<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
---------------
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 0-20138
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PHARMAGENICS, INC.
------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3072524
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4 Pearl Court, Allendale, New Jersey 07401-1623
------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code - (201) 818-1000
---------------------------------------------------------------------
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 periods 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, $.01 par
value, 455,108 Shares at May 14, 1997.
<PAGE>
PHARMAGENICS, INC.
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 1997 and
December 31, 1996............................................... 3
Statements of Operations for the Three Month periods
ended March 31, 1997 and March 31, 1996......................... 4
Statements of Cash Flows for the Three Month periods
ended March 31, 1997 and March 31, 1996......................... 5
Notes to Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 10
PART II. Item 1. Legal Proceedings..................................... 15
Item 2. Changes in Securities................................. 15
Item 6. Exhibits and Reports on Form 8-K...................... 15
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<PAGE>
PHARMAGENICS, INC.
BALANCE SHEETS
ASSETS MARCH 31, 1997 DECEMBER 31, 1996
- ------ --------------- -----------------
(UNAUDITED)
Current assets:
Cash and cash equivalents........... $ 359,982 $ 486,109
Accounts receivable................. 329,598 185,972
Prepaid expenses.................... 64,349 38,183
---------- ----------
Total current assets.............. 753,929 710,264
Property and equipment, net of
$2,163,596 and $2,073,642 of
accumulated depreciation............ 701,962 782,638
Other assets.......................... 40,425 40,425
---------- ----------
Total assets...................... $1,496,316 $1,533,327
---------- ----------
---------- ----------
LIABILITIES
Current liabilities:
Accounts payable and accrued
expenses.......................... $1,241,556 $1,599,987
Deferred revenue.................... -- 315,200
Current obligations under capital
leases............................ 147,432 147,102
---------- ----------
Total current liabilities....... 1,388,988 2,062,289
Long-term obligations under capital
leases.............................. 21,443 25,177
Note Payable.......................... 1,662,272 --
---------- ----------
Total liabilities................. 3,072,703 2,087,466
---------- ----------
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock--$.01 par value,
10,000,000 shares authorized:
Series A convertible preferred
stock, 2,500,000 shares
designated, 2,458,420 and
2,160,000 shares issued and outstanding
at March 31, 1997 and December 31, 1996,
respectively, liquidation preference
$4,572,661 and $4,017,600 at
March 31, 1997 and December 31, 1996,
respectively........................ 24,584 21,600
Series B convertible preferred
stock, 2,500,000 shares designated,
2,227,263 and 2,138,399 shares
issued and outstanding at March 31,
1997 and December 31,1996,
respectively, liquidation preference
$16,704,473 and 16,038,000 at March 31,
1997 and December 31, 1996,
respectively........................ 22,273 21,384
Series C convertible preferred stock,
4,717,700 shares designated, 4,717,700
and 3,076,556 shares issued and
outstanding at March 31, 1997 and
December 31,1996, respectively,
liquidation preference $10,143,055
and $6,614,595 at March 31, 1997 and
December 31,1996, respectively...... 47,177 30,765
Common stock--$.01 par value,
15,000,000 shares authorized,
455,108 shares issued and outstanding
at March 31, 1997 and December 31,
1996, respectively 4,551 4,551
Additional paid-in capital........... 30,795,934 26,066,218
Accumulated deficit.................. (32,464,719) (26,692,470)
Deferred compensation................ (6,187) (6,187)
---------- ----------
Total stockholders' equity
(deficit).......................... (1,576,387) (554,139)
---------- ----------
Total liabilities and stockholders'
equity (deficit)................... $1,496,316 $1,533,327
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PHARMAGENICS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------
<S> <C> <C>
1997 1996
------------- ----------
Revenues:
Grants....................................................... $ 23,419 $ --
Research contracts........................................... -- 498,470
Other........................................................ 51,425 --
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Total revenues............................................ 74,844 498,470
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Costs and expenses:
Research and development..................................... 1,062,649 1,090,645
In-process technology........................................ 4,434,800 --
General and administrative................................... 340,287 330,708
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Total costs and expenses.................................. 5,837,736 1,421,353
------------- ----------
Loss from operations.............................................. (5,762,892) (922,883)
Interest expense.................................................. (13,188) (14,488)
Interest income................................................... 3,831 42,161
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NET LOSS.......................................................... ($ 5,772,249) ($ 895,210)
------------- ----------
------------- ----------
Net loss per common share......................................... $ (12.68) $ (1.98)
------------- ----------
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Weighted average common shares outstanding........................ 455,108 451,608
------------- ----------
------------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
PHARMAGENICS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
--------------------------
<S> <C> <C>
1997 1996
------------- -----------
OPERATING ACTIVITIES:
Net loss....................................................... $ (5,772,249) $ (895,210)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................ 89,955 87,715
Technology rights acquired for shares of preferred stock..... 4,750,000 --
Interest accrued on Note Payable............................. 12,272 --
Amortization of deferred compensation expense................ -- 2,063
Changes in operating assets and liabilities:
(Increase) in accounts receivable.......................... (143,626) (106,842)
(Increase) in prepaid expenses............................. (26,166) (18,220)
(Decrease) in accounts payable and accrued expenses........ (358,431) (13,823)
(Decrease) in deferred revenue............................. (315,200) (184,000)
------------- -----------
Net cash used in operating activities........................ (1,763,445) (1,128,317)
------------- -----------
INVESTING ACTIVITIES:
Capital expenditures........................................... (9,278) (8,816)
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Net cash used in investing activities........................ (9,278) (8,816)
------------- -----------
FINANCING ACTIVITIES:
Payments on capital lease obligations.......................... (3,404) (62,108)
Proceeds from Note Payable..................................... 1,650,000 --
Issuance of Series C convertible preferred stock............... -- 3,697,922
------------- -----------
Net cash provided by financing activities.................. 1,646,596 3,635,814
------------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................ (126,127) 2,498,681
Cash and cash equivalents at beginning of period................. 486,109 1,639,182
------------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 359,982 $ 4,137,863
------------- -----------
------------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest......................... $ 916 $ 14,488
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
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<PAGE>
PHARMAGENICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - The Company
PharmaGenics, Inc. (the "Company"), a Delaware corporation, was
incorporated on August 11, 1989. The Company is an integrated drug discovery
company principally engaged in the research and development of
pharmaceuticals for the treatment of cancer. The Company s research programs
in cancer center upon certain key genes, called "tumor suppressor genes,"
that are responsible for the production of proteins that generally function
to prevent the unregulated growth of cells. The Company targets tumor
suppressor genes and other cancer-related genes in search of desirable
therapeutics against cancer.
The Company is subject to a number of risks at this stage of
development, including, but not limited to, uncertainties relating to whether
patents will issue and whether patents that issue will provide the Company
with adequate protection from other products or competitors; dependence on
key individuals for achievement of the Company's expectations which the
Company believes are based on reasonable assumptions within the bounds of its
knowledge of its business and operations; continued collaboration between the
Company and its corporate, governmental and academic collaborators;
establishment of additional collaborations with academia or corporations;
uncertainty whether the Company's research and development activities will
result in the development of commercially usable products and processes;
competition from alternative products or processes; uncertainties related to
technological improvements and advances; the impact of research and product
development activities of competitors of the Company, many of whom have more
substantial financial or other resources than those of the Company; the need
and ability to obtain adequate additional financing necessary to fund
continuing operations and product development and the terms on which such
financing might be available; the ability to obtain lease financing for
capital equipment; uncertainties related to clinical trials; uncertainties of
obtaining required regulatory approvals; uncertainties related to whether
legal proceedings will be initiated against the Company, including in
connection with the proposed merger of the Company with Genzyme Corporation
("Genzyme"), and the outcome of any such proceedings; and uncertainties of
future profitability. The Company expects that it would, as an independent
company, have to incur substantial additional costs before it could begin to
generate revenue from product sales sufficient to fund its operations,
including costs related to ongoing research and development activities,
preclinical studies and regulatory compliance, and for hiring additional
management, scientific, manufacturing, sales and administrative personnel.
The Company received a stand-by credit facility (the "Credit
Facility") in connection with entering into an Agreement and Plan of Merger
as of January 31, 1997 (the "Merger Agreement") with Genzyme. The Company
made an initial draw of $1,000,000 in February, 1997 and additional draws of
$650,000 in March, 1997 and $800,000 in May, 1997, for total draws, to date,
of $2,450,000 under the Credit Facility. The Company believes that amounts
drawn and available under the Credit Facility are sufficient to fund
operations until the expected closing of the proposed merger with Genzyme in
mid-June, 1997. The proposed merger with Genzyme is subject to the approval
of the Company's stockholders and Genzyme's stockholders and certain other
conditions. The Company will require substantial additional funds should the
proposed merger with Genzyme not be consummated. Uncertainties relating to
the proposed merger with Genzyme and the Credit Facility are additional
meaningful factors that could cause actual results to differ materially and
adversely from the Company's expectations.
NOTE 2 - Proposed Merger with Genzyme
As of January 31, 1997, the Company and Genzyme entered into the
Merger Agreement pursuant to which the Company, on the terms and conditions
set forth in the Merger Agreement, is to be merged with and into Genzyme with
Genzyme being the surviving corporation (the "Proposed Merger").
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<PAGE>
PHARMAGENICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - Proposed Merger with Genzyme (continued)
This Proposed Merger is intended to be a tax-free reorganization within the
meaning of the Internal Revenue Code. As consideration for the Proposed
Merger, the Company's stockholders are to receive approximately 4 million
shares (subject to certain adjustments set forth in the Merger Agreement) of
a new Genzyme security (the "GMO Stock"), representing 40% of the initial
equity interest in a new division of Genzyme, to be known as the Genzyme
Molecular Oncology division (the "GMO Division"), to be formed within Genzyme
through the combination of the business of the Company with several of
Genzyme's oncology programs. Because the Company's Certificate of
Incorporation requires that, in a transaction such as the Proposed Merger, an
aggregate merger preference be provided to holders of the outstanding shares
of the Company's preferred stock before any amounts can be provided to
holders of outstanding shares of the Company's common stock, and because such
aggregate merger preference exceeds the aggregate value of the 4 million
shares of GMO Stock to be received in the Proposed Merger (based on the
valuation given the GMO Stock under the Merger Agreement), no shares of GMO
Stock are available for allocation to holders of outstanding shares of the
Company's common stock (including stock options and warrants for common
stock). The Proposed Merger currently is expected to be completed in
mid-June, subject to approval by the Company's stockholders and Genzyme's
stockholders and subject to certain other conditions. As required by the
Merger Agreement, directors, officers and certain other stockholders of the
Company have entered into stockholder agreements with Genzyme pursuant to
which they have agreed to vote in favor of the Proposed Merger. The number
of shares subject to such agreements is sufficient for approval of the
Proposed Merger by the stockholders of the Company.
NOTE 3 - Basis of Preparation
The information presented at March 31, 1997 and for the three month
period then ended is unaudited, but includes all adjustments (consisting only
of normal recurring adjustments) that the Company's management believes to be
necessary for the fair presentation of results for the periods presented.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not contain certain of the information and footnotes required by
generally accepted accounting principles for annual financial statements.
These financial statements should, therefore, be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1996,
which were included as part of the Company's Annual Report on Form 10-K. The
December 31, 1996 balance sheet was derived from audited financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 4 - Accounts Receivable
In the first quarter of 1997, the Company recognized approximately
$23,400 of revenue earned under an award by the U.S. National Cancer
Institute ("NCI") in the form of a Cooperative Grant, bringing the receivable
for revenue earned by the Company under this Cooperative Grant to nearly
$209,400 at March 31, 1997. The balance of the receivable, approximately
$120,200, relates to funds available under the Cooperative Grant that will be
provided to a collaborator under the Cooperative Grant once such funds are
received by the Company. The Company has recorded a corresponding liability
to the collaborator.
-7-
<PAGE>
PHARMAGENICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - Note Payable
In October 1996, in anticipation of entering into the Merger
Agreement, Genzyme made available to the Company the Credit Facility. Under
the Credit Facility, the Company may draw monthly an amount equal to its
documented operating costs, up to a maximum amount each month as set forth
below:
Month Maximum Draw
-------------- ------------
December, 1996 $250,000
January, 1997 $750,000
February, 1997 $650,000
March, 1997 $450,000
April, 1997 $550,000
May, 1997 $550,000
Amounts not drawn by the Company in a designated month are available to
cover documented expenses in any later month (subject to the limitations
described below), provided, however, that if such draws involve individual
expenditures in excess of $25,000, such expenditures require Genzyme's
consent. The maximum amount of monthly draws will be reduced by 60% of gross
revenues received by the Company in the prior month. If the Company's gross
revenues in any month beginning with November, 1996 exceed the product of
1.6667 and the maximum draw for the succeeding month, the amount of such
excess will be applied first against the maximum amount which may be drawn
that may be carried forward from previous months and then any remaining
excess will be carried forward and reduce the maximum amount available in
subsequent months. An additional draw of $250,000 may be made under the
Credit Facility if the SAGE patent licensed by the Company from JHU issues
while the Credit Facility is in effect, provided that such draw must be
utilized by the Company to fulfill its obligations to JHU. If Genzyme
terminates the Merger Agreement under certain circumstances, Genzyme will
adjust the amount that may be drawn under the Credit Facility to an
additional $1,500,000 over amounts previously drawn and expended, with draws
to occur over a period of three months. Amounts advanced under the Credit
Facility are evidenced by a Subordinated Convertible Promissory Note (the
"Promissory Note"). The Promissory Note bears interest from the date of each
advance at a rate of 8.25% per annum and matures on February 10, 2002.
The Company made an initial draw of $1,000,000 in February 1997, after
the signing of the Merger Agreement, and made additional draws of $650,000 in
March, 1997 and $800,000 in May, 1997, for total draws, to date, of
$2,450,000 under the Credit Facility. Interest in the amount of $12,272 has
accrued on these draws as of March 31, 1997 and is recorded in Note Payable.
NOTE 6 - Agreements with PaineWebber R&D Partners III, L.P.; In-Process
Technology
In May 1994, the Company entered into a series of agreements (the
"R&D Agreements") with PaineWebber R&D Partners III, L.P. (the
"Partnership"), pursuant to which the Partnership paid a $250,000 license fee
and agreed, subject to certain conditions, to pay the Company up to
$5,750,000 to conduct research and development on behalf of the Partnership
on targets previously identified by the Company pursuant to a development
plan originally projected to extend through March 31, 1996, but which
continued through January, 1997. In consideration of such payments, the
Partnership obtained rights to the results of such research, and the Company
granted the Partnership an exclusive, royalty-free license to use certain
patent rights, know-how and technical information owned or licensed by the
Company. Under the R&D Agreements, the Company also received an option (the
"Purchase Option") to purchase at any time certain or all of the rights owned
by the Partnership as a result of the R&D Agreements (the "Partnership
Rights") at an option price ranging from $9.4 million up to $19.2 million,
depending upon the date of the purchase and the rights purchased. In
consideration for the Purchase Option, the Company issued to the Partnership
warrants to purchase up to 1,000,000 shares of the Company's common stock
(the "Core Warrant") and up to 666,667 shares of the Company's common
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<PAGE>
PHARMAGENICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - Agreements with PaineWebber R&D Partners III, L.P.;
In-Process Technology (continued)
stock (the "Purchase Option Warrant"). The Core Warrant is exercisable for a
period of five years which commenced July 1, 1996, and the Purchase Option
Warrant would have been exercisable for a period of four years following
termination of the Purchase Option. The estimated fair value of $580,000
attributed to these warrants upon issuance was charged to research and
development expense in 1994. With the modification of the R&D Agreements in
March 1995, the exercise price on the Core Warrant and the Purchase Option
Warrant was fixed at $2.15 per share, subject to antidilution provisions and
other adjustments. In June 1995, the Company executed and delivered a
convertible note (the "Note") to the Partnership under which the Company
borrowed $1 million at an interest rate of prime plus two percentage points.
In lieu of repayment in cash, the Note and accrued interest were converted
into 480,242 shares of Series C convertible preferred stock of the Company as
of September 30, 1995, which thereby reduced by $1 million research funding
from the Partnership under the R&D Agreements. As of December 31, 1995, all
funding pursuant to the R&D Agreements had been received by the Company.
In January 1997, in connection with the Proposed Merger, the
Partnership exercised its option under the R&D Agreements to exchange the
Parthership Rights for additional shares of the Company's preferred stock.
This option became exercisable upon the signing of the Merger Agreement and
as a result of such exercise, the Company issued to the Partnership in
February 1997 298,420 shares of Series A convertible preferred stock, 88,864
shares of Series B convertible preferred stock and 1,641,144 shares of Series
C convertible preferred stock. The liquidation preference amount of these
preferred shares, $4,750,000, was charged to research and development expense
in the first quarter of 1997 because the acquired technology and other rights
relate to in-process research and development projects that have not yet
reached technological feasibility and the technology currently has no
alternative future uses. Upon the exercise of the exchange option by the
Partnership, the Purchase Option Warrant and the R&D Agreements terminated,
and $315,200 of funding that had been received pursuant to the R&D Agreements
and recorded as deferred revenue was offset against research and development
expense (in-process technology cost) in the first quarter of 1997. In
addition, upon the completion of the Proposed Merger, the Core Warrant will
be cancelled.
NOTE 7 - Amendment to SAGE License Agreement
Effective September 1995, the Company entered into a license
agreement (the SAGE Agreement") with The Johns Hopkins University School of
Medicine ("JHU") and Drs. Bert Vogelstein and Kenneth Kinzler, both of JHU,
relating to the SAGE (Serial Analysis of Gene Expression) technology. In
addition to substantial license fees paid and milestone payments to be made
by the Company to retain an exclusive license, the agreement provides for
certain additional payments to be made by the Company to JHU in the event the
Company sublicenses SAGE technology to third parties or performs SAGE-related
services on behalf of third parties.
In January 1997, in contemplation of the Proposed Merger, the SAGE
Agreement was amended to waive any possible right JHU may have to a potential
payment of $5 million resulting from the change of control which would arise
from the Proposed Merger in exchange for 43,200 shares of the Company's
Series B convertible preferred stock to be issued to JHU. If the Proposed
Merger is not consummated, the amendment to the SAGE Agreement shall become
null and void and the 43,200 shares of the Company's Series B convertibvle
preferred stock will not be issued to JHU. The Company is currently in
discussions with JHU regarding a license to other present and future
discoveries of Dr. Kinzler.
NOTE 8 - New Accounting Pronouncement
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"), which supersedes Accounting Principles Board Opinion No.
15. "Earnings per Share" ("APB No. 15"), was issued in February, 1997. SFAS
128 requires dual presentation of basic and diluted earnings
-9-
<PAGE>
PHARMAGENICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - New Accounting Pronouncement (continued)
per share ("EPS") for complex capital structures on the face of the income
statement. Basic EPS is computed by dividing income by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution from the exercise or conversion of securities into common
stock, such as stock options. SFAS 128 is required to be adopted for year-end
1997; earlier application is not permitted. The Company does not expect the
basic or diluted EPS measured under SFAS 128 to be materially different than
the Company's primary or fully-diluted EPS measured under APB No. 15.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion should be read in conjunction with the
Financial Statements and notes thereto included earlier in this report.
Some of the information presented in this report constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that
actual results of the Company's research and development activities, business
development activities and its results of operations will not differ
materially from its expectations. See Note 1 of Notes to Financial
Statements for important factors which may cause the Company's actual results
to differ materially from expectations. Reference is also made to the
Company's Annual Report on Form 10-K and other reports filed by the Company
with the Securities and Exchange Commission.
To fund its operations since inception, the Company has obtained capital
through several private placements of equity, raising approximately $26.5
million. These funds have enabled the Company to pursue internal research,
fund and obtain technology rights from academic institutions and pursue
research and development collaborations with other companies. As a result of
these efforts, the Company has been able to generate license/royalty and
research funding revenues of approximately $6.6 million (including research
and development funding from PaineWebber R&D Partners III, L.P. (the
"Partnership")) since inception.
Although the Company had been successful in generating funding to
maintain its operations, management of the Company has always been aware that
the Company would either have to raise large amounts of capital through
equity offerings or search for alternative sources of capital in order to
optimize the development and exploitation of its technologies. One way the
Company attempted to obtain additional funding was to establish collaborative
relationships in which funding would be provided to the Company in exchange
for sharing of rights to the technology that might be developed from the
research supported by such funding. In particular, the Company has recently
attempted to raise funds by providing SAGE-technology services to other
companies on a fee basis, but, to date, has not generated significant
SAGE-service revenues.
Throughout its history, the Company has contacted many companies to
determine their interest in a collaboration. The Company held preliminary
discussions with several of these companies, but few of these discussions
gave rise to a definitive proposal or agreement with respect to a
transaction,
-10-
<PAGE>
PHARMAGENICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Recent Developments - Proposed Merger with Genzyme Corporation (continued)
and the financial proceeds from the collaborations that have
been established have not been sufficient to sustain the Company's
operations. As the exploration of alternatives continued, it became apparent
to the Company that gaining access to equity capital on reasonable terms was
becoming more and more difficult, particularly since the Company had been
operating for several years yet still lacked clinical-stage therapeutics. In
addition, the Company realized that its revenue stream would not be adequate
to fund its activities for any significant length of time.
In early May 1996, representatives of the Company and Genzyme Corporation
("Genzyme") met to discuss opportunities for potential collaborations
relating to use of the SAGE technology in conjunction with Genzyme's cancer
gene therapy programs. These discussions regarding potential collaborations
eventually evolved into preliminary merger discussions, which resulted in the
Company and Genzyme entering into a letter of intent, dated October 29, 1996,
reflecting an agreement in principle for Genzyme to acquire the Company.
Throughout the remainder of 1996 and early 1997, Genzyme and the Company
negotiated the definitive terms of the acquisition.
On February 3, 1997, the Company and Genzyme announced that they had
entered into an Agreement and Plan of Merger, dated as of January 31, 1997,
(the "Merger Agreement") pursuant to which the Company, on the terms and
conditions set forth in the Merger Agreement, is to be merged with and into
Genzyme with Genzyme being the surviving corporation (the "Proposed Merger").
As consideration for the Proposed Merger, Genzyme is to issue approximately
4 million shares (subject to certain adjustments set forth in the Merger
Agreement) of a new Genzyme security (the "GMO Stock"), representing 40% of
the initial equity interest in a new division of Genzyme, to be known as the
Genzyme Molecular Oncology division (the "GMO Division"), and to be formed
within Genzyme through the combination of the business of the Company with
several of Genzyme's oncology programs. An additional 6 million shares
(subject to adjustment) of GMO Stock will be issued for the benefit of the
General Division of Genzyme or its stockholders. The GMO Stock will be
"tracking stock," which is Genzyme common stock that is intended to reflect
the value, and track the performance, of the GMO Division.
Because the Certificate of Incorporation of the Company requires that, in
a transaction such as the Proposed Merger, an aggregate merger preference be
provided to holders of the outstanding shares of preferred stock before any
amounts can be provided to holders of outstanding shares of common stock, and
because such aggregate merger preference exceeds the aggregate value of the 4
million shares of GMO Stock to be issued in the Proposed Merger (based on the
valuation given the GMO Stock under the Merger Agreement), no shares of GMO
Stock are available for allocation to holders of the outstanding shares of
common stock. The applicable share exchange ratio to be used to convert the
outstanding shares of preferred stock into GMO Stock, upon effectiveness of
the Proposed Merger, is set forth in the Merger Agreement and, as also set
forth in the Merger Agreement, upon effectiveness of the Proposed Merger, the
outstanding shares of common stock will be cancelled. The Proposed Merger
currently is expected to be completed in mid-June, 1997, subject to approval
by the Company's stockholders and Genzyme's stockholders and certain other
conditions. As required by the Merger Agreement, directors, officers and
certain other stockholders of the Company have entered into stockholder
agreements with Genzyme pursuant to which they have agreed to vote in favor
of the Proposed Merger. The number of shares subject to such agreements is
sufficient for approval of the Proposed Merger by the stockholders of the
Company.
The Company's decision to enter into the Merger Agreement was
substantially influenced by the Company's belief that the Company's
precarious financial condition and the absence of viable alternatives to
raising additional capital made it unlikely that the Company could fulfill
its business objectives as an independent company.
-11-
<PAGE>
PHARMAGENICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Recent Developments - Proposed Merger with Genzyme Corporation (continued)
As a result of the Company's continued operating losses and lack of
available capital resources, the opinion of the Company's independent public
accountants on the Company's fiscal 1996 audited financial statements
includes an explanatory paragraph stating that the Company's financial
condition raises substantial doubt as to the ability of the Company to
continue as a going concern. In the event the Proposed Merger is not
completed, the absence of other viable strategic alternatives and the present
precarious financial condition of the Company raise substantial doubt as to
the ability of the Company to continue its operations for more than several
months. As a result, in the event the Proposed Merger is not completed, the
Company will need to obtain additional financing to continue its operations,
and there can be no assurance that financing would be available. The Company
may need to obtain funds through arrangements with collaboration partners or
others that may require the Company to relinquish rights to certain of its
technologies or product candidates. If additional funding is not obtained,
the Company would be required to significantly curtail its research
activities and eventually cease operations altogether.
Results of Operations
The Company has not been profitable since inception and, if the Proposed
Merger is not completed, expects to incur substantial operating losses in the
future, subject to the Company securing additional collaborative agreements.
The Company's results of operations and resulting financial condition might
vary significantly due to the timing of license fees and contract revenue and
the pace of research and development expenditures. The opinion of the
Company's independent public accountants on the company's fiscal 1996 audited
financial statements includes an explanatory paragraph stating that the
Company's financial condition raises substantial doubt as to the ability of
the Company to continue as a going concern.
Revenues were $74,844 for the three months ended March 31, 1997 and
$498,470 for the three months ended March 31, 1996. Insurance proceeds from
settlement of a loss-claim on reagents represented sixty-nine percent of
revenues for the quarter ended March 31, 1997. Revenues earned under a
five-year U.S. National Cancer Institute ("NCI") award in the form of a
Cooperative Grant in September, 1995 represented the balance of revenues for
the quarter ended March 31, 1997. Research contracts were the sole component
of revenues for the quarter ended March 31, 1996. Fifty-eight percent of such
revenues were from a collaborative agreement with Boehringer Mannheim GmbH
("Boehringer"), thirty-seven percent were from a series of agreements (the
"R&D Agreements") with the Partnership and the balance was from a research
agreement with Genetic Therapy, Inc. ("GTI"). All funding pursuant to the
research agreement with GTI had been received and earned as of March 31,
1996. As of December 31, 1995, all funding pursuant to the R&D Agreements
had been received by the Company.
Research and development expenses were $1,062,649 for the three months
ended March 31, 1997 compared to $1,090,645 for the three months ended March
31, 1996. Research staffing totalled 32 at March 31, 1997 and 27 at March
31, 1996; however, the Company has hired staff replacements, as well as added
to staffing, at lower salaries. In addition, the Company paid approximately
$69,000 in bonuses to its research and development staff in the first quarter
of 1996 in an effort to reduce employee turnover. Bonuses were not paid in
the first quarter of 1997.
In-process technology cost of $4,434,800 for the three months ended March
31, 1997 reflects a charge to research and development expense for technology
and other rights acquired by the Company from the Partnership in the first
quarter of 1997. This acquisition by the Company resulted from the exercise
by the Partnership of its option under the R&D Agreements to exchange all of
the technology and rights owned by it as a result of the R&D Agreements for
additional shares of the Company's preferred stock. This option became
exercisable upon the signing of the Merger Agreement and as a result of such
exercise, the Company issued to the Partnership in February 1997 298,420
shares of Series A convertible preferred stock, 88,864 shares of Series B
convertible preferred stock and 1,641,144
-12-
<PAGE>
PHARMAGENICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations(continued)
shares of Series C convertible preferred stock. The liquidation preference
amount of these preferred shares, $4,750,000, was charged to research and
development expense (in-process technology cost) because the acquired
technology and other rights relate to in-process research and development
projects that have not yet reached technological feasibility and the
technology currently has no alternative future uses. Upon the exercise of
the exchange option by the Partnership, the R&D Agreements terminated and
$315,200 of funding that had been received pursuant to the R&D Agreements and
recorded as deferred revenue was recorded as an offset against research and
development expense (in-process technology cost) in the first quarter of 1997.
General and administrative expenses were $340,287 for the three months
ended March 31, 1997 and $330,708 for the three months ended March 31, 1996.
The three percent increase reflects a $50,000 increase in professional fees
as a result of the Proposed Merger, partially offset by a $42,000 decrease in
compensation expense as a result of a reduction in administrative staffing
from 7 at March 31, 1996 to 5 at March 31, 1997 and the payment of
approximately $25,000 in bonuses to the Company's administrative staff in the
first quarter of 1996. Bonuses were not paid in the first quarter of 1997.
The Company's interest income decreased to $3,831 for the three months
ended March 31, 1997 compared to $42,161 for the three months ended March 31,
1996, attributed to lower cash and cash equivalent balances.
Net losses were $5,772,249 for the three months ended March 31, 1997
compared to $895,210 for the three months ended March 31, 1996. In-process
technology cost and lower revenues account for most of the increase in net
losses.
Inflation
The Company believes that inflation has not had a material impact on its
results of operations.
Financial Condition, Liquidity and Capital Resources
As of March 31, 1997, the Company had cash and cash equivalents of
$359,982, a decrease of $126,127 compared to December 31, 1996. In February
1997, after signing the Merger Agreement, the Company made an initial draw of
$1,000,000 under a stand-by credit facility (the "Credit Facility") made
available to the Company by Genzyme in October 1996 in anticipation of
entering into the Merger Agreement. The Company made additional draws of
$650,000 in March, 1997 and $800,000 in May, 1997. Under the Credit
Facility, the Company may draw monthly an amount equal to its documented
operating costs, up to a maximum amount each month as set forth below:
Month Maximum Draw
-------------- ------------
December, 1996 $250,000
January, 1997 $750,000
February, 1997 $650,000
March, 1997 $450,000
April, 1997 $550,000
May, 1997 $550,000
-13-
<PAGE>
PHARMAGENICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition, Liquidity and Capital Resources (continued)
Amounts not drawn by the Company in a designated month are available to
cover documented expenses in any later month (subject to the limitations
described below), provided, however, that if such draws involve individual
expenditures in excess of $25,000, such expenditures require Genzyme's
consent. The maximum amount of monthly draws will be reduced by 60% of gross
revenues received by the Company in the prior month. If the Company's gross
revenues in any month beginning with November, 1996 exceed the product of
1.6667 and the maximum draw for the succeeding month, the amount of such
excess will be applied first against the maximum amount which may be drawn
that may be carried forward from previous months and then any remaining
excess will be carried forward and reduce the maximum amount available in
subsequent months. An additional draw of $250,000 may be made under the
Credit Facility if the SAGE patent licensed by the Company from JHU issues
while the Credit Facility is in effect, provided that such draw must be
utilized by the Company to fulfill its obligations to JHU. If Genzyme
terminates the Merger Agreement under certain circumstances, Genzyme will
adjust the amount that may be drawn under the Credit Facility to an
additional $1,500,000 over amounts previously drawn and expended, with draws
to occur over a period of three months. Amounts advanced under the Credit
Facility are evidenced by a Subordinated Convertible Promissory Note (the
"Promissory Note"). The Promissory Note bears interest from the date of each
advance at a rate of 8.25% per annum and matures on February 10, 2002.
Cash used in operating activities was $1,763,445 during the three months
ended March 31, 1997 compared to $1,128,317 used in operating activities
during the three months ended March 31, 1996, primarily due to a reduction in
funding under research agreements, increased payments for professional
services due to the Proposed Merger and a settlement payment of $62,000 to
LBC Capital Resources, Inc. during the first quarter of 1997. During the
first quarter of 1996, the Company received approximately $183,000 of
contract research payments from Boehringer and $25,000 from GTI, which
completed research funding from GTI pursuant to a research agreement. No
contract research payments were received by the Company during the first
quarter of 1997. Funding required for operating activities during the first
three months of 1997 was provided by the use of cash reserves and the Credit
Facility. Funding for operating activities during the first quarter of 1996
was primarily provided by the use of cash reserves and proceeds received from
the sale of shares of Series C convertible preferred stock in a private
placement.
The Company expects to continue to finance its anticipated operating
losses and its capital expenditures into June, 1997 from existing cash
reserves, approximately $209,400 of grant funding from NCI (including the
receivable at March 31, 1997; see Note 4 of Notes to Financial Statements)
and the Credit Facility.
If the Proposed Merger is not completed, the Company expects to incur
substantial additional costs before it would be able to begin to generate
revenue from product sales, including costs related to ongoing research and
development activities, preclinical studies and regulatory compliance, and
for hiring additional management, scientific, manufacturing, sales and
administrative personnel. The Company believes that its current cash
resources and the aforementioned sources of funding, including the Credit
Facility, are sufficient to fund operations into the middle of 1997 even if
the Proposed Merger is not completed. The Company will require additional
financing to continue its operations beyond such time and there can be no
assurance that sources currently in place would continue to be available
beyond the second quarter of 1997. The Company may need to obtain funds
through arrangements with collaboration partners or others that may require
the Company to relinquish rights to certain of its technologies or product
candidates. If additional funding is not obtained, the Company would be
required to significantly curtail its research activities and eventually
cease operations altogether.
The opinion of the Company's independent public accountants on the
Company's fiscal 1996 audited financial statements includes an explanatory
paragraph stating that the Company's financial condition raises substantial
doubt as to the ability of the Company to continue as a going concern.
-14-
<PAGE>
PHARMAGENICS, INC.
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On January 24, 1997, the Company and LBC Capital Resources, Inc. ("LBC")
executed an agreement which settled an action brought by LBC on July 19, 1996
against the Company in the Superior Court of New Jersey in Bergen County
alleging breach of contract and related causes of action arising out of an
agreement between the Company and LBC that obligated LBC to assist the
Company in finding new sources of capital. LBC asserted in such action that
the Company improperly declined to pay LBC a commission in accordance with
the agreement and sought damages in excess of $150,000. The Company made a
settlement payment of $62,000 to LBC in January 1997. This amount was
accrued as a charge to general and administrative expense in 1996.
Item 2. CHANGES IN SECURITIES
In January 1997, in connection with the Proposed Merger, the Registrant
issued to the Partnership 298,420 shares of Series A convertible preferred
stock, 88,864 shares of Series B convertible preferred stock and 1,641,144
shares of Series C convertible preferred stock. For additional information
concerning this transactions, see "Part I. Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations." The issuance
of such shares was conducted pursuant to an exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended. For additional
information concerning the conversion features of the Series A, B and C stock
of the Registrant, see the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
Numbers Description and Method of Filing
- ------- --------------------------------------
2.1 Agreement and Plan of Merger, dated as of January 31, 1997, by and
between Genzyme Corporation and the Company.(1)
3.1 Third Restated Certificate of Incorporation.(2)
3.1(a) Amendment to Third Restated Certificate of Incorporation.(3)
3.1(b) Certificate of Designation of Series C Convertible Preferred Stock.(4)
3.2 By-laws, as amended.(5)
4.1 Warrant Agreement dated November 14, 1991 by and between the Company
and American Stock Transfer & Trust Company, as Warrant Agent.(5)
4.2 Form of Warrant Certificate.(5)
4.3 Form of Common Stock Certificate and Series B Preferred Stock
Certificate.(5)
10.1 Lease dated November 20, 1990, as amended, between AETNA Life
Insurance Company and the Company.(5)
10.1(a) Third Amendment to Exhibit 10.1.(6)
10.1(b) Fourth Amendment to Exhibit 10.1.(3)
10.2 Letter Agreement dated June 8, 1990 between the Company and Michael I.
Sherman.(5)
10.3 Non-Transferable, Non-Qualified Stock Option Agreement dated March 27,
1991 between the Company and Michael I. Sherman.(5)
10.4 Restricted Stock Purchase Agreement dated April 24, 1991 between the
Company and Michael I. Sherman.(5)
-15-
<PAGE>
PHARMAGENICS, INC.
PART II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
Exhibit
Numbers Description and Method of Filing
- -------- -----------------------------------
10.5 Incentive Stock Option Agreement dated September 27, 1991 between the
Company and Michael I. Sherman.(5)
10.9 Letter Agreement dated July 27, 1990 between the Company and Alan F.
Cook.(6)
10.9(a) Letter Agreement dated November 17, 1994 between the Company and
Alan F. Cook.(6)
10.10 Convertible Preferred Stock and Warrant Purchase Agreement dated April
24, 1991 among the Company and HealthCare Ventures II, L.P. and
Everest Trust.(5)
10.11 Non-Transferable, Non-Qualified Stock Option Agreement dated March 27,
1991 between the Company and Alan F. Cook.(6)
10.11(a) Incentive Stock Option Agreement dated September 27, 1991 between the
Company and Alan F. Cook.(6)
10.12 Stockholders' Agreement dated April 24, 1991 among the Company and
HealthCare Ventures II, L.P. and Everest Trust (the "Stockholders'
Agreement").(5)
10.12(a) Amendment to Stockholders' Agreement.(7)
10.12(b) Amendment to Stockholders' Agreement.(2)
10.13 Warrant to Purchase Shares of Common Stock dated September 27, 1991
issued to HealthCare Ventures II, L.P.(5)
10.14 Warrant to Purchase Shares of Common Stock dated September 27, 1991
issued to Everest Trust.(5)
10.15 Consent and Agreement to Amend dated September 27, 1991.(5)
10.15(a) Amendment to Exhibit 10.15.(6)
10.16 Sales Agency Agreement dated as of October 7, 1991, as amended
November 13, 1991, between the Company and PaineWebber
Incorporated.(5)
10.17 Subscription Agreement dated November 14, 1991 among the Company and
HealthCare Ventures II, L.P., Everest Trust and Norna Sarofim.(5)
10.18 Registration Agreement dated November 14, 1991.(5)
10.19 Registration Agreement dated November 14, 1991.(5)
10.20 Warrant to purchase Common Stock dated November 14, 1991 issued to
PaineWebber Incorporated.(5)
10.21 1991 Stock Option Plan, as amended.(2)
10.22 Equipment Lease Agreement, including Warrant Agreement, as amended,
between the Company and Comdisco, Inc.(5)
10.23 + Research Agreement dated March 1, 1989 among The Johns Hopkins
University, Hoffmann-La Roche Inc. and the Company.(8)
10.24 + License Agreement dated February 5, 1992 among The Johns Hopkins
University, Hoffmann-La Roche Inc. and the Company.(8)
10.25 + Agreement dated April 30, 1991 between Hoffmann-La Roche Inc. and the
Company.(8)
-16-
<PAGE>
PHARMAGENICS, INC.
PART II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
Exhibit
Numbers Description and Method of Filing
- ------- ----------------------------------
10.26 + Agreement dated April 1, 1990 between Georgetown University and the
Company.(5)
10.26(a) Letter Agreement dated January 25, 1993 modifying Exhibit 10.26.(6)
10.27 + Agreement dated November 1, 1990 between Georgetown University and the
Company.(5)
10.28 Consulting Agreement dated November 24, 1990 between the Company and
Richard Schlegel.(5)
10.29 Consulting Agreement dated April 3, 1991 between the Company and Bert
Vogelstein.(5)
10.30 + License Agreement dated January 15, 1993 between the Company and
Genetic Therapy, Inc.(6)
10.31 Incentive Stock Option Agreement dated February 17, 1993, between the
Company and Michael I. Sherman.(6)
10.33 Incentive Stock Option Agreement dated February 17, 1993, between the
Company and Alan F. Cook.(6)
10.33(a) Incentive Stock Option Agreement dated March 7, 1994, between the
Company and Alan F. Cook.(6)
10.34 + Research Agreement effective April 1, 1993 between the Company and
Genetic Therapy, Inc.(6)
10.35 Form of Indemnification Agreement.(6)
10.36 1993 Stock Option Plan, as amended.(2)
10.37 Letter Agreement dated June 15, 1993, between the Company and Michael
I. Sherman.(9)
10.38 Master Equipment Lease Agreement, including Warrant Agreement, dated
September 10, 1993 between the Company and MMC/GATX Partnership No.
1.(9)
10.39 1994 Independent Directors Stock Option Plan, as amended.(2)
10.41(a) Letter Agreement dated May 10, 1991, between the Company and Arthur H.
Bertelsen.(7)
10.41(b) Incentive Stock Option Agreements dated September 27, 1991, February
17, 1993, November 22, 1993 and March 7, 1994, between the Company and
Arthur H. Bertelsen.(7)
10.41(c) Non-transferable Non-Qualified Stock Option Agreement dated June 17,
1991 between the Company and Arthur H. Bertelsen.(7)
10.42 Amendment dated March 23, 1994, to Agreement of April 30, 1991 between
Hoffmann-La Roche Inc. and the Company including Stock Purchase
Agreement and Warrants to purchase an aggregate of 150,000 shares of
Common Stock.(7)
10.43 + Program Agreement dated as of April 1, 1994 between the Company and
PaineWebber R&D Partners III, L.P. (the "Partnership").(10)
10.43(a) +First Amendment to Program Agreement, including Amended and
Restated Glossary.(8)
-17-
<PAGE>
PHARMAGENICS, INC.
PART II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
Exhibit
Numbers Description and Method of Filing
- -------- -----------------------------------
10.44 + Development Agreement dated as of April 1, 1994 between the Company
and the Partnership.(10)
10.44(a)+ Amended and Restated Development Agreement.(8)
10.45 + Purchase Option Agreement dated as of April 1, 1994 between the
Company and the Partnership.(10)
10.45(a)+ Amended and Restated Purchase Option Agreement.(8)
10.46 Technology Agreement dated as of April 1, 1994 between the Company and
the Partnership.(10)
10.46(a) Amended and Restated Technology Agreement.(8)
10.47 + Core Warrant dated as of April 1, 1994 issued by the Company to the
Fund.(10)
10.47(a) Amended and Restated Core Warrant.(8)
10.48 + Purchase Option Warrant dated as of April 1, 1994 issued by the
Company to the Partnership.(10)
10.48(a)+ Amended and Restated Purchase Option Warrant.(8)
10.49 + Stock Purchase Agreement dated as of March 15, 1995 between the
Company and the Partnership.(8)
10.50 + Loan Agreement dated as of February 13, 1995 among the Company,
HealthCare Ventures III, L.P., HealthCare Ventures IV, L.P.,
Everest Trust and Larry Abrams.(8)
10.50(a) Amendment No. 1 to Exhibit 10.50.(3)
10.51 + Letter Agreement dated September 13, 1994, between the Company
and Boehringer Mannheim GmbH, as supplemented December 7,
1994.(8)
10.52 + License Agreement dated as of September 1, 1995, between the
Company and The Johns Hopkins University.(3)
10.52(a) Amendment No. 1 to License Agreement.(11)
10.53 Letter Agreement dated June 8, 1995, between the Company and A.
Steven Franchak.(3)
10.54 Non-Qualified Stock Option Agreement dated July 6, 1995, between
the Company and A. Steven Franchak.(3)
10.54(a) Incentive Stock Option Agreement dated September 1, 1995, between
the Company and A. Steven Franchak.(12)
10.55 Convertible Note dated June 8, 1995, between the Company and the
Partnership.(3)
10.56 Registration Rights Agreement dated February 13, 1996.(12)
10.57 Incentive Stock Option Agreements dated September 25, 1995 and
March 18, 1996, between the Company and A. Steven Franchak.(12)
10.58 Incentive Stock Option Agreements dated September 25, 1995 and
March 18, 1996, between the Company and Arthur H. Bertelsen.(12)
10.59 Incentive Stock Option Agreements dated September 25, 1995 and
March 18, 1996, between the Company and Alan F. Cook.(12)
-18-
<PAGE>
PHARMAGENICS, INC.
PART II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
Exhibit
Numbers Description and Method of Filing
- -------- -----------------------------------
10.62 Letter Agreement dated June 27, 1996, between the Company and
Michael I. Sherman.(12)
10.63 Incentive Stock Option Agreements dated September 25, 1995 and
June 27, 1996, between the Company and Michael I. Sherman.(12)
10.64 Letter Agreement, dated September 1, 1994, between the Company
and PaineWebber Incorporated.(12)
10.65 Indemnification Agreement, dated August 15, 1996, between the
Company and PaineWebber Incorporated.(12)
10.66 Letter Agreement, dated January 10, 1997, between the Company and
PaineWebber Incorporated.(11)
10.67 Subordinated Convertible Promissory Note, dated February 10,
1997, payable to Genzyme Corporation.(11)
10.68 Amendment and Agreement, dated as of January 31, 1997, between the
Company and PaineWebber R&D Partners III, L.P. (amending Exhibit
10.49).(11)
27 Financial Data Schedule.(13)
_____________________
+ Confidential treatment has been granted by the Commission. The copy
filed as an exhibit omits the information subject to the Grant of
Confidential Treatment.
(1) Incorporated by reference to the corresponding Exhibit number of
Registrant's Current Report on Form 8-K dated February 18, 1997.
(2) Incorporated by reference to the corresponding Exhibit number of
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1994.
(3) Incorporated by reference to the corresponding Exhibit number of
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995.
(4) Incorporated by reference to the corresponding Exhibit number of
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995.
(5) Incorporated by reference to the corresponding Exhibit number of
Registrant's Registration Statement on Form 10, No. 0-20138.
(6) Incorporated by reference to the corresponding Exhibit number of
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992.
(7) Incorporated by reference to the corresponding Exhibit number of
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993.
-19-
<PAGE>
(8) Incorporated by reference to the corresponding Exhibit number of
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
(9) Incorporated by reference to the corresponding Exhibit number of
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1993.
(10) Incorporated by reference to the corresponding Exhibit number of
Registrant's Quarterly Report on Form 10-Q or 10-Q/A for the quarter ended
March 31, 1994.
(11) Incorporated by reference to the corresponding Exhibit number of
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996.
(12) Incorporated by reference to the corresponding Exhibit number of
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996.
(13) Filed herewith.
REPORTS ON FORM 8-K:
The Registrant filed a Current Report on Form 8-K, dated February 18,
1997, to report under Item 5 thereof the execution of the Agreement and Plan
of Merger, dated as of January 31, 1997, between the Registrant and Genzyme
Corporation, and to file a copy of such agreement as an exhibit under Item 7
thereof.
-20-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHARMAGENICS, INC.
/s/ Michael I. Sherman
------------------------
Michael I. Sherman, President
and Chief Executive Officer
/s/ A. Steven Franchak
------------------------
A. Steven Franchak, Vice President,
Chief Financial Officer and Treasurer
Date: May 19, 1997
-21-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet at March 31,1997 and the unaudited statement of
operations for the three months ended March 31, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 359,982
<SECURITIES> 0
<RECEIVABLES> 329,598
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 753,929
<PP&E> 2,865,558
<DEPRECIATION> 2,163,596
<TOTAL-ASSETS> 1,496,316
<CURRENT-LIABILITIES> 1,388,988
<BONDS> 1,683,715
0
94,034
<COMMON> 4,551
<OTHER-SE> (1,674,972)
<TOTAL-LIABILITY-AND-EQUITY> 1,496,316
<SALES> 0
<TOTAL-REVENUES> 74,844
<CGS> 0
<TOTAL-COSTS> 1,402,936
<OTHER-EXPENSES> 4,434,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,188
<INCOME-PRETAX> (5,772,249)
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<NET-INCOME> (5,772,249)
<EPS-PRIMARY> (12.68)
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