<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
_______
For the Quarter Ended: June 30, 1996 Commission File Number 0-27352
Hybridon, Inc.
--------------
(Exact name of registrant as specified in its charter)
Delaware 04-3072298
- ------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
organization or incorporation)
One Innovation Drive
Worcester, Massachusetts 01605
------------------------------
(Address of principal executive offices, including zip code)
(508) 752-7000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.001 per share 24,776,541
- --------------------------------------- -------------------------------
Class Outstanding as of July 31, 1996
<PAGE> 2
HYBRIDON, INC.
Form 10-Q
INDEX
Part I - Financial Information
- ------------------------------
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets
June 30, 1996 and December 31, 1995
Consolidated Condensed Statement of Operations for
the Three Months and Six Months ended June 30, 1996 and 1995,
and Cumulative from May 25, 1989 to June 30, 1996
Consolidated Condensed Statements of Cash Flows for
the Six Months ended June 30, 1996 and 1995,
and Cumulative from May 25, 1989 to June 30, 1996
Notes to Consolidated Condensed Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II - Other Information
- ---------------------------
Item 4 - Submission of Matters to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K
Signatures
<PAGE> 3
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,624,664 $ 5,284,262
Short-term investments 19,282,850 -
Prepaid expenses and other current assets 2,320,769 1,389,518
------------- -------------
Total current assets 33,228,283 6,673,780
------------- -------------
PROPERTY AND EQUIPMENT, AT COST:
Laboratory equipment 6,224,508 5,153,550
Leasehold improvements 1,963,795 1,965,754
Equipment under capital leases 1,474,315 1,507,535
Office equipment 1,326,657 1,149,141
Furniture and fixtures 463,067 321,763
Construction-in-progress 5,872,803 3,236,330
------------- -------------
17,325,145 13,334,073
Less--Accumulated depreciation and amortization 5,188,383 4,202,543
------------- -------------
12,136,762 9,131,530
------------- -------------
OTHER ASSETS:
Restricted cash 920,184 1,025,856
Notes receivable from officers 313,086 308,133
Deferred financing costs and other assets 174,175 779,812
Deposit with real estate partnership 5,928,987 1,698,448
------------- -------------
7,336,432 3,812,249
------------- -------------
$ 52,701,477 $ 19,617,559
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease
obligations $ 405,260 $ 418,713
Accounts payable 1,708,250 2,053,438
Accrued expenses 3,530,359 3,454,625
Deferred revenue 86,250 86,250
Amounts payable to related parties - 12,500
------------- -------------
Total current liabilities 5,730,119 6,025,526
------------- -------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF
CURRENT PORTION 952,020 1,145,480
------------- -------------
MINORITY INTEREST 2,042,811 -
------------- -------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value-
Authorized-- none at June 30, 1996 and 23,026,323
shares at December 31, 1995
Issued and outstanding-- none at June 30, 1996 and
15,982,179 shares at December 31, 1995 - 159,822
Preferred stock, $.01 par value-
Authorized--5,000,000 shares at June 30, 1996
Issued and outstanding--None - -
Common stock, $.001 par value-
Authorized--100,000,000 shares
Issued and outstanding--24,578,541 shares at
June 30,1996 and 1,843,666 shares at
December 31,1995 24,579 1,844
Additional paid-in capital 167,254,819 114,626,062
Deficit accumulated during the development stage (123,302,871) (102,341,175)
------------- -------------
Total stockholders' equity 43,976,527 12,446,553
------------- -------------
$ 52,701,477 $ 19,617,559
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE> 4
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
CUMULATIVEFROM
MAY 25, 1989
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, (INCEPTION)
1996 1995 1996 1995 TO JUNE 30, 1996
<S> <C> <C> <C> <C> <C>
REVENUES:
Research and
development $ 458,150 $ 459,074 $ 717,500 $ 717,824 $ 3,852,374
Interest income 340,622 46,841 635,495 101,109 1,330,350
Royalty income 62,321 - 62,321 - 62,321
------------ ----------- ------------ ------------ -------------
861,093 505,915 1,415,316 818,933 5,245,045
------------ ----------- ------------ ------------ -------------
OPERATING EXPENSES:
Research and
development 9,700,841 7,754,212 17,084,138 14,422,363 96,325,513
General and
administrative 2,804,907 1,508,052 5,223,293 3,046,292 30,666,491
Interest 29,978 37,767 69,581 90,302 1,555,912
------------ ----------- ------------ ------------ -------------
12,535,726 9,300,031 22,377,012 17,558,957 128,547,916
------------ ----------- ------------ ------------ -------------
Net loss $(11,674,633) $(8,794,116) $(20,961,696) $(16,740,024) $(123,302,871)
============ =========== ============ ============ =============
PRO FORMA NET LOSS PER
COMMON SHARE (Note 2) $ (.48) $ (.57) $ (.89) $ (1.13)
============ =========== ============ ============
SHARES USED IN
COMPUTING PRO FORMA
NET LOSS PER COMMON
SHARE (Note 2) 24,518,126 15,383,854 23,613,260 14,806,086
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE> 5
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
CUMULATIVE
FROM MAY 25, 1989
SIX MONTHS ENDED JUNE 30, (INCEPTION)TO
1996 1995 JUNE 30, 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(20,961,696) $(16,740,024) $(123,302,871)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization 985,840 722,959 5,289,824
Compensation on grant of stock options,
warrants and restricted stock - 324,174 7,044,541
Amortization of discount on convertible
promissory notes payable - - 690,157
Amortization of deferred financing costs - - 216,732
Noncash interest on convertible
promissory notes payable - - 260,799
Changes in assets and liabilities-
Prepaid and other current assets (931,251) (35,694) (2,320,769)
Notes receivable from officers (4,953) 327,559 (313,086)
Amounts payable to related parties (12,500) (92,851) (200,000)
Accounts payable and accrued expenses (269,454) 1,799,823 5,238,609
Deferred revenue - - 86,250
------------ ------------ -------------
Net cash used in operating activities (21,194,014) (13,694,054) (107,309,814)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments (19,282,850) - (19,282,850)
Purchases of property and equipment, net (3,991,072) (2,050,170) (16,890,793)
Decrease (increase) in restricted cash
and other assets 184,588 109,096 (1,443,593)
Deposit with real estate partnership (4,230,539) - (5,928,987)
Proceeds from sale/leaseback - - 1,073,183
------------ ------------ -------------
Net cash used in investing activities (27,319,873) (1,941,074) (42,473,040)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible
preferred stock - 13,109,717 96,584,154
Proceeds from issuance of common stock related
to stock options and restricted stock grants 260,426 - 345,352
Proceeds from sale of common stock 52,231,244 - 52,355,324
Repurchase of common stock - - (263)
Proceeds from notes payable - - 1,950,000
Proceeds from issuance of convertible
promissory notes payable - - 9,191,744
Proceeds from long-term debt - - 662,107
Payments on long-term debt and capital leases (206,913) (297,903) (1,562,362)
Proceeds from sale of stock in subsidiary 2,042,811 - 2,042,811
Decrease (increase) in deferred financing costs 526,721 (1,013) (161,349)
------------ ------------ -------------
Net cash provided by financing activities 54,854,289 12,810,801 161,407,518
------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 6,340,402 (2,824,327) 11,624,664
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,284,262 3,395,783 -
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 11,624,664 $ 571,456 $ 11,624,664
============ ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 69,581 $ 90,302 $ 516,256
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE> 6
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Hybridon, Inc. (the Company) was incorporated in the State of Delaware on
May 25, 1989. The Company is engaged in the discovery and development of
novel genetic medicines based primarily on antisense technology.
The Company is in the development stage. Since inception, the Company has
devoted substantially all of its efforts toward product research and
development and raising capital. Management anticipates that substantially
all future revenues will be derived from products under development or
those developed in the future, as well as from contract research and
development revenues and fees and royalties derived from licensing of the
Company's technology. Accordingly, the Company is dependent on the proceeds
from possible future sales of equity securities, debt financings and
research and development collaborations in order to fund future operations.
The unaudited consolidated condensed financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and include, in the
opinion of management, all adjustments, consisting of normal, recurring
adjustments, necessary for a fair presentation of interim period results.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that its disclosures are
adequate to make the information presented not misleading. The results for
the interim periods presented are not necessarily indicative of results to
be expected for the full fiscal year. It is suggested that these financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Form 10-K for the
year ended December 31, 1995, as filed with the Securities and Exchange
Commission.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pro Forma Net Loss per Common Share
Pro forma net loss per common share is computed using the weighted average
number of shares of common stock outstanding during the period. Pursuant to
the requirements of the Securities and Exchange Commission, common stock
issued by the Company during the 12 months immediately preceding its
initial public offering, plus shares of common stock that became issuable
during the same period pursuant to the grant of common stock options and
preferred and common stock warrants, has been included in the calculation
of pro forma weighted average number of shares outstanding for the
<PAGE> 7
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pro Forma Net Loss per Common Share (Continued)
three and six months ended June 30, 1995 and for the period from January 1,
1996 through February 2, 1996 (using the treasury-stock method and the
initial public offering price of $10 per share). In addition, the
calculation of the pro forma weighted average number of shares outstanding
includes shares of common stock as if all shares of preferred stock were
converted into common stock on the respective original dates of issuance.
(3) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
<TABLE>
The Company applies SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Accordingly, the Company has classified its
cash equivalents and short-term investments as held-to-maturity, and has
recorded them at amortized cost, which approximates market value.
Short-term investments mature within one year of the balance sheet date.
Cash equivalents have original maturities of less than three months. Cash
and cash equivalents and short-term investments at June 30, 1996 and
December 31, 1995 consisted of the following:
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
<S> <C> <C>
Cash and Cash Equivalents-
Cash and money market funds $ 8,470,494 $5,284,262
U.S. government securities 3,154,170 -
----------- ----------
$11,624,664 $5,284,262
=========== ==========
Short-term Investments-
U.S. government securities $19,282,850 $ -
=========== ==========
</TABLE>
(4) INITIAL PUBLIC OFFERING
On February 2, 1996, the Company completed its initial public offering of
5,750,000 shares of common stock at $10.00 per share. The sale of common
stock resulted in net proceeds to the Company of approximately $52,231,000
after deducting expenses related to the offering. In addition, all
outstanding shares of preferred stock were converted into 16,856,649 shares
of common stock upon the consummation of the initial public offering.
<PAGE> 8
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(5) INVESTMENT IN METHYLGENE, INC.
In January 1996, the Company and certain institutional Canadian investors
formed a Quebec company, MethylGene, Inc. (MethylGene), to develop and
market certain compounds to be agreed upon by the Company and MethylGene.
The Company acquired a 49% interest in MethylGene for approximately
$734,000, and the Canadian investors acquired a 51% interest in MethylGene
for a total of approximately $5,500,000. The Company and such investors
have contributed $2,813,000 to MethylGene through June 30, 1996 and have
contributed the remaining amounts prior to July 31, 1996. MethylGene is a
consolidated subsidiary of the Company and the loss of approximately
$119,000 for the three and six months ended June 30, 1996 is reflected in
the consolidated condensed statements of operations. The Company has
recorded a liability as of June 30, 1996 for the net amount of proceeds
received from such investors and expects to maintain a liability that
reflects the option of the MethylGene investors to require the Company to
exchange the investors' MethylGene stock for Hybridon stock (see below).
The Canadian investors have the right to exchange all (but not less than
all) of their shares of stock in MethylGene for an aggregate of 500,000
shares of Hybridon common stock (subject to adjustment for stock splits,
stock dividends and the like). This option is exercisable only during a
90-day period commencing on the earlier of the date five years after the
closing of the institutional investors' investment in MethylGene or the
date on which MethylGene ceases operations. This option terminates sooner
if MethylGene raises certain additional amounts of equity or debt financing
or if MethylGene enters into a corporate collaboration that meets certain
requirements.
The Company has granted to MethylGene exclusive worldwide licenses and
sublicenses in respect of certain technology relating to the MethylGene
fields. In addition, the Company and MethylGene have entered into a supply
agreement pursuant to which MethylGene is obligated to purchase from the
Company all required formulated bulk oligonucleotides at specified transfer
prices.
(6) SUBSEQUENT EVENTS
Cambridge Lease
The Company has entered into an amendment to the lease for its Cambridge
facility pursuant to which, among other things, the Company has elected to
treat its payments for a portion of the costs of the construction of the
leased premises (primarily relating to tenant improvements) as
contributions to the capital of the Cambridge landlord in exchange for a
limited partnership interest in the Cambridge landlord (the Partnership
interest).
<PAGE> 9
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(6) SUBSEQUENT EVENTS (Continued)
Cambridge Lease (Continued)
landlord (the Partnership Interest). The Company has the right, for a
period of three years following completion of the building, to sell the
Partnership Interest back to certain limited partners of the Cambridge
landlord for a price equal to the greater of (i) the aggregate cash
contribution made by the Company to the Cambridge landlord or (ii) the fair
market value of the Partnership Interest at the time. The assets of these
limited partners are limited to their investment in the Cambridge landlord.
The Cambridge landlord is an affiliate of three directors of the Company.
Warrants
During the third quarter of 1996, the Company agreed with the holders of
warrants to purchase 1,270,214 shares of common stock to correct an error
in the expiration date of such warrants by extending the expiration date
from July 7, 1996 to October 25, 1996. Subsequent to June 30, 1996,
warrants to purchase 192,767 shares of common stock at exercise prices of
$5.50-$8.00 per share were exercised for proceeds of approximately
$1,539,000.
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company is engaged in the discovery and development of genetic medicines
based primarily on antisense technology. The Company commenced operations in
February 1990 and since that time has been engaged primarily in research and
development efforts, development of its manufacturing capabilities and
organizational efforts, including recruitment of scientific and management
personnel and raising capital. To date, the Company has not received revenue
from the sale of products. In order to commercialize products, the Company will
need to address a number of technological challenges and comply with
comprehensive regulatory requirements. Accordingly, it is not possible to
predict the amount of funds that will be required or the length of time that
will pass before the Company receives revenues from sales of any the products
that result from research and development efforts. All revenues received by the
Company to date have been from collaborative agreements and interest on invested
funds. The Company has made a significant investment in Hybridon Specialty
Products, a custom manufacturing division for products made from
oligonucleotides. The Company expects to begin generating revenues from this
division commencing in the third quarter of 1996.
The Company has incurred losses since its inception and expects to incur
significant operating losses in the future. The Company expects that its
research and development expenses will increase significantly during 1996 and
future years as it moves its principal research and development programs to more
advanced preclinical studies, into clinical trials and to later phase clinical
trials. In addition, the Company expects that its personnel and patent costs
will significantly increase in the future. Costs associated with the Company's
patent applications are expected to increase as the Company continues to file
and prosecute such applications. Patent costs also would significantly increase
if the Company became involved in litigation or administrative proceedings
involving its patents or those of third parties. The Company has incurred
cumulative losses since inception through June 30, 1996 of approximately
$123,303,000.
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve a number of risks and uncertainties. Among the important factors that
could cause actual results to differ materially from those indicated by such
forward-looking statements are the factors set forth in the Company's Annual
Report on Form 10-K under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Certain Factors That May Affect
Future Results", which are incorporated by reference herein. In addition demand
for Hybridon Specialty Products may weaken and orders for Hybridon Specialty
Products may not continue as planned.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1996 and 1995
The Company had total revenues of $861,000 and $506,000 in the three months
ended June 30, 1996 and 1995, respectively, and $1,415,000 and $819,000 in the
six months ended June 30, 1996 and 1995, respectively. Revenues from research
and development were $458,000 and $459,000 for the three months ended June 30,
1996 and 1995, respectively, and $718,000 for the six month periods ended June
30, 1996 and 1995. Revenues for both the three month and six month periods ended
June 30 1996 and 1995 consisted of payments earned under a collaborative
agreement with F. Hoffmann-La Roche Ltd (Roche). For the three month period
ended June 30, 1996 revenues also included payments under a collaborative
agreement with G. D. Searle & Co. (Searle). Revenues from interest income were
$341,000 and $47,000 for the three months ended June 30, 1996 and 1995,
respectively, and $635,000 and $101,000 for the six months ended June 30, 1996
and 1995, respectively. The increase in interest income in both periods of 1996
was the result of substantially higher cash balances available for investment
as a result of the Company's initial public offering completed on February 2,
1996. Revenues from royalty income were $62,000 during the three and six months
ended June 30, 1996 which reflect the first royalty payment received by
Hybridon for the sale of a commercial-scale oligonucleotide synthesis system
which was co-developed by the Company.
<PAGE> 11
The Company had research and development expenses of $9,701,000 and $7,754,000
in the three months ended June 30, 1996 and 1995, respectively, and $17,084,000
and $14,422,000 in the six months ended June 30, 1996 and 1995, respectively.
The increase in research and development expenses in the three and six months
ended June 30, 1996 reflects increased expenses associated with salaries and
related costs, facilities equipment costs related to additional laboratories,
expenses related to the production of GEM[Registered Trademark] 91 and
additional preclinical compounds. Research and development staffing and related
costs increased significantly in the three and six months ended June 30, 1996 as
the number of employees engaged in research and development activities increased
by approximately 15%. The Company expects to invest significant resources in
the remainder of 1996 in connection with the ongoing clinical trials of
GEM[Registered Trademark] 91, the initiation of clinical trials of
GEM[Registered Trademark] 132, the performance of preclinical studies, and the
preparation of IND applications with respect to GEM[Registered Trademark] 132
and additional antisense compounds.
The Company had general and administrative expenses of $2,805,000 and $1,508,000
in the three months ended June 30, 1996 and 1995, respectively, and $5,223,000
and $3,046,000 in the six months ended June 30, 1996 and 1995, respectively. The
increase in general and administrative expenses in the three and six months
ended June 30, 1996 was attributable primarily to an increase in consulting
expenses for business development, financial advisory services, travel-related
expenses, and salaries and bonuses.
The Company had interest expense of $30,000 and $38,000 in the three months
ended June 30, 1996 and 1995, respectively, and $70,000 and $90,000 in the six
months ended June 30, 1996 and 1995, respectively. Interest expense in the three
and six months ended June 30, 1996 and 1995 primarily consisted of interest
incurred on borrowings to finance the purchase of property and equipment, and
leasehold improvements. The decrease in interest expense in the three and six
months ended June 30, 1996 reflected a decrease in the debt outstanding during
1996.
As a result of the above factors, the Company incurred net losses of
$11,674,000 and $8,794,000 for the three months ended June 30, 1996 and 1995,
respectively, and $20,962,000 and $16,740,000 for the six months ended June 30,
1996 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, the Company used $21,194,000 for
operating activities, principally in connection with the Company's ongoing
research and development programs. The Company also increased its investment in
property and equipment by approximately $3,991,000, consisting primarily of
costs associated with the buildout of the Milford manufacturing facility, and
made additional advances to the landlord of the Cambridge facility of
approximately $4,231,000 during the six months ended June 30, 1996. In addition,
during the six months ended June 30, 1996, the Company increased its short-term
investments by approximately $19,283,000. On February 2, 1996, the Company
completed its initial public offering of common stock, which resulted in net
proceeds to the Company of approximately $52,231,000. As a result of the closing
of the Company's initial public offering, all of the Company's previously
outstanding series of convertible preferred stock were automatically converted
into common stock.
The Company has signed a lease for a facility in Cambridge, Massachusetts, and
expects to move its primary operations to such facility in the fourth quarter of
1996 or the first quarter of 1997. The Company expects to incur significant
costs in equipping and building out this facility, and the Company's facility
costs will significantly increase when it takes occupancy of the Cambridge
facility. The Company has entered into an amendment to the lease for its
Cambridge facility pursuant to which, among other things, the Company has
elected to treat its payments for a portion of the costs of construction of the
leased premises (of which $5,929,000 had been advanced to the landlord and
recorded as a deposit as of June 30, 1996), primarily related
<PAGE> 12
to tenant improvements, as contributions to the capital of the Cambridge
landlord in exchange for a limited partnership interest in the Cambridge
landlord. The Cambridge landlord is an affiliate of three directors of the
Company.
During the third quarter of 1996, the Company agreed with the holders of
warrants to purchase 1,270,214 shares of common stock to correct an error in the
expiration date of these warrants by extending the expiration date from July 7,
1996 to October 25, 1996. Subsequent to June 30, 1996, warrants to purchase
191,667 shares of common stock at an exercise price of $8.00 per share and 1,100
shares of common stock at an exercise price of $5.50 per share were exercised
for proceeds of $1,539,386.
The Company expects that its capital requirements will increase in the future
depending on numerous factors, including but not limited to the progress of the
Company's research and development activities; the results and costs of
preclinical studies and clinical trials; the timing and costs involved in
obtaining regulatory approvals; the costs involved with filing, prosecuting,
enforcing and defending patent claims; the costs associated with potential
commercialization of products under development, including the development of
manufacturing, marketing and sales capabilities; the ability of the Company to
enter into additional collaborative arrangements; and the ability of the
Company to obtain third-party financing for leasehold improvements and other
capital expenditures. The Company expects that capital expenditures for the six
months ending December 31, 1996 will total approximately $6,400,000, primarily
in connection with the build-out and equipping of the Company's manufacturing
facility in Milford, Massachusetts, and the build-out of the Company's
Cambridge facility.
The Company anticipates that its existing capital resources will be adequate to
satisfy its capital requirements through the first quarter of 1997. Substantial
additional funds will be required from external sources to support the
Company's operations beyond that time. The Company intends to seek additional
equity, debt and lease financing to fund future operations, depending on the
terms on which such sources of funding may be available from time to time. In
particular, the Company contemplates seeking bank or lease financing for the
build-out and equipping of the Milford facility. The Company also intends to
seek additional collaborative development and commercialization relationships
with potential corporate partners in order to fund certain of its programs.
Except for research and development funding from Roche and Searle under
Hybridon's collaboration agreements with such companies (which are subject to
early termination in certain circumstances), Hybridon has no committed external
sources of capital, and, as discussed above, expects no product revenues as a
result of research and development efforts for a number of years. The Specialty
Products Division of the Company expects to generate revenues commencing in the
third quarter of 1996. If the Company is unable to obtain necessary additional
funds, it would be required to scale back or eliminate certain of its research
and development programs, commercialization efforts or license to third parties
certain technologies which the Company would otherwise pursue on its own.
<PAGE> 13
HYBRIDON, INC.
PART II
OTHER INFORMATION
_______
Item 1-3 None
- --------
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
(a) At the Company's Annual Meeting of Stockholders held on May
21, 1996, the following proposals were adopted by the vote
specified below:
1. Election of Class I Directors
WITHHELD AUTHORITY TO
FOR VOTE FOR ALL NOMINEES
--- ---------------------
Andre L. Lamotte 13,393,729 42,033
J. Robert Buchanan 13,398,479 37,283
Nasser Menhall 13,432,962 2,800
2. Ratification of the
Selection of Independent
Auditors
FOR AGAINST ABSTAIN BROKER NONVOTES
--- ------- ------- ---------------
13,414,261 18,501 3,000 ----
Item 5. None
- -------
Item 6. Exhibits and Reports on Form 8-K
- ------- ---------------------------------
(a) Exhibit
11 Computation of Pro Forma Net Loss Per Common Share.
27 Financial Data Schedule (EDGAR).
99 Pages 36-39 of the Company's Annual Report on Form 10-K
for the period ended December 31, 1995 (which is not
deemed to be filed except to the extent that portions
hereof are expressly incorporated by reference herein).
(b) No reports were filed on Form 8-K during the three months
ended June 30, 1996.
<PAGE> 14
SIGNATURES
_______
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYBRIDON, INC.
August 13, 1996 /s/ E. Andrews Grinstead, III
- --------------- ----------------------------------
Date E. Andrews Grinstead, III
Chairman, President and Chief
Executive Officer (Principal
Executive Officer)
August 13, 1996 /s/ Anthony J. Payne
- --------------- ----------------------------------
Date Anthony J. Payne
Senior Vice President of Finance
and Administration and Chief
Financial Officer (Principal
Financial and Accounting Officer)
<PAGE> 15
HYBRIDON, INC.
EXHIBIT INDEX
_______
11 Computation of Pro Forma Net Loss Per Common Share.
27 Financial Data Schedule (EDGAR).
99 Pages 36-39 of the Company's Annual Report on Form 10-K for the
period ended December 31, 1995 (which is not deemed to be filed
except to the extent that portions thereof are expressly
incorporated by reference herein).
<PAGE> 1
EXHIBIT 11
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
COMPUTATION OF PRO FORMA NET LOSS PER COMMON SHARE (1)
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET LOSS $(11,674,633) $(8,794,116) $(20,961,696) $(16,740,024)
============ =========== ============ ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES:
Weighted average common stock
outstanding during the period $ 24,518,126 $ 1,814,266 $ 20,747,427 $ 1,814,266
Conversion of preferred stock - 13,046,004 2,778,569 12,468,236
Dilutive effect of common
equivalent shares issued
subsequent to October 31, 1994(2) - 523,584 87,264 523,584
------------ ----------- ------------ ------------
$ 24,518,126 $15,383,854 $ 23,613,260 $ 14,806,086
============ =========== ============ ============
PRO FORMA NET LOSS PER COMMON SHARE $ (.48) $ (.57) $ (.89) $ (1.13)
============ =========== ============ ============
- ----------
<FN>
(1) Primary and fully diluted net loss per share has not been separately
presented, as the amounts would not be meaningful.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, stock options issued at prices below the initial public offering
price per share (cheap stock) during the 12-month period immediately
preceding the initial filing date of the Company's Registration Statement
of its initial public offering have been included as outstanding for all
periods presented. The dilutive effect of the common and common stock
equivalents was computed in accordance with the treasury stock method.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 11,624,664
<SECURITIES> 19,282,850
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,228,283
<PP&E> 17,325,145
<DEPRECIATION> 5,188,383
<TOTAL-ASSETS> 52,701,477
<CURRENT-LIABILITIES> 5,730,119
<BONDS> 952,020
<COMMON> 24,579
0
0
<OTHER-SE> 43,951,948
<TOTAL-LIABILITY-AND-EQUITY> 43,976,527
<SALES> 0
<TOTAL-REVENUES> 1,415,316
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,307,431
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,581
<INCOME-PRETAX> (20,961,696)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,961,696)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,961,696)
<EPS-PRIMARY> (.89)
<EPS-DILUTED> (.89)
</TABLE>
<PAGE> 1
EXHIBIT 99
----------
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results
to differ materially from those contained in forward-looking statements made in
this Annual Report on Form 10-K and presented elsewhere by management from time
to time.
Early Stage of Development; Technological Uncertainty
Hybridon's potential products are at an early stage of development. All of
the Company's potential products are in research or development. There are a
number of technological challenges that the Company must successfully address to
complete any of its development efforts. To date, most of the Company's
resources have been dedicated to applying oligonucleotide chemistry and cell
biology to the research and development of potential pharmaceutical products
based upon antisense technology. As in most drug discovery programs, the results
of in vitro, tissue culture and preclinical studies by the Company may be
inconclusive and may not be indicative of results that will be obtained in human
clinical trials. In addition, results attained in early human clinical trials by
the Company may not be indicative of results that will be obtained in later
clinical trials. Neither the Company, nor to its knowledge, any other company
has successfully completed human clinical trials of a product based on antisense
technology, and there can be no assurance that any of the Company's products
will be successfully developed.
Uncertainty Associated with Clinical Trials
Before obtaining regulatory approvals for the commercial sale of any of
its products under development, the Company must undertake extensive and costly
preclinical studies and clinical trials to demonstrate that such products are
safe and efficacious. The results from preclinical studies and early clinical
trials are not necessarily predictive of results that will be obtained in later
stages of testing or development, and there can be no assurance that the
Company's clinical trials will demonstrate the safety and efficacy of any
products or will result in products capable of being produced in commercial
quantities at reasonable cost or in a marketable form.
Although the Company is developing several oligonucleotide compounds on
which it plans to file IND applications with the FDA and equivalent filings
outside of the U.S., there can be no assurance that necessary preclinical
studies on these compounds will be completed satisfactorily or that the Company
otherwise will be able to make its intended filings. Further, there can be no
assurance that the Company will be permitted to undertake and complete human
clinical trials of any of the Company's potential products, either in the U.S.
or elsewhere, or, if permitted, that such products will not have undesirable
side effects or other characteristics that may prevent or limit their commercial
use.
Future Capital Needs; Uncertainty of Additional Funding
The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research, drug discovery and
development programs, the magnitude of these programs, progress with preclinical
and clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in filing, prosecuting and enforcing patent
claims, competing technological and market developments, the ability of the
Company to establish and maintain collaborative academic and commercial
research, development and marketing relationships, and the costs of
manufacturing scale-up and commercialization activities and arrangements.
Based upon its current operating plan, the Company anticipates that its
existing capital resources will be adequate to satisfy its capital requirements
for at least 12 months. The Company anticipates that it will be required to
raise substantial
-36-
<PAGE> 2
additional funds, including through collaborative relationships and public or
private financings. No assurance can be given that additional financing will be
available, or, if available, that it will be available on acceptable terms. If
adequate funds are not available, the Company may be required to curtail
significantly one or more of its research, drug discovery or development
programs, or obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products which the Company would otherwise
pursue on its own. See "Item 1. Business -- Hybridon Drug Development and
Discovery Programs" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
History of Operating Losses and Accumulated Deficit
Hybridon has incurred net losses since its inception. At December 31,
1995, the Company's accumulated deficit was approximately $102,341,000. Such
losses have resulted principally from costs incurred in the Company's research
and development programs and from general and administrative costs associated
with the Company's development. No revenues have been generated from product
sales, and no product sales revenues are anticipated for a number of years, if
ever. The Company expects to incur additional operating losses over the next
several years and expects cumulative losses to increase significantly as the
Company's research and development and clinical trial efforts expand. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Patents and Proprietary Rights
The Company's success will depend in part on its ability to develop
patentable products and obtain and enforce patent protection for its products
both in the U.S. and in other countries. The Company has filed and intends to
file applications as appropriate for patents covering both its products and
processes. However, the patent positions of pharmaceutical and biotechnology
firms, including Hybridon, are generally uncertain and involve complex legal and
factual questions. No assurance can be given that patents will issue from any
pending or future patent applications owned by or licensed to Hybridon or that
the claims allowed under any issued patents will be sufficiently broad to
protect the Company's technology.
The commercial success of the Company will also depend in part on its
neither infringing patents issued to competitors or others nor breaching the
technology licenses upon which the Company's products might be based. The
Company's licenses of patents and patent applications impose various
commercialization, sublicensing, insurance and other obligations on the Company.
Failure of the Company to comply with these requirements could result in
termination of the license. The Company is aware of patents and patent
applications belonging to competitors, and it is uncertain whether these patents
and patent applications will require the Company to alter its products or
processes, pay licensing fees or cease certain activities. See "Item 1. Business
- -- Patents, Trade Secrets and Licenses."
Need to Establish Collaborative Commercial Relationships; Dependence on Partners
Hybridon's business strategy includes entering into strategic alliances or
licensing arrangements with corporate partners, primarily pharmaceutical and
biotechnology companies, relating to the development and commercialization of
certain of its potential products. Although the Company is a party to corporate
collaborations with Roche, Medtronic, Pharmacia and Searle, there can be no
assurance that these collaborations will be scientifically or commercially
successful, that the Company will be able to negotiate additional
collaborations, that such collaborations will be available to the Company on
acceptable terms or that any such relationships, if established, will be
scientifically or commercially successful. See "Item 1. Business -- Hybridon
Drug Development and Discovery Programs" and "-- Corporate Collaborations."
No Assurance of Regulatory Approval; Government Regulation
The Company's preclinical studies and clinical trials, as well as the
manufacturing and marketing of its potential products, are subject to extensive
regulation by numerous federal, state and local governmental authorities in the
U.S. Similar regulatory requirements exist in other countries where the Company
intends to test and market its drug candidates. Failure to
-37-
<PAGE> 3
comply with applicable regulatory requirements can, among other things, result
in fines, suspension of regulatory approvals, product recalls, seizure of
products, operating restrictions and criminal prosecutions. FDA policy may
change and additional government regulations may be established that could
prevent or delay regulatory approval of the Company's potential products. In
addition, a marketed drug and its manufacturer are subject to continual review,
and subsequent discovery of previously unknown problems with a product or
manufacturer may result in restrictions on such product or manufacturer,
including withdrawal of the product from the market and withdrawal of the right
to manufacture the product. All of the foregoing regulatory matters also will be
applicable to development, manufacturing and marketing undertaken by any
strategic partners or licensees of the Company. See "Item 1. Business --
Government Regulation."
Competition
There are many companies, both private and publicly traded, that are
conducting research and development activities on technologies and products
similar to or competitive with the Company's antisense technologies and proposed
products. For example, many other companies are actively seeking to develop
products, including antisense oligonucleotides, with disease targets similar to
those being pursued by the Company. Some of these competitive products are in
clinical trials. The Company believes that the industry-wide interest in
investigating the potential of gene expression modulation technologies will
continue and will accelerate as the techniques which permit the design and
development of drugs based on such technologies become more widely understood.
There can be no assurance that the Company's competitors will not succeed in
developing products based on oligonucleotide or other technologies, existing or
new, which are more effective than any that are being developed by the Company,
or which would render Hybridon's antisense technologies obsolete and
noncompetitive. Moreover, there currently are commercially available products
for the treatment of certain of the disease targets being pursued by the
Company.
Competitors of the Company engaged in all areas of biotechnology and drug
discovery in the U.S. and other countries are numerous and include, among
others, pharmaceutical and chemical companies, biotechnology firms, universities
and other research institutions. Many of the Company's competitors have
substantially greater financial, technical and human resources than the Company.
In addition, many of these competitors have significantly greater experience
than the Company in undertaking preclinical studies and human clinical trials of
new pharmaceutical products and obtaining FDA and other regulatory approvals of
products for use in health care. Furthermore, if the Company is permitted to
commence commercial sales of products, it will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in which it has
limited or no experience. Accordingly, the Company's competitors may succeed in
obtaining FDA or other regulatory approvals for products or in commercializing
such products more rapidly than the Company. See "Item 1. Business --
Competition."
Limited Manufacturing Capability
While the Company believes that its existing production capacity and
inventories of GEM 91 will be sufficient to enable it to satisfy its current
research needs and its needs for clinical trials for this product candidate
through 1996, and that its existing production capacity is sufficient to support
the Company's other preclinical and clinical requirements for oligonucleotide
compounds during such period, the Company will need to expand its manufacturing
capacity in order to satisfy its future requirements for commercial production
of GEM 91 and the Company's other product candidates. In addition, in order to
successfully commercialize its product candidates, the Company may be required
to reduce further the cost of production of its oligonucleotide compounds, and
there can be no assurance that the Company will be able to do so.
The manufacture of the Company's products will be subject to GMP
requirements prescribed by the FDA or other standards prescribed by the
appropriate regulatory agency in the country of use. To the Company's knowledge,
therapeutic products based on chemically-modified oligonucleotides have never
been manufactured on a commercial scale. There can be no assurance that the
Company will be able to manufacture or obtain products in a timely fashion and
at acceptable quality and price levels, that it or its suppliers can manufacture
in compliance with GMP or other regulatory requirements or that it or its
suppliers will be able to manufacture an adequate supply of product. See "Item
1. Business -- Manufacturing."
-38-
<PAGE> 4
Absence of Sales and Marketing Experience
The Company expects to market and sell certain of its products directly
and through co-marketing or other licensing arrangements with third parties.
There can be no assurance that the Company will be able to build such a
marketing staff or sales force, that the cost of establishing such a marketing
staff or sales force will be justifiable in light of any product revenues or
that the Company's direct sales and marketing efforts will be successful. To the
extent the Company enters into co-marketing or other licensing arrangements, any
revenues received by the Company will be dependent in part on the efforts of
third parties and there can be no assurance that such efforts will be
successful. See "Item 1. Business -- Marketing Strategy."
Product Liability Exposure and Insurance
The use of any of the Company's potential products in clinical trials and
the commercial sale of any products may expose the Company to liability claims.
These claims might be made directly by consumers, health care providers or by
pharmaceutical and biotechnology companies or others selling such products.
Hybridon has limited product liability insurance coverage, and such coverage is
subject to various deductibles. Such coverage is becoming increasingly
expensive, and no assurance can be given that the Company will be able to
maintain or obtain such insurance at reasonable cost or in sufficient amounts to
protect the Company against losses due to liability claims that could have a
material adverse effect on the Company.
Uncertainty of Health Care Reform Measures
Federal, state and local officials and legislators (and certain foreign
government officials and legislators) have proposed or are reportedly
considering proposing a variety of reforms to the health care systems in the
U.S. and abroad. The Company cannot predict what health care reform legislation,
if any, will be enacted in the U.S. or elsewhere. Significant changes in the
health care system in the U.S. or elsewhere are likely to have a substantial
impact over time on the manner in which the Company conducts its business. Such
changes could have a material adverse effect on the Company. The existence of
pending health care reform proposals could have a material adverse effect on the
Company's ability to raise capital.
Attraction and Retention of Key Employees and Scientific Collaborators
The Company's success is dependent on the retention of principal members
of its management and scientific staff and on the recruitment of additional
qualified scientific personnel who can provide additional expertise to the
Company. The Company's success also depends in part on its continued ability to
develop and maintain collaborative relationships with independent researchers
and leading academic and research institutions. However, given the intense
competition for experienced scientific personnel and for such collaborator
relationships, there can be no assurance that the Company will be able to
attract and retain scientific personnel or to develop and maintain collaborative
agreements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
All financial statements required to be filed hereunder are filed as
APPENDIX A hereto, are listed under Item 14(a), and are incorporated herein by
this reference.
-39-
