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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO
_____________.
Commission file number 0-22170
EPOCH BIOSCIENCES, INC.
(Exact name of small business issuer as specified in its charter)
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<S> <C>
Delaware 91-1311592
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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21720 23rd Drive, S.E., N.E., Suite 150, Bothell, Washington 98021
(Address of principal executive offices) (Zip Code)
(425) 482-5555
(Issuer's telephone number, including area code)
Epoch Pharmaceuticals, Inc.
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
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Class Outstanding at November 1, 2000
----- -------------------------------
Common Stock, $.01 par value 24,944,118
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EPOCH BIOSCIENCES, INC.
INDEX TO FORM 10-QSB
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Page Number
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Part I. Financial Information
Item 1. Financial Statements
Balance Sheets (unaudited) as of December 31, 1999
and September 30, 2000 ...................................................... 3
Statements of Operations (unaudited) for the three and nine
months ended September 30, 1999 and 2000..................................... 4
Statements of Cash Flows (unaudited) for the nine months ended
September 30, 1999 and 2000.................................................. 5
Notes to Financial Statements (unaudited).................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................................7
Part II. Other Information
Item 1. Legal Proceedings......................................................................14
Item 4. Submission of Matters to a Vote of Security Holders....................................14
Item 6. Exhibits and Reports on Form 8-K.......................................................15
Note: Items 2, 3, and 5 are omitted, as they are not applicable.
Signature ...........................................................................................16
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EPOCH BIOSCIENCES, INC.
BALANCE SHEETS
(UNAUDITED)
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<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
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ASSETS
Current assets:
Cash and cash equivalents ........................................................... $ 1,772,274 $ 16,453,915
Receivables ......................................................................... 20,073 67,056
Prepaid expenses .................................................................... 34,188 107,894
------------ ------------
Total current assets ............................................................ 1,826,535 16,628,865
Equipment and leasehold improvements, net ................................................ 399,705 2,010,147
Restricted cash .......................................................................... -- 618,397
License rights ........................................................................... -- 544,025
Other assets ............................................................................. 39,344 36,561
------------ ------------
Total assets .................................................................... $ 2,265,584 $ 19,837,995
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................................... $ 102,884 $ 239,661
Accrued liabilities ................................................................. 393,660 521,531
Deferred revenue - current portion .................................................. 277,742 277,742
------------ ------------
Total current liabilities ....................................................... 774,286 1,038,934
Deferred revenue ......................................................................... 1,316,129 1,771,496
Stockholders' equity:
Preferred stock, par value $.01; 10,000,000 shares
authorized; no shares issued and outstanding .................................... -- --
Common stock, par value $.01; 50,000,000 shares
authorized; issued and outstanding: 19,382,410 at
December 31, 1999 and 24,917,119 at September 30, 2000 .......................... 193,824 249,171
Additional paid-in capital .......................................................... 61,625,990 81,902,455
Deferred stock compensation ......................................................... (111,874) (75,910)
Accumulated deficit ................................................................. (61,532,771) (65,048,151)
------------ ------------
Total stockholders' equity ...................................................... 175,169 17,027,565
------------ ------------
Commitments and subsequent event..........................................................
Total liabilities and stockholders' equity ............................................... $ 2,265,584 $ 19,837,995
============ ============
</TABLE>
See accompanying notes to financial statements.
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EPOCH BIOSCIENCES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
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Revenue:
Product sales ............................... $ -- $ 44,560 $ -- $ 257,280
License fees ................................ -- 18,261 -- 44,631
Research contract revenue ................... 17,162 120,000 169,779 120,000
------------ ------------ ------------ ------------
Total revenue ........................... 17,162 182,821 169,779 421,911
Operating expenses:
Research and development .................... 617,167 703,866 1,914,983 2,181,842
General and administrative .................. 334,936 897,040 988,571 2,426,309
------------ ------------ ------------ ------------
Total operating expenses ................ 952,103 1,600,906 2,903,554 4,608,151
------------ ------------ ------------ ------------
Operating loss .......................... (934,941) (1,418,085) (2,733,775) (4,186,240)
Other income (expense):
Interest income ............................. 4,065 270,037 35,992 671,013
Interest and financing expense .............. (235,531) -- (699,135) (153)
------------ ------------ ------------ ------------
Loss from continuing operations ......... (1,166,407) (1,148,048) (3,396,918) (3,515,380)
Discontinued operations -
gain on disposal of discontinued operations.. -- -- 70,000 --
------------ ------------ ------------ ------------
Net loss ................................ $ (1,166,407) $ (1,148,048) $ (3,326,918) $ (3,515,380)
Loss per share from continuing operations -
basic and diluted ........................... $ (0.08) $ (0.05) $ (0.22) $ (0.15)
Income per share from discontinued operations -
basic and diluted ........................... -- -- -- --
------------ ------------ ------------ ------------
Net loss per share - basic and diluted ........ $ (0.08) $ (0.05) $ (0.22) $ (0.15)
Weighted average number of common shares
outstanding - basic and diluted ............. 14,926,539 24,874,593 14,876,983 23,731,138
============================================================================================================================
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See accompanying notes to financial statements.
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EPOCH BIOSCIENCES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1999 2000
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Cash flows from operating activities:
Net loss ............................................................................. $ (3,326,918) $ (3,515,380)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .................................................... 73,134 120,436
Amortization of deferred financing expense ....................................... 500,013 --
Amortization of deferred stock compensation ...................................... 35,964 35,964
Stock compensation charge ........................................................ -- 387,461
Amortization of license rights ................................................... -- 12,225
Amortization of deferred revenue ................................................. -- (44,633)
Interest accrued on restricted cash .............................................. -- (25,504)
Changes in operating assets and liabilities:
Receivables ................................................................. (22,762) (46,983)
Prepaid expenses and other assets ........................................... 16,174 (70,923)
Accounts payable ............................................................ 6,998 136,777
Accrued interest on note payable to related party ........................... 197,175 --
Accrued expenses for canceled relocation .................................... (287,397) --
Deferred revenue ............................................................ 2,551,613 500,000
Accrued liabilities ......................................................... (33,832) 127,871
------------ ------------
Net cash used in operating activities ................................... (289,838) (2,382,689)
------------ ------------
Cash flows from investing activities:
Security deposit on new facilities representing restricted cash ...................... -- (592,893)
Investment in license rights ......................................................... -- (250,000)
Investment in leasehold improvements on new facilities ............................... -- (1,384,043)
Acquisition of equipment ............................................................. (221,589) (346,835)
------------ ------------
Net cash used in investing activities ............................................ (221,589) (2,573,771)
Cash flows from financing activities:
Proceeds from sale of common stock ................................................... -- 10,000,039
Proceeds from exercise of warrants ................................................... -- 9,580,030
Proceeds from exercise of stock options .............................................. 71,648 58,032
------------ ------------
Net cash provided by financing activities ........................................ 71,648 19,638,101
------------ ------------
Net increase (decrease) in cash and cash equivalents ...................................... (439,779) 14,681,641
Cash and cash equivalents at beginning of period .......................................... 658,363 1,772,274
------------ ------------
Cash and cash equivalents at end of period ................................................ $ 218,584 $ 16,453,915
============ ============
Supplemental disclosure of investing and financing activities - issuance of common stock in
exchange for license rights .......................................................... $ -- $ 306,250
============ ============
Supplemental disclosure of cash flow information -
cash payments made during the period for interest .................................... $ 1,262 $ 153
============ ============
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See accompanying notes to financial statements.
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EPOCH BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE (1) NATURE OF BUSINESS
Epoch Biosciences, Inc., formerly Epoch Pharmaceuticals, Inc., is
developing and commercializing unique, proprietary technologies to enhance the
study of genes. Epoch scientists are applying their expertise in nucleic acid
chemistry to develop products that improve current methods of studying the
genetic sequence (genomes) of humans, animals and plants. Our technology is
based on our expertise in designing and synthesizing oligonucleotides (synthetic
DNA strands) bearing modifications that more selectively bind to and interact
with their target genes. Using our DNA technology, Epoch is developing molecular
tools and reagents for improved genetic sequence analysis.
Previously, we discovered that we could adapt the compounds and
techniques we were developing for our gene modification therapeutic program to
several gene sequencing analysis systems currently in use or being developed by
others. Our technology has broad application potential in the developing fields
of molecular diagnostics and genomics, including the detection of infectious
diseases, inheritable diseases through prenatal testing, screening populations
to identify genetic markers that correlate with disease risk or drug response,
as well as any other genetic analysis based on DNA sequence determination.
Our technologies are compatible with many methods and formats used to
perform genetic analysis.
NOTE (2) BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required to be presented for complete financial
statements. The accompanying financial statements include all adjustments
(consisting only of normal recurring adjustments), which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. Certain 1999 balances have been reclassified to conform with
the 2000 presentation.
The financial statements and related disclosures have been prepared with
the presumption that users of the interim financial information have read or
have access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited financial statements and the related notes included in Epoch's 1999
Annual Report on Form 10-KSB as filed with the Securities and Exchange
Commission on March 30, 2000.
NOTE (3) LOSS PER SHARE
Basic loss per share is computed based on weighted average shares
outstanding during the reporting period and excludes any potential dilution.
Diluted loss per share reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock. Our capital structure includes common stock options and common
stock warrants. At September 30, 2000, there were 1,693,250 options outstanding
to purchase the common stock of Epoch with exercise prices ranging from $0.30 to
$14.63. Also outstanding at September 30, 2000 were 1,489,849 warrants to
purchase the common stock of Epoch with exercise prices ranging from $0.50 to
$16.00 per
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share. At September 30, 1999, there were 1,419,756 options outstanding to
purchase the common stock of Epoch with exercise prices ranging from $0.30 to
$5.88. Also outstanding at September 30, 1999 were 7,798,875 warrants to
purchase the common stock of Epoch with exercise prices ranging from $0.30 to
$9.21 per share. The assumed conversion and exercise of these securities have
been excluded from the calculation of diluted loss per share for both periods,
as their effect is anti-dilutive.
NOTE (4) RESTRICTED CASH
Restricted cash represents long-term certificates of deposit pledged
under a security agreement in lieu of a cash deposit on our new facility.
NOTE (5) LICENSE AGREEMENT
In June 2000, we licensed from Louisiana State University, LSU, the
rights to use certain technologies covered by a U. S. Patent held by LSU. We
paid $250,000 in cash and issued 50,000 shares of our common stock, valued at
$306,250, in return for the license. The license rights are being amortized on
the straight-line method over the life of the patent, which expires in 2015.
NOTE (6) STOCKHOLDERS' EQUITY
In February 2000 we received $10 million of private equity financing from
the sale of 1,428,577 shares of common stock at $7.00 per share. The $7.00 per
share price was determined based upon the 20 day trailing average of the closing
price of the stock.
In February 2000, Epoch exercised the redemption provision on outstanding
warrants, which were issued in a private placement in 1996 and a warrant
exchange in 1997, representing 3,801,812 shares of common stock. Warrants
representing approximately 3,798,762 shares of common stock were exercised
generating $9,497,000 in cash. In addition to the warrant call, the exercise of
other miscellaneous warrants generated $54,000.
NOTE (7) SUBSEQUENT EVENT
In October 2000, we entered an agreement under which Epoch will develop,
license, and supply some of its proprietary technologies to Third Wave
Technologies, Inc. to be used in Third Wave's Invader(R) Operating System for
genetic analysis. As part of the agreement, we will provide some of our
fluorescent dye chemistries to Third Wave for incorporation in to its Invader
assays and Third Wave will fund some development activities at our facilities.
Third Wave will have an option to license our proprietary minor groove binder
and modified bases technologies.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS; PLAN OF OPERATIONS
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and we intend that these
forward-looking statements be subject to the safe harbors created thereby. These
forward-looking statements include, without limitation, the development and
commercialization of our technology.
The forward-looking statements included in this document are based on
current expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that our technology will
continue to be developed, and will not be replaced by new technology, that we
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will retain key technical and management personnel, and that there will be no
material adverse change in our operations or business. Assumptions relating to
the foregoing involve judgments with respect to, among other things, future
technology, economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe that the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
results contemplated in forward-looking statements will be realized. In
addition, our business and operations are subject to substantial risks, which
increase the uncertainty inherent in these forward-looking statements. In light
of the significant uncertainties inherent in the forward-looking information
included in this document, the inclusion of information should not be regarded
as a representation by us or any other person that our objectives or plans will
be achieved.
Future operating results may be impacted by a number of factors that
could cause actual results to differ materially from those stated herein, which
reflect management's current expectations. These factors include industry
specific factors, our ability to maintain access to external financing sources
and its financial liquidity, our ability to timely develop and produce
commercially viable products and our ability to manage expense levels.
The following discussion of Epoch's financial condition and results of
operations should be read in conjunction with the financial statements and the
related notes thereto included elsewhere in this Quarterly Report on Form
10-QSB. Our actual results may differ significantly from the results discussed
in the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed under "Certain Factors that May
Affect Our Business and Future Results".
RESULTS OF OPERATIONS
Product Sales. Product sales represent the sale of specialty probes to
corporate collaborators. The first shipment of these probes was in December
1999.
License Fees. License fees represent the amortization of initial payments
for the transfer of technology and know how. These amounts are amortized over
the life of the contract beginning in the fourth quarter of 1999.
Research Contract Revenue. Research contract revenue in 1999 represents
revenue from U.S. government grants and contracts, and subcontracts. The company
had no active grants from the U.S. government in the first nine months of 2000.
Research contract revenue in 2000 represents contractual payments funding new
research performed by us based on agreements entered into in 2000.
Research and Development. Research and development expenses increased
$87,000, for the quarter and $267,000, for the nine months ended September 30,
2000, respectively, in relation to the comparable 1999 periods. The increases in
the current year expenses are primarily the result of:
- Epoch's subcontracting support work on research and development to
an outside firm in 2000 in the amount of $67,000. This short-term
contract was concluded in May 2000.
- Increased travel expense of $58,000 during the first nine months
of the year as our scientists have been presenting our
technologies to other companies and the scientific community as we
increase our efforts to commercialize our products, with $12,000
of this increase incurred during the third quarter of 2000.
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- Increased depreciation expense of $40,000 for the year, or $13,000
for the quarter. The Company has acquired additional capital
equipment with a portion of the funding received in 2000.
- Increased facility expense of $58,000 in 2000 over the prior year
as a result of increased rent.
- Additional variations in research and development expense are the
result of normal business fluctuations.
General and Administrative. General and administrative expenses increased
$562,000 in the quarter and $1,438,000 in the nine months ended September 30,
2000 compared to the respective prior year periods. The increase in the 2000
periods is primarily the result of:
- $443,000 in expenses incurred in connection with a warrant call
and private placement completed during the nine month period ended
September 30, 2000, of which $293,000 was incurred in the third
quarter of 2000. In addition to a $150,000 cash payment made in
March, 2000, in August 2000 we issued a five-year warrant for
25,000 shares of common stock on terms equivalent to the February
2000 Private Placement. We recognized $293,000 in expense
representing the fair value of the warrant.
- Annual fees paid to The NASDAQ National Market in the amount of
$94,000 in the second quarter of 2000.
- An increase in expenses for investor relations services of
$145,000 for the nine-month period, or $13,000 for the quarter
ended September 30, 2000. We issued a three-year warrant for a
total of 25,000 shares of common stock at exercise prices ranging
from $8.00 to $16.00 in May 2000. We recognized $94,000 in expense
representing the fair value of the warrant.
- An increase of $81,000 in expenditures associated with the filing
of patents over the prior nine-month period. In the first nine
months of 2000, we incurred $171,000 in fees toward filing patents
on new technologies, as compared to $90,000 in the same period of
1999. We believe that these patents, if issued, will improve our
proprietary position. There can be no assurance that our patent
applications will result in further issued patents or that such
issued patents will offer protection against competitors with
similar technology. Additionally, there can be no assurance that
any manufacture, use or sale of our technology or products will
not infringe on patents or proprietary rights of others, and we
may be unable to obtain licenses or other rights to these other
technologies that may be required for commercialization of the
proposed products.
- An increase over 1999 of $263,000 in compensation related to
additional executive personnel, of which $88,000 is pertinent to
the third quarter.
- Expenditures of $116,000 for the nine-month period and for the
quarter ended September 30, 2000, on executive searches for open
management positions.
- A rent increase of $65,000 for the nine-month period, and $23,000
for the quarter ended September 30, 2000.
- Increased travel expense of $57,000 for the nine-month period, and
$8,000 for the quarter ended September 30, 2000.
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Further variances in general and administrative expenses between the
comparable quarters are the result of normal business fluctuations.
Interest Income. Interest income in the 2000 periods increased over the
comparable prior year period due to higher cash balances available for
investment.
Interest and Financing Expense. Interest and financing expense in 1999
represents the costs associated with the $3,000,000 note payable to a related
party, which was repaid in 1999.
Gain on Disposal. The gain on disposal of discontinued operations
represents only that portion of the gain for which cash payments were received
during the reporting periods. No payments have been received in 2000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000 we had operating cash of $16,454,000.
In February 2000 we received $10 million of private equity financing from
the sale of 1,428,577 shares of common stock at $7.00 per share.
In February 2000, Epoch exercised the redemption provision on outstanding
warrants, which were issued in a private placement in 1996 and a warrant
exchange in 1997, representing 3,801,812 shares of common stock. Warrants
representing approximately 3,798,762 shares of common stock were exercised
generating $9,497,000 in cash.
In addition to the warrant call, the exercise of other miscellaneous
warrants during 2000 have generated $83,030.
Management estimates that the September 30, 2000 cash balance will be
sufficient to operate through 2002.
Utilizing our current cash balances coupled with anticipated revenues
from our licensing agreements, we plan to further develop and verify
applicability of our compounds and techniques in the developing fields of
molecular diagnostics and genomics and to determine how our technology may be
exploited.
We are focused on the development of our products with the goal of
entering into additional corporate partnering arrangements to further
commercialize our technology. Our working capital requirements may vary
depending upon numerous factors including commercialization of our products, the
progress of our research and development, competitive and technological
advances, relocation expenses and other factors. We anticipate operating this
quarter with approximately 28 employees.
In February 2000 we entered into a 12-year non-cancelable lease for a
25,000 square foot facility in Bothell, Washington. We began construction of the
tenant improvements in June 2000. We anticipate an investment of approximately
$3,719,000 for the design and construction of tenant improvements, which are
scheduled for completion in November 2000. These cash outlays will be partially
offset by a payment from the landlord of $1,523,000, which was received in
October 2000.
Cash increased by $14,682,000 during the period. The primary sources of
cash during the year have been $10,000,000 received from a private placement and
$9,638,000 from the exercise of warrants and options, and a $500,000 license fee
received from Applied Biosystems. These sources of cash were
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offset by normal expenditures on operations, the acquisition of $347,000 of
capital equipment, $1,384,000 invested in the new facility, $618,000 security
deposit on the new facility, and the cash payment of $250,000 to LSU for the
patent license. The comparable period of the prior year had a cash decrease of
$440,000, the net result of $2,551,000 received from the Applied Biosystems
license agreement offset by normal operating expenditures and the acquisition of
$222,000 of equipment used in research and development, and payment of $287,000
on the canceled building facility project.
Variances in receivables, accounts payable and accrued liabilities in
2000 and 1999 are the result of normal business fluctuations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2000 the SEC issued Staff Accounting Bulletin No. 101B. SAB 101B
delays the effective date of Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," to the fourth quarter for fiscal years
beginning December 15, 1999. SAB 101 provides guidance on revenue recognition
and the SEC staff's views on the application of accounting principles to
selected revenue recognition issues. We do not believe the application SAB 101
will have a material impact on our financial statements.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation." Interpretation No. 44 clarifies the application of Accounting
Principles Board Opinion No. 25 and became effective July 1, 2000.
Interpretation No. 44 clarifies the definition of "employee" for purposes of
applying APB 25, the criteria for determining whether a plan qualifies as a
non-compensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. The adoption of
Interpretation No. 44 did not have a material impact on our financial
statements.
CERTAIN FACTORS THAT MAY AFFECT OUR BUSINESS AND FUTURE RESULTS
We have never been profitable and anticipate future losses
We have never been profitable. Since our formation in 1985, we have
generated limited revenues. As of September 30, 2000, we had an accumulated
deficit of approximately $65 million. We expect to incur additional losses as we
expand our research and development efforts. We will need additional funds to
continue our research and development activities.
There is a risk that our technology may not be effective or might not work
The science and technology of synthetic DNA-based products is rapidly
evolving. Our proposed products are in the discovery or early development stage.
The proposed products will require significant further research, development,
and testing. We face the risk that any or all of our proposed products could
prove to be ineffective or unsafe, or be an inferior product to products
marketed by others because our products are based on new and unproven innovative
technologies. Some of our current research and development activities may not
result in any commercially viable products. If we do not have commercially
viable products, we will not be able to generate funds internally to support
operations.
We have limited manufacturing experience
While Epoch has experience in researching and developing unique,
proprietary technologies to enhance the study of genes, our experience in
manufacturing our products is relatively limited. While we
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are beginning to produce and supply products to customers for commercial use, we
do not currently have the capacity for high-volume production. We will need to
expand our manufacturing capacity in connection with our continued development
and commercialization of our products. Any delay or inability to expand our
manufacturing capacity could materially adversely affect our manufacturing
ability.
There is a risk that we do not own exclusive rights to our technology and our
competition may have access to our technology, which may prevent us from selling
our products
We attempt to protect our proprietary technology by relying on several
methods including United States patents. We also have international patent
applications that correspond to many of the U.S. patents and patent
applications. The issued patents and pending patent applications cover
inventions relating to the components of our core technologies. The expiration
dates of these patents range from January 2010 to June 2015. We make no
guarantee that any issued patents will provide us with significant proprietary
protection, that pending patents will be issued, or that products incorporating
the technology from our issued patents or pending applications will be free from
challenges by competitors. Further, third parties may hold proprietary rights,
which precede our claims and, therefore, could prohibit us from marketing the
proposed products.
Some of our technology might infringe on the rights of others, which may prevent
us from selling our products
There is a great deal of litigation regarding patents and other
intellectual property rights in the biomedical industry. We were defendants in
one action of this kind, which we settled prior to 1997. Although patent and
intellectual property disputes in the biomedical area are sometimes settled
through licensing or similar arrangements, this kind of solution can be
expensive, if a license can be obtained at all. An adverse determination in a
judicial or administrative proceeding or our failure to obtain necessary
licenses could prevent us from manufacturing and selling our products. This
would substantially hurt our business.
We face numerous competitors and changing technologies which could make our
products obsolete
Many companies do research and development and market products designed
to diagnose conditions based on a number of technologies and are developing
additional products using gene-based technologies. Many of these companies have
substantially greater capital resources, larger research and development and
marketing staffs and facilities and greater experience in developing products
than we have. Furthermore, our specific field in which we operate is subject to
significant and rapid technological change. Even if we successfully introduce
our products or proposed products, our technologies could be replaced by new
technologies or our products or proposed products might be obsolete or
non-competitive.
The loss of key personnel could adversely affect operations by impairing our
research and our efforts to commercialize and license our products
Our performance is greatly dependent upon our key management including
our CEO, Dr. Gerber, and technical personnel and consultants. Our future success
will depend in part upon our ability to retain these people and to recruit
additional qualified personnel. We must compete with other companies,
universities, research entities and other organizations in order to attract and
retain highly qualified personnel. Although we have entered into agreements with
our key executive officers, we make no guarantee that we will retain these
highly qualified personnel or hire additional qualified personnel. We currently
maintain no key man life insurance on any of our management or technical
personnel.
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The value of our common stock could change significantly in a very short time
The market price of our common stock may fluctuate significantly. For
example, in the first quarter of 2000, our stock traded as high as $25.00 and as
low as $2.87. The rapid price changes Epoch has experienced recently, and
throughout our history, place your investment in our common stock at risk of
total loss over a short period of time. We are in the biotechnology industry and
the market price of securities of biotechnology companies have fluctuated
significantly and these fluctuations have often been unrelated to the companies'
operating performance. Announcements by us or our competitors concerning
technological innovations, new products, proposed governmental regulations or
actions, developments or disputes relating to patents or proprietary rights, and
other factors that affect the market generally could significantly impact our
business and the market price of our securities.
The price of our common stock could decrease because more shares will be fully
tradable
Sales of substantial numbers of shares of our common stock in the public
market could substantially reduce the prevailing market price of our common
stock. As of September 30, 2000, 24,917,119 shares of our common stock were
outstanding; 1,489,849 shares of our common stock were issuable upon exercise of
outstanding warrants at exercise prices ranging from $0.50 to$16.00 per share;
and an additional 1,693,250 shares of our common stock were issuable upon
exercise of outstanding options at exercise prices ranging from $0.30 to $14.63
per share. Of the outstanding shares of common stock and shares issuable upon
exercise of warrants and options, substantially all are freely tradable by the
holders of these securities without restriction. If these holders sell a large
number of shares of our common stock in the public market, these sales could
substantially reduce the prevailing market price of our common stock. To the
extent the trading price of our common stock exceeds the exercise price of
options or warrants at the time the options or warrants are exercised, the
exercise will have a dilutive effect on the other stockholders.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Epoch is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An Annual Meeting of Stockholders was held on August 17, 2000.
(b) The following persons were duly elected to serve as directors of
the Company:
Frederick B. Craves, Ph.D.
Richard L. Dunning
William G. Gerber, M.D.
Herbert L. Heynecker, Ph.D.
Kenneth L. Melmon, M.D.
Riccardo Pigliucci
Sanford S. Zweifach
(c) Purpose of the Annual Stockholders Meeting:
(1) Election of Directors. To elect the following seven
nominees to serve as directors until the next annual
meeting of stockholders or until their successors are
elected and have qualified. The following is a tabulation
of votes for each of the proposed seven nominees for
election as directors of the company.
<TABLE>
<CAPTION>
For Withheld Abstain
--- -------- -------
<S> <C> <C> <C>
Frederick B. Craves, Ph.D. 19,991,945 75,429 --
Richard L. Dunning 19,991,945 75,429 --
William G. Gerber, M.D. 18,734,045 1,333,329 --
Herbert L. Heynecker, Ph.D. 19,991,945 75,429 --
Kenneth L. Melmon, M.D. 19,991,945 75,429 --
Riccardo Pigliucci 19,991,945 75,429 --
Sanford S. Zweifach 18,734,045 1,333,329 --
</TABLE>
(2) To approve an amendment to the Company's Incentive Stock
Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan--1993 to increase the number of shares
subject thereto by 1,000,000 to a total of 1,500,000. The
following is the tabulation of the votes.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
19,556,110 498,074 13,190
</TABLE>
(3) To approve an amendment to the Company's Amended and
Restated Certificate of Incorporation to change the name of
the Company from Epoch
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<PAGE> 15
Pharmaceuticals, Inc. to Epoch Biosciences, Inc. The
following is the tabulation of the votes.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
19,986,145 77,029 4,200
</TABLE>
(4) To ratify the appointment of KPMG LLP as independent
auditors of the company for the fiscal year ending December
31, 2000. The following is the tabulation of the votes.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
19,990,475 72,229 4,670
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) EXHIBITS
10.1 Lease agreement dated February 2000, by and between Epoch
Biosciences, Inc. and Nexus Canyon Park LLC.
27.1 Financial Data Schedule - nine months ended September 30,
2000
(b) REPORTS ON FORM 8K
On August 25, 2000 a report on form 8K was filed reporting that
Epoch Pharmaceuticals had changed its name to Epoch Biosciences,
Inc.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Epoch Biosciences, Inc.
Date: November 14, 2000 By: /s/ Sanford S. Zweifach
----------------------------------
Sanford S. Zweifach
President/Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Lease agreement dated February 2000, by and between Epoch Biosciences, Inc. and
Nexus Canyon Park LLC
27.1 Financial Data Schedule - Nine Months Ended September 30, 2000
</TABLE>
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