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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO 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 (I.R.S. Employer Identification No.)
organization)
4 Science Park
New Haven, Connecticut 06511
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 498-4210
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock, $0.01 par value (together with associated
Common Stock Purchase Rights)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of the
registrant as of March 1, 2001 was $134,439,272 based on the last sale price for
the common stock on that date.
The number of shares outstanding of the registrant's common stock as of March
22, 2001 was 26,176,637.
TABLE OF CONTENTS
FORM 10-K
Item Page
- ---- ----
PART I
1. Business.............................................................. 2
2. Properties .......................................................... 16
3. Legal Proceedings.................................................... 16
4. Submission of Matters to a Vote of Security Holders ................. 16
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................... 17
6. Selected Financial Data ............................................. 18
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 18
7A. Quantitative and Qualitative Disclosures About Market Risk........... 23
8. Financial Statements and Supplementary Data.......................... 24
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 46
PART III
10. Directors and Executive Officers of the Registrant.................. 47
11. Executive Compensation.............................................. 50
12. Security Ownership of Certain Beneficial Owners and Management...... 55
13. Certain Relationships and Related Transactions...................... 56
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...... 56
All statements other than statements of historical fact included in
this Annual Report, including without limitation statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business," regarding the Company's financial position, business strategy, and
plans and objectives of management of the Company for future operations, are
forward-looking statements. When used in this Annual Report, words such as
"may," "will," "should," "could," "potential," "seek," "project," "predict,"
"anticipate," "believe," "estimate," "expect," "intend," and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Forward-looking statements are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. These statements
are subject to risks and uncertainties that could cause actual results and
events to differ significantly.
PART I
ITEM 1: Business
General
We are a biopharmaceutical company engaged in research, development and
commercialization of therapeutics and technologies for the treatment of cancer.
Our product portfolio consists of one drug delivery platform and two distinct
small molecule anticancer agents.
o TAPET'r' (Tumor Amplified Protein Expression Therapy), our
drug delivery system using live Salmonella bacteria, is
designed to deliver cancer-fighting drugs preferentially to
solid tumors, and is currently being evaluated in Phase I
human safety trials.
o Triapine'r' prevents the replication of tumor cells by
blocking a critical step in the synthesis of DNA. Triapine
is currently being evaluated for its safety in Phase I
single agent trials. Triapine is expected to enter single
agent Phase II and combination clinical studies in the first
half of 2001.
o Sulfonyl Hydrazine Prodrugs are unique, potent alkylating
agents that are currently being evaluated in preclinical
studies. The lead candidate is slated to begin clinical
development in the first half of 2001.
Our product development strategy consists of two main approaches.
First, we engage in product development with respect to anticancer technologies
through in-house research and through collaboration with academic institutions.
Second, depending on the drug market conditions and required resources, we
determine the best method and/or partnership to develop, and eventually market,
our products. Our current research and development programs are based on
technologies that we license from Yale University.
Overview of Cancer
Cancer is the second leading cause of death in the United States,
exceeded only by heart disease. Since 1990, nearly five million Americans have
died from cancer. It is a devastating disease with tremendous unmet medical
needs. The American Cancer Society estimates that more than 1.2 million new
cases of cancer will be diagnosed in the United States in this year and 552,200
Americans are expected to die from cancer in 2001. Current statistics suggest
that approximately 30% of Americans will develop cancer in their lifetime and
roughly two-thirds of new cases of cancer are expected to result in death
within five years.
Cancer is characterized by uncontrolled cell division resulting in the
development of a mass of cells, commonly known as a tumor, as well as the
invasion and spreading of these cells. Cancerous tumors can arise in any
tissue or organ within the human body. Cancer is believed to occur as a
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result of a number of factors, such as genetic predisposition, chemical agents,
viruses and irradiation. These factors result in genetic changes affecting the
ability of cells to normally regulate their growth and differentiation. When a
normal cell becomes cancerous, it can spread to various sites in the body.
Common Treatment Methods
The three most common methods of treating patients with cancer are
surgery, radiation therapy and chemotherapy. A cancer patient often receives a
combination of these methods. Surgery and radiation therapy are particularly
effective in patients where the disease is localized and has not yet spread to
other tissues or organs. Surgery involves the removal of the tumor and adjacent
tissue. In many cases where the cancer cells have not yet spread, surgery cannot
be performed because of the inaccessible location of the tumor or the danger of
removing too much normal tissue along with the cancerous tissue.
Radiation therapy involves the exposure of the tumor and surrounding
tissue to ionizing radiation. The objective of radiation therapy is to kill the
cancer cells with ionized molecules that are created in the parts of the body
exposed to the ionizing radiation. Radiation, however, also kills or damages
normal cells. Radiation therapy can have varying levels of effectiveness, and
can cause patient weakness, loss of appetite, nausea and vomiting. Radiation can
also result in loss of normal body functions, which may include bone marrow
depression, gastrointestinal complications, kidney damage and damage to the
peripheral nervous system. In some cases, radiation-induced mutations in bone
marrow cells can lead to new secondary cancers, such as leukemia, years after
treatment for other forms of cancer.
Chemotherapy is the principal approach used for tumors that have
spread. Chemotherapy seeks to interfere with the molecular and cellular
processes that control the development, growth and survival of malignant tumor
cells. Chemotherapy involves the administration of drugs designed to kill cancer
cells or the administration of hormone analogs to either reduce the production
of, or block the action of, certain hormones that affect the growth of various
tumors. Chemotherapy, however, can also result in loss of normal body functions
and can result in patient weakness, loss of appetite, nausea and vomiting. In
many cases, chemotherapy consists of the administration of several different
drugs in combination.
Recent Advances
In recent years, there have been significant advances in molecular
biology, immunology and other related fields of biotechnology that have led to a
better understanding of how malfunctioning genes can result in the formation of
tumors. It is anticipated that these advances will lead to better ways to
diagnose cancer and to prevent tumors from forming or becoming malignant. Other
research has focused on mechanisms to efficiently deliver therapies to tumors.
Ultimately, these emerging technologies may lead to genetic-based therapies
aimed specifically at the genes that have malfunctioned and caused the cancer to
form or spread, and to therapies that can selectively deliver agents to tumors
that prevent the abnormal growth of cells.
Most current anticancer drugs, when introduced into the system by
current delivery methods, affect rapidly growing cells, both cancerous and
normal, throughout the body. The result is often significant side effects that
take a toll on a patient's health and can limit the amount of treatment a
patient may receive. Therefore, a great need exists for new therapies and
delivery strategies that
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preferentially deliver anticancer agents to tumors while having minimal effects
on healthy, normal tissues.
We believe that, for the foreseeable future, the principal means of
combating cancer will continue to be through the surgical removal of tumors and
the destruction of malignant cells through radiation therapy and chemotherapy,
delivered systemically or in ways that make anticancer agents preferentially
more toxic to tumors. Therefore, we intend to take a balanced approach in our
research and development efforts. We will continue to develop chemically defined
small molecules based upon unique cellular targets discovered through
biotechnology, while also pursuing development of technologies to deliver
therapeutic agents to tumors.
Our Product Development Program
We are currently developing several products for the treatment of
cancer. The discussion below sets forth the development status of our core
product candidates as of December 31, 2000. 'Preclinical' indicates that the
product candidate selected for development has met predetermined criteria for
potency, specificity, manufacturability and pharmacologic activity in vitro, or
cell culture, and in vivo, or animal, models. Clinical evaluation involves a
three-phase process. 'Phase I' indicates safety and proof-of-concept testing in
a limited patient population. 'Phase II' indicates safety, dosing and efficacy
testing in a limited patient population. 'Phase III' indicates safety, dosing
and efficacy testing in a large patient population.
Drug Delivery Platform: TAPET'r'
TAPET is a drug delivery system that utilizes bioengineered,
genetically altered Salmonella bacteria to deliver cancer-fighting drugs
preferentially to solid tumors. Extensive preclinical studies in animal models
have shown that TAPET bacteria migrate to and penetrate throughout solid tumors.
Inside the tumors, TAPET doubles in quantity every 30 to 45 minutes, achieving
very high bacterial counts, reaching ratios in tumor versus normal tissues of
1,000:1. TAPET can be genetically engineered to deliver anticancer agents
continuously within the tumor. By bringing the "drug factory" to the tumor,
anticancer agents delivered by TAPET are concentrated inside the tumor and
are, therefore, expected to be more efficacious against the tumor, while at
the same time, less toxic to normal surrounding tissue.
Furthermore, TAPET bacteria are genetically engineered to reduce the
normal, toxic reactions to these bacteria. As an additional safety measure,
TAPET bacteria remain fully sensitive to antibiotic therapies. Extensive
preclinical toxicology studies in several species, including mice, rats, pigs,
dogs and monkeys, have demonstrated these safety measures to be effective.
Given our preclinical database demonstrating TAPET's potential efficacy
and safety profile, we believe that TAPET may prove to be an ideal vector, or
delivery mechanism, for the delivery of specific cancer-fighting drugs
preferentially to solid tumors. We intend to use TAPET to deliver
Vion-developed, anticancer drugs. Some of these drugs will be generic and
non-proprietary, however, when combined with the TAPET system, they could result
in proprietary products for us. In addition, we intend to seek multiple
strategic partnerships with pharmaceutical companies to use TAPET to deliver
their proprietary anticancer drugs.
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The safety and distribution of VNP20009, the Company's first TAPET
bacterial candidate, is currently being evaluated in four Phase I clinical
trials using two routes of administration: intratumoral (IT) and intravenous
(IV). The first trial, administered by the IT route, was initiated at the
Cleveland Clinic Foundation in late 1999, and last year, Beth Israel Deaconess
Medical Center in Boston, Massachusetts joined the study. This trial was
designed to evaluate the safety profile, optimum biological dose and tumor
localization of VNP20009. The initial results of the trial have been
encouraging. Patients have tolerated treatment with minimal toxicity, and
injected tumors remain colonized with TAPET bacteria for at least two weeks.
Because of the excellent safety profile, we are testing the feasibility and
safety of administering even higher doses directly into tumors, and we have
introduced improved IT injection techniques.
In March 2000, we began the first study of TAPET by IV administration
at the National Cancer Institute (NCI) in Bethesda, Maryland and, at the same
time, signed a five-year Cooperative Research and Development Agreement (CRADA)
with the NCI, under the direct supervision of Steven A. Rosenberg, M.D., Ph.D.,
Chief of Surgery in the NCI's Division of Clinical Sciences, a renowned cancer
researcher and a leading authority on the application of cytokines, tumor
vaccines and other biologicals in cancer patients. Under the terms of the CRADA,
Vion's scientific team will work with Dr. Rosenberg's laboratory to evaluate a
number of TAPET vectors, alone and in combination with other anticancer agents,
as well as to explore the mechanisms by which bacterial vectors cause antitumor
activity. This represents a first step in forming an important collaboration
with the NCI, which provides us with an excellent setting to further investigate
the safety and biologic effects of our first TAPET vector. Two additional IV
studies of TAPET were initiated in 2000, one at the Cleveland Clinic Foundation
and Beth Israel Deaconess Medical Center, and another at the Royal Marsden
Hospital in Sutton, England, well-respected and experienced institutions in the
area of clinical cancer research. To date, the results observed in the IV trials
are encouraging. In one schedule of IV administration, evidence of colonization
within a metastatic tumor was obtained in some patients at the highest doses. A
vast amount of biological information was also gathered in the trials. Based on
this experience, the studies have been modified to continue dose escalation and
to extend the duration of infusion in order to optimize tumor colonization.
While progress has been made in terms of TAPET's clinical development,
our preclinical efforts have kept an equally strong pace, in terms of both
collaboration and investigation. Preclinical studies of "armed" TAPET vectors in
animal models to date have shown preferential accumulation within tumors and
increased antitumor activity as compared to "unarmed" TAPET vectors, as well as
the delivery of a variety of anticancer products at high concentrations
throughout the tumor mass. These studies have been reported at a variety of
conferences in both the U.S. and Europe. Specifically, at the 2000 Annual
Meeting of the American Association for Cancer Research (AACR), we presented a
series of preclinical abstracts on several "armed" TAPET vectors, delivering a
variety of potent anticancer agents such as DT-diaphorase, colicin E3, cytosine
deaminase, endostatin and TNF(alpha), all of which demonstrated preferential
replication in tumors, with tumor-to-normal tissue ratios of greater than
130-1000:1 In addition, Vion and Yale University (Yale) jointly presented
preclinical data of TAPET in combination with radiation therapy, which indicated
that while Vion's "unarmed" TAPET bacteria and radiotherapy alone slowed tumor
growth and prolonged survival, the combination of the two prolonged survival as
much as 50% over the best results obtained with radiotherapy alone.
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Ever-expanding TAPET's viability as a true platform, Vion is
collaborating with New York's Memorial Sloan-Kettering Cancer Center, to explore
TAPET's potential use in enhancing the imaging of solid tumors. Data presented
at The International Symposium on Tumor Targeted Delivery Systems in September
2000 showed that TAPET engineered to express HSV1-TK (herpes simplex virus
thymidine kinase) accumulated in the tumor tissue at ratios of 1000:1 compared
to normal tissue. Injection of a radio-labeled substrate for HSV-TK resulted
in the trapping of a radio-labeled compound within the confines of the tumor.
Microscopic analysis of the location of the radioactivity showed a high degree
of specificity for tumors, which may potentially enhance the detection and
visualization of solid tumors using existing imaging technologies. These early
data are encouraging, and warrant further investigation of the use of TAPET to
deliver diagnostic imaging markers.
These important findings enhance our growing preclinical database and
continue to show TAPET's broad versatility in not only expressing a variety of
anticancer agents, but also as a combination therapy, and as a diagnostic tool
in the fight against cancer.
Anticancer Cell Therapeutics
Triapine'r'
Triapine is a potent inhibitor of ribonucleotide reductase and,
therefore, a potent inhibitor of DNA synthesis. In animal tumor models, Triapine
has demonstrated a broad spectrum of activity, showing efficacy in both in vivo
and in vitro tests and an ability to inhibit tumor cell growth in the murine
L1210 leukemia, murine M109 lung carcinoma and human A2780 ovarian carcinoma
models. Also in animal studies, Triapine has demonstrated synergy with other
anticancer agents, such as topoisomerase 2 inhibitors and alkylating agents,
which damage DNA. These studies demonstrate that Triapine inhibits cancer cells'
ability to repair the damaged DNA.
In March 2000, we completed a Phase I single dose study of Triapine,
which was designed to assess its safety profile and pharmacokinetics when
administered intravenously as a two-hour infusion every four weeks. Patients
were treated on nine-dose levels of Triapine and tolerated the treatment well;
furthermore, at the highest dose level, there were no clinically significant
toxicities, and peak serum levels of Triapine exceeded the concentrations
required to show activity against tumor cells.
Given Triapine's favorable safety profile and pharmacokinetics, and
supported by preclinical data suggesting that Triapine has the greatest effect
on tumors when administered consecutively for several days, we began a second
Phase I trial administered daily for five days every four weeks. In May 2000,
our team initiated a third Phase I trial of Triapine administered intravenously,
by continuous infusion, over a 96-hour period at the Albert Einstein College of
Medicine/Montefiore Medical Center, Bronx, New York, to evaluate the safety
profile and feasibility of extending injections of Triapine over several days.
A maximum tolerated dose was reached for both the five-times daily and
the 96-hour continuous infusion regimens, which were administered every 3-4
weeks. Because of the favorable safety profile, the feasibility of administering
each regimen in a more compressed every other week schedule is being evaluated
in clinical trials. We were pleased to observe preliminary evidence of antitumor
activity in patients with advanced and chemotherapy-refractory malignancies
using the five-times daily, every other week regimen. Based on this information,
single agent Phase II studies of Triapine are expected to begin in 2001.
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Furthermore, the Phase I studies may set the stage to begin studies of Triapine
in combination with traditional anticancer agents, where in preclinical models
we have observed improvement in antitumor activity compared to administration of
the single agents.
Sulfonyl Hydrazine Prodrugs
Sulfonyl Hydrazine Prodrugs (SHPs) are potent alkylating (DNA-damaging)
agents, which are among the most highly effective agents in the treatment of
cancer. Due to the differences in the mechanisms by which alkylating agents
damage DNA, they may have different spectrums of activity and toxicity. SHPs
have unique alkylating agent properties and have demonstrated broad, potent
antitumor activity in mouse models with tolerable toxicity levels.
We have licensed several classes of SHPs from Yale, including various
prodrugs that are the subject of ten issued patents. Each of these alkylating
agent prodrugs may target a unique property of a cancer cell, thereby destroying
it. In the past year, Vion, in collaboration with Yale, identified a lead
candidate of the sulfonyl hydrazine prodrug class, VNP40101M, with which to
enter clinical development. Promising preclinical data on VNP40101M presented by
Vion and Yale at the AACR showed broad antitumor activity against leukemia,
melanoma, lung and colon carcinomas in animal models. In addition, VNP40101M
demonstrated excellent penetration of the blood brain barrier with antitumor
activity against leukemia in the brain, as well as activity against brain tumors
and tumor cells resistant to some of the standard alkylating agents commonly
used to treat various forms of human cancer. Vion has completed toxicology
studies and plans to initiate clinical trials in 2001.
Promycin'r'
Promycin is an anticancer cell therapeutic that is designed to improve
the treatment of solid tumors by attacking the hypoxic, or oxygen-depleted,
cells therein. Vion and Boehringer Ingelheim International GmbH (BI) of
Ingelheim, Germany conducted a Phase III trial of Promycin in patients with head
and neck cancer at 42 centers worldwide. In June 2000, patient accrual into
Promycin clinical trials sponsored by BI was put on hold as an interim
evaluation of the Phase III trial of Promycin did not meet the predetermined
criteria, which would warrant continuation of accrual. Since BI agreed to assume
manufacturing, supply and worldwide development expenses in December of 1999,
the Company will not incur any additional expenses related to the Promycin
studies.
Licensed Product and Product Candidates
MELASYN'r'
MELASYN is a synthetic form of melanin that dissolves readily in water.
Melanin is a pigment formed by cells in the skin that gives skin its color and
protects it from sun damage by absorbing ultraviolet rays. We believe that
MELASYN is the first water-soluble, synthetic version of melanin, making it a
novel and useful ingredient for formulation of skin care products and cosmetics.
The simplicity of its manufacture allows MELASYN to be produced in commercial
quantities at low cost. In
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addition, MELASYN blends in and conforms to a person's skin tone without the
orange color associated with most commercially available self-tanning products.
In February 1998, we entered into an exclusive worldwide agreement for
a three-year term to license our MELASYN technology to San-Mar Laboratories, a
leading manufacturer of private label cosmetics and pharmaceuticals. Under the
terms of this agreement, we granted an exclusive worldwide license to San-Mar
for the manufacture and sale of products containing MELASYN. We receive a
royalty on products sold by San-Mar with guaranteed minimum annual royalties of
$50,000 per year during the initial three-year period. We are currently in
discussion with San Mar for a new agreement, however, there is no assurance
as to the outcome.
We have also funded research projects relating to compounds to control
pigmentation and chemotherapeutic products for treating melanoma. To date, such
research has not provided any product candidates that we presently plan to
pursue.
Novel Nucleoside Analogs
We have licensed the development of a nucleoside analog, or synthetic
molecule, known as (beta)-L-Fd4C. (beta)-L-Fd4C is an anti-viral drug capable of
inhibiting the replication of the hepatitis B virus, or HBV, that has produced
preclinical results superior to those of competing anti-viral drugs. We expect
(beta)-L-Fd4C to last longer and require less frequent dosage than the current
treatment, 3TC. HBV is a causative agent of both acute and chronic forms of
hepatitis that affects about 300 million people worldwide. HBV also predisposes
its victims to the development of liver cancer.
In October 1996, the U.S. Patent and Trademark Office issued a patent
to Yale covering the composition of matter and method of use of (beta)-L-Fd4C
for treating HBV, and Yale has licensed to us exclusive worldwide rights to the
patent including the use of (beta)-L-Fd4C for the treatment of HBV and AIDS. In
February 2000 we announced that we signed a licensing agreement for
(beta)-L-Fd4C with Achillion Pharmaceuticals, a privately held biopharmaceutical
company located in New Haven that recently completed a financing and is
commencing operations to develop and commercialize innovative antiviral
therapies. Under the terms of the license agreement, Achillion will fund the
development of (beta)-L-Fd4C, which it intends to develop as one of its key
product candidates. In return, we will receive potential milestone payments,
downstream royalties and a small equity position in Achillion.
Sponsored Research And License Agreements
Yale/OncoRx Agreement. Under a license agreement with Yale, referred to
as the Yale/OncoRx Agreement, Yale granted us nontransferable worldwide
exclusive license to make, have made, use, sell and practice certain inventions
and research for therapeutic and diagnostic purposes. The term of the license is
the expiration of any patents relating to any inventions or, with respect to
non-patented inventions or research, 17 years. Yale has retained the right to
make, use and practice the inventions and research for non-commercial purposes.
This agreement also provides that if Yale, as a result of its own research,
identifies potential commercial opportunities for the inventions and research,
Yale will give us a first option to negotiate a commercial license for such
commercial opportunities. Pursuant to this agreement, we issued to Yale 159,304
shares of our common stock, granted registration rights to Yale with respect to
these shares and made a payment of $50,000. Yale is entitled to royalties on
sales, if any, of resulting products and sub-licensing revenues and, with regard
to one patent, milestone payments based on the status of clinical trials and
regulatory approvals.
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In June 1997, we amended this license agreement and another license
agreement pursuant to which Yale agreed to reduce certain amounts payable by the
Company in exchange for 150,000 shares of our common stock issued to Yale valued
at $600,000. We have agreed with Yale that we will plan and implement
appropriate research and development with respect to commercialization of
products based on the licensed inventions and research. In the event that the
agreement is terminated for breach, all rights under licenses previously granted
terminate. Accordingly, a default as to one product could affect our rights in
other products. In addition, Yale, at its sole option, can terminate any
sublicenses that we grant.
Subsequent to entering into the Yale/OncoRx Agreement, we have paid
approximately $8.1 million to fund certain research at Yale, including research
in the laboratory of Dr. Yung-Chi Cheng, a member of our scientific advisory
board, and of Dr. Sartorelli, one of our directors. Yale has sole discretion to
use these funds to conduct research relating to products that it desires to
pursue. Additionally, to the extent that such research results in technologies
not covered by the Yale/OncoRx Agreement, we may be unable to utilize such
technologies unless we negotiate additional license agreements.
Yale/MelaRx Agreement. Under a research agreement with Yale, referred
to as the Yale/MelaRx Agreement, Yale has agreed to perform a research program
under the supervision of Dr. John W. Pawelek of the Department of Dermatology.
The research program has primarily involved synthetic melanin and products
designed to control the effects of ultraviolet radiation. In addition, under our
TAPET program, Dr. Pawelek is conducting certain research regarding the use of a
bacterial vector in connection with genetic therapy for melanoma.
The agreement was renewed in June 1998 for a three-year term and
provided for reimbursement to Yale for its direct and indirect costs in
connection with the research program in an amount equal to $852,000 per year.
Effective October 1, 2000, we, in conjunction with Yale, restructured the
agreement to provide a gift to Yale of $670,000 for the year ending September
30, 2001, to support the research program.
We entered into an additional license agreement with Yale in December
1995, under which we received a nontransferable worldwide exclusive license,
expiring over the lives of the patents, to three inventions relating to gene
therapy for melanoma. Pursuant to this agreement, we paid Yale a $100,000 fee,
and have agreed to pay future milestone payments based on the status of clinical
trials and regulatory approvals. In addition, Yale is entitled to royalties on
sales, if any, of resulting products and sublicensing revenues.
Under the Yale/MelaRx Agreement, we and Yale have entered into five
license agreements that grant us exclusive licenses to make, use, sell and
practice the inventions covered by various patents. Each such license agreement
requires us to pay to Yale royalties based on a percentage of net sales of the
products covered and sublicensing income. In addition, four of the five licenses
provide that they are terminable in the event we do not exercise due diligence
in commercializing the licensed technology.
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Competition
Competition in the biopharmaceutical industry is intense and based
significantly on scientific and technological factors, the availability of
patent and other protection for technology and products, the ability to
commercialize technological developments and the ability to obtain governmental
approval for testing, manufacturing and marketing. Moreover, the
biopharmaceutical industry is characterized by rapidly evolving technology that
could result in the technological obsolescence of any products developed by us.
We compete with specialized biopharmaceutical firms in the United States, Europe
and elsewhere, as well as a growing number of large pharmaceutical companies
that are applying biotechnology to their operations. Most of our competitors
have substantially greater financial, technical and human resources than we have
and may be better equipped to develop, manufacture and market products. In
addition, many of these companies have extensive experience in preclinical
testing and human clinical trials and in obtaining regulatory approvals. These
companies, as well as academic institutions, governmental agencies and private
research organizations, also compete with us in recruiting and retaining highly
qualified scientific personnel and consultants.
The timing of market introduction of our potential products or of
competitors' products will be an important competitive factor. Accordingly, the
relative speed with which we can develop products, complete preclinical testing,
clinical trials and regulatory approval processes and supply commercial
quantities to market will influence our ability to bring a product to market. In
addition, we may apply for Orphan Drug designation by the FDA for our proposed
products. To the extent that a competitor of ours develops and receives Orphan
Drug designation and marketing approval for a drug to treat the same indication
prior to us, we may be precluded from marketing our product for a period of
seven years.
Patents, Licenses And Trade Secrets
Our policy is to protect our technology by, among other means, filing
patent applications for technology that we consider important to the development
of our business. We intend to file additional patent applications, when
appropriate, relating to new developments or improvements in our technology and
other specific products that we develop. We also rely on trade secrets and
improvements, unpatented know-how and continuing technological innovation to
develop and maintain our competitive position.
Pursuant to the Yale/MelaRx Agreement, we are the exclusive licensee of
a number of pending patent applications relating to our TAPET platform
technology, which include claims for methods of diagnosing and/or treating
various solid tumor cancers, including, but not limited to, melanoma, lung
cancer, breast cancer and colon cancer. We also have rights, either by license
and/or by assignment, to pending patent applications, U.S. and foreign, relating
to our TAPET platform technology. In particular, we have filed four US
non-provisional and four International patent applications related to this
technology. One of the applications is co-owned with Yale, another with Memorial
Sloan Kettering Cancer Center and the remaining two are exclusively owned by us.
We are also the exclusive licensee of issued U.S. and foreign utility patents
and pending patent applications relating to synthetic melanins and methods for
using synthetic melanins, such as, for sunscreening or self-tanning agents. Of
these U.S. patents and patent applications, however, only one issued patent is
relevant to our MELASYN products. Patent applications relevant to the MELASYN
products are pending in foreign countries.
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In connection with a collaboration with Memorial Sloan Kettering Cancer
Center, as indicated above, we have filed a US non-provisional and an
International patent application relating to non-invasive methods to detect
solid tumors in vivo using attenuated tumor-targeted bacteria.
In connection with the Yale/OncoRx Agreement, we are the exclusive
licensee of ten issued patents relating to our sulfonyl hydrazine prodrug
technology, including patents relating to treatment of trypanosomiasis and
cancer and for controlling neoplastic cell growth. We are also the exclusive
licensee of a number of issued and pending U.S. and foreign patent applications
relating to:
o (beta)-L-Fd4C, its composition and its use for the treatment of HIV and HBV
infections and their use in combination with other anti-AIDS drugs;
o the use of 3TC or mixtures containing 3TC for the treatment of HBV
infection;
o Triapine and other ribonucleotide reductase inhibitors.
We are aware that BioChem Pharma has been granted an issued U.S. patent
with claims to methods of use of a compound or a group of compounds, including
3TC, for treating HBV. We believe that the BioChem Pharma patent (as well as
other BioChem Pharma patent applications and/or patents) is licensed to Glaxo
Group. Under the Yale/OncoRx agreement, we have rights in a patent application
with claims directed to methods for the use of 3TC or a mixture containing 3TC
for treating HBV. We requested that the U.S. Patent and Trademark Office declare
an Interference between the BioChem patent and the Vion patent application. An
Interference is a legal proceeding held when more than one patent application or
at least one patent application and one or more patents, owned by different
parties, contain claims to the same subject matter. An Interference proceeding
determines which one of the parties is entitled to a patent containing claims to
the common subject matter. The United States Patent and Trademark Office, Board
of Patent Appeals and Interferences declared an Interference between the
Vion-licensed patent application from Yale University and United States patent
No. 5,532,246 assigned to BioChem Pharma, Inc. While the Interference is
ongoing, recently, the Patent Office re-declared the interference and placed the
burden of proof on Vion. It also declared another Interference between the Vion
patent application and a patent application relating to the use of 3TC to treat
HBV owned by Glaxo-Wellcome Inc., in which it placed the burden of proof on
Glaxo-Wellcome Inc. In both cases, all parties have an opportunity to argue
their respective positions during the Interference proceedings, which are
ongoing.
We expect many developments during the course of the Interference
proceedings and it may be a long time until final determinations are reached.
Depending upon the length of the Interference proceedings, which could be
reduced by a mutually agreed upon settlement, costs to each party could be
substantial. Determinations in Interference proceedings are subject to appeal in
the appropriate United States federal courts.
Further, even if we were to prevail in both the Interferences and were
to obtain a patent with claims directed to the method of use of 3TC or a mixture
containing 3TC for treating HBV, we would only have the right to go to court to
exclude any third party, for example, BioChem Pharma, from using 3TC or a
mixture containing 3TC in a method for treating HBV. It is possible, if we were
to prevail in the Interferences, other parties such as BioChem Pharma might be
willing to take
11
a license for the right to use 3TC in a method for treating HBV. There can be no
guarantee that we would be successful in licensing such rights at acceptable
terms.
It should be noted that even if we were to prevail in the
Interferences, we would not have any right to make, use, sell or import 3TC in
the United States based on any patent we could obtain by prevailing in the
Interferences.
In addition, we are aware that third parties, including BioChem Pharma,
Glaxo Group and Emory University, have filed patent applications, some of which
have been issued, relating to 3TC, mixtures containing 3TC, and methods of
preparation and use of 3TC or mixtures containing 3TC as an anti-viral drug. In
fact, we are aware that both BioChem Pharma and Emory University have been
granted patents that have claims directed to 3TC, itself, or a group of
compounds including 3TC. Accordingly, even if we had rights to an issued patent
with claims to a method of use of 3TC to treat HBV, we would not be able to
make, use and sell or import 3TC in the United States unless we obtained a
license from one or more third parties. There can be no guarantee that we
could obtain such a license or that if available, the license would be on
acceptable terms.
We have received correspondence from F. C. Gaskin, Inc. alleging that
we may be infringing certain of their patents relating to melanin-containing
compositions and their use. We believe this assertion has no merit.
We or our licensors are prosecuting the patent applications related to
products we license both with the U.S. Patent and Trademark Office and various
foreign patent agencies, but we do not know whether any of our applications will
result in the issuance of any patents or, whether any issued patent will provide
significant proprietary protection or will be circumvented or invalidated.
During the course of patent prosecution, patent applications are evaluated for,
among other things, utility, novelty, nonobviousness and enablement. The U.S.
Patent and Trademark Office may require that the claims of an initially filed
patent application be amended if it is determined that the scope of the claims
include subject matter that is not useful, novel, nonobvious or enabled.
Furthermore, in certain instances, the practice of a patentable invention may
require a license from the holder of dominant patent rights. In cases where one
party believes that it has a claim to an invention covered by a patent
application or patent of a second party, the first party may attempt to provoke
an interference proceeding in the U.S. Patent and Trademark Office or such a
proceeding may otherwise be declared by the U.S. Patent and Trademark Office. In
general, in an interference proceeding, the U.S. Patent and Trademark Office
reviews the competing patents and/or patent applications to determine the
validity of the competing claims, including, but not limited to, determining
priority of invention. Any such determination would be subject to appeal in the
appropriate United States federal courts.
We cannot predict whether our or our competitors' patent applications
will result in valid patents being issued. An issued patent is entitled to a
presumption of validity. The presumption may be challenged in litigation; a
court could find any patent of ours or our competitors invalid and/or
unenforceable. Litigation, which could result in substantial cost to us, may
also be necessary to enforce our patent and proprietary rights and/or to
determine the scope and validity of others proprietary rights. We may
participate in interference proceedings that may in the future be declared by
the United States Patent and Trademark Office to determine priority of
invention. Interference and/or litigation proceedings could result in
substantial cost to us.
12
The patent position of biotechnology and biopharmaceutical firms
generally is highly uncertain and involves complex legal and factual questions.
To date, no consistent policy has emerged regarding the breadth of claims
allowed in biotechnology and biopharmaceutical patents.
Government Regulation
Overview. Regulation by state and federal governmental authorities in
the United States and foreign countries is a significant factor in the
manufacture and marketing of our products and in our ongoing research and
product development activities. All of our products will require regulatory
clearances or approvals prior to commercialization. In particular, drugs,
biologicals and medical devices are subject to rigorous preclinical testing and
other approval requirements by the FDA pursuant to the FDC Act and the Public
Health Service Act and regulations promulgated thereunder, as well as by similar
health authorities in foreign countries. Various federal statutes and
regulations also govern or influence the testing, manufacturing, safety,
labeling, packaging, advertising, storage, registration, listing and
recordkeeping related to marketing of such products. The process of obtaining
these clearances or approvals and the subsequent compliance with appropriate
federal statutes and regulations require the expenditure of substantial
resources. We cannot be certain that any required FDA or other regulatory
approval will be granted or, if granted, will not be withdrawn.
Drugs and Biologicals. Preclinical development of diagnostic and
therapeutic drugs and biological products is generally conducted in the
laboratory to evaluate the safety and the potential efficacy of a compound by
relevant in vitro and in vivo testing. When a product is tested prospectively to
determine its safety for purposes of obtaining FDA approvals or clearances, such
testing must be performed in accordance with good laboratory practices for
nonclinical studies. The results of preclinical testing are submitted to the FDA
as part of an IND. The IND must become effective, informed consent must be
obtained from clinical subjects, and the study must be approved by an
institutional review board before human clinical trials can begin.
Regulatory approval often takes a number of years and involves the
expenditure of substantial resources. Approval time also depends on a number of
factors, including the severity of the disease in question, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials. Typically, clinical evaluation involves a three-phase process. In Phase
I, clinical trials are conducted with a small number of subjects to determine
the tolerated drug dose, early safety profile, proper scheduling and the pattern
of drug distribution, absorption and metabolism. In Phase II, clinical trials
are conducted with groups of patients afflicted with a specific disease in order
to determine efficacy, dose-response relationships and expanded evidence of
safety. In Phase III, large-scale, multi-center, controlled clinical trials are
conducted in order to:
o provide enough data for statistical proof of safety and efficacy;
o compare the experimental therapy to existing therapies;
o uncover any unexpected safety problems, such as side-effects; and
o generate product labeling.
13
In the case of drugs for cancer and other life-threatening diseases,
the initial human testing is generally conducted in patients rather than in
healthy volunteers. Because these patients are already afflicted with the target
disease, it is possible that such studies will provide results traditionally
obtained in Phase II trials. These trials are referred to as 'Phase I/II'
trials.
The results of the preclinical and clinical testing are submitted to
the FDA either as part of a new drug application, or NDA, for drugs, or a
product license application, or PLA, for biologics, for approval to commence
commercial distribution. For a biological, the manufacturer generally must also
obtain approval of an establishment license application. In responding to an NDA
or PLA, the FDA may grant marketing approval, request additional information or
deny the application if it determines that the application does not satisfy its
regulatory approval criteria. It may take several years to obtain approval after
submission of an NDA or PLA, although approval is not assured. The FDA also
normally conducts a pre-approval inspection and other occasional inspections of
an applicant's facilities to ensure compliance with current good manufacturing
practices. Further, stringent FDA regulatory requirements continue after a
product is approved for marketing, and changes to products or labeling can
require additional approvals. If any of our products is approved for marketing,
we will be subject to stringent post-marketing requirements.
We also will be subject to widely varying foreign regulations governing
clinical trials and pharmaceutical sales. Whether or not FDA approval has been
obtained, approval of a product by the comparable regulatory authorities of
foreign countries must be obtained before marketing the product in those
countries. The approval process varies from country to country and the time may
be longer or shorter than that required for FDA approval. We intend, to the
extent possible, to rely on foreign licensees to obtain regulatory approval to
market our products in foreign countries.
Orphan Drug Designation. Under the Orphan Drug Act, a sponsor may
obtain designation by the FDA of a drug or biologic as an 'orphan' drug for a
particular indication. Orphan Drug designation is granted to drugs for rare
diseases or conditions, including many cancers, with a prevalence of less than
200,000 cases in the United States. The sponsor of a drug that has obtained
Orphan Drug designation and which is the first to obtain approval of a marketing
application for such drug is entitled to marketing exclusivity for a period of
seven years for the designated indication. This means that no other company can
market the same Orphan Drug for the same indication approved by the FDA for
seven years after approval unless such company proves its drug is clinically
superior or the approved Orphan Drug marketer cannot supply demand for the drug.
Legislation is periodically considered that could significantly affect the
Orphan Drug law. We received Orphan Drug designation for Promycin in September
1995 to treat head and neck cancer and in May 1997 received FDA approval of our
request for Orphan Drug status for the use of Promycin to treat cervical cancer.
We intend to seek this designation for other products where appropriate. There
can be no assurance that future changes to the Orphan Drug Act would not
diminish the value of any Orphan Drug designation obtained by us.
Drugs for Life-Threatening Illnesses. FDA regulatory procedures
established in 1988 are intended to speed further the availability of new drugs
intended to treat life-threatening and severely debilitating illnesses. These
procedures provide for early and continuous consultation with the FDA regarding
preclinical and clinical studies necessary to gain marketing approval. This
regulatory framework also provides that if Phase I results are promising, Phase
II clinical trials may be designed that obviate the need for lengthy, expensive
Phase III testing. Notwithstanding the foregoing, approval
14
may be denied by the FDA or traditional Phase III studies may be required. The
FDA may also seek our agreement to perform post-approval Phase IV studies, which
confirm product safety and efficacy.
The FDA has announced that the accelerated approval concept is being
expanded for cancer drugs. The proposed changes are designed to speed drug
approvals by requiring less extensive preapproval testing in some circumstances.
Specifically, the FDA has stated that it may approve these drugs based on the
use of surrogate markers. 'Partial responses,' such as a drug's effectiveness at
short-term tumor shrinkage, that the FDA believes are clear indicators of
therapeutic effect, would be sufficient to demonstrate efficacy for these drugs.
This is in contrast to requiring the traditional 'full-endpoint' measures of
improved survival or quality of life. Other provisions of the new initiatives
include proactive solicitation by the FDA of expanded access filings for
foreign-approved cancer drugs and greater patient representation on the FDA's
Oncology Drugs Advisory Committee. Although agency officials have estimated that
the changes will reduce by as much as a year the normal development time for
most cancer drugs, it is uncertain whether and how these initiatives will
actually be implemented by the FDA and whether they will have a significant
impact on the approval process for cancer drugs.
Environmental Matters. We are subject to environmental laws, including
those promulgated by OSHA, the EPA and the NRC, that govern activities or
operations that may have adverse environmental effects, such as discharges to
air and water, as well as handling and disposal practices for solid and
hazardous wastes. These laws also impose strict liability for the costs of
cleaning up, and for damages resulting from, sites of past spills, disposals or
other releases of hazardous substances and materials for the investigation and
remediation of environmental contamination at properties operated by us and at
off-site locations where we have arranged for the disposal of hazardous
substances. If it is determined that we are not in compliance with current
environmental laws, we could be subject to fines and penalties. The amount of
any such fines and penalties could be material.
Our facilities have made, and will continue to make, expenditures to
comply with current and future environmental laws. We anticipate that we could
incur additional capital and operating costs in the future to comply with
existing environmental laws and new requirements arising from new or amended
statutes and regulations. In addition, because the applicable regulatory
agencies have not yet promulgated final standards for some existing
environmental programs, we cannot at this time reasonably estimate the cost for
compliance with these additional requirements. The amount of any such compliance
costs could be material. We cannot predict the impact that future regulations
will impose upon our business.
Employees
As of December 31, 2000, we had 54 full-time employees, including 36
scientists and technicians. We plan to hire additional employees over the next
12 months to support continuing progress in both research and development. Our
employees are not covered by any collective bargaining agreement. Additionally,
we had 5 scientific consultants on a part-time basis.
15
ITEM 2. Properties
Our principal facility consists of approximately 19,000 square feet of
leased laboratory and office space in New Haven, Connecticut at an annual rental
of approximately $222,000. The lease expires in May 2001, with a right to renew
for an additional five years. We are currently negotiating for additional space,
including discussions with our current landlord. We believe that sufficient
space is available and do not expect a material increase in the cost of our
facilities; however, there is no assurance as to what the ultimate cost will be.
ITEM 3. Legal Proceedings
In the normal course of business, the Company may be subject to
proceedings, lawsuits and other claims. We are aware of only one lawsuit and do
not believe that any ultimate liability arising out of this action will have a
material adverse effect on our business.
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on October
23, 2000, four proposals were voted upon by the Company's stockholders. A brief
description of each proposal voted upon at the Annual Meeting and the number of
votes cast for, against and the number of abstentions to each proposal are set
forth below.
Proposal No. 1 - Election of Directors. A vote was taken at the Annual
Meeting for the election of eight Directors of the Company to hold office until
the next Annual Meeting of Stockholders of the Company or until their successors
are elected and qualified. All eight nominees were elected. The aggregate number
of votes cast by holders of common stock and Class A Convertible Preferred Stock
voted in person or by proxy for each nominee were as follows:
Authority
For Withheld From
Nominee Nominee
------- -------
William R. Miller 24,112,191 300,230
Alan Kessman 24,109,524 302,897
Alan C. Sartorelli, Ph.D 24,119,469 292,952
Michel C. Bergerac 24,108,024 304,397
Frank T. Cary 24,103,098 309,323
James L. Ferguson 23,848,297 564,124
Walter B. Wriston 24,103,958 308,463
Charles K. MacDonald 24,119,219 293,202
Proposal No. 2 - Classified Board. A vote was taken at the Annual
Meeting on the proposal to amend the Company's Certificate of Incorporation and
to adopt the provisions relating to a classified board of directors. The
affirmative vote of holders of a majority of the outstanding shares of Common
Stock and the affirmative vote of holders of a majority of the shares of Class A
Preferred Stock, voting as a separate class, was required. The proposed
amendment was not adopted. The aggregate number of votes cast by holders of
common stock and Class A Convertible Preferred Stock voted in person or by proxy
for each proposal were as follows:
For Against Abstain
--- ------- -------
11,398,551 1,018,216 109,163
16
Proposal No. 3 - Approval of the Adoption of 2000 Employee Stock
Purchase Plan. A vote was taken at the Annual Meeting on the proposal to approve
the adoption of Vion Pharmaceuticals, Inc. 2000 Employee Stock Purchase Plan
(the Plan). The adoption of the Plan was approved. The aggregate number of votes
cast by holders of common stock and Class A Convertible Preferred Stock voted in
person or by proxy for each proposal were as follows:
For Against Abstain
--- ------- -------
23,911,408 394,673 106,340
Proposal No. 4 - Ratification of Selection of Independent Auditors. A
vote was taken at the Annual Meeting on the proposal to ratify the appointment
of Ernst & Young LLP as auditors for the Company for the fiscal year ending
December 31, 2000. The selection of Ernst & Young LLP was ratified. The
aggregate number of votes cast by holders of common stock and Class A
Convertible Preferred Stock voted in person or by proxy for each proposal were
as follows:
For Against Abstain
--- ------- -------
24,307,161 80,864 24,396
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information for Common Stock
The Company's common stock has traded on The Nasdaq Stock Market'sm'
since October 25, 1999, and traded on The Nasdaq SmallCap Market'sm' from April
29, 1996 until October 25, 1999, under the symbol "VION". From August 14, 1995
to April 26, 1996, the common stock traded on The Nasdaq SmallCap Market'sm'
under the symbol "OCRX". The following table reflects the range of high and low
closing sales prices of the common stock for each of the calendar quarters in
2000 and 1999. This information is based on closing sales prices as reported by
The Nasdaq Stock Market'sm'.
2000 1999
---------------------- ----------------------
High Low High Low
---- --- ---- ---
First Quarter $ 29.000 $ 5.875 $ 7.250 $ 4.438
Second Quarter 16.875 6.000 6.938 4.500
Third Quarter 18.000 6.625 6.000 4.063
Fourth Quarter 16.375 7.000 6.938 4.469
Recent Sales of Unregistered Securities
The Company made no sales of unregistered securities during the fourth
quarter of the fiscal year ended December 31, 2000.
17
Holders
At March 22, 2001, there were approximately 337 holders of record of
the Company's Common Stock.
Dividends
We have never paid any cash dividends on our Common Stock. We currently
intend to retain all earnings for use in our business and do not anticipate
paying cash dividends in the foreseeable future.
ITEM 6. Selected Financial Data
The following selected financial data for each of the five years in the
period ended December 31, 2000, and for the period from May 1, 1994 (inception)
through December 31, 2000, are derived from our audited financial statements.
The selected financial data should be read in conjunction with the financial
statements, related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
For the Period
From May 1, 1994
(Inception)
through December
2000 1999 1998 1997 1996 31, 2000
---------------------------------------------------------------------------
(In thousands, except per share data)
Statement of Operations Data:
Total revenues $ 947 $ 3,154 $ 1,956 $ 5,271 $ 52 $ 11,380
Total operating expenses 17,078 14,190 12,912 10,914 8,088 73,229
Loss from operations (16,131) (11,036) (10,956) (5,643) (8,036) (61,849)
Net loss (14,803) (10,769) (10,478) (5,343) (7,609) (59,008)
Preferred dividends and accretion (606) (710) (4,414) (1,132) (11,627) (18,489)
---------------------------------------------------------------------------
Loss applicable to common shareholders $(15,409) $(11,479) $(14,892) $ (6,475) $(19,236) $(77,497)
===========================================================================
Basic and diluted loss applicable to
common shareholders per share $ (0.64) $ (0.74) $ (1.24) $ (0.75) $ (2.52)
Weighted-average number of shares
of common stock outstanding 24,089 15,544 11,977 8,671 7,642
Balance Sheet Data:
Cash and cash equivalents $ 6,198 $ 11,038 $ 3,821 $ 3,891 $ 3,788
Working capital 22,050 9,911 5,045 10,678 7,938
Total assets 25,660 13,934 9,269 13,580 9,881
Redeemable preferred stock -- 5,179 4,854 -- --
Total shareholders' equity 22,657 5,853 1,504 11,959 9,072
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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,
18
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, in the United States for safety and dosage;
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
Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
Revenues. Revenues for the year ended December 31, 2000 were $0.9
million as compared to $3.2 million for 1999. The decrease was primarily due to
non-recurring revenues of $2.6 million in 1999 from reimbursed Promycin'r'
development costs under the terms of a collaboration agreement with Boehringer
Ingelheim International GmbH ("BI"), which was revised in December 1999. Under
the revised contractual arrangements, BI assumed all development costs for the
drug Promycin beginning in 2000, while continuing to pay Vion for certain
laboratory support services. 2000 revenues from Small Business Innovation and
Research ("SBIR") and other research grants increased to $0.8 million as
compared to $0.3 million for the comparable 1999 period due to additional
research grants received in 2000. Technology license fee revenue decreased to
$79,000 for the year ended December 31, 2000, from $155,000 for 1999. The
Company recorded approximately $82,000 in laboratory support service revenue for
the year ended December 31, 2000 as compared to $35,000 for 1999.
Research and Development. Total research and development expenses were
$12.8 million for the year ended December 31, 2000, compared to $11.5 million
for 1999. Clinical trials expenses were
19
$3.3 million for the year ended December 31, 2000, compared to $4.1 million for
1999. The decrease was due to BI's assumption of Promycin development costs
beginning in 2000 under the revised contractual arrangements for which the
Company recorded expenses of $3.4 million in 1999, partially offset by increased
costs of $2.6 million associated with patient accumulation for clinical trials
of TAPET and Triapine. Other research and development expenses increased to $9.6
million for the year ended December 31, 2000 from $7.4 million for 1999. The
increase was primarily due to scientific personnel hired in 2000, preclinical
activities related to the Company's Sulfonyl Hydrazine Prodrug technology and
other research support related to a cooperative research agreement ("CRADA")
with the National Cancer Institute and a research gift to Yale University
("Yale"). The Company expects research, development and clinical trials expenses
to increase in the future.
General and Administrative. General and administrative expenses were
$4.3 million as compared to $2.7 million in 1999. The increase was primarily due
to higher professional and patent-related fees.
Interest Income and Expense. Interest income increased to $1.3 million
for the year ended December 31, 2000, from 1999 interest income of $0.3 million.
The increase was due to higher levels of invested funds as a result of net
proceeds received from a public offering in October 1999 and from 2000 option
and warrant exercises.
Preferred Stock Dividends and Accretion. Preferred stock dividends and
accretion for the year ended December 31, 2000, decreased to $0.6 million from
$0.7 million for the comparable 1999 period. Dividends and accretion primarily
represent non-cash dividends and the accretion of dividends related to the
Company's preferred stock. During 2000, all outstanding shares of preferred
stock were converted or redeemed.
Loss Applicable to Common Shareholders. The loss applicable to common
shareholders increased to $15.4 million, or $0.64 per share on a higher number
of shares outstanding, for the year ended December 31, 2000, from $11.5 million,
or $0.74 per share, for 1999 as a result of the net loss and preferred dividends
and accretion reported.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Revenues. Fiscal 1999 revenues increased to $3.2 million from $2
million for the year ended December 31, 1998. The increase was primarily due to
higher reimbursed development costs under our collaboration agreement with BI
totaling $2.6 million for the year ended December 31, 1999, compared with $1.6
million for 1998. In 1999, the Company recorded $35,000 in laboratory support
service revenue for the first time under the revised BI arrangement. In
addition, reimbursements of expenses from SBIR grants on TAPET and Triapine
increased to $336,000 in 1999, compared to $309,000 in 1998.
Research and Development. Total research and development expenses
increased to $11.5 million for the year ended December 31, 1999 as compared to
$10.7 million for the same period in 1998. Clinical trials expenses were $4.1
million for the year ended December 31, 1999, compared to $3.4 million for 1998.
The increase is primarily due to higher costs associated with patient
accumulation for the Triapine Phase I clinical trial and expenses for TAPET
preclinical development and, to a lesser extent, costs related to patient
accumulation for the Promycin head and neck Phase III trial.
20
General and Administrative. General and administrative expenses
increased to $2.7 million in 1999 from $2.2 million in 1998. The 1999 increase
was primarily due to costs associated with management changes and increased
legal and patent fees.
Interest Income and Expense. Interest income on invested funds
decreased to $0.3 million in 1999 from $0.5 million in 1998. The change reflects
the level of invested funds during each period. Interest expense decreased to
approximately $35,000 in 1999 compared to $62,000 in 1998.
Preferred Stock Dividends and Accretion. Preferred stock dividends and
accretion decreased from $4.4 million for the year ended December 31, 1998 to
$0.7 million for 1999. The amounts included primarily represent non-cash
dividends related to the issuance of the 5% Redeemable Convertible Preferred
Stock Series 1998 ("Series 1998 Preferred Stock") in 1998. The amounts for 1998
also include additional dividend requirements equal to the excess of the fair
value of the common stock issued upon conversion over the fair value of the
common stock issuable pursuant to the original conversion terms of the Class B
Convertible Preferred Stock. Since the Class B Convertible Preferred Stock was
entirely converted into common stock in August 1998, none of the dividend
requirements relating to the conversion impacted 1999. Additionally, the annual
accretion of dividends related to the issuance of the Series 1998 Preferred
Stock is included in the amounts described above.
Loss Applicable to Common Shareholders. The loss applicable to common
shareholders decreased from $14.9 million, or $1.24 per share, in 1998 to $11.5
million, or $0.74 per share, in 1999 as a result of the net loss and the effects
of the preferred dividends and accretion.
Liquidity and Capital Resources
At December 31, 2000, we had cash, cash equivalents and short-term
investments of $24.4 million. The increase in cash, cash equivalents and
short-term investments in 2000 was primarily the result of net proceeds to the
Company from option and warrant exercises.
In October 1999, the Company completed a public offering of 2.53
million shares of newly issued common stock, including shares sold to the
underwriter upon the exercises of its over-allotment option, resulting in net
proceeds to the Company of $11.05 million.
In connection with Vion's initial public offering in 1995, Unit
Purchase Options ("UPOs") and underlying Class A and Class B Warrants were
granted to underwriters. Prior to their expiration in August 2000, holders of
the remaining 113,333 UPOs exercised the UPOs and underlying Class A and B
Warrants resulting in aggregate net proceeds to the Company of approximately
$2.2 million for the year ended December 31, 2000.
The Company notified registered 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 $5.1 million
from the exercise of 1.2 million Class A Warrants.
21
The Company notified registered holders of its outstanding Class B
Warrants of its intention to redeem the warrants on April 27, 2000 (the
"Redemption Date"). The Class B Warrants entitled the holder to purchase one
share of common stock at an exercise price of $6.23. As of the Redemption Date,
the Company had received net proceeds of $15.9 million from the exercise of 2.6
million Class B Warrants.
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 Series 1998 Preferred Stock, all of the outstanding preferred
shares having a redemption value of $5.4 million were automatically converted
into 1,507,024 common shares at the $3.60 conversion price, effective February
22, 2000.
The Company's common stock traded above $9.9375 for a period of 20
consecutive trading days ending on February 17, 2000 and, in accordance with the
terms of the Class A Convertible Preferred Stock, the Company notified the
holders of outstanding shares of its intention to redeem their preferred stock
on December 26, 2000 (the "Redemption Date"). Prior to the Redemption Date,
1,405 shares of preferred stock were converted by the holders and 3,906 shares
of common stock were issued upon conversion. The remaining 545 shares of
preferred stock were redeemed for $5,450 in the aggregate and werecancelled as
of the Redemption Date.
During the year ending December 31, 2001, the Company is required to
make payments totaling $350,000 under the CRADA agreement and will contribute
$335,000 for the balance of the Yale research gift.
The lease for our facility is expiring and we are negotiating for
additional space, including discussions with our current landlord. We believe
that sufficient space is available and do not expect a material increase in the
cost of our facilities, however, there is no assurance as to what the ultimate
cost will be.
We currently estimate that our existing cash, cash equivalents and
short-term investments totaling $24.4 million at December 31, 2000, will be
sufficient to fund our planned operations through the first quarter of 2002. As
of December 31, 2000, we estimate that the amount required to fund all
operations net of cash inflows for the next twelve months is approximately $18
million. However, our cash requirements may vary materially from those now
planned because of the results of research, development, clinical trials and
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. In the future, we will need to complete our product
development and clinical trials and raise substantial capital to fund
operations, however, there is no assurance about raising additional capital or
what the terms may be.
22
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company accounts for its investments in debt and equity securities
("Investments") in accordance with Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS
115"). All Investments are treated as available-for-sale under SFAS 115.
Investments in fixed-rate, interest-earning instruments carry a degree
of interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. Due in part to these
factors, the Company's future investment income may fall short of expectations
due to changes in interest rates or the Company may suffer losses in principal
if forced to sell securities which have seen a decline in market value due to
changes in interest rates. The Company's investments are held for purposes other
than trading and we believe that we currently have no material adverse market
risk exposure.
23
ITEM 8. Financial Statements and Supplementary Data
Report of Independent Auditors
The Board of Directors and Shareholders
Vion Pharmaceuticals, Inc.
We have audited the accompanying balance sheet of Vion Pharmaceuticals, Inc.
(a development stage company) as of December 31, 2000 and 1999, and the
related statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2000 and the
period from May 1, 1994 (inception) to December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audi
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vion Pharmaceuticals, Inc. at
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000 and the period
from May 1, 1994 (inception) to December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Stamford, Connecticut
February 14, 2001
24
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Balance Sheet
December 31,
2000 1999
------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 6,197,725 $ 11,038,209
Short-term investments 18,159,759 --
------------------------------
Total cash, cash equivalents and short-term investments 24,357,484 11,038,209
Interest receivable 299,847 67,053
Accounts receivable 144,447 1,592,583
Other current assets 250,779 108,404
------------------------------
Total current assets 25,052,557 12,806,249
Property and equipment, net 577,277 659,823
Security deposits 29,910 49,851
Research contract prepayments -- 417,882
------------------------------
Total assets $ 25,659,744 $ 13,933,805
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital leases - current $ 6,181 $ 160,328
Accounts payable and accrued expenses 2,996,862 2,734,745
------------------------------
Total current liabilities 3,003,043 2,895,073
Obligation under capital leases - long term -- 6,181
------------------------------
Total liabilities 3,003,043 2,901,254
------------------------------
Redeemable Preferred Stock:
5% convertible preferred stock Series 1998, $0.01 par value, authorized:
15,000 shares; issued and outstanding: none and 5,000 shares at
December 31, 2000 and 1999, respectively (redemption value
$5,387,000 at December 31, 1999) -- 5,179,287
Shareholders' Equity:
Preferred stock, $0.01 par value - 5,000,000 shares authorized consisting of:
Class A convertible preferred stock, $0.01 par value, authorized:
3,500,000 shares; issued and outstanding: none and 498,194
at December 31, 2000 and 1999, respectively (liquidation
preference $4,982,000 at December 31, 1999) -- 4,982
Class B convertible preferred stock, $0.01 par value, authorized:
100,000 shares; issued and outstanding: none -- --
Class C convertible preferred stock, $0.01 par value, authorized:
25,000 shares; issued and outstanding: none -- --
Common stock, $0.01 par value, authorized: 35,000,000 shares;
issued and outstanding: 26,167,642 and 18,242,119 shares
at December 31, 2000 and 1999, respectively 261,676 182,421
Additional paid-in-capital 100,027,227 68,012,183
Deferred compensation -- (2,864)
Accumulated other comprehensive income 120,000 --
Accumulated deficit (77,752,202) (62,343,458)
------------------------------
22,656,701 5,853,264
------------------------------
Total liabilities and shareholders' equity $ 25,659,744 $ 13,933,805
==============================
The accompanying notes are an integral part of these financial statements.
25
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Statement of Operations
For the
Period from
May 1, 1994
For the Year (Inception)
Ended through
December 31, December 31,
2000 1999 1998 2000
-------------------------------------------------------------
Revenues:
Contract research grants $ 786,842 $ 335,767 $ 308,787 $ 1,531,396
Research support -- 2,628,039 1,647,202 5,498,153
Technology license fees 78,611 155,388 -- 4,233,999
Laboratory support services 81,912 35,000 -- 116,912
-------------------------------------------------------------
Total revenues 947,365 3,154,194 1,955,989 11,380,460
-------------------------------------------------------------
Operating expenses:
Research and development 9,568,482 7,387,302 7,280,027 44,320,024
Clinical trials 3,259,212 4,109,347 3,429,374 12,578,900
-------------------------------------------------------------
Total research and development 12,827,694 11,496,649 10,709,401 56,898,924
General and administrative 4,251,117 2,693,248 2,202,944 16,330,630
Interest Income (1,341,038) (301,382) (540,240) (3,048,608)
Interest Expense 12,624 34,603 61,553 207,893
-------------------------------------------------------------
Net Loss (14,803,032) (10,768,924) (10,477,669) (59,008,379)
Preferred stock dividends and accretion (605,712) (709,781) (4,414,050) (18,488,687)
-------------------------------------------------------------
Loss applicable to common shareholders $(15,408,744) $(11,478,705) $(14,891,719) $(77,497,066)
=============================================================
Basic and diluted loss applicable to
common shareholders per share $(0.64) $(0.74) $(1.24)
-------------------------------------------------------------
Weighted-average number of shares of
common stock outstanding 24,089,164 15,543,701 11,977,121
-------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
26
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Statement of Changes in Shareholders' Equity
Class A Class B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
---------------------------------------------------------------- Treasury
Shares Amount Shares Amount Shares Amount Stock
----------------------------------------------------------------------------
Common stock issued for cash - July 1994 -- $ -- -- $ -- 2,693,244 $ 26,932 $ --
Common stock issued for services -
August 1994 159,304 1,593
Net loss
----------------------------------------------------------------------------
Balance at December 31, 1994 -- $ -- -- $ -- 2,852,548 $ 28,525 $ --
----------------------------------------------------------------------------
Stock options issued for compensation -
February 1995
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 2,000,000 20,000
Shares repurchased pursuant to
employment agreements - April 1995 (274,859) (2,749)
Private placement of common stock -
April 1995 76,349 763
Warrants issued with bridge notes -
April 1995
Initial public offering of units of one
common share, one Class A warrant and
one Class B warrant at $4.00 per unit -
August 1995 and September 1995 2,875,000 28,750
Issuance of common stock 1,250 13
Receipts from sale of unit purchase option
Net loss
----------------------------------------------------------------------------
Balance at December 31, 1995 -- $ -- -- $ -- 7,530,288 $ 75,302 $ --
----------------------------------------------------------------------------
Issuance of Class A convertible preferred stock 1,250,000 12,500
Conversion of Class A convertible preferred stock (164,970) (1,650) 458,255 4,582
Class A convertible preferred stock dividend 21,998 220
Issuance of common stock 29,418 294
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
-----------------------------------------------------------------------------
Balance at December 31, 1996 1,107,028 $ 11,070 -- $ -- 8,017,961 $ 80,178 $ --
-----------------------------------------------------------------------------
Conversion of Class A convertible
preferred stock (396,988) (3,970) 1,102,757 11,028
Class A convertible preferred stock dividend 47,592 476
Issuance of Class B convertible preferred stock 4,850 49
Conversion of Class B convertible preferred stock (258) (3) 64,642 647
Accretion of dividend payable on Class B
convertible preferred stock
Extension/reassurance of underwriter warrants
Exercise of warrants 238 3
Issuance of common stock 598,336 5,983
Exercise of stock options 50,000 500
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
----------------------------------------------------------------------------
Balance at December 31, 1997 757,632 $ 7,576 4,592 $ 46 9,833,934 $ 98,339 $ --
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Accumulated
Additional Other Total
Paid-in Deferred Comprehensive Accumulated Shareholders'
Capital Compensation Income Deficit Equity
-----------------------------------------------------------------------------
Common stock issued for cash - July 1994 $ -- $ -- $ -- $ (19,877) $ 7,055
Common stock issued for services -
August 1994 (1,176) 417
Net loss (475,946) (475,946)
-----------------------------------------------------------------------------
Balance at December 31, 1994 $ -- $ -- $ -- $ (496,999) $ (468,474)
-----------------------------------------------------------------------------
Stock options issued for compensation -
February 1995 540,000 540,000
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 4,300,000 4,320,000
Shares repurchased pursuant to
employment agreements - April 1995 2,029 (720)
Private placement of common stock -
April 1995 205,237 206,000
Warrants issued with bridge notes -
April 1995 200,000 200,000
Initial public offering of units of one
common share, one Class A warrant and
one Class B warrant at $4.00 per unit -
August 1995 and September 1995 9,667,460 9,696,210
Issuance of common stock 488 501
Receipts from sale of unit purchase option 250 250
Net loss (9,530,535) (9,530,535)
-----------------------------------------------------------------------------
Balance at December 31, 1995 $14,913,435 $ -- $ -- $(10,025,505) $ 4,963,232
-----------------------------------------------------------------------------
Issuance of Class A convertible preferred stock 22,890,075 (11,371,523) 11,531,052
Conversion of Class A convertible preferred stock (2,932) --
Class A convertible preferred stock dividend 255,661 (255,881) --
Issuance of common stock 102,426 102,720
Compensation associated with stock option grants 190,407 (190,407) --
Amortization of deferred compensation 83,647 83,647
Net loss (7,608,679) (7,608,679)
-----------------------------------------------------------------------------
Balance at December 31, 1996 $38,349,072 $(106,760) $ -- $(29,261,588) $ 9,071,972
-----------------------------------------------------------------------------
Conversion of Class A convertible
preferred stock (7,058) --
Class A convertible preferred stock dividend 623,038 (623,514) --
Issuance of Class B convertible preferred stock 4,851,662 (369,861) 4,481,850
Conversion of Class B convertible preferred stock (644) --
Accretion of dividend payable on Class B
convertible preferred stock 138,365 (138,365) --
Extension/reassurance of underwriter warrants 168,249 168,249
Exercise of warrants (6) (3)
Issuance of common stock 3,463,818 3,469,801
Exercise of stock options 19,500 20,000
Compensation associated with stock option grants 55,643 55,643
Amortization of deferred compensation 34,632 34,632
Net loss (5,343,594) (5,343,594)
-----------------------------------------------------------------------------
Balance at December 31, 1997 $47,661,639 $ (72,128) $ -- $(35,736,922) $ 11,958,550
-----------------------------------------------------------------------------
27
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Statement of Changes in Shareholders' Equity
(Continued)
Class A Class B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
---------------------------------------------------------------- Treasury
Shares Amount Shares Amount Shares Amount Stock
----------------------------------------------------------------------------
Accretion of dividend payable on Class B
convertible preferred stock
Conversion of Class B convertible preferred
stock (4,592) (46) 1,205,178 12,052
Premium on Conversion dividend on class B
convertible preferred stock 585,898 5,859
Conversion of Class A convertible preferred
stock (174,981) (1,749) 486,062 4,860
Class A convertible preferred stock dividend 34,005 340
Discount on Series 1998 convertible preferred
stock
Series 1998 convertible preferred stock
accretion
Common stock issued in exchange for cancellation
of outstanding warrants 1,792,952 17,929
Exercise of stock options 32,750 328
Exercise of warrants 16,272 163
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
-------------------------------------------------------------------------
Balance at December 31, 1998 616,656 $ 6,167 -- $ -- 13,953,046 $ 139,530 $ --
-------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (144,612) (1,446) 401,707 4,018
Class A convertible preferred stock dividend 26,150 261
Series 1998 convertible preferred stock
accretion
Common stock issued in exchange for cancellation
of outstanding warrants 102 1
Exercise of stock options 470,886 4,709 (196,159)
Retirement of treasury stock (35,659) (357) 196,159
Exercise of warrants 26,296 263
Issuance of common stock 3,425,741 34,257
Amortization of deferred compensation
Net loss
-------------------------------------------------------------------------
Balance at December 31, 1999 498,194 $ 4,982 -- $ -- 18,242,119 $182,421 $ --
-------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (502,928) (5,029) 1,397,035 13,970
Redemption of Class A convertible preferred stock (545) (5)
Class A convertible preferred stock dividend 5,279 52
Series 1998 convertible preferred stock accretion
Conversion of Series 1998 convertible preferred stock 1,507,024 15,070
Exercise of stock options 650,409 6,504
Exercise of warrants 4,371,055 43,711
Compensation associated with stock option grants
Amortization of deferred compensation
Change in net unrealized gains and losses
Net loss
-------------------------------------------------------------------------
Balance at December 31, 2000 -- $ -- -- $ -- 26,167,642 $ 261,676 $ --
=========================================================================
The accompanying notes are an integral part of these financial statements.
Accumulated
Additional Other Total
Paid-in Deferred Comprehensive Accumulated Shareholders'
Capital Compensation Income Deficit Equity
---------------------------------------------------------------------------
Accretion of dividend payable on Class B
convertible preferred stock 286,776 (286,776) --
Conversion of Class B convertible preferred
stock (12,006) --
Premium on Conversion dividend on class B
convertible preferred stock 2,043,532 (2,049,391) --
Conversion of Class A convertible preferred --
stock (3,111)
Class A convertible preferred stock dividend 329,206 (329,546) --
Discount on Series 1998 convertible preferred
stock 1,597,218 (1,597,218)
Series 1998 convertible preferred stock
accretion -- (151,119) (151,119)
Common stock issued in exchange for cancellation
of outstanding warrants 8,441,442
(8,502,064) (42,693)
Exercise of stock options 119,854 120,182
Exercise of warrants 10,910 11,073
Compensation associated with stock option grants 51,252 51,252
Amortization of deferred compensation 34,632 34,632
Net loss (10,477,669) (10,477,669)
--------------------------------------------------------------------------
Balance at December 31, 1998 $52,024,648 $ (37,496) $ -- $(50,628,641) $ 1,504,208
--------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (2,572) --
Class A convertible preferred stock dividend 384,738 (384,999) --
Series 1998 convertible preferred stock
accretion (324,782) (324,782)
Common stock issued in exchange for cancellation
of outstanding warrants 473 474
Exercise of stock options 650,028 (40,310) 418,268
Retirement of treasury stock (195,802) --
Exercise of warrants (263) --
Issuance of common stock 14,955,131 14,989,388
Amortization of deferred compensation 34,632 34,632
Net loss (10,768,924) (10,768,924)
--------------------------------------------------------------------------
Balance at December 31, 1999 $68,012,183 $ (2,864) $ -- $ (62,343,458) $ 5,853,264
--------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (8,941) --
Redemption of Class A convertible preferred stock (5,445) (5,450)
Class A convertible preferred stock dividend 247,482 (247,534) --
Series 1998 convertible preferred stock accretion (358,178) (358,178)
Conversion of Series 1998 convertible preferred stock 5,522,395 5,537,465
Exercise of stock options 2,868,558 2,875,062
Exercise of warrants 23,270,995 23,314,706
Compensation associated with stock option grants 120,000 120,000
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 $100,027,227 $ -- $120,000 $ (77,752,202) $ 22,656,701
==========================================================================
28
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Statement of Cash Flows
For The Period
From May 1,
For the 1994 (Inception)
Year Ended through
December 31, December 31,
2000 1999 1998 2000
--------------------------------------------------------------
Cash flows from operating activities:
Net loss $(14,803,032) $(10,768,924) $(10,477,669) $(59,008,379)
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 450,482 495,370 496,776 1,897,834
Decrease (increase) in receivables and other
current assets 1,072,967 (409,224) (511,165) (694,087)
Decrease (increase) in other assets 437,823 559 (16,453) (28,195)
Increase in accounts payable and accrued expenses 262,117 297,063 1,563,332 2,962,330
Extension/reissuance of placement agent warrants -- -- -- 168,249
Stock issued for services -- -- -- 600,417
Non-cash compensation 122,864 34,632 85,884 957,302
--------------------------------------------------------------
Net cash used in operating activities (12,456,779) (10,350,524) (8,859,295) (48,317,685)
--------------------------------------------------------------
Cash flows from investing activities:
Purchases of marketable securities (38,298,898) -- (2,498,422) (63,006,486)
Maturities of marketable securities 20,259,139 2,594,497 6,992,465 44,966,727
Acquisition of fixed assets (367,936) (129,009) (221,280) (1,530,678)
--------------------------------------------------------------
Net cash (used in) provided by investing
activities (18,407,695) 2,465,488 4,272,763 (19,570,437)
--------------------------------------------------------------
Cash flows from finan