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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

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:    0-24469

 

GenVec, Inc.
(Exact name of registrant as specified in its charter)

 

Delaware

 

23-2705690

(State or other jurisdiction of   (IRS Employer Identification
incorporation or organization)   Number)

 

65 West Watkins Mill Road, Gaithersburg, Maryland

20878

(Address of principal executive offices) (Zip Code)

 

240-632-0740
(Registrant's telephone number, including area code)

 

  
(Former name, former address and former fiscal year, if changed since last report.)

 

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

  Large accelerated filer ¨ Accelerated filer ¨  
  Non-accelerated filer ¨ Smaller reporting company x  
  (do not check if a smaller reporting company)  

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

 

As of October 31, 2012, the Registrant had 12,947,971 shares of common stock, $.001 par value, outstanding.

 

 
 

 

GENVEC, INC.
FORM 10-Q

 

TABLE OF CONTENTS

 

PART I.   FINANCIAL INFORMATION   3
Item 1.   Condensed Financial Statements (unaudited)   3
    Condensed Balance Sheets   3
    Condensed Statements of Operations and Comprehensive Loss   4
    Condensed Statements of Cash Flows   5
    Notes to Condensed Financial Statements   6
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   16
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   20
Item 4.   Controls and Procedures   21
         
PART II.   OTHER INFORMATION   21
Item 1.   Legal Proceedings   21
Item 1A.   Risk Factors   22
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   22
Item 3.   Defaults Upon Senior Securities   22
Item 4.   Mine Safety Disclosures   22
Item 5.   Other Information   22
Item 6.   Exhibits   22
         
SIGNATURES   23

 

2
 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED FINANCIAL STATEMENTS

 

GENVEC, INC.

CONDENSED BALANCE SHEETS

(in thousands, except per share data)

 

 

   September 30,   December 31, 
   2012   2011 
   (Unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $4,972   $4,114 
Short-term investments   13,223    22,332 
Accounts receivable, net   991    2,391 
Prepaid expenses and other   311    230 
Total current assets   19,497    29,067 
Property and equipment, net   777    692 
Other assets   171    107 
Total assets  $20,445   $29,866 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $1,575   $1,239 
Accrued expenses   2,275    1,958 
Unearned revenue   4    131 
Total current liabilities   3,854    3,328 
           
Stockholders’ equity:          
Preferred stock, $0.001 par value, 5,000 shares authorized; none issued and outstanding in 2012 and 2011   -    - 
Common stock, $0.001 par value; 30,000 shares authorized; 12,950 and 12,958 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively   13    13 
Additional paid-in capital   279,189    278,239 
Accumulated other comprehensive loss   (9)   (8)
Accumulated deficit   (262,602)   (251,706)
Total stockholders’ equity   16,591    26,538 
Total liabilities and stockholders’ equity  $20,445   $29,866 

 

 

See accompanying notes to unaudited condensed financial statements.

 

3
 

 

GENVEC, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)
(Unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2012   2011   2012   2011 
                 
Revenues  $2,128   $4,332   $7,832   $14,355 
                     
Operating expenses:                    
Research and development   3,380    3,819    11,284    13,538 
General and administrative   2,799    2,005    7,475    5,787 
Total operating expenses   6,179    5,824    18,759    19,325 
                     
Loss from operations   (4,051)   (1,492)   (10,927)   (4,970)
                     
Other income, net:                    
Interest income, net   12    9    31    33 
Total other income, net   12    9    31    33 
                     
Net loss  $(4,039)  $(1,483)  $(10,896)  $(4,937)
                     
Net loss per share - basic and diluted  $(0.31)  $(0.11)  $(0.84)  $(0.38)
                     
Weighted average shares outstanding - basic and diluted   12,938    12,918    12,938    12,917 
                     
Comprehensive Loss:                    
                     
Net loss  $(4,039)  $(1,483)  $(10,896)  $(4,937)
                     
Unrealized holding gain (loss) on securities available for sale   18    (35)   (1)   (52)
                     
Comprehensive loss  $(4,021)  $(1,518)  $(10,897)  $(4,989)

 

See accompanying notes to unaudited condensed financial statements.

 

4
 

 

GENVEC, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

   Nine Months Ended 
   September 30, 
   2012   2011 
Cash flows from operating activities:          
Net loss  $(10,896)  $(4,937)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   181    175 
Non-cash charges for stock-based compensation   950    1,193 
Change in accounts receivable   1,400    508 
Change in accounts payable and accrued expenses   653    (1,761)
Change in unearned revenue   (127)   (1,562)
Change in other assets and liabilities, net   (144)   (126)
Net cash used in operating activities   (7,983)   (6,510)
           
Cash flows from investing activities:          
Purchases of property and equipment   (266)   (161)
Purchases of investment securities   (25,928)   (43,113)
Proceeds from sale and maturity of investment securities   35,035    23,413 
Net cash provided by/(used in) investing activities   8,841    (19,861)
           
Cash flows from financing activities:          
Proceeds from issuance of common stock and warrants, net of issuance costs   -    37 
Net cash provided by financing activities   -    37 
           
Increase (decrease) in cash and cash equivalents   858    (26,334)
Beginning balance of cash and cash equivalents   4,114    35,002 
           
Ending balance of cash and cash equivalents  $4,972   $8,668 

 

See accompanying notes to unaudited condensed financial statements.

 

5
 

 

GENVEC, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

(1)General

 

Basis of Presentation

 

The condensed financial statements included herein have been prepared by GenVec, Inc. (GenVec, we, our, or the Company) without audit pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. We believe the disclosures are adequate to make the information presented not misleading. The condensed financial statements included herein should be read in conjunction with the financial statements and the notes thereto included in our 2011 Annual Report on Form 10-K filed with the SEC.

 

In the opinion of management, the accompanying condensed, unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of September 30, 2012 and December 31, 2011 and the results of its operations and cash flows for the three and nine-month periods ended September 30, 2012 and September 30, 2011. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

 

Business

 

GenVec is a biopharmaceutical company using differentiated, proprietary technologies to create superior therapeutics and vaccines. A key component of our strategy is to develop and commercialize our product candidates through collaborations. GenVec is working with leading companies and organizations such as Novartis, Merial, and the U.S. Government to support a portfolio of product programs that address the prevention and treatment of a number of significant health concerns. GenVec's development programs address therapeutic areas such as hearing loss and balance disorders; and vaccines against infectious diseases including respiratory syncytial virus, herpes simplex virus, dengue fever, and malaria.

 

We use our adenovector platform to deliver genes to cells, which then direct the production of the desired protein to repair cellular functions. This approach reduces side effects typically associated with systemic delivery of proteins.

 

In our vaccine program, the goal is to induce an immune response against a target protein or antigen. This is accomplished by using an adenovector to deliver a gene that induces the production of an antigen, which then stimulates the desired immune reaction by the body to protect against a specific pathogen.

 

Our research and development activities yield product candidates that utilize our technology platform and represent significant commercial opportunities. For example, preclinical research in hearing loss and balance disorders suggests delivery of the atonal gene using GenVec's adenovector technology may have the potential to restore hearing and balance function. We are working with Novartis Institutes for BioMedical Research, Inc. (together with Novartis AG and its subsidiary corporations, including Novartis Pharma AG, Novartis), on the discovery and development of novel treatments for hearing loss and balance disorders. There are currently no effective treatments available for patients who have lost all balance function, and hearing loss remains a major unmet medical need.

 

On May 23, 2012, Cynthia Collins, became our President and Chief Executive Officer and was appointed to our Board of Directors. Prior to Ms. Collins joining the Company, on May 22, 2012, Paul H. Fischer, Ph.D. resigned as our President and Chief Executive Officer as well as from our Board of Directors.

 

Our estimated future capital requirements are uncertain and could change materially as a result of many factors, including the progress of our research, development, clinical, manufacturing, and commercialization activities. In an effort to conserve capital, we have taken steps to lower our operating costs in order to reduce costs. These steps included announcing on September 25, 2012 eliminating 23 positions, or approximately 30% of our workforce. Approximately $700,000 of severance costs were incurred in the third quarter of 2012, of which approximately $400,000 will be paid in the fourth quarter of 2012, and the remaining amount will be paid in 2013. As a result we estimate we have sufficient resources to fund our operations through at least the third quarter of 2014.

 

6
 

 

Use of Estimates

 

The preparation of financial statements, in conformity with U.S. generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities on the date of the financial statements, and revenues and expenses during the period. Critical accounting policies involved in applying our accounting policies are those that require management to make assumptions about matters that are highly uncertain at the time the accounting estimate was made and those for which different estimates reasonably could have been used for the current period. Critical accounting estimates are also those which are reasonably likely to change from period to period, and would have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. Our most critical accounting estimates relate to accounting policies for strategic alliance and research contract revenues, and share-based arrangements. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances. Actual results could differ from these estimates.

 

Recent Accounting Pronouncements

 

There were no new pronouncements effective as of September 30, 2012 that had a significant effect on our financial position or results of operations. Additionally, other new pronouncements issued but not effective until after September 30, 2012 are not expected to have a significant effect on our financial position or results of operations.

 

Reclassifications

 

We have made certain reclassifications to prior year amounts to conform to the 2012 presentation.

 

(2)Fair Value Measurements

 

For assets and liabilities measured at fair value we utilize FASB Accounting Standards Codification (ASC) Section 820 “Fair Value Measurements and Disclosures” (ASC 820) that defines fair value and establishes a framework for fair value measurements. This standard establishes a three-level hierarchy for disclosure of fair value measurements. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels of inputs used to measure fair value are as follows:

 

·Level 1 – Quoted prices in active markets for identical assets or liabilities;

 

·Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable (e.g. interest rates, yield curves, volatilities and default rates, among others) or can be corroborated by observable market data; and

 

·Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

 

As of September 30, 2012 and December 31, 2011, the carrying value of our cash and cash equivalents, short-term investments, accounts receivable, and current liabilities is equal to or approximate fair value due to their short-term nature or proximity to current market rates.

 

7
 

 

The following table presents information about assets recorded at fair value on a recurring basis as of September 30, 2012 on the Condensed Balance Sheet:

 

       Quoted Prices in     
       Active Markets for   Significant 
   Total Carrying   Identical   Other Observable 
   Value on the   Assets/Liabilities   Inputs 
(In thousands)  Balance Sheet   (Level 1)   (Level 2) 
Assets:               
Cash and cash equivalents  $4,972   $4,972   $- 
Corporate notes and bonds   7,577    -    7,577 
U.S. Government and agency securities   5,584    -    5,584 
Equity securities   62    62    - 
Total assets at fair value  $18,195   $5,034   $13,161 

 

The following table presents information about assets recorded at fair value on a recurring basis as of December 31, 2011 on the Condensed Balance Sheet:

 

       Quoted Prices in     
       Active Markets for   Significant 
   Total Carrying   Identical   Other Observable 
   Value on the   Assets/Liabilities   Inputs 
(In thousands)  Balance Sheet   (Level 1)   (Level 2) 
Assets:               
Cash and cash equivalents  $4,114   $4,114   $- 
Corporate notes and bonds   5,095    -    5,095 
U.S. Government and agency securities   17,171    -    17,171 
Equity securities   66    66    - 
Total assets at fair value  $26,446   $4,180   $22,266 

 

We determine fair value for marketable securities with Level 1 inputs through quoted market prices and have classified them as available-for-sale. Our Level 2 marketable securities consist of commercial paper, corporate and U.S. agency bonds with maturities of less than twelve months.

 

The level classification of investments as of September 30, 2012 was consistent with December 31, 2011.

 

All unrealized holding losses related to our investments in marketable securities are reflected in accumulated other comprehensive loss in stockholders’ equity. The change in accumulated other comprehensive loss was a net unrealized loss of $1,000 as compared to a net unrealized loss of $52,000 for the nine months ended September 30, 2012 and 2011, respectively.

 

(3)Stock Benefit Plans

 

Our stockholders approved the 2011 Omnibus Incentive Plan (2011 Plan) in June 2011. As of September 30, 2012, there are 622,346 shares available for future issuance and 622,063 outstanding options under the 2011 Plan. Options outstanding under the 2011 Plan on September 30, 2012 expire through 2022.

 

Stock options granted under the 2011 Plan generally have a contractual term of ten years. The Compensation Committee administers the 2011 Plan, approves the individuals to whom options, restricted stock, or other awards will be granted, and determines the terms of the awards, including the number of shares granted and exercise price of each option.

 

8
 

 

The 2011 Plan replaced the 2002 Stock Incentive Plan (2002 Plan), which was approved in June 2002 as the replacement for the 1993 Stock Incentive Plan (1993 Plan). There are 642,925 outstanding options and 11,750 outstanding restricted stock awards under the 2002 Plan as of September 30, 2012. Options outstanding under the 2002 Plan on September 30, 2012 expire through 2021. In October 2009, the Company issued 50,000 restricted shares of common stock under the 2002 Plan. Restricted stock awards generally vest over a three-year term, with 50% vesting two years after issuance and 50% vesting three years after issuance. In October 2011, 20,875 restricted stock units vested, the remainder will vest in October 2012. In July 2012, an amendment to the 2011 Plan was approved to increase the number of shares of common stock that are available to be issued through grants or awards by 640,000 shares.

 

In May 2012, the Company granted an Inducement Award to purchase shares of common stock to our President and Chief Executive Officer. The Inducement Award allows for the purchase of up to 250,000 shares of common stock at an exercise price per share equal to $2.54. The option has a ten-year term and will vest and become exercisable as to one-eighth (1/8th) of the shares of common stock covered by the option on the six month anniversary of the grant date and, on the first day of each month thereafter the option will vest and become exercisable as to an additional one-forty-eighth (1/48th) of the shares of common stock covered by the option until the option is fully exercisable.

 

Stock-Based Compensation Expense

 

We measure the cost of all share-based payment awards made to our employees and directors including awards of employee stock options, restricted stock units and employee stock purchases based on the fair value method of measurement and recognize compensation expense on a straight-line basis over the service period of each award. 

 

We measure compensation expense for our non-employee stock-based compensation based on the fair value of the stock issued to measure the fair value of services received as we believe such approach is a more reliable method of measuring the fair value of the services. Fair value is measured based on the value of our common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is calculated and then recorded as compensation expense over the requisite performance period. This amount is marked to market until all shares are vested by the non-employees.

 

The following table summarizes stock-based compensation expense related to employee stock options for the three-month and nine-month periods ended September 30, 2012 and September 30, 2011, which was allocated as follows:

  

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2012   2011   2012   2011 
   (in thousands)   (in thousands) 
                 
Research and development  $208   $301   $636   $835 
General and administrative   104    131    314    358 
   $312   $432   $950   $1,193 

 

9
 

 

The weighted-average estimated fair value of employee stock options granted during the nine months ended September 30, 2012 and 2011 were $2.00 and $4.06, respectively. The weighted-average estimated fair value of employee stock options granted during the nine months ended September 30, 2012 and 2011 was calculated using the Black-Scholes model with the following weighted-average assumptions:

 

   For the Nine   For the Nine 
   Months Ended   Months Ended 
   September 30, 2012   September 30, 2011 
         
Risk-free interest rate   1.04%   2.09%
Expected dividend yield   0.00%   0.00%
Expected volatility   97.97%   97.62%
Expected life (years)   6.34    5.66 

 

The volatility assumption for 2012 and 2011 is based on the weighted average volatility for the most recent one-year period as well as the volatility over the expected life of 6.34 years and 5.66 years, respectively.

 

The risk-free interest rate assumption is based upon various U.S. Treasury rates as of the date of the grants ranging from 0.81% to 1.58% for the nine months ended September 30, 2012 and 0.25% to 2.30% for the nine months ended September 30, 2011.

 

The dividend yield is based on the assumption that we do not expect to declare a dividend over the life of the options.

 

The expected life of employee stock options represents the weighted average combining the actual life of options that have already been exercised or cancelled with the expected life of all outstanding options. The expected life of outstanding options is calculated assuming the options will be exercised at the midpoint of the vesting date (four years) and the full contractual term (ten years). Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on our historical forfeiture rates and standard probabilities of employee turnover based on the demographics of current option holders. We do not record tax related effects on stock-based compensation given our historical and anticipated operating experience and offsetting changes in our valuation allowance which fully reserves against potential deferred tax assets.

 

10
 

 

Stock Options

 

The following table summarizes the stock option activity for the nine months ended September 30, 2012:  

 

       Weighted   Weighted     
       average   average   Aggregate 
(in thousands,  Number   exercise   contractual   intrinsic 
except exercise price and contractual term data)  of shares   price   life (years)   value 
                     
Stock options outstanding, December 31, 2011   1,021   $14.77           
Granted   996    2.49           
Exercised   -    -           
Forfeited   (216)   4.21           
Expired   (286)   18.27           
Stock options outstanding at September 30, 2012   1,515   $7.54    7.58   $- 
Vested or expected to vest at September 30, 2012   1,395   $7.92    7.43   $- 
Exercisable at September 30, 2012   611   $13.79    4.96   $- 

 

Unrecognized stock-based compensation related to stock options was approximately $2.0 million as of September 30, 2012. This amount is expected to be expensed over a weighted average period of 2.4 years. There were no options exercised during the nine months ended September 30, 2012. We realized proceeds of $3,000 from options exercised during the nine months ended September 30, 2011.

 

The following table summarizes information about our stock options outstanding as of September 30, 2012:  

  

   Outstanding   Exercisable 
       Weighted             
       average   Weighted       Weighted 
       remaining   average       average 
Range of exercise  Number   contractual   exercise   Number   exercise 
prices  of shares   life (in years)   price   of shares   price 
   (number of shares in thousands) 
                     
$0.00 - $10.00   1,133    8.76   $3.14    255   $4.35 
$10.01 - $30.00   355    4.27    19.63    329    19.46 
$30.01 - $40.00   24    1.35    32.74    24    32.74 
$40.01 - $50.00   3    3.70    41.16    3    41.16 
    1,515    7.58   $7.54    611   $13.79 

  

11
 

  

The following table summarizes the status of the Company’s non-vested restricted stock as of September 30, 2012:

 

       Weighted     
       Average   Aggregate 
   Number   Grant Date   Intrinsic 
(in thousands, except per share data)  of Units   Fair Value   Value 
                
Non-vested restricted stock at December 31, 2011   20   $7.90      
Granted   -    -      
Exercised   -    -      
Cancelled   (8)   7.90      
                
Non-vested restricted stock at September 30, 2012   12   $7.90   $95 
                
Expected to vest at September 30, 2012   12   $7.90   $95 

 

Restricted stock awards granted are scheduled to vest 50 percent two years after the date of grant and 50 percent three years after the date of grant. The cost of the grant is charged to operations over the vesting period. On September 30, 2012, the weighted average remaining term of non-vested restricted stock was 0.04 years. The remaining outstanding restricted stock awards vested on October 14, 2012.

 

Forfeitures are estimated based on our historical forfeiture rates and standard probabilities of employee turnover based on the demographics of current option holders.

 

Unrecognized stock-based compensation related to restricted stock awards was approximately $29,000 as of September 30, 2012. This amount is expected to be expensed in October 2012.

 

(4) Net Loss per Share

 

Basic earnings per share is computed based upon the net loss available to common stock stockholders divided by the weighted average number of common stock shares outstanding during the period. The dilutive effect of common stock equivalents is included in the calculation of diluted earnings per share only when the effect of the inclusion would be dilutive. For the nine months ended September 30, 2012 and 2011 approximately 623,000 and 703,000 common stock equivalent shares associated with our stock option plans and unvested restricted shares and approximately 1.4 million common stock equivalent shares associated with our warrants for each period, respectively, were excluded from the denominator in the diluted loss per share calculation as their inclusion would have been antidilutive due to our net loss incurred during the periods presented.

 

12
 

 

(5) Stockholders’ Equity

 

The table below sets forth the outstanding warrants to purchase shares of common stock as of September 30, 2012:

 

Offering Date  Outstanding Warrants   Exercise Price   Expiration Date  Status 
                
June 2008   220,383   $20.16   6/11/2013   Exercisable 
May 2009   711,539   $8.58   5/29/2014   Exercisable 
February 2010   420,000   $27.50   2/1/2015   Exercisable 
    1,351,922              

 

During the nine months ended September 30, 2012, no warrants were exercised. 

 

(6)Collaborative Agreement

 

In January 2010, we signed a research collaboration and license agreement (the Agreement) with Novartis to discover and develop novel treatments for hearing loss and balance disorders. Under the terms of the Agreement, we licensed the world-wide rights to our preclinical hearing loss and balance disorders program to Novartis. We received a $5 million non-refundable upfront license fee and Novartis purchased $2.0 million of our common stock. The common stock was recorded at fair value of $3.3 million on the date of issuance. The upfront non-refundable fee was recognized ratably over the term of the two-year research and collaboration term of the Agreement. The upfront payment was fully recognized in January 2012. Revenue recognized from the non-refundable upfront license fee was $3.7 million due to the pricing agreement associated with the sale of our common stock. In addition, we receive funding from Novartis for a research program focused on developing additional adenovectors for hearing loss. In January 2012, we extended our research collaboration and license agreement with Novartis. Under the extension, Novartis will fund research at GenVec through January 2013 to support this program. During the three-month and nine-month periods ended September 30, 2012, we recognized $0 and $78,000 of the upfront payment, respectively, and $152,000 and $581,000 for research performed under this Agreement, respectively. During the three-month and nine-month periods ended September 30, 2011, we recognized $466,000 and $1,398,000 of the upfront payment, respectively, and $610,000 and $1,389,000, respectively for research performed under this Agreement.

 

Under the Agreement, we are eligible to receive milestones payments of up to $206.6 million; including up to $0.6 million for the achievement of preclinical development activities, up to $26.0 million for the achievement of clinical milestones including (non-rejection of an IND with respect to a covered product, the first patient visit in Phase I, Phase IIb, and Phase III clinical trials), up to $45.0 million for the receipt of regulatory approvals and up to $135.0 million for sales milestones. During each of the years ended December 31, 2011 and 2010, we recognized $300,000 of milestone payments as a result of the successful completion of preclinical development activities. There were no milestones achieved during the nine months ended September 30, 2012 or 2011.

 

In August 2010, we signed an agreement for the supply of services relating to development materials with Novartis, related to the companies' collaboration in hearing loss and balance disorders. Under this agreement, GenVec could receive approximately $13.0 million over four years to manufacture clinical trial material for up to two lead candidates. During the three-month and nine-month periods ended September 30, 2012 we recognized $0.9 million and $3.0 million, respectively, for services performed under this agreement. During the three-month and nine-month periods ended September 30, 2011, we recognized $1.3 million and $5.1 million, respectively for services performed under this agreement.

 

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(7)Litigation

 

On February 3, 2012, a putative class action lawsuit was commenced against the Company, Paul H. Fischer, Douglas J. Swirsky and Mark O. Thornton, in the United States District Court for the District of Maryland, captioned Satish Shah v. GenVec, Inc., et al. Civil Action. No. 8:12 CV-00341-DKC. Following appointment of a Lead Plaintiff group in April 2012, Lead Plaintiffs filed a pleading titled Amended Class Action Complaint for Violations of the Federal Securities Laws on July 6, 2012 (the “Amended Complaint”). In the Amended Complaint, Lead Plaintiffs assert claims, purportedly on behalf of a class of persons who purchased or acquired Company common stock between March 12, 2009 and March 30, 2010 (the “Class Period”), that the Company and the individual defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act. Lead Plaintiffs allege generally that defendants made materially false or misleading statements or omissions concerning the prospects for the Company’s leading product candidate at the time, TNFerade, and the outcome of the then-ongoing clinical trial for TNFerade. Lead Plaintiffs allege that these misrepresentations resulted in the Company's common stock trading at artificially inflated prices throughout the Class Period. Lead Plaintiffs seek unspecified damages. On September 4, 2012, the Company and the individual defendants moved to dismiss the Amended Complaint in its entirety for failure to state a claim upon which relief can be granted. Lead Plaintiffs are scheduled to file an opposition to the motion to dismiss on or before November 12, 2012. Defendants’ reply brief is due on or before December 24, 2012. The Company cannot predict the outcome of the motion to dismiss, or of the securities litigation should the motion to dismiss be denied. We deny the material allegations of the Shah action and intend to vigorously defend the case.

 

On March 12, 2012, a putative shareholder derivative action was commenced in the United States District Court for the District of Maryland against certain current and former members of our Board of Directors and the Company as a nominal defendant. The case is styled Garnitschnig v. Horovitz, et al and generally arises out of the matters alleged to underlie the securities action. The plaintiff, who purports to bring the action derivatively on behalf of the Company, alleges that the defendants violated their fiduciary duties, wasted corporate assets and were unjustly enriched by the receipt of compensation while serving as our directors. More particularly, the plaintiff's Complaint alleges that as a result of the defendants' failure of oversight, we disseminated misleading public statements and improperly continued with a clinical trial. Plaintiff seeks, among other things, an unspecified award of damages against the defendants, an order directing us to make certain changes to our corporate governance and oversight procedures, disgorgement by the defendants of compensation and an award of attorneys' fees. On or about April 3, 2012, the parties filed a joint motion seeking, among other things, to stay the case until such time as any motions(s) to dismiss the Shah case are decided. On or about April 5, 2012, the Court entered an order granting that motion. We deny the material allegations of the Garnitschnig action and intend to vigorously defend the case.

 

14
 

 

GENVEC, INC.

 

FORM 10-Q

 

FORWARD-LOOKING STATEMENTS

 

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

 

Forward-looking statements also may be included in other statements that we make. All statements that are not descriptions of historical facts are forward-looking statements and are based on management’s estimates, assumptions, and projections that are subject to risks and uncertainties. These statements can generally be identified by the use of forward-looking words like “believe,” “expect,” “intend,” “may,” “will,” “should,”  “anticipate,” “estimate,” or similar terminology.

 

Although we believe that the expectations reflected in our forward-looking statements are reasonable as of the date we make them, actual results could differ materially from those currently anticipated due to a number of factors, including risks relating to:

 

the transition to a new chief executive officer;

 

our product candidates being in the early stages of development;

 

our ability to find collaborators and the terms of our agreements that we may enter into with them;

 

uncertainties with, and unexpected results and related analyses relating to, pre-clinical development and clinical trials of our product candidates;

 

the timing, amount, and availability of revenues from our government-funded vaccine programs;

 

the timing and content of future FDA regulatory actions related to us, our product candidates, or our collaborators;

 

our financial condition and the sufficiency of our existing cash, cash equivalents, marketable securities, and cash generated from operations and our ability to lower our operating costs; and

 

the scope and validity of patent protection for our product candidates and our ability to commercialize products without infringing the patent rights of others.

 

Further information on the factors and risks that could affect our business, financial condition, and results of operations is set forth under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2011 and is contained in our other filings with the SEC. The filings are available on our website at www.genvec.com or at the SEC’s website, www.sec.gov.

 

These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q, and we assume no duty to update our forward-looking statements.

 

15
 

 

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

OVERVIEW

 

GenVec is a biopharmaceutical company using differentiated, proprietary technologies to create superior therapeutics and vaccines. A key component of our strategy is to develop and commercialize our product candidates through collaborations. GenVec is working with leading companies and organizations such as Novartis, Merial, and the U.S. Government to support a portfolio of product programs that address the prevention and treatment of a number of significant health concerns. GenVec's development programs address therapeutic areas such as hearing loss and balance disorders; and vaccines against infectious diseases including respiratory syncytial virus, herpes simplex virus, dengue fever, and malaria.

 

We use our adenovector platform to deliver genes to cells, which then direct the production of the desired protein to repair cellular functions. This approach reduces side effects typically associated with systemic delivery of proteins.

 

In our vaccine program, the goal is to induce an immune response against a target protein or antigen. This is accomplished by using an adenovector to deliver a gene that induces the production of an antigen, which then stimulates the desired immune reaction by the body to protect against a specific pathogen.

 

Our research and development activities yield product candidates that utilize our technology platform and represent significant commercial opportunities. For example, preclinical research in hearing loss and balance disorders suggests delivery of the atonal gene using GenVec's adenovector technology may have the potential to restore hearing and balance function. We are working with Novartis Institutes for BioMedical Research, Inc. (together with Novartis AG and its subsidiary corporations, including Novartis Pharma AG, Novartis), on the discovery and development of novel treatments for hearing loss and balance disorders. There are currently no effective treatments available for patients who have lost all balance function, and hearing loss remains a major unmet medical need.

 

On May 23, 2012, Cynthia Collins, became our President and Chief Executive Officer and was appointed to our Board of Directors. Prior to Ms. Collins joining the Company, on May 22, 2012, Paul H. Fischer, Ph.D. resigned as our President and Chief Executive Officer as well as from our Board of Directors.

  

Our estimated future capital requirements are uncertain and could change materially as a result of many factors, including the progress of our research, development, clinical, manufacturing, and commercialization activities. In an effort to conserve capital, we have taken steps to lower our operating costs in order to reduce costs. These steps included announcing on September 25, 2012 eliminating 23 positions, or approximately 30% of our workforce. Approximately $700,000 of severance costs were incurred in the third quarter of 2012, of which approximately $400,000 will be paid in the fourth quarter of 2012, and the remaining amount will be paid in 2013. As a result we estimate we have sufficient resources to fund our operations through at least the third quarter of 2014.

 

As a biopharmaceutical company, our business and our ability to execute our strategy to achieve our corporate goals are subject to numerous risks and uncertainties. Material risks and uncertainties relating to our business and our industry are described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. The description of our business in this Form 10-Q should be read in conjunction with the information described in Item 1A of the 10-K.

 

16
 

 

FINANCIAL OVERVIEW FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

 

Results of Operations

 

GenVec’s net loss was $4.0 million, or $0.31 per share, on revenues of $2.1 million for the three-months ended September 30, 2012. This compares to a net loss of $1.5 million, or $0.11 per share, on revenues of $4.3 million in the same period in the prior year. GenVec’s net loss was $10.9 million, or $0.84 per share, on revenues of $7.8 million for the nine-months ended September 30, 2012. This compares to a net loss of $4.9 million, or $0.38 per share, on revenues of $14.4 million in the same period in the prior year. Included in our net loss for the first nine months of 2012 was stock-based compensation expense of $950,000 as compared to $1.2 million for the same period in the prior year. GenVec ended the third quarter of 2012 with $18.2 million in cash and cash equivalents and investments.

 

Revenue

 

Revenues for the three-month and nine-month periods ended September 30, 2012 were $2.1 million and $7.8 million, which represent decreases of 51 percent and 45 percent, respectively, as compared to $4.3 million and $14.4 million in the comparable prior year periods.

 

Revenues for the three-month and nine-month periods ended September 30, 2012 were primarily derived from the collaboration with Novartis Institutes for Biomedical Research Inc. (Novartis) to discover and develop novel treatments for hearing loss and balance disorders. Revenue has also been derived from the Company’s funded research and development programs with the Department of Homeland Security, the National Institutes of Allergy and Infectious Diseases, and the National Institutes of Health (NIH), all of which use GenVec’s proprietary adenovector technology for the development of either vaccine candidates against foot-and-mouth disease (FMD) for livestock or vaccines against malaria, HIV, respiratory syncytial virus (RSV), and herpes simplex virus (HSV).

 

In January 2010, we announced a collaboration with Novartis to discover and develop novel treatments for hearing loss and balance disorders. Under terms of the agreement, we licensed the world-wide rights to our preclinical hearing loss and balance disorders program to Novartis. We received a $5.0 million upfront payment and Novartis purchased $2.0 million of our common stock. If certain clinical, regulatory, and sales milestones were met, we were eligible, at the inception of the agreement, to receive up to an additional $206.6 million in milestone payments in addition to royalties on future sales. During each of the years ended December 31, 2011 and 2010, we recognized $300,000 of milestone payments as a result of the successful completion of preclinical development activities. There were no milestones achieved during the nine months ended September 30, 2012 or September 30, 2011. In January 2012, we extended our research collaboration and license agreement with Novartis. Under the extension, Novartis will fund research at GenVec through January 2013 to support this program. During the three- month and nine-month periods ended September 30, 2012, we recognized $0 and $78,000 of the upfront payment, respectively, and $152,000 and $581,000 for research performed under this Agreement, respectively. The up-front payment was fully recognized in January 2012. During the three-month and nine-month periods ended September 30, 2011, we recognized $466,000 and $1,398,000, of the upfront payment, respectively, and $610,000 and $1,389,000 for research performed under this Agreement, respectively.

 

In August 2010, we signed an agreement for the supply of services relating to development materials with Novartis, related to the companies' collaboration in hearing loss and balance disorders. Under this agreement, GenVec could receive approximately $13 million over four years to manufacture clinical trial material for up to two lead candidates. During the three-month and nine-month periods ended September 30, 2012 we recognized $0.9 million and $3.0 million, respectively, for services performed under this agreement. During the three-month and nine-month periods ended September 30, 2011, we recognized $1.3 million and $5.1 million, respectively for services performed under this agreement.

 

In September 2012, we signed an agreement with the U.S. Naval Medical Logistics Command to support malaria vaccine development efforts at the U.S. Naval Medical Research Center (NMRC). Under the Agreement, we will provide clinical supplies to be used in one or more Phase I clinical trials by the NMRC. We anticipate receiving approximately $3.5 million over three years, with approximately $0.6 million in the fourth quarter of 2012, $1.9 million in 2013, $1.0 million in 2014, and $25,000 in 2015. The agreement contains an option for additional work of up to $0.2 million that can be requested by the NMRC.

 

17
 

 

Revenues recognized under our various funded research projects for the three-month and nine-month periods ended September 30, 2012 and 2011 are as follows:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2012   2011   2012   2011 
   (In thousands)   (In thousands) 
         
Hearing loss and balance disorders  $1,018   $2,407   $3,748   $7,876 
Animal health   495    936    1,866    2,844 
HIV   81    446    410    1,942 
Malaria   97    119    308    360 
Other   437    424    1,500    1,333 
                     
Total  $2,128   $4,332   $7,832   $14,355 

 

The decrease for the three-month and nine-month periods ended September 30, 2012 is primarily due to lower revenue associated with our hearing program which was $1.4 million and $4.1 million, respectively. The lower revenue for our hearing program is due mainly to reduced work scope associated with research and manufacturing activities in preparation of clinical studies under our Novartis agreements in 2012 as compared to the 2011 periods. Also revenue associated with our hearing program was lower because of the recognition of the up-front payment in the 2011 periods, as recognition of the upfront payment was completed in January 2012.

 

There was also a decrease is in revenue associated with our HIV vaccine program of $0.4 million and $1.5 million, for the three-month and nine-month periods ended September 30, 2012, respectively, due to reduced work scope from the NIH. The revenue for our animal health program, FMD vaccine, also decreased by $0.4 million during the three-month period ended September 30, 2012 and $1.0 million in the nine-month period ended September 30, 2012 compared to the comparable 2011 periods due mainly to the successful completion of field safety studies in early 2012.

 

Expenses

 

Operating expenses were $6.2 million and $18.8 million for the three-month and nine-month periods ended September 30, 2012, which represent an increase of 6 percent for the three-month period and a decrease of 3 percent for the nine-month period ended September 30, 2012 as compared to $5.8 million and $19.3 million in the comparable prior year periods.

 

On September 25, 2012 we announced we are lowering our operating costs to conserve capital, including eliminating 23 positions, or approximately 30% of our workforce. Approximately $700,000 of severance costs were incurred in the third quarter of 2012, of which approximately $400,000 will be paid in the fourth quarter of 2012, and the remaining amount will be paid in 2013.

 

Research and development expenses for the three-month and nine-month periods ended September 30, 2012 decreased 12 percent and 17 percent, respectively, from $3.8 million and $13.5 million in comparable 2011 periods to $3.4 million and $11.3 million for the three-month and nine-month periods in 2012. The decrease is primarily due to lower personnel costs and manufacturing costs associated with our animal health program, FMD vaccine. Also contributing to the decrease but to a lesser extent are reduced materials and supplies for general research operations and our hearing program in the three-month period ended September 30, 2012 as compared to the comparable prior year period. The decrease in the nine-month period ended September 30, 2012 is primarily due to lower personnel costs and lower manufacturing and testing costs associated with our hearing program. Also contributing to a lesser extent in each of the three-month and nine-month periods ended September 30, 2012 are reduced personnel and outside costs due to the termination of our TNFerade trial in March 2010 and the greater scope of associated wind down costs in 2011.

 

18
 

 

General and administrative expense for the three-month and nine-month periods ended September 30, 2012 increased 40 percent and 29 percent, respectively, with expense of $2.8 million and $7.5 million in 2012 as compared to $2.0 million and $5.8 million in 2011. During both the three-month and nine-month periods ended September 30, 2012 we experienced higher personnel costs due mainly to the costs associated with the elimination of 23 positions in the three-month period and the CEO transition in the nine-month period.

 

Other Income

 

Total other income increased by $3,000 for the three-month and decreased $2,000 for the nine month periods ended September 30, 2012 as compared to the prior year periods. Total other income is composed of interest income, net and other income (expense).

 

Liquidity and Capital Resources

 

We have experienced significant losses since our inception. As of September 30, 2012 we have an accumulated deficit of $262.6 million. The process of developing and commercializing our product candidates requires significant research and development work and clinical trial work, as well as significant manufacturing and process development efforts. These activities, together with our general and administrative expenses, are expected to continue to result in significant operating losses for the foreseeable future.

 

As of September 30, 2012, cash, cash equivalents, and investments totaled $18.2 million as compared to $26.4 million as of December 31, 2011.

 

For the nine months ended September 30, 2012, we used $8.0 million of cash for operating activities. This consisted of a net loss for the period of $10.9 million, which included approximately $181,000 of non-cash depreciation and amortization, $950,000 of non-cash stock option expenses, and an increase in cash from a decrease in accounts receivable of $1.4 million. Net cash was used primarily for the advancement of our internally funded research programs, the termination activities associated with our TNFerade clinical trial, and general and administrative activities.

 

Net cash provided by investing activities during the nine months ended September 30, 2012 was $8.8 million. This consisted of $25.9 million of cash used to purchase investment securities during the period and $266,000 of cash used for the purchase of laboratory equipment offset by proceeds from the sale and maturity of investments of $35.0 million.

 

Net cash provided by financing activities during the nine months ended September 30, 2012 was $0.

 

For the nine months ended September 30, 2011, we used $6.5 million of cash for operating activities principally to fund our operating loss of $4.9 million. This net loss included approximately $175,000 of non-cash depreciation and amortization and $1.2 million of non-cash stock compensation expense.  In addition, there was a net decrease in unearned revenue of $1.6 million, due mainly to the Novartis agreement, and a decrease in accounts payable and accrued expenses of $1.8 million.  Net cash was used primarily for the advancement of our internally funded research programs, the termination activities associated with our TNFerade clinical trial, and general and administrative activities.

 

Net cash used in investing activities during the nine months ended September 30, 2011 was $19.9 million. This consisted of $19.7 million of cash used to purchase investment securities, net during the period and $161,000 of cash used for the purchase of laboratory and office equipment.

 

Net cash provided by financing activities during the nine months ended September 30, 2011 was $37,000, from the issuance of common stock under our Employee Stock Purchase Plan. 

 

19
 

 

Our estimated future capital requirements are uncertain and could change materially as a result of many factors, including the progress of our research, development, clinical, manufacturing, and commercialization activities. In an effort to conserve capital, we have taken steps to lower our operating costs in order to reduce costs. These steps included announcing on September 25, 2012 eliminating 23 positions, or approximately 30% of our workforce. Approximately $700,000 of severance costs were incurred in the third quarter of 2012, of which approximately $400,000 will be paid in the fourth quarter of 2012, and the remaining amount will be paid in 2013. We currently estimate we will use an average of approximately $2.2 million of cash per quarter for the four quarters ending September 30, 2013. Our estimate includes approximately $0.9 million in contractual obligations as well as $0.6 million for capital expenditures. Based on this estimate, we believe we have sufficient resources to fund our operations through at least the third quarter of 2014.

 

Our business strategy is focused on entering into collaborative arrangements with third parties to complete the development and commercialization of our product candidates. We cannot forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements in whole or in part, and how such arrangements would affect our development plan or capital requirements. If we seek strategic alliances, licenses, or other alternative arrangements, such as arrangements with collaborative partners or others, we may need to relinquish rights to certain of our existing or future technologies, product candidates, or products we would otherwise seek to develop or commercialize on our own, or to license the rights to our technologies, product candidates, or products on terms that are not favorable to us. We also will continue to look for government sponsored research collaborations and grants to help offset future anticipated losses from operations, as we expect to continue to rely on government funding for a significant portion of our revenues for the next few years and, to a lesser extent, interest income. If we are unable to advance the development of our product candidates through collaborations, or if our current operating capital is not sufficient to fund our operations, we may need to access the capital markets for financing or enter into strategic alliances or licensing arrangements. If we determine to pursue and are successful in raising additional funds through the issuance of equity securities, investors will likely experience dilution, or the equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock. If we raise funds through the issuance of debt securities, those securities would have rights, preferences, and privileges senior to those of our common stock.

 

Off-Balance Sheet Arrangements and Contractual Obligations

 

We have no off-balance sheet financing arrangements other than in connection with our operating leases, which are disclosed in the contractual commitments table in our Form 10-K for the year ended December 31, 2011.

 

Significant Accounting Policies and Estimates

 

We describe our significant accounting policies in Note 2, Summary of Significant Accounting Policies, of the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011. We discuss our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2011. There have been no material changes in our significant accounting policies or critical accounting estimates since the end of 2011.

 

Recently Issued Accounting Pronouncements

 

There were no new pronouncements effective as of September 30, 2012 that had a significant effect on our financial position or results of operations. Additionally, other new pronouncements issued but not effective until after September 30, 2012 are not expected to have a significant effect on our financial position or results of operations.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The primary objective of our investment activities is to preserve our capital until it is required to fund operations while at the same time maximizing the income we receive from our investments without significantly increasing risk. Our cash flow and earnings are subject to fluctuations due to changes in interest rates in our investment portfolio. We maintain a portfolio of various issuers, types, and maturities. These securities are classified as available-for-sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a component of accumulated other comprehensive loss included in stockholders’ equity.

 

20
 

 

ITEM 4.CONTROLS AND PROCEDURES

 

As of September 30, 2012, under the supervision and with the participation of our President and Chief Executive Officer and our Senior Vice President, Chief Financial Officer, Treasurer, and Corporate Secretary (our principal executive officer and principal financial officer, respectively), we have reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the President and Chief Executive Officer and the Senior Vice President, Chief Financial Officer, Treasurer, and Corporate Secretary have concluded that, as of September 30, 2012, these disclosure controls and procedures are effective at the reasonable assurance level in alerting them in a timely manner to material information required to be included in our periodic SEC reports.

 

There were no changes in our internal controls over financial reporting during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

On February 3, 2012, a putative class action lawsuit was commenced against the Company, Paul H. Fischer, Douglas J. Swirsky and Mark O. Thornton, in the United States District Court for the District of Maryland, captioned Satish Shah v. GenVec, Inc., et al. Civil Action. No. 8:12 CV-00341-DKC. Following appointment of a Lead Plaintiff group in April 2012, Lead Plaintiffs filed a pleading titled Amended Class Action Complaint for Violations of the Federal Securities Laws on July 6, 2012 (the “Amended Complaint”). In the Amended Complaint, Lead Plaintiffs assert claims, purportedly on behalf of a class of persons who purchased or acquired Company common stock between March 12, 2009 and March 30, 2010 (the “Class Period”), that the Company and the individual defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act. Lead Plaintiffs allege generally that defendants made materially false or misleading statements or omissions concerning the prospects for the Company’s leading product candidate at the time, TNFerade, and the outcome of the then-ongoing clinical trial for TNFerade. Lead Plaintiffs allege that these misrepresentations resulted in the Company's common stock trading at artificially inflated prices throughout the Class Period. Lead Plaintiffs seek unspecified damages. On September 4, 2012, the Company and the individual defendants moved to dismiss the Amended Complaint in its entirety for failure to state a claim upon which relief can be granted. Lead Plaintiffs are scheduled to file an opposition to the motion to dismiss on or before November 12, 2012. Defendants’ reply brief is due on or before December 24, 2012. The Company cannot predict the outcome of the motion to dismiss, or of the securities litigation should the motion to dismiss be denied. We deny the material allegations of the Shah action and intend to vigorously defend the case.

 

On March 12, 2012, a putative shareholder derivative action was commenced in the United States District Court for the District of Maryland against certain current and former members of the Company's Board of Directors and the Company as a nominal defendant. The case is styled Garnitschnig v. Horovitz, et al., No. 8:12-cv-00774 and generally arises out of the matters alleged to underlie the securities action. The plaintiff, who purports to bring the action derivatively on behalf of the Company, alleges that the defendants violated their fiduciary duties, wasted corporate assets and were unjustly enriched by the receipt of compensation while serving as directors of the Company. More particularly, the plaintiff's Complaint alleges that as a result of the defendants' failure of oversight, the company disseminated misleading public statements and improperly continued with a clinical trial. Plaintiff seeks, among other things, an unspecified award of damages against the defendants, an order directing the Company to make certain changes to its corporate governance and oversight procedures, disgorgement by the defendants of compensation and an award of attorneys' fees. On or about April 3, 2012, the parties filed a joint motion seeking, among other things, to stay the case until such time as any motions(s) to dismiss the Shah case are decided. On or about April 5, 2012, the Court entered an order granting that motion. The Company denies the material allegations of the Garnitschnig action and intends to vigorously defend the case.

 

21
 

 

ITEM 1A.RISK FACTORS

 

None

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4.MINE SAFETY DISCLOSURES

 

None

 

ITEM 5.OTHER INFORMATION

 

None

 

ITEM 6.EXHIBITS

 

10.1Agreement with the U.S. Naval Medical Logistics Command regarding malaria vaccine development for the U.S. Naval Medical Research Center, dated September 29, 2012.+

 

31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INSXBRL Instance Document.

 

101.SCHXBRL Taxonomy Extension Schema Document.

 

101.CALXBRL Taxonomy Extension Calculation Linkbase Document.

 

101.DEFXBRL Taxonomy Extension Definition Linkbase Document.

 

101.LABXBRL Taxonomy Extension Label Linkbase Document.

 

101.PREXBRL Taxonomy Extension Presentation Linkbase Document.

 

+Certain portions of this exhibit have been omitted based upon a request for confidential treatment. The omitted portions have been filed with the Commission pursuant to our application for confidential treatment.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

   

GENVEC, INC.

    (Registrant)
     
Date:   November 9, 2012 By:

/s/ Cynthia Collins

    Cynthia Collins
    President and Chief Executive Officer

  

Date:   November 9, 2012 By:

/s/ Douglas J. Swirsky

    Douglas J. Swirsky
    Senior Vice President, Chief Financial Officer, Treasurer, and Corporate Secretary
   

 

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