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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-17085
PEREGRINE PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-3698422
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
14272 Franklin Avenue, Suite 100, Tustin, California 92780-7017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (714) 508-6000
TECHNICLONE CORPORATION
14282 Franklin Avenue, Tustin, California 92780-7017
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED, SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.)
96,313,227 shares of Common Stock
as of November 30, 2000
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PEREGRINE PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 2000
TABLE OF CONTENTS
THE TERMS "WE", "US", "OUR," AND "THE COMPANY" AS USED IN THIS FORM ON 10-Q REFERS TO PEREGRINE
PHARMACEUTICALS, INC. (FORMERLY TECHNICLONE CORPORATION), TECHNICLONE INTERNATIONAL CORPORATION, ITS FORMER
SUBSIDIARY, CANCER BIOLOGICS INCORPORATED, WHICH WAS MERGED INTO THE COMPANY ON JULY 26, 1994 AND ITS WHOLLY
OWNED SUBSIDIARY VASCULAR TARGETING TECHNOLOGIES, INC. (FORMERLY PEREGRINE PHARMACEUTICALS, INC.), WHICH WAS
ACQUIRED DURING APRIL 1997.
PART I FINANCIAL INFORMATION
PAGE
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Item 1. Financial Statements .......................................................................... 3
Consolidated Balance Sheets at October 31, 2000 and April 30, 2000 ............................ 3
Consolidated Statements of Operations for the three and six month periods ended
October 31, 2000 and 1999 ..................................................................... 5
Consolidated Statement of Stockholders' Equity for the six months ended October 31, 2000 ...... 6
Consolidated Statements of Cash Flows for the six months ended October 31, 2000 and 1999 ...... 7
Notes to Consolidated Financial Statements .................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......... 14
Company Overview .............................................................................. 14
Risk Factors of Our Company ................................................................... 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk .................................... 20
PART II OTHER INFORMATION
Item 1. Legal Proceedings ............................................................................. 20
Item 2. Changes in Securities and Use of Proceeds ..................................................... 20
Item 3. Defaults Upon Senior Securities ............................................................... 21
Item 4. Submission of Matters to a Vote of Security Holders ........................................... 21
Item 5. Other Information ............................................................................. 22
Item 6. Exhibits and Reports on Form 8-K............................................................... 22
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2
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PART I FINANCIAL INFORMATION
----------------------------
ITEM 1. FINANCIAL STATEMENTS
----------------------------
PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 2000 AND APRIL 30, 2000
--------------------------------------------------------------------------------
OCTOBER 31, APRIL 30,
2000 2000
------------- -------------
UNAUDITED
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,882,000 $ 4,131,000
Short-term investments 6,124,000 -
Restricted cash 250,000 -
Other receivables, net of allowance of $280,000
(October) and $342,000 (April) 225,000 90,000
Prepaid expenses and other current assets 504,000 268,000
Laboratory equipment held for sale 428,000 428,000
------------- -------------
Total current assets 11,413,000 4,917,000
PROPERTY:
Leasehold improvements 191,000 73,000
Laboratory equipment 898,000 860,000
Furniture, fixtures and computer equipment 805,000 806,000
------------- -------------
1,894,000 1,739,000
Less accumulated depreciation and amortization (1,027,000) (869,000)
------------- -------------
Property, net 867,000 870,000
OTHER ASSETS:
Note receivable, net of allowance of $1,786,000
(October) and $1,863,000 (April) - -
Other, net 196,000 166,000
------------- -------------
Total other assets 196,000 166,000
------------- -------------
TOTAL ASSETS $ 12,476,000 $ 5,953,000
============= =============
See accompanying notes to consolidated financial statements
3
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PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 2000 AND APRIL 30, 2000 (CONTINUED)
--------------------------------------------------------------------------------
OCTOBER 31, APRIL 30,
2000 2000
-------------- --------------
UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 431,000 $ 522,000
Note payable and accrued interest payable to
related party 1,300,000 3,465,000
Accrued clinical trial site fees 405,000 280,000
Accrued royalties and license fees 122,000 268,000
Accrued legal and accounting fees 143,000 186,000
Notes payable, current portion 114,000 110,000
Other current liabilities 268,000 254,000
Deferred license revenue 3,625,000 3,500,000
-------------- --------------
Total current liabilities 6,408,000 8,585,000
NOTES PAYABLE 30,000 89,000
DEFERRED LICENSE REVENUE 615,000 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock- $.001 par value; authorized
5,000,000 shares, none outstanding: - -
Common stock-$.001 par value; authorized
150,000,000 shares; outstanding 96,313,227
(October); 90,612,610 (April) 96,000 91,000
Additional paid-in capital 118,749,000 106,640,000
Deferred stock compensation (1,604,000) (2,258,000)
Accumulated deficit (111,818,000) (107,194,000)
-------------- --------------
Total stockholders' equity (deficit) 5,423,000 (2,721,000)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 12,476,000 $ 5,953,000
============== ==============
See accompanying notes to consolidated financial statements
4
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PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED OCTOBER 31, 2000 AND 1999 (UNAUDITED)
---------------------------------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2000 1999 2000 1999
------------- ------------- ------------- -------------
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COSTS AND EXPENSES:
Research and development $ 2,056,000 $ 2,758,000 $ 3,509,000 $ 4,742,000
General and administrative 527,000 841,000 1,007,000 1,664,000
Provision for uncollectible note
receivable - 1,887,000 - 1,887,000
Stock-based compensation 327,000 149,000 654,000 306,000
Interest 74,000 88,000 177,000 176,000
------------- ------------- ------------- -------------
Total costs and expenses 2,984,000 5,723,000 5,347,000 8,775,000
Interest and other income 417,000 61,000 723,000 124,000
NET LOSS $ (2,567,000) $ (5,662,000) $ (4,624,000) $ (8,651,000)
============= ============= ============= =============
Net loss before preferred stock
dividends $ (2,567,000) $ (5,662,000) $ (4,624,000) $ (8,651,000)
Imputed dividends on Class C
Preferred Stock - (1,000) - (2,000)
------------- ------------- ------------- -------------
NET LOSS APPLICABLE TO COMMON STOCK $ (2,567,000) $ (5,663,000) $ (4,624,000) $ (8,653,000)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 95,526,719 78,245,795 94,033,009 76,632,859
============= ============= ============= =============
BASIC AND DILUTED LOSS PER SHARE $ (0.03) $ (0.07) $ (0.05) $ (0.11)
============= ============= ============= =============
See accompanying notes to consolidated financial statements
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5
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PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED OCTOBER 31, 2000 (UNAUDITED)
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TOTAL
ADDITIONAL STOCKHOLDERS'
COMMON STOCK PAID-IN DEFERRED STOCK ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT (DEFICIT)
-------------- -------------- -------------- -------------- -------------- --------------
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BALANCES - April 30, 2000 90,612,610 $ 91,000 $ 106,640,000 $ (2,258,000) $(107,194,000) $ (2,721,000)
Common stock issued upon exercise
of options and warrants 125,112 - 60,000 - - 60,000
Common stock issued for cash
under Equity Line 4,471,824 4,000 8,750,000 - - 8,754,000
Common stock issued to OXiGENE,
Inc. for cash under joint
venture 585,009 1,000 1,999,000 - - 2,000,000
Common stock issued to Schering
A.G. for obligations under the
license agreement amendment 518,672 - 1,300,000 - - 1,300,000
Stock-based compensation - - - 654,000 - 654,000
Net loss - - - - (4,624,000) (4,624,000)
-------------- -------------- -------------- -------------- -------------- --------------
BALANCES - October 31, 2000 96,313,227 $ 96,000 $ 118,749,000 $ (1,604,000) $(111,818,000) $ 5,423,000
============== ============== ============== ============== ============== ==============
See accompanying notes to consolidated financial statements
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6
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PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2000 AND 1999 (UNAUDITED)
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SIX MONTHS ENDED OCTOBER 31,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,624,000) $ (8,651,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for uncollectable note receivable - 1,887,000
Depreciation and amortization 158,000 251,000
Stock-based compensation 654,000 306,000
Amortization of clinical trial services prepaid in stock 779,000 -
Severance expense - 251,000
Amortization of deferred license revenue (260,000) -
Changes in operating assets and liabilities:
Other receivables (135,000) 175,000
Prepaid expenses and other current assets (1,015,000) 64,000
Other assets - 205,000
Accounts payable and accrued legal and accounting fees (134,000) 391,000
Accrued clinical trial site fees 125,000 (22,000)
Accrued royalties and license termination fees (146,000) 25,000
Other accrued expenses and current liabilities (151,000) (227,000)
Deferred license revenue 1,000,000 -
------------- -------------
Net cash used in operating activities (3,749,000) (5,345,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (6,124,000) -
Acquisition of property (155,000) (181,000)
Transfer funds to restricted cash (250,000) -
Decrease (increase) in other assets (30,000) 23,000
------------- -------------
Net cash used in investing activities (6,559,000) (158,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 12,114,000 3,817,000
Principal payments on notes payable (2,055,000) (53,000)
Payment of Class C preferred stock dividends - (2,000)
------------- -------------
Net cash provided by financing activities 10,059,000 3,762,000
------------- -------------
See accompanying notes to consolidated financial statements
</TABLE>
7
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PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2000 AND 1999 (UNAUDITED) (CONTINUED)
-------------------------------------------------------------------------------
SIX MONTHS ENDED OCTOBER 31,
2000 1999
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ (249,000) $(1,741,000)
CASH AND CASH EQUIVALENTS,
beginning of period 4,131,000 2,385,000
------------ ------------
CASH AND CASH EQUIVALENTS,
end of period $ 3,882,000 $ 644,000
============ ============
SUPPLEMENTAL INFORMATION:
Interest paid $ 342,000 $ 176,000
============ ============
See accompanying notes to consolidated financial statements
8
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PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2000 (UNAUDITED)
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying consolidated financial
statements include the accounts of Peregrine Pharmaceuticals, Inc. (the
"Company") (formerly Techniclone Corporation) and its wholly owned subsidiary,
Vascular Targeting Technologies, Inc. (formerly Peregrine Pharmaceuticals,
Inc.). The Company acquired the Vascular Targeting Agent ("VTA") technology
through the acquisition of its wholly owned subsidiary in April 1997. All
intercompany balances and transactions have been eliminated.
At October 31, 2000, the Company had $10,006,000 in cash and cash
equivalents and short-term investments. The Company has expended substantial
funds on the development of product candidates and for clinical trials. As a
result, the Company has had negative cash flows from operations since inception
and expects the negative cash flows from operations to continue until the
Company is able to generate sufficient revenue from the sale and/or licensing of
our products. Although the Company has sufficient cash on hand to meet our
obligations on a timely basis for at least the next 12 months (excluding any
future draws under the Company's Common Stock Equity Line of Credit), the
Company will continue to require additional funding to sustain our research and
development efforts, provide for future clinical trials, establish contract
manufacturing and product commercialization capabilities, and continue
operations until the Company is able to generate sufficient revenue from the
sale and/or licensing of its product candidates. The Company plans to obtain
required financing through one or more methods including, obtaining additional
equity or debt financing and negotiating additional licensing or collaboration
agreements with other companies.
The Company's ability to access funds under the Equity Line Agreement
is subject to the satisfaction of certain conditions and the failure to satisfy
these conditions may limit or preclude the Company's ability to access such
funds (Note 4).
The accompanying unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring adjustments) which, in the
opinion of management, are necessary to present fairly the consolidated
financial position of the Company at October 31, 2000, and the consolidated
results of its operations and its consolidated cash flows for the three and
six-month periods ended October 31, 2000 and 1999. Although the Company believes
that the disclosures in the financial statements are adequate to make the
information presented not misleading, certain information and footnote
disclosures normally included in the consolidated financial statements have been
condensed or omitted pursuant to rules and regulations of the Securities and
Exchange Commission. The consolidated financial statements included herein
should be read in conjunction with the consolidated financial statements of the
Company, included in the Company's Annual Report on Form 10-K for the year ended
April 30, 2000, which was filed under Techniclone Corporation with the
Securities and Exchange Commission on July 31, 2000. Results of operations for
the interim periods covered by this Report may not necessarily be indicative of
results of operations for the full fiscal year.
9
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PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2000 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
RECLASSIFICATION. Certain reclassifications were made to the prior
period balances to conform them to the current period presentation.
NET LOSS PER SHARE. Net loss per share is calculated by adding the net
loss for the three and six month periods to the preferred stock dividends on the
Class C preferred stock during the three and six month periods divided by the
weighted average number of shares of common stock outstanding during the same
period. Shares issuable upon the exercise of common stock warrants and options
have been excluded from the per share calculation for the three and six month
period ended October 31, 2000 and 1999 because their effect is antidilutive.
Accretion of the Class C preferred stock dividends amounted to $1,000 for the
six months ended October 31, 1999. There were no shares of preferred stock
outstanding during the three and six months ended October 31, 2000.
RECENT ACCOUNTING PRONOUNCEMENTS. In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements". The bulletin draws on existing accounting
rules and provides specific guidance on how those accounting rules should be
applied. Among other things, SAB No. 101 requires that license and other
up-front fees from research collaborators be recognized over the term of the
agreement unless the fee is in exchange for products delivered or services
performed that represent the culmination of a separate earnings process. SAB No.
101 is effective no later than the fourth fiscal quarter of the fiscal years
beginning after December 15, 1999. The Company is currently reviewing the impact
of SAB No. 101 and the effect it may have on the Company's financial position
and results of operations.
During June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
will be effective for the Company beginning May 1, 2001. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts, and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statements of financial position and measure those
instruments at fair value. The Company has not determined the impact on the
consolidated financial statements, if any, of adopting SFAS No. 133.
2. INVESTMENTS
Management determines the appropriate classification of investments at
the time of purchase and re-evaluates such designation as of each balance sheet
date. The Company's investments are classified as held-to-maturity and are
carried at their aggregate fair value. Investments with original maturities of
three months or less are included in cash and cash equivalents and investments
with original maturities greater than three months are included in short-term
investments in the accompanying consolidated financial statements. Interest and
dividends on investments classified as held-to-maturity are included in interest
income.
10
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PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2000 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
3. NOTES PAYABLE
During the quarter ended October 31, 2000, the Company paid $2,000,000
in principal on its note payable to Biotechnology Development Ltd. ("BTD"),
which is included in note payable and accrued interest payable to related party
in the accompanying consolidated financial statements. BTD is a limited
partnership controlled by Mr. Edward J. Legere, a member of the Board of
Directors.
4. STOCKHOLDERS' EQUITY (DEFICIT)
During June 1998, the Company secured access to $20,000,000 under a
Common Stock Equity Line of Credit ("Equity Line") with two institutional
investors, as amended on June 2, 2000 (the "Amendment"). Under the Amendment,
the Company may, in its sole discretion, and subject to certain restrictions,
periodically sell ("Put") shares of the Company's common stock until all common
shares previously registered under the Equity Line have been exhausted. As of
October 31, 2000, the Company had approximately 6,001,000 unissued shares
available under the Equity Line. Under the Amendment, up to $2,800,000 of Puts
can be made every month if the Company's closing bid price is $2.00 or higher
during the 10-day pricing period. If the Company's closing bid price is between
$1.00 and $2.00, then the Company can Put up to $1,500,000 per month and if the
Company's closing bid price falls below $1.00 on any trading day during the ten
trading days prior to the Put, the Company's ability to access funds under the
Equity Line in the Put is limited to 15% of what would otherwise be available.
If the closing bid price of the Company's common stock falls below $0.50 or if
the Company is delisted from The Nasdaq SmallCap Market, the Company would have
no access to funds under the Equity Line. Future Puts under the Equity Line are
priced at a discount equal to the greater of $0.20 or 17.5% off the lowest
closing per share bid price during the ten trading days immediately preceding
the date on which such shares are sold to the institutional investors.
During the three and six months ended October 31, 2000, the Company
received gross proceeds of $1,700,000 and $9,500,000, respectively, in exchange
for 915,823 and 4,063,747 shares of common stock issued to two institutional
investors, respectively, under the Equity Line. In connection with the Equity
Line draws during the three and six months ended October 31, 2000, the Company
(i) issued 91,582 and 408,077 shares of common stock, respectively, (ii) issued
warrants to purchase up to 9,158 and 40,806 shares of common stock,
respectively, and (iii) paid cash commissions of $119,000 and $665,000,
respectively, to Dunwoody Brokerage Services, Inc., as placement agent fees. Mr.
Eric Swartz, a member of the Board of Directors, maintains a contractual right
to 50% of the placement agent fees paid under the Equity Line. The Equity Line
was consummated in June 1998 when Mr. Swartz had no Board affiliation with the
Company.
During May 2000, the Company received proceeds of $2,000,000 in
exchange for 585,009 shares of common stock in accordance with the joint venture
agreement with OXiGENE, Inc. (Note 6).
During August 2000, the Company issued 518,672 shares of its common
stock valued at $1,300,000 in accordance with the license agreement amendment
with Schering A.G. (Note 6).
11
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PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2000 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
5. CONTINGENCY
During March 2000, the Company was served with a notice of lawsuit
filed in Orange County Superior Court for the State of California by a former
officer of the Company who resigned from the Company on November 3, 1999. The
lawsuit alleges a single cause of action for breach of contract. A Director of
the Company was also served with a notice of lawsuit, but such claims do not
appear to be directed toward the Company. A hearing was held on July 21, 2000 in
which the Superior Court judge approved the plaintiff's request for a writ of
attachment and required the plaintiff to post a $15,000 bond in connection with
that writ. On September 28, 2000, the Court ordered a lien of $250,000 to be
held in accordance with the writ of attachment, which is included in restricted
cash in the accompanying consolidated financial statements. The case is in the
early stages of investigation and the Company is unable to evaluate the
likelihood of an unfavorable outcome. The Company intends to vigorously contest
the underlying complaint.
6. LICENSING
During May 2000, the Company entered into a joint venture agreement
with OXiGENE, Inc. ("OXiGENE"). Under the terms of the joint venture agreement,
the Company has agreed to supply its VTA intellectual property to the joint
venture while OXiGENE has agreed to (i) provide its next generation
tubulin-binding compounds (ii) spend up to $20,000,000 to fund the development
expenses of the joint venture based on its development success (iii) pay the
Company a nonrefundable $1,000,000 license fee, which was received in May 2000
and will be amortized as license revenue over a two year period (iv) purchase
$2,000,000 of the Company's common stock (Note 4) and (v) pay the Company a
$1,000,000 nonrefundable license fee and subscribe to an additional $1,000,000
in common stock of the Company upon filing an Investigational New Drug
Application ("IND") for the first clinical candidate developed. Any future
funding of the joint venture after OXiGENE has paid its $20,000,000 in
development expenses will be shared equally by the Company and OXiGENE.
Additionally, under the terms of the joint venture agreement, any sublicensing
fees generated within the joint venture will be allocated 75% to the Company and
25% to OXiGENE until the Company has received $10,000,000 in sublicensing fees.
Thereafter, the joint venture partners will share licensing fees equally. Any
royalty income or profits will also be shared equally by the joint venture
partners. The Company and OXiGENE have named the new entity ARCUS Therapeutics,
LLC ("Arcus").
During June 2000, the Company and Schering A.G. entered into an
amendment (the "Amendment") to the Oncolym(R) License Agreement dated March 8,
1999, whereby Schering A.G. has agreed to pay for 100% of the Oncolym(R)
clinical development expenses, excluding drug related costs, for the Phase I
clinical trial. In exchange for this commitment, the Company agreed to transfer
$1,300,000 of its common stock to Schering A.G. as defined in the Amendment.
Upon the successful completion of the Phase I clinical trial, Schering A.G. will
pay for 100% of the Phase II/III clinical trial (excluding drug related costs)
in exchange for the Company issuing an additional $1,700,000 of its common stock
as defined in the Amendment. Eighty percent of the clinical trial costs in
12
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PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2000 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
excess of the $1,300,000 for the Phase I clinical trial and $1,700,000 for the
Phase II/III clinical trial will be paid by Schering A.G. and Peregrine will pay
the remaining 20%. If Schering A.G. moves forward after the Phase II/III
clinical trial, then Schering A.G. has agreed to refund Peregrine 80% of the
proceeds it received from the sale of Peregrine's common stock by applying such
amount to the Company's clinical and manufacturing obligations under the License
Agreement dated March 8, 1999.
During August 2000, the Company entered into a licensing agreement with
an unrelated entity to license a segment of the VTA technology, specifically
related to targeting Photodynamic Therapy agents ("PDT"), for the worldwide
exclusive rights to this area. Under the agreement, the Company received an
up-front payment of $500,000 in April 2000, which will be amortized as license
revenue over a four-year period. The Company will also receive milestone
payments and a royalty on net profits, as defined in the agreement, upon
commercialization of a product.
During October 2000, the Company entered into a licensing agreement
with an unrelated entity to license a segment of its TNT technology for use in
the application of cytokine fusion proteins. Under the terms of the licensing
agreement, the Company will receive an up-front payment of $450,000 upon the
satisfaction of certain conditions set forth in the agreement. The Company will
also receive a royalty on net sales, as defined in the agreement, upon the
commencement of commercial sales.
13
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Except for historical information contained herein, this Quarterly
Report on Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. In light of the important factors that can materially affect results,
including those set forth elsewhere in this Form 10-Q, the inclusion of
forward-looking information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved. When used in this Form 10-Q, the words "may," "should," "believe,"
"anticipate," "estimate," "expect," their opposites and similar expressions are
intended to identify forward-looking statements. The Company cautions readers
that such statements are not guarantees of future performance or events and are
subject to a number of factors that may tend to influence the accuracy of the
statements.
The following discussion is included to describe the Company's
financial position and results of operations for the three and six months ended
October 31, 2000 compared to the same periods in the prior year. The
consolidated financial statements and notes thereto contain detailed information
that should be referred to in conjunction with this discussion. In addition, the
consolidated financial statements included herein should be read in conjunction
with the consolidated financial statements of the Company, included in the
Company's Annual Report on Form 10-K for the year ended April 30, 2000, which
was filed under the name of Techniclone Corporation with the Securities and
Exchange Commission on July 31, 2000. Results of operations for the interim
periods covered by this Report may not necessarily be indicative of results of
operations for the full fiscal year.
COMPANY OVERVIEW. The Company changed its name from Techniclone
Corporation to Peregrine Pharmaceuticals, Inc. ("Peregrine") effective October
25, 2000. The new name reflects the Company's new strategic business plan and
the Company's new start. In addition, on November 7, 2000, the Company changed
its ticker symbol on the Nasdaq SmallCap Market from "TCLN" to "PPHM". Peregrine
is a biopharmaceutical company engaged in the research, development and
commercialization of targeted cancer therapeutics. We are developing product
candidates based primarily on collateral tumor targeting for the treatment of
solid tumors. In addition, we are in collaboration with Schering A.G. to develop
a direct tumor-targeting agent (Oncolym(R)) for the treatment of Non-Hodgkin's
B-cell Lymphoma ("NHL").
Collateral targeting is a strategy that has been developed to take
advantage of characteristics common to all solid tumors. These common tumor
characteristics include the development of a blood supply to support tumor
growth. An inadequate blood supply results in starvation and eventually death of
tumor cells. These dying and dead tumor cells are found within the necrotic
areas of the tumor. Our collateral targeting agents target either intratumoral
blood vessels or structures found within the necrotic areas of the tumor.
The most clinically advanced of the collateral targeting agents is
known as Tumor Necrosis Therapy ("TNT"), which utilizes monoclonal antibodies
(targeting molecules that bind to specific structures) that recognize markers
found in the necrotic areas of solid tumors. TNT antibodies are potentially
capable of carrying a variety of agents including radiation, chemotherapeutic
agents and cytokines to the interior of solid tumors. A Phase II clinical trial
for a Tumor Necrosis Therapy agent (called Cotara(TM)) for the treatment of
malignant glioma (brain cancer) is currently being conducted at The Medical
University of South Carolina, Temple University, University of Utah-Salt Lake
City, Carolina Neurosurgery & Spine Associates, Barrow Neurological Institute in
Phoenix, Arizona, the University of Miami and Northwestern University. Also, our
Tumor Necrosis Therapy is being used in a clinical trial for the treatment of
pancreatic, prostate, liver cancers and malignant glioma in Mexico City.
Additionally, a Phase I clinical trial at Standford University has been
initiated to study intravenous administration of TNT for the treatment of
colorectal cancer.
14
<PAGE>
A second class of collateral targeting agents are known as Vascular
Targeting Agents ("VTAs"). VTAs utilize monoclonal antibodies and other
targeting agents that recognize markers found on tumor blood vessels. The
monoclonal antibody carries an effector molecule that creates a blockage within
the blood vessels that supply oxygen and nutrients to the tumor cells, thus
cutting off the blood supply to the tumor, which results in tumor cell death and
potentially destroying the tumor. VTAs are currently in pre-clinical development
in collaboration with our joint development partner, OXiGENE, Inc. and
researchers at the University of Texas Southwestern Medical Center at Dallas.
A third class of collateral targeting agents are known as
Vasopermeation Enhancement Agents ("VEAs"). VEAs currently use the same
targeting agent as TNT to deliver an agent that makes the blood vessels inside
the tumor more leaky (permeable). The increased permeability of the tumor blood
vessels makes it possible to deliver an increased concentration of killing
agents into the tumor where they can potentially kill the living tumor cells.
VEAs are currently in pre-clinical development in collaboration with researchers
at the University of Southern California Medical Center.
Peregrine has taken steps to protect its position in the field of
collateral targeting agents. Peregrine currently has exclusive rights to over 40
issued U.S. and foreign patents protecting various aspects of its technology and
has additional pending patent applications that it believes will further
strengthen its position in collateral targeting.
Our direct tumor-targeting agent, Oncolym(R), for the treatment of
Non-Hodgkins B-cell Lymphoma ("NHL") is being developed by Schering A.G. On
March 8, 1999, Peregrine entered into a license agreement with Schering A.G.
with respect to the development, manufacturing and marketing of Oncolym(R).
Schering A.G. has started the single dose Phase I clinical trial with a modified
treatment strategy for the treatment of intermediate and high grade
Non-Hodgkin's B-cell Lymphoma.
RESULTS OF OPERATIONS. Before we compare the total operations of the
Company (cash and non-cash income and expenses), we would like to discuss the
Company's operational burn rate (net cash expenses from operations) for the
three months ended October 31, 2000 compared to the same period in the prior
year. As shown in the following schedule, the Company's operational burn rate
has decreased $1,840,000 (or 55%) from $3,376,000 for the three months ended
October 31, 1999 to $1,536,000 for the current three month period ended October
31, 2000. As further shown in that schedule, the average monthly operational
burn rate has decreased approximately $613,000 (or 55%) per month for each month
in the three months ended October 31, 2000 compared to the same average monthly
periods in the prior year. The net decrease in cash expenses primarily relates
to a decrease in expenses associated with antibody and radiolabeling
manufacturing and scale-up efforts. In addition, the Company has a current
period decrease in costs associated with patent legal fees and sponsored
research fees associated with the VTA technology included in the joint venture
with OXiGENE, Inc., as these expenses are now funded by the Arcus joint venture.
In addition, the current quarter decrease in cash expenses is also due to a
decrease in general and administrative expenses, including decreased salary
expenses due to fewer employees in administration combined with a decrease in
severance expenses. Moreover, the net decrease in expenses was supplemented by
an increase in interest and other income as a result of a higher cash balance on
hand during the current three-month period combined with an increase in rental
income from the Company's subleased space. Recently, the Company has subleased a
majority of its excess space and has consolidated its operations into one
building to further reduce its fixed operational burn rate. Although our
operational cash burn rate has decreased dramatically during the current three
month period ended October 31, 2000 compared to the same period in the prior
year, our total operational burn rate may vary substantially from quarter to
quarter based on patient enrollment rates of our clinical trial programs and the
funding of non-recurring items, which may include but are not limited to, items
associated with product development, contract manufacturing, contract
radiolabeling and the related commercial scale-up efforts for contract
manufacturing and contract radiolabeling.
15
<PAGE>
The operational burn rate analysis for the three and six months ended
October 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $(2,567,000) $(5,662,000) $(4,624,000) $(8,651,000)
Less non-cash revenue and expenses:
Deferred license revenue (156,000) - (260,000) -
Amortization of clinical trial services
prepaid in stock 779,000 - 779,000 -
Depreciation and amortization 81,000 125,000 158,000 251,000
Provision for uncollectible note
receivable - 1,887,000 - 1,887,000
Stock-based compensation
expense and non-cash
severance expenses 327,000 274,000 654,000 557,000
------------ ------------ ------------ ------------
Net operational burn rate $(1,536,000) $(3,376,000) $(3,293,000) $(5,956,000)
============ ============ ============ ============
Net average monthly operational
burn rate during the period $ (512,000) $(1,125,000) $ (549,000) $ (993,000)
============ ============ ============ ============
</TABLE>
THREE MONTHS ENDED OCTOBER 31, 2000 AND 1999
NET LOSS. The Company's net loss of $2,567,000 for the quarter ended
October 31, 2000 represents a decrease in net loss of $3,095,000 (or 55%) in
comparison to the net loss of $5,662,000 for the prior year quarter ended
October 31, 1999. This decrease in the net loss for the quarter ended October
31, 2000 is due to a decrease in total costs and expenses of $2,739,000 combined
with an increase in interest and other income of $356,000.
TOTAL COSTS AND EXPENSES. The Company's total costs and expenses
decreased $2,739,000 during the quarter ended October 31, 2000, in comparison to
the same prior year period ended October 31, 1999. The current quarter decrease
in total costs and expenses resulted primarily from a prior year one-time
expense of $1,887,000 during the quarter ended October 31, 1999 for the
estimated provision of an uncollectible note receivable, which was not incurred
in the current quarter ended October 31, 2000. In addition, the decrease in
total costs and expenses was due to a decrease in research and development
expenses of $702,000, a decrease in general and administrative expenses of
$314,000 and a decrease in interest expense of $14,000. These amounts were
offset by a current quarter increase in stock-based compensation (a non-cash
expense) of $178,000.
RESEARCH AND DEVELOPMENT EXPENSES. The decrease in research and
development expenses of $702,000 during the three months ended October 31, 2000
compared to the same period in the prior year is primarily due to a decrease in
expenses associated with manufacturing and radiolabeling. The Company has
reduced the number of personnel associated with manufacturing and the related
ancillary departments as the Company is no longer attempting to become a
commercial manufacturer of antibodies. The Company's new strategy is to contract
out commercial production of its antibodies to suppliers with excess capacity.
In addition, the Company has significantly decreased research and development
fees associated with the development of a commercial radiolabeling facility and
process. The Company has reduced the research and development fees associated
with radiolabeling and radiolabeling scale-up by consolidating the clinical
radiolabeling activities for both Oncolym(R) and Cotara(TM) while continuing its
16
<PAGE>
development efforts through its existing collaboration with Paul Scherrer
Institute. The above decreases were supplemented by a decrease in patent legal
fees, patent maintenance fees and sponsored research fees associated with the
VTA technology. Pursuant to the Company's joint venture agreement with OXiGENE,
Inc., OXiGENE, Inc. has agreed to fund up to $20,000,000 in development expenses
associated with the joint venture. The current quarter decreases in research and
development expenses were offset by an increase in clinical trial expenses
associated with Oncolym(R) and Cotara(TM).
GENERAL AND ADMINISTRATIVE EXPENSES. The decrease in general and
administrative expenses of $314,000 during the three months ended October 31,
2000 compared to the same period in the prior year resulted primarily from a
decrease in severance expenses and a decrease in salary expenses due to fewer
administrative employees combined with a decrease in legal fees and other
general expenses. Such current quarter decreases in expenses were offset by an
increase in annual shareholder meeting expenses due to an increased number of
shareholders.
STOCK-BASED COMPENSATION EXPENSE. The increase in stock-based
compensation expense (a non-cash expense) of $178,000 for the three months ended
October 31, 2000 compared to the same period in the prior year is primarily due
to the fair value of options granted to non-employee consultants of the Company
during April 2000 who are assisting the Company with the development of its
platform technologies. The options were valued using the Black-Scholes valuation
model and are being amortized over the estimated period of service or related
vesting period.
INTEREST EXPENSE. The decrease in interest expense of $14,000 for the
three months ended October 31, 2000 compared to the same period in the prior
year is primarily due to a lower outstanding note payable balance during the
quarter ended October 31, 2000. The Company has made aggregate principal
payments of $2,000,000 during the quarter ended October 31, 2000 on a $3,300,000
note payable to Biotechnology Development Ltd.
INTEREST AND OTHER INCOME. The increase in interest and other income of
$356,000 during the three months ended October 31, 2000 compared to the same
period in the prior year is primarily due to an increase in interest income
earned on the Company's increased level of cash and cash equivalents on hand and
short-term investments combined with an increase in license revenues and rental
income. The Company does not expect to generate product sales for at least the
next year.
SIX MONTHS ENDED OCTOBER 31, 2000 AND 1999
NET LOSS. The Company's net loss of $4,624,000 for the six months ended
October 31, 2000 represents a decrease in net loss of $4,027,000 compared to a
net loss of $8,651,000 for the six months ended October 31, 1999. The decreased
loss for the six months ended October 31, 2000 is due to a $3,428,000 decrease
in total costs and expenses combined with a $599,000 increase in interest and
other income.
TOTAL COSTS AND EXPENSES. The Company's total costs and expenses
decreased $3,428,000 during the six months ended October 31, 2000 compared to
the six months ended October 31, 1999. The decrease in total costs and expenses
resulted primarily from a prior year one-time expense of $1,887,000 during the
six months ended October 31, 1999 for the estimated provision of an
uncollectable note receivable, which was not incurred in the current six months
ended October 31, 2000, combined with a decrease in research and development
expenses of $1,233,000 and a decrease in general and administrative expenses of
$657,000. These amounts were offset by a current period increase in stock-based
compensation expense (a non-cash expense) of $348,000 and an increase in
interest expense of $1,000 over the same six month period of the prior year.
17
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. The decrease in research and
development expenses of $1,233,000 during the six months ended October 31, 2000
compared to the same period in the prior year is primarily due to a decrease in
expenses associated with manufacturing and radiolabeling. The Company has
reduced the number of personnel associated with the manufacturing department and
related quality control, validation and quality assurance departments which
supported the manufacturing department, as the Company is no longer attempting
to become a commercial manufacturer of antibodies. The Company's new strategy is
to contract out its commercial production of antibodies with suppliers with
excess capacity. In addition, the Company has significantly decreased research
and development efforts associated with the development of a commercial
radiolabeling facility and process. The Company has also reduced the research
and development fees associated with radiolabeling and radiolabeling scale-up by
consolidating the clinical radiolabeling activities for both Oncolym(R) and
Cotara(TM) while continuing its development efforts through its existing
collaboration with Paul Scherrer Institute. The above decreases were
supplemented by decreases in patent legal fees, patent maintenance fees and
sponsored research fees associated with the VTA technology. Pursuant to the
joint venture agreement with OXiGENE, Inc., OXiGENE, Inc. has agreed to fund up
to $20,000,000 in development expenses associated with the joint ventures
development of the VTA technology. The current six-month period decreases in
research and development expenses were offset by an increase in clinical trial
expenses associated with the Oncolym(R) and Cotara(TM) clinical trials.
GENERAL AND ADMINISTRATIVE EXPENSES. The decrease in general and
administrative expenses of $657,000 during the six months ended October 31, 2000
compared to the same period in the prior year resulted primarily from a decrease
in severance expenses and decreased aggregate salaries due to fewer employees in
the administration department combined with a decrease in legal fees, consulting
fees, investor relation fees and other general expenses. Such current six month
period decrease in expenses were offset by an increase in annual shareholder
meeting costs due to the increased printing and distribution costs of the annual
meeting materials, due to the increase number of shareholders compared to the
prior year.
STOCK-BASED COMPENSATION EXPENSE. The increase in stock-based
compensation expense (a non-cash expense) of $348,000 for the six months ended
October 31, 2000 compared to the same period in the prior year is primarily due
to the fair value of options granted to non-employee consultants of the Company
during April 2000 who are assisting the Company with the development of its
platform technologies. The options were valued using the Black-Scholes valuation
model and are being amortized over the estimated period of service or related
vesting period.
INTEREST EXPENSE. The increase in interest expense of $1,000 for the
six months ended October 31, 2000 compared to the same period in the prior year
is primarily due to an increase in the rate of interest from 10% per annum to
12% per annum on a $3,300,000 note payable to Biotechnology Development Ltd. in
accordance with the Waiver Agreement dated December 29, 1999 offset by a
decrease in the notes payable balance during the current period. The Company
made aggregate principal payments of $2,000,000 during August 2000 and September
2000 on the aforementioned $3,300,000 note payable.
INTEREST AND OTHER INCOME. The increase in interest and other income of
$599,000 for the six months ended October 31, 2000 compared to the same period
in the prior year is primarily due to an increase in interest income earned on
the Company's increased level of cash and cash equivalents on hand and
short-term investments combined with an increase in license revenues from
license collaboration arrangements and an increase in rental income. The Company
does not expect to generate product sales for at least the next year.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. As of October 31, 2000, the Company
had $10,006,000 in cash and cash equivalents and short-term investments. The
Company has financed its operations primarily through the sale of common stock,
which has been supplemented with payments received from various licensing
collaborations. During the six months ended October 31, 2000, the Company
received net proceeds of $12,114,000 from the sale of common stock and paid
$2,000,000 in principal on a note payable to BTD, included in note payable and
accrued interest payable to related party in the accompanying financial
statements. Without obtaining additional financing or entering into additional
licensing arrangements for the Company's other product candidates, the Company
believes that it has sufficient cash on hand (excluding any future draws under
the Equity Line), to meet its obligations on a timely basis for at least the
next 12 months.
The Company has experienced negative cash flows from operations since
its inception and expects the negative cash flows from operations to continue
for the foreseeable future. The Company expects operating expenditures related
to clinical trials to increase in the future as the Company's clinical trial
activity increases and scale-up for clinical trial production and radiolabeling
continues. As a result of increased activities in connection with the clinical
trials for Cotara(TM) and Oncolym(R), and the development costs associated with
Vasopermeation Enhancement Agents (VEAs), the Company expects that the monthly
negative cash flow will continue. The development of the Company's Vascular
Targeting Agent (VTA) technology will be funded primarily by OXiGENE, Inc. under
a joint venture agreement entered into during May 2000, whereby OXiGENE, Inc.
will be funding up to $20,000,000 in development costs.
The Company has the ability, subject to certain conditions, to obtain
future funding under the Equity Line, as amended on June 2, 2000, whereby, the
Company may, in its sole discretion, and subject to certain restrictions,
periodically sell ("Put") shares of the Company's common stock until all common
shares previously registered under the Equity Line have been exhausted. As of
October 31, 2000, the Company had approximately 6,001,000 shares registered and
available under the Equity Line for future Puts. Under the amendment, up to
$2,800,000 of Puts can be made every month if the Company's closing bid price is
$2.00 or higher during the 10-day pricing period. If the Company's closing bid
price is between $1.00 and $2.00, then the Company can Put up to $1,500,000 per
month and if the Company's closing bid price falls below $1.00 on any trading
day during the ten trading days prior to the Put, the Company's ability to
access funds under the Equity Line in the Put is limited to 15% of what would
otherwise be available. If the closing bid price of the Company's common stock
falls below $0.50 or if the Company is delisted from The Nasdaq SmallCap Market,
the Company would have no access to funds under the Equity Line. Future Puts are
priced at a discount equal to the greater of 17.5% of the lowest closing bid
price during the ten trading days immediately preceding the date on which such
shares are sold to the institutional investors or $0.20. At the time of each
Put, the investors will be issued warrants, exercisable only on a cashless basis
and expiring on December 31, 2004, to purchase up to 15% of the amount of common
stock issued to the investors at the same price as the shares of common stock
sold in the Put.
COMMITMENTS. At October 31, 2000, we had no material capital
commitments, although we have significant obligations, most of which are
contingent, for payments to licensors for its technologies and in connection
with the acquisition of the Oncolym(R) rights previously owned by Alpha
Therapeutic Corporation ("Alpha").
RISK FACTORS OF OUR COMPANY
The biotechnology industry includes many risks and challenges. Our
challenges may include, but are not limited to: uncertainties associated with
pre-clinical and clinical trials for our technologies; the significant costs to
develop our products as all of our products are currently in development,
pre-clinical studies or clinical trials and no revenue has been generated from
commercial product sales; obtaining additional financing to support our
operations and the development of our products; obtaining regulatory approval
19
<PAGE>
for our technologies; complying with governmental regulations applicable to our
business; obtaining the raw materials necessary in the development of such
compounds; consummating collaborative arrangements with corporate partners for
product development; achieving milestones under collaborative arrangements with
corporate partners; developing the capacity to manufacture, market and sell our
products, either directly or indirectly with collaborative partners; developing
market demand for and acceptance of such products; competing effectively with
other pharmaceutical and biotechnological products; attracting and retaining key
personnel; protecting proprietary rights; accurately forecasting operating and
capital expenditures, other capital commitments, or clinical trial costs and
general economic conditions. A more detail discussion regarding the Company's
industry and business risk factors can be found in the Company's Annual Report
on Form 10-K for the year ended April 30, 2000, which was filed under the name
of Techniclone Corporation with the Securities and Exchange Commission on July
31, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------- ----------------------------------------------------------
Changes in United States interest rates would affect the interest
earned on the Company's cash and cash equivalents. Based on the Company's
overall interest rate exposure at October 31, 2000, a near-term change in
interest rates, based on historical movements, would not materially affect the
fair value of interest rate sensitive instruments. The Company's debt
instruments have fixed interest rates and terms and therefore, a significant
change in interest rates would not have a material adverse effect on the
Company's financial position or results of operations.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
------- ------------------
During March 2000, the Company was served with a notice of lawsuit
filed in Orange County Superior Court for the State of California by a former
officer of the Company who resigned from the Company on November 3, 1999. The
lawsuit alleges a single cause of action for breach of contract. A Director of
the Company was also served with a notice of lawsuit, but such claims do not
appear to be directed toward the Company. A hearing was held on July 21, 2000 in
which the Superior Court judge approved the plaintiff's request for a writ of
attachment and required the plaintiff to post a $15,000 bond in connection with
that writ. On September 28, 2000, the Court ordered a lien of $250,000 to be
held in accordance with the writ of attachment, which is designated as
restricted cash in the accompanying consolidated financial statements. The case
is in the early stages of investigation and the Company is unable to evaluate
the likelihood of an unfavorable outcome. The Company intends to vigorously
contest the underlying complaint.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
------- ------------------------------------------
The following is a summary of transactions by the Company during the
quarterly period of August 1, 2000 through October 31, 2000 involving issuance
and sales of the Company's securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act").
During August 2000, the Company issued 518,672 shares of its common
stock valued at $1,300,000 for the Company's initial obligation in accordance
with the license agreement amendment with Schering A.G., entered into during
June 2000.
20
<PAGE>
During September 2000, the Company issued 21,008 shares of common stock
to a private placement investor upon the exercise of 21,008 warrants at an
exercise price of $1.00 per share. The warrants were issued in conjunction with
a private placement entered into in April 1999.
During October 2000, the Company issued 51,000 shares of common stock
upon the exercise of 51,000 warrants at an exercise price of $0.46875 per share.
The warrants were issued to Swartz Private Equity, LLC (SPE) in exchange for a
commitment by SPE to fund a $35,000,000 equity line financing over a three year
term. This agreement was entered into and approved by the previous Board of
Directors. Mr. Eric Swartz, a member of the Board of Directors, maintains a 50%
ownership in Swartz Private Equity, LLC. Mr. Swartz did not exercise any portion
of his warrant.
During September 2000, the Company issued an aggregate of 1,007,405
shares of the Company's common stock to the two institutional investors and the
placement agent under the Equity Line, for an aggregate purchase price of
$1,700,000. In conjunction with the Equity Line draw, the Company issued
warrants to the two institutional investors and placement agent to purchase up
to 146,530 shares of common stock, which warrants are immediately exercisable on
a cashless basis only and expire on December 31, 2004.
The issuances of the securities of the Company in the above
transactions were deemed to be exempt from registration under the Securities Act
by virtue of Section 4(2) thereof or Regulation D promulgated thereunder, as a
transaction by an issuer not involving a public offering. The recipient of such
securities either received adequate information about the Company or had access,
through employment or other relationships with the Company, to such information.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
------- --------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
------- ----------------------------------------------------
The Company held an annual meeting of stockholders' on October 24,
2000. The directors elected at the meeting were Carlton M. Johnson, Edward J.
Legere, Eric S. Swartz, and Clive R. Taylor, M.D. Ph.D. The following represents
matters voted upon and the results of the voting:
AGAINST OR
FOR WITHHELD
------------ ---------
1) Election of Directors:
Carlton M. Johnson 80,445,598 303,068
Edward J. Legere 80,454,193 294,473
Eric S. Swartz 80,453,651 295,015
Clive R. Taylor, M.D., Ph.D. 80,450,627 298,039
2) To amend the Company's Certificate of
Incorporation to effect a change in the
Company's name to Peregrine Pharmaceuticals, Inc. 79,802,759 945,907
3) To ratify the appointment of Ernst & Young
LLP as independent auditors of the Company for
the fiscal year ending April 30, 2001. 80,351,661 397,005
21
<PAGE>
ITEM 5. OTHER INFORMATION. None.
------- ------------------
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.
------- --------------------------------
(a) Exhibits:
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule.
(b) Reports on Form 8-K:
Current Report on Form 8-K as filed with the Commission on
August 3, 2000 reporting the licensing agreement for a segment
of its Vascular Targeting Agent technology with Scotia
Pharmaceuticals Limited.
22
<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.
PEREGRINE PHARMACEUTICALS, INC.
By: /s/ John N. Bonfiglio
-------------------------------------------
President & Chief Executive Officer
/s/ Paul J. Lytle
-------------------------------------------
Vice President of Finance and Accounting
(signed both as an officer duly authorized
to sign on behalf of the Registrant and
principal financial officer and chief
accounting officer)
23
