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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 EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ____________.
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COMMISSION FILE NUMBER: 000-21291
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INTROGEN THERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 74-2704230
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
301 CONGRESS AVENUE, SUITE 1850
AUSTIN, TEXAS 78701
(Address of principal executive offices, including 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 [ ]
As of September 30, 2002, the Registrant had 21,464,748 shares of its common
stock, $0.001 par value per share, issued and outstanding.
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INTROGEN THERAPEUTICS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
------- --------------------- --------
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets - as of
December 31, 2001 and September 30, 2002 (unaudited)...... 3
Condensed Consolidated Statements of Operations for
the Three and Nine Months Ended September 30, 2001 and
September 30, 2002 (unaudited)............................ 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2001 and
September 30, 2002 (unaudited)............................ 5
Notes to Condensed Consolidated Financial
Statements (unaudited).................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 20
PART II. OTHER INFORMATION
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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....... 21
Item 5. Other Information......................................... 21
Item 6. Exhibits and Reports on Form 8-K.......................... 21
SIGNATURES...................................................................... 23
CERTIFICATIONS.................................................................. 24
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PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
DECEMBER 31, SEPTEMBER 30,
2001 2002
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(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents ................................................. $ 37,397 $ 8,990
Short-term investments .................................................... 11,428 21,950
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Total cash, cash equivalents and short-term investments ............... 48,825 30,940
Accounts receivable ....................................................... 137 137
Other current assets ...................................................... 674 241
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Total current assets .................................................. 49,636 31,318
Property and equipment, net of accumulated depreciation
of $6,406 and $7,829, respectively ...................................... 10,443 9,123
Other assets ................................................................ 345 317
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Total assets .......................................................... $ 60,424 $ 40,758
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities .................................. $ 4,974 $ 5,558
Deferred revenue .......................................................... -- 88
Current portion of capital lease obligations and notes payable ............ 1,487 1,595
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Total current liabilities ............................................. 6,461 7,241
Capital lease obligations, net of current portion ........................... 957 319
Notes payable, net of current portion ....................................... 8,079 7,497
Deferred revenue, long-term ................................................. 362 555
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Total liabilities ..................................................... 15,859 15,612
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Commitments and contingencies
Stockholders' Equity:
Series A non-voting convertible preferred stock, $.001 par value,
100,000 shares authorized, 100,000
shares issued and outstanding ........................................... -- --
Common stock, $.001 par value; 50,000,000 shares
authorized, 21,446,363 and 21,464,748 shares issued
and outstanding, respectively ........................................... 21 21
Additional paid-in capital ................................................ 94,544 94,499
Deferred compensation ..................................................... (2,485) (1,363)
Accumulated deficit ....................................................... (47,515) (68,011)
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Total stockholders' equity ............................................ 44,565 25,146
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Total liabilities and stockholders' equity ............................ $ 60,424 $ 40,758
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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)
(in thousands, except share and per share amounts)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2001 2002 2001 2002
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Contract services, grant and other revenue ................. $ 15 $ 453 $ 308 $ 1,004
Costs and expenses:
Research and development ................................ 5,045 4,633 14,906 17,137
General and administrative .............................. 1,685 1,729 4,519 5,163
------------ ------------ ------------ ------------
Loss from operations .................................. (6,715) (5,909) (19,117) (21,296)
Interest income ............................................ 611 136 1,058 493
Interest expense ........................................... (236) (181) (705) (604)
Other income ............................................... 237 261 590 911
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Net loss .............................................. $ (6,103) $ (5,693) $ (18,174) $ (20,496)
============ ============ ============ ============
Net loss per share, basic and diluted ................. $ (0.28) $ (0.27) $ (0.85) $ (0.96)
============ ============ ============ ============
Shares used in computing basic and diluted net
loss per share ................................... 21,435,044 21,464,748 21,345,897 21,459,417
============ ============ ============ ============
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 CASH FLOWS
(UNAUDITED)
(in thousands)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2001 2002
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Cash flows from operating activities:
Net loss ................................................................. $ (18,174) $ (20,496)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation ............................................................. 1,793 1,423
Compensation related to issuance of stock options ........................ 1,246 1,067
Changes in assets and liabilities:
Decrease (increase) in accounts receivable ............................. 515 --
Decrease (increase) in inventory ....................................... 750 --
Decrease (increase) in other assets .................................... 392 461
Increase (decrease) in accounts payable and accrued liabilities ........ 1,673 584
Increase (decrease) in deferred revenue ................................ (698) 281
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Net cash used in operating activities ................................ (12,503) (16,680)
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Cash flows from investing activities:
Purchases of property and equipment .................................... (725) (103)
Purchases of short-term investments .................................... (42,453) (33,911)
Maturities of short-term investments ................................... 75,968 23,389
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Net cash provided by (used in) investing activities .................. 32,790 (10,625)
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Cash flows from financing activities:
Proceeds from sale of common stock ..................................... 57 10
Collection of preferred stock subscription ............................. 25,000 --
Proceeds from issuance of notes payable ................................ 1,332 --
Principal payments under capital lease obligations and notes
payable ............................................................. (772) (1,112)
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Net cash provided by (used in) financing activities .................. 25,617 (1,102)
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Net increase (decrease) in cash ............................................. 45,904 (28,407)
Cash, beginning of period ................................................... 4,699 37,397
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Cash, end of period ......................................................... $ 50,603 $ 8,990
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Supplemental disclosure of cash flow information:
Cash paid for interest ................................................... $ 870 $ 574
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Total cash, cash equivalents and short term investments .................. $ 48,825 $ 30,940
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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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
See the "Overview" section below in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of our business.
We have not generated any significant revenues from unaffiliated third
parties, nor is there any assurance of future product revenues. Our research and
development activities involve a high degree of risk and uncertainty. Our
ability to successfully develop, manufacture and market our 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 well as those factors set forth below under
"Factors Affecting Future Operating Results." As a result of the aforementioned
factors and the related uncertainties, there can be no assurance of our future
success.
2. BASIS OF PRESENTATION
The accompanying condensed, consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States 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 accounting entries considered
necessary for a fair presentation have been made in preparing these financial
statements. Operating results for the three and nine month periods ended
September 30, 2002, are not necessarily indicative of the results that may be
expected for the entire fiscal year. For further information, refer to the
consolidated financial statements and footnotes thereto as of December 31, 2001,
and for the six months then ended, included in our Transition Report on Form
10-K, as filed with the SEC on March 20, 2002; to the condensed, consolidated
financial statements as of March 31, 2002, and for the three months then ended
included in our Quarterly Report on Form 10-Q, as filed with the SEC on May 15,
2002; and to the condensed, consolidated financial statements as of June 30,
2002, and for the three and six months then ended, included in our Quarterly
Report on Form 10-Q, as filed with the SEC on August 14, 2002.
3. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Due to losses incurred in all periods presented,
the shares associated with stock options, warrants and non-voting convertible
preferred stock are not included because they are anti-dilutive.
4. INVESTMENT IN VIRRX, INC.
We have an ongoing agreement with VirRx, Inc. (VirRx) to purchase shares of
VirRx Series A Preferred Stock. We purchased $150,000 and $375,000 of this stock
for cash during the quarter and nine months ended September 30, 2002,
respectively. We have agreed to purchase an additional $150,000 of this stock
for cash on the first day of each quarter through January 1, 2006. VirRx is
required to use the proceeds from these stock sales in accordance with the terms
of a collaboration and license agreement between us and VirRx for the
development of VirRx's technologies. We may unilaterally terminate this
collaboration and license agreement with 90 days prior notice at any time after
March 7, 2003, which would also terminate the requirement for us to make any
additional stock purchases. Provided the collaboration and license agreement
remains in place, we will make additional milestone stock purchases, either for
cash or through the issuance of our common stock, upon the completion of Phase
I, Phase II and Phase III clinical trials involving technologies licensed under
this agreement and will make a $5.0 million cash milestone payment to VirRx, for
which we receive no VirRx stock, upon approval by the United States Food and
Drug Administration of a biologics license application involving these
technologies. To the extent we have already made cash milestone payments, we may
receive a credit of 50% of the Phase II clinical trial milestone payments and
25% of the Phase III clinical trial milestone payments against this $5.0 million
cash milestone payment. The additional milestone stock purchases and cash
payment are not anticipated to be required in the near future. We have an option
to purchase all outstanding shares of VirRx at any time until March 2007.
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ITEM 2. 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 Quarterly 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.
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 therapy products for the treatment of
cancer and other diseases. Our drug discovery and development programs have
resulted in innovative approaches by which physicians may use genes to treat
cancer and other diseases. Our lead product candidate, ADVEXIN(R) gene therapy,
combines the p53 gene, one of the most potent members of a group of naturally
occurring tumor suppressor genes, which act to protect cells from becoming
cancerous, with an adenoviral gene delivery system that we have developed and
extensively tested. We are conducting pivotal Phase III clinical trials of
ADVEXIN gene therapy in head and neck cancer. Pivotal Phase III trials are
typically the final trials required for FDA approval. We have completed a Phase
II clinical trial of ADVEXIN gene therapy in non-small cell lung cancer, a
category that includes approximately 80% of the various types of lung cancer. We
are also conducting a Phase II trial of ADVEXIN gene therapy in breast cancer.
Phase II trials are efficacy trials. We are conducting Phase I clinical trials,
or safety trials, of ADVEXIN gene therapy in other types of cancer. To date,
doctors at clinical sites in North America, Europe and Japan have treated
hundreds of patients with ADVEXIN gene therapy, establishing a large safety
database. We hold the worldwide rights for pre-clinical and clinical
development, manufacturing, marketing and commercialization of ADVEXIN gene
therapy.
We are developing additional gene therapy product candidates that we believe
may be effective in treating certain cancers, notably those product candidates
based on the mda-7 and PTEN genes. Our INGN 241 product candidate, which
combines the mda-7 gene with our gene delivery system, is undergoing safety and
efficacy testing in a clinical trial, with one of the objectives also being to
determine if this technology displays anti-tumor activity.
We are investigating other vector technologies for delivering gene-based
products into targeted cells. Through our strategic collaboration with VirRx,
Inc., we are developing replication-competent viral therapies in which viruses
bind directly to cancer cells, replicate in those cells, and cause those cancer
cells to die. We anticipate pursuing clinical confirmation as to whether this
self-amplifying delivery system can complement our existing adenoviral gene
delivery system, which is replication disabled, in selected therapeutic
scenarios.
Introgen places substantial emphasis on developing and maintaining a strong
intellectual property program. We own or exclusively control numerous patents
and pending patent applications in the United States and elsewhere that cover
ADVEXIN gene therapy in particular, adenoviral p53 in general, clinical
applications of adenoviral and other forms of p53, and adenoviral production.
Certain of our patents are licensed from The University of Texas System and from
Aventis Pharmaceuticals, Inc. The patents directed to clinical applications of
p53 broadly cover the use of p53 in combination with standard chemotherapy and
clinical therapy with adenoviral p53 in general. Our adenoviral production
patent position is of particular potential commercial importance in that it
covers most methods currently in use by Introgen and others for commercial scale
adenoviral production and purification processes. We have recently been
successful in having certain European patents held by our competitors revoked by
the European patent office, subject to appeal by the patent holder, and we are
pursuing similar proceedings with respect to an additional European patent. In
addition to our p53 intellectual property position, we also own or have
exclusively licensed rights in a number of other patents and applications
directed to the clinical application of various other tumor suppressor genes.
We own and operate a manufacturing facility that we believe complies with
the FDA's current Good Manufacturing Practices requirements, commonly known as
CGMP requirements. We produce ADVEXIN gene therapy in this facility for use in
our Phase I, II and III clinical studies and INGN 241 for use in our Phase I
clinical studies. The designs of the facility and the processes operated therein
have been reviewed with the FDA. Our work to validate our manufacturing
processes in accordance with FDA regulations is ongoing. We plan to use this
facility for our market launch of ADVEXIN gene therapy. We have produced over 20
batches of ADVEXIN gene therapy clinical material, including all clinical
material used in the Phase II and Phase III studies for this product candidate.
In addition, we have entered into agreements with third parties under which we
have provided process development and manufacturing services related to products
they are developing.
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The FDA recently placed a clinical hold on clinical trials of gene therapy
for the X-linked form of severe combined immune deficiency disease (SIDS), a
disease for which we are not developing products, after a participant in such a
trial being conducted in Europe developed what appeared to be a leukemia-like
illness about three years after receiving the gene therapy procedure. This
clinical hold is restricted to the use of a retroviral vector in these trials.
We do not use retroviral vectors in our ongoing clinical trials. Our products do
not use the gene used in the clinical trials placed on hold. We have received no
communications from the FDA to indicate this clinical hold will affect our
clinical trials, and we anticipate no future negative effects on us from this
event. Our pharmacovigilance department monitors every patient in our clinical
studies for safety and reports all side effects to the FDA and the National
Institutes of Health according to applicable regulations. We have witnessed no
adverse effects in our clinical trials that even remotely resemble what occurred
in the SIDS study. Due to the basic differences between retrovirus vectors and
the adenovirus vector employed in ADVEXIN gene therapy, we believe the
likelihood of our encountering an event such as that experienced in the SIDS
study is remote.
Since our inception in 1993, we have used our resources primarily to conduct
research and development activities for ADVEXIN gene therapy and, to a lesser
extent, for other product candidates. At September 30, 2002, we had an
accumulated deficit of approximately $68.0 million. We anticipate that we will
incur losses in the future that may be greater than losses incurred in prior
periods. At September 30, 2002, we had cash, cash equivalents and short-term
investments of $30.9 million. During the nine months ended September 30, 2002,
we used $16.7 million of cash for operating activities. While this cash usage
rate could increase in future periods as we continue our ADVEXIN gene therapy
Phase III clinical trials and our research and development of various other gene
therapy technologies, we are taking measures to reduce the amount of cash used
in our operating activities. Currently, we earn revenue from federal research
grants, contract services and process development activities, the lease of a
portion of our facilities to M. D. Anderson Cancer Center and interest income on
cash placed in short-term investments. We may raise additional funds through
public or private equity offerings, debt financings or additional corporate
collaboration and licensing arrangements. We do not know whether such additional
financing will be available when needed, or on terms favorable to us or our
stockholders.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Short-Term Investments. Our short-term investments are in short-term,
investment grade securities, which currently consist primarily of United States
federal government obligations. These investments are classified as
held-to-maturity and are carried at amortized cost. At any point in time,
amortized costs may be greater or less than fair value. If investments are sold
prior to maturity, we could incur a realized gain or loss based on the fair
market value of the investments at the date of sale. We could incur future
losses on investments if the investment issuer becomes impaired or the
investment is downgraded.
Research and Development Costs. In conducting our clinical trials of ADVEXIN
gene therapy and other product candidates, we procure services from numerous
third-party vendors. The cost of these services constitutes a significant
portion of the cost of these trials and of our research and development expenses
in general. These vendors do not necessarily provide us billings for their
services on a regular basis and, accordingly, are not a timely source of
information to determine the costs we have incurred relative to their services
for any given accounting period. As a result, we make significant accounting
estimates as to the amount of costs we have incurred relative to these vendors
in each accounting period. These estimates are based on numerous factors,
including, among others, costs set forth in our contracts with these vendors,
the period of time over which the vendor will render the services and the rate
of enrollment of patients in our clinical trials. Using these estimates, we
record expenses and accrued liabilities in each accounting period that we
believe fairly represent our obligations to these vendors. Actual results could
differ from these estimates, resulting in increases or decreases in the amount
of expense recorded and the related accrual.
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RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001
REVENUES
Contract Services, Grant and Other Revenue. We earn contract services
revenues from third parties under agreements to provide manufacturing process
development services and to produce products for them. We earn contract research
services revenue from Aventis, an Introgen stockholder, under an agreement
through which Aventis provides funding for the conduct of a Phase II clinical
trial of ADVEXIN gene therapy in breast cancer. We earn grant revenue under
research grants from U.S. Government agencies. Total contract services, grant
and other revenue was $453,000 for the quarter ended September 30, 2002,
compared to $15,000 for the quarter ended September 30, 2001, an increase of
2920%. This increase was primarily due to (1) our having multiple contract
manufacturing services agreements in place with Biogen, Inc. and other companies
during the quarter ended September 30, 2002, compared to there being
substantially no similar activity during the quarter ended September 30, 2001,
and (2) the quarter ended September 30, 2002 being the first quarter in which we
earned contract research services revenue from Aventis under their agreement to
provide funding for the conduct of a Phase II clinical trial of ADVEXIN gene
therapy in breast cancer.
COSTS AND EXPENSES
Research and Development. Research and development expenses, excluding
compensation related to the issuance of stock options of $98,000 in 2002 and
$115,000 in 2001, were $4.5 million for the quarter ended September 30, 2002,
compared to $4.9 million for the quarter ended September 30, 2001, a decrease of
8%. These expenses in 2001 included a one-time charge of approximately $1.0
million related to the restructuring of our collaborative relationship with
Aventis in June 2001, resulting in our assuming responsibility for conducting
and funding the Phase II and Phase III clinical trials for ADVEXIN gene therapy
subsequent to that date. Excluding this one-time charge, these expenses
increased 15% in the quarter ended September 30, 2002, compared to the quarter
ended September 30, 2001. This increase was a result of us being fully engaged
in our responsibility for the conduct and funding of the Phase II and Phase III
clinical trials of ADVEXIN gene therapy in the 2002 period, whereas we were
transitioning into this responsibility in the 2001 period as a result of
restructuring the Aventis collaboration agreements at that time.
General and Administrative. General and administrative expenses, excluding
compensation related to the issuance of stock options of $228,000 in 2002 and
$288,000 in 2001, were $1.5 million for the quarter ended September 30, 2002,
compared to $1.4 million for the quarter ended September 30, 2001, an increase
of 7%. This increase was primarily due to the higher level of administrative
support necessary to conduct the Phase II and Phase III clinical trials for
ADVEXIN gene therapy during the 2002 period.
Compensation Related to the Issuance of Stock Options. Compensation related
to the issuance of stock options was $326,000 for the quarter ended September
30, 2002, compared with $403,000 for the quarter ended September 30, 2001, a
decrease of 24%. This decrease was due to deferred compensation arising from the
issuance of certain stock options becoming fully amortized subsequent to
September 30, 2001. The amount of compensation expense to be recorded in future
periods may increase if additional options are issued at a price below the
market price of common stock at the date of grant or are issued to individuals
or entities other than employees or directors and may decrease if unvested
options for which deferred compensation has been recorded are subsequently
forfeited or as previously recorded deferred compensation becomes fully
amortized.
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME
Interest income was $136,000 for the quarter ended September 30, 2002,
compared with $611,000 for the quarter ended September 30, 2001, a decrease of
78%. This decrease was due to a decrease in interest rates between periods,
lower average cash and investment balances and our more conservative investment
philosophy subsequent to the events of September 11, 2001.
Interest expense was $181,000 for the quarter ended September 30, 2002,
compared with $236,000 for the quarter ended September 30, 2001, a decrease of
23%. This decrease was due to lower principal amounts upon which interest was
incurred in 2002 compared to 2001 as a result of continuing debt service
payments on notes payable and capital lease obligations.
Other income was $261,000 for the quarter ended September 30, 2002, compared
to $237,000 for the quarter ended September 30, 2001, an increase of 10%. This
increase was due to an increase in amounts paid to us by M. D. Anderson Cancer
Center for common area maintenance charges under its agreement to lease space
from us.
-9-
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
REVENUES
Contract Services, Grant and Other Revenue. We earn contract services
revenues from third parties under agreements to provide manufacturing process
development services and to produce products for them. We earn contract research
services revenue from Aventis under an agreement through which Aventis provides
funding for the conduct of a Phase II clinical trial of ADVEXIN gene therapy in
breast cancer. We earn grant revenue under research grants from U.S. Government
agencies. Contract services, grant and other revenue was $1.0 million for the
nine months ended September 30, 2002, compared to $308,000 for the nine months
ended September 30, 2001, an increase of 225%. This increase was primarily due
to (1) our having multiple contract manufacturing services agreements in place
with Biogen, Inc. and other companies in 2002, compared to limited activity in
2001, (2) the quarter ended September 30, 2002, being the first quarter in which
we earned contract research services revenue from Aventis under their agreement
to provide funding for the conduct of a Phase II clinical trial of ADVEXIN gene
therapy in breast cancer and (3) having in place a larger number of federal
grants in 2002 compared to 2001.
COSTS AND EXPENSES
Research and Development. Research and development expenses, excluding
compensation related to the issuance of stock options of $313,000 in 2002 and
$348,000 in 2001, were $16.8 million for the nine months ended September 30,
2002, compared to $14.6 million for the nine months ended September 30, 2001, an
increase of 15%. These expenses in 2001 included a one-time charge of
approximately $3.0 million related to the restructuring of our collaborative
relationship with Aventis in June 2001. Excluding this one-time charge, these
expenses increased 45% for the nine months ended September 30, 2002 compared to
the nine months period September 30, 2001. The increase in this expense was a
result of our being responsible for all expenses of the ADVEXIN clinical trials
throughout 2002, whereas we had this responsibility for only the portion of 2001
subsequent to the restructuring of the collaborative relationship with Aventis.
General and Administrative. General and administrative expenses, excluding
compensation related to the issuance of stock options of $754,000 in 2002 and
$863,000 in 2001, were $4.9 million for the nine months ended September 30,
2002, compared to $3.7 million for the nine months ended September 30, 2001, an
increase of 32%. This increase was due to the additional administrative costs
associated with conducting the Phase II and Phase III clinical trials for
ADVEXIN gene therapy as a result of the restructuring of our collaborative
relationship with Aventis.
Compensation Related to the Issuance of Stock Options. Compensation related
to the issuance of stock options was $1.1 million for the nine months ended
September 30, 2002, compared with $1.2 million for the nine months ended
September 30, 2001, a decrease of 8%. This decrease was due to deferred
compensation arising from the issuance of certain stock options becoming fully
amortized subsequent to June 30, 2001. The amount of compensation expense to be
recorded in future periods may increase if additional options are issued at a
price below the market price of common stock at the date of grant or are issued
to individuals or entities other than employees or directors and may decrease if
unvested options for which deferred compensation has been recorded are
subsequently forfeited or as previously recorded deferred compensation becomes
fully amortized.
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME
Interest income was $493,000 for the nine months ended September 30, 2002,
compared with $1.1 million for the nine months ended September 30, 2001, a
decrease of 55%. Interest income for 2001 is net of a $500,000 reduction to
recognize the decline in the market value of certain commercial paper held as an
investment. Excluding the effects of this reduction, our interest income
declined due to a decrease in interest rates between periods, lower average cash
and investment balances and our more conservative investment philosophy
subsequent to the events of September 11, 2001.
Interest expense was $604,000 for the nine months ended September 30, 2002,
compared with $705,000 for the nine months ended September 30, 2001, a decrease
of 14%. This decrease was a result of lower principal amounts upon which
interest was incurred in 2002 compared to 2001 as a result of continuing debt
service payments on notes payable and capital lease obligations.
Other income was $911,000 for the nine months ended September 30, 2002,
compared to $590,000 for the nine months ended September 30, 2001, an increase
of 54%. This increase in other income was due to our lease of space to M. D.
Anderson Cancer Center that was in place for all of the 2002 period but for only
a portion of the 2001 period.
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LIQUIDITY AND CAPITAL RESOURCES
We have incurred annual operating losses since our inception, and at
September 30, 2002, we had an accumulated deficit of $68.0 million. From
inception through September 30, 2002, we have financed our operations using
$49.7 million of collaborative research and development payments from Aventis,
$32.2 million of net proceeds from our initial public offering in October 2000,
$39.4 million of private equity sales to Aventis, $14.6 million of private
equity sales, net of offering costs, to others, $7.5 million of sales of ADVEXIN
gene therapy product to Aventis for use in later-stage clinical trials, $9.2
million in mortgage financing from banks for our facilities, $4.3 million in
leases from commercial leasing companies to acquire equipment pledged as
collateral for those leases and $6.2 million from contract services, grants,
interest and other income.
At September 30, 2002, we had cash and short-term investments of $30.9
million, compared with $48.8 million at December 31, 2001. This decrease was
primarily a result of the use of cash to fund our operations. For at least the
next two years, we expect to focus our activities primarily on conducting Phase
III clinical trials, conducting data analysis, preparing regulatory
documentation including FDA submissions and conducting pre-marketing activities
for ADVEXIN gene therapy. We also expect to continue our research and
development of various other gene therapy technologies. The majority of our
expenditures over this two-year period will most likely relate to the clinical
trials of ADVEXIN gene therapy. These activities may increase the rate at which
we use cash in the future as compared to the cash we used for operating
activities during the nine months ended September 30, 2002. We believe our
existing working capital can fund our operations for the next fifteen to
eighteen months, although unforeseen events could shorten that time period. We
are taking measures to reduce the amount of cash used in our operating
activities. Our existing resources may not be sufficient to support the
commercial introduction of any of our product candidates. We may raise
additional funds through public or private equity offerings, debt financings or
additional corporate collaboration and licensing arrangements. We do not know
whether such additional financing will be available when needed, or on terms
favorable to us or our stockholders.
Net cash used in operating activities was $16.7 million for the nine months
ended September 30, 2002, compared with $12.5 million for the nine months ended
September 30, 2001. In general, this increase in cash used was due to our having
responsibility for conducting the Phase II and Phase III clinical trials for
ADVEXIN gene therapy throughout 2002 whereas we did not have this responsibility
in 2001 until June of that year. Specifically, the increase in cash used was
primarily the result of a higher net loss in 2002 compared to 2001, after
considering adjustments for depreciation and compensation related to the
issuance of stock options, offset primarily by (1) a decrease in receivables and
inventory that was smaller in 2002 than in 2001 due to the primary activity in
these accounts in 2001 being related to the restructuring of the Aventis
collaboration in 2001, (2) an increase in accounts payable and accrued
liabilities that was smaller in 2002 than in 2001 because the 2001 increase
included $2.0 million related to expenses we agreed to pay Aventis in connection
with the restructuring of the Aventis collaboration in 2001, and (3) an increase
in deferred revenue in 2002 compared to a decrease in this amount in 2001 due to
(a) the deferral of the recognition of income under the lease of space to M. D.
Anderson Cancer Center, which was in effect for the entire 2002 period but for
only a portion of the 2001 period and (b) a decrease in deferred revenue in 2001
relating to the earning of revenue on sales of inventory to Aventis, an activity
that no longer exists due to the restructuring of the Aventis collaboration in
June 2001.
Net cash used in investing activities was $10.6 million for the nine months
ended September 30, 2002, compared to net cash provided by investing activities
of $32.8 million for the nine months ended September 30, 2001. The change in the
amounts of purchases and maturities of short-term investments for the nine
months ended September 30, 2002, as compared to the nine months ended September
30, 2001, was due to a significant portion of our investment activity in the
2001 period being in short-term investments, followed by a period subsequent to
September 11, 2001, during which we concentrated our investments in cash and
cash equivalents, which was then followed in the 2002 period by more investments
in short-term securities. The costs associated with purchases of property and
equipment declined in 2002 compared to 2001 because the 2001 period included
costs related to the completion of tenant improvements to the space leased to M.
D. Anderson Cancer Center, for which there were no similar costs in 2002. While
we have no obligations at this time to purchase significant amounts of
additional property or equipment, our needs may change. It may be necessary for
us to purchase larger amounts of property and equipment to support our clinical
programs and other research, development and manufacturing activities. We may
need to obtain debt or lease financing to facilitate such purchases. If that
financing is not available, we may need to use our existing resources to fund
those purchases, which could result in a reduction in the cash, cash equivalents
and short-term investments available to fund operating activities.
Net cash used in financing activities was $1.1 million for the nine months
ended September 30, 2002, and net cash provided by financing activities was
$25.6 million for the nine months ended September 30, 2001. This change between
periods is due to the 2001 period including the receipt of proceeds from (1) the
purchase of preferred stock by Aventis in connection with the restructuring of
our collaboration agreement with them and (2) a note payable used to finance
tenant improvements for the lease of space to M. D. Anderson Cancer Center,
whereas there were no similar events in 2002. Offsetting these items were higher
principal payments under
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notes payable and capital lease obligations in 2002 compared to 2001 due to debt
service payments on the note payable for tenant improvements being made for all
of 2002, but for only a portion of 2001, and a larger portion of debt service
payments on all mortgage notes and capital lease obligations applying to
principal as the principal balances under these obligations continue to be
amortized.
We have an ongoing agreement with VirRx, Inc. (VirRx) to purchase shares of
VirRx Series A Preferred Stock. We purchased $150,000 and $375,000 of this stock
for cash during the three and nine months ended September 30, 2002,
respectively. We have agreed to purchase an additional $150,000 of this stock
for cash on the first day of each quarter through January 1, 2006. VirRx is
required to use the proceeds from these stock sales in accordance with the terms
of a collaboration and license agreement between VirRx and us for the
development of VirRx's technologies. We may unilaterally terminate this
collaboration and license agreement with 90 days prior notice after March 7,
2003, which would also terminate our requirement to make any additional stock
purchases. Provided the collaboration and license agreement remains in place, we
will make additional milestone stock purchases, either for cash or through the
issuance of our common stock, upon the completion of Phase I, Phase II and Phase
III clinical trials involving technologies licensed under this agreement and we
will make a $5.0 million cash milestone payment to VirRx, for which we receive
no VirRx stock, upon FDA approval of a biologics license application involving
these technologies. To the extent we have already made cash milestone payments,
we may receive a credit of 50% of the Phase II clinical trial milestone payments
and 25% of the Phase III clinical trial milestone payments against this $5.0
million cash milestone payment. The additional milestone stock purchases and
cash payment are not anticipated to be required in the near future. We have an
option to purchase all outstanding shares of VirRx at any time until March 2007.
We have fixed debt service and lease payment obligations under notes payable
and capital leases for which the liability is reflected on our balance sheet. We
used the proceeds from these notes payable and leases to finance facilities and
equipment. Aggregate payments due under these obligations are as follows:
Total debt service payments and capital lease payments for the three months ending
December 31, 2002 ................................................................... $ 561,875
Total debt service and capital lease payments for the year ending December 31,
2003 ................................................................................ 2,173,312
2004 ................................................................................ 1,395,154
2005 ................................................................................ 1,267,569
2006 ................................................................................ 841,545
Thereafter ............................................................................ 9,670,332
------------
Total debt service and capital lease payments .......................................... 15,909,787
Less portion representing interest ................................................... (6,499,227)
------------
Total principal balance at September 30, 2002 .......................................... $ 9,410,560
============
Categories in which the principal balances are presented as of September 30, 2002:
Current portion of obligations under capital leases
and notes payable ................................................................. $ 1,595,161
Capital lease obligations, net of current portion .................................... 318,509
Notes payable, net of current portion ................................................ 7,496,890
------------
Total principal balance at September 30, 2002 .......................................... $ 9,410,560
============
We have a fixed rent obligation under a ground lease for the land on which
we built our facilities. Since this is an operating lease, there is no liability
reflected on our balance sheet for this item, which is in accordance with
generally accepted accounting principles. We make total annual rent payments of
approximately $136,188 under this lease which will continue until the expiration
of the initial term of this lease in September 2026. We have other operating
leases expiring in 2002 with significantly smaller rent payments that we also
account for as operating leases. Future annual rental payments due under all
operating leases are as follows:
Three months ending December 31, 2002 ............. $ 78,589
Year ending December 31,
2003 .......................................... 289,352
2004 .......................................... 294,152
2005 .......................................... 212,952
2006 .......................................... 152,952
Thereafter .................................... 2,898,050
------------
Total minimum lease payments under operating
Leases ........................................ $ 3,926,047
============
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In the normal course of business, we enter into various long-term agreements
with vendors to provide services to us. Some of these agreements require
up-front payment prior to services being rendered, some require periodic monthly
payments and some provide for the vendor to bill us for their services as they
are rendered. In substantially all cases, we may cancel these agreements at any
time with minimal or no penalty and pay the vendor only for services actually
rendered. Regardless of the timing of the payments under these agreements, we
record the expenses incurred in the periods in which the services are rendered.
We pay consulting fees of approximately $175,000 per annum to EJ Financial
Enterprises, Inc., a company owned by the Chairman of our Board of Directors and
which formerly employed one of our directors. EJ Financial Enterprises, Inc.
provides us guidance on strategic product development, business development and
marketing activities. We are obligated to continue paying this fee until we
terminate the services of that company at our option.
We have a consulting agreement with Jack A. Roth, M.D., Chairman of the
Department of Thoracic Surgery and Director of the Keck Center for Gene Therapy
at The University of Texas M. D. Anderson Cancer Center. Dr. Roth was the
primary inventor of the technology upon which our ADVEXIN gene therapy is based
and numerous other technologies we utilize. We licensed Dr. Roth's inventions
from M. D. Anderson Cancer Center. Dr. Roth is our Chief Medical Advisor and
chairman of our scientific advisory board. His duties involve the regular
interaction and consultation with our scientists and others on our behalf. As
compensation for his services and responsibilities, this consulting agreement
provides for payments to Dr. Roth totaling $181,500 from October 1, 2002 through
September 30, 2003, and $200,000 per annum through the end of its term on
September 30, 2009, with such future payments subject to adjustment for
inflation. We may terminate this agreement at our option upon one year's advance
notice. If we had terminated this agreement as of September 30, 2002, we would
have been obligated to make final payments totaling $181,500. Dr. Roth is one of
our stockholders.
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 type or other disease.
We are conducting Phase III clinical trials of our lead product candidate,
ADVEXIN(R) gene therapy, for the treatment of head and neck cancer, have
completed a Phase II clinical trial of ADVEXIN gene therapy for the treatment of
non-small cell lung cancer, are conducting a Phase II clinical trial of ADVEXIN
gene therapy for the treatment of breast cancer and are conducting several Phase
I trials of ADVEXIN gene therapy for other cancer types. Current or future
clinical trials may demonstrate that ADVEXIN gene therapy is neither safe nor
effective.
While we are conducting a Phase I/II 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 ADVEXIN gene therapy. We will need to continue
conducting significant research and animal testing, referred to as pre-clinical
testing, to support performing clinical trials for our other gene therapy
product candidates. It will take us many years to complete pre-clinical testing
and clinical trials, and failure could occur at any stage of testing. Current or
future trials may demonstrate that INGN 241 or other product candidates are
neither safe nor effective.
Any delays or difficulties we encounter in our pre-clinical research and
clinical trials, in particular the Phase III clinical trials of ADVEXIN gene
therapy for the treatment of head and neck cancer, may delay or preclude
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. Any delay or preclusion could also
delay or preclude the commercialization of ADVEXIN gene therapy or any other
product candidates. In addition, we or the FDA might delay or halt any of our
clinical trials of a product candidate at any time for various reasons,
including:
o the failure of the product candidate to be more effective than current
therapies;
o the presence of unforeseen adverse side effects of a product candidate,
including its delivery system;
-13-
o the longer than expected time required to determine whether or not a
product candidate is effective;
o the death of patients during a clinical trial, even though the product
candidate may not have caused those deaths;
o the failure to enroll a sufficient number of patients in our clinical
trials;
o the inability to produce sufficient quantities of a product candidate to
complete the trials; or
o the inability to commit the necessary resources to fund the clinical
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.
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 1993. As of
September 30, 2002, we had an accumulated deficit of approximately $68.0
million. We expect to incur substantial additional operating expenses and losses
over the next several years as our research, development, pre-clinical testing
and clinical trial activities increase. We have no products that have generated
any commercial revenue. Presently, we earn minimal revenue from contract
services activities, grants, interest income and rent from the lease of a
portion of our facilities to M. D. Anderson Cancer Center. Prior to December 31,
2000, we earned revenue from Aventis under collaborative agreements for research
and development and sales of ADVEXIN gene therapy for use in Aventis' clinical
trials, which are revenues we no longer receive. 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 commercial 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 operations over the
next fifteen to eighteen months with our current working capital, resulting
primarily from the net proceeds from our initial public offering in October
2000, the sale of Series A Non-Voting Convertible Preferred Stock to Aventis in
June 2001, income from contract services and research grants, debt financing of
equipment acquisitions, the lease of a portion of our facilities to M. D.
Anderson Cancer Center and interest on invested funds. 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 ADVEXIN gene therapy, INGN
241 or 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;
o higher than expected costs to develop our sales and marketing
capability; and
o slower than expected progress in reducing our operating costs.
We do not know whether additional financing will be available when needed,
or on terms favorable to us or our stockholders. We
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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 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, academic institutions and others. We have entered into
sponsored research and/or collaborative arrangements with several entities,
including M. D. Anderson Cancer Center, Imperial Cancer Research Technology
Limited, 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, 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 EFFECTIVE COLLABORATIVE MARKETING
RELATIONSHIPS, WE MAY BE UNABLE TO MARKET ADVEXIN GENE THERAPY SUCCESSFULLY OR
IN A COST EFFECTIVE MANNER.
To effectively market our products, we will need 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 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.
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, occurring in the field of gene
therapy may result in greater governmental regulation and negative public
perception of our product candidates, as well as potential regulatory delays
relating to the testing or approval of our product candidates. The FDA recently
placed a clinical hold on clinical trials of gene therapy for the X-linked form
of severe combined immune deficiency disease (SIDS), a disease for which we are
not developing products, after a participant in such a trial being conducted in
Europe developed what appeared to be a leukemia-like illness about three years
after receiving the gene therapy procedure. This clinical hold is restricted to
the use of a retroviral vector in these trials. We do not use retroviral vectors
in our ongoing clinical trials. Our products do not use the gene used in the
clinical trials placed on hold. We have received no communications from the FDA
to indicate this clinical hold will affect our clinical trials, and we
anticipate no future negative effects on us from this event. Our
pharmacovigilance department monitors every patient in our clinical studies for
safety and reports all side effects to the FDA and the National Institutes of
Health according to applicable regulations. We have witnessed no adverse effects
in our clinical trials that even remotely resemble what occurred in the SIDS
study. Due to the basic differences between retrovirus vectors and the
adenovirus vector employed in ADVEXIN gene therapy, we believe the likelihood of
our encountering an event such as that experienced in the SIDS study is remote.
The United States Senate has held hearings concerning the adequacy of
regulatory oversight of gene therapy clinical trials, as well as the adequacy of
research subject education and protection in clinical research in general, and
to determine whether additional legislation is required to protect healthy
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, has expanded its public role in evaluating
important public and ethical issues in gene therapy clinical trials.
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.
-15-
Following routine procedure, we report to the FDA and other regulatory
agencies serious adverse events that we believe may be reasonably related to our
gene therapy treatment. Such serious adverse events, whether treatment related
or not, could result in negative public perception of our gene therapy treatment
and require 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.
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 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 to 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 M. D. Anderson Cancer Center, we have obtained and are
currently seeking further patent protection for adenoviral p53, including
ADVEXIN gene therapy, and its use in cancer therapy. Further, the PTO issued us
a United States patent for our adenovirus production technology. We also
control, through licensing arrangements, three issued United States patents for
combination therapy involving the p53 gene and conventional chemotherapy or
radiation, one issued United States patent covering the use of adenoviral p53 in
cancer therapy and one issued United States patent covering adenoviral p53 as a
product. Our competitors may challenge the validity of one or more of our
combination therapy, our adenoviral process technology or our adenoviral p53
therapy and product patents 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 such interference proceedings regarding our
patents and none of our patents may give us a competitive advantage.
We have been notified by the European Patent Office, or EPO, that
Schering-Plough has filed an opposition against the issuance of our European
patent directed to combination therapy with p53 and conventional chemotherapy
and/or radiation. An opposition is an administrative proceeding instituted by a
third party and conducted by the EPO to determine whether a patent should be
maintained or revoked in part or in whole, based on evidence brought forth by
the party opposing the patent. We expect that the EPO will hold an initial oral
proceeding to determine whether the patent should be maintained in late 2003.
Resolution of this opposition will require that we expend time, effort and
money. If the party opposing the patent ultimately prevails in having our
European patent revoked in whole or in part then the scope of our protection for
our product in Europe will be reduced. We would not expect, however, such a
result to have a significant impact on our commercialization efforts in Europe.
-16-
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 to gene therapy, the treatment of cancer and the use of
the p53 and other tumor suppressor genes. Schering-Plough Corporation, including
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 are currently involved in opposing three European patents in proceedings
before the 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 a European patent directed
to the use of a tumor suppressor gene, the EPO revoked the European patent in
its entirety. Canji has appealed this revocation. In the second opposition,
involving a patent directed to therapeutic and other applications of the p53
gene that is owned by Johns Hopkins and, we understand, controlled by
Schering-Plough, the European Patent Office recently revoked the patent in its
entirety. The patent owner will have an opportunity to appeal this decision. In
a third case 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. 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
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,
Inc., Genvec, Inc., Vical Incorporated and Onyx Pharmaceuticals, Inc., which are
pursuing other forms of treatment for the diseases ADVEXIN gene therapy 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 that may prevent or limit our product
commercialization efforts.
Some of our competitors are established companies with greater financial and
other resources than ours. 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 non-competitive or result in treatments or cures
superior to any therapy developed by us.
EVEN IF WE RECEIVE REGULATORY APPROVAL TO MARKET ADVEXIN GENE THERAPY, 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 ADVEXIN gene
therapy, INGN 241 and our other product candidates.
-17-
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 market ADVEXIN gene therapy, INGN 241 and other product candidates
effectively.
IF WE ARE UNABLE TO MANUFACTURE OUR PRODUCTS IN SUFFICIENT QUANTITIES OR
OBTAIN REGULATORY APPROVALS FOR OUR MANUFACTURING FACILITY, OR IF OUR
MANUFACTURING PROCESS IS FOUND TO INFRINGE A VALID PATENTED PROCESS OF ANOTHER
COMPANY, THEN WE MAY BE UNABLE TO MEET DEMAND FOR OUR PRODUCTS AND LOSE
POTENTIAL REVENUES.
The completion of our clinical trials and commercialization of our product
candidates requires 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 ADVEXIN gene
therapy, INGN 241 and other product candidates for currently planned clinical
trials. This facility will be used for the initial commercial launch of ADVEXIN
gene therapy. We have no experience manufacturing ADVEXIN gene therapy, 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 produce our products 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 ADVEXIN gene
therapy, 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 ADVEXIN gene therapy, 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 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, record keeping 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 current manufacturing facilities have not yet been subject to an FDA or
other regulatory inspection. Failure to pass a pre-approval 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
ADVEXIN gene therapy or any other product candidates would be significantly
hampered, and we would incur delays in our pre-clinical testing, clinical trials
and commercialization efforts.
Canji controls a United States patent and corresponding international
applications, including a European counterpart, relating to the purification of
viral or adenoviral compositions. While we believe that our manufacturing
process does not infringe upon this patent, Canji could still assert a claim
against us. We may also become subject to infringement claims or litigation if
our manufacturing process infringes upon other patents. The defense and
prosecution of intellectual property suits and related legal and administrative
proceedings are costly and time-consuming to pursue, and their outcome is
uncertain.
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 ADVEXIN gene therapy, 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
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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 CellCubeTM 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 $5.0
million per occurrence with a $15.0 million aggregate limit. 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;
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.
-19-
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 pre-clinical 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.
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 or 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.
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-term investments in investment grade
securities, which currently consist primarily of United States federal
government obligations. 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.
At September 30, 2002, the fair value of our fixed-rate debt approximated
its carrying value based upon discounted future cash flows using current market
prices.
-20-
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are involved from time to time in legal proceedings in the ordinary
course of business. We do not believe the results of any of our present
litigation will have a material effect on our business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Pursuant to a stock purchase agreement with Aventis executed on June 30,
2001, we issued 100,000 shares of Series A Non-Voting Convertible Preferred
Stock to Aventis in exchange for $25.0 million, the payment for which was
received on July 2, 2001. We relied on Rule 506 promulgated under Section 4(2)
of the Securities Act of 1933, as amended, as the exemption from registration,
as the sale was to a single accredited investor. Under the terms of the
Certificate of Designations filed in connection with the sale, the Series A
Non-Voting Convertible Preferred Stock is convertible into 2,343,721 shares of
our common stock at any time upon either party's election. We expect to use the
proceeds from this sale for research and development, including clinical trials,
the advancement of our process development and manufacturing capabilities, the
initiation of product marketing and commercialization programs, and for general
corporate purposes, including working capital.
We closed our initial public offering of common stock on October 17, 2000,
pursuant to a Registration Statement on Form S-1, which was declared effective
by the Securities and Exchange Commission on October 11, 2000. This sale of the
shares of common stock generated aggregate net proceeds of approximately $32.2
million. From October 17, 2000 through September 30, 2002, and for the nine
months ended September 30, 2002, we used approximately $26.3 million and $17.9
million, respectively, of these net proceeds for operating, investing and
financing activities. Pending these uses, the remaining $5.9 million of net
proceeds of the initial public offering are invested in interest-bearing,
investment grade securities. Other than the payment of salary to our officers
and the reimbursement of certain out-of-pocket expenses of our directors, we
have not made any payments out of these proceeds to our directors or officers,
or any person owning ten percent or more of our equity securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Pursuant to Section 10A(i)(2) of the Securities Exchange Act of 1934, as
added by Section 202 of the Sarbanes-Oxley Act of 2002, we are responsible for
disclosing the approval of non-audit services approved by the audit committee of
our board of directors (the "Audit Committee") to be performed by Ernst & Young
LLP, our independent auditors. Non-audit services are defined as services other
than those provided in connection with an audit or a review of our financial
statements. Except as set forth below, the services approved by the Audit
Committee are each considered by the Audit Committee to be audit-related
services that are closely related to the financial audit process. Each of the
services was pre-approved by the Audit Committee.
The Audit Committee has also pre-approved additional engagements of Ernst &
Young for the non-audit services of preparation of state and federal tax
returns.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
99.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
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(b) REPORTS ON FORM 8-K
In connection with the resignation of Elise T. Wang from our Board of
Directors, we filed a Current Report on Form 8-K on August 23, 2002.
-22-
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: November 13, 2002 By: /s/ JAMES W. ALBRECHT, JR.
----------------------------------------
James W. Albrecht, Jr.
On behalf of the Registrant and as Chief
Financial Officer (Principal Financial
and Accounting Officer)
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CERTIFICATIONS
I, David G. Nance, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Introgen
Therapeutics, Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of Introgen as of, and for, the periods presented in this
Quarterly Report;
4. Introgen's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for Introgen and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to Introgen, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this Quarterly Report is being prepared;
b) evaluated the effectiveness of Introgen's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. Introgen's other certifying officer and I have disclosed, based on our
most recent evaluation, to Introgen's auditors and the audit committee
of Introgen's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Introgen's
ability to record, process, summarize and report financial
data and have identified for Introgen's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in Introgen's
internal controls; and
6. Introgen's other certifying officer and I have indicated in this
Quarterly Report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002 By: /s/ DAVID G. NANCE
-------------------------------
David G. Nance
Chief Executive Officer
-24-
I, James W. Albrecht, Jr., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Introgen
Therapeutics, Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of Introgen as of, and for, the periods presented in this
Quarterly Report;
4. Introgen's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for Introgen and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to Introgen, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this Quarterly Report is being prepared;
b) evaluated the effectiveness of Introgen's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. Introgen's other certifying officer and I have disclosed, based on our
most recent evaluation, to Introgen's auditors and the audit committee
of Introgen's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Introgen's
ability to record, process, summarize and report financial
data and have identified for Introgen's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in Introgen's
internal controls; and
6. Introgen's other certifying officer and I have indicated in this
Quarterly Report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002 By: /s/ JAMES W. ALBRECHT, JR.
-------------------------------
James W. Albrecht, Jr.
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
99.1 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-26-