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 JANUARY 31, 2001
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 0-17085
PEREGRINE PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-3698422
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
14272 Franklin Avenue, Suite 100, Tustin, California 92780-7017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (714) 508-6000
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED,
SINCE LAST REPORT)
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 [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.)
96,501,606 shares of Common Stock
as of March 1, 2001
TABLE OF CONTENTS
THE TERMS "WE", "US", "OUR," AND "THE COMPANY" AS USED IN THIS FORM ON 10-Q
REFERS TO PEREGRINE PHARMACEUTICALS, INC. (FORMERLY TECHNICLONE CORPORATION),
TECHNICLONE INTERNATIONAL CORPORATION, ITS FORMER SUBSIDIARY, CANCER BIOLOGICS
INCORPORATED, WHICH WAS MERGED INTO THE COMPANY ON JULY 26, 1994 AND ITS WHOLLY
OWNED SUBSIDIARY VASCULAR TARGETING TECHNOLOGIES, INC. (FORMERLY PEREGRINE
PHARMACEUTICALS, INC.), WHICH WAS ACQUIRED DURING APRIL 1997.
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements ................................................ 3
Consolidated Balance Sheets at January 31, 2001 and April 30, 2000 .. 3
Consolidated Statements of Operations for the three and nine-month
periods ended January 31, 2001 and 2000 ............................. 5
Consolidated Statement of Stockholders' Equity for the nine months
ended January 31, 2001............................................... 6
Consolidated Statements of Cash Flows for the nine months ended
January 31, 2001 and 2000............................................ 7
Notes to Consolidated Financial Statements .......................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ...............................................14
Company Overview ....................................................14
Risk Factors of Our Company .........................................20
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..........20
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................................21
Item 2. Changes in Securities and Use of Proceeds ...........................21
Item 3. Defaults Upon Senior Securities .....................................21
Item 4. Submission of Matters to a Vote of Security Holders .................21
Item 5. Other Information ...................................................21
Item 6. Exhibits and Reports on Form 8-K.....................................22
2
PART I FINANCIAL INFORMATION
----------------------------
ITEM 1. FINANCIAL STATEMENTS
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PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 2001 AND APRIL 30, 2000
- ---------------------------------------------------------------------------------------------------
JANUARY 31, APRIL 30,
2001 2000
------------- -------------
UNAUDITED
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,352,000 $ 4,131,000
Restricted cash 250,000 -
Other receivables, net of allowance of $228,000
(January) and $342,000 (April) 298,000 90,000
Prepaid expenses and other current assets 144,000 268,000
Laboratory equipment held for sale 428,000 428,000
------------- -------------
Total current assets 9,472,000 4,917,000
PROPERTY:
Leasehold improvements 191,000 73,000
Laboratory equipment 930,000 860,000
Furniture, fixtures and computer equipment 687,000 806,000
------------- -------------
1,808,000 1,739,000
Less accumulated depreciation and amortization (1,010,000) (869,000)
------------- -------------
Property, net 798,000 870,000
OTHER ASSETS:
Note receivable, net of allowance of $1,773,000 (January) and
$1,863,000 (April) - -
Other, net 146,000 166,000
------------- -------------
Total other assets 146,000 166,000
------------- -------------
TOTAL ASSETS $ 10,416,000 $ 5,953,000
============= =============
3
PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 2001 AND APRIL 30, 2000 (CONTINUED)
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JANUARY 31, APRIL 30,
2001 2000
-------------- --------------
UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 724,000 $ 522,000
Note payable and accrued interest payable to related party 1,313,000 3,465,000
Accrued clinical trial site fees 468,000 280,000
Accrued royalties and license fees 156,000 268,000
Accrued legal and accounting fees 120,000 186,000
Notes payable, current portion 111,000 110,000
Other current liabilities 334,000 254,000
Deferred license revenue 3,625,000 3,500,000
-------------- --------------
Total current liabilities 6,851,000 8,585,000
NOTES PAYABLE 6,000 89,000
DEFERRED LICENSE REVENUE 458,000 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock- $.001 par value; authorized 5,000,000 shares,
none outstanding - -
Common stock-$.001 par value; authorized 150,000,000 shares;
outstanding 96,346,981 (January); 90,612,610 (April) 96,000 91,000
Additional paid-in capital 118,749,000 106,640,000
Deferred stock compensation (1,278,000) (2,258,000)
Accumulated deficit (114,466,000) (107,194,000)
-------------- --------------
Total stockholders' equity (deficit) 3,101,000 (2,721,000)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 10,416,000 $ 5,953,000
============== ==============
See accompanying notes to consolidated financial statements
4
PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE-MONTH PERIODS ENDED JANUARY 31, 2001 AND 2000 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- --------------------------------
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
2001 2000 2001 2000
------------- ------------- ------------- -------------
REVENUES:
Amortization of deferred
license revenue $ 156,000 $ 50,000 $ 416,000 $ 50,000
Interest and other income 309,000 104,000 772,000 228,000
------------- ------------- ------------- -------------
Total revenues 465,000 154,000 1,188,000 278,000
COSTS AND EXPENSES:
Research and development 1,993,000 1,786,000 5,502,000 6,528,000
General and administrative 753,000 597,000 1,760,000 2,262,000
Provision for uncollectible note
receivable - - - 1,887,000
Stock-based compensation 326,000 467,000 980,000 772,000
Interest 41,000 103,000 218,000 279,000
------------- ------------- ------------- -------------
Total costs and expenses 3,113,000 2,953,000 8,460,000 11,728,000
NET LOSS $ (2,648,000) $ (2,799,000) $ (7,272,000) $(11,450,000)
============= ============= ============= =============
Net loss before preferred stock
accretion and dividends $ (2,648,000) $ (2,799,000) $ (7,272,000) $(11,450,000)
Imputed dividends on Class C
Preferred Stock - - - (2,000)
------------- ------------- ------------- -------------
NET LOSS APPLICABLE TO COMMON STOCK $ (2,648,000) $ (2,799,000) $ (7,272,000) $(11,452,000)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 96,320,984 81,885,308 94,795,668 78,390,042
============= ============= ============= =============
BASIC AND DILUTED LOSS PER SHARE $ (0.03) $ (0.03) $ (0.08) $ (0.15)
============= ============= ============= =============
See accompanying notes to consolidated financial statements
5
PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED JANUARY 31, 2001 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL
ADDITIONAL STOCKHOLDERS'
COMMON STOCK PAID-IN DEFERRED STOCK ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT (DEFICIT)
-------------- -------------- -------------- -------------- -------------- --------------
BALANCES - April 30, 2000 90,612,610 $ 91,000 $ 106,640,000 $ (2,258,000) $(107,194,000) $ (2,721,000)
Common stock issued upon exercise
of options and warrants 158,866 - 79,000 - - 79,000
Common stock issued for cash
under Equity Line 4,471,824 4,000 8,731,000 - - 8,735,000
Common stock issued to OXiGENE,
Inc. for cash under joint
venture 585,009 1,000 1,999,000 - - 2,000,000
Common stock issued to Schering
A.G. for obligations under the
license agreement amendment 518,672 - 1,300,000 - - 1,300,000
Stock-based compensation - - - 980,000 - 980,000
Net loss - - - - (7,272,000) (7,272,000)
-------------- -------------- -------------- -------------- -------------- --------------
BALANCES - January 31, 2001 96,346,981 $ 96,000 $ 118,749,000 $ (1,278,000) $(114,466,000) $ 3,101,000
============== ============== ============== ============== ============== ==============
See accompanying notes to consolidated financial statements
6
PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 31, 2001 AND 2000 (UNAUDITED)
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NINE MONTHS ENDED JANUARY 31,
2001 2000
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,272,000) $(11,450,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for uncollectible note receivable - 1,887,000
Depreciation and amortization and loss on disposal of property 278,000 386,000
Stock-based compensation and common stock issued for
services and under severance agreement 980,000 1,460,000
Amortization of clinical trial services prepaid in stock 1,117,000 -
Severance expense - 174,000
Amortization of deferred license revenue (416,000) -
Changes in operating assets and liabilities:
Other receivables (208,000) 93,000
Prepaid expenses and other current assets (993,000) 19,000
Other assets - 206,000
Accounts payable and accrued legal and accounting fees 136,000 517,000
Accrued clinical trial site fees 188,000 228,000
Accrued royalties and license termination fees (112,000) 58,000
Other accrued expenses and current liabilities (72,000) (27,000)
Deferred license revenue 999,000 -
------------- -------------
Net cash used in operating activities (5,375,000) (6,449,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property (206,000) (185,000)
Transfer funds to restricted cash (250,000) -
Decrease in other assets 20,000 35,000
------------- -------------
Net cash used in investing activities (436,000) (150,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 12,114,000 6,660,000
Payments received on notes receivable from sale of common
stock 307,000
Principal payments on notes payable (2,082,000) (80,000)
Payment of Class C preferred stock dividends - (2,000)
------------- -------------
Net cash provided by financing activities 10,032,000 6,885,000
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7
PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 31, 2001 AND 2000 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
NINE MONTHS ENDED JANUARY 31,
2001 2000
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS $4,221,000 $ 286,000
CASH AND CASH EQUIVALENTS,
beginning of period 4,131,000 2,385,000
----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $8,352,000 $2,671,000
=========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid $ 370,000 $ 213,000
=========== ===========
See accompanying notes to consolidated financial statements
8
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2001 (UNAUDITED)
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying consolidated financial
statements include the accounts of Peregrine Pharmaceuticals, Inc. (the
"Company") (formerly Techniclone Corporation) and its wholly owned subsidiary,
Vascular Targeting Technologies, Inc. (formerly Peregrine Pharmaceuticals,
Inc.). The Company acquired the Vascular Targeting Agent ("VTA") technology
through the acquisition of its wholly owned subsidiary in April 1997. All
intercompany balances and transactions have been eliminated.
At January 31, 2001, the Company had $8,352,000 in cash and cash
equivalents. The Company has expended substantial funds on the development of
product candidates and for clinical trials. As a result, the Company has had
negative cash flows from operations since inception and expects the negative
cash flows from operations to continue until the Company is able to generate
sufficient revenue from the sale and/or licensing of its products. Although the
Company has sufficient cash on hand to meet its obligations on a timely basis
for at least the next twelve months based on its historical operational spending
rate over the past nine months (excluding any future draws under the Company's
Common Stock Equity Line of Credit), the Company will continue to require
additional funding to sustain its research and development efforts, provide for
future clinical trials, establish contract manufacturing and product
commercialization capabilities, and continue operations until the Company is
able to generate sufficient revenue from the sale and/or licensing of its
product candidates. The Company plans to obtain required financing through one
or more methods including, obtaining additional equity or debt financing and
negotiating additional licensing or collaboration agreements with other
companies.
The Company's ability to access funds under the Equity Line Agreement
is subject to the satisfaction of certain conditions and the failure to satisfy
these conditions may limit or preclude the Company's ability to access such
funds (Note 4).
The accompanying unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring adjustments) which, in the
opinion of management, are necessary to present fairly the consolidated
financial position of the Company at January 31, 2001, and the consolidated
results of its operations and its consolidated cash flows for the three and
nine-month periods ended January 31, 2001 and 2000. Although the Company
believes that the disclosures in the financial statements are adequate to make
the information presented not misleading, certain information and footnote
disclosures normally included in the consolidated financial statements have been
condensed or omitted pursuant to Article 10 of Regulation S-X of the Securities
and Exchange Commission. The consolidated financial statements included herein
should be read in conjunction with the consolidated financial statements of the
Company, included in the Company's Annual Report on Form 10-K for the year ended
April 30, 2000, which was filed under its former name Techniclone Corporation
with the Securities and Exchange Commission on July 31, 2000. Results of
operations for the interim periods covered by this Report may not necessarily be
indicative of results of operations for the full fiscal year.
9
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2001 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
RECLASSIFICATION. Certain reclassifications were made to the prior
period balances to conform them to the current period presentation.
NET LOSS PER SHARE. Net loss per share is calculated by adding the net
loss for the three and nine-month periods to the preferred stock dividends on
the Class C preferred stock during the three and nine-month periods divided by
the weighted average number of shares of common stock outstanding during the
same period. Shares issuable upon the exercise of common stock warrants and
options have been excluded from the per share calculation for the three and
nine-month periods ended January 31, 2001 and 2000 because their effect is
antidilutive. Accretion of the Class C preferred stock dividends amounted to
$2,000 for the nine months ended January 31, 2000. There were no shares of
preferred stock outstanding during the three and nine months ended January 31,
2001.
RECENT ACCOUNTING PRONOUNCEMENTS. In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements". The bulletin draws on existing accounting
rules and provides specific guidance on how those accounting rules should be
applied. Among other things, SAB No. 101 requires that license and other
up-front fees from research collaborators be recognized over the term of the
agreement unless the fee is in exchange for products delivered or services
performed that represent the culmination of a separate earnings process. The
Company will adopt SAB No. 101 in the fourth quarter of fiscal year 2001 and its
adoption is not expected to have a material impact on the Company's financial
position or results of operations.
During June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
will be effective for the Company beginning May 1, 2001. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts, and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statements of financial position and measure those
instruments at fair value. The Company has not determined the impact on the
consolidated financial statements, if any, of adopting SFAS No. 133.
2. INVESTMENTS
Management determines the appropriate classification of investments at
the time of purchase and re-evaluates such designation as of each balance sheet
date. The Company's investments are classified as held-to-maturity and are
carried at their aggregate fair value. Investments with original maturities of
three months or less are included in cash and cash equivalents and investments
with original maturities greater than three months are included in short-term
investments in the accompanying consolidated financial statements. Interest and
dividends on investments classified as held-to-maturity are included in interest
income.
10
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2001 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
3. NOTES PAYABLE
During the quarter ended October 31, 2000, the Company paid $2,000,000
in principal on its $3,300,000 note payable to Biotechnology Development Ltd.
("BTD"), which is included in note payable and accrued interest payable to
related party in the accompanying consolidated financial statements. BTD is a
limited partnership controlled by Mr. Edward J. Legere, a member of the Board of
Directors and Interim President and Chief Executive Officer. On March 1, 2001,
the notes due date, the remaining balance of the note payable and all accrued
interest thereon was paid in full.
4. STOCKHOLDERS' EQUITY (DEFICIT)
During June 1998, the Company secured access to $20,000,000 under a
Common Stock Equity Line of Credit ("Equity Line") with two institutional
investors, as amended on June 2, 2000 (the "Amendment"). Under the Amendment,
the Company may, in its sole discretion, and subject to certain restrictions,
periodically sell ("Put") shares of the Company's common stock until all common
shares previously registered under the Equity Line have been exhausted. As of
January 31, 2001, the Company had approximately 6,001,000 unissued shares
available under the Equity Line. Under the Amendment, up to $2,800,000 of Puts
can be made every month if the Company's closing bid price is $2.00 or higher
during the 10-day pricing period. If the Company's closing bid price is between
$1.00 and $2.00, then the Company can Put up to $1,500,000 per month and if the
Company's closing bid price falls below $1.00 on any trading day during the ten
trading days prior to the Put, the Company's ability to access funds under the
Equity Line in the Put is limited to 15% of what would otherwise be available.
If the closing bid price of the Company's common stock falls below $0.50 or if
the Company is delisted from The Nasdaq SmallCap Market, the Company would have
no access to funds under the Equity Line. Future Puts under the Equity Line are
priced at a discount equal to the greater of $0.20 or 17.5% off the lowest
closing per share bid price during the ten trading days immediately preceding
the date on which such shares are sold to the institutional investors.
During the nine months ended January 31, 2001, the Company received
gross proceeds of $9,500,000, in exchange for 4,063,747 shares of common stock
issued to two institutional investors under the Equity Line. In connection with
the Equity Line draws during the nine months ended January 31, 2001, the Company
(i) issued 408,077 shares of common stock, (ii) issued warrants to purchase up
to 40,806 shares of common stock, and (iii) paid cash commissions of $665,000,
to Dunwoody Brokerage Services, Inc., as placement agent fees. Mr. Eric Swartz,
a member of the Board of Directors, maintains a contractual right to 50% of the
placement agent fees paid under the Equity Line. The Equity Line was consummated
in June 1998 when Mr. Swartz had no Board affiliation with the Company.
During May 2000, the Company received proceeds of $2,000,000 in
exchange for 585,009 shares of common stock in accordance with the joint venture
agreement with OXiGENE, Inc. (Note 6).
During August 2000, the Company issued 518,672 shares of its common
stock valued at $1,300,000 in accordance with the license agreement amendment
with Schering A.G. (Note 6).
During February 2001, the Company issued 150,000 shares of the its
common stock to an unrelated entity at $4.00 per share (Note 7).
11
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2001 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
5. CONTINGENCY
During March 2000, the Company was served with a notice of lawsuit
filed in Orange County Superior Court for the State of California by a former
officer of the Company who resigned from the Company on November 3, 1999. The
lawsuit alleged a single cause of action for breach of contract. A director of
the Company was also served with a notice of lawsuit, but such claims do not
appear to be directed toward the Company. A hearing was held on July 21, 2000 in
which the Superior Court judge approved the plaintiff's request for a writ of
attachment and required the plaintiff to post a $15,000 bond in connection with
that writ. On September 28, 2000, the Court ordered a lien of $250,000 to be
placed on the Company's bank account in accordance with the writ of attachment,
which is included in restricted cash in the accompanying consolidated financial
statements. During January 2001, the Company entered into a global settlement
agreement based on the advice from the settlement judge, which dismissed all
parties including a director of the Company. In conjunction with the global
settlement agreement, the Company paid the plaintiff $250,000 during February
2001, which is included in general and administrative expenses in the
accompanying consolidated financial statements for the three and nine months
ended January 31, 2001.
6. LICENSING
During May 2000, the Company entered into a joint venture agreement
with OXiGENE, Inc. ("OXiGENE"). Under the terms of the joint venture agreement,
the Company has agreed to supply its VTA intellectual property to the joint
venture while OXiGENE has paid the Company a nonrefundable $1,000,000 license
fee, which was received in May 2000 and will be amortized as license revenue
over a two year period, purchased $2,000,000 of the Company's common stock (Note
4) and agreed to (i) provide its next generation tubulin-binding compounds (ii)
spend up to $20,000,000 to fund the development expenses of the joint venture
based on its development success and (iii) pay the Company a $1,000,000
nonrefundable license fee and subscribe to an additional $1,000,000 in common
stock of the Company upon filing an Investigational New Drug Application ("IND")
for the first clinical candidate developed. Any future funding of the joint
venture after OXiGENE has paid its $20,000,000 in development expenses will be
shared equally by the Company and OXiGENE. Additionally, under the terms of the
joint venture agreement, any sublicensing fees generated within the joint
venture will be allocated 75% to the Company and 25% to OXiGENE until the
Company has received $10,000,000 in sublicensing fees. Thereafter, the joint
venture partners will share licensing fees equally. Any royalty income or
profits will also be shared equally by the joint venture partners. The Company
and OXiGENE have named the new entity ARCUS Therapeutics, LLC ("Arcus").
During June 2000, the Company and Schering A.G. entered into an
amendment (the "Amendment") to the Oncolym(R) License Agreement dated March 8,
1999, whereby Schering A.G. has agreed to pay for 100% of the Oncolym(R)
clinical development expenses, excluding drug related costs, for the Phase I
clinical trial. In exchange for this commitment, the Company agreed to transfer
$1,300,000 of its common stock to Schering A.G. as defined in the Amendment.
Upon the successful completion of the Phase I clinical trial, Schering A.G. will
pay for 100% of the Phase II/III clinical trial (excluding drug related costs)
in exchange for the Company issuing an additional $1,700,000 of its common stock
12
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2001 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
as defined in the Amendment. Eighty percent of the clinical trial costs in
excess of the $1,300,000 for the Phase I clinical trial and $1,700,000 for the
Phase II/III clinical trial will be paid by Schering A.G. and Peregrine will pay
the remaining 20%. If Schering A.G. moves forward after the Phase II/III
clinical trial, then Schering A.G. has agreed to refund the Company 80% of the
proceeds it received from the sale of Peregrine's common stock by applying such
amount to the Company's clinical and manufacturing obligations under the License
Agreement dated March 8, 1999.
During August 2000, the Company entered into a licensing agreement with
an unrelated entity to license a segment of the VTA technology, specifically
related to targeting Photodynamic Therapy agents ("PDT"), for the worldwide
exclusive rights to this area. Under the agreement, the Company received an
up-front payment of $500,000 in April 2000, which will be amortized as license
revenue over a four-year period. The Company could also receive milestone
payments of up to $6,500,000 and a royalty on net profits, as defined in the
agreement, upon commercialization of a product.
During October 2000, the Company entered into a licensing agreement
with an unrelated entity to license a segment of its TNT technology for use in
the application of cytokine fusion proteins. Under the terms of the licensing
agreement, the Company will receive an up-front payment up to $400,000 upon the
satisfaction of certain conditions set forth in the agreement. The Company will
also receive a royalty on net sales, as defined in the agreement, upon the
commencement of commercial sales.
7. SUBSEQUENT EVENTS
During February 2001, the Company completed a licensing deal with an
unrelated entity to license a segment of its VTA technology, specifically
related to Vascular Endothelial Growth Factor ("VEGF"). Under the terms of the
licensing agreement, the unrelated entity purchased 150,000 shares of the
Company's common stock at $4.00 per share for total proceeds to the Company of
$600,000. The Company will also receive an annual license fee of $200,000 until
the unrelated entity files an Investigational New Drug Application in the United
States utilizing the VEGF technology. In addition, the Company could receive up
to $7,500,000 in future milestone payments, plus receive a royalty on net sales
of all drugs commercialized by the unrelated entity utilizing the VEGF
technology. The Company could also receive additional consideration for each
clinical candidate that enters a Phase III clinical trial by the unrelated
entity.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Except for historical information contained herein, this Quarterly
Report on Form 10-Q ("Report") contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. In light of the important factors that can materially affect
results, including those set forth elsewhere in this Form 10-Q, the inclusion of
forward-looking information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved. When used in this Form 10-Q, the words "may," "should," "believe,"
"anticipate," "estimate," "expect," their opposites and similar expressions are
intended to identify forward-looking statements. The Company cautions readers
that such statements are not guarantees of future performance or events and are
subject to a number of factors that may tend to influence the accuracy of the
statements.
The following discussion is included to describe the Company's
financial position and results of operations for the three and nine months ended
January 31, 2001 compared to the same periods in the prior year. The
consolidated financial statements and notes thereto contain detailed information
that should be referred to in conjunction with this discussion. In addition, the
consolidated financial statements included herein should be read in conjunction
with the consolidated financial statements of the Company, included in the
Company's Annual Report on Form 10-K for the year ended April 30, 2000, which
was filed under its former name, Techniclone Corporation, with the Securities
and Exchange Commission on July 31, 2000. Results of operations for the interim
periods covered by this Report may not necessarily be indicative of results of
operations for the full fiscal year.
COMPANY OVERVIEW. The Company changed its name from Techniclone
Corporation to Peregrine Pharmaceuticals, Inc. ("Peregrine") effective October
25, 2000. The new name reflects the Company's new strategic business plan and
the Company's new start. In addition, on November 7, 2000, the Company changed
its ticker symbol on the Nasdaq SmallCap Market from "TCLN" to "PPHM". On
February 9, 2001, the Company announced that John Bonfiglio, Ph.D., President
and Chief Executive Officer of the Company had taken a leave of absence from the
Company and Edward Legere, a member of the Board of Directors, had been
appointed the Interim President and Chief Executive Officer of the Company.
Peregrine is a biopharmaceutical company engaged in the research,
development and commercialization of targeted cancer therapeutics. We are
developing product candidates working primarily on collateral tumor targeting
for the treatment of solid tumors. In addition, we are working in collaboration
with Schering A.G. to develop Oncolym(R) for the treatment of Non-Hodgkin's
B-cell Lymphoma ("NHL").
Collateral targeting is a strategy that has been developed to take
advantage of characteristics common to all solid tumors. These common tumor
characteristics include the development of a blood supply to support tumor
growth. An inadequate blood supply results in starvation and eventually death of
tumor cells. These dying and dead tumor cells are found within the necrotic
areas of the tumor. Our collateral targeting agents target either intratumoral
blood vessels or structures found within the necrotic areas of the tumor.
The most clinically advanced collateral targeting agent is known as
Tumor Necrosis Therapy ("TNT"), which utilizes monoclonal antibodies (targeting
molecules that bind to specific structures) that recognize markers found in the
necrotic areas of solid tumors. TNT antibodies are potentially capable of
carrying a variety of agents including radiation, chemotherapeutic agents and
cytokines to the interior of solid tumors. A Phase II clinical trial for a Tumor
Necrosis Therapy agent (called Cotara(TM)) for the treatment of malignant glioma
(brain cancer) is currently being conducted at The Medical University of South
Carolina, Temple University, University of Utah-Salt Lake City, Carolina
Neurosurgery & Spine Associates in Charlotte, North Carolina, Barrow
14
Neurological Institute in Phoenix, Arizona, the University of Miami and
Northwestern University. A Phase I/II clinical study of Cotara(TM) for the
treatment of pancreatic, prostate, liver and brain cancers is also ongoing in
Mexico City. Additionally, a Phase I trial is being conducted to study
intravenous administration of Cotara(TM) for the treatment of colorectal cancer
at the Stanford University Medical Center ("Stanford"). Additional studies at
Stanford will begin during 2001. An additional Phase I trial to study
intravenous administration of Cotara(TM) for the treatment of liver cancer is
scheduled to begin in the near future at the Mayo Clinic.
A second class of collateral targeting agents are known as Vascular
Targeting Agents ("VTAs"). VTAs utilize monoclonal antibodies and other
targeting agents that recognize markers found on tumor blood vessels. The
monoclonal antibody carries an effector molecule that creates a blockage within
the blood vessels that supply oxygen and nutrients to the tumor cells, thus
cutting off the blood supply to the tumor, which results in tumor cell death and
potentially destroying the tumor. VTAs are currently in pre-clinical development
in collaboration with our joint development partner, OXiGENE, Inc. and
researchers at the University of Texas Southwestern Medical Center at Dallas.
A third class of collateral targeting agents are known as
Vasopermeation Enhancement Agents ("VEAs"). VEAs currently use the same
targeting agent as TNT to deliver an agent that makes the blood vessels inside
the tumor more leaky (permeable). The increased permeability of the tumor blood
vessels makes it possible to deliver an increased concentration of killing
agents into the tumor where they can potentially kill the living tumor cells.
VEAs are currently in pre-clinical development in collaboration with researchers
at the University of Southern California Medical Center.
Peregrine has taken steps to protect its position in the field of
collateral targeting agents. Peregrine currently has exclusive rights to over 40
issued U.S. and foreign patents protecting various aspects of its technology and
has additional pending patent applications that it believes will further
strengthen its position in collateral targeting.
Our direct tumor-targeting agent, Oncolym(R), for the treatment of
Non-Hodgkins B-cell Lymphoma ("NHL") is being developed by Schering A.G.
Peregrine entered into a license agreement with Schering A.G. on March 8, 1999,
which was amended during June 2000, with respect to the development,
manufacturing and marketing of Oncolym(R). Schering A.G. has started the single
dose Phase I clinical trial with a modified treatment strategy for the treatment
of intermediate and high grade Non-Hodgkin's B-cell Lymphoma.
RESULTS OF OPERATIONS. Before we compare the total operations of the
Company (cash and non-cash income and expenses), we would like to discuss the
Company's operational burn rate (net cash expenses from operations) for the
three and nine months ended January 31, 2001 compared to the same periods in the
prior year.
The following schedule is a summary of the Company's operational burn
rate for the three and nine months ended January 31, 2001 compared to the same
period in the prior year. As shown in the following schedule, the Company's
operational burn rate has increased $506,000 (33%) in the current quarter ended
January 31, 2001 (or $168,000 per month) compared to the same period in the
prior year. The net increase in cash expenses primarily relates to an increase
in clinical trial expenses associated with the Phase II clinical trial using
Cotara(TM) for the treatment of brain cancer and the Phase I study at Stanford
University Medical Center using Cotara(TM) for the treatment of colorectal
cancer. In addition, the current quarter net increase in cash expenses is also
due to an increase in general and administrative expenses associated with a
non-recurring expense of $250,000 for a global settlement with a former officer
of the Company based on the advice of the settlement judge. The net increase in
cash expenses was offset by an increase in interest income as a result of a
higher cash and cash equivalents balance and short-term investments on hand
during the current three-month period combined with an increase in rental income
from the Company's subleased space. Recently, the Company has subleased the
majority of its excess space and centralized its headquarters into one building
to reduce its fixed operational burn rate. Although our operational cash burn
rate has increased during the current three-month period ended January 31, 2001
15
compared to the same period in the prior year, our total operational burn rate
for the nine months ended January 31, 2001 compared to the same period in the
prior year decreased by $2,230,000 (30%) or $248,000 per month. The net decrease
in cash expenses primarily relates to a decrease in expenses associated with
antibody and radiolabeling manufacturing and scale-up efforts, which were
incurred in the prior year. In addition, costs associated with patent legal fees
and sponsored research fees associated with the VTA technology included in the
joint venture with OXiGENE, Inc. decreased, as these expenses are primarily
funded by the Arcus joint venture. In addition, the current nine-month period
decrease in cash expenses is also due to a decrease in general and
administrative expenses, including decreased salary expenses due to fewer
employees in administration combined with a decrease in severance expenses.
Moreover, the net decrease in expenses was supplemented by an increase in
interest and other income as a result of a higher cash and cash equivalents
balance and short-term investments on hand during the current nine-month period
combined with an increase in rental income from the Company's subleased space.
Our total operational burn rate may vary substantially from quarter to
quarter based on patient enrollment rates of our clinical trial programs and the
funding of non-recurring items, which may include but are not limited to, items
associated with product development, contract manufacturing, contract
radiolabeling and the related commercial scale-up efforts for contract
manufacturing and contract radiolabeling.
The operational burn rate for the three and nine months ended
January 31, 2001 and 2000 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net loss $ (2,648,000) $ (2,799,000) $ (7,272,000) $(11,450,000)
Less non-cash revenue and expenses:
Amortization of deferred license
revenue (156,000) - (416,000) -
Amortization of clinical trial services
prepaid in stock 338,000 - 1,117,000 -
Depreciation and amortization and
loss on disposal of property 120,000 131,000 278,000 386,000
Stock issued for interest, services,
and under severance agreements - 687,000 - 687,000
Provision for uncollectible note
receivable - - - 1,887,000
Stock-based compensation
expense and non-cash
severance expenses 326,000 467,000 980,000 947,000
------------- ------------- ------------- -------------
Net operational burn rate $ (2,020,000) $ (1,514,000) $ (5,313,000) $ (7,543,000)
============= ============= ============= =============
Net average monthly operational
burn rate $ (673,000) $ (505,000) $ (590,000) $ (838,000)
============= ============= ============= =============
16
THREE MONTHS ENDED JANUARY 31, 2001 AND 2000
NET LOSS. The Company's net loss of $2,648,000 for the quarter ended
January 31, 2001 represents a decrease in net loss of $151,000 (or 5%) in
comparison to the net loss of $2,799,000 for the prior year quarter ended
January 31, 2000. This decrease in the net loss for the quarter ended January
31, 2001 is due to an increase in revenues of $311,000 offset with an increase
in total costs and expenses of $160,000.
REVENUES. The increase in revenues of $311,000 during the three months
ended January 31, 2001 compared to the same period in the prior year is
primarily due to an increase in interest income earned on the Company's
increased level of cash and cash equivalents on hand and short-term investments.
In addition, the increase in revenues was supplemented by an increase in license
revenues, resulting from the amortization of deferred license revenue, plus an
increase in rental income, as the Company has subleased the majority of its
excess space and centralized its headquarters into one building. The Company
does not expect to generate product sales for at least the next year.
TOTAL COSTS AND EXPENSES. The current quarter increase in total costs
and expenses of $160,000 is primarily due to an increase in research and
development expenses of $207,000 and an increase in general and administrative
expenses of $156,000. These amounts were offset by a current quarter decrease in
interest expense of $62,000 and a decrease in stock-based compensation (a
non-cash expense) of $141,000.
RESEARCH AND DEVELOPMENT EXPENSES. The increase in research and
development expenses of $207,000 during the three months ended January 31, 2001
compared to the same period in the prior year is primarily due to an increase in
clinical trial expenses. The increase in clinical trial expenses are associated
with the ongoing Phase II clinical trial using Cotara(TM) for the treatment of
brain cancer, the Phase I study at Stanford University Medical Center using
Cotara(TM) for the treatment of colorectal cancer, and the Phase I study using
Oncolym(R) for the treatment of Non-Hodgkins B-cell Lymphona ("NHL"), which is
being developed by Schering A.G. The current quarter increases in research and
development expenses were offset by a decrease in patent legal fees, patent
maintenance fees and sponsored research fees associated with the VTA technology.
Pursuant to the Company's joint venture agreement with OXiGENE, Inc., OXiGENE,
Inc. has agreed to fund up to $20,000,000 in development expenses associated
with the joint venture.
GENERAL AND ADMINISTRATIVE EXPENSES. The increase in general and
administrative expenses of $156,000 during the three months ended January 31,
2001 compared to the same period in the prior year is primarily due to a
non-recurring expense of $250,000 for a global settlement with a former officer
of the Company based on the recommendation of the settlement judge combined with
an increase in public relation expenses associated with the development of the
Company's new web site and an increase in consulting services provided by the
Company's new public relations firm. The current quarter increases in general
and administrative expenses were primarily offset by a decrease in salary
expenses due to fewer administrative employees and a decrease in legal fees.
STOCK-BASED COMPENSATION EXPENSE. The decrease in stock-based
compensation expense (a non-cash expense) of $141,000 for the three months ended
January 31, 2001 compared to the same period in the prior year is primarily due
to a prior year one-time expense of $313,000 for the issuance of a warrant to
Swartz Private Equity, LLC to purchase up to 750,000 shares of the Company's
common stock in consideration of a commitment by Swartz Private Equity, LLC to
fund a $35,000,000 equity line financing over a three year term. This agreement
was entered into and approved by the previous Board of Directors. Mr. Eric
Swartz, a member of the Board of Directors, maintains a 50% ownership in Swartz
Private Equity, LLC. The current quarter decrease in stock-based compensation
expense was offset by an increase in the fair value of options granted to
non-employee consultants of the Company during April 2000 who are assisting the
Company with the development of its platform technologies. The options were
valued using the Black-Scholes valuation model and are being amortized over the
estimated period of service or related vesting period.
17
INTEREST EXPENSE. The decrease in interest expense of $62,000 for the
three months ended January 31, 2001 compared to the same period in the prior
year is primarily due to a lower outstanding note payable balance during the
quarter ended January 31, 2001. The Company made aggregate principal payments of
$2,000,000 during the quarter ended October 31, 2000 on a $3,300,000 note
payable to Biotechnology Development Ltd.
NINE MONTHS ENDED JANUARY 31, 2001 AND 2000
NET LOSS. The Company's net loss of $7,272,000 for the nine months
ended January 31, 2001 represents a decrease in net loss of $4,178,000 (or 36%)
in comparison to the net loss of $11,450,000 for the nine months ended January
31, 2000. The decreased loss for the nine months ended January 31, 2001 is due
to a $3,268,000 decrease in total costs and expenses combined with a $910,000
increase in revenues.
REVENUES. The increase in revenues of $910,000 for the nine months
ended January 31, 2001 compared to the same period in the prior year is
primarily due to an increase in interest income earned on the Company's
increased level of cash and cash equivalents on hand and short-term investments.
In addition, the increase in revenues was supplemented by an increase in license
revenues, resulting from the amortization of deferred license revenue, plus an
increase in rental income, as the Company has recently subleased the majority of
its excess space and centralized its headquarters into one building. The Company
does not expect to generate product sales for at least the next year.
TOTAL COSTS AND EXPENSES. The Company's total costs and expenses
decreased $3,268,000 during the nine months ended January 31, 2001 compared to
the nine months ended January 31, 2000. The decrease in total costs and expenses
resulted primarily from a prior year one-time expense of $1,887,000 during the
nine months ended January 31, 2000 for the estimated provision of an
uncollectible note receivable, which was not incurred in the current nine months
ended January 31, 2001, combined with a decrease in research and development
expenses of $1,026,000, a decrease in general and administrative expenses of
$502,000 and a decrease in interest expense of $61,000. These amounts were
offset by a current period increase in stock-based compensation expense (a
non-cash expense) of $208,000.
RESEARCH AND DEVELOPMENT EXPENSES. The decrease in research and
development expenses of $1,026,000 during the nine months ended January 31, 2001
compared to the same period in the prior year is primarily due to a decrease in
expenses associated with manufacturing and radiolabeling. The Company has
reduced the number of personnel associated with the manufacturing department and
related quality control, validation and quality assurance departments which
supported the manufacturing department, as the Company is no longer attempting
to become a commercial manufacturer of antibodies. The Company still plans to
contract out its commercial production of antibodies with outside suppliers with
excess capacity. As a result of this plan, the Company has had various
discussions with unrelated entities regarding the purchase, use and/or sharing
of the Company's manufacturing facility based on the increased demand for
antibody manufacturing as a number of companies are involved in the development
of monoclonal antibodies. In addition, the Company has significantly decreased
research and development efforts associated with the development of a commercial
radiolabeling facility and process. The Company has also reduced the research
and development fees associated with radiolabeling and radiolabeling scale-up by
consolidating the clinical radiolabeling activities for both Oncolym(R) and
Cotara(TM) while continuing its development efforts through its existing
collaboration with Paul Scherrer Institute. The above decreases were
supplemented by decreases in patent legal fees, patent maintenance fees and
18
sponsored research fees associated with the VTA technology. Pursuant to the
joint venture agreement with OXiGENE, Inc., OXiGENE, Inc. has agreed to fund up
to $20,000,000 in development expenses associated with the joint ventures
development of the VTA technology. The current nine-month period decreases in
research and development expenses were offset by an increase in clinical trial
expenses associated with the ongoing Phase II clinical trial using Cotara(TM)
for the treatment of brain cancer, the Phase I study at Stanford University
Medical Center using Cotara(TM) for the treatment of colorectal cancer, and the
Phase I study using Oncolym(R) for the treatment of Non-Hodgkin's B-cell
Lymphoma, which is being developed by Schering A.G.
GENERAL AND ADMINISTRATIVE EXPENSES. The decrease in general and
administrative expenses of $502,000 during the nine months ended January 31,
2001 compared to the same period in the prior year resulted primarily from a net
decrease in severance expenses and decreased aggregate salaries due to fewer
employees in the administration department combined with a decrease in legal
fees and other general expenses. Such current nine-month period decrease in
expenses was offset by an increase in annual shareholder meeting costs due to
the increased printing and distribution costs of the annual meeting materials,
resulting from the increased number of shareholders compared to the prior year.
In addition, the current nine-month period decrease in expenses was offset by an
increase in public relation expenses associated with the development of the
Company's new web site and an increase in consulting services provided by the
Company's new public relations firm.
STOCK-BASED COMPENSATION EXPENSE. The increase in stock-based
compensation expense (a non-cash expense) of $208,000 for the nine months ended
January 31, 2001 compared to the same period in the prior year is primarily due
to the fair value of options granted to non-employee consultants of the Company
during April 2000 who are assisting the Company with the development of its
platform technologies. The options were valued using the Black-Scholes valuation
model and are being amortized over the estimated period of service or related
vesting period. The above increase was primarily offset by a prior year one-time
expense of $313,000 for the issuance of a warrant to Swartz Private Equity, LLC
to purchase up to 750,000 shares of the Company's common stock in consideration
of a commitment by Swartz Private Equity, LLC to fund a $35,000,000 equity line
financing over a three year term. This agreement was entered into and approved
by the previous Board of Directors. Mr. Eric Swartz, a member of the Board of
Directors, maintains a 50% ownership in Swartz Private Equity, LLC.
INTEREST EXPENSE. The decrease in interest expense of $61,000 for the
nine months ended January 31, 2001 compared to the same period in the prior year
is primarily due to a lower outstanding note payable balance during the current
period. The Company made aggregate principal payments of $2,000,000 during the
quarter ended October 31, 2000 on a $3,300,000 note payable to Biotechnology
Development Ltd.
LIQUIDITY AND CAPITAL RESOURCES. As of January 31, 2001, the Company
had $8,352,000 in cash and cash equivalents. The Company has financed its
operations primarily through the sale of common stock, which has been
supplemented with payments received from various licensing collaborations.
During the nine months ended January 31, 2001, the Company received net proceeds
of $12,114,000 from the sale of common stock and paid $2,000,000 in principal on
a note payable to BTD, included in the accompanying consolidated statement of
cash flow. Without obtaining additional financing or entering into additional
licensing arrangements for the Company's other product candidates, the Company
believes that it has sufficient cash on hand (excluding any future draws under
the Equity Line), to meet its obligations on a timely basis for at least the
next twelve months based on its historical operational spending rate over the
past nine months.
The Company has experienced negative cash flows from operations since
its inception and expects the negative cash flows from operations to continue
for the foreseeable future. The Company expects operating expenditures related
to clinical trials to increase in the future as the Company's clinical trial
activity increases and scale-up for clinical trial production and radiolabeling
continues. As a result of increased activities in connection with the clinical
trials for Cotara(TM) and Oncolym(R), and the development costs associated with
Vasopermeation Enhancement Agents (VEAs), the Company expects that the monthly
negative cash flow will increase over the next twelve months. The development of
the Company's Vascular Targeting Agent (VTA) technology will be funded primarily
by OXiGENE, Inc. under a joint venture agreement entered into during May 2000,
whereby OXiGENE, Inc. agreed to fund up to $20,000,000 in development costs.
19
The Company has the ability, subject to certain conditions, to obtain
future funding under the Equity Line, as amended on June 2, 2000, whereby, the
Company may, in its sole discretion, and subject to certain restrictions,
periodically sell ("Put") shares of the Company's common stock until all common
shares previously registered under the Equity Line have been exhausted. As of
October 31, 2000, the Company had approximately 6,001,000 shares registered and
available under the Equity Line for future Puts. Under the amendment, up to
$2,800,000 of Puts can be made every month if the Company's closing bid price is
$2.00 or higher during the 10-day pricing period. If the Company's closing bid
price is between $1.00 and $2.00, then the Company can Put up to $1,500,000 per
month and if the Company's closing bid price falls below $1.00 on any trading
day during the ten trading days prior to the Put, the Company's ability to
access funds under the Equity Line in the Put is limited to 15% of what would
otherwise be available. If the closing bid price of the Company's common stock
falls below $0.50 or if the Company is delisted from The Nasdaq SmallCap Market,
the Company would have no access to funds under the Equity Line. Future Puts are
priced at a discount equal to the greater of 17.5% of the lowest closing bid
price during the ten trading days immediately preceding the date on which such
shares are sold to the institutional investors or $0.20. At the time of each
Put, the investors will be issued warrants, exercisable only on a cashless basis
and expiring on December 31, 2004, to purchase up to 15% of the amount of common
stock issued to the investors at the same price as the shares of common stock
sold in the Put.
COMMITMENTS. At January 31, 2001, we had no material capital
commitments, although we have significant obligations, most of which are
contingent, for payments to licensors for their technologies and in connection
with the acquisition of the Oncolym(R) rights previously owned by Alpha
Therapeutic Corporation ("Alpha").
RISK FACTORS OF OUR COMPANY
The biotechnology industry includes many risks and challenges. Our
challenges may include, but are not limited to: uncertainties associated with
pre-clinical and clinical trials for our technologies; the significant costs to
develop our products as all of our products are currently in development,
pre-clinical studies or clinical trials and no revenue has been generated from
commercial product sales; obtaining additional financing to support our
operations and the development of our products; obtaining regulatory approval
for our technologies; complying with governmental regulations applicable to our
business; obtaining the raw materials necessary in the development of such
compounds; consummating collaborative arrangements with corporate partners for
product development; achieving milestones under collaborative arrangements with
corporate partners; developing the capacity to manufacture, market and sell our
products, either directly or indirectly with collaborative partners; developing
market demand for and acceptance of such products; competing effectively with
other pharmaceutical and biotechnological products; attracting and retaining key
personnel; protecting proprietary rights; accurately forecasting operating and
capital expenditures, other capital commitments, or clinical trial costs and
general economic conditions. A more detail discussion regarding the Company's
industry and business risk factors can be found in the Company's Annual Report
on Form 10-K for the year ended April 30, 2000, which was filed under the name
of Techniclone Corporation with the Securities and Exchange Commission on July
31, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Changes in United States interest rates would affect the interest
earned on the Company's cash and cash equivalents. Based on the Company's
overall interest rate exposure at January 31, 2001, a near-term change in
interest rates, based on historical movements, would not materially affect the
fair value of interest rate sensitive instruments. The Company's debt
instruments have fixed interest rates and terms and therefore, a significant
change in interest rates would not have a material adverse effect on the
Company's financial position or results of operations.
20
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ------- ------------------
During March 2000, the Company was served with a notice of lawsuit
filed in Orange County Superior Court for the State of California by a former
officer of the Company who resigned from the Company on November 3, 1999. The
lawsuit alleged a single cause of action for breach of contract. A director of
the Company was also served with a notice of lawsuit, but such claims do not
appear to be directed toward the Company. A hearing was held on July 21, 2000 in
which the Superior Court judge approved the plaintiff's request for a writ of
attachment and required the plaintiff to post a $15,000 bond in connection with
that writ. On September 28, 2000, the Court ordered a lien of $250,000 to be
placed on the Company's bank account in accordance with the writ of attachment,
which is designated as restricted cash in the accompanying consolidated
financial statements. During January 2001, the Company entered into a global
settlement agreement, based on the advice from the settlement judge, which
dismissed all parties including a director of the Company. In conjunction with
the global settlement agreement, the Company paid the plaintiff $250,000 during
February 2001, which is included in general and administrative expenses in the
accompanying consolidated financial statements for the nine months ended January
31, 2001.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
- ------- ------------------------------------------
The following is a summary of transactions by the Company during the
quarterly period of November 1, 2000 through January 31, 2001 involving issuance
and sales of the Company's securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act").
During January 2001, the Company issued 10,504 shares of common stock
to a private placement investor upon the exercise of a warrant to purchase
10,504 shares at an exercise price of $1.00 per share. The warrants were issued
in conjunction with a private placement entered into in April 1999.
The issuances of the securities of the Company in the above
transactions were deemed to be exempt from registration under the Securities Act
by virtue of Section 4(2) thereof or Regulation D promulgated thereunder, as a
transaction by an issuer not involving a public offering. The recipient of such
securities either received adequate information about the Company or had access,
through employment or other relationships with the Company, to such information.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
- ------- --------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
- ------- ----------------------------------------------------
ITEM 5. OTHER INFORMATION. None.
- ------- ------------------
21
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.
- ------- --------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K: None.
22
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.
PEREGRINE PHARMACEUTICALS, INC.
By: /s/ Edward J. Legere
------------------------------
Director and Interim
President & Chief
Executive Officer
/s/ Paul J. Lytle
------------------------------
Vice President of
Finance and Accounting
(signed both as an
officer duly authorized
to sign on behalf of the
Registrant and principal
financial officer and
chief accounting
officer)