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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
-------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ --------------
Commission file number 0-26534
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VION PHARMACEUTICALS, INC.
--------------------------------------------------------------------------------
(Exact Name of Registrant 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
--------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the issuer's sole class of common
equity, as of July 28, 2000 is: 25,464,737 shares of common stock, $.01 par
value.
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE><CAPTION>
June 30, December 31,
2000 1999
--------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 26,201,926 $ 11,105,262
Accounts receivable 352,163 1,592,583
Other current assets 52,496 108,404
------------ ------------
Total current assets 26,606,585 12,806,249
Long term investments 1,014,607 --
Property and equipment, net 687,173 659,823
Security deposits 42,437 49,851
Research contract prepayments 417,882 417,882
------------ ------------
Total assets $ 28,768,684 $ 13,933,805
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital leases - current $ 72,149 $ 160,328
Accounts payable and accrued expenses 976,867 2,734,745
------------ ------------
Total current liabilities 1,049,016 2,895,073
Obligation under capital leases - long term 2,090 6,181
------------ ------------
Total liabilities 1,051,106 2,901,254
Redeemable Preferred Stock:
5% convertible preferred stock Series 1998, $0.01 par
value, authorized: 15,000 shares; issued and outstanding: 0 shares
in 2000, 5,000 shares in 1999 (redemption value $5,387,000 in 1999) -- 5,179,287
Shareholders' equity
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:
5,286 in 2000 and 498,194 in 1999 (liquidation preference
$53,000 in 2000 and $4,982,000 in 1999) 53 4,982
Class B convertible preferred stock, $0.01 par value,
authorized: 100,000 shares; issued and outstanding: none -- --
Class C convertible preferred stock, $0.01 par value,
authorized: 25,000 shares; issued and outstanding: none -- --
Common stock, $0.01 par value, authorized:
35,000,000 shares; issued and outstanding: 25,464,737
shares in 2000 and 18,242,119 shares in 1999 254,647 182,421
Additional paid-in-capital 96,294,895 68,012,183
Deferred compensation -- (2,864)
Accumulated deficit (68,832,017) (62,343,458)
------------ ------------
Total shareholders' equity 27,717,578 5,853,264
------------ ------------
Total liabilities and shareholders' equity $ 28,768,684 $ 13,933,805
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
<PAGE>
STATEMENT OF OPERATIONS
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE><CAPTION>
For The Period
From May 1, 1994
Three Months Ended Six Months Ended (Inception) through
June 30, June 30, June 30, June 30, June 30,
---------------------------- --------------------------------------------
2000 1999 2000 1999 2000
(Unaudited) (Unaudited) (Unaudited)
------------------------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract research grants $ 162,531 $ 102,230 $ 313,993 $ 164,176 $ 1,058,547
Research support -- 855,570 -- 1,115,038 5,498,153
Technology license revenues 10,830 -- 51,108 50,000 4,206,496
Laboratory support service revenue 47,149 -- 53,612 88,612
------------ ------------ ------------ ------------ ------------
Total revenues 220,510 957,800 418,713 1,329,214 10,851,808
Operating expenses:
Research and development 3,034,961 3,976,273 5,295,814 6,324,074 48,767,044
General and administrative 748,368 695,729 1,552,422 1,200,330 13,631,935
Nonrecurring collaboration restructuring fee -- -- -- -- 600,000
Interest income (397,574) (66,989) (549,420) (127,355) (2,256,990)
Interest expense 2,940 9,166 7,886 20,773 203,155
------------ ------------ ------------ ------------ ------------
Net loss $ (3,168,185) $ (3,656,379) $ (5,887,989) $ (6,088,608) $(50,093,336)
------------ ------------ ------------ ------------ ------------
Preferred dividends and accretion $ (242,392) $ (276,495) $ (600,570) $ (357,368) $(18,483,545)
------------ ------------ ------------ ------------ ------------
Loss applicable to common shareholders $ (3,410,577) $ (3,932,874) $ (6,488,559) $ (6,445,976) $(68,576,881)
------------ ------------ ------------ ------------ ------------
Basic and diluted loss applicable to
common shareholders per share $ (0.14) $ (0.26) $ (0.29) $ (0.44)
------------ ------------ ------------ ------------ ------------
Weighted average shares outstanding, basic and
fully diluted 24,796,862 14,895,158 22,268,076 14,567,169
------------ ------------ ------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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, 1997 757,632 $ 7,576 4,592 $ 46 9,833,934 $ 98,339
------------ ------------ ------------ ------------ ------------ ------------
Accretion of dividend payable on Class B
convertible preferred stock
Conversion of Class B convertible
preferred stock (4,592) (46) 1,205,178 12,052
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 1,792,952 17,929
cancellation 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 26,150 261
Series 1998 convertible preferred stock
accretion
Common stock issued in exchange for
cancellation of outstanding warrants 102 1
Exercise of stock options 470,886 4,709
Retirement of Treasury Stock (35,659) (357)
Exercise of warrants 26,296 263
Issuance of common stock 3,425,741 34,257
Amortization of deferred compensation
Net loss
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 498,194 $ 4,982 0 $ 0 18,242,119 $ 182,421
------------ ------------ ------------ ------------ ------------ ------------
Class A convertible preferred stock
dividend 5,168 51
Conversion of Class A convertible
preferred stock (498,076) (4,980) 1,383,552 13,835
Series 1998 convertible preferred stock
accretion
Conversion of Series 1998 convertible
preferred stock 1,507,024 15,070
Exercise of stock options 350,335 3,504
Exercise of warrants 3,981,707 39,817
Amortization of deferred compensation
Net loss
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2000 (unaudited) 5,286 $ 53 0 $ 0 25,464,737 $ 254,647
------------ ------------ ------------ ------------ ------------ ------------
ADDITIONAL TOTAL
PAID-IN TREASURY DEFERRED ACCUMULATED SHAREHOLDERS'
CAPITAL STOCK COMPENSATION DEFICIT EQUITY
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 $ 47,661,639 $ 0 ($ 72,128) ($ 35,736,922) $ 11,958,550
------------ ------------ ------------ ------------ ------------
Accretion of dividend payable on Class B
convertible preferred stock 286,776 (286,776) 0
Conversion of Class B convertible
preferred stock (12,006) 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 (151,119) (151,119)
Common stock issued in exchange for 8,441,442
cancellation 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 $ 0 ($ 37,496) ($ 50,628,641) $ 1,504,208
------------ ------------ ------------ ------------ ------------
Conversion of Class A convertible
preferred stock (2,572) 0
Class A convertible preferred stock
dividend 384,738 (384,999) 0
Series 1998 convertible preferred stock
accretion (324,782) (324,782)
Common stock issued in exchange for
cancellation of outstanding warrants 473 474
Exercise of stock options 650,028 (196,159) (40,310) 418,268
Retirement of Treasury Stock 196,159 (195,802) 0
Exercise of warrants (263) 0
Issuance of common stock 14,955,131 14,989,388
Amortization of deferred compensation 34,632 34,632
Net loss (10,768,924) (10,768,924)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 $ 68,012,183 $ 0 ($ 2,864) ($ 62,343,458) $ 5,853,264
------------ ------------ ------------ ------------ ------------
Class A convertible preferred stock
dividend 242,341 (242,392) 0
Conversion of Class A convertible
preferred stock (8,855) 0
Series 1998 convertible preferred stock
accretion (358,178) (358,178)
Conversion of Series 1998 convertible
preferred stock 5,522,395 5,537,465
Exercise of stock options 1,420,157 1,423,661
Exercise of warrants 21,106,674 21,146,491
Amortization of deferred compensation 2,864 2,864
Net loss (5,887,989) (5,887,989)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 2000 (unaudited) $ 96,294,895 $ 0 $ 0 ($ 68,832,017) $ 27,717,578
------------ ------------ ------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
STATEMENT OF CASH FLOWS
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE><CAPTION>
For the period
from May 1, 1994
For The Six Months (inception) through
Ended June 30, June 30,
--------------------------------------------
2000 1999 2000
(Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from operating activities:
Net loss $ (5,887,989) $ (6,088,608) $(50,093,336)
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 200,080 248,950 1,647,432
(Increase) decrease in current assets 1,296,328 (15,228) (403,673)
(Increase) decrease in other assets 7,414 (7,219) (458,604)
Increase in accounts payable and --
accrued expenses (1,757,878) 204,603 942,335
Accretion on Class B preferred stock -- -- --
Extension/reissuance of placement agent warrants -- -- 168,249
Stock issued for services -- -- 600,417
Non-cash compensation 2,864 17,316 837,302
------------ ------------ ------------
Net cash (used in) operating activities (6,139,181) (5,640,186) (41,933,034)
------------ ------------ ------------
Cash flows used for investing activities:
Purchase of marketable securities (1,014,607) -- (25,722,195)
Maturities of marketable securities -- 2,594,497 24,707,588
Acquisition of fixed assets (227,430) (52,748) (1,390,172)
------------ ------------ ------------
Net cash provided by (used in) investing
activities (1,242,037) 2,541,749 (2,404,779)
------------ ------------ ------------
Cash flows provided by financing activities:
Initial public offering -- -- 9,696,210
Net proceeds from issuance of common stock 1,423,661 3,936,701 20,115,357
Net proceeds from issuance of preferred stock -- -- 20,716,288
Exercise of Class A warrants 5,237,656 -- 5,237,656
Exercise of Class B warrants 15,807,693 -- 15,807,693
Exercise of Placement Agent warrants 101,142 -- 101,142
Other financing activites, net -- -- (281,070)
Repayment of equipment capital lease (92,270) (153,603) (853,537)
------------ ------------ ------------
Net cash provided by financing activities 22,477,882 3,783,098 70,539,739
------------ ------------ ------------
Net increase in cash 15,096,664 684,661 26,201,926
Cash and cash equivalents at beginning of period 11,105,262 3,821,234 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 26,201,926 $ 4,505,895 $ 26,201,926
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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.
(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-Q. 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 and
six-month periods ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. 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, 1999 on Form
10-KSB (File No. 0-26534).
(Note C) - Shareholders' Equity
--------------------
Private Placement of Common Stock - April 1999
----------------------------------------------
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 , for
aggregate gross proceeds of approximately $4,000,000.
Public Offering of Common Stock - October 1999
----------------------------------------------
In October and November 1999, the Company completed the sale of 2,530,000 newly
issued shares of common stock (including shares sold to the underwriter upon the
exercise of its over-allotment option) at a purchase price of $5.00 per share,
in an underwritten public offering. The net proceeds from this offering were
approximately $11.05 million.
Redemption of Class A Warrants
------------------------------
On February 11, 2000, the Company notified registered holders of its outstanding
Class A Warrants of its intention to redeem their warrants on March 13, 2000.
The Class A Warrants entitled the holder to purchase one share of common stock
and one Class B Warrant for an exercise price of $4.63. There were approximately
1.08 million Class A Warrants outstanding at December 31, 1999. During January
and February 2000, approximately 140,000 additional Class A Warrants were issued
in connection with the exercise of Unit Purchase Options. When the right of
Class A Warrant holders to exercise their warrants
6
<PAGE>
to purchase shares of the Company's common stock and Class B Warrants terminated
on March 10, 2000, the Company had received net proceeds of approximately $5.3
million from the exercise of 1.2 million Class A Warrants which includes
exercises of approximately 56,000 outstanding Class A Warrants prior to the
redemption period. The Company also received approximately $670,000 from the
exercise of Unit Purchase Options originally granted to underwriters in
connection with the Company's initial public offering in 1995.
Redemption of Class B Warrants
------------------------------
From January 1 through March 13, 2000, the day the Company redeemed the Class A
Warrants, the Company received net proceeds of approximately $3.7 million from
the voluntary exercise of approximately 598,000 Class B Warrants. From March 14
to March 26, 2000 an additional 6,000 Class B Warrants were voluntarily
exercised for net proceeds of $37,380. On March 27, 2000, the Company notified
registered holders of its outstanding Class B Warrants of its intention to
redeem their warrants on April 27, 2000. The Class B Warrants entitled the
holder to purchase, at an exercise price of $6.23, one share of common stock.
2,031,902 Class B Warrants were exercised during this period, generating
proceeds of $12,074,361 net of commissions, substantially all of which was
received in the second quarter.
Mandatory Conversion of 5% Redeemable Convertible Preferred Stock Series 1998
-----------------------------------------------------------------------------
The Company's common stock traded above $7.20 for a period of 20 consecutive
trading days ending on February 7, 2000, and in accordance with the terms of the
5% Redeemable Convertible Preferred Stock Series 1998 issued on June 30, 1998,
all of the outstanding preferred shares having a redemption value of $5,425,286
were automatically converted into 1,507,024 shares of common stock at the $3.60
conversion price, effective February 22, 2000.
Conversions of Class A Preferred Stock
--------------------------------------
For the six months ended June 30, 2000, 498,076 shares of Class A preferred
stock were converted into 1,383,552 shares of common stock. At June 30, 2000,
5,286 Class A preferred shares were outstanding, convertible into 14,684 common
shares.
(Note D) - Cooperative Research and Development Agreement
----------------------------------------------
On April 1, 2000 the Company entered into a Cooperative Research and Development
Agreement ("CRADA") with the National Institutes of Health, National Cancer
Institute, Division of Clinical Sciences, Surgery Branch for "Development of
TAPET(R)-Based Immunotherapies Targeted Against Cancer". Under the terms of the
CRADA, the Surgery Branch will provide materials and supplies to research and
development projects using CRADA funds, personnel and "in kind" resources
supplied by the Company. The Company will contribute $350,000 per year, for a
period of five years, payable quarterly to be used for material support as well
as for work to be performed by National Cancer Institute staff. As of June 30,
2000 $87,500 has been incurred under this agreement and recorded as research and
development expenses.
7
<PAGE>
(Note E) - Per Share Data
--------------
<TABLE><CAPTION>
==================== ==================== ==================== ====================
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
======================================== ==================== ==================== ==================== ====================
<S> <C> <C> <C> <C>
Numerator:
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Net loss ($3,168,185) ($3,656,379) ($5,887,989) ($6,088,608)
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Preferred dividends and accretion (242,392) (276,495) (600,570) (357,368)
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Numerator for basic and diluted
loss applicable to common
shareholders per share ($3,410,577) ($3,932,874) ($6,488,559) ($6,445,976)
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Denominator:
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Denominator for basic and diluted
loss applicable to common
shareholders per share 24,796,862 14,895,158 22,268,076 14,567,169
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Basic and diluted loss applicable to
common shareholders per share ($0.14) ($0.26) ($0.29) ($0.44)
======================================== ==================== ==================== ==================== ====================
</TABLE>
(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. An automatic extension was
granted on the IRR grant to utilize the amount remaining on the IRR grant. A new
twelve-month IRR grant was approved on April 7, 1999 for $374,764. An automatic
extension was also granted for the new IRR grant. For the year ended December
31, 1999 the Company recorded revenues of $228,486 for the new IRR grant. In the
first six months of 2000 an additional $97,283 has been recorded as revenues
from the new IRR grant.
In January 2000, the Company received an additional two-year, Small Business
Innovation and Research grant from the National Institutes of Health/National
Cancer Institute for $750,000. This grant will be used to enhance the Company's
TAPET research. In the first six months of 2000, $197,535 has been recognized as
revenues from this grant.
In April 2000, the Company received a six month, Small Business Innovation and
Research grant from the National Institutes of Health/National Cancer Institute
for $100,000. This grant will be used in addition to an existing grant to
enhance the Company's TAPET research. During the three months ended June 30,
2000, $19,175 has been recognized as revenues under this grant.
(Note G) - Subsequent Events
-----------------
The Company was notified that effective August 1, 2000 the Company and Memorial
Sloan-Kettering Cancer Center ("MSKCC") have been awarded a $141,000 research
contract by the National Cancer Institute (NCI) to study the use of Vion's
TAPET(R) bacterial vector technology (Tumor Amplified Protein Expression
Therapy) for the diagnostic imaging of tumors. The focus of this joint effort by
MSKCC and Vion is to perform a preliminary investigation of TAPET-based tumor
diagnostic imaging in preclinical animal models, as well as to determine the
suitability of this approach for tumor diagnosis based on defined molecular
signatures.
Prior to their expiration, holders of the Company's remaining 113,333 Unit
Purchase Options exercised the options and underlying warrants resulting in
proceeds to the Company of approximately $2.76 million. The Options and their
underlying warrants were set to expire on August 13, 2000 and were originally
granted to underwriters in connection with Vion's initial public offering in
1995. The recently exercised options were exercised for 113,333 shares of common
stock, 127,161 Class A Warrants and 127,161 Class B Warrants. These Class A
Warrants were immediately exercised for 127,161 shares of common stock and
127,161 Class B warrants. All of the 254,322 Class B warrants were immediately
exercised for 254,322 shares of common stock.
8
<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-Q 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, obtaining
regulatory approval for clinical trials, conducting clinical trials, negotiating
and obtaining collaborative agreements, and obtaining financing in support of
these activities. Our revenues consist of research grants, technology license
fees and reimbursements for research expenses. We have generated minimal
licensing revenues from product sales and have incurred substantial operating
losses from our activities.
Our plan of operations for the next 12 months includes the following
elements:
o Continue to conduct internal research and development with respect to our
core technologies and other product candidates that we may identify
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 for "armed" TAPET
vectors and conduct Phase I clinical studies in the United States and
Europe for the safety and selective tumor accumulation of several "armed"
and "unarmed" bacterial constructs using our TAPET delivery system
o Continue to support research and development being performed at Yale
University and by other collaborators
o Continue to seek collaborative partnerships, joint ventures, co-promotional
agreements or other arrangements with third parties
o Conduct preclinical toxicology studies on a Sulfonyl Hydrazine agent and
evaluate its suitability to proceed to clinical trials
9
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
Revenues. Revenues decreased approximately 77% from $957,800 for the
three months ended June 30, 1999 to $220,510 for the three months ended June 30,
2000. This change was primarily due to the elimination of revenues from
reimbursed development costs under the terms of our collaboration agreement with
Boehringer Ingelheim International GmbH ("BI") which was revised in December
1999. These research support revenues totaled $855,570 for the three months
ended June 30, 1999. Revenue from contract research grants increased
approximately 59% to $162,531 for the most recent quarter, related to new Small
Business Innovation and Research grants for TAPET received in January and April,
2000 , compared to $102,230 for the quarter ended June 30, 1999. Laboratory
service revenues of $47,149 were for services contracted by BI related to the
Promycin Phase III study.
Research and Development. Research and development expenses decreased
from $3,976,273 for the three months ended June 30, 1999 to $3,034,961 for the
three months ended June 30, 2000 reflecting the revised terms of our
collaboration agreement with BI for the development of Promycin. We expect
research and development expenses to continue to increase in the future related
to TAPET and Triapine Phase I clinical trials and preclinical development of our
Sulfonyl Hydrazine agent.
General and Administrative. General and administrative expenses
increased 8% from $695,729 for the three months ended June 30, 1999 to $748,368
for the three months ended June 30, 2000 due to higher patent and professional
fees.
Interest Income and Expense. Interest income on invested funds
increased from $66,989 for the three months ended June 30, 1999 to $397,574 for
the three months ended June 30, 2000. This increase reflects a higher level of
invested funds. Interest expense decreased from $9,166 for the three months
ended June 30, 1999 to $2,940 for the three months ended June 30, 2000.
Preferred Dividends and Accretion. Preferred stock dividends and
accretion decreased from $276,495 for the three months ended June 30, 1999 to
$242,392 for the three months ended June 30, 2000. Loss applicable to common
shareholders decreased from $3,932,874 to $3,410,577 as a result of lower
research and development expenses, higher interest income and the effects of the
preferred dividends and accretion.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
Revenues. Revenues decreased approximately 68% from $1,329,214 for the
six months ended June 30, 1999 to $418,713 for the three months ended June 30,
2000. As noted above, this change was primarily due to the elimination of
revenues from reimbursed development costs under the terms of our collaboration
agreement with BI which was revised in December 1999. These research support
revenues totaled $1,115,038 for the six months ended June 30, 1999. Revenue from
contract research grants increased approximately 91% to $313,993 for the first
half of 2000, related to new Small Business Innovation and Research grants for
TAPET received in January and April, 2000 , compared to $164,176 for the six
month period ended June 30, 1999. Technology license revenues were flat in the
first half of 2000 compared to the same period in the prior year. Laboratory
service revenues of $53,612 in the first half of 2000 were for services
contracted by BI related to the Promycin Phase III study.
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Research and Development. Research and development expenses decreased
from $6,324,074 for the six months ended June 30, 1999 to $5,295,814 for the six
months ended June 30, 2000 reflecting the revised terms of our collaboration
agreement with BI for the development of Promycin. As noted above, we expect
research and development expenses to continue to increase in the future related
to TAPET and Triapine Phase I clinical trials and preclinical development of our
Sulfonyl Hydrazine agent.
General and Administrative. General and administrative expenses
increased 29% from $1,200,330 for the six months ended June 30, 1999 to
$1,552,422 for the six months ended June 30, 2000 due to higher patent and
professional fees, and bonuses.
Interest Income and Expense. Interest income on invested funds
increased from $127,355 for the six months ended June 30, 1999 to $549,420 for
the six months ended June 30, 2000. This increase reflects a higher level of
invested funds. Interest expense decreased from $20,773 for the six months ended
June 30, 1999 to $7,886 for the six months ended June 30, 2000.
Preferred Dividends and Accretion. Preferred stock dividends and
accretion rose from $357,368 for the six months ended June 30, 1999 to $600,570
for the six months ended June 30, 2000. The difference primarily represents our
recording of non-cash dividends related to our Series 1998 Convertible
Redeemable Preferred Stock valued at market prices higher than their conversion
price. All outstanding shares of the Series 1998 Convertible Redeemable
Preferred Stock were converted to common stock on February 22, 2000. Loss
applicable to common shareholders increased from $6,445,976 to $6,488,559.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, we had working capital of $25,557,569.
On February 11, 2000, we notified registered holders of our outstanding
Class A Warrants of our intention to redeem the warrants on March 13, 2000. Our
Class A Warrants entitled the holder to purchase one share of Common Stock and
one Class B Warrant for an exercise price of $4.63. Of the 1.19 million
outstanding Class A Warrants at that time, approximately 98% were exchanged for
1.17 million shares of common stock and 1.17 million Class B Warrants, and the
exercise of the Class A Warrants resulted in net proceeds of approximately $5.3
million. During the period from February 11, 2000 to March 26, 2000, holders of
the Class B warrants voluntarily exercised approximately 598,000 Class B
warrants for an equal amount of common stock, paying us approximately $3.7
million. On March 27, 2000 we notified registered holders of our outstanding
Class B Warrants of our intention to redeem the warrants on April 27, 2000. The
Class B Warrants entitled the holder to purchase one share of Common Stock for
an exercise price of $6.23. 2,031,902 Class B Warrants or 99% of the remaining
Class B Warrants were exercised during this period, generating proceeds of
$12,074,361 net of commissions, substantially all of which was received in the
second quarter.
We currently estimate that our existing cash, cash equivalents and long
term investments of $27,216,533 will be sufficient to fund our planned
operations through 2001. As of June 30, 2000 we estimate that the amount
required to fund all operations for the next twelve months is approximately
$15.0 million. However, our cash requirements may vary materially from those now
planned because of the results of research and development, clinical trials,
results of product testing, relationships with strategic partners, changes in
focus and direction of our research and development programs,
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competitive and technological advances, the regulatory process in the United
States and abroad and other factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
27. Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
On June 22, 2000, the Company filed a Current Report on Form 8-K
with the Commission regarding an interim evaluation of a Phase
III randomized trial of Promycin(R) (porfiromycin) combined with
radiotherapy versus radiotherapy alone in patients with
non-resectable head and neck cancer. The Company has been
informed by its licensee, Boehringer Ingelheim (BI), that the
interim evaluation did not meet the pre-determined criteria which
would warrant continuation of accrual of patients.
All other items of this report are inapplicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VION PHARMACEUTICALS, INC.
(Registrant)
By: /s/ Thomas E. Klein
-------------------------------
Thomas E. Klein
Vice President - Finance
(Duly authorized signatory and
Chief Financial Officer)
Date: August 1, 2000
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