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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
--- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _____
Commission file number: 000-21291
INTROGEN THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2704230
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
301 CONGRESS AVENUE, SUITE 1850, AUSTIN, TEXAS 78701
(Address of Principal Executive Offices) (Zip Code)
(512) 708-9310
(Registrant's telephone number, including area code)
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 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
--- ---
At December 31, 2000, 21,224,616 shares of common stock of the Registrant were
outstanding.
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INTROGEN THERAPEUTICS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
------- --------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - as of December 31, 2000 (unaudited) and June
30, 2000............................................................................ 3
Condensed Consolidated Statements of Operations for the Three Months and Six Months
Ended December 31, 2000 and December 31, 1999 (unaudited) .......................... 4
Condensed Statements of Cash Flows for the Six Months Ended December
31, 2000 and December 31, 1999 (unaudited) ......................................... 5
Unaudited Notes to Condensed Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 21
PART II. OTHER INFORMATION PAGE NO.
-------- ----------------- --------
Item 1. Legal Proceedings...................................................................... 21
Item 2. Changes in Securities and Use of Proceeds.............................................. 21
Item 3. Defaults Upon Senior Securities........................................................ 21
Item 4. Submission of Matters to a Vote of Security Holders.................................... 22
Item 5. Other Information...................................................................... 22
Item 6. Exhibits and Reports on Form 8-K....................................................... 22
SIGNATURES........................................................................................ 23
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2000 2000
--------------- ---------------
(unaudited)
ASSETS
Current Assets:
Cash ................................................................... $ 1,788,612 $ 4,699,663
Short-term investments ................................................. 9,976,469 31,730,159
Accounts receivable .................................................... -- 709,262
Inventory .............................................................. 1,734,329 750,000
Other current assets ................................................... 4,808 319,795
--------------- ---------------
Total current assets ................................................. 13,504,218 38,208,879
Property and equipment, net of accumulated depreciation of
$2,988,387 and $4,054,074, respectively ................................ 10,152,572 12,041,176
Long-term investments ..................................................... -- 5,247,475
Other assets .............................................................. 1,197,733 477,497
--------------- ---------------
Total assets ......................................................... $ 24,854,523 $ 55,975,027
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ....................................................... $ 262,977 $ 845,457
Accrued liabilities .................................................... 1,026,330 1,505,374
Deferred revenues from affiliate ....................................... 1,205,655 1,051,000
Current portions of capital lease obligations and note payable ......... 746,192 1,112,932
--------------- ---------------
Total current liabilities ............................................ 3,241,154 4,514,763
Capital lease obligations, net of current portion ......................... 2,149,281 1,758,073
Note payable, net of current portion ...................................... 5,871,750 7,441,135
Commitments and contingencies
Stockholders' Equity:
Convertible preferred stock, $.001 par value; 8,308,523 shares
authorized, 6,419,896 issued and outstanding at June 30, 2000 ........ 6,419 --
Common stock, $.001 par value; 50,000,000 shares authorized;
4,134,180 and 21,225,578 shares issued and outstanding,
respectively ......................................................... 4,134 21,226
Additional paid-in capital ............................................. 36,536,575 69,364,039
Deferred compensation .................................................. (4,210,412) (4,008,686)
Accumulated deficit .................................................... (18,744,378) (23,115,523)
--------------- ---------------
Total stockholders' equity ........................................... 13,592,338 42,261,056
--------------- ---------------
Total liabilities and stockholders' equity ........................... $ 24,854,523 $ 55,975,027
=============== ===============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
Collaborative research and development
revenues from affiliate ............. $ 2,536,597 $ 1,509,210 $ 3,915,715 $ 3,015,655
Product sales to affiliate ............... 432,365 1,500,000 1,692,618 1,500,000
Cost of product sales .................... (288,243) (2,372,204) (1,153,056) (2,487,783)
------------ ------------ ------------ ------------
Gross margin on product sales ..... 144,122 (872,204) 539,562 (987,783)
Other revenue ............................ 64,533 252,898 93,533 391,031
------------ ------------ ------------ ------------
Costs and expenses:
Research and development ............ 4,486,873 2,820,769 6,103,957 5,152,785
General and administrative .......... 1,546,348 928,769 2,399,501 2,040,090
------------ ------------ ------------ ------------
Loss from operations ................. (3,287,969) (2,859,634) (3,954,648) (4,773,972)
Interest income .......................... 182,039 609,870 359,929 782,914
Interest expense ......................... (147,331) (178,797) (151,824) (380,087)
------------ ------------ ------------ ------------
Net loss ................................. $ (3,253,261) $ (2,428,561) $ (3,746,543) $ (4,371,145)
============ ============ ============ ============
Net loss per share, basic and diluted .... $ (0.82) $ (0.13) $ (0.95) $ (0.39)
============ ============ ============ ============
Shares used in computing basic and
diluted net loss per share ............ 3,972,630 18,092,257 3,964,078 11,120,670
============ ============ ============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
DECEMBER 31,
----------------------------
1999 2000
------------ ------------
Cash flows from operating activities:
Net loss ...................................................... $ (3,746,543) $ (4,371,145)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation ............................................... 536,399 1,065,687
Compensation related to issuance of stock options .......... 937,691 745,615
Changes in assets and liabilities
Decrease (increase) in receivable from affiliate ......... (787,416) (709,262)
Decrease (increase) in inventory ......................... 1,211,051 984,329
Decrease (increase) in other assets ...................... (129,348) (370,562)
Increase (decrease) in accounts payable .................. (1,585,930) 582,480
Increase (decrease) in accrued liabilities ............... 386,392 479,044
Increase (decrease) in deferred revenue from affiliate ... (573,186) (154,655)
------------ ------------
Net cash used in operating activities ............... (3,750,890) (1,748,469)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment ........................... (1,237,034) (2,954,291)
Purchases of investments ..................................... (11,135,761) (47,076,268)
Maturities of investments .................................... 13,567,831 20,075,103
------------ ------------
Net cash provided by (used in) investing
activities .......................................... 1,195,036 (29,955,456)
------------ ------------
Cash flows from financing activities:
Proceeds from stock option exercises .......................... 46,867 68,827
Proceeds from initial public offering, net of offering
costs paid during period ................................... -- 33,001,232
Proceeds from issuance of note payable ........................ 2,814,007 1,931,602
Principal payments under capital lease obligations and
note payable ............................................. (51,485) (386,685)
------------ ------------
Net cash provided by financing activities .......... 2,809,389 34,614,976
------------ ------------
Net increase in cash .............................................. 253,535 2,911,051
Cash, beginning of period ......................................... 2,145,676 1,788,612
------------ ------------
Cash, end of period ............................................... $ 2,399,211 $ 4,699,663
============ ============
Supplemental disclosure of cash flow information
Cash paid for interest ...................................... $ 247,213 $ 280,173
============ ============
Supplemental disclosure of noncash investing and financing activity:
Offering costs paid during prior period netted
against initial public offering
proceeds ................................................ $ 775,811 $ 775,811
============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS:
Introgen Therapeutics, Inc., a Delaware corporation, and its subsidiaries
(Introgen) develop and manufacture gene-based drugs for the treatment of cancer
and other diseases. Introgen's lead product candidate, INGN 201, combines the
naturally occurring p53 tumor suppressor gene with its extensively tested
adenoviral delivery system. Introgen is developing additional gene-based drugs,
including INGN 241 based on the mda-7 gene, as well as other drugs based on
genes such as PTEN.
INGN 201, developed in collaboration with Aventis Pharma AG, formerly
Rhone-Poulenc Rorer Pharmaceuticals, Inc. (Aventis or the affiliate), is
currently in Phase III clinical trials for the treatment of head and neck
cancer. Introgen is also conducting a Phase II clinical trial in non-small cell
lung cancer and several Phase I clinical trials in additional cancer
indications. INGN 241 is currently undergoing safety testing in a Phase I
clinical trial, which Introgen is conducting without a collaborative partner.
Introgen's product candidates are intended to engage molecular targets to
produce a highly specific therapeutic effect. By selectively killing cancer
cells and harnessing natural protection mechanisms, Introgen's product
candidates may be less toxic than conventional treatments. Introgen specializes
in combining appropriate gene delivery systems and therapeutics genes to make
its gene-based drugs, which have been used in numerous clinical trials worldwide
either alone or in combination with conventional treatments such as chemotherapy
and radiotherapy.
Introgen has research collaboration agreements with Aventis. Introgen is
also manufacturing and selling INGN 201 to Aventis for use in clinical trials.
Introgen has not yet generated any significant revenues from unaffiliated third
parties, nor is there any assurance of future product revenues. Introgen's
research and development activities involve a high degree of risk and
uncertainty, and its ability to successfully develop, manufacture and market its
proprietary products is dependent upon many factors. These factors include, but
are not limited to, the need for additional financing, the reliance on
collaborative research and development arrangements with corporate and academic
affiliates, and the ability to develop manufacturing, sales and marketing
experience. Additional factors include uncertainties as to patents and
proprietary technologies, competitive technologies, technological change and
risk of obsolescence, development of products, competition, government
regulations and regulatory approval, and product liability exposure. As a result
of the aforementioned factors and the related uncertainties, there can be no
assurance of Introgen's future success.
2. BASIS OF PRESENTATION:
The accompanying condensed, consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) and, accordingly, do not include all of
the information and footnotes required under generally accepted accounting
principles in the United States for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three- and six-month periods ended December 31, 2000,
are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended June
30, 2000, included in Introgen's prospectus dated October 12, 2000, as filed
with the SEC pursuant to Rule 424(b)(4) of the Securities Act of 1933.
3. NET LOSS PER SHARE:
Net loss per share is computed using the weighted average number of shares
of common stock outstanding and reflects the conversion of each outstanding
share of preferred stock into 1.92 shares of Introgen's
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common stock effective upon the closing of Introgen's initial public offering
(see Note 5). Basic earnings per share (EPS) excludes dilution and is determined
by dividing loss available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur if securities and other contracts to issue
common stock were exercised or converted into common stock. There are no
differences between basic EPS and diluted EPS for all periods presented.
4. STOCK:
Common Stock Split
In August 2000, Introgen's board of directors approved a stock dividend to
effect a stock split of 1.6 shares for every one share of common stock
outstanding. An amount equal to the increased par value of the common shares has
been reflected as a transfer from additional paid-in capital to common stock.
Retroactive effect has been given to the stock split in stockholders' equity and
in all share and per share data as of the earliest date presented in the
accompanying consolidated financial statements.
Initial Public Offering and Conversion of Preferred Stock
In October 2000, Introgen completed an initial public offering (IPO) of
4,600,000 newly-issued shares of its common stock at a price of $8.00 per share.
Introgen received $33.2 million in cash proceeds from the IPO, net of
underwriting discounts, commissions and other offering costs.
Simultaneous with the closing of the IPO, 3,011,423 shares of Series A
Convertible Preferred Stock, 1,757,063 shares of Series B Convertible Preferred
Stock, 551,410 shares of Series C Convertible Preferred Stock and 1,100,000
shares of Series D Convertible Preferred Stock then outstanding were
automatically converted into 12,326,173 shares of common stock.
Stock Option Grant
Introgen has an employment agreement with its president and chief executive
officer that obligates Introgen to grant the officer 80,000 fully vested options
as a result of the closing of its IPO, and on August 1, 2001 and August 1, 2002.
Such options will be exercisable at a price determined by the Compensation
Committee of the Company's Board of Directors. To date, the exercise price of
the options that will be granted in connection with the IPO has not yet been
determined and, accordingly, the options have not been granted. Upon the
determination of the exercise price, Introgen will record compensation expense
if and to the extent the then-current fair market value of Introgen's common
stock exceeds the exercise price of the options.
5. SUBSEQUENT EVENTS:
Sublease and Loan Agreement
Introgen is negotiating with The University of Texas M.D. Anderson Cancer
Center to sublease to them approximately 11,000 square feet of space in its
Houston research and administration facility at prevailing market rates. To
finance finish-out of the space to be subleased, Introgen entered into a $3.5
million loan agreement with a commercial bank. The loan bears interest at prime
and is payable in equal monthly installments over five years. As of December 31,
2000, $1,931,602 has been drawn under this agreement. In accordance with the
sublease agreement, in addition to rent paid at market rates, the tenant will
pay Introgen monthly an amount equal to Introgen's debt service payment on this
loan. Introgen will own the finish-out improvements both during the term of this
sublease and after the sublease has expired.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
condensed consolidated financial statements and the related notes thereto
included in this report on Form 10-Q. The discussion and analysis contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which
include the statements in paragraphs seven and fifteen under "Results
of Operations" regarding amortization of deferred compensation and the
statements below under "Factors Affecting Future Operating Results." These
forward-looking statements are based on our current expectations and entail
various risks and uncertainties. Our actual results could differ materially from
those projected in the forward-looking statements as a result of various
factors, including those set forth below under "Factors Affecting Future
Operating Results."
OVERVIEW
We are a leading developer of gene-based drugs for the treatment of cancer
and other diseases. Our lead product candidate, INGN 201, combines the p53 gene,
one of the most potent members of a group of naturally-occurring genes, the
tumor suppressor genes, that act to protect cells from becoming cancerous, with
a gene delivery system that we have developed and extensively tested in
collaboration with Aventis. We and Aventis are conducting pivotal Phase III
clinical studies of INGN 201 in head and neck cancer. Pivotal Phase III trials
are typically the final phase required for FDA approval. We are also conducting
a Phase II clinical trial in non-small cell lung cancer, a category that
includes approximately 80% of the various kinds of lung cancer. Phase II trials
are efficacy studies. We are also conducting several Phase I clinical trials, or
safety studies, in additional cancer types, or indications.
Another of our product candidates, INGN 241, combines the mda-7 gene with
our gene delivery system. We are conducting safety testing of INGN 241 in a
Phase I clinical study. We have identified and are developing additional gene
therapy product candidates, notably those base on the PTEN gene, as well as
associated technologies for delivering the gene-based products into target
cells, which we refer to as vectors.
Since our inception in 1993, we have used our resources primarily to conduct
research and development activities, primarily for INGN 201 and, to a lesser
extent, for other product candidates. At December 31, 2000, we had an
accumulated deficit of approximately $23.1 million. We anticipate that we will
incur losses in the future that are likely to be greater than losses incurred in
prior years. We expect that cash needed for operating activities will increase
as we continue our research and development of various gene therapy
technologies. Since inception, our only significant revenues have been payments
from Aventis under collaborative research and development agreements for our
early stage development work on INGN 201 and Aventis' purchases of INGN 201
product we manufactured for their use in later stage clinical trials. We have
also earned interest income on cash placed in short-term investments.
We have two collaboration agreements with Rhone-Poulenc Rorer
Pharmaceuticals Inc. to develop therapeutics based on p53 and on K-ras pathway
inhibition. In December 1999, Rhone-Poulenc S.A., the ultimate parent company of
Rhone-Poulenc Rorer Pharmaceuticals Inc., combined with Hoechst AG, and the
parties then combined Hoechst Marion Roussel, the pharmaceutical business of
Hoechst AG, with that of Rhone-Poulenc Rorer to form Aventis Pharma AG.
Rhone-Poulenc Rorer Pharmaceuticals Inc. is now known as Aventis Pharmaceuticals
Products Inc. From inception of these agreements in 1994 through December 31,
2000, we have earned a total of $49.7 million in collaborative research and
development revenues from Aventis pursuant to the agreement relating to the p53
gene. Historically, we have generally received payments from Aventis for early
stage development activities quarterly in advance. We record these payments as
revenue as we perform the collaboration work and incur the related expenses. We
record as deferred revenue collaborative research and development payments which
we receive but for which the related expenses have not yet been incurred.
Continued funding of early stage development programs under the collaboration
agreements is subject to an annual, mutually agreed-upon budget.
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Under the terms of the collaboration agreements, we also manufacture and
sell INGN 201 to Aventis for use in later stage clinical trials. We record
revenue from these product sales upon completion of production and delivery and
Aventis' acceptance of the product. From inception of these agreements through
December 31, 2000, we have recorded $7.5 million in revenues from these product
sales.
RESULTS OF OPERATIONS
COMPARISON OF QUARTERS ENDED DECEMBER 31, 2000 AND 1999
Revenues
Revenue from Collaborations. Collaborative research and development
revenues from Aventis were $1.5 million for the quarter ended December 31, 2000,
compared to $2.5 million for the quarter ended December 31, 1999. This 40%
decrease was primarily due to a decreased level of early stage research and
development relative to products based on the p53 gene as such products evolve
into later stage development. We earn revenue from Aventis for early stage
research and development we perform under our collaboration agreements with
them. Aventis performs later stage development work.
Revenue from Product Sales to Affiliate. Revenues from product sales to
Aventis were $1.5 million for the quarter ended December 31, 2000, compared to
$432,000 for the quarter ended December 31, 1999. This 247% increase was due to
our manufacturing facility being fully operational in 2000 whereas in 1999 we
had recently completed construction of the facility and were in the process of
validating it for operation for a significant part of that period.
Other Revenue. Other revenue was $253,000 for the quarter ended
December 31, 2000, compared to $65,000 for the quarter ended December 31, 1999.
This 289% increase was due to a higher level of funding received under research
grants from U. S. Government agencies and increased contract manufacturing work
for third parties.
Costs and Expenses
Cost of Product Sales. Cost of product sales was $2.4 million for the
quarter ended December 31, 2000, compared to $288,000 for the quarter ended
December 31, 1999. This 733% increase was due to a reduction in the number of
batches of clinical material in production during the 2000 period, which
resulted in an increase in the amount of the costs of our manufacturing
operations that were expensed as incurred instead of capitalized as part of
inventory. This reduction in clinical materials production was a result of our
successful production and shipment in previous periods of INGN 201 to Aventis in
the amounts and timeframes they requested, which has allowed them to accumulate
an adequate supply of clinical materials to support INGN 201 Phase II and Phase
III clinical trials in the near term.
Research and Development. Research and development expenses, excluding
amortization of deferred stock compensation of $111,000 in 2000 and zero in
1999, were $2.7 million for the quarter ended December 31, 2000, compared to
$4.5 million for the quarter ended December 31, 1999. This 62% decrease was
primarily due to a decreased level of early stage research and development
relative to products based on the p53 gene, which we conduct, as such products
evolve into later stage development, which Aventis conducts.
General and Administrative. General and administrative expenses, excluding
amortization of deferred stock compensation of $263,000 in 2000 and $753,000 in
1999, were $665,000 for the quarter ended December 31, 2000, compared to
$793,000 for the quarter ended December 31, 1999. This 19% increase was due to
the additional, ongoing administrative costs associated with operating as a
public company beginning in 2000.
Amortization of Deferred Compensation. Amortization of deferred stock
compensation was $375,000 for the quarter ended December 31, 2000, compared with
$753,000 for the quarter ended December 31, 1999. This 50% decrease was
primarily due to the 1999 amount including a one-time charge to compensation
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expense arising from the acceleration of vesting of options held by a former
member of the board of directors in recognition of his service to us.
The amount of deferred compensation expense to be recorded in future periods
may decrease if unvested options for which deferred compensation has been
recorded are subsequently forfeited or may increase if additional options are
issued at a price below the deemed fair value of common stock at the date of
grant.
Interest Income and Expense
Interest income was $610,000 for the quarter ended December 31, 2000,
compared with $182,000 for the quarter ended December 31, 1999. This 235%
increase was due to higher cash and short- and long-term investment balances on
which interest is earned as a result of our receiving the proceeds from our IPO
in October 2000. Interest expense was $179,000 for the quarter ended December
31, 2000, compared with $147,000 for the quarter ended December 31, 1999. This
increase was the result of our additional borrowings to finance new facilities
and equipment placed in service in 1999.
COMPARISON OF SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999
Revenues
Revenue from Collaborations. Collaborative research and development
revenues from Aventis were $3.0 million for the six months ended December 31,
2000, compared to $3.9 million for the six months ended December 31, 1999. This
30% decrease was primarily due to a decreased level of early stage research and
development relative to products based on the p53 gene as such products evolve
into later stage development. We earn revenue from Aventis for the early stage
research and development we perform under our collaboration agreements with
them. Aventis performs later stage development work.
Revenue from Product Sales to Affiliate. Revenues from product sales to
Aventis were $1.5 million for the six months ended December 31, 2000, compared
to $1.7 for the six months ended December 31, 1999. This 12% decrease occurred
because, during the first half of the six months ended December 31, 1999, a
higher number of batches of clinical material were produced and shipped to
Aventis to ensure a steady supply of materials to support clinical trials during
subsequent periods when our production volumes were temporarily lower while we
were in the pre-production and validation phase of our new manufacturing
facility.
Other Revenue. Other revenue was $391,000 for the six months ended
December 31, 2000, compared to $94,000 for the six months ended December 31,
1999. This 316% increase was due to a higher level of funding received under
research grants from U.S. Government agencies and increased contract
manufacturing work for third parties.
Costs and Expenses
Cost of Product Sales. Cost of product sales was $2.5 million for the six
months ended December 31, 2000, compared to $1.2 million for the six months
ended December 31, 1999. This 108% increase was due to a reduction in the number
of batches of clinical material in production during the second half of the 2000
period, which resulted in an increase in the amount of the costs of our
manufacturing operations that were expensed as incurred instead of capitalized
as part of inventory. This reduction in clinical materials production was a
result of our successful production and shipment in previous periods of INGN 201
to Aventis in the amounts and timeframes they requested, which has allowed them
to accumulate an adequate supply of clinical materials to support INGN 201 Phase
II and Phase III clinical trials in the near term.
Research and Development. Research and development expenses, excluding
amortization of deferred stock compensation of $209,000 in 2000 and zero in
1999, were $4.9 million for the six months ended December 31, 2000, compared to
$6.1 million for the six months ended December 31, 1999. This 20% decrease was
primarily due to a decreased level of early stage research and development
relative to products based on the p53 gene, which we conduct, as such products
evolve into later stage development, which Aventis conducts.
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General and Administrative. General and administrative expenses, excluding
amortization of deferred stock compensation of $537,000 in 2000 and $938,000 in
1999, were $1.5 million in each of the six months ended December 31, 2000 and
December 31, 1999.
Amortization of Deferred Compensation. Amortization of deferred stock
compensation was $746,000 for the six months ended December 31, 2000, compared
with $938,000 for the six months ended December 31, 1999. This 20% decrease was
primarily due to the 1999 amount including a one-time charge to compensation
expense arising from the acceleration of vesting of options held by a former
member of the board of directors in recognition of his service to us.
The amount of deferred compensation expense to be recorded in future periods
may decrease if unvested options for which deferred compensation has been
recorded are subsequently forfeited or may increase if additional options are
issued at a price below the deemed fair value of common stock at the date of
grant.
Interest Income and Expense
Interest income was $783,000 for the six months ended December 31, 2000,
compared with $360,000 for the six months ended December 31, 1999. This 105%
increase was due to higher cash and short- and long-term investment balances on
which interest is earned as a result of our receiving proceeds from our
IPO in October 2000. Interest expense was $380,000 for the quarter ended
December 31, 2000, compared with $152,000 for the quarter ended December 31,
1999. This 150% increase was the result of our additional borrowings to finance
new facilities and equipment placed in service in 1999.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had cash and short term investments of $36.4
million and long-term investments of $5.2 million, compared with cash and
short-term investments of $11.8 million and long-term investments of zero at
June 30, 2000. We completed our IPO in October 2000 for net proceeds of
$32.2 million.
Net cash used in operating activities was $1.7 million and $3.8 million for
the six months ended December 31, 2000 and 1999, respectively. The decrease in
cash used during the six months ended December 31, 2000, compared to the six
months ended December 31, 1999, was primarily the result of a higher net loss in
2000 compared to 1999 offset by (1) a smaller increase in inventory in 2000
compared to 1999 as a result of our lower production levels arising from our
successful production and shipment in previous periods of INGN 201 to Aventis in
the amounts and timeframes they requested, which allowed them to accumulate an
adequate supply of clinical materials to support INGN 201 Phase II and Phase III
clinical trials in the near term and (2) an increase in accounts payable in 2000
compared to a decrease in 1999 due to (a) certain costs related to our IPO not
being paid until 2001 resulting in those costs being in accounts payable at
December 31, 2000, and (b) the payment in 1999 of costs related to the
construction of our new facilities, which were in accounts payable at June 30,
1999.
Net cash used in investing activities was $30.0 million for the six months
ended December 31, 2000, and net cash provided by investing activities was $1.2
million for the six months ended December 31, 1999. The change in the six months
ended December 31, 2000, compared to the six months ended December 31, 1999 was
primarily due to (1) higher payments for purchases of property and equipment in
2000 compared to 1999 as a result of costs incurred for finish-out work on our
facilities in 2000 related to the sublease of space to The University of Texas
M.D. Anderson Cancer Center and (2) higher purchases of investments net of
maturities of investments in 2000 compared to 1999 due to investment activities
involving the proceeds from our IPO in 2000.
Net cash provided by financing activities was $34.6 million for the six
months ended December 31, 2000 and $2.8 million for the six months ended
December 31, 1999. The increase in the six months ended December 31, 2000,
compared to the six months ended December 31, 1999 was primarily due to the
receipt of proceeds from our IPO during in 2000 offset by (1) higher proceeds
being received in 1999 compared to 2000 from the mortgage note payable for our
new facilities and (2) higher payments on debt obligations in 2000 compared to
1999. As of December 31, 2000, we had $7.8 million outstanding under notes
payable for our facilities and $2.5 million outstanding under capital lease
obligations to finance purchases of equipment.
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Short-term investments at December 31, 2001 include $2.0 million of
commercial paper issued by Southern California Edison Electric with a maturity
date of February 28, 2001. We intend to hold this investment until maturity.
FACTORS AFFECTING FUTURE OPERATING RESULTS
WE MAY ENCOUNTER DELAYS OR DIFFICULTIES IN CLINICAL TRIALS FOR OUR PRODUCT
CANDIDATES, WHICH MAY DELAY OR PRECLUDE REGULATORY APPROVAL OF SOME OR ALL OF
OUR PRODUCT CANDIDATES.
In order to commercialize our product candidates, we must obtain regulatory
approvals. Satisfaction of regulatory requirements typically takes many years,
and involves compliance with requirements covering research and development,
testing, manufacturing, quality control, labeling and promotion of drugs for
human use. To obtain regulatory approvals, we must, among other requirements,
complete clinical trials demonstrating that our product candidates are safe and
effective for a particular cancer indication or other disease.
We and Aventis have commenced the first of our planned Phase III clinical
trials of INGN 201, our lead product candidate, for the treatment of head and
neck cancer, and are conducting a Phase II clinical trial of INGN 201 for the
treatment of non-small cell lung cancer and six Phase I clinical trials of INGN
201 for other cancer indications. We have also commenced a Phase I clinical
trial of INGN 241, our product candidate based on the mda-7 gene. We do not have
significant clinical trial experience with other product candidates. Current or
future clinical trials may demonstrate that INGN 201, INGN 241 and our other
product candidates are neither safe nor effective.
Any delays or difficulties we encounter in our clinical trials, in
particular the Phase III clinical trial of INGN 201 for the treatment of head
and neck cancer, may delay or preclude regulatory approval. Any delay or
preclusion could also delay or preclude the commercialization of INGN 201 or any
other product candidates. In addition, we or the United States Food and Drug
Administration, or FDA, might delay or halt any of our clinical trials of a
product candidate at any time for various reasons, including:
o failure of the product candidate to be more effective than current
therapies;
o presence of unforeseen adverse side effects of a product candidate,
including its delivery system;
o longer than expected time required to determine whether or not a
product candidate is effective;
o death of patients during a clinical trial, even though the product
candidate may not have caused those deaths;
o failure to enroll a sufficient numbers of patients in our clinical
trials; or
o our inability to produce sufficient quantities of a product candidate
to complete the trials.
We may encounter delays or rejections in the regulatory approval process
because of additional government regulation from future legislation or
administrative action or changes in FDA policy during the period of product
development, clinical trials and FDA regulatory review. Failure to comply with
applicable FDA or other applicable regulatory requirements may result in
criminal prosecution, civil penalties, recall or seizure of products, total or
partial suspension of production or injunction, as well as other regulatory
action against our product candidates or us.
Outside the United States, our ability to market a product is contingent
upon receiving clearances from the appropriate regulatory authorities. This
foreign regulatory approval process includes all of the risks associated with
FDA clearance described above.
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WE MAY ENCOUNTER FAILURES OR DELAYS IN PERFORMING CLINICAL TRIALS FOR INGN
241 AND OUR OTHER NON-INGN 201 PRODUCT CANDIDATES, WHICH WOULD INCREASE OUR
PRODUCT DEVELOPMENT COSTS.
While we have begun a Phase I clinical trial with INGN 241, a product
candidate based on the mda-7 gene, our most significant clinical trial activity
and experience has been with INGN 201. We will need to continue conducting
significant research and animal testing, referred to as preclinical testing, to
support performing clinical trials for INGN 241 and our other non-INGN 201
product candidates. It will take us many years to complete preclinical testing
and clinical trials, and failure could occur at any stage of testing. Acceptable
results in early testing or trials may not be repeated later. Moreover, not all
product candidates in preclinical testing or early stage clinical trials will
receive timely, or any, regulatory approval. Our product development costs will
increase if we experience delays in testing or regulatory approvals or if we
need to perform more or larger clinical trials than planned. If the delays are
significant, the increased development costs will negatively affect our
financial results, and these delays could delay our commercialization efforts.
SERIOUS UNWANTED SIDE EFFECTS ATTRIBUTABLE TO GENE THERAPY MAY RESULT IN
GOVERNMENTAL AUTHORITIES IMPOSING ADDITIONAL REGULATORY REQUIREMENTS OR A
NEGATIVE PUBLIC PERCEPTION OF OUR PRODUCTS.
Serious unwanted side effects attributable to treatment, which physicians
classify as treatment-related adverse events, that occur in the field of gene
therapy may result in greater governmental regulation of our product candidates
and potential regulatory delays relating to the testing or approval of our
product candidates. The death in 1999 of a patient undergoing gene therapy using
an adenoviral vector to deliver a gene for disease treatment in a clinical trial
which was unrelated to our clinical trials, was widely publicized. As a result
of this death, the United States Senate held hearings concerning the adequacy of
regulatory oversight of gene therapy clinical trials and to determine whether
additional legislation is required to protect volunteers and patients who
participate in such clinical trials. The Recombinant DNA Advisory Committee, or
RAC, which acts as an advisory body to the National Institutes of Health, or
NIH, evaluated and continues to evaluate the use of adenoviral vectors in gene
therapy clinical trials. The RAC has made recommendations to the NIH director
concerning prospective review of study designs and adverse event reporting
procedures, and the FDA has requested that sponsors of clinical trials provide
detailed procedures for supervising clinical investigators and clinical study
conduct. In addition, the FDA has recently begun to conduct more frequent
inspections at clinical trial sites. Implementation of any additional review and
reporting procedures or other additional regulatory measures could increase the
costs of or prolong our product development efforts or clinical trials.
Following routine procedure, we report to the FDA and the NIH serious
adverse events, whether treatment-related or not, that occur in our clinical
trials, including deaths. In one of our Phase I studies conducted from 1995 to
1997, we reported two deaths for which the clinical investigator involved could
not unequivocally rule out the possibility that the deaths were related to our
gene therapy treatment; however, there was no evidence that our gene therapy was
responsible for the deaths. We have not received any correspondence from any
regulatory body or experienced any increased scrutiny of our clinical or other
activities as a result of these deaths. However, reporting of serious adverse
events that are determined to be treatment-related in gene therapy clinical
trials conducted by us or by others could result in additional regulatory review
or measures, which could increase the cost of or prolong our clinical trials.
To date no governmental authority has approved any gene therapy product for
sale in the United States or internationally. The commercial success of our
products will depend in part on public acceptance of the use of gene therapies,
which are a new type of disease treatment, for the prevention or treatment of
human diseases. Public attitudes may be influenced by claims that gene therapy
is unsafe, and gene therapy may not gain the acceptance of the public or the
medical community. Negative public reaction to gene therapy could also result in
greater government regulation and stricter clinical trial oversight.
WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO INCUR SIGNIFICANT
ADDITIONAL OPERATING LOSSES.
We have generated operating losses since we began operations in June 1993.
As of December 31, 2000, we had an accumulated deficit of approximately $23.1
million. We expect to incur substantial additional
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operating expenses and losses over the next several years as our research,
development, preclinical testing and clinical trial activities increase. We have
no products that have generated any commercial revenue, and our only revenues to
date have been payments from Aventis under collaborative agreements for research
and development and sales to Aventis of INGN 201 for use in clinical trials. We
do not expect to generate revenues from the commercial sale of products in the
foreseeable future, and we may never generate revenues from the sale of
products.
IF WE CONTINUE TO INCUR OPERATING LOSSES FOR A PERIOD LONGER THAN WE
ANTICIPATE AND FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE
WILL BE UNABLE TO ADVANCE OUR DEVELOPMENT PROGRAM AND COMPLETE OUR CLINICAL
TRIALS.
Developing a new drug and conducting clinical trials for multiple disease
indications is expensive. We expect that we will fund our capital expenditures
and operations over at least the next two years with our current working
capital, the net proceeds from our IPO in October 2000 and future payments, if
any, under our collaborative agreements with Aventis. We may need to raise
additional capital sooner, however, due to a number of factors, including:
o an acceleration of the number, size or complexity of our clinical
trials;
o slower than expected progress in developing INGN 201, INGN 241 and
other product candidates;
o higher than expected costs to obtain regulatory approvals;
o higher than expected costs to pursue our intellectual property
strategy;
o higher than expected costs to further develop our manufacturing
capability; and
o higher than expected costs to develop our sales and marketing
capability, particularly if we choose to form a joint marketing
operation with Aventis for the sale of INGN 201.
We do not know whether additional financing will be available when needed,
or on terms favorable to us or our stockholders. We may raise any necessary
funds through public or private equity offerings, debt financings or additional
corporate collaboration and licensing arrangements. To the extent we raise
additional capital by issuing equity securities, our stockholders will
experience dilution. If we raise funds through debt financings, we may become
subject to restrictive covenants. To the extent that we raise additional funds
through collaboration and licensing arrangements, we may be required to
relinquish some rights to our technologies or product candidates, or grant
licenses on terms that are not favorable to us.
IF WE CANNOT MAINTAIN OUR CURRENT COLLABORATIVE RELATIONSHIP WITH AVENTIS,
OUR PRODUCT DEVELOPMENT WOULD BE DELAYED.
We rely to a significant extent on Aventis to fund and support the
development of products based on the p53 gene, including INGN 201, which are
part of our collaboration with Aventis. Under our collaboration agreements,
Aventis agrees on an annual basis whether and to what extent it will continue to
fund our early stage development in North America of products based on the p53
gene, which includes preclinical research and development and Phase I clinical
trials. If Aventis does not agree to continue to fund this early stage
development, and we decide to continue this development, we would have to fund
this development ourselves or obtain funding from other sources.
Once we have completed Phase I clinical trials of a product candidate based
on the p53 gene, Aventis may elect to pursue later stage clinical development of
that product candidate, which includes conducting Phase II and III clinical
trials, commercializing the product, making all further submissions to existing
Investigational New Drug, or IND, applications and preparing all product license
applications. Aventis has elected to pursue later stage development of INGN 201.
However, if Aventis does not make this election with respect to other product
candidates based on the p53 that may emerge in the future, neither we nor
Aventis may develop or
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commercialize such product candidates before October 2004 without the other's
approval. Consequently, our development or commercialization efforts for the
product could be delayed if Aventis fails to consent to our further development
and commercialization. We are currently in negotiations with Aventis regarding
the possible restructuring of our collaborative relationship. We are uncertain
whether we can restructure the relationship on terms that are favorable to us.
Aventis may terminate its collaboration agreements with us, in whole or in part
with respect to individual products, at any time upon six months' notice. If
Aventis were to breach or terminate its collaboration agreements with us or
otherwise fail to conduct the collaborative activities successfully and in a
timely manner, the research, development or commercialization of the affected
products or research programs could be delayed or terminated.
IF WE CANNOT MAINTAIN OUR OTHER CORPORATE AND ACADEMIC ARRANGEMENTS AND
ENTER INTO NEW ARRANGEMENTS, PRODUCT DEVELOPMENT COULD BE DELAYED.
Our strategy for the research, development and commercialization of our
product candidates may require us to enter into contractual arrangements with
corporate collaborators in addition to Aventis, academic institutions and
others. We have entered into sponsored research and/or collaborative
arrangements with several entities, including The University of Texas M.D.
Anderson Cancer Center, the National Cancer Institute and Corixa Corporation.
Our success depends upon our collaborative partners performing their
responsibilities under these arrangements. We cannot control the amount and
timing of resources our collaborative partners devote to our research and
testing programs or product candidates, which can vary because of factors
unrelated to such programs or product candidates. These relationships may in
some cases be terminated at the discretion of our collaborative partners with
only limited notice to us. We may not be able to maintain our existing
arrangements or enter into new arrangements or negotiate current or new
arrangements on acceptable terms, if at all. Some of our collaborative partners
may also be researching competing technologies independently from us to treat
the diseases targeted by our collaborative programs.
IF WE ARE NOT ABLE TO CREATE AND CONTINUE EFFECTIVE COLLABORATIVE MARKETING
RELATIONSHIPS WITH AVENTIS AND OTHERS, WE MAY BE UNABLE TO MARKET INGN 201
SUCCESSFULLY.
If we elect to form a joint commercial operation with Aventis to market the
products developed under our collaboration with Aventis in North America, we may
be required to develop sales, marketing and distribution capabilities. In order
to develop or otherwise obtain these capabilities, we may have to enter into
marketing, distribution or other similar arrangements with additional third
parties in order to successfully sell, market and distribute our products. To
the extent that we enter into any such arrangements with third parties, our
product revenues are likely to be lower than if we directly marketed and sold
our products, and any revenues we receive will depend upon the efforts of such
third parties. We have no experience in marketing or selling pharmaceutical
products and we currently have no sales, marketing or distribution capability.
We may be unable to develop sufficient sales, marketing and distribution
capabilities to successfully commercialize our products.
In markets where Aventis has exclusive marketing rights to INGN 201,
including North America should we elect not to form a joint commercial
operation, Aventis will pay us royalties on product sales. Further, any
royalties we receive from product sales in the markets where Aventis has
exclusive marketing rights will depend entirely on the efforts of Aventis. In
those markets where we and Aventis have co-marketing rights, there is the
potential that we will compete with Aventis in those markets. Aventis is a
large, global pharmaceutical company with far greater financial and other
resources than we have, and therefore, our ability to compete with Aventis will
be limited.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR
COMPETITORS MAY BE ABLE TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT
EFFORTS TO DEVELOP COMPETING DRUGS.
Our commercial success will depend in part on obtaining patent protection
for our products and other technologies and successfully defending these patents
against third party challenges. Our patent position, like that of other
biotechnology and pharmaceutical companies, is highly uncertain. One uncertainty
is that the United States Patent and Trademark Office, or PTO, or the courts,
may deny or significantly narrow claims made under patents or patent
applications. This is particularly true for patent applications or patents that
concern biotechnology and pharmaceutical technologies, such as ours, since the
PTO and the courts often
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consider these technologies to involve unpredictable sciences. Another
uncertainty is that any patents that may be issued or licensed to us may not
provide any competitive advantage to us and they may be successfully challenged,
invalidated or circumvented in the future. In addition, our competitors, many of
which have substantial resources and have made significant investments in
competing technologies, may seek to apply for and obtain patents that will
prevent, limit or interfere with our ability to make, use and sell our potential
products either in the United States or in international markets.
Our ability to develop and protect a competitive position based on our
biotechnological innovations, innovations involving genes, gene therapy, viruses
for delivering the genes to cells, formulations, gene therapy delivery systems
that do not involve viruses, and the like, is particularly uncertain. Due to the
unpredictability of the biotechnological sciences, the PTO, as well as patent
offices in other jurisdictions, has often required that patent applications
concerning biotechnology-related inventions be limited or narrowed substantially
to cover only the specific innovations exemplified in the patent application,
thereby limiting their scope of protection against competitive challenges.
Similarly, courts have invalidated or significantly narrowed many key patents in
the biotechnology industry. Thus, even if we are able obtain patents that cover
commercially significant innovations, our patents may not be upheld or our
patents may be substantially narrowed.
Through our exclusive license from The University of Texas System for
technology developed at The University of Texas M. D. Anderson Cancer Center, we
are currently seeking patent protection for adenoviral p53, including INGN 201,
and its use in cancer therapy. We are also seeking patent protection for our
adenovirus production technology. While we have received a notice of allowance
from the PTO that it will issue to us a patent for our adenovirus production
technology, it is possible that the patents may not issue. We also control,
through licensing arrangements, two issued United States patents for combination
therapy involving the p53 gene and conventional chemotherapy or radiation and
one issued United States patent covering the use of adenoviral p53 in cancer
therapy. Our competitors may challenge the validity of one or more of our
combination therapy or adenoviral p53 therapy patents, or the potential patents
relating to adenovirus production, in the courts or through an administrative
procedure known as an interference. The courts or the PTO may not uphold the
validity of our patents, we may not prevail in an interference proceedings
regarding our patents and none of our patents may give us a competitive
advantage.
The PTO has notified us that one of our patent applications directed to our
adenoviral p53 technology, and one other patent application directed to specific
retroviral technologies directed to vectors based on a different type of virus
that uses RNA instead of DNA as its genetic material, and that do not relate to
any of our current product candidates, have been allowed, but that their
issuance is being suspended for the possible institution of interference
proceedings. Another patent application directed to another adenoviral
technology that also does not relate to any of our current product candidates is
currently involved in an interference proceeding. An interference proceeding is
instituted by the PTO to determine, as between two or more parties claiming the
same patentable invention, which party has the right to the patent. If any of
these or other patent applications become involved in an interference
proceeding, there is a likelihood that it will take many years to resolve.
Resolution of any such interference will require that we expend time, effort and
money. Of the two suspended applications, only the application directed to the
adenoviral p53 technology is relevant to our current potential products. If an
interference is declared with respect to the adenoviral p53 application, and if
the opponent ultimately prevails in the interference, the opponent will have a
patent that could cover our potential INGN 201 product or its clinical use. The
patent application that is currently involved in an ongoing interference
proceeding does not relate to any of our product candidates. While the
resolution of this interference will require that we expend time, effort and
money, its outcome is not expected to affect any of our current
commercialization efforts.
THIRD PARTY CLAIMS OF INFRINGEMENT OF INTELLECTUAL PROPERTY COULD REQUIRE US
TO SPEND TIME AND MONEY TO ADDRESS THE CLAIMS AND COULD LIMIT OUR INTELLECTUAL
PROPERTY RIGHTS.
The biotechnology and pharmaceutical industry has been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies have employed intellectual property litigation to gain a
competitive advantage. We are aware of a number of issued patents and patent
applications that relate
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to gene therapy, the treatment of cancer and the use of the p53 and other tumor
suppressor genes. Schering-Plough Corporation, or its subsidiary Canji, Inc.,
controls various United States patent applications and a European patent and
applications, some of which are directed to therapy using the p53 gene, and
others to adenoviruses that contain the p53 gene, or adenoviral p53, and to
methods for carrying out therapy using adenoviral p53. In addition, Canji
controls an issued United States patent and its international counterparts,
including a European patent, involving a method of treating mammalian cancer
cells lacking normal p53 protein by introducing a p53 gene into the cancer cell.
While we believe that our potential products do not infringe any valid claim
of the Canji p53 patents, Canji or Schering-Plough could assert a claim against
us. We may also become subject to infringement claims or litigation arising out
of other patents and pending applications of our competitors, if they issue, or
additional interference proceedings declared by the PTO to determine the
priority of inventions. The defense and prosecution of intellectual property
suits, PTO interference proceedings and related legal and administrative
proceedings are costly and time-consuming to pursue, and their outcome is
uncertain. Litigation may be necessary to enforce our issued patents, to protect
our trade secrets and know-how or to determine the enforceability, scope and
validity of the proprietary rights of others. An adverse determination in
litigation or interference proceedings to which we may become a party could
subject us to significant liabilities, require us to obtain licenses from third
parties, or restrict or prevent us from selling our products in certain markets.
Although patent and intellectual property disputes are often settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include ongoing royalties. Furthermore, the necessary
licenses may not be available to us on satisfactory terms, if at all. In
particular, if we were found to infringe a valid claim of the Canji p53 issued
United States patent, our business could be materially harmed.
We and Aventis are currently involved in three opposition proceedings before
the European Patent Office, or EPO, in which we are seeking to have the EPO
revoke three different European patents owned or controlled by Canji. These
European patents relate to the use of a p53 gene, or the use of tumor suppressor
genes, in the preparation of therapeutic products. In one opposition involving
the use of a p53 gene, the European patent at issue was upheld following an
initial hearing. A second hearing to determine whether this patent should be
revoked will be upcoming. The other two oppositions are in earlier stages and a
hearing date has not been set. If we do not ultimately prevail in one or more of
these oppositions, our competitors could seek to assert by means of litigation
any patent surviving opposition against European commercial activities involving
our potential products. If our competitors are successful in any such
litigation, it could have a significant detrimental effect on our, or our
collaborator's, ability to commercialize our potential commercial products in
Europe.
COMPETITION AND TECHNOLOGICAL CHANGE MAY MAKE OUR PRODUCT CANDIDATES AND
TECHNOLOGIES LESS ATTRACTIVE OR OBSOLETE.
We compete with pharmaceutical and biotechnology companies, including Canji
and Onyx Pharmaceuticals, Inc., which are pursuing other forms of treatment for
the diseases INGN 201 and our other product candidates target. We also may face
competition from companies that may develop internally or acquire competing
technology from universities and other research institutions. As these companies
develop their technologies, they may develop competitive positions which may
prevent or limit our product commercialization efforts.
Some of our competitors are established companies with greater financial and
other resources than we have. Other companies may succeed in developing products
earlier than we do, obtaining FDA approval for products more rapidly than we do
or developing products that are more effective than our product candidates.
While we will seek to expand our technological capabilities to remain
competitive, research and development by others may render our technology or
product candidates obsolete or noncompetitive or result in treatments or cures
superior to any therapy developed by us.
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EVEN IF WE RECEIVE REGULATORY APPROVAL TO MARKET INGN 201, INGN 241 OR OTHER
PRODUCT CANDIDATES, WE MAY NOT BE ABLE TO COMMERCIALIZE THEM PROFITABLY.
Our profitability will depend on the market's acceptance of INGN 201, INGN
241 and our other product candidates. The commercial success of our product
candidates will depend on whether:
o they are more effective than alternative treatments;
o their side effects are acceptable to patients and doctors;
o we produce and sell them at a profit; and
o we and Aventis market INGN 201 effectively, if we choose to form a
joint marketing operation with Aventis.
IF WE ARE UNABLE TO MANUFACTURE OUR PRODUCTS IN SUFFICIENT QUANTITIES OR ARE
UNABLE TO OBTAIN REGULATORY APPROVALS FOR OUR MANUFACTURING FACILITY, WE MAY BE
UNABLE TO MEET DEMAND FOR OUR PRODUCTS AND LOSE POTENTIAL REVENUES.
Completion of our clinical trials and commercialization of our product
candidates require access to, or development of, facilities to manufacture a
sufficient supply of our product candidates. We use a manufacturing facility in
Houston, Texas, which we constructed and own, to manufacture INGN 201 for our
currently planned clinical trials and eventually for the initial commercial
launch of INGN 201. We manufacture INGN 241 and other product candidates in a
separate, leased facility. We have no experience manufacturing INGN 201, INGN
241 or any other product candidates in the volumes that will be necessary to
support commercial sales. If we are unable to manufacture our product candidates
in clinical or, when necessary, commercial quantities, then we will need to rely
on third party manufacturers to manufacture compounds for clinical and
commercial purposes. These third party manufacturers must receive FDA approval
before they can produce clinical material or commercial product. Our products
may be in competition with other products for access to these facilities and may
be subject to delays in manufacture if third parties give other products greater
priority than ours. In addition, we may not be able to enter into any necessary
third-party manufacturing arrangements on acceptable terms. There are very few
contract manufacturers who currently have the capability to produce INGN 201,
INGN 241 or our other product candidates, and the inability of any of these
contract manufacturers to deliver our required quantities of product candidates
timely and at commercially reasonable prices would negatively affect our
operations.
Before we can begin commercially manufacturing INGN 201, INGN 241 or any
other product candidate, we must obtain regulatory approval of our manufacturing
facility and process. Manufacturing of our product candidates for clinical and
commercial purposes must comply with the FDA's Current Good Manufacturing
Practices requirements, commonly known as CGMP, and foreign regulatory
requirements. The CGMP requirements govern quality control and documentation
policies and procedures. In complying with CGMP and foreign regulatory
requirements, we will be obligated to expend time, money and effort in
production, recordkeeping and quality control to assure that the product meets
applicable specifications and other requirements. We must also pass a
pre-approval inspection prior to FDA approval. Our manufacturing facilities have
not yet been subject to an FDA or other regulatory inspection. Failure to pass a
preapproval inspection may significantly delay FDA approval of our products. If
we fail to comply with these requirements, we would be subject to possible
regulatory action and may be limited in the jurisdictions in which we are
permitted to sell our products. Further, the FDA and foreign regulatory
authorities have the authority to perform unannounced periodic inspections of
our manufacturing facility to ensure compliance with CGMP and foreign regulatory
requirements. Our facilities in Houston, Texas are our only manufacturing
facilities. If these facilities were to incur significant damage or destruction,
then our ability to manufacture INGN 201 or any other product candidates would
be significantly hampered. This, in turn, could result in delays in our
preclinical testing, clinical trials or commercialization efforts.
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WE RELY ON ONLY ONE SUPPLIER FOR SOME OF OUR MANUFACTURING MATERIALS. ANY
PROBLEMS EXPERIENCED BY ANY SUCH SUPPLIER COULD NEGATIVELY AFFECT OUR
OPERATIONS.
We rely on third party suppliers for some of the materials used in the
manufacturing of INGN 201, INGN 241 and our other product candidates. Some of
these materials are available from only one supplier or vendor. Any significant
problem that one of our sole source suppliers experiences could result in a
delay or interruption in the supply of materials to us until that supplier cures
the problem or until we locate an alternative source of supply. Any delay or
interruption would likely lead to a delay or interruption in our manufacturing
operations, which could negatively affect our operations.
The CellCube (TM) Module 100 bioreactor, which Corning (Acton, MA)
manufactures, and Benzonase (R), which EM Industries (Hawthorne, NY)
manufactures, are currently available only from these suppliers. Any significant
interruption in the supply of either of these items would require a material
change in our manufacturing process. We maintain inventories of these items, but
we do not have a supply agreement with either manufacturer.
IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE MAY
INCUR SUBSTANTIAL DAMAGES AND DEMAND FOR THE PRODUCTS MAY BE REDUCED.
The testing and marketing of medical products is subject to an inherent risk
of product liability claims. Regardless of their merit or eventual outcome,
product liability claims may result in:
o decreased demand for our product candidates;
o injury to our reputation and significant media attention;
o withdrawal of clinical trial volunteers;
o costs of litigation; and
o substantial monetary awards to plaintiffs.
We currently maintain product liability insurance with coverage of $2.0
million. This coverage may not be sufficient to protect us fully against product
liability claims. We intend to expand our product liability insurance coverage
to include the sale of commercial products if we obtain marketing approval for
any of our product candidates. Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against product liability
claims could prevent or limit the commercialization of our products.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS, AND ANY CLAIMS RELATING TO
IMPROPER HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD HARM OUR
BUSINESS.
Our business involves the use of a broad range of hazardous chemicals and
materials. Environmental laws impose stringent civil and criminal penalties for
improper handling, disposal and storage of these materials. In addition, in the
event of an improper or unauthorized release of, or exposure of individuals to,
hazardous materials, we could be subject to civil damages due to personal injury
or property damage caused by the release or exposure. A failure to comply with
environmental laws could result in fines and the revocation of environmental
permits, which could prevent us from conducting our business.
OUR STOCK PRICE MAY FLUCTUATE SUBSTANTIALLY.
The market price for our common stock will be affected by a number of
factors, including:
o the announcement of new products or services by us or our competitors;
o quarterly variations in our or our competitors' results of operations;
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o failure to achieve operating results projected by securities analysts;
o changes in earnings estimates or recommendations by securities
analysts;
o developments in our industry; and
o general market conditions and other factors, including factors
unrelated to our operating performance or the operating performance of
our competitors.
In addition, stock prices for many companies in the technology and emerging
growth sectors have experienced wide fluctuations that have often been unrelated
to the operating performance of such companies. Many factors may have a
significant adverse effect on the market price of our common stock, including:
o results of our preclinical and clinical trials;
o announcement of technological innovations or new commercial products by
us or our competitors;
o developments concerning proprietary rights, including patent and
litigation matters;
o publicity regarding actual or potential results with respect to
products under development by us or by our competitors;
o regulatory developments; and
o quarterly fluctuations in our revenues and other financial results.
We have not paid cash dividends since our inception and do not intend to pay
cash dividends in the foreseeable future.
ANY ACQUISITION WE MIGHT MAKE MAY BE COSTLY AND DIFFICULT TO INTEGRATE, MAY
DIVERT MANAGEMENT RESOURCES OR DILUTE STOCKHOLDER VALUE.
As part of our business strategy, we may acquire assets and businesses
principally relating to or complementary to our current operations, and we have
in the past evaluated and discussed such opportunities with interested parties.
Any acquisitions that we undertake will be accompanied by the risks commonly
encountered in business acquisitions. These risks include, among other things:
o potential exposure to unknown liabilities of acquired companies;
o the difficulty and expense of assimilating the operations and personnel
of acquired businesses;
o diversion of management time and attention and other resources;
o loss of key employees and customers as a result of changes in
management;
o the incurrence of amortization expenses; and
o possible dilution to our stockholders.
In addition, geographic distances may make the integration of businesses
more difficult. We may not be successful in overcoming these risks or any other
problems encountered in connection with any acquisitions. As of the date of this
report, we have no present commitments or agreements for any material investment
or acquisition, other than acquiring or maintaining rights to technologies in
the ordinary course of our business.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to our fixed rate long-term debt and short- and long-term investments in
investment grade securities, which consist primarily of federal and state
government obligations, commercial paper and corporate bonds. Investments are
classified as held-to-maturity and are carried at amortized costs. We do not
hedge interest rate exposure or invest in derivative securities.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
We are involved from time to time in legal proceedings relating to claims
arising out of our operation in the ordinary course of business, including
actions relating to intellectual property rights.
On January 12, 2001, we received notice that we had been joined as a defendant
on January 11, 2001, by Canji, Inc. in a lawsuit: Canji, Inc. v. Sidney Kimmel
Cancer Center, Introgen Therapeutics, Inc., and Does 2 through 25 (Case No.
GIC745643, in the California Superior Court for the County of San Diego, Central
District). Canji, Inc. filed its original complaint against the Sidney Kimmel
Cancer Center (SKCC) on March 24, 2000. In its first amended complaint, which
joins us as a defendant in the litigation, Canji alleges that certain gene
therapy patents and technology relating to the treatment of cancer using gene
therapy in combination with a class of chemotherapeutic agents known as DNA
repair inhibitors, which patents and technology were developed by SKCC under a
sponsored research agreement between SKCC and us and exclusively licensed to us
from SKCC (the SKCC IP), were developed in part using materials provided by
Canji to SKCC under a Material Transfer Agreement (MTA). Canji further alleges
that under the MTA, Canji had the right of first refusal to a license to any
patent rights arising out of the technology developed by SKCC using the Canji
materials. Canji further alleges that we wrongfully obtained rights in
intellectual property derived from SKCC's use of Canji's materials. As relief
against us, Canji seeks: a declaratory judgment that we are not entitled
to the intellectual property rights conveyed by SKCC to us, and that instead
those rights belong to Canji; the imposition of a constructive trust on the
patent rights granted to us; and injunctive relief to restore Canji to the
position it was in prior to the SKCC's grant of intellectual property rights to
us. We believe that Canji's allegations are without merit and intend to defend
the action. The SKCC IP is not material to our business.
We do not believe that the outcome of any present litigation, or all litigation
in the aggregate, other than our opposition of three European patents owned by
Canji discussed under "Factors Affecting Future Operating Results," will have a
significant effect on our business. You can read the discussion of our
opposition of the patents under "Factors Affecting Future Operating Results."
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
We closed our IPO on October 17, 2000, pursuant to a Registration Statement
on Form S-1 (File No. 333-30582), which was declared effective by the Securities
and Exchange Commission on October 11, 2000. In the IPO, we sold an aggregate of
4,000,000 shares of common stock at $8.00 per share (the underwriters'
over-allotment option of 600,000 shares of common stock was exercised on October
18, 2000, at $8.00 per share). The sale of the shares of common stock generated
aggregate net proceeds of approximately $32,225,000. We expect to use the net
proceeds from our IPO to conduct research and development, including clinical
trials, advance our process development and manufacturing capabilities, initiate
product marketing and commercialization programs, and for general corporate
purposes, including working capital. Pending these uses, the net proceeds of the
offering are invested in interest bearing, investment grade securities.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5: OTHER INFORMATION
On January 10, 2001, we announced the appointment of two new members to our
board of directors: Charles E. Long and Elise T. Wang. Ms. Wang succeeds
Francois Meyer, vice president of Aventis, who resigned from our board of
directors effective as of January 11, 2001. Ms. Wang is a Class I director and
Mr. Long is a Class II director.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
3.2 Amended and Restated Bylaws of Introgen
(supercedes and replaces Exhibits 3.2(a) and
3.2(b) filed with Introgen's Registration
Statement on Form S-1 (File No. 333-30582))
(b) Reports on Form 8-K
None.
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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.
INTROGEN THERAPEUTICS, INC.
Date: February 14, 2001 By: /s/ JAMES W. ALBRECHT, JR.
------------------------------------
James W. Albrecht, Jr.
Chief Financial Officer (Principal
Financial and Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.2 Amended and Restated Bylaws of Introgen (supercedes and replaces
Exhibits 3.2(a) and 3.2(b) filed with Introgen's Registration
Statement on Form S-1 (File No. 333-30582))