SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (Par Value $.01 Per Share)
(Title of Class)
Redeemable Common Stock Purchase Warrants
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
At February 29, 1996, there were 21,803,068 shares of Common
Stock outstanding. The aggregate market value of the voting
stock held by non-affiliates was approximately $107,478,562 at
that date. Document incorporated by reference: Proxy Statement
of Oncor, Inc. relative to the Annual Meeting of Shareholders to
be held in June 1996, which is incorporated into Part III of this
Form 10-K.<PAGE>
TABLE OF CONTENTS
PART I
Item Page
1. Business. . . . . . . . . . . . . . . . . . . . . . . 1
2. Properties. . . . . . . . . . . . . . . . . . . . . . 22
3. Legal Proceedings . . . . . . . . . . . . . . . . . . 23
4. Submission of Matters to a Vote of Security Holders . 23
PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . 24
6. Selected Consolidated Financial Data. . . . . . . . . 25
7. Management's Discussion and Analysis of
Financial Condition and Results of Operation. . . . . 26
8. Consolidated Financial Statements
and Supplementary Data. . . . . . . . . . . . . . . . 32
9. Changes in and Disagreements on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . 32
PART III
10. Directors and Executive Officers of the Registrant. . 33
11. Executive Compensation. . . . . . . . . . . . . . . . 33
12. Security Ownership of Certain
Beneficial Owners and Management. . . . . . . . . . . 33
13. Certain Relationships and Related Transactions. . . . 33
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . 34
Signatures. . . . . . . . . . . . . . . . . . . . . . 38
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Oncor, Inc. ("Oncor") and together with its consolidated
subsidiaries (the "Company") was incorporated in Maryland in
July, 1983. Oncor's principal offices are located at 209 Perry
Parkway, Gaithersburg, Maryland 20877, and its telephone number
is (301) 963-3500.
BUSINESS
This Report contains certain statements of a forward-looking
nature relating to future events or the future financial
performance of the Company. Investors are cautioned that such
statements are only predictions and that actual events or results
may differ materially. In evaluating such statements, investors
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 "Business - Additional Risk
Factors."
The Company develops, produces and markets cancer-oriented
genetic probes, related reagents, molecular biology products,
diagnostic products, and imaging systems. The Company has
obtained United States Food and Drug Administration ("FDA")
approval for, and is marketing its first clinical product, a
genetic test system for use in the detection and monitoring of
leukemia and lymphoma. Oncor is also developing additional
genetic test systems for the detection and management of
significant life-threatening cancers, including breast cancer,
bladder cancer, lung cancer and certain other blood cancers. In
addition to its genetic test systems, the Company currently
manufactures and markets for research purposes over 200 genetic
probes to specific human genes, with related reagents and
instrumentation, and a wide array of molecular biology products.
The Company has also developed integrated imaging and scanning
systems for use with its genetic probes. The Company currently
sells its products to over 1,700 customers worldwide.
In February 1994, the Company filed a Premarket Approval
("PMA") application with the FDA for its Her-2/neu amplification
test system for the characterization of breast cancer. In
November 1995, an FDA panel of independent advisors (the "Panel")
made a recommendation against final approval of the Company's PMA
application for the use of its Her-2/neu genetic test system for
diagnostic purposes. No assurance can be given that the Panel
will reconsider its position or that the Company will obtain FDA
approval for its Her-2/neu genetic test system. The failure to
obtain FDA approval for its Her-2/neu genetic 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 genetic 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.
In September 1994, the Company filed a PMA application with
the FDA for its leukemia detection test for Chronic Myelogenous
Leukemia ("CML"). The Company is also conducting preclinical
studies for detection tests for other leukemias, bladder cancer,
lung cancer and certain other blood cancers.
Oncor's genetic test systems permit the detection of
individual cancer cells at the fundamental genetic level, as
distinct from conventional forms of analysis which detect the
large cancer cell populations that result from the progression of
the disease. In addition, genetic test systems can be used to
characterize a cancer cell's origin or type, thereby facilitating
the selection of the appropriate treatment modality. As a
result, Oncor's genetic test systems may be useful throughout the
cycle of cancer management from initial screening for
predisposition to cancer, through detection and typing of cancer
and selection of therapy, to monitoring of treatment and
detection of residual disease or relapse.
The Company has established agreements with numerous
academic and research institutions which provide (or have
provided) the Company with certain exclusive commercial rights to
inventions relating to specific genes and other genetic
technologies. These institutions include The Johns Hopkins
University School of Medicine ("Johns Hopkins"), Baylor College
of Medicine, University of Chicago, The Children's Hospital of
Philadelphia, Yale University, the University of Colorado, the
Wistar Institute of Anatomy and Biology, Stanford University and
Princeton University.
Products
The Company's principal products include: (1) integrated
genetic test systems containing one or more genetic probes
together with the reagents, slides and other materials necessary
to perform genetic analysis; (2) molecular biology reagents,
enzymes and instruments; and (3) computerized imaging systems.
The Company also sells the individual genetic test system
components as required by its customers. The Company's genetic
test systems generally incorporate in situ hybridization
techniques. Enhancing the speed and reliability of these
techniques has been a major focus of the Company.
Most of the Company's products are currently sold in the
United States for research purposes only and, accordingly, do not
require approval or clearance by the FDA or by any similar
foreign authority. However, the Company plans to obtain FDA
approval for the clinical use of a number of these products and
has received such approval for a leukemia/lymphoma test. No
assurance can be given that the Company will obtain FDA approval
for any of its other products.
Through its in-house research and development efforts, along
with collaborations with human genome research centers, Oncor has
assembled, and is developing, a portfolio of genetic test systems
and enabling technologies. Set forth below are descriptions of
the Company's principal genetic test systems and related products
currently being sold or under development.
Leukemia and Lymphoma - Gene Rearrangement
The Company manufactures and markets an FDA-approved genetic
test system, the B/T Blue(TM) Gene Rearrangement Test System, for
use in the differentiation, detection, treatment selection and
monitoring of leukemia and lymphoma from whole blood samples,
tissues and marrow specimens. Differentiation of leukemia and
lymphoma is important in determining the optimal course of
treatment.
Breast Cancer
The Company has developed a genetic test system to identify
Her-2/neu gene amplification, an independent marker of breast
cancer aggressiveness. The Company believes the presence of
Her-2/neu amplification is indicative of clinically aggressive
breast cancer, even in apparent localized tumors, requiring more
aggressive treatment than localized breast cancer tumors.
The Company has completed clinical trials of its Her-2/neu
amplification test system for breast cancer and filed a PMA
application in February 1994. In November 1995, the Panel
reviewed the PMA and made a recommendation against final approval
of the Company's PMA application for the use of its Her-2/neu
genetic test system for diagnostic purposes. No assurance can be
given that the FDA advisory panel will reconsider its position or
that the Company will obtain FDA approval for its Her-2/neu
genetic test system. The failure to obtain FDA approval for its
Her-2/neu genetic 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 genetic 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. The Company has recently
received approval to market its Her-2/neu genetic test system for
diagnostic use in Australia, Austria, Canada, Denmark, Germany,
Ireland, Luxembourg, The Netherlands, Sweden, Switzerland and the
United Kingdom and expects to commence sale for diagnostic
purposes in these countries in late 1996.
Leukemia and Lymphoma - Chronic Myelogenous Leukemia
The Company has developed a genetic test system to identify
CML, the most common subtype of leukemia. The Company's genetic
test system is capable of detecting the chromosomal
translocations which identify CML. Because the Company's genetic
test system can identify the CML subtype of leukemia, it is
useful in determining disease prognosis and in detecting signs of
relapse. The Company filed a PMA application in relation to its
CML genetic test system in September 1994. The Company has
recently received approval to market its CML genetic test system
for diagnostic use in Australia, Austria, Canada, Denmark,
Germany, Ireland, Luxembourg, The Netherlands, Sweden,
Switzerland and the United Kingdom and expects to commence sale
for diagnostic purposes in these countries in late 1996.
The Company also currently manufactures and markets, for
research purposes only, genetic test systems for the detection of
other subtypes of leukemia which are associated with other
chromosomal translocations or genetic changes and intends to
continue clinical or preclinical trials on several of these
genetic test systems.
Bladder Cancer
The Company has acquired exclusive rights to certain
published technologies from Johns Hopkins which the Company
believes may be beneficial in developing a bladder cancer
screening test. Plans are in progress to incorporate these
technologies into preclinical and clinical trials.
Lung Cancer
The Company and Johns Hopkins are actively pursuing the
discovery of genetic changes associated with the early detection
of lung cancer under a collaboration research and licensing
agreement. The objective is the development of a method to
detect the associated specific genetic events in sputum samples
at an early stage. In September 1995, the United States Patent
and Trademark Office ("PTO") issued a notice of allowance to
Johns Hopkins for this technology which is licensed exclusively
to the Company.
Breast, Prostate and Colon Cancer - Molecular Staging Assay
In March 1994, the Company acquired an exclusive worldwide
license from Johns Hopkins for a test that will detect small
numbers of metastatic cancer cells in surgical sections and lymph
nodes. The test is more sensitive than current methods and will
have broad-based implications in the staging and management of
all solid tumors. The test is being developed by OncorMed, Inc.
("OncorMed"), the Company's medical services affiliate, for
application in the detection and management of breast, colon and
prostate cancer.
TriAmp(TM) Amplification Technology
The Company has developed a proprietary technology for the
targeted amplification of DNA sequences. The technology is a
continuous chemical reaction in which a copy of a small fragment
of the target DNA is reproduced in a geometric fashion with an
objective of detecting gene mutations in samples too small to
allow detection using current technologies.
Other Products
In addition to the genetic test systems for specific cancers
and genetic diseases, the Company currently manufactures and
sells over 200 other genetic probes to specific regions
(chromosomes, loci or genes) for research purposes. In addition
to genetic probes, the Company manufactures and markets for
research purposes reagents and solutions for use in hybridization
procedures, reagents for the extraction of DNA samples from blood
and solid tissue, as well as various DNA labeling kits.
Oncor Imaging Systems
The Company manufactures and markets imaging systems which
allow the end-user to display, archive, analyze and print color
microscope images. The system's components are integrated for
use with the Company's genetic test systems.
OncorMed
As more fully described in Note 4 to the accompanying
consolidated financial statements, OncorMed, the Company's
medical services affiliate, has completed two public offerings of
its common stock, first in October 1994, then in February 1996.
As a result, the Company's ownership interest was reduced to
approximately 40% of the outstanding common stock in 1995 and 29%
in 1996. Accordingly, OncorMed is no longer a consolidated
subsidiary of the Company. OncorMed continues to develop its
genetic risk assessment and early cancer detection services
around technologies and test system products licensed and
provided by Oncor.
OncorPharm
As more fully described in Note 4 to the accompanying
consolidated financial statements, OncorPharm, the Company's
therapeutic subsidiary, completed one round of private equity
financing in April 1995. As a result, the Company's ownership
interest was reduced to approximately 53% of the outstanding
common and preferred stock. OncorPharm is undertaking research
activities in an effort to develop gene-repair compounds, based
largely on technologies acquired by exclusive license from
Princeton University and Yale University.
Appligene
In September 1994, the Company acquired substantially all of
the outstanding capital stock of Appligene. Appligene develops,
manufactures and markets a variety of molecular biology products,
most significantly restriction enzymes, and markets related
apparatus and equipment. The principal markets for Appligene's
products are in Europe and the United Kingdom. Through
Appligene, Oncor has begun marketing its products for research
purposes through Appligene's direct sales force and Oncor,
through its direct sales force, is marketing Appligene's products
in North America.
Research and Development
The Company conducts the majority of its research and
development activities through its own staff and facilities. The
Company currently has 72 employees engaged in research and
development, including 35 with Ph.D.'s. The Company's in-house
research and development efforts are focused primarily on the
development of new genetic test systems, new genetic probes,
probe labeling and detection techniques, reagent chemistries,
imaging systems, sequencing products, amplification methods and
cellular rare event detection.
In addition to its in-house research programs, the Company
collaborates with academic and research institutions to support
research in areas of interest to the Company. In particular, all
of the clinical testing required to support the Company's FDA
approval applications is conducted by outside clinical research
institutions. Typically under these arrangements, the Company's
personnel establish a clinical testing protocol, monitor the
performance of the institution in implementing that protocol and,
if necessary, assist the associated documentation, statistical
analysis and submission of results to the FDA. The Company
usually pays the costs of the outside institution associated with
conducting and reporting the results of the clinical trials.
In addition, the Company occasionally licenses from third
parties the rights to certain genetic probes and other
technologies that it incorporates in its products or uses in its
research and development efforts. See "Business - Proprietary
Rights and Licenses."
Sales and Marketing
The Company has direct sales forces in Europe and the United
States, aggregating approximately 34 employees, and is supported
by field application specialists and in-house technical services
personnel. The Company currently markets its products through
its sales forces to over 1,700 customers in the United States and
Europe, primarily for research purposes. These customers include
laboratory directors at centers that analyze tumors, genetic
laboratories that perform chromosomal analysis and academic
research laboratories. In other regions of the world, the
Company sells its products through research product distributors.
The list prices of the Company's genetic test systems range from
approximately $15 to $110 per test. The tests are typically
purchased on a recurring basis.
The Company's B/T Blue(TM) Gene Rearrangement Test System
for use in diagnosing leukemia and lymphoma, which has been
approved by the FDA for sale as a diagnostic product, is sold
directly to pathologists and clinical laboratories. More than 50
laboratories in the United States are currently using this test
system. The Company's other genetic test systems, imaging
systems and molecular biology products are currently sold, for
research purposes only, to physicians and scientists at medical
centers, hospitals, universities and research institutions on a
worldwide basis.
The Company emphasizes the sale of integrated genetic test
systems composed of genetic probes, imaging systems, slides,
reagents and other materials to help assure the performance of
the products in the customer's laboratory. In addition, the
Company operates periodic workshops in which clinicians pay
tuition to receive training in the use of the Company's products
for the research analysis of cancer and genetic diseases.
Manufacturing
The Company currently operates three manufacturing
facilities. Two are in the vicinity of its headquarters in
Gaithersburg, Maryland, one for the production of commercial
quantities of its genetic test systems and reagents and the other
for the production of imaging systems. The third facility is
located in Strasbourg, France for the production of molecular
biology products. The Company maintains its own quality control
laboratories at all sites to assure quality and product
performance.
Competition
Competition in the medical diagnostic and research market is
intense. The Company competes with a large number of companies
ranging from very small businesses to large diagnostic, health
care, pharmaceutical, biotechnology and chemical companies, many
of which have substantially greater financial, manufacturing,
marketing and product research resources than the Company.
Academic institutions, governmental agencies and other public and
private research organizations are also conducting research
activities and may commercialize products on their own or through
joint ventures with competitors. In general, the particular
companies with which the Company competes, and the technologies
with which its products compete, vary with the Company's
different products and markets. The Company competes primarily
on the basis of the clinical utility, accuracy, speed, ease of
use and other performance characteristics of its products and, to
a lesser degree, on the price of its products.
The largest portion of the cancer diagnostics market to date
has been represented by serum protein assays, which measure the
actual amount of the specific target protein in the blood. Serum
assays are recommended primarily for the monitoring of patients
with known disease. In addition to protein assays, a number of
companies supply antibodies to various cell surface proteins
associated with cancer. Antibody-based cancer diagnostics are
also utilized in conjunction with flow cytometry instrumentation.
The Company is also aware that other companies are likely
developing genetic test systems for diagnostic purposes, which
may be competitive with the Company's products. In addition, a
number of methods currently exist for gene amplification,
including the widely used polymerase chain reaction (PCR)
process, and the Company is aware that additional methods are
under development by other companies. These gene amplification
methods could compete directly with the Company's amplification
product line. The existence of these and other competing
products or procedures that may be developed in the future may
adversely affect the marketability of products developed by the
Company.
Competition for imaging systems is also significant.
Several other companies, which are generally larger than the
Company, manufacture systems which have features different in
some respects from those of the Company. Competition for
molecular biology products is intense both in the United States
and Europe, primarily from very large multi-national
corporations.
The Company's competitive position depends, in part, on its
ability to attract and retain qualified scientific and other
personnel, develop effective proprietary products, implement
production and marketing plans, obtain patent or exclusive
licensing protection and obtain adequate capital resources.
Government Regulation
Those of the Company's products that are intended for
research purposes only, as opposed to clinical diagnostic
applications, and which are labeled and sold as such, may
currently be marketed in the United States and most foreign
markets. However, the manufacture, distribution and sale of the
Company's products in the United States for clinical diagnostic
purposes requires prior authorization by the FDA. The FDA and
similar agencies in foreign countries, especially France and
Japan, have promulgated substantial regulations which apply to
the testing, marketing, import, export and manufacturing of
diagnostic products. Only the Company's B/T Blue(TM) Gene
Rearrangement Test System for use in diagnosing leukemia and
lymphoma has received approval from the FDA for diagnostic
purposes domestically. In order to obtain FDA approval
(marketing clearance) of a new product for diagnostic purposes,
the Company will be required to submit evidence of the safety and
efficacy of the product. Such evidence typically entails
extensive clinical and laboratory tests and demonstrations of
compliance with FDA Good Manufacturing Practices ("GMP")
regulations. The testing, preparation of necessary applications
and response to the FDA in their processing of those applications
is expensive and time consuming.
The clinical testing required of the Company's products is
expected to be significantly less extensive than that typically
required for a therapeutic product. Nevertheless, these clinical
testing protocols may take several months or years to complete,
depending on the nature of the filing. There can be no assurance
that the FDA will act favorably or quickly in making its reviews,
and significant difficulties or costs may be encountered by the
Company in its efforts to obtain FDA approvals that could delay
or preclude the Company from marketing its products for
diagnostic purposes. Furthermore, there can be no assurance that
the FDA will not request the development of additional data
following the original submission. Based upon the data submitted
to it, the FDA may also limit the scope of the labelling,
permitted use of the product or deny the application altogether.
With respect to patented products or technologies, delays imposed
by the governmental approval process may materially reduce the
period during which the Company will have the exclusive right to
exploit those products or technologies.
The Company's diagnostic products, as presently
contemplated, will be regulated as medical devices. Prior to
entering commercial distribution, all of the Company's diagnostic
products must undergo FDA review under one of two basic review
procedures: a Section 510(k) premarket notification ("510(k)") or
a Premarket Approval ("PMA") application.
After product approvals have been received, they may still
be withdrawn if compliance with regulatory standards is not
maintained or if substantial problems occur after the product
reaches the market. The FDA may require post-marketing
surveillance programs to monitor products which have been
commercialized, and has the power to prevent or limit further
marketing of the products based on the results of these
post-marketing programs. In addition, prior to obtaining FDA
marketing approval for each product, the FDA must, under the
Food, Drug and Cosmetic Act, inspect the manufacturing facilities
and procedures on a routine basis for compliance with its GMP
regulations.
Sales of the Company's products outside the United States
are also subject to extensive regulatory requirements, which vary
widely from country to country. Diagnostic products that have
not been approved by the FDA may be exported for sale outside the
United States only after receiving approval for export by the
FDA. Furthermore, such products may be exported for use only in
certain countries, generally countries within Europe, Canada,
Australia and Japan, and, then, only if the appropriate
regulatory authorities in such countries have approved such
products for use in their respective countries. The time
required to obtain such approval may be longer or shorter than
that required for FDA approval. To date, the Company has
received export approval from the FDA and import approval from
the appropriate foreign regulatory bodies to market the Company's
breast cancer and CML tests in Australia, Austria, Canada,
Denmark, Germany, Ireland, Luxembourg, The Netherlands, Sweden,
Switzerland and the United Kingdom.
The Company's products that are being sold for research
purposes only are properly labeled as such, as required by the
FDA. The FDA imposes distribution requirements and procedures
for companies selling "research use only" and "investigational
use only" labeled products and requires that the seller label the
products appropriately and establish that the products are being
used as labeled. As a result of these requirements, most of the
Company's products can only be sold to a limited number of
customers for limited use and cannot be sold for broader
commercial use without FDA approval. No assurance can be given
that the Company will receive FDA approval for its products or
that it will be able to sell its approved products in larger
quantities.
Any change in governmental regulations or in the
interpretation thereof could have a material adverse effect on
the Company. The Company is subject to regulation by other
agencies in addition to the FDA, including the Environmental
Protection Agency, the Occupational Safety and Health
Administration, the Nuclear Regulatory Commission and the
equivalent state and local regulatory agencies. The Company
believes that it is in compliance with the regulations of such
agencies.
Proprietary Rights and Licenses
The Company relies on patent rights, trade secrets,
trademarks, and nondisclosure agreements to establish and protect
its proprietary rights in its technologies and products. Despite
these precautions, it may be possible for unauthorized third
parties to utilize the Company's technology or to obtain and use
information that the Company regards as proprietary. The laws of
some foreign countries do not protect the Company's proprietary
rights in its processes and products to the same extent as do the
laws of the United States.
The Company has filed patent applications seeking patent
protection for its products. Currently, the Company owns seven
issued United States patents and numerous United States patents
or patent applications are issued or pending for inventions owned
by or licensed to the Company. In addition, numerous foreign
patent applications or patents corresponding to these United
States patents or patent applications are pending. The Company's
owned or licensed issued United States patents have terms which
are for the greater of seventeen years from grant, or twenty
years from filing, and expire between 2006 and 2012.
One of the patents, issued June 6, 1995 and licensed
exclusively to the company by Princeton University, relates to
methods for the formation of triple stranded nucleic acids.
Three of the United States patents owned by the Company relate to
the Company's PROBE TECH(TM) technology for Southern analysis of
DNA for use with the FDA approved cancer test system for the
diagnosis of Leukemia and Lymphoma. Two of the United States
patents relate to the Company's imaging systems. The sixth and
seventh United States patents relate to the Company's DNA
amplification technology. Foreign patent applications relating
to this technology are pending in Europe, Canada and Japan. One
of the Company's United States patent applications relates to the
detection of bladder cancer and two United States patent
applications relate to the isolation of fetal cells from maternal
circulation. Two United States patent applications and an
international patent application relate to enzymatic
amplification of nucleic acid sequences technology. Other patent
applications relate to the Company's imaging systems, certain
aspects of the Company's genetic probes and reagents, certain
aspects of the technology enabling its in situ hybridization
chemistry, certain aspects of the Company's mutation detection
technology, novel labeled nucleotides developed by the Company,
and novel oligonucleotide analogs and gene repair methods, both
developed by OncorPharm. There can be no assurance that the PTO
or foreign patent offices will grant patent protection for the
subject matter of any of these patent applications.
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 the 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.
There is presently pending an interference proceeding with these
third parties in the PTO to resolve which party is entitled to a
United States patent, if any. An unfavorable decision in such a
proceeding might have an adverse effect on the Company.
The Company relies substantially on certain technologies
which are not patentable or proprietary and are therefore
available to the Company's competitors. In addition, many of the
processes and much of the know-how of importance to the Company's
technology are dependent upon the skills, knowledge and
experience of its scientific and technical personnel, which
skills, knowledge and experience are not patentable. To protect
its rights in these areas, the Company requires all employees,
significant consultants and advisors, and collaborators to enter
into confidentiality agreements. There can be no assurance
however, that these agreements will provide meaningful protection
for the Company's trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure of
such trade secrets, know-how or proprietary information.
Further, in the absence of patent protection, the Company may be
exposed to competitors who independently develop substantially
equivalent technology or otherwise gain access to the Company's
trade secrets, knowledge or other proprietary information.
ONCOR(R), HYBRISOL(R), SURE BLOT(R), COATASOME(R) and
APOPTAG(R) are registered trademarks of the Company. In addition
to these trademarks, the Company is currently using the
unregistered trademarks OPTICYTE(TM), BLOCKIT(TM), OPTIPROBE(TM),
HYB-BATH(TM), B/T BLUE(TM), EX-WAX(TM), RNA PREP(TM),
TEMPLATE-TAMER(TM), PROBE TECH(TM), N.E.A.T.(TM), INFINITY(TM),
CHROMOCAM 300(TM), FLUORAMP(TM), INFORM(TM), ONCOR ARCHIVE(TM),
ONCOR IMAGE(TM) and FIDELITY(TM), and has applied for the
registration of the latter seven trademarks. The Company has
filed applications to register REAMP and APOPNEXIN, which the
Company intends to use as trademarks. Also, OncorPharm has filed
applications for ONCORPHARM, CODON, ON-CODE, ONCODE, CODE MARKER
and CODE REPAIR, which it intends to use as trademarks. The
Company's trademark registrations have ten year terms and are
renewable for additional ten year terms for as long as the
Company is using the registered trademark.
The Company has pursued a strategy of selectively licensing
patents and technologies from third parties to accelerate the
introduction of new products and to provide access to patented
technologies and genetic probes. In some cases, the Company has
assumed the prosecution of patent applications relating to the
technology subject to these licenses. The Company's license
agreements typically have a term equal to the term of the
underlying patent or patents, or, in certain instances, six to
ten years after the first commercial sale of a product developed
from the licensed technology.
Employees
The Company had 233 employees at February 28, 1996,
including 72 research, clinical and related laboratory personnel;
69 employees in sales and marketing; and 92 employees in
administration, finance, regulatory affairs, production and
distribution. Of these employees, 59 reside and work outside the
United States, primarily in Europe. Of the 72 laboratory
employees, 35 have Ph.D.'s and one has an M.D. The future
success of the Company will depend in large part upon its
continued ability to attract and retain highly skilled and
qualified personnel. Competition for such personnel is intense.
None of the Company's U.S. employees is represented by a labor
union. The Company has experienced no work stoppages and
believes that its relations with its employees are excellent.
Additional 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.
History of Operating Losses
Oncor has not been profitable since its inception in
July 1983. For the year ended December 31, 1995, the Company
incurred net losses of $18.2 million. As of December 31, 1995,
the accumulated deficit of the Company was $72.7 million. The
Company expects to incur additional substantial losses in future
periods. The Company is unable to predict when, or if, it will
become profitable.
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.
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.
In connection with the acquisition of Appligene S.A.
(together with its consolidated subsidiaries, "Appligene"), the
Company issued or acquired approximately $6 million in
indebtedness denominated in French francs. Accordingly, any
significant decline in the value of the U.S. dollar as compared
to the French franc would materially increase the dollar amount
required to repay such indebtedness. Although the Company
intends to continue to mitigate such risk through hedging
transactions, such transactions may not be available to the
Company at a reasonable cost, or at all.
Limited Manufacturing Experience
The Company's ability to conduct clinical trials on a timely
basis, to obtain regulatory approvals and to commercialize its
products will depend in part upon its ability to develop and
maintain facilities to manufacture its products, either directly
or through third parties, at a competitive cost in accordance
with the FDA's prescribed current Good Manufacturing Practices
("GMP") and other regulatory requirements. Any failure to
maintain manufacturing facilities in accordance with the FDA's
GMP requirements could result in the inability of the Company to
manufacture its products and may limit the Company's ability to
deliver its products to its customers, which would have a
material and adverse effect on the Company's business, financial
condition and results of operations. No assurance can be given
that the Company will be able to develop and maintain GMP
facilities or engage third parties to do so at a cost acceptable
to the Company.
The Company has only limited experience in manufacturing
products on a commercial basis. The Company believes that its
existing manufacturing facilities will enable it to produce
commercial quantities of its products through 1996. No assurance
can be given, however, that manufacturing or quality control
problems will not arise if the Company increases production of
its products, or if additional facilities are required in the
future.
Limited Marketing and Distribution Experience
The Company markets and sells its products for research
purposes and, once approved by the appropriate regulatory
authority, for diagnostic use, through its direct sales forces in
both Europe and the United States and indirectly through third
parties in the Pacific Rim. The Company only has limited
experience in sales, marketing and distribution. In order to
market its products directly, the Company must maintain a sales
force with technical expertise and an understanding of the
Company's products. There can be no assurance that the Company
will be able to maintain such a sales force or that the Company's
direct sales and marketing efforts will be successful. In
addition, the Company's products compete with the products of
many other companies that currently have extensive and
well-funded marketing and sales operations. There can be no
assurance that the Company's marketing and sales efforts will
compete successfully against such other companies. To the extent
the Company enters arrangements with third parties, any revenues
received by the Company will be dependent on the efforts of such
third parties, and there can be no assurance that such efforts
will be successful.
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.
See "Business - Competition."
Investment in OncorMed and OncorPharm
The Company owns approximately 29% of the common stock of
its publicly-traded affiliate, OncorMed, and 53% of the voting
securities of its consolidated subsidiary, OncorPharm. The
shares of common stock of both OncorMed and OncorPharm held by
the Company are not currently freely tradeable and no public
market exists for the Common Stock of OncorPharm. Therefore,
there can be no assurance that the Company will be able to
realize the economic benefit of its investment or predict the
timing of such realization. The value of the Company's
investment in OncorMed represents a significant portion of the
total assets of the Company and such value fluctuates with the
market price of OncorMed's common stock. Therefore, any event
that has a material and adverse effect on the market price of the
common stock of OncorMed will have a material and adverse effect
on the value of the Company's investment in OncorMed. Although
Stephen Turner, the Company's Chief Executive Officer, is a
Director of OncorMed and the Company is a significant stockholder
in OncorMed, the Company does not control the day-to-day
operations and management of OncorMed and, therefore, has little
direct control over its operations and financial results.
OncorPharm will require additional financing in the future. The
Company does not currently intend to provide a significant
portion of such financing although the Company may provide
additional financing in the future. The failure of OncorPharm to
obtain any required financing on acceptable terms could have a
material and adverse effect on the value of the Company's
investment in OncorPharm.
Restricted Use of the Company's Products
The Company currently has received FDA approval to sell one
of its leukemia and lymphoma test systems as a diagnostic product
but the Company's other products must be sold in the United
States for research purposes only and must be labeled
accordingly. The FDA imposes distribution requirements and
procedures on companies selling products for research purposes
only, including the requirement that the seller receive specified
certifications from its customer as to the customer's intended
use of the product. As a result of these requirements, most of
the Company's products can only be sold in the United States to a
limited number of customers for limited use and can not be sold
for broader commercial use without FDA approval. No assurance
can be given that the Company will receive FDA approval for its
products or that it will be able to sell its approved products in
larger quantities. See "Business - Government Regulation."
Government Funding
The Company's products being sold for research purposes only
are in large part purchased by cancer researchers operating under
government funded programs both in the U.S. and in foreign
countries. These products are also purchased by researchers
involved in the human genome project, which is likewise
principally funded by the government. There can be no assurance
that such government funding will continue at its current level.
The Company would be adversely affected by decreases in or
changes in the kinds of government funding for cancer research or
human genome research.
Attraction and Retention of Key Personnel
The Company's ability to successfully develop marketable
products and to maintain a competitive position will depend in
large part on its ability to attract and retain highly qualified
scientific and management personnel. The Company is highly
dependent upon the principal members of its management,
scientific staff and Science Advisory Board. Competition for
such personnel and advisors is intense, and there can be no
assurance that the Company will be able to continue to attract
and retain such personnel. See "Business - Employees" and
"Management."
Uncertainty Related to Health Care Reform
Measures and Third-Party Reimbursement
Political, economic and regulatory influences are likely to
lead to fundamental change in the health care industry in the
United States. Numerous proposals for comprehensive reform of
the nation's health care system have been introduced in Congress
over the past year. In addition, certain states are considering
various health care reform proposals. The Company anticipates
that Congress and state legislatures will continue to review and
assess alternative health care delivery systems and payment
methodologies, and that public debate of these issues will likely
continue in the future. Due to uncertainties regarding the
ultimate features of reform initiatives and their enactment and
implementation, the Company cannot predict which, if any, reforms
will be adopted, when they may be adopted, or what impact they
may have on the Company. The Company's ability to earn
sufficient returns on its products may also depend in part on the
extent to which reimbursement for the costs of such products will
be available from government health administration authorities,
private health insurers and other organizations. Third-party
payors are increasingly challenging the price and cost
effectiveness of medical products and services. Significant
uncertainty exists as to the reimbursement status of newly
approved health care products, and there can be no assurance that
adequate reimbursement will be available or sufficient to allow
the Company to sell its products on a competitive basis.
Additional Financing Requirements and
Access to Capital Funding
The Company has expended and will continue to expend in the
future substantial funds to continue the research and development
of its products, conduct clinical trials, make capital
expenditures, establish additional manufacturing capability, and
market its products. The Company believes that its existing
funds will be adequate to finance its operations at least through
1996. This belief is based on the Company's current research and
development plans, the current regulatory environment, historical
industry experience in the development of biotechnology products
and general economic conditions. However, the Company's cash
requirements may vary materially from those now planned as a
result of unforeseen changes that could consume a significant
portion of the available resources before such time. To the
extent that funds expected to be generated from the Company's
operations are insufficient to meet current or planned operating
requirements, the Company will seek to obtain additional funds
through equity or debt financing, collaborative or other
arrangements with corporate partners and others, and from other
sources. No assurance can be given that additional financing
will be available when needed or on terms acceptable to the
Company. If adequate funds are not available, the Company may be
required to delay or to eliminate expenditures for certain of its
products or to license to third parties the rights to
commercialize products or technologies that the Company would
otherwise seek to develop itself.
Product Liability
The testing, marketing and sale of health care products
could expose the Company to the risk of product liability claims.
A product liability claim could have a material and adverse
effect on the business, results of operations or financial
condition of the Company. The Company currently maintains
product liability insurance coverage of $5.0 million per
occurrence. There can be no assurance, however, that the
insurance policy will respond to any specific claim, that this
coverage will be adequate to protect the Company against future
product liability claims or that product liability insurance will
be available to the Company in the future on acceptable terms, if
at all.
Environmental Risks
The manufacturing and research and development processes of
the Company involve the controlled use of hazardous materials.
The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and
disposal of such materials and certain waste products. Although
the Company believes that its activities currently comply with
the standards prescribed by such laws and regulations, the risk
of accidental contamination or injury from these materials cannot
be eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and any such
liability could exceed the resources of the Company. In
addition, there can be no assurance that the Company will not be
required to incur significant costs to comply with environmental
laws and regulations in the future.
Possible Volatility of Stock Price
The market prices for securities of life sciences companies,
including the Company, have been highly volatile and the market
has experienced significant price and volume fluctuations that
are unrelated to the operating performance of particular
companies. Announcements of technological innovations or new
commercial products by the Company or its competitors,
developments concerning proprietary rights, including patents and
litigation matters, publicity regarding actual or potential
clinical trial results with respect to products under development
by the Company or others, decisions regarding regulatory
approvals of the products of the Company or others, regulatory
developments in both the United States and foreign countries,
public concern as to the efficacy of new technologies, general
market conditions, as well as quarterly fluctuations in the
Company's revenues and financial results and other factors, may
have a significant impact on the market price of the Common
Stock. In particular, the realization of any of the risks
described in these "Risk Factors" could have a dramatic and
adverse impact on such market price.
ITEM 2. PROPERTIES
The Company's principal administrative, marketing,
manufacturing and research and development facilities consist of
approximately 65,000 square feet in Gaithersburg, Maryland and
12,000 square feet in Strasbourg, France. The Company occupies
the Gaithersburg, Maryland facilities under four lease agreements
expiring in March 1997 through June 1998 with options to extend
the principal leases for up to two additional five year terms.
The facilities in Strasbourg, France are under a capital lease
with a term of 15 years. The Company believes that suitable
additional space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
As noted under "Item 1. Business - Additional Risk
Factors - Patents and Proprietary Rights," elsewhere in this
Annual Report, the Company has received notices from time to time
claiming that certain of the Company's products infringe patents
of third parties and has submitted the notices to its patent
counsel for review. There can be no assurance, however, that
these claims will not give rise to infringement proceedings
involving the Company or that the Company would prevail in any
such proceedings. Patent litigation has frequently proven in
recent years to be complex and expensive and the outcome of
patent litigation can be difficult to predict. If the Company
were to be precluded from selling products incorporating the
disputed technologies or required to pay damages or make
additional royalty or other payments with respect to such sales,
the Company's business, financial condition and results of
operations could be materially and adversely affected.
The University of California and its licensee, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the American Stock
Exchange (the "Exchange") under the symbol "ONC." Prior to
May 15, 1995, the Company's Common Stock was traded on the NASDAQ
National Market. The following table sets forth, for the
calendar periods indicated, the range of high and low sale prices
for the Common Stock as reported by the Exchange or NASDAQ:
High Low
1994
First Quarter. . . . . . . . . . . . 10-5/8 5-7/8
Second Quarter . . . . . . . . . . . 7-1/4 5
Third Quarter. . . . . . . . . . . . 7 4-7/8
Fourth Quarter . . . . . . . . . . . 6-3/4 3-3/4
1995
First Quarter. . . . . . . . . . . . 5 3-1/2
Second Quarter . . . . . . . . . . . 6-3/4 3-3/4
Third Quarter. . . . . . . . . . . . 8-5/8 5-7/8
Fourth Quarter . . . . . . . . . . . 7-11/16 3-3/4
HOLDERS
As of December 31, 1994, the approximate number of record
holders of Common Stock was 515.
DIVIDENDS
The Company has never declared or paid any cash dividends
on its Common Stock. The Company currently intends to retain all
future earnings, if any, for the operation and expansion of its
business and does not anticipate paying any cash dividends in the
foreseeable future.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as
of December 31, 1991, 1992, 1993, 1994 and 1995 for each of the
periods then ended, have been derived from the audited
consolidated financial statements of the Company. The
consolidated financial statements of the Company as of
December 31, 1994 and 1995 and for each of the years in the
three-year period ended December 31, 1995, together with the
notes thereto and the related report of Arthur Andersen LLP,
independent public accountants, are included elsewhere in this
Annual Report. The selected financial data set forth below
should be read in conjunction with the consolidated financial
statements of the Company and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Annual Report.
Year Ended December 31,
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
Statement of Operations Data:
Gross revenues:
Product sales . . . . . . $4,688 $6,480 $9,238 $12,425 $16,193
Grant revenue . . . . . . - 100 62 342 895
Contract revenue. . . . . 1,050 - - 48 300
-------- -------- --------- -------- ----------
Total gross revenues . 5,738 6,580 9,300 12,815 17,388
-------- -------- --------- -------- ----------
Operating expenses:
Direct cost of sales . . . 2,850 3,555 4,376 7,254 8,280
Amortization of
intangible assets . . . . - - - 414 1,339
Selling, general and
administrative. . . . . . 4,193 5,912 7,575 9,539 13,752
Research and development . 2,976 5,952 9,117 9,609 10,422
Buyout of R&D contract . . - 1,447 - - -
Write off acquired R&D
projects in process . . . - - - 3,574 -
--------- -------- --------- --------- ---------
Total operating expenses . . 10,019 16,866 21,068 30,390 33,793
--------- -------- --------- --------- ---------
Loss from operations . . . . ($4,281) (10,286) (11,768) (17,575) (16,405)
Other income (expenses),
net. . . . . . . . . . . . 102 1,051 681 (2,003) (1,825)
--------- -------- --------- --------- ---------
Net loss . . . . . . . . . . $(4,179) $(9,235) $(11,087) $(19,578) $(18,230)
========= ======== ========= ========= =========
Net loss per share(1). . . . $(0.42) $(0.64) $(0.71) $(1.01) $(0.87)
Weighted average shares
outstanding. . . . . . . . 9,863 14,518 15,558 19,437 20,888
December 31,
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(In thousands)
Balance Sheet Data:
Cash and liquid
investments. . . . . . . . $ 4,442 $27,922 $18,587 $23,301 $15,830
Total assets. . . . . . . . 8,991 34,822 29,201 51,525 46,121
Long-term liabilities . . . 380 223 164 2,513 9,320
Accumulated deficit . . . . (14,526) (23,762) (34,848) (54,427) (72,657)
Stockholders' equity. . . . 6,799 33,297 24,186 40,279 25,987
___________
(1) Net loss per share is determined using the weighted-average number of
shares of Common Stock outstanding during the years presented. The
effects of options, warrants, and notes payable to stockholders have not
been considered, since the effects would be antidilutive.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
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. This Report contains certain
statements of a forward-looking nature relating to future events
or the future financial performance of the Company. Investors
are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating
such statements, investors 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
"Business - Additional Risk Factors."
Overview
The Company's sales to date have consisted primarily of
sales of products used for research purposes and imaging systems.
Sales of products for diagnostic use require FDA approval. As a
result, analysis of past sales of products for research use are
not necessarily indicative of future sales of products for
diagnostic purposes.
In May 1994, the Company acquired the imaging line of
business of Biological Detections Systems, Inc. ("BDS"). The
aggregate purchase price of $3.7 million was paid in cash, notes
and Common Stock of the Company. In September 1994, the Company
acquired 98.5% of the outstanding stock of Appligene,
headquartered in Strasbourg, France. The aggregate purchase
price of $10.6 million was paid in cash, notes and Common Stock
of the Company. The acquisitions of Appligene and the imaging
line of business of BDS in 1994 (together, the "Acquisitions")
were accounted for as purchases and accordingly, the consolidated
results of operations for the Company include the results of
these acquired businesses from their respective dates of
acquisition. The Company attributed approximately $2.5 million
and $1.1 million of the purchase prices of the imaging line of
business of BDS and of Appligene, respectively, to the value of
acquired research and development projects in progress.
Accordingly, such amounts were expensed by the Company at their
respective dates of acquisition. A significant amount of the
Company's sales in Europe are as a result of the Appligene
acquisition. Approximately $1.1 million of the purchase price of
BDS was allocated to intangible assets, and such amount is being
amortized over five years. Approximately $9.7 million of the
purchase price of Appligene was allocated to intangible assets
and is being amortized on a straight line method over periods of
two to ten years, with a weighted average amortization period of
eight years. See Note 3 of the Notes to Consolidated Financial
Statements.
In October 1994, OncorMed previously an 83% owned
consolidated subsidiary of the Company, completed an initial
public offering of its Common Stock which reduced the Company's
ownership interest in OncorMed to approximately 40%.
Accordingly, the results of operations of OncorMed were accounted
for on the equity method of accounting retroactive to January 1,
1994, resulting in a non-operating expense of $3.1 million for
the Company's proportionate share of OncorMed's losses in 1994.
In addition, the Company increased its carrying value of its
investment in OncorMed by $5.5 million to an amount equal to the
Company's proportionate share of the recorded stockholders'
equity of OncorMed at the completion of the initial public
offering. The adjustment was credited directly to the
stockholders' equity of the Company in the fourth quarter of
1994. In February 1996, OncorMed completed a public offering of
its Common Stock which reduced the Company's ownership interest
in OncorMed to approximately 29%. The Company will increase its
carrying value of its investment in OncorMed by approximately
$4.0 million to an amount equal to the Company's proportionate
share of the recorded stockholders' equity of OncorMed at the
completion of the offering and credit the adjustment directly to
stockholders' equity in the first quarter of 1996. The Company
will continue to record its proportionate share of the results of
operations of OncorMed, expected to be losses throughout 1996,
adjusting the carrying value of the investment and advances until
such time that the carrying value and advances are eliminated.
In June 1994, the Company formed OncorPharm, a consolidated
subsidiary, to develop and commercialize therapeutic products
using Oncor's technologies in the field of genetic repair and
drug delivery. OncorPharm was initially capitalized with a
$1,000,000 capital contribution from the Company and has
subsequently raised $3,000,000 in a private placement. The
Company has advanced approximately $650,000 to OncorPharm which
amount was converted into OncorPharm Common Stock at $2.00 per
share.
Results of Operations
Consolidated product sales increased 30% to $16.2 million in
1995 compared to $12.4 million in 1994, which represented a 34%
increase from $9.2 million in 1993. In each period, sales
increases in the Company's core business units more than offset
significant declines in the sale of industrial imaging systems.
Industrial imaging sales were $0.3 million, $1.3 million, and
$2.2 million in 1995, 1994, and 1993, respectively. The Company
is actively pursuing the divestiture of that business unit. The
net increase in sales in 1995 as compared to 1994 is attributable
to increases in product sales in Europe through the Company's
French subsidiary, Appligene. The net increase in sales in 1994
compared to 1993 was due to revenues generated by Appligene,
which was acquired in September 1994, and the release of new
products. In 1994, Appligene accounted for $2.1 million of the
sales increase occurring since the date of its acquisition in
September 1994. The sale of probes and reagents increased by
$1.5 million in 1994 compared to 1993, due largely to the
development and commercialization of new products.
Contract and grant revenue increased to $1.2 million in 1995
from $0.4 million in 1994. Two grants were received from the
National Institutes of Health, one in the middle of 1994 and the
other early in 1995. The grant proceeds are earned over two
year periods, during which periods grant revenue is recorded as
the research work progresses. The underlying contracts and
grants expire in 1996 and 1997. Extensions of the grants are
being pursued, but no assurance of extension can be made.
Contract and grant revenue was not significant in 1993.
Gross profit as a percent of sales increased to 49% in 1995
from 42% in 1994, which represented a decrease from 53% in 1993.
The increase in 1995 over 1994 was due to favorable product mix
and to increased sales in Europe which support higher margins.
The margin in 1993 was higher than in 1994 because of the
relatively high amount of sales of higher profit margin
industrial imaging products and of the favorable effect of
spreading fixed manufacturing costs over higher production
levels.
Amortization of intangible assets in 1995 and 1994 was due
to the amortization of the portion of the purchase price of
Appligene attributable to the value of intangible assets
acquired, primarily for contracts, completed research projects,
and the excess of the purchase price over the book value of the
assets acquired. The intangible assets are being amortized on a
straight line basis over periods ranging from two to ten years,
with a weighted average period of approximately eight years.
Selling, general and administrative expenses increased 45%
to $13.8 in 1995, compared to $9.5 million in 1994, which
represented a 26% increase from $7.6 million in 1993.
Approximately $1.9 million of the increase in 1995 is
attributable to expenses associated with the first full year of
the inclusion of Appligene. An additional increase of $0.5
million in selling, general, and administrative expenses of
Appligene was due to (i) depreciation on a new facility, (ii)
higher levels of its sales force, and (iii) unfavorable exchange
rate differences. An additional $0.7 million of the 1995
increase was due to the general and administrative expenses
incurred by the OncorPharm subsidiary, which had no significant
general and administrative expenses in 1994. The remainder of the
increase of approximately $1.1 million was primarily due to
increased expenses associated with the expansion of the Company's
marketing and field sales force in North America, beginning in
the second half of 1994. Approximately $1.4 million of the
increase in 1994 compared to 1993 is attributable to expenses
associated with the acquisition of Appligene and the integration
and consolidation of the Company's newly-acquired and existing
biological imaging businesses.
Research and development expenses increased 3% to $8.2
million in 1995, compared to $8.0 million in 1994, which
represented a 14% increase from $7.0 million in 1993. There was
an increase of $0.9 million in 1995 compared to 1994 in research
and development expenses attributable to the first full year of
research and development expenses of Appligene and to OncorPharm
research expenses. An increase of $0.4 million in 1995 was due
to additional expenditures to support current FDA applications
for diagnostic products, including the Company's Her-2/neu
genetic test system. This increase was offset in part by a
decrease in the expenditures made for license fees and grants to
independent researchers in 1995. The acquisition of a
sequencing enzyme technology for the detection of subtle genetic
mutations accounted for $0.5 million of the increase in research
and development expenses in 1994 compared to 1993.
Clinical and regulatory expenses increased 35% to $2.3
million in 1995, compared to $1.7 million in 1994, which
represented a 23% decrease from $2.1 million in 1993. The
increase in clinical and regulatory expenses in 1995 compared to
1994 was attributable to the substantial regulatory efforts
associated with the Company's current applications for FDA
approval of certain diagnostic tests, including Her-2/neu.
During 1993, clinical and regulatory expenses were higher than in
1994 due to costs associated with clinical trials for the
Company's genetic test systems for chronic myelogenous leukemia
and breast cancer.
Write-off of acquired research and development projects in
process of $3.6 million in 1994 was attributable to the
acquisitions of Appligene and BDS.
Investment income decreased 23% to $1.0 million in 1995,
compared to $1.3 million in 1994, which represented a 97%
increase from $0.7 million in 1993. The level of investment
income is directly related to the level of investment funds which
increased in early 1994 with the public offering of common stock
and thereafter decreased through operating expenditures.
Other expense of $0.5 million in 1995 and $0.2 million in
1994 represents primarily interest expense which has become more
significant through the issuance and acquisition of debt related
to the businesses acquired in 1994. Such debt is largely at
fixed interest rates.
Equity in net loss of affiliate was $2.4 million in 1995 and
$3.1 million in 1994 attributable to the Company's interest in
the losses of its unconsolidated affiliate, OncorMed. The
decrease was due to a reduction in the level of the Company's
interest in the affiliate in late 1994. In 1993, the Company
included in its consolidated loss from operations expenses of
$0.6 million attributable to OncorMed.
As a result of the factors discussed above, net loss
decreased 7% to $18.2 million in 1995 compared to $19.6 million
in 1994, which represented an increase of 77% from $11.1 million
in 1993.
The Company does not believe that inflation has had a
material effect on its results of operations during the last
three years.
Liquidity and Capital Resources
The cash and liquid investments balances of the company were
$15.8 million at December 31, 1995, compared to $23.3 million at
December 31, 1994. Liquid investments include cash equivalents,
short-term investments and non-current fixed income securities
investments as set forth on the consolidated balance sheet
included elsewhere in this Annual Report. The Company invests
its excess cash exclusively in publicly traded, investment grade,
fixed income securities.
The following table sets forth the most significant elements
of the cash flows of the Company in 1995 (in millions of
dollars):
Net cash used in operating activities $(12.8)
Proceeds from the sale of Common Stock and
issuance of convertible note payable 12.3
Principal portion of debt repayments (4.2)
Net investment in working capital (1.0)
Purchase of equipment and leasehold
improvements (3.1)
Proceeds from exercise of options, long-term
borrowings and other 1.3
-------
Net decrease in cash and liquid investments $ (7.5)
=======
The net cash used in operating activities is the result of
the losses of the Company described in "Results of Operations"
above in this management's discussion and analysis. The
Company's operations in 1996 will require the further utilization
of significant amounts of cash.
The proceeds of $12.3 million from the sales of Common Stock
and issuance of convertible note payable were from a private
placement of $9.3 million in December 1995 and from sales of
Common Stock of OncorPharm of $3.0 million in a private placement
of preferred stock in April 1995.
The principal portion of debt service related principally to
debt incurred in connection with acquisitions made in 1994 and is
expected to continue at a reduced rate through the third quarter
of 1996.
The net investment in working capital related to the
establishment of base stocks of Appligene products in the U.S.
and of other new product lines.
Purchases of equipment and leasehold improvements were
primarily for (i) construction of the OncorPharm laboratory and
(ii) replacement of communication and data processing systems.
The Company expects the level of capital purchases to continue at
a reduced rate in 1996.
The Company leases most of its facilities under operating
leases with aggregate annual obligations for 1996 of $0.8
million. The Company has committed to expend $1.1 million in
support of various research agreements for 1996.
The Company includes its proportionate share of the losses
of OncorMed and OncorPharm in its net losses. Losses relating to
the activities of OncorPharm and OncorMed contributed $1.8
million and $2.3 million, respectively, to the net loss in 1995.
OncorPharm had $1.3 million of cash included in the Company's
consolidated cash balance at December 31, 1995. OncorPharm will
require additional financing in the near future and may seek
additional private equity capital from sources other than the
Company. The Company does not currently intend to provide a
significant portion of such financing although the Company may do
so.
The Company has available approximately $64.3 million in
U.S. income tax net operating loss carryforwards which will
significantly reduce any income tax liability which otherwise
would be due on profits, if any, earned in the future.
Other than as noted above with respect to OncorPharm, the
Company believes that it has sufficient cash resources for at
least the remainder of 1996.
Subsequent Event
In March 1996, the holders of certain of the Company's
convertible notes exercised their rights to convert $2.1 million
of principal amount of the notes into Common Stock of the Company
at a conversion price of approximately $4.22 per share.
Accordingly, the Company issued approximately 497,000 registered
shares of Common Stock pursuant to this conversion.
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
Index to Consolidated Financial Statements
Pages
Report of Independent Public Accountants . . . . . . . . . F-1
Consolidated Financial Statements:
Consolidated Balance Sheets at
December 31, 1994 and 1995 . . . . . . . . . . . . F-2
Consolidated Statements of Operations
for the years ended December 31, 1993,
1994 and 1995. . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Changes in
Stockholders' Equity for the years
ended December 31, 1993, 1994 and 1995 . . . . . . F-4
Consolidated Statements of Cash Flows
for the years ended December 31, 1993,
1994 and 1995. . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . F-6
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Oncor, Inc.:
We have audited the accompanying consolidated balance sheets of
Oncor, Inc. (a Maryland corporation) and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Oncor, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 26, 1996
<TABLE>
ONCOR, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
As of December 31,
--------------------------
1994 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $9,749,911 $14,249,925
Short-term investments, at market 4,923,416 1,580,127
Accounts receivable, net of allowance
for doubtful accounts of approxi-
mately $173,000 and $341,000 3,698,336 3,946,147
Inventories 5,402,401 6,356,041
Other current assets 939,123 1,714,030
Total current assets 24,713,187 27,846,270
------------ ------------
NON-CURRENT ASSETS:
Property and equipment, net 4,612,006 7,445,214
Long-term investments 8,627,706 -
Deposits and other non-current assets 110,763 718,183
Investment in and advances in affiliate 3,441,556 832,809
Intangible assets, net 10,020,092 9,278,376
Total non-current assets 26,812,123 18,274,582
------------ ------------
Total assets $51,525,310 $46,120,852
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,902,951 $3,679,034
Accrued expenses and other current
liabilities 1,606,607 1,596,203
Short-term borrowings 907,555 227,839
Current portion of long-term debt 3,089,648 2,302,156
Total current liabilities 8,506,761 7,805,232
------------ ------------
NON-CURRENT LIABILITIES:
Long-term debt 2,422,079 9,301,408
Deferred rent 91,081 18,223
Total non-current liabilities 2,513,160 9,319,631
------------ ------------
Total liabilities 11,019,921 17,124,863
------------ ------------
COMMITMENTS AND CONTINGENCY (Note 7)
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 226,428 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,
20,743,347 and 21,822,477 issued;
20,663,938 and 21,743,068 outstanding 206,639 217,431
Additional paid-in capital 94,734,791 98,233,612
Unrealized gain (loss) on investments (1,948) 556
Cumulative translation adjustment (13,224) 412,787
Accumulated deficit (54,426,785) (72,656,522)
Less - 79,409 shares of common
stock held in treasury, at cost (220,512) (220,512)
Total stockholders' equity 40,278,961 25,987,352
------------ ------------
Total liabilities and
stockholders' equity $51,525,310 $46,120,852
============ ============
The accompanying notes are an integral part
of these consolidated balance sheets.
</TABLE>
<TABLE>
ONCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Years Ended December 31,
---------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
GROSS REVENUES:
Product sales $9,237,787 $12,424,840 $16,192,836
Contract and Grants 61,994 389,905 1,194,646
---------------------------------------------
Gross revenues 9,299,781 12,814,745 17,387,482
---------------------------------------------
OPERATING EXPENSES:
Direct cost of sales 4,375,484 7,253,984 8,279,445
Amortization of
intangible assets - 413,771 1,339,023
Selling, general and
administrative 7,574,408 9,539,097 13,751,342
Research and development 6,972,771 7,957,775 8,169,625
Clinical and regulatory 2,144,696 1,651,411 2,252,505
Write off of acquired
research & development
projects in process - 3,574,120 -
---------------------------------------------
Total operating expenses 21,067,359 30,390,158 33,791,940
---------------------------------------------
LOSS FROM OPERATIONS (11,767,578) (17,575,413) (16,404,458)
---------------------------------------------
OTHER INCOME (EXPENSE):
Investment income 657,714 1,297,552 1,032,584
Interest and other
expenses, net (8,176) (179,946) (501,410)
Equity in net loss of
affiliate 31,509 (3,120,928) (2,356,453)
---------------------------------------------
Net other expense 681,047 (2,003,322) (1,825,279)
---------------------------------------------
Net loss ($11,086,531) ($19,578,735) ($18,229,737)
=============================================
NET LOSS PER SHARE ($0.71) ($1.01) ($0.87)
=============================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 15,587,813 19,436,852 20,887,873
=============================================
The accompanying notes are an integral part
of these consolidated statements.
</TABLE>
<TABLE>
ONCOR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the periods ended December 31, 1993, 1994, and 1995
(Part I)
<CAPTION>
Common Unrealized
Common Stock Stock (Loss) Cumulative
--------------------- Warrants Gain On Translation
Shares Amount Outstanding Investments Adjustment
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1992 15,399,969 $154,000 $25,311 - -
Exercise of unit
purchase options 72,600 726 36,300 - -
Conversion of
common stock
warrants into
common stock 53,979 540 (56,231) - -
Exercise of stock
options 351,785 3,517 - - -
Net loss - - - - -
------------------------------------------------------------
BALANCE,
December 31, 1993 15,878,333 158,783 5,380 - -
Sales of common
stock 3,350,000 33,500 - - -
Conversion of
common stock
warrants into
common stock 3,479 35 (5,380) - -
Exercise of stock
options 596,495 5,965 - - -
Issuances of
common stock in
connection with
acquisitions 835,631 8,356 - - -
Sales of common
stock of unconso-
lidated subsidiary - - - - -
Purchase of
treasury stock - - - - -
Unrealized holding
loss on investments - - - (1,948) -
Cumulative translation
Adjustment - - - - (13,224)
Net loss - - - - -
------------------------------------------------------------
BALANCE,
December 31, 1994 20,663,938 206,639 - (1,948) (13,224)
Sales of common
stock 768,384 7,684 - - -
Exercise of unit
purchase options 118,315 1,183 - - -
Exercise of stock
options and
warrants 192,431 1,925 - - -
Net unrealized
holding gain on
investments - - - 2,504 -
Cumulative translation
adjustment - - - - 426,011
Net loss - - - - -
------------------------------------------------------------
BALANCE,
December 31, 1995 21,743,068 $217,431 - $556 $412,787
============================================================
The accompanying notes are an integral part
of these consolidated statements.
</TABLE>
<TABLE>
ONCOR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the periods ended December 31, 1993, 1994, and 1995
(Part II)
<CAPTION>
Additional Treasury Stock
Paid-In Accumulated --------------------
Capital Deficit Shares Amount Total
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1992 $56,951,910 ($23,761,519) 64,409 ($72,387) $33,297,315
Exercise of unit
purchase options 198,734 - - - 235,760
Conversion of
common stock
warrants into
common stock 296,445 - - - 240,754
Exercise of stock
options 1,495,604 - - - 1,499,121
Net loss - (11,086,531) - - (11,086,531)
------------------------------------------------------------
BALANCE,
December 31, 1993 58,942,693 (34,848,050) 64,409 (72,387) 24,186,419
Sales of common
stock 25,035,161 - - - 25,068,661
Conversion of
common stock
warrants into
common stock 21,405 - - - 16,060
Exercise of stock
options 1,066,807 - - - 1,072,772
Issuances of
common stock in
connection with
acquisitions 4,193,799 - - - 4,202,155
Sales of common
stock of unconso-
lidated subsidiary 5,474,926 - - - 5,474,926
Purchase of
treasury stock - - 15,000 (148,125) (148,125)
Unrealized holding
loss on investments - - - - (1,948)
Cumulative translation
Adjustment - - - - (13,224)
Net loss - (19,578,735) - - (19,578,735)
------------------------------------------------------------
BALANCE,
December 31, 1994 94,734,791 (54,426,785) 79,409 (220,512) 40,278,961
Sales of common
stock 2,801,800 - - - 2,809,484
Exercise of unit
purchase options 172,433 - - - 173,616
Exercise of stock
options and
warrants 524,588 - - - 526,513
Net unrealized
holding gain on
investments - - - - 2,504
Cumulative translation
adjustment - - - - 426,011
Net loss - (18,229,737) - - (18,229,737)
------------------------------------------------------------
BALANCE,
December 31, 1995 $98,233,612 ($72,656,522) 79,409 ($220,512) $25,987,352
============================================================
The accompanying notes are an integral part
of these consolidated statements.
</TABLE>
<TABLE>
ONCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31,
---------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($11,086,531)($19,578,735)($18,229,737)
Adjustments to reconcile net loss to
net cash used in operating activities:
Write off of acquired research &
development - 3,574,120 -
Depreciation and amortization 904,894 1,770,707 3,028,523
Equity in net loss of affiliate
and other (31,509) 3,120,928 2,409,027
Changes in operating assets
and liabilities:
Accounts receivable (1,127,500) (438,189) (172,618)
Inventories (1,682,122) (534,842) (847,473)
Other current assets 499,597 316,843 (593,076)
Deposits and other non-current
assets - (15,892) 25,176
Accounts payable (142,487) 1,601,672 705,260
Accrued expenses and other
current liabilities 545,445 (122,896) (59,360)
Deferred rent (59,393) (72,858) (72,858)
Net cash used in operating ----------------------------------------
activities (12,179,606) (10,379,142) (13,807,136)
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,911,559) (1,285,315) (3,127,285)
Acquisitions of businesses (Note 3) - (3,974,649) (194,420)
Issuance of note receivable - (715,751) -
Unrealized loss on investments - (1,948) 2,504
Purchases of investments (100,000) (13,551,122) -
Redemptions of investments 6,031,190 100,000 11,970,995
Net cash provided by (used ----------------------------------------
in) investing activities 4,019,631 (19,428,785) 8,651,794
----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock - 25,068,661 2,809,484
Proceeds from sales of common stock
of subsidiary 3,123,539 225,000 3,034,503
Purchase of treasury stock - (148,125) -
Exercise of stock options and warrants 1,975,635 1,088,832 700,129
Deferred offering costs (342,440) 342,440 -
Payment on notes for acquisitions - (1,149,842) (2,990,507)
Payment on bank loans - (473,498) (1,169,381)
Long-term borrowings - - 7,366,482
Net cash provided by financing ---------------------------------------
activities 4,756,734 24,953,468 9,750,710
---------------------------------------
EFFECT OF CHANGE IN EXCHANGE RATE
ON CASH - (13,224) (95,354)
---------------------------------------
Net increase (decrease) in cash and
cash equivalents (3,403,241) (4,867,683) 4,500,014
CASH AND CASH EQUIVALENTS, beginning of
the period 21,890,702 14,617,594 9,749,911
---------------------------------------
CASH AND CASH EQUIVALENTS, end of the
period $18,487,461 $9,749,911 $14,249,925
=======================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for
interest $8,176 $165,626 $389,842
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In February 1995, the Company entered into a $1,235,504 capital
lease of a building.
In May 1994, the Company issued a note payable of $1,200,000
and 200,000 shares of the Company's common stock with a value of
$1,024,000 as partial consideration for the acquisition of the
Apple Computer based imaging line of business (Note 3).
In September 1994, the Company issued a note payable of $4,480,114
and 635,631 shares of the Company's common stock with a value of
$3,178,153 as partial consideration for the acquisition of Appligene.
The accompanying notes are an integral part
of these consolidated statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
(1) ORGANIZATION, PRINCIPLES OF CONSOLIDATION AND CERTAIN
ELEMENTS OF RISK
Nature of Organization
Oncor, Inc. (together with its consolidated subsidiaries,
hereinafter the "Company" or "Oncor") develops and markets
gene-based test systems and related products for use in the
management of cancer, including risk assessment, detection,
treatment selection and monitoring. The Company has obtained FDA
approval for, and is marketing its first cancer test system for
use in the detection and monitoring of leukemia and lymphoma.
Oncor is developing additional gene-based test systems for the
management of certain cancers including breast cancer, cervical
cancer, bladder cancer, lung cancer and ovarian cancer. In
addition to its gene-based test systems, the Company currently
manufactures and markets over 200 genetic probes to specific
human genes, with related reagents and instrumentation, for
research purposes. The Company has also developed integrated
imaging and scanning systems for use with its gene-based test
systems, and produces and markets molecular biology products.
The Company currently sells its products to over 1,700 customers
worldwide.
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and all subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The Company records investments in affiliates
owned more than 20%, but not in excess of 50%, using the equity
method.
Significant Risks and Uncertainties
Through December 31, 1995, the Company has incurred
cumulative losses totaling approximately $73 million. Operations
of the Company are subject to certain risks and uncertainties
including, among others, uncertainties relating to product
development, significant operating losses, competition,
technological uncertainty, reliance on patents and proprietary
rights, dependence on key personnel, governmental regulations and
legislation and the availability of additional capital.
Consequently, there can be no assurance as to the level of future
operations or as to their profitability.
The Company's operations in 1996 will require the further
utilization of significant amounts of cash. OncorPharm (Note 4)
is in the process of seeking additional private equity capital
from sources other than the Company. The Company does not
currently intend to provide a significant portion of such
financing although the Company may do so. Other than as noted
above with respect to OncorPharm, the Company believes that it
has sufficient cash resources for at least the remainder of 1996.
Concentrations of Credit Risk
The Company and its customers are directly affected by the
well being of the health care industry world-wide (see Note 8).
Concentrations of credit risk with respect to receivables is
generally limited due to the large number of customers in the
Company's customer base. The Company maintains an allowance for
losses based upon its expectation of the proportion of its
receivables it shall be able to collect. With respect to its
investments, it is the policy of the Company to invest only in
publicly traded, investment grade, fixed income securities with
minimal exposure to foreign currency risk. The Company does not
invest in derivative securities.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Reserves have been recorded for estimates of
accounts receivable and excess and obsolete inventory.
Management also uses estimates to determine the estimated lives
of its intangible and tangible assets. Actual results could
differ from those estimates.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable, accrued
liabilities and short-term borrowings, as reflected in the
financial statements, approximate fair value because of the
short-term maturity of those instruments. The fair value of
notes receivable does not materially differ from the carrying
value. The fair value of the Company's $7,000,000 in convertible
long-term debt (Note 10) approximates fair value because it was
issued near the end of the year. It was not practicable to
estimate the fair value of the Company's other long-term debt
because quoted market prices do not exist and no rates are
currently available to the Company for loans with similar terms
or maturities.
Cash Equivalents and Investments
Cash equivalents and investments at December 31, 1995 and
1994, 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 less than three months are considered
cash equivalents. Cash equivalents of $3.2 million held in a
single money market fund are pledged on a reducing basis over
approximately one year as security to a bank which guaranteed the
principal and interest of a note issued in an acquisition.
The Company accounts for investments in accordance with
Statement of Financial Accounting Standards No. 115. All
investments are classified as available-for-sale securities and,
accordingly, 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 shareholder's equity until
realized. In computing gains and losses, costs are determined on
the basis of specific identification. The gross realized gains
and (losses) on available-for-sale securities totaled $10,423 and
($9,867), respectively, for the year ended December 31, 1995.
Revenue Recognition
The Company generally recognizes revenue from product sales
when the related goods are shipped. Grant and contract revenues
are recognized on a percentage-of-completion basis.
Foreign Currency Translation
In September 1994, the Company acquired an operation in
France (see Notes 3 and 8) for which the functional currency is
the French franc ("FF"). Assets and liabilities for the
operation have been translated into U.S. dollars using the
exchange rate in effect on December 31, 1995 and 1994. Revenues
and expenses have been translated using the average exchange rate
during the periods presented. Cumulative translation adjustments
of ($13,224) and $412,787 at December 31, 1994 and December 31,
1995, respectively, have been excluded in determining the results
of operations and have been accumulated as a separate component
of equity.
Income Taxes
The Company files a consolidated U.S. federal income tax
return for the parent and all U.S. subsidiaries in which its
ownership exceeds 80%. The Company files a consolidated income
tax return in France for its French subsidiaries.
Effective in 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"), retroactive to January 1, 1993. Prior
to 1993, the Company accounted for income taxes in accordance
with Accounting Principles Board Opinion No. 11, "Accounting for
Income Taxes." The effect of adopting SFAS No. 109 on the
Company's financial position and results of operations was not
material.
With respect to United States federal income tax, as of
December 31, 1995, the Company has net operating loss
carry-forwards ("NOLs") of approximately $64.3 million available
to offset future taxable income. The Company also has research
and development tax credits of approximately $1.4 million
available to reduce future U.S. federal income tax. The tax NOL
and research and development tax credits may be used through
2010, but begin to expire in 1998. Despite the NOL and credit
carry-forwards, the Company may have an income tax liability in
future years due to the application of the alternative minimum
tax rules. In addition, the utilization of these tax NOL and
credit carry-forwards is subject to statutory limitations
regarding changes in ownership. With respect to its tax position
in France, the tax provision and liability are not significant.
The French company had accumulated capital loss and tax loss
carryforwards of approximately 10.0 million and 5.0 million
French francs, respectively.
SFAS No. 109 requires that the tax benefit of financial
reporting NOLs and tax credits be recorded as an asset to the
extent that management assesses the utilization of such NOLs and
tax credits to be "more likely than not." As of December 31,
1995, the Company's net deferred tax assets in the United States
and France were approximately $27.3 million and $1.0 million,
respectively. A valuation reserve was recorded against the
entire amount of both net deferred tax assets, since the Company
has incurred operating losses in the United States since
inception. The net deferred tax assets are primarily
attributable to net operating losses, capital losses and tax
credits.
Research and Development Costs
Expenditures for research and development activities are
charged to expense as incurred.
Net Loss Per Share
Net loss per share is determined using the weighted-average
number of shares of Common Stock outstanding during the years
presented. The effects of options, warrants, and convertible
notes payable to stockholders have not been considered, since the
effects would be antidilutive.
(3) MERGER AND ACQUISITIONS
Acquisition of Imaging Systems Line of Business
In May 1994, Oncor acquired certain assets of Biological
Detection Systems, Inc. and a subsidiary. The assets acquired
constitute substantially all of the assets, properties and rights
relating to or used in the Apple Computer-based research
instrument imaging systems and software business (collectively,
the "Imaging Business") of the Sellers. The consideration paid
for the Imaging Business was (i) cash payments of approximately
$1.4 million, (ii) a promissory note in a principal amount of
$1.2 million, (iii) 200,000 unregistered and previously unissued
shares of the Company's Common Stock valued at $5.12 per share,
and (iv) the assumption of certain less significant liabilities
and obligations. The transaction was accounted for as a purchase
and the purchase price has been allocated as shown in the table
below:
Inventories $ 36,594
Other current assets 36,817
Property and equipment 115,820
Intangible assets
(completed software) 1,061,980
Research & development
projects in process 2,464,120
-----------
TOTAL $ 3,715,331
===========
The costs allocated to intangible assets acquired in the
acquisition are being amortized over five years. Amounts
allocated to research and development projects in process were
charged to expense in the second quarter of 1994.
Acquisition of Appligene S.A.
In September 1994, Oncor acquired 98.5% of the outstanding
capital stock of Appligene S.A., a French societe anonyme,
("Appligene"). Appligene is a developer, manufacturer and
marketer of molecular genetic products and is based in
Strasbourg, France. The consideration paid was (i) cash payments
in French francs of FF 12,810,000 (approximately $2.3 million)
(ii) convertible promissory notes with an aggregate principal
amount of FF 23,655,000 (approximately $4.4 million) and (iii)
635,631 unregistered and previously unissued shares of the
Company's Common Stock, $0.01 par value, valued at $3,178,155.
The transaction was accounted for as a purchase and the
allocation of the purchase price is set forth in the table below:
Cash $ 261,317
Accounts receivable 1,197,989
Inventories 1,156,564
Other current assets 469,898
Property and equipment 371,255
Other assets 69,192
Intangible assets 9,747,515
Research & development
projects in process 1,110,000
Accounts payable and accrued
expenses (1,387,083)
Notes payable (1,631,151)
Long-term debt (731,357)
------------
TOTAL $10,634,139
============
The costs allocated to intangible assets acquired in the
acquisition are being amortized on a straight line method over
periods of 2 to 10 years, with a weighted average amortization
period of 8 years. Intangible assets include the estimated
values of employment contracts, patents and licenses, and
goodwill. The costs allocated to research and development
projects in process were charged to expense in the third quarter
of 1994.
Pro Forma Results of Acquired Entities
The results of operations of Appligene and the Imaging
Business have been included in the Company's consolidated results
of operations from the respective dates of acquisition.
Unaudited pro forma results of operations for the Company,
assuming both of the acquisitions described above occurred on
January 1, 1993, are as follows:
(unaudited)
Year End December 31,
----------------------------------
1993 1994
Revenue $15,837,964 $16,137,612
Net loss (13,817,409) (20,073,747)
Net loss per share ($0.84) ($1.01)
Such pro forma information is not intended to represent
either the actual results which may have been achieved if the
acquisitions occurred on that date or future results which may be
achieved.
(4) TRANSACTIONS INVOLVING AFFILIATED COMPANIES
OncorMed, Inc.
In July 1993, Oncor formed and incorporated OncorMed, Inc.
("OncorMed") to develop and commercialize new technologies for
the identification of disease predisposing genes, and utilizing
familial genetic studies to develop new methodologies for the
genetic risk assessment of certain forms of cancer and other
genetic diseases. Oncor contributed $1,000,000 in exchange for
2,000,000 shares of OncorMed common stock. In December 1993,
OncorMed completed a private placement of 1,000,000 shares of
Series A Convertible Preferred Stock for $3,000,000. In 1993,
the Company consolidated the results of OncorMed.
In 1994, the Company and OncorMed entered into a license
agreement pursuant to which OncorMed has a worldwide license to
those of Oncor's existing and future human genome technologies
which are useful for the purposes of development and
commercialization of OncorMed's services. This agreement is
subject to rights retained by the Company to use the licensed
technologies for development and commercialization of Oncor's
products, which may then be sold to OncorMed and to third
parties. Under this agreement, OncorMed is obligated to pay
royalties semi-annually equal to the greater of 6% of OncorMed's
related revenues or $100,000.
From the period of inception of OncorMed until June 6, 1994,
the Company advanced funds to OncorMed, the balance of which was
converted to a term note due in June 1999 in the principal amount
of $715,751 which bears interest at the rate of 7% per year and
which is recorded as a note receivable from unconsolidated
affiliate in the consolidated balance sheet for December 31,
1994. Included in other current assets at December 31, 1994 and
December 31, 1995, are balances of $144,977 and $137,909,
respectively, due from OncorMed, a majority of which represents
royalties receivable under the license agreement.
In October 1994, OncorMed completed an initial public
offering of 1,335,000 shares of its common stock at $6.00 per
share. In November 1994, the Underwriter exercised the
over-allotment option to purchase an additional 200,250 shares at
$6.00 per share. The effect of this transaction was to reduce
the Company's ownership interest in OncorMed from 83% to
approximately 40%. As the Company's voting interest is now less
than 50%, the Company accounts for its investment in OncorMed
using the equity method of accounting. The financial statements
for the year ended December 31, 1994 have been retroactively
adjusted to record the results of OncorMed pursuant to the equity
method of accounting. Thereafter, the Company only reflects in
its financial statements its proportionate share of the earnings
or losses of OncorMed. The restatement had no impact on the
Company's net loss or net loss per share. OncorMed realized net
cash proceeds of approximately $6.3 million from the sale of its
shares, after underwriting discounts and commissions and expenses
of the public offering. The public offering resulted in an
increase of approximately $5.5 million in the Company's
proportionate share of OncorMed equity, which has been recorded
as an increase in the Company's investment in OncorMed and in its
additional paid-in-capital. In February 1996, OncorMed completed
a public offering of 2,000,000 shares of its common stock at
$7.75 per share. The effect of this transaction was to reduce
the Company's ownership interest in OncorMed to approximately
29%.
Summarized financial information of OncorMed is as follows:
1994 1995
---- ----
Condensed Statement of Income
Net Sales $ 34,303 $ 311,387
Operating Loss (4,098,171) (6,686,134)
Net Loss $(3,981,373) $(6,510,547)
Condensed Balance Sheet
Current Assets $ 7,459,421 $ 928,252
Noncurrent Assets 912,762 1,523,622
Current liabilities 801,708 1,331,806
Noncurrent liabilities 730,449 726,261
Shareholders' equity $ 6,840,026 $ 393,807
At December 31, 1994 and December 31, 1995, the quoted
market value of the Company's investment in OncorMed, based on a
closing quotation of $8.00 and $6.00 per share, was approximately
$16 million and $12 million, respectively; however, OncorMed is
in the development stage, its stock price is highly volatile, and
its trading volume is very low. OncorMed has issued warrants to
the Underwriter to purchase 133,500 shares, exercisable for a
period of three years commencing two years from the date of the
offering at $6.90 per share. OncorMed also has adopted a stock
option plan covering 2,250,000 common shares and has granted
approximately 1,440,000 options through December 31, 1995. If
all such outstanding warrants and options were exercised, the
Company's ownership interest in OncorMed would be reduced to
approximately 31%.
OncorPharm, Inc.
In June 1994, the Company formed and incorporated
OncorPharm, Inc. ("OncorPharm"), a consolidated subsidiary, to
develop and commercialize the therapeutic application of Oncor's
technologies in the field of genetic repair. Oncor contributed
$1,000,000 in exchange for 2,000,000 shares of OncorPharm common
stock. During the remainder of 1994, Oncor advanced funds
aggregating $632,502 to OncorPharm to augment its working
capital. OncorPharm performed research services for Oncor for
which OncorPharm received revenues and reduced its obligations
pursuant to the advances. In December 1994, the balance of the
advances was converted into a note which is convertible into the
common stock of OncorPharm at a rate of $2.00 principal amount
for each share of common stock. This note was converted into
316,251 shares of Common Stock in 1995. Also in December 1994,
OncorPharm issued an aggregate of 450,000 shares of common stock
to certain members of its board of directors at $.50 per share.
In February through May 1995, OncorPharm issued an aggregate of
140,000 shares of Common Stock at $.50 per share and in April
1995, completed a private placement of 1,500,000 shares of
convertible preferred stock at $2.00 per share. As of
December 31, 1995, the Company's ownership interest in OncorPharm
was approximately 53%.
It is the present intention of OncorPharm to seek additional
funding from other sources to continue its research efforts.
There can be no assurance that such funding will be available or
that OncorPharm will be successful in developing or
commercializing any therapies or products.
(5) RESEARCH, DEVELOPMENT AND LICENSING AGREEMENTS
Agreements with Dr. Albert de la Chapelle
In January 1994, the Company and Dr. Albert de la Chapelle,
a senior research scientist, entered into two agreements: a
License Agreement and a Sponsored Research Agreement. Pursuant
to the License Agreement, the Company has paid Dr. de la Chapelle
an initial License fee of $125,000 and is obligated to pay a
royalty of 6% of net sales on products that are covered by a
claim of one of the licensed patents, subject to a minimum
monthly royalty payment of $6,250 which is effective from the
date of the License Agreement. Pursuant to the Research
Agreement, the Company has agreed to fund Dr. de la Chapelle's
further research by paying a designee of Dr. de la Chapelle
$150,000 per year, in quarterly installments of $37,500, for
three years, subject to certain rights to terminate on ninety
(90) days notice.
Johns Hopkins Collaborative Research Agreement
In October 1992, the Company entered into a joint
Collaborative Research Agreement for the discovery and
commercialization of new genetic technologies for the detection
of cancer with The Johns Hopkins University School of Medicine
("Johns Hopkins"). The agreement called for the Company to pay
$1,200,000 over the three-year agreement period, which is being
charged to research and development expense over the agreement
period. As additional consideration, the Company issued 60,000
shares of its Common Stock, which was valued at $300,000 and
recorded as research and development expense during 1992. In
December 1995, this agreement was extended for an additional
three years and calls for the Company to pay $1,500,000 over this
period.
(6) STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of
Preferred Stock (par value of $.01 per share). No shares of
Preferred Stock have ever been issued. The rights of any
Preferred Stock ultimately issued will be determined by the Board
of Directors upon issuance.
Common Stock and Warrants
In December 1995, the Company completed a private placement
of 768,384 shares of its Common Stock and issued convertible
notes payable of $7,000,000 (see Note 10). Total proceeds, net
of issuance costs were approximately $9,300,000.
In February 1994, the Company completed a public offering of
3,350,000 shares of its Common Stock at a price of $8.125 per
share. Total proceeds, net of issuance costs, were approximately
$25,100,000.
In connection with certain public and private financings
from 1987 to 1989, the Company issued warrants and options to
purchase units of shares and warrants (unit purchase options).
At December 31, 1995, unit purchase options outstanding entitle
holders to acquire 37,333 units at $2.50 per unit. Each unit
consists of two shares of Common Stock and a warrant to purchase
1.17 additional shares of Common Stock at $4.63 per share. The
warrants issued pursuant to the exercise of the unit purchase
options are subject to adjustment upon the occurrence of specific
events, including stock dividends, stock options, stock splits,
reorganization and other occurrences.
In January 1996 and February 1996, the Company filed
registration statements on Form S-3 with the Securities and
Exchange Commission covering the sale of up to approximately
4,454,000 shares of Common Stock held by third party shareholders
or issuable under certain contractual conditions, including
shares issuable on exercise of certain options and the conversion
of certain notes payable. One Registration Statement filed in
1996 will remain effective for up to three years and the others
will remain effective for 90 days.
Stock Options
The Company maintains a Stock Option Plan which was approved
by the Board of Directors in March 1992 (the "1992 Stock Option
Plan"), which incorporated the Company's former Incentive Stock
Option Plan, Non-Qualified Stock Option Plan and Non-Qualified
Stock Option Plan for Non-Employee Directors.
In June 1994, the shareholders of the Company approved an
amendment to increase the aggregate number of shares available
for grant by 1,000,000. In June 1995, the stockholders of the
Company approved an amendment to increase the aggregate numbers
of shares available for grant by an additional 500,000 shares.
The aggregate number of shares available for issuance under
the 1992 Stock Option Plan may not exceed 4,515,604 shares of
Common Stock, subject to adjustment from time to time in the
event of certain changes to the Company's capital structure.
Transactions relating to the Company's stock option plans
are as follows:
1992 Stock Option Plan Special Stock Options
Option Price Option Price
Number (range (range
of per share) Number of per share)
Shares Low High Shares Low High
--------- ------ ------ --------- ------ ------
Balance, December 31, 1992. . 1,991,441 1.0625 7.7500 973,903 1.0000 5.6250
Granted . . . . . . 1,138,120 5.3750 7.7500 - - -
Exercised . . . . . (348,235) 1.0625 6.8750 (3,550) 1.3100 1.3100
Canceled. . . . . . (217,251) 1.0625 6.8750 - - -
---------- ------ ------ --------- ------ ------
Balance, December 31, 1993. . 2,564,075 1.0625 7.7500 970,353 1.0000 5.6250
Granted . . . . . . 186,240 4.5000 7.7500 - - -
Exercised . . . . . (262,754) 1.0000 6.2500 (333,739) 1.0000 3.7500
Canceled. . . . . . (222,259) 3.7500 6.8750 (86,763) 1.0000 3.7500
---------- ------ ------ --------- ------ ------
Balance, December 31, 1994. . 2,265,302 1.0000 7.7500 549,851 1.0000 3.7500
Granted . . . . . . 1,403,000 4.0000 6.8750 15,000 4.0000 4.0000
Exercised . . . . . (93,668) 3.7500 5.6250 (98,763) 1.0000 4.0000
Canceled. . . . . . (165,264) 3.9990 6.2500 (61,737) 3.7500 4.0000
---------- ------ ------ --------- ------ ------
Balance, December 31, 1995. . 3,409,370 1.0625 7.7500 404,351 1.3100 3.7500
========== ====== ====== ========= ====== ======
Options exercisable at
December 31, 1995 . . . . . . 1,832,442 404,351
========== =========
Summary of reserved shares
As of December 31, 1995, the Company has reserved the
following shares of Common Stock for future use as follows:
Unit purchase options . . . . . . . . . . 118,346
1992 stock option plan. . . . . . . . . . 3,409,370
Special stock options . . . . . . . . . . 404,351
Conversion of convertible notes payable . 1,953,124
---------
5,885,191
=========
(7) COMMITMENTS AND CONTINGENCY
The Company has royalty arrangements with certain
consultants and institutions that call for royalty payments based
upon a percentage of product sales developed under the royalty
agreements. Royalty expense for the years ended December 31,
1993, 1994 and 1995 was approximately $191,000, $320,000 and
$215,000, respectively. In addition, the Company has entered
into certain research support agreements (see Note 5). Annual
minimum royalty and research support payments, as of December 31,
1995, are as follows:
For the Year
Ending
December 31, Amount
------------ ------
1996. . . . . . . . . . . . . $1,141,100
1997. . . . . . . . . . . . . 923,100
1998. . . . . . . . . . . . . 646,600
----------
TOTAL $2,710,800
==========
The Company leases office space and laboratory facilities
under operating lease agreements which expire in periods from
1997 to 2000. Lessor concessions with respect to space buildout
and rental abatement, result in a deferred rent credit at
December 31, 1995 of $91,081. Rental expense for the years ended
December 31, 1993, 1994 and 1995 was approximately $565,000,
$755,000 and $717,000, respectively. Minimum lease payments
under these lease agreements, excluding operating expense
pass-throughs, as of December 31, 1995, are as follows:
For the Year
Ending
December 31, Amount
------------ ------
1996. . . . . . . . . . . . . $ 954,129
1997. . . . . . . . . . . . . 520,784
1998. . . . . . . . . . . . . 214,632
1999. . . . . . . . . . . . . 26,325
2000. . . . . . . . . . . . . 14,827
----------
TOTAL $1,730,697
==========
In February 1995, the Company entered into a lease which was
accounted for as a capital lease with a net present value of
future obligations of approximately $1.2 million.
The Company has guaranteed the loan of an officer and
director for up to $400,000 and made advances to the officer and
director in an amount outstanding at December 31, 1995 of
$129,192.
(8) SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION
The Company operates in one dominant business segment,
biomedical research products, with research, development,
manufacturing and marketing in the United States and France. The
operations in France were acquired through the acquisition of
Appligene in September 1994 (see Note 3).
Product sales relating to each geographic region are as
follows:
Years Ended December 31,
------------------------------------
1993 1994 1995
---- ---- ----
United States . . . . . $7,387,924 $ 7,383,313 $ 7,167,415
Europe. . . . . . . . . 1,088,287 4,332,899 7,707,198
Japan . . . . . . . . . 232,149 507,290 580,514
Other . . . . . . . . . 529,427 201,338 737,709
---------- ----------- -----------
$9,237,787 $12,424,840 $16,192,836
========== =========== ===========
Revenues, largely in Europe, attributable to the Company's
operations in France from the date of acquisition of Appligene to
December 31, 1994 and for the year ended December 31, 1995 were
$2,126,676 and $7,311,329, respectively, and net loss for the
same periods were $319,978 and $883,046, respectively. The
Company's identifiable assets in France at December 31, 1994 and
December 31, 1995 were carried at approximately $10,400,000 and
$9,240,000, respectively.
Product sales of the Company's imaging systems to
pharmaceutical and industrial companies were approximately,
$2,200,000, $1,262,000 and $271,000 for the years ended
December 31, 1993, 1994 and 1995, respectively. In addition, for
the year ended December 31, 1993, imaging sales to a single
pharmaceutical company represented approximately 19.6% of the
Company's total revenues for that year.
(9) RETIREMENT PLAN
In 1991, the Company adopted a defined contribution savings
plan (the "Plan") in accordance with Section 401(k) of the
Internal Revenue Code. The Plan covers all permanent employees
who have attained the age of 21. Under the Plan, the Company may
make discretionary contributions. The Company made no
discretionary contributions in 1993, 1994 and 1995.
(10) LONG-TERM DEBT
Long-term debt at December 31, 1995, consists of the
following obligations:
1994 1995
---- ----
Notes payable to banks, issued by
a subsidiary, denominated in French
francs, bearing interest at rates of
the Paris interbank borrowing rate
plus 1.00% to 1.25% per year,
guaranteed by a financial institution,
and maturing from 1995 through 1997. $ 280,584 $ 122,449
Convertible notes issued by the
Company in connection with the private
placement, bearing interest at a rate
of 4.5% per year, payable quarterly, due
in 1998. - 7,000,000
Notes issued by the Company in
connection with an acquisition, payable
in eight equal quarterly installments,
beginning December 31, 1994, denominated
in French francs, bearing interest
at a rate of 5.5% per year, guaranteed
by a bank and convertible into Common
Stock of the Company at a rate of one
share for approximately $11.30 principal
value of notes converted. 3,930,272 1,810,332
Notes issued by the Company in
connection with an acquisition, payable
in six equal quarterly installments,
denominated in U.S. dollars, bearing
interest at a rate of 7% per year with
final maturities in 1995. 600,000 -
Obligation under capital lease bearing
interest at 5.62%(collateralized by
building) with final maturity in 2010. - 1,235,504
Notes payable to a French government
funding agency, issued by a subsidiary,
denominated in French francs, without
stated interest, due in 1996. 457,905 623,786
Various other notes payable to banks,
primarily secured by the assets of a
subsidiary. 242,966 811,493
---------- ----------
Total long-term debt 5,511,727 11,603,564
Less current maturities 3,089,648 2,302,156
---------- -----------
Non-current portion $2,422,079 $9,301,408
========== ===========
The convertible notes payable may be converted at the option
of either the holder of the note or the Company at any time. The
conversion price shall be 80.5% of the average market price for
the Common Stock for the five consecutive trading days ending one
trading day prior to the date of the conversion notice.
The aggregate maturities of long-term debt at December 31,
1995, are as follows:
1996 $ 2,302,156
1997 478,674
1998 7,527,766
1999 266,470
2000 236,465
Thereafter 792,033
-----------
TOTAL $11,603,564
===========
(11) SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1995, consist of
borrowings from banks by a subsidiary pursuant to revolving lines
of credit, denominated in French francs and secured by the
accounts receivable of the subsidiary. The weighted average
interest rate of such borrowings at December 31, 1995 is
approximately 9.4%. The interest rate at December 31, 1995 was
9.1%. There are no significant unused lines of credit as of
December 31, 1995.
(12) SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
Inventories
Inventories consist of genetic probes, hybridization systems
and reagents in various manufactured states, as well as testing
materials, cameras and other imaging systems equipment. They are
stated at lower of cost (first-in, first-out) or market.
Inventories consist of the following:
As of December 31,
----------------------------
1994 1995
---- ----
Raw materials . . . . . . . $1,965,016 $2,488,974
Work in process . . . . . . 1,427,700 1,808,956
Finished goods. . . . . . . 2,009,685 2,058,111
---------- ----------
$5,402,401 $6,356,041
========== ==========
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are calculated on a straight-line basis over the
estimated useful lives of the assets. The building is
depreciated over fifteen years. Laboratory equipment is
depreciated over seven years. Office equipment, furniture and
fixtures are depreciated over seven and three years,
respectively. Leasehold improvements are amortized over the
lesser of their estimated useful lives or the applicable lease
term.
Property and equipment consist of the following:
As of December 31,
--------------------------
1994 1995
---- ----
Building. . . . . . . . . . . . . - $1,235,504
Laboratory equipment . . . . . . 4,058,602 4,631,090
Office equipment, furniture
and fixtures. . . . . . . . . . 3,256,576 5,190,596
Leasehold improvements. . . . . . 1,182,692 1,455,072
----------- -----------
8,497,870 12,512,262
Less - Accumulated depreciation
and amortization. . . . . . . . (3,885,864) (5,067,048)
----------- -----------
Net property and equipment. . . . $4,612,006 $7,445,214
=========== ===========
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of
the following:
As of December 31,
-----------------------
1994 1995
---- ----
Employee benefits . . . . . . . . . $ 738,282 $ 621,234
Accrued royalties . . . . . . . . . 151,475 105,832
Deferred rent, current portion. . . 72,858 72,858
Professional fees . . . . . . . . . 73,850 192,403
Deferred revenue. . . . . . . . . . 114,432 267,947
Sales taxes . . . . . . . . . . . . 159,630 85,462
Deposits. . . . . . . . . . . . . . 104,383 -
Other . . . . . . . . . . . . . . . 191,697 250,467
---------- ----------
$1,606,607 $1,596,203
========== ==========
Deposits and Other Non-Current Assets
Deposits and other non-current assets as of December 31,
1995 consist primarily of debt issuance costs of $537,869. The
costs related to the issuance of debt are capitalized and
amortized to interest expense using the effective interest method
over the lives of the related debt.
Investments in Debt Securities at December 31, 1995
The aggregate fair value of investments in debt securities
as of December 31, 1995 is as follows:
U.S., Western Australia and Canadian
government securities,
$U.S. denominated. . . . . . . . . . . . 4,093,820
Commercial paper . . . . . . . . . . . . . 1,923,792
-----------
TOTAL $6,017,612
===========
Gross unrealized holding gains and losses and the difference
between amortized cost basis and aggregate fair value as of
December 31, 1994 are not material.
PART III
For information concerning Item 10, Directors and Executive
Officers of the Registrant, Item 11, Executive Compensation,
Item 12, Security Ownership of Certain Beneficial Owners and
Management and Item 13, Certain Relationships and Related
Transactions, see the definitive proxy statement of Oncor, Inc.,
relative to the Annual Meeting of Shareholders to be held in
June 1996, to be filed with the Securities and Exchange
Commission, which information is incorporated herein by
reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Documents Filed as a Part of this Form 10-K:
1. Financial Statements. The following consolidated
financial statements of Oncor, Inc. and report of
independent public accountants relating thereto
are filed with this Report.
Report of Independent Public Accountants on
Financial Statements
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
2. Financial Statement Schedules. The following
consolidated financial statement schedules of
Oncor, Inc. are filed with this Report.
Report of Independent Public Accountants on
Schedule
Schedule II - Valuation and Qualifying Accounts
Information
(No other financial schedules are required.)
3. Exhibits.
3 Articles of Incorporation and By-Laws
3.1 Articles of Amendment filed with Department
of Assessments and Taxation of the State of
Maryland on August 6, 1992 to Fourth Amended
and Restated Articles of Incorporation of
Oncor, Inc. (Filed as Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 and
incorporated herein by reference.)
3.2 By-Laws of Oncor, Inc., as amended and
restated on November 6, 1990. (Filed as
Exhibit 3.2 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1990 and incorporated herein by
reference.)
4 Instruments defining the rights of
security-holders, including indentures.
4.1 Specimen certificate for shares of the
Registrant's Common Stock. (Filed as Exhibit
4.1 to the Registrant's Registration
Statement No. 33-44520 and incorporated
herein by reference.)
4.22 Provisions of the Articles of Incorporation
and By-Laws defining rights of holders of
Common Stock of the Registrant. (Filed as
Exhibit 3.1 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1993 and as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990,
respectively, and incorporated herein by
reference.)
10 Material Contracts.
10.1 HPV Diagnostics Agreement of September 1988
with Medscand AB. (Filed as Exhibit 19.1 to
the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1988
and incorporated herein by reference.)
10.2 Unit Purchase Option dated May 25, 1989
between Oncor, Inc. and D.H. Blair & Co.,
Inc., along with a schedule of nearly
identical unit purchase options issued to
other parties. (Filed as Exhibit 10.33 to
the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989
and incorporated herein by reference.)
10.3 Stock Option Agreement dated October 18, 1989
between Oncor, Inc. and Taylor & Turner, L.P.
(Filed as Exhibit 10.41 to the Registrant's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1989 and incorporated
herein by reference.)
10.4 Stock Option Agreement dated October 18, 1989
between Oncor, Inc. and Rotan Mosle
Technology Partners Ltd. (Filed as Exhibit
10.41 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1989 and incorporated herein by
reference.)
10.5 Stock Option Agreement dated October 18, 1989
between Oncor, Inc. and Charles Atwood
Company. (Filed as Exhibit 10.42 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 and
incorporated herein by reference.)
10.6 Stock Option Agreement dated October 18, 1989
between Oncor, Inc. and Stanton-Barnes
Company. (Filed as Exhibit 10.43 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 and
incorporated herein by reference.)
10.7 Stock Option Agreement dated February 8, 1990
between Oncor, Inc. and John Pappajohn.
(Filed as Exhibit 19.4 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1990 and incorporated
herein by reference.)
10.8 Lease dated March 22, 1990 between Oncor,
Inc. and Avenel Executive Park Phase II, Inc.
(Filed as Exhibit 19.6 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1990 and incorporated
herein by reference.)
10.10 Stock Option Agreement dated November 20,
1990 between Oncor, Inc. and John Pappajohn.
(Filed as Exhibit 10.52 to the Registrant's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 and incorporated
herein by reference.)
10.13 Lease dated June 28, 1991 between Oncor, Inc.
and Avenel Associates Limited Partnership.
(Filed as Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated
herein by reference.)
10.14 Distribution Agreement dated November 28,
1991 between Oncor, Inc. and Medical Systems.
(Filed as Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated
herein by reference.)
10.15 Lease dated March 22, 1990 between Oncor,
Inc. and Avenel Executive Park Phase II,
Inc., as amended on February 25, 1991 and
June 21, 1991. (Filed as Exhibit 10.15 to
the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994
and incorporated herein by reference.)
10.16 First Amendment to the Lease dated
June 28, 1991 between Oncor, Inc. and Avenel
Executive Park Phase II, Inc. (Filed as
Exhibit 10.16 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by
reference.)
23 Consent of Independent Public Accountants to
incorporation of reports in Company's Annual
Report on Form 10-K for fiscal year 1995 into
the Company's previously filed S-3
Registration Statements, File Nos. 333-85 and
333-735, and into the Company's previously
filed S-8 Registration Statement, File No.
33-81021.
(b) Reports on Form 8-K.
None.<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 29, 1996 By /s/ Stephen Turner
Stephen Turner
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Date Signature Title
- ---- --------- -----
March 29, 1996 /s/ Stephen Turner Chairman of the
Stephen Turner Board of Directors,
Chief Executive
Officer (Principal
Executive Officer)
March 29, 1996 /s/ John L. Coker Vice President,
John L. Coker Secretary and
Treasurer
(Principal Financial
Officer)
March 29, 1996 /s/ Timothy J. Triche Director
Timothy J. Triche
March 29, 1996 /s/ Philip S. Schein Director
Philip S. Schein
March 29, 1996 /s/ William H. Taylor II Director
William H. Taylor II
March 29, 1996 /s/ George W. Scherer Director
George W. Scherer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Oncor, Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of Oncor, Inc.,
and subsidiaries included in this Form 10-K and have issued our
report thereon dated February 26, 1996. Our audits were made for
the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index is
the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange
Commission's rules and is
not part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.,
February 26, 1996
<TABLE>
ONCOR, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Additions
Balance at charged to Additions Balance
beginning expenses due to at end
of period (recoveries) Acquisitions Write-offs of period
---------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1993
- -----------------
Allowance for
doubtful accounts $48,401 $127,679 - - $176,080
Deferred tax asset
valuation 9,600,000 5,900,000 - - 15,500,000
December 31, 1994
- -----------------
Allowance for
doubtful accounts 176,080 (57,399) 68,304 (13,634) 173,351
Deferred tax asset
valuation 15,500,000 4,500,000 800,000 - 20,800,000
December 31, 1995
- -----------------
Allowance for
doubtful accounts 173,351 200,295 - (32,764) 340,882
Deferred tax asset
valuation 20,800,000 7,500,000 - - 28,300,000
</TABLE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into
Oncor, Inc.'s previously filed Registration Statements File Nos.
333-85, 333-735 and 33-81021.
ARTHUR ANDERSEN LLP
Washington, D.C.
March 27, 1996
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