<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------
FORM 10-Q
----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO __________ .
COMMISSION FILE NUMBER: 0-20859
----------------
GERON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2287752
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
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.
<TABLE>
<S> <C>
Class: Common Stock $0.001 par value Outstanding at November 11, 1999: 16,788,293
</TABLE>
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<PAGE> 2
GERON CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1: Financial Statements..................................................... 3
Condensed Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998........................................................ 3
Condensed Consolidated Statements of Operations for the three and
nine months ended September 30, 1999 and 1998............................ 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 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............... 27
PART II. OTHER INFORMATION
Item 1: Legal Proceedings........................................................ 27
Item 2: Changes In Securities and Use of Proceeds................................ 27
Item 3: Defaults upon Senior Securities.......................................... 27
Item 4: Submission of Matters to a Vote of Security Holders...................... 27
Item 5: Other Information........................................................ 27
Item 6: Exhibits and Reports on Form 8-K......................................... 28
SIGNATURES ......................................................................... 28
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GERON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .............. $ 27,794 $ 16,360
Short-term investments ................. 13,904 8,109
Interest and other receivables ......... 599 661
Other current assets ................... 601 685
--------- --------
Total current assets ........... 42,898 25,815
Long-term investments .................... 4,759 15,954
Property and equipment, net .............. 3,948 2,336
Intangibles .............................. 15,993 --
Deposits and other assets ................ 625 351
--------- --------
$ 68,223 $ 44,456
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................... $ 546 $ 1,184
Accrued liabilities .................... 3,521 1,220
Current portion of accrued research
funding commitment ................... 1,515 --
Deferred revenue ....................... -- 244
Current portion of capital lease
obligations and equipment loans ...... 1,170 906
--------- --------
Total current liabilities ...... 6,752 3,554
Noncurrent portion of capital lease
obligations and equipment loans ...... 1,980 1,300
Accrued research funding commitment ...... 14,322 --
Convertible debentures ................... 19,851 6,801
Commitments
Redeemable convertible preferred stock ... -- 3,610
Stockholders' equity:
Common stock ............................. 15 13
Additional paid-in-capital ............... 121,308 88,055
Notes receivable from stockholders ....... (60) (4)
Deferred compensation .................... (986) (1,383)
Accumulated deficit ...................... (94,910) (57,520)
Accumulated other comprehensive
(loss)/income ........................ (119) 30
Cumulative translation adjustment ........ 70 --
--------- --------
Total stockholders' equity ..... 25,318 29,191
--------- --------
$ 68,223 $ 44,456
========= ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues from collaborative agreements ....... $ 1,250 $ 1,494 $ 3,994 $ 5,212
License fees and royalties ................... 26 34 123 76
----------- ----------- ----------- -----------
Total revenues .......................... 1,276 1,528 4,117 5,288
Operating expenses:
Research and development ................... 7,028 3,839 15,973 11,272
Acquired research technology ............... -- -- 23,403 --
General and administrative ................. 1,210 994 3,572 2,814
----------- ----------- ----------- -----------
Total operating expenses ................ 8,238 4,833 42,948 14,086
----------- ----------- ----------- -----------
Loss from operations ......................... (6,962) (3,305) (38,831) (8,798)
Interest and other income .................... 782 627 2,435 1,994
Interest and other expense ................... (760) (83) (1,887) (249)
----------- ----------- ----------- -----------
Net loss ..................................... $ (6,940) $ (2,761) $ (38,283) $ (7,053)
Accretion of redemption value of redeemable
convertible preferred stock ................. -- -- (73) --
----------- ----------- ----------- -----------
Net loss applicable to common stockholders.... $ (6,940) $ (2,761) $ (38,356) $ (7,053)
=========== =========== =========== ===========
Basic and diluted net loss per share ......... $ (0.42) $ (0.25) $ (2.55) $ (0.63)
=========== =========== =========== ===========
Weighted average shares used in
computing basic and diluted net loss
per share ................................... 16,499,403 11,236,561 15,043,967 11,125,258
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
GERON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CHANGE IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $(38,283) $ (7,053)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ........................ 1,038 811
Interest from convertible debentures ................. 1,131 --
Issuance of common and preferred stock in
exchange for services rendered ...................... 1,392 434
Issuance of common stock in acquisition for
purchased research .................................. 24,838 --
Deferred compensation ................................ 398 217
Changes in assets and liabilities:
Other current and noncurrent assets .................. 1,066 466
Other current and noncurrent liabilities ............. 562 (577)
Translation adjustment ............................... 207 --
-------- --------
Net cash used in operating activities ..................... (7,651) (5,702)
Cash flows from investing activities:
Capital expenditures .................................... (2,487) (516)
Purchases of securities available-for-sale .............. (12,864) (25,119)
Proceeds from sales/calls of securities
available-for-sale .................................... 2,004 --
Proceeds from maturities of securities
available-for-sale .................................... 16,111 14,465
Accrued research funding payments ....................... (1,538) --
-------- --------
Net cash provided by (used in) investing activities ....... 1,226 (11,170)
Cash flows from financing activities:
Proceeds from equipment loans ........................... 1,907 498
Payments of obligations under capital leases and
equipment loans ....................................... (963) (826)
Redemption of preferred stock ........................... (3,683) --
Proceeds from issuance of common and preferred
stock, net ............................................ 598 19,282
Proceeds from issuance of debentures .................... 20,000 --
-------- --------
Net cash provided by financing activities ................. 17,859 18,954
-------- --------
Net increase in cash and cash equivalents ................. 11,434 2,082
Cash and cash equivalents at the beginning of the
period ................................................... 16,360 4,122
-------- --------
Cash and cash equivalents at the end of the period ........ $ 27,794 $ 6,204
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated unaudited balance sheet as of
September 30, 1999 and condensed consolidated statements of operations for the
three and nine month periods ended September 30, 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 and nine month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999 or any other period. 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.
The consolidated financial statements include the accounts of Geron
Corporation, and its wholly owned subsidiary, Geron Bio-Med Ltd., a company
organized under the laws of the United Kingdom. All material intercompany
accounts, transactions, and expenses have been eliminated in consolidation.
The financial statements of the Company's subsidiary outside the United
States are measured using the local currency as the functional currency. Assets
and liabilities of this subsidiary are translated at the rates of exchange at
the balance sheet date. The resultant translation adjustments are included in
the cumulative translation adjustment, a separate component of stockholders'
equity. Income and expense items are translated at average monthly rates of
exchange.
Certain reclassifications of prior year amounts have been made to
conform to current year presentation.
Net Loss Per Share
Basic earnings (loss) per share is calculated using the weighted average
number of common shares outstanding. Because the Company is in a net loss
position, diluted earnings per share is also calculated using the weighted
average number of common shares outstanding and excludes the effects of options,
warrants and convertible securities which are antidilutive. Had the Company been
in a net income position, diluted earnings per share would have included the
shares used in the computation of basic net loss per share as well as an
additional 1,334,937 and 1,359,846 shares for 1999 and 1998, respectively,
related to outstanding options and warrants not included above (as determined
using the treasury stock method at the estimated average market value).
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 September 30, 1999, the Company's
investments consisted primarily of corporate notes with maturities ranging from
three to 16 months.
3. CONVERTIBLE DEBENTURES
SERIES A AND B DEBENTURES AND WARRANTS
On December 10, 1998, the Company entered into an agreement to sell
$15.0 million in convertible zero coupon debentures and warrants to purchase
1,250,000 shares of Common Stock to investment funds managed by three
institutional investors. The debentures are convertible at any time by the
holders at a fixed conversion price of
6
<PAGE> 7
$10.00 per share. One-half of the proceeds were funded upon signing the
agreement, at which time $7.5 million of series A convertible debentures and
warrants to purchase 625,000 shares of Common Stock were issued. 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. The
warrants are exercisable at $12.00 per share at any time through June 2000. The
proceeds of $7.5 million from the issuance of the series A convertible
debentures and warrants were allocated between the series A convertible
debentures and the warrants as follows: $6.8 million to the debentures and
$719,000 to the warrants. The series A convertible debentures, which were
recorded at a discount, are being accreted to the redemption amount over the
three year term using the interest method.
During the third quarter of 1999, an aggregate principal amount of
$500,000 of series A convertible debentures were issued into 50,000 shares of
Geron Common Stock at $10.00 per share. As of September 30, 1999, $2.5 million
of series A convertible debentures and warrants to purchase 625,000 shares of
Common Stock remained outstanding.
In June 1999, $7.5 million of series B convertible debentures and
warrants to purchase 625,000 shares of Common Stock were sold under the
agreement entered into in December 1998. The price and terms of the series B
convertible debentures were identical to the series A convertible debentures. In
connection with the issuance of the series B convertible debentures and
warrants, the Company recorded approximately $562,500 in interest expense for
the difference between the fair value of the Common Stock on the date of signing
and the conversion price of the debentures. The warrants are exercisable at
$12.00 per share at any time through November 2000. The $7.5 million proceeds
from the series B convertible debentures and warrants were allocated between the
series B convertible debentures and the warrants as follows: $6.8 million to the
debentures and $719,000 to the warrants. The series B convertible debentures,
which were recorded at a discount, are being accreted to the redemption amount
over the three year term using the interest method.
During the third quarter of 1999, an aggregate principal amount of $2.0
million of series B convertible debentures were converted into 200,000 shares of
Geron Common Stock at $10.00 per share. As of September 30, 1999, $5.5 million
of series B convertible debentures and warrants to purchase 625,000 shares of
Common Stock remained outstanding.
SERIES C DEBENTURES AND WARRANTS
On September 30, 1999, the Company sold $12.5 million in series C
convertible two-percent coupon debentures and warrants to purchase 1,100,000
shares of Common Stock to an institutional investor. The debentures are
convertible at any time by the holder at a fixed conversion price of $10.25 per
share. The debentures convert at the Company's option when the Common Stock has
traded at a certain premium to the fixed conversion price for ten consecutive
trading days.
The warrants to purchase 1,000,000 shares of Common Stock are
exercisable at $12.50 per share and the warrants to purchase 100,000 shares of
Common Stock are exercisable at $12.75 per share. The warrants are exercisable
for Common Stock at the option of the holder until the earlier of (i) 540 days
after our authorized Common Stock is duly increased by at least 1,710,381 shares
or (ii) September 21, 2001.
As of the date of issuance of the series C convertible debentures, the
Company did not have sufficient authorized common shares to permit the holder to
fully convert the series C debentures and exercise the warrants. The Company has
agreed to request stockholder approval by March 31, 2000 of an increase in its
authorized common shares to allow for the full conversion of the series C
debentures and exercise of the series C warrants. In the event the Company does
not obtain stockholder approval prior to March 31, 2000, the Company will be in
default under the debenture and will be obligated to redeem the debentures at
the request of the series C convertible debenture holders at the greater of 115%
of the principal amount of the debentures or an amount equal to the fair value
of the common stock such debentures would have converted into plus expenses. As
of September 30, 1999, the redemption amount would be $14,375,000. The
debentures will be accreted to the redemption amount over the period from
September 30, 1999 to March 31, 2000 using the interest method. However, if the
Company obtains stockholder approval prior to March 31, 2000 of a sufficient
increase in its authorized common shares to allow for the full conversion of the
debentures and exercise of the warrants, no additional amounts will be accreted
after the date at which the approval is obtained.
7
<PAGE> 8
On the date of issuance of the debentures, the Company recorded
approximately $305,000 in interest expense for the difference between the fair
value of the Company's Common Stock on September 30, 1999 and the conversion
price of the debentures. The value of the warrants was determined to be
$1,265,000. The Company will not record the value of the warrants until the
authorization of additional shares is obtained. At that time, consistent with
the provisions of EITF 98-5, which is effective for transactions occurring after
May 20, 1999, the Company will record the value of the warrants as a credit to
additional paid-in-capital and the offsetting debit will be recorded to interest
expense.
4. 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 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.
5. UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated statement of operations data for
the nine months ended September 30, 1999 set forth below gives effect to the
acquisition of Roslin Bio-Med Ltd. as if it occurred on January 1, 1999. The
unaudited pro forma consolidated statement of operations data for the nine
months ended September 30, 1998 set forth below gives effect to the acquisition
of Roslin Bio-Med Ltd. as if it occurred on January 1, 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues ........................................... $ 4,117 $ 5,288
Net loss ........................................... $(41,869) $(34,359)
Basic and diluted net loss per share ............... $ (2.62) $ (2.63)
</TABLE>
6. CONSOLIDATED STATEMENT OF CASH FLOW DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS) SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Supplementary investing and financing activities
Common stock issued under purchase plan ............ $ 105 $ 75
Notes receivable from stockholders ................. $ (59) $ --
Valuation of warrants issued with convertible
debentures ...................................... $ 719 $ --
Accretion of premium on convertible preferred
stock ........................................... $ 73 $ --
Accrued research funding commitment ................ $17,187 $ --
Conversion of convertible debentures, net .......... $ 6,555 $ --
Net unrealized gain (loss) on
available-for-sale securities ................... $ (149) $(43)
</TABLE>
8
<PAGE> 9
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. We use words such as "anticipate", "believe", "plan",
"expect", "future", "intend" 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 Corporation (the "Company" or "Geron") is a biopharmaceutical
company focusing on discovering, developing and commercializing therapeutic and
diagnostic products to treat cancer and other age-related chronic degenerative
diseases. Geron's technology platform includes the discovery of small molecule
inhibitors of telomerase for cancer therapy; telomere and telomerase-based
research and diagnostic tools; telomerase activation to extend the replicative
lifespan of normal cells; and complementary stem cell, gene therapy and nuclear
transfer approaches to restore the function of degenerating organs.
On September 30, 1999, the Company sold $12.5 million in series C
convertible two-percent coupon debentures and warrants to purchase 1,100,000
shares of Common Stock to an institutional investor. The debentures are
convertible at any time by the holder at a fixed conversion price of $10.25 per
share. The debentures convert at the Company's option when the Common Stock has
traded at a certain premium to the fixed conversion price for ten consecutive
trading days. The warrants to purchase 1,000,000 shares of Common Stock are
exercisable at $12.50 per share and the warrants to purchase 100,000 shares of
Common Stock are exercisable at $12.75 per share. The warrants are exercisable
for Common Stock at the option of the holder until the earlier of (i) 540 days
after our authorized Common Stock is duly increased by at least 1,710,381 shares
or (ii) September 21, 2001. As of the date of issuance of the series C
convertible debentures and warrants, the Company did not have sufficient
authorized common shares to allow for the series C debenture holder to fully
convert the series C debentures and exercise the warrants. The Company has
agreed to request stockholder approval by March 31, 2000 of an increase in its
authorized common shares to allow for the full conversion of the series C
debentures and exercise of the series C warrants.
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
<PAGE> 10
RESULTS OF OPERATIONS
REVENUES
Contract revenues were $1.3 million and $4.0 million for the three and
nine months ended September 30, 1999, respectively, compared to $1.5 million and
$5.2 million for the comparable periods in 1998. 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 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 in accordance with the terms of the Kyowa Hakko Agreement. 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. Royalties of $26,000
and $83,000, for the three and nine months ended September 30, 1999,
respectively, were received from licensees, including Kyowa Medex Co., Ltd,
Intergen and PharMingen (a Becton Dickinson company) on the sale of diagnostic
kits to the research-use-only market, compared to $34,000 and $76,000 for the
comparable periods in 1998. License fees of none and $50,000 were received for
the three and nine months ended September 30, 1999. No license fees were
received for the comparable periods in 1998.
RESEARCH AND DEVELOPMENT EXPENSES AND ACQUIRED RESEARCH EXPENSES
Research and development expenses were $7.0 million and $16.0 million
for the three and nine months ended September 30, 1999, respectively, compared
to $3.8 million and $11.3 million for the comparable periods in 1998. The
increase in research and development expenses in the 1999 periods from the
comparable 1998 periods reflected an increase in scientific headcount associated
with the continued development of the Company's research programs. The Company
expects research and development expense to increase in the future as a result
of increasing development of its research programs toward products.
Acquired research expenses were the result of the acquisition of Roslin
Bio-Med. The acquisition was accounted using the purchase method of accounting.
The purchase price was allocated among the acquired basic research in the form
of a license in the nuclear transfer technology, the research agreement with the
Roslin Institute and the net tangible assets of Roslin Bio-Med. The value of the
nuclear transfer technology of $23.4 million has been reflected as acquired
research expense and the value of the research agreement of $17.2 million has
been capitalized as an intangible asset which is being amortized using the
interest method over six years. The total purchase price of $44.4 million also
included acquisition costs of $2.9 million.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $1.2 million and $3.6 million
for the three and nine months ended September 30, 1999, respectively, compared
to $994,000 and $2.8 million for the comparable periods in 1998. The increase in
general and administrative expenses in 1999 from 1998 was due to the addition of
administrative personnel in Scotland as a result of the acquisition of Roslin
Bio-Med. The Company expects that general and administrative expenses will
increase in the future as it continues to integrate its new overseas operations.
INTEREST AND OTHER INCOME
Interest income was $506,000 and $1.6 million for the three and nine
months ended September 30, 1999, respectively, compared to $532,000 and $1.4
million for the comparable periods in 1998. The overall increase in interest
income is due to higher cash balances in 1999 than 1998 as a result of the
Company acquiring approximately $4.0 million of cash from Roslin Bio-Med and the
sale of debentures in December 1998, June 1999 and September 1999. Interest
earned in the future will depend on the Company's funding cycles and prevailing
interest rates. The Company also received $276,000 and $846,000 in research
payments under government grants for the three and nine months ended September
30, 1999, respectively, compared to $95,000 and $572,000 for the comparable
periods in 1998. The Company does not expect income from government grants to be
significant in the foreseeable future.
10
<PAGE> 11
INTEREST AND OTHER EXPENSE
Interest and other expense was $760,000 and $1.9 million for the three
and nine months ended September 30, 1999, respectively, compared to $83,000 and
$249,000 for the comparable periods in 1998. In connection with the issuance of
the series C convertible debentures, the Company recorded approximately $305,000
in interest expense in September 1999 for the difference between the fair value
of the Common Stock on the date of signing and the conversion price of the
debentures. In addition, the Company is accreting the value of the warrants
issued with series A and B debentures to the redemption value of the debentures
using the interest method.
The value of the series C warrants was determined to be $1,265,000. The
Company will not record the value of the warrants until the authorization of
additional shares is obtained. At that time, consistent with the provisions of
EITF 98-5, which is effective for transactions occurring after May 20, 1999, the
Company will record the value of the warrant as a credit to additional
paid-in-capital and the offsetting debit will be recorded to interest expense.
In addition, the Company will accrete the series C debentures to the redemption
amount from September 30, 1999 to March 31, 2000 using the interest method. The
Company expects interest and other expense to increase in the future as a result
of debenture financings.
NET LOSS
Net loss was $6.9 million and $38.3 million for the three and nine
months ended September 30, 1999, respectively, compared to $2.8 million and $7.1
million for the comparable periods in 1998. The increase for the three months
ended September 30, 1999 was primarily due to the additional research funding to
the Roslin Institute as well as the operations of Geron's new subsidiary in
Scotland. The increase for the nine months ended September 30, 1999, was mainly
the result of the acquired research from Roslin Bio-Med of approximately $23.4
million. Excluding the effect of the expense of the Roslin Bio-Med purchase, the
Company continues to expect net loss to increase from the current levels as it
continues to develop its internal and external programs.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and investments at September 30, 1999 were $46.5
million compared to $40.4 million at December 31, 1998. The increase in cash,
cash equivalents and investments in the nine months ended September 30, 1999 was
the net result of sale of the series B and C convertible debentures and
warrants, the redemption of the remaining shares of the series A Preferred Stock
and the costs incurred for the acquisition of Roslin Bio-Med. 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 $7.7 million for the nine
months ended September 30, 1999 compared to $5.7 million for the comparable
period in 1998. The increase resulted primarily from a higher net loss
recognized in 1999 as a result of the acquisition of Roslin Bio-Med.
For the nine months ended September 30, 1999, additions of equipment and
leasehold improvements totaled approximately $2.5 million, most of which were
financed through equipment financing arrangements. Minimum annual payments due
under the equipment financing facility are expected to total $1.2 million, $1.2
million, $848,000, $720,000 and $132,000 in 1999, 2000, 2001, 2002 and 2003,
respectively. As of September 30, 1999, the Company had approximately $796,000
available for borrowing under its equipment financing facility. The drawdown
period under the equipment financing facility expires on August 31, 2000.
The Company maintains agreements with academic and research institutions
to fund certain scientific research. Minimum annual payments due under these
agreements, other than the Roslin Institute, are expected to total approximately
$1.6 million and $405,000 in 1999 and 2000, respectively. As of September 30,
1999, the Company has made payments of approximately $1.3 million to academic
and research institutions, excluding the Roslin Institute. In May 1999, the
Company formed a research collaboration with the Roslin Institute and has
committed approximately $20.5 million in research funding over the next six
years to be paid in installments of approximately $580,000 per quarter. As of
September 30, 1999, the Company has paid approximately $1.5 million to the
Roslin Institute.
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On September 30, 1999, the Company sold $12.5 million in series C
convertible two-percent coupon debentures and warrants to purchase 1,100,000
shares of Common Stock to an institutional investor. The debentures are
convertible at any time by the holder at a fixed conversion price of $10.25 per
share. The debentures convert at the Company's option when the Common Stock has
traded at a certain premium to the fixed conversion price for ten consecutive
trading days.
The warrants to purchase 1,000,000 shares of Common Stock are
exercisable at $12.50 per share and the warrants to purchase 100,000 shares of
Common Stock are exercisable at $12.75 per share. The warrants are exercisable
for Common Stock at the option of the holder until the earlier of (i) 540 days
after our authorized Common Stock is duly increased by at least 1,710,381 shares
or (ii) September 21, 2001.
As of the date of issuance of the series C convertible debentures and
warrants, the Company did not have sufficient authorized common shares to permit
the holder to fully convert the series C debentures and exercise the warrants.
The Company has agreed to request stockholder approval by March 31, 2000 of an
increase in its authorized common shares to allow for the full conversion of the
series C debentures and exercise of the series C warrants. In the event the
Company does not obtain stockholder approval prior to March 31, 2000, the
Company will be in default under the debentures and will be obligated to redeem
the debentures at the request of the series C convertible debenture holders at
the greater of 115% of the principal amount of the debentures or an amount equal
to the fair value of the common stock such debentures would have converted into
plus expenses. As of September 30, 1999, the redemption amount would be
$14,375,000. The debentures will be accreted to the redemption amount over the
period from September 30, 1999 to March 31, 2000 using the interest method.
However, if the Company obtains stockholder approval prior to March 31, 2000 of
a sufficient increase in its authorized common shares to allow for the full
conversion of the debentures and exercise of the warrants, no additional amounts
will be accreted after the date at which the approval is obtained.
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 financings, or other
financing sources.
The Company estimates that its existing capital resources, payments
under the Pharmacia & Upjohn collaborative agreement, interest income and
equipment financing will be sufficient to fund its current level of operations
to the end of the second quarter of 2001. 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.
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.
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Based on its assessment, the Company determined that it was 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 included 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 completed 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 included the estimated
costs and time associated with the impact of third party Year 2000 issues and
was 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 utilized both internal and external resources to replace and
test software for Year 2000 modifications. All of the Company's Year 2000 (Y2K)
scheduled work is complete. The Y2K project phases included: (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. The Company believes that with
the completed modifications, the Y2K issue will not pose significant operational
problems for its computer systems and equipment. However, even with such
modifications and conversions, 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 was estimated at $200,000 and
was funded through current cash holdings. Of the total project cost,
approximately $100,000 was attributable to the purchase of new software and
equipment, which was capitalized. The remaining $100,000, which was expensed as
incurred, did not have a material effect on the Company's results of operations.
To date, the Company has incurred approximately $200,000 ($100,000 capitalized
for new systems and $100,000 expensed), related to the assessment of, and
efforts on, its year 2000 project.
The costs of the project was 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 additional costs may be
incurred after the Year 2000.
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.
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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 Form 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 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. We have yet to identify any lead compounds that have been
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demonstrated to modulate gene expression in human cells and we cannot guarantee
that we will be able to discover or develop the necessary compound.
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 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. Our research collaboration with the Roslin Institute focuses 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 its 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. As of September 30, 1999, our accumulated deficit was
approximately $94.9 million. 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.
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
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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.
UNEXPECTED COSTS AND OTHER DIFFICULTIES ARISING FROM OUR ACQUISITION OF ROSLIN
BIO-MED LTD. AND SIMULTANEOUS RESEARCH COLLABORATION WITH THE ROSLIN INSTITUTE
MAY DRAIN HUMAN AND FINANCIAL RESOURCES, OR OTHERWISE NEGATIVELY AFFECT OUR
OPERATIONS
In May 1999, we acquired Roslin Bio-Med, a private company located in
Scotland which was established by the Roslin Institute to develop nuclear
transfer technology. Our acquisition of Roslin Bio-Med and formation of a
research collaboration with the Roslin Institute have expanded the scope of our
business and operations. 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 Bio-Med'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 and negatively impact
our research activities and results of operations.
In addition, our agreement with the Roslin Institute obligates us to
provide approximately $21 million in development funding. If we are unable to
fulfill this significant obligation, the Roslin Institute could terminate the
agreement and we would lose our rights to the technology.
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THE ACQUISITION OF ROSLIN BIO-MED 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 Bio-Med 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
Bio-Med 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 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.
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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 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 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
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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 the
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 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.
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. We estimate that our existing capital
resources, payments under the Pharmacia & Upjohn collaborative agreement,
interest income and equipment financing will be sufficient to fund our current
level of operations through the second quarter of 2001. 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.
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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, human pluripotent
stem 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 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
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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 PLURIPOTENT STEM CELL
THERAPIES AND NUCLEAR TRANSFER PROGRAMS COULD PREVENT US FROM DEVELOPING OR
GAINING ACCEPTANCE FOR COMMERCIALLY VIABLE PRODUCTS IN THIS AREA
Our 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 use 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.
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 used in attempts to reproductively
clone living human beings, an application that we believe to be 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 stem cell 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 or tissue and may in the future regulate or
otherwise restrict its use. The 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.
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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 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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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 could significantly and negatively affect the market price for our
common stock. As of October 25, 1999, we had outstanding approximately
16,788,293 shares of common stock. As of October 25, 1999, we also had reserved
4,946,196 shares of common stock for issuance upon exercise of outstanding
warrants and options that we issued to our employees and other entities.
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In addition, the conversion of outstanding debentures and the exercise
of outstanding warrants would result in our issuance of a minimum of 4,369,512
additional shares of common stock in the aggregate. This 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 under our stock plans or in connection with a strategic
joint venture, at a price less than the conversion price per share.
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 any 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.
In connection with the acquisition of Roslin Bio-Med, we issued
2,100,000 shares of our common stock. We are contractually required to register
these shares for resale within 120 days following May 3, 1999. We have filed a
registration statement covering these shares. Of these shares 315,000 shares are
held in escrow. Subject to claims against the shares held in escrow, these
shares will be released from escrow to the former Roslin Bio-Med shareholders in
May 2000.
Pursuant to a professional services agreement, we have also agreed to
issue and register for resale an additional 75,000 shares of our common stock.
Further, in connection with a registration rights agreement with the holders of
series C debentures and warrants, we have agreed to register for resale an
aggregate of 2,899,390 shares of our common stock issuable upon conversion of
series C debentures and exercise of series C warrants, subject to adjustment
under certain circumstances. We anticipate this registration will occur in the
first quarter of 2000. The registration of all the shares described above will
cause them to be saleable in the public markets at the time of and following
registration, and could cause downward pressure on the market price of our
common stock. Additionally, one of our current strategic partners and
stockholders, 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.
COMPLIANCE WITH CERTAIN PROVISIONS OF OUR OUTSTANDING DEBENTURES ARE SUBJECT TO
OBTAINING APPROVAL OF OUR STOCKHOLDERS, WHICH IS OUTSIDE OUR CONTROL; FAILURE TO
OBTAIN SUCH APPROVALS COULD REQUIRE US TO REDEEM THE DEBENTURES
Currently, we do not have a sufficient number of authorized shares of
common stock to fulfill our reserve requirements under our series C debentures
and warrants. An increase in authorized capital would require the approval of
our stockholders to amend our certificate of incorporation. Our failure to do so
prior to March 31, 2000 would be an event of default under our series C
debentures and would require us to redeem the remaining unconverted debentures
at a 15% premium to their principal balance at such time. As of September 30,
1999, the redemption amount would be $14,375,000. We are accreting the debenture
value to the redemption amount over the period from September 30, 1999 to March
31, 2000 using the interest method. However, if we obtain stockholder approval
prior to March 31, 2000 to permit the full conversion of the debentures and
exercise of the warrants, no additional amounts will be accreted after the date
at which the approval is obtained.
In addition, under the rules of the Nasdaq Stock Market, we may not
issue shares upon conversion of the series A, B and C debentures in an aggregate
amount greater than 19.99 percent of the number of shares outstanding prior to
the issuance of the debentures without the prior approval of our stockholders.
If, as a result of an adjustment in the conversion price of any of the
debentures, we would be required to issue shares of our common stock in excess
of such limitation and have not obtained stockholder approval to do so, we would
be required to redeem the remaining debentures at a 15% premium to their
principal balance at such time. As of the date of this 10-Q, approximately $20.5
million aggregate principal amount of debentures is outstanding, including $12.5
million of series C debentures. Redemption of a significant amount of debentures
could deplete our cash reserves significantly.
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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 September 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, we
designated and issued 15,000 shares as series A preferred stock, all of which
have since been converted into common stock or redeemed. As of the date of this
Form 10-Q, 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
- 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.
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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.
YEAR 2000 PROBLEMS COULD AFFECT OUR DAY-TO-DAY OPERATIONS AND CAUSE SIGNIFICANT
ECONOMIC LIABILITIES
Potential year 2000 problems are the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
our 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 our assessment, we were required to modify or replace portions of
our software so that our computer systems will function properly with respect to
dates in the year 2000 and beyond. These software programs included our
accounting package and voicemail system. We presently believe that with
modifications to existing software and conversions to new software, potential
year 2000 problems will not pose significant operational problems for our
computer systems. However, even with these modifications and conversions,
potential year 2000 problems could have a significant and negative impact on our
operations.
We have completed formal communications with all of our significant
suppliers, service providers and corporate partners to determine the extent to
which our interface systems and other operations are vulnerable to those third
parties' failure to remediate their own year 2000 issues. Our total year 2000
project cost and estimated time to complete included the estimated costs and
time associated with the impact of third party year 2000 issues and was based on
presently available information. However, we cannot assure you that the systems
of other companies on which our systems rely will be upgraded or converted and
will not have an adverse effect on our systems. Such suppliers, service
providers and corporate partners include our payroll service provider, local
financial institutions and website maintenance organization.
The total cost of our year 2000 project was estimated at $200,000 and
was funded through current cash holdings. Of the total project cost,
approximately $100,000 was attributable to the purchase of new software and
equipment, which was capitalized. The remaining $100,000, which was expensed as
incurred, did not have a material effect on our results of operations. To date,
we have incurred approximately $200,000 ($100,000 capitalized for new systems
and $100,000 expensed), related to the assessment of, and efforts on, our year
2000 project.
Although we do not believe that we will incur any material costs or
experience material disruptions in our business associated with preparing our
internal systems for the year 2000, we cannot assure you that we will not
experience serious unanticipated negative consequences and/or material costs
caused by undetected errors or defects in the technology used in our internal
systems, which are composed of third party software and third party hardware
that contains embedded software. The most reasonably likely worst case scenarios
could include: (i) corruption of data contained in our internal information
systems, (ii) hardware failure, and (iii) the failure of infrastructure services
provided by government agencies and other third parties, such as electricity,
phone service, water, transport and Internet services.
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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 September 30, 1999 was $43.1 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 British
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
During the third quarter of 1999, an aggregate principal amount of
$500,000 series A convertible debentures converted into 50,000 shares of Common
Stock at $10.00 per share. An aggregate principal amount of $2.0 million of
series B convertible debentures converted into 200,000 shares of Common Stock at
$10.00 per share. These issuances were exempt from registration under the
Securities Act of 1933 pursuant to Section 3(a)(9) thereof as an exchange with
existing security holders.
On September 30, 1999, the Company sold $12.5 million in convertible
two-percent coupon convertible debentures and warrants to purchase 1,100,000
shares of Common Stock to an institutional investor. The debentures are
convertible at any time by the holder at a fixed conversion price of $10.25 per
share. The debentures convert at the Company's option when the Common Stock has
traded at a certain premium to the fixed conversion price for ten consecutive
trading days. The warrants to purchase 1,000,000 shares of Common Stock are
exercisable at $12.50 per share and the warrants to purchase 100,000 shares of
Common Stock are exercisable at $12.75 per share. These warrants are exercisable
for Common Stock at the option of the holder until the earlier of (i) 540 days
after our authorized Common Stock is duly increased by at least 1,710,381 shares
or (ii) September 21, 2001. The debentures and warrants were issued pursuant to
an exemption under the Securities Exchange Act of 1933 pursuant to Rule 506
thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1* License Agreement with Wisconsin Alumni Research Foundation
10.2* Option Agreement with Wisconsin Alumni Research Foundation
10.3* Amendment to the License Agreement with Wisconsin Alumni Research
Foundation
27.1 Financial Data Schedule
* Certain portions of this exhibit have been omitted for which
confidential treatment has been requested and filed separately with
the Securities and Exchange Commission.
(b) REPORTS ON FORM 8-K
(i) The Company filed a report on Form 8-K dated September 30, 1999
reporting the sale of convertible debentures and warrants.
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/ DAVID L. GREENWOOD
--------------------------------
David L. Greenwood
Senior Vice President and
Chief Financial Officer
(Duly Authorized Signatory)
Date: November 15, 1999
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.1* License Agreement with Wisconsin Alumni Research Foundation
10.2* Option Agreement with Wisconsin Alumni Research Foundation
10.3* Amendment to the License Agreement with Wisconsin Alumni Research Foundation
27.1 Financial Data Schedule
</TABLE>
* Certain portions of this exhibit have been omitted for which confidential
treatment has been requested and filed separately with the Securities and
Exchange Commission.
<PAGE> 1
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
Agreement No. 99-0027
LICENSE AGREEMENT
This Agreement is made effective the 23rd day of April, 1999, by and
between Wisconsin Alumni Research Foundation (hereinafter called "WARF"), a
nonstock, nonprofit Wisconsin corporation, and Geron Corporation (hereinafter
called "Geron"), a corporation organized and existing under the laws of
Delaware;
WHEREAS, WARF owns certain inventions that are described in the
"Licensed Patents" defined below;
WHEREAS, WARF and Geron had previously entered into a license agreement,
Agreement No. 95-0208 dated January 1, 1996, as amended on March 19, 1997 and
March 1, 1998, (the "Previous License");
WHEREAS, WARF and Geron desire to enter into this Agreement to clarify
and refine the agreement between the parties; and
WHEREAS, WARF and Geron agree that this Agreement shall supersede the
Previous License in its entirety.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, the parties covenant and agree as follows:
Section 1. Definitions.
For the purpose of this Agreement, the Appendix A definitions shall
apply.
Section 2. Grant.
A. License.
(i) WARF hereby grants to Geron an exclusive license,
limited to the Licensed Field and the Licensed Territory, under the Licensed
Patents to make, have made, develop, have developed, use, sell, offer for sale,
and import Products.
(ii) WARF hereby grants to Geron an exclusive license,
limited to the Licensed Field and the Licensed Territory, under the Licensed
Patents to make, have made, develop, have developed, use, sell, offer for sale,
and import Research Products.
(iii) WARF hereby grants to Geron a nonexclusive
license, limited to the Licensed Territory, to use the Licensed Patents for
internal research purposes. In the event that Geron identifies a research
collaborator that Geron desires to obtain Materials for research purposes, Geron
shall submit a written request to WARF asking that WARF arrange to transfer
Materials to such research collaborator. WARF shall then enter into negotiations
directly with such research collaborator using its standard Materials Transfer
Agreement for the Materials and shall arrange for transfer of the Materials
thereunder.
<PAGE> 2
B. Sublicenses.
(i) Geron may grant written sublicenses to third parties
under the exclusive licenses granted herein. Any agreement granting a sublicense
shall state that the sublicense is subject to the termination of this Agreement.
Geron shall require that its sublicensee(s) comply with all requirements of this
Agreement and Geron shall have the same responsibility for the activities of any
sublicensee as if the activities were directly those of Geron.
(ii) In respect to sublicenses granted by Geron under
this Section 2B, Geron shall pay to WARF an amount equal to what Geron would
have been required to pay to WARF had Geron sold the amount of Products sold by
such sublicensee. In addition, if Geron receives any fees, minimum royalties, or
other payments in consideration for any rights granted under a sublicense,
except for payments received by Geron upon achievement of the milestones set
forth in Section 4E (provided that Geron makes payment to WARF upon achievement
of such milestones pursuant to Section 4E), and such payments are not based
directly upon the amount or value of Products sold by the sublicensee, then
Geron shall pay WARF [...***...] percent ([...***...]%) of such payments in
the manner specified in Section 4F. WARF recognizes that dollars received from
sublicensees to fund research are not consideration for rights granted under the
sublicense and as such research funds are not subject to sharing with WARF
hereunder. However, Geron shall not receive from sublicensees anything of value
in lieu of cash payments in consideration for any sublicense under this
Agreement without the express prior written permission of WARF. Both parties
agree to act in good faith when negotiating the consideration to be paid for
sublicensing and when assessing whether such consideration is subject to sharing
with WARF under this Section 2B(ii).
C. First Option to Negotiate.
WARF hereby grants Geron the first option to negotiate an exclusive
license for addition of cell types to the Licensed Field. Geron may exercise its
option under this Section 2C by providing WARF with written notice of its desire
to add a cell type to the License Field including a Development Plan detailing
Geron's plan and timeline for bringing Products to market incorporating the new
cell type and by paying WARF an upfront license fee to be negotiated in good
faith between the parties factoring in commercially reasonable terms given the
advancement of cell therapy in therapeutics and diagnostics and the value added
by Geron. The terms of the exclusive license, other than the upfront license
fee, shall be identical to the terms set forth in this Agreement, unless
otherwise negotiated and agreed to by the parties. If the parties fail to agree
on an upfront license fee for an additional cell type, WARF agrees that it will
not offer such cell type to any third party on terms more favorable as a whole
to such licensee than were offered to Geron hereunder for a period of
[...***...] ([...***...]) months from the date Geron first exercised its option
to add a cell type to the Licensed Field. In the context of this Agreement,
"terms more favorable as a whole" shall mean that the combination of the
commercial terms, for example the license fee, royalty rate, milestones, minimum
royalties, and other fees required as consideration for the rights granted under
the license are not more favorable when taken together than the package offered
to Geron. The option to add cell types shall expire on [...***...] unless
extended for an additional period by written agreement on terms mutually
agreeable to the parties.
D. License to WARF.
To the extent permitted by applicable law, Geron hereby grants WARF (and
to the University of Wisconsin - Madison) a nonexclusive, royalty-free, paid-up
research license under any and all inventions hereafter made or acquired by
Geron to the extent any such inventions are Improvements. Such license
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[...***...] = MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
Page 2 of 17
<PAGE> 3
shall be nontransferable as long as Geron remains an existing and solvent entity
but may be transferable upon bankruptcy or dissolution of Geron other than in
the event of the sale of substantially all of Geron's assets pursuant to Section
8. "Improvements" shall mean any modification of an invention described in
Licensed Patents which, if unlicensed, would infringe one or more claims of the
Licensed Patents. Geron shall provide WARF with a written, enabling disclosure
of each such invention (such as a U.S. patent application), unambiguously
identifying it as an invention governed by this paragraph, within six (6) months
of filing a patent application thereon.
Section 3. Development Plans and Reporting
Geron must provide WARF with a broad development plan (see Appendix E)
outlining its general plan and timeline for developing Products in the Licensed
Field. In addition, Geron shall provide WARF with a specific development plan,
acceptable to WARF, including key milestones dates for submission of IND or
comparable filing to the United States Food and Drug Administration or its
foreign equivalent, date of NDA approval or comparable approval, and the
projected date of first commercial sale for Products related to each cell type
in the Licensed Field. Geron shall provide the development plan to WARF upon
execution of this Agreement. Furthermore, Geron agrees to and warrants that: it
has, or will obtain, the expertise necessary to independently evaluate the
inventions of the Licensed Patents; it will establish and actively and
diligently pursue the development plan to the end that the inventions of the
Licensed Patents will be utilized to provide Products for sale. Within one month
following the end of each calendar quarter ending on March 31, June 30,
September 30 and December 31 and until commercial sales of Products begin, Geron
will supply WARF with a written Development Report showing Geron's progress
toward bringing Products to market in the Licensed Field. All development
activities and strategies and all aspects of Product design and decisions to
market and the like are entirely at the discretion of Geron, and Geron shall
rely entirely on its own expertise with respect thereto. WARF's review of
Geron's development plan and Development Reports shall be considered
confidential information subject to the obligations set forth in Section 19
hereto and shall be solely to verify the existence of Geron's commitment to
development activity and to assure compliance with Geron's obligations to
utilize the inventions of the Licensed Patents to make Products available for
sale in the marketplace, as set forth above. WARF may within thirty (30) days of
its request, review all documentation and records relating to Geron's
development of the cell lines. Geron shall make such records available at a
single United States location. Such review may be performed by any employee of
WARF, or any agent designated by WARF. The parties recognize that the
development plans are likely to change as Geron's research and development of
Products advances; therefore, the parties agree to negotiate in good faith with
regard to any revisions to the development plans submitted to WARF. Failure to
meet key milestones for development of Products set forth in the development
plan shall be subject to review by WARF and may result in termination of the
license under Section 7D for any cell types Geron cannot demonstrate diligence
and commitment to developing.
Section 4. Consideration.
A. License Fee.
Geron agrees to pay to WARF a license fee comprised of $[...***...]
cash; 100,000 options, granted pursuant to Geron's 1994 Stock Option Plan, a
copy of which is attached hereto as Appendix F; provided that such options shall
have an exercise period of ten years and that the strike price of said options
shall be equal to the closing price of Geron stock as of the day prior to the
effective date of this Agreement; and 20,000 shares of common stock within
thirty (30) days after executing this Agreement as consideration for the
exclusive rights granted in the Licensed Field hereunder. In the event that WARF
is determined to be ineligible to participate in Geron's 1994 Stock Option Plan
by a governmental agency or
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TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
Page 3 of 17
<PAGE> 4
body, Geron agrees to replace such options with Shares of Geron's common stock
having the equivalent value of the options issued to WARF within thirty (30)
days of such determination. The value of the options shall be as of the date of
issuance to WARF hereunder using the Black-Scholes Model for valuation of such
options.
B. Extension of Patent Term.
Geron and WARF hereby agree that they will make all necessary filings
and provide all necessary documentation to allow WARF to apply for an extension
of the patent term for each of the Licensed Patents pursuant to 37 CFR 1.710 et
seq.
C. Filing of Foreign Applications.
(i) Geron agrees to pay to WARF patent reimbursement to
reimburse WARF for a portion of the costs associated with filing, prosecuting
and maintaining the Licensed Patents. Geron has paid some patent reimbursement
under the terms of the Previous License. However, Geron agrees to pay to WARF
patent reimbursement of $[...***...] per United States patent application within
thirty (30) days of adding a patent to Licensed Patents hereunder. In addition,
Geron shall notify WARF of which countries outside the United States Geron
desires foreign patent protection and Geron shall pay to WARF patent
reimbursement of $[...***...] per PCT application and $[...***...] per patent
application per country outside the United States upon nationalization from the
PCT application. WARF reserves the right to file and maintain foreign patent
applications in jurisdictions outside those requested by Geron at its own
expense; however, for any jurisdiction in which WARF files patent applications
without patent reimbursement from Geron, the exclusive license granted to Geron
under this Agreement shall be converted into a nonexclusive license subject to
all the terms of this Agreement.
(ii) WARF will prosecute all applications until WARF
determines that continued prosecution is unlikely to result in the issuance of a
patent in that country. WARF will timely provide copies of all patent
communications with the US Patent Office or its foreign counterpart to Geron and
allow Geron the opportunity to comment on the prosecution of the Licensed
Patents and patent applications. However, if WARF decides to abandon prosecution
of the application in a particular country, Geron shall be given notification
that WARF is terminating prosecution in that country. If Geron desires to
acquire rights in the application then WARF will cooperate with Geron as
reasonably requested by Geron to facilitate acquisition of such rights.
D. Royalty.
(i) Geron agrees to pay to WARF as "earned royalties" a
royalty calculated as a percentage of the Selling Price of Products in
accordance with the terms and conditions of this Agreement. The royalty is
deemed earned as of the earlier of the date the Product is actually sold and
paid for, the date an invoice is sent by Geron, or the date a Product is
transferred to a third party for any promotional reasons. The royalty shall
remain fixed while this Agreement is in effect at a rate of [...***...] percent
([...***...]%) of the Selling Price for Therapeutic Products and [...***...]
percent ([...***...]%) of the Selling Price for Diagnostic Products and Research
Products.
(ii) If Geron must make payments to one or more third
parties during any calendar year to obtain a license or similar right in the
absence of which Geron could not legally make, use or sell the Products or
Research Products, then Geron may deduct [...***...] percent ([...***...]%) of
such third party payments from royalties payable to WARF with respect to that
calendar year, provided that such deduction
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TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
Page 4 of 17
<PAGE> 5
does not exceed [...***...] percent ([...***...]%) of the royalties payable to
WARF under this Agreement during such calendar year.
E. Minimum Royalty and Milestone Payment.
(i) Geron agrees to pay to WARF a minimum royalty per
calendar year or part thereof during which this Agreement is in effect starting
in calendar year 2003, against which any earned royalty paid for the same
calendar year will be credited. The minimum royalty shall be $[...***...] in
2003, $[...***...] in 2004, $[...***...] in 2005 and in each calendar year
thereafter. The minimum royalty payment for a given year shall be due at the
time payments are due for the calendar quarter ending on December 31. It is
understood that the minimum royalties will apply on a calendar year basis, and
that sales of Products requiring the payment of earned royalties made during a
prior or subsequent calendar year shall have no effect on the annual minimum
royalty due WARF for any given calendar year.
(ii) Geron further agrees to pay to WARF milestone
payments as outlined below within thirty (30) days from the specified event set
forth below whether achieved by Geron or its sublicensee(s). These payments are
not creditable against running royalties or other payments due hereunder.
<TABLE>
<CAPTION>
EVENT CASH OPTIONS SHARES
<S> <C> <C> <C>
- --------------------------------------------------- -------------- ------------------------------- ---------------------
IND or comparable regulatory filing for the first $[...***...] [...***...] options pursuant to [...***...] shares of
Product developed from each cell type the 1994 Stock Option Plan Geron Common Stock
- --------------------------------------------------- -------------- ------------------------------- ---------------------
NDA or comparable regulatory approval for the first $[...***...] [...***...] options pursuant to [...***...] shares of
Product developed from each cell type the 1994 Stock Option Plan Geron Common Stock
- --------------------------------------------------- -------------- ------------------------------- ---------------------
</TABLE>
F. Accounting; Payments.
(i) Amounts owing to WARF under Sections 2B and 4D shall
be paid on a quarterly basis, with such amounts due and received by WARF on or
before the forty-fifth (45th) day following the end of the calendar quarter
ending on March 31, June 30, September 30 or December 31 in which such amounts
were earned. The balance of any amounts which remain unpaid more than thirty
(30) days after they are due to WARF shall accrue interest until paid at the
rate of the lesser of [...***...] percent ([...***...]%) per month or the
maximum amount allowed under applicable law. However, in no event shall this
interest provision be construed as a grant of permission for any payment delays.
(ii) Except as otherwise directed, all amounts owing to
WARF under this Agreement shall be paid in U.S. dollars to WARF at the address
provided in Section 16(a). All royalties owing with respect to Selling Prices
stated in currencies other than U.S. dollars shall be converted at the rate
shown in the Federal Reserve Noon Valuation - Value of Foreign Currencies on the
day preceding the payment.
(iii) A full accounting showing how any amounts owing to
WARF under Sections 2B and 4D have been calculated shall be submitted to WARF on
the date of each such payment. Such accounting shall be on a per-country and
product line, model or tradename basis and shall be summarized on the form shown
in Appendix C of this Agreement. In the event no payment is owed to WARF, a
statement setting forth that fact shall be supplied to WARF.
Section 5. Certain Warranties of WARF.
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TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
Page 5 of 17
<PAGE> 6
A. WARF warrants that except as otherwise provided under Section
14 of this Agreement with respect to U.S. Government interests, it is the owner
of the Licensed Patents or otherwise has the right to grant the licenses granted
to Geron in this Agreement. However, nothing in this Agreement shall be
construed as:
(i) a warranty or representation by WARF as to the
validity or scope of any of Licensed Patents;
(ii) a warranty or representation that anything made,
used, sold or otherwise disposed of under the license granted in this Agreement
will or will not infringe patents of third parties; or
(iii) an obligation to furnish any know-how not provided
in Licensed Patents or any services other than those specified in this
Agreement.
B. WARF MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY
KIND, EITHER EXPRESS OR IMPLIED, AND ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH
RESPECT TO USE, SALE, OR OTHER DISPOSITION BY GERON OR ITS VENDEES OR OTHER
TRANSFEREES OF PRODUCTS INCORPORATING OR MADE BY USE OF INVENTIONS LICENSED
UNDER THIS AGREEMENT.
Section 6. Recordkeeping.
A. Beginning when the first of the Products is sold, Geron and
its sublicensee(s) shall keep books and records sufficient to verify the
accuracy and completeness of Geron's and its sublicensee(s)'s accounting
referred to above, including without limitation inventory, purchase and invoice
records relating to the Products or their manufacture. Such books and records
shall be preserved for a period not less than six years after they are created
during and after the term of this Agreement; however, WARF shall have the right
to audit the most recent three (3) years of books and records. If a discrepancy
of five percent (5%) or more of the royalties paid in any given year is found,
WARF shall have the right to audit an additional three (3) years of books and
records.
B. Geron and its sublicensee(s) shall take all steps necessary
so that WARF may within thirty (30) days of its request review and copy all the
books and records at a single U.S. location to verify the accuracy of Geron's
and its sublicensee(s)'s accounting. Such review may be performed no more than
annually by any independent attorney or registered CPA designated by WARF, upon
reasonable notice and during regular business hours.
C. If a royalty payment deficiency is determined, Geron and its
sublicensee(s) shall pay the royalty deficiency outstanding within thirty (30)
days of receiving written notice thereof, plus interest on outstanding amounts
as described in Section 4F(i).
D. If a royalty payment deficiency for a calendar year exceeds
five percent (5%) of the royalties paid for that year, then Geron or its
sublicensee shall be responsible for paying WARF's out-of-pocket expenses
incurred with respect to such review.
Page 6 of 17
<PAGE> 7
Section 7. Term and Termination.
A. The term of this license shall begin on the effective date of
this Agreement and continue until the earlier of the date that no Licensed
Patent remains an enforceable patent or the payment of earned royalties under
Section 4D, once begun, ceases for more than [...***...] ([...***...])
consecutive calendar quarters.
B. Geron may terminate this Agreement at any time by giving at
least ninety (90) days' written and unambiguous notice of such termination to
WARF. Such a notice shall be accompanied by a statement of the reasons for
termination.
C. If Geron at any time defaults in the timely payment of any
monies due to WARF or the timely submission to WARF of any Development Report,
fails to actively pursue the development plan, or commits any breach of any
other covenant herein contained, and Geron fails to remedy any such breach or
default within ninety (90) days after written notice thereof by WARF, WARF may,
at its option, terminate this Agreement by giving notice of termination to
Geron.
D. WARF may terminate this Agreement with respect to any
particular cell type for failure by Geron to meet milestones set forth in
Geron's development plan with respect to such cell type. In such event, WARF
shall provide Geron with notice of termination as a result of such default and
Geron shall have ninety (90) days to cure such default or provide WARF with a
revision acceptable to WARF of such development plan.
E. Upon the termination of this Agreement, Geron shall remain
obligated to provide an accounting for and to pay royalties earned up to the
date of the termination and any minimum royalties shall be prorated as of the
date of termination by the number of days elapsed in the applicable calendar
year.
Section 8. Assignability.
This Agreement may not be transferred or assigned by Geron except to a
company in which Geron owns at least fifty percent (50%) of the equity; upon
sale or transfer of substantially all the assets of Geron or with the prior
written consent of WARF.
Section 9. Enforcement.
WARF intends to protect the Licensed Patents against infringers or
otherwise act to eliminate infringement, when, in WARF's sole judgment, such
action may be reasonably necessary, proper, and justified. In the event that
Geron believes there is infringement of any Licensed Patent under this Agreement
which is to Geron's substantial detriment, Geron shall provide WARF with written
notice that such infringement is occurring including reasonable evidence of the
infringement. In the event that WARF does take action to abate the infringement,
it shall do so at its own expense. Upon request by WARF, Geron shall take
action, join in an action, and otherwise provide WARF with such assistance and
information as may be useful to WARF in connection with WARF's taking such
action (if the cause of action arose during the term of this Agreement and WARF
reimburses Geron for Geron's reasonable out-of-pocket expenses upon recovery of
damages as described in this Section 9). Geron shall provide WARF with
assistance and shall have a right to review and comment on WARF's enforcement of
the Licensed Patents in the Licensed Field including the right to review any
proposed settlement of an infringement action prior to WARF's entering into such
an agreement. Any recovery or damages for
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TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
Page 7 of 17
<PAGE> 8
infringement derived through WARF taking such action shall be applied as
follows: (a) first, to WARF to reimburse WARF for the expenses of the
litigation, including reasonable attorneys' fees, (b) second, to Geron to
reimburse Geron for its reasonable expenses in assisting with such litigation,
including reasonable attorneys' fees, and (c) the balance of any recovery or
damages, except enhanced damages, shall be divided [...***...] ([...***...])
to Geron and [...***...] ([...***...]) to WARF. If WARF does not take action to
abate the infringement of the Licensed Patents within three (3) months of
receiving the notice described above, Geron may either reduce the royalty owed
on sales of Products under Section 3C in the country where the infringement is
occurring by [...***...] percent ([...***...]%) until such infringement is
abated or Geron may, with WARF's written consent, bring an action to enforce the
Licensed Patents. If Geron receives notice that it is being made a party to a
lawsuit and the Licensed Patents are implicated, then WARF shall take action
within a reasonable period to allow Geron to defend its interests and the
Licensed Patents. If Geron chooses to bring an action against the infringer of
the Licensed Patents, it shall do so at its own expense. Any recovery or damages
for infringement derived through Geron taking such action shall be applied as
follows: (a) first, to Geron to reimburse Geron for the expenses of the
litigation, including reasonable attorneys' fees, (b) second, to WARF to
reimburse WARF for its reasonable expenses in assisting with such litigation,
including reasonable attorneys' fees, and (c) the balance of any recovery or
damages shall be divided [...***...] ([...***...]) to WARF and [...***...]
([...***...]) to Geron.
Section 10. Contest of Validity.
In the event Geron contests the validity of any Licensed Patent, Geron
shall continue to pay royalties with respect to that patent as if such contest
were not underway until the patent is adjudicated invalid or unenforceable by a
court of last resort.
Section 11. Patent Marking.
Geron shall insure that it and its sublicensee(s) apply patent markings
that meet all requirements of U.S. law, 35 U.S.C. 287, with respect to all
Products subject to this Agreement.
Section 12. Product Liability; Conduct of Business.
A. Geron and its sublicensee(s) shall, at all times during the
term of this Agreement and thereafter, indemnify, defend and hold WARF and the
inventors of the Licensed Patents harmless against all claims and expenses,
including legal expenses and reasonable attorneys fees, arising out of the death
of or injury to any person or persons or out of any damage to property and
against any other claim, proceeding, demand, expense and liability of any kind
whatsoever (other than patent infringement claims) resulting from the
production, manufacture, sale, use, lease, consumption or advertisement of
Products arising from any right or obligation of Geron or any sublicensee
hereunder. Notwithstanding the above, WARF at all times reserves the right to
retain counsel of its own to defend WARF's interests.
B. Geron warrants that it now maintains and will continue to
maintain liability insurance coverage appropriate to the risk involved in
marketing the products subject to this Agreement and that such insurance
coverage lists WARF and the inventors of the Licensed Patents as additional
insureds. Within ninety (90) days after the execution of this Agreement and
thereafter annually between January 1 and January 31 of each year, Geron will
present evidence to WARF that the coverage is being maintained with WARF and its
inventors listed as additional insureds. In addition, Geron shall provide WARF
with at least 30 days prior written notice of any change in or cancellation of
the insurance coverage.
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TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
Page 8 of 17
<PAGE> 9
Section 13. Use of Names.
Geron and its sublicensee(s) shall not use WARF's name, the name of any
inventor of inventions governed by this Agreement, or the name of the University
of Wisconsin in sales promotion, advertising, or any other form of publicity
without the prior written approval of the entity or person whose name is being
used. Except that Geron may use the following statement:
Geron has entered into a sponsored research agreement with the
University of Wisconsin -Madison supporting the research of Dr. Thomson
in the promising area of primate embryonic stem cells. Geron has
executed a license agreement with WARF regarding the technology.
Section 14. United States Government Interests.
It is understood that if the United States Government (through any of
its agencies or otherwise) has funded research, during the course of or under
which any of the inventions of the Licensed Patents were conceived or made, the
United States Government is entitled, as a right, under the provisions of 35
U.S.C. Section 200-212 and applicable regulations of Chapter 37 of the Code of
Federal Regulations, to a nonexclusive, nontransferable, irrevocable, paid-up
license to practice or have practiced the invention of such Licensed Patents for
governmental purposes. Any license granted to Geron in this Agreement shall be
subject to such right. In the event there is assertion by the Government of such
rights, Geron may be entitled to modification of the royalty and license fee
provisions of the Agreement.
Section 15. Miscellaneous.
This Agreement shall be construed in accordance with the internal laws
of the State of Wisconsin. If any provisions of this Agreement are or shall come
into conflict with the laws or regulations of any jurisdiction or any
governmental entity having jurisdiction over the parties or this Agreement,
those provisions shall be deemed automatically deleted, if such deletion is
allowed by relevant law, and the remaining terms and conditions of this
Agreement shall remain in full force and effect. If such a deletion is not so
allowed or if such a deletion leaves terms thereby made clearly illogical or
inappropriate in effect, the parties agree to substitute new terms as similar in
effect to the present terms of this Agreement as may be allowed under the
applicable laws and regulations. The parties hereto are independent contractors
and not joint venturers or partners.
Section 16. Notices.
Any notice required to be given pursuant to the provisions of this
Agreement shall be in writing and shall be deemed to have been given at the
earlier of the time when actually received as a consequence of any effective
method of delivery, including but not limited to hand delivery, transmission by
telecopier, or delivery by a professional courier service or the time when sent
by certified or registered mail addressed to the party for whom intended at the
address below or at such changed address as the party shall have specified by
written notice, provided that any notice of change of address shall be effective
only upon actual receipt.
(a) Wisconsin Alumni Research Foundation
Attn: Managing Director
614 Walnut Street
Madison, Wisconsin 53705
(b) Geron Corporation
Attn: Vice President of Corporate Development
200 Constitution Drive
Page 9 of 17
<PAGE> 10
Menlo Park, CA 94025
Section 17. Integration.
This Agreement constitutes the full understanding between the parties
with reference to the subject matter hereof, and no statements or agreements by
or between the parties, whether orally or in writing, except as provided for
elsewhere in this Section 17, made prior to or at the signing hereof, shall vary
or modify the written terms of this Agreement. Neither party shall claim any
amendment, modification, or release from any provisions of this Agreement by
mutual agreement, acknowledgement, or otherwise, unless such mutual agreement is
in writing, signed by the other party, and specifically states that it is an
amendment to this Agreement.
Section 18. Contract Formation and Authority.
The persons signing on behalf of WARF and Geron hereby warrant and
represent that they have authority to execute this Agreement on behalf of the
party for whom they have signed.
Section 19. Confidentiality.
Both parties agree to hold the other party's confidential information in
confidence using procedures at least as stringent as the receiving party uses to
protect its own confidential information. The confidentiality of information
exchanged between the parties shall be governed by the terms of the Confidential
Disclosure Agreement No. 99-0051 between the parties dated February 19, 1999.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the dates indicated below.
WISCONSIN ALUMNI RESEARCH FOUNDATION
By: /s/ Richard H. Leazer Date: 5/6, 1999
------------------------------------------
Richard H. Leazer, Managing Director
GERON CORPORATION
By: /s/ David L. Greenwood Date: 5/6, 1999
------------------------------------------
Name and Office:
-------------------------------------------------
- -----------------------------------------------------------------
Reviewed by WARF's General Counsel:
/s/ Elizabeth L.R. Donley
- ---------------------------
Elizabeth L.R. Donley, Esq.
April 22, 1999
(WARF's attorney shall not be deemed a signatory to this Agreement.)
Page 10 of 17
<PAGE> 11
WARF Ref: Thomson-P96014US
Page 11 of 17
<PAGE> 12
APPENDIX A
A. "Licensed Patents" shall refer to and mean those patents and patent
applications listed on Appendix B attached hereto that are in countries in the
Licensed Territory and any subsequent patent application owned by WARF,
including divisionals, continuations, continuations-in-part, reissues, and
reexaminations in a country in the Licensed Territory.
B. "Products" shall refer to and mean Therapeutic Products and
Diagnostic Products.
C. "Therapeutic Products" shall refer to and mean products or services
other than Diagnostic Products that (i) are used in the treatment of disease in
humans, and (ii) employ, are in any way produced by the practice of, are
identified using or arise out of any research involving the inventions claimed
in the Licensed Patents or that would otherwise constitute infringement of any
claims of the Licensed Patents.
D. "Diagnostic Products" shall refer to and mean products or services
that (i) are used in the diagnosis, prognosis, screening or detection of disease
in humans, and (ii) employ, are in any way produced by the practice of, are
identified using or arise out of any research involving the inventions claimed
in the Licensed Patents or that would otherwise constitute infringement of any
claims of the Licensed Patents.
E. "Research Products" shall refer to and mean products or services that
(i) are used in research as research tools which would infringe the claims of
patented technology owned by Geron or which Geron has a right or license to use
other than the Licensed Patents, and (ii) which employ, are in any way produced
by the practice of, are identified using or arise out of any research involving
the inventions claimed in the Licensed Patents or that would otherwise
constitute infringement of any claims of the Licensed Patents. Research Products
specifically excludes the Materials.
F. "Selling Price" shall mean, in the case of Products that are sold,
the price to the end user of Products (regardless of uncollectible accounts)
less any shipping costs, allowances because of returned Products, value added
taxes (or comparable duties as required in each country) or sales taxes. For
purposes of this Agreement, the term "price to the end user" shall mean the
price paid to Geron for Product by its customer assuming an arm's length
transaction. In the event that Geron sells Product to an affiliate, the price
shall be deemed that amount that Geron would have received if it had sold
Product to an unaffiliated third-party. The "Selling Price" for a Product that
is transferred to a third party for promotional purposes without charge or at a
discount which exceeds [...***...] percent ([...***...]%) of the annual total
of Products sold shall be the average invoice price to the end user of that type
of Product during the applicable calendar quarter. All taxes, assessments, or
other charges of any kind which may be imposed on sales of Products by any
government outside of the United States or any political subdivision of such
government with respect to any amounts payable to WARF pursuant to this
Agreement shall be paid by Geron.
G. "Development Report" shall mean a written account of Geron's progress
under the development plan having at least the information specified on Appendix
D to this Agreement, and shall be sent to the address specified on Appendix D.
H. "Materials" shall refer to and mean the primate, including human,
embryonic stem cells claimed in the Licensed Patents.
- --------
[...***...] = MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
Page 12 of 17
<PAGE> 13
I. "Licensed Field" shall be limited to (i) Research Products, (ii)
Therapeutic Products and (iii) Diagnostic Products developed from and/or
incorporating the Materials as precursors to the following cell types as well as
the following cell* types: [...***...]
J. "Licensed Territory" shall be worldwide.
- --------
[...***...] = MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
Page 13 of 17
<PAGE> 14
APPENDIX B
LICENSED PATENTS
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REFERENCE PATENT ISSUE APPLICATION
NUMBER COUNTRY NUMBER DATE SERIAL NUMBER
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PRIMATE EMBRYONIC STEM CELLS (THOMSON)
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[...***...] UNITED STATES [...***...]
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PRIMATE EMBRYONIC STEM CELLS (THOMSON)
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
P96014US UNITED STATES 5,843,780 12/01/98
- --------------------------------------------------------------------------------------------------------------------
[...***...] PCT [...***...]
- --------------------------------------------------------------------------------------------------------------------
[...***...] CANADA [...***...]
- --------------------------------------------------------------------------------------------------------------------
[...***...] EPO [...***...]
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PRIMATE EMBRYONIC STEM CELLS WITH [...***...] GENES (THOMSON)
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[...***...] UNITED STATES [...***...]
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
[...***...] = MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
Page 14 of 17
<PAGE> 15
APPENDIX C
WARF ROYALTY REPORT
AGREEMENT NO: ______________ INVENTOR: ______________ P#: P _________________
PERIOD COVERED: From: / / 199 Through: / / 199
________________________ _________________________
PREPARED BY: ______________________________ DATE: ________________________
APPROVED BY: ______________________________ DATE: ________________________
If license covers several major product lines, please prepare a
separate report for each line. Then combine all product lines
into a summary report.
REPORT TYPE: [ ] SINGLE PRODUCT LINE REPORT: _______________________________
[ ] MULTIPRODUCT SUMMARY REPORT. Page 1 of ______ Pages
[ ] PRODUCT LINE DETAIL. Line: _________ Tradename: __________
Page: _________
REPORT CURRENCY: [ ] U.S. DOLLARS [ ] OTHER ________________________________
<TABLE>
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------------------------
GROSS * LESS: NET ROYALTY PERIOD ROYALTY AMOUNT
COUNTRY SALES ALLOWANCES SALES RATE THIS YEAR LAST YEAR
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
U.S.A.
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
Canada
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
Europe:
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
Japan
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
Other:
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
TOTAL:
- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
</TABLE>
Total Royalty: _______ Conversion Rate: ______ Royalty in U.S. Dollars: $_______
The following royalty forecast is non-binding and for WARF's
internal planning purposes only:
Royalty Forecast Under This Agreement: Next Quarter:____ Q2:____ Q3:____ Q4:____
*On a separate page, please indicate the reasons for returns or
other adjustments if significant.
Also note any unusual occurrences that affected royalty amounts
during this period.
To assist WARF's forecasting, please comment on any significant
expected trends in sales volume.
Page 15 of 17
<PAGE> 16
APPENDIX D
DEVELOPMENT REPORT
A. Date development plan initiated and time period covered by this report.
B. Development Report (4-8 paragraphs).
1. Activities completed since last report including the object and
parameters of the development, when initiated, when completed and the
results.
2. Activities currently under investigation, i.e., ongoing activities
including object and parameters of such activities, when initiated,
and projected date of completion.
C. Future Development Activities (4-8 paragraphs).
1. Activities to be undertaken before next report including, but not
limited to, the type and object of any studies conducted and their
projected starting and completion dates.
2. Estimated total development time remaining before a product will be
commercialized.
D. Changes to initial development plan (2-4 paragraphs).
1. Reasons for change.
2. Variables that may cause additional changes.
E. Items to be provided if applicable:
1. Information relating to Product that has become publicly available,
e.g., published articles, competing products, patents, etc.
2. Development work being performed by third parties other than Geron to
include name of third party, reasons for use of third party, planned
future uses of third parties including reasons why and type of work.
3. Update of competitive information trends in industry, government
compliance (if applicable) and market plan.
PLEASE SEND DEVELOPMENT REPORTS TO:
Wisconsin Alumni Research Foundation
Attn.: Contract Coordinator
614 Walnut Street
P.O. Box 7365
Madison, WI 53707-7365
Page 16 of 17
<PAGE> 17
APPENDIX E
DEVELOPMENT PLAN
A development plan of the scope outlined below shall be submitted to
WARF by Geron within thirty (30) days of the execution of this Agreement. In
general, the plan should provide WARF with a summary overview of the activities
that Geron believes are necessary to bring Products to the marketplace.
Estimated
Start Date Finish Date
---------- -----------
I. Development Program
A. Development Activities to be Undertaken
(Please break activities into subunits with the date of completion of
major milestones)
1.
2.
B. Estimated Total Development Time
II. Governmental Approval
A. Types of submissions required
B. Government agency e.g. FDA, EPA, etc.
III. Proposed Market Approach
IV. Competitive Information
A. Potential Competitors
B. Potential Competitive Devices/Compositions
C. Known Competitor's plans, developments, technical achievements
D. Anticipated Date of Product Launch
Total Length: approximately 2-3 pages
Page 17 of 17
<PAGE> 1
EXHIBIT 10.2
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24B-2
Agreement No. 99-0036
SPONSOR OPTION AGREEMENT
THIS AGREEMENT, dated and effective as of April 23, 1999, is by and
between the Wisconsin Alumni Research Foundation ("WARF"), a nonstock, nonprofit
Wisconsin corporation, and Geron Corporation ("Sponsor"), a Delaware
corporation.
PURPOSE OF AGREEMENT
WHEREAS, Sponsor, pursuant to a separate agreement with the University
of Wisconsin-Madison ("University"), has committed Financial Support (defined
below) to the University for the purpose of conducting research;
WHEREAS, WARF is willing and hereby offers to grant options to take
licenses to additional cell types not covered by the License Agreement (defined
below), wherein such option is defined in the License Agreement, and further
offers to grant options to any other invention arising from the Financial
Support provided to the University by the Sponsor and under certain patents or
patent applications which are or will be assigned to WARF, and Sponsor hereby
states its desire for such options;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, the parties covenant and agree as follows:
Section 1. DEFINITIONS.
For the purposes of this Agreement, the Appendix 1 definitions shall
apply.
Section 2. GRANT OF OPTIONS TO LICENSES.
A. Future Notification and Option to Future Patents.
(i) WARF shall notify Sponsor of any Future Patents
by sending Sponsor a written disclosure from the inventor or a copy of the U.S.
Patent Application claiming such invention. Such disclosure shall be considered
confidential information subject to the obligations set forth in Section 7
hereto. WARF shall not be obligated to grant any rights to Sponsor concerning
any inventions, disclosures or applications provided to Sponsor pursuant to this
Section 2B(i) except as provided in Section 2B(ii).
(ii) Sponsor shall have an option to add any Future
Patents to the Licensed Patents under the license granted by the License
Agreement. Sponsor must exercise such option within ninety (90) days after
receiving a copy of U.S. Patent Application (without claims) by written
notification to WARF including a Development Plan detailing Sponsor's plan and
timeline for bringing Products to market incorporating the Future Patents and
paying WARF a license fee for the Future Patent. The license fee shall be
negotiated in good faith for each new U.S. patent application added to the
Licensed Patents under the License Agreement. In addition, Sponsor shall pay to
WARF patent reimbursement as set forth in Section 4C of the License Agreement.
<PAGE> 2
Page 3 of 9
C. U.S. Government Interests.
It is understood that if the United States Government (through any of
its agencies or otherwise) has funded research, during the course of or under
which any of the inventions of the Future Patents were or are conceived or made,
the United States Government is entitled, as a right, under the provisions of 35
U.S.C. Section 200-212 and applicable regulations of Chapter 37 of the Code of
Federal Regulations, to a nonexclusive, nontransferable, irrevocable, paid-up
license to practice or have practiced the invention of such Future Patents for
governmental purposes. Any license granted to Sponsor in this Agreement shall be
subject to such right.
Section 3. CONSIDERATION.
The consideration for the options is the Financial Support, which is
accepted by WARF in lieu of any separate option fees, which otherwise would have
been required by WARF.
Section 4. CERTAIN WARRANTIES OF WARF.
WARF makes no warranty other than WARF warrants that the Principal
Investigator ("PI") and Researchers have entered into the agreement set forth in
Appendix 4 to assign to WARF all inventions that any of them conceive and reduce
to practice during and as a part of the Research Program. PI has further agreed
to require each additional Researcher who may work on the Research Program to
accept the same obligation to assign. (See Appendix 3.) Furthermore, nothing in
this Agreement shall be construed as an obligation by WARF to provide Sponsor
with any know-how or materials not provided in Future Patents.
Section 5. TERMINATION.
This Agreement shall be subject to termination under the following
circumstances:
A. This Agreement shall terminate on [...***...] unless
Sponsor and WARF have agreed to extend the option for an additional term and
Sponsor has provided the Financial Support of the Research Program as required
by the University for such extension.
B. This Agreement shall terminate if the Research
Agreement, or its successor agreement, is terminated for any reason.
C. Sponsor may terminate this Agreement at any time upon
giving WARF thirty (30) days' written notice but only with respect to its
obligations to WARF and WARF's obligations to Sponsor.
Section 6. ASSIGNMENT.
This Agreement may not be transferred or assigned by Sponsor except to a
company in which Sponsor owns at least fifty percent (50%) of the equity; upon
sale or transfer of substantially all the assets of Sponsor or with the prior
written consent of WARF.
- ----------
[...***...] = MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
Page 2 of 9
<PAGE> 3
Section 7. CONFIDENTIALITY.
A. Both parties agree to hold the other party's confidential
information in confidence using procedures at least as stringent as the
receiving party uses to protect its own confidential information. Each party
shall mark all confidential information confidential or, if disclosed orally,
such information shall be identified to the receiving party as confidential at
the time of the oral disclosure and the disclosing party shall confirm the
confidentiality of such oral information by letter to the receiving party no
later than ten (10) days after the oral disclosure. Confidential information
shall not include any information:
(a) known to the receiving party at the time of disclosure by the
disclosing party;
(b) known or available to the public at the time of the disclosure
or thereafter; or
(c) disclosed to receiving party in good faith by another party
having the right to disclose such information.
B. All information regarding inventions conceived or reduced to
practice during the course of or under the Research Program which is disclosed
by PI or Researchers to Sponsor shall be considered confidential.
Section 8. NOTICE.
Any notice required to be given pursuant to the provisions of this
Agreement shall be in writing and shall be deemed to have been given at the
earlier of the time when actually received as a consequence of any effective
method of delivery, including but not limited to hand delivery, transmission by
telecopier, or delivery by a professional courier service or the time when sent
by certified or registered mail addressed to the party for whom intended at the
address below or at such changed address as the party shall have specified by
written notice, provided that any notice of change of address shall be effective
only upon actual receipt.
(a) Wisconsin Alumni Research Foundation
Attn: Managing Director
614 Walnut Street
Madison, Wisconsin 53705
(b) Geron Corporation
Attn: Vice President of Corporate Development
200 Constitution Drive
Menlo Park, CA 94025
Section 9. AMENDMENT AND CHOICE OF LAWS.
This Agreement may not be amended except by written, mutual agreement of
the parties expressly set forth as an amendment hereto. This Agreement shall be
governed by the laws of the State of Wisconsin.
Section 10. AUTHORITY.
The persons signing on behalf of WARF and Sponsor hereby warrant and
represent that they have authority to execute this Agreement on behalf of the
party for whom they have signed.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the dates
Page 3 of 9
<PAGE> 4
indicated below.
WISCONSIN ALUMNI RESEARCH FOUNDATION
By: /s/ Richard H. Leazer Date: 5/6/99
-----------------------------------------
Richard H. Leazer, Managing Director
GERON CORPORATION
By: /s/ David L. Greenwood Date: 5/6/99
-----------------------------------------
Name & Title:
-------------------------------------------------
- --------------------------------------------------------------
Approved in by WARF's General Counsel:
/s/ Elizabeth L.R. Donley Date: April 22, 1999
- --------------------------------------------
Elizabeth L.R. Donley
Page 4 of 9
<PAGE> 5
APPENDIX 1
1. "Research Program" shall be limited to the ongoing program of
research described in Appendix 2 during the period such program is funded by
Sponsor pursuant to the Research Agreement.
2. "Principal Investigator" shall be the individual identified in
the University of Wisconsin Principal Investigator Patent Agreement, attached as
Appendix 3.
3. "Researchers" shall be limited to individuals performing
research under the Research Program who have signed the University of Wisconsin
Researcher and Patent Agreement which is attached as Appendix 4.
4. "Development Plan" shall mean a summary overview of the
activities believed necessary to commercialize an invention of the Future
Patents or to bring Products relating to cell types to market.
5. "Research Agreement" shall refer to and mean a separate,
contemporaneous agreement between Sponsor and the University, a copy of which is
attached as Appendix 5.
6. "Financial Support" shall refer to and mean funds provided by
Sponsor to the University in support of the Research Program in an amount of at
least $[...***...] for the period April 1, 1998 to March 31, 1999; $[...***...]
for the year beginning on April 1, 1999 to March 31, 2000; and $[...***...] for
the year beginning on April 1, 2000 to March 31, 2001 to support further
research by Professor Thomson at the University of Wisconsin - Madison.
7. "Future Patents" shall be limited to any patent or patent
application arising out of any invention which is conceived and reduced to
practice under and during the course of the Research Program and which is
assigned to WARF by Principal Investigator or Researchers.
8. "Licensed Field" shall be limited to therapeutic and diagnostic
treatments for humans which are covered by one or more claims of the Licensed
Patents.
9. "License Agreement" shall refer to and mean Agreement No.
99-0027, of even date herewith, entered into by the parties hereto.
- ----------
[...***...] = MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
Page 5 of 9
<PAGE> 6
APPENDIX 2
RESEARCH PROGRAM
(To be provided by Sponsor)
Page 6 of 9
<PAGE> 7
APPENDIX 3
UNIVERSITY OF WISCONSIN
PRINCIPAL INVESTIGATOR PATENT AGREEMENT
James A. Thomson Principal Investigator
- ----------------------------------------
Geron Corporation Sponsor
- ----------------------------------------
I am the above Principal Investigator at the University of Wisconsin on
the Research Program as described in Appendix 2 hereto. I understand that the
Research Program is now or is soon to be supported, directly or indirectly by
funds supplied by the Sponsor. I understand and agree that Sponsor's support of
the Research Program is being accepted in lieu of the option fees which might
otherwise be charged for the technology resulting from the Research Program and
that such support will not be part of the basis for the gross income relied on
by WARF for payment of any royalty shares to the inventors for any licenses of
patents or other technology resulting from this research.
In consideration for such support, I hereby agree and obligate myself to
disclose promptly to the Wisconsin Alumni Research Foundation (WARF) any
invention conceived of or reduced to practice by me, whether solely or jointly
by others, resulting in whole or in part from activity undertaken by me as a
part of the Research Program. I so agree and obligate myself on the condition
that WARF will consider the patentability and the licensability of any such
invention and advise me of WARF's interest in taking title to the invention and
pursuing patent protection for it.
At the sole option of WARF and if WARF so requests, I agree to assign to
WARF all my right, title and interest in such invention in the United States,
its territories and possessions and in all foreign countries. The making of this
assignment shall be conditioned solely upon WARF's willingness to accord to me
the benefit of its then-standard Memorandum Agreement for use with University
inventors assigning inventions to WARF, a copy of such Agreement shall be
executed both by me and WARF.
I also agree to require any other researchers working on the Research
Program to similarly assign their rights in any such inventions to WARF. To
fulfill this obligation, I will require that each investigator sign a copy of
the University of Wisconsin Investigator and Patent Agreement attached hereto as
Appendix 4, and forward the signed copy to WARF. All such inventors assigning to
WARF will have the same opportunity for financial reward as any other University
inventor who brings an invention to WARF under the terms of the then-standard
Memorandum Agreement.
__________________________________________ Principal Investigator
Dated: ___________________________________
Page 7 of 9
<PAGE> 8
APPENDIX 4
UNIVERSITY OF WISCONSIN INVESTIGATOR AND PATENT AGREEMENT
Researcher
- ----------------------------------------
James A. Thomson Principal Investigator(s)
- ----------------------------------------
Geron Corporation Sponsor
- ----------------------------------------
I am the University of Wisconsin researcher identified above. I am about
to enter into research forming part of the Research Program described in
Appendix 2 conducted by the above Principal Investigator(s) at the University of
Wisconsin that is covered by an Agreement between WARF, and the above Sponsor.
As a consequence, the research work I am about to undertake may be supported,
directly or indirectly, by a grant from the Sponsor. I understand and agree that
Sponsor's support of the Research Program is being accepted in lieu of the
option fees which might otherwise be charged for the technology resulting from
the Research Program and that such support will not be part of the basis for the
gross income relied on by WARF for payment of any royalty shares to the
inventors for any licenses of patents or other technology resulting from this
research.
In consideration for such support, I hereby agree and obligate myself to
disclose promptly to the Wisconsin Alumni Research Foundation (WARF) any
invention conceived of or reduced to practice by me, whether solely or jointly
with others, resulting in whole or in part from activity undertaken by me as
part of the Research Program. I so agree and obligate myself on the condition
that WARF will consider the patentability and the licensability of any such
invention and advise me of WARF's interest in taking title to the invention and
pursuing patent protection for it.
At the sole option of WARF and if WARF so requests, I agree to assign to
WARF all right, title, and interest in any such invention in the United States,
its territories and possessions and in all foreign countries. The making of this
assignment shall be conditioned solely upon WARF's willingness to accord to me
the benefit of its then-standard Memorandum Agreement for use with University
inventors assigning inventions to WARF, a copy of which Agreement shall be
executed both by me and by WARF.
Researcher
- ----------------------------------------
- ----------------------------------------
Date
Page 8 of 9
<PAGE> 9
APPENDIX 5
RESEARCH AGREEMENT
(To be provided by Sponsor prior
to execution of this Agreement)
Page 9 of 9
<PAGE> 1
EXHIBIT 10.3
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24B-2
AMENDMENT TO LICENSE AGREEMENT
This Agreement is made effective October 1, 1999, by and between Wisconsin
Alumni Research Foundation (hereinafter called "WARF"), a nonstock, nonprofit,
Wisconsin corporation, and Geron Corporation (hereinafter called "Geron"), a
corporation organized and existing under the laws of Delaware.
WHEREAS, WARF and Geron (hereinafter, collectively called "the Parties")
have executed previously a License Agreement, effective April 23, 1999
(Agreement No. 99-0027) (hereinafter called "License Agreement"); and
WHEREAS, WARF has requested and Geron has agreed to substitute as
consideration a stock grant for the stock grant and stock options set forth in
the License Agreement.
NOW, THEREFORE, the Parties agree to amend the License Agreement as
follows:
1. Section 4A shall be amended to read in full:
Geron agrees to pay WARF a license fee comprised of [...***...] cash and
92,000 shares of Geron common stock. Geron shall make an S-3 filing
with the Securities and Exchange Commission ("SEC") with respect to the
92,000 common shares by October 8, 1999 and use reasonable
diligence thereafter with the SEC to obtain registration of such shares.
In the event that WARF desires to sell a substantial percentage of the
granted stock in the public market, WARF undertakes to appropriately
manage the sale of such stock so as to not detrimentally effect the
price of such stock.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the dates indicated below.
WISCONSIN ALUMNI RESEARCH FOUNDATION
By: /s/ Richard H. Leazer Date: October 20, 1999
-----------------------------------------
Richard H. Leazer, Managing Director
GERON CORPORATION
By: /s/ David L. Greenwood Date: October 14, 1999
-----------------------------------------
David L. Greenwood, Sr. V.P. of
Corporate Development and CFO
- ----------------------------------------
Reviewed by WARF's General Counsel:
/s/ Elizabeth L.R. Donley
- --------------------------------------------
Elizabeth L.R. Donley, Esq.
(WARF's attorney shall not be deemed a signatory to this Agreement.)
- ----------
[...***...] = MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 27,794
<SECURITIES> 13,904
<RECEIVABLES> 599
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0
0
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</TABLE>
