SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
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.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3679168
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Copley Place, Suite 602
Boston, MA 02116
(Address of principal executive offices, including zip code)
(617) 536-9500
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock, par value $.01 per share
Warrant to Purchase One Share of Common Stock
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 June 30, 1998, there were 10,204,049 shares of the Registrant's Common
Stock issued and outstanding.
OXiGENE, INC.
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. They involve known and unknown risks
and uncertainties that may cause the Company's actual results in future periods
to be materially different from any future performance suggested herein. In the
context of forward-looking information provided in this Form 10-Q and in other
reports, please refer to the discussion of risk factors detailed in, as well as
the other information contained in, the Company's filings with the Securities
and Exchange Commission during the past 12 months.
- ----------- --------------------------------------------------------------------
INDEX
- ----------- --------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
- ----------- --------------------------------------------------------------------
Item 1. Financial Statements
- ----------- --------------------------------------------------------------------
Condensed Consolidated Balance Sheets
- ----------- --------------------------------------------------------------------
Condensed Consolidated Statement of Operations
- ----------- --------------------------------------------------------------------
Condensed Consolidated Statements of Cash Flows
- ----------- --------------------------------------------------------------------
Notes to Condensed Consolidated Financial Statements
- ----------- --------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ----------- --------------------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosures about Market Risks
- ----------- --------------------------------------------------------------------
PART II. OTHER INFORMATION
- ----------- --------------------------------------------------------------------
Item 1. Legal Proceedings
- ----------- --------------------------------------------------------------------
Item 2. Changes in Securities
- ----------- --------------------------------------------------------------------
Item 3. Defaults Upon Senior Securities
- ----------- --------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Securityholders
- ----------- --------------------------------------------------------------------
Item 5. Other Information
- ----------- --------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
- ----------- --------------------------------------------------------------------
SIGNATURES
- ----------- --------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited condensed consolidated financial statements have
been prepared by OXiGENE, Inc. ("OXiGENE" or the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the Company's opinion, these financial statements contain all adjustments
necessary to present fairly the financial position of OXiGENE, Inc. as of June
30, 1998 and December 31, 1997, the results of operations for the three-month
and six-month periods ended June 30, 1998 and June 30, 1997, and the cash flows
for the six-month periods ended June 30, 1998 and June 30, 1997. 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, 1997. The results of operations for the period ended June 30, 1998
are not necessarily indicative of the results of operations and cash flows for
any subsequent interim period or for the full year.
OXiGENE, Inc.
(A development stage company)
Condensed Consolidated Balance Sheets
(All amounts in thousands)
June 30, 1998 December 31, 1997
------------------- ------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents 36,259 40,137
Prepaid expenses 365 342
Interest receivable 495 300
Other 167 61
------------------- ------------------------
Total current assets 37,286 40,840
Furniture, fixtures and equipment, at cost 433 358
Accumulated depreciation (166) (126)
------------------- ------------------------
Net property and equipment 267 232
Deposits 80 80
------------------- ------------------------
Total Assets 37,633 41,152
=================== ========================
Liabilities and stockholders' equity
Current Liabilities:
Accounts payable and accrued expenses:
Accounts payable and accrued expenses 2,170 779
Other payables 71 172
------------------- ------------------------
Total current liabilities 2,241 951
Stockholders' equity
Common stock $0.01 par value:
Authorized shares - 60,000,000 shares
Issued and outstanding
10,204,049 at June 30, 1998
10,185,765 at December 31, 1997 102 102
Additional paid-in capital 65,195 65,349
Deficit accumulated during the development stage (30,146) (25,469)
Foreign currency translation adjustment 241 219
------------------- ------------------------
Total stockholders' equity 35,392 40,201
Total liabilities and stockholders' equity 37,633 41,152
=================== ========================
OXiGENE, Inc.
(A development stage company)
Condensed Consolidated Statements of Operations
(All amounts in thousands, except per share data)
(Unaudited)
Period from
February 22, 1988
(Inception)
Three months ended Six months ended through
June 30, June 30, June 30,
1998 1997 1998 1997 1998
------------- --------- ------------ ------------ -----------------------
Revenue
Interest income 515 552 1,062 1,083 4,711
Research 31
------------- --------- ------------ ------------ -----------------------
Total revenue 515 552 1,062 1,083 4,742
Operating expenses
Research and development 2,419 2,368 4,175 4,100 23,349
General and administrative 902 611 1,564 1,086 11,539
------------- --------- ------------ ------------ -----------------------
Total operating expenses 3,321 2,979 5,739 5,186 34,888
------------- --------- ------------ ------------ -----------------------
Net loss (2,806) (2,427) (4,677) (4,103) (30,146)
============= ========= ============ ============ =======================
Net loss per common share (0.28) (0.25) (0.46) (0.43)
Weighted average number of
common shares outstanding 10,199 9,760 10,197 9,470
OXiGENE, Inc.
(A development stage company)
Condensed Consolidated Statements of Cash Flows
(All amounts in thousands)
(Unaudited)
Period from
February 22, 1988
(Inception)
Six months ended through
June 30, June 30,
1998 1997 1998
------------ ----------- ----------------
Operating activities
Net Loss (4,677) (4,103) (30,146)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation 42 21 182
Compensation related to issuance of warrants,
options and stock appreciation rights (264) 711 1,199
Other 21
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (327) (188) (1,052)
Accounts payable and accrued expenses 1,304 167 2,298
------------ ----------- ----------------
Net cash used in operating activities (3,922) (3,392) (27,498)
Financing activities
Proceeds from issuance of common stock
and capital contribution 109 5,471 64,099
------------ ----------- -----------------
Net cash provided by financing activities 109 5,471 64,099
Investing activities
Purchases of securities available-for-sale (3,368)
Proceeds from sale of securities available-for-sale 3,356
Deposits (70) (80)
Purchase of furniture, fixture and equipment (79) (88) (474)
------------ ----------- ------------------
Net cash used in investing activities (79) (158) (566)
Effect of exchange rate on changes in cash 14 (232) 224
------------ ----------- ------------------
Net increase (decrease) in cash and cash equivalents (3,878) 1,689 36,259
Cash and cash equivalents at beginning of period 40,137 40,517
------------ ----------- -------------------
Cash and cash equivalents at end of period 36,259 42,206 36,259
============ =========== ===================
OXiGENE, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated 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 include all of the information
and footnotes required by generally accepted accounting principles 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 six-month period ended June 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. 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, 1997.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned Swedish subsidiary, OXiGENE Europe AB. Intercompany
balances and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents.
Net Loss Per Share
Net loss per share is based upon the Company's aggregate net loss divided
by the weighted average number of shares of Common Stock outstanding during the
respective periods. All options and warrants were antidilutive and, accordingly,
have been excluded from the calculation of weighted average shares.
Comprehensive Income
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components. However, the adoption of
Statement 130 has had no impact on the Company's net loss or stockholders'
equity. Statement 130 requires foreign currency translation adjustments, which
prior to the adoption of Statement 130 were reported separately in stockholders'
equity, to be included in other comprehensive income. During the three months
ended June 30, 1998 and 1997, total comprehensive loss amounted to $2,768,000
and $2,425,000, respectively. During the six months ended June 30, 1998 and
1997, total comprehensive loss amounted to $4,655,000 and $4,308,000,
respectively.
2. Stockholder's Equity
During the six month period ended June 30, 1998, the Company issued 18,284
shares of Common Stock upon exercise of previously granted warrants, options and
stock appreciation rights ("SARs"), with proceeds to the Company of
approximately $109,000.
The market value of the Company's Common Stock at June 30, 1998 was lower
than the marked price of the Company's Common Stock at December 31, 1997.
Accordingly, the charge related to SARs that was previously recorded for
financial reporting purposes was reduced by a credit of approximately $264,000
for the six months ended June 30, 1998, to reflect the market value of the
unexercised SARs at June 30, 1998.
In July 1998, the Company amended the warrant agreement related to certain
warrants issued in connection with the Company's initial public offering that
were due to expire on August 26, 1998. As amended, on August 26, 1998, the term
of approximately 847,000 warrants to purchase 1.07 shares of the Company's
Common Stock (for an aggregate of approximately 907,000 shares), at $14.35 per
warrant, will be extended through December 31, 1999. In addition, the warrants
as amended will have a redemption feature. The extension of the term of the
warrants will result in a new measurement date for financial reporting purposes.
Accordingly, in the third quarter of 1998, the fair market value of the warrants
on the date of the extension (August 26, 1998) will be a deemed dividend to the
warrant holders for financial reporting purposes.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Description of Business
OXiGENE is a development-stage pharmaceutical company engaged in the
research and development of products designed to enhance the clinical efficacy
of radiation and chemotherapy, the most common and traditional forms of
non-surgical cancer treatment. OXiGENE 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 and other
organizations, particularly the University of Lund in Lund, Sweden.
Consequently, OXiGENE believes that its research and development expenditures
have been somewhat lower than those of other comparable development-stage
companies. OXiGENE has generated a cumulative net loss of approximately $30.1
million for the period from its inception through June 30, 1998. OXiGENE expects
to incur significant additional operating losses over at least the next several
years, principally as a result of its continuing clinical trials and anticipated
research and development expenditures. The principal source of OXiGENE's working
capital has been the proceeds of private and public equity financings. As of
June 30, 1998, OXiGENE had no long-term debt or loans payable. Since its
inception, the Company has had no material amount of licensing or other fee
income, and does not anticipate any such income for the foreseeable future.
Results of Operations - Six Months Ended June 30, 1998 and 1997
During each of the six-month periods ended June 30, 1998 and 1997, the
Company had no revenues, except for approximately $1.1 million in interest
income. Operating expenses for those periods were approximately $5.7 million and
$5.2 million, respectively. Research and development expenses for the six-month
period ended June 30, 1998 increased to approximately $4.2 million from
approximately $4.1 million for the comparable 1997 period. Research and
development expenses for the six months ended June 30, 1997 included a charge
for financial reporting purposes of approximately $0.7 million. This charge was
recorded because the market value per share of Common Stock on June 30, 1997
exceeded the exercise price of SARs previously granted by the Company to certain
clinical investigators and consultants. Because the market value of the
Company's Common Stock at June 30, 1998 was less than the market value on
December 31, 1997, the charge previously recorded for financial reporting
purposes was reduced by approximately $264,000 for the six months ended June 30,
1998. Without giving effect to such charge or credit, research and development
expenses increased by approximately $1.0 million compared to the comparable 1997
period. Generally, the Company makes payments to its clinical investigators if
and when certain predetermined 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, research and development expenses have
fluctuated, and are expected to continue to fluctuate, from quarter to quarter.
General and administrative expenses for the six-month period ended June 30, 1998
increased to approximately $1.6 million from approximately $1.1 million for the
comparable 1997 period. The increase in general and administrative expenses is
primarily attributable to an overall increase in the Company's activities.
Liquidity and Capital Resources
OXiGENE has experienced net losses and negative cash flow from operations
each year since its inception and, as of June 30, 1998, had a deficit during the
development stage of approximately $30.1 million. The Company expects to incur
substantial additional expenses, resulting in significant losses, over at least
the next several years due to, among other factors, its continuing clinical
trials and anticipated research and development activities. To date, the Company
has financed its operations principally through the net proceeds it has received
from private and public equity financings.
The Company had cash and cash equivalents of approximately $36.3 million at
June 30, 1998, compared to approximately $40.1 million at December 31, 1997. The
decrease in cash and cash equivalents is primarily a result of the cash being
used to finance the Company's operating activities. During the second quarter of
1998, the Company received approximately $0.1 million upon the exercise of
outstanding options, warrants and SARs compared to $5.5 million in the
comparable quarter of 1997.
OXiGENE's policy is to contain its fixed expenditures by maintaining a
relatively small number of employees and relying as much as possible on outside
services for its research, development, preclinical testing and clinical trials.
The Company maintains small offices in Stockholm, Sweden (executive offices and
investor relations), and in Boston, Massachusetts and Lund, Sweden (both
research and clinical trial coordination centers). The Company pays the
University of Lund, Sweden and other hospitals where applicable, on a per
patient basis for conducting its clinical trials. In August 1997, the Company
expanded its collaboration with Boston Medical Center Corporation, an affiliate
of Boston University Medical Center ("BMCC"). Through June 30, 1998, the Company
has paid BMCC approximately $0.5 million. This amount includes fees payable to
BMCC for clinical trial services related to the testing of Cordycepin and
expenses in connection with the OXiGENE-sponsored research and development
facility at BMCC. Further, the Company has an agreement with ILEX (TM) Oncology
Inc., a contract research organization in San Antonio, Texas ("ILEX"), pursuant
to which ILEX performs contract research services for the Company in connection
with the preclinical and clinical testing of compounds under development by the
Company, particularly Oxi-104 and Combretastatin. Through June 30, 1998, the
Company has paid ILEX approximately $3.5 million, of which approximately $1.0
million was paid in the six-month period ended June 30, 1998. The Company
expects that the amounts payable to ILEX from time to time will increase
significantly.
The Company anticipates that its cash and cash equivalents as of June 30,
1998, should be sufficient to satisfy the Company's projected cash requirements
for approximately 30 months. However, working capital and capital requirements
may vary materially from those now planned due to numerous factors including,
but not limited to, the progress with the preclinical testing and clinical
trials; progress of the Company's research and development programs; the time
and costs required to obtain regulatory approvals; the resources the Company
devotes to manufacturing methods and advanced technologies; the ability of the
Company to obtain collaborative or licensing arrangements; the costs of filing,
prosecuting and, if necessary, enforcing patent claims; the cost of
commercializing activities and arrangements; and the demand for its products if
and when approved. The Company anticipates that it will have to seek substantial
additional private or public financing or enter into collaborative arrangements
with one or more third parties to complete the development of any products or
bring products to market. There can be no assurance that additional financing
will be available on acceptable terms, if at all. The Company had no material
commitments for capital expenditures as of June 30, 1998.
Tax Matters
As of December 31, 1997, the Company had net operating loss carry forwards
of approximately $50.0 million for U.S. and foreign income tax purposes, of
which $36 million expires for U.S. purposes through 2012. The utilization of
approximately $2.5 million of such U.S. net operating losses is subject to an
annual limitation, pursuant to Section 382 of the U.S. Internal Revenue Code, of
approximately $350,000.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings pending against the Company. Two former
employees have charged, among other things, that their employment was terminated
because of their sex, and have threatened legal action. The Company has rejected
their proposed settlement offers, aggregating $52,500, because it believes their
claims are meritless and have no basis in fact.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On June 5, 1998, the Company held its Annual Meeting of Stockholders (the
"Meeting") in Stockholm, Sweden. At the Meeting, all nominees for director,
Professor Marvin Caruthers, Gerald A. Eppner, Michael Ionata, Arthur B. Laffer,
Dr. Bjorn Nordenvall, Dr. Ronald W. Pero and Per-Olof Soderberg, were elected as
follows:
Name of Director Votes For Votes Against
- ---------------- --------- -------------
Number of Percentage Number of Percentage
Shares of Vote Shares of Vote
------ ------- ------ -------
Marvin Caruthers 8,070,520 99.33% 53,870 0.66%
Gerald A. Eppner 8,080,520 99.46% 43,870 0.53%
Michael Ionata 8,080,520 99.46% 43,870 0.53%
Arthur B. Laffer 8,080,520 99.46% 43,870 0.53%
Bjorn Nordenvall 8,080,520 99.46% 43,870 0.53%
Ronald W. Pero 8,080,520 99.46% 43,870 0.53%
Per-Olof Soderberg 8,080,520 99.46% 43,870 0.53%
The Company's stockholders ratified the appointment of Ernst & Young LLP as
the Company's independent auditors for the year ending December 31, 1998, with
8,089,470 votes or (99.9%) cast in favor, 34,175 votes against, and 745
abstentions.
Item 5. Other Information
Stockholder Proposals
The eligibility of stockholders to submit proposals, the proper subjects of
stockholder proposals and other issues governing stockholder proposals are
regulated by the rules (the "Stockholder Proposal Rules") adopted under Section
14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Stockholder proposals submitted pursuant to Rule 14a-8 under the Exchange Act
for inclusion in the Company's proxy materials for the 1999 Annual Meeting of
Stockholders must be received by the Company at its principal executive office,
One Copley Place, Suite 602, Boston, Massachusetts 02116, no later than Tuesday,
January 5, 1999.
In addition, in accordance with recent amendments to the Stockholder
Proposal Rules, written notice of stockholder proposals to be submitted outside
of Rule 14a-8 described above for consideration at the 1999 Annual Meeting of
Stockholders must be received by the Company, at the address set forth in the
preceding paragraph, on or before Friday, March 20, 1999 in order to be
considered timely for purposes of the Stockholder Proposal Rules. The persons
designated as proxies by the Company in connection with the 1999 Annual Meeting
of Stockholders will have discretionary voting authority with respect to any
stockholder proposal of which the Company did not receive timely notice.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibit is filed as part of this Quarterly Report on Form
10-Q:
27.1 Financial Data Schedule
99.1 Press release, issued July 24, 1998, regarding extension of
expiration date of warrants.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the second quarter of 1998.
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.
Date: August 13, 1998 /s/ Bo Haglund
----------------------- ----------------
Bo Haglund
Chief Financial Officer