SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to ______
Commission File Number: 0-21990
OXiGENE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3679168
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
ONE COPLEY PLACE, SUITE 602
BOSTON, MA 02116
(Address of principal executive offices, including zip code)
(617) 536-9500
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Warrant to Purchase One Share of Common Stock
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 November 12, 1999, there were 10,267,001 shares of the Registrant's
Common Stock issued and outstanding.
<PAGE>
OXiGENE, INC.
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. They involve known and unknown risks
and uncertainties that may cause the Company's actual results in future periods
to be materially different from any future performance suggested herein. In the
context of forward-looking information provided in this Form 10-Q and in other
reports, please refer to the discussion of risk factors detailed in, as well as
the other information contained in, the Company's filings with the Securities
and Exchange Commission during the past 12 months.
INDEX PAGE NO.
----- --------
PART I. FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statement of Operations 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial 5
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about 9
Market Risks
PART II. OTHER INFORMATION 10
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of 10
Securityholders
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
ii
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared by OXiGENE, Inc. (OXiGENE or the Company) without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. In the
Company's opinion, these financial statements contain all adjustments necessary
to present fairly the financial position of OXiGENE, Inc. as of September 30,
1999 and December 31, 1998, the results of operations for the three months and
nine months ended September 30, 1999 and September 30, 1998 and the cash flows
for the nine months ended September 30, 1999 and September 30, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1998. The results of operations for the periods ended September 30,
1999 are not necessarily indicative of the results of operations and cash flows
for any subsequent interim period or for the full year.
<PAGE>
OXIGENE, INC.
(A development stage company)
Condensed Consolidated Balance Sheets
(All amounts, except share amounts, in thousands of dollars)
September 30, December 31,
1999 1998
(unaudited)
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 23,841 $ 31,757
Prepaid expenses 280 609
Interest receivable 468 196
Other 59 173
-- ---
Total current assets 24,648 32,735
Furniture, fixtures and equipment, at cost 228 372
Accumulated depreciation (117) (168)
----- -----
Net property and equipment 111 204
Deposits 80 80
-- --
Total assets $ 24,839 $ 33,019
======== ========
LIABILITIES AND STOCKHOLDERS
EQUITY Current liabilities:
Accounts payable and accrued $ 1,682 $ 2,171
expenses
Other payables 29 656
-- ---
Total current liabilities 1,711 2,827
Stockholders equity
Common stock, $0,01 par value:
Authorized shares - 60,000,000
shares
Issued and outstanding
10,265,931 at September 30, 1999
10,207,049 at December 31, 1998 103 102
Additional paid-in capital 68,894 68,715
Deficit accumulated during the (44,502) (36,966)
development stage
Accumulated other comprehensive income 292 326
Deffered compensation (1,659) (1,985)
------- -------
Total stockholders equity 23,128 30,192
------ ------
Total liabilities and stockholders equity $24,839 $33,019
======= =======
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
OXIGENE, INC.
(A development stage company)
Condensed Consolidated Statements of Operations
(All amounts in thousands of dollars, except per share data)
(Unaudited)
<CAPTION>
Three months ended Nine months ended Period from
September 30, September 30, February 22, 1988
(inception) through
1999 1998 1999 1998 SEPTEMBER 30, 1999
---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C>
REVENUE
Interest income $ 312 $ 497 $ 1,024 $ 1,559 $ 6,671
Research income --- --- ----- ----- 31
--
Total revenue 312 497 1,024 1,559 6,702
OPERATING EXPENSES
Research and development 2,992 3,331 6,498 7,506 36,031
General and administrative 559 569 2,062 2,133 15,173
--- --- ----- ----- ------
Total operating expenses 3,551 3,900 8,560 9,639 51,204
----- ----- ----- ----- ------
NET LOSS $(3,239) $(3,403) $(7,536) $(8,080) $(44,502)
======== ======== ======== ======== =========
NET LOSS PER COMMON SHARE $(0.32) $(0.33) $(0.74) $(0.79)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,262 10,204 10,233 10,199
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
OXIGENE, INC.
(A development stage company)
Condensed Consolidated Statements of Cash Flows
(All amounts in thousands of dollars)
(Unaudited)
<CAPTION>
Nine months ended Period from
Septmeber 30, February 22, 1988
(inception)
through
1999 1998 SEPTEMBER 30, 1999
---- ---- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (7,536) $ (8,080) $ (44,502)
Adjustment to reconcile net loss to net cash
used in operating activities:
Loss on securities available-for-sale 12
Depreciation Abandonment of furniture, 32 58 234
fixtures and equipment 77 0 90
Compensation related to issuance of
warrants, options and stock appreciation rights 408 (512) 3,126
Changes in operating assets and
liabilities:
Prepaid expenses and other current assets 169 (156) (852)
Accounts payable and accrued expenses
and other payables (1,095) 3,392 1,816
------- ----- -----
Net cash used in operating activities (7,945) (5,298) (40,076)
FINANCING ACTIVITIES
Proceeds from investor 100
Repayment to investor (100)
Proceeds from issuance of common stock and
capital contribution 98 110 64,160
Other capital contribution ___ ___ 53
--
Net cash provided by financing activities 98 110 64,213
INVESTING ACTIVITIES
Purchases of securities available-for-sale (3,368)
Proceeds from sale of securities 3,356
available-for-sale
Deposits (80)
Purchase of furniture, fixture and equipment (18) (56) (454)
---- ---- -----
Net cash used in investing activities (18) (56) (546)
---- ---- -----
Effect of exchange rate on changes in cash (51) (54) 250
---- ---- ---
Net increase in cash and cash equivalents (7,916) (5,298) 23,841
Cash and cash equivalents at beginning of
period 31,757 40,137
------ ------ ------
Cash and cash equivalents at end of period $23,841 $34,839 $23,841
======= ======= =======
The accompanying notes are an integral part of this statement.
</TABLE>
4
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OXIGENE, INC.
(A development stage company)
Notes to Condensed Consolidated Financial Statements
September 30, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months and nine months ended September
30, 1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes there to included in the
Company's annual report on Form 10-K for the year ended December 31, 1998.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned Swedish subsidiary, OXiGENE Europe AB. Intercompany
balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments with a maturity of
three months or less when purchased to be cash equivalents.
NET LOSS PER SHARE
Net loss per share is based upon the Company's aggregate net loss divided by
weighted average number of shares of Common Stock outstanding during the
respective periods. All options and warrants were antidilutive and, accordingly,
have been excluded from the calculation of weighted average shares.
COMPREHENSIVE LOSS
During the nine months ended September 30, 1999 and 1998, total comprehensive
loss amounted to $7,562,000 and $8,163,000, respectively.
5
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2. STOCKHOLDER'S EQUITY
During the nine month period ended September 30, 1999 the Company issued 50,000
shares of Common Stock upon exercise of previously granted options, with
proceeds to the Company of approximately $98,000. In addition, 987 shares were
issued upon the exercise of stock appreciation rights ("SARS") and 7,875 shares
were issued for research and development services provided to the Company. Such
services were valued at $75,000.
The market value of the Company's Common Stock at September 30, 1999 was lower
than the market price of the Company's Common Stock at December 31, 1998.
Accordingly, the charge related to SARs that previously was recorded for
financial reporting purpose was reduced by approximately $3,000 for the nine
months ended September 30, 1999, to reflect the market value of the unexercised
SARs at September 30, 1999. Because upon exercise SARs are satisfied only by the
distribution of shares of Common Stock, the charge was debited to additional
paid-in capital.
During the nine months ended September 30, 1999, the Company recorded
stock-based compensation expense of approximately $326,000 resulting from the
amortization of deferred compensation in connection with options issued to
non-employees in the prior years.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DESCRIPTION OF BUSINESS
OXiGENE is a development-stage pharmaceutical company engaged in the
research and development of products designed to enhance the clinical efficacy
of radiation and chemotherapy, the most common and traditional forms of
non-surgical cancer treatment. OXiGENE has devoted substantially all of its
efforts and resources to research and development conducted on its own behalf
and through strategic collaborations with clinical institutions and other
organizations, particularly the University of Lund in Lund, Sweden.
Consequently, OXiGENE believes that its research and development expenditures
have been somewhat lower than those of other comparable development-stage
companies. OXiGENE has generated a cumulative net loss of approximately $44.5
million for the period from its inception through September 30, 1999. OXiGENE
expects to incur significant additional operating losses over at least the next
several years, principally as a result of its continuing clinical trials and
anticipated research and development expenditures. The principal source of
OXiGENE's working capital has been the proceeds of private and public equity
financing. As of September 30, 1999, OXiGENE had no long-term debt or loans
payable. Since its inception, the Company has had no material amount of
licensing or other fee income, and does not anticipate any such income for the
foreseeable future.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
During each of the nine-month periods ended September 30, 1999 and 1998,
the Company had no revenues, except for approximately $1.0 million and $1.6
million in interest income, respectively. Operating expenses for those periods
were approximately $8.6 million and $9.6 million, respectively. The decrease in
operating expenses is primarily attributable to a decrease in research and
development expenses related to the Combretastatin technology, and the closing
down of the Lund office. This decrease is a function of the timing of certain
research and development projects and is not necessarily indicative of any
future research and development expenses. Research and development expenses for
the nine-month period ended September 30, 1999 decreased to approximately $6.5
million from approximately $7.5 million for the comparable 1998 period. SARs
previously granted by the Company to certain clinical investigators and
consultants affect the research and development expenses with a charge for
financial reporting in reporting periods when the market value per share of
Common Stock increases. Because the market value of the Company's Common Stock
at September 30, 1999 was less than the market value on December 31, 1998, and
the market value of the Company's Common Stock at September 30, 1998 was less
than the market value on December 31, 1997, the charge previously recorded for
financial reporting purposes was reduced for the nine months ended September 30,
1999 and 1998 by approximately $3,000 and $512,000, respectively. Without giving
effect to such credit, research and development expenses for the nine months
ended September 30, 1999 decreased by approximately $1,517,000, compared to the
comparable 1998 period. This decrease is primarily a result of a decrease in
expenditures as described above. Generally, the Company makes payments to its
clinical investigators if and when certain predetermined milestones in its
clinical trials are reached, rather than on a fixed quarterly or monthly basis.
As a result of the foregoing and the existence of outstanding SARs, research and
7
<PAGE>
development expenses have fluctuated, and are expected to continue to fluctuate,
from quarter to quarter. General and administrative expenses for the nine-month
period ended September 30, 1999 amounted to approximately $2.1 million compared
to $2.1 million for the comparable 1998 period.
LIQUIDITY AND CAPITAL RESOURCES
OXiGENE has experienced net losses and negative cash flow from operations
each year since its inception and, as of September 30, 1999, had a deficit
during the development stage of approximately $44.5 million. The Company expects
to incur substantial additional expenses, resulting in significant losses, over
at least the next several years due to, among other factors, its continuing
clinical trials and anticipated research and development activities. To date,
the Company has financed its operations principally through net proceeds it has
received from private and public equity financing.
The Company had cash and cash equivalents of approximately $23.8 million at
September 30, 1999, compared to approximately $31.8 million at December 31,
1998. The decrease in cash and cash equivalents is primarily a result of the
cash being used to finance the Company's operating activities. During the nine
months ended September 30, 1999, the Company received approximately $0.1 million
upon the exercise of outstanding options, warrants and SARs.
OXiGENE's policy is to contain its fixed expenditures by maintaining a
relatively small number of employees and relying as much as possible on outside
services for its research, development, preclinical testing and clinical trials.
The Company maintains small offices in Stockholm, Sweden (executive offices and
investor relations), and in Boston, Massachusetts (for drug development and
clinical trials). In connection with the termination of certain of its clinical
trials, the Company's Lund, Sweden, office was closed in the third quarter of
1999. The Company has an agreement with ILEX (TM) Oncology Inc., a contract
research organization in San Antonio, Texas ("ILEX"), pursuant to which ILEX
performs contract research services and clinical trials for the Company in
connection with the preclinical and clinical testing of compounds under
development by the Company, particularly Declopramide, former Oxi-104 and
Combretastatin. Through September 30, 1999, the Company has paid ILEX
approximately $6.4 million of which approximately $0.7 million was paid in the
nine-month period ended September 30, 1999. The amounts paid to ILEX have
fluctuated, and are expected to continue to fluctuate, from time to time.
8
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The Company anticipates that its cash and cash equivalents as of September
30, 1999, should be sufficient to satisfy the Company's projected cash
requirements for approximately 24 months. However, working capital and capital
requirements may vary materially from those now planned due to numerous factors
including, but not limited to, the progress with the preclinical testing and
clinical trials; progress of the Company's research and development programs;
the time and costs required to obtain regulatory approvals; the resources the
Company devotes to manufacturing methods and advanced technologies; the ability
of the Company to obtain collaborative or licensing arrangements; the costs of
filing, prosecuting and, if necessary, enforcing patent claims; the cost of
commercializing activities and arrangements; and the demand for its products if
and when approved. The Company anticipates that it will have to seek substantial
additional private or public financing or enter into collaborative arrangements
with one or more third parties to complete the development of any products or
bring products to market. There can be no assurance that additional financing
will be available on acceptable terms, if at all. The Company had no material
commitments for capital expenditures as of September 30, 1999.
TAX MATTERS
As of December 31, 1998, the Company had net operating loss carry forwards
of approximately $49.0 million for U.S. and foreign income tax purposes, of
which $26.6 million expires for U.S. purposes through 2018. The utilization of
approximately $2.5 million of such U.S. net operating losses is subject to an
annual limitation, pursuant to Section 382 of the U.S. Internal Revenue Code, of
approximately $350,000.
IMPACT OF YEAR 2000
The Company's internal computer information system will be Year 2000
compliant before year end. These systems consist only of standard software from
established and recognized providers. Any new software purchases will be Year
2000 compliant
The Company's Year 2000 issues and potential business interruptions, costs
damages or losses related thereto are primarily dependent upon the Year 2000
compliance of third parties. These third parties consist mainly of leading
research organizations. The Company has no reason to believe that these third
parties will not be Year 2000 compliant. However, the Company is in the process
of reviewing its third party relationship in order to assess and address Year
2000 issues with respect to these third parties.
The costs associated with the Company's Year 2000 compliance have been
nominal, and the Company believes that the remaining costs will be minimal and
will not have a material adverse effect on its financial condition or results of
operations.
The Company intends to develop a contingency plan to be able to react to
any Year 2000 problems should they arise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's cash and cash equivalents are maintained primarily in US
dollar accounts and amounts payable for research and development to research
organizations are contracted in US dollars. Accordingly, the Company's exposure
to foreign currency risk is limited because its transactions are primarily based
in US dollars. The Company does not have any other exposure to market risk. The
Company will develop policies and procedures to manage market risk in the future
as circumstances may require.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed in the Company's Quarterly Report on Form 10-Q for
the second quarter of 1999, two former employees have charged, among other
things, that their employment was terminated because of their sex, and have
instituted legal action at the state level. The Company believes their claims
are not meritorious; the Company has controverted their claims and is vigorously
defending these matters.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
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ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibit is filed as part of this Quarterly Report on
Form 10-Q:
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the third quarter of 1999.
11
<PAGE>
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.
OXiGENE, INC.
Date: November 12, 1999 /s/ Bo Haglund
------------------------ -------------------------------------------
Bo Haglund
Chief Financial Officer
12
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OXiGENE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1999
EXHIBITS
Exhibit
Number Description
- ------ -----------
27.1 Financial data schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 23,841
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,648
<PP&E> 228
<DEPRECIATION> (117)
<TOTAL-ASSETS> 24,839
<CURRENT-LIABILITIES> 1,711
<BONDS> 0
0
0
<COMMON> 103
<OTHER-SE> 23,025
<TOTAL-LIABILITY-AND-EQUITY> 23,128
<SALES> 0
<TOTAL-REVENUES> 1,024
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,560
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,536)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,536)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,536)
<EPS-BASIC> (0.74)
<EPS-DILUTED> (0.74)
</TABLE>
