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, 1997 OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Period From _____ to _____
Commission File Number: 0-19986
--------
CELL GENESYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-3061375
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
342 Lakeside Drive, Foster City, California 94404
(Address of principal executive offices and zip code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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 November 1, 1997, the number of outstanding shares of the
Registrant's Common Stock was 28,134,218.
1
CELL GENESYS, INC.
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I. FINANCIAL INFORMATION
1. Financial Statements:
a. Condensed Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996 3
b. Condensed Consolidated Statements of Operations - Three and Nine
Months Ended September 30, 1997 and 1996 4
c. Condensed Consolidated Statements of Cash Flows -Nine Months
Ended September 30, 1997 and 1996 5
d. Notes to Condensed Consolidated Financial Statements 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K 12
SIGNATURE 12
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CELL GENESYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,672 $ 20,935
Short-term investments 49,140 64,649
Prepaid expenses and 2,249 1,165
other current assets
------------------------------
Total current assets 59,061 86,749
Property and equipment at 14,792 12,485
cost, net
Deposits and other assets, net 1,351 575
------------------------------
$ 75,204 $ 99,809
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,600 $ 1,669
Accrued compensation and benefits 1,365 1,414
Deferred revenue from
related parties 4,989 12,164
Accrued construction
costs - 2,118
Accrued legal expenses 711 1,986
Accrued acquisition
related costs 2,871 -
Other accrued liabilities 2,134 439
Current portion of property
and equipment financing 4,754 2,822
Convertible note payable 15,000 -
------------------------------
Total current liabilities 34,424 22,612
Noncurrent portion of property and 11,998 6,133
equipment financing
Contribution payable to related
party 3,750 -
Stockholders' equity:
Common stock 28 16
Additional paid-in capital 195,927 127,318
Accumulated deficit (170,923) (56,270)
------------------------------
Total stockholders' equity 25,032 71,064
------------------------------
$ 75,204 $ 99,809
==============================
See accompanying notes
3
CELL GENESYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1997 1996 1997 1996
------------------------------------------------------------------------
(In thousands except per share data)
Revenue under collaborative
agreements with related
parties $ 3,799 $ 4,500 $ 15,641 $15,101
Operating expenses:
Research and development 10,382 7,012 26,679 20,000
Charge for purchased
in-process technology - - 72,270 -
Restructuring costs
related to acquisition - - 6,576 -
General and
administrative 2,473 1,613 7,539 5,085
Charge for cross-license
and settlement
(includes $3,750 and
$7,500, respectively,
equity in losses of
Xenotech joint venture
associated with
cross-license and
settlement) 3,750 - 18,750 -
--------------------------------------------------------------------
Total operating expenses 16,605 8,625 131,814 25,085
Interest income 903 1,091 3,021 3,386
Interest expense (615) (282) (1,685) (874)
--------------------------------------------------------------------
Net loss $(12,518) $(3,316) $(114,837) $(7,472)
====================================================================
Net loss per share $ (0.45) $ (0.20) $ (5.33) $ (0.46)
====================================================================
Shares used in computing net
loss per share 27,706 16,437 21,534 16,337
====================================================================
See accompanying notes.
4
CELL GENESYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
----------------------------------
(In thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(114,837) $ (7,472)
Adjustments to reconcile
net loss to net cash
used by operating
activities:
Depreciation and 3,735 2,750
amortization
Equity in losses of 838 2,714
Xenotech joint venture
Charge for purchased 72,270 -
in-process technology
Restructuring charges 4,021 -
Charge for cross-license 18,750 -
and settlement
Changes, excluding effect of
acquisition, to:
Prepaid expenses and other (324) (121)
assets
Accounts payable (937) 627
Accrued compensation and (1,046) (97)
benefits
Deferred revenue from (7,175) 270
related parties
Accrued construction costs (2,118) 248
Accrued legal expenses (1,316) 884
Other accrued liabilities (1,999) (417)
----------------------------------
Net cash used in
operating activities (30,138) (614)
----------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of short-term (31,875) (58,796)
investments
Maturities of short-term 10,997 19,782
investments
Sales of short-term 36,571 43,746
investments
Purchase of subsidiary, net 862 -
of cash acquired
Contributions to Xenotech (802) (1,973)
joint venture
Capital expenditures (1,023) (167)
----------------------------------
Net cash provided by
investing activities 14,730 2,592
----------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from property and
equipment financing 4,546 -
Payments under property and
equipment financing
obligations (3,098) (1,838)
Proceeds from issuance of
common stock 697 1,255
----------------------------------
Net cash provided by
(used in) financing
activities 2,145 (583)
----------------------------------
Net increase (decrease) in
cash and cash equivalents (13,263) 1,395
Cash and cash equivalents at
beginning of period 20,935 8,190
----------------------------------
Cash and cash equivalents at
end of period $ 7,672 $ 9,585
==================================
See accompanying notes.
5
CELL GENESYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements at September 30,
1997 and 1996 and for the three and nine months ended September 30, 1997 and
1996 include the accounts of Cell Genesys, Inc., including its subsidiaries
Abgenix, Inc. and Somatix Therapy Corporation (collectively, the "Company").
These statements are unaudited, but include all of the adjustments, consisting
only of normal recurring adjustments, which the management of the Company
considers necessary for a fair presentation of the Company's financial position
at such dates and the operating results and cash flows of those periods. The
results of the interim periods are not necessarily indicative of the results for
the entire year.
The consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's Annual Report for the year ended December 31, 1996 included in its
filing on Form 10-K/A.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
common shares outstanding. Common equivalent shares from stock options are
excluded from the calculation as their effect is antidilutive. In February
1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share, which is required to be adopted on December 31, 1997. At
that time, the Company will be required to change the method currently used to
compute earnings per share. There is not expected to be any impact on the
Company's loss per share calculations for the periods presented or any prior
periods as a result of this pronouncement.
2. CHARGE FOR CROSS-LICENSE AND SETTLEMENT
On March 27, 1997, the Company announced that, along with Abgenix,
Xenotech, L.P. ("Xenotech", an equal joint venture of Abgenix and Japan Tobacco,
Inc.) and Japan Tobacco, it had signed a comprehensive patent cross-license and
settlement agreement with GenPharm International, Inc. that resolved all related
litigation and claims between the parties. The cross-license agreement includes
a worldwide royalty free cross-license to all issued and related patent
applications pertaining to the generation of fully human monoclonal antibody
technologies in genetically modified strains of mice. The Company also obtained
a license to certain technology in the field of gene therapy held by GenPharm.
As consideration for the cross-license and settlement agreement, Cell Genesys
issued a note due September 30, 1998 for $15 million, convertible into shares of
Cell Genesys common stock at $9.00 per share. The conversion price is
potentially subject to adjustment on February 28, 1998. Of this note, $3.75
million was contributed to, then paid by Xenotech. The entire amount of the
note is included in expense in the first quarter of 1997 based on an independent
valuation analysis of technology acquired. In addition, Japan Tobacco also made
a cash payment to GenPharm. The agreement also calls for two milestone payments
of $7.5 million each based on the issuance of certain patents in the future to
be made by Xenotech. During the third quarter 1997, Xenotech recognized an
expense of $7.5 million payable in connection with the first of these
milestones, to be paid to GenPharm in November 1998. Abgenix recognized and
accrued an expense of $3.75 million for its contribution due to Xenotech as its
share of the obligation.
3. ACQUISITION OF SOMATIX THERAPY CORPORATION
On May 30, 1997, the Company acquired Somatix Therapy Corporation
("Somatix"). Under the terms of the merger agreement, Somatix became a wholly-
owned subsidiary of Cell Genesys in a tax-free reorganization and stock-for-
stock merger. Somatix stockholders received 0.385 shares of Cell Genesys stock
for each share of Somatix stock. A total 11,089,706 shares were issued to
Somatix stockholders. The acquisition was accounted for under the
6
purchase method of accounting. The purchase price of approximately $70.9
million, comprised of $67.9 million of common stock and $3.0 million of
transaction costs, was allocated to the acquired assets and assumed liabilities
based upon their estimated fair value. The fair value of the net assets
acquired, including in-process technology, was estimated based upon an
independent valuation. The purchase price was allocated as follows:
(In thousands)
Purchased in-process technology $72,270
Purchased intangibles 500
Liabilities assumed in excess of assets acquired (1,870)
---------------
$70,900
===============
The amount allocated to purchased in-process technology was charged to
operations in the second quarter of 1997. Purchased intangible assets
consisting of the assembled workforce is being amortized over the estimated
useful life of three years using the straight-line method. The operations of
Somatix are included in the Company's consolidated operating results from May
31, 1997 forward.
In addition, the Company recognized $6.6 million in the second quarter of
1997 for restructuring and integration expenses related to the acquisition.
4. SUBSEQUENT EVENT
On November 13, 1997, the Company signed an agreement for the private
placement of $20 million convertible preferred stock. The Company, subject to
certain conditions, may exercise a put option for up to an additional $10
million and investors, subject to certain conditions, may exercise a call option
for up to an additional $10 million. Under the securities agreement, the Company
will issue 2,000 shares of convertible preferred stock with a five year term.
After the satisfaction of certain holding periods, each of the newly issued
Series B preferred shares is convertible, at the option of the holder, into
shares of common stock of the Company based upon a conversion price of $11.02
per share or if lower, 100% of the average of specified trading prices during
the ten trading days preceding a conversion. The convertible preferred stock
bears a dividend of 5%, payable in kind. The private placement is scheduled to
close on November 14, 1997.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OUTLOOK
Cell Genesys (the "Company) is focused on the development and
commercialization of gene therapies to treat major life-threatening diseases,
including AIDS and cancer. The Company's objective is to commercialize both ex
vivo gene therapy with genetically engineered human immune cells and in vivo
gene therapies. On May 30, 1997, the Company completed a merger with Somatix
Therapy Corporation ("Somatix"). The merger is expected to strengthen the
Company's position in the field of gene therapy. Since its inception in 1988,
the Company has funded its research and development activities primarily through
the sale of equity, corporate partnerships and leaseline financings. The
Company has been unprofitable since its inception and has incurred a cumulative
net loss of $171 million as of September 30, 1997. The following discussion
constitutes forward looking statements insofar as it relates to progress in the
Company's research and development programs and clinical trials, product
expectations, in-licensing plans, expected cash expenditures and expense levels,
and the adequacy of the Company's available resources. Actual results could
differ materially from the statements made due to a number of factors, including
those set forth in "Risk Factors" below.
In the Company's lead gene therapy program, safety results for the
Company's Phase I clinical trial testing AIDS gene therapy indicated no
treatment-related safety problems. The Company is currently in Phase II
clinical testing of this therapy. Additional clinical studies of Cell Genesys'
AIDS gene therapy will be conducted during 1997, including an evaluation of an
improved manufacturing process involving the genetic modification of both killer
T cells and helper T cells as well as a reduction in cell processing time to
less than two weeks. In addition, a new pilot study will evaluate whether the
combination of AIDS gene therapy and antiviral drugs can delay the recurrence of
HIV infection, which has been generally observed in patients who stop their
antiviral drug therapy. This pilot study will help determine whether the gene
therapy can reduce the requirement for long-term treatment with combinations of
three or more antiviral drugs. The Company anticipates efficacy data from
certain of these trials in the first half of 1998. In September 1997, the
Company initiated human clinical trials for its T cell gene therapy for colon
cancer and its second generation GVAX/TM/ cancer vaccine for melanoma, lung and
prostate cancers. The Company has additional ongoing research programs in stem
cell gene therapy and other gene delivery technologies. The Company believes
that such programs may provide opportunities for collaborative arrangements with
third parties that could also provide additional funding to the Company.
In the Company's human monoclonal antibody program (being pursued through
its subsidiary, Abgenix), the Company has developed transgenic technology to
create strains of mice capable of producing human monoclonal antibodies. These
transgenic mice contain the majority of human antibody genes and could produce
multiple product candidates. The Company believes that fully human antibodies
should avoid the allergic reactions seen with antibodies containing mouse
proteins, which should make them better suited to long-term therapy and could
provide a marketing advantage. The Company is focused on the development and
commercialization of monoclonal antibodies to treat a wide range of serious
diseases, including transplantation-associated conditions, inflammation,
autoimmune disorders and cancer. The Company currently has three antibody
products in development. The Company's most advanced product, ABX-CBL, is in
Phase II trials for treating steroid-resistant graft versus host disease (GVHD),
a frequent, fatal and currently untreatable complication of allogeneic bone
marrow transplants. To date, ABX-CBL has been used in clinical studies with
over 50 patients, with an approximated response rate of 90% in acute
transplantation-associated disorders. A second antibody product, ABX-IL8, is
expected to enter clinical trials in late 1997 or early 1998 for the treatment
of moderate to severe psoriasis.
The Company's net cash expenditures for 1997 in its current operations are
not expected to exceed approximately $25 million, excluding one-time merger
related expenditures, and the Company intends to manage toward this net cash
expenditure target. Costs incurred or accrued related to the merger include a
charge for the purchase of in-process research and development of $72.3 million
and restructuring charges of $6.6 million and are primarily non-cash. The
Company may from time to time evaluate opportunities to acquire or in-license
other potential products and technologies. Expenses associated with in-
licensing such products may constitute unbudgeted expenses.
8
RESULTS OF OPERATIONS
Revenue decreased to $3.8 million from $4.5 million for the three months
ended September 30, 1997 compared to the same period in 1996. This is primarily
a result of the completion of research funding related to the development of
Abgenix' transgenic technology for human antibodies. Revenue remained
relatively constant at $15.6 million and $15.1 million for the nine month
periods ending September 30, 1997 and 1996, respectively. Reductions in revenue
related to Abgenix' antibody research were offset by revenue recorded in
February 1997 upon execution of an agreement with Hoechst Marion Roussel, Inc.
("HMR") to license the Company's gene activation technology for erythropoietin
(EPO) and a second undisclosed protein. The agreement provides for milestone
payments and fees in addition to royalties on any potential future sales of
these two gene-activated protein products.
Research and development expenses increased from $7.0 million and $20.0
million for the three and nine months ended September 30, 1996 to $10.4 million
and $26.7 million for the three and nine months ended September 30, 1997,
respectively. The increase reflects additional research staff transferred
following the acquisition of Somatix and expanding clinical development
activities for the Company's AIDS gene therapy and cancer gene therapy programs.
The increase also reflects costs related to Abgenix facilities as well as
contract manufacturing costs related to an antibody product candidate, ABX-IL8.
Research and development expenses represent approximately 80% of total operating
expenses, excluding the effect of non-recurring charges for the cross-license
and litigation settlement and the acquisition of Somatix. The Company expects
that its research and development expenditures, including expansion of
facilities, will continue to increase to support additional product development
activities particularly in the field of cancer, for which a number of trials
commenced in the third quarter 1997. The rate of increase depends on a number
of factors including progress in research and development, especially clinical
trials.
Purchased in-process technology costs and restructuring costs related to
the acquisition of Somatix Therapy Corporation on May 30, 1997 totaling $78.9
million were incurred in the nine month period ended September 30, 1997. No
such costs were incurred in 1996. The fair value of the net assets acquired in
the acquisition including in-process technology were estimated based on
independent valuations of the acquired net assets. Costs related to the
acquisition consist primarily of employee severance payments, consolidation of
facilities and the write down of the book value of certain fixed assets.
General and administrative expenses increased from $1.6 million and $5.1
million for the three and nine months ended September 30, 1996 to $2.5 million
and $7.5 million for the three and nine months ended September 30, 1997,
respectively. The increase reflects growth in administrative staff and outside
services required to support expanded research and development programs. The
Company expects these expenses to increase as these programs expand.
In the three and nine month periods ended September 30, 1997, the Company
reported expense of $3.8 million and $18.8 million, respectively, related to the
Company's cross-license and settlement agreement with GenPharm. No such costs
were incurred in 1996. A $15 million non-recurring, non-cash charge was
recognized in the first quarter 1997. The additional $3.8 million represents
Abgenix' share of a milestone payment recognized in the third quarter 1997 and
payable to GenPharm in November 1998.
Interest income decreased slightly from $1.1 million and $3.4 million for
the three and nine months ended September 30, 1996 to $900,000 and $3.0 million
for the same periods in 1997, respectively, due to lower average cash balances
available for investment. Interest expense increased from $282,000 and $874,000
for the three and nine months ended September 30, 1996 to $615,000 and $1.7
million for the three and nine months ended September 30, 1997, respectively.
The increase was due to increased borrowings under lease financing and interest
payable on the convertible note issued in conjunction with the March 1997 cross-
license and settlement agreement with GenPharm.
The Company's net loss increased from $3.3 million to $12.5 million for the
three months ended September 30, 1996 and 1997, respectively, primarily due to
the $3.8 million milestone expense, increased funding of research and
development projects and increased general and administrative support. The
Company's net loss increased from $7.5 million to $114.8 million for the nine
months ended September 30, 1996 and 1997, respectively, primarily due to $78.9
million in non-recurring charges for the acquisition of Somatix and related
costs and $18.8 million in non-recurring charges related to the cross-license
and settlement agreement. In addition, losses, excluding non-recurring
9
charges, are expected to continue and are likely to increase in future years as
operating expenses rise, particularly as the Company incurs expenses related to
manufacturing and human testing of its potential products.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the sale of
equity securities, funding under collaborative arrangements and equipment
financing. From inception through September 30, 1997, the Company has received
$125.8 million in net proceeds from equity financings, $83.5 million under
collaborative agreements and utilized $24.3 million in property and equipment
financing.
At September 30, 1997, the Company's cash, cash equivalents and short-term
investments totaled $56.8 million, compared to $85.6 million at December 31,
1996. The decrease was primarily due to the use of cash in operating
activities, payment of lease line obligations, and payments of obligations
incurred by Somatix or related to the merger transaction. The Company also had
non-cash charges of $72.3 million for purchased in-process technology related to
the Somatix acquisition and $15 million for the GenPharm convertible note
related to the cross-license and settlement agreement.
The Company expects its cash requirements to increase significantly in the
future. The Company's capital requirements depend on numerous factors,
including: the progress of the Company's research and development programs;
preclinical and clinical trials; clinical and commercial scale manufacturing
requirements; the attraction and maintenance of collaborative partners; the
acquisition of new products or technologies; and the cost of litigation, patent
interference proceedings or other legal proceedings or their resolution.
In March 1997, Cell Genesys announced that, together with Abgenix, Xenotech
and Japan Tobacco, it had signed a comprehensive patent cross-license and
settlement agreement with GenPharm that resolved all related litigation and
claims between the parties. The cross-license agreement includes a worldwide
royalty free cross-license to all issued and related patent applications
pertaining to the generation of fully human monoclonal antibody technologies in
genetically modified strains of mice. Cell Genesys also obtained a license to
certain technology in the field of gene therapy held by GenPharm. As
consideration for the cross-license and settlement agreement, Cell Genesys
issued a note due September 30, 1998 for $15 million, convertible into shares of
Cell Genesys common stock at the initial conversion price of $9.00 per share.
The conversion price is potentially subject to adjustment on February 28, 1998.
Of this note, $3.75 million was contributed to, then paid by Xenotech. The
entire amount of the note is included in expense in the first quarter of 1997
based on an independent valuation analysis of technology acquired. In addition,
Japan Tobacco also made a cash payment to GenPharm. The agreement also calls for
two milestone payments of $7.5 million each based on the issuance of certain
patents in the future to be made by Xenotech. In the third quarter 1997, the
first milestone was met and is payable to GenPharm in November 1998.
Under its current collaborations, the Company is responsible for funding a
portion of its research and development efforts. Substantial capital will be
required to carry out additional product development and to commercialize
products under the current collaborations and the Company's self-funded efforts.
On November 13, 1997, the Company signed an agreement for the private
placement of $20 million convertible preferred stock. The Company, subject to
certain conditions, may exercise a put option for up to an additional $10
million and investors, subject to certain conditions, may exercise a call option
for up to an additional $10 million. Under the securities agreement, the
Company will issue 2,000 shares of convertible preferred stock with a five year
term. After the satisfaction of certain holding periods, each of the newly
issued Series B preferred shares is convertible, at the option of the holder,
into shares of common stock of the Company based upon a conversion price of
$11.02 per share or if lower, 100% of the average of specified trading prices
during the ten trading days preceding a conversion. The convertible preferred
stock bears a dividend of 5%, payable in kind. The private placement is
scheduled to close on November 14, 1997.
The Company believes that its available cash, cash equivalents and short-
term investments at September 30, 1997, together with payments expected to be
received under the Company's collaborative arrangements with HMR, a private
placement of $20 million convertible preferred stock expected to be completed
November 14, 1997 and $5.3 million in property and equipment financing available
for tenant improvements and capital equipment purchases will be sufficient to
meet the Company's operating expenses and capital requirements at least through
1998. Thereafter, the Company will require substantial additional funds. Because
of the Company's significant long-term
10
cash requirements, the Company regularly considers financing alternatives,
including the private or public sale of equity by the Company and by its
subsidiary Abgenix, Inc. Any such transaction may be dilutive to existing
stockholders.
RISK FACTORS
There are significant risks associated with the Company's plans and goals,
including but not limited to the success of the Company's research and
development programs; the lengthy, expensive and uncertain regulatory approval
process; uncertainties and costs associated with obtaining third party licenses,
obtaining patent protection, protecting trade secrets, enforcing intellectual
property rights important to the Company's business and avoiding infringement of
others' intellectual property; competitive products; and the availability of
capital to fund the Company's operations and capital requirements. Litigation,
which could result in substantial cost to the Company, may also be necessary to
enforce any patents issued to the Company or to determine the scope and validity
of other parties' proprietary rights. Some or all of these factors may affect
the Company's goals to file INDs, advance product candidates through the
clinical trial process, commercialize products and secure financing either
through corporate partnerships or additional equity offerings by the Company or
its subsidiary. Even if the Company's goals are fully achieved, the Company
does not anticipate commercialization of any product for several years.
Because of the novelty of the Company's gene therapy technology, clinical
trials are more difficult than for products based on more traditional
technologies. In addition, a variety of factors could hinder or delay progress
in clinical trials of the Company's products or require their discontinuance,
including results of ongoing preclinical studies by the Company or others,
technical or manufacturing difficulties, clinical trial results for the
Company's or competing products, intellectual property disputes with third
parties, and/or delays relating to the review process by the FDA. Although
preliminary results of the Company's Phase I clinical testing of AIDS gene
therapy reported to date have shown no treatment-related safety problems, there
can be no assurance that this therapy will be tolerated over an extended period
of time or that the clinical efficacy of this therapy will be demonstrated. In
the third quarter 1997, the Company initiated a number of human clinical trials
for its cancer gene therapy program, including T cell gene therapy for colon
cancer and a second generation GVAX/TM/ cancer vaccine for melanoma, lung and
prostate cancers. There can be no assurance that the clinical efficacy of these
therapies will be demonstrated or that treatment related safety problems will
not occur.
The Company believes that a human antibody product such as that being
developed through its subsidiary, Abgenix, could be clinically superior to
products containing mouse protein, and that it could have marketing advantages
over such other products. However, until human testing has taken place, it is
not certain that human antibody products will demonstrate these advantages.
Countervailing marketing factors, such as relative price, undesirable side
effects, and/or relative marketing expertise, may serve to offset or outweigh
these advantages.
There is no assurance that opportunities for in-licensing technologies or
for third party collaborations will be available to the Company on acceptable
terms. Securing such opportunities and retaining such collaborators, as well as
a variety of other factors, such as progress in the Company's research and
development programs (including clinical trials), receipt of anticipated
contract revenues (some of which are dependent on milestones), competitive
factors, and the costs associated with prosecuting and defending the Company's
intellectual property rights, may affect the Company's ability to manage to its
targeted net cash expenditures in 1997, and also may affect the adequacy of the
Company's resources to fund operations and capital requirements at least through
1998. In this regard, a major portion of the Company's operating revenues are
derived from a collaborative agreement with HMR signed in October 1995. Under
the terms of the agreement, HMR has the ability to terminate its commitment at
any time two years after its anniversary date. Also under the agreement, in the
fourth quarter, the parties establish the budget for the next year. The Company
has begun discussions with HMR for the 1998 budget. There is no assurance that
HMR will continue the agreement or that the level of funding will not vary year
to year. The Company's operating results would be adversely affected should HMR
decide not to continue funding under this arrangement.
Failure to achieve the Company's goals could have a material adverse impact
on the Company's results of operations and financial condition and its ability
to raise additional capital. Stockholders and potential investors should
carefully consider the risks associated with the Company and should be aware
that these risks may negatively impact the Company's stock price. For
additional discussion of the risks applicable to the Company's business,
reference is made to the Company's Form 10-K/A dated April 30, 1997.
11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
None.
b) Reports on Form 8-K
None.
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:
Date: November 14, 1997 CELL GENESYS, INC.
/s/ KATHLEEN SEREDA GLAUB
-------------------------
Kathleen Sereda Glaub
Senior Vice President and Chief Financial Officer
(On Behalf of the Registrant and as Registrant's
Registrant's Principal Financial and
Principal Financial and Accounting Officer)
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