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UNITED STATES
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 AND
----- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _____
Commission file number: 000-21291
INTROGEN THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2704230
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
301 CONGRESS AVENUE, SUITE 1850, AUSTIN, TEXAS 78701
(Address of Principal Executive Offices) (Zip Code)
(512) 708-9310
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 No X
--- ---
At October 31, 2000, 21,221,619 shares of common stock of the Registrant were
outstanding.
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INTROGEN THERAPEUTICS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 2000 and
September 30, 2000 (unaudited)............................................................... 3
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1999 and 2000............................................... 4
Unaudited Condensed Statements of Cash Flows for the Three Months Ended
September 30, 1999 and 2000.................................................................. 5
Unaudited Notes to Condensed Financial Statements.............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................... 20
<CAPTION>
PART II. OTHER INFORMATION PAGE NO.
-------- ----------------- --------
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.............................................................. 21
SIGNATURES...................................................................................................... 22
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 2000
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash ................................................................... $ 1,788,612 $ 680,114
Short-term investments ................................................. 9,976,469 9,059,460
Accounts receivable .................................................... -- 689,889
Inventory .............................................................. 1,734,329 2,454,697
Other current assets ................................................... 4,808 16,914
------------ ------------
Total current assets ................................................. 13,504,218 12,901,074
Property and equipment, net of accumulated depreciation of
$2,988,387 and $3,573,184, respectively ................................ 10,152,572 10,821,751
Other assets .............................................................. 1,197,733 1,595,732
------------ ------------
Total assets ......................................................... $ 24,854,523 $ 25,318,557
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ....................................................... $ 262,977 $ 437,809
Accrued liabilities .................................................... 1,026,330 2,556,888
Deferred revenues from affiliate ....................................... 1,205,655 1,671,210
Current portions of capital lease obligations
and note payable ..................................................... 746,192 772,827
------------ ------------
Total current liabilities ............................................ 3,241,154 5,438,734
Capital lease obligations, net of current portion ......................... 2,149,281 1,942,985
Note payable, net of current portion ...................................... 5,871,750 5,849,239
Commitments and contingencies
Stockholders' Equity:
Convertible preferred stock, $.001 par value; aggregate liquidation
preference of $28,884,232 at September 30, 2000;
8,308,523 shares authorized, 6,419,896 issued and outstanding ........ 6,419 6,419
Common stock, $.001 par value; 50,000,000 shares authorized;
4,134,180 and 4,295,447 shares issued and outstanding,
respectively ......................................................... 4,134 4,296
Additional paid-in capital ............................................. 36,536,575 37,172,118
Deferred compensation .................................................. (4,210,412) (4,408,273)
Accumulated deficit .................................................... (18,744,378) (20,686,961)
------------ ------------
Total stockholders' equity ........................................... 13,592,338 12,087,599
------------ ------------
Total liabilities and stockholders' equity ........................... $ 24,854,523 $ 25,318,557
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------
1999 2000
-------------- --------------
<S> <C> <C>
Collaborative research and development
revenues from affiliate..................................... $ 1,379,118 $ 1,506,445
-------------- --------------
Product sales to affiliate....................................... 1,289,253 --
Cost of product sales............................................ (864,813) --
-------------- --------------
Gross margin on product sales............................. 424,440 --
-------------- --------------
Other revenue ................................................... -- 138,133
------------- -------------
Costs and expenses:
Research and development.................................... 1,617,083 2,447,593
General and administrative.................................. 853,154 1,111,320
-------------- --------------
Loss from operations............................................. (666,679) (1,914,335)
Interest income.................................................. 177,890 173,044
Interest expense................................................. (4,493) (201,292)
-------------- --------------
Net loss......................................................... $ (493,282) $ (1,942,583)
============== ==============
Net loss per share, basic and diluted............................ $ (0.12) $ (.47)
============== ==============
Shares used in computing basic and diluted
net loss per share............................................ 3,955,423 4,165,985
============== ==============
Pro forma net loss per share, basic and diluted.................. $ (0.12)
==============
Shares used in computing pro forma basic and diluted net loss per
share......................................................... 16,492,158
==============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .............................................................. $ (493,282) $ (1,942,583)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation ....................................................... 5,436 584,797
Compensation related to issuance of stock options .................. 184,764 370,979
Changes in assets and liabilities
Decrease (increase) in receivable from affiliate ................. (943,242) (689,889)
Decrease (increase) in inventory ................................. 198,285 (720,368)
Decrease (increase) in other assets .............................. (160,518) 31,068
Increase (decrease) in accounts payable .......................... (1,646,944) 174,832
Increase (decrease) in accrued liabilities ....................... 8,067 1,530,558
Increase (decrease) in deferred revenue from affiliate ........... 74,661 465,555
------------ ------------
Net cash used in operating activities ....................... (2,772,773) (195,051)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment ................................... (2,010,382) (1,253,976)
Purchases of short-term investments ................................... (1,734,035) (6,365,504)
Maturities of short-term investments .................................. 4,301,058 7,282,513
------------ ------------
Net cash provided by (used in) investing activities ......... 556,641 (336,967)
------------ ------------
Cash flows from financing activities:
Payment of deferred offering costs .................................... -- (441,173)
Proceeds from issuances of common stock ............................... 467 66,865
Proceeds from issuance of note payable ................................ 2,291,061 --
Principal payments under capital lease obligations and note
payable .......................................................... (9,932) (202,172)
------------ ------------
Net cash provided by (used in) financing activities ......... 2,281,596 (576,480)
------------ ------------
Net increase (decrease) in cash ........................................... 65,464 (1,108,498)
Cash, beginning of period ................................................. 2,145,676 1,788,612
------------ ------------
Cash, end of period ....................................................... $ 2,211,140 $ 680,114
============ ============
Supplemental disclosure of cash flow information...........................
Cash paid for interest .............................................. $ 103,745 $ 203,551
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS:
Introgen Therapeutics, Inc., a Delaware corporation, and its subsidiaries
(Introgen or the Company) develop and manufacture gene-based drugs for the
treatment of cancer and other diseases. Introgen's lead product candidate, INGN
201, combines the naturally occurring p53 tumor suppressor gene with its
extensively tested adenoviral delivery system. The Company is developing
additional gene-based drugs, including drugs based on, among others, the mda-7
and PTEN genes.
INGN 201, developed in collaboration with Aventis Pharma AG, formerly
Rhone-Poulenc Rorer Pharmaceuticals, Inc. (Aventis or the affiliate), is
currently in Phase III clinical trials for the treatment of head and neck
cancer. Introgen is also conducting a Phase II clinical trial in non-small cell
lung cancer and several Phase I clinical trials in additional cancer
indications. Introgen's product candidates engage molecular targets to produce a
highly specific therapeutic effect. By selectively killing cancer cells and
harnessing natural protection mechanisms, Introgen's product candidates may be
less toxic than conventional treatments. Introgen specializes in combining
appropriate gene delivery systems and therapeutics genes to make its gene-based
drugs, which have been used in numerous clinical trials worldwide either alone
or in combination with conventional treatments such as chemotherapy and
radiotherapy.
Introgen has research collaboration agreements with Aventis. Introgen is
also manufacturing and selling INGN 201 to Aventis for use in clinical trials.
Introgen has not yet generated any significant revenues from unaffiliated third
parties, nor is there any assurance of future product revenues. Introgen's
research and development activities involve a high degree of risk and
uncertainty, and its ability to successfully develop, manufacture and market its
proprietary products is dependent upon many factors. These factors include, but
are not limited to, the need for additional financing, the reliance on
collaborative research and development arrangements with corporate and academic
affiliates, and the ability to develop manufacturing, sales and marketing
experience. Additional factors include uncertainties as to patents and
proprietary technologies, competitive technologies, technological change and
risk of obsolescence, development of products, competition, government
regulations and regulatory approval, and product liability exposure. As a result
of the aforementioned factors and the related uncertainties, there can be no
assurance of Introgen's future success.
2. BASIS OF PRESENTATION:
The accompanying condensed, consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) and, accordingly, do not include all of
the information and footnotes required under generally accepted accounting
principles in the United States for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended September 30, 2000, are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2001. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended June 30, 2000, included in
Introgen's Registration Statement on Form S-1 (Registration No. 333-30582) as
filed with the SEC and the prospectus dated October 11, 2000, included therein.
3. NET LOSS PER SHARE:
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Basic EPS excludes dilution and is determined by
dividing loss available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted EPS reflects the potential
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dilution that could occur if securities and other contracts to issue common
stock were exercised or converted into common stock. There are no differences
between basic EPS and diluted EPS for all periods presented.
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding for the applicable period, including the pro forma
effects of the automatic conversion of each outstanding share of preferred stock
into 1.92 shares of Introgen's common stock effective upon the closing of
Introgen's initial public offering (see Note 5) as if such conversion occurred
on the dates of original issuance.
The following table sets forth the computation of basic and diluted, and pro
forma basic and diluted, net loss per share for the three months ended September
30, 2000:
<TABLE>
<S> <C>
Numerator-
Net loss ..................................................... $ (1,942,583)
============
Denominator-
Weighted average common shares ............................... 4,165,985
============
Denominator for basic and diluted calculation-
Weighted average effect of pro forma securities-
Series A convertible preferred stock ....................... 5,781,925
Series B convertible preferred stock ....................... 3,373,560
Series C convertible preferred stock ....................... 1,058,689
Series D convertible preferred stock ....................... 2,111,999
------------
Denominator for pro forma basic and diluted calculation ...... 16,492,158
============
Net loss per share-
Basic and diluted ............................................ $ (0.47)
Pro forma basic and diluted .................................. (0.12)
</TABLE>
4. STOCK SPLIT:
In August 2000, Introgen's board of directors approved a stock dividend to
effect a stock split of 1.6 shares for every one share of common stock
outstanding. An amount equal to the increased par value of the common shares has
been reflected as a transfer from additional paid-in capital to common stock.
Retroactive effect has been given to the stock split in stockholders' equity and
in all share and per share data as of the earliest date presented in the
accompanying consolidated financial statements.
5. INITIAL PUBLIC OFFERING AND CONVERSION OF PREFERRED STOCK:
In October 2000, Introgen completed an initial public offering (IPO) of
4,600,000 newly issued shares of its common stock at a price of $8.00 per share.
Introgen received $33.1 million in cash, net of underwriting discounts,
commissions and other offering costs.
Simultaneously with the closing of the IPO, the 3,011,423 shares of Series
A Convertible Preferred Stock, 1,757,063 shares of Series B Convertible
Preferred Stock, 551,410 shares of Series C Convertible Preferred Stock and
1,100,000 shares of Series D Convertible Preferred Stock then outstanding were
automatically converted into 12,326,173 shares of common stock.
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6. SUBSEQUENT EVENTS:
Sublease and Loan Agreement
Introgen is negotiating with The University of Texas M.D. Anderson Cancer
Center to sublease to them approximately 10,000 square feet of space in its
Houston research and administration facility at prevailing market rates. To
finance finish-out of the space to be subleased, Introgen entered into a $3.5
million loan agreement with a bank in July 2000. The loan bears interest at
prime and is payable in equal monthly installments over five years. As of
September 30, 2000, no amounts have been drawn under this agreement. In
accordance with the sublease agreement, in addition to rent paid at market
rates, the tenant will pay Introgen monthly an amount equal to Introgen's debt
service payment on this loan. Introgen will own the finish-out improvements both
during the term of this sublease and after the sublease has expired.
Stock Option Grant
Introgen has an employment agreement with its president and chief executive
officer that obligates Introgen to grant the officer 80,000 fully vested options
upon the closing of its IPO, and on August 1, 2001 and August 1, 2002. Such
options will be exercisable at a price determined by the Compensation Committee
of the Company's Board of Directors. To date, the exercise price of the options
that will be granted in connection with the IPO has not yet been determined and,
accordingly, the options have not been granted. Upon the determination of the
exercise price, Introgen will record compensation expense if and to the extent
the then-current fair market value of Introgen's common stock exceeds the
exercise price of the options.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto included in this
report on Form 10-Q. The discussion and analysis contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements include the
statements in paragraphs one and two under "Overview" regarding our gene therapy
development programs, the statements in paragraph four under "Overview"
regarding future revenues under our collaboration arrangements with Aventis, the
statements in paragraph five under "Results of Operations" regarding future
increases in research and development expenses, the statements in paragraph
seven under "Results of Operation" regarding amortization of deferred
compensation, and the statements below under "Factors Affecting Future Operating
Results." These forward-looking statements are based on our current expectations
and entail various risks and uncertainties. Our actual results could differ
materially from those projected in the forward-looking statements as a result of
various factors, including those set forth below under "Factors Affecting Future
Operating Results."
OVERVIEW
We are a leading developer of gene-based drugs for the treatment of cancer
and other diseases. Our lead product candidate, INGN 201, combines the p53 gene,
one of the most potent members of a group of naturally-occurring genes, the
tumor suppressor genes, that act to protect cells from becoming cancerous, with
a gene delivery system that we have developed and extensively tested in
collaboration with Aventis Pharma. We and Aventis have commenced the first of
our planned pivotal Phase III clinical studies of INGN 201 in head and neck
cancer. Pivotal Phase III trials are typically the final phase required for FDA
approval. We are also conducting a Phase II clinical trial in non-small cell
lung cancer, a category that includes approximately 80% of the various kinds of
lung cancer. Phase II trials are efficacy studies. We are also conducting
several Phase I clinical trials, or safety studies, in additional cancer types,
or indications. In addition to our INGN 201 development program, we have
identified and are developing additional gene therapy product candidates,
including the genes mda-7 and PTEN and associated technologies for delivering
gene therapy products into target cells, which we refer to as vectors.
We are developing cancer therapies to restore normal cellular function
through gene therapy, which may offer safer and more effective treatments than
are currently available. We believe that our research and development expertise
gained in gene therapy treatment for cancer is also applicable to other diseases
which, like cancer, result from cellular dysfunction and uncontrolled cell
growth.
Since our inception in 1993, we have used our resources primarily to conduct
research and development activities, primarily for INGN 201 and, to a lesser
extent, for other product candidates. At September 30, 2000, we had an
accumulated deficit of approximately $20.7 million. We anticipate that we will
incur losses in the future that are likely to be greater than losses incurred in
prior years. We expect that cash needed for operating activities will increase
as we continue to expand our research and development of various gene therapy
technologies. Since inception, our only significant revenues have been payments
from Aventis under collaborative research and development agreements for our
early stage development work on INGN 201 and Aventis' purchases of INGN 201
product we manufactured for their use in later stage clinical trials. We have
also earned interest income on cash placed in short-term investments.
We have entered into two collaboration agreements with Rhone-Poulenc Rorer
Pharmaceuticals Inc. to develop therapeutics based on p53 and on K-ras pathway
inhibition. In December 1999, Rhone-Poulenc S.A., the ultimate parent company of
Rhone-Poulenc Rorer Pharmaceuticals Inc., combined with Hoechst AG, and the
parties then combined Hoechst Marion Roussel, the pharmaceutical business of
Hoechst AG, with that of Rhone-Poulenc Rorer to form Aventis Pharma AG.
Rhone-Poulenc Rorer Pharmaceuticals Inc. is now known as Aventis Pharmaceuticals
Products Inc. From inception of these agreements in 1994 through September 30,
2000, we have earned a total of $48.2 million in collaborative research and
development revenues from
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Aventis pursuant to the agreement relating to the p53 gene. We generally receive
payments from Aventis for early stage development activities quarterly in
advance. We record these payments as revenue as we perform the collaboration
work and incur the related expenses. We record as deferred revenue collaborative
research and development payments which we receive but for which the related
expenses have not yet been incurred. Continued funding of early stage
development programs under the collaboration agreements is subject to an annual,
mutually agreed-upon budget.
Under the terms of the collaboration agreements, we also manufacture and
sell INGN 201 to Aventis for use in later stage clinical trials. We record
revenue from these product sales upon completion of production and delivery and
Aventis' acceptance of the product. From inception of these agreements through
September 30, 2000, we have recorded $6.0 million in revenues from these product
sales.
RESULTS OF OPERATIONS
COMPARISON OF QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues
Revenue from Collaborations. Collaborative research and development
revenues from Aventis were $1.5 million for the quarter ended September 30,
2000, compared to $1.4 million for the quarter ended September 30, 1999. This
9.2% increase was due primarily to higher levels of research activity relative
to products based on the p53 gene, particularly with respect to continued
development of our manufacturing processes. We earn revenue from Aventis for
research and development we perform under our collaboration agreements with
them.
Revenue from Product Sales to Affiliate. Revenues from product sales to
Aventis were zero for the quarter ended September 30, 2000, compared to $1.3
million for the quarter ended September 30, 1999. The absence of these revenues
in 2000 was primarily due to our focus on starting the operation of our new
manufacturing facility, which caused an expected suspension of product shipments
while we validated and commenced operating this new facility. Revenues from
product sales to Aventis may vary significantly from period to period based on
the delivery of product to and acceptance by Aventis.
Other Revenue. Other revenue was $138,000 for the quarter ended September
30, 2000, compared to zero for the quarter ended September 30, 1999. This
revenue in 2000 relates funding received under research grants from U. S.
Government agencies and contract manufacturing work for third parties. There was
no similar activity of significance in the previous period.
Costs and Expenses
Cost of Product Sales. Cost of product sales was zero for the quarter ended
September 30, 2000, compared to $865,000 for the quarter ended September 30,
1999. This decrease corresponds directly to and is for the same reason as the
decrease in revenue from product sales to affiliate as discussed in the above
section "Revenue from Product Sales to Affiliate."
Research and Development. Research and development expenses, excluding
amortization of deferred stock compensation of $98,000 in 2000 and zero in 1999,
were $2.3 million for the quarter ended September 30, 2000, compared to $1.6
million for the quarter ended September 30, 1999. This 45% increase was
primarily due to higher levels of research activity relative to products based
on the p53 gene, particularly with respect to continued development of our
manufacturing processes, increased research activities to develop technologies
based on other genes, and the higher cost of operating our new facilities
compared to the cost of our previous facilities. We believe that continued
investment in research and development is critical to attaining our strategic
objectives, and we expect these expenses to continue to increase in the future.
General and Administrative. General and administrative expenses, excluding
amortization of deferred stock compensation of $273,000 in 2000 and $185,000 in
1999, were $838,000 for the quarter ended
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September 30, 2000, compared to $668,000 for the quarter ended September 30,
1999. These expenses increased 25% due to expenses associated with establishing
an awareness of Gendux AB (a wholly-owned subsidiary) and its product candidates
in Europe and the implementation of additional internal systems necessary to
support a public company.
Amortization of Deferred Compensation. Amortization of deferred stock
compensation was $371,000 for the quarter ended September 30, 2000, compared
with $185,000 for the quarter ended September 30, 1999. This 101% increase was
due primarily to increased deferred compensation associated with grants in
fiscal 2000 of additional options to employees to purchase our common stock at
exercise prices below the deemed fair value of the common stock at the date of
grant. The amount of deferred compensation expense to be recorded in future
periods may decrease if unvested options for which deferred compensation has
been recorded are subsequently forfeited or may increase if additional options
are issued at a price below the deemed fair value of common stock at the date of
grant.
Interest Income and Expense
Interest income was $173,000 for the quarter ended September 30, 2000,
compared with $178,000 for the quarter ended September 30, 1999. This 2.7%
decrease resulted primarily from lower average cash and short-term investment
balances on which interest is earned. Interest expense was $201,000 for the
quarter ended September 30, 2000, compared with $4,000 for the quarter ended
September 30, 1999. This increase was the result of our borrowings to finance
new facilities and equipment placed in service during fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had cash and short term investments of
approximately $9.7 million, compared with $11.8 million at June 30, 2000.
Introgen completed an initial public offering of its common stock in October
2000 for net proceeds of $33.1 million. Net cash used in operating activities
was $195,000 and $2.8 million for the quarters ended September 30, 2000 and
1999, respectively. The decrease in cash used during the quarter ended September
30, 2000, compared to the quarter ended September 30, 1999, was primarily the
result of (1) an increase in net loss between the two quarters and (2) an
increased level of receivables from affiliate and inventory related to the
increased production of INGN 201 for sale to Aventis from our new facility,
offset by (1) an increase in accounts payable and accrued liabilities resulting
primarily from expenses incurred under an increased level of sponsored research
agreements with third parties, which are not payable until later periods, and
(2) an increase in deferred revenue from affiliate as a result of cash received
as progress payments for the production of clinical materials for sale to
Aventis for which the related clinical materials had not been shipped as of
September 30, 2000.
Net cash used in investing activities was $337,000 for the quarter ended
September 30, 2000, and net cash provided by investing activities was $557,000
the quarter ended September 30, 1999. The change in the quarter ended September
30, 2000 compared to the quarter ended September 30, 1999 is primarily due to
purchases of property and equipment being lower in 2000 than 1999 because the
1999 amount includes expenditures for the construction and completion of our new
facilities in that period offset by a higher percentage of maturities of
short-term investments in 2000 being reinvested in short-term investments
because the proceeds from maturities in 1999 were needed in part to fund the
construction of our new facilities.
Net cash used in financing activities was $577,000 for the quarter ended
September 30, 2000 and net cash provided by financing activities was $2.3
million for the quarter ended September 30, 1999. The negative financing
cashflow for 2000 compared to the positive financing cashflow for 1999 was
primarily due to proceeds received in 1999 from the mortgage note payable for
our new facilities with no similar fundings needed or occurring in 2000 as the
facilities were completed in 1999. As of September 30, 2000, we had $5.8 million
outstanding under a note payable for our facilities and $2.7 million outstanding
under capital lease obligations to finance purchases of equipment.
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FACTORS AFFECTING FUTURE OPERATING RESULTS
WE MAY ENCOUNTER DELAYS OR DIFFICULTIES IN CLINICAL TRIALS FOR OUR PRODUCT
CANDIDATES, WHICH MAY DELAY OR PRECLUDE REGULATORY APPROVAL OF SOME OR ALL OF
OUR PRODUCT CANDIDATES.
In order to commercialize our product candidates, we must obtain regulatory
approvals. Satisfaction of regulatory requirements typically takes many years,
and involves compliance with requirements covering research and development,
testing, manufacturing, quality control, labeling and promotion of drugs for
human use. To obtain regulatory approvals, we must, among other requirements,
complete clinical trials demonstrating that our product candidates are safe and
effective for a particular cancer indication or other disease.
We and Aventis Pharma AG have commenced the first of our planned Phase III
clinical trials of INGN 201, our lead product candidate, for the treatment of
head and neck cancer, and are conducting a Phase II clinical trial of INGN 201
for the treatment of non-small cell lung cancer and six Phase I clinical trials
of INGN 201 for other cancer indications. We do not have significant clinical
trial experience with other product candidates. Current or future clinical
trials may demonstrate that INGN 201 and our other product candidates are
neither safe nor effective.
Any delays or difficulties we encounter in our clinical trials, in
particular the Phase III clinical trial of INGN 201 for the treatment of head
and neck cancer, may delay or preclude regulatory approval. Any delay or
preclusion could also delay or preclude the commercialization of INGN 201 or any
other product candidates. In addition, we or the United States Food and Drug
Administration, or FDA, might delay or halt any of our clinical trials of a
product candidate at any time for various reasons, including:
o failure of the product candidate to be more effective than current
therapies;
o presence of unforeseen adverse side effects of a product candidate,
including its delivery system;
o longer than expected time required to determine whether or not a
product candidate is effective;
o death of patients during a clinical trial, even though the product
candidate may not have caused those deaths;
o failure to enroll a sufficient numbers of patients in our clinical
trials; or
o our inability to produce sufficient quantities of a product candidate
to complete the trials.
We may encounter delays or rejections in the regulatory approval process
because of additional government regulation from future legislation or
administrative action or changes in FDA policy during the period of product
development, clinical trials and FDA regulatory review. Failure to comply with
applicable FDA or other applicable regulatory requirements may result in
criminal prosecution, civil penalties, recall or seizure of products, total or
partial suspension of production or injunction, as well as other regulatory
action against our product candidates or us.
Outside the United States, our ability to market a product is contingent
upon receiving clearances from the appropriate regulatory authorities. This
foreign regulatory approval process includes all of the risks associated with
FDA clearance described above.
WE MAY ENCOUNTER FAILURES OR DELAYS IN PERFORMING CLINICAL TRIALS FOR OUR
NON-INGN 201 PRODUCT CANDIDATES, WHICH WOULD INCREASE OUR PRODUCT DEVELOPMENT
COSTS.
Our only significant clinical trial activity and experience has been with
INGN 201. We will need to continue conducting significant research and animal
testing, referred to as preclinical testing, to support performing clinical
trials for our non-INGN 201 product candidates. It will take us many years to
complete
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preclinical testing and clinical trials, and failure could occur at any stage of
testing. Acceptable results in early testing or trials may not be repeated
later. Moreover, not all product candidates in preclinical testing or early
stage clinical trials will receive timely, or any, regulatory approval. Our
product development costs will increase if we experience delays in testing or
regulatory approvals or if we need to perform more or larger clinical trials
than planned. If the delays are significant, the increased development costs
will negatively affect our financial results, and these delays could delay our
commercialization efforts.
SERIOUS UNWANTED SIDE EFFECTS ATTRIBUTABLE TO GENE THERAPY MAY RESULT IN
GOVERNMENTAL AUTHORITIES IMPOSING ADDITIONAL REGULATORY REQUIREMENTS OR A
NEGATIVE PUBLIC PERCEPTION OF OUR PRODUCTS.
Serious unwanted side effects attributable to treatment, which physicians
classify as treatment-related adverse events, that occur in the field of gene
therapy may result in greater governmental regulation of our product candidates
and potential regulatory delays relating to the testing or approval of our
product candidates. The death in 1999 of a patient undergoing gene therapy using
an adenoviral vector to deliver a gene for disease treatment in a clinical trial
which was unrelated to our clinical trials, was widely publicized. As a result
of this death, the United States Senate held hearings concerning the adequacy of
regulatory oversight of gene therapy clinical trials and to determine whether
additional legislation is required to protect volunteers and patients who
participate in such clinical trials. The Recombinant DNA Advisory Committee, or
RAC, which acts as an advisory body to the National Institutes of Health, or
NIH, evaluated and continues to evaluate the use of adenoviral vectors in gene
therapy clinical trials. The RAC has made recommendations to the NIH director
concerning prospective review of study designs and adverse event reporting
procedures, and the FDA has requested that sponsors of clinical trials provide
detailed procedures for supervising clinical investigators and clinical study
conduct. In addition, the FDA has recently begun to conduct more frequent
inspections at clinical trial sites. Implementation of any additional review and
reporting procedures or other additional regulatory measures could increase the
costs of or prolong our product development efforts or clinical trials.
Following routine procedure, we report to the FDA and the NIH serious
adverse events, whether treatment-related or not, that occur in our clinical
trials, including deaths. In one of our Phase I studies conducted from 1995 to
1997, we reported two deaths for which the clinical investigator involved could
not unequivocally rule out the possibility that the deaths were related to our
gene therapy treatment; however, there was no evidence that our gene therapy was
responsible for the deaths. We have not received any correspondence from any
regulatory body or experienced any increased scrutiny of our clinical or other
activities as a result of these deaths. However, reporting of serious adverse
events that are determined to be treatment-related in gene therapy clinical
trials conducted by us or by others could result in additional regulatory review
or measures, which could increase the cost of or prolong our clinical trials.
To date no governmental authority has approved any gene therapy product for
sale in the United States or internationally. The commercial success of our
products will depend in part on public acceptance of the use of gene therapies,
which are a new type of disease treatment, for the prevention or treatment of
human diseases. Public attitudes may be influenced by claims that gene therapy
is unsafe, and gene therapy may not gain the acceptance of the public or the
medical community. Negative public reaction to gene therapy could also result in
greater government regulation and stricter clinical trial oversight.
WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO INCUR SIGNIFICANT
ADDITIONAL OPERATING LOSSES.
We have generated operating losses since we began operations in June 1993.
As of September 30, 2000, we had an accumulated deficit of approximately $20.7
million. We expect to incur substantial additional operating expenses and losses
over the next several years as our research, development, preclinical testing
and clinical trial activities increase. We have no products that have generated
any commercial revenue, and our only revenues to date have been payments from
Aventis Pharma under collaborative agreements for research and development and
sales to Aventis of INGN 201 for use in clinical trials. We do not expect to
generate revenues from the commercial sale of products in the foreseeable
future, and we may never generate revenues from the sale of products.
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IF WE CONTINUE TO INCUR OPERATING LOSSES FOR A PERIOD LONGER THAN WE
ANTICIPATE AND FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE
WILL BE UNABLE TO ADVANCE OUR DEVELOPMENT PROGRAM AND COMPLETE OUR CLINICAL
TRIALS.
Developing a new drug and conducting clinical trials for multiple disease
indications are expensive. We expect that we will fund our capital expenditures
and operations over at least the next two years with our current working
capital, the net proceeds from our initial public offering in October 2000 and
future payments, if any, under our collaborative agreements with Aventis. We may
need to raise additional capital sooner, however, due to a number of factors,
including:
o an acceleration of the number, size or complexity of our clinical
trials;
o slower than expected progress in developing INGN 201 and other product
candidates;
o higher than expected costs to obtain regulatory approvals;
o higher than expected costs to pursue our intellectual property
strategy;
o higher than expected costs to further develop our manufacturing
capability; and
o higher than expected costs to develop our sales and marketing
capability, particularly if we choose to form a joint marketing
operation with Aventis for the sale of INGN 201.
We do not know whether additional financing will be available when needed,
or on terms favorable to us or our stockholders. We may raise any necessary
funds through public or private equity offerings, debt financings or additional
corporate collaboration and licensing arrangements. To the extent we raise
additional capital by issuing equity securities, our stockholders will
experience dilution. If we raise funds through debt financings, we may become
subject to restrictive covenants. To the extent that we raise additional funds
through collaboration and licensing arrangements, we may be required to
relinquish some rights to our technologies or product candidates, or grant
licenses on terms that are not favorable to us.
IF WE CANNOT MAINTAIN OUR CURRENT COLLABORATIVE RELATIONSHIP WITH AVENTIS,
OUR PRODUCT DEVELOPMENT WOULD BE DELAYED.
We rely to a significant extent on Aventis to fund and support the
development of products based on the p53 gene, including INGN 201, which are
part of our collaboration with Aventis. Under our collaboration agreements,
Aventis agrees on an annual basis whether and to what extent it will continue to
fund our early stage development in North America of products based on the p53
gene, which includes preclinical research and development and Phase I clinical
trials. If Aventis does not agree to continue to fund this early stage
development, and we decide to continue this development, we would have to fund
this development ourselves or obtain funding from other sources.
Once we have completed Phase I clinical trials of a product candidate based
on the p53 gene, Aventis may elect to pursue later stage clinical development of
that product candidate, which includes conducting Phase II and III clinical
trials, commercializing the product, making all further submissions to existing
Investigational New Drug, or IND, applications and preparing all product license
applications. Aventis has elected to pursue later stage development of INGN 201.
However, if Aventis does not make this election with respect to other product
candidates based on the p53 that may emerge in the future, neither we nor
Aventis may develop or commercialize such product candidates before October 2004
without the other's approval. Consequently, our development or commercialization
efforts for the product could be delayed if Aventis fails to consent to our
further development and commercialization. Aventis may terminate its
collaboration agreements with us, in whole or in part with respect to individual
products, at any time upon six months' notice. If Aventis were to breach or
terminate its collaboration agreements with us or otherwise fail to conduct the
collaborative activities successfully and in a timely manner, the research,
development or commercialization of the affected products or research programs
could be delayed or terminated.
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IF WE CANNOT MAINTAIN OUR OTHER CORPORATE AND ACADEMIC ARRANGEMENTS AND
ENTER INTO NEW ARRANGEMENTS, PRODUCT DEVELOPMENT COULD BE DELAYED.
Our strategy for the research, development and commercialization of our
product candidates may require us to enter into contractual arrangements with
corporate collaborators in addition to Aventis, academic institutions and
others. We have entered into sponsored research and/or collaborative
arrangements with several entities, including The University of Texas M.D.
Anderson Cancer Center, the National Cancer Institute and Corixa Corporation.
Our success depends upon our collaborative partners performing their
responsibilities under these arrangements. We cannot control the amount and
timing of resources our collaborative partners devote to our research and
testing programs or product candidates, which can vary because of factors
unrelated to such programs or product candidates. These relationships may in
some cases be terminated at the discretion of our collaborative partners with
only limited notice to us. We may not be able to maintain our existing
arrangements or enter into new arrangements or negotiate current or new
arrangements on acceptable terms, if at all. Some of our collaborative partners
may also be researching competing technologies independently from us to treat
the diseases targeted by our collaborative programs.
IF WE ARE NOT ABLE TO CREATE AND CONTINUE EFFECTIVE COLLABORATIVE MARKETING
RELATIONSHIPS WITH AVENTIS AND OTHERS, WE MAY BE UNABLE TO MARKET INGN 201
SUCCESSFULLY.
If we elect to form a joint commercial operation with Aventis to market the
products developed under our collaboration with Aventis in North America, we may
be required to develop sales, marketing and distribution capabilities. In order
to develop or otherwise obtain these capabilities, we may have to enter into
marketing, distribution or other similar arrangements with additional third
parties in order to successfully sell, market and distribute our products. To
the extent that we enter into any such arrangements with third parties, our
product revenues are likely to be lower than if we directly marketed and sold
our products, and any revenues we receive will depend upon the efforts of such
third parties. We have no experience in marketing or selling pharmaceutical
products and we currently have no sales, marketing or distribution capability.
We may be unable to develop sufficient sales, marketing and distribution
capabilities to successfully commercialize our products.
In markets where Aventis has exclusive marketing rights to INGN 201,
including North America should we elect not to form a joint commercial
operation, Aventis will pay us royalties on product sales. Further, any
royalties we receive from product sales in the markets where Aventis has
exclusive marketing rights will depend entirely on the efforts of Aventis. In
those markets where we and Aventis have co-marketing rights, there is the
potential that we will compete with Aventis in those markets. Aventis is a
large, global pharmaceutical company with far greater financial and other
resources than we have, and therefore, our ability to compete with Aventis will
be limited.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR
COMPETITORS MAY BE ABLE TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT
EFFORTS TO DEVELOP COMPETING DRUGS.
Our commercial success will depend in part on obtaining patent protection
for our products and other technologies and successfully defending these patents
against third party challenges. Our patent position, like that of other
biotechnology and pharmaceutical companies, is highly uncertain. One uncertainty
is that the United States Patent and Trademark Office, or PTO, or the courts,
may deny or significantly narrow claims made under patents or patent
applications. This is particularly true for patent applications or patents that
concern biotechnology and pharmaceutical technologies, such as ours, since the
PTO and the courts often consider these technologies to involve unpredictable
sciences. Another uncertainty is that any patents that may be issued or licensed
to us may not provide any competitive advantage to us and they may be
successfully challenged, invalidated or circumvented in the future. In addition,
our competitors, many of which have substantial resources and have made
significant investments in competing technologies, may seek to apply for and
obtain patents that will prevent, limit or interfere with our ability to make,
use and sell our potential products either in the United States or in
international markets.
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Our ability to develop and protect a competitive position based on our
biotechnological innovations, innovations involving genes, gene therapy, viruses
for delivering the genes to cells, formulations, gene therapy delivery systems
that do not involve viruses, and the like, is particularly uncertain. Due to the
unpredictability of the biotechnological sciences, the PTO, as well as patent
offices in other jurisdictions, has often required that patent applications
concerning biotechnology-related inventions be limited or narrowed substantially
to cover only the specific innovations exemplified in the patent application,
thereby limiting their scope of protection against competitive challenges.
Similarly, courts have invalidated or significantly narrowed many key patents in
the biotechnology industry. Thus, even if we are able obtain patents that cover
commercially significant innovations, our patents may not be upheld or our
patents may be substantially narrowed.
Through our exclusive license from The University of Texas System for
technology developed at The University of Texas M. D. Anderson Cancer Center, we
are currently seeking patent protection for adenoviral p53, including INGN 201,
and its use in cancer therapy. We are also seeking patent protection for our
adenovirus production technology. While we have received a notice of allowance
from the PTO that it will issue to us a patent for our adenovirus production
technology, it is possible that the patents may not issue. We also control,
through licensing arrangements, two issued United States patents for combination
therapy involving the p53 gene and conventional chemotherapy or radiation and
one issued United States patent covering the use of adenoviral p53 in cancer
therapy. Our competitors may challenge the validity of one or more of our
combination therapy or adenoviral p53 therapy patents, or the potential patents
relating to adenovirus production, in the courts or through an administrative
procedure known as an interference. The courts or the PTO may not uphold the
validity of our patents, we may not prevail in an interference proceedings
regarding our patents and none of our patents may give us a competitive
advantage.
The PTO has notified us that two of our patent applications directed to our
adenoviral p53 technology, and one other patent application directed to specific
retroviral technologies directed to vectors based on a different type of virus
that uses RNA instead of DNA as its genetic material that does not relate to any
of our current product candidates, have been allowed, but that their issuance is
being suspended for the possible institution of interference proceedings.
Another patent application directed to another adenoviral technology that also
does not relate to any of our current product candidates is currently involved
in an interference proceeding. An interference proceeding is instituted by the
PTO to determine, as between two or more parties claiming the same patentable
invention, which party has the right to the patent. If any of these or other
patent applications become involved in an interference proceeding, there is a
likelihood that it will take many years to resolve. Resolution of any such
interference will require that we expend time, effort and money. Of the three
suspended applications, only the two applications directed to the adenoviral p53
technologies are relevant to our current potential products. If an interference
is declared with respect to one or both of the adenoviral p53 applications, and
if the opponent ultimately prevails in the interference, the opponent will have
a patent that could cover our potential INGN 201 product or its clinical use.
The patent application that is currently involved in an ongoing
interference proceeding does not relate to any of our product candidates. While
the resolution of this interference will require that we expend time, effort and
money, its outcome is not expected to affect any of our current
commercialization efforts.
THIRD PARTY CLAIMS OF INFRINGEMENT OF INTELLECTUAL PROPERTY COULD REQUIRE
US TO SPEND TIME AND MONEY TO ADDRESS THE CLAIMS AND COULD LIMIT OUR
INTELLECTUAL PROPERTY RIGHTS.
The biotechnology and pharmaceutical industry has been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies have employed intellectual property litigation to gain a
competitive advantage. We are aware of a number of issued patents and patent
applications that relate to gene therapy, the treatment of cancer and the use of
the p53 and other tumor suppressor genes. Schering-Plough Corporation, or its
subsidiary Canji, Inc., controls various United States patent applications and a
European patent and applications, some of which are directed to therapy using
the p53 gene, and others to adenoviruses that contain the p53 gene, or
adenoviral p53, and to methods for carrying out therapy using adenoviral p53. In
addition, Canji controls an issued United States patent and its international
counterparts,
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including a European patent, involving a method of treating mammalian cancer
cells lacking normal p53 protein by introducing a p53 gene into the cancer cell.
While we believe that our potential products do not infringe any valid
claim of the Canji p53 patents, Canji or Schering-Plough could assert a claim
against us. We may also become subject to infringement claims or litigation
arising out of other patents and pending applications of our competitors, if
they issue, or additional interference proceedings declared by the PTO to
determine the priority of inventions. The defense and prosecution of
intellectual property suits, PTO interference proceedings and related legal and
administrative proceedings are costly and time-consuming to pursue, and their
outcome is uncertain. Litigation may be necessary to enforce our issued patents,
to protect our trade secrets and know-how or to determine the enforceability,
scope and validity of the proprietary rights of others. An adverse determination
in litigation or interference proceedings to which we may become a party could
subject us to significant liabilities, require us to obtain licenses from third
parties, or restrict or prevent us from selling our products in certain markets.
Although patent and intellectual property disputes are often settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include ongoing royalties. Furthermore, the necessary
licenses may not be available to us on satisfactory terms, if at all. In
particular, if we were found to infringe a valid claim of the Canji p53 issued
United States patent, our business could be materially harmed.
We and Aventis are currently involved in three opposition proceedings
before the European Patent Office, or EPO, in which we are seeking to have the
EPO revoke three different European patents owned or controlled by Canji. These
European patents relate to the use of a p53 gene, or the use of tumor suppressor
genes, in the preparation of therapeutic products. In one opposition involving
the use of a p53 gene, the European patent at issue was upheld following an
initial hearing. A second hearing to determine whether this patent should be
revoked will be upcoming. The other two oppositions are in earlier stages and a
hearing date has not been set. If we do not ultimately prevail in one or more of
these oppositions, our competitors could seek to assert by means of litigation
any patent surviving opposition against European commercial activities involving
our potential products. If our competitors are successful in any such
litigation, it could have a significant detrimental effect on our, or our
collaborator's, ability to commercialize our potential commercial products in
Europe.
COMPETITION AND TECHNOLOGICAL CHANGE MAY MAKE OUR PRODUCT CANDIDATES AND
TECHNOLOGIES LESS ATTRACTIVE OR OBSOLETE.
We compete with pharmaceutical and biotechnology companies, including Canji
and Onyx Pharmaceuticals, Inc., which are pursuing other forms of treatment for
the diseases INGN 201 and our other product candidates target. We also may face
competition from companies that may develop internally or acquire competing
technology from universities and other research institutions. As these companies
develop their technologies, they may develop competitive positions which may
prevent or limit our product commercialization efforts.
Some of our competitors are established companies with greater financial
and other resources than we have. Other companies may succeed in developing
products earlier than we do, obtaining FDA approval for products more rapidly
than we do or developing products that are more effective than our product
candidates. While we will seek to expand our technological capabilities to
remain competitive, research and development by others may render our technology
or product candidates obsolete or noncompetitive or result in treatments or
cures superior to any therapy developed by us.
EVEN IF WE RECEIVE REGULATORY APPROVAL TO MARKET INGN 201 OR OTHER PRODUCT
CANDIDATES, WE MAY NOT BE ABLE TO COMMERCIALIZE THEM PROFITABLY.
Our profitability will depend on the market's acceptance of INGN 201 and
other product candidates. The commercial success of our product candidates will
depend on whether:
o They are more effective than alternative treatments;
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o Their side effects are acceptable to patients and doctors;
o We produce and sell them at a profit; and
o We and Aventis market INGN 201 effectively, if we choose to form a
joint marketing operation with Aventis.
IF WE ARE UNABLE TO MANUFACTURE OUR PRODUCTS IN SUFFICIENT QUANTITIES OR
ARE UNABLE TO OBTAIN REGULATORY APPROVALS FOR OUR MANUFACTURING FACILITY, WE MAY
BE UNABLE TO MEET DEMAND FOR OUR PRODUCTS AND LOSE POTENTIAL REVENUES.
Completion of our clinical trials and commercialization of our product
candidates require access to, or development of, facilities to manufacture a
sufficient supply of our product candidates. We recently constructed and own a
new manufacturing facility in Houston, Texas. We use the facility to manufacture
INGN 201 for our currently planned clinical trials and eventually for the
initial commercial launch of INGN 201. We manufacture other product candidates
in a separate, leased facility. We have no experience manufacturing INGN 201 or
any other product candidates in the volumes that will be necessary to support
commercial sales. If we are unable to manufacture our product candidates in
clinical or, when necessary, commercial quantities, then we will need to rely on
third party manufacturers to manufacture compounds for clinical and commercial
purposes. These third party manufacturers must receive FDA approval before they
can produce clinical material or commercial product. Our products may be in
competition with other products for access to these facilities and may be
subject to delays in manufacture if third parties give other products greater
priority than ours. In addition, we may not be able to enter into any necessary
third-party manufacturing arrangements on acceptable terms. There are very few
contract manufacturers who currently have the capability to produce INGN 201 or
our other product candidates, and the inability of any of these contract
manufacturers to deliver our required quantities of product candidates timely
and at commercially reasonable prices would negatively affect our operations.
Before we can begin commercially manufacturing INGN 201 or any other
product candidate, we must obtain regulatory approval of our manufacturing
facility and process. Manufacturing of our product candidates for clinical and
commercial purposes must comply with the FDA's Current Good Manufacturing
Practices requirements, commonly known as CGMP, and foreign regulatory
requirements. The CGMP requirements govern quality control and documentation
policies and procedures. In complying with CGMP and foreign regulatory
requirements, we will be obligated to expend time, money and effort in
production, recordkeeping and quality control to assure that the product meets
applicable specifications and other requirements. We must also pass a
pre-approval inspection prior to FDA approval. Our manufacturing facilities have
not yet been subject to an FDA or other regulatory inspection. Failure to pass a
preapproval inspection may significantly delay FDA approval of our products. If
we fail to comply with these requirements, we would be subject to possible
regulatory action and may be limited in the jurisdictions in which we are
permitted to sell our products. Further, the FDA and foreign regulatory
authorities have the authority to perform unannounced periodic inspections of
our manufacturing facility to ensure compliance with CGMP and foreign regulatory
requirements. Our facilities in Houston, Texas are our only manufacturing
facilities. If these facilities were to incur significant damage or destruction,
then our ability to manufacture INGN 201 or any other product candidates would
be significantly hampered. This, in turn, could result in delays in our
preclinical testing, clinical trials or commercialization efforts.
WE RELY ON ONLY ONE SUPPLIER FOR SOME OF OUR MANUFACTURING MATERIALS. ANY
PROBLEMS EXPERIENCED BY ANY SUCH SUPPLIER COULD NEGATIVELY AFFECT OUR
OPERATIONS.
We rely on third party suppliers for some of the materials used in the
manufacturing of INGN 201 and our other product candidates. Some of these
materials are available from only one supplier or vendor. Any significant
problem that one of our sole source suppliers experiences could result in a
delay or interruption in the supply of materials to us until that supplier cures
the problem or until we locate an alternative source of supply. Any delay or
interruption would likely lead to a delay or interruption in our manufacturing
operations, which could negatively affect our operations.
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The CellCube (TM) Module 100 bioreactor, which Corning (Acton, MA)
manufactures, and Benzonase(R), which EM Industries (Hawthorne, NY)
manufactures, are currently available only from these suppliers. Any significant
interruption in the supply of either of these items would require a material
change in our manufacturing process. We maintain inventories of these items, but
we do not have a supply agreement with either manufacturer.
IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE MAY
INCUR SUBSTANTIAL DAMAGES AND DEMAND FOR THE PRODUCTS MAY BE REDUCED.
The testing and marketing of medical products is subject to an inherent risk
of product liability claims. Regardless of their merit or eventual outcome,
product liability claims may result in:
o decreased demand for our product candidates;
o injury to our reputation and significant media attention;
o withdrawal of clinical trial volunteers;
o costs of litigation; and
o substantial monetary awards to plaintiffs.
We currently maintain product liability insurance with coverage of $2.0
million. This coverage may not be sufficient to protect us fully against product
liability claims. We intend to expand our product liability insurance coverage
to include the sale of commercial products if we obtain marketing approval for
any of our product candidates. Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against product liability
claims could prevent or limit the commercialization of our products.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS, AND ANY CLAIMS RELATING TO
IMPROPER HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD HARM OUR
BUSINESS.
Our business involves the use of a broad range of hazardous chemicals and
materials. Environmental laws impose stringent civil and criminal penalties for
improper handling, disposal and storage of these materials. In addition, in the
event of an improper or unauthorized release of, or exposure of individuals to,
hazardous materials, we could be subject to civil damages due to personal injury
or property damage caused by the release or exposure. A failure to comply with
environmental laws could result in fines and the revocation of environmental
permits, which could prevent us from conducting our business.
OUR STOCK PRICE MAY FLUCTUATE SUBSTANTIALLY.
The market price for our common stock will be affected by a number of
factors, including:
o the announcement of new products or services by us or our competitors;
o quarterly variations in our or our competitors' results of operations;
o failure to achieve operating results projected by securities analysts;
o changes in earnings estimates or recommendations by securities
analysts;
o developments in our industry; and
o general market conditions and other factors, including factors
unrelated to our operating performance or the operating performance of
our competitors.
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In addition, stock prices for many companies in the technology and emerging
growth sectors have experienced wide fluctuations that have often been unrelated
to the operating performance of such companies. Many factors may have a
significant adverse effect on the market price of our common stock, including:
o results of our preclinical and clinical trials;
o announcement of technological innovations or new commercial products
by us or our competitors;
o developments concerning proprietary rights, including patent and
litigation matters;
o publicity regarding actual or potential results with respect to
products under development by us or by our competitors;
o regulatory developments; and
o quarterly fluctuations in our revenues and other financial results.
We have not paid cash dividends since our inception and do not intend to
pay cash dividends in the foreseeable future.
ANY ACQUISITION WE MIGHT MAKE MAY BE COSTLY AND DIFFICULT TO INTEGRATE, MAY
DIVERT MANAGEMENT RESOURCES OR DILUTE STOCKHOLDER VALUE.
As part of our business strategy, we may acquire assets and businesses
principally relating to or complementary to our current operations, and we have
in the past evaluated and discussed such opportunities with interested parties.
Any acquisitions that we undertake will be accompanied by the risks commonly
encountered in business acquisitions. These risks include, among other things:
o potential exposure to unknown liabilities of acquired companies;
o the difficulty and expense of assimilating the operations and
personnel of acquired businesses;
o diversion of management time and attention and other resources;
o loss of key employees and customers as a result of changes in
management;
o the incurrence of amortization expenses; and
o possible dilution to our stockholders.
In addition, geographic distances may make the integration of businesses
more difficult. We may not be successful in overcoming these risks or any other
problems encountered in connection with any acquisitions. As of the date of this
report, we have no present commitments or agreements for any material investment
or acquisition, other than acquiring or maintaining rights to technologies in
the ordinary course of our business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to our short-term investments in U.S. Government obligations and our fixed rate
long-term debt. Short-term investments are classified as held-to-maturity and
are carried at amortized costs. We do not hedge interest rate exposure or
invest in derivative securities.
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PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
We are involved from time to time in legal proceedings relating to claims
arising out of our operation in the ordinary course of business, including
actions relating to intellectual property rights. We do not believe that the
outcome of any present litigation, other than our opposition of three European
patents owned by Canji discussed under "Factors Affecting Future Operating
Results," will have a significant effect on our business. You can read the
discussion of our opposition of the patents under "Factors Affecting Future
Operating Results."
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
We closed our IPO on October 17, 2000, pursuant to a Registration
Statement on Form S-1 (File No. 333-30582), which was declared effective by the
Securities and Exchange Commission on October 11, 2000. In the IPO, we sold an
aggregate of 4,000,000 shares of common stock at $8.00 per share (the
underwriters' over-allotment option of 600,000 shares of common stock was
exercised on October 18, 2000, at $8.00 per share). The sale of the shares of
common stock generated aggregate gross proceeds of approximately $36,800,000.
The aggregate net proceeds were approximately $33,124,000, after deducting
underwriting discounts and commissions of approximately $2,576,000 and directly
paying expenses of the offering of approximately $1,100,000. SG Cowen Securities
Corporation, PaineWebber Incorporated and Prudential Vector Healthcare (a unit
of Prudential Securities) were the lead underwriters for the IPO.
We expect to use the net proceeds from this offering to conduct research
and development, including clinical trials, advance our process development and
manufacturing capabilities, initiate product marketing and commercialization
programs, and for general corporate purposes, including working capital. Pending
these uses, the net proceeds of the offering are invested in interest bearing,
investment grade securities.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
10.35 Construction Loan Agreement, effective as of July 24,
2000, by and between the Company and Compass Bank.
(Incorporated by reference to Exhibit 10.35 filed
with Amendment No. 2 to the Company's Registration
Statement on Form S-1, File No. 333-30582, filed
September 8, 2000).
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 2000.
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<PAGE> 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.
INTROGEN THERAPEUTICS, INC.
Date: November 21, 2000 By: /s/ JAMES W. ALBRECHT, JR.
-------------------------------------
James W. Albrecht, Jr.
Chief Financial Officer (Principal
Financial and Accounting Officer)
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<PAGE> 23
INDEX TO EXHIBITS
10.35 Construction Loan Agreement, effective as of July 24,
2000, by and between the Company and Compass Bank.
(Incorporated by reference to Exhibit 10.35 filed
with Amendment No. 2 to the Company's Registration
Statement on Form S-1, File No. 333-30582, filed
September 8, 2000).
27.1 Financial Data Schedule
