10-Q 1 a29653.txt VION PHARMACEUTICALS SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-26534 VION PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) Delaware 13-3671221 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 4 Science Park New Haven, CT 06511 (Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (203) 498-4210 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the registrant's Common Stock as of May 8, 2001 was 26,176,637. PART I FINANCIAL INFORMATION ITEM 1. Financial Statements Vion Pharmaceuticals, Inc. (A Development Stage Company) Balance Sheet
March 31, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 7,741,718 $ 6,197,725 Short-term investments 12,706,193 18,159,759 ------------ ------------ Total cash, cash equivalents and short-term investments 20,447,911 24,357,484 Interest receivable 330,068 299,847 Accounts receivable 88,135 144,447 Other current assets 78,679 250,779 ------------ ------------ Total current assets 20,944,793 25,052,557 Property and equipment, net 695,792 577,277 Security deposits 29,910 29,910 ------------ ------------ Total assets $ 21,670,495 $ 25,659,744 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Obligation under capital leases - current $ 4,157 $ 6,181 Accounts payable and accrued expenses 2,664,626 2,996,862 ------------ ------------ Total current liabilities 2,668,783 3,003,043 ------------ ------------ Redeemable Preferred Stock: 5% convertible preferred stock Series 1998, $0.01 par value, authorized: 15,000 shares; issued and outstanding: none -- -- Shareholders' Equity: Preferred stock, $0.01 par value - 5,000,000 shares authorized consisting of: Class A convertible preferred stock, $0.01 par value, authorized: 3,500,000 shares; issued and outstanding: none -- -- Class B convertible preferred stock, $0.01 par value, authorized: 5,000 shares; issued and outstanding: none -- -- Class C convertible preferred stock, $0.01 par value, authorized: 25,000 shares; issued and outstanding: none -- -- Common stock, $0.01 par value, authorized: 35,000,000 shares; issued and outstanding: 26,176,637 and 26,167,642 shares at March 31, 2001 and December 31, 2000, respectively 261,766 261,676 Additional paid-in-capital 100,180,544 100,027,227 Accumulated other comprehensive income 37,629 120,000 Accumulated deficit (81,478,227) (77,752,202) ------------ ------------ 19,001,712 22,656,701 ------------ ------------ Total liabilities and shareholders' equity $ 21,670,495 $ 25,659,744 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements. Page 2 Vion Pharmaceuticals, Inc. (A Development Stage Company) Statement of Operations
For the Period from May 1, For the Three Months Ended 1994 (Inception) March 31, through ---------------------------- March 31, 2001 2000 2001 ----------- ----------- ---------------- (Unaudited) Unaudited) Revenues: Contract research grants $ 125,879 $ 151,462 $ 1,657,275 Technology license fees 18,600 40,278 4,252,599 Laboratory support services -- 6,463 116,912 Research support -- -- 5,498,153 ----------- ----------- ------------ Total revenues 144,479 198,203 11,524,939 ----------- ----------- ------------ Operating expenses: Research and development 2,428,954 2,010,670 46,748,978 Clinical trials 1,176,246 250,183 13,755,146 ----------- ----------- ------------ Total research and development 3,605,200 2,260,853 60,504,124 General and administrative 729,661 804,054 17,060,291 ----------- ----------- ------------ Total operating expenses 4,334,861 3,064,907 77,564,415 ----------- ----------- ------------ Interest income (464,458) (151,846) (3,513,066) Interest expense 101 4,946 207,994 ----------- ----------- ------------ Net loss (3,726,025) (2,719,804) (62,734,404) Preferred stock dividends and accretion -- (358,178) (18,488,687) ----------- ----------- ------------ Loss applicable to common shareholders $(3,726,025) $(3,077,982) $(81,223,091) ----------- ----------- ------------ ----------- ----------- ------------ Basic and diluted loss applicable to common shareholders per share $ (0.14) $ (0.16) ----------- ----------- ----------- ----------- Weighted-average number of shares of common stock outstanding 26,176,637 19,739,294 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. Page 3 Vion Pharmaceuticals, Inc. (A Development Stage Company) Statement of Changes in Shareholders' Equity
Class A Convertible Preferred Stock Common Stock Additional ----------------- -------------------- Treasury Paid-in Shares Amount Shares Amount Stock Capital -------- ------- ---------- -------- -------- ------------ Balance at December 31, 1998 616,656 $ 6,167 13,953,046 $139,530 $ -- $ 52,024,648 Conversion of Class A convertible preferred stock (144,612) (1,446) 401,707 4,018 (2,572) Class A convertible preferred stock dividend 26,150 261 384,738 Series 1998 convertible preferred stock accretion Common stock issued in exchange for cancellation of outstanding warrants 102 1 473 Exercise of stock options 470,886 4,709 (196,159) 650,028 Retirement of treasury stock (35,659) (357) 196,159 Exercise of warrants 26,296 263 (263) Issuance of common stock 3,425,741 34,257 14,955,131 Amortization of deferred compensation Net loss -------- ------- ---------- -------- -------- ------------ Balance at December 31, 1999 498,194 $ 4,982 18,242,119 $182,421 $ -- $ 68,012,183 -------- ------- ---------- -------- -------- ------------ Conversion of Class A convertible preferred stock (502,928) (5,029) 1,397,035 13,970 (8,941) Redemption of Class A convertible preferred stock (545) (5) (5,445) Class A convertible preferred stock dividend 5,279 52 247,482 Series 1998 convertible preferred stock accretion Conversion of Series 1998 convertible preferred stock 1,507,024 15,070 5,522,395 Exercise of stock options 650,409 6,504 2,868,558 Exercise of warrants 4,371,055 43,711 23,270,995 Compensation associated with stock options 120,000 Amortization of deferred compensation Change in net unrealized gains and losses Net loss -------- ------- ---------- -------- -------- ------------ Balance at December 31, 2000 -- $ -- 26,167,642 $261,676 $ -- $100,027,227 -------- ------- ---------- -------- -------- ------------ Exercise of stock options 8,500 85 42,634 Exercise of warrants 495 5 (5) Compensation associated with stock options 110,688 Change in net unrealized gains and losses Net loss -------- ------- ---------- -------- -------- ------------ Balance at March 31, 2001 (unaudited) -- $ -- 26,176,637 $261,766 $ -- $100,180,544 -------- ------- ---------- -------- -------- ------------ -------- ------- ---------- -------- -------- ------------
Accumulated Other Total Deferred Comprehensive Accumulated Shareholders' Compensation Income Deficit Equity ------------ ------------- ------------ ------------- Balance at December 31, 1998 $(37,496) $ -- $(50,628,641) $ 1,504,208 Conversion of Class A convertible preferred stock -- Class A convertible preferred stock dividend (384,999) -- Series 1998 convertible preferred stock accretion (324,782) (324,782) Common stock issued in exchange for cancellation of outstanding warrants 474 Exercise of stock options (40,310) 418,268 Retirement of treasury stock (195,802) -- Exercise of warrants -- Issuance of common stock 14,989,388 Amortization of deferred compensation 34,632 34,632 Net loss (10,768,924) (10,768,924) -------- -------- ------------ ------------ Balance at December 31, 1999 $ (2,864) $ -- $(62,343,458) $ 5,853,264 -------- -------- ------------ ------------ Conversion of Class A convertible preferred stock -- Redemption of Class A convertible preferred stock (5,450) Class A convertible preferred stock dividend (247,534) -- Series 1998 convertible preferred stock accretion (358,178) (358,178) Conversion of Series 1998 convertible preferred stock 5,537,465 Exercise of stock options 2,875,062 Exercise of warrants 23,314,706 Compensation associated with stock options 120,000 Amortization of deferred compensation 2,864 2,864 Change in net unrealized gains and losses 120,000 120,000 Net loss (14,803,032) (14,803,032) -------- -------- ------------ ------------ Balance at December 31, 2000 $ -- $120,000 $(77,752,202) $ 22,656,701 -------- -------- ------------ ------------ Exercise of stock options 42,719 Exercise of warrants -- Compensation associated with stock options 110,688 Change in net unrealized gains and losses (82,371) (82,371) Net loss (3,726,025) (3,726,025) -------- -------- ------------ ------------ Balance at March 31, 2001 (unaudited) $ -- $ 37,629 $(81,478,227) $ 19,001,712 -------- -------- ------------ ------------ -------- -------- ------------ ------------
The accompanying notes are an integral part of these financial statements. Page 4 Vion Pharmaceuticals, Inc. (A Development Stage Company) Statement of Cash Flows
For the Period From May 1, For the Three Months Ended 1994 (Inception) March 31, through -------------------------- March 31, 2001 2000 2001 ----------- ----------- ---------------- (Unaudited) (Unaudited) Cash flows from operating activities: Net loss $(3,726,025) $(2,719,804) $(62,734,404) Adjustments to reconcile net loss to net cash used in operating activities- Purchased research and development -- -- 4,481,405 Amortization of financing costs -- -- 345,439 Depreciation and amortization 76,195 101,187 1,974,029 Decrease (increase) in receivables and other current assets 198,191 1,043,271 (495,896) Decrease (increase) in other assets -- 1,115 (28,195) (Decrease) increase in accounts payable and accrued expenses (332,236) (1,629,114) 2,630,094 Extension/reissuance of placement agent warrants -- -- 168,249 Stock issued for services -- -- 600,417 Non-cash compensation 110,688 2,864 1,067,990 ----------- ----------- ------------ Net cash used in operating activities (3,673,187) (3,200,481) (51,990,872) ----------- ----------- ------------ Cash flows from investing activities: Purchases of marketable securities (1,015,458) -- (64,021,944) Maturities of marketable securities 6,386,653 -- 51,353,380 Acquisition of fixed assets (194,710) (127,058) (1,725,388) ----------- ----------- ------------ Net cash provided by (used in) investing activities 5,176,485 (127,058) (14,393,952) ----------- ----------- ------------ Cash flows from financing activities: Initial public offering -- -- 9,696,210 Net proceeds from issuance of common stock 42,719 1,406,790 21,609,477 Net proceeds from issuance of preferred stock -- -- 20,716,288 Net proceeds from exercise of Class A Warrants -- 5,243,926 5,675,480 Net proceeds from exercise of Class B Warrants -- 3,763,050 17,538,084 Net proceeds from exercise of placement agent warrants -- 101,142 101,142 Repayment of equipment capital leases (2,024) (48,071) (923,619) Other financing activities, net -- -- (286,520) ----------- ----------- ------------ Net cash provided by financing activities 40,695 10,466,837 74,126,542 ----------- ----------- ------------ Increase in cash and cash equivalents 1,543,993 7,139,298 7,741,718 Cash and cash equivalents, beginning of period 6,197,725 11,105,262 -- ----------- ----------- ------------ Cash and cash equivalents, end of period $ 7,741,718 $18,244,560 $ 7,741,718 ----------- ----------- ------------ ----------- ----------- ------------
The accompanying notes are an integral part of these financial statements. Page 5 Vion Pharmaceuticals, Inc. (A Development Stage Company) Notes to Financial Statements 1. The Company Vion Pharmaceuticals, Inc. (the "Company") is a development stage biopharmaceutical company engaged in the research, development and commercialization of cancer treatment technologies. The Company, formerly OncoRx, Inc., was incorporated in May 1993 and began operations on May 1, 1994. 2. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report for the fiscal year ended December 31, 2000 on Form 10-K (File No. 0-26534). 3. Shareholders' Equity Redemption of Class A Warrants On February 11, 2000, the Company notified holders of its outstanding Class A Warrants of its intention to redeem the warrants on March 13, 2000 (the "Redemption Date"). The Class A Warrants entitled the holder to purchase one share of common stock and one Class B Warrant for an exercise price of $4.63. As of the Redemption Date, the Company had received net proceeds of $5.2 million from the exercise of 1.2 million Class A Warrants. Subsequently, the Company received net proceeds of $0.6 million from the exercise of 0.1 million Class A Warrants as a result of the exercises of Unit Purchase Options. Redemption of Class B Warrants From January 1 through March 13, 2000, the day the Company redeemed the Class A Warrants, the Company received net proceeds of $3.8 million from the voluntary exercise of 0.6 million Class B Warrants. On March 27, 2000, the Company notified registered holders of its outstanding Class B Warrants of its intention to redeem the warrants on April 27, 2000. The Page 6 Class B Warrants entitled the holder to purchase one share of common stock at an exercise price of $6.23. In addition to the 0.6 million Class B Warrants previously discussed, 0.1 million Class B Warrants were exercised from March 14 through March 31, 2000, resulting in net proceeds to the Company of $0.8 million. Mandatory Conversion of 5% Redeemable Convertible Preferred Stock Series 1998 The Company's common stock traded above $7.20 for a period of 20 consecutive trading days ending on February 7, 2000, and in accordance with the terms of the 5% Redeemable Convertible Preferred Stock Series 1998, all of the outstanding preferred shares having a redemption value of $5.4 million were automatically converted into 1,507,024 shares of common stock at the $3.60 conversion price, effective February 22, 2000. 4. Research Grants In 1998 and 1999, the Company was awarded Small Business Innovation Research ("SBIR") grants from the National Cancer Institute for the Reduced Toxicity of Tumor-Targeted Salmonella and the Inhibitors of Ribonucleotide Reductase programs. The grants allowed reimbursement of direct costs of up to $848,329. For the three-month period ended March 31, 2000, revenues of $64,035 have been recognized as the costs were incurred. These grants expired in 2000. In January 2000, the Company received a two-year SBIR grant from the National Institutes of Health/National Cancer Institute for TAPET'r' research. The grant allows reimbursement of direct costs of up to $750,000 and expires December 31, 2001. For the three-month periods ended March 31, 2001 and 2000, revenues of $125,879 and $87,427, respectively, have been recognized as the costs were incurred. 5. Research Support Cooperative Research and Development Agreement On April 1, 2000, the Company entered into a Cooperative Research and Development Agreement ("CRADA") with the National Institutes of Health, National Cancer Institute, Division of Clinical Sciences, Surgery Branch for "Development of TAPET-Based Immunotherapies Targeted Against Cancer". Under the terms of the CRADA, the Surgery Branch provides materials and supplies to research and development projects using CRADA funds, personnel and "in kind" resources supplied by the Company. The Company will contribute $350,000 per year for a period of five years, payable quarterly. For the three-month period ended March 31, 2001, $87,500 has been recorded as research and development expense under this agreement. Page 7 Research Gift During the first quarter of 2001, the Company provided a gift to Yale University of $200,000, payable in four equal quarterly installments beginning April 1, 2001. In accordance with Statement of Financial Accounting Standards No. 116, Accounting for Contributions Received and Contributions Made, the Company recorded the total amount of the gift as research and development expense in the first quarter of 2001. 6. Comprehensive Loss Comprehensive loss has been calculated in accordance with Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. The Company has determined total comprehensive loss to be $3.8 million, $2.7 million and $62.8 million for the three-month periods ended March 31, 2001 and 2000, and for the period from May 1, 1994 (inception) through March 31, 2001, respectively. The Company's total comprehensive loss represents net loss plus the change in net unrealized gains and losses for the periods presented. 7. Per Share Data The following table sets forth the computation of basic and diluted loss applicable to common shareholders per share (in thousands, except per share amounts):
Three Months Ended March 31, ----------------------- 2001 2000 ------- ------- Numerator: Net loss $(3,726) $(2,720) Preferred stock dividends and accretion -- (358) ------- ------- Numerator for basic and diluted loss applicable to common shareholders per share (3,726) (3,078) Denominator: Weighted-average number of shares of common stock outstanding 26,177 19,739 ------- ------- Basic and diluted loss applicable to common shareholders per share $ (0.14) $ (0.16) ------- ------- ------- -------
The warrants, stock options and preferred stock were not included in the calculation of the diluted loss applicable to common shareholders per share as the effect would be antidilutive. Page 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations All statements other than statements of historical fact included in this Form 10-Q, including without limitation statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations," regarding our financial position, business strategy, and plans and objectives of our management for future operations, are forward-looking statements. When used in this Form 10-Q, words such as "may," "will," "should," "could," "potential," "seek," "project," "predict," "anticipate," "believe," "estimate," "expect," "intend," and similar expressions, as they relate to us or our management, identify forward-looking statements. Forward-looking statements are based on the beliefs of the our management as well as assumptions made by and information currently available to our management. These statements are subject to risks and uncertainties that could cause actual results and events to differ significantly. Overview We are a development stage biopharmaceutical company committed to the discovery, development and commercialization of therapeutics and technologies for the treatment of cancer. Our activities to date have consisted primarily of research and product development, obtaining regulatory approval for clinical trials, conducting clinical trials, negotiating and obtaining collaborative agreements, and obtaining financing in support of these activities. Our revenues consist of contract research grants, technology license fees and reimbursements for research expenses. We have generated minimal revenues and have incurred substantial operating losses from our activities. Our plan of operations for the next 12 months includes the following elements: o Continue to conduct internal research and development with respect to our core technologies and other product candidates that we may identify; o Conduct Phase I clinical "optimization" TAPET'r' studies of the "unarmed base vector" for further safety and "optimized" selective accumulation of bacteria in the tumor; o Conduct Phase I clinical studies of the "armed" TAPET vector for safety and selective accumulation of the bacteria and the anticancer agent within tumors; o Conduct Phase I combination studies for safety and dosage of Triapine'r'in conjunction with standard chemotherapy treatments; o Conduct Phase II clinical studies of Triapine as a single agent; o Conduct Phase I clinical studies of VNP40101M, a member of the Sulfonyl Hydrazine Prodrug class, for safety and dosage; Page 9 o Continue to support research and development being performed at Yale University and by other collaborators; and o Continue to seek collaborative partnerships, joint ventures, co-promotional agreements or other arrangements with third parties. Results of Operations Comparison of the Three-Month Periods Ended March 31, 2001 and 2000 Revenues. Revenues decreased to $0.1 million for the three months ended March 31, 2001, from $0.2 million for the comparable 2000 period. The change was due primarily to lower revenues recorded under contract research grants and technology license agreements. Research and Development. Total research and development expenses were $3.6 million for the three-month period ended March 31, 2001, compared with $2.3 million for the same 2000 period. The increase of $1.3 million was attributable to higher clinical trials expenses of $0.9 million and other research and development costs of $0.4 million. The increase in clinical trials expenses was due to patient accumulation and drug production costs for clinical trials of TAPET and Triapine. Other research and development expenses increased by $0.4 million due primarily to research support related to a gift to Yale University and a cooperative research and development agreement with the National Cancer Institute. We expect research, development and clinical trials expenses to increase in the future. General and Administrative. General and administrative expenses decreased to $0.7 million for the three-month period ended March 31, 2001 from $0.8 million for the comparable 2000 period. The decrease was primarily due to lower bonus expense partially offset by higher legal and other professional fees. Interest Income and Expense. Interest income increased to $0.5 million for the three-month period ended March 31, 2001, as compared to $0.2 million for the same period in 2000. The increase reflects a higher level of invested funds as a result of net proceeds to the Company from option and warrant exercises. Interest expense decreased to $101 for the first quarter of 2001 from $4,946 for the comparable 2000 quarter. Preferred Stock Dividends and Accretion. No preferred stock dividends and accretion were reported for the three-month period ended March 31, 2001, compared to $0.4 million for the three-month period ended March 31, 2000. All outstanding shares of preferred stock were redeemed or converted into common stock during 2000, which resulted in the elimination of non-cash dividends and accretion of the 5% Redeemable Convertible Preferred Stock Series 1998 dividends. Loss Applicable to Common Shareholders. The loss applicable to common shareholders increased to $3.7 million, or $0.14 per share, for the three-month period ended March 31, 2001, Page 10 from $3.1 million, or $0.16 per share, for the same period in 2000, based on a weighted average number of shares outstanding of 26.2 million and 19.7 million, respectively. Liquidity and Capital Resources At March 31, 2001, we had cash, cash equivalents and short-term investments of $20.4 million compared to $24.4 million at December 31, 2000. The decrease in the first quarter of 2001 was due primarily to net cash used in operating activities of $3.7 million. We currently estimate that our existing cash, cash equivalents and short-term investments will be sufficient to fund our planned operations through the first quarter of 2002. As of March 31, 2001, we estimate that the amount required to fund all operations net of any cash inflows for the next twelve months is $18.4 million. However, our cash requirements may vary materially from those now planned because of the results of research and development, clinical trials, results of product testing, relationships with strategic partners, changes in focus and direction of our research and development programs, competitive and technological advances, the regulatory process in the United States and abroad, and other factors. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk For information regarding our exposure to certain market risks, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended December 31, 2000. There have been no significant changes in our market risk exposure since the year-end. Page 11 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. None. (b) Reports on Form 8-K. The Registrant filed the following reports on Form 8-K during the quarter ended March 31, 2001: 1. On January 11, 2001, under Item 5 and Item 7 to announce the status of Phase I trials of TAPET, the Company's drug delivery platform, and Triapine, an anticancer cell therapeutic. 2. On February 21, 2001, under Item 5 and Item 7 to announce that the Company expected to initiate Phase I clinical trials of the lead candidate, VNP40101M, from its Sulfonyl Hydrazine Prodrug family in approximately 2 months. 3. On February 23, 2001, under Item 5 and Item 7 to announce the Company's 2000 year-end and fourth quarter financial results. 4. On February 27, 2001, under Item 5 and Item 7 to announce the issuance of U.S. Patent No. 6,190,657 from the U.S. Patent and Trademark Office entitled "Vectors for the Diagnosis and Treatment of Solid Tumors Including Melanoma." 5. On March 20, 2001, under Item 5 and Item 7 to announce that AstraZeneca had elected not to exercise a second option agreement with the Vion-EPTTCO Limited collaboration for TAPET-CPG2. All other items of this report are inapplicable. Page 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: May 14, 2001 Vion Pharmaceuticals, Inc. By: /s/ ALAN KESSMAN ------------------------------------------ Alan Kessman President and Chief Executive Officer By: /s/ KAREN SCHMEDLIN ------------------------------------------ Karen Schmedlin Controller and Principal Financial Officer STATEMENT OF DIFFERENCES The registered trademark symbol shall be expressed as....................'r' Page 13