<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1996
------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________________ to _____________________
Commission file number 0-26534
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VION PHARMACEUTICALS, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 13-3671221
- - --------------------------------------- -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4 SCIENCE PARK, NEW HAVEN, CT 06511
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(Address of Principal Executive Offices)
(203) 498-4210
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(Issuer's Telephone Number, Including Area Code)
ONCORX, INC.
- - -------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Check whether the issuer: (1) filed all reports required 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
---------
The number of shares outstanding of the issuer's sole class of common
equity, as of March 31, 1996 is: 7,554,106 Shares of common stock, $.01 par
-------------------------------------------
value
- - -----
Transitional Small Business Disclosure Format (check one):
Yes _________ No X
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<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
VION PHARMACEUTICALS, INC. (Formerly OncoRx, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEET
<TABLE>
March 31, December 31,
1996 1995
<S> <C> <C>
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $55,772 $2,350,933
Short-term investments 2,846,655 2,291,108
Other current assets 10,488 18,825
Total Current Assets 2,912,915 4,660,866
Net Property And Equipment 344,441 335,871
Other Assets:
Security deposits 55,359 50,658
Research contracts prepayments 416,945 416,945
472,304 467,603
Total Assets $3,729,660 $5,464,340
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Obligation under capital lease - current $17,349 $15,272
Accounts payable and accrued expenses 585,235 309,073
Total Current Liabilities 602,584 324,345
Obligation under capital lease - long term 68,524 76,763
Common stock subject to put option 0 100,000
Total Liabilities 671,108 501,108
Stockholders' Equity:
Preferred stock, $0.01 par value,
authorized - 5,000,000 shares
None issued 0 0
Common stock, $0.01 par value,
authorized - 20,000,000 shares
Issued and outstanding - 1996-7,554,106;
1995-7,530,288 shares 75,540 75,302
Additional paid-in capital 15,013,197 14,913,435
Accumulated deficit during the development
stage (12,030,185) (10,025,505)
Total Stockholders' Equity 3,058,552 4,963,232
Total Liabilities and
Stockholders' Equity $ 3,729,660 $5,464,340
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
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VION PHARMACEUTICALS, INC. (Formerly OncoRx, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For The Period
From May 1, 1994
Three Months Ended (Inception) through
March 31, March 31,
1996 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Operating Expenses:
Research and development $1,622,211 $4,755,411
General and administrative 427,731 2,513,050
Purchased research and development 0 4,481,405
Amortization of finance charges 0 545,439
Interest income (47,690) (131,734)
Interest expense 2,428 47,590
Net Loss $(2,004,680) $(12,211,161)
Net Loss Per Share $(0.27)
Weighted Average Common Stock And Common 7,534,258
Stock Equivalents Outstanding
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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VION PHARMACEUTICALS, INC. (Formerly OncoRx, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For The Period For The Period
From May 1, 1994 From May 1, 1994
(Inception) through Three Months Ended (Inception) through
December 31, March 31, March 31,
1995 1996 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash Flows Used For Operating Activities:
Net loss $(10,006,481) $(2,004,680) $(12,011,161)
Adjustments to reconcile net loss to cash
flows provided by operating activities:
Purchased research and development 4,481,405 0 4,481,405
Amortization of financing costs 345,439 0 345,439
Depreciation and amortization 25,622 20,880 46,502
(Increase) in other current assets (17,839) 8,337 (9,502)
(Increase) in other assets (465,888) (4,701) (470,589)
Increase accounts payable
and accrued expenses 274,541 276,162 550,703
Stock issued for services 417 0 417
Stock options issued for compensation 540,000 0 540,000
Net cash(used in) operating activities (4,822,784) (1,704,002) (6,526,786)
Cash Flows Used For Investing Activities:
Purchase of marketable securities (2,291,108) (555,547) (2,846,655)
Acquisition of fixed assets (250,415) (29,449) (279,864)
Cash portion of MelaRx acquisition 4,061 0 4,061
Net cash used in investing activities (2,537,462) (584,996) (3,122,458)
Cash Flows Provided By Financing Activities:
Initial public offering 9,696,210 0 9,696,210
Net proceeds from issuance of common stock 313,055 0 313,055
Repurchase of common stock (720) 0 (720)
Net proceeds from bridge financing 1,704,269 0 1,704,269
Repayments of bridge financing (2,000,000) 0 (2,000,000)
Advances from stockholder 250,000 0 250,000
Repayments to stockholders (250,000) 0 (250,000)
Receipts from sale of unit purchase option 250 0 250
Issuance of common stock 501 0 501
Repayment of equipment capital lease (2,386) (6,163) (8,549)
Net cash provided by financing activities 9,711,179 (6,163) 9,705,016
Net Increase In Cash 2,350,933 (2,295,161) 55,772
Cash - Beginning 0 2,350,933 0
Cash - Ending $2,350,933 $55,772 $55,772
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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VION PHARMACEUTICALS, INC.(Formerly: OncoRx, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
Accumulated
Deficit During Total
Common Stock Common Stock Additional Development Stockholders'
Shares Amount Paid-in Capital Stage Equity
<S> <C> <C> <C> <C> <C>
Common stock issued for cash - July 1994 2,693,244 $26,932 $(19,877) $7,055
Common stock issued for services -
August 1994 159,304 1,593 (1,176) 417
Net loss (475,946) (475,946)
Balances - December 31, 1994 2,852,548 28,525 0 (496,999) (468,474)
Stock options issued for compensation -
February 1995 540,000 540,000
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 2,000,000 20,000 4,300,000 4,320,000
Shares repurchased pursuant to
employment agreements - April 1995 (274,859) (2,749) 2,029 (720)
Private placement of common stock -
April 1995 76,349 763 205,237 206,000
Warrants issued with bridge notes -
April 1995 200,000 200,000
Initial public offering of common stock at
$4.00 per share - August 1995 and
September 1995 2,875,000 28,750 9,667,460 9,696,210
Receipts from sale of unit purchase option 250 250
Issuance of common stocks 1,250 13 488 501
Net loss (9,530,535) (9,530,535)
Balances at December 31, 1995 7,530,288 75,302 14,913,435 (10,025,505) 4,963,232
Issuance of common stock 23,818 238 99,762 100,000
Net loss (2,004,680) (2,004,680)
Balances at March 31, 1996 7,554,106 $75,540 $15,013,197 $(12,030,185) $3,058,552
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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VION PHARMACEUTICALS, INC. (FORMERLY ONCORX, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE A) - THE COMPANY;
OncoRx Inc. ("Old OncoRx") was incorporated on May 13, 1993 and
commenced operations on May 1, 1994. No significant expenses were incurred
prior to July 1, 1994. The Company is in the development stage and its efforts
are principally devoted to the research and development of therapeutic products
for the treatment of cancer and cancer related disorders.
On April 20, 1995 Old OncoRx merged with OncoRx Research Corp., a
previously unaffiliated company ("Research"). The stockholders of Old OncoRx
were issued 2,654,038 common and 23,859 preferred shares of MelaRx
Pharmaceuticals, Inc. ("MelaRx") (which was renamed OncoRx, Inc. after the
merger and subsequently renamed Vion Pharmaceuticals, Inc. on April 18, 1996),
the 100% owner of Research, in exchange for all of the outstanding shares of Old
OncoRx.
As the shareholders of Old OncoRx obtained a majority interest in the
merged company (the "Company"), for accounting purposes, Old OncoRx is treated
as the acquirer, the transaction is recorded as a purchase in the financial
statements of Old OncoRx and the Company's financial statements include the
results of operations of Old OncoRx from inception and MelaRx from the date of
acquisition. The cost of MelaRx was 2,000,000 shares of common stock valued at
$2.16 per share (fair value). The excess of cost over the fair value of
MelaRx's net tangible assets, $4,481,405, was treated as purchased research and
development and expensed immediately.
(Note B) - BASIS OF PRESENTATION:
The accompanying 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 by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report for the Fiscal year ended December 31, 1995 on Form
10-KSB (File No. 0-26534).
(Note C) - STOCK OPTION PLAN:
In July 1995, the Board of Directors of the Company amended its stock
option plan to adopt the MelaRx stock option plan inclusive of options
previously granted by MelaRx under which incentive stock options or nonstatutory
stock options to acquire a maximum of 534,750 shares of the Company's common
stock may be granted to employees, officers, directors and consultants of the
Company. Options to purchase 134,750 shares of common stock had previously been
granted by MelaRx under the plan.
Through December 31, 1995, options to purchase an aggregate of 532,750
shares had been granted under the plan. On January 31, 1996, the Board of
Directors adopted, subject to stockholder approval, an amendment to the plan
increasing the number of shares which may be issued under the plan from 534,750
to 1,000,000. At the same meeting, the Board of Directors made grants of
options, subject to stockholder approval of this proposal, to purchase an
aggregate of 140,500 shares of Common Stock under the plan. The amendment to
6
<PAGE>
the plan was adopted by the stockholders at the Company's annual meeting on
April 18, 1996 (see Part II, Item 4).
(Note D) - PRIVATE PLACEMENT OF COMMON STOCK:
In April 1995, the Company issued 200,000 shares of common stock for net
proceeds of $206,000 after deducting placement fees of $14,000.
(Note E) - BRIDGE FINANCING:
In April 1995, the Company issued $2,000,000 in 10% promissory notes and
warrants to purchase 1,000,000 shares of common stock at $3.00 per share for net
proceeds of $1,704,000. The notes were paid at the closing of the initial
public offering of the Company's securities described below and the warrants,
which are exercisable until August 13, 2000, converted into Class A warrants at
that time.
(Note F) - PUBLIC OFFERING:
On August 17, 1995 the Company sold 2,500,000 Units, consisting of an
aggregate of 2,500,000 shares of common stock, 2,500,000 redeemable Class A
warrants and 2,500,000 redeemable Class B warrants, pursuant to a public
offering at an offering price of $4.00 per Unit. On September 6, 1995 the
Company sold an additional 375,000 Units pursuant to the underwriter's
overallotment option. The net proceeds to the Company of the public offering
were approximately $9,696,000 before repayment of the bridge financing.
7
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ITEM 2. PLAN OF OPERATIONS.
GENERAL
The Company is a development stage biopharmaceutical company. Its
activities to date have consisted primarily of research and development
sponsored by it pursuant to two separate license agreements with Yale
University, negotiating and obtaining other collaborative agreements, recruiting
management and other personnel, securing its facilities and raising equity and
debt financing. The Company has not generated any revenues and has incurred
substantial operating losses from its activities.
The Company intends to use a substantial portion of the net proceeds of its
initial public offering, which was consummated in August 1995, to fund its plan
of operations, which includes the following elements for the next 12 months:
- Continue to support research and development being performed at Yale
University and by other collaborators and seek additional collaborative
agreements.
- Develop internal research and development capabilities and conduct
research and development with respect to the Company's core
technologies and other product candidates which may be identified by
the Company. The Company expects to incur substantial expenditures for
expansion of its scientific staff and related research and development
expenses. In addition, the Company expects to expend approximately
$725,000 for laboratory and office equipment purchases. During the
next 9 months, the Company plans to hire approximately 11 additional
employees, including nine scientists.
- Seek to acquire, generally through in-licensing, oncology-related
products that can be marketed without significant additional
development activities.
- Sponsor Phase III clinical studies of porfiromycin for treatment of
cancer of the head and neck.
The Company currently estimates that the net proceeds of its initial public
offering in August, 1995 will be sufficient to fund its planned operations for
approximately 13 months thereafter. In the event of delays or unexpected
problems in product development, cost overruns, or other unanticipated expenses
commonly associated with a company in an early stage of development, the Company
will require additional funds. In addition, the Company will need substantial
additional financing in 1996, beyond the first 13-month period to fund further
research and development and the Company's working capital requirements. In the
event such financing is not obtained, the Company may be materially adversely
affected and may have to cease or substantially reduce operations.
8
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had a working capital surplus of $2,310,331.
The Company's principal sources of funds through March 31, 1996 have been
$9,696,210 from its initial public offering, $5,478,280 in net proceeds from
private placements of common stock in 1992 and 1993 by its predecessor, MelaRx
Pharmaceuticals Inc. ("MelaRx"), the receipt by its predecessor, OncoRx Inc.
("Old OncoRx"), of $350,000 in May, 1994 and a bridge financing in April, 1995
of $2,000,000 of Notes (the "Notes"). In addition, Old OncoRx received net
proceeds of $206,000 in a private placement of its common stock in April, 1995
which were used to pay certain accrued expenses, including salaries of officers.
The net proceeds to the Company of the April 1995 bridge financing were
approximately $1,704,000, after deducting related expenses and the repayment of
certain advances. Such proceeds have been used to make payments due under
collaboration agreements and repay certain loans to the Company and for working
capital purposes. The Notes were payable on the earlier of one year after the
date of issuance or the closing of the Company's initial public offering.
The Company used the proceeds of its initial public offering to repay its
bridge financing and intends to use the remaining funds to implement its
business plan, which includes retention of additional personnel; capital
expenditures for the purchase of equipment, principally for laboratory
facilities; costs of research and development; payment of license fees due under
sponsored research agreements; and grants to Yale University to fund certain
research, including research in Dr. Yung-Chi Cheng's laboratory. During the
twelve months ending December 31, 1996, the Company will be required to make
payments of an aggregate of $1,334,000 to Yale University and the University of
California, Berkeley, under sponsored research and license agreements.
The Company requires substantial new revenues and other sources of capital
in order to meet such budgeted expenditures and to continue its operations
throughout the year. The Company is seeking to enter into one or more
significant strategic partnerships with pharmaceutical companies for the
development of its core technologies, through which it would anticipate
receiving some of the substantial revenues and financing required to continue
operations beyond the year end. The Company has entered into preliminary
discussions with several major pharmaceutical companies concerning such a
strategic alliance, but there can be no assurance that the Company will be
successful in achieving such an alliance, nor can the Company predict what funds
might be available to it if it can achieve such an alliance. The Company is also
seeking to raise funds through additional means, including (1) spin-off,
refinancing, or partial sale or disposition of its rights to certain of its non-
core technologies; (2) equipment lease financing; and (3) private placements of
its securities. No assurance can be given that the Company will be successful in
arranging financing through any of these alternatives.
Failure to obtain such financing will require the Company to delay,
renegotiate, or omit payment on its outside research funding commitments causing
it to substantially curtail its operations, resulting in a material adverse
effect on the Company.
RESULTS OF OPERATIONS
The Company has not generated any revenues from operations. For the period
from the commencement of operations (May 1, 1994) through March 31, 1996, the
Company incurred a consolidated net loss before nonrecurring charges of
approximately $12,011,000, including $4,481,405 of purchased research and
development as a result of the merger with MelaRx. The Company expects to incur
significant increases in salaries and research and development cost as it hires
additional employees and expands its research and development activities. The
Company has a lease providing for an initial annual rent of
9
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$20,393, and commencing approximately June 1996 the Company expects to occupy
new space currently being constructed, at an annual rent of $150,000.
During the quarter ended March 31, 1996, the Company has added six
personnel: Five in research and one in the product development area. This
increased salary expense from approximately $103,000 per month to approximately
$122,000 per month at the end of the quarter.
Research and development expenses for the quarter increased from
approximately $1,268,000 to approximately $1,622,000 in the most recent quarter
due to the timing of research support payments; annualized research support
payments are not expected to decrease. The amount for the latest quarter
includes outside tests and services of approximately $376,000 relating to
production of materials required for expanded Phase III clinical testing of
porfiromycin . Laboratory supply expenses were approximately $95,000 for the
quarter, as new personnel began to equip chemistry and biological laboratories.
These expenses are expected to increase in the remainder of 1996.
In general and administrative expenses, legal and patent filing expenses
decreased 39% in the quarter by $106,000. Other professional fees, including
fees for distribution rights, licensing, regulatory filings, recruiting,
accounting and engineering totaled approximately $247,000 for the quarter.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company held on April 18,
1996, four proposals were voted upon by the Company's stockholders. A brief
description of each proposal voted upon at the Annual Meeting and the number of
votes cast for, against and the number of abstentions and broker non-votes to
each proposal are set forth below.
A vote was taken at the Annual Meeting for the election of ten Directors of
the Company to hold office until the next annual Meeting of Stockholders of the
Company and until their respective successors shall have been duly elected. The
aggregate number of shares of Common Stock voted in person or by proxy for each
nominee were as follows:
For Withheld
-------- ----------
William R. Miller 5,423,797 28,000
John A. Spears 5,423,797 28,000
Alan C. Sartorelli Ph.D. 5,423,797 28,000
Michel C. Bergerac 5,423,797 28,000
Frank T. Cary 5,423,797 28,000
A. E. Cohen 5,423,797 28,000
James L. Ferguson 5,413,797 38,000
Michael C. Kent 5,423,797 28,000
E. Donald Shapiro 5,423,797 28,000
Walter Wriston 5,423,797 28,000
A vote was taken at the Annual Meeting on the proposal to change the name
of the Company to Vion Pharmaceuticals, Inc. The aggregate numbers of shares of
Common Stock in person or by proxy which: (a) voted for, (b) voted against or
(c) abstained from the vote on such proposal were as follows:
For Against Abstained
--------- ------- ---------
5,435,997 200 15,600
A vote was taken at the Annual Meeting on the proposal to amend the Amended
and Restated 1993 Stock Option Plan the increase the number of shares which may
be issued thereunder. The aggregate numbers of shares of Common Stock in person
or by proxy which: (a) voted for, (b) voted against, (c) abstained or (d) broker
non-votes on such proposal were as follows:
For Against Abstained Broker Non-Votes
--------- ------- --------- ----------------
3,258,895 43,500 61,492 2,087,910
A vote was taken at the Annual Meeting on the proposal to ratify the
appointment of Ernst & Young LLP as auditors for the Company for the fiscal year
ending December 31, 1996. The aggregate numbers of shares of Common Stock in
person or by proxy which: (a) voted for, (b) voted against or (c) abstained from
the vote on such proposal were as follows:
For Against Abstained
-------- ------- ---------
5,435,997 200 15,600
11
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The foregoing proposals are described more fully in the Company's
definitive proxy statement dated March 7, 1996, filed with the Securities and
Exchange Commission pursuant to Section 14(a) of the Securities Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
27. Article 5 Financial Data Schedule for first quarter 1996.
(b) REPORTS ON FORM 8-K.
No current reports on Form 8-K were filed during the quarter ended
March 31, 1996.
12
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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.
VION PHARMACEUTICALS, INC.
(Registrant)
By: /s/ Thomas E. Klein
--------------------------
Thomas E. Klein
Vice President - Finance
(Duly authorized signatory and
Chief Financial Officer)
Date: May 10, 1995
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3RD QUARTER
10-QSB FINANCIALS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 55,772
<SECURITIES> 2,846,655
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,912,915
<PP&E> 344,441
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,729,660
<CURRENT-LIABILITIES> 602,584
<BONDS> 0
0
0
<COMMON> 75,540
<OTHER-SE> 2,983,012
<TOTAL-LIABILITY-AND-EQUITY> 3,729,660
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,049,942
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,428
<INCOME-PRETAX> (2,004,680)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,004,680)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,004,680)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
