================================================================================
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 September 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
---------------------------------------------------------
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
-------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(203) 498-4210
-------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
-------------------------------------------------------------------------------
(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 November 6, 2000 is: 26,147,492 shares of common stock, $.01 par
value.
================================================================================
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE><CAPTION>
September 30, December 31,
2000 1999
---------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 13,089,583 $ 11,105,262
Short-term investments 14,523,439 --
Accounts receivable 327,860 1,592,583
Other current assets 47,897 108,404
---------------------------------------------------------------------------------------------------------------------
Total current assets 27,988,779 12,806,249
Property and equipment, net 659,181 659,823
Security deposits 41,452 49,851
Research contract prepayments 426,240 417,882
---------------------------------------------------------------------------------------------------------------------
Total assets $ 29,115,652 $ 13,933,805
=====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital leases - current $ 32,833 $ 160,328
Accounts payable and accrued expenses 1,253,137 2,734,745
---------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,285,970 2,895,073
Obligation under capital leases - long-term -- 6,181
---------------------------------------------------------------------------------------------------------------------
Total liabilities 1,285,970 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 and
5,000 shares in 1999 (redemption value $5,387,000 in 1999) -- 5,179,287
Shareholders' equity (note C)
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: 4,225 in 2000 and 498,194
in 1999 (liquidation preference $42,000 in 2000 and $4,982,000 in 1999) 42 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: 26,112,314 shares in 2000 and 18,242,119 shares
in 1999 261,123 182,421
Additional paid-in-capital 99,646,424 68,012,183
Deferred compensation -- (2,864)
Accumulated deficit (72,077,907) (62,343,458)
---------------------------------------------------------------------------------------------------------------------
27,829,682 5,853,264
---------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 29,115,652 $ 13,933,805
=====================================================================================================================
</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
(Inception)
For The Three Months For The Nine Months Through
Ended September 30, Ended September 30, September 30,
2000 1999 2000 1999 2000
-----------------------------------------------------------------------------------------------------------------------------------
Revenues: (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Contract research grants (note F) $ 314,787 $ 96,704 $ 628,780 $ 260,880 $ 1,373,334
Research support -- 183,813 -- 1,298,851 5,498,153
Technology license revenues 25,005 6,419 76,113 56,419 4,231,501
Laboratory support service revenue 28,300 -- 81,912 -- 116,912
-----------------------------------------------------------------------------------------------------------------------------------
Total revenues 368,092 286,936 786,805 1,616,150 11,219,900
Operating expenses:
Research and development (note D) 3,011,545 2,192,961 8,307,359 8,517,035 52,378,589
General and administrative 1,055,429 465,868 2,607,851 1,666,198 14,687,364
Interest Income (454,468) (45,720) (1,003,888) (173,075) (2,711,458)
Interest Expense 1,476 6,904 9,362 27,677 204,631
-----------------------------------------------------------------------------------------------------------------------------------
Net Loss $ (3,245,890) $ (2,333,077) $ (9,133,879) $ (8,421,685) $(53,339,226)
-----------------------------------------------------------------------------------------------------------------------------------
Preferred Dividends and Accretion $ -- $ (77,332) $ (600,570) $ (434,700) $(18,483,545)
-----------------------------------------------------------------------------------------------------------------------------------
Loss Applicable to Common Shareholders $ (3,245,890) $ (2,410,409) $ (9,734,449) $ (8,856,385) $(71,822,771)
===================================================================================================================================
Basic and diluted loss applicable to
common shareholders per share $ (0.13) $ (0.16) $ (0.42) $ (0.59)
-----------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding, basic
and fully diluted 25,804,736 15,550,930 23,455,570 14,921,896
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
<TABLE><CAPTION>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Vion Pharmaceuticals, Inc.
( A Development Stage Company) 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 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 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 (499,137) (4,991) -- -- 1,386,501 13,865
Series 1998 convertible preferred stock accretion -- -- -- -- -- --
Conversion of Series 1998 convertible preferred stock -- -- -- -- 1,507,024 15,070
Exercise of stock options -- -- -- -- 611,816 6,118
Exercise of warrants -- -- -- -- 4,364,854 43,649
Amortization of deferred compensation -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000 (unaudited) 4,225 $ 42 0 $ 0 26,112,314 $ 261,123
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY(continued)
Vion Pharmaceuticals, Inc.
( A Development Stage Company)
Additional Total
Paid-in Treasury Deferred Accumulated Shareholders'
Capital Stock Compensation Deficit Equity
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 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 $ 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 (8,874) -- -- -- 0
Series 1998 convertible preferred stock accretion -- -- -- (358,178) (358,178)
Conversion of Series 1998 convertible preferred sto 5,522,395 -- -- -- 5,537,465
Exercise of stock options 2,607,322 -- -- -- 2,613,440
Exercise of warrants 23,271,057 -- -- -- 23,314,706
Amortization of deferred compensation -- -- 2,864 -- 2,864
Net loss -- -- -- (9,133,879) (9,133,879)
---------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000 (unaudited) $ 99,646,424 $ 0 $ 0 ($72,077,907) $ 27,829,682
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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,
2000 1999 2000
-------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities: (Unaudited) (Unaudited)
<S> <C> <C> <C>
Net loss $ (9,133,879) $ (8,421,685) $(53,339,226)
Adjustments to reconcile net loss to
net cash used in operating activities
Purchased research and development -- -- 4,481,405
Amortization of financing costs -- -- 345,439
Depreciation and amortization 299,501 372,626 1,746,853
(Increase) decrease in accounts receivable
and other current assets 1,325,230 121,570 (374,771)
(Increase) decrease in other assets 41 (6,185) (465,977)
Increase (decrease) in accounts payable
and accrued expenses (1,481,608) (120,387) 1,218,605
Extension/reissuance of placement agent warrants -- -- 168,249
Stock issued for services -- -- 600,417
Non-cash compensation 2,864 25,974 837,302
-------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (8,987,851) (8,028,087) (44,781,704)
-------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Purchase of marketable securities (14,523,439) -- (39,231,027)
Maturities of marketable securities -- 2,594,497 24,707,588
Acquisition of fixed assets (298,859) (77,908) (1,461,601)
-------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (14,822,298) 2,516,589 (15,985,040)
-------------------------------------------------------------------------------------------------------------------------
Cash flows provided by financing activities:
Initial public offering -- -- 9,696,210
Net proceeds from issuance of common stock 2,613,440 4,043,154 21,305,136
Net proceeds from issuance of preferred stock -- -- 20,716,288
Exercise of A warrants 5,826,411 -- 5,826,411
Exercise of B warrants 17,387,153 -- 17,387,153
Exercise of Placement Agent warrants 101,142 -- 101,142
Other financing activities, net -- -- (281,070)
Repayment of equipment capital leases (133,676) (234,944) (894,943)
-------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 25,794,470 3,808,210 73,856,327
-------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 1,984,321 (1,703,288) 13,089,583
Cash and cash equivalents at beginning of period 11,105,262 3,821,234 --
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 13,089,583 $ 2,117,946 $ 13,089,583
=========================================================================================================================
</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.
(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
nine-month periods ended September 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 to purchase shares of the
Company's common stock and Class B Warrants
Page 6
<PAGE>
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 date 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 nine months ended September 30, 2000, 499,137 shares of Class A
preferred stock were converted into 1,386,501 shares of common stock. At
September 30, 2000, 4,225 Class A preferred shares were outstanding, convertible
into 11,741 common shares.
Conversions of Unit Purchase Options
------------------------------------
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 for net proceeds of $589,000, 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 for net proceeds of $589,000 and 127,161 Class B warrants. All
of the 254,322 Class B warrants were immediately exercised for 254,322 shares of
common stock resulting in net proceeds to the Company of $1,579,000.
(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
Page 7
<PAGE>
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 September 30, 2000 $175,000 has been incurred under this agreement and
recorded as research and development expenses.
(Note E) - Per Share Data
--------------
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
-------------------- -------------------- -------------------- --------------------
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Numerator:
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Net loss ($3,245,890) ($2,333,077) ($9,133,879) ($8,421,685)
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Preferred dividends and accretion 0 (77,332) (600,570) (434,700)
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Numerator for basic and diluted
loss applicable to common
shareholders per share ($3,245,890) ($2,410,409) ($9,734,449) ($8,856,385)
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Denominator:
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Denominator for basic and diluted
loss applicable to common
shareholders per share 25,804,736 15,550,930 23,455,570 14,921,896
---------------------------------------- -------------------- -------------------- -------------------- --------------------
Basic and diluted loss applicable to
common shareholders per share ($0.13) ($0.16) ($0.42) ($0.59)
---------------------------------------- ==================== ==================== ==================== ====================
</TABLE>
(Note F) - 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 nine months ended
September 30, 2000, $197,389 has been recorded as revenues from the IRR grants.
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. For the nine months ended September 30, 2000, $297,723 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
Page 8
<PAGE>
grant to enhance the Company's TAPET research. For the six-month period ended
September 30, 2000, $86,557 has been recognized as revenues under this grant.
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 pre-clinical animal models, as well as to determine the
suitability of this approach for tumor diagnosis based on defined molecular
signatures. During the three-month period ended September 30, 2000, $47,111 has
been recognized as revenues under this contract.
(Note G) - New Accounting Pronouncement
----------------------------
The Securities and Exchange Commission issued Staff Accounting Bulletin 101
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 requires
companies to recognize the receipt of certain up-front non-refundable fees over
the life of the related collaboration agreement. The Company intends to make a
change in its revenue recognition policy, as required, in the fourth quarter of
2000. There will be no impact from the adoption of SAB 101 on the Company's
consolidated financial statements for the year ended December 31, 2000.
(Note H) - Subsequent Event
----------------
The Company had previously agreed to reimburse Yale University ("Yale") for its
costs in connection with the research projects performed under the direction and
supervision of Dr. John Pawelek of the Department of Dermatology in an amount
currently equal to $852,000 per year. Technology licensed by the Company from
research conducted under this agreement includes the inventions collectively
known as TAPET. The agreement is for a term ending June 30, 2001, subject to
earlier termination as defined.
The Company in conjunction with Yale has restructured the arrangement effective
October 1, 2000 to provide a gift of $670,000 to support the research projects
for the year ending September 30, 2001 renewable at the Company's discretion for
2 additional years through September 30, 2003.
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-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 clinical studies of Triapine (including combination studies) in the
United States for safety and dosage
o File investigational new drug application(s) with the FDA for "armed" TAPET
vectors. Conduct clinical studies in the United States and Europe for the
safety and selective tumor accumulation of "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 pre-clinical toxicology studies on a Sulfonyl Hydrazine agent and
proceed to Phase I clinical trials, expected to begin in 2001
Page 10
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1999
Revenues. Revenues increased approximately 28% from $286,936 for the
three months ended September 30, 1999 to $368,092 for the three months ended
September 30, 2000. This change was primarily due to a $218,083 increase in
contract research revenues primarily related to new research grants received in
2000 for TAPET, offset by the elimination of revenues from reimbursed
development costs under the terms of our collaboration with Boehringer Ingelheim
International GmbH ("BI") which was revised in December 1999. These research
support revenues totaled $183,813 for the three months ended September 30, 1999.
Laboratory service revenues of $28,300 for the three-month period ended
September 30, 2000 were for services contracted by BI related to the Promycin
Phase III study. Technology license revenues increased 290% from $6,419 for the
three months ended September 30, 1999 to $25,005 for the comparable period in
2000.
Research and Development. Research and development expenses increased
approximately 37% from $2,192,961 for the three months ended September 30, 1999
to $3,011,545 for the three months ended September 30, 2000 due primarily to
development of our Sulfonyl Hydrazine agent and patient accumulation for the
TAPET Phase I trial. We expect research and development and clinical trials
expenses to continue to increase in the future related to the TAPET and Triapine
Phase I clinical trials and development of our Sulfonyl Hydrazine agent.
General and Administrative. General and administrative expenses
increased 127% from $465,868 for the three months ended September 30, 1999 to
$1,055,429 for the three months ended September 30, 2000. This increase was due
to higher professional and patent-related fees for the three months ended
September 30, 2000.
Interest Income and Expense. Interest income on invested funds
increased significantly from $45,720 for the three months ended September 30,
1999 to $454,468 for the three months ended September 30, 2000. This increase
reflects a higher level of invested funds. Interest expense decreased from
$6,904 for the three months ended September 30, 1999 to $1,476 for the three
months ended September 30, 2000.
Preferred Dividends and Accretion. No preferred stock dividends and
accretion were reported for the three months ended September 30, 2000 compared
to $77,332 for the three months ended September 30, 1999. All outstanding shares
of the Series 1998 Redeemable Convertible Preferred Stock ("Preferred Stock")
were converted to common stock on February 22, 2000 which resulted in the
elimination of non-cash accretion of Preferred Stock dividends. Loss applicable
to common shareholders increased from $2,410,409 to $3,245,890 primarily due to
increased research and development expenses and increased general and
administrative expenses, partially offset by higher interest income.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1999
Revenues. Revenues decreased approximately 51% from $1,616,150 for the
nine months ended September 30, 1999 to $786,805 for the nine months ended
September 30, 2000. As noted above, this 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 $1,298,851 for the nine months ended
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September 30, 2000. Revenue from contract research grants increased 141% to
$628,780 for the nine months ended September 30, 2000, related to new grants
received in 2000 for TAPET, compared to $260,880 for the nine months ended
September 30, 1999. Laboratory service revenues of $81,912 for the nine-month
period ended September 30, 2000 were for services contracted by BI related to
the Promycin Phase III study. Technology license revenues increased 35% from
$56,419 for the nine months ended September 30, 1999 to $76,113 for the
comparable period in 2000.
Research and Development. Research and development expenses decreased
approximately 2% from $8,517,035 for the nine months ended September 30, 1999 to
$8,307,359 for the nine months ended September 30, 2000. This change is
primarily due to lower expenses reflecting the restructuring of our
collaboration agreement with BI for the development of Promycin offset by
increased expenses for development of our Sulfonyl Hydrazine agent and patient
accumulation for the TAPET Phase I trial. As noted above, we expect research and
development and clinical trials expenses to continue to increase in the future
related to the TAPET and Triapine Phase I clinical trials and development of our
Sulfonyl Hydrazine agent.
General and Administrative. General and administrative expenses
increased approximately 57% from $1,666,198 for the nine months ended September
30, 1999 to $2,607,851 for the nine months ended September 30, 2000. This was
primarily due to higher professional and patent-related fees.
Interest Income and Expense. Interest income on invested funds
increased significantly from $173,075 for the nine months ended September 30,
1999 to $1,003,888 for the nine months ended September 30, 2000. This increase
reflects a higher level of invested funds. Interest expense decreased from
$27,677 for the nine months ended September 30, 1999 to $9,362 for the nine
months ended September 30, 2000.
Preferred Dividends and Accretion. Preferred stock dividends and
accretion increased from $434,700 for the nine months ended September 30, 1999
to $600,570 for the nine months ended September 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 $8,856,385 for the
nine-month period ended September 30, 1999 to $9,734,499 for the comparable
period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had working capital of $26,702,809.
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.
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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.
Prior to their expiration on August 13, 2000, holders of the Company's
remaining 113,333 Unit Purchase Options exercised the options and underlying
warrants resulting in proceeds to the Company totaling approximately $2.76
million. The options were exercised for 113,333 shares of common stock for net
proceeds of $589,000, and 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 for net proceeds to the Company of $589,000 and 127,161 Class B warrants.
All of the 254,322 Class B warrants were immediately exercised for 254,322
shares of common stock resulting in net proceeds to the Company of $1,579,000.
During the three-month period ended September 30, 2000, options issued under the
Company's employee stock option plan were exercised for 148,148 shares of common
stock, resulting in net proceeds to the Company of $601,000.
We currently estimate that our existing cash, cash equivalents and
short-term investments totaling $27,613,022 will be sufficient to fund our
planned operations through 2001. As of September 30, 2000 we estimate that the
amount required to fund all operations net of cash inflows for the next twelve
months is approximately $18.1 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, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders of the Company held on
October 23, 2000, 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 to each proposal are set forth below.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
--------------------------------------
A vote was taken at the Annual Meeting for the election of
eight Directors of the Company to hold office until the next Annual
Meeting of Stockholders of the Company or until their successors are
elected and qualified. All eight nominees were elected. The aggregate
number of votes cast by holders of common stock and Class A Convertible
Preferred Stock voted in person or by proxy for each nominee were as
follows:
For Authority Withheld
Nominee From Nominee
------- ------------
William R. Miller 24,112,191 300,230
Alan Kessman 24,109,524 302,897
Alan C. Sartorelli, Ph.D 24,119,469 292,952
Michel C. Bergerac 24,108,024 304,397
Frank T. Cary 24,103,098 309,323
James L. Ferguson 23,848,297 564,124
Walter B. Wriston 24,103,958 308,463
Charles K. MacDonald 24,119,219 293,202
PROPOSAL NO. 2 - CLASSIFIED BOARD
---------------------------------
A vote was taken at the Annual Meeting on the proposal to
amend the Company's Certificate of Incorporation and to adopt the
provisions relating to a classified board of directors. The proposed
amendment was not adopted. The aggregate number of votes cast by
holders of common stock and Class A Convertible Preferred Stock voted
in person or by proxy for each nominee were as follows:
For Against Abstain
--- ------- -------
11,398,551 1,018,216 109,163
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PROPOSAL NO. 3 - APPROVAL OF THE ADOPTION OF 2000 EMPLOYEE STOCK
----------------------------------------------------------------
PURCHASE PLAN
--------------
A vote was taken at the Annual Meeting on the proposal to
approve the adoption of Vion Pharmaceuticals, Inc. 2000 Employee Stock
Purchase Plan (the "Plan"). The adoption of the Plan was approved. The
aggregate number of votes cast by holders of common stock and Class A
Convertible Preferred Stock voted in person or by proxy for each
nominee were as follows:
For Against Abstain
--- ------- -------
23,911,408 394,673 106,340
PROPOSAL NO. 4 - RATIFICATION OF SELECTION OF INDEPENDENT
----------------------------------------------------------
AUDITORS
--------
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, 2000. The selection of Ernst &
Young LLP was ratified. The aggregate number of votes cast by holders
of common stock and Class A Convertible Preferred Stock voted in person
or by proxy for each nominee were as follows:
For Against Abstain
--- ------- -------
24,307,161 80,864 24,396
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
27. Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
None
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)
By: /s/ Karen Schmedlin
--------------------
Karen Schmedlin
Controller
(Duly authorized signatory)
Date: November 13, 2000
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