<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
AUGUST 27, 1999
Date of Report (Date of earliest event reported)
VALENTIS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-22987 94-3156660
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
863A MITTEN ROAD
BURLINGAME, CA 94010
(Address of principal executive offices)
(650) 697-1900
(Registrant's telephone number, including area code)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) Pro Forma Financial Information
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements have
been prepared to give effect to the Valentis merger with PolyMASC, as well as
the Valentis merger with GeneMedicine, Inc. (completed on March 18, 1999), using
the purchase method of accounting.
The unaudited pro forma condensed combined balance sheet as at June 30, 1999
gives effect to the merger with PolyMASC as if it had occurred on such date, and
reflects the allocation of the purchase price to the PolyMASC assets acquired,
including in-process research and development, and liabilities assumed.
The unaudited pro forma condensed combined statements of operations combine the
historical statements of operations of Valentis, GeneMedicine and PolyMASC as if
the mergers with GeneMedicine and PolyMASC had occurred at the beginning of
fiscal year 1999. The historical statements of operations for GeneMedicine and
PolyMASC have been recast to conform to the June 30, 1999 fiscal year end of
Valentis. The historical results of operations for GeneMedicine included in the
pro forma condensed combined statements of operations for the twelve months
ended June 30, 1999, reflect the results of operations for the nine months ended
March 31, 1999, as the GeneMedicine merger closed on March 18, 1999. It is
expected that following the merger with PolyMASC, Valentis will incur additional
costs, which are not expected to be significant to the combined results of
operations, in connection with integrating the operations of the two companies.
Integration-related costs are not included in the accompanying unaudited pro
forma condensed combined financial statements.
The historical financial information for PolyMASC was expressed in British
Pounds and prepared in accordance with accounting principles generally accepted
in the United Kingdom. There were no significant differences in accounting
treatment in the PolyMASC financial information between UK GAAP and those
accounting principles generally accepted in the United States. The PolyMASC
financial information has been translated into Dollars using the exchange rate
of $1.575/L1.00 which equals the exchange rate on June 30, 1999. This materially
approximated the average exchange rate for the periods presented.
The Valentis statement of operations for the period in which the merger with
PolyMASC occurs will include a significant charge for acquired in-process
research and development of approximately $14.3 million. This amount represents
the value determined by management, using a discounted cash flow methodology, to
be attributable to the in-process research and development of PolyMASC based on
a preliminary valuation of such research and development. The charge relates to
specific on-going research and development. Assuming this research continues
through all stages of clinical development, Valentis projects substantial future
research and development expenditures related to this technology. The research
and development is forecasted to be completed at various times between 2001 and
2005. If Valentis would have allocated less of the purchase price to in-process
research and development, the value would have been recorded as goodwill on the
balance sheet and amortized over the expected benefit period, resulting in
increased amortization expense during that period.
Management of Valentis believes that the allocation of the purchase price to
in-process research and development is appropriate given the future potential of
this research and development to contribute to the operations of Valentis. If,
at a later date, management of Valentis decides to no longer pursue, or
indefinitely postpone, this research and development, or determines that the
discounted cash flows will no longer meet the projections underlying the
valuation, it will disclose that fact to investors in the appropriate Form 10-K
or 10-Q, explaining why it will not pursue commercialization or why research has
been postponed and when research is expected to resume. In addition, should
Valentis revise its estimate of the anticipated date of regulatory approval for
a particular product, this fact will be disclosed in the appropriate Form 10-K
or 10-Q and the reasons for, and potential implications of, the change in
estimate will be explained.
Unaudited pro forma condensed combined financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have actually been reported had the
mergers occurred at the beginning of the periods presented, nor is it
necessarily indicative of future financial position or results of operations.
These unaudited pro forma condensed combined financial statements are based upon
the respective historical financial statements of Valentis, GeneMedicine and
PolyMASC and do not incorporate, nor do they assume, any benefits from cost
savings or synergies of operations of the combined company.
<PAGE>
Unaudited Pro Forma Condensed Combined Balance Sheets
($ thousands)
<TABLE>
<CAPTION>
Historical Historical
Valentis at PolyMASC at
June 30, June 30, Pro forma Pro forma
1999 1999 Adjustments References Combined
---- ---- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,785 $ 1,608 $ -- $6,393
Short-term investments 19,522 -- -- 19,522
Other receivables 2,800 4 (1,000) (F) 1,804
Prepaid expenses and other current assets 1,392 60 -- 1,452
------- ----- -------- -----------
Total current assets 28,499 1,672 (1,000) 29,171
Property and equipment, net 11,897 513 -- 12,410
Long-term investments 14,830 -- -- 14,830
Deposits and other assets 189 -- -- 189
Goodwill and other intangible assets 9,012 307 5,759 (A) 15,078
-------- ---------- --------- ---------
Total Assets $ 64,427 $ 2,492 $ 4,759 $ 71,678
-------- ------- ------- --------
-------- ------- ------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 5,000 $625 $ 1,707 (B) $ 7,332
Deferred contract revenue 4,914 -- -- 4,914
Current portion of long-term debt
and capital lease obligations 3,124 984 (984) (F) 3,124
------- ------ ---- --------
Total current liabilities 13,038 1,609 723 15,370
Long-term debt 5,459 -- -- 5,459
Commitments
Stockholders' Equity:
Common Stock 22 118 (118) (C)
4 (D) 26
Additional paid-in capital 119,746 8,296 (8,296) (C)
19,262 (D) 139,008
Deferred compensation, net of amortization (463) -- -- (463)
Accumulated other comprehensive income (109) -- -- (109)
Accumulated deficit (73,266) (7,531) 7,531 (C)
-- -- (14,347) (E) (87,613)
----------- -------- -------- -------
Total stockholders' equity 45,930 883 4,036 50,849
--------- -------- ---------- ---------
Total liabilities and stockholders' equity $ 64,427 $ 2,492 $ 4,759 $ 71,678
-------- ------- ------- --------
-------- ------- ------- --------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
Unaudited Pro Forma Condensed Combined Statements of Operations
Year Ended June 30, 1999
($ Thousands, except per share data)
<TABLE>
<CAPTION>
Historical
Historical PolyMASC
--------------------------------
Valentis, Inc.GeneMedicine, Inc. Valentis/ 12 Months
Year 9 months ended GeneMedicine Ended
Ended March 31, Pro forma Pro forma June 30, Pro forma Pro forma
June 30, 1999 1999 Adjustments Combined 1999 Adjustments Combined
------------- ---- ----------- -------- ---- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Contract revenue $ 3,430 $ 3,135 $ -- $ 6,565 $ 865 $ -- $ 7,430
Research and development
grant revenue 699 -- -- 699 -- -- 699
------ ----- ------- ------- ---- ------- -------
Total revenue 4,129 3,135 -- 7,264 865 -- 8,129
EXPENSES:
Research and development 17,806 11,367 -- 29,173 2,222 -- 31,395
General and administrative 5,063 3,519 -- 8,582 1,180 -- 9,762
Acquired in-process
research and development 26,770 -- (25,870) 900 -- -- 900
Amortization of goodwill and
other acquired intangible assets 819 -- 2,458 3,277 205 1,968 5,450
---------- ---------- --------- --------- -------- ---------- ---------
Total operating expenses 50,458 14,886 (23,412) 41,932 3,607 1,968 47,507
-------- -------- ------- -------- ------- ------- --------
Operating loss (46,329) (11,751) 23,412 (34,668) (2,742) (1,968) (39,378)
Interest income 2,499 843 -- 3,342 99 -- 3,441
Interest expense, net (850) (15) -- (865) (17) -- (882)
--------- -------- --------- --------- ---------- ------- ----------
Net loss $ (44,680) $ (10,923) $ 23,412 $(32,191) $ (2,660) $ (1,968) $ (36,819)
--------- --------- -------- -------- -------- -------- ---------
--------- --------- -------- -------- -------- -------- ---------
Net loss per share--
basic and diluted $ (2.90) $ (1.46) $ (1.45)
------- -------
------- -------
Shares used in computing basic
and diluted net loss per share 15,430 21,337 25,388
------ ------ ------
------ ------ ------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
Unaudited Pro Forma Condensed Combined Statements of Operations
Twelve Months Ended June 30, 1998
($ thousands, except per share data)
<TABLE>
<CAPTION>
Historical Historical
---------------------------------
Valentis, Inc. GeneMedicine, Inc. Valentis/ PolyMASC
12 Months 12 months GeneMedicine 12 Months
Ended 30 Ended 30 Pro forma Pro forma Ended 30 Pro forma Pro forma
June 1998 June 1998 Adjustments Combined June 1998 Adjustments Combined
--------- --------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Contract revenue $ 8,083 $ 4,023 $ -- $12,106 $ 721 $ -- $ 12,827
Research and development
grant revenue -- 509 -- 509 -- -- 509
------- -------- -------- -------- ---- --------- --------
Total revenue 8,083 4,532 -- 12,615 721 -- 13,336
EXPENSES:
Research and development 15,111 15,078 -- 30,189 301 -- 30,490
General and administrative 3,561 4,451 -- 8,012 2,673 -- 10,685
Amortization of purchased
intangible assets -- -- 3,277 3,277 214 1,968 5,459
----------- ----------- -------- --------- --------- -------- ---------
Total operating expenses 18,672 19,529 3,277 41,478 3,188 1,968 46,634
--------- --------- -------- -------- -------- -------- --------
Operating loss (10,589) (14,997) (3,277) (28,863) (2,467) (1,968) (33,298)
Interest income 2,651 1,449 -- 4,100 200 -- 4,300
Interest expense, net (440) (41) -- (481) (12) -- (493)
---------- ------------- ------------ ----------- ----------- ------------ ---------
Net loss $ (8,378) $ (13,589) $ (3,277) $ (25,244) $ (2,279) $ (1,968) $ (29,491)
-------- --------- -------- --------- -------- -------- ---------
-------- --------- -------- --------- -------- -------- ---------
Net loss per share--
basic and diluted $ (0.83) $ (1.33) $ (1.26)
------- ------- -------
------- ------- -------
Shares used in computing basic
and diluted net loss per share 10,088 19,024 23,418
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1
On 18 March 1999, Valentis (then called Megabios Corp.) completed its merger
with GeneMedicine, Inc. ("GeneMedicine"). Under the terms of the merger
agreement, each outstanding share of GeneMedicine common stock was converted
into 0.5710 of a share of Valentis' common stock. This resulted in the issuance
of approximately 9.1 million shares of Valentis' common stock, valued at $38.7
million. The purchase price also included approximately $850,000 related to
GeneMedicine's stock options and outstanding warrants assumed by Valentis and
$1.7 million of transaction costs, for an aggregate purchase price of $41.3
million.
The merger transaction was accounted for as a purchase. As a result of the
purchase, $25.9 million of the purchase price was charged to in-process research
and development in Valentis' Statement of Operations for the year ended June 30,
1999.
The following is a summary of the purchase price allocation (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Tangible assets acquired $14,410
In-process research and development 25,870
Intangible assets-assembled workforce and goodwill 9,831
Liabilities assumed (including GeneMedicine transaction costs and other obligations
due upon the close of the merger) (8,801)
---------
$ 41,310
---------
---------
</TABLE>
GeneMedicine is engaged in the discovery and development of a new class of
pharmaceutical products that incorporate genes for the treatment or prevention
of serious diseases. GeneMedicine's business focus is in the development of gene
medicines for treating cancers, cardiovascular disease and neuromuscular
disorders, as well as in the development of genetic vaccines. GeneMedicine's
research and development programs in these areas are in various stages from
pre-clinical development to early clinical trials. GeneMedicine's strategy has
been to develop and commercialize its products through alliances with major
pharmaceutical and biotechnology companies. No products utilizing GeneMedicine's
proprietary technologies have been approved for marketing to date. The
GeneMedicine research and development programs currently in process were valued
as follows:
<TABLE>
<CAPTION>
<S> <C>
Cancer gene Medicines (IL2, IFN-a, IL-12) $ 8,100
Hemophilia Gene Medicines (factor XIII and IX) 1,240
Growth Factor Gene Medicines (IGF-1) 5,180
Pulmonary Gene Medicines (ATT GM) 1,730
Vascular Growth Factor Gene Medicines 4,620
Gene Switch Technology 3,930
Nucleic Acid Programs (APC) 1,070
----------
$ 25,870
----------
----------
</TABLE>
The in-process research and development has been written off against the
combined retained earnings. Such charge was included in the Valentis statement
of operations in the year ended June 30, 1999. Because the charge is
nonrecurring, it has been reversed in the pro forma condensed combined
statements of operations. The intangible assets will be amortized over their
estimated useful lives of 3 years. Additional amortization expense of $2,458
related to intangible assets acquired in the GeneMedicine merger has been
included in the Pro Forma Condensed Combined Statement of Operations.
NOTE 2
The unaudited pro forma condensed combined financial statements reflect the
exchange of all the issued PolyMASC Ordinary Shares for 4,228,528 shares of
Valentis Common Stock pursuant to the Ordinary Share Offer. This calculation is
based on PolyMASC's capitalization at August 27, 1999 using the conversion ratio
of 0.209 of Valentis Common Stock for each PolyMASC Ordinary Share.
The total cost of the merger was approximately $20.1 million, determined as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fair value of new Valentis Common Stock (calculated using the per share average fair value at
the date of the Announcement - $4.56 per share of Valentis Common Stock) $ 19,266
Valentis transaction costs, consisting primarily of financial advisory, legal and accounting
fees 837
-----------
$ 20,103
-----------
-----------
</TABLE>
Based upon valuation of tangible and intangible assets acquired and liabilities
assumed, Valentis has allocated the total cost of the Ordinary Share Offer and
the Deferred Share Offer to the net assets of PolyMASC as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Tangible assets acquired $ 2,185
In-process research and development 14,347
Intangible assets: assembled workforce and goodwill 5,903
Liabilities assumed (including PolyMASC transaction costs) (2,332)
----------
$ 20,103
-----------
-----------
</TABLE>
<PAGE>
The primary technological focus of PolyMASC is the creation of improved
biologics through the application of PEGylation technologies. PEGylation is an
established technology that involves the attachment of the polymer
polyethyleneglycol (PEG) to therapeutics to alter their pharmacokinetics
(distribution in the body, metabolism and excretion). The alteration of the
pharmacokinetics of biologics due to PEGylation can often lead to improved
dosing intervals and may also have beneficial effects on safety and efficacy.
PEGylation also masks biologics from the immune system. Both recognition by
antibodies (antigenicity) and stimulation of immune responses (immunogenicity)
are reduced. PolyMASC's technology is covered by a family of patents and patent
applications in all major territories.
PolyMASC's research and development programs in these areas are in various
stages of preclinical development. Currently, none of the products utilising
PolyMASC's proprietary technology have as yet entered any stage of human
clinical testing. PolyMASC's strategy has been to develop and commercialise its
products through alliances with pharmaceutical and biotechnology companies. No
products using PolyMASC's proprietary technology have been approved for
marketing to date. The PolyMASC research and development currently in process
has been assessed at $14.3 million. The in-process research and development has
been written off against the combined retained earnings. Because the charge is
nonrecurring, it has not been reflected in the pro forma condensed combined
statements of operations. Such charge will be included in the Valentis statement
of operations in the quarter in which the merger is consummated. The intangible
assets will be amortized over their estimated useful lives of 3 years.
NOTE 3
The pro forma condensed combined balance sheet includes the adjustments
necessary to give effect to the PolyMASC merger as if it had occurred on June
30, 1999 and to reflect the allocation of the acquisition cost to the fair value
of tangible and intangible assets acquired and liabilities assumed as noted
above, including a charge to retained earnings for acquired in-process research
and development and the elimination of PolyMASC's equity accounts.
Adjustments included in the pro forma condensed combined balance sheet are
summarized as follows:
(A) Valuation of assembled work force, goodwill and other intangible assets of
$6,066,000 (less PolyMASC goodwill and intangible assets of $307,000
existing as at June 30, 1999).
(B) Accrual of transaction-related costs of approximately $837,000 for Valentis
and $870,000 for PolyMASC, principally for investment banking, legal and
accounting services.
(C) Elimination of PolyMASC equity accounts.
(D) Issuance of Valentis Common Stock.
(E) Charge to operations for in-process research and development of
approximately $14,347,000.
(F) Elimination of loan made by Valentis to PolyMASC.
NOTE 4
The pro forma condensed combined statements of operations include the
adjustments necessary to give effect to the merger as if it had occurred on 1
July 1997. Adjustments consist of the amortization of acquired intangible assets
using the following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Assembled workforce 3 years
Goodwill 3 years
</TABLE>
NOTE 5
Pro forma basic and diluted net loss per share amounts for the year ended June
30, 1998 are based upon the historical weighted-average number of Valentis
Common Stock outstanding adjusted to reflect the issuance, as of July 1, 1997,
of approximately 4.4 million shares of Valentis common stock, which amount
excludes outstanding shares subject to repurchase in accordance with SFAS No.
128.
<PAGE>
PolyMASC Pharmaceuticals plc
Unaudited Balance Sheet
(L thousands)
<TABLE>
<CAPTION>
At June 30, 1999
<S> <C>
Fixed Assets
Intangible assets L 184
Tangible assets 336
Own shares --
----
521
----
Current Assets:
Stocks 16
Debtors: Amounts falling due within one year 41
Cash and cash equivalents 1,044
-----
1,101
-----
Creditors: amounts falling due within one year 370
------
Net current assets 731
------
Total assets less current liabilities 1,252
Creditors: amounts falling due after more than one year 676
------
Net assets L 576
-------
-------
Capital and Reserves:
Share capital 5,326
Profit and loss account (4,750)
------
Total shareholders' funds L 576
-------
-------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
Unaudited Pro Forma Condensed Combined Statements of Operations
In L thousands, except per share data
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Turnover L 79 L 112
EXPENSES:
Operating costs (1,057) (1,013)
------ ------
Operating loss (978) (901)
Interest receivable (net) 22 47
------ ------
Loss on ordinary activities before and after taxation (956) (854)
Dividends -- --
------ ------
Loss for the period L (956) L (854)
------ ------
------ ------
Loss per ordinary share--in pence (4.7)p (4.3)p
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
PRINCIPAL ACCOUNTING POLICIES
The historical financial information for PolyMASC was expressed in British
Pounds Sterling and prepared in accordance with applicable Accounting Standards
in the United Kingdom. There were no significant differences in accounting
treatment in the PolyMASC financial information between UK GAAP and those
accounting principles generally accepted in the United States.
The interim financial statements, in the opinion of management, reflect all
adjustments (consisting of normal recurring accruals) necessary for a fair
statement of the results for the interim periods ended June 30, 1999 and 1998.
The results of operations for the six months ended June 30, 1999 and 1998 are
not necessarily indicative of the results of operations to be expected for the
fiscal year.
<PAGE>
SIGNATURE
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 hereunto duly authorized.
Date: November 8, 1999 VALENTIS, INC.
By: /s/ Bennet L. Weintraub
----------------------------
Bennet L. Weintraub
Vice President, Finance and
Chief Financial Officer
