<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 24572
GENEMEDICINE, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0355802
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8301 New Trails Drive, The Woodlands, Texas 77381-4248
(Address of principal executive office) (zip code)
(713) 364-1150
(Registrant's telephone number, including area code)
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
--- ---
As of May 3, 1996, there were outstanding 12,579,111 and 3,750,000 shares of
Common Stock and Series B Preferred Stock, par value $.001, respectively, of
the registrant.
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GENEMEDICINE, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
---------------
<S> <C>
COVER PAGE....................................................................... 1
TABLE OF CONTENTS................................................................ 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets as of March 31, 1996 and December 31, 1995................... 3
Statements of Operations for the three months ended March 31, 1996 and
March 31, 1995, and for the period from inception (January 2, 1992)
through March 31, 1996...................................................... 4
Statements of Cash Flows for the three months ended March 31, 1996 and
March 31, 1995, and for the period from inception (January 2, 1992)
through March 31, 1996...................................................... 5
Notes to Financial Statements............................................... 6
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 7
PART II. OTHER INFORMATION...................................................... 10
SIGNATURES....................................................................... 11
</TABLE>
Page 2 of 11
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GENEMEDICINE, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 13,305,381 $ 15,420,772
Short-term investments...................................... 23,217,046 19,776,723
Prepaid expenses and other.................................. 356,483 420,154
------------ ------------
Total current assets...................................... 36,878,910 35,617,649
------------ ------------
Equipment, furniture and leasehold improvements, net.......... 3,221,876 3,135,697
Deposits and other assets..................................... 6,845 6,845
------------ ------------
Total Assets.................................................. $ 40,107,631 $ 38,760,191
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.................... $ 1,188,866 $ 1,117,243
Current portion of notes payable............................ 27,778 79,344
Current portion of capital lease obligations................ 313,250 308,641
------------ ------------
Total current liabilities................................. 1,529,894 1,505,228
------------ ------------
Long-term Liabilities:
Deferred contract revenue................................... 1,169,970 919,970
Capital lease obligations, net of current portion........... 589,629 667,781
------------ ------------
Total long-term liabilities............................... 1,759,599 1,587,751
------------ ------------
Stockholders' Equity:
Convertible preferred stock, $.001 par value; 20,000,000
shares authorized; 3,750,000 issued and outstanding at
March 31, 1996 and December 31, 1995, respectively........ 3,750 3,750
Common stock, $.001 par value; 40,000,000 shares authorized;
12,531,647 and 12,036,415 shares issued and outstanding at
March 31, 1996 and December 31, 1995, respectively........ 12,532 12,036
Additional paid in capital.................................. 64,977,979 60,965,612
Deferred compensation....................................... (760,946) (859,557)
Deficit accumulated during the development stage............ (27,415,177) (24,454,629)
------------ ------------
Total stockholders' equity................................ 36,818,138 35,667,212
------------ ------------
Total Liabilities and Stockholders' Equity.................... $ 40,107,631 $ 38,760,191
============ ============
</TABLE>
Page 3 of 11
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GENEMEDICINE, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
INCEPTION
THREE MONTHS ENDED (JANUARY 2, 1992)
MARCH 31, THROUGH
------------------------------ MARCH 31,
1996 1995 1996
----------- ------------ -----------------
<S> <C> <C> <C>
Revenues:
Contract revenue.................. $ 1,000,000 $ 672,000 $ 4,680,000
Research and development
grant revenue................... 81,000 - 206,000
Interest income................... 491,461 308,415 2,693,322
----------- ------------ -----------------
1,572,461 980,415 7,579,322
Expenses:
Research and development.......... 3,561,661 2,307,646 25,197,009
General and administrative........ 940,439 938,370 9,437,015
Interest expense.................. 30,909 29,816 360,475
----------- ------------ -----------------
Total expenses.................. 4,533,009 3,275,832 34,994,499
----------- ------------ -----------------
Net loss............................ $(2,960,548) $ (2,295,417) $ (27,415,177)
=========== ============ =================
Loss per share...................... $ (0.24) $ (0.27)
Shares used in computing loss
per share......................... 12,331,350 8,372,898
</TABLE>
Page 4 of 11
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GENEMEDICINE,INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Inception
Three Months Ended (January 2, 1992)
March 31, through
-------------------------------- March 31,
1996 1995 1996
-------------- ------------- ----------------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss....................................................... $(2,960,548) $(2,295,417) $(27,415,177)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization................................ 188,978 137,117 1,196,334
Issuance of convertible debt for noncash consideration....... - - 905,000
Issuance of stock for noncash consideration.................. - - 21,050
Purchases of short-term investments.......................... - - (3,997,171)
Compensation expense related to stock plans.................. 98,611 97,545 1,233,579
Loss on equipment retirements................................ - - 3,980
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses and other assets... 63,671 34,795 (260,201)
Increase in accounts payable and accrued liabilities....... 71,623 (305,254) 1,188,866
Increase in deferred contract revenue...................... 250,000 1,427,985 1,169,970
----------- ----------- ------------
Net cash used in operating activities.................... (2,287,665) (903,229) (25,953,770)
----------- ----------- ------------
Cash flows used in investing activities:
Purchase of equipment, furniture, leasehold improvements
and other................................................... (275,157) (667,781) (4,425,317)
Purchases of short-term investments........................... (3,440,323) (949,991) (19,219,875)
Purchase of certificates of deposit........................... - - (100,000)
----------- ----------- ------------
Net cash used in investing activities.................... (3,715,480) (1,617,772) (23,745,192)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from notes payable and capital lease obligations..... - - 2,030,823
Repayment of notes payable and capital lease obligations...... (125,109) (81,092) (969,166)
Advance on line of credit..................................... - - 750,000
Proceeds from issuance of preferred stock (net)............... - - 22,264,465
Proceeds from issuance of common stock (net).................. 4,012,863 8,095 38,928,221
----------- ----------- ------------
Net cash provided by financing activities............... 3,887,754 (72,997) 63,004,343
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents............ (2,115,391) (2,593,998) 13,305,381
Cash and cash equivalents, beginning of period.................. 15,420,772 18,175,356 -
----------- ----------- ------------
Cash and cash equivalents, end of period........................ $13,305,381 $15,581,358 $ 13,305,381
=========== =========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest...................... $ 30,909 $ 29,816 $ 359,775
Supplemental schedule of noncash financing activity:
Issuance of convertible debt for technology................... $ - $ - $ 905,000
Conversion of debt to preferred and common stock.............. $ - $ - $ 1,786,000
</TABLE>
Page 5 of 11
<PAGE>
GENEMEDICINE, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
GeneMedicine, Inc. (the "Company"), a Delaware corporation in the
development stage, was incorporated on January 2, 1992, under the name of
Vector Therapeutics, Inc. The Company is developing non-viral gene therapies
that may provide unique clinical benefits in the treatment of a number of
human diseases. The Company's initial research programs are based on
inventions by leading scientists at Baylor College of Medicine ("Baylor") and
the University of California, San Francisco. The Company intends to develop
its products through alliances with major pharmaceutical and biotechnology
companies.
The Company is a development stage company which has devoted
substantially all of its efforts to research and product development and has
not yet generated any revenues from the sale of products, nor is there any
assurance of future product revenues. In addition, the Company expects to
continue to incur losses for the foreseeable future, and there can be no
assurance that the Company will successfully complete the transition from a
development stage company to successful operations. The research and
development activities engaged in by the Company involve a high degree of risk
and uncertainty. The ability of the Company to successfully develop,
manufacture and market its proprietary products is dependent upon many
factors. These factors include, but are not limited to, the need for
additional financing, the reliance on collaborative arrangements for research
and contractual agreements with corporate partners, and the ability to develop
or access manufacturing, sales and marketing experience. Additional factors
include uncertainties as to patents and proprietary technologies,
technological change and risk of obsolescence, development of products,
competition, government regulations and regulatory approval, and product
liability exposure. As a result of the aforementioned factors and the related
uncertainties, there can be no assurance of the Company's future success.
The accompanying interim financial statements are unaudited and
reflect all adjustments which, in the opinion of management, are necessary for
a fair presentation of the results for the interim periods presented. These
financial statements should be read in conjunction with the Company's audited
financial statements included with the Company's Annual Report to Stockholders
for the year ended December 31, 1995.
Page 6 of 11
<PAGE>
GENEMEDICINE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Except for the historical information contained herein, the
following discussion contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to differences
include, but are not limited to, those discussed in this section and the
Company's Form 10-K for the year ended December 31, 1995.
Since its inception in January 1992, GeneMedicine has devoted its
resources primarily to fund its research and development programs. The Company
has been unprofitable since inception and has not received any revenues from
the sale of products. No assurance can be given that the Company will be able
to generate sufficient product revenues to attain profitability on a sustained
basis or at all. The Company expects to incur substantial losses for the next
several years as it continues to invest in product research and development,
preclinical studies, clinical trials and regulatory compliance. At March 31,
1996, the Company's accumulated deficit was approximately $27.4 million.
RESULTS OF OPERATIONS
Revenues of $1.6 million were recorded for the quarter ended March
31, 1996, which consisted of contract revenue of $1.0 million, research and
development grant revenue of $0.1 million and interest income of $0.5 million.
This compares with revenues of $1.0 million for the quarter ended March 31,
1995, which consisted of contract revenue of $0.7 million and interest income
of $0.3 million. The contract revenues in respective quarters resulted from a
corporate partnership with Boehringer Mannheim, effective February 1995, to
develop certain non-viral gene medicines for application in the field of
cancer. The increase in interest income in the first quarter of 1996 compared
to the same period in 1995 was primarily the result of higher average cash
balances in 1996 due to the Company's follow-on public offering in October
1995.
The Company's research and development expense for the quarter ended
March 31, 1996 was $3.6 million compared to $2.3 million for the first quarter
of 1995. The increase in research and development expense was generally due
to the expansion of the Company's research and development activities
resulting in staffing increases and the related salary and benefit costs, as
well as additional laboratory supplies and other support costs. The expansion
of research and development activities resulted primarily from increased
efforts in the cancer and insulin-like growth factor-I (IGF-I) programs. In
February 1995, the Company commenced research and development efforts in the
field of cancer, which is the focus of a multi-year corporate partnership
consummated with Boehringer Mannheim in July 1995. The Company is developing a
gene medicine for the treatment of focal muscle atrophy that utilizes the gene
coding for IGF-I and anticipates the filing of an IND application with the FDA
in the second half of 1996. The Company anticipates that expenditures will
increase over the next several years as it expands its research and product
development efforts.
General and administrative expense of $0.9 million for the quarter
ended March 31, 1996, remained flat compared to the first quarter of 1995
which included costs related to the move of the Company to its facility in The
Woodlands, Texas.
Net loss per share for the three months ended March 31, 1996 was
$0.24 as compared to a net loss per
Page 7 of 11
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share of $0.27 for the same period in 1995. The decrease in the Company's net
loss per share was attributable to the recognition of increased contract
revenue, which was partially offset by increased operating expenses, coupled
with an increase in average shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations
primarily through private sales of its equity securities, its initial and
follow-on public offerings and revenues from corporate alliances. Through
March 31, 1996, the Company had received approximately $61.0 million in net
proceeds from sales of its equity securities. At March 31, 1996, the Company
had working capital of $35.3 million and cash, cash equivalents and short-term
investments of $36.5 million.
The Company expects its cash requirements to increase significantly
in future periods. The Company will require substantial funds to conduct
research and development programs, preclinical studies and clinical trials of
its potential products, and to market with its partners any products that are
developed. In addition, the Company currently plans to manufacture clinical
scale quantities of its products, which will require the Company to expend
substantial additional capital. The Company's future capital requirements will
depend on many factors, including continued scientific progress in its
research and development programs, the scope and results of preclinical
testing and clinical trials, the time and costs involved in obtaining
regulatory approvals, the costs involved in filing, prosecuting and enforcing
patent claims, competing technological developments, the cost of manufacturing
and scale-up and effective commercialization activities and arrangements.
Based on its current plans, the Company believes that its available cash,
including proceeds from projected interest income and committed funding from
corporate partners, will be sufficient to meet the Company's operating
expenses and capital requirements through mid-1999. There can be no assurance,
however, that changes in the Company's research and development plans or other
changes affecting the Company's operating expenses will not result in the
expenditure of such resources before such time. The Company intends to seek
additional funding through public or private financing, research and
development arrangements with potential corporate partners, or from other
sources. There can be no assurance that additional financing will be available
on favorable terms, if at all. In the event that adequate funding is not
available, the Company may be required to delay, reduce or eliminate one or
more of its research or development programs, or obtain funds through
arrangements with corporate collaborators or others that may require the
Company to relinquish greater or all rights to product candidates at an
earlier stage of development or on less favorable terms than the Company would
otherwise seek. Insufficient financing also may require the Company to
relinquish rights to certain of its technologies that the Company would
otherwise develop or commercialize itself.
The Company's business is subject to significant risks, including,
without limitation, uncertainties associated with the length and expense of
the regulatory approval process and with obtaining and enforcing patents.
Although the Company's products may appear promising at an early stage of
development, they may not be successfully commercialized for a number of
reasons, such as the possibility that the potential products will be
determined to be ineffective during clinical trials, fail to receive necessary
approvals, be uneconomical to manufacture or market, or be precluded from
commercialization by proprietary rights of third parties. In addition, the
failure by the Company to obtain patent protection for its products may make
certain of its products commercially unattractive.
In October 1994, the Company became a party to a class action suit
which alleged violations of certain federal laws primarily arising out of
activities of David Blech and D. Blech & Company, Inc. in connection with the
public offerings of certain securities, including that of the Company. Four
class action complaints
Page 8 of 11
<PAGE>
were filed by different plaintiffs relating to the same subject matter.
GeneMedicine was named as a defendant in three of these actions. The four
complaints were superseded by an Amended Consolidated Class Action Complaint
(the "Amended Complaint") which was filed on March 27, 1995. In June 1995, the
Company and the other named defendants, including David Blech, D. Blech &
Company, Inc., the former chairman of the Board of the Company and 10 other
biotechnology companies, moved to dismiss the Amended Complaint. The plaintiff
submitted an opposition for motion for dismissal on July 12, 1995. The
Company submitted a reply to the opposition on July 26, 1995. On November 9,
1995, arguments for a motion to dismiss were heard. The Company is currently
awaiting a ruling from the court. The Company believes the suit is without
merit and will not have a material adverse effect upon the financial position
of the Company.
Page 9 of 11
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GENEMEDICINE, INC.
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
See Item 6(b).
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
27 FINANCIAL DATA SCHEDULE
(b) Current Report on Form 8-K, dated January 16, 1996, filed with the
Commission on January 29, 1996 in connection with the designation of
a new class of Series A Junior Participating Preferred Stock and the
adoption of a Rights Agreement. No financial statements were filed
with this report.
Page 10 of 11
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GENEMEDICINE, INC.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENEMEDICINE, INC.
Date: 05/10/96 By: John M. Dodson
--------- ------------------------------
John M. Dodson
Director, Finance & Accounting
(on behalf of the Registrant and as
the Registrant's Principal Accounting
Officer)
Page 11 of 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 13,305,381
<SECURITIES> 23,217,046
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,878,910
<PP&E> 3,221,876
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,107,631
<CURRENT-LIABILITIES> 1,529,894
<BONDS> 0
0
3,750
<COMMON> 12,532
<OTHER-SE> 36,801,856
<TOTAL-LIABILITY-AND-EQUITY> 40,107,631
<SALES> 0
<TOTAL-REVENUES> 1,572,461
<CGS> 0
<TOTAL-COSTS> 4,502,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,909
<INCOME-PRETAX> (2,960,548)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,960,548)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> 0
</TABLE>
