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 September 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
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9360 Towne Centre Drive
San Diego, California 92121
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(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 X No
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As of November 5, 1998, Registrant had 10,512,673 shares of its Common Stock
outstanding.
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COLLATERAL THERAPEUTICS, INC.
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INDEX
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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
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 27
Item 6. Exhibits and Reports on Form 8-K 28
Signatures 29
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2
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PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
COLLATERAL THERAPEUTICS, INC.
BALANCE SHEETS
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SEPTEMBER 30, DECEMBER 31,
1998 1997
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ASSETS (UNAUDITED) (NOTE)
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Current assets:
Cash and cash equivalents $ 17,712,993 $ 5,605,361
Milestone receivable from a related party - 2,000,000
Prepaid expenses and other current assets 389,046 170,951
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Total current assets 18,102,039 7,776,312
Restricted cash - noncurrent 72,600 -
Property and equipment, net 2,421,110 293,447
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$ 20,595,749 $ 8,069,759
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 803,514 $ 476,111
Accrued expenses 833,353 119,348
Notes payable to a related party, including
accrued interest 615,993 -
Note payable to bank 67,951 -
Deferred revenue 843,932 155,043
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Total current liabilities 3,164,743 750,502
Notes payable to a related party, including
accrued interest - 587,553
Note payable to bank 332,049 -
Stockholders' equity:
Preferred Stock, par value $.001; 5,000,000
shares authorized at September 30, 1998,
no shares issued and outstanding at
September 30, 1998 and December 31, 1997,
respectively. . . . . . . . . . . . . . . . - -
Series A Convertible Preferred Stock, par
value $.001; 0 and 374,532 shares authorized,
issued and outstanding at September 30, 1998
and December 31, 1997, respectively.. . . . . - 375
Series B Convertible Preferred Stock, par value
$.001; 0 and 374,532 shares authorized, issued
and outstanding at September 30, 1998 and
December 31, 1997, respectively . . . . . . . - 375
Series C Convertible Preferred Stock, par value
$.001; 0 and 472,476 shares authorized, issued
and outstanding at September 30, 1998 and
December 31, 1997, respectively . . . . . . . - 472
Common Stock, par value $.001; 40,000,000 and
19,000,000 shares authorized; 10,511,173 and
5,971,647 shares issued and outstanding at
September 30, 1998 and December 31, 1997,
respectively. . . . . . . . . . . . . . . . 10,511 5,972
Additional paid-in capital 24,052,166 9,900,789
Deferred compensation (1,141,457) (838,206)
Note receivable secured by common stock (161,250) (150,000)
Accumulated deficit (5,661,013) (2,188,073)
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Total stockholders' equity 17,098,957 6,731,704
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$ 20,595,749 $ 8,069,759
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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
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
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(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues under collaborative
research and development
agreement with a related party $ 1,531,420 $ 923,667 $ 3,749,781 $ 2,688,399
Expenses:
Research and development 2,028,175 773,096 5,219,395 3,533,909
General and administrative 848,392 414,156 2,368,205 1,208,248
------------ ---------- ------------ ------------
Total operating expenses 2,876,567 1,187,252 7,587,600 4,742,157
------------ ---------- ------------ ------------
Loss from operations (1,345,147) (263,585) (3,837,819) (2,053,758)
Interest income 229,640 80,896 408,352 124,548
Interest expense (22,787) (9,690) (43,473) (29,070)
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Net loss $ (1,138,294) $ (192,379) $ (3,472,940) $ (1,958,280)
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Net loss per share
(Basic and diluted) $ (0.11) $ (0.04) $ (0.49) $ (0.43)
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
Weighted average shares used in
computing net loss per share
(Basic and diluted) 10,377,121 4,795,630 7,143,832 4,515,398
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
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COLLATERAL THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
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NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
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(UNAUDITED)
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OPERATING ACTIVITIES:
Net loss $ (3,472,940) $ (1,958,280)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 229,273 98,359
Amortization of deferred compensation 855,609 182,530
Changes in operating assets and liabilities:
Milestone receivable from a related party 2,000,000 -
Prepaid expenses and other current assets (218,095) (139,087)
Accounts payable and accrued expenses 1,069,848 (76,485)
Deferred revenue 688,889 84,601
Restricted cash (72,600) -
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Net cash provided by (used in) operating activities 1,079,984 (1,808,362)
INVESTING ACTIVITIES:
Purchases of property and equipment (2,356,936) (312,023)
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Net cash used in investing activities (2,356,936) (312,023)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock (net) 12,990,954 -
Issuance of Series B convertible preferred stock - 2,500,000
Issuance of Series C convertible preferred stock - 3,704,005
Proceeds from exercise of stock options 4,880 9,872
Proceeds from bank loan 400,000 -
Accrued interest from note receivable secured
by common stock (11,250) -
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Net cash provided by financing activities 13,384,584 6,213,877
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Net increase in cash
and cash equivalents 12,107,632 4,093,492
Cash and cash equivalents at
beginning of the period 5,605,361 2,429,657
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Cash and cash equivalents at end of period $ 17,712,993 $ 6,523,149
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
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COLLATERAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
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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 September 30, 1998, the statements of operations
for the three and nine months ended September 30, 1998 and 1997, and the
statements of cash flows for the nine months ended September 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 completed in July 1998 ("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 net loss per share (Basic
and Diluted) for the three and nine month periods ended September 30, 1998 and
the pro forma net loss per share for the corresponding 1997 periods, under the
as-if converted method.
6
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------------------
1998 1997 1998 1997
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PRO FORMA PRO FORMA
<S> <C> <C> <C> <C>
Net loss . . . . . . . . . . . . . . . . . . $(1,138,294) $(192,379) $(3,472,940) $(1,958,280)
Weighted average shares of common stock
outstanding and shares used in computing
net loss per share (Basic and Diluted) . . 10,377,121 4,795,630 7,143,832 4,515,398
------------ ----------- ----------- ------------
Net loss per share (Basic and Diluted) . . . $(0.11) $(0.04) $(0.49) $(0.43)
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Adjustment to reflect the effect of the
assumed conversion of preferred stock. . . - 2,320,926 - 1,605,675
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Shares used in computing net loss per share
(Basic and Diluted). . . . . . . . . . . . 10,377,121 7,116,556 7,143,832 6,121,073
------------ ----------- ----------- ------------
Net loss per share (Basic and Diluted) . . . $(0.11) $(0.03) $(0.49) $(0.32)
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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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SEPTEMBER 30, DECEMBER 31,
1998 1997
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Laboratory equipment. . . . . . . . $ 915,684 $ 110,908
Computer equipment. . . . . . . . . 255,830 111,881
Furniture and office equipment. . . 364,970 178,067
Leasehold improvements. . . . . . . 1,272,225 52,440
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2,808,709 453,296
Accumulated depreciation
and amortization . . . . . . . . (387,599) (159,849)
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$2,421,110 $ 293,447
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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 September 30, 1998, the number of
7
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authorized shares of the new Delaware corporation was 40,000,000 shares of
Common Stock ($0.001 par value) and 5,000,000 shares of undesignated Preferred
Stock ($0.001 par value).
4. INITIAL PUBLIC OFFERING
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 Offering expenses, of $13.0 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 IS NOT
OBLIGATED TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS AND CIRCUMSTANCES ARISING AFTER THE
DATE THIS REPORT IS FILED.
RECENT DEVELOPMENTS
In September 1998, Collateral Therapeutics, Inc. ("Collateral" or the
"Company") announced the termination of its license agreement with AMRAD
Development Pty Ltd, Australia, and The Ludwig Institute for Cancer Research
covering the use of certain VEGF genes. Collateral determined that its large
portfolio of angiogenic genes was more than sufficient to conduct further
research and development for all of its currently envisioned non-surgical
cardiovascular gene therapy products. By terminating the agreement the Company
eliminated possible future obligations to make milestone, license, and other
payments, which were described in detail in "Collaborative and Licensing
Arrangements" contained in the Company's Registration Statement on Form S-1, as
amended.
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 Offering expenses, of $13.0
million.
OVERVIEW
Collateral 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
8
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surgery and angioplasty. The Company's initial gene therapy products are
designed to promote and enhance angiogenesis, a natural biological process 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 $11.9
million from May 1996 through September 30, 1998, which included $844,000 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
September 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 September
30, 1998 have been primarily funded by the Company's Offering (with net proceeds
of $13.0 million), the raising of $9.7 million through the private sale of
equity securities and receipt of loans, including $5.7 million in equity
investments and $900,000 in loans from Schering AG and a bank 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
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The Company's collaborative revenue was $3.7 million and $2.7 million for
the nine months ended September 30, 1998 and 1997, respectively. Revenue was
derived from the Schering Agreement and increased in the nine months ended
September 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 nine months ended September 30, 1998
rose to $5.2 million compared to $3.5 million for the nine months ended
September 30, 1997. The increase resulted primarily from: increased expenses
associated with additional personnel, increased expenses for supplies and
operations of the Company's new preclinical research center, increased
amortization of deferred compensation related to stock options, increased use of
outside research institutions and consultants, partially offset by reduced
license fees incurred by the Company. General and administrative expenses rose
to $2.4 million for the nine months ended September 30, 1998 compared to $1.2
million for the nine months ended September 30, 1997. The increase resulted
primarily from: increased investor relations and educational materials and other
corporate expenses, increased expenses for personnel to support expanded
research efforts, and increased amortization of deferred compensation related to
stock options. Interest income increased to $408,000 for the nine months ended
September 30, 1998, compared to $125,000 for the corresponding 1997 period. The
increase was primarily due to higher average cash balances as a result of the
Company's Offering in July 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The Company's collaborative revenue was $1.5 million and $924,000 for the
three months ended September 30, 1998 and 1997, respectively. Revenue was
derived from the Schering Agreement and increased in the three months ended
September 30, 1998 compared to the three months ended September 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 September 30, 1998 rose to $2.0 million
compared to $773,000 for the three months ended September 30, 1997. The
increase resulted primarily from: increased expenses for supplies and operations
of the Company's new preclinical research center, increased expenses associated
with additional personnel, increased amortization of deferred compensation
related to stock options, and increased use of outside research institutions and
consultants. General and administrative expenses rose to $848,000 for the three
months ended September 30, 1998 compared to $414,000 for the three months ended
September 30, 1997. The increase was primarily due to the following factors:
increased investor relations and educational materials, increased expenses for
personnel to support expanded research efforts, and increased amortization of
deferred compensation related to stock options.
LIQUIDITY AND CAPITAL RESOURCES
In September 1998, the Company announced the termination of its license
agreement with AMRAD Development Pty Ltd, Australia, and The Ludwig Institute
for Cancer Research covering the use of certain VEGF genes. Collateral
determined that its large portfolio of angiogenic genes was more than sufficient
to conduct further research and development for all of
10
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its currently envisioned non-surgical cardiovascular gene therapy products. By
terminating the agreement the Company eliminated possible future obligations to
make milestone, license, and other payments which were described in detail in
"Collaborative and Licensing Arrangements" contained in the Company's
Registration Statement on Form S-1, as amended.
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 Offering expenses, of $13.0 million. Through September 30, 1998, the
Company financed its operations primarily through the Offering, private
offerings of its equity securities, collaborative research revenues and loans
from Schering AG, and from interest income. From inception through September 30,
1998, the Company raised $13.0 million in net proceeds from the Offering, an
aggregate of $9.7 million through private sales of equity securities and receipt
of loans, including $5.7 million in equity investments and $900,000 in loans,
including a $500,000 loan from Schering AG and a $400,000 loan from a bank, 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 September 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 September 30, 1998 which is pledged on a first priority basis under
the Company's bank loan referred to below). Principal and interest on these
notes are due and payable upon demand on or after September 30, 1999. The
$400,000 bank loan bears interest at prime plus 1.25%, is secured by the
equipment acquired under the agreement, and is payable in installments
commencing November 1998 through April 2003. On September 14, 1998, the $400,000
bank loan was amended to increase the amount that the Company may borrow to $1.0
million. In October 1998, the Company borrowed $600,000 from the bank, bringing
the total amount borrowed under the loan to $1.0 million. The loan is subject
to certain covenants including minimum working capital levels and the
requirement that the Company obtain the lender's consent for certain additional
indebtedness.
At September 30, 1998, cash and cash equivalents were $17.7 million
compared to $5.6 million at December 31, 1997. Increases in cash included net
proceeds received from the Offering, 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, as well
as interest income, and proceeds from the Company's $400,000 bank loan used for
the purchase of equipment for the Company's new preclinical research center
which commenced operation in June 1998. Increases in cash were partially offset
by research and development, and general and administrative expenses not funded
under the Company's collaboration with Schering AG, and were further offset by
purchases of equipment and tenant improvements for the Company's new preclinical
research center. The Company generally invests its excess cash in high credit
quality debt instruments of corporations and financial institutions. Working
capital increased to $14.9 million as of September 30, 1998, from $7.0 million
at the end of 1997, primarily due to the net proceeds received upon the
completion of the Company's Offering in July 1998.
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
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payments of approximately $775,000 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 angiogenic gene
therapy 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 University and the
University of California could total up to $5.0 million, including $825,000
which has already been paid by the Company as of September 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 $6.9 million to
$8.2 million, of which $2.5 million has been paid through September 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 September 30, 1998, the Company had acquired an aggregate of $2.8
million in laboratory and office equipment and tenant improvements. The Company
has made substantial
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increases in purchases of property and equipment in the first nine months 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 $1.0 million will be
financed through a bank loan that was entered into in April 1998, and amended in
September 1998 to increase the maximum amount of the loan to $1.0 million. Rent
expense related to the Company's research and administrative facilities has
increased substantially compared to 1997 and prior years, and is expected to
continue to increase. 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 $500,000 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 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 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
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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 bank loan remains outstanding, the
Company must obtain the lender's consent for certain additional indebtedness of
the Company.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers to the inability of certain date-sensitive
computer chips, software and systems to accept other than two-digit entries in
the date code field. As a result, upon commencement of the 21st century, many
such systems could mistake "00" for 1900 or any other incorrect year, resulting
in system failures or miscalculations, which could disrupt operations, including
manufacturing, the processing of transactions and other normal business
activities. This is a significant issue for most, if not all companies, the
ramifications of which cannot be predicted with any degree of certainty.
Failures of the Company or of any of its collaborators, suppliers or any other
third parties' computer systems could have a material adverse impact on the
Company's operations.
The Company recognizes the need to ensure that Year 2000 hardware and
software issues will not adversely impact its operations, and anticipates
completing the process of ensuring compliance in the first quarter of 1999. The
Company's information systems manager has reviewed the Company's computer
hardware and software systems and believes the systems are Year 2000 compliant.
The Company's review of its hardware and software systems consisted of
downloading, printing, and reviewing Year 2000 compatibility documentation from
websites of hardware and software manufacturers. The Company plans to simulate
and test, in a Year 2000 environment, its business information systems to verify
its Year 2000 readiness by the end of the first quarter of 1999. The Company
buys only well known, Year 2000 compliant, software packages, does not customize
software, and does not run any internally developed software.
The Company is in the process of reviewing its scientific equipment for
Year 2000 compliance. Most of the Company's scientific equipment was purchased
in 1998 and is believed to be Year 2000 compliant. Collateral also plans to
communicate 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 products, the
Company's operations could be effected. The Company believes multiple suppliers
exist for critical laboratory supplies, and alternative suppliers are identified
by appropriate laboratory personnel on a continuous basis.
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Expenditures required for Year 2000 compliance are being expensed as
incurred and are not expected to be material to the Company's financial position
or results of operations. To date, the costs related to Year 2000 issues have
been minimal, consisting only of time spent by existing personnel to review
hardware and software systems, and to begin the process of identifying
scientific equipment and service providers for Year 2000 review.
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 September 30, 1998, the Company had an accumulated deficit of
approximately $5.7 million. Through September 30, 1998, substantially all of
the Company's financial resources have been derived from funds received from its
collaborative arrangement with Schering AG, from net proceeds received upon
completion of the Offering and through the sale of privately placed equity
securities. There is no assurance that the level of funding made available by
Schering AG 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. 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
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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 clinical 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. 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
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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 such 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.
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.
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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 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
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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 interference
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 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
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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 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
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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 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
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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.
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
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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 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, 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.
23
<PAGE>
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 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
24
<PAGE>
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.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers to the inability of certain date-sensitive
computer chips, software and systems to accept other than two-digit entries in
the date code field. As a result, upon commencement of the 21st century, many
such systems could mistake "00" for 1900 or any other incorrect year, resulting
in system failures or miscalculations, which could disrupt operations, including
manufacturing, the processing of transactions and other normal business
activities. This is a significant issue for most, if not all companies, the
ramifications of which cannot be predicted with any degree of certainty.
Failures of the Company or of any of its collaborators, suppliers or any other
third parties' computer systems could have a material adverse impact on the
Company's operations.
25
<PAGE>
The Company recognizes the need to ensure that Year 2000 hardware and
software issues will not adversely impact its operations, and anticipates
completing the process of ensuring compliance in the first quarter of 1999. The
Company's information systems manager has reviewed the Company's computer
hardware and software systems and believes the systems are Year 2000 compliant.
The Company's review of its hardware and software systems consisted of
downloading, printing, and reviewing Year 2000 compatibility documentation from
websites of hardware and software manufacturers. The Company plans to simulate
and test, in a Year 2000 environment, its business information systems to verify
its Year 2000 readiness by the end of the first quarter of 1999. The Company
buys only well known, Year 2000 compliant, software packages, does not customize
software, and does not run any internally developed software.
The Company is in the process of reviewing its scientific equipment for
Year 2000 compliance. Most of the Company's scientific equipment was purchased
in 1998 and is believed to be Year 2000 compliant. Collateral also plans to
communicate 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 products, the
Company's operations could be effected. The Company believes multiple suppliers
exist for critical laboratory supplies, and alternative suppliers are identified
by appropriate laboratory personnel on a continuous basis.
Expenditures required for Year 2000 compliance are being expensed as
incurred and are not expected to be material to the Company's financial position
or results of operations. To date, the costs related to Year 2000 issues have
been minimal, consisting only of time spent by existing personnel to review
hardware and software systems, and to begin the process of identifying
scientific equipment and service providers for Year 2000 review.
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.
26
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) On July 8, 1998, the Company offered for sale 2,200,000 shares of its
common stock priced at $7.25 per share 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
(collectively, the "Underwriters"). The Registration Statement on Form S-1 filed
by the Company with the Securities and Exchange Commission (the "Commission") in
connection with the Offering (File No. 333-51029), as amended (the "Registration
Statement"), 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.
Pursuant to the Registration Statement, the Company registered an aggregate
of 2,530,000 shares of Common Stock for an aggregate offering price of
$18,342,500. The 2,530,000 shares of Common Stock included 330,000 shares
subject to the Underwriters' exercise of a 30-day option to purchase such shares
(the "Over-allotment Option"). The Underwriters did not exercise the
Over-allotment Option. As a result, the Company sold 2,200,000 shares of Common
Stock for an aggregate offering price of $15,950,000.
The Company incurred total expenses in the Offering of approximately
$2,950,000, of which $1,115,400 represented underwriting discounts and
commissions and approximately $1,834,600 represented other expenses. All of
such expenses were direct or indirect payments to entities or persons other
than: directors, officers, general partners of the Company or their associates,
greater than 10% owners of any equity securities of the Company or affiliates of
the Company. The net Offering proceeds to the Company after deducting the total
expenses were $13.0 million.
Since the completion of the Offering in July 1998, the net offering
proceeds have been applied to the following uses in the following approximate
amounts: $1.1 million for working capital and general corporate purposes,
including research and development, and $642,000 to purchase machinery,
equipment and leasehold improvements, which was partially offset by $400,000
borrowed from a bank to finance equipment. The Company has temporarily
27
<PAGE>
invested the $11.6 million balance of the offering proceeds in short-term
investments. The short-term investments consist primarily of high credit
quality debt instruments of corporations and financial institutions with
maturities of three months or less when purchased. All of the payments
indicated above were direct or indirect payments to entities or persons other
than: directors, officers, general partners of the Company or their associates,
greater than 10% owners of any equity securities of the Company or affiliates of
the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1 Incorporated by reference to the Second Restated Certificate of
Incorporation of the Company filed as Exhibit 3.1 to the Form
10-Q for the quarter ended June 30, 1998, filed on August 6,
1998.
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 April 24, 1998, as amended.
10.1 First Amendment to the Note between the Company and Imperial
Bank, dated April 4, 1998 as amended on September 14, 1998.
10.2 Employment Offer Letter For At Will Employment by and between
the Company and Jeffrey Friedman, executed August 7, 1998.
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
September 30, 1998.
28
<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: 1998 \s\ Christopher J. Reinhard
----------- -------------------------------
Christopher J. Reinhard
Chief Operating and Financial Officer (Principal
Financial and Accounting Officer)
29
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO NOTE
BETWEEN COLLATERAL THERAPEUTICS, INC.
AND IMPERIAL BANK, DATED APRIL 4, 1998
The First Amendment ("Amendment") amends that certain note ("the Note") in the
original principal amount of $400,000 executed by Collateral Therapeutics, Inc.
("Maker") in favor of Imperial Bank ("Bank") as of September 14, 1998, as
follows:
1. The dollar figure "$400,000.00" at the beginning of the Note and in the
first paragraph of the Note is hereby amended to read as "$1,000,000.00" in each
of the two places it appears.
2. Except as provided above, the Agreement remains unchanged.
3. This Amendment is effective as of September 14, 1998, and the parties
hereby confirm that the Agreement as amended is in full force and effect.
COLLATERAL THERAPEUTICS, INC.
"BORROWER"
By: /s/ Christopher J. Reinhard
Christopher J. Reinhard
Title: Chief Operating and Financial Officer
IMPERIAL BANK
"BANK"
By: /s/ Tim Bubnack
Title: Vice President
<PAGE>
EXHIBIT 10.2
July 14, 1998
Jeffrey Friedman, M.D.
3115 Gates Ct.
Morris Plains, NJ 07950
Dear Jeffrey:
Collateral Therapeutics is pleased to offer you employment on the terms and
conditions stated in this letter. Collateral Therapeutics is offering you the
position of Vice President of Development. You will report to Jack Reich,
President and Chief Executive Officer and your job duties will generally entail
the following: directing the activities relating to the design and development
of the company's products, which includes the functions of pre-clinical
toxicology, clinical research, clinical data management and initial
manufacturing efforts. Your initial rate of compensation will be $17,916.66 per
month, payable bimonthly, which is equivalent to an annualized rate of $215,000.
You will also be paid a $12,000 sign-on bonus on the effective date of your
employment and you will be eligible to participate in the Company's Short-Term
Incentive Program for the 1999 calendar year. We would like you to begin work
with Collateral Therapeutics on September 8, 1998.
As part of our offer of employment, we will pay you, upon presentation of proper
documentation, for reasonable moving expenses, up to a maximum of $50,000, to
assist you with relocation to San Diego, California. In addition, Collateral
Therapeutics will pay a 30% gross up for reasonable moving expenses. Reasonable
moving expenses may include movement of household goods, temporary housing,
current housing lease buyout, closing costs on residence in San Diego, storage
of goods, travel and living expenses associated with trips to San Diego.
In addition, you will be granted an option to purchase 70,000 shares of Common
Stock of the Company at an exercise price to be determined. The options will
vest monthly over four years (including a one year cliff) and will be subject to
the terms and conditions contained in a separate stock option agreement.
You will be eligible for the following employee benefits:
- - Medical Insurance Coverage
- - Dental Insurance Coverage
- - Life and Accidental Death and Dismemberment Insurance Coverage
- - Long Term Disability Coverage
- - 401(k) Savings Plan covering employee contributions
- - Employee Stock Purchase Plan
<PAGE>
Your employment with Collateral Therapeutics, should you accept this offer, will
not be for a specified term and may be terminated with or without cause and with
or without notice by you or by the Company at any time and for any reason. Any
contrary representations or agreements which may have been made to you are
superseded by this offer. The at will nature of your employment described by
this offer letter shall constitute the entire agreement between you and
Collateral Therapeutics concerning the nature and duration of your employment.
Although your job duties, title, compensation and benefits may change over time,
the at will term of your employment with Collateral Therapeutics can only be
changed in a writing signed by you and the Chief Executive Office of the
Company.
One of the conditions of your employment with Collateral Therapeutics is the
maintenance of the confidentiality of Collateral Therapeutics' proprietary and
confidential information. You will be required to execute the Company's
Proprietary Information and Inventions Agreement on your first date of
employment.
As an employee of Collateral Therapeutics, you will be required to comply with
all Company policies and procedures. In particular, you will be required to
familiarize yourself with, and to comply with, Collateral Therapeutics' policy
prohibiting harassment and discrimination and the policy concerning drugs and
alcohol. Violations of these policies may lead to immediate termination of
employment.
We are looking forward to having you join Collateral Therapeutics. If you wish
to accept this offer, please sign below and return the fully executed letter to
us. You should keep one copy of this letter for your own records.
Sincerely,
Collateral Therapeutics
By: /s/ Christopher J. Reinhard
Christopher J. Reinhard
Chief Operating and Financial Officer
<PAGE>
ACCEPTANCE OF EMPLOYMENT OFFER
I have read, understand and accept the foregoing terms and conditions of
employment. I further understand that while my job duties, title, compensation
and benefits may change over time without a written modification of this
agreement, the at will term of my employment, i.e., my right and Collateral
Therapeutics' right to terminate our employment relationship at any time, with
or without cause, is a term of employment which cannot be altered or modified
except in a writing signed by me and the Chief Executive Officer of Collateral
Therapeutics. I understand and agree that any contrary representations or
agreements which may have been made to me are superseded by this offer and my
acceptance of the same.
In consideration for the offer of employment with Collateral Therapeutics that
is contained in this offer letter and accepted by me, I acknowledge that the
Confidential Information of Collateral Therapeutics is a special, valuable and
unique asset of the Company. I agree at all times during my employment with
Collateral Therapeutics, and at all times after termination of such employment,
not to disclose for any purpose and to keep in strict confidence and trust all
of such Confidential Information. I agree during and after the period of my
employment with Collateral Therapeutics not to use, directly or indirectly, any
Confidential Information other than in the course of performing duties as an
employee of Collateral Therapeutics, nor will I directly or indirectly disclose
any Confidential Information or anything relating to it to any person or entity
except, with the Company's consent, as may be necessary for the performance of
my duties as an employee of Collateral Therapeutics. I will abide by Collateral
Therapeutics' written policies and rules established from time to time by it for
the protection of its Confidential Information. I will also execute and abide by
the terms of Collateral Therapeutics' Proprietary Information and
Confidentiality Agreement.
As further consideration for the offer of employment with Collateral
Therapeutics that is contained in this offer letter and accepted by me, I agree
that during the term of my employment and for one (1) year thereafter, I will
not encourage or solicit any employee of Collateral Therapeutics to leave the
Company for any reason. However, this obligation shall not affect any
responsibility I may have as an employee of the Company with respect to the bona
fide hiring and firing of Company personnel.
Date: 7 Aug 1998 /s/ Jeffrey Friedman, M.D.
---------------------------------
Jeffrey Friedman, M.D.
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