<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
-------
For the Quarterly Period Ended: 0-27352
September 30, 1997 Commission File Number
HYBRIDON, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-3072298
(State or other jurisdiction of (I.R.S. Employer
organization or incorporation) Identification Number)
620 MEMORIAL DRIVE
CAMBRIDGE, MA 02139
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(617) 528-7000
----------------------------------------------------
(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 25,292,252
- --------------------------------------- ----------
Class Outstanding as of October 31, 1997
<PAGE> 2
HYBRIDON, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 1997 AND
DECEMBER 31, 1996
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND CUMULATIVE FROM MAY 25,
1989 (INCEPTION) TO SEPTEMBER 30, 1997
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996, AND CUMULATIVE FROM MAY 25,
1989 (INCEPTION) TO SEPTEMBER 30, 1997
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 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE> 3
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,892,967 $ 12,633,742
Short-term investments 8,898,715 3,785,146
Accounts receivable 297,351 573,896
Prepaid expenses and other current assets 1,956,043 1,545,324
------------- -------------
Total current assets 17,045,076 18,538,108
------------- -------------
PROPERTY AND EQUIPMENT, AT COST:
Leasehold improvements 14,266,008 9,257,516
Laboratory equipment 6,681,385 5,884,861
Equipment under capital leases 5,371,707 2,904,688
Office equipment 1,785,376 1,496,639
Furniture and fixtures 684,595 499,958
Construction-in-progress 1,176,785 2,193,400
------------- -------------
29,965,856 22,237,062
Less--Accumulated depreciation and amortization 10,678,014 6,596,294
------------- -------------
19,287,842 15,640,768
------------- -------------
OTHER ASSETS:
Restricted cash 1,326,840 437,714
Notes receivable from officers 262,026 317,978
Deferred financing costs and other assets 3,230,945 1,152,034
Investment in real estate partnership 5,450,000 5,450,000
------------- -------------
10,269,811 7,357,726
------------- -------------
$ 46,602,729 $ 41,536,602
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations $ 8,062,535 $ 1,308,511
Accounts payable 4,476,576 4,064,419
Accrued expenses 7,128,573 4,190,766
Deferred revenue -- 86,250
------------- -------------
Total current liabilities 19,667,684 9,649,946
------------- -------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 3,556,763 9,031,852
------------- -------------
CONVERTIBLE SUBORDINATED NOTES PAYABLE 50,000,000 --
------------- -------------
STOCKHOLDERS' EQUITY(DEFICIT):
Preferred stock, $.01 par value-
Authorized--5,000,000 shares
Issued and outstanding--None -- --
Common stock, $.001 par value-
Authorized--100,000,000 shares
Issued and outstanding--25,292,252 shares at September 30, 1997, and
25,146,577 shares at December 31, 1996 respectively 25,292 25,147
Additional paid-in capital 173,672,464 173,227,358
Deficit accumulated during the development stage (199,171,091) (149,193,775)
Deferred Compensation (1,148,383) (1,203,926)
------------- -------------
Total stockholders' equity(deficit) (26,621,718) 22,854,804
------------- -------------
$ 46,602,729 $ 41,536,602
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE> 4
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE FROM
MAY 25, 1989
THREE MONTHS ENDED NINE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C>
REVENUES:
Research and development $ 200,000 $ 358,750 $ 980,150 $ 1,076,250 $ 5,534,413
Product revenue 155,368 611,520 1,231,226 611,520 2,311,401
Interest income 294,246 560,376 898,160 1,195,871 3,039,777
Royalty and other income 18,247 -- 33,218 62,321 95,539
------------ ------------ ------------ ------------ -------------
667,861 1,530,646 3,142,754 2,945,962 10,981,130
------------ ------------ ------------ ------------ -------------
OPERATING EXPENSES:
Research and development 11,338,913 10,242,296 37,784,718 27,326,434 156,416,618
General and administrative 3,057,380 2,766,429 9,011,879 7,989,722 45,801,747
Restructuring charge 3,100,000 -- 3,100,000 -- 3,100,000
Interest 1,605,918 18,070 3,223,473 87,651 4,833,856
------------ ------------ ------------ ------------ -------------
19,102,211 13,026,795 53,120,070 35,403,807 210,152,221
------------ ------------ ------------ ------------ -------------
Net loss $(18,434,350) $(11,496,149) $(49,977,316) $(32,457,845) $(199,171,091)
------------ ------------ ------------ ------------ -------------
NET LOSS PER COMMON SHARE
(Note 2) $ (.73) $ (.45) $ (1.98) $ (1.35)
============ ============ ============ ============
SHARES USED IN COMPUTING NET
LOSS PER COMMON SHARE (Note 2) 25,277,563 25,732,987 25,234,031 23,989,439
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements
<PAGE> 5
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE FROM
MAY 25,1989
NINE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(49,977,316) $(32,457,845) $(199,171,091)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 4,081,720 1,626,080 10,779,455
Issuance of common stock for services rendered 146,875 -- 146,875
Compensation on grant of stock options, warrants and 261,519 -- 8,069,250
restricted stock
Amortization of discount on convertible promissory notes -- -- 690,157
payable
Amortization of deferred financing costs 358,904 -- 575,636
Noncash interest on convertible promissory notes payable -- -- 260,799
Write-down of assets related to restructuring 331,000 331,000
Changes in operating assets and liabilities-
Accounts receivable 276,545 -- (297,350)
Prepaid and other current assets (541,718) (1,427,049) (2,087,042)
Notes receivable from officers 55,952 (7,371) (262,026)
Amounts payable to related parties -- 21,500 (200,000)
Accounts payable and accrued expenses 3,349,962 756,899 11,605,147
Deferred revenue (86,250) -- --
------------ ------------ -------------
Net cash used in operating activities (41,742,807) (31,487,786) (169,559,190)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments (5,113,569) (11,063,626) (8,898,715)
Purchases of property and equipment, net (6,645,439) (7,576,520) (28,448,149)
Decrease (increase) in restricted cash and other assets (626,985) 418,118 (2,291,168)
Investment in real estate partnership -- (3,751,552) (5,450,000)
------------ ------------ -------------
Net cash used in investing activities (12,385,993) (21,973,580) (45,088,032)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock -- -- 96,584,154
Proceeds from issuance of common stock related to stock 83,327 598,676 1,257,929
options and restricted stock grants
Proceeds from issuance of common stock related to stock 9,075 1,539,386 3,185,816
warrants
Net proceeds from issuance of common stock -- 52,231,244 52,355,324
Repurchase of common stock -- -- (263)
Proceeds from notes payable -- -- 9,450,000
Proceeds from issuance of convertible promissory notes payable 50,000,000 -- 59,191,744
Proceeds from long-term debt -- -- 662,107
Payments on long-term debt and capital leases (1,169,656) (351,849) (2,971,268)
Proceeds from sale/leaseback 1,165,236 -- 3,960,752
(Increase) decrease in deferred financing costs (2,699,957) 526,721 (3,136,106)
------------ ------------ -------------
Net cash provided by financing activities 47,388,025 54,544,178 220,540,189
------------ ------------ -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,740,775) 1,082,812 5,892,967
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,633,742 5,284,262 --
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,892,967 $ 6,367,074 $ 5,892,967
============ ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 786,005 $ 87,651 $ 2,396,388
============ ============ =============
</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
been engaged primarily in research and development efforts, development
of its manufacturing capabilities and organizational efforts, including
recruiting of scientific and management personnel and raising capital. To
date, the Company has not received revenue from the sale of
biopharmaceutical products developed by it based on antisense technology.
In order to commercialize its own 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 of
these products. All revenues received by the Company to date have been
derived from collaboration agreements, interest on investment funds and
revenues from the custom contract manufacturing of synthetic DNA and
reagent products by the Company's Hybridon Specialty Products Division.
As a result, although the Company has begun to generate revenues from its
contract manufacturing business, 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. Based on its current operating plan, the Company believes
that its existing resources, together with committed collaborative
research payments, the Company will have sufficient capital requirements
to fund its operations into December 1997. As noted, the Company will
require substantial additional funding to enable the Company to continue
operations beyond such time.
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 Annual Report on Form 10-K for the year
ended December 31, 1996, as filed with the Securities and Exchange
Commission.
<PAGE> 7
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss per Common Share
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 weighted average number of shares outstanding 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 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
The Company applies Statement of Financial Accounting Standards (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 September 30, 1997 and December 31, 1996
consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
<S> <C> <C>
Cash and cash equivalents-
Cash and money market funds $5,892,967 $10,144,367
U.S. government securities -- 2,489,375
---------- -----------
$5,892,967 $12,633,742
========== ===========
Short-term investments-
U.S. government securities $ -- $ 3,785,146
Commercial paper and certificates of deposit 8,898,715 --
---------- -----------
$8,898,715 $ 3,785,146
========== ===========
</TABLE>
(4) CONVERTIBLE SUBORDINATED NOTES PAYABLE
On April 2, 1997, the Company issued $50,000,000 of 9% convertible
subordinated notes (the Notes). Under the terms of the Notes, the Company
must make semi-annual interest payments on the outstanding principal
balance through the maturity date of April 1, 2004. If the Notes are
converted prior to April 1, 2000, the Noteholders are entitled to receive
accrued interest from the date of the most recent interest payment
through the conversion date. The Notes are subordinate to substantially
all of the Company's existing indebtedness. The Notes are convertible at
any time prior to the maturity date at a conversion price equal to
$7.0125 per share, subject to adjustment under certain circumstances, as
defined.
<PAGE> 8
Beginning April 1, 2000, the Company may redeem the Notes at its option
for a 4.5% premium over the original issuance price, provided that from
April 1, 2000 to March 31, 2001, the Notes may not be redeemed unless the
closing price of the common stock equals or exceeds 150% of the
conversion price for a period of at least 20 out of 30 consecutive
trading days and the Notes redeemed within 60 days after such trading
period. The premium decreases by 1.5% each year through March 31, 2003.
Upon a change of control of the Company, as defined, the Company will be
required to offer to repurchase the Notes at 150% of the original
issuance price.
(5) NEW ACCOUNTING STANDARDS
On March 31, 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, Earnings per Share. SFAS No. 128 establishes standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997 and early
adoption is not permitted. When adopted by the Company, SFAS No. 128 will
require restatement of prior years' earnings per share. The Company will
adopt SFAS No. 128 for its fiscal year ended December 31, 1997. The
Company believes that the adoption of SFAS No. 128 will not have a
material effect on its financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires disclosure of all components of
comprehensive income on an annual basis and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during
a period from transactions and other events and circumstances from
nonowner sources. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997.
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 requires certain
financial and supplementary information to be disclosed on an annual and
interim basis for each reportable segment of an enterprise. SFAS No. 131
is effective for fiscal years beginning after December 15, 1997. Unless
impracticable, companies would be required to restate prior period
information upon adoption.
(6) RESTRUCTURING
In July and August 1997 the Company implemented a restructuring plan to
reduce expenditures on a phased basis over the balance of 1997 in an
effort to conserve its cash resources. As part of this restructuring
plan, in addition to stopping the clinical development of GEM 91, the
Company's first generation antisense drug for the treatment of AIDS and
HIV the Company reduced or suspended selected programs unrelated to its
core drug development programs involving four second generation antisense
compounds based on the Company's proprietary mixed backbone chemistries.
To begin the implementation of these changes the Company terminated the
employment of 34 employees at its Cambridge and Milford, Massachusetts
facilities in July 1997 and substantially reduced operations at its
Paris, France office and terminated 10 employees at that location in
August 1997.
Also, in connection with the restructuring the Company entered into two
different sub-leasing arrangements. The Company has sub-leased one
facility in Cambridge, MA and a portion of its corporate headquarters
located at 620 Memorial Drive, Cambridge, MA. The Company incurred
expenses relating to these sub-leases for broker fees and renovation
expenses incurred in preparing the Memorial Drive space for the new
tenant. In addition, the Company plans to sub-lease its office in Paris,
France and has accrued the remaining lease payments net of anticipated
sub-lease income.
The Company is continuing to review its expenditure rate and implement
additional measures to conserve its cash resources. See Note 9(a).
<PAGE> 9
Because of the significant costs involved in terminating employees and
substantially reducing operations at its Paris, France office, the
Company does not expect its expenditure rate to materially decrease
until at least October 1997. The following are the significant components
of the charge for restructuring:
<TABLE>
<S> <C>
Employee severance, benefits and related costs $2,214,000
Development programs terminated 356,000
Facility costs 330,000
Writedown of assets to net realizable value 200,000
----------
$3,100,000
==========
</TABLE>
The total cash impact of the restructuring amounted to approximately $2.7
million. The total cash paid as of September 30, 1997 was approximately
$500,000 and the remaining amount of approximately $2.2 million will be
paid through the first quarter of 1998.
(7) NOTE PAYABLE TO A BANK
The note payable to Silicon Valley Bank (the "Bank") contains certain
financial covenants that require the Company to maintain minimum tangible
net worth (as defined) and minimum liquidity (as defined) and prohibits
the payment of dividends. The Company has secured the obligations under
the note with a lien on all of its assets. If, at specified times, the
Company's minimum liquidity is less than $15,000,000, $10,000,000, or
$5,000,000, the Company is required to pledge cash collateral to the bank
equal to 25%, 50% or 100%, respectively, of the then outstanding balance
under the note, pursuant to a cash pledge agreement. The notes also
contain certain non-financial covenants. As of September 30, 1997, the
Company's minimum liquidity had fallen below $15,000,000 and subsequent
to September 30, 1997 the Company pledged cash collateral to the bank of
$1,750,000. If the Company does not obtain additional financing by the
end of November, the Company's minimum liquidity as of November 30, 1997
may be less than $5,000,000 and the balance of the note will need to be
pledged by December 31, 1997. The Company has classified the entire
balance as a current liability in the accompanying September 30, 1997
balance sheet as it does not currently have the financing to remain in
compliance with the financial covenants as of November 19, 1997 (see
Note 9(c)). Failure by the Company to pledge cash collateral when
required would result in a default under the Company's credit facility
with the bank.
(8) RESTRICTED CASH
In November 1997 the Company was notified by Bank Fur Vermogensanlagen
Und Handel AG ("BVH") that the Federal Banking Supervisory Office
("BAKred") in Germany had imposed a moratorium, effective as of August
19, 1997 on BVH and had closed BVH for business. Accordingly, the Company
classified its $1,021,000 deposit with BVH as restricted at September 30,
1997. The Company has contacted BVH and is actively pursuing the release
of its deposit or sale of the deposit to a third party, including
possibly an entity affiliated with a director of the Company. The Company
expects to recover substantially all of its deposit in BVH through such
means. However, the timing of the recovery may be over a period of up to
one year. There can be no assurance that the Company will be able to
recover any or all of its deposit or that the Company will not be
required to write off all or a portion of the $1,021,000.
(9) SUBSEQUENT EVENTS
a) Additional Restructuring
In November 1997, the Company implemented an additional restructuring
plan by reducing the number of employees in its Cambridge and Milford,
Massachusetts facilities by approximately 50 employees. The Company
estimates that the restructuring charge with respect to such reductions,
which will be taken in the fourth quarter of 1997, will total between
approximately $1.5 million and $2.0 million, and expects that it will
make the associated cash payments through the first quarter of 1998.
b) NASDAQ Delisting
On September 19, 1997, the Company received a notice of delisting from
the Nasdaq Stock Market, Inc. ("NASDAQ") indicating that because the
Company was not in compliance with the continued listing requirements of
the Nasdaq National Market, the Company's Common Stock would be delisted
from the Nasdaq National Market. The Company appealed the decision with
NASDAQ and a hearing was held on November 6, 1997. On November 17, 1997,
NASDAQ informed the Company that the Company's Common Stock would not be
delisted and would continue to trade on the Nasdaq National Market,
subject to certain specified conditions, including (i) the closing of a
minimum $12,000,000 from the Private Offering on or before December 1,
1997, (ii) the closing of an additional minimum $20,000,000 from the
Private Offering on or before January 2, 1998, (iii) the closing of
certain corporate transactions on or before January 2, 1998, and (iv)
the filing of a report on or before January 2, 1998 evidencing that the
Company had a minimum of $12,000,000 in net tangible assets as of
November 30, 1997, with pro forma adjustments for any transactions
occurring prior to the filing of such report. The Company is seeking
clarification with respect to certain of these conditions. There can be
no assurance that the Company will be able to satisfy one or more of
these conditions and that the Company's Common Stock will continue to be
listed on the Nasdaq National Market.
c) Private Offering of Equity Securities
The Company has entered into a letter of intent with a placement agent
related to a proposed "best efforts" private offering (the "Private
Offering") by the placement agent on behalf of the Company of shares of
the Company's Common Stock pursuant to which the Company is seeking to
sell at one or more closing s up to $50.0 million of its Common Stock
(with a minimum first closing of $12.5 million). If the Private Offering
is consummated as contemplated by the letter of intent, the Common Stock
to be issued and sold in the Private Offering will be offered and sold at
all closings at an effective price per share equal to the lowest of (i)
$1.25 per shares, (ii) 85% of the closing bid price of the Company's
Common Stock at the time the Private Offering is commenced, (iii) the
average closing bid price of the Company's Common Stock for the 30
consecutive days immediately preceding any closing and (iv) the average
closing bid price of the Company's Common Stock for the five consecutive
trading days immediately preceding any closing. The letter of intent also
contemplates that the purchasers of Common Stock sold in the Private
Offering will be afforded significant contractual voting rights and other
protective provisions. For example, if the average closing price of the
Company's Common Stock for 20 consecutive trading days immediately
preceding the first anniversary of the Final closing Date is less than
125% of the offering price, the Company will be required to issue to the
purchasers additional shares of Common Stock such that the value of their
original investment, plus these newly issued shares, equals 125% of their
original investment; provided that the Company will not be obligated in
any event to issue at such time a number of shares in excess of the
number of shares originally issued. The Company has agreed that the
placement agent will serve as its exclusive agent for a period of up to
120 days and that the Company will not engage in specified activities
pending completion or termination of the Private Offering, subject to
certain specified limitations.
<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 biopharmaceutical products developed by it based on antisense
technology. In order to commercialize its own 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 of these products. All revenues
received by the Company to date have been derived from collaborative agreements,
interest on invested funds and revenues from the custom contract manufacturing
of synthetic DNA and reagent products by the Company's Hybridon Specialty
Products Division.
In July and August 1997 the Company implemented a restructuring plan to reduce
expenditures on a phased basis over the balance of 1997 in an effort to conserve
its cash resources. As part of this restructuring plan, in addition to stopping
the clinical development of GEM 91, the Company's first generation antisense
drug for the treatment of AIDS and HIV infection, the Company reduced or
suspended selected programs unrelated to its core drug development programs
involving four second generation antisense compounds based on the Company's
proprietary mixed backbone chemistries. To begin the implementation of these
changes the Company terminated the employment of 34 employees at its Cambridge
and Milford, Massachusetts facilities in July 1997 and substantially reduced
operations at its Paris, France office and terminated 10 employees at that
location in August 1997.
Also, in connection with the restructuring the Company entered into two
different sub-leasing arrangements. The Company has sub-leased one facility in
Cambridge, MA and a portion of its corporate headquarters located at 620
Memorial Drive, Cambridge, MA. The Company incurred expenses relating to these
sub-leases for broker fees and renovation expenses incurred in preparing the
Memorial Drive space for the new tenant. In addition, the Company plans to
sub-lease its office in Paris, France and has accrued the remaining lease
payments net of anticipated sub-lease income.
Because of the significant costs involved in terminating employees and
substantially reducing operations at its Paris, France office, the Company does
not expect its expenditure rate to materially decrease until at least October
1997. The Company recorded a restructuring charge of $3,100,000 from the actions
taken to date and will make the remaining associated cash payments through the
first quarter of 1998.
In November 1997, the Company implemented an additional restructuring plan by
further reducing the number of employees in its Cambridge and Milford,
Massachusetts facilities by approximately 50 employees. The Company estimates
that the restructuring charge to be taken in the fourth quarter will total
between approximately $1.5 million and $2.0 million, and expects that it will
make the related cash payments through the first quarter of 1998.
The Company has incurred losses since its inception and, despite its
restructuring plan, expects to incur significant operating losses in the future.
The Company expects that its research and development expenses will continue to
be significant during the balance of 1997 and in future years as it pursues its
four core development programs. The Company has incurred cumulative losses from
inception through September 30, 1997 of approximately, $199,171,000.
This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "intends," "may," and
other similar expressions are intended to identify forward-looking statements.
<PAGE> 11
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors include the matters set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors that May Affect Future Results" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, which is hereby
incorporated herein by this reference. Any statement contained in such matters
shall be deemed to be modified or superseded for purposes of this Quarterly
Report on Form 10-Q to the extent that a statement contained herein modifies or
supersedes such statement. Moreover, there can be no assurance that the Company
will be able to successfully implement its restructuring plan or as to the
timing thereof.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1997 and 1996
REVENUES
The Company had total revenues of $668,000 and $1,531,000 in the three months
ended September 30, 1997 and 1996, respectively, and $3,143,000 and $2,946,000
in the nine months ended September 30, 1997 and 1996, respectively.
Revenues from research and development collaborations were $200,000 and $359,000
for the three months ended September 30, 1997 and 1996, respectively, and
$980,000 and $1,076,000 for the nine months ended September, 1997 and 1996,
respectively. Revenues for the three months ended September 30, 1997 decreased
because the research funding, which the Company received under the Company's
research phase of a collaboration with F. Hoffmann-La Roche Ltd. ("Roche") was
terminated as of March 31, 1997 in connection with Roche's termination of the
research phase of the collaboration. On September 3, 1997 the Company
announced that it had received notification that Roche had decided not to pursue
further its antisense collaboration with Hybridon, and was terminating the
development phase of the collaboration effective February 28, 1998. During the
three and nine months ended September 30, 1997 and 1996, revenues also included
payments under the Company's collaboration with G. D. Searle & Co. (Searle).
Revenues from the custom contract manufacturing of synthetic DNA and reagent
products by the Hybridon Specialty Products Division ("HSPD") were $155,000 and
$1,231,000, respectively, for the three and nine months ended September 30,
1997. Revenues from the custom contract manufacturing of synthetic DNA and
reagent products by HSPD for the three and nine months ended September 30 were
$612,000. HSPD commenced operations in the third quarter of 1996. The decrease
in revenues for the three months ended September 30, 1997 was the result of a
decrease in orders due to the timing of customer requirements. The Specialty
Products Division currently has firm bookings of $800,000 which it anticipates
shipping in the three months ending December 31, 1997. There can be no assurance
however that such bookings will not be cancelled prior to shipping or that
shipping will occur in the three months ending December 31, 1997.
Interest income was $294,000 and $560,000 for the three months ended September
30, 1997 and 1996, respectively, and $898,000 and $1,196,000 for the nine months
ended September 30, 1997 and 1996, respectively. The decrease in interest income
in the three and nine months ended September 30, 1997 was the result of lower
cash balances in such periods than in the corresponding periods in 1996.
RESEARCH AND DEVELOPMENT EXPENSES
The Company had research and development expenses of $37,785,000 and $27,326,000
in the nine months ended September 30, 1997 and 1996, respectively. The increase
in research and development expenses for the nine months ended September 30,
1997 primarily reflected increased
<PAGE> 12
expenses related to ongoing clinical trials of the Company's product candidates,
including trials of GEM 91 (which were terminated in July of 1997), trials of
two different formulations of GEM 132 (an antisense compound for the treatment
of systemic CMV and CMV retinitis), which were first initiated with respect to
GEM 132 intravenous in Europe during the third quarter of 1996 and with respect
to GEM 132 intravitreal for the treatment of CMV retinitis in the United States
during the first quarter of 1997, and trials of the Company's second generation
GEM 92 product for the treatment of AIDS and HIV infection which were initiated
in Europe in 1997. The increase in research and development expenses for the
nine months ended September 30, 1997 also reflects an increase in preclinical
costs related to GEM 132, GEM 92 and the Company's GEM 231 product for the
treatment of solid tumors for which an Investigational New Drug application was
filed in November 1997 with respect to which the Company anticipates initiating
clinical trials for this product during the beginning of 1998. Significant
preclinical costs were incurred to meet the filing requirements to launch the
domestic clinical trials for GEM 132 intravitreal and systemic, and GEM 231.
The $11,339,000 in research and development expenses for the three months ended
September 30, 1997 is $1,097,000 higher than the corresponding quarter of 1996
and $3,630,000 lower than the research and development expenses reported for the
three months ended June 30, 1997. This decrease from the second quarter of 1997
is substantially due to the Company suspending development of GEM 91, its first
generation antisense drug for the treatment of AIDS and HIV infection and the
related restructuring efforts at the Company. All ongoing research and
development efforts related to GEM 91 at the Company and at all clinical sites
were suspended in July. Also, during July 1997 as part of the Company's
restructuring, approximately 24 research and development positions were
eliminated. As part of the restructuring all outside testing and consulting
arrangements were reviewed and where appropriate the terms were renegotiated or
the arrangements were cancelled. The Company does not anticipate that its
expenditure rate will materially decrease as a result of these measures until at
least October 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company had general and administrative expenses of $9,012,000 and $7,990,000
in the nine months ended September 30, 1997 and 1996, respectively. The increase
in general and administrative expenses for the nine months ended September 30,
1997 was attributable primarily to increased public relations and business
development costs as the Company continued to focus its efforts on obtaining
financing and strategic pharmaceutical collaborations. In addition, during the
nine months ended September 30, 1997 the increase was due to higher facilities
costs related to its Cambridge facility, certain financing activities which were
terminated during such period, and a one-time charge related to the Company's
investment in MethylGene, Inc., a Canadian company in which the Company owns a
minority interest.
The Company had general and administrative expenses of $3,057,000 and
$2,766,000 in the three months ended September 30, 1997 and 1996,
respectively. This increase is primarily due to the increase in facilities
costs and the termination of certain financing activities during the period. In
July 1997, as part of the restructuring, approximately 7 general and
administrative positions were eliminated. Also as part of the restructuring all
expenses including outside consulting, public relations, travel and
entertainment were reviewed and where appropriate eliminated or significantly
reduced.
<PAGE> 13
RESTRUCTURING CHARGE
In July and August 1997, the Company implemented a restructuring plan to reduce
expenditures on a phased basis over the balance of 1997 in an effort to conserve
its cash resources. As part of this restructuring plan, in addition to stopping
the clinical development of GEM 91, the Company reduced or suspended selected
programs unrelated to its four core programs. To begin the implementation of
these changes the Company terminated the employment of 34 employees at its
Cambridge and Milford, Massachusetts facilities in July 1997 and substantially
reduced operations at its Paris, France office and terminated 10 employees at
that location in August 1997. Because of the significant costs involved in
terminating employees and substantially reducing operations at its Paris, France
offices, the Company does not expect its expenditure rate to materially decrease
until at least October 1997. Also, in connection with the restructuring the
Company entered into two different sub-leasing arrangements. The Company has
sub-leased one facility in Cambridge, MA and a portion of its corporate
headquarters located at 620 Memorial Drive, Cambridge, MA. The Company incurred
expenses relating to these sub-leases for broker fees and renovation expenses
incurred in preparing the Memorial Drive space for the new tenant. In addition,
the Company plans to sub-lease its office in Paris, France and has accrued the
remaining lease payments net of anticipated sub-lease income. As a result of the
above actions the Company has recorded a restructuring charge of $3,100,000 in
the three and nine months ending September 30, 1997.
The Company is continuing to review its expenditure rate and implement
additional measures to conserve its cash resources. In November 1997, the
Company implemented an additional restructuring plan by reducing the number of
employees at its Cambridge and Milford, Massachusetts facilities by
approximately 50 employees. The Company estimates that the restructuring charges
taken in the fourth quarter of 1997 will range between $1,500,000 and
$2,000,000, and expects to make the related cash payments during the fourth
quarter of 1997 and through the first quarter of 1998.
INTEREST EXPENSE
The Company had interest expense of $1,606,000 and $18,000 in the three months
ended September 30, 1997 and 1996, respectively, and $3,223,000 and $88,000 in
the nine months ended September 30, 1997 and 1996, respectively. The increase in
interest expense for the three and nine months ended September 30, 1997
reflected an increase in the debt outstanding associated with the Company's
issuance of $50,000,000 of 9% Convertible Subordinated Notes (the"Notes") on
April 2, 1997 and interest incurred on borrowing to finance the purchase of
property and equipment, and leasehold improvements.
NET LOSS
As a result of the above factors, the Company incurred net losses of $18,434,000
and $11,496,000 for the three months ended September 30, 1997 and 1996,
respectively, and $49,977,000 and $32,458,000 for the nine months ended
September 30, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30,1997, the Company used $41,743,000 of
net cash for
<PAGE> 14
operating activities, principally for ongoing research and development programs,
and $11,364,000 of net cash for investment in property and equipment, consisting
primarily of costs related to leasehold improvements, equipment and furnishings
of the Cambridge facility which the Company moved into on February 1, 1997.
The Company had cash, cash equivalents and short term investments of $14,792,000
at September 30, 1997. Based on its current operating plan, including the
expenditure rate reduction initiatives being undertaken by the Company as part
of its restructuring plan, the Company believes that its existing capital
resources, together with the committed collaborative research and development
payments from Searle, and anticipated sales of the Hybridon Specialty Products
Division and margins on such sales, will be adequate to fund the Company's
capital requirements into December 1997. The Company will require substantial
additional funds from external sources in the fourth quarter of 1997 to support
the Company's operations through the end of the fourth quarter of 1997 and
thereafter.
The Company is seeking additional equity, debt and lease financing to fund
future operations as well as additional collaborative development and
commercialization relationships with potential corporate partners in order to
fund certain of its programs. In particular, the Company is exploring selling
certain assets or business units to third parties or conducting a financing
which could be significantly dilutive to holders of the Company's existing
securities and contain certain terms that would adversely affect the rights of
holders of the Company's existing securities.
In connection with these efforts, the Company has entered into a letter of
intent with a placement agent related to a proposed "best efforts" private
offering (the "Private Offering") by the placement agent on behalf of the
Company of shares of the Company's Common Stock pursuant to which the Company is
seeking to sell at one or more closings up to $50.0 million of its Common Stock
(with a minimum first closing of $12.5 million). If the Private Offering is
consummated as contemplated by the letter of intent, the Common Stock to be
issued and sold in the Private Offering will be offered and sold at all closings
at an effective price per share equal to the lowest of (i) $1.25 per share, (ii)
85% of the closing bid price of the Company's Common Stock at the time the
Private Offering is commenced, (iii) the average closing bid price of the
Company's Common Stock for the 30 consecutive trading days immediately preceding
any closing and (iv) the average closing bid price of the Company's Common Stock
for the five consecutive trading days immediately preceding any closing. The
letter of intent also contemplates that the purchasers of Common Stock sold in
the Private Offering will be afforded significant contractual voting rights and
other protective provisions. For example, if the average closing price of the
Company's Common Stock for 20 consecutive trading days immediately preceding the
first anniversary of the Final Closing Date is less than 125% of the offering
price, the Company will be required to issue to the purchasers additional shares
of Common Stock such that the value of their original investment, plus these
newly issued shares, equals 125% of their original investment; provided that the
Company will not be obligated in any event to issue at such time a number of
shares in excess of the number of shares originally issued. The Company has
agreed that the placement agent will serve as its exclusive agent for a period
of up to 120 days and that the Company will not engage in specified activities
pending completion or termination of the Private Offering, subject to certain
specified limitations.
If none of these transactions are consummated by the second week in December,
the Company will likely cease operations or be required to seek relief under the
applicable bankruptcy laws. There can be no assurance that the Company will be
able to consummate any of these transactions including the financing
contemplated in the letter of intent by the second week in December, if at all,
or as to the terms of any such transactions.
Except for research and development funding from Searle under Hybridon's
collaborative agreement with Searle (which is subject to early termination in
certain circumstances), Hybridon has no committed external sources of capital,
and, as discussed above, expects no product revenues for several years from
sales of the products that it is developing (as opposed to sales of DNA products
and reagents manufactured on a custom contract basis by the Hybridon Specialty
Products Division).
On April 2, 1997, the Company sold $50.0 million of Notes to certain investors.
The Notes bear interest at a rate of 9% per annum and have a maturity date of
April 1, 2004. Under the Notes, the Company is required to make semi-annual
interest payments on the outstanding principal balance through the maturity date
of April 1, 2004. The Notes are unsecured and subordinate to substantially all
of the Company's existing indebtedness. The Notes are convertible at the option
of the holder into the Company's Common Stock at any time prior to maturity,
unless previously redeemed or repurchased by the Company under certain specified
circumstances, at a conversion price of $7.0125 per share (subject to
adjustment). Upon change of control of the Company (as defined), the Company is
required to offer to repurchase the Notes at 150% of the original issuance
price.
The note payable to Silicon Valley Bank (the "Bank") contains certain financial
covenants that require the Company to maintain minimum tangible net worth (as
defined) and minimum liquidity (as defined) and prohibits the payment of
dividends. The Company has secured the obligations under the note with a lien on
all of its assets. If, at specified times, the Company's minimum liquidity is
less than $15,000,000, $10,000,000, or $5,000,000, the Company is required to
pledge cash collateral to the bank equal to 25%, 50% or 100%, respectively, of
the then outstanding balance under the note, pursuant to a cash pledge
agreement. The notes also contain certain non-financial covenants. As of
September 30, 1997, the Company's minimum liquidity had fallen below $15,000,000
and subsequent to September 30, 1997 Company pledged cash collateral to the bank
of $1,750,000. If the Company does not obtain additional financing by the end of
November, the Company's minimum liquidity as of November 30, 1997 may be less
than $5,000,000 and the balance of the note will need to be pledged by December
31, 1997. The Company has classified the entire balance as a current liability
in the accompanying September 30, 1997 balance sheet as it does not currently
have the financing to remain in compliance with the financial covenants as of
November 19, 1997 (see Note 9(c)) during the fourth quarter of 1997. Failure by
the Company to pledge cash collateral when required would result in a default
under the Company's credit facility with the bank.
<PAGE> 15
HYBRIDON, INC.
PART II
OTHER INFORMATION
-------
ITEM 5. OTHER INFORMATION
On September 18, 1997, the Company received a notice of delisting from
The Nasdaq Stock Market, Inc. ("NASDAQ") indicating that because the
Company was not in compliance with the continued listing requirements
of the Nasdaq National Market, the Company's Common Stock would be
delisted from the Nasdaq National Market. The Company appealed the
decision with NASDAQ and a hearing was held on November 6, 1997. On
November 17, 1997, NASDAQ informed the Company that the Company's
Common Stock would not be delisted and would continue to trade on the
Nasdaq National Market, subject to certain specified conditions,
including (i) the closing of a minimum $12,000,000 from the Private
Offering on or before December 1, 1997, (ii) the closing of an
additional minimum $20,000,000 from the Private Offering on or before
January 2, 1998, (iii) the closing of certain corporate transactions
on or before January 2, 1998 and (iv) the filing of a report on or
before January 2, 1998 evidencing that the Company had a minimum of
$12,000,000 in net tangible assets as of November 30, 1997, with pro
forma adjustments for any transactions occurring prior to the filing
of such report. The Company is seeking clarification with respect to
certain of these conditions. There can be no assurance that the
Company will be able to satisfy one or more of these conditions and
that the Company's Common Stock will continue to be listed on the
Nasdaq National Market.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits listed in the Exhibit Index immediately preceding
such Exhibits are filed as part of this Quarterly Report on
Form 10-Q.
(b) Reports on Form 8-K
1. On July 25, 1997, the Company filed a Current Report on
Form 8-K dated July 25, 1997 reporting, among other things, its
announcement that (i) it had elected to stop further development
of its lead compound GEM 91, (ii) it would be focusing its
resources on its second generation chemistries and (iii) its
goal for the second half of 1997 was to effect a reduction in its
expenditure rate on a phased basis over the balance of 1997.
2. On September 5, 1997, the Company filed a Current
Report on Form 8-K dated September 3, 1997 reporting its
announcement of the termination of the Company's research and
development collaboration with Hoffman-La Roche Ltd.
3. On September 19, 1997, the Company filed a Current
Report on Form 8-K dated September 19, 1997 reporting its
announcement of the scheduled delisting of its Common Stock from
the Nasdaq National Market.
4. On September 24, 1997, the Company filed a Current
Report on Form 8-K dated September 23, 1997 reporting its
announcement that the Company was moving forward with the appeal
process with respect to the scheduled delisting.
<PAGE> 16
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.
November 13, 1997 /s/ E. Andrews Grinstead III
- ----------------- -----------------------------------------------
Date E. Andrews Grinstead, III
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
November 13, 1997 /s/ Lynne J. Rudert
- ----------------- ----------------------------------------------
Date Lynne J. Rudert
Director of Finance and Controller
(Chief Accounting Officer)
<PAGE> 17
HYBRIDON, INC.
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11 Computation of Net Loss Per Common Share.
27 Financial Data Schedule (EDGAR)
99 Pages 39-48 of the Company's Annual Report on Form 10-K for the
period ended December 31, 1996 (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)
COMPUTATION OF NET LOSS PER COMMON SHARE (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET LOSS $(18,434,350) $(11,496,149) $(49,977,316) $(32,457,845)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES:
Weighted average common stock outstanding
during the period 25,277,563 25,732,987 25,234,031 22,085,644
Conversion of preferred stock -- -- -- 1,845,619
Dilutive effect of common equivalent shares
issued subsequent to October 31, 1994 (2) -- -- -- 58,176
------------ ------------ ------------ ------------
25,277,563 25,732,987 25,234,031 23,989,439
============ ============ ============ ============
NET LOSS PER COMMON SHARE $ (.73) $ (.45) $ (1.98) $ (1.35)
============ ============ ============ ============
</TABLE>
(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> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 5,892,967
<SECURITIES> 8,898,715
<RECEIVABLES> 297,351
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,045,076
<PP&E> 29,965,856
<DEPRECIATION> 10,678,014
<TOTAL-ASSETS> 46,602,729
<CURRENT-LIABILITIES> 19,667,684
<BONDS> 50,000,000
0
0
<COMMON> 25,292
<OTHER-SE> (26,647,010)
<TOTAL-LIABILITY-AND-EQUITY> (46,602,729)
<SALES> 1,231,226
<TOTAL-REVENUES> 3,142,754
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,796,597
<LOSS-PROVISION> 3,100,000
<INTEREST-EXPENSE> 3,223,473
<INCOME-PRETAX> (49,977,316)
<INCOME-TAX> 0
<INCOME-CONTINUING> (49,977,316)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,977,316)
<EPS-PRIMARY> (1.98)
<EPS-DILUTED> (1.98)
</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.
-39-
<PAGE> 2
Early Stage of Development; Technological Uncertainty
Hybridon's potential pharmaceutical products are at various stages of
research, preclinical testing or clinical 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.
The success of any of the Company's potential pharmaceutical products
depends in part on the molecular target on the genetic material chosen as the
site of action of the oligonucleotide. There can be no assurance that the
Company's choice will be appropriate for the treatment of the targeted disease
indication in humans or that mutations in the genetic material will not result
in a reduction in or loss of the efficacy or utility of the Company product.
Uncertainty Associated with Clinical Trials
Before obtaining regulatory approvals for the commercial sale of any of
its pharmaceutical 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 pharmaceutical products or will result in pharmaceutical
products capable of being produced in commercial quantities at reasonable cost
or in a marketable form.
Although the Company is conducting clinical trials of certain
oligonucleotide compounds and 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.
The rate of completion of the Company's human clinical trials, if
permitted, will be dependent upon, among other factors, the rate of patient
enrollment. Patient enrollment is a function of many factors, including the size
of the patient population, the nature of the protocol, the availability of
alternative treatments, the proximity to clinical sites and the eligibility
criteria for the study. Delays in planned patient enrollment might result in
increased costs and delays, which could have a material adverse effect on the
Company. The Company or the FDA or other regulatory agencies may suspend
clinical trials at any time if the subjects or patients participating in such
trials are being exposed to unacceptable health risks.
-40-
<PAGE> 3
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, sales of DNA products and reagents to these parties
manufactured on a custom contract basis by the Hybridon Specialty Products
Division and the margins on such sales, 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, the ability of the Company to
obtain third-party financing for leasehold improvements and other capital
expenditures and the costs of manufacturing scale-up and commercialization
activities and arrangements.
Based upon its current operating plan, the Company believes that its
existing capital resources, together with the committed collaborative research
and development payments from Searle, anticipated sales of the Hybridon
Specialty Products Division and margins on such sales, which are expected to
increase significantly over historic levels, and the net proceeds from the sale
of the Notes and the interest earned thereon, will be adequate to fund the
Company's capital requirements through at least the first quarter of 1998. The
Company anticipates that it will be required to raise substantial additional
funds, through external sources, including through collaborative relationships
and public or private financings, to support the Company's operations beyond
that time. No assurance can be given that additional financing will be
available, or, if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
then existing stockholders will result. Additionally, the terms of any such
additional financing may adversely affect the holdings or rights of then
existing stockholders. 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."
History of Operating Losses and Accumulated Deficit
Hybridon has incurred net losses since its inception. At December 31,
1996, the Company's accumulated deficit was approximately $149,194,000. 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 sales of
pharmaceutical products developed by the Company and no revenues from the sale
of such products 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. The Company expects that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial. Although the Company's Hybridon Specialty Products Division has
begun to generate revenues from the sale of synthetic DNA products and reagents
manufactured by it on a custom contract basis, there can be no assurance that
demand for and margins on these products will not be lower than anticipated. The
Company's ability to achieve profitability is dependent in part on obtaining
regulatory approvals for its pharmaceutical products and entering into
agreements for drug discovery, development and commercialization. There can be
no assurance that the Company will obtain required regulatory approvals, enter
into any additional agreements for drug discovery, development and
commercialization or ever achieve sales or profitability.
-41-
<PAGE> 4
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. Since
patent applications in the U.S. are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature tend
to lag behind actual discoveries by several months, the Company cannot be
certain that it was the first creator of inventions covered by pending patent
applications or that is was the first to file patent applications for such
inventions. Further, there can be no assurance that the claims allowed under any
issued patents will be sufficiently broad to protect the Company's technology.
In addition, no assurance can be given that any issued patents owned by or
licensed to the Company 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 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. In particular,
competitors of the Company and other third parties hold issued patents and
pending patent applications relating to antisense and other gene expression
modulation technologies which may result in claims of infringement against the
Company or other patent litigation. There can be no assurance that the Company
will be able successfully to obtain a license to any technology that it may
require or that, if obtainable, such technology can be licensed at a reasonable
cost or on an exclusive basis. See "Item 1. Business -- Patents, Trade Secrets
and Licenses."
The pharmaceutical and biotechnology industries have been characterized
by extensive litigation regarding patents and other intellectual property
rights. Litigation, which could result in substantial cost to the Company, may
be necessary to enforce any patents issued or licensed to the Company and/or to
determine the scope and validity of others' proprietary rights. The Company also
may have to participate in interference proceedings declared by the U.S. Patent
and Trademark Office, which could result in substantial cost to the Company, to
determine the priority of inventions. Furthermore, the Company may have to
participate at substantial cost in International Trade Commission proceedings to
abate importation of products which would compete unfairly with products of the
Company.
Hybridon engages in collaborations, sponsored research agreements and
other agreements with academic researchers and institutions and government
agencies. Under the terms of such agreements, third parties may have rights in
certain inventions developed during the course of the performance of such
collaborations and agreements.
The Company relies on trade secrets and proprietary know-how which it
seeks to protect, in part, by confidentiality agreements with its collaborators,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach or
independently developed by competitors. See "Item 1. Business -- Patents, Trade
Secrets and Licenses."
-42-
<PAGE> 5
Risks Associated with Hybridon Specialty Products Division
Through its Hybridon Specialty Products Division, the Company
manufactures oligonucleotide compounds on a custom contract basis for third
parties. The results of operations of the Hybridon Specialty Products Division
will be dependent upon the Demand for and margins on these products, which may
be lower than anticipated by the Company. The results of operations of the
Hybridon Specialty Products Division also may be affected by the price and
availability of raw materials. It is possible that Hybridon's manufacturing
capacity may not be sufficient for production of oligonucleotides both for the
Company's internal needs and for sale to third parties. The Company's
manufacturing facility must comply with GMP and other FDA regulation. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - - Certain Factors That May Affect Future Results - - Limited
Manufacturing Capability."
The Company will be competing against a number of third parties, as
well as the possibility of internal production by the Company's customers, in
connection with the operations of the Hybridon Specialty Products Division. Many
of these third parties are likely to have greater financial, technical and human
resources than the Company. Key competitive factors will include the price and
quality of the products as well as manufacturing capacity and ability to comply
with specifications and to fulfill orders on a timely basis. The Company may be
required to reduce the cost of its product offerings to meet competition. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Certain Factors That May Affect Future Results - - Competition."
Failure to manufacture oligonucleotide compounds in accordance with the
purchaser's specifications could expose the Company to breach of contract and/or
product liability claims from the purchaser or the purchaser's customers. The
Company has limited experience in sales, marketing and distribution and is
relying in part upon the efforts of third party, Perkin-Elmer, in connection
with the marketing and sale of products by the Hybridon Specialty Products
Division. See "Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Certain Factors That May Affect Future
Results - - Absence of Sales and Marketing Experience."
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 Searle, Roche and Medtronic, 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. The Company expects that under certain of these arrangements, the
collaborative partner will have the responsibility for conducting human clinical
trials and the submission for regulatory approval of the product candidate with
the FDA and certain other regulatory agencies. Should the collaborative partner
fail to develop a marketable product, the Company's business may be materially
adversely affected. There can be no assurance that the Company's collaborative
partners will not be pursuing alternative technologies or developing alternative
compounds either on their own or in collaboration with others, including the
Company's competitors, as a means for developing treatments for the diseases
targeted by these collaborative programs. The Company's business also will be
affected by the performance of its corporate partners in marketing any
successfully developed products within the geographic areas in which such
partners are granted marketing rights. The Company's plan is to retain
manufacturing rights for many of the products it may license pursuant to
arrangements with corporate partners. However, there can be no assurance that
the Company will be able to retain such rights on acceptable terms, if at all,
or that the Company will have the ability to produce the quantities of product
required under the terms of such
-43-
<PAGE> 6
arrangements. 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 being developed by it and
the products sold by the Hybridon Specialty Products Division, 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. Preclinical
studies of the Company's product development candidates are subject to GLP
requirements and the manufacture of any products by the Company, including
products developed by the Company and products manufactured for third parties on
a custom contract basis by Hybridon Specialty Products Division, will be subject
to GMP requirements prescribed by the FDA.
The regulatory process, which includes preclinical studies, clinical
trials and post-clinical testing of each compound to establish its safety and
effectiveness, takes many years and requires the expenditure of substantial
resources. Delays may also be encountered and substantial costs incurred in
foreign countries. There can be no assurance that, even after the passage of
such time and the expenditure of such resources, regulatory approval will be
obtained for any drugs developed by the Company. Data obtained from preclinical
and clinical activities are subject to varying interpretation which could delay,
limit or prevent regulatory approval by the FDA or other regulatory agencies.
The Company, an IRB, the FDA or other regulatory agencies may suspend clinical
trials at any time if the participants in such trials are being exposed to
unacceptable health risks. Moreover, if regulatory approval of a drug is
granted, such approval may entail limitation on the indicated uses for which it
may be marketed. Failure to 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.
-44-
<PAGE> 7
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 will
be sufficient to enable it to satisfy its current research needs and to support
the Company's preclinical and clinical requirements for oligonucleotide
compounds, the Company will need to purchase additional equipment to expand its
manufacturing capacity in order to satisfy its future requirements, subject to
obtaining regulatory approvals, for commercial production of its product
candidates. In addition, Hybridon Specialty Products Division is using the
Company's existing production capacity to custom contract manufacture synthetic
DNA products for commercial sale. As a result, depending on the level of sales
by the Hybridon Specialty Products Division, and the success of the Company's
product development programs, Hybridon's manufacturing capacity may not be
sufficient for production for both its internal needs and sales to third
parties. In addition, in order to successfully commercialize its product
candidates or achieve satisfactory margins on sales, 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 is 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. The Company
has in the past relied in part and may in the future rely upon third party
contractors in connection with the manufacture of some compounds. Reliance on
such third parties entails a number of risks, including the possibility that
such third parties may fail to perform on an effective or timely basis or fail
to abide by regulatory or contractual restrictions applicable to the Company.
See "Item 1. Business -- Manufacturing. Technology and the Hybridon Specialty
Products Division."
There are three sources of supply for the nucleotide building blocks
used by the Company in its current oligonucleotide manufacturing process. This
process is covered by issued patents either held by or licensed to these three
companies. Therefore, these companies are likely the sole suppliers to Hybridon
of these nucleotide building blocks. The inability of Hybridon to obtain these
nucleotide building blocks from one of these suppliers could have a material
adverse effect on Hybridon.
-45-
<PAGE> 8
Absence of Sales and Marketing Experience
The Company expects to market and sell certain of its products directly
and certain of its products through co-marketing or other licensing arrangements
with third parties. The Company has limited experience in sales, marketing or
distribution, and does not expect to establish a sales and marketing plan or
direct sales capability with respect to the products being developed by it until
such time as one or more of such products approaches marketing approval. In
addition, although the Company does have a limited direct sales capability with
respect to the sales of custom contract manufactured DNA products to third
parties by the Hybridon Specialty Products Division, the Company has entered
into a sales and marketing arrangement with Perkin-Elmer with respect to such
products and its reliant in par on the efforts of Perkin-Elmer to promote these
products. In order to market the products being developed by it directly, the
Company will be required to develop a substantial marketing staff and sales
force with technical expertise and with supporting distribution capability.
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. In
addition, if the Company succeeds in bringing one or more products to market, it
may compete with 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 would enable it to compete successfully against such
other companies. 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."
No Assurance of Market Acceptance
Pharmaceutical products, if any, resulting from the Company's research
and development programs are not expected to be commercially available for a
number of years. There can be no assurance that, if approved for marketing, such
products will achieve market acceptance. The degree of market acceptance will
depend upon a number of factors, including the receipt of regulatory approvals,
the establishment and demonstration in the medical community of the clinical
efficacy and safety of the Company's products and their potential advantages
over existing treatment methods and reimbursement policies of government and
third-party payors. There is no assurance that physicians, patients, payors or
the medical community in general will accept or utilize any products that may be
developed by the Company.
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, including the products being developed
by it and the DNA products and reagents manufactured and sold on a custom
contract basis by the Hybridon Specialty Products Division, 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 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.
-46-
<PAGE> 9
Hazardous Materials
The Company's research and development and manufacturing activities
involves the controlled use of hazardous materials, chemicals, viruses and
various radioactive compounds. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by federal, state and local regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could have a material adverse
effect on the Company.
Uncertainty of Pharmaceutical Pricing and Adequate Reimbursement
The Company's ability to commercialize its pharmaceutical products
successfully will depend in part on the extent to which appropriate
reimbursement levels for the cost of such products and related treatment are
obtained from government authorities, private health insurers and other
organizations, such as health maintenance organization ("HMO's"). Third-party
payors are increasingly challenging the prices charged for medical products and
services. Also the trend towards managed health care in the U.S. and the
concurrent growth of organizations such as HMO's, which could control or
significantly influence purchase of health care services and products, as well
as legislative proposals to reduce government insurance programs, may all result
in lower prices for the Company's products. The cost containment measures that
health care providers are instituting could affect the Company's ability to sell
its products and may 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. Furthermore, the Company's ability to
commercialize its potential products may be adversely affected to the extent
that such proposals have a material adverse effect on the business, financial
condition and profitability of other companies that are prospective corporate
partners with respect to certain of the Company's proposed products.
Attraction and Retention of Key Employees and Scientific Collaborators
The Company is highly dependent on the principal members of its
management and scientific staff, including E. Andrews Grinstead, III, the
Company's Chairman of the Board, President and Chief Executive Officer, and
Sudhir Agrawal, The Company's Senior Vice President of Discovery and Chief
Scientific Officer, the loss of whose services could have a material adverse
effect on the Company. Furthermore, recruiting and retaining qualified
scientific personnel to perform research and development work in the future will
also be critical to the Company's success. There can be no assurance that the
Company will be able to attract and retain scientific personnel on acceptable
terms given the competition for experienced scientists among numerous
pharmaceutical, biotechnology and health care companies, universities and
non-profit research institutions.
The Company's anticipated growth and expansion into areas and
activities requiring additional expertise, such as clinical testing,
governmental approvals, production and marketing, are expected to require the
addition of new management personnel and the development of additional expertise
by
-47-
<PAGE> 10
existing management personnel. The failure to acquire such services or to
develop such expertise could have a material adverse effect on the Company.
The Company's success will depend in part on its continued ability to
develop and maintain relationships with independent researchers and leading
academic and research institutions. The competition for such relationships is
intense, and there can be no assurance that the Company will be able to develop
and maintain such relationships on acceptable terms. The Company has entered
into a number of such collaborative relationships relating to specific disease
targets and other research activities in order to augment its internal research
capabilities and to obtain access to the specialized knowledge or expertise of
its collaborative partners. The loss of any such collaborative relationship
could have an adverse effect on the Company's ability to conduct research and
development in the area targeted by such collaboration. See "Item 1. Business -
- - Hybridon Drug Development and Discovery Programs" and "- - Academic and
Research Collaborations."
Concentration of Ownership by Directors and Executive Officer
The Company's directors and executive officers and their affiliates
beneficially own approximately 18.89% of the Company's outstanding Common Stock
(including 4,217,857 shares issuable upon exercise of outstanding warrants and
options held by the Company's directors and executive officers and their
affiliates which are exercisable within the 60-day period following February 28,
1997). As a result, these stockholders, if acting together, may have the ability
to influence the outcome of corporate actions requiring stockholder approval.
This concentration of ownership may have the effect of delaying or preventing a
change in control of the Company.
-48-
