SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-13768
OncorMed, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1842781
(State of Incorporation) (I.R.S Employer Identification No.)
205 Perry Parkway
Gaithersburg, Maryland 20877
(Address of principal executive offices)
(Zip code)
(301) 208-1888
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES x NO
At October 25, 1996, there were 6,991,108 shares of Common Stock
outstanding at a par value of $.01.
OncorMed, Inc.
TABLE OF CONTENTS
Page No.
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements 3
Balance Sheets as of
September 30, 1996 and December 31, 1995 4
Statements of Operations for the 5
Three Months Ended September 30, 1996
and 1995; for the Nine Months Ended
September 30, 1996 and 1995; and for
the Period from Inception (July 12, 1993)
Through September 30, 1996.
Statements of Cash Flow for the Nine 6
Months Ended September 30, 1996 and
1995 and for the Period from Inception
(July 12, 1993) Through September 30, 1996.
Notes to Financial Statements 7
ITEM 2 Management's Discussion and Analysis of 11
Financial Condition and Results of
Operations
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 23
ITEM 2 Changes in Securities 23
ITEM 3 Defaults Upon Senior Securities 23
ITEM 4 Submission of Matters To A Vote
of Security Holders 23
ITEM 5 Other Information 23
ITEM 6 Exhibit and Reports of Form 8-K 23
Signatures 24
Exhibit Index 25
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
The balance sheet as of September 30, 1996, the statements of
operations for the three months ended September 30, 1996 and 1995,
for the nine months ended September 30, 1996 and 1995, and for the
period from inception (July 12, 1993) through September 30, 1996
and the statements of cash flow for the nine months ended September
30, 1996 and 1995 and for the period from inception (July 12, 1993)
through September 30, 1996, have been prepared by the Company
without audit. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows
for all periods presented have been made. The results for the
quarter ended September 30, 1996 presented in the accompanying
financial statements, are not necessarily indicative of the results
for the entire year or any other period. The balance sheet at
December 31, 1995 has been taken from the audited financial
statements.
The unaudited financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. While the Company believes that the
disclosures made are adequate to make the information presented
therein not misleading, these financial statements should be read
in conjunction with the audited financial statements and related
notes included in the Company's Annual Report for the year ended
December 31, 1995 on Form 10-K filed with the Securities and
Exchange Commission.
<PAGE>
<TABLE>
ONCORMED, INC.
(A Development Stage Company)
BALANCE SHEETS
<CAPTION>
-------------------------------------
As of As of
September 30, December 31,
1996 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,486,888 $ 718,844
Accounts receivable, net allowance
for doubtful accounts of $21,000
and $7,000 67,939 86,154
Other current assets 122,574 123,254
------------ -------------
Total current assets 9,677,401 928,252
------------ -------------
Non-current assets:
Property and equipment, net 1,214,207 1,220,937
Deferred offering costs -- 299,815
Other assets 2,870 2,870
------------ -------------
Total non-current assets 1,217,077 1,523,622
------------ -------------
TOTAL ASSETS $10,894,478 $ 2,451,874
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 221,348 $ 123,443
Accrued expenses and other liabilities 732,588 889,052
Payable to Oncor, Inc. 179,635 137,909
Deferred revenue 150,772 181,402
------------ -------------
Total current liabilities 1,284,343 1,331,806
------------ -------------
Non-current liabilities:
Note payable to Oncor Finance, Inc. 715,751 715,751
Deferred revenue 5,901 10,510
------------ -------------
Total non-current 721,652 726,261
------------ -------------
TOTAL LIABILITIES 2,005,995 2,058,067
------------ -------------
Commitments And Contingencies
(Notes 1 and 6)
Stockholders' Equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized,
none outstanding -- --
Common stock, $.01 par value, 40,000,000
shares authorized, 6,991,108 and 4,950,050
shares issued and outstanding,
respectively 69,911 49,501
Additional paid-in capital 25,714,011 11,782,817
Deferred compensation (67,190) (108,239)
Deficit accumulated during the development
stage (16,828,249) (11,330,272)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 8,888,483 393,807
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 10,894,478 $ 2,451,874
============ ==============
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
ONCORMED, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
--------------------------------------------
Three Months Ended
September 30, 1996 September 30, 1995
------------------- ------------------
<C> <S> <S>
REVENUES:
Sales to customers $ 199,590 $ 120,394
Sales to related party 120 180
------------- -------------
Total revenues 199,710 120,574
EXPENSES:
Cost of sales - direct 115,056 75,742
Laboratory operations
Non-related party expense 654,013 487,386
Related party expense 68,000 50,000
Selling, general and administrative
Non-related party expense 1,114,930 854,759
Related party expense 463 32,787
Research and development
Non-related party expense 160,533 47,113
Related party expense 17,946 9,375
------------- -------------
Total expenses 2,130,941 1,557,162
------------- -------------
OPERATING LOSS (1,931,231) (1,436,588)
Interest income 140,659 45,963
Interest expense (13,220) (12,996)
------------- -------------
NET LOSS $ (1,803,792) $ (1,403,621)
=============== =============
<PAGE>
NET LOSS PER SHARE
(unaudited) $ (0.26) $ (0.28)
=============== =============
SHARES USED IN COMPUTING
NET LOSS PER COMMON
SHARE
(unaudited) 6,990,907 4,947,650
=============== =============
</TABLE>
<PAGE>
<TABLE>
ONCORMED, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Period From
Inception
(July 12, 1993)
Nine Months Ended, Through
September 30, September 30, September 30,
1996 1995 1996
---------------------------- ---------------
<C> <S> <S> <S>
REVENUES:
Sales to customers $ 387,724 $ 185,317 $ 691,234
Sales to related party 5,700 42,180 47,880
-------------- ------------ -----------
Total revenues 393,424 227,497 739,114
EXPENSES:
Cost of sales - direct 185,713 132,453 364,435
Laboratory operations
Non-related party expense 1,885,707 1,444,401 4,996,083
Related party expense 204,610 150,000 696,610
Selling, general and administrative
Non-related party expense 3,491,284 2,786,008 9,456,725
Related party expense 3,188 222,000 976,690
Research and development
Non-related party expense 429,370 335,993 1,544,040
Related party expense 53,838 28,125 189,836
-------------- ------------- ------------
Total expenses 6,253,710 5,098,980 18,224,419
-------------- ------------- ------------
OPERATING LOSS (5,860,286) (4,871,483) (17,485,305)
Interest income 401,831 204,921 777,840
Interest expense (39,522) (38,186) (120,784)
-------------- ------------- ------------
NET LOSS $(5,497,977) $(4,704,748) $(16,828,249)
============ ============ =============
NET LOSS PER SHARE
(unaudited) $ (0.82) $ (0.95) $ (3.30)
============ ============ =============
SHARES USED IN COMPUTING
NET LOSS PER COMMON
SHARE
(unaudited) 6,743,075 4,947,401 5,095,455
============ ============ =============
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
ONCORMED, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOW
(Unaudited)
<CAPTION>
Period From
Inception
(July 12, 1993)
Nine Months Ended, Through
September 30, September 30, September 30,
1996 1995 1996
---------------------------- ---------------
<C> <S> <S> <S>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(5,497,977) $(4,704,748) $(16,828,249)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 375,951 259,264 901,963
Amortization of deferred
compensation 41,049 45,513 184,624
Changes in operating assets
and liabilities:
Accounts receivable 18,215 (94,494) (67,939)
Other assets 680 77,144 (125,444)
Accounts payable 97,905 134,218 221,348
Accrued expenses and other
liabilities (156,464) (56,627) 732,588
Deferred revenue (35,239) 188,217 156,673
Payable to Oncor, Inc. 41,726 (90,870) 179,635
-------------- ------------- ------------
Net cash used in operating
activities (5,114,154) (4,242,383) (14,644,801)
-------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment (369,221) (518,820) (2,061,170)
-------------- ------------- ------------
Net cash used in investing
activities (369,221) (518,820) (2,061,170)
-------------- ------------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from sale of
common stock 13,912,825 -- 22,420,490
Net proceeds from sale of
preferred stock -- -- 2,990,439
Net proceeds from exercise of
stock options 38,779 1,200 66,179
Net proceeds from Note payable
to Oncor Finance, Inc. -- -- 715,751
Decrease in deferred offering
costs 299,815 -- --
Net cash provided by financing
activities 14,251,419 1,200 26,192,859
-------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 8,768,044 (4,760,003) 9,486,888
CASH AND CASH EQUIVALENTS,
beginning of period 718,844 7,262,010 --
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
end of period $ 9,486,888 $ 2,502,007 $ 9,486,888
============== ============ ==============
SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock in
exchange for software and
technology $ -- $ -- $ 55,000
============== ============ ==============
<PAGE>
Issuance of common stock in
exchange for stock subscrip-
tion receivable $ -- $ -- $ 25,000
============== ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period
for interest $ 39,522 $ 38,186 $ 120,784
============== ============ =============
The accompanying notes are in integral part of these statements.
</TABLE>
<PAGE>
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
As of September 30, 1996
(Unaudited)
1. BUSINESS DESCRIPTION:
OncorMed, Inc. (the "Company") was incorporated on July 12,
1993, in the State of Delaware as a subsidiary of Oncor, Inc.
("Oncor"). The Company was formed to develop genetic testing and
information services for the early detection and management of
cancer. The Company is in the development stage and has a limited
operating history, has incurred operating losses since its
inception and expects losses to continue and increase. Since its
inception, the Company has been engaged in research and development
programs and organizational efforts, including the development of
its initial services, recruiting its scientific and management
personnel, establishing marketing capabilities, engaging its
Scientific Advisory Board and raising capital. The Company's
services are currently offered principally in the United States.
There can be no assurance that the Company will be successful in
the development or commercialization of its services.
Public Offering
On February 2, 1996, the Company completed the sale of 2,000,000
shares of common stock in a public offering ("Offering") resulting
in gross proceeds to the Company of approximately $15.5 million.
Net proceeds to the Company for the Offering, after transaction
costs, were approximately $13.9 million. As a result of the
Offering, Oncor's ownership of the Company's outstanding common
stock was reduced from approximately 40 percent to approximately 29
percent.
2. SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of these financial statements required the use
of certain estimates by management in determining the entity's
assets, liabilities, revenues and expenses. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Investments in securities with original maturities of less than
three months are considered cash equivalents. Cash equivalents at
September 30, 1996 consisted of approximately $123,000 invested in
overnight reverse repurchase agreements collateralized by U.S.
treasury securities, with the remainder of approximately $9.4
million invested in money market instruments. Cash equivalents at
December 31, 1995 consisted of approximately $185,000 invested in
overnight reversed repurchase agreements, with the remainder of
approximately $534,000 invested in money market instruments.
Other Current Assets
At September 30, 1996, included in other current assets is
approximately $80,000 due from our partner in the educational
conference and $7,000 for prepaid insurance.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization expense is calculated using the straight-line method
over estimated useful lives of three to five years. Leasehold
improvements are amortized over the shorter of the lease terms or
useful lives.
Accrued Expenses
At September 30, 1996, accrued expenses consisted of
approximately $381,000 for payroll and related expenses, $232,000
in professional/legal fees, $94,000 for marketing/operations costs
and $26,000 in other expenses.
Revenue Recognition
Revenues are derived from providing genetic testing and
information services and, in certain circumstances, software
licensing associated with the Company's risk assessment service.
Revenues are also derived from Company-sponsored educational
conferences. Revenues from the Company's services are recognized
as those services are provided. Revenues from its risk assessment
service are recognized over the license period.
Research and Development
Research and development costs are charged to expense as
incurred.
Net Loss Per Share
Net loss per share is based on the weighted-average number of
shares outstanding during the periods presented. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No.
83, all shares (including common shares issuable upon conversion of
convertible preferred stock) and options to purchase shares were
treated as if they were outstanding for all periods prior to the
initial public offering. In the periods after the initial public
offering, the effects of options, warrants, and the outstanding
convertible note have not been considered, since the effect would
be antidilutive.
Reclassification
Certain 1995 balances have been reclassified to conform with
1996 financial statement presentation.
3. RELATED-PARTY TRANSACTIONS:
As of September 30, 1996, Oncor owned approximately 29% of the
Company's outstanding common stock.
License Agreement
Under the license agreement with Oncor (the "Oncor License"),
the Company is obligated to pay royalties on a semi-annual basis to
Oncor for Oncor technologies existing as of the date of the Oncor
License, equal to the greater of (I) six percent of the Company's
net sales revenues from certain services, as defined in the
agreement, or (ii) $100,000. Fees payable to Oncor under the Oncor
License of approximately $50,000, $50,000, and $642,000 are
included in laboratory operations expense for the three months
ended September 30, 1996 and 1995, and the period from inception
(July 12, 1993) to September 30, 1996, respectively.
Services Agreement with Oncor, Inc. and Affiliate
As of September 30, 1996, the Company owed Oncor $179,635 for
charges which include fees payable under the Oncor License,
insurance, consulting and equipment. Netted against those charges
was revenue from Oncor for certain experiments performed at
specified rates. These revenues are not necessarily indicative of
the revenues to be recognized for the entire year or any other
period. In addition, the Company converted $715,751 owed to Oncor
for license fees previously incurred and for prior services
rendered into a Convertible Subordinated Promissory Note (the
"Note"), which principal is due in September 1999. The Note bears
interest at 7 percent and is convertible into common stock at
Oncor's option at a conversion price of $20 per share of common
stock. During the fourth quarter of 1994, Oncor assigned the Note
to its wholly-owned subsidiary Oncor Finance, Inc. Interest
expense recorded by the Company relating to the Note was $12,804
for the three months ended September 30, 1996.
4. DEFERRED REVENUES:
Deferred revenues consist of prepaid fees related to various
risk assessment service agreements as well as an advanced payment
from Preferred Oncology Networks of America ("PONA"), a cancer
disease management company.
5. STOCKHOLDERS' EQUITY:
Stock Option Plan
As of September 30, 1996, 2,250,000 shares of the Company's
common stock had been reserved for issuance, of which options to
purchase 1,688,000 shares had been granted. Compensation expense
is recognized for the difference between the exercise price of the
options granted and the fair market value of the Company's common
stock. Compensation expense of $12,988, $15,171, and $184,624 has
been recognized for the three months ended September 30, 1996 and
1995 and for the period from inception (July 12, 1993) to September
30, 1996, respectively.
6. COMMITMENTS:
The Company's total minimum commitments due under leases as of
September 30, 1996 were $413,827 through 1998. The Company's total
minimum commitments due under license, research, and consulting
agreements, other than the Oncor License, as of September 30, 1996
were $503,375 through 1997.
<PAGE>
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of the Company's results of operations and financial condition.
The discussion should be read in conjunction with the audited
financial statements of the Company and notes thereto, included in
the Company's Annual Report for the year ended December 31, 1995 on
Form 10-K filed with the Securities and Exchange Commission. This
report contains certain statements of a forward-looking nature
relating to future events or the future financial performance of
the Company. Investors are cautioned that such statements are only
predictions and that actual events or results may differ
materially. In evaluating such statements, investors should
carefully consider the various factors identified in this report
and the other documents filed by the Company from time to time with
the Securities and Exchange Commission which could cause actual
results to differ materially from those indicated by such forward-looking
statements, including the matters set forth under Certain
Factors Affecting Operations and Market Price of Securities.
OVERVIEW
The Company, which commenced operations in July 1993, has a limited
operating history and is a development stage company. Since its
inception, the Company has been engaged in the development of its
services, the hiring of its scientific and marketing staff, and its
initial marketing efforts. The Company has incurred operating
losses since its inception. As of September 30, 1996, the
Company's accumulated deficit was approximately $16.8 million. The
losses resulted principally from selling, general and
administrative expenses, laboratory operations, and research and
development expenses. The Company has yet to generate any
significant revenues and the Company cannot anticipate when, or if,
it will be able to generate significant revenues in the future.
The Company expects its operating losses to continue as its sales
and marketing efforts, research and development programs and
laboratory operations continue and increase. The Company's ability
to achieve profitability depends on its ability to successfully
market and sell its services. There can be no assurance when, or
if, the Company will become profitable. (See Note 1 to the
Financial Statements.)
RESULTS OF OPERATIONS
Revenues for the three months and nine months ended September 30,
1996 were $199,710 and $393,424 compared to $120,574 and $227,497
for the same periods in 1995. The increase in revenues is
primarily due to an increase in laboratory testing and fees for a
Company-sponsored educational conference, as well as hereditary
cancer consulting services. Revenues from Oncor for the three
months ended September 30, 1996 and the same period in 1995 were
not significant. The Company is in the development stage and
cannot anticipate when, or if, it will be able to generate any
significant revenues.
Cost of sales - direct was $115,056 and $185,713 for the three
months and nine months ended September 30, 1996 compared to $75,742
and $132,453 for the same periods in 1995. Cost of sales - direct
includes costs for supplies, direct labor, shipping, and royalties
(other than those under the Oncor License) for testing services,
computer hardware costs associated with the Company's risk
assessment services and costs associated with its educational
conference. The increase in cost of sales - direct for the three
months is primarily due to the cost of the educational conference.
Laboratory operations expenses were $722,013 and $2,090,317 for the
three months and nine months ended September 30, 1996 compared to
$537,386 and $1,594,401 for the same periods in 1995. The increase
in laboratory operations expenses was due to the hiring of
additional personnel to perform certain commercial testing
services initiated during 1995 and 1996. As sales of the Company's
services increase, a greater portion of the expenses associated
with laboratory operations will be included in cost of sales -
direct. Related party expenses incurred during these periods
consisted of technology license fees paid to Oncor. In addition,
the cost of renting laboratory equipment from Oncor is included in
the three months and nine months ended September 30, 1996.
Selling, general and administrative expenses were $1,115,393 and
$3,494,472 for the three months and nine months ended September 30,
1996 compared to $887,546 and $3,008,008 for the same periods in
1995. General and administrative expenses were $822,258 and
$2,533,234 for the three months and nine months ended September 30,
1996, respectively, compared with $632,755 and $2,096,680 for the
three months and nine months ended September 30, 1995,
respectively. The increase in general and administrative expenses
was due to the addition of personnel and related costs, and
increased professional fees, depreciation expense and occupancy
costs. Selling expenses were $293,135 and $961,238 for the three
months and nine months ended September 30, 1996, respectively,
compared with $254,791 and $911,328 for the three months and nine
months ended September 30, 1995, respectively. The Company
anticipates that its selling, general and administrative expenses
will increase as it continues to market and sell its portfolio of
services. For the three months and nine months ended September 30,
1996, related party selling, general and administrative expenses
decreased to $463 and $3,188, respectively as compared to $32,787
and $222,000 for the corresponding periods in 1995.
Research and development expenses were $178,479 and $483,208 for
the three months and nine months ended September 30, 1996,
respectively, compared to $56,488 and $364,118 for the same periods
in 1995. The increase in research and development expenses was
due to the hiring of additional personnel to work on various
projects. Related party expenses for the three months and nine
months ended September 30, 1996 consisted of the cost of consulting
services.
Total related party expenses, other than the Oncor License, will
continue to decrease and remain nominal in the future.
Interest income was $140,659 and $401,831 for the three months and
nine months ended September 30, 1996, respectively, compared to
$45,963 and $204,921 for the same period in 1995. The increase in
interest income was due to the increased amounts available for
investment from the consummation of the follow-on offering
completed in February 1996. Interest expense was $13,220 and
$39,522 for the three months and nine months ended September 30,
1996, respectively compared to $12,996 and $38,186 for the same
periods in 1995.
For the reasons set forth above, net operating losses were
$1,803,792 and $5,497,977 for the three months and nine months
ended September 30, 1996, respectively, compared to $1,403,621 and
$4,704,748 for the same periods in 1995.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash expenditures have exceeded revenues since the Company's
inception. The Company's operations have been funded through a
$1.0 million capital infusion by Oncor, a $3.0 million private
placement of equity securities, approximately $716,000 in advances
from Oncor, and approximately $7.4 million of net proceeds from the
Company's initial public offering. In addition, the Company raised
approximately $13.9 million of net proceeds from the Company's
follow-on offering completed in February 1996. The Company expects
its operating losses to continue as its sales and marketing
efforts, research and development programs and laboratory
operations continue and increase. The Company also intends to make
additional laboratory equipment purchases and other capital
expenditures in the future, although currently it has no specific
material commitments to do so.
Cash used in operating activities was approximately $5.1 million
for the nine months ended September 30, 1996 compared with
approximately $4.2 million for the same period in 1995. The
increase was attributable to an increase in the net operating loss.
Cash used in investing activities was $369,221 for the nine months
ended September 30, 1996 compared to $518,820 for the same period
in 1995. The 29% decrease was due to the completion of the
installation of the Company's Local Area Network (LAN) and the
installation of the Company's Laboratory Information System (LIS)
in 1995 and early 1996.
Cash provided by financing activities was approximately $14.3
million for the nine months ended September 30, 1996 compared with
$1,200 for the same period in 1995. In the first quarter of 1996,
the Company completed the follow-on offering which resulted in net
proceeds of approximately $13.9 million.
Minimum payments due under lease commitments and various research,
license and consulting agreements, excluding the Oncor License,
will be approximately $730,000 through 1997.
The Company has incurred negative cash flows from operations since
its inception. The Company has expended, and will continue to
expend substantial funds to continue its sales and marketing
efforts, research and development programs and laboratory
operations. The Company expects that its existing capital
resources and the interest earned thereon, will be adequate to fund
its capital requirements through 1997. However, no assurance can
be given that there will be no change in the Company's business,
financial condition or results of operations that would consume
available resources significantly before such time. The Company's
future capital requirements will depend on many factors, including
the progress and scope of its research and development programs,
the extent of its marketing and sales efforts, the size and timing
of any acquisitions of technology or business and the market
acceptance of its services. To the extent that funds generated
from the Company's operations, together with its existing capital
resources and the interest earned thereon, are insufficient to meet
the Company's operating requirements, it is likely that the Company
will seek to obtain additional funds through equity or debt
financing and collaborative or other arrangements with corporate
partners and others; however, these sources may not be available
when needed or on terms acceptable to the Company. Insufficient
funds may require the Company to delay, scale-back or eliminate
certain of its research and development activities, its sales and
marketing efforts, or certain other aspects of its business or to
license to third parties the rights to commercialize services or
technologies that the Company would otherwise undertake itself.
CERTAIN FACTORS AFFECTING OPERATIONS AND MARKET PRICE OF SECURITIES
The Company's future business, financial condition, and results of
operations, and the market price for its securities are dependent
on the Company's ability to successfully manage the following
business considerations. No assurance can be given that the
Company will be able to manage such considerations successfully.
The failure to manage such considerations could have a material
adverse effect on the Company's business, financial conditions, and
results of operations, and on the market price of its securities.
Development Stage Company; History of Operating Losses; Uncertainty
of Future Profitability
The Company commenced operations in July 1993, has a limited
operating history and is a development stage company. Since its
inception, the Company has been engaged in research and development
activities, organizational efforts and sales and marketing
activities, including the development of its services, the hiring
of its scientific and marketing staff and its initial sales and
marketing efforts. The Company has incurred operating losses since
its inception. As of September 30, 1996, the Company's accumulated
deficit was approximately $16.8 million. The Company's losses have
resulted principally from selling, general and administrative
expenses, laboratory operations and research and development
expenses. The Company has yet to generate any significant revenues
and the Company cannot anticipate when, or if, it will be able to
generate significant revenues in the future. The Company expects
its operating losses to continue as its sales and marketing
efforts, research and development programs and laboratory
operations continue and increase. The Company's ability to achieve
profitability depends on its ability to successfully market and
sell its services. There can be no assurance when, or if, the
Company will become profitable.
Relationship with Oncor
Pursuant to the Restated Technology License Agreement between the
Company and Oncor entered into in September 1994 (the "Oncor
License"), Oncor is providing the Company with an exclusive
worldwide license to Oncor's existing and future human genome
technologies that are useful for the purposes of developing and
commercializing certain of the Company's services, including:
(I) testing, detection and/or analysis of cancer-predisposing
genes; (ii) genetic assessment of the risk of an individual to
develop cancer; and (iii) testing and analysis for the purposes of
cancer management. The Company is heavily reliant on the
technologies licensed directly from Oncor and from third parties
through Oncor which form the basis for most of the Company's
services. The Company's rights under the Oncor License are subject
to certain rights retained by Oncor, which include Oncor's right to
use the licensed technologies for internal, non-commercial research
and development purposes and for development and commercialization
of Oncor's products. Oncor intends to develop its technologies
into diagnostic products for sale to third parties. These third
parties may then use these products to provide services that
compete directly with the Company's services, which could have a
material adverse effect on the Company's business, financial
condition and results of operations. The initial term of the Oncor
License expires in September 2004 and is automatically renewable
for additional one-year periods, unless either party objects.
There can be no assurance that the Oncor License will be renewed at
the end of its initial term or that it will not be terminated
earlier pursuant to its terms. There also can be no assurance that
conflicts of interest between Oncor and the Company will not arise
with respect to the Oncor License, any services that might be
provided by Oncor to the Company in the future or other aspects of
the Company's relationship with Oncor.
The Company's rights to technologies licensed to the Company from
third parties through Oncor are subject to various provisions in
the license agreements between such third parties and Oncor. No
assurance can be given that Oncor will perform its obligations
under such agreements, that such agreements will not be terminated
or that such agreements can be renewed upon termination or
expiration. If Oncor breaches such agreements or otherwise fails
to comply with such agreements, or if such agreements are
terminated or otherwise expire, the development or
commercialization of certain of the Company's services may be
delayed or terminated, or the Company would have to expend
substantial additional resources on development and
commercialization, which would have a material adverse effect on
the Company's business, financial condition and results of
operations. Oncor owns approximately 29% of the Company's
outstanding common stock. Accordingly, Oncor may be able to
effectively control or influence certain actions such as the
election of directors and the authorization of certain transactions
that require stockholder approval and be able to otherwise
effectively control the Company's policies without concurrence of
the Company's other stockholders. In addition, Stephen Turner,
Chief Executive Officer and Chairman of the Board of Directors of
Oncor, is a director of the Company, and Timothy J. Triche, M.D.,
Ph.D., a director of Oncor, is the Chief Executive Officer and
Chairman of the Board of Directors of the Company.
Limited Patient Populations For Certain Services
Certain of the Company's services currently address subtypes of
broader types of cancers. Patients with such subtypes typically
represent only a small percentage of those patients who are under
treatment or have a history of the broader types of cancer.
Accordingly, the market for such services may be limited and such
services may not generate significant revenues.
New and Uncertain Business; Uncertainty of Clinical Utility
The Company's genetic testing and information services represent a
new approach to cancer management for which there is little
precedent and for which the market is evolving. The Company's
business is to commercialize recent genetic discoveries and
mutation detection technologies for the early detection and
management of cancer. The Company's ability to successfully
develop its business is unproven and is dependent on its ability to
establish its services as the standard of care in cancer management
and obtain third party reimbursement for its services; expand the
distribution of its services both domestically and internationally;
develop strategic alliances and collaborations with academic
medical centers, research institutions, managed care organizations,
clinical laboratories, health care providers and corporate
partners; identify, license and develop emerging genetic
discoveries and mutation detection technologies; and continue to
expand its portfolio of services. The Company's ability to succeed
is also dependent upon the acceptance by potential customers and
patients of the Company's services as effective tools for cancer
management. There can be no assurance that the market for the
Company's services will continue to evolve or that the Company's
business strategy will be successful. The discoveries and
technologies which form the basis for the Company's services have
not been widely adopted by the medical community. Accordingly, the
Company is pursuing clinical correlation studies at academic
medical centers and research institutions that are designed to
determine the clinical utility, reliability and accuracy of the
Company's services. There can be no assurance that these studies
will confirm the clinical utility, reliability and accuracy of the
Company's services. The failure of these studies to do so could
have a material adverse effect on the Company's business, financial
condition and results of operations.
Uncertain Availability of Health Care Reimbursement and Market
Acceptance of Services
The successful commercialization of genetic testing and information
services depends in part on the ability of its customers to obtain
adequate reimbursement for such services and related treatments
from governmental agencies, private health care insurers and other
third party payors. Government and private third party payors are
increasingly attempting to contain health care costs by limiting
both the extent of coverage and the reimbursement rate for new
diagnostic and therapeutic products and services. The United
States Health Care Financing Administration ("HCFA"), which
administers Medicare, and most private insurance companies do not
cover services that they determine to be investigational in nature
or that are not considered "reasonable and necessary" for diagnosis
or treatment. Many private insurers are influenced by HCFA actions
in making their own coverage decisions on new products or services.
The Company is seeking reimbursement approval for its services from
various third party payors, including HCFA. There can be no
assurance that third party reimbursement for the Company's services
will be available to its customers or that any such reimbursement
will be adequate. Disapproval of, or limitations in, coverage by
HCFA or other third party payors could materially and adversely
affect market acceptance of the Company's services which would have
a material adverse effect on the Company's business, financial
condition and results of operations.
Dependence on Collaborations and Licenses with Others
The Company's strategy for the research, development and
commercialization of certain of its services is to rely in part on
various collaborative and license arrangements with academic
medical centers, research institutions and commercial entities.
Accordingly, the Company is dependent in part upon such third
parties performing their obligations. The Company has entered into
certain collaborative and license arrangements, including an
arrangement with HCI, and is continually seeking to enter into
additional arrangements with other collaborators and licensors.
There can be no assurance that the Company will be able to enter
into acceptable collaborative and license arrangements in the
future or that the parties with which the Company has established
or will establish arrangements will perform their obligations under
such arrangements. There also can be no assurance that its current
arrangements or any future arrangements will lead to the
development of additional services with commercial potential, that
the Company will be able to obtain or license proprietary rights
with respect to any technology developed in connection with these
arrangements and that the Company will be able to ensure the
confidentiality of any proprietary rights and information developed
in such arrangements or prevent the public disclosure thereof. In
general, the Company's collaborative and license arrangements
provide that they may be terminated under certain circumstances.
There can be no assurance that such arrangements will not be
terminated or that the Company will be able to extend any of its
collaborative and license arrangements upon their expiration. The
Company currently has certain licenses from third parties, either
directly or indirectly through the Oncor License, and in the future
may require additional licenses from these or other parties to
develop and market commercially viable services. There can be no
assurance that such licenses will be obtainable on commercially
reasonable terms, if at all, or renewable, that the patents
underlying such licenses, if any, will be valid and enforceable or
that the nature of the technology underlying such licenses will
remain proprietary.
The Company's rights to technologies licensed to the Company from
third parties through the Oncor License are subject to the license
agreements between such third parties and Oncor. No assurance can
be given that the third parties to these agreements will perform
their obligations under such agreements on a timely basis or at
all. If such third parties breach or terminate their agreements
with Oncor or otherwise fail to, or are unable to, comply with the
provisions of their agreements with Oncor for whatever reason, the
Company would have no direct recourse and would be dependent on
Oncor to enforce such agreements. The agreements between Oncor and
the third parties expire at various times. There can be no
assurance that these agreements will be renewed at the end of their
initial terms or that such agreements will not be terminated or
canceled prior to their expiration. The Company has no rights
under these third party agreements and is reliant upon Oncor to
negotiate renewals of such agreements and resolve disputes under
such agreements. If the third parties to the agreements that the
Company licenses from Oncor through the Oncor License breach such
agreements or otherwise fail to comply with such agreements, or
such agreements are terminated or otherwise expire, the development
or commercialization of certain of the Company's services may be
delayed or terminated, or the Company would have to expend
substantial additional resources on development and
commercialization, which could have a material adverse effect on
the Company's business, financial condition and results of
operations.
Competition
The Company is engaged in the biotechnology and medical services
industries which are characterized by extensive research and
development efforts, rapid technological progress and intense
competition. There are many public and private companies,
including well-known pharmaceutical companies, biotechnology
companies and academic institutions, engaged in developing medical
services and the technology underlying such services. Although
there are relatively few direct competitors of the Company, it is
anticipated that the number of direct competitors will increase
significantly in the future. Many of the Company's current and
potential competitors have substantially greater financial and
technological resources, sales and marketing capabilities and
experience, and research and development experience than the
Company. Accordingly, the Company's competitors may succeed in
developing services and the underlying technology more rapidly than
the Company and in developing services that are more accurate and
useful and less costly than any of the Company's services. The
Company's competitors also may be more successful than the Company
in marketing and selling such services. In addition, other
technologies are, or in the future may become, the basis for
competitive products and services. The Company has agreed under
the Oncor License to assign to Oncor rights to certain of the
Company's technologies. It is likely that Oncor will develop the
technologies that are assigned to Oncor by the Company under the
Oncor License into products that Oncor will sell to third parties.
These third parties may then use these products to provide services
that compete directly with the Company's services, which could have
a material adverse effect on the Company's business, financial
condition and results of operations.
The Company relies on certain technologies that are not patentable
or proprietary and consequently may be available to the Company's
competitors. Competition may increase further as a result of the
potential advances in the technology underlying the services
developed by the Company. The Company also is aware that other
companies may be developing genetic testing and information
technologies, services and products that may be competitive with
the Company's services. There can be no assurance that the
Company's competitors will not succeed in developing technologies,
services and products that are more accurate and useful than any
being developed by the Company or that would render the Company's
technology and services obsolete or noncompetitive.
The Company requires all employees and consultants (including
certain scientific advisors) to enter into confidentiality
agreements that prohibit the disclosure of confidential information
to anyone outside the Company and require disclosure and assignment
to the Company of their ideas, developments, discoveries or
inventions developed during the course of their service to the
Company. However, no assurance can be given that competitors of
the Company will not gain access to trade secrets and other
proprietary information developed by the Company and disclosed to
employees, consultants and/or scientific advisors.
Given the early stage of the market for the Company's services, the
important competitive factors are availability, accuracy and
utility. The Company anticipates that other competitive factors,
such as price, availability of reimbursement and response time,
will become important as the market matures.
Patents and Proprietary Rights
The Company relies on a combination of trade secret and copyright
laws and confidentiality agreements to protect its proprietary
technology, rights and know-how. The Company's success will depend
in part on its ability or the ability of its licensors or
sublicensors to obtain patents, defend patents, maintain trade
secrets, defend copyrights and operate without infringing upon the
proprietary rights of others, both in the United States and in
foreign countries. The patent position of companies relying upon
biotechnology is highly uncertain in general and involves complex
legal and factual issues, and no consistent policy has emerged
regarding the breadth of claims allowed in biotechnology patents.
To date, none of the Company, its licensors or its sublicensors has
been granted any patents related to the technology or genetic
discoveries underlying the Company's services. Although the
Company and certain of the Company's licensors and sublicensors
have patent applications pending relating to such technologies and
discoveries, there can be no assurance that patents will be issued
as a result of such patent applications or that, if issued, such
patents will be sufficiently broad to afford protection against
competitors with similar technologies or discoveries. There
can also be no assurance that patents, if any, issued to the
Company, or for which the Company has license or sublicense rights,
will not be challenged, invalidated or circumvented, or that the
rights granted thereunder will provide competitive advantages to
the Company. The commercial success of the Company also will
depend upon avoiding the infringement of patents issued to third
parties, obtaining licenses to third parties' technologies and
genetic discoveries and maintaining licenses upon which certain of
the Company's services are, or might be, based. In particular,
third parties, including potential competitors, have filed patent
applications relating to certain genes and genetic mutations,
including the BRCA1, BRCA2 and p16 genes and related mutations,
underlying certain of the Company's services, and may in the future
file additional patent applications relating to genes and genetic
mutations. In the event that any such patents are issued to such
parties, such patents may preclude the Company, its licensors and
sublicensors from obtaining patent protection for their
technologies and discoveries, may hinder or prevent the Company
from providing related genetic testing services and could require
the Company to enter into licenses with such parties or cease such
activities. There can be no assurance that any required licenses
would be available on acceptable terms, or at all. Litigation,
which could result in substantial cost to the Company, may be
necessary to determine the scope and validity of others'
proprietary rights or to enforce the Company's patent, copyright,
trade secret and license and sublicense rights. The failure by the
Company to obtain any such licenses, if required, and the Company's
involvement in such litigation, could have a material adverse
effect on the Company's business, financial condition and results
of operations.
Oncor has the primary right and obligation to obtain, maintain and
enforce proprietary rights in relation to its own technologies
covered by the Oncor License and the Company's technologies
assigned to Oncor. The Company has certain rights to take over
these responsibilities in relation to specific technologies if
Oncor elects not to do so. Apart from these rights of
substitution, the Company has no rights to obtain, maintain or
enforce proprietary rights in relation to any of the technologies
that it develops or acquires through the Oncor License and,
accordingly, the Company is substantially reliant on Oncor to
obtain, maintain and enforce such proprietary rights. The amount
and timing of resources devoted to such activities are beyond the
Company's control. There can be no assurance that Oncor will
perform such obligations on a timely basis or at all, or that it
will expend sufficient resources on such activities.
The Company relies on certain technologies, trade secrets and
know-how that are not patentable or proprietary and are available
to the Company's competitors. Although the Company has taken steps
to protect its unpatented technologies, trade secrets and know-how,
in part through the use of confidentiality agreements with its
employees, consultants and certain of its contractors, there can be
no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach or that the
Company's trade secrets will not otherwise become known or be
independently developed or discovered by competitors.
Government Regulation
The Clinical Laboratory Improvement Act ("CLIA"), as amended in
1988, provides for regulation of clinical laboratories by the
United States Department of Health and Human Services ("HHS").
These regulations mandate that all clinical laboratories be
certified to perform testing on human specimens and provide
specific conditions for certification. These regulations also
contain guidelines for the qualifications, responsibilities,
training, working conditions and oversight of clinical laboratory
employees. In addition, specific standards are imposed for each
type of test that is performed in a laboratory. The Company's
laboratory is certified under these regulations and the Company
believes that it is in substantial compliance with these
guidelines. CLIA and the regulations promulgated thereunder are
enforced through continuous quality inspections of test methods,
equipment, instrumentation, materials and supplies on a bi-annual
and "spot" basis. While the United States Food and Drug
Administration (the "FDA") does not currently regulate the genetic
tests underlying the Company's services if they are performed in
the Company's CLIA certified clinical laboratory, there can be no
assurance that the FDA will not seek to regulate such tests in the
future. If, in the future, the FDA should determine that the tests
underlying the Company's services should receive FDA approval prior
to their provision in the Company's laboratory, there can be no
assurance that such approval would be received on a timely basis or
at all. Any change in CLIA or related regulations, or in the
interpretation thereof, or in the FDA's position on regulating the
tests underlying the Company's services, could have a material
adverse effect on the Company's business, financial condition and
results of operations. The Company's laboratory is licensed and
regulated by the State of Maryland, in which it is located. The
Company's laboratory is also regulated by certain other states from
which the Company may accept specimens. The Company has received
approval for a license from the State of New York for certain
services and intends to seek approval from other states as
required. No assurance can be given that the Company will be able
to obtain such approvals on a timely basis or at all. The loss of,
or the failure to obtain, any required state license could have a
material adverse effect on the Company's business, financial
condition and results of operations.
The Company is subject to extensive federal, state and local
regulation, including regulation under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act and other
laws, rules and regulations governing health care, clinical
laboratory activities, waste disposal, handling of toxic, dangerous
or radioactive materials and other matters. Although the Company
does not currently directly bill Medicare, Medicaid or other
governmental payors, the Company intends to seek reimbursement from
such payors in the future, in which event the Company will be
subject to laws, rules and regulations governing reimbursement and
fraud and abuses and prohibiting the filing of false claims. These
laws, rules and regulations include "anti-kickback" and "Stark"
laws, which contain extremely broad proscriptions, the violation of
which may result in exclusion from Medicare and Medicaid and
criminal and civil penalties. In addition, the Company is subject
to state laws, rules and regulations limiting certain financial
relationships between health care service providers and physicians
and other referral sources. Although the Company believes that it
is in substantial compliance with all applicable laws, rules and
regulations, there can be no assurance that the Company will remain
in compliance with applicable laws, rules and regulations or that
changes in, or new interpretations of, existing laws, rules and
regulations would not have a material adverse effect on the
Company's business, financial condition and results of operations.
Risk of Discrimination Against Customers; Potential Adverse Impact
on Insurability; Confidentiality
The availability of genetic predisposition testing has raised
certain ethical, legal and social issues regarding the appropriate
utilization and confidentiality of information provided by such
testing. The medical information obtained or determined about an
individual from the Company's services is of an extremely sensitive
nature. In providing its services, the Company is subject to
certain statutory, regulatory and common law requirements regarding
the confidentiality of such medical information. The Company
maintains an internal regulatory compliance review program to
monitor compliance with applicable confidentiality requirements,
and believes that it is in substantial compliance with such
requirements. Failure to comply with such confidentiality
requirements could result in material liability to the Company. It
is possible that discrimination by insurance companies could occur
through the raising of premiums by insurers to prohibitive levels,
the cancellation of insurance or the unwillingness to provide
coverage to patients shown to have a genetic predisposition to a
particular disease. The Company could experience a delay in market
acceptance or a reduction in the size of its potential serviceable
market if insurance discrimination were to become a significant
factor, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Similarly, governmental authorities could, for social or other
purposes, limit the use of or prohibit genetic predisposition
testing. If efforts by the Company and others to mitigate
potential discrimination are not successful or if the use of
genetic testing is limited, the Company could experience a delay or
reduction in market acceptance of its services, which would have a
material adverse effect on the Company's business, financial
condition and results of operations.
Additional Financing Requirements; Access to Capital
The Company has incurred negative cash flows from operations since
its inception. The Company has expended, and will continue to
expend, substantial funds to continue its sales and marketing
efforts, research and development programs and laboratory
operations. The Company expects that its existing capital
resources will be adequate to fund its capital requirements through
1997. However, no assurance can be given that there will be no
change in the Company's business, financial condition or results of
operations that would consume available resources significantly
before such time. The Company's future capital requirements will
depend on many factors, including the progress and scope of its
research and development programs, the extent of its sales and
marketing efforts and laboratory operations, the size and timing of
any acquisitions of technology or businesses and the market
acceptance of its services. To the extent that funds generated
from the Company's operations, together with its existing capital
resources, are insufficient to meet the Company's operating
requirements, it is likely that the Company will seek to obtain
additional funds through equity or debt financing and collaborative
or other arrangements with corporate partners and others. The terms
and prices of any such financings may be significantly more
favorable to investors than to the Company's existing stockholders.
No assurance can be given that any required additional financing
will be available when needed or on terms acceptable to the
Company. If adequate additional funds are not available, the
Company may be required to delay, scale back or eliminate certain
of its research and development programs, its sales and marketing
efforts or certain other aspects of its business or to license to
third parties the rights to commercialize services or technologies
that the Company would otherwise undertake itself. The
unavailability of adequate funds in the future would have a
material adverse effect on the Company's business, financial
condition and results of operations.
Limited Sales and Marketing Capacity
The Company has limited experience in selling and marketing genetic
testing and information services and will have to further develop
its sales force and/or rely on collaborators, licensees or others
to provide for the sales and marketing of its services. There can
be no assurance that the Company will be able to establish adequate
sales and marketing capacity or make arrangements with
collaborators, licensees or others to perform such activities on
acceptable terms or at all.
Risk of Liability; Adequacy of Insurance Coverage
The marketing and sale of genetic testing and information services
could expose the Company to the risk of certain types of
litigation, including medical malpractice or negligence claims or
contract disputes. The Company currently maintains $10.0 million
in medical malpractice insurance coverage. There can be no
assurance, however, that this coverage will be adequate to protect
the Company against future claims or that insurance will be
available to the Company in the future on acceptable terms, if at
all. A medical malpractice or other claim for which the Company
was not adequately insured could have a material adverse effect on
the Company's business, financial condition and results of
operations.
Dependence on Key Management and Qualified Personnel
The Company is highly dependent upon the efforts of its senior
management, scientific advisory board and consultants. The loss of
the services of one or more members of senior management could have
a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the loss of the
services of certain members of the Company's scientific advisory
board and certain consultants could materially and adversely affect
the Company to the extent that the Company is pursuing research and
development in areas of such scientific advisors' or consultants'
expertise. Although the Company is the beneficiary of $1 million
key-man life insurance policies on each of its Chief Executive
Officer, Timothy J. Triche, M.D., Ph.D., and its President and
Chief Operating Officer, Douglas Dolginow, M.D., the Company does
not believe such amounts would be adequate to compensate for the
loss of either executive. Due to the specialized scientific nature
of the Company's business, the Company is also highly dependent
upon its ability to attract and retain qualified scientific,
technical and key management personnel. There is intense
competition for qualified personnel in the areas of the Company's
activities and there can be no assurance that the Company will be
able to continue to attract and retain the qualified personnel
necessary for the development of its existing business and its
expansion into areas and activities requiring additional expertise.
The loss of, or failure to recruit, scientific, technical, sales
and marketing and managerial personnel could have a material
adverse effect on the Company's business, financial condition and
results of operations.
The Company's scientific advisors and consultants may be employed
by or have consulting agreements with entities other than the
Company, some of which may compete with the Company. To the extent
that members of the Company's scientific advisory board or
consultants have consulting arrangements with or become employed by
any competitor of the Company, the Company could be materially and
adversely affected. Any inventions or processes independently
discovered by the scientific advisors or the consultants will not,
unless otherwise agreed, become the property of the Company and
will remain the property of such persons or their full-time
employers. In addition, the institutions with which the scientific
advisors and consultants are affiliated may make available the
research services of their scientific and other skilled personnel,
including the scientific advisors and consultants, to competitors
of the Company pursuant to sponsored research agreements. Under
such sponsored research agreements, such institutions may be
obligated to assign or license to a competitor of the Company
patents and other proprietary information that may result from
research sponsored by an entity other than the Company, including
research performed by a scientific advisor or consultant for a
competitor of the Company.
Certain Anti-Takeover Provisions
The Company's Certificate of Incorporation grants the Board of
Directors the authority to issue up to 2,000,000 shares of
preferred stock of the Company, par value $0.01 per share (the
"Preferred Stock"), in the future in one or more series and to fix
the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the
stockholders. The rights of the holders of Common Stock will be
subject to, and may be materially and adversely affected by, the
rights of the holders of any Preferred Stock that may be issued in
the future. Although the Company has no present plans to issue any
shares of Preferred Stock, it may do so in the future. The
issuance of Preferred Stock could have the effect of discouraging
a third party from acquiring a majority of the outstanding Common
Stock of the Company and preventing stockholders from realizing a
premium on their shares. In addition, the Company is subject to
Section 203 of the Delaware General Corporation Law (the "DGCL"),
which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period
of three years unless certain conditions are met.
<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
By a complaint filed on June 28, 1996 against the Company,
its directors and certain officers and employees in the United
States District Court for the District of Maryland, Greenbelt
Division, entitled Barbara A. Hird v. OncorMed, Inc., et al., Civil
Action No. AMD96-2016, a former employee of the Company alleges
various claims arising out of her employment and the termination of
her employment with the Company. The Company believes the
plaintiff's claims are without merit and intends to vigorously
defend this lawsuit.
Item 2 Changes in Securities
None.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits filed as part of this Form 10-Q
Exhibit 11 Calculation of Earnings Per Share.
Exhibit 27 Financial Data Schedule (in EDGAR Filing,
only).
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
OncorMed, Inc.
Date: November 12, 1996 /s/ DR. TIMOTHY J. TRICHE
Dr. Timothy J. Triche, Chairman and
Chief Executive Officer
Date: November 12, 1996 /s/ DR. DOUGLAS DOLGINOW
Dr. Douglas Dolginow, President and
Chief Operating Officer
Date: November 12, 1996 /s/ L. ROBERT JOHNSTON, JR.
L. Robert Johnston, Jr., Vice President
and
Chief Financial Officer
<PAGE>
OncorMed, Inc.
EXHIBIT INDEX
Exhibit No. Description Page
No.
EX-11 Calculation of Earnings Per Share 26
EX-27 Financial Data Schedule 27
( in EDGAR transmission only)
<PAGE>
<TABLE>
Exhibit 11
ONCORMED, INC.
EARNINGS PER SHARE
CALCULATION OF SHARES USED IN COMPUTING
NET LOSS PER SHARE
(Unaudited)
<CAPTION>
--------------------------------------------
Three Months Ended
September 30, 1996 September 30, 1995
------------------- ------------------
<S> <C> <C>
Common Stock 6,990,907 4,947,650
Treasury Stock effect to
acquire Common Stock granted
in the twelve months prior to
the Company's initial public
offering -- --
------------ -------------
Shares used in computing net
loss per share 6,990,907 4,947,650
============ ==============
</TABLE>
<PAGE>
<TABLE>
Exhibit 11
ONCORMED, INC.
EARNINGS PER SHARE
CALCULATION OF SHARES USED IN COMPUTING
NET LOSS PER SHARE
(Unaudited)
<CAPTION>
Period From
Inception
(July 12, 1993)
Nine Months Ended, Through
September 30, September 30, September 30,
1996 1995 1996
------------------------------ --------------
<S> <C> <C> <C>
Common Stock 6,743,075 4,947,401 4,777,706
Treasury Stock effect to
acquire Common Stock granted
in the twelve months prior to
the Company's initial public
offering -- -- 317,749
Shares used in computing net
loss per share 6,743,075 4,947,401 5,095,455
============ =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet and the Statement of Operations filed as part of the
annual report on Form 10-Q and is qualified in its entirety by reference
to such annual report on Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,486,888
<SECURITIES> 0
<RECEIVABLES> 89,078
<ALLOWANCES> 21,139
<INVENTORY> 0
<CURRENT-ASSETS> 9,677,401
<PP&E> 2,116,170
<DEPRECIATION> 901,963
<TOTAL-ASSETS> 10,894,478
<CURRENT-LIABILITIES> 1,284,343
<BONDS> 0
0
0
<COMMON> 69,911
<OTHER-SE> 25,714,011
<TOTAL-LIABILITY-AND-EQUITY> 10,894,478
<SALES> 393,424
<TOTAL-REVENUES> 393,424
<CGS> 185,713
<TOTAL-COSTS> 6,253,710
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,522
<INCOME-PRETAX> (5,497,977)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,497,977)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,497,977)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> 0
</TABLE>
