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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
------------ TO
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COMMISSION FILE NUMBER: 0-20859
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GERON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 75-2287752
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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230 CONSTITUTION DRIVE, MENLO PARK, CA 94025
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 473-7700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK $0.001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class: Common Stock $0.001 par value Outstanding at May 12, 1999 : 15,848,920
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GERON CORPORATION
INDEX
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PART I. FINANCIAL INFORMATION
Item 1: Financial Statements........................................ 3
Condensed Balance Sheets as of March 31, 1999 and December
31, 1998.................................................... 3
Condensed Statements of Operations for the three months
ended March 31, 1999 and 1998............................... 4
Condensed Statements of Cash Flows for the three months
ended March 31, 1999 and 1998............................... 5
Notes to Financial Statements............................... 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3: Quantitative and Qualitative Disclosures About Market
Risk........................................................ 26
PART II. OTHER INFORMATION
Item 1: Legal Proceedings........................................... 26
Item 2: Changes In Securities and Use of Proceeds................... 26
Item 3: Defaults upon Senior Securities............................. 26
Item 4: Submission of Matters to a Vote of Security Holders......... 26
Item 5: Other Information........................................... 26
Item 6: Exhibits and Reports on Form 8-K............................ 26
SIGNATURES........................................................... 27
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GERON CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
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<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
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Current assets:
Cash and cash equivalents................................. $ 8,379 $ 16,360
Short-term investments.................................... 12,073 8,109
Interest and other receivables............................ 781 661
Other current assets...................................... 572 685
-------- --------
Total current assets.............................. 21,805 25,815
Long-term investments....................................... 16,375 15,954
Property and equipment, net................................. 3,552 2,336
Deposits and other assets................................... 566 351
-------- --------
$ 42,298 $ 44,456
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,560 $ 1,184
Accrued liabilities....................................... 1,241 1,220
Deferred revenue.......................................... -- 244
Current portion of capital lease obligations and equipment
loans.................................................. 1,037 906
-------- --------
Total current liabilities......................... 3,838 3,554
Noncurrent portion of capital lease obligations and
equipment loans........................................... 1,870 1,300
Convertible debentures...................................... 6,861 6,801
Commitments
Redeemable convertible preferred stock...................... 3,661 3,610
Stockholders' equity:
Common stock................................................ 14 13
Additional paid-in-capital.................................. 88,259 88,055
Notes receivable from stockholders.......................... (3) (4)
Deferred compensation....................................... (1,251) (1,383)
Accumulated deficit......................................... (60,914) (57,520)
Accumulated other comprehensive (loss)/income............... (37) 30
-------- --------
Total stockholders' equity........................ 26,068 29,191
-------- --------
$ 42,298 $ 44,456
======== ========
</TABLE>
See accompanying notes.
3
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GERON CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
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Revenues from collaborative agreements...................... $ 1,494 $ 2,225
License fees and royalties.................................. 1 25
----------- -----------
Total revenues......................................... 1,495 2,250
Operating expenses:
Research and development.................................. 4,425 3,668
General and administrative................................ 943 826
----------- -----------
Total operating expenses............................... 5,368 4,494
----------- -----------
Loss from operations........................................ (3,873) (2,244)
Interest and other income................................... 676 459
Interest and other expense.................................. (146) (82)
----------- -----------
Net loss.................................................... $ (3,343) $ (1,867)
Accretion of redemption value of redeemable convertible
preferred stock........................................... (51) --
----------- -----------
Net loss applicable to common stockholders.................. $ (3,394) $ (1,867)
=========== ===========
Basic and diluted net loss per share........................ $ (0.25) $ (0.17)
=========== ===========
Weighted average shares used in computing basic and diluted
net loss
per share................................................. 13,663,948 10,897,680
=========== ===========
</TABLE>
See accompanying notes.
4
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GERON CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
CHANGE IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
(IN THOUSANDS)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
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Cash flows from operating activities:
Net loss.................................................. $ (3,343) $(1,867)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 285 281
Interest arising from beneficial conversion feature.... 60 --
Issuance of common and preferred stock in exchange for
services rendered..................................... 191 10
Deferred compensation.................................. 132 105
Changes in assets and liabilities:
Interest and other receivables......................... (120) 635
Other current assets................................... 113 327
Deposits and other assets.............................. (215) 3
Accounts payable....................................... 376 (316)
Accrued liabilities.................................... 21 (55)
Deferred revenue....................................... (244) (975)
-------- -------
Net cash used in operating activities....................... (2,744) (1,852)
Cash flows from investing activities:
Capital expenditures...................................... (1,501) (107)
Purchases of securities available-for-sale................ (12,552) --
Proceeds from maturities of securities
available-for-sale..................................... 8,100 6,079
-------- -------
Net cash (used in) provided by investing activities......... (5,953) 5,972
Cash flows from financing activities:
Proceeds from equipment loans............................. 1,037 68
Payments of obligations under capital leases and equipment
loans.................................................. (336) (280)
Proceeds from issuance of common and preferred stock,
net.................................................... 15 19,156
-------- -------
Net cash provided by financing activities................... 716 18,944
Net (decrease) increase in cash and cash equivalents........ (7,981) 23,064
-------- -------
Cash and cash equivalents at the beginning of the period.... 16,360 4,122
-------- -------
Cash and cash equivalents at the end of the period.......... $ 8,379 $27,186
======== =======
</TABLE>
See accompanying notes.
5
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GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed unaudited balance sheet as of March 31, 1999 and
condensed statements of operations for the three-month periods ended March 31,
1999 and 1998 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. These financial statements should be read in conjunction with the
financial statements for the year ended December 31, 1998, included in the
Company's Annual Report on Form 10-K.
Certain reclassifications of prior year amounts have been made to conform
to current year presentation.
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share," ("SFAS
128"), which requires the Company to simplify the calculation of earnings per
share and achieve comparability with the recently issued International
Accounting Standard No. 33, "Earnings Per Share." SFAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods presented have been restated, where appropriate, to conform to SFAS
128.
Had the Company been in a net income position, diluted earnings per share
would have included the shares used in the computation of pro forma basic net
loss per share as well as an additional 1,508,453 and 1,795,009 shares related
to outstanding options and warrants not included above (as determined using the
treasury stock method at the estimated average market value) for 1999 and 1998,
respectively.
2. CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
places its cash and cash equivalents in interest-bearing money market funds,
municipal notes and commercial paper. As of March 31, 1999, the Company's
investments consisted primarily of corporate notes with maturities ranging from
three to 21 months.
3. CONVERTIBLE DEBENTURES
On December 10, 1998, the Company entered into an agreement to sell
$15,000,000 in convertible zero coupon debentures to investment funds managed by
three institutional investors. The debentures are convertible at any time by the
holders at a fixed conversion price of $10.00 per share. One-half of the
proceeds were funded upon signing the agreement, at which time $7,500,000 of
series A convertible debentures were issued, and we expect that the remaining
$7,500,000 will be funded during the second quarter of 1999. The debentures
convert at the Company's option when the Common Stock has traded at a certain
premium to the fixed conversion price for five consecutive trading days.
6
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GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In connection with the issuance of the series A convertible debentures, the
Company also issued series A warrants to purchase 625,000 shares of Common Stock
at $12.00 per share. The series A warrants are exercisable at any time through
June 2000. The value of the series A warrants was determined to be approximately
$719,000. The proceeds of $7,500,000 from the issuance of the series A
convertible debentures were allocated between the series A convertible
debentures and the series A warrants. The series A convertible debentures, which
are recorded at a discount, are being accreted to the redemption amount over the
three year term using the interest method.
We expect to issue the remaining $7,500,000 during the second quarter of
1999. The price and terms of the series B debentures will be identical to the
series A debentures. In connection with the issuance of the series B debentures,
the Company will also issue series B warrants to purchase an additional 625,000
shares of Common Stock at $12.00 per share. The warrants will be exercisable for
a period of 18 months from the date of issuance.
4. CONVERTIBLE PREFERRED STOCK
On March 27, 1998, the Company completed a private placement with two
institutional investors for the sale of 15,000 shares of Series A Convertible
Preferred Stock with a stated value of $1,000 per share resulting in proceeds of
$15.0 million. On November 6, 1998, 11,548 shares of Series A Preferred Stock
were converted into 2,173,446 shares of Common Stock. The number of shares of
Common Stock issued in November 1998 met the maximum threshold of shares of
Common Stock that could be issued without obtaining stockholder approval under
NASD regulations. Because the Company has not obtained stockholder approval to
issue additional shares of Common Stock as of March 31, 1999, the remaining
3,452 shares of Series A Preferred Stock (with a book value of $3,452,000) are
now redeemable, have been reclassified as Redeemable Convertible Preferred Stock
and are excluded from Stockholders' Equity. In addition, the 6% premium on the
outstanding shares of Series A Preferred Stock is being accreted to the value of
the outstanding Series A Preferred Stock.
In April 1999, the Company redeemed 702 shares of Series A Preferred Stock
through the payment of $748,000 to one investor. The Company expects to redeem
the remaining 2,750 shares of Series A Preferred Stock in May 1999.
5. COLLABORATIVE AGREEMENTS
In March 1999, the Company entered into a development and license agreement
with Clontech Laboratories, Inc. to market cell lines immortalized with the
enzyme telomerase. The agreement provides for Clontech and Geron to share
equally operating profits generated from the sale of cell lines. Under the terms
of the agreement, Clontech will be responsible for manufacturing and marketing
of products resulting from the use of Geron's telomerase technology.
In April 1999, the Company received $50,000 in nonrefundable funding for
development activities performed by Geron. The Company will recognize this
revenue as development costs are incurred.
6. SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") in its fiscal year ended December 31, 1998. SFAS 131 establishes standards
for reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or
7
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GERON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
decision making group, in making decisions how to allocate resources and assess
performance. The Company's chief decision maker, as defined under SFAS 131, is
the Chief Executive Officer. To date, the Company has viewed its operations as
principally one segment, the discovery and development of therapeutic and
diagnostic products for the treatment of cancer and other age-related
degenerative diseases. As a result, the financial information disclosed herein
materially represents all of the financial information related to the Company's
principal operating segment.
7. SUBSEQUENT EVENTS
On May 4, 1999, the Company announced the acquisition of Roslin Bio-Med
Ltd., a privately held company formed by the Roslin Institute based in
Midlothian, Scotland. In addition, the Company formed a research collaboration
with the Roslin Institute and has committed approximately $20.0 million in
funding over six years. The Company issued 1,891,371 shares of its Common Stock
in exchange for all of the outstanding shares of Roslin Bio-Med Ltd. In
addition, the Company assumed Roslin Bio-Med Ltd.'s fully vested stock options,
which when exercised would amount to 208,629 shares of Geron Common Stock. Under
the terms of the agreement, Roslin Bio-Med Ltd. became a wholly owned UK
subsidiary of Geron and will be known as Geron Bio-Med Ltd.
The transaction will be accounted for as a purchase with the purchase price
allocated primarily between the licenses acquired and the research funding
agreement. The intangible assets will be amortized over seven years. The Company
will evaluate its intangible assets for impairment on a quarterly basis.
8
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GERON CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q contains forward-looking statements that involve risks and
uncertainties. You should not rely on these forward-looking statements. We use
words such as "anticipates", "believes", "plans", "expects", "future", "intends"
and similar expressions to identify forward-looking statements. These statements
appear throughout the Form 10-Q and are statements regarding our intent, belief,
or current expectations, primarily with respect to our operations and related
industry developments. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this Form 10-Q.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us and
described under the heading "Risk Factors" in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998, in the section of this
Item 2 titled "Additional Factors That May Affect Future Results," and elsewhere
in this Form 10-Q.
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
Geron is a biopharmaceutical company focused on discovering, developing and
commercializing therapeutic and diagnostic products to treat cancer and other
age-related chronic degenerative diseases. Geron is uniquely positioned to
pursue this goal given its breakthrough discoveries surrounding telomeres,
telomerase and human pluripotent stem cells.
In March 1999, the Company entered into a development and license agreement
with Clontech Laboratories, Inc. to market cell lines immortalized with the
enzyme telomerase. The agreement provides for Clontech and Geron to share
equally operating profits generated from the sale of cell lines. Under the terms
of the agreement, Clontech will be responsible for manufacturing and marketing
of products resulting from the use of Geron's telomerase technology. In April
1999, the Company received $50,000 in nonrefundable funding for development
activities performed by Geron.
On May 4, 1999, the Company announced the acquisition of Roslin Bio-Med
Ltd. ("Roslin"), a privately held company formed by the Roslin Institute based
in Midlothian, Scotland. In addition, the Company formed a research
collaboration with the Roslin Institute and has committed approximately $20.0
million in funding over six years. The Company issued 1,891,371 shares of its
Common Stock in exchange for all of the outstanding shares of Roslin. In
addition, the Company assumed Roslin's fully vested stock options, which when
exercised would amount to 208,629 shares of Geron Common Stock. Under the terms
of the agreement, Roslin became a wholly owned UK subsidiary of Geron and will
be known as Geron Bio-Med.
The Company's results of operations have fluctuated from period to period
and may continue to fluctuate in the future based upon the timing and
composition of funding under various collaborative agreements, as well as the
progress of its research and development efforts. Results of operations for any
period may be unrelated to results of operations for any other period. In
addition, historical results should not be viewed as indicative of future
operating results. Geron is subject to risks common to companies in its industry
and at its stage of development, including risks inherent in its research and
development efforts, reliance upon collaborative partners, enforcement of patent
and proprietary rights, need for future capital, potential competition and
uncertainty of regulatory approvals or clearances. In order for a product to be
commercialized based on the Company's research, it will be necessary for Geron
and its collaborators to conduct preclinical tests and clinical trials,
demonstrate efficacy and safety of the Company's product candidates, obtain
regulatory approvals or clearances and enter into manufacturing, distribution
and marketing arrangements, as well as obtain market acceptance. The Company
does not expect to receive revenues or royalties based on therapeutic products
for a period of years. See "Additional Factors That May Affect Future Results."
9
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RESULTS OF OPERATIONS
REVENUES
Contract revenues were $1.5 million and $2.2 million for the three months
ended March 31, 1999 and 1998, respectively. Contract revenues in 1999 were from
research support payments under the Company's collaborative agreement with
Pharmacia & Upjohn (the "Pharmacia & Upjohn Agreement"). Contract revenues in
1998 were from research support payments under the Pharmacia & Upjohn Agreement
and from Kyowa Hakko Kogyo Co., Ltd. under the Company's collaborative agreement
with Kyowa Hakko (the "Kyowa Hakko Agreement"). Research support payments of
$1.25 million per quarter are required to be made under the Pharmacia & Upjohn
Agreement until January 2000. Research support payments under the Kyowa Hakko
Agreement expired in April 1998 as contractually agreed. The Company recognizes
revenue as related research and development costs are incurred under the
collaborative agreements.
The Company receives license payments and royalties from license and
marketing agreements with various diagnostic collaborators. No license fee
payments were received in 1999 or 1998. Royalties of $1,000 and $25,000 were
received from licensees, including Kyowa Medex Co., Ltd., Roche Diagnostics GmbH
and PharMingen (a Becton Dickinson company) on the sale of diagnostic kits to
the research-use-only market for the three months ended March 31, 1999 and 1998,
respectively.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $4.4 million and $3.7 million for
the three months ended March 31, 1999 and 1998, respectively. The increase in
1999 from 1998 was the result of increased personnel costs of $205,000,
scientific supplies of $259,000, scientific consulting expenses of $60,000,
patent legal expenses of $79,000, and facilities expenses of $69,000. The
Company expects research and development and related facilities expenses to
increase in the future as a result of continued development of its research
programs and with the addition of the funding commitment to the Roslin
Institute.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $943,000 and $826,000 for the
three months ended March 31, 1999 and 1998, respectively. The increase in 1999
from 1998 was primarily the result of increased personnel costs of $117,000.
INTEREST AND OTHER INCOME
Interest income was $556,000 and $330,000 for the three months ended March
31, 1999 and 1998, respectively. The increase was due to higher average cash and
investment balances as a result of the sale of convertible debentures which
occurred in December 1998. Interest earned in the future will depend on the
Company's funding cycles and prevailing interest rates. The Company also
received $120,000 and $129,000 in research payments under government grants for
the three months ended March 31, 1999 and 1998, respectively. The Company does
not expect income from government grants to be significant in the foreseeable
future.
INTEREST AND OTHER EXPENSE
Interest and other expense was $146,000 and $82,000 for the three months
ended March 31, 1999 and 1998, respectively. The convertible debentures issued
in December 1998, which were recorded at a discount, are being amortized to the
redemption amount over a three-year term using the interest method. The Company
recorded approximately $60,000 in interest expense for convertible debenture
amortization. The Company expects interest and other expense to increase in the
future with the addition of new equipment leases for the expansion of the
Company's Menlo Park facility.
10
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NET LOSS
Net loss was $3.3 million and $1.9 million for the three months ended March
31, 1999 and 1998, respectively. The increase was due primarily to the increases
in research and development and general and administrative expenses. Net loss is
expected to increase with the addition of research and development funding
commitments to the Roslin Institute.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and investments at March 31, 1999 were $36.8 million
compared to $40.4 million at December 31, 1998. The decrease in cash, cash
equivalents and investments in the three months ended March 31, 1999 was
primarily due to the usage of cash for operations. It is the Company's
investment policy to invest these funds in liquid, investment-grade securities,
such as interest-bearing money market funds, commercial paper and federal agency
notes.
Net cash used in operations increased to $2.7 million for the three months
ended March 31, 1999 compared to $1.9 million for the comparable period in 1998.
The increase resulted primarily from a higher net loss recognized in 1999. As
discussed above, less revenue was recognized from the Kyowa Hakko and Pharmacia
& Upjohn collaborative agreements in 1999, while operating expenses increased.
For the three months ended March 31, 1999, additions of equipment and
leasehold improvements totaled approximately $1.5 million, all of which were
financed through equipment financing arrangements. Minimum annual payments due
under the equipment financing facility are expected to total $913,000, $726,000,
$374,000 and $200,000 in 1999, 2000, 2001 and 2002, respectively. As of March
31, 1999, the Company had approximately $1.3 million available for borrowing
under its equipment financing facility. The drawdown period under the equipment
financing facility expires on July 31, 1999. The Company intends to renew the
commitment for a new equipment financing facility in 1999 to further fund
purchases of equipment. If the Company is unable to renew the commitment, the
Company will need to expend its own resources to fund equipment purchases.
The Company maintains agreements with academic and research institutions to
fund certain scientific research. Minimum annual payments due under these
agreements are expected to total approximately $950,000 and $250,000 in 1999 and
2000, respectively. The Company expects payments for scientific research to
increase as a result of the new research collaboration with the Roslin
Institute.
In April 1999, the Company redeemed 702 shares of Series A Convertible
Preferred Stock through payment of $748,000 to one institutional investor. The
Company expects to redeem the remaining 2,750 shares of Series A Convertible
Preferred Stock in May 1999.
The Company has funded its operations primarily through public and private
debt and equity financings. The Company has also received additional funding
from collaborative agreements, grant revenues, interest income and equipment
financing. The Company will seek additional funding through other strategic
collaborations, public or private equity financing, or other financing sources.
The Company estimates that its existing capital resources, payments under
the Pharmacia & Upjohn collaborative agreement, proceeds to be received under
convertible debentures in 1999, amounts to be paid for redemption of the
remaining shares of Series A Convertible Preferred Stock, interest income and
equipment financing will be sufficient to fund its current level of operations
to the end of the year 2000. There can be no assurance, however, that changes in
the Company's research and development plans or other changes affecting the
Company's operating expenses will not result in the expenditure of available
resources before such time, and in any event, the Company will need to raise
substantial additional capital to fund its operations in future periods. The
Company intends to seek additional funding through strategic collaborations,
public or private equity financings, capital lease transactions or other
financing sources that may be available.
11
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YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or laboratory equipment that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions in
operations, including, among other things, a temporary inability to process
transactions, send checks, perform research and development activities or engage
in similar normal business activities.
Based on a recent assessment, the Company has determined that it will be
required to modify or replace certain portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. These software programs include the Company's accounting package
and voicemail system. The Company presently believes that with modifications to
existing software and conversions to new software, the Year 2000 issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed in a timely
manner, the Year 2000 issue could have a material impact on the operations of
the Company.
The Company has initiated formal communications with all of its significant
suppliers, service providers and corporate partners to determine the extent to
which the Company's interface systems are vulnerable to those third parties'
failure to remediate their own Year 2000 issues. The Company's total Year 2000
project cost and estimated time to complete include the estimated costs and time
associated with the impact of third party Year 2000 issues and is based on
presently available information. However, there can be no guarantee that the
systems of other companies on which the Company's systems rely will be upgraded
or converted and will not have an adverse effect on the Company's systems. Such
suppliers, service providers and corporate partners include the Company's
payroll service provider, local financial institutions and website maintenance
organization.
The Company will utilize both internal and external resources to replace
and test software for Year 2000 modifications. Approximately half of the
Company's Year 2000 (Y2K) scheduled work is complete. The remaining work is
scheduled to be completed by the end of the second quarter of 1999, which is
prior to any anticipated impact on its operating systems. The Y2K project phases
include: (1) inventorying and prioritizing business critical systems; (2) Y2K
compliance analysis; (3) remediation activities including repairing or replacing
identified systems; (4) testing; and (5) developing contingency plans. An
inventory of business critical financial, informational and operational systems,
including laboratory equipment, has been completed. Compliance analysis is
approximately 80% complete for these systems. Remediation activities vary by
department, however, on the average, remediation activities are approximately
50% complete. Testing of the Company's information technology infrastructure is
75% complete. Testing of business critical application programs is 75% complete.
The Company believes that with the completed modifications, the Y2K issue will
not pose significant operational problems for its computer systems and
equipment. However, if such modifications and conversions are not made, or are
not completed in a timely fashion, the Year 2000 issue could have a material
impact on the operations of the Company, the precise degree of which cannot be
known at this time.
The total cost of the Year 2000 project is estimated at $200,000 and is
being funded through current cash holdings. Of the total project cost,
approximately $100,000 is attributable to the purchase of new software and
equipment which will be capitalized. The remaining $100,000, which will be
expensed as incurred, is not expected to have a material effect on the Company's
results of operations. To date, the Company has incurred approximately $100,000
($50,000 capitalized for new systems and $50,000 expensed), related to the
assessment of, and preliminary efforts on, its Year 2000 project.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved, and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences
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include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes and
similar uncertainties.
Although the Company does not believe that it will incur any material costs
or experience material disruptions in its business associated with preparing its
internal systems for the year 2000, there can be no assurance that the Company
will not experience serious unanticipated negative consequences and/or material
costs caused by undetected errors or defects in the technology used in its
internal systems, which are composed of third party software and third party
hardware that contains embedded software. The most reasonably likely worst case
scenarios would include: (i) corruption of data contained in the Company's
internal information systems, (ii) hardware failure, and (iii) the failure of
infrastructure services provided by government agencies and other third parties
(e.g., electricity, phone service, water, transport, Internet services, etc.).
The Company is in the process of implementing action plans for the remediation
of high risk areas and is scheduled to implement remediation plans for medium to
low risk areas during the remainder of fiscal 1999. The Company expects its
contingency plans to include, among other things, manual "work-arounds" for
software and hardware failures, finding alternate vendors for supplies and
equipment as well as substitution of systems, if necessary.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should carefully consider
these risk factors, together with all of the other information included in this
10-Q, before you decide whether to purchase shares of our common stock.
OUR PRODUCT DEVELOPMENT PROGRAMS ARE AT AN EARLY STAGE AND MAY NOT RESULT IN ANY
COMMERCIALLY VIABLE PRODUCTS; FAILURE TO DEVELOP ANY COMMERCIALLY VIABLE
PRODUCTS MAY IMPAIR OUR ABILITY TO ATTRACT FUTURE FUNDING AND OUR ABILITY TO
SUSTAIN OPERATIONS
The study of the mechanisms of cellular aging and cellular immortality,
including telomere biology and telomerase, the study of human pluripotent stem
cells, and the process of nuclear transfer are relatively new areas of research.
While our development efforts are at different stages for different products, we
cannot assure you that we will successfully develop any products or that we will
not abandon some or all of our proposed research programs. In the long term, for
any of our cancer treatments or other discoveries to be proven commercially
viable, we will need to demonstrate to the health care community that the
treatment or products are:
- safe;
- effective;
- reliable; and
- not subject to other problems that would affect commercial viability.
If and when potential lead drug compounds or product candidates are
identified through our research programs, they will require significant
preclinical and clinical testing prior to regulatory approval in the United
States and elsewhere. In addition, we will also need to determine whether any of
these potential products can be manufactured in commercial quantities at an
acceptable cost. Our efforts may not result in a product that can be marketed.
Because of the significant scientific, regulatory and commercial milestones that
must be reached for any of our research programs to be successful, any program
may be abandoned, even after significant resources have been expended.
Our inability to identify an effective compound for inhibiting telomerase may
prevent us from developing a viable cancer treatment product which would
adversely impact our future business prospects
As a result of our drug discovery efforts to date, we have identified
compounds in laboratory studies that demonstrate potential for inhibiting
telomerase in humans. However, additional development efforts will be required
before we select a lead compound for preclinical development and clinical trials
as a telomerase
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inhibitor for cancer. We will have to conduct additional research before we can
select a compound and we may never identify a compound that will enable us to
fully develop a commercially viable treatment for cancer.
If and when selected, a lead compound may prove to have undesirable and
unintended side effects or other characteristics affecting its safety or
effectiveness that may prevent or limit its commercial use. In terms of safety,
our discoveries may result in cancer treatment solutions that cause unacceptable
side effects for the human body. Our discoveries may also not be as effective as
is necessary to market a commercially viable product for the treatment of
cancer. For example, we expect that telomerase inhibition may have delayed
effectiveness as telomeres resume normal shortening. As a result, telomerase
inhibition may need to be used in conjunction with other cancer therapies.
Accordingly, it may become extremely difficult for us to proceed with
preclinical and clinical development, to obtain regulatory approval or to market
a telomerase inhibitor for the treatment of cancer. If we abandon our research
for cancer treatment for any of these reasons or for other reasons, our business
prospects would be materially and adversely affected.
Our research related to the treatment of age-related degenerative diseases has
not yet identified a compound that has potential as a therapeutic agent and
failure to do so would lead to the termination of this program
The research resulting from our telomerase activation and expression
program has shown us that the activation of telomerase can extend cell lifespan
in normal human cells. While telomere length and replicative capacity have been
extended in laboratory studies, we may not discover a compound that will
modulate telomere length or increase replicative capacity effectively for
clinical use.
There is currently insufficient clinical data to determine the full utility of
our cancer diagnostic tests and negative data could cause cancellation of the
program
There is, as yet, insufficient clinical data to confirm the full utility of
our proprietary telomerase detection technology to diagnose, prognose, monitor
patient status and screen for cancer. Although Intergen, Roche Diagnostics,
Kyowa Medex and PharMingen, our licensees, have begun to sell kits for research
use, additional development work and regulatory consents will be necessary prior
to the introduction of tests for clinical use.
Our research on human pluripotent stem cells is at an early stage and may not
result in any commercially viable products
Our human pluripotent stem cell therapies program is also at an early
stage. While human pluripotent stem cells have been derived and allowed to
expand and differentiate into numerous cell types, our efforts to direct
differentiation of human pluripotent stem cells and develop products from our
research may not result in any commercial applications.
Our research related to nuclear transfer may not result in any commercially
viable products
Nuclear transfer techniques are still in the process of being fully
understood. The research collaboration between the Roslin Institute and us will
focus at its most fundamental level on understanding the molecular mechanisms
used by egg cell cytoplasm to reprogram adult cells. Our goal is to confer
reprogramming capability to the cytoplasm of any mature cell in order to produce
transplantable tissue-matched cells for an intended transplant recipient.
However, our research in this area is in it early stages and may not result in
any commercially viable products for human health or agriculture.
WE HAVE A HISTORY OF OPERATING LOSSES AND ANTICIPATE FUTURE LOSSES; CONTINUED
LOSSES COULD IMPAIR OUR ABILITY TO SUSTAIN OPERATIONS
We have incurred net operating losses every year since our operations began
in 1990. Losses have resulted principally from costs incurred in connection with
our research and development activities and from general and administrative
costs associated with our operations. We expect to incur additional operating
losses over the next several years as our research and development efforts and
preclinical testing activities are expanded.
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Substantially all of our revenues to date have been research support payments
under the collaborative agreements with Kyowa Hakko and Pharmacia & Upjohn.
Research support payments under the agreement with Kyowa Hakko expired in April
1998. Research payments under the agreement with Pharmacia & Upjohn expire in
January 2000. We are unable to estimate at this time the level of revenue to be
received from the sale of diagnostic products, and do not expect to receive
significant revenues from the sale of research-use-only kits. Our ability to
achieve profitability is dependent on our ability, alone or with others, to:
- continue to have success with our research and development efforts;
- select therapeutic compounds for development;
- obtain the required regulatory approvals; and
- manufacture and market resulting products.
We cannot assure you when or if we will receive material revenues from
product sales or achieve profitability. Failure to generate significant
additional revenues and achieve profitability could impair our ability to
sustain operations.
WE DEPEND ON OUR COLLABORATIVE PARTNERS TO HELP US COMPLETE THE PROCESS OF
DEVELOPING AND TESTING OUR PRODUCTS AND OUR ABILITY TO DEVELOP AND COMMERCIALIZE
PRODUCTS MAY BE IMPAIRED OR DELAYED IF OUR COLLABORATIVE PARTNERSHIPS ARE
UNSUCCESSFUL
Our strategy for the development, clinical testing and commercialization of
our products requires entering into collaborations with corporate partners,
licensors, licensees and others. We are dependent upon the subsequent success of
these other parties in performing their respective responsibilities and the
continued cooperation of our partners. We cannot assure you that our partners
will cooperate with us or perform their obligations under our agreements with
them. We cannot control the amount and timing of our collaborators' resources
that will be devoted to our research activities related to our collaborative
agreements with them. Our collaborators may choose to pursue existing or
alternative technologies in preference to those being developed in collaboration
with us.
Our ability to successfully develop and commercialize telomerase inhibition
products depends on our corporate partnerships with Kyowa Hakko and Pharmacia &
Upjohn, and our ability to successfully develop and commercialize telomerase
diagnostic products depends on our corporate partnership with Roche Diagnostics.
Under our collaborative agreements with these partners, we rely significantly on
them, among other activities, to:
- design and conduct advanced clinical trials;
- fund research and development activities with us;
- pay us fees upon the achievement of milestones; and
- co-promote with us any commercial products that result from our
collaborations.
The development and commercialization of products from these collaborations
will be delayed if Kyowa Hakko, Pharmacia & Upjohn or Roche Diagnostics fail to
conduct these collaborative activities in a timely manner or at all. In
addition, Kyowa Hakko, Pharmacia & Upjohn or Roche Diagnostics could terminate
these agreements and we cannot assure you that we will receive any development
or milestone payments. If we do not receive research funds or achieve milestones
set forth in the agreements, or if Kyowa Hakko, Pharmacia & Upjohn or Roche
Diagnostics or any of our future partners breach or terminate collaborative
agreements with us, our business may be damaged significantly.
We are also, to a lesser extent, dependent upon collaborative partners
other than Kyowa Hakko, Pharmacia & Upjohn and Roche Diagnostics. For example,
we have entered into licensing arrangements with several diagnostic companies
for our telomerase detection technology. However, because these licenses are
limited to the research-use-only market, these arrangements are not expected to
generate significant commercial revenues, if at all.
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UNEXPECTED COSTS AND OTHER DIFFICULTIES ARISING FROM OUR ACQUISITION OF ROSLIN
AND SIMULTANEOUS RESEARCH COLLABORATION WITH THE ROSLIN INSTITUTE MAY DRAIN
HUMAN AND FINANCIAL RESOURCES, OR OTHERWISE NEGATIVELY AFFECT OUR OPERATIONS
With our acquisition of Roslin and formation of the research collaboration
with the Roslin Institute, the scope of our business and operations has
expanded. As a result, we may be presented with operational issues that we have
not previously faced as a company, but which generally accompany acquisitions
and research collaborations of this nature, including:
- the difficulty of assimilating Roslin's operations and personnel;
- the potential disruption of ongoing business and distraction of
management;
- unanticipated expenses related to technology and research integration;
- the difficulty of implementing and maintaining uniform standards,
controls, procedures and policies;
- the potential impairment of relationships with employees and
collaborators as a result of integration of new management personnel; and
- the potential unknown liabilities associated with acquired businesses.
We cannot assure you that we will be able to overcome any of these
obstacles, and our failure to do so could prevent us from achieving the
perceived benefits of the acquisition and collaboration as well as negatively
impact our research activities and results of operations.
THE ACQUISITION OF ROSLIN HAS SUBJECTED US TO THE UNCERTAINTY INHERENT IN
INTERNATIONAL OPERATIONS, AND WE HAVE LIMITED EXPERIENCE WITH INTERNATIONAL
OPERATIONS
To date, we have only limited experience in managing operations
internationally. Our acquisition of Roslin represents our first experience in
managing international operations. As a result of our international expansion,
we are now subject to the uncertainties inherent in international operations,
including:
- unexpected changes in regulatory requirements;
- compliance with international laws;
- difficulties in staffing and managing international operations including
those that arise as a result of distance, language and cultural
differences;
- currency exchange rate fluctuations;
- political instability;
- export restrictions; and
- potentially adverse tax consequences.
One or more of these factors could have a material adverse effect on our
future international operations, the success of our acquisition of Roslin and,
consequently, on our business, operating results, and financial condition.
Similarly, our collaborations with international partners such as the Roslin
Institute, Pharmacia & Upjohn, Kyowa Hakko and Roche Diagnostics could also
subject us to the above described international uncertainties.
IF WE ARE UNABLE TO ENTER INTO COLLABORATIVE RELATIONSHIPS FOR MANUFACTURING,
MARKETING AND SALES, WE WILL NEED TO DEVELOP THESE CAPABILITIES ON OUR OWN WHICH
WOULD BE COSTLY AND WOULD SLOW OUR PRODUCT DEVELOPMENT EFFORTS
We currently have no manufacturing infrastructure and no marketing or sales
organization. As a result, we intend to rely almost entirely on our current and
future collaborative partners for manufacturing and principal marketing and
sales responsibilities for any potential products. To the extent that we choose
not to or
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are unable to establish these arrangements, we will require substantially
greater capital to develop our own manufacturing, marketing and sales
capabilities.
We cannot assure you that we will be able to negotiate additional strategic
arrangements in the future on acceptable terms, if at all, or that any potential
strategic arrangement will be successful. In the absence of these arrangements,
we may encounter significant delays in introducing any product or find that the
research, development, manufacture, marketing or sale of any product is
adversely affected. In the event we need to enter into strategic arrangements in
the future, but are unable to do so, our business will be significantly and
negatively impacted.
OUR RELIANCE ON THE RESEARCH ACTIVITIES OF OUR NON-EMPLOYEE SCIENTIFIC ADVISORS
AND OTHER RESEARCH INSTITUTIONS, WHOSE ACTIVITIES ARE NOT WHOLLY WITHIN OUR
CONTROL, MAY LEAD TO DELAYS IN TECHNOLOGICAL DEVELOPMENTS
We rely extensively and have relationships with scientific advisors at
academic and other institutions, some of whom conduct research at our request.
These scientific advisors are not our employees and may have commitments to, or
consulting or advisory contracts with, other entities that may limit their
availability to us. We have limited control over the activities of these
advisors and, except as otherwise required by our collaboration and consulting
agreements, can expect only limited amounts of their time to be dedicated to our
activities. If our scientific advisors are unable or refuse to contribute to the
development of any of our potential discoveries, our ability to generate
significant advances in our technologies will be significantly harmed.
In addition, we have formed research collaborations with many academic and
other research institutions throughout the world, including the Roslin
Institute. These research facilities may have commitments to other commercial
and non-commercial entities. We have limited control over the operations of
these laboratories and can expect only limited amounts of time to be dedicated
to our research goals.
IMPAIRMENT OF OUR INTELLECTUAL PROPERTY RIGHTS, WHICH ARE COSTLY AND DIFFICULT
TO PROTECT, MAY LIMIT OUR ABILITY TO PURSUE THE DEVELOPMENT OF OUR INTENDED
TECHNOLOGIES AND PRODUCTS
Our success will depend on our ability to obtain and enforce patents for our
discoveries; however, legal principles for biotechnology patents are not firmly
established and the extent to which we will be able to obtain patent coverage
is uncertain
Protection of our proprietary compounds and technology is critically
important to our business. Our success will depend in part on our ability to
obtain and enforce our patents and maintain trade secrets, both in the United
States and in other countries. The patent positions of pharmaceutical and
biopharmaceutical companies, including ours, are highly uncertain and involve
complex legal and technical questions for which legal principles are not firmly
established. We cannot assure you that we will continue to develop products or
processes that are patentable or that patents will issue from any of our pending
applications, including allowed patent applications. Further, we cannot assure
you that our current patents, or patents that issue on pending applications,
will not be challenged, invalidated or circumvented, or that our current or
future patent rights will provide proprietary protection or competitive
advantages to us. In the event that we are unsuccessful in obtaining and
enforcing patents, our business would be negatively impacted.
Patent applications in the United States are maintained in secrecy until
patents issue. Publication of discoveries in the scientific or patent literature
tends to lag behind actual discoveries by at least several months and sometimes
several years. Therefore, we cannot assure you that the persons or entities that
we or our licensors name as inventors in our patents and patent applications
were the first to invent the inventions disclosed in the patent applications or
patents, or file patent applications for these inventions. As a result, we may
not be able to obtain patents from discoveries that we otherwise would consider
patentable and that we consider to be extremely significant to our future
success.
Patent prosecution or litigation may also be necessary to obtain patents,
enforce any patents issued or licensed to us or to determine the scope and
validity of our proprietary rights or the proprietary rights of another. We
cannot assure you that we would be successful in any patent prosecution or
litigation. Patent prosecution and litigation in general can be extremely
expensive and time consuming, even if the outcome is
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favorable to us. An adverse outcome in a patent prosecution, litigation or any
other proceeding in a court or patent office could subject our business to
significant liabilities to other parties, require disputed rights to be licensed
from other parties or require us to cease using the disputed technology.
We may be subject to infringement claims that are costly to defend, and which
may limit our ability to use disputed technologies and prevent us from pursuing
research and development or commercialization of potential products
Our commercial success depends significantly on our ability to operate
without infringing patents and proprietary rights of others. We cannot assure
you that our technologies do not and will not infringe the patents or
proprietary rights of others. In the event our technologies do infringe on the
rights of others, we may be prevented from pursuing research, development or
commercialization of potential products or may be required to obtain licenses to
these patents or other proprietary rights or to develop or obtain alternative
technologies. We may not be able to obtain alternative technologies or any
required license on commercially favorable terms, if at all. If we do not obtain
the necessary licenses or alternative technologies, we may be delayed or
prevented from pursuing the development of some potential products. Our breach
of an existing license or failure to obtain alternative technologies or a
license to any technology that we may require to develop or commercialize our
products will significantly and negatively affect our business.
Patent law relating to the scope and enforceability of claims in the
technology fields in which we operate is still evolving, and the degree of
future protection for any of our proprietary rights is highly uncertain. In this
regard we cannot assure you that independent patents will issue from any of our
patent applications, some of which include many interrelated applications
directed to common or related subject matter. As a result, our success may
become dependent on our ability to obtain licenses for using the patented
discoveries of others. We are aware of patent applications and patents that have
been filed by others with respect to telomerase and telomere length technology
and we may have to obtain licenses to use this technology. For example, there
are a number of issued patents and pending applications owned by others directed
to differential display, stem cell and other technologies relating to our
research, development and commercialization efforts. We may also become aware of
discoveries and technology controlled by third parties that are advantageous to
our other research programs. We cannot assure you that our discoveries and
treatments can be further developed and commercialized without a license to
these discoveries or technologies. Moreover, other patent applications may be
granted priority over patent applications that we or any of our licensors have
filed. Furthermore, others may independently develop similar or alternative
technologies, duplicate any of our technologies or design around the patented
technologies we have developed. In the event that we are unable to acquire
licenses to critical technologies that we cannot patent ourselves, we may be
required to expend significant time and resources to develop similar technology,
and we may not be successful in this regard. If we cannot acquire or develop
necessary technology, we may be prevented from pursuing some of our business
objectives. Moreover, one of our competitors could acquire or license the
necessary technology. Any of these events could have a material adverse effect
on our business.
We cannot assure you that we will not be subject to claims or litigation as
a result of entering into license agreements with third parties or infringing on
the patents of others. For example, we signed a licensing and sponsored research
agreement relating to our human pluripotent stem cell therapies program with The
Johns Hopkins University School of Medicine in August 1997. Prior to signing
this agreement, we had been informed by a third party that we and Johns Hopkins
University would violate the rights of that third party and another academic
institution in doing so. After a review of the correspondence with the third
party and Johns Hopkins University, as well as related documents, including an
issued U.S. patent, we believe that both we and Johns Hopkins University have
substantial defenses to any claims that might be asserted by the third party. We
have agreed to provide indemnification to Johns Hopkins University relating to
potential claims. However, any litigation resulting from this matter may divert
significant resources, both financial and otherwise, from our research programs.
We cannot assure you that we would be successful if the matter is litigated. If
the outcome of litigation is unfavorable to us, our business could be materially
and adversely affected.
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Much of the information and know-how that is critical to our business is not
patentable and we may not be able to prevent others from obtaining this
information and establishing competitive enterprises
We rely extensively on trade secrets to protect our proprietary technology,
especially in circumstances in which patent protection is not believed to be
appropriate or obtainable. We attempt to protect our proprietary technology in
part by confidentiality agreements with our employees, consultants and
contractors. We cannot assure you that these agreements will not be breached,
that we would have adequate remedies for any breach, or that our trade secrets
will not otherwise become known or be independently discovered by competitors,
any of which would harm our business significantly.
WE WILL NEED ADDITIONAL CAPITAL TO CONDUCT OUR OPERATIONS AND DEVELOP OUR
PRODUCTS, AND OUR ABILITY TO OBTAIN THE NECESSARY FUNDING IS UNCERTAIN
We will require substantial capital resources in order to conduct our
operations and develop our products. Based on current projections, we estimate
that our existing capital resources, payments under the Pharmacia & Upjohn
collaborative agreement, proceeds to be received under convertible debentures in
1999, amounts to be paid for redemption of the remaining shares of Series A
Convertible Preferred Stock, interest income and equipment financing will be
sufficient to fund its current level of operations to the end of the year 2000.
The timing and degree of any future capital requirements will depend on many
factors, including:
- the accuracy of the assumptions underlying our estimates for our capital
needs in 1999 and beyond;
- continued scientific progress in our research and development programs;
- the magnitude and scope of our research and development programs;
- our ability to maintain and establish strategic arrangements for
research, development, clinical testing, manufacturing and marketing;
- our progress with preclinical and clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims; and
- the potential for new technologies and products.
We intend to acquire additional funding through strategic collaborations,
public or private equity financings and capital lease transactions. Additional
financing may not be available on acceptable terms, or at all. Additional equity
financings could result in significant dilution to stockholders. Further, in the
event that additional funds are obtained through arrangements with collaborative
partners, these arrangements may require us to relinquish rights to some of our
technologies, product candidates or products that we would otherwise seek to
develop or commercialize ourselves. If sufficient capital is not available, we
may be required to delay, reduce the scope of or eliminate one or more of our
research or development programs, each of which could have a material adverse
effect on our business.
SOME OF OUR COMPETITORS MAY DEVELOP TECHNOLOGIES THAT ARE SUPERIOR TO OR MORE
COST-EFFECTIVE THAN OURS, WHICH MAY IMPACT THE COMMERCIAL VIABILITY OF OUR
TECHNOLOGIES AND WHICH MAY SIGNIFICANTLY DAMAGE OUR ABILITY TO SUSTAIN
OPERATIONS
The pharmaceutical and biopharmaceutical industries are intensely
competitive. We believe that other pharmaceutical and biopharmaceutical
companies and research organizations currently engage in or have in the past
engaged in efforts related to the biological mechanisms of cell aging and cell
immortality, including the study of telomeres, telomerase, pluripotent cells,
and nuclear transfer. In addition, other products and therapies that could
compete directly with the products that we are seeking to develop and market
currently exist or are being developed by pharmaceutical and biopharmaceutical
companies, and by academic and other research organizations. Many companies are
also developing alternative therapies to treat cancer and, in this
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regard, are competitors of ours. The pharmaceutical companies developing and
marketing these competing products have significantly greater financial
resources and expertise than we do in:
- research and development;
- manufacturing;
- preclinical and clinical testing;
- obtaining regulatory approvals; and
- marketing.
Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established
companies. Academic institutions, government agencies and other public and
private research organizations may also conduct research, seek patent protection
and establish collaborative arrangements for research, clinical development and
marketing of products similar to ours. These companies and institutions compete
with us in recruiting and retaining qualified scientific and management
personnel as well as in acquiring technologies complementary to our programs.
There is also competition for access to libraries of compounds to use for
screening. Should we fail to secure and maintain access to sufficiently broad
libraries of compounds for screening potential targets, our business would be
materially harmed. In addition to the above factors, we expect to face
competition in the following areas:
- product efficacy and safety;
- the timing and scope of regulatory consents;
- availability of resources;
- reimbursement coverage;
- price; and
- patent position, including potentially dominant patent positions of
others.
As a result of the foregoing, our competitors may develop more effective or
more affordable products, or achieve earlier patent protection or product
commercialization than us. Most significantly, competitive products may render
our products that we develop obsolete.
THE LOSS OF KEY PERSONNEL COULD SLOW OUR ABILITY TO CONDUCT RESEARCH AND DEVELOP
PRODUCTS
Our future success depends to a significant extent on the skills,
experience and efforts of our executive officers and key members of our
scientific staff. The loss of any or all of these individuals could damage our
business and might significantly delay or prevent the achievement of research,
development or business objectives.
We also rely on consultants and advisors, including the members of our
Scientific Advisory Board, who assist us in formulating our research and
development strategy. We face intense competition for qualified individuals from
numerous pharmaceutical, biopharmaceutical and biotechnology companies, as well
as academic and other research institutions. We may not be able to attract and
retain these individuals on acceptable terms. Failure to do so would adversely
affect our business.
THE ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF THE HUMAN PLURIPOTENT STEM CELL
THERAPIES AND NUCLEAR TRANSFER PROGRAMS COULD PREVENT US FROM DEVELOPING OR
GAINING ACCEPTANCE FOR COMMERCIALLY VIABLE PRODUCTS IN THIS AREA
Our human pluripotent stem cell therapies program may involve the use of
human pluripotent stem cells that would be derived from human embryonic or fetal
tissue. The use of human pluripotent stem cells gives rise to ethical, legal and
social issues regarding the appropriate utilization of these cells. In the event
that our research related to human pluripotent stem cell therapies becomes the
subject of adverse commentary or publicity, our name and goodwill could be
adversely affected.
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In addition, our nuclear transfer program involves the same techniques that
have previously been utilized to clone sheep. It is possible that these nuclear
transfer techniques could also be utilized in attempts to reproductively clone
living human beings, an application that we believe to be medically unnecessary
and unethical. Although we and the Roslin Institute support the current
international prohibitions on human reproductive cloning, the process of nuclear
transfer itself still gives rise to ethical, legal and social issues regarding
the appropriate nature of this type of research. In the event that our research
related to nuclear transfer becomes the subject of adverse commentary or
publicity, our name and goodwill could be adversely affected.
We have established an Ethics Advisory Board comprised of independent and
recognized medical ethicists to advise us with respect to these issues. Indeed,
the use of human pluripotent cells and nuclear transfer techniques in scientific
research is an issue of national interest. Many research institutions, including
several of our scientific collaborators, have adopted policies regarding the
ethical use of these types of human cells. These policies may have the effect of
limiting the scope of research conducted in this area. The United States
government currently does not fund research that involves the use of human
pluripotent cells and may in the future regulate or otherwise restrict its use.
The human pluripotent stem cell therapies program would be significantly harmed
if we are prevented from conducting research on these cells due to government
regulation or otherwise. Also, in the event that regulatory bodies ban nuclear
transfer processes, our nuclear transfer program could be cancelled and our
business could be negatively affected.
OUR ABILITY TO EARN REVENUES FROM THE SALE OF MARKETABLE PRODUCTS IS PARTLY
DEPENDENT ON THE SCOPE OF GOVERNMENT REGULATION AND OUR SUCCESS IN OBTAINING
REGULATORY APPROVAL FOR OUR PRODUCTS
Our business is subject to intense government regulation and this regulation
may significantly impact our ability to create and market commercially viable
products
Federal, state and local governments in the United States and governments
in other countries have significant regulations in place that govern many of our
activities. The preclinical testing and clinical trials of the products that we
develop ourselves or that our collaborative partners develop are subject to
intense government regulation and may prevent us from creating commercially
viable products from our discoveries. In addition, the sale by us or our
collaborative partners of any commercially viable product will be subject to
government regulation from several standpoints, including the processes of:
- manufacturing;
- labeling;
- selling;
- distributing;
- marketing;
- advertising; and
- promoting.
We cannot assure you that we will be able to comply with these regulations
for any of our potentially marketable products. To the extent that we are
unable, our ability to earn revenues will be significantly and negatively
impacted.
The regulatory process, particularly for biopharmaceutical products like ours,
is uncertain, can take many years and requires the expenditure of substantial
resources
Any product that we or our collaborative partners develop must receive all
relevant regulatory agency approvals or clearances, if any, before it may be
marketed in the United States or other countries. Generally, biological drugs
and non-biological drugs are regulated more rigorously than medical devices. In
particular, human pharmaceutical therapeutic products, including a telomerase
inhibitor, are subject to rigorous preclinical and clinical testing and other
requirements by the Food and Drug Administration in the United States and
similar health authorities in foreign countries. The regulatory process, which
includes extensive
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<PAGE> 22
preclinical testing and clinical trials of each product in order to establish
its safety and efficacy, is uncertain, can take many years and requires the
expenditure of substantial resources.
Data obtained from preclinical and clinical activities is susceptible to
varying interpretations that could delay, limit or prevent regulatory agency
approvals or clearances. In addition, delays or rejections may be encountered
based upon changes in regulatory agency policy during the period of product
development and/or the period of review of any application for regulatory agency
approval or clearance for a product. Delays in obtaining regulatory agency
approvals or clearances could:
- significantly harm the marketing of any products that we or our
collaborative partners develop;
- impose costly procedures upon our activities or the activities of our
collaborative partners;
- diminish any competitive advantages that we or our collaborative partners
may attain; or
- adversely affect our ability to receive royalties and generate revenues
and profits.
Even if we commit the time and resources, both economic and otherwise, that
are necessary, the required regulatory agency approvals or clearances may not be
obtained for any products developed by or in collaboration with us. If
regulatory agency approval or clearance for a new product is obtained, this
approval or clearance may entail limitations on the indicated uses for which it
may be marketed that could limit the potential market for the product.
Furthermore, approved products and their manufacturers are subject to continual
review, and discovery of previously unknown problems with a product or its
manufacturer may result in restrictions on the product or manufacturer,
including withdrawal of the product from the market. Failure to comply with
regulatory requirements can result in severe civil and criminal penalties,
including but not limited to:
- recall or seizure of products;
- injunction against manufacture, distribution, sales and marketing; and
- criminal prosecution.
The imposition of any of these penalties could significantly impair our
business.
TO BE SUCCESSFUL, OUR PRODUCTS MUST BE ACCEPTED BY THE HEALTH CARE COMMUNITY
THAT CAN BE VERY SLOW TO ADOPT OR UNRECEPTIVE TO NEW TECHNOLOGIES AND PRODUCTS
We cannot assure you that any products successfully developed by us or by
our collaborative partners, if approved for marketing, will achieve market
acceptance since physicians, patients or the medical community in general may
decide not to accept and utilize these products. The products that we are
attempting to develop may represent substantial departures from established
treatment methods and will compete with a number of traditional drugs and
therapies manufactured and marketed by major pharmaceutical companies. The
degree of market acceptance of any of our developed products will depend on a
number of factors, including:
- our establishment and demonstration to the medical community of the
clinical efficacy and safety of our product candidates;
- our ability to create products that are superior to alternatives
currently on the market;
- our ability to establish in the medical community the potential advantage
of our treatments over alternative treatment methods; and
- reimbursement policies of government and third-party payors.
If the health care community does not accept our products for any of the
foregoing reasons, our ability to generate revenues will be significantly
impaired.
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<PAGE> 23
THE REIMBURSEMENT STATUS OF NEWLY-APPROVED HEALTH CARE PRODUCTS IS UNCERTAIN AND
FAILURE TO OBTAIN REIMBURSEMENT APPROVAL COULD SEVERELY LIMIT THE USE OF OUR
PRODUCTS
Significant uncertainty exists as to the reimbursement status of newly
approved health care products, including pharmaceuticals. If we fail to generate
adequate third party reimbursement for the users of our potential products and
treatments, then we may be unable to maintain price levels sufficient to realize
an appropriate return on our investment in product development.
In both domestic and foreign markets, sales of our products, if any, will
depend in part on the availability of reimbursement from third-party payors,
examples of which include:
- government health administration authorities;
- private health insurers;
- health maintenance organizations; and
- pharmacy benefit management companies.
Both federal and state governments in the United States and foreign
governments continue to propose and pass legislation designed to contain or
reduce the cost of health care through various means. Legislation and
regulations affecting the pricing of pharmaceuticals and other medical products
may change or be adopted before any of our potential products are approved for
marketing. Cost control initiatives could decrease the price that we receive for
any product we may develop in the future. In addition, third-party payors are
increasingly challenging the price and cost-effectiveness of medical products
and services and any of our potential products and treatments may ultimately not
be considered cost effective by these third parties. Any of these initiatives or
developments could negatively impact our business.
OUR ACTIVITIES INVOLVE HAZARDOUS MATERIALS AND IMPROPER HANDLING OF THESE
MATERIALS BY OUR EMPLOYEES OR AGENTS COULD EXPOSE US TO SIGNIFICANT FINANCIAL
PENALTIES
Our research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive compounds. As a
consequence, we are subject to numerous environmental and safety laws and
regulations. We may be required to incur significant costs to comply with
current or future environmental laws and regulations and may be adversely
affected by the cost of compliance with these laws and regulations. Although we
believe that our safety procedures for using, handling, storing and disposing of
hazardous materials comply with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these materials
cannot be eliminated. In the event of an accident of this nature, our use of
these materials could be curtailed by state or federal authorities and we could
be held liable for any resulting damages. Should either of these contingencies
arise, our business could be materially and adversely affected.
WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN SUFFICIENT INSURANCE ON COMMERCIALLY
REASONABLE TERMS OR WITH ADEQUATE COVERAGE AGAINST POTENTIAL LIABILITIES IN
ORDER TO PROTECT OURSELVES AGAINST PRODUCT LIABILITY CLAIMS
Although we believe that we do not currently have any exposure to product
liability claims, our future business will expose us to potential product
liability risks that are inherent in the testing, manufacturing and marketing of
human therapeutic and diagnostic products. We currently have no clinical trial
liability insurance and we may not be able to obtain and maintain this type of
insurance for any of our clinical trials. In addition, we may not be able to
obtain or maintain product liability insurance in the future on acceptable terms
or with adequate coverage against potential liabilities.
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK AND MAY RESULT
IN SIGNIFICANT DILUTION TO OUR CURRENT STOCKHOLDERS
Sales of a substantial number of shares of our common stock in the public
market following this offering could significantly and negatively affect the
market price for our common stock. As of March 31, 1999, we had outstanding
approximately 13,668,119 shares of common stock. As of March 31, 1999, we also
have reserved
23
<PAGE> 24
4,443,397 shares of common stock for issuance upon exercise of outstanding
warrants and options that we issued to our employees and other entities.
The conversion of the debentures and exercise of the warrants that we
issued in December 1998 will result in our issuance of a minimum of 1,375,000
additional shares of common stock. If the series A debentures were converted on
March 31, 1999, the series A debentures would be convertible into 750,000 shares
of common stock. If the series A warrants were exercised on March 31, 1999, the
series A warrants would be exercisable into 625,000 shares of common stock.
Pursuant to the purchase agreement agreed to in December 1998, we also expect to
issue a total of $7,500,000 face amount of series B debentures and $7,500,000 of
series B warrants in the second quarter of 1999. The series B debentures will be
convertible into 750,000 shares of common stock and the series B warrants will
be exercisable into 625,000 shares of common stock on their date of issuance if
no adjustments in the conversion or exercise prices have occurred before that
date. The number of shares could prove to be significantly greater, and you
would be increasingly diluted, in the event that the conversion or exercise
prices are reduced because we:
- have a rights offering, or a similar offering of securities to all
investors, at less than the conversion or exercise price per share
respectively; or
- issue common stock or securities convertible into common stock, other
than related to our option plans or in connection with a strategic joint
venture, at a price less than the conversion price per share.
Although the shares issuable upon conversion of the series A debentures and
exercise of the series A warrants were registered and declared eligible for
resale as of May 4, 1999, the shares issuable upon conversion of the series B
debentures and exercise of the series B warrants are not registered and will not
be freely tradable in the public market until the series B securities are issued
and the underlying shares are registered.
In connection with the acquisition of Roslin, we issued 1,891,371 shares of
our common stock in exchange for all the outstanding shares of Roslin and have
assumed Roslin's fully vested options, which when exercised would amount to
208,629 shares of our common stock. We are contractually required to file a
registration statement on Form S-3 within 120 days following May 3, 1999
covering the registration of these shares for resale. Of the 2,100,000 total
shares issued and issuable to Roslin shareholders, 860,000 shares are held in
escrow. Subject to claims against the shares held in escrow, 545,000 of these
shares will be released from escrow to the former Roslin stockholders in
November 1999 and the remaining 315,000 shares will be released from escrow to
the former Roslin stockholders in May 2000. Pursuant to agreements finalized
with two separate entities subsequent to March 31, 1999, we have also agreed to
issue and register for resale 195,000 shares of our common stock. Upon their
registration, these shares will also be eligible for sale and freely
transferable in the public market.
Additionally, one of our current strategic partners and shareholders,
Pharmacia & Upjohn, has contractually agreed not to sell the 696,787 shares of
common stock that it holds until April 2000, at which time these shares will be
eligible for sale and freely transferable in the public market. As of March 31,
1999, we have 3,452 outstanding shares of our Series A Convertible preferred. In
April 1999, we redeemed 702 shares of our series A convertible preferred stock
from one institutional investor by paying $748,000. We plan to redeem the
remaining 2,750 shares of our series A convertible preferred stock in May 1999.
In order for these shares to be converted, we would have to seek and obtain
stockholder approval for the transaction or receive a waiver from the National
Association of Securities Dealers, and we do not expect to pursue either course
of action at this time.
Current holders of our common stock will also be immediately and
substantially diluted to the extent that the weighted average conversion and
exercise price of the above-described convertible and exercisable securities is
less than the price of our common stock on the date holders of these securities
convert or exercise their convertible or exercisable securities.
OUR STOCK PRICE MAY BE ADVERSELY IMPACTED AS A RESULT OF THE ACQUISITION OF
ROSLIN OR THE RESEARCH COLLABORATION WITH THE ROSLIN INSTITUTE IF WE ARE UNABLE
TO ACHIEVE THE PERCEIVED BENEFITS OF THE TRANSACTIONS
The market price of our common stock may decline as a result of the
acquisition of Roslin or the research collaboration with the Roslin Institute if
the integration of Roslin into our operations is unsuccessful or if the
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<PAGE> 25
combined company or the research collaboration does not achieve the perceived
benefits as rapidly or to the extent anticipated.
OUR STOCK PRICE HAS HISTORICALLY BEEN VERY VOLATILE, WHICH MAY MAKE IT MORE
DIFFICULT FOR YOU TO RESELL SHARES WHEN YOU WANT AT PRICES YOU FIND ATTRACTIVE
Stock prices and trading volumes for many biopharmaceutical companies
fluctuate widely for a number of reasons, including some reasons which may be
unrelated to their businesses or results of operations. This market volatility,
as well as general domestic or international economic, market and political
conditions, could materially and adversely affect the market price of our common
stock and your return on your investment.
Historically, our stock price has been extremely volatile. Between January
1998 and March 1999, our stock price traded as high as $24.50 per share and as
low as $3.50 per share. The significant market price fluctuations of our common
stock are due to a variety of factors, including:
- depth of the market for the common stock;
- the experimental nature of our prospective products;
- fluctuations in our operating results;
- market conditions relating to the biopharmaceutical and pharmaceutical
industries;
- any announcements of technological innovations, new commercial products
or clinical progress or lack thereof by us, our collaborative partners or
our competitors; or
- announcements concerning regulatory developments, developments with
respect to proprietary rights and our collaborations.
In addition, the stock market is subject to other factors outside our
control that can cause extreme price and volume fluctuations. Securities class
action litigation has often been brought against companies, including many
biotechnology companies, which then experience volatility in the market price of
their securities. Litigation brought against us could result in substantial
costs and a diversion of management's attention and resources, which could
adversely affect our business.
OUR UNDESIGNATED PREFERRED STOCK MAY INHIBIT POTENTIAL ACQUISITION BIDS;
THIS MAY ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK AND THE VOTING
RIGHTS OF THE HOLDERS OF COMMON STOCK
Our certificate of incorporation provides our Board of Directors with the
authority to issue up to 3,000,000 shares of undesignated preferred stock and to
determine the rights, preferences, privileges and restrictions of these shares
without further vote or action by the stockholders. In March 1998, the Board of
Directors designated 15,000 shares as series A preferred stock. As of March 31,
1999, the Board of Directors still has authority to designate and issue up to
2,985,000 shares of preferred stock. The rights of the holders of common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of shares
of preferred stock may delay or prevent a change in control transaction without
further action by our stockholders. As a result, the market price of our common
stock may be adversely affected. The issuance of preferred stock may also result
in the loss of voting control by others.
PROVISIONS IN OUR CHARTER AND BYLAWS, AND PROVISIONS OF DELAWARE LAW, MAY
INHIBIT POTENTIAL ACQUISITION BIDS FOR US, WHICH MAY PREVENT HOLDERS OF OUR
COMMON STOCK FROM BENEFITING FROM WHAT THEY BELIEVE MAY BE THE POSITIVE ASPECTS
OF ACQUISITIONS AND TAKEOVERS
In addition to the undesignated preferred stock, provisions of our charter
documents and bylaws may make it substantially more difficult for a third party
to acquire control of us and may prevent changes in our management, including
provisions that:
- prevent stockholders from taking actions by written consent;
- divide the board of directors into separate classes with terms of office
that are structured to prevent all of the directors from being elected in
any one year; and
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<PAGE> 26
- set forth procedures for nominating directors and submitting proposals
for consideration at stockholders' meetings.
Provisions of Delaware law may also inhibit potential acquisition bids for
us or prevent us from engaging in business combinations.
Either collectively or individually, these provisions may prevent holders
of our common stock from benefiting from what they may believe are the positive
aspects of acquisitions and takeovers, including the potential realization of a
higher rate of return on their investment from these types of transactions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about Geron's market risk disclosures contains
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates and foreign currency exchange rates. We do
not use derivative financial instruments for speculative or trading purposes.
Interest Rate Sensitivity. The fair value of Geron's investments in
marketable securities at March 31, 1999 was $28.4 million. Our investment policy
is to manage our marketable securities portfolio to preserve principal and
liquidity while maximizing the return on the investment portfolio through the
full investment of available funds. We diversify the marketable securities
portfolio by investing in multiple types of investment grade securities. We
primarily invest our marketable securities portfolio in short-term securities
with at least an investment grade rating to minimize interest rate and credit
risk as well as to provide for an immediate source of funds. Although changes in
interest rates may affect the fair value of the marketable securities portfolio
and cause unrealized gains or losses, such gains or losses would not be realized
unless the investments are sold.
Foreign Currency Exchange Risk. We participate in transactions primarily in
the United States and, to a lesser extent, in Europe and elsewhere throughout
the world. As a result, our financial results could be affected by various
factors, including changes in foreign currency exchange rates or weak economic
conditions in foreign markets. All transactions are currently made in U.S.
dollars. However, more frequents transactions in the future may be in pound
sterling. A weakening of the dollar or strengthening of the pound sterling could
make our transactions more costly.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
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<PAGE> 27
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.
GERON CORPORATION
By: /s/ RONALD W. EASTMAN
------------------------------------
Ronald W. Eastman
President and Chief Executive
Officer
(Duly Authorized Signatory)
Date: May 14, 1999
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<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER- -----------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,379
<SECURITIES> 12,073
<RECEIVABLES> 781
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,805
<PP&E> 8,642
<DEPRECIATION> (5,090)
<TOTAL-ASSETS> 42,298
<CURRENT-LIABILITIES> 3,838
<BONDS> 0
3,661
0
<COMMON> 14
<OTHER-SE> 26,054
<TOTAL-LIABILITY-AND-EQUITY> 42,298
<SALES> 0
<TOTAL-REVENUES> 1,495
<CGS> 0
<TOTAL-COSTS> (5,368)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (146)
<INCOME-PRETAX> (3,394)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,394)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,394)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
