SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
Commission file number 0-16177
ONCOR, Inc.
(Exact name of registrant as specified in its charter)
Maryland 52-1310084
(State of Incorporation) (I.R.S Employer Identification No.)
209 Perry Parkway
Gaithersburg, Maryland 20877
(Address of principal executive offices)
(Zip code)
(301) 963-3500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for 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
At July 31, 1996, there were 23,301,011 shares of Common Stock
outstanding. <PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited consolidated balance sheet as of June 30,
1996, the audited consolidated balance sheet as of December 31,
1995, and the unaudited consolidated statements of operations for
the three month and six month periods ended June 30, 1996 and
1995, and of cash flows for the six month periods ended June 30,
1996 and 1995, set forth below, have been prepared pursuant to
the rules and regulations of the Securities and Exchange
Commission (the "Commission"). Certain information and note
disclosures normally included in the annual financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules
and regulations. Oncor, Inc. (the "Company") believes that the
disclosures made are adequate to make the information presented
not misleading.
In the opinion of management of the Company, the
accompanying financial statements reflect all adjustments
(consisting only of normal recurring adjustments) that are
necessary for a fair presentation of results for the periods
presented. It is suggested that this financial information be
read in conjunction with the Form 10-K, including "Item 1.
Business - Additional Risk Factors," filed with the Commission
for the year ended December 31, 1995.
The results for the second quarter and six months ended
June 30, 1996, presented in the accompanying financial
statements, are not necessarily indicative of the results for the
entire year.<PAGE>
<TABLE>
ONCOR, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
As of
------------------------------
June 30, 1996 Dec.31, 1995
Unaudited
--------------- --------------
<S> ASSETS
CURRENT ASSETS: <C> <C>
Cash and cash equivalents $5,248,384 $14,249,925
Short-term investments, at market 282,792 1,580,127
Accounts receivable, net of allowance
for doubtful accounts of approxi-
mately $310,000 and $341,000 2,875,970 3,946,147
Inventories 5,093,936 6,356,041
Other current assets 1,689,681 1,714,030
------------- -------------
Total current assets 15,190,763 27,846,270
------------- -------------
NON-CURRENT ASSETS:
Property and equipment, net (Note 5) 5,523,592 7,445,214
Deposits and other non-current assets 256,548 718,183
Investment in and advances to affiliate
(Note 5) 5,433,577 832,809
Intangible assets, net 7,619,332 9,278,376
------------- -------------
Total non-current assets 18,833,049 18,274,582
------------- -------------
Total assets $34,023,812 $46,120,852
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $3,279,331 $3,679,034
Accrued expenses and other current
liabilities 1,398,259 1,596,203
Short-term borrowings 44,372 227,839
Current portion of long-term debt 1,363,076 2,302,156
------------- -------------
Total current liabilities 6,085,038 7,805,232
------------- -------------
<PAGE>
NON-CURRENT LIABILITIES:
Long-term debt 2,738,040 9,301,408
Deferred rent - 18,223
------------- -------------
Total non-current liabilities 2,738,040 9,319,631
------------- -------------
Total liabilities 8,823,078 17,124,863
------------- -------------
COMMITMENTS AND CONTINGENCY
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 407 3,008,637
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000
shares authorized, no shares issued - -
Common stock, $.01 par value,
50,000,000 shares authorized,
23,353,253 and 21,822,477 issued;
23,273,844 and 21,743,068 outstanding 232,738 217,431
Additional paid-in capital 111,651,526 98,233,612
Unrealized (loss) gain on investments (434) 556
Cumulative translation adjustment 11,589 412,787
Accumulated deficit (86,474,173) (72,656,522)
Less - 79,409 shares of common stock
held in treasury, at cost (220,512) (220,512)
------------- -------------
Total stockholders' equity 25,200,734 25,987,352
------------- -------------
Total liabilities and
stockholders' equity $34,023,812 $46,120,852
============= =============
The accompanying notes are an integral part of these
Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
ONCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S>
GROSS REVENUES: <C> <C> <C> <C>
Product sales $3,900,521 $4,257,725 $7,823,893 $7,933,514
Grants and contracts 221,696 315,999 493,721 595,588
------------ ------------ ------------ -------------
Gross revenues 4,122,217 4,573,724 8,317,614 8,529,102
OPERATING EXPENSES:
Direct cost of sales 2,510,866 1,878,941 4,923,981 3,814,084
Product discontinuation
costs (Note 7) 1,975,000 - 1,975,000 -
Amortization of
intangibles 337,767 339,636 682,146 659,826
Selling, general and
administrative 3,697,455 3,340,329 7,156,271 6,303,948
Research and development 1,804,933 1,966,308 3,791,410 3,831,241
Clinical and regulatory 511,994 335,165 1,004,273 691,318
------------ ------------ ------------ -------------
Total operating expenses 10,838,015 7,860,379 19,533,081 15,300,417
------------ ------------ ------------ -------------
LOSS FROM OPERATIONS (6,715,798) (3,286,655) (11,215,467) (6,771,315)
------------ ------------ ------------ -------------
OTHER INCOME (EXPENSE):
Investment income 58,135 390,398 237,099 707,910
Other expense, net (80,932) (107,811) (232,627) (201,846)
Foreign exchange profit
(loss) (35,975) 3,493 (57,140) (24,103)
Equity in net loss of
affiliates (952,744) (613,161) (2,549,516) (1,130,462)
------------- ------------ ------------- -------------
(1,011,516) (327,081) (2,602,184) (648,501)
Net loss ($7,727,314) ($3,613,736) ($13,817,651) ($7,419,816)
============= ============ ============= =============
NET LOSS PER SHARE ($0.34) ($0.17) ($0.62) ($0.36)
============= ============ ============= =============
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING 23,025,997 20,874,978 22,420,711 20,819,642
============= ============ ============= =============
The accompanying notes are an integral part of these
Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
ONCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the six months ended June 30,
---------------------------------
1996 1995
---------------------------------
<S>
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C>
Net loss ($13,817,651) ($7,419,816)
Adjustments to reconcile net loss to
net cash used in operating activities:
Issuance of common stock for
interest payment of convertible
note 95,708 -
Issuance of common stock in
connection with research and
and development agreements 192,525 -
Depreciation and amortization 1,457,903 1,394,601
Non-cash product discontinuation 1,619,473 -
Equity in net loss of affiliates 2,549,516 1,136,777
Changes in operating assets
and liabilities:
Accounts receivable 970,262 (470,881)
Inventories 369,615 (1,682,456)
Other current assets (355,378) (717,528)
Deposits and other non-current
assets 17,113 5,187
Accounts payable (207,507) 355,676
Customer deposits - (105,671)
Accrued expenses and other
current liabilities (153,195) (403,899)
Deferred rent (18,223) (36,429)
------------- -------------
Net cash used in operating
activities (7,279,839) (7,944,439)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (371,553) (1,278,576)
Purchase of stock in affiliate (300,000) (82,315)
Redemptions of investments 777,105 2,874,488
------------- -------------
Net cash provided by
investing activities 105,552 1,513,597
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants 558,518 366,400
Proceeds from sales of stock of
subsidiary - 3,034,328
Offering costs of private placement (54,100) -
Repayment on long term debt (1,727,721) (1,579,851)
Long term borrowings 207,410 567,506
------------- -------------
<PAGE>
Net cash (used in) provided
by activities (1,015,893) 2,388,383
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (20,331) (45,770)
------------- -------------
Net decrease in cash and cash
equivalents (8,210,511) (4,088,229)
CASH AND CASH EQUIVALENTS, beginning of
the period 13,458,895 9,749,911
------------- -------------
CASH AND CASH EQUIVALENTS, end of the
period $5,248,384 $5,661,682
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $157,296 $200,789
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
In April 1996, the Company issued 834,894 shares of its
common stock valued at $3,950,000 in connection with
conversion of convertible debt.
In March 1996, the Company issued 498,081 shares of its
common stock valued at $2,100,000 in connection with
conversion of convertible debt.
In February 1995, the Company entered into a $1,235,504
capital lease of a building.
The accompanying notes are an integral part of these
Consolidated Financial Statements.
</TABLE>
<PAGE>
ONCOR, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1996
(Unaudited)
1. Cash Equivalents and Investments
Cash equivalents and investments consist primarily of funds
invested in money market instruments, commercial paper and U.S.
government treasury bills. Investments with maturities between
three months and one year are classified as short-term
investments. Investments in securities with original maturities
of three months or less are considered cash equivalents. Cash of
$2.3 million is pledged on a reducing basis over approximately
seven months as security to a bank which guaranteed the principal
and interest of a note issued in an acquisition.
Investments that are classified as available-for-sale
securities are carried at fair market value. Unrealized holding
gains and losses are excluded from earnings and reported as a net
amount in a separate component of stockholders' equity until
realized.
2. Intangible Assets
The intangible assets comprise technology acquired, the
estimated value of contractual positions, and the excess of the
purchase price of acquisitions over the fair market value of the
tangible assets acquired. The intangible assets are being
amortized on a straight line method over periods of two to 10
years, with a weighted average amortization period of eight
years.
3. Net Loss Per Share
Net loss per share is determined using the weighted-average
number of shares of Common Stock outstanding during the periods
presented. The effects of options and warrants have not been
considered since the effects would be antidilutive.
<PAGE>
4. Investments in Debt Securities at June 30, 1996
The aggregate fair value of investments in debt securities
as of June 30, 1996 is as follows:
Government securities
$U.S. denominated $ 688,458
Commercial paper 932,856
Total $1,621,314
5. OncorPharm Private Placement
On April 2, 1996, OncorPharm, Inc. ("OncorPharm"), a
53%-owned subsidiary, completed a private placement of 670,000 of
its preferred shares of stock at $3.00 per share. The effect of
this transaction was to reduce the Company's ownership interest
in OncorPharm to approximately 46%. On June 28, 1996, OncorPharm
completed a second private placement of 342,667 of its preferred
shares of stock at $3.00 per share. The Company purchased
100,000 shares in this second private placement. As a net
result, the Company's ownership interest in OncorPharm was
further reduced to approximately 45%. As the Company's voting
interest is now less than 50%, the Company has accounted for its
investment in OncorPharm using the equity method of accounting in
the second quarter. The financial statements of the Company for
the three months ended March 31, 1996 have been retroactively
adjusted to record the results of OncorPharm pursuant to the
equity method of accounting from January 1, 1996. Accordingly,
the Company has reflected in the financial statements presented
for all periods in 1996 only its proportionate share of the
earnings or losses of OncorPharm. The restatement had no impact
on the Company's consolidated net loss or net loss per share.
OncorPharm realized net cash proceeds of approximately $3.0
million from sale of the shares.
6. Subsequent Event
In July 1996, Appligene Oncor S.A., the European subsidiary
of the Company, completed an initial public offering of its
common shares for approximately $9.3 million. The Company
retained an 80% interest in Appligene Oncor S.A.
In August 1996, the Company issued 260,209 shares of its
Common Stock in connection with conversion of $950,000 in
convertible debt.
<PAGE>
7. Product Discontinuation Costs
In the second quarter of 1996, the Company adopted a plan to
discontinue the development, manufacture, sale, and support of
certain imaging, research, and non-diagnostic genetics products.
The product discontinuation costs of $1,975,000 comprise the
revaluation of inventory of discontinued products, charge off of
goodwill associated with such products, and severance payments to
employees terminated in conjunction with the plan.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis provides information
which management believes is relevant to an assessment and
understanding of the Company's results of operations and
financial condition. The discussion should be read in
conjunction with the audited consolidated financial statements of
the Company and notes thereto, which were included in the
Company's Annual Report on Form 10-K for fiscal year ended
December 31, 1995. This Form 10-Q contains certain statements of
a forward-looking nature relating to future events or the future
financial performance of the Company. Readers are cautioned
that such statements are only predictions and that actual events
or results may differ materially. In evaluating such statements,
readers should specifically consider the various factors
identified in this Report which could cause actual results to
differ materially from those indicated by such forward-looking
statements, including the matters set forth in "Risk Factors."
General
In the second quarter of 1996, the Company adopted a plan to
discontinue the development, manufacture, sale and support of
certain imaging, research and non-diagnostic genetics products.
Related to this plan, the Company took a charge of approximately
$2.0 million in the second quarter to revalue the inventory of
discontinued products, charge off goodwill associated with such
products and provide severance payments to employees terminated
in conjunction with the plan. The Company believes that the
actions taken and to be taken with respect to this plan will
reduce manufacturing, selling, general and administrative
expenses beginning in the second half of 1996.
Also, in the second quarter of 1996 and as further described
in Note 5 to the consolidated financial statements found
elsewhere in this Form 10-Q, the Company no longer owns a
majority of capital stock of OncorPharm and, as a result,
deconsolidated the results of operations of OncorPharm effective
January 1, 1996. Accordingly, the consolidated operating results
include the operating results of OncorPharm in the 1995 periods
presented and exclude them in the 1996 periods presented.
Beginning in 1996, the Company's proportionate share of losses
incurred by OncorPharm are included in Equity in Net Loss of
Affiliates.
<PAGE>
Results of Operations
Revenues decreased 10% and 2% to $4.1 million and $8.3
million for the three months and six months, respectively, ended
June 30, 1996, as compared to $4.6 million and $8.5 million,
respectively, for the corresponding periods of 1995, due to the
discontinuation of certain products (as described in General
above) and the completion of certain research grants.
Application for renewal of the research grants has been made, but
there can be no assurance that such renewals will be granted.
Gross profit as a percentage of product revenues decreased
to 36% in the second quarter of 1996 from 56% in the
corresponding period of 1995. The decrease was due to continuing
efforts to reduce inventory levels and the development of
manufacturing processes to comply with U.S. Food and Drug
Administration ("FDA") regulations for diagnostic products.
Selling, general and administrative expenses increased by
$0.4 million and $0.9 million for the second quarter and first
half, respectively, of 1996 from the corresponding periods of
1995. Approximately $0.2 million and $0.3 million, respectively,
of the increases are due to the expenses associated with the
continuing development of a sales and marketing staff in Europe.
The remainder of the increases are due to (i) expenses
associated with the Company's financing efforts of the Company
and its European subsidiary, (ii) executive recruitment and
relocation expenses, (iii) costs associated with the realignment
of certain distributor relationships, and (iv) the legal expenses
associated with certain intellectual property issues. The
increases more than offset the decreases in such expenses
resulting from the deconsolidation of the operating results of
OncorPharm in 1996. OncorPharm selling, general, and
administrative expenses were $0.1 million and $0.3 million for
the second quarter and first half of 1995, respectively.
Research and development expenses decreased by $0.2 million
for the second quarter of 1996 from the corresponding period of
1995, and remained unchanged for the first half of 1996 compared
to the corresponding period in 1995. The decreases resulted
primarily from the deconsolidation of the operating results of
OncorPharm in 1996. OncorPharm research and development expenses
accounted for $0.4 million and $0.8 million for the second
quarter and the first half of 1995, respectively. Such decrease
was almost entirely offset in 1996 by (i)initial payments, made
largely in Common Stock of the Company, at the inception of two
research collaboration agreements with The John Hopkins
University, (ii) a license agreement with Yale University, and
(iii) substantial increased activity associated with the
development of diagnostic products.
Clinical and regulatory expenses increased $0.2 million and
$0.3 million in the second quarter and first half of 1996,
respectively, from the corresponding periods of 1995. This
increase is due to professional fees incurred to support the
Company's applications for diagnostic products with the FDA.
Other net non-operating expenses increased by $0.7 million
and $2.0 million for the second quarter and first half of 1996,
respectively, compared to the corresponding periods in 1995. The
Company's proportionate share of net losses attributable to
OncorPharm for the second quarter and first half of 1996 were
$0.4 million and $1.4 million, respectively. The remainder of
the increase is due to a decrease in interest income included in
other net non-operating expenses.
As a result of the factors discussed above, net loss
increased to $7.7 million ($0.34 per share) and $13.8 million
($0.62 per share) in the second quarter and the first half of
1996 from $3.6 million ($0.17 per share) and $7.4 million ($0.36
per share), respectively, in the corresponding periods of 1995.
Liquidity and Capital Resources
The following table sets forth the most significant elements
of the cash flows of the Company in the first half of 1996 (in
millions):
Cash and liquid investments at January 1, 1996 $14.5
Net cash loss (7.9)
Cash generated from the decline in working capital 0.6
Purchases of equipment (0.4)
Principal portion of debt service (1.7)
Proceeds from exercise of options,
long-term borrowings and other 0.4
Cash and liquid investments at June 30, 1996 $5.5
Net cash loss is discussed under Results of Operations found
elsewhere in this Management's Discussion and Analysis. The
decline in working capital represents a decrease in inventory and
accounts receivable of $1.3 million, partially offset by a
decline in current liabilities of $0.4 million. Purchases of
equipment are for the on-going replacement of laboratory
equipment. The Company expects property and equipment purchases
to continue at this rate. Principal portion of debt service is
expected to decline substantially after the third quarter of
1996.
In July 1996, the European subsidiary of the Company
completed a $9.3 million initial public offering of its common
stock (the "IPO"). The Company retained an 80% interest in the
subsidiary and, accordingly, will continue to include its results
of operations in the consolidated financial statements of the
Company. The subsidiary remitted approximately $1.5 million of
the proceeds to the Company in satisfaction of outstanding trade
indebtedness. The remainder of the proceeds are restricted for
use in the further development of the subsidiary's business.
In addition, in July 1996, the Company sold the technology
related to its industrial inspection products (the "Technology")
for approximately $0.4 million of cash and certain future
royalties.
The Company believes that the cash and liquid investments of
the Company at June 30, 1996 together with the unrestricted
portion of the proceeds from the IPO and the proceeds from the
sale of the Technology will be sufficient to fund its operations
through the remainder of 1996. The Company has entered into
discussions with potential private investors with the objective
of securing sufficient additional financing such that the Company
will have adequate cash to fund operations for the next twelve
months. There can be no assurance that such efforts will be
successful or that, if successful, the resulting funding will be
sufficient such that operations will be adequately funded for the
next twelve months.
The current fair market value of that portion of the
Company's holdings of publicly traded common stock in affiliates
which are not subject to contractual restrictions is
approximately $15 million. The Company believes that a portion
of these investments could be converted into cash, if necessary.
However, as of the date of this report, the Company has no plans
to do so.
In August 1996, certain holders of convertible debt
securities elected to convert approximately $1.0 million
principal amount into approximately 260,000 shares of Common
Stock of the Company.
Risk Factors
Risk Associated with the HER-2/neu Gene-Based Test System
In November 1995, an FDA advisory panel (the "Panel") made a
recommendation against final approval of the Company's Pre-Market
Approval ("PMA") application for the use of its HER-2/neu
gene-based test system for diagnostic purposes. No assurance can
be given that the Panel will reconsider its position or that the
FDA will overturn the recommendation of the Panel or that the
Company will obtain FDA approval for its HER-2/neu gene-based
test system. The failure to obtain FDA approval for its
HER-2/neu gene-based test system on a timely basis, or at all,
would have a material and adverse effect on the Company's
business, financial condition and results of operations. In the
event that the Company receives FDA approval for its HER-2/neu
gene-based test system, there can be no assurance that the
Company will be capable of manufacturing the test system in
commercial quantities at reasonable costs or marketing the
product successfully, that the test system will be accepted by
the medical diagnostic community, or that the market demand for
the test system will be sufficient to allow profitable sales.
No Assurance of Regulatory Approvals; Government Regulation
The Company is currently pursuing FDA approval of certain
existing products and expects to pursue FDA approval of certain
additional products under development. There can be no assurance
that the Company will receive regulatory approval for any of its
products or, even if it does receive regulatory approval for a
particular product, that the Company will ever recover its costs
in connection with obtaining such approval. The timing of
regulatory approvals is not within the control of the Company.
The failure of the Company to receive requisite approval, or
significant delays in obtaining such approval, could have a
material and adverse effect on the business, financial condition
and results of operations of the Company.
Approval by the FDA requires lengthy, detailed and costly
laboratory procedures, clinical testing procedures and
application preparation and defense efforts to demonstrate a
product's efficacy and safety before a product can be sold for
diagnostic use. Even if such regulatory approval is obtained for
a product, its manufacturer and its manufacturing facilities are
subject to continual review and periodic inspections by the FDA
and other regulatory agencies. The regulatory standards for
manufacturing are applied stringently by the FDA. Discovery of
previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or
manufacturer, including costly recalls or even withdrawal of the
product from the market. Furthermore, approval may entail
ongoing requirements for postmarketing studies. Failure to
maintain requisite manufacturing standards or discovery of
previously unknown problems could have a material and adverse
effect on the Company's business, financial condition or results
of operations.
Patents and Proprietary Rights
The Company's success will depend in large part on its, or
its licensors, ability to obtain patents, defend its patents,
maintain trade secrets and operate without infringing upon the
proprietary rights of others, both in the United States and in
foreign countries. The patent position of firms relying upon
biotechnology is highly uncertain in general and involves complex
legal and factual questions. To date there has emerged no
consistent policy regarding the breadth of claims allowed in
biotechnology patents or the degree of protection afforded under
such patents. The Company relies on certain patents and pending
United States and foreign patent applications relating to various
aspects of its products. These patents and patent applications
are either owned by the Company or rights under them are licensed
to the Company. There can be no assurance that patents will
issue as a result of any such pending applications or that, if
issued, such patents will be sufficiently broad to afford
protection against competitors with similar technology. In
addition, there can be no assurance that any patents issued to
the Company, or for which the Company has license rights, will
not be challenged, invalidated or circumvented, or that the
rights granted thereunder will provide competitive advantages to
the Company. The commercial success of the Company will also
depend upon avoiding the infringement of patents issued to
competitors and upon maintaining the technology licenses upon
which certain of the Company's current products are, or any
future products under development might be, based. Litigation,
which could result in substantial cost to the Company, may be
necessary to enforce the Company's patent and license rights or
to determine the scope and validity of others' proprietary
rights. If competitors of the Company prepare and file patent
applications in the United States that claim technology also
claimed by the Company, the Company may have to participate in
interference proceedings declared by the United States Patent and
Trademark Office ("PTO") to determine the priority of invention,
which could result in substantial cost to the Company, even if
the outcome is favorable to the Company. An adverse outcome
could subject the Company to significant liabilities to third
parties and require the Company to license disputed rights from
third parties or cease using the technology. A United States
patent application is maintained under conditions of
confidentiality while the application is pending in the PTO, so
that the Company cannot determine the inventions being claimed in
pending patent applications filed by its competitors in the PTO.
Further, United States patents do not provide any remedies for
infringement that occurred before the patent is granted.
The University of California and its licensee, Vysis, Inc.
("Vysis"), filed suit against Oncor on September 5, 1995 for
infringement of U.S. Patent No. 5,447,841 entitled Methods and
Compositions for Chromosome Specific Staining which issued on
that same date. The patent relates to a method of performing in
situ hybridization using a blocking nucleic acid that is
complementary to repetitive sequences. A failure to successfully
defend against or settle this suit may result in damages being
assessed against the Company and an injunction against the sale
of some of the Company's probes. The University of California
and Vysis have offered to grant the Company a non-exclusive
license.
The Company has licensed rights to inventions disclosed in
United States and foreign patent applications relating to methods
and probes for detecting the presence of the Fragile X syndrome.
The Company believes that its licensors are original inventors
and are entitled to patent protection in the United States, but
the Company is aware that certain third parties also have filed
patent applications in the United States and abroad and claim to
be entitled to patents related to this technology. The Company
has initiated an interference proceeding with these third parties
in the PTO to resolve which party is entitled to a United States
patent, if any. The application licensed by the Company is
senior in the interference. An unfavorable decision in such a
proceeding could have an adverse effect on the Company.
The Company currently has certain licenses from third
parties and in the future may require additional licenses from
other parties to develop, manufacture and market commercially
viable products effectively. There can be no assurance that such
licenses will be obtainable on commercially reasonable terms, if
at all, that the patents underlying such licenses will be valid
and enforceable or that the proprietary nature of the patented
technology underlying such licenses will remain proprietary.
The Company relies substantially on certain technologies
that are not patentable or proprietary and are therefore
available to the Company's competitors. The Company also relies
on certain proprietary trade secrets and know-how that are not
patentable. Although the Company has taken steps to protect its
unpatented trade secrets and know-how, in part through the use of
confidentiality agreements with its employees, consultants and
certain of its contractors, there can be no assurance that these
agreements will not be breached, that the Company would have
adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known or be independently
developed or discovered by competitors.
Uncertainties Relating to Product Development
Most of the Company's products have not been approved by the
FDA and may be sold only for research purposes. The Company has
undertaken to seek FDA approval for certain of these products,
and may in the future undertake to seek such approval for other
products, and substantial additional investment, laboratory
development, clinical testing and FDA approval will be required
prior to the commercialization of such products for diagnostic
purposes. There can be no assurance that the Company will be
successful in developing such existing or future products, that
such products will prove to be efficacious in clinical trials,
that required regulatory approvals can be obtained for such
products, that such products, if developed and approved, will be
capable of being manufactured in commercial quantities at
reasonable costs, will be marketed successfully or will be
accepted by the medical diagnostic community, or that market
demand for such products will be sufficient to allow profitable
operations.
<PAGE>
International Sales and Foreign Exchange Risk
The Company derived approximately $9.0 million or 56% of its
total product revenues, from customers outside of the United
States for the year ended December 31, 1995. The Company
anticipates that a significant amount of its sales will take
place in European countries and likely will be denominated in
currencies other than the U.S. dollar. These sales may be
adversely affected by changing economic conditions in foreign
countries and by fluctuations in currency exchange rates. Any
significant decline in the applicable rates of exchange could
have a material adverse effect on the Company's business,
financial condition and results of operations. Additional risks
inherent in the Company's international business activities
generally include unexpected changes in regulatory requirements,
tariffs and other trade barriers, lack of acceptance of products
in foreign markets, longer accounts receivable payment cycles,
difficulties in managing international operations, potentially
adverse tax consequences, restrictions on repatriation of
earnings and the burdens of complying with a wide variety of
foreign laws. There can be no assurance that such factors will
not have a material adverse effect on the Company's future
international revenues and, consequently, on the Company's
business, financial condition and results of operations.
Competition and Technological Change
The diagnostic and biotechnology industries are subject to
intense competition and rapid and significant technological
change. Competitors of the Company in the United States and in
foreign countries are numerous and include, among others,
diagnostic, health care, pharmaceutical, biotechnology and
chemical companies, academic institutions, government agencies
and other public and private research organizations. Many of
these competitors have substantially greater financial and
technical resources and production and marketing capabilities
than the Company. There can be no assurance that these
competitors will not succeed in developing technologies and
products that are more effective, easier to use or less expensive
than those that have been or are being developed by the Company
or that would render the Company's technology and products
obsolete and noncompetitive. The Company also competes with
various companies in acquiring technology from academic
institutions, government agencies and research organizations. In
addition, many of the Company's competitors have significantly
greater experience than the Company in conducting clinical trials
of new diagnostic products and in obtaining FDA and other
regulatory approvals of products for use in health care.
Accordingly, the Company's competitors may succeed in obtaining
regulatory approval for products more rapidly than the Company.
<PAGE>
Other Factors
Other factors that may affect the Company's business,
financial condition and results of operations, include
the Company's limited manufacturing, marketing and distribution
experience, the level and availability of government funding, the
Company's ability to attract and retain key personnel, potential
health care reform measures and the availability of third-party
reimbursement, potential product liability claims, and
environmental risks.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
a. The annual meeting of the stockholders was held on July 9,
1996.
b. Motions before the stockholders:
(1) To elect five directors.
Stephen Turner Votes for 18,290,442
Withheld 101,610
Philip S. Schein Votes for 18,288,442
Withheld 103,610
Timothy J. Triche Votes for 18,288,442
Withheld 103,610
William H. Taylor II Votes for 18,290,422
Withheld 101,610
George W. Scherer Votes for 18,290,442
Withheld 101,610
(2) To ratify the selection of Arthur Andersen LLP as
independent public accountants of the Company for the
year 1996.
Votes for 18,344,603
Votes against 27,299
Abstain 20,150
(3) To approve an amendment to the Company's 1992 Stock
Option Plan to increase the total number of shares
authorized for issuance thereunder by 500,000 shares to
a total of 5,015,604 shares.
Votes for 16,813,475
Votes against 1,516,074
Abstain 62,503<PAGE>
Item 5. Other Information.
Effective August 9, 1996, George W. Scherer resigned from
the Board of Directors of the Company. He stated that the
resignation was largely for personal reasons.
Item 6. Exhibits and Reports on Form 8-K.
a. The following exhibits are filed as part of this report on
Form 10-Q.
27. Financial Data Schedule.
b. Reports on Form 8-K.
None.
<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.
ONCOR, INC.
(Registrant)
Date: August 13, 1996
Stephen Turner, Chairman and Chief
Executive Officer
Date: August 13, 1996
John L. Coker, Vice President
of Finance and Administration,
Chief Financial Officer
<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.
ONCOR, INC.
(Registrant)
Date: August 13, 1996 /s/ Stephen Turner
Stephen Turner, Chairman and Chief
Executive Officer
Date: August 13, 1996 /s/ John L. Coker
John L. Coker, Vice President
of Finance and Administration,
Chief Financial Officer
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