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UNITED STATES
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 June 30, 1999 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the 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 identification number)
incorporation or organization)
342 Lakeside Drive, Foster City, California 94404
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(650) 425-4400
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 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 July 30, 1999, the number of outstanding shares of the Registrant's
Common Stock was 32,070,456.
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<PAGE>
CELL GENESYS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
a. Condensed Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998
b. Condensed Consolidated Statements of Operations - Three and
Six Months Ended June 30, 1999 and 1998
c. Condensed Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1999 and 1998
d. Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Cell Genesys, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $7,966 $14,086
Short-term investments............................ 42,590 38,788
Prepaid expenses and other current assets......... 5,720 1,121
------------ -----------
Total current assets................................. 56,276 53,995
Property and equipment, net.......................... 5,094 6,079
Investment in Abgenix................................ 12,934 5,080
Deposits and other assets............................ 562 645
------------ -----------
$74,866 $65,799
============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities.... $3,274 $4,763
Deferred revenue.................................. 3,744 703
Accrued acquisition related costs................. 1,421 932
Current portion of property and equipment
financing....................................... 3,503 3,566
------------ -----------
Total current liabilities............................ 11,942 9,964
Noncurrent portion of property and equipment
financing......................................... 3,937 4,860
Redeemable convertible preferred stock............... 11,836 12,083
Stockholders' equity:
Common stock...................................... 31 31
Additional paid-in capital........................ 241,023 230,557
Accumulated other comprehensive income............ (402) 113
Accumulated deficit............................... (193,501) (191,809)
------------ -----------
Total stockholders' equity........................... 47,151 38,892
------------ -----------
$74,866 $65,799
============ ===========
</TABLE>
See accompanying notes
<PAGE>
Cell Genesys, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenue under collaborative agreements. $7,223 $2,934 $13,297 $7,498
--------- --------- --------- ----------
Operating expenses:
Research and development............. 6,277 10,879 11,814 23,346
General and administrative .......... 1,253 2,230 2,349 5,214
--------- --------- --------- ----------
Total operating expenses............... 7,530 13,109 14,163 28,560
Equity in loss of Abgenix.............. (780) -- (1,982) --
Interest and other income............. 788 1,030 1,725 2,255
Interest expense....................... (291) (727) (569) (1,398)
--------- --------- --------- ----------
Loss before minority interest in
in Abgenix........................ (590) (9,872) (1,692) (20,205)
Loss attributed to minority interest
in Abgenix........................ -- 1,546 -- 4,192
--------- --------- --------- ----------
Net loss............................... ($590) ($8,326) ($1,692) ($16,013)
========= ========= ========= ==========
Net loss per common share.............. ($0.02) ($0.29) ($0.05) ($0.57)
========= ========= ========= ==========
Shares used in computing net loss
per common share.................... 31,253 28,335 31,109 28,273
========= ========= ========= ==========
</TABLE>
See accompanying notes
<PAGE>
Cell Genesys, Inc.
Condensed Cosolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................. ($1,692) ($16,013)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization...................... 1,599 2,507
Amortization of deferred compensation of Abgenix... -- 528
Minority interest in net loss of Abgenix........... -- (4,192)
Equity in losses of Xenotech joint venture......... -- 118
Equity in losses of Abgenix........................ 1,982 --
Changes to:
Prepaid expenses and other assets.................. (4,599) 433
Accounts payable and other accrued
liabilities...................................... (1,490) (1,658)
Deferred revenue from related parties.............. 3,041 (3,807)
Accrued acquisition related costs.................. 489 (604)
---------- ----------
Net cash used in operating activities......... (670) (22,688)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments.................. (31,489) (22,386)
Maturities of short-term investments................. -- 9,000
Sales of short-term investments...................... 27,174 26,255
Contributions to Xenotech joint venture ............. -- (8)
Capital expenditures................................. 50 (151)
Cash effect of applying equity method of accounting
to the investment in Abgenix...................... -- --
---------- ----------
Net cash provided by (used in) investing
activities............................. (4,265) 12,710
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from minority interest in Abgenix........... -- 3,944
Proceeds from issuance of common stock............... 382 759
Proceeds from property and equipment financing....... -- --
Payments of convertible note payable................. -- --
Payments under property and equipment
financing obligations.............................. (1,567) (2,910)
---------- ----------
Net cash provided by (used in)
financing activities................... (1,185) 1,793
---------- ----------
Net decrease in cash and cash equivalents............... (6,120) (8,185)
Cash and cash equivalents at beginning of period........ 14,086 10,631
---------- ----------
Cash and cash equivalents at end of period.............. $7,966 $2,446
========== ==========
NON-CASH INVESTING IN FINANCING ACTIVITIES
Furniture and equipment acquired under financing..... $531 $950
Capital contribution resulting in an increase of
carrying value of Abgenix......................... $9,836 --
</TABLE>
See accompanying notes
<PAGE>
Cell Genesys, Inc.
Notes To Condensed Consolidated Financial Statements
1. Organization and Summary of Significant Accounting Policies
Organization and basis of presentation
Cell Genesys, Inc. ("Cell Genesys" or the "Company"), a Delaware
corporation, is focused on the development and commercialization of gene
therapies to treat major, life-threatening diseases, including cancer
and AIDS. Abgenix, Inc., ("Abgenix") a partially owned subsidiary of
Cell Genesys, which focuses on the development and commercialization of
human monoclonal antibodies for pharmaceutical applications, including
inflammation, autoimmune disorders, and cancer, had been fully
consolidated prior to July 2, 1998, and has been accounted for under the
equity method of accounting subsequent to July 2, 1998 (see Note 2 -
Investment in Abgenix).
Comprehensive income (loss)
Total comprehensive losses amounted to $1.0 million and $8.3 million for
three months ended June 30, 1999 and 1998, and $2.2 million and $16.1
million for the six months ended June 30, 1999 and 1998, respectively.
2. Investment in Abgenix and Minority Interest
Since 1996, the Company has maintained an investment in Abgenix, Inc.
("Abgenix"). In December 1997 and January 1998, Abgenix completed
private placements of securities reducing Cell Genesys' percentage
ownership from approximately 100% to approximately 54%.
On July 2, 1998, Abgenix completed an initial public offering ("IPO")
reducing Cell Genesys' percentage ownership to approximately 40%. Prior
to the IPO, Abgenix was a consolidated subsidiary and its financial
results were presented accordingly. From July 2, 1998 forward, the
Company's investment in Abgenix is accounted for under the equity method
of accounting as a result of the reduced ownership position. On March
4, 1999, Abgenix completed the sale of an additional 3,000,000 shares of
common stock in a public offering resulting in approximately $45 million
in gross proceeds, which further reduced the Company's ownership
percentage in Abgenix to approximately 22 percent. The difference
between the cost of the investment (the carrying value of the net assets
less the equity in loss of Abgenix immediately prior to the public
offering) and the amount of the underlying equity in net assets of
Abgenix immediately following each of the public offerings was accounted
for in accordance with APB Opinion No. 18 "The Equity Method of
Accounting for Investment in Common Stock" and Staff Accounting
Bulletin No. 51. Accordingly, the Company recognized $9.8 million as a
contribution to Stockholders' Equity upon completion of the March 1999
public offering.
The carrying amount of the Company's investment in Abgenix at June 30,
1999 was $12.9 million. Summarized information for Abgenix is as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1999 June 30, 1999
--------------- ---------------
<S> <C> <C>
Revenue.................... $1,720 $1,720
Operating loss............. (4,254) (9,913)
Net loss................... (3,568) (8,964)
</TABLE>
3. Subsequent Event
During July 1999, a substantial portion of the Company's Series B
Convertible Preferred shares were converted to common stock, resulting
in the issuance of approximately 990,000 common shares. Following these
conversions, of the $20 million of Series B Convertible Preferred shares
originally issued, only approximately $7.9 million of stated value,
including accrued dividends, remain outstanding.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Statements made in this Item other than statements of historical
fact, including statements about the Company's clinical trials, research
programs, product pipelines, current and potential corporate
partnerships, licenses and intellectual property, the adequacy of
capital reserves and anticipated operating results and cash expenditures
are forward-looking statements within the meaning of section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. As such, they are subject to a number of uncertainties that could
cause actual results to differ materially from the statements made,
including risks associated with the success of research and product
development programs, the issuance and validity of patents, the
development and protection of proprietary technology, the ability to
raise capital, operating expense levels and the ability to establish and
retain corporate partnerships. Reference is made to discussions about
risks associated with product development programs, intellectual
property and other risks which may affect the Company under "Risk
Factors" below. The Company does not undertake any obligation to update
forward-looking statements. The following should be read in conjunction
with the Company's Annual Report for the year ended December 31, 1998
included in its filing on Form 10-K, the Company's Quarterly Reports on
Form 10-Q, and the Company's Registration Statement on Form S-3.
Overview
Since its inception in April 1988, the Company has focused its research
and product development efforts on human disease therapies which are
based on innovative gene modification technologies. The Company's
strategic objective is to develop and commercialize in vivo and/or ex
vivo gene therapies to treat major, life-threatening diseases, including
cancer and AIDS. Cell Genesys' clinical programs include GVAXr cancer
vaccines in Phase I/II studies to treat specific types of cancer, and T
cell gene therapy for AIDS, which is undergoing Phase II testing. GVAXr
vaccines for prostate cancer and for lung cancer are being developed
through a worldwide collaboration with the pharmaceutical division of
Japan Tobacco Inc. ("JT"). AIDS gene therapy is being developed
through a worldwide collaboration with Hoechst Marion Roussel, Inc.
("Hoechst Marion Roussel"). In addition, Cell Genesys has preclinical
programs which are evaluating potential gene therapies for cancer,
cardiovascular disorders, hemophilia and Parkinson's disease. The
Company also has assets outside of its core business which can be used
to help maintain financial strength while product candidates are under
development. These assets include Cell Genesys' minority ownership of
Abgenix, Inc. (NASDAQ:ABGX), which is focused on the development and
commercialization of antibody therapies, and a licensing program in gene
activation technology.
Cell Genesys believes that gene therapies are likely to be developed on
a continuum, progressing from ex vivo (modification of cells outside
the patient's body for injection as therapy) to in vivo (modification
of cells within the patient's body to provide therapy). The Company's
goal is to emphasize "off-the-shelf" products that enable gene therapy
to be provided in out-patient settings. These potentially include both
non-patient-specific therapies, which could be vialed pharmaceuticals
for direct administration, and patient-specific gene therapy products,
which could be packaged as "kits" for overnight cell processing at
clinical laboratories.
During 1999, the Company has reported encouraging data from its Phase
I/II human trials evaluating the GVAXr vaccine for prostate cancer.
Data from the recently completed Phase I/II trial of GVAXr prostate
cancer vaccine demonstrate evidence of clinical safety and preliminary
evidence of antitumor effects as measured by levels of prostate
specific antigen (PSA). Based on positive results from this trial, the
Company has recently initiated two multi-center trials of GVAXr vaccine
in prostate cancer. Both trials will enroll approximately 40 patients.
Phase I/II clinical trials for GVAXr lung are continuing, and the
patients are now being evaluated. The Company is planning to initiate
an expanded multi-center trial for GVAXr lung cancer treatment later in
1999. An initial Phase II trial of T cell gene therapy for AIDS in
patients with persistent HIV in their bloodstream while receiving
anitviral drugs has thus far demonstrated safety as well as preliminary
indications of potential antiviral activity. Data from a second Phase
II trial in patients receiving anti-retroviral drug therapy with no
detectable levels of HIV in the bloodstream is now being evaluated.
The Company expects to announce results from this trial within the next
six months.
In 1999, the Company's preclinical research has focused on studies of
gene therapy in animal models for hemophilia and Parkinson's disease,
and on gene therapy strategies to overcome restenosis, a serious
complication of angioplasty for cardiovascular disease. For example, in
hemophilia studies, a single injection of gene therapy resulted in
improved blood clotting and reduced number of bleeding episodes in a
dog hemophilia model. Similarly, in studies for Parkinson's disease, a
single injection of gene therapy essentially eliminated the need for
daily L-dopa injections in mice with a Parkinson's-like condition.
Cardiovascular gene therapy studies demonstrated the successful
delivery of genes to blood vessel lining cells. The Company recently
expanded its collaboration with Mitotix, Inc. for p16/p27 genes to
include applications in cancer gene therapy. Cell Genesys also
evaluates on an ongoing basis opportunities to in-license or acquire
genes and technologies that complement its portfolio.
Cell Genesys ended the second quarter of 1999 with approximately $50.6
million in cash and short-term investments. The Company has maintained
its financial position by relying on funding from various corporate
collaborations and licensing agreements, as well as through management
of its resources. The Company's plan is to continue to finance its
operations, when possible, through corporate collaborations with
established pharmaceutical and biotechnology companies. This funding
strategy should allow the Company to develop its technologies as
broadly as possible, to fund product development and to accelerate the
commercialization of certain product opportunities. Such alliances are
intended to provide financial resources for research, development,
manufacturing capabilities, and marketing infrastructure, which will
aid in the commercialization of potential disease therapies.
Results of Operations
As a result of Abgenix's IPO on July 2, 1998, the Company's ownership
percentage was reduced to less than 50% and Abgenix has been accounted
for under the equity method of accounting subsequent to that date.
Abgenix was fully consolidated in the Company's financial statement in
the first half of 1998. In order to provide more meaningful analysis of
the Company's results of operations in comparison with the same period
in 1998, the following table sets forth the Company's operations
(referred to as the "Gene Therapy Operations") excluding the results
of Abgenix for such periods. Except as otherwise noted, the discussion
which follows relates to this table.
<TABLE>
<CAPTION>
Gene Therapy Operations
Three Months Six Months
ended June 30, ended June 30,
------------------- ------------------
1999 1998 1999 1998
------------------- ------------------
<S> <C> <C> <C> <C>
Revenue............................ $7,223 $2,208 $13,297 $5,881
Research and development expenses.. 6,277 7,517 11,814 14,618
General and administration expenses 1,253 1,126 2,349 3,192
Interest and other income.......... 788 898 1,725 1,926
Interest expense................... (291) (566) (569) (1,088)
Net income (loss).................. $190 ($6,103) $290 ($11,091)
</TABLE>
Revenue increased to $7.2 million and $13.3 million for the three and
six months ended June 30, 1999 from $2.2 million and $5.9 million for
the same periods in 1998. The increase in revenue resulted from the
Company's collaboration agreement signed in December 1998 with the
pharmaceutical division of Japan Tobacco Inc. for selected targets in
the Company's GVAXr cancer vaccine program. The Company recognized
research and development revenues of $2.5 million and $4.5 million for
the three and six months ended June 30, 1999. In addition, a $4.5
million milestone was earned following the completion of Phase I/II
clinical trial of GVAXr prostate cancer vaccine. Revenues from the
Company's two agreements with Hoechst Marion Roussel remained flat
between the two quarters with increased revenues from the gene
activation license largely offsetting decreased revenue from the T cell
gene therapy for AIDS collaboration.
Research and development expenses were $6.3 million and $11.8 million
for the three and six months ended June 30, 1999 compared with $7.5
million and $14.6 million for the three and six months ended June 30,
1998. The decrease in research and development costs is primarily a
result of a corporate restructuring plan implemented in the fourth
quarter of 1988. The restructuring and cost reductions were implemented
to allow the Company to increasingly focus its resources on its cancer
and cardiovascular gene therapy programs. The Company expects that
research and development expenses will increase to support additional
product development activities, particularly relating to the execution
of multi-center clinical trials. The rate of increase depends on a
number of factors including progress in research and development and
especially in clinical trials.
General and administrative expenses were $1.3 million and $2.3 million
for the three and six months ended June 30, 1999 compared with $1.1
million and $3.2 million for the three and six months ended June 30,
1998. The decrease also reflects the corporate restructuring plan
implemented in late 1998. The Company continues its efforts to control
administrative expenditures through an aggressive program of expense
management.
Interest income decreased slightly to $788,000 from $898,000 for the
three months ended June 30, 1999 and 1998 respectively, and to $1.7
million from $1.9 million for the six months ended June 30, 1999 and
1998 respectively, as a result of lower average cash balances during
1999, partially offset by higher interest rates. Interest expense
decreased to $291,000 from $566,000 for the three months ended June 30,
1999 and 1998, and to $569,000 from $1.1 million for the six months
ended June 30, 1999 and 1998, respectively. Interest expense was higher
in the 1998 periods due to interest owed a note payable
to GenPharm International, Inc. which was fully repaid in September
1998.
Gene Therapy Operations had net income of $190,000 and $290,000 for the
three and six months ended June 30, 1999, compared to net losses of $6.1
million and $11.1 million in the same periods of 1998. The increase was
due primarily to the increase in revenues under the GVAXr collaboration
agreement with Japan Tobacco and expense reductions of $3.6 million
resulting from the corporate restructuring plan implemented in September
1998. Net losses from operations are likely to be incurred in the
future as operating expenses rise, particularly as the Company incurs
expenses related to manufacturing and later stage human testing of its
potential products.
Liquidity and Capital Resources
Cell Genesys has financed its operations to date primarily through the
sale of equity securities, funding under collaborative arrangements and
equipment financing. From inception through July 31, 1999, the Company
received $172.8 million in net proceeds from equity financings, $130.4
million under collaborative agreements and utilized $28.2 million of
property and equipment financings.
At June 30, 1999, Cell Genesys' cash, cash equivalents and short-term
investments totaled $50.6 million, compared to $52.9 million at December
31, 1998. The decrease was due primarily to cash used in operating
activities and payments of financing obligations.
At June 30, 1999 the Company held approximately 3.3 million shares of
Abgenix common stock, which had a market value of approximately $65
million. These securities have restrictions which limit their
liquidity, but the Company may from time to time consider the sale of
these securities to invest in the Company's programs.
Cell Genesys anticipates that consolidated net cash usage will not
exceed $10 million in 1999. The Company expects its cash requirements
to increase significantly in the future. The Company's capital
requirements will depend on numerous factors, including: the progress of
the Company's 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; the potential cost
associated with the redemption of outstanding shares of Series B
preferred stock; and the cost of litigation, patent interference
proceedings or other legal proceedings or their resolution.
Cell Genesys believes that its available cash, cash equivalents and
short-term investments at June 30, 1999, together with payments to be
received under the Company's existing collaborative arrangements,
license agreements and financing facilities will be sufficient to meet
the Company's operating expenses and capital requirements at least
through 2000. Thereafter, the Company may require substantial
additional funds. Due to these requirements, the Company regularly
considers financing alternatives, including sale of equity securities
held in Abgenix and the private or public sale of equity by Cell
Genesys. Any sale of Cell Genesys' equity securities may be dilutive to
existing stockholders.
Risk Factors
We will likely have a need for substantial additional funds.
We will need substantial additional funds for existing and planned
preclinical and clinical trials, to continue research and development
activities, and to establish manufacturing and marketing capabilities
for any products we may develop. We expect that our existing capital
resources, together with payments to be received under existing
collaborative agreements and amounts available under existing equipment
financing facilities, will enable us to maintain our operations at least
through 2000. Beyond 2000, we may need to raise substantial additional
capital to fund our operations.
Our future capital requirements will depend on, and could increase as a
result of, many factors such as:
o continued scientific progress of research and development
programs
o magnitude of such programs expenses
o progress of preclinical and clinical testing
o time and costs involved in obtaining regulatory approvals
o costs involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent claims
o competing technological and market developments
o changes in collaborative relationships with Hoechst Marion
Roussel, Japan Tobacco and others
o terms of any additional collaborative arrangements into which
we may enter
o our ability to establish research, development and
commercialization arrangements pertaining to products other
than those covered by existing collaborative arrangements
o cost of establishing manufacturing facilities
o cost of commercialization activities
o demand for our products, if and when approved
o potential redemption obligations in connection with conversion
of the Series B preferred stock
We expect to raise additional funds through collaborative relationships,
sales of some portion or all of our investment in Abgenix, additional
equity or debt financings, or otherwise. Because of our long-term
capital requirements, we may seek to access the public or private equity
markets whenever conditions are favorable, even if we do not have an
immediate need for additional capital at that time. There can be no
assurance that any such additional funding will be available to us, or,
if available, that it will be on acceptable terms. If we raise
additional funds by issuing equity securities, stockholders will incur
immediate dilution. There can be no assurance that opportunities for in-
licensing technologies or for third party collaborations will continue
to be available to us on acceptable terms. If adequate funds are not
available, we may be required to delay, reduce the scope of, or
eliminate one or more of our research, development and clinical
activities. Alternatively, we may need to seek funds through
arrangements with collaborative partners or others that require us to
relinquish rights to certain of our technologies or product candidates
that we would otherwise seek to develop or commercialize ourselves.
Either of these events could have a material adverse effect on our
business, results of operations, financial condition or cash flow.
Our products are in developmental stage, are not approved for commercial
sale and might not receive regulatory approval or become commercially
viable.
All of our potential gene therapy products are in research and
development. We have not generated any revenues from the sale of
products. We do not expect to generate any revenues from product sales
for at least the next several years. Our products currently under
development will require significant additional research and development
efforts, including extensive preclinical and clinical testing and
regulatory approval, prior to commercial use. There can be no assurance
that our research and development efforts will be successful or that any
of our future products will ultimately be commercially successful. Even
if developed, our products may not receive regulatory approval or be
successfully introduced and marketed at prices that would permit us to
operate profitably.
We have not been profitable and may not become profitable in the future.
We have incurred annual net losses since our inception. At June 30, 1999,
our accumulated deficit was approximately $193.5 million. In 1998, we
incurred losses of $12.1 million. Under the equity method of
accounting, we recorded losses in equity of Abgenix of $2.0 million for
the six months ended June 30, 1999, and we expect to continue to
recognize losses from Abgenix in the future. We expect to incur
substantial operating losses for at least the next several years due
primarily to the expansion of research and development programs,
including preclinical studies, clinical trials, manufacturing and to a
lesser extent, from general and administrative expenses. We expect that
losses will fluctuate from quarter to quarter and that these
fluctuations may be substantial. We cannot guarantee that we will
successfully develop, commercialize, manufacture or market any products.
We cannot guarantee that we will ever achieve or sustain product
revenues or profitability.
Our gene therapy programs depend on new and unproven technologies.
Gene therapy is a new technology. Existing preclinical and clinical
data on the safety and efficacy of gene therapy are limited. Data
relating to our specific gene therapy approaches are also limited. Our
GVAXr cancer vaccine and T cell gene therapy for AIDS are currently
being tested in Phase I/II and Phase II human clinical trials,
respectively, to determine their safety and efficacy. None of our other
products or therapies under development are in human clinical trials.
The results of preclinical studies do not predict safety or efficacy in
humans. Possible side effects of gene therapy may be serious and
potentially life-threatening. Unacceptable side effects may be
discovered during preclinical and clinical testing of our potential
products or thereafter. There are many reasons that potential products
that appear promising at an early stage of research or development do
not result in commercialization. Although we are testing proposed
products or therapies in human clinical trials, there can be no
assurance that we will be permitted to undertake human clinical trials
for any of our other products. Also, the results of such testing might
not demonstrate the safety or efficacy of these products. Even if
clinical trials are successful, we might not obtain regulatory approval
for any indication. Finally, even if our products proceed successfully
through clinical trials and receive regulatory approval, there is no
guarantee that an approved product can be produced in commercial
quantities at reasonable cost or that such a product will be
successfully marketed.
We rely heavily on the development and protection of our intellectual
property portfolio.
The patent positions of pharmaceutical and biotechnology firms,
including Cell Genesys, are generally uncertain and involve complex
legal and factual questions. Cell Genesys currently has approximately
165 issued or granted patents and more than 310 pending applications.
Although we are prosecuting patent applications, we cannot be certain
whether any given application will result in the issuance of a patent
or, if any patent is issued, whether it will provide significant
proprietary protection or will be invalidated. Also, patent applications
in the United States are confidential until patents are issued.
Publication of discoveries in scientific or patent literature tends to
lag behind actual discoveries by several months. Accordingly, we cannot
be sure that we were the first creator of inventions covered by pending
patent applications or that we were the first to file patent
applications for these inventions.
Our commercial success will also depend in part on not infringing the
patents or proprietary rights of others and not breaching licenses
granted to us. We will be required to obtain licenses to certain third
party technology and genes necessary to conduct our business. Any
failure to license any technology or genes required to commercialize our
technologies or products at reasonable cost may have a material adverse
effect on our business, results of operations or financial condition.
We may also have to engage in litigation, which could result in
substantial cost to us, to enforce our patents, or to determine the
scope and validity of other parties' proprietary rights. To determine
the priority of inventions, the United States Patent and Trademark
Office frequently declares interference proceedings. In Europe, other
patents can be revoked through opposition proceedings. Such proceedings
could result in an adverse decision as to the priority of our
inventions.
We are currently involved in three separate interference and/or
opposition proceedings with regard to:
a) gene activation technology
b) ex vivo gene therapy
c) chimeric receptor technology
While we believe our position in each proceeding is strong, the outcome
of each proceeding cannot be predicted. An adverse result could have a
material adverse effect on our intellectual property position in these
areas. We may be involved in other interference and/or opposition
proceedings in the future. We believe that there will continue to be
significant litigation in the industry regarding patent and other
intellectual property rights.
We also rely on unpatented trade secrets, know-how and continuing
technological innovation to develop and maintain our competitive
position. Our competitors may independently develop similar or better
proprietary information and techniques and disclose them publicly.
Also, there can be no assurance that others will not gain access to our
trade secrets, or that we can meaningfully protect our rights to our
unpatented trade secrets.
We require our employees and consultants to execute a confidentiality
agreement upon the commencement of an employment or consulting
relationship with us. These agreements provide that all confidential
information developed by or made known to an individual during the
course of the employment or consulting relationship generally must be
kept confidential. In the case of employees, the agreements provide that
all inventions conceived by the individual while employed by us,
relating to our business are our exclusive property. These agreements
may not provide meaningful protection for our trade secrets in the event
of unauthorized use or disclosure of such information.
The field of gene therapy is highly competitive.
Competition in the field of gene therapy from other biotechnology and
pharmaceutical companies and from research and academic institutions is
intense and expected to increase. In many instances, we compete with
other commercial entities in acquiring products or technology from
universities. There are numerous competitors working on products to
treat each of the diseases for which we are seeking to develop
therapeutic products. Some competitors are pursuing a product
development strategy competitive with ours, particularly with respect to
our cancer vaccine program. Certain of these competitive products are in
substantially more advanced stages of product development and clinical
trials. Our competitors may develop technologies and products that are
more effective than ours, or that would render our technology and
products less competitive or obsolete.
Many of our competitors have substantially greater financial resources
and larger research and development staffs than we do. Some of these
competitors have significantly greater experience than we do in
developing products, in undertaking preclinical testing and human
clinical trials of new pharmaceutical products, in obtaining United
States Food and Drug Administration and other regulatory approvals of
products, and in manufacturing and marketing such products.
Accordingly, our competitors may obtain patent protection or FDA
approval and commercialize products more rapidly than we do. There can
be no assurance that we will be able to obtain certain biological
materials necessary to support our research, development or
manufacturing of any of our planned therapies. If we are permitted to
commence commercial sales of products, we will also be competing with
respect to marketing capabilities and manufacturing efficiency, areas in
which we have limited or no experience. We expect to build additional
clinical scale and commercial scale manufacturing facilities and/or use
contract facilities to commercialize our products. We also expect to
secure funding for these and other product development activities
through our partners and future potential partners.
We expect that competition among products approved for sale will be
based, among other things, on:
o product efficacy
o price
o safety
o reliability
o availability
o patent protection
o sales, marketing and distribution capabilities
Our competitive positions also depend upon our ability to attract and
retain qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes and secure sufficient funding
for the often lengthy period between product conception and commercial
sales.
Our stock price has fluctuated in the past and is likely to continue to
be volatile in the future.
The stock prices of biopharmaceutical and biotechnology companies
(including Cell Genesys) have historically been highly volatile. The
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of
particular companies. The following factors may affect our stock price:
o changes in our financial results
o announcements of technological innovations or new therapeutic
products by us or our competitors
o announcements of changes in governmental regulation affecting
us or our competitors
o announcements of regulatory approvals or disapprovals of our or
our competitors' products
o developments in patent or other proprietary rights affecting us
or our competitors
o public concern as to the safety of products developed by us or
other biotechnology and pharmaceutical companies
o general market conditions
o severe fluctuations in price and volume in the stock market in
general which are unrelated to our operating performance
o issuance of common stock upon conversion of the Series B
preferred stock
o issuance of common stock upon exercise of the outstanding
warrants - see Notes to the Consolidated Financial Statements.
o future sales of such common stock or other shares of common
stock by existing stockholders
o the perception that such issuances or sales could occur
Our business is subject to extensive regulation and any failure to
obtain required regulatory approvals could prevent or delay the
commercialization of our products.
Regulation by governmental authorities in the United States and foreign
countries is important in the manufacture and marketing of our proposed
products and our research and development activities. All of our
products will require regulatory approval by governmental agencies prior
to commercialization. In particular, human therapeutic products must
undergo rigorous preclinical and clinical testing and other premarket
approval procedures by the FDA and similar authorities in foreign
countries. Since our potential products involve the application of new
technologies, regulatory approvals may take longer than for products
produced using more conventional methods. Various federal and, in some
cases, state laws also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of these products. The
lengthy process of seeking these approvals, and the subsequent
compliance with applicable federal laws, requires significant
expenditures. Any delay or failure by us or our collaborators or
licensees to obtain regulatory approvals could hinder the marketing of
our products and our ability to receive product or royalty revenue.
In responding to a new drug application, or a product license
application, the FDA may grant marketing approvals, request additional
information or further research, or deny the application if it
determines that the application does not satisfy its regulatory approval
criteria. Approvals may not be granted on a timely basis, if at all, or
if granted may not cover all the clinical indications for which we are
seeking approval. Also, an approval might contain significant
limitations in the form of warnings, precautions or contraindications
with respect to conditions of use.
In addition to laws and regulations enforced by the FDA, we are also
subject to regulation under:
o Occupational Safety and Health Act
o Environmental Protection Act
o Toxic Substances Control Act
o Resource Conservation and Recovery Act
o Other present and potential future federal, state or local
laws and regulations
Our manufacturing facilities are subject to licensing requirements of
the California Department of Health Services. While not subject to
license by the FDA, these facilities are subject to inspection by the
FDA as well as by the California Department of Health Services. A
separate license from the FDA is required for commercial manufacture of
any product. Failure to maintain these licenses or to meet the
inspection criteria of the FDA and the California Department of Health
Services would disrupt our manufacturing processes and have a material
adverse effect on our business, results of operations, financial
condition and cash flow.
For marketing outside the United States, we are subject to foreign
regulatory requirements governing human clinical trials and marketing
approval for drugs and devices. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary
greatly from country to country. Failure to comply with these regulatory
requirements or obtain required approvals could impair our ability to
develop these markets and have a material adverse effect on our results
of operations and financial condition.
Our product development activities involve the use of hazardous
materials and we may incur significant costs as a result of the need to
comply with environmental laws.
Our research and development activities involve the controlled use of
hazardous materials, chemicals, viruses and radioactive compounds. We
are subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of these materials
and waste products. Although we believe that our safety procedures for
handling and disposing of these materials comply with the standards
prescribed by applicable laws and regulations, we cannot completely
eliminate the risk of accidental contamination or injury from these
materials. In the event of an accident, we could be held liable for any
damages that result, and any resulting liability could exceed our
resources. We may also be required to incur significant costs to comply
with environmental laws and regulations in the future.
We expect to depend on our strategic partners for the sales, marketing
and distribution of our future products.
We do not have any experience in sales, marketing or distribution of
biopharmaceutical products. We expect to rely on sales and marketing
expertise of potential corporate partners for our initial products. The
decision to market future products directly or through corporate
partners will be based on a number of factors, including:
o market size and concentration
o size and expertise of the partner's sales force in a
particular market
o our overall strategic objectives
We are currently engaged in various stages of discussions with potential
partners. There can be no assurance that we will be able to establish
new relationships, if at all, on acceptable terms and conditions.
We may in the future be exposed to product liability claims and may be
unable to obtain sufficient insurance coverage.
Clinical trials or marketing of any of our potential products may expose
us to liability claims resulting from the use of our products. These
claims might be made by consumers, health care providers or by others
selling our products. We currently maintain product liability insurance
with respect to each of our clinical trials. There can be no assurance
that we will be able to maintain insurance or that sufficient coverage
can be acquired at a reasonable cost. An inability to maintain insurance
at acceptable cost, or at all, could prevent or inhibit the clinical
testing or commercialization of our products or otherwise affect our
financial condition. A product liability claim or recall could have a
material adverse effect on our business, results of operations,
financial condition and cash flow.
Sales of our future products will be influenced by the willingness of
third-party payers to provide reimbursement.
In both domestic and foreign markets, sales of our potential products
will depend in part upon coverage and reimbursement from third-party
payers, including:
o government agencies
o private health care insurers and other health care payers such
as health maintenance organizations
o self-insured employee plans
o Blue Cross/Blue Shield and similar plans
There is considerable pressure to reduce the cost of biotechnology and
pharmaceutical products. In particular, reimbursement from government
agencies, insurers and large health organizations may become more
restricted in the future. Our potential products represent a new mode
of therapy and, while the cost-benefit ratio of the products may be
favorable, we expect that the costs associated with our products will be
substantial. There can be no assurance that our proposed products, if
successfully developed, will be considered cost-effective by third-party
payers. Insurance coverage might not be provided by third-party payers
at all or without substantial delay. Even if such coverage is provided,
the approved reimbursement might not provide sufficient funds to enable
us to become profitable.
The pricing of our future products may be influenced in part by
government controls.
The continuing efforts of governmental and third-party payers to contain
or reduce the costs of healthcare may impair future revenues and
profitability of biotechnology companies. For example, in certain
foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to government control. In the United States,
there have been, and we expect that there will continue to be, a number
of federal and state proposals to implement similar government control.
While we cannot predict whether the government will adopt any such
legislative or regulatory proposals, the announcement or adoption of
these proposals could have a material adverse effect on our business,
results of operations, financial condition and cash flow.
We depend on our key technical and management personnel and
collaborative partners to advance our technology, and the loss of these
personnel or partners could impair the development of our products.
We rely and will continue to rely on our key management and scientific
staff. The loss of key personnel or the failure to recruit necessary
additional qualified personnel could have a material adverse effect on
our business and results of operations. There is intense competition
from other companies, research and academic institutions and other
organizations for qualified personnel. There is no assurance that we
will be able to continue to attract and retain the qualified personnel
necessary for the development of our business. We will need to continue
to recruit experts in the areas of clinical testing, manufacturing,
marketing and distribution and develop additional expertise in our
existing personnel. If we do not succeed in recruiting such personnel or
developing such expertise, our business could suffer significantly.
We have clinical trial agreements with a number of public and private
medical institutions relating to conducting human clinical trials
for our GVAXr cancer vaccine program and T cell gene therapy for AIDS:
o National Institutes of Allergy and Infectious Diseases
o University of California, San Francisco
o San Francisco General Hospital
o University of Colorado Health Sciences Center
o Massachusetts General Hospital
o University of California, Los Angeles
o ViRx, Inc.
o Aids Community Research Consortium
o Dana Farber Partners Cancer Care
o The Johns Hopkins Medical Institutions
o PRN Research Inc.
o Stanford University
o University of Tokyo, IMSUT
o Providence Portland Medical Center
o Affiliated Research Centers
The early termination of any of these clinical trial agreements would
hinder the progress of our clinical trials including ongoing trials of
GVAXr cancer vaccine for prostate cancer and lung cancer.
If any of these relationships are terminated, the clinical trials might
not be completed and the results might not be evaluated.
We rely on the continued availability of outside scientific
collaborators performing research. These relationships generally may be
terminated at any time by the collaborator, typically by giving 30 days'
notice. These scientific collaborators are not our employees. As a
result, we have limited control over their activities and can expect
that only limited amounts of their time will be dedicated to our
activities. Our agreements with these collaborators, as well as those
with our scientific consultants, provide that any rights we obtain as a
result of their research efforts will be subject to the rights of the
research institutions in such work. In addition, some of these
collaborators have consulting or other advisory arrangements with other
entities that may potentially conflict with their obligations to us. For
these reasons, there can be no assurance that inventions or processes
discovered by our scientific collaborators or consultants will become
our property.
Cell Genesys stockholders may be diluted by the exercise of outstanding
stock options or warrants, the conversion of outstanding Series B
preferred stock, or other issuances of our common stock.
Substantially all the outstanding shares of Cell Genesys common stock
are eligible for sale in the public market. Conversion of the Series B
preferred stock or exercise of outstanding warrants would result in
issuance of additional shares of common stock, diluting existing
investors. The number of shares of common stock issued, and therefore
the dilution of existing investors, would increase as a result of either
(i) an event triggering the antidilution rights of any outstanding
shares of Series B preferred stock, or (ii) a decline in the market
price of the Company's common stock immediately prior to conversion of
the Series B preferred stock.
The holders of the Series B preferred stock may choose at any time to
convert their shares into common stock. In that event, the number of
shares of common stock issued would be based on the lower of:
a) a fixed conversion price of $11.02 per share or,
b) the average of certain trading prices during the 10 trading
days preceding such date of conversion (the "Floating
Conversion Price").
The market price of the common stock has recently traded below $11.02
per share and consequently the conversion rate of the Series B preferred
stock is currently based on the market price. The greater the decline
in the market price, the greater the number of shares issuable upon
conversion of the Series B preferred stock.
During the past year, the majority of the outstanding Series B preferred
shares were converted into common shares. Of the total original issue
of $20 million face value of Series B preferred shares, approximately
$7.5 million remain outstanding as of July 23, 1999.
We may be subject to a redemption obligation in connection with requests
by the holders of Series B preferred stock to convert their shares into
common stock.
If the holders of the Series B preferred stock decide to convert their
shares into common stock, we would not be required to issue more than
5,624,000 shares of common stock (which is 19.99% of the outstanding
shares of common stock on November 14, 1997, or the "Share Limit"),
unless we first obtained stockholder approval. If we did not obtain
prior stockholder approval or an exemption from the requirement for
stockholder approval from the Nasdaq-AMEX (the "Nasdaq-AMEX
exemption") we would not be required to issue shares of common stock in
excess of the Share Limit pursuant to requests for conversion of the
Series B preferred stock. However, in such event, the holders of the
Series B preferred stock could require us to redeem the unconverted
shares of Series B preferred stock, and the amount of these redemption
obligations could become material if the common stock price declined
below approximately $3.50 per share. Since the common stock traded at
prices below $3.50 per share during certain periods in 1998 and we have
not obtained stockholder approval or the Nasdaq-AMEX exemption, we could
become subject to a material redemption obligation if the number of
shares of common stock issuable upon conversion of the Series B
preferred stock exceeds the Share Limit. The amount of the redemption
obligation will increase as the common stock price decreases because we
are limited in the number of shares we can issue upon conversion.
Consequently, volatility in the price of the common stock could magnify
the amount of any redemption obligation.
Impact of the Year 2000.
The Company has undertaken various initiatives to ensure that its
information technology (IT) and non-IT systems are Year 2000 compliant.
Based on its assessment efforts to date, the Company has not identified
any systems currently in use which require modification or replacement
as a result of its Year 2000 initiatives. The Company currently
anticipates that its Year 2000 identification, assessment, remediation
activities (including repairing or replacing identified systems),
testing and contingency planning efforts, which began in late 1997, will
be complete by the end of the fourth quarter of 1999.
Year 2000 costs incurred to date have not been material and total costs
to modify systems for Year 2000 compliance are not expected to become
material. Such costs do not include normal system upgrades and
replacements and the actual financial impact could exceed this estimate.
The following summarizes the progress the Company has made to date on
each phase of its Year 2000 project plan:
<TABLE>
<CAPTION>
<S> <C> <C>
Phase Timeframe for Completion Percent Complete
- --------------------------------------------------------------------
Initial identification
and assessment......... Q2-1999 100%
Remediation.............. Q3-1999 90%
Testing.................. Q4-1999 60%
Contingency planning..... Q4-1999 75%
<CAPTION>
</TABLE>
In addition to risks associated with the Company's own computer systems
and equipment, the Company has relationships with, and is to varying
degrees dependent upon, a large number of third parties that provide
information, goods and services to the Company. These include financial
institutions, suppliers, vendors, research partners, governmental
entities and customers. The Company has begun surveying all of its
major vendors, collaborative partners and other third parties interests
to determine whether their systems are Year 2000 compliant. We cannot
guarantee that all of our key suppliers, partners and others will
achieve Year 2000 compliance in a timely manner. The failure of our
vendors and partners to successfully address the Year 2000 issue could
have a material adverse effect on our ability to fully address the Year
2000 issue. These failures could materially affect our results of
operations, liquidity and financial condition. Due to the general
uncertainty of the Year 2000 readiness of third parties, we are unable
to determine at this time whether all consequences of Year 2000 failures
will have a material impact on our results of operations, liquidity and
financial condition.
The costs of our Year 2000 project plan, the dates on which we believe
we will complete each phase of our Year 2000 project plan and the
process for contingency planning are best estimates, which are derived
from assumptions regarding future events, including the continued
availability of certain resources, third party remediation plans and
other factors. There can be no assurance that these estimates and plans
will prove to be accurate, and actual results could differ materially
from those currently anticipated.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the normal course of business, the financial position of the Company
is subject to a variety of risks, including market risk associated with
interest rate movements. The Company regularly assesses these risks and
has established policies and business practices to protect against these
and other exposures. As a result, the Company does not anticipate
material potential losses in these areas.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For
investment securities and debt obligations, the table presents principal
cash flows and related weighted-average interest rates by expected
maturity dates. Additionally, the Company has assumed its available for
sale securities, comprised of corporate notes and commercial paper, are
similar enough to aggregate those securities for presentation purposes.
The average interest rate was calculated using the weighted average
fixed rates under all contracts with Wells Fargo Bank, Transamerica
Business Credit Corporation, FINOVA Credit Corporation and Silicon
Valley Bank.
<TABLE>
<CAPTION>
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate Fair Value
There- June 30,
(IN THOUSANDS) 1999 2000 2001 2002 2003 After Total 1999
- ------------------------------------------- --------- -------- ------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Investments Securities...... $10,959 $34,829 -- -- -- -- $45,788 $45,390
Average Interest Rate.......... 4.29% 5.90% -- -- -- -- 5.80%
Long-term Debt, including
Current Portion.... $1,948 $2,813 $1,937 $653 $575 $16 $7,942 $7,942
Average Interest Rate.......... 11.39% 10.95% 10.37% 10.04% 9.00% 9.00% 10.13%
</TABLE>
Part II. OTHER INFORMATION
Item 1. Litigation
none
Item 4. Submission of Matters to a Vote of Security Holders
On June 2, 1999, during the annual stockholders' meeting, a quorum of
stockholders of the Company approved the following proposals:
(i.) Election of Directors.
(ii.) Proposal to ratify the appointment of Ernst & Young LLP as
independent auditors of Cell Genesys for the fiscal year
ending December 31, 1999.
The following table shows the results of the voting on these matters.
<TABLE>
<CAPTION>
(i) Director For Withheld
------------------------- -------------- ---------
<S> <C> <C>
David W. Carter 25,803,073 90,378
James M. Gower 25,809,416 90,378
Joseph E. Maroun 25,822,412 90,378
John T. Potts, Jr., M.D. 25,802,571 90,378
Stephen A. Sherwin, M.D. 25,827,207 90,378
Eugene L. Step 25,813,089 90,378
Inder M. Verma, Ph.D. 25,822,549 90,378
(ii) For Against Abstain
------------------------- -------------- ---------
<C> <C> <C>
25,848,771 34,043 23,018
</TABLE>
Item 6. Exhibits and Reports On Form 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in Foster City, California,
on August 16, 1999:
CELL GENESYS, INC.
By: /S/ Matthew J. Pfeffer
--------------------------------------
Matthew J. Pfeffer
Chief Financial Officer
(Principal Accounting and Financial Officer)
Date: August 16, 1999
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAT
EXTRACTED FROM THE QUARTERLY REPORT PURSUANT TO SECT
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
THE QUARTERLY PERIOD ENDED June 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,966
<SECURITIES> 42,590
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,276
<PP&E> 5,094
<DEPRECIATION> 0
<TOTAL-ASSETS> 74,866
<CURRENT-LIABILITIES> 11,942
<BONDS> 0
11,836
0
<COMMON> 31
<OTHER-SE> 47,120
<TOTAL-LIABILITY-AND-EQUITY> 74,866
<SALES> 0
<TOTAL-REVENUES> 7,223
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 291
<INCOME-PRETAX> (590)
<INCOME-TAX> 0
<INCOME-CONTINUING> (590)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (590)
<EPS-BASIC> ($0.02)
<EPS-DILUTED> ($0.02)
</TABLE>
