FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File No. 0-21990
OXiGENE, INC.
(Exact name of registrant as specified in its charter)
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Delaware 13-3679168
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(State or other (I.R.S. employer
jurisdiction of identification number)
incorporation or
organization)
One Copley Place, Suite 602, Boston, MA 02116
(Address of principal executive offices)
(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
Title of Each Class
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. [ ]
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 19, 1999 was $83,573,736, based on
the closing price of $8.875 on that date.
As of March 19, 1999, the aggregate number of outstanding shares of
Common Stock of the registrant was 10,207,049.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Proxy Statement for the Annual Meeting of Stockholders,
scheduled to be held on June 3, 1999, is incorporated by reference to Part III
(Items 10, 11, 12 and 13) of this Form 10-K.
<PAGE>
SAFE HARBOR FOR FORWARDLOOKING STATEMENTS UNDER
THE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, this Annual
Report on Form 10-K ("Annual Report") contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements involve known and unknown risks and uncertainties that may cause the
Company's actual results or outcomes to be materially different from those
anticipated and discussed herein. Further, the Company operates in an industry
sector where securities values may be volatile and may be influenced by
regulatory and other factors beyond the Company's control. Important factors
that the Company believes may cause such differences are discussed in the "Risk
Factors" section of this Annual Report and in the cautionary statements
accompanying the forward-looking statements in this Annual Report. In assessing
forward-looking statements contained herein, readers are urged to read carefully
all Risk Factors and cautionary statements contained in this Annual Report.
PART I
1. BUSINESS.
Introduction
OXiGENE, Inc. ("OXiGENE" or the "Company") is an international
biopharmaceutical company engaged principally in research into and the
development of products for use in the treatment of cancer. Historically, the
Company's activities have been directed primarily towards products designed to
complement and enhance the clinical efficacy of radiation and chemotherapy,
which are the most common and traditional forms of non-surgical cancer
treatment. Recently, however, the Company has begun to investigate certain of
its developmental stage products for applications as direct cancer treatment
agents, anti-inflammatory agents or in the treatment of fungal or other
infectious diseases, as well as for DNA repair measurement and stimulation.
Currently, OXiGENE has in various stages of clinical development therapeutic
product candidates that derive from three principal technology platforms.
The Combretastatin Platform. The Company's primary technology
platform presently involves Combretastatin, a proprietary small molecule
anti-tumor vascular targeting agent that destroys the existing blood vessels
leading to and within a tumor, thereby stopping the growth of the tumor,
shrinking it and preventing it from metastasizing. Combretastatin targets the
inner areas and center of the tumor, which are not otherwise readily reached by
chemotherapeutic agents or radiation, and is expected thereby also to enhance
the efficacy of those forms of treatment. Ultimately, the Company expects to
develop a Combretastatin - based product that will cause the targeted tumors to
disappear, acting either alone or in directly-delivered-combination with other
chemotherapeutic agents or radiation.
Combretastatin acts on proliferating blood vessels found primarily
in tumors, leaving normal blood vessels unaffected. Combretastatin is not an
anti-angiogenesis product. Products that are developed as anti-angiogenesis
agents involve a different mode of action; they attempt to prevent the formation
of new tumor blood vessels, not destroying existing ones. The Company believes
that anti-angiogenesis products, if successful, can prevent the growth of, but
(unlike Combretastatin) do not destroy, existing tumors, thereby requiring
continuous treatment to prevent continued tumor growth and metastisization.
Combretastatins are a family of naturally occurring, highly toxic
substances, of which OXiGENE's prototype is Combretastatin A-4 prodrug.
Combretastatin A-4 prodrug is an inactive synthetic derivative that becomes
activated, and thereupon becomes toxic, when it contacts a tumor's blood vessels
and cells. Following its activation, Combretastatin shuts off tumor blood flow,
first by occluding the tumor blood vessels (within several minutes after
administration of the drug) and subsequently (within several hours) through a
process of programmed cell death, which is known as apoptosis. These processes,
which occur as a result of Combretastatin binding to and inactivating the tumor
blood vessels and cells, cytoskeletal protein, tubulin, interrupt the blood flow
that is critical to the survival and growth of tumors. The Company believes that
Combretastatin is the only known small molecule vascular targeting agent that
can occlude and cause the regression of tumor blood vessels.
Combretastatin, as developed by the Company, is a wholly synthetic,
water soluable product and is manufactured in a multi-step chemical process. The
Company believes that Combretastatin can be produced in commercial volumes at
reasonable cost.
Combretastatin was discovered by Dr. George R. Pettit, Regents
Professor of Chemistry at Arizona State University, who has granted the Company
an option to acquire an exclusive, world-wide, royalty-bearing license with
respect to the commercial rights to Combretastatin and is working with the
Company in connection with Combretastatin's development. Combretastatin has been
successfully tested in vitro and in vivo in laboratories in the United States
and Europe. It is currently undergoing Phase I/II clinical testing in the United
States and the United Kingdom. Completion of those tests is expected at various
times before the end of 1999. The Company is engaged in preliminary discussions
with large international pharmaceutical companies regarding possible
collaborative arrangements for the completion of the development, and the
commencement of the manufacturing and marketing, of Combretastatin. There can be
no assurance that any agreements will result from those discussions.
The Declopramide Platform. Declopramide is a DNA repair inhibitor
drug that makes tumors more susceptible to damage by radiation or chemotherapy,
by inducing apoptosis and inhibiting NF-k[Beta]. Hence, it enhances the
efficasies of those traditional forms of cancer treatment. Declopramide is the
third generation of drugs that stem from the Company's initial technology, and
is based on the Company's proprietary knowledge of the processes by which
certain enzymes repair damaged DNA sites. That repair function is essential to a
cell's survival, including tumor cells that have been damaged as a result of the
toxic effects of chemotherapy or radiation. In current Phase I/II clinical
studies in the United States, the Company has found that Declopramide, when
administered in combination with chemotherapeutic agents, has not exhibited any
of the central nervous system (CNS) side effects that were experienced in
connection with the Company's previous formulations, which have been abandoned.
The current Phase I/II study is expected to be completed by the end of 1999.
The Cordycepin Platform. Cordycepin is a drug that inhibits DNA
replication, a process that is required for cancer cells to reproduce. The
Company believes that Cordycepin may be efficacious in treating patients with
TdT- positive acute lymphoblastic leukemia (approximately half of all patients
having acute lymphobalstic leukemia). The Company believes there are only
limited commercial opportunities for Cordycepin in its current state because it
must be administered in combination with a drug (Deoxycoformycin) that inhibits
an enzyme that, if left alone, would inactivate Cordycepin. The Company is
conducting its current clinical Phase I/II study of Cordycepin, however, in
order to test the drug's safety at various dosage levels and regimens. It is
expected that the study will be completed by the end of 1999. In current
pre-clinical studies, the Company is developing second generation Cordycepin
analogs that not only do not require the addition of Deoxycoformycin, but also
appear to work on both TdT- and TdT+ leukemia. If the results of the Phase I/II
Cordycepin/Deoxycoformycin clinical study are favorable, the Company expects to
enter Phase I/II clinical testing of the second generation Cordycepin analog by
the year 2000. The Company believes the second generation of Cordycepin will
have greater commercial applications.
General. The Company is a Delaware corporation that was originally
incorporated in New York in 1988. The Company maintains offices in the United
States at One Copley Place, Suite 602, Boston, MA 02116 (telephone:
617-536-9500; fax: 617-536-4700), and in Sweden at Blasieholmsgatan 2C, S-111 48
Stockholm, Sweden (telephone: 011-46-8-678-8605; fax: 011-46-8-678-8605).
Consistent with its policy of operating under tightly controlled budgetary
standards, the Company maintains a small employee and facilities base, with
certain administrative and scientific functions being performed in Sweden and
most other activities, including product development, regulatory oversight and
clinical testing, being overseen from the growing Boston office. Substantial
scientific activities are conducted pursuant to collaborative arrangements with
universities and regulatory and clinical testing functions are generally the
subject of contracts with third party, specialty enterprises. References in this
Annual Report to "OXiGENE" or the "Company" mean OXiGENE, Inc. and its
wholly-owned Swedish subsidiary OXiGENE Europe AB.
Product Development and Marketing Strategy
The Company's strategy is to develop innovative cancer therapeutics
in a cost-efficient manner. To that end, the Company has established
relationships with universities, research organizations and other institutions
in the field of oncology. The Company intends to further broaden these
relationships, rather than expand its in-house research, development and
clinical staff. The Company plans to market its products, if and when approved
for marketing, generally through strategic alliances or joint ventures with
unaffiliated pharmaceutical companies. To date, the Company has not entered into
any joint strategic alliances or ventures. While OXiGENE is likely to explore
licensing and development opportunities for its technologies with other
companies, there can be no assurance that the Company will be successful in
establishing and maintaining collaborative agreements or licensing arrangements;
that any collaborative partner will not be pursuing alternative technologies or
developing alternative compounds either on its own or in collaboration with
others, directed at the same diseases as those involved in its collaborative
arrangements with the Company; that any such collaborative partners will devote
resources to the Company's technologies or compounds on a basis favorable to the
Company; that any such arrangements will be on terms favorable to OXiGENE; or
that, if established, such future licensees will be successful in
commercializing products. Finally, if the Company's collaboration arrangements
are terminated prior to their expiration or if the other parties to such
arrangements fail to adequately perform, there can be no assurance that
submission of product candidates for regulatory approval will not be delayed.
See "--Research and Development and Collaborative Arrangements."
Currently, the Company has collaborative arrangements with a number
of academic and other research institutions and organizations in the United
States and Europe, including: the University of Lund in Lund, Sweden; Boston
Medical Center in Boston, Massachusetts; the Swedish Cancer Society in
Stockholm, Sweden; the University of Kentucky Research Foundation in Lexington,
Kentucky; Aarhus University in Aarhus, Denmark; Gray Laboratory in Middlesex,
United Kingdom; Georgetown University in Washington, D.C.; University of Florida
in Gainesville, Florida; The University of Texas M.D. Anderson Cancer Center in
Houston, Texas; Baylor University in Waco, Texas; and Arizona State University
in Tempe, Arizona. See "--Research and Development and Collaborative
Arrangements."
Technology Overview
OXiGENE has therapeutic product candidates in clinical development
comprising three technology platforms: Combretastatin, Declopramide (formerly
Oxi-104), the third generation of the Company's N-substituted benzamide agents;
and Cordycepin. The Company has also identified DNA repair measurement and DNA
repair stimulation as potential other applications of its proprietary DNA repair
technology.
Combretastatin: An Anti-Tumor Vascular Targeting Agent.
Combretastatins are organic small molecules found naturally in the bark of the
African Bush Willow, the Combretum Caffrum. They were discovered and isolated a
decade ago by George R. Pettit, Ph.D. of Arizona State University ("ASU"). In
May 1997, OXiGENE and ASU entered into an agreement to develop and test
Combretastatin. The ASU agreement also grants OXiGENE an option to acquire an
exclusive, worldwide, royalty-bearing license with respect to the commercial
rights to the Combretastatins.
OXiGENE's lead Combretastatin-family therapeutic candidate,
Combretastatin A-4 prodrug (Combretastatin), is a derivative of the natural
Combretastatin A-4 subtype found by Dr. Pettit. It is a member of a relatively
new class of drugs--anti-tumor vascular targeting agents--that shrink solid
tumors by selectively targeting and destroying existing tumor-specific blood
vessels. Phase I studies of Combretastatin have started in the U.S. and Europe
in patients with solid tumors.
Anti-tumor vascular targeting is a cancer therapy that departs
significantly from other current approaches to treating cancer. In contrast to
traditional methods involving a direct attack on cancer cells, anti-tumor
vascular targeting agents attack a tumor's life support system, a network of
existing and emerging blood vessels. Preclinical studies have shown that the use
of these therapies can cause a tumor to shrink and ultimately disappear.
According to the Cancer Research Campaign, a cancer organization in
the United Kingdom, nearly 90 percent of all cancers--more than 200 types--are
solid tumors and, therefore, potential candidates for anti-tumor vascular
targeting. Despite advances in treatment with surgery, radiation and
chemotherapy, serious problems with those conventional treatments persist. Many
solid tumors remain incurable, especially when the tumor has metastasized or is
a large mass at the time of diagnosis. Also, and importantly, chemotherapy and
radiation treatment damage healthy cells along with cancerous cells, resulting
in serious side effects for patients and, in many instances, eventually induce
drug resistance in the tumor.
While angiogenesis inhibitors (anti-angiogenesis agents) and
anti-tumor vascular targeting agents, such as Combretastatin, both target a
tumor's blood vessels, they differ in their approach and in their end result.
With angiogenesis inhibition, the aim is to prevent tumor growth by inhibiting
the formation of tumor-specific blood vessels that feed and sustain the tumor.
Anti-tumor vascular targeting agents on the other hand aim to destroy tumors by
selectively attacking and destroying their existing blood vessels, creating a
rapid and irreversible shutdown of these blood vessels. Such an effect is not
observed with anti-angiogenesis drugs.
The Company believes that shutting off a tumor's blood supply is an
efficient therapeutic strategy. Whereas most cancer drugs attack individual
cancer cells, Combretastatin can destroy many tumor cells simultaneously,
thereby preventing the tumors from metastasizing. Moreover, this result is
achieved with relatively small doses, as a result of which Combretastatin may
avoid side effects that accompany many other cancer drugs.
Declopramide, A DNA Repair Inhibitor. DNA repair inhibitors or
sensitizers are products that are intended to make cancer cells more receptive
to the conventional cancer therapies of radiation and chemotherapy.
Declopramide, OXiGENE's DNA repair inhibitor, is in Phase I clinical studies in
the U.S. in patients with advanced-stage cancers. These Phase I studies combine
Declopramide with 5-FU (5-fluorouracil) or cisplatin, both traditional
chemotherapeutic agents.
OXiGENE's proprietary technology is based on the relationship
between DNA repair and DNA damage as affected by both the operation of Poly (ADP
Ribose) Polymerase ("PARP") (a DNA repair enzyme also known and formerly
referred to as Adenosine Diphosphate Ribosyl Transferase or ADPRT) and cell
replication. Normal cells in the human body are constantly subjected to external
assault from harmful environmental agents such as the sun's ultraviolet rays,
toxic chemicals in the diet and carcinogens such as smoke that are absorbed into
the body, as well as from internal assault from metabolic byproducts produced
within the cell. These assaults cause damage, or genetic lesions, to the DNA
molecules, which contain the genetic blueprint (instructions) for the cell. The
cell's structural integrity is dependent on its ability to read and translate
those blueprints. Repairing DNA damage is, therefore, essential to a cell's
survival. Consequently, the body attempts to counter this constant assault
through its genetic mechanisms that monitor genetic lesions to a cell's DNA
molecules and to repair them enzymatically.
Repair enzymes move constantly along the DNA molecule seeking out
genetic lesions and attempting to repair them through a process called "excision
repair." One of these enzymes is PARP. It identifies a genetic lesion, attaches
to the damaged site and engages other enzymes to help in the repair process. The
injured portion of the DNA molecule is then removed by enzymatic digestion and
additional enzymes repair the damage to that part of the molecule. As DNA is a
double helix composed of diametrically opposed strands, the repair enzymes can
use the unaffected strand of nucleotides (the class of nucleic acid compounds
from which genes are constructed) as a template for determining the correct
nucleotides to serve as replacement for the injured portion that has been
removed. The process is completed by the repair enzymes, which produce the
"complementary twin" and implant it in the previously removed damaged section.
The excision repair process is selective in that it concentrates on
active regions of the DNA helix, i.e., those containing the genes that are most
vital to the cell. Thus, when the rate of damage to a cell is more than the
repair system can handle, generally the repair mechanism first repairs lesions
in a cell that occur in frequently read genes, which are the genes that are
important to a cell's day-to-day survival. Damage occurring in inactive or
structural portions of the DNA that are not immediately important to a cell's
survival is repaired only as time permits, if at all. Therefore, OXiGENE
believes that cells become malignant or age by the accumulation of genetic
lesions that the DNA repair system has failed to correct properly or in a timely
manner.
Traditionally, cancer treatment has been based on the theory that
stopping uncontrolled cell division may halt or slow tumor growth. Both
radiation and chemotherapy increase DNA damage in tumorous cells, causing
toxicity and cell death. Tumorous cells are known to die by either of two
mechanisms, necrosis (death with cell replication) and apoptosis (death without
cell replication), or both. Based on recent scientific evidence, the Company
believes that lower doses of radiation or chemotherapy cause tumor cell death
primarily by apoptosis, whereas at higher doses necrotic death is
proportionately more prevalent. Apoptosis is initiated by cells as an
alternative pathway to block cell replication and induce death. OXiGENE's DNA
repair inhibitors are based on N-substituted benzamides, which, the Company
believes, cause tumor toxicity primarily by apoptosis. Apoptosis causes cell
death without the many toxic side effects associated with necrosis and enzymatic
digestion. This is an important basis for OXiGENE's product research and
development since its goal is to create drugs to counteract cancer that are also
less hazardous to the individual than those used today.
The Company's drugs are based on metoclopramide, a compound in the
family of N-substituted benzamides. N-substituted benzamides, together with the
family of nicotinamide compounds, have been developed into drugs for many
different medical indications, some of which have been used for more than 30
years. The Company's recent research has focused on the mechanism of action of
these compounds and their possible regulation of PARP activity and, thereby,
regulation of the processes of DNA repair and apoptosis. Based on its
preclinical studies to date, OXiGENE believes that DNA damage, such as that
induced by radiation and chemotherapy, activates the nuclear transcription
factor kappa B ("NF-kB"), which in turn may modulate PARP activity and activate
several other genes that protect cells against apoptosis-induced cytotoxicity
and induce inflammatory cytokine product. Therefore, the Company believes that a
drug that can inhibit NF-kB, such as Declopramide, may be able to induce tumor
killing by apoptosis and inhibit inflammatory responses, which would sensitize
DNA-damaging radio- and chemotherapies and at the same time inhibit
inflammation, a contributing factor to unwanted side effects, particularly to
the central nervous system.
Additional Potential Products Based on DNA Repair Technology. The
Company believes its knowledge of DNA repair activity may also be applied to
monitor or screen individuals for susceptibility to cancer, immune deficiencies
and chemotherapeutic drug resistance,.
DNA Repair Measurement. Studies have shown
that DNA repair capacity may vary from one individual to another. OXiGENE has
quantified individual levels of PARP as a DNA repair estimate. Pursuant to an
agreement, dated October 7, 1991, with Preventive Medicine Institute, a
not-for-profit corporation affiliated with the Strang Cancer Prevention Center
in New York, New York, the Company holds an exclusive worldwide license, which
expires in 2011, to certain patents and related know-how covering a PARP
diagnostic test that measures PARP levels in white blood cells. The Company
believes that a simple and inexpensive serum-based test may give a reliable
surrogate indication of the level of PARP in white blood cells. OXiGENE has been
allowed a U.S. patent, with respect to such a test.
DNA Repair Stimulation. OXiGENE believes that
knowledge of the body's metabolic function and its related process known as
"oxidative stress," in which a small number of metabolic "mistakes" occur and
cause the formation of certain intermediates that damage DNA, and knowledge of
the body's inflammatory response that causes a decline in DNA repair, may lead
to the development of drugs that may stimulate DNA repair. Drugs of that type,
the Company believes, could reduce a person's susceptibility to cancer and
certain diseases associated with the aging process by increasing net DNA repair
capacity.
Although the Company has conducted extensive preclinical cell and
animal research into, and is currently in the early stages of clinical testing
of, assays and drugs in each of the areas of DNA repair measurement and DNA
repair stimulation, there can be no assurance that any assays or drugs related
to either of these areas can or will be developed by the Company.
Cordycepin: An Anti-Leukemic Drug. In May, 1997, OXiGENE, in
collaboration with the National Cancer Institute and Boston Medical Center
(BMC), an affiliate of Boston University, started a Phase I/II study of
Cordycepin in patients with acute lymphoid leukemia. OXiGENE signed an agreement
with BMC that grants the Company an option to acquire an exclusive worldwide
royalty-bearing license for Cordycepin.
Acute lymphoblastic leukemia is a disease that continues to have
devastating outcomes in children and adults. Although significant advances have
been made in treating the childhood form of this acute leukemia in the past
three decades, with cure rates now at 75 percent, there is little prospect for
curing the remaining 25 percent even with the best available standard therapy.
In adults with acute lymphoblastic leukemia, using the most intensive current
treatment regimens, the overall survival rate at three years is 50 percent. In
the lymphoblastic variant of chronic myelogenous leukemia, the possibility of
cure is nonexistent unless the patient is among the minority for whom a bone
marrow transplant is useful.
Cordycepin was discovered to have antileukemic properties in studies
conducted at Boston University that were primarily directed at investigating how
certain anti-HIV drugs worked. Researchers found that one anti-HIV drug
contained Cordycepin as a minor contaminant. When tested against leukemic cells
from patients with acute lymphoblastic leukemia, Cordycepin proved to be very
toxic to these cells while sparing normal cells.
Cordycepin functions as a nucleoside analog having the ability to
confuse the DNA synthetic enzyme, terminal deosynucleotidyl transferase (TdT),
into thinking it is a normal precursor of DNA. Hence, when Cordycepin is
introduced to cells undergoing DNA replication, it produces a defective DNA that
then induces cancer cells to undergo apoptosis (programmed cell death) and
necrosis. The TdT enzyme is found in particular types of childhood and adult
leukemia and lymphoma. It is these TdT-positive leukemia and lymphoma cells that
are responsive to Cordycepin. The Company believes that newer Cordycepin analogs
it has in preclinical evaluation may kill all types of leukemia and lymphoma
cells, whether TdT-positive or TdT-negative.
TdT is also found in certain pathogenic parasites and fungi. In
preclinical studies, Cordycepin was shown to kill such disease organisms, in
particular pathogenic fungi. Most important, OXiGENE has confirmed this
antifungal property of Cordycepin in a murine (mouse) model of invasive
candidiasis, a disease (candida) caused by yeast or fungi. Certain strains of
candida are resistant to the commonly used antibiotic flucanozole. The Company
believes that Cordycepin may therefore, have applicability for both cancer and
infectious disease markets.
OXiGENE's Clinical Trial Program
Combretastatin A-4 Prodrug. In May 1997, OXiGENE and Arizona State
University entered into an agreement to develop and test Combretastatins.
Combretastatins are a family of naturally-occurring anti-mitotic, cytotoxic
molecules, that were identified and isolated by Dr. George R. Pettit, Regents
Professor of Chemistry, and his colleagues at ASU, from the South African
bushwillow tree. Combretastatin A4 Prodrug, the Company's lead therapeutic
candidate of the family, is a wholly synthetic, water soluble manufactured
molecule. Combretastatin A4 Prodrug is believed to specifically attack existing
tumor vasculature by first occluding blood flow to and from the tumor and later,
cause death and regression of the tumor blood vessels. Vasculature is critical
to both the survival of a solid tumor mass and its continued growth and,
therefore, represent a key target in novel cancer treatment. Loss of these tumor
specific blood vessels ultimately results in the death of the tumor by nutrient
and oxygen deprivation, as well as a loss of the ability of tumors to
metastacize. OXiGENE has an option to acquire an exclusive, world-wide,
royalty-bearing license with respect to the commercial rights to the
Combretastatins. The Company began testing Combretastatin A4 Prodrug in three
Phase I/II dose escalation clinical trials during the fourth quarter 1998 and
the first quarter 1999. Each of these clinical trials examine the safety,
pharmacokinetics and mode of action of Combretastatin A4 Prodrug using three
different dose regimens in patients with advanced solid cancers. All three
trials are expected to be completed by the fourth quarter of 1999.
DNA Repair Inhibiting Products. OXiGENE has discovered a third
generation compound, Declopramide, in the family of N-substituted benzamides
that it believes should be capable of inhibiting PARP-modulated DNA repair and
enhancing the ability of radiation/chemotherapy to act on cancer cells. OXiGENE
believes that tumor cells exhibiting increased DNA repair activity, as compared
to normal cells, renders them more sensitive to DNA repair inhibition and death
by apoptosis. The Company believes, on the basis of its research activities to
date, that Declopramide, should act without producing significant toxic side
effects.
The current emphasis of the Company's clinical trial program in the
DNA repair inhibitor platform is on evaluating the safety and efficacy of
Declopramide in combination with chemotherapy and radiation. Currently, two
Phase I/II dose escalation clinical trials are on-going testing Declopramide
with radiation in combination with either 5FU/Leucovorin or cisplatin in
patients with advanced cancer. Previously, in the Company's clinical trials
examining it's first and second generation N-substituted benzamides (Sensamidetm
and Neu-Sensamidetm, respectively), a significant number of patients did not
complete treatment due to central nervous system (CNS) side effects. These CNS
side effects (sedation, anxiety, restlessness and depression) have not been
observed in either of the Company's two clinical trials with Declopramide to
date. Both trials are expected to be completed by the fourth quarter of 1999.
Cordycepin/Pentostatin. In December 1996, the Company entered into a
clinical trial and sponsored research agreement with BMC, an affiliate of Boston
University Medical Center, pursuant to which BMC is conducting a Phase I
clinical study of 3'-deoxyadenosine (cordycepin) and 2'-deoxycoformycin
(pentostatin) in patients with refractory TdT-positive acute lymphoid leukemia.
The Phase I study commenced in the first quarter of 1997 in collaboration with
Boston University and the National Cancer Institute and is ongoing. Depending
upon the results of the study and the results of the Company's current
preclinical study dealing with the second generation of Cordycepin analogs, the
Company may conduct additional Phase I/II studies of Cordycepin in 2000 in order
to develop a drug that may have potential commercial acceptability at levels
deemed satisfactory by the Company (see "Business-Introduction").
General. OXiGENE's products are in an early stage of development. In
order to achieve profitable operations on a continuing basis, the Company, alone
or in collaboration with others, must successfully develop, manufacture,
introduce and market its products. The time frame necessary to achieve market
success for any individual product is long and uncertain. See "--Product
Development and Regulatory Processes." The products currently under development
by the Company will require significant additional research and development and
extensive preclinical and clinical testing prior to application for commercial
use. A number of companies in the biotechnology and pharmaceutical industries
have suffered significant setbacks in clinical trials, even after showing
promising results in earlier studies or trials. Although the Company has
obtained favorable results to date in preclinical studies and clinical trials of
certain of its products, such results may not be indicative of results that will
ultimately be obtained in or throughout such clinical trials, and there can be
no assurance that clinical testing will show any of the Company's products to be
safe or efficacious. Additionally, there can be no assurance that the Company
will not encounter problems in its clinical trials that will cause the Company
to delay, suspend or terminate those clinical trials. There can also be no
assurance that the Company's research or product development efforts or those of
its collaborative partners will be successfully completed, that any compounds
currently under development by the Company will be successfully developed into
drugs, or that any products will receive regulatory approval on a timely basis,
if at all. If any such problems occur, the Company could be materially and
adversely affected.
Product Development and Regulatory Processes
Research initially involves optimization of leading chemical
structures into leading compounds. Once a leading compound has been identified,
the preclinical phase commences. In that phase, certain selected compounds are
tested for therapeutic potential in a number of animal models and undergo
laboratory testing, with the objective of characterizing the investigated
compounds in relation to existing treatment and getting a first indication of
the compounds' development potential. Successful preclinical work may lead to
the filing of an Investigational New Drug application ("IND"), or a foreign
equivalent, with the relevant national regulatory authorities. The IND is a
permission to administer the compound to humans in clinical trials. Several
years of research and testing generally are necessary before an IND may be
obtained and clinical development may commence. There can be no certainty that
submission of an IND will result in FDA authorization to commence clinical
trials or that authorization of a particular phase of a clinical trial program
will result in authorization of other phases or that the completion of any
clinical trials will result in FDA approval.
The clinical development of new drugs is subject to approval by the
health authorities in individual countries, which have broad discretionary
powers. For example, the FDA reviews the results of all clinical studies and can
discontinue a trial at any time if there is a significant safety issue, or if
there is convincing evidence that the therapy is not effective for the chosen
indication. The requirements regarding the duration of a clinical phase vary
considerably among countries. For life threatening and severely debilitating
conditions where products provide meaningful therapeutic benefit over existing
treatments or where no satisfactory treatment currently exists, however, it is
possible to accelerate the development process in the United States through the
"Accelerated Drug Approval Program." In other countries, the trial process for
drugs directed toward life threatening diseases is shortened by lower
requirements regarding the patient sample size required to be met in the trials.
The time periods mentioned below are indications only and may vary
and be materially longer. Upon successful completion of the development program,
a New Drug Application ("NDA"), or a foreign equivalent, may be submitted to the
authorities, and, if approved, the product may then be marketed upon the terms
and conditions of such approval. Submission of an NDA does not assure that the
FDA will approve a product for manufacturing and marketing. Clinical trials are
typically conducted in three sequential phases, but the phases may overlap.
Phase I. The purpose of a Phase I study is to evaluate the toxicity
of the tested compound and to establish how the tested compound is tolerated and
decomposed in the human body. A Phase I clinical trial traditionally tests the
compound for safety (adverse effects), dosage tolerance, metabolism,
distribution, excretion and pharmacodynamics in a small group of healthy
individuals. A Phase I may last up to one year.
Phase II. A Phase II study marks the beginning of clinical trials on
a limited number of patients to (i) determine the efficacy of the compound for
specific indications, (ii) determine dosage tolerance and optimal dosage and
(iii) identify possible adverse effects and safety risks. The trials also seek
to establish the most effective route of administration. Trials are conducted on
a larger, but still limited number of carefully monitored patients. A Phase II
may last up to two and one-half years.
Phase III. If preliminary evidence suggesting effectiveness has been
obtained during Phase II evaluations and the compound is found to have an
acceptable safety profile in Phase II evaluations, a Phase III trial may be
undertaken. A Phase III is an extensive clinical trial in a large number of
patients. The number of patients in a Phase III trial program depends to a great
extent on the clinical indications that the drug addresses. Trials are often
double-blinded and involve a detailed statistical evaluation of test results.
The compound is tested against placebo and existing treatment, if such treatment
is available. The product is manufactured in commercial quantities (batch
manufacturing) and tested for shelf life, or stability, and further evaluation
of the clinical efficacy and safety of the compound takes place. Phase III may
last several years and is the most time-consuming and expensive part of a
clinical trial program. There can be no assurance that Phase I, Phase II or
Phase III testing will be completed successfully within any specified time
period, if at all, with respect to any of the Company's products.
OXiGENE, like other pharmaceutical companies, will be subject to
strict controls covering the manufacture, labeling, supply and marketing of any
products it may develop and market. The most important regulation is the
requirement to obtain and maintain regulatory approval of a product from the
relevant regulatory authority to enable that product to be marketed in a given
country. Further, OXiGENE is subject to strict controls over clinical trials of
its potential pharmaceutical products.
The regulatory authorities in each country may impose their own
requirements and may refuse to grant, or may require additional data before
granting, an approval even though the relevant product has been approved by
another authority. The United States and European Union ("EU") countries have
very high standards of technical appraisal and, consequently, in most cases a
lengthy approval process for pharmaceutical products. The time required to
obtain such approval in particular countries varies, but generally takes from
six months to several years, if at all, from the date of application, depending
upon the degree of control exercised by the regulatory authority, the duration
of its review procedures and the nature of the product. The trend in recent
years has been towards stricter regulation and higher standards.
In the United States, the primary regulatory authority is the FDA.
In addition to regulating clinical procedures and processes, the FDA
investigates and approves market applications for new pharmaceutical products
and is responsible for regulating the labeling, marketing and monitoring of all
such products, whether marketed or under investigation. Upon approval in the
United States, a drug may only be marketed for the approved indications in the
approved dosage forms and dosages. In addition to obtaining FDA approval for
each indication to be treated with each product, each domestic drug
manufacturing establishment must register with the FDA, list its drug products
with the FDA, comply with cGMP requirements and be subject to inspection by the
FDA. Foreign manufacturing establishments distributing drugs in the United
States also must comply with cGMP requirements and list their products and are
subject to periodic inspection by the FDA or by local authorities under
agreement with the FDA.
In Europe, the European Committee for Proprietary Medicinal Products
provides a mechanism for EU-member states to exchange information on all aspects
of product licensing and assesses license applications submitted under two
different procedures (the multistate and the high-tech concentration
procedures). The EU has established a European agency for the evaluation of
medical products, with both a centralized community procedure and a
decentralized procedure, the latter being based on the principle of mutual
recognition between the member states.
There can be no assurances that any of the Company's products will
ever obtain the governmental approvals necessary to permit commercial sales of
any of its products. Further, even if regulatory approval of a product is
obtained, such approval may entail limitations on the indicated uses for which
that product may be marketed.
Research and Development and Collaborative Arrangements
OXiGENE's research and development programs are generally pursued in
collaboration with academic and other institutions. Currently, the Company has
collaborative agreements and arrangements with a number of such institutions in
the United States and abroard, including the University of Lund (Lund, Sweden),
Boston Medical Center (Boston, Massachusetts), the University of Kentucky
Research Foundation (Lexington, Kentucky), the Danish Cancer Society (Aarhus,
Denmark), the Gray Laboratory Cancer Research Trust (Middlesex, United Kingdom),
Georgetown University (Washington D.C.), the University of Florida (Gainesville,
Florida), The University of Texas M.D. Anderson Cancer Center (Houston, Texas),
Baylor University (Waco, Texas) and Arizona State University (Tempe, Arizona).
The Company incurred approximately $10.4 million, $7.3 million and $4.8 million
in research and development expenses in the years ended December 31, 1998, 1997
and 1996, respectively. Substantially all of these amounts represent external
research and development expenditures.
Currently, the Company is not required to pay any royalties or
licensing fees for technology and products developed with financial assistance
from or at the facilities of such agencies and institutions, except for a 5%
gross royalty payable in respect of an exclusive worldwide license of the patent
covering the PARP diagnostic assay and certain costs related to the filing,
prosecuting and maintaining of patents and copyrights. Recently, however, the
Company has entered into agreements with a number of universities, particularly
in the United States, that may require payment of royalties in respect of
inventions made in the course of work performed pursuant to those agreements in
the event the Company exercises its option under those agreements to acquire an
exclusive, world-wide license. Generally, royalty rates are not fixed and will
be negotiated when and if the Company exercises its option to acquire a license.
There can be no assurance that such licensing negotiations will be concluded
successfully or that any royalties or fees will not be material as to their
amount.
Patents and Trade Secrets
To date, OXiGENE's principal products have been based on certain
previously known compounds. The Company anticipates that any products it
develops hereafter may include or be based on the same or other compounds owned
or produced by unaffiliated parties, as well as synthetic compounds it may
discover. Although the Company expects to seek patent protection for any
compounds it discovers, there is no assurance that any or all of them will be
subject to effective patent protection. Further, the development of regimens for
the administration of pharmaceuticals, which generally involve specifications
for the frequency, timing and amount of dosages, has been, and the Company
believes will continue to be, important to the Company's efforts, although those
processes, as such, may not be patentable.
Patent Protection. It is the Company's policy to seek patent
protection in the United States and in foreign countries. Primarily because of
differences among patent laws in various jurisdictions, the scope of, and hence
the protection afforded by, any patents OXiGENE may receive may vary from
jurisdiction to jurisdiction even though they relate essentially to the same
subject matter.
The patent position of firms in the Company's industry generally
involves highly complex legal and other issues, resulting in both an apparent
inconsistency regarding the breadth of claims allowed in United States patents
and general uncertainty as to their legal interpretation and enforceability.
Accordingly, there can be no assurance that patent applications owned by the
Company will result in patents being issued or that, if issued, the patents will
afford competitive protection.
Further, there can be no assurance that products or processes
developed by the Company will not be covered by third party patents, in which
case continued development and marketing of those products or processes could
require a license under such patents. There can be no assurance that if a legal
action were to be brought against the Company on the basis of any third party
patents, such action would be resolved in the Company's favor. Such an
unfavorable result against the Company could result in monetary damages and
injunctive relief. Further, even a favorable result could cause expenditure of
substantial monetary and other resources in connection with the Company's
defense against any such action.
Granted Patents and Pending Applications. The following is a brief
description of the Company's current patent position, both in the United States
and abroad. As U.S. patent applications are maintained in secrecy by the U.S.
Patent and Trademark Office until patents issue and because publication of
discoveries in the scientific or patent literature often lags behind actual
discoveries, OXiGENE cannot be certain that it was the first creator of
inventions covered by its pending applications or that it was the first to file
patent applications for those inventions.
As of March 29, 1999, the Company is the assignee of four granted
U.S. patents, seven pending U.S. patent applications, and of granted patents
and/or pending applications in other countries (and/or international
applications designating other countries) corresponding to three of the granted
U.S. patents and six of the pending U.S. applications. One of the pending U.S.
applications was filed in 1996; another is the national phase (entered in 1998)
of an international application based on a U.S. provisional application filed in
1995. Three of the pending U.S. applications were filed in 1997, of which one
(now allowed) is a continuation of an original U.S. application filed in 1994,
and two are based on a U.S. provisional application filed in 1996. Two of the
pending U.S. applications were filed in 1998, of which one is a
continuation-in-part of one of the two last-mentioned applications filed in
1997, and the other is based on a provisional application filed in 1997.
Specifically, the Company is the assignee of a U.S. patent, granted
April 20, 1993, for glutathione-s-transferase mu (an inherited enzyme) as a
measure of drug resistance, covering a test for resistance to nitrosoureas (a
class of chemotherapeutic agents). In addition, the Company is the assignee of a
U.S. patent, granted August 23, 1994, for tumor or cancer cell-killing therapy
(covering methods of using N-substituted benzamides as radio- and
chemosensitizers), and of granted patents in Australia, Canada, Europe
(designating 13 countries), Ireland, Israel, Japan, Mexico, Russia and South
Africa (as well as a pending application in Denmark) corresponding thereto. The
Company is also the assignee of two U.S. patents, both granted October 1, 1996,
for methods of administering and pharmaceutical formulations containing
N-substituted benzamides and/or acid addition salts thereof and for methods of
administering phenothiazines and/or acid addition salts thereof, and of a
granted South African patent and pending European and other foreign applications
corresponding to these two U.S. patents. The Company's pending U.S. applications
and international counterparts cover further methods of testing or treatment and
compositions, including methods of using the DeclopramideTM product.
Moreover, the Company is the exclusive licensee of a U.S. patent,
granted January 9, 1996, for a diagnostic test involving measurements related to
the cellular process of DNA repair and drug resistance, and is the exclusive
licensee of corresponding granted Canadian and European patents and a
corresponding pending Japanese patent application. The owner of the licensed
patents and application is Preventive Medicine Institute, a New York
not-for-profit corporation affiliated with the Strang Cancer Prevention Center
in New York, New York.
Trade Secrets and Technological Know-How. While the Company
generally has and will continue to pursue a policy of seeking patent protection
to preserve its proprietary technology, it also has and will continue to rely on
trade secrets, unpatented proprietary information and continuing technological
innovation to develop and maintain its competitive position. There can be no
assurance, however, that others will not independently develop substantially
equivalent proprietary information and technology or otherwise gain access to
such or equivalent trade secrets, proprietary information or technology or that
OXiGENE can meaningfully protect its rights to such secrets, proprietary
information and technology.
OXiGENE generally requires its employees and Scientific Advisory
Board members to enter into confidentiality agreements with the Company. Those
agreements provide that all confidential information developed or made known to
the individual during the course of the relationship is to be kept confidential
and not to be disclosed to third parties, except in specific circumstances.
There can be no assurance, however, that any such agreement will provide
meaningful protection for the Company's trade secrets, proprietary information
or technology in the event of unauthorized use or disclosure of such
information. Moreover, although the Company has confidentiality agreements with
the institutions (other than the University of Lund) that perform its research,
development, preclinical tests and clinical trials, the Company has no such
agreements with the employees of such institutions, and there can be no
assurance that these employees will abide by the terms of such agreements.
Employees
The Company's policy has been, and continues to be, to maintain a
relatively small number of executives and other employees and to rely as much as
possible on consultants and independent contractors for its research,
development, preclinical tests and clinical trials. As of March 19, 1999, the
Company had 20 full-time employees, of which 16 were engaged in research and
development and monitoring of clinical trials. Most of the Company's preclinical
tests and clinical trials are subcontracted and performed at the University of
Lund, Sweden, and at other European centers, with the assistance primarily of
ILEX Oncology Inc., a contract research organization in San Antonio, Texas.
Scientific Advisory Board and Clinical Trial Advisory Board
In November 1998, the Company determined to restructure its
Scientific Advisory Board, bifurcating its functions into two components:
scientific research and development and clinical trial planning and evaluation.
A newly-created Clinical Trial Advisory Board will assess and evaluate the
Company's clinical trial program. The restructured Scientific Advisory Board
will continue to discuss and evaluate the Company's research and development
projects. Members of both the Scientific Advisory Board and the Clinical Trial
Advisory Board will be independent of the Company and will have no involvement
with the Company other than serving on such board.
Some members of the Scientific Advisory Board and the Clinical Trial
Advisory Board receive cash compensation. Others have from time to time
received, and are expected to continue to receive, options to purchase shares of
Common Stock of the Company. All members are reimbursed for reasonable
out-of-pocket expenses.
The composition of the Scientific Advisory Board has not yet been
determined, except that it will continue to operate under the Chairmanship of
Professor Hans Wigzell.
Hans Wigzell, M.D., Ph.D., is Professor of Immunology at the
Karolinska Institute, Stockholm, Sweden, a well-known medical research institute
in Europe. Professor Wigzell is the chairman of OXiGENE's Scientific Advisory
Board and also serves as an advisor to the Company's Board of Directors. He has
for many years been a member of the Nobel committee for the prize in medicine,
of which he also has served as chairman. Professor Wigzell is currently a member
of the editorial board of several international medical journals and has
published more than 400 articles in the areas of tumor biology, immunology, cell
biology and infectious diseases.
The members of the Company's Clinical Trial Advisory Board are:
Hakan Mellstedt, M.D. Ph.D. is Professor of Experimental Oncology at
Uppsala University, Uppsala, Sweden, and Administrative Director of Cancer
Center Karolinska, Karolinska Institute, Stockholm, Sweden. He holds a position
as Chief Physician at the Department of Oncology, Academic Hospital, Uppsala,
and has specialist certificates in Oncology, Hematology and Internal Medicine.
He is the Chairman of the Swedish Society of Oncology. Professor Mellstedt is
currently a member of the Editorial Board of several international scientific
journals and has published more than 350 articles in the areas of hematology,
medical oncology, tumor immunology and the development of
immunotherapeutics/biotherapeutics in hematological malignancies as well as in
solid tumors. Professor Mellstedt is the Chairman of OXiGENE's Clinical Trial
Advisory Board.
Margaret A. Tempero, M.D. is Professor of Medicine at the Department
of Internal Medicine of the University of Nebraska Medical Center ("UNMC") and
Deputy Director of UNMC's Eppley Cancer Center. Professor Tempero is the
Principal Investigator for a number of studies in the areas of pancreatic cancer
and colon cancer. Professor Tempero currently serves on the Board of Directors
of the American Society of Clinical Oncology. She is the associate editor of
Cancer Research and serves on the editorial board of the Journal of Clinical
Oncology.
Jan B. Vermorken, M.D., Ph.D. is Professor of Oncology and head of
the Department of Medical Oncology of the University Hospital of the University
of Antwerp, Belgium. Professor Vermorken has held numerous functions with the
Dutch Cancer Society and the European Organization for Research on Treatment of
Cancer (EORTC), and currently is a member of EORTC's Early Clinical Studies
Group and the Subcommittee for Chemotherapy of EORTC's Head and Neck Cancer
Cooperative Group. Professor Vermorken has lectured extensively in the area of
gynecological oncology and currently serves of the Editorial Board of the
International Journal of Gynecological Oncology.
Lee S. Rosen, M.D. is Adjunct Assistant Professor at UCLA's
Department of Medicine, Division of Hematology-Oncology and is a Director of
UCLA's Cancer Therapy Development Program. In 1995, Dr. Rosen received the Merit
Award of the American Association of Cancer Research and in 1996, Dr. Rosen was
the recipient of the Fellow Merit Award of the American Society of Clinical
Oncology.
Competition
The industry in which the Company is engaged is characterized by
rapidly evolving technology and intense competition. The Company's competitors
include, among others, major pharmaceutical and biotechnology companies, many of
which have financial, technical and marketing resources significantly greater
than those of the Company. In addition, many of the small companies that compete
with the Company have also formed collaborative relationships with large,
established companies to support research, development, clinical trials and
commercialization of products that may be competitive with those of the Company.
Academic institutions, governmental agencies and other public and private
research organizations are also conducting research activities and seeking
patent protection and may commercialize products on their own or through joint
ventures or other collaborations.
The Company is aware of a number of companies engaged in the
research, development and testing of new cancer therapies or ways of increasing
the effectiveness of existing therapies. Such companies include, among others,
Agouron Pharmaceuticals, Inc., Bristol-Myers Squibb Company, Ciba-Geigy Ltd.,
Eli Lilly and Company, Glaxo Wellcome PLC, Johnson & Johnson, Matrix
Pharmaceuticals, Inc., NeoPharm, Inc., Pharmacyclics, Inc., Pierre Fabre S.A.
and U.S. Bioscience Inc., some of whose products have already received, or are
in the process of receiving, regulatory approval or are in later stages of
clinical trials.
The Company is aware that Techniclone, Inc. is a developing a tumor
vascular targeting agent. The Company believes Techniclone's technology differs
significantly from the Company's Combretastatin technology because it is based
on large molecules. In addition, the Company knows of a number of companies that
are in the process of developing and testing compounds that affect angiogenesis
(the formation on new blood vessels), including Agouron Pharmaceuticals, Inc.,
British Biotech Plc., EntreMed, Inc. and Collagenex, Inc.
The Company is also aware of companies engaged in the research,
development and testing of diagnostic assays for cancer, including Introgen
Therapeutics, Inc., AntiCancer Inc., Transgene S.A. and Medarex Inc. There are
other companies that have developed, or are in the process of developing,
technologies that are, or in the future may be, the basis for competitive
products in the field of cancer therapy or other products the Company intends to
develop. Some of those products may have an entirely different approach or means
of accomplishing the same desired effects as the products being developed by the
Company, such as gene transfer therapy, immunotherapy and photodynamic therapy.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective, safer or more
affordable than those being developed by the Company.
The Company expects that if any of its products gain regulatory
approval for sale they will compete primarily on the basis of product efficacy,
safety, patient convenience, reliability, price and patent position. The
Company's competitive position also will depend on its ability to attract and
retain qualified scientific and other personnel, develop effective proprietary
products and implement joint ventures or other alliances with large
pharmaceutical companies in order to jointly market and manufacture its
products.
Risk Factors
History of Losses and Anticipated Future Financial Results;
Uncertainty of Future Profitability. The Company, as a development stage
enterprise, has experienced net losses every year since its inception and, as of
December 31, 1998, had a deficit accumulated during the development stage of
approximately $37.0 million. The Company anticipates incurring substantial
additional losses over at least the next several years due to, among other
factors, the need to expend substantial amounts on its continuing clinical
trials and anticipated research and development activities and the general and
administrative expenses associated with those activities. The Company has not
commercially introduced any product and its products are in varying stages of
development and testing. The Company's ability to attain profitability will
depend upon its ability to develop products that are effective and commercially
viable, to obtain regulatory approval for the manufacture and sale of its
products and to license or otherwise market its products successfully. There can
be no assurance that the Company will ever achieve profitability or that
profitability, if achieved, can be sustained on an ongoing basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Early Stage of Product Development; Uncertainties of Clinical
Trials; Unproven Safety and Efficacy. OXiGENE's products are in an early stage
of development. In order to achieve profitable operations on a continuing basis,
the Company, alone or in collaboration with others, must successfully develop,
manufacture, introduce and market its products. The time frame necessary to
achieve market success for any individual product is long and uncertain. See
"--Product Development and Regulatory Processes." The products currently under
development by the Company will require significant additional research and
development and extensive preclinical and clinical testing prior to application
for commercial use. A number of companies in the biotechnology and
pharmaceutical industries have suffered significant setbacks in clinical trials,
even after showing promising results in earlier studies or trials. Although the
Company has obtained favorable results to date in preclinical studies and
clinical trials of certain of its products, such results may not be indicative
of results that will ultimately be obtained in or throughout such clinical
trials, and there can be no assurance that clinical testing will show any of the
Company's products to be safe or efficacious. Additionally, the Company has
encountered problems in its clinical trials and may in the future experience
further problems that may cause it to delay, suspend or terminate those clinical
trials. There can also be no assurance that the Company's research or product
development efforts or those of its collaborative partners will be successfully
completed, that any compounds currently under development by the Company will be
successfully developed into drugs, or that any products will receive regulatory
approval on a timely basis, if at all. If any such problems occur, the Company
could be materially and adversely affected.
Need for Additional Funds; Uncertainty of Future Funding. The
Company's operations to date have consumed substantial amounts of cash. Negative
cash flow from the Company's operations is expected to continue and even to
accelerate over at least the next several years. The Company's capital
requirements will depend on numerous factors, including: the progress of
preclinical testing and clinical trials; the progress of the Company's research
and development programs; the time and costs required to obtain regulatory
approvals; the resources devoted to manufacturing methods and advanced
technologies; the ability to obtain licensing arrangements; the cost of filing,
prosecuting and, if necessary, enforcing patent claims; the cost of
commercialization activities and arrangements; and the demand for the Company's
products if and when approved. The Company will have to raise substantial
additional funds to complete development of any product or bring products to
market. Issuance of additional equity securities by the Company, for these or
other purposes, could result in dilution to then existing stockholders. There
can be no assurance that additional financing will be available on acceptable
terms, if at all. If adequate funds are not available on acceptable terms, the
Company may be required to delay, scale back or eliminate one or more of its
product development programs or obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies or products that the Company would not
otherwise relinquish, which may have a material adverse effect on the Company.
Dependence on Others for Clinical Development and Manufacturing and
Marketing. The Company has limited experience in drug development, the
regulatory approval process, manufacturing and marketing. Other than Dr. Ronald
W. Pero, Ph.D., the Company's Chief Scientific Officer, the Company does not
directly employ any scientists or other laboratory personnel and all of its
preclinical tests and clinical trials are subcontracted to and performed at the
University of Lund, Sweden and at other centers in Europe and the United States,
with the assistance of research and consulting firms. Accordingly, OXiGENE has
depended, and in the future is likely to continue to depend, on others for
assistance in many areas, including research, conducting preclinical testing and
clinical trials, the regulatory approval process, manufacturing and marketing.
Although the Company considers its relations with existing collaborative
partners to be satisfactory, all its current arrangements are short term in
nature. Funding requirements, competitive factors or prioritization of other
opportunities may lead the Company to seek additional arrangements with third
parties. While OXiGENE is likely to explore license and development
opportunities for its technologies with other companies, there can be no
assurance that the Company will be successful in establishing and maintaining
collaborative agreements or licensing arrangements; that any collaborative
partner will not be pursuing alternative technologies or developing alternative
compounds either on its own or in collaboration with others, directed at the
same diseases as those involved in its collaborative arrangements with the
Company; that any such collaborative partners will devote resources to the
Company's technologies or compounds on a basis favorable to the Company; that
any such arrangements will be on terms favorable to OXiGENE; or that, if
established, such future licensees will be successful in commercializing
products. Finally, if the Company's collaboration arrangements are terminated
prior to their expiration or if the other parties to such arrangements fail to
adequately perform, there can be no assurance that submission of product
candidates for regulatory approval will not be delayed. See "--Research and
Development and Collaborative Arrangements."
Clinical Trials; Government Regulation and Health Care Reform;
Managed Care. The Company's research and development activities, preclinical
testing and clinical trials, and the manufacturing and marketing of its products
are subject to extensive regulation by numerous governmental authorities in the
United States and other countries. See "-- Product Development and Regulatory
Processes." Preclinical testing and clinical trials and manufacturing and
marketing of OXiGENE's products are and will continue to be subject to the
rigorous testing and approval processes of the FDA, the Swedish Medical Products
Agency and other corresponding foreign regulatory authorities. Clinical testing
and the regulatory process generally take many years and require the expenditure
of substantial resources. In addition, delays or rejections may be encountered
during the period of product development, clinical testing and FDA regulatory
review of each submitted application. Similar delays may also be encountered in
foreign countries. There can be no assurance that, even after such time and
expenditures, regulatory approval will be obtained for any products developed by
OXiGENE or that a product, if approved in one country, will be approved in other
countries. See "--Product Development and Regulatory Processes." Moreover, if
regulatory approval of a product is granted, such approval may entail
limitations on the indicated uses for which that product may be marketed.
Further, even if such regulatory approval is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual review
and periodic inspections, and later discovery of previously unknown problems
(such as previously undiscovered side effects) with a product, manufacturer or
facility may result in restrictions on such product, manufacturer or facility,
including a possible withdrawal of the product from the market. Failure to
comply with the applicable regulatory requirements can, among other things,
result in fines, suspensions of regulatory approvals, product recalls, operating
restrictions, injunctions and criminal prosecution. Additionally, further
government regulation may be established which could prevent or delay regulatory
approval of the Company's products. Further, the U.S. Congress continues to
debate various health care reform proposals which, if adopted, may have a
material adverse effect on the Company. Moreover, continued cost control
initiatives by health care maintenance organizations and similar programs may
affect the financial ability and willingness of patients and their health care
providers to utilize certain therapies.
Competition and Risk of Technological Obsolescence. The Company is
engaged in a rapidly evolving field. Competition from other pharmaceutical
companies, biotechnology companies and research and academic institutions is
intense and expected to increase. Many of those companies and institutions have
substantially greater financial, technical and human resources than the Company.
Those companies and institutions also have substantially greater experience in
developing products, in conducting clinical trials, in obtaining regulatory
approval and in manufacturing and marketing pharmaceutical products.
Accordingly, competitors may succeed in obtaining regulatory approval for their
products more rapidly than the Company. The Company also competes with
universities and other research institutions in the development of products,
technologies and processes. Competitors have developed or are in the process of
developing technologies that are, or in the future may be, the basis for
competitive products. Some of those products may have an entirely different
approach or means of accomplishing the desired therapeutic effect than products
being developed by the Company. See "--Competition." There can be no assurance
that the Company's competitors will not succeed in developing technologies and
products that are more effective and/or cost competitive than those being
developed by the Company or that would render the Company's technology and
products less competitive or even obsolete. In addition, one or more of the
Company's competitors may achieve product commercialization or patent protection
earlier than the Company, which could materially adversely affect the Company.
Dependence on Patents and Proprietary Technology. To date, OXiGENE's
principal products have been based on certain previously known compounds. The
Company anticipates that products it develops hereafter may include or be based
on the same or other compounds owned or produced by unaffiliated parties, as
well as synthetic compounds it may discover. Although the Company expects to
seek patent protection for any compounds it discovers and/or for any specific
uses is discovers for new or previously known compounds, there is no assurance
that any or all of them will be subject to effective patent protection. Further,
the development of regimens for the administration of pharmaceuticals, which
generally involve specifications for the frequency, timing and amount of
dosages, has been, and the Company believes may continue to be, important to the
Company's efforts, although those processes, as such, may not be patentable.
The Company's success will depend, in part, on its ability to obtain
patents, protect its trade secrets and operate without infringing on the
proprietary rights of others. As of March 29, 1999, the Company is the assignee
of four granted U.S. patents, seven pending U.S. patent applications, and of
granted patents and/or pending applications in other countries (and/or
international applications designating other countries) corresponding to three
of the granted U.S. patents and six of the pending U.S. applications. The patent
position of pharmaceutical and biotechnology firms like OXiGENE generally is
highly uncertain and involves complex legal and factual questions, resulting in
both an apparent inconsistency regarding the breadth of claims allowed in U.S.
patents and general uncertainty as to their legal interpretation and
enforceability. Accordingly, there can be no assurance that the Company's patent
applications will result in patents being issued, that any issued patents will
provide the Company with competitive protection or will not be challenged by
others, or that the patents of others will not have an adverse effect on the
ability of the Company to do business. Moreover, since some of the basic
research relating to one or more of the Company's patent applications and/or
patents was performed at various universities and/or funded by grants,
particularly in Sweden, there can be no assurance that one or more universities,
employees of such universities and/or grantors will not assert that they have
certain rights in such research and any resulting products, although the Company
is not aware of any such assertions or any basis therefor. Furthermore, there
can be no assurance that others will not independently develop similar products,
will not duplicate any of the Company's products or, if patents are issued to
the Company, will not design around such patents. In addition, the Company may
be required to obtain licenses to patents or other proprietary rights of others.
No assurance can be given that any licenses required under any such patents or
proprietary rights would be made available on terms acceptable to the Company,
if at all. If the Company does not obtain such licenses, it could encounter
delays in product market introductions while it attempts to design around such
patents, or could find that the development, manufacture or sale of products
requiring such licenses is foreclosed. In addition, the Company could incur
substantial costs in defending itself in suits brought against it or in
connection with patents to which it holds a license or in bringing suit to
protect the Company's own patents against infringement. The Company generally
requires employees, Scientific Advisory Board members and the institutions that
perform its preclinical and clinical tests (though not the employees of such
institutions) to enter into confidentiality agreements with the Company. Those
agreements provide that all confidential information developed or made known to
the individual during the course of the relationship with the Company is to be
kept confidential and not to be disclosed to third parties, except in specific
circumstances. There can be no assurance, however, that any such agreement will
provide meaningful protection for the Company's trade secrets or other
confidential information in the event of unauthorized use or disclosure of such
information. See "--Patents and Trade Secrets."
Dependence on Certain Officers and Directors and Others. The Company
believes that its success is, and will likely continue to be, materially
dependent upon its ability to retain the services of certain of its current
officers and directors, particularly Dr. Bjorn Nordenvall, its Chief Executive
Officer, and Dr. Ronald Pero, its Chief Scientific Officer. The loss of the
services of any of these individuals could have a material adverse effect on the
Company. In addition, the Company has established relationships with
universities, hospitals and research institutions, particularly the University
of Lund, Lund, Sweden, which have historically provided, and continue to
provide, the Company with access to research laboratories, clinical trials,
facilities and patients. Dr. Pero is a Professor of Molecular Ecogenetics at the
University of Lund. The Company benefits indirectly from certain research grants
received by Dr. Pero. The Company is materially dependent on the research and
development efforts of Dr. Pero and his various relationships and affiliations,
the loss of which could have a material adverse effect on the Company's
business. Additionally, the Company believes that it may, at any time and from
time to time, be materially dependent on the services of consultants and other
unaffiliated third parties.
Product Liability Exposure; Limited Insurance Coverage. The use of
the Company's products in clinical trials and for commercial applications, if
any, may expose the Company to liability claims, in the event such products
cause injury, disease or result in adverse effects. These claims could be made
directly by health care institutions, contract laboratories, patients or others
using such products. Although the Company has obtained liability insurance
coverage for its ongoing clinical trials, and there can be no assurance that
such coverage will be in amounts sufficient to protect the Company against
claims or recalls that could have a material adverse effect on the financial
condition and prospects of the Company. Further, adverse product and similar
liability claims could negatively impact the Company's ability to obtain or
maintain regulatory approvals for its technology and products.
Price Volatility of the Common Stock. The market price of the Common
Stock has been, and likely will continue to be, highly volatile as frequently is
the case with the publicly-traded securities of pharmaceutical research and
development companies. See "Market For Registrant's Common Equity and Related
Stockholder Matters." Factors such as results of clinical trials, announcements
of research developments and results by the Company or its competitors and
government regulatory action affecting the Company's products in both the United
States and foreign countries have had, and may continue to have, a significant
effect on the Company's business and on the market price of the Common Stock. As
of December 31, 1998, an aggregate of 49,612 stock appreciation rights ("SARs"),
with a weighted average exercise price of $7.19 per SAR, had been granted to
certain clinical investigators and consultants. The Company is not required to
make any cash payments upon exercise of any such SAR. If and when the spread
between the market price of the Company's Common Stock and the exercise price of
the SARs changes, the charge for financial reporting purposes to research and
development will be adjusted to reflect an increase or decrease, as the case may
be, in the market price of the Company's Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
addition, substantially all of the shares of Common Stock issuable upon exercise
of outstanding options, SARs and warrants have been registered and may be sold
from time to time hereafter. Such sales, as well as future sales of Common Stock
by existing stockholders, or the perception that sales could occur, could
adversely affect the market price of the Common Stock. The price and liquidity
of the Common Stock may also be significantly affected by trading activity and
market factors related to the Nasdaq and Stockholm Stock Exchange markets, which
factors and the effects thereof may differ between those markets.
No Dividends. The Company has not declared or paid dividends on its
Common Stock since its inception and does not intend to declare or pay any
dividends to its stockholders in the foreseeable future. See "Market For
Registrant's Common Equity and Related Stockholder Matters."
GLOSSARY OF SCIENTIFIC TERMS
Apoptosis A natural programmed cell death not involving cell
replication
CGMP standards Current good manufacturing practice standards required
for regulatory affairs
Chemotherapy Drugs that control cancer growth
Cisplatin A chemotherapeutic compound
Controlgroup A group of patients involved in a clinical trial who
are receiving placebos
Cytotoxic agent Tumor-killing agent
DNA Chemical building blocks of genetic material
Double-blind study A study in which neither the investigators assessing
the outcome of the trial nor the patients know whether
the patient is receiving the drug being investigated or
merely a placebo. The outcome can only be determined
when the results are decoded
Enzyme A protein that carries out a metabolic function by
converting one substance to another
Genetic blueprint The code that tells cells what to do and how to
function
Immune deficiencies Suppression of the cells that fight disease within the
body
IND An "Investigational New Drug" application filed with
the U.S. Food and Drug Administration that permits the
administration of compounds to humans in clinical
trials
Malignant cell Cancer cell
Metabolic function Living process of growth and reproduction
NDA A "New Drug Application" filed with the U.S. Food and
Drug Administration, which, if approved, allows a drug
to be marketed in the U.S.
Necrosis Cell death by decomposition after replication
N-substituted benzamid Class of drugs believed by OXiGENE to sensitize
radiation and chemotherapy
Nucleotides A class of nucleic acid compounds from which genes are
constructed
Oxidative stress Undesired natural metabolism of oxygen-derived
molecules by the body that can induce DNA damage
PARP Poly (ADP Ribose) Polymerase--an enzyme involved in the
DNA repair process. Also known as Adenosine Diphosphate
Ribosyl Transferase or ADPRT
Placebo A non-active substance given to a control group of
patients in a clinical trial to duplicate the treatment
method, but without the administration of the active
drug under investigation
Radiation Physical energy that splits molecules and induces DNA
damage
2. PROPERTIES.
The Company's executive offices are located in Boston,
Massachusetts. The Boston office lease has a current annual rent of
approximately $63,000 and expires on April 30, 2002, but may be terminated at
any time by the Company upon six months' written notice and payment of a
cancellation fee. In connection with the listing of its Common Stock on the
Stockholm Stock Exchange, the Company opened an executive office in Stockholm,
Sweden. The Stockholm office is leased at an annual rate of approximately
$41,000, and the lease expires on September 30, 2000. In connection with the
discontinuance of the Company's Neu-Sensamide(TM) project, the Company will be
closing its Lund, Sweden, office. The Company does not own or lease any
laboratories or other research and development facilities.
3. LEGAL PROCEEDINGS.
There are no material suits or claims pending or, to the best of the
Company's knowledge, threatened against the Company.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to the vote of security holders of the
Company during the fourth quarter of the year ended December 31, 1998.
<PAGE>
Executive Officers of the Company
The executive officers of the Company and their ages at December 31,
1998, were as follows:
Name Age Position
Bjorn Nordenvall, M.D., Ph.D.. 47 Chief Executive Officer,
President and Chairman of the
Board of Directors
David Sherris, M.D., Ph.D..... 46 Chief Operating Officer and
Director of Drug Development
Ronald W. Pero, Ph.D.......... 59 Chief Scientific Officer and a
Director
Bo Haglund.................... 47 Chief Financial Officer
Bjorn Nordenvall, M.D., Ph.D. was appointed as a Director in March
1995, and became the Company's President and Chief Executive Officer in June
1995 and Chairman of the Board of Directors in June 1996. From March to August
1996, Dr. Nordenvall served as the Company's Chief Financial Officer. Dr.
Nordenvall serves as Chairman of the Company's Audit Committee. Dr. Nordenvall
is a specialist in general surgery and, from 1987 to September 1996, was
president of Sophiahemmet AB, a Stockholm-based hospital. During 1983 and 1984,
Dr. Nordenvall was president of Carnegie Medicine AB, Stockholm, Sweden, a
biotechnology company, and from 1977 through 1985, he practiced surgery at
Danderyd Hospital, Stockholm. From 1984 through 1986, Dr. Nordenvall served as a
consultant to Carnegie, a Swedish investment banking company, and, since 1984,
he has been a consultant to Skandia Insurance Company, a Swedish insurance
company.
David Sherris, Ph.D. joined OXiGENE in May 1998 as the Director of
Drug Development and, in June 1998, assumed the additional position of Chief
Operating Officer. Dr. Sherris' responsibilities include overseeing the
development of OXiGENE's products and overall operations in the United States.
Dr. Sherris has over 16 years of experience in academics and industry. Prior to
joining OXiGENE, Dr. Sherris was in charge of managing the external research
program for the Department of Experimental Therapeutics at Ares Advanced
Technology, a division of the Ares-Serono Group, a pharmaceutical company
engaged in cancer and fertility therapeutics. Dr. Sherris has also held
managerial and research positions at Unilever Research, a division of Unilever
N.V., a global chemical and pharmaceutical concern, and Centocor, Inc., a
biotechnology company engaged in a multitude of therapeutic indications
including cardiovascular, oncologic and arthritic diseases, as well as a faculty
position in the Division of Clinical Immunology, Department of Medicine, Mt.
Sinai Medical Center, New York, New York.
Ronald W. Pero, Ph.D. is a co-founder of OXiGENE, and has been a
Director and the Company's Chief Scientific Officer since its inception. From
November 1993 to June 1995, Dr. Pero also served as President of the Company.
Dr. Pero specializes in the field of DNA repair and its relation to cancer
treatment, and directs and coordinates the Company's research and development
efforts. Dr. Pero has been a fellow of the National Institute of Environmental
Health Sciences in Research Triangle Park, North Carolina, a director of the
Division of Biochemical Epidemiology at the Strang Cancer Prevention Center in
New York City, and currently holds faculty positions at both New York University
Medical Center and the University of Lund in Lund, Sweden, where he is a
Professor of Molecular Ecogenetics. Dr. Pero is also a member of the American
Association of Science, New York Academy of Sciences, International Preventive
Oncology Society, European Society for Therapeutic Radiation Oncology and The
American Association of Cancer Research, as well as serving as Scientific
Director of the Board of Trustees of the Swedish American Research Foundation.
Dr. Pero has published more than 175 manuscripts related to his research.
Bo Haglund was appointed Chief Financial Officer in August 1996.
From January 1992 to August 1996, Mr. Haglund was employed by D. Carnegie AB
("Carnegie") in various capacities, most recently heading its London operations,
focusing on the marketing of Nordic securities to U.K. investors. Prior to
joining Carnegie, from November 1990 to January 1992, Mr. Haglund was executive
vice president and chief financial officer of Swedish Exploration Consortium AB,
a Swedish publicly-traded company engaged in oil and gas exploration. From
January 1988 to October 1990, Mr. Haglund was vice president finance of Cool
Carriers AB, a shipping company, and from April 1982 to December 1987, he was
chief financial officer of Gulf Agency Group, a ship brokerage company.
<PAGE>
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Effective November 19, 1996, the Company's Common Stock and Warrants
commenced trading on the Nasdaq National Market under the symbols "OXGN" and
"OXGNW," respectively. Prior thereto, since the completion of the Company's
initial public offering in August 1993, the Company's securities had been listed
for quotation on the Nasdaq Small-Cap Market. The Company's shares of Common
Stock are also traded on the Stockholm Stock Exchange in Sweden. The following
table sets forth the high and low per share and per warrant prices for the
Company's Common Stock and Warrants for each quarterly period within the two
most recent fiscal years.
Common Stock Warrants
Calendar Year High Low High Low
1997
First Quarter $36.25 $22.63 $26.25 $12.25
Second Quarter 35.00 26.25 25.25 15.56
Third Quarter 41.88 24.00 29.25 15.25
Fourth Quarter 29.25 15.25 18.50 6.50
1998
First Quarter $18.75 $14.63 $ 9.00 $ 5.00
Second Quarter 18.00 9.75 6.63 2.38
Third Quarter 12.88 5.88 3.25 1.03
Fourth Quarter 11.31 4.81 3.50 1.00
As of March 16, 1999, there were 50 holders of record of the
Company's Common Stock and six holders of record of the Company's Warrants. The
Company believes, based on the number of proxy statements and related materials
distributed in connection with its 1998 Annual Meeting of Stockholders, that
there are more than 5,000 beneficial owners of its Common Stock.
The Company has not declared any cash dividends on its Common Stock
since its inception in 1988, and does not intend to pay cash dividends in the
foreseeable future. The Company presently intends to retain future earnings, if
any, to finance the growth and development of its business.
<PAGE>
6. SELECTED FINANCIAL DATA.
Summary Financial Information
OXiGENE, Inc.
(A development stage company)
1994 1995 1996 1997 1998
------------------------------------------------------
Statement of Operations
Data:
Revenues:
Research income - - - - -
Interest income 265,440 420,949 684,039 2,217,467 1,997,991
------------------------------------------------------------
Total revenues 265,440 420,949 684,039 2,217,467 1,997,991
Operating Expenses:
Research and 1,764,462 2,843,593 4,822,834 7,281,504 10,358,913
development
General and 1,340,737 1,295,191 1,819,638 3,046,484 3,135,871
administrative
------------------------------------------------------------
Total operating 3,105,199 4,138,784 6,642,472 10,327,988 13,494,784
expenses
------------------------------------------------------------
Net loss (2,839,759) (3,717,835) (5,958,433) (8,110,521)(11,496,793)
============================================================
Net loss per common (0.56) (0.63) (0.80) (0.83) (1.13)
share-basic
and dilutive
Weighted average number
of common shares 5,037 5,876 7,440 9,770 10,201
outstanding
(in thousands)
1994 1995 1996 1997 1998
---------------------------------------------------------
Balance Sheet Data:
Cash and cash 1,193,999 10,406,605 40,517,182 40,136,662 31,756,534
equivalents
Securities available 3,291,128 502,020 0 0 0
for sale
Working capital 4,447,080 10,510,024 40,418,846 39,889,394 29,907,659
Total assets 4,770,951 11,227,251 41,168,759 41,152,357 33,018,825
Total liabilities 290,969 670,077 650,001 951,088 2,827,011
Deficit accumulated
during the (7,682,039)(11,399,874)(17,358,307)(25,468,828)(36,965,621)
development stage
Total stockholders' 4,479,982 10,557,174 40,518,758 40,201,269 30,191,814
equity
<PAGE>
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
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 develoment-stage companies. OXiGENE has generated a cumulative
net loss of approximately $37.0 million for the period from its inception
through December 31, 1998.
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 financings. As of December 31, 1998, 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
Year ended December 31, 1998, compared to year ended December 31, 1997.
During the years ended December 31, 1998 and 1997, the Company had
no revenues, except for approximately $2.0 million and $2.2 million of interest
income, respectively. The Company's total operating expenses for the year ended
December 31, 1998, increased to approximately $13.5 million from approximately
$10.3 million for the comparable 1997 period. Research and development expenses
for those years were approximately $10.4 million and $7.3 million, respectively.
Research and development expenses in 1998 included a charge recorded for
financial reporting purposes of approximately $1.3 million related to the
issuance of non-employee stock options and the extension of the terms of certain
stock options. The increase also reflects the planned significant increase in
research and development, clinical trials and other expenses related to the
Company's product development program. 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 stock appreciation
rights ("SARs"), research and development expenses have fluctuated, and are
expected to continue to fluctuate, from year to year. General and administrative
expenses for the year ended December 31, 1998, increased to approximately $3.1
million from approximately $3.0 million for the comparable 1997 period.
In an effort to preserve cash and reduce cash flow requirements, the
Company's policy has been to minimize the number of employees and to use outside
consultants to the extent practicable. OXiGENE expects that its clinical trial
expenses will increase as it expands its clinical trial program, and initiates
research and clinical trials on its new compounds.
Year ended December 31, 1997, compared to year ended December 31, 1996.
OXiGENE had no revenues, expect for approximately $2.2 million and
$0.7 million of interest income in the years ended December 31, 1997 and 1996,
respectively. The increase in interest income is attributable to the investment
of the net proceeds of the Company's secondary offering in connection with its
listing on the Stockholm Stock Exchange, which was completed in November 1996,
as well as cash received upon exercise of options and warrants throughout the
year.
The Company's total operating expenses for the year ended December
31, 1997, increased to approximately $10.3 million from approximately $6.6
million for the comparable 1996 period. Research and development expenses for
those years were approximately $7.3 million and $4.8 million, respectively.
Research and development expenditures are net of a credit for financial
reporting purposes of approximately $0.2 million related to SARs granted to
certain clinical investigators. Research and development expenditures for 1996
included a charge for financial reporting purposes of approximately $1.0 million
related to SARs. This charge was recorded because the market value per share of
common stock on December 31, 1997 ($17.50) exceeded the exercise price SARs
granted by the Company to certain clinical investigators and consultants.
Without giving effect to such charge, research and development expenses
increased by approximately $3.7 million compared to the comparable 1996 period.
The increase is primarily attributable to research and development expenditures
related to the Company's third generation of sensitizer Declopramide (former
OXi-104), Cordycepin, Combretastatin A-4 Prodrug and its ongoing clinical trial
program. General and administrative expenses for the year ended December 31,
1997, increased to approximately $3.0 million from approximately $1.8 million
for the comparable 1996 period. The increase in general and administrative
expenses was primarily attributable to establishing a clinical trial and
research coordination center in Boston, Massachusetts, and a general increase in
expenses due to a higher level of business activities.
Liquidity and Capital Resources
OXiGENE has experienced net losses and negative cash flow from
operations each year since its inception and, as of December 31, 1998, had an
accumulated deficit of approximately $37.0 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 operations principally through the net proceeds it has received
from private and public equity financings, and from the exercise of outstanding
options and warrants.
OXiGENE had cash and cash equivalents of approximately $31.8 million
and $40.1 million at December 31, 1998 and 1997, respectively.
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 pre-clinical testing and clinical
trials. Quarterly payments are being made to the University of Lund, Lund,
Sweden, for pre-clinical research and clinical trials. For the years ended
December 31, 1998, 1997 and 1996, the amount of such retainer was approximately
$0.6 million, $1.0 million and $0.3 million, respectively.
In May 1996, OXiGENE in collaboration with ILEX(TM) Oncology Inc.
("ILEX"), a contract research organization in San Antonio, Texas, established a
large-scale synthesis of Declopramide in accordance with FDA current U.S. Good
Laboratory Practice standards ("cGLP"). During the years ended December 31,
1998, 1997 and 1996, the Company paid ILEX approximately $2.3 million, $1.6
million and $0.9 million, respectively. The increase in the amounts paid to ILEX
reflects the research and development with respect to Declopramide and
Combretastatin A-4 Prodrug, a compound that in pre-clinical studies indicates
toxicity toward tumor vasculature.
OXiGENE anticipates that the cash and cash equivalents it had
available at December 31, 1998, and interest income it will earn thereon should
be sufficient to satisfy the Company's projected cash requirements for
approximately the next 30 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 of pre-clinical testing and clinical trials; progress
of the Company's research and development programs; the time and cost 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 cost of filing, prosecuting
and, if necessary, enforcing patent claims; the cost of commercialization
activities and arrangements; and the demand for its products if and when
approved. The Company anticipates that it might have to seek substantial
additional private or public financing or enter into a collaborative arrangement
with one or more third parties to complete the development of any product or
bring products to market. There can be no assurance that additional financing
will be available on acceptable terms, if at all.
OXiGENE had no material commitments for capital expenditures as of
December 31, 1998.
Impact of Year 2000
The Company's internal computer information system will be Year 2000
compliant before year end. These systems consists 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 consists mainly of leading
educational institutions and universities in the US and Europe, and clinical
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.
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 for a list of the OXiGENE Financial Statements and Schedules
and Supplementary Information filed as part of this report.
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item, insofar as it relates to
directors, is incorporated herein by reference to the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders scheduled
to be held on June 3, 1999. The information regarding executive officers is
included in Part I hereof under the caption "Executive Officers of the Company,"
and is incorporated by reference into this Item 10.
11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement with respect to the
Company's Annual Meeting of Stockholders scheduled to be held on June 3, 1999.
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement with respect to the
Company's Annual Meeting of Stockholders scheduled to be held on June 3, 1998.
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement with respect to the
Company's Annual Meeting of Stockholders scheduled to be held on June 3, 1999.
<PAGE>
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents Filed with this Report.
The following documents are filed as part of this report.
1. Financial Statements
--------------------
The financial statements listed in the accompanying List of Financial
Statements covered by Report of Independent Auditors.
2. Financial Statement Schedules
-----------------------------
None.
3. Exhibits
--------
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of the Registrant.*
3.2 By-Laws of the Registrant.*
3.3 Certificate of Amendment of Certificate of Incorporation.**
4.1 Representatives' Warrant Agreement (including form of
Representatives' Warrant Certificate), dated August 26, 1993,
between the Company and RAS Securities Corp.*
4.2 Warrant Agreement (including form of Warrant Certificate),
dated August 26, 1993, between the Company and America Stock
Transfer & Trust Company.*
10.1 Patent License Agreement dated as of October 7, 1991 between
Preventive Medicine Institute and Bio-Screen, Inc.*
10.2 Amended and Restated Stock Incentive Plan of Registrant dated
as of May 15, 1993.*
10.3 Employment Agreement, dated as of April 4, 1997, between
Registrant and Dr. Ronald W. Pero.**
10.4 Executive Employment Agreement, dated as of October 9, 1993,
between Registrant and Bjorn Nordenvall, M.D., Ph.D.***
10.5 Consulting Agreement, dated as of October 9, 1995, between
OXiGENE (Europe) AB and B. Omentum Consulting AB.***
10.6 Consulting Agreement, dated as of August 1, 1995, between
Registrant and IPC Nordic A/S.***
10.7 OXiGENE 1996 Stock Incentive Plan.****
10.8 Collaborative Research Agreement, dated as of August 1, 1997,
between the Registrant and Boston Medical Center Corporation.
**
10.9 Technology Development Agreement, dated as of May 27, 1997,
between the Registrant and the Arizona Board of Regents,
acting for and on behalf of Arizona State University.**
10.10 Office Lease, dated February 26, 1997, between Registrant and
Copley Place Associates Nominee Corporation.**
10.11 Employment Agreement, dated as of April 4, 19997, between
Registrant and Dr. Claus M0ller.**
23 Consent of Ernst & Young, LLP.
27 Financial Data Schedule.
99.1 U.S. Patent Number 5,204,241, issued April 20, 1994,
registered to Ronald W. Pero, regarding
glutathione-s-transferase Mu as a measure of drug resistance.
****
99.2 U.S. Patent Number 5,340,565, issued August 23, 1994,
registered to Ronald W. Pero, regarding tumor or cancer cell
killing therapy and agents useful therefor. ****
99.3 U.S. Patent Number 5,482,833, issued January 9, 1996,
registered to Ronald W. Pero and Daniel G. Miller, regarding a
test to determine the predisposition or susceptibility to
DNA-associated diseases. ****
99.4 International Application Published under the Patent
Cooperation Treaty (PCT) Number WO96/14565, published May 17,
1996, registered to Ronald W. Pero, regarding a method of
testing immune competency. ****
-------------------------
* Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (file no. 33-64968) and any amendments
thereto.
** Incorporated by reference to the Annual Report on Form 10-K
for the year ended December 31, 1997.
*** Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
**** Incorporated by reference to the Registrant's Registration
Statement on Form S-3 (file no. 333-12867) and any amendments
thereto. (b) Reports on Form 8-K.
The registrant filed no reports on Form 8-K during the fourth
quarter of the year ended December 31, 1997.
<PAGE>
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.
OXiGENE, INC.
By: /s/ Bjorn Nordenvall
----------------------------------
Bjorn Nordenvall
President and Chief Executive
Officer
March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Bjorn Nordenvall President, Chief March 30, 1999
- - ---------------------- Executive Officer and
Bjorn Nordenvall Director (principal
executive officer)
/s/ Bo Haglund Chief Financial Officer March 30, 1999
- - ----------------------
Bo Haglund
Director March __, 1999
- - ----------------------
Marvin H. Caruthers
Director March __, 1999
- - ----------------------
Michael Ionata
/s/ Arthur B. Laffer Director March 30, 1999
- - ----------------------
Arthur B. Laffer
/s/ Ronald W. Pero Director March 30, 1999
- - ----------------------
Ronald W. Pero
/s/ Per-Olof Soderberg Director March 30, 1999
- - ----------------------
Per-Olof Soderberg
/s/ Gerald A. Eppner Director March 30, 1999
- - ----------------------
Gerald A. Eppner
<PAGE>
Form 10-K Item 14(a)(1)
OXiGENE, Inc.
(A development stage company)
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of OXiGENE, Inc. are included in
Item 8:
Report of Independent Auditors............................................ F- 2
Consolidated Balance Sheets--December 31, 1998
and 1997................................................................ F- 3
Consolidated Statements of Operations--Years
Ended December 31, 1998, 1997 and 1996 and
the Period from February 22, 1988
(Inception) through December 31, 1998
(Unaudited)............................................................. F- 4
Consolidated Statements of Stockholders' Equity
(Deficit)--Years Ended December 31, 1998, 1997,
1996, 1995, 1994, 1993, 1992, 1991 and 1990
(Unaudited) and the Period from February 22,
1988 (Inception) through December 31, 1998
(Unaudited)............................................................. F- 5
Consolidated Statements of Cash Flows--Years
Ended December 31, 1998, 1997 and 1996 and
the Period from February 22, 1988
(Inception) through December 31, 1998
(Unaudited)............................................................. F-17
Notes to Consolidated Financial Statements................................ F-18
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.
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
OXiGENE, Inc.
We have audited the accompanying consolidated balance sheets of OXiGENE, Inc.
(the "Company") (a development stage company) as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of OXiGENE, Inc. (a
development stage company) at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
January 13, 1999
F-2
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1998
---------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 40,136,662 $ 31,756,534
Prepaid expenses 341,912 608,766
Interest receivable 300,636 196,326
Other 61,272 173,044
---------------------------------
Total current assets 40,840,482 32,734,670
Furniture, fixtures and equipment, at cost 357,876 372,170
Accumulated depreciation (125,601) (167,615)
---------------------------------
232,275 204,555
Deposits 79,600 79,600
---------------------------------
Total assets $ 41,152,357 $ 33,018,825
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses:
Accrued expenses $ 778,606 $ 2,171,234
Other payables 172,482 655,777
---------------------------------
Total current liabilities 951,088 2,827,011
Commitments (Note 4)
Stockholders' equity (Note 2):
Common stock, $.01 par value:
Authorized shares--
60,000,000 shares at December 31, 1997 and 1998
Issued and outstanding shares--
10,185,765 shares at December 31, 1997;
10,207,049 shares at December 31, 1998 101,858 102,071
Additional paid-in capital 65,348,603 68,714,785
Deficit accumulated during the development stage (25,468,828) (36,965,621)
Accumulated other comprehensive income 219,636 325,888
Deferred compensation - (1,985,309)
---------------------------------
Total stockholders' equity 40,201,269 30,191,814
---------------------------------
Total liabilities and stockholders' equity $ 41,152,357 $ 33,018,825
=================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 22, 1988
YEAR ENDED DECEMBER 31 (INCEPTION) THROUGH
1996 1997 1998 DECEMBER 31, 1998
------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues
Research income $ - $ - $ - $ 31,000
Interest income 684,039 2,217,467 1,997,991 5,646,738
------------------------------------------------------------------------
684,039 2,217,467 1,997,991 5,677,738
Operating expenses
Research and development:
CATO Research, Ltd. (Note 5) 318,210 166,640 - 2,950,073
Other 4,504,624 7,114,864 10,358,913 26,582,938
------------------------------------------------------------------------
Total research and development 4,822,834 7,281,504 10,358,913 29,533,011
General and administrative
(including related party
transactions of approximately
$336,000, $494,000 and $631,000
in 1996, 1997 and 1998,
respectively) (Note 5) 1,819,638 3,046,484 3,135,871 13,110,348
------------------------------------------------------------------------
Total operating expenses 6,642,472 10,327,988 13,494,784 42,643,359
------------------------------------------------------------------------
Net loss $ (5,958,433) $ (8,110,521) $(11,496,793) $ (36,965,621)
========================================================================
Net loss per common share $(.80) $(.83) $(1.13)
Weighted average number of
common shares outstanding 7,439,616 9,770,364 10,200,567
</TABLE>
See accompanying notes.
F-4
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Stockholders' Equity (Deficit)
(Note 2)
<TABLE>
<CAPTION>
COMMON STOCK, COMMON STOCK
$.01 PAR VALUE SUBSCRIBED ADDITIONAL
---------------------- ------------------- PAID-IN
DATE SHARES AMOUNTS SHARES AMOUNT CAPITAL
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss for period from February 22, 1988 (inception)
through December 31, 1988 (unaudited) - $ - - $ - $ -
Issuance of common stock in exchange for transfer of
patent application ownership to the Company by an
officer/director recorded at no value, which reflects
transferor's basis (unaudited) May 1988 380,000 3,800 - - (3,800)
Issuance of common stock at approximately $0.74 per share
(unaudited) June 1988 271,033 2,710 - - 197,290
Issuance of common stock in exchange for the outstanding
common stock of Bio-Screen Inc. (unaudited) August 1988 100,000 1,000 - - (1,000)
--------------------------------------------------------
Balance at December 31, 1988 (unaudited) 751,033 7,510 - - 192,490
Net loss for 1989 (unaudited) - - - - -
Issuance of common stock at approximately $0.74 per share
(unaudited) January 1989 271,033 2,710 - - 197,290
--------------------------------------------------------
Balance at December 31, 1989 (unaudited) 1,022,066 10,220 - - 389,780
Net loss for 1990 - - - - -
Issuance of common stock at approximately $0.74 per share March 1990 to
December 1990 257,487 2,575 - - 187,425
Common stock subscribed December 1990 - - 13,547 10,000 -
--------------------------------------------------------
Balance at December 31, 1990 1,279,553 12,795 13,547 10,000 577,205
Net loss for 1991 - - - - -
Issuance of common stock at approximately $0.74 per share January 1991 13,547 136 (13,547) (10,000) 9,864
Issuance of common stock at $0.71 per share February 1991 330,000 3,300 - - 230,033
Issuance of common stock at approximately $1.50 per share August 1991 100,000 1,000 - - 149,000
Issuance of common stock at $1.95 per share December 1991 220,000 2,200 - - 426,800
--------------------------------------------------------
Balance at December 31, 1991 1,943,100 19,431 - - 1,392,902
Net loss for 1992 - - - - -
Issuance of common stock at $1.95 per share, net of
issuance costs of approximately $121,000 December 1992 985,000 9,850 - - 1,789,866
--------------------------------------------------------
Balance at December 31, 1992 2,928,100 29,281 - - 3,182,768
</TABLE>
F-5
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
(Note 2)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED STOCK TOTAL
DURING THE OTHER SUBSCRIPTION STOCKHOLDERS'
DEVELOPMENT COMPREHENSIVE AND NOTES DEFERRED EQUITY
STAGE INCOME RECEIVABLE COMPENSATION (DEFICIT)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss for period from February 22, 1988 (inception)
through December 31, 1988 (unaudited) $ (185,962) $ - $ - $ - $ (185,962)
Issuance of common stock in exchange for transfer of
patent application ownership to the Company by an
officer/director recorded at no value, which reflects
transferor's basis (unaudited) - - - - -
Issuance of common stock at approximately $0.74 per share
(unaudited) - - - - 200,000
Issuance of common stock in exchange for the outstanding
common stock of Bio-Screen Inc. (unaudited) - - - - -
------------------------------------------------------------------------
Balance at December 31, 1988 (unaudited) (185,962) - - - 14,038
Net loss for 1989 (unaudited) (179,119) - - - (179,119)
Issuance of common stock at approximately $0.74 per share
(unaudited) - - - - 200,000
------------------------------------------------------------------------
Balance at December 31, 1989 (unaudited) (365,081) - - - 34,919
Net loss for 1990 (326,648) - - - (326,648)
Issuance of common stock at approximately $0.74 per share - - - - 190,000
Common stock subscribed - - (10,000) - -
------------------------------------------------------------------------
Balance at December 31, 1990 (691,729) - (10,000) - (101,729)
Net loss for 1991 (501,872) - - - (501,872)
Issuance of common stock at approximately $0.74 per share - - 10,000 - 10,000
Issuance of common stock at $0.71 per share - - - - 233,333
Issuance of common stock at approximately $1.50 per share - - - - 150,000
Issuance of common stock at $1.95 per share - - - - 429,000
------------------------------------------------------------------------
Balance at December 31, 1991 (1,193,601) - - - 218,732
Net loss for 1992 (1,628,667) - - - (1,628,667)
Issuance of common stock at $1.95 per share, net of
issuance costs of approximately $121,000 - - (360,750) - 1,438,966
------------------------------------------------------------------------
Balance at December 31, 1992 (2,822,268) - (360,750) - 29,031
</TABLE>
F-6
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
(Note 2)
<TABLE>
<CAPTION>
COMMON STOCK, COMMON STOCK
$.01 PAR VALUE SUBSCRIBED ADDITIONAL
---------------------- ------------------- PAID-IN
DATE SHARES AMOUNTS SHARES AMOUNT CAPITAL
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss for 1993 - $ - - $ - $ -
Issuance of common stock at $1.95 per share, net of January 1993 to
issuance costs of approximately $136,500 February 1993 445,000 4,450 - - 726,800
Repayment of notes receivable January 1993 - - - - -
Issuance of warrants and options as compensation to
certain directors to purchase 180,000 and 10,000 shares
of common stock, respectively, at $1.95 per share May 1993 - - - - 427,500
Issuance of common stock at $6.00 per share, net of
issuance costs of approximately $1,836,000 September 1993 1,500,000 15,000 - - 7,149,247
Issuance of common stock at $6.00 per share, net of
issuance costs of approximately $82,000 October 1993 105,000 1,050 - - 547,050
--------------------------------------------------------
Balance at December 31, 1993 4,978,100 49,781 - - 12,033,365
Net loss for 1994 - - - - -
Unrealized losses on securities available-for-sale - - - - -
Comprehensive loss - - - - -
Issuance of common stock at $1.95 per share April 1994 80,000 800 - - 155,200
--------------------------------------------------------
Balance at December 31, 1994 5,058,100 50,581 - - 12,188,565
Net loss for 1995 - - - - -
Unrealized gain on securities available-for-sale - - - - -
Foreign currency translation adjustment for 1995 - - - - -
Comprehensive loss - - - - -
Issuance of options as compensation to consultants to
purchase 165,000 shares of common stock at $6.00 per
share June 1995 - - - - 20,625
Issuance of common stock at $6.00 per share, net of
issuance costs of approximately $524,000 July 1995 1,666,700 16,667 - - 9,460,009
Issuance of common stock at $1.50 per share (12,500) and July 1995 to
$1.95 per share (86,000) December 1995 98,500 985 - - 185,465
Subscriptions for 5,000 shares of common stock at $1.95
per share December 1995 - - 5,000 50 9,700
--------------------------------------------------------
Balance at December 31, 1995 6,823,300 68,233 5,000 50 21,864,364
</TABLE>
F-7
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
(Note 2)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED STOCK TOTAL
DURING THE OTHER SUBSCRIPTION STOCKHOLDERS'
DEVELOPMENT COMPREHENSIVE AND NOTES DEFERRED EQUITY
STAGE INCOME RECEIVABLE COMPENSATION (DEFICIT)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss for 1993 $(2,020,012) $ - $ - $ - $(2,020,012)
Issuance of common stock at $1.95 per share, net of
issuance costs of approximately $136,500 - - - - 731,250
Repayment of notes receivable - - 360,750 - 360,750
Issuance of warrants and options as compensation to
certain directors to purchase 180,000 and 10,000 shares
of common stock, respectively, at $1.95 per share - - - - 427,500
Issuance of common stock at $6.00 per share, net of
issuance costs of approximately $1,836,000 - - - - 7,164,247
Issuance of common stock at $6.00 per share, net of
issuance costs of approximately $82,000 - - - - 548,100
------------------------------------------------------------------------
Balance at December 31, 1993 (4,842,280) - - - 7,240,866
Net loss for 1994 (2,839,759) - - - (2,839,759)
Unrealized losses on securities available-for-sale - (77,125) - - (77,125)
--------------
Comprehensive loss - - - - (2,916,884)
--------------
Issuance of common stock at $1.95 per share - - - - 156,000
------------------------------------------------------------------------
Balance at December 31, 1994 (7,682,039) (77,125) - - 4,479,982
Net loss for 1995 (3,717,835) - - - (3,717,835)
Unrealized gain on securities available-for-sale - 76,632 - - 76,632
Foreign currency translation adjustment for 1995 - 24,894 - - 24,894
--------------
Comprehensive loss - - - - (3,616,309)
--------------
Issuance of options as compensation to consultants to
purchase 165,000 shares of common stock at $6.00 per
share - - - - 20,625
Issuance of common stock at $6.00 per share, net of
issuance costs of approximately $524,000 - - - - 9,476,676
Issuance of common stock at $1.50 per share (12,500) and
$1.95 per share (86,000) - - - - 186,450
Subscriptions for 5,000 shares of common stock at $1.95
per share - - - - 9,750
------------------------------------------------------------------------
Balance at December 31, 1995 (11,399,874) 24,401 - - 10,557,174
</TABLE>
F-8
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
(Note 2)
<TABLE>
<CAPTION>
COMMON STOCK, COMMON STOCK
$.01 PAR VALUE SUBSCRIBED ADDITIONAL
-------------------- ----------------- PAID-IN
DATE SHARES AMOUNTS SHARES AMOUNT CAPITAL
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss for 1996 - $ - - $ - $ -
Unrealized gain on securities available-for-sale - - - - -
Foreign currency translation adjustment for 1996 - - - - -
Comprehensive loss - - - - -
Issuance of common stock upon exercise of options, warrants or
stock appreciation rights (SAR):
At $1.95 per share January 1996 5,000 50 (5,000) (50) -
At $1.95 per share January 1996 50,000 500 - - 97,000
At $1.95 per share March 1996 95,000 950 - - 184,300
At $1.95 per share April 1996 50,000 500 - - 97,000
At $7.25 per share June 1996 2,500 25 - - 18,100
At $9.67 per share June 1996 120,482 1,206 - - 1,164,204
At $1.95 per share June 1996 75,000 750 - - 145,500
At $1.95 per share July 1996 50,000 500 - - 97,000
At $5.50 per share July 1996 5,000 50 - - 27,450
At $10.35 per share July 1996 49,755 498 - - 480,777
At $7.25 per share July 1996 10,000 100 - - 72,400
At $1.95 per share August 1996 31,500 315 - - 61,110
At $7.25 per share August 1996 2,500 25 - - 18,100
At $22.00 per share (SAR) August 1996 5,129 51 - - 112,789
At $9.67 per share August 1996 270,342 2,702 - - 2,612,318
At $21.00 per share (SAR) September 1996 1,910 19 - - 40,091
At $11.54 per share October 1996 8,560 86 - - 98,714
At $1.95 per share November 1996 5,000 50 - - 9,700
At $6.25 per share November 1996 50,000 500 - - 312,000
At $8.95 per share November 1996 27,250 272 - - 243,615
At $7.25 per share November 1996 42,150 422 - - 370,021
At $11.54 per share November 1996 52,965 529 - - 610,796
At $15.74 per share November 1996 69,000 690 - - 943,710
Capital contribution by officer June 1996 - - - - 53,170
Public offering of common stock at $25.2732 per share, net of
issuance costs of approximately $2,217,000 November 1996 1,150,000 11,500 - - 26,835,896
Accrued stock appreciation rights - - - - 1,103,542
---------------------------------------------------
Balance at December 31, 1996 9,052,343 90,523 - - 57,673,667
</TABLE>
F-9
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
(Note 2)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED OTHER STOCK TOTAL
DURING THE ACCUMULATED SUBSCRIPTION STOCKHOLDERS'
DEVELOPMENT COMPREHENSIVE AND NOTES DEFERRED EQUITY
STAGE INCOME RECEIVABLE COMPENSATION (DEFICIT)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss for 1996 $(5,958,433) $ - $ - $ - $(5,958,433)
Unrealized gain on securities available-for-sale - 493 - - 493
Foreign currency translation adjustment for 1996 - 87,981 - - 87,981
--------------
Comprehensive income - - - - (5,869,959)
--------------
Issuance of common stock upon exercise of options,
warrants or stock appreciation rights (SAR):
At $1.95 per share - - - - -
At $1.95 per share - - - - 97,500
At $1.95 per share - - - - 185,250
At $1.95 per share - - - - 97,500
At $7.25 per share - - - - 18,125
At $9.67 per share - - - - 1,165,410
At $1.95 per share - - - - 146,250
At $1.95 per share - - - - 97,500
At $5.50 per share - - - - 27,500
At $10.35 per share - - - - 481,275
At $7.25 per share - - - - 72,500
At $1.95 per share - - - - 61,425
At $7.25 per share - - - - 18,125
At $22.00 per share (SAR) - - - - 112,840
At $9.67 per share - - - - 2,615,020
At $21.00 per share (SAR) - - - - 40,110
At $11.54 per share - - - - 98,800
At $1.95 per share - - - - 9,750
At $6.25 per share - - - - 312,500
At $8.95 per share - - - - 243,887
At $7.25 per share - - - - 370,443
At $11.54 per share - - - - 611,325
At $15.74 per share - - - - 944,400
Capital contribution by officer - - - - 53,170
Public offering of common stock at $25.2732 per share,
net of issuance costs of approximately $2,217,000 - - - - 26,847,396
Accrued stock appreciation rights - - - - 1,103,542
------------------------------------------------------------------------
Balance at December 31, 1996 (17,358,307) 112,875 - - 40,518,758
</TABLE>
F-10
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
(Note 2)
<TABLE>
<CAPTION>
COMMON STOCK, COMMON STOCK
$.01 PAR VALUE SUBSCRIBED ADDITIONAL
---------------------- -------------------- PAID-IN
DATE SHARES AMOUNTS SHARES AMOUNT CAPITAL
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss for 1997 - $ - - $ - $ -
Foreign currency translation adjustment for 1996 - - - - -
Comprehensive income - - - - -
Issuance of common stock upon exercise of options,
warrants or stock appreciation rights (SAR):
At prices ranging from $25.50 to $32.25 (SAR) January 1997 3,690 37 - - 98,023
At $8.95 per share January 1997 32,700 328 - - 292,338
At $11.54 per share January 1997 34,240 343 - - 394,857
At $5.50 per share February 1997 25,000 250 - - 137,250
At $7.25 per share February 1997 45,000 450 - - 325,800
At $11.54 per share February 1997 32,324 322 - - 372,772
At $34.50 per share (SAR) February 1997 473 5 - - 16,345
At $5.50 per share March 1997 15,000 150 - - 82,350
At $7.25 per share March 1997 2,500 25 - - 18,100
At $11.54 per share March 1997 52,930 529 - - 610,401
At $13.69 per share March 1997 34,500 344 - - 471,856
At $33.50 per share (SAR) March 1997 391 4 - - 13,121
At $1.95 per share April 1997 285,000 2,850 - - 552,900
At $5.50 per share April 1997 80,000 800 - - 439,200
At $7.25 per share April 1997 100,000 1,000 - - 724,000
At $11.54 per share April 1997 17,253 173 - - 198,972
At $5.50 per share May 1997 5,000 50 - - 27,450
At $6.94 per share May 1997 2,000 20 - - 13,860
At $7.00 per share May 1997 5,000 50 - - 34,950
At $7.25 per share May 1997 5,000 50 - - 36,200
At $11.54 per share May 1997 13,979 140 - - 161,213
</TABLE>
F-11
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
(Note 2)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED STOCK TOTAL
DURING THE OTHER SUBSCRIPTION STOCKHOLDERS'
DEVELOPMENT COMPREHENSIVE AND NOTES DEFERRED EQUITY
STAGE INCOME RECEIVABLE COMPENSATION (DEFICIT)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss for 1997 $(8,110,521) $ - $ - $ - $(8,110,521)
Foreign currency translation adjustment for 1996 - 106,761 - - 106,761
--------------
Comprehensive income - - - - (8,003,760)
--------------
Issuance of common stock upon exercise of options,
warrants or stock appreciation rights (SAR):
At prices ranging from $25.50 to $32.25 (SAR) - - - - 98,060
At $8.95 per share - - - - 292,666
At $11.54 per share - - - - 395,200
At $5.50 per share - - - - 137,500
At $7.25 per share - - - - 326,250
At $11.54 per share - - - - 373,094
At $34.50 per share (SAR) - - - - 16,350
At $5.50 per share - - - - 82,500
At $7.25 per share - - - - 18,125
At $11.54 per share - - - - 610,930
At $13.69 per share - - - - 472,200
At $33.50 per share (SAR) - - - - 13,125
At $1.95 per share - - - - 555,750
At $5.50 per share - - - - 440,000
At $7.25 per share - - - - 725,000
At $11.54 per share - - - - 199,145
At $5.50 per share - - - - 27,500
At $6.94 per share - - - - 13,880
At $7.00 per share - - - - 35,000
At $7.25 per share - - - - 36,250
At $11.54 per share - - - - 161,353
</TABLE>
F-12
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
(Note 2)
<TABLE>
<CAPTION>
COMMON STOCK, COMMON STOCK
$.01 PAR VALUE SUBSCRIBED ADDITIONAL
---------------------- ------------------- PAID-IN
DATE SHARES AMOUNTS SHARES AMOUNT CAPITAL
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock upon exercise of options,
warrants or stock appreciation rights (SAR) (continued):
At $1.95 per share June 1997 10,000 $ 100 - $ - $ 19,400
At $5.50 per share June 1997 5,000 50 - - 27,450
At $7.00 per share June 1997 5,000 50 - - 34,950
At $7.25 per share June 1997 15,000 150 - - 108,600
At $11.54 per share June 1997 32,782 327 - - 378,052
At $8.95 per share July 1997 16,350 163 - - 146,169
At $11.54 per share July 1997 2,033 20 - - 23,445
At $15.74 per share July 1997 17,250 172 - - 235,928
At $11.54 per share August 1997 120,801 1,209 - - 1,393,106
At $5.38 per share September 1997 10,000 100 - - 53,700
At $7.25 per share September 1997 1,000 10 - - 7,240
At $13.41 per share September 1997 1,070 11 - - 14,339
At $5.38 per share October 1997 5,000 50 - - 26,850
At $7.25 per share October 1997 5,000 50 - - 36,200
At prices ranging from $25.75 to $27.00 (SAR) October 1997 7,437 75 - - 200,141
At $5.50 per share November 1997 30,000 300 - - 164,700
At $6.00 per share November 1997 5,000 50 - - 29,950
At $6.375 per share November 1997 46,666 467 - - 297,029
At $19.75 per share (SAR) November 1997 1,053 11 - - 20,794
At $5.38 per share December 1997 5,000 50 - - 26,850
Accrued stock appreciation rights - - - - (591,915)
--------------------------------------------------------
Balance at December 31, 1997 10,185,765 101,858 - - 65,348,603
</TABLE>
F-13
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
(Note 2)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED STOCK TOTAL
DURING THE OTHER SUBSCRIPTION STOCKHOLDERS'
DEVELOPMENT COMPREHENSIVE AND NOTES DEFERRED EQUITY
STAGE INCOME RECEIVABLE COMPENSATION (DEFICIT)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock upon exercise of options,
warrants or stock appreciation rights (SAR) (continued):
At $1.95 per share $ - $ - $ - $ - $ 19,500
At $5.50 per share - - - - 27,500
At $7.00 per share - - - - 35,000
At $7.25 per share - - - - 108,750
At $11.54 per share - - - - 378,379
At $8.95 per share - - - - 146,332
At $11.54 per share - - - - 23,465
At $15.74 per share - - - - 236,100
At $11.54 per share - - - - 1,394,315
At $5.38 per share - - - - 53,800
At $7.25 per share - - - - 7,250
At $13.41 per share - - - - 14,350
At $5.38 per share - - - - 26,900
At $7.25 per share - - - - 36,250
At prices ranging from $25.75 to $27.00 (SAR) - - - - 200,216
At $5.50 per share - - - - 165,000
At $6.00 per share - - - - 30,000
At $6.375 per share - - - - 297,496
At $19.75 per share (SAR) - - - - 20,805
At $5.38 per share - - - - 26,900
Accrued stock appreciation rights - - - - (591,915)
------------------------------------------------------------------------
Balance at December 31, 1997 (25,468,828) 219,636 - - 40,201,269
</TABLE>
F-14
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
(Note 2)
<TABLE>
<CAPTION>
COMMON STOCK, COMMON STOCK
$.01 PAR VALUE SUBSCRIBED ADDITIONAL
---------------------- ------------------- PAID-IN
DATE SHARES AMOUNTS SHARES AMOUNT CAPITAL
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss for 1998 - $ - - $ - $ -
Foreign currency translation adjustment for 1998 - - - - -
Comprehensive loss - - - - -
Issuance of common stock upon exercise of options,
warrants or stock appreciation rights (SAR):
At $5.50 per share January 1998 10,000 100 - - 54,900
At $5.38 per share March 1998 2,000 20 - - 10,740
At $13.41 per share May 1998 1,284 13 - - 17,207
At $5.38 per share June 1998 5,000 50 - - 26,850
At $5.38 per share December 1998 3,000 30 - - 16,110
Deferred compensation - - - - 3,575,256
Accrued stock appreciation rights - - - - (334,881)
--------------------------------------------------------
Balance at December 31, 1998 10,207,049 $102,071 - $ - $68,714,785
========================================================
</TABLE>
See accompanying notes.
F-15
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
(Note 2)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED STOCK TOTAL
DURING THE OTHER SUBSCRIPTION STOCKHOLDERS'
DEVELOPMENT COMPREHENSIVE AND NOTES DEFERRED EQUITY
STAGE INCOME RECEIVABLE COMPENSATION (DEFICIT)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss for 1998 $(11,496,793) $ - $ - $ - $(11,496,793)
Foreign currency translation adjustment for 1998 - 106,252 - - 106,252
---------------
Comprehensive loss - - - - (11,390,541)
---------------
At $5.50 per share - - - - 55,000
At $5.38 per share - - - - 10,760
At $13.41 per share - - - - 17,220
At $5.38 per share - - - - 26,900
At $5.38 per share - - - - 16,140
Deferred compensation - - - (1,985,309) 1,589,947
Accrued stock appreciation rights - - - - (334,881)
------------------------------------------------------------------------
Balance at December 31, 1998 $(36,965,621) $325,888 $ - $(1,985,309) $30,191,814
========================================================================
</TABLE>
See accompanying notes.
F-16
<PAGE>
OXiGENE, Inc.
(A development stage company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 22, 1988
YEAR ENDED DECEMBER 31 (INCEPTION) THROUGH
1996 1997 1998 DECEMBER 31, 1998
-------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net loss $(5,958,433) $(8,110,521) $(11,496,793) $(36,965,621)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss on securities 2,513 - - 11,973
available-for-sale
Depreciation 37,153 79,244 61,622 202,088
Abandonment of furniture, fixture
and equipment 9,041 - 3,903 12,944
Compensation related to issuance
of warrants, options and stock
appreciation rights 1,035,270 (243,359) 1,255,066 2,718,197
Changes in operating assets and
liabilities:
Prepaid expenses and other
current assets (283,636) (173,311) (297,037) (1,021,646)
Accounts payable, accrued
expenses and other payables 185,457 370,986 1,917,412 2,911,072
-------------------------------------------------------------------
Net cash used in operating activities (4,972,635) (8,076,961) (8,555,827) (32,130,993)
Financing activities
Proceeds from investor - - - 100,000
Repayment to investor - - - (100,000)
Proceeds from issuance and subscription
of common stock, net 34,521,881 7,929,630 126,020 64,062,053
Other capital contributions 53,170 - - 53,170
-------------------------------------------------------------------
Net cash provided by financing activities 34,575,051 7,929,630 126,020 64,115,223
Investing activities
Purchases of securities - - - (3,368,253)
available-for-sale
Proceeds from sale of securities available-
for-sale 500,000 - - 3,356,280
Deposits - (70,000) - (79,600)
Purchase of furniture, fixtures and
equipment (101,058) (233,882) (41,349) (436,809)
-------------------------------------------------------------------
Net cash provided by (used in) investing
activities 398,942 (303,882) (41,349) (528,382)
-------------------------------------------------------------------
Effect of exchange rate on changes in
cash 109,219 70,693 91,028 300,686
-------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 30,110,577 (380,520) (8,380,128) 31,756,534
Cash and cash equivalents at beginning
of period 10,406,605 40,517,182 40,136,662 -
-------------------------------------------------------------------
Cash and cash equivalents at end
of period $40,517,182 $40,136,662 $31,756,534 $31,756,534
===================================================================
</TABLE>
See accompanying notes.
F-17
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 1998
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
OXiGENE, Inc. (the "Company") is a development stage pharmaceutical company.
The Company was originally incorporated as Oxi-Gene, Inc. in the State of New
York on February 22, 1988 and subsequently recapitalized and incorporated in
the State of Delaware in December 1992.
The Company is in the research phase of its operations. Because operations
to-date have consisted of research activities only, no substantial income has
been generated to-date and the losses sustained result principally from outlays
for research and administrative expenses. The Company may need to obtain
additional funding from outside sources to fund operating expenses, pursue
regulatory approvals and build production, sales and marketing capabilities, as
necessary.
PRINCIPLES OF CONSOLIDATION
In December 1994, the Company established a wholly-owned subsidiary in Sweden,
OXiGENE (Europe) AB, to manage and control the Company's research and
development work, and monitor European clinical trials. The accounts of the
subsidiary have been consolidated from the time the subsidiary commenced
operations in January 1995. All material intercompany balances and transactions
have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-18
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
DEPRECIATION
Furniture, fixtures and equipment are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the assets
which is principally seven years.
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.
At December 31, 1998, substantially all of cash and cash equivalents was
deposited in one financial institution. Approximately 73% and 26% of cash and
cash equivalents were deposited at two financial institutions at December 31,
1997.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the subsidiary are translated at year-end rates and
income and expenses are translated at average exchange rates prevailing during
the year. Translation adjustments arising from differences in exchange rates
from period to period are included in the accumulated foreign currency
translation adjustments account in stockholders' equity.
INVESTMENTS
The Company accounts for marketable securities in accordance with the
provisions of Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities.
F-19
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
PATENT AND PATENT APPLICATIONS
The Company has filed applications for patents in connection with technologies
being developed. The patent applications and any patents issued as a result of
these applications are important to the protection of the Company's technologies
that may result from its research and development efforts. The pharmaceutical
industry is highly competitive and patents may be challenged from time to time.
The Company intends to vigorously defend its issued patents and may therefore
incur significant costs in the defense of the patents and related technologies.
Costs associated with the patent and patent applications are expensed as
incurred.
INCOME TAXES
The Company accounts for income taxes based upon the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"). Under SFAS 109, the liability method is used for accounting for income
taxes, and deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities.
SHARE INFORMATION
All outstanding share amounts included in the accompanying consolidated
financial statements have been adjusted to reflect the 10,000 for 1 stock split
disclosed in Note 2.
UNAUDITED INFORMATION
Information pertaining to the period from February 22, 1988 (inception) through
December 31, 1989 is unaudited.
F-20
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. The Company's basic net
loss per share was calculated by dividing the net loss per share by the weighted
average number of shares outstanding. All options and warrants issued by the
Company were antidilutive and, accordingly, excluded from the calculation of
weighted average shares. Accordingly, Statement 128 had no effect on the
Company's net loss per share.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 is effective for fiscal years beginning
after December 31, 1995 and prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company has elected to continue to account for its stock based
compensation plans in accordance with the provisions of APB 25.
F-21
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting Standards Board
Statement No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of SFAS 130 had no impact on the Company's
net income or shareholders' equity. SFAS 130 requires unrealized gains or losses
on the Company's available-for-sale securities and the foreign currency
translation adjustments, which prior to adoption were reported separately in
shareholders' equity, to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS 130. Accumulated other Comprehensive income at December 31, 1998 and 1997
consists of accumulated foreign currency translation adjustments.
2. STOCKHOLDERS' EQUITY
PRIVATE PLACEMENT
In July 1995, the Company completed a private placement of 1,666,700 common
shares at $6.00 per share, resulting in net proceeds (after deducting issuance
costs) of approximately $9.5 million.
PUBLIC OFFERING
In November 1996, the Company completed a public offering of 1,150,000 common
shares at $25.2732 per share, resulting in net proceeds (after deducting
issuance costs) of approximately $26.8 million.
RECAPITALIZATION
During December 1992, in connection with the recapitalization (see Note 1), the
Company changed its authorized common stock from 1,000 shares at $1.00 par value
to 5,000,000 shares at $.01 par value. In addition, the Company declared a
10,000 for 1 stock split on the then issued and outstanding common shares.
In April 1993, the Company changed its authorized common stock from 5,000,000
shares at $.01 par value to 10,000,000 shares at $.01 par value.
F-22
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
2. STOCKHOLDERS' EQUITY (continued)
In May 1995, the Company changed its authorized common stock from 10,000,000
shares at $.01 par value to 15,000,000 shares at $.01 par value.
In November 1996, the Company changed its authorized common stock from
15,000,000 shares at $.01 par value to 60,000,000 shares at $.01 par value.
OPTIONS AND WARRANTS
The following is a summary of the Company's stock option, warrant and stock
appreciation rights activity:
NUMBER OF OPTIONS, WARRANTS AND STOCK APPRECIATION RIGHTS
<TABLE>
<CAPTION>
STOCK STOCK
NONQUALIFIED INCENTIVE APPRECIATION STOCK
STOCK OPTIONS OPTIONS RIGHTS WARRANTS
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 869,500 115,000 77,000 2,631,500
Granted during 1996 336,518 13,482 - 148,350
Exercised during 1996 (74,000) - (10,000) (998,004)
Canceled during 1996 (20,000) - - -
-----------------------------------------------------------------
Balance at December 31, 1996 1,112,018 128,482 67,000 1,781,846
Granted during 1997 316,120 19,880 - -
Exercised during 1997 (402,166) - (17,388) (718,212)
Canceled during 1997 - - - -
-----------------------------------------------------------------
Balance at December 31, 1997 1,025,972 148,362 49,612 1,063,634
Granted during 1998 240,594 - - -
Exercised during 1998 (20,000) - - (1,284)
Canceled during 1998 (47,500) (6,000) - (115,800)
Adjustment for options repriced
during 1998 (116,878) (3,049) - -
-----------------------------------------------------------------
Balance at December 31, 1998 1,082,188 139,313 49,612 946,550
=================================================================
</TABLE>
F-23
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
2. STOCKHOLDERS' EQUITY (continued)
WEIGHTED AVERAGE PRICE OF OPTIONS, WARRANTS AND
STOCK APPRECIATION RIGHTS
<TABLE>
<CAPTION>
STOCK STOCK
NONQUALIFIED INCENTIVE APPRECIATION STOCK
STOCK OPTIONS OPTIONS RIGHTS WARRANTS
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 6.21 $ 7.52 $ 6.95 $ 8.50
Granted during 1996 27.69 22.13 - 10.73
Exercised during 1996 6.46 - 6.41 7.22
Canceled during 1996 6.00 - - -
Balance at December 31, 1996 12.75 8.95 7.03 9.60
Granted during 1997 30.75 28.81 - -
Exercised during 1997 6.35 - 6.58 8.28
Balance at December 31, 1997 20.76 11.43 7.26 12.63
Granted during 1998 9.43 - - -
Exercised during 1998 5.44 - - 13.41
Canceled during 1998 28.20 28.81 - 10.92
Balance at December 31, 1998 10.37 9.44 7.26 12.93
</TABLE>
OPTIONS, WARRANTS AND STOCK APPRECIATION RIGHTS EXERCISABLE
<TABLE>
<CAPTION>
STOCK STOCK
NONQUALIFIED INCENTIVE APPRECIATION STOCK
STOCK OPTIONS OPTIONS RIGHTS WARRANTS
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995:
Exercisable 747,833 125,000 66,000 2,631,500
Weighted average exercise price $6.22 $7.52 $6.87 $8.50
December 31, 1996:
Exercisable 824,673 129,494 67,000 1,781,846
Weighted average exercise price $5.53 $7.01 $7.03 $9.60
December 31, 1997:
Exercisable 445,814 129,519 49,612 1,063,634
Weighted average exercise price $10.07 $7.01 $7.26 $12.63
December 31, 1998:
Exercisable 401,846 123,988 49,612 946,550
Weighted average exercise price $8.40 $9.02 $7.26 $12.93
</TABLE>
F-24
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
2. STOCKHOLDERS' EQUITY (continued)
OPTIONS, WARRANTS AND STOCK APPRECIATION RIGHTS OUTSTANDING
<TABLE>
<CAPTION>
STOCK STOCK
NONQUALIFIED INCENTIVE APPRECIATION STOCK
STOCK OPTIONS OPTIONS RIGHTS WARRANTS
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1998:
Exercise price of $1.95 per
share:
Outstanding 10,000 - - 40,000
Weighted average remaining
contractual life .4 years - - 4 years
Exercisable 10,000 - - 40,000
Exercise prices ranging from
$5.38 per share to $10.00 per
share:
Outstanding 945,670 139,313 49,612 906,550
Weighted average exercise
price $8.08 $9.44 $7.26 $13.41
Weighted average remaining
contractual life 7.7 years 5.5 years 5.0 years 1 year
Exercisable 345,834 123,988 49,612 906,550
Weighted average exercise
price $5.98 $9.02 $7.26 $13.41
Exercise prices ranging from
$28.81 to $32.13:
Outstanding 126,518 - - -
Weighted average exercise
price $28.20 - - -
Weighted average remaining
contractual life 8 years - - -
Exercisable 46,012 - - -
Weighted average exercise
price $27.93 - - -
</TABLE>
STOCK OPTION PLANS
During 1992, the Board of Directors implemented an Stock Incentive Option Plan
(the "Plan"). The Plan, which was amended in 1993, provided for the grant of
options to purchase up to 1,166,900 shares of common stock to any officer,
director and employee of the Company upon the terms and conditions (including
price, exercise date and number of shares) determined by the Board of Directors
or a committee selected by the Board of Directors to administer the Plan. The
Plan provided for the issuance of stock appreciation rights.
F-25
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
2. STOCKHOLDERS' EQUITY (continued)
Under the Plan, the exercise price determined by the Board of Directors or
committee must be at least 100% of the fair market value of the Company's common
stock as of the date of the grant. Upon termination of employment, any granted
option, vested or unvested, shall, to the extent not previously exercised,
terminate except under certain conditions as outlined in the Plan. The options
granted under the Plan are generally exercisable at specific dates over a
ten-year period.
In 1996, the Company's stockholders approved the OXiGENE 1996 Stock Incentive
Plan (the "1996 Plan"). Certain directors, officers and employees of the Company
and its subsidiary and consultants and advisors thereto may be granted options
to purchase shares of common stock of the Company. Under the terms of the 1996
Plan, "incentive stock options" (ISOs) within the meaning of Section 422 of the
Internal Revenue Code, "nonqualified stock options" (NQSOs) and stock
appreciation rights may be granted. A maximum of 1,000,000 shares may be the
subject of ISOs, NQSOs and stock appreciation rights under the 1996 Plan.
The Company extended the term of certain options and stock appreciation rights
(see below) issued to employees. Such options and stock appreciation rights
expired in May 1998 and were extended to June 1999. In the fourth quarter, the
Company recorded compensation expense of approximately $650,000 relating to this
extension.
On December 14, 1998, the Company repriced certain options issued to employees,
directors and members of the Scientific Advisory Board. The revised exercise
prices were $8.93 per share (market value on December 14, 1998) and $10 per
share. In addition, options issued in 1998 included options to nonemployees. The
Company recorded compensation expense of approximately $17,000 relating to
nonemployee options issued or repriced.
In 1998, the Company also recorded stock-based compensation expense of
approximately $922,000 in connection with other options issued to nonemployees.
STOCK APPRECIATION RIGHTS
From 1993 through 1995, the Board of Directors granted stock appreciation rights
to 77,000 shares at exercise prices ranging from $5.88 to $7.63. Stock
appreciation rights expire ten years from date of grant.
F-26
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
2. STOCKHOLDERS' EQUITY (continued)
In 1996 and 1997, stock appreciation rights to 10,000 and 17,388 shares were
exercised when the market values of the Company's common stock exceeded the
exercise price of the stock appreciation rights and 7,039 and 13,044 shares,
respectively, were issued.
The Company records a charge for financial reporting purposes when the market
value of the common stock exceeds the exercise price of the stock appreciation
rights. The charge is adjusted to reflect subsequent changes in market value.
Because stock appreciation rights are satisfied, upon exercise, only by the
distribution of shares of common stock of the Company, the charge related to
unexercised stock appreciation rights is credited to additional paid-in capital.
The market value of the Company's common stock at December 31, 1998 ($10.75) was
less than the market value at December 31, 1997 ($17.50) and, accordingly, the
charge previously recorded for financial reporting purposes was reduced by a
credit of approximately $335,000 in 1998 to reflect the market value of the
unexercised stock appreciation rights at December 31, 1998.
STOCK WARRANTS
During 1993, the Company completed an initial public offering of 1,500,000 units
at $6.00 per unit and an over-allotment issuance of 105,000 units at $6.00 per
unit. Each unit consists of one share of the Company's common stock and one
warrant (the "Public Warrant"). Each warrant was exercisable for one share of
the Company's common stock at a price of $7 per share during the first year of
exercisability. Thereafter, the exercise price increased each year by $2. In
connection with this offering, the Company sold to the Underwriters, for nominal
consideration, 150,000 Warrants (the "Underwriters' Warrants"). The
Underwriters' Warrants were initially exercisable at a price of $9.90 per unit
for a period of four years, commencing August 26, 1994. The shares of common
stock and warrants issuable upon the exercise of the Underwriters' Warrants are
identical to those included in the units offered hereby except that the warrants
contained in the Underwriters' Warrants were initially exercisable to purchase
one share of common stock at $11.55. In January 1997, to comply with
anti-dilution provisions, the number of shares issuable upon the exercise of the
Public Warrants and Underwriters' Warrants were revised to 1,717,350 and
163,500, respectively. The exercise prices of such warrants were also revised to
$10.35 (subsequently increased to $12.35 and $14.35 in August 1996 and 1997,
respectively) and $8.95 per share, respectively. In addition,
F-27
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
2. STOCKHOLDERS' EQUITY (continued)
the total shares of common stock issuable upon the exercise of the warrant
contained in the Underwriters' Warrants was increased to 172,500 and the
exercise price was revised to $13.69 per share. In July 1998, the term of the
Public Warrants that were due to expire in August 1998 were extended through
December 31, 1999. The amended terms of these warrants include a redemption
feature.
Public Warrants outstanding at December 31, 1998 amounted to 906,550. There were
no Underwriters' Warrants outstanding at December 31, 1998. In addition, the
Company has issued warrants to directors and other individuals. Such warrants
outstanding at December 31, 1998 amounted to $40,000 with an exercise price of
$1.95.
COMMON STOCK RESERVED FOR ISSUANCE
As of December 31, 1998, the Company has reserved approximately 2,500,000 shares
of its common stock for issuance in connection with stock options, stock
appreciation rights and warrants.
MERGER
During February 1991, the Company issued 100,000 shares of its common stock to
an officer/director and a director for all the outstanding common stock of
Bio-Screen, Inc. The balance sheet and the cumulative results of operations of
Bio-Screen, Inc. were not material to the Company and, consequently, the
consolidated statements of operations of the Company have not been restated. The
issuance of the 100,000 shares, which have been recorded at par value, has been
reflected as of August 1988, the date of inception of Bio-Screen, Inc. (see Note
4--"Commitments and Contingencies").
F-28
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
2. STOCKHOLDERS' EQUITY (continued)
STOCK BASED COMPENSATION
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options and stock appreciation rights under the fair value method
of SFAS 123. The fair value for these options and stock appreciation rights was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1996, 1997 and 1998:
ASSUMPTION 1996 1997 1998
- - --------------------------------------------------------------------------------
Risk-free rate 5.9% 5.5% 4.8%
Dividend yield 0.0% 0.0% 0.0%
Volatility factor of the expected market
price of the Company's common stock .717 .649 .858
Average life 3 years 3 years 4 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 and stock appreciation rights 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 and stock appreciation rights.
For purposes of pro forma disclosures, the estimated fair value of the options
and stock appreciation rights is amortized to expense over the vesting period of
the options and stock appreciation rights. The Company's pro forma information
follows:
1996 1997 1998
-----------------------------------------------
Pro forma net loss $(6,836,000) $(10,500,000) $(13,900,000)
Pro forma net loss per share $(.92) $(1.07) $(1.36)
The weighted average fair value of options granted during the years ended
December 31, 1996, 1997 and 1998 were $11.96, $14.47 and $7.00, respectively.
F-29
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $49,000,000 for U.S. and foreign income tax purposes, $26,600,000
expiring for U.S. purposes through 2018. The utilization of approximately
$2,500,000 of such U.S. net operating losses are subject to an annual limitation
pursuant to Section 382 of the Internal Revenue Code of approximately $350,000.
Components of the Company's deferred tax asset at December 31, 1997 and 1998
are as follows:
1997 1998
------------------------------------
Net operating loss carryforwards $ 13,311,000 $ 15,800,000
Compensatory stock options, warrants
and stock appreciation rights 259,000 259,000
------------------------------------
Total deferred tax asset 13,570,000 16,059,000
Valuation allowance (13,570,000) (16,059,000)
------------------------------------
Net deferred tax asset $ - $ -
====================================
The change in valuation allowance amounted to increases of approximately
$4,820,000 and $10,100,000 respectively, for the years ended December 31, 1996
and 1997.
4. COMMITMENTS AND CONTINGENCIES
The Company leases premises in facilities in New York, Boston and Stockholm and
Lund, Sweden. Rent expense for the years ended December 31, 1996, 1997 and 1998
was approximately $80,000, $185,000 and $228,000, respectively.
The minimum annual rent commitments for the above leases are as follows:
1999 $ 142,000
2000 101,000
2001 60,000
2002 15,000
---------------
$ 318,000
===============
F-30
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
4. COMMITMENTS AND CONTINGENCIES (continued)
In connection with the merger with Bio-Screen, Inc. (see Note 2), the Company
obtained a license agreement to patent rights to a certain product. The
agreement requires the Company to pay royalties, as defined, based on revenues
received by the Company in respect to the specified product. The license expires
in October 2011. The product has not yet been commercially developed.
From time-to-time, the Company may be a party to litigation arising from the
normal course of its business. The Company is and will continue to vigorously
defend the actions and claims against it. In the opinion of management, these
claims are either without merit or, based in part on opinions from legal
counsel, will not have a material adverse effect on the Company's financial
position.
5. RELATED PARTY TRANSACTIONS
In September 1991, the Company entered into an agreement with CATO Research,
Ltd. ("CATO"), a North Carolina corporation, which is majority-owned by Dr.
Cato, a consultant to the Company's Scientific Advisory Board, through January
1998 pursuant to which CATO performed preclinical and clinical planning,
development and regulatory services in connection with the Company's efforts to
obtain FDA approval for its technology. CATO was compensated by the Company on
an hourly basis for services actually rendered.
The Company has consulting agreements with certain organizations whose principal
stockholders are officers of the Company. Consulting fees paid to such
organizations amounted to approximately $336,000, $494,000 and $330,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
During 1998, the Company incurred approximately $301,000 in fees for services
provided by a law firm, of which one of the members of the Board of Directors is
a partner.
F-31
<PAGE>
OXiGENE, Inc.
(A development stage company)
Notes to Consolidated Financial Statements (continued)
6. FOREIGN OPERATIONS
Summary financial information for assets, liabilities at December 31, 1996, 1997
and 1998 and expenses and net loss for the years then ended related to foreign
operations are as follows:
DECEMBER 31
1996 1997 1998
----------------------------------------------------
Assets $40,414,000 $40,264,000 $32,512,000
Liabilities 478,000 728,000 1,600,000
Expenses 4,208,000 7,899,000 8,654,000
Net loss 4,162,000 7,822,000 8,639,000
Foreign exchange gains for the years ended December 31, 1996, 1997 and 1998
were not significant.
F-32
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-95910, Form S-3 No. 33-64968 and Form S-3 No. 333-15241) and
related Prospectuses of OXiGENE, Inc. and Registration Statement (Form S-8 No.
333-05787) pertaining to the Amended and Restated Stock Incentive Plan of
OXiGENE, Inc. of our report dated January 13, 1999, with respect to the
consolidated financial statements of OXiGENE, Inc. included in this Annual
Report (Form 10-K) for the year ended December 31, 1998.
ERNST & YOUNG LLP
New York, New York
March 29, 1999
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