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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 quarter ended September 30, 1998
[ ] 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 00-22383
TRANSCEND THERAPEUTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 04-3174575
(State or jurisdiction of incorporation or organization) (IRS Employer Identification No.)
</TABLE>
640 MEMORIAL DRIVE, CAMBRIDGE, MA
02139 (ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
(617) 374-1200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check [x] 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 [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of November 3, 1998, was 5,763,091 shares of Common Stock, par value
$0.01 outstanding.
This quarterly report on Form 10-Q contains 14 pages, of which this is page one.
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TRANSCEND THERAPEUTICS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS PAGE
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (Unaudited)
-Condensed Balance Sheets - September 30, 1998 and
December 31, 1997 3
-Condensed Statements of Operations - Three months
ended September 30, 1998 and 1997, nine months ended
September 30, 1998 and 1997 and the period from
January 1, 1993 (Commencement of Operations) to
September 30, 1998 4
-Condensed Statements of Cash Flows - Nine months ended
September 30, 1998 and 1997 and the period from
January 1, 1993 (Commencement of Operations) to
September 30, 1998 5
-Notes to Condensed Financial Statements 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II OTHER INFORMATION 11
ITEM 2 Changes in Securities and Use of Proceeds
ITEM 5 Other Information
ITEM 6 Exhibits and Reports on Form 8-K
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PART 1: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
TRANSCEND THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
1998 1997
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Unrestricted cash and cash equivalents $ 9,614 $ 10,989
Restricted cash 1,037 5,805
Prepaid expenses and other current assets 136 161
Other assets 25 25
-----------------------------
Total current assets 10,812 16,980
Property and equipment, net 44 111
Patents and licenses, net 295 335
-----------------------------
Total assets $ 11,151 $ 17,426
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,018 $ 1,660
Stockholders' equity:
Common stock 58 58
Additional paid-in capital 38,007 38,395
Deferred compensation (306) (707)
Deficit accumulated during the
development stage (27,626) (21,980)
-----------------------------
Total stockholders' equity 10,133 15,766
-----------------------------
Total liabilities and stockholders' equity $ 11,151 $ 17,426
=============================
</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
TRANSCEND THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
PERIOD JAN. 1, 1993
(COMMENCEMENT OF
THREE MONTHS NINE MONTHS OPERATIONS) TO
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------- -----------------
1998 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C>
Research and development contract
revenues and license fees $5,000 $ 11,095
Operating expenses:
Research and development $ 232 $ 871 $ 3,392 2,627 19,733
General and administrative 1,071 636 2,743 2,551 12,301
---------------------------------------------------------------------
Total operating expenses 1,303 1,507 6,135 5,178 32,034
Interest income 165 248 570 358 1,438
Interest expense (532)
Loss on disposition of assets (80) (80) (80)
---------------------------------------------------------------------
Net income (loss) (1,218) (1,259) (5,645) 180 $(20,113)
---------------------------------------------------------------------
Accretion of dividends and liquidation
preference on redeemable non-
convertible preferred stock (59) (178)
-------------------------------------------------
Net income (loss) to common
stockholders $(1,218) $ (1,318) $(5,645) $ 2
=================================================
Net income (loss) per common share $ (0.21) $ (0.25) $ (0.98) $ 0.00
Net income (loss) per common share
assuming dilution $ (0.21) $ (0.25) $ (0.98) $ 0.00
</TABLE>
See accompanying notes.
4
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<TABLE>
<CAPTION>
TRANSCEND THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED PERIOD JAN. 1, 1993
SEPTEMBER 30, (COMMENCEMENT OF
---------------------- OPERATIONS
1998 1997 TO SEPTEMBER 30, 1998
---------- ------- ---------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(5,645) $ 180 $(20,113)
Adjustments to reconcile net income (loss) to cash used in
operating activities:
Depreciation and amortization 74 59 337
Non-cash severance expense 6 6
Loss on disposition of assets 80 85
Expenses incurred with related party settled with the 304
issuance of common stock
Amortization of deferred compensation expense (27) 210 361
Issuance of preferred stock in lieu of interest 533
Change in operating assets and liabilities:
Restricted cash 4,768 (6,970) (1,037)
Prepaid expenses and other current assets 25 (144) (136)
Other assets 16 (21)
Accounts payable and accrued expenses (608) 411 978
------------------------------------------------
Net cash used in operating activities (1,327) (6,238) (18,703)
INVESTING ACTIVITIES:
Purchase of equipment and improvements (53) (57) (230)
Proceeds from sale of equipment 2
------------------------------------------------
Net cash used in investing activities (53) (57) (228)
FINANCING ACTIVITIES:
Issuance of common stock and/or common stock warrants 16,740 16,740
Proceeds from issuance of debt 3,170
Payment on note payable to related party (170)
Deferred costs of public offering (590) (925)
Issuance of series A preferred stock warrants 16
Issuance of series A redeemable convertible preferred stock 6,630
Issuance of series C redeemable convertible preferred stock 2,000
Issuance of redeemable non-convertible preferred stock 1,039 1,039
Proceeds from exercise of stock options 5 6 47
Purchase of treasury stock (2)
------------------------------------------------
Net cash provided by financing activities 5 17,195 28,545
------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,375) 10,900 9,614
Cash and cash equivalents at beginning of period 10,989 640
------------------------------------------------
Cash and cash equivalents at end of period $ 9,614 $11,540 $ 9,614
================================================
</TABLE>
See accompanying notes.
5
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TRANSCEND THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements as of September 30,
1998 and for the three- and nine-month periods ended September 30, 1998 and
1997 and for the period January 1, 1993 (commencement of operations) to
September 30, 1998 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and the rules of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such financial information
includes all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for such periods. Operating
results for the three- and nine-month periods ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. These condensed financial statements and the related notes
should be read in conjunction with the audited annual financial statements of
Transcend Therapeutics, Inc. (the "Company") for the year ended December 31,
1997 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1998.
OVERVIEW
The Company is dedicated to the development and commercialization of products
for unmet medical needs. In the second quarter of 1997, the Company began a
Phase III clinical trial to determine the safety and efficacy of the Company's
lead product candidate, Procysteine(R), in the treatment of acute respiratory
distress syndrome ("ARDS"). In March 1998, the Company had suspended the Phase
III Clinical Trial on the use of Procysteine(R) i.v. for the treatment of ARDS
following a recommendation of an independent Safety Monitoring Board. The Safety
Monitoring Board had determined following a review of preliminary mortality data
on a total of 214 patients enrolled through March 18, 1998 that the incidence of
all-cause mortality in patients receiving Procysteine i.v. was higher than the
incidence in patients receiving a placebo. In May 1998, the Company announced
that it was discontinuing its Phase III Clinical Trial because its preliminary
review of the mortality data on the 214 patients enrolled in the study prior to
its suspension uncovered no clear explanation of the lower mortality observed in
the placebo group. In August 1998, the Company and its corporate partner
Boehringer Ingelheim International, GmbH ("BI") announced results from the
unblinding of the Phase III ARDS clinical trial which showed that Procysteine
i.v. is not effective in the treatment of ARDS. To date, no explanation for the
higher all-cause mortality observed in the Procysteine group has been
identified. The Company and BI will make a determination whether to continue
their work with Procysteine i.v. by the end of the first quarter of 1999. In
August and September 1998, the Company announced the resignation of its Chief
Executive Officer and Chief Scientific Officer and the lay-off of ten other
staff. Concurrently, B. Nicholas Harvey, the Senior Vice President and Chief
Financial Officer was appointed President, a Director and interim Chief
Executive Officer. The Company is currently pursuing various strategic
alternatives with respect to its business, including strategic alliances or the
sale or merger of the Company. There can be no assurance that the Company will
be successful in implementing any such strategic options in a timely manner or
at all, or that any such action would enhance the competitive position or future
success of the Company.
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NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of net income (loss) per
share:
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<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss): $(1,218,175) $(1,258,594) $(5,645,153) $ 179,929
Accretion of redeemable nonconvertible
preferred stock (59,333) (178,000)
Numerator for net income (loss) per
common share-- net income (loss)
attributable to common stockholders (1,218,175) (1,317,927) (5,645,153) 1,929
Denominator:
Denominator for net income (loss) per
common share -weighted-- average shares 5,762,895 5,285,859 5,762,271 1,344,678
Effect of dilutive securities:
Stock options 294,858
Common stock warrants 5,000
Preferred stock 3,122,167
-------------------------------------------------------------------------
Dilutive potential common shares -- -- -- 3,422,025
Denominator for net income (loss) per
common share assuming dilution -- adjusted
weighted-average shares and assumed
conversions 5,762,895 5,285,859 5,762,271 4,766,703
Net income (loss) per common share $(0.21) $(0.25) $(0.98) $ 0.00
Net income (loss) per common share
assuming dilution N/A N/A N/A $ 0.00
</TABLE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
As of January 1, 1998, the Company adopted Financial Accounting Standard 130,
Reporting Comprehensive Income ("Statement 130"). Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components.
Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in stockholder's equity to be included in other comprehensive income. During the
third quarters of 1998 and 1997, total comprehensive income was not materially
different from net income (loss).
DISPOSITION OF ASSETS
In August and September 1998, the Company announced the resignation of its Chief
Executive Officer and Chief Scientific Officer and the lay-off of ten of its
employees. As a result of the down-sizing, the Company has rationalized certain
of its assets, disposed of certain fixed assets and has made arrangements to
reduce its leased facilities and equipment. Consequently, the Company realized a
loss on disposition of assets of approximately $80,000 in the third quarter of
1998.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES.
THE FOLLOWING DISCUSSION CONSTITUTES FORWARD LOOKING STATEMENTS INSOFAR AS IT
RELATES TO THE PURSUIT OF STRATEGIC ALTERNATIVES, PROGRESS IN THE COMPANY'S
RESEARCH AND DEVELOPMENT PROGRAMS, PRODUCT DEVELOPMENT EXPECTATIONS,
IN-LICENSING PLANS, EXPECTED CASH EXPENDITURES AND EXPENSE LEVELS AND THE
ADEQUACY OF THE COMPANY'S AVAILABLE RESOURCES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THE TERMINATION OF THE COMPANY'S WORK WITH PROCYSTEINE
FOR THE TREATMENT OF ARDS, THE AVAILABILITY OF FUNDS AND OTHER FACTORS DISCUSSED
BELOW AND IN THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1 (FILE NO.
333-22817), AS AMENDED, AND THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1997. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF
THIS FORM 10-Q. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE
RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE
TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS FORM 10-Q OR TO
REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
The Company earned no revenues in the three-month periods ended September 30,
1998 and 1997.
The Company's total operating expenses for the three-month periods ended
September 30, 1998 and 1997 were $1.3 million and $1.5 million, respectively.
Research and development expenses decreased to approximately $0.2 million for
the three months ended September 30, 1998 from approximately $0.9 million for
the three months ended September 30, 1997. The decrease was due primarily to
reduced costs associated with the Company's Phase III ARDS trial (the "Phase III
Trial") which commenced in the first quarter of 1997 and was discontinued in May
1998, including staffing costs, clinical investigator grants, clinical site
monitoring, clinical supplies and data management expenses ("ARDS Development
Expenses"). The Company expects that the remaining regulatory and administrative
work related to the discontinued ARDS trial will be fully completed by the first
quarter of 1999. The Company, along with its partner Boehringer Ingelheim
International, GmbH ("BI"), will make a determination on the future of
Procysteine i.v. by the end of the first quarter of 1999.
General and administrative expenses increased to approximately $1.1 million for
the three months ended September 30, 1998 from approximately $0.6 million for
the three months ended September 30, 1997. Of the $1.1 million of general and
administrative expenses in the third quarter of 1998, approximately $0.5
million related to one-time charges for severance related to the reduction of
the staff. As of November 13, 1998, the Company had 4 full-time employees.
Other income and expenses for the each of the three-month periods ended
September 30, 1998 and 1997 consists of interest income and loss on the
disposition of assets. Interest income for each of the three-month periods
ended September 30, 1998 and 1997 was $165,000 and $248,000, respectively. The
decrease in interest income was due to lower average cash balances. In the
three-month period ended September 30, 1998, there were approximately $80,000
of losses incurred from the disposition of certain property and equipment
related to the reduction of the staff.
For each of the three-month periods ended September 30, 1998 and 1997, the
Company had net losses of $1.2 million and $1.3 million, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1998
The Company earned no revenues in the nine-month period ended September 30,
1998. In the nine-month period ended September 30, 1997, the Company recognized
as revenue $5.0 million consisting of a non-refundable, non-creditable license
fee received from BI in exchange for which the Company granted BI exclusive
rights to various patents related to intravenous Procysteine(R).
The Company's total operating expenses for the nine-month periods ended
September 30, 1998 and 1997 were $6.1 million and
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$5.2 million, respectively. Research and development expenses increased to
approximately $3.4 million for the nine months ended September 30, 1998 from
approximately $2.6 million for the nine months ended September 30, 1997. The
increase was due primarily to accelerated patient enrollment and other increased
costs associated with the Company's Phase III ARDS trial which commenced in the
first quarter of 1997 and was discontinued in May 1998, including staffing
costs, clinical investigator grants, clinical site monitoring, clinical supplies
and data management expenses.
General and administrative expenses increased to approximately $2.7 million for
the nine months ended September 30, 1998 from approximately $2.6 million for
the nine months ended September 30, 1997. General and administrative expenses
for the first nine months of 1998 included approximately $0.5 million in
one-time charges related to the reduction of the Company's staffing and
facilities. General and administrative expenses for the first nine months of
1997 included approximately $0.6 million of non-recurring administration
charges associated with the signing of the BI Agreement and costs associated
with the Company's initial public offering, which was completed in July 1997.
Other income and expenses for the each of the nine-month periods ended September
30, 1998 and 1997 consists of interest income and loss on the disposition of
assets. Interest income for each of the nine-month periods ended September 30,
1998 and 1997 was $570,000 and $358,000, respectively. The increase in interest
income was due to higher average cash balances following the Company's initial
public offering of Common Stock, which was completed in July 1997. In the
nine-month period ended September 30, 1998, there were approximately $80,000 of
losses incurred from the disposition of certain property and equipment related
to the reduction of the staff.
For the nine-month period ended September 30, 1998, the Company had a net loss
of $5.6 million. For the nine-month period ended September 30, 1997, the
Company recorded a net profit of approximately $2,000, resulting from the
receipt and recognition of revenue consisting of a $5.0 million license fee
from BI.
9
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LIQUIDITY AND CAPITAL RESOURCES
Since its inception through September 30, 1998, the Company has financed its
operations primarily with $13.6 million from the private sale of equity
securities, $30.3 million from the sale of equity securities and convertible
notes, $11.1 million in contract research and license fee payments, and $1.4
million in interest income.
The Company had cash and cash equivalents of approximately $10.7 million at
September 30, 1998, compared to $16.8 million at December 31, 1997. These
balances included cash, the use of which is restricted for expenses associated
with the development of a treatment for ARDS ("ARDS Development Expenses"), of
approximately $1.0 million and $5.8 million, respectively. Pursuant to a
Development and License Agreement entered into with BI for the development and
commercialization of Procysteine i.v. for the treatment of ARDS ("the BI
Agreement"), the Company must use the BI license fee of $5.0 million and an
equity investment by BI of $5.0 million (received in the Company's initial
public offering) exclusively for ARDS Development Expenses. On August 13, 1998,
the Company and BI announced results from the unblinding of the Phase III
clinical trial evaluating the intravenous administration of Procysteine for the
treatment of ARDS. These results showed that Procysteine i.v. is not effective
in the treatment of ARDS. To date, no explanation for the higher all-cause
mortality observed in the Procysteine group has been identified. The Company
and BI will make a determination whether to continue their work with
Procysteine i.v. by the end of the first quarter of 1999. Since March 1997, the
Company has incurred $9.4 million of ARDS Development Expenses under the BI
Agreement (of which $9.0 million has been paid as of September 30, 1998),
including $0.3 million of ARDS Development Expenses incurred in the three-month
period ended September 30, 1998.
The Company expects negative cash flows from operations to continue for the
foreseeable future.
The Company's actual working capital needs and funding requirements will depend
upon numerous factors, some of which are beyond the Company's control,
including the entering of strategic alliances, progress of the external
research and development programs, the magnitude and scope of these activities,
the timing, costs and results of pre-clinical and clinical testing, the
determination as to whether to continue clinical development of Procysteine
i.v., the timing and costs of obtaining regulatory approvals, the level of
resources that the Company commits to the development of manufacturing,
marketing and sales capabilities, the ability of the Company to establish new
and maintain existing collaborative arrangements with BI and other companies,
the costs of any acquisitions and/or licensing of technology rights, the
technological advances and activities of competitors, the costs involved in
preparing, filing, prosecuting, maintaining, enforcing and defending patent
claims and other intellectual property rights. In August 1998, the Company and
BI announced results from the unblinding of the Phase III clinical trial
evaluating the intravenous administration of Procysteine for the treatment of
ARDS. These results showed that Procysteine i.v. is not effective in the
treatment of ARDS. To date, no explanation for the higher all-cause mortality
observed in the Procysteine group has been identified. The Company and BI will
make a determination whether to continue their work with Procysteine i.v. by
the end of the first quarter of 1999. The Company has taken steps in August and
September 1998 to reduce its cost of operations pending a determination on
whether the Company and BI will resume its work with Procysteine(R) i.v. The
Company continues to examine other strategic alternatives with respect to its
business including strategic alliances or the sale or merger of the Company.
There can be no assurance that the Company will be successful in implementing
any such strategic options in a timely manner or at all, or that any such
action would enhance the competitive position or future success of the Company.
The Company intends to seek additional funding through mergers and/or
acquisitions, collaborative relationships, public or private financing, research
and development financing or otherwise. If additional funds are raised by
issuing equity securities, further dilution to stockholders will result. Debt
financing, if available, may involve restrictive covenants. If adequate funds
are not available, the Company may be required to delay, scale back or eliminate
certain of its product development programs, to license to others rights to
commercialize products or technologies that the Company would otherwise seek to
develop and commercialize itself or cease operations.
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PART II: OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) USE OF PROCEEDS
(1) The effective date of the registration statement
on Form S-1 (the "Registration Statement") for
the Company's initial public offering of shares
of its common stock, $.01 par value per share,
was July 2, 1997, and the commission file number
of the Registration Statement is 333-22817.
(2) (vii) From July 2, 1997, the effective date of the
Registration Statement, to September 30, 1998,
the Company has used the net offering proceeds
(excluding the use of restricted funds under the
BI Agreement) Company as follows:
Accrued contract research payment...... $ 130,000
Payment of operating expenses.......... $2,590,000
Payment of professional expenses
related to the signing of the BI
Agreement.............................. $ 150,000
Total.................................. $2,870,000
Payment of expenses were to persons other than
directors, officers, general partners of the
Company or their associates, persons owning 10%
or more of the equity securities of the Company
or affiliates of the Company.
(viii) The use of proceeds described in the prospectus
for the offering contemplated the use of $8.0
million of the $15.7 million in net proceeds
from the offering to fund the Company's Phase
III Trial. The use of proceeds described in
(vii) above reflects in part the subsequent
reduction in costs associated with the
discontinuation of the Phase III Trial ,
including staffing costs, clinical investigator
grants, clinical site monitoring, clinical
supplies and data management expenses.
ITEM 5 OTHER INFORMATION
The Company has received notification from the Nasdaq Stock Market, Inc. that
the Company is not presently within certain Nasdaq National Market maintenance
standards needed to remain listed on the Nasdaq National Market, because it has
failed to maintain a market value of public float greater than $5,000,000 and
has failed to maintain a closing bid price of greater than $1.00 per share. The
Company has been granted a hearing by Nasdaq on the matter in order to
demonstrate that the Company's common stock should continue to be listed on the
Nasdaq National Market. A hearing date has not been scheduled as yet, however
the Company has been informed by Nasdaq that the hearing will not be earlier
than January 1999. No assurance can be given that the Company will be
successful in any hearing with Nasdaq.
On August 21, 1998, the Company announced that Hector J. Gomez, M.D., Ph.D.,
President and Chief Executive Officer and John J. Whalen, M.D., Executive Vice
President and Chief Scientific Officer had resigned from the Company. Dr. Gomez
also resigned as a
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Director of the Company. B. Nicholas Harvey, Senior Vice President and Chief
Financial Officer has been appointed President and will serve as interim Chief
Executive Officer. Mr. Harvey has also been appointed to the Board of Directors
of the Company.
On September 11, 1998, the Company announced the lay-off of ten of its
employees. The Company continues to negotiate possible in-licensing
opportunities as well as other strategic options with respect to its business.
There can be no assurance that the Company will be successful in implementing
any such in-licensing or other strategic options in a timely manner or at all,
or that any such action would enhance the competitive position or future
success of the Company.
The Company is aware of the significance of the Year 2000 and the need for
computer systems to comprehend four-digit date codes. The only hardware or
software the Company uses is a recent release of Microsoft Office running on
IBM-based PC's. No third-party systems have been evaluated because the Company
has no customers and no material third-party suppliers. Accordingly, the
Company does not expect to be adversely impacted by the Year 2000 problem.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index
(b) During the three months ended September 30, 1998, the Company filed one
Current Report on Form 8-K under the Securities Exchange Act of 1934, as
amended, announcing the resignation of Hector J. Gomez, M.D., Ph.D., President
and Chief Executive Officer and John J. Whalen, M.D., Chief Scientific Officer.
The report also announced the appointment of B. Nicholas Harvey to the office of
President, interim Chief Executive Officer and member of the Board of Directors
and that the Company has selected EVEREN Securities, Inc. as its financial
advisor to assist the Company in considering various strategic alternatives with
respect to its business. These alternatives include the evaluation of the
further development of Procysteine, acquisition of additional technology,
strategic alliances or sale or merger of the Company.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSCEND THERAPEUTICS, INC.
(Registrant)
Date November 13, 1998 /s/ B. Nicholas Harvey
----------------- ------------------------------------------
B. Nicholas Harvey
President, Interim CEO and Chief Financial
Officer (Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
Item Description
- ---- -----------
3.1 Second Amended and Restated Certificate of Incorporation of the
Registrant is incorporated herein by reference to Exhibit 3.2 to the
Registrant's registration statement on Form S-1 (File No. 333-22817)
under the Securities Act of 1933, as amended, as declared effective on
July 2, 1997 (the "S-1).
3.2 Amended and Restated By-Laws of the Registrant are incorporated herein
by reference to Exhibit 3.3 to the S-1.
10.1 Severance and Settlement Agreement dated August 20, 1998 between
the Registrant and Hector J. Gomez.
27.1 Financial Data Schedule (period ended September 30, 1998)
27.2 Financial Data Schedule-Amended (period ended September 30, 1997)
14
<PAGE> 1
SEVERANCE AND SETTLEMENT AGREEMENT AND RELEASE
Agreement made as of the 20th day of August, 1998, by and between
Transcend Therapeutics, Inc., a Delaware corporation (the "Company"), and Hector
J. Gomez, M.D., Ph.D. (the "Employee").
WHEREAS, the parties wish to resolve amicably the Employee's separation
from the Company and establish the terms of the Employee's severance
arrangement;
NOW, THEREFORE, in consideration of the promises and conditions set
forth herein, the sufficiency of which is hereby acknowledged, the Company and
the Employee agree as follows:
1. TERMINATION DATE. The Employee's Termination Date will be
August 21, 1998, the date upon which the Employee submitted and the Company
accepted, the Employee's letter of resignation as an officer, employee and as a
Director of the Company. A copy of the aforementioned letter of resignation is
attached hereto as EXHIBIT A.
2. MONETARY CONSIDERATION.
2.1 SEVERANCE PAYMENTS.
(a) The Company agrees to pay the Employee an
amount equal to Employee's current annual base salary of $264,000, less all
taxes and other withholding obligations (the "Salary-based Payment"). The
Salary-based Payment shall be paid as follows: (i) an amount equal to one-half
of the Salary-based Payment shall be made by bank certified check on August 31,
1998, and an amount equal to one-half of the Salary-based Payment shall be made
over a six- (6) month period commencing October 2, 1998 (the period during which
such payments continue, as provided in the following sentence, being referred to
as the "Payment Period"). The Company and the Employee agree that the
Salary-based Payment shall not be offset by any employment or consulting
arrangement that Employee may enter into subsequent to the date hereof.
(b) In addition to the Salary-based Payment
pursuant to subparagraph (a) above, the Company agrees to pay the Employee an
amount equal to $40,000, less all taxes and other withholding obligations (the
"Additional Payment"). This Additional Payment will be made by bank certified
check on August 31, 1998.
(c) Notwithstanding any other provision of this
Agreement, amounts paid under this Section 2 include accrued and unused vacation
of Employee,
<PAGE> 2
and Employee shall not be entitled to additional amounts for such accrued and
unused vacation.
2.2 BENEFITS. For a period of twelve (12) months
beginning on August 21, 1998, the Company will continue to enroll the Employee
in those health and welfare benefit plans (other than vacation or other earned
paid time off) of the Company in which he participated prior to the Termination
Date so long as he is not prohibited from participating in such benefit plans
under the terms of the plan or by law. Such benefit plans are identified on
EXHIBIT B. For purposes of the federal law known as COBRA, the resignation by
Employee as contemplated by this Agreement will serve as a qualifying event
under COBRA, effective as of August 21, 1998, and the Company shall pay the full
cost of the COBRA payments for twelve (12) months. Thereafter, the Employee will
be required to pay the full cost of the COBRA premiums required under 29 U.S.C.
ss.1161-68. Notwithstanding the foregoing, (i) the Company shall not be required
to pay the costs of coverage at any time after the Employee has secured other
employment or consulting arrangement, and (ii) in no event shall the Employee be
permitted to continue to participate in the Company's 401(k) Savings Plan or in
any benefit plan where the plan's qualified status may be adversely affected by
the participation of a former employee.
3. STOCK OPTION AGREEMENTS AND ADDITIONAL CONSIDERATION.
3.1 STOCK OPTION AGREEMENTS. The Employee currently holds
the following three stock options: (a) a stock option to purchase 110,000 shares
of Common Stock of the Company (the "First Option") pursuant to Stock Option
Agreement dated November 28, 1994 (the "First Option Agreement"); (b) a stock
option to purchase 40,000 shares of Common Stock of the Company (the "Second
Option") pursuant to a Stock Option Agreement dated July 25, 1996 (the "Second
Option Agreement"); and (c) a Stock Option to purchase 60,000 shares of Common
Stock of the Company (the "Third Option") pursuant to a Stock Option Agreement
dated September 24, 1997 (the "Third Option Agreement").
The Company and the Employee agree that the total number of
shares of Common Stock that have vested as of August 21, 1998 and are
exercisable pursuant to the Options described above is as set forth on EXHIBIT C
which is attached hereto (the "Vested Options"). The Employee will have the
right to exercise the Vested Options under the First Option Agreement until
November 21, 1998 and Vested Options under the Second Option Agreement until
August 21, 1999, each in accordance with the terms of the First Stock Option
Agreement and Second Stock Option Agreement
2
<PAGE> 3
3.2 ADDITIONAL CONSIDERATION.
(a) The Employee shall be entitled to purchase
from the Company the Palm Pilot III Palm D with Mac Kit currently used by him
for $200.00 on the date of this Agreement;
(b) The Company shall transfer all right, title
and interest to the PowerMac 6100/66 Desktop Computer, Stylewriter II Printer,
Multiscan 15 Monitor, Fax/Modem and HP 590 Fax Machine currently used by the
Employee on the date of this Agreement; and
(c) The Company will make available to the
Employee for a six-month period a direct-dial telephone extension and voice mail
box to enable the Employee to receive telephone calls and messages.
4. RELEASE.
4.1 EMPLOYEE'S RELEASE. The Employee hereby fully,
forever, irrevocably and unconditionally releases, remises and discharges the
Company, its officers, directors, stockholders, corporate affiliates, agents and
employees from any and all claims, charges, complaints, demands, actions, causes
of action, suits, rights, debts, sums of money, costs, accounts, reckonings,
covenants, contracts, agreements, promises, doings, omissions, damages,
executions, obligations, liabilities, and expenses (including attorneys' fees
and costs), of every kind and nature which he ever had or now has against the
Company, its officers, directors, stockholders, corporate affiliates, agents and
employees, including, but not limited to, all claims arising out of his
employment; all employment discrimination claims under Title VII of the Civil
Rights Act of 1964, 42 U.S.C. ss. 2000e et seq., the Age Discrimination in
Employment Act, 29 U.S.C. ss. 621 et seq., M.G.L. c.151B, ss. 1 et seq., the
Americans With Disabilities Act, 29 U.S.C. ss. 706 et seq., and the National
Labor Relations Act, 29 U.S.C. ss. 151 et seq.; damages arising out of all
employment discrimination claims; all claims under the Massachusetts Civil
Rights Act, the Employee Retirement Income Security Act, 29 U.S.C. ss. 1001 et
seq., and the Family and Medical Leave Act, 29 U.S.C. ss. 2601 et seq.; wrongful
discharge claims, breach of contract claims and all other statutory or common
law claims and damages, PROVIDED, HOWEVER that the Employee still retains such
right to indemnification as described in paragraph 10 below and this Release
shall not preclude Employee from asserting any claims to enforce this Agreement,
including claims with respect to the compensation and benefits to which he is
entitled hereunder (including those described on Exhibit B) or to assert a claim
against the Employer for indemnification pursuant to paragraph 10.
The Employee acknowledges that he has been given twenty-one
(21) days to consider this Agreement and that the Company advised him to consult
with
3
<PAGE> 4
an attorney of his own choosing prior to signing this Agreement. The Employee
may revoke this Agreement for a period of seven (7) days after the execution of
this Agreement, and the Agreement shall not be effective or enforceable until
the expiration of this seven (7) day revocation period.
4.2 THE COMPANY'S RELEASE. The Company, its officers,
directors and stockholders, hereby fully, forever, irrevocably and
unconditionally release, remise and discharge the Employee from any and all
claims, charges, complaints, demands, actions, causes of action, suits, rights,
debts, sums of money, costs, accounts, reckonings, covenants, contracts,
agreements, promises, doings, omissions, damages, executions, obligations,
liabilities, and expenses (including attorneys' fees and costs) arising out of
any action undertaken by the Employee for the Company within the scope of his
employment. This Release shall not affect whatever indemnification rights the
Employee may have under the Company's Bylaws or Restated Certificate of
Incorporation or by operation of law.
5. NO REINSTATEMENT. The Employee understands and agrees that, as
a condition for payment to him of the above-described sums, he shall not be
entitled to any employment with the Company at any time in the future, and that
he will not apply for employment with the Company.
6. NATURE OF AGREEMENT. The Employee understands and agrees that
this Agreement is a severance and settlement agreement and does not constitute
an admission of liability or wrongdoing on the part of the Company or the
Employee.
7. AMENDMENT. This Agreement shall be binding upon the parties
and may not be abandoned, supplemented, changed or modified in any manner,
orally or otherwise, except by an instrument in writing of concurrent or
subsequent date signed by a duly authorized representative of the parties
hereto. This Agreement is binding upon and shall inure to the benefit of the
parties and their respective agents, assigns, heirs, executors, successors and
administrators.
8. VALIDITY. Should any provision of this Agreement be declared
or be determined by any court of competent jurisdiction to be illegal or
invalid, the validity of the remaining parts, terms, or provisions shall not be
affected thereby and said illegal and invalid part, term or provision shall be
deemed not to be a part of this Agreement.
9. CONFIDENTIALITY. The Employee and the Company understand and
agree that the terms and contents of this Agreement, and the contents of the
negotiations and discussions resulting in this Agreement, shall be maintained as
confidential by both parties, their agents and representatives, and the matters
related to the Employee's resignation shall also remain confidential, and none
of the above shall be disclosed except to the extent determined by either of the
parties in the sole judgment
4
<PAGE> 5
of each that such disclosure would be in the best interests of the Company or
may be required by federal or state law or as otherwise agreed to in writing by
the authorized agent of each party.
10. INDEMNIFICATION. The Company will continue indemnification of
the Employee to the extent that he is entitled to such indemnification as
provided in the Company's Bylaws and Restated Certificate of Incorporation or
under statutory or common law.
11. NON-DISPARAGEMENT. The Employee agrees not to make any
disparaging statements to any other person concerning the Company, its officers,
directors, employees or agents, nor engage in conduct intended to be detrimental
to the interests of the Company, its officers, directors, employees or agents.
The Company agrees that it will not make any disparaging statements to any other
person concerning the Employee nor engage in conduct intended to be detrimental
to the interests of the Employee, provided however, the Company may make such
disclosure of the events and circumstances involving or relating to the
Employee=s resignation as required.
12. ENTIRE AGREEMENT. This Agreement contains and constitutes the
entire understanding and agreement between the parties hereto with respect to
the severance and settlement and cancels all previous oral and written
negotiations, agreements, commitments, and writings in connection therewith.
13. APPLICABLE LAW. This Agreement shall be governed by the laws
of the Commonwealth of Massachusetts.
14. VOLUNTARY ASSENT. The Employee affirms that no other promises
or agreements of any kind have been made to or with him by any person or entity
whatsoever to cause him to sign this Agreement, and that he fully understands
the meaning and intent of this Agreement. The Employee states and represents
that he has had an opportunity to fully discuss and review the terms of this
Agreement with an attorney. The Employee further states and represents that he
has carefully read this Agreement, understands the contents herein, freely and
voluntarily assents to all of the terms and conditions hereof, and signs his
name of his own free act.
15. EXECUTION. This Settlement Agreement may be executed in one or
more counterparts, each of which when so executed shall be deemed to be an
original, and all such counterparts together shall constitute but one and the
same instrument.
16. AUTHORITY. Each of the Company and the Employee has full power
and authority to enter into and to perform this Agreement in accordance with its
terms.
5
<PAGE> 6
IN WITNESS WHEREOF, all parties have set their hand and seal to this
Agreement as of the date written above.
TRANSCEND THERAPEUTICS, INC.
By: /s/ Jerry T. Jackson Date: 8/20/98
-------------------------------- ---------------------
Jerry T. Jackson, Chairman
/s/ Hector J. Gomez Date: 8/20/98
-------------------------------- ---------------------
Hector J. Gomez, M.D., Ph.D.
6
<PAGE> 7
EXHIBIT A
August 21, 1998
To the Board of Directors:
I hereby resign as the President and Chief Executive Officer and as a
Director of Transcend Therapeutics, Inc. ("Transcend"), and from any other
office with Transcend that I may hold, effectively immediately.
-----------------------------------
Hector J. Gomez
<PAGE> 8
EXHIBIT B
HEALTH AND WELFARE BENEFIT PLANS
Guardian Health and Dental Plan (not including life or long-term disability).
<PAGE> 9
EXHIBIT C
STOCK OPTION SUMMARY
<TABLE>
<CAPTION>
Date of Exercise
Grant Shares Exercised Remaining Vested Price
------- ------ --------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
1. 11/28/94 110,000 18,465 91,535 91,535 $ .50
2. 7/25/96 40,000 -- 40,000 20,841 $2.50
3. 9/24/97 60,000 -- 60,000 -- $8.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRANSCEND THERAPEUTICS, INC. FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,613,954
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,812,687
<PP&E> 58,257
<DEPRECIATION> 14,442
<TOTAL-ASSETS> 11,151,195
<CURRENT-LIABILITIES> 1,017,798
<BONDS> 0
0
0
<COMMON> 57,631
<OTHER-SE> 10,075,766
<TOTAL-LIABILITY-AND-EQUITY> 11,151,195
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,134,862
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,645,153)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,645,153)
<EPS-PRIMARY> (0.98)
<EPS-DILUTED> (0.98)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRANSCEND THERAPEUTICS, INC. FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,539,903
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,718,233
<PP&E> 133,052
<DEPRECIATION> 47,837
<TOTAL-ASSETS> 19,152,360
<CURRENT-LIABILITIES> 1,036,433
<BONDS> 0
0
0
<COMMON> 57,140
<OTHER-SE> 18,058,788
<TOTAL-LIABILITY-AND-EQUITY> 19,152,360
<SALES> 5,000,000
<TOTAL-REVENUES> 5,000,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,178,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 179,929
<INCOME-TAX> 0
<INCOME-CONTINUING> 179,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,929
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
