UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2005
or
o
|
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:
Genitope Corporation
| Delaware (State or other jurisdiction of incorporation or organization) |
77-0436313 (I.R.S. Employer Identification No.) |
525 Penobscot Drive
Redwood City, CA 94063
(Address of principal executive offices, including zip code)
(650) 482-2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
As of April 29, 2005, 28,245,309 shares of common stock of Genitope Corporation were outstanding.
GENITOPE CORPORATION
TABLE OF CONTENTS
| 3 | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 6 | ||||||||
| 10 | ||||||||
| 28 | ||||||||
| 29 | ||||||||
| 30 | ||||||||
| 30 | ||||||||
| 31 | ||||||||
| EXHIBIT 10.1 | ||||||||
| EXHIBIT 31.1 | ||||||||
| EXHIBIT 31.2 | ||||||||
| EXHIBIT 32.1 | ||||||||
The terms “Genitope,” “we,” “us” and “our” as used in this report refer to Genitope Corporation.
Genitope® Corporation, Hi-GET® gene amplification technology, our logo and MyVax® personalized immunotherapy are our registered house mark and trademarks. This report includes other service marks, trademarks and trade names of other companies such as Rituxan® anti-CD20 antibody.
2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
| March 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
| ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 64,606 | $ | 60,087 | ||||
Marketable securities |
44,794 | 56,422 | ||||||
Prepaid expenses and other current assets |
1,159 | 1,101 | ||||||
Total current assets |
110,559 | 117,610 | ||||||
Property and equipment, net |
2,357 | 2,196 | ||||||
Other assets |
111 | 59 | ||||||
Total assets |
$ | 113,027 | $ | 119,865 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 1,394 | $ | 2,073 | ||||
Accrued and other current liabilities |
2,245 | 1,502 | ||||||
Current lease obligations |
39 | 46 | ||||||
Total current liabilities |
3,678 | 3,621 | ||||||
Noncurrent lease obligations |
42 | 48 | ||||||
Total liabilities |
3,720 | 3,669 | ||||||
Stockholders’ equity: |
||||||||
Common stock, $0.001 par value, 65,000,000 shares authorized;
Issued and outstanding: 28,195,872 shares at March 31, 2005
and 28,191,145 shares at December 31, 2004 |
28 | 28 | ||||||
Additional paid-in capital |
231,746 | 231,784 | ||||||
Deferred stock compensation |
(542 | ) | (733 | ) | ||||
Accumulated other comprehensive loss |
(140 | ) | (94 | ) | ||||
Deficit accumulated during the development stage |
(121,785 | ) | (114,789 | ) | ||||
Total stockholders’ equity |
109,307 | 116,196 | ||||||
Total liabilities and stockholders’ equity |
$ | 113,027 | $ | 119,865 | ||||
The accompanying notes are an integral part of these unaudited financial statements.
3
GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
| Cumulative | ||||||||||||
| Period from | ||||||||||||
| August 15, 1996 | ||||||||||||
| Three Months Ended | (date of inception) | |||||||||||
| March 31, | to March 31, | |||||||||||
| 2005 | 2004 | 2005 | ||||||||||
Operating expenses: |
||||||||||||
Research and development |
$ | 5,883 | $ | 5,618 | $ | 80,949 | ||||||
Sales and marketing |
475 | 514 | 5,198 | |||||||||
General and administrative |
1,274 | 582 | 13,858 | |||||||||
Total operating expenses |
7,632 | 6,714 | 100,005 | |||||||||
Loss from operations |
(7,632 | ) | (6,714 | ) | (100,005 | ) | ||||||
Loss on extinguishment of convertible notes
and cancellation of Series E convertible
preferred stock warrants |
— | — | (3,509 | ) | ||||||||
Interest expense |
(1 | ) | (1 | ) | (2,983 | ) | ||||||
Interest and other income, net |
637 | 61 | 3,119 | |||||||||
Net loss |
(6,996 | ) | (6,654 | ) | (103,378 | ) | ||||||
Dividend related to issuance of convertible
preferred shares and the beneficial
conversion feature of preferred stock |
— | — | (18,407 | ) | ||||||||
Net loss attributable to common stockholders |
$ | (6,996 | ) | $ | (6,654 | ) | $ | (121,785 | ) | |||
Basic and diluted net loss per share
attributable to common stockholders |
$ | (0.25 | ) | $ | (0.40 | ) | ||||||
Shares used in computing basic and diluted
net loss per share attributable to common
stockholders |
28,176 | 16,762 | ||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
4
GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
| Cumulative | ||||||||||||
| Period from | ||||||||||||
| August 15, 1996 | ||||||||||||
| Three Months Ended | (date of inception) | |||||||||||
| March 31, | to March 31, | |||||||||||
| 2005 | 2004 | 2005 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (6,996 | ) | $ | (6,654 | ) | $ | (103,378 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Depreciation and amortization |
244 | 185 | 4,660 | |||||||||
Loss on disposal of assets |
— | — | 29 | |||||||||
Stock-based compensation expense |
157 | 270 | 4,861 | |||||||||
Loss on extinguishment of convertible notes and cancellation of
convertible preferred stock warrants |
— | — | 3,509 | |||||||||
Amortization of warrant issued to guarantor of the lines of credit |
— | — | 1,933 | |||||||||
Interest expense on convertible notes |
— | — | 892 | |||||||||
Common stock issued for services |
— | — | 46 | |||||||||
Changes in assets and liabilities: |
||||||||||||
Prepaids and other assets |
(107 | ) | 68 | (1,089 | ) | |||||||
Accounts payable |
(595 | ) | (391 | ) | 1,296 | |||||||
Accrued and other current liabilities |
539 | 63 | 1,854 | |||||||||
Net cash used in operating activities |
(6,758 | ) | (6,459 | ) | (85,387 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Purchase of property and equipment |
(139 | ) | (54 | ) | (6,427 | ) | ||||||
Purchase of marketable securities |
(75,970 | ) | — | (235,742 | ) | |||||||
Sale of marketable securities |
14,176 | — | 36,349 | |||||||||
Maturities of marketable securities |
73,376 | — | 154,459 | |||||||||
Long term cash deposits |
— | — | (167 | ) | ||||||||
Net cash provided by (used in) investing activities |
11,443 | (54 | ) | (51,528 | ) | |||||||
Cash flows from financing activities: |
||||||||||||
Net proceeds from issuance of convertible preferred stock |
— | — | 47,392 | |||||||||
Net proceeds from issuance of common stock related to initial public offering |
— | (353 | ) | 33,735 | ||||||||
Net proceeds from issuance of common stock related to follow-on public offering |
— | — | 55,718 | |||||||||
Net proceeds from issuance of common stock related to private placement |
(160 | ) | — | 57,260 | ||||||||
Borrowings under lines of credit |
— | — | 8,786 | |||||||||
Repayment of borrowings under lines of credit |
— | — | (8,786 | ) | ||||||||
Proceeds from issuance of convertible notes and warrants |
— | — | 6,060 | |||||||||
Proceeds from issuance of common stock under stock plans |
7 | 39 | 1,255 | |||||||||
Proceeds from exercise of Series D warrants |
— | — | 135 | |||||||||
Repurchase of unvested common stock |
— | (50 | ) | (83 | ) | |||||||
Proceeds from note receivable from stockholder |
— | — | 102 | |||||||||
Principal payments on capital lease obligations |
(13 | ) | (9 | ) | (53 | ) | ||||||
Net cash (used in) provided by financing activities |
(166 | ) | (373 | ) | 201,521 | |||||||
Net increase (decrease) in cash and cash equivalents |
4,519 | (6,886 | ) | 64,606 | ||||||||
Cash and cash equivalents, beginning of period |
60,087 | 29,790 | — | |||||||||
Cash and cash equivalents, end of period |
$ | 64,606 | $ | 22,904 | $ | 64,606 | ||||||
Supplemental disclosure: |
||||||||||||
Cash paid for interest |
$ | 1 | $ | — | $ | 151 | ||||||
Supplemental schedule of noncash investing and financing activities: |
||||||||||||
Conversion of preferred stock to common stock |
$ | — | $ | — | $ | 53,570 | ||||||
Dividend
related to issuance of convertible preferred shares and the beneficial conversion feature of preferred stock |
$ | — | $ | — | $ | 18,407 | ||||||
Discount on
convertible notes for beneficial conversion feature of preferred stock and warrants |
$ | — | $ | — | $ | 4,280 | ||||||
Conversion of convertible notes into convertible preferred stock |
$ | — | $ | — | $ | (4,280 | ) | |||||
Warrants issued to guarantor of the lines of credit |
$ | — | $ | — | $ | 1,933 | ||||||
Warrants issued in connection with services related to convertible
preferred stock |
$ | — | $ | — | $ | 144 | ||||||
Accrued interest converted in convertible preferred stock |
$ | — | $ | — | $ | 121 | ||||||
Convertible preferred stock issued in exchange for note receivable
from stockholder |
$ | — | $ | — | $ | 5 | ||||||
Conversion of notes payable to preferred stock |
$ | — | $ | — | $ | 1,780 | ||||||
Accrued offering costs for issuance of common stock related to private placement |
$ | (146 | ) | $ | — | $ | 4 | |||||
Acquisition of property and equipment under capital leases |
$ | — | $ | — | $ | 134 | ||||||
Accrued cost for acqusition of property and equipment |
$ | 266 | $ | — | $ | 485 | ||||||
Receivable from issuance of common stock under stock plan |
$ | 3 | $ | — | $ | 14 | ||||||
Unrealized losses on marketable securities |
$ | (46 | ) | $ | — | $ | (140 | ) | ||||
The accompanying notes are an integral part of these unaudited financial statements.
5
GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Genitope Corporation is a development stage enterprise focused on the research and development of novel immunotherapies for the treatment of cancer. Immunotherapies are treatments that utilize the immune system to combat diseases. Our lead product candidate, MyVax Personalized Immunotherapy, is a patient-specific active immunotherapy that is based on the unique genetic makeup of a patient’s tumor and is designed to activate a patient’s immune system to identify and attack cancer cells. MyVax is currently in a pivotal Phase 3 clinical trial and additional Phase 2 clinical trials for the treatment of B-cell non-Hodgkin’s lymphoma (“NHL”). We were incorporated in the State of Delaware on August 15, 1996 and have incurred significant losses since our inception.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for the fair statement of the financial statements, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period. Further, the preparation of condensed financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. Actual results could differ from those estimates. A change in facts or circumstances surrounding the estimate could result in a change to estimates and impact future operating results.
The financial statements and related disclosures have been prepared with the presumption that users of the interim financial statements have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2004 included in our Form 10-K filed with the Securities and Exchange Commission.
Liquidity
We have not generated any revenues to date, and we have financed our operations and internal growth through private placements of common and preferred stock, our lines of credit, our public offerings of common stock, and interest income earned from our cash, cash equivalents and marketable securities. We are a development stage enterprise and have incurred significant losses since our inception in 1996 as we have devoted substantially all of our efforts to research and development activities, including clinical trials. As of March 31, 2005, we had an accumulated deficit of $121.8 million. As of March 31, 2005, we had cash, cash equivalents and marketable securities of $109.4 million.
Stock-based compensation
We account for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and comply with the disclosure provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), as amended by Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation, Transition and Disclosure” (“SFAS No. 148”). Under APB 25, unearned stock compensation is based on the difference, if any, on the date of grant, between the deemed fair value of our common stock and the exercise price of stock option grants to employees.
We account for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” (“EITF 96-18”). The equity instruments, consisting of stock options, are valued using the Black-Scholes Model. All unvested shares are marked to market until such options vest.
6
All stock compensation is amortized and expensed in accordance with Financial Accounting Standards Board Interpretation No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans: an Interpretation of APB Opinions No. 15 and 25,” (“FIN 28”). We are amortizing stock compensation to expense over the period during which the periods vest, generally four years, using an accelerated vesting model consistent with FIN 28. Amortization of stock-based compensation for employees and non-employees is as follows (in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
Amortization of stock-based compensation: |
||||||||
Research and development |
$ | 90 | $ | 275 | ||||
Sales and marketing |
19 | 46 | ||||||
General and administration |
48 | (51 | ) | |||||
| $ | 157 | $ | 270 | |||||
Amortization of stock-based compensation will be reduced in future periods to the extent options are terminated prior to full vesting.
The determination of the fair value of each option and employee purchase right has been estimated at the date of grant, using the Black-Scholes Model, assuming the following weighted-average assumptions:
| Employee Stock | Employee Stock | |||||||||||||||
| Options | Purchase Plan | |||||||||||||||
| For the Three | For the Three | |||||||||||||||
| Months Ended | Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Average risk-free interest rates |
3.70 | % | 2.70 | % | 1.51 | % | N/A | |||||||||
Average expected life (in years) |
4.00 | 4.00 | 0.90 | N/A | ||||||||||||
Dividend yield |
0 | % | 0 | % | 0 | % | N/A | |||||||||
Volatility |
66 | % | 80 | % | 61 | % | N/A | |||||||||
Had compensation cost for our stock-based compensation plan been determined based on the fair value at the grant date of the awards consistent with the provisions of SFAS No. 123, as amended by SFAS 148, our net loss would have been increased to the amounts below (in thousands, except per share data):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
Net loss attributable to common stockholders,
as reported |
$ | (6,996 | ) | $ | (6,654 | ) | ||
Add: Employee stock-based compensation
included in reported net earnings |
141 | 270 | ||||||
Deduct: Employee total stock-based compensation
determined under fair value method |
(1,571 | ) | (578 | ) | ||||
Adjusted net loss attributable to common
stockholders |
$ | (8,426 | ) | $ | (6,962 | ) | ||
Basic and diluted net loss per share attributable to
common stockholders: |
||||||||
As reported |
$ | (0.25 | ) | $ | (0.40 | ) | ||
Adjusted |
$ | (0.30 | ) | $ | (0.42 | ) | ||
The resulting effect on net loss attributable to common stockholders and net loss per share attributable to common stockholders is not likely to be representative of the effects in future periods, due to subsequent periods including additional grants and periods of vesting.
Recent accounting pronouncements
In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment — An Amendment of FASB Statements No. 123 and 95” (“SFAS 123R”). The new pronouncement replaces the existing requirements under SFAS 123 and APB 25. According to SFAS
7
123R, all forms of share-based payments to employees, including employee stock options and employee stock purchase plans, would be treated the same as any other form of compensation by recognizing the related cost in the statement of operations. This pronouncement eliminates the ability to account for stock-based compensation transactions using APB 25 and generally requires that such transactions be accounted for using a fair-value based method. The statement requires companies to assess the most appropriate model to calculate the value of the options. We currently use the Black-Scholes option pricing model to value options and are currently assessing which model we may use in the future under the new statement and may deem an alternative model to be the most appropriate. The use of a different model to value options may result in a different fair value than the use of the Black-Scholes option pricing model. In addition, there are a number of other requirements under the new standard that would result in differing accounting treatment than currently required. These differences include, but are not limited to, the accounting for the tax benefit on employee stock options and for stock issued under our employee stock purchase plan, and the presentation of these tax benefits within the statement of cash flows. In addition to the appropriate fair value model to be used for valuing share-based payments, we will also be required to determine the transition method to be used at date of adoption. The allowed transition methods include prospective and retroactive adoption options. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated.
In April 2005, the Securities and Exchange Commission announced the adoption of a new rule that amends the effective date of SFAS 123R. The effective date of the new standard under these new rules for our financial statements is January 1, 2006. Adoption of this statement could have a significant impact on our financial statements as we will be required to expense the fair value of our stock option grants and stock purchases under our employee stock purchase plan (“ESPP”) rather than disclose the impact on our net loss within our footnotes, as is our current practice. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. We are in the process of evaluating the impact of this standard on our financial statements.
Comprehensive loss
Comprehensive loss is comprised of net loss and changes in unrealized gains/losses on available-for-sale securities. There were no material differences between net loss and comprehensive loss for all periods presented.
NOTE 2. NET LOSS PER SHARE
Basic net loss per share attributable to common stockholders is calculated based on the weighted-average number of shares of common stock outstanding during the period excluding those shares that are subject to repurchase. Diluted net loss per share attributable to common stockholders should give effect to the dilutive effect of potential issuances of common stock consisting of stock options, stock issuable under our ESPP, warrants, and common stock subject to repurchase. However, all potentially dilutive securities have been excluded from the diluted net loss per share computations as they have an antidilutive effect due to our net loss.
A reconciliation of shares used in the calculation is as follows (in thousands, except per share amounts):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
Numerator: |
||||||||
Net loss attributable to common stockholders |
$ | (6,996 | ) | $ | (6,654 | ) | ||
Denominator: |
||||||||
Weighted average common shares outstanding |
28,193 | 16,820 | ||||||
Less: Weighted average unvested common shares
subject to repurchase |
(17 | ) | (58 | ) | ||||
Denominator for basic and diluted calculations |
28,176 | 16,762 | ||||||
Basic and diluted net loss per share attributable
to common stockholders |
$ | (0.25 | ) | $ | (0.40 | ) | ||
8
The following outstanding stock options, shares issuable under our ESPP, warrants, and common stock subject to repurchase were excluded from the computation of diluted net loss per share attributable to common stockholders as they had an antidilutive effect (in thousands):
| As of March 31, | ||||||||
| 2005 | 2004 | |||||||
Shares issuable upon exercise of stock options |
2,033 | 970 | ||||||
Shares issuable upon exercise of warrants |
267 | 270 | ||||||
Shares issuable related to ESPP |
11 | — | ||||||
Common stock subject to repurchase |
16 | 32 | ||||||
| 2,327 | 1,272 | |||||||
NOTE 3. MARKETABLE SECURITIES
As of March 31, 2005, all of our investments are classified as short-term, as we have classified our investments as available for sale and may not hold our investments until maturity. The following is a summary of our available-for-sale marketable securities as of March 31, 2005 and December 31, 2004 (in thousands):
| As of March 31, 2005 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | ||||||||||||||
| Cost | Gains | Losses | Fair Value | |||||||||||||
Maturing within one year: |
||||||||||||||||
Corporate bonds |
$ | 28,463 | $ | 11 | $ | (65 | ) | $ | 28,409 | |||||||
U.S. government and agency securities |
16,471 | — | (86 | ) | 16,385 | |||||||||||
Total available-for-sale marketable securities |
$ | 44,934 | $ | 11 | $ | (151 | ) | $ | 44,794 | |||||||
| As of December 31, 2004 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | ||||||||||||||
| Cost | Gains | Losses | Fair Value | |||||||||||||
Maturing within one year: |
||||||||||||||||
Commercial paper |
$ | 990 | $ | — | $ | — | $ | 990 | ||||||||
Corporate bonds |
33,249 | 3 | (46 | ) | 33,206 | |||||||||||
U.S. government and agency securities |
16,324 | — | (21 | ) | 16,303 | |||||||||||
| 50,563 | 3 | (67 | ) | 50,499 | ||||||||||||
Maturing between one and two years: |
||||||||||||||||
U.S. government and agency securities |
5,953 | — | (30 | ) | 5,923 | |||||||||||
Total available-for-sale marketable securities |
$ | 56,516 | $ | 3 | $ | (97 | ) | $ | 56,422 | |||||||
NOTE 4. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consist of the following (in thousands):
| March | December | |||||||
| 31, 2005 | 31, 2004 | |||||||