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, 1999
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, 1999, there were 10,258,036 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 PAGE NO.
----- --------
PART I. FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statement of Operations 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial 5
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about 9
Market Risks
PART II. OTHER INFORMATION 10
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of 10
Securityholders
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
ii
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, 1999 and December 31, 1998, the results of operations for the three months
and six months ended June 30, 1999 and June 30, 1998, and the cash flows for the
three months and six months ended June 30, 1999 and June 30, 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, 1998. The results of operations for the periods ended June 30, 1999
are not necessarily indicative of the results of operations and cash flows for
any subsequent interim period or for the full year.
1
OXiGENE, INC.
(A development stage company)
Condensed Consolidated Balance Sheets
(All amounts, except share amounts, in thousands of dollars)
June 30, December 31,
1999 1998
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents 27,503 31,757
Prepaid expenses 344 609
Interest receivable 394 196
Other 90 173
-------- --------
Total current assets 28,331 32,735
Furniture, fixtures and equipment, at cost 373 372
Accumulated depreciation (196) (168)
-------- --------
Net property and equipment 177 204
Deposits 80 80
-------- --------
Total assets $ 28,588 $ 33,019
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses:
Accounts payable and accrued expenses $ 2,371 $ 2,171
Other payables 21 656
-------- --------
Total current liabilities 2,392 2,827
Stockholders' equity
Common stock, $0.01 par value:
Authorized shares - 60,000,000 shares
Issued and outstanding
10,258,036 at June 30, 1999
10,207,049 at December 31, 1998 102 102
Additional paid-in capital 68,747 68,715
Deficit accumulated during the development stage (41,263) (36,966)
Accumulated Other Comprehensive Income 378 326
Deferred compensation (1,768) (1,985)
-------- --------
Total stockholders' equity 26,196 30,192
-------- --------
Total liabilities and stockholders' equity $ 28,588 $ 33,019
======== ========
The accompanying notes are an integral part of this statement.
2
OXiGENE, INC.
(A development stage company)
Condensed Consolidated Statements of Operations
(All amounts in thousands of dollars, except per share data)
(Unaudited)
Period from February 22,
Three months ended June 30, Six months ended June 30, 1988 (inception) through
1999 1998 1999 1998 June 30, 1999
---- ---- ---- ---- -------------
REVENUE
Interest income $ 337 $ 515 $ 712 $ 1,062 $ 6,359
Research income - - - - 31
--------- --------- --------- --------- ----------
Total revenue 337 515 712 1,062 6,390
OPERATING EXPENSES
Research and development 2,056 2,419 3,506 4,175 33,039
General and administrative 725 902 1,503 1,564 14,614
--------- --------- --------- --------- ----------
Total operating expenses 2,781 3,321 5,009 5,739 47,653
NET LOSS $ (2,444) $ (2,806) $ (4,297) $ (4,677) $ (41,263)
========= ========= ========= ========= ==========
NET LOSS PER COMMON SHARE (0.24) (0.28) (0.42) (0.46)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,232 10,199 10,220 10,197
The accompanying notes are an integral part of this statement.
3
OXiGENE, INC.
(A development stage company)
Condensed Consolidated Statements of Cash Flows
(All amounts in thousands of dollars)
(Unaudited)
Six months ended Period from February 22,
June 30, 1988 (inception) through
1999 1998 June 30, 1999
---- ---- ------------------------
OPERATING ACTIVITIES
Net loss $ (4,297) $ (4,677) $(41,263)
Adjustment to reconcile net loss to net cash
used in operating activities:
Loss on securities available-for-sale 12
Depreciation 33 42 235
Abandonment of furniture, fixture and equipment 13
Compensation related to issuance of warrants,
options and stock appreciation rights 151 (264) 2,870
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 140 (327) (882)
Accounts payable and accrued expenses (394) 1,304 2,517
-------- -------- --------
Net cash used in operating activities (4,367) (3,922) (36,498)
FINANCING ACTIVITIES
Proceeds from investor - - 100
Repayment to investor - - (100)
Proceeds from issuance of common stock and
capital contribution 98 109 64,160
Other capital contribution 53
-------- -------- --------
Net cash provided by financing activities 98 109 64,213
INVESTING ACTIVITIES
Purchases of securities available-for-sale - - (3,368)
Proceeds from sale of securities available-for-sale - - 3,356
Deposits - - (80)
Purchase of furniture, fixture and equipment (11) (79) (447)
-------- -------- --------
Net cash used in investing activities (11) (79) (539)
Effect of exchange rate on changes in cash 26 14 327
-------- -------- --------
Net increase in cash and cash equivalents (4,254) (3,878) 27,503
Cash and cash equivalents at beginning of period 31,757 40,137 -
-------- -------- --------
Cash and cash equivalents at end of period $ 27,503 $ 36,259 $ 27,503
======== ======== ========
The accompanying notes are an integral part of this statement.
4
OXiGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
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 three months and six
months ended June 30, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999. 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, 1998.
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 LOSS
During the six months ended June 30, 1999 and 1998, total comprehensive
loss amounted to $4,245,000 and $4,655,000, respectively.
5
2. STOCKHOLDER'S EQUITY
During the six month period ended June 30, 1999, the Company issued 50,987
shares of Common Stock upon exercise of previously granted warrants, options and
stock appreciation rights ("SARs"), with proceeds to the Company of
approximately $98,000.
The market value of the Company's Common Stock at June 30, 1999 was lower
than the market value of the Company's Common Stock at December 31, 1998.
Accordingly, the charge related to SARs that previously was recorded for
financial reporting purposes was reduced by approximately $65,000 for the six
months ended June 30, 1999, to reflect the market value of the unexercised SARs
at June 30, 1999. Because upon exercise SARs are satisfied only by the
distribution of shares of Common Stock, the change was debited to additional
paid-in capital.
During the six months ended June 30, 1999, the Company recorded
stock-based compensation expense of approximately $217,000 resulting from the
amortization of deferred compensation in connection with options issued to
non-employees in the prior years.
6
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 $41.3
million for the period from its inception through June 30, 1999. 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, 1999, 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, 1999 AND 1998
During each of the six-month periods ended June 30, 1999 and 1998, the
Company had no revenues, except for approximately $0.7 million and $1.1 million
in interest income, respectively. Operating expenses for those periods were
approximately $5.0 million and $5.7 million, respectively. The decrease in
operating expenses is primarily attributable to a decrease in research and
development expenses related to the Combretastatin technology. This decrease is
a function of the timing of certain research and development projects and is not
necessarily indicative of any future research and development expenses. Research
and development expenses for the six-month period ended June 30, 1999 decreased
to approximately $3.5 million from approximately $4.2 million for the comparable
1998 period. SARs previously granted by the Company to certain clinical
investigators and consultants affect the research and development expenses with
a charge for financial reporting in reporting periods when the market value per
share of Common Stock increases. Because the market value of the Company's
Common Stock at June 30, 1999 was less than the market value on December 31,
1998, and 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 for the six months ended June 30,
1999 and 1998 by approximately $65,000 and $264,000, respectively. Without
giving effect to such charge or credit, research and development expenses for
the six months ended July 30, 1999 decreased by approximately $870,000, compared
to the comparable 1998 period. This decrease is primarily a result of a decrease
in Combretastatin-related expenditures as described above. 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
7
fluctuated, and are expected to continue to fluctuate, from quarter to quarter.
General and administrative expenses for the six-month period ended June 30, 1999
decreased to approximately $1.5 million from approximately $1.6 million for the
comparable 1998 period.
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, 1999, had a deficit during the
development stage of approximately $41.3 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 $27.5 million
at June 30, 1999, compared to approximately $31.8 million at December 31, 1998.
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 1999, the Company received approximately $0.1 million upon the
exercise of outstanding options, warrants and SARs.
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 (research and clinical trial
coordination centers). In connection with the termination of certain of its
clinical trials, the Company's Lund, Sweden, office is scheduled to close in the
third quarter of 1999. The Company pays the University of Lund, Sweden, and
other hospitals where applicable, on a per patient basis for conducting its
clinical trials. 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, 1999, the
Company has paid ILEX approximately $5.7 million of which approximately $0.9
million was paid in the six-month period ended June 30, 1999. The amounts paid
to ILEX have fluctuated, and are expected to continue to fluctuate, from time to
time.
8
The Company anticipates that its cash and cash equivalents as of June 30,
1999, 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, 1999.
TAX MATTERS
As of December 31, 1998, the Company had net operating loss carry forwards
of approximately $49.0 million for U.S. and foreign income tax purposes, of
which $26.6 million expires for U.S. purposes through 2018. 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.
IMPACT OF YEAR 2000
The Company's internal computer information system will be Year 2000
compliant before year end. These systems consist only of standard software from
established and recognized providers. Any new software purchases will be Year
2000 compliant
The Company's Year 2000 issues and potential business interruptions, costs
damages or losses related thereto are primarily dependent upon the Year 2000
compliance of third parties. These third parties consist mainly of leading
research organizations. The Company has no reason to believe that these third
parties will not be Year 2000 compliant. However, the Company is in the process
of reviewing its third party relationship in order to assess and address Year
2000 issues with respect to these third parties.
The costs associated with the Company's Year 2000 compliance have been
nominal, and the Company believes that the remaining costs will be minimal and
will not have a material adverse effect on its financial condition or results of
operations.
The Company intends to develop a contingency plan to be able to react to
any Year 2000 problems should they arise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Two former employees have charged, among other things, that their
employment was terminated because of their sex, and have instituted legal action
at the state level. The Company believes their claims are not meritorious; the
Company has controverted their claims and is vigorously defending these matters.
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 29, 1999, the Company held its Annual Meeting of Stockholders (the
"Meeting") in Boston, Massachusetts. A total of 5,928,563 shares (or 57.7% of
the Company's issued and outstanding shares) were present, in person or by
proxy, and voted at the Meeting. 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 5,709,934 96.3% 218,629 3.7%
Gerald A. Eppner 5,821,884 98.2% 106,679 1.8%
Michael Ionata 5,820,884 98.2% 107,679 1.8%
Arthur B. Laffer 5,821,627 98.2% 106,936 1.8%
Bjorn Nordenvall 5,820,769 98.2% 107,794 1.8%
Ronald W. Pero 5,821,934 98.2% 106,629 1.8%
Per-Olof Soderberg 5,818,732 98.1% 109,831 1.9%
At the Meeting, the Company's stockholders were also asked to approve and
adopt certain amendments to the OXiGENE 1996 Stock Incentive Plan, including an
increase in the number of shares that may be issued under that plan from 1.0
million to 1.5 million. The Company's stockholders approved the amendments with
4,548,883 votes (or 76.7%) cast in favor, 566,217 votes (or 9.6%) against, and
813,463 abstentions (or 13.7%).
10
The Company's stockholders ratified the appointment of Ernst & Young LLP
as the Company's independent auditors for the year ending December 31, 1999,
with 5,900,406 votes or (99.5%) cast in favor, 14,580 votes against, and 30,315
abstentions.
ITEM 5. OTHER INFORMATION
Not applicable
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
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the second quarter of 1999.
11
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 12, 1999 /s/ Bo Haglund
------------------------ -------------------------------------------
Bo Haglund
Chief Financial Officer
12
OXiGENE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED JUNE 30, 1999
EXHIBITS
Exhibit
Number Description
- ------ -----------
27.1 Financial data schedule.