================================================================================
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 September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to _____________
Commission file number 0-26534
-------
VION PHARMACEUTICALS, INC.
--------------------------
(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
-----------------------------------
(Address of Principal Executive Offices)
(203) 498-4210
--------------
(Issuer's Telephone Number, Including Area Code)
-------------------------------------------------------
(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 November 3, 1999 is:
18,227,326 shares of common stock, $.01 par value.
--------------------------------------------------
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
================================================================================
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited)
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,117,946 $ 3,821,234
Short-term investments (includes $1,129,886 restricted) -- 2,594,497
Accounts receivable 1,193,348 1,251,618
Other current assets 43,898 107,198
------------ ------------
Total current assets 3,355,192 7,774,547
Property and equipment, net 731,466 1,026,184
Security deposits 57,532 51,347
Research contract prepayments 416,945 416,945
------------ ------------
Total assets $ 4,561,135 $ 9,269,023
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Obligation under capital leases - current $ 204,850 $ 291,668
Accounts payable and accrued expenses 2,317,295 2,437,682
------------ ------------
Total current liabilities 2,522,145 2,729,350
Obligation under capital leases - long term 32,834 180,960
------------ ------------
Total Liabilities 2,554,979 2,910,310
Redeemable Preferred Stock:
5% convertible preferred stock Series 1998, $0.01 par value, authorized:
15,000 shares; issued and outstanding: 5,000 shares 5,090,040 4,854,505
(redemption value $5,312,500 in 1999 and $5,125,000 in 1998)
Shareholders' equity (deficit)
Preferred stock, $0.01 par value - 5,000,000 shares authorized consisting of:
Class A convertible preferred stock, $0.01 par value, authorized:
3,500,000 shares; issued and outstanding: 486,034 in 1999 and 616,656 in 1998
(liquidation preference $4,860,340 in 1999; $6,167,000 in 1998) 4,861 6,167
Common stock, $0.01 par value, authorized: 35,000,000 shares;
issued: and 15,674,758 in 1999 and 13,953,046 in 1998 156,748 139,530
Additional paid-in-capital 56,447,214 52,024,648
Deferred compensation (11,522) (37,496)
Accumulated deficit (59,485,026) (50,628,641)
Treasury Stock (35,284 shares at cost) (196,159) --
------------ ------------
(3,083,884) 1,504,208
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 4,561,135 $ 9,269,023
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 2
<PAGE>
Statement of Operations
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
For The Period
From May 1, 1994
Three Months Ended Nine Months Ended (Inception) through
September 30, September 30, September 30, September 30, September 30,
----------------------------------------------------------------------------------
1999 1998 1999 1998 1999
(Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract research grants $ 96,704 $ 89,429 $ 260,880 $ 198,628 $ 669,667
Research support 183,813 217,936 1,298,851 640,377 4,168,965
Technology license revenues 6,419 -- 56,419 -- 4,056,419
----------------------------------------------------------------------------------
Total revenues 286,936 307,365 1,616,150 839,005 8,895,051
Operating expenses:
Research and development 2,192,961 2,159,328 8,517,035 6,530,360 36,010,211
General and administrative 465,868 443,927 1,666,198 1,534,703 10,707,024
Nonrecurring collaboration restructuring fee -- -- -- -- 600,000
Purchased research and development -- -- -- -- 4,481,405
Amortization of finance charges -- -- -- -- 345,439
Interest Income (45,720) (172,770) (173,075) (421,835) (1,579,263)
Interest Expense 6,904 13,087 27,677 47,504 188,343
----------------------------------------------------------------------------------
Net Loss $ (2,333,077) $ (2,136,207) $ (8,421,685) $ (6,851,727) $(41,858,108)
----------------------------------------------------------------------------------
Preferred Dividends and Accretion $ (77,332) $ (1,537,170) $ (434,700) $ (4,212,956) $(17,607,894)
----------------------------------------------------------------------------------
Loss applicable to Common Shareholders $ (2,410,409) $ (3,673,377) $ (8,856,385) $(11,064,683) $(59,466,002)
----------------------------------------------------------------------------------
Basic and diluted loss applicable to
common shareholders per share $ (0.16) $ (0.27) $ (0.59) $ (0.98)
----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
Statement of Changes in Shareholders' Equity
Vion Pharmaceuticals, Inc.
( A Development Stage Company)
<TABLE>
<CAPTION>
Class A Class B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
------------------ ------------------ ------------------
Shares Amount Shares Amount Shares Amount
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,107,028 $11,070 0 $0 8,017,961 $80,178
--------------------------------------------------------------------
Conversion of Class A convertible preferred stock (396,988) (3,970) 1,102,757 11,028
Class A convertible preferred stock dividend 47,592 476
Issuance of Class B convertible preferred stock 4,850 49
Conversion of Class B convertible preferred stock (258) (3) 64,642 647
Accretion of dividend payable on Class B convertible
preferred stock
Extension/reissuance of underwriter warrants
Exercise of warrants 238 3
Issuance of common stock 598,336 5,983
Exercise of stock options 50,000 500
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
--------------------------------------------------------------------
Balance at December 31, 1997 757,632 $7,576 4,592 $46 9,833,934 $98,339
--------------------------------------------------------------------
Conversion of Class B convertible preferred stock (4,592) (46) 1,205,178 12,052
Accretion of dividend payable on Class B convertible
preferred stock
Premium on Conversion dividend on class B
convertible preferred stock 585,898 5,859
Conversion of Class A convertible preferred stock (174,981) (1,749) 486,062 4,860
Class A convertible preferred stock dividend 34,005 340
Discount on Series 1998 convertible preferred stock
Series 1998 convertible preferred stock accretion
Common stock issued in exchange for cancellation 1,792,952 17,929
of outstanding warrants
Exercise of stock options 32,750 328
Exercise of warrants 16,272 163
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
--------------------------------------------------------------------
Balance at December 31, 1998 616,656 $6,167 0 $0 13,953,046 $139,530
--------------------------------------------------------------------
Conversion of Class A convertible preferred stock (144,612) (1,446) 401,707 4,018
Class A convertible preferred stock dividend 13,990 140
Series 1998 convertible preferred stock accretion
Common stock issued in exchange for cancellation
of outstanding warrants 102 1
Exercise of stock options 399,692 3,997
Exercise of warrants 26,296 263
Issuance of common stock 893,915 8,939
Amortization of deferred compensation
Net loss
--------------------------------------------------------------------
Balance at September 30, 1999 (Unaudited) 486,034 $4,861 0 $0 15,674,758 $156,748
--------------------------------------------------------------------
</TABLE>
Statement of Changes in Shareholders' Equity (Cont.)
Vion Pharmaceuticals, Inc.
( A Development Stage Company)
<TABLE>
<CAPTION>
Additional Total
Paid-in Deferred Accumulated Treasury Stockholders'
Capital Compensation Deficit Stock Equity
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $38,349,072 ($106,760) ($29,261,588) $0 9,071,972
----------------------------------------------------------------------
Conversion of Class A convertible preferred stock (7,058) (0)
Class A convertible preferred stock dividend 623,038 (623,514) 0
Issuance of Class B convertible preferred stock 4,851,662 (369,861) 4,481,850
Conversion of Class B convertible preferred stock (644) 0
Accretion of dividend payable on Class B convertible
preferred stock 138,365 (138,365) 0
Extension/reissuance of underwriter warrants 168,249 168,249
Exercise of warrants (6) (3)
Issuance of common stock 3,463,818 3,469,801
Exercise of stock options 19,500 20,000
Compensation associated with stock option grants 55,643 55,643
Amortization of deferred compensation 34,632 34,632
Net loss (5,343,594) (5,343,594)
----------------------------------------------------------------------
Balance at December 31, 1997 $47,661,639 ($72,128) ($35,736,922) $0 11,958,550
----------------------------------------------------------------------
Conversion of Class B convertible preferred stock (12,006) 0
Accretion of dividend payable on Class B convertible
preferred stock 286,776 (286,776) 0
Premium on Conversion dividend on class B
convertible preferred stock 2,043,532 (2,049,391) 0
Conversion of Class A convertible preferred stock (3,111) 0
Class A convertible preferred stock dividend 329,206 (329,546) 0
Discount on Series 1998 convertible preferred stock 1,597,218 (1,597,218) 0
Series 1998 convertible preferred stock accretion 0 (151,119) (151,119)
Common stock issued in exchange for cancellation 8,441,442
of outstanding warrants (8,502,064) (42,693)
Exercise of stock options 119,854 120,182
Exercise of warrants 10,910 11,073
Compensation associated with stock option grants 51,252 51,252
Amortization of deferred compensation 34,632 34,632
Net loss (10,477,669) (10,477,669)
----------------------------------------------------------------------
Balance at December 31, 1998 $52,024,648 ($37,496) ($50,628,641) $0 1,504,208
----------------------------------------------------------------------
Conversion of Class A convertible preferred stock (2,572) 0
Class A convertible preferred stock dividend 199,024 (199,164) 0
Series 1998 convertible preferred stock accretion (235,536) (235,536)
Common stock issued in exchange for cancellation
of outstanding warrants 473 474
Exercise of stock options 356,862 (196,159) 164,700
Exercise of warrants (263) 0
Issuance of common stock 3,869,042 3,877,981
Amortization of deferred compensation 25,974 25,974
Net loss (8,421,685) (8,421,685)
----------------------------------------------------------------------
Balance at September 30, 1999 (Unaudited) $56,447,214 ($11,522) ($59,485,026) ($196,159) (3,083,884)
----------------------------------------------------------------------
</TABLE>
Page 4
<PAGE>
STATEMENT OF CASH FLOWS
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
For the period
from May 1, 1994
For the Nine Months (inception) through
Ended September 30, September 30,
1999 1998 1999
(Unaudited) (Unaudited)
----------------------------------------------------
<S> <C> <C> <C>
Cash Flows from operating activities:
Net loss $ (8,421,685) $ (6,851,727) $(41,858,108)
Adjustments to reconcile net loss to
cash flows used in operating activities
Purchased research and development -- -- 4,481,405
Amortization of financing costs -- -- 345,439
Depreciation and amortization 372,626 348,249 1,324,608
(Increase) decrease in other current assets 121,570 395,762 (1,236,260)
(Increase) in other assets (6,185) (27,606) (472,762)
Increase (decrease) in accounts payable and
accrued expenses (120,387) 32,954 2,282,763
Extension/reissuance of placement agent warrants -- -- 168,249
Stock issued for services -- -- 600,417
Stock options issued for compensation 25,974 64,413 825,780
------------------------------------------------
Net cash (used in) operating activities (8,028,087) (6,037,955) (33,538,469)
------------------------------------------------
Cash flows provided by (used in) investing activities:
Purchase of marketable securities -- -- (24,707,588)
Maturities of marketable securities 2,594,497 3,599,312 24,707,588
Cash portion of MelaRx acquisition -- -- 4,061
Acquisition of fixed assets (77,908) (101,110) (1,111,641)
------------------------------------------------
Net cash provided by (used in) investing activities 2,516,589 3,498,202 (1,107,580)
------------------------------------------------
Cash flows provided by financing activities:
Initial public offering -- -- 9,696,210
Net proceeds from issuance of common stock 4,043,154 (39,189) 7,326,720
Net proceeds from issuance of preferred stock -- 4,749,597 20,716,288
Repurchase of common stock -- -- (720)
Net proceeds from bridge financing -- -- 1,704,269
Repayments of bridge financing -- -- (2,000,000)
Advances from stockholders -- -- 250,000
Repayments to stockholders -- -- (250,000)
Exercise of warrants -- 4,730 11,070
Receipts from sale of unit purchase option -- -- 250
Repayment of equipment capital leases (234,944) (222,044) (690,092)
------------------------------------------------
Net cash provided by financing activities 3,808,210 4,493,094 36,763,995
------------------------------------------------
Net increase (decrease) in cash (1,703,288) 1,953,341 2,117,946
Cash and cash equivalents at beginning of period 3,821,234 3,890,621 0
------------------------------------------------
Cash and cash equivalents at end of period $ 2,117,946 $ 5,843,962 $ 2,117,946
================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5
<PAGE>
VION PHARMACEUTICALS, INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Note A) - The Company:
-----------
Vion Pharmaceuticals, Inc. (the "Company") is a development stage
biopharmaceutical company engaged in the research, development and
commercialization of cancer treatment technologies. The Company, formerly
OncoRx, Inc., was incorporated in May 1993 and began operations on May 1, 1994.
The accompanying financial statements are prepared assuming the Company
will continue as a going concern; however, at its current and planned rate of
spending, the Company's cash and cash equivalents are not sufficient to allow it
to continue operations through the 2000 calendar year. Subsequent to the end of
the third quarter of 1999, the Company raised approximately $11.6 million net of
the underwriters' commission and expenses through a public offering of a total
of 2,530,000 shares of common stock (See Note G). Nonetheless, the Company
requires other sources of capital in order to meet such budgeted expenditures
and to continue its operations through the year 2000. The Company is seeking to
enter into significant strategic partnerships with pharmaceutical companies for
the development of its core technologies, through which it would anticipate
receiving some of the revenues and financing required to continue operations
beyond the year end. The Company is seeking to raise funds through additional
means, including (1) private and public sale of its securities; (2) spin-off,
refinancing, or partial sale or disposition of its rights to certain of its
non-core technologies; and (3) equipment lease financing.
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. The financial statements do not include any adjustments
to reflect the possible future effect on the recoverability and classification
of assets or the amounts or classification of liabilities that may result from
the outcome of this uncertainty.
(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 and nine-month periods ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. 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, 1998 on Form 10-KSB/A Amendment No. 1 (File No. 0-26534).
(Note C) - Shareholders' Equity
--------------------
Private Placement of Common Stock - April 1999
- ----------------------------------------------
Page 6
<PAGE>
In April 1999, the Company consummated a private placement of the
Company's common stock. Pursuant to the private placement, the Company issued
893,915 shares of common stock at a price of approximately $4.47 per share (the
"Purchase Price"), for aggregate proceeds of approximately $4,000,000.
Subject to certain exceptions, if at any time during the twelve-month
period following the closing of the private placement, the Company issues or
agrees to issue any common stock at a price per share which is less than the
Purchase Price, or if the Company issues or agrees to issue any rights, options,
warrants or other securities which are directly or indirectly convertible into
or exchangeable for common stock for a consideration per share of common stock
deliverable upon conversion or exchange of such rights, options, warrants or
other securities which is less than the Purchase Price (any such new issuance
price per share being referred to as the "New Issue Price"), then the Company
shall immediately thereafter issue to the investors in the private placement, on
a pro rata basis, additional registered, listed shares of common stock such that
the total number of shares of common stock issued pursuant to the private
placement will equal at least $4,000,000 divided by the New Issue Price. The
foregoing provisions will cease to be effective after the date, if any, upon
which the Company completes a private placement or public offering of its common
stock at a price per share in excess of the Purchase Price and also resulting in
gross proceeds equal to or greater than $11,000,000.
(Note D) - Research and License Agreements
-------------------------------
Boehringer Ingelheim Agreement
- ------------------------------
On November 24, 1997, the Company and Boehringer Ingelheim
International GmbH of Germany ("BI") entered into an exclusive worldwide
licensing agreement for the development and marketing of Promycin(R)
(porfiromycin), an anticancer cell therapeutic. The agreement provides the
Company with exclusive co-promotion rights to Promycin in the United States and
Canada. BI will have exclusive worldwide rights to market and sell Promycin
outside the United States and Canada. The Company is responsible for the
manufacturing and supply of Promycin worldwide.
In exchange for these rights, the Company received $4,000,000 in
technology access fees and net proceeds of $2,869,801 from the sale of 448,336
shares of common stock at a premium to the then current market price. BI has
also reimbursed the Company for certain initial development costs to date and
will share in future worldwide development costs.
The Company has cash equivalents of $2,117,946 at September 30, 1999.
As of September 30, 1999 this balance no longer includes any restricted
investments for future Promycin development expenses from the original
$4,000,000 received in 1997 from BI. The Company recorded $1,298,851 of
reimbursed Promycin development expenses as revenue during the first nine months
of 1999.
Covance Agreement:
- ------------------
During the quarter ended June 30, 1997, the Company entered into a
Clinical Development Agreement (the "Agreement") with Covance Clinical Research
Unit Ltd. and Covance Inc. ("Covance"). Pursuant to the Agreement, the Company
is contracting to Covance the selection and management of clinical
Page 7
<PAGE>
sites and the preparation of clinical trial reports arising from clinical trials
performed by Covance regarding the Company's product candidate Promycin for the
inclusion in a regulatory submission. The Company has incurred estimated and
actual expenses of $1,786,066 for the nine months ended September 30, 1999 under
this agreement which has been expensed as incurred as research and development.
Included in the company's total current liabilities at September 30, 1999 are
payables to Covance Development Service Corporation for $1,547,419.
(Note E) - Per Share Data
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
-------------------- -------------------- ---------------------- ---------------------
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998 September 30, 1999 September 30, 1998
- -------------------------------------- -------------------- -------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Numerator:
- -------------------------------------- -------------------- -------------------- ---------------------- ---------------------
Net loss ($2,333,077) ($2,136,207) ($8,421,685) ($6,851,727)
- -------------------------------------- -------------------- -------------------- ---------------------- ---------------------
Preferred stock dividends and
accretion (77,332) (1,537,170) (434,700) (4,212,956)
- -------------------------------------- -------------------- -------------------- ---------------------- ---------------------
Numerator for basic and diluted
loss per share applicable to
common stockholders ($2,410,409) ($3,673,377) ($8,856,385) ($11,064,683)
- -------------------------------------- -------------------- -------------------- ---------------------- ---------------------
Denominator:
- -------------------------------------- -------------------- -------------------- ---------------------- ---------------------
Denominator for basic and
diluted loss per share applicable
to common stockholders 15,550,930 13,514,209 14,921,896 11,347,308
- -------------------------------------- -------------------- -------------------- ---------------------- ---------------------
Basic and diluted loss per share
applicable to common stockholders ($0.16) ($0.27) ($0.59) ($0.98)
- -------------------------------------- -------------------- -------------------- ---------------------- ---------------------
</TABLE>
The warrants and Class A, B and Series 1998 Convertible Preferred Stock were not
included in diluted loss per share applicable to common shareholders as the
effects would be antidilutive. Under the Financial Accounting Standards Board
Statement No. 128, which the Company has adopted, the dilutive effect of stock
options has been excluded.
(Note F) - Small Business Innovation Research Grants
-----------------------------------------
On February 27, 1998 and April 22, 1998, the Company was awarded a
Small Business Innovation Research ("SBIR") grant from the National Cancer
Institute for the Reduced Toxicity of Tumor-Targeted Salmonella and the
Inhibitors of Ribonucleotide Reductase ("IRR") programs, respectively. The
awards were for reimbursable direct costs of up to $100,000 and $373,565,
respectively, and expired on August 31, 1998 and April 30, 1999. The Company
recognized $100,000 and $316,068 of revenue on these two grants, respectively,
for reimbursement of expenses incurred for the duration of the grants through
September 30, 1999. An automatic extension was granted on the IRR grant to
utilize the amount remaining on the IRR grant. In addition to the extension, a
new twelve-month IRR grant was approved on April 7, 1999 for $374,764. As
Page 8
<PAGE>
of September 30, 1999 the Company recognized $153,599 in revenues from this new
grant
(Note G) - Subsequent Events
-----------------
On October 26, 1999 the Company commenced a public offering of
2,200,000 shares of newly issued common stock priced at $5.00 per share. In
addition, the Company granted the underwriters a 30-day option to purchase up to
330,000 additional shares to cover over-allotments. The public offering and
exercise of the underwriters' option were completed on October 29 and November
3, 1999, respectively. The Company received aggregate proceeds from the offering
and exercise of the underwriters' option of approximately $11.6 million net of
the underwriters' commission and underwriters' expenses. As of November 3, 1999
the Company had 18,227,325 shares of common stock outstanding.
Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS - CAUTIONARY FACTORS
Statements included in this Form 10-QSB which are not historical in
nature are forward-looking statements made pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements regarding our future business prospects, plans,
objectives, expectations and intentions are subject to certain risks,
uncertainties and other factors that could cause actual results to differ
materially from those projected or suggested in the forward-looking statements,
including, but not limited to: the inability to raise additional capital, the
possibility that any or all of the our products or procedures are found to be
ineffective or unsafe, the possibility that third parties hold proprietary
rights that preclude us from marketing our products, and the possibility that
third parties will market a product equivalent or superior to our product
candidates.
OVERVIEW
We are a development stage biopharmaceutical company. Our activities to
date have consisted primarily of research and product development sponsored by
us pursuant to two separate license agreements with Yale University, negotiating
and obtaining other collaborative agreements, recruiting management and other
personnel, securing our facilities and raising equity and debt financing. Our
revenues consist of research grants, technology license fees and reimbursements
for research expenses. We have generated minimal revenues from product sales and
have incurred substantial operating losses from our activities.
Our plan of operations for the next 18 months includes the following
elements:
o Continue to develop and conduct internal research and development
capabilities with respect to our core technologies and other product
candidates which we may identify;
o Conduct Phase III clinical studies of Promycin in the United States and
Europe for treatment of head and neck cancer;
o Conduct Phase I clinical studies of Triapine in the United States for
safety and dosage;
o File investigational new drug application(s) with the FDA and conduct Phase
I clinical studies in the United States and Europe for the safety and
selective tumor accumulation of several bacterial constructs using our
TAPET delivery system. During the next 12 months, we plan to hire seven
additional employees;
o Continue to support research and development being performed at Yale
University and by other collaborators; and
o Continue to seek collaborative partnerships, joint ventures, co-promotional
agreements or other arrangements with third parties.
Page 10
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Revenues decreased approximately 7% from $307,365 for the
three months ended September 30, 1998 to $286,936 for the three months ended
September 30, 1999. This change was primarily due to a decrease in revenues from
reimbursed development costs under our collaboration agreement with BI totaling
$183,813 for the three months ended September 30, 1999.
Research and Development. Research and development expenses increased
slightly less than 2% from $2,159,328 for the three months ended September 30,
1998 to $2,192,961 for the three months ended September 30, 1999 reflecting
expenses related to patient accumulation for the Promycin head and neck Phase
III trial, and expenses of TAPET preclinical development. We expect research and
development expenses to continue to increase in the future related to the
Promycin Phase III clinical trial and commencement of a TAPET Phase I clinical
trial.
General and Administrative. General and administrative expenses
increased 5% from $443,927 for the three months ended September 30, 1998 to
$465,868 for the three months ended September 30, 1999. This increase was due to
higher consulting and marketing fees for the three months ended September 30,
1999.
Interest Income and Expense. Interest income on invested funds
decreased 74% from $172,770 for the three months ended September 30, 1998 to
$45,720 for the three months ended September 30, 1999. This decrease reflects
the average invested balances of each period. Interest expense decreased from
$13,087 for the three months ended September 30, 1998 to $6,904 for the three
months ended September 30, 1999.
Preferred Dividends and Accretion. Preferred stock dividends and
accretion decreased from $1,537,170 for the three months ended September 30,
1998 to $77,332 for the three months ended September 30, 1999. The difference
primarily represents our recording of non-cash dividends related to the
conversion of all remaining Class B Convertible Preferred Stock on August 11,
1998. The amounts for the three months ended September 30, 1998 also include
additional dividend requirements equal to the excess of the fair value of the
common stock issued upon conversion over the fair value of the common stock
issuable pursuant to the original conversion terms of the Class B Convertible
Preferred Stock. Additionally, the annual accretion of dividends related to the
issuance is included in the amounts described above. Loss applicable to common
shareholders decreased from $3,673,377 to $2,410,409 as a result of the net loss
and the effects of the preferred dividends and accretion.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Revenues increased approximately 93% from $839,005 for the
nine months ended September 30, 1998 to $1,616,150 for the nine months ended
September 30, 1999. This was due to increased revenues from reimbursed
development costs under our collaboration agreement with BI totaling $1,298,851
for the nine months ended September 30, 1999. In addition, reimbursements of
expenses from SBIR grants on TAPET and Triapine increased from $198,628 for the
nine months ended September 30, 1998 to $260,880 for the nine months ended
September 30, 1999.
Research and Development. Research and development expenses increased
approximately 30% from $6,530,360 for the nine months ended September 30, 1998
Page 11
<PAGE>
to $8,517,035 for the nine months ended September 30, 1999 related to patient
accumulation for the Promycin head and neck Phase III trial, and expenses of
TAPET preclinical development.
General and Administrative. General and administrative expenses
increased 9% from $1,534,703 for the nine months ended September 30, 1998 to
$1,666,198 for the nine months ended September 30, 1999. This was primarily due
to increased consulting and marketing fees.
Interest Income and Expense. Interest income on invested funds
decreased 59% from $421,835 for the nine months ended September 30, 1998 to
$173,075 for the nine months ended September 30, 1999. This decrease reflects
the average invested balances of each period. Interest expense decreased from
$47,504 for the nine months ended September 30, 1998 to $27,677 for the nine
months ended September 30, 1999.
Preferred Dividends and Accretion. Preferred stock dividends and
accretion decreased from $4,212,956 for the nine months ended September 30, 1998
to $434,700 for the nine months ended Sept 30, 1999. The difference primarily
represents our recording of non-cash dividends related to the issuance of our
Series 1998 Redeemable Convertible Preferred Stock in the second quarter of
1998. The amounts for the nine months ended September 30, 1998 also include
additional dividend requirements equal to the excess of the fair value of the
common stock issued upon conversion over the fair value of the common stock
issuable pursuant to the original conversion terms of the Class B Convertible
Preferred Stock. The Class B Convertible Preferred Stock was entirely converted
into common stock on August 11, 1998 resulting in $1,438,382 in dividend
requirements related to this conversion which are included in the nine month
period ending September 30, 1998. Additionally, the annual accretion of
dividends related to the issuance of the Series 1998 Redeemable Convertible
Preferred Stock is included in the amounts described above. Loss applicable to
common shareholders decreased from $11,064,683 to $8,856,385 as a result of the
net loss combined with a reduction in preferred dividends and accretion.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, we had working capital of $833,047. In April
1999, we consummated a private placement of our common stock. Pursuant to the
private placement, we issued 893,915 shares of common stock at a price of
approximately $4.47 per share, for aggregate proceeds of approximately
$4,000,000.
On October 26, 1999 the Company commenced a public offering of
2,200,000 shares of newly issued common stock priced at $5.00 per share. In
addition, the Company granted the underwriters a 30-day option to purchase up to
330,000 additional shares to cover over-allotments. The public offering and
exercise of the underwriters' option were completed on October 29 and November
3, 1999, respectively. The Company received aggregate proceeds from the offering
and exercise of the underwriters' option of approximately $11.6 million net of
the underwriters' commission and underwriters' expenses.
We currently estimate that revenues and the remaining net proceeds of
our private placement in April 1999, our public offering in October 1999,
reimbursed cost sharing from the agreement with BI and our existing cash and
cash equivalents will be sufficient to fund our planned operations for
approximately the next 12 months, or until approximately November 2000. Failure
to obtain new financing to cover research and development expenses beyond that
point may require us to delay, renegotiate, or omit payment on our outside
research funding commitments causing us to substantially curtail our operations
after that point, resulting in a material adverse effect on us.
Page 12
<PAGE>
We have 1,071,232 Class A Warrants outstanding and 1,308,722 Class B
Warrants outstanding. Subject to adjustment, each Class A Warrant entitles the
holder to purchase, at an exercise price of $4.63, and each Class B Warrant
entitles the holder to purchase, at an exercise price of $6.23, one share of
common stock. In addition, the exercise of a Class A Warrant entitles the holder
to one Class B Warrant. The warrants are exercisable at any time after issuance
through August 13, 2000. The warrants are subject to redemption by us for $.05
per warrant, upon 30 days' written notice, if the average closing bid price of
the common stock exceeds $7.30 per share with respect to the Class A Warrants
and $9.80 per share with respect to the Class B Warrants for a 30 consecutive
business day period ending within 15 days of the date of the notice of
redemption. If all such warrants are exercised, we will receive proceeds, net of
any fees, of $18,797,631. However, the common stock is not currently trading,
and may not trade, at the level that will trigger redemption of either class of
warrants.
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, we will require additional funds
sooner. In addition, we will need substantial additional financing beyond 2000
to fund further research and development and our working capital requirements.
As of September 30, 1999 we estimate that the amount required to fund all
operations for the next twelve months is approximately $16,118,000. This amount
is net of approximately $2,689,000 of estimated reimbursements subject to the
terms of the BI collaboration agreement. However, our cash requirements may vary
materially from those now planned because of the results of research and
development, results of product testing, relationships with strategic partners,
changes in focus and direction of our research and development programs,
competitive and technological advances, the regulatory process in the United
States and abroad and other factors.
We received an opinion from our auditors for the fiscal year ended
December 31, 1998 expressing substantial doubt as to our ability to continue as
a going concern as a result of our recurring operating losses and need for
substantial amounts of additional funding to continue our operations.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue refers to potential problems with computer systems
or any equipment with computer chips or software that use dates where the date
has been stored as just two digits (e.g., 97 for 1997). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software which
uses only two digits to represent the year may recognize a date using 00 as the
Year 1900 rather than the Year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, perform laboratory analyses, or
engage in similar business activities.
Our exposure to potential risks from the Year 2000 issue involves
information technology, or IT, systems, scientific instrumentation, and
laboratory facilities. We have hired an information systems administrator and
have inventoried all of the software and hardware embedded in our laboratory and
facilities equipment employed in our research and development programs to
ascertain our Year 2000 compliance. We have not completed our assessment of our
internal information systems to determine the extent of any Year 2000 problem.
However, based on an initial review, we do not currently believe that we have
material exposure to the Year 2000 Issue with respect to our own information
systems, since our existing systems correctly define the Year 2000 or are
expected to correctly define Year 2000 by December 31, 1999. In addition, we
have not completed our assessment of our scientific
Page 13
<PAGE>
instrumentation, and laboratory facilities to determine the extent of any Year
2000 problem. However, we maintain service agreements covering our critical
instrumentation and laboratory environmental equipment. Accordingly, to the
extent that these service agreements are enforceable, we do not believe that the
Year 2000 presents a material exposure with regard to our critical
instrumentation and laboratory environmental equipment.
We have purchased Year 2000 upgrades to several software programs,
including our accounting programs, the cost of which has not been material. To
date, we have spent approximately $4,000 with respect to our Year 2000
assessment and estimate that our costs to complete our assessment, as well as
any corrective measures, will be approximately $26,000. We do not expect to
reach profitability on an operating basis before 2000 and therefore expect to
fund all such costs from funds we have raised or expect to raise in various
financings.
We believe we will complete our review and implement contingency plans
to deal with the Year 2000 issue in a timely manner. In the event that we do not
implement adequate plans, our operations could be affected in several adverse
ways. Failure of a scientific instrument or laboratory facility could result,
among other things, in the loss of experiments that would take weeks to set up
and repeat. These delays in the progress of research could have an adverse
impact on our stock price and on our ability to raise capital, and the cost of
repeating lost experiments cannot reasonably be estimated at this time. In
addition, research delays could occur due to the impact of Year 2000 problems at
major vendors, government research funding agencies, or development partners.
We believe we maintain adequate data backup to computers used in our
information systems and scientific instrumentation. We currently do not have a
contingency plan in the event that we or any of our key suppliers and vendors is
unable to become Year 2000 compliant. We will develop a contingency plan if we
determine we or any of our key vendors or suppliers is not likely to achieve our
compliance objectives.
Page 14
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
None
(b) Reports on Form 8-K.
-------------------
On October 14, 1999, the Company filed a Current Report on
Form 8-K with the Commission regarding the resignation of a
director for health reasons.
All other items of this report are inapplicable.
Page 15
<PAGE>
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: November___,1999
Page 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,117,946
<SECURITIES> 0
<RECEIVABLES> 1,193,348
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,355,192
<PP&E> 731,466
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,561,135
<CURRENT-LIABILITIES> 2,522,145
<BONDS> 0
5,090,040
4,861
<COMMON> 156,748
<OTHER-SE> (3,245,493)
<TOTAL-LIABILITY-AND-EQUITY> 4,561,135
<SALES> 0
<TOTAL-REVENUES> 1,616,150
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,183,233
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,677
<INCOME-PRETAX> (8,421,685)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,421,685)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,421,685)
<EPS-BASIC> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
