1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarter Ended: September 30, 1996 Commission File Number 0-27352
Hybridon, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 04-3072298
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
organization or incorporation)
One Innovation Drive
Worcester, Massachusetts 01605
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(Address of principal executive offices, including zip code)
(508) 752-7000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.001 per share 24,881,908
- --------------------------------------- ----------
Class Outstanding as of October 31, 1996
2
HYBRIDON, INC.
Form 10-Q
INDEX
Part I - Financial Information
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Item 1 - Financial Statements
Consolidated Condensed Balance Sheets
September 30, 1996 and December 31, 1995
Consolidated Condensed Statement of Operations for
the Three Months and Nine Months ended September 30, 1996 and 1995,
and Cumulative from May 25, 1989 to September 30, 1996
Consolidated Condensed Statements of Cash Flows for
the Nine Months ended September 30, 1996 and 1995,
and Cumulative from May 25, 1989 to September 30, 1996
Notes to Consolidated Condensed Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II - Other Information
- ---------------------------
Item 6 - Exhibits and Reports on Form 8-K
Signatures
3
HYBRIDON, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 11,838,437 $ 5,284,262
Short-term investments 11,063,626 -
Prepaid expenses and other current assets 2,378,576 951,526
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Total current assets 25,280,639 6,235,788
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PROPERTY AND EQUIPMENT, AT COST:
Laboratory equipment 7,216,985 5,153,550
Leasehold improvements 5,135,892 1,965,754
Equipment under capital leases 1,474,315 1,507,535
Office equipment 1,417,497 1,149,141
Furniture and fixtures 471,355 321,763
Construction-in-progress 5,194,548 3,236,330
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20,910,592 13,334,073
Less--Accumulated depreciation and amortization 5,828,623 4,202,543
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15,081,969 9,131,530
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OTHER ASSETS:
Restricted cash 658,602 1,025,856
Notes receivable from officers 315,504 308,133
Deferred financing costs and other assets 640,219 1,217,804
Deposit with real estate partnership 5,450,000 1,698,448
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7,064,325 4,250,241
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$ 47,426,933 $ 19,617,559
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations $ 374,548 $ 418,713
Accounts payable 2,129,729 2,053,438
Accrued expenses 4,135,233 3,454,625
Deferred revenue 86,250 86,250
Amounts payable to related parties 34,000 12,500
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Total current liabilities 6,759,760 6,025,526
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LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 837,796 1,145,480
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MINORITY INTEREST 5,471,363 -
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STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value-
Authorized--none at September 30, 1996 and 23,026,323 shares at
December 31, 1995
Issued and outstanding--none at September 30, 1996 and 15,982,179
shares at December 31, 1995 - 159,822
Preferred stock, $.01 par value-
Authorized--5,000,000 shares at September 30, 1996
Issued and outstanding--None - -
Common stock, $.001 par value-
Authorized--100,000,000 shares
Issued and outstanding--24,823,908 shares at September 30, 1996
and 1,843,666 shares at December 31, 1995 24,824 1,844
Additional paid-in capital 169,132,210 114,626,062
Deficit accumulated during the development stage (134,799,020) (102,341,175)
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Total stockholders' equity 34,358,014 12,446,553
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$ 47,426,933 $ 19,617,559
============= =============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
HYBRIDON, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
CUMULATIVE
FROM MAY 25,
THREE MONTHS ENDED NINE MONTHS ENDED 1989 (INCEPTION)
SEPTEMBER 30, SEPTEMBER 30, TO
1996 1995 1996 1995 SEPTEMBER 30,
1996
REVENUES:
Research and development $ 358,750 $ 214,835 $ 1,076,250 $ 932,659 $ 4,211,124
Interest income 560,376 29,784 1,195,871 130,893 1,890,726
Royalty and other income - - 62,321 - 62,321
Product Revenue 611,520 - 611,520 - 611,520
------------ ----------- ------------ ------------ -------------
1,530,646 244,619 2,945,962 1,063,552 6,775,691
------------ ----------- ------------ ------------ -------------
OPERATING EXPENSES:
Research and development 10,242,296 5,604,484 27,326,434 20,026,847 106,567,809
General and administrative 2,766,429 1,591,798 7,989,722 4,638,090 33,432,920
Interest 18,070 44,591 87,651 134,893 1,573,982
------------ ----------- ------------ ------------ -------------
13,026,795 7,240,873 35,403,807 24,799,830 141,574,711
------------ ----------- ------------ ------------ -------------
Net loss $(11,496,149) $(6,996,254) $(32,457,845) $(23,736,278) $(134,799,020)
============ =========== ============ ============ =============
PRO FORMA NET LOSS PER
COMMON SHARE (Note 2) $ (.45) $ (.43) $ (1.35) $ (1.56)
============ =========== ============ ============
SHARES USED IN COMPUTING PRO
FORMA NET LOSS PER COMMON
SHARE (Note 2) 25,732,987 16,120,812 23,989,439 15,249,146
============ =========== ============ ============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
HYBRIDON, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
CUMULATIVE
FROM MAY 25,
1989
NINE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(32,457,845) $(23,736,278) $(134,799,020)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 1,626,080 1,114,156 5,930,064
Compensation on grant of stock options, warrants
and restricted stock - 324,174 7,044,541
Amortization of discount on convertible
promissory - - 690,157
notes payable
Amortization of deferred financing costs - - 216,732
Noncash interest on convertible promissory notes
payable - - 260,799
Changes in assets and liabilities-
Prepaid and other current assets (1,427,049) 25,874 (2,378,576)
Notes receivable from officers (7,371) 42,376 (315,504)
Amounts payable to related parties 21,500 856,758 (166,000)
Accounts payable and accrued expenses 756,899 (981,207) 6,264,963
Deferred revenue - - 86,250
------------ ------------ -------------
Net cash used in operating activities (31,487,786) (22,354,147) (117,165,594)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments (11,063,626) - (11,063,626)
Purchases of property and equipment, net (7,576,520) (3,211,844) (20,476,241)
(Increase) decrease in restricted cash and other assets 418,118 (530,756) (1,648,055)
Deposit with real estate partnership (3,751,552) - (5,450,000)
Proceeds from sale/leaseback - - 1,073,183
------------ ------------ -------------
Net cash used in investing activities (21,973,580) (3,742,600) (37,564,739)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock - 35,979,873 96,584,154
Proceeds from issuance of common stock related to stock
options and restricted stock grants 598,676 13,000 683,602
Proceeds from issuance of common stock related to stock
warrants 1,539,386 - 1,539,386
Proceeds from sale of common stock 52,231,244 - 52,355,324
Repurchase of common stock - - (263)
Proceeds from notes payable - - 1,950,000
Proceeds from issuance of convertible
promissory notes payable - - 9,191,744
Proceeds from long-term debt - - 662,107
Payments on long-term debt and capital leases (351,849) (411,405) (1,707,298)
Proceeds from sale of stock in subsidiary 5,471,363 - 5,471,363
Decrease (increase) in deferred financing costs 526,721 - (161,349)
------------ ------------ -------------
Net cash provided by financing activities 60,015,541 35,581,468 166,568,770
------------ ------------ -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS
6,554,175 9,484,721 11,838,437
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,284,262 3,395,783 -
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,838,437 $ 12,880,504 $ 11,838,437
============ ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 87,651 $ 134,893 $ 534,325
============ ============ ============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
6
HYBRIDON, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Hybridon, Inc. (the Company) was incorporated in the State of Delaware on
May 25, 1989. The Company is engaged in the discovery and development of
novel genetic medicines based primarily on antisense technology.
The Company is in the development stage. Since inception, the Company has
devoted substantially all of its efforts toward product research and
development and raising capital. Management anticipates that substantially
all future revenues will be derived from the sale of proprietary
biopharmaceutical products under development or to be developed in the
future, and contract manufacturing of synthetic DNA/RNA products and
reagent products (manufactured by the Hybridon Specialty Products
Division), as well as from research and development revenues and fees and
royalties derived from licensing of the Company's technology. Accordingly,
although the Company has begun to generate revenues from its contract
manufacturing business, the Company is dependent on the proceeds from
possible future sales of equity securities, debt financings and research
and development collaborations in order to fund future operations.
The unaudited consolidated condensed financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and include, in the
opinion of management, all adjustments, consisting of normal, recurring
adjustments, necessary for a fair presentation of interim period results.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that its disclosures are
adequate to make the information presented not misleading. The results for
the interim periods presented are not necessarily indicative of results to
be expected for the full fiscal year. It is suggested that these financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Form 10-K for the
year ended December 31, 1995, as filed with the Securities and Exchange
Commission.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pro Forma Net Loss per Common Share
Pro forma net loss per common share is computed using the weighted average
number of shares of common stock outstanding during the period. Pursuant to
the requirements of the Securities and Exchange Commission, common stock
issued by the Company during the 12 months immediately preceding its
initial public offering, plus shares of common stock that became issuable
during the same period pursuant to the grant of common stock options and
preferred and common stock warrants, has been included in the calculation
of pro forma weighted average number of shares outstanding for the
7
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pro Forma Net Loss per Common Share (Continued)
three and nine months ended September 30, 1995 and for the period from
January 1, 1996 through February 2, 1996 (using the treasury-stock method
and the initial public offering price of $10 per share). In addition, the
calculation of the pro forma weighted average number of shares outstanding
includes shares of common stock as if all shares of preferred stock were
converted into common stock on the respective original dates of issuance.
RECLASSIFICATIONS
Certain amounts in the prior periods consolidated condensed financial
statements have been reclassified to conform with the current periods
presentation.
(3) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company applies SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Accordingly, the Company has classified its
cash equivalents and short-term investments as held-to-maturity, and has
recorded them at amortized cost, which approximates market value.
Short-term investments mature within one year of the balance sheet date.
Cash equivalents have original maturities of less than three months. Cash
equivalents at September 30, 1996, includes approximately $5,900,000 held
by MethylGene Inc., which is restricted to be used to fund MethylGene's
operations and is not available to the Company, see Note 5. Cash and cash
equivalents and short-term investments at September 30, 1996 and December
31, 1995 consisted of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
Cash and Cash Equivalents-
Cash and money market funds $ 3,926,013 $5,284,262
U.S. government securities 7,912,424 -
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$11,838,437 $5,284,262
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Short-term Investments-
U.S. government securities $11,063,626 $ -
=========== ==========
8
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(4) INITIAL PUBLIC OFFERING
On February 2, 1996, the Company completed its initial public offering of
5,750,000 shares of common stock at $10.00 per share. The sale of common
stock resulted in net proceeds to the Company of approximately $52,231,000
after deducting expenses related to the offering. In addition, all
outstanding shares of preferred stock were converted into 16,856,649 shares
of common stock upon the consummation of the initial public offering.
(5) INVESTMENT IN METHYLGENE, INC.
In January 1996, the Company and certain institutional Canadian investors
formed a Quebec company, MethylGene, Inc. (MethylGene), to develop and
market certain compounds to be agreed upon by the Company and MethylGene.
The Company acquired a 49% interest in MethylGene for approximately
$734,000, and the Canadian investors acquired a 51% interest in MethylGene
for a total of approximately $5,500,000. MethylGene is a consolidated
subsidiary of the Company and as a result, the cash held by MethylGene as
of September 30, 1996 in the amount of approximately $5,900,000 is
reflected in the consolidated condensed balance sheet and MethylGene's loss
of approximately $135,000 for the nine months ended September 30, 1996 is
reflected in the consolidated condensed statements of operations. The
Company has recorded a minority interest liability as of September 30, 1996
for the net amount of proceeds received from such investors and expects to
maintain a liability that reflects the option of the MethylGene investors
to require the Company to exchange the investors' MethylGene stock for
Hybridon stock (see below).
The Canadian investors have the right to exchange all (but not less than
all) of their shares of stock in MethylGene for an aggregate of 500,000
shares of Hybridon common stock (subject to adjustment for stock splits,
stock dividends and the like). This option is exercisable only during a
90-day period commencing on the earlier of the date five years after the
closing of the institutional investors' investment in MethylGene or the
date on which MethylGene ceases operations. This option terminates sooner
if MethylGene raises certain additional amounts of equity or debt financing
or if MethylGene enters into a corporate collaboration that meets certain
requirements.
The Company has granted to MethylGene exclusive worldwide licenses and
sublicenses in respect of certain technology relating to the MethylGene
fields. In addition, the Company and MethylGene have entered into a supply
agreement pursuant to which MethylGene is obligated to purchase from the
Company all required formulated bulk oligonucleotides at specified transfer
prices.
9
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(6) CAMBRIDGE LEASE
The Company has entered into an amendment to the lease for its Cambridge
facility pursuant to which, among other things, the Company has elected to
treat $5,450,000 of its payments for a portion of the costs of the
construction of the leased premises (primarily relating to tenant
improvements) as contributions to the capital of the Cambridge landlord in
exchange for a limited partnership interest in the Cambridge landlord (the
Partnership Interest). The Company has the right, for a period of three
years following completion of the building, to sell the Partnership
Interest back to certain limited partners of the Cambridge landlord for a
price equal to the greater of (i) the total $5,450,000 paid for the
Partnership Interest or (ii) the fair market value of the Partnership
Interest at the time. The assets of these limited partners are limited to
their investment in the Cambridge landlord. The Cambridge landlord is an
affiliate of three directors of the Company.
(7) WARRANTS
During the third quarter of 1996, the Company agreed with the holders of
warrants to purchase 1,270,214 shares of common stock to correct an error
in the expiration date of certain warrants by extending the expiration date
from July 7, 1996 to October 25, 1996. During the third quarter of 1996
192,767 warrants for common stock were exercised with exercise prices of
between $5.50 and $8.00 per share for total proceeds of $1,539,000. In
October 1996, 204,669 warrants for common stock at an exercise price of
$8.00 per share were exercised for total proceeds of $1,637,000 while
873,878 warrants were not exercised and expired in accordance with their
terms.
(8) SUBSEQUENT EVENTS
Financing of Facility and Equipment
In November 1996, the Company entered into a non-binding letter of intent
relating to a five-year $7,500,000 credit facility with a bank to finance
the leasehold improvements of the Milford facility. The credit facility
would be secured by a lien on all of the Company's assets and contains
various covenants, including with respect to the liquidity of the Company
and the Company's tangible net worth. The closing of the credit facility is
subject to completion of due diligence and negotiation and execution of
definitive documentation. There can be no assurance that the credit
facility described in the letter of intent will be consummated.
In October 1996, the Company received a commitment letter relating to a
$2,800,000 lease line with a leasing firm to finance the manufacturing
equipment and other equipment in the Milford facility. The closing of this
lease line is subject to negotiation and execution of definitive
documentation. There can be no assurance that the lease line described in
the commitment letter will be consummated.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company is engaged in the discovery and development of genetic medicines
based primarily on antisense technology. The Company commenced operations in
February 1990 and since that time has been engaged primarily in research and
development efforts, development of its manufacturing capabilities and
organizational efforts, including recruitment of scientific and management
personnel and raising capital. To date, the Company has not received revenue
from the sale of biopharmaceutical products based on antisense technology
although during the quarter ended September 30, 1996 the Company began contract
manufacturing of synthetic DNA/RNA and reagent products manufactured by the
Hybridon Specialty Products Division in it's Milford facility. The Company
anticipates increasing sales of these products. In order to commercialize the
biopharmaceutical products, the Company will need to address a number of
technological challenges and comply with comprehensive regulatory requirements.
Accordingly, it is not possible to predict the amount of funds that will be
required or the length of time that will pass before the Company receives
revenues from sales of any of these products. The Company has generated revenue
from collaborative agreements, interest on invested funds, and sales of
synthetic DNA/RNA and reagent products produced by the Hybridon Specialty
Products Division.
The Company has incurred losses since its inception and expects to incur
significant operating losses in the future. The Company expects that its
research and development expenses will increase significantly during the fourth
quarter of 1996 and future years as it moves its principal research and
development programs to more advanced preclinical studies, into clinical trials
and to later phase clinical trials. In addition, the Company expects that its
personnel and patent costs will significantly increase in the future. Costs
associated with the Company's patent applications are expected to increase as
the Company continues to file and prosecute such applications. Patent costs also
would significantly increase if the Company became involved in litigation or
administrative proceedings involving its patents or those of third parties. The
Company has incurred cumulative losses since inception through September 30,
1996 of $134,800,000.
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve a number of risks and uncertainties. Among the important factors that
could cause actual results to differ materially from those indicated by such
forward-looking statements are the factors set forth in the Company's Annual
Report on Form 10-K under the caption Management's Discussion and Analysis of
Financial Condition and Results of Operation--Certain Factors That May Affect
Future Results, which are incorporated by reference herein. In addition, demand
for and margins on the synthetic DNA/RNA and reagent products produced by the
Hybridon Specialty Products Division may be lower than anticipated.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1996 and 1995
The Company had total revenues of $1,531,000 and $245,000 in the three months
ended September 30, 1996 and 1995, respectively, and $2,946,000 and $1,064,000
in the nine months ended September 30, 1996 and 1995, respectively. Revenues
from research and development collaborations were $359,000 and $215,000 for the
three months ended September 30, 1996 and 1995, respectively, and $1,076,000 and
$933,000 for the nine month periods ended September 30, 1996 and 1995,
respectively. Revenues for both the three month and nine month periods ended
September 30 1996 and 1995 consisted of payments earned under a collaborative
agreement with F. Hoffmann-La Roche Ltd (Roche). For the three month and nine
month periods ended September 30, 1996, revenues also included payments under a
collaborative agreement with G. D. Searle & Co. (Searle). Revenues from the
Hybridon specialty products division were $612,000 for the three and nine month
period ended September 30, 1996. Revenues from interest income were $560,000 and
$30,000 for the three months ended September 30, 1996 and 1995, respectively,
and $1,196,000 and $131,000 for the nine months ended September 30, 1996 and
1995, respectively. The increase in interest
11
income in both periods of 1996 was the result of substantially higher cash
balances available for investment as a result of the Company's initial public
offering completed on February 2, 1996.
The Company had research and development expenses of $10,242,000 and 5,605,000
in the three months ended September 30, 1996 and 1995, respectively, and
$27,326,000 and $20,027,000 in the nine months ended September 30, 1996 and
1995, respectively. The increase in research and development expenses in the
three and nine months ended September 30, 1996 reflects increased expenses
associated with salaries and related costs, facilities equipment costs related
to additional laboratories, consulting and professional expense, expenses
related to the production of GEM(R) 91 (an antisense oligonucleotide targeted at
AIDS), and expenses for preclinical compounds. Research and development staffing
and related costs increased significantly as the number of employees engaged in
research and development activities increased by approximately 15 % in each of
the three and nine month periods ending September 30, 1996. The Company expects
to invest significant resources during the remainder of 1996 and future years in
connection with the ongoing clinical trials of GEM(R) 91 and GEM(R) 132 (an
antisense oligonucleotide targeted at cytomegalovirus), the performance of
preclinical studies, and the preparation of IND applications with respect to
additional antisense compounds.
The Company had general and administrative expenses of $2,767,000 and $1,592,000
in the three months ended September 30, 1996 and 1995, respectively, and
$7,990,000 and $4,638,000 in the nine months ended September 30, 1996 and 1995,
respectively. The increase in general and administrative expenses in the three
and nine months ended September 30, 1996 was attributable primarily to an
increase in legal and patent expenses, travel-related expenses, and salaries and
related.
The Company had interest expense of $18,000 and $44,000 in the three months
ended September 30, 1996 and 1995, respectively, and $88,000 and $135,000 in the
nine months ended September 30, 1996 and 1995, respectively. Interest expense in
the three and nine months ended September 30, 1996 and 1995 primarily consisted
of interest incurred on borrowings to finance the purchase of property and
equipment, and leasehold improvements. The decrease in interest expense in the
three and nine months ended September 30, 1996 reflected a decrease in the debt
outstanding during 1996.
As a result of the above factors, the Company incurred net losses of $11,496,000
and $6,996,000 for the three months ended September 30, 1996 and 1995,
respectively, and $32,458,000 and $23,736,000 for the nine months ended
September 30, 1996 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1996, the Company's net cash used in
operating activity was $31,488,000 principally in connection with the Company's
ongoing research and development programs. The Company also increased its
investment in property and equipment by $7,688,000, consisting primarily of
costs associated with the buildout of the Milford manufacturing facility and
costs associated with leasehold improvements to the Cambridge facility. The
Company's cash equivalents balance at September 30, 1996 includes $5,900,000
held by MethylGene Inc., a subsidiary of the Company, which amount is
restricted to be used to fund MethylGene's operations and is not available to
the Company. On February 2, 1996, the Company completed its initial public
offering of common stock, which resulted in net proceeds to the Company of
$52,231,000. As of September 30, 1996, the Company had invested $11,064,000 of
the initial public offering proceeds in short term investments. As a result of
the closing of the Company's initial public offering, all of the Company's
previously outstanding series of convertible preferred stock were automatically
converted into common stock.
12
The Company has signed a lease for a facility in Cambridge, Massachusetts, and
expects to move its primary operations to such facility in the first quarter of
1997. The Company expects to incur significant costs in equipping and building
out this facility, and the Company's facility costs will significantly increase
when it takes occupancy of the Cambridge facility. The Company has entered into
an amendment to the lease for its Cambridge facility pursuant to which, among
other things, the Company has elected to treat $5,450,000 of its construction
payments (primarily related to tenant improvements) as contributions to the
capital of the Cambridge landlord in exchange for a limited partnership interest
in the Cambridge landlord. All other expenses in equipping and building of the
facility in excess of the $5,450,000 are not exchangeable for a partnership
interest under the lease amendment. The Cambridge landlord is an affiliate of
three directors of the Company.
The Company expects that its capital requirements will increase in the future
depending on numerous factors, including but not limited to the progress of the
Company's research and development activities; the results and costs of
preclinical studies and clinical trials; the timing and costs involved in
obtaining regulatory approvals; the costs involved with filing, prosecuting,
enforcing and defending patent claims; the costs associated with potential
commercialization of products under development, including the development of
manufacturing, marketing and sales capabilities; the ability of the Company to
enter into additional collaborative arrangements; and the ability of the Company
to obtain third-party financing for leasehold improvements and other capital
expenditures.
The Hybridon Specialty Products Division of the Company generated revenues of
$612,000 in the third quarter of 1996 and had an additional $700,000 of
confirmed orders as of September 30, 1996.
During the third quarter of 1996, the Company agreed with the holders of
warrants to purchase 1,270,214 shares of common stock to correct an error in the
expiration date of certain warrants by extending the expiration date from July
7, 1996 to October 25, 1996. During the third quarter of 1996 192,767 warrants
for common stock were exercised with exercise prices of between $5.50 and $8.00
per share for total proceeds of $1,539,000. In October 1996, 204,669 warrants
for common stock at an exercise price of $8.00 per share were exercised for
total proceeds of $1,637,000 while 873,878 warrants were not exercised and
expired in accordance with the terms.
During the nine months ended September 30, 1996 the Company received $599,000 in
proceeds from the issuance of common stock related to stock options.
In the third quarter of 1996, Roche notified the Company that, pursuant to the
Company's research and development collaboration with Roche, Roche had selected
an antisense oligonucleotide directed at human papilloma virus as a lead
compound for further development. The selection of this oligonucleotide as a
lead compound entitles the Company to a milestone payment from Roche, which the
Company expects to receive in the fourth quarter of 1996. Roche also notified
the Company in the third quarter of 1996 that Roche had elected not to continue
the hepatitis B program under the research and development collaboration. In
light of the prior selection by Roche of an antisense oligonucleotide directed
at hepatitis C (the third program covered by the collaboration) as a lead
compound, Roche notified the Company that Roche was exercising its option to
terminate the research and development phase of the collaboration as of March
31, 1997. The Company and Roche are engaged in ongoing discussions as to the
manner in which they will collaborate in connection with the further development
of the two antisense oligonucleotides that have been selected by Roche as lead
compounds.
In November 1996, the Company entered into a non-binding letter of intent
relating to a five-year $7,500,000 credit facility with a bank to finance the
leasehold improvements of the Milford facility. The credit facility would be
secured by a lien on all of the Company's assets and contains various covenants,
including liquidity of the Company and the Company's tangible net worth. The
closing of the credit facility is subject to completion of due diligence and
negotiation and execution of definitive documentation. There can be no assurance
that the credit facility described in the letter of intent will be consummated.
In October 1996, the Company received a commitment letter relating to a
$2,800,000 lease line with a leasing firm to finance the manufacturing equipment
and other equipment in the Milford facility. The closing of this lease line is
subject to negotiation and execution of definitive documentation. There can be
no assurance that the lease line described in the commitment letter will be
consummated.
13
Based on the anticipated funds to be received under the credit facility, and the
lease line, as well as the expected revenues and margins from the contract
manufacturing of synthetic DNA/RNA and reagent products by the Hybridon
Specialty Products Division, the Company anticipates that its existing capital
resources will be adequate to satisfy its capital requirements into the first
quarter of 1997. The Company will require substantial additional funds from
external sources in the first quarter of 1997 to support the Company's
operations beyond that time.
The Company intends to seek additional equity, debt and lease financing to fund
future operations, depending on the terms on which such sources of funding may
be available from time to time. The Company also intends to seek additional
collaborative development and commercialization relationships with potential
corporate partners in order to fund certain of its programs. Except for research
and development funding from Roche (which is scheduled to terminate on March 31,
1997) and Searle (which is subject to early termination in certain
circumstances), Hybridon has no committed external sources of capital, and as
discussed above, expects no revenues from the sale of biopharmaceutical products
based on antisense technology for a number of years.
If the Company is unable to obtain necessary additional funds, it would be
required to scale back or eliminate certain of its research and development
programs, commercialization efforts or license to third parties certain
technologies which the Company would otherwise pursue on its own.
14
HYBRIDON, INC.
PART II
OTHER INFORMATION
-------
Item 1-5 None
- --------
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
11 Computation of Pro Forma Net Loss Per Common Share.
27 Financial Data Schedule (EDGAR)
99 Pages 36-39 of the Company's Annual Report on Form 10-K
for the period ended December 31, 1995 (which is not
deemed to be filed except to the extent that portions
thereof are expressly incorporated by reference herein).
(b) No reports were filed on Form 8-K during the three months
ended September 30, 1996.
15
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.
HYBRIDON, INC.
November 13, 1996 /s/ E. Andrews Grinstead III
- ----------------- -----------------------------------
Date E. Andrews Grinstead, III
Chairman, President and Chief Executive
Officer (Principal Executive Officer)
November 13, 1996 /s/ Anthony J. Payne
- ----------------- -----------------------------------
Date Anthony J. Payne
Senior Vice President of Finance and
Administration and Chief Financial
Officer (Principal Financial and
Accounting Officer)
16
HYBRIDON, INC.
EXHIBIT INDEX
-------
11 Computation of Pro Forma Net Loss Per Common Share.
27 Financial Data Schedule (EDGAR)
99 Pages 36-39 of the Company's Annual Report on Form 10-K for the period
ended December 31, 1995 (which is not deemed to be filed except to the
extent that portions thereof are expressly incorporated by reference
herein).