================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITIONAL REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2002
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-19635
GENTA INCORPORATED
(Exact name of Registrant as specified in its certificate of incorporation)
Delaware 33-0326866
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
Two Connell Drive
Berkeley Heights, New Jersey 07922
(Address of principal executive offices) (Zip Code)
(908) 286-9800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
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. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |X| No |_|
The approximate aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant was $385,800,211 as of June 28,
2002 (the last business day of the registrant's most recently completed second
fiscal quarter). For purposes of determining this number, 28,856,050 shares of
common stock held by affiliates are excluded. For purposes of making this
calculation, the registrant has defined affiliates as including all directors,
executive officers and beneficial owners of more than ten percent of the common
stock of the Company.
As of March 21, 2003, the registrant had 73,810,345 shares of Common Stock
outstanding.
Documents Incorporated by Reference
Certain provisions of the registrant's definitive proxy statement to be
filed not later than April 30, 2003 pursuant to Regulation 14A are incorporated
by reference in Items 10 through 13 of Part III of this Annual Report on Form
10-K.
================================================================================
1
Genta Incorporated
Table of Contents
Part I
Item 1. Business .......................................................................................... 4
Item 2. Properties ........................................................................................ 20
Item 3. Legal Proceedings ................................................................................. 21
Item 4. Submission of Matters to a Vote of Security Holders ............................................... 21
Part II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters ............................. 22
Item 6. Selected Consolidated Financial Data .............................................................. 23
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ............. 24
Item 7A. Quantitative and Qualitative Disclosure about Market Risk ........................................ 27
Item 8. Financial Statements and Supplemental Data ........................................................ 28
Part III
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .............. 55
Item 10. Directors and Executive Officers of the Registrant (1) ........................................... 55
Item 11. Executive Compensation (1) ....................................................................... 55
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(1) ............................................................................................... 55
Item 13. Certain Relationships and Related Transactions (1) ............................................... 55
Item 14. Controls and Procedures .......................................................................... 55
Part IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K .................................. 55
Signatures ................................................................................................... 63
Certifications ............................................................................................... 64
(1) The information required in these items is incorporated by reference from
the Company's definitive proxy statement to be filed not later than April
30, 2003 pursuant to Regulation 14A of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended.
2
The statements contained in this Annual Report on Form 10-K that are not
historical are 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, including statements regarding the
expectations, beliefs, intentions or strategies regarding the future. The
Company intends that all forward-looking statements be subject to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect the Company's views as of the date they are
made with respect to future events and financial performance, but are subject to
many risks and uncertainties, which could cause actual results to differ
materially from any future results expressed or implied by such forward-looking
statements. Forward-looking statements include, without limitation, statements
about:
o the Company's ability to develop, manufacture and sell its products;
o the potential efficacy of the Company's products;
o the commencement and completion of pre-clinical and clinical trials;
o the Company's ability to obtain necessary regulatory approvals;
o the Company's contractual collaborative arrangements;
o the adequacy of the Company's capital resources;
o the ability to obtain sufficient financing to maintain the Company's
planned operations;
o the possibility and effect of patent infringement claims;
o the impact of competitive products and market conditions;
o the other risks detailed in the Certain Trends and Uncertainties
section of Management's Discussion and Analysis of Financial
Condition and Results of Operations in this Annual Report on Form
10-K; and
o the other risks described under Certain Risks and Uncertainties
Related to the Company's Business.
The Company does not undertake to update any forward-looking statements.
3
PART I
Item 1. Business
A. Overview
Genta Incorporated ("Genta" or the "Company") was incorporated in Delaware
on February 4, 1988. Genta is a biopharmaceutical company that is dedicated to
the identification, development, and commercialization of novel drugs for cancer
and related diseases. The Company's research portfolio is comprised of two
components: Oligonucleotide Medicines, which are drugs based on chemical
modifications of either deoxyribonucleic acid (DNA) or ribonucleic acid (RNA)
and Small Molecules. At present, the Oligonucleotide Medicines portfolio
includes technologies based on antisense and decoy aptamers, whereas the Small
Molecule portfolio includes gallium-based products and Androgenics compounds.
We make available free of charge on our internet website
(http://www.genta.com) our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to these reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange Commission. The
content on the Company's website is available for informational purposes only.
It should not be relied upon for investment purposes, nor is it incorporated by
reference into this Form 10-K.
The Company's lead investigational antisense drug is called Genasense(TM)
(oblimersen sodium), a molecule that is designed to block the production of a
protein known as Bcl-2. Current science suggests that Bcl-2 is a fundamental
(although not sole) cause of the inherent resistance of cancer cells to current
anticancer treatments, such as chemotherapy, radiation, or monoclonal
antibodies. While Genasense(TM) has displayed some anticancer activity when used
by itself, the Company is developing the drug solely as a means of amplifying
the effects of other anticancer therapy by pre-treating patients with
Genasense(TM).
The U.S. Food and Drug Administration ("FDA") has granted several
designations to Genasense(TM) that may, in the future, serve to expedite its
regulatory review, assuming the clinical trials have yielded a positive result.
These designations include "Fast Track" status for melanoma and multiple
myeloma, and "Orphan Drug" designation for myeloma, melanoma, and chronic
lymphocytic leukemia. The Company has applied for similar designation from
regulatory agencies in Europe. Genasense(TM) is undergoing the last stage of
clinical testing prior to application to the FDA, which is called "Phase 3".
Randomized Phase 3 trials are currently being conducted on a multinational basis
that include patients with malignant melanoma, multiple myeloma, and chronic
lymphocytic leukemia. The Company has other randomized and non-randomized
clinical trials involving patients with other types of cancer.
In addition to the antisense program, the Company's other platform
technology from the Oligonucleotide Medicines group involves decoy aptamers.
Decoys are designed to bind proteins (known as "transcription factors") that can
selectively turn genes on or off. This type of control could potentially be used
to regulate genes that are critically involved in cancer progression. A lead
target, known as the cyclic adenosine monophosphate response element-binding
protein (CRE-BP), has been identified and a decoy has been created. Preclinical
studies with this compound have shown broad anticancer activity, with very low
toxicity to normal cells. The CRE-BP decoy is currently undergoing optimization
and additional preclinical testing by the Company.
From its Small Molecule franchise, the Company is developing two drugs
based on elemental gallium, an intravenous drug known as Ganite(TM) (gallium
nitrate injection), and a novel oral formulation of a gallium-containing
compound. Ganite(TM) has previously been approved for marketing in the U.S. and
Canada by the FDA for the treatment of cancer-related hypercalcemia. In April
2000, Genta assumed ownership of the New Drug Application ("NDA") from an asset
purchase agreement (Note 9), and the Company is seeking to launch the drug for
its approved indication, cancer-related hypercalcemia. Hypercalcemia is a
life-threatening condition caused by excessive buildup of calcium in the
bloodstream. Based on previously published data, the Company believes that
Ganite(TM) may also be an active treatment for patients with certain types of
cancer, particularly non-Hodgkin's lymphoma. The Company has filed an
Investigational New Drug ("IND") exemption with the Division of Oncology
Products at the FDA, and has initiated a new clinical trial of Ganite(TM) for
treatment of patients with relapsed non-
4
Hodgkin's lymphoma. The Company has also filed an Orphan Drug Application for
this use and plans to seek expanded marketing approval for this indication.
The Company is concurrently seeking to develop an oral formulation of a
gallium-containing compound that is intended to permit the use of lower doses to
be administered over extended periods. The Company believes this type of drug
may be useful for patients who have accelerated loss of bone, such as persons
with bone metastases (i.e., cancer that has spread into bone) and Paget's
disease.
The Company is also developing Androgenics compounds, which are intended
to be used in the early, "hormone-sensitive" stage of prostate cancer. These
compounds are currently undergoing additional preclinical testing.
B. Summary of Business and Research and Development Programs
Antisense Technology
Antisense involves the use of compounds comprised of DNA that target
production of a specific protein. Most of a cell's functions, including whether
the cell lives or dies, are carried out by proteins. DNA is made up of bases
(nucleotides) that are arranged in a specific sequence. The specificity of the
sequence accounts for the production of a specific protein. In order for DNA to
produce a protein, an intermediate step is required. In this step, DNA is
transcribed into RNA (i.e., "messenger RNA", or mRNA). The sequence of mRNA that
encodes a protein is oriented in only one direction, which is known as the
"sense" orientation.
Antisense drugs are short sequences of chemically modified DNA bases that
are called "oligonucleotides" (oligos). The oligos are engineered in a sequence
that is exactly opposite (hence "anti") to the "sense" coding orientation of
mRNA. Because antisense drugs bind only short regions of the mRNA (rather than
the whole message itself), they contain far fewer nucleotides than the whole
gene. Moreover, since they are engineered to bind only to the matching sequence
on a specific mRNA, antisense drugs have both high selectivity and specificity,
which can be used to attack production of a single, disease-causing protein.
The Company has devoted significant resources towards the development of
antisense oligos that contain a phosphorothioate "backbone." However, the
Company also has patents covering later "third generation" technologies that
involve mixed phosphorothioate and methylphosphonate backbones that may further
enhance the molecule's ability to bind to the intended target. In preclinical
studies, these "mixed backbone" oligos have effectively down-regulated targeted
mRNA sequences inside cells. When injected intravenously into certain animals,
these third generation oligos have also demonstrated greater stability in the
circulatory system and urinary excretion relative to earlier compounds. This
higher degree of stability suggests that third-generation oligos may ultimately
be more effective than the Company's second-generation oligos.
Apoptosis
Cancer is commonly associated with the over or under-production of many
types of proteins. The Company believes that the ability to selectively halt the
production of certain proteins may make the treatment of certain diseases more
effective. In an effort to make existing cancer therapy more effective, Genta is
developing Genasense(TM) to target the production of Bcl-2, a protein that is
central to the process of programmed cell death (known as "apoptosis").
The programmed death of cells is necessary to accommodate the billions of
new cells produced daily, and also to eliminate aged or damaged cells. However,
abnormal regulation of the apoptotic process can result in disease. For
instance, cancer, autoimmune disorders, and many viral infections are associated
with decreased apoptosis (i.e., the programmed death of cells is occurring too
slowly). Conversely, AIDS and certain neurodegenerative diseases are associated
with increased apoptosis (i.e., cell death occurs too rapidly). The process of
programmed cell death is regulated by a large number of proteins, particularly
members of the Bcl-2 protein family.
Bcl-2 as an Inhibitor of Apoptosis
5
Normally, when a cancer cell is exposed to treatment (i.e. with
chemotherapy, radiation or immunotherapy) a "death signal" is sent to an
organelle within the cell called the mitochondrion. The mitochondrion then
releases a factor (known as cytochrome C) that activates a series of enzymes
called caspases. These enzymes cause widespread fragmentation of the cellular
proteins and DNA, which ultimately causes cell death.
Bcl-2 is normally found in the mitochondrial membrane where it regulates
the release of cytochrome C. High levels of Bcl-2 are associated with most types
of human cancer, including the major hematologic cancers (e.g., lymphomas,
myeloma, and leukemia) and solid tumors (e.g., cancers of the lung, colon,
breast, and prostate). In these diseases, Bcl-2 acts as a blocking factor that
inhibits the release of cytochrome C triggered by cancer therapy. Thus, Bcl-2
appears to be a major contributor to both inherent and acquired resistance to
anticancer treatments.
In cancer cells, the Bcl-2 protein inhibits the process of apoptosis,
thereby allowing cells to survive for much longer than normal cells. Many cancer
cells have an excess of Bcl-2, which contributes to making them resistant to
current types of anticancer treatment (including chemotherapy, radiation, and
monoclonal antibodies). Overcoming resistance to chemotherapy poses a major
challenge for cancer treatment. The Company's lead antisense compound,
Genasense(TM), has been developed to block production of Bcl-2, thereby
dramatically increasing the sensitivity of cancer cells to standard forms of
anticancer treatment.
Scientific support for these conclusions include:
o Cancerous cells that are known to be sensitive to chemotherapy
and radiotherapy can be made resistant to these treatments by
inserting the Bcl-2 protein into those cells.
o Higher levels of Bcl-2 are known to correlate with an inferior
prognosis and/or poor response to therapy in many diseases.
o Higher levels of Bcl-2 coincide with the shift from
androgen-dependent to androgen-independent tumor growth in
prostate cancer.
o The ability of cells to develop into tumors can be
substantially increased by inserting the Bcl-2 protein into
those cells.
Genasense(TM) (oblimersen sodium; G3139; Bcl-2 antisense)
Genasense(TM) blocks production of Bcl-2, thereby potentially restoring
the integrity of the apoptotic process and enabling the cancer cell to be killed
with current anticancer therapy. Genasense(TM) is comprised of a
phosphorothioate (i.e., second generation) backbone linking 18 modified DNA
bases (i.e., an "18-mer"). This oligo targets the first six codons of Bcl-2 mRNA
to form a DNA/RNA duplex. An enzyme recognizes this DNA/RNA duplex as foreign
and then cleaves the Bcl-2 mRNA strand, thereby destroying the ability of the
message to be translated into the Bcl-2 protein. Halting protein production
eventually reduces its intracellular levels, thus preventing the protein from
functioning normally. The fragments of Bcl-2 mRNA are themselves degraded by
other enzymes.
Overview of Preclinical and Clinical studies of Genasense(TM)
Genasense(TM) Preclinical Studies
In order to affect Bcl-2 function, Genasense(TM) must be incorporated into
the cell. After intravenous or subcutaneous injection, Genasense(TM) distributes
rapidly to highly perfused organs, especially lung and bone marrow.
Oligonucleotides, like Genasense(TM), are generally excreted from the body
unchanged, predominantly by the kidney. Biodistribution studies of Genasense in
vivo have demonstrated high tissue to plasma ratios, particularly in kidney and
liver, but also demonstrate significant distribution to the bone marrow and
spleen. In vitro and in vivo studies also show both biologic and antitumor
activity with sub-micromolar concentrations (e.g., approximately 170 nanomolar).
A number of in vitro and in vivo studies have shown synergistic
enhancement of tumor cell killing when Bcl-2 antisense was used in combination
with standard anticancer therapies, including anti-metabolites, alkylating
agents, corticosteroids, other cytotoxic chemotherapy, radiation, and monoclonal
antibodies. Several studies have
6
demonstrated enhanced antitumor activity and durable tumor regression in animals
engrafted with human cancers that were treated with Bcl-2 antisense followed by
antitumor agents that induce apoptosis. These studies include human lymphoma,
melanoma, breast cancer, and prostate cancers, which were treated with
Genasense(TM) in combination with cyclophosphamide, dacarbazine, docetaxel and
paclitaxel, respectively.
Genasense(TM) Clinical Studies
Genasense(TM) has been in clinical trials since 1995 in both the United
States and Europe. These studies have been conducted in patients with a wide
variety of tumor types, including non-Hodgkin's lymphoma, malignant melanoma,
several types of leukemia, and cancers of the prostate, colon, lung, and breast.
In 1999, the Company executed a Cooperative Research and Development Agreement
(CRADA) with the U.S. National Cancer Institute (NCI). Since 2001, Genta and NCI
have jointly approved the initiation of approximately 20 new clinical trials. In
addition to enabling more physicians and patients access to the drug, these
trials allow the Company to evaluate Genasense(TM) in certain diseases (and in
combination with other chemotherapy drugs) that would otherwise be outside the
Company's initial priorities for clinical development. To date, more than 900
patients have been treated with Genasense(TM). In aggregate, results of clinical
trials performed to date suggest that Genasense(TM) can be administered to
cancer patients with an acceptable degree of side-effects, and that such
treatment may reduce the level of Bcl-2 protein in cancer cells.
Genasense(TM) Phase 3 Randomized Clinical Trials
In 2001 and 2000, the Company initiated a series of randomized clinical
trials that employed Genasense(TM) in combination with cytotoxic chemotherapy.
These trials are all similarly designed, and each employs Genasense(TM) in an
effort to improve the outcome achieved above that which would be achieved by
using chemotherapy by itself. The studies comprise the following:
o a trial in patients with advanced malignant melanoma evaluating
dacarbazine alone versus dacarbazine plus Genasense(TM);
o a trial in patients with multiple myeloma evaluating high-dose
dexamethasone alone versus high-dose dexamethasone plus
Genasense(TM);
o a trial in patients with chronic lymphocytic leukemia (CLL)
evaluating fludarabine and cyclophosphamide alone versus fludarabine
and cyclophosphamide plus Genasense(TM); and
o a trial in patients with advanced non-small cell lung cancer (NSCLC)
evaluating docetaxel alone versus docetaxel (Taxotere(R), Aventis)
plus Genasense(TM).
The melanoma trial is directed to patients who have not been previously
treated with chemotherapy. The primary end-point of the trial is to increase
overall survival of patients treated with Genasense(TM) plus dacarbazine
compared with patients treated with dacarbazine alone. The myeloma and CLL
studies are similarly designed. Each of these trials are directed towards
patients who have previously been treated with chemotherapy and have developed
progressive disease. The primary endpoint of the myeloma trial is to increase
the duration of response (or time to relapse) treated with Genasense(TM) plus
high-dose dexamethasone compared to dexamethasone alone. The primary endpoint of
the CLL trial is to increase the proportion of patients who achieve a complete
response treated with Genasense(TM) and fludarabine and cyclophosphamide
compared to fludarabine and cyclophosphamide alone. The primary endpoint of the
NSCLC trial is to increase survival of patients treated with Genasense(TM) and
docetaxel over docetaxel alone.
Non-Randomized Trials of Genasense(TM)
Non-Hodgkin's Lymphoma and Chronic Lymphocytic Leukemia: A Phase 1
study of 21 patients with B-cell non-Hodgkin's lymphoma (NHL) was conducted in
the U.K. using Genasense(TM) administered by continuous subcutaneous infusion.
This study demonstrated that Genasense(TM) down-regulated Bcl-2 protein. In the
study, thrombocytopenia, infusion site reactions, and fatigue were felt to be
dose limiting in 2 patients treated at a level of 5.3 mg/kg/day. However, the
tolerance to treatment in this study may have been closely linked to the
prolonged (2-week) infusion schedule given by the subcutaneous route. (Other
studies have safely escalated the Genasense(TM) doses up to 12 mg/kg/day when
given intravenously in combination with cytotoxic chemotherapy.) Although the
administered drug dose was quite low in most patients (i.e., substantially below
doses that are now known to be both safe and
7
optimally effective with respect to Bcl-2 down-regulation), several major
responses were observed. One patient with low-grade lymphoma who had progressive
disease in nodes and bone marrow after two prior regimens attained a complete
response using Genasense(TM) alone, which has been maintained for longer than
four years. These results were initially published in The Lancet in 1997 and
updated in 2000 in The Journal of Clinical Oncology.
More recently, the Company conducted a Phase 1-2 trial of Genasense(TM) in
patients with chronic lymphocytic leukemia (CLL). Similar to the previous NHL
study, this trial showed that CLL patients (like NHL patients) exhibited
disease-specific side effects to Genasense(TM), including exaggerated fever,
hypotension, and back pain. Together, these studies have indicated that the
appropriate initial dose for extended Phase 2 and Phase 3 testing in these two
diseases is 3 mg/kg/day. Preliminary results from the first 23 patients showed
that 2 patients (9%) achieved partial responses, despite having failed 4 or more
prior treatment regimens; 11 patients (48%) achieved stabilization of their
disease, 5 of whom had failed 4 or more prior treatments. Circulating CLL cells
were reduced by more than 50% in 9 patients (39%). Eight of 19 patients (42%)
achieved greater than 50% decrease in the size of enlarged lymph nodes, and 8 of
16 patients (50%) achieved greater than 50% decrease in the size of enlarged
liver or spleen. To date, the major side effects of Genasense(TM) have been
fatigue and fever.
Acute Leukemia: A Phase 1 study at Ohio State University evaluated a
continuous intravenous (IV) infusion dose of Genasense(TM) with escalating doses
of fludarabine, cytosine arabinoside, and filgrastim (FLAG) in patients with
acute leukemia. Results showed that Genasense(TM) could be safely combined with
these agents in patients with relapsed leukemia and that several refractory
patients were able to achieve complete remissions. A second study has been
initiated that tests Genasense(TM) in combination with daunorubicin and cytosine
arabinoside (Ara-C). To date, the combined Genasense(TM) /chemotherapy program
has not caused more side effects than expected from using chemotherapy alone.
Overall, 5 of the first 11 evaluable patients have achieved complete remission
(CR).
Malignant Melanoma: A Phase 1 clinical study of Genasense(TM)
combined with dacarbazine (DTIC) was conducted at the University of Vienna.
Daily IV infusions (or twice daily subcutaneous injections) of Genasense(TM)
were given at doses ranging from 1.7 to 12 mg/kg/day. Serial biopsies of
cutaneous melanoma metastases showed reduced Bcl-2 protein content (assayed by
Western analysis) in tumor cells by day five of treatment. Durable responses and
prolonged (greater than 1 year) progression-free survival were also observed in
this study, even though most patients had failed both immunotherapy and
chemotherapy. Six of the first 14 patients treated showed objective responses.
The Genasense(TM) /DTIC regimen was well tolerated up to the dose level of 7
mg/kg/day. Details of this study were reported in The Lancet in 2000.
Other Phase 1 Studies: Thirty-five patients (mostly with
genitourinary cancer) were entered into a dose-escalation trial using both a
14-day and 21-day intravenous infusion schedule of Genasense(TM), either alone
or in combination with paclitaxel. This study showed that fatigue and fever were
observed after 2 weeks of continuous treatment at doses ranging from 4.1 to 7
mg/kg/day for 14 days. Similar reactions were observed on the 21-day schedule.
Transient elevation of liver enzymes (i.e., serum transaminase) was also
observed at the 7 mg/kg-dose level. These data have been published in Clinical
Cancer Research. Other dose-ranging combination studies of Genasense(TM) have
been conducted in patients receiving mitoxantrone or docetaxel for advanced
prostate cancer, docetaxel for breast cancer, multi-drug chemotherapy for
non-Hodgkin's lymphoma, and irinotecan for colorectal cancer. Results from most
of these clinical trials have been presented at national scientific meetings and
published in the proceedings of these conferences.
Summary of Phase 1-2 Studies: In general, Genasense(TM) appears to
be generally well tolerated when combined with full doses of standard cytotoxic
chemotherapy using a daily Genasense(TM) dose of 7 mg/kg/day for 5 to 7 days.
Exceptions to these dosing regimens have been noted in patients with NHL and
CLL, who appear more sensitive to the drug, and for whom doses are currently
employed. Significant thrombocytopenia, liver function abnormalities, or fatigue
have not been dose-limiting in most Phase 1-2 studies. Current data suggest that
reduction of Bcl-2 protein may be observed within the first 3 to 5 days. Thus,
current studies are generally using a 5 to 7 day schedule in combination with
chemotherapy, using Genasense(TM) administered at least 3 days prior to the
initiation of other therapy. As previously noted, the Company, either alone or
in conjunction with NCI, has initiated a number of additional non-randomized
Phase 2 trials of Genasense(TM) in combination with chemotherapy in patients
with a variety of cancer types.
8
Gallium Products
Gallium nitrate (Ganite(TM); gallium nitrate injection) was originally
studied by NCI as a new type of cancer chemotherapy. In the course of these
studies, gallium nitrate was shown to strongly inhibit bone resorption. Gallium
nitrate underwent additional clinical testing and was approved by the FDA in
1991 as a treatment for patients with a condition known as "cancer-related
hypercalcemia". Hypercalcemia occurs due to rapid loss of bone that releases
large amounts of calcium into the bloodstream of patients, which can be lethal.
Lower doses of Ganite(TM) were also tested in patients with less extreme
bone-losing conditions, including bone metastases (i.e. cancer that has spread
to bone), Paget's disease (an affliction of older patients that causes pain and
disability), and osteoporosis.
In April 2000, Genta acquired assets, rights, licenses to patents, and
technology relating to gallium-containing compounds for treatment of bone-losing
conditions, and to Ganite(TM) (gallium nitrate injection), the liquid injectable
product. The acquired assets included the ownership of an approved NDA. Since
this acquisition, the Company has worked with the FDA to address certain
regulatory issues and to update certain aspects of drug manufacturing. In
December 2002, the Company made its first submission to this NDA, which was sent
to the Metabolism and Endocrine Division of FDA. The Company has announced that
it intends to complete its NDA filings for Ganite(TM) in the first quarter of
2003. The Division has advised Genta that these supplements will be subject to a
four-month review period from the last filing date. Assuming there are no
serious delays in the review of its submissions, or of any information related
to submissions or activities conducted by the prior Sponsor, Genta anticipates
that it will market Ganite(TM) under its own auspices in the United States in
the second half of 2003.
Given the extensive published anticancer activity for gallium nitrate, the
Company filed a new Investigational New Drug (IND) exemption request for
Ganite(TM) with the Oncology Drug Products Division at FDA for the treatment of
patients with relapsed non-Hodgkin's lymphoma (NHL). Under that IND, the Company
initiated a new clinical trial of Ganite(TM) in NHL patients in 2002. Genta has
also submitted an application to the FDA in order to designate gallium nitrate
as an "Orphan Drug" in NHL. Since previous clinical trials of Ganite(TM) showed
that it does not cause significant myelosuppression, the Company believes that
this drug may address a significant unmet medical need. The Company intends to
pursue additional clinical trials of Ganite(TM) in NHL, and possibly other
neoplastic diseases.
The Company also seeks to develop new formulations of gallium-containing
compounds that can be taken by mouth. The Company believes that such
formulations will be useful for the treatment of patients who have chronic
bone-losing diseases, such as bone metastases, Paget's disease, and
osteoporosis. Such patients are commonly afflicted by bone pain and
susceptibility to fractures.
Decoy Aptamers
As described above, decoy aptamers - like antisense drugs - are also based
on oligonucleotide chemistry. However, while antisense technology uses
oligonucleotides to bind to and destroy mRNA, decoy aptamers employ
oligonucleotides to bind to proteins that are known as "transcription factors."
Normally, transcription factors bind to specific portions of DNA known as
response elements, thereby regulating the functions of genes in a positive or
negative fashion (i.e., they can turn genes "on" or "off"). When a cell is
flooded with an excess of aptamers, transcription factors are fooled into
binding to the decoys rather than the normal response elements found in genes.
By selectively inactivating the transcription factor, the function of the gene
can be regulated in a positive or negative manner. In December 2000, Genta
licensed patents and technology relating to decoy aptamers from the U.S.
National Institute of Health. The Company's current program is targeting a
transcription factor known as the cyclic adenosine monophosphate response
element binding protein (CRE-BP). Inactivation of this protein in pre-clinical
studies indicates selectivity for cancer cells relative to normal cells.
Androgenics Technologies
Genta is developing Androgenics compounds to treat patients with prostate
cancer. These compounds have two principal actions: first, they block the
synthesis of androgen hormones, such as testosterone, that simulate the growth
of prostate cancer cells; second, they inactivate androgen receptors, proteins
that bind androgen hormones and thereby mediate their effects. These types of
activities suggest that these drugs could be useful therapy for patients with
early stage "hormone-sensitive" prostate cancer. In connection with the
acquisition of Androgenics Technologies, Inc. in 1999, the Company acquired
licensing rights to a series of Androgenics compounds. The Company has engaged
in a
9
pre-clinical program of drug synthesis, formulation and anti-tumor testing with
these compounds.
Patents and Proprietary Technology
The Company's policy is to protect its technology by filing patent
applications with respect to technology considered important to the development
of its business. The Company also relies upon trade secrets, unpatented
know-how, continuing technological innovation, the pursuit of licensing
opportunities to develop and maintain its competitive position, and certain
other regulatory or legal means (such as "Orphan Drug" designations).
Genta has a portfolio of intellectual property rights and applications to
numerous aspects of oligonucleotide technology, which include novel compositions
of matter, methods of large-scale synthesis, methods of controlling gene
expression, and delivery systems. In addition, foreign counterparts of many
applications have been filed and will continue to be filed as deemed desirable.
In the United States, allowed patents generally would not expire until 17 years
after the date of allowance if filed before June 8, 1995, or in later cases, 20
years from the date of application. Generally, it is the Company's strategy to
apply for patent protection in the United States, Canada, Western Europe, Japan,
Australia and New Zealand.
Since its incorporation, Genta has filed numerous patent applications in
the United States and overseas covering new compositions and improved methods to
use, synthesize and purify oligonucleotides, linker-arm technology, and
compositions for their delivery. There are more than 70 United States and
foreign patent applications currently pending.
To further protect its interests, Genta seeks to license patents or
intellectual property rights from other entities. The Company has licensed
certain rights from the National Institutes of Health covering phosphorothioate
oligonucleotides. Genta also acquired exclusive rights to antisense
oligonucleotides directed against the Bcl-2 mRNA, as well as methods of their
use for the treatment of cancer, from the University of Pennsylvania. In 1998,
two United States patents were issued encompassing the Company's licensed
antisense oligonucleotide compounds targeted against the Bcl-2 mRNA and in vitro
uses of those compounds. These claims cover the Company's proprietary antisense
oligonucleotide molecules, which target the Bcl-2 mRNA including its lead
clinical candidate, Genasense(TM). Other related United States and corresponding
foreign patent applications are still pending.
In May 2000, the Company entered into a licensing arrangement with
Molecular Biosystems, Inc. ("MBI") for a broad portfolio of patents and
technology that relate to antisense for therapeutic and diagnostic applications.
The arrangement included a grant of both exclusive and non-exclusive rights from
MBI to Genta on a royalty-free basis in return for cash and shares of common
stock.
The patent positions of biopharmaceutical and biotechnology firms,
including Genta, can be uncertain and can involve complex legal and factual
questions. Consequently, even though Genta is currently prosecuting its patent
applications with the United States and foreign patent offices, the Company does
not know whether any of its applications will result in the issuance of any
patents, or if any issued patents will provide significant proprietary
protection, or even if successful that these patents will not be circumvented or
invalidated. Since applications in the United States are maintained in secrecy
until an actual patent issues, and since publication of discoveries in the
scientific or patent literature tend to lag behind actual discoveries by several
months, Genta cannot be certain that others have not filed patent applications
directed to inventions covered by its pending patent applications, or that it
was the first to file patent applications for such inventions.
Competitors or potential competitors may have filed applications for, or
have received patents and may obtain additional patents and proprietary rights
relating to, compounds or processes competitive with those of the Company.
Accordingly, there can be no assurance that the Company's patent applications
will result in issued patents or that, if issued, the patents will afford
protection against competitors with similar technology. The Company cannot
provide assurance that any patents issued to Genta will not be infringed or
circumvented by others, nor can there be any assurance that others will not
obtain patents that the Company would need to license or design around. There
can be no assurance that the Company will be able to obtain a license to
technology that it may require or that, even if obtainable, such a license would
be available on reasonable terms.
10
Even if issued, patents can be challenged in the courts. Moreover, the
Company may become involved in interference proceedings declared by the United
States Patent and Trademark Office (or comparable foreign office or process) in
connection with one or more of its patents or patent applications to determine
priority of invention, which could result in substantial cost to the Company, as
well as a possible adverse decision as to priority of invention of the patent or
patent application involved.
The Company also relies upon unpatented trade secrets. No assurance can be
given that third parties will not independently develop substantially equivalent
proprietary information and techniques, or gain access to the Company's trade
secrets, or disclose such technologies to the public, or that the Company can
meaningfully maintain and protect unpatented trade secrets.
Genta requires its employees, consultants, outside scientific
collaborators, sponsored researchers, and other advisors to execute
confidentiality agreements upon the commencement of an employment or consulting
relationship with the Company. These agreements generally provide that all
confidential information developed or made known to an individual during the
course of the individual's relationship with Genta shall be kept confidential
and shall not be disclosed to third parties except in specific circumstances. In
the case of employees, the agreement generally provides that all inventions
conceived by the individual shall be assigned to, and made the exclusive
property of, the Company. There can be no assurance, however, that these
agreements will provide meaningful protection for the Company's trade secrets or
adequate remedies in the event of unauthorized use or disclosure of such
information, or in the event of an employee's refusal to assign any patents to
the Company in spite of such contractual obligation.
Research and Development
In addition to the Company's current focus in the four areas already
described and in an effort to focus its research and development efforts on
areas that provide the most significant commercial opportunities, the Company
continually evaluates its ongoing programs in light of the latest market
information and conditions, availability of third-party funding, technological
advances, and other factors. As a result of such evaluation, the Company's
product development plans have changed from time to time, and the Company
anticipates that it will continue to do so in the future. The Company recorded
net research and development expenses of $58.9 million, $39.4 million and $6.8
million during 2002, 2001 and 2000, respectively.
Collaborative Agreement
In April 2002, the Company entered into a development and
commercialization agreement ("Collaborative Agreement") with Aventis
Pharmaceuticals Inc. ("Aventis"). Under the terms of the Collaborative
Agreement, the Company and Aventis will jointly develop and commercialize
Genasense(TM) in the U.S. ("the Alliance"), and Aventis will have exclusive
development and marketing rights to the compound in all countries outside of the
U.S.
Sales and Marketing
Either alone or in partnership with other companies, the Company intends
to be a direct marketer or co-marketer of its pharmaceutical products by
building a sales and marketing infrastructure in the United States to launch and
fully realize the commercial potential of our products. For international
product sales, the Company intends to distribute its products through
collaborations with third parties.
Manufacturing
The Company's ability to conduct clinical trials on a timely basis, to
obtain regulatory approvals and to commercialize its products will depend in
part upon its ability to manufacture its products, either directly or through
third parties, at a competitive cost and in accordance with applicable FDA and
other regulatory requirements, including current Good Manufacturing Practice
(cGMP) regulations.
We currently rely on third parties to manufacture our products. In
December 2002, the Company signed a five-year Manufacturing and Supply Agreement
("Supply Agreement") with Avecia Ltd., a leading multinational manufacturer of
pharmaceutical products, to supply quantities of our lead antisense compound,
Genasense(TM). This agreement is also renewable beyond the initial five-year
period.
11
Subsidiaries and Affiliates
Androgenics Technologies, Inc.
Androgenics Technologies, Inc. ("Androgenics"), acquired in 1999, is a
wholly-owned subsidiary of Genta with license rights to a series of compounds
invented by The University of Maryland at Baltimore to treat prostate cancer.
These compounds are currently undergoing additional preclinical testing.
JBL Scientific, Inc.
Prior to 1999, the Company had manufactured and marketed specialty
biochemicals and intermediate products to the in vitro diagnostic and
pharmaceutical industries through its manufacturing subsidiary, JBL Scientific,
Inc. ("JBL"), a California corporation that was acquired in February 1991. On
March 19, 1999, the Company entered into an Asset Purchase Agreement with
Promega Corporation whereby its wholly owned subsidiary, Promega Biosciences,
Inc. ("Promega"), acquired substantially all of the assets and assumed certain
liabilities of JBL. JBL has been reported as a discontinued operation in the
accompanying consolidated financial statements for the year ended December 31,
1999 (Note 20).
Genta Europe
Genta Pharmaceuticals Europe S.A. ("Genta Europe"), was a wholly owned
subsidiary of Genta in France. Genta Europe was established in 1993 to deal with
research relating to dermatology, geomatrix and antisense. Genta reduced Genta
Europe's staff in 1996 and 1997, and in 1998 closed the entire operation in
France. For a description of certain legal proceedings affecting our subsidiary,
Genta Europe, see (Note 19).
Genta Jago
Genta Jago Technologies B.V. ("Genta Jago") is a joint venture formed by
SkyePharma PLC and Genta. On March 4, 1999, SkyePharma PLC (on behalf of itself
and its affiliates) entered into an interim agreement with Genta (the "Interim
JV Agreement") pursuant to which the parties to the joint venture released each
other from all liability relating to unpaid development costs and funding
obligations of Genta Jago. Under the terms of the Interim JV Agreement,
SkyePharma PLC assumed responsibility for substantially all the obligations of
the joint venture to third parties as well as further development of the product
line. In addition, earnings of the joint venture are to be allocated equally
between the two parties. Accordingly, Genta recognized $0.502 million as its
equity in net income of the joint venture during the first quarter of 2000.
Since the first quarter of 2000, there have been only $0.033 million in net
earnings of the joint venture allocated to Genta and we are currently seeking to
terminate our involvement with the joint venture.
Human Resources
As of February 2003, Genta had 96 employees, 19 of whom hold doctoral
degrees. There are 65 employees engaged in development activities and 31 are in
administration. Most of the management and professional employees of the Company
have had prior experience and positions with pharmaceutical and biotechnology
companies. Genta believes it maintains satisfactory relations with its
employees.
C. Government Regulation
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the Company's ongoing research and product
development activities and in the manufacture and marketing of the Company's
proposed products. All of the Company's therapeutic products will require
regulatory approval by governmental agencies prior to commercialization. In
particular, human therapeutic products are subject to rigorous preclinical and
clinical testing and pre-market approval procedures by the FDA and similar
authorities in foreign countries. Various federal, and in some cases state,
statutes and regulations also govern or influence the development,
12
testing, manufacturing, safety, labeling, storage, record keeping and marketing
of such products. The lengthy process of seeking these approvals, and the
subsequent compliance with applicable federal and, in some cases, state statutes
and regulations, require the expenditure of substantial resources. Any failure
by the Company, its collaborators or its licensees to obtain, or any delay in
obtaining, regulatory approvals could adversely affect the marketing of any
products developed by the Company and its ability to receive product or royalty
revenue.
The activities required before a new pharmaceutical agent may be marketed
in the United States begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and animal studies to assess the
potential safety and efficacy of the product and its formulations. The results
of these studies must be submitted to the FDA as part of an IND. An IND becomes
effective within 30 days of filing with the FDA unless the FDA imposes a
clinical hold on the IND. In addition, the FDA may, at any time, impose a
clinical hold on ongoing clinical trials. If the FDA imposes a clinical hold,
clinical trials cannot commence or recommence, as the case may be, without prior
FDA authorization and then only under terms authorized by the FDA. Typically,
clinical testing involves a three-phase process. In Phase 1, clinical trials are
conducted with a small number of subjects to determine the early safety profile
and the pattern of drug distribution and metabolism. In Phase 2, clinical trials
are conducted with groups of patients afflicted with a specific disease in order
to determine preliminary efficacy, optimal dosages and expanded evidence of
safety. In Phase 3, large-scale, multi-center, comparative clinical trials are
conducted with patients afflicted with a target disease in order to provide
enough data for the statistical proof of efficacy and safety required by the FDA
and others. In the case of products for life-threatening diseases, the initial
human testing is generally done in patients rather than in healthy volunteers.
Since these patients are already afflicted with the target disease, it is
possible that such studies may provide results traditionally obtained in Phase 2
trials. These trials are frequently referred to as "Phase 1/2A" trials.
The results of the preclinical and clinical testing, together with
chemistry, manufacturing and control information, are then submitted to the FDA
for a pharmaceutical product in the form of a NDA, for a biological product in
the form of a Biologics License Application ("BLA"), for a particular medical
device in the form of a Premarket Approval Application ("PMA") for approval to
commence commercial sales. In responding to an NDA, BLA or PMA, 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. There can be no assurance that the approvals that are being sought or
may be sought by the Company in the future will be granted on a timely basis, if
at all, or if granted will cover all the clinical indications for which the
Company is seeking approval or will not contain significant limitations in the
form of warnings, precautions or contraindications with respect to conditions of
use.
In circumstances where a company intends to develop and introduce a novel
formulation of an active drug ingredient already approved by the FDA, clinical
and preclinical testing requirements may not be as extensive. Limited additional
data about the safety and/or effectiveness of the proposed new drug formulation,
along with chemistry and manufacturing information and public information about
the active ingredient, may be satisfactory for product approval. Consequently,
the new product formulation may receive marketing approval more rapidly than a
traditional full NDA, although no assurance can be given that a product will be
granted such treatment by the FDA.
For clinical investigation and marketing outside the United States, the
Company is or may be subject to foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. The Company's approach is to design its European
clinical trial studies to meet FDA, European Economic Community ("EEC") and
other European countries' standards. At present, the marketing authorizations
are applied for at a national level, although certain EEC procedures are
available to companies wishing to market a product in more than one EEC member
state. If the competent authority is satisfied that adequate evidence of safety,
quality and efficacy has been presented, a market authorization will be granted.
The registration system proposed for medicines in the EEC after 1992 is a dual
one in which products, such as biotechnology and high technology products and
those containing new active substances, will have access to a central regulatory
system that provides registration throughout the entire EEC. Other products will
be registered by national authorities under the local laws of each EEC member
state. With regulatory harmonization finalized in the EEC, the Company's
clinical trials will be designed to develop a regulatory package sufficient for
multi-country approval in the Company's European target markets without the need
to duplicate studies for individual country approvals. This approach also takes
advantage of regulatory requirements in some countries, such as in the United
Kingdom, which allow Phase 1 studies to commence after appropriate toxicology
and preclinical pharmacology studies, prior to formal regulatory approval.
13
Prior to the enactment of the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Waxman/Hatch Act"), the FDA, by regulation,
permitted certain pre-1962 drugs to be approved under an abbreviated procedure
which waived submission of the extensive animal and human studies of safety and
effectiveness normally required to be in an NDA. Instead, the manufacturer only
needed to provide an Abbreviated New Drug Application ("ANDA") containing
labeling; information on chemistry and manufacturing procedures and data
establishing that the original "pioneer" product and the proposed "generic"
product are bioequivalent when administered to humans.
Originally, the FDA's regulations permitted this abbreviated procedure
only for copies of a drug that was approved by the FDA as safe before 1962 and
which was subsequently determined by the FDA to be effective for its intended
use. In 1984, the Waxman/Hatch Act extended permission to use the abbreviated
procedure established by the FDA to copies of post-1962 drugs subject to the
submission of the required data and information, including data establishing
bioequivalence. However, effective approval of such ANDAs was dependent upon
there being no outstanding patent or non-patent exclusivity.
Additionally, the FDA allows, under section 505(b)(2) of the Food Drug and
Cosmetic Act, for the submission and approval of a hybrid application for
certain changes in drugs which, but for the changes, would be eligible for an
effective ANDA approval. Under these procedures the applicant is required to
submit the clinical efficacy and/or safety data necessary to support the changes
from the ANDA eligible drug (without submitting the basic underlying safety and
efficacy data for the chemical entity involved) plus manufacturing and chemistry
data and information. Effective approval of a 505(b)(2) application is dependent
upon the ANDA-eligible drug upon which the applicant relies for the basic safety
and efficacy data being subject to no outstanding patent or non-patent
exclusivity. As compared to an NDA, an ANDA or a 505(b)(2) application typically
involves reduced research and development costs. However, there can be no
assurance that any such applications will be approved. Furthermore, the supply
of raw materials must also be approved by the FDA.
The Company is also subject to various foreign, federal, state and local
laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, the experimental use of animals and the
use, manufacture, storage, handling and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with the Company's research and development work and
manufacturing processes. Although the Company believes it is in compliance with
these laws and regulations in all material respects, there can be no assurance
that the Company will not be required to incur significant costs to comply with
such regulations in the future.
D. Competition
In many cases, the Company's products under development will be competing
with existing therapies for market share. In addition, a number of companies are
pursuing the development of antisense technology and controlled-release
formulation technology and the development of pharmaceuticals utilizing such
technologies. The Company competes with fully integrated pharmaceutical
companies that have more substantial experience, financial and other resources
and superior expertise in research and development, manufacturing, testing,
obtaining regulatory approvals, marketing and distribution. Smaller companies
may also prove to be significant competitors, particularly through their
collaborative arrangements with large pharmaceutical companies or academic
institutions. Furthermore, academic institutions, governmental agencies and
other public and private research organizations have conducted and will continue
to conduct research, seek patent protection and establish arrangements for
commercializing products. Such products may compete directly with any products
that may be offered by the Company.
The Company's competition will be determined in part by the potential
indications for which the Company's products are developed and ultimately
approved by regulatory authorities. For certain of the Company's potential
products, an important factor in competition may be the timing of market
introduction of the Company's or competitors' products. Accordingly, the
relative speed with which Genta can develop products, complete the clinical
trials and approval processes and supply commercial quantities of the products
to the market are expected to be important competitive factors. The Company
expects that competition among products approved for sale will be based, among
other things, on product efficacy, safety, reliability, availability, price,
patent position and sales, marketing and distribution capabilities. The
development by others of new treatment methods could render the Company's
products under development non-competitive or obsolete.
14
The Company's competitive position also depends upon its ability to
attract and retain qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes and secure sufficient capital
resources for the often substantial period between technological conception and
commercial sales.
E. Certain Risks and Uncertanties Related to the Company's Business
In addition to the other information contained in this Annual Report on
Form 10-K, the following factors should be considered carefully.
We may be unsuccessful in our efforts to commercialize our pharmaceutical
products, such as Ganite(TM) and Genasense(TM).
The commercialization of our pharmaceutical products involves a number of
significant challenges. In particular, our ability to commercialize products,
such as Ganite(TM) and Genasense(TM), depends, in large part, on the success of
our clinical development programs, our efforts to obtain regulatory approval and
our sales and marketing efforts directed at physicians, patients and third-party
payors. A number of factors could affect these efforts, including:
o our ability to demonstrate clinically that our products have utility
and are safe;
o delays or refusals by regulatory authorities in granting marketing
approvals;
o our limited financial resources and sales and marketing experience
relative to our competitors;
o actual and perceived differences between our products and those of
our competitors;
o the availability and level of reimbursement for our products by
third-party payors;
o incidents of adverse reactions to our products;
o side effects or misuse of our products and the unfavorable publicity
that could result; and
o the occurrence of manufacturing, supply or distribution disruptions.
Ultimately, our efforts may not prove to be as effective as the efforts of
our competitors. In the United States and elsewhere, our products will face
significant competition. The principal conditions on which our product
development efforts are focused and some of the other disorders for which we are
conducting additional studies, are currently treated with several drugs, many of
which have been available for a number of years or are available in inexpensive
generic forms. Thus, even if we obtain regulatory approvals, we will need to
demonstrate to physicians, patients and third-party payors that the cost of our
products is reasonable and appropriate in light of their safety and efficacy,
the price of competing products and the relative health care benefits to the
patient. If we are unable to demonstrate that the costs of our products are
reasonable and appropriate in light of these factors, we will likely not be
successful in commercializing our products, in which case our financial
performance will suffer and our long-term viability will be threatened.
We intend to be a direct marketer of products in the United States. Our
inability to build a sales force capable of marketing our pharmaceutical
products will adversely affect our sales and limit the commercial success of our
products.
We anticipate that we will incur additional losses and we may never be
profitable.
We have not been profitable. We have incurred substantial operating losses
associated with ongoing research and development activities, pre-clinical
testing, clinical trials, regulatory submissions and manufacturing activities.
From the period since our inception to December 31, 2002, we have incurred a
cumulative net loss of $273.2 million. We may never achieve revenue sufficient
for us to attain profitability, until Genasense(TM) becomes an approved drug and
we receive a full year of royalties from Aventis on worldwide sales.
Our business will suffer if we fail to obtain timely funding.
Our operations to date have required significant cash expenditures. Based
on our current operating plan, we believe that our available resources will be
adequate to satisfy our capital needs to the end of 2004. Additional Aventis
milestone payments and other funding available to the Company upon the
anticipated NDA approval of Genasense(TM) should provide sufficient capital
resources for beyond 2004. Our future capital requirements will depend on the
results of our research and
15
development activities, pre-clinical studies and clinical trials, competitive
and technological advances, and regulatory activities of the U.S. Food and Drug
Administration ("FDA") and other regulatory authorities. In order to
commercialize our products, we will need to raise additional financing and we
intend to seek additional financing. We may obtain that financing through public
and private offerings of our securities, including debt or equity financing, or
through collaborative or other arrangements with research institutions and
corporate partners. We may not be able to obtain adequate funds for our
operations from these sources when needed or on acceptable terms. A
collaboration or similar arrangement may require us to license valuable
intellectual property to, or share substantial economic benefits with, our
collaborators. If we raise additional capital by issuing equity, or securities
convertible into equity, our stockholders may experience dilution and share
prices may decline. Any debt financing may result in restrictions on our
spending or payment of dividends.
If we are unable to raise additional financing, we will need to do one or
more of the following:
o delay, scale back or eliminate some or all of our research and
product development programs;
o license third parties to develop and commercialize products or
technologies that we would otherwise seek to develop ourselves;
o attempt to sell our company;
o cease operations; or
o declare bankruptcy.
Many of our products are in an early stage of development, and we may
never receive regulatory approval for those products.
Most of our resources have been dedicated to the research and development
of potential antisense pharmaceutical products such as Genasense(TM), based upon
oligonucleotide technology. While we have demonstrated the activity of antisense
oligonucleotide technology in model systems in vitro and in animals, among our
products, only Genasense(TM) has been tested in humans. Several of our other
technologies that serve as a possible basis for pharmaceutical products are only
in pre-clinical testing. Results obtained in pre-clinical studies or early
clinical investigations are not necessarily indicative of results that will be
obtained in extended human clinical trials. Our products may prove to have
undesirable and unintended side effects or other characteristics that may
prevent our obtaining FDA or foreign regulatory approval for any indication. In
addition, it is possible that research and discoveries by others will render our
oligonucleotide technology obsolete or noncompetitive.
Clinical trials are costly and time consuming and are subject to delays;
our business would suffer if the development process relating to our products
were subject to meaningful delays.
Clinical trials are very costly and time-consuming. The length of time
required to complete a clinical study depends upon several factors, including
the size of the patient population, the ability of patients to get to the site
of the clinical study, and the criteria for determining which patients are
eligible to join the study. Delays in patient enrollment could delay completion
of a clinical study and increase its costs, which could also delay the
commercial sale of the drug that is the subject of the clinical trial.
Our commencement and rate of completion of clinical trials also may be
delayed by many other factors, including the following:
o inability to obtain sufficient quantities of materials for use in
clinical trials;
o inability to adequately monitor patient progress after treatment;
o unforeseen safety issues;
16
o the failure of the products to perform well during clinical trials;
and
o government or regulatory delays.
If we fail to obtain the necessary regulatory approvals, we cannot market
and sell our products in the United States or in other countries and our
long-term viability would be threatened.
The FDA and comparable regulatory agencies in foreign countries impose
substantial pre-market approval requirements on the introduction of
pharmaceutical products. These requirements involve lengthy and detailed
pre-clinical and clinical testing and other costly and time-consuming
procedures. Satisfaction of these requirements typically takes several years or
more depending upon the type, complexity and novelty of the product. While
limited trials of some of our products have produced favorable results, we
cannot apply for FDA approval to market any of our products under development
until pre-clinical and clinical trials on the product are successfully
completed. Several factors could prevent successful completion or cause
significant delays of these trials, including an inability to enroll the
required number of patients or failure to demonstrate adequately that the
product is safe and effective for use in humans. If safety concerns develop, the
FDA could stop our trials before completion. We may not market or sell any
product for which we have not obtained regulatory approval. We cannot assure
that the FDA or other regulatory agencies will ever approve the use of our
products that are under development. If the patient populations for which our
products are approved are not sufficiently broad, or if approval is accompanied
by unanticipated labeling restrictions, the commercial success of our products
could be limited, at best, which would adversely affect our long-term viability.
We may be unable to obtain or enforce patents and other proprietary rights
to protect our business; we could become involved in patent litigation that
could cause us to incur additional costs and delay or prevent our introduction
of new drugs to market.
Our success will depend to a large extent on our ability to:
o obtain U.S. and foreign patent or other proprietary protection for
our technologies, products and processes;
o preserve trade secrets; and
o operate without infringing the patent and other proprietary rights
of third parties.
Legal standards relating to the validity of patents covering
pharmaceutical and biotechnological inventions and the scope of claims made
under these types of patents are still developing and involve complex legal and
factual questions. As a result, our ability to obtain and enforce patents that
protect our drugs is highly uncertain.
We hold numerous U.S. and international patents covering aspects of our
technology, which include novel compositions of matter, use, methods of
large-scale synthesis and methods of controlling gene expression. Nevertheless,
we may not receive any issued patents based on pending or future applications.
Moreover, our issued patents may not contain claims sufficiently broad to
protect us against competitors with similar technology. Additionally, our
patents, the patents of our business partners and patents for which we have
license rights may be challenged, narrowed, invalidated or circumvented.
Furthermore, rights granted under our patents may not cover commercially
valuable drugs or processes and may not provide us with any competitive
advantage.
The pharmaceutical and biotechnology industries have been characterized by
time-consuming and expensive litigation regarding patents and other intellectual
property rights. We may be required to commence, or may be made a party to,
litigation relating to the scope and validity of our intellectual property
rights or the intellectual property rights of others. Such litigation could
result in adverse decisions regarding the patentability of our inventions and
products, the enforceability, validity or scope of protection offered by our
patents or our infringement of patents held by others. Such decisions could make
us liable for substantial money damages, or could bar us from the manufacture,
sale, or use of certain products. Moreover, an adverse decision may also compel
us to seek a license from a third party. The costs of any license may be
expensive, and we may not be able to enter into any required licensing
arrangement on terms acceptable to us.
17
The cost to us of any litigation or proceeding relating to patent rights,
even if resolved in our favor, could be substantial. Some of our competitors may
be able to sustain the costs of complex patent litigation more effectively than
we can because of their substantially greater resources. Uncertainties resulting
from the initiation and continuation of any patent or related litigation could
have a material adverse effect on our ability to compete in the marketplace.
We also may be required to participate in interference proceedings
declared by the U.S. Patent and Trademark Office and in International Trade
Commission proceedings aimed at preventing the importing of drugs that would
compete unfairly with our drugs. These types of proceedings could cause us to
incur considerable costs.
We rely on our contractual collaborative arrangements with research
institutions and corporate partners for development and commercialization of our
products, and our business could suffer if we are not able to enter into
suitable arrangements or if our collaborative arrangements are not successful in
developing and commercializing products.
We have entered into collaborative relationships relating to specific
disease targets and other research activities in order to augment our internal
research capabilities and to obtain access to specialized knowledge and
expertise. The loss of any of these collaborative relationships could have a
material adverse effect on our business. In addition, our business strategy
depends in part on our continued ability to develop and maintain relationships
with leading academic and research institutions and independent researchers. The
competition for these relationships is intense, and we can give no assurances
that we will be able to develop and maintain these relationships on acceptable
terms.
We also seek strategic alliances with corporate partners, primarily
pharmaceutical and biotechnology companies, which are intended to help us
develop and commercialize drugs. Various problems can arise in strategic
alliances. A partner responsible for conducting clinical trials and obtaining
regulatory approval may fail to develop a marketable drug. A partner may decide
to pursue an alternative strategy or focus its efforts on alliances or other
arrangements with third parties. A partner that has been granted marketing
rights for a certain drug within a geographic area may fail to market the drug
successfully. Consequently, strategic alliances that we may enter into may not
be scientifically or commercially successful. In this regard, Genta Jago
Technologies B.V., a joint venture we entered into to develop oral
controlled-release drugs, has not resulted in any commercial products, and we
intend to seek to terminate our involvement in this joint venture. Moreover, we
may be unable to negotiate advantageous strategic alliances in the future. Our
failure to enter into strategic alliances, or the failure of a strategic
alliance to achieve its goals, could harm our efforts to develop and
commercialize our drugs.
The raw materials for our products are produced by a limited number of
suppliers, and our business could suffer if we cannot obtain needed quantities
at acceptable price and quality.
The raw materials that we require to manufacture our drugs, particularly
oligonucleotides, are available from only a few suppliers. If these suppliers
cease to provide us with the necessary raw materials or fail to provide us with
adequate supply of materials at an acceptable price and quality, we could be
materially adversely affected.
If third-party payors do not provide coverage and reimbursement for use of
our products, we may not be able to successfully commercialize our products.
Our ability to commercialize drugs successfully will depend in part on the
extent to which various third-party payors are willing to reimburse patients for
the costs of our drugs and related treatments. These third-party payors include
government authorities, private health insurers, and other organizations, such
as health maintenance organizations. Third-party payors often challenge the
prices charged for medical products and services. Accordingly, if less costly
drugs are available, third-party payors may not authorize or may limit
reimbursement for our drugs, even if they are safer or more effective than the
alternatives. In addition, the federal government and private insurers have
changed and continue to consider ways to change, the manner in which health care
services are provided and paid for in the United States. In particular, these
third-party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products. In the future, it is possible that the government may institute price
controls and further limits on Medicare and Medicaid spending. These controls
and limits could affect the payments we collect from sales of our products.
Internationally, medical reimbursement systems vary significantly, with some
countries requiring application for, and approval of, government or third-party
18
reimbursement. In addition, some medical centers in foreign countries have fixed
budgets, regardless of levels of patient care. Even if we succeed in bringing
therapeutic products to market, uncertainties regarding future health care
policy, legislation and regulation, as well as private market practices, could
affect our ability to sell our products in quantities, or at prices that will
enable us to achieve profitability.
Our business exposes us to potential product liability that may have a
negative effect on our financial performance and our business generally.
The administration of drugs to humans, whether in clinical trials or
commercially, exposes us to potential product and professional liability risks,
which are inherent in the testing, production, marketing and sale of human
therapeutic products. Product liability claims can be expensive to defend and
may result in large judgments or settlements against us, which could have a
negative effect on our financial performance and materially adversely affect our
business. We maintain product liability insurance (subject to various
deductibles), but our insurance coverage may not be sufficient to cover claims.
Furthermore, we cannot be certain that we will always be able to maintain or
increase our insurance coverage at an affordable price. Even if a product
liability claim is not successful, the adverse publicity and time and expense of
defending such a claim may interfere with our business.
If we cease doing business and liquidate our assets, we are required to
distribute proceeds to holders of our preferred stock before we distribute
proceeds to holders of our common stock.
In the event of our dissolution or liquidation, holders of our common
stock will not receive any proceeds until holders of the outstanding shares of
our Series A Preferred Stock receive a liquidation preference in the amount of
$13.025 million.
The nature of the business activities or positions of our principal
stockholders and present and future officers and directors may involve conflicts
of interest.
One of our principal stockholders is Paramount Capital Asset Management,
Inc. ("PCAM"). The sole stockholder and chairman of PCAM is also the chairman of
Paramount Capital Inc. ("PCI") and of Paramount Capital Investment LLC
("Paramount LLC", and together with PCAM, PCI and their affiliates, the
"Paramount Companies"). Together, the Paramount Companies beneficially own
approximately 36% of our common stock when calculated on a fully diluted basis.
In addition, PCAM is the investment manager for the Aries Funds (comprised of
Aries Select I, LLC, Aries Select II, LLC, and Aries Select, Ltd.). The Aries
Funds have the right to convert Series A Preferred Stock and exercise warrants
that they own into a significant portion of the outstanding common stock. In the
regular course of business, the Paramount Companies evaluate and pursue
investment opportunities in biomedical and pharmaceutical products, technologies
and companies. Due to the ownership and control of the Paramount Companies and
the Aries Funds and their involvement with other companies in the life sciences
area, some of our current or future officers and directors may from time to time
serve as officers or directors of other biopharmaceutical or biotechnology
companies. We cannot assure you that these other companies will not have
interests in conflict with ours.
Concentration of ownership of our stock could delay or prevent a change of
control.
Our directors, executive officers and principal stockholders (the
Paramount Companies and the Aries Funds) beneficially own approximately 38% of
our outstanding common stock and preferred stock. They also have, through the
exercise of options and warrants, the right to acquire additional common stock
and Series A Preferred Stock. As a result, these stockholders, if acting
together, have the ability to significantly influence the outcome of corporate
actions requiring stockholder approval. This concentration of ownership may have
the effect of delaying or preventing a change in control of Genta.
Provisions in our certificate of incorporation and Delaware law may
discourage a takeover and prevent our stockholders from receiving a premium for
their shares.
Our certificate of incorporation gives our board of directors the power to
issue shares of preferred stock without approval of the holders of common stock.
This preferred stock could have voting rights, including voting rights that
could be superior to that of our common stock. The approval of 66-2/3% of our
voting stock is required to approve certain transactions and to take certain
stockholder actions, including the amendment of our certificate of
19
incorporation. In addition, we are subject to Section 203 of the Delaware
General Incorporation Law, which contains restrictions on stockholder action to
acquire control of Genta. These provisions could discourage third parties from
seeking to obtain control of us and, therefore, could prevent our stockholders
from receiving a premium for their shares.
We have not paid, and do not expect to pay in the future, dividends on our
common stock.
We have never paid cash dividends on our common stock and do not
anticipate paying any such dividends in the foreseeable future. We currently
intend to retain our earnings, if any, for the development of our business.
We are dependent on our key executives and scientists, and the loss of
this personnel or the failure to attract additional qualified personnel could
harm our business.
Our business is highly dependent on our key executives and scientific
staff. The loss of key personnel or the failure to recruit necessary additional
or replacement personnel will likely impede the achievement of our development
objectives. There is intense competition for qualified personnel in the
pharmaceutical and biotechnology industries, and there can be no assurance that
we will be able to attract and retain the qualified personnel necessary for the
development of our business.
Our stock price is volatile.
The market price of our common stock, like that of the common stock of
many other biopharmaceutical companies, has been and likely will continue to be
highly volatile. Factors that could have a significant impact on the future
price of our common stock include:
o the results of pre-clinical studies and clinical trials by us or our
competitors;
o announcements of technological innovations or new therapeutic
products by us or our competitors;
o government regulation;
o developments in patent or other proprietary rights by us or our
respective competitors, including litigation; and
o fluctuations in our operating results, and market conditions for
biopharmaceutical stocks in general.
As of March 21, 2003, the Company had 73,810,345 shares of common stock
outstanding. Future sales of shares of common stock by existing stockholders,
holders of preferred stock who might convert such preferred stock into common
stock, and option and warrant holders who may exercise their options and
warrants to purchase common stock also could adversely affect the market price
of the common stock. Moreover, the perception that sales of substantial amounts
of our common stock might occur could adversely affect prevailing market prices.
Item 2. Properties
In November 2000, the Company relocated its headquarters from Lexington,
MA to Berkeley Heights, NJ and as of March 2002, leased approximately 24,000
square feet of space. Such leases expire in February 2004 and June 2005. In June
2002, the Company signed a new seven-year lease agreement for an additional
69,000 square feet of office space, at a rental cost of $1.764 million per year.
The Company has retained significant existing improvements to that space,
including furniture and other furnishings. A security deposit for $1.029 million
was paid in January 2003, and rent payments for portions of this new space began
as the Company occupied each portion of the space. The Company began paying for
the additional space in its entirety on March 1, 2003. This required security
deposit amount may change to (i) $0.588 million in the event the Company
receives approval from the FDA for Genasense(TM), (ii) $0.294 million in the
event the Company receives approval from the FDA for Genasense(TM) and the
Company's EBITDA for the immediately preceding four calendar quarters is equal
to or greater than $10.0 million, or (iii) an additional security deposit of
approximately $0.294 will be due if the Company's net worth falls below $40.0
million or the Company's cash and cash equivalents balance falls below $50.0
million. All of the Company's other leases for office space have been amended so
that the expiration dates coincide with the new lease. At the end of the initial
lease term, the Company has the option to renew these leases for five more years
at the then prevailing market rental rate.
20
Item 3. Legal Proceedings
Prior to 1999, the Company manufactured specialty biochemical products
through its manufacturing subsidiary, JBL Scientific, Inc. ("JBL). Effective May
10, 1999, substantially all of the assets and certain liabilities of JBL were
sold to Promega Biosciences, Inc. ("Promega"). Prior to the sale, in October
1996, JBL retained a chemical consulting firm to advise it with respect to an
incident of soil and groundwater contamination (the "Spill"). Sampling conducted
at the JBL facility revealed the presence of chloroform and perchloroethylenes
("PCEs") in the soil and groundwater at this site. A semi-annual
groundwater-monitoring program is being conducted, under the supervision of the
California Regional Water Quality Control Board, for purposes of determining
whether the levels of chloroform and PCEs have decreased over time. The results
of the latest sampling conducted by JBL show that PCEs and chloroform have
decreased in all but one of the monitoring sites. Based on an estimate provided
to the Company by the consulting firm, the Company accrued $0.065 million in
1999 relating to remedial costs. Although the Company has agreed to indemnify
Promega in respect of this matter, in November 2001, the Company received from
the California Regional Water Quality Control Board notification on the
completion of site investigation and remedial action for these sites. The
notification stated that no further action related to this case was required.
In October 1998, JBL received notice from Region IX of the Environmental
Protection Agency ("EPA") that JBL had been identified as a potentially
responsible party ("PRP") at the Casmalia Disposal Site, which is located in
Santa Barbara, California. JBL has been designated as a de minimis PRP by the
EPA. Based on volume amounts from the EPA, the Company concluded that it was
probable that a liability had been incurred and accrued $0.075 million during
1998. In 1999, the EPA estimated that the Company would be required to pay
approximately $0.063 million to settle their potential liability. In December
2001, the Company received a revised settlement proposal from the EPA in the
amount of $0.033 million, the terms of the settlement with the EPA contained
standard contribution protection and release language. This settlement amount of
$0.033 million was fully paid in January 2002. There can be no assurance,
however, that the EPA will not reject our settlement offer if there is not a
sufficient number of PRP's settling with the EPA.
During May 2000, Promega notified Genta of two claims against Genta and
Genta's subsidiary, Genko Scientific, Inc. (f/k/a JBL Scientific, Inc.)
("Genko"), for indemnifiable damages in the aggregate amount of $2.82 million
under the purchase agreement pursuant to which Promega aqcuired the assets of
JBL. Promega's letter stated that it intended to reduce to zero the principal
amount of the $1.2 million promissory note it issued as partial payment for the
assets of Genko and that therefore Genta owed Promega approximately $1.6
million. On October 16, 2000 Genta filed suit in the US District Court of
California against Promega for the non payment of the $1.2 million note plus
interest. On November 6, 2000, Promega filed a countersuit alleging
indemnifiable damages in the aggregate amount of $2.82 million. During the first
quarter of 2001, the Company agreed to resolve the matter with Promega, and, in
connection therewith, agreed to restructure its $1.2 million promissory note
receivable to provide for a $0.2 million non-interest bearing note due to be
repaid by Promega upon final resolution of certain environmental issues related
to JBL and forgave all accrued interest. As of March 21, 2003, the Company is
awaiting final acceptance by the EPA of the Company's settlement offer, as noted
above, before the remaining note receiveable will be repaid by JBL.
In October 2002, a licensing officer from the University of Pennsylvania
("UPenn") asserted a claim to a portion of the initial $40.0 million development
funding (Note 19) the Company received from Aventis pursuant to the
Collaborative Agreement. The Company has disputed this claim and has filed a
petition for binding arbitration for this matter, as provided in the original
licensing agreement between the Company and UPenn. At the current time the
Company cannot reasonably estimate the outcome of this claim; however, the
Company does not believe that this claim will have a material adverse impact on
the Company's financial results and liquidity. As such, the Company has not
reserved any amount for royalty payments that could be due to UPenn as a result
binding arbitration.
For a description of certain legal proceedings affecting our subsidiary,
Genta Europe, see (Note 19).
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders in the quarter
ended December 31, 2002.
21
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
(a) Market Information
The Company's common stock is traded on the Nasdaq National Market under
the symbol "GNTA." The following table sets forth, for the periods indicated,
the high and low sales prices for the common stock as reported by Nasdaq.
High Low
---- ---
2002
First Quarter ........................................ $ 18.250 $10.880
Second Quarter ....................................... 17.740 6.291
Third Quarter ........................................ 8.699 6.150
Fourth Quarter ....................................... 11.500 6.140
2001
First Quarter ........................................ $ 8.844 $ 5.063
Second Quarter ....................................... 10.120 5.070
Third Quarter ........................................ 12.770 7.900
Fourth Quarter ....................................... 17.700 9.900
On March 21, 2003, the closing price of our common stock was $7.590.
(b) Holders
There were 571 holders of record of the Company's common stock as of March
21, 2003.
(c) Dividends
The Company has never paid cash dividends on its common stock and does not
anticipate paying any such dividends in the foreseeable future. The Company
currently intends to retain its earnings, if any, for the development of its
business.
22
Item 6. Selected Consolidated Financial Data
Years Ended December 31,
-------------------------------------------------------------
(In thousands, except share data) 2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
Consolidated Statements of Operations Data (2):
Revenues:
License revenue .............................................. $ 3,498 $ 97 $ 17 $ -- $ --
Royalties .................................................... 61 49 5 -- --
Related party contract revenue ............................... -- -- -- -- 55
Collaborative research and development ....................... -- -- -- -- 50
--------- --------- --------- --------- ---------
3,559 146 22 -- 105
--------- --------- --------- --------- ---------
Costs and expenses:
Research and development ..................................... 58,899 39,355 6,830 4,205 2,114
General and administrative ................................... 19,347 8,215 3,323 4,054 3,868
Equity related compensation .................................. 1,016 1,074 8,605 3,074 154
Promega Settlement ........................................... -- 1,000 -- -- --
LBC Settlement ............................................... -- -- -- -- 547
--------- --------- --------- --------- ---------
79,262 49,644 18,758 11,333 6,683
--------- --------- --------- --------- ---------
Loss from operations ............................................ (75,703) (49,498) (18,736) (11,333) (6,578)
Equity in net income (loss) of joint venture .................... 33 -- 502 2,448 (132)
Net loss of liquidated foreign subsidiary ....................... -- -- -- -- (98)
Other income (loss) ............................................. 1,326 2,785 5,783 23 (38)
Income taxes .................................................... (184) -- -- -- --
--------- --------- --------- --------- ---------
Loss from continuing operations ................................. (74,528) (46,713) (12,451) (8,862) (6,846)
Loss from discontinued operations ............................... -- -- -- (189) (739)
Gain on sale of discontinued operations ......................... -- -- -- 1,607 --
--------- --------- --------- --------- ---------
Net loss ........................................................ (74,528) (46,713) (12,451) (7,444) (7,585)
Preferred stock dividends ....................................... -- -- (3,443) (10,085) (633)
--------- --------- --------- --------- ---------
Net loss applicable to common shares ............................ $ (74,528) $ (46,713) $ (15,894) $ (17,529) $ (8,218)
========= ========= ========= ========= =========
Continuing operations ........................................... $ (1.05) $ (0.84) $ (0.41) $ (1.07) $ (1.06)
Discontinued operations ......................................... -- -- -- 0.08 (0.11)
--------- --------- --------- --------- ---------
Net loss per share (1) .......................................... $ (1.05) $ (0.84) $ (0.41) $ (0.99) $ (1.17)
========= ========= ========= ========= =========
Weighted average shares used in computing net loss per share .... 70,656 55,829 38,659 17,784 7,000
========= ========= ========= ========= =========
Years Ended December 31,
-------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
Consolidated Balance Sheet Data (2):
Cash, cash equivalents and short-term investments ............... $ 113,716 $ 54,086 $ 50,199 $ 10,101 $ 2,458
Working capital ................................................. 91,586 42,709 48,321 9,434 3,629
Total assets .................................................... 136,419 60,630 57,208 12,228 7,551
Notes payable and capital lease obligations, less current portion -- -- -- -- --
Total stockholders' equity ...................................... 46,703 48,310 53,567 10,206 2,959
(1) Computed on the basis of net loss per common share described in Note 2 of
Notes to Consolidated Financial Statements.
(2) The above selected financial data reflects discontinued operations and
balance sheet data of JBL as of May 10, 1999. See Note 20 to consolidated
financial statements.
23
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Since its inception in February 1988, Genta has devoted its principal
efforts toward drug discovery and research and development. Genta has been
unprofitable to date and expects to incur substantial operating losses due to
continued requirements for ongoing and planned research and development
activities, pre-clinical and clinical testing, manufacturing activities,
regulatory activities, and establishment of a sales and marketing organization.
From its inception to December 31, 2002, the Company has incurred a cumulative
net loss of $273.2 million. The Company has experienced significant quarterly
fluctuations in operating results and it expects that these fluctuations in
revenues, expenses and losses will continue.
Genta's strategy is to build a product and technology portfolio primarily
focused on its oncology products. In this regard, effective March 1999, the
Company significantly reduced its involvement with respect to Genta Jago, its
50% owned R&D joint venture. The Company also sold substantially all of the
assets and certain liabilities of the Company's wholly owned specialty chemicals
subsidiary JBL Scientific, Inc. ("JBL") for cash, a promissory note and certain
pharmaceutical development services in support of Genta's Genasense(TM)
development project in May 1999. In October 2000, the Company relocated its
entire operation to Berkeley Heights, New Jersey.
Results of Operations
Genta has focused its resources on the development of its lead antisense
oligonucleotide, Genasense(TM). The following discussion of results of
operations relates to the Company's continuing operations:
Summary Operating Results
For the years ended December 31,
--------------------------------------------------------------------
($ thousands) Increase Increase
2002 (Decrease) 2001 (Decrease) 2000
-------- ---------- -------- ---------- --------
Revenues:
License fees .................... $ 3,498 $ 3,401 $ 97 $ 80 $ 17
Royalties ....................... 61 12 49 44 5
-------- -------- -------- -------- --------
3,559 3,413 146 124 22
Costs and expenses:
Research and development ........ 58,899 19,544 39,355 32,525 6,830
General and administrative ...... 19,347 11,132 8,215 4,892 3,323
Promega settlement .............. -- (1,000) 1,000 1,000 --
Equity related compensation ..... 1,016 (58) 1,074 (7,531) 8,605
-------- -------- -------- -------- --------
79,262 29,618 49,644 30,886 18,758
-------- -------- -------- -------- --------
Loss from operations ................ (75,703) 26,205 (49,498) 30,762 (18,736)
Equity in net income of joint venture 33 33 -- (502) 502
Other income ........................ 1,326 (1,459) 2,785 (2,998) 5,783
Income taxes ........................ (184) (184) -- -- --
-------- -------- -------- -------- --------
Net loss ............................ $(74,528) $ 27,815 $(46,713) $ 34,262 $(12,451)
======== ======== ======== ======== ========
Operating revenues consisting of license fees and royalties were $3.559
million in 2002 compared to $0.146 million in 2001 and $0.022 million in 2000.
These revenues were derived mainly from the initial $10.0 million licensing fee
and $40.0 million development funding received from Aventis under the
Collaborative Agreement (Note 12), along with non-exclusive sub-license
agreements involving antisense technology. These initial payments received from
Aventis will be recognized over the estimated useful life of the related
first-to-expire patent of 115 months. The non-exclusive sub-license agreements
were initiated with Atugen AG and EpiGenesis Pharmaceuticals, Inc. in 2001, and
Sequitur Incorporated and Oasis Biopharmaceuticals, Inc. in 2000.
Costs and expenses totaled $79.3 million in 2002, net of Aventis
reimbursement of $28.451 million, compared to $49.6 million in 2001 and $18.8
million in 2000. These increases reflect additional clinical trial activity and
related drug supply and salaries. Services and capabilities that have not been
retained within the Company are out-sourced through short-term contracts or from
consultants. Substantially, all pre-clinical biology and clinical trial work are
now conducted through such collaborations with external scientists and
clinicians. The Company anticipates that, if sufficient collaborative revenues
and other funding are available, research and development expenses may increase
in
24
future years due to requirements for pre-clinical studies, clinical trials and
increased regulatory costs. The Company will continue to assess the potential
cost benefit ratio of developing its own antisense oligonucleotide
manufacturing, and marketing and sales activities if and as such products are
successfully developed and approved for marketing.
Research and development expenses totaled $58.9 million in 2002, net of
Aventis reimbursement of $27.746 million, compared to $39.4 million in 2001 and
$6.8 million in 2000. The increase from 2000 through 2002 is due primarily to
drug supply costs and investigator and monitor fees related to expanded clinical
trials. It is anticipated that research and development expenses will continue
to increase in the future, as Genta expands its other product development
programs. Furthermore, the Company is also pursuing other opportunities for new
product development candidates, which, if successful, will require additional
research and development expenses.
In an effort to focus its research and development on areas that provide
the most significant commercial opportunities, the Company continually evaluates
its ongoing programs in light of the latest market information and conditions,
availability of third party funding, technological advances, and other factors.
As a result of such evaluation, the Company's product development plans have
changed from time to time, and the Company anticipates that they will continue
to do so in the future.
General and administrative expenses were $19.4 million in 2002, net of
Aventis reimbursement of $0.705 million, compared to $8.2 million in 2001 and
$3.3 million in 2000. The increase is primarily related to financial advisory
services, royalty payments and legal fees relating to the Collaborative
Agreement (Note 12), personnel costs and increased marketing-related spending.
The Company records charges to general and administrative expense for the
carrying value of abandoned patents no longer related to the research and
development efforts of the Company. There were no abandoned patent charges in
2002 and the amounts recorded in 2001 and 2000 were immaterial.
The Company recorded charges to non-cash equity related compensation of
$1.0 million in 2002 compared to $1.1 million in 2001 and $8.6 million in 2000.
This decrease in 2001 was primarily due to the acceleration of outstanding stock
options for the four members of the Company's Board of Directors who resigned in
March 2000 (Note 18).
Equity in earnings of joint venture (Genta Jago) was $0.033 million in
2002 compared to none in 2001 and $0.502 in 2000. Since the first quarter of
2000, there have been only $0.033 million in net earnings of the joint venture
allocated to Genta and we are currently seeking to terminate our involvement
with the joint venture.
Net other income, principally interest income decreased over the
comparable periods in 2001 and 2000, as a result of significantly lower
investment balances and decreased yields on investments. The proceeds received
from Aventis were not placed into any investment instruments until October 2002.
Interest expense is attributable to interest being accrued on the $10.0 million
convertible promissory note issued to Aventis (Note 14). Interest income has
fluctuated significantly each year and is anticipated to continue to fluctuate
primarily due to changes in the levels of cash, investments and interest rates
during each period.
The Company recorded no gain on the sale of marketable securities in 2002
compared to approximately $0.061 million in 2001 and to $4.9 million in 2000,
which reflects a non-recurring gain on the disposition of securities in
September 2000. Genta exercised 66,221 warrants to purchase shares of common
stock of CV Therapeutics, Inc. ("CV"). These warrants, which were restricted and
not publicly traded, were issued to Genta by CV in connection with a licensing
arrangement entered into in 1993. The Company received approximately $4.9
million in cash upon the sale of such common shares.
Recent Accounting Pronouncements
The Company has adopted all required Statements of Financial Accounting
Standards issued subsequent to December 31, 2001, as more fully discussed in
Note 2 to the consolidated financial statements. Adoption of these standards did
not or is not expected to have a material effect on the Company's financial
position or results of operations.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 2 to
the consolidated financial statements. In preparing our financial statements in
accordance with accounting principles generally accepted in the United States of
25
America, management is required to make estimates and assumptions that, among
other things, affect the reported amounts of assets and liabilities and reported
amounts of revenues and expenses. These estimates are most significant in
connection with our critical accounting policies, namely those of our accounting
policies that are most important to the portrayal of our financial condition and
results and require management's most difficult, subjective or complex
judgments. These judgments often result from the need to make estimates about
the effects of matters that are inherently uncertain. Actual results may differ
from those estimates under different assumptions or conditions. We believe that
our most critical accounting policies relate to:
o Revenue recognition. The Company's policy is to recognize revenues
under license arrangements when delivery has occurred or services
have been rendered, persuasive evidence of an arrangement exists,
the fee is fixed and determinable, and collectibility is reasonably
assured. Royalties are recognized when earned. Consistent with Staff
Accounting Bulletin No. 101 "Revenue Recognition" ("SAB 101"),
initial funding of ongoing development received from Aventis after
the achievement of certain research and development milestones (Note
12) will be recognized on a straight-line basis over the estimated
useful life of the related first-to-expire patent of 115 months. Any
subsequent milestone payments that may be received from Aventis will
also be recognized over the then, remaining estimated useful life of
the related first-to-expire patent.
o Research and development costs. All such costs are expensed as
incurred, including raw material costs required to manufacture drugs
for clinical trials. Once Genta has submitted an NDA, which includes
the results of the preclinical and clinical testing, chemistry,
manufacturing and control information, to the FDA for approval to
commence commercial sales, Genta will then include the sales launch
product, consisting of raw materials and all subsequent processing
costs required to produce finished goods, as inventory on Genta's
balance sheet in anticipation of approval by the FDA. Reimbursements
for applicable Genasense(TM)related costs, under the Collaborative
Agreement (Note 12), will continue to be recorded as a reduction to
expense.
o Intangible assets. The Company's intangible assets consist primarily
of licensed technology and capitalized patent costs, and are
amortized using the straight-line method over their estimated useful
lives. The Company's policy is to evaluate the appropriateness of
the carrying values of the unamortized balances of intangible assets
on the basis of estimated future cash flows (undiscounted) and other
factors. If such evaluation were to indicate an impairment of these
intangible assets, such impairment would be recognized by a
write-down of the applicable assets. The Company evaluates the
continuing value of patents and patent applications each financial
reporting period. As a result of this evaluation, the Company may
elect to continue to maintain, seek to out-license, or abandon these
patents
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily from
private placements and public offerings of its equity securities. Cash provided
from these offerings totaled approximately $278.8 million through December 31,
2002, including net proceeds of $71.0 million received in 2002, $32.2 million
received in 2001 and $40.1 million received in 2000. The Company used $19.7
million in operating activities during 2002, resulting from a net loss of $74.5
million, offset by deferred revenues received from Aventis, non-cash charges and
improved working capital aggregating $54.8 million. At December 31, 2002, the
Company had cash, cash equivalents and short-term investments totaling $113.7
million compared to $54.1 million at December 31, 2001. In March 2003, the
Company and Aventis negotiated a line of credit for an amount up to $40.0
million. Management believes that at the current rate of spending, primarily in
support of on-going and anticipated clinical trials, coupled with the amounts to
be reimbursed by Aventis and the available line of credit, the Company should
have sufficient cash funds to maintain its present operations to the end of
2004. Additional Aventis milestone payments and other funding available to the
Company upon the anticipated NDA approval of Genasense(TM) should provide
sufficient capital resources for beyond 2004.
If the Company successfully secures sufficient levels of collaborative
revenues and other sources of financing, it expects to use such financing to
continue to expand its ongoing research and development activities, preclinical
testing and clinical trials, costs associated with the market introduction of
potential products, and expansion of its administrative activities.
The Company anticipates that significant additional sources of financing,
primarily expense reimbursement from Aventis, will be required in order for the
Company to continue its planned operations. The Company also anticipates seeking
additional product development opportunities from external sources. Such
acquisitions may consume cash reserves or require additional cash or equity. The
Company's working capital and additional funding requirements will
26
depend upon numerous factors, including: (i) the progress of the Company's
research and development programs; (ii) the timing and results of pre-clinical
testing and clinical trials; (iii) the level of resources that the Company
devotes to sales and marketing capabilities; (iv) technological advances; (v)
the activities of competitors; and (vi) the ability of the Company to establish
and maintain collaborative arrangements with others to fund certain research and
development efforts, to conduct clinical trials, to obtain regulatory approvals
and, if such approvals are obtained, to manufacture and market products.
Future minimum obligations at December 31, 2002 are as follows ($
thousands):
Drug Purchase Convertible
Operating Leases Commitments Debt
---------------- ----------- -----------
2003 ........................ $ 2,199 $27,500 $ -
2004 ........................ 2,478 27,500 -
2005 ........................ 2,476 - -
2006 ........................ 2,585 - -
2007 ........................ 2,613 - -
Thereafter .................. 5,581 - 10,000
-------- ------- -------
Total .............. $ 17,932 $55,000 $10,000
======== ======= =======
The drug purchase commitments are the maximum per the terms of the Supply
Agreement (Note 19). The Supply Agreement provides for mechanisms to mitigate
costs should requirements be lower than anticipated and various performance
criteria, which could lower the 2003 and 2004 commitments.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company's carrying values of cash, marketable securities, accounts
payable and accrued expenses are a reasonable approximation of their fair value.
The estimated fair values of financial instruments have been determined by the
Company using available market information and appropriate valuation
methodologies (Note 3).
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates utilized in the
consolidated financial statements are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The Company has not
entered into, and does not expect to enter into, financial instruments for
trading or hedging purposes. The Company does not currently anticipate entering
into interest rate swaps and/or similar instruments.
Since the Company has liquidated its Genta Europe subsidiary, the Company
has no material currency exchange or interest rate risk exposure as of December
31, 2002. With the liquidation, there will be no ongoing exposure to material
adverse effect on the Company's business, financial condition, or results of
operation for sensitivity to changes in interest rates or to changes in currency
exchange rates.
27
Item 8. Financial Statements and Supplemental Data
Genta Incorporated
Index to Financial Statements Covered
Independent Auditors' Report
Genta Incorporated
Independent Auditors' Report ................................................................................ 29
Consolidated Balance Sheets at December 31, 2002 and 2001 ................................................... 30
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 .................. 31
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002, 2001 and 2000 ........ 32
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 .................. 34
Notes to Consolidated Financial Statements .................................................................. 35
28
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Genta Incorporated
We have audited the accompanying consolidated balance sheets of Genta
Incorporated and subsidiaries (the "Company") as of December 31, 2002 and 2001,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2002.
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 of America. Those standards require that we plan
and perform the audit 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Genta Incorporated as of
December 31, 2002 and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 13, 2003
(except Note 21, as to which the date is March 17, 2003)
29
GENTA INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
December 31, December 31,
--------------------------
ASSETS 2002 2001
--------------------------
Current assets:
Cash and cash equivalents (Note 2) ...................................... $ 32,700 $ 38,098
Short term investments (Note 3) ......................................... 81,016 15,988
Accounts receivable (Note 4) ............................................ 14,574 36
Notes receivable (Note 5) ............................................... 200 200
Prepaid expenses and other current assets (Note 6) ...................... 1,458 707
-----------------------
Total current assets ....................................................... 129,948 55,029
Property and equipment, net (Note 7) ....................................... 3,256 1,848
Intangibles, net (Note 9) .................................................. 1,440 2,120
Prepaid royalties (Note 10) ................................................ 1,268 1,268
Deposits and other assets (Note 16) ........................................ 507 365
-----------------------
Total assets ............................................................... $ 136,419 $ 60,630
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 27,683 $ 9,571
Notes payable (Note 6) .................................................. 490 --
Accrued expenses (Note 11) .............................................. 4,740 2,309
Deferred revenues, current portion (Note 13) ............................ 5,237 90
Other current liabilities ............................................... 212 350
-----------------------
Total current liabilities .................................................. 38,362 12,320
Deferred revenues (Note 13) ............................................. 41,354 --
Convertible debt (Note 14) .............................................. 10,000 --
-----------------------
Total liabilities .......................................................... 89,716 12,320
-----------------------
Commitments and contingencies (Note 19)
Stockholders' equity (Note 17):
Series A convertible preferred stock, $.001 par value; 5,000 shares
authorized, 261 shares issued and outstanding at December 31, 2002
and December 31, 2001, respectively; liquidation value of $13,025 and
$13,050, respectively ............................................... -- --
Common stock, $.001 par value; 120,000 shares authorized,
74,168 and 66,000 shares issued and outstanding at December 31, 2002
and December 31, 2001, respectively ................................. 74 66
Additional paid-in capital .............................................. 322,997 248,685
Accumulated deficit ..................................................... (273,190) (198,662)
Deferred compensation ................................................... (697) (1,713)
Accumulated other comprehensive (loss) income ........................... 25 (66)
-----------------------
49,209 48,310
Less cost of treasury stock: 393 shares at December 31, 2002 ............ (2,506) --
-----------------------
Total stockholders' equity ................................................. 46,703 48,310
-----------------------
Total liabilities and stockholders' equity ................................. $ 136,419 $ 60,630
=======================
See accompanying notes to consolidated financial statements.
30
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------------
(In thousands, except per share data) 2002 2001 2000
-------- -------- --------
Revenues:
License fees (Note 13) .................... $ 3,498 $ 97 $ 17
Royalties ................................. 61 49 5
-------- -------- --------
3,559 146 22
Costs and expenses:
Research and development (Note 12) ........ 58,899 39,355 6,830
General and administrative (Note 12) ...... 19,347 8,215 3,323
Equity related compensation (Note 18) ..... 1,016 1,074 8,605
Promega settlement (Note 5) ............... -- 1,000 --
-------- -------- --------
79,262 49,644 18,758
-------- -------- --------
Loss from operations ......................... (75,703) (49,498) (18,736)
Equity in net income of joint venture (Note 8) 33 -- 502
Other income ................................. 1,326 2,785 5,783
Income taxes (Note 15) ....................... (184) -- --
-------- -------- --------
Net loss ..................................... (74,528) (46,713) (12,451)
Preferred stock dividends (Note 17) .......... -- -- (3,443)
-------- -------- --------
Net loss applicable to common shares ......... $(74,528) $(46,713) $(15,894)
======== ======== ========
Net loss per common share .................... $ (1.05) $ (0.84) $ (0.41)
======== ======== ========
Shares used in computing net loss per
common share ............................... 70,656 55,829 38,659
======== ======== ========
See accompanying notes to consolidated financial statements.
31
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2000, 2001 and 2002
Convertible
Preferred Stock Common Stock Treasury Stock
----------------- ----------------- ------------------
(In thousands) Shares Amount Shares Amount Shares Amount
------- ------ ------- ------- ------- -------
Balance at January 1, 2000 ........... 400 $ -- 25,457 $ 26 -- $ --
Comprehensive loss:
Net loss ........................ -- -- -- -- -- --
Unrealized investment gain ...... -- -- -- -- -- --
Total comprehensive loss
Issuance of common stock upon
conversion of convertible
preferred stock .................. (139) -- 14,486 15 -- --
Issuance of common stock in
connection with two private
placements, net of issuance
costs of $2,548 .................. -- -- 6,458 6 -- --
Issuance of common stock
in connection with exercise
of warrants and stock options .... -- -- 3,345 3 -- --
Preferred stock dividends ............ -- -- 953 1 -- --
Equity related compensation .......... -- -- -- -- -- --
Issuance of common stock in
connection with rights to
Relgen license agreement ......... -- -- 10 -- -- --
Issuance of common stock in
connection with MBI asset
purchase ......................... -- -- 376 -- -- --
Value of shares to be issued
related to license agreement ..... -- -- -- -- -- --
------- --- ------- ------- ------- -------
Balance at December 31, 2000 ......... 261 -- 51,085 51 -- --
Comprehensive loss:
Net loss ........................ -- -- -- -- -- --
Unrealized investment loss ...... -- -- -- -- -- --
Total comprehensive loss
Issuance of common stock upon
conversion of convertible
preferred stock .................. -- -- 2 -- -- --
Issuance of common stock in
connection with private
placement, net of issuance
costs of $502 .................... -- -- 2,500 3 -- --
Accumulated
Additional Accrued Other Total
Paid-in Accumulated Dividends Deferred Comprehensive Stockholders'
(In thousands) Capital Deficit Payable Compensation Income (Loss) Equity
---------- ----------- --------- ------------ ------------- -------------
Balance at January 1, 2000 .......... $ 146,863 $(139,498) $ 5,134 $ (2,318) $ -- $ 10,207
Comprehensive loss:
Net loss ........................ (12,451) -- -- -- (12,451)
Unrealized investment gain ...... -- -- -- -- 95 95
---------
Total comprehensive loss ........ (12,356)
Issuance of common stock upon
conversion of convertible
preferred stock .................. (14) -- -- -- -- 1
Issuance of common stock in
connection with two private
placements, net of issuance
costs of $2,548 .................. 40,095 -- -- -- -- 40,101
Issuance of common stock
in connection with exercise
of warrants and stock options .... 3,254 -- -- -- -- 3,257
Preferred stock dividends ............ 5,133 -- (5,134) -- -- --
Equity related compensation .......... 7,368 -- -- 1,237 -- 8,605
Issuance of common stock in
connection with rights to
Relgen license agreement ......... 84 -- -- -- -- 84
Issuance of common stock in
connection with MBI asset
purchase ......................... 2,400 -- -- -- -- 2,400
Value of shares to be issued
related to license agreement ..... 1,268 -- -- -- -- 1,268
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2000 ......... 206,451 (151,949) -- (1,081) 95 53,567
Comprehensive loss:
Net loss ........................ -- (46,713) -- -- -- (46,713)
Unrealized investment loss ...... -- -- -- -- (161) (161)
---------
Total comprehensive loss ........ (46,874)
Issuance of common stock upon
conversion of convertible
preferred stock .................. -- -- -- -- -- --
Issuance of common stock in
connection with private
placement, net of issuance
costs of $502 .................... 32,220 -- -- -- -- 32,223
See accompanying notes to consolidated financial statements.
32
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2000, 2001 and 2002
Convertible
Preferred Stock Common Stock Treasury Stock
----------------- ----------------- ------------------
(In thousands) Shares Amount Shares Amount Shares Amount
------- ------ ------- ------- ------- -------
Issuance of common stock
in connection with exercise
of warrants and stock options .... -- -- 12,245 12 -- --
Issuance of common stock as
hiring bonus ..................... -- -- 6 -- -- --
Issuance of common stock
related to license agreement ..... -- -- 162 -- -- --
Equity related compensation .......... -- -- -- -- -- --
------- --- ------- ------- ------- -------
Balance at December 31, 2001 ......... 261 -- 66,000 66 -- --
Comprehensive loss:
Net loss ........................ -- -- -- -- -- --
Unrealized investment loss ...... -- -- -- -- -- --
Total comprehensive loss
Issuance of common stock in
connection with private
placement, net of issuance
costs of $899 .................... -- -- 6,665 7 -- --
Issuance of common stock
in connection with exercise
of warrants and stock options .... -- -- 1,503 1 -- --
Purchase of treasury stock (Note 17) . -- -- -- (393) (2,506)
Equity related compensation .......... -- -- -- -- -- --
------- --- ------- ------- ------- -------
Balance at December 31, 2002 ......... 261 $-- 74,168 $ 74 (393) $(2,506)
======= === ======= ======= ======= =======
Accumulated
Additional Accrued Other Total
Paid-in Accumulated Dividends Deferred Comprehensive Stockholders'
(In thousands) Capital Deficit Payable Compensation Income (Loss) Equity
---------- ----------- --------- ------------ ------------- -------------
Issuance of common stock
in connection with exercise
of warrants and stock options .... 8,309 -- -- -- -- 8,321
Issuance of common stock as
hiring bonus ..................... -- -- -- -- -- --
Issuance of common stock
related to license agreement ..... -- -- -- -- -- --
Equity related compensation .......... 1,705 -- -- (632) -- 1,073
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2001 ......... 248,685 (198,662) -- (1,713) (66) 48,310
Comprehensive loss:
Net loss ........................ -- (74,528) -- -- -- (74,528)
Unrealized investment loss ...... -- -- -- -- 91 91
---------
Total comprehensive loss ........ (74,437)
Issuance of common stock in
connection with private
placement, net of issuance
costs of $899 .................... 71,028 -- -- -- -- 71,035
Issuance of common stock
in connection with exercise
of warrants and stock options .... 3,284 -- -- -- -- 3,285
Purchase of treasury stock (Note 17) . -- -- -- -- -- (2,506)
Equity related compensation .......... -- -- -- 1,016 -- 1,016
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2002 ......... $ 322,997 $(273,190) $ -- $ (697) $ 25 $ 46,703
========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
33
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
--------------------------------
(In thousands) 2002 2001 2000
-------- -------- --------
Operating activities:
Net loss ........................................................... $(74,528) $(46,713) $(12,451)
Items reflected in net loss not requiring cash:
Depreciation and amortization .................................. 1,646 1,131 581
Loss on disposition of equipment ............................... 13 19 7
Promega settlement (Note 5) .................................... -- 1,000 --
Non-cash equity related compensation (Note 18) ................. 1,016 1,074 8,605
Changes in operating assets and liabilities:
Accounts, notes and loan receivable (Note 4 & 5) .......... (14,538) 102 (84)
Other assets (Note 6) ..................................... (751) (282) (288)
Accounts payable, accrued and other expenses .............. 20,895 8,679 1,634
Deferred revenue (Note 13) ................................ 46,501 -- --
-------- -------- --------
Net cash used in operating activities .............................. (19,746) (34,990) (1,996)
-------- -------- --------
Investing activities:
Purchase of available-for-sale short-term investments (Note 3) . (88,317) (14,521) (33,389)
Maturities of available-for-sale short-term investments (Note 3) 23,380 29,546 2,296
Purchase of property and equipment ............................. (2,387) (1,438) (778)
Purchase of intangibles ........................................ -- -- (400)
Deposits and other ............................................. (142) (68) (167)
-------- -------- --------
Net cash (used in) provided by investing activities ................ (67,466) 13,519 (32,438)
-------- -------- --------
Financing activities:
Proceeds from private placements of common stock, net (Note 17) 71,035 32,223 40,101
Proceeds from convertible debt (Note 14) ....................... 10,000 -- --
Purchase of treasury stock (Note 17) ........................... (2,506) -- --
Proceeds from exercise of warrants and options (Note 17 & 18) .. 3,285 8,321 3,257
-------- -------- --------
Net cash provided by financing activities .......................... 81,814 40,544 43,358
-------- -------- --------
(Decrease) increase in cash and cash equivalents ................... (5,398) 19,073 8,924
Cash and cash equivalents at beginning of year ..................... 38,098 19,025 10,101
-------- -------- --------
Cash and cash equivalents at end of year ........................... $ 32,700 $ 38,098 $ 19,025
======== ======== ========
See accompanying notes to consolidated financial statements.
34
GENTA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2002, 2001and 2000
1. Organization and Business
Genta Incorporated ("Genta" or the "Company") is a biopharmaceutical
company engaged in pharmaceutical (drug) research and development, its sole
reportable segment. The Company is dedicated to developing innovative drugs to
treat cancer. In the past, the Company's research efforts have focused primarily
on the development of "antisense" drugs, which are designed to selectively
prevent the production of specific proteins that contribute to the cause or
progression of disease. More recently, the Company has broadened its research
portfolio into other "DNA medicines", which, in addition to antisense drugs,
consist of decoy aptamers and small molecules, which include the Company's
gallium products and Androgenics compounds.
The Company previously manufactured and marketed specialty biochemicals
and intermediate products through its manufacturing subsidiary, JBL Scientific,
Inc. ("JBL"). Substantially all of the subsidiary's assets were sold in May
1999, and accordingly, JBL is presented as a discontinued operation for the year
ended December 31, 1999 (Note 20). The Company also has a 50% equity interest in
Genta Jago Technologies B.V. ("Genta Jago"), a drug delivery system joint
venture with SkyePharma, PLC ("SkyePharma"). In March 1999, Genta and SkyePharma
entered into an interim agreement pursuant to which the parties to the joint
venture released each other from all liability relating to unpaid development
costs and funding obligations. Since the first quarter of 2000, there has been
immaterial activity within the joint venture and we are currently seeking to
terminate our involvement. In August 1999, the Company acquired Androgenics
Technologies, Inc. ("Androgenics"), which developed a proprietary series of
compounds that act to inhibit the growth of prostate cancer cells. In April
2000, the Company entered into an asset purchase agreement with Relgen LLC, a
privately held corporation and a party related to Genta, in which the Company
acquired all assets, rights and technology to a portfolio of gallium containing
compounds, including Ganite(TM).
The Company has had recurring operating losses since inception and
management expects that such losses will continue for the next couple years or
until Genasense(TM) receives approval from the FDA for commercial sales and we
receive a full year of royalties from Aventis on worldwide sales. Although no
assurances can be expressed, management believes that at the current rate of
spending, coupled with the amounts to be reimbursed by and the available line of
credit from Aventis, the Company should have sufficient cash funds to maintain
its present operations to the end of 2004. Additional Aventis milestone payments
and other funding available to the Company upon the anticipated NDA approval of
Genasense(TM) should provide sufficient capital resources for beyond 2004.
The Company may also seek collaborative agreements, equity financing and
other financing arrangements with potential corporate partners and other
sources. However, there can be no assurance that any such collaborative
agreements or other sources of funding will be available on favorable terms, if
at all. The Company will need substantial additional funds before it can expect
to realize significant product revenue.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements are presented on the basis of
generally accepted accounting principles recognized in the United States. All
professional accounting standards that are effective as of December 31, 2002
have been considered in preparing the consolidated financial statements. Such
financial statements include the accounts of the Company and all majority-owned
subsidiaries. All material intercompany transactions and balances have been
eliminated in consolidation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions that affect reported earnings, financial
position and various disclosures. Actual results could differ from those
estimates.
35
Revenue Recognition
In April 2002, the Company entered into a development and
commercialization agreement ("Collaborative Agreement") with Aventis
Pharmaceuticals Inc. ("Aventis"). Under the terms of the Collaborative
Agreement, the Company and Aventis will jointly develop and commercialize
Genasense(TM) in the U.S. ("the Alliance"), and Aventis will have exclusive
development and marketing rights to the compound in all countries outside of the
U.S. Under the Collaborative Agreement, Aventis will pay 75% of U.S.
NDA-directed development costs incurred by either Genta or Aventis, subsequent
to the execution of the Collaborative Agreement, and 100% of all other
development, marketing, and sales costs incurred within the U.S. and elsewhere
as subject to the Collaborative Agreement (Note 12). Reimbursements are to be
made pursuant to a single net payment from one party to the other. Such payments
are due and payable 60 days following the end of the quarter in which such
expenses are incurred.
Consistent with Staff Accounting Bulletin No. 101 "Revenue Recognition"
("SAB 101"), initial funding of ongoing development received from Aventis after
the achievement of certain research and development milestones (Note 12) will be
recognized on a straight-line basis over the estimated useful life of the
related first-to-expire patent of 115 months. Any subsequent milestone payments
that may be received from Aventis will also be recognized over the then,
remaining estimated useful life of the related first-to-expire patent.
In 2001 and 2000, the Company entered into worldwide non-exclusive license
agreements. The license agreements each have initial terms that expire in 2010
and include upfront payments in cash, annual licensing fee payments for two
years, and future royalties on product sales. The Company's policy is to
recognize revenues under these arrangements when delivery has occurred or
services have been rendered, persuasive evidence of an arrangement exists, the
fee is fixed and determinable and collectibility is reasonably assured. Since
each of the aforementioned licensing arrangements have variable payment terms
extending beyond one year, such fees are recognized as earned.
Research and Development
Research and development costs are expensed as incurred, including raw
material costs required to manufacture products for clinical trials. Once Genta
has submitted an NDA, which includes the results of the preclinical and clinical
testing, chemistry, manufacturing and control information, to the FDA for
approval to commence commercial sales, Genta will then include the sales launch
product, consisting of raw materials and all subsequent processing costs
required to produce finished goods, as inventory on Genta's balance sheet in
anticipation of approval by the FDA.
Reimbursements for applicable Genasense(TM)-related costs, under the
Collaborative Agreement (Note 12), will continue to be recorded as a reduction
to research and development expense.
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents consisted entirely of money market funds. The
carrying amounts of cash, cash equivalents and short-term investments
approximate fair value due to the short-term nature of these instruments.
Marketable short-term investments consisted primarily of corporate notes and
government securities, all of which are classified as available-for-sale
marketable securities. Management determines the appropriate classification of
debt and equity securities at the time of purchase and reassesses the
classification at each reporting date. The Company invests its excess cash
primarily in debt instruments of domestic corporations with "AA" or greater
credit ratings as defined by Standard & Poors and government backed securities.
The Company has established guidelines relative to diversification and
maturities that attempt to maintain safety and liquidity. These guidelines are
periodically reviewed and modified to take advantage of trends in yields and
interest rates.
Property and Equipment
Property and equipment is stated at cost and depreciated on the
straight-line method over the estimated useful lives of the assets, ranging from
three to five years. Leasehold improvements incurred in the renovation of the
Company's current offices are being amortized over the remaining life of the
leases. The Company's policy is to evaluate the appropriateness of the carrying
value of the undepreciated value of long-lived assets on the basis of estimated
future cash flows (undiscounted) and other factors. If such evaluation were to
indicate an impairment of these intangible assets, such impairment would be
recognized by a write-down of the applicable assets. Since the Company signed a
new seven-year lease for additional office space in June 2002, the Company's
previous leases for office space have been amended so that the expiration dates
coincide with the new lease term.
36
Intangible Assets
Intangible assets, consisting primarily of licensed technology and
capitalized patent costs, are amortized using the straight-line method over
their estimated useful lives of five years. The Company's policy is to evaluate
the appropriateness of the carrying values of the unamortized balances of
intangible assets on the basis of estimated future cash flows (undiscounted) and
other factors. If such evaluation were to indicate an impairment of these
assets, such impairment would be recognized by a write-down of the applicable
assets. The Company evaluates, each financial reporting period, the continuing
value of patents and patent applications. Through this evaluation, the Company
may elect to continue to maintain these patents, seek to out-license them, or
abandon them.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Deferred income taxes are determined based on the estimated future tax effects
of differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws.
The Company may record valuation allowances against net deferred tax
assets, if based upon the available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income and when temporary differences become deductible. The Company
considers, among other available information, uncertainties surrounding the
recoverability of deferred tax assets, scheduled reversals of deferred tax
liabilities, projected future taxable income, and other matters in making this
assessment. At December 31, 2002 the Company has reviewed its deferred tax
assets and believes that the valuation allowance reduces such assets to an
amount that is more likely than not to be realized.
Stock Options
The Company has two stock-based compensation plans (Note 18). The Company
accounts for stock-based compensation arrangements in accordance with provisions
of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees"" and complies with the disclosure provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Under APB Opinion No. 25, compensation expense is based on the
difference, if any, on the date of grant, between the fair value of the
Company's stock and the exercise price. The Company accounts for stock options
issued to non-employees in accordance with the provisions of SFAS No. 123, and
Emerging Issues Task Force Consensus on Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." The Company is amortizing deferred
stock compensation using the graded vesting method, in accordance with Financial
Accounting Standards Board Interpretation No. 28, over the vesting period of
each respective option, which is generally four years.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - Amendment of FASB
Statement No. 123," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
The following table illustrates the effect on net loss and loss per share
if the Company had applied the fair value recognition provisions of SFAS No. 123
to stock-based employee compensation:
37
Years Ended December 31,
--------------------------------
($ thousands, except per share data) 2002 2001 2000
-------- -------- --------
Net loss applicable to common shares, as reported .............. $(74,528) $(46,713) $(15,894)
Add: Equity related compensation expense included in reported
net income, net of related tax effects ....................... 1,016 1,074 8,605
Deduct: Total stock-based employee compensation expense
determined under fair values based method for all awards, net of
related tax effects ............................................ 6,840 5,477 4,701
-------- -------- --------
Pro forma net loss ............................................. $(80,352) $(51,116) $(11,990)
======== ======== ========
Net loss per share attributable to common shareholders:
As reported: Basic and diluted ................................. $ (1.05) $ (0.84) $ (0.41)
Pro forma: Basic and diluted ................................... $ (1.14) $ (0.92) $ (0.31)
Net Loss Per Common Share
Basic earnings per share are based upon the weighted-average number of
shares outstanding during the period. Diluted earnings per share includes the
weighted average number of all potentially dilutive common shares such as shares
outstanding, options, warrants and convertible preferred stock outstanding.
Net loss per common share for the three years ended December 31, 2002 is
based on the weighted average number of shares of common stock outstanding
during the periods. Basic and diluted loss per share are identical for all
periods presented as potentially dilutive securities, including options,
warrants and convertible preferred stock, aggregating 16.7 million, 17.2 million
and 28.3 million in 2002, 2001 and 2000, respectively, have been excluded from
the calculation of the diluted net loss per common share because the inclusion
of such securities would be antidilutive. Net loss per common share is based on
net loss adjusted for imputed and accrued dividends on preferred stock.
Recently Issued Accounting Standards
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. The Company adopted SFAS No. 143
effective January 1, 2003. The adoption did not have a material impact on the
Company's results of operations, financial position or cash flows.
In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements
4, 44 and 64, Amendment of FASB Statement 13, and Technical Corrections". SFAS
No. 145 rescinds the provisions of SFAS No. 4 that requires companies to
classify certain gains and losses from debt extinguishments as extraordinary
items, eliminates the provisions of SFAS No. 44 regarding transition to the
Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require
that certain lease modifications be treated as sale leaseback transactions. The
provisions of SFAS No. 145 related to classification of debt extinguishment are
effective for fiscal years beginning after May 15, 2002. Commencing January 1,
2003, the Company will classify debt extinguishment costs within income from
operations. The provisions of SFAS No. 145 related to lease modifications are
effective for transactions occurring after May 15, 2002. The Company does not
expect the provisions of SFAS No. 145 related to lease modifications to have a
material impact on its financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 nullifies Emerging
Issues Task Force ("EITF") No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The principal difference between SFAS No.
146 and EITF No. 94-3 relates to its requirements for recognition of a liability
for a cost associated with an exit or disposal activity. SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF No. 94-3, a liability for
an exit cost was recognized at the date of an entity's commitment to an exit
plan. SFAS No. 146 is effective for exit and disposal activities that are
initiated after December 31, 2002. The Company does not expect the provisions of
SFAS No. 146 to have a material impact on its financial position or results of
operations.
In November 2002, FASB Interpretation, ("FIN") 45, "Guarantor's Accounting
And Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," was approved by the FASB. FIN 45 clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions of this interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The interpretation also requires enhanced and additional
disclosures of guarantees in financial statements ending after December 15,
2002. In the normal course of business, the Company does not issue guarantees,
accordingly this interpretation has not effect on the financial statements.
38
3. Short-Term Investments
The carrying amounts of short-term investments approximate fair value due
to the short-term nature of these instruments. The fair value of
available-for-sale marketable securities is as follows ($ thousands):
Amortized Unrealized Unrealized Estimated
costs gains losses fair value
----- ----- ------ ----------
December 31, 2002
Corporate debt securities ....... $80,991 $ 42 $ (17) $81,016
======= ======= ======= =======
December 31, 2001
Corporate debt securities ....... $16,054 $ 23 $ (89) $15,988
======= ======= ======= =======
The fair value of corporate debt securities by contractual maturity, is as
follows ($ thousands):
December 31,
-------------------------
2002 2001
------- -------
Due in one year or less .................... $55,979 $15,988
Due after one year ......................... 25,037 --
------- -------
$81,016 $15,988
======= =======
The estimated fair value of each marketable security has been compared to
its cost, and therefore, an unrealized gain of approximately $0.025 million has
been recognized in accumulated other comprehensive income at December 31, 2002.
4. Accounts Receivable
Included in accounts receivable and netted against operating expenses in
the consolidated statement of operations at December 31, 2002, is $14.554
million in net expense reimbursements due from Aventis for various third-party
costs, internal costs of scientific and technical personnel ("Full-time
Equivalents" or "FTE's") and Genasense(TM) drug supply costs for the three month
period ended December 31, 2002. Information with respect to this cost
reimbursement is presented below ($ thousands):
Reimbursement to Genta: December 31, 2002
-----------------
Third-party costs ....................................... $10,936
Drug supply costs ....................................... 2,254
FTE's ................................................... 1,364
-------
Amount due Genta ........................................ $14,554
=======
5. Notes Receivable
In May 1999, the Company accepted a $1.2 million 7% promissory note (the
"JBL Note") from Promega as partial consideration for the JBL Agreement (Note
19). The principal of the note plus accrued interest was due as follows: $0.700
million on June 30, 2000 and $0.500 million on the later of June 30, 2000 or the
Environmental Compliance Date as defined in the JBL Agreement. Accrued interest
due the Company was $0.138 million at December 31, 2000. During the first
quarter of 2001, the Company agreed to resolve the matter with Promega, and, in
connection therewith, agreed to restructure its $1.2 million promissory note
receivable to provide for a $0.2 million non-interest bearing note due upon
final resolution of certain environmental issues related to JBL and forgive all
accrued interest (Note 19). The transaction resulted in a non-recurring charge
of $1.0 million for the quarter ended March 31, 2001. As of March 21, 2003, the
Company is awaiting final acceptance by the EPA of the Company's settlement
offer before the remaining note receiveable will be repaid by JBL.
39
6. Prepaid Expenses and Other Current Assets
Included in prepaid expenses and other current assets at December 31,
2002, is $0.834 million for prepaid insurance expenses for various corporate
insurance policies, of which $0.723 million is for directors and officers
liability. After an initial deposit was paid by the Company related to the
insurance policies, the remaining balance was financed and will be repaid in
eight equal installments. At December 31, 2002 the remaining balance to be paid
was $0.490 million.
The remaining amount in prepaid expenses and other current assets is
primarily interest due on short-term investments.
7. Property and Equipment
Property and equipment is comprised of the following ($ thousands):
December 31,
Estimated ---------------------
Useful Lives 2002 2001
------ ------
Computer equipment .................................... 3 $1,734 $ 599
Software .............................................. 3 1,237 256
Furniture and fixtures ................................ 5 920 764
Leasehold improvements ................................ 5 613 523
Equipment ............................................. 5 80 74
------ ------
4,584 2,216
Less accumulated depreciation and amortization ........ (1,328) (368)
------ ------
$3,256 $1,848
====== ======
8. Genta Jago Joint Venture
Genta Jago Technologies B.V. ("Genta Jago") is a joint venture formed by
Skyepharma PLC and Genta. On March 4, 1999, SkyePharma PLC (on behalf of itself
and its affiliates) entered into an interim agreement with Genta (the "Interim
JV Agreement") pursuant to which the parties to the joint venture released each
other from all liability relating to unpaid development costs and funding
obligations of Genta Jago. Under the terms of the Interim JV Agreement,
SkyePharma PLC assumed responsibility for substantially all the obligations of
the joint venture to third parties as well as further development of the product
line. Pursuant to the terms of the agreement, earnings of the joint venture are
to be allocated equally between the two parties. Accordingly, Genta recognized
$0.502 million as its equity in net income of the joint venture during the first
quarter of 2000. Since the first quarter of 2000, there have been only $0.033
million in net earnings of the joint venture allocated to Genta and we are
currently seeking to terminate our involvement with the joint venture.
In 1999, the Company wrote-off its liability in this joint venture and
recorded a gain of approximately $2.3 million. Financial statements of the joint
venture for the year ended December 31, 2002 and 2001 were not available.
9. Intangibles
Intangible assets consist of the following ($ thousands):
December 31,
------------------------
2002 2001
------- -------
Patent and patent applications ............... $ 3,905 $ 3,905
Other amortizable costs ...................... 87 87
------- -------
3,992 3,992
Less accumulated amortization ................ (2,552) (1,872)
------- -------
$ 1,440 $ 2,120
======= =======
Future amortization expense related to intangibles at December 31, 2002
are as follows ($ thousands):
Amortization
Expense
------------
2003 ........................................................... $ 577
2004 ........................................................... 577
2005 ........................................................... 286
2006 ........................................................... --
2007 ........................................................... --
Thereafter ..................................................... --
---------
Total .......................................................... $ 1,440
=========
40
10. Prepaid Royalties
In December 2000, the Company recorded $1.268 million as the fair value
for its commitment to issue 162,338 shares of common stock to a major university
as consideration for an amendment to a license agreement initially executed on
August 1, 1991 related to antisense technology licensed from the university. The
amendment provided for a reduction in the royalty percentage rate to be paid to
the university based on the volume of sales of the Company's products containing
the antisense technology licensed from such university. These shares were issued
in the first quarter of 2001. The Company will amortize the prepaid royalties
upon the commercialization of Genasense(TM), the Company's leading antisense
drug, through the term of the arrangement which expires twelve years from the
date of first commercial sale.
11. Accrued Expenses
Accrued expenses is comprised of the following ($ thousands):
December 31,
-------------------
2002 2001
------ ------
Accrued expenses relating to clinical trials ......... $ 910 $ 792
Accrued compensation ................................. 1,826 822
Accrued interest ..................................... 384 --
Other accrued costs .................................. 1,620 695
------ ------
$4,740 $2,309
====== ======
12. Collaborative Agreement
In April 2002, the Company entered into a development and
commercialization agreement ("Collaborative Agreement") with Aventis
Pharmaceuticals Inc. ("Aventis"). Under the terms of the Collaborative
Agreement, the Company and Aventis will jointly develop and commercialize
Genasense(TM) in the U.S. ("the Alliance"), and Aventis will have exclusive
development and marketing rights to the compound in all countries outside of the
U.S. The Company will retain responsibility for global manufacturing and for
regulatory filings within the U.S., while Aventis will assume all regulatory
responsibilities outside the U.S. Joint management teams, including
representatives from both Genta and Aventis, will oversee the Alliance.
Collectively, this Collaborative Agreement could provide up to $476.9 million in
cash, equity and convertible debt proceeds to the Company. In addition, under
the Collaborative Agreement, Genta is entitled to royalties on any worldwide
sales of Genasense(TM), from which Genta is required to pay third-party
pass-through royalties to the University of Pennsylvania ("UPenn") and The
National Institutes of Health ("NIH") based on net worldwide sales. Furthermore,
under the Collaborative Agreement, Aventis will pay 75% of U.S. NDA-directed
development costs incurred by either Genta or Aventis subsequent to the
execution of the Collaborative Agreement, and 100% of all other development,
marketing, and sales costs incurred within the U.S. and elsewhere as subject to
the Collaborative Agreement. An analysis of expenses reimbursed under the
Collaborative Agreement follows ($ thousands):
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------------------- -------------------------------
2002 2001 2000 2002 2001 2000
-------- -------- -------- -------- -------- --------
Research and development
expenses, gross ........ $ 40,760 $ 15,569 $ 2,916 $ 86,645 $ 39,355 $ 6,830
Less expense reimbursement (14,434) -- -- (27,746) -- --
-------- -------- -------- -------- -------- --------
Research and development
expenses, net .......... $ 26,326 $ 15,569 $ 2,916 $ 58,899 $ 39,355 $ 6,830
======== ======== ======== ======== ======== ========
General and administrative
expenses, gross .......... $ 4,816 $ 2,633 $ 596 $ 20,052 $ 8,215 $ 3,323
Less expense reimbursement (120) -- -- (705) -- --
-------- -------- -------- -------- -------- --------
General and administrative
expenses, net ............ $ 4,696 $ 2,633 $ 596 $ 19,347 $ 8,215 $ 3,323
======== ======== ======== ======== ======== ========
41
As of December 31, 2002, the Company has received a total of $131.9
million in initial and near-term funding, which included a $10.0 million
licensing fee and $40.0 million in development funding (Note 13), $10.0 million
in convertible debt proceeds (Note 14), and $71.9 million pursuant to an
at-market equity investment in the Company's common stock priced at $10.792 per
share. The remaining amounts that could be received under the Collaborative
Agreement, $280.0 million in cash and $65.0 million in convertible note
proceeds, are contingent upon the achievement of certain research and
development milestones. In connection with this $131.9 million, the Company paid
approximately $1.5 million for financial advisory services and an aggregate of
$3.5 million in one-time pass-through payments to UPenn and the NIH. Neither
UPenn nor the NIH is entitled to any portion of future research and development
milestone payments that Genta may receive.
13. Deferred Revenues
As of December 31, 2002, the Company had recorded $46.591 million, net of
amortization in deferred revenues relating to the initial $10.0 million
licensing fee and $40.0 million development funding received from Aventis under
the Collaborative Agreement (Note 12), of which $5.237 million is included in
current liabilities and $41.354 million is classified as long-term deferred
revenues, which will be recognized on a straight-line basis over the estimated
useful life of the related first-to-expire patent of 115 months, in accordance
with SAB 101. Any subsequent milestone payments that may be received from
Aventis will also be recognized over the then, remaining estimated useful life
of the related first-to-expire patent.
14. Convertible Debt
At December 31, 2002, the Company had $10.0 million in convertible debt
that was issued in connection with the Collaborative Agreement (Note 12). The
Company received $10.0 million in debt proceeds from Aventis, and issued a $10.0
million convertible promissory note to Aventis ("Aventis Note"). Interest
accrues at the rate of 5.63% per annum until April 26, 2009 (the "Maturity
Date") and compounds annually on each anniversary date of the Aventis Note
through the Maturity Date. The Company may redeem the Aventis Note for cash in
whole or in part (together with any accrued and unpaid interest with respect to
such principal amount) in amounts of not less than $0.5 million (and in $0.1
million increments thereafter). In addition, the Company may convert the Aventis
Note on or prior to the Maturity Date in whole or in part (together with any
accrued and unpaid interest with respect to such principal amount) in amounts of
not less than $5.0 million (and in $1.0 million increments thereafter), into
fully paid and non-assessable shares of common stock (calculated as to the
nearest 1/1000 of a share). As of any date, the number of shares of common stock
into which the Aventis Note may be converted shall be determined by a formula
based on the then market value of the common stock (the "Conversion Price"),
subject to a minimum Conversion Price of $8.00 per share.
As of December 31, 2002, the Company has accrued interest of $0.384
million on the Aventis Note.
15. Income Taxes
The Company's tax provision is comprised of $0.184 million of current
state taxes related to the New Jersey Alternate Minimum Assessment (AMA) Tax.
Significant components of the Company's deferred tax assets as of December 31,
2002 and 2001 and related valuation reserves are presented below ($ thousands):
42
December 31,
----------------------
2002 2001
--------- ---------
Deferred tax assets:
Deferred compensation .............................. $ 6,152 $ 5,292
Net operating loss carryforwards ................... 68,407 53,414
Research and development credits ................... 52,630 5,554
Purchased technology and license fees .............. 4,850 4,519
Depreciation, net .................................. -- 18
Deferred revenue ................................... 20,500 --
New Jersey Alternate Minimum Assessment (AMA) Tax .. 184 --
Other, net ......................................... 212 246
--------- ---------
152,935 69,043
Valuation allowance for deferred tax assets ........ (152,775) (68,999)
--------- ---------
Net deferred tax assets ..................... 160 44
Deferred tax liabilities:
Patent expenses .................................... -- (44)
Depreciation, net .................................. (160) --
--------- ---------
(160) (44)
--------- ---------
Net deferred tax assets (liabilities) ....... $ -- $ --
========= =========
A full valuation allowance has been provided at December 31, 2002 and 2001
to reserve for deferred tax assets, as it appears more likely than not that net
deferred tax assets will not be realized.
At December 31, 2002, the Company has federal and state net operating loss
carryforwards of approximately $171.0 million and $95.0 million, respectively.
The difference between the federal and state tax loss carryforwards is primarily
attributable to the fact that the Company relocated from California to
Massachusetts in 1998, and from Massachusetts to New Jersey in 2000. Net
operating losses for state income tax purposes, previously generated in
California and Massachusetts, cannot be utilized in New Jersey. The federal tax
loss carryforwards will begin expiring in 2003, unless previously utilized. The
Company also has federal research and development tax credit carryforwards of
$52.6 million, which will begin expiring in 2003, unless previously utilized.
Federal and New Jersey tax laws limit the utilization of income tax net
operating loss and credit carryforwards that arise prior to certain cumulative
changes in a corporation's ownership resulting in a change of control of the
Company. The Company's future annual utilization of their net operating loss
carryforwards and research and development tax credits will be limited due
ownership changes which occurred previously.
16. Operating Leases
At December 31, 2002 and 2001, the Company maintained $0.507 million and
$0.365 million, respectively, in restricted cash balances with a financial
institution related to lease obligations on its corporate facilities and leased
fleet vehicles. Such restricted cash balances collateralize letters of credit
issued by the financial institution in favor of the Company's landlord with
respect to corporate facilities and GE Capital with respect to leased fleet
vehicles.
Future minimum obligations under operating leases at December 31, 2002 are
as follows ($ thousands):
Operating Leases
----------------
2003 ................................... $ 2,199
2004 ................................... 2,478
2005 ................................... 2,476
2006 ................................... 2,585
2007 ................................... 2,613
Thereafter ............................. 5,581
-------
Total ......................... $17,932
=======
43
17. Stockholders' Equity
Common Stock
In March 1999, the Company agreed to grant 50,000 shares of common stock
to Georgetown University (the "University") as consideration for services to be
performed pursuant to a clinical trials agreement (the "Agreement"). According
to the terms of the Agreement, the University was to perform studies of the
Company's leading antisense drug, Genasense(TM), on 24 patients, commencing in
April 1999. Pursuant to the terms of the Agreement, Genta would issue 25,000 of
the shares to the University upon the completion of the first 12 patient
studies, with the remaining shares to be issued upon the completion of the
remaining patients. During 2000, the first 12 patient studies were completed.
Accordingly, the estimated fair value of these shares of $0.363 million was
included as a charge to non-cash equity related compensation in the amounts of
$0.215 million and $0.148 million in 2000 and 1999, respectively. The Company
obtained Board approval in February 2003 for the issuance of the 50,000 shares
to the University, which will be issued in March 2003.
In August 1999, the Company acquired Androgenics Technologies, Inc.
("Androgenics"), a wholly owned entity of the Company's majority stockholder.
Androgenics is a company with license rights to a series of compounds invented
at the University of Maryland at Baltimore to treat prostate cancer. As
consideration for the acquisition, the Company paid $0.132 million in cash
(including reimbursements of pre-closing expenses and on-going research funding)
and issued warrants (with exercise prices ranging from $1.25 to $2.50 per share)
to purchase an aggregate of 1.0 million shares of common stock, 90% of which
will not become exercisable until the successful conclusion of certain
development milestones, ranging from the initial clinical patient trial through
the submission of an application for marketing authorization. As of December 31,
2002, the above-mentioned milestones have not been met.
In December 1999, the Company received net proceeds of approximately $10.4
million through the private placement of 114 units (the "1999 Private
Placement"). Each unit sold in the 1999 Private Placement consisted of (i)
33,333 shares of common stock, par value $.001 per share, and (ii) warrants to
purchase 8,333 shares of the Company's common stock at any time prior to the
fifth anniversary of the final closing (the "Warrants"). The Warrants are
convertible at the option of the holder into shares of common stock at an
initial conversion rate equal to $4.83 per share, subject to antidilution
adjustment. There were a total of 3.809 million shares of common stock, and
952,388 warrants issued in connection with the 1999 Private Placement. The
placement agent, a related party, received cash commissions equal to 7.5% of the
gross sales price, reimbursable expenses up to $0.125 million and warrants (the
"Placement Warrants") to purchase up to 10% of the units sold in the private
placement for 110% of the offering price per unit. During 2000, 57,147 penalty
warrants were issued to the 1999 private placement investors as a result of an
SEC registration statement not becoming effective within the prescribed 120 day
period after closing.
In January 2000, the Board of Directors approved an amendment to increase
the authorized common stock to 95.0 million shares from 65.0 million. In May
2000, shareholders approved this amendment at the annual meeting of
stockholders.
In April 2000, the Company entered into an asset purchase agreement with a
privately held corporation and a related party of Genta, in which the Company
acquired all assets, rights and technology to a portfolio of gallium containing
compounds, known as Ganite(TM), in exchange for common stock valued at $0.084
million. These compounds are used to treat cancer-related hypercalcemia.
In May 2000, the Company entered into a worldwide licensing arrangement
for a broad portfolio of patents and technologies that relate to antisense for
therapeutic and diagnostic applications. The arrangement includes grants of both
exclusive and non-exclusive rights from the licensor to Genta on a royalty-free
basis in return for cash and shares of common stock.
In September 2000, the Company sold 2.163 million shares of common stock
through a private placement and received proceeds of approximately $13.7
million, net of placement costs of $0.916 million. The placement agent received
cash commissions equal to 7.0% of the gross sales price. In connection with the
financing, 135,639 warrants valued at $0.867 million were issued to the
placement agent. In addition, 20,641 penalty warrants were subsequently issued
as a result of untimely filing of an SEC registration statement within the
prescribed 30-day period after closing.
44
In November 2000, the Company sold 4.285 million shares of common stock
through a private placement and received proceeds of approximately $26.8
million, net of placement costs of $1.633 million. The placement agents, one a
related party shareholder, received cash commissions equal to 7.0% of the gross
sales price.
In December 2000, the Company recorded $1.268 million as the fair value
for its commitment to issue 162,338 shares of common stock to a major university
as consideration for an amendment to a license agreement initially executed on
August 1, 1991, concerning antisense technology licensed by such university. The
amendment provided for a reduction in the royalty percentage rate to be paid to
the university based on the volume of sales of the Company's products containing
the antisense technology licensed from such university. These shares were issued
in the first quarter of 2001.
In November 2001, the Company sold 2.5 million shares of common stock
through a private placement and received proceeds of approximately $32.2
million, net of placement agent commissions of $0.420 million and related
expenses.
In March 2002, the Board of Directors approved an amendment to increase
the authorized common stock to 120.0 million shares from 95.0 million. In June
2002, shareholders approved this amendment at the annual meeting of
stockholders.
In May 2002, the Company sold 6.665 million shares of common stock to
Aventis in connection with the Collaborative Agreement (Note 12) and received
proceeds of $71.0 million, net of investment banking fees of $0.899 million and
related expenses.
Treasury Stock
In June 2002, the Company commenced a stock repurchase program, whereby up
to 5.0 million shares of its common stock may be repurchased by the Company at
prices deemed desirable by the Company. The Company uses the cost method to
account for treasury stock. Since initiating the stock repurchase program, the
Company has repurchased a total of 392,700 shares at an average cost of $6.3807
per share.
Preferred Stock
The Company has authorized 5.0 million shares of preferred stock and has
issued and outstanding 260,500 shares of Series A Convertible Preferred Stock as
of December 31, 2002. In 1999, the Board of Directors of the Company and certain
holders of common stock, Series A and D preferred stock approved, in accordance
with Delaware law, an amendment to the Company's Restated Certificate of
Incorporation to remove the "Fundamental Change" redemption right. The Company
has formally amended its Restated Certificate of Incorporation after the
expiration of the 20-day period provided for in Rule 14c-5 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Series A Preferred Stock
Each share of Series A Preferred Stock is immediately convertible, into
shares of the Company's common stock, at a rate determined by dividing the
aggregate liquidation preference of the Series A Preferred Stock by the
conversion price. The conversion price is subject to adjustment for
antidilution. As of December 31, 2002 and 2001, each share of Series A Preferred
Stock was convertible into 6.8334 and 7.1573 shares of common stock,
respectively.
In the event of a liquidation of the Company, the holders of the Series A
Preferred Stock are entitled to a liquidation preference equal to $50 per share,
or $13.025 million at December 31, 2002.
Series D Preferred Stock
In June 1997, the Company received gross proceeds of approximately $16.2
million (approximately $14.0 million net of placement costs) through the private
placement of 161.58 Premium Preferred Units(TM). Each unit sold in the private
placement consisted of (i) 1,000 shares of Premium Preferred Stock(TM), par
value $.001 per share,
45
stated value $100 per share (the "Series D Preferred Stock"), and (ii) warrants
to purchase 5,000 shares of the Company's common stock, (the "Class D Warrants")
at any time prior to the fifth anniversary of the final closing.
In May 1998, the Company requested, and subsequently received, consents
(the "Letter Agreements") from the holders of a majority of the Series D
Preferred Stock to waive the Company's obligation to use best efforts to obtain
the effectiveness of a registration statement with the SEC as to common stock
issuable upon conversion of Series D Preferred Stock and exercise of Class D
Warrants. In exchange, the Company agreed to waive the contractual "lock-up"
provisions to which such consenting holders were subject and which provisions
would have prevented the sale of up to 75% of their securities for a nine-month
period following the effectiveness of the registration statement. The Company
also agreed to extend the Reset Date referred to in the Certificate of
Designation of the Series D Preferred Stock to January 29, 1999 from June 29,
1998. In addition, through the Letter Agreements, the Company agreed to issue to
such holders warrants to purchase an aggregate of up to 807,900 shares of common
stock at $0.94375 per share, subject to certain anti-dilution adjustments,
exercisable until June 29, 2002. The Company had conditioned the effectiveness
of such consent on its acceptance by a majority of the Series D Preferred
Stockholders.
In March 2000, the Board of Directors approved the mandatory conversion of
all Series D Convertible Preferred Stock, par value $.001 per share ("Series D
Preferred Stock"), and the mandatory redemption of all outstanding Class D
Warrants. As a result of the conversion of the Series D Preferred Stock, the
Company issued approximately 14.4 million shares of common stock. The Company
realized approximately $1.4 million from the exercise of the Class D Warrants
and issued 2.0 million shares of common stock. During 2002, the remaining
155,640 Class D Warrants expired and are no longer redeemable at $0.10 per
warrant. No dividends have been accrued after January 29, 2000 due to the
mandatory conversion of the Series D Preferred Stock.
Subsequent to the Reset Date of January 29, 1999, Series D Preferred Stock
earned dividends, payable in shares of the Company's common stock, at the rate
of 10% per annum, based on a stated value of $140 per share. In calculating the
number of shares of common stock to be paid with respect to each dividend, each
share of common stock was deemed to have the value of the Conversion Price at
the time such dividend was paid. The Company was restricted from paying cash
dividends on common stock until such time as cumulative dividends on outstanding
shares of Series D Preferred Stock were paid. Additionally, the Company could
not declare a dividend to its common stockholders until such time that a special
dividend of $140 per share was paid on the Series D Preferred Stock. The Company
issued 953,000 and 924,519 shares of common stock as payment of dividends in
2000 and 1999, respectively. Accordingly, the Company provided dividends for
$5.1 million and $2.3 million for the years ended December 31, 2000 and 1999,
respectively, based on the fair value of the common stock. As a result of the
Mandatory Conversion of Series D Preferred Stock in June 2000, no further
dividends were paid or accrued.
In connection with certain warrants issued in 1998 related to Series D
Preferred Stock, the Company was contingently liable for $0.150 million in
commissions upon the exercise of the warrants, which were exercised in September
2001, resulting in commissions expense of $0.150 million.
46
Warrants
Summary information with respect to outstanding common stock warrants at
December 31, 2002 is presented below:
Potential
Exercise Warrant Common Expiration
Price Exercise Proceeds Equivalents Date
----- ----------------- ----------- ----
June 1997 Private Placement (Series D):
Placement & Advisory Warrants: ................ $0.86465 - $1.10 $ 3,037,995 3,355,477 June 2007
Androgenics Warrants (August 1999):
Vested December 31, 1999: ..................... $1.25 121,875 97,500 August 2006
Vest upon achievement of various milestones: .. $1.50 - $2.50 1,787,500 900,000 August 2004
December 1999 Private Placement (Common):
Related Party Warrants:
Common Stock: ............................. $3.30 1,060,739 321,436 December 2004
Warrants: ................................. $5.31 426,711 80,360 December 2004
Funding Warrants: ............................. $4.69716 2,629,282 559,760 December 2004
Penalty Warrants (May 2000): .................. $4.69716 213,791 45,515 May 2005
September 2000 Private Placement (Common):
Penalty Warrants: ............................. $6.75 91,550 13,563 September 2005
Placement Agent Warrants: ..................... $7.1500 310,117 43,373 September 2005
Placement Agent Warrants: ..................... $7.4250 289,330 38,967 September 2005
November 2000 Private Placement (Common):
Placement Agent Warrants: ..................... $7.4250 429,336 57,823 September 2005
----------- ---------
$10,398,226 5,513,774
=========== =========
In June 1997, in connection with the issuance of the Premium Preferred
Units, the placement agent received warrants (the "Placement Warrants") to
purchase up to 10% of the units sold in the Private Placement for 110% of the
offering price per unit. Furthermore, the Company had entered into a financial
advisory agreement with the placement agent pursuant to which the financial
advisor received certain cash fees and has received warrants (the "Advisory
Warrants") to purchase up to 15% of the units sold in the Private Placement for
110% of the offering price per unit. This financial advisory agreement
terminated in June 1999. The Placement Warrants and the Advisory Warrants expire
on June 29, 2007.
On August 30 1999, the Company acquired Androgenics Technologies, Inc.
("Androgenics"), a wholly owned entity of a related party shareholder. As
consideration for the acquisition, the Company paid $0.132 million in cash
(including reimbursements of pre-closing expenses and on-going research funding)
and issued warrants (with exercise prices ranging from $1.25 to $2.50 per share)
to purchase an aggregate of 1.0 million shares of common stock, 90% of which
will not become exercisable until the successful conclusion of certain
development milestones, ranging from the initial clinical patient trial through
the submission of an application for marketing authorization. The acquisition
was accounted for as a transfer of interest between companies under common
control. The cash and warrants were issued in exchange for 100% of the shares of
Androgenics and licensed technology and the assumption of a research and
development agreement with the University of Maryland at Baltimore. The 1.0
million warrants were accounted for as a deemed distribution based on their fair
value of $0.441 million. At December 31, 2002, none of the above-mentioned
milestones have been met and these warrants expire in August 2004.
On November 5, 1999, the Company issued 550,000 Bridge Warrants to the
Aries Funds in full settlement of the Company's obligation under a 1997 note and
warrant purchase agreement. The settlement of this obligation was accounted for
as a capital distribution, since the Aries Funds are a shareholder of the
Company. Accordingly, these warrants were accounted for at their fair value of
$1.8 million and included in accrued dividends at December 31, 1999. In
September 2001, these warrants were exercised for $0.204 million.
47
In December 1999, as described above, in connection with the 1999 Private
Placement, the placement agent, a related party shareholder, received warrants
(the "Related Party Warrants") to purchase up to 10% of the Units sold in the
Private Placement for 110% of the offering price per Unit. The Related Party
Warrants expire on December 23, 2004. The Related Party Warrants have a fair
value at the time of their issuance approximating $1.377 million, resulting in
no net effect to stockholders' equity. During 2001, also in connection with the
1999 Private Placement, 57,147 penalty warrants were issued, as a result of an
SEC registration statement not becoming effective within the prescribed 120 day
period after closing.
In September 2000, as discussed above, in connection with the September
2000 private equity placement, 135,639 warrants were issued to the placement
agent. The value of such warrants of $0.867 million was considered part of the
cost of the placement. In addition, 20,641 penalty warrants were issued as a
result of an untimely filing of an SEC registration statement within the
prescribed 30-day period after closing.
On March 27, 2000, as discussed above, the Board of Directors approved the
mandatory redemption of all outstanding Series D Preferred Stock and Class D
Warrants.
Common Stock Reserved
At December 31, 2002, an aggregate of 16,662,202 shares of common stock
were reserved for the conversion of preferred stock and the exercise of
outstanding options and warrants.
18. Employee Benefit Plans
1991 Plan
The Company's 1991 Stock Plan as amended (the "Plan") provides for the
sale of stock and the grant of stock options to employees, directors,
consultants and advisors of the Company. Options may be designated as incentive
stock options or non-statutory stock options; however, incentive stock options
may be granted only to employees of the Company. Options under the Plan have a
term of up to 10 years and must be granted at not less than the fair market
value or 85% of fair market value for non-statutory options on the date of
grant. Common stock sold and options granted pursuant to the Plan generally vest
over a period of four to five years.
Summary information with respect to the Company's 1991 Stock Plan is as
follows:
Weighted
Average
1991 Plan Shares Under Exercise Price
--------- Option Per Share
------------ --------------
Balance at January 1, 2000 .................... 107,568 $ 4.20
Granted ..................................... -- --
Exercised ................................... -- --
Canceled .................................... (180) 20.21
-------- ------
Balance at December 31, 2000 .................. 107,388 4.18
Granted ..................................... -- --
Exercised ................................... (100,000) 3.00
Canceled .................................... (3,000) 16.67
-------- ------
Balance at December 31, 2001 .................. 4,388 22.41
Granted ..................................... -- --
Exercised ................................... -- --
Canceled .................................... -- --
-------- ------
Balance at December 31, 2002 .................. 4,388 $22.41
======== ======
At December 31, 2002, all of these outstanding stock options were
exercisable. There are no shares of common stock available for grant or sale
under the 1991 Stock Plan, as it expired in 2001.
48
1998 Plan
Pursuant to the Company's 1998 Stock Plan as amended (the "1998 Plan"),
15.6 million shares have been provided for the grant of stock options to
employees, directors, consultants and advisors of the Company. In March 2002,
the Board of Directors approved an amendment to increase the total number of
shares of common stock authorized for issuance under the 1998 Plan to 15.6
million shares from 12.1 million. In June 2002, shareholders approved this
amendment at the annual meeting of stockholders. Options may be designated as
incentive stock options or non-statutory stock options; however, incentive stock
options may be granted only to employees of the Company. Options under the 1998
Plan have a term of up to 10 years and must be granted at not less than the fair
market value, or 85% of fair market value for non-statutory options, on the date
of the grant. Common stock sold and options granted pursuant to the 1998 Plan
generally vest over a period of four years.
Grants to Employees and Directors - 1998 Plan
During 1999, the Company granted to certain key employees, including the
new CEO and the Chairman of the Board, a total of 6,188,250 options with
exercise prices below the market value of the Company's common stock on the date
of grant. The Company recorded total deferred compensation of $2.018 million
attributable to the intrinsic value of these options, and amortized $0.471
million, $0.417 million, and $0.519 million as non-cash equity related
compensation expense in 2002, 2001, and 2000, respectively. In 2000, the Company
recorded additional deferred compensation of $0.064 million for the
remeasurement of the new CEO's options, of which $0.013 million, $0.013 million
and $0.027 million was amortized as non-cash equity related compensation expense
in 2002, 2001 and 2000, respectively.
During 2000, the Company granted to a certain employee a total of 5,000
options with an exercise price below the market value of the Company's common
stock on the date of grant. The Company recorded total deferred compensation of
$0.032 million attributable to the intrinsic value of these options, which was
amortized as non-cash equity related compensation expense in 2000. In addition,
certain employees were granted a total of 320,000 options that had an exercise
price below the market value of the Company's common stock on the date of hire.
Accordingly, the Company recorded total deferred compensation of $0.934 million
attributable to the intrinsic value of these options, and amortized $0.234
million and $0.293 million as non-cash equity related compensation expense in
2002 and 2001.
The Company's employees were granted 1,274,400, 1,392,300 and 558,362
stock options with exercise prices equal to fair market value on the date of
grant in 2002, 2001 and 2000, respectively.
Grants to Non-Employees - 1998 Plan
In connection with the JBL Agreement in May 1999 and pursuant to a related
lease termination agreement, the Company granted stock options to acquire
450,000 shares of common stock, to the owners of the building previously leased
to JBL, some of whom were also employees of JBL. Those options are accounted for
pursuant to guidelines in SFAS No. 123, using the Black-Scholes method and had
an approximate value of $1.0 million, which was charged against the gain on the
sale of JBL. In addition, a total of 245,500 options were granted to employees
of JBL upon the closing of the sale of JBL, in connection with an ongoing
service arrangement between Promega and the Company. These options were
accounted for pursuant to SFAS No. 123 using the Black-Scholes method. The
Company recorded $0.529 million and $1.175 million of deferred compensation
relative to these JBL options in 2000 and 1999, respectively, and amortized
$0.948 million and $0.756 million as non-cash equity related compensation
expense in 2000 and 1999, respectively.
In 1999, the Company also granted 50,000 options to purchase common stock
to certain consultants and advisors to the Company, for which the Company
recorded a total of $0.033 million and $0.136 million in deferred compensation
in 2000 and 1999, respectively, of which $0.069 million and $0.100 million was
amortized as non-cash equity related compensation expense in 2000 and 1999,
respectively.
In 2001, the Company also granted 50,000 options to purchase common stock
to members of Genta's Scientific Advisory Board, for which the Company recorded
a total of $3.049 million in deferred compensation, of which $0.297 million and
$0.257 million was amortized as non-cash equity related compensation expense in
2002 and 2001, respectively.
49
Summary information with respect to the Company's 1998 Stock Plan is as
follows:
Weighted
Average
Shares Under Exercise Price
1998 Plan Option Per Share
--------- ------------ --------------
Balance at January 1, 2000 .................. 9,602,882 $ 2.08
Granted ................................... 558,362 7.09
Exercised ................................. (461,067) 1.81
Canceled .................................. (3,750) 2.41
---------- ------
Balance at December 31, 2000 ................ 9,696,427 2.39
Granted ................................... 1,392,300 8.56
Exercised ................................. (2,363,983) 1.29
Canceled .................................. (429,500) 2.94
---------- ------
Balance at December 31, 2001 ................ 8,295,244 3.71
Granted ................................... 1,274,400 11.88
Exercised ................................. (871,632) 2.12
Canceled .................................. (198,400) 11.88
---------- ------
Balance at December 31, 2002 ................ 8,499,612 $ 4.89
========== ======
At December 31, 2002, options to purchase 5,493,987 shares of common stock
were exercisable at a weighted average exercise price of approximately $3.21 per
share and 3,359,706 shares of common stock were available for grant or sale
under the Plan.
1998 Non-Employee Directors' Plan
Pursuant to the Company's Non-Employee Directors' 1998 Stock Plan as
amended (the "Directors' Plan"), 3.3 million shares have been provided for the
grant of stock options to non-employee members of the Board of Directors. In
March 2002, the Board of Directors approved an amendment to increase the total
number of shares of common stock authorized for issuance under the Directors'
Plan to 3.3 million shares from 2.9 million and an amendment to change the
amount and the time when stock options are granted under the Directors' Plan. In
June 2002, shareholders approved both amendments at the annual meeting of
stockholders. Options under the Directors' Plan have a term of up to ten years
and must be granted at not less than the fair market value on the date of grant.
As amended and approved, each director shall be granted 20,000 options at the
first Board of Directors meeting they attend in person. Each option granted
shall become exercisable in full on the date of grant.
In May 1998, the Company granted stock options to purchase 1,725,000
shares of common stock, subject to shareholder approval, which was received in
July 1998. As a result of an increase in the stock price between May and July
1998, the Company recorded deferred compensation of $0.366 million, of which
$0.124 million and $0.153 million was amortized as non-cash equity related
compensation expense in 2000 and 1999, respectively.
In March 2000, four members of the Company's Board of Directors resigned.
The Company accelerated the vesting of their outstanding options and extended
the exercise period for one year. As a result, the Company recognized $6.610
million in non-cash equity related compensation expense.
In March 2000, the Company granted to a Company Director 25,000 options
with an exercise price below the market value of the Company's common stock on
the date of grant. The Company recorded total deferred compensation of $0.052
million attributable to the intrinsic value of these options, of which $0.001
million and $0.051 million was amortized as non-cash equity related compensation
expense in 2001 and 2000, respectively.
The Company's directors were granted stock options to purchase a total of
174,667, 170,769 and 450,000 shares of common stock in 2002, 2001 and 2000,
respectively, with an exercise price equal to the fair market value of the
common stock on the date of grant.
50
Summary information with respect to the Company's 1998 Non-Employee
Director's Plan is as follows:
Weighted
Average
Shares Under Exercise Price
1998 Directors' Plan Option Per Share
-------------------- ------------ --------------
Balance at January 1, 2000 .................. 2,075,000 $ 1.26
Granted ................................... 450,000 8.37
Exercised ................................. (871,887) 1.17
Canceled .................................. (32,813) 0.94
---------- ------
Balance at December 31, 2000 ................ 1,620,300 3.30
Granted ................................... 170,769 10.70
Exercised ................................. (501,400) 1.33
Canceled .................................. -- --
---------- ------
Balance at December 31, 2001 ................ 1,289,669 5.01
Granted ................................... 174,667 11.29
Exercised ................................. (475,000) 1.96
Canceled .................................. (125,000) 8.77
---------- ------
Balance at December 31, 2002 ................ 864,336 $ 7.41
========== ======
At December 31, 2002, options granted under the Directors' Plan to
purchase 771,836 shares of common stock were exercisable at a weighted average
exercise price of approximately $6.86 per share and 1,457,813 shares of common
stock were available for grant or sale under the Directors' Plan.
In 2000, a total of 1,008,362 options were granted pursuant to the 1998
Plan and the 1998 Directors Plan, of which 928,362 were granted at fair market
value with a weighted average grant date fair value of $7.76 per share, and
80,000 were granted below fair market value with a weighted average grant date
fair value of 8.49 per share. In 2001, a total of 1,563,069 options were granted
pursuant to the 1998 Plan and the 1998 Directors Plan, of which 1,513,069 were
granted at fair market value with a weighted average grant date fair value of
$8.53 per share, and 50,000 were granted below fair market value with a weighted
average grant date fair value of $6.64 per share. In 2002, a total of 1,449,067
options were granted pursuant to the 1998 Plan and the 1998 Directors Plan at
fair market value with a weighted average grant date fair value of $11.81 per
share. No options were granted below fair market value.
An analysis of all options outstanding as of December 31, 2002 is
presented below:
Weighted Average Weighted Weighted Average
Options Remaining Average Options Exercise Price of
Range of Prices Outstanding Life in Years Exercise Price Exercisable Options Exercisable
--------------- ----------- ------------- -------------- ----------- -------------------
$ 0.88 - $ 0.94 769,000 5.96 $ 0.92 769,000 $ 0.92
$ 2.41 - $ 5.92 5,398,262 7.31 4.03 4,325,885 2.72
$ 6.03 - $ 9.92 1,898,283 8.85 7.89 904,510 7.65
$10.00 - $15.85 1,160,401 9.00 13.02 223,926 12.26
$16.14 - $25.00 142,390 7.17 18.87 46,890 18.53
--------- ---------
9,368,336 6,270,211
========= =========
Pro Forma Disclosure
As permitted under SFAS No. 123, the Company has elected to follow APB
Opinion No. 25 and related interpretations in accounting for stock-based awards
to employees. Pro-forma information regarding net income is required by SFAS No.
123. This information is required to be determined as if the Company had
accounted for its stock-based awards to employees under the fair value method of
that statement. The fair value of options during the years ended December 31,
2002, 2001, and 2000, as reported below has been estimated at the date of grant
using the minimum value option pricing model with the following assumptions:
Years Ended December 31,
--------------------------------
2002 2001 2000
---- ---- ----
Risk-free interest rate .............. 2.8% 4.0% 6.3%
Dividend yield ....................... -- -- --
Expected life (years) ................ 4.0 4.5 4.5
Volatility ........................... 65% 69% 74%
51
All of the options issued during 2002 were issued with an exercise price
equal to market value on the date of grant. The weighted-average estimated fair
value of employee stock options granted during 2002 was $11.81 per share.
Employee Savings Plan
In January 2001, the Company initiated sponsorship of the Genta
Incorporated Savings and Retirement Plan, a defined contribution plan under
Section 401(K) of the Internal Revenue Code. The Company's matching contribution
to the Plan was $0.343 million and $0.144 million for 2002 and 2001,
respectively.
19. Commitments and Contingencies
Litigation and Potential Claims
JBL
In October 1996, JBL retained a chemical consulting firm to advise it with
respect to an incident of soil and groundwater contamination (the "Spill").
Sampling conducted at the JBL facility revealed the presence of chloroform and
perchloroethylenes ("PCEs") in the soil and groundwater at this site. A
semi-annual groundwater-monitoring program is being conducted, under the
supervision of the California Regional Water Quality Control Board, for purposes
of determining whether the levels of chloroform and PCEs have decreased over
time. The results of the latest sampling conducted by JBL show that PCEs and
chloroform have decreased in all but one of the monitoring sites. Based on an
estimate provided to the Company by the consulting firm, the Company accrued
$0.065 million in 1999 relating to remedial costs. Although the Company has
agreed to indemnify Promega in respect of this matter, in November 2001, the
Company received from the California Regional Water Quality Control Board
notification on the completion of site investigation and remedial action for
these sites. The notification stated that no further action related to this case
was required.
JBL was notified on October 16, 1998 from Region IX of the Environmental
Protection Agency ("EPA") that it had been identified as a potentially
responsible party ("PRP") at the Casmalia Disposal Site, which is located in
Santa Barbara, California. JBL has been designated as a de minimis PRP by the
EPA. Based on volume amounts from the EPA, the Company concluded that it was
probable that a liability had been incurred and accrued $0.075 million during
1998. In 1999, the EPA estimated that the Company would be required to pay
approximately $0.063 million to settle their potential liability. In December
2001, Genta received a revised settlement proposal from the EPA in the amount of
$0.033 million, the terms of the settlement with the EPA containing standard
contribution protection and release language and accordingly, reduced the
previous accrual. In January 2002, the Company accepted the proposal and paid
the $0.033 million as an offer to settle this matter. There can be no assurance,
however, that the EPA will not reject our settlement offer if there is not a
sufficient number of PRP's settling with the EPA.
Genta Europe
During 1995, Genta Pharmaceuticals Europe S.A. ("Genta Europe"), a
wholly-owned subsidiary of Genta, received funding in the form of a loan from
ANVAR, a French government agency, in the amount of FF5.4 million (or
approximately US$0.863 million at December 31, 2002) with a scheduled maturity
of December 31, 2002. Pursuant to the loan agreement with ANVAR, the utilization
of the proceeds was intended to fund research and development activities. In
October 1996, in connection with a restructuring of Genta's operations, Genta
terminated all scientific personnel of Genta Europe. In February 1998, ANVAR
asserted that Genta Europe was not in compliance with the ANVAR Agreement, and
that ANVAR might request immediate repayment of the loan. In July 1998, ANVAR
notified Genta Europe of its demand for accelerated repayment of the loan in the
amount of FF4.2 million (or approximately US$0.671 million at December 31, 2002)
and subsequently notified us that Genta was liable as a guarantor on the note.
At December 31, 2002, the Company has accrued a net liability of $0.212 million
related to the ANVAR Agreement, which management believes is adequate to provide
for that contingency.
In June 1998, Marseille Amenagement, a company affiliated with the city of
Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years rent. Following the filing of this claim and in
consideration of the request for
52
repayment of the loan from ANVAR, Genta Europe's Board of Directors directed the
management to declare a "Cessation of Payment." Under this procedure, Genta
Europe ceased operations and terminated its only remaining employee. A
liquidator was appointed by the Court to take control of any assets of Genta
Europe and to make payment to creditors. In December 1998, the Court in
Marseilles dismissed the case against Genta Europe and indicated that it had no
jurisdiction against Genta Incorporated. In August 1999, Marseille Amenagement
instituted legal proceedings against us in the Commercial Court of Marseilles,
alleging back rent and early termination receivables aggregating FF2.5 million
(or approximately US$0.374 million at September 30, 2002). On October 8, 2001,
the Commercial Court of Marseilles rendered their decision which declared the
action brought by Marseille Amenagement as admissible and ordered us to pay an
amount of FF1.9 million (or approximately US$0.284 million at September 30,
2002). The Company negotiated with Marseille Amenagement and agreed to settle
this matter for EUR0.140 million or $0.138 million, which was paid in September
2002. The settlement amount of $0.138 million was recorded as a reduction to the
Company's accrued net liability.
University of Pennsylvania
In October 2002, a licensing officer from the University of Pennsylvania
("UPenn") asserted a claim to a portion of the initial $40.0 million development
funding (Note 13) the Company received from Aventis pursuant to the
Collaborative Agreement. The Company has disputed this claim and has filed a
petition for binding arbitration for this matter, as provided in the original
licensing agreement between the Company and UPenn. At the current time the
Company cannot reasonably estimate the outcome of this claim; however, the
Company does not believe that this claim will have a material adverse impact on
the Company's financial results and liquidity. As such, the Company has not
reserved any amount for royalty payments that could be due to UPenn as a result
binding arbitration.
Purchase Commitments
At December 31, 2002, the Company was obligated for $27.5 million in drug
substance purchases during 2003 per an agreement entered into with Avecia
Biotechnology, Inc. ("Avecia") in December 2002 (the "Supply Agreement").
Pursuant to the Collaborative Agreement with Aventis (Note 13), the Company
anticipates that it will be reimbursed for at least 75% of these purchase
commitments after the drug is shipped to the clinical sites. In addition, the
Company has committed up to $5.0 million of advance financing to the drug
substance manufacturer, for facility expansion, which would be recovered with
interest through future payments determined as a function of drug substance
purchases to be made by Genta in the future. In 2003, the Company paid $0.392
million in advance financing.
20. Discontinued Operations
On March 19, 1999 (the "Measurement Date"), the Company entered into an
Asset Purchase Agreement (the "JBL Agreement") with Promega whereby its wholly
owned subsidiary Promega Biosciences Inc. would acquire substantially all of the
assets and assume certain liabilities of JBL for approximately $4.8 million in
cash, a 7% promissory note for $1.2 million, and certain pharmaceutical
development services in support of the Company's development activities. The
transaction was completed on May 10, 1999 (the "Disposal Date"), with a gain on
the sale of approximately $1.6 million being recognized, based upon the purchase
price of JBL, less its net assets and costs and expenses associated with the
sale, including lease termination costs of $1.1 million, JBL losses of $0.147
million, and legal, accounting, tax and other miscellaneous costs of the sale
approximating $0.653 million.
In connection with the JBL Agreement (Note 18), the Company granted stock
options during 1999 to acquire 450,000 shares of common stock, to owners of the
building previously leased to JBL, some of whom were JBL employees. These
options were accounted for pursuant to the Black-Scholes option-pricing model
and had an approximate value of $1.0 million, which was charged against the gain
on the sale of JBL. In addition, 245,500 options were granted to former
employees of JBL in connection with an ongoing service arrangement between
Promega and the Company. The fair value of these options amounting to $1.7
million was charged to continuing operations as non-cash equity related
compensation expense in the amount of $0.948 million and $0.757 million for the
years ended December 31, 2000 and 1999, respectively.
53
21. Subsequent Events
In March 2003, the Company and Aventis signed an amendment to the
Collaborative Agreement (Note 12), which establishes a line of credit, up to
$40.0 million, related to the development, manufacturing and commercialization
of Genasese(TM).
22. Selected Quarterly Financial Data (Unaudited)
Quarter Ended
-------------------------------------------
2002
($ thousands, except per share data) Mar. 31 Jun. 30 Sep. 30 Dec. 31
------- ------- ------- -------
Revenues ........................................ $ 5 $ 910 $ 1,325 $ 1,319
Operating expenses (1) .......................... 12,639 17,940 16,646 31,021
Loss from continuing operations ................. (12,626) (17,069) (15,112) (29,721)
Net loss ........................................ (12,626) (17,069) (15,112) (29,721)
Loss per common share from continuing operations:
Basic and diluted ............................. $ (0.19) $ (0.25) $ (0.21) $ (0.40)
Net loss per common share:
Basic and diluted ............................. $ (0.19) $ (0.25) $ (0.21) $ (0.40)
2001
($ thousands, except per share data) Mar. 31 Jun. 30 Sep. 30 Dec. 31
------- ------- ------- -------
Revenues ........................................ $ 70 $ 12 $ 23 $ 41
Operating expenses (2) .......................... 7,028 11,129 11,210 18,203
Loss from continuing operations ................. (7,459) (10,903) (10,420) (17,931)
Net loss ........................................ (7,459) (10,903) (10,420) (17,931)
Loss per common share from continuing operations:
Basic and diluted ............................. $ (0.15) $ (0.21) $ (0.19) $ (0.29)
Net loss per common share:
Basic and diluted ............................. $ (0.15) $ (0.21) $ (0.19) $ (0.29)
(1) Excludes equity related compensation expense
(2) Excludes equity related compensation expense and Promega settlement
expense (Note 5)
23. Supplemental disclosure of cash flows information and non-cash investing and
financing activities
Years Ended December 31,
------------------------
($ thousands) 2002 2001 2000
---- ---- ----
Preferred stock dividend accrued ............................. $ -- $ -- $3,443
Common stock issued in payment of dividends on preferred stock -- -- 8,577
Common stock issued in payment of patent portfolios .......... -- -- 2,484
Income receivable on securities to be sold ................... (3) 64
Market value change on short-term investments ................ 91 (97) 31
Stock warrants issued to placement agent ..................... -- -- 867
Common stock to be issued in payment of future royalties ..... -- -- 1,268
Common stock issued in payment of hiring bonus ............... 50 --
Interest paid during the year ended December 31, 2000 was $0.036 million.
No interest was paid in the years ended December 31, 2002 and 2001.
54
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Changes in Accountants
None.
Disagreements with Accountants
None.
Item 10. Directors and Executive Officers of the Registrant
The information required in this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than April 30,
2003 pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1034, as amended ("Regulation 14A").
Item 11. Executive Compensation
The information required in this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than April 30,
2003 pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required in this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than April 30,
2003 pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions
The information required in this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than April 30,
2003 pursuant to Regulation 14A.
Item 14. Controls and Procedures
Evaluation of disclosure controls and procedures. Genta's Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of the
Company's "disclosure controls and procedures" (as defined in Exchange Act Rules
13a-14(c) and 15-d and 14(c)) as of a date (the "Evaluation Date") within 90
days of the filing of this annual report, have concluded that as of the
Evaluation Date, our disclosure controls and procedures were adequate and
designed to ensure that material information relating to the Company would be
made known to them by others within the Company.
Changes in internal controls. There were no significant changes in our
internal controls or, to our knowledge, in other factors that could
significantly affect the Company's disclosure controls and procedures subsequent
to the Evaluation Date.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial statements
(1) Reference is made to the Index to Financial Statements under Item 8 of
this report on Form 10-K.
(2) All schedules are omitted because they are not required, are not
applicable, or the required information is included in the consolidated
financial statements or notes thereto.
55
(3) Reference is made to Paragraph (c) below for Exhibits required by Item
601 of Regulation S-K, including management contracts and compensatory plans and
arrangements.
(b) Reports on Form 8-K. The Company filed the following reports on Forms
8-K:
On June 12, 2002, the Company filed a Current Report on Form 8-K
disclosing a press release issued on June 11, 2002, regarding the Company's
commencement of a stock repurchase program, whereby up to 5,000,000 shares of
its common stock may be repurchased by the Company at prices deemed desirable by
the Company.
On April 29, 2002, the Company filed a Current Report on Form 8-K
disclosing a press release issued on April 29, 2002, regarding an agreement the
Company entered into with Aventis Pharmaceuticals Inc. to jointly develop and
commercialize Genasense(TM) (G3139), the Company's lead antisense compound.
On December 3, 2001, the Company filed a Current Report on Form 8-K
disclosing two press releases issued in November 2001 regarding the completion
of two private placements.
(c) Exhibits required by Item 601 of Regulation S-K with each management
contract, compensatory plan or arrangement required to be filed identified.
Exhibit
Number Description of Document
------ -----------------------
3(i).1(7) Restated Certificate of Incorporation of the Company.
3(i).2(9) Certificate of Designations of Series D Convertible
Preferred Stock of the Company.
3(i).3(15) Certificate of Amendment of Restated Certificate of
Incorporation of the Company.
3(i).4(15) Amended Certificate of Designations of Series D
Convertible Preferred Stock of the Company.
3(i).5(15) Certificate of Increase of Series D Convertible Preferred
Stock of the Company.
3(i).6(13) Certificate of Amendment of Restated Certificate of
Incorporation of the Company.
3(i).7(13) Certificate of Amendment of Restated Certificate of
Incorporation of the Company.
3(i).8(15) Certificate of Amendment of Restated Certificate of
Incorporation of the Company.
3(ii).1(13) Amended and Restated Bylaws of the Company.
4.1(1) Specimen Common Stock Certificate.
4.2(4) Specimen Series A Convertible Preferred Stock Certificate.
4.4(4) Form of Unit Purchase Agreement dated as of September 23,
1993 by and between the Company and the Purchasers of the
Series A Convertible Preferred Stock.
10.1(2) Amended and Restated 1991 Stock Plan of Genta
Incorporated.
10(iii)(A).1(13) Non-Employee Directors' 1998 Stock Option Plan.
10(iii)(A).2(13) 1998 Stock Incentive Plan.
10.2(1) Form of Indemnification Agreement entered into between the
Company and its directors and officers.
10.3(1) Preferred Stock Purchase Agreement dated September 30,
1991 and Amendment Agreement dated October 2, 1991.
56
10.4(1)** Development, License and Supply Agreement dated February
2, 1989 between the Company and Gen-Probe Incorporated.
10.5(3)** Common Stock Transfer Agreement dated as of December 15,
1992, between the Company and Dr. Jacques Gonella.
10.6(3) Consulting Agreement dated as of December 15, 1992,
between the Company and Dr. Jacques Gonella.
10.7(3)** Common Stock Transfer Agreement dated as of December 15,
1992, between the Company and Jagotec AG.
10.8(3)** Collaboration Agreement dated as of January 22, 1993,
between Jobewol Investments B.V. (now known as Genta Jago
Technologies B.V.) and Gensia, Inc.
10.9(5) Form of Purchase Agreement between the Company and certain
purchasers of Common Stock.
10.10(5) Common Stock Purchase Warrant dated May 8, 1995 between
the Company and Index Securities S.A.
10.11(6)** Restated Joint Venture and Shareholders Agreement dated as
of May 12, 1995 between the Company, Jagotec AG, Jago
Holding AG, Jago Pharma AG and Genta Jago Technologies
B.V.
10.12(6)** Limited Liability Company Agreement of Genta Jago Delaware
LLC dated as of May 12, 1995 between GPM Generic
Pharmaceuticals Manufacturing Inc. and the Company.
10.13(6)** Restated Transfer Restriction Agreement dated as of May
12, 1995 between the Company and Jagotec AG.
10.14(6)** Transfer Restriction Agreement dated as of May 12, 1995
between the Company, GPM Generic Pharmaceuticals
Manufacturing Inc. and Jago Holding AG.
10.15(6)** Common Stock Transfer Agreement dated as of May 30, 1995
between the Company and Jago Finance Limited.
10.16(6)** Stockholders' Agreement dated as of May 30, 1995 between
the Company, Jagotec AG, Dr. Jacques Gonella and Jago
Finance Limited.
10.17(6)** Restated GEOMATRIX Research and Development Agreement
dated as of May 12, 1995 between Jago Pharma AG, the
Company, Genta Jago Delaware, L.L.C. and Genta Jago
Technologies B.V.
10.18(6)** Restated Services Agreement dated as of May 12, 1995
between Jago Pharma AG, the Company, Genta Jago Delaware,
L.L.C. and Genta Jago Technologies B.V.
10.19(6)** Restated Working Capital Agreement dated as of May 12,
1995 and Amendment No. 1 to Restated Working Capital
Agreement dated as of July 11, 1995 between the Company
and Genta Jago Technologies B.V.
10.20(6)** Restated Promissory Note dated as of January 1, 1994
between Genta Jago Technologies B.V. and the Company.
10.21(6)** Restated License Agreement dated as of May 12, 1995
between Jagotec AG and the Company.
10.22(6)** Restated GEOMATRIX License Agreement dated as of May 12,
1995 between Jagotec AG and Genta Jago Technologies B.V.
10.23(6)** GEOMATRIX Manufacturing License Agreement dated as of May
12, 1995 between Jagotec AG and Genta Jago Technologies
B.V.
10.24(6)** Restated GEOMATRIX Supply Agreement dated as of May 12,
1995 between Jago Pharma AG and Genta Jago Technologies
B.V.
57
10.25(7) Common Stock Purchase Warrant dated December 14, 1995
between the Company and Lease Management Services, Inc.
10.26(8) Common Stock Purchase Warrant for 375,123 shares of Common
Stock issued to Lyon & Lyon.
10.27(8) Common Stock Purchase Warrant for 100,000 shares of Common
Stock issued to Michael Arnouse.
10.28(9) Note and Warrant Purchase Agreement dated as of January
28, 1997 among the Company, The Aries Fund and The Aries
Domestic Fund, L.P.
10.29(9) Letter Agreement dated January 28, 1997 from the Company
to The Aries Fund and The Aries Domestic Fund, L.P.
10.30(9) Senior Secured Convertible Bridge Note of the Company
dated January 28, 1997 for $1.050 million issued to The
Aries Domestic Fund, L.P.
10.31(9) Senior Secured Convertible Bridge Note of the Company
dated January 28, 1997 for $1.950 million issued to The
Aries Trust.
10.32(9) Class A Bridge Warrant for the Purchase of 2,730,000
shares of Common Stock issued to The Aries Domestic Fund,
L.P.
10.33(9) Class A Bridge Warrant for the Purchase of 5,070,000
shares of Common Stock issued to The Aries Trust.
10.34(9) Class B Bridge Warrant for the Purchase of 4,270,000
shares of Common Stock issued to The Aries Domestic Fund,
L.P.
10.35(9) Class B Bridge Warrant for the Purchase of 7,930,000
shares of Common Stock issued to the Aries Trust.
10.36(9) Security Agreement dated as of January 28, 1997 between
the Company and Paramount Capital, Inc., as agent for the
holders of the Company's Senior Secured Convertible Bridge
Notes
10.37(9) Letter Agreement dated January 28, 1997 among the Company,
Paramount Capital, Inc., The Aries Domestic Fund, L.P. and
The Aries Trust.
10.38(10) Executive Compensation Agreement dated as of January 1,
1996 between the Company and Howard Sampson.
10.39(10) Collaboration Agreement dated December 26, 1995 between
the Company and Johnson & Johnson Consumer Products, Inc.
10.40(10) Assignment Agreement (of Gensia Inc.'s rights in the
Collaboration Agreement between Genta Jago and Gensia,
Inc., dated January 23, 1993) to Brightstone Pharma, Inc.,
dated October 1, 1996 among Gensia, Inc., Genta Jago
Technologies B.V., Brightstone Pharma, Inc., and
SkyePharma PLC.
10.41(10)** Development and Marketing Agreement effective February 28,
1996 between Apothecon, Inc. and Genta Jago Technologies
B.V.
10.42(10)** License Agreement effective February 28, 1996 between
Apothecon, Inc. and Genta Jago Technologies B.V.
10.43(10)** Option, Development & Sub-License Agreement (the Company
has requested confidential treatment for the name of this
element) dated as of October 31, 1996 between Genta Jago
Technologies B.V. and Krypton Ltd.
58
10.44(10)** Development and Sub-License Agreement (the Company has
requested confidential treatment for the name of this
element) dated as of October 31, 1996 between Genta Jago
Technologies B.V. and Krypton Ltd.
10.45(10)** Development and Sub-License Agreement (the Company has
requested confidential treatment for the name of this
element) dated as of October 31, 1996 between Genta Jago
Technologies B.V. and Krypton Ltd.
10.46(10)** Development and Sub-License Agreement/Diclofenac dated as
of October 31, 1996 between Genta Jago Technologies B.V.
and Krypton Ltd.
10.47(10)** Development and Sub-License Agreement/Naproxen dated as of
October 31, 1996 between Genta Jago Technologies B.V. and
Krypton Ltd.
10.48(10)** Development and Sub-License Agreement/Verapamil dated as
of October 31, 1996 between Genta Jago Technologies B.V.
and Krypton Ltd.
10.49(10)** License Termination Agreement dated December 2, 1996
between the Company and Wilton Licensing AG and the
Company.
10.50(10) Contract for Regional Aid for Innovation, effective July
1, 1993, between L'Agence Nationale de Valorisation de la
Recherche, Genta Pharmaceuticals Europe S.A. and the
Company.
10.51(11) Warrant for the Purchase of 32,500 shares of Common Stock
of the Company, issued to The Aries Fund.
10.52(11) Warrant for the Purchase of 17,500 shares of Common Stock
of the Company, issued to The Aries Domestic Fund, L.P.
10.53(11) Amended and Restated Amendment Agreement dated June 23,
1997 among the Company and The Aries Fund and The Aries
Domestic Fund L.P.
10.54(11) Amended and Restated Senior Secured Convertible Bridge
Note for $1.050 million issued to The Aries Domestic Fund,
L.P.
10.55(11) Amended and Restated Senior Secured Convertible Bridge
Note for $1.950 million issued to The Aries Trust.
10.56(11) New Class A Bridge Warrant for the Purchase of 350,000
shares of Common Stock issued to The Aries Domestic Fund,
L.P.
10.57(11) New Class A Bridge Warrant for the Purchase of 650,000
shares of Common Stock issued to The Aries Trust.
10.58(11) New Class B Bridge Warrant for the Purchase of 350,000
shares of Common Stock issued to The Aries Domestic Fund,
L.P.
10.59(11) New Class B Bridge Warrant for the Purchase of 650,000
shares of Common Stock issued to The Aries Trust.
10.60(11) Consulting Agreement dated as of August 27, 1997 by and
between the Company and Paul O.P. Ts'o, Ph.D.
10.61(11) Consulting Agreement dated as of August 27, 1997 by and
between the Company and Sharon B. Webster, Ph.D.
10.62(15) Warrant Agreement, dated as of May 20, 1997, among the
Company, ChaseMellon Shareholder Services, L.L.C., as
warrant agent, and Paramount Capital, Inc.
59
10.63(12) Severance Agreement, Release and Covenant Not to Sue dated
May 5, 1998 between Thomas H. Adams, Ph.D. and the
Company.
10.64(12) Consulting Agreement dated May 5, 1998 between the Company
and Thomas H. Adams, Ph.D.
10.65(14) Asset Purchase Agreement, dated as of March 19, 1999,
among JBL Acquisition Corp., JBL Scientific Incorporated
and the Company.
10.66(14) Agreement of Sublease dated March 31, 1999 between
Interneuron Pharmaceuticals, Inc. and the Company
10.67(15) Warrant Agreement, dated as of December 23, 1999, among
the Company, ChaseMellon Shareholder Services, L.L.C., as
warrant agent, and Paramount Capital, Inc.
10.68(15) Separation Letter Agreement dated December 1, 1999 from
the Company to Kenneth G. Kasses, Ph.D.
10.69(15) Amendment No. 1 to Stock Option Agreement, dated as of
December 1, 1999, to the Stock Option Agreement, dated as
of May 28, 1998, between the Company and Kenneth G.
Kasses, Ph.D.
10.70(15) Employment Letter Agreement, dated as of October 28, 1999,
from the Company to Raymond P. Warrell, Jr., M.D.
10.71(15) Stock Option Agreement, dated as of October 28, 1999,
between the Company and Raymond P. Warrell, Jr., M.D.
10.72(15) Letter Agreement, dated March 4, 1999, from SkyePharma Plc
to the Company.
10.73(16) Subscription Agreement executed in connection with the
November 26, 2001 sale of common stock to Franklin
Small-Mid Cap Growth Fund, Franklin Biotechnology
Discovery Fund, and SF Capital Partners Ltd., and the
November 30, 2001 sale of common stock to SF Capital
Partners Ltd.
10.74(16) Employment Letter Agreement, dated as of March 27,2001,
from the Company to Loretta M. Itri, M.D.
10.75(16) Employment Letter Agreement, dated as of July 24, 2001,
from the Company to Alfred J. Fernandez
10.76(16) Agreement of Lease dated June 28, 2000 between The Connell
Company and the Company
10.77(16) Agreement of Sublease dated August 13, 2001 between
Expanets, Inc. and the Company
10.78(17)** U.S. Commercialization Agreement dated April 26, 2002, by
and between Genta Incorporated and Aventis Pharmaceuticals
Inc.
10.79(17)** Ex-U.S. Commercialization Agreement, dated April 26, 2002,
by and between Genta Incorporated and Garliston Limited
10.80(17)** Global Supply Agreement, dated April 26, 2002, by and
among Genta Incorporated, Aventis Pharmaceuticals Inc. and
Garliston Limited
10.81(17)** Securities Purchase Agreement, dated April 26, 2002, by
and between Genta Incorporated and Garliston Limited
10.82(17) Standstill and Voting Agreement, dated April 26, 2002, by
and between Genta Incorporated and Garliston Limited
10.83(17) Registration Rights Agreement, dated April 26, 2002, by
and between Genta Incorporated and Garliston Limited
60
10.84(17) Convertible Note Purchase Agreement, dated April 26, 2002,
by and between Genta Incorporated and Garliston Limited
10.85(17)** 5.63% Convertible Promissory Note, due April 26, 2009
10.86(17)** Subordination Agreement, dated April 26, 2002, by and
between Genta Incorporated and Garliston Limited
10.87(17) Amendment of Lease, dated June 19, 2002 between The
Connell Company and the Company
10.88(18)* Manufacture and Supply Agreement, dated December 20, 2002,
between Genta Incorporated and Avecia Biotechnology Inc.
22.1(10) Subsidiaries of the Registrant.
23.1(16) Consent of Deloitte & Touche LLP, Independent Auditors,
dated March 29, 2002
23.2(18) Consent of Deloitte & Touche LLP, Independent Auditors,
dated March 31, 2003
99.1(18) Certification by Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002.
99.2(18) Certification by Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002.
----------
* The Company has requested confidential treatment of certain portions of
this exhibit.
** The Company has been granted confidential treatment of certain portions of
this exhibit.
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1, Registration No. 33-43642.
(2) Exhibit 10.1 is incorporated herein by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-8, Registration No. 33-85887.
(3) Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-3, Registration No. 33-58362.
(4) Incorporated by reference to the exhibits to the Company's Current Report
on Form 8-K dated as of September 24, 1993, Commission File No. 0-19635.
(5) Incorporated by reference to the exhibits of the same number to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995, Commission File No. 0-19635.
(6) Incorporated by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q/A for the quarter ended June 30, 1995, Commission File
No. 0-19635.
(7) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, Commission File
No. 0-19635.
(8) Exhibits 10.26 and 10.27 are incorporated herein by reference to Exhibits
4.1 and 4.2, respectively, to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, Commission File No. 0-19635.
(9) Exhibits 3(i).2, 10.28, 10.29, 10.30, 10.31, 10.32, 10.33, 10.34, 10.35,
10.36 and 10.37 are incorporated herein by reference to Exhibits 3(i),
10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8, 10.9 and 10.10,
respectively, to the Company's Current Report on Form 8-K filed on
February 28, 1997, Commission File No. 0-19635.
(10) Exhibits 10.38, 10.39, 10.40, 10.41, 10.42, 10.43, 10.44, 10.45, 10.46,
10.47, 10.48, 10.49, 10.50 and 22.1 are incorporated herein by reference
to Exhibits 10.86, 10.87, 10.88, 10.89, 10.90, 10.91, 10.92, 10.93, 10.94,
10.95, 10.96, 10.97, 10.98 and 22.1, respectively, the Company's Annual
Report on Form 10-K (Amendment No. 1) for the year ended December 31,
1996, Commission File No. 0-19635.
61
(11) Exhibits 10.51, 10.52, 10.53, 10.54, 10.55, 10.56, 10.57, 10.58, 10.59,
10.60 and 10.61 are incorporated herein by reference to Exhibits 10.99,
10.100, 10.101, 10.102, 10.103, 10.104, 10.105, 10.106, 10.107, 10.108 and
10.109, respectively, to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, Commission File No. 0-19635.
(12) Exhibits 10.63 and 10.64 are incorporated herein by reference to Exhibits
10.1 and 10.2, respectively, to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998, Commission File No. 0-19635.
(13) Exhibits 3(i).6, 3(i).7, 3(ii).1, 10(iii)(A).1 and 10(iii)(A).2 are
incorporated herein by reference to Exhibits 3(i).4, 3(i).3, 3(ii).1,
10(iii)(A).1 and 10(iii)(A).2, respectively, to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, Commission File
No. 0-19635.
(14) Exhibits 10.65 and 10.66 are incorporated herein by reference to Exhibits
10.2 and 10.1, respectively, to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, Commission File No. 0-19635.
(15) Exhibits 3(i).3, 3(i).4, 3(i).5, 3(i).8, 10.62, 10.67, 10.68, 10.69,
10.70, 10.71 and 10.72 are incorporated herein by reference to Exhibits
3(i).3, 3(i).4, 3(i).5, 3(i).8, 10.62, 10.67, 10.68, 10.69, 10.70, 10.71
and 10.72 respectively, to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, Commission File No. 0-19635.
(16) Exhibits 10.73, 10.74, 10.75, 10.76, 10.77 and 23.1 are incorporated
herein by reference to Exhibits 10.73, 10.74, 10.75, 10.76, 10.77 and 23.1
respectively, to the Company's Annual Report on Form 10-K for the year
ended December 31, 2001, Commission File No. 0-19635.
(17) Exhibits 10.78, 10.79, 10.80, 10.81, 10.82, 10.83, 10.84, 10.85, 10.86 and
10.87 are incorporated herein by reference to Exhibits 10.1, 10.2, 10.3,
10.4, 10.5, 10.6, 10.7, 10.8, 10.9 and 10.10 respectively, to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2002, Commission File No. 0-19635.
(18) Filed herewith.
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this
31st day of March 2003.
Genta Incorporated
/s/ RAYMOND P. WARRELL, JR., M.D.
---------------------------------------
Raymond P. Warrell, Jr., M.D.
Chairman, President, Chief Executive
Officer and Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ RAYMOND P. WARRELL, JR., M.D. Chairman, President, Chief Executive March 31, 2003
--------------------------------- Officer and Principal Executive Officer
Raymond P. Warrell, Jr., M.D.
/s/ WILLIAM P. KEANE Principal Financial and Accounting March 31, 2003
--------------------------------- Officer, Vice President
William P. Keane
/s/ BETSY MCCAUGHEY Director March 31, 2003
---------------------------------
Betsy McCaughey, Ph.D.
/s/ JEROME GROOPMAN, M.D. Director March 31, 2003
---------------------------------
Jerome Groopman, M.D.
/s/ DANIEL D. VON HOFF, M.D. Director March 31, 2003
---------------------------------
Daniel D. Von Hoff, M.D.
/s/ HARLAN J. WAKOFF Director March 31, 2003
---------------------------------
Harlan J. Wakoff
/s/ DOUGLAS G. WATSON Director March 31, 2003
---------------------------------
Douglas G. Watson
/s/ MICHAEL S. WEISS Director March 31, 2003
---------------------------------
Michael S. Weiss
/s/ PATRICK J. ZENNER Director March 31, 2003
---------------------------------
Patrick J. Zenner
63
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Raymond P. Warrell, Jr., M.D., certify that:
1. I have reviewed this annual report on Form 10-K of Genta Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly represent in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: March 31, 2003
------------------------
/s/ RAYMOND P. WARRELL, JR., M.D.
------------------------------------
Name: Raymond P. Warrell, Jr., M.D.
Title: Chief Executive Officer
64
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, William P. Keane, certify that:
1. I have reviewed this annual report on Form 10-K of Genta Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly represent in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
d) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
e) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: March 31, 2003
--------------------
/s/ WILLIAM P. KEANE
----------------------------------
Name: William P. Keane
Title: Chief Financial Officer
65