<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From _____ to _____
COMMISSION FILE NUMBER
0-19986
CELL GENESYS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3061375
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
322 Lakeside Drive, Foster City, California 94404
(Address of principal executive offices and zip code)
(415) 358-9600
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
As of April 30, 1996, the number of outstanding shares of the
Registrant's Common Stock , $.001 par value, was 16,315,831.
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CELL GENESYS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
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PART I. FINANCIAL INFORMATION
1. Financial Statements:
a. Condensed Balance Sheets -- March 31, 1996 and December 31, 1995 3
b. Condensed Statements of Operations -- Three Months Ended
March 31, 1996 and 1995 4
c. Condensed Statements of Cash Flows -- Three Months Ended
March 31, 1996 and 1995 5
d. Notes to Condensed Financial Statements 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
PART II. OTHER INFORMATION 10
SIGNATURE 11
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CELL GENESYS, INC.
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
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ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 10,004 $ 8,190
Short-term investments 70,013 73,739
Prepaid expenses and other current assets 1,209 1,176
------------------------------------------------------
Total current assets 81,226 83,105
Property and equipment at cost, net 9,568 10,032
Deposits and other assets, net 306 983
------------------------------------------------------
$ 91,100 $ 94,120
======================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,134 $ 357
Deferred revenue from related parties 1,781 2,104
Other accrued liabilities 2,124 2,140
Current portion of property and equipment
financing 2,496 2,406
------------------------------------------------------
Total current liabilities 7,535 7,007
Noncurrent portion of property and equipment
financing 7,435 7,720
Stockholders' equity:
Common stock 16 16
Additional paid-in capital 126,343 125,836
Accumulated deficit (50,229) (46,459)
------------------------------------------------------
Total stockholders' equity 76,130 79,393
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$ 91,100 $ 94,120
======================================================
</TABLE>
See accompanying notes
3
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CELL GENESYS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
------------------------------------------
(In thousands except per share data)
<S> <C> <C>
Revenue under collaborative agreements with
related parties $ 4,391 $ 1,469
Operating expenses:
Research and development 6,689 6,129
General and administrative 1,758 1,439
-----------------------------------------
Total operating expenses 8,447 7,568
Interest income 1,234 929
Interest expense (301) (219)
-----------------------------------------
Net loss $ (3,123) $ (5,389)
=========================================
Net loss per share $ (0.19) $ (0.39)
=========================================
Shares used in computing net loss per share 16,239 13,760
=========================================
</TABLE>
See accompanying notes.
4
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CELL GENESYS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
---------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (3,123) $ (5,389)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 910 842
Changes in certain assets and liabilities:
Prepaid expenses and other current assets (33) 360
Deposits and other assets 677 15
Accounts payable 777 (536)
Deferred revenue from related parties (323) 559
Other accrued liabilities (16) 382
---------------------------------------------
Net cash used by operating activities (1,131) (3,767)
Cash flows from investing activities
Purchases of short-term investments (38,590) (4,969)
Maturities of short-term investments 11,823 8,000
Sales of short-term investments 29,846 -
Capital expenditures (40) (247)
---------------------------------------------
Net cash provided by investing activities 3,039 2,784
Cash flows from financing activities
Payments under property and equipment financing
obligations (601) (373)
Proceeds from issuance of common stock 507 231
---------------------------------------------
Net cash used by financing activities (94) (142)
---------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,814 (1,125)
Cash and cash equivalents at beginning of period 8,190 23,112
---------------------------------------------
Cash and cash equivalents at end of period $ 10,004 $ 21,987
=============================================
</TABLE>
See accompanying notes.
5
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CELL GENESYS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The condensed financial statements at March 31, 1996 and for the three
months ended March 31, 1996 and 1995 are unaudited, but include all of the
adjustments, consisting only of normal recurring adjustments, which the
management of Cell Genesys, Inc. (the "Company") considered necessary for a fair
presentation of the financial position at such dates and the operating results
and cash flows of those periods. The results of the interim period are not
necessarily indicative of the results for the entire year.
The condensed financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
Annual Report for the year ended December 31, 1995.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OUTLOOK
Cell Genesys is genetically engineering cells of the human immune
system utilizing gene therapy technology to develop immune cell therapies to
treat AIDS and specific types of cancer, and transgenic technology to develop
human monoclonal antibodies to treat inflammation and cancer. Since its
inception in 1988, the Company has funded its research and development
activities primarily through the sale of equity, corporate partnerships and
leaseline financings. The Company has been unprofitable since its inception and
has incurred a cumulative net loss of $50.2 million. The following discussion
constitutes forward looking statements insofar as it relates to progress in the
Company's research and development programs and clinical trials, product
expectations, in-licensing plans, expected cash expenditures and expense levels,
and the adequacy of the Company's available resources. Actual results could
differ materially from the statements made due to a number of factors, including
those set forth in "Risk Factors" below.
In the Company's lead gene therapy program, preliminary safety results
were reported in January 1996 for the Company's Phase I clinical trial testing
AIDS gene therapy indicating no treatment-related safety problems. The Phase II
portion of this trial is underway to evaluate safety and efficacy of repeated
treatments over an extended period. Preliminary efficacy data from this trial
could be available in late 1996. The Company also filed an Investigational New
Drug application ("IND") with the Food and Drug Administration ("FDA") in March
1996 for a second Phase II clinical trial to evaluate patient-specific AIDS gene
therapy and has recently received permission from the FDA to begin this trial.
In 1995, the Company initiated preclinical research to develop gene therapies
for specific cancers, such as breast, colon and lung. Based on successful
preclinical studies, the Company could initiate human clinical testing for its
initial cancer gene therapy product candidate during the second half of 1997.
The Company also has ongoing research programs in stem cell gene therapy, gene
delivery technology and universal donor cells. The Company believes that these
programs may provide opportunities for collaborative arrangements with third
parties that could also provide additional funding to the Company.
In the Company's human monoclonal antibody program, the Company has
developed transgenic technology to create strains of mice capable of producing
human monoclonal antibodies. The Company has created strains of mice which now
contain the majority of human antibody genes and could produce a wider range of
product candidates than the Company's earlier strains of mice. The Company
believes that fully human antibodies should avoid the allergic reactions seen
with antibodies containing mouse proteins, which should make them better suited
to long-term therapy and could provide a marketing advantage. In 1995, the
Company initiated preclinical studies of a human antibody to Interleukin-8
(IL-8), which potentially could be used as a treatment to inhibit excess
inflammation in certain diseases such as psoriasis, adult respiratory disease
syndrome (ARDS), rheumatoid arthritis and reperfusion injury associated with
heart attack or stroke. Based on progress of preclinical studies, the Company
could initiate human clinical trials for this antibody product candidate in late
1997.
The Company's net cash expenditures for 1996 are projected to be
approximately $18 million and the Company intends to manage toward this net cash
expenditure target. The Company may from time to time evaluate opportunities to
in-license potential products which may be at a later stage of development than
the Company's current product candidates. Expenses associated with in-licensing
such products may constitute unbudgeted expenses.
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RESULTS OF OPERATIONS
Revenue increased from $1.5 million to $4.4 million for the three
months ended March 31, 1995 and 1996, respectively. The increase reflects
revenues from the collaboration with Hoechst Marion Roussel, Inc. ("HMR") which
was entered into in October 1995 for the Company's AIDS gene therapy program.
Under the collaboration, HMR is committed to fund research and development for
the Company's AIDS gene therapy program initially for two years. Other revenues
resulted from the Company's joint venture ("Xenotech") with JT Immunotech USA
Inc. ("JT Immunotech") in its human monoclonal antibody program.
Research and development expenses increased from $6.1 million to $6.7
million for the three months ended March 31, 1995 and 1996, respectively. The
increase was due to additional research and development facilities, supplies and
contract services related to the Company's human clinical trials for AIDS.
Increased expenses were also due to the Company's expanding research and
development and patent-related legal expenses for its gene therapy and antibody
programs. Research and development expenses represented approximately 80% of
total expenses for each of the three month periods. The Company expects its
research and development expenditures, including expansion of facilities, to
continue to increase to support additional product development activities. The
rate of increase depends on a number of factors including progress in research
and development, especially clinical trials.
General and administrative expenses increased from $1.4 million to $1.8
million for the three months ended March 31, 1995 and 1996, respectively. The
increase reflects administrative staff and outside services required to support
expanded research and development programs. The Company expects these expenses
to increase as these programs expand.
Interest income increased from $929,000 to $1.2 million for the three
months ended March 31, 1995 and 1996, respectively. The increase was due to
$20.0 million received by Cell Genesys during the fourth quarter of 1995 in
connection with the equity investment made by HMR. Interest expense increased
from $219,000 to $301,000 in 1995 and 1996, respectively, due to higher levels
of property and equipment financing.
The Company's net loss decreased from $5.4 million to $3.1 million for
the three months ended March 31, 1995 and 1996, respectively. The increase in
revenues as a result of the Company's collaboration with HMR for AIDS gene
therapy exceeded the increase in operating expenses in the first quarter of 1996
as compared to 1995. Losses are expected to continue and are likely to increase
as operating expenses rise, particularly as the Company incurs expenses related
to manufacturing and human testing of its potential products.
At December 31, 1995, the Company had available net operating loss and
research credit carryforwards for federal income tax purposes of approximately
$36.1 million and $2.0 million, respectively, which expire in the years 2003
through 2010.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the sale of
equity securities, funding under collaborative arrangements and equipment
financing. From inception through March 31, 1996, the Company has received
$124.2 million in net proceeds from equity financing and $46.9 million under
collaborative agreements, and utilized $15.2 million in property and equipment
financing.
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At March 31, 1996, the Company's cash, cash equivalents and short-term
investments totaled $80.0 million, compared to $81.9 million at December 31,
1995. The decrease was primarily due to the use of cash in operating activities.
The Company expects its cash requirements to increase significantly in
the future. The Company's capital requirements depend on numerous factors,
including the progress of its research and development programs; preclinical and
clinical trials; clinical and commercial scale manufacturing requirements; the
attraction and maintenance of collaborative partners; the acquisition of new
products or technologies; and the cost of litigation, patent interference
proceedings or other legal proceedings. The Company is currently a party to
litigation in the human monoclonal antibody area.
Under its current collaborations, the Company is responsible for
funding a portion of its research and development efforts. Substantial capital
may be required to carry out additional product development and to commercialize
products under the current collaborations and the Company's self-funded efforts.
The Company believes that its available cash, cash equivalents and
short-term investments at March 31, 1996, together with payments to be received
under the Company's collaborative arrangements with HMR and Xenotech, and $3.0
million in equipment financing available for capital equipment purchases will be
sufficient to meet the Company's operating expenses and capital requirements at
least through 1998. Thereafter, the Company will require substantial additional
funds. Because of the Company's significant long-term cash requirements, it will
seek to raise additional capital if conditions in the Company and the public
equity markets are favorable, even if the Company does not have an immediate
need for additional cash at that time.
RISK FACTORS
There are significant risks associated with the Company's plans and
goals, including but not limited to the success of the Company's research and
development programs; the lengthy, expensive and uncertain regulatory approval
process; uncertainties and costs associated with obtaining third party licenses,
obtaining patent protection, protecting trade secrets, enforcing intellectual
property rights important to the Company's business and avoiding infringement of
others' intellectual property; competitive products; and the availability of
capital to fund the Company's operations and capital requirements. Some or all
of these factors may affect the Company's goals to file INDs, advance product
candidates through the clinical trial process and to commercialize products.
Even if the Company's goals are fully achieved, the Company does not anticipate
commercialization of any product for several years.
Because of the novelty of the Company's gene therapy technology,
setting up clinical trials is more difficult than for products based on more
traditional technologies. In addition, a variety of factors could hinder or
delay progress in clinical trials of the Company's products or require their
discontinuance, including results of ongoing preclinical studies, technical or
manufacturing difficulties, clinical trial results, intellectual property
disputes with third parties, and/or delays relating to the review process by the
FDA. Although preliminary results of the Company's Phase I clinical testing of
AIDS gene therapy reported to date have shown no treatment-related safety
problems, there can be no assurance that this therapy will be tolerated over an
extended period of time or that the clinical efficacy of this therapy will be
demonstrated.
The Company believes that a human antibody product could be clinically
superior to products containing mouse protein, and that it could have marketing
advantages over such other products. However, until human testing has taken
place, it is not certain that human antibody products will demonstrate these
advantages. Countervailing marketing factors, such as relative
9
<PAGE> 10
price, undesirable side effects, and/or relative marketing expertise, may serve
to offset or outweigh these advantages. In addition, as previously disclosed,
the Company is involved in litigation with GenPharm International, Inc. related
to the intellectual property underlying the generation of fully human monoclonal
antibodies. The complaints are disclosed in more detail in the Company's Annual
Report on Form 10-K and in Item 1. "Legal Proceedings" below. Litigation can be
unpredictable and costly. Adverse resolution of any intellectual property matter
could have a material adverse effect on the Company.
There is no assurance that opportunities for in-licensing later-stage
products or for third party collaborations will be available to the Company on
acceptable terms. Finding such opportunities, as well as a variety of other
factors, such as progress in the Company's research and development programs
(including clinical trials), receipt of anticipated contract revenues (some of
which are dependent on milestones), competitive factors, and the costs
associated with prosecuting and defending the Company's intellectual property
rights, may affect the Company's ability to manage to its targeted net cash
expenditures in 1996, and also may affect the adequacy of the Company's
resources to fund operations and capital requirements at least through 1998.
Failure to achieve the Company's goals could have a material adverse
impact on the Company's results of operations and financial condition and its
ability to raise additional capital. Stockholders and potential investors should
carefully consider the risks associated with the Company and should be aware
that these risks may negatively impact the Company's stock price.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In February 1996, GenPharm had filed an antitrust claim against the
Company in the United States District Court, Northern District of California,
alleging that the Company violated the Sherman Antitrust Act when it filed the
action against GenPharm in Superior Court for the State of California, Santa
Clara County, on February 1, 1994. In April 1996, GenPharm International, Inc.'s
("GenPharm") antitrust claim against the Company was dismissed with leave to
amend.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Not applicable.
b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
March 31, 1996.
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SIGNATURE
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:
Date: May 14, 1996 CELL GENESYS, INC.
/s/ KATHLEEN SEREDA GLAUB
--------------------------------------------------
Kathleen Sereda Glaub
Senior Vice President and Chief Financial Officer
(On Behalf of the Registrant and as Registrant's
Principal Financial and Accounting Officer)
11
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EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF MARCH 31, 1996. STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1996. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 10,004
<SECURITIES> 70,013
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 81,226
<PP&E> 19,034
<DEPRECIATION> 9,466
<TOTAL-ASSETS> 91,100
<CURRENT-LIABILITIES> 7,535
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 76,114
<TOTAL-LIABILITY-AND-EQUITY> 91,100
<SALES> 0
<TOTAL-REVENUES> 4,391
<CGS> 0
<TOTAL-COSTS> 8,447
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 301
<INCOME-PRETAX> (3,123)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,123)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,123)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
<FN>
All amounts in thousands except per share data (EPS).
</FN>
</TABLE>
