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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
- ---------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
- ---------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to ________
Commission File Number 000-24505
COLLATERAL THERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0661290
- -------------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9360 Towne Centre Drive
San Diego, California 92121
- -------------------------------------- -----------------------------------
(Address of principal Zip Code
executive offices)
Registrant's telephone number,
including area code: 619-824-6500
-----------------------------------
Indicate by a check 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 filing requirements
for the past 90 days.
Yes No X
-------------- -----------------
As of August 3, 1998, Registrant had 10,511,173 shares of its Common Stock
outstanding.
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COLLATERAL THERAPEUTICS, INC.
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INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 26
Item 4. Submission of Matters to a Vote of Security Holder 26
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
Exhibit 3.1 Second Restated Certificate of Incorporation of the Company
Exhibit 3.2 Incorporated by reference to the Restated Bylaws of the Company
Exhibit 10.1 Incorporated by reference to the Torrey Reserve Office Lease
between Pacific Torrey Reserve Holding, L.P. and the Company
Exhibit 10.2 Incorporated by reference to the Credit Agreement between the
Company and Imperial Bank
Exhibit 10.3 Incorporated by reference to the 1998 Stock Incentive Plan
Exhibit 27.1 Financial Data Schedule (Electronic Filing Only)
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2
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PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
COLLATERAL THERAPEUTICS, INC.
BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
ASSETS (UNAUDITED) (NOTE)
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Current assets:
Cash and cash equivalents $ 3,332,012 $ 5,605,361
Restricted cash - current 600,000 -
Milestone receivable from a related party - 2,000,000
Deferred public offering costs 1,454,851 -
Prepaid expenses and other current assets 549,367 170,951
----------- -----------
Total current assets 5,936,230 7,776,312
Restricted cash - noncurrent 72,600 -
Property and equipment, net 1,912,113 293,447
----------- -----------
$ 7,920,943 $ 8,069,759
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----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 651,582 $ 476,111
Accrued expenses 1,241,199 119,348
Notes payable to a related party, including accrued interest 606,618 -
Deferred revenue 448,182 155,043
----------- -----------
Total current liabilities 2,947,581 750,502
Notes payable to a related party, including accrued interest - 587,553
Shareholders' equity:
Series A Convertible Preferred Stock, par value $.001; 374,532
shares authorized, issued and outstanding at June 30, 1998,
and December 31, 1997. . . . . . . . . . . . . . . . . . . . . . 375 375
Series B Convertible Preferred Stock, par value $.001; 374,532
shares authorized, issued and outstanding at June 30, 1998,
and December 31, 1997. . . . . . . . . . . . . . . . . . . . . . 375 375
Series C Convertible Preferred Stock, par value $.001; 472,476
shares authorized, issued and outstanding at June 30, 1998,
and December 31, 1997. . . . . . . . . . . . . . . . . . . . . . 472 472
Common Stock, par value $.001; 19,000,000 shares authorized;
5,971,647 issued and outstanding at June 30, 1998
and December 31, 1997. . . . . . . . . . . . . . . . . . . . . . 5,972 5,972
Additional paid-in capital 11,059,649 9,900,789
Deferred compensation (1,413,261) (838,206)
Note receivable secured by common stock (157,500) (150,000)
Accumulated deficit (4,522,720) (2,188,073)
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Total stockholders' equity 4,973,362 6,731,704
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$ 7,920,943 $ 8,069,759
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----------- -----------
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Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
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COLLATERAL THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues under collaborative
research and development
agreement with a related party $ 1,228,983 $ 950,000 $ 2,218,361 $ 1,764,732
Expenses:
Research and development 1,736,606 1,634,066 3,191,221 2,760,812
General and administrative 760,554 392,722 1,519,813 794,092
----------- ----------- ----------- -----------
Total operating expenses 2,497,160 2,026,788 4,711,034 3,554,904
----------- ----------- ----------- -----------
Loss from operations (1,268,177) (1,076,788) (2,492,673) (1,790,172)
Interest income (expense), net 76,902 10,533 158,026 24,272
----------- ----------- ----------- -----------
Net loss $(1,191,275) $(1,066,255) $(2,334,647) $(1,765,900)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share
(Basic and diluted) $ (0.21) $ (0.23) $ (0.42) $ (0.40)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares used in
computing net loss per share
(Basic and diluted) 5,650,938 4,538,540 5,527,187 4,375,130
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
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COLLATERAL THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
1998 1997
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(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,334,647) $(1,765,900)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 94,911 62,091
Amortization of deferred compensation 583,805 57,622
Changes in operating assets and liabilities:
Milestone receivable from a related party: 2,000,000 -
Prepaid expenses and other current assets (378,416) 30,981
Accounts payable and accrued expenses 1,316,387 210,620
Deferred revenue 293,139 110,268
Restricted cash (672,600) -
----------- -----------
Net cash provided by (used in) operating activities 902,579 (1,294,318)
INVESTING ACTIVITIES:
Purchases of property and equipment (1,713,577) (254,665)
----------- -----------
Net cash used in investing activities (1,713,577) (254,665)
FINANCING ACTIVITIES:
Deferred public offering costs (1,454,851) -
Issuance of Series B convertible preferred stock - 2,500,000
Issuance of Series C convertible preferred stock - 3,757,176
Proceeds from exercise of stock options - 1,997
Interest from note receivable secured by common stock (7,500) -
----------- -----------
Net cash provided by (used in) financing activities (1,462,351) 6,259,173
----------- -----------
Net (decrease) increase in cash
and cash equivalents (2,273,349) 4,710,190
Cash and cash equivalents at
beginning of the period 5,605,361 2,429,657
----------- -----------
Cash and cash equivalents at end of period $ 3,332,012 $ 7,139,847
----------- -----------
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
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COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Collateral Therapeutics, Inc. (the "Company") is focused on the discovery,
development and commercialization of non-surgical gene therapy products for the
treatment of cardiovascular diseases, including coronary artery disease,
peripheral vascular disease, congestive heart failure and heart attack. The
Company intends to focus on research and development of products while
leveraging its technology through the establishment of product development,
manufacturing and marketing collaborations with select pharmaceutical and
biotechnology companies. The Company was incorporated in California on April 3,
1995 and reincorporated in Delaware on May 28, 1998.
INTERIM CONDENSED FINANCIAL STATEMENTS
The balance sheet as of June 30, 1998, the statements of operations for the
three and six months ended June 30, 1998 and 1997, and the statements of cash
flows for the six months ended June 30, 1998 and 1997 are unaudited. In the
opinion of management, such unaudited financial statements include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the results for the periods presented. Interim results are not
necessarily indicative of the results to be expected for the full year. The
financial statements should be read in conjunction with the financial statements
and footnotes contained in the Company's Post Effective Amendment No. 3 to
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on July 2, 1998.
NET LOSS PER SHARE
Recent interpretations by the Securities and Exchange Commission ("SEC")
have altered the treatment of preferred stock previously included in
computing certain earnings per share data in periods prior to the Company's
initial public offering (the "Offering"). The Company previously considered
preferred stock, which converted into common stock upon completion of the
Offering, as outstanding from the date of original issuance ("as-if converted
method") in computing earnings per share. To conform with the recent
interpretations, the Company has revised its calculation of earnings (loss)
per share for all pre-Offering periods to exclude the impact of preferred
shares.
When the Company filed its Post-Effective Amendment No. 3 to Form S-1 with
the SEC on July 2, 1998, the Company followed the then-current SEC
interpretations for the treatment of preferred stock in presenting pro forma net
loss per share (Basic and Diluted) on the Statements of Operations. For
comparative purposes, the schedule below presents the pro forma net loss per
share (Basic and Diluted) for the three and six month periods ended June 30,
1998 and 1997, under the as-if converted method.
6
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- ---------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss...................................... $(1,191,275) $(1,066,255) $(2,334,647) $(1,765,900)
Weighted average shares of common stock
outstanding and shares used in computing net
loss per share (Basic and Diluted).......... 5,650,938 4,538,540 5,527,187 4,375,130
----------- ----------- ----------- -----------
Net loss per share (Basic and Diluted)........ $ (0.21) $ (0.23) $ (0.42) $ (0.40)
----------- ----------- ----------- -----------
Adjustment to reflect the effect of the
assumed conversion of preferred stock....... 2,320,926 1,784,488 2,320,926 1,248,049
----------- ----------- ----------- -----------
Shares used in computing proforma net loss
per share (Basic and Diluted)............... 7,971,864 6,323,027 7,848,113 5,623,179
----------- ----------- ----------- -----------
Pro forma net loss per share (Basic and
Diluted).................................... $ (0.15) $ (0.17) $ (0.30) $ (0.31)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
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PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets, ranging from three years to seven years, using the
straight-line method. Leasehold improvements are stated at cost and amortized
over the shorter of the estimated useful lives of the assets or the lease term.
2. BALANCE SHEET INFORMATION
Property and equipment consist of the following:
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JUNE 30, DECEMBER 31,
1998 1997
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<S> <C> <C>
Laboratory equipment . . . . . . . $ 817,281 $ 110,908
Computer equipment . . . . . . . . 208,613 111,881
Furniture and office equipment . . 319,913 178,067
Leasehold improvements . . . . . . 821,066 52,440
---------------- ----------------
2,166,873 453,296
Accumulated depreciation
and amortization . . . . . . . (254,760) (159,849)
---------------- ----------------
$1,912,113 $ 293,447
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7
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3. REINCORPORATION AND STOCK SPLIT
On May 28, 1998, the Company reincorporated in Delaware. Additionally, on
May 29, 1998, the Company effected a 1.9-for-one stock split of the Company's
Common Stock. All share and per share amounts have been retroactively restated
in these financial statements to give effect to the reincorporation and the
stock split. Through June 30, 1998, the number of authorized shares of the new
Delaware corporation was 19,000,000 shares of Common Stock ($0.001 par value)
and 1,221,540 shares of Preferred Stock ($0.001 par value).
4. SUBSEQUENT EVENT
In July 1998, the Company completed the Offering of 2,200,000 shares of
the Company's Common Stock, providing the Company with proceeds, net of
underwriting fees and estimated Offering expenses, of approximately $13.2
million. All shares of convertible Preferred Stock outstanding at June 30,
1998 automatically converted into 2,320,926 shares of Common Stock upon the
sale of Common Stock in the Offering.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES THERETO INCLUDED IN ITEM 1. OF THIS QUARTERLY REPORT
AND THE AUDITED FINANCIAL STATEMENTS AND NOTES THERETO AND MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1997 CONTAINED IN THE COMPANY'S REGISTRATION STATEMENT
ON FORM S-1, AS AMENDED. SEE "FACTORS THAT MAY AFFECT RESULTS" FOR A DISCUSSION
OF FACTORS KNOWN TO THE COMPANY THAT COULD CAUSE REPORTED FINANCIAL INFORMATION
NOT TO BE NECESSARILY INDICATIVE OF FUTURE RESULTS. THE COMPANY UNDERTAKES NO
OBLIGATION TO RELEASE PUBLICLY THE RESULTS OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS AND CIRCUMSTANCES ARISING AFTER THE
DATE HEREOF.
RECENT DEVELOPMENTS
In July 1998, the Company completed an initial public offering (the
"Offering") of 2,200,000 shares of the Company's Common Stock, providing the
Company with proceeds, net of underwriting fees and estimated Offering expenses,
of approximately $13.2 million.
OVERVIEW
Collateral Therapeutics, Inc. ("Collateral" or the "Company") is focused on
the discovery, development and commercialization of non-surgical gene therapy
products for the treatment of cardiovascular diseases, including coronary artery
disease, peripheral vascular disease, congestive heart failure and heart attack.
The Company believes that its products under development hold the potential to
revolutionize the treatment of cardiovascular diseases and become a new standard
of care by offering patients simpler, more cost-effective and lower-risk
alternatives to currently available treatments, such as coronary bypass surgery
and angioplasty. The Company's initial gene therapy products are designed to
promote and enhance angiogenesis, a natural biological process
8
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which results in the growth of additional blood vessels, to restore adequate
levels of blood flow to oxygen-deprived tissues.
The Company entered into a Collaboration, License and Royalty Agreement
dated May 6, 1996 (the "Schering Agreement") with Schering AG, Germany
("Schering AG") for angiogenic gene therapy products. Under this collaboration,
Schering AG has made equity investments and provided loans to the Company. In
addition, the collaboration provides for Schering AG, subject to certain
conditions, to pay research support through April 2001, to make additional
payments upon satisfying certain research, development and commercialization
milestones and, when and if angiogenic gene therapy products developed under the
collaboration are commercialized, to make royalty payments to the Company based
on worldwide net sales of such products. This collaboration was initially
structured and now further broadened to provide the Company with financial
resources and product development support to enable the Company to determine the
safety and efficacy of at least three angiogenic gene therapy products (GENERX,
GENEVX and GENVASCOR). However, the timing and amounts of such payments cannot
be predicted with certainty and may not occur if product development events are
not achieved. Schering AG has the unilateral right to terminate the Schering
Agreement on 60 days prior written notice to the Company. Upon such notice,
Schering AG is required to pay the Company a termination fee and would be
required to provide the Company with copies of all Investigational New Drug
Application ("IND") applications or any other such submissions that had been
filed by Schering AG with all regulatory health authorities with respect to
products covered under the Schering Agreement, and the Company would have the
right to reference all such documents.
The Company's revenue to date is primarily attributable to its
collaboration with Schering AG entered into in May 1996. Under this
collaboration, the Company has received aggregate research funding of $10.0
million from May 1996 through June 30, 1998, which included $448,182 of deferred
amounts and $2.0 million for the achievement of a milestone relating to the
development of GENERX. From the Company's incorporation in 1995 through June 30,
1998, collaboration revenue and related operating expenses have trended upward
due to accelerated research and development efforts as the Company broadened its
research in the field of angiogenic gene therapy to include two additional
angiogenic gene therapy products (GENEVX and GENVASCOR). Since inception, the
Company has also conducted research that is not funded by its collaboration with
Schering AG; accordingly, the Company's operating expenses have exceeded
revenues each year since inception. Losses have resulted principally from costs
incurred in research and development activities related to the Company's efforts
to develop its technologies and from administrative costs required to support
such efforts, to the extent such costs were not covered by the Schering AG
collaboration. The Company's losses through June 30, 1998 have been primarily
funded by the Company raising $9.3 million through the private sale of equity
securities and receipt of loans, including $5.7 million in equity investments
and $500,000 in loans from Schering AG and $3.1 million in equity provided by
other private investors. The Company's ability to achieve profitability is
dependent on its ability to successfully develop its products and thereafter
successfully market such products through current or future collaborative
partners. There can be no assurance that the Company will be able to achieve
profitability at all, or on a sustained basis.
9
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RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
The Company's collaborative revenue was $2.2 million and $1.8 million for
the six months ended June 30, 1998 and 1997, respectively. Revenue was derived
from the Schering Agreement and increased in the six months ended June 30, 1998
due to increased costs reimbursable to the Company under such agreement
associated with accelerated research and development activities. Research and
development expenses for the six months ended June 30, 1998 rose to $3.2 million
compared to $2.8 million for the six months ended June 30, 1997. The increase
resulted primarily from: increased expenses associated with additional
personnel, increased amortization of deferred compensation related to stock
options, increased use of outside research institutions and consultants,
increased expenses for supplies and operations of the Company's new preclinical
research center, partially offset by reduced license fees incurred by the
Company. General and administrative expenses rose to $1.5 million for the six
months ended June 30, 1998 compared to $794,000 for the six months ended June
30, 1997. The increase resulted primarily from: increased market research and
educational materials, increased expenses for personnel to support expanded
research efforts, and increased amortization of deferred compensation related to
stock options.
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
The Company's collaborative revenue was $1.2 million and $950,000 for the
three months ended June 30, 1998 and 1997, respectively. Revenue was derived
from the Schering Agreement and increased in the three months ended June 30,
1998 compared to the three months ended June 30, 1997 due to increased costs
reimbursable to the Company under such agreement associated with accelerated
research and development activities. Research and development expenses for the
three months ended June 30, 1998 rose to $1.7 million compared to $1.6 million
for the three months ended June 30, 1997. The increase resulted primarily from:
increased expenses associated with additional personnel, increased amortization
of deferred compensation related to stock options, increased expenses for
supplies and operations of the Company's new preclinical research center,
increased use of outside research institutions and consultants, partially offset
by reduced license fees incurred by the Company. General and administrative
expenses rose to $761,000 for the three months ended June 30, 1998 compared to
$393,000 for the three months ended June 30, 1997. The increase was primarily
due to the following factors: increased expenses for personnel to support
expanded research efforts, increased market research and educational materials,
and increased amortization of deferred compensation related to stock options.
LIQUIDITY AND CAPITAL RESOURCES
In July 1998, the Company completed an Offering of 2,200,000 shares of the
Company's common stock, providing the Company with proceeds, net of underwriting
fees and estimated Offering expenses, of approximately $13.2 million. Through
June 30, 1998, the Company had financed its operations primarily through private
offerings of its equity securities, collaborative research revenues and loans
from Schering AG and from interest income. From inception through June 30, 1998,
the Company raised an aggregate of $9.3 million through private sales of equity
10
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securities and receipt of loans, including $5.7 million in equity investments
and $500,000 in loans from Schering AG and $3.1 million in equity provided by
other private investors. The $500,000 in loans from Schering AG consist of two
promissory notes issued in 1995 to fund operations. The notes bear interest at
1% below the prime rate; at June 30, 1998, the notes bore interest at 7.5%. Such
notes are secured by the assets of the Company (with the exception of certain
equipment purchased from February 15, 1998 through June 30, 1998 which is
pledged on a first priority basis under the Company's $400,000 bank loan
referred to below). Principal and interest on the notes are due and payable
upon demand on or after June 30, 1999.
At June 30, 1998, cash and cash equivalents was $3.3 million compared to
$5.6 million at December 31, 1997; the decrease resulted from the Company's
operating loss, purchases of equipment and tenant improvements for the Company's
new preclinical research center, initial public offering costs, and increased
restricted cash, partially offset by receipt of a $2.0 million milestone payment
from Schering AG which was earned by the Company in 1997 upon the achievement of
a milestone relating to the development of GENERX and collected in 1998.
Current restricted cash consists of a $600,000 standby letter of credit to
ensure the completion of tenant improvements at the Company's new preclinical
research center. The landlord is the beneficiary of such standby letter of
credit. Upon completion of such construction and the satisfaction of all terms
and conditions as set forth in the real estate lease, such letter of credit will
be terminated by the Company. The Company expects to effect such termination
during the second half of 1998 following which there would no longer be any
restriction on the $600,000. The Company generally invests its excess cash in
high credit quality debt instruments of corporations and financial institutions
and in U.S. government securities. Working capital decreased to $3.0 million as
of June 30, 1998, from $7.0 million at the end of 1997, primarily due to the
loss for the period and capital expenditures for the construction of the
Company's new preclinical research center.
The Company has entered into certain technology license agreements in
addition to the Schering Agreement related to the Company's technology portfolio
covering methods of gene therapy, therapeutic genes, and gene delivery vectors.
To retain certain licensing rights under these cancelable agreements, the
Company anticipates that it may be required to make aggregate payments of
approximately $2.8 million through 1999. The Company's core technologies are
focused on the development of gene therapies that promote angiogenesis,
myocardial adrenergic signaling and heart muscle regeneration. The Company has
in-licensed certain technology covering proprietary methods of gene therapy and
a portfolio of therapeutic genes for use with such methods of gene therapy. The
Company evaluates on an ongoing basis the safety, efficacy and commercialization
of the therapeutic genes it has licensed and, based on such evaluations, the
Company designates certain genes for use in the development of each of the
Company's cardiovascular gene therapy products.
While research is continuing, the Company has currently designated one gene
(FGF-4) for use in the development of two angiogenic gene therapy products: (1)
GENERX, as a treatment for coronary artery disease, and (2) GENVASCOR, as a
treatment for peripheral vascular disease. These are the only products currently
in development by the Company for which a specific gene has been designated.
Upon any successful commercialization of these two angiogenic gene therapy
products using this designated gene, the total financial milestone obligations,
licensing fees and other related amounts payable by the Company pursuant to
license agreements with New York
11
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University and the University of California could total up to $4,950,000,
including $825,000 which has already been paid by the Company as of June 30,
1998. In addition, upon any successful commercialization of such products, the
Company would be required to make, pursuant to the terms of the license
agreements, royalty payments on net sales of products that utilize such gene.
However, the Company may, in its sole discretion, change such designated gene at
any time and the license agreement covering such designated gene could be
terminated by the Company and all future financial obligations with respect to
such gene would cease.
In addition to GENERX and GENVASCOR, the Company has two other products,
GENEVX and GENECOR, which have progressed beyond the research stage. The
angiogenic genes to be designated by the Company for use in development of
GENEVX and GENECOR will not be finalized until the Company has progressed
further along in its evaluation process. Based on the Company's currently
existing agreements covering in-licensed technology, including methods of gene
therapy and therapeutic genes, and the successful commercialization of its gene
therapy products, the Company's total financial obligations pursuant to
licensing agreements with respect to all four of its products which are
currently beyond the research stage could range from between $6.8 million to
$14.6 million, of which $2.4 million has been paid through June 30, 1998,
depending on the selections of therapeutic genes for use in the Company's
angiogenic gene therapy products, GENEVX and GENECOR. However such amounts
could be significantly increased or decreased depending on the outcome of the
Company's research and commercialization activities pursuant to the
collaboration with Schering AG and/or the outcome of the Company's internally
funded research. In addition, the Company would be required to pay a royalty on
worldwide net sales of products that utilize in-licensed technology. The
information set forth above with respect to potential fees payable by the
Company for in-licensed technology involves many variables and is subject to a
high degree of potential variation. The Company may be required to secure the
license rights to certain other methods of gene therapy and therapeutic genes
based on product development and commercialization requirements.
Through June 30, 1998, the Company had acquired an aggregate of $2.2
million in laboratory and office equipment and tenant improvements. The Company
has made substantial increases in purchases of property and equipment in the
first half of 1998 compared to 1997 and prior years, and will continue to do so
through at least the fourth quarter of 1998. In the second quarter of 1998, the
Company began to occupy a new preclinical research center. In the fourth quarter
of 1998, following completion of construction and leasehold improvements, the
Company intends to occupy a larger administrative facility to support expanded
research and development efforts. In connection with these new facilities, the
Company expects to incur property and equipment costs of approximately $4.0
million through the first quarter of 1999, of which up to $400,000 will be
financed through a bank loan that was entered into in April 1998. The Company
intends to increase this loan amount in the second half of 1998. Rent expense
related to the Company's research and administrative facilities is expected to
increase substantially compared to 1997 and prior years. The new preclinical
research center is leased for a five-year term with two five-year renewal
options. Rent expense over the initial term is expected to average $275,000 per
year. The new administrative facility is leased for a six-year term with one
five-year renewal option. Rent expense is expected to average approximately
$450,000 per year over the initial term.
To date, substantially all revenue received by the Company has been from
its collaboration with Schering AG, and the Company expects that substantially
all revenue for the next several
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years will continue to come from the Schering AG and other future
collaborations. Under the Schering Agreement, the Company may receive:
(i) research and development funding pursuant to the Schering Agreement for an
Initial Product (as defined therein), which amount may be adjusted to support
research and development for additional products within the field of angiogenic
gene therapy, (ii) milestone payments for each Initial Product and for each New
Product (each as defined therein) based on the Company's achievement of
milestones pertaining to certain regulatory filings and the development and
commercialization of products under the Schering Agreement; and (iii) a royalty
rate based on worldwide net sales of each product and an additional supplemental
royalty based on worldwide net sales of each product and the product's cost of
goods, up to a maximum specified royalty rate. There can be no assurance that
the Company will be able to establish additional collaborations on acceptable
terms, if at all, or that current or future collaborations will be successful
and provide adequate funding to meet the Company's needs. Schering AG currently
reimburses the Company for all of its research and development expenses in the
angiogenic gene therapy field as it relates to an Initial Product and for
certain related administrative expenses. The Company expects to incur
substantial increases in operating expenses over the next 24 months as it
accelerates its research and development activities. Increases in operating
expenses will include, but are not limited to, increased personnel costs, rent,
supplies and other costs which will result from operating its new facilities. To
the extent such costs are incurred in fields other than angiogenic gene therapy
or are otherwise not reimbursable under the current arrangement with Schering
AG, the Company intends to use proceeds from the Offering completed in July 1998
to cover such expenses.
Based on the Company's business strategy, the development of products
will require the continued commitment of substantial resources by the Company
to conduct research, preclinical studies and clinical trials, and to augment
quality control, regulatory and administrative capabilities. The future
capital requirements of the Company will depend on many factors, including
the pace of scientific progress in its research and development programs, the
magnitude of these programs, the scope and results of preclinical testing and
clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in preparing, filing, prosecuting, maintaining
and enforcing patent claims, competing technological and market developments,
the Company's dependence on third parties for activities related to the
development and commercialization of its potential products (including the
ability to establish additional collaborations and changes to its existing
collaboration with Schering AG), the cost of third-party manufacturing
arrangements and the effectiveness of the Company's commercialization
activities. The Company believes that its available cash and anticipated
sources of funding, including Schering AG, together with the net proceeds of
the Offering, would be adequate to satisfy its anticipated capital
requirements through the second quarter of 2000. The Company expects that it
will seek any additional capital needed to fund its operations through new
collaborations, the extension of its existing collaboration, or through
public or private equity or debt financings. There can be no assurance that
additional financing will be available on acceptable terms or at all. Any
inability to obtain additional financing could have a material adverse effect
on the Company. In addition, so long as the $400,000 bank loan entered into
in April 1998 remains outstanding, the Company must obtain the lender's
consent for certain additional indebtedness of the Company.
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YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 hardware and software issues. The Company
intends to confirm its compliance regarding Year 2000 issues for both internal
and external information systems by the end of 1998. This process will entail
communicating with significant suppliers, financial institutions, insurance
companies and other parties that provide significant services to the Company.
However, the Company is unable to control whether its current and future
suppliers' or collaborative partners' systems are Year 2000 compliant. To the
extent that collaborative partners would be unable to order products or pay
invoices, or suppliers would be unable to manufacture and ship product, the
Company's operations could be affected. Expenditures required to make the
Company Year 2000 compliant will be expensed as incurred and are not expected to
be material to the Company's consolidated financial position or results of
operations.
FACTORS THAT MAY AFFECT RESULTS
EARLY STAGE OF PRODUCT DEVELOPMENT AND OF GENE THERAPIES; RISK OF TECHNOLOGICAL
OBSOLESCENCE
The Company was founded in 1995 and, accordingly, has only a limited
operating history upon which an evaluation of the Company's business and
prospects can be based. In addition, the Company's potential products are all
in the early developmental stage and require significant time-consuming and
costly development, testing and regulatory approvals. In December 1997, the
Company's strategic partner, Schering AG, filed an IND with the U.S. Food and
Drug Administration ("FDA") and, in May 1998, began the Phase I/II clinical
trial to determine the safety and efficacy of GENERX, the Company's gene therapy
for the treatment of coronary artery disease designed to relieve stable
exertional angina. None of the Company's other products or therapies under
development are in clinical trials. To achieve profitable operations, the
Company, alone or with others, must successfully develop, clinically test,
receive regulatory approvals for and market and sell its products. Any products
resulting from the Company's product development efforts are not expected to be
available for sale for a number of years, if at all. Potential products that
appear to be promising at early stages of development may not reach the market
for a number of reasons. There can be no assurance that the Company
independently or through its collaborations will successfully develop,
commercialize, manufacture or market any products. Moreover, gene therapy is a
new and rapidly developing technology and is expected to undergo significant
change in the future. Rapid technological development could result in the
Company's current and future products or methods of gene therapy becoming
obsolete prior to successful commercialization of the Company's products.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company has experienced operating losses since its inception in 1995.
As of June 30, 1998, the Company had an accumulated deficit of approximately
$4.5 million. Through June 30, 1998, substantially all of the Company's
financial resources have been derived from funds received from its collaborative
arrangement with Schering AG and through the sale of privately placed equity
securities. There is no assurance that the level of funding made available by
Schering AG
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will not vary from period to period or that Schering AG will not withdraw
funding altogether from one or more of the Company's products. In July 1998,
the Company completed the Offering of 2,200,000 shares of the Company's common
stock, providing the Company with proceeds, net of underwriting fees and
estimated Offering expenses, of approximately $13.2 million. The Company
expects to incur additional losses at least for the foreseeable future and
expects losses to increase as the Company's research and development efforts and
clinical trials progress. To date, the Company has not generated any revenue
from the sales of products developed by the Company, nor does the Company expect
to generate any such revenue for a number of years, if at all. There can be no
assurance that the Company independently or through its collaborations will
successfully develop, commercialize, manufacture or market any products or ever
achieve or sustain revenues or profitability from the commercialization of such
products. Moreover, even if profitability is achieved, the level of that
profitability cannot be predicted. Furthermore, the Company expects that
operating results will fluctuate from quarter to quarter as a result of
differences in the timing of expenses incurred and the revenues received from
collaborative arrangements and other sources, and that some of these
fluctuations may be significant.
UNCERTAINTIES RELATED TO CLINICAL TRIALS; UNCERTAINTIES RELATED TO SAFETY AND
EFFICACY
Before obtaining required regulatory approvals for the commercial sale of
each product under development, the Company and its collaborators must
demonstrate through preclinical studies and clinical trials that such product is
safe and efficacious for use in at least one medical indication. The results of
preclinical studies do not necessarily predict safety or efficacy in humans.
Further, the results of preclinical studies and initial clinical trials are not
necessarily predictive of results that will be obtained from large-scale Phase
III clinical testing. There can be no assurance that clinical trials of any
product under development will demonstrate the safety and efficacy of such
product or will result in a marketable product. Possible side effects of gene
therapy technologies may be serious and life-threatening. For example, possible
serious side effects of viral vector-based gene transfer include viral
infections resulting from contamination with replication-competent viruses and
cardiac inflammation. In addition, the development of cancer in a patient is
theoretically a possible side effect of all methods of gene transfer.
Furthermore, as with most other biopharmaceutical products, there is also a
possibility of toxicity or decreased efficacy associated with an immune response
toward any viral vector used in the Company's treatments. The possibility of
such response may be increased if there is a need to deliver the viral vector
frequently. There can be no assurance that unacceptable side effects will not
be discovered during preclinical and clinical testing of the Company's potential
products or thereafter. Moreover, clinical trials are often conducted with
patients having the most advanced stages of disease. During the course of
treatment, these patients can die or suffer other adverse medical effects for
reasons that may not be related to the proposed product being tested, but which
can nevertheless affect clinical trial results. A number of companies have
suffered significant setbacks in advanced clinica trials, despite promising
results in earlier trials. The failure to demonstrate adequately the safety and
efficacy of a therapeutic gene therapy product under development would delay or
prevent regulatory approval of the product and could have a material adverse
effect on the Company. In addition, the FDA may require additional clinical
trials, which could result in increased costs and significant development
delays.
The rate of completion of clinical trials of the Company's products is
dependent upon, among other factors, obtaining adequate clinical supplies and
the rate of patient recruitment.
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Patient recruitment is a function of many factors, including the size of the
patient population, the proximity of patients to clinical sites and the
eligibility criteria for the trial. Delays in planned patient enrollment in
clinical trials may result in increased costs, program delays or both, which
could have a material adverse effect on the Company. In addition, Schering AG
has certain rights to control the planning and implementation of product
development and clinical programs related to angiogenic gene therapy products,
and there can be no assurance that Schering AG or any other collaborative
partner's rights to control aspects of such or other programs will not impede
the Company's ability to conduct such programs in accordance with the schedules
and in the manner currently contemplated by the Company for such programs.
Further, there can be no assurance that, if clinical trials are completed, the
Company or any collaborative partner will submit a marketing application or that
any such application will be reviewed and approved by the FDA in a timely
manner, if at all. In addition, with respect to foreign markets, the Company is
subject to foreign regulatory requirements governing clinical trials.
EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The manufacturing and marketing of Collateral's products and its ongoing
research and development activities will be subject to regulation by numerous
governmental authorities in the United States and other countries. Prior to
marketing, any therapeutic product developed by the Company must undergo
rigorous preclinical and clinical testing and an extensive regulatory approval
process mandated by the FDA and equivalent foreign authorities. These processes
can take a number of years and require the expenditure of substantial resources.
The time required for completing such testing and obtaining such approvals is
uncertain, and approval itself may not be obtained. The Company may decide to
modify a product in testing, thus extending the test period. In addition, delays
or rejections may be encountered based upon changes in FDA policy during the
period of product development and FDA review of each submitted New Drug
Application ("NDA"), Product License Application ("PLA") or Establishment
License Application ("ELA"). Similar requirements and/or delays may also be
encountered in other countries. There can be no assurance that, even after
substantial time and expenditures, regulatory approval by the FDA or any
equivalent foreign authorities will be obtained for any products developed by
the Company. Moreover, prior to receiving FDA or equivalent foreign authority
approval to market its products, the Company or any collaborative partner may be
required to demonstrate that the Company's products represent improved forms of
treatment over existing therapies. Even if regulatory approval of a product is
granted, such approval may entail limitations on the indicated uses for which
the product may be marketed. Further, even if such regulatory approval is
obtained, a marketed product, its manufacturer and related manufacturing
facilities are subject to continual review and periodic inspections, and
subsequent discovery of previously unknown problems with a product, manufacturer
or facility may result in restrictions on suh product or manufacturer, including
withdrawal of the product from the market. Finally, because gene therapy is
relatively new, and is only beginning to be extensively tested in humans, the
regulatory requirements governing gene therapy may be modified, perhaps
extensively, in the future.
In addition to laws and regulations enforced by the FDA, the Company is
also subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local laws and regulations.
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For marketing outside the United States, the Company is subject to foreign
regulatory requirements governing clinical trials and marketing approval for
drugs and devices. The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement vary greatly from country to
country. Failure to comply with such regulatory requirements or to obtain such
approvals could impair the Company's ability to develop these markets and have a
material adverse effect on the Company's business, financial condition and
results of operations.
UNCERTAINTY OF PATENT PROTECTION; DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success will depend in part on the ability of the Company and
its licensors to: obtain patent protection with respect to its methods of gene
therapy, therapeutic genes and/or gene-delivery vectors; defend patents once
obtained; maintain trade secrets and operate without infringing upon the patents
and proprietary rights of others; and if needed, obtain appropriate licenses to
patents or proprietary rights held by third parties with respect to its
technology, both in the United States and in foreign countries.
The Company intends to file applications as appropriate for patents
covering its methods of gene therapy, therapeutic genes and gene-delivery
vectors. To date, the Company is an exclusive licensee of rights covered by one
issued patent and has filed or licensed over 10 currently pending patent
applications in the United States relating to the Company's technology, as well
as foreign counterparts of certain of these applications in many countries.
Since patent applications in the United States are maintained in secrecy until
patents issue and patent applications in certain other countries generally are
not published for up to 18 months after they are first filed, and since
publication of discoveries in scientific or patent literature often lags behind
actual discoveries, the Company cannot be certain that it or any licensor was
the first creator of inventions covered by pending patent applications or that
it or such licensor was the first to file patent applications for such
inventions. There can be no assurance that patents will issue from any of these
applications or, with respect to any patents issued to the Company or to
licensors of the Company's technology, that such patents will not be challenged,
held unenforceable, invalidated or circumvented, or that the rights granted
thereunder will provide significant proprietary protection or commercial
advantage to Collateral.
A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to the Company's
business. Some of these technologies, applications or patents may conflict with
the Company's technologies, applications or patents. Such conflict could limit
the scope of the patents, if any, that the Company may be able to obtain or
result in denial of the Company's or its licensor's patent applications. In
addition, if patents that cover the Company's activities are issued to other
companies, there can be no assurance that the Company would be able to develop
or obtain alternative technology.
In addition, some of the Company's products rely on patented inventions
developed using U.S. government resources. The U.S. government would retain
certain rights, as defined by law, in such patents, and may choose to exercise
such rights.
The patent positions of pharmaceutical and biopharmaceutical firms,
including Collateral, are often uncertain and involve complex legal and
technical questions. Further, the coverage
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sought in a patent application can be significantly reduced before or after a
patent is issued. In addition, the extent to which changes in law will affect
the operations of Collateral cannot be ascertained.
The commercial success of the Company will also depend in part on the
Company's not infringing patents issued to competitors and not breaching
technology licenses that cover technology used in the Company's products. As the
biotechnology industry expands and more patents are issued, the risk increases
that the Company's processes and potential products may give rise to claims that
they infringe on the patents of others. It is uncertain whether any third party
patents will require Collateral to develop alternative technologies or to alter
its products, technologies or processes, obtain licenses or cease certain
activities. If any such licenses are required, there can be no assurance that
the Company will be able to obtain such licenses on commercially favorable
terms, if at all. Certain license agreements require the Company to satisfy
various milestone and due diligence requirements and pay certain fees and
expenses in order to maintain such licenses. Costs associated with any licensing
arrangement may be substantial and could include ongoing royalties. There can
be no assurance that the Company will be able to satisfy such milestone and due
diligence requirements or to pay such fees and expenses. Failure by the Company
to obtain a license to any technology that it may require to commercialize its
products could have a material adverse effect on the Company. Litigation, which
could result in substantial cost to the Company, may also be necessary to
enforce any patents issued or licensed to the Company or to determine the scope
and validity of third-party proprietary rights or licenses. Such litigation
could also result in significant diversion of effort by the Company's technical
management personnel. An adverse outcome of any such litigation could have a
material adverse effect on the Company's financial condition and business.
Should any of its competitors have filed patent applications in the United
States which claim technology also invented by the Company, the Company may be
required to participate in inerference proceedings declared by the United States
Patent and Trademark Office in order to determine priority of invention and,
thus, the right to a patent for the technology, all of which could result in
substantial cost to the Company to determine its rights, if any.
The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. It is the Company's policy to require its employees,
certain contractors, consultants, members of the Scientific Advisory Board and
parties to collaborative agreements to execute confidentiality agreements upon
the commencement of a business relationship with the Company. There can be no
assurance that these agreements will not be breached, that they will provide
meaningful protection of the Company's trade secrets or know-how or adequate
remedies in the event of unauthorized use or disclosure of such information or
that the Company's trade secrets or know-how will not otherwise become known or
be independently discovered by its competitors.
UNCERTAINTY OF MARKET ACCEPTANCE
The Company's success is dependent on acceptance of those gene therapy
products that it successfully develops for the market. The Company believes that
recommendations by physicians and healthcare payors will be essential for market
acceptance of such gene therapy products. In the past, concerns have arisen
regarding the potential safety and efficacy of gene therapy products derived
from pathogenic viruses such as adenoviruses. Since the Company's proposed gene
therapy
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products utilize adenovirus vectors, there can be no assurance that physicians
and healthcare payors (who can indirectly affect the attractiveness of the
Company's proposed products by regulating the maximum amount of reimbursement
they will provide for such proposed products) will conclude that the technology
is safe. Unanticipated side effects or unfavorable publicity concerning any of
the Company's products generally or those of its competitors could have an
adverse effect on whether the Company's products achieve or maintain acceptance
by prescribing physicians, other healthcare providers or patients. There can be
no assurance that the Company's products will achieve or maintain significant
market acceptance among patients, physicians or healthcare payors, even if
necessary regulatory and reimbursement approvals are obtained. Failure to
achieve or maintain significant market acceptance would have a material adverse
effect on the Company's business, financial condition and results of operations.
RELIANCE ON COLLABORATIVE RELATIONSHIPS
The Company's strategy for the development, clinical testing, manufacturing
and commercialization of its potential products relies on the Company entering
into collaborations with corporate partners, licensors, licensees and others.
To date, the Company has entered into one such relationship, a research and
development collaboration with Schering AG in the field of angiogenic gene
therapy. The Schering Agreement allows Schering AG significant discretion in
electing to pursue or not to pursue any development programs and gives Schering
AG the right to terminate the agreement at any time upon a material breach by
the Company or on 60 days written notice. In addition, Schering AG may terminate
its agreement with the Company upon 90 days written notice, without payment of a
termination fee, if a third party which is a competitor of Schering AG or the
Company acquires substantially all the assets of the Company or 49% or more of
the voting stock of the Company. There can be no assurance that the Schering AG
collaboration will continue or that the collaboration will be successful. In
addition, if products are approved for marketing under these programs, any
revenues to the Company from these products will be dependent on the marketing
and sales efforts of its collaborators, who may retain commercialization rights
under such agreements. There can be no assurance that the Company will be able
to maintain or expand its existing collaboration or establish additional
collaborations or licensing arrangements necessary to develop and commercialize
non-surgical gene therapy products based on the Company's technology, that any
such collaborations or licensing arrangements will be on terms favorable to the
Company or that the current or any future collaborations or licensing
arrangements ultimately will be successful. Under the Company's current
strategy, and for the foreseeable future, the Company does not expect to develop
or market products on its own. As a result, the Company will be dependent on
collaborators for the funding of certain preclinical studies and clinical
development of products and for regulatory approval, manufacturing and marketing
of its products resulting from the application of the Company's technology. In
addition, the Company's collaborative agreements may provide potential
manufacturers with significant discretion in electing whether or not to pursue
development activities. The Company cannot control the amount and timing of
resources that collaborators will devote to the Company's programs or potential
products.
The Company intends to rely on its collaboration with Schering AG for
significant continued funding in support of its angiogenic gene therapy research
efforts. If such funding were reduced or terminated, the Company would be
required to devote additional internal resources, if and to the extent
available, to clinical trials, and other product development and
commercialization activities, scale back or terminate certain research and
development programs, seek alternative
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collaborations or financing sources or sell or license rights to some of its
proprietary technology, including its genes.
In addition, there can be no assurance that Schering AG or any other
collaborator will not pursue alternative technologies, either on their own or in
collaboration with others, as a means for developing products that could compete
with the types of gene therapy products currently being developed in
collaboration with the Company, which may result in the withdrawal of support
for the Company's programs. If the Company's collaborative partners were to
breach or terminate their agreements with the Company or otherwise fail to
conduct their collaborative activities successfully, the development of the
Company's products would be delayed or terminated. The delay or termination of
any of the collaborations could have a material adverse effect on the Company.
There can be no assurance that disputes will not arise in the future with
respect to the ownership of rights to any technology developed with its
collaborators. These and other possible disagreements between collaborators and
the Company could lead to delays in the achievement of milestones or receipt of
payments therefor, adversely affect collaborative research, development and
commercialization of certain potential products or require or result in
litigation or arbitration, which could be time consuming and expensive and could
have a material adverse effect on the Company.
LACK OF MANUFACTURING CAPABILITY
The Company does not have internal manufacturing capabilities. The
Company's current strategy is to rely on collaborative partners to manufacture
its products. Currently, Schering AG is solely responsible for all activities
related to manufacturing of any gene therapy products developed under its
collaboration with the Company. In the alternative, the Company will seek to
establish relationships with third parties to manufacture the Company's products
for clinical trials and commercial sales. There can be no assurance that the
Company would be able to establish such relationships on commercially acceptable
terms, if at all. Further, there can be no assurance that the Company's
collaborators or any third party manufacturers will be able to manufacture
products in commercial quantities under good manufacturing practices mandated by
the FDA or under any such practices mandated by any foreign authority on a
cost-effective basis. Further, there can be no assurance that manufacturing or
quality control problems will not arise in connection with the manufacture of
the Company's products or that third party manufacturers will be able to
maintain the necessary governmental licenses and approvals to continue
manufacturing the Company's products. The Company's dependence on its
collaborators or any other third parties for the manufacture of its products may
adversely affect the Company's profit margins and its ability to develop and
commercialize products on a timely and competitive basis.
LACK OF SALES AND MARKETING CAPABILITY
The Company does not have internal marketing and sales capabilities. The
Company's current strategy is for its collaborative partners to market and sell
any products which it successfully develops for the market. Currently, Schering
AG will be solely responsible for all activities related to marketing and sales
of any gene therapy products developed under its collaboration with the Company.
Should the Company have to market and sell its products
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directly, the Company would need to develop a marketing and sales force with
technical expertise and distribution capability. The creation of infrastructure
to commercialize pharmaceutical products is an expensive and time-consuming
process. Alternatively, the Company could contract with other pharmaceutical
and/or healthcare companies with distribution systems and direct sales forces.
There can be no assurance that the Company will be able to establish marketing
and sales capabilities or be successful in gaining market acceptance for its
products. To the extent that the Company enters into co-promotion or other
licensing arrangements, any revenues received by the Company will be dependent
on the efforts of third parties, and there can be no assurance that any such
efforts will be successful.
COMPETITION
The Company is aware of a number of companies and institutions that are
developing or considering the development of potential gene therapy, cell
therapy treatments and angiogenic protein infusion therapies, including
early-stage gene therapy companies, fully integrated pharmaceutical companies,
universities, research institutions, governmental agencies and other healthcare
providers. Additionally, there are a number of medical device companies which
are developing innovative surgical procedures including (i) laser-based systems
to perform transmyocardial revascularization to stimulate coronary angiogenesis
and (ii) surgical devices and systems to perform minimally invasive
cardiothoracic surgery to simplify traditional mechanical revascularization
techniques such as Coronary Bypass Surgery and less invasive procedures such as
catheter-based treatments, including balloon angioplasty, atherectomy and
coronary stenting. In addition, the Company's potential products will be
required to compete with existing pharmaceutical products, or products developed
in the future, that are based on new or established technologies.
Many of the Company's competitors have substantially more financial and
other resources, larger research and development staffs and more experience and
capability in researching, developing and testing products in clinical trials,
in obtaining FDA and other regulatory approvals and in manufacturing, marketing
and distribution than the Company. In addition, the competitive positions of
other early-stage companies may be enhanced significantly through their
collaborative arrangements with large pharmaceutical companies, biotechnology
companies or academic institutions. The Company's competitors may succeed in
developing, obtaining patent protection for, receiving FDA and other regulatory
approvals for, or commercializing products more rapidly than the Company. If the
Company is successful in commercializing its products, it may be required to
compete with respect to manufacturing efficiency and marketing capabilities,
areas in which it has no experience.
The Company also competes with others in acquiring products or technology
from research institutions or universities. The Company's competitors may
develop or acquire new technologies and products that are available for sale
prior to the Company's potential products or that are more effective than the
Company's potential products. In addition, competitive products may be
manufactured and marketed more successfully than the Company's potential
products. Such developments could render the Company's potential products less
competitive or obsolete, and could have a material adverse effect on the
Company.
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DEPENDENCE ON THIRD PARTY REIMBURSEMENT AND HEALTHCARE REFORM
Collateral's commercial success will be heavily dependent upon the
reimbursability of the use of any products developed by the Company. There can
be no assurance that Medicare and third-party payors will authorize or otherwise
budget reimbursement for the Company's products and services. Additionally,
third-party payors, including Medicare, are increasingly challenging the prices
charged for medical products and services and may require substantial
cost-benefit analysis data from the Company in order to demonstrate the
cost-effectiveness of its products. There can be no assurance that the Company
will be able to provide such data in order to gain market acceptance of its
products with respect to pricing and reimbursement.
The future revenues and profitability of, and availability of capital for,
biotechnology companies may be materially and adversely affected by the
continuing efforts of governmental and third-party payors to contain or reduce
the costs of healthcare through various means. In certain foreign markets,
pricing or profitability of medical products and services is subject to
government control. In the United States, the Company expects that there will
continue to be a number of federal and state proposals to implement government
control of pricing and profitability. In addition, increasing emphasis on
managed healthcare may continue to put pressure on such pricing. Cost control
initiatives could decrease the price that the Company or any of its
collaborative partners or other licensees receives for any products it may
discover or develop in the future and, by preventing the recovery of development
costs, which could be substantial, and minimizing profit margins, could also
have a material adverse effect on the Company. Further, to the extent that cost
control initiatives have a material adverse effect on the Company's
collaborative partners, in light of the Company's strategy to rely on
collaborations, the Company's ability to commercialize its products and to
realize royalties may be adversely affected. Furthermore, federal and state
regulations govern or influence the reimbursement to healthcare providers of
fees and capital equipment costs in connection with medical treatment of certain
patients. There can be no assurance that action taken by federal and/or state
governments, if any, with regard to healthcare reform will not have a material
adverse effect on the Company. If any actions are taken by federal and/or state
governments, such actions could adversely affect the prospects for sales of the
Company's products.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
Based on the Company's business strategy, the development of products
will require the commitment of substantial additional resources by the
Company to conduct research, preclinical studies and clinical trials, and to
augment quality control, regulatory and administrative capabilities. The
future capital requirements of the Company will depend on many factors,
including the pace of scientific progress in its research and development
programs, the magnitude of these programs, the scope and results of
preclinical studies and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims, competing technological
and market developments, the ability to establish additional collaborations,
changes in existing collaborations, the Company's dependence on third parties
for activities related to the development and commercialization of its
potential products, the cost of third-party manufacturing arrangements and
the effectiveness of the Company's commercialization activities. The Company
believes that its available cash and anticipated sources of funding,
including Schering AG, together with the net proceeds of the Offering
completed in July 1998,
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would be adequate to satisfy its anticipated capital requirements through the
second quarter of 2000. The Company expects that it will seek any additional
capital needed to fund its operations through new collaborations, the extension
of existing collaborations or through public or private equity or debt
financings. There can be no assurance that additional financing will be
available on acceptable terms or at all. Any inability to obtain additional
financing could have a material adverse effect on the Company.
PRODUCT LIABILITY
The testing, manufacture and sale of human healthcare products entail the
inherent risk of liability claims or product recalls and associated adverse
publicity. The Company has obtained clinical trial product liability insurance
for its Phase I/II human clinical trial for GENERX and intends to obtain
insurance for future clinical trials of other potential products under
development and for potential product liability associated with the manufacture
and commercial sale of the Company's potential products. Such insurance is
expensive, and there can be no assurance that it will continue to be available
in sufficient amounts and on acceptable terms, if at all. An inability to
obtain product liability insurance at acceptable costs or to otherwise protect
against product liability claims could prevent or inhibit the commercialization
of products developed by the Company. The Company's business could be materially
and adversely affected if it were required to pay material damages, or to incur
significant defense costs, in connection with a lawsuit or other action for
which it does not have adequate insurance coverage. In addition, a product
liability claim or recall could have a material adverse effect on the business
and financial condition of the Company. Even if the Company receives the
required regulatory approvals for any of its products under development, there
can be no assurance that additional liability insurance coverage for
commercialized products will be available in the future on acceptable terms, or
at all.
DEPENDENCE ON KEY PERSONNEL AND ADVISORS
Collateral is highly dependent on the principal members of its scientific
and management staff, the loss of whose services might impede the achievement of
development objectives. The Company does not have employment agreements with any
member of its scientific or management staff, although certain key members of
the Company's scientific staff have entered into Scientific Advisory Consulting
Agreements with the Company. Such agreements, however, may be terminated at any
time by either party. Recruiting and retaining additional qualified management,
operations and scientific personnel to perform research and development work in
the future will also be critical to Collateral's success. In order to pursue
its research and development programs, the Company will need to hire additional
qualified scientific and management persons in 1998 and 1999. Although the
Company believes it will be successful in attracting and retaining skilled and
experienced management, operational and scientific personnel, there can be no
assurance that it will be able to attract and retain such personnel on
acceptable terms given the competition among numerous pharmaceutical and
biotechnology companies, universities and other research institutions for such
personnel. In addition, the Company relies on the members of its Scientific
Advisory Board to assist the Company in formulating its research and development
strategy. All of the scientific advisors are employed by employers other than
the Company and may have commitments to, or consulting contracts with, other
entities that may limit their availability to the Company. Although generally
each scientific advisor has agreed not to perform services for another entity
that
23
<PAGE>
would create a conflict of interest with the scientific advisor's services for
the Company, there can be no assurance that such a conflict will not arise.
HAZARDOUS MATERIALS
Collateral's research and development involves the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although the Company believes that its current safety procedures for handling
and disposing of such materials comply with the standards prescribed by local,
state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of any
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company. The Company may also
incur substantial costs to comply with current or future environmental
regulations.
VOLATILITY OF STOCK PRICE
The market prices and trading volumes for securities of emerging companies,
like Collateral, have historically been highly volatile and have experienced
significant fluctuations unrelated to the operating performance of such
companies. Future announcements concerning the Company or its competitors may
have a significant impact on the market price of the Common Stock. Such
announcements might include the results of research, development testing,
technological innovations, new commercial products, government regulation,
developments concerning proprietary rights, litigation or public concern as to
the safety of the products.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
Collateral's Amended and Restated Certificate of Incorporation requires
that any action required or permitted to be taken by stockholders of the Company
must be effected at a duly called annual or special meeting of stockholders and
may not be effected by any consent in writing. The Restated Bylaws, do not
permit stockholders of the Company to call a special meeting of stockholders.
Under the Restated Bylaws, special meetings may only be called by the Company's
Chief Executive Officer, President, or Chairman of the Board, and shall be
called by the President or Secretary at the written request of a majority of the
Board. The Restated Bylaws also require that stockholders give advance notice
to the Company's secretary of any nominations for director or other business to
be brought by stockholders at any stockholders' meeting and require a
supermajority vote of members of the Board and/or stockholders to amend certain
Restated Bylaw provisions. These provisions and other charter and bylaw
provisions may have the effect of discouraging, delaying or preventing certain
types of transactions involving an actual or potential change in control of the
Company, including transactions in which the stockholders might otherwise
receive a premium for their shares over the then current market prices, and may
limit the ability of the stockholders to consider transactions that they may
deem to be in their best interests. Such provisions may also have the effect of
preventing changes in the management of the Company. In addition, the Board of
Directors has the authority to fix the rights and preferences of and issue
shares of preferred stock without action by the stockholders, which, if issued,
may have the effect of delaying or preventing a change in control of the
Company.
24
<PAGE>
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 hardware and software issues. The Company
intends to confirm its compliance regarding Year 2000 issues for both internal
and external information systems by the end of 1998. This process will entail
communicating with significant suppliers, financial institutions, insurance
companies and other parties that provide significant services to the Company.
However, the Company is unable to control whether its current and future
suppliers' or collaborative partners' systems are Year 2000 compliant. To the
extent that collaborative partners would be unable to order products or pay
invoices, or suppliers would be unable to manufacture and ship product, the
Company's operations could be affected. Expenditures required to make the
Company Year 2000 compliant will be expensed as incurred and are not expected to
be material to the Company's consolidated financial position or results of
operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Collateral is a development stage company with products in the early stages
of development. As a result, a substantial number of statements contained in
this Quarterly Report on Form 10-Q and the Registration Statement on Form S-1,
as amended, including without limitation, statements containing the words
"believes," "anticipates," "expects" and words of similar import, may constitute
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Collateral, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those discussed under the caption "Factors That May Affect
Results" as well as those factors addressed in the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission, as
amended. Given these uncertainties, investors, and prospective investors, are
cautioned not to place undue reliance on such forward-looking statements. The
Company undertakes no obligation to release publicly the results of any
revisions to these forward-looking statements to reflect events and
circumstances arising after the date hereof.
25
<PAGE>
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not applicable.
(b) Not applicable.
During the three month period ended June 30, 1998, the Company issued the
following unregistered securities:
1) On April 17, 1998, the Company granted an aggregate of 209,000
options to purchase shares of Common Stock of the Company with an exercise price
of $4.92 per share under the Company's 1995 Stock Option/Stock Issuance Plan, as
amended (the "Plan"), to executive officers of the Company.
The issuance of the above options was deemed to be exempt under the
Securities Act by Rule 701 promulgated thereunder as an issuance under the
Company's Plan, not involving any public offering.
(d) On July 8, 1998, the Company offered for sale 2,200,000 shares of its
common stock priced at $7.25 per share for an aggregate offering price of $15.95
million in an initial public offering (the "Offering") led by an underwriting
group consisting of Bear, Stearns & Co. Inc., Raymond James & Associates, Inc.
and Vector Securities International, Inc. The proceeds of the Offering to the
Company, net of underwriting fees and estimated Offering expenses, were
approximately $13.2 million. The Registration Statement on Form S-1 (the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission (the "Commission") in connection with the Offering (File No.
333-51029), as amended, was declared effective by the Commission on June 24,
1998. The Company then filed three post-effective amendments to the
Registration Statement. On July 2, 1998, concurrent with the filing by the
Company of Post-Effective Amendment No. 3 to the Registration Statement, the
Commission declared such Registration Statement, as so amended, effective.
Because all of the proceeds from the Offering were generated after June 30,
1998, none of these proceeds were used during the three-month period covered by
this report on Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 22, 1998, the Company's shareholders, represented by 2,523,997
shares out of 3,142,972 shares of common stock outstanding, all shares of Series
A Preferred Stock outstanding, all shares of Series B Preferred Stock
outstanding and all shares of Series C Preferred Stock outstanding, by written
consent, approved (i) the reincorporation of the Company in the State of
Delaware, (ii) the adoption of forms of indemnity agreements providing for
indemnification of the Company's directors and officers, (iii) conditioned upon
the consummation of the Offering, the adoption of the Company's 1998 Stock
Incentive Plan and
26
<PAGE>
(iv) conditioned upon the consummation of the Offering, the adoption of the
Company's 1998 Employee Stock Purchase Plan.
On May 28, 1998, the Company's stockholders, represented by 2,634,884
shares out of 3,142,972 shares of common stock outstanding, all shares of Series
A Preferred Stock outstanding, all shares of Series B Preferred Stock
outstanding and all shares of Series C Preferred Stock outstanding, by written
consent, approved (i) an amendment and restatement of the Company's Certificate
of Incorporation to, among other things, set the authorized number of shares of
common stock to forty million (40,000,000), set the authorized number of shares
of undesignated preferred stock to five million (5,000,000), eliminate certain
provisions which contain procedural advantages in favor of a hostile acquiror,
and provide for a classified board, (ii) the adoption of forms of indemnity
agreements providing for indemnification of the Company's directors and
officers, (iii) conditioned upon the consummation of the Offering, the adoption
of the Company's 1998 Stock Incentive Plan and (iv) conditioned upon the
consummation of the Offering, the adoption of the Company's 1998 Employee Stock
Purchase Plan.
On May 29, 1998, the Company's stockholders, represented by 2,634,884
shares out of 3,142,972 shares of common stock outstanding, all shares of Series
A Preferred Stock outstanding, all shares of Series B Preferred Stock
outstanding and all shares of Series C Preferred Stock outstanding, by written
consent, approved an amendment to the Company's Certificate of Incorporation
effecting a 1.9 for 1 stock split of the Company's common stock. On each date,
there were 374,532 shares of Series A Preferred Stock, 374,532 shares of Series
B Preferred Stock and 472,476 shares of Series C Preferred Stock outstanding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1 Second Restated Certificate of Incorporation of the Company.
3.2 Incorporated by reference to the Restated Bylaws of the Company filed
as Exhibit 3.4 to Registration Statement No. 333-51029 on Form S-1
filed on June 24, 1998, as amended (the "Registration Statement").
10.1 Incorporated by reference to the Torrey Reserve Office Lease between
Pacific Torrey Reserve Holding, L.P. and the Company filed as Exhibit
10.26 to the Registration Statement.
10.2 Incorporated by reference to the Credit Agreement between the Company
and Imperial Bank filed as exhibit 10.42 to the Registration
Statement.
10.3 Incorporated by reference to the 1998 Stock Incentive Plan filed as
Exhibit 10.35 to the Registration Statement.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the three month period ended June
30, 1998.
27
<PAGE>
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.
COLLATERAL THERAPEUTICS, INC.
Date: August 6, 1998 \s\ Christopher J. Reinhard
----------------------------------------
Christopher J. Reinhard
Chief Operating and Financial Officer
(Principal Financial and Accounting
Officer)
28
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF COLLATERAL THERAPEUTICS, INC.,
A DELAWARE CORPORATION
Collateral Therapeutics, Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Collateral Therapeutics, Inc. The
original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on April 16, 1998 and was amended
pursuant to a Certificate of Amendment of Certificate of Incorporation of the
Corporation filed with the Secretary of State of the State of Delaware on
May 29, 1998, as corrected by Corrected Certificate of Amendment of the
Certificate of Incorporation filed with the Secretary of State of Delaware on
June 2, 1998.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, the Amended and Restated Certificate of Incorporation was
adopted by the corporation's Board of Directors and stockholders, the
stockholders of the corporation having approved the Amended and Restated
Certificate of Incorporation by the written consent of the holders of at least a
majority of the outstanding shares in accordance with Section 228 thereof, and
written notice having been given in accordance with the requirements of such
Section. The Amended and Restated Certificate of Incorporation restates,
integrates and amends the provisions of the Certificate of Incorporation of this
corporation.
3. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby restated and further amended to read in its entirety as
follows:
ARTICLE I
The name of this corporation is Collateral Therapeutics, Inc.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent 19901. The name
of its registered agent at such address is CorpAmerica, Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may now or hereafter be organized under the Delaware
General Corporation Law.
<PAGE>
ARTICLE IV
(A) CLASSES OF STOCK. This corporation is authorized to issue two classes
of stock, denominated Common Stock and Preferred Stock. The Common Stock shall
have a par value of $0.001 per share and the Preferred Stock shall have a par
value of $0.001 per share. The total number of shares of Common Stock which the
Corporation is authorized to issue is Forty Million (40,000,000), and the total
number of shares of Preferred Stock which the Corporation is authorized to issue
is Five Million (5,000,000), which shares of Preferred Stock shall be
undesignated as to series.
(B) ISSUANCE OF PREFERRED STOCK. The Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is hereby
authorized, by filing one or more certificates pursuant to the Delaware General
Corporation Law (each, a "Preferred Stock Designation"), to fix or alter from
time to time the designations, powers, preferences and rights of each such
series of Preferred Stock and the qualifications, limitations or restrictions
thereof, including without limitation the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price or prices, and the liquidation
preferences of any wholly-unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the number of
shares of any series subsequent to the issuance of shares of that series, but
not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be decreased in accordance with the
foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
(C) RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior or equal rights of holders of
all classes of stock at the time outstanding having prior or equal rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. REDEMPTION. The Common Stock is not redeemable upon demand of any
holder thereof or upon demand of this corporation.
3. VOTING RIGHTS. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
(A) EXCULPATION. A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct
2
<PAGE>
or a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to further reduce or to authorize, with the approval of the
corporation's stockholders, further reductions in the liability of the
corporation's directors for breach of fiduciary duty, then a director of the
corporation shall not be liable for any such breach to the fullest extent
permitted by the Delaware General Corporation Law as so amended.
(B) INDEMNIFICATION. To the extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement of
expenses to) such agents (and any other persons to which Delaware law permits
this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
corporation, its stockholders, and others.
(C) EFFECT OF REPEAL OR MODIFICATION. Any repeal or modification of any
of the foregoing provisions of this Article V shall be prospective and shall not
adversely affect any right or protection of a director, officer, agent or other
person existing at the time of, or increase the liability of any director of the
corporation with respect to any acts or omissions of such director occurring
prior to, such repeal or modification.
ARTICLE VI
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the corporation. The number of directors shall
be as specified in the Bylaws of the corporation. In no event will the number
of directors be less than three. Directors need not be stockholders.
ARTICLE VII
No holder of shares of stock of the corporation shall have any preemptive
or other right, except as such rights are expressly provided by contract, to
purchase or subscribe for or receive any shares of any class, or series thereof,
of stock of the corporation, whether now or hereafter authorized, or any
warrants, options, bonds, debentures or other securities convertible into,
exchangeable for or carrying any right to purchase any share of any class, or
series thereof, of stock; but such additional shares of stock and such warrants,
options, bonds, debentures or other securities convertible into, exchangeable
for or carrying any right to purchase any shares of any class, or series
thereof, of stock may be issued or disposed of by the Board of Directors to such
persons, and on such terms and for such lawful consideration as in its
discretion it shall deem advisable or as the corporation shall have by contract
agreed.
ARTICLE VIII
The corporation is to have a perpetual existence.
3
<PAGE>
ARTICLE IX
The corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Amended and Restated Certificate of Incorporation
and/or any provision contained in any amendment to or restatement of this
Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders herein
are granted subject to this reservation.
ARTICLE X
The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws by the requisite affirmative vote of Directors as set forth in
the Bylaws; provided, however, that the stockholders may change or repeal any
bylaw adopted by the Board of Directors by the requisite affirmative vote of
stockholders as set forth in the Bylaws; and, provided further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
ARTICLE XI
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of stockholders called in accordance with the
Bylaws, and no action shall be taken by the stockholders by written consent.
ARTICLE XII
Advance notice of stockholder nominations for the election of directors and
of business to be brought by stockholders before any meeting of the stockholders
of the corporation shall be given in the manner provided in the Bylaws of the
corporation.
ARTICLE XIII
This document shall be effective as of July 8, 1998 at 7:00 a.m. pacific
daylight savings time.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, Collateral Therapeutics, Inc., has caused this
certificate to be signed by Jack W. Reich, Ph.D., its President and Chief
Executive Officer, this 7th day of July, 1998.
COLLATERAL THERAPEUTICS, INC.
By: /s/ Jack W. Reich, Ph.D.
Jack W. Reich, Ph.D.
President and Chief Executive Officer
[SIGNATURE PAGE TO AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF COLLATERAL THERAPEUTICS, INC.]
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