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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER: 0-20859
GERON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 75-2287752
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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230 CONSTITUTION DRIVE, MENLO PARK, CA 94025
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 473-7700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $0.001 PAR VALUE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 7, 2000, there were 18,607,078 shares of Common Stock
outstanding. The aggregate market value of voting stock held by non-affiliates
of the registrant was approximately $996,412,682 based upon the closing price of
the Common Stock on March 7, 2000 on The Nasdaq National Market. Shares of
Common Stock held by each officer, director and holder of five percent or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Potential risks and uncertainties
include, without limitation, those mentioned in this report and in particular,
the factors described below in Part II, Item 7, under the heading "Additional
Factors That May Affect Future Results."
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PART I
ITEM 1. BUSINESS
OUR TECHNOLOGY
Telomeres and Telomerase: Their role in cellular aging and cancer
Cells are the building blocks for all tissues in the human body, and cell
division plays a critical role in the normal growth, maintenance and repair of
human tissue. However, in the human body, cell division is a limited process.
Depending on the tissue type, cells generally divide only 60 to 100 times during
the course of their normal lifespan.
We and our collaborators, have shown that telomeres, located at the ends of
chromosomes, are key genetic elements involved in regulation of the cellular
aging process. Our work has shown that each time a normal cell divides,
telomeres shorten. Once telomeres reach a certain short length, cell division
halts and the cell enters a state known as senescence or aging. Our
collaborators have used mouse models to show that this type of cellular aging
can cause numerous age-related degenerative changes in mammals. We believe that
this cellular aging process, which occurs in numerous tissues throughout the
human body, causes or contributes to chronic degenerative diseases and
conditions including chronic liver disease, AIDS, macular degeneration or a
chronic disease of the eyes often leading to vision loss, atherosclerosis or
narrowing of arteries which reduces blood flow to internal organs, and impaired
wound healing.
We and our collaborators have demonstrated that telomeres serve as a
molecular "clock" for cellular aging and that the enzyme telomerase, when
introduced into normal cells, is capable of restoring telomere length or
resetting the "clock," thereby increasing the lifespan of cells without altering
their normal function or causing them to become cancerous. Human telomerase, a
complex enzyme, is composed of a ribonucleic acid component, also known as RNA
or hTR, and a protein component, also called hTERT. In 1994, we cloned the gene
for hTR and in 1997, in collaboration with Dr. Thomas Cech at the University of
Colorado, Boulder, we cloned the hTERT gene.
Our work and that of others has shown that telomerase is not present in
most normal cells and tissues, but that during tumor progression, telomerase is
abnormally reactivated in all major cancer types. We have shown that unlike the
mutations which cause cancer, the presence of telomerase only enables cancer
cells to maintain telomere length, providing them with indefinite replicative
capacity. Inhibiting telomerase activity should result in telomere shortening
and therefore the aging and eventual death of the cancer cell.
Human Pluripotent Stem Cells: A potential source for the manufacturing of
replacement cells and tissues
Stem cells generally are self-renewing primitive cells that can develop
into functional, differentiated cells. Human pluripotent stem cells are unique
because they can develop into all cells and tissues in the body. There are two
types of human pluripotent stem cells, also called hPSCs: human embryonic stem
cells, also known as hES cells, which are derived by our collaborators from
donated in vitro fertilized blastocysts or very early-stage embryos; and human
embryonic germ cells also known as hEG cells, which are derived from donated
fetal material.
In addition to their pluripotent characteristics, hES cells express
telomerase and can therefore multiply or replicate indefinitely. The ability of
hES cells to divide indefinitely in the undifferentiated state without losing
pluripotency is a unique characteristic that distinguishes them from all other
stem cells discovered to date in humans. Other stem cells such as blood or gut
stem cells express telomerase at very low levels or only periodically; they
therefore age, limiting their use in research or therapeutic applications. Human
embryonic stem cells also maintain a structurally normal set of chromosomes even
after prolonged growth in culture. They do not, for example, have any abnormal
additions, deletions or rearrangements in their chromosomal structure as is
characteristic of cell lines derived from tumors or immortalized by viruses.
Although not as well characterized as hES cells, we believe that hEG cells will
share most of the characteristics of hES cells.
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We intend to use hPSC technology to
- enable development of transplantation therapies by providing standard
starting material for the manufacture of cells and tissues,
- facilitate pharmaceutical research and development practices by providing
cells for screening, and assigning function to newly discovered genes,
and
- accelerate research in human developmental biology by identifying the
genes that control human development.
Nuclear Transfer: A potential mechanism for generating genetically matched
cells and tissues
Nuclear transfer is a method for generating human cells and whole animals
whose genetic material is derived solely from the nucleus of a single cell
obtained from a single individual. In this process, the nucleus containing all
of the chromosomal DNA is removed, or enucleated, from the egg cell and replaced
with the nucleus containing all of the chromosomal DNA from a donor somatic or
non-reproductive cell. Fusion between the resulting egg cell and the donor
somatic nucleus results in a new cell which gains a complete set of chromosomes
derived entirely from the donor nucleus. After a brief culture period, the
resulting embryo is implanted into the uterus of a female animal, where it can
develop and produce the live birth of a cloned offspring. The offspring is a
genetic clone of the animal from which the donor nucleus was obtained.
In early 1997, Dr. Ian Wilmut and his colleagues at the Roslin Institute
demonstrated with the birth of Dolly, the sheep, that the nucleus of an adult
cell can be transferred to an enucleated egg to create cloned offspring. The
birth of Dolly was significant because it demonstrated the ability of egg cell
cytoplasm, also known as the portion of the cell outside of the nucleus, to
reprogram an adult nucleus. Reprogramming enables the adult differentiated cell
nucleus to express all the genes required for full embryonic development of the
adult animal. Since Dolly was cloned, the technique has been used to clone mice,
goats and cattle from donor cells obtained from adult mice, goats and cattle,
respectively.
In 1999, we acquired Roslin Bio-Med Ltd., a commercial subsidiary of the
Roslin Institute which pioneered the use of nuclear transfer technology for the
creation of cloned animals, in order to complement and strengthen our technology
platform. We also entered into a research collaboration with the Roslin
Institute to focus on understanding the molecular mechanisms used by animal egg
cell cytoplasm to reprogram adult animal nuclei.
A key objective of our collaboration with the Roslin Institute is to learn
how to confer the reprogramming capability normally found in the egg cell
cytoplasm to the cytoplasm of a somatic cell in order to eliminate reliance on
harvested eggs. In this way, we believe that transplantable genetically-matched
cells could be derived from pluripotent stem cells generated through nuclear
transfer using adult cells taken from the intended transplant recipient. Such
cells would not trigger immune rejection because they would match exactly the
tissue antigens of the transplant recipient. We intend to develop this
technology to produce genetically-matched cells for use in repairing organs
damaged by degenerative disease.
COMMERCIAL OPPORTUNITIES FOR OUR PROGRAMS
Oncology
Cancer is a group of diseases characterized by uncontrolled growth and
spread of abnormal cells. The American Cancer Society estimates that
approximately 1.2 million cancer cases will be diagnosed in the year 2000.
Overall annual costs associated with cancer currently amount to $107 billion in
the United States alone. Because telomerase is detectable in more than 30 human
cancer types and in over 80 percent of cancer samples studied, we believe that a
telomerase inhibitor could overcome the limitations of current cancer therapies
and potentially be a broadly applicable and highly specific drug treatment for
cancer.
We are working to discover and develop telomerase inhibitors; oncolytic, or
cancer killing, viruses; and telomerase vaccines, for anti-cancer therapies. We
also intend to continue to develop and commercialize products using telomerase
as a marker for cancer diagnosis, prognosis, patient monitoring and screening.
We
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believe that we have achieved a dominant position in telomerase research and in
telomerase intellectual property which gives us a significant advantage in the
discovery and development of oncology products based on telomerase.
Telomerase Inhibition. Telomerase activation is necessary for most cancer
cells to replicate indefinitely thereby enabling tumor growth and metastasis.
One of our strategies for the development of anti-cancer therapies is to inhibit
telomerase activity in cancer cells. Inhibiting telomerase activity should
result in telomere shortening and therefore the aging and eventual death of the
cancer cell. Because telomerase is not expressed in most normal cells, the
telomerase inhibition therapies described below are not expected to be cytotoxic
to normal cells. We have focused our efforts on two approaches to produce a
telomerase inhibitor effective in the treatment of cancer. Both approaches have
produced compounds which should advance to animal studies in 2000. We and our
collaborators have research programs focused upon our telomerase-inhibiting
molecules with the goal of advancing an inhibitor to clinical development.
Oligonucleotides. We have designed and synthesized a special class of
short-chain nucleic acid-like molecules, also known as oligonucleotides, to
target the RNA component of telomerase. These oligonucleotides have demonstrated
highly potent telomerase inhibitory activity at sub-nanomolar, or very low,
concentrations in both biochemical assays and various cellular systems. Based on
these promising results, we plan to initiate tests of these molecules in animal
models of cancer in the coming year. We hold rights to this class of
oligonucleotides for telomerase inhibition, and have also developed several new
oligonucleotide-based chemistries for which we have filed our own patent
applications.
Small Molecules. Through high-throughput screening of highly diverse
chemical compound libraries, we have identified classes of small molecule
compounds that are effective telomerase inhibitors which are being evaluated by
us and our collaborators, Pharmacia & Upjohn and Kyowa Hakko. As a result of our
recent confirmation of telomerase inhibition by these small molecules in cell
culture, both of our collaborators have extended their funded research
collaborations with us.
Oncolytic Virus. Our second anti-cancer therapeutic strategy is based on
viruses which have been manipulated or engineered to have oncolytic, or
cancer-killing properties and which would selectively target and destroy cancer
cells. We are developing customized adenoviruses, also known as common cold
viruses, that will infect and kill cancer cells which express telomerase and not
normal cells which do not express telomerase. To pursue this goal, we have
cloned the region of the hTERT gene that is responsible for turning on or off
the activity of telomerase in a cell, called the promoter sequence. We have
demonstrated that this promoter is only turned on in telomerase-positive cells,
and is turned off in normal somatic cells.
We are using the hTERT promoter to turn on the genes which are required for
the adenovirus to replicate. Our data indicate that when tumor cells are
infected with the adenovirus which contains the hTERT promoter, the virus
multiplies or replicates within the cancer cells and causes the rupture and
death, or lysis, of the tumor cells. When these same adenoviruses containing the
hTERT promoter infect normal somatic tissue, there is no effect on the cells. We
are currently evaluating this oncolytic virus in both local and metastatic
animal tumor models. We believe that these oncolytic viruses could be used to
treat many types of primary and metastatic cancers.
Telomerase Vaccine. Our third approach to developing an anti-cancer therapy
is a telomerase vaccine. Telomerase is present in the majority of human cancer
cells but is absent in most normal somatic cells. In this approach, we deliver
telomerase to special immune cells called dendritic cells which instruct the
immune system to detect cells that express telomerase and kill them.
We are conducting research to confirm the safety and efficacy of telomerase
dendritic cell vaccine therapies. We are also developing procedures for direct
immunization of patients using telomerase. This direct method of vaccination
would eliminate the need for manipulation of dendritic cells in culture and
could potentially allow simple vaccination procedures to be available for all
cancer patients.
Cancer Diagnostics. Telomerase is a broadly applicable and highly specific
marker for cancer because it is detectable in more than 30 human cancer types
and in over 80 percent of cancer samples studied. We believe that the detection
of telomerase may have significant clinical utility for cancer diagnosis,
prognosis,
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monitoring and screening. Current cancer diagnostics apply only to a single or
limited number of cancer types because they rely on molecules expressed only by
particular cancer types; telomerase-based diagnostics could potentially address
a broad range of cancers.
We have developed several proprietary assays for the detection of
telomerase which are based on its activity or the presence of its RNA or protein
components. The first-generation assay is the Telomeric Repeat Amplification
Protocol, or "TRAP," assay which can be used to detect telomerase activity in
human tissue or cells in culture. The second generation assays detect the
presence of hTR and hTERT in human tissues and body fluids. We own issued
patents for the detection of telomerase activity and the components of
telomerase including patents for the TRAP assay and diagnostic methods based on
telomerase detection. To date, our licensees have commercialized ten
research-use-only kits that incorporate our technology.
We are working with Roche Diagnostics to develop the full clinical
potential of our telomerase detection technology. Research data shows that an
assay for telomerase is a more sensitive and specific test for screening bladder
cancer than other commercially available tests. We believe that this and other
data support the clinical application of telomerase assays in diagnosis,
staging, monitoring and screening for bladder, cervical, prostate and other
cancers.
Research Tools for Drug Discovery
Genomics. The Human Genome Project, an international research program
conducted by the United States Department of Energy and the National Institutes
of Health, is nearing completion with the goal of sequencing and mapping every
human gene within the genome. Despite this catalogue of human gene sequences,
little is known about when or in what cells genes are expressed or how they
function. The next major hurdle is to determine the function of these genes and
to use this information to develop new diagnostic and therapeutic approaches for
many diseases.
Pluripotent stem cells are especially suitable to help define the function
of genes involved in cell proliferation, differentiation and metabolism. The
effects of adding or knocking out specific genes in hPSCs can be monitored,
providing evidence for the function of the gene on a particular proliferation or
differentiation process. We are now developing screening procedures using hPSCs
to identify the function of multiple genes simultaneously. Identification of the
function of genes will allow the selection of genes that would be good targets
for drug development.
Immortalized Cells for Research. Scientists study specific cells from
targeted tissues in order to understand their biological function. In these
studies, cells are usually isolated from tissue and propagated in tissue
culture. The progressive changes in biological activity, morphology, and
proliferation as a result of tissue culture potentially limit the utility of
these cells in parallel experiments and long term research. Because of these
limitations, most research laboratories utilize transformed cell lines for their
experimental studies. Cells can be transformed by viral mechanisms, by using
viruses to cause the cells to grow indefinitely in culture. However, they have
abnormal characteristics compared to non-transformed cells. For this reason,
such transformed cells are not good models of normal tissues in the human body.
The telomerase-immortalized cells are ideal for use in biological research
because these cells proliferate indefinitely and function in culture in the same
manner as the normal, mortal cells from which they were derived. Moreover,
telomerase-immortalized cells can function in the body to form normal tissue and
their capacity to differentiate into mature tissue is maintained. Their
maintenance of normal physical and biological characteristics while retaining
proliferative capacity allows them to be a constant source of cells for repeat
and long-term studies on the function of cells both in culture and in the body.
Telomerase-immortalized cells can be used to study any of the normal biological
pathways in cells and can be used to screen for factors which influence the
appropriate function of those cells. Moreover, telomerase-immortalized cells
taken from diseased tissues can be used to explore the mechanism of the disease
process and to develop interventions to prevent or treat that disease.
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We distribute the human telomerase gene under material transfer agreements
to academic laboratories worldwide in order to generate new applications and to
preserve our commercialization rights in these applications. To date, we have
material transfer agreements with over 300 academic laboratories worldwide.
To distribute our telomerase immortalized cell lines commercially, we
established an alliance with Clontech, to distribute telomerase immortalized
cell lines to the not-for-profit research market for basic research
applications. Under the alliance, we execute licenses with, and receive license
fees from, commercial entities that are supplied by Clontech.
Drug Screens. Three of the major hurdles of pharmaceutical drug development
are (i) identification of compounds with activity in diseased tissue; (ii)
understanding the metabolism and biodistribution of the compound; and (iii)
determination of the potential toxic side effects of the compound. Undesirable
activity of a compound being evaluated as a candidate drug in any one of these
areas can impact the development and commercialization of the drug. The earlier
in development that a compound is found to have undesirable characteristics, the
faster these characteristics can be potentially corrected. This potentially
translates into reduced costs and time in drug development, and less harmful
exposure to patients in clinical trials.
Many prospective new drugs fail in clinical trials because of toxicity to
the liver or because of poor uptake, distribution, or elimination of the active
compound in the human body. Much of the efficacy and safety of a drug will
depend on how that drug is metabolized into an active or inactive form, and on
the toxic metabolites that might be generated in the process. Hepatocytes, the
major cells of the liver, metabolize most compounds and thereby affect a drug's
pharmacological characteristics.
There are no completely effective systems available today to accurately
determine the metabolism or toxicity of a compound in human livers. Rat and
mouse models only approximate human metabolism. The development of several drugs
has been terminated late in human clinical trials because rodent systems
utilized early in the development process failed to predict that the drug would
be toxic to humans. Human hepatocyte cell lines available today do not have the
same attributes as their normal counterparts in the body and must be transformed
in order to maintain their proliferative capacity in culture. Access to fresh
primary human liver tissue to be used in toxicity studies is very unreliable and
substantial variability can be observed depending on the individual donor, the
time and process of collection, and the culture conditions for the experiments.
We believe telomerase-immortalized hepatocytes would serve as a consistent
source of normal human liver tissue which would more closely predict the impact
of a new drug on human livers in the body. We believe that
telomerase-immortalized hepatocytes which retain normal drug metabolism enzymes
would revolutionize toxicity testing, address the largest bottleneck in new drug
research and accelerate the drug development process. To meet this need, we are
creating immortalized hepatocytes using two methods. First, we will apply our
telomerase technology to immortalize human hepatocytes. In every cell system
tested, telomerase-immortalized cells have been shown to function comparably to
their normal non-immortalized counterparts. Therefore, telomerase-immortalized
hepatocytes should also function comparably to hepatocytes in a whole human
liver in the body. Second, we are developing procedures to differentiate hPSCs
into hepatocyte precursors and eventually into mature hepatocytes. Functional
hepatocytes, developed by either immortalization by telomerase or derivation
from hPSCs, would provide a consistent and reliable source of material for
extensive and reproducible compound testing.
We intend to commercialize these cells to more accurately determine the
potential toxicity and metabolism of a new candidate drug. In addition, the
availability of immortalized hepatocytes from numerous individuals would allow a
more thorough understanding of the effects of a drug candidate on a specific
individual, allowing full development of the field of pharmacogenomics whereby a
compound's activity will be correlated with an individual's genetic make-up.
Regenerative Medicine
The preceding product opportunities are examples of how we plan to use each
of our three technology platforms. Additional opportunities arise from their
combination. The integration of our three scientific platforms:
telomerase-immortalized cells, hPSCs and nuclear transfer technologies allow the
development of
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cell based therapies that would have broad application for the treatment of
chronic degenerative diseases which are occurring with increasing frequency in
our aging population. We are developing two basic approaches to restore organ
function lost to chronic diseases: gene-based therapies and cell based
therapies.
We are developing gene-based therapies by which the hTERT gene is
transferred directly to cells to extend their replicative capacity and thereby
restore normal function. We expect that the restoration of telomerase activity
in a controlled manner directly in the body will have therapeutic applications
for the treatment of blood, skin, liver and immune disorders where deficiencies
in cell proliferation have been noted.
In cell-based therapies, differentiated cells derived from hPSCs would be
directly injected into the affected tissue where they would integrate into the
target tissue and thereby restore organ function. This approach is particularly
applicable for the regeneration of tissues that do not normally divide in the
body. Such cells include cardiomyocytes or heart muscle cells, neural cells,
hepatic cells and pancreatic (LOGO) islet cells. We are currently developing the
following cell types and therapeutic approaches.
Chronic Liver Disease. There are over 25,000 deaths in the United States
every year due to chronic liver disease. This number is expected to increase
with the growing number of people who are infected with hepatitis B and C
viruses. Each year over $9 billion is spent at hospitals in the United States
alone for the treatment and management of patients with chronic liver diseases.
Liver regeneration is not observed in most patients with chronic liver
disease. Compromised liver function and chronic liver disease can result from
prolonged exposure to various harmful factors such as chemical toxins, chronic
alcohol intake, autoimmune inflammation, metabolic disorders, viral infections
and others. Patients with advanced stages of chronic liver diseases often suffer
from other complications such as diabetes, bleeding disorders, portal
hypertension or localized high blood pressure, edema or fluid retention, mental
dysfunction, immune dysfunction, kidney failure and liver cancer, eventually
leading to death. Treatment for patients with advanced liver disease usually
consists of liver transplantation. Despite some success with this procedure, the
majority of candidate patients do not receive transplants due to low organ
availability.
Telomerase is not normally expressed in human liver cells and recent
studies have shown that shortened telomere lengths are observed in the livers of
patients with chronic liver diseases. Studies in mice, in which the RNA
component of the telomerase gene has been removed, show that these animals have
increased sensitivity to liver damage. Restoring telomerase activity in those
mice results in the restoration of hepatic regenerative capacity.
We plan to utilize our technology platforms in several different formats to
treat liver diseases. In one application, we are developing methods to generate
telomerase activity in hepatocytes. In this approach, using gene-based therapy,
the telomerase gene is delivered directly to the liver to determine if
telomerase can restore the regenerative capacity of the damaged liver. As a
second approach, using cell-based therapy, we will apply the same techniques
being developed to produce human hepatocytes for drug discovery to create
hepatocytes for therapeutic intervention in liver disease. Several potential
alternative cell-based therapies are being explored. The first is an external
device which would incorporate immortalized human hepatocytes to supplement the
patient's own liver function during acute flares of chronic liver disease. The
second is the transplantation of immortalized hepatocytes into the patient's
liver to seed and stimulate hepatocyte repopulation. Successful development of
these therapies potentially could provide therapeutic alternatives for the high
proportion of patients who are not candidates for liver transplantation or for
whom transplantable organs are not available.
Heart Disease. Heart muscle cells, also known as cardiomyocytes, do not
regenerate during adult life. When heart muscle is damaged by injury or
decreased blood flow, functional contracting heart muscle is replaced with
nonfunctional scar tissue. Congestive heart failure, a common consequence of
heart muscle or valve damage, affects more than four million people in the
United States. This year, it is estimated that about 1.1 million people will
have a heart attack, which is the primary cause of heart muscle damage.
We intend to use cardiomyocytes derived from hPSCs to treat heart disease.
Proof of concept of our approach has been demonstrated in mice. Mouse embryonic
stem cells were used to derive mouse cardiomyocytes. When injected into the
hearts of recipient adult mice, the cardiomyocytes repopulated the
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heart tissue and stably integrated into the muscle tissue of the adult heart.
These results suggest that hPSC-derived cardiomyocytes could be developed for
cellular transplantation therapy in humans suffering from congestive heart
failure and heart attacks. We have derived human cardiomyocytes from hPSCs and
observed their normal contractile function. We plan to test these cardiomyocytes
in animal models to establish the safety and efficacy of this cell-based
therapy.
Parkinson's Disease, Stroke and Spinal Cord Injury. The major neural cells
of the nervous system typically do not regenerate after injury. If a nerve cell
is damaged due to disease or injury, there is no treatment at present to restore
lost function. Millions of patients worldwide suffer from injury to or disorders
associated with degeneration of the nervous system. Strokes are caused by blood
clots or local bleeding in the brain and result in the death or degeneration of
critical brain cells. Over 500,000 Americans suffer strokes each year. Stroke
patients are often permanently compromised by loss of cognitive motor and
sensory functions. There is no treatment available today except costly long-term
rehabilitation programs which have limited utility in restoring function. Over
one million Americans suffer from Parkinson's disease, a neurological disorder
caused by the progressive degeneration of specific cells within the brain that
control certain motor functions. In the case of spinal cord injuries, patients
are often left partly or wholly paralyzed because nerve cells in the spinal cord
have been severed and cannot regenerate. Such patients are permanently disabled,
often institutionalized, some requiring life support.
Embryonic stem cell-derived neurons have been used to treat nervous system
disorders in animal models. Mouse embryonic stem cells were stimulated to
differentiate into neural cells which, when transplanted into mice with
neurological disorders, helped to restore normal function. In the case of spinal
cord injuries, neurons derived from animal embryonic stem cells produced partial
recovery of the animal's ability to move and bear weight when injected into the
spinal cord injury site.
We have derived the major types of neural cells from hPSCs cells in
culture--human neurons, astrocytes, and oligodendrocytes. We have devoted a
significant portion of our research activities to develop procedures that should
enable us to produce these neural cells for transplantation therapy in humans.
We will first test these cells in appropriate animal models to determine whether
they can restore normal neural function. We intend to repair the damaged
portions of patients' nervous systems by transplanting differentiated neurons
produced from hPSCs.
Skin. The skin is a major organ system of the body whose deterioration with
age impacts not just human physical health but also our appearance and
self-esteem. The thinning and increased wrinkling of older skin is symptomatic
of impaired wound healing and results in increased frequency of chronic ulcers.
Skin cancers are more prevalent than any other form of cancer and are believed
to be caused in part by aging of skin cells.
We have initiated a major skin program based upon the activation of
telomerase in skin cells. Our scientists and collaborators as well as other
researchers have established that skin cells age in tissue culture and in the
body with loss of telomeric DNA, and that restoration of telomerase activity is
capable of dramatically extending the healthy lifespan of these cells in
culture. Animal models of telomere loss also correlate cellular aging with
thinning of skin, graying of hair, chronic ulcerative lesions at areas of
stress, and reduced ability to repair wounds. Our approach to the therapeutic
use of telomerase activation in skin includes both small molecule drug discovery
as well as biological and genetic methods of introducing telomerase into various
skin cells.
Diabetes. It is estimated that there are as many as one million Americans
suffering from the type of diabetes known as Insulin Dependent Diabetes
Mellitus. Normally, certain cells in the pancreas called the islet (LOGO) cells
produce insulin which promotes the uptake of the sugar glucose by cells in the
human body. Degeneration of pancreatic islet (LOGO) cells results in a lack of
insulin in the bloodstream which results in diabetes. Although diabetics can be
treated with daily injections of insulin, these injections enable only
intermittent glucose control. As a result, patients with diabetes suffer chronic
degeneration of many organs, including the eye, kidney, nerves and blood
vessels. In some cases, patients with diabetes have been treated with islet
(LOGO) cell transplantation. However, poor availability of suitable sources for
islet (LOGO) cell transplantation and the complications of the required
co-administration of immunosuppressive drugs make this approach impractical as a
treatment for the growing numbers of individuals suffering from diabetes.
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By integrating our three scientific platforms: telomerase-immortalization,
hPSCs and nuclear transfer, we intend to derive histocompatible, or
genetically-matched, insulin-producing islet (LOGO) cells for transplantation.
Pilot studies are underway with collaborators to determine the effects of
telomerase expression on primary (LOGO) cells derived from human islet tissue.
In addition, we are devising techniques to differentiate islet (LOGO) cells from
hPSCs which would be used in studies of animal models of diabetes. We intend to
derive long-lived, transplantable islet (LOGO) cells which could support the
patient's insulin requirements for life.
Other Applications
Xenotransplantation. The demand for organ transplantation far outweighs the
number of human organs available. It is estimated that there are over 150,000
people worldwide waiting for an organ. In the United States, more than 60,000
individuals were registered on transplant waiting lists at the end of 1998. That
year, however, less than half of the people listed received solid organ
transplants. The demand for organ transplantation will continue to increase as
improved technical skills and anti-rejection medication make whole organ
transplantation a realistic option for groups of people previously considered
not eligible for transplantation--for example, those suffering from diabetes or
those over age 55.
Programs to increase the number of registered donors are extremely
important--but these programs alone will not solve the problem of organ
shortage. One solution under consideration by the medical, pharmaceutical and
biotechnology communities is xenotransplantation--the process of transplanting
cells, tissues or organs from one species to another, for example, from an
animal to a human. This approach potentially could be used either as a bridge to
human organ transplantation or as long term therapy in the form of a permanent
transplant.
Pigs are the preferred source for xenotransplantation because they have
organs of comparable size and anatomy to human organs. Through nuclear transfer,
we intend to produce pigs that have been genetically modified to make their
organs more suitable for transplantation to humans without causing an acute
immune rejection. Acute immune rejection of transplanted pig organs is caused by
natural human antibodies which recognize and react to certain sugar structures
present in the blood vessels of the transplanted pig tissue. We intend to delete
from the pig genome the gene for the enzyme which generates the key sugar
structure that triggers the immune rejection. Once we have created the desired
donor animal, cloning of that animal via nuclear transfer would enable the
cost-effective and scalable production of identical animals for clinical trials.
Cloned herds of pigs which would no longer carry the foreign sugar structure
could become a commercial source of organs that would not be rejected by the
recipients' immune system. Such cloned pigs would serve as sources for multiple
transplantable organs such as hearts, kidneys and pancreases. Our
xenotransplantation program is conducted at Geron Bio-Med, located within the
Roslin Institute in Scotland.
Transgenic Animals. We intend to apply our nuclear transfer technology to
clone animals that have been genetically engineered to produce proteins for
human therapeutic use. For example, herds which carry the genes to make human
antibodies could be cloned, thereby allowing for the large-scale production of
therapeutic antibodies or vaccines.
Agriculture. We intend to use nuclear transfer and gene targeting for
applications in agriculture that improve livestock by producing unlimited
numbers of genetically identical animals with superior commercial qualities.
Such applications can be extended to major agricultural sectors, such as beef,
dairy, pig and chicken, to provide large numbers of animals with superior
characteristics of disease resistance, longevity, growth rate or product
quality. We are focusing our research collaboration at the Roslin Institute on
developing more efficient nuclear transfer procedures suitable for agricultural
applications.
COMMERCIALIZATION
We believe that our broad scientific platforms will generate significant
opportunities for a variety of strategic collaborations. We have established and
intend to continue to establish selective collaborations with leading
pharmaceutical, diagnostic and technology companies to enhance our research,
development and commercialization capabilities and to participate in
commercialization opportunities. In each of these strategic
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collaborations and in future collaborations, we retain and intend to retain
co-promotion rights to participate in the commercial success of our products.
Kyowa Hakko Collaboration
In April 1995, we entered into a license and research collaboration
agreement with Kyowa Hakko. Under the agreement, Kyowa Hakko agreed to provide
$16.0 million of research funding over four years to support our program to
discover and develop in several Asian countries a telomerase inhibitor for the
treatment of cancer. All of this research funding had been received as of
December 31, 1999. In addition, we are entitled to receive future payments upon
the achievement of certain contractual milestones relating to drug development
and regulatory progress, as well as royalty payments on product sales. Kyowa
Hakko also purchased $2.5 million of our common stock in connection with our
initial public offering. Under the Kyowa Hakko Agreement, we exercise
significant influence during the research phase and Kyowa Hakko exercises
significant influence during the development and commercialization phases. Kyowa
Hakko has agreed that it will not pursue independently telomerase inhibition for
the treatment of cancer in humans until March 2002. In February 2000, we amended
our agreement with Kyowa Hakko to extend the research and compound selection
periods under the original agreement to March 2002. We are entitled to receive
additional research funding as part of this extension subject to the terms of
the agreement.
Pharmacia & Upjohn Collaboration
In March 1997, we signed a license and research collaboration agreement
with Pharmacia & Upjohn to collaborate in the discovery, development and
commercialization of a new class of anti-cancer drugs that inhibit telomerase.
Under the collaboration, Pharmacia & Upjohn agreed to provide research funding
over three years. As of December 31, 1999, $13.8 million of research funding had
been received. In addition, we are entitled to receive future payments upon the
achievement of certain contractual milestones relating to drug development and
regulatory progress, as well as royalty payments on future product sales. We
also signed a stock purchase agreement with Pharmacia & Upjohn which provided
for equity investments of $2.0 million in January 1997, $4.0 million in April
1997 and $4.0 million in March 1998. Pharmacia & Upjohn purchased each round of
our common stock at a premium. This collaboration with Pharmacia & Upjohn was
enhanced in 1999 by accessing the high throughput screening capabilities and the
three million compound library of Pharmacopoeia, via an alliance between
Pharmacia & Upjohn and Pharmacopoeia which includes telomerase inhibition. In
October 1999, Pharmacia & Upjohn exercised an option to extend the research and
compound selection periods for an additional year to March 2002. The agreement
provides for additional research funding to us as part of this extension.
Through our agreements with Kyowa Hakko and Pharmacia & Upjohn, we have
granted to them exclusive worldwide rights to our telomerase inhibition
technology for the treatment of cancer in humans.
Roslin Institute Collaboration
In May 1999, we completed the acquisition of Roslin Bio-Med Ltd., a company
formed by the Roslin Institute in Midlothian, Scotland, in order to complement
and strengthen our technology platforms. Under the terms of the agreement, we
purchased all outstanding shares of Roslin Bio-Med in exchange for 2.1 million
shares of our common stock and Roslin Bio-Med became a wholly owned United
Kingdom subsidiary known as Geron Bio-Med Ltd. In addition, the Roslin Institute
transferred to us the exclusive rights to the patent applications covering
nuclear transfer technology for all animal and human-based biomedical
applications, excluding human reproductive cloning. The license covers all
animal and human-based biomedical applications with the exception of the
production of therapeutic proteins in the milk of ruminants and rabbits, and the
modification of milk composition for nutraceutical use.
In connection with this acquisition, we also formed a research
collaboration with the Roslin Institute and have agreed to provide approximately
$20.0 million in applied research funding over six years. Under this
collaboration, we retain exclusive license rights to commercialize the results
of the research. This alliance brings together three complementary technologies:
telomerase immortalization, human pluripotent stem cells
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and nuclear transfer technologies. We and the Roslin Institute will focus on
generating genetically-matched human cells and tissues with extended replicative
capacity for use in repairing organ damage caused by a range of degenerative
diseases, including chronic liver disease, heart disease, neurologic diseases,
skin conditions and diabetes, while also advancing work underway at the Roslin
Institute on the development of genetically modified cloned animals for
applications in xenotransplantation and agriculture.
Clontech Marketing Agreement
In March 1999, we entered into a development and license agreement with
Clontech to market the Infinity(TM) product family of primary human cell lines
immortalized with the enzyme telomerase. Under the terms of the agreement,
Clontech manufactures and markets products resulting from the use of our
telomerase technology to the not-for-profit research market. Clontech also
supplies products to the biotechnology and pharmaceutical industries under
licenses to be executed between us and the individual commercial companies.
Under the Clontech agreement, Clontech paid us an up-front fee of $50,000 for
development activities. We will equally share operating profits with Clontech
from the sales of the Infinity(TM) Cell Lines, while we will retain all
licensing revenues.
In 1999, Clontech launched the telomerase-immortalized hTERT-RPE1 human
retinal pigment epithelial cell line and the hTERT-BJ1 human fibroblast cell
line. We and Clontech plan to expand the family of Infinity Cell Lines in the
future.
Diagnostic Collaborations
Research-Use-Only Kits. Roche Diagnostics has licensed all telomerase and
telomere length assay technologies, including TRAP, hTR, hTERT, and
immunoassays, for research-use-only kits in cancer. All telomerase licenses
previously licensed to Boehringer Mannheim were transferred to Roche Diagnostics
following their acquisition of Boehringer Mannheim. Boehringer Mannheim's
telomerase-related products are now marketed under the Roche Diagnostics label.
In late 1996, Boehringer Mannheim commenced commercial sale of the TRAP research
kit. In 1999, Roche Diagnostics launched three additional research kits.
Examples of other companies marketing research-use-only kits under license
include the following:
- In 1999, Roche Diagnostics entered into a sublicense agreement with Dako
under which Dako has received non-exclusive rights to develop antibody
mediated telomerase detection assays for research and clinical diagnostic
applications in oncology. We will receive royalties from products
commercialized under this sublicense.
- Kyowa Medex Co. has licensed our TRAP assay technology on a non-exclusive
basis for the research-use-only market in Japan and commenced commercial
sale of the TRAP kit in late 1996.
- We licensed the TRAP assay for research-use-only to Oncor Inc. and it has
been subsequently transferred to the Intergene Company following the
acquisition of Oncor's research reagent division by Intergen.
- PharMingen has licensed our TRAP assay and telomere length measurement
technology on a non-exclusive basis for sale to the research-use-only
market.
Although we do not expect royalties from the sale of these kits to be
significant, the use of these kits has stimulated additional studies of
telomerase activity by academic laboratories and standardized the methodology
used to evaluate the role of telomerase in cancer.
In Vitro Diagnostics. In addition to the rights described above related to
research-use-only kits, our December 1997 license, product and marketing
agreement with Boehringer Mannheim also granted Boehringer Mannheim rights to
develop and commercialize clinical in vitro diagnostic products for cancer on an
exclusive, worldwide basis. Under the agreement, Boehringer Mannheim provided
reimbursement in the amount of $500,000 for research previously conducted and is
responsible for all clinical, regulatory, manufacturing, marketing and sales
efforts and expenses. We are entitled to receive future payments upon
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achievement of certain contractual milestones relating to levels of product
sales, as well as royalties on product sales. Further, we have an option at our
sole discretion to exercise co-promotion rights with respect to in vitro
diagnostic products in the United States. After the acquisition of Boehringer
Mannheim by Roche Diagnostics in 1998, all telomerase licenses previously
licensed to Boehringer Mannheim were transferred to Roche Diagnostics following
their acquisition of Boehringer Mannheim.
RESEARCH COLLABORATIONS
We selectively enter into, and intend to continue to enter into,
collaborative research agreements with leading academic and research
institutions. We design these collaborative agreements to significantly enhance
our research and development capabilities while enabling us to obtain commercial
rights to intellectual property developed through the research collaboration.
Under these agreements, we generally provide funding or other resources for
scientific research in return for exclusive commercial rights to materials and
discoveries arising out of this research. We seek to retain rights to
commercially develop and market discoveries made under these research programs
by obtaining options to exclusively license technology developed under them,
including patents and patent applications filed in connection with these
research programs.
As of December 31, 1999, we have collaborative research agreements in
support of our oncology program with a number of institutions, including Duke
University, Lawrence Berkeley National Laboratory, the National Cancer
Institute, Madigan Army Medical Center, Stanford University, the University of
Colorado, the University of Texas Southwestern Medical School at Dallas, the
University of California at San Francisco, and the University of Pittsburgh. We
have collaborative research agreements in support of our research of
telomerase-immortalized cells with numerous institutions, including Duke
University, the Lawrence Berkeley National Laboratory, the Memorial
Sloan-Kettering Cancer Center, Stanford University, and the University of
California at Los Angeles. We have exclusive license and collaborative research
agreements in support of our human pluripotent stem cell research and
regenerative medicine program with the Johns Hopkins University, the University
of California at San Francisco, the University of Edinburgh and the University
of Wisconsin-Madison.
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
Geron's three core technology platforms are supported by a broad
intellectual property portfolio of issued patents and pending patent
applications. We currently own or have licensed over 58 issued or allowed United
States patents, 17 granted foreign patents and over 265 patent applications that
are pending around the world.
Our policy is to seek, when appropriate, patent protection for inventions
in our core technology platforms as well as ancillary technologies that support
these platforms or otherwise provide a competitive advantage to us. We achieve
this by filing patent applications for discoveries made by us alone or made in
conjunction with our scientific collaborators and strategic partners. Typically,
although not always, we file patent applications in the United States and
internationally through the Patent Cooperation Treaty. In addition, we obtain
licenses or options to acquire licenses from other organizations to patent
filings that may be useful in advancing our scientific and commercial programs.
We hold rights in more than 30 issued United States patents relating to
telomerase. We currently have an issued United States patent covering purified
human telomerase, and exclusive rights to issued Swiss and United Kingdom
patents covering the cloned gene that encodes the human telomerase protein
component. We also have exclusive rights to an issued United Kingdom patent
covering the promoter that regulates the activity of this gene. With respect to
telomerase diagnostics, our portfolio includes 21 issued United States patents
and nine issued foreign patents. The patents cover compositions of the RNA and
protein components of telomerase, the TRAP assay for detecting telomerase
activity, telomerase activity detection kits, and methods of diagnosing disease
states, such as cancer. Our portfolio also includes issued United States patents
and pending applications relating to telomerase inhibitors, including nucleic
acids and small molecule telomerase inhibitors. We also own several patent
applications directed to oligonucleotide nucleic acid chemistry.
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With respect to our pluripotent stem cells, we own or have licensed several
United States and foreign national patent applications relating to embryonic
stem cells and germ cells, and methods for obtaining and maintaining them,
including an issued United States patent covering primate embryonic stem cells.
As part of our acquisition of Roslin Bio-Med, we acquired a license for a
number of United States and foreign national patent applications directed to
nuclear transfer, including the "quiescence" and "MAGIC" technologies. The
quiescence technology relates to the use of donor cell nuclei that are in
resting or quiescent state for nuclear transfer. The MAGIC technology combines a
number of technical advances that provide enhanced nuclear transfer efficiency.
Two United Kingdom patents, as well as patents in New Zealand and South Africa
have now been granted, and one United States patent application has been
allowed, covering the quiescence technology. Patents to the MAGIC technology
have also been granted in New Zealand and South Africa. We also have filed
additional patent applications to cover inventions that have been produced as a
result of our current research collaboration at the Roslin Institute.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other
countries is a significant factor in the development, manufacture and marketing
of our proposed products and in our ongoing research and product development
activities. The nature and extent to which such regulation applies to us will
vary depending on the nature of any products which may be developed by us. We
anticipate that many, if not all, of our products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human therapeutic and vaccine products are subject to rigorous preclinical and
clinical testing and other approval procedures of the Food & Drug
Administration, or FDA, and similar regulatory authorities in European and other
countries. Various governmental statutes and regulations also govern or
influence testing, manufacturing, safety, labeling, storage and recordkeeping
related to such products and their marketing. The process of obtaining these
approvals and the subsequent compliance with appropriate statutes and
regulations require the expenditure of substantial time and money. Any failure
by us or our collaborators to obtain, or any delay in obtaining affect the
marketing of any products developed by us, and prevent us from generating
product revenues and obtaining adequate cash to continue present and planned
operations.
FDA Approval Process
Prior to commencement of clinical studies involving humans, preclinical
testing of new pharmaceutical products is generally conducted on animals in the
laboratory to evaluate the potential efficacy and the safety of the product. The
results of these studies are submitted to the FDA as a part of an
Investigational New Drug application, which must become effective before
clinical testing in humans can begin. Typically, human clinical evaluation
involves a time consuming and costly three-phase process. In Phase I, clinical
trials are conducted with a small number of people to assess safety and to
evaluate the pattern of drug distribution and metabolism within the body. In
Phase II, clinical trials are conducted with groups of patients afflicted with a
specific disease in order to determine preliminary efficacy, optimal dosages and
expanded evidence of safety. In Phase III, large-scale, multi-center,
comparative trials are conducted with patients afflicted with a target disease
in order to provide enough data to demonstrate the efficacy and safety required
by the FDA. The FDA closely monitors the progress of each of the three phases of
clinical testing and may, at its discretion, re-evaluate, alter, suspend, or
terminate the testing based upon the data which have been accumulated to that
point and its assessment of the risk/benefit ratio to the patient. Monitoring of
all aspects of the study to minimize risks is a continuing process. Reports of
all adverse events must be made to the FDA.
The results of the preclinical and clinical testing on a non-biologic drug
and certain diagnostic drugs are submitted to the FDA in the form of a New Drug
Application, or NDA, for approval prior to commencement of commercial sales. In
the case of vaccines or gene and cell therapies the results of clinical trials
are submitted as a Biologics License Application. In responding to a NDA or
Biologics License Application, the FDA may grant marketing approval, request
additional information or deny the application if the FDA determines that the
application does not satisfy its regulatory approval criteria. There can be no
assurance that approvals will be granted on a timely basis, if at all, for any
of our products. Similar procedures are in place in countries outside the United
States.
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European and Other Regulatory Approval
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities in Europe and other countries will likely be
necessary prior to commencement of marketing the product in such countries. The
regulatory authorities in each country may impose their own requirements and may
refuse to grant, or may require additional data before granting, an approval
even though the relevant product has been approved by the FDA or another
authority. As with the FDA, the regulatory authorities in the European Union, or
EU, countries and other developed countries have lengthy approval processes for
pharmaceutical products. The process for gaining approval in particular
countries varies, but generally follows a similar sequence to that described for
FDA approval. In Europe, the European Committee for Proprietary Medicinal
Products provides a mechanism for EU-member states to exchange information on
all aspects of product licensing. The EU has established a European agency for
the evaluation of medical products, with both a centralized community procedure
and a decentralized procedure, the latter being based on the principle of
licensing within one member country followed by mutual recognition by the other
member countries.
Other Regulations
We are also subject to various United States, federal, state, local and
international laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices and the use and disposal of
hazardous or potentially hazardous substances, including radioactive compounds
and infectious disease agents, used in connection with our research work. We
cannot accurately predict the extent of government regulation which might result
from future legislation or administrative action.
SCIENTIFIC ADVISORS AND CONSULTANTS
We have consulting agreements with a number of leading academic scientists
and clinicians. These individuals serve as members of our Scientific Advisory
Board or as key consultants with respect to our scientific programs and
strategies. They are distinguished scientists and clinicians with expertise in
numerous scientific fields, including the genetics of aging, pluripotent stem
cells, nuclear transfer, cell senescence and telomere and telomerase biology, as
well as developmental biology, cellular biology, and molecular biology.
We established the advisory board to provide us with expert advice and
consultation on our scientific programs and strategies. Members of the advisory
board also serve as important contacts for us throughout the broader scientific
community. The advisory board meets at least once annually as a whole or in
smaller groups to focus on general strategy and certain specific scientific
issues. We contact individual members of the advisory board to provide advice
and consultation on an ad hoc basis, as appropriate.
We retain each member of the advisory board according to the terms of a
consulting agreement between the advisory board member and us. Under such
consulting agreements, certain advisory board members hold options to purchase
our common stock, subject to the vesting requirements contained in the
consulting agreements. In addition, we pay advisory board members a consulting
fee and reimburse them for out-of-pocket expenses incurred in attending each
advisory board meeting. Most members of the advisory board are employed by
institutions other than ours, and therefore may have commitments to, or
consulting or advisory agreements with, other entities or academic institutions
that may limit their availability to us.
As of December 31, 1999, our advisory board members and key consultants
included the following individuals:
STEPHEN BENKOVIC, PH.D., is Professor of Chemistry at the Pennsylvania
State University and is a member of our Scientific Advisory Board. Dr. Benkovic
is a member of the Chemical Society and the recipient of the 1998 Chemical
Pioneer Award given by the American Institute of Chemists. He is an
internationally recognized expert in protein chemistry, including the enzymology
of DNA polymerases.
DAVID BOTSTEIN, PH.D., is Professor and Chairman of the Department of
Genetics, Stanford University School of Medicine. He was elected to the National
Academy of Sciences in 1981 and to the Institute of Medicine in 1993. His
current research activities include studies of yeast genetics and cell biology,
linkage mapping of human genes predisposing to manic-depressive illness and the
development and maintenance of the Saccharomyces Genome Database on the World
Wide Web. He has received numerous awards, including
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the Genetics Society of America Medal (1985) and the Allen Award of the American
Society of Human Genetics (1989). Dr. Botstein has served on numerous committees
including the National Institutes of Health ("NIH") Program Advisory Panel on
the Human Genome (1989 - 90) and the Advisory Council of the National Center for
Human Genome Research (1990 - 95).
ROBERT N. BUTLER, M.D., is a gerontologist and psychiatrist with broad
experience in aging research and advocacy. In 1982, he founded the first
department of geriatrics at a United States medical school -- the Department of
Geriatrics and Adult Development at the Mount Sinai Medical Center -- where he
continues to serve as Professor. Since 1990, he has also been Director of the
International Longevity Centers. In 1975, he became the founding director of the
National Institute on Aging ("NIA") of the NIH, a position he held until 1982.
He currently serves on the National Advisory Council of the National Institute
on Aging. Dr. Butler also serves as editor-in-chief of the journal Geriatrics
and is the author of approximately 300 scientific and medical articles. In 1976,
he won the Pulitzer Prize for his book, "Why Survive? Being Old in America."
JUDITH CAMPISI, PH.D., is a Senior Scientist and Acting Chair, Department
of Cancer Biology, Lawrence Berkeley National Laboratory. She has been an
Established Investigator of the American Heart Association and currently has a
MERIT Award from the NIA, and serves on its Board of Scientific Counselors. Her
major interests are the cellular and molecular biology of senescence and
tumorigenesis.
JOHN CLARK, OBE, FRSE, PH.D., is Head of the Division of Molecular Biology
at the Roslin Institute and is the leader of Geron Bio-Med's gene targeting
team. Dr. Clark was a scientific founder of PPL Therapeutics, plc and is also a
Professor in the Division of Biology at Edinburgh University. He received the
Order of the British Empire from the Queen of England in 1997 for his
contribution to biotechnology and particularly his pioneering work on the
modification of milk composition by genetic engineering of livestock. He was
elected to the Royal Society of Edinburgh in 1999. Current research areas
include use of genetically modified animals for biomedical and agricultural
applications and fundamental studies of the control of gene expression.
DOUGLAS HANAHAN, PH.D., is a Professor of Biochemistry in the Department of
Biochemistry and Biophysics and Associate Director of the Hormone Research
Institute, University of California at San Francisco and is a member of our
Scientific Advisory Board. His major research interests are the cellular and
genetic mechanisms of tumor development and autoimmunity. Prior to joining the
University of California at San Francisco in 1988, Dr. Hanahan was with the Cold
Spring Harbor Laboratory for nine years, where he developed technologies for
recombinant DNA and molecular cloning and established transgenic mouse models to
study cancer and autoimmune diseases.
LEONARD HAYFLICK, PH.D., is a Professor of Anatomy at the School of
Medicine of the University of California at San Francisco. Dr. Hayflick is best
known for his pioneering work in tissue culture, where he discovered the finite
replicative capacity of normal human cells which he interpreted as aging at the
cellular level. This phenomenon is known as the "Hayflick Limit" and Dr.
Hayflick is widely known as the "father" of cellular gerontology. Dr. Hayflick
has published over 200 papers and is the recipient of numerous national and
international research awards and honors, was President of the Gerontological
Society of America, was a founding member of the Council of the NIA, and
recently authored the popular book, "How and Why We Age."
RUDOLF JAENISCH, PH.D., is a Professor of Biology at the Massachusetts
Institute of Technology, a member of the Whitehead Institute for Biomedical
Research and a member of our Scientific Advisory Board. Dr. Jaenisch is
internationally known for his research on the control of gene expression in
mammalian development and genetic disease. He has recently turned his attention
to the use of mammalian cloning technology to distinguish epigenetic and genetic
alterations in the genome and their role in growth and development.
MALCOLM MOORE, PH.D., is a Professor of Biology at the Sloan-Kettering
Division, Cornell Graduate School of Medical Sciences and is internationally
known for his pioneering work in hematopoiesis, growth factors, and cytokines.
He is also currently incumbent of the Enid A. Haupt Chair of Cell Biology,
Memorial Sloan-Kettering Cancer Center. Dr. Moore received the William B. Coley
Award For Distinguished Research in Immunology by the Cancer Research Institute
in June 1995.
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ROGER A. PEDERSEN, PH.D., is a Professor of Obstetrics, Gynecology and
Reproductive Sciences at the University of California at San Francisco, where he
teaches developmental genetics and mammalian embryology. He received his B.A.
degree from Stanford University, and his Ph.D. at Yale University. He completed
his postdoctoral research at the Johns Hopkins University. Since 1991 he has
served as Series Editor of Current Topics in Developmental Biology. He has
written numerous original publications and reviews on early mouse development,
and co-produced two instructional videotapes on the use of mice in transgenic
and gene targeting research.
JERRY W. SHAY, PH.D., is a Professor of Cell Biology and Neuroscience at
the University of Texas Southwestern Medical Center at Dallas and is a member of
our Scientific Advisory Board. Dr. Shay's research focuses on molecular
mechanisms of tumorigenesis and immortalization with a particular emphasis on
cancer of the breast. Dr. Shay has numerous publications, honors and patents. He
is also on the editorial board for the Journal of Clinical Pathology.
JAMES D. WATSON, PH.D., is President of Cold Spring Harbor Laboratory and
is a member of our Scientific Advisory Board. Dr. Watson is the former head of
the NIH Human Genome Project and is famous for his 1953 discovery with Francis
Crick of the double helical structure of DNA for which he received the Nobel
Prize.
IAN WILMUT, B.SC., PH.D., D.SC., F.MED.SCI., is Professor of the Division
of Biological Science of the University of Edinburgh and is the head of the
Geron Bio-Med nuclear transfer team. Professor Wilmut has received numerous
prizes, including the Sir John Hammond Prize by the British Society of Animal
Production, the Golden Plate Award by the American Academy of Achievement of
Science and Technology, the Lord Lloyd of Kilgerran Prize by the Foundation of
Science and Technology, and the Order of the British Empire from the Queen of
England in 1999. He is the leader of the team that cloned Dolly, the first
animal to develop after nuclear transfer from an adult cell, and is an
internationally recognized expert in the field of nuclear transfer. Current
research areas include early mammalian development, embryo manipulation, nuclear
transfer and gene targeting in mice, cattle, sheep and pigs.
WOODRING E. WRIGHT, M.D., PH.D., is a Professor of Cell Biology and
Neuroscience at the University of Texas Southwestern Medical Center at Dallas
and is a member of our Scientific Advisory Board. He is widely recognized as a
leading molecular biologist working in the field of cellular senescence and on
the molecular basis of muscle development.
GERON ETHICS ADVISORY BOARD
In July 1998, we created an Ethics Advisory Board whose members represent a
variety of philosophical and theological traditions with broad knowledge in
health care ethics. The advisory board functions as an independent entity,
consulting and giving advice to us on the ethical aspects of our work. Members
of the advisory board have no financial interest in Geron.
As of December 31, 1999, the Ethics Advisory Board consisted of the
following individuals:
KAREN LEBACQZ, PH.D., is the Robert Gordon Sproul Professor of Theological
Ethics at the Pacific School of Religion in the Graduate Theological Union,
Berkeley, California. She has published extensively on ethics and genetics as
well as research ethics and served on the National Commission for the Protection
of Human Subjects of Biomedical and Behavioral Research.
MICHAEL M. MENDIOLA, PH.D., is Assistant Professor of Christian ethics at
the Pacific School of Religion in the Graduate Theological Union, Berkeley,
California. He is a published author on the role of religious ethics in public
discourse and is currently the project director of the Bay Area Faith and Health
Consortium.
TED PETERS, PH.D., is Professor of Systematic Theology at Pacific Lutheran
Theological Seminary. He conducts research at the Center for Theology and the
National Sciences where he is principle investigator for a research project on
"Theological and Ethical Implications of the Human Genome Initiative". He is
also editor of Genetics: Issues of Social Justice.
ERNLE W. D. YOUNG, PH.D., is Clinical Professor of Ethics in the Department
of Medicine and Pediatrics at Stanford University School of Medicine, a
Co-Director of Stanford University's Center for Biomedical
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Ethics, the Clinical Ethics Consultant to Stanford University Hospital and to
Veterans' Affairs hospitals in Palo Alto and Fresno, California. He has
published extensively on issues in bioethics.
LAURIE ZOLOTH-DORFMAN, PH.D., is Associate Professor of Social Ethics and
Director of the Program in Jewish Studies at San Francisco State University and
a Co-Founder of The Ethics Practice, a group which provides education services
and consultation on bioethics to health care providers and health care systems.
She has published on bioethics, religion, and health care.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
executive officers of Geron Corporation:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas B. Okarma, Ph.D., M.D. ............ 54 President, Chief Executive Officer and
Director
David L. Greenwood........................ 48 Chief Financial Officer, Senior Vice
President Corporate Development, Treasurer
and Secretary
David J. Earp, Ph.D. J.D. ................ 35 Vice President, Intellectual Property
Calvin B. Harley, Ph.D.................... 47 Chief Scientific Officer
Jane S. Lebkowski, Ph.D................... 44 Vice President, Cell and Gene Therapies
Richard L. Tolman, Ph.D................... 58 Vice President, Drug Discovery
</TABLE>
THOMAS B. OKARMA, PH.D., M.D., has served as our President, Chief Executive
Officer and director since July 1999. He is also a director of Geron Bio-Med
Limited, a United Kingdom company. From May 1998 until July 1999, Dr. Okarma was
the Vice President of Research and Development. From December 1997 until May
1998, Dr. Okarma was Vice President of Cell Therapies. From 1985 until joining
us, Dr. Okarma, the scientific founder of Applied Immune Sciences, Inc., served
initially as Vice President of Research and Development and then as its
chairman, chief executive officer and a director, until 1995 when it was
acquired by Rhone-Poulenc Rorer. Dr. Okarma was a Senior Vice President at
Rhone-Poulenc Rorer from the time of the acquisition of Applied Immune Sciences,
Inc. until December 1996. From 1980 to 1985, Dr. Okarma was a member of the
faculty of the Department of Medicine at Stanford University School of Medicine.
Dr. Okarma holds a A.B. from Dartmouth College and a M.D. and Ph.D. from
Stanford University.
DAVID L. GREENWOOD has served as our Chief Financial Officer, Treasurer and
Secretary since August 1995, Vice President of Corporate Development since April
1997 and Senior Vice President of Corporate Development since August 1999. He is
also a Director of Geron Bio-Med Limited, a United Kingdom company. From 1979
until joining us, Mr. Greenwood held various positions with J.P. Morgan & Co.
Incorporated, an international banking firm, and its subsidiaries, J.P. Morgan
Securities Inc. and Morgan Guaranty Trust Company of New York. Mr. Greenwood
holds a B.A. from Pacific Lutheran University and an M.B.A. from Harvard
Business School.
DAVID J. EARP, J.D., PH.D., joined us in June 1999 and has served as our
Vice President, Intellectual Property since October 1999. From 1992 until
joining us, Dr. Earp was with the intellectual property law firm of Klarquist
Sparkman Campbell Leigh and Whinston, LLP where his practice focused on
biotechnology patent law. Dr. Earp holds a B.S. in microbiology from the
University of Leeds, England, a Ph.D. in biochemistry and molecular biology from
The University of Cambridge, England, and conducted postdoctoral research at the
University of California at Berkeley. He received his J.D., Magna cum laude from
the Northwestern School of Law of Lewis and Clark College in Portland, Oregon.
CALVIN B. HARLEY, PH.D., has served as our Chief Scientific Officer since
July 1996. From May 1994 until July 1996, Dr. Harley was Vice President of
Research and from April 1993 to May 1994, Dr. Harley was Director, Cell Biology.
Dr. Harley was an Associate Professor from 1989 until joining us, and from 1982
to 1989, an Assistant Professor of Biochemistry at McMaster University. Dr.
Harley also was the Chair of the Canadian Association on Gerontology, Division
of Biological Sciences from October 1989 to October 1991 and Chairman Elect from
1987 to 1989. Dr. Harley holds a B.S. from the University of Waterloo and a
Ph.D.
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<PAGE> 18
from McMaster University, and conducted postdoctoral work at the University of
Sussex and the University of California at San Francisco.
JANE S. LEBKOWSKI, PH.D., has served as our Vice President of Cell and Gene
Therapies since August 1999. Since joining us in April 1998 and until August
1999, Dr. Lebkowski served as Senior Director, Cell and Gene Therapies.
Formerly, Dr. Lebkowski was employed at Applied Immune Sciences, from 1986 to
1995 where she served as Vice President, Research and Development. In 1995,
Applied Immune Sciences was acquired by Rhone-Poulenc Rorer, at which time Dr.
Lebkowski was appointed Vice President, Discovery & Product Development. Dr.
Lebkowski graduated Phi Beta Kappa with a B.S. in Chemistry and Biology from
Syracuse University and received her Ph.D. from Princeton University.
RICHARD L. TOLMAN, PH.D., has served as our Vice President of Drug
Discovery since August 1999. From December 1998 until August 1999, Dr. Tolman
served as Senior Director, Medicinal Chemistry overseeing the program to
discover and develop a small molecule telomerase inhibitor. From 1973 until
joining us, Dr. Tolman was employed at the Merck Research Laboratories where he
served as Senior Director, Medicinal Chemistry. He received a B.A. in Chemistry
with Honors from Brigham Young University and earned a Ph.D. with distinction
from the University of Utah.
EMPLOYEES
As of December 31, 1999, we had 103 full-time employees of whom 40 hold
Ph.D. degrees and 16 hold other advanced degrees. Of the total workforce, 76 are
engaged in, or directly support, our research and development activities and 27
are engaged in business development, finance and administration. We also retain
outside consultants. None of our employees is covered by a collective bargaining
agreement, nor have we experienced work stoppages. We consider relations with
our employees to be good.
ITEM 2. PROPERTIES
Geron currently leases approximately 41,000 square feet of office space at
194 Constitution Drive, 200 Constitution Drive and 230 Constitution Drive, Menlo
Park, California. The lease for the office space expires in January 2002, with
an option to renew the lease for two additional periods of two and one-half
years each. We intend to use this space for general office and biomedical
research and development purposes. We also currently lease 900 square feet of
office space at Roslin Biotechnology Centre, Roslin, Midlothian, United Kingdom.
The lease for the office space expires in May 2005. We believe that the existing
facilities are adequate to meet our requirements for the near term.
ITEM 3. LEGAL PROCEEDINGS
Geron is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Stockholders of Geron was held pursuant to notice on
December 10, 1999, at 9:00 a.m. local time at Geron headquarters in Menlo Park,
California. There were present at the meeting, in person or represented by
proxy, the holders of 12,933,145 shares of common stock. The matters voted on at
the meeting and the votes cast are as follows:
(a) The approval of an amendment to Geron's Certificate of
Incorporation to increase the number of authorized shares from 25,000,000
shares to 35,000,000 shares is hereby approved. There were 12,328,019
shares of common stock voting in favor, 494,203 shares of common stock
voting against and 170,923 shares of common stock abstaining.
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<PAGE> 19
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Geron's common stock trades on the Nasdaq Stock Market(R) under the symbol
GERN. The high and low closing sales prices (excluding retail markup, markdowns
and commissions) of Geron's stock for the years ending December 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Year ended December 31, 1999
First quarter.......................................... $13.188 $ 9.875
Second quarter......................................... $12.875 $ 9.250
Third quarter.......................................... $12.250 $10.500
Fourth quarter......................................... $14.875 $ 9.500
Year ended December 31, 1998
First quarter.......................................... $14.375 $ 8.500
Second quarter......................................... $12.125 $ 9.000
Third quarter.......................................... $ 9.875 $ 4.219
Fourth quarter......................................... $17.188 $ 5.063
</TABLE>
As of December 31, 1999, there were approximately 807 stockholders of
record. Geron is engaged in a highly dynamic industry, which often results in
significant volatility of our common stock price.
DIVIDEND POLICY
Geron has never paid cash dividends on our capital stock and does not
anticipate paying cash dividends in the foreseeable future, but intends to
retain our capital resources for reinvestment in our business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon Geron's financial condition, results of
operations, capital requirements and other factors as the Board of Directors
deems relevant.
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<PAGE> 20
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ---------- --------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues from collaborative
agreements....................... $ 5,244 $ 6,706 $ 7,175 $ 5,235 $ 5,490
License fees and royalties......... 168 91 78 58 --
----------- ----------- ----------- ---------- --------
Total revenues........... 5,412 6,797 7,253 5,293 5,490
Operating expenses:
Research and development........... 20,571 15,619 15,139 14,260 11,321
Acquired research technology....... 23,403 -- -- -- --
General and administrative......... 5,574 3,769 3,120 3,161 2,888
----------- ----------- ----------- ---------- --------
Total operating
expenses............... 49,548 19,388 18,259 17,421 14,209
----------- ----------- ----------- ---------- --------
Loss from operations............... (44,136) (12,591) (11,006) (12,128) (8,719)
Interest and other income.......... 3,263 2,666 1,757 1,826 919
Interest and other expense......... (5,503) (907) (392) (385) (399)
----------- ----------- ----------- ---------- --------
Net loss........................... $ (46,376) $ (10,832) $ (9,641) $ (10,687) $ (8,199)
Accretion of redemption value of
redeemable convertible preferred
stock............................ (73) (578) -- -- --
----------- ----------- ----------- ---------- --------
Net loss applicable to common
stockholders..................... $ (46,449) $ (11,410) $ (9,641) $ (10,687) $ (8,199)
=========== =========== =========== ========== ========
Basic and diluted net loss per
share............................ $ (3.00) $ (1.00) $ (0.91) $ (2.23) $ (9.77)
=========== =========== =========== ========== ========
Shares used in computing basic and
diluted net loss per share....... 15,489,035 11,439,084 10,551,054 4,789,388 839,490
=========== =========== =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.............................. $ 39,287 $ 24,469 $ 21,597 $ 24,269 $ 15,553
Working capital............................ 32,481 22,261 19,739 21,468 12,115
Total assets............................... 63,701 44,456 26,056 28,788 19,749
Noncurrent liabilities..................... 29,527 8,101 1,250 1,644 1,654
Redeemable convertible preferred stock..... -- 3,610 -- -- --
Accumulated deficit........................ (103,969) (57,520) (46,110) (36,469) (25,782)
Total stockholders' equity................. 26,226 29,191 21,066 23,591 14,308
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
This Form 10-K 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-K 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-K. 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 in the section of this Item 7 titled "Additional
Factors That May Affect Future Results," and elsewhere in this Form 10-K.
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<PAGE> 21
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes thereto included in Part I, Item 8
of this Form 10-K.
We are a biopharmaceutical company focused on discovering, developing and
commercializing therapeutic and diagnostic products for applications in
oncology, drug discovery and regenerative medicine. Our product development
programs are based upon three patented, independent and synergistic
technologies: telomerase, human pluripotent stem cells and nuclear transfer.
Since inception, substantially all of our revenues have been generated from
license and research agreements with collaborators. In addition, we receive
license payments and royalties from license and marketing agreement with various
diagnostic and research tool collaborators. We recognize revenue from the
license and research agreements with collaborators as the related research and
development costs are incurred under the collaborative agreements.
In March 2000, we sold a total of 380,855 shares of our common stock and
300,000 warrants to purchase our common stock to a single investor for $9
million. We structured the sale of securities in two parts. We priced the first
$6.4 million of common stock at $50.32 per share, and 200,000 warrants are
exercisable at $67.09 per share. We priced the remaining $2.6 million of common
stock at $10.25 per share, and the remaining 100,000 warrants are exercisable at
$12.50 per share. The common stock and the stock underlying the warrants are not
registered for resale and are subject to a two-year prohibition on sale by
agreement. As of March 9, 2000, all of the warrants were outstanding.
In January 2000, we extended our three-way license and research
collaboration agreement with Kyowa Hakko and Pharmacia & Upjohn. The agreement
extends the research and compound selection periods by one additional year to
March 2002 and provides for additional research funding over the next two years.
In May 1999, we completed the acquisition of Roslin Bio-Med Ltd., a
privately held company formed by the Roslin Institute in Midlothian, Scotland.
As part of the acquisition, we formed a research collaboration with the Roslin
Institute which obligated us to provide $20.0 million in research funding over
the next six years which has a net present value of $17.2 million. In exchange
for all of the outstanding shares of Roslin Bio-Med, we issued 1,891,371 shares
of our common stock with a fair value of $22.2 million. In addition, in exchange
for the outstanding fully vested stock options in Roslin Bio-Med, we issued
fully vested options to purchase 208,629 shares our common stock with a fair
value of $2.2 million. The total purchase price of $44.4 million also included
acquisition costs of $2.9 million. Under the terms of the agreement, Roslin
Bio-Med became our wholly owned United Kingdom subsidiary and is known as Geron
Bio-Med.
We accounted for the transaction using the purchase method. We allocated
the purchase price between 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. We expensed the value
of the nuclear transfer technology of $23.4 million as acquired research expense
and capitalized the value of the research agreement of $17.2 million as an
intangible asset and are amortizing this asset over the next six years.
On September 30, 1999, we sold $12.5 million 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 our option when our common stock has traded at a specified
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 at the option of the holder until June 2, 2001.
Our 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 our various collaborative agreements, as well as the progress of
our research and development efforts and variations in the level of expenses
related to developmental efforts during any given period. 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. We are subject to risks common to companies in our industry
and at our stage of development, including risks inherent in our research and
development efforts, reliance upon our collaborative
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<PAGE> 22
partners, enforcement of our 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 our research,
we and our collaborators must conduct preclinical tests and clinical trials,
demonstrate the efficacy and safety of our product candidates, obtain regulatory
approvals or clearances and enter into manufacturing, distribution and marketing
arrangements, as well as obtain market acceptance. We do not expect to receive
revenues or royalties based on therapeutic products for a period of years, if at
all.
RESULTS OF OPERATIONS
Revenues
We recognized revenues from collaborative agreements of $5.2 million in
fiscal 1999 compared to $6.7 million in fiscal 1998 and $7.2 million in fiscal
1997. Revenues in 1999 and 1998 represented research support payments from our
collaborative agreements with Kyowa Hakko and Pharmacia & Upjohn. Declining
revenues in 1999 and 1998 were a result of reduced research funding from Kyowa
Hakko as contractually agreed in 1998. Revenues in 1997 also included a one-time
payment by Boehringer Mannheim for reimbursement of past research efforts. We
recognize revenue under collaboration agreements as we incur the related
research and development costs. We received annual funding payments of $1.0
million and $4.0 million under the Kyowa Hakko agreement in 1998 and 1997,
respectively. We did not receive any funding payments from Kyowa Hakko in 1999.
We received funding payments totaling $5.0 million each in fiscal 1999 and 1998
under the Pharmacia & Upjohn agreement. We expect revenues from collaborative
agreements to increase in 2000 as compared to 1999 as a result of the renewed
research commitments from Kyowa Hakko and Pharmacia & Upjohn. As a result of the
extensions, these agreements provide for additional funding from Kyowa Hakko and
Pharmacia & Upjohn over the next two years.
We receive license payments and royalties from license and marketing
agreements with various diagnostic and research tool collaborators. We received
a license fee payment of $75,000 in 1999 under our product marketing agreement
with Clontech. We did not receive any license fee payments in 1998 or 1997. In
fiscal 1999, we received $85,000 in royalties on the sale of diagnostic kits to
the research-use-only market from Intergen, Kyowa Medex, Roche Diagnostics and
PharMingen compared to $91,000 received in fiscal 1998. In 1999, we also
recognized $9,000 in shared profits from sales of cell-based research products
from Clontech. Sales of these cell-based research products began in September
1999.
Research and Development Expenses
Research and development expenses were $20.6 million, $15.6 million and
$15.1 million for the years ended December 31, 1999, 1998 and 1997. The increase
in 1999 from 1998 was primarily the result of the amortization of the research
funding obligation to the Roslin Institute of $1.9 million, increased license
fees for research technology of $1.0 million and increased personnel related
costs of $800,000. The increase in 1998 from 1997 was primarily a result of
increased personnel costs of $500,000 for additional scientific staff. We expect
research and development expenses to increase significantly in the future as a
result of the continued development of our therapeutic and diagnostic programs.
Acquired Research Expenses
Acquired research expenses were the result of the acquisition of Roslin
Bio-Med in May 1999. We used the purchase method of accounting. We allocated the
purchase price between the acquired basic research in the form of a license to
the nuclear transfer technology, the research agreement with the Roslin
Institute and the net tangible assets of Roslin Bio-Med. We expensed the value
of the nuclear transfer technology of $23.4 million as acquired research expense
and capitalized the value of the research agreement of $17.2 million as an
intangible asset. The total purchase price of $44.4 million also included
acquisition costs of $2.9 million.
The license to the nuclear transfer technology was the only significant
asset of Roslin Bio-Med. We intend to enhance the research and development of
the nuclear transfer technology by combining it with our other technology
platforms. Before we can enter into clinical trials for a potential commercial
application, we
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<PAGE> 23
must expand the research and development of the combined technology platforms.
Future products, if any, may take several years to develop and commercialize and
will require substantial additional funds. We may never be able to create a
commercial product from the nuclear transfer technology. Although we have the
right to sublicense the nuclear transfer technology, we expect any future
collaborations or sublicenses to fund future research and development and not
recover the cost of the basic nuclear transfer technology that we acquired. We
are using this technology for one research project. We have concluded that this
technology has no alternative future use, and accordingly, have expensed the
value of the acquired research technology at the time of the acquisition.
General and Administrative Expenses
General and administrative expenses were $5.6 million, $3.8 million and
$3.1 million for the years ended December 31, 1999, 1998 and 1997, respectively.
The increase in 1999 from 1998 was primarily the result of increased business
consulting expenses of $600,000, increased personnel related costs of $600,000,
increased facilities maintenance costs of $300,000 and increased legal and
accounting expenses of $300,000. The increase in 1998 from 1997 was primarily a
result of increased personnel costs of approximately $420,000 for additional
administrative personnel and bonus accruals. In addition, expenses in 1998 also
reflected increases in public and investor relations expense; legal, accounting
and consulting fees; supplies and expensed office equipment and other taxes and
filing fees.
Interest and Other Income
Interest income was $2.3 million, $1.9 million and $1.4 million for the
years ended December 31, 1999, 1998 and 1997, respectively. The increase in 1999
and 1998 was due to higher average cash and investment balances as a result of
the sale of debt and equity securities in 1999. Interest earned in the future
will depend on any future funding cycles and prevailing interest rates. We also
received $1.0 million, $734,000 and $369,000 in research payments under
government grants for the years ended December 31, 1999, 1998 and 1997,
respectively. We expect income from government grants to decrease in the future.
Interest and Other Expense
Interest and other expense was $5.5 million, $907,000 and $392,000 for the
years ended December 31, 1999, 1998 and 1997, respectively. The increase in
interest and other expense in 1999 over 1998 was primarily the result of the
various convertible debenture financings during 1999. In connection with the
issuance of $7.5 million of series B convertible debentures in June 1999, we
recorded approximately $563,000 in interest expense for the difference between
the fair value of our common stock on the date of signing and the conversion
price of the debentures.
When we issued the series C convertible debentures, we did not have
sufficient authorized common shares to permit the series C convertible debenture
holder to fully convert the series C convertible debentures and exercise the
warrants. If we did not obtain stockholder approval to increase our authorized
common shares to allow for the full conversion of the series C convertible
debentures and exercise of series C warrants prior to March 31, 2000, we would
have been in default under the debenture and would have been obligated to redeem
the debentures at the request of the series C convertible debenture holder at
the greater of 115% of the principal amount of the debentures or an amount equal
to the fair value of our common stock the debentures would have been converted
into plus expenses. In December 1999, we obtained the necessary stockholder
approval to issue additional shares of common stock in order for the holder of
the series C convertible debentures to convert their shares into our common
stock and exercise their warrants. Prior to obtaining stockholder approval to
increase the number of authorized common shares, we recognized $625,000 of
interest expense related to the potential penalty on redemption up through the
date our stockholders authorized the additional shares to be issued.
On the date of issuance of the series C convertible debentures, we recorded
approximately $305,000 in interest expense for the difference between the fair
value of our common stock on September 30, 1999 and the conversion price of the
debentures. We determined the value of the warrants to be $2,732,000. In
accordance
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<PAGE> 24
with Emerging Issue Task Force Issue No. 98-5, which was effective for
transactions with a commitment date after May 20, 1999, we recorded this value
as an increase to additional paid-in-capital with a related charge to interest
expense. We recorded this amount at the time when our stockholders approved the
increase to the number of our authorized common shares to an amount sufficient
to allow for the full conversion of the series C convertible debentures and
exercise of the series C warrants.
Interest and other expense in 1999 also included approximately $312,000 of
imputed interest for the accretion of our research funding obligation to the
Roslin Institute.
In December 1998, we recorded approximately $562,000 in interest expense in
connection with the sale of series A convertible debentures, for the difference
between the fair market value of our common stock on the date of issuance and
the conversion price of the series A convertible debentures. We recorded the
series A convertible debentures at a discount and were amortizing the debentures
to the redemption amount prior to the conversion of the debentures into common
stock.
Net Loss
Net losses were $46.4 million, $10.8 million and $9.6 million for the years
ended December 31, 1999, 1998 and 1997, respectively. The increase in net loss
for 1999 was primarily the result of the charge for acquired research technology
in connection with the acquisition of Roslin Bio-Med and the amortization of the
research funding obligation to the Roslin Institute. The increase in net loss
for 1998 was primarily the result of increased operating expenses during the
year and lower research support payments from Kyowa Hakko.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and investments at December 31, 1999 were $42.9
million compared to $40.4 million at December 31, 1998 and $21.6 million at
December 31, 1997. We have an investment policy to invest these funds in liquid,
investment grade securities, such as interest-bearing money market funds,
corporate notes, commercial paper and municipal securities. The increase in
cash, cash equivalents and investments in 1999 was primarily the result of the
sale of convertible debentures in June 1999 and September 1999. The increase in
cash, cash equivalents and investments in 1998 was the result of sale of our
convertible preferred stock in March 1998 and our sale of convertible debentures
in December 1998.
Net cash used in operations was $13.6 million in 1999 and $7.8 million in
1998. Cash used in operations in 1999 was primarily the result of the net loss
for the year of $46.4 million offset partially by non-cash charges including
purchased research technology expense of $23.4 million. We expect that our net
cash used in operations will increase in 2000 as a result of increased research
and development expenditures.
Through December 31, 1999, we have invested approximately $9.9 million in
property and equipment, of which approximately $7.5 million was financed through
equipment financing. Minimum annual payments due under the equipment financing
facility are expected to total $1.2 million, $876,000, $752,000 and $159,000 in
2000, 2001, 2002 and 2003, respectively. As of December 31, 1999, we had
approximately $1.2 million available for borrowing from our equipment financing
facility. The drawdown period under the equipment financing facility expires on
July 31, 2000. We intend to renew the commitment for a new equipment financing
facility in 2000 to further fund equipment purchases. If we are unable to renew
the commitment, then we will need to spend our own resources for equipment
purchases.
We have agreed to fund scientific research at academic and research
institutions. Under these research arrangements, we are obligated to make
minimum annual payments of approximately $2.8 million and $2.4 million in 2000
and 2001, respectively. We also formed a research collaboration agreement with
the Roslin Institute, which obligated us to provide approximately $20.0 million
in research funding over the next six years of which $2.3 million was paid in
1999. We intend to continue to maintain and develop relationships with academic
and research institutions.
In 1998 and 1997, Pharmacia & Upjohn made equity investments in our common
stock totaling $10.0 million at a premium. In 2000, Pharmacia & Upjohn and Kyowa
Hakko both extended their research
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<PAGE> 25
funding commitment for an additional year. We expect to receive additional
funding from Pharmacia & Upjohn in each of the next two years to fund our future
development efforts. We also expect to receive additional funding from Kyowa
Hakko over the next two years. We will seek further funding through other
strategic collaborations, public or private equity financing, or other financing
sources.
In March 1998, we completed a private placement with two institutional
investors for the sale of 15,000 shares of series A preferred stock with a
stated value of $1,000 per share resulting in proceeds of $15.0 million. In
November 1998, 11,548 shares of series A convertible preferred stock converted
into 2,173,446 shares of our common stock and in April 1999, we redeemed the
remaining 3,452 shares of series A preferred stock for $3.7 million. The total
redemption value included the 6% premium on the outstanding book value of the
series A preferred stock. As of December 31, 1999, no shares of series A
preferred stock remained outstanding.
In December 1998, we sold $15.0 million in convertible zero coupon
debentures and warrants to purchase 1,250,000 shares our common stock to
investment funds managed by three institutional investors. We received one-half
of the proceeds upon signing the agreement which resulted in the issuance of
$7.5 million series A convertible debentures and warrants to purchase 625,000
shares of our common stock. During 1999, all of the series A convertible
debentures converted into 750,000 shares of our common stock at $10.00 per
share. As of December 31, 1999, none of series A warrants had been exercised.
In June 1999, we sold $7.5 million of our series B convertible debentures
and warrants to purchase an additional 625,000 shares of our common stock. The
series B debentures are convertible at any time by the holders at a fixed
conversion price of $10.00 per share. The series B warrants are exercisable at
$12.00 per share by the holders of series B convertible debentures. As of
December 31, 1999, $3.0 million of the principal amount of the series B
convertible debentures were outstanding. As of December 31, 1999, none of the
series B warrants had been exercised.
In September 1999, we sold $12.5 million in series C convertible
two-percent coupon debentures and warrants to purchase 1,100,000 shares of our
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. We can
convert the debentures when the our 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 our common stock are exercisable at $12.50 per
share and the warrants to purchase 100,000 shares of our common stock are
exercisable at $12.75 per share. We determined the value of the warrants to be
approximately $2.7 million and recorded this amount as interest expense. As of
December 31, 1999, all of the series C convertible debentures were outstanding.
As of December 31, 1999, none of the series C warrants had been exercised.
As of March 9, 2000, the remainder of principal of the series B convertible
debentures have been converted into 300,000 shares of our common stock and
approximately $6.3 million of principal of the series C convertible debentures
have been converted into approximately 615,000 shares of our common stock.
As of March 9, 2000, institutional investors have exercised series A
warrants to purchase 625,000 shares of our common stock, series B warrants to
purchase 375,000 shares of our common stock and series C warrants to purchase
1,100,000 shares of our common stock. We received total proceeds of
approximately $25.8 million from the exercise of these warrants.
In March 2000, we sold a total of 380,855 shares of our common stock and
300,000 warrants to purchase our common stock to a single investor for $9
million. We structured the sale of securities in two parts. We priced the first
$6.4 million of common stock at $50.32 per share, and 200,000 warrants are
exercisable at $67.09 per share. We priced the remaining $2.6 million of common
stock at $10.25 per share, and the remaining 100,000 warrants are exercisable at
$12.50 per share. The common stock and the stock underlying the warrants are not
registered for resale and are subject to a two-year prohibition on sale by
agreement. As of March 9, 2000, all of the warrants were outstanding.
We estimate that our existing capital resources, payments expected to be
made under the Kyowa Hakko and Pharmacia & Upjohn collaborative agreements,
interest income and equipment financing will be sufficient to fund our current
level of operations through June 2002. Changes in our research and development
plans or other changes affecting our operating expenses may not result in the
expenditure of available resources before
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such time, and in any event, we will need to raise substantial additional
capital to fund our operations in the future. We intend 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 COMPUTER SYSTEMS COMPLIANCE
All of our computer hardware and software has been upgraded for Year 2000
compliance. All of our key vendors have provided assurance that they are Year
2000 compliant. While there were no Year 2000 related problems at the
transaction in the Year 2000, we are maintaining our contingency plans in the
event any problems arise in the future.
The statement contained in the foregoing Year 2000 readiness disclosures is
subject to protection under Year 2000 Information and Readiness Disclosure Act.
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-K, before you decide whether to purchase shares of our common stock. Any
of these risks could materially adversely affect our business, operating results
and financial condition.
This document contains forward-looking statements that involve risks and
uncertainties. You should not rely on these forward-looking statements. We use
words such as "anticipate," believe," "plans" "expect," "future," "intend" and
similar expressions to identify forward-looking statements. These statements
appear throughout the document 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-K.
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 in the preceding pages and elsewhere in this document.
OUR BUSINESS IS AT AN EARLY STAGE OF DEVELOPMENT AND WE MAY NOT DEVELOP ANY
PRODUCTS THAT REACH CLINICAL TRIALS
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.
Our business is at an early stage of development. We have not yet produced any
products that have progressed to clinical trials and we may never do so. Our
ability to produce products that progress to clinical trials is subject to our
ability to, among other things:
- 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.
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.
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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 December 31, 1999, our accumulated deficit was approximately
$104.0 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 collaboration agreements with Kyowa Hakko and Pharmacia & Upjohn. The
agreements provide that through 2001, Kyowa Hakko and Pharmacia & Upjohn will
provide additional funding. We may be unsuccessful in entering into any new
corporate collaboration that results in revenues. Even if we are able to obtain
new collaboration arrangements with third parties the revenues generated from
these arrangements will be insufficient to continue or expand our research
activities and otherwise sustain our operations.
We are unable to estimate at this time the level of revenue to be received
from the sale of diagnostic products, and do not currently expect to receive
significant revenues from the sale of research-use-only kits. Our ability to
continue or expand our research activities and otherwise sustain our operations
is dependent on our ability, alone or with others to, among other things,
manufacture and market therapeutic products.
We may never receive material revenues from product sales or that such
revenues, if any, will be sufficient to continue or expand our research
activities and otherwise sustain our operations.
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. While we estimate that our existing capital
resources, payments under the Kyowa Hakko and Pharmacia & Upjohn collaborative
agreements, interest income and equipment financing will be sufficient to fund
our current level of operations through June 2002, we cannot guarantee that this
will be the case. 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 2000 and beyond;
- continued scientific progress in our research and development programs;
- the magnitude and scope of our research and development programs;
- our ability to maintain and establish strategic arrangements for
research, development, clinical testing, manufacturing and marketing;
- our progress with preclinical and clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims; and
- the potential for new technologies and products.
We intend to acquire additional funding through strategic collaborations,
public or private equity financings and capital lease transactions. Additional
financing may not be available on acceptable terms, or at all. Additional equity
financings could result in significant dilution to stockholders. Further, in the
event that additional funds are obtained through arrangements with collaborative
partners, these arrangements may require us to relinquish rights to some of our
technologies, product candidates or products that we would otherwise seek to
develop or commercialize ourselves. If sufficient capital is not available, we
may be required to delay, reduce the scope of or eliminate one or more of our
research or development programs, each of which could have a material adverse
effect on our business.
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OUR INABILITY TO IDENTIFY AN EFFECTIVE INHIBITOR FOR 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. 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.
IF OUR ACCESS TO NECESSARY TISSUE SAMPLES, INFORMATION OR LICENSED TECHNOLOGIES
IS RESTRICTED, WE WILL NOT BE ABLE TO DEVELOP OUR BUSINESS
To continue the research and development of our therapeutic and diagnostic
products, we need access to normal and diseased human and other tissue samples,
other biological materials and related clinical and other information. We
compete with many other companies for these materials and information. We may
not be able to obtain or maintain access to these materials and information on
acceptable terms, if at all. In addition, government regulation in the United
States and foreign countries could result in restricted access to, or
prohibiting the use of, human and other tissue samples. If we lose access to
sufficient numbers or sources of tissue samples, or if tighter restrictions are
imposed on our use of the information generated from tissue samples, our
business will be materially harmed.
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 biotechnology industries are intensely competitive.
We believe that other pharmaceutical and biotechnology 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. Many of 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.
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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
the products that we develop obsolete.
THE ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF OUR RESEARCH USING PLURIPOTENT
STEM CELLS AND NUCLEAR TRANSFER COULD PREVENT US FROM DEVELOPING OR GAINING
ACCEPTANCE FOR COMMERCIALLY VIABLE PRODUCTS IN THIS AREA
Our programs in regenerative medicine 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 cells becomes the subject of
adverse commentary or publicity, the market price for our common stock could be
significantly harmed.
Some groups have voiced opposition to our technology and practices. The
concepts of cell regeneration, cell immortality, and genetic cloning have
stimulated significant ethnical debates in both the social and political arenas.
We use hPSCs derived through a process that uses either donated embryos that are
no longer necessary following a successful in vitro fertilization procedure or
donated fetal material as the starting material. Further, many research
institutions, including some of our scientific collaborators, have adopted
policies regarding the ethical use of human embryonic and fetal tissue. These
policies may have the effect of limiting the scope of research conducted using
hPSCs, resulting in reduced scientific progress. In addition, the United States
government and its agencies currently do not fund research which involves the
use of human embryonic tissue and may in the future regulate or otherwise
restrict or prohibit the public or private use of human embryonic or fetal
tissue. Our inability to conduct research using hPSCs due to such factors as
government regulation or otherwise could have a material adverse effect on us.
Finally we acquired Roslin Bio-Med to gain the rights to nuclear transfer
technology. The Roslin Institute produced Dolly the sheep in 1997 -- the first
mammal cloned from an adult cell in history. Geron acquired exclusive rights to
this technology for all areas except human cloning and certain other limited
applications. Although we will not be pursuing human reproductive cloning, all
of the techniques we continue to develop for use in agricultural cloning and our
nuclear transfer work for organ regeneration are directly applicable to human
cloning should some other group in the future decide to pursue this avenue.
Negative associations with any or all of these practices could:
- harm our ability to establish critical partnerships and collaborations;
- prompt government regulation of our technologies;
- cause delays in our research and development; and
- cause a decrease in the price of our stock.
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Also, if regulatory bodies were to ban nuclear transfer processes, our
research using nuclear transfer technology could be cancelled and our business
could be significantly harmed.
PUBLIC ATTITUDES TOWARDS OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF OUR PRODUCTS
The commercial success of our product candidates will depend in part on
public acceptance of the use of gene therapies for the prevention or treatment
of human diseases. Public attitudes may be influenced by claims that gene
therapy is unsafe, and gene therapy may not gain the acceptance of the public or
the medical community. Adverse events in the field of gene therapy that have
occurred or may occur in the future also may result in greater governmental
regulation of our product candidates and potential regulatory delays relating to
the testing or approval of our product candidates.
Negative public reaction to gene therapy in the development of certain of
our therapies could result in greater government regulation, stricter clinical
trial oversight, commercial product labeling requirements of gene therapies and
could cause a decrease in the demand for any products that we may develop. The
subject of genetically modified organisms has received negative publicity in
Europe, which has aroused public debate. The adverse publicity in Europe could
lead to greater regulation and trade restrictions on imports of genetically
altered products. If similar adverse public reaction occurs in the United
States, genetic research and resultant products could be subject to greater
domestic regulation and could cause a decrease in the demand for our potential
products.
EVEN IF WE REACH CLINICAL TRIALS WITH ONE OR MORE OF OUR PRODUCTS, THEY MAY NOT
RESULT IN ANY COMMERCIALLY VIABLE PRODUCTS
We do not expect to generate any significant revenues from product sales
for a period of several years. We may never generate revenues from product sales
or become profitable because of a variety of risks inherent in our business,
including risks that:
- clinical trials may not demonstrate the safety and efficacy of our
products;
- completion of clinical trials may be delayed, or costs of clinical trials
may exceed anticipated amounts;
- we may not be able to obtain regulatory approval of our products, or may
experience delays in obtaining such approvals;
- we may not be able to manufacture our drugs economically on a commercial
scale;
- we and our licensees may not be able to successfully market our products;
- physicians may not prescribe our products, or patients may not accept
such products;
- others may have proprietary rights which prevent us from marketing our
products; and
- competitors may sell similar, superior or lower-cost products.
IMPAIRMENT OF OUR INTELLECTUAL PROPERTY RIGHTS 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 in the United States and in other
countries 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 may not continue to develop products or processes that are
patentable, and it is possible that patents will not issue from any of our
pending applications, including allowed patent applications. Further, our
current patents, or patents that issue on pending applications, may be
challenged, invalidated or circumvented, and our current or future patent rights
may not provide proprietary
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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, the persons or entities that we or our licensors name
as inventors in our patents and patent applications may not have been 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 may
not 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. Our technologies
may infringe the patents or proprietary rights of others. In addition, we may
become aware of discoveries and technology controlled by third parties that are
advantageous to our research programs. In the event our technologies do infringe
on the rights of others or we require the use of discoveries and technology
controlled by third parties, 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, patents may not issue from any of our patent applications. 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 our technologies and we may have
to obtain licenses to use these 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 materially harm our
business.
We may 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 research relating to pluripotent stem cells 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
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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 United States 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 may be unsuccessful 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.
SOME OF OUR PATENTS AND PATENT APPLICATIONS RELATING TO TELOMERASE MAY BE
SUBJECT TO CHALLENGE OR BE SUSPENDED BY THE UNITED STATES PATENT AND TRADEMARK
OFFICE, WHICH COULD JEOPARDIZE OUR ABILITY TO COMMERCIALIZE TELOMERASE PRODUCTS
Our patents and patent applications relating to telomerase are critically
important to our development and commercialization of therapeutic and diagnostic
products for applications in oncology and regenerative medicine. We have a
number of patent applications pending relating to the cloned telomerase protein
and its uses. Patent applications respecting the human telomerase protein and
related gene applications are pending in several countries and patent
prosecution is ongoing. Although we have been granted patents in the United
Kingdom and Switzerland, we have received rejections in certain other countries
and we may be unable to overcome those rejections or any others that we may
encounter.
The United States Patent and Trademark Office has advised us that the
claims of two of our United States patent applications relating to cloned human
telomerase are allowable, but that further prosecution of these applications has
been suspended pending a determination of whether the initiation of an
interference proceeding is appropriate to ascertain who made the claimed
inventions first. We believe this event indicates, among other things, that the
Patent and Trademark Office has established that at least one other entity has
filed a United States patent application also claiming cloned human telomerase
protein or its uses. As a result, one or more interferences could be declared,
in which case the United States Patent and Trademark Office would undertake a
multi-year process to decide who made the underlying invention or inventions
first. If an interference is declared one result is that another entity could be
awarded the patents.
We have prepared for an interference proceeding and, based on the
information presently available to us, we believe that we cloned human
telomerase protein prior to any other entity. However, we do not yet have access
to other entities' invention records or their patent application files, which
are maintained in secrecy by the United States Patent and Trademark Office. We,
therefore, do not have access to all pertinent information for this analysis.
Moreover, as interferences are typically complex, highly contested legal
proceedings subject to appeal, accurately predicting an outcome is not possible,
particularly at this stage. An interference would divert significant resources,
both financial and otherwise, from our research programs.
If interferences or other challenges to our patents are not resolved
promptly in our favor, our existing business relationships could be jeopardized
and we could be delayed or prevented from entering into new collaborations or
from commercializing telomerase products, which could materially harm our
business.
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WE DEPEND ON OUR COLLABORATORS TO HELP US COMPLETE THE PROCESS OF DEVELOPING AND
TESTING OUR PRODUCTS AND OUR ABILITY TO DEVELOP AND COMMERCIALIZE PRODUCTS MAY
BE IMPAIRED OR DELAYED IF OUR COLLABORATIVE PARTNERSHIPS ARE UNSUCCESSFUL
Our strategy for the development, clinical testing and commercialization of
our products requires entering into collaborations with corporate partners,
licensors, licensees and others. We are dependent upon the subsequent success of
these other parties in performing their respective responsibilities and the
continued cooperation of our partners. Our collaborators may not 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 alliances with Kyowa Hakko and Pharmacia &
Upjohn, and our ability to successfully develop and commercialize telomerase
diagnostic products depends on our corporate alliance with Roche Diagnostics.
Under our collaborative agreements with these collaborators, we rely
significantly on them, among other activities, to:
- design and conduct advanced clinical trials in the event that we reach
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 may not 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 collaborators breach or terminate collaborative agreements with us,
our business may be materially harmed.
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.
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
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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 potential disruption of ongoing business and distraction of
management;
- unanticipated expenses related to technology and research integration;
and
- the difficulty of implementing and maintaining uniform standards,
controls, procedures and policies.
We may not 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 obligated us to
provide approximately $20 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.
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 materially harm our future international
operations, the success of our acquisition of Roslin Bio-Med and, consequently,
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.
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. Competition for personnel is intense and we may be unable to
retain our current personnel or attract or assimilate other highly qualified
management and scientific personnel in the future. The loss of any or all of
these individuals could harm our business and might significantly delay or
prevent the achievement of research, development or business objectives.
We also rely on consultants and advisors, including the members of our
Scientific Advisory Board, who assist us in formulating our research and
development strategy. We face intense competition for qualified individuals from
numerous pharmaceutical, biopharmaceutical and biotechnology companies, as well
as academic and other research institutions. We may not be able to attract and
retain these individuals on acceptable terms. Failure to do so would materially
harm our business.
33
<PAGE> 35
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
Our business exposes us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of human therapeutic and
diagnostic products. We may become subject to product liability claims if the
use of our products is alleged to have injured subjects or patients. This risk
exists for products tested in human clinical trials as well as products that are
sold commercially 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, product liability insurance is becoming
increasingly expensive. As a result, 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 which could have a material adverse
effect on us.
BECAUSE WE OR OUR COLLABORATORS MUST OBTAIN REGULATORY APPROVAL TO MARKET OUR
PRODUCTS IN THE UNITED STATES AND FOREIGN JURISDICTIONS, WE CANNOT PREDICT
WHETHER OR WHEN WE WILL BE PERMITTED TO COMMERCIALIZE OUR 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 collaborators 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 collaborators
of any commercially viable product will be subject to government regulation from
several standpoints, including the processes of:
- manufacturing;
- advertising and promoting;
- selling and marketing;
- labeling; and
- distributing.
We may not obtain regulatory approval for the products we develop or that
our collaborators will obtain regulatory approval for the products they develop.
Regulatory approval may also entail limitations on the indicated uses of a
proposed product. Because certain of our product candidates involve the
application of new technologies and may be based upon a new therapeutic
approach, such products may be subject to substantial additional review by
various government regulatory authorities, and, as a result, we may obtain
regulatory approvals for such products more slowly than for products based upon
more conventional technologies. If, and to the extent that, we are unable to
comply with these regulations, our ability to earn revenues will be materially
and negatively impacted.
The regulatory process, particularly for biopharmaceutical products like
ours, is uncertain, can take many years and requires the expenditure of
substantial resources. Any product that we or our collaborative partners develop
must receive all relevant regulatory agency approvals or clearances, if any,
before it may be marketed in the United States or other countries. Generally,
biological drugs and non-biological drugs are regulated more rigorously than
medical devices. In particular, human pharmaceutical therapeutic products,
including a telomerase inhibitor, are subject to rigorous preclinical and
clinical testing and other requirements by the Food and Drug Administration in
the United States and similar health authorities in foreign countries. The
regulatory process, which includes extensive 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
34
<PAGE> 36
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
collaborators develop;
- impose costly procedures upon our activities or the activities of our
collaborators;
- 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 commercial use of 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, financial condition and results of operations.
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
Our products and those developed by our collaborative partners, if approved
for marketing, may not 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, or for any other reason, our business would be materially
harmed.
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.
35
<PAGE> 37
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 materially harm our business.
OUR ACTIVITIES INVOLVE HAZARDOUS MATERIALS AND IMPROPER HANDLING OF THESE
MATERIALS BY OUR EMPLOYEES OR AGENTS COULD EXPOSE US TO SIGNIFICANT LEGAL AND
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, including those governing laboratory procedures, exposure to
blood-borne pathogens and the handling of biohazardous materials. 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 such an accident, our
use of these materials could be curtailed by state or federal authorities and we
could be liable for any civil damages that result, the cost of which could be
substantial. Further, any failure by us to control the use, disposal, removal or
storage of, or to adequately restrict the discharge of, or assist in the cleanup
of, hazardous chemicals or hazardous, infectious or toxic substances could
subject us to significant liabilities, including joint and several liability
under certain statutes, and any liability could exceed our resources and could
have a material adverse effect on our business, financial condition and results
of operations. Additionally, an accident could damage our research and
manufacturing facilities and operations.
Additional federal, state and local laws and regulations affecting us may
be adopted in the future. We may incur substantial costs to comply with and
substantial fines or penalties if we violate any of these laws or regulations.
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 such as media coverage,
legislation and regulatory measures and the activities of various protest groups
or organizations. 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.
36
<PAGE> 38
Historically, our stock price has been extremely volatile. Between January
1998 and December 31, 1999, our stock has 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.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES, INCLUDING SHARES THAT WILL BECOME
ELIGIBLE FOR SALE IN THE NEAR FUTURE, MAY ADVERSELY AFFECT THE MARKET PRICE FOR
OUR COMMON STOCK
Sales of 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 March 9, 2000, we had approximately 21,203,002 shares of common
stock outstanding. Of these shares, approximately 8,017,367 shares were issued
(including shares issuable upon conversion or exercise of convertible notes or
warrants) since December 1998 pursuant to private placements. Of these shares,
approximately 7,336,512 shares have been registered pursuant to shelf
registration statements and therefore may be resold (if not sold prior to the
date hereof) in the public market and approximately 680,855 of the remaining
shares may be resold pursuant to Rule 144 into the public markets as early as
March 9, 2002 upon the expiration of a lockup agreement with us.
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. As of the date of this Form
10-K, the Board of Directors still has authority to designate and issue up to
3,000,000 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.
37
<PAGE> 39
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 BENEFITTING 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.
Either collectively or individually, these provisions may prevent holders
of our common stock from benefitting 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.
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 the our available for sale
securities at December 31, 1999 was $40.6 million. These investments include
$5.5 million of cash and cash equivalents which are due in less than 90 days,
$31.5 million of short-term investments which are due in less than one year and
$3.6 million in long-term investments which are due in one to two years. 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. Due to the nature of our
investments, which are primarily corporate and municipal notes and money market
funds, we have concluded that there is no material market risk exposure.
Foreign Currency Exchange Risk. Because we translate foreign currencies
into United States dollars for reporting purposes, currency fluctuations can
have an impact, though generally immaterial, on our results. We believe that our
exposure to currency exchange fluctuation risk is insignificant primarily
because our international subsidiary satisfies its financial obligations almost
exclusively in its local currencies. For the fiscal 1999 year end, there was an
immaterial currency exchange impact from our intercompany transactions. However,
the financial obligations of Geron to the Roslin Institute are stated in British
pounds sterling over the next six years. This obligation may become more
expensive for us if the United States dollar becomes weaker against the British
pounds sterling. As of December 31, 1999, we did not engage in foreign currency
hedging activities.
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<PAGE> 40
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Geron Corporation
We have audited the accompanying consolidated balance sheets of Geron
Corporation at December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Geron Corporation at December 31, 1999 and 1998 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
Palo Alto, California
February 11, 2000
39
<PAGE> 41
GERON CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,835 $ 16,360
Short-term investments.................................... 31,452 8,109
Interest and other receivables............................ 705 523
Notes receivable from related parties..................... 38 138
Other current assets...................................... 399 685
--------- --------
Total current assets.............................. 40,429 25,815
Long-term investments....................................... 3,636 15,954
Notes receivable from related parties....................... 275 112
Property and equipment, net................................. 3,783 2,336
Deposits and other assets................................... 301 239
Intangible assets........................................... 15,277 --
--------- --------
$ 63,701 $ 44,456
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,321 $ 1,184
Accrued compensation...................................... 720 717
Accrued liabilities....................................... 2,003 503
Deferred revenue.......................................... -- 244
Current portion of capital lease obligations and equipment
loans.................................................. 1,183 906
Current portion of research funding obligation............ 2,721 --
--------- --------
Total current liabilities......................... 7,948 3,554
Noncurrent portion of capital lease obligations and
equipment loans........................................... 1,787 1,300
Noncurrent portion of research funding obligation........... 12,413 --
Convertible debentures...................................... 15,327 6,801
Commitments
Redeemable convertible preferred stock, $0.001 par value; no
shares issued and outstanding in 1999 and 3,452 shares
issued and outstanding in 1998 (liquidation preference of
$3,610 at December 31, 1998).............................. -- 3,610
Stockholders' equity:
Common stock, $0.001 par value; 35,000,000 shares
authorized; 17,381,095 shares and 13,661,274 shares
issued and outstanding in 1999 and 1998,
respectively........................................... 17 13
Additional paid-in-capital................................ 131,183 88,055
Notes receivable from stockholders........................ (70) (4)
Deferred compensation..................................... (853) (1,383)
Accumulated deficit....................................... (103,969) (57,520)
Accumulated other comprehensive (loss) income............. (82) 30
--------- --------
Total stockholders' equity........................ 26,226 29,191
--------- --------
$ 63,701 $ 44,456
========= ========
</TABLE>
See accompanying notes.
40
<PAGE> 42
GERON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues from collaborative agreements.............. $ 5,244 $ 6,706 $ 7,175
License fees and royalties.......................... 168 91 78
----------- ----------- -----------
Total revenues............................ 5,412 6,797 7,253
Operating expenses:
Research and development.......................... 20,571 15,619 15,139
Acquired research technology...................... 23,403 -- --
General and administrative........................ 5,574 3,769 3,120
----------- ----------- -----------
Total operating expenses.................. 49,548 19,388 18,259
----------- ----------- -----------
Loss from operations................................ (44,136) (12,591) (11,006)
Interest and other income........................... 3,263 2,666 1,757
Interest and other expense.......................... (5,503) (907) (392)
----------- ----------- -----------
Net loss............................................ $ (46,376) $ (10,832) $ (9,641)
Accretion of redemption value of redeemable
convertible preferred stock....................... (73) (578) --
----------- ----------- -----------
Net loss applicable to common stockholders.......... $ (46,449) $ (11,410) $ (9,641)
=========== =========== ===========
Basic and diluted net loss per share................ $ (3.00) $ (1.00) $ (0.91)
=========== =========== ===========
Shares used in computing basic and diluted net loss
per share......................................... 15,489,035 11,439,084 10,551,054
=========== =========== ===========
</TABLE>
See accompanying notes.
41
<PAGE> 43
GERON CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED ACCUMU-
---------------- ------------------- PAID-IN FROM COMPEN- LATED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS SATION DEFICIT
------- ------ ---------- ------ ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996...... -- $-- 10,040,415 $10 $ 61,174 $(119) $(1,003) $ (36,469)
Net loss........................... -- -- -- -- -- -- -- (9,641)
Net change in unrealized gain
(loss) on available-for-sale
securities....................... -- -- -- -- -- -- -- --
Comprehensive loss.................
Issuance of common stock in
connection with corporate
collaboration, net of issuance
costs of $9...................... -- -- 441,685 1 5,991 -- -- --
Issuance of common stock in
exchange for services............ -- -- 6,925 -- 59 -- -- --
Issuance of common stock to certain
research institutions............ -- -- 8,940 -- 87 -- -- --
Issuance of common stock under
employee stock plans............. -- -- 297,948 -- 568 119 -- --
Amortization of deferred
compensation..................... -- -- -- -- -- -- 289 --
------- -- ---------- --- -------- ----- ------- ---------
Balances at December 31, 1997...... -- -- 10,795,913 11 67,879 -- (714) (46,110)
Net loss........................... -- -- -- -- -- -- -- (10,832)
Net change in unrealized gain
(loss) on available-for-sale
securities....................... -- -- -- -- -- -- -- --
Comprehensive loss.................
Issuance of common stock in
connection with corporate
collaboration.................... -- -- 255,102 -- 4,000 -- -- --
Issuance of convertible preferred
stock, net of issuance costs of
$72.............................. 15,000 -- -- -- 14,928 -- -- --
Beneficial conversion feature
related to convertible debentures
issued........................... -- -- -- -- 562 -- -- --
Issuance of warrants to purchase
common stock in connection with
convertible debenture
financing........................ -- -- -- -- 719 -- -- --
Accretion of premium on redemption
of convertible preferred stock... -- -- -- -- 578 -- -- (578)
Conversion of convertible preferred
stock into common stock.......... (11,548) -- 2,173,446 2 (2) -- -- --
Issuance of common stock in
exchange for services............ -- -- 14,772 -- 310 -- -- --
Issuance of common stock under
employee stock plans............. -- -- 422,041 -- 1,399 (4) -- --
Transfer remaining shares of
convertible preferred stock to
redeemable convertible preferred
stock............................ (3,452) -- -- -- (3,610) -- -- --
Deferred compensation related to
certain options granted to
employees........................ -- -- -- -- 1,292 -- (1,292) --
Amortization of deferred
compensation..................... -- -- -- -- -- -- 623 --
------- -- ---------- --- -------- ----- ------- ---------
Balances at December 31, 1998...... -- -- 13,661,274 13 88,055 (4) (1,383) (57,520)
<CAPTION>
ACCUMULATED TOTAL
OTHER COM- STOCK-
PREHENSIVE HOLDERS'
INCOME(LOSS) EQUITY
------------ --------
<S> <C> <C>
Balances at December 31, 1996...... $ (2) $23,591
Net loss........................... -- (9,641)
Net change in unrealized gain
(loss) on available-for-sale
securities....................... 2 2
-------
Comprehensive loss................. (9,639)
Issuance of common stock in
connection with corporate
collaboration, net of issuance
costs of $9...................... -- 5,992
Issuance of common stock in
exchange for services............ -- 59
Issuance of common stock to certain
research institutions............ -- 87
Issuance of common stock under
employee stock plans............. -- 687
Amortization of deferred
compensation..................... -- 289
----- -------
Balances at December 31, 1997...... -- 21,066
Net loss........................... -- (10,832)
Net change in unrealized gain
(loss) on available-for-sale
securities....................... 30 30
-------
Comprehensive loss................. (10,802)
Issuance of common stock in
connection with corporate
collaboration.................... -- 4,000
Issuance of convertible preferred
stock, net of issuance costs of
$72.............................. -- 14,928
Beneficial conversion feature
related to convertible debentures
issued........................... -- 562
Issuance of warrants to purchase
common stock in connection with
convertible debenture
financing........................ -- 719
Accretion of premium on redemption
of convertible preferred stock... -- --
Conversion of convertible preferred
stock into common stock.......... -- --
Issuance of common stock in
exchange for services............ -- 310
Issuance of common stock under
employee stock plans............. -- 1,395
Transfer remaining shares of
convertible preferred stock to
redeemable convertible preferred
stock............................ -- (3,610)
Deferred compensation related to
certain options granted to
employees........................ -- --
Amortization of deferred
compensation..................... -- 623
----- -------
Balances at December 31, 1998...... 30 29,191
</TABLE>
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<PAGE> 44
GERON CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED ACCUMU-
---------------- ------------------- PAID-IN FROM COMPEN- LATED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS SATION DEFICIT
------- ------ ---------- ------ ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998...... -- $-- 13,661,274 $13 $ 88,055 $ (4) $(1,383) $ (57,520)
Net loss........................... -- -- -- -- -- -- -- (46,376)
Net change in unrealized gain
(loss) on available-for-sale
securities....................... -- -- -- -- -- -- -- --
Cumulative translation
adjustment....................... -- -- -- -- -- -- -- --
Comprehensive loss.................
Issuance of common stock in
connection with acquisition...... -- -- 2,100,000 2 24,384 -- -- --
Beneficial conversion feature
related to convertible debentures
issued........................... -- -- -- -- 867 -- -- --
Conversion of convertible
debentures....................... -- -- 1,200,000 1 11,058 -- -- --
Issuance of warrants to purchase
common stock in connection with
convertible debenture
financing........................ -- -- -- -- 3,451 -- -- --
Accrual of penalty under
convertible debentures........... -- -- -- -- 625 -- -- --
Accretion of premium on redemption
of convertible preferred stock... -- -- -- -- -- -- -- (73)
Issuance of common stock in
exchange for services............ -- -- 21,126 -- 442 -- -- --
Issuance of common stock to certain
research institutions, net of
issuance costs of $5............. -- -- 92,000 -- 1,079 -- -- --
Issuance of common stock upon
exercise of warrants............. -- -- 3,229 -- 21 -- -- --
Issuance of common stock under
employee stock plans, net........ -- -- 303,466 1 1,201 (66) -- --
Amortization of deferred
compensation..................... -- -- -- -- -- -- 530 --
------- -- ---------- --- -------- ----- ------- ---------
Balances at December 31, 1999...... -- $-- 17,381,095 $17 $131,183 $ (70) $ (853) $(103,969)
======= == ========== === ======== ===== ======= =========
<CAPTION>
ACCUMULATED TOTAL
OTHER COM- STOCK-
PREHENSIVE HOLDERS'
INCOME(LOSS) EQUITY
------------ --------
<S> <C> <C>
Balances at December 31, 1998...... $ 30 $29,191
Net loss........................... -- (46,376)
Net change in unrealized gain
(loss) on available-for-sale
securities....................... (144) (144)
Cumulative translation
adjustment....................... 32 32
-------
Comprehensive loss................. (46,488)
Issuance of common stock in
connection with acquisition...... -- 24,386
Beneficial conversion feature
related to convertible debentures
issued........................... -- 867
Conversion of convertible
debentures....................... -- 11,059
Issuance of warrants to purchase
common stock in connection with
convertible debenture
financing........................ -- 3,451
Accrual of penalty under
convertible debentures........... -- 625
Accretion of premium on redemption
of convertible preferred stock... -- (73)
Issuance of common stock in
exchange for services............ -- 442
Issuance of common stock to certain
research institutions, net of
issuance costs of $5............. -- 1,079
Issuance of common stock upon
exercise of warrants............. -- 21
Issuance of common stock under
employee stock plans, net........ -- 1,136
Amortization of deferred
compensation..................... -- 530
----- -------
Balances at December 31, 1999...... $ (82) $26,226
===== =======
</TABLE>
See accompanying notes.
43
<PAGE> 45
GERON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................... $(46,376) $(10,832) $ (9,641)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 1,281 1,122 1,277
Amortization of intangible assets, principally research
related............................................... 1,910 -- --
Interest arising from beneficial conversion feature...... 3,599 562 --
Accretion of discount on convertible debentures.......... 241 -- --
Interest expense arising from series C convertible
debentures............................................ 688 -- --
Purchased research technology expense.................... 23,403 -- --
Accretion of interest on research funding obligation..... 312 -- --
Expense related to common stock issued for serviced
rendered.............................................. 1,542 310 154
Amortization of deferred compensation.................... 530 623 289
Changes in assets and liabilities:
Interest and other receivables........................ (182) 378 (558)
Other current assets.................................. 286 (34) (242)
Notes receivable from related parties................. (63) 80 294
Deposits and other assets............................. (62) (66) 2
Accounts payable...................................... 137 461 (71)
Accrued compensation.................................. 3 286 (359)
Accrued liabilities................................... 1,708 52 24
Deferred revenue...................................... (244) (731) 975
Research funding payments............................. (2,363) -- --
Translation adjustment................................ 49 -- --
-------- -------- --------
Net cash used in operating activities...................... (13,601) (7,789) (7,856)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures....................................... (2,728) (1,034) (713)
Net cash acquired in acquisition........................... 983 -- --
Purchases of securities available-for-sale................. (31,294) (28,375) (27,015)
Proceeds from maturities of securities
available-for-sale....................................... 18,103 21,817 21,454
Proceeds from sales/calls of securities
available-for-sale....................................... 2,004 -- --
-------- -------- --------
Net cash used in investing activities...................... (12,932) (7,592) (6,274)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures and
warrants................................................. 20,000 7,500 --
Proceeds from equipment loans.............................. 2,027 1,034 671
Payments of obligations under capital leases and equipment
loans.................................................... (1,263) (1,084) (1,238)
Redemption of redeemable convertible preferred stock....... (3,683) -- --
Proceeds from issuance of preferred stock, net............. -- 14,928 --
Proceeds from issuance of common stock..................... 927 5,241 6,462
-------- -------- --------
Net cash provided by financing activities.................. 18,008 27,619 5,895
-------- -------- --------
Net (decrease) increase in cash and cash equivalents....... (8,525) 12,238 (8,235)
Cash and cash equivalents, at beginning of period.......... 16,360 4,122 12,357
-------- -------- --------
Cash and cash equivalents, at end of period................ $ 7,835 $ 16,360 $ 4,122
======== ======== ========
</TABLE>
See accompanying notes.
44
<PAGE> 46
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Geron Corporation ("Geron" or the "Company") was incorporated in the State
of Delaware on November 29, 1990. Geron Corporation is a biopharmaceutical
company focusing on discovering, developing and commercializing therapeutic and
diagnostic products for applications in oncology, drug discovery and
regenerative medicine. Geron's product development programs are based on three
technologies: telomerase, human pluripotent stem cells and nuclear transfer.
Principal activities to date have included obtaining financing, recruiting
management and technical personnel, securing operating facilities and conducting
research and development. The Company has no therapeutic products currently
available for sale and does not expect to have any therapeutic products
commercially available for sale for a period of years, if at all. These factors
indicate that the Company's ability to continue its research and development
activities is dependent upon the ability of management to obtain additional
financing as required.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Geron
Corporation and its wholly owned subsidiary, Geron Bio-Med Ltd., a United
Kingdom company. Intercompany accounts and transactions have been eliminated.
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.
Net Loss Per Share
The Company's basic and diluted net loss per share amounts are calculated
in accordance with Statement of Financial Accounting Standard No. 128, "Earnings
Per Share," ("SFAS 128"). Basic earnings (loss) per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings (loss)
per share includes any dilutive effect of options, warrants and convertible
securities.
A reconciliation of shares used in calculation of basic and diluted net
loss per share follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net loss............................................ $ (46,376) $ (10,832) $ (9,641)
Accretion of redemption value of redeemable
convertible preferred stock....................... (73) (578) --
----------- ----------- -----------
Net loss applicable to common stockholders.......... $ (46,449) $ (11,410) $ (9,641)
=========== =========== ===========
Basic and Diluted
Weighted average shares of common stock outstanding
used in computing basic and diluted net loss per
share............................................. 15,489,035 11,439,084 10,551,054
=========== =========== ===========
Basic and diluted net loss per share................ $ (3.00) $ (1.00) $ (0.91)
=========== =========== ===========
</TABLE>
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 1,392,833, 1,370,960, and 936,782 shares related
to outstanding options and warrants not included above (as determined using the
treasury stock method at the estimated average market value) for 1999, 1998, and
1997, respectively. In addition, had the Company been in a net income position,
diluted earnings per share would also have included 235,305 and 43,750 shares in
1999 and 1998 related to convertible debentures.
45
<PAGE> 47
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Since Geron's inception, a substantial portion of its revenues have been
generated from license and research agreements with collaborators. In addition,
Geron has received license payments and royalties from license and marketing
agreements with various diagnostic and research tools collaborators.
The Company recognizes revenue as the related research and development
costs are incurred. Milestone fees are recognized upon completion of specified
milestones according to contract terms. Deferred revenue represents the portion
of research payments received which have not been earned. Nonrefundable signing
or licensing fees that are not dependent on future performance under
collaborative agreements are recognized as revenue when received assuming the
Company has no remaining obligations. Royalties are generally recognized upon
receipt.
The majority of the Company's revenues was earned in the United States. Two
customers accounted for 92% and 5% of the Company's 1999 revenues, 74% and 25%
of the Company's 1998 revenues and 52% and 40% of the Company's 1997 revenues.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition. The Company has not completed its assessment of the impact of SAB
101, but does not expect that the implementation of SAB 101 will have a material
effect.
Depreciation and Amortization
The Company records property and equipment at cost and calculates
depreciation using the straight-line method over the estimated useful lives of
the assets, generally four years. Furniture and equipment leased under capital
leases is amortized over the useful lives of the assets. Leasehold improvements
are amortized over the remaining term of the lease.
Comprehensive Loss
Comprehensive income is comprised of net income and other comprehensive
income. Other comprehensive income includes certain changes in equity that are
excluded from net income. Specifically, unrealized holding gains and losses on
our available-for-sale securities, which were reported separately in
stockholders' equity, and cumulative translation adjustment are included in
accumulated other comprehensive income. comprehensive income (loss) for years
ended December 31, 1999, 1998 and 1997 has been reflected in the consolidated
statement of stockholders' equity.
Other Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction, and, if so, the type of hedge transaction.
In June 1999, the FASB issued FAS 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133" ("FAS 137"), which amends
46
<PAGE> 48
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FAS 133 to be effective for all fiscal quarters or all fiscal years beginning
after June 15, 2000 or January 1, 2001 for the Company. Management does not
currently expect that adoption of FAS 133 will have a material impact on the
Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, "Reporting for the Costs of Start-Up
Activities," ("SOP 98-5"). The Company is required to expense all start-up costs
related to new operations as incurred. In addition, all start-up costs that were
capitalized in the past must be written off when SOP 98-5 is adopted. The
Company was required to implement SOP 98-5 for the year ending December 31,
1999; however, the adoption of 98-5 has not had a material impact on the
Company's financial position or results of operations to date.
Reclassifications
Certain reclassifications of prior year amounts have been made to conform
to current year presentation.
2. ACQUISITION
In May 1999, the Company completed the acquisition of Roslin Bio-Med Ltd.,
a privately held company formed by the Roslin Institute in Midlothian, Scotland.
In connection with this acquisition, the Company formed a research collaboration
with the Roslin Institute and has committed approximately $20,000,000 in
research funding over six years which using an effective interest rate of 6% has
a net present value of $17,200,000. The Company issued 1,891,371 shares of its
common stock with a fair value of $22,200,000 in exchange for all of the
outstanding shares of Roslin Bio-Med Ltd. In addition, the Company issued fully
vested options to purchase 208,629 shares of Geron common stock with a fair
value of $2,200,000 in exchange for the outstanding fully vested stock options
in Roslin Bio-Med Ltd. The total purchase price of $44,400,000 also included
acquisition costs of $2,900,000. Under the terms of the agreement, Roslin
Bio-Med Ltd. became a wholly owned United Kingdom subsidiary of Geron and is
known as Geron Bio-Med Ltd.
The license to the nuclear transfer technology was the only significant
asset of Roslin Bio-Med. Geron intends to further the research and development
of the nuclear transfer technology, in combination with its other technology
platforms. Geron must further the research and development of the technology
before Geron can enter into clinical trials for a potential commercial
application. Future products, if any, may take several years to develop and
commercialize and will require substantial additional funds to develop. Geron
may never be able to create a commercial product from the technology. Geron is
using this technology for one research project. Geron has concluded that this
technology has no alternative future use, and accordingly, Geron has expensed
the value of the acquired research technology at the time of the acquisition.
The transaction was accounted for 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
Institute and the net tangible assets of Roslin Bio-Med Ltd. The value of the
nuclear transfer technology of $23,400,000 was reflected as acquired research
expense and the value of the research agreement of $17,200,000 has been
capitalized as an intangible asset and is being amortized over six years. During
1999, payments totaling $2,300,000 were made to the Roslin Institute under the
research funding obligation. During 1999, $1,900,000 of imputed interest was
accreted to the value of the research funding obligation and was recognized as
interest expense.
The unaudited pro forma consolidated statement of operations data for the
year ended December 31, 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 year ended December 31,
1998 set forth below gives effect to the acquisition of Roslin Bio-Med Ltd. as
if it occurred on January 1, 1998.
The proforma results of operations for 1999 and 1998 do not include the
expense of $23,400,000 recorded in 1999 by Geron for the acquired research
technology. The results for both 1999 and 1998 include an
47
<PAGE> 49
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
adjustment to reflect the amortization of the research funding obligation. The
basic and diluted net loss per share amounts are computed using the weighted
average number of shares of common stock outstanding after the issuance of Geron
common stock in connection with this acquisition.
<TABLE>
<CAPTION>
(UNAUDITED) YEAR ENDED YEAR ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------------------- ----------------- -----------------
<S> <C> <C>
Revenues........................................... $ 5,412 $ 6,799
Net loss........................................... $(24,158) $(16,384)
Basic and diluted net loss per share............... $ (1.49) $ (1.24)
</TABLE>
3. FINANCIAL INSTRUMENTS AND CREDIT RISK
Cash Equivalents and Securities Available-for-Sale
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company is
subject to credit risk related to its cash equivalents and securities
available-for-sale. The Company places its cash and cash equivalents in money
market funds, municipal notes and commercial paper. The Company's investments
include corporate notes in United States corporations and municipal securities
with original maturities ranging from three to 24 months.
The Company classifies its marketable equity and debt securities as
available-for-sale. Available-for-sale securities are recorded at fair value
with unrealized gains and losses reported in accumulated other comprehensive
income (loss) in stockholders' equity. Fair values for investment securities are
based on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments. Realized gains and losses are included in interest and other income
and are derived using the specific identification method for determining the
cost of securities sold and have been immaterial to date. Declines in market
value judged other-than-temporary result in a charge to interest income.
Dividend and interest income are recognized when earned.
The following is a summary of available-for-sale securities at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Included in cash and cash equivalents:
Money market fund...................................... $ 3,516 $13,595
Municipal note......................................... $ 2,000 $ 2,000
------- -------
$ 5,516 $15,595
======= =======
Short-term investments (due in less than 1 year):
Corporate notes........................................ $31,452 $ 8,109
======= =======
Long-term investments (due in 1 - 2 years):
Corporate notes........................................ $ 3,636 $15,954
======= =======
</TABLE>
As of December 31, 1999 and 1998, the difference between the fair value and
the amortized cost of available-for-sale securities was immaterial.
Other Assets
The Company presently holds notes receivable of $312,500 ($250,000 in 1998)
from employees of the Company. These notes, which in general bear no interest,
are collateralized by certain personal assets of the employees. One of the notes
receivable is to be paid in full by June 2002 and the remaining two notes
receivable are being paid in a series of installments over four years ending
December 2002 and August 2003.
48
<PAGE> 50
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Other Fair Value Disclosures
At December 31, 1999, the fair value of the notes receivable from employees
is $302,000. The fair value was estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms of
borrowers of similar credit quality.
The fair value of the equipment loans approximates the carrying value of
$2,694,000. The fair value was estimated using discounted cash flow analyses,
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
The fair value of the convertible debentures is approximately $15,500,000
which approximates the carrying value of $15,300,000. The fair value was
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
4. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Furniture and computer equipment......................... $ 2,120 $ 1,766
Lab equipment............................................ 4,440 3,383
Leasehold improvements................................... 3,309 1,992
------- -------
9,869 7,141
Less accumulated depreciation and amortization........... (6,086) (4,805)
------- -------
$ 3,783 $ 2,336
======= =======
</TABLE>
Property and equipment at December 31, 1999 and 1998 includes assets under
capitalized leases and equipment loans of approximately $2,879,000 and
$2,882,000 respectively. Accumulated amortization related to leased assets was
approximately $1,307,000 and $1,482,000 at December 31, 1999 and 1998,
respectively.
5. CAPITAL LEASE OBLIGATIONS AND EQUIPMENT LOANS
In 1999, the Company entered into lease and equipment loan credit lines of
$1,500,000. As of December 31, 1999, the Company had approximately $1,200,000
available for borrowing under its equipment financing facilities. The drawdown
period under the equipment financing facilities expire on July 31, 2000. The
obligations under the equipment loans, which are secured by the equipment
financed, bear interest at fixed rates of approximately 11% and are due in
monthly installments through November 2003. Under the terms of the master lease
agreement, ownership of the leased equipment will transfer to the Company at the
end of the lease term.
49
<PAGE> 51
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under capital leases and principal payments
on equipment loans are as follows:
<TABLE>
<CAPTION>
CAPITAL EQUIPMENT
LEASES LOANS
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Years ending December 31:
2000................................................... $ 7 $1,176
2001................................................... -- 876
2002................................................... -- 752
2003................................................... -- 159
--- ------
Total minimum lease and principal payments,
respectively................................. 7 $2,963
=== ======
Amount representing interest............................. --
---
Present value of future lease payments................... 7
Current portion of capital lease obligations............. (7)
---
Noncurrent portion of capital lease obligations.......... $--
===
</TABLE>
6. OPERATING LEASE COMMITMENT
On March 25, 1996, the Company leased two facilities under two five-year
noncancelable operating leases. Future minimum payments under noncancelable
operating leases are approximately $666,000 in 2000, $693,000 in 2001 and
$58,000 in 2002. The Company has the option to extend the term of both leases
for two additional periods of two and one half years each. Rent expense under
operating leases was approximately $652,000, $637,000 and $581,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
7. CONVERTIBLE DEBENTURES
Series A and B Debentures
On December 10, 1998, the Company entered into an agreement to sell
$15,000,000 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 $10.00 per share. One-half of the
proceeds were funded upon signing the agreement, at which time $7,500,000 of
series A convertible debentures 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 proceeds of $7,500,000 from the issuance
of series A convertible debentures and warrants were allocated between the
series A convertible debentures and warrants as follows: $6,800,000 to the
debentures and $719,000 to the warrants. The series A convertible debentures,
which were recorded at a discount, were being accreted to the redemption amount
over the three year term using the interest method. In connection with the
issuance of the series A convertible debentures and warrants, the Company
recorded approximately $563,000 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. During 1999, all of the series A convertible debentures
with a face value of $7,500,000 were converted into 750,000 shares of Geron
common stock at $10.00 per share. At December 31, 1999, series A warrants to
purchase 625,000 shares of common stock remained outstanding.
In June 1999, $7,500,000 of series B convertible debentures and warrants to
purchase 625,000 shares of common stock were issued 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 $562,000
50
<PAGE> 52
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $7,500,000 proceeds from the series B convertible debentures and warrants
were allocated between the series B convertible debentures and the warrants as
follows: $6,800,000 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
1999, series B convertible debentures with a face value of $4,500,000 were
converted into 450,000 shares of Geron common stock at $10.00 per share. As of
December 31, 1999, $3,000,000 of series B convertible debentures and series B
warrants to purchase 625,000 shares of common stock remained outstanding.
Series C Debentures
On September 30, 1999, the Company sold $12,500,000 series C convertible
two-percent coupon debentures and warrants to purchase 1,100,000 shares of
common stock to an institutional investor. The series C convertible debentures
are convertible at any time by the holder at a fixed conversion price of $10.25
per share. The series C convertible debentures are convertible 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 series C warrants to
purchase 1,000,000 shares of common stock are exercisable at $12.50 per share
and the series C warrants to purchase 100,000 shares of common stock are
exercisable at $12.75 per share at the option of the holder until June 2, 2001.
As of the date of the issuance of the series C convertible debentures, the
Company did not have sufficient authorized common shares to permit the series C
debenture holder to fully convert the series C debentures and exercise the
warrants. In the event that the Company did not obtain stockholder approval to
increase its authorized common shares to allow for full conversion of the series
C debentures and exercise of series C warrants prior to March 31, 2000, the
Company would have been in default of under the debenture and would have been
obligated to redeem the debentures at the request of the series C convertible
debenture holder 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 been converted into plus expenses. As of December 31,
1999, the Company had obtained stockholder approval to issue the additional
shares of common stock necessary in order for the holders of series C
convertible debentures to fully convert their debentures and exercise their
warrants. Prior to obtaining stockholder approval to increase the number of
authorized shares of the Company's common stock, the Company recognized $625,000
of interest expense related to this potential penalty on redemption up through
the date the additional shares were authorized.
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
$2,732,000. In accordance with Emerging Issue Task Force Issue No. 98-5, which
was effective for transactions with a commitment date after May 20, 1999, this
value was recorded as an increase to additional paid-in-capital and a related
charge to interest expense. This amount was recorded at the time when the
Company obtained stockholder approval to increase the number of authorized
shares of the Company's common stock to an amount sufficient to allow for the
full conversion of series C convertible debentures and exercise of the series C
warrants.
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On March 27, 1998, the Company completed a private placement with two
institutional investors for the sale of 15,000 shares of series A redeemable
convertible preferred stock (the "series A preferred stock") with a par value of
$0.001 and a stated value of $1,000 per share resulting in proceeds of
$15,000,000. The series A
51
<PAGE> 53
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
preferred stock is convertible into the number of shares of common stock of the
Company equal to the stated value plus a premium of 6% per annum divided by a
conversion price. The premium on the series A preferred stock was accreted and
recorded as a dividend. The premium was accrued through December 31, 1998 with
the offsetting charge recorded to accumulated deficit. The conversion price of
the series A preferred stock was based on the market price of the common stock
during a pricing period preceding conversion, up to a conversion price cap of
$16.88. The series A preferred stock was subject to redemption at the Company's
option if the market price of the common stock exceeded or fell below certain
thresholds.
On November 6, 1998, 11,548 shares of series A preferred stock were
converted into 2,173,446 shares of common stock. The number of shares of common
stock issued in November 1998 met the maximum threshold of shares of common
stock that could be issued without obtaining stockholder approval under NASD
regulations. Because the Company had not obtained stockholder approval to issue
additional shares of common stock as of December 31, 1998, the remaining 3,452
shares of series A preferred stock (with a book value of $3,452,000), which were
then redeemable at the option of the holders of series A preferred stock, were
reclassified as redeemable convertible preferred stock and were excluded from
stockholders' equity. In addition, the 6% premium on the outstanding shares of
series A preferred stock was to be accreted to the value of the outstanding
series A preferred stock.
In May 1999, the Company redeemed the remaining 3,452 shares of series A
preferred stock. The total redemption value of $3,700,000 included the 6%
premium on the outstanding book value of the series A preferred stock. As of
December 31, 1999, no shares of series A preferred stock remained outstanding.
9. STOCKHOLDERS' EQUITY
Warrants
In September 1999, in connection with the sale of series C convertible
debentures to one institutional investor, the Company issued warrants to
purchase 1,000,000 shares of common stock at $12.50 per share, and warrants to
purchase 100,000 shares of common stock at $12.75 per share. The series C
warrants are exercisable at any time through June 2001. The value of these
warrants in connection with the financing was determined to be approximately
$2,732,000. As of December 31, 1999, none of the series C warrants had been
exercised.
In June 1999, in connection with the sale of series B convertible
debentures to three institutional investors, the Company issued warrants to
purchase 625,000 shares of common stock at $12.00 per share. The series B
warrants are exercisable at any time through November 2000. The value of these
warrants in connection with the financing was determined to be approximately
$719,000. As of December 31, 1999, none of the series B warrants had been
exercised.
In December 1998, in connection with the sale of series A convertible
debentures to three institutional investors, the Company issued warrants to
purchase 625,000 shares of common stock at $12.00 per share. The series A
warrants are exercisable at any time through June 2000. The value of these
warrants in connection with the financing was determined to be approximately
$719,000. As of December 31, 1999, none of the series A warrants had been
exercised.
In October 1998, in conjunction with a license agreement, the Company
issued warrants to purchase 25,000 shares of common stock at $6.75 per share to
a research institution and its affiliates. The warrants are exercisable through
August 2007. As of December 31, 1999, none of the warrants issued in conjunction
with the license agreements had been exercised. The value of these warrants was
determined to be immaterial .
In August 1997, in conjunction with a license agreement, the Company issued
a warrant to purchase 25,000 shares of common stock at $5.78 per share to a
research institution. The warrant is exercisable through August 2007. During
1999, 5,583 of the warrants were exercised under a non-cash basis, which
resulted in the
52
<PAGE> 54
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
issuance of 2,586 shares of common stock. As of December 31, 1999, warrants to
purchase 19,417 shares of common stock remain outstanding. The value of these
warrants was determined to be immaterial.
In June 1994, in conjunction with the series C preferred stock financing,
the Company issued warrants to purchase 3,253 shares of common stock at $9.28
per share. In June 1999, all of the warrants were exercised under a non-cash
basis, which resulted in the issuance of 643 shares of common stock. As of
December 31, 1999, none of the warrants remain outstanding.
In February 1994, in conjunction with a research agreement, the Company
issued a warrant to purchase 47,058 shares of common stock at $7.65 per share.
The warrant is exercisable through February 2004. As of December 31, 1999, none
of the warrants issued in conjunction with the research agreements had been
exercised. The value of these warrants was determined to be immaterial.
1992 Stock Option Plan
The Company administers the 1992 Stock Option Plan (the "Plan"). The
options granted under this Plan may be either incentive stock options or
nonstatutory stock options. As of December 31, 1999, the Company had reserved
5,144,362 shares of common stock for issuance under the Plan. Options granted
under this Plan expire no later than ten years from the date of grant. For
incentive stock options and nonstatutory stock options, the option price shall
be at least 100% and 85%, respectively, of the fair market value on the date of
grant. If, at the time the Company grants an option, the optionee directly or by
attribution owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, the option price shall be at least
110% of the fair market value and shall not be exercisable more than five years
after the date of grant.
Options to purchase shares of common stock generally vest over a period of
four or five years from the date of the option grant, with a portion vesting
after six months and the remainder vesting ratably over the remaining period.
Options granted under the Plan prior to July 1996 (the date of the Company's
initial public offering) are generally immediately exercisable; however, any
unvested shares issued are subject to repurchase rights whereby the Company has
the option to repurchase any unvested shares upon termination of employment at
the original exercise price. In 1999 and 1998, the Company repurchased 118 and
no shares, respectively, in accordance with these repurchase rights. As of
December 31, 1999, 1,085 shares remained subject to repurchase.
On September 18, 1998, the Board of Directors approved a resolution to
offer all employees holding outstanding options to purchase common stock of the
Company under the Company's 1992 Stock Option Plan with exercise prices in
excess of the closing price of the Company's common stock on September 17, 1998
of $4.75, the option to exchange all such options for new incentive and/or
nonstatutory stock options. Each such new incentive and/or nonstatutory stock
option was on the same terms as the surrendered option, except that (i) the
exercise price was equal to the closing price of the Company's common stock as
reported on September 17, 1998 of $4.75, (ii) the vesting period of each
exchanged option as set forth in the applicable stock option agreement was
extended for one year beginning from the original vesting commencement date,
(iii) no exchanged option could be exercised or sold by the optionee prior to
September 18, 1999, except due to the involuntary termination of the employee by
the Company or his or her death or permanent disability, and (iv) options so
exchanged were exchanged for the maximum number of incentive stock options
permitted under applicable rules and regulations. In connection with this option
exchange program, options to purchase 1,148,224 shares of common stock were
cancelled and regranted. In addition, the Company recorded deferred compensation
of approximately $1,300,000 in 1998 and recognized compensation expense related
to this option exchange of approximately $241,000 and $334,000 in 1999 and 1998,
respectively. The remaining deferred compensation is being amortized over the
remaining vesting term of the options.
53
<PAGE> 55
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Directors' Option Plan
In July 1996, the Company adopted the 1996 Directors' Stock Option Plan and
reserved an aggregate of 250,000 shares of common stock for issuance thereunder.
In May 1999, the stockholders approved an amendment to increase the number of
authorized shares to 500,000 shares of common stock. As of December 31, 1999,
190,000 options have been granted under the Directors' Option Plan.
Aggregate option activity for the 1992 Stock Option Plan and Directors'
Stock Option Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------------------------------
SHARES WEIGHTED
AVAILABLE NUMBER OF PRICE PER AVERAGE
FOR GRANT SHARES SHARE EXERCISE PRICE
---------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996.......... 631,031 1,558,901 $0.34 - $ 8.75 $ 2.45
Additional shares authorized........ 1,000,808 -- $ -- $ --
Options granted..................... (1,491,830) 1,491,830 $6.75 - $17.00 $11.07
Options exercised................... -- (292,904) $0.34 - $12.75 $ 1.54
Options canceled.................... 332,036 (332,036) $0.34 - $12.75 $ 8.70
---------- ----------
Balance at December 31, 1997.......... 472,045 2,425,791 $0.34 - $17.00 $ 6.98
Additional shares authorized........ 715,918 -- $ -- $ --
Options granted..................... (2,008,822) 2,008,822 $4.56 - $13.75 $ 5.79
Options exercised................... -- (415,106) $0.34 - $13.75 $ 3.44
Options canceled.................... 1,367,588 (1,367,588) $0.78 - $13.25 $10.29
---------- ----------
Balance at December 31, 1998.......... 546,729 2,651,919 $0.34 - $17.00 $ 4.92
Additional shares authorized........ 1,123,225 -- $ -- $ --
Options granted..................... (1,223,520) 1,223,520 $9.75 - $12.38 $11.30
Options exercised................... -- (282,132) $0.78 - $13.00 $ 3.69
Options canceled.................... 295,785 (295,785) $0.82 - $17.00 $ 8.12
Options repurchased................. 118 -- $0.82 - $ 2.04 $ 1.98
---------- ----------
Balance at December 31, 1999.......... 742,337 3,297,522 $0.34 - $17.00 $ 7.11
========== ==========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
WEIGHTED AVERAGE
REMAINING
WEIGHTED AVERAGE CONTRACTUAL LIFE
EXERCISE PRICE RANGE NUMBER EXERCISE PRICE (IN YEARS)
- -------------------- --------- ---------------- ----------------
<S> <C> <C> <C>
$ 0.34 - $ 2.04 365,553 $ 1.55 5.86
$ 4.56 - $ 4.63 352,048 $ 4.56 8.67
$ 4.75 - $ 4.81 1,132,944 $ 4.75 8.52
$ 5.95 - $11.00 774,344 $10.09 9.07
$11.13 - $17.00 672,633 $11.98 9.46
---------
$ 0.34 - $17.00 3,297,522 $ 7.11 8.56
=========
</TABLE>
As of December 31, 1999 and 1998, there were 1,241,477 and 762,038
exercisable options outstanding at a weighted average exercise price of $5.07
and $3.20, respectively.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and the related
Interpretations in accounting for its employee stock options and options granted
to non-employee directors because, as discussed below, the alternative fair
value accounting provided for under Financial Accounting Standards Board
Statement No. 123 ("SFAS 123"), "Accounting for Stock Based Compensation,"
requires use of option pricing valuation models that were not
54
<PAGE> 56
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
developed for use in valuing employee stock options and options granted to
non-employee directors. Under APB 25, the Company generally recognizes no
compensation expense with respect to such awards.
Pro forma information regarding net loss and net loss per share is required
by SFAS 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method prescribed by the Statement.
The fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates ranging from 4.78% to 6.31% for 1999,
4.25% to 5.62% for 1998, and 5.79% to 6.85% for 1997; a dividend yield of 0.0%
for 1999, 1998 and 1997; a volatility factor of the expected market price of the
Company's common stock of 0.958 for 1999, 1.078 for 1998, and 1.1 for 1997; and
a weighted average expected life of the options of 5 years for 1999, 1998 and
1997.
The Company has recorded deferred compensation of approximately $1,300,000
for the difference between the grant price and the deemed fair value of certain
of the Company's common stock options granted in 1996. This amount is being
amortized over the vesting period of the individual options, generally a
60-month period. Deferred compensation expense recognized in 1999, 1998 and 1997
related to these options grants totaled approximately $289,000.
The weighted average fair value of options granted during 1999, 1998 and
1997 with an exercise price below the fair market value of the Company's common
stock on the date of grant was none, $3.79, and $6.69, respectively. The
weighted average fair value of options granted during 1999, 1998 and 1997 with
an exercise price equal to the fair market value of the Company's common stock
on the date of grant was $11.30, $5.81, and $7.65, respectively. The weighted
average fair value of options granted during 1999, 1998 and 1997 with an
exercise price greater than the fair market value of the Company's common stock
on the date of grant was none, $0.11, and none, respectively.
The Company grants options to consultants from time to time in exchange for
services performed for the Company. In general, these options vest over the
contractual period of the consulting arrangement. In 1999, the Company granted
options to consultants to purchase 7,500 shares of the Company's common stock.
The fair value of these option grants was determined to be approximately $61,000
and is being amortized to expense over the vesting term of the options. In
addition, the Company will record any additional increase in the fair value of
the option grant as the options vest. In 1998, the Company granted options to
consultants to purchase 26,550 shares of the Company's common stock. The fair
value of these options is $197,000 as of December 31, 1999. The Company recorded
expense of $6,000 and $59,000 for the fair value of these options in 1999 and
1998.
The Company also grants common stock to consultants and research
institutions in exchange for services performed for the Company. In 1999 and
1998, the Company issued 113,126 and 4,772 shares of common stock, respectively,
in exchange for services. For these stock grants, the Company recognized an
expense equal to the fair market value of the granted shares on the date of
grant. In 1999 and 1998, the Company recognized approximately $1,526,000 and
$172,000 of operating expenses in connection with stock grants to consultants
and research institutions.
55
<PAGE> 57
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options using the
straight-line method. The Company's pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net loss applicable to common stockholders................. $(46,449) $(11,410) $ (9,641)
Pro forma net loss applicable to common stockholders....... $(49,519) $(15,198) $(11,325)
Basic and diluted net loss per share as reported........... $ (3.00) $ (1.00) $ (0.91)
Basic and diluted pro forma net loss per share............. $ (3.20) $ (1.33) $ (1.07)
</TABLE>
Employee Stock Purchase Plan
In July 1996, the Company adopted the 1996 Employee Stock Purchase Plan
("Purchase Plan") and reserved an aggregate of 300,000 shares of common stock
for issuance thereunder. Under the terms of the Purchase Plan, employees can
choose to have up to 10% of their annual salary withheld to purchase the
Company's common stock. The purchase price of the stock is 85% of the lower of
the subscription date fair market value and the purchase date fair market value.
Approximately 50% of the eligible employees have participated in the Purchase
Plan. The Company does not recognize compensation cost related to employee
purchase rights under the Purchase Plan. Approximately 78,000, 54,000, and
33,000 shares have been issued under the Purchase Plan as of December 31, 1999,
1998, and 1997, respectively. To comply with the pro forma reporting
requirements of SFAS 123, compensation cost is estimated for the fair value of
the employees' purchase rights using the Black-Scholes model with the following
weighted average assumptions: risk-free interest rates ranging from 5.06% to
5.74% for 1999, 4.58% to 5.51% for 1998, and 5.62% to 5.68% for 1997; a dividend
yield of 0.0% for 1999, 1998, and 1997; a volatility factor of the expected
market price of the Company's Common Stock of 0.958 for 1999, 1.078 for 1998,
and 1.1 for 1997; and an expected life of the purchase right of 6 months for
1999, 1998, and 1997. Based upon these assumptions, the pro forma compensation
cost estimated for the fair value of the employees' purchase rights was
approximately $100,000 for 1999, $136,000 for 1998, and $42,000 for 1997, and
has been included in the above pro forma information. As of December 31, 1999,
221,644 shares were available for issuance under the 1996 Employee Stock
Purchase Plan.
Common Shares Reserved for Future Issuance
At December 31, 1999, 8,222,490 shares of Common Stock are reserved for
issuance upon exercise of options currently outstanding and options available
for grant under the 1992 Stock Option Plan, 1996 Directors' Option Plan, 1996
Employee Stock Purchase Plan, conversion of outstanding convertible debentures
and exercise of outstanding warrants.
10. COLLABORATIVE AGREEMENTS
In April 1995, the Company entered into a License and Research
Collaboration Agreement with Kyowa Hakko (the "Kyowa Hakko Agreement"). Under
the Kyowa Hakko Agreement, Kyowa Hakko agreed to provide $16.0 million of
research funding over four years to support the Company's program to discover
and develop in certain Asian countries a telomerase inhibitor for the treatment
of cancer. As of December 31, 1999, all of this research funding had been
received. In addition, the Company is entitled to receive future payments
totaling $7.5 million upon the achievement of certain contractual milestones
relating to drug development and regulatory progress, as well as royalty
payments on product sales. Kyowa Hakko also purchased $2.5 million of Geron
common stock in connection with the Company's initial public offering. Under the
Kyowa Hakko Agreement, Geron exercises significant influence during the research
phase and
56
<PAGE> 58
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Kyowa Hakko exercises significant influence during the development and
commercialization phases. Kyowa Hakko will pay for all clinical expenses
associated with product approval in the licensed territory, which includes the
countries of China, Hong Kong, India, Indonesia, Japan, Kampuchea, Korea, Laos,
Malaysia, Myan Mar, the Philippines, Singapore, Taiwan, Thailand and Vietnam.
The Kyowa Hakko Agreement provides that Kyowa Hakko will not pursue research and
development independent of its collaboration with the Company with respect to
telomerase inhibition for the treatment of cancer in humans until April 7, 2000,
at the earliest. Kyowa Hakko may terminate the agreement only in the event of
breach or bankruptcy by the Company or in the event that both parties agree that
it is no longer reasonably practical to pursue further research and development
of an inhibitor of telomerase. In March 1997, the Kyowa Hakko Agreement was
amended to extend its term until April 2000 and to make certain other changes in
connection with the signing of the Pharmacia & Upjohn Agreement (as defined
below).
In March 1997, the Company signed a License and Research Collaboration
Agreement (the "Pharmacia & Upjohn Agreement") with Pharmacia & Upjohn to
collaborate in the discovery, development and commercialization of a new class
of anti-cancer drugs that inhibit telomerase. Under the collaboration, Pharmacia
& Upjohn agreed to provide $15.0 million of research funding over three years.
As of December 31, 1999, $13.75 million of research funding had been received.
In addition, the Company is entitled to receive future payments upon the
achievement of certain contractual milestones relating to drug development and
regulatory progress, as well as royalty payments on future product sales.
Further, the Company has an option to exercise co-promotion rights in the United
States. The companies also signed a Stock Purchase Agreement providing for an
initial equity investment of $2.0 million in Geron by Pharmacia & Upjohn, at a
premium, which was completed in January 1997. In addition, on April 25, 1997 and
March 27, 1998, Pharmacia & Upjohn purchased an aggregate of $8.0 million ($4.0
million on each date) of Geron common stock at a premium. Through the Pharmacia
& Upjohn and Kyowa Hakko Agreements, the Company has granted to Pharmacia &
Upjohn and Kyowa Hakko exclusive worldwide rights to its telomerase inhibition
technology, with exception to certain antisense, gene therapy and vaccine
technologies outside Asia, for the treatment of cancer in humans. This
collaboration with Pharmacia & Upjohn has recently been enhanced by accessing
the high throughput screening capabilities and the two million compound library
of Pharmacopoeia, Incorporated ("Pharmacopoeia") via an alliance between
Pharmacia & Upjohn and Pharmacopoeia which includes telomerase inhibition.
In March 1997, the Company entered into a three-way agreement with
Pharmacia & Upjohn and Kyowa Hakko to clarify the rights and obligations of the
parties under the two existing agreements and formalize a high level of
cooperation among all of the parties. These rights include coordination of
research and development, licensing of technology, manufacturing, disclosure of
know-how and co-marketing and co-promotion of products. Under the three-way
collaboration, the original individual agreements between the Company and Kyowa
Hakko and the Company and Pharmacia & Upjohn remain intact.
Costs associated with research and development activities attributable to
the above agreements approximate revenue recognized. Under these agreements,
revenues of approximately $5,200,000, $6,700,000, and $6,700,000 were recognized
in 1999, 1998 and 1997, respectively. No milestone payments have been received
or earned to date.
In December 1997, the Company entered into a License, Product and Marketing
Agreement with Boehringer Mannheim (the "Boehringer Mannheim Agreement") to
develop and commercialize research and clinical diagnostic products for cancer
on an exclusive, worldwide basis. Under the Boehringer Mannheim Agreement,
Boehringer Mannheim provided reimbursement for research previously conducted and
is responsible for all clinical, regulatory, manufacturing, marketing and sales
efforts and expenses. The Company is entitled to receive future payments upon
achievement of certain contractual milestones relating to levels of product
sales, as well as royalties on product sales. Further, the Company has an option
to exercise co-promotion rights in the United States. After the acquisition of
Boehringer Mannheim by Roche in early
57
<PAGE> 59
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1998, all licenses and agreements pertaining to telomerase-based cancer
diagnostics entered into with Boehringer Mannheim have been transferred to Roche
Diagnostics. In accordance with the Boehringer Mannheim Agreement, the Company
received approximately $18,000 in royalty payments from Roche during 1999.
In March 1999, the Company entered into an exclusive License, Product, and
Marketing Agreement with Clontech (the "Clontech Agreement") to develop,
manufacture, and sell six cell lines. Under the terms of the Clontech Agreement,
Clontech will be responsible for manufacturing and marketing of products
resulting from the use of the Company's telomerase technology. The Clontech
Agreement provides for Clontech to pay an up-front technology licensing fee of
$50,000, and for Clontech and Geron to equally share operating profits generated
from the sale of the cell lines. Specifically, the Company is to receive
reimbursement funding of the greater of $25,000 or 10% of sales on December 31,
1999, December 31, 2000, and December 31, 2001. Clontech launched its first
product using the Company's telomerase technology in September 1999, but sales
did not exceed $250,000. Therefore, the Company recognized additional revenue of
$25,000. In addition, the Company recognized approximately $9,000 in shared
profits from sales of cell lines in 1999.
11. INCOME TAXES
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $98,500,000. The Company also had federal
research and development tax credit carryforwards of approximately $2,600,000.
The federal net operating loss carryforwards will expire at various dates
beginning in 2006 through 2019, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
Significant components of the Company's deferred tax assets as of December
31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforwards....................... $ 34,600 $ 18,300
Research credits (expiring 2006 -- 2018)............... 3,900 3,500
Capitalized research and development................... 3,200 2,400
Other -- net........................................... (200) 100
-------- --------
Total deferred tax assets.................... 41,500 24,300
Valuation allowance for deferred tax assets............ (41,500) (24,300)
-------- --------
Net deferred tax assets................................ $ -- $ --
======== ========
</TABLE>
Because of the Company's history of losses, the net deferred tax asset has
been fully offset by a valuation allowance. The valuation allowance increased by
$5,000,000 and $4,400,000 during the years ended December 31, 1998 and 1997,
respectively.
Approximately $1,900,000 of the valuation allowance for deferred tax assets
relates to benefits of stock option deductions which, when recognized, will be
allocated directly to contributed capital.
12. SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") in 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
58
<PAGE> 60
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
13. STATEMENT OF CASH FLOWS DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------- ------- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Supplementary information
Interest paid............................................. $ 299 $ 246 $332
Supplementary investing and financing activities
Common stock issued under purchase plan................... $ 208 $ 154 $209
Notes receivable from stockholders........................ $ (70) $ (4) $ --
Conversion of convertible debentures...................... $11,059 $ -- $ --
Accretion of premium on convertible preferred stock....... $ (73) $ (578) $ --
Redeemable convertible preferred stock.................... $ -- $ 3,610 $ --
Acquired research funding obligation...................... $17,187 $ -- $ --
Common stock issued in connection with acquisition........ $24,386 $ -- $ --
Deferred compensation related to options granted.......... $ -- $(1,292) $ --
Net unrealized gain (loss) on available-for-sale
securities............................................. $ (144) $ 30 $ 2
</TABLE>
14. SUBSEQUENT EVENTS (UNAUDITED)
In January and February 2000, the Company extended its three-way License
and Research Collaboration Agreement with Pharmacia & Upjohn and Kyowa Hakko,
respectively. The agreement extends the research and compound selection periods
one additional year to March 2002. Geron expects to receive additional funding
from both companies as part of the extension. Pharmacia & Upjohn's research
funding will expire in January 2001 and Kyowa Hakko's research funding will
expire in April 2001.
In January 2000, an aggregate principal amount of $3,000,000 of series B
convertible debentures was converted into 300,000 shares of Geron common stock.
As a result, no series B convertible debentures remain outstanding as of January
31, 2000.
In January and February 2000, institutional investors exercised series A
warrants to purchase 375,000 shares of common stock and series B warrants to
purchase 125,000 shares of common stock at $12.00 per share. A total of 500,000
shares of common stock were issued and the Company received proceeds of
$6,000,000.
In January 2000, the Company issued 25,000 shares of Geron common stock and
a warrant to purchase 50,000 shares of Geron common stock in connection with
compensation for services rendered during the acquisition of Roslin Bio-Med,
Ltd. The warrant is immediately exercisable at an exercise price of $12.38 per
share.
59
<PAGE> 61
GERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. EVENTS SUBSEQUENT TO THE DATE OF AUDITORS REPORT (UNAUDITED)
In March 2000, an aggregate principal amount of $6,250,000 of series C
convertible debentures was converted into approximately 615,000 shares of Geron
common stock.
In March 2000, institutional investors exercised series A warrants to
purchase 250,000 shares of common stock, Series B warrants to purchase 250,000
shares of common stock and Series C warrants to purchase 1,100,000 shares of
common stock. Geron received total proceeds of $19.8 million in March 2000 from
the exercise of these warrants.
In March 2000, Geron sold a total of 380,855 shares of common stock and
warrants to purchase 300,000 shares of its common stock to a single investor for
$9 million. Warrants to purchase 100,000 shares of common stock are exercisable
at $12.50 per share and the warrants to purchase 200,000 shares of common stock
are exercisable at $67.09 per share. As of March 9, 2000, all of the warrants
were outstanding.
60
<PAGE> 62
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION/POSITION
NAME AGE WITH THE COMPANY
---- --- -----------------------------
<S> <C> <C>
Alexander E. Barkas, Ph.D. .............. 52 General Partner, Prospect Venture Partners
Ronald W. Eastman........................ 47 President, EdeNet Communications, Inc.
Edward V. Fritzky........................ 49 Chief Executive Officer and Chairman, Immunex
Corporation
Thomas D. Kiley, Esq. ................... 56 Attorney-at-law
Gary L. Neil............................. 59 President and Chief Executive Officer, Crescendo
Pharmaceuticals Corporation
Thomas B. Okarma, M.D., Ph.D. ........... 54 President and Chief Executive Officer
Robert B. Stein, M.D., Ph.D. ............ 49 Executive Vice President, Research & Preclinical
Development DuPont Pharmaceuticals
John P. Walker........................... 51 President and Chief Executive Officer, Axys
Pharmaceuticals, Inc.
</TABLE>
ALEXANDER E. BARKAS, PH.D., has served as our Chairman of the Board since
July 1993 and as a director since March 1992. From March 1992 until May 1993, he
served as our President and Chief Executive Officer. He is a founding partner of
Prospect Venture Partners, a venture capital investment firm formed in October
1997. Dr. Barkas was a partner with Kleiner Perkins Caufield & Byers, a venture
capital investment firm, from 1991 to October 1997. Dr. Barkas is also a
director of Connetics Corp. and several privately held medical technology
companies. He holds a B.A. from Brandeis University and Ph.D. from New York
University.
ROBERT B. STEIN, M.D., PH.D., has served as our director since April 1996.
Since September 1996 Dr. Stein has been Executive Vice President of Research &
Preclinical Development at DuPont Pharmaceuticals. From August 1993 to September
1996, Dr. Stein was Senior Vice President and Chief Scientific Officer of Ligand
Pharmaceuticals, Inc., a pharmaceutical company, and from May 1990 to August
1993, he was Vice President of Research at Ligand. From 1982 to 1990, Dr. Stein
held various positions with Merck, Sharp, and Dohme Research Laboratories, a
pharmaceutical company, including Senior Director and Head of the Department of
Pharmacology from 1989 to 1990. Dr. Stein holds a B.S. in Biology and Chemistry
from Indiana University and an M.D. and a Ph.D. in Physiology and Pharmacology
from Duke University.
GARY L. NEIL, PH.D., has served as our director since September 1998. Dr.
Neil is also a director of Crescendo Pharmaceutical Corporation, Allergen
Specialty Therapeutics, Inc. and Signal Pharmaceuticals, Inc. He has also been
the president and chief executive officer of Crescendo Pharmaceuticals since its
inception in September 1997. From 1993 to 1997, he was the president and chief
executive officer of Therapeutic Discovery Corporation which was formed by ALZA
Corporation and purchased by them in 1997. From 1989 to 1993, Dr. Neil served as
executive vice president of American Home Products' subsidiary Wyeth-Ayerst
Research where he led Wyeth-Ayerst's worldwide pharmaceutical research and
development organization. Prior to joining American Home Products, Dr. Neil
served 23 years at The Upjohn company in a number of scientific and management
positions. Dr. Neil holds a B.Sc. in Chemistry from Queen's University, Canada
and a Ph.D. in Organic Chemistry from California Institute of Technology.
JOHN P. WALKER has served as our director since April 1997. He is currently
chairman and chief executive officer and a director of Axys Pharmaceuticals,
Inc., which is the corporation that resulted from the merger of Arris
Pharmaceutical Corporation and Sequana Therapeutics, Inc. Mr. Walker is also a
director of Microcide Pharmaceuticals. From 1993 to 1997, he was President,
Chief Executive Officer and a director of Arris Pharmaceutical Corporation.
Prior to his association with Arris, Mr. Walker was the Chairman and Chief
61
<PAGE> 63
Executive Officer of Vitaphore Corporation, a biomaterials company which was
sold to Union Carbide Chemical and Plastics Company Inc. in 1990. From 1971 to
1985, Mr. Walker was employed by American Hospital Supply Corporation in a
variety of general management, sales and marketing positions, most recently
serving as President of the American Hospital Company. He holds a B.A. from the
State University of New York at Buffalo and conducted graduate business studies
at Northwestern University Institute for Management. Mr. Walker serves as a
director of Microcide Pharmaceuticals, Signal Pharmaceuticals, and the Northern
California Chapter of the Multiple Sclerosis Society.
RONALD W. EASTMAN has served as our director since May 1993. He served as
our President and Chief Executive Officer from May 1993 to July 1999. From 1978
until joining us, Mr. Eastman was employed with American Cyanamid Co., most
recently as a Vice President and General Manager of Lederle Laboratories,
American Cyanamid's pharmaceutical business. Mr. Eastman holds a B.A. from
Williams College and an M.B.A. from Columbia University.
THOMAS D. KILEY, ESQ., has served as our director since September 1992. He
has been self-employed since 1988 as an attorney, consultant, and investor. From
1980 to 1988, he was an officer of Genentech, Inc., a biotechnology company,
serving variously as Vice President and General Counsel, Vice President for
Legal Affairs and Vice President for Corporate Development. From 1969 to 1980,
he was with the Los Angeles law firm of Lyon & Lyon and was a partner in that
firm from 1975 to 1980. Mr. Kiley is also a director of Pharmacyclics, Inc.,
Connetics Corp., Cardiogenesis Corporation and certain privately held
biotechnology and other companies. Mr. Kiley holds a B.S. in Chemical
Engineering from Pennsylvania State University and a J.D. from George Washington
University.
EDWARD V. FRITZKY, has served as our director since July 1998. He is
currently and has been Chief Executive Officer, President, Chairman and Director
of Immunex Corporation since January 1994. Mr. Fritzky has served as a Director
of Sonosite, Inc. since March 1998. Mr. Fritzky served as President of Lederle
Laboratories, a division of American Cyanamid, from 1992 to 1994, and as Vice
President of Lederle Laboratories from 1989 to 1992. Prior to joining Lederle
Laboratories, Mr. Fritzky was an executive of Searle Pharmaceuticals, Inc., a
subsidiary of the Monsanto Company. During his tenure at Searle, Mr. Fritzky was
Vice President of Marketing in the United States, and later President and
General Manager of Searle Canada, Inc. and Lorex Pharmaceuticals, a joint
venture company. Mr. Fritzky holds a B.A. from Duquesne University and is a
graduate of the Advanced Executive Program, J.L. Kellogg Graduate School of
Management at Northwestern University.
There are no family relationships among our executive officers or
directors.
IDENTIFICATION OF EXECUTIVE OFFICERS
The information required by this Item concerning the Company's executive
officers is set forth in Part I of this Report.
62
<PAGE> 64
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain information summarizing compensation
awarded or paid to, or earned by the Company's Chief Executive Officer and its
four other most highly compensated executive officers whose compensation was in
excess of $100,000 (the "Named Executive Officers") for services rendered in all
capacities to the Company for each of the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(1)($) OPTIONS(#)
--------------------------- ---- --------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Ronald W. Eastman (2).................. 1999 $310,199 $ -- $ -- 15,000
Former President and Chief Executive 1998 295,000 78,180 -- 325,297
Officer 1997 257,300 46,300 30,000 230,000
David L. Greenwood..................... 1999 240,000 35,900 12,000 95,000
Chief Financial Officer, Senior Vice 1998 205,000 62,280 30,000 241,341
President of Corporate Development, 1997 198,800 38,800 64,370 165,000
Treasurer, and Secretary
Elaine R. Hamilton(3).................. 1999 126,550 -- -- --
Vice President of Human Resources 1998 87,500 19,250 -- 90,000
Calvin B. Harley, Ph.D................. 1999 239,200 35,880 -- 45,000
Chief Scientific Officer 1998 223,750 58,190 -- 194,805
1997 180,600 41,500 18,000 125,000
Jane S. Lebkowski, Ph.D.(4)............ 1999 173,333 25,930 -- 55,000
Vice President of Cell and Gene
Therapies 1998 109,128 36,740 -- 80,000
Thomas B. Okarma, M.D., Ph.D.(5)....... 1999 277,590 41,540 -- 335,000
President and Chief Executive Officer 1998 231,615 60,180 -- 370,000
1997 16,250 -- -- 150,000
Richard L. Tolman, Ph.D.(6)............ 1999 181,667 27,170 79,891 40,000
Vice President of Drug Discovery 1998 15,000 25,000 2,190 35,000
</TABLE>
- ---------------
(1) Other annual compensation consists of monthly housing allowances and
relocation allowances.
(2) Mr. Eastman separated employment from the Company in July 1999. Mr. Eastman
remains as a Director of the Company.
(3) Ms. Hamilton resigned from the Company in November 1999.
(4) Dr. Lebkowski joined the Company in April 1998. She was promoted to Vice
President of Cell and Gene Therapies in August 1999.
(5) Dr. Okarma joined the Company in December 1997. He was promoted to President
and Chief Executive Officer in July 1999.
(6) Dr. Tolman joined the Company in December 1998. He was promoted to Vice
President of Drug Discovery in August 1999.
63
<PAGE> 65
STOCK OPTION GRANTS IN FISCAL YEAR 1999
The following table provides certain information regarding options granted
to the Chief Executive Officer and the Named Executive Officers during the year
ended December 31, 1999. No stock appreciation rights were granted during the
year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SHARES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
---- ------------- -------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald W. Eastman(5)...... 15,000 1.4% $11.69 5/18/09 $ 110,277 $ 276,463
David L. Greenwood........ 35,000 3.2 11.69 5/18/09 257,312 652,080
20,000 1.8 10.50 10/1/09 132,068 334,686
40,000 3.6 12.00 12/17/09 301,869 764,996
Elaine R. Hamilton(6)..... -- -- -- -- -- --
Calvin B. Harley, Ph.D.... 12,500 1.1 11.69 5/18/09 91,897 232,886
12,500 1.1 11.69 5/18/09 91,897 232,886
20,000 1.8 12.00 12/17/09 150,935 382,498
Jane S. Lebkowski,
Ph.D.................... 10,000 0.9 11.69 5/18/09 73,518 186,308
20,000 1.8 10.50 10/1/09 132,068 334,686
25,000 2.3 12.00 12/17/09 188,668 478,123
Thomas B. Okarma, M.D.,
Ph.D.................... 35,000 3.2 11.69 5/18/09 257,312 652,079
300,000 27.1 11.00 7/22/09 2,075,352 5,259,350
Richard L. Tolman,
Ph.D. .................. 20,000 1.8 10.50 10/1/09 132,068 334,686
20,000 1.8 12.00 12/17/09 150,935 382,498
</TABLE>
- ---------------
(1) Each of these stock options, which were granted under the 1992 Stock Option
Plan, are exercisable in a series of installments measured from the vesting
commencement date generally over 48 months, provided that each Named
Executive Officer continues to provide services to the Company. In the event
of certain transactions involving changes in control of the Company, the
options will vest in full. The maximum term of each option grant is ten
years from the date of grant.
(2) Based on an aggregate of 1,107,350 options granted by the Company in the
year ended December 31, 1999 to all employees of the Company, including the
Named Executive Officers.
(3) Exercise price is the closing sales price of the Common Stock underlying the
stock option on the grant date as reported on the Nasdaq National Market.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the Securities and Exchange Commission. There is no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the ten
year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the executive officers.
(5) Mr. Eastman separated employment from the Company in July 1999. He remains
as a Director of the Company.
(6) Ms. Hamilton resigned from the Company in November 1999.
64
<PAGE> 66
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to options
exercised during the year ended December 31, 1999 by the Chief Executive Officer
and Named Executive Officers and unexercised options held as of the end of such
fiscal year by such persons. No stock appreciation rights were outstanding
during fiscal 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR-END(#) FISCAL YEAR-END($)(2)
ACQUIRED ON VALUE ----------------------- ------------------------
NAME EXERCISE(#) REALIZED(1)($) VESTED(2) UNVESTED(2) VESTED(3) UNVESTED(3)
---- ----------- -------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ronald W. Eastman(4)....... 65,000 $697,393 312,425 216,255 $3,009,312 $1,689,946
David L. Greenwood......... 30,000 414,833 130,235 242,117 1,037,396 1,367,786
Elaine R. Hamilton(5)...... 0 0 15,251 0 121,154 0
Calvin B. Harley, Ph.D. ... 0 0 113,387 162,901 962,875 1,017,938
Jane S. Lebkowski,
Ph.D. ................... 0 0 17,500 82,500 121,091 302,629
Thomas B. Okarma, M.D.,
Ph.D. ................... 0 0 138,527 481,473 902,732 1,873,088
Richard L. Tolman,
Ph.D. ................... 0 0 10,000 65,000 17,969 98,281
</TABLE>
- ---------------
(1) Fair market value of the Company's Common Stock on the date of exercise
(based on the closing sales price reported on the Nasdaq National Market or
the actual sales price if the shares were sold by the optionee on the same
date) less the exercise price.
(2) These stock options, which were granted under the 1992 Stock Option Plan,
are exercisable in a series of installments measured from the vesting
commencement date generally over 48 months, provided that each Named
Executive Officer continues to provide services to the Company. In the event
of certain transactions involving changes in control of the Company, the
options will vest in full. The maximum term of each option grant is ten
years from the date of grant.
(3) Based on the closing sales price of the Common Stock as of December 31,
1999, quoted on the Nasdaq National Market ($12.63 per share), minus the per
share exercise price, multiplied by the number of shares underlying the
option.
(4) Mr. Eastman separated employment from the Company in July 1999. He remains
as a Director of the Company.
(5) Ms. Hamilton resigned from the Company in November 1999.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE OF
CONTROL AGREEMENTS
The Company does not have any employment agreements with any of the Named
Executive Officers.
In the event of a change in control of the Company, the 1992 Stock Option
Plan provides that each outstanding option will accelerate so that each option
will be fully exercisable for all of the shares subject to such option
immediately prior to the effective date of the transaction. In addition, upon
the occurrence of such transaction, the Stock Option Plan provides that all of
the outstanding repurchase rights of the Company with respect to shares of
Common Stock acquired upon exercise of options granted under the Plan will
terminate.
65
<PAGE> 67
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1999 by: (i) each
current director, (ii) each of the executive officers named in the Summary
Compensation Table; (iii) all executive officers and directors of the Company as
a group; and (v) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
---------------- --------- ----------
<S> <C> <C>
Alexander E. Barkas, Ph.D.(2)............................... 85,128 *
Ronald W. Eastman(3)........................................ 425,812 2.40%
Edward V. Fritzky(4)........................................ 16,550 *
Thomas D. Kiley, Esq.(5).................................... 77,600 *
Gary L. Neil(6)............................................. 16,550 *
Robert B. Stein, M.D., Ph.D.(7)............................. 13,300 *
John P. Walker(8)........................................... 36,400 *
David L. Greenwood(9)....................................... 159,097 *
Elaine R. Hamilton(10)...................................... 16,242 *
Calvin B. Harley, Ph.D.(11)................................. 171,613 *
Jane Lebkowski, Ph.D.(12)................................... 23,036 *
Thomas B. Okarma, M.D., Ph.D.(13)........................... 160,613 *
Richard L. Tolman, Ph.D.(14)................................ 12,709 *
3i plc...................................................... 1,240,000 7.13%
RGC International Investors LDC(15)......................... 2,742,326 13.63%
All directors and executive officers as a group (13
persons).................................................. 1,214,650 6.62%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that
person, shares of Common Stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of December 31,
1999 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of each
other person. The persons named in this table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and except as indicated in the other footnotes to this table.
(2) Includes 28,593 shares held directly by Alexander E. Barkas, 882 shares
held by Lynda Wijcik, the spouse of Dr. Barkas, and 55,653 shares issuable
upon the exercise of outstanding options held by Dr. Barkas exercisable
within 60 days of December 31, 1999, at which date 55,653 shares were fully
vested. The address of Dr. Barkas is c/o Prospect Venture Partners, 435
Tasso Street, Palo Alto, California 94301.
(3) Includes an aggregate of 13,000 shares held by Patricia Eastman, the spouse
of Ronald W. Eastman, as custodian for Mr. Eastman's three minor children.
Also includes 65,941 shares held directly by Mr. Eastman and 346,871 shares
issuable upon the exercise of outstanding options held by Mr. Eastman
exercisable within 60 days of December 31, 1999, at which date 243,676
shares were fully vested. Mr. Eastman separated employment from the Company
in July 1999. The address of Mr. Eastman is c/o EdeNet Communications, 111
Deerwood Road, Suite 345, San Ramon, California 94583.
66
<PAGE> 68
(4) Represents 16,550 shares issuable upon exercise of outstanding options held
by Edward V. Fritzky exercisable within 60 days of December 31, 1999, at
which 16,550 shares were fully vested. The address of Mr. Fritzky is c/o
Immunex Corporation, 51 University Street, Seattle, Washington 98101.
(5) Includes 7,352 shares held directly by Thomas D. Kiley, 9,705 shares held
by the Kiley Family Partnership and 14,302 shares held by the Thomas D.
Kiley and Nancy L.M. Kiley Revocable Trust under Agreement dated August 7,
1981. Also includes 46,241 shares issuable upon the exercise of outstanding
options held by Mr. Kiley exercisable within 60 days of December 31, 1999,
at which date 44,256 shares were fully vested. The address of Mr. Kiley is
c/o Geron Corporation, 230 Constitution Drive, Menlo Park, California
94025.
(6) Represents 16,550 shares issuable upon exercise of outstanding options held
by Gary L. Neil exercisable within 60 days of December 31, 1999, at which
16,500 shares were fully vested. The address of Mr. Neil is c/o Crescendo
Pharmaceuticals Corporation, 2000 Charleston Road, Suite 300, Mountain
View, California 94039.
(7) Represents 13,300 shares issuable upon the exercise of outstanding options
held by Robert B. Stein exercisable within 60 days of December 31, 1999, at
which date 13,300 shares were fully vested. The address of Dr. Stein is c/o
DuPont Pharmaceuticals, Experimental Station, Rt. 141 & Henry Clay Road,
Wilmington, Delaware 19880.
(8) Represents 36,400 shares issuable upon the exercise of outstanding options
held by John P. Walker exercisable within 60 days of December 31, 1999, at
which date 36,400 shares were fully vested. The address of Mr. Walker is
c/o Axys Pharmaceuticals, Inc., 180 Kimball Way, South San Francisco,
California 94080.
(9) Includes 159,097 shares issuable upon exercise of outstanding options held
by Mr. Greenwood exercisable within 60 days of December 31, 1999, at which
date 123,086 shares were fully vested. The address of Mr. Greenwood is c/o
Geron Corporation, 230 Constitution Drive, Menlo Park, California 94025.
(10) Includes 991 shares held directly by Elaine R. Hamilton and 15,251 shares
issuable upon the exercise of outstanding options held by Ms. Hamilton
exercisable within 60 days of December 31, 1999, at which date 15,251 were
fully vested. Ms. Hamilton resigned from the Company in November 1999.
(11) Includes 29,680 shares held directly by Calvin B. Harley, 13,617 shares
held by the Harley Family Trust and 128,316 shares issuable upon the
exercise of outstanding options held by Dr. Harley exercisable within 60
days of December 31, 1999, at which date 91,833 shares were fully vested
The address of Dr. Harley is c/o Geron Corporation, 230 Constitution Drive,
Menlo Park, California 94025.
(12) Includes 2,181 shares held directly by Jane S. Lebkowski and 20,855 shares
issuable upon exercise of outstanding options held by Dr. Lebkowski
exercisable within 60 days of December 31, 1999, at which date 20,855
shares were fully vested. The address of Dr. Lebkowski is c/o Geron
Corporation, 230 Constitution Drive, Menlo Park, California 94025.
(13) Includes 160,613 shares issuable upon the exercise of outstanding options
held by Thomas B. Okarma exercisable within 60 days of December 31, 1999,
at which date 160,613 shares were fully vested. The address of Dr. Okarma
is c/o Geron Corporation, 230 Constitution Drive, Menlo Park, California
94025.
(14) Includes 12,709 shares issuable upon the exercise of outstanding options
held by Richard L. Tolman exercisable within 60 days of December 31, 1999,
at which date 12,709 shares were fully vested. The address of Dr. Tolman is
c/o Geron Corporation, 230 Constitution Drive, Menlo Park, California
94025.
(15) Represents total number of shares to be acquired upon full conversion of
$12,500,000 series C convertible debentures at $10.25 per share, including
interest of two percent, and full exercise of warrants to purchase
1,516,666 shares of Geron common stock by RGC International Investors LDC.
67
<PAGE> 69
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1993, the Company provided an interest-free loan to Calvin B.
Harley, Chief Scientific Officer, in the principal amount of $150,000, due
December 1, 1996, pursuant to a note secured by a second deed of trust to Dr.
Harley's residence in Palo Alto, California. On December 1, 1996, the Company
agreed to extend the due date of the interest-free loan to December 31, 1998. In
February 1999, the Company agreed to restructure the loan and extend the due
date to December 31, 2002. The loan will be paid through annual installments of
$37,500. As of December 31, 1999, the outstanding balance on this loan was
$112,500.
In April 1996, the Company entered into a Consulting Agreement with Thomas
D. Kiley, a Director of the Company, pursuant to which Mr. Kiley agreed to
provide such advice and consultation as reasonably requested by the Company to
its officers and scientists on the direction, implementation and operations of
its scientific programs, business plans and management of intellectual property.
As compensation for his services under this agreement, Mr. Kiley received an
option to purchase 7,352 shares of common stock at an exercise price of $2.04
per share, with monthly vesting over a five year period. Unless otherwise
terminated by the Company or Mr. Kiley, this agreement will expire on April 10,
2001.
In April 1997, the Company entered into a Consulting Agreement with John P.
Walker, a Director of the Company, pursuant to which Mr. Walker agreed to
provide such advice and consultation as reasonably requested by the Company to
its officers and scientists on the direction, implementation and operations of
its scientific programs and business plans. As compensation for his services
under this agreement, Mr. Walker received an option to purchase 10,000 shares of
common stock at an exercise price of $9.25 per share, with annual vesting over a
three year period. In addition, Mr. Walker will receive cash compensation in the
amount of $10,000 per year, payable quarterly. Unless otherwise terminated by
the Company or Mr. Walker, this agreement will expire on April 3, 2000.
In July 1998, Kevin R. Kaster resigned from the Company as its Vice
President of Intellectual Properties and Chief Patent Counsel. In conjunction
with his resignation, the Company agreed to extend the vesting schedule of his
existing options in exchange for consulting services for nine months. The
agreement terminated on April 30, 1999.
In July 1999, Ronald W. Eastman separated employment from the Company in
July 1999. In conjunction with his separation agreement, the Company agreed to
extend the vesting schedule of his existing options for a period of one year. In
addition, the Company continued Mr. Eastman's salary and benefits until he
became fully employed at another company.
In August 1999, the Company provided an interest-free loan to David J.
Earp, Vice President of Intellectual Property, in the principal amount of
$100,000 due in two installments: one-half of the principal balance in August
2002 and the remainder in August 2003. As of December 31, 1999, the outstanding
balance on this loan was $100,000.
The Company has entered into indemnity agreements with all of its officers
and directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines, settlements he or she may be
required to pay in actions or proceedings which he or she is or may be made a
party by reason for his position as a director, officer or other agent of the
Company, and otherwise to the full extent permitted under Delaware law and the
Company's By-laws.
68
<PAGE> 70
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) CONSOLIDATED FINANCIAL STATEMENTS
Included in Part II of this Report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 39
Consolidated Balance Sheets -- December 31, 1999 and 1998... 40
Consolidated Statements of Operations -- Three years ended 41
December 31, 1999, 1998 and 1997..........................
Consolidated Statement of Stockholders' Equity -- Three 42
years ended December 31, 1999.............................
Consolidated Statements of Cash Flows -- Three years ended 44
December 31, 1999, 1998 and 1997..........................
Notes to Consolidated Financial Statements.................. 45
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULES
Financial statement schedules are omitted because they are not required or
the information is disclosed in the financial statements listed in item
14(a)(1).
(3) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1*+ Sale and Purchase Agreement dated May 3, 1999, among the
Registrant and each of the shareholders of Roslin.
2.2* Escrow Agreement dated May 3, 1999, among the Registrant, a
committee acting for and on behalf of the Warrantors, and
U.S. Bank Trust National Association.
3.1*** Amended and Restated Certificate of Incorporation of
Registrant
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of Geron Corporation
3.3 Bylaws of Registrant
3.4** Certificate of Designations, Preferences, and Rights of
Series A Preferred Stock
4.1*** Form of Common Stock Certificate
4.2**** Registration Rights Agreement dated May 3, 1999, among the
Registrant and each of the shareholders of Roslin.
10.1*** Form of Indemnification Agreement
10.2*** 1992 Stock Option Plan, as amended
10.3*** 1996 Directors' Stock Option Plan, as amended
10.4*+ Research and License Agreement dated May 3, 1999 by and
between the Registrant, Roslin, and the Institute
10.5*+ License Agreement dated May 3, 1999, among the Registrant,
Roslin and the Institute.
10.6***** Amendment No. 1 to the Securities and Purchase Agreement,
dated as of June 17, 1999, by and among the Registrant and
certain investors
10.7***** Amendment No. 1 to the Registration Rights Agreement, dated
as of June 17, 1999, by and among the Registrant and certain
investors
10.8******+ License Agreement with Wisconsin Alumni Research Foundation
10.9*******+ Option Agreement with Wisconsin Alumni Research Foundation
10.10********+ Amendment to the License Agreement with Wisconsin Alumni
Research Foundation
</TABLE>
69
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.11 Secured Loan Agreement, dated as of August 10, 1999, by and
between David J. Earp and Andrea L. Earp and the Registrant
10.12 Letter to Thomas Okarma, dated as of October 7, 1999,
extending License and Research Collaboration Agreement
between Pharmacia & Upjohn and the Registrant
10.13 Amendment No. 3 to the License and Research Collaboration
Agreement, dated as of January 24, 2000, by and between the
Registrant and Kyowa Hakko Kogyo Co., Ltd.
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
99.1+ Form of Debenture
99.2# Form of Warrant
</TABLE>
- ---------------
* Incorporated by reference to identically numbered exhibits filed on
the Registrant's Form 8-K filed on May 18, 1999.
** Incorporated by reference to identically numbered exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1997.
*** Incorporated by reference to identically numbered exhibits filed with
the Registrant's Registration Statement on Form S-1 which became
effective on July 30, 1996.
**** Incorporated by reference to Exhibit 4.1 filed on the Registrant's
Form 8-K filed on May 18, 1999.
***** Incorporated by reference to identically numbered exhibits filed on the
Registrant's Form S-3 filed on July 1, 1999.
****** Incorporated by reference to Exhibit 10.1 filed on the Registrant's
Form 10-Q filed on November 15, 1999.
******* Incorporated by reference to Exhibit 10.2 filed on the Registrant's
Form 10-Q filed on November 15, 1999.
******** Incorporated by reference to Exhibit 10.2 filed on the Registrant's
Form 10-Q filed on November 15, 1999.
+ Certain portions of this Exhibit have been omitted for which
confidential treatment has been requested and filed separately with
the Securities and Exchange Commission.
+ Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K
filed on December 17, 1998.
# Incorporated by reference to Exhibit 4.2 of the Registrant's Form 8-K
filed on December 17, 1998.
(b) REPORTS ON FORM 8-K.
(i) Geron has not filed any reports on Form 8-K during the last quarter of
the period covered by the Form 10-K.
(c) INDEX TO EXHIBITS.
70
<PAGE> 72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Menlo
Park, State of California, on the 9th day of March, 2000.
GERON CORPORATION
By: /s/ THOMAS B. OKARMA
------------------------------------
Thomas B. Okarma
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Thomas B. Okarma
and David L. Greenwood, and each one of them, attorneys-in-fact for the
undersigned, each with the power of substitution, for the undersigned in any and
all capacities, to sign any and all amendments to this Report on Form 10-K, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitutes, may do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated opposite his/her name.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS B. OKARMA President, Chief Executive March 9, 2000
- ----------------------------------------------------- Officer and Director (Principal
Thomas B. Okarma Executive Officer)
/s/ DAVID L. GREENWOOD Chief Financial Officer, Senior March 9, 2000
- ----------------------------------------------------- Vice President of Corporate
David L. Greenwood Development, Treasurer and
Secretary (Principal Financial
and Accounting Officer)
/s/ ALEXANDER E. BARKAS Director March 9, 2000
- -----------------------------------------------------
Alexander E. Barkas
/s/ RONALD W. EASTMAN Director March 9, 2000
- -----------------------------------------------------
Ronald W. Eastman
/s/ EDWARD V. FRITZKY Director March 9, 2000
- -----------------------------------------------------
Edward V. Fritzky
/s/ THOMAS D. KILEY Director March 9, 2000
- -----------------------------------------------------
Thomas D. Kiley
/s/ GARY L. NEIL Director March 9, 2000
- -----------------------------------------------------
Gary L. Neil
/s/ ROBERT B. STEIN Director March 9, 2000
- -----------------------------------------------------
Robert B. Stein
/s/ JOHN P. WALKER Director March 9, 2000
- -----------------------------------------------------
John P. Walker
</TABLE>
71
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1*+ Sale and Purchase Agreement dated May 3, 1999, among the
Registrant and each of the shareholders of Roslin.
2.2* Escrow Agreement dated May 3, 1999, among the Registrant, a
committee acting for and on behalf of the Warrantors, and
U.S. Bank Trust National Association.
3.1*** Amended and Restated Certificate of Incorporation of
Registrant
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of Geron Corporation
3.3 Bylaws of Registrant
3.4** Certificate of Designations, Preferences, and Rights of
Series A Preferred Stock
4.1*** Form of Common Stock Certificate
4.2**** Registration Rights Agreement dated May 3, 1999, among the
Registrant and each of the shareholders of Roslin.
10.1*** Form of Indemnification Agreement
10.2*** 1992 Stock Option Plan, as amended
10.3*** 1996 Directors' Stock Option Plan, as amended
10.4*+ Research and License Agreement dated May 3, 1999 by and
between the Registrant, Roslin, and the Institute
10.5*+ License Agreement dated May 3, 1999, among the Registrant,
Roslin and the Institute.
10.6***** Amendment No. 1 to the Securities and Purchase Agreement,
dated as of June 17, 1999, by and among the Registrant and
certain investors
10.7***** Amendment No. 1 to the Registration Rights Agreement, dated
as of June 17, 1999, by and among the Registrant and certain
investors
10.8******+ License Agreement with Wisconsin Alumni Research Foundation
10.9*******+ Option Agreement with Wisconsin Alumni Research Foundation
10.10********+ Amendment to the License Agreement with Wisconsin Alumni
Research Foundation
10.11 Secured Loan Agreement, dated as of August 10, 1999, by and
between David J. Earp and Andrea L. Earp and the Registrant
10.12 Letter to Thomas Okarma, dated as of October 7, 1999,
extending License and Research Collaboration Agreement
between Pharmacia & Upjohn and the Registrant
10.13 Amendment No. 3 to the License and Research Collaboration
Agreement, dated as of January 24, 2000, by and between the
Registrant and Kyowa Hakko Kogyo Co., Ltd.
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
99.1+ Form of Debenture
99.2* Form of Warrant
</TABLE>
- ---------------
* Incorporated by reference to identically numbered exhibits filed on
the Registrant's Form 8-K filed on May 18, 1999.
** Incorporated by reference to identically numbered exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1997.
*** Incorporated by reference to identically numbered exhibits filed with
the Registrant's Registration Statement on Form S-1 which became
effective on July 30, 1996.
**** Incorporated by reference to Exhibit 4.1 filed on the Registrant's
Form 8-K filed on May 18, 1999.
<PAGE> 74
***** Incorporated by reference to identically numbered exhibits filed on the
Registrant's Form S-3 filed on July 1, 1999.
****** Incorporated by reference to Exhibit 10.1 filed on the Registrant's
Form 10-Q filed on November 15, 1999.
******* Incorporated by reference to Exhibit 10.2 filed on the Registrant's
Form 10-Q filed on November 15, 1999.
******** Incorporated by reference to Exhibit 10.2 filed on the Registrant's
Form 10-Q filed on November 15, 1999.
+ Certain portions of this Exhibit have been omitted for which
confidential treatment has been requested and filed separately with
the Securities and Exchange Commission.
+ Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K
filed on December 17, 1998.
# Incorporated by reference to Exhibit 4.2 of the Registrant's Form 8-K
filed on December 17, 1998.
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
GERON CORPORATION
Thomas B. Okarma and David L. Greenwood hereby certify that:
FIRST: They are the duly elected and acting President and Secretary of
Geron Corporation, a Delaware corporation.
SECOND: The name of this Corporation is Geron Corporation (the
"Corporation").
THIRD: The date on which the Restated Certificate of Incorporation as
filed with the Secretary of State of the State of Delaware (the "Secretary of
State") is March 24, 1998. The date on which the Certificate of Designation was
filed with the Secretary of State is March 27, 1998.
FOURTH: The amendment to the Corporation's Amended and Restated
Certificate of Incorporation set forth below was duly adopted by the Board of
Directors of the Corporation, and approved by the Stockholders in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware.
FIFTH: Article IV, Paragraph (A) of the Corporation's Restated
Certificate of Incorporation is amended to read in its entirety as follows:
"(A) Class of Stock. The Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the Corporation is
authorized to issue is Thirty-Eight Million (38,000,000) shares.
Thirty-Five Million (35,000,000) shares shall be Common Stock, par value
$0.001 per share and Three Million (3,000,000) shares shall be Preferred
Stock, par value $0.001 per share.
IN WITNESS WHEREOF, the undersigned have signed this Certificate of
Amendment of Restated Certificate of Incorporation this 10th day of December,
1999 and hereby affirm and acknowledge under the penalty of perjury that the
filing of this Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Geron Corporation is the act and deed of Geron Corporation.
GERON CORPORATION
By: /s/ Thomas B. Okarma
---------------------------------
Thomas B. Okarma, President
Attest:
By: /s/ David L. Greenwood
---------------------------------
David L. Greenwood, Secretary
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
GERON CORPORATION
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such time and place as may be fixed from time to time
by the Board of Directors, and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on such date
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
<PAGE> 2
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present
-2-
<PAGE> 3
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Nominations for election to the Board of Directors must be
made by the Board of Directors or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Nominations, other than those made by the Board of Directors of the corporation,
must be preceded by notification in writing received by the Secretary of the
corporation not less than ten (10) days nor more than sixty (60) days prior to
any meeting of stockholders called for the election of directors. Such
notification shall contain the written consent of each proposed nominee to serve
as a director if so elected and the following information as to each proposed
nominee and as to each person, acting alone or in conjunction with one or more
other persons as a partnership, limited partnership, syndicate or other group,
who participates or is expected to participate in making such nomination or in
-3-
<PAGE> 4
organizing, directing or financing such nomination or solicitation of proxies to
vote for the nominee:
(a) the name, age, residence, address, and business
address of each proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type
of business and address of the corporation or other organization in which such
employment is carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned
beneficially, either directly or indirectly, by each proposed nominee and each
such person; and
(d) a description of any arrangement or understanding of
each proposed nominee and of each such person with each other or any other
person regarding future employment or any future transaction to which the
corporation will or may be a party.
The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
Section 12. At any meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting (a) pursuant to
the corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this Bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Bylaw.
For business to be properly brought before any meeting by a stockholder
pursuant to clause (c) of the first paragraph of this Section 12, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than ten (10) days nor more than sixty (60) days prior to the date of the
meeting. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to
-4-
<PAGE> 5
bring before the meeting (a) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, and the name and address of the
beneficial owner, if any, on behalf of whom the proposal is made, (c) the class
and number of shares of the corporation which are owned beneficially and of
record by such stockholder of record and by the beneficial owner, if any, on
whose behalf the proposal is made and (d) any material interest of such
stockholder of record and the beneficial owner, if any, on whose behalf the
proposal is made in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 12. The presiding officer of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by this Section 12, and if such person should so determine, such
person shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 12, a stockholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 12.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall not be less than five (5) nor more than eight (8). Upon adoption of
these Amended and Restated Bylaws, the board shall consist of eight (8)
directors. Thereafter, within the limits above specified, the number of
directors shall be determined by resolution of the Board of Directors or by the
stockholders at any meeting of the stockholders, except as provided in Section 2
of this Article, and each director elected shall hold office until his successor
is elected and qualified or
-5-
<PAGE> 6
until he shall resign, become disqualified or disabled, or be otherwise removed.
Directors need not be stockholders.
Section 2. Classes of Directors. The directors shall be divided and
elected into three classes designated as Class I, Class II and Class III,
respectively. At the first annual meeting of stockholders following the adoption
of this Article III Section 2, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years. At
the second annual meeting of stockholders following the adoption of this Article
III Section 2, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders following the adoption of this Article III
Section 2, the term of office of the Class III directors shall expire and Class
III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Section 3. Vacancies and new created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next election
of the class for which such directors have been chosen, and until their
successors are duly elected and shall qualify, unless sooner displaced. If there
are no directors in office, then an election of directors may be held in the
manner provided by statute. If, at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
Section 4. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do
-6-
<PAGE> 7
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these bylaws directed or required to be exercised or done by
the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 6. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 7. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 8. Special meetings of the board may be called by the president
on ten (10) days' notice to each director by mail or forty-eight (48) hours'
notice to each director either personally or by telegram; special meetings shall
be called by the president or secretary in like manner and on like notice on the
written request of two directors unless the board consists of only one director,
in which case special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of the sole director.
Section 9. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall
-7-
<PAGE> 8
not be present at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 10. Unless otherwise restricted by the certificate of
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 11. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 12. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in
-8-
<PAGE> 9
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the bylaws of the corporation; and, unless the
resolution or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 13. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 15. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
-9-
<PAGE> 10
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram or facsimile.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board
of Directors and shall be a president and a secretary. The Board of Directors
may elect from among its members a Chairman of the Board and a Vice Chairman of
the Board. The Board of Directors may also choose one or more vice-presidents,
assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person, unless the certificate of incorporation or these bylaws
otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president and a secretary and may
choose a vice president and a treasurer.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
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<PAGE> 11
Section 4. The salaries of all officers of the corporation shall be
fixed by the Board of Directors. The salaries of agents of the corporation
shall, unless fixed by the Board of Directors, be fixed by the president of the
corporation.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENT
Section 8. The president shall be the chief executive officer of the
corporation unless the Board selects the Chairman as chief executive officer, in
which case the chairman shall have all the authority set forth below; and in the
absence of the Chairman and Vice Chairman of the Board he shall preside at all
meetings of the stockholders and the Board of Directors; he shall have general
and active management of the business of the corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect.
Section 9. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise
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<PAGE> 12
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall
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<PAGE> 13
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 16. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
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<PAGE> 14
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
chairman or vice-chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
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<PAGE> 15
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholder or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
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meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
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<PAGE> 17
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation. The indemnification provided for in
this Section 6 shall: (i) not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, (ii) continue as to a person who has ceased to be a director, and (iii)
inure to the benefit of the heirs, executors and administrators of such a
person. The corporation's obligation to provide indemnification under this
Section 6 shall be offset to the extent of any other source of indemnification
or any otherwise applicable insurance coverage under a policy maintained by the
corporation or any other person.
Expenses incurred by a director of the corporation in defending a civil
or criminal action, suit or proceeding by reason of the fact that he is or was a
director of the corporation (or was serving at the corporation's request as a
director or officer of another corporation) shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
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<PAGE> 18
receipt of an undertaking by or on behalf of such director to repay such amount
if it shall ultimately be determined that he is not entitled to be indemnified
by the corporation as authorized by relevant sections of the General Corporation
Law of Delaware.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
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ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new bylaws may be
adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the certificate of incorporation at any
regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal bylaws is
conferred upon the Board of Directors by the certificate or incorporation it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
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CERTIFICATE OF ADOPTION BY THE
SECRETARY OF
GERON CORPORATION
The undersigned, David Greenwood, hereby certifies that he is the
duly elected and acting Secretary of Geron Corporation, a Delaware corporation
(the "Corporation"), and that the Bylaws attached hereto constitute the Bylaws
of said Corporation as duly adopted by the Corporation's Board of Directors on
June 12, 1996, effective as of July 30, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
name effective this 30 day of July 1996.
/s/ DAVID L. GREENWOOD
------------------------------------
David Greenwood
Secretary
<PAGE> 1
EXHIBIT 10.11
GERON CORPORATION
SECURED LOAN AGREEMENT
This Secured Loan Agreement (this "Agreement") is made as of August 10,
1999 by and between GERON CORPORATION, a California corporation (the "Company"),
and David J. Earp and Andrea L. Earp (each individually, a "Borrower" and
collectively, "Borrowers").
BACKGROUND
Borrowers desire to borrow from the Company, and the Company desires to
lend to Borrowers, an aggregate of $100,000 (the "Borrowed Amount") to purchase
a principal residence in the San Francisco Bay Area, located at 6766 Armour
Drive Oakland, CA 94611 (the "Principal Residence"). The parties desire that
such loan shall be secured pursuant to a Security Agreement of even date
herewith (the "Security Agreement") by a second deed of trust on Borrowers'
Principal Residence on the terms and conditions contained herein and in the
Security Agreement (the "Second Deed of Trust").
AGREEMENT
This agreement supercedes the Secured Loan Agreement dated August 9, 1999,
between us and shall be effective as of August 10, 1999.
In consideration of the foregoing, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO LEND. Subject to the terms and conditions contained in
this Agreement and upon execution of this Agreement, the Company agrees to issue
to Borrowers or for Borrowers' account, at the Company's option, a check or
other readily available funds in the Borrowed Amount (the "Loan") upon the date
of this Agreement.
2. PROMISSORY NOTE. In consideration of the Company's delivery of the
Borrowed Amount, Borrowers will execute a secured promissory note in the form
attached hereto as Exhibit A (the "Note"), in the principal amount of such
Borrowed Amount.
3. USE OF PROCEEDS OF THE LOAN. Borrowers agree that the proceeds of the
Loan shall be applied solely to the purchase of the Principal Residence.
4. REPAYMENT OF LOAN. Borrowers jointly and severally agree to repay in
full the principal amount of the Loan on the terms and conditions specified in
the Note.
5. BORROWER COVENANTS. Borrowers hereby covenant and agree for the
duration of this Agreement, the Loan and the Note: (i) to itemize their annual
federal and state tax returns;
<PAGE> 2
(ii) to use the Borrowed Amount solely to purchase Borrowers' Principal
Residence; and (iii) to indemnify and hold the Company harmless against any and
all expenses (including attorneys' fees) and all other costs, expenses and
obligations arising from any liability related to the Principal Residence.
6. SECURITY AGREEMENT. Borrowers will additionally execute the Security
Agreement in the form attached hereto as Exhibit B as security for Borrowers'
obligation to repay the Borrowed Amount, and will deliver, or cause to be
delivered, until the termination of this Agreement, the Security Agreement and
the Note, together with such other documents of assignment and other documents
as may be reasonably requested by the Company. Borrowers shall also deliver, or
cause to be delivered, to the Company the Second Deed of Trust, each executed by
Borrowers, to be recorded by the Company (if it so elects) with the official
records of the county in which the Principal Residence is located in accordance
with the terms of the Security Agreement.
7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement or the Note is
intended or shall be construed to confer upon either Borrower any right to
employment or continued employment with the Company, or shall alter in any way
the nature of either Borrower's employment with the Company.
8. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. This Agreement may not be assigned by
Borrowers without the prior written consent of the Company. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
(b) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to the principles of conflicts of law of such
state.
(c) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) ADVICE OF LEGAL COUNSEL. Each party acknowledges and represents
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from legal counsel and that the person signing on its behalf
has read and understood all of the terms
<PAGE> 3
and provisions of this Agreement. This Agreement shall not be construed against
any party by reason of the drafting or preparation thereof.
(e) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original and all of which taken together
shall constitute one and the same instrument.
The parties hereto have executed this Secured Loan Agreement as of the day
and year first above written.
GERON CORPORATION
By: /s/ DAVID L. GREENWOOD
-------------------------------------
Name: David L. Greenwood
-----------------------------------
Title: Senior Vice President,
Chief Financial Officer
----------------------------------
Address: 230 Constitution Drive
Menlo Park, CA 94025
/s/ DAVID J. EARP
----------------------------------------
DAVID J. EARP
/s/ ANDREA L. EARP
----------------------------------------
ANDREA L. EARP
Address: 6766 Armour Drive
Oakland, CA 94611
<PAGE> 4
EXHIBIT A
SECURED PROMISSORY NOTE
$100,000.00 August 10, 1999
Menlo Park, California
FOR VALUE RECEIVED, DAVID J. EARP and ANDREA L. EARP (each, a "Borrower"
and collectively, "Borrowers") jointly and severally promise to pay to the order
of GERON CORPORATION (the "Company"), at its principal offices at 230
Constitution Drive, Menlo Park, CA 94025, the principal sum of One Hundred
Thousand Dollars ($100,000.00), upon the terms and conditions specified below.
Capitalized terms used but not otherwise defined herein shall have the meanings
given to such terms in that certain Secured Loan Agreement, dated as of August
10, 1999, by and between the Company and the Borrowers (the "Loan Agreement").
1. Payment. Borrowers jointly and severally promise to repay the
principal balance of this Note as follows: fifty percent (50%) of the principal
balance is due three years from the date of this Note and the second fifty
percent (50%) is due four years from the date of this Note. Borrowers also
jointly and severally promise to repay the entire principal balance of this Note
within ten days following the earliest to occur of (A) the closing of the sale
or other transfer of the Borrowers' new principal residence located at 6766
Armour Drive, Oakland, CA 94611, (B) termination of DAVID J. EARP'S employment
with the Company, or (C) the refinancing of the Borrowers' new principal
residence whereby additional equity is provided.
Any payment to be made on a date that is not a business day may be
made on the next business day thereafter. The records of the Company shall be
conclusive evidence of the unpaid principal balance hereof, and of all payments
made in respect thereof, absent manifest error.
2. Application of Payments. Each payment shall be made in lawful tender
of the United States. Prepayment of principal may be made at any time without
penalty.
3. Events of Acceleration. The entire unpaid principal sum and accrued
but unpaid interest of this Note shall become immediately due and payable upon
one or more of the following events:
A. the failure of Borrowers to make any payment of any amount due
hereunder and the continuation of such default for a period of ten (10) days or
more;
B. the insolvency of either Borrower, the commission of any act of
bankruptcy by a Borrower, the execution by a Borrower of a general assignment
for the benefit of creditors, the filing by or against a Borrower of any
petition in bankruptcy or any petition for relief under the provisions of the
federal bankruptcy act or any other state or federal law for the relief of
debtors and the continuation of such petition without dismissal for a period of
thirty (30)
<PAGE> 5
days or more, the appointment of a receiver or trustee to take possession of any
property or assets of a Borrower, or the attachment of or execution against any
property or assets of a Borrower;
C. the sale, transfer, mortgage, assignment, further encumbrance or
lease, whether voluntarily or involuntarily or by operation of law or otherwise
of the Principal Residence covered by the Second Deed of Trust, or any portion
thereof or interest therein, without the prior written consent of the Company;
D. the occurrence of any event of default under the Security
Agreement or the Second Deed of Trust securing this Note or any obligation
secured thereby; or
E. Borrowers are unable to provide additional collateral if required
by Section 2 of the Security Agreement.
4. Employment Requirement. The benefits of the interest arrangement under
this Note are not transferable by Borrowers and are conditioned on the future
performance of substantial services by DAVID J. Earp. For purposes of applying
the provisions of this Note, DAVID J. EARP shall be considered to provide
substantial services to the Company for so long as he renders services as a
full-time employee of the Company or one or more of its subsidiaries.
5. Use of Proceeds; Security. The proceeds of the loan evidenced by this
Note may only be applied to the purchase of the Principal Residence. Payment of
this Note shall be secured by the Second Deed of Trust on the Principal
Residence under the terms of the Security Agreement and is subject to all the
provisions thereof. Borrowers, however, shall remain personally liable for
payment of this Note, and all of the assets of Borrowers, in addition to the
collateral under the Second Deed of Trust may be applied to the satisfaction of
Borrower's obligations hereunder. This Note is also subject to the terms of the
Loan Agreement.
6. Certification; Itemized Deductions. Borrowers certify that Borrowers
reasonably expect to be entitled to and will itemize deductions for federal
income tax purposes for each year the Note is outstanding.
7. Collection. If Borrowers fail to pay this Note as and when required
hereunder, Borrowers promise to pay all costs and expenses (including reasonable
attorney fees) incurred in connection with any proceedings to collect such
amounts in default whether or not an action is instituted.
8. Waiver. No previous waiver and no failure or delay by the Company in
acting with respect to the terms of this Note, the Second Deed of Trust or the
Loan Agreement shall constitute a waiver of any breach, default, or failure of
condition under this Note, the Second Deed of Trust, the Loan Agreement or the
obligations secured thereby. A waiver of any term of this Note, the Second Deed
of Trust, the Loan Agreement or of any of the obligations secured thereby must
be made in writing and shall be limited to the express terms of such waiver.
BORROWERS WAIVE PRESENTMENT; DEMAND; NOTICE OF DISHONOR; NOTICE OF DEFAULT OR
DELINQUENCY; NOTICE OF ACCELERATION; NOTICE OF PROTEST AND NONPAYMENT; NOTICE OF
COSTS, EXPENSES OR LOSSES AND INTEREST
<PAGE> 6
THEREON; NOTICE OF INTEREST ON INTEREST; AND DILIGENCE IN TAKING ANY ACTION TO
COLLECT ANY SUMS OWING UNDER THIS NOTE OR IN PROCEEDING AGAINST ANY OF THE
RIGHTS OR INTERESTS IN OR TO PROPERTIES SECURING PAYMENT OF THIS NOTE.
9. Conflicting Agreements. In the event of any inconsistencies between
the terms of this Note and the terms of any other document related to the loan
evidenced by the Note, the terms of this Note shall prevail.
10. Governing Law. This Note shall be construed in accordance with the
laws of the State of California, without giving effect to the principles of
conflicts of law of such state.
----------------------------------------
BORROWER: DAVID J. EARP
----------------------------------------
BORROWER: ANDREA L. EARP
Address: 6766 Armour Drive
Oakland, CA 94611
<PAGE> 7
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is made as of August 10, 1999 by
and between GERON CORPORATION, a California corporation (the "Company"), and
DAVID J. EARP and ANDREA L. EARP (each individually, a "Borrower" and
collectively, "Borrowers").
RECITALS
The Company has loaned or will loan to Borrowers, and Borrowers have
borrowed or will borrow from the Company, an aggregate of $100,000 (the
"Borrowed Amount"), which loan is or shall be evidenced by a promissory note
(the "Note") and is to be secured by a second deed of trust on Borrowers'
principal residence (the "Second Deed of Trust"). The form of Note and the
obligations thereunder are as set forth in Exhibit A to the Secured Loan
Agreement between the Company and Borrowers, dated the date hereof (the "Loan
Agreement").
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties to this
Agreement agree as follows (all capitalized terms used herein but not otherwise
defined shall have the meaning assigned to such terms in the Loan Agreement):
1. DEED OF TRUST.
(a) In consideration of the Loan to Borrowers under the Loan
Agreement, and to secure the Borrowed Amount, Borrowers are delivering herewith
the Second Deed of Trust in form and substance approved by the Company and duly
executed by Borrowers and properly notarized. The Company may, if the Company so
elects, but without obligation to do so, at any time record the Second Deed of
Trust against Borrowers' principal residence, located at 6766 Armour Drive,
Oakland, CA 94611 (the "Principal Residence"), in the official records of the
county in which the Principal Residence is located. Within five (5) days after
written demand, Borrowers shall furnish written evidence reasonably satisfactory
to the Company that (i) Borrowers hold good and marketable title to the
Principal Residence; (ii) there is no loan, deed of trust, mortgage or
encumbrance against the Principal Residence other than the first deed of trust
in an amount previously disclosed to the Company (the "First Deed of Trust");
and (iii) Borrowers are not in default under such First Deed of Trust or related
loan documents. Upon the sale, conveyance, assignment, alienation, encumbrance
or any other form of transfer of the Principal Residence, the Note shall be
immediately due and payable in full.
2. BORROWERS' REPRESENTATIONS, WARRANTIES AND COVENANTS. To induce the
Company to enter into this Agreement, Borrowers represent, warrant and covenant
to the Company, its successors and assigns, as follows:
<PAGE> 8
(a) Borrowers will jointly and severally pay the principal sum of the
Note secured hereby, together with interest thereon (if any), and perform all
other obligations required of the Borrowers under the Loan Agreement at the time
and in the manner provided therein.
(b) Borrowers have good and marketable title to the Principal
Residence free and clear of all security interests, liens, encumbrances and
rights of others other than the First Deed of Trust constituting a first lien
against the Principal Residence and the Second Deed of Trust. When duly
executed, delivered and recorded in the official land records of the county in
which the Principal Residence is located, the Second Deed of Trust will
constitute a valid, perfected security interest in the Principal Residence,
prior to all monetary liens or encumbrances other than the First Deed of Trust.
(c) The consent of no other party or entity is required to grant the
security interest in the Principal Residence (the "Existing Property") as
provided for in this Agreement. The creation of the security interest referenced
herein, and performance of the obligations of Borrowers hereunder, will not
violate or cause a conflict with any other agreement to which Borrowers are
parties, or to which the Principal Residence is subject. Borrowers will perform
all obligations of Borrowers in connection with the First Deed of Trust (and
related documents), and a default thereunder will constitute a default
hereunder.
(d) Other than the First Deed of Trust and the Second Deed of Trust,
there are no security interests or liens on the Existing Property that could be
perfected or obtained by filing a financing statement or notice with any state
filing office.
(e) There are no actions, proceedings, claims or disputes pending or,
to Borrowers' knowledge, threatened against or affecting Borrowers or the
Existing Property except as disclosed to the Company in writing prior to the
date of this Agreement.
(f) Borrowers shall not sell, convey, assign, alienate, further
encumber or otherwise transfer the Principal Residence, or enter into any
contract or other agreement to sell, convey, assign, alienate, encumber or
otherwise transfer the Principal Residence or any interest therein without the
prior written consent of the Company.
3. DEFAULT. Borrowers shall be deemed to be in default of the Note and of
this Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Borrowers fail to perform any of the covenants contained in the
Loan Agreement (including exhibits thereto) for a period of 10 days after
written notice thereof from the Company; or
(c) Borrowers' representations and warranties to the Company
contained in this Agreement or the Second Deed of Trust were untrue or incorrect
as of the date of funding of the Loan Agreement; or
<PAGE> 9
(d) Any default under the First Deed of Trust.
4. REMEDIES IN THE EVENT OF DEFAULT. In the case of an event of default,
as set forth above, the Company shall have the right to accelerate payment of
the Note upon notice to Borrowers, and shall thereafter be entitled to pursue
any or all of its remedies under applicable law, including, without limitation,
(a) offsetting from Borrowers' salary, bonuses, vacation pay or other amounts
due to Borrowers from the Company, any amount due and payable by Borrowers under
the Note, and/or (b) proceeding against the Principal Residence under the Second
Deed of Trust.
5. INSOLVENCY. Borrowers agree that if a bankruptcy or insolvency
proceeding is instituted by or against either Borrower, or if a receiver is
appointed for the property of either Borrower, or if either Borrower makes an
assignment for the benefit of creditors, the entire amount unpaid on the Note
shall become immediately due and payable, and the Company may proceed as
provided in the case of default.
6. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(b) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(c) NOTICES. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS) or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage prepaid,
if such notice is addressed to the party to be notified at such party's address
or facsimile number as set forth below, or as subsequently modified by written
notice.
(d) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(e) ADVICE OF LEGAL COUNSEL. Each party acknowledges and represents
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from
<PAGE> 10
legal counsel and that the person signing on its behalf has read and understood
all of the terms and provisions of this Agreement. This Agreement shall not be
construed against any party by reason of the drafting or preparation thereof.
The parties hereto have executed this Security Agreement as of the day and
year first above written.
DAVID J. EARP
----------------------------------------
(Signature)
ANDREA L. EARP
----------------------------------------
(Signature)
Address: 6766 Armour Drive
Oakland, CA 94611
GERON CORPORATION
By:
-------------------------------------
Title:
----------------------------------
<PAGE> 1
EXHIBIT 10.12
[PHARMACIA & UPJOHN LETTERHEAD]
October 7, 1999
Thomas Okarma, Ph.D., M.D.
President and CEO
Geron Corporation
230 Constitution Drive
Menlo Park, CA 94025
Dear Tom:
I'm following up on our earlier telephone conversation concerning Pharmacia &
Upjohn's decision relating to Article 2.7 of the License and Research
Collaboration Agreement between Pharmacia & Upjohn and Geron Corporation
(Effective Date: April 7, 1997).
Pharmacia & Upjohn hereby notifies Geron that it wishes to extend the Research
Term and Selection Period for an additional one (1) year from the normal
termination date of April 7, 2000.
Based on internal discussions, we would like to enter into dialog with Geron, at
the earliest opportunity, concerning the future direction of the collaboration.
This discussion would involve further resource allocations at Pharmacia & Upjohn
and Geron to maximize the likelihood of identifying an acceptable telomerase
inhibitor candidate for development consideration. This discussion would also
include the possibility of extending the agreement for up to one year beyond the
one-year extension referred to above.
Kind regards and best wishes.
Sincerely,
/s/ DOUGLAS R. MORTON, JR.
- ----------------------------------------------
Douglas R. Morton, Jr., Ph.D.
Group Vice President
Technology Acquisition & Skillbase Development
<PAGE> 1
EXHIBIT 10.13
AMENDMENT NO. 3
TO THE LICENSE AND RESEARCH COLLABORATION AGREEMENT
BY AND BETWEEN GERON CORPORATION
AND KYOWA HAKKO KOGYO CO., LTD.
THIS AMENDMENT NO. 3 ("Amendment No. 3") to that certain License and
Research Collaboration Agreement dated April 24, 1995 (the "KH Agreement"), as
amended by Amendment No. 1 thereto dated July 15, 1995 ("Amendment No. 1") and
Amendment No. 2 thereto dated March 23, 1997 ("Amendment No. 2") is made as of
24 January, 2000 (the "Effective Date"), by and between Geron Corporation, a
Delaware corporation having its principal place of business at 230 Constitution
Drive, Menlo Park, CA 94025 USA ("Geron"), and Kyowa Hakko Kogyo Co., Ltd., a
Japan corporation having its principal place of business at 1-6-1 Ohtemachi,
Chiyoda-ku, Tokyo, Japan ("Kyowa Hakko"). Unless otherwise expressly set forth
herein, all capitalized terms shall have the same meaning as set forth in the KH
Agreement, as amended.
RECITALS
WHEREAS, Geron and Kyowa Hakko entered into the KH Agreement to discover
and develop inhibitors of telomerase for the treatment of cancer in humans for
sale by Kyowa Hakko in the Asian Territory and by Geron or its licensees in the
rest of the world;
WHEREAS, Geron and Kyowa Hakko have previously amended the KH Agreement
as set forth in Amendment No. 1 and Amendment No. 2;
WHEREAS, Geron and Kyowa Hakko now desire to further amend the KH
Agreement in accordance with this Amendment No. 3, to extend the Research Term
and to provide for a Selection Period, as defined herein, and to modify certain
payment obligations of Kyowa Hakko under the KH Agreement.
ARTICLE I
RESEARCH
1.1 Research Term. The Research Term of the KH Agreement is hereby extended to
the first to occur of (i) termination of the KH Agreement by either party under
Article 16 of the KH Agreement or (ii) March 23, 2001 (the fourth (4th)
anniversary of the effective date of the P&U Agreement).
1.2 Selection of Compounds for Development. Section 3.5 of the KH Agreement is
amended to provide that the period from March 23, 2001 to March 23, 2002 (the
"Selection Period") shall be used to select, in accordance with Section 3.5 of
the KH Agreement, a Back-Up Compound for commercial development. The term
"Back-Up Compound," as used herein, shall mean an alternative compound to be
commercially developed pursuant to Article 4 of the KH Agreement. The JRC
established under Section 3.3 of the KH Agreement shall remain in existence
until the expiration of the Selection Period.
ARTICLE II
RESEARCH PAYMENTS
2.1 Research Payments. In consideration of the research to be performed by Geron
during the Research Term, as extended hereby, and establishment of the Selection
Period, and subject to offsets to the milestone payments due by Kyowa Hakko as
provided in Section 3.1 hereof, Kyowa Hakko shall pay the following additional
Research Payments to Geron:
(a) Two million United States dollars (US$2,000,000) in cash due on
April 1, 2000; and
<PAGE> 2
(b) Two million United States dollars (US$2,000,000) in cash due on
April 1, 2001.
ARTICLE III
MILESTONES
3.1 Milestone Payments. Section 10.1 of the KH Agreement is amended solely as
necessary to offset the milestone payments due by Kyowa Hakko by an amount equal
to the Research Payments made to Geron under Section 2.1 hereof. Accordingly,
the aggregate total of the amended milestone payments due by Kyowa Hakko under
Section 10.1 of the KH Agreement shall be seven and one-half million United
States dollars (US$7,500,000), to be paid as follows:
(a) Subject to Section 4.5 of the KH Agreement, two million United
States dollars (US$2,000,000) in cash due upon the filing of an IND
for a Product in Japan, such payment to be in exchange for
pre-clinical data prepared by Geron for such IND application;
(b) Two million United States dollars (US$2,000,000) in cash due upon
completion of Phase II clinical studies (or substantially comparable
studies) for a Product in Japan, such payment to be in exchange for
clinical data prepared by Geron during such Phase II clinical
studies (or substantially comparable studies);
(c) Three and one-half million United States dollars (US$3,500,000) in
cash due upon the final marketing approval for a Product in Japan,
such payment to be in exchange for clinical data prepared by Geron
in connection with the attainment of such marketing approval.
ARTICLE IV
ENTIRE AGREEMENT
Except as otherwise set forth herein, all other terms and conditions of the KH
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties, having read and understood the foregoing,
acknowledge their legally binding acceptance of this Amendment No. 3 by the
signatures of their respective authorized representatives below.
FOR GERON CORPORATION FOR KYOWA HAKKO KOGYO CO., LTD.
/s/ David L. Greenwood /s/ Fumio Suzuki
- ------------------------------------- ------------------------------------
David L. Greenwood
Chief Financial Officer and Senior Name Fumio Suzuki
Vice President, Corporate Development -----------------------------
Title Executive Officer, Discovery
Research
-----------------------------
12 January 2000 2 February 2000
- ------------------------------------- ------------------------------------
Date Date
2
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
Geron Bio-Med, Ltd., a company organized under the laws of the United Kingdom
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 pertaining to the 1996 Employee Stock Purchase Plan (No. 333-12487);
the Amended 1992 Stock Option Plan (No. 333-81181); the Amended 1996 Directors
Stock Option Plan and the Amended 1992 Stock Option Plan (No. 333-93527) and
Form S-3 (Nos. 333-70355, 333-51013, 333-821155, 333-88705, 333-89861,
333-89981, 333-88705 and 333-96221) and in the related prospectuses of Geron
Corporation of our report dated February 11, 2000, with respect to the
consolidated financial statements of Geron Corporation included in the Annual
Report (Form 10-K) for the year ended December 31, 1999.
/s/ ERNST & YOUNG LLP
San Jose, California
March 9, 2000
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