<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-20713
ENTREMED, INC.
--------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 58-1959440
- ------------------------------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
9640 Medical Center Drive, Rockville, MD 20850
- ----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 217-9858
- ----------------------------------------------------
Securities registered pursuant to Section 12 (g) of the Act:
Title of Each Class Name of Exchange on Which Registered
------------------- ------------------------------------
Common Stock, Par Value $.01 Per Share Nasdaq National Market
</TABLE>
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 [X]
As of March 24, 2000, 15,379,772 shares of common stock were outstanding and the
aggregate market value of the shares of common stock held by non-affiliates was
approximately $856,410,996.
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<PAGE> 2
EXPLANATORY NOTE
This Amendment No. 1 to the Form 10-K for the fiscal year ended December 31,
1999 is filed to add Form 10-K, Part III, which was omitted in reliance on
General Instruction G.3 thereto and to revise the Cash Flow Statement contained
in the Financial Statements at Part IV, Item 14(a)1 and 2.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of our executive
officers and directors as of December 31, 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME AGE POSITION
- --------------------------------------------------------------------------------
<S> <C> <C>
John W. Holaday, Ph.D. 54 Chairman of the Board, President,
Chief Executive Officer
- --------------------------------------------------------------------------------
Wendell M. Starke 57 Vice Chairman of the Board
- --------------------------------------------------------------------------------
Edward R. Gubish, Ph.D. 51 Senior Vice President of Research
and Development
- --------------------------------------------------------------------------------
Joanna Horobin, M.D. 45 Senior Vice President of
Commercial Development
- --------------------------------------------------------------------------------
Donald S. Brooks 63 Vice President, Legal Affairs and
Director
- --------------------------------------------------------------------------------
R. Nelson Campbell 35 Chief Financial Officer
- --------------------------------------------------------------------------------
John C. Thomas, Jr. 46 Secretary/Treasurer
- --------------------------------------------------------------------------------
Jerry Finkelstein (1)(2) 83 Director
- --------------------------------------------------------------------------------
Lee F. Meier (1)(4) 53 Director
- --------------------------------------------------------------------------------
Mark C. M. Randall (2)(3) 36 Director
- --------------------------------------------------------------------------------
</TABLE>
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Chairman of Compensation Committee
(4) Chairman of the Audit Committee
<PAGE> 3
John W. Holaday, Ph.D. is our co-founder and has served as our President and
Chief Executive Officer and one of our directors since August 1992 and our
Chairman of the Board since November 1995. Dr. Holaday's current term as
director expires at the annual meeting of stockholders to be held in 2000. Prior
thereto, from May 1989 to August 1992, he was a co-founder of Medicis
Pharmaceutical Corp. where he served as Scientific Director, Senior Vice
President for Research and Development and director. Dr. Holaday also serves as
a director for CytImmune Sciences, Inc., a privately held research diagnostics
company. From 1968 to 1989, he served at the Walter Reed Army Institute of
Research, where he founded the Neuropharmacology Branch in 1980. He serves as an
officer and fellow in several biomedical societies and has authored and edited
numerous scientific articles in journals and books. His current academic
positions include Associate Professor of Anesthesiology and Critical Care
Medicine and Senior Lecturer in Medicine at The Johns Hopkins University of
Medicine, Baltimore, Maryland; and Adjunct Professor of Psychiatry at the
Uniformed Services University School of Medicine, Bethesda, Maryland.
Wendell M. Starke has been Vice Chairman of the Board since June 1998 and one of
our directors since April 1994. Mr. Starke's current term as director expires at
the annual meeting of stockholders to be held in 2000. Mr. Starke is a Chartered
Financial Analyst and a Chartered Investment Counselor. Mr. Starke was
President of INVESCO Capital Management, Inc. and Chief Investment Officer from
1979 to 1991. From 1992 to 1999, he served as Chairman of INVESCO, Inc., the
parent company of INVESCO Capital Management and other INVESCO money management
subsidiaries in the United States. Mr. Starke retired from INVESCO in June
1999.
Edward R. Gubish, Ph.D. has served as our Senior Vice President of Research and
Development between January 1997 and December 1999. Prior to that he served as
our Vice President-Regulatory and Clinical Development since November 1995 and
has been employed by us since October 1993. From 1990 to September 1993, Dr.
Gubish served as senior director of Regulatory Affairs for Baker Norton
Pharmaceuticals (IVAX) and Fujisawa Pharmaceuticals. From 1986 to 1990, Dr.
Gubish served as Chief of Regulatory Affairs for the AIDS Division at the
National Institutes of Health and as a scientific and administrative contact
for sponsors of new biological products and IND submissions for the Center for
Drugs and Biologics at the FDA.
Joanna C. Horobin, M.D. has served as our Senior Vice President of
Commercial Development between February 1999 and December 1999. Prior to
joining us, Dr. Horobin served as Vice President of Corporate Marketing,
Oncology at Rhone-Poulenc Rorer (RPR) from March 1994 to December 1998. Dr.
Horobin has also served as General Manager of RPR's joint-venture with the
Chugai Pharmaceutical Company of Japan, which led to the development and
European launch of the recombinant human protein, Granocyte (rhu-GCSF); Medical
Director for RPR, (UK); and Head of Clinical Investigations for Beecham
Pharmaceuticals (UK), where she achieved regulatory approvals of Augmentin(R),
Timentin(R), and Relafen(R). Dr. Horobin spent several years in hospital and
general family practice in London before entering the pharmaceutical industry.
Donald S. Brooks has been one of our directors since April 1996 and Vice
President, Legal Affairs since 1998. Mr Brook's current term as director expires
at the annual meeting of stockholders to be held in 2001. Between 1993 and 1998,
Mr. Brooks was a practicing attorney with the law firm Carella Byrne Bain
Gilfillan Cecchi Stewart & Olstein, Roseland, New
<PAGE> 4
Jersey, which represents the Company on certain matters. Mr. Brooks continues
to be of counsel to the firm. Prior thereto, Mr. Brooks was employed by Merck &
Co., Inc. for 27 years, most recently, from 1986 to 1993, as Senior Counsel.
From 1980 to 1985, Mr. Brooks served as a U.S. employer delegate to the
Chemical Industries Committee, International Labor Organization in Geneva,
Switzerland.
R. Nelson Campbell has served as our Chief Financial Officer since January
1997. From November 1991 to June 1996, Mr. Campbell was employed by
OsteoArthritis Sciences, Inc., a venture capital financed drug discovery
company where he was a co-founder and served as Vice President of Business
Development and Treasurer. From 1986 to 1991, he was with the international
investment banking firms of Merrill Lynch Capital Markets, Nomura Securities
International and lastly Daiwa America Securities, Inc., where he was engaged
in corporate finance and merger transactions.
John C. Thomas, Jr. served as our Secretary/Treasurer from January 1997 until
November 1999 and served part-time as our Chief Financial Officer from our
inception in September 1991 until January 1997. Mr. Thomas has also served as
the Chief Financial Officer of several other companies, including MEDigital,
Inc., a private medical technology company since August 1996, Credit Depot
Corporation, a public company engaged in loan financing (from August 1990 to
March 1993 and from January 1995 until April 1996), Tapistron International,
Inc., a public company engaged in the development of technology for the textile
industry (from August 1991 until July 1995), and Sealite Sciences, a private
biotechnology company (from June 1991 to March 1993). Mr. Thomas is a certified
public accountant.
Jerry Finkelstein has been one of our directors since April 1998. Mr.
Finkelstein's current term as director expires at the annual meeting of
stockholders to be held in 2002. Mr. Finkelstein has been a senior advisor to
Apollo Advisors, L. P., a fund manager, since March 1994, and the Chairman of
the Board of News Communications, Inc., a consortium of 23 publications, since
August 1993. Mr. Finkelstein has been the former publisher of the New York Law
Journal, a daily newspaper. He has been a member of the Boards of Rockefeller
Center, Chicago Milwaukee Corporation, Chicago Milwaukee Railroad Corporation,
Bank of North America, Struthers Wells Corporation, The Hill, and PATH Railroad.
Mr. Finkelstein has also held the following positions: member of Task Force
Committee on the sale of the World Trade Center; Chairman of the New York City
Planning Commission, and Commissioner of the Port Authority of New York and New
Jersey, as well as numerous civic, social and political appointments.
Lee F. Meier has been one of our directors since July 1997. Mr. Meier's current
term as director expires at the annual meeting of stockholders to be held in
2001. Mr. Meier has over twenty-five years of experience in the equipment
financing industry. He has been affiliated with US Leasing Corporation, The
Chemical Bank of New York and Steiner Financial Corporation, a privately held,
tax motivated lessor. Since 1984 Mr. Meier has served as founder and managing
director of Meier Mitchell & Company, an investment banking firm specializing in
providing innovative debt and lease financing products. Meier Mitchell & Company
targets clients in the biotechnology and electronics industries and has arranged
or provided over $1.5 billion in financing to both private and public companies
in these sectors.
Mark C. M. Randall has been one of our directors since April 1996. Mr.
Randall's current term as director expires at the annual meeting of stockholders
held in 2002. Since 1985, Mr. Randall has been associated with Sarasin
International Securities Limited, London, England, a wholly owned subsidiary of
Bank Sarasin & Cie, a private bank based in
<PAGE> 5
Switzerland, where he has been Director since 1994 and Managing Director since
1999. Mr. Randall also serves as Chairman of Acorn Alternative Strategies
(Overseas) Ltd., an investment fund company.
Item 11. EXECUTIVE COMPENSATION
Compensation of the Directors
Prior to April 1999, our directors received a fee of $2,000 per in-person
meeting attended and were reimbursed for expenses actually incurred in
connection with attending such meetings.
As of April 1999, our directors no longer receive cash compensation for serving
on our Board of Directors or attending meetings thereof, except that the
chairman of each committee will receive an annual cash payment of $2,000. All
directors continue to be reimbursed for expenses actually incurred in
connection with attending such meetings. Each director receives automatic
grants of non-qualified stock options as follows: upon joining the Board of
Directors, each new director will be granted an option to purchase 15,000
shares of Common Stock; for services of Vice Chairman of the Board, the Vice
Chairman is granted an option to purchase 15,000 shares in addition to any
options received in his capacity as a director; and upon reelection to the
Board to a three-year term, each director will be granted an option to purchase
30,000 shares. In addition, following the annual meeting in June 1999, each
director not running for reelection was granted a one-time option to purchase
10,000 shares for each year remaining in their then-current term of office.
Compensation of Executive Officers
The following summary compensation table sets forth the aggregate compensation
paid or accrued by us to the Chief Executive Officer and to executive officers
whose annual compensation exceeded $100,000 for fiscal 1999 (collectively, the
"named executive officers") for services during the fiscal years ended December
31, 1999, 1998 and 1997.
<PAGE> 6
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
LONG TERM
COMPENSATION
AWARDS
SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL SALARY BONUS OPTIONS/SARS ALL OTHER
POSITION YEAR ($) ($) (#) COMPENSATION
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John W. Holaday, Ph.D. 1999 325,000 125,000 110,000 21,506 (1)
Chairman, President 1998 250,000 125,000 5,000 19,467
and Chief Executive Officer 1997 275,000 - 260,000 18,883
Edward R. Gubish, Ph.D. 1999 202,700 85,000 50,000 8,955 (2)
Senior Vice President of 1998 180,000 75,000 - 6,916
Research and Development 1997 165,000 50,000 100,000 6,332
Joanna C. Horobin, M.D. 1999 195,000 75,000 50,000 6,715 (2)
Senior Vice President 1998 - - - -
of Commercial Development 1997 - - - -
Donald S. Brooks, Vice 1999 195,000 25,000 45,000 3,099 (2)
President, Legal Affairs 1998 81,975 37,500 80,000 855
1997 - - 6,000 -
R. Nelson Campbell, 1999 151,450 35,000 20,000 2,529 (2)
Chief Financial Officer 1998 147,000 20,000 - 1,849
1997 133,718 25,000 50,000 1,301
John C. Thomas, Jr. 1999 120,000 - 5,000 -
Secretary/Treasurer 1998 126,000 10,000 - 6,916 (2)
1997 120,000 25,000 50,000 -
</TABLE>
(1) $12,551 of such amount represents the premiums paid by us with respect to a
split-dollar life insurance policy on the life of Dr. Holaday. Premiums
paid by us on such policy are treated as non-interest bearing advances to
the insured for the policy. The initial proceeds of any death benefit are
required to be used to repay the indebtedness, and the balance of the
insurance proceeds are payable as designated by the insured. See
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements". The remaining amount represents group health insurance
premiums paid on behalf of such officer.
(2) Consists of group health insurance premiums paid on behalf of such officer.
<PAGE> 7
The following table sets forth certain information with respect to individual
grants of stock options made during the fiscal year ended December 31, 1999 to
each of the named executive officers.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
- --------------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term (1)
---------------------------------------------- --------------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Name Granted Fiscal Year ($/sh) Date 5% ($) 10% ($)
---- ------- ----------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
John W. Holaday, Ph. D. 50,000 7.13% 18.625 2/25/2009 1,516,908 2,415,422
60,000 8.55% 21.50 6/24/2009 2,101,275 3,345,927
Edward R. Gubish, Ph.D. 25,000 3.56% 18.625 2/25/2009 758,454 1,207,711
25,000 3.56% 21.50 6/24/2009 875,531 1,394,136
Joanna C. Horobin, M.D. 50,000 7.13% 12.875 2/10/2009 1,048,601 1,669,721
Donald S. Brooks 25,000 3.56% 18.625 2/25/2009 758,454 1,207,711
20,000 2.85% 21.50 6/24/2009 700,425 1,115,309
R. Nelson Campbell 10,000 1.43% 18.625 2/25/2009 303,382 483,084
10,000 1.43% 21.50 6/24/2009 350,212 557,655
John C. Thomas, Jr. 5,000 .71% 18.625 2/25/2009 151,691 241,542
</TABLE>
(1) Calculated by multiplying the exercise price by the annual appreciation
rate shown (as prescribed by SEC rules and compounded for the term of the
options), subtracting the exercise price per share and multiplying the gain
per share by the number of shares covered by the options. These amounts are
not intended to forecast possible future appreciation, if any, of the price
of our shares. The actual value realized upon exercise of the options to
purchase our shares will depend on the fair market value of our shares on
the date of exercise.
<PAGE> 8
The following table sets forth information concerning all option holdings for
the fiscal year ended December 31, 1999 for each of the named executive
officers.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option/Value
- ---------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised In-the
Underlying Options at Money Options at Fiscal
Fiscal Year-End (#) Year-End ($) (2)
---------------------------------------------------------------
Shares
Acquired
on Value
Exercise Realized
Name (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable
- ---- --- ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Holaday, Ph.D. (3) - - 719,169 137,500 12,176,437 1,393,563
Edward R. Gubish, Ph.D. - - 232,501 62,500 3,460,769 599,125
Joanna C. Horobin, M.D. - - 23,750 26,250 302,694 334,556
Donald S. Brooks (3) - - 157,251 18,750 863,732 131,156
R. Nelson Campbell - - 112,500 27,500 1,427,488 278,713
John C. Thomas, Jr. (3) - - 147,619 16,250 2,719,026 221,544
</TABLE>
(1) The Value Realized represents the amount equal to the excess of the fair
market value of the shares at the time of exercise over the exercise
price.
(2) Calculated by multiplying the number of unexercised options outstanding
at December 31, 1999 by the difference between the fair market value of
our shares at December 31, 1999 ($25.625) and the option exercise price.
(3) Holdings include warrants issued in lieu of stock options.
<PAGE> 9
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements
Effective January 1999, we entered into a three-year employment agreement with
John W. Holaday, Ph.D. as our Chairman and Chief Executive Officer with an
annual base salary of $325,000 per year and a minimal annual increase of 10%
per year. We may terminate the agreement without cause and, upon such
termination, Dr. Holaday will be entitled to receive his base salary through
the end of the initial term of the agreement (subject to an offset for salary
received from subsequent employment). The agreement contains confidentiality
and non-competition provisions.
We maintain a $2,000,000 split-dollar life insurance policy on the life of Dr.
Holaday at an annual cost of approximately $12,551. Premiums paid by us on such
policy are treated as non-interest bearing advances to Dr. Holaday for the
policy. The initial proceeds of any such death benefit are required to be used
to repay the indebtedness, and the balance of the insurance proceeds are
payable as designated by Dr. Holaday.
Each of our employees has entered into a Proprietary Information and Invention
Assignment Agreement providing, among other things, that such employee will not
disclose any confidential information or trade secrets in any unauthorized
manner and that all inventions of such employee relating to our current or
anticipated business during the term of employment become our property.
In the event of certain transactions, including those that may result in a
change in control, as defined under our Incentive Stock Option Plans, unvested
installments of options to purchase our shares may become immediately
exercisable.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the 1934 Act requires our executive officers, directors and
persons who beneficially own more than 10% of a registered class of our equity
securities to file with the SEC initial reports of ownership and reports of
changes in ownership of our common stock and other equity securities. Such
executive officers, directors, and greater than 10% beneficial owners are
required by the SEC regulation to furnish us with copies of all Section 16(a)
forms filed by such reporting persons.
Based solely on our review of such forms furnished to us and written
representation from certain reporting persons, we believe that all filing
requirements applicable to our executive officers, directors and greater than
10% beneficial owners were complied with.
<PAGE> 10
Compensation Committee Interlocks and Insider Participation
During fiscal 1999, the members of the Compensation Committee were: Lee F.
Meier, Mark C.M. Randall and Jerry Finkelstein.
In connection with our private placement of securities in July 1999, Mark C. M.
Randall received warrants to purchase 15,000 shares of our common stock at an
exercise price of $20.362 per share as compensation for services rendered as a
placement agent. The warrants are exercisable for five years from the date of
issuance.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 24, 2000 (except as otherwise
footnoted below), stock ownership by each director or director nominee, each
executive officer named under "Executive Compensation", and all of our
directors and executive officers as a group. To our knowledge, no other
person beneficially owns more than 5% of our Common Stock.
<TABLE>
<CAPTION>
Amount and Nature of Percentage of Outstanding
Name of Beneficial Owner (1) Beneficial Ownership (1) Class
- ---------------------------- ------------------------- -----
<S> <C> <C>
John W. Holaday, Ph.D. 1,473,001 (2) 9.36%
Edward R. Gubish, Ph.D. 268,501 (3) 1.72%
Joanna C. Horobin, M.D. 47,000 (4) *
Donald S. Brooks 169,751 (5) 1.09%
R. Nelson Campbell 125,000 (6) *
John C. Thomas, Jr. 65,599 (7) *
Jerry Finkelstein 112,500 (8) *
Lee F. Meier 54,000 (9) *
Mark C. M. Randall 123,001 (10) *
Wendell M. Starke 835,017 (11) 5.37%
All executive officers and 3,273,370 (12) 20.49%
directors as a group (10
persons)
</TABLE>
- -------------------------------------------------------------------------------
*Less than 1%
(1) Beneficial ownership is defined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally means the power
to vote and/or to dispose of the securities regardless of any economic
interest therein.
(2) Includes 764,969 shares issuable upon exercise of options and warrants
which are exercisable within 60 days and 126,666 shares held by a limited
partnership of which Dr. Holaday is the general partner. Does not include
172,500 shares issuable upon exercise of options not exercisable within 60
days.
<PAGE> 11
(3) Includes 257,501 shares issuable upon exercise of options that are
exercisable within 60 days. Does not include 87,500 shares issuable upon
exercise of options not exercisable within 60 days.
(4) Includes 46,000 shares issuable upon exercise of options and warrants that
are exercisable within 60 days. Does not include 55,000 shares issuable
upon exercise of options not exercisable within 60 days.
(5) Includes 169,751 shares issuable upon exercise of options and warrants that
are exercisable within 60 days. Does not include 31,250 shares issuable
upon exercise of options not exercisable within 60 days.
(6) Includes 125,000 shares issuable upon exercise of options that are
exercisable within 60 days. Does not include 45,000 shares issuable upon
exercise of options not exercisable within 60 days.
(7) Includes 65,267 shares issuable upon exercise of options and warrants that
are exercisable within 60 days. Does not include 15,000 shares issuable
upon exercise of options not exercisable within 60 days.
(8) Includes 88,500 shares issuable upon exercise of options that are
exercisable within 60 days. Does not include 12,500 shares issuable upon
exercise of options not exercisable within 60 days. Does not include
shares owned by various family members of Mr. Finkelstein as to which Mr.
Finkelstein disclaims beneficial ownership.
(9) Includes 44,000 shares issuable upon exercise of options which are
exercisable within 60 days and 10,000 shares issuable upon exercise of
warrants which are exercisable within 60 days held by an entity of which
Mr. Meier is a 50% shareholder.
(10) Includes 123,001 shares issuable upon exercise of options and warrants
that are exercisable within 60 days.
(11) Includes 312,429 shares issuable upon exercise of options and warrants
which are exercisable within 60 days and 21,819 shares held by a limited
partnership of which Mr. Starke is the general partner. Does not include
39,474 shares owned by various family members of Mr. Starke, as to which
Mr. Starke disclaims beneficial ownership.
(12) Includes 1,996,418 shares issuable upon exercise of options and warrants
that are exercisable within 60 days. Does not include 418,750 shares
issuable upon exercise of options not exercisable within 60 days.
<PAGE> 12
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1995 we entered into a collaboration agreement with Bristol-Myers
Squibb Company to develop and commercialize certain antiangiogenesis
therapeutics. On February 9, 1999, the original BMS collaboration was modified
such that the final payment of $611,667 under the agreement was paid on June 5,
1999. As amended, BMS has no further funding obligation to us as of August 9,
1999.
See also "Item 11 - Executive Compensation, Compensation Committee Interlocks
and Insider Participation", regarding Mark C. M. Randall.
Donald S. Brooks, one of our directors and our Vice President, Legal Affairs is
of counsel to the law firm of Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart
& Olstein, which provided certain legal services to us in 1999 and will
continue to provide legal services.
<PAGE> 13
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1999
ENTREMED, INC.
ROCKVILLE, MARYLAND
<PAGE> 14
FORM 10-K - ITEM 14(a)(1) AND (2)
ENTREMED, INC. AND SUBSIDIARIES
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of EntreMed, Inc. and
subsidiaries are included in Item 8:
<TABLE>
<S> <C>
Report of Independent Auditors.........................................................F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998...........................F-2
Consolidated Statements of Operations for the years ended December 31, 1999,
1998 and 1997.........................................................................F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997......................................................F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997.........................................................................F-5
Notes to Consolidated Financial Statements.............................................F-6
</TABLE>
The following consolidated financial statement schedules of EntreMed, Inc. and
subsidiaries are included in Item 14(d):
None
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
<PAGE> 15
Report of Independent Auditors
Board of Directors
EntreMed, Inc.
We have audited the accompanying consolidated balance sheets of EntreMed, Inc.
as of 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 consolidated 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
EntreMed, Inc. 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.
<TABLE>
<S> <C>
Atlanta, Georgia ERNST & YOUNG LLP
February 11, 2000
</TABLE>
F-1
<PAGE> 16
EntreMed, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
----------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,027,235 $ 30,818,689
Short-term investments - 4,352,371
Accounts receivable 618,598 112,383
Interest receivable 105,482 186,927
Prepaid expenses and other 336,443 170,877
----------------------------------------
Total current assets 27,087,758 35,641,247
Furniture and equipment, net 4,013,785 2,979,237
Other assets 742,082 953,519
----------------------------------------
Total assets $ 31,843,625 $ 39,574,003
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,887,693 $ 2,093,017
Accrued liabilities 1,756,538 1,332,682
Deferred revenue (Note 5) 75,000 2,945,833
Notes payable 1,125,620 -
----------------------------------------
Total current liabilities 7,844,851 6,371,532
Note payable, less current portion 1,995,327 -
Minority interest 18,646 14,407
Stockholders' equity:
Convertible preferred stock, $1.00 par and $1.50 liquidation value:
5,000,000 shares authorized, none issued and outstanding at
December 31, 1999 and 1998, respectively - -
Common stock, $.01 par value:
35,000,000 shares authorized, 14,755,998 and 13,123,031 shares
issued and outstanding at December 31, 1999 and 1998,
respectively 147,560 131,230
Treasury stock, at cost: 291,667 and 0 shares held at
December 31, 1999 and 1998, respectively (3,833,379) -
Additional paid-in capital 107,863,638 78,364,136
Accumulated deficit (82,193,018) (45,307,302)
----------------------------------------
Total stockholders' equity 21,984,801 33,188,064
----------------------------------------
Total liabilities and stockholders' equity $ 31,843,625 $ 39,574,003
========================================
</TABLE>
See accompanying notes.
F-2
<PAGE> 17
EntreMed, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Revenues:
Collaborative research and development
(Note 5) $ 3,099,166 $ 4,473,131 $ 4,342,369
Licensing (Note 5) 403,333 200,000 200,000
Grants 339,087 472,677 215,119
Royalties 1,123,111 - -
Other 52,853 15,675 -
-------------------------------------------------
5,017,550 5,161,483 4,757,488
Costs and expenses:
Research and development 35,529,435 15,084,993 8,998,705
General and administrative 8,028,922 5,760,215 4,915,724
-------------------------------------------------
43,558,357 20,845,208 13,914,429
Interest expense (22,270) - (1,418)
Investment income 1,677,361 2,169,955 2,621,630
-------------------------------------------------
Net loss $(36,885,716) $(13,513,770) $(6,536,729)
=================================================
Net loss per share (basic and diluted) $ (2.67) $ (1.07) $ (0.54)
=================================================
Weighted average number of shares
outstanding (basic and diluted) 13,801,220 12,681,824 12,158,372
=================================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 18
EntreMed, Inc.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK TREASURY PAID-IN ACCUMULATED
------------------------
SHARES AMOUNT STOCK CAPITAL DEFICIT TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 12,009,598 $120,096 $ - $72,830,898 $(25,256,803) $47,694,191
Issuance of common stock for options and warrants
exercised 244,170 2,442 - 502,190 - 504,632
Warrants issued for consulting services - - - 291,000 - 291,000
Net loss - - - - (6,536,729) (6,536,729)
-----------------------------------------------------------------------------
Balance at December 31, 1997 12,253,768 122,538 - 73,624,088 (31,793,532) 41,953,094
Issuance of common stock for options and
warrants exercised 869,263 8,692 - 4,740,048 - 4,748,740
Net loss - - - - (13,513,770) (13,513,770)
-----------------------------------------------------------------------------
Balance at December 31, 1998 13,123,031 131,230 - 78,364,136 (45,307,302) 33,188,064
Issuance of common stock for options and
warrants exercised 154,849 1,549 - 1,091,987 - 1,093,536
Sale of common stock at $20.362 per share, net of
offering costs of approximately $1,675,143 1,478,118 14,781 - 28,407,515 - 28,422,296
Purchase of treasury shares at $13.143 per share (291,667) - (3,833,379) - - (3,833,379)
Net loss - - - - (36,885,716) (36,885,716)
-----------------------------------------------------------------------------
Balance at December 31, 1999 14,464,331 $147,560 $(3,833,379) $107,863,638 $(82,193,018) $21,984,801
=============================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 19
EntreMed, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(36,885,716) $(13,513,770) $ (6,536,729)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 902,131 740,847 336,668
Loss on equity investment 232,000 100,000 -
Stock and warrants issued for compensation and
consulting expense - - 291,000
Minority interest 4,239 (48,093) 18,358
Changes in assets and liabilities:
Accounts receivable (506,215) (28,232) (84,151)
Interest receivable 81,445 333,530 (118,784)
Prepaid expenses and other 29,653 (234,193) 9,075
Accounts payable 2,794,676 998,059 82,898
Accrued liabilities 423,856 66,777 308,187
Deferred revenue (Note 5) (2,870,833) (928,130) (871,870)
--------------------------------------------------------------
Net cash used by operating activities (35,794,764) (12,513,205) (6,565,348)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments - (12,257,054) (32,014,130)
Maturities of short-term investments 4,352,371 34,917,263 24,671,173
Other investments - (500,000) (300,000)
Purchases of furniture and equipment (1,936,679) (1,809,546) (1,010,890)
--------------------------------------------------------------
Net cash provided (used) by investing activities 2,415,692 20,350,663 (8,653,847)
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock 29,515,832 4,748,740 504,632
Proceeds from note payable 3,000,000 - -
Purchase of treasury stock (3,833,379) - -
Payment on note payable (94,835)
Payment of lease obligation - - (104,152)
--------------------------------------------------------------
Net cash provided by financing activities 28,587,618 4,748,740 400,480
--------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (4,791,454) 12,586,198 (14,818,715)
Cash and cash equivalents at beginning of year 30,818,689 18,232,491 33,051,206
--------------------------------------------------------------
Cash and cash equivalents at end of year $ 26,027,235 $ 30,818,689 $ 18,232,491
==============================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ - $ - $ 1,418
==============================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 20
EntreMed, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
EntreMed, Inc. (the "Company") operates in a single segment and is engaged
primarily in the research and development of biopharmaceutical products that
address the role of blood and blood vessels in the prevention and treatment of
a broad range of diseases. The Company's core technologies include (i) an
antiangiogenesis program focused on the development of proprietary products
intended to inhibit the abnormal growth the new blood vessels associated with
cancer and certain causes of blindness and (ii) a blood cell permeation device
designed to enhance the ability of red blood cells to deliver oxygen to organs
and tissues and which may also be used to deliver drugs, genes or other
therapeutic agents that otherwise would not readily diffuse through blood cell
membranes.
The Company's strategy is to accelerate development of its antiangiogenesis and
cell permeation technologies as well as other promising technologies which the
Company perceives to have clinical and commercial potential. The principal
elements of the Company's strategy are (i) to focus its resources on current
core technologies, (ii) to deepen its product and technology portfolio through
sponsored research collaborations with academic institutions, government
organizations and private enterprises, (iii) to augment product development
with its in-house research and development capabilities and (iv) to leverage
its resources through corporate partnerships in order to minimize the cost to
the Company of late-stage clinical trials and to accelerate effective product
commercialization. All of the Company's product candidates are in the
development stage and require further research, development, testing and
regulatory clearances.
The Company was organized in September 1991 as a Delaware Corporation and from
inception through December 1995 was in the development stage. In December 1995,
the Company and Bristol-Myers Squibb Company ("Bristol-Myers Squibb") entered
into a collaboration to develop and commercialize certain antiangiogenesis
therapeutics (see Note 5). The Company received 68%, 92% and 95% of its
revenues from Bristol-Myers Squibb in 1999, 1998 and 1997, respectively.
F-6
<PAGE> 21
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
The accompanying consolidated financial statements include the accounts of the
Company's 85% owned subsidiary, Cytokine Sciences, Inc. Cytokine was formed in
June 1996 for the purpose of acquiring the assets of Innovative Therapeutics,
Inc. in July 1996 in exchange for 15% of the common stock of Cytokine valued at
approximately $44,000. All intercompany balances and transactions have been
eliminated in consolidation. Minority interest expense (income) of $4,239,
$(48,093) and $18,358 is included in general and administrative expenses for
the years ended December 31, 1999, 1998 and 1997, respectively.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of independent proprietary research
and development costs, the costs associated with work performed under
collaborative research agreements and the Company's sponsored funding of
research programs performed by others. Research and development costs are
expensed as incurred.
PATENT COSTS
Costs incurred in filing, defending and maintaining patents are expensed as
incurred. Such costs aggregated approximately $1,068,000, $778,000 and $409,000
in 1999, 1998 and 1997, respectively.
INVESTMENTS
The Company invests in various debt securities. These investments are accounted
for in accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, which
requires certain debt securities to be reported at amortized cost, certain debt
and equity securities to be reported at market with current recognition of
unrealized gains and losses, and certain debt and equity securities to be
reported at market with unrealized gains and losses as a separate component of
stockholders' equity.
F-7
<PAGE> 22
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
Management determines the appropriate classification of investments as
held-to-maturity or available-for-sale at the time of purchase and re-evaluates
such designation as of each balance sheet date. The Company has classified all
investments as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported in
stockholders' equity. The amortized cost of debt securities in this category is
adjusted for the amortization of premiums and accretion of discounts to
maturity. Such amortization is included as investment income. Realized gains
and losses and declines in value judged to be other-than-temporary on the
available-for-sale securities are included in investment income. The cost of
securities sold is based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in
investment income.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost and are depreciated over their
expected useful lives. Depreciation is provided on a straight-line basis.
Amortization associated with capitalized leases is included in depreciation
expense. Substantially all of the Company's furniture and equipment serves as
collateral for a note (see Note 7). Furniture and equipment are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------------------------
<S> <C> <C>
Furniture and equipment $ 6,335,897 $ 4,432,566
Less: accumulated depreciation (2,322,112) (1,453,329)
-------------------------------------
$ 4,013,785 $ 2,979,237
=====================================
</TABLE>
CASH EQUIVALENTS
Cash equivalents include cash and short-term investments with original
maturities of less than 90 days.
F-8
<PAGE> 23
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
REVENUE RECOGNITION
Revenue from the collaborative research and development agreement with
Bristol-Myers Squibb is recorded when earned as defined under the terms of the
agreement. Nonrefundable fees received upon contract signing are recorded as
deferred revenue and recognized over the term of the agreement mentioned in
Note 5. Revenues related to grants received for specific project proposals are
recognized in revenue as earned in accordance with specified provisions,
including performance requirements, in the contracts. Other periodic research
funding payments received which are related to future performance are deferred
and recognized as income when earned.
NET LOSS PER SHARE
Net loss per share (basic and diluted) was computed by dividing net loss by the
weighted average number of shares of common stock outstanding. Common stock
equivalents were anti-dilutive and therefore were not included in the
computation of weighted average shares used in computing diluted loss per
share.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 consolidated
financial statements in order to conform to the 1999 presentation.
F-9
<PAGE> 24
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130"). SFAS 130 establishes new standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. These new standards require that all items
recognized as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company has not presented a statement of comprehensive income
as there are no additional components of comprehensive income to be presented.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123") sets forth accounting and reporting standards for
stock-based employee compensation plans (see Note 9). As permitted by SFAS 123,
the Company continues to account for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Under APB No. 25, no compensation expense is recognized for
stock or stock options issued to employees at fair market value. Accordingly,
adoption of SFAS 123 has not affected the Company's results of operations or
financial position.
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 inevitably will differ from those estimates, and such
differences may be material to the financial statements.
F-10
<PAGE> 25
2. RELATED PARTY TRANSACTIONS
The Company receives legal services from two law firms in which two of the
Company's directors are partners. The cost of these services were negotiated on
an arm's length basis and amounted to $338,000, $363,000 and $559,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
As of December 31, 1999 and 1998, the Company maintained approximately 84% and
51%, respectively, of its cash, cash equivalents and short-term investments
under the management of a registered investment advisory firm for which a
Company director served as chairman of the board. Such assets under management
are maintained by a high quality, third party financial institution custodian.
The Company has an agreement with one of its directors under which the director
provides consulting services. During 1997, the Company paid $180,000 under this
agreement.
3. INVESTMENTS
As of December 31, 1999, the Company did not hold any short-term investments.
All of the Company's investments as of December 31, 1998 are classified as
available-for-sale and are summarized as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
------------------------------------------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $2,847,036 $ - $ - $2,847,036
U.S. corporate securities 1,505,335 - - 1,505,335
------------------------------------------------------------------------------------
Total securities $4,352,371 $ - $ - $4,352,371
====================================================================================
</TABLE>
The Company had no realized gains or losses from the sale of short-term
investments for the years ended December 31, 1999, 1998 and 1997. All U.S.
Treasury and U.S. corporate securities have maturity dates of less than one year
as of December 31, 1998.
F-11
<PAGE> 26
4. SPONSORED RESEARCH PROGRAM AGREEMENTS
The Company has entered into several agreements to sponsor external research
programs. The Company's primary external research program agreement was entered
into in September 1993 with the Children's Hospital, in Boston, Massachusetts,
an entity affiliated with Harvard Medical School ("Children's Hospital,
Boston"). Under this sponsored research agreement the Company agreed to pay
Children's Hospital, Boston $11,000,000 over a six year period to support
research on the role of angiogenesis in pathological conditions. In accordance
with the terms of this sponsored research agreement, the total $11,000,000 was
fully paid in March 1999.
In June 1999, the Company signed a new agreement with Children's Hospital,
Boston. Under this sponsored research agreement, the Company agreed to pay
Children's Hospital, Boston $1,400,000 to continue the research on the role of
angiogenesis in pathological conditions. In accordance with the terms of this
sponsored research agreement, $700,000 has been paid as of December 31, 1999,
and the remaining $700,000 is due on March 29, 2000. This sponsored research
agreement gives the Company an option to negotiate a worldwide, royalty-bearing
license for technology resulting from the research at Children's Hospital,
Boston in areas covered by the agreement. Amounts due under the sponsored
research agreement with Children's Hospital, Boston, which is cancelable by the
Company at any time or by Children's Hospital, Boston upon one year prior
written notice, are paid in advance every six months and are expensed as
incurred as research and development costs. See also Note 12.
As of December 31, 1999, the Company's total commitments for external research
programs are as follows:
<TABLE>
<S> <C>
2000 $2,428,772
2001 682,624
---------------------
Total commitments $3,111,396
=====================
</TABLE>
F-12
<PAGE> 27
5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
In December 1995, the Company and Bristol-Myers Squibb entered into a
collaboration to develop and commercialize certain antiangiogenic therapeutics
("Original BMS Collaboration"). The Original BMS Collaboration provided for
Bristol-Myers Squibb to fund the Company's research, provided for milestone
payments to the Company, and provided for the payments to the Company of
royalties on net sales of any products developed under the Original BMS
Collaboration. In return, the Company granted Bristol-Myers Squibb exclusive
worldwide rights held by the Company, to antiangiogenic applications of
thalidomide, thalidomide analogs and the Angiostatin protein and a five-year
right of first refusal to negotiate for commercial rights with respect to the
development of any technology licensed, or to be licensed, by the Company from
Children's Hospital, Boston, in the field of antiangiogenic therapeutics. In
August 1997, the Company reacquired the commercial rights to thalidomide in
exchange for renewing Bristol-Myers Squibb's warrant to purchase an additional
$10,000,000 of the Company's common stock as described below. In October 1998,
Bristol-Myers Squibb relinquished the rights to thalidomide analogs. In
February 1999, the Company assumed all responsibility for preclinical and
clinical work on the Angiostatin protein.
Bristol-Myers Squibb was obligated under the Original BMS Collaboration to fund
$18.35 million over five years for costs to be incurred by the Company related
to specified research and development. The Company was eligible to receive an
additional $32 million if the Company attained certain late-stage clinical
development and regulatory filing milestones under the Original BMS
Collaboration, a portion of which could be credited against royalties. In
addition to this funding, Bristol-Myers Squibb reimbursed the Company $730,000
for clinical studies and ophthalmological trials. Bristol-Myers Squibb could
terminate the Original BMS Collaboration for any reason with six months notice
and on February 9, 1999, the Original BMS Collaboration was modified such that
the final payment under the agreement was due on June 5, 1999 (see below). As
amended, Bristol-Myers Squibb has no further funding obligation to the Company
after August 9, 1999.
F-13
<PAGE> 28
5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT (CONTINUED)
The Company also received a nonrefundable, non-creditable licensing fee of $1
million in 1995 under the Original BMS Collaboration and an additional $2.5
million on March 31, 1996 in recognition of certain research and development
efforts of the Company. These amounts were recorded as deferred revenue and
were being recognized over five years, the initial term of the Original BMS
Collaboration agreement. On June 9, 1999, the due date of the final payment
under the Original BMS Collaboration, the remaining unamortized balance of such
deferred revenue was recognized as revenue.
Concurrent with the signing of the Original BMS Collaboration, the Company
issued Bristol-Myers Squibb 541,666 shares of common stock for aggregate cash
proceeds of $6,500,000. Bristol-Myers Squibb also purchased 333,333 shares of
additional common stock of the Company at the initial public offering price of
$15 per share, or a total of $5,000,000, at the time the Company completed its
initial public offering in June 1996 and was granted the right to purchase an
additional $10,000,000 of the Company's common stock at $22.50 per share, or
444,444 shares from the Company at any time up to June 19, 1997. This warrant
was renewed and expired without exercise in November 1997.
During 1999, 1998 and 1997, the Company recognized approximately $3,482,000,
$4,673,000, and $4,542,000 in revenue, respectively, and incurred costs of
approximately $3,482,000, $5,800,000 and $5,200,000 related to the Original BMS
Collaboration.
On February 9, 1999, as noted above, the Company and Bristol-Myers Squibb
agreed to modify the Original BMS Collaboration as follows:
- - The Company will assume all responsibility for preclinical,
pharmaceutical development and clinical work on the Angiostatin protein.
Bristol-Myers Squibb has agreed to provide the Company with advice on
structuring its clinical program but otherwise will have no direct
involvement with the development of the Angiostatin protein.
F-14
<PAGE> 29
5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT (CONTINUED)
- - Upon completion of Phase II clinical trials of Angiostatin, except as
described below, Bristol-Myers Squibb will have the option to review all
of the Company's data and exercise an option to reacquire further
development and marketing rights to the product. If Bristol-Myers Squibb
elects to do so, it will pay the Company a $1 million option exercise fee
and the financial terms applicable to commercialization will remain the
same as those in the existing research agreement, except that the
Company's worldwide royalty will be substantially increased and will not
be subject to any offsetting credits.
- - If a third party wishes to license Angiostatin protein and fund and
conduct development of Angiostatin protein and commercialize it upon FDA
approval on terms satisfactory to the Company, or the Company decides to
proceed with the development and commercialization of Angiostatin protein
without a corporate partner (in either case prior to the completion of
Phase II clinical trials and Bristol-Myers Squibb's exercise of its
option), Bristol-Myers Squibb's option will be terminated effective with
the signing of the Company's collaboration with such third party or its
giving of written notice to Bristol-Myers Squibb that it intends to
proceed without a corporate partner.
- - Bristol-Myers Squibb's current rights of first offer/refusal with respect
to products or technology arising out of the Company's agreement with
Children's Hospital, Boston have terminated, including those rights with
respect to Endostatin protein.
- - Bristol-Myers Squibb is licensed, on a royalty free basis, to conduct
further internal research with regard to the Angiostatin protein and will
exchange with the Company any data it obtains on Angiostatin protein per
se. This license will continue for a minimum of one year and thereafter
until the termination of Bristol-Myers Squibb's option as described
above.
- - Bristol-Myers Squibb will retain its equity interest in the Company but
has agreed to certain restrictions on its ability to sell its interest.
These restrictions will prevent Bristol-Myers Squibb from selling its
full interest in the Company until at least December 1, 2001, without the
Company's consent. See also Note 9.
F-15
<PAGE> 30
5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT (CONTINUED)
- - The semi-annual research support payment made on June 5, 1999 to the
Company from Bristol-Myers Squibb was prorated to cover the period from
June 5 to August 9, 1999 and was the final research payment under the
agreement. All patent and related costs incurred by the Company prior to
August 9, 1999 were reimbursed to the Company by Bristol-Myers Squibb.
6. LICENSE AGREEMENTS
On December 9, 1998, the Company entered into a license agreement with Celgene
Corporation ("Celgene") whereby the Company granted Celgene an exclusive
license to certain of the Company's thalidomide patents. In exchange for this
license, Celgene agreed to pay royalties to the Company on sales of any product
which contains thalidomide. The royalties vary based on the volume of Celgene's
sales. Celgene also assumed certain milestone payment obligations to Children's
Hospital, Boston related to the license of thalidomide.
On July 1, 1999, the Company entered into two license agreements with
Calbiochem-Novabiochem Corp ("Calbiochem") whereby the Company granted
non-exclusive rights and licenses to sell Endostatin protein and Angiostatin
protein for non-commercial research purposes for two years. In exchange for
these licenses, Calbiochem agreed to pay a total of $20,000 in nonrefundable,
non-creditable fees and royalties based on net sales of the licensed products.
7. NOTES PAYABLE
In July 1999, the Company entered into a note payable with a financing company
for approximately $216,000 related to insurance premiums. The note bears
interest at a rate of 6.26% per annum and is due in full in January 2000.
In December 1999, the Company entered into a $3,000,000 note payable with a
financing company secured by substantially all of the Company's furniture and
equipment. The term of the note is three years and bears interest at a rate of
5.06% per annum. Maturities under this note are as follows: $909,838 in 2000,
$997,245 in 2001 and $998,082 in 2002.
F-16
<PAGE> 31
8. INCOME TAXES
The Company has net operating loss carryforwards for income tax purposes of
approximately $94,350,000 at December 31, 1999 ($53,149,000 as of December 31,
1998) that expire in years 2007 through 2019. The Company also has research and
development tax credit carryforwards of approximately $4,002,000 as of December
31, 1999 that expire in years 2008 through 2014. These net operating loss
carryforwards include approximately $14,007,000 and $12,300,000 as of December
31, 1999 and 1998, respectively, related to exercises of stock options for
which the income tax benefit, if realized, would increase additional paid-in
capital. The utilization of the net operating loss and research and development
carryforwards may be limited in future years due to changes in ownership of the
Company pursuant to Internal Revenue Code Section 382. For financial reporting
purposes, a valuation allowance has been recognized to reduce the net deferred
tax assets to zero due to uncertainties with respect to the Company's ability
to generate taxable income in the future sufficient to realize the benefit of
deferred income tax assets.
Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred income tax assets and liabilities as of December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------
<S> <C> <C>
Deferred income tax assets (liabilities):
Net operating loss carryforwards $ 35,853,000 $ 20,196,000
Research and development credit carryforward 4,002,000 2,379,000
Deferred revenues 29,000 1,119,000
Equity investment 126,000 38,000
Other 396,000 373,000
Depreciation 73,000 96,000
Valuation allowance for deferred income tax
assets (40,479,000) (24,201,000)
------------------------------------
Net deferred income tax assets $ - $ -
====================================
</TABLE>
F-17
<PAGE> 32
8. INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes to the federal statutory
rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------------
<S> <C> <C> <C>
Tax benefit at statutory rate $(14,017,000) $(5,135,000) $(2,484,000)
Tax credits (1,623,000) (660,000) (389,000)
Other 23,000 18,000 12,000
Valuation allowance 15,617,000 5,777,000 2,861,000
---------------------------------------------------------
$ - $ - $ -
=========================================================
</TABLE>
9. STOCKHOLDERS' EQUITY
On July 27, 1999, the Company completed a private offering of 1,478,118 shares
of its common stock, Series 1 Warrants to purchase a total of 739,059 shares of
common stock at an exercise price of $33.02 and Series 2 Warrants to purchase a
total of 739,059 shares of common stock at an exercise price of $25.45,
resulting in gross proceeds, prior to the deduction of fees and commissions, of
approximately $30.1 million (net proceeds of $28.4 million). All such warrants
remained outstanding at December 31, 1999.
In December 1999, the Company exercised its option to repurchase 291,667 of its
common shares from Bristol-Myers Squibb for $13.143 a share or at a total
repurchase price of $3,833,379. As described in Note 5, Bristol-Myers Squibb's
remaining shares held in connection with the collaborative research and
development agreement are subject to certain restrictions, including future
repurchase rights by the Company which terminate in December 2000 and 2001.
F-18
<PAGE> 33
10. STOCK OPTIONS AND WARRANTS
In 1992, 1996 and 1999, the Company adopted incentive and nonqualified stock
option plans whereby 3,733,333 shares of the Company's common stock were
reserved for grants to various executive, scientific and administrative
personnel of the Company as well as outside directors and consultants, of which
26,828 shares remain available for grant as of December 31, 1999. These options
vest over periods varying from immediately to four years and generally expire
10 years from the date of grant.
Pro forma information regarding net income and 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 subsequent to December 31,
1994. Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect is not fully reflected prior to 1999.
The fair values for these options were estimated at the dates of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of
6.0%, 5.38% and 5.97%; no dividend yields; volatility factors of the expected
market price of the Company's common stock of 1.04, 1.04 and 0.80; and a
weighted-average expected life of an option of 6 years, 6 years and 7 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-19
<PAGE> 34
10. STOCK OPTIONS AND WARRANTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair values of the options
and warrants granted to employees, directors and consultants are amortized to
expense over the vesting period. The weighted average fair value per option
granted in 1999, 1998 and 1997 was $18.60, $14.47 and $7.90, respectively. The
weighted average fair value per warrant granted to employees during 1997 was
$13.00. The Company's pro forma information follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Pro forma net loss $ (45,705,251) $(19,986,293) $(9,493,464)
Pro forma loss per share $ (3.31) $ (1.58) $ (0.78)
</TABLE>
A summary of the Company's stock options and warrants granted to employees,
directors and consultants and related information for the years ended December
31 follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE
-----------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1997 2,579,944 $6.68
Exercised (235,836) $1.93
Granted 761,575 $10.31
Canceled (5,734) $14.00
---------------------------
Outstanding at December 31, 1997 3,099,949 $7.92
Exercised (697,828) $5.20
Granted 325,250 $17.82
Canceled (76,682) $7.79
---------------------------
Outstanding at December 31, 1998 2,650,689 $9.85
Exercised (80,849) $9.56
Granted 1,176,406 $22.10
Canceled (46,240) $18.76
---------------------------
Outstanding at December 31, 1999 3,700,006 $13.64
===========================
Exercisable at December 31, 1999 2,758,683 $11.47
===========================
</TABLE>
F-20
<PAGE> 35
10. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following summarizes information about stock options and warrants granted
to employees outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/99 LIFE IN YEARS PRICE AT 12/31/99 PRICE
- ----------------------------- ------------------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C>
$1.50 355,040 2.6 $1.50 355,040 $1.50
$6.50 - $9.50 665,164 5.6 $6.38 663,289 $6.37
$10.00 - $14.00 1,280,425 7.6 $11.67 1,077,546 $11.88
$15.00 - $19.13 458,071 8.2 $17.48 233,703 $16.39
$20.75 - $31.94 941,306 9.6 $24.16 429,105 $23.91
----------------- ---------------
3,700,006 7.4 $13.64 2,758,683 $11.47
================= ===============
</TABLE>
The Company also granted 50,000 and 83,334 options to purchase common stock at
$6.38 and $6.00 per share during 1995 and 1993, respectively, to Children's
Hospital, Boston in connection with a sponsored research agreement (see Note
4). These options are not covered by the incentive and nonqualified stock
option plan and are included in the table below.
F-21
<PAGE> 36
10. STOCK OPTIONS AND WARRANTS (CONTINUED)
In addition, the Company has granted warrants to consultants and certain third
parties. Warrants granted generally expire after 10 years from the date of
grant. Stock warrant activity to non-employees is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
-------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1997 277,336 $6.47
Granted 100,000 $13.00
Exercised (8,334) $ 6.00
---------------------------
Outstanding at December 31, 1997 369,002 $8.23
Exercised (171,435) $8.15
---------------------------
Outstanding at December 31, 1998 197,567 $8.30
Granted 1,544,425 $28.85
Exercised (74,000) $7.34
---------------------------
Outstanding at December 31, 1999 1,667,992 $27.37
===========================
Exercisable at December 31, 1999 1,667,992 $27.37
===========================
</TABLE>
The Company also granted warrants to Bristol-Myers Squibb in connection with
the Original BMS Collaboration described in Note 5 which expired in November
1997.
11. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable and notes
payable. As of December 31, 1999 and 1998, the Company maintained approximately
84% and 51%, respectively, of its cash, cash equivalents and short-term
investments (short-duration, high quality debt securities) under the management
of a registered investment advisory firm for which a Company director served as
chairman of the board. Such assets under management are maintained by a high
credit quality, third party financial institution custodian.
F-22
<PAGE> 37
11. FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts reported in the balance sheet for cash and cash
equivalents, short-term investments, accounts receivable, accounts payable and
notes payable approximate their fair values.
12. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit initiated in August 1995 in the United
States District Court for the Eastern District of Tennessee by Bolling, McCool
& Twist ("BMT"), a consulting firm. In the suit, BMT asserts that the Company
breached an agreement between BMT and the Company by failing to pay BMT certain
fees it asserts are owed under the agreement. More specifically, BMT has
asserted a claim for the payment of services rendered in the approximate amount
of $50,000 and seeks a success fee in an unspecified amount in connection with
the Original BMS Collaboration. The judge in the case bifurcated the proceeding
into two phases: an adjudication of whether the Company breached its agreement
with BMT and then a damage phase. After a trial on the merits, the jury found
in favor of BMT on the breach of contract claim. A trial to determine damages
had been scheduled for April 14, 1998. However, on April 6, 1998, the court
issued an Order pursuant to which damages were limited to those arising during
the term of the agreement, which terminated on November 1, 1995. On May 6,
1999, the court confirmed its decision by granting the Company's motion for
summary judgment and limiting the Company's damages to approximately $50,000
plus interest. Thus, this litigation at the trial level has been concluded. BMT
has filed an appeal and the Company has cross-appealed. The Company cannot
predict the outcome of such appeal. However, the Company intends to continue to
contest any further action vigorously and believes that this proceeding will
not have a material adverse effect on the Company or on its financial
condition, although there can be no assurance that this will be the case.
F-23
<PAGE> 38
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In May 1994, the Company entered into two license agreements, whereby the
Company acquired the exclusive, worldwide, royalty-bearing licenses to make,
use, and sell Angiostatin, thalidomide and thalidomide analogs, all inhibitors
of angiogenesis developed by Children's Hospital, Boston. In consideration for
receiving the rights, the Company must pay a royalty on any sublicensing fees,
as defined in the agreements, to Children's Hospital, Boston. The Company is
also required to pay certain amounts upon the attainment of certain milestones.
The milestone payments aggregate $2,650,000, of which $815,000 has been paid to
date, and are based upon license fees and achievement of regulatory approvals.
In addition, in 1996, the Company entered into two license agreements with
Children's Hospital, Boston for the exclusive, worldwide, royalty-bearing
licenses to make, use and sell Endostatin and 2-Methoxyestradiol, both
inhibitors of angiogenesis. In consideration for receiving the rights, the
Company must pay a royalty on any sublicensing fees, as defined in the
agreements, to Children's Hospital, Boston. Each agreement obligates the
Company to pay up to $1,000,000 "upon the attainment of certain milestones." As
of December 31, 1999, the Company has paid $200,000 under these agreements.
These license agreements require the Company to pay Children's Hospital, Boston
a specified percentage of the royalty income received on the first $100 million
in net sales of the licensed products, and an increased percentage thereafter,
with a minimum payment based on a percentage of net sales of the licensed
products by any sublicensees.
The Company has also entered into an agreement with a bioprocessing services
firm for the production of materials to be used in the Company's research
activities, including its clinical trials. As of December 31, 1999, the Company
is committed to materials production costs due in the year 2000 of an estimated
$6,000,000.
F-24
<PAGE> 39
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases its primary facilities through 2010. The lease agreement
provides for escalation of the lease payments over the term of the lease,
however, rent expense is recognized under the straight-line method.
Additionally, the Company leases office equipment under an operating lease. The
future minimum payments under its facilities and equipment leases as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 852,700
2001 841,200
2002 855,300
2003 881,000
2004 907,400
Thereafter 3,739,000
---------------------
Total minimum payments $8,076,600
=====================
</TABLE>
Rental expense for the years ended December 31, 1999, 1998 and 1997 was
$751,000, $253,000 and $241,000, respectively.
13. EMPLOYEE RETIREMENT PLAN
The Company sponsors the EntreMed, Inc. 401(k) and Trust. The plan covers
substantially all employees and enables participants to contribute a portion of
salary and wages on a tax-deferred basis. Contributions to the plan by the
Company are discretionary. No employer contributions were made in 1999, 1998 or
1997.
F-25
<PAGE> 40
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended December 31,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenues $ 1,444,039 $ 1,329,031 $ 1,786,317 $ 458,163
Research and development costs 7,107,455 7,619,140 6,959,576 13,843,264
General and administrative expenses 1,895,838 2,003,069 2,223,748 1,906,267
Net loss (7,148,840) (8,008,305) (6,895,717) (14,832,854)
Net loss per share $ (0.55) $ (0.61) $ (0.48) $ (1.01)
1998
Revenues $ 1,154,971 $ 1,165,485 $ 1,343,437 $ 1,497,590
Research and development costs 3,499,431 2,345,299 4,481,485 4,758,778
General and administrative expenses 1,305,890 1,221,010 1,380,387 1,852,928
Net loss (3,112,126) (1,812,631) (3,959,309) (4,629,704)
Net loss per share $ (0.25) $ (0.15) $ (0.31) $ (0.35)
</TABLE>
F-26
<PAGE> 41
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.
ENTREMED, INC.
By: /s/ John W. Holaday, Ph.D.
--------------------------
John W. Holaday, Ph.D., Chairman of the
Board, President and Chief Executive Officer
April 28, 2000
