and development on behalf of the Partnership on targets previously
identified by the Company pursuant to a development plan originally projected to
extend through March 31, 1996. The Company has continued research activities
under such development plan beyond March 31, 1996. In March 1995 the R&D
Agreements were modified to, among other things, expand the area of research
under the development plan and to provide for acceleration of $750,000 of
research funding under the R&D Agreements into 1995. In addition, in September
1995 the Company converted a $1,000,000 loan from the Partnership into Series C
convertible preferred stock of the Company in lieu of repayment in cash, and
thereby reduced by $1,000,000 research funding available from the Partnership
under the R&D Agreements. As of December 31, 1995, the Company had received all
funding pursuant to the R&D Agreements. Furthermore, as of December 31, 1995
and September 30, 1996, $1,038,400 and $438,400, respectively, of the funding
received represents deferred revenue under the R&D Agreements, which relate to
research activities yet to be completed by the Company.
The R&D Agreements grant to the Company an option (the "Purchase
Option"), which in certain cases must be exercised, to purchase certain or all
of the rights owned by the Partnership as a result of activities under the R&D
Agreements ("Partnership Rights"). The Purchase Option terminates December 31,
1998 or earlier upon the occurrence of certain events. The Purchase Option
exercise price to acquire the Partnership Rights began at $9.4 million,
increased to $9.8 million on July 1, 1996, increases to $10.2 million on October
1, 1996 and then increases quarterly in increments up to $19.2 million. The
option price may be paid in whole or in part in shares of the Company's common
stock provided that such shares are registered under the Securities Act of 1933
and are tradable on a national securities exchange or The Nasdaq Stock Market
National Market System.
In consideration for the Purchase Option, the Company issued to the
Partnership a warrant to purchase up to 1,000,000 shares of the Company's common
stock (the "Core Warrant") and a
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PARMAGENICS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - AGREEMENTS WITH PAINEWEBBER R&D PARTNERS III, L.P. (CONTINUED)
warrant to purchase up to an additional 666,667 shares of the Company's common
stock (the "Purchase Option Warrant"). With the modification of the R&D
Agreements in March 1995, the exercise price on both the Core Warrant and the
Purchase Option Warrant was fixed at $2.15 per share, subject to antidilution
provisions and other adjustments. The Core Warrant is exercisable for a period
of five years beginning July 1, 1996. The Purchase Option Warrant is
exercisable for a period of four years generally beginning ninety days following
the termination of the Purchase Option. If an initial public offering of the
Company's common stock has occurred and the Company exercises the Purchase
Option, the Purchase Option Warrant is subject to partial or full cancellation.
If the Company undergoes a change in control, as defined in the R&D Agreements,
the Partnership has an option to convert the amounts provided to the Company
under the R&D Agreements into equity of the Company. If such a conversion
occurs, the Purchase Option Warrant will be cancelled and the Company will
acquire sole rights to all technology under the R&D Agreements.
-8-
PARMAGENICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the Financial
Statements and notes thereto included earlier in this report.
Discussions regarding the Company's expectations of research and
collaborative agreements, operating expenses, working capital financing, lease
financing, legal proceedings and access to capital constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not vary
materially from its expectations. Meaningful factors that could cause actual
results to differ from expectations include, among others, uncertainties
relating to whether patents will issue and whether patents that issue will
provide the Company with adequate protection from other products or competitors;
dependence on key individuals for achievement of these expectations,
particularly the contributions of Michael I. Sherman, the Company's President
and Chief Executive Officer; continued collaboration between the Company and
Drs. Bert Vogelstein and Kenneth Kinzler of The Johns Hopkins University School
of Medicine; continued collaboration between the Company and its other
corporate, governmental and academic collaborators; establishment of additional
collaborations with academia or corporations; uncertainty whether the Company's
research and development activities will result in the development of
commercially usable products and processes; competition from alternative
products or processes; uncertainties related to technological improvements and
advances; the impact of research and product development activities of
competitors of the Company, many of whom have greater financial or other
resources than those of the Company; the ability to obtain adequate additional
financing necessary to fund operations and product development and the terms on
which such financing might be available; the ability to obtain lease financing
for capital equipment; uncertainties related to legal proceedings; uncertainties
related to clinical trials; uncertainties of obtaining required regulatory
approvals; advances in cancer research, in general; the ability of the Company
to arrange for the manufacture and marketing of any new products; and
uncertainties of future profitability. For additional information concerning
these and other important factors which may cause the Company's actual results
to differ materially from expectations, reference is also made to the Company's
Annual Report on Form 10-K and other reports filed by the Company with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
Revenues for the three months and nine months ended September 30, 1996 were
$145,600 and $1,004,719, respectively, decreases of $629,772 and $1,203,052
compared to the same periods last year. Research contracts were the primary
component of revenues for the periods and account for the decreases for the
comparable periods.
For the third quarter of 1996, the sole source of revenues earned under
research contracts was a series of agreements (the "R&D Agreements") with
PaineWebber R&D Partners III, L.P. (the "Partnership"). For the first nine
months of 1996, sixty-six percent of revenues from research contracts were
earned under the R&D Agreements, thirty-two percent were from a collaborative
agreement with Boehringer Mannheim GmbH (see "Financial Condition, Liquidity and
Capital Resources"), and the balance was from a research agreement with Genetic
Therapy, Inc. ("GTI"). Furthermore, as of September 30, 1996, the Company had
received $438,400 of deferred revenue under the R&D Agreements, which relate to
research activities yet to be completed by the Company. See Note 4 of Notes to
Financial Statements. Additionally, all funding pursuant to the research
agreement with GTI had been received and earned as of March 31, 1996. During
the third quarter and first nine months of 1995, ninety-seven percent and
ninety-two percent, respectively, of research contract revenues were earned
under the R&D Agreements with the Partnership. Grant revenues in 1996 were
earned under a five-year U.S. National Cancer Institute ("NCI") grant awarded as
a Cooperative Agreement in September
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PHARMAGENICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS(CONTINUED)
of 1995. Grant revenues in 1995 were earned under a NCI Small Business
Innovative Research grant that was awarded in May 1994 and concluded in 1995.
Research and development expenses were $1,056,466 for the third quarter
of 1996 and $3,272,820 for the first nine months of 1996, increases of
$189,272 compared to the third quarter of 1995 and $346,309 compared to the
first nine months of 1995. Research expenses to support programs at
collaborators increased by approximately $112,500 in the third quarter and by
approximately $325,400 in the first nine months of 1996 compared to the same
periods last year. In addition, compensation expense increased by
approximately $25,500 or 5% in the third quarter of 1996 compared to the same
period last year, reflecting the impact of merit increases and promotions
awarded earlier in 1996, while for the first nine months compensation expense
increased by approximately $15,300 or 1% in 1996 compared to 1995. Although
research staffing totalled 33 at September 30, 1996 and at September 30,
1995, staffing was at lower levels during most of the first half of 1996 than
at September 30, 1996 and during the first half of 1995. As a result of
lower staffing, expenses for research supplies decreased by approximately
$23,600 for the first nine months of 1996 compared to the first nine months
of 1995. However, expenses for research supplies increased by approximately
$17,300 in the third quarter of 1996 compared to the third quarter of 1995,
primarily attributed to the Company's efforts in implementing its SAGE
genomics technology while staffing levels were comparable during these
quarters. The Company incurred an increase of approximately $21,000 for the
first nine months of 1996 compared to the same period last year in payments
for scientific advisors mainly due to increases in consulting fees and the
timing of meetings of the Company's Scientific Advisory Board.
General and administrative expenses were $363,951 for the third quarter of
1996 and $1,110,938 for the first nine months of 1996, increases of
approximately $75,200 compared to the third quarter of 1995 and $139,200
compared to the first nine months of 1995. Professional fees increased by
approximately $39,500 and $90,200 for the third quarter and first nine months of
1996, respectively, compared to the same periods last year, primarily attributed
to counsel in connection with the Company's efforts to obtain additional
financing through, among other strategies, corporate collaborations, to secure
and protect patents and to respond to litigation brought against the Company
earlier in the year. See "Legal Proceedings." Compensation expense increased
by approximately $24,500 and $59,100 for the third quarter and first nine months
of 1996, respectively, compared to the same periods last year, reflecting the
addition of a senior vice president and chief counsel as well as the impact of
merit increases awarded earlier in 1996.
The Company's interest expense decreased to $7,705 for the third quarter of
1996 and to $34,156 for the first nine months of 1996 from $73,530 for the third
quarter of 1995 and $331,087 for the first nine months of 1995, primarily
reflecting borrowings of $1,000,000 under loan agreements in February 1995 and
the related issuance of warrants and borrowing of $1,000,000 upon the issuance
to the Partnership of a convertible note in June 1995. The principal and
accrued interest under the loan agreements and the convertible note were
converted into Series C convertible preferred stock as of September 30, 1995.
Interest income increased in 1996 due to higher cash and cash equivalent
balances as a result of proceeds received from the private placement offering
completed in February 1996.
Net losses were $1,257,338 for the quarter ended September 30, 1996
compared to $438,982 for the same quarter last year. For the first nine months
of 1996 net losses were $3,304,944 compared to $1,988,200 for the first nine
months of 1995. Decreases in revenue earned under research contracts account
for most of the increase in net losses.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had cash and cash equivalents of
$1,607,554, a decrease of $31,628 compared to December 31, 1995. In February
1996, the Company held a final
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PHARMAGENICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINACIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
closing on 1,719,964 additional shares of Series C convertible preferred
stock for proceeds to the Company of approximately $3,698,000 in a private
placement offering that commenced in December 1995. The offering was made
directly by the Company to the holders of the Company's other preferred stock
and to new investors. Including an initial closing in December 1995, total
Series C shares sold in the private placement were 2,099,522 and proceeds to
the Company were approximately $4,514,000.
Cash used in operations was $3,400,458 during the first nine months of 1996
compared to $1,944,259 used in operations during the same period of 1995,
primarily due to a reduction during 1996 in funding under research agreements.
As of December 31, 1995, all funding pursuant to the R&D Agreements had been
received by the Company. In addition, with the receipt of $25,000 in the first
quarter of 1996, all research funding pursuant to the research agreement with
GTI has been received by the Company. The Company had received approximately
$290,000 of contract research payments from Boehringer Mannheim GmbH
("Boehringer") in the first half of 1996. The Company might receive additional
amounts pursuant to the collaborative agreement with Boehringer; however, the
amount and timing of any such payments are uncertain. Funding required for
operating activities during the first nine months of 1996 was primarily provided
by the use of cash reserves and proceeds received from the private placement
offering. Funding required for operating activities during the same period of
1995 was provided by the use of cash reserves, research contract revenues and
funding received under loan agreements. These loans were converted into Series C
convertible preferred stock as of September 30, 1995.
The Company expects to continue to finance its anticipated operating losses
and its capital expenditures into early 1997 from existing cash reserves,
$100,000 of revenues from a genomics company in connection with their
contemplation of entering into a commercial relationship regarding SAGE
technology, approximately $100,000 of grant funding in the fourth quarter of
1996 from NCI as the Company's share under the Cooperative Agreement award
received in September 1995, and a stand-by credit facility made available to the
Company in the fourth quarter of 1996 from another biotechnology company with
more substantial resources than that of the Company, which biotechnology company
also has expressed interest in, among other things, acquiring access to SAGE
technology and in a possible broader relationship with the Company. In
addition, the Company has a commitment from a leasing company for up to $700,000
in equipment lease financing.
The Company believes that its current cash resources and the aforementioned
sources of funding are sufficient to fund operations into early 1997. The
Company will require additional financing to continue its operations beyond such
time and there can be no assurance that sources currently in place would
continue to be available beyond the first quarter of 1997. If additional
funding is not obtained, the Company may be required to take one or more of the
following actions: significantly curtail its research activities, cease
operations, or obtain funds through arrangements with collaboration partners or
others that may require the Company to relinquish rights to certain of its
technologies or product candidates.
The Company expects to incur substantial additional costs before it would
be able to begin to generate revenue from product sales, including costs related
to ongoing research and development activities, preclinical studies and
regulatory compliance, and for hiring additional management, manufacturing,
scientific, sales and administrative personnel. Since the Company will require
additional funds before it is able to generate revenues sufficient to fund
operations, it is currently seeking additional financing through a variety of
strategies, including corporate collaborations and other financing vehicles, and
is contemplating various possible strategic options, including mergers and
corporate recapitalizations or reorganizations. No such arrangements have yet
been concluded and there can be no assurance that continued funding will be
available to the Company or that, if available, the amounts will be sufficient
to maintain the Company and its operations or the terms will be acceptable to
the Company.
-11-
PHARMAGENICS, INC.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 19, 1996, LBC Capital Resources, Inc. ("LBC") brought an action
against the Company in the Superior Court of New Jersey in Bergen County,
alleging breach of contract and related causes of action arising out of an
agreement between the Company and LBC that obligated LBC to assist the Company
in finding new sources of capital. LBC asserts that the Company improperly
declined to pay LBC a commission in accordance with the agreement, and seeks
damages in excess of $150,000. The Company does not believe that the agreement
entitles LBC to a commission under these circumstances and will contest the
action vigorously. There have been no material new developments since the
Company's last report on Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
Numbers Description and Method of Filing
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3.1. Third Restated Certificate of Incorporation.(7)
3.1(a) Amendment to Third Restated Certificate of Incorporation.(9)
3.1(b) Certificate of Designation of Series C Convertible Preferred
Stock.(10)
3.2. By-laws, as amended.(1)
4.1. Warrant Agreement dated November 14, 1991 by and between the
Company and American Stock Transfer & Trust Company, as Warrant
Agent.(1)
4.2. Form of Warrant Certificate.(1)
4.3. Form of Common Stock Certificate and Series B Preferred Stock
Certificate.(1)
10.1. Lease dated November 20, 1990, as amended, between AETNA Life
Insurance Company and the Company.(1)
10.1(a) Third Amendment to Exhibit 10.1.(2)
10.1(b) Fourth Amendment to Exhibit 10.1.(9)
10.2. Letter Agreement dated June 8, 1990 between the Company and
Michael I. Sherman.(1)
10.3. Non-Transferable, Non-Qualified Stock Option Agreement dated
March 27, 1991 between the Company and Michael I. Sherman.(1)
10.4. Restricted Stock Purchase Agreement dated April 24, 1991 between
the Company and Michael I. Sherman.(1)
10.5. Incentive Stock Option Agreement dated September 27, 1991 between
the Company and Michael I. Sherman.(1)
10.9. Letter Agreement dated July 27, 1990 between the Company and Alan
F. Cook.(2)
10.9(a) Letter Agreement dated November 17, 1994 between the Company and
Alan F. Cook.(2)
10.10. Convertible Preferred Stock and Warrant Purchase Agreement dated
April 24, 1991 among the Company and HealthCare Ventures II, L.P.
and Everest Trust.(1)
10.11. Non-Transferable, Non-Qualified Stock Option Agreement dated
March 27, 1991 between the Company and Alan F. Cook.(2)
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PHARMAGENICS, INC.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K(CONTINUED)
Exhibit
Numbers Description and Method of Filing
------- --------------------------------
10.11(a) Incentive Stock Option Agreement dated September 27, 1991 between
the Company and Alan F. Cook.(2)
10.12. Stockholders' Agreement dated April 24, 1991 among the Company
and HealthCare Ventures II, L.P. and Everest Trust (the
"Stockholders' Agreement").(1)
10.12(a) Amendment to Stockholders' Agreement.(5)
10.12(b) Amendment to Stockholders' Agreement.(7)
10.13. Warrant to Purchase Shares of Common Stock dated September 27,
1991 issued to HealthCare Ventures II, L.P.(1)
10.14. Warrant to Purchase Shares of Common Stock dated September 27,
1991 issued to Everest Trust.(1)
10.15. Consent and Agreement to Amend dated September 27, 1991.(1)
10.15(a) Amendment to Exhibit 10.15.(2)
10.16. Sales Agency Agreement dated as of October 7, 1991, as amended
November 13, 1991, between the Company and PaineWebber
Incorporated.(1)
10.17. Subscription Agreement dated November 14, 1991 among the Company
and HealthCare Ventures II, L.P., Everest Trust and Norma
Sarofin.(1)
10.18. Registration Agreement dated November 14, 1991.(1)
10.19. Registration Agreement dated November 14, 1991.(1)
10.20. Warrant to purchase Common Stock dated November 14, 1991 issued
to PaineWebber Incorporated.(1)
10.21. 1991 Stock Option Plan, as amended.(7)
10.22. Equipment Lease Agreement, including Warrant Agreement, as
amended, between the Company and Comdisco, Inc.(1)
10.23.+ Research Agreement dated March 1, 1989 among The Johns Hopkins
University, Hoffmann-La Roche Inc. and the Company.(8)
10.24.+ License Agreement dated February 5, 1992 among The Johns Hopkins
University, Hoffmann-La Roche Inc. and the Company.(8)
10.25.+ Agreement dated April 30, 1991 between Hoffmann-La Roche Inc. and
the Company.(8)
10.26.+ Agreement dated April 1, 1990 between Georgetown University and
the Company.(1)
10.26(a) Letter Agreement dated January 25, 1993 modifying Exhibit
10.26.(2)
10.27.+ Agreement dated November 1, 1990 between Georgetown University
and the Company.(1)
10.28. Consulting Agreement dated November 24, 1990 between the Company
and Richard Schlegel.(1)
10.29. Consulting Agreement dated April 3, 1991 between the Company and
Bert Vogelstein.(1)
10.30.+ License Agreement dated January 15, 1993 between the Company and
Genetic Therapy, Inc.(2)
-13-
PHARMAGENICS, INC.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K(CONTINUED)
Exhibit
Numbers Description and Method of Filing
------- --------------------------------
10.31. Incentive Stock Option Agreement dated February 17, 1993, between
the Company and Michael I. Sherman.(2)
10.33. Incentive Stock Option Agreement dated February 17, 1993, between
the Company and Alan F. Cook.(2)
10.33(a) Incentive Stock Option Agreement dated March 7, 1994, between the
Company and Alan F. Cook.(2)
10.34.+ Research Agreement effective April 1, 1993 between the Company
and Genetic Therapy, Inc.(2)
10.35 Form of Indemnification Agreement.(2)
10.36 1993 Stock Option Plan, as amended.(7)
10.37 Letter Agreement dated June 15, 1993, between the Company and
Michael I. Sherman.(4)
10.38 Master Equipment Lease Agreement, including Warrant Agreement,
dated September 10, 1993 between the Company and MMC/GATX
Partnership No. 1.(4)
10.39 1994 Independent Directors Stock Option Plan, as amended.(7)
10.40(c) Separation Agreement dated October 28, 1994 between the Company
and Paul P. Trotta.(8)
10.41(a) Letter Agreement dated May 10, 1991, between the Company and
Arthur H. Bertelsen.(5)
10.41(b) Incentive Stock Option Agreements dated September 27, 1991,
February 17, 1993, November 22, 1993 and March 7, 1994, between
the Company and Arthur H. Bertelsen.(5)
10.41(c) Non-transferable Non-Qualified Stock Option Agreement dated June
17, 1991 between the Company and Arthur H. Bertelsen.(5)
10.42 Amendment dated March 23, 1994, to Agreement of April 30, 1991
between Hoffmann-La Roche Inc. and the Company including Stock
Purchase Agreement and Warrants to purchase an aggregate of
150,000 shares of Common Stock.(5)
10.43+ Program Agreement dated as of April 1, 1994 between the Company
and PaineWebber R&D Partners III, L.P. (the "Partnership").(6)
10.43(a)+ First Amendment to Program Agreement, including Amended and
Restated Glossary.(8)
10.44+ Development Agreement dated as of April 1, 1994 between the
Company and the Partnership.(6)
10.44(a)+ Amended and Restated Development Agreement.(8)
10.45+ Purchase Option Agreement dated as of April 1, 1994 between the
Company and the Partnership.(6)
10.45(a)+ Amended and Restated Purchase Option Agreement.(8)
10.46 Technology Agreement dated as of April 1, 1994 between the
Company and the Partnership.(6)
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PHARMAGENICS, INC.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K(CONTINUED)
Exhibit
Numbers Description and Method of Filing
------- --------------------------------
10.46(a) Amended and Restated Technology Agreement.(8)
10.47+ Core Warrant dated as of April 1, 1994 issued by the Company to
the Fund.(6)
10.47(a) Amended and Restated Core Warrant.(8)
10.48+ Purchase Option Warrant dated as of April 1, 1994 issued by the
Company to the Partnership.(6)
10.48(a)+ Amended and Restated Purchase Option Warrant.(8)
10.49+ Stock Purchase Agreement dated as of March 15, 1995 between the
Company and the Partnership.(8)
10.50+ Loan Agreement dated as of February 13, 1995 among the Company,
HealthCare Ventures III, L.P., HealthCare Ventures IV, L.P.,
Everest Trust and Larry Abrams.(8)
10.50(a) Amendment No. 1 to Exhibit 10.50.(9)
10.51+ Letter Agreement dated September 13, 1994, between the Company
and Boehringer Mannheim GmbH, as supplemented December 7,
1994.(8)
10.52+ License Agreement dated as of September 1, 1995, between the
Company and The Johns Hopkins University.(9)
10.53 Letter Agreement dated June 8, 1995, between the Company and A.
Steven Franchak.(9)
10.54 Non-Qualified Stock Option Agreement dated July 6, 1995, between
the Company and A. Steven Franchak.(9)
10.54(a) Incentive Stock Option Agreement dated September 1, 1995, between
the Company and A. Steven Franchak.(11)
10.55 Convertible Note dated June 8, 1995, between the Company and the
Partnership.(9)
10.56 Registration Rights Agreement dated February 13, 1996.(11)
10.57 Incentive Stock Option Agreements dated September 25, 1995 and
March 18, 1996, between the Company and A. Steven Franchak.(11)
10.58 Incentive Stock Option Agreements dated September 25, 1995 and
March 18, 1996, between the Company and Arthur H. Bertelsen.(11)
10.59 Incentive Stock Option Agreements dated September 25, 1995 and
March 18, 1996, between the Company and Alan F. Cook.(11)
10.60 Letter Agreement dated May 1, 1996, between the Company and
George M. Gould.(11)
10.61 Incentive Stock Option Agreements dated June 27, 1996, between
the Company and George M. Gould.(11)
10.62 Letter Agreement dated June 27, 1996, between the Company and
Michael I. Sherman.(11)
10.63 Incentive Stock Option Agreements dated September 25, 1995 and
June 27, 1996, between the Company and Michael I. Sherman.(11)
10.64 Letter Agreement and Indemnification Agreement, dated September
1, 1994, between the Company and PaineWebber Incorporated.(11)
-15-
PHARMAGENICS, INC.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K(CONTINUED)
10.65 Letter Agreement and Indemnification Agreement, dated August 15,
1996, between the Company and PaineWebber Incorporated.(11)
27 Financial Data Schedule.(11)
- ------------
+ Confidential treatment has been granted by the Commission. The copy filed
as an exhibit omits the information subject to the Grant of Confidential
Treatment.
(1) Incorporated by reference to the corresponding Exhibit number of
Registrant's Registration Statement on Form 10, No. 0-20138.
(2) Incorporated by reference to the corresponding Exhibit number of
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992.
(3) Incorporated by reference to Exhibit A of the Registrant's definitive Proxy
Statement filed with the Securities and Exchange Commission on August 17,
1993.
(4) Incorporated by reference to the corresponding Exhibit number of
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1993.
(5) Incorporated by reference to the corresponding Exhibit number of
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993.
(6) Incorporated by reference to the corresponding Exhibit number of
Registrant's Quarterly Report on Form 10-Q or 10-Q/A for the quarter ended
March 31, 1994.
(7) Incorporated by reference to the corresponding Exhibit number of
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1994.
(8) Incorporated by reference to the corresponding Exhibit number of
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
(9) Incorporated by reference to the corresponding Exhibit number of
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995.
(10) Incorporated by reference to the corresponding Exhibit number of
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995.
(11) Filed herewith.
REPORTS ON FORM 8-K:
The Registrant filed a Current Report on Form 8-K, dated October 10,
1996, to report, with respect to Item 5 thereof, the resignation of a
director who had determined that he did not wish to stand for re-election
at the Company's next Annual Meeting of Stockholders.
-16-
SIGNATURE
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.
PHARMAGENICS, INC.
/s/ Michael I. Sherman
----------------------
Michael I. Sherman, President
and Chief Executive Officer
/s/ A. Steven Franchak
----------------------
A. Steven Franchak, Vice President,
Chief Financial Officer and Treasurer
Date: November 11, 1996
-17-